Cargo cult economics inhibits real alternatives

Why are the IMF/World Bank inspired, and marketed, neoliberal reforms, centred around the so-called Washington Consensus, essentially “cargo-cult economics” re-loaded? Additionally, how is this cargo cult fallacy relevant to understanding Nigeria’s policy predicament today?

Let us begin with the less familiar: what do we mean by cargo-cult economics? The usage emerged from anthropology. When America entered World War 2, it needed bases around the globe, including the South Pacific. It established airports, warehouses and barracks in several remote islands there. These facilities came not only with military hardware, munitions and fighting men but also supplies the islanders never saw before. These new gadgets, gizmos and consumer goods changed the islanders’ tastes and habits. When the War ended, and the bases were closed, the imported ‘goodies’ stopped coming. However, the natives had by then developed a dependence on these foreign items. According to the anthropologists who studied the aftermath, the situation became really desperate. Records showed that some of the islanders “sought to duplicate the elaborate American airbases through which they obtained their precious cargo. The replicas included an elaborate wooden runway, furnished with a small hut that served as a control tower. The natives religiously carried out their air traffic duties, hoping for the planes to return, but their efforts were clearly in vain”. Even if the runways and control tower had been real, neither the Americans nor their planes loaded with those goods would have returned.  

Before we dismiss their actions as laughable, or worse, we should realise that such responses had been more common than we care to admit, and cut across all societies over millennia. They are akin to saying that “since the rooster crowed just before the sun rises, it can be concluded that it caused the sunrise”. On the contrary, our elders had known all the time that the sun will rise whether the cock crows or not. In logic, this is your typical “post hoc” fallacy: if I do event X, and Y happens, then X must have caused Y. This wrongly confuses correlation with causality. Correlation is not causation, and confusing the two can be very dangerous.

So what has all this to do with our economic policy machinery? Plenty, actually: it is dominated by people who have abandoned independent dynamic analysis and are happy to leave that to others, satisfied with “cutting and pasting” what seems to work in other countries and climes. We are told that since countries A and B achieved their developed statuses by appearing to had undertaken X, Y and Z, then Nigeria is guaranteed similar outcomes when these methods are also religiously implemented here. Unfortunately, we seem not to get the same positive outcomes because institutional innovations, as policy makers have realised, do not travel well. Even if one path can be determined for all countries to follow, which is neither logical, nor feasible or even desirable, the outcome in each case would be different and context-specific.

Which brings us to the neoliberal mantra dubbed, “The Washington Consensus” promoted as a global development pill to be swallowed by all countries, for the past 35 to 40 years by the IMF, The World Bank and the US Treasury, especially following the Thatcher and Reagan years. However, contrary to what some of its Nigerian advocates would have us believe there is nothing new or modern about it. The ideas around neoliberalism have been around for quite a while. Also, since Alexander Rüstow coined the term “neoliberalism” in 1938 as involving “the priority of the price mechanism, free enterprise, the system of competition, and a strong and impartial state”, there has been this central division on the proper role of the “state”. Rustow advocated state intervention as against the unrestricted “laissez-faire” of classical liberals like Friedrich Hayek, Milton Friedman seen as champions of present day pro-free market policies. Currently, neoliberalism mostly refers to market-oriented policies such as eliminating price and exchange rate controls, deregulating capital markets, lowering trade barriers, and reducing state influence on the economy through privatization, elimination of subsidies and reduction in social spending.

Every country that wanted to do business with America and Western Europe had to commit to these, especially if or when it needs financial assistance from the global financial institutions. Unfortunately, the results were very mixed, to say the least, and the countries that made any serious progress were those who threw away the rule book, and evolve their own “state-market” arrangements, their own currency restrictions, institutional arrangements, along with innovative industrial planning, and so on. These ended up doing much better than those who tried to follow those recommendations blindly. Even the so-called “Augmented” Washington Consensus that evolved later, which added “good governance”, “anti-corruption”, “social-safety nets, and so on, suffered from the same syndrome; outsiders enforcing their preferred models on others, or the natives slavishly following “expert opinions”, without much success.  

For decades, non-orthodox economists have complained that the recommendations were faulty, too rigid and unsuitable. In a 2002 paper titled AFTER NEOLIBERALISM, WHAT? Dani Rodrik, of Harvard University, for example, had argued that “The few instances of success have taken place in countries that have marched to their own drummers and are hardly poster children for neoliberalism. Such is the case of China, Vietnam, India-three important countries which have violated virtually all the rules in the neoliberal guidebook even while moving in a more market-oriented direction”. And his was by no means a lone voice: Joseph Stiglitz, Amartya Sen, Ha-Joon Chang (and even the philosopher and linguist Noam Chomsky) have criticised the theory and practice of neoliberalism, pointing out its many shortcomings. 

But, to their credit (and unlike their Nigerian worshipers who masquerade as economists) the global agenda setting duo -the IMF and World Bank – have not been deaf or dumb. They have been studying and refining their recommendations over the years. Most recently, the IMF had, in the June 2016 edition of its in-house magazine Finance & Development, carried an article by three of its research staff titled Neoliberalism: oversold?  After the blunt subhead which stated “Instead of delivering growth, some neoliberal policies have increased inequality, in turn jeopardizing durable expansion”, these researchers question the blind faith in austerity and free movement of capital concluding that in many instances “the benefits of some policies that are an important part of the neoliberal agenda appear to have been somewhat overplayed,” Not that the Nigerian lot, who had swallowed the neoliberal agenda hook, line and sinker even bother to read. 

The false notion that there are simple, decided solutions already worked out is false. It is time we start our own truly dynamic analysis based on our own interests of inclusion, greater employment, higher incomes for our people and greater economic security. Not simple or easy, but then neither is life.