Hegemony of neoliberal policies

In the midst of a highly polarised political landscape in Pakistan, an implicit consensus exists among major political parties on the basic contours of economic policy – privatisation of state-owned enterprises, deregulation of financial markets, de-unionisation of the workplace and reduction of the size of the state from the economy.
In academic and policy circles, these policies are known as ‘neoliberal’ economic policies. While occasional political resentment is voiced on neoliberal policies by opposition parties, the scope of the critique is limited to issues related to the transparency of involved economic transactions. But at an ideological level, the federal government’s neoliberal economic doctrine faces no major political opposition. Therefore, it is worth asking whether the undisputed hegemony of neoliberal policies is based on their superior economic performance or if it is purely ideologically driven.
Neoliberal policies were enacted in 1989 under the tutelage of the structural adjustment programme on the diktats of international financial institutions. Thereafter every successive government in Pakistan operated within a neoliberal policy framework, irrespective of civil-military or party distinctions. Therefore, we can divide Pakistan’s economic experiences into two periods: pre-neoliberal and neoliberal. The pre-neoliberal period was the period of active state regulation and intervention in the economy. The World Bank has data on Pakistan from 1960 onwards. So we can categorise 1960-1988 as a pre-neoliberal era (regulated capitalism) and 1989-2013 as a neoliberal era (neoliberal capitalism).
According to World Bank data, GDP growth was 6.2 percent per year on average from 1961-1988. In the neoliberal period (1989-2013) the average rate of GDP growth was 4.1 percent per year. The difference is even starker when we consider per capita GDP growth; in the pre-neoliberal period, average per capita GDP growth was 3.1 percent annually and in the neoliberal period it was 1.8 percent per year.
This empirical evidence nullifies the most celebrated claim of neoliberal policymakers in Pakistan – ie the economy grows faster under neoliberal regime. We acknowledge that multiple factors can be behind the discrepancies between growth rates of the two eras. But the claimed ‘superiority’ of neoliberal policies cannot be supported by neoliberal experiences of the Pakistani economy.
Why then is every mainstream political party so committed to the neoliberal doctrine? Are they convinced of the theory behind it?
The theoretical rationale behind neoliberal policies is based on the following proposition: if market forces are allowed to operate freely, they will produce best outcomes for everyone in society. It is argued that because the state is influenced by different political-economic interest groups it would intrinsically provide rent-seeking opportunities to some interests groups, if it is directly involved in the economy. Consequently, the overall efficiency of the system declines. In order to improve efficiency, the economy should remain ‘autonomous’ from politics. And policymakers, inspired by the neoliberal doctrine, prescribe governments to stop interfering in the economy and let market forces to their own devices.
What the neoliberal theoretical framework ignores is the fact that a society like Pakistan is highly unequal in terms of wealth/income distribution, gender relations and caste differentiations. As a result, when the state does not steer the direction of development market forces simply reproduce and reinforce the existing realities of society, ie intensified socio-economic inequalities. This does not only have a detrimental impact on the socio-economic dynamics of our society, but higher inequities also impose a major constraint on the prospects of rapid growth and sustainable economic development.
It is important to recognise that the processes of economic development generate conflict in society because development requires reallocation of resources from low to high productivity areas of the economy. For example, urbanisation or industrialisation may require deforestation which may not be favourably viewed by some groups while others may deem it necessary and inevitable.
Similarly, the processes of development may give birth to new elites who might pose a challenge to the hegemony of old elites. Therefore, the role of the state is not only central but also reconciles at least some of the embedded conflicts that are generated by the processes of development. Thus, the economy cannot be analysed as a separate and isolated sphere immune from politics, institutions and social classes.
Meaningful and sustainable economic development cannot be realised without a proactive role played by the state. Based on the peculiar experiences of 20th century socialism, state-led development is usually reduced to nationalisation of private enterprises. But we should also recognise the limitations of highly centralised state-run enterprises as they run to their own idiosyncratic problems – low productivity due to the incentive problem. I am not proposing nationalisation of private enterprises; instead, I propose ‘worker cooperatives’ as an alternative approach to neoliberal policies.
Worker cooperatives can be established in both rural and urban spaces. Such cooperatives are truly democratic enterprises where decisions about production and distribution are made in the interests of all involved in the enterprise. Moreover, worker cooperatives can also be seen as an extension of democracy to the workplace.
Unlike state-owned enterprises, worker cooperatives don’t suffer from an incentive problem because the higher the productivity of the enterprise, the higher would be the gains for the workers. On the other hand, unlike private enterprises which impose a constraint on the creativity and ingenuity of workers, cooperatives can empower workers and allow them to improve their socio-economic status on their own.
Successful worker cooperatives are operating in many parts of the world. For example, in Spain, a cooperative enterprise named ‘Mondragon’ is a workers-controlled cooperative that has over 70,000 workers who democratically make decisions about production and distribution. Moreover, Mondragon does not only provide a decent living to thousands of workers but it is also one of the most productive and profitable enterprises in Spain.
There are so many educated unemployed young people in Pakistan but the private sector is unable to create jobs for them. Worker cooperatives cannot only serve as a means to ensure employment but can also help deepen the democratic ethos in society.
The writer is a PhD candidate at the University of Massachusetts-Amherst.
Email: danishkhanecons.umass.edu