Another nail in the neo-liberal coffin

Written By: - Date published: 10:10 am, May 9th, 2009 - 32 comments
Categories: economy - Tags:

statue-of-liberty-hammer-and-sickle-holding-communist-symbol-yellow-deep-blue-sky-photo1Neoliberal economic policy has taken a bit of a beating lately. Unregulated financial markets have exploded spectacularly and the wreckage is dragging the real economy down with it. The whole edifice is being propped up with trillions of dollars worth of taxpayer bailouts – as ever big business likes to privatise the profits and socialise the losses. As Newsweek declared – “we’re all socialists now”.

New Zealand in the late 80’s and 90’s was at the forefront of the great neoliberal economic experiment. This resulted in great social disruption, considerable hardship, and sluggish economic progress. Our neighbours in Australia, who adopted a much more cautious approach to reform, grew more quickly (pdf link) than us over the same period, and did so with much less upheaval.

England was another bastion of right wing economic policy under the Thatcher government (1979 – 1990) and those that followed. It is now thirty years since Thatcher took power, and the anniversary has prompted, in England, an evaluation of her legacy. Turns out that right wing economic policy has done England no favours either:

In the wake of the implosion of the financial free-for-all and corporate engorgement she unleashed, the Thatcherite diehards are struggling to rescue her name from a legacy of greed, entrenched inequality and economic failure. … If only young people knew, insist the irreconcilables, what a basket-case Britain was in the 1970s an “offshore banana republic”, a land of perpetual power cuts, strikes and unburied bodies they would understand why millions had to lose their jobs, industries and communities had to be destroyed and billions had to be handed over to the wealthy. …

You’d never guess from all this fevered snobbery and retrospective catastrophism that average economic growth in Britain in the dismal 1970s, at 2.4% a year, was almost exactly the same as in the sunny Thatcherite 1980s though a good deal more fairly distributed and significantly higher than in the free-market boom years of the last two decades. Nor would you imagine that there was far greater equality and social mobility than after Thatcher got to work. Or that, while industrial conflict was often sharp in the 1970s, there was nothing to match the violence of the riots and industrial confrontations of Thatcher’s Britain.

How much more evidence do we need that neoliberal right wing deregulated economies are bad for people and bad for growth? As we here in NZ await the delivery of what is being signalled as a pretty grim budget, the question naturally arises, is the National government going to repeat yet again the obvious mistakes of the past?

32 comments on “Another nail in the neo-liberal coffin”

  1. lprent 1

    Both NZ and the UK needed to address the internal rigidities of the system in the 60’s. They left things too late to do it easily. The problem was in both cases that the zeal of the advocates who did it was grossly excessive. They cut into the muscle rather than fat. It also left scarring in the shape of people thrown excessively into permanent unemployment for decades, and causing generational effects.

    The answer to your question is probably. Some people never learn that societies are interdependent and individuals are not fully independent.

    BTW: Great picture

  2. logie97 2

    I suspect that the single most significant action of either the Thatcher/Howe or Lange/Douglas governments was to remove exchange controls. If there was ever a sniff of a “socialist” regime taking a general election, then the wealthy could ship there wealth overseas and straight-jacketing the incoming government. Can that policy ever be reversed – I think not…

  3. rave 3

    Ah, its not actually a matter of the right or wrong policy and blaming capitalism’s ills on bad policy decisions. Despite the neo-liberal refuge that the scoundrels regulated too much, the scoundrels actually were top banksters seconded to the “de-” regulatory agencies to boost the profits of the banks.

    Neo-liberalism (more-market) was actually dictated by the crisis of falling profits in the late 60s and 70s. These profits didnt fall because of the wrong interventionist Keynesian policies, but the inability of the capitalists to keep profits rising despite growing productivity/exploitation of labor. All Keynesian policy did was shift the blame from bosses falling profits (the cause) onto stagflation (the effect) for which workers could be asked to share the pain. It was the crisis of falling profits that called forth a return to market forces to devalue surplus capital values. Neo-liberalism as an ideology was the bosses PR to get us to swallow their more market shock therapy.

    So far from neo-liberal policies being bankrupt, it is actually capitalism that is bankrupt. And while Keynesians may joyfully attach the hammer and sickle to their pinko policy prescriptions to revamp state interventions, it is actually the neo-liberals who have privatised the state from under them. NZ is catching up and putting corporate managers into prime public sector jobs to oversee the privatisation of state functions.

    What is meant by this is that the state is used not prime the pump through job creation, but as the bank of last resort to guarantee private profits. This proves that neo-liberals were never opposed to using the state so long as the money went into their pockets and not those of workers. They are simply forced by THEIR crisis to stake an open claim to what is after all THEIR state.

    If you want to run up the hammer and sickle you might actually point out what it stands for: the expropriation of capitalist property and the smashing of the capitalist state.

  4. Bill 4

    “How much more evidence do we need that neoliberal right wing deregulated economies are bad for people and bad for growth?”

    Em. Might I venture that this misses the point?

    Neo-liberalism is good for profit and works perfectly well for the small percentage of humanity it is meant to work for. So what if it’s bad for real economies and people and general? Outside of neo liberal propaganda, real people and real economies were never the point.

  5. peteremcc 5

    “Unregulated financial markets”

    Perhaps you could elaborate as to which financial markets were unregulated?

    • r0b 5.1

      Who is “you”? Passing by, my quick response, I’m not an expert but there was a good piece here a while back on regulatory laws that were successful and the effect when they were removed (current crash) – see the second video clip here:

      Elizabeth Warren on the bailouts


      She doesn’t go in to specifics but does give a broad, brief historical overview. There are also some summary notes on Wikipedia:
      http://en.wikipedia.org/wiki/Deregulation#United_States

    • r0b 5.2

      Turns out there’s even a term for a whole category of the worst offending unregulated organisations – the “shadow banking system”:
      http://en.wikipedia.org/wiki/Financial_crisis_of_2007-2009#Boom_and_collapse_of_the_shadow_banking_system

      • peteremcc 5.2.1

        The section you link to mentions nothing about regulation.

        Infact, the section that does discuss (de)regulation, focuses almost entirely on the ‘deregulation’ of Fannie Mae and Freddie Mac.

        Those would be the government owned organisations.

        And the ‘deregulation’ would be the government forcing the F’s to loan to people who couldn’t afford to pay it back.

        Which part of that exactly is neo-liberal?

        • Zaphod Beeblebrox 5.2.1.1

          Actually its a bit of both.The deregulation involved the financiers being reckless, the regulation involved taxpayers all over the world getting the bill. The 2 F’s weren’t forced to do anything, they just followed the money tree. They onsold their rubbish loans as Credit Default Swaps to institutions all over the world who had them insured by AIG. The US government picked up the bill. The financiers capitalised their gains and socialised their losses.

        • r0b 5.2.1.2

          The section you link to mentions nothing about regulation.

          Ahh – yeah, it does:

          These entities became critical to the credit markets underpinning the financial system, but were not subject to the same regulatory controls.

          Also:

          As the shadow banking system expanded to rival or even surpass conventional banking in importance, politicians and government officials should have realized that they were re-creating the kind of financial vulnerability that made the Great Depression possible–and they should have responded by extending regulations and the financial safety net to cover these new institutions.

          Click through to the main article on shadow banking system and:

          Shadow institutions are not subject to the same safety and soundness regulations as depository banks, meaning they do not have to keep as much money in the proverbial vault relative to what they borrow and lend.

          And so on. Pretty clear that there was a huge unregulated financial network, and that regulations in the traditional banking sector had been relaxed, and that these factors were crucial contributors to the train wreck.

          • peteremcc 5.2.1.2.1

            hmm, quite right, not sure how i missed that.

            even so, it would be nice if you had something that wasn’t simply an opinion of geitner or krugman.

            plenty of others have opposite opinions.

            furthermore, even if they had been deregulated, the banking system was still probably the most regulated industry in the us.

            what regulation would you propose, and how would it work?

          • r0b 5.2.1.2.2

            what regulation would you propose, and how would it work?

            Who me? I don’t do finance / economics, not my thing at all. But as described by Warren in the video clip I linked to above there were three main regulatory systems that kept everything in check for decades (before they were “picked apart”). My guess is that it would be sensible to put them back in place again. Paraphrasing the transcript:

            FDIC Insurance — it’s safe to put your money in banks.

            Glass-Steagall [Act of 1933] — banks won’t do crazy things

            SEC regulations.

  6. Stephen 6

    Making home ownership a political issue that requires massive amounts of government intervention doesn’t sound like it’s entirely blameless for this fiasco either. Somewhat ironically part of this intervention seemed to have involved intervention to relax standards of lending that banks were held to…

    • r0b 6.1

      “Part of” perhaps – it looks like a complicated issue. As the article you link to describes it, the government pushing for more people into housing is something that has happened several times, ending badly. But it has never ended in a global economic crash before. What happened this time required the multiplier effect of the financial “products” built around these bad loans (and leveraged to insane levels).

      Also, while government intervention might have pushed for more home ownership, the lenders certainly seem to have got carried away. The term predatory lending was coined to describe the worst practices, and there were cogent warnings about it at least as early as 2005.

  7. gingercrush 7

    There is a rather good interview with Robert Wade on Iceland’s meltdown by Kim Hill on National Radio.

    http://www.radionz.co.nz/podcasts/saturday.rss

  8. Stephen 8

    Agree with you r0b (not that i’m overly familiar with this stuff, but that article helped). Far too many people eager to blame only ONE factor in this crisis, really not the way to go.

    I will surely have a listen to that thanks gingercrush.

  9. Quoth the Raven 9

    I think the points being made in Rave, Bill and peteremcc’s comments are good ones. The poster is believing the neo-liberals own propaganda. The neo-liberals agressively used the state for the interests of the rich. It wasn’t about getting the state out of the market.
    What must be remembered about the New Deal is that many of the regulations brought in were actively lobbyied for by big business itself for the purpose of limiting competition from smaller competitors and strengthening their power.
    This is a good critical article here on labour regulations brought in during the new deal: Free The Unions (and all political prisoners).
    Another good article is this one: Goo-Goo Historical Mythology

    It’s all very complex but to think that neo-liberals are rabidly free market and the New Deal was brought in to save us from the excesses of the free market is an absurd misreading of history and bears little resemblance to reality.

  10. I would love to know what sort of system you want us in NZ to adopt. Honestly! What economic and social system do you prefer if capitalism isn’t your choice?

    • r0b 10.2

      I’m pretty middle of the road. I’ll settle for constrained capitalism. Capitalism where:
      (1) we acknowledge that the environment has to come first, “growth” is not the only goal,
      (2) there is a strong and fair social welfare system and a commitment to a realistic (not huge) gap between the richest and the poorest members of society,
      (3) there are sensible regulations to constrain capitalist practices, such as the banking regulations (that America abandoned), fair and decent labour law, law to preserve media diversity, regulation of overseas ownership etc,
      (4) a state funded political process that bans all private money in the political system.

      I’m aware that plenty of others on this blog would have more radical views, but I think you have to work within the constraints of (sadly) greed motivated human nature. So, capitalism, but regulated to prevent its instability and its damaging effects.

      • Bill 10.2.1

        “you have to work within the constraints of (sadly) greed motivated human nature”

        Why?

        Why not promote and work within the constraints of other, more desirable, aspects of human nature?

        Why, instead of supporting and perpetuating a system that rewards greed, avarice etc, not give thought, time and energy towards the development of systems that reward according to other criteria ( better expressions of human nature), such as effort and sacrifice?

        Transformation of society won’t happen overnight ( neither did Capitalism suddenly ‘appear’), but that’s no reason not to seek out and support initiatives or ideas that move in that direction.

        Or I guess you could reject all that and embrace the explicit fatalism contained in your assertion that we have to work within the constraints of greed.

        But why do that or accept that as a ‘be all and end all’?

        .

        • r0b 10.2.1.1

          Why not promote and work within the constraints of other, more desirable, aspects of human nature?

          First let me ask if you agree with the premise that most human beings are motivated most of the time in most of their thinking and action by concern for their individual (or near family) welfare. Motivated to “get ahead” and “acquire stuff” and so on.

          In short, humans are mostly motivated by self / family interest. True or false?

          If true, do you think this aspect of human nature can be easily changed?

          • Bill 10.2.1.1.1

            The welfare of an individual is not necessarily well served by individualism and/or consumerism …’getting ahead’ (succeeding or finding meaning by Capitalist measures of success and meaning)… and/or ‘acquiring stuff’.

            Effective self/ family interest is not solely served by ( and is arguably not best served by) the options available under Capitalism.

            Capitalism limits the options available to us to serve our own and our family/communities best interest. We have to ‘play the game’ as it were, and that game’s rules are that less desirable human traits are rewarded and more desirable traits are either not rewarded or attract disadvantage ( Good guys come last)

            No need to change human nature. Simply change the game…the system that guides our behaviours; that rewards some of the less palatable aspects of human nature.

          • r0b 10.2.1.1.2

            Ho Bill, not sure this conversation will survive the transition to the new week. So quickly…

            It was a bit glib of me above to call it “greed motivated human nature”. I think that in general people do act mostly out of self interest (at its worst and often greed, but of course not always).

            You want to “change the game” to promote other aspects of human nature to organise society. I’m not sure that can be done, at least in the short term. Certainly the examples that I can think of that have tried have all failed (maybe minor exceptions).

            I think we have to work with human nature, and have a system that accommodates its basic drives. I think capitalism – constrained capitalism as I’ve described it above, does have lots to recommend it. Room for individuals to do their thing, room for a strong society that takes care of all (and the environment).

            I doubt if we’d reach agreement on this, but in the short term it doesn’t matter because in either case our aims are the same. Oppose this terrible, arrogant, misguided government and work for the parties that represent the left of NZ politics. Onwards!

          • Draco T Bastard 10.2.1.1.3

            The majority of people aren’t motivated by greed. Those people who are motivated by greed tend to be sociopaths (yes, I’ve actually read the research papers that support this but it was some time ago and I can’t remember where or who by).

            Capitalism itself is a failed system as it uses poverty as it’s sole motivator – work to make someone else rich or starve (That’s why the right gets upset about the unemployment benefit). I see no reason why we would want to perpetuate a failed system such as capitalism.

            So, we need a system that ensures that no one lives in poverty, motivates the majority of people, makes sure that people are well rewarded for their efforts and yet prevents the creation of capitalists. It also needs to exist within the limits of the natural ecosystem which presently aren’t known but it is known that we’ve exceeded them.

            From my reading the system that comes closest is high-tech, green, and communist/anarchist.

      • Quoth the Raven 10.2.2

        It’s important to know who makes these regulations. It’s usually big business for the interests of big business.
        If anyone is expecting “sensible regulations” to come from the Obama administration they’re sorely mistaken. Read Of, By, and For the Elite

        • Quoth the Raven 10.2.2.1

          I’ll add that it is as Kevin Carson said in an article that’s related to this post: “The only way to prevent centralized machinery from being taken over by a ruling class is not to have centralized machinery.”

  11. RedLogix 11

    Clint,

    That’s a perfectly fair question, but it’s putting the cart before the horse.

    What do you want the ‘system’ to do?

  12. serpico 12

    What about the “system” ?
    New Zealand seems be one big systematic failure.
    Dangerous country that needs a big clean up.

  13. jarbury 13

    This article is a hilarious read: http://www.telegraph.co.uk/news/worldnews/northamerica/usa/barackobama/5301078/Barack-Obamas-rich-supporters-fear-his-tax-plans-show-hes-a-class-warrior.html

    All the right-wingers in the USA getting grumpy that Obama is actually going to do what he said he was going to do.

    The anguish that tax-haven loopholes are going to be closed down!

    The president’s plans are direct repudiation of the model of light touch regulation credited with creating economic growth and wealth in America in recent decades.

    LOL….. yeah the rich have got richer.

    • r0b 13.1

      My what a surprise, it’s the same in England where taxes on the rich have just been increased:

      It’s more than a week since Alistair Darling’s budget, but the howls of protest haven’t stopped for a day ever since. That’s not been the public sector employees facing a harsh squeeze on jobs and pay who’ve been squealing, or the million workers expected to join the dole queues in the next year, or even the majority or people who will have to stump up another half per cent of national insurance contributions every month. No, the outrage has come from the richest 2% of taxpayers who are going to have to part with 50% of earnings over £150,000 – and personal allowances over £100,000 – and later stand to lose top-rate tax relief on pension contributions.

      Never mind that the wealthiest taxpayers will still be contributing to the public purse at a 10% lower rate than for nine of Margaret Thatcher’s 11 years in office, or that six of the richest OECD countries have higher rates. From the Mail to the Financial Times, a crusade has been joined against the new 50p tax. This is nothing but a “fiscal lynching”, it’s claimed, a “spiteful” display of the “age of envy”, and a disastrous outbreak of “class war”.

      The petulant cries of outrage sound tediously familiar don’t they. But there we have it, England and America moving in the right direction. It certainly highlights just how foolish John Key is to have done the exact opposite with his tax cuts targeted to the rich.

  14. inpassing 14

    Rave’s penultimate chapter contains a kernel of practical truth.. well said that man!

    Today.. and in passing you understand we have received another truth from the Australian economist, academic and community leader, John Quiggin, which Mr. Heine may care to take onboard lest his apparent confidence is found wanting in practice.. yet again. Nay, there is nought wrong with capitalism a la Novak – a idea (birthed in human brains) – it is the implementation that is found so very often wanting..

    To JQ.. with my emphases added..

    To sum up, although the Austrian School was at the forefront of business cycle theory in the 1920s, it hasn’t developed in any positive way since then. The central idea of the credit cycle is an important one, particularly as it applies to the business cycle in the presence of a largely unregulated financial system. But the Austrians balked at the interventionist implications of their own position, and failed to engage seriously with Keynesian ideas.

    The result (like orthodox Marxism) is a research program that was active and progressive a century or so ago but has now become an ossified dogma. Like all such dogmatic orthodoxies, it provides believers with the illusion of a complete explanation but ceases to respond in a progressive way to empirical violations of its predictions or to theoretical objections.

    Sums up personalities accurately, does it not, and their inability to let go.. of a loser.. and has me wondering how the folks here would go with that parallel to orthodox Marxism.

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