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MK: I read recently that you are going to advise the government of Paraguay…

JS: I’m going to go down there for the inauguration and I’ll talking to a number of people in the government, yes.

MK: Do you welcome the move to the left, in terms of the new democratically elected governments in Latin America?

JS: I think what is clear is that the previous policies – what you might call the Washington Consensus policies, neoliberalism, whatever you want to call them – didn’t work, either in terms of economic growth, or even more in terms of reducing poverty, sharing benefits of what growth occurred. So those policies failed. I think that there are obvious examples of countries that have been much more successful, the countries of East Asia, all of those countries took a very different stance than the neoliberalism, they took a strong government role and most of them put a heavy emphasis on policies to reduce poverty and maintain a certain modicum of equality. So one is obviously much more hopefully, we’ve seen the failures of one side and one has to be hopefully about the other side.

MK: Neoliberalism is often criticized, but is there any legacy that will help Latin America, or is it all negative?

JS: Well, the Washington Consensus policies were a mix of policies – it was a long list – and in the long list there were policies that were appropriate for some countries at some times. The problem was that there was a one-size-fits-all, that the same recipe was pushed on all countries. For instance, one set of policies that I think I am somewhat sympathetic to if it is not overdone, is obviously that countries have to live within their means. Zimbabwe shows what happens if you spend much more than your income, there are budget constraints and you have to be aware of the budget constraints.

Part of the problem with IMF is that its budget accounting is often very bad. So the principle of living within your means, of increasing domestic savings, of governments borrowing only for investment projects, all those are some principles, but one of the problems with the IMF, with the Washington Consensus, is that even when some of the principles might under circumstances make a lot of sense, the way they were implemented were often flawed.

MK: Do you support the policies being implemented by Hugo Chavez and Evo Morales?

JS: Again it’s the same kind of thing; there are lots of different policies. One of the things they did that makes a lot of sense is renegotiate the contracts. It was clear that the previous governments had really given away the natural resources under terms that were disadvantageous to the people of those countries. And we say in economics, There was a lot of money of the table; they succeeded in renegotiated so there’s a lot more money on the table for the people of Bolivia and Venezuela, that made a lot of sense.

Now, the notion that you would want to invest more in education and health also makes a lot of sense. What we don’t yet know is the extent to which they will be able to succeed in doing what the previous governments failed, which was to provide a broad basis for development. You need education and health, but some things take longer, and we don’t know the answer to that yet.

MK: And in terms of the supranational institutions you’re talking about purveying what’s called neoliberalism, do you think there is a realisation within those institutions that these policies don’t work anymore, or is there a hardcore select that believe that is still works…

JS: Well first these are large organizations with different people with different views, so these are not monolithic, but they often push a particular set of ideas even when there are differences of views within them. The second thing is that at least officially these institutions have recognized some of the limits of the Washington Consensus policies: they recognize that they pay too little attention to problems of equity distribution, they recognize that capital market liberalization often does not lead to greater stability.

There are more caveats in their advice than they had previously given. The World Bank is now much more aware of the problems of privatizations, and that if it is done poorly it can set the government back.

So I would feel quite strongly that the in World Bank, and to some extent the IMF, there is an awareness of limitations of some earlier advice. There are still I would say on balance more confidence in those policies than I think the evidence warrants.

MK: Outside of the economic realm, politically the Bush administration, it has been uncovered by various journalists, was behind the coup attempt against Chavez in 2002, and the administration has been trying to destabilize Bolivia. Do you think the Republican Party is going to allow these governments to pursue a different economic path? People say they’ve taken their eye off the ball in Iraq, and that they will soon turn back to Latin America…

JS: I think we live in a different world than we lived in the 1980s. In the 1980s the CIA could get away with regime change of regimes that it didn’t like in other countries. We are in a different world, and we are in a world in which that kind of strategy risks backfiring. And it happened in Venezuela: after the US attempted coup, Chavez electoral vote increased markedly, and I think it’s partly because countries don’t like the US coming in and changing their government from the outside. No matter where it is, in general it’s not welcome.

It would be foolish of the US to do this.

MK: To turn to Iraq quickly. You’re saying that the institutions are realising that the Washington Consensus policies aren’t working, but can you talk about the economic system being imposed on Iraq, because there is a flat tax there, there’s all this publicity about the oil contracts given to Western countries. Can you talk quickly about this…

JS: Well I think one of the last attempts to impose neoliberal doctrines was in Iraq. After the World Bank had abandoned these ideas, the Bush administration was pushing it in Iraq: instant liberalization, instant privatization, even if it was against international law we tried to push it. It’s played a role in the difficulty of recovery.

Interestingly, in the book I tell the story of how I got some calls from Iraq where USID was trying to create a framework of small business loans, get some small business started, and US treasury was using it usual tight monetary policy, trying to stifle investment, and stifle growth. So the kinds of policies that led to disaster in Latin America and elsewhere are being imposed in Iraq.

I think one of the big, big worries is that the privatizations will not have legitimacy and without legitimacy they may be reversed, and if there is worry about them being reversed it will undermine investment, it will make it more likely that the privatizations will not have the beneficial affect that was hoped, and there will be asset stripping rather than wealth creation, so I think it was a very foolish thing to do.

MK: And in terms of US policies towards Iraq and Latin America, people outside the US wonder how different the Democrats and Republicans are…

JS: It’s glass hall-full, half-empty. The fact is that one side is really seeking to pull out of Iraq and will do everything it can within reason, maintaining stability and so forth, to do it. The other side says there is nothing wrong with our occupation. There is a very fundamental difference in the way the two parties look at the situation.

MK: In the election you are supporting Obama?

JS: Yes.

MK: There was a recent article in the Guardian by Naomi Klein that said that Obama is a Chicago Boy, you don’t think that?

JS: From what he has said I believe he is not at all a Chicago Boy. He has recognized – he has said this in some of his speeches – that he wants regulation, financial market regulation. I believe he is very much a centrist and that will mean many of us will like to see more reform.

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