The era of neoliberalism
Inequality matters, most significantly and directly, to those it leaves behind
The writer is a freelance contributor based in New Jersey
It’s a double-edged sword, the Panama affair: a vindication, on the one hand, of what we’ve suspected all along — that wealth and corruption are rarely separable; and a confirmation, on the other, of a depressing old fact that the world is an unfair place — a fact we try our best to tuck away under nice-sounding proclamations of how we wish the world to be just and equal. The reality, though, is our professed virtues are no more aligned with our actual motivations than one’s career choices are with the length of their hair.
At the heart of all this is an alignment issue: the skew between virtue and incentive. Greater this skew, greater the contradiction in society. Consider child-rearing: we teach children the virtue of honesty, elevating it to the highest point on the morality scale. But as the child grows older, the chasm between trumpeted virtues of society and the actual levers of success within it becomes depressingly clear, as waves of reality break one after the other on the shoreline of his brittle preconceptions. Over time, he realises much of the way success is defined in society is achieved not in an earnest pursuit of truth, but in its crafty mutilation. Want to become a successful defence attorney? Learn the dark art of bending the truth and dodging evidence. If you’re in marketing, your success will predicate largely on how effectively and to what degree you exploit mental glitches in consumer psychology. If you’re an entrepreneur, you will derive your profits from asymmetric information you may have over the buyer — which you will try your best to exploit. If you’re a major news channel, you will make little money by running the headline, “All is well in the world today. But thanks for tuning in”. Tragedy sells, peace is boring. And if you’re the leader of a state, not calibrating your responses to your constituency’s liking, regardless of what you actually believe, could be the beginning of a long, sullen retreat into permanent irrelevance. In short, our incentive systems reward the opposite of things we revere as virtues. This is a schizophrenic reality of the world, but since everyone’s doing it, that makes it perfectly legitimate. We forget at our own peril that human history is all about large collectives throwing their lot with one system or the other, only to discover generations later that they were completely and, in some cases, fatally wrong.
One of the reasons behind this dichotomy — virtue versus incentive — is the notion of competition. It was Adam Smith who preached the virtue of self-interest, combined with the benefits of trade and division of labour. From this, a potent framework emerged: free-market capitalism — with competition as its prime mover. Great minds like Milton Friedman and Friedrich Hayek built upon Smith’s first principles: allow the fittest to innovate and prosper, and their riches will ‘trickle down’ to the less privileged. Of course, Friedman and Hayek didn’t just stop at that, the gradient of the trickle-down slippery slope being steep. For instance, Friedman — convinced of the benefits of competition-based privatisation — famously conceived economic shock theory, i.e., in the event of disaster, societies are most receptive to paradigm changes and ripe for free market forces. It was only logical, then, for America to apply Friedman’s shock treatment to disaster-ridden countries — with results none too encouraging. The range of casualties of Friedman’s ideas is broad: Chile, Argentina, Guatemala, El Salvador, Brazil, Uruguay, Russia and, most recently, Iraq to name a few. And each time the disaster capitalists met resistance in the way of their privatisation agenda, say a defiant premier looking to nationalise his country’s resources, a timely coup would ensure his removal from power to be replaced by a more compliant actor (typically a military dictator). For example, the 20th century saw the rise of Augusto Pinochet in Chile, the Shah in Iran, and the military junta in Guatemala — all CIA-backed coups orchestrated as responses to local actors getting in the way of big corporate interests. It is also no secret that private corporations and contractors are the biggest profiteers of international wars. But pointing any of this out can get one labelled as a socialist, or worse communist. Somewhere along the way, neoliberalism has apparently acquired the lustre of a religious creed — its critique, blasphemy.
And it’s not just wars and coups where radical neoliberal ideas stand implicated. Most concerning are the social costs, as trickle-down is proving to be a myth. Just look at America: inequality in labour income has widened manifold since the early 1980s when Reaganomics (neoliberalism on crack) hit the scene. Middle-income workers make no more today than they did in the late 1970s. The richest one per cent claims about a third of the nation’s wealth; the top five per cent claim over 60 per cent — and its share is only increasing. The American dream, it appears, is only for the top one per cent that’s seen its share of the pie only expand as taxpayers subsidise the rich. For the rest, it’s actually a pipe dream.
This cannot be emphasised enough: inequality matters, most significantly and directly, to those it leaves behind. Nowhere is this clearer than in Pakistan where inequality is as real, raw and ubiquitous as the dusty air people breathe every day. And we know what that means. It means generational privilege for one class of people, and generational misery for the other. It means apartheid across every facet of society — social, professional, academic, regional, and so on. It means dangerous gulfs in worldviews born of unstandardised curricula. And, it means, weaker state institutions, which in turn means weaker democracy, as concentrated power incentivises short-termism from basic governance to decision-making. A shortcut approach becomes the creedal call of the ruling classes, and a scourge for the masses.
And let’s be clear on this: pointing out flaws in capitalism doesn’t mean you carry a copy of Das Kapital and your choice of favourite highlighter everywhere. It can be conceded these issues are highly complex, and there are no easy answers. And if there are any, you won’t find them in The Communist Manifesto. It can also be conceded that competition serves as a potent incentive for innovation. But competition can also be unfair. After all, much of our personal success depends on background conditions we had little to no hand in making. We do not get to choose our genome, our country of birth, or other factors crucial to our progress. The key, then, is to minimise the negative effect of factors we can actually control. For example, having expensive private schools is a bad, unethical idea. The content and quality of education for kids should be the same across the board, so the playing field is as level as possible. Here the role of government is critical in ensuring education spending is given highest priority to ensure high quality. In the 21st century of smartphones, artificial intelligence and virtual reality, it seems nothing less than criminally sadistic that the world remains split so starkly between rich and poor.
Published in The Express Tribune, June 12th, 2016.
At the heart of all this is an alignment issue: the skew between virtue and incentive. Greater this skew, greater the contradiction in society. Consider child-rearing: we teach children the virtue of honesty, elevating it to the highest point on the morality scale. But as the child grows older, the chasm between trumpeted virtues of society and the actual levers of success within it becomes depressingly clear, as waves of reality break one after the other on the shoreline of his brittle preconceptions. Over time, he realises much of the way success is defined in society is achieved not in an earnest pursuit of truth, but in its crafty mutilation. Want to become a successful defence attorney? Learn the dark art of bending the truth and dodging evidence. If you’re in marketing, your success will predicate largely on how effectively and to what degree you exploit mental glitches in consumer psychology. If you’re an entrepreneur, you will derive your profits from asymmetric information you may have over the buyer — which you will try your best to exploit. If you’re a major news channel, you will make little money by running the headline, “All is well in the world today. But thanks for tuning in”. Tragedy sells, peace is boring. And if you’re the leader of a state, not calibrating your responses to your constituency’s liking, regardless of what you actually believe, could be the beginning of a long, sullen retreat into permanent irrelevance. In short, our incentive systems reward the opposite of things we revere as virtues. This is a schizophrenic reality of the world, but since everyone’s doing it, that makes it perfectly legitimate. We forget at our own peril that human history is all about large collectives throwing their lot with one system or the other, only to discover generations later that they were completely and, in some cases, fatally wrong.
One of the reasons behind this dichotomy — virtue versus incentive — is the notion of competition. It was Adam Smith who preached the virtue of self-interest, combined with the benefits of trade and division of labour. From this, a potent framework emerged: free-market capitalism — with competition as its prime mover. Great minds like Milton Friedman and Friedrich Hayek built upon Smith’s first principles: allow the fittest to innovate and prosper, and their riches will ‘trickle down’ to the less privileged. Of course, Friedman and Hayek didn’t just stop at that, the gradient of the trickle-down slippery slope being steep. For instance, Friedman — convinced of the benefits of competition-based privatisation — famously conceived economic shock theory, i.e., in the event of disaster, societies are most receptive to paradigm changes and ripe for free market forces. It was only logical, then, for America to apply Friedman’s shock treatment to disaster-ridden countries — with results none too encouraging. The range of casualties of Friedman’s ideas is broad: Chile, Argentina, Guatemala, El Salvador, Brazil, Uruguay, Russia and, most recently, Iraq to name a few. And each time the disaster capitalists met resistance in the way of their privatisation agenda, say a defiant premier looking to nationalise his country’s resources, a timely coup would ensure his removal from power to be replaced by a more compliant actor (typically a military dictator). For example, the 20th century saw the rise of Augusto Pinochet in Chile, the Shah in Iran, and the military junta in Guatemala — all CIA-backed coups orchestrated as responses to local actors getting in the way of big corporate interests. It is also no secret that private corporations and contractors are the biggest profiteers of international wars. But pointing any of this out can get one labelled as a socialist, or worse communist. Somewhere along the way, neoliberalism has apparently acquired the lustre of a religious creed — its critique, blasphemy.
And it’s not just wars and coups where radical neoliberal ideas stand implicated. Most concerning are the social costs, as trickle-down is proving to be a myth. Just look at America: inequality in labour income has widened manifold since the early 1980s when Reaganomics (neoliberalism on crack) hit the scene. Middle-income workers make no more today than they did in the late 1970s. The richest one per cent claims about a third of the nation’s wealth; the top five per cent claim over 60 per cent — and its share is only increasing. The American dream, it appears, is only for the top one per cent that’s seen its share of the pie only expand as taxpayers subsidise the rich. For the rest, it’s actually a pipe dream.
This cannot be emphasised enough: inequality matters, most significantly and directly, to those it leaves behind. Nowhere is this clearer than in Pakistan where inequality is as real, raw and ubiquitous as the dusty air people breathe every day. And we know what that means. It means generational privilege for one class of people, and generational misery for the other. It means apartheid across every facet of society — social, professional, academic, regional, and so on. It means dangerous gulfs in worldviews born of unstandardised curricula. And, it means, weaker state institutions, which in turn means weaker democracy, as concentrated power incentivises short-termism from basic governance to decision-making. A shortcut approach becomes the creedal call of the ruling classes, and a scourge for the masses.
And let’s be clear on this: pointing out flaws in capitalism doesn’t mean you carry a copy of Das Kapital and your choice of favourite highlighter everywhere. It can be conceded these issues are highly complex, and there are no easy answers. And if there are any, you won’t find them in The Communist Manifesto. It can also be conceded that competition serves as a potent incentive for innovation. But competition can also be unfair. After all, much of our personal success depends on background conditions we had little to no hand in making. We do not get to choose our genome, our country of birth, or other factors crucial to our progress. The key, then, is to minimise the negative effect of factors we can actually control. For example, having expensive private schools is a bad, unethical idea. The content and quality of education for kids should be the same across the board, so the playing field is as level as possible. Here the role of government is critical in ensuring education spending is given highest priority to ensure high quality. In the 21st century of smartphones, artificial intelligence and virtual reality, it seems nothing less than criminally sadistic that the world remains split so starkly between rich and poor.
Published in The Express Tribune, June 12th, 2016.