Tuesday, 29 November 2011

NEOLIBERALISM: Myths and Fallacies

There are many myths and fallacies of neo-liberalism, among them that it would create greater wealth for all the world and eradicate poverty, and that the private sector is above imperfections while the public sector is the root of all evil. In point of fact, this PR campaign that neo-liberalism is the panacea, one that former Communist bloc nations adopted blindly along with much of the world, has won over millions of unsuspecting people. The marketing and selling of the neo-liberal panacea was helped enormously by the downfall of Communism, by the US campaign on terrorism, and by the idea that there is no alternative to neo-liberalism anywhere in the world, considering that even China is part of the global marketplace.

For those that may not see any difference between classical liberalism that started with Adam Smith and neo-liberalism that has its roots in the Reagan-Thatcher conservative revolution (although the theoretical origins predate Reagan-Thatcher, and can be traced to Chile in 1973 when the CIA overthrew Salvador Allende and brought the 'Chicago School' (Milton Friedman - U of C) to implement economic policy).

1. MARKETS OVER STATES: Market hegemony, and within the market large capital imposed on the state is a primary goal of neo-liberalism. The role of the state is not to fulfill the social contract as conceived by liberal and democratically-minded political philosophers of the Enlightenment era, but to serve, protect, and strength finance capitalism in its current parasitic phase. This means that finance capital with the backing of the state as an instrument of absorbing capital through the fiscal structure has as its first priority to maintain the hegemony of the markets by allowing them to operate freely during the expansionary cycle of the economy, and providing capital to sustain them amid contracting cycles. Markets over states entails that social welfare must be sacrificed to preserve market hegemony, regardless if that entails rising poverty levels, downward social mobility, social unrest, and political instability that leads to the erosion of public confidence in democratic institutions.

2. CORPORATE WELFARE: Reducing social welfare and strengthening corporate welfare has been a major characteristic of neo-liberalism. This includes a sharp reduction in any spending that is related to social service, from health and education to the environment. Using the fiscal system as well as direct and indirect subsidies to transfer wealth from the middle class and workers to corporations, especially to the financial institutions. The fallacy of such a course of action is that it would lead to even greater growth and economic prosperity in which all people would partake.

3. PRIVATIZATION: Privatization of public assets and sub-contracting everything from paper supplies to sensitive government intelligence is intended to strengthen the private sector that cannot possibly survive on its own, largely owing to its parasitic nature and contradictions in the capitalist system that result in systemic cyclical crises.

Neo-liberal advocates insist that anything in the public sector entails inefficient, corrupt, uncompetitive, and unhealthy for society's welfare, therefore, any public enterprises that can be handed over to the private sector must, and any services, including military and intelligence, that can be contracted out must. The ultimate goal of all of this according to apologists of neo-liberalism is economic growth and greater prosperity for all, the panacea promised to all but delivered to very few who are the large owners of capital.

In 2005, economists from the WTO and the Institute for International Economics advocating neo-liberalism argued that more than half a billion people would be raised from the depths of poverty. They argued that poverty in the world would end within the first decades of this century, if only barriers to trade and capital transfers were removed. In 2011, poverty is higher not only in underdeveloped nations, but in the advanced ones as a result of the global recession of 2008-2011, with the US alone having more than 17% living below poverty standards, and EU about the same number and expected to rise both in US and Europe.

During the African Union summit in Ethiopia in February 2008, a number of African leaders linked the fallacies of neo-liberalism to the political violence in East Africa, something that would be repeated in 2011 across North Africa during the Arab Spring uprisings, and across Europe with the indignant mass protest movements, and in major US cities with the anti-Wall Street protests.

But let us argue that the grass roots movements from Africa and Europe to the US represent a small minority of disgruntled people, and that there is no myth or fallacy in the neo-liberal panacea. How do we then explain that in the last three decades there has been downward socioeconomic mobilization in the US and super-concentration of capital in the hands of the top 10% of the population, if neo-liberalism held the promise of eradicating poverty by increasing wealth and presumably allowing for its sharing across all social sectors?

How has American society benefited from neo-liberalism's privatization when 45 million have no health coverage and unofficial unemployment is at 15%, and underemployment is at around 18%? It is in fact a myth that there has been greater economic growth and prosperity for all, not just for the US but for any country operating under neo-liberal policies. How do we explain that in the advanced capitalist countries the most vulnerable population is not the unskilled workers, but college graduates facing the prospect of never working in their field and never enjoying the 'middle class dream' of material comforts that their parents enjoyed?

4. DEREGULATION: End as many government regulations on the market as possible and remove as many government obstacles to movement of goods, services and capital as possible, allowing the market as much freedom to play by its own rules uninterrupted by the state and acting on the laws of 'supply and demand'. On the one hand, this sounds great because who wants red tape interfering with wealth-creation mechanisms. But is it not businesses that invite the state's intervention in:
a) subsidies, b) tax breaks, c) bailouts, d) barriers on foreign goods that are competitively priced,
e) intervention against monetary policies of countries enjoying competitive advantages,
f) labor and environmental laws and regulations, and a host of other areas from research and development paid for by taxpayers to infrastructural development?

Deregulation under neo-liberalism also means de-unionization of the labor market, canceling workers' rights achieved since the 19th century, and imposing wages that are as close to subsistence as possible. The rationale is that the US, EU, Japan, etc. must become competitive because China is rapidly out-competing the advanced countries. How do developed countries become competitive? They bring wage levels down so that they can maintain high profits and keep market share.When they speak of 'competitive', they mean lowering wages and benefits and securing tax breaks and subsidies.

5. GLOBALIZATION: Under the integration model of markets over state, finance capitalism in its present parasitic phase has been substantially strengthened by the World Trade Organization (WTO), International Monetary Fund, North American Free Trade Agreement (NAFTA), Asia Pacific Economic Cooperation, and European Union that has been adopting neo-liberal policies in the last two years, and a host of regional trade blocs as well as the European Central Bank, World Bank, and other international financial institutions. The ultimate goal of globalization is a well-integrated and homogenized economy that makes it easier for the process of capital accumulation.

6. HOMOGENIZED POLITICAL PARTIES:  Neo-liberalism as a phase of contemporary capitalism projects the impression that political parties from center-left to right-wing represent options to the voters, when in fact their only policy option is to tinker within the larger framework of neo-liberalism; that is to say, cutting less from social security while raising consumption taxes. The idea that conservative parties have much policy difference with their centrist or Socialist counterparts is a myth that people now realize.

For example, Spain, Greece, and Portugal were all under Socialist political party rule when all of them decided to adopt neo-liberal policies more than a decade ago, long before they adopted the current IMF-EU neo-liberal-based austerity programs. It was of immense symbolic significance that the former head of the IMF was a French Socialist, Dominique Straus-Khan, who despite his full embrace of neo-liberal policies insisted that he was a Socialist. That Socialist parties have been so thoroughly absorbed by the neo-liberal tide is essential for they appeal to the centrist and leftist segment of voters that must be deradicalized into conformity.

European Socialists speak and write like a college-educated person would expect Socialists to speak and write, but they practice neo-liberalism with their votes when in government. Neo-liberalism has triumphed over most mainstream political parties, a development that has accounted for the grass roots movement owing to the realization of most people that political parties try to appease voters, but all of them practice similar policies intended to further big capital. The frustration of the indignant masses, whether in Madrid or New York, is the same and it is with the hypocrisy that democracy exists, when in reality neo-liberalism has co-opted the ruling parties. 

7. CORE-PERIPHERY GAP: From its formative phase until the present, the market economic system has been predicated on global integration and asymmetrical relationship between the strongest economies of the core and the weaker ones in the periphery. Under neo-liberalism, the he symmetrical relationship has intensified, although the myth of the neo-liberal apologists is that the gap between rich and poor countries will close rapidly. Not only is the gap wider now than it has ever been between the 20 richest nations and all the rest, but it is widening as the southern and eastern European nations are experiencing debt problems and they have been compelled to adopt austerity measures whose ultimate goal is to impose greater conformity to neo-liberal policies.

8. NEO-LIBERALISM AND VALUE SYSTEM : If human rights are the basis of the Western value system in pluralistic societies since the Enlightenment, then neo-liberalism has been undercutting the human rights values system. Neo-liebralism assumes there is an inherent wisdom of the market, just as Adam Smith assumed there was an invisible hand guiding it. Moreover, the neo-liberal value system assumes that the collective welfare must be subordinated to the marketplace and must not stand as an obstacle to its progress.

In society, the individual is defined in a utilitarian manner as a worker who must subordinate to the rules of the evolving marketplace and as a consumer who has the right to demand quality products and services. Under neo-liberalism, civic values and human rights as part of the collective community are only acceptable if they are not obstacles to the progress of the marketplace. Whereas the traditional Enlightenment exalted the cultivation of creativity as an expression of the person's intrinsic value, neo-liberalism reduces creativity and individual talent into a commodity, thus the value system fostered and rewarded has a cash value. Not just the educational system, but the entire institutional structure is shaped to cater to the neo-liberal value system that has reduced human beings into commodities serving the ultimate goal of marketplace hegemony.

Neo-liberalism has been winning the PR war from Reagan to Bush (the son), partly because it had convinced a segment of the middle class of the panacea myth. However, that is rapidly coming to an end, as existing social relations and the social contract on which pluralistic society is built are now unraveling. The reality of the current global recession and the deep structural problems confronting countries, including the G-7, have exposed the myths and fallacies of neo-liberalism. Increasingly, more and more people are demanding an end to the panacea myth that neo-liberalism had been promising to all but delivering it only to the rich.

1 comment:

Alan2102 said...

Nice essay, Jon. Thanks.

Regarding this, however: "In 2011, poverty is higher not only in underdeveloped nations, but in the advanced ones as a result of the global recession of 2008-2011, with the US alone having more than 17% living below poverty standards, and EU about the same number and expected to rise both in US and Europe."

Actually, poverty as a percent of total global population is on the decline, and this is mostly attributable to China's progress in improving the economic prospects for most of its people. In the rest of the world there has been much less progress; perhaps no progress, depending. (In that "depending" are questions that I have not yet resolved, having to do with definition of poverty, and other matters.) China's progress can hardly be attributed to neoliberalism, but rather to its own unique system -- in some ways admirable and in some ways problematic.

Further, regarding the U.S. and E.U.: while I would not advocate impoverishment of anyone, it is also true that consumption and living standards are too high in the developed world. The fact that the overdeveloped (IMO) West is contracting is GENERALLY a good thing. However, the WAY that it is contracting, creating masses of impoverished or marginalized people -- the "precariat" -- is disturbing and unacceptable. Also, that it is contracting while at the same time the wealth of the 1% (and .1%, and .01%) is expanding greatly is also unacceptable. The contraction, and reduced consumption, should of course be LED by the 1%, rather than the way it is actually happening. The whole situation is a mess.