Chronicle of a Death Foretold...long death to the neoliberal dogma

In my previous post, Bipolar Economic Disorder (BED) (in Spanish), I argued that the neoliberal orthodoxy favours an economic model which presents striking similarities, in terms of behaviour, to a person with Bipolar disorder. As with many other euphemisms, the term "economic or business cycle" has been used by the neoliberal orthodoxy to try and disguise the irrational, ineffective and disruptive aspects of the model they support.

For years many academics, authors, intellectuals, activists, and most importantly grassroots organizations have been criticising and denouncing the many flaws of the neoliberal paradigm, that is, the set of assumptions, concepts, values, and practices that constitutes the way of viewing reality that came to dominate world politics and economics since the rise to power of Ronald Reagan and Margaret Thatcher in the 1970s. Some authors have been very critical of the neoliberal paridigm since then, when the social democratic ideology was clearly receding. Such was the case of the late Susan Strange who voiced her brilliantly researched criticisms of neoliberalism in books such as Casino Capitalism or The Retreat of the State. The Nobel laureate Joseph Stiglitz has also been a vociferous critic of the neoliberal approach. His research exposed some market flaws such as the asymmetry of information, which deals with the study of decisions in transactions where one party has more or better information than the other, thus creating an imbalance of power in transactions. Another fierce critic of the neoliberal ideology, the economist Paul Krugman, has been awarded the 2008 Nobel Prize. It might be a coincidence, but awarding the prize to Stiglitz (2001) and Krugman in these times when the neoliberal paradigm clearly rears its ugly head resembles the prizes given in the 1970s to Friederich von Hayek and Milton Friedman; both being very prominent neoliberal thinkers and the 1970s a decade when social democracy was on the retreat, particularly in English-speaking countries.

The Organization for Economic Cooperation and Development (OECD) —an organization not particularly critical of the hands off the economy approach— has recently produced a report which claims that income inequality in OECD countries grew steadily from the mid-1970s and only dipped briefly in the mid-1990s. The report (Guardian article) also claims the UK is still one of the world's most unequal countries and that in 2005 the earnings gap between rich and poor was still 20% wider than in 1985. Interestingly enough the UK is the European country where the neoliberal paradigm has been applied more vehemently since the rise to power of Thatcher in 1979.

Is market democracy receding to give way to a new tide of social democracy?

There are some indications that point to a change in the collective perception of what constitutes a socio-economic system that benefits societies and the world as a whole. Some opinion formers, those who have a lot of influence over what the public thinks about things, are surpisingly begining to be critical of some aspects of the neoliberal paradigma.

One of them, the former Federal Reserve chairman Alan Greenspan, an otherwise champion of the laissez faire approach to the economy, has conceded that the global financial crisis has exposed a "mistake" in the free market ideology (Guardian article). He said that "I made a mistake in presuming that the self-interests of organizations, specifically banks and others were such that they were best capable of protecting their own shareholders and their equity in the firms". Never mind the well-being of society as a whole and especially those least favored.

Some prominent politicians who have never been outspoken critics of laissez faire economics have also joined the blame game and finger pointing instead of accepting some responsibility, even if halfhartedly as Alan Greenspan did. Such is the case of Nicolas Sarkozy, repeatedly compared to Margaret Thatcher, and who now says the State needs to have a much more prominent role in the economy and that a new Bretton Woods is needed since the "Anglo-Saxon" model of unrestrained markets has failed. What an excersise of doublethink, I could not think of a bigger turncoat than Mr Sarkozy. And it seems that Prime Minister Gordon Brown and Sarkozy are vying to become Europe's most vociferous critic of neoliberalism (Telegraph article), in the hope, one suspects, of gaining some political capital out of this huge political-economic mess.

The economist John Kenneth Galbraith brilliantly used the term conventional wisdom in his book The Affluent Society to describe the kind of ideas or explanations that are generally accepted as true by the public or by experts in a field. The term implies that those ideas or explanations, though widely held, are unexamined and, hence, may be reevaluated upon further examination or as events unfold. This is precisely what seems to be happening as the current economic crisis unfolds.

All in all, the neoliberal tide seems to be definitely on the retreat, but how long it will take to give way to a different paradigm is rather difficult to foresee. Maybe it will not happen until the world is hit by the next crisis. There is a sad aspect of human beahviour which prevent us from acting until something really dreadful happens. Hopefuly we will be able to react before we suffer another Geat Depression, and have more mass unemployment, homeless families, hunger, suicides, and wars. Another sad aspect of our collective behaviour in the rich and developed countries is that we have a tendency to react only when things go badly for us.

A change of course is well overdue. This capitalist casino that our economic system has turned into ought to change, sooner rather than later, into a more inclusive, egalitarian, responsible and sustainable paradigm.