http://www.ekantipur.com/2010/11/06/oped/pitfalls-of-a-liberal-economy/324716/
Pitfalls of a liberal economy
For nearly three decades, the free market economy has been spreading largely unquestioned. The American free market model of neo-liberalism grounded in classical economics has been particularly dominant during this time, the basic conclusion of which is that free market is the best economic system.
Of late, though, the free market model is being questioned. Economic historians have demonstrated that capitalism fails every 10 years, although the extent of the failure varies. While the Great Depression of 1930 was a hard one, a number of crises in Latin America and East Asia during the 1970’s, 80’s and 90’s were mild and restricted to certain areas. The current economic crisis that started in 2008 is perhaps the most potent economic disaster in human history. What the 2008 recession taught us is that neo-liberal globalisation deepens and spreads economic crisis. It seems as if free markets also fall freely, or that a freefall is inevitable.
All economic contractions are painful. But the rich are usually secured against both booms and busts. It is the poor who lose the most during an economic crisis—they also gain far less in boom years. During good times they get what trickles down; during hard times, even the trickle stops. Banks are bailed out, but not the poor. There is great pressure to come to the rescue of the rich when markets fail, but the markets were designed to help the poorest of the poor. When basic assumptions of the free market model do not work, ordinary people are punished for crimes they never committed. On the contrary, criminals are rewarded through bailouts.
Nobel Prize winning American economist Joseph Stiglitz has come up with his own insights on the ongoing economic crisis in Freefall: Free Markets and the Sinking of the Global Economy, where he meticulously articulates the inherent fallacies of the hegemonic market model. He blames mainstream economics professionals for preaching the wrong market models based on greed. As in the East Asian crisis of 1998, he assigns the blame for the current downturn on incorrect economic theories: “Incorrect economic theories, not surprisingly, lead to incorrect public policies, but, obviously, those who advocated them thought they would work. They were wrong. Flawed policies had not only brought on the East Asian crisis of a decade ago but also exacerbated its depth and duration and left a legacy of weakened economies and mountains of debt.”
The greed for profit, according to him, is the primary cause of the ongoing recession. This reminds us of Mahatma Gandhi’s insight that there is enough wealth to satisfy our needs, but there is not enough wealth to satisfy our greed. Although Stiglitz’s focus is on the US, he examines the harrowing consequences of greed in the corporate world for ordinary folks across the world. Recognising the contributions of non-market forces to the economy and society, he argues that the US has failed to strike a balance between free markets and state interventions. Taking stock of the fast-spreading crisis across an interconnected world, he observes that before the crisis, “the pace of globalisation was forcing rapid changes in economic structures, stretching the coping capacity of many economies.” He predicts, “These challenges will remain, in magnified form, after the crisis, but the resources that we have to deal with them will be greatly diminished.”
On account of its inability to contain or even predict the freefall, he questions the credibility of the economic profession by arguing that the economists have failed “for the most part.” Arguing against individualism and selfishness, the virtues of which mainstream economics has extolled over the years, Stiglitz says, “All the critical policies, such as those related to deregulation, were the consequences of political and economic forces—interests, ideas, and ideologies—that go beyond any particular individual.” He argues that “the unrelenting pursuit of profits and the elevation of the pursuit of self-interest may not have created the prosperity that was hoped for, but they did help create a moral deficit.” Pointing to the need for more regulation, a strong state and godliness to correct these moral deficits, he appears convinced that only strong regulation can lift an economy out of crisis, as was the case following the 1930 Great Depression. He recalls how he was taught by his parents to become less money-minded, more ethical and socially responsible. His parents told him that “money is not important. It will never bring you happiness. Use the brain God has given you, and be of service to others. That is what will give you satisfaction.”
While his left-of-the-centre ideology does not allow him to argue for a radical replacement of market capitalism (unlike some radical Marxists), he offers modest reform measures. He argues that “our modern society requires that governments take on a large role: from setting the rules and enforcing them, to providing infrastructures, to financing research, providing education, health, and a variety of social protection.” Although, historically, social and economic protections were launched side by side, in today’s developed economies, “social protection without protectionism can contribute to a more dynamic society.” This could be a good recommendation for developed countries, but developing countries like Nepal are unlikely to develop without some level of protectionism. For developing countries, economic security and social security should be pursued simultaneously.
Contrary to these Stiglitzian insights, Nepal has been on a neo-liberal course for the last two decades. For most Nepalis (except the top 10 to 20 percent), a liberal market policy has not borne any fruits. Rather, it has induced inequality, insecurity, disharmony, deindustrialisation, poverty and conflict. Over this period, inequality has skyrocketed (the Gini coefficient going from 0.34 to 0.47); industrial sector has declined from 22 percent of the GDP in 1990 to 17 percent in 2009; human insecurity has increased as the government removed agricultural subsidies; and net exports and balance of payments are historically low. Poverty has reportedly gone down, but it seems limited to paper, as suicides due to poverty have increased (13,000 people in the last four years) and the hunger index is deteriorating. Remittance is fragile and foreign employment risky (everyday, at least two Nepali migrant workers die in the Gulf and Malaysia). Although health and education related indicators are encouraging, access, quality and equity are declining due to the commercialisation of these sectors.
In Nepal, we have multiple crises, all rooted in neo-liberal policies. Should we not also blame our economists trained in the selfish classical economics tradition for all this mess? Any economics degree should not be valued more than the value it creates for the larger society. We need social economists, not selfish and greedy ones.
(The author is a PhD candidate at the Department of Economics and International Business, Oxford Brooks University, Oxford, UK)
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