By Ndongo Samba Sylla
For those who have studied the history of colonial Africa through its fiscal and monetary dimensions, the similarities between colonial macroeconomics and neoliberal macroeconomics are striking. One might be tempted to see the neoliberal era as an avatar of colonialism. Actually, the main principles underlying the fiscal and monetary paradigm of the neoliberal era (1980 – 2021)—sound finance, regressive taxation systems, central bank independence, and the direction of the credit system by oligopolistic banks—were already applied in the European colonies, particularly in Africa.
In the neoliberal era, sound finance, as a principle of macroeconomic management, is based on the idea that governments should avoid fiscal deficits and should even aspire to fiscal surpluses. As Modern Monetary Theory (MMT) shows, this view is based on the misleading analogy between a household and a governing currency-issuer. Indeed, while it may be desirable for households to build up net savings, a government that issues its own currency may not always have an interest in running a balanced budget or even budget surpluses. For its fiscal deficit has as its exact counterpart the financial surplus of the non-government sector. If the government sector wishes to have a balanced budget, this means that the domestic private sector (households and businesses) will only be able to achieve a financial surplus if the rest of the world is in a deficit position vis-à-vis the domestic economy.
During colonial times, sound finance had much more basic and transparent justifications than it does today. As an imperial doctrine by essence, it amounted to saying that the metropolis did not intend to participate financially in the colonial enterprise, which was supposed to be self-financing. The “colonial self-sufficiency policy,” as historians call it, implied that the colonized territories had to pay for the costs of military conquest, the current expenditures of the colonial administrations as well as their investment expenditures, which were often oriented towards infrastructure projects that favored the profitability of private metropolitan capital. The metropolis was just supposed to intervene sporadically, by granting subsidies or loans, when the financial situation of the colonies required it.
In spite of the metropolitan rhetoric on the expensive or unprofitable character of the colonial enterprise, the fact is that the latter had been financed essentially by the colonies, through taxes and forced labor. Public transfers from the metropolis had been relatively minor, both for France and England, the two former and most important metropolitan powers on the African continent.
Since metropolitan governments ruled the monetary operations of their colonies, they managed through the colonial administrations to gradually impose a unit of account in which taxes would be collected. This meant, as MMT teaches, that they had no intrinsic financial constraint. In principle they did not depend on taxes to finance their local expenditures. The possibility to expand their fiscal space was not used, however, owing to the extractive orientation of colonial economic policy.
The choice to run balanced budgets implied that the colonial government did not usually create net financial wealth for the private sector (and in particular for the indigenous private sector). The accumulation of financial wealth by the private sector—and thus growth of domestic income and tax revenues—was made dependent on the external financial balance.
This extractive orientation was accentuated by colonial monetary arrangements and by the behavior of the banking sector, dominated from the outset by oligopolistic banks. In parallel with fiscal austerity, the fixed parity between the colonial and metropolitan currencies in a context of free capital mobility between the colonies and the metropolis and the obligation to cover the money supply entirely with foreign exchange reserves (as with the currency boards in the British Empire) gave a highly restrictive character to monetary policy. The idea that private banks should organize the credit system with some freedom—the freedom not to finance productive activities as opposed to extractive activities—while colonial governments should maintain balanced budgets was part of the imperial credo.
In the major British colonies in West Africa, the Bank of British West Africa and Barclays DCO ruled almost unchallenged for the first six decades of the 20th century. The role of metropolitan banks had generally been to protect the interests of metropolitan businesses at the expense of local entrepreneurs through discrimination in access to credit. It had also consisted in facilitating the short-term financing of the exports of primary products as well as the transfer of local economic surpluses (financial savings) to the metropolis.
As captive markets and cheap sources of supply of raw materials, colonial empires also played the role of financial valve for the metropolises. In the case of England, the over-accumulation of foreign exchange reserves by its most resource-rich colonies had contributed significantly to its financial stability and to the alleviation of recurrent liquidity crises on the London money market.
During the last decades of the 19th century, England had lost its industrial and commercial edge over Germany and the United States. In this context, England was able to maintain both the international gold standard and its financial leadership only thanks to its control over India’s external surpluses. In the aftermath of the Second World War, Nigeria and Ghana played a similar role in the sterling area. Capital exports from England to these two territories were lower than the sterling balances they had accumulated in London. These external surpluses were built up through a drastic reduction in their imports, a reality described by the concept of unrequited exports.
Nowadays, under neoliberalism, for many countries of the Global South, the priority given to balanced budgets and exports, the over-accumulation of foreign exchange reserves in a context where their local resources are under-utilized, the dominant role of foreign banks and financial institutions, the under-financing of the “real” economy, etc., all represent elements of continuity with the colonial period.
Neoliberal economics, it could be argued, is an iteration of the logic of colonial economics in a context where trade and financial flows are less and less hampered by the barriers once created by the coexistence of formal colonial empires. With neoliberalism, the latter are replaced with the networks and agencies of globalized capital. In the Global North, this pursuit of colonial economic logic entails an undermining of the previous socioeconomic and political achievements of working classes and hence a widening of within-country inequalities. In most of the Global South, next to the weakening of working classes power, neoliberalism has consisted in suppressing nations and peoples right to self-determination through the imposition of deflationary policies, forced “free trade,” privatization and financial liberalization.
To break with such an orientation, MMT is valuable in at least two aspects. On the one hand, it provides the elements for a critique of the constitutive principles of colonial macroeconomics (rigid separation between fiscal authority and monetary authority, sound finance, priority to exports, over-accumulation of external reserves, dependence on foreign finance, etc.). On the other hand, MMT allows us to reorient economic policy around the mobilization of domestic resources by emphasizing that, even in an unfavorable external environment, the countries of the Global South can create a fiscal space that is larger than usually admitted.
Achieving shared and sustainable prosperity will necessitate a strong epistemic challenge to neoliberalism’s colonial economics. It will also require concerted efforts on several other fronts: addressing global structures of domination that reproduce the economic logic of colonialism; submitting to popular control the orientation of public policies as well as the management of economic resources and instruments.