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Labour, Capital & Society

Towards an Inclusive-Neoliberal Regime of Development: From the Washington to the

Post-Washington Consensus
Author(s): Arne Ruckert
Source: Labour, Capital and Society / Travail, capital et société, Vol. 39, No. 1 (April / Avril,
2006), pp. 34-67
Published by: Labour, Capital & Society
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TRAVAIL, etsociété
capital 39:1(2006)


Vers un regime de développement néoliberal inclusif: Du

'Consensus de Washington9 à un post-consensus.
Arne Ruckert
Très récemment , Vexpression d'un consensus 'post-
Washingtonpar les deux institutionsles plus en vues en matière
de développement , soit la Banque mondiale et le Fonds monétaire
international a soulevé deux réponses fondamentalement
opposées l'une à Vautre. D'un côté, les critiques de ces
institutions maintiennentque les changementspolitiques du post-
consensus ne représententpas un changement quelconque des
pratiques néolibérales. De l'autre côté, les défenseurs de ces
institutionsinternationalesrétorquentque ce nouveau consensus
peut être perçu comme une rupturefondamentaledans la pensée
du développement et même envisagé comme un éloignement
progressif des politiques de conditionnalités pour un
réengagementdans la luttepour la réduction de la pauvreté
ainsi qu 'un rôle accru des pays membres.
Cet article analyse ces changementsdans le discours sur
le développement et soutientque ces positions ont entraîné une
impasse dans la compréhension de la pertinence de ce
changement de politique. L'article démontre qu'il n'y a ni
rupture fondamentale, et encore moins une tentative de
reproductiondes mêmespolitiques issues du régimenéolibéral.
Dans le but de capter cette ambiguïté,nous introduisons
le concept de néolibéralisme inclusifet affirmonsque ce post-
consensus n 'est que la première étape qui mènera vers
l'émergence d'un régime de développementnéolibéral inclusif
D'ailleurs l'article en fait une lecture néo- Gramscienne et
montreque cette introductionreprésente une tentativepar les
institutionsfinancières internationales de résoudre certains
problèmes de légitimité et des contradictions auxquels les
politiques néolibérales doiventfaire face dans les pays de la
périphérie. Pour ce faire, l'article compare et contraste les
politiques d'ajustementstructurelavec l'approche des politiques
de stratégiede réductionde pauvreté (PSRP), Voutil de politique
le plus utiliséà l ère du post consensus.

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LABOUR, andSociety
Capital 39:1 (2006)

Towards an Inclusive-Neoliberal Regime of

Development: From the Washington to the Post-
Washington Consensus

Arne Ruckert1


The recent articulationof the Post-WashingtonConsen-

sus withinthemostprominentdevelopmentinstitutions, the World
Bank and the InternationalMonetary Fund' has been met with
twofundamentallyopposed responses. One the one hand, critics
of the development establishment maintain that the Post-
WashingtonConsensus and thepolicy changes thatit involvesdo
not representa shiftaway from neoliberal policy practices, while
supportersof the internationalfinancial institutions(IFIs) argue
that the Post-WashingtonConsensus amounts to a fundamental
rupture in developmentthinkingand a progressive move away
from policy conditionalitytowards countryownership and pov-
ertyreduction. Thispaper will present a different interpretation
of this recentshiftin the developmentdiscourse and argues that
the bifurcationin the literaturehas led to a significantimpasse in
understandingthe relevance of thispolicy shift.The paper will
show that the Post-WashingtonConsensus neitherrepresentsa
fundamentalrupturewith the WashingtonConsensus nor an at-
temptto reproduce the same neoliberal policy regime. In order
to capture this ambiguity,the paper introduces the concept of
inclusive neoliberalism and argues that the Post-Washington
Consensus is thefirststep towardsthe tendentialemergenceof an
inclusive-neoliberalregime of developmentin the global econ-
omy. Moreover, thepaper provides a neo-Gramscian reading of
thisinclusive-neoliberaldevelopmentregimeand suggests thatits
introductionrepresentsan attemptby the IFIs to resolve some of
the legitimacyproblems and contradictionsthat neoliberal poli-
cies faced in the periphery.In substantiatingthe argument,the
paper compares and contrastssome of thepolicy prescriptionsof
the earlier structuraladjustmentparadigm with the povertyre-
duction strategy(PRS) approach, the most visible policy tool of

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The World Bank and the InternationalMonetary Fund
(IMF) have since the late 1990s been involved in an attemptto
redefinetheir approach to development, moving away in their
rhetoricfrom conditionalityand structuraladjustmenttowards
povertyreductionand countryownershipof developmentpolices.
This orientationtowards povertyreduction and countryowner-
ship is reflectedin the launchingof the ComprehensiveDevelop-
ment Framework(CDF), which is described by the Bank as an
attemptto operationalize an holistic approach to development,
integratingnon-economic aspects into development,and empha-
sizing the needs and the participationof the poor in the develop-
mentprocess (Pender, 2001: 407). As partof thispolicy shift,the
Bank has also engaged in a renewed theoreticaldiscussion about
development,eventually leading to the emergence of the Post-
Washington Consensus (hereafterPWC), a theoretical conver-
gence between (Washington Consensus-based) neoliberal ideas
and the new information-theoretic (neo-Keynesian) paradigm de-
veloped by JosephStiglitz.
The articulationof the PWC was moreoveraccompanied
by the introductionof a new policy tool, the PovertyReduction
Strategy(PRS) approach, which emphasizes countryownership
and civil society participationas two of the key principlesin de-
velopment cooperation. According to the Bank and the Fund,
these policy changes have resulted in the abandonmentof tradi-
tional structuraladjustmentlending and the policy conditionality
associated with it, in favourof a developmentapproach thatem-
phasizes partnershipand cooperation between the international
financialinstitutions(IFIs), developing countrygovernmentsand
civil society organizations(CSOs). Moreover, in this process the
IFIs have repositioned themselves as institutionalproviders of
informationand knowledge, while borrowing governmentsare
being asked to take on responsibility,or 'ownership', forthe de-
velopmentpolicies theychoose to pursue (Stiglitz, 1998b: 21).
At the riskof simplification,the recentarticulationof the
PWC withinthe Bank and the Fund has been met withtwo funda-
mentallyopposed responses in academia. On the one hand, critics
of the developmentestablishmentmaintainthatthe PWC and the
policy changes thatit involves do not representa shiftaway from
neoliberal policy practices but have rathertightenedthe grip of
the IFIs over developing countries,foreclosingsocial and politi-

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cal alternativesto neoliberal practice (e.g. Cammack, 2002 and
2004; Weber, 2004; Bond, 2004; Soederberg, 2005; Charnock,
2006). Povertyreductionstrategiesare seen as part of a political
project to furtherinstitutionalizeand 'lock in' neoliberal reforms
in developing countries. Susanne Soederberg has recentlypro-
vided a succinct summaryof this view: "From this perspective,
then,the PRSPs are not about doing away withconditionality, but
should be seen instead as directresponses to the above-mentioned
'threatsto neoliberalism',which are, in turn,targetedat reconfig-
uring and deepening neoliberal domination over the growing
numberof thepoor in the South" (Soederberg,2005: 339). On the
otherhand, supportersof the IFIs posit thatthe PWC representsa
fundamentalrupturein developmentthinkingand a progressive
move away fromneoliberalismand policy conditionalitytowards
countryownership and the acknowledgementof the importance
of home-growninstitutionsand policies (Booth, 2003; Driscoll
and Evans, 2005; Stiglitz,1998b).
While the paper can be broadlylocated withinthe critical
camp, it attemptsto provide a more nuanced reading of the PRS
approach. In doing so, it will show that the PWC neitherrepre-
sents a fundamentalrupturewith the WashingtonConsensus nor
an attemptto reproduce the same neoliberal policy regime, as
suggestedby most criticsof the IFIs. In orderto capturethis am-
biguity,the concept of inclusiveneoliberalismwill be introduced,
and it will be argued thatthe PWC is ratherthe firststep towards
the emergence of an inclusive-neoliberalregime of development
in the global economy. This term seeks to capture the paradox
thatwhile numeroussimilaritiesbetween the Washingtonand the
PWC remainin place, such as the liberalizationand the privatiza-
tion of the economy, the PWC nevertheless deviates progres-
sively in a numberof ways fromthe earlierWashingtonConsen-
Thus, this paper excavates the discontinuitieswithinthe
continuityof the IFIs' new developmentapproach. Withoutsig-
nificantdiscontinuitywe could not speak of inclusiveneoliberal-
ism, yet withoutsignificantcontinuitywe could not speak of in-
clusive neoliberalism. This alludes to the fact that we have not
enteredan era afterneoliberalism,but ratheran era in which poli-
cies have emerged fromtendenciesoriginatingwithinneoliberal-
ism thatneverthelessdeviate fromearlierpolicy prescriptionsin a
numberof (partlyprogressive)ways and could potentiallyfurther

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destabilize the formerparadigm. Moreover, the paper provides a
neo-Gramscian reading of this inclusive-neoliberaldevelopment
regimeand suggeststhatits introductionrepresentsan attemptby
the IFIs to resolve some of the legitimacyproblems and contra-
dictions that neoliberal policies faced in the periphery,and in-
volves new formsof dominationthroughinclusion. The inclusion
of previously excluded people is part of an effortto make the
neoliberal project and its concomitantprinciplesof privatization,
liberalization,and deregulationtrulyhegemonic.
In substantiatingthese claims, the paper unfolds as fol-
lows. First, it describes the neo-Gramscian theoretical lens
throughwhich the PRS approach is investigated,and shows how
a neo-Gramscian perspective adds value to the analysis of the
PWC. Second, it will in an 'ideal-typical manner' discuss the
emergentinclusive-neoliberalregime of development,describing
some of the main characteristicsof this novel developmentre-
gime. Third,the paper brieflydelineatesthe WashingtonConsen-
sus and its policy prescriptions,introducingthe main assumptions
of the WashingtonConsensus and pointingto some of the many
criticismsthat have materialized over the last two decades. The
fourthpartwill turnto the PWC, and examine in more detail the
overarchingpolicy framework,the CDF, throughwhich the PWC
has been implemented.Througha selective reading of the World
Bank's Sourcebook for PovertyReduction Strategies,the paper,
in the finalsection,highlightssome of the most pertinentcharac-
teristicsand micropoliticalinclusion strategiesof the inclusive-
neoliberalregimeof developmentand outlinessome of the limita-
tions and inherentcontradictionsof the PWC.

'Bringing Neo-Gramscian Theory in' to Global Development

This paper builds on neo-Gramscian contributionsto In-
ternationalPolitical Economy (IPE) in its analysis of World Bank
and IMF policies (Cox, 1983 and 1987; Gill, 2000), and more
generally attemptsto 'bring neo-Gramscian theory in' to the
study of development. While neo-Gramscian approaches have
recentlyproliferatedin the area of global politics, littleresearch
has been undertaken in global development from a neo-
Gramscian perspective.This is surprisinggiven the powerfulrole
internationalinstitutionsplay in determiningglobal development
policy and the 'added value' thatneo-Gramsciantheoryprovides

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in the conceptualizationof internationalinstitutions.
From a neo-Gramscian perspective, the currentworld
order can be characterizedas a non-hegemonicorder in which
increasingcoercion and dominationare needed in the reproduc-
tion of neoliberalnormsand practices(Gill, 1995). In buildingon
the Gramscian legacy, neo-Gramscians conceptualize hegemony
as a formof rule which attemptsto guaranteethe dominationof
one group not throughmeans of force, but throughconsent by
means of political and ideological leadershipand materialconces-
sions to subalternclasses. In this vein, Robert Cox explains that
hegemony exists "when the dominantstate and dominantsocial
forces sustain their position throughadherence to universalized
principles which are accepted or acquiesced in by a sufficient
proportionof subordinatestates and social forces" (Cox, 1993:
264). While the post-war 'embedded liberal' order was marked
by a universal consensus and concomitanthegemony,the neolib-
eral orderwhich has been in the makingsince the early 1980s has
never been trulyhegemonic, and has more recentlyfaced major
legitimacychallenges in both the developed and the developing
world. In the area of development,the absence of neoliberal he-
gemony is expressed most palpably by the increasingunwilling-
ness of developing countrygovernmentsto voluntarilyimplement
structuraladjustmentpolicies, and the growingpopular uprisings
againstneoliberalreformsin manyperipheralcountries.
As Cox has pointed out, internationalinstitutionswere
key actors in the emergence and reproductionof the hegemonic
post-war 'embedded liberal' order as they ideologically legiti-
mated the norms of the world order; co-opted elites fromperiph-
eral countriesand absorbed counter-hegemonicideas (Cox, 1983:
172). Similarly,internationalinstitutionsoccupy a unique posi-
tion in the currentnon-hegemonicworld orderand play an impor-
tantrole in the attemptto produce a fiiturehegemonic (inclusive-
neoliberal) order.This unique position is linkedto the ideological
leadershipin the productionof developmentknowledge,an activ-
itywhich the Bank has increasinglyfocused on over the course of
the 1990s, culminatingrecentlyin the revampingof the Bank into
a 'Knowledge Bank' (Cammack, 2004). But it is also linked to
the IFIs' control of immense amounts of financial resources,
which in the past have been put to use in the name of structural
adjustment,policies aimed at the integrationof developing coun-
tries into the world economy and the restructuring of developing

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countrysocieties in line withneoliberalprinciplesof governance.
For neo-Gramsciansthen,the IFIs are key actors in the
attemptto create hegemony around a new inclusive-neoliberal
'transnationalhistoric bloc', a block marked by increasingly
global circuits of production and capital accumulation and the
growingintegrationof developing countryeconomies into a truly
global marketplace (Robinson, 2004). This emergent non-
hegemonic transnationalregime of accumulation is accompanied
by the ascendance of powerfultransnationalsocial forcesdomes-
tically,which has been referredto by neo-Gramscians as the in-
ternationalizationof the state (see Cox, 1987: 253; Baker, 1999).
At the same time, powerfultransnationalsocial forces have ap-
peared in the world economy, labeled by Cox the 'transnational
managerialclass' (Cox 1987), while othersclaim thatthese social
forces representthe emergence of a (not yet fully integrated)
transnationalcapitalistclass (Robinson, 2004; Gill, 1990; Sklair,
2001). These emerging transnational social forces have
(somewhat) successfullycolonized many of the importantinter-
national institutions,and have promotedtheirneoliberal agenda
throughnumerousavenues, such as the neoliberal adjustmentof
developing countryeconomies and the constitutionalizationof
neoliberalprinciplesin World Trade Organization(WTO) treaties
(Gill, 2000), without however successfully building hegemony
surroundingneoliberal ideas amongstthe wider population.
The introductionof the PWC could be interpretedas an
attemptto facilitate the expansion of a hegemonic neoliberal
world order,by ideologically legitimatingthe normsof this order
througha shiftin the IFIs' developmentdiscourse towards em-
phasizing povertyreductionand countryownershipas the opera-
tional principlesin all Bank and Fund activities,withoutstraying
too farfromneoliberal principlesin the actual developmentprac-
tice (see Soederberg,2005; Bond, 2004; Cammack, 2004). While
this interpretation is undoubtedly insightful,what needs to be
added is thathegemony-buildingalways implies elementsof ma-
terial incentives and concessions and the constructionof social
compromises. Therefore,the paper suggests that the inclusive-
neoliberal developmentregime entails a numberof materialele-
ments of co-optation which have often been overlooked in the
critical developmentliteratureand which will be outlined in the
followingideal-typicaldiscussion of the inclusive-neoliberalde-
velopmentregime. However, it should be noted thatthese inclu-

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sion elementsare currentlyin the making and thatthe paper cor-
respondinglyattemptsto identifytrends and tendencies rather

Towards a Global Inclusive-Neoliberal Regime of

The characterizationof the currentdevelopmentregime
as inclusive-neoliberalrepresentsan attemptto conceptualize the
emergentdevelopmentregime that has been propagated by the
IFIs underthe guise of the PWC. Following regime analysis, the
term 'global developmentregime' refersto a set of norms,rules
and principles around which actors' expectations converge and
under which most actors in the global developmentcommunity
operate (Krasner, 1983). Importantnorms that have enteredthe
global developmentregimein the late 1990s underthe tutelageof
the PWC, and have consequentlyleftan imprinton the practices
of most developmentorganizations,are empowerment,participa-
tion, the promotionof opportunities,and povertyreduction.All
the aforementioned normscoalesce aroundthenotionof inclusion
and arguablysignifythe emergence of a neoliberal project of an
inclusive orientation. While some scholarship has recently
pointed to the use of inclusion strategiesas micropoliticaltech-
nologies of governance by 'Third Way' governmentsin the de-
veloped world, littleattentionhas been paid to the emergence of
inclusion strategieswithinneoliberal formsof governanceamidst
the IFIs (for an exception see Craig and Porter,2004). A neo-
Gramscian reading of this project suggests thatthe ultimategoal
of inclusive neoliberalismis the combinationof broadly macro-
economic neoliberal policies with micropoliticalrationales and
technologiesof social inclusion.
In the new PRS approach, micropoliticaltechnologiesof
inclusion express themselves in three particularways. First,the
notionof countryownershipof policies and partnershipin devel-
opmentcooperationrepresentan attemptto more directlyinvolve
developing countriesin the policy-makingprocess at the national
and global level. This happens however withinthe parametersof
the inclusive-neoliberaldevelopment regime whose contenthas
largely been predeterminedby the Bank and the Fund, as evi-
denced by the minutepolicy descriptionsgiven in theSourcebook
for PovertyReductionStrategies.Second, the IFIs have begun to
acknowledge the importanceof includingthe poor and marginal-

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ized sections of society into the policy making process, through
civil society participationin the elaboration of national PRSPs
and participation in the implementationof poverty reduction
strategies.While this paper will criticallydiscuss the IFIs' hege-
monic ambitions underlyingthe introductionof the concept of
participation(see also Cooke and Kothari, 2001; Fraser, 2005),
we should neverthelesswelcome this policy shiftas it potentially
opens up new avenues for political participationthat have re-
mained foreclosedin the past.
Finally, the IFIs encourage developing countriesto in-
crease their poverty-relatedspending so as to include the ex-
tremelypoor into the delivery of basic social services, such as
health care and primaryand secondary education. The resources
freed up throughthe Enhanced Heavily Indebted Poor Country
(HIPC) debt relief initiativeare supposed to be earmarked for
poverty-relatedspending,and the consumptionof the extremely
poor is expected to be subsidized. This subsidizationcan take the
formof Social Funds, PovertyAction Funds and the like, trans-
fersof resourcesfromcentralgovernmentsto eitherlocal service
providersor the poor themselves. While the IFIs' supportof the
highly contested privatizationand liberalization policy remains
stern,theyhave come to realize thatthe extremelypoor are often
unable to affordbasic social services at market-determined rates
and thereforecannot become 'normal customers' but ratherre-
quire financial help. However, this subsidization takes place
within a neoliberal fiscal expenditureframeworkwhich, at the
same time, limitsthe ability of developing countrygovernments
to spend freelyin relationto povertyreductionas inflationtargets
have to be met in orderto stay 'on-track' and qualifyfordebt re-
lief. The tension between the marketlogic of neoliberalismand
the social logic of inclusion is one of the key contradictionsin the
PRS approach that will repeatedlycome to the forefrontin the
remainderof the paper. Before however discussing these contra-
dictionsin more depth,the followingpartwill brieflydescribethe
turnfromthe Washingtonto the PWC in the late 1990s.

From the Washington to the PWC

During the period from 1980 until the late-1990s, the
World Bank and the IMF proceeded with a strongsense of cer-
tainty in promoting a particular set of development policies,
which came to be known as the WashingtonConsensus (Pender,

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2001: 398). This policy package emerged in the early 1980s as
the initiallyad hoc answer to the experience of Latin American
countries,which were strugglingto overcome the debt crisis and
to solve their balance of payment problems. This same policy
package soon became institutionalizedas the WashingtonCon-
sensus, dominatingmuch of developmenttheoryand practicedur-
ing the 1980s and 1990s. According to John Williamson, the
'hard core' of the Washington Consensus stands for
"macroeconomic prudence, outward orientation,and domestic
liberalization"(Williamson, 1990: 1). However, a more compre-
hensive definitionof the Washington Consensus must include
otherkey aspects, such as minimal governmentinterventionand
the eliminationof governmentsubsidies, trade liberalization,fis-
cal and monetaryausterity,freeingof interestrates,privatization
of state-ownedbusinesses, well-definedpropertyrightsand inde-
The Washington Consensus was implementedin most
developing countriesthroughstructuraladjustmentpolicies which
became the standardpolicy instrumentof the World Bank in the
mid-1980s (Mosley et al, 1995: 27). Two goals in particularwere
at the heartof the SAPs: first,at the macroeconomiclevel, stabili-
zation policies were supposed to guaranteeshort-runstabilization
of inflation,balance of payments,and budgetdeficits.Second, the
goal of SAPs at the microeconomic level was to achieve long-
termefficiencygains, throughthe allocation of resources in ac-
cordance with global marketsignals (Bienefeld, 2000: 534). De-
spite their 'initial macroeconomic success' in bringingdown in-
flation rates and controllinggovernmentspending, SAPs have
fromthe very beginningbeen harshlycriticized,particularlyby
civil society actors,fortheirimmense social costs, and theirfail-
ure to create 'socially stable' societies. Consequently,the 1980s
were regardedby many developmentcommentatorsas a lost de-
The critiqueof the WashingtonConsensus outside of the
IFIs has been around since its initial formulationin the 1980s.
However, only relativelyrecentlydid the WashingtonConsensus
come under assault from within the IFIs themselves. Joseph
Stiglitz,Chief Economist of the World Bank from1996-2000, has
been the most influentialvoice involved in criticizingsome of the
assumptions of the Washington Consensus and articulatingan
alternative PWC. This novel consensus is partly based on

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Stiglitz's academic work on informationalimperfectionsin mar-
ket economies, which provides the intellectualbackbone to this
PWC (Fine et al, 2001: 4). But more importantly,Stiglitz was
also the main drivingforce withinthe IFIs behind the program-
matic articulationof the PWC. Nevertheless,a host of otherdis-
senting voices within the economics profession have also sub-
stantiallycontributedto the demise of the WashingtonConsensus
(e.g. Rodrik,1999; Krugman,1995; Easterly,2001).
While the development agencies of the United Nations
familyhave long been outspokencriticsof structuraladjustment,
and have fordecades advocated a more poverty-sensitiveadjust-
ment process (with a human face) (see UNICEF, 1987), the re-
thinking process among the Bretton-Woods institutionsfirst
startedwithinthe Bank in the mid 1990s, but withthe onset of the
Asian financialcrisis,it also spread to the IMF. Withinthe Bank,
therehas been a renewed interestin povertyand governance is-
sues throughoutthe 1990s, which can be observed in the growing
importancethatthe Bank has attributedto povertyrelated issues
in its publications. This rethinkingprocess, as argued earlier,
must be understoodin the context of the spectacular failure of
SAPs and the growinglegitimacycrisis of neoliberal capitalism,
as evidenced by the immense protestsagainst neoliberal global-
ization thathave materializedthroughoutthe 1990s, culminating
in the 'battle of Seattle' in 1999. However, thisrethinking
is also, at least partly,linkedto recentdevelopmentsin economic
theory.As mentionedearlier,Stiglitzhas played a key role in pro-
viding the intellectual backbone to the PWC in the academic
sphere by reconcilingneoclassical and Keynesian economics in
his novel information theoreticapproach.

The Comprehensive Development Framework

The ComprehensiveDevelopment Framework(CDF), intro-
duced to the development communityby formerWorld Bank
presidentJames Wolfensohnin 1999, representsthe overarching
policy frameworkunder which povertyreductionstrategies,the
most visible policy tool of the PWC, operate. According to the
Bank, the CDF emphasizes the interdependenceof all elementsof
development - social, structural,human, economic, environ-
mental,and financial- and advocates a holistic long-termstrat-
egy, focusingon povertyreduction,with the developing country
governmentin the lead, both 'owning' and directingthe develop-

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ment strategy(Klugman, 2002a: 2), and the IFIs taking on the
role of a partnerin development.2The reconceptualizationof the
relationshipbetween the South and the North as one between
partnersis an importantelementof the inclusive-neoliberaldevel-
opmentregimewhich can partlybe explained as a responseto the
persistentand highlycontestedinterventionsof the IFIs into de-
veloping countriesduringthe era of structuraladjustment,leading
to accusations of imperialism and neo-colonialism amongst
Southern social movements and progressive governments
(Abrahamson, 2004: 1455). The notion of partnershiphelps to
silence those criticismsby pretendingto returnpower and respon-
sibilityto developing countries.
At the same time, the ideas of ownership and partnership
address a deep-rootedproblemthathad been identifiedearlierby
the IFIs: the unwillingnessof many developing countrygovern-
mentsto voluntarilyimplementstructuraladjustmentpolicies and
the subsequent failure of conditionally. While many Southern
governmentshave paid lip service to structurallyadjustingtheir
economies, theyneverthelesshave at times not followed through
with the implementationof many of the most highly contested
policies and have not always met policy conditionalities.As the
Bank elaborates in the 2000 World Development Report,
"Recipients do not see the [policy] conditions as binding and
most donors are reluctantto stop giving aid when conditionsare
not met" (World Bank, 2000: 193). In a more powerfulstatement
made to the news media in 1999, the Bank acknowledges that
"conditionalityhas been unsuccessful:governmentsfail to deliver
on promised reformsand actually hold back fromreformin the
hope of being able to 'sell' the reformsto donors for a higher
price - or a second time" (quoted in Cammack, 2004: 201).
In this context,the new partnershipis seen by the Bank
and the Fund (instrumentally) as a way to make developmentco-
operation more effectiveand efficientand ownershipis expected
to contributeto a genuine commitmentto implementingneolib-
eral adjustmentpolicies. Therefore,what is unique about the PRS
approach is the realizationon behalf of the IFIs thata strongcon-
sensus around IFI policies in the developing world will make the
implementationof adjustmentpolicies less contentiousand more
probable. In thisvein, the IMF argues that:

Ownership matters because it directlyaffectsprogram


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implementation....When the program is owned by the
country,decisions on such actions are likelyto be made
quickly and in support of the program, which makes it
more likelythat theprogram will succeed. Furthermore,
ownershipwill make it easier to generate domesticpoliti-
cal supportfor theprogram, since it is likelyto be seen,
at least in part, as an indigenousproduct, ratherthan a
foreign imposition(IMF, 2001: 14).

In a verysimilar fashion,Stiglitznotes that"policies thatare im-

posed fromthe outside may be grudginglyaccepted on a superfi-
cial basis, but rarelywill be implementedas intended"(Stiglitz,
1998b: 21). And he continuesthat"[t]here is likely to be greater
acceptance of reforms and a greaterparticipationin the trans-
formationprocess if thereis a sense of equity,of fairness,about
the developmentprocess, a sense of ownershipderived frompar-
ticipation,and if there has been an effortat consensus forma-
tion" (Stiglitz, 1998b: 22). Further,ownership should help to
make developmentaid more effectiveand efficient.Accordingto
the Bank, the "single most importanttheme runningthroughthe
dialogue on developmenteffectivenessis the need to put commit-
ted developing countrygovernmentsand theirpeople at the centre
of their development process" (quoted in Abrahamsen, 2004:
1455). The CDF can help to create mutual relationshipsof trust
between the Bank and borrowinggovernmentswhich, in turn,
translateinto growingcommitmentto reformprocesses on behalf
of developingcountrygovernments.
The ways in which the IFIs discuss ownershipand partner-
ship supportsa neo-Gramscianreading. This reading emphasizes
the hegemonic ambitionsbehind the introductionof the PRS ap-
proach. It also points to the instrumentaluse of countryowner-
ship as a technology of inclusion without,however, neglecting
the counter-hegemonicpotential of this new approach. This
counter-hegemonicpotential lies primarilyin the descriptionof
developing countries as agents in the new Bank and IMF dis-
course. This discursiveshiftfromportrayingdeveloping countries
as aid partnersratherthan passive recipients acknowledges the
active role of developing countries in shaping their own future
and developmentagenda, ratherthan seeing them as objects of
externalbenevolence and agency (Abrahamson,2004). While the
conditionalitiesattached to PRSs clearly restrainand circum-

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scribe this agency, the discursive reconstitutionof developing
states as subjects neverthelesscarries the potential to open up
new possibilities of participationin policy articulationat the
global level, as it will be easier for developing countriesto dis-
agree over the directionof development strategiesin futureen-
counterswiththe Bank and the Fund.

Inclusive Neoliberalism and Poverty Reduction Strategy

As partof the CDF, the Bank in 1999 introducedwiththe
PovertyReduction StrategyPaper (PRSP) the most visible policy
tool of the inclusive-neoliberaldevelopmentregimethathas been
in the making since the articulationof the PWC. The PRSP has
been officiallyincorporatedinto all IFI developmentpolicies and
programsand was endorsed in 1999 as the basis of all futureIFI
concessional lending,as well as debt reliefgrantedunderthe en-
hanced Heavily Indebted Poor Country(HIPC) Initiative(Cling,
Razafmdrakotoand Robaud, 2003: 1). Each national PRSP sets
out a developing country'smacroeconomic,structuraland social
policies and programsover a period of threeyears. According to
the Bank, the policy contentof the documentis supposed to be
formulatedby the developing countryitself,and to reflectthe
country's individual circumstances and characteristics,and its
idiosyncraticneeds. The principles underpinningthe PRS ap-
proach suggest that developmentstrategiesshould be (Klugman,
2002a: 3):

• Country-driven and owned, predicatedon broad-based par-

ticipatoryprocesses for formulation,implementation,and
• Results-oriented,focusing on outcomes that would benefit
• Comprehensivein scope, recognizingthe multidimensional
natureof the causes of povertyand measuresto attackit;
• Partnership-oriented,providing a basis for the active and
coordinatedparticipationof developmentpartners;
• Based on a medium and long-termperspectiveforpoverty
notbe achieved overnight.

Even though the policy content and prioritiesof each PRSP


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should reflectthe developing country'sparticularcircumstances,
values, and priorities,the IFIs have provided a very detailed out-
line of the issues to be addressed in all PRSPs, and have identi-
fied specific policy criteriafor the ultimateapproval of any and
all PRSPs in the two volumes of the World Bank's Sourcebook
for PovertyReduction Strategies (Klugman, 2002a and 2002b).3
The IFIs have identifiedfourpriorityareas, which they consider
to be imperativein bringingeconomic growthto the developing
world and, which theyhave turnedinto conditionsthathave to be
met before concessional lending for a PRSP can be approved.
These include sound macroeconomic policies and structuralre-
formpolicies such as trade liberalizationand banking sector re-
form,appropriatesectoral policies and programs,improvedgov-
ernance,and realisticcosting and appropriatefundingforpoverty
alleviation programs(Klugman, 2002a: 16). This constitutesthe
frameworkfor all discussions around the PRSP, which is elabo-
rated in more detail in the Sourcebook. However, at the same
time,the Bank assertsthatthe Sourcebook is not supposed to pre-
scribe policies but ratheraims to describe 'empirical facts' and
'best practices', and to provide 'technical knowledge' and ana-
lyticaltools to developing countries(Klugman, 2002a: 2). Yet the
Sourcebook also makes it unambiguouslyclear thatthe IFI ulti-
matelyhave the final say in eitherembracingor disapprovingna-
tional povertyreductionstrategies:"[w]hile the shiftto country
ownershipwill allow more leeway in termsof policy design and
choice, acceptance by the Bank and the IMF boards will depend
on the currentinternationalunderstandingof what is effectivein
loweringpoverty"(Klugman, 2002a: 4).
In both volumes of the Sourcebook, the IFIs concretizetheir
understandingof what constitutesthe currentinternationalunder-
standing of 'sound macroeconomic policy', the non-negotiable
preconditionfor IFI fundingand debt relief under the Heavily
Indebted Poor CountryII initiative.They assert that there is a
strong internationalconsensus on what is good structuraland
macroeconomicdevelopmentpolicy, and thatthispolicy package
should be universalisticallyapplied to all developing countries.
Througha discussion of importantpolicy componentsof the PRS
approach, the following section will highlightsome of the pro-
gressive elements,which neverthelessremain circumscribedby a
deep commitmentto the neoliberal credo of commodificationand
liberalization.This discussion will also provide a powerfulillus-

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trationof how the inclusive-neoliberaldevelopmentregimeis full
of contradictionsand conflicts.

Economic Growth, Macroeconomic Stability,and

The PRSP Sourcebook opens with a discussion of why
economic growth matters for poverty reduction: "Economic
growthis the single most importantfactordeterminingpoverty.
Numerous statisticalstudies have found a strongassociation be-
tween national per capita income and national poverty indica-
tors" (Klugman, 2002b: 4). There is continuityin the way in
which economic growthis perceived as the conditiosine qua non
withoutwhich a sustainablereductionof povertywill be impossi-
ble. And indeed,the case foreconomic growthis straight-forward
and thereis no doubt thateconomic growthwill have to play an
importantrole in reducingpovertyin most developing countries.
However, the key point of the debate around IFI development
policies in the past has not been whethergrowthis good forpov-
ertyreduction,but ratherwhethermacroeconomic policies pre-
scribed by the IFIs to developing countrieshave contributedto
economic growth,or contrarilyto the contractionof developing
countryeconomies. As is widely documented,structuraladjust-
ment policies have produced rather meager economic growth
rates in most developing countriesthroughoutmost of the 1980s
and 1990s (Wesibrotet al, 2001).
Moreover, it is importantto ask the question of who
mainly benefits fromeconomic growth.The Bank acknowledges
in the Sourcebook that distributionalpatternsand the sectoral
compositionof growthare key factorsin determiningthe impact
of growthon poverty.As the Bank notes: "A numberof empirical
studies have foundthatthe responsivenessof income povertyto
growth increases significantly as inequality is low-
ered" (Klugman, 2002b: 6). As is both well-documentedempiri-
cally and commonsensical, growth associated with progressive
distributionalchanges will have a more positive effecton poverty
levels than growthwhich leaves the distributionof wealth un-
Consequently,the Bank maintainsthat"policies thatim-
prove the distributionof income and assets withina society,such
as land tenurereform,pro-poorpublic expenditure,and measures
to increase the access of the poor to financialmarkets,are thus

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essential to a country's poverty reduction strategy"as growth
alone is insufficientfor povertyreduction(Klugman, 2002b: 4).
This language must come as a surprise to many critics of the
Bank, as it touches the politicallysensitivetopic of wealth redis-
tribution,and acknowledges the need forprogressiveincome and
asset redistribution.However, as will become clear throughthe
discussion of taxationand fiscal policy, most concretepolicy ad-
vice actuallydirectlyconflictswiththisratherprogressivestance.
In the subsequent section, the Sourcebook discusses the
relationshipbetween economic growthand macroeconomic sta-
bility,one of the areas where IFI policies have been underheavy
criticismfor a prolonged period of time. The Sourcebook unsur-
prisinglymakes a straight-forward case for the importanceof
macroeconomic stabilityin achieving povertyreduction.Accord-
ing to the IFIs, macroeconomic stabilityis essential foreconomic
growth,withoutwhich it will be impossible to reduce povertyin a
sustainable manner. It is recognized that there mightbe tempo-
rary trade-offsbetween macroeconomic stabilitymeasures and
povertyreduction.However, these should be addressed through
appropriatecompensatorymeasures,ratherthan by giving up the
goal of macroeconomicstabilityand sacrificinglong-termgrowth
to a short-term policy view. Stabilityhas to be privilegedas pov-
erty reduction will only be sustainable if achieved through a
growth in output which requires economic stabilityand confi-
dence among investorsand entrepreneurs (Klugman, 2002b: 5).
Macroeconomic stabilityis defined by the IFIs in terms
of current-accountand fiscal balances with low and declining
debt levels, inflationin the low single digits and risingper capita
GDP, whereas instabilityis understoodto encompass large cur-
rentaccount deficitsfinancedby short-term borrowing,high and
risinglevels of public debt,double-digitinflationrates,and stag-
nant or declining GDP (Klugman, 2002b: 5-8). Inflation-
targeting,non-inflationary budgetsand independentcentralbanks
are thenseen as the predominantmeans throughwhich to achieve
The key aspects of the IFI discussion on stable macroeco-
nomic policy are the relationshipbetween inflationand growth
performance,on the one hand, and inflationand distributionof
wealth, on the other.In this context,it is pertinentto point out
thatthereis, contraryto the IFIs' grandiose claim, a lack of con-
sensus on the relationshipbetween inflationand growthin aca-

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demie circles. According to the IFIs, conventionaleconomic wis-
dom (i.e. the 'technical knowledge' thatthe IFIs referto) suggests
thatlow levels of inflationare conducive to growthand thatdisin-
flationlargely insulates the poor fromthe regressivechanges in
income distributionassociated withinflation(Klugman, 2002a: 4-
5). In a sense, not much is new in the IFIs' emphasis on 'sound
macroeconomicpolicies' as the preconditionto economic growth
and development.
This view is howeverhighlycontestedin academia. In his
seminal lectureon the PWC, Stiglitzpointsto empiricalevidence
(Barro, 1997 and Fisher, 1993) that corroborateshis view that
mild inflationratesup to 40 per cent have littledemonstrableim-
pact on growth performance(Stiglitz, 1998a: 8). Accordingly,
Stiglitzardentlycriticizesthe IMF's obsession with low inflation
rates,which dramaticallycurtailsthe abilityof developing coun-
trygovernmentsto spend freelyon poverty-related issues. More-
over, Stiglitz is not alone in his criticismof inflation-targeting
and tight monetary policy. As UNCTAD has recently com-
mented, inflationdoes not seem to be a major concern in most
developing countriesat this point; yet,disinflationremainsto be
prioritizedby the IFIs on the ground(UNCTAD, 2002: 24).
This unwaveringcommitmentto tightmonetarypolicy is
problematic as it might translateinto lower output growthand
higherlevels of unemployment, and thereforeunderminethe IFIs'
laudable attemptto reduce poverty through economic growth
(UNCTAD, 2002: 24). What is more,the poor themselvesappear
to be less concernedwiththe impact of high levels of inflationon
the distributionof wealth thanwiththe negative impactsof disin-
flation on employment and economic growth. As UNCTAD
notes, ironicallydrawing on the Bank's famous study Voices of
The Poor :

It is significantthat the Africanpoor, when theyexpress

themselveson mattersrelated to macroeconomicpolicies,
do not consider inflationas a major issue affectingtheir
welfare. The stabilitythat theyaspire is stabilityin em-
ploymentand constant and regular sources of income.
The rural poor in Ethiopia and Nigeria stress that con-
tractionarymacroeconomic policies resulting in lower
employmentand declining wage bills in thepublic sector
affecttheirown livelihoodsadverselyby theripple effects

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ofdecliningeffectivedemand (UNCTAD, 2002: 24).

However, possibly even more disconcerting(than the arguably

negative impact of low levels of inflationon growthand output)
substantiallyreduces developing
is the factthatinflation-targeting
countrygovernments'policy options in times of economic reces-
sion. Importantcounter-cyclicalgovernmentpolicy instruments,
such as deficitspending and the provision of inexpensive credit,
which are taken forgrantedin the West, have become unavailable
to most developing countriesduringthe era of structuraladjust-
mentand the application of monetaristpolicies. The factthatthe
IFIs seemingly continue to universallypromote the same set of
tightmonetarypolicies, describedas 'best practice' in theSource-
book, raises concerns as unorthodoxand idiosyncraticmacroeco-
nomic policies mightbe bettersuitedto address developing coun-
tries' oftenunique macroeconomic problems,particularlyduring
short-term balance of paymentscrises (McKinley, 2004). Unfor-
tunately, almost all developing countries have adhered to the
IFIs' monetaryadvice and have set aggressive inflationtargetsin
theirPRSPs, mostlyhoveringaround threeper cent (Gottschalk,
2005: 429). This clearly limits any hope of subsidizing the con-
sumption of the poor as governmentspending is aggressively
reinedin and underobservationby independentcentralbanks.

Fiscal Policy and Taxation

The Sourcebook acknowledges thatfiscal policy can have
a directimpact on the poor and developing countrybudgets are
ascribed an importantrole in povertyreductionstrategies.Budg-
ets are of paramount importance as resources made available
throughthe numerouspovertyreductionand officialdebt cancel-
lation programs,such as the HIPC II initiativeand the more re-
cent MultilateralDebt Relief Initiative(MDRI), are expected to
be channeled throughbudgets into poverty-sensitiveareas, such
particularlyin rural
as health care, education, and infrastructure,
areas. More importantly,additional external resources freed up
throughdebt relief are supposed to be added to expendituresal-
ready earmarkedfor social sectors,guaranteeingthe deliveryof
essential public services, while non-discretionary and discretion-
ary non-priority spending is to be examined, in order to insulate
the economy frominflationarypressures (Klugman, 2002b: 12).
Thus, the IFIs expect developing countrybudgets to be generally

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non-inflationaryyet poverty-sensitive.This focus on poverty-
sensitive budgets is definitelyto be welcomed. This can be ob-
served in many developing countrybudgets where social expen-
diture has increased notably since the introductionof the PRS
approach (Driscoll and Evans, 2005), particularlyin areas such as
healthcare and education,areas which have been persistentlyne-
glected duringthe reignof the WashingtonConsensus. However,
the misplaced concern with inflationclearly limitsthe extentto
which governmentscan add resourcesto theirbudgetsin poverty-
Another importantlong-termgoal for most developing
countriesshould be "to raise domestic revenue levels witha view
to providingadditionalrevenue in supportof theirpovertyreduc-
tion strategies"(Klugman, 2002b: 13). As externalresourceswill
eventuallydryup afterthe HIPC II and the MDRI debt reliefini-
tiativeshave been fullyimplemented,it is importantfordevelop-
ing countriesto attaingrowthin public revenuesto be able to in-
crease social spending.Moreover, developing countrieshave his-
toricallyhad ratherlow levels of governmentexpenditurecom-
pared to industrializedcountries.While governmentexpenditure
in the OECD countrieshas risen from20 per cent of GDP in the
1960s to almost 50 per cent of GDP in 1995, in developing coun-
tries average governmentexpenditurehas barely passed 30 per
cent of GDP in 1985 and since thenslowly declined to roughly28
per cent in 1990 (World Bank, 1997: 2). In this regard,it is of
utmostimportancefordeveloping countriesto findways to raise
the necessary resources in the gargantuanfightagainst poverty.
To increase levels of taxation,which have historicallybeen rather
low in developing countries,would be one possible solution.
According to the World Bank, tax policy should aim at
moving toward a systemof easily administeredtaxes with broad
bases and moderatemarginalrates. The general recommendation
is to avoid raisingtaxes on corporateand personal income, given
theiralleged adverse effectson investmentand capital flows,and
insteadto introducea broad based consumptiontax. Accordingto
the Sourcebook, the 'best tax systems' generally include "a
broad-based consumptiontax, such as a VAT [Value added tax],
preferablywith a single rate,minimal exemptions,and a thresh-
old to exclude smaller corporationsfromtaxation", while "the
personal income tax should be characterizedby only a few brack-
ets and a moderatemarginaltax rate" (Klugman, 2002b: 13). The

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same counts forthe corporateincome tax, which "should be lev-
ied at one moderaterate" (Klugman, 2002b: 13). Finally, "taxes
on trade should play a minimalrole. Importtariffsshould have a
low average rate and a limiteddispersionof rates to reduce arbi-
traryand excessive ratesof protection"(Klugman, 2002b: 13).
As UNCTAD notes, the tax regime described by the
Bank as the 'best tax regimeavailable' is actuallya highlyregres-
sive tax regime, in which poverty is undoubtedlybeing aug-
mentedthroughthe negative effectsof consumptiontaxes on the
poor (UNCTAD, 2002: 27). Even the Bank has recentlyacknowl-
edged thatindirecttaxes tendto increase povertyas theyare gen-
erallyregressive(World Bank, 2001: 70). However, this does not
lead the Bank to question regressivetaxes in favourof higherdi-
rect income and business taxes, which could play an important
role in the redistributionof income and assets. Rather,the Bank
suggests that the negative effectsof regressive taxes should be
temporarilyoffsetthroughthe expendituresystem.Again, there
seems to be a contradictionbetweenthe goal of povertyreduction
and the actual policy advice thatis given to developing countries
in the area of taxation. The recommendationsemerging in the
area of taxation under the inclusive-neoliberaldevelopment re-
gime ratherthancontributing to povertyreductionhave thepoten-
tial to substantiallyworsen the situationof the most disfavoured
and oppressed in society,depending on what kind of compensa-
tion policies will go hand in hand withthe introductionof regres-
sive taxes. Thus, while there is a strong emphasis on poverty-
relatedgovernmentspendingin the fiscal realm,which markedly
distinguishesthe inclusive-neoliberalfromthe neoliberal devel-
opment regime, this extra money channeled towards the poor
could ironicallybe wiped out by increased tax burdens through
the introductionof indirectconsumptiontaxes.

Liberalization of Finance and Trade

The Sourcebook is also very clear when it comes to the
issues of trade and financial liberalization. In the Sourcebook,
financial and trade liberalization,policies that have been at the
heartof the WashingtonConsensus, are consideredpro-poorpoli-
cies. The elimination of financial repression (i.e. directed and
subsidized credit throughartificiallylow interestrates) and the
move toward market-determined interestrates and creditalloca-
tion are expected to generallyimproveresource allocation. More

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than that, financial liberalizationwill also provide poor people
"access to saferassets,.... incentivesto save, and access to credit
markets"(Klugman, 2002a: 22). However, this 'technical knowl-
edge' is highlycontestedas manyIFI criticsbelieve thatfinancial
liberalizationhas, in fact,contributedto the exclusion of the poor
(and particularlypoor rural farmers)fromcreditas interestrates
have generally shot up drasticallyin the aftermathof liberaliza-
tion, with creditbecoming unaffordableto the poor (UNCTAD,
Moreover, as poor people tend not to own propertythat
could serve as collateral,theyare usually denied access to credit
by financialinstitutionsoperatingunderthe profitmotive.Micro-
creditschemes mighthave mitigatedthe overall negative effects
of financial liberalizationon the poor, and indeed many PRSPs
discuss these schemes as a way to alleviate rural poverty
(Gottschalk,2005: 424). But it is importantto keep in mind that
interestratesin microcreditschemes are oftenhorrendouslyhigh,
reachingup to 30 per cent,and thatpeer-pressuremakes it essen-
tially impossible to default on loans. Additionally,high interest
rateshave due to the liberalizationof creditplaced heavy burdens
on governmentsas the servicingof domestic debt becomes more
expensive and resources are being divertedfromthe productive
towards the financialsector. Finally, high interestrates have ar-
guably had a negative effecton private investmentsin most de-
veloping countries,where privateinvestmentshave stagnatedas it
is more profitableto simplypark money in a high interestyield-
ing bank account than to invest in productive activities
(UNCTAD, 2002: 29). Again, thereis no consensus thatfinancial
liberalizationshould be considered a pro-poorpolicy as thereare
many convincing argumentsthat it has, in fact, had an overall
negativeimpacton thepoor.
The topic of tradeliberalizationis discussed at lengthin a
separate chapterin the Sourcebook. Overall, the Bank sticksto its
well-known,conventionalview that trade liberalizationbenefits
the poor as it is essential foreconomic growth,but also because it
improvesincome distribution.The Bank assertsthat"trade liber-
alization can thereforebe expected to help the poor overall, given
the positive association between openness and
growth"(Klugman, 2002b: 30). At the same time, the Bank ac-
knowledges the potentialnegative short-term effectsof trade lib-
eralization on the poor. According to the Bank, "[o]verall, indi-

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vidual countrystudies suggestthatadjustmentcosts are low rela-
tive to the gains fromliberalization;however,the extremelypoor
may be incapable of sustainingthemselveseven forshortperiods
under adverse adjustment costs" (Klugman, 2002b: 33). This
leads to the conclusion that "complementarypolicies - particu-
larlythe provisionof an effectivesocial safetynet- are therefore
necessary to minimize adjustmentcosts and to help make trade
reformwork for the poor" (Klugman, 2002b: 33). Additionally,
sequencing of trade liberalization is seen as an alternativeto
speedy, across-the-boardliberalization as it will allow market
participantsto slowly adapt to the new environment.Finally, the
Bank reassures us that "[i]n general, attainingand sustaininga
high rate of economic growthis a key factorin improvingout-
comes forthe poor over time" (Klugman, 2002b: 33). And trade
liberalizationis expected to bring about economic growth,more
employment,and higherwages in developing countryeconomies,
ultimatelycontributing to the overall goal of povertyreduction.
However, as UNCTAD points out,recentstudieson trade
liberalizationhave come up with fundamentallyopposed conclu-
sions. Again, the Bank's view is not uncontestedin academia and
amongst othermultilateralinstitutions.According to these alter-
native studies, trade liberalization has not only contributedto
higher levels of unemploymentin developing countries(Buffie,
2001), but also led to growing wage inequality,generallydisfa-
vouring unskilled workers (UNCTAD, 2002: 35). Poor and un-
skilled workershave oftenseen theirwages fall duringthe liber-
alization process, with declines exceeding 20 per cent in many
cases (UNCTAD, 1997). This view contrasts sharply with the
Bank's expectationthat liberalizationwill actually bring up the
wages of the unskilled and poor (Klugman, 2002b: 31). At the
same time, trade liberalizationcan have extremelyunfavourable
overall effectson developing countryeconomies as increased for-
eign competitionoftentimesleads to the closure of domestic in-
dustries,with an even greatereffecton unemployment,pay, and
poverty(UNCTAD, 2002: 37). In fact,many criticsof the Bank
argue that the most open developing countrieshave performed
worse thanmore protectedeconomies over the last 20 years when
it comes to economic growth.As Ray Kiely points out, "the evi-
dence suggests that trade liberalization does not have the out-
comes that the Bank expects, and that povertyhas actually in-
creased among LDCs with the most open trade regimes" (Kiely

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2004: 10).
While most of these alternativestudies do not deny the
importanceof tradeand world marketparticipation,theyhowever
acknowledge thatintegrationonly makes sense if domestic com-
panies are in a position to successfullycompete against foreign
competitors.Otherwise, liberalizationwill simply result in de-
industrializationand the disappearance of indigenous industries,
with all the negative side effects associated with de-
industrialization.In fact, World Bank advice in the Sourcebook
makes it seem difficultfordevelopingcountriesto pursue limited,
time-boundprotectionfor infantindustriesso as to provide an
opportunityof actively promotingthe developmentof an indus-
trial sector. This is however the developmentpath thatalmost all
developed countries,includingthe East Asian Tiger states,have
chosen in thepast (Chang, 2002; Wade, 1990).
Again, most PRSP countriesseem to stick ratherclosely
with the IFIs advice on trade liberalization,and a numberof de-
veloping countries that form part of the PRSP initiativehave
startedto furtherreduce theiralready low levels of protectionof
the economy (UNCTAD, 2002; Gottschalk,2005). While short-
term compensation might help to alleviate the most apparent
negative impacts of trade liberalization,and should thereforebe
welcomed, it does nothingto arrestthe growinginequalityin in-
come distributionwhich clearly underminesthe central goal of
povertyreduction. In the area of trade liberalization,the main
differencebetween inclusive-neoliberaland neoliberal policies
thus does not lie in the nature of trade policy but ratherin the
ways in which the state deals with the negative side-effectsof

Privatization of Public Utilities

Finally, the IFIs continue to openly and avidly support
the privatizationof public utilities in developing countries,in
many cases effectivelylinkingdebt reliefto the privatizationof
public utilities. It is argued that privatizationwill contributeto
economic growth,and lead to a general improvementin service
delivery throughextended coverage and better access. As the
Bank argues, "[t]he overarchingrationale for privatizationis its
potentialto create more efficientfirmsand stimulateeconomic
growth, generating the conditions for poverty reduc-
tion" (Klugman, 2002b: 286). While the Bank mightbe less en-

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thusiasticthanin thepast and more sensitiveto thenecessarypre-
conditions of successful privatization,such as competitionand
effectiveregulation,the goal of privatizingpublic utilitiesnever-
thelessremainsin place. This less enthusiastictreatmentof priva-
tization is also linked to the fact that privatizationhas recently
stalled in practice,particularlyin Africa,as a resultof opposition
fromdeveloping countrygovernments,local social movements,
and lack of interestfrom internationalinvestors.However, the
privatizationof public utilitiesclearly remains a top priorityon
the IFIs' agenda as utilityprivatizationwas, in many developing
countries,turned into a pre-conditionfor debt relief under the
HIPC II initiative.
Again, development economists and social movement
activistshave widely questioned the IFIs' notion that privatiza-
tion representsa pro-poorpolicy choice, and thatutilityprivatiza-
tion will unambiguouslyhelp in the attemptto reduce povertyand
contributeto promotingeconomic growthand developmentin the
periphery.Rather, study after study demonstratesthe negative
impactsof the privatizationof essential services and public utili-
ties on the poor and marginalizedin society (e.g. SAPRIN, 2003;
Bayliss, 2003). Moreover, many recentreviews of the privatiza-
tion of public utilitieshave completely questioned the rationale
forprivatization.As Bayliss' review of waterprivatizationin sub-
Saharan Africa suggests,privateownershipis not a miracle cure
forpoor enterpriseperformance.Rather,privatizationhas worked
well where utilitieshave already been performingwell prior to
privatization;however, privatizationhas not contributedto per-
formance improvementwhere this was not the case (Bayliss,
2003: 526). At the same time, the need for investorsto make
profitshas tended to put upward pressureon prices. These price
increases oftenhappened priorto privatizationas partof a reform
process in which public utilitiesare made more attractiveto inter-
There are many good reasons why privatizationis highly
contestedwithinthe developmentcommunity,and the IFIs them-
selves have recentlybegun to acknowledge some of the negative
side-effectsof privatization,in particularescalating prices, and
the need to offsetthese throughdifferentformsof subsidization.
Unsurprisingly, prices for essential services have, in most cases,
not come down in the aftermathof privatizationas predictedby
the Bank, which expected efficiencygains to translateinto lower

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prices (Klugman, 2002b: 286). The need to recovercost and gen-
erate profitshas, in many cases, drivenprices up to levels unaf-
fordable to the extremelypoor (Bayliss, 2003: 516). Conse-
quently,developing countrygovernmentsare expected to subsi-
dize the extremelypoor throughtaxpayer revenue or revenue
fromotherservice users in orderto guaranteeuniversalaccess to
privatized services in sensitive areas such as health care provi-
sion, education, water provision,or in otherareas where service
provision is critical to the health of poor people (Klugman,
2002b: 286).
Again, the Bank does not break with the neoliberal logic
of commodificationbut ratheracknowledges the need to subsi-
dize those thatcannotbecome 'normal' customersand effectively
participatein markettransactions.Throughsubsidizingpoor mar-
ket participants,the IFIs attemptto make markets fully func-
tional, sustainable,and hegemonic until they do not require fur-
ther subsidization. While all the elements of inclusion through
compensation and subsidization discussed in the Sourcebook
mustbe seen as a minorvictoryin the fightforpovertyreduction,
the neoliberal logic of commodificationand marketcolonization
of all aspects of social life are not fundamentallychallenged in
the inclusive-neoliberaldevelopmentmodel thatis promotedun-
der thetutelageof PWC.

Participation as a Technology of Inclusion

The idea of civil societyparticipationis a new elementin
the discourse of the IFIs that has been operationalizedwith the
introductionof the PRS approach. As noted earlier, one of the
declared aims of the PRSP process is to broaden the participation
of civil society,and especially of the poor themselves,in the de-
sign of the povertyreduction strategies.The inclusion of civil
society actors and the poor themselves representsan attemptto
discipline and integratesome of the most fiercecriticsof the neo-
liberal policy paradigminto the policy-makingprocess, a process
in which the parametersof the finalproduct(inclusive neoliberal-
ism) have, however,alreadybeen established.
Indeed, the termparticipationitselfis highlyambiguous
and carries differentmeanings for differentactors. According to
theiSourcebook,the mechanismsof participationcan be participa-
toryresearch (i.e. perceptionsof the poor), informationdissemi-
nation,consultation- informaland structured - and the formation

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of committeesand working groups on issues dealt with in the
PRSP (Klugman, 2002b: 238). Moreover, the World Bank also
emphasizes the need to reach a wide range of stakeholdersand to
engage local level stakeholdersin the participationprocess in or-
der to build a country-wideconsensus around povertyreduction
efforts(Klugman, 2002b: 245). In doing so, developing country
governmentsshould attemptto build partnerships betweenpolicy-
makers, service providers, and local constituents (Klugman,
2002b: 246). This understandingdifferswidely fromthe under-
standingof civil society groups, forwhich participationinvolves
the actual transferof power to the poor, and theirabilityto par-
ticipate in the decision-makingprocesses in order to shape and
implementpolicies thatare in theirown interests.
Unlike withthe policy componentof the PRSP, which is
evaluated by the IFIs and eitherendorsed or declined, thereis no
in-depthanalysis of the participationprocess and the extent to
which CSOs participatedin the formulationof national PRSPs.
The World Bank stressesthatthe participatoryprocess itselfwill
vary greatlyfromcountryto countryas each countryis blessed
withpeculiar governmentstructures, a unique set of social institu-
tions, and an idiosyncratichistoryof civil society participation
(Klugman, 2002a: 5). According to the IFIs, this means thatit is
essentially impossible to develop a blueprintfor participation,
which could serve as a guide to the implementationof participa-
tion or forthe evaluation of participation.As the World Bank ar-
gues, "there is no blueprintfor participation,especially at the
macro-economic level. On the contrary,there are a number of
choices given a country'sparticularcontext,its startingpoints,
what is considered feasible in thatcountryand what outcomes it
hopes to achieve" (Klugman, 2002b: 238). But this also means
thatthe quality of participationwill not be evaluated by the IFIs
accordingto any fixed criteria,a factthathas been problematized
by many non-governmentalorganizations (NGOs); as long as
disregardingcivil societyvoices has no directimpacton IFI fund-
ing, governmentswill not feel a strongincentiveto incorporate
the views of civil societyactorsintonationalPRSPs.
As the participationof civil society is not being evaluated
by the IFIs, criticalvoices have suggestedthatparticipationmust
be seen as an attemptto disarmthe most active criticsof the IFIs
by co-opting them into the policy process (Bond, 2004, Cam-
mack, 2004; Fraser 2005). This seems plausible given thatpartici-

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All use subject to JSTOR Terms and Conditions
pation is, by a varietyof developmentstakeholders,understoodto
be essential if social structuresare to change and adjustmentpoli-
cies are to be implemented.It is thoughtby the IFIs thatif civil
society is engaged in programsand projects fromthe outset,then
thereis a greaterlikelihood thattheywill be accepted. As Wolf-
ensohn points out in the proposal forthe ComprehensiveDevel-
opment Framework,"[depending on local circumstances,civil
societyhas a greateror lesser voice, but our experienceis thatby
engaging civil society in projects and programs,betterresultsare
achieved both with design and implementationand usually
greater effectiveness"(Wolfensohn, 1999: 9). In this vein, the
World Bank argues in theSourcebook that"[negotiation between
stakeholdersover prioritiescan lead to broader ownershipand a
more widely accepted consensus around development poli-
cies" (Klugman, 2002b: 241).
Thus, as neo-Gramsciantheorysuggests,the main goal of
participationseems notto be the incorporationof alternativeideas
by civil society into national PRSPs or the empowermentof the
poor, but ratherthe creationof a consensus aroundthe contentof
the PRSP, whose parametershave been definedby the IFIs before
participationeven begins. Inclusive neoliberalismhas appropri-
ated participationonly to turnit intoa policy tool to bettercontrol
and discipline civil society agents and the poor. It is, however,
unlikely that this co-optationstrategywill be successful, as the
lack of real participationhas furtherpoliticized and radicalized
many civil society actors and has furthercontributedto counter-
hegemonicanti-neoliberalstrugglesin manyPRSP countries,par-
ticularlyin Latin America (e.g. Kohl, 2002; Hickey and Mohan

This paper has provided a descriptionof the shiftfrom
structuraladjustmentto povertyreductionpolicies withinthe IFI
developmentdiscourse and highlightedsome of the elements of
the new PRS approach. The risingcriticismof the neoliberal ad-
justment policies and their failure to deliver robust economic
growthand to contributeto povertyreductionin the developing
world have promptedthe IFIs to reorienttheirdevelopmentap-
proach away fromthe WashingtonConsensus-informedstructural
adjustmentpolicies. As a result,the IFIs have reframedtheirde-
velopment approach throughthe PWC and have introducedthe

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concepts of country-ownership, participation,and povertyreduc-
tion into the development debate. Moreover, the IFIs have
pledged to take a 'back-seat' and let developing countriesdeter-
mine theirown developmentpolicies and priorities.
While many criticshave questioned the extentto which
this shiftis real and not merely rhetorical,this paper has sug-
gested that a novel inclusive-neoliberaldevelopment regime is
materializingthroughthe Comprehensive Development Frame-
work and the implementationof national PRSPs. However, this
new regimeis itselfladen withnumerouscontradictionsand does
not resolve many of the problems of uneven developmentin the
world economy (Harvey, 1985). Quite the contrary,the CDF and
the PRS approach representan institutionalizedexpressionof the
contradictionsof capitalistsocial relationsmanifestat a plethora
of differentlevels (Taylor, 2004: 167). The centralcontradiction
of this new consensus is the incompatibilityof neoliberal macro-
economic and poverty-sensitivesocial policies. Despite the ab-
sence of positive developmentresultsfromneoliberal macroeco-
nomic policies, the Bank and especially the Fund still seem to be
unwilling to move substantiallybeyond their neoliberal macro-
economic policy prescriptions,which informedthe era of struc-
tural adjustment.Nevertheless,developing countrygovernments
are asked under the inclusive-neoliberalregime to increase their
poverty-related spendingand to subsidize the consumptionof the
disempowered and impoverishedthroughthe erection of social
safetynets,clearly a firststep in underminingthe logic of neolib-
eral rule.
In a sense, inclusive neoliberalism is a totalizing force
thatis full of complex contradictionsand compromisesin as far
as it attemptsto incorporateand neutralizeits criticsand to pro-
vide materialincentivesto the disempoweredmasses, while at the
same time adhering to the basic principles of neoliberal com-
modificationand marketcolonization of the lifeworld.It intro-
duces new selectivityand policing mechanisms which tighten
criteriafor access to development funds,by linking debt relief
(and thepromiseof inclusion) to ever more stringentconditionali-
ties, while claiming that developing countries now 'own' their
povertyreductionstrategies,and are thereforefully responsible
forthe implementationand developmentresultsof each and every
PRSP. Finally, inclusive neoliberalism is a shallow social com-
promise (compared to the post-warsocial-liberal welfarestate) in

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that it does not aim to decommodifyimportantaspects of life
through the granting of social citizenship rights (Esping-
Andersen, 1990) but ratherfocuses on the subsidization of im-
poverished consumersin the contextof privatization.It therefore
fitsnicely withinthe wider neoliberal project,which is based on
accumulationby dispossession (Harvey, 2003) and accumulation
by subsidization(Ruckert,forthcoming).In the PRS approach, it
is, however, 'unfitmarketparticipants'not corporationsthat are
subsidized by public monies in an attemptto reproduce stable
markets in highly sensitive areas, such as in the provision of
health care and water. This implies that it is problematicto sug-
gest thatthe turnto inclusive neoliberalismis only a juridical and
rhetoricalturn,completely lacking elements of (material) com-
promises. However, it seems highly unlikelythat the extremely
scant materialincentivesgiven throughPRSPs will sufficeto pro-
duce a trulyhegemonicneoliberal orderon a global scale.

Departmentof Political Science, Carleton University,Canada
Email: aruckert@connect.carleton.ca
The discussionof ownershipis not an entirelynew elementin the
Bank's discourse,but withthe introductionof the PRS approach
has arguablymovedcentre-stage.
While the Sourcebookis editedby JeniKlugman,it has been pre-
pared mainlyby Bank and Fund staffand functionsas a guide to
assist countriesin the developmentand strengtheningof poverty

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