Beyond neoliberalism

By Hussain H Zaidi
November 20, 2016

Two events of singular significance have taken place on the world stage over the past six months. Earlier in June, the UK in a popular vote decided to quit (Brexit) the European Union, the most successful embodiment of regional economic integration to date. And now in November, Donald Trump sprang a big surprise by making it to the top slot in the globe’s sole superpower.

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These two events portend that, having remained the unchallenged economic doctrine of the world for nearly three decades, neo-liberalism has finally come under question.

Neoliberalism reposes absolute faith in the virtues of the market economy. Left to themselves, it is said, market forces will usher in an outcome that will in the end make everyone better off. From this fundamental article of faith follow some other ‘self-evident’ truths. One, since market forces are capable of taking care of themselves, government intervention in the economy will only make matters worse. Hence, the best government is the least government.

The US with Ronald Reagan at the helm and the UK under the leadership of Margaret Thatcher came to subscribe to this philosophy in early 1980s – hence the terms Thatchernomics and Reaganomics – through large cuts in social spending and massive tax relief to the wealthy. The collapse of communism in Eastern Europe and disintegration of the USSR in 1989-1990 made neoliberalism the dominant, and nearly unassailable, political-economy philosophy.

Two, in the long run, trade does not affect in any significant way the distribution of income because it enables nations and associations to realise their comparative advantage. Hence, temporary job losses and income erosion aside, all trading partners gain from trade.

Three, restrictions on the movement of goods as well as the factors of production should be kept at a minimum. Regionally and multilaterally, barriers to trade and investment must be eliminated. Finally, in the course of economic development, an increase in the size of the national pie is far more important than its fair distribution. Let the economy grow, unimpeded by any egalitarian consideration, through big investments, and its benefits will automatically trickle down. Rent-seeking by corporations should not only be tolerated but encouraged. By the same token, inequality instead of being frowned upon should be prized, in that it provides a solid basis for economic progress.

Neoliberalism was presented by its exponents as the only credible doctrine of the times. Over the years, its impact has been so overwhelming that the word ‘reform’ is largely seen as synonymous with ‘de-regulation’ of the economy. Phrases like ‘individual liberty’, ‘right to choose’, ‘free trade’, ‘unhindered competition’, ‘freedom of enterprise’, ‘economic integration’, ‘open borders’ and ‘flexible markets’ have gained tremendous currency. Besides, regional economic arrangements, such as the EU and Nafta, have registered massive growth.

While one can debate the social and economic outcome of neoliberalism endlessly, two facts are indisputable: neoliberalism did not prevent, if it did not actually cause, the recession that hit the world in 2008 and from which it is still recovering. So the outcome has clearly been less than optimal. Two, both among and within nations, the distribution of the pie has been remarkably skewed due to job and income losses.

As a rule, economic integration favours mega corporations, which are increasingly becoming transnational. The global recession that began in 2008 hit those economies more which were well integrated into the regional and multilateral economic systems. However, understandably, neither the mainstream global media nor multilateral institutions of economic governance have given due attention to such adverse effects of neoliberalism.

In the run-up to the referendum in the UK, the established domestic and international institutions had projected a bleak picture in case voters opted to leave the EU. The Bank of England raised the spectre of a recession. The IMF and other multilateral institutions held that Brexit would drive up unemployment and bring down the pound.

Not to be left behind, US President Obama sent out the warning that the UK on its own would find it difficult to conclude a trade deal with his country. A senior EU official went to the extent of suggesting that such a decision would be cataclysmic in that it would mark the end of Western political civilisation. In the end, such dark prophesies failed to impress the majority of the voters.

Quite a few issues came into play in the referendum, all of which had something to do with neoliberalism. On top of those were the effects of immigration on British society and economy. The EU common market provides that residents of one country can freely move and get jobs in another member country.

In the backdrop of the current migration crisis in Europe, which has already caused dents in the popularity of Chancellor Merkel in Germany, the voters bought the argument that as long as the UK remained a member of the EU, it would be difficult for the country to put a halt to the influx of migrants. The EU’s eastward expansion in recent years provided an opportunity for cheaper labour from Eastern Europe to displace workers and depress wages in countries like the UK.

Related to this was the question of national sovereignty. The EU is arguably the most ambitious arrangement for economic integration ever put in place. Not only that, the EU constitution contains provisions that go beyond an economic union, containing the seeds for a political union. Every the EU treaty, like any other regional or multilateral arrangement, is a drag on the national sovereignty of its members.

Such issues also figured in the recent race for the White House. Donald Trump, himself a billionaire, is well steeped in rent-seeking and has thrived on the state’s hands-off approach when it comes to regulating the economy. But that did not prevent him from virulently attacking neoliberalism. Hillary Clinton represented the status quo, which, it is widely believed, is another name for neoliberalism.

Though at best Trump spoke half-truths, he was able to take the pulse of the public discontent. Manufacturing jobs in the US have been lost. But trade deals such as Nafta are only one cause. Factors such as increased automation and the use of capital intensive techniques, which economise on labour, are also responsible. However, it can’t be disputed that immigrants are more likely to be employed by profit maximising enterprises for semi-skilled jobs.

Clinton and her supporters, including the mainstream American media, were too much in thrall of neoliberalism to feel the pulse of the electorate. At any rate, neoliberalism has been challenged at its home ground. It remains to be seen how serious the challenge turns out to be.

The writer is a graduate from a Western European university.

Email: hussainhzaidigmail.com

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