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Friday, June 22, 2012

Neoliberalism and the Western Market Democracies

Neo-liberalism is the name often given to the political-economic restructuring or reforms program proposed for developing countries by developed country economists, the International Monetary Fund (IMF), and the World Bank in the last 15-20 years. Neo-liberalism is not just economics: it is a social and moral philosophy, in some aspects qualitatively different from Liberalism. Neo-liberalism is more a phenomenon of the rich western market democracies than of poor regions. The role of the State in the economy has always been a controversial issue in the public debate, but it has become more so in the last quarter of a century with the rise of neo-liberal thinking that preaches the virtues of unregulated markets and recommends de-regulation, opening-up, and privatisation. The failure or what can be termed as the �Intellectual Bankruptcy' of neo-liberalism in developing countries stems ultimately from its failure to base its discourse on a balance and sophisticated theory of the inter-relationship between the market, the state, and other institutions.

The global affects of the financial crises that occurred in Asia, Russia, and Latin America during the late 1990's has created a profound crisis in the conventional wisdom concerning international development and it wouldn't be totally inappropriate to attribute this crisis to the beliefs, doctrines, and policies of neo-liberalism which, in the words of Jorge Nef and Wilder Robles, have been "far more successful in articulating a rationalization for the globalization of market relations and unprecedented( as well as unencumbered) capital accumulation than in effectively improving the living conditions of most human beings." [1]Nef and Robles rightly criticise the "neo-liberal development model" for having caused "a massive deterioration of living standards, growing income disparities, environmental destruction, an erosion of national sovereignty and the undermining of equity-producing policies" in developing countries around the world. A quick glance at Latin Americas econ omic history shows that the neo-liberal paradigm of development has created a crisis there, which now requires the creation of an alternative development paradigm that can solve its extreme vulnerability to external forces, social exclusion, and poverty. Christopher Kay and Robert Gwynne believe that the two schools of development theory that originated in Latin America during the 1950's and 1960's-structualist development theory, often referred to as the �centre-periphery paradigm, "and "dependency theory"- can provide the theoretical basis for developing "an alternative development paradigm" to contest the current dominance of the neo-liberal paradigm. John Weeks' data on labour market conditions in Latin America reveals those neo-liberal predictions that policy reforms aimed at creating labour market "flexibility" would increase employment and lead to higher wages are refuted by the facts which show "labour's gains in the 1990s, when economic growth quickened, were meagre , and even negative in some countries. In addition, his analysis reveals that the regional integration schemes in Latin America, having been inspired by neo-liberal ideology, have a strong bias in favour of capital and not guarantee workers' rights. This is especially important since, as Weeks notes, the extra-legal repression of workers' rights is endemic across the continent, as it is in most developing countries. Therefore the increased economic integration of the countries of the Western Hemisphere is a "reactionary process based upon the repression of workers rights, this has thus facilitated the concentration of wealth and power in the hands of capital.

Neoliberal programs for structural adjustments and global economic integration have radically reduced the possibilities for equitable growth and the satisfaction of social needs in Latin America. Barkin's research indicates that a "significant number of people have chosen to construct their own independent paths to survival"in the face of �neoliberal nightmare' that confronts them.

An interesting research ,conducted by Cathy A.Rakowski, concerning the effects of neo-liberal economic policies upon women in the developing countries has shown that there is a gender bias in the neoliberal economic reforms and social policies, the specific effects on women's well-being and empowerment vary considerably from country to country and under different conditions[3]. Rakowski's research indicates that although there is a gender bias in the neoliberal economic reforms and social policies, the specific effects on women's well being and empowerment vary considerably from country to country and under different conditions. Most of the research shows that, in developing countries, neoliberal reforms have contributed to an increase in women's poverty relative to men's poverty , a decline in their nutrition and health, an increase in the number of households headed by women and a decline I the quality of women's lives.

The revisionist account of the Argentina crisis�like that of the earlier crises in Mexico, Asia, Russia, Brazil, and Turkey�is not the product of exceptional features instead it, similarly, stems from the adherence of these countries to the neoliberal financial model. We therefore have every reason to believe that the pattern of recurrent financial crisis in developing countries will repeat itself so long as the hegemony of the neoliberal financial regime stands unchallenged.

Free Trade, a tenet of neo-liberal ideals, has promised much, but has delivered little for the smaller and less powerful nations. The classic theory is that free trade benefits both parties. It seems as though the world is being swept by free trade through organizations such as North American Free Trade Agreement (NAFTA), regional free trade in the European Union and the World Trade Organization, which has been one of the largest driving force toward trade liberalization and globalization. The WTO favours powerful nations like Britain, The United States and Japan, giving them too much control and negotiating power. As a result smaller nations such as Bolivia or South Africa have little voice in the WTO and democracy is sub-ordinated.

Agricultural agreements have been criticised for reducing tariff protection for smaller farmers, which is an important source of income for developing countries, while WTO allows rich countries to pay their farmers massive subsidies that smaller countries can't afford. Yet, the powerful nations, and neoliberal rhetoric keeps on pushing for greater free trade for "progress" and "free markets" that will benefit all.

Recently, the Senate passed a Bill that creates a free-trade agreement between the US and Peru. The accord with Peru would allow its exports into the US duty-free and would eliminate duties on most industrial and farm exports from the US to Peru. While this seems advantageous to both, Peru won't gain much. The agreement will allow the US to export more and import cheap products due to cheap labour, while Peru won't gain more market access or political leverage.

Free trade in many instances continues to deepen inequality, poverty and exploitation. Developing countries that joined the free trade bandwagon don't have enough power to change the rules or enough economic stability to refuse to take part in trade agreements. Thus, they become stuck in the system of neoliberal institutions, driven by the rich and the multinational companies. It turns out free trade isn't "free" at all.

Neo-liberalism supporters and the fans of �Washington consensus' often refer to Chile as the global south's best case for free-trade economic policies but scrutiny of facts tells a different story. Chile is commonly portrayed as the great exception to Latin America's long and difficult struggle to overcome economic backwardness and instability. In 1982, conservative economist Milton Friedman of the University of Chicago pronounced the market-driven policies of General Augusto Pinochet's military dictatorship's "an economic mirace". Even Nobel Laureate Joseph Stiglitz, a strong critic of the Chicago School, describe Chile in his book as an exception to the failure of unregulated free markets and free trade policies in developing nations.

In the latter years, post-pinochet, the economic boom turned to stagnation in 1997: average per capita income rose only 0.7% per year between 1998 and 2002, while unemployment stayed above 9% through 2003. Export growth, widely viewed as the engine of the Chilean "miracle", stagnated, with total exports barely rising from $17 Billion in 1997 to $17.4 Billion in 2002.

A review of recent Chilean economic history suggests that despite the claims of free marketers, Chile's economic performance has been mixed, and its success owe more to state intervention than to the invisible hand of free market�intervention which continued in a variety of forms under the nominally neoliberal Pinochet dictatorship. While Chile is nearly always portrayed as a neoliberal success story, the reality is that Chile's transformation was not neoliberal at its core-that is, within the system of production.

[1] "Globalization, Neo-liberalism and the State of Underdevelopment in the New Periphery" (with Wilder Robles), Journal of Developing Societies, Vol. XVI, Fascicule 1 (Leiden: Brill, 2000), pp.27-48.

[2] David Barkin, Overcoming the Neoliberal Paradigm: Sustainable Popular development

[3] Cathy A. Rakowski, Obstacles and Opportunities to Women's Empowerment under Neoliberal Reforms.

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