The neoliberal mantra that governments should just ‘facilitate the private sector’, along with the practice of austerity policies, have together meant lack of needed public investments over the years to build resilient economies. Hence, while private spending under another neoliberal mantra of ‘market fundamentalism’ that market signals will bring optimal decisions for the economy, and therefore, regulation should be minimized, on the contrary led to decisions by the private sector that mainly followed the ‘profit-over-people’ minded signals.
Overall, when the covid-19 pandemic hit for instance, and all those years for example since roughly the start of the current millennium when covid-19 continued to spread from time to time as an epidemic, the cracks in the global economy in terms of lack of preparedness to deal with shocks, lack weak public health sector in the case of dealing with a pandemic, or better safeguards placed to keep bank lending in much cautious territory as the Global Financial Crisis of 2007-08 indicated as an outcome of lack of such safeguards over the years, all meant that neoliberal experiment had failed.
Criticizing this state of affairs of economics in his recently published book, Nobel laureate in economics, Angus Deaton was quoted from that book in an article ‘A Nobel laureate offers a biting critique of economics’ published by Bloomberg as ‘So, when the Princeton University emeritus professor has a new book out with the sober title Economics in America you might anticipate a valedictory celebration of the wonders of the discipline. It’s anything but. What Deaton calls his mea culpa is a broadside on his profession and some of its most celebrated figures. Economists and their relentless focus on markets and efficiency, as well as their dogmatic attachment to theories (even after they’ve been disproven), have had life-or-death consequences for millions, he argues. …Deaton believes [Larry] Summers and a small cadre of influential economists helped lay the foundation for the Asian financial crisis of the late 1990s and also the 2008 global financial crisis by recklessly helping to ease restrictions on the flow of speculative capital around the world. …Deaton’s primary complaint isn’t with Summers. It’s that the profession has become intoxicated with markets and money, losing sight of its primary mission as set out in its earliest days by Adam Smith, John Locke and others who came to economics via philosophy and other fields, rather than commerce. “The discipline has become unmoored from its proper basis, which is the study of human welfare,” Deaton writes in his book.’
Moreover, United Nations Conference on Trade and Development (UNCTAD) in its report on ‘Trade and Development’ that it recently published and titled ‘Growth, debt, and climate: realigning the global financial architecture’, pointed out the negative impact of practice of over-board monetary austerity in terms of debt distress on a number of developing countries globally, including Pakistan. The Report pointed out in this regard ‘This Report presents an alternative response, in which the pace of disinflation takes into consideration the impact of high real interest rates not only on inflation indicators, but also on economic activity, employment, income inequality and fiscal stability. In an interconnected world in which developing countries are potential engines of economic growth, policymakers in advanced economies should take into account the damage that high interest rates can cause to long-term investment – both in terms of structural change and climate adaptation– as well as debt sustainability. In the current international financial architecture, policy space is easily curtailed by movements in financial markets, with heavy impacts on social policies, investment and employment generation.’
Hence, there is a need to rein in austerity policies, for greater public investments, which in turn will bring greater empowerment of the demos in terms of their political voice, towards pushing public policy for placing much-needed deeper taxes on the rich for instance.
For making greater public investments, while it is indeed important that developing countries enhance their tax base, and increase tax progressivity, it is also necessary to reduce the burden on developing countries to adopt austerity policies through reaching a much more meaningful level of multilateralism, especially in terms of both greater debt relief, and a fresh allocation of special drawing rights (SDRs) to the tune of $650 billion, as was done by the International Monetary Fund in August 2021, but with a much-needed needs-based (and not the usual quote-sharing formula) sharing criteria in these extraordinary times of a world in the grip of a polycrisis.
It is also necessary to reduce the burden on developing countries to adopt austerity policies through reaching a much more meaningful level of multilateralism, especially in terms of both greater debt relief, and a fresh allocation of special drawing rights (SDRs) to the tune of $650 billion.
It makes sense here to indicate a recently strong push made for such allocation of SDRs, as pointed out by an October 4, 2023 published article ‘Exclusive: The congressional push to create $650 billion’ by ‘Axios’ as ‘The International Monetary Fund should, once again, create $650 billion in Special Drawing Rights (SDRs)– just as it did in 2021. That’s the view of a broad range of civil society institutions. It’s also the view of 59 Democratic members of Congress, including six senators, who co-signed a letter to President Biden and Treasury Secretary Janet Yellen first obtained by Axios. …The SDR issuance has the potential to be transformative, not just for the domestic economies of low- and middle-income countries that are struggling with high debts, but also for the global climate, the letter argues. …The $650 billion number is carefully calibrated to be the maximum the IMF can issue without congressional approval. If Yellen directs the US to vote in favour, then there’s a very good chance the issuance will happen.’
To quote from the Letter in this regard ‘A new issuance of SDRs can be seen as an insurance policy for the US as well as the rest of the world, and your administration can take effective action on its own by supporting a new issuance of SDRs at the IMF. Leading your administration now to support a new issuance of at least $650 billion in SDRs is a simple, cost-free, and effective way of saving many export-related jobs— including manufacturing and union jobs– in the US, while saving many lives in developing countries and mitigating the effects of a global slowdown. SDRs are a readily available and effective tool in your economic policy toolbox– we urge you to use it.’
With regard to understanding the importance of making larger public investments globally, renowned economist Mariana Mazuccato for instance pointed out in an article ‘Putting the Common Good at the centre of economic transformation’ published in a report ‘Time for global public investment’ recently by Global Public Investment Network, as follows: ‘These principles are relevant at the international level as well and are well represented in the growing call for Global Public Investment [GPI]– a form of cooperative international investment that is co-created, accountable, ambitious and focused on the common good. GPI puts the global common good at the heart of international public finance and foregrounds the role of public money as a valuable tool for shaping development outcomes, rather than filling the gap in the absence of other monies.’
Moreover, in the same report, noted global thinkers Jayati Ghosh and Jonathan Glennie indicated in their article ‘International public finance cannot be replaced by private money’ as follows: ‘A very large part of the investment required to meet the SDGs falls into one of these two categories. This means that governments have to spend to ensure such investment, either directly or through directing market-based investments through incentives or regulation. In many cases, it is more impactful and more cost-effective for governments to undertake this directly through public investment.’
