China and the end of neoliberalism?

Sachs’ article below suggests that China’s growing influence on the world stage may well signal the end of neoliberalism. That ideological framework of monetarism, liberalization, deregulation and privatization was imposed through structural adjustment programs, mostly in Latin America and Africa, with terrible results. Meanwhile, most Asian countries flouted those policy prescriptions en route to steller economic gains (the 1997-98 Asian crisis was a setback, but that largely stemmed from agreeing to US pressures for investment liberalization, another neoliberal policy).

Now China, with its own unique twist on the mixed economy, is preaching a very different gospel in Africa, backed with some cold hard cash. Added to the widespread dismissal of neoliberal reforms in Latin America, the Washington Consensus looks pretty dead to me. Of course, that does not seem to be stopping Canada from continuing down that path, but let’s savour the Polyanna moment and contemplate the Canadian situation later.

China’s lessons for the World Bank

by Jeffrey Sachs

The China Daily recently ran a front-page story recounting how Paul Wolfowitz used threats and vulgarities to pressure senior World Bank staff. … At the same time, while the Wolfowitz scandal unfolded, China was playing host to the Africa Development Bank (ADB)… This is a vivid metaphor for today’s world: while the World Bank is caught up in corruption and controversy, China skilfully raises its geopolitical profile in the developing world.

China’s rising power is, of course, based heavily on its remarkable economic success. … I had the chance to participate in high-level meetings between Chinese and African officials at the ADB meetings. The advice that the African leaders received from their Chinese counterparts was sound, and much more practical than what they typically get from the World Bank.

Chinese officials stressed the crucial role of public investments, especially in agriculture and infrastructure, to lay the basis for private-sector-led growth. In a hungry and poor rural economy, as China was in the 1970s and as most of Africa is today, a key starting point is to raise farm productivity. Peasant farmers need the benefits of fertiliser, irrigation, and high-yield seeds, all of which were a core part of China’s economic takeoff.

Two other critical investments are also needed: roads and electricity… Farmers might be able to increase their output, but it won’t be able to reach the cities, and the cities won’t be able to provide the countryside with inputs. The officials stressed how the government has taken pains to ensure that the power grid and transportation network reaches every village in China.

Of course, the African leaders were most appreciative of the next message: China is prepared to help Africa in substantial ways in agriculture, roads, power, health, and education. And the African leaders already know that this is not an empty boast. All over Africa, China is financing and constructing basic infrastructure. During the meeting, the Chinese leaders emphasised their readiness to support agricultural research as well. They described new high-yield rice varieties, which they are prepared to share…

All of this illustrates what is wrong with the World Bank, even aside from Wolfowitz’s failed leadership. Unlike the Chinese, the bank has too often forgotten the most basic lessons of development, preferring to lecture the poor and force them to privatise basic infrastructure, rather than to help the poor to invest in infrastructure and other crucial sectors.

… The bank also pushed for privatisation of national health systems, water utilities, and road and power networks, and grossly underfinanced these critical sectors.

This extreme free-market ideology, also called “structural adjustment”, went against the practical lessons of development successes in China and the rest of Asia. Practical development strategy recognises that public investments – in agriculture, health, education, and infrastructure – are necessary complements to private investments. The World Bank has instead wrongly seen such vital public investments as an enemy of private-sector development.

Whenever the bank’s extreme free-market ideology failed, it has blamed the poor for corruption, mismanagement, or lack of initiative. … The good news is that African governments are getting the message on how to spur economic growth, and are also getting crucial help from China and other partners that are less wedded to extreme free-market ideology than the World Bank. …