Critiquing Neoliberalism

The history of human civilisation is the history of human quest for ‘freedom’. The freedom from economic, legal, political and social bondages will create a more judicious society.  The free market system, accumulation of private property, rule of law and economic freedom are the preconditions for economic efficiency in the market. The market need not be intervened by state machinery to run.  State interventions to the market should be kept at minimum because state does not possess enough information about the market. With these thoughts, a ’new right’ movement started in western democracies. Despite having geographical variations in the implementation of this policy, no part of the world is immune to this development. The ‘world order’ created and modified institutions to implement these policies globally to achieve higher economic growth, better human developments, increased capital accumulation, utopian job markets etc. This economic system famously named as ‘neoliberal policies’ attempted to change the socio-politico-economic dimensions of world society for betterment of the ‘peoples’ of this globe. The American economist Milton Friedman and the Austrian academic Friedrich Hayek contributed much to the development of this thinking. Other people like Peter Saunders, Robert Nozick, Margret Thatcher, and Ronald Reagan also contributed enough to have a world order based on neoliberal principles.

 The cease of World War II accentuated the growth of the ideology of neoliberal policies in the countries affiliated with western blocks. This was serving two purposes; first important purpose of it was to counter the Stalinist model and the influence of USSR and the second purpose was the perpetuation of capital accumulation by capitalistic classes by keeping masses in a shadow of utopianism of development. The state-market dichotomy was created to mystify polarisation based on classes. This essay will see the results of neoliberal policies and try to find some of the answers like how the neoliberal policies were exported to the different countries of the world? Who are the beneficiaries of this development? Has the quest for freedom achieved? Why individualism is so important for the development or the economic efficiency? Can state be provider of freedom for the masses or can the ideology of state exist with the ideology of ‘true freedom’ for masses?  Has the concept of ‘globalisation’ helped societies to improve their human development indicators? etc.

In 1973, Chilean government of Salvador Allende was overthrown by dictatorship of General Pinochet supported by right wing parties, Central Intelligence Agency of USA, and repressive government of Brazil. The coup was part of the policy of America to prevent spread of communism in Latin America (Lowe, 1997). The new regime changed the ‘moderate’ socialistic principles of Allende and allowed Chicago school economists to do experiments of neo-liberal policies. The new policies of government, however by 1980, brought inflation rate down from 1000% to manageable proportions but this development was very skewed (Lowe, 1997). The country and its ruling elites along with foreign investors received huge benefits while the people in general fared poorly. The effects of this were seen in 1989 general election, when the civilian candidate supported by Pinochet was heavily defeated. The Chile experiment proved that neoliberal values are the values of elites because the structural component of neoliberalism has elements to restore the class domination to the richest strata in the population (Harvey, 2007).

This was not something new because in the theoretical developments of neoliberalism one can trace the formation of rules in the favour of capitalist classes. Peter Saunders, while developing his own theory of Social Stratification, distinguishes three types of equality (Saunders, 1990): first is ‘formal or Legal equality’ involves all members of society being subjected to same rule or law. Although he admits that it does not mean that ‘everybody ends up in the same position’. Second is equality of opportunity meaning people have an equal chance to become unequal.  He calls society based on this equality ‘meritocratic’. Third type of equality is equality of outcomes. Saunders accepts first two kind of equality but rejects the third. He takes ideas from Hayek and says that this kind of equality undermines the equality of opportunity and legal equality. He does not differentiate between the idea of ‘positive discrimination’ and ‘discrimination’ and advocates for removal of positive discrimination from the society. Saunders and Hayek believe that inequality is justified because it promotes economic growth. Further, he finds socialist regime more repressive than capitalistic regimes but these views are different from the realities of time and space. The advent of capitalism after Industrial Revolution was dependent upon slave trades. In south Africa, apartheid system and capitalist free market system separated ‘races’ and gave black Africans very few opportunities and Pinochet regime in Chile was more repressive than that of his predecessor despite having free market system.   

The ideal dream of Saunders having society where social mobility will be based on the merit in free market system was refuted by the study of Gordon Marshall, Howard Newby, David Rose, and Carolyn Vogler (1998). Their study found that patterns of social mobility were influenced by class even when education attainment was taken into account.  In a general explanation, one can find that a student from rural village might have more merit but his lack of ‘social capital’ and ‘symbolic capital’ in comparison to a student of upper urban class will hinder his social mobility. The study clearly indicated that free market does not guarantee that merit is equally rewarded for all social groups. So the concept of social justice is necessary to promote meritocratic society.

In the United States of America, the top 1 percent’s share in national income was 16 percent in pre-World War II period and after WW II it declined to 8 percent and this percentage continued for next three decades. In 1970s the economic growth of US collapsed and real interest rates went negative and dividends and profits shrunk then the ruling class felt threatened. One more cause to the threat of their monopoly was raising tide of socialism and demands for entitlement based rights in democracies. After the implementation of neoliberal policies the share of top 1 percent increased from 8 percent to 15 percent in mid 1980s (Harvey, 1997). The one notable figure cannot be shown through percentage figure and that is change in absolute amount of top 1 percent because the US economies became far larger than the post war period. Also, these policies increased fee in educational institutions, health sectors and other social sectors. The whole policy of neoliberalism is about the class wars because the policies is perpetuating the class calculus by limiting the access to education, health and other social needs of mass. So, the elements of social justice are very important in the contemporary economic politics of neoliberalism.

The perpetuation of neoliberal policies was done through the policies of carrot and stick. Western democracies gave huge amount of money in the form of aid to newly independent countries for industrial-social-political developments. Also, the capitalist nations of the world arranged coup in different countries to establish a rule based on free market like in Chile, Iraq, and Afghanistan etc. the establishment of international organization like International Monetary Fund (IMF), World Bank (WB), World Trade Organization (WTO) etc. these organisation had single aim to homogenize world economy and grab the ripples produced by socialist economies.  Neoliberalism contains an explicit and self-conscious normative project for “multilevel governance”, which is consistent across the federal, regional and global levels (Harmes, 2006). As the World Bank’s World Development Report 1997 describes the horizontal and vertical separation of powers in the US constitution as ‘the classic mechanism’ (1997: p-49). The horizontal separation represents the separation between the organs of the government like executive, judiciary and legislature and vertical separation of power means decentralisation of powers between centre, state, and local government. But, this federalism is not related with classical constitutional type federalism rather it is related to market preserving federalism. Market reserving federalism talks about ‘right to exit’ i.e. the corporations and citizens should have right to exit from the market at any time and here comes the classical case of moulding of labour laws. Neoliberalism denounces the importance of trade unions in industrial settings and calls for a rule of ‘hire and fire’.

 The dubious distinction between state and market is being glorified by the neoliberal economists but is this possible to create a distinction between state and market? Karl Marx was first to criticize theoretical and practical separation between politics and market in classical liberalism. He believed that the social relations of productions and conflicts are inherent in the production process. So, capital markets are not the platform for interaction between equal individuals rather it privileges interests of capital over labour. Production and exchange cannot be viewed as occurring in non authoritative and de-politicised manner. Ellen Wood summarizes Marxist view and says that “the differentiation of the “economic” and the “political” is, of course, not simply a theoretical but a practical problem. . . Capitalist appropriation and exploitation actually do divide the arenas of economic and political action, and actually do transform certain political issues- struggle over domination and exploitation that historically have been inextricably bound up with political power – into distinctively “economic” issues” (1981: 67). So, in liberal economic sphere, political arena is deliberately being separated from economic sphere.  The state coercive mechanism is being used by market forces to bring labour into new market relations.

Karl Polanyi also reinforced Marx’s argument in “The Great Transformation” by developing a distinction between “embedded” and “disembedded” economic orders. Embedded economic orders are those orders in which market and state are more integrated and market are seen as means to an end rather than seeing it as an end in itself. He feels that economic orders are just a function of social order in which it is contained (1944: 71). In contrast, disembedded orders are those orders in which politics and economics are separate and politics is being subordinated to market like free market capitalism. So, here instead of society being embedded to social relations, social relations are being embedded into economic system (1944: 57). To further illustrate this point, Polanyi develops the concept of “fictitious commodities” i.e. land, labour and capital are fictitious commodities in that they are inputs of production rather than products produced so far for ‘sale’. So, supply and demand mechanism should not be applied to them in quite same way in which it is applied for other things.

This can be understood through a brief example. If the demand for petrol is less than its supply then they market will be clear about decreasing the price of petrol but if in a society where unemployment is very high and industries will recruit them at less wage and other benefits then the labours will not sit quite. So, supply and demand mechanism cannot be run in the case of these “fictitious commodities”. Therefore, separation between politics and economics cannot be done because decrease in wages can turn labours into arranging strikes and protest which in turn will cause political instability in the society. This will be more harmful for capitalist class interests. So, the commodification of land, labour and capital might look good in theory but it is disastrous in practice.

David Harvey finds four main elements in neoliberal economic system. These are privatisation, Financialisation, the management and manipulation of crisis and state redistribution.  The commodification, privatisation, and corporatisation of public assets have been ‘signal features of neoliberal project’. New fields have been opened up for capital accumulation and world organisations came to establish these principles of capital accumulation like the establishment of Intellectual Property Rights through TRIPS agreement within the WTO. This agreement defines genetic materials, seed plasmas, and all manner of other products as private property. Now, corporations are extracting rents from the people who have played a vital role in the development of these things. Recently, some kinds of Bangladeshi folk music were being patented by American company and rents are being extracted from the indigenous developers of that music.  The degrading global environment is the result of intensive industrialisation and agricultural methods for capital accumulation through commodification of nature in all its forms. This can be defined in simplest term as the transfer of public assets from state to private companies.

The financialisation of world capital is the product of neoliberal developments. This financialisation is done through speculation, predation, fraud and thievery. Stock options, Ponzi schemes, structured asset destruction through inflation, asset stripping through mergers and acquisitions, corporate fraud and credit and stock manipulations are the instruments through which shows the greed and fraudulent nature of capitalists. Eric wolf says that the connections and contradictions have intensified until the system is so complex that it is quasi-random. That does not mean that we cannot understand it but we cannot predict about the future developments of market (1997).   Except this, there lies a deliberate mechanism through which capital is being transformed from poor countries to rich countries through redistribution of wealth. Brahma Chellany writes that South Korea encourages big companies to move water intensive industries to other countries like POSCO came to Indian state of Odisha to start steel industry.  The neoliberal state also uses different means like government programmes and taxes to redistribute wealth which increases speculation in the market and make many people homeless and without security. This also gives rise to migration of poor peasant from rural centres to cities due to distress in their productive activities.

Therefore, neoliberalism as an economic system failed to produce the so called freedom for masses and economic prosperity rather it converted into a tool for reassertion of elite class power in economic dimension of society, which is perpetuating their dominance in other arenas of society. The violent repressive means through which it is being implemented in different parts of the world shows the real motives of militarily developed nation to start economic imperialism after denouncement of colonialism. The term ‘post-colonial’ for underdeveloped and developing countries does not mean anything because the drain of wealth, military repression, political instability caused by other nations etc is the commonly occurring phenomenon. The loss of sovereignty through international organization   is accepted reality in contemporary times. The reinventing of global economic mechanism is necessary to provide everyone on earth access to basic needs and sustainability of growth is more necessary than brutal exploitation of resources of humanity to restore social order.