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Social, Political, Economic and Environmental Issues That Affect Us All
A Primer on Neoliberalism
by Anup Shah This Page Last Updated Sunday, August 22, 2010
Political Compass
In addition, they note that, despite popular perceptions, the opposite of fascism is not communism
but anarchism (ie liberal socialism), and that the opposite of communism (i.e. an entirely stateplanned economy) is neo-liberalism (i.e. extreme deregulated economy). This is made clear by
another chart they have:
(In the above, it is interesting to note how most of the worlds influential leaders, from the wealthiest
and most poweful countries all fall into the area of authoritarian-right.)
2) A look at English political parties and how they fair (even the left ones.)
3) It is also interesting to see how the three main British political parties have changed over time, as
Political Compass shows:
4) The last US elections (2004) show the political spectrum between John Kerry and George W. Bush
was note that wide:
Neoliberalism is...
Neoliberalism, in theory, is essentially about making trade between nations easier. It is about freer
movement of goods, resources and enterprises in a bid to always find cheaper resources, to
The underlying assumption then is that the free markets are a good thing. They may well be, but
unfortunately, reality seems different from theory. For many economists who believe in it strongly
the ideology almost takes on the form of a theology. However, less discussed is the the issue of power
and how that can seriously affect, influence and manipulate trade for certain interests. One would
then need to ask if free trade is really possible.
From a power perspective, free trade in reality is seen by many around the world as a continuation
of those old policies of plunder, whether it is intended to be or not. However, we do not usually hear
such discussions in the mainstream media, even though thousands have protested around the world
for decades.
Today then, neoliberal policies are seeing positives and negatives. Under free enterprise, there have
been many innovative products. Growth and development for some have been immense.
Unfortunately, for most people in the world there has been an increase in poverty and the innovation
and growth has not been designed to meet immediate needs for many of the worlds people. Global
inequalities on various indicators are sharp. For example,
Some 3 billion people or half of humanity live on under 2 dollars a day
86 percent of the worlds resources are consumed by the worlds wealthiest 20 percent
(See this sites page on poverty facts for many more examples.)
Joseph Stiglitz, former World Bank Chief Economist (1997 to 2000), Nobel Laureate in Economics and
now strong opponent of the ideology pushed by the IMF and of the current forms of globalization,
notes that economic globalization in its current form risks exacerbating poverty and increasing
violence if not checked, because it is impossible to separate economic issues from social and political
issues.
And as J.W. Smith has argued:
One cannot separate economics, political science, and history. Politics is the control of
the economy. History, when accurately and fully recorded, is that story. In most
textbooks and classrooms, not only are these three fields of study separated, but they
are further compartmentalized into separate subfields, obscuring the close
interconnections between them.
J.W. Smith, The Worlds Wasted Wealth 2, (Institute for Economic Democracy, 1994), p. 22.
Issues such as the criticisms of free trade, of protests around the world, and many others angles are
discussed on this sections subsequent pages.
The history of neoliberalism and how it has come about is worth looking at first, however, to get
some crucial context, and to understand why so many people around the world criticize it.
from people like Adam Smith, and because of a revision of history that created an impression
of a humanitarian heritage of political economy; an inevitability to be celebrated.
This revision, he also noted has evidently succeeded mightily.
Rooted in Mercantilism
Adam Smiths work did, however, expose the previous fraud that was the mercantilist system, which
enriched the imperial powers at the expense of others. This mercantilism had its roots in the Middle
and Dark Ages of Europe, many hundreds of years earlier and also parallels various methods used by
empires throughout history (including today) to control their peripheries and appropriate wealth
accordingly. Furthermore, as J.W. Smith argues, even though it is claimed to be Adam Smith free
trade, neoliberalism was and is mercantilism dressed up with more friendly rhetoric, while the
reality remains the same as the mercantilist processes over the last several hundred years:
The powerful throughout the past centuries not only claimed an excessive share of the
wealth of nature which was properly shared by all within the community, through the
unequal trades of mercantilism they claimed an excessive share of the wealth on the
periphery of their trading empires. Adam Smith describes mercantilism for us:
[Mercantilisms] ultimate object is always the same, to enrich the
country [city or state] by an advantageous balance of trade. It
discourages the exportation of the materials of manufacture [tools and
raw material], and the instruments of trade, in order to give our own
workmen an advantage, and to enable them to undersell those of other
nations [cities] in all foreign markets: and by restraining, in this manner,
the exportation of a few commodities of no great price, it proposes to
occasion a much greater and more valuable exportation of others. It
encourages the importation of the materials of manufacture, in order
that our own people may be enabled to work them up more cheaply, and
thereby prevent a greater and more valuable importation of the
manufactured commodities.
William Appleman Williams describes mercantilism at its zenith: The world was
defined as known and finite, a principle agreed upon by science and theology. Hence
the chief way for a nation to promote or achieve its own wealth and happiness was to
take them away from some other country.
When the injustice of mercantilism was understood, it became too embarrassing and
was replaced by the supposedly just Adam Smith free trade. But free trade as practiced
by Adam Smith neo-mercantilists was far from fair trade. Adam Smith unequal free
trade is little more than a philosophy for the continued subtle monopolization of the
wealth-producing-process, largely through continued privatization of the commons of
both an internal economy and the economies of weak nations on the periphery of
trading empires. So long as weak nations could be forced to accept the unequal trades
of Adam Smith free trade, they would be handing their wealth to the imperial-centersof-capital of their own free will. In short, Adam Smith free trade, as established by neomercantilists, was only mercantilism hiding under the cover of free trade.
J.W. Smith, Cooperative Capitalism; A Blueprint for Global Peace and Prosperity, (Quality Books, Inc,
2003), pp.4-5
that corporations should be given total freedom, that trade unions should be curbed
and citizens given much less rather than more social protection such ideas were
utterly foreign to the spirit of the time. Even if someone actually agreed with these
ideas, he or she would have hesitated to take such a position in public and would have
had a hard time finding an audience.
Susan George, A Short History of Neoliberalism: Twenty Years of Elite Economics and Emerging
Opportunities for Structural Change, Conference on Economic Sovereignty in a Globalising World,
Bangkok, 24-26 March 1999
However, as elites and corporations saw their profits diminish with this equalizing effect, economic
liberalism was revived, hence the term neoliberalism. Except, that this new form was not just
limited to national boundaries, but instead was to apply to international economics as well. Starting
from the University of Chicago with the philosopher-economist Friedrich von Hayek and his students
such as Milton Friedman, the ideology of neoliberalism was pushed very thoroughly around the
world.
Even before this though, there were indications that the world economic order was headed this way:
the majority of wars throughout history have had economics, trade and resources at their core. The
want for access to cheap resources to continue creating vast wealth and power allowed the imperial
empires to justify military action, imperialism and colonialism in the name of national interests,
national security, humanitarian intervention and so on. In fact, as J.W. Smith notes:
The wealth of the ancient city-states of Venice and Genoa was based on their powerful
navies, and treaties with other great powers to control trade. This evolved into nations
designing their trade policies to intercept the wealth of others (mercantilism).
Occasionally one powerful country would overwhelm another through interception of
its wealth though a trade war, covert war, or hot war; but the weaker, less developed
countries usually lose in these exchanges. It is the military power of the more
developed countries that permits them to dictate the terms of trade and maintain
unequal relationships.
J.W. Smith, The Worlds Wasted Wealth 2, (Institute for Economic Democracy, 1994), p. 120.
As European and American economies grew, they needed to continue expansion to maintain the high
standards of living that some elites were attaining in those days. This required holding on to, and
expanding colonial territories in order to gain further access to the raw materials and resources, as
well exploiting cheap labor. Those who resisted were often met with brutal repression or military
interventions. This is not a controversial perception. Even U.S. President Woodrow Wilson
recognized this in the early part of the 20th century:
Since trade ignores national boundaries and the manufacturer insists on having the
world as a market, the flag of his nation must follow him, and the doors of the nations
which are closed against him must be battered down. Concessions obtained by
forced to become wage laborers producing for the market and required to purchase
from European and American merchants and industrialists, rather than supply for
themselves, their basic needs.
Richard H. Robbins, Global Problems and the Culture of Capitalism, (Allyn and Bacon), pp. 93-94
World War I was, in effect, a resource war as Imperial centers battled over themselves for control of
the rest of the world. World War II was another such battle, perhaps the ultimate one. However, the
former imperial nations realized that to fight like this is not the way, and became more cooperative
instead.
Unfortunately, that cooperation was not for all the worlds interests primarily, but their own. The
Soviet attempt of an independent path to development (flawed that it was, because of its centralized,
paranoid and totalitarian perspectives), was a threat to these centers of capital because their own
colonies might get the wrong idea and also try for an independent path to their development.
Because World War II left the empires weak, the colonized countries started to break free. In some
places, where countries had the potential to bring more democratic processes into place and maybe
even provide an example for their neighbors to follow it threatened multinational corporations and
their imperial (or former imperial) states (for example, by reducing access to cheap resources). As a
result, their influence, power and control was also threatened. Often then, military actions were
sanctioned. To the home populations, the fear of communism was touted, even if it was not the case,
in order to gain support.
you have to sell [intervention or other military actions] in such a way as to create
the misimpression that it is the Soviet Union the you are fighting
Professor Samuel Huntingdon, Harvard University, Quoted by Noam Chomsky in Latin America:
From Colonization to Globalization, (Ocean Press, 1999), p.18)
The net effect was that everyone fell into line, as if it were, allowing a form of globalization that
suited the big businesses and elite classes mainly of the former imperial powers. (Hence, there is no
surprise that some of the main World War II rivals, USA, Germany and Japan as well as other
European nations are so prosperous, while the former colonial countries are still so poor; the
economic booms of those wealthy nations have been at the expense of most people around the
world.) Thus, to ensure this unequal success, power, and advantage globalization was backed up with
military might (and still is).
Hence, even with what seemed like the end of imperialism and colonialism at the end of World War
II, and the promotion of Adam Smith free trade and free markets, mercantilist policies still
continued. (Adam Smith exposed the previous system as mercantilist and unjust. He then proposed
free market capitalism as the alternative. Yet, a reading of Adam Smiths Wealth of Nations would
reveal that today is a far cry from the free market capitalism he suggested, and instead could still be
considered monopoly capitalism, or the age-old mercantilism that he had exposed! More about this in
the next section on this site.) And so, a belief system had to accompany the political objectives:
When the blatant injustices of mercantilist imperialism became too embarrassing, a
belief system was imposed that mercantilism had been abandoned and true free trade
was in place. In reality the same wealth confiscation went on, deeply buried within
complex systems of monopolies and unequal trade hiding under the cover of free
trade. Many explanations were given for wars between the imperial nations when
there was really one common thread: Who will control resources and trade and the
wealth produced through inequalities in trade? All this is proven by the inequalities
of trade siphoning the worlds wealth to imperial centers of capital today just as they
did when the secret of plunder by trade was learned centuries ago. The battles over the
worlds wealth have only kept hiding behind different belief systems each time the
secrets of laying claim to the wealth of others have been exposed.
J.W. Smith, Economic Democracy; The Political Struggle for the 21st Century, (M.E. Sharpe, 2000)
p.126
Going Global
The Reagan and Thatcher era in particular, saw neoliberalism pushed to most parts of the globe,
almost demonizing anything that was publicly owned, encouraging the privatization of anything it
could, using military interventions if needed. Structural Adjustment policies were used to open up
economies of poorer countries so that big businesses from the rich countries could own or access
many resources cheaply.
Lori Wallach, Director of Global Trade Watch, also describes in a video clip (4:30 minutes, transcript)
how even the term free trade is misleading, for the free trade agenda pushed through the World
Trade Organization includes many non-trade issues, such that trade is just one small part:
Get the Flash Player to see this video.
Video: Lori Wallach, Free TradeThe Price Paid (Part One), April 13,
2005, Big Picture TV
The belief in free markets (or the version being promoted) was very ideological:
So, from a small, unpopular sect with virtually no influence, neo-liberalism has
become the major world religion with its dogmatic doctrine, its priesthood, its lawgiving institutions and perhaps most important of all, its hell for heathen and sinners
who dare to contest the revealed truth. Oskar Lafontaine, the ex-German Finance
Minister who the Financial Times called an unreconstructed Keynesian has just been
consigned to that hell because he dared to propose higher taxes on corporations and
tax cuts for ordinary and less well-off families.
1979, the year Margaret Thatcher came to power and undertook the neo-liberal
revolution in Britain. The Iron Lady was herself a disciple of Friedrich von Hayek, she
was a social Darwinist and had no qualms about expressing her convictions. She was
well known for justifying her program with the single word TINA, short for There Is No
Alternative. The central value of Thatchers doctrine and of neo-liberalism itself is the
notion of competition competition between nations, regions, firms and of course
between individuals. Competition is central because it separates the sheep from the
goats, the men from the boys, the fit from the unfit. It is supposed to allocate all
resources, whether physical, natural, human or financial with the greatest possible
efficiency.
In sharp contrast, the great Chinese philosopher Lao Tzu ended his Tao-te Ching with
these words: Above all, do not compete. The only actors in the neo-liberal world who
seem to have taken his advice are the largest actors of all, the Transnational
Corporations. The principle of competition scarcely applies to them; they prefer to
practice what we could call Alliance Capitalism.
Susan George, A Short History of Neoliberalism: Twenty Years of Elite Economics and Emerging
Opportunities for Structural Change, Conference on Economic Sovereignty in a Globalising World,
Bangkok, 24-26 March 1999
As former World Bank Chief Economist Josepth Stiglitz notes, it is a simplistic ideology which most
developed nations have resisted themselves:
The Washington Consensus policies, however, were based on a simplistic model of the
market economy, the competitive equilibrium model, in which Adam Smiths invisible
hand works, and works perfectly. Because in this model there is no need for
government that is, free, unfettered, liberal markets work perfectly the
Washington Consensus policies are sometimes referred to as neo-liberal, based on
market fundamentalism, a resuscitation of the laissez-faire policies that were
popular in some circles in the nineteenth century. In the aftermath of the Great
Depression and the recognition of other failings of the market system, from massive
inequality to unlivable cities marred by pollution and decay, these free market policies
have been widely rejected in the more advanced industrial countries, though within
these countries there remains an active debate about the appropriate balance between
government and markets.
Joseph Stiglitz, Globalization and Its Discontents, (Allen Lane/Penguin Books, 2002), p.74
Activist and academic Raj Patel explains that prices do not accurately reflect the value of
commodities due to so many externalities (a $4 hamburger should cost $200 for example if some
environmental aspects are factored in, for example), and also notes that various leading proponents
of neoliberalism are now admitting it too, in the wake of the financial crash in 2008. Furthermore,
markets arent separate from social and political contexts in which they function, yet, business
leaders and governments were all too willing to go for the simpler soundbites:
The problem with the Efficient Markets Hypothesis is that it doesnt work. If it were
true, then thered be no incentive to invest in research because the market would, by
magic, have beaten you to it. Economists Sanford Grossman and Joseph Stiglitz
demonstrated this in 1980, and hundreds of subsequent studies have pointed out quite
how unrealistic the hypothesis is, some of the most influential of which were written
by Eugene Fama himself [who first formulated the idea as a a Ph.D. student in the
University of Chicago Business School in the 1960s]. Markets can behave irrationally
investors can herd behind a stock, pushing its value up in ways entirely unrelated to
the stock being traded.
Despite ample economic evidence to suggest it was false, the idea of efficient markets
ran riot through governments.
Raj Patel, Flaw
Since the Cold War has ended, it is almost no surprise that todays globalization has come in the form
we see it that is where it would have been had the Cold War not got in the way. The World Wars
were about rival powers fighting amongst themselves to the spoils of the rest of the world;
maintaining their empires and influence over the terms of world trade, commerce and, ultimately,
power.
Throughout the Cold War, we contained a global threat to market democracies: now
we should seek to enlarge their reach.
Anthony Lake, National Security adviser, 1990, quoted from Noam Chomsky, World Orders Old and
New, (Columbia University Press, 1996), p.71.
John Gray, mentioned above, notes that the same processes to force the peasantry off their lands and
into waged labor, and to socially engineer a transformation to free markets is also taking place today
in the third world:
The achievement of a similar transformation [as in mid-nineteenth century England] is
the overriding objective today of transnational organizations such as the World Trade
Organisation, the International Monetary Fund and the Organisation for Economic
Cooperation and Development. In advancing this revolutionary project they are
following the lead of the worlds last great Enlightenment regime, the United States.
The thinkers of the Enlightenment, such as Thomas Jefferson, Tom Paine, John Stuart
Mill and Karl Marx never doubted that the future for every nation in the world was to
accept some version of western institutions and values. A diversity of cultures was not
a permanent condition of human life. It was a stage on the way to a universal
civilization, in which the varied traditions and culture of the past were superseded by
a new, universal community founded on reason.
John Gray, False Dawn: The Delusions of Global Capitalism, (The New Press, 1998), pp.1-2
Gray also notes how this western view of the world is not necessarily compatible with the views of
other cultures and this imposition for a western view of civilization may not be accepted by
everyone. Ironically then, using terms like Enlightenment, freedom, liberty, etc, which is
common in such discourse, as Gray notes, results in conformity, almost totalitarian in nature.
2010
At the end of 2008, Alan Greenspan was summoned to the U.S. Congress to testify about the financial
crisis. His tenure at the Federal Reserve had been long and lauded, and Congress wanted to know
what had gone wrong. Henry Waxman questioned him:
1. Greenspan:
I found a flaw in the model that I perceived is the critical
functioning structure that defines how the world works, so to
speak.
2. Waxman:
In other words, you found that your view of the world, your
ideology, was not right, it was not working.
3. Greenspan:
Precisely. That is precisely the reason I was shocked, because I had
been going for 40 years or more with very considerable evidence
that it was working exceptionally well.
[Greenspans flaw] warped his view about how the world was organized, about the
sociology of the market. And Greenspan is not alone. Larry Summers, the presidents
senior economic advisor, has had to come to terms with a similar errorhis view that
the market was inherently self-stabilizing has been dealt a fatal blow. Hank Paulson,
Bushs treasury secretary, has shrugged his shoulders with similar resignation. Even
Jim Cramer from CNBCs Mad Money admitted defeat: The only guy who really called
this right was Karl Marx. One after the other, the celebrants of the free market are
finding themselves, to use the language of the market, corrected.
Raj Patel, Flaw
Americas financial system failed in its two crucial responsibilities: managing risk and
allocating capital. The industry as a whole has not been doing what it should be doing
and it must now face change in its regulatory structures. Regrettably, many of the
worst elements of the US financial system were exported to the rest of the world.
Joseph Stiglitz, The fruit of hypocrisy; Dishonesty in the finance sector dragged us here, and
Washington looks ill-equipped to guide us out, The Guardian, September 16, 2008
Some of these regulatory measures have been easy to get around for various reasons. Some reasons
for weak regulation that entrepreneur Mark Shuttleworth describes include that regulators
Are poorly paid or are not the best talent
Often lack true independence (or are corrupted by industries lobbying for favors)
May lack teeth or courage in face of hostile industries and a politically hostile climate to
regulation.
Given its crucial role, it is extremely important to invest in it too, Shuttleworth stresses.
However, this crisis wasted almost a generation of talent:
It was all done in the name of innovation, and any regulatory initiative was fought
away with claims that it would suppress that innovation. They were innovating, all
right, but not in ways that made the economy stronger. Some of Americas best and
brightest were devoting their talents to getting around standards and regulations
designed to ensure the efficiency of the economy and the safety of the banking system.
Unfortunately, they were far too successful, and we are all homeowners, workers,
investors, taxpayers paying the price.
Joseph Stiglitz, The fruit of hypocrisy; Dishonesty in the finance sector dragged us here, and
Washington looks ill-equipped to guide us out, The Guardian, September 16, 2008
Paul Krugman also notes the wasted talent, at the expense of other areas in much need:
How much has our nations future been damaged by the magnetic pull of quick
personal wealth, which for years has drawn many of our best and brightest young
people into investment banking, at the expense of science, public service and just
about everything else?
Paul Krugman, The Madoff Economy, New York Times, Opinion, December 19, 2008
The wasted capital, labor and resources all add up.
British economist John Maynard Keynes, is considered one of the most influential economists of the
20th century and one of the fathers of modern macroeconomics. He advocated an interventionist
form of government policy believing markets left to their own measure (i.e. completely freed) could
be destructive leading to cycles of recessions, depressions and booms. To mitigate against the worst
effects of these cycles, he supported the idea that governments could use various fiscal and monetary
measures. His ideas helped rebuild after World War II, until the 1970s when his ideas were
abandoned for freer market systems.
Keynes biographer, professor Robert Skidelsky, argues that free markets have undermined
after having been left in the wilderness, almost shunned, for more than three
decades what is happening now is a triumph of reason and evidence over ideology
and interests.
Economic theory has long explained why unfettered markets were not self-correcting,
why regulation was needed, why there was an important role for government to play
in the economy. But many, especially people working in the financial markets, pushed
a type of market fundamentalism. The misguided policies that resulted pushed by,
among others, some members of President-elect Barack Obamas economic team
had earlier inflicted enormous costs on developing countries. The moment of
enlightenment came only when those policies also began inflicting costs on the US and
other advanced industrial countries.
The neo-liberal push for deregulation served some interests well. Financial markets
did well through capital market liberalization. Enabling America to sell its risky
financial products and engage in speculation all over the world may have served its
firms well, even if they imposed large costs on others.
Today, the risk is that the new Keynesian doctrines will be used and abused to serve
some of the same interests.
Joseph Stiglitz, Getting bang for your buck, The Guardian, December 5, 2008
Some of the worlds top financiers and officials are reluctantly accepting that the version of
capitalism that has long favored them may not be good for everyone.
Stiglitz observed this remarkable resignation at the annual Davos forum, usually a meeting place of
rich world leaders and the corporate elite, who usually together reassert ways to go full steam ahead
with a form of corporate globalization that has benefited those at the top. This time, however, Stiglitz
noted that
[There was a] striking loss of faith in markets. In a widely attended brainstorming
session at which participants were asked what single failure accounted for the crisis,
there was a resounding answer: the belief that markets were self-correcting.
The so-called efficient markets model, which holds that prices fully and efficiently
reflect all available information, also came in for a trashing. So did inflation targeting:
the excessive focus on inflation had diverted attention from the more fundamental
question of financial stability. Central bankers belief that controlling inflation was
necessary and almost sufficient for growth and prosperity had never been based on
sound economic theory.
no one from either the Bush or Obama administrations attempted to defend
More Information
The above may seem long, but many volumes could be written to expand on the above themes. Until I
can get to do something like that, the following are links to some useful resources to help understand
Where next?
Related articles
1. Global Financial Crisis
2. A Primer on Neoliberalism
3. Criticisms of Current Forms of Free Trade
4. The WTO and Free Trade
5. WTO Doha Development Trade Round Collapse, 2006
6. Deregulation or Protectionism?
7. Some Regional Free Trade Agreements
8. The Mainstream Media and Free Trade
9. Public Protests Around The World
Bad ideas flourish because they are in the interest of powerful groups Paul Krugman
Copyright 19982014