On neoliberalism

Neoliberalism is a doctrine which maintains that unrestricted markets will lead to prosperity. It comes under many labels: the Washington Consensus, economic globalization, structural adjustment, free market fundamentalism, etc. Although its proponents suggest that neoliberal policies should be implemented everywhere for the betterment of all, their own record in this regard discloses a stark hypocrisy. The poor and powerless, in both the South and North, have the “free market” shoved down their throats while the rich and powerful continue to receive increasing amounts of state protection. This is simply a result of the fact that the function of neoliberalism is to serve the interests of those who champion it. It is promoted by them with religious zeal when it serves this purpose, and is easily disregarded when it doesn’t. An honest look at recent history easily reveals this to be the case.

Rich countries continue to intervene in the market while advocating that poor countries do the opposite. The hypocrisy is palpable; those who claim to be neoliberalism’s most ardent supporters are frequently its most consistent repudiators.  Noam Chomsky quotes former US Secretary of Treasury James Baker as saying that the Reagan Administration “granted more import relief to U.S. industry than any of his predecessors in more than half a century.” Chomsky goes on to note that, “in fact, it was more than all predecessors combined, as the Reaganites doubled import restrictions”.[1] Stiglitz observes that the US practices “corporate welfarism… under the guise of free market economics”.[2] The US may be the worst case, but the rest of the developed world is not very different.

As is likely apparent, Reagan did not institute protectionist policies for the benefit of the common citizens of the US. In fact, for them “rugged individualism” and “free enterprise” were in season. As a result, although not with the same magnitude, neoliberalism has had devastating impacts in the developed world just as it has had in developing countries.

There’s no diversity because we’re burning in the melting pot[3]

The impacts of neoliberalism on the South are well understood and will not require revision here; however, it will be enlightening to look at its effects on the North in a bit of detail. Neoliberalism has been utilized “as an ideological weapon to discipline the defenseless” in the South, and has served the same function in the North. As protectionism is continually instituted in the interest of industry and finance, social security programs, unions, and consumer protection are being dismantled in the name of the market. This has resulted in the concentration of wealth in the hands of the elite few at an unprecedented rate, while incomes for common people have stagnated or even declined. Citing the work of economists Thomas Piketty and Emmanuel Saez, journalist Bill Moyers observes that

from 1950 through 1980, the share of all income in America going to everyone but the rich increased from 64 percent to 65 percent. Because the nation’s economy was growing handsomely, the average income for 9 out of 10 Americans was growing, too – from $17,719 to $30,941. That’s a 75 percent increase in income in constant 2008 dollars.

But then it stopped. Since 1980 the economy has also continued to grow handsomely, but only a fraction at the top have benefited. The line flattens for the bottom 90% of Americans. Average income went from that $30,941 in 1980 to $31,244 in 2008. Think about that: the average income of Americans increased just $303 dollars in 28 years.[4]

A short period after Bill Clinton took the office of president the Wall Street Journal explained that “on issue after issue, Mr. Clinton and his administration come down on the same side as corporate America.”[5] It seems the Democratic Party, conventionally seen to be of a populist leaning, behaves not much differently from the Republicans. This provides a good amount of insight into the condition of democracy in the country which sees itself as the “leader of the free world”. Although democracy was never as lively in the US as popular belief may suggest, as a result of neoliberalism it has been eroded almost to the point of non-existence. Deregulation of capital is a large reason for this.

The Bretton Woods system (which was in place from the end of World War II to 1971 when Richard Nixon suspended the convertibility of the US dollar to gold) encouraged free trade, but it insisted on regulation of capital. This allowed governments to institute policies characterized as those of a welfare state (e.g. progressive taxation, labour rights, environmental protection, etc.) without fear of capital flight. Today the threat of capital flight forces countries to compete in a race to the bottom with regards to populist policies. What deregulation of capital has also done is get in the way of free trade. The recent influx of speculative capital into the Brazilian economy is a case in point.[6] The high demand for the Brazilian Real led to appreciation in its value and thus lower demand for Brazilian exports.

Flip this capital eclipse[7]

The recent global financial crisis has led to many commentators issuing a death certificate to neoliberalism. Stiglitz, for example, has remarked that the housing bubble crash “was to market fundamentalism what the fall of the Berlin wall was to Communism”.[8] Despite such optimism in some circles, neoliberalism’s rule does not seem to be wavering. Right wing politicians, economists, and business elites have set in place too strong a foundation to overturn with ease.

Despite neoliberalism’s direct role in creating the financial crisis Toronto elected a mayor that could only properly be described as right wing nut; the Ontario Liberal government recently awarded corporate tax cuts worth $2.4 billion without causing much of a public outcry;[9] the May 2 Canadian federal elections will likely once again result in a Conservative minority, if not a majority; the state of Wisconsin recently elected a governor that is bent on taking away public sector employees’ right to collective bargaining. If anything, as recent developments such as the Tea Party movement suggest, neoliberalism’s grip on the public mind seems stronger than ever.

There are signs of hope, however. The last decade has seen a series of Latin American countries elect populist leaders who have curbed the influence of neoliberalism in the region. Also, the revolts currently taking place across the Greater Middle East are as much an indictment of neoliberalism as they are of Western-backed dictators. The conditions which sparked the uprisings – high levels of unemployment, poor working conditions, low incomes, food and energy price hikes, etc. – were the direct result of the economic liberalization that has taken place in the region and world.

Historian Mike Davis relates that we live in “a world in which the claims of foreign banks and creditors always take precedence over survival needs of the urban and rural poor; it is a world in which it is taken as ‘normal’ that a poor country like Uganda spends twelve times as much per capita on debt relief each year as on healthcare in the midst of the HIV/AIDS crisis.”[10] To change this reality we will have to come to understand that “the path to a world that is more just and free lies well outside the range set forth by privilege and power.”[11] The upcoming Canadian federal elections, for example, do not provide a path to a markedly different reality, no matter who is elected into power. Certainly within the given options there are better and worse choices, but the range available is very limited.

It is important to note that voting in elections is hardly an important part of being politically engaged. Democracy is not summed up in voting. Overcoming neoliberalism will necessitate a reimagining of citizens’ role in the democratic process; and fighting to expand the democratic space, in both political and economic spheres. In addition, as neoliberalism is an attack on the common people around the world, an internationalist approach will be required to counter it; the common people will have to come to know, Chomsky writes, that

international solidarity can take new and more constructive forms as the great majority of the people of the world come to understand that their interests are pretty much the same and can be advanced by working together. There is no more reason now than there has been to believe that we are constrained by mysterious and unknown social laws, not simply decisions made within institutions that are subject to human will – human institutions, that have to face the test of legitimacy and, if they do not meet it, can be replaced by others that are more free and more just, as often in the past.[12]

As for international development, the discourse around it has to move away from being about charity-giving in tone and instead look at the problems of the developing world through the prism of justice; additionally it has to be expanded beyond its current focus on economic development in the South to include an understanding of the development of democracy, liberty, and justice for all of humankind. Only in doing so can the economic development of the South be guaranteed, as its underdevelopment is directly the result of injustices carried out by the powerful, who are working to dominate us all (which is a fact that is conspicuously absent from mainstream development discourse). Globalization can come to have a humane meaning, and no longer be a euphemism for the subjugation of the planet by private capital. We can triumph over the current order, but much work remains to be done in order to do so.

[3] Immortal Technique, Dance with the Devil –  http://www.youtube.com/watch?v=qggxTtnKTMo

[5] Quoted in Chomsky, Profit Over People (Seven Stories Press, 1999), p. 61

[7] Rage Against the Machine, Wind Below – http://www.youtube.com/watch?v=1a9tJEilBYg

[8] ibid. 2

[10] Mike Davis, Planet of Slums (Verso, 2007), p. 153

[11] Chomksy, Profit Over People (Seven Stories Press, 1999), p. 93

[12] Ibid., p 62


2 responses to “On neoliberalism

  • Elmira R

    I enjoyed reading it.
    and what an appropriate post to follow your previous post ‘what’s aid got to do with it?’. well, it ain’t just aid. The trade patterns favorable to East Asian countries was important in the rise of Asian tigers in late 20th century. Charity-giving was definitely not the approach US, followed by other capitalist nations, took in the case of the Asian tigers. The US geopolitical interest in the countries near the communist China was key at the time. What was Africa doing when East Asia was busy building their economy? Well, they were struggling for ‘self-determination’ and ‘independence’ through decolonization. We know how that ‘independence’ process ended.

    I liked how you drew this messy dark picture in your post, then summed it up nicely by throwing a colourful bucket of ideas for the present and future of international development discourse. [an equivalent of this: http://roberttracyphdart473.files.wordpress.com/2009/11/jackson-pollock.jpg%5D


    ps: 1. I just clicked on the Stiglitz video and was welcomed by a 15 sec election ad against Harper’s Canada and tax dollars. hah!
    2. Damn! this man talks about East Asia too. ok, my point wasn’t about what the American did at the time but their selective intervention.

  • Bogdan C.

    A good post, Umair. It seems that we have similar reading interests, particularly Chomsky’s work. I’m also trying to get a blog off the ground, though I’m just learning how to best use it. I’ll keep following your posts from now on.


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