Monday, 18 February 2013


The advocates of neo-liberalism in the age of globalization believe that the free market is the panacea for society as much as they believe that political democracy and and neo-liberal policies are one and the same.
As far as apologists of neo-liberalism are concerned. the role of the state is to protect and buttress capital, which they identify with the rights of individuals. This means that collective rights, such as the rights of labor unions, are an anathema for they run counter to free market capitalism and the neo-liberal view that the state must only protect individuals rather than groups.  In essence, however, the state is made up of political elites that represent socioeconomic elites that benefit from neo-liberalism.The question is whether free markets exist, or if they have ever existed, and if free market capitalism is the same thing as democracy.

The assumption is that capitalism fosters the growth of the middle class and that fosters the growth of a representative parliamentary system - a democratic form of government, which could be interpreted as egalitarian at best, or the opportunity for equal political and even institutional participation, at best. Therefore, one could argue that the free market economic system promotes democracy, at least in theory. If that is the case, why has there been a sharp decline of the middle class in the Western World in the past three decades, and why does a substantial percentage of the people no longer believes that democracy works in practice as it proclaims in theory, instead serving the narrow interests of elites that control its institutions?

It is true that the the capitalist system, which evolved from the transition of subsistence to commercial agriculture and gave rise to the Commercial Revolution, has always been dynamic, that is to say, constantly evolving. When people think of capitalism, they imagine something that is closer to the economic philosophy of Adam Smith in the late 18th century when the English Industrial Revolution was unfolding, or they imagine something closer to the doctrinaire position of Milton Friedman and the Chicago School.

Just for the sake of historical accuracy, true free market economic regime has never existed in the history of capitalism from the era of mercantile capitalism to the present era of corporate welfare capitalism. It is also worth noting that England, unlike continental Europe, Japan and the US, did practice free trade in the course of the 19th century (1840-1914), but that was largely because it enjoyed a global hegemonic role and it was not concerned about competition. Moreover, even England amid its free trade regime had passe parliamentary legislation to assist the defense industry in Birmingham. The free trade regime was something that powerful industries advocated to increase their exports. Once Germany and the US entered the global scene as major competitors, London embraced protectionist economic policies.

Today, we have the WTO that advocates trade barrier removals. If one examines the legislation and fiscal policies of the G-20, which make up roughly 80% of the global GDP, one finds that each country practices a form of 'bloc trading' and corporate-welfare economics that is largely planned by the state that controls the central banking operations. That the money supply and fiscal policy are in the hands of the state does not mean that the state pursues policies to advance the interests of all people. On the contrary, monetary and fiscal policy helps to further the interests of finance capital.

If free market rules ought to apply, this must mean that there must be no interference by the state in wage policy, and only the employers and employees are in the position to negotiate labor contracts affecting wages and benefits. Obviously, this is not the case at a time that the state plays a very large role in wage policy. In addition, the IMF-EU austerity enforcement teams are strongly urging countries across Southern and Eastern Europe as well as in other parts of the world to reduce not just wage and benefits in the public sector so that there is a drop in the budgetary deficits, but they are insisting that wages and benefits must also drop between 3 and 15%, excluding annual inflation rates, in the private sector as well. If neo-liberalism is the same as non-interference in the marketplace, why such heavy-handed intervention by the state as well as international institutions?

The question is what are the IMF, European Central Bank and EU doing dictating wage levels in the private sector, when they claim that they are the guardians of "free market forces" and their only concern is equilibrium in the national economies? Why not allow "free market forces" to determine wages, instead of imposing them, why not allow the employers to negotiate their own labor contracts without outside intervention? The answer is that even in the 19th century, after Adam Smith and David Ricardo argued in favor of the marketplace, there was never a free market, and this was brilliantly observed by German economists, among them Friedrich List, who exposed the fraud behind "free market economics."

In the early 21st century, finance capital, which the state as well as international institutions like the IMF serve, has reached the point of partnership with the state on which it relies for bailouts, subsidies and tax breaks. In the absence of the state's supportive role, the so-called 'free market' would collapse; something Theodore Roosevelt, as well as Franklin Roosevelt understood and created big government to support and strengthen big capital. It is still amazing to read or listen to apologists of capitalism argue that the market economy promotes democracy and equality, when in reality it constantly promotes socioeconomic polarization that leads to political polarization. We see evidence of this phenomenon today across the Western World, especially across Europe, but in the US as well.

Both free market capitalism. such as its defenders still like to call it, as well as democracy are undergoing a crisis that has its roots in the absence of social justice that the economic system produces and the political regime protects and defends. It is true, of course, that within a given institutional structure people will do whatever it takes to remain loyal to it because it serves their best self-interest. After all, there are hardly any benefits for people going against institutions they need for their survival, whether those are political, educational, economic, social, cultural, religious, etc. In short, an institutional structure actually remains in place not only because the elites are imposing it and benefit from it, but because there are layers of society beneath the elites whose relative harmonious survival depends on those institutions.

Having said this, a society whose political and socioeconomic elites call itself  'democratic' but under existing polarizing socioeconomic conditions functions like an authoritarian one has no long term future. The reason is that gradually more and more people not served by such a society will come to realize that they have nothing to lose advocating a new social contract. It is difficult to predict how long these societies that are in essence quasi-authoritarian will continue to deceive the majority that they are 'open, free and democratic', but their time is limited.  

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