Home > Uncategorized > Weekend read – Neoliberalism must die because it does not serve humanity

Weekend read – Neoliberalism must die because it does not serve humanity

from Nikolaos Karagiannis and RWER

This short article on neoliberalism comprises three brief sections which discuss key theoretical notions, general practical issues, and worldwide experiences respectively while offering a facts-based assessment. Brief concluding remarks end the article.

Theory

Neoliberalism gained momentum in the 1980s and became distinct and recognizable as an ideology by the 1990s as the “Washington Consensus”.[1] Neoliberal theorists would suggest that their theories are universal in nature and that assumptions that underpin them are unimportant. This can only be true when the assumptions truly do not matter because they are compatible with all possible socio-cultural and institutional matrices. Neoliberalism seeks unrestrained accumulation of capital through a rollback of the state, and limits its functions to minimal security and maintenance of law, fiscal and monetary discipline, flexible labour markets, and liberalization of trade and capital flows. Neoliberalism stands in contrast to classical liberalism in that it views the market system as a goal in itself as opposed to being something that is a means to the goals of higher economic growth and higher standards of living.

Neoliberalism came to public attention in the early 1980s, starting with Margaret Thatcher in the United Kingdom and Ronald Reagan in the United States, and the minimalist state belief entered the political lexicon. It was during that period that witnessed the ascendancy of Thatcherism and Reaganomics. Both Thatcher and Reagan shared a common vision: to remake their societies through a retreat of the big government and allow the private sector to come into its own. Domestically, it consisted of “supply-side policies”, such as deregulation, privatization, and massive reductions in tax rates, in order to spur growth. Internationally, it meant the negotiation of free trade agreements and subsequent rounds of multilateral tariff reductions as well as harmonization of policies across countries.[2] New Zealand, Australia, and Canada also adopted similar policies, as did much of Western Europe.

Practice

The practical use of the term “neoliberal” exploded in the 1990s, when it became closely associated with two developments. One of these was financial deregulation, which would culminate in the 2008 financial crash and in the still-lingering euro debacle. The second was economic hyper-globalization, which accelerated thanks to free flows of finance and to new, more ambitious types of trade agreements. Financialization and hyper-globalization have become the most overt manifestations of neoliberalism in today’s world.[3]

That neoliberalism is a highly biased concept does not mean that it is irrelevant or unreal. Who can deny that the world has experienced a decisive shift towards markets from the 1980s on? Or that centre-left politicians – Democrats in the US, socialists and social democrats in Europe – enthusiastically adopted some of the central creeds of Thatcherism and Reaganism, such as deregulation, privatization, financial liberalization and individual enterprise? Much of contemporary policy discussions remain infused with free market principles. However, the looseness of the term neoliberalism also means that criticism of it often misses key points. The real trouble is that neoliberal economics shades too easily into ideology, constraining the choices that different countries appear to have and providing cookie-cutter solutions.[4]

However, neoliberalism decouples political liberalism from economic liberalism and promotes commoditization of everything and the needs of transnational corporations over those of individuals. A proper understanding of the economics that lie behind neoliberalism would allow us to identify – and to reject – ideology when it masquerades vexing contemporary realities: slim economic growth in general, limited job creation, massive production disparities, transnationalism, increasing socioeconomic inequalities and misery, asymmetry of economic and political power, and environmental degradation.

What, after all, are Western institutions? The size of the public sector in OECD countries varies, from a third of the economy in Korea to over 60% in Sweden and nearly 60% in Finland. In Iceland, 86% of workers are members of a trade union; the comparable number in Switzerland is just 16%. In the US, firms can fire workers almost at will. French labour laws have historically required employers to jump through many loops first. Stock markets have grown to a total value of nearly one-and-a-half times GDP in the US. In Germany, they are only a third as large, equivalent to just 50% of GDP.

That the history of both Keynesianism and neoliberalism shows is that it’s not enough to oppose a broken system. A coherent alternative has to be proposed. For Labour, the Democrats and the wider Left, the central task should be to develop an economic programme, a conscious attempt to design a new system, tailored to the demands of people for the 21st century.

Experiences: a critical assessment

With the 2008 financial crash and the Great Recession, the ideology of neoliberalism lost its force. The approach to politics, global trade, and social philosophy that defined an era led not to never-ending prosperity but utter disaster. “Laissez-faire is finished,” declared former French President Nicolas Sarkozy. Former Federal Reserve Chairman Alan Greenspan admitted in testimony before Congress that his ideology was flawed. In an extraordinary statement, former Australian Prime Minister Kevin Rudd declared that the crash “called into question the prevailing neoliberal economic orthodoxy of the past 30 years – the orthodoxy that has underpinned the national and global regulatory frameworks that have so spectacularly failed to prevent the economic mayhem which has been visited upon us”.[5]

For some, and especially for those in the millennial generation, the Great Recession, the wars in Iraq and Afghanistan, and the more recent economic conditions of the trade, technological, tariff, and the coronavirus confrontations started a process of reflection on what the neoliberal era had delivered. Disappointment would be an understatement: the complete wreckage of economic, social, and political life would be more accurate. In each of these arenas, looking at the outcomes that neoliberalism delivered increasingly called into question the worldview itself. During the neoliberal era, the racial wealth gap did not fare much better.[6]

Despite its alleged commitment to market competition, the neoliberal economic agenda instead brought the decline of competition and the rise of close to monopoly power in vast swaths of the economy: pharmaceuticals, telecom, airlines, agriculture, banking, industrials, retail, utilities, and even beer. A study by the Economist found that between 1997 and 2012, two-thirds of industries became more concentrated. Why is it that neoliberalism requires the taxpayer to carry the risk while the corporations receive the reward?

Rising economic inequality and the creation of monopolistic mega-corporations also threaten democracy. In study after study, political scientists have shown that the U.S. government is highly responsive to the policy preferences of the wealthiest people, corporations, and trade associations – and that it is largely unresponsive to the views and needs of ordinary people. The wealthiest people, corporations, and their interest groups participate more in politics, spend more on politics, and lobby governments more. Leading social and political scientists have declared that the U.S. is no longer best characterized as a democracy or a republic but as a “social oligarchy” – a government of the rich, by the rich, and for the rich.[7] Neoliberalism’s immoral war on society, by pushing towards the privatization and marketization of everything, indirectly facilitates a retreat into tribalism. With the world in crisis, neoliberalism no longer has even plausible solutions to today’s problems.[8]

The EU/IMF rescue programmes that Greece, Ireland, Portugal, and Spain entered into were designed, above all, to provide a “firewall” for the protection of the European banking system and thus the single currency itself, rather than solve the economic problems facing those nations. The rescue programmes demanded great sacrifices on the part of average citizens in those countries due to the reckless practices of banks and the financial sector – while the banks themselves came out clean and the Eurozone returned to being a playground for bond investors.

In this context, the EU/IMF duo pressed hard for austerity and structural reforms for the bailed-out countries purely on the basis of an ideological conviction (for there was no empirical evidence to back these claims) that such measures would enhance confidence, which in turn would create the proper conditions for a return to growth and higher employment. Therefore, the crisis in the Eurozone periphery not only continues, but it could also intensify in the near future, especially once the citizenry in those countries realizes that the game is rigged in favour of finance capital and big business. For this is exactly what the current EU policies are designed to do, to the detriment of a decent standard of living for the average citizen.[9]

The record of developing countries’ experiences of the last three decades, after many of these countries had adopted neoliberal economic policies, is very poor. Chile in the 1980s under Pinochet, followed the neoliberal recommendation of a rapid opening-up to imports. But Chile’s neoliberal experiment eventually produced the worst economic crisis in all of Latin America. The Argentine economic crisis of 1999-2002 is also held out as an example of the economic devastation to have been wrought by application of the “Washington Consensus”.

Caribbean and most African countries have been facing exacerbation of economic instability, rising current account and fiscal deficits alongside high debt obligations, a slowdown in productivity growth, limited adjustment in traditional sectors, high unemployment and underemployment, reduction and deterioration of public services and the quality of infrastructure, degradation of the environment and natural resources, social problems (including crime and violence), the growing distance between rich and poor, marginalization and social exclusion, and unfair competition arrangements. All these highly undesirable and vexing consequences have put less developed nations in a situation of ever increasing inferiority and have created new forms of external vulnerability and dependency.

Despite the disastrous experiences of neoliberal polices, especially in Latin American, Caribbean and African countries, still the international institutions, such as, IMF, World Bank, and their close co-operation with World Trade Organization (WTO), are imposing neoliberal policies on the developing countries. It seems that little lesson has been learned from the many unsuccessful experiences world-wide during the past 40 years or so. In recent years, a number of Latin American countries have abandoned neoliberalism and adopted polices to be suitable to their national interests rather than foreign capital.

Therefore, neoliberal versions of the “globalization” narrative have been challenged. In complete contrast, national-level economic process remains central and that the international economy is far from ungovernable. What is required within each particular nation is the spread of a social movement that believes in an alternative future but relies on its own national experience to overcome economic pressures, social injustice and underdevelopment, while building bridges of international solidarity with other like-minded movements and governments.[10] Ecuador’s attempt to opt out of neoliberal policies and chart out new economic policies is a promising case that has aimed towards more national economic control of resources and with active state intervention in favour of under privileged classes in the country.

Conclusion

 Neoliberalism is immoral and must be turned back because, at theoretical and policy levels, it does not serve humanity. Challenging neoliberalism at the intellectual and ideological level alone is hardly sufficient for compelling policy-makers and submissive cheerleaders to confront the deadly shortcomings of the dominant socio-economic policies and embark in turn on development strategies that help improve the overall conditions of modern societies.

Challenging neoliberal globalization does not imply a rejection of globalization itself but reflects a wider global project of counter-hegemonic resistance which calls into question the nature of economic, social, and cultural interconnectedness that define the contemporary world. Social movements and activists bent on weakening or even overthrowing neoliberal policies in their respective territories should study the contemporary history of anti-globalization struggles for useful insights and appropriate strategies. As recent experience in several developed and developing countries has demonstrated, an alternative future to “barbaric neoliberalism” is very much possible.[11]

[1] Williamson, J. (ed.) (1989). Latin American Readjustment: How Much has Happened, Washington: Peterson Institute for International Economics, November.

[2] Karagiannis, N. and Z. Madjd-Sadjadi (2013) “Why is Neoliberalism Dangerous? Criticism, Alternative Perspectives, and Government Policy Implications”, pp. 11-31 in The US Economy and Neoliberalism: Alternative Strategies and Policies, edited by N. Karagiannis, Z. Madjd-Sadjadi and S. Sen, London & New York: Routledge (Advances in Heterodox Economics), March.

[3] Karagiannis, N. and J. E. King (eds) (2019) A Modern Guide to State Intervention: Economic Policies for Growth and Sustainability, Cheltenham, UK & Northampton MA, USA: Edward Elgar (Modern Guides Series), pp. 1-6, October.

[4] Rodrik, D. (2017). “Rescuing Economics from Neoliberalism”, Boston Review, November 06. http://bostonreview.net/class-inequality/dani-rodrik-rescuing-economics-neoliberalism.

[5] Pearse, W. (2019) “A Critique of Neoliberalism”, Inomics, April 09.

https://inomics.com/blog/a-critique-of-neoliberalism-1379580

[6] Pearse (2019). Op cit.

[7] About 47-51 percent of the Federal revenue comes from individual income taxes, around 6-11 percent from corporate income taxes, and another 33-35 percent from payroll taxes that fund social insurance programmes (Tax Policy Center and Office of Management and Budget, various fiscal years). Office of Management and Budget (OMB). Washington, DC:

http://www.whitehouse.gov/omb/budget/HISTORICALS  and

https://www.google.com/search?q=where+does+the+federal+revenue+come+from&rlz=1C1CHBD_enUS853US853&oq=where+does+the+federal+revenue+come+from&aqs=chrome..69i57j0l7.32431j0j15&sourceid=chrome&ie=UTF-8

[8] Rodrik (2017). Op cit.

[9] Polychroniou, C. J. (2015) “Dead Economic Dogmas Trump Recovery: The Continuing Crisis in the Eurozone Periphery”, pp. 241-257 in Europe in Crisis: Problems, Challenges, and Alternative Perspectives, edited by A. Bitzenis, N. Karagiannis and J. Marangos, London & New York: Palgrave Macmillan, May.

[10] Karagiannis, N. and C. J. Polychroniou (2016) “Towards a Holistic Development Framework for the Caribbean: Key Theoretical Notions and Policy Implications”, pp. 23-41 in The Modern Caribbean Economy Vol. I: Alternative Perspectives and Policy Implications, edited by N. Karagiannis and D. A. Mohammed, New York: Business Expert Press, September.

[11] Karagiannis and Polychroniou (2016) Op cit.

Karagiannis, Nikolaos (2020) “Neoliberalism must die because it does not serve humanity.” real-world economics review, issue no. 94, 9 December, pp. 27-31, http://www.paecon.net/PAEReview/issue94/Karagiannis94.pdf
  1. Ikonoclast
    September 19, 2021 at 11:17 pm

    Neoliberalism WILL die because it is unsustainable. It has both internal and external contradictions. The internal contradictions relate to power and inequality. There is a zenith asymptote to power because of the nadir asymptote of inequality. When the mass of the people cannot get enough food and fuel, they will rebel. The external contradictions relate to unsustainable processes in the biosphere, like the attempted endless growth of the economy. When we hit real limits, neoliberalism fails. Basically, we have hit real limits now. The failure and collapse of neoliberalism has commenced. Of course, it’s a collapse from a high base. It could take 20 years to collapse without a revolution. With a revolution (or war) things could change or collapse much faster. “Change or collapse,” that must be our motto. These are the only alternatives now.

    But as they say, alcoholics and drug addicts have to hit rock bottom before they change, if they still can change. The capitalist system is an addiction system. People are addicted to the dopamine rewards of power, wealth and self-indulgence. Only when they see the final rewards will be death, mega-death, will they change. Let’s hope that they, we, do not remain blind and change too late.

  2. Ken Zimmerman
    September 21, 2021 at 10:34 am

    Neoliberalism is just the latest version of control via debt, threat, and slavery. Different versions have been controlling humanity for over 5,000 years. Neoliberalism is in some ways softer control (no torture, massive killings [Peterloo], civil spying) than past versions. But the aims do not change. And neither does the disrespect.

    Historian Robert Poole has called the Peterloo Massacre “the bloodiest political event of the 19th century in English soil”, and “a political earthquake in the northern powerhouse of the industrial revolution”. The London and national papers shared the horror felt in the Manchester region, but Peterloo’s immediate effect was to cause the government to pass the Six Acts, which were aimed at suppressing any meetings for the purpose of radical reform. It also led indirectly to the foundation of the Manchester Guardian newspaper.  In a survey conducted by The Guardian in 2006, Peterloo came second to the Putney Debates as the event from radical British history that most deserved a proper monument or a memorial.

    More than 200 years after the event the Peterloo massacre remains an open wound in Britain. For some time, Peterloo was commemorated only by a blue plaque, criticised as being inadequate and referring only to the “dispersal by the military” of an assembly. In 2007, the City Council replaced the blue plaque with a red plaque with less euphemistic wording, explicitly referring to “a peaceful rally” being “attacked by armed cavalry” and mentioning “deaths and over 600 injuries”. In 2019, on the 200th anniversary of the massacre, Manchester City Council inaugurated a new Peterloo Memorial by the artist Jeremy Deller, featuring eleven concentric circles of local stone engraved with the names of the dead and the places from which the victims came.

    The soldiers and law officials who committed the massacre were exonerated by the King and Parliament. That public exoneration was met with fierce anger and criticism. During a debate at Hopkins Street Robert Wedderburn declared “The Prince is a fool with his Wonderful letters of thanks … What is the Prince Regent or King to us, we want no King – he is no use to us. “In an open letter, Richard Carlile said:

    Unless the Prince [Regent] calls his ministers to account and relieved his people, he would surely be deposed and make them all REPUBLICANS, despite all adherence to ancient and established institutions.

  3. October 9, 2021 at 10:17 am

    Dear Mr Karagiannis, I feel you are navigating the domain of Maya in bestowing a death-wish on a way of thinking rather than give a clear picture of the deplorable actions and motives concerned. Seeking a logic in the form of a more or less coherent body of concepts behind all the muddling through of the last decennia is admirable, yes, and maybe even rewarding. But if it ends with a wish for Neo Liberal thinking to cease to exist is a lament, wishing it to die is ignorant. Both are futile as you well know.

    I consider the key of the joint element in the thinking of the Mont Pelerin group: ” … their determination that the liberal focus on individualism and economic freedom must not be abandoned to collectivism.” No one would want that, it seems to me, because what would the world be without ambition? So I believe that in wishing Neo Liberalism would go away you err. Do you want a mind police? That was exactly the thing feared most by the Austrians and other proponents of a new way forward. And not without very good reason.

    It is very well possible to see the sequence of privatizations that occurred the OECD countries as a series of scams and genuinely new businesses based on market guru spik and increasingly indeed new technologies, primarily data capture, processing and storage and use. Seen from the status quo indeed disrupting and, far more importantly, giving birth to expanded IPR domains and earning domains, and in combination with scale technology in shipping, putting production factors at work in ever expanding spatial scale. The way of all flesh – consumers. And yes, in many countries the family jewels were thrown to the lions, simply because the system that ran it at the time was not capable of recognizing the huge opportunities it could create, with the bewildering range of opportunities of applications of new technology in data & process & decision. The huge crowd of management consultants since are indicative of those that saw through it, and started to add value, with plenty of derailments on the side, and still too many leeches. And again, yes, all this under the cloak (invisible hand if you will) of the USA seeking to dominate the world, using all weapons it could conceive, and all the tricks to power as well. And, in the field of finance led and guided by USA monetary policy, the new data technologies hit really hard, especially in banking and real time trading,

    This fact is reason for Desai & Hudson to speak of Financialized Neo Liberal Capitalism and a Creditocracy, when they argue that the bug of neo Liberalism is deadly and will incapacitate the USA. They use two words to qualify Neo Liberalism namely Financialized ..Capitalism, based on Debt – Hudson argues that money is created and traded as debt. So I would prefer to use instrumentalized if they need to qualify capitalism, because financialized is already implicit in capitalism, and the instruments are newly created.

    But I do not think that Neo Liberalism will break the USA economy. American companies or their fronts will simply lose out in some domains of competition and win out in others, and the same goes for companies from other economies. In Hayek’s words, it is simply market formation, complete with the good, the bad and the ugly. Talking about ugly, for a good and solidly researched demasque of the motives and the behavior of the USA overseas, see Clinton Fernandez, “What Uncle Sam wants, Uncle Sam…” 2020.

    Obviously, there are more parties – China, EU, the Middle East, Central Asia, India, SE Asia, and the Latin American economies and the Caribbean and Australia. It will be in their interaction that we will see the contours of what could be a new world order. This process has obviously gone on for decennia already, since the USA resorted to warring in other countries and started losing them. In just about all cases they underestimated the appeal of collectivist ideologies.

    Many years ago it was Tinbergen who pointed out that the USSR and the USA would show convergence. History did not bear out his friendly and hopeful vision, and the Chinese are not likely ever to forget what happened to the USSR after they split the union and privatized the remains of the country. But I think that now there may be more chance of convergence. Let us see!

    ,

    • Ken Zimmerman
      October 16, 2021 at 10:19 am

      Most, if not all, analysts on the left agree that ‘neoliberalism ‘is the ideological expression of the reassertion of the power of finance….(moreover)…although the return of finance to hegemony was accomplished in close connection with the internationalization of capital and the globalization of markets…it is finance that dictates its forms and contents in the new stage of internationalization… In short, according to Dumenil and Levy, in the current world (since the late 1970s), finance reigns supreme and neo-liberalism and globalization are themselves expressions of finance. Whether one completely agrees with the claim, they present compelling data and analysis in support of it.

      Dumenil and Levy argue that this reassertion of financial hegemony since the 1970s, following the demise of finance during the Great Depression, and, then, the period of strong financial regulation during the heyday of the progressive state, has led to numerous financial crises since 1980. Importantly and paradoxically, Dumenil and Levy argue that not all classes are injured by these crises. On the contrary, finance benefits handsomely from the same processes that create economic crises and injure so many others. Hence the costs of financial crises are paid by the bulk of the population (hourly workers and a large share of once middle-class blue-collar workers), while large benefits accrue to finance. Dumenil and Levy provide data documenting these trends in the case of France and the USA, along with case studies of financial crises around the world.

      According to Dumenil and Levy this is Neoliberalism,  Globalization,  and  Financialization in a  nutshell. Considering  both  the  domestic  and  international  aspects of neoliberalism free-market  economics,  free  trade,  and  the  free  mobility  of  capital neoliberalism  is  actually  what  the  word  says,  that  is,  a  new  liberalism.  In  the present  study,  the  notion  is,  however,  understood  as  a  social  order  in which  a new  discipline  was  imposed  on  labor  and  new  managerial  criteria  and  policies  established  (with  significant  differences  among  countries  and  the  various  components  of management).  The  so-called  “free  market”  is  an  instrument  in  service of this  objective.

      Globalization  is  one  of  the  notions  that  the  analysts  of contemporary  capitalism  are  more  inclined  to  use  rather  than  neoliberalism.  Although  the process  of  globalization  harks  back  to  the  early,  even  preliminary,  stages  of capitalism,  commercial  and  financial  international  barriers  were  further  alleviated  during  the  last  decades  of the  twentieth  century.  The  economy  of the twenty-first  century  is,  more  than  ever,  a  global  economy.  Neoliberalism  gave specific  features  to  globalization  (as  in  the  phrase  “neoliberal  globalization”) but  neoliberalism  is  more  than  a  phase  of globalization.

      The  notion  of  “financialization”  is  fraught  with  the  same  ambiguities. Like  globalization,  it  refers  to  mechanisms  as  old  as  capitalism  and  even  to earlier  precapitalist  market  economies,  but  one  crucial  aspect  of the  neo liberal  decades  is  certainly  the  culmination  of financial  mechanisms  reaching  unprecedented  levels  of  sophistication  and  expansion.  In  the  present study, “financialization”  always  denotes,  on  the  one  hand,  the  expansion  of financial  institutions  and  mechanisms  (and  the  corresponding  masses  of assets  and  debt),  taking  account  of innovative  procedures  and,  on  the  other hand,  the  imposition  of managerial  criteria  such  as  the  creation  of value  for the  shareholder.  The  comparative  size  and  profit  rate  of the  financial  sector is  involved.  The  same  is  true  of the  expansion  of the  financial  component of  management  within  financial  institutions  and  within  nonfinancial  corporations,  as  well  as  the  spectacular  rise  of  the  income  paid  to  financial managers.

      Given  the  role  conferred  on  financial  interests  in  contemporary  capital ism,  the  term  “financialization”  is  also  used  in  a  broader  sense  in  the  litera ture,  encompassing  most  of  the  features  of  neoliberalism.  There  is  a  lot  of meaning  in  the  assertion  that  neoliberalism  is  a  “financialized  capitalism,” sometimes  denoted  on  such  grounds  as  “financial  or  finance  capital(ism).” But  this  feature  is  not  really  new.  The  phrase  “Finance  capital”  was  coined  by Hilferding  at  the  beginning  of  the  twentieth  century.’  “Finance-led  capitalism”  would  be  closer  to  the  perspective  here,  provided  that  a  proper  defini tion  of “Finance”  is  given. Based on: R.  Hilferding,  Finance  Capital:  A  Study  of  the Latest Phase of  Capitalist  Development  (1910;  London:  Routledge  and  Kegan  Paul,  1981).

      Financialization has created havoc and chaos around the world for over 50 years.  And destroyed or greatly harmed the lives millions of people.  First in countries of the South, then in eastern Europe and Russia, followed by Asia and finally the USA and UK. It’s also lead to massive economic inequality, deindustrialization in the USA and UK, and the rebirth of fascism and Nazism. Impressive achievements for a so called ‘economic’ movement. Little wonder most of the world hates financialization and China’s socialist market model has become the most popular in the world.

       

      The Crisis of Neoliberalism. Gerard  Dumenil, Dominique Levy, 2014.

      Capital Resurgent Roots of the Neoliberal Revolution. Gerard  Dumenil, Dominique Levy, 2004.

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