Despite Financial Collapse, Neoliberalism Holds Sway

C.P. Chandrasekhar

The crisis in the eurozone is leading, once again, to the adoption of policies such as bail-outs and austerity that belong to the neoliberal paradigm that partly precipitated the crisis. In fact, a feature of the recent global conjuncture, starting with the 1997 crisis in East Asia and culminating in the financial crisis and Great Recession of more recent date, is that while economic events have discredited neoliberalism as an economic ideology, it continues to dominate policy discourse and practice. One reason is, of course, the continued domination of the global economy by finance capital.

As has been noted often, neoliberalism and financial globalisation feed on each other. Since the liberalisation of trade results, in the first instance, in a widening of the trade and current account in the balance of payments of the liberalising economy, access to foreign capital to finance that deficit is a prerequisite for “successful” liberalisation that is not aborted by a balance of payments crisis. Thus, the pursuit of a neoliberal economic strategy is infeasible in a world where the access to international finance to developing countries is severely limited. On the other hand, foreign capital favours environments where markets and private capital are allowed free rein. Once trade and investment rules are liberalised to attract foreign capital, domestic controls on the operations of capital need to be diluted or dismantled. This includes controls on the operation of financial markets and firms with implications for the financial system and economic structure.

What has become clear over the last decade is that the neoliberal order has associated with it a set of outcomes that should delegitimize it. It is characterized by periodic crises of varying intensity, triggered by developments in capital, credit and/or currency markets, resulting in slow growth, rising unemployment and increased deprivation. The livelihood of those dependent on agriculture, which is home to much of the labouring poor, deteriorates and is even endangered. The free rein given to private capital results in predatory practices, as in forestry and the mining industry for example, that has devastating effects on the already poor and the marginalized and on the environment. It alters the form and curtails the volume of state spending, adversely affecting the degree to which the welfare expenditures of the state can redress these negative outcomes for a large section of the population. Overall, a neoliberal trajectory implies that the surpluses extracted from the productive sectors increase, damaging the livelihoods of the working people engaged in these sectors.

Yet the opposition to neoliberalism wins few victories. This is partly because the trajectory weakens certain important forces of opposition. Most importantly, neoliberal development weakens the organized working class in multiple ways. The numbers of the organised working class does not increase. Within wage employment, organised employment is the exception. Increasingly, the manufacturing sector’s contribution to organized employment stagnates and even declines. In sum, even when employment is in the organised sector, the nature of employment becomes informal and insecure, encouraging workers to turn away from unionisation and even organised protest.

The effect of all this is visible in the stagnation of the real wage in the organised industrial sector even when productivity is rising rapidly. This has meant a sharp fall in the share of wages in value added. Not surprisingly, unionism is on the decline and the effort to organise workers even to fight economic struggles, let alone transcend them, is proving increasingly difficult. This is of significance because the conditions of workers in the organised sector provided the benchmark for where wages and working conditions should settle. If those conditions stagnate and deteriorate the task of mobilising the unorganised, which has become structurally crucial for the opposition to neoliberalism, is that much more difficult.

Finally, the dominance in practice of the ideology has been aided by the fact that in its phases of success, neoliberalism is able to and even relies on an expansion of consumption among the upper middle classes. Even when offered “contractual” employment with self-funded social security, leading sections of the middle class are bought off with high salaries and opportunities for credit-financed consumption. That offer is not the result of largesse to the middle class, but is part of the change in the regime of accumulation in neoliberal strategies, which has as its fall-out the cooption of a section of the erstwhile middle class, which provided the most vocal and articulate voices of dissent and protest in the past. Despite the crisis, that has yet to change.