Snake Oil

Re: Less Live 8; More Self Help

Tim Worstall argues, "supply side reforms (no, the phrase does not just mean tax cuts, it means reform of the supply of things) will benefit development. No more money is needed, nothing difficult has to be done, all governments have to do is license several competing companies to provide mobile services and then get out of the way."

I commented as follows:

This is the old IMF snake oil, repackaged under the guise of bashing Live 8.
In order to qualify for more loans to pay their debts, countries were required to cut social spending and remove restrictions on markets. The IMF and World Bank deemed that a 'free market' would solve their economic problems.

The result? The unregulated flight of domestic capital, the ongoing royalty-free extraction of resources, an inability to compete against cheap (and subsidized) imports, and zero infrastructure (because poor people don't pay phone bills).

Live 8 wasn't about merely sending money to these countries. It was about dismissing their debt (which was arguably illegitimate in the first place) so they could have the freedom to set their own social and fiscal policies.

Countries will now have the freedom, denied under IMF, to invest in social welfare, health, education and infrastructure - the very things the 'free market' approach have historically denied them.

Where this has been tried - Argentina, for example - the results have been impressive. A public education, for example, will produce increases in GDP well beyond the 0.6 percent attribuable to a phone system. This is why the IMF and associated policies are almost universally despised, and why more and more 'left wing' governments are being elected in these nations.

Mark Wilson sniped:

You've got things backwards. During the brief time that Argentina's economy was expanding, was also the time when they were deregulating. Now that govt has taken control of the economy again, the economy has resumed it's tailspin.

I backed up my assertion:

The Argentina economic recovery is well-documented and resists your redefinition of the truth.

Tim Worstall responded:

I'm not sure you've quite understood my point. I have no problem with people wanting to run things their own way. Left wing or right wing, I don't mind.

I've been all in favour of the debt write offs.

However, if people want aid for development, want our money, then that does come with strings attached. Like they must be serious about development, actually want it to happen.

A competetive telecoms market is a signifier of that, nothing more. If they liberalize mobile phone provision then, well, actually, the other way round. If they don't liberalize it when we know that it will aid development at zero cost, then obviously they're not being serious about development.

Issuing a few more supplier licences doesn't stop the govt from investing in health or education now does it?

I replied back with this:

You write, 'A competetive telecoms market is a signifier of that, nothing more...'

The irony is, this approach isn't even working for the United States.

Tom Friedman opens his most recent column in the New York Times: 'I?ve been thinking of running for high office on a one-issue platform: I promise, if elected, that within four years America will have cellphone service as good as Ghana?s.'

You write, 'Issuing a few more supplier licences doesn?t stop the govt from investing in health or education now does it? ...'

The evidence suggests otherwise. In the 'deregulated' American wireless market companies have been lobbying to prevent communities from building their own wireless network, and legislation has been introduced which intends (and I quote) 'To prohibit municipal governments from offering telecommunications, information, or cable services except to remedy market failures by private enterprise to provide such services.'

And this does spill over into education. Private companies have called on the BBC to scale back all its online activities, including free content offered by BBC Learning, calling it unfair competition. These companies even try to prevent the BBC from providing 'subtitling, audio-description and signing, which are designed to meet the needs of individuals who are deaf or hard of hearing or blind or partially sighted.'

Private companies continually lobby for a reduction of government services. That's OK, that's their right. But when it becomes a condition of trade or aid that these companies get their way, then not only is the autonomy of those countries subverted, but also, their capacity to provide badly needed public services is eliminated.

That's why countries labouring under such constraints have continued to struggle, and why requiring something as seemingly innocuous as a 'competetive telecoms market' is toxic.

Dietmar added,

You say that these two want 'free' markets, but these two organizations are a contradiction in terms. If there really were 'free' markets, there would be no IMF, and WB, these are organs of govn't that interefere with free markets, they distort them. They shouldn't even exist.

To which I adjoined,

'If there really were 'free' markets, there would be no IMF, and WB...'

One wonders, indeed, what proponents of 'free markets' for the developing world would have to say about the abolition of WIPO, which protects the interests of copyright and patent holders, and of GATT / WPO / FTA regimes, which limit the capacity of nations to interfere with global trade by means of labour, environmental and trade regulations.

I am sure, moreover, that developing nations would feel more comfortable deregulating the telecom industry were the developed nations to, say, cease agricultural and export subsidies.

The proponents of 'free market' development tend to be very selective in their targets, and this degree of selectivity (surprise!) always seems to favour developed nations and entrenched economic interests.

And that was the end of the discussion, as of this morning.


  1. If you seriously think that the US phone market is "deregulated" then I’m afraid that you are sadly deluded.

    Just about anything that a phone company wants to do is pawed over by the FCC.

    Thus those companies spend a lot of time and effort getting the details of the regulation written to benefit themselves. It’s called regulatory capture and is an almost inevitable part of any detailed regulatory regime.

    Which is rather part of my point. Reduce the regulation, allow market competition to flourish and you’ll end up with a better service to consumers (which is what we want) than if companies are paying bribes to get the rules changed in their favour. And hiring lobbyists and paying election expenses is, to my mind, just as much brobery as cash into the Minister’s pocket.

  2. Wow, Stephen, this is truly superb! I love it. We really need more and more pieces on this. I have a piece on my blog written a while back called "Taking on the Libertarians and Their Lies" or some such. There is a serious dearth of well documented pieces about the outrageous scam called the free market.

    But just for the sake of devil's advocacy, can you please lay out the pro and con arguments re: why municipalities should be able to compete in the wireless market, or in the telcom, cable or information services industry. Also lay out the pro and con arguments re: the BBC and the arguments of its oppponents that it is engaging in unfair competition. Simply recite the arguments of the free market side, and then counter with your (probably superior) argument showing why the freemarketeers are wrong in each of this cases. I suspect you are correct, but you need to prove it, pls.

    The note on Argentina is the first such note I have seen about Argentina's handling of its economic crisis. The ultraright US media has decided that this is a story not worth covering! Notes on how the cellphone service is superior in Ghana and Japan are excellent - another story the reactionary US media refuses to cover. The gross failure of the US in broadband and wireless are 100% of the fault of the insane freemarket approach to these industries. The 3rd paragraph summing up the evils of the IMF-World Bank Mafia is superb. I call these idiots "free market fundamentalists" since they resemble their religious counterparts. Their projects are lies that don't work, but the freemarketeers lie and insist their approach really does work. The freemarketeers are snake oil salesmen, as you say, nothing more!


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