Free-Market Fundamentalism

‘‘Neo-liberalism Oversold’’?

S G Vombatkere

This agenda of economic growth has become the focus of economic thinking and is institutionalized in countries across the globe with impetus imparted by the economic clout of IMF-WB-WTO. The reason that this was accepted by countries across the globe is that it admirably suited the elite politician-corporate nexus which governs all countries, including democracies.

Neoliberalism is personal (corporations are legal persons) profit-at-any-cost from capital-intensive economic growth, reckoned using economic parameters like GDP growth and per capita consumption. This model of economic development promotes debt, global trade and consumerism, subordinating or negating democracy, equity, social justice and freedom. Indeed, Kofi Annan, UN Secretary General, speaking at the World Summit on Sustainable Development in Johannesburg (2002), said: "Let us face an uncomfortable truth. The model of development that we are accustomed to has been fruitful for a few and flawed for many. A path to prosperity that ravages the environment and leaves a majority of humankind behind in squalor will  soon prove to be a dead-end road for everyone".

But IMF-WB continues to advocate neoliberal economics, which is "maximum market freedom and minimum state intervention". In effect, government "maintains the interests of the ultra-rich", who control government to confine itself "to creating and defending markets, protecting private property and defending the realm". Thus government functions are gradually taken over by private enterprise "which is prompted by the profit motive to supply essential services", with the aim of achieving "corporate freedom from democracy". [Ref.1].

Over the decades IMF-WB, as the world's foremost lending agencies and purveyors of knowledge, have heavily influenced Third World governments. Beginning in the 1970s, WB's global training and outreach programs targeted opinion-makers and decision-makers like central and state legislators, bureaucrats, technical specialists, journalists, teachers and civil society leaders. They were trained in WB Institutes and partner institutions including reputed western universities, in subjects related to economic development. [Ref.2].
WB thus trained influential persons to generate debt and manage it through IMF recommended structural adjustment, because "debt is an efficient tool [which] ensures access to other people's raw materials and infrastructure on the cheapest possible terms". [Ref.3].

Democratic processes were bypassed and governments influenced at various levels and public opinion moulded towards a radical change in beliefs and perceptions about the nature of public goods and the balance between government responsibility and private-sector opportunity. All this constituted coercive introduction of neoliberal policies.

India's New Economic Policy formulated by Dr Manmohan Singh as union finance minister in 1991, was specifically about IMF-WB-orchestrated economic reform including structural adjustment effected by a slew of measures like currency devaluation, liberalizing the economy, removing subsidies, privatizing public assets, relaxing environmental and labour laws, and deregulating and lowering standards to encourage foreign investment. NEP 1991 was effectively furthered by the thousands of WB-trained opinion-, decision- and policy makers in governments and educational institutions.

NEP- 1991 was pursued with dedication by successive Indian governments over nearly three decades under PM, P V Narasimha Rao, A B Vajpayee and Manmohan Singh. Currently, PM Modi's government is aggressively accelerating the same economic policy and widening the economic gap, with unpredictable social consequences.

The effects of neoliberal policies led by IMF-WB-GATT were debt crises, severe environmental degradation and crashing Third World economies. More specifically, it caused reduced public spending on health and education, currency collapse, rising unemployment, rising food and fuel prices, and falling wages. Spontaneous worldwide people's campaigns opposed the displacement of populations due to mega-projects and consequent environmental degradation. In India, the hundreds of large, medium and small dams in the Narmada river valley constructed with WB loans were questioned by the Narmada Bachao Andolan.

Besides these grassroots movements on all continents, intellectuals also consistently critiqued neoliberal policies, but were rarely if ever given half-decent coverage in the corporate-owned mainstream media. Chile was an extreme case, where opponents of neoliberalism were liquidated in their thousands. [Ref.1].

Successive Indian governments over nearly two decades under PMs Vajpayee, Manmohan Singh and now Modi, have moved towards a closer political relationship with USA under successive Presidents Clinton, Bush and Obama. Politics between and within countries is increasingly driven by economic considerations, and the cutting edge of the strategic India-US relationship, declared as civilian nuclear and defence cooperation, is finally based upon congruence of economic policy.

This policy remains firmly founded upon economic reform advocated and subtly enforced by the IMF-WB-GATT trinity, as built into India's NEP-1991. It also led to India joining WTO in 1995 without discussion in Parliament. Thus, India's economic policy position is currently dictated by the IMF-WB-WTO combine, which is largely under USA's control.

Corporate control of government functions in USA has for long been blatantly obvious. In India, beginning with the introduction of NEP-1991, the effects of neoliberal policies have become starkly obvious in the last decade. Neoliberal economics has enlarged the economic gap between growing numbers of Indian dollar-billionaires and the less-than-Rs 20-per-day vast majority.

In India, neoliberalism has grown strong roots, and Big Money has entered governance, beginning with influencing the election process itself and into all democratic processes, to influence the executive, legislative and even the judicial functions of the State.

The Radia tapes scandal and the on-going Essar/Ambani tapes episode, which alleges corporate collusion with the executive, the legislative and the judiciary to bypass constitutional processes, are very scary to say the least. Since it spans a period of about 15 years including PMOs beginning with PM A BVajpayee's period, it is evidence that regardless of the party in power, corporates influence governments in their own interest, and the public or national interest in governance remain a poor second.

Umpteen evidences of neo-liberal policies can be provided, but three examples are quoted here. One : Budget. In the budget 2015-16, Rs 5.49 lakh-crore was written off as "revenue foregone' by government against corporate income tax, excise duty and customs duty. If that is what the present NDA-2 government did, in the period 2005-06 to 2014-15 of UPA rule, the total revenue foregone was Rs 42 lakh-crore, of which customs duty revenue foregone on gold, diamonds & jewelery alone was Rs 4.38 lakh-crore. At the same time, merely Rs 34,700 crore was allocated for MNREGA, and many poor people who had managed to get the guaranteed employment have not been paid their miserable wages for months-long periods. Two : Finance. Vijay Mallya was elected to the Rajya Sabha in 2002 with the support of the Congress & JD(S), and for a second term in 2010 with BJP-backing. His debts are estimated to exceed Rs 4,000 crore with public sector banks, which have kindly assisted him by "restructuring" his loans, providing fresh loans of public money to pay the interest on earlier loans on which he had defaulted. And he is among the smallest of several corporate captains who are defaulters, together forming the bulk of the growing NPAs of public sector banks. This is evdence of the politician-corporate nexus across political parties. However, the same public sector banks frequently announce auction-sale of properties of persons who have defaulted on loans of one or two lakh. Three : Transportation. On 16 June 2016 as part of economic reform, the NDA-2 government approved the National Civil Aviation Policy to increase air connectivity, make it easy for new airlines to operate abroad, permit European and SAARC country airlines to operate in India, and plan new airports. It also made air travel cheaper in India. When air travel is the least fuel-efficient transportation mode, and even "cheap" air travel is possible only for those who are already well-off, investment in this sector clearly favours the wealthy. Cheaper and more fuel-efficient transportation modes to serve the majority receive less investment and attention. In the railways, heavy investment is planned for high-fare bullet trains, when ordinary trains for ordinary people remain wholly inadequate. In UPA times (2013), Government announced that bulk diesel consumers like railways and state transport corporations would have to purchase diesel at market-determined rates, while diesel purchased at fuel outlets (for private car owners) would continue to receive subsidy, displaying the tilt away from greater public good while keeping the wealthy happy.

Over at least the past two decades, there are literally hundreds of on-going people's movements all over India, protesting against one or other proposed, on-going or completed infrastructure project, or against state and central governments' policies and laws which actively violate, deny or dilute people's constitutional rights and freedoms in favour of corporate interests. The foregoing examples are barely representative.

It is noteworthy that Dr Manmohan Singh was a WB employee before he became union finance minister and later prine minister for two full terms. Also, when he first assumed office as PM, he immediately nominated Montek Ahluwalia who joined him from IMF as his Deputy Chairman of the Planning Commission. The present RBI Governor, Raghuram Rajan, was Chief Economist in IMF. This is adequate demonstration how the neoliberal agenda has been very effectively imposed on India.

However, even though neo-liberalism is alive and well in India and apparently in the rest of the world too, clouds appear to be gathering on the horizon.

An internal study group of the International Monetary Fund (IMF) has recently reported that their decades-long advocacy and practice of neoliberal economics have serious failings. The Report is titled "Neoliberalism Oversold?", with the boldfaced sentence: "Instead of delivering growth, some neoliberal policies have increased inequality thereby jeopardizing durable expansion". [Ref.4]

The Report recognizes that a major effect of neoliberal economics has been to heighten economic inequality between and within nations. As Benjamin Dangl wryly puts it. "They were only about 40 years late" [Ref.5].

While the Report claims benefits of neoliberal ideology ("there is much to cheer in the neoliberal agenda") it admits that it has not delivered on the following aspects:
#   Benefits in terms of growth are difficult to establish,
#   The costs of increased inequality are prominent, and
#   Increased inequality hurts the sustainability of growth.

Forbes' article by Tim Worstall [Ref.6] decries the arguments of failure of neoliberalism by quoting Financial Times : "....the article is more a reflection of the vigorous debates under way inside the IMF than an official take-down of the free market policies the fund has long advocated".

One observes that the holy grail of hitherto unassailable Hayek-Friedman economic growth has been questioned from within the temple of neoliberalism itself. Even if one admires the atmosphere of "vigorous debate" within IMF and the courage of the analysts of "Neoliberalism Oversold?" one cannot help surmising that questioning what was unquestionable for 40-plus years is a step towards "take-down of [IMF's] free market policies", especially in light of 40-years-long well-argued criticism, and intellectual and grassroots objections to free-market policies.

It is curious that Worstall's supportive article dated May 28, 2016, predates IMF's "Neo-liberalism Oversold?" which is dated June 1, 2016. Notwithstanding that IMF has admitted to certain failings of neo-liberalism and not to its failure, the failings that it has admitted to are so central to the success of neoliberalism that it is tantamount to admission of failure.

The free market has long been touted as the best means to create growth and lift people out of poverty. Accordingly, the benefits claimed in the Report are :
#   Global trade has rescued millions from abject poverty, and
#   Privatization of state-owned enterprises has in many instances (emphasis supplied} led to more efficient provision of services and lowered the fiscal burden on governments.

The claimed benefit of rescuing millions from abject poverty is disputable because governments have long been manipulating statistics to show decreasing levels of poverty so as to provide an attractive investment climate which will improve economic growth. The second claimed benefit is qualified by the phrase "in many instances", which implies that in many other instances, privatization was not successful if not actually harmful. Also if, as admitted, "benefits in terms of growth are difficult to establish", how can "efficient provision of services..." by privatization of state-owned assets be claimed except for specific instances?

A telling sentence in the Report speaks of uncertain benefits and certain costs : "Although growth benefits are uncertain, costs in terms of increased economic volatility and crisis frequency seem more evident". And as Benjamin Dangl puts it : "Instead of delivering growth, the report explains that neoliberal policies of austerity and lowered regulation for capital movement have in fact increased inequality and this inequality might itself undercut growth". (Ref.5).

Further, in a masterly understatement, the Report says : "...the benefits of some policies that are an important part of the neoliberal agenda appear to have been somewhat overplayed" {emphasis supplied}. It also goes on to say. "...there is now strong evidence that inequality can significantly lower both the level and the durability of growth", even while the economic gap between the 1% haves and the 99% have-nots widens, and social tensions mount.

The Report states in the very first paragraph, that the phrase "neoliberal agenda [is] a label used more by the critics than the architects of the policies". That the authors of the Report use the phrase repeatedly throughout the text indicates that the thrust of the Report is admission of the failings of the neoliberal agenda. Perhaps they claim its benefits ("there is much to cheer in the neoliberal agenda") to maintain their credibility within IMF and ensure the not unfavourable internal review of the Report. However, the fact that the Report has seen the light of day does credit both to the authors and to IMF.

The present commentary is written in the hope that governments, economists, teachers and proponents of the neoliberal free-market economy, and the politician-corporate nexus which drives the neoliberal agenda, will begin to understand that the growth-at-any-cost ideology cannot be sustained from the points of view of democracy, social justice, economic inequality, environment (as a source of material resources and a sink for wastes), ecology and climate change. They also need to understand that continuing in the current direction is self-defeating.

Ben Geier opines : "Neoliberalism... is not going to be overtaken by another ideology overnight. But the IMF paper signals that the system is starting to tear apart at the seams". [Ref.7],

There are undoubtedly many who may pray that neoliberalism will drop dead tomorrow. They are sure to be disappointed, because it will not. Not even next year. Neoliberalism is a system fathered by its high priest Milton Friedman, based upon an economic paradigm which was created by input of enormous energies, and which grew and matured over decades. It resulted in huge benefit to very few and enormous harm to the vast majority of humans, with irreversible damage to the environment and all other living species

The publication of the Report "Neoliberalism Oversold?", from the very temple of neoliberalism, may be the writing on the wall indicating the terminal decline of neoliberalism. It gives hope to those who believe that democracy, social equity and justice, and freedom are vital for a sustainable future. But when and how it will finally collapse is in the womb of time, but small consolation for the many millions who have died, suffered and continue to suffer the irreversible ill-effects of inequality due to neoliberalism.

References :
1.    Naomi Klein; 'The Shock Doctrine; The rise of disaster capitalism". Metropolitan Books. Henry Holt & Company, New York. 2007.
2.   Michael Goldman; "Imperial Nature: The World Bank and Struggles for Social Justice in the Age of Globalization"; Yale University Press. 2005.
3.   Susan George, "A Fate Worse Than Debt'. New York: Grove Weidenfeld. 1990.
4.   Jonathan D. Ostry, Prakash Loungani & Davide Furceti; "Neolibetalism Oversold?", Report of IMF Finance & Development. June 2016, Volume 53. Number 2. pp 38-41.
5.   Benjamin Dangl; 'After Empowering the 1% and Impoverishing Millions, IMF Admits Neotiberalism a Failure'; < empowering-the-1-and-lmpoverlshing-millions-imf-admits-neoliberalism-a-failure/>; Counterpunch; June 1, 2016.
6.   Tim Worstall; "The IMF Has Not Rejected Neo-liberalism Nor Austerity: Rather, They've Examined Them": May 28, 2016.
7.   Ben Geier; "Even the IMF Now Admits Neoliberalism Has Failed"; <hltp:/;tortunecom;2016/06/03/imt-neolltier3iism-falling/>

[Major General S G Vombatkere, VSM, relited in 1996 as Additional DG Discipline & Vigilance in Army HQ AG's Branch. He is a member of the National Alliance of People's Movements (NAPM) and People's Union for Civil Liberties (PUCL). With over 480 published papers in national and international journals and seminars, his current area of interest is strategic and development-related issues.]

Vol. 49, No.2, Jul 17 - 23, 2016