Self-Cannibalisation of Neoliberalism?

The Origins

Let us recall: the „liberation“ of financial markets from restraining regulation in the 1980s was argued and theoretically underpinned with the necessary freedom of markets from government interference. This would enhance global well-being. Whether it was Friedrich Hayek, his Mont Pelerin Society, or Milton Friedman and his Chicago Boys, or even the unmentionable Arthur Laffer with his infamous curve on a paper napkin: these ideologues convinced the then most powerful politicians, Ronald Reagan and Margaret Thatcher (who were also influence by Ayn Rand‘s ramblings) that their free-market ideology best served their financial and other business backers‘s interests in destroying the post-war Keynesian consensus which foresaw a central role for government in managing the economy.

They were unusually successful: the forces of financial markets were unleashed, capital now flows nearly unhindered across the globe in search of „yield“, the fate of financial market actors has become the supreme rationale and object of economic policy; the remunerations of financial market actors, but also of CEOs of non-financial firms have climbed to unimaginable heights, surpassing by a multiple of several hundreds their repsective employees‘ salaries. The global financial Bretton Woods Institutions IMF and World Bank have imposed on needy countries heavy „adjustment“ programs and so-called conditionalities, pushing back state interference, „liberalizing“ goods and labor markets, paring social expenditures and public sector salaries – all in the interest of satisfying the private profit interests of financial market actors, rather than the welfare of all their populations. The argued diversification of risks, enabled by moving virtual capital across the globe in milli-seconds backfired when in 2008 the global interbank markets collapsed, bringing the world economy nearly to its knees. Only massive taxpayer-financed „Keynesian“ interventions (suddenly acceptable again) amounting to trillions of dollars saved the banks and the economies from total collapse.

Social and Environmental Costs

But it was not only the unhinged financial markets which caused tremendous hardships for many populations, but also the environmental and climate effects of this newly globalized economy, where efficiency as the reigning principle led to supply chains for industrial products being spread all over the world. Adam Smith‘s insistence that increasing division of labor enhanced efficiency and led to win-win situations has greatly contributed to the climate crisis (could not be foreseen by Smith); the non-taxation of the major modes of long-distance transport air and sea contributed to the environmental effects which have been long in coming, but have become visible and felt also in rich countries only recently. In addition, neo-liberalism‘s economic policies, pursued in the interest and demanded by powerful businesses, have led to falling shares of labor income in GDP and to peaks in income concentrations, which threaten social cohesion and promote the inorexable rise of populist politicians. Tax arbitration made possible by lax taxation laws and a race to the bottom in corporate tax rates in order to attract capital has led to gross inequalities and lack of revenue especially for low income countries.

Old Mechanisms Work No Longer 

Neoliberal economists‘ arguments that the increasing share of profits in national incomes would lead to more investment in plant and equipment and thus, as a consequence, to more jobs, is falling flat on its face: many large companies have beome „net savers“, not investing their capital: they hoard it, speculate in financial engineering, and buy back their own shares, once more benefiting capital owners – and increasing the risks for their companies. They also spend more and more on mergers&acquisitions which just generates new ownership control, but no new capacity. Many business enterprises are not bought by their competitors or peers, but by private equity firms or other financial investors, whose objective is not long-term value creation, but short-term cashing out. And: those which are bought by (former) competitors lead to increases in the degree of concentration in the economy, not seen since 100 years ago – contrary to the tenets of the pure market economists. Politics is ever less able to „regulate“ the markets, see e.g. the meek attempts to rein in some of the most excessive and pernicious activities of the large data companies. We all know that economic power influences political power, be it directly via cmpaign financing or lobbying throughout the year.

At a Turning Point

It seems that we have reached a turning point in the post-world-war-II development. Public opinion will no longer take it. The perversions of this system have become so severe that „business as usual“ is no longer possible: the waves of migrants from the climate-ravaged South in Europe and the US, the fragmentation of societies, the increasing public mental health problems of citizens (only New Zealand seems to be able to officially recognize this as one of the major societal problems), the increasing costs of mitigating environmental and climate disasters and the increasing dis-illusion of citizens and especially workers with the existing „mainstream“ parties (which do not acknowledge these trends and want to carry on as usual) – all these show that the neo-liberal „model“ has run its course. Its beneficiaries have taken in billions and trillions. They should count their past blessings and yield power to the communities, to the citizens, in order to start building a society which deserves the term „sustainable“. There still is time to set in motion a gradual, but radical shift towards this transformation. Some of the new movements point in this direction, but politics still does not seem to get it. If this transformation is further delayed – and power is not yielded – the risk of violent uprisings by citizens increases. Nature is already showing us that it is no longer tolerates its depletion. More storms, more droughts, more floods, more extreme climate events are just around the corner. Social upheavals plus natural disasters so far have onlys been the topic of foresight literature. If we want it to stay there and in the movies theatres, rapid actions are needed. The combination of social and environmental upheavals will create dynamics which the „system“ can no longer control. This is to be avoided.


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Filed under article in english, Crisis Response, European Union, Financial Market Regulation, Fiscal Policy, Socio-Economic Development

One response to “Self-Cannibalisation of Neoliberalism?

  1. Pingback: Sommerlektüre: „Oeconomia non(?) olet“ von Kurt Bayer |

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