Who Benefits From Neo-Liberal Globalization

Neo-liberal globalization represents the materialisation of ‘Neo-liberalism’, a collection of economic policies developed during the last twenty-five years, which rely on a set of simplistic assumptions about human behaviour. In practice, neo-liberal policies bear grave social and ecological consequences, undermine democratic principles, and ensure the rich become richer while the poor become poorer. Ultimately, nobody benefits from the creation of a dichotomous world. Consequently, despite its competitive focus, the neo-liberal system produces no winners.

Neo-liberalism originated as a new form of liberalism, a theory prominent throughout the late 19th and early 20th centuries. Liberal theorists championed free trade, free competition, the elimination of government intervention in economic affairs, and individual liberty.

Economist John Keynes challenged liberal economic policies during the Great Depression of the 1930s. Keynes believed that economic growth could only occur if employment was increased through government intervention. Keynesian theories were eventually supplanted by neo-liberalism.1

Explanations differ as to what led to the rise of neo-liberalism. One proposition is that a few economists from Chicago University, including Friedrich von Hayek and Milton Friedman (the ‘Chicago School’ neo-liberals), obtained significant support for their ideas and convinced others to accept neo-liberalism through effective marketing.2

Another belief is that, following the post-cold war conflicts (e.g. those in Chechnya, Somalia and Liberia), conflicting liberal ideas emerged (particularly regarding interdependence theories), such that there was no single ‘liberal voice’.3 If liberal ideals were to survive, it was necessary for liberals to adjust and revive their theories, eliminating this confusion.

A further explanation offered, is that slow profit growth during the Keynesian era prompted the capitalist class to seek a way of encouraging more rapid economic development.4

An examination of historical events would suggest that there are elements of truth to all these explanations.5

Neo-liberals advocated deunionising and deregulating labour forces, arguing that wealth from the top of a self-regulated market would ‘trickle down’.6 Many neo-liberals argue that neo-liberalism is the ‘natural’ way for humans to progress.7 However, the free trade system and market based economies did not naturally ‘evolve’ but were enforced during the Industrial Revolution two centuries ago.8 Neo-liberalism involved a dramatic reshaping of attitudes toward economic policy.

In 1945 or 1950, if you had proposed any of the ideas … in today’s …neo-liberal toolkit, you would have been … sent off to the insane asylum. …The idea that the market should be allowed to make major social and political decisions; the idea that the State should voluntarily reduce its role in the economy… that trade unions should be curbed …such ideas were utterly foreign to the spirit of the time.9

Neo-liberals believe that supply and demand will achieve equilibrium; that consumers will make rational decisions (based on price, quality and investment prospects); and that corporations will address social and ecological concerns.10 Reality has proven these assumptions to be flawed.

Supply does not simply follow demand. There are a host of other determinants. For example, advertising is designed to create demand. Free Trade agreements between strong, subsidising countries and developing countries also drive demand. (E.g. the Opium War of the 19th Century where the British introduced the Chinese to opiates and, when they were addicted, forced them to exchange Chinese goods for opium.)11

Furthermore, humans do not always behave rationally. Mob psychology is a significant factor in the choices people make.12 Often advertising has a strong influence on this, but individual taste, social anxieties and personality also affect people’s decisions. Lack of government intervention can also affect the rationality of consumer decisions. For example, the rational decision to develop good public transport systems, which collectively cost less than roads and private investment in cars, can only be taken by government intervention. Individuals can only respond to a lack of suitable transport by buying a car.

Neo-liberals argue that corporate accountability will ensure that corporations address environmental and social concerns, and that it will be in their interests to do so.13 However, corporations are accountable to shareholders to maximise profit, ahead of other concerns. Social and ecological destruction is usually in the economic interests of major corporations, which can shift their activities when non-renewable materials are depleted.14

Wealth ‘trickling down’ is another assumption confined solely to neo-liberal hypothesis; the inaccuracy of which has proved disastrous. In reality, neo-liberal globalization is a mechanism by which the rich may increase their wealth at the expense and suffering of the poor.

In order to explain how neo-liberalism widens the gap between rich and poor, it is necessary to define what is meant by these terms. The ‘rich’ in this case are those who hold powerful positions in corporations and/or governments, and will make economic gains (e.g. chief executives, major shareholders, and ministers who can negotiate deals with capitalists.) The ‘poor’ are the vast majority of citizens of developing nations, but also the working class, and, to an extent, the middle class, of developed nations.

Examples of the widened rich/poor gap are evident where neo-liberal policies have been imposed on developing countries. During the 1970s, elites in developing countries had taken out substantial loans, and by 1982, Third World debt had tripled.15 In response, developing countries were offered loans contingent on implementing neo-liberal centred ‘Structural Adjustment Programs’ (SAPs),16 dictated by the World Bank and the International Monetary Fund (IMF).17 (The IMF and World Bank maintain that, during the 1970s, unsuitable national policies had resulted in wasted funds.18 Nonetheless, their conditional approach left indebted countries that opposed neo-liberal policies with little choice but to acquiesce.) 19

The SAPs demanded that exports substitute domestic consumption as the main source of economic growth, and that the private sector become the chief economic establishment.20 By the mid 1980’s, seventy-five per cent of Latin American countries and sixty-five per cent of African countries had accepted some degree of IMF-World Bank control over their policies. 21

Initially, the SAPs were disastrous. In the first two years of Mexico’s ‘Structural Adjustment’, for example, unemployment quadrupled,22 and, as spending on health diminished, cholera resurfaced, causing sickness and death – especially among slum dwellers.23 Thousands of workers in both Latin American and African countries lost their jobs following the privatisation of state enterprises.24 Foreign investment in projects such as assembly plants sparked an exodus from the country, as people found they could no longer survive through traditional methods.25

By the late 1980’s, some macroeconomic stability had occurred, and “Latin America was once again the darling of Wall Street.”26 Macroeconomic stability alone, however, does not indicate successful economic growth.27 Average income in sub-Saharan Africa since the imposition of the SAPs, for example, has decreased by twenty per cent. 28 In Latin America, a nominal growth of seven per cent has occurred.29 In comparison, average income during 1960 – 1980 increased thirty-four per cent in Africa, and seventy-three per cent in Latin America.30 “Structural adjustment seems bound to push Latin Americans’ remarkable capacity for suffering to new extremes.”31

The IMF and the World Bank commonly use Gross Domestic Product (GDP) growth to indicate the success of SAPs, believing that “Gross Domestic Product is the main criterion for classifying economics.”32 SAPs have increased GDP in some developing countries.33 To measure progress in terms of GDP growth is, however, misleading for several reasons.

Firstly, in measuring GDP, a positive value is placed on all transactions.34 GDP can increase while living standards decrease, (e.g. sickness increases GDP due to the expenditure it requires.)

Secondly, natural resources are only recognised by GDP when they are consumed. Environmentally unsustainable practices are therefore encouraged.

Finally, when time constraints force people to pay for services originally performed voluntarily (e.g. childcare, cooking), GDP increases, despite the social effects.35

“The GDP values growth over the things that really matter to people.”36

When we therefore examine social and environmental conditions, the inequality resulting from neo-liberalism is indubitable. A mid 1990s report by the Brazilian Institute of Government Statistics revealed, “the top ten percent of Brazilian society averaged an income nineteen times greater than the lowest forty percent.”37 Statistics in sub-Saharan Africa indicate similar unequal distribution.38

Third world living conditions have deteriorated rapidly under neo-liberal policies. Competition for foreign investment has pitted developing nations against each other in a ‘race to the bottom’, with transnational corporations seeking cheap labour. Neo-liberal globalization has forced millions to labour under deplorable conditions. “If the world operates as one big market, every employee will compete with every person in the world … there are lots of them, and many of them are hungry.” 39

Neo-liberals do not deny the adversity of working conditions in developing countries. They maintain, however, that employer-employee exchanges occur because both parties will benefit, therefore employees are ‘better off’ than they would otherwise be.

A letter written by members of the Academic Consortium on International Trade (ACIT), in defence of sweatshop labour,40 argued that every country must endure a ‘sweatshop phase’.41 Prominent Harvard economist Jeffery Sachs articulated this idea when he wrote that “Years must pass in a vale of tears before the fruits [of labour] are borne.”42 The ACIT letter argues that if transnationals had to provide suitable working conditions, the “net result would be shifts in employment that would worsen the collective welfare of the workers in poor countries.”43

In fact, in the developed world, the ‘sweatshop phase’ was not overcome by market forces but through social action, with workers demanding better conditions.44 Furthermore, it was recently suggested by the Organisation for Economic Co-operation and Development that countries that had ‘strengthened core labour standards’ could ‘increase economic growth and efficiency.’45

Clearly, neo-liberal globalization does not benefit the citizens of developing countries. Workers in developed nations, however, have also suffered. Under Margaret Thatcher, who instituted neo-liberalism in Britain from 1979, the gap between rich and poor grew considerably. “In pre-Thatcher Britain, one person in ten below the poverty line… Now one person in four, and one child in three is officially poor.”46 During Thatcher’s reign, one percent of British taxpayers received twenty-nine percent of all the tax reduction benefits.47 Thatcher infamously told Britain, “It is our job to glory in inequality.”48

In the US, similar results were seen after President Ronald Reagan imposed neo-liberalism. Under Reagan, the wealth of the top one per cent of Americans increased by fifty per cent.49 Meanwhile, the bottom eighty per cent of Americans experienced a reduction in wealth, with people losing more wealth the lower they were on the scale.50 “The top one percent [of Americans] was one hundred and fifteen times as well off as the bottom decile.”51

As well as increasing inequality, neo-liberal globalization jeopardizes democracy. The aabolition of government intervention in the market, acceptance of low wages and abhorrent working conditions, and increased freedom for transnationals, are policies that clash with fundamental democratic principles.

I would define globalization as the freedom for my group of companies to invest where it wants, when it wants, to produce what it wants, to buy and sell what it wants, and support the fewest restrictions possible coming from labor laws and social conventions.52

The weakening of democracy is a threat to all people, as are the social and environmental repercussions of neo-liberalism. Thus, even those who make economic gains do not emerge as ‘winners’ from this system.

Nobody benefits from the creation of a dichotomous world where competition is valued above goodwill. All members of society will feel the effects of the damage neo-liberal policies do. Resources will be exhausted.53 Creation of a ‘user pays’ system will exacerbate problems stemming from inadequate healthcare and education (e.g. the AIDS crisis.)54 Rich countries are already encountering problems that have arisen from the increase in refugees in the last twenty-five years. These problems will not disappear while the gap between rich and poor grows.55

Perhaps the most fundamental way in which neo-liberal globalization will cause universal suffering is that, unless an exceedingly negative view of humanity is adopted, it seems unlikely that even the wealthiest people could experience happiness with the knowledge that in order for them to attain such wealth, millions are living (and dying) in extreme poverty.

Neo-liberal globalization draws on flawed assumptions and distorted logic. Neo-liberal policies perpetuate poverty and inequality. If neo-liberal globalization continues, it will continue to harm society, the environment and democracy. Since no individual is impervious to the suffering of others, nobody will achieve happiness under this system. Neo-liberalism is not a ‘natural evolution’, nor does it reflect human nature. If we are to build a better world, the feeble argument that ‘there is no alternative’ to neo-liberal globalization can and must be challenged and rejected. Alternative policies based on equality, democracy and community wellbeing must then prevail.