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Neoliberalism:
Oversold?
Jonathan D. Ostry, Prakash Loungani, and Davide Furceri
M
ILTON Friedman in 1982 hailed push started a decade or so earlier than 1982,
Instead of Chile as an economic miracle. with subsequent policy changes bringing it
delivering Nearly a decade earlier, Chile ever closer to the United States. Other coun-
growth, some had turned to policies that have tries have also steadily implemented neolib-
since been widely emulated across the globe. eral policies (see Chart 1, right panel).
neoliberal The neoliberal agendaa label used more by There is much to cheer in the neolib-
policies have critics than by the architects of the policies eral agenda. The expansion of global trade
rests on two main planks. The first is increased has rescued millions from abject poverty.
increased competitionachieved through deregulation Foreign direct investment has often been a
inequality, and the opening up of domestic markets, in- way to transfer technology and know-how to
cluding financial markets, to foreign competi- developing economies. Privatization of state-
in turn tion. The second is a smaller role for the state, owned enterprises has in many instances led
jeopardizing achieved through privatization and limits on to more efficient provision of services and
the ability of governments to run fiscal deficits lowered the fiscal burden on governments.
durable and accumulate debt. However, there are aspects of the neoliberal
expansion There has been a strong and widespread agenda that have not delivered as expected.
global trend toward neoliberalism since the Our assessment of the agenda is confined to
1980s, according to a composite index that the effects of two policies: removing restric-
measures the extent to which countries intro- tions on the movement of capital across a
duced competition in various spheres of eco- countrys borders (so-called capital account
nomic activity to foster economic growth. liberalization); and fiscal consolidation, some-
As shown in the left panel of Chart 1, Chiles times called austerity, which is shorthand