But new research has just been published which shows very clearly that these policies are wrong – and that they are in fact highly damaging. Remarkably, this evidence comes in a research paper published by the IMF.

The paper reports the results of a study of 102 countries and how their system of regulation affected their economic performance in the recession.

The research looked at the effect of “the quality of the public sector regulation…as measured by the corresponding sub-component of the Worldwide Governance Index—quality of regulation— computed by the World Bank, calculated for 1996–2006”. They found that countries which scored well on this index of market-friendly regulation did worse than others: “This variable is negative and highly significant…”.

They got the same results with banking sector liberalisation:

“the significantly negative coefficients indicate that the countries that liberalized their financial systems the most, were most affected by the banking and economic crisis.”

The paper re-iterates that these policies did not simply fail- they actually made things much worse:

“the countries with the best ratings in terms of public sector regulatory framework, as well as those countries with the most far reaching financial deregulation, were hit the hardest economically”.

The results confirm the findings of a study carried out last year by ECB economists and others, who also found that countries did better on economic growth, and less badly in the crisis, if they scored badly on ‘market friendliness’ – especially in the financial sector. It also confirms research carried out in Latin America in the 1980s, which also showed that financial liberalisation damages growth.

The IMF and the authors deserve one cheer for publishing results which so contradict their basic policies. But only one cheer: although the paper includes these results, they are not mentioned in the abstract, and the policy recommendations and conclusions include nothing except a strangled acknowledgement that the impact of regulation “is deeply intertwined” with these two factors. Instead, the paper prefers to spend pages discussing other results about the apparent uselessness of merging regulatory agencies.

The paper gloomily refers to its results as ‘this major defeat’.  But a belated victory could be snatched if the IMF, World Bank, EU and national governments use the evidence to reformulate their policies. And at least we now know that the World Bank governance index is indeed useful- the worse you score, the better your policies.