As discussed in the fifth post in this series, right-leaning neo-liberalism is a political project dressed up as economic policy. Free market fundamentalism is not the raison d’etre of right-leaning neo-liberalism but a means to the further end of protecting the owners of property and extending their influence. The ultimate goal, as Ludwig von Mises’s letter to Ayn Rand suggests, is to secure the social dominance of property owners over the “inferior” masses.
It should be clear by now that this is much different than structural adjustment policies (SAPs), which were economic rather than political projects. To the extent that SAPs emphasised property rights, it was in the context of opaque or corrupt legal systems and limited land registries. The resulting lack of security over ownership of assets added risk and cost to all kids of contracts and market transactions. Calling for a legal system that protects property rights is different than saying that property holders have more rights than non-property holders, and to equate the two is to misunderstand––and severely underestimate––what right-leaning neo-liberalism really intends.
Nevertheless, SAPs did contribute to the neo-liberal project. And they did so by re-introducing TINA: “There Is No Alternative”. First used by Margaret Thatcher in 1980, SAPs (beginning in 1986) emphasised “prudent” macroeconomic policies, including limits on fiscal policy, regulation, and labor protection in the name of encouraging investment. These programs were sold with heavy doses of TINA––along with threats to cut off funding of balance of payments deficits.
After nearly two decades in which SAPs had not reversed weak agricultural growth, declining industrial output, poor export performance, climbing debt, and deteriorating social indicators, the World Bank sought an answer and found it not in its policy prescriptions but in “a crisis of governance”: unaccountable political leaders, ineffective civil services, and unreliable judiciaries that led to weak financial systems, inefficient regulatory mechanisms, excessive political interference, and widespread corruption.
To address this, a scorecard of more than 100 indicators was created to measure governance, focusing on perceptions of voice and accountability, political stability and the absence of violence, government effectiveness, regulatory quality, the rule of law, and levels of corruption.
No one doubts that good governance is important. Governance that is effective, legitimate, and responsive provides untold benefits, especially when compared to the alternative: inefficient governance, cronyism, and corruption. But the focus on governance reform did not prove nearly as effective as promised in fostering development.
Why? Ultimately it was simply the SAPs in a new package. Although the Good Governance agenda’s acknowledgement that the state has a critical role to play in promoting development was a major departure from the anti-statism of SAPs, it continued to emphasise the private sector as the only engine of growth and sustainable development. The goal at the heart of the Good Governance agenda was to achieve the “right” conditions for market-led growth. This meant that the state’s role was not as a direct provider of growth but as a “partner, catalyst, and facilitator”. In other words, the role of the state in the Good Governance agenda was only to uphold the rule of law, promote competition, and regulate the financial system, while avoiding excessive intervention in the economy.
Like the SAPs, the Good Governance agenda promised that the result would be accelerated growth that would provide governments with “fiscal space” to focus on social spending. However, like the SAPs, the agenda did not include guidelines for social spending, and such spending ran counter to the agenda’s emphases on macro-economic “prudence” and minimising government intervention in the economy.
And like the SAPs, this approach contributed to the neo-liberal project by promoting legal and judicial reforms that tended to place law on the side of property. As mentioned in the fourth blog in this series, “property” (in the form of land, equipment, a business, a skill, or an idea) is inherently worthless unless there are people to farm the land, work the mines, and run the machines, and execute the ideas. However, this is not the whole story. Property needs something else in order to be transformed into wealth-generating capital: legal recognition and protection.
Specifically, The Code of Capital, as outlined by Katharina Pistor, an expert on corporate governance, property rights, and comparative law and legal institutions at Columbia Law School, has four essential characteristics. Laws and regulations decide on priority, which means that some asset holders enjoy stronger rights than others; and when the law extends these rights against future claims, it lends the asset durability, allowing capital to grow. Convertibility enables those assets to be exchanged for cash and thereby locks in past gains. Finally, universality ensures that not only parties to the transaction but all people have to yield to these legal rights.
Thus not all assets are equal, because they possess these legal attributes in different ways and to different degrees, and these differences confer on them different capacities for wealth creation. A simple way this works in the real world is that a farmer without hard land title or the operator of an unincorporated micro-enterprise has fewer options in the market and must, for example, pay more to borrow than those whose assets have legal standing.
In other words, property exists only by virtue of legal coding. The way the legal code grants rights and privileges empowers some assets, and thus the individuals and groups that own them, more than others. This means that the powers of wealth creation, preservation, and distribution are also contained in the legal code. And although SAPs and the Good Governance agenda treated these issues as if they were technocratic, in fact, the process of legal reform is inherently political.
In some respects, this is understandable that SAPs and Good Governance were applied without reference to local politics since development agencies’ mandate prohibits them from influencing local politics. However, there is a big difference between taking the local political situation as given and doing nothing to ameliorate the negative consequences of policy prescriptions because of that political situation.
SAPs and the Good Governance agenda may not have been part of a nefarious plot to chain developing countries to a globalised neo-liberal economy, as some have claimed. But even if their prescriptions were a good-faith effort to foster economic development based on relatively mainstream views, the problem that they did not include any countervailing measures against local politics, which is the original problem that grass-roots development programs identified and sought to address. In fact, the rhetoric of TINA is how local politicians ask their citizens to consent to the “irresistible logic” of the market and accept policies that favor economic elites.
Ron Bevacqua is an Adjunct Research Fellow at the Griffith Asia Institute as well as the Co-Founder and Managing Director of ACCESS Advisory Inc.
