Jeffrey Sachs’s Metamorphosis From Neoliberal Shock Trooper to Bleeding Heart Hits a Snag

Angelina Jolie and Jeffrey Sachs

Angelina Jolie and Jeffrey Sachs

Cross-posted from Warscapes.

No crisis of economy would be complete without a couple of cents from Jeffrey Sachs. The godfather of shock-turned-bleeding heart advocate for poverty eradication has simply dominated development economics — in both theory and practice — for the better part of the past two decades. From his days pimping out neoliberal privatization programs to the world’s poorest countries, to his more recent stint as passionate advocate of kinder, gentler, but equally fraught policies of external debt cancellation, Jeff Sachs — as he never tires of telling us — has been all over the map.

Sachs is best known as a crusading activist for eliminating poverty who enlists the help of folks like Angelina Jolie and Bono. But his fame circumvents an understanding of his economic theories, which have been applied with disastrous consequences. He first came to global prominence in the mid-1980s as the wunderkind of Harvard University’s econ department. He became one of the school’s youngest tenured professors at twenty-eight, and quickly sold himself as an advisor to struggling governments dealing with crises of hyperinflation, a topic about which Sachs boldly claimed to know “just about everything that is needed to be known.”

It was during this period that the young economist fashioned his unique brand of shock therapy — a free market fundamentalism of privatization, deregulation, and government subsidy-slashing for commodities such as oil, met with debt relief and foreign aid — that would later take shape as the Washington Consensus and be subsequently savaged by the likes of Naomi Klein, William Easterly, and Dambisa Moyo. Despite massive policy failures in countries that followed his advice, Sachs has successfully avoided accepting any responsibility for suboptimal outcomes of his theory. On the contrary, he has reinvented himself as an economic tutor to the stars, and now with his new book on how to fix the American economy, his position as the most influential commentator on economic crises is more secure than ever.

So it shouldn’t be a surprise to find the tirelessly self-promoting Sachs holding forth on the recent Nigerian crisis in the op-ed pages of the New York Times, despite the fact that the former boy wonder of development theory has been, well, wrong on just about every major crisis since the collapse of the Soviet Union.

Wasting no time in publicizing his own elite status in the current crisis in Abudja, Sachs argues that despite continuing demonstrations against the government’s surprise decision on New Year’s Day to halt state subsidies of oil for millions of Nigerians, things aren’t as bad as they seem.

Meeting with the president and his economic team in Abuja last week, in the midst of protests against the subsidy removal, confirmed my view that the Nigerian government has an unprecedented opportunity to clean up its act and win back the support of a long-suffering population. The president spoke of taking the tough medicine necessary to build the foundations for long-term growth. His lead economic architect is Finance Minister Ngozi Okonjo-Iweala, newly returned from a top spot at the World Bank.

What should raise the eyebrows of even the most casual observer of political economy – that policy is now being shaped by a World Bank alum — is for Sachs precisely the “glimmer of hope” in an otherwise bleak landscape of corruption, political instability, and staggering nationwide poverty. At the core of the subsidy dilemma, Sachs correctly argues that corruption and elite free-riding represent the most formidable roadblocks preventing equitable reform.

When a country depends excessively on one or two key resources like oil, gold, or diamonds, politics too easily descends into megacorruption and a brutal struggle over the resource earnings…Oil exporters like Nigeria very often keep domestic oil prices low as an easy sop to powerful local interests. Nigeria’s oil prices were among the lowest in Africa until the subsidies were abruptly ended January 1. According to the government’s estimates, the oil subsidy in 2011 amounted to a staggering $8 billion, roughly 4 percent of GDP…Nigeria’s well-to-do households, with their cars and large diesel generators, and also some adroit oil smugglers, captured much of the subsidy.

These observations are largely correct as far as they go. What’s instructive, however, is that when dishing out prescriptions to help remedy the situation, Sachs does not suggest that the government reform its own rotten institutions or prevent poaching by the nation’s wealthiest families. Instead, we’re told that the vast majority of the country’s poor — who depend on oil subsidies to make possible everyday things like getting to market and keeping cool — should be forced to shoulder the lion’s share of sacrifice as Goodluck Jonathan pursues market reform under heavy pressure from the International Monetary Fund.

Welcome to Shock Therapy 2.0. The effects of the entirely unexpected subsidy removal were profound. The price for fuel doubled overnight, inflationary pressures quickly took hold as the price for basic commodities skyrocketed by as much as 100 percent, and people poured into the streets in protest. But for Sachs, these are simply the spasmodic death throes of the country’s old, decrepit order giving way to a “new day for Nigeria.” The rewards for short-term pain, Sachs tells us and as advocates of austerity always promise, will arrive down the line in the form of long-term socioeconomic improvement. Says Sachs,

The government ended the subsidies to redeploy the 4 percent of GDP toward long-term development needs, including health, roads and power. The reform logic is sound. Using the 4 percent of GDP in a strategic manner can do far more for Nigeria’s poor and the country’s long-term growth than haphazard giveaways of cheap oil.

Trouble is, none of this is true. Nigeria’s “new day” looks increasingly like days of old when the country suffered under military rule. Faced with growing street demonstrations, Jonathan emptied the barracks, ordered the arrests of lead activists, and threatened to charge citizens with treason if they didn’t abandon their protests and get back to work. Thus far, at least twenty people have been confirmed killed in the protests, with hundreds more sustaining injuries at the hands of Nigerian soldiers charged with suppressing dissent.

And to suggest, as Sachs does, that Jonathan’s administration can be trusted to carry out the sort of reforms promised is to ignore reality entirely. “When Nigeria won relief on its external debt in the mid-2000s,” Sachs argues, “the savings on debt service were actually redirected to meaningful social investments in the states and local governments. The government is now promising to turn the outlays on subsidies into outlays on specific and closely monitored investments in health care, infrastructure, job training and other areas.” Sachs’ embedded embrace of austerity — implicitly suggesting that debt relief schemes, when managed successfully, allow governments to accumulate reserves of public trust that can be drawn down on at a later date to soften the blow of social spending cuts — is as troubling as it is based in fantasy. Nigerians have seen little improvement of the sort Sachs suggests, even as the government continues to lavish grotesque sums of capital on itself.

After difficult negotiations this past weekend, the Jonathan administration reversed itself on the question of subsidies. The government reinstituted subsidies to roughly half their previous levels prompting labor unions to call for an end, if only temporary, to nation-wide strikes which had brought the country’s economy to a halt. Nevertheless, as CNN reports, “heavy military presence was still evident in [Lagos’] streets in the evening, with armed checkpoints set up at most key bridges and along major roads in the city.”

Interestingly, the compromise seems to have shaken Sachs out of his development reverie. When I asked Sachs, via Twitter, to comment on Jonathan’s about-face Sunday, he responded that he was “glad there was compromise reached today. The whole episode was very poorly managed. Nigeria needs more basic reforms.” I responded that it was messy, and pressed him on what I take to be his application of a double-standard — raging against neoliberalism this past fall in Zuccotti Park but defending policies of austerity and “shared sacrifice” for Africans. Sachs replied that he “wasn’t calling for shared sacrifice and austerity in Nigeria. I was calling fr [sic] end of subsidies to rich and targeting poor.” When I pointed out that he explicitly employed the rhetoric of shared sacrifice (“To share the pain, the president has ordered cuts in top salaries in the government…”), Sachs clarified that he “meant to be saying that the subsidy removal was causing pain, not to be recommending pain! Perhaps badly phrased.”

Badly phrased, indeed. My suggestion that he write a follow-up editorial making his new position clear was met with silence. Perhaps he was otherwise engaged: Sachs got pounded repeatedly throughout the day by Nigerian bloggers and other informed observers for his defense of Jonathan’s original policy posture in the matter. This morning, in a flurry of tweets, Sachs retreated from his editorial, noting that he “spoke too fast, too soon, without knowing the details,” that he “had nothing to do with the policy, learned of it after,” that “he knew nothing of about [the policy] beforehand,” and that his “comments were misjudged,” but managed to slap a Band-Aid on the mess by noting that “I always try, but I do not always get it right.”

Unfortunately for everyone else, there will be no penalty or meaningful censure for such profoundly dangerous sloppiness. Sachs’ most recent fit of poor judgment will be quickly forgiven — rewarded, even, with future opinion pieces in the world’s most influential editorial section. For this very reason, it’s worth reminding ourselves of the important lessons to be drawn from this episode: Sachs had no idea what he was talking about, his knee-jerk response to the crisis celebrated policies of austerity and economic shock, and the Grey Lady gave none of it a second thought. Neoliberalism, it would seem, is alive and well.