New in AJS: "The Making of Neoliberal Globalization" w/ S Babb.

We examine the rise of Washington Consensus policies in 1980s.
The US engineered the policy agenda, but how? A nerdy thread on institutional change
Paywall: https://doi.org/10.1086/702900 
Ungated: http://bit.ly/NeoliberalGlobalization

In 1980s, int'l orgs set up to support post-war "embedded liberal" order were refashioned to become leading promoters of neoliberalism.

We focus on the rise of "structural adjustment" at the IMF: deregulation, liberalization, & privatization mandated through IMF loans.

2/18

The rise of structural adjustment at the IMF is puzzling: a massive departure from the founding treaty (prohibiting IMF policy activism) but occurred without formal renegotiation.

We argue that the Americans achieved this through a three-pronged *normative* strategy.

3/18

Why change norms & not treaties/guidelines? Can get the job done more easily!

US official: "no one in their right mind wants to start amending the treaties; this has to be approved by the countries… If we can accomplish a goal without having formal vote, it’s a safer bet"

4/18

Based on thousands of archival docs and interviews, we document 3 processes pursued by the US:
1. Mobilization of resources and allies
2. Normalization of new practices
3. Stabilization of norms through symbolic work

And these are some of the men involved.

5/18

Key moment was US Treasury's 1985 announcement of Baker Plan, which gave IMF central role in overseeing "adoption of market-oriented policies for growth."

Baker to White House: "debtors will receive IMF loans only if they adopt 'supply-side' policies"

6/18

Baker convinced G-5 ministers and bankers in secret meetings -- bankers loved it!

Citing Baker Plan, BNP Paribas wrote to IMF to propose creation of privatization funds "to buy shares in state-owned enterprises, i.e. Petrobras in Brazil."

7/18

Most IMF staff loved the Baker Plan too, but acknowledged it "would require change in conditionality guidelines which will entail political difficulties"

8/18

Developing countries objected.
E.g., Brazil: "concerned about greater IMF involvement in countries' planning & policy formulation".

They had weak influence due to debt crisis, but could have still blocked this change through formal governance channels.

9/18

So, US and allies opted for somewhat slower roll-out of structural adjustment, starting from low-income countries (which also receive less attention by IMF Board members).

US proposed creation of new lending facility that could target almost any policy.

10/18

Developing countries pointed out that proposals were "major departure from letter & spirit" of IMF policies for support to LICs.

US fought back, asking LICs to start implementing "sound policies" or else the US might cut aid.

11/18

Dominica was early test case in 1986: its loan included novel demands, incl. layoffs & new wage law for civil servants, restructuring of water authority, & privatization of electricity company.

12/18

After "structural reforms" were tested in low-income countries (i.e., those with the least bargaining power and weakest voices) they were gradually and increasingly introduced in loans to middle-income countries.

E.g., IMF conditions on labor issues and privatization:

13/18

However, still problem of not abiding to mandate in founding treaty.

E.g., IMF official complained that new direction reflected “dogmatic preference for private ownership of enterprises, in contradiction to IMF’s professed neutrality”

14/18

Symbolic work ushered in for that purpose: when objections raised by dev. countries, proponents of structural adjustment needed a plausible account to "make sense" of deviation from formal rules.

The US crafted a two-pronged narrative to overcome legitimation deficit.

15/18

First, narrative of growth -- US argument:
(1) growth is central IMF purpose
(2) market-liberalizing reforms will restore growth
Ergo, IMF should promote market-liberalizing reforms.

(But growth is *not* a central purpose of IMF, and 2nd claim at best controversial.)

16/18

Second, narrative of malleability of formal rules:

US and allies keep repeating how "flexible" the mandate and operational guidelines are, in order to stave off objections from developing countries.

17/18

In sum: neolib globalization in part unleashed by policies spread by IMF.

This transformation was not the direct result of ideational shifts or technocratic zeal, but outcome of purposive action by US to refashion key institution of global gov to further own goals.

/END