As the "New Economy" Crashes, to What Degree Will Mainstream Economists Change Their Stripes?

By Mark Engler, Dollars and Sense. Posted January 3, 2009.

The increasing prominence of Chang can be considered part of this shift. The more prototypical example of it is his mentor, Nobel Prize-winning economist Joseph Stiglitz, who made a swift transition from being chief economist at the World Bank to being an outspoken critic of market fundamentalism and a persistent thorn in the side of the IMF.

The policy alterations that have accompanied the changing intellectual scene have already proven significant. Witness the changing fate of the IMF: not long ago the institution was the head of a powerful Washington cabal in development policy. To escape its grasp, developing countries have paid off their loans to the IMF early and built up large currency reserves in recent years so as never to have to return to Washington in the event of future emergencies. Today, the Fund’s recommendations are regarded as ideologically suspect at best. The institution thus became a shadow of its former self—and is now desperately trying to use the new financial crisis to reinvent itself. Allied bodies like the World Bank are facing difficulties of their own, and the American electorate has clearly grown suspicious of unchecked deregulation, making the terrain of globalization debate at the start the post-Bush era very different from that seen at the end of the Clinton years.

An Unrepentant Convert?

Another individual that many think of as a defector from the beleaguered Washington Consensus is Jeffrey Sachs, currently the director of the Earth Institute at Columbia University. Sachs first came to prominence in the late 1980s as the wunderkind Harvard economist who, in his early thirties, was called in to fix the imperiled economies of countries including Bolivia and Poland. He treated these patients with what has since become known as “shock therapy”—the all-at-once imposition of a slate of free market initiatives—with controversial results.

In 2005 Sachs reentered the limelight, this time as an anti-poverty crusader, with a book entitled The End of Poverty. It was a staunch defense of foreign aid and of the United Nations’ Millennium Development Goals. It championed the cause of ending extreme poverty as the defining challenge of our generation. The best-selling book’s success has solidified Sachs’ standing in the celebrity humanitarian circles inhabited by the likes of Bono and Angelina Jolie.

If Sachs gives the impression that he has lived a dual life, his distinct identities have each been brought into relief in the past year. On the one hand, he has just released a new book, Common Wealth: Economics for a Crowded Planet. In addition to reiterating his calls for a resolute international effort to address poverty, the book expresses concern about global environmental problems, especially climate change. He argues that in the twenty-first century, “The challenges of sustainable development—protecting the environment, stabilizing the world’s population, narrowing the gaps of rich and poor, and ending extreme poverty—will take center stage. Global cooperation will have to come to the fore. The very idea of competing nation-states that scramble for markets, power, and resources will become passé.” He calls upon global society to “[think] ahead and [act] in unaccustomed harmony.”

On the other hand, even as he has set out to proselytize for this apparently liberal internationalist program, Sachs has suffered a withering progressive attack on his reputation. In Naomi Klein’s The Shock Doctrine, Sachs appears as one of central villains in the story of neoliberal capitalism’s forceful and undemocratic rise. Dubbed “The New Doctor Shock,” he is held up as second only to Milton Friedman in his responsibility for spreading the ravages of the unrestrained free market in past decades.

Now, to identify Sachs as the embodiment of neoliberalism is somewhat unfair: he has long combined advocacy for debt relief, foreign aid, and social safety nets with his belief in capital’s powers, and he has had his fair share run-ins with the IMF over the years. Yet Klein is accurate in portraying Sachs as the more liberal face of market orthodoxy. And those who might think that Sachs is currently atoning for past sins need only to look at his unrepentant attitudes toward the countries he previously advised.

In The End of Poverty and elsewhere, Sachs takes credit for ending Bolivian hyperinflation. He has lauded President Gonzálo “Goni” de Lozada—who went on to implement more radical and far-reaching neoliberal initiatives than Sachs himself had recommended—as a “genius” under whose guidance Bolivia “made a fundamental turn toward macroeconomic stability... [and] economic growth.” Poland, in Sachs’ view, was an even more unqualified success. He writes, “By 2002, Poland was more than 50% richer in per capita terms than it had been in 1990, and it had logged the most successful growth record of any post-communist country in Eastern Europe or the former Soviet Union.”

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Mark Engler, a writer based in New York City, is a senior analyst with Foreign Policy In Focus and author of How to Rule the World: The Coming Battle Over the Global Economy (Nation Books, 2008). He can be reached via DemocracyUprising.com.

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