We should learn from the experience of the failed structural adjustment policies of the 1980s and 1990s

We should learn from the experience of the failed structural adjustment policies of the 1980s and 1990s

Date: 19 October 2010

In a characteristically brilliant article, George Monbiot today argues that the cuts that George Osborne will announce tomorrow as a result of the comprehensive spending review is a classic example of what Naomi Klein calls disaster capitalism:

In her book The Shock Doctrine, Naomi Klein shows how disaster capitalism was conceived by the extreme neoliberals at the University of Chicago. These people believed that the public sphere should be eliminated, that business should be free to do as it wants, and almost all tax and social spending should be stopped. They believed that total personal freedom in a completely free market produces a perfect economy and perfect relationships. It was a utopian system as fanatical as any developed by a religious cult. And it was profoundly unpopular. For a long time its only supporters were the heads of multinational corporations and a few wackos in the US government.”

Essentially, disaster capitalism works by exploiting a situation when ordinary people are disoriented and confused – a financial crisis, for example – to push through unpopular policies like deregulation, privatisation and massive spending and tax cuts. The original Chicago School thinker, Milton Friedman, famously said:

Only a crisis – actual or perceived – produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable.”

Perhaps the most famous example of the shock doctrine is that instigated by Pinochet after the coup in Chile in the 1973. Chicago-trained economists, supported by the CIA, where sent to help Pinochet implement extreme neoliberal policies that had devastating effects on the poor:

Their ideas had already been comprehensively rejected by the electorate, but now the electorate was irrelevant: Pinochet used the crisis he had created to imprison, torture or kill anyone who dissented. The Chicago School policies – privatisation, deregulation, massive tax and spending cuts – were catastrophic. Inflation rose to 375% in 1974; the highest rate on earth. Even so, Friedman insisted that the programme was not going far or fast enough. On a visit to Chile in 1975 he persuaded Pinochet to hit much harder. The result was a massive increase in unemployment and the near-eradication of the middle class. But the very rich became much richer, and the corporations, scarcely taxed, deregulated and fattened on privatised assets, became much more powerful.”

Reading Klein’s book, one is taken on a ride following the shock doctrine across the world. South Africa, Russia, Sri Lanka, Poland, Argentina, Malaysia. Everywhere the pattern is the same. Massive spending cuts, deregulation and privatisation pushed onto an unwilling electorate during a crisis are followed by unemployment, increased inequality and poverty.

So, ahead of the largest spending cuts in a generation, which will massively increase unemployment and hit the poorest the hardest, how can we see the British Government putting the interests of corporate power before that of ordinary people?

Well one obvious example is the public ownership of the Royal Bank of Scotland which is still not lending to small businesses, and has provided nearly £13 billion worth of funding to projects harmful to the environment since the bail out.

Instead of turning the bank into a Royal Bank of Sustainability, as WDM has been arguing for some time, the government’s ‘good news story’ will tomorrow be the launch of the green investment bank, but with the support of only £2 billion private sector money. This is clearly throwing good money after bad, as we’ve previously said.

Another example, which Monbiot also brings up, is that of the Export Credit Guarantee Department (ECGD), one of the few quangos not facing any cuts. What does the ECGD do? Well, it essentially subsidises private corporations by underwriting the investments that they make abroad. All too often these dodgy deals lead to human rights abuses, corruption, climate change and conflict. And when they go wrong, they result in increased Third World Debt, as any outstanding balances are passed on to the country where the investment was made. According to our friends over at the Jubilee Debt Campaign, over 90 per cent of debt owed by developing countries to the UK is now export credit debt.

The experience of developing countries should be sounding alarm bells for us all. Austerity measures in the form of structural adjustment plans pushed by the IMF and World Bank in the 1980s and 1990s had devastating effects on the world’s poor. Poverty, inequality and injustice all increased massively as safety nets for the poorest where slashed in favour of big business.

In the last ten years these policies have been totally discredited. Even the World Bank itself has publicly admitted that they did not work.

But disaster capitalism marches on.