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Last Updated: 05/10/2013Neoliberalism: The Second Pillage
Shant Abou Cham
This article compares neo-liberal economic globalization to the older and similar process of globalization in the era of European colonialism. The case studies of Chile under Pinochet, and Thailand and South Korea after the 1997 financial crisis are discussed to show that neo-liberalism, as an economic philisophy, has caused significant social damage and placed the goals of equitable prosperity and human development further out of reach.
The Free Market-Free Men Paradigm: Neo-liberal Globalization
"I will define globalization a process of corporations moving their money, factories, and products around the planet at ever more rapid rates of speed in search of cheaper labour, raw materials and governments willing to ignore or abandon consumer, labour, and environmental protection laws. As an ideology, it is largely unfettered by ethical or moral considerations." Mark Ritchie
The above statement reveals upsetting commonalities between current neo-liberal globalization and colonization. During colonization, great powers conquered lands, territories, and people, to open up new frontiers and markets to their products, and at the same time, gained access to valuable raw materials, and slave labour. The days of colonization are over, or so the world is taught to believe. Neo-liberal globalization achieves the same gains, and advantages to the great powers and multinational corporations as colonization did, this time without the use of overt brute force. The main tool now is economic suffocation. Thus, the ideology of neo-liberalism should be put under scrutiny. The three pillars of neo-liberalism are: Trade liberalization (deregulation of the markets), financial deregulation, and privatization of the public sector and its enterprises (Cooney, 2006). Neo-liberalism is both a body of economic theory and a policy stance. Neoliberal theory claims that a largely unregulated capitalist system- that is a free market economy- not only embodies the ideal of free individual choice, but also achieves optimum economic performance with respect to efficiency, economic growth, technical progress, and distributional justice. Neo-liberalism aims at the dismantling of the welfare state (who's intellectual father is considered to be John Maynard Keynes). Cutbacks of social welfare programmes and austerity measure, privatization of public assets and activities, and the reduction of taxes on the business and investing classes are the norm (Kotz, 2000). On the international sphere, neo-liberalism advocates the constant movement of money, capital, goods, services across national boundaries. This implies, corporations, banks, and individual investors are free to move and acquire properties across national boundaries. But what is significant here is the fact that despite the existence of this "freedom", the cross-border movement of individuals not part of the neo-liberal programme (Kotz, 2000). Thus, the contemporary concept of globalization is the geographic expansion of capitalism and neo-liberal ideas to encompass the entire world.
Since the mid 1970s, neo-liberalism was advocated to be the way to modernize, and break free from the old, bureaucratic, exhausted, inefficient, and closed state-dominated economic systems, and move forward through liberalizing reforms for new, efficient, and modern economies, which promised growth and freedom through integration with the modern world (Cooney, 2006). That is, either a country follows a strict neo-liberal way of modernization, or risks lacking behind the rest of the world, and gradually fade away. Moreover, political elites on the right, mainly Lady Thatcher of the United Kingdom and Reagan of the United States, endorsed neo-liberalism at the beginning of the 80s, trying to impose them on aggressively on the rest of the developing world (thought they tried to apply it more mildly in their own countries, knowing the disadvantages and working class dissatisfaction and mobilization it could (did) cause) what came to be known as the "Washington consensus". The "Washington Consensus" is a set of 10 principles bases on neo-liberal ideas, most important of which are reduced role of the state in the market, trade liberalization, privatization, and fiscal discipline (WHO). In addition to this, International Financial Institutions (IFI), such as the International Monetary Fund(IMF) and the World bank were used as tools of foreign policy, through which neo-liberal ideas were promoted by the conditionality attached to the funds governments in dire needs requested from the IFIs to save their collapsing economies. If governments did not follow the "Structural Adjustment Programmes" requirements (Privatization, austerity measures, deregulation of the market) of the IFIs, funds would not be coming. Hence the idea of economic development as the main goal of development was further fostered.
Here comes the question of whether free markets lead to economic growth, and development. In the traditional neo-liberal sense, increase in economic growth and wealth means development. However, Amartya Sen argues that economic growth, increase in the GDP of a country does not mean that the country is developed. Wealth should not be regarded as an end, only as a means to increase the substantive freedoms enjoyed by individuals. That is, development must address not only the basic needs of individuals, but also the values they enjoy. Hence, development is the enjoyment of substantive freedoms, plus security of people from basic needs. Poverty should be regarded as the deprivation of capabilities, and other then income, there are also other factors that influence the deprivation of capabilities, such as the inability to enjoy basic freedoms (Sen, 1999). Another important question that rises is did all segments of society benefit from neo-liberal approach to development, and neo-liberal globalization in general?
Advocates of neo-liberalism and neo-liberal reforms argue that through the opening up the economy and removing the role of the state in controlling the economy, would be able to achieve expansion in trade and investment and thus, achieve increases in growth of GNP as well as growth of GNP per capita. This, they argue, would lead to improved level of wages and income, and thus lower unemployment and poverty (Cooney, 2006). Two case studies however, show that this was not the case. First, was the Pinochet experience of Chile. General Augusto Pinochet came to power in 1973 through a bloody coup that overthrew the democratically elected president of Chile, Salvador Allende. After gaining the grips of power, Pinochet started privatizing most of the state owned companies, and opened the borders of the country to foreign imports, by tearing down the barriers that had protected local industries and manufacturers for a long time. Moreover, Pinochet cut down government spending by 10%, and eliminated price controls, sending the prices of basic necessities such as bread and oil through the roof. Only after the first year of Pinochet's rule, inflation reached 375% (Klein, 2008). His programme of neo-liberalization subjected the country to two depressions in a matter of decade, first in 1974-75, when GDP fell by 12%, then again in 1982-83, when it dropped by 15%. In addition, contrary to the neo-liberal belief of the connection between free-markets and healthy growth, average GDP growth in 1974-89, which was the radical phase of the Pinochet revolution, was only 2.6%. In contrast, with a much greater role for the state in the economy during 1951-71, Chile's economy grew by an average of 4% a year (The Guardian, 2013). By the end of the radical phase of Pinochet's liberalization, both inequality and poverty had increased. The average of people living below the "line of destitution" had increased by 3% (15%), the percentage of people living under the poverty line had increased by 2% (26%), and the total percentage of Chileans who were poor was 40% of the total population. In terms of income distribution, the share of the national income going to the poorest half population decreased, while the share going to the richest 10% of the country increased immensely (The Guardian, 2013). Even in 2007, Chile remained one of the most unequal societies in the world. Out of 123 countries that the United Nations tracks inequality in, Chile ranked 116th, making it the 8th most unequal country in the world (Klein, 2008). Moreover, the economic and social meltdown was accompanied by massive abuses of Human Rights, where suppression of the opposition, massacres, assassinations, and forced disappearances- most of which were part of the notorious "Operation Condor"- were the norm. The only thing that helped Chile from total economic collapse was the fact that Codelco, the state owned copper mine company which was nationalized during Allende's tenure was not privatized by Pinochet. The company continued to generate 85% of Chile's export revenues (Klein, 2008).
The second example is the case of Thailand and South Korea in the aftermath of the 1997 Asian financial crisis. Thailand and South Korea, being among the countries most affected by the financial crisis, opened discussions with the IMF for the possibility of getting loans to overcome the economic crisis. The IMF, remaining true to its neo-liberal credentials, and being an instrument of foreign policy of the big powers, demanded both countries to tear down trade and investment protectionism, and stop the activist role of the state in the economy. Moreover, the IMF demanded that both countries make deep budget cuts, subscribed austerity measures, and called for privatization. Hence, all the "Structural Adjustment Programmes" were in place (Klein, 2008). What was the result of the economic restructuring of both Thailand and South Korea along neo-liberal lines? The International Labour Organization (ILO) estimated that a staggering 24 million people lost their jobs in Asia (countries beside Thailand and South Korea also received IMF loans and its neo-liberal prescription). After the "Structural Adjustment Programmes", Thailand was losing 2000 jobs per day, making it 60,000 jobs per month. In South Korea, 300,000 workers were fired every month. Furthermore, the middle class in South Korea, which represented 63.7% of the population before 1996, now made up only 38.4 of the population. However, what is most disturbing, is the human cost of these programmes. In South Korea, suicide rates increased immensely, and many families in the rural areas of the country sold their daughters to human traffickers, who in turn took them to work in the sex trade in Australia, Europe, and North America. In Thailand, there was a 20% increase in child prostitution, just year after the IMF reforms. These are problems that still persists in these regions. It was during these times when the then- U.S. secretary of state Madeleine Albright visited Thailand, criticized the returning to prostitution by the public, and said it was important to fight back. The same Madeleine Albright that had expressed her strong support for the IMF reforms (Klein, 2008). Hypocrisy at its best.
The historical record of neo-liberalism, and neo-liberalist globalization proves that it cannot generate equitable economic growth, which benefits all segments of society. In much of the Southern Hemisphere, neo-liberalism is considered to be as the second colonial pillage. In the first pillage, the riches were seized from the land, while in the second they were seized from the state (Klein, 2008). The neo-liberal insistence on downsizing governments, and diminishing their role in the economy has led to economic, human, and social catastrophes in the global developing South. The criticism that was directed against neo-liberalism and the "Washington Consensus" led to the development of what is called the pos-"Washington Consensus". While economic growth was made the main goal of development in the "Washington Consensus", the post-"Washington Consensus" puts sustainable, egalitarian and democratic development at the heart of the agenda (WHO). This said however, the post-"Washington Consensus" is still underpinned by the neo-liberal agenda. The way the international economic system was constructed in the aftermath of the second World War, limited the policy space of states, especially the undeveloped ones. Over time, the restrictions on the ability of governments of having a truly "independent" policies has increased, mainly through neo-liberal globalization of the world. Furthermore, the developed world, through the IMF and other IFIs, impose policies on the developing or the least developed countries, subscribing development strategies that share little resemblance, or are directly opposite of the schemes the now-developed countries followed during their industrialization process, mainly through careful state intervention, regulation, protection of local industries, and control on foreign economic exchange. In this system, the developing countries don't stand a chance in achieving their ultimate goal: an equitable economic and human development.
Neo-liberalism has neither led to equitable economic development, nor has it enhanced the enjoyment of freedoms of the larger part of the population of the world. The disparities between the Global North and the Global South has increased, and so has the disparities within countries between the rich and the poor. Moreover, neo-liberal globalisation has contributed in the destruction of the middle class, which is the basis of a healthy economy, and has had an adverse effect on human rights. A new economic system is, by now, a necessity.
Cooney, P. (2006). The Decline of Neo-Liberalism and the Role of Social Movements in Latin Amrica. Belem, Para, Brasil: Universidade Federal do Pará.
Klein, N. (2008). The Shock Doctrine: The Rise of Disaster Capitalism. London: Penguin Press.
Kotz, D. M. (2000). Globalization and Neo-liberlism. Massachusetts, USA: Department of Economics and Political Economy, University of Massachusetts.
Sen, A. (1999). Development as Freedom. Oxford: Oxford University Press.
The Guardian. (2013, April 16). Short-lived legacy: Margaret Thatcher, neoliberalism and the global south. Retrieved April 20, 2013, from www.guardian.co.uk: http://www.guardian.co.uk/global-development/poverty-matters/2013/apr/16/legacy-margaret-thatcher-neoliberalism
(n.d.). Trade, foreign policy, diplomacy and health- "Washington Consensus". Retrieved April 20, 2013, from www.who.int: http://www.who.int/trade/glossary/story094/en/
(n.d.). Trade, foreign policy, diplomacy and health: Post-Washington Consensus. Retrieved April 21, 2013, from www.who.int: http://www.who.int/trade/glossary/story074/en/
Shant Abou Cham is a student at the University for Peace.