On the very very slow death of neoliberalism

On the IMF evaluation report on the institution’s approach to social protection

For many years now, neoliberalism has been declared dead. The report of the Independent Evaluation Office (IEO) of the IMF on the institution’s approach to social protection shows this is far from true. And it does not look as if human rights, universalism and redistribution are going to be part of the IMF-agenda soon.From poverty reduction to social protection

Social protection has been on the international development agenda for about ten years. Strangely enough, it was the World Bank who first published a ‘theoretical framework’ in 2000, broadening but simultaneously eroding the traditional concept of social protection. It is easy to understand that if migration and child labour are recognized as mechanisms of families to avoid poverty – and therefore part of social protection -, there is a problem. As was made clear ten years later, in fact, this report was a logical consequence of the poverty reduction policies the World Bank had been promoting since 1990 and which were the start of a new social paradigm.

One may remember that poverty reduction, according to the World Bank, had nothing to do with social policies, except for health care and education, but everything with market participation and growth. The Bank and UNDP (United Nations Development Programme) were explicit in denouncing social insurances, saying States should only care for the extremely poor while the non-poor can buy all the insurances they want on the market.

Nevertheless, social protection / social security never disappeared from the agenda of the ILO (International Labour Organisation). It adopted an international Convention on the minimal norms of social security in 1952 and several other recommendations on specific elements of social protection later on.

Once the results of the WB poverty reduction policies were shown to be very meagre, several UN organisations started to promote social protection policies. Moreover, the financial crisis in South-East Asia in 1997-98 and later the global crisis of 2008 also served as a wake-up call for the political world. It was clear that people had to be protected against the ‘vagaries of the market’.
In 2008 the G20 called for actions to ‘mitigate’ the social impact of the crisis and as from 2011 it put social protection on its agenda.

In 2012, the ILO adopted a Recommendation on national social protection floors.

In 2012 the World Bank published a follow-up report to its reflections of 2000, making several openings to more and better social policies, though still focusing on targeted policies: “Resilience for the Vulnerable, Equity for the Poor, Opportunities for All’.

In 2015, the international community adopted the SDGs (Sustainable Development Goals) with a separate chapter on inequality, and several points concerning social protection and its components.

An interesting evaluation

The evaluation report of the Independent Office of the IMF gives an overview on how social protection was taken into account in the IMF’s agenda. Though social protection is not an explicit part of its mandate, the topic did get more and more attention these last years.

Article I of its ‘Articles of Agreement’ mentions as one of its purposes the facilitation of the ‘expansion and of balanced growth of international trade’ which should allow the IMF to ‘contribute … to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy.’ But its article IV, which is the most important one for its surveillance activities says that the IMF has ‘to respect the domestic social and political policies of members’. (§ 3 IEO) In other words, the IMF should not intervene in domestic policies.

The IMF recognizes that social protection can be ‘macro-critical’ which means it can contribute to macro-economic stability and also to social and political stability. Its 1997 guidelines on conditionality speak of ‘avoiding excessive stress on vulnerable groups’. (§ 3 IEO)

Managing Director Dominique Strauss Kahn promoted the idea of ‘social conditionality’ and of social safety net programmes and participated in the ONE UN social protection floor initiative, promoting universal access to essential social transfers and services. (§ 14 IEO) His successor, Christine Lagarde, puts an emphasis on inequality, promotes inclusive growth and wants the IMF ‘to have that human face’.(§ 15 IEO)

The conditionality guidelines were updated in 2014 in order to include social protection as non-core yet critical measures. (§ 17 IEO) In its external communication the IMF declares to cooperate with the ILO and other UN agencies on social matters and to have committed to the global partnership for supporting the SDGs (§ 21 IEO) Inclusion and inequality are in its mandate, so it says.

What happened?

So far so good, one might think, the IMF is concerned about social protection. But what does the evaluation report show?

The researchers looked at the period 2006 to 2015. The report covers ‘a variety of policy instruments providing cash or in-kind benefits to vulnerable individuals or households, including: (i) social insurance (such as public pension schemes); (ii) social assistance (such as government transfers to the poor); and (iii) labor market interventions for the unemployed (such as unemployment insurance and active labor market policies). Other policies that have social protection elements, specifically price subsidies for staple foods or energy, are also addressed in this report. Policies for development and long-term poverty reduction, such as government spending on education and health, and programs to boost job creation and labor force participation, are not considered social protection policies in this evaluation.’ (§ 9 IEO)

The evaluation report looks at three types of IMF-activities.

The first and most important one is the article IV surveillance where 60 % of all reports mention social protection. But for the advanced countries, this mainly concerns reforms that are considered to be necessary, such as for pensions or unemployment benefits. For poor countries it is recommended that the most vulnerable people should be protected. The IMF has no social focus but only has fiscal macro-economic concerns and promotes expenditure efficiency. However, notes the report, there was rarely an in-depth analysis, there was no country-specific knowledge and the views on the effectiveness of this approach are very mixed. Staff members have no clear guidance on what to do. (§ 19 IEO)

The second activity the report looked at are the programmes for countries needing help. Of the 170 programmes only five concerned advanced countries: Iceland, Greece, Ireland, Portugal and Cyprus. Only in Iceland IMF staff told the government to maintain its universal benefits, Ireland was recommended to abandon them and the other countries were told to protect vulnerable groups.
Only 10 % of all programmes include explicit structural conditionality to strengthen or better target social protection. In most cases indicative targets on social spending were recommended, as well as the abolition of subsidies. According to the IEO, results are very limited.

As for the third type of activity, the technical assistance, 60 projects related to social protection though the IMF, because of its lack of capacity, never was the central player. All of these projects concerned pension reform and social safety nets, subsidy reform and the rationalisation of expenditures.

Inter-institutional cooperation

This is by far the most interesting chapter of the report since the limits of what the IMF can and wants to do become very clear.
The IMF’s major partner is the World Bank, its Bretton Woods twin brother (or sister). This cooperation is seen as very positive and highly effective. There was almost no interaction with UN agencies or the OECD.

However, the World Bank signed a common declaration with the ILO in 2015 concerning universal social protection, something the IMF cannot follow. Even if, till now, the World Bank did not change its practice, the IMF warns that it will not follow the rights-based and universal approach of the ILO. (§ 64 IEO)

There has been a positive interaction with the ILO in Mozambique though the reactions within the IMF were ‘lukewarm’. (§ 66) Other attempts to cooperate were not successful. ‘The IMF and the ILO staff do not speak the same language’. (§ 66 IEO)

Collaboration with UNICEF was difficult since the UN agency published its report on the social impact of structural adjustment programmes, back in the 1980s, and called for ‘adjustment with a human face’. Nevertheless there was some kind of cooperation in 2008, interrupted when UNICEF published a critical report on IMF austerity policies and how these had negative impacts on the social spending of poor countries.

Recommendations of the IEO are straightforward: then IMF should establish a clear strategic framework on where it wants to go with social protection; its mandate and its purpose should be clarified. It is important, according to the report, that short term adverse effects of IMF policies be mitigated, because these can erode public support for programmes. The conditionality rules might need to be made more realistic.

The very slow death of neoliberalism

The structural adjustment policies that were introduced in the 1980s by the Bretton Woods institutions have been the major reason for the emergence of the alter-globalist social movement. More than thirty years later, the movement lost much of its appeal because of its lack of concrete results, a slow re-nationalisation of social protest and, most of all, because many people think that with poverty reduction policies, millennium development goals and now sustainable development goals, social justice is high on the agenda of the international community.

This IMF evaluation report is a reminder that this is far from true. Structural adjustment has been imposed as from 1982 and, as the Washington Consensus has been summarized in 1990 by Williamson , never included any real social concern. There simply was no consensus on it, according to the author. When the World Bank introduced its poverty reduction policies in the 1990s and reached an agreement with the IMF on a division of labour, ten years later, the purpose was not to help poor people but to legitimate structural adjustment. It was the Bretton Woods version of the ‘human face’ that UNICEF had asked for. While pleading for investments in ‘human capital’ (through education and health care), the main strategy to reduce poverty was economic growth. Ministers of Finance were responsible for the poverty programmes.

With the international attention shifting to social protection, some room was made for real social policies, such as cash transfers and labour market policies.

This report clearly shows what the limits of the new social paradigm are: the IMF sticks to the mantra of help to ‘vulnerable’ people and remains opposed to rights-based universal social protection, the only means to prevent poverty and walk the road of social justice.

The IMF is indeed ‘involved’ in social protection, though this is mainly with recommendations to reform – that is, cut back on – existing systems and with indicative targets for limits on social spending. In other words, the involvement of the IMF is more negative than positive.

The report indirectly confirms that the poverty reduction policies never had a social focus but were only concerned about macro-economic stability and financial sustainability. Only once reference is made to the obligatory ‘PRSPs’ (Poverty Reduction Strategy Papers) countries have to make.

If some social policy is accepted today, it is only to the extent that it contributes to this stability and that it avoids social protest, not scaring the public and to avoid ‘reputational risk’. (p. VII IEO) If the IMF is now concerned about inequality, it is because its research department pointed out it hampers growth. The IMF – in the same way as the World Bank till now – only agrees with targeted policies to the poor and insists continuously on ‘better targeting’. Even if IMF studies speak about the possible role of trade unions and of taxes, redistribution is not on the agenda.
The evaluation report does wonder whether the IMF ‘did harm social protection’ (§ 55 IEO) but does not answer the question. It looks as if UNICEF was right in pointing to the contradictions of these policies. Speaking of poverty reduction while imposing austerity measures is contradictory. The Bretton Woods policies are incompatible with the social priorities of the SDGs. The IMF does not walk the talk on poverty and inequality. Neoliberalism is far from dead.

We now have to wait and see what way the World Bank will go. Will it remain loyal to its Bretton Woods twin, or will it join the ILO in a search for real social justice? Or will it take the middle road with a new meaning for ‘universalism’?

Francine Mestrum
Global Social Justice, Brussels