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Neoliberalism has spawned a financial elite who hold governments to ransom


The International Monetary Fund has admitted that some of the decisions it made in the wake of the 2007-2008 financial crisis were wrong, and that the €130bn first bailout of Greece was “bungled”. Well, yes. If it hadn’t been a mistake, then it would have been the only bailout and everyone in Greece would have lived happily ever after.

Actually, the IMF hasn’t quite admitted that it messed things up. It has said instead that it went along with its partners in “the Troika” – the European Commission and the European Central Bank – when it shouldn’t have. The EC and the ECB, says the IMF, put the interests of the eurozone before the interests of Greece. The EC and the ECB, in turn, clutch their pearls and splutter with horror that they could be accused of something so petty as self-preservation.

The IMF also admits that it “underestimated” the effect austerity would have on Greece. Obviously, the rest of the Troika takes no issue with that. Even those who substitute “kick up the arse to all the lazy scroungers” whenever they encounter the word “austerity”, have cottoned on to the fact that the word can only be intoned with facial features locked into a suitably tragic mask.

Yet, mealy-mouthed and hotly contested as this minor mea culpa is, it’s still a sign that financial institutions may slowly be coming round to the idea that they are the problem. They know the crash was a debt-bubble that burst. What they don’t seem to acknowledge is that the merry days of reckless lending are never going to return; even if they do, the same thing will happen again, but more quickly and more savagely. The thing is this: the crash was a write-off, not a repair job. The response from the start should have been a wholesale reevaluation of the way in which wealth is created and distributed around the globe, a “structural adjustment”, as the philosopher John Gray has said all along.

The IMF exists to lend money to governments, so it’s comic that it wags its finger at governments that run up debt. And, of course, its loans famously come with strings attached: adopt a free-market economy, or strengthen the one you have, kissing goodbye to the Big State. Yet, the irony is painful. Neoliberal ideology insists that states are too big and cumbersome, too centralised and faceless, to be efficient and responsive. I agree. The problem is that the ruthless sentimentalists of neoliberalism like to tell themselves – and anyone else who will listen – that removing the dead hand of state control frees the individual citizen to be entrepreneurial and productive. Instead, it places the financially powerful beyond any state, in an international elite that makes its own rules, and holds governments to ransom. That’s what the financial crisis was all about. The ransom was paid, and as a result, governments have been obliged to limit their activities yet further – some setting about the task with greater relish than others. Now the task, supposedly, is to get the free market up and running again.

But the basic problem is this: it costs a lot of money to cultivate a market – a group of consumers – and the more sophisticated the market is, the more expensive it is to cultivate them. A developed market needs to be populated with educated, healthy, cultured, law-abiding and financially secure people – people who expect to be well paid themselves, having been brought up believing in material aspiration, as consumers need to be.

So why, exactly, given the huge amount of investment needed to create such a market, should access to it then be “free”? The neoliberal idea is that the cultivation itself should be conducted privately as well. They see “austerity” as a way of forcing that agenda. But how can the privatisation of societal welfare possibly happen when unemployment is already high, working people are turning to food banks to survive and the debt industry, far from being sorry that it brought the global economy to its knees, is snapping up bargains in the form of busted high-street businesses to establish shops with nothing to sell but high-interest debt? Why, you have to ask yourself, is this vast implausibility, this sheer unsustainability, not blindingly obvious to all?

Markets cannot be free. Markets have to be nurtured. They have to be invested in. Markets have to be grown. Google, Amazon and Apple haven’t taught anyone in this country to read. But even though an illiterate market wouldn’t be so great for them, they avoid their taxes, because they can, because they are more powerful than governments.

And further, those who invest in these companies, and insist that taxes should be low to encourage private profit and shareholder value, then lend governments the money they need to create these populations of sophisticated producers and consumers, berating them for their profligacy as they do so. It’s all utterly, completely, crazy.

The other day a health minister, Anna Soubry, suggested that female GPs who worked part-time so that they could bring up families were putting the NHS under strain. The compartmentalised thinking is quite breathtaking. What on earth does she imagine? That it would be better for the economy if they all left school at 16? On the contrary, the more people who are earning good money while working part-time – thus having the leisure to consume – the better. No doubt these female GPs are sustaining both the pharmaceutical industry and the arts and media, both sectors that Britain does well in.

As for their prioritising of family life over career – that’s just another of the myriad ways in which Conservative neoliberalism is entirely without logic. Its prophets and its disciples will happily – ecstatically – tell you that there’s nothing more important than family, unless you’re a family doctor spending some of your time caring for your own. You couldn’t make these characters up. It is certainly true that women with children find it more easy to find part-time employment in the public sector. But that’s a prima facie example of how unresponsive the private sector is to human and societal need, not – as it is so often presented – evidence that the public sector is congenitally disabled.

Much of the healthy economic growth – as opposed to the smoke and mirrors of many aspects of financial services – that Britain enjoyed during the second half of the 20th century was due to women swelling the educated workforce. Soubry and her ilk, above all else, forget that people have multiple roles, as consumers, as producers, as citizens and as family members. All of those things have to be nurtured and invested in to make a market.

The neoliberalism that the IMF still preaches pays no account to any of this. It insists that the provision of work alone is enough of an invisible hand to sustain a market. Yet even Adam Smith, the economist who came up with that theory, did not agree that economic activity alone was enough to keep humans decent and civilised.

Governments are left with the bill when neoliberals demand access to markets that they refuse to invest in making. Their refusal allows them to rail against the Big State while producing the conditions that make it necessary. And even as the results of their folly become ever more plain to see, they are grudging in their admittance of the slightest blame, bickering with their allies instead of waking up, smelling the coffee and realising that far too much of it is sold through Starbuck

via Neoliberalism has spawned a financial elite who hold governments to ransom | Deborah Orr | Comment is free | The Guardian.

Like unicorns, the ‘free market’ doesn’t exist


 We shouldn’t blame capitalism for the climate crisis. “What we have isn’t capitalism, it’s corporatism,” it said. “Under real capitalism, the free market would prevent the destruction of our environment.” This isn’t the first time I’ve heard the argument that our problems would be solved if we just returned to the good competitive capitalism of Adam Smith’s day.

 

THE MYTH OF THE FREE MARKET

YOU’LL FIND A UNICORN BEFORE YOU FIND A FREE MARKET

 

I wrote an article recently about Capitalism’s

Top 1% becoming the new aristocracy, based on the news that social mobility is no greater under capitalism’s meritocracy, than under the medieval oligarchy. Some responded, in line with a wider misconception, that if we only had ‘true’ free market capitalism these injustices would be a thing of the past. Today’s piece is a response to that argument. There never has been, is not and never will be a capitalist free market economy – and here is why.

The myth of the free market

Capitalism is meant to pivot around the free market. The theory goes that if only the market were rid of government meddling (regulation) then true competition would reign, with corporations battling it out to provide their goods and services to rational, all knowing consumers. This, according to supporters, would provide stable and accurate prices and quality for goods and services as competition would aggregate supply, demand and pricing.

Corporations who provided a good or service which was not wanted, was above the market price or below the market quality demanded by the rational consumer in this open, free market would simply fail and those who met demand would win. Therefore the success or failure of a company would be directly proportional to its ability to meet the needs of its consumer.

So, some might argue that recent failures assigned to capitalism – the bankers bailout, the corporatisation of government, the decline in social mobility – are because we do not have REAL capitalism as outlined above. They might argue we are in fact in a post capitalist, state capitalist of fascist state. There are valid arguments in favour of all these possibilities. But whatever state we are in, it is as a direct and inevitable result of capitalism. These outcomes are not aberrations, but natural and logical given the reward mechanisms of the system itself.

It’s the monopoly, stupid…

While arguments in favour of inviting private interests into the public services rests on the idea of competition, corporations themselves are rabidly anti-competition.

If a McDonalds opens opposite a Burger King, Burger King aren’t over the moon that the capitalist theory of competition is being exercised, they’re figuring out how to kill the opposition. The argument goes that the consumer is the ultimate beneficiary of this struggle, as the consumer will be tempted by lower prices and better quality goods to win them over.

These arguments overlook some key issues. They ignore that it makes sense for the corporation to seek out a monopoly – so a free market gained monopoly would have no different traits than a socialised monopoly – except democratic accountability would be removed.

They also fail to consider that the consumer is not solely a consumer, they are also a member of their society so may well be impacted by the competition in more than one way (i.e. they might benefit from a price cut as a consumer, but lose their job as a result of the bigger corporation pushing their employer out of the market).

The facts bear this theory out. With the rise in ‘free market’ policies of the Thatcher and Reagan governments in 1980’s US and UK, perhaps we would see a dramatic rise in competition? Surely this new, free market would end monopolies and usher in a new era of dynamic, consumer responsive businesses vying for attention.

Let us use food as a case study. In 1990, only 10-20 percent of global food retail was delivered by supermarkets. Today, that figure has soared to 50-60 percent. That is, over half of all food sold in the world, is sold through supermarkets.

The UK has lost 90% of its specialists food retailers – that is butchers, bakers and fisheries – since the 1950’s. In Britain today, 97% of food purchased, is bought in supermarkets, with only four corporations making up 76% of those sales. In the US, 72% of food is purchased in supermarkets. As these figures continue an upward trend, we can see that monopolies are being created in food production.

If we take a look and test the theory that the consumer would benefit from this process of corporate battle, proponents of the idea point to the drop in the proportion of household budgets in developed countries spent on food.

During the rise of the supermarket since the 1950s, the percentage of the US household budget spent on food dropped from 32% to 7%. In the UK the proportion spent on food has dropped from 33% to 15%.

But, with supermarkets making record profits, and household food budgets down, who is paying the price for our food?

The answer is the farmer and the environment. In Brazil, more than 75,000 farmers have been delisted by the big supermarkets. Thailand’s top supermarket chain has carved its supplier list from 250 to just ten. The tiny country of Lesotho has actually all but killed off its domestic farming industry with 99% ofits food purchased through supermarkets utilising foreign agri-business.

Seventy years ago, there were nearly seven million American farmers, today there are two million. Between 1987 and 1992 the US lost 32,500 farms a year and now 75% of US produce comes from just 50,000 farming operations.

Family farming and smallholding has been the big victim of the supermarkets. This means farmers in developing countries being exploited, and consumers in developed countries so far removed from their food chain that they could not tell the difference between beef and horse.

The inflation in food prices in recent years has been masked not only by supermarkets pressurising food producers to ever decreasing incomes and unsustainable farming practices, but the makeup of our food is being diluted…in short, the price might stay the same but we are getting less for that price. The still breaking horse meat scandal is just one example of this.

So when it comes to food as an example, the free market has seen a few corporations rise to dominate the market, set their own prices and lead to negative social impacts. While some consumers might see a fall in the price of the food they are buying, they cannot be sure that they are comparing apples with apples and while perhaps benefitting as consumers, they are losing out as producers.

In fact if we zoom out to what is happening in business overall, for the last three years the US has seen a consistent fall in the total number of businesses. In the US, start ups (new businesses) have fallen as a share of businesses in the economy from 12% to just 7% in just the last few years, whilst still on average employing not more than ten people each. These patterns are reflected across developed economies globally.

The market is being constituted by a decreasing number of businesses, fewer new businesses are being launched and the monopolies created that produce negative impacts on communities across the globe.

What keeps the free market free?

What keeps a free market free? As we have seen above, it is not in the interest of the corporation to maintain a free market.

The corporation has no reason to apply any kind of ethics whatsoever. Adidas employs child and sweatshop labour in the Far East because it is cheaper than employing people on a living wage, with decent terms and condition.

So, historically the government, as the purported servant of the people has been the enforcer of rules necessary to restrain the ‘market’ from behaviours which, while logical from point of view of the corporation, lead to undesirable social outcomes.

However, the logic of the corporation is then to seek maximum influence over the regulator. In this case, corporations use their vast wealth to buy influence in houses of parliament or government across the globe.

In the US, by 2011 the largest thirty corporations spent more that year on lobbying government than they spent on taxes. Big oil alone spent over $169m in lobbying the US government in 2009. Between 1998 and 2008 (the year of the bailout) the US Banking Sector spent $3.4bn lobbying for deregulation, reduced capital requirements and avoiding the regulation of derivatives (which caused the financial crisis). When they aren’t lobbying, they are simply gaining positions of power within the government itself to directly redraft legislation to suit them.

In the UK, corporations with outstanding tax issues with the HMRC (the tax collector) are currently in working groups with the HMRC to redraft the very tax rules they are doing their best to avoid. The largest accountancy forms are also using consultancy positions within government as tax policy advisors, to market themselves to tax evading corporations to help break the rules they wrote.

In the US, there appears to be revolving door between Monsanto (controversial purveyor of genetically modified foods) and the Food Regulating Agencies. Islam Siddiqui, vice-president of Monsanto-funded lobby group CropLife is now a negotiator for the US Trade Representative on agriculture.Roger Beachy, a former director of a Monsanto-funded plant science centre has become the director of the National Institute of Food and Agriculture. Michael Taylor, former vice president of Monsanto, is now the deputy commissioner of the Food and Drug Administration (FDA – the US’s food and drug regulator).

There is a major problem here. The outcomes of the above are that when corporations break the law, they are either not tried or given a fine which comes nowhere near the profits reaped by breaking the law. And worse, corporations are buying the drafting of laws which make their unethical and damaging behaviour legal.

We have seen recently that banks have instituted fraud on a global scale by simply making up the LIBOR rate, the base interest rate, at the cost of savers and pensioners and to the benefit of their traders who specialise in debt, not capital.

In 1950, corporate taxes made up 30% of federal revenues in the US. By 2012, this had fallen to just7%. In the UK, Corporation Tax rates were cut from 52% to 35% over just two years between 1984-6 and has continued to be cut until it stands at just 21% today.

Corporations do not want any rules which stand in the way of making profit. Left unregulated, they would simply operate in ways which maximised their profits regardless of social outcomes. When we introduce a regulator, corporations seek to and succeed in compromising them. The issue is not to blame one or other of the players, but the game of capitalism itself.

Pulling our heads out of the sand

It is time to get real. There are a number of sheer economic realities which also undermine the idea of the so called free market. I would recommend reading Professor Steve Keen’s Debunking Economics to get a better handle on those.

But whether it be sheer mathematical reality, or social reality, the free market myth is nothing but a nonsense. It is a self serving nonsense propagandised by its beneficiaries.

In 2008, the banks did not uphold the principle of free market values and keeping the state out of the market – they begged the state to use tax payer money to cover their debts whilst only they enjoyed the profits. The IMF recently estimated that this bailout has so far cost the taxpayers of the world £7.12 trillion ($11.9trn). That is the equivalent of a £1,779 hand out to every last human being on earth.

The truth is that most of the globe now labours under corporatized states. Every new policy is tested against the reaction to it by ‘the market’, as if it were this free, independent aggregated assessment of the worthiness of state actions. It is not. It is simply big businesses reaction to the action of the state. All the market reaction tells you is whether or not a cabal of corporations think they can make a profit from it.

In conclusion, not only is the market not free, but it never can be. It requires legislation to prevent rational corporate behaviour which would undermine it, and any regulator (state or otherwise) will be corrupted by corporations seeking to influence them.

The sooner we abandon this madness, the sooner we can answer the bigger question: how do we create a means of economic organisation which has the highest chance of meeting our social goals?

Surely, underneath all this GDP growth nonsense is a basic ambition to increase living standards around the world, to raise the levels of health, education, social cohesion and progress (technological, scientific etc) across the globe such that we can all benefit from it whilst not destroying our planet.

We labour away under a system which forces us to abandon ideas and aspirations to deliver these goals for the sake of a limited number of overbearingly powerful people and corporations to increase their profits.

The answer cannot be to unleash these people on the world without even the token regulation they have now, but to fundamentally transform our social, political, economic and environmental organisation.

We must abandon the myth of the free market, just as we gave up on Santa Claus and Unicorns – it is time to put away childish things so we can become grown up caretakers of ourselves, each other and the planet

via Like unicorns, the ‘free market’ doesn’t exist.

via Like unicorns, the ‘free market’ doesn’t exist.

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