a primer on neoliberalism — global issues

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Global Issues http://www.globalissues.org

Social, Political, Economic and Environmental Issues That Affect Us All

A Primer on Neoliberalism

by Anup Shah This PageLast Updated Sunday, August 22, 2010

This page: http://www.globalissues.org/article/39/a-primer-on-neoliberalism.

To print all information e.g. expanded side notes, shows alternative links, use the print

version:

http://www.globalissues.org/print/article/39

Neoliberalism is promoted as the mechanism for global trade and investment supposedly for allnations to prosper and develop fairly and equitably. Margaret Thatchers TINA acronym suggested

that There Is No Alternative to this. But what is neoliberalism, anyway?

This section attempts to provide an overview. First, a distinction is made between political and

economic liberalism. Then, neoliberalism as an ideology for how to best structure economies is

explained. Lastly, for important context, there is a quick historical overview as to how this ideology

developed.

This web page has the following sub-sections:

1. Political versus Economic Liberalism

2. Neoliberalism is...

3. Brief overview of Neoliberalisms History: How did it develop?

1. Free Markets Were Not Natural. They Were Enforced

2. Rooted in Mercantilism

3. Colonialism and Imperialism Needed To Succeed

4. Going Global

4. Going bust? The Global Financial Crisis Shakes Confidence

5. More Information

Political versus Economic Liberalism

There is an important difference between liberal politics and liberal economics. But this distinction is

usually not articulated in the mainstream.
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As summarized here by Elizabeth Martinez and Arnoldo Garcia:

Liberalism can refer to political, economic, or even religious ideas. In the U.S.

political liberalism has been a strategy to prevent social conflict. It is presented to poor

and working people as progressive compared to conservative or Right wing. Economic

liberalism is different. Conservative politicians who say they hate liberals

meaning the political type have no real problem with economic liberalism,

including neoliberalism.

Elizabeth Martinez and Arnoldo Garcia, What is Neo-Liberalism?, National Network for Immigran

and Refugee Rights, January 1, 1997 (posted at CorpWatch.org

The web site, Political Compass, also highlights these differences very well.

They show Left and Right as an economic scale, with Authoritarian and Libertarian making up the

political scale, crossing the economic scale resulting in quadrants:

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 state-

planned economy) is neo-liberalism (i.e. extreme deregulated economy). This is made clear by

another chart they have:
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A few other charts of theirs are of interest:

1) The positions of some well-known political figures in the world


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(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.)


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3) It is also interesting to see how the three main British political parties have changed over time, as

Political Compass shows:


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4) The last US elections (2004) show the political spectrum between John Kerry and George W. Bush

was note that wide:


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They also make a distinction about neo-conservatives and neoliberals:

U.S. neo-conservatives, with their commitment to high military spending and the

global assertion of national values, tend to be more authoritarian than hard right. By

contrast, neo-liberals, opposed to such moral leadership and, more especially, the

ensuing demands on the tax payer, belong to a further right but less authoritarian

region. Paradoxically, the "free market", in neo-con parlance, also allows for the large-

scale subsidy of the military-industrial complex, a considerable degree of corporate

welfare, and protectionism when deemed in the national interest. These are viewed by

neo-libs as impediments to the unfettered market forces that they champion.

About the Political Compass, January 6, 2004

What the above highlights then, is that in some countries, discourse on these topics may appear to fitinto left-right balance, but when looked at a more global scale, the range of discourse may be narrow

Economic issues such as globalization, especially as it affects third world countries as well as those in

the first world, require a broader range of discussion.

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
http://www.politicalcompass.org/analysis2


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maximize profits and efficiency.

To help accomplish this, neoliberalism requires the removal of various controls deemed as barriers

to free trade, such as:

Tariffs

Regulations

Certain standards, laws, legislation and regulatory measuresRestrictions on capital flows and investment

The goal is to be able to to allow the free market to naturally balance itself via the pressures of

market demands; a key to successful market-based economies.

As summarized from What is Neo-Liberalism? A brief definition for activists by Elizabeth Martinez

and Arnoldo Garciafrom Corporate Watch, the main points of neoliberalism includes:

The rule of the market freedom for capital, goods and services, where the market is self-

regulating allowing the trickle down notion of wealth distribution. It also includes thedeunionizing of labor forces and removals of any impediments to capital mobility, such as

regulations. The freedom is from the state, or government.

Reducing public expenditure for social services, such as health and education, by the

government

Deregulation, to allow market forces to act as a self-regulating mechanism

Privatization of public enterprise (things from water to even the internet)

Changing perceptions of public and community good to individualism and individual

responsibility.

Overlapping the above is also what Richard Robbins, in his book, Global Problems and the Culture of

Capitalism(Allyn and Bacon, 1999), summarizes (p.100) about some of the guiding principles behind

this ideology of neoliberalism:

Sustained economic growth is the way to human progress

Free markets without government interference would be the most efficient and socially

optimal allocation of resources

Economic globalization would be beneficial to everyone

Privatization removes inefficiencies of public sectorGovernments should mainly function to provide the infrastructure to advance the rule of law

with respect to property rights and contracts.

At the international level then we see that this additionally translates to:

Freedom of trade in goods and services

Freer circulation of capital

Freer ability to invest
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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 factsfor 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.

Brief overview of Neoliberalisms History: How did it develop?
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Free Markets Were Not Natural. They Were Enforced

The modern system of free trade, free enterprise and market-based economies, actually emerged

around 200 years ago, as one of the main engines of development for the Industrial Revolution.

In 1776, British economist Adam Smith published his book, The Wealth of Nations. Adam Smith, who

some regard as the father of modern free market capitalism and this very influential book, suggested

that for maximum efficiency, all forms of government interventions in economic issues should beremoved and that there should be no restrictions or tariffs on manufacturing and commerce within a

nation for it to develop.

For this to work, social traditions had to be transformed. Free markets were not inevitable, naturally

occurring processes. They had to be forced upon people. John Gray, professor of European thought at

the London School of Economics, a prominent conservative political thinker and an influence on

Margaret Thatcher and the New Right in Britain in the 1980s, notes:

Mid-nineteenth century England was the subject of a far-reaching experiment in socialengineering. Its objective was to free economic life from social and political control

and it did so by constructing a new institution, the free market, and by breaking up the

more socially rooted markets that had existed in England for centuries. The free

market created a new type of economy in which prices of all goods, including labour,

changed without regard to their effects on society. In the past economic life had been

constrained by the need to maintain social cohesion. It was conducted in social

markets markets that were embedded in society and subject to many kinds of

regulation and restraint. The goal of the experiment that was attempted in mid-

Victorian England was to demolish these social markets, and replace them byderegulated markets that operated independently of social needs. The rupture in

Englands economic life produced by the creation of the free market has been called

the Great Transformation.

John Gray, False Dawn: The Delusions of Global Capitalism, (The New Press, 1998), p.1

A detailed insight into this process of transformation is revealed by Michael Perelman, Professor of

Economics at California State University. In his book The Invention of Capitalism(Duke University

Press, 2000), he details how peasants did not willingly abandon their self-sufficient lifestyle to go

work in factories.

Instead they had to be forced with the active support of thinkers and economists of the time,

including the famous originators of classical political economy, such as Adam Smith, David

Ricardo, James Steuart and others.

Contradicting themselves, as if it were, they argued for government policies that deprived the

peasants their way of life of self-provision, to coerce them into waged labor.

Separating the rural peasantry from their land was successful because of ideological vigor


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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 totake 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


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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-centers-

of-capitalof their own free will. In short, Adam Smith free trade, as established by neo-

mercantilists, 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

Colonialism and Imperialism Needed To Succeed

Free trade formed the basis of free enterprise for capitalists and up until the Great Depression of the

1930s was the primary economic theory followed in the United States and Britain. But from a global

perspective, this free trade was accompanied by geopolitics making it look more like mercantilism.

For both these nations (as well as others) to succeeded and remain competitive in the international

arena, they had a strong foundation of imperialism, colonialism and subjugation of others in order to

have access to the resources required to produce such vast wealth. As J.W. Smith notes above, this

was hardly the free trade that Adam Smith suggested and it seemed like a continuation of

mercantilist policies.

However, even during its prevalent times before the Second World War, neoliberalism had already

started to show signs of increasing disparities between rich and poor.

Because of the Great Depression in the 1930s, an economist, John Maynard Keynes, suggested that

regulation and government intervention was actually needed in order to provide more equity in

development. This led to the Keynesian model of development and after World War II formed the

foundation for the rebuilding of the U.S-European-centered international economic system. TheMarshall Plan for Europe helped reconstruct it and the European nations saw the benefits of social

provisions such as health, education and so on, as did the U.S. under President RooseveltsNew Deal.

In fact, the Bretton Woods Institutions (the International Monetary Fund (IMF) and World Bank)

were actually designed with Keynesian policies in mind; to help provide international regulation and

control of capital. As Susan George notes, when these institutions were created at Bretton Woods in

1944, their mandate was to help prevent future conflicts by lending for reconstruction and

development and by smoothing out temporary balance of payments problems. They had no control

over individual governments economic decisions nor did their mandate include a license tointervene in national policy. This is very different from what they are doing today.

In 1945 or 1950, if you had seriously proposed any of the ideas and policies in todays

standard neo-liberal toolkit, you would have been laughed off the stage at or sent off to

the insane asylum. At least in the Western countries, at that time, everyone was a

Keynesian, a social democrat or a social-Christian democrat or some shade of Marxist.

The idea that the market should be allowed to make major social and political

decisions; the idea that the State should voluntarily reduce its role in the economy, or
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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
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financiers must be safeguarded by ministers of state, even if the sovereignty of

unwilling nations be outraged in the process. Colonies must be obtained or planted, in

order that no useful corner of the world may be overlooked or left unused.

Woodrow Wilson, President of the United States, 1919, Quoted by Noam Chomsky, On Power and

Ideology, (South End Press, 1990), p.14

Richard Robbins, Professor of Anthropology and author of Global Problems and the Culture ofCapitalismis also worth quoting at length:

The Great Global Depression of 1873 that lasted essentially until 1895 was the first

great manifestation of the capitalist business crisis. The depression was not the first

economic crisis [as there had been many for thousands of years] but the financial

collapse of 1873 revealed the degree of global economic integration, and how economic

events in one part of the globe could reverberate in others.

The Depression of 1873 revealed another big problem with capitalist expansion and

perpetual growth: it can continue only as long as there is a ready supply of raw

materials and an increasing demand for goods, along with ways to invest profits and

capital. Given this situation, if you were an American or European investor in 1873,

where would you look for economic expansion?

The obvious answer was to expand European and American power overseas,

particularly into areas that remained relatively untouched by capitalist expansion

Africa, Asia, and the Pacific. Colonialism had become, in fact, a recognized solution to

the need to expand markets, increase opportunities for investors, and ensure the

supply of raw material. Cecil Rhodes, one of the great figures of Englands colonization

of Africa, recognized the importance of overseas expansion for maintaining peace at

home. In 1895 Rhodes said:

I was in the East End of London yesterday and attended a meeting of the

unemployed. I listened to the wild speeches, which were just a cry for

bread, bread, and on my way home I pondered over the scene and I

became more than ever convinced of the importance of imperialism.

My cherished idea is a solution for the social problem, i.e., in order to

save the 40,000,000 inhabitants of the United Kingdom from a bloody

civil war, we colonial statesmen must acquire new lands for settling the

surplus population, to provide new markets for the goods produced in

the factories and mines. The Empire, as I have always said, is a bread

and butter question. If you want to avoid civil war, you must become

imperialist.

As a result of this cry for imperialist expansion, people all over the world were

converted into producers of export crops as millions of subsistence farmers were


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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, theformer 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 expenseof most people around the

world.) Thus, to ensure this unequal success, power, and advantage globalization was backed up withmilitary 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 Nationswould

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
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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 policieswere 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 Playerto 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 hasbecome 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.

1979, the year Margaret Thatcher came to power and undertook the neo-liberal
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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 EmergingOpportunities 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 forgovernment 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
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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 , The Value of Nothing, (Picador, 2010), pp.10-11, 12-13

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 EconomicCooperation 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.
http://us.macmillan.com/CMS400/uploadedFiles/Picador/Raj%20-%20first%20chap.pdf


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Video: The Value of Nothing, Raj Patel, July 28,2010

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.

Going bust? The Global Financial Crisis Shakes Confidence

Around mid-2008 a financial crisis, starting in the US, spread around the world into a global financial

crisis, and then into a more general economic crisis, which, as of writing this, the world has still not

recovered from.

The crisis has been so severe, criticisms of market fundamentalism and neoliberalism are more

widespread than before.

Raj Patel argues that the markets in their currentshape have created a convoluted idea of value;

value meals are cheap but unhealthy whereas

fruit and veg are often more expensive; rainforests are hardly valued whereas felling trees adds to

the economy.

Flawed assumptions about the underlying economic systems contributed to this problem and had

been building up for a long time, the current financial crisis being one of its eventualities.

This problem could have been averted (in theory) as people had been pointing to these issues for

decades. Yet, of course, during periods of boom no-one (let alone the financial institutions and their

supporting ideologues and politicians largely believed to be responsible for the bulk of the problems)

would want to hear of caution and even thoughts of the kind of regulation that many are now

advocating. To suggest anything would be anti-capitalism or socialism or some other label that could

effectively shut up even the most prominent of economists raising concerns.

Of course, the irony that those same institutions would now themselves agree that those anti-

capitalist regulations are required is of course barely noted. Such options now being considered are

not anti-capitalist. However, they could be described as more regulatory or managed rather than

completely free or laissez faire capitalism, which critics of regulation have often preferred. But a

regulatory capitalist economy is very different to a state-based command economy, the style of which

the Soviet Union was known for. The points is that there are various forms of capitalism, not just the

black-and-white capitalism and communism. And at the same time, the most extreme forms of

capitalism can also lead to the bigger bubbles and the bigger busts.

In that context, the financial crisis, as severe as it was, led to key architects of the system admitting to

flaws in key aspects of the ideology.
http://www.globalissues.org/article/768/global-financial-crisishttp://rajpatel.org/2010/07/28/the-value-of-nothing-2/


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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 tospeak.

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 CNBCsMad Moneyadmitted 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 , The Value of Nothing, (Picador, 2010), pp.4, 6-7

Quoting Stiglitz again, he captures the sentiments of a number of people:

We had become accustomed to the hypocrisy. The banks reject any suggestion they

should face regulation, rebuff any move towards anti-trust measures yet when

trouble strikes, all of a sudden they demand state intervention: they must be bailedout; they are too big, too important to be allowed to fail.

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.
http://us.macmillan.com/CMS400/uploadedFiles/Picador/Raj%20-%20first%20chap.pdf


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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 regulationthat 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 andbrightest 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
http://www.globalissues.org/article/242/wasted-wealth-capital-labor-and-resourceshttp://www.nytimes.com/2008/12/19/opinion/19krugman.htmlhttp://www.guardian.co.uk/commentisfree/2008/sep/16/economics.wallstreethttp://www.markshuttleworth.com/archives/227http://www.guardian.co.uk/commentisfree/2008/sep/16/economics.wallstreet


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democracy and led to this crisis in the first place:

What creates a crisis of the kind that now engulfs us is not economics but politics. The

triumph of the global free market, which has dominated the world over the last three

decades has been a political triumph.

It has reflected the dominance of those who believe that governments (for which read

the views and interests of ordinary people) should be kept away from the levers ofpower, and that the tiny minority who control and benefit most from the economic

process are the only people competent to direct it.

This band of greedy oligarchs have used their economic power to persuade themselves

and most others that we will all be better off if they are in no way restrainedand if

they cannot persuade, they have used that same economic power to override any

opposition. The economic arguments in favor of free markets are no more than a fig

leaf for this self-serving doctrine of self-aggrandizement.

Bryan Gould, Who voted for the markets? The economic crisis makes it plain: we surrendered powe

to wealthy elites and fatally undermined democracy, The Guardian, November 26, 2008

Furthermore, he argues that the democratic process has been abused and manipulated to allow a

concentration of power that is actually against the idea of free markets and real capitalism:

The uncomfortable truth is that democracy and free markets are incompatible. The

whole point of democratic government is that it uses the legitimacy of the democratic

mandate to diffuse power throughout society rather than allow it to accumulateas

any player of Monopoly understandsin just a few hands. It deliberately uses thepolitical power of the majority to offset what would otherwise be the overwhelming

economic power of the dominant market players.

If governments accept, as they have done, that the free market cannot be challenged,

they abandon, in effect, their whole raison d'etre. Democracy is then merely a sham.

No amount of cosmetic tinkering at the margins will conceal the fact that power has

passed to that handful of people who control the global economy.

Bryan Gould, Who voted for the markets? The economic crisis makes it plain: we surrendered powe

to wealthy elites and fatally undermined democracy, The Guardian, November 26, 2008

Despite Keynesian economics getting a bad press from free market advocates for many years, many

are now turning to his policies and ideas to help weather the economic crisis.

We are all Keynesiansnow. Even the right in the United States has joined the

Keynesian camp with unbridled enthusiasm and on a scale that at one time would

have been truly unimaginable.
http://www.guardian.co.uk/commentisfree/cifamerica/2008/nov/25/john-maynard-keynes-us-advicehttp://www.guardian.co.uk/commentisfree/2008/nov/26/economy-marketturmoilhttp://www.guardian.co.uk/commentisfree/2008/nov/26/economy-marketturmoil


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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 riskyfinancial 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
http://www.guardian.co.uk/commentisfree/cifamerica/2008/dec/05/us-economy-keynesian-economic-theoryhttp://www.longviewinstitute.org/projects/marketfundamentalism/marketfundamentalism


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American-style free-wheeling capitalism. Most American financial leaders seemed

too embarrassed to make an appearance. Perhaps their absence made it easier for

those who did attend to vent their anger. Labor leaders working for the business

community were particularly angry at the financial communitys lack of remorse. A

call for the repayment of past bonuses was received with applause.

Joseph Stiglitz,Fear and loathing in Davos, The Guardian, February 6, 2009

Some at the top, however, have tried to play the role of victim:

Indeed, some American financiers were especially harshly criticized for seeming to

take the position that they, too, were victims and it seemed particularly galling that

they were continuing to hold a gun to the heads of governments, demanding massive

bailouts and threatening economic collapse otherwise. Money was flowing to those

who had caused the problem, rather than to the victims.

Worse still, much of the money flowing into the banks to recapitalize them so that they

could resume lending has been flowing out in the form of bonus payments and

dividends.


And as much as this crisis affects wealthier nations, the poorest will suffer most in the long run:

This crisis raises fundamental questions about globalization, which was supposed to

help diffuse risk. Instead, it has enabled Americas failures to spread around the world,

like a contagious disease. Still, the worry at Davos was that there would be a retreat

from even our flawed globalization, and that poor countries would suffer the most.

But the playing field has always been uneven. If developing countries cant compete

with America's subsidies and guarantees, how could any developing country defend to

its citizens the idea of opening itself even more to Americas highly subsidized banks?

At least for the moment, financial market liberalization seems to be dead.


In effect, the globalization project, an ideal that sounded appealing for many around the world, wasflawed by politics and greed; the inter-connectedness it created meant that as any flaws revealed

themselves, the unraveling of such a system would have far greater reach and consequences,

especially upon people who had nothing to do with its creation in the first place.

More Information

The above may seem long, but many volumes could be written to expand on the above themes. Until

can get to do something like that, the following are links to some useful resources to help understand
http://www.guardian.co.uk/commentisfree/2009/feb/05/davos-imf-recession-economyhttp://www.guardian.co.uk/commentisfree/2009/feb/05/davos-imf-recession-economyhttp://www.guardian.co.uk/commentisfree/2009/feb/05/davos-imf-recession-economy


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neoliberalism and its historical and current context:

A Short History of Neo-Liberalism:Twenty Years of Elite Economics and Emerging

Opportunities for Structural Change by Susan George, from a conference on Economic

Sovereignty in a Globalising World, Bangkok, 24-26 March 1999

What is Neo-Liberalism? A brief definition for activists by Elizabeth Martinez and Arnoldo

Garcia, National Network for Immigrant and Refugee Rights, January 1, 1997 (posted at

CorpWatch.org)

Has Globalisation Really Made Nations Redundant? The States We are Still In, by Noelle Burgi

and Philip S. Golub,Le Monde Diplomatique, April 2000.

The Essence of Neoliberalismby Pierre Bordieu,Le Monde Diplomatique, December 1998

The Institute for Economic Democracyhas a wealth of information.

Program on Corporations Law & Democracylooks at the creation and development of English

commercial corporations and the abolition of democratic control over their behavior. From

UK-based Corporate Watch (not related to the above-mentioned US-based organization of the

same name!)

This web sites look at projecting powerintroduces the link between geopolitics and economics

of the use of military to back up trade objectives.

The Citizens Guide to Trade, Environment and Sustainabilityfrom Friends of the Earth gives

an overview of the world trade system, the ideology, the impact on society, environment, etc.

Neoliberalism: origins, theory, definitionis a detailed look by Paul Treanor, a political thinker

and writer.

The Luckiest Nut In The Worldis an 8 minute video (sorry, no transcript available, as far as I

know), produced by Emily James. It is a useful and light way of explaining some of the issues

around free trade (in its current form) and its impact on poorer countries. Under their license,it has been reposted here. (Please note the license of this video is notcovered by this sites own

license).

Get the Flash Playerto see this video.

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
http://www.globalissues.org/article/45/public-protests-around-the-worldhttp://www.globalissues.org/article/41/the-mainstream-media-and-free-tradehttp://www.globalissues.org/article/44/some-regional-free-trade-agreementshttp://www.globalissues.org/article/43/deregulation-or-protectionismhttp://www.globalissues.org/article/663/wto-doha-development-trade-round-collapse-2006http://www.globalissues.org/article/42/the-wto-and-free-tradehttp://www.globalissues.org/article/40/criticisms-of-current-forms-of-free-tradehttp://www.globalissues.org/article/768/global-financial-crisishttp://get.adobe.com/flashplayer/http://mediathatmattersfest.org/5/the_luckiest_nut_in_the_world/http://mediathatmattersfest.org/5/the_luckiest_nut_in_the_world/http://web.inter.nl.net/users/Paul.Treanor/neoliberalism.htmlhttp://www.foei.org/trade/activistguide/index.htmlhttp://www.globalissues.org/issue/124/projecting-powerhttp://www.corporatewatch.org.uk/pages/dan_corp.htmlhttp://www.ied.info/http://mondediplo.com/1998/12/08bourdieuhttp://mondediplo.com/2000/04/07golubhttp://www.corpwatch.org/article.php?id=376http://www.zmag.org/CrisesCurEvts/Globalism/george.htm


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by Anup Shah

Created: Monday, July 10, 2000

Last Updated: Sunday, August 22, 2010

10. WTO Protests in Seattle, 1999

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Bad ideas flourish because they are in the interest of powerful groups Paul Krugman

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