See Article History. Read More on This Topic. Those who advocate neoliberalism argue that the state is inherently inefficient when compared with markets. Often, neoliberals also suggest….
Was the Rise of Neoliberalism the Root Cause of Extreme Inequality?
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Help us improve this article! Democratic presidents, as much as Republicans, promoted trade deals that undermined social standards. Moreover, nudges only work in tandem with regulation. There are indeed some interventionist policies that use market incentives to serve social goals.
But contrary to free-market theory, the market-like incentives first require substantial regulation and are not a substitute for it. A good example is the Clean Air Act Amendments of , which used tradable emission rights to cut the output of sulfur dioxide, the cause of acid rain. This was supported by both the George H. Bush administration and by leading Democrats. But before the trading regime could work, Congress first had to establish permissible ceilings on sulfur dioxide output—pure command and control. Nearly all of the increase in fuel efficiency, for example, is the result of command regulations that require auto fleets to hit a gas mileage target.
Politically, whatever rationale there was for liberals to make common ground with libertarians is now largely gone. The authors of the Tax Cuts and Jobs Act made no attempt to meet Democrats partway; they excluded the opposition from the legislative process entirely. This was opportunistic tax cutting for elites, pure and simple.
The right today also abandoned the quest for a middle ground on environmental policy, on anti-poverty policy, on health policy—on virtually everything. Neoliberal ideology did its historic job of weakening intellectual and popular support for the proposition that affirmative government can better the lives of citizens and that the Democratic Party is a reliable steward of that social compact.
The post rules of globalization, supported by conservatives and moderate liberals alike, are the quintessence of neoliberalism. Rather than instruments of support for mixed national economies, they became enforcers of neoliberal policies. But private capital investment in poor countries proved to be fickle. The result was often excessive inflows during the boom part of the cycle and punitive withdrawals during the bust—the opposite of the patient, long-term development capital that these countries needed and that was provided by the World Bank of an earlier era.
Greece is still suffering the impact. After , hyper-globalism also included trade treaties whose terms favored multinational corporations.
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Traditionally, trade agreements had been mainly about reciprocal reductions of tariffs. Nations were free to have whatever brand of regulation, public investment, or social policies they chose. Trade deals were used to give foreign capital free access and to dismantle national regulation and public ownership.
Special courts were created in which foreign corporations and investors could do end runs around national authorities to challenge regulation for impeding commerce. At first, the sponsors of the new trade regime tried to claim the successful economies of East Asia as evidence of the success of the neoliberal recipe.
But these claims were soon exposed as the opposite of what had actually occurred. In fact, Japan, South Korea, smaller Asian nations, and above all China had thrived by rejecting every major tenet of neoliberalism. Their capital markets were tightly regulated and insulated from foreign speculative capital. They developed world-class industries as state-led cartels that favored domestic production and supply. Enthusiasts of hyper-globalization also claimed that it benefited poor countries by increasing export opportunities, but as the success of East Asia shows, there is more than one way to boost exports—and many poorer countries suffered under the terms of the global neoliberal regime.
Nor was the damage confined to the developing world. As the work of Harvard economist Dani Rodrik has demonstrated, democracy requires a polity. For better or for worse, the polity and democratic citizenship are national. By enhancing the global market at the expense of the democratic state, the current brand of hyper-globalization deliberately weakens the capacity of states to regulate markets, and weakens democracy itself.
The failure of neoliberalism as economic and social policy does not mean that markets never work. A command economy is even more utopian and perverse than a neoliberal one. The practical quest is for an efficient and equitable middle ground. The neoliberal story of how the economy operates assumes a largely frictionless marketplace, where prices are set by supply and demand, and the price mechanism allocates resources to their optimal use in the economy as a whole. For this discipline to work as advertised, however, there can be no market power, competition must be plentiful, sellers and buyers must have roughly equal information, and there can be no significant externalities.
Much of the 20th century was practical proof that these conditions did not describe a good part of the actual economy. And if markets priced things wrong, the market system did not aggregate to an efficient equilibrium, and depressions could become self-deepening.
As Keynes demonstrated, only a massive jolt of government spending could restart the engines, even if market pricing was partly violated in the process. Nonetheless, in many sectors of the economy, the process of buying and selling is close enough to the textbook conditions of perfect competition that the price system works tolerably well. Likewise much of retailing.
However, when we get into major realms of the economy with positive or negative externalities, such as education and health, markets are not sufficient. The basic argument of neoliberalism can fit on a bumper sticker. If you want to embellish that story, there are two corollaries: Markets embody human freedom. And with markets, people basically get what they deserve; to alter market outcomes is to spoil the poor and punish the productive. That conclusion logically flows from the premise that markets are efficient.
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Milton Friedman became rich, famous, and influential by teasing out the several implications of these simple premises. It is much harder to articulate the case for a mixed economy than the case for free markets, precisely because the mixed economy is mixed. The rebuttal takes several paragraphs. And if markets are not perfectly efficient, then distributive questions are partly political choices. Some societies pay pre-K teachers the minimum wage as glorified babysitters. Others educate and compensate them as professionals.
The same is true of the other human services, including medicine. Nor is there a theoretically correct set of rules for patents, trademarks, and copyrights.
These are politically derived, either balancing the interests of innovation with those of diffusion—or being politically captured by incumbent industries. Governments can in principle improve on market outcomes via regulation, but that fact is complicated by the risk of regulatory capture. So another issue that arises is market failure versus polity failure, which brings us back to the urgency of strong democracy and effective government. The political reversal of neoliberalism can only come through practical politics and policies that demonstrate how government often can serve citizens more equitably and efficiently than markets.
Revision of theory will take care of itself. There is no shortage of dissenting theorists and empirical policy researchers whose scholarly work has been vindicated by events. What they need is not more theory but more influence, both in the academy and in the corridors of power. There are also some relatively new areas that invite policy innovation. These include regulation of privacy rights versus entrepreneurial liberties in the digital realm; how to think of the internet as a common carrier; how to update competition and antitrust policy as platform monopolies exert new forms of market power; how to modernize labor-market policy in the era of the gig economy; and the role of deeper income supplements as machines replace human workers.
The failed neoliberal experiment also makes the case not just for better-regulated capitalism but for direct public alternatives as well. Banking, done properly, especially the provision of mortgage finance, is close to a public utility. Much of it could be public. Social housing often is more cost-effective than so-called public-private partnerships. Public power is more efficient to generate, less prone to monopolistic price-gouging, and friendlier to the needed green transition than private power.
The public option in health care is far more efficient than the current crazy quilt in which each layer of complexity adds opacity and cost. Public provision does require public oversight, but that is more straightforward and transparent than the byzantine dance of regulation and counter-regulation. The two other benefits of direct public provision are that the public gets direct evidence of government delivering something of value, and that the countervailing power of democracy to harness markets is enhanced.
A mixed economy depends above all on a strong democracy—one even stronger than the democracy that succumbed to the corrupting influence of economic elites and their neoliberal intellectual allies beginning half a century ago. Stranger still, even as the ideology became crisper and the movement more coherent, the lost name was not replaced by any common alternative. At first, despite its lavish funding, neoliberalism remained at the margins. But in the s, when Keynesian policies began to fall apart and economic crises struck on both sides of the Atlantic, neoliberal ideas began to enter the mainstream.
After Margaret Thatcher and Ronald Reagan took power, the rest of the package soon followed: massive tax cuts for the rich, the crushing of trade unions, deregulation, privatisation, outsourcing and competition in public services. Through the IMF, the World Bank, the Maastricht treaty and the World Trade Organisation, neoliberal policies were imposed — often without democratic consent — on much of the world.
Most remarkable was its adoption among parties that once belonged to the left: Labour and the Democrats, for example.
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The freedom that neoliberalism offers, which sounds so beguiling when expressed in general terms, turns out to mean freedom for the pike, not for the minnows. Freedom from trade unions and collective bargaining means the freedom to suppress wages. Freedom from regulation means the freedom to poison rivers , endanger workers, charge iniquitous rates of interest and design exotic financial instruments. Freedom from tax means freedom from the distribution of wealth that lifts people out of poverty.
Neoliberalism, "globalization," unemployment, inequalities, and the welfare state.
When parliaments have voted to restrict sales of cigarettes , protect water supplies from mining companies, freeze energy bills or prevent pharmaceutical firms from ripping off the state, corporations have sued, often successfully. Democracy is reduced to theatre. Another paradox of neoliberalism is that universal competition relies upon universal quantification and comparison. The result is that workers, job-seekers and public services of every kind are subject to a pettifogging, stifling regime of assessment and monitoring, designed to identify the winners and punish the losers.
The doctrine that Von Mises proposed would free us from the bureaucratic nightmare of central planning has instead created one. Neoliberalism was not conceived as a self-serving racket, but it rapidly became one.
Neoliberalism, "globalization," unemployment, inequalities, and the welfare state.
Economic growth has been markedly slower in the neoliberal era since in Britain and the US than it was in the preceding decades; but not for the very rich. Inequality in the distribution of both income and wealth, after 60 years of decline, rose rapidly in this era, due to the smashing of trade unions, tax reductions, rising rents, privatisation and deregulation.
The privatisation or marketisation of public services such as energy, water, trains, health, education, roads and prisons has enabled corporations to set up tollbooths in front of essential assets and charge rent, either to citizens or to government, for their use. Rent is another term for unearned income. When you pay an inflated price for a train ticket, only part of the fare compensates the operators for the money they spend on fuel, wages, rolling stock and other outlays.
The rest reflects the fact that they have you over a barrel. In Russia and India, oligarchs acquired state assets through firesales. As the poor become poorer and the rich become richer, the rich acquire increasing control over another crucial asset: money. Interest payments, overwhelmingly, are a transfer of money from the poor to the rich. As property prices and the withdrawal of state funding load people with debt think of the switch from student grants to student loans , the banks and their executives clean up.
Sayer argues that the past four decades have been characterised by a transfer of wealth not only from the poor to the rich, but within the ranks of the wealthy: from those who make their money by producing new goods or services to those who make their money by controlling existing assets and harvesting rent, interest or capital gains. Earned income has been supplanted by unearned income. Neoliberal policies are everywhere beset by market failures. Not only are the banks too big to fail, but so are the corporations now charged with delivering public services.
As Tony Judt pointed out in Ill Fares the Land , Hayek forgot that vital national services cannot be allowed to collapse, which means that competition cannot run its course. Business takes the profits, the state keeps the risk. The greater the failure, the more extreme the ideology becomes. Governments use neoliberal crises as both excuse and opportunity to cut taxes, privatise remaining public services, rip holes in the social safety net, deregulate corporations and re-regulate citizens.
The self-hating state now sinks its teeth into every organ of the public sector. Perhaps the most dangerous impact of neoliberalism is not the economic crises it has caused, but the political crisis. As the domain of the state is reduced, our ability to change the course of our lives through voting also contracts. Instead, neoliberal theory asserts, people can exercise choice through spending. But some have more to spend than others: in the great consumer or shareholder democracy, votes are not equally distributed.
The result is a disempowerment of the poor and middle.