by Michael Roberts
I don’t really like the term ‘neoliberal’ because it is used
lazily as an alternative to pro-capitalist policies or even to the word
‘capitalism’ itself. In doing so, it causes confusion in explanations
about trends and failures in capitalist development. What flows is the
argument that if ‘neoliberalism’ is ended, then we can return to
‘managed capitalism’ or social democracy’, neither of which, in my view,
should be used to suggest something different from the capitalist mode
of production itself.
And if leftists continue to use ‘neoliberalism’ as a term to replace
capitalism (or as some nasty ‘free market version), they open the door
to the sort of nonsense that economic journalist Noah Smith concocted
last week, as expressed in his Bloomberg piece: “Neoliberalism should
not be a dirty word on the left”.
In his piece, Smith argues that by attacking neoliberalism,“Too many people forget the contribution markets have made to human well-being.”
He justifies the success of neoliberalism (as defined by him as
capitalist market forces and policies that support such) with three main
stylised facts.
The first is that “Market liberalization in countries such as India and China seems to have precipitated a shift to faster growth, while trade and investment links with rich countries have helped these and other developing countries tremendously.”
So China’s growth miracle is a product of neoliberal policies of
‘market liberalisation’, presumably introduced by Deng in the late 1970s
and supplemented by foreign investment and China joining the World
Trade Organisation (WTO).
This story has been perpetuated by many mainstream economists. But
it does not hold water. Yes, China opened up sectors of the economy to
foreign investment and the market, particularly in agriculture. But the
bulk of investment and foreign trade was still controlled by the state
and state corporations; and capital controls were in force. The state
was everywhere in the operation of the economy. So was China’s success
really a product of neoliberalism? See my post on this misconception here.
The second argument is that neoliberal policies have “helped pull a billion people out of desperate poverty, and billions more are on the way to becoming middle class.” This is yet another myth offered by the apologists for global capitalism by the likes of Microsoft billionaire, Bill Gates, among others. Smith follows in those footsteps to justify ‘neoliberalism’.
Anthropologist Jason Hickel has provided an excellent refutation of this claim that global poverty is being solved and falling fast, thanks to capitalism. Much depends on how to define poverty. Hickel: “If
we use $7.40 per day, we see a decline in the proportion of people
living in poverty, but it’s not nearly as dramatic as your rosy
narrative would have it. In 1981 a staggering 71% lived in poverty.
Today it hovers at 58% (for 2013, the most recent data). Suddenly
your grand story of progress seems tepid, mediocre, and – in a world
that’s as fabulously rich as ours – completely obscene…. “And
if we look at absolute numbers, the trend changes completely. The
poverty rate has worsened dramatically since 1981, from 3.2 billion to
4.2 billion, according to World Bank data. Six times higher than you
would have people believe. That’s not progress in my book – that’s a
disgrace.”
In his pursuit of praise for neoliberalism (in reality capitalism) Smith has elsewhere
tried to trash Hickel’s arguments that global poverty has not really
declined. But, as usual, Smith and others who take his line, ignore the
key fact that the fall in global poverty levels, whatever the threshold
points chosen, is mostly down to the massive reduction in poverty
levels in China – a country that can hardly be considered having an
economy that operates on neoliberal free market forces (although Smith
seems to claim it does!).
Of the billion that Smith cites, there are over 800m Chinese who have been taken above the poverty threshold in the last 30 years. Sanjay Reddy looked at the poverty data excluding China. He found “modest
decreases in total poverty headcount or even increases, sometimes
sizable, especially at higher poverty lines & over longer periods,
more marked in certain regions.”
Smith supplements his argument for neoliberalism by arguing that in the last 30 years “progress
in the developing world has been impressive — something for which
neoliberalism probably deserves a lot of credit — but it is far from
complete; most of South Asia is still very poor, and much of Africa is
just beginning to industrialize.” Indeed, far from complete. The inhabitants of Nigeria, Africa’s most populated country or those of the Congo can tell Smith that progress in their countries has not been “impressive” at all.
And not just there. According to Ha-Joon Chang, a Cambridge economist,
during the 1960s-and-70s per capita income in Sub-Saharan Africa was
around 1.6% per annum; however, after they were imposed with a
neoliberal economic model by the West, during the 1980s and 90s, per
capita income fell to only 0.7% per year.
What industrialisation that has taken place in recent decades (beyond
just basic resource and agro commodity production) in Africa is mainly
due to the investment being offered and applied by China – the opposite of Smith’s model of neoliberalism, in my view.
Smith also argued that “neoliberal policies might have led to faster productivity growth in the 1990s and early 2000s” in the advanced capitalist economies. You see “The
spurt of growth is commonly attributed to the information-technology
boom, but that boom might not have been possible if the US had more
strictly regulated emerging industries in order to protect favored
incumbents.” This is just speculation without evidence.
Whatever “spurt” in productivity took place in the hi-tech boom of the
1990s, it was still way less than in the pre-neoliberal period of the
1950s and 1960s (see graph).
Moreover, it has been the state that has sparked much of that ‘innovation’ back in the 1960s and after, Mariana Mazzacuto, in her book, The Entrepreneurial State, explains that” the
real story behind Silicon Valley is not the story of the state getting
out of the way so that risk-taking venture capitalists – and garage
tinkerers – could do their thing. From the internet to nanotech, most of
the fundamental advances – in both basic research but also downstream
commercialisation – were funded by government, with businesses moving
into the game only once the returns were in clear sight. All the radical
technologies behind the iPhone were government-funded: the internet,
GPS, touchscreen display, and even the voice-activated Siri personal
assistant.”
Contrary to Smith’s neoliberal view, state-owned industry and economic growth often go together – “the
seldom-discussed European success story is Austria, which achieved the
second highest level of economic growth (after Japan) between 1945 and
1987 with the highest state-owned share of the economy in the OECD.” (Hu Chang).
Smith claims neoliberal reforms in the labour market helped to achieve lower unemployment rates in places like Germany. “Germany
suffered high unemployment in the 1980s and 1990s, thanks to its rigid
labour market regulations; eventually, it eased those restrictions,
which
substantially lowered the unemployment rate.”
Here
he refers to the infamous Haartz labour reforms that introduced a
tiered employment system, putting millions into low wage programmes that
boosted German industry’s profitability while keeping real wage incomes
stagnant.
About one quarter of the German workforce now receive a “low income”
wage, using a common definition of one that is less than two-thirds of
the median, which is a higher proportion than all 17 European countries,
except Lithuania. A recent Institute for Employment Research (IAB)
study found wage inequality in Germany has increased since the 1990s,
particularly at the bottom end of the income spectrum. The number of
temporary workers in Germany has almost trebled over the past 10 years
to about 822,000, according to the Federal Employment Agency. In my
view, this is not the best example of the ‘success’ of neoliberal
policies, at least not for labour.
It is ironic that Smith pushes the policies of the ‘free market’ at a time when all the trends in the current neoliberal world show slowing growth in real GDP, productivity and investment, along with stagnant real wages and rising inequality.
And yet, Smith presses on with the argument for neoliberal policies to “restrain
social democrats’ more ambitious impulses” and “to protect the US
economy’s entrepreneurial private sector, and to make sure that
technological progress and international trade don’t get forgotten.” In
other words, he reckons that we need to balance, against the urgent
need for decent public services, proper labour rights and conditions,
control of the corrupt and unproductive finance sector and the avoidance
of disastrous economic slumps, the fundamental (neoliberal) aim to
raise the profitability of the capitalist sector.
Because we must not
‘forget’ the “contribution of markets to human well-being.”
If you have opinions about the subject matter of posts on this blog please share them. Do you have a story about how the system affects you at work school or home, or just in general? This is a place to share it.
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