The rise and fall of neoliberalism

It is an economic philosophy which sees private enterprise and competition vital for harnessing human productivity

Neoliberalism is increasingly being blamed for varied problems plaguing the modern world. The East Asian Crisis during the late 1990s, and the global crisis of 2007-08 triggered by the US housing market collapse, are both attributed to neoliberal excesses. The growing disparity between the rich and the poor, including the offshoring rather than the trickling down of wealth, are also considered to have been instigated, or at least, worsened by neoliberal policies. Even the crumbling state of public services, and the massive environmental damage which has made climate change an irrefutable reality, are similarly correlated with pursuit of neoliberal ideals.

Neoliberalism is basically an economic philosophy which sees private enterprise and competition vital for harnessing human productivity. Neoliberal proponents believe that the market mechanism can delivers efficiency and effectiveness that could never be achieved through state interference and planning. Neoliberals thus try to minimise tax and regulation, and advocate privatisation of even the most basic and vital of public services including provision of water, education and health services.

Friedrich Hayek, one of the earliest proponents of neoliberalism back in the late 1930s, considered government efforts to create a welfare state, as being too close to the totalitarian ideologies of Nazism and Communism. Hayek found rich and powerful backers for his ideas, who in turn helped funded several think tanks, and even financed academics at the universities of Chicago and Virginia, to help propagate neoliberalism.

However, state-centric notion of development, such as use of public expenditure financed through taxation, still remained dominant in powerful Western democracies. Such state led models of growth however did often fall prey to all sorts of ineffectiveness and even nepotism, particularly in the developing world, where international aid was also harnessed towards centralist economic growth, often championed by the local elites.

But by the 1970s, however, as Keynesian policies began to lose steam due to the economic crisis caused by the oil price shocks, Margaret Thatcher and Ronald Reagan, inspired by neoliberal thinkers, began giving massive tax cuts to the rich. They helped undermine trade unions, and allowed increasing deregulation, privatisation, and outsourcing. Through international agencies such as the IMF, the World Bank, and the World Trade Organisation, neoliberal policies were imposed on much of the developing world as well.

It is interesting to note how the passage of time has led the Labour Party in the UK, and the Democrats in the US, to also become proponents of neoliberalism. In developing countries like our own, the political manifestos of self-described leftist parties like the PPP has also shifted from progressive policies such as land reforms, for example, to instead focus on market based ideas such as increased liberalisation of agriculture as the means to alleviate rural poverty.

Yet, there is growing consensus that neoliberalism is a major problem. Public intellectuals like Noam Chomsky in his 2011 book ‘Profit over people’, and George Monbiot in his 2016 book ‘How Did We Get into This Mess?’ have made a damning critique of neoliberalism. Even a recent article, ‘Neoliberalism: Oversold?’, written by senior IMF staffers has grudgingly recognised that allowing capital to move freely across a country’s borders can often lead to increased instability and inequality, instead of delivering greater economic growth.

It is no secret that big business and their lobbies have much more influence on government policies, than the poor and the middle class voters, even within countries which claim to be champions of the democratic world. This prevailing political disempowerment has enabled the rise of the far right and anti-establishment movements, capitalising on a misplaced fear of the other, but fuelled by a genuine disgruntlement against the status quo.

Scholars have rightly pointed out that Keynesian economics, with its emphasis on stimulating consumer demand to promote economic growth, can do little to tackle the urgent problem of environmental destruction, and other challenges of a highly integrated global political economy. What the world sorely needs is an alternative economic vision, one which strives for ecological and economic equilibrium rather than trying to pursue unlimited growth, the fruits of which, in reality, are unsustainable, and continue being enjoyed by a limited number of people.

Published in The Express Tribune, January 20^th, 2017.

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