Friday, December 14, 2007

The accomplishments of autistic economics

Orthodox economic education, ideology and commercial interests: Relationships that inhibit poverty alleviation by James Angresano

"Since the mid 1940s the vast majority of people in most poor countries have experienced no improvement in their material and social wellbeing. Virtually all these countries, however, have received extensive financial aid and a plethora of development advice, particularly from the Word Bank, International Monetary Fund (IMF) and the United States Agency for International Development (USAID). Former World Bank senior economist William Easterly notes that the 'West has spent $2.3 trillion on foreign aid over the last five decades' without appreciably improving the wellbeing of a majority of the poor (Easterly 2006, 4). According to the World Development Report 2006, not only have poverty conditions in these countries failed to improve appreciably, but the global inequality gap has been 'widening for the slow-growing poorest countries' (Ferreira and Walton, 34). Meanwhile, in China (Angresano 2005), India, and other countries in East Asia that have not followed the World Bank and IMF development 'recipes' substantial proportions of the lower income groups have been lifted out of poverty.
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There is a strong free market ideological bias in the orthodox economic graduate program. The systematized body of orthodox theory validates a particular institutional structure (a 'free market economy'), and the corresponding values inherent in this structure. 'Economics remains caught in a set of assumptions which not only serve enormously important ideological purposes, but also offers little help in understanding the modern world.' This ideology is 'neo-liberalism.' (Mancias, 39). Further, when graduates of orthodox economics programs join one of the international agencies, particularly the World Bank, what they learned in graduate school is reinforced through Bank training programs (Goldman 2005, 231-232). World Bank and IMF economists tend to become ideologically committed to defending the free market economy, and this commitment represents the singular most defining and important form of their self-identification. They become locked into defending an idealized economy that they presume exists in a pure and undiluted state and is superior to any alternative type of economy.
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A growing body of literature (Ellerman; Easterly 2006; Goldman 2005, Juhasz ; Kinzer; Stiglitz, 2) has identified aspects of the combined and iterative impact of the 'set of elite power networks' (Goldman 2006, 12) - that is, the narrow, ideological graduate economic education, the ideological foreign policy interests of the USA and UK, and the commercial interests of multinational corporations and international banking firms - in shaping the orthodox development perspective and corresponding policies held by the international agencies.
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Mounting evidence indicates that in poor countries '[o]rthodox policies (based on neoclassical assumptions) have almost invariably resulted in no growth advantage, higher volatility, increased inequality, little social progress, higher unemployment and financial crises' (Mehrotra, Santosh & Delamonica, 21). In the typical poor country there is no positive correlation between their having received an increase in such "aid" (defined as a combination of financial aid and the standard World Bank and IMF package [the 'Washington Consensus'] and an improvement in either their GDP growth rates or poverty reduction. One study argues 'that a higher IMF loan-participation rate reduces economic growth' (Barro and Lee, 1). A high ranking United Nations official points out that empirical evidence indicates the World Bank or IMF 'cannot point to any region in the world as having succeeded by adopting the policies that they promote or require in borrowing countries' (Jomo). Easterly reaches similar conclusions. He argues that '[o]ver 1959-2001, countries with below-average aid had the same growth rate as countries with above-average foreign aid. Poor countries without aid had no trouble having positive growth' (Easterly 2006, 39). Some IMF economists reached a similar conclusion, as they 'found no evidence that either 'short-impact aid' or any other type of aid had a positive effect on growth' (Easterly 2006, 49). In fact, there are numerous cases (e.g., Angola, Burundi, Liberia, Sierra Leone, Somalia, Sudan, Zaire) where an increase in IMF involvement can be associated with subsequent economic collapse (Easterly 2006, 218). In the case of Africa, most poor countries subject to the international agencies' 'structural adjustment' experienced negative or zero growth' (Easterly 2006, 68)."

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