The crises of neoliberalism won’t be solved by more neoliberalism

We’re in a world of trouble if we are unable to conceive of alternative economic models. We need not linger on the details of rising inequality, political instability, tightening corporate control of governments, looming environmental crisis, increasingly precarious employment (if even available) and the inability to meet the basic needs of billions of people around the world to see that capitalism is failing humanity.

To put this in a nutshell, on a global basis, about 200 million people are unemployed among 2.4 billion who have no stable employment.

Neoliberalism is not a virus foisted on the world by some secret cabal; it is merely the latest phase of capitalism, one that, from the standpoint of capitalists, is the logical outgrowth of the breakdown of mid-20th century Keynesianism. We’re not going back to Keynesianism, because that was a brief period dependent on an industrial base and market expansion. A repeat of history isn’t possible because the industrial base of the advanced capitalist countries has been hollowed out, transferred to low-wage developing countries, and there is almost no place remaining into which the capitalist system can expand.

What happens to rain forests when the market is allowed to decide. (Photo of Montane Rainforest in Ecuador by Gunnar Brehm)

What happens to rain forests when the market is allowed to decide. (Photo of Montane Rainforest in Ecuador by Gunnar Brehm)

So when I saw a paper titled “Industrial policy in the 21st century: merits, demerits and how can we make it work” in the latest issue of Real-World Economic Review, I was intrigued. As its title implies, Real-World Economic Review specializes in papers by economists who think far outside the orthodox box that serves industrial and financial elites very well; the very fact that a field requires a publication with such a title speaks for itself.

The disappointing prescriptions offered in the paper, however, might at best be described as “neoliberal lite.” The author of “Industrial policy in the 21st century,” Mohammad Muaz Jalil of the NGO Swiss Foundation for Technical Cooperation, is well-intentioned, but advocates the same export-oriented policies that have led to sweatshops and dangerous working conditions across the developing world. It also implies endless growth, a dangerous illusion.

More of the same hardly seems a likely escape, and that is before we contemplate the mathematical impossibility of every country exporting its way out of economic difficulty. For every country that achieves an trade surplus, some other country has to have a trade deficit.

What works for a few doesn’t work for all

Mr. Jalil begins by noting that East Asian countries used industrial policies, including protectionist policies, to build their economies, most notably Japan, South Korea, Taiwan and Singapore. He uses the Organisation for Economic Co-operation and Development (OECD) definition of industrial policy:

“Industrial Policy is any type of intervention or government policy that attempts to improve the business environment or to alter the structure of economic activity toward sectors, technologies or tasks that are expected to offer better prospects for economic growth or societal welfare than would occur in the absence of such intervention.”

The above East Asian countries used various mixes of export-oriented growth strategies and protection for young industries. Favored corporations received export subsidies, reduced interest rates and preferential allocation of foreign exchange with the goal of these enterprises becoming competitive globally. Manufacturing in these countries started at a low level but steadily moved up the “value chain” — that is, they were able to produce increasingly sophisticated products.

Mr. Jalil does acknowledge some criticisms of this type of policy, noting the difficulty in foreseeing who or what will be the winners in the future, the much stiffer international competition of today, that international supply chains have become dominant, and that today’s severe global trade regime restricts the ability of governments to intervene. Governments today nonetheless use industrial policies, albeit within the so-called “Washington consensus” (which is really the “Washington diktat”) that imposes neoliberal policies around the world through the World Trade Organization and international lending banks controlled by the United States and to a lesser degree the European Union.

When we get to specific examples, the paper’s prescriptions rapidly break down. Mr. Jalil presents Brazil and South Africa as examples. Brazil is one of the world’s most unequal societies, and one with severe economic problems not likely to improve in the wake of the Brazilian Right’s soft coup against former President Dilma Rousseff. A weak currency, lack of growth, continuing inflation, huge piles of debt owed in dollars and euros, and local corporations saddled with debt and low credit ratings seems not a rosy picture. Poverty is widespread, and activists who challenge land owners who clear-cut rain forests are not infrequently killed.

South Africa has the most inequality of any country in the world. The African National Congress threw away its moral authority to implement its “Freedom Charter” upon taking power by negotiating away its economic control. The ANC took office handcuffed, and having tied themselves to financial markets, those markets applied further “discipline” by attacking the South African economy at the first sign of anything that displeased them.

South African workers, especially miners, are subjected to violence at the hands of the ANC government, abetted by ANC-aligned unions. More than half of South Africans live in poverty and the unemployment rate is 26.6 percent. This is an example to emulate?

Sweatshop advocates don’t have to work in them

Next up, the author promotes the Bangladesh garment industry as a success story! Well, for Wal-Mart and other global retailers who rack up enormous profits on the backs of sweatshop workers being paid starvation wages this is undoubtedly a success. But as a development strategy beneficial to working people? Let’s look at the evidence.

Bangladeshi garment workers can work 14 to 16 hours a day, some seven days a week. The minimum wage is little more than half of the minimum required to provide a family with shelter, food and education, according to the activist group War on Want. The Institute for Global Labour and Human Rights estimates that a worker in Bangladesh would have to labor 15 1/2 hours to buy a gallon of milk. In 2014, the Wal-Mart chief executive officer earned 24,500 times more than a Bangladeshi sweatshop worker. Yet despite repeated accidents resulting in mass deaths, little has changed.

The shipbuilding industry is also promoted as a route to prosperity for Bangladeshis. A key component of this industry is “ship-breaking,” whereby ships are driven onto land to be disassembled. The Institute for Global Labour and Human Rights reports that ship-breakers work 12-hour shifts, seven days a week, and are paid 30 to 45 cents an hour to perform a job “in which it is common for workers to be maimed or killed.” The ship-breakers are reported to live in crowded hovels, sleeping on concrete floors.

Ship-breaking in Chittagong, Bangladesh (photo by Naquib Hossain)

Ship-breaking in Chittagong, Bangladesh (photo by Naquib Hossain)

Nobody would choose to do such things except under the most dire deprivation. That such work is a route to sustainable development is a common trope of neoliberal apologists, but defies common sense in any humanistic context.

The author points to the increasing number of developing-country corporations among the world’s biggest, but those numbers are nonetheless still minuscule. In fact, the corporations of the Global North remain overwhelmingly dominant. A study by Sean Starrs in New Left Review found that, when the world’s industries are grouped into 25 broad categories, U.S. firms led in 18 and in 10 of those U.S. corporations hauled in at least 40 percent of the aggregate profits. Germany and Japan hold the lead in two other sectors.

In support of these prescriptions, Mr. Jalil argues that as countries move up the value chain, the next country can “take over” “entry” industries and begin its own ascent. But there is only so much productive capacity that the world can absorb — the idea that every country can become a manufacturer of the same high-end electronics equipment, for example, defies reality. It also ignores, again, that every country can’t be a net exporter. It also sidesteps the fact that China’s growth threatens to “crowd out” other competitors due to its massive size.

Minqi Li, in his book The Rise of China and the Demise of the Capitalist World Economy, argues that the huge mass of low-wage Chinese workers will drag down wage levels globally; the increase of industrialization in developing countries will lead to exhaustion of energy sources; and that ecological limits will force a halt to growth, fatal to a system dependent on growth. Professor Li argues that an upward convergence of wages around the world in present-day low-wage havens would significantly reduce capitalists’ profits.

In this scenario, capitalists would seek to cut wages in core countries to make up the difference, which in turn would trigger reductions in demand. Reduced demand would spell trouble for any export-oriented economy, especially as the ultra-low wages suppress domestic consumption.

Nor can sufficient jobs be created for the expanding population of farmers and others dispossessed from the countryside — Samir Amin calculates that even with an increase of seven percent in gross domestic product for the next 50 years, no more than a third of this population could find regular work. No such growth has ever occurred for such sustained periods.

Where is the second Earth going to come from?

Finally, all this imagined explosion of industry is predicated on endless growth. We live on a finite planet, and thus infinite growth is impossible. Consumption is already growing beyond Earth’s carrying capacity and the anthropogenic changes to the atmosphere have us dangerously close to the point of no return in terms of global warming. Humanity is currently consuming the equivalent of 1.6 Earths, and at current rates of consumption trends, that will rise to two Earths by the 2030s.

Not a substitute for Earth (Image created by NASA via Hubble Space Telescope)

Not a substitute for Earth (Image created by NASA via Hubble Space Telescope)

Ramping up ever more production, even assuming that markets could be found for it, can not be a long-term solution for poverty. Managers of corporations are answerable to private owners and shareholders, not to society, and thus do all they can to externalize environmental and other costs onto society. Alas, renewable energy is not a short cut to reversing global warming. Renewable energy is not necessarily clean nor without contributions to climate change (the production of wind turbines and electric cars lead to plenty of pollution), and the limits that living on a finite planet with finite resources presents are all the more acute in an economic system that requires endless growth.

Finally, the belief that industrial policy can create prosperity is predicated on developing countries having the independence to implement protectionist measures. Mr. Jalil argues that the poorest countries have temporary reprieves from World Trade Organization rules until the end of this decade, but that they have room for maneuver is questionable at best. Not only WTO rules, but the bilateral and multilateral “free trade” agreements render such protections illegal. The Trans-Pacific Partnership, which includes several developing countries, would further restrict any ability to protect local industries — and the TPP is intended to be a model for other countries. (Although wounded, TPP is not dead yet because a two-year window has yet to expire.)

In a world where “free trade” agreements strongly constrict the ability of governments to enact laws and regulations, and which grant multi-national corporations the right to sue to eliminate any law they don’t like — in essence, a requirement that corporate profits trump any labor, safety, environmental or health measure — the road to becoming a net exporter will begin and end with sweatshops for most countries.

Low wages and a lack of enforceable regulations are precisely why multi-national capital is invested in developing countries like Bangladesh. The global “free trade” regime is nothing more than a mechanism for the most powerful industrialists and financiers of the Global North to accelerate a race to the bottom and increase their exploitation to the maximum humanly possible. That developing countries can win at this — or that the advanced capitalist countries will allow more competitors to arise — is fantasy. A neoliberal fantasy.

Mr. Jalil concludes with a call for private-sector funding able to “respond to diversity and dynamism inherent in markets.” Huh? Markets in the capitalist world are nothing more than the aggregate interests of the largest industrialists and financiers — allowing markets to make an ever wider range of social decisions is what has led the world to its impasse and ever harsher austerity for working people. Neoliberal capitalism may teach that people exist to serve markets, but we don’t have to accept that.

The belief that private funding — which, after all, is done to extract profit regardless of social or environmental cost — will make us live happily ever after should be left to the realm of fairy tales. As the saying goes, insanity is believing that doing the same thing over and over again will produce different results.

19 comments on “The crises of neoliberalism won’t be solved by more neoliberalism

  1. […] via The crises of neoliberalism won’t be solved by more neoliberalism — Systemic Disorder […]

  2. Ned Hamson says:

    No current models work, past ones do not work, and hunter/gatherer does not “work” for consumer-addicted. Regardless of economic models, humans universally delude themselves into believing they are above or outside of nature – we are not. Until we become sufficiently self-aware, we will set off system responses to “balance” the larger system by reducing our numbers or ability to unbalance the larger system.

    What we do not know, is if we can tip the system so much that the counter balancing may no longer include humans and if we have already passed that tipping point.

    That might be worth trying to figure out, if we have the time.

    • We are dangerously close to a climatic tipping point and we are likely to find just where that point is after we’ve already crossed it. Human society can never be outside nature, and it is nature that will get the last word if we don’t change course very soon.

  3. Steady State says:

    Well put.

    You cannot solve today’s problems with the same kind of thinking that created the problems in the first place.

    I am in favor of radical outside-the-box solutions. For a start, we need to abolish big corporations’ stranglehold on public policy.

    Put an end to the Feds, corporate institutionalized lobbying, big bank, big pharma, big agri, big oil, military industrial congressional complex, international trade agreements NAFTA, TTP, TTIP, CETA, ISDS and so much more.

    Rethink the role of banking, savings and loan in society. Institute basic income, universal education and healthcare, four-day work-week.

    Just for starters.

    Did I say outside-the-box thinking?

    • All very necessary goals, Steady State. But we’ll have to transcend capitalism and replace it with a system of economic democracy to achieve them. If we were to produce what is necessary, rather than produce to generate excess profit (surplus value) for capitalists, we probably wouldn’t even need to work four days a week. And there would be no more finance capital or speculation; banking would become a public utility for the common good. Let us all keep thinking.

  4. newtonfinn says:

    While I agree with much of this analysis, one problem rarely talked about on the left (or on the right, for that matter) is our all-consuming focus on economics–the production, accumulation, and distribution of money. Because the value system that underlies my thinking devalues all things monetary–sees money only as a necessity of life, of no more significance or meaning than, say, plumbing fixtures–my concern is only that everyone have enough money to satisfy essential needs. Frankly, if this policy could be firmly established, I couldn’t care less about whether someone wanted to waste his or her life in excessive wealth accumulation, which would seem to be tantamount to the obsessive hoarding of any other material thing.

    However, my value system goes even further than this and indicates that, unlike collecting antiques, for example, accumulating wealth is detrimental to one’s growth and development as a human being. Thus, the proper attitude toward the super rich should be one of sorrow for their loss of significance and meaning–the opposite of envy. What about all the power that money brings with it, power which can be and is being used in evil ways? That power exists only because of the extreme, indeed ultimate value we put on money, which allows it to buy things of infinitely more importance; i.e., the honesty and integrity of a government official purchased by the money offered by a corporate lobbyist.

    What will it profit a man (or a woman) if he (or she) gains the whole world at the cost of his (or her) soul? Take that old question to heart, ponder it as if on one’s deathbed, and the framework of the dialogue about economic issues shifts and resets, and perhaps new paths will open to insuring “daily bread” for “the least of these.” I see hope nowhere else.

    • Steady State says:

      Hence the only solution to your predicament is to abolish money.

      Money is a human fabrication created from nothing. Money represents debt on future workers and society and as currently stands is a weapon used by the ruling class to subjugate the 99%.

      Laws, guns and money are instruments of power created to organized and control society.

      • newtonfinn says:

        Before we can abolish money, we must abolish the love of money and the desire for wealth in ourselves and in all those whom we can influence. This was a principal task of a dynamic social movement in the first and second centuries of the Common Era, a movement called, using the language of the time, the Kingdom of God. That movement caught fire and spread widely and wildly throughout the Roman Empire, engendering a form of communal living and a sharing economy akin to communism. After a couple of centuries of rampant growth, the movement was unfortunately co-opted by the creation of an imperial institution (Christendom) that usurped the movement’s language, symbols, and myths.

        My conviction is that we desperately need something similar (but more resistant to co-option)–framed in the language, symbols, and myths of our time–to sweep through and undermine at its core (greed and envy) the American Empire and the global capitalist world order which it secures and perpetuates. I’m well aware that this focus on a “spiritual” movement puts me into a marginalized position on today’s left, but I have to call it as I see it. In doing so, I hope I’m not posing a problem of distraction or irritation to this interesting, insightful blog. If I am, please let me know, and I’ll bracket such comments and talk about other things.

        • Newton, please be assured your comments are always more than welcome. I am not a believer myself, but I appreciate that different people come to problems through different perspectives, and these differences, when in the service of solving the immense problems humanity faces, will give us necessary flexibility. None of us can have all the answers, or even all the questions.

          I took part four different years at the annual School of Americas Watch vigil at Fort Benning in Georgia that puts a spotlight on the U.S. Army’s training of Latin American military personnel in terrorism and torture techniques. These vigils are led by Jesuits with a spiritual perspective, and always includes crosses with the names of people killed by School of Americas graduates that are carried to the base’s gate. I always found it very moving and was proud to take part. None of the tens of thousands of Leftists who participated were put off by the religious aspect of the weekend, which was timed to the anniversary of the murder of three nuns and a church lay worker.

          To your original point, about love of money, I would argue that most of us living under capitalism don’t have a love of money, but rather scramble to obtain money because survival is impossible otherwise. We have to endure awful jobs where we have no say in what we do or how we work, so it is no surprise that so many scheme to find a way to acquire wealth to escape. There certainly are people who do love money and live to accumulate wealth, and unfortunately we live in an economic system that encourages and facilitates the worst aspects of this.

          We do need a way of organizing an economy and society that focuses on community, sharing and cooperation, where there is enough for everybody to live a reasonably comfortable life. When “there is no alternative” loses its force because people see something better, I suspect the “love of money” will fade away. Greed and envy as human characteristics would still exist, but would have vastly less scope to be expressed in a world built on cooperation, sustainability and egalitarian principles.

          • newtonfinn says:

            Thank you for your kind response and for sharing your poignant Watch vigil experiences. How I long for a return of liberation theology in South and Central America and throughout the world. You may well be right that the average citizen under capitalism does not love money for its own sake but rather only as a form of security in the scramble for survival. That’s certainly true in my case and that of many friends. But the problem here is that I also have friends who have managed to accumulate several million dollars, and they still feel insecure. The more they have, the more they worry about keeping it, if only to pass on to their children so that they will be secure. It seems we have become a “security state” in more ways than one. Perhaps socialism could do a more effective job in offering a positive vision of a humanely secure society.

  5. […] via The crises of neoliberalism won’t be solved by more neoliberalism — Systemic Disorder […]

  6. Peg Rapp says:

    Thank you for stating the problem so clearly. Brilliant blog. Now if you can just come up with the solution!

    A couple of questions/issues for further discussion:

    You alluded to the role of the World Bank’s role in the development of the global free market economy, how does the IMF fit in currently? How important is it in comparison to WTO?

    You discuss the creation of profit under the neoliberal exchange regime. I would be interested in a discussion of how the redistribution of wealth through exchange policies allows certain regions to accumulate more capital to create industries which then can actually create new surplus value or profit, rather than just redistributing it. (This seems to combine two traditional techniques of obtaining wealth: 1) the old mercantile method of buying cheap and selling dear which is done through the exchange sphere which you discuss at length and 2) the method of extracting surplus value from worker’s labor in the Productive sphere in Industrial capitalism according to the Marxist paradigm. The combined approach in the current global market has truly become a kind of super predator capitalism.

    Final point for now: you mentioned the need for new markets. It seems our new markets are the ephemeral “cloud” markets of credit cards, derivatives, etc which create ever more boom and bust cycles putting workers as consumers in debt and eventually controlling workers through their debt.

    • Thank you for the kind comments, Peg. To your first point, the International Monetary Fund and World Bank are the preeminent institutions imposing neoliberal global capitalism and enforcing the dictatorial rule of Northern multi-national capital. The IMF provides loans to governments to pay off debts, and imposes harsh conditions to do so, further entrapping developing countries. The World Bank tends more to provide loans for specific infrastructure projects, and does so in ways to enrich the private capital that is investing in these projects with an indifference to the environmental and social problems these cause, such as, for example, villagers and farmers displaced by the building of giant dams.

      To your second point, perhaps I can address this at greater length in the future. For now, I would note that before the rise of neoliberalism, the preferred model for developing counties was “import substitution” — making things themselves through the construction of local industry instead of importing them. A country that has a surplus of a commodity can certainly export that surplus while providing for its domestic needs to the extent possible.

      No country can be self-sufficient, but need not be completely dependent on predatory investment capital, either. The model now is to encourage foreign direct investment through “liberalized” trade regimes – allow multi-national capital to invest in industry that will produce for export in conditions that not only enable super-profits from the low wages and poor conditions in sweatshops but allow multi-national capital to extract huge sums of money.

      For example, only a tiny fraction of the value created by iPhones stays in China, where they are manufactured. Apple retains the lion’s share of the profits, with the rest going to the German, South Korean and Japanese manufacturers who supplied the parts and shipped them to the final assembly plant, and the Taiwanese owner of the plant, a subcontractor to Apple. (See this post: That money goes into Apple’s pockets and into dividends for speculators.

      On your final point, debt is a way of controlling workers and governments, and in the case of workers, also a way to keep the party going for a while longer after wages become insufficient to sustain a reasonable standard of living.

  7. Neoliberalism is extremely effective at creating more millionaires and billionaires, as it was originally intended. And so long as millionaires and billionaires continue to control the so-called liberal democracies it will continue – either until a mass movement dismantles capitalism or until catastrophic climate disruption ends life on earth.

  8. troutsky says:

    And of course neoliberalism will still resort to the time-tested method of accumulation through dispossesion, using whatever violent coercion is necessary.
    In her book Undoing the Demos, Wendy Brown makes the argument that neoliberalism’s most subversive project is re-production, that is, producing subjectivity in the form of homo oeconomicus, whose only concept of value is monetary. Maybe this goes to newtonfinn’s point (above) .

    As for School of America’s Watch, If so many people show up year after year, why wouldn’t they ALL get arrested and try to actually change something? I’m thinking it’s time to fill the jails.

  9. David Topple says:

    It’s worth looking into the views of the businessman Sir James Goldsmith, expressed very clearly in his book ‘The Trap’, written in the early 1990s, and in a follow-up publication ‘The Response’ in which he answered his critics. Though a practising capitalist (a billionaire so I believe), he realised that the system as presently constituted was heading for the edge of a cliff.

    The last sentence of the above article (regarding the insanity of doing the same thing over and over again to get different results) is important. I’ve noticed this mistake both in capitalism’s ‘right-wing’ response to the crises of its own making, and in the response of ‘the left’ to the rise of people like Donald Trump and his ‘right-wing populist’ equivalents here in Europe. The theory seems to be that if a message hasn’t got through to the stupid voters, obviously the desired ideology wasn’t imposed with sufficient vigour, so now efforts in ideological persuasion will be re-doubled in order to make the stupid voters understand what they should be thinking. The plan will of course fail, and the ensuing situation will result in the rise of the ‘far right’ and, to an extent so I suspect, the ‘far left’ – a situation that will as usual appall those who caused it. The appalled will then shout about how their opponents are all ‘extremists’ and idiots.

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