Monday November 29, 2021

Where is the market?

May 13, 2020

Before the Covid-19 crisis hit, the neo-liberal economic model with its unfettered market power, free flow of capital and expanded role of the private sector was followed as a religion.

In the last 40 years, the role of markets and the private sector expanded beyond any thinkable limit and encroached upon politics, economy, society by elbowing out states.

Reducing the size of government through a wave of privatization – including essential public services such as education, health & urban services, deregulation of capital markets, free trade and austerity measures – became the new normal. These policies were oversold as a panacea to all social and economic problems, implemented through global financial architects led by powerful institutions such as the IMF and World Bank.

The deceptive faith in a free market with a magical power to solve complex political, social and economic problems was exaggerated with tons of research supported by vested interests, arguments developed, myths and beliefs created and promoted using the power of modern communication and capital. No doubt, capital being an engine of growth brought short-term benefits at some places but as soon as the engine started determining future direction rather than playing a supportive role it became risky.

Over emphasis on the market forces led to the exploitation of cheap labour all around the world. Small farmers and food producers were put at a disadvantageous position to compete with mighty global value chains. They ended up losing the share of value of their products while filling the pockets of distance supermarket owners and shareholders.

Aggressive tax avoidance and evading instruments were used to increase profits. A network of tax havens was established, tax avoidance was facilitated by a global network of banks and audit firms denying essential revenue to developing countries, pushing them to borrow and reduce spending affecting their future human capability and prosperity.

Myths were created that flexible labour markets and tax incentives bring investment and lead to economic growth – so as to get national laws changed in favor of capital owners. To own this idea, national allies were groomed and made junior partners, excessive profits and corrupt practices were adapted to manipulate and influence the political process.

The outcomes of these predatory policies were obvious, and income and wealth inequality increased. As Joseph Stiglitz argues, ‘One of the flaws of market fundamentalism is that it pays no attention to distribution of incomes or the notion of a good or fair society’. Once governments dropped investments, already struggling key sectors including health, education and social protection were starved for resources and crippled their capacity.

When Covid-19 hit, bringing unprecedented economic and public health crises, governments all around the world were at the forefront in responding to both the health and economic challenges. However, in many countries the public health sector is incapacitated to quickly respond to the pandemic because health was the least prioritized sector there. For many decades, many governments have not invested in hospitals, doctors, nurses and diagnostic facilities. In the last four decades, private health providers have mushroomed in almost all the countries.

In the wake of the pandemic, the private sector disappeared, and markets disrupted – leaving broken supply chains. Millions of workers were laid off and businesses started seeking public support to restart. Major international companies have abandoned their workers, small producers and suppliers – except for a few who are willing to honour their signed contracts. Retreating from social responsibility in a crisis is the very essence of capitalism. Unless regulated and brought under strong government control with social and environmental responsibility, the private sector will keep shifting the social and environmental cost on society for private gains – thereby leading to wealth concentration.

Private hospitals did not step up to augment public efforts for the protection of public health. In fact, private hospitals in many countries including Pakistan closed their regular services for other patients increasing the burden on government hospitals battling with Covid-19 patients. Similarly, private laboratories and health equipment providers increased prices of testing, drugs and other equipment. There is a growing fear that if vaccines are developed, they may not be considered a global public good and private profiteers will end up taking advantage of this human crisis for profit-making.

Everybody in this crisis looked towards the government for support, rejecting the myth of market supremacy and the private sector as saviours of jobs and protectors from the social fallouts of an economic crisis. The primacy of the state is being reinforced by this crisis and has reaffirmed the truth that strong governments with required capacity are crucial for public health, social protection and to avoid social restlessness and chaos.

It took a crisis at the scale of Covid-19 for governments all around the world and the very institutions of capitalism to promote progressive policies. The IMF is encouraging a surge in spending, knowing that it will increase the budget deficit. Thanks to Covid-19, such powerful institutions have departed from old policies which they promoted for decades knowing that these are not working for the majority of poor people and poor countries. Market-focused institutions and experts never allowed governments to increase spending, and governments under heavy debt burden and fiscal pressure would not have prioritized public health and social protection. Now that these policies are in place and governments all around the world have gained much more leverage, these progressive interventions should not be rolled back.

It is time for governments, especially in developing countries to reassert and expand their domain of influence. They must strongly resist and reverse the policy prescriptions that erode their capacity and authority.

The future of market forces and private capital must look different; they should be subservient to society rather than driving societies and economies. Governments should strictly regulate the private sector to take social responsibility.

The writer leads Oxfam’s inequality campaign in the Asia region.