Thursday, October 8, 2015
The Mirage of Structural Reform
October 8, 2015
Every economic program imposed on Greece by its creditors since the financial crisis struck in 2009 has been held together by a central conceit: that structural reforms, conceived boldly and implemented without slippage, would bring about rapid economic recovery. The European Commission, the European Central Bank, and the International Monetary Fund anticipated that fiscal austerity would be costly to incomes and employment – though they significantly underestimated just how costly. But they argued that long-delayed (and much-needed) pro-market reforms would result in a compensatory boost to the Greek economy.
Any serious assessment of the actual results produced by structural reforms around the world – particularly in Latin America and Eastern Europe since 1990 – would have poured cold water on such expectations. Privatization, deregulation, and liberalization typically produce growth in the longer term at best, with short-run effects that are often negative.
It is not that governments cannot engineer quick growth takeoffs. In fact, such growth accelerations are quite common around the world. But they are associated with more targeted, selective removal of key obstacles, rather than broad liberalization and economy-wide reform efforts.