This Thing Called Neoliberalism

I began studying economics seriously in 11th grade. Mrs. Bindra, who taught us so patiently and enthusiastically, taught us all we needed to know about the historical evolution of the Indian economy over the past century and a half, the basic techniques of statistics, the system of national income accounting, and of course, microeconomic and macroeconomic theory. As I sat with rapt attention and imbibed a fascinating mix of concepts and methods, I marveled at the new intellectual universe it opened up for me. It is possible today to sum up what I learned in four simple statements. Firstly, the Indian economy had been stagnant for most of modern history, first due to colonial exploitation and then due to socialist governmental policies. Secondly, free markets held the key to economic growth and development, because they permitted societies to allocate human and non-human resources most efficiently and profitably. Thirdly, liberal trade policies complemented domestic free markets by expanding consumers' options and producers' markets, and globalization offered developing countries the best way to get out of the poverty trap. Fourthly, the government ought to cut taxes, duties, spending, and regulation, and adopt the role of an umpire who ensures that individuals and corporations acted lawfully, traditional drawbacks such as gender and caste discrimination were eliminated, and markets functioned smoothly.

Today, I know these four propositions form an ideology called neoliberalism. Proponents of neoliberalism argue that these propositions reinforce each other such that free markets, political liberty, and limited government are our best hope for progress and freedom in the 21st century. Critics, however, argue that these interlinked elements of neoliberalism rest on utter lies and deception such that they exacerbate socioeconomic inequalities, increase poverty, and heighten political tensions within countries. Since both sides rely on unshakable ideological convictions to argue their points, we invariably enter an intellectual stalemate. Of course, politically, the proponents of neoliberalism have won in most parts of the world, whether in South Asia, Eastern Europe, Sub-Saharan Africa, East Asia or Latin America.

I am afraid I have never been an ideological partisan for either side in this debate. As a skeptic, I tend to focus more on contextual social-fact considerations rather than purely ideological ones. Facts are messy, and ultimately, I think, they undermine the neatness of ideological worldviews on both the left and the right. Three factors stand out for me in assessing neoliberalism and its critics worldwide. Firstly, contrary to what both sides believe, the four propositions I discussed earlier are NOT, in fact, consistent with each other. It is quite possible, as in China, to deny civil liberties and maintain a vast state presence yet exchange socialism for trade liberalization and globalization. Likewise, it is also possible, as in India as in Africa or Eastern Europe or Latin America, to roll back the state and embrace free markets without liberal political consequences. Lastly, it is perfectly possible, as in the United States and Britain, to resist trade liberalization but prioritize limited government and political freedoms. The defenders and opponents of neoliberalism rarely possess the pragmatism to open their eyes wide enough to acknowledge what seems absolutely obvious to laypeople. This is what ideological dogmas do. We should be wary.

Secondly, if neoliberal ideologues and their cheerleaders are correct, then we should observe progress in economic and political terms in our age of globalization. Yet the picture is not so rosy. In the North Atlantic world, socioeconomic inequalities have risen alarmingly over the past three decades, and these account partly for the growth of racism, xenophobia, and other aggressive forms of reactionary politics in recent years. In the Global South, neoliberalism can hardly be called a success. As states have cut spending and privatized public services, we find new oligarchic forms of crony capitalism and violent appropriation and control of resources by private corporations, strongmen and militias/gangs. Consider the kinds of cronyism exposed during the East Asian financial crisis in 1997-98 or in the United States in 2008 or the slew of corporate scams this decade in India. Also consider how neoliberal state reforms have paved the way for lucrative monopolies of armed groups and corporations in West Africa, Latin America, and Afghanistan. This is not progress by any standards.

Thirdly, if neoliberal critics are correct, then we should find doom and gloom everywhere. But we find new social and political formations arising out of the challenges and opportunities created by neoliberal policies. The massive increase in capital flows domestically and internationally means higher incomes and living standards for more people than anytime in human history. While it is true that things are getting better for people at the top and middle rather than at the bottom, it is important not to forget how economic liberalization is creating new entrepreneurial opportunities for rural and semi-urban residents as well as women and minorities in countries such as India. Additionally, where economic and political liberalization actually coincide, political opportunities for citizens also increase. New expressions of Dalit and adivasi politics in India, for example, are as much responses to liberalization as they are expressions of it. People can now vote with their feet to kick out unresponsive politicians and they can even find radical democratic solutions to their problems outside the party system. However, where we do not find liberalization, as is the case ironically in the North Atlantic world, we find economic stagnation and political resignation. Much as critics on the left complain on growing inequality, the problem lies less in markets as in corporate governance and effective state policies. Those were problems well before "neoliberalism" entered our lexicon.

Fine, you might say, both sides are partially correct or partially wrong, but the basic ideological premise in either case is nonetheless defensible. No, I'd respond, because neither side has an adequate theory of political economy to claim any empirical successes. Textbook-style free markets are not necessarily the most efficient way to allocate resources in an economy for two reasons. Firstly, there are social, political, and environmental costs that do not show up in a simple supply-demand diagram. When we factor those into our equations, it will be evident that healthy regulation and policing of markets are optimal: no private actor will be willing to absorb the costs of monitoring and managing markets to ensure their smooth functioning. Secondly, as left critics have argued for a century and a half, free-market economics assumes that everyone has equal access to resources and everyone starts from the same level. This is, of course, patently false, so those who are richer, better educated and with the right family connections are better positioned to profit from markets than the rest of society. As even Adam Smith accepted, education and healthcare cannot be privately organized in a healthy society, so the state needs to assume a pretty large role to ensure everyone has access to schooling and medical facilities. Otherwise, citizenship is rendered meaningless.

But this conclusion should not lead us into stock criticisms of markets that focus on inequality. Yes, the state needs to play a bigger role than neoliberals allow, but when markets are stifled or managed oligarchically, wealth-generation is affected adversely. There is no prospect of pulling millions out of poverty by state policies alone; markets must generate enough wealth and employment opportunities for everyone to be free from scarcity and want. Those on the left need to know that attacking corporations and their defenders in thinktanks and governments is NOT the same thing as attacking free markets. If markets were truly free and open, effective state policies in health and education will lead to a progressive society. Corporate landgrabs, crony capitalism, and warlordism cannot be permitted in such a society. Ultimately, strong welfare states that rule lightly must coexist with an healthy market economy. What is true domestically is also true internationally. If future financial meltdowns and global warming are to be countered effectively, there is no alternative to global state regulation and a global market economy. Despite the vociferous criticism of markets in toto, there are no realistic leftist alternatives to build a different kind of political economy. Neoliberalism as an ideology may be rotten to the core, but without thriving markets, there is no hope for progress whatsoever.