Skeletons in the Neoliberal Cupboard
Photograph by Nathaniel St. Clair
Promoted by the likes of Friedrich Hayek, Augusto Pinochet, Milton Friedman, Margaret Thatcher, Roland Reagan, Alan Greenspan, etc. une idée fixe of neoliberalism has been around since the 1980s. The key elements of this ideology are the support for fiscal austerity, rampant deregulation (i.e.: pro-business re-regulation), free trade, less taxes for the rich and corporations, privatization, reduction in government spending, anti-unionism, a tendency to endanger democracy, the elimination of workers’ rights, and uncontrolled environmental vandalism.
And neoliberalism also has many other skeletons lurking in a cupboard. Largely, this is not what the prophets of neoliberalism want you to know. Well, it is bit of a Rumsfeld moment. There are many things we know about neoliberalism that they think we don’t know. But there are things we do not know about neoliberalism. Finally, there are things the fortune-tellers of neoliberalism do not want us to know.
Now we will expose some of these secrets, the things the demagogues of neoliberalism do not want us to know.
One thing neoliberalism is advocating is the idea that every individual acts – almost all the time – out of pure self-interest. What the henchmen of neoliberalism do not want us to know is that people have other motives than the one-dimensional mindset of neoliberal crusaders want us to believe. Some of these motives are patriotism, community spirit, solidarity, altruism, noblesse oblige and wanting to return something to the society.
Advocates of the neoliberal free market, however, dismiss any motive other than pure self-seeking. Despite of this, humane and moral motives are real. More often than not, these other motives are much more important than self-interest. Since self-interest seems to be something that gets you to the top, anyone trying to act in a selfless way gets shoved to the bottom of the heap… Selfishness has become the basic ingredient that makes a rich country rich but not a country that is fair, just or equitable.
We are led to believe that self-interest made the United States of America rich and that the USA is not only the richest country in the world but also it is the master country of neoliberalism. Its power and wealth come from neoliberalism, the free market and the free entrepreneurs. All the rest of the world has to do now to get rich is to copy the economic neoliberalism of the USA.
The neoliberal free enterprise model lets people feel compete freely and without limits. Even better, it will reward the winners without restrictions imposed by the government and without an ill-advised egalitarian culture. What they don’t want us to know is that this system creates extremely high inequality and how devastating this is for any society. Those who don’t succeed don’t matter.
The truth tells another story. In 2020, the year of the Corvid-19 pandemic and Donald Trump’s failed attempt at re-election, the USA was not even among the top-10 richest countries in the world. The same goes for the even more important HDI index (Human Development Index) where the USA sits in 17th position. With the possible exception of Ireland, the world’s top-ten countries are all non-neoliberalism countries. Even among the top-20 best countries, the USA has the most unequal distribution of income – and it is growing. Perhaps there is a reason why neoliberalists do not want us to know this.
On life expectancy, health care and infant mortality, the self-proclaimed poster boy of neoliberalism lags badly behind. Since the outbreak of the Coronavirus pandemic the USA has remained the unchallenged (unless perhaps you want to count Brazil) number one when it comes to the number of deaths. Virtually, the same miserable statistic can be seen when it comes to people in prison, the size of the underclass, the working poor and the precariat (those who sort of have jobs sometimes and whose household incomes just barely pay the bills, and who are a sick-day’s unpaid leave away from eviction).
The negative story of neoliberalism also comes to light when not looking at rich but at poor countries. Sub-Saharan African countries, for example, experienced a rather abrupt downfall in growth during the 1980s. This came as the result of something that happened during the late 1970s and early 1980s. During this time, Sub-Saharan African countries were forced to adapt to the ideological catechism of neoliberalism. It gave these so-called emerging countries free-trade through conditions imposed by what is known as the Structural Adjustment Programs or SAPs. The power of the World Bank and the International Monetary Fund – both controlled by rich countries – assured that.
Unlike the fairy tales spun by the propagandists of neoliberalism, the rapid exposing of immature producers to international free market competition led to a widespread collapse of rather small industrial sectors in these countries. In the decades before neoliberalism started to hold sway (1960s and 70s) these developing post-colonial countries had managed to build up such industries, a vital sector of these small economies that neoliberalism destroyed within a few years. The destruction of Sub-Saharan African businesses is yet another tale the story-spinning prophets of neoliberalism do not want us to know.
Nevertheless, another fairy tale that flies in the face of neoliberalism is the idea that market competition will enhance research, not cooperation among academics and scientists and state-funding of co-ordinated research, such as the Manhattan Project to develop the atomic bomb before the Nazis did. Similarly, the Hadron Collider in Switzerland is a stunning success of international physics.
Both of these projects are a testimony to global human cooperation and state-funding. It was cooperation and state funding, too, that gave us the World Wide Web, which was initially invented at the Hadron Collider. These are things that do not fit the bill of the ideology neoliberals concoct in their anti-state and anti-government rhetoric and the actually unfree free market competition.
Long before all that, the supersonic Concorde, a joint British-French government project of the 1960s, still remains one of the most impressive feats of engineering in human history. So is the state-funded NASA rocket to the moon, marking a small step for a man but giant leap for mankind. Even worse for neoliberalism is the undeniable fact that the first object sent into space was the Soviet built Sputnik in 1957.
Worse was to come for the prophets of American-style neoliberalism. The exclusively state-funded Soviet Union was on the verge of sending the first animal into space, Laika the dog and – Yuri Gagarin the first man. All of this happened because of cooperation and state funding, even though the Cold War limited the cooperation of scientists on their respective sides of the Iron Curtain.
The sheer seemingly endless list of state-funded research and scientific cooperation continues with government support for the invention of the computer, semi-conductors, aircrafts, and the Internet and biotechnology industries from penicillin to today’s Covid-19 vaccine. As in so many cases before, the case of the Coronavirus various nations, including those in the European Union, funded the development of a vaccine.
All of these projects have been developed thanks to subsidized R&D from governments around the world and through international scientific cooperation. Yet many successful government-funded and cooperative international ventures remain hidden, like skeletons locked away in the cupboard. All too often the truth is put aside in favour of one overarching ideology: neoliberalism.
Virtually the same situation goes for economic development. Unfortunately for neoliberals, post-war development hardly supports their myth of free market growth. Even data from one of neoliberalism’s core institutions, the World Bank, shows that the global economy used to grow in per capita terms at over 3% during the despised time of Keynesianism (1960s to 1970s).
In sharp contrast to the grandiose promises of neoliberalism, since the 1980s the world has slowed to the rate of a mere 1.4% per year, that is, less than the two decades of non-neoliberalism. In other words, since the start of the movement during 1980s, the world economy gives the rich a much bigger slice of the world’s pie in the mistaken belief that this inequality would create wealth for all: it would trickle down.
Despite these rising inequalities, since the 1980s, total investment as a ratio of national output has actually fallen even further in G7 economies – USA, Japan, Germany, the UK, Italy, France and Canada. What we see is the very opposite of the promises made by neoliberalism.
The much trumpeted trickle down effect does not happen, no matter how many super rich charitable donors pee in their pants. What happens instead is a vacuuming up effect. The rich are made richer. The top 10% of the US population, for example, hoovered up a whopping 91% of income growth between 1989 and 2006. By making the rich even more filthy rich, the rest of us do not get richer. Yet another failed promise of neoliberalism.
The same goes for virtually corporation where the income gap between workers on the one side and top-managers and CEOs on the other side has been increasing on a daily base. For example, CEO compensation has grown a staggering 940% since 1978, while a typical worker’s compensation has risen by just 12% during that same time. This creates wage stagnation and inequality. These are two more hidden skeletons in the cupboard of neoliberalism the ideologists of neoliberalism do not want us to know.
However, many companies have not profited from neoliberalism. General Motors, for example, used to be the unchallenged number one in the world car industry. Today it has moved down to sixth position. Recently Boing was plagued technical problems. Enron has completely caved in and so has Lehman Brothers. This list is on-going.
The hunt for personal gains lets CEOs to focus on short-term profits, often to the detriment of long-term developments. The corporate system forces CEOs and top-managers to maximize dividends and to keep shareholders quiet. As a consequence, investment is minimized and workforces are reduced. This creates short-term profits, to be sure, but this also weakens a company’s long-term productive capabilities. This is yet another fact the apostles of neoliberalism do not want people to know.
Neoliberals focus on entrepreneurship which is seen as the key to a dynamic economy, even though one of the master proponents of neoliberalism, George Bush, once ignorantly said: “The problem with the French is that they don’t have a word for entrepreneur.” Entrepreneur is French for “one who grabs” and thus “takes control.” Undeterred, the neoliberal promise is that entrepreneurship is not only responsible for the success of the USA; it will also end global poverty. Hence, the idea of microcredits won Edmund S. Phelps a 2006 Nobel Prize.
Unfortunately for neoliberals, even long-time proponents of microfinance confessed the following: thirty years into the microfinance movement research found very little solid evidence that it improves the lives of clients in any measurable way. Instead of the glorious free market of neoliberalism, microcredits were subsidies by the Bangladeshi government and support by international donors. This kept the system alive. In one example, Bangladeshi “telephone ladies” invested in this market via microcredits which let to trend to enter the free market. It created an oversupply of telephone ladies. Annual profits dropped from $1,200 to around $300. It ended in misery.
Half way around the world, a Croatian farmer bought some milk cows financed through microcredits. The man stuck to selling milk, even as he watched the bottom falling out of the local dairy market, thanks to the 300 other farmers like himself who were now also selling more milk. These are examples of how the free market does not work as its proponents claim. Still, the colourful banner of the neoliberal free market marches on.
These are some of the outcomes of neoliberalism’s “leave markets alone” mantra and the belief that the market will weed out irrational behaviours by punishing them. Well, it punished telephone operators and milk farmers. The very opposite of what the promoters of neoliberalism promised. The capitalist market has also punished Bernie Madoff. Or was it prosecution by the much loathed state that ended Madoff’s corporate criminality?
Ever since Adam Smith and even more so since Hayek and his neoliberal henchmen, we are told that at the centre of the capitalist system lies the corporate sector. This is where things are done, jobs created and new technologies invented. Without a vibrant corporate sector, the chorus of neoliberals sing, there is no economic dynamism. The arias are unapologetic slogans of greedy managers and wheeler-dealers.
The very idea of neoliberalism was brought out into the open by General Motors’ CEO Charlie Wilson saying, “What’s good for the United States is good for General Motors and vice versa.” Five decades after Wilson’s remarks, in the summer of 2009, GM went bankrupt.
It went bust despite GM’s well-known aversion to state ownership. Yet to rescue the devotees of neoliberalism from their own ideology, the US government took over the company, turning General Motors effectively into Government Motors. The much loathed state spent a staggering $57.6 billion of taxpayer money on rescuing the grand old industrial giant from the free market. Neoliberalism’s monstrous problems have been securely locked away in a cupboard full of rattling skeletons.
Despite a shameless propaganda campaign to preach that markets need to be free and that centralized planning – e.g., the planned economies in socialist states– is inherently bad, corporations like General Motors and, in fact all large corporations, are themselves very planned companies.
The common delusion of producing a product and after that wandering down to a romantic village market so see whether it sells is just that, a hallucination. How so? For one thing, many governments run sophisticated industry planning policies. Singapore, for instance, has been a prime example but many European countries, as well as Japan and South Korea.
For another, unlike the public relations machine of neoliberalism telling us constantly and consistently that planning is bad and should be avoided, modern capitalist economies are made up of large and hierarchically structured corporations that plan virtually all of their activities in great detail – even across national borders. Neither GM nor Toyota nor Apple nor Mercedes Benz, none of them bring their products to the market without oodles of marketing research to tell these companies and corporations what sells best, and where, when, and why.
Internally, their planning is known as strategic management which organizes the affairs of a corporation. Ever since Alfred D. Chandler’s book Strategy and Structure: Chapters in the History of the Industrial Enterprise, strategic planning has become a sine qua non. Today, in fact, almost wherever you look in the corporate world, marketing plans the promotion of a product, and there is financial planning, human resource planning, planning in operations management and supply chains, and so on ad infinitum.
Virtually nothing is left to neoliberalism’s mythical free market. Even worse for neoliberalism, not even Elon Musk’s new Tesla factory in Berlin, can build anything without prior detailed planning. It is getting even more difficult for the pundits when you shift your focus from the richest man on earth to the second richest man.
Amazon’s Jeff Bezos is a grand master of corporate planning. Inside Amazon virtually everything is planned meticulously, using sophisticated algorithms. In other words, the two most successful corporations in 2021 became rich not by following the ideological catechism of neoliberalism but by doing exactly the opposite. These are corporate successes that do not fit the neoliberal fairy-tale and therefore they are locked away in the deep dark cupboard of unspeakable secrets; or at least, it has been made to appear as if these successes have nothing to do with doing the opposite of what neoliberals want us to believe.
Even more ridiculous is the sparkling idea of one of the noted godfathers of neoliberalism, Milton Freedman. His obsession was that the market would eventually eliminate racism outright or at least diminish it considerably. In his ideological masterpiece Freedom and Capitalism, he wrote, “No one who buys bread knows whether the wheat from which it was made was grown by a Negro or a white.” As with so many other predictions made by the free-marketeers of neoliberalism, this did not come to pass. The emergence of Black Lives Matter movement bears witness to this.
One of the things a fight against racism needs is a strong and active government. Yet neoliberalism’s catechism tells us that governments are bad. They want governments to be as small as possible, so that the free market will fix nearly all social ills.
Finally, during the last four decades the increased influence of neoliberalism and its free-market ideology has led to poor economic performances almost worldwide. Adherence to the principles of the creed has lowered economic growth in many parts of the world. In truth, neoliberalism delivers economic and social instability. It makes the rich richer and intensified inequality to levels not seen for many decades. Today, even some neoliberal economists look back to the so-called Golden Age of Capitalism – the years between the early 1950s and the mid-1970s—as the years of the much hated Keynesianism, i.e., with high state involvement, strong trade unions, and a hint of community spirit, if only by lip service.
Over the past twenty years the pundits of neoliberalism have tried to make us believe that governments are part of the problem – and not the solution – to the ills of society. By 2020, some of those gurus started to realize that if we leave the Coronavirus pandemic to the free market we will all be dead within a matter of years, if not months.
Fighting a global pandemic needs a strong and effective government. It needs functioning hospitals. It needs a significant level of expert planning—from scientific investigations into the causes of the pandemic all the way through to scheduling urgently needed vaccinations. Neoliberalism’s free market by itself would kill millions… and that is not even considering the most significant problem of the 21st century: global warming.
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March 05, 2021
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