Introduction:
As the international financial crisis points to the collapse of laissez faire
economics and discredits market fundamentalism, Africa and the global South
should break free from failed neoliberal policies and the institutions that have
promoted them and define their own paths to development, writes Demba Moussa
Dembele, director of the Forum for African Alternatives.
The crisis provides fundamental lessons, says Dembele, the first being that
markets do not have self-correcting mechanisms, and that market failures are not
less costly than state failures. Secondly, "the collapse of the neoliberal dogma
is a major blow to the international financial institutions. What is even more
devastating to them is the reversal of most of the policies they had advocated
for decades in Africa and in other ‘poor’ countries under the now discredited
SAPs (structural adjustment programmes). The IMF and the World Bank are
supporting fiscal stimulus – expansionary fiscal policies – in the United
States, Europe and Asia."
Thirdly, its clear that the state remains a central player in solving crises
caused by markets, and is not the sole cause of economic and social problems in
Africa that neoliberal policy has categorised it as. Dembele notes that many
development agencies do not have Africa’s best interests at heart, citing
failures to cancel debt and to dedicate 0.7 per cent of GDP to official
development assistance budgets, along with restricting the access of African
exports to Western markets. In contrast, US$4 trillion was made available in
matter of weeks to tackle the international financial crisis, 45 times the total
aid budget of the European Union and the USA for 2007.
Dembele calls for Africa and Africans to forget neoliberal capitalism and
explore new paths to ‘an endogenous development for and by its people’,
recommending that Africa should restore capital controls and reject unfavorable
trade liberalization policies, as well as reversing the privatization of key
sectors and natural resources. Likewise, the author calls for African
governments to restore the role of the state in the development process, reclaim
the debate on African development while learning from the experiences of other
countries in the global South, and to build an alternative means for financing
development including South–South co-operation and the integration of Diaspora
remittances into a coherent strategy.
The global financial crisis: Lessons and responses from Africa
The international financial crisis reflects the collapse of laissez-faire
economics and the growing discredit of market fundamentalism. What was being
hailed yesterday as the only road to ‘growth and prosperity’ is now under fierce
attack by the same countries and institutions that promoted it for years. In
leading developed countries, states have drawn up massive rescue plans to bail
out industries or nationalize banks and financial institutions.
FUNDAMENTAL LESSONS OF THE FINANCIAL CRISIS
The crisis has shattered all the myths associated with the neoliberal paradigm.
It has provided fundamental lessons for Africa and the global South. These
lessons should lead to one simple conclusion: a rejection of failed and
discredited neoliberal policies and the institutions that promoted them over the
last three decades, namely the IMF and the World Bank.
1) The collapse of market fundamentalism
The first important lesson is the collapse of market fundamentalism. The crisis
shows that the emperor has no clothes anymore. Market fundamentalists claim that
markets should be left to their own devices because whatever happens, they have
self-correcting mechanisms and that market failures are less costly than state
failures. But the reality shows otherwise. The devastations caused by the
financial crisis are staggering, as evidenced by the trillions of dollars needed
to clean up the mess they spread to the entire globe. And these costs will be
ultimately borne by the taxpayer, that is, the state.
Even the most zealous market fundamentalists must have lost their illusions
about the ability of markets to discipline themselves and correct their own
mistakes. Markets are not impersonal forces, believed to be all powerful and
placed above human beings. They are man-made forces whose decisions are
ultimately influenced by selfish vested interests.
With the collapse of market fundamentalism, it is the legitimacy of the entire
neoliberal system that is being questioned. Even some of its most fervent
ideologues are now in disarray. Some of its most sacred myths and dogmas are
falling apart. Things that were unthinkable just a few months ago have become a
daily reality. Nationalizations of banks and financial institutions, rescue
plans for industrial companies, strong state intervention everywhere and attacks
against ‘unbridled capitalism’; all this is being observed in Europe and even in
the United States. The ghosts of Keynes and even Marx are coming back to haunt
Western leaders and neoliberal ideologues.[1]
2) Further discredit of the IMF and World Bank
The collapse of the neoliberal dogma is a major blow to the international
financial institutions. What is even more devastating to them is the reversal of
most of the policies they had advocated for decades in Africa and in other
‘poor’ countries under the now discredited SAPs (structural adjustment
programmes). The IMF and the World Bank are supporting fiscal stimulus –
expansionary fiscal policies – in the United States, Europe and Asia. They are
supporting rescue plans, including nationalization of private banks and other
financial institutions. The priority of the day is no longer inflation but jobs
and economic recovery.
Since the 1980s, all these policies were denied African countries in the name of
market fundamentalism. Does this mean that what is good and acceptable for
Western countries is not for African countries? Whatever the case, one thing is
clear: neoliberal policies advocated by the IMF and the World Bank have never
been built on ‘scientific’ arguments but on purely ideological grounds in order
to protect and promote the interests of global capitalism. All the neoliberal
stuff peddled by these institutions in the South is crumbling with their own
benediction. What African countries had been told and forced to implement was
standing on shaky ground.
There is no doubt that the financial crisis and the other crises are a major
blow to the credibility of these institutions and will deepen their crisis of
legitimacy, even if they are attempting to use these crises to make a comeback,
like the IMF.[2] But whatever happens, things will never be the same again.
One major lesson for Africa is that they should no longer trust the IMF and
World Bank and for that reason they should not listen to their ‘advice’ anymore.
This is why it is incomprehensible and even a shame to see African countries
hold a meeting with the IMF in Tanzania with the aim of building ‘a new
partnership’. In the statement issued after that meeting, African countries are
calling on the IMF to extend its ‘experience and expertise’ as if African
leaders and policy makers had not learned enough lessons from the experience of
nearly 30 years of ruinous IMF policies from SAPs to PRSPs (poverty reduction
strategy papers).
3) The state as central player in the development process
Another major illustration of the crisis of legitimacy of the neoliberal system
is the strong recognition that the state is a central player in solving the
crises brought about by unfettered markets, and it will remain a key actor in
the development process, whether in developed or developing countries. Some may
recall former US President Ronald Reagan’s assertion in the 1980s that the state
was ‘part of the problem, not of the solution’. This signaled the era of massive
deregulation and the assault on the state and public service and ownership. It
opened the door to some of the most sweeping and devastating structural
adjustment policies in Africa. African states came under vicious attacks as
‘predatory’, ‘wasteful’, ‘rent-seeking’, ‘corrupt’ and ‘inept’.[3]
All these qualifications were intended to discredit the state as an agent of
economic and social development and the experience of state-led development that
took place in the post-independence period up to the late 1970s.[4] Despite the
remarkable achievements of that period, the IMF and World Bank used every
possible negative example to blame the state for all Africa’s crises. They told
African leaders that the state was the main, if not the unique, cause of the
economic and social crisis in Africa.[5] Accordingly, the solutions they
advocated included withering away the state by eliminating or limiting its
intervention in the economic sphere. Hence the imposition of fiscal austerity
programs, the downsizing of the civil service and the dismantling of the public
sector with the privatization of state-owned companies.
But the financial and food crises show that the state is an indispensable and
indisputable agent of development and part of the solution to the current global
crises. It is deregulation and market fundamentalism that are part of the
problem.
4) Africa cannot count on so-called ‘development partners’
For years, Western countries and IFIs (international financial institutions)
failed to heed calls to cancel the illegitimate debt of African countries – debt
that has been paid many times over – and that was exacting much suffering on
millions of people by virtue of a massive transfer of wealth from ‘poor’ to
wealthy countries. For over 35 years, Western countries have failed to dedicate
0.7 per cent of their GDP to official development assistance (ODA). Over the
last several years, ODA figures have been declining, or stagnating at best,
despite repeated claims that commitments would be met. On top of that, it is now
a fact that most African countries will not achieve the Millennium Development
Goals (MDGs), in large part due to lower external funding and declining export
revenues as a result of restricted access of African exports to Western
countries’ markets.
The failure to fulfill commitments toward Africa and other countries is in sharp
contrast to Western countries’ mobilization of more than US$4 trillion to bail
out or nationalize their banks and financial institutions and rescue their
companies in order to save jobs and mitigate the impact of the crisis on their
population. And all this money was mobilized in just a few weeks! This massive
bailout was 45 times the US$91 billion promised by the European Union and the
United States for foreign ‘aid’ in 2007. The bailout of AIG alone (US$152
billion) is even higher than this ‘aid’.[6]
FGM on return in Ethiopia's Afar region
