Karl Polanyi Revisited:
The Purposes and Consequences of Neoliberal
Policies in Ghana and Bolivia
Semester Project:
Development and International Relations – 8th Semester
2014
Project Members:
Bruna Afonso
Han van Kammen
Jeroen Haans
William Towsend
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Table of content
1 Introduction
3
2 Contextual Background
5
2.1 From Keynesianism to Neoliberalism
5
2.2 The International Monetary Fund and the World Bank
6
2.3 Ghana and the IFIs
7
2.4 Bolivia and the IFIs
8
3 Methodology
11
3.1 Applying theory
11
3.2 Ghana and Bolivia, a comparative case study
12
3.3 Content analysis
13
3.4 Methodological discussion
14
4 Theoretical Framework
4.1 Liberalism, monetarism and the Washington Consensus
15
15
4.2 Neoliberalism, monetarism and the shift of IFIs
after the Nixon shock
16
4.3 From the Washington Consensus
to the Post-Washington Consensus and PRSPs
4.4 Karl Polanyi’s ‘Double Movement’
5 Analysis
17
20
25
5.1 Purposes of neoliberal policies
25
5.1.1 Liberalisation of trade
25
5.1.2 Privatisation policy
26
5.1.3 Water privatisation
26
5.1.4 Tight fiscal policy
27
5.2 The case of Ghana
27
5.2.1 Ghana’s Poverty Reduction Strategy
27
5.2.2 Ghana’s GDP and HDI
28
5.2.3 Liberalisation of trade in Ghana
29
5.2.4 Privatisation policy in Ghana
31
5.2.5 Water privatisation policy in Ghana
33
5.2.6 Fiscal policy in Ghana
35
5.2.7 Ghana’s double movement
37
2
5.3 The case of Bolivia
38
5.3.1 Bolivia’s Poverty Reduction Strategy
38
5.3.2 Bolivia’s GDP and HDI
39
5.3.3 Liberalisation of trade in Bolivia
40
5.3.4 Privatisation policy in Bolivia
42
5.3.5 Water privatisation policy in Bolivia
43
5.3.6 Fiscal policy in Bolivia
44
5.3.7 Bolivia’s resistance, the government as a social movement? 46
5.3.8 Bolivia’s double movement
47
6 Discussion
49
7 Conclusion
51
Appendix
53
Bibliography
55
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1. Introduction
Neoliberalism is the dominant ideology shaping and constraining - for better or worse - our
world today. Since about 1978, it has spread to all corners of the globe with its doctrine that
market exchange is an ethic in itself (Harvey 2007: 1). It is a theory of political economic
practices that propagates that the most effective way to advance human well being is through
an institutional framework that is highly conducive to free markets, free trade, privatisation,
strict financial policies, a small state and strong property rights (Dowding 2011: 438). Almost
all states, either voluntarily or through more coercive measures, have embraced these
capitalist neoliberal policies in some form (Harvey 2007: 3). Neoliberalism, then, is at the
same time the ideological framework used by major International Financial Institutions (IFI)
to implement development strategies. In the context of this project, IFIs refer to, arguably, the
two main IFIs; the International Monetary Fund (IMF) and the World Bank (WB).
In a world where economic crises and problems are regular, and 2.4 billion people live
on under $2 a day, the IFIs are highly influential and important actors on the world stage
(World Bank 2014a). For example, under their Highly Indebted Poor Countries (HIPC)
Initiative, 35 countries, based on a number of conditions they must meet, are receiving funds
to cancel their debt. However, there is a large and varying degree of controversy surrounding
these institutions and their policies; they have even sparked violent street protests in a number
of countries (BBC 2012). Protestors and critics unite in their distaste for the neoliberal
policies the IFIs advocate; arguing that the type of globalisation and pure free trade they
support has led to an exploitation of impoverished individuals and the environment. Hence
inequality, dependency and marginalisation, it is contended, are increasing, rather than
decreasing – a contradiction from the proposed purposes of the IFIs policies.
Within the development discourse, the view that economic growth, stimulated through
neoliberal projects and strategies, is the means to human well-being is highly contested. Those
that disagree with the neoliberal view of development believe higher income does not
necessitate a better life. For some commentators, important aspects of life such as rights,
opportunities, freedoms, education and sustainability are more important indicators of
development rather than a higher GDP (Streeten 2008: 3-5). A growing GDP figure can, for
instance, provide an illusion that a country is doing better. A handful of wealthy elites getting
richer through selling valuable natural resources to a Western firm can increase GDP figures
while income inequality of the respective population remains the same (Streeten 2008: 5-6).
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It is with all the above in mind, then, that we come to the problem formulation of this
project: What has been the purpose of the neoliberal policies of the International Financial
Institutions and what consequences did these policies have for market-society relations in
Ghana and Bolivia? The possible aforementioned contradictions provide the reasoning behind
our problem formulation. In theory neoliberalism, neoliberal advocates and the IFIs contend
that transnational capitalism is the only way for humans to prosper and develop. Yet, it can be
argued that there is evidence that the consequences and outcomes of the IFIs neoliberal
policies differ tremendously from their intended purposes. By focusing on two case studies –
Ghana and Bolivia – we aim to describe, analyse and evaluate the social and economic impact
of WB and IMF policies and whether the purposes behind them meet their expectations or
not. Karl Polanyi’s ‘Double Movement’ thesis will serve as our theoretical framework since it
will be able to provide us with a perspective on how neoliberal policies can induce resistance
and what consequences this has for the market-society relations of a country.
Following this brief introduction, the next chapter will provide a contextual
background to the problem formulation; explaining the series of events that led to the
dominance of neoliberalism and some background knowledge on both Ghana and Bolivia.
Subsequently, a methodology is given outlining how the problem formulation is to be solved.
Afterward, we draw up the theoretical framework used for our analysis. Next our two case
studies are provided: looking individually at the consequences of IFI induced trade
liberalisation, privatisation, water privatisation and fiscal policy. Finally, the findings and
analysis are discussed; the arguments are tied together, evaluated and then concluded.
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2. Contextual Background
The policies that IFIs are implementing in developing countries are strongly influenced by
neoliberal ideas. To understand why the IFIs are functioning in the particular way they do, an
outline of the rise of the neoliberal paradigm will be given in this chapter. Subsequently, this
outline is followed up by a closer inspection of the IFIs. Finally, a short review of the
historical relationship between the two countries in question and the IFIs will conclude the
contextual background for our analysis in chapter 5.
2.1 From Keynesianism to Neoliberalism
In 1944, when the second World War was coming to an end, the soon to be victors started
planning the reconstruction of Europe. The forty-four allied countries signed an agreement
that would change world affairs in a drastic way (Przeworski and Vreeland 2000: 388). The
two financial institutions that were founded in the agreement were the International Monetary
Fund (IMF) and the International Bank for Reconstruction and Development (IBRD)
(Humphreys 2011: xv). The initial role of the IMF was twofold. Its first task was to manage
the exchange rates between countries in relation to the gold standard, while its second
objective was to help countries who had problems with their balance of payments by offering
them a possibility to apply for emergency funding. The IBRD had as its main goal the
reconstruction of a devastated Europe through providing loans (Przeworski and Vreeland
2000: 388).
John Maynard Keynes, a British economist, was one of the driving forces behind the
founding of the Bretton Woods institutions. His famous book The General Theory of
Employment, Interest and Money had a long lasting influence on economic policies. After
WWII Keynesianism was the dominant economic paradigm until the mid 1970s (Palley
2004). Keynesianism emphasises full-employment and a ‘big state’ that has to intervene in the
market where there are market failures. Therefore, in a crisis situation the state has to spend
money to let their citizens be employed and to keep the economy functioning.
During the mid 1970s Keynesianism lost popularity due to the struggles of the
Vietnam War and the Oil Crisis. The combination of stagnation and inflation, together called
stagflation, also caused severe economic problems (LK 2011). These problems, in most
western countries, led to a reconsideration of Keynesianism because within this paradigm it
was problematic to fix the symptoms of stagflation. This is because rising unemployment asks
for government spending while high inflation asks for tight economic policies. The rhetoric of
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‘free-markets’ won terrain and with the inauguration of Ronald Reagan as US president and
the election of Margaret Thatcher as Prime Minister of the UK the way was paved for a shift
to neoliberalism (Palley 2004). Neoliberalism is based on the economic liberal ideas first
coined by scholars like Adam Smith and David Ricardo who emphasized the importance of a
division of labour, the idea of a free-market and concepts like ‘the invisible hand’ and
‘laissez-faire’.
In general, policies associated with neoliberalism are trade liberalisation, export
diversification, targeting of inflation, lowering of tariffs, devaluation of countries’ currencies,
free movement of capital and cutting in state expenses. Because neoliberalism became the
main paradigm in macroeconomics the policies of the IFIs changed as well. After dropping
the gold standard the IMF had to reinvent itself because its main task had become irrelevant
(Przeworski and Vreeland 2000). Instead it started to focus on underdeveloped countries and
together with the World Bank (the former IBRD) the IFIs made it their goal to create
economic growth in these countries. The tools used by the IFIs are programs like the Poverty
Reduction Strategy Papers (PRSP), which aim to implement the neoliberal ideas described
above.
2.2 The International Monetary Fund and the World Bank
The IMF currently has two key roles. First, it is concerned with solving balance of payments
disequilibriums, creating exchange rate stability and increasing the growth of international
trade – all of which come under the umbrella of immediate crisis control and smoothing
global commerce. Secondly, it is heavily involved in the surveillance of the global economy
through coordination with international financial regulatory agencies. All member nations of
the IMF have the right to IMF financial assistance; each country, depending on the size of its
economy, has a quota and members at any time can use 25% of their quota. If a country faces
a crisis, however, and more is needed, up to three times the amount of the quota can be used.
This, though, has large implications regarding the conditionality of the financial assistance.
Furthermore, nation’s voting rights within the IMF are dependent on the size of its quota,
meaning the institution is largely controlled by Western Europe and the US (Kegley and
Raymond 2014: 122). Recently, a large proportion of the IMF’s work has focused on
stabilizing the economies of underdeveloped nations and creating neoliberal based conditions
that they believe encourage, and help to achieve, sustainable economic growth and poverty
reduction (Boughton and Lombardi 2009: 1).
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The WB, on the other hand, has the primary responsibility for financing economic
growth and development. Owned by the governments of its 188 member states, the WB is an
investment bank that intermediates between investors and recipients; lending to one and
borrowing from the other. It has become the world’s largest source of development assistance
and much like the IMF it operates according to neoliberal rules (World Bank 2011: 1).
Decision making within the WB is based on votes and perhaps unsurprisingly “votes are
tallied according to a weighted system that is intended to protect the interests of the great
powers that make substantial contributions to the WBs resources” (Kegley and Raymond
2014: 121). Again, therefore, this IFI is largely controlled by the West. In the next two
sections of this chapter we address the relationship between Ghana and Bolivia, respectively,
with the IFIs.
2.3 Ghana and the IFIs
Ghana, a state in the west of Africa, gained its independence from Britain in 1957. In the first
period of its independence, Ghana experienced high levels of socio-economic growth thanks
to its policies of free healthcare, education and mass industrialisation (Hutchful, 1985: 122).
However in 1965, due to external shocks, the economic situation deteriorated and, faced with
the prospect of needing an external bailout, Ghana approached the IMF for help (Action Aid
2010: 3). However, the Nkrumah administration rejected the conditionalities of the proposed
bailout and a year later, after further socio-economic problems, the government was
overthrown.
The next government, the National Liberation Council, again, following a drop in
living standards, approached the IMF and this time accepted the IMF’s conditionalities.
Amongst these were the reduction in government expenditures, large scale retrenchments in
the public and private sectors, devaluation of the national currency and a reduction in bank
credits (Action Aid 2010: 5). After an election in 1969, the Progress Party became the new
government and continued to pursue the IMF’s market oriented prescriptions. During the
period 1966-1971 the IMF’s conditionalities produced improved economic growth and the
much desired macroeconomic stability (Action Aid 2010: 6). Despite this improvement,
however, exports were still largely based on the primary commodity cocoa, leaving Ghana’s
economy vulnerable to the volatility of price changes.
By 1972, the Ghanaian economy was in a similar position to its predicament in 1965;
reduced growth and increasing fiscal and current account deficits dominated due to falls in
cocoa exports, competition, smuggling and unrealistic producer prices (International Business
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Publications 2012: 62). In response to this, the Ghanaian government implemented further
IMF prescriptions – further austerity measures, for instance, which resulted in widespread
socio-economic troubles (Action Aid 2010: 8). This resulted in Ghana’s second coup d’état
and the Progress Party was overthrown in January 1972 (Shillington 2004: 578). The new
governing party, the National Redemption Council, rejected IMF involvement and repudiated
their $94.4 million external debts (Amoaka 1980: 40). They also adopted policies of selfreliance and the mobilisation of domestic resources to spur development. In this regard, for
two years, the government was highly successful (Dickovick, 2013: 91).
However, the 1970s oil price hikes along with political corruption and fiscal
indiscipline, which led to a large fall in the government's tax base, resulted in a heavy reliance
on the banking sector for printing money in order to pay their debt. This, amongst other
factors, created high inflation and a public insurrection against the government; in 1978
another coup ensued (Shillington 2004: 579). Between 1979 and 1983, following the
overthrow of the government, varying levels of negative GDP growth and tumultuous
inflationary trends had tremendous implications for the socio-economic welfare of Ghanaian
citizens (Action Aid 2010: 10).
Consequently, in 1983, the Ghanaian government, facing further economic woes,
sought foreign assistance. After initially approaching the Soviet-bloc, they approached the
IMF and WB for help and the standard structural adjustment program (SAP) was announced
by the government (Aryeetey et al 2000: 44). Some of the conditionalities included the
liberalisation of trade, fiscal austerity, privatisation and the removal of subsidies (Akonor
2006: 87-90). These reforms reflected the neoliberal thinking of both the IMF and WB with
their optimistic view of the market mechanism as a driver of efficiency and development.
Between 1983 and 1986, the IFIs regarded Ghana's progress as a huge success. However,
acknowledging the social costs of the IFI’s neoliberal strategies in Ghana, the Ghanaian
government implemented the Program of Action to Mitigate the Social Cost of Adjustment to
address the situation (Action Aid 2010: 12). However this did little to improve the situation of
the poor. In our analysis in chapter 5 we will elaborate on the purpose of these neoliberal
policies and, subsequently, their consequences regarding market-society relations in Ghana.
2.4 Bolivia and the IFIs
It was in the early 1950s that Bolivia for the first time directly experienced the influence of
the IFIs. As was highly common for Latin American countries at that time, Bolivia followed
import substitution industrialisation (ISI) policies which were characterised by “high tariff
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walls, subsidized and managed credit, public sector expansion, currency overvaluation ...
price controls and subsidies and a constant distributive battle for a piece of the state-directed
pie” (Mann and Pastor 1989: 170-171). But these ISI policies proved to be ineffective for
socio-economic development. Therefore, largely in line with US cold war policy and backed
by US aid, a specific austerity program for Bolivia was developed by the IFIs to align it with
the western side of the bipolar world order (Kofas 1995: 215).
The main goal of the US and the IFIs was to contain the nationalist revolution that was
brewing in 1952 by creating social and political stability through a strengthening of Bolivia’s
economy. But the measures that were implemented were falling short of their expectations. It
was therefore decided by the Estensorro administration, that the Bolivian military had to be
strengthened so it would be in the position to oppose the rise of the communist workers
militias that were incited by the Cuban Revolution. But instead of creating stability, the
empowerment of the army created a precedent that would herald a period of political and
economic instability. The situation escalated when in 1964 the Estensorro administration was
overthrown by a military coup, and after the collapse of Bolivia’s democratic system through
this event, the country experienced many coups and counter-coups (Perkins, 2008: 95).
During the turbulent period after 1964, Bolivian negotiations with IFIs came to a halt.
The promotion of nationalism and sovereignty were essential for the military junta to exert
their authority and this left little room for outside interference. But aside from the halted
negotiations with the IFIs, the result of competing military juntas in the following two
decades, appeared to be far from satisfactory concerning Bolivia’s economic performance.
Eventually in the early 1980s, Bolivia endured an economic crisis that was caused by large
public fiscal deficits and a foreign debt of approximately US$ 3 billion that greatly exceeded
the country’s gross domestic product (see One World Nations Online 2014). Because the
military junta was unable to address the economic problems, it was forced to dissolve itself
and Bolivian democracy was reinstated in 1982.
But the new democratically elected administration of Siles Zuazo faced a great
challenge in improving Bolivia’s socio-economic condition. In addition to the hyperinflation
that had reached over 24,000 percent in 1985, the global tin market collapsed and caused even
more problems for Bolivia since it was largely dependent on this specific export sector. The
staggering effect of the hyperinflation caused the Bolivian government to turn once again to
the IFIs for assistance (Mann and Pastor 1989: 163-164). The Estensorro administration came
back into power in 1985 and replaced the failing government of Zuazo through democratic
elections. But the Estensorro administration abandoned its left ideology in favour of
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complying with neoliberal IFI policies. In our analysis in chapter 5 we will elaborate on the
impact of these neoliberal policies on market-society relations in Bolivia.
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3. Methodology
In order to provide a clear methodological approach for our project, we build on Alan
Bryman’s Social Research Methods (2004). In the first section of this chapter, we elaborate
on how we apply neoliberal theory and Karl Polanyi’s ‘Double Movement’ thesis in order to
answer our main research question. In the second section we explain our choice to take Ghana
and Bolivia as our case studies. Subsequently, in the third section we examine the method we
use for our research, namely content analysis. Finally, in the fourth section we discuss our
study’s limitations and what methodological problems we encountered.
3.1 Applying theory
Our main research question is What has been the purpose of the neoliberal policies of the
International Financial Institutions and what consequences did these policies have for
market-society relations in Ghana and Bolivia? The first aim of our study is to determine the
purpose of the neoliberal policies developed by the IMF and the WB. In order to understand
these neoliberal policies, it is necessary to inspect the theories of scholars like Milton
Friedman and John Williamson who are often pointed out as the main drivers behind
neoliberal thought. Especially the latter will be important for our analysis since the work of
Williamson culminated into the implementation of the Washington Consensus (WC) by the
IFIs in the late 1980s. The current socio-economic development of Ghana and Bolivia cannot
be analysed without taking the effect of the WC into account. Therefore the implementation
of the WC serves as the starting point of our analysis. Furthermore, the theories of the
aforementioned neoliberal scholars provides us with the theoretical framework regarding the
purpose of the neoliberal policies of the IFIs.
The past 30 years the influence of the IFIs has been substantial concerning the socioeconomic development trajectory of Ghana and Bolivia. But while there is some economic
success to be noted regarding the implementation of neoliberal policies, economic success
does not automatically imply social development. Some studies suggest that neoliberal
macroeconomic policies are not sustainable and that they have not been able to reduce
poverty and income inequality (Kohl and Farthing 2009). The mixed reviews of the IFIs
objectives, achievements and impacts across developing countries have been at the heart of
the discussions about development, growth and poverty.
Because of the 2009 financial global crisis, the role of the IFIs and the design of their
policies invoked a lot of critique from scholars as well as from the beneficiary governments of
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developing countries. This critique has in some cases led to strong opposition to the
implementation of neoliberal policies by the IFIs. We therefore use Polanyi’s Double
Movement thesis to be able to address the origin of this resistance and what consequences the
neoliberal policies have for market-society relations. Polanyi argues that countermovements
emerge as a form of resistance to neoliberal policies in order to protect the society from the
self regulating market. Thus, Polanyi’s theory will be suitable to understand why and how
these forms of resistance develop.
Through applying the aforementioned theories we are in the position to analyse in how
far they reflect reality, while we use them at the same time as a guideline to ascertain the
influence and impact of the IFIs on the socio-economic development trajectory of Ghana and
Bolivia. Our study can thus be seen as mainly deductive (Bryman 2004: 8-9).
3.2 Ghana and Bolivia, a comparative case study
The primary reason that we chose Ghana and Bolivia as the focus for this study is because
they are two very distinctive cases that are both heavily influenced by IFI policies. Ghana is a
resource rich and a relatively well governed country with strong access to maritime
transportation. Bolivia on the other hand is a landlocked country that has been characterised
by coups that have impaired the establishment of good governance. Because of the geographic
difference between Ghana and Bolivia the IFIs have involved themselves with these two
countries for specific reasons. In line with the concept of ‘path dependency’ we are convinced
that the distinct socio-economic history of Ghana and Bolivia accounts for a lot of the
differences regarding the options that are available for their own governments and the IFIs to
support socio-economic development (North 1990).
Our choice to take two countries as the object of our research grants us the possibility
to analyse the social and economic impact of neoliberal policies in two very particular
settings. This study, therefore, can also be described as a comparative case study. The
advantage of a comparative case study is that it allows us to broaden the scope of our study
through a deeper understanding of the socio-economic reality in two different national
contexts (Hantrais 1996). This method grants us the ability to distinguish the specific
characteristics of our two individual cases to act as a springboard for contrasting findings
regarding the theoretical framework of Polanyi’s Double Movement thesis (Bryman 2004:
55). In addition, through comparison, the results of our research are more relevant and reliable
than if we had only taken one case.
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3.3 Content analysis
The first part of our analysis focuses on the purpose of the neoliberal policies that have been
implemented in Ghana and Bolivia. Poverty Reduction Strategy Papers (PRSPs) can be seen
as the embodiment of the measurements which for a large part constitute the neoliberal
projects that IFIs have been undertaking to increase development. While the effectiveness of
the PRSPs is highly contested, these extensive documents contain the goals as well as the
means of neoliberal thought and offer a clear view of how the IFIs themselves perceive
development and how they aim to achieve it. But we are aware that we cannot offer an
objective account of the purpose of neoliberal policies if we only are to analyse the PRSPs.
Therefore, in addition to our analysis of the PRSPs, we also include other forms of material
that concerns itself with the execution of neoliberal policies like relevant scientific and
newspaper articles. From here on out we are able to effectively compare the neoliberal
policies as to with what intent they were implemented by the IFIs in Ghana and Bolivia.
While we do not want to limit ourselves in our analysis and want to keep our approach as
broad as possible, we aim to inspect specifically four topics that show a clear connection
between the purposes and consequences of neoliberal policies namely (1) the liberalisation of
trade, (2) privatisation, (3) the privatisation of water and (4) strict fiscal policy.
The second part of our analysis focuses on the consequences of the neoliberal policies.
Our approach is twofold and in line with Polanyi’s Double Movement thesis. It is therefore
imperative to differentiate between the economic and social consequences. The indicator that
we have selected to measure the economic development of our two cases is the GDP per
capita,that has been crucial in the design of the neoliberal policies and is regarded as
fundamental to economic progress. On the other hand we are using the Human Development
Index (HDI) to provide for a more complete account of the socio-economic development of
Ghana and Bolivia.
Next to the statistical data that is provided by indicators like the GDP and the HDI, it
is important to inspect the relationship between neoliberal policies and their consequences.
Here we would like to point out that there is no consensus about the consequences of
neoliberal policies. There even exist multiple views on the impact of IFI policies on the GDP.
Some scholars argue that there are positive effects to be found while others argue that there is
no significant effect at all (Przeworski and Vreeland 2000). Nevertheless, we aim to make the
link between the neoliberal policies and their consequences more clear through looking at
neoliberal policies (i.e. the privatisation of certain companies or the reduction of public
expenditures or tax reforms) that invoke a direct reaction from the population (i.e.
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demonstrations). Through conducting secondary data analysis of scientific articles and the
content analysis of newspaper articles, our objective is to shed some new light on the
aforementioned relationship.
3.4 Methodological discussion
This study aims to analyse the IFIs performance and impact on both economic and social
spheres. Because the anticipated impact of neoliberal policies is very specific for each
country, our research results are therefore arguably only applicable to the two specific cases in
question. But even within the context of our two cases we are well aware that the beliefs and
reviews regarding our research topics are highly divergent and that the complexity of the topic
poses difficulties in measuring the impact of all neoliberal policies in Ghana and Bolivia. Due
to space and time constraints we have only been able to focus on certain essential documents
while there still may be other relative information available that could answer our research
question through different means.
In addition, our research is largely based on the analysis of secondary data which
implies that this study is largely dependent on the work and perspective of others (Bryman
2004: 206). While the positive aspects of this approach have already been mentioned, it is
important to note that we do not have control over the quality of the data. We would like to
argue, however, that the main object of the first part of our analysis, the PRSPs, are derived
from extensive and complete documents. Moreover, the secondary data in the second part of
our analysis comes from solid scientific articles. However, due to the use of secondary data
we could not always make our analysis uniform; the same type of data was not always
available for both Ghana and Bolivia making our analysis, at times, slightly inconsistent. The
material gathered was also critically selected, reflecting the concepts, ideas and theories
discussed by the research team as to suit the purpose of our project as best as possible.
Thus, regardless of our study’s limitations and the unclear relationship between
neoliberal policies and their consequences, we intend to offer a unique perspective on the
effects neoliberal policies produce in terms of market-society relations in developing
countries.
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4. Theoretical Framework
In this chapter we elaborate on two theories that will serve as the theoretical framework for
our analysis. In the first section we discuss the theory surrounding neoliberalism to illustrate
the underlying thought of IFI policies. Subsequently we conclude the first part of our
theoretical framework with an examination of the WC through the work of Williamson, who
has greatly influenced the operations of IFIs as we know them today. In the second section we
inspect the work of Karl Polanyi, who will be used to analyse the IFIs policies. Even though
Polanyi wrote his theory in the 1940s, his ideas are still relevant and became even more so
after the financial crisis in 2009.
4.1 Liberalism, monetarism and the Washington Consensus
It is often said that we live in the age of neoliberalism. The word ‘neo’ implies that liberalism
has been invented in a new light but with firm roots in the ideas of the former. It suggests that
the political ideology was absent for a time only to be reinvented in later times. After a period
of growth and popularity there was also a period of decline and a reincarnation of liberal ideas
but complemented with new insights (Thorsen and Lie 2007: 2). The principles of ‘classic
liberalism’ should be examined to see to what extent this is really the case.
The first liberal ideas emerged between the seventeenth and nineteenth century mainly
in Great Britain but also in France and the United States. The individual played a central role
as did freedom, democracy and the rule of law (Rafferty 2008: 23-24). It can be said that
classic liberalism was at the time more focused on political views than economic related ones.
Within this context, Adam Smith is regarded as one of the first liberal scholars who analysed
the role of the state in the national economy as he coined the famous term ‘invisible hand’
(Rafferty 2008: 23). But while he is primarily known because of his economic theories, he
also wrote extensively about morals and ethics in relation to conducting business (Smith
1998). According to the neo in neoliberalism, those same ideas should play an important role
in the new theory, seen in a different light or complemented with new insights. But after a
short examination it can be concluded that individuals or regimes who used a neoliberal
policy are not all liberals in the classical sense (Thorsen and Lie 2007: 12). Examples are
Deng Xiaoping and Augusto Pinochet; both men were autocrats but were at the same time
strongly associated with neoliberal policies. This is possible because there is a strong
difference between classical liberalism and neoliberalism (Thorsen and Lie 2007: 12).
Therefore, from this moment on neoliberalism will be seen as a theory on economics.
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4.2 Neoliberalism, monetarism and the shift of IFIs after the Nixon shock
Neoliberalism became the mainstream economic paradigm around the 1980s. The discussion
that changed the way economics and the role of the state was seen, took place between the
two economists Keynes and Friedman. Supporters of Keynes argued that the state plays a
crucial role in economic development; “large-scale government spending, supported through
taxation, instead of sacrifices on labour’s part, was the remedy to the mass unemployment that
accompanies depressions” (Perkins 2009: 28). The critics who contested this model saw more
salvation in the ideas of Milton Friedman. His ideas are captured in the theory of monetarism
which, after the election of Ronald Reagan in 1980, became the primary economic paradigm
in the US and European countries like the UK (Perkins 2009: 30). The economic school of
monetarism is associated with the University of Chicago and Friedman was part of this
institution in the period of 1946-77.
One of the main ideas of monetarism is the theory about price stability. Inflation
erodes the value of money which in turn leads to problems with the balance of payments and
the export of products. As a result consumer confidence drops, creating an uncertain
environment for investment, leading to high rates of unemployment and capital flight (Stable
Prices 2014). Keynesianism supported the stability of currency values through the gold
standard as it was officially agreed on as part of the Bretton Woods agreements. The IMF was
originally specifically established to regulate monetary policy and the exchange rate of
currencies because mismanagement in those fields culminated into the outbreak of the Great
Depression (Rafferty 2008: 520). But when the gold standard was dropped in 1971 it created
the so called Nixon shock that made it possible for currencies to float freely. Rafferty (2008:
521) states that there were multiple causes for dropping the gold standard;
“as monetary interdependence deepened, it became difficult to coordinate so many
states’ policies ... Europe and Japan had recovered the prosperity they had lost in
World War II and wished to reduce their dependence on the US and pursue more
independent policies.” In addition, “American spending to wage war in Vietnam and
combat poverty at home had stimulated global inflation ... the Nixon administration
wanted to stem the decline in the US trading position but could not do so as long as
fixed exchange rates prevented the dollar’s devaluation.”
Dropping the gold standard spurred the development of monetarism which in turn
reduced the role of the state versus companies. The idea of monetarism was basically that the
less state there was, the better because the market would be able to solve the problems
through the equilibrium of supply and demand. All obstacles like state intervention, trade
17
unions and laws that secure a minimum wage were to be regarded as an obstruction to the free
market (Riley 2012). So, while in general monetarism regards state intervention as redundant,
there is an exception when it concerns the control of the money supply. Monetarists argue that
there should be an independent central bank that controls the amount of money that is released
in the economy. In this way it is possible to regulate the inflation rate, because the
government has to receive approval of the central bank for the printing of extra money. On
paper the central banks are independent but in practise they are subjugated to political
influences (Riley 2012).
After the Nixon shock the original task of the IFIs became irrelevant, so they
reinvented themselves. For example, the “IMF transformed itself from a currency regulating
institution to an international organisation involved in the national policies of much of the
third world, particularly since the onset of the debt crisis in 1982” (Przeworski and Vreeland
2000: 388). From this point onward the IFIs would operate according to neoliberal principles
that; (1) emphasize austerity measures, (2) promote the devaluation of the currency to focus
on exports, (3) encourage the privatisation of state owned enterprises and remove trade
restrictions such as tariffs and quotas, and finally (4) will lead to good governance, which in
practice means fighting corruption and the actual implementation of neoliberal policies
(Mahmud 2008: 25-26). These neoliberal principles in the 1980s eventually led to the
establishment of the Washington Consensus in 1989 that would become the main driver of IFI
operations.
4.3 From the Washington Consensus to the post Washington Consensus and PRSPs
The Washington Consensus comprised out of a formal agreement between the IMF, the US
Treasury Department and the World Bank on economic policies. Largely aimed at the
economic structural adjustment of Latin America, the three parties agreed that the key to
success for developing countries should consist out of ten objectives; (1) fiscal discipline, (2)
reordering public expenditure priorities, (3) tax reform, (4) liberalising interest rates, (5) trade
liberalisation, (6) liberalisation of inward foreign direct investment, (7) a competitive
exchange rate (8) privatisation, (9) deregulation and (10) the legal security of property rights
(Williamson 2004a).
By the end of the 1980s the Keynesian conviction that economic stimulation could be
achieved through large deficits had become heavily criticized. Instead the aim of the WC was
fiscal discipline that would address the balance of payments crisis in developing countries, the
targeting of (hyper)inflation and the flight of capital. The general assumption was that the
18
aforementioned three factors were responsible for ‘macroeconomic dislocation’ (Williamson
1990). By aiming at smaller deficits, trust in the economy could be re-established so capital
flight and inflation could be reduced. Moreover, the pursuit of fiscal discipline was to be
accompanied by reordering public expenditures and tax reforms that would decrease
government’s disbursements while at the same time increase their tax revenue.
Aside from fiscal discipline, the WC intended to liberalise economies as much as
possible and thus reduce the role of the state in economic affairs. In addition, the liberalisation
of trade and foreign direct investment was to open countries’ economies to the global market
and enable them to more effectively attract capital instead of suffering capital flight.
Moreover, the promotion of a competitive exchange rate intended to ensure the private-sector
confidence that their investments and operations would be safe from arbitrary currency
adjustments by the government and that they had the guarantee of stable export possibilities
(Paredes 1989). The assumption of the WC within this context was that the focus on the
development of an export oriented economy would enhance Latin American countries’
capabilities to recover from their crises.
Subsequently, privatisation and deregulation were introduced on a national scale to
curtail the role of the state. For instance, through exposing national companies that supply
water and electricity to market forces, the ensuing competitive forces were to make these
crucial providers more effective and profitable. Privatisation had to be accompanied by
deregulation to trim the impact of state regulations that often entailed high corporate income
tax rates, import barriers and price controls (Balassa et al 1986: 130). Through constraining
government legislation and decrees on productive activity, deregulation was to diminish
corruption and reduce market uncertainty. In addition, this would allow for better
opportunities for small and medium sized business that at the time had little access to the
higher reaches of governments’ bureaucracies (Williamson 1990). The legal security of
property rights had to ensure the establishment of these smaller businesses and control for the
arbitrary confiscation of property by the state.
The IFIs were to oversee and regulate the transition to WC policies in the early 1990s,
but these policies did not have the positive effects that the IFIs had in mind. Many Latin
American economies stagnated or ended up in a great crisis like those of Argentina, Brazil
and Uruguay. The result was that the WC policies and consequently the IFIs were pointed out
as the cause of all that had gone wrong. Many countries who had lost their confidence in the
effectiveness of WC policies started to revert or adapt them to better suit their needs. Brazil,
for instance, eventually adopted a neo developmentalist policy that incorporated elements of
19
neoliberal policy as well as protectionist measures to be able to secure its infant industries
(Barbosa and Souza 2010).
The WC has often been perceived as the main component of a neo imperial program
for the developing world, guided by the economic interests of the US (Bresser-Pereira 2009).
Whether or not this is the case and if the neoliberal ideals of the WC were to blame for all the
economic failures, a great deal of scientific literature has been keen to discuss what the ‘post
Washington Consensus’ era would have to entail to be economically successful. Some argue
for a shift of policies that adopt a more Keynesian approach (Marangos and Whalen 2012),
while others state that there is only an alteration of WC policies needed (see Williamson
2004b). Regardless of these attempts, the aim of this study is to look at what policies IFIs
currently pursue. While there has been a lot of critique on the performance of IFIs, it is
difficult to contest that they are still powerful actors within the global market economy and
that their policies are of great importance for the development trajectory of many Third World
countries.
As a result of the critique IFIs have adopted a more social oriented perspective to
complement their economic policies with the HIPC that constitutes the PRSP framework.
PRSPs are to be formulated by the national governments of the respective countries under the
supervision of the IFIs and in conjunction with other development partners. Interim PRSPs (IPRSPs) analyse the current situation of the country concerning poverty, it describes the
present poverty reduction strategy (IMF 2014). This way the IFIs intent to promote the
‘ownership’ and ‘participation’ of the beneficiary stakeholders and are to represent a broad
consensus among the included parties (IMF and WB 1999). Consequently, PRSPs cover the
essential guidelines for socio-economic development. They consist out of a plan regarding a
country’s structural, social and macroeconomic policies that are aimed at reducing poverty
and generate growth as well as looking at the priorities that need financing most (IMF 2014).
Moreover, they also include how these plans are being implemented and monitored. Finally,
they also state the conditions for lending operations by the IFIs.
But while the goals of the PRSPs seem to be positive, their execution by the IFIs has
received much critique (Kamruzzaman 2009). Our aim with this study is to see what the
actual purpose is of the PRSPs within the specific context of Ghana and Bolivia and how we
can perceive the consequences towards the implemented neoliberal policies.
20
4.4 Karl Polanyi’s ‘Double-Movement’
Karl Polanyi (1886-1964) was a Hungarian economic historian, famous for his 1944 book,
The Great Transformation (2001). Now translated into more than fifteen languages, it remains
a highly important and influential piece of work (Levitt 2005: 169). The key aim of his book
was to explain the 19th century rise of the laissez-faire market economy, the dynamics of this
economy and its crisis – along with the demise of democracy in continental Europe – in the
1930s (Muukkonen 2009: 3). It is often seen as a starting point for the study of globalisation
and economist Joseph Stiglitz has used it to provide a critique of neoliberal economic
globalisation (Castles et al 2011: 4).
One of Polanyi’s key points was that there has been a sequence of ‘great
transformations’; for instance the decline of feudalism and the rise of capitalism, which was
the precondition for Polanyi’s great transformation of the 19th and early 20th century in which
laissez-faire economic liberalism came to be dominant (Castle et al 2011: 6). Rather than
economic exchanges being embedded in wider social relations, Polanyi argues the
transformation to a free self-regulating market based economy has disembedded the economy.
He also notes how, far from being a natural phenomenon like it is often professed, economic
liberalism was artificially implemented and instituted: a labour force in England, for example,
was created by the power of the state making scarce the traditional means of living (the
enclosure laws, that were essentially an early form of privatisation) that peasants relied on,
thus forcing them into employment (Polanyi 2001: 72). The shift from Keynesian based
economies to the now dominant neoliberal agenda can conceivably, using Polanyi’s work, be
seen as a ‘great transformation’.
Economic liberalism, based on market relations and an outcome of the Industrial
Revolution in England, emerged as the main organising principle of human society (Polanyi
2001: 144). It can be defined as “the belief that both national societies and the global
economy can and should be organised through self-regulating markets” (Block 2001: xviii).
The creation of the self-regulating market implies the institutional separation of the economy
from society. Polanyi was very critical of the idea of the self-regulating market (Owsley 2012:
4). According to Polanyi, the technological innovation and the accumulation of capital were
fundamental to the expansion of market relations.
Polanyi identifies laissez-faire market economies as an economic system that is
regulated, directed and controlled by market prices (Polanyi 2001: 71); production and
distribution, in theory, are determined entirely by the market and it is argued by its proponents
that no government intervention is necessary for its operation. Furthermore, it implies that all
21
production is for sale on the market, and all incomes are derived from these sales (Polanyi
2001: 72). All elements of industry are, moreover, traded under this system: goods, services
and labour, land and money – what Polanyi calls ‘fictitious commodities’. In addition, as
hinted at above, a market economy assumes a separation of economy and politics; people
should not interfere in the market (Polanyi, however, shows this is definitely not the case).
Human beings, under market economies, are also viewed as ‘economic man’: the only
motivation behind their actions is to maximise their personal utility; gain is seen as the central
rule of social organisation and, indeed, as the most efficient means of achieving prosperity for
all (Polanyi 2001: 71).
Fictitious commodities, mentioned above, have not been produced to be sold, but
instead are commodified for commercial reasons and exchanged like goods and services
(Chaipinit and May 2010: 101). Polanyi believed that the commodification of land, labour and
money was revolutionary. Natural resources, like land, are ‘God-given’; individuals do not
produce children for the labour market and money is a socially constructed idea or convention
(Levitt 2005: 171). Land, labour and money provide other essential functions in society which
makes them dangerous to debase. This incorporation of all essential elements of industry into
the market, Polanyi contends, has produced a situation in which society is in subordination to
the disembedded market economy. It is this commodification of land, labour and money,
according to Polanyi, that leads to the destruction of society.
Traditional cultural bonds, for example, (values, norms and institutions) used by
people to constitute their identities, are torn apart by the self-regulating market (Baum 1996:
9). As a result a devastating anomie arises which damages the humanity of workers, and
affects the relationship between society and the natural environment (Baum 1996: 9).
Classical economists focussed on economic growth, capital accumulation and the distribution
of income; the displacement, dispossession and human degradation as a consequence of the
free markets destructive tendencies were, and often are, largely ignored (Levitt 2005: 171).
Another example of the contradictions of the free-market involves Schumpeter’s
(1962: 82-84) concept of ‘creative destruction’. This concept is central to understanding the
dynamics of free-market economies. It is the process whereby technological innovation,
spurred by the need to remain competitive, necessitates a reallocation of resources to more
efficient modes of production (Owsley 2012: 5). This process has a dislocating outcome on
labour; workers in uncompetitive fields of work are displaced and workers must acquire new
skills or relocate in order to remain employed. This creates a situation in which those affected
22
must go without a guarantee of livelihood and could have to leave behind their social and
cultural heritage.
The neoliberal globalised world has also widened and strengthened inequality on an
unprecedented scale (447 billionaires, for example, have more wealth than the poorest 50% of
the worlds inhabitants). Furthermore, the free-market disproportionately affects certain groups
such as women, indigenous groups and ethnic minorities with women bearing the majority of
the cost of cutbacks in public services and support (Brecher et al 2000: 7).
The world economy is also highly volatile; financial deregulation means capital is now
extremely mobile; with billions of dollars worth of foreign currency flowing regularly across
national borders, national economies can easily become swamped. In 1988, for instance, a
local crisis in Thailand resulted in huge repercussions for the world economy and in the space
of two years the Malaysian, South Korean and Thai economies shrunk by up to 50%
(Brecheret al 2000: 8).
Democracy is also degraded and individuals and communities are becoming less able
to shape their destinies. Global corporations, many of which have larger economies than some
developed nations, now have a huge amount of power. They are able to order and influence
sovereign government’s policies as they can threaten legislatures with relocating to other
countries. National goals, such as development, are thus subordinated to growing mobility of
capital (Brecher et al 2000: 8-9). In addition, IFIs undermine governmental authority; they
make decisions affecting billions of people but are widely regarded as being undemocratic
and lacking in accountability (Jones and Hardstaff 2005: 44).
Yet another contradiction is that supporters of the free-market ideology believe that the
market is all that is necessary to provide humans with the requirements to live a rich and
fulfilling life. They contend that through the dictates of supply and demand, individuals will
efficiently acquire the material goods they need for reproduction. This coupled with the fact
that they do not believe in government intervention means that social nets to protect
vulnerable or marginalised individuals are eroded. The welfare state is rolled back and
individuals are left with no protection if they are unable to find an occupation, or destruction
of the environment on which individuals rely for subsistence does not result in compensation,
for example.
This leads onto Polanyi’s important concept of the ‘double movement’; the first
movement occurs as various groups in society, due to vested interests, push for the
enforcement of a free-market agenda, society becomes increasingly subordinated to the
market and consequently is exposed to the destructive tendencies of the self-regulating market
23
logic. The second movement involves counter movements to the free market whereby
individuals spontaneously and necessarily mobilize and organise to protect themselves against
it (Maertens 2008: 103). It’s important to note, however, that this double movement does not
correct the “excesses of market fundamentalism”, rather, it is “an existential contradiction
between the requirements of a capitalist market economy for unlimited expansion, and the
requirements of people to live in mutually supportive relations in society” (Levitt 2005: 172).
The rise of fascism and socialism, Polanyi argues, can be attributed to this phenomenon.
However, the protective measures can impair the functioning of the market and,
consequently, set in motion a counterattack by capital to break free from the social constraints
(Levitt 2005: 173). This is what happened during the 1970s and is the reason we now live
under a neoliberal free-market regime. As Keynesian based national economies suffered
declining profits and productivity, and negative or low interest rates favoured debtors,
capitalists initiated the ‘first movement’ again; the Thatcher and Reagan governments, for
example, largely destroyed the power trade unions had gained during the post-war period
(Levitt 2005: 173). Now, on a global scale, the market has disembedded itself again as trade
and capital have been liberalised and freed from regulation – financial capital is governing
markets on a tremendous scale.
There are, however, a number of criticisms and perhaps limitations of Polanyi’s work
that are important to take note of. Polanyi’s analysis is based on the industrialisation of the
European societies. Thus there’s a need to be cautious with this Eurocentric analysis and the
underlying assumption that this phenomenon can occur in other areas of the globe (Castles el
al 2011: 16). Polanyi did not live to witness events such as the fall of the Soviet Bloc,
decolonisation or the rise of neoliberalism; accordingly, he was not able to test his hypotheses
in other regions of the world (Levien and Paret 2012: 727). Another critique concerns the
social roots of the counter-movements. Although Polanyi is rather vague about identifying the
classes who will lead the social protection movements, he does mention the working class and
the landed aristocracy as the potential classes of the countermovement (Polanyi 2001: 139,
162). Nevertheless, regardless of which class will take the lead, Polanyi argues that they will
do it not only for self interest purposes but also for the need of the society to protect itself
(Levien and Paret 2012: 728). Furthermore, it is argued that Polanyi gives an unclear
explanation about the way that the double-movement may operate. Sousa Santos (2006: 398)
argues that the emergence of countermovements should not be automatically assumed. As
such, he is keen to address that the emergence of these movements are naturally unbalanced
and challenging. His argument acknowledges the diversity and heterogeneity of the social
24
movements as well as the possibility of contradictory interests between them (Munck 2006:
185).
Nevertheless, Karl Polanyi’s thesis remains an incredibly valuable and relevant asset.
As has been highlighted, unregulated free markets create many contradictions and it is this
substantial gap between ideology and reality that is the concern of this project. Some critics
have argued that the policies of the IMF and WB have done more harm to societies than they
have done good; the dictates of the neoliberal agenda, they contend, have stripped away social
protections and many individuals, now, are worse off (Vreeland 2003: 8). The implementation
of the IMF and WB neoliberal policies in both Ghana and Bolivia had a profound effect on
their development choices and outcomes for the past 30 years. These outcomes have not
always had a positive impact. Thus, protests and countermovements have been arising against
these institutions and their policies. Using Polanyi’s analysis, then, we are able to explore this
dichotomy between purpose and outcome of neoliberal policies in the case studies of Ghana
and Bolivia.
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5. Analysis
In the first section of this chapter we review the general purpose of neoliberal policies that are
imposed by the IFIs to grant financial assistance. In the second section we analyse the
outcome of these policies for Ghana and Bolivia. Finally, the two cases are compared in the
discussion.
5.1 Purposes of neoliberal policies
5.1.1 Liberalisation of trade
An extremely common conditionality imposed on nations seeking help from the IMF is that of
trade liberalisation. Its definition is considered to be somewhat ambiguous (Dean et al 1994:
3) but in the case of Ghana, Bolivia and the IFIs it can be defined as the requirement to
eliminate quantitative import restrictions (the relaxation or removal of restrictions), to reduce
and eliminate taxes on exports, and tariff liberalisation (reducing average tariff rates, unifying
import tax rates into a single rate and phasing out tariffs) (Ackah and Aryeetey 2012: 190191).
Proponents of the neoliberal trade liberalisation policy argue that it will lower costs for
consumers, increase efficiency, help improve economic growth, increase domestic export
competitiveness and promote international trade (Armah 2008: 78). The IMF (2001) contends
that it can help the absolute poorest in societies escape from extreme poverty and that if poor
countries fail to lower their barriers to trade they face further marginalization. Furthermore,
with the example of successes in East Asia, they go on to argue that no other country, in
recent decades, has achieved economic success or noticeable increases in living standards
without opening up their economy. Additionally, they assert that increased growth, as a result
of trade liberalisation, increases the incomes of the poor in the same proportion as it does the
incomes of the rest of the population. It is also interesting to note that the IMF (2001)
emphasizes that industrialised nations will also accrue benefits from lower income countries
when the latter liberalise their trade policies.
Neoliberal economic literature believes trade liberalisation will lead to an increase in
welfare as it will improve the allocation of domestic resources. Import restrictions create an
anti-export environment as prices of importable goods are raised relative to exportable goods.
Removing this anti-export bias, through trade liberalisation, it is argued will “encourage a
shift of resources from the production of import substitutes to the production of export-
26
oriented goods” (Tussie and Aggio 2006: 89). This, it is asserted, will lead to economic
growth and, thus, welfare as the country “adjusts to a new allocation of resources more in
keeping with its comparative advantage” (Tussie and Aggio 2006: 89).
5.1.2 Privatisation policy
The privatisation policy has been one of the primary policies of the IFIs programmes in both
developed and developing countries. Despite being involved in controversy, privatisation
continues to be one of the leading requirements to assure grants and loans by the IFIs.
Therefore, it is regarded as essential to guarantee sustainable growth for countries
development and poverty reduction. This policy follows the IFIs belief in a private sector led
economy instead of a government centred economy to reach a sustainable growth path (GRSP
2003: 34). The overall purpose of the privatisation policy is to improve the performance of
both the state-owned enterprises that remain and the divestiture enterprises which will
increase growth and economic efficiency, reduce poverty, protect the environment and expand
the use of public resources (Shirley 1992: S23, S26). The rationale behind this argument is
that state owned enterprises become inefficient as there is no incentive for those who run the
company to make a profit; privatising businesses, then, leads to a situation in which the profit
motive makes businesses become more efficient, cost effective and competitive, leading to
lower consumer prices for everyone.
5.1.3 Water privatisation policy
Water privatisation refers to private sector involvement in providing water and sanitary
services to individuals and communities. While similar to the privatisation policy, water is
often seen as a public good (there is a universal human right to access to water), rather than
private good and, thus, it is often viewed as a different policy concern than the privatisation
aforementioned and it will, therefore, be analysed and explained separately. It is a highly
controversial policy as water is a key human need and, thus, it is argued it should not be
commodified and that access to it should not be based on profit.
The World Bank (2014b) contends that “water is at the centre of economic and social
development: it is vital to maintain health, grow food, manage the environment and create
jobs.” They also claim that mismanagement of water has led to huge losses in human life and
economic growth potential, noting that poor sanitation also negatively affects health,
education, the environment and industry. Essentially, then, they highlight the dangers of a
lack of access to water in the developing world.
27
The purpose of water privatisation, in the context of developing countries like Ghana
and Bolivia, is to increase access for the poor to sources of clean water and to further reduce
the role of the state. As developing nations’ governments do not have an abundance of funds,
they cannot always fund increased supplies of water for individuals and, hence, the logic is
that private companies can, due to the profit incentive, provide people with this essential
element.
To prevent wastage of the limited water resources there is a theory, backed up by the
IFIs, that states that an Every-Person-Pays (EPP) strategy is the most effective. This idea
counters that everybody, sometimes subsidized, should have access to water. When the EPP
policy is implemented, a utility company turns into a ‘cash cow’, ready for privatisation
(Perkins 2008: 120).
5.1.4 Tight fiscal policy
In general terms, fiscal policy concerns a government and its powers to tax and spend in order
to influence the economy, aggregate demand and level of economic activity (Dwidevi 2005:
543). When an IFI attaches strict fiscal policy as a loan condition, then, it refers to cutting
public expenditure so that it is below levels of taxation or, alternatively, increasing taxation
and cutting public expenditure. This is in line with the neoliberal idea of ‘small government’
whereby there is a strong belief that the private sector, in a majority of cases, is the most
efficient machine to provide the necessary services to society. Other than further increasing
the private sector's role in the provision of services and goods, a purpose of tight fiscal policy
is also to reduce government debt and to reduce aggregate demand in order to slow down
inflation (Carbaugh 2014: 306).
5.2 The case of Ghana
5.2.1 Ghana’s Poverty Reduction Strategy
In Ghana, since 2000, there has been a considerable number of PRSPs implemented.
There is only one I-PRSPs in 2000 and eight PRSPs dating from 2002 to 2012 available.
Ghana is generally viewed by the IFIs as a successful case and the resistance movements
towards their neoliberal policies, as we will point out later, have not been as resilient as in the
case of Bolivia. Accordingly, the amount of PRSPs implemented reveals the close tie between
Ghana’s strategy for development and the IFIs neoliberal policies based on the WC free
market ideology. Ghana’s Poverty Reduction Strategy I (GPRS 2003) dating 2003-05
28
focussed on the improvement of macroeconomic stability and basic service delivery to reduce
poverty.
The GPRS II continued to focus on human resource development and
macroeconomic performance although it emphasised the importance of accelerated growth
through private sector development and the establishment of infrastructure (World Bank
2011; GPRS I 2003; GPRS II 2006). Overall, Ghana’s Poverty Reduction Strategy papers
have primarily been concerned with macroeconomic performance and stability, social
development, good governance and the private sector and decentralisation processes. Since
2010, the Ghana Shared Growth and Development Agenda (GSGDA) has been implemented
and its basic assumption lies on the restructuring of the economy premised on a sustainable
exploitation of mineral resources and the modernization of agriculture. However, it still
emphasizes the need for macroeconomic stability, transparency and accountability to address
poverty (World Bank 2011).
Subsequently, the components of Ghana’s strategy papers, beginning in 2000, underlie
the assumption that human development and poverty reduction can only be achieved with a
competitive economy that is structured according to the WC ideology. And unlike Bolivia,
Ghana has been accepting this strategy and its programmes for the past 30 years with far less
resistance. In the next sections some of the consequences will be further explored.
5.2.2 Ghana’s GDP and HDI
Ghana is often heralded as the IFIs key success in Sub-Saharan Africa. Since Ghana’s
economic reforms in the 1980s, macroeconomic instability has been reduced, inflation has
been brought under better control, per capita GDP rates have been positive and stable and the
real exchange rate has become more competitive (Epstein and Heintz 2006: 6). As Graph 1
(see Appendix A) reveals, between 2000-2012 Ghana’s GDP increased from $5 billion US
dollars to $40 billion US dollars with a significant increase between 2005-2008. However,
Ghana’s economic structure was also affected by the global financial crisis in 2009 which
resulted in an abrupt fall of GDP rates and further loans from the IFIs, perhaps showing that
as the IFIs policies have further integrated Ghana into the neoliberal market economy they
have become more susceptible to crises and even more dependent on IFIs. In terms of some
socio-economic factors however, such as poverty reduction and employment, it seems
successes have been made; a closer look at this, though, is necessary.
One recent study (Ghana Statistical Service 2013) shows how, based on more multidimensional, non-monetary measurements of poverty, there is a much higher incidence of
poverty than the 28.5% poverty level based purely on income (World Bank 2014c). Based on
29
the Multi-dimensional poverty index (developed by the University of Oxford) - that uses the
HDI as its basis but uses 10 indicators to measure deprivation (see OPHI 2014) - poverty in
Ghana is measured at 42.7% (Ghana Statistical Service 2013). This is a much higher figure
than the one-dimensional measure used to highlight Ghana’s ‘successes. Perhaps this shows
that the IFIs poverty reduction strategies, as well as being highly unequal and uneven (this
will be discussed further in the analysis), have been much less successful than they profess.
Nevertheless, Ghana’s HDI has risen from 0.391 in 1980 to 0.558 in 2012 (UNDP
2013a: 2), showing marked achievements. However, the 2011 United Nations Development
Programme Report expects a reversal of these achievements if environmental degradation
continues and inequalities increase (UNDP 2011). This is a concern as a study done by Kumar
(2014: 6) highlights that Ghana is experiencing a strong rise in inequality, with a 50%
increase in the concentration of income over a period of 18 years. Since 1988, therefore,
Ghana’s Gini Coefficient, which measures income distribution, has risen consistently from
35.3 to 42.8 in 2006 (World Bank 2014c). The Africa Progress Panel (2013: 29) even
contends that “economic growth is driving an increasingly unequal pattern of wealth
distribution and weakening the link between growth and poverty reduction.”
Between 1998 and 2005 poverty in Ghana fell less than it should have due to income
inequality and the bottom 40% of Ghana’s population saw their share of income decline
(Kumar 2014: 16). This, it is argued, can be attributed to the Ghana’s IFI influenced growth
model. Large inequalities between regions (largely between the north and south) in Ghana
have also become exacerbated; in Ghana’s northern region, between 1999 and 2006, the
number of poor increased from 2.2 million to 2.6 million (Kumar 2014: 17). Ethnicity based
inequalities are also a large and growing problem for Ghana.
5.2.3 Liberalisation of trade in Ghana
A study by Asiedu (2013: 125) found that the trade liberalisation adopted by Ghana in 1986
had a positive and considerable influence on real GDP growth in the long-run (the study used
the period of 1986-2010). During Ghana’s trade liberalisation period, import volumes
increased ad infinitum; they rose from $712.5 million in 1986 to $1728 million in 1993. A
decline in anti-export bias of the trade and payment regime also led to increases in the volume
of exports (particularly in Ghana’s traditional sectors of cocoa, gold and timber); they rose
from $773.4 million in 1986 to $1234.70 million in 1994. The share of non-traditional exports
also increased but export diversification cannot be said to have been achieved with gold,
timber and cocoa remaining the dominant exports. Real GDP growth from 1986 to the latter
30
1990s averaged 4.5% per annum (Asiedu 2013: 126-127). While Asiedu (2013: 126-127)
admits other factors than trade liberalisation (for example, population growth) have had a
positive impact on GDP, his study confirms that trade liberalisation and GDP growth, in
Ghana, have had a positive and significant relationship.
Growth in GDP, however, as mentioned previously is not synonymous with human
development. While it seems that Ghana has been successful in alleviating poverty, its
reduction has not been equally spread across the country. A study by Ocran et al (2006: 1), for
example, indicates that food crop farmers – who, incidentally, form the largest share of the
poor in the country - have actually been made worse off by trade liberalisation policies in
Ghana; cheap foreign imports (particularly the Ghanaian staples of rice, chicken and
tomatoes), free from any tariffs, have flooded the Ghanaian market, making it extremely
difficult for domestic farmers to sell their produce. Furthermore, the Northern and Upper East
regions of Ghana have experienced a deepening in poverty and although the rural population
of Ghana accounts for about 64 percent of the population, it contributes 82% to total poverty
(Ocran et al 2006: 10-11).
In addition, a study by Ackah et al (2007: 1), looking at the impact of trade
liberalisation on household poverty in Ghana during the 1990s shows that a reduction in an
industry tariff tends to be associated with lower welfare for households employed in that
industry; this negative effect is disproportionately larger for low-skilled households. Again,
then, it seems rural workers employed in the agricultural sector have fared worse under trade
liberalisation.
An implication of IFI backed trade liberalisation has led to the marginalization of a
number of farmers and the undermining of the Ghanaian parliamentary democracy. In 2003,
the import duty on poultry (other products also experienced tariff rises like wheat and maize)
products was raised from 20 to 40% (within the World Trade Organisation Agreement on
Agriculture) by Parliament due to pressure from segments of Ghanaian society attempting to
protect themselves from the dictates of neoliberal open and free trade. However, this increase
was removed after just two weeks; the IMF had insisted that they should not be enforced
during Ghana’s new PRGF programme and, as Ghana relied heavily on the IMF for funding
at that point they had little option but to comply. Aside from the negative implications for
democracy, the amount of poultry imported into the Ghanaian market (a 100% rise) crippled
the domestic poultry industry (Jones and Hardstaff 2005: 26).
In order for those negatively affected by the IFIs pervasive policies, the farmers
sought to protect themselves from this contradiction of the free market. On the 23rd of August
31
2004, the Poultry Farmers Association initiated a court case against the Government for not
introducing the tariff. They asserted that it was illegal and in contravention of the Ghanaian
constitution not to administer the tax increase as it was passed, democratically, by parliament.
Over a year later, on the 11th March 2005, the court ruled that the government’s actions were
illegal and that they had a public duty to put the tariff into operation (Jones and Hardstaff
2005: 26).
Thus while there have been some forms of resistance regarding trade liberalisation,
they have rather been limited to specific sectors. In the next section we inspect the case of
privatisation.
5.2.4 Privatisation policy in Ghana
Since 1983, under the IFIs recommendation, Ghana has been committed to the
implementation of privatisation policies in several of their leading sectors in order to increase
their competitiveness and growth. Consequently, these policies have had a deep impact on
Ghana’s socio-economic structure. One of the sectors that undertook major reforms was the
mining sector. Prior to the privatisation process the Ghanaian government had at least 55% of
shares in the large-scale mines (Hilson et al 2005: 107). Today, the ownership structure of the
industry has changed with the private sector now holding an average of 70% of shared
(Akabzaa et al 2001: 25). In spite of being one of the key industries for the development and
growth of Ghana's economy, contributing about 40% of GFE (Gross Foreign Exchange) and
5.2% of GDP (see Ghana Minerals Commission 2006), mining activities have had adverse
consequences on the mining communities as well as the environmental sector. “An attempt to
quantify annual losses to the economy through environmental degradation by the
Environmental Protection Council in 1988 put conservative estimates at 41.7 billion cedis, the
equivalent of 4% of total GDP” (Amponsah-Tawiah et al 2011: 66).
In addition to the aforementioned environmental consequences the impact of the
mining operations have also reached the livelihood of the mining communities. For instance,
companies have been acquiring considerable amounts of land for farming activities and using
it for mining operations which, consequently, removes from the communities their source of
livelihood (Akabzaa & Darimani, 2001). In addition, another number of concerns have arisen
regarding the social impact of mining activities. For instance in Tarkwa, there have been
concerns about family disorganisation, unemployment or inadequate housing. Between 1990
and 1998 the mining investment has resulted in the displacement of 14 communities. This had
serious consequences to the structure and networks of these communities and its families.
32
Also, with the farming lands decreasing and the mining sectors capital intensity and the
consequent lack of employment, the rates of unemployment in the area are growing. Thus, the
local population has a growing concern for their welfare (Akabzaa 2001: 43-45).
However, it is undeniable that the privatisation of the mining industry has had positive
consequences for Ghana’s economy. Yet there have also been negative consequences from
mining exploration and production that undermines the environment and local communities.
Thus, opposition has been emerging and organising against these mining companies and their
negative impacts (Amponsah-Tawiah 2011: 67).
The privatisation policy of the mining sector can be related to the first movement that
Polanyi describes as a push to a free market agenda, the decrease of government intervention
and the society sees itself subordinated to the interests of the mining companies. However as
Polanyi states, society members will create a second movement whereby they coordinate and
organise counter-movements to restore their control of the market and protect themselves
against its logic. As such, in this case, data provided us with a number of NGOs that are trying
to raise awareness of the mining industry in Ghana and its dynamics. For instance, the
National Coalition on Mining (NCOM) which is a union of NGOs campaigning for law
reforms in the mining industry in Ghana are alerting people to the negative impacts of the
mining operation on the environment and on the livelihood of the communities. For instance,
they campaigned for the protection of the rights of the mining communities and for
compensations to restore the livelihood of those affected by the activities of the mining
companies (see Oxfam America Speakers Tour 2011).
Joining the aforementioned counter-movements is the National Coalition of Civil
society Groups Against Mining in Ghana’s Forest Reserves that also have been organising
against the mining in the forest reserves of Ghana that have been degrading the environment.
Since 1995, 14 companies were allowed to explore the forestry reserves, however between
1996 and 1997 there was an attempt by the government to stop their operations and control
the access and exploration by imposing a suspension on mineral exploration in forest reserves
(Ismi 2003). In spite of the environmental and social concerns the interruption of the mining
activities in the forest reserves has been lifted and a number of organisations in Ghana
launched a campaign in 2003 to protect the forest reserves from being explored by the largescale companies. In their view, the government’s decision to allow mining operations in such
areas only serves to “represent the interest of the mining industry based on their narrow
economic benefits and not based on a proper assessment of the environmental and social costs
to the nation” (see Declaration: Campaign Against Mining in Ghana’s Forest Reserves 2003).
33
Indeed Ghana’s economy and indicators such as the GDP are benefiting from the
mining industry however this policy was also design by the IFIs to reduce poverty and protect
the environment which, as data and indicators have shown, remain fundamental problems in
Ghana and countermovements have been arising to protect the society from the laissez-faire
market economy.
5.2.5 Water privatisation policy in Ghana
In Ghana, the water sector has been under privatisation reforms to improve the production and
distribution of water in the region. However, this attempt by the IFIs to treat water as a
commodity that functions according to the market logic is highly controversial - the benefits
of this process are still to be seen in Ghana.
Since their political independence, Ghana’s government has been distributing water
through a state- owned enterprise, supervised by the Ministry of Works and Housing – the
Ghana Water and Sewerage Corporation (GWSC) (Rahaman et al 2003: 9). Before the
privatisation water process was started, the government supervised the water charges to the
people to guarantee that they were reasonable. However, in the 1980s GWSC could no longer
replace their old equipment and it was forced to stop their operations in several parts of the
country which led to severe sanitary problems and water scarcity (Akumiah 2007: 8). Since
1995, under the World Bank advisement, the GWSC was restructured and separated in two
parts; the Ghana Company Ltd, responsible for the urban water supply, and the Community
Water Supply Agency that was in charge of delivering water to the rural sector. The cost of
these structural reforms and the privatisation of the water services was expected to reach $285
million. The World Bank provided $100 million in loans for this process while the difference
was covered by the government and other donors (Rahaman et al 2003: 11).
In spite of Ghana’s good GDP rates, the effects of this privatisation process have had
severe consequences for Ghana’s Water Company as well as the population. According to the
Well Factsheet (2005), the company’s performance has declined since 2000, and, for instance,
there have been cases where the urban population had to wait for days to have water running
through their taps. Moreover, it was also revealed that in 2002 the company had about $400
million in arrears. In 2005 a report by Water Aid states that in 2003 only 44% (in the rural
sector) and 61% (in the urban sector) of the total population of Ghana have had access to safe
drinking water. In addition, it also shows that 11% in the rural area and 40% in the urban area
have had access to basic sanitation. Additionally, it is estimated that more than half the people
in Ghana earn less than 1740 cedis, which is $1 US dollar, a day. For example in Accra, for
34
those that do not have water access to their homes and need to buy it separately, a bucket of
water (2 ½ gallons) costs about 400 cedis. However, since April 2001 the water tariffs rose
and a bucket costs now 800 cedis (MacCuish 2003: 13).
The incapacity and poor efficiency of Ghana’s Water Company under poor public
governance shows the importance of the private investment in the sector in order to develop it
and achieve its purpose. However, the attempt to manage water as a commodity has created
controversy and a number of counter-movements emerged against this policy.
“In May 2001 a broad cross-section of Ghanaian civil society, including women’s
groups, religious organizations, trade unions, public health workers, environmental
groups, organizations of the physical challenged and students, gathered together
under the banner of the Ghana National Coalition Against the Privatisation of Water
to organize opposition to the World Bank-backed proposal to privatize the urban
water supply.” (Amenga-Etego and Grusky 2005: 280-281).
These attempts have tried to alert the government and the civil society regarding the negative
impact of water privatisation and try to promote other feasible alternatives to solve the
problems of distributing and delivering water in the country (see The Accra Declaration on
Right to Water 2001).
For instance, in 2005 the WB pressured a private-public administration in Ghana’s
water sector which settled the government’s responsibility for the costs and investments while
the Aqua Vitens Rand Ltd. (AVRL) was responsible for managing the urban water services.
However AVRL failed to accomplish what was agreed. For example, AVRL wanted to reduce
by 5% the non-revenue water which was about 50% in 2005 but it remained unchanged until
the end of the contract (Global Water Intelligence 2012). “The Millis government must
immediately terminate AVRLs management contract and take the water sector back into
Public Management. (see National Coalition of Civil Society Groups Against Mining in
Forest Reserves 2009). In 2009 the National Coalition Against Privatisation of Water started a
campaign against the renovation of the contract between AVR and Ghana’s Water Company.
By 2011, other NGOs such as the Public Utility Workers Union joined the coalition on this
campaign (The Multicultural Politic 2012). Following the exit of AVRL the government
formed a new company, Ghana Urban Water Limited, to manage the urban water systems in
the country for a period of 12 months. At the time, the Ministry of Water Resources Works
and Housing said that this was the better option for the government to manage the operations
of the urban water systems (see Ghana Water Company 2014).
35
Despite the lack of positive results, the WB continues to insist that the privatisation of
water is the most suitable solution to improve its production and distribution in Ghana. As
seen above, treating the water as a commodity and allowing the decentralization of the sector
did not deliver the expected results. On the contrary, water continues to be one of the primary
problems of the country and the civil society has been keen in trying to demonstrate its
dissatisfaction with the situation. As such, movements continue to emerge promoting the
water as a public good that instead of being under the control of the private sector and serve
its interests, it should be regulated by the government and serve the interests of Ghana’s
society.
With both privatisation of water and the aforementioned formerly nationalised
industries, David Harvey’s (2004) notion, ‘accumulation by dispossession’, can be utilised.
Here multinational corporations, in large part due to IFI policies in Ghana, have been able to
further concentrate their wealth and power at the expense of ordinary Ghanaians. What used
to be theirs – land, wealth and means of subsistence – has been forcefully been taken from
them. This is similar to Polanyi’s writing on how the free-market economy was forcefully
instituted by the powers that be.
5.2.6 Fiscal policy in Ghana
Tight Fiscal Policy is also a condition required by IFIs. After further loans from both
the IMF and WB in 2009, the Government of Ghana was required to undertake fiscal policies
such as cutting public expenditure in order to reduce their fiscal deficit (Honkaniemi 2010: 3).
In an Economic Governance and Poverty Reduction Credit loan from the WB, the
government of Ghana was required to postpone any of their investment projects in order to
restrain their spending (Honkaniemi 2010: 4). The conjecture of this condition is that the
private sector, once the economy is stable, will provide the necessary investments for growth.
Waeyenberge et al (2010: 30) contend, though, that this is not enough to promote
development; they believe significant public investment is compulsory for sustained and
accelerated economic growth.
The Ghanaian government was also forced to defer statutory payments to the Ghana
Education Trust Fund, which has damaged its ability to meet its crucial mandate; 4,000 basic
schools did not get classroom blocks, and due to the requirement for freezing public sector
recruitment (in the non-priority sector), there were negative implications for the quality of
education and a teacher deficit of 24,560 (Action Aid 2010: vi-vii).
36
Moreover, payments to the National Health Insurance Fund were deferred. This has
had adverse affects on the access to quality health care; some service providers were unable to
get hold of important supplies and medicines and cope with an increasing attendance rate
(Addo et al 2010: vi-vii). Furthermore, deferred payments to the Direct Assembly Common
Fund restricted the District Assemblies’ capacity to carry out local infrastructure projects
leading to negative consequences in job creation for rural communities.
Further socio-economic effects of Ghana’s monetary and fiscal policy concern the
labour market; one of the most important issues in Ghana as employment is one of the
primary means of alleviating poverty. In the 1980s before the IFIs policies were implemented,
about 20% of the Ghanaian workforce were employed in the formal sector, now after over
two decades, the formal sector employs just 10% of the workforce – every year 250,000
people enter Ghana’s labour market and just 2% of these people are employed in the formal
sector. The informal sector, in which there are few social safety nets, then, accounts for about
80% of Ghana’s workforce. In addition, while unemployment is relatively low,
underemployment (whereby people need to work more to meet their needs) is high with most
individuals earning under the daily minimum wage (Otoo et al 2009: 1-2).
This is a contradiction with the purpose of the IFIs policies in which the private formal
sector, described by IFIs as the ‘engine of growth’, was supposed to replace the public sector
as the major source of employment when it was retrenched (Otoo et al 2009: ix). The above
statistics are also surprising given the fact that Ghana has experienced more than 25 years of
economic growth as it has been measured by GDP. Instead people have been forced into the
informal sector where wages are low, hours are not guaranteed and safety nets are inexistent
(Otoo et al 2009: ix). Despite legislation stating a number of benefits that Ghanaian
employees should enjoy, the majority of the workforce, in all but one case, does not reap the
benefits. A large majority of employees do not have social security benefits, paid holidays,
free or subsidised health care, training or retraining and paid sick or maternity leave.
However, perhaps it is telling that there is a positive and strong relationship between
unionisation and access to the aforesaid benefits. Here we see, then, in the case of non-wage
benefits, that those most vulnerable to the dictates of the free market are those without an
institution in which their rights and needs are protected. Those that do enjoy the benefits are
those protected from the market by trade union representation. Trade unions and a number of
civil society organisations and media outlets in Ghana have been extremely critical of, and
resistant to, IFI implemented fiscal policies in Ghana, but there is little evidence to show mass
resistance on behalf of ordinary Ghanaian citizens regarding this matter.
37
5.2.7 Ghana’s double movement
In the case of Ghana the connection to Polanyi’s theory is not as evident as in Bolivia. The
IFIs neoliberal policies have influenced Ghana’s government for three decades and countermovements against these policies have yet to assure a determining positive impact on Ghana’s
road to development. In other words, the measures advised by the IFIs in Ghana’s case,
although not always appreciated, have been largely accepted by the government and
resistance movements and civil society have yet to achieve a strong influence in the decisionmaking process. The self-regulated market mechanism in Ghana has been promoted as crucial
to economic growth and development in the region. However, the impact of these policies in
the market-society relations in Ghana have experienced a range of negative outcomes. The
liberalisation of trade and the privatisation of state-owned enterprises in fundamental sectors
for the region such as, agriculture, water or mining as well as tight fiscal policy were all
implemented to increase the efficiency and competitiveness of Ghana’s economy. However,
the lack of positive results for civil society have culminated in the rise of a number of countermovements that attempt to resist and promote alternative approaches. In spite of the positive
figures in GDP and development, as highlighted above, many Ghanaians continue to be in a
fragile position in terms of some indicators and trends. A considerable amount of Ghana’s
society has yet to experience the profits of these measures which did not develop the living
conditions in the region, instead it sometimes even worsened them.
It is clear that the implementation of the neoliberal policies in Ghana led to the
disembedding of the market from society however, as Polanyi states, this movement will
eventually create tensions in the society, and thus, the society will organise a countermovement to protect itself and regain the control over their sectors and commodities. The rise
of counter-movements in Ghana suggests that their intervention has yet to be heard, and
protective measures have not been implemented. Nevertheless, the awareness of the civil
society seems to be increasing and Ghana’s development discussion has more participants as
well as alternatives. Thus, despite the counter-movements in Ghana are still in an embryonic
stage, they are bound to restructure the market-society relations and shield society from the
capitalist market economy in the future.
38
5.3 The case of Bolivia
5.3.1 Bolivia’s Poverty Reduction Strategy
Unlike in Ghana, the amount of PRSPs that have been implemented in Bolivia is modest.
There is only one I-PRSP available dating from 2000 and one PRSP dating from 2001. An
apparent reason for this, as will become clear in the next section of this chapter, is Bolivia’s
ongoing resistance to the influence of the IFIs and its unwillingness to comply to neoliberal
policies. However, for now it is our intent to inspect how the neoliberal framework is set up in
order to reduce poverty and promote development on the basis of Bolivia’s poverty reduction
strategy as it was established in its PRSP the Estrategia Boliviana De Reduccion De La
Probeza (EBRP).
Though resistance to IFIs has been mounting, Bolivia was one of the first developing
countries to adhere to the conditions of a poverty reduction strategy through the creation of an
I-PRSP in 2001. This move initiated a new wave of IFI designed reforms that were to be
materialized through the EBRP in the following year. The basic assumption of Bolivia’s IPRSP was that in order to effectively combat poverty, it would be imperative to take into
account the ‘interrelation’ of economic as well as political and social development (Ferranti et
al 2000: 13). This implied that the government as well as the civil society and representatives
of the poor were to be included in implementing the EBRP and that next to economic
considerations, social development was to be given priority.
Thus the EBRP (2001: 11) states that:
“The aim of the BPRS is to make strides in the design of economic policy, on the
understanding that, although growth is a prerequisite for overcoming poverty and
reversing inequity, growth alone is not sufficient—in and of itself—to achieve that goal.
The BPRS, therefore, is pressing for deliberate and incisive action on the part of the
State to tackle poverty and social exclusion. The BPRS endeavours to narrow the gap
that exists between economic policy and social policy, so that the determination of the
State will be focused not only on growth targets, but also on poverty and socialexclusion reduction objectives. The BPRS has a global vision, and accordingly includes
the foundations of a development strategy in which production plays a key role.”
The component of the EBRP that was concerned with economic development
emphasized macroeconomic stability through tax reforms by widening the tax base and
restricting fiscal expenditures. The resources that would become free because of these
measures, were to be allocated to an increased support of the export of commodities as they
39
were produced by the agro-industrial, manufacturing, oil and gas sectors (Ferranti et al 2000:
14). In addition, through keeping the exchange rate regime of the Bolivian currency, the
boliviano, flexible the competitiveness of the export sector could be ensured. According to the
EBRP (2001: 194) Bolivia would then be able to reduce its account deficit of the balance of
payments. In other words, if Bolivia was to be able to make economic progress, it had to
increase its export capabilities and maintain price stability so the inflation rate could be kept
below 4.0% so that the purchasing power of the Bolivians could be guaranteed.
While it is stated that the IFIs’ development strategy is focussed on production and
economic growth through export, it must be noted that Bolivia’s PRSP, like those of Ghana,
contains only very vague guidelines about the notion of how macroeconomic policies are
exactly to be implemented. For instance, aside from trade liberalisation, privatisation is only
mentioned twice in the EBRP (2001) and then only in an evaluative form instead of a clear
instruction. It has become clear to us that the policies that the EBRP is proposing are more
aimed at social development that are directed towards the improvement of i.e. gender
equality, the inclusion of the indigenous Bolivians, and educational and health provisions. It is
hard to disagree with such measures. We assumed that the PRSPs of both Bolivia and Ghana
would be more intent on addressing economic issues but since this is not the case we wonder
why there is so much resistance against the IFIs in Bolivia. We hope to address this issue in
the next section, but first we inspect the GDP and HDI of Bolivia to see how the country has
developed itself.
5.3.2 Bolivia’s GDP and HDI
Bolivia’s GDP has risen significantly during the last decade. Graph 2 (see Appendix B) shows
that Bolivia’s GDP increased from 8 billion US$ in 2000 to 27 billion in 2012. Since the
Morales administration took office in 2006 the growth of the GDP has been averaging 5.2%
annually (Weisbrot et al 2009: 3). This has been the highest number in the last 30 years. In
addition, it is worth noting that Bolivia’s GDP has been growing regardless of the financial
crisis in 2009 that caused many economic shocks. In the case of Bolivia these shocks
consisted of “falling remittances, declining foreign investment, the United States’ revocation
of trade preferences, declining export prices and markets for part of the year and other
impacts of the global recession” (Weisbrot et al 2009: 6). It is largely due to the increase of
Bolivia’s natural resource extraction facilities that the country has been able to sustain its
growth. Especially the expansion of mineral extraction has contributed to the increase of
GDP. But aside from that Bolivia’s export sector has always been relying for a large part on
40
the hydrocarbon, manufacturing and agricultural sectors that constitute a large part of
Bolivia’s GDP (Weisbrot et al 2009: 9). Especially the government revenues from Bolivia’s
renationalised hydrocarbon sector have cushioned the impact of financial shocks for the
country’s economy.
In tandem with this growth in GDP, table 2 shows that Bolivia’s HDI also improved
significantly (see Appendix B). While the life expectancy improved with 2 years and the
purchasing power parity with 1000 US$ per capita, the expected and mean years of schooling
stayed the same. The HDI value however improved with over half a point during 2000-2012.
Bolivia’s Gini coefficient of around .55 remains remarkably high however, which shows signs
of great income inequality (Weisbrot et al 2009: 18). Additionally, the UNDP (2013b)
Human Development Report shows that the increase in economic growth has not been enough
to improve the precarious situation of almost one third of the Bolivian population that is still
living in extreme poverty. In the next sections we examine, within the context of socioeconomic development, the choices that the Bolivian government has made with regards to
trade liberalisation, privatisation and fiscal policy.
5.3.3 Liberalisation of trade in Bolivia
Bolivia has for a long time been the ‘poster child’ for trade liberalisation policies that were
adopted in Latin America since the beginning of the 1970s (Arce and Rice 2009). In 1985 it
followed the IFIs guidelines and implemented the New Economic Policy (NEP) to restore
macroeconomic stability and combat the hyperinflation that was ravaging the country’s
economy. The trade liberalisation component of the NEP had as its primary target to abolish
protectionist non-tariff barriers as well as the reduction of tariff rates that inhibited
imports (Castellani et al 2004: 2). As a consequence, the uniform import duty was reduced to
20% and even further decreased to 10% in the beginning of the 1990s. In addition, the number
of import products that were subject to a quota was lowered to two. This was a big difference
from the import substitution policies of the period before the introduction of the NEP when
import duties on some products were ranging from 30% to 150% and when there was an
import quota on 90 different sorts of goods (Jenkins 1997).
Thus, in line with the objectives of the neoliberal policies of the IFIs and the WC,
Bolivia’s economy has opened itself up significantly to the global market. As a result its
economy sustained an average real growth of around 4% in GDP throughout most of the 90s
while foreign investment rates increased by an average of 7.1% and imports by 6.7% a year
during this decade (Castellani et al 2004: v). To streamline this expansion of trade, Bolivia
41
has reformed its administrative procedures and customs regulations. Next to the
aforementioned unilateral measures, Bolivia has also joined the customs union of the Andean
Community to boost trade possibilities with neighbouring countries and reduce regional trade
barriers. In addition, it has also signed bilateral economic agreements with MERCOSUR,
Mexico, Cuba and Chile. Because of the success of these policies, Bolivia’s government did
not alter its course and it did not return to the exceptionally high trade barriers before the
adoption of the NEP.
Regardless of the fact that Bolivia’s exports grew with an average of 3% throughout
the 1990s, this was not enough to compensate for the country’s expansion in imports.
Therefore Bolivia’s balance of payments built up a significant deficit and as a result reached
an all time high in 1998 of $888 million (Country Profile: Bolivia 2006). This implied that
there has been an increase in foreign debt that decreased the country’s financial credibility
which in turn could cause capital flight (Sloman and Sutcliffe 2004). To cope with this risk
Bolivia has been following the EBRPs’ recommendation to keep increasing its exports. As a
result, exports have increased from 30.1% of GDP in 2005 to 41.7% in 2008, while imports
only have risen from 24% to 28.3% in the same period (Weisbrot 2009: 23). This created
double digit surpluses for three consecutive years but, due to the financial crisis in 2009 that
caused the prices of natural resources to drop, there has been a decline in export value.
However, currently there still is a significant trade surplus that strengthens the investment
climate (see Trade Economics 2014). A large share of Bolivia’s success from its export sector
can be attributed to trade with neighbouring Latin American countries. Nearly two-thirds of
the total trade was with The Andean Community and MERCOSUR members. Moreover,
Brazil has become the largest export market for Bolivia with 16% in 2008 from just 0.5% in
1999 (Weisbrot 2009: 25).
However, regarding the liberalisation of trade, not everything is going in line with the
IFIs advice. In 2007 Bolivia changed its tariff structure in order to protect its local
manufacturing industry. The IFIs and more specifically the US have condemned this action,
but the Morales administration did not heed the call (see Foreign Trade Barriers: Bolivia n.d.).
This attitude toward IFI induced policy has been part of a greater movement towards
resistance especially regarding the renationalisation of privatised companies. In the next
section we inspect this matter further.
42
5.3.4 Privatisation policy in Bolivia
In line with its depiction as a poster child for the IFIs induced trade policies, Bolivia has
adamantly been privatising its national companies throughout the 1980s and 1990s. However,
unlike the trade policies, the common Bolivian appeared to be much more affected by
privatisation. Many Bolivians had been the recipients of the redistributional benefits (i.e.
employment and subsidised prices for products) that were generated from state-owned
enterprises (Pearson 1998: 2) and, thus, were protected from the free-market logic that
opposes such benefits that are not a result of free-markets. But the privatisation of these
enterprises ended these benefits abruptly, which made it a challenge for presidents like
Sánchez de Lozada (first term 1993-1997) to heed the IFIs advice. Pearson (1998: 2) have
stated that;
“The political necessity of showing immediate benefit from [the privatisation of national
companies] in a tangible way to the Bolivian people conflicted in many ways with the
desire to ensure long term economic gains in the form of increased savings and
investment.”
However, regardless of the popular resistance against privatisation, Lozada pushed his
initiative of the Plan de Todos in 1994 that basically constituted the Law of Capitalization
which authorized the sale of the six largest state owned enterprises. Here we see how the IFIs
policies have freed capital from government control, thereby negatively impeding on
Bolivians.
With the privatisation of these six largest companies, there came an end to almost a
decade of pressure from IFIs to take the next step after implementing the NEP reforms. The
Bolivian government sold its majority share in their oil and gas, telecommunications, airlines,
smelter, power generation and railroad industries to multinational companies (Kohl 2004:
894). The idea behind the Law of Capitalization was that the companies would work more
efficiently by reducing corruption thus increasing economic growth. Overall, the privatisation
of LAB (airlines), ENFE (railroads), YPFB (oil and gas), ENDE (electricity) and ENTEL
(telecommunication) brought the government $1.7 billion dollars in much needed revenues,
which was more than double the amount of foreign direct investment than Bolivia had
attracted in the previous 15 years (Pearson 1998: 13-18). In addition, the economic growth
rate was doubled and observers were positive that this would be sustained if the full effects of
the privatisation were to come to fruition.
However, in the end the aforementioned losses of redistributive benefits for many
Bolivians were not compensated by the privatisation process because the latter did not deliver
43
the economic results that it promised. The continuation of unpopular privatisation policies
induced a politically volatile environment. This situation would eventually erupt when Lozada
tried to further the privatisation of Bolivia’s national gas company YPFB when he tried to
push the idea for exporting gas through Chile to the United States and Mexico (Iamamoto
2013).
As a result, the first demonstrations would take place in September 2003, which were
mainly organised by the indigenous majority from the city El Alto. These demonstrations
evolved into large scale protests, supported by labour groups as well, peaking at October 17th
with 500,000 people participating (Kohl and Farthing 2006: 11). More and more Bolivians
started to support the idea of a full renationalisation of the gas extraction industry. In the end
there was a huge mobilization of farmers, students, union workers and ordinary people who
threw up blockades and isolated La Paz (Dangl 2003). But the demonstrations were met with
violence from the riot police and army which caused the death of almost seventy people and
hundreds were injured (Kohl and Farthing 2006: 11).
Next to economic reasons for the protests, there were also historical reasons to be
found. For many Bolivians it was unacceptable that Chile, which has been perceived as the
archenemy after the ‘War of the Pacific’, would gain from Bolivia’s gas exports. In this war,
1897-1883, Chile overtook Bolivia’s only sea access (Dangl 2003). The IFIs pushed for the
Chilean option because that was the best way economically but without keeping in mind the
sentiments of the Bolivians. Options were considered to export the gas through Peru, but this
was more costly and critics demanded more revenues for the state. As a direct cause from
those protests and discontent with the previous, neoliberal oriented presidents, Evo Morales
was elected in 2005. He made his campaign promise true and renationalised the gas industry
which was announced on the symbolic day, May 1st 2006 (Dangl 2003).
Before we move on to Bolivia’s fiscal policy and the consequences of the election of
Morales we first look at another ‘war’ that has taken place concerning the privatisation of
Bolivia’s national water companies.
5.3.5 Water privatisation policy in Bolivia
The direct cause of heavy protests regarding the privatisation of Bolivia’s national water
companies, was the increase in the water bill that for some people increased more than 300%
(Perkins 2008: 123). The Bolivians blamed the government for its continuation of the
privatisation of the water utility companies under pressure of the IMF and World Bank. In
1998 the Bolivian government accepted a loan provided by the IMF worth $138 million. The
44
government needed this money to provide economic growth and fight inflation. A
precondition for this loan for Bolivia was to implement further structural adjustments like the
privatisation of all remaining public companies; the water utility company, SEMAPA, was
one of them (Sadiq 2002). Aguas del Tunari announced in October 1999 that it was rewarded
with a 40-year contract; it paid $2.5 billion to seize the rights for delivering Cochabamba’s
water services. Bechtel, a US-based multinational, specialized in engineering projects, had the
majority share in Aguas del Tunari (Perkins 2008: 120).
The doubling or tripling of most water bills outraged the citizens of Bolivia’s third
city. In January 2000 the people took the streets and blocked the city for four straight days
(Sadiq 2002). The demonstrations created an atmosphere filled with tension and fear and
Bechtel demanded protection from the Bolivian government (Perkins 2008: 123). The army
and special police were mobilized and the peaceful demonstrations turned violent, injuring
175 demonstrators (Sadiq 2002). The protesters consisted mostly of indigenous peoples
belonging to the Aymara or Quechua group but were broadly supported by other ethnical
groups and labour unions.
After months of protest and even an unofficial referendum where 96% of the people
made clear they were against the privatisation, the protest spread to other parts of Bolivia. In
April a seventeen year old boy was shot dead by the Bolivian army, two years later a captain
was acquitted by a military tribunal (Sadiq 2002). After several days of demonstrations and
riots throughout the country, many who turned violent, the Bolivian government signed an
agreement with the protest leader, Oscar Olivera. In this agreement the withdrawal of Aguas
del Tunari was announced and the water services were nationalised again (Sadiq 2002). The
victory by the citizens of Cochabamba gave hope for many people in Bolivia, it is proven
worth fighting against neoliberal policies. Because neoliberal policies have the custom to hit
the most vulnerable groups the hardest, the message that change was possible gave hope for
the impoverished Bolivians. As the government, due to the IFIs policies, lost it’s control over
the provision of water, ordinary Bolivians were subjected to huge price increases and thus
mobilised and created a second movement to protect themselves. This ‘war’ was not the last
one, there would follow some more.
5.3.6 Fiscal policy in Bolivia
Historically, Bolivia has had inadequate tax systems that up until the 1980s generated the
lowest amount of government revenues in Latin America (see Cajias 2013). As a result,
Bolivia has always relied heavily on external sources like aid for its social and infrastructural
45
expenditures. To cope with this dependency and to reduce the mounting governments deficit
from 8.5% to 5.5% of the GDP, the IFIs pushed president Lozada for the implementation of a
solid ‘flat’ income tax of 12.5% in 2003 (Kohl and Farthing 2006: 172).
However, this specific measure caused heavy riots. Unlike in the gas war the police
were not deployed to suppress the demonstration but were demonstrating themselves instead.
As a result the military was called in to make an end to the protest and they used an incredible
amount of violence. In the shootings, 29 people were killed and many more were wounded
(Kohl and Farthing 2006: 172-173). In the wake of this massacre, two days of riots took place
throughout the country. All this unrest made Lozada decide to withdraw his proposition for a
flat tax. Unlike the two aforementioned ‘wars’ this social movement lasted only for a couple
of days. It shows, however, how the Bolivians did not want to accept the IFIs policies and that
they blamed the Bolivian government for adopting them.
Currently, the Bolivian government still has not implemented a flat income tax. While
it has a direct income tax on some segments of the working population, this system is not
sufficient to gather the required amount of tax revenues. Instead Bolivia relies for a great part
on the tax on its hydrocarbon sector. As such, the country’s fiscal policy is running parallel
with the promise of Evo Morales to let the hydrocarbon industry benefit the Bolivian
population. This development is very particular and contradictory to the IFIs neoliberal
paradigm since Bolivia does not heed the advice of the former to increase direct taxes (IMF
2012).
At the expenditure side of its fiscal policy Bolivia has also been neglecting the advice
of the IFIs, especially since 2006. As was the case in other Latin American countries like
Brazil, Bolivia has been implementing conditional as well as unconditional cash transfer
programs (CCT/UCT) to strengthen income redistribution and provide for adequate health
care, pension and educational services to the poorer segments of its population. For example,
the Bono Juancito Pinto is one of the most comprehensive CCTs that has been launched in
2006. Through providing families with a financial incentive of $28.20 per child per year to
send their children to school, Morales’s hope has been to foster access to education in the
short term and an increase in human capital accumulation in the long term (Yáñez et al 2011).
An example of an UCT that has been implemented in 2007 is the Renta Dignidad
pension program, that provides annually and unconditionally US$340 to all Bolivians of 60
years and older (Loza et al 2013). It is needless to say that the financing of the CCTs and
UCTs pose a huge burden to the fiscal account of the government. Regardless, the Morales
administration has been redirecting a large portion of the revenue from its hydrocarbon sector
46
to fund its CCTs and UCTs instead of complying to the directives of the IFIs and even out its
government’s income/expenditure balance. In addition, the effectiveness of these programs
does not go uncontested mainly because of the flaws in the actual provision of public health
care and education (McGuire 2013). Here, then, we see how the government is implementing
measures in order to protect Bolivian citizens, if the IFIs had their way the provision of CCTs
and UCTs would be left to the free market and many would be left unprotected.
However, it seems that for now the Bolivian government is still able to cope with its
generous fiscal policy because the public debt has declined from 74.7% of GDP in 2005 to
45.4% in 2009. Weisbrot et al (2009: 21) state that:
“Bolivia’s successful completion of the HIPC requirements by 2001, which probably
had a negative impact on its economy, and subsequent qualification for relief under
MDRI, led to a cancellation of $1.52 billion, or 13.2 percent of GDP in World Bank
debt in 2006; and $231 million, or 2.0 percent of GDP in IMF debt. This represented
almost all of the country’s debt to the IMF, and over 90 percent of its debt to the World
Bank.”
This implies that while the HIPC certainly has helped, its conditions at the same time slowed
down Bolivia’s economic growth. Regardless, Bolivia currently still possesses a healthy fiscal
account because of its huge income of natural resource revenue. Therefore Morales will
probably not change his fiscal policy for the time being. In the next section we inspect the rise
of Morales and what this has meant for Bolivia’s attitude towards the IFIs.
5.3.7 Bolivia’s resistance, the government as a social movement?
The indigenous peoples who have lived in Bolivia experienced a long history of exploitation.
Because of this long history of exploitation there has always been a strong resistance
movement. The most evident case, which gave many Bolivians hope to change neoliberal
policies, is the so called ‘water war’. But the movement towards privatisation started earlier.
In the wake of the water, gas and tax wars, the mounting resistance of the Bolivians
ultimately led to the democratic election of president Evo Morales, which gave a clear signal
to the US and IFIs in the end of 2005 that they were not welcome anymore to impose
neoliberal policies. As the leader of the Movement Toward Socialism (MAS) Morales gained
53.7% of the votes. This election would herald the ‘post-neoliberal era’ of Bolivia (Gustafson
2010). Being the first indigenous president in the history of the country Morales’ election was
celebrated by the majority of the people and at the same time denounced by the IFIs, some of
the Bolivian elites and the US government (Forero 2005).
47
Morales’s strong opposition to the traditional policies immediately led to an escalation
of tensions between US-Bolivia relations and consequently IFI-Bolivia relations. Bolivia was
not alone in its opposition because Venezuela, Ecuador and more importantly Argentina and
Brazil were also actively resisting neoliberal policies through leftist oriented governments.
Petras and Veltmeyer (2007) who have investigated this wave of resistance, have
characterized the impact of the ‘Bolivian Revolution’ as part of the final ‘anti-imperialist’
phase in Latin America. It must be noted that especially Bolivia’s powerful neighbor Brazil
has been important in strengthening this anti-imperialist phase.
As a former coca farmer and active demonstrator in the gas war, Morales’ election has
proved to be controversial in many aspects. He renationalised the gas sector that had just been
privatised in line with IFI policy (Dangl 2003). Moreover, he “partially nationalised the
country's hydrocarbons and telecommunications industries, increased direct government
participation throughout the economy, and introduced new programs in health, education, and
social security” (Kohl and Bresnahan 2005: 5). Especially the (re)nationalisation of private
companies and the increased involvement of the government in the economy conflicted with
IFI regulations. In addition, Morales’ ideas about coca plants have differed in many ways with
those of the US government. While the US has tried to fight the existence of coca plantations
because they have argued that those plants will end up as the drug cocaine on US domestic
market, Morales and the coca farmers have always claimed that the coca leaf is part of the
traditional Andean culture and serves no narcotic purposes (Vidaurre 2001).
The majority of the Bolivian population has been actively supporting Morales in his
fight against IFI induced policies not in the least by re-electing him for a second term in 2009
with 64.2 percent of the votes. The increase in votes suggests that the electorate was satisfied
by the policies implemented in the first term. They proved to be wanting a continuation of the
fight against capitalist-induced climate change and instead supported the recognition of the
country’s indigenous people and furthering the improvement of social development programs
(Fuentes 2012). Thus Morales’ terms as president have launched the profound transformation
as the MAS envisioned regarding the ‘decolonization’ of Bolivia (Kohl and Bresnahan 2005:
5).
5.3.8 Bolivia’s double movement
Regarding the case of Bolivia it is not difficult to see the connection with Polanyi’s theory.
The IFIs have tried to strengthen the self regulation mechanism of the market by reducing the
influence of Bolivia’s government. The liberalisation of trade was aimed at reducing tariff
48
barriers and thus opening up Bolivia’s economy to the global market. In this regard, the idea
was to strengthen Bolivia’s development by economic growth. The privatisation of national
companies that took care of the provision of water and the production of oil and gas, was to
increase efficiency and competitiveness. However, the various social movements that have
risen against these policies indicate the formation of a clear countermovement. In Polanyi’s
terms it can be said that this countermovement is trying to thwart the evolution towards more
market autonomy and thus the disembedding of the market from society. Instead the Bolivian
countermovement is fighting for an increase of power for the state to regain control over the
fictitious commodities like gas, oil and water.
In addition, many of the Bolivians have experienced the forces of the global market as
a threat towards their traditional values and beliefs. While the privatisation policies were to
increase the effectiveness, they had at the same time caused dispossession of national
companies that were not owned by Bolivians anymore but in most cases by foreigners.
Moreover, instead of redistributing the revenues from natural resource production, due to
trade liberalisation, the profits disappeared in the global market in the pockets of foreigners
who had no cultural or social connection with Bolivia.
With the election of Morales as their president, the Bolivians have tried to shield
themselves from the capitalist market economy. However, it is a matter of fact that Bolivia
does need international trade to secure its socio-economic development and the
countermovement thus does not constitute the abolishment of economic relations with the
global market. The protective measures that have been taken by Morales are merely aimed at
strengthening social forces in the contradictory relation between the capitalist market
economy that is bound for unlimited expansion on the one hand, and the social requirements
of the Bolivians on the other.
49
6. Discussion
In our introduction we have stated that neoliberalism consists of a doctrine that perceives the
free market mechanism as the most effective tool to advance human well-being. Therefore the
IFIs, who propagate neoliberalism, have always focused their efforts on the economic growth
of the countries that they lend their financial assistance to. On the other hand we have also
stated that neoliberalism as a framework for development is highly controversial because a
higher income or GDP of a country does not necessarily entail social development. Important
aspects of life such as human rights, freedom, education and sustainability are not guaranteed
by economic growth and it can even be argued that these important indicators have been
decreased by the expansion of the free market. As such, it can be argued that there exists a
tension in the relationship between market and society. Within the framework of Polanyi’s
Double Movement thesis we have analysed this contradiction by inspecting four typical
neoliberal policies in Ghana and Bolivia, where we expected to find controversies and forms
of resistance from society.
This research has confirmed Polanyi’s thesis to a significant degree. Our analysis
shows that the expansion of the free market is to a large extent to be held responsible for the
genesis of social resistance towards this same free market. Within this context, it is interesting
to note the difference to the extent in which the countermovements have sprung up in both
countries. Ghana has generally complied to the advice of the IFIs and adopted most of the
policies that have been prescribed. There has been the formation of a countermovement
however but there have only been pockets of resistance with very disparate goals. However,
Bolivia’s case has appeared to be much different, since countermovements have been
numerous and very much aimed at denying the influence of IFIs in general. Especially since
the election of Morales it seems that even the government has been acting as a
countermovement towards neoliberal intervention by the IFIs which propagate the expansion
and complete integration of Bolivia’s economy into the global market.
As we have stated in our methodology section, it has been generally acknowledged
that it is difficult to precisely measure the consequences of economic policies. However, it has
proved to be interesting to examine the socio-economic development of Ghana and Bolivia
according to the GDP and HDI (see Appendix A and B). We have shown that Ghana as well
as Bolivia have both experienced significant growth rates in GDP as well as HDI during the
period of 2000-2012. However, it seems that Ghana’s GDP (from $5 billion to $48) has
grown much faster than that of Bolivia (from $8 billion to $25 billion). As a result Ghana’s
50
GDP now doubles that of Bolivia. But our analysis regarding the HDI is different, where
Bolivia (from 0.489 to 0.675) seems to be more socially developed than Ghana (from 0.391 to
0.558), even though growth rates are roughly the same (respectively 38% and 43% during the
period 2000-2012). A conclusion that can be drawn from these numbers is that while Ghana’s
GDP has grown significantly, social development has been lagging behind.
The comparison of our two cases shows that the neoliberal policies that the IFIs
prescribe can have drastic implications for society in general. Especially in the case of
privatisation, our analysis shows that there can be a direct loss of jobs and increase of income
uncertainty. In other words, the market is given priority over society in market-society
relations which, it can be argued, implies that economic growth comes sometimes at the cost
of social growth. Then, following Polanyi, it is not surprising that countermovements arise to
constrain the influence of the IFIs. What is remarkable however is the difference in the
amount of social resistance in Ghana and Bolivia, which cannot be explained by Polanyi’s
thesis. However, our focus of analysis is an on-going process and as such is one that can be
continuously analysed and evaluated within the same framework; in 10 years time another
economic crisis could again plunge the world into chaos and in either country strong(er)
counter movements could erupt. Strong left-wing policies could become implemented,
revolutions could occur or even more authoritarian fascist regimes could become a reality.
Polanyi’s thesis, thus, while pertinent in both case studies, may at the time of writing be more
relevant in Bolivia than Ghana, but that is not to say this situation will remain indefinitely.
We also argue that it could possibly be interesting to look into this matter within the
framework of social movement theory and maybe path dependency of both countries.
Additionally, from our research and analysis, we understand the purposes of the
neoliberal policies recommended by the IFIs and what they try to achieve. However, the
processes of implementation, particularly in Ghana and Bolivia, need to be revised. It has
been clear that these processes are controversial and the expected outcomes are still far from
being accomplished. Therefore, we argue that these processes must be reviewed and
structured in a realistic form so the country’s economy and society may experience
sustainable results regarding development and poverty reduction.
51
7. Conclusion
The purpose of this project was to examine the purposes of the IFIs’ neoliberal policies and
their consequences for market-society relations in Ghana and Bolivia. Overall their purpose
has been to improve economic growth, stability and activity under the broader remit of human
development and poverty reduction.
We chose four of the IFIs policies for our analysis: trade liberalisation; privatisation;
water privatisation; and tight fiscal policy. In both Ghana and Bolivia trade liberalisation has
opened both economies to the dictates of the free market and has improved economic growth.
However, the social benefits of this policy in Ghana were somewhat disparate with poverty
reduction occurring in some areas and amongst some groups and a worsening in conditions in
other areas and for other groups. The privatisation process, in both of our case studies, of a
series of state-owned enterprises was aimed at increasing efficiency, competitiveness and
decreasing corruption. In Ghana we saw how privatisation benefited the economy but, again,
had a number of negative consequences for communities and the environment. In Bolivia, the
privatisation process is widely regarded as having been a failure, with benefits for many
Bolivians cut and huge resistance from a wide-ranging number of sub-sections within
Bolivian society. Water privatisation, for both countries, was a huge failure; costs spiralled
and access to, and quality of, water saw little improvement. In Ghana a number of civil
society groups converged in order to condemn the IFIs water privatisation process and in
Bolivia there were serious, often violent, demonstrations which resulted in the renationalisation of water services, thereby protecting Bolivians from the neoliberal
privatisation policy that had made water services much worse. The tight fiscal policy
implemented in Bolivia, again, resulted in large and violent riots, while in Ghana certain
segments of the public sector had some issues and the labour markets seem to have been
negatively affected, but there was little in the way of counter movements towards this specific
policy area.
Overall, then, in Bolivia neoliberal policies have had massive consequences for
market-society relations, with huge second movements, the most significant of which is
conceivably the instalment of a left-wing government that is highly critical towards and
against neoliberal ideology. In Ghana, neoliberal policies have had considerable effects and,
indeed, the plight of some has been made worse. However successive governments have
continued to pursue neoliberal conditionality and there has been some significant progress,
although not evenly spread, in poverty reduction. Fast increasing inequality and further and
52
further interdependence with the globalised, free-market economy, however, could have
serious consequences in the future. With the likelihood of further crises it is easy for a
developing country like Ghana to lose much of its progress in little time with its continued
heavy reliance on a few primary commodity exports. While resistance in Ghana definitely
exists - through the media, civil society and other organisations - it has been much less
evident in the case of Bolivia. Perhaps this goes to show that the ‘one-size-fits-all’ mentality
of the IFIs policies does not work. Indeed, while Bolivia (and much of the rest of South
America) seems set on a much more socially oriented embedded market path, only time will
tell if capital is successful in stripping away its social protections and reinstating the
neoliberal agenda as the dominant ideology. Whereas in Ghana, only time will tell if they will
become more resistant to neoliberal policies. In sum, then, it seems that Ghanaian society is in
the process of the first movement, where Bolivia in the process of the second.
53
Appendix A
Graph 1
“Ghana’s GDP” based on data provided by the World Bank
Table 1
“Ghana’s Human Development Index” adopted from UNDP (2013a)”
54
Appendix B
Graph 2
“Ghana’s GDP” based on data provided by the World Bank
Table 2
“Bolivia’s Human Development Index” adopted from UNDP (2013b)”
55
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