Is neoliberalism dead?

Low growth and widening income gaps since the 2008 crash have eroded faith in free-wheeling high-capitalist economics

Nobel Prize-winning economist Joseph Stiglitz is the latest in a growing body of economists to suggest that neoliberalism is a failed experiment.

As established political orders are challenged across the 'Western' world, the school of economic thought which has guided these political movements is coming under fresh examination. Neoliberal ideas have informed the policies of the IMF and the World Bank since the late 1980s - pushing free trade, deregulation and privatisation as engines of economic growth.

Low growth and widening income gaps since the 2008 crash have eroded faith in free-wheeling high-capitalist policies. The subsequent recession heralded an age of austerity pushed by the bodies who favoured the open economic ideology.

Cutting back

The IMF itself has published papers which conclude that these policies have done more harm than good.

"There are aspects of the neoliberal agenda that have not delivered as expected. Our assessment of the agenda is confined to the effects of two policies: removing restrictions on the movement of capital across a country’s borders (so-called capital account liberalisation); and fiscal consolidation, sometimes called 'austerity,' which is shorthand for policies to reduce fiscal deficits and debt levels," a recent IMF paper read.

It continued to add that these policies did not create growth and that they create increased inequality - and that this mix of poor (or no) growth and higher levels of inequality hurt the future growth prospects of these states.

The passage concludes, "Even if growth is the sole or main purpose of the neoliberal agenda, advocates of that agenda still need to pay attention to the distributional effects... openness and austerity are associated with increasing income inequality, this distributional effect sets up an adverse feedback loop."

It is worth noting that this comes from the IMF's research division - which is separate to its policy makers. But the paper's blunt title, "Neoliberalism: Oversold?" sticks out like a sore thumb for an organisation that for a long time refused to use term 'Neoliberalism.'

New doubts

Joseph Stiglitz, Nobel Prize-winning economist and former adviser to Bill Clinton during his time in the White House says that former group consensus that neoliberalism works is now dead.

"I can talk about this from the point of view of academia or even in policy circles. In academia, I think it has pretty well become rejected... The young students are not interested in establishing that neoliberalism works — they're trying to understand where markets fail and what to do about it, with an understanding that the failures are pervasive," he told Business Insider.

Mr Stiglitz added, "We've gone from a neoliberal euphoria that 'markets work well almost all the time' and all we need to do is keep governments on course, to 'markets don't work' and the debate is now about how we get governments to function in ways that can alleviate this."

He believes that faith in the ideology is dead in both developed and developing nations. What comes next is a whole other question...