In Part 1, I introduced the discussion about the use of industry policies in the Keynesian period after World War 2. Most nations adopted a mixed planning-market based system for allocating productive resources and the state was always central in setting out planning parameters, direct ownership and employment, and regulation. It was a system that researchers described as being “highly successful”. Two approaches to industrialisation were taken: (a) export-oriented (for example, South Korea); and (b) import-substitution (for example, India), although in most cases, nations used both strategies. As neoliberalism emerged and the fixed exchange rate system broke down in the early 1970s, the IMF, whose purpose was intrinsically tied to providing foreign reserves to nations under the fixed exchange rate system, no longer had a purpose. They reinvented themselves as the neoliberal attack dog for corporations and global capital. They also provided cover for governments who were embracing the Monetarist ideas of Milton Friedman and intent on imposing fiscal austerity. These governments had become captured by corporate interests and by appealing to external demands from bodies such as the IMF, these governments could depoliticise harsh policy shifts away from Keynesian full employment. I used Britain as an example. Tony Benn, a Left Labour member in the British Parliament and Secretary for Industry, proposed an alternative industrial plan to revitalise British industry in 1975. It was rejected at the time by Harold Wilson and Denis Healey, who were intent on imposing fiscal austerity and deregulating. They used the scare that the IMF would have to bailout Britain as a ruse to force their Monetarist ideology onto the British Labour Party. It was no surprise that in an era where governments started abandoning fiscal support to maintain full employment, deregulated labour and financial markets, and abandoned domestic protections for their industries, many industries would go to the wall. The IMF claimed that this shows industry policy focused on import-substitution can never work. But the culprit was not flawed industry policy. Rather, it was the withdrawal of all the accompanying support structures that made it work, but which ran counter to the neoliberal ideology of ‘free markets’. Now the IMF is having a rethink based on the devastation that neoliberalism has caused. On March 26, 2019, the IMF published a new working paper (19/74) – The Return of the Policy That Shall Not Be Named: Principles of Industrial Policy. Now, we are reading that the IMF has conceded that industry policy interventions that were the basis of economic planning in the Keynesian era were highly successful and only stopped being so, in some cases, when fiscal austerity was imposed and trade controls were abandoned in the 1970s. This is Part 2 of the two-part series on this topic.

In 1975, Tony Benn, a Left Labour member in the British Parliament and Secretary for Industry, proposed an alternative industrial plan to revitalise British industry. At the time, the Prime Minister and Chancellor were becoming attracted to Monetarism and started framing and implementing the austerity-type fiscal strategies that are common today. Benn opposed this approach, and, instead proposed a far-reaching alternative economic strategy that involved increased industrial planning to revitalise British industry. The growing ‘free market’ orthodoxy at the time, spearheaded by the IMF and the World Bank, which had transformed into neoliberal enforcement agencies, were vehemently opposed to any form of industry policies or state intervention. As a result, Benn was basically shut out of the debate and this helped transform social democratic politics into the mess it is today. Ironically, now the IMF is changing its tune. It has recently rediscovered how effective industry policies of the type Benn was proposed actually can be if supported by coherent policy structures. Irony two is that these supportive policy structures are the opposite to those typically proposed by the IMF. At the time, there were economists (such as yours truly) who knew that the descent into neoliberalism would be a disaster and hamper growth and more equal distributions of wealth and income. But that view was also shut out. Now, without shame, the IMF are basically admitting the decades of insufferable neoliberal policies that they forced onto nations may have been wrong. Industry policy is back in focus. Imagine if they never had seduced the world with their snake oil. British politics, for one, would have been quite different. Brexit could very well happened in 1975 under a Labour government. And more. This is Part 1 of a two-part series which will finish tomorrow.