Week 14: The Shortcomings of Neo-liberalism - Part 1

Neo-liberalism as an ideology has multiple configurations which in-common romance supremacy of markets in solving human problems, advocate for reduction in government control of goods as well as promote privatization (Harvey, 2005). It took hold in the late 1970's in the western civilizations and quickly permeated across the globe manifesting in Africa (including my country - Kenya) primarily through the World Bank mandated structural adjustment programmes in the 1990's.

As a young math and economics scholar at the turn of the century, I was inevitably initiated into neo-liberal economics as "the way things are meant to and should be". Two decades later, I find myself gravitating away from this "truth" - a discontent that is taking hold among economists and financial leaders right across the globe and I would dare say even the common guy - who may not know the big word "neo-liberal" behind how society is wired today - can perceive the train is off the rail.

But what's so repulsive about neo-liberalism? To understanding this, its useful to take one step back to ask why was neo-liberalism so seductive in the first place? (After all to be original [different] we have to go back to the origin - Antoni Gaudi). This is asking the question what was there before the 1970's turn?

The big bang event that faded away in the 1970's was the Great depression (1929 - 1939) The stock market went burst, businesses shut down. There was widespread unemployment with winding queues for free bread on the wintery Christmas day of 1937. Families were evicted and shanty towns grew overnight. At that time the West needed a miracle to kick start the economy and simply put a meal on the table for the millions and hopefully also a decent roof over these families. But it was clear that the pre-depression way of doing business would not cut it. In fact the pre - depression neoclassical economic paradigm was largely blamed for generating great inequalities and widespread poverty from Russia to Alaska. The top 1% wealthiest controlled nearly 50% of all economic assets - it was the case of 10 millionaires and 100 million beggars.

Migrant Mother - one of a series of photographs that Dorothea Lange made in February or March 1936 in Nipomo, California. source https://www.history.com/videos/migrant-mother-photo

The Eureka ideology came from English Mathematician and Economist John Mayard Keynes with the "Keynesian economics" paradigm articulated in his Magnum Opus The General Theory of Employment, Interest and Money published in 1936. His proposition, then, was radical. It turned the dominant neoclassical economic thought belly up. Contrary to the normative neoclassical thought that the free market would find an "equilibrium" between supply and demand that would automatically kick start the economy, his proposal called on the governments to roll up their sleeves and jerk the economy by pumping in money (even printing it and later squeezing it out of the market) to pull it out of the recession. The way Keynes argued it - recessions were long stretched out falling knives and the short to medium term "re-balancing" neoclassic equilibrium was overwhelmed by the dark cloud of recession. To dig out of this hole needed much more than business as usual! Hence a bigger/ active role for big daddy governments. In the every day lived realities, Keynesian economics translated to full employment and greater social welfare (housing, healthcare, education, unemployment benefits). This seemed to hold till the 1970's when governments simply were unable to meet the social welfare bills demanded of them.There was unrelenting stagflation in the 70's with the tipping point arguably the UK seeking a bail out from IMF 1975 - 6. In stagflation the economy flat-lined but the price of every day commodities kept rising by the day. Inflation peaked to 25% in the mid 70's (simply put bread that cost 100 shillings could cost 125 shillings the very next day).

In the Keynesian economics era, the governments of the day were the economic big boys in town supplying everything from tissue paper to rockets. These government owned corporations were run as uncompetitive monopolies and worse still - because the governments were spread too thin with other demands, they were typically underfunded and featured old technology in some cases simply shoddy products. For basic needs such as wired telephone services there were long waiting lists as the monopoly struggled to meet demand. Obviously the government was the biggest employer of the day but had to contend with strong unionized workers who downright held the government at ransom in the UK. Public would find basic services (such as garbage, electricity and telephone) cut out as part of a show down between government and some workers demands.

To keep up with its bills the government raised taxes with the top rate hitting a staggering effective rate of 98% in the UK and businesses taxed upto 52%. This was obviously a disincentive to productivity!

For the every day man stagflation translated to a near frozen wage and an ever increasing cost of living. With most of the employment and goods from government it felt like the government was giving with one hand and taking with the other. To make big brother listen strikes were the order of the day.

Image of piles of rubbish uncollected on the UK streets in the winter of 1978/1979 amid strikes source https://https://www.thisismoney.co.uk/money/news/article-7150007/What-life-like-1970s-Britain-time-unemployment-low.html

Again a picture speaks a thousand words in explaining the pain of the lived lives then. It also help see how the masses quickly worshiped the messiah preaching the alternative neo-liberal gospel. With poor quality goods and eroded incomes the masses were ready for the messiah who would knock in the sense of improved quality of living. Neo-liberalism promised just that!

It told the governments that their attempt to be the jack of all trade had glaringly failed. That taxing top income at 98% an businesses at 52% and capital gains at 35% simply put chains on business people who had better ideas and better industry knowledge to deliver. The message was simple - Mr. government butt off and let us deal with it ourselves. And as the saying goes - the rest is history. 50 years later the jury is back (the jury is always the people).

Once again - a picture always helps to bring to life what the pain is all about.

The vulture and the south sudanese little girl is a famous picture by Kevin Carter which first appeared in The New York Times on 26 March 1993. Carter took his own life a year later. A portion of his suicide letter read: "...am haunted by the vivid memories of killings & corpses & anger & pain ... of starving or wounded children" Image source https://en.wikipedia.org/wiki/The_vulture_and_the_little_girl

In a personal way - this is the first picture that is of my continent - Africa. In the 1990's the connection of human pain, suffering and death to neoliberalism was blurred but today these connected dots are crystal clear. With one hand, Neo-liberalism delivered great innovations, progress and is even credited with lifting millions out of poverty. With the other hand - it mandates "for profit" at all costs - even to the extent of fueling wars in Sudan and South Sudan, creating man - made famines in Somalia; all this justified under privatization and profit sensibility for those who seat on the decision table. It is downright despicable enough to churn the bellies. Though the masses celebrated the great gains of neoliberalism - the connection to profiting out of human suffering is completely unpalattable.

image of starvation in the 1991 - 92 Somalia famine that led to the death of over 500,000 people. It is claimed to be a man-made "for profit" famine. Image source https://twitter.com/SouthernSomalia/status/328538006799650816 . Story https://www.huffpost.com/entry/somalia-a-manmade-famine_b_910809

For the west every day man with a decent quality of life thanks to neoliberalism, in the 1990's the dots were blurred.... the human suffering happened so far away from the consciousness of those that profited. That changed in 2008 when all the elements of 1929 played out again this time with sub prime mortgages - millions lost their homes and jobs and took their own lives. In a funny show of human greed and darkness even within the same geographical location - happening to a "literal neighbor" the capital players were still blind. You could also argue even then the public was still not clear what could be wrong.

But in the 2018 - 2020 period it became crystal clear to the public thanks to the new billionaires in town (social media). Though social media arguably does not cause famine it did profit in manipulating information that translated to types of government and presidents that translated to real job losses, children in cages and real lives lost.

Today, neoliberalism is on its death bed - but the "eureka" new way is still being searched for.