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 law-giving 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.
Having set the ideological stage and the context, now let me fast-forward so that we are back in the twenty year time frame. That means , 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.
The central value of Thatcher's 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 withthe 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 practise what we could call Alliance Capitalism. It is no accident that, depending on the year, two-thirds to three-quarters of all the money labeled "Foreign Direct Investment" is not devoted to new, job-creating investment but to Mergers and Acquisitions which almost invariably result in job losses.
Because competition is always a virtue, its results cannot be bad. For the neo-liberal, the market is so wise and so good that like God, the Invisible Hand can bring good out of apparent evil. Thus Thatcher once said in a speech, "It is our job to glory in inequality and see that talents and abilities are given vent and expression for the benefit of us all. People are unequal by nature, but this is good because the contributions of the well-born, the best-educated, the toughest, will eventually benefit everyone.
Nothing in particular is owed to the weak, the poorly educated, what happens to them is their own fault, never the fault of society. If the competitive system is "given vent" as Margaret says, society will be the better for it.
Unfortunately, the history of the past twenty years teaches us that exactly the opposite is the case. In pre-Thatcher Britain, about one person in ten was classed as living below the poverty line, not a brilliant result but honourable as nations go and a lot better than in the pre-War period. Now one person in four, and one child in three is officially poor.
This is the meaning of survival of the fittest: people who cannot heat their houses in winter, who must put a coin in the meter before they can have electricity or water, who do not own a warm waterproof coat, etc. Another implication of competition as the central value of neo-liberalism is that the public sector must be brutally downsized because it does not and cannot obey the basic law of competing for profits or for market share.
Privatisation is one of the major economic transformations of the past twenty years. The trend began in Britain and has spread throughout the world.
Let me start by asking why capitalist countries, particularly in Europe, had public services to begin with, and why many still do. In reality, nearly all public services constitute what economists call "natural monopolies". A natural monopoly exists when the minimum size to guarantee maximum economic efficiency is equal to the actual size of the market. In other words, a company has to be a certain size to realise economies of scale and thus provide the best possible service at the lowest possible cost to the consumer.
Public services also require very large investment outlays at the beginning - like railroad tracks or power grids - which does not encourage competition either. That's why public monopolies were the obvious optimum solution. But neo-liberals define anything public as ipso facto "inefficient". So what happens when a natural monopoly is privatised? Quite normally and naturally, the new capitalist owners tend to impose monopoly prices on the public, while richly remunerating themselves.
Classical economists call this outcome "structural market failure" because prices are higher than they ought to be and service to the consumer is not necessarily good.
In order to prevent structural market failures, up to the mids, the capitalist countries of Europe almost universally entrusted the post office, telecomms, electricity, gas, railways, metros, air transport and usually other services like water, rubbish collection, etc.
The USA is the big exception, perhaps because it is too huge geographically to favour natural monopolies. In any event, Margaret Thatcher set out to change all that. As an added bonus, she could also use privatisation to break the power of the trade unions. By destroying the public sector where unions were strongest, she was able to weaken them drastically.
Thus between and , the number of jobs in the public sector in Britain was reduced from over 7 million to 5 million, a drop of 29 percent. Virtually all the jobs eliminated were unionised jobs. Since private sector employment was stagnant during those fifteen years, the overall reduction in the number of British jobs came to 1.
To neo-liberals, fewer workers is always better than more because workers impinge on shareholder value. As for other effects of privatisation, they were predictable and predicted. The managers of the newly privatised enterprises, often exactly the same people as before, doubled or tripled their own salaries. The government used taxpayer money to wipe out debts and recapitalise firms before putting them on the market - for example, the water authority got 5 billion pounds of debt relief plus 1.
A lot of Public Relations fuss was made about how small stockholders would have a stake in these companies - and in fact 9 million Brits did buy shares - but half of them invested less than a thousand pounds and most of them sold their shares rather quickly, as soon as they could cash in on the instant profits.
From the results, one can easily see that the whole point of privatisation is neither economic efficiency or improved services to the consumer but simply to transfer wealth from the public purse - which could redistribute it to even out social inequalities - to private hands. In Britain and elsewhere, the overwhelming majority of privatised company shares are now in the hands of financial institutions and very large investors.
The employees of British Telecom bought only 1 percent of the shares, those of British Aerospace 1. Prior to Ms Thatcher's onslaught, a lot of the public sector in Britain was profitable. Consequently, in , public companies contributed over 7 billion pounds to the treasury. All that money is now going to private shareholders. Service in the privatised industries is now often disastrous - the Financial Times reported an invasion of rats in the Yorkshire Water system and anyone who has survived taking Thames trains in Britain deserves a medal.
Exactly the same mechanisms have been at work throughout the world. In Britain, the Adam Smith Institute was the intellectual partner for creating the privatisation ideology. By the Bank had already made loans to speed the process, and every year its Global Development Finance report lists hundreds of privatisations carried out in the Bank's borrowing countries.
I submit that we should stop talking about privatisation and use words that tell the truth: we are talking about alienation and surrender of the product of decades of work by thousands of people to a tiny minority of large investors. This is one of the greatest hold-ups of ours or any generation. According to neoliberal theory, taxation and redistributive policies are seen as an infringement on personal freedom and government interference with private property.
Neoliberal theory, if realized, would thus require the abolition of the welfare state. Nevertheless, in contrast to privatization, evidence for a reduction in redistributive taxation and government welfare provision is highly mixed. Some authors have found no evidence to support the notion that there has been a decline in redistributive taxation while some argue that there is evidence to suggest that worldwide, the size of the welfare state has in fact increased Meinhard and Potrafke ; Rudra Others find no significant changes Cohen and Centeno , , while some find that increased exposure to trade has had a negative effect on welfare provisions in both OECD countries Garrett and Mitchell and sub-Saharan African countries Rudra As such, if there has been a reduction in the welfare state, this has arisen after globalization commenced, and can thus not be seen as an independent variable that has affected globalization.
This questions the very notion that there is a clear epochal distinction to be drawn between the Keynesian and neoliberal era. Hence, there seems to be no clear empirical grounds to argue that the proliferation of neoliberalism has led, or will lead, to a reduction or dissembling of the Keynesian welfare state. This seriously undermines the very argument that neoliberalism has had a profound impact on policymakers worldwide, as well as the idea that neoliberalism has become the hegemonic political ideational discourse.
Nevertheless, it is possible that although states have not illustrated a firm commitment to domestic neoliberal ideas, they may still have been influenced by its content in its foreign and trade policies. This theory states that a country can maximize its economic gains by specializing in producing and trading goods that it can produce relatively cheaply. By contrast, the neoliberal argument is individualist and supports free trade on the notion that it provides individualists with increased consumer choices, freedom to conduct business transnationally, and a greater choice of where and with whom one wishes to conduct business.
Since World War II, there has been a clear reduction in trade barriers such as tariffs and quotas Madsen Similarly, the amount of trade worldwide has increased sharply in relations to GDP and output Hummels However, in a historical perspective, reductions in protectionist measures have often been the result, rather than the cause, of increased international trade Chase-Dunne, Kawano and Brewer Nevertheless, in relations to the GATT, it seems that trade has increased subsequently after each round of negotiation which has contributed to lowering trade barriers Goldstein, Rivers and Tomz , Nevertheless, barriers to trade, notably in agriculture and textiles, are still prevalent.
Hence, it is not the case that there has been a complete shift towards a deregulated economy. In addition, there has been a notable reduction in transportation costs since the last half of the 20 th century that is seen as a contributing factor to increased trade flows Hummels , Most importantly, global trade has had a relatively linear increase since the end of World War II and had already reached high levels before the s and the decline of Keynesianism.
The advent of neoliberalism can thus not be the cause of increased globalization Cohen and Centeno Lastly, globalization has had an unequal effect on international trading patterns, with a disproportionate increase in trade growth occurring between countries that traded with each other before the s Helpman, Melitz and Rubinstein , Thus, lack of empirical evidence and the presence of rival explanations makes it highly doubtful whether or not it is possible to establish causality, or even a correlation, between neoliberalism and international trade.
Economic neoliberalism supports FDI for largely the same reasons they support international trade; to ensure individual freedom and increasing choices and options in business conduction Harwell ; von Hayek Despite U. This trend strengthened in the s when other countries, notably China, India and the newly liberalized countries of Western Europe, became large recipients of foreign capital inflows.
In fact, in the s, China became the world largest recipient of foreign funds Cohen The importance of U. However, China has for the period before, during, and after it assumed a position of global importance in international investment flows, maintained a strong interventionist state Barboza Furthermore, the trend in increased FDI also coincides with the emergence of easily available ICTs, which are considered to have played a very important role in facilitating the possibility and coordination of international business transactions Cohen Of course, Harvey argues that these technologies did not emerge exogenously of the neoliberal transition.
Instead he argues that technological innovations were a direct result of a commitment by neoliberals to expand business transactions and their ideological doctrine globally. He provides no sources for this statement. On the contrary, it is commonly argued that the U. To conclude, the empirical evidence supports the notion that policymakers and IFIs have been influenced by liberal economic theory. However, there is little empirical evidence to argue that these processes have developed out of a commitment to enhance individual freedom.
Instead, the economic policies adopted since the s seem to have emerged as an attempt to increase economic gains. As such, globalization must be considered a separate and autonomous phenomenon from neoliberalism. However, this essay has operationalized a high amount of conceptual rigour in the discussion on neoliberalism. Hence, if conceptual rigour were reduced, there would be no theoretical basis for these arguments.
Lastly, this essay has demonstrated how a whole genre of literature has emerged which has been based on furthering arguments which are based on poor empirical research and terminological confusion. Barboza, D. Boas, T.
Brune, N. Centeno, M. Chase-Dunne, C. Kawano, Y. Cohen, J. Cohen, S. Saad-Filho and D. Johnston Eds. At its core, liberalism is a broad political philosophy; it holds liberty to a high standard and defines all social, economic, and political aspects of society, including—but not limited to—the role of government. The policies of neoliberalism, on the other hand, are more narrowly focused.
They are primarily concerned with markets and the policies and measures that influence the economy. There are many criticisms of neoliberalism. One common criticism of neoliberalism is that advocating for a free market approach in areas such as health and education is misguided because these services are public services. Public services are not subject to the same profit motivation as other industries.
More importantly, adopting a free market approach in the areas of health and education can lead to an increase in inequality and the underfunding of resources health and education that are necessary for the long-term health and viability of an economy.
The adoption of neoliberal policies in the Western world has been concurrent with a rise in inequality in both wealth and income. While skilled workers may be in a position to command higher wages, low-skilled workers are more likely to see stagnant wages. Policies associated with neoliberalism tend to encourage the presence of monopolies, which increase the profits of corporations at the expense of any benefits to consumers.
Contrary to what proponents of neoliberalism typically claim, capital deregulation has not necessarily helped economic development. Rather, capital deregulation has led to an increase in financial instability including wider economic shocks that, at times, have sent shockwaves around the world. In fact, an International Monetary Fund IMF report into neoliberalism reveals that an increase in capital flows has been a factor in the increased risk of adverse economic cycles.
Neoliberal policies have been proven to increase inequality. On one end of the spectrum, those who earn a low income have limited spending power. At the same time, those who become richer have a higher propensity to save; in this scenario, wealth doesn't trickle down in the way that proponents of neoliberalism claim that it will.
Finally, neoliberalism's emphasis on economic efficiency has encouraged globalization , which opponents see as depriving sovereign nations of the right to self-determination. In addition, those opposed to neoliberalism add that it is anti-democratic, can lead to exploitation and social injustice, and may criminalize poverty.
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