I will be writing a critique on the free market. I hope the start of your 2016 was good. I will be going onto Philosophy and Postmodernism next.
Introduction
Neoliberalism is a theory of political economic practices that propose, that human well-being can best be advanced by liberating individual entrepreneurial freedoms and skills, within an institutional framework characterised by strong private property rights, free markets, and free trade. The role of the state is to create and preserve an institutional framework appropriate to such practices. The state has to guarantee, for example the quality and integrity of money. It must also set up military, defence, police and legal structures along with functions required to secure private property rights and to guarantee, by force if necessary the proper functioning of the markets. Furthermore, if markets do not exist then they must be created. (Water, education and social security) by state if necessary. But beyond these tasks the state should not venture. State intervention in markets (once created) must be kept to a bare minimum because according to theory, the state cannot possibly possess enough information to second guess market signals (prices) and because powerful interest groups will inevitably distort and bias state intervention (especially in democracies) for their own benefit [1]
Then you have Anarcho-Capitalism, which is a political philosophy which advocates the elimination of the state, in favour of individual sovereignty, private property and open markets. Anarcho-Capitalists believe that in the absence of the statute (law by decree or legislation) society would improve itself through the discipline of the free market. [2] In an Anarcho-Capitalist society law enforcements, courts and all other security services would be operated by privately funded competitors rather than centrally through compulsory taxation. Money along with other goods and services, would be privately and competitively provided in an open market. Therefore personal and economic activities under Anarcho-Capitalism would be regulated by victim based dispute resolution organisation (this is a private firm that enforce contracts and resolve disputes on behalf of their clients) under contract law, rather than statute through centrally determined punishment under a political monopoly. [3]
Then you have Minarchism, which is a political philosophy which advocates a form of government where the state’s only legitimate function is the protection of individuals from assault, theft, breach of contract and fraud. The only legitimate governmental institutes are the military, police and courts. In the broadest sense, it also includes various civil service and emergency rescue departments, prisons, the executive, the judiciary and the legislators as legitimate government functions. [4]
Criticisms
The founding figures of neoliberal thought took political ideals of human dignity and individual freedom as fundamental as the central values of civilisation. In doing so they chose wisely, for these are indeed compelling and seductive ideals. These values, they held were threatened not only by fascism, dictatorships, and communism, but in all forms of state intervention that substituted collective judgements for those of individuals free to choose. [5]
The assumption that individual freedoms are guaranteed by freedom of the market and of trade is a cardinal feature of neoliberal thinking.
“The inadequacies of individualism as a theory of freedom has plainly written in the conditions we see spreading in the western world today: on the one hand, enlarging masses of socially “free” insecure individuals and on the other, the constant increase in the custodial powers of a state that looms ever larger as the only significant refuge for individuals who insist upon escaping from the moral consequences of individualism” (Robert Nisbet, The quest for community, 1953)
If there is no such thing as society but only individuals, then the chaos of individual interests can easily end up prevailing over order. The anarchist function which this is meant to arise spontaneously leads to a breakdown of all bands of society and the conditions leading to nihilistic anarchy. Reality does not follow the precept of the economic textbook.
Advocates of the neoliberal way now occupies positions of considerable influence in education, (universities and think tanks) corporate boardrooms, financial institutions, in key state institutions (treasury department and central bank) also in international institutions such as the International Monetary Fund, (IMF) The World Bank and the World Trade Organisation. (WTO) That regulates global finance and trade. It has become hegemonic in discourse.
Free market economists such as those from the Chicago school of thought advocate negotiating and taking out new loans at the start, privatise public assets, open up natural resources to private and unregulated exploitations, privatise social security and facilitate foreign direct investment and freer trade. Also export led growth was favoured over import substitutions. The state tends to keep a key resource for its own revenues.
Freeing up the financial markets make it more volatile in its changes, because of this there tends to be a greater propensity of market crashes and recessions under this system. The free market answer to this is for the markets to fail causing high unemployment and would depend on small businesses to suddenly grow exponentially to fill the gap. It seems free markets is effective in the short run but is unsustainable since markets are volatile and you cannot get unlimited gradual growth. Redistributive effects and increasing social inequality are key features in this system.
Deregulation of the financial system will allow it to become one of the main centres of redistributive activities through speculation, predation, fraud and thievery, stock promotions, Ponzi schemes, structural asset destruction through inflation, asset stripping through mergers and acquisitions, the promotion of levels of debt, incumbency, accounting fraud, debt peonage, corporate fraud, dispossession of assets by credit and stock manipulation. An example of some of this applicable in the real world even through its regulated state is Enron. Also a lot of market signals in the financial system is speculated and sometimes manipulated, how exactly are consumers meant to react and “boycott” bad business practices? Especially since a lot of financial information no-one outside the financial sector even reads.
If the state focused on full employment, economic growth and the welfare of its citizens and that state power was deployed to intervene to set these goals then a compromise has to be set between capital and labour for peace and tranquillity. This would inevitably enforce quantity control and makes sure businesses don’t automate their businesses to keep up with rising demands at optimal cost. The primary obligation of the state and its civil society was to use its powers and allocate its resources to eradicate poverty and hunger and to assure security of livelihood, security against the major hazards and vicissitudes (a change of circumstances or fortune) of life and security of decent homes.
It is structurally based on the restoration and preservation of class power. Business will do anything to gain a monopoly even without the state. Such actions could be mergers and acquisitions to increase market share. When estate tax and taxation on income and capital diminishes while the taxation on wages and salaries remain the same, this increase the concentration of wealth to the rich.
The scientific rigour of its neoclassical economics does not sit easily with its political commitment to ideals of individual freedoms, nor does its supposed distrust of all state power fit with the need for a strong and if necessary coercive state that will defend the rights of private property, individual liberties and entrepreneurial freedoms. People will rebel under this system to change to policies towards the Keynesian theory to guide them to keep business cycles and recession under control.
When removing all structural socialist-collectivist group and being dogmatic to place emphasis on the individual, how is this not a statist action? An individual can be defeated, discredited or ignored in parliamentary settings, especially those in the lowest confines of social society. The socialist groups to show solidarity to each other ach as a vehicle to lobby the government for change. Especially in a free market society, which the rights of the top of the class structure has more influence than the individual at the bottom of the class structure. This is not even an issue to the neoliberal but to a libertarian anarcho capitalist and minarchist, this cannot be reconciled.
To expand on this, when you have a free choice political process, under the libertarian model, individuals are not meant to choose strong collective institutions such as trade unions as opposed to weak voluntary organisations such as charities. They certainly should not choose to associate to create political parties with the aim of forcing the state to intervene. To guard against the greatest fears-fascism. Socialism, communism and authoritarianism, they would have to put strong limits on democratic governance, relying instead upon undemocratic and unaccountable institutions such as the Federal Reserve or the IMF to make key decisions. This creates the paradox of intense state interventions and government by elites and “experts” in a world where the state is not meant to be interventionist.
Faced with social movements that seek collective intervention, the state itself is forced to intervene. Sometimes repressively, denying the very freedoms it is meant to uphold. This utopian project could ultimately be sustained by resorting to authoritarianism. The freedom of the masses would be restricted in favour of the freedoms of the few. In the event of conflict, this state typically favour the integrity of the financial system and the solvency of financial institutions over the well beings of the population or environmental quality.
Another problem is the power the head of the Federal Reserve has since Paul Volcker deliberately caused a recession to kick-start a stagnant economy in the 1980s. It is scary to think someone in an institutional level has that level of power. Also the IMF and The World Bank became centres of propagation and enforcement of free market fundamentalism and neoliberal orthodoxy from 1982. He was endorsed by Ronald Reagan and put the interest levels to its highest ever position, Margaret thatcher done the same thing in Britain. The common link between Thatcher and Volcker was they were both advocates of tough monetary policies.
I will now go on to what Karl Polanyi has written. In a complex society the meaning of freedom becomes as contradictory and as fraught as its incitement to action are compelling. Under a free system, there would be the freedom to exploit one another and to make inordinate (disproportionately large) gains without commensurable service to the community, the freedom to keep technological inventions from being used for public benefit or the freedom to profit from secret calamities secretly engineered for public advantage. However the free market economy also produces positive freedoms such as freedom of conscience, freedom of speech, freedom of associations and freedom to choose. So this system produces both good and negative effects. [6]
The idea of freedom thus degenerates into a mere advocacy of free enterprise, which means the fullness of freedom for those whose income, leisure and security needs no enhancing and minimum of liberties for the people who in vain attempt to make use of their democratic right to gain shelters from the powers of the owners of property. But if as always the case, no society is possible in which power and compulsion is absent, nor a world where force has no function then the only way this utopian vision could be sustained is by force, violence and authoritarianism. The free market enterprise is then doomed to have the bad freedoms take over. [7]
Investment bankers consider any government intervention to be communism since any diminishing living standards for them, for the greater living standards for the poor heavily implies of more people being similar to each other meaning hierarchal structures are greyed out which is not good for them. Which makes sense since they tend to have more resources and by more people having more resources it means less resources for them.
There is also the problem of how to interpret monopoly power. Competition often results in a monopoly or an oligopoly, as stronger firms drive out weaker firms. The argument against this is there is no substantial barrier for entry of competitors.
It makes no sense to have multiple competing electrical power grids, gas pipelines, and water sewage system or railway links. State regulation of provision, access and pricing seems unavoidable in such domains. This is directed towards the anarcho capitalist, they might say that co-operation between firms will settle any disputes but you inevitably need a central planner in this regards for maximum efficiency. If you are an anarcho-capitalist and you agree with me on this, then this would then make you a minarchist.
Market failure, this arises when individuals and firm avoid paying the full costs attributable to them by shedding their liabilities outside the market, such cases are pollution. The free market economy has a dismal record when it comes down to the exploitation of natural resources. The preference for short term contractual relations puts pressure on all producers to extract everything they can while the contract last. Which means the natural reproduction rate capacity cannot function which will cause a lot more shortages.
All agents acting in the market are generally presumed to have access to the same information. There are presumed to be no asymmetries of power or of information that interfere with the capacity of individuals to make rational economic decisions in their own interests. This is very rarely seen in reality. Better informed and more powerful players have an advantage that can all too easily be parlayed into procuring even better information and greater relative power.
There seems to be a big emphasis on foreign investment in the free market theory. On a global scale this can only be short lived and other countries who adopt this same theory with lower natural costs will be preferred over one who has high natural costs. The free market economy will not work for every country but they have no option but to adopt it to some degree in order to take out a loan to fund an infrastructural project from the World Bank or the IMF, who seeks neoliberal policy changes in that country in order to be eligible to take out the loan in the first place. This will cause third world countries to have a greater degree of recession and causing long stagnation within the economy.
Economic globalisation has entered a new phase. A mounting backlash against its effects, especially in the industrial democracies. This is threatening a disruptive impact on economic activity and social stability in many countries. The mood in these democracies is one of helplessness and anxiety, which helps explain the rise of a brand of populist politicians. This can easily turn into revolt. [8]
In order for the free market economy to be accessible to the working class, there would have to be easily accessible loans at low interest rates. But the majority of businesses fail within 3 years of opening. Which means a debt which the person cannot pay, and then has bad credit so they cannot get new loans to create a new business. Some might not even be able to get enough good credit to get a loan at the beginning of this system.
Karl Polanyi gives us this stark warning: To allow the market mechanism to be the sole director of the fate of human beings and their natural environment, indeed, even of the amount and use of purchasing power, would result in the demolition of society. For the alleged commodity of labour power cannot be shoved about, used indiscriminately or even left unused, without affecting the human individual who happens to be the bearer of this peculiar commodity. In disposing of man’s labour power, the system would incidentally dispose of the physical, psychological and moral entity of man attached to that bag. Robbed of the protective coverings of cultural institutions, human beings would perish from the effects of social exposure, they would die as victims of acute social dislocation through vice, perversion, crime and starvation. Nature would be reduced to its elements, neighbourhoods and landscapes defiled, rivers polluted, military safety jeopardised, the power to produce foods and raw materials destroyed. Finally, the market administration of purchasing power would periodically liquidate business enterprise, for shortages and surfeits of money would prove disastrous to business just as floods and droughts were in primitive societies [9]
The mere fact that the USA and China are deficit financing to the hilt is a compelling sign that neoliberalism is dead as a viable theoretical guide to ensuring the future of capital accumulation. So much so that the neoconservatives seems to be waiting in the wing to take over from neoliberalism.
The financial crisis indicator are uncontrollable internal budgetary deficits, a balance of payment crises, rapid currency depreciation, unstable valuations of fixed assets and financial markets, rising inflation, rising unemployment with falling wages and capital flight [10]
Conclusion
The idea that the market is about competition and fairness is increasingly negated by the fact of the extraordinary monopolisation, centralisation and internationalisation of corporate and financial power. The startling increase in class and regional inequalities, both within the states such as India, Russia and South Africa and between states, poses a serious political problem that can no longer be swept under the rug as something transitional on the way to the perfect free market world. The more the free market economy hypothesis is recognised as a failed utopian rhetoric masking a successful project for the restoration of power, the more the basis is laid out for a resurgence of mass movements voicing egalitarian political demands and seeking economic justice, fair trader and greater economic security for everyone.
It is naïve to think that established monopolies won’t keep their monopolies and constantly take over smaller businesses and that a foreign multinational company won’t come in and try and buy up a whole market unless you somehow advocate force to stop doing so, which goes against the supposed theory.
References
[1] David Harvey, A brief history of neoliberalism, page 2, 2005
[2] Ronald Hamory, The encyclopaedia of libertarianism, page 13-14
[3] Review of Kosante’s Instead of Politics by Don Stacy, 2011
[4] Gregory Anthony, the minarchist dilemma, 2004 (www.strike-the-root.com/4/gregory/gregory6.html)
[5] David Harvey, A brief history of neoliberalism, page 5
[6] Karl Polanyi, The great Transformation, 1954, Page 256
[7] IBID, Page 258
[8] David Harvey, Spaces of hope, Page 70
[9] Karl Polanyi, The great transformation, Page 73
[10] Jeffrey A. Frankel and George Saravelos, Are leading indicators of financial crises useful for assessing country vulnerability? Bureau of Economic Research (http://www.nber.org/papers/w16047.pdf)
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