Webinar Summary – A Thousand Cuts: Social Protection in the Age of Austerity
On Tuesday, May 7, the Boston University Global Development Policy Center (GDP Center) hosted Alexandros Kentikelenis and Thomas Stubbs, co-authors of the new book, “A Thousand Cuts: Social Protection in the Age of Austerity,” as part of the Spring 2024 Global Economic Governance Initiative Book Talk Series. Kentikelenis is Associate Professor of Political Economy and Sociology at Bocconi University, and Stubbs is a Reader of Global Political Economy at Royal Holloway, University of London. The authors’ discussion centered around the International Monetary Fund’s (IMF) policy on austerity, both historically and today, and how the institution might better support social policies in borrower countries. Rebecca Ray, Senior Academic Researcher with the GDP Center’s Global China Initiative, moderated the event.
The conversation began with Kentikelenis setting the stage for the beginnings of the research project and placing it in its historical context. The IMF has a long history of advocating for austerity – primarily cutting back on government spending – as a dominant response to financial instability. In the 1980s and 1990s, it mandated “structural adjustment programs,” the hallmark of IMF lending agreements, in which countries were required to enact strict spending limits as a condition for receiving emergency funds (also referred to as “conditionalities”). Over time, the IMF’s public messaging on structural adjustment has softened significantly, reducing its emphasis on modifying the economic policymaking of borrower counties, but the authors argue that the results of its lending programs have not followed this shift in tone. By generating a replicable dataset of structural adjustments as required by IMF lending agreements, the authors were able to examine the impacts on national outcomes, finding that the IMF continues to place a high burden of structural adjustment on countries in crisis.
Kentikelenis and Stubbs began their research in the immediate aftermath of the 2008-09 Global Financial Crisis, a time when many of the debates around austerity were re-invigorated. While some experts argued that financial instability of the sort prevalent during the crisis required decreases in public spending, others – mostly political economists – argued that austerity is not only counterproductive but can have devastating consequences for implementing countries. Those who preferred austerity based their argument firmly on the so-called Washington Consensus, summarized by Lawrence Summers in 1991 as “stabilization, privatization, deregulation and liberalization.” These, he said, were the only set of laws in economics and “they work everywhere.”
Those who opposed austerity pointed to examples like the story of Cameroon, a country called on to implement more than 600 reforms in the beginning of the 21st century, while simultaneously grappling with severe financial instability. Controversy surrounding the social impacts of these reforms has spanned the 1980s to the 2010s following the Global Financial Crisis, demonstrating conclusively that IMF reform programs have led to negative economic impacts. However, because the IMF has made substantial changes to its institutional policies, the debates have not been fully settled.
In response, Kentikelenis and Stubbs collected IMF loan-related documents and extracted individual conditions applicable to those loans. They then mapped the numbers of those conditions onto the world’s countries, thus identifying “hot spots” of implementing conditions. From there, they were able to test correlations between IMF-mandated conditions and social policies and outcomes. In this way, they sought to answer the questions: Is the treatment worse than the disease? Are conditionalities making an economic situation worse?
In some cases, the data is clear. IMF programs with more conditions are linked to increases in income inequality for borrower countries. Concomitantly, programs with more conditions are linked to decreases in government health expenditures. These kinds of statistics matter because the structural adjustments demanded by the IMF can create what Kentikelenis calls “permanent scarring” – in which social protection systems struggle to rebound after a crisis, when they are needed most.
What is more, the authors’ data shows that austerity is not a thing of the past – indeed, the post-pandemic era is riddled with government austerity. Simultaneously, external debt service has grown faster than health spending from 2010-2024. Given the historical and current importance of this topic, the authors hoped to bring the debates on the consequences of structural adjustment back to the forefront of the public conversation.
Following their presentation, Kentikelenis and Stubbs responded to several questions from Rebecca Ray on additional correlations and causal relationships between IMF lending programs and government spending. Specifically, Ray asked whether countries with IMF agreements spend less on climate and whether the authors view the lack of available data in some instances as an additional indication of the negative impacts of IMF programs. In response, the authors focused on the theme of missed opportunities. In the context of climate, for example, the IMF recently introduced its Resilience and Sustainability Facility (RSF). The RSF represents an important and rare instance of new multilateral financing available for the green transition. Nevertheless, Kentikelenis points out, it still operates with a market-driven approach, emphasizing carbon pricing and making sure countries “get the incentives right.” To accompany market-based mechanisms, the Global North has developed various green industrial policies, like carbon border adjustment mechanisms that can have negative spillover effects on developing countries (the authors say these policies are also less prevalent in IMF recipient countries).
An area where IMF programs may have a mixed impact, however, is its conditionalities around energy subsidy reform. While the IMF argues that reducing energy subsidies is good for both the environment and for the budget, it does not acknowledge the fact that for many countries, energy subsidies are de facto welfare policies, especially where energy access is a systematic problem. This is consistent with other efforts at mitigating inequality. While the IMF has introduced language in its agreements that attempt to mainstream equality considerations, in its operations there is little indication that these agreements have changed its fundamental approach to addressing inequality.
In the context of basic institutional and governance capacity, Stubbs noted that, though this is not a relationship they cover in the book, their newer research suggests that IMF conditions do reduce governance capacity and increase crony capitalism. Specifically, conditions that require privatization of state-owned enterprises tend to have this effect. Slashing government personnel undermines the ability of the state to control corruption, while at the same time, conditions imposing concentrated losses on certain elites create incentives to engage in corruption to recoup losses.
Ray also asked the authors to discuss an example or two from the West African region, which highlights how IMF programs impact health policies. Stubbs noted that in one chapter in their book, they look in detail at several West African examples. In Guinea, they found that government correspondence with the IMF specifically referred to the need to reduce health spending pursuant to the IMF’s requirements, which led to not reaching their national health spending goals. In Ghana, wage and personnel caps kept the country from adequately remunerating and retaining health care professionals, which led to the country’s loss of highly trained and qualified professionals. Finally, in Mali, where IMF-mandated decentralization of health systems (known as “fiscal devolution to the local level”) resulted in weak coordination of central policies and a lack of local resources to meet local needs.
Further questions from Ray, as well as audience members, highlighted the difficulty of preserving social protection with IMF agreements in part because of the structure and decision-making processes of governments themselves. Moreover, IMF programs are not correlated with increased revenues, but only shift where they come from, leaving a disproportionate cost on the poorest in society.
The IMF faces these and many other obstacles as it seeks to reform its policies for a new, green and inclusive global economy, while also considering the importance of social spending and protection. The authors emphasized that the principal concern ought to be how to expand both the policy space for countries to devise and implement new policies and the fiscal space to pay for it.
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