Now may be best time to abandon neoliberal economics

Now may be best time to abandon neoliberal economics

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By Kuthula Matshazi

NEOLIBERALISM has always championed the centrality of the private sector in driving the economy because of the belief that it is best placed to create wealth and improve the welfare of people.

Through this system, we were told how economies would grow and create wealth. Yes, indeed spectacular wealth creation has happened!

Most people around the world caught up to this new craze of creating wealth out of anything. The age of human ingenuity was upon us! The bountiful earthly resources were standing ready to be exploited and turned into wealth.

The technology was there to assist us exploit all these resources. As a result, since the ascendance of neoliberalism, we have seen a spectacular amount of wealth creation more than at any other time in the history of mankind.

Side by side with this extraordinary wealth creation we saw the role of government in the economy reduced. It was neoliberal doctrine and a sacred one too, that government should have little role to play in directing the economy as it was the private sector who could do that more effectively and efficiently.

Some people would like to say the role of the state has been reduced while others prefer to say that it has shifted in response to changed world circumstances. Whatever the case, we have seen very disturbing trends where governments were, to a great extent letting the private sector direct the economy.

For instance, states in their reduced or shifted roles deregulated the financial markets to allow the free flow of capital across borders at alarming rates that dwarf real economies.

We have seen over the past weeks the consequences of this lasseiz faire approach to economics. Contrary to popular belief that markets are best placed to effectively and efficiently direct the economy we have seen them destroy people’s wealth, life savings and then asking the very same people to bail them out of their reckless behaviour. The magnitude of the problem is so huge that we still do not know how and when it will end as well as the total costs.

While this problem has been generally attributed to the subprime mortgage debacle in the United States, it also brings up questions as to what other area could be under similar strain. The mortgage financial market was packaged, as we have been told, in a very sophisticated manner to the extent that few people understood its operations. While it operated it seemed fabulous until its unravelling that showed its true crumbling nature. This is cause for alarm because we might be having many more sophisticated financial security instruments that could be on their way to blowing up on our faces.

Another interesting observation during this financial crisis is that ordinary people are being used to underwrite the reckless decisions taken by these companies and their executives to create wealth. But we are also partly responsible as individuals. We exalt this system when it creates profits for us although there has been many concerns expressed about the manner this wealth creation violates human rights and many times based on unethical conduct.

When times are good we just shrug our shoulders and say what we can we do? In a way, we are saving this current system's failure to protect our future interests. Are we going to still shrug our shoulders in the future as these neoliberal economic instruments continue to violate human rights for profit?

The challenge going forward is for us to make sure that the role of government is enhanced in the economy so that it is not left to the whims of profit seeking companies and equally profit seeking investors who don’t take responsibility for the acceptable conduct of these businesses when crises arise.

Corporations have been known to exploit resources without the locals benefiting fairly, forcing governments to violate their own laws and those of their own people especially through the race to the bottom principle. One only has to point to conditions usually attached to export processing zones and offshore sourcing programs that affect citizens in both the poor and rich countries.

As citizens we cannot allow the markets to do whatever they want and when they are in trouble turn back to us. It would be okay to do that if they did not, in the process, lose people’s pensions and life savings. It would also not matter if this financial crisis would not have a negative impact on international development.

As things stand now, the global economic crisis stands to affect the availability of financial resources to contribute to international development. If there was already a crisis in providing adequate resources for development during the good times, it could be worse in this current crisis environment.

Neoliberal economics should be dumped as soon as possible. In any case, its intellectual legitimacy has been proven to be unworkable because of its readily perceived weaknesses. It is causing frequent cyclical socio-economic crises that are affecting the lives of people around the world.

The private sector is not creating wealth that is lifting many people out poverty. Instead, research shows that many people have sunk into poverty. And as this current financial crisis shows, many people have just lost their wealth and life savings. This is one more reason that neoliberalism should be dropped because its intellectual basis has been shaken to its roots. It has only perpetuated because of the global power structures that underpins it. A system based on a market that is rooted in the society would be more stable than this one currently based on profit and controlled by the invisible hand.

Kuthula Matshazi is a Zimbabwean journalist and globalisation researcher based in Canada. He can be contacted at kuthulamatshazi@yahoo.co.uk

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