These are despairing times for ever increasing numbers of people around the globe who are fighting for jobs, food and shelter. The fundamental questions of economic justice are violently propelled back on the world’s agenda after a lost decade of ubiquitous security and terrorism concerns.
Addressing these questions of economic justice requires an interrogation of both (neoclassical) economics and neoliberalism, plus the ways they intersect. Economics, as a provider of theories/toolkit on economic issues, needs to be uncovered as the apparently scientific but actually ideological study of the seemingly neutral entity called ‘economy’. This is important because neoliberal ideas owe their appeal to their derivative connexions in economic theories, and their vast global spread is dangerous in many cases for the fundamentals of economic justice.
The 20th century closed with the ‘Battle of Seattle’ in 1999 when the neoliberal consensus was jolted out of its complacency by masses of people demanding a better system of economic governance that could put people before profits. But, the events of 9/11 soon managed to stifle any progressive moves by invoking the scare-spectre of perpetual insecurity; and the next decade was marked by a near-exclusive focus on terrorism, Islamism, pre-emptive action, and wars.
The recession of the last few years, the massive government debts incurred to bail-out banks, and the recent spate of riots for food and freedom should renew the calls for a rethink of the entity ‘economy’. Contrary to what neoliberal logic would have us believe, the economy is not a neutral entity.
It is simplistic to imagine that there is a straightforward relationship between ‘economy’, ‘economic’ and ‘economics’ (for this argument in detail, see Imagining Economics Otherwise, Routledge, 2007, 2010). The term ‘economy’ carries connotations of careful and prudent management in the sense of avoiding excess, and also refers to the contemporary notion of a pre-existing structure ‘out there’ which can be represented by the statistical summaries of indicators of production and exchange, and it functions in a wider manner as the bigger construct standing in for manufacturing and services and agricultural activities that take place within national borders or as international aggregates. The category ‘economic’ is more metaphysical, carrying ultimate connotations of value. ‘Economics’, as an academic field of study, is a Western modernist discipline that derives its appeal from being able to ‘explain’ outcomes (whether desirable or not, for example, the way discrimination is explained/rationalised in neoclassical economics) as having occured due to the rational behaviour of self-interested utility-maximising individual agents.
When economics was understood as ‘political economy’ (before the era of 19th and 20th century physics-inspired ‘experts’ had obtained a monopoly on speaking about what they saw as the ‘science of society’, or econom-ics), there was a focus on studying production, exchange, and distribution as they connected to an examination of the principles of the ‘good life’ (with echoes of eudaimonia/oikonomia, roughly, happiness/management), and this had resonance with the prudent management aspect of economy or economising. Of course, these considerations of the good life were always tied to the concerns of power, politics, and administration within the boundaries of the nation-state. But, there was, historically, a recognition of the way in which context and ethics are important dimensions of an economic existence.
In contrast to this, the modern day diabolical avatar of economics as a mathematically formulated science of society serves to disguise its supremely ideological nature under the garb of innocuous-seeming concepts like ‘efficiency’ or ‘incentives’.
There is a big gap between the theories of economics that supposedly eschew any normative concerns and simply ‘explain’ outcomes that occur in the system of the economy and the practice of economic principles/prescriptions derived from such theories that are ideological, or in a specific sense, capitalist.
By having theories (academic neoclassical economics) mathematically formulate problems of administration as if they were problems of pure knowledge alone and devoid of any ethical/normative content, we make invisible the political and administrative function of knowledge in general.
The reason economics retains its privileged status among the social sciences is due to the belief that the basic premises of economic logic are scientific, timeless, and universal. Moreover, the idea is that the obviousness of economic postulates (such as scarcity, self-interest, greed, importance of incentives) is simply based on ‘human nature’. The effectiveness of this strategy is clear in the way in which it often spellbinds its critics as well as its adherents.
However, the timelessness or universality or scientificity of these basic building blocks (such as human nature, scarcity, incentives) can easily be problematised. ‘Human nature’ – most famously discovered by Rousseau during his walk in the woods – is another name for the historically situated ‘transcendental pretence’ in modernist disciplinary knowledge. By positing that something like ‘greed’ or ‘self-interest’ is fundamentally common to all human beings always and everywhere, we ignore the alternatives modes of altruistic and communal behaviour, and also simultaneously refuse to see how ‘self-interest’ might mean very different things to people in different settings and societies. Similarly, scarcity is a bogeyman of capitalism usefully employed to divert attention from the political nature of the choices made. If economics starts from the assumption that human wants are unlimited (thus converting it into a truism), then scarcity is forever present even in the most abundant best of all possible worlds. Finally, the importance of incentives was not discovered by economics, but operationalised in such a way as to make its ethics unquestionable.
As a result of all this, economics functions as an ideology of market capitalism, and further asserts that the identities of the actors who play certain roles at the micro and macro levels are of no concern. Literally anyone (person or nation) could take on any role, so that the specificity of history or the politics of identity becomes a farce in a world where anyone could rationally grow, develop, trade, and prosper.
The adoption of neoliberal policies globally is closely tied to the rhetorical appeal and the scientific pretence of neoclassical economics. When the role and spending of governments is reduced, freedom of markets and capital flows is celebrated, entities are privatised, regulation is lessened, tax systems are reorganised, subsidies are cut, and so on, these drastic measures (which affect the livelihoods and life-chances of millions of vulnerable people) are taken in the name of increasing ‘efficiency’. Yet, the begging questions are ‘efficient for whom’ and ‘profitable (or disastrous) for whom’?
There is no blueprint for an efficient economy, and certainly not one that routinely minimises governmental regulation in favour of privatisation. The ‘economy’ is not a system – like the inside of a clock, a body, or plumbing circulation – that exists fully formed before our perception of it. When we choose to perceive the economy in such terms (for example, in the Keynesian schema), we choose to do so, and in doing so, we construct and impose constraints on the subsequent relationships between the entities thus perceived. If we forget the power asymmetries between different groups, the specific social prejudices that affect economic identities and interactions, or the essentially humane aspect of basic needs, then we are unable to see the policymaking ideology at work or its implications for those affected. Thus, the perils of a mechanistic and systemic view of the economy are that it obscures questions of economic justice. This results, ultimately, in a brutalisation of people and values, such as we are witnessing globally at present.
The contemporary wholesale adoption of neoliberal prescriptions – without any ethical or contextual brakes – is detrimental for many reasons, some of which, I argue, are the following:
First, a focus purely on profit can be socially damaging or outright immoral.
Let me give examples. Here are the words of a US analyst, “You’ve seen prison populations pretty consistently over the last three decades move up a couple percent a year…and from a business model perspective, it’s clearly good news”. The idea is that during a recession, privatised prison stocks are gaining and even more profitable to invest in, because the states will not have the necessary funding to build prison beds. But, privatised prisons need a steady flow of prisoners to ensure profits. Socially, what is the incentive at work here? In the long term, will this lead to a better community? Consider another case, the UK government’s attempt to sell off about 15% of its forests, changing legislation on ‘ancient forests’ to give private firms the right to cut down trees, disposing “half of the 748,000 hectares of woodland overseen by the Forestry Commission by 2020”. This would have led to a “huge expansion in the number of Center Parcs-style holiday villages, golf courses, adventure sites and commercial logging operations throughout Britain as land is sold to private companies”. While profitable, is this socially desirable? In another case, the entry of private finance into the much-lauded microfinance arena, is resulting in “a raft of banks and financial institutions [that] now dominate the field, with some charging interest rates of 100 percent or more”. The New York Times report ends with the question, ‘“You can make money from the poorest people in the world — is that a bad thing, or is that just a business?” asked Mr. Waterfield of mftransparency.org. “At what point do we say we have gone too far?”’
What makes it possible for the people involved in such decisions to go ahead is an implicit faith in the commonsensical power of profit without any regard for ethics. After all, most people who have studied economics, would not have encountered a discussion of ethics in their curriculum.
Second, corruption can coexist perfectly well with neoliberal regimes.
Corruption in economics would generally be seen as an instance of (illegal) rent-seeking behaviour. Without going into theoretical detail (for how rent-seeking theory aids the neoliberal reform agenda by focusing on state intervention, see ‘Rent-seeking and Corruption’ by Mustaq Khan, in Elgar Companion to Development Studies, David Alexander Clark, 2006), it can be seen that there is something clearly amiss in focusing on returns to investment without a moral compass in place. The questions of power find no place in standard analysis because in theory we look at rational individuals and maximising aggregates. In practice, this means the operations of companies like Shell in oil-rich Nigeria, where 70% people live below the poverty line, and Shell “had inserted staff into all the main ministries of the Nigerian government, giving it access to politicians’ every move in the oil-rich Niger Delta” (The Guardian). Dick Cheney, the former US Vice-President, head of infamous Haliburton, also associated with the American Enterprise Institute (note the politics, corporate, knowledge connection) was to be charged in Nigeria in a $180mn bribery case, which was soon settled for a payment of $250mn. Another drastic example is the dealing of the $260bn gold and copper mines in Balochistan in Pakistan. A must-read news report detailing the shocking scenario states, “There is a plethora of documents, which prove that almost everybody involved is trying to deceive everybody else, the real picture is never presented, misleading statements and even contradictory claims have been made in the media, the issue has been kept confused as the real mega deal is maturing fast behind closed doors”. While the big companies and their corrupt global practices get whitewashed as the neoliberal unleashing of private enterprise and innovation, the situation of labour worsens every minute. Last year, Chinese executives (later freed on bail) opened fire on workers protesting against poor pay and conditions at the Collum coal mine in the southern Sinazongwe province of Zambia. Several people were injured with wounds to the stomachs, hands and legs, in an incident that was termed a ‘mistake’ (The Telegraph). The neoliberals obfuscate the vastly increased violence enabled by exploitative and unfair economic practices, by claiming that the economy is a neutral system, that labour and capital are just factors earning their returns in the production process.
Third, by isolating the ‘economy’ as a uniquely neutral entity, we lose a grip of the ‘nexuses’ of systematically interlinked sociopolitical interests that drive the world.
For how the cold war shaped economics (an uncovering of the links between military funding and research in economics, see Philip Mirowski’s Machine Dreams: Economics becomes a Cyborg Science, Cambridge University Press, 2002). To the older stories of the military-industrial complex, we can now add the recent sagas of the privatised security companies – both the security companies (like G4S, whose handling was responsible for the death of the deportee Jimmy Mubenga at Heathrow in 2010) and the private military companies (PMCs) functioning in places like Iraq and ‘Af-pak’. According to a US report on Afghanistan reconstruction spending, “the Pentagon, state department and USAID ‘are unable to readily report on how much money they spend on contracting for reconstruction activities in Afghanistan’” (BBC). In this “confusing labyrinth” of spending, the audit says, “the the largest contract between 2007 and 2009 was with US company DynCorp. It received about $1.8bn for police training and counter-narcotics work in Afghanistan”. Dyncorp? Why does that sound familiar? This is the same firm – as revealed by Wikileaks cables – that was implicated in a scandal when they hired young Afghan ‘dancing boys’ for parties of stoned Afghan cops (The Guardian). In the case of India (no stranger to ‘scams’ that take place with routine regularity), the nexus of lobbyists-media-corporate houses-politicians was recently exposed in the ongoing Radia Tapes controversy (Wikipedia). Economic transactions do not happen in a social void. The identity of the economic agents matters substantially, and privatisation and deregulation has only resulted in greater corruption and lack of accountability globally.
The recent global recession was not only avoidable but actively encouraged by a nexus of neoliberal interests that enabled a minimisation of government oversight of financial sector. As a result, in the two years before the meltdown, Wall Street bankers perpetrated one of the “greatest episodes of self-dealing in financial history”. On the Propublica website, you can have a detailed view of the interlocking ownership of $107bn worth of CDOs (collateralised debt obligations) between banks. This could not have happened without the connivance of the ratings agencies like Moody’s, Standard & Poor’s and Fitch which gave AAA ratings to F securities, for the fees in return. And in spite of such failures, these agencies (close as they are to the US banking lobby) continue to rank, and thereby hold to ransom (as in the case of Greece), governments, banks and bonds worldwide (for a longer term genesis of the debt disaster, see Gillian Tett in the Financial Times).
By pretending that economic issues are not about politics or power in society, we fool ourselves. Neoliberalism (or the practice enabled by theoretical neoclassical economics) works in the interests of capital and corporations. This is why, despite the message of ‘hope and change’, Obama could do naught to change the status-quo substantially. Johann Hari argues that the real reason why Obama disappointed so many had to do with the corporations that are now getting “massive returns on their investment in Obama”. It is worth noting that most of these corporations pay no federal tax on their income. A GAO (Government Accountability Office) report sometime ago said “72 percent of all foreign corporations and about 57 percent of U.S. companies doing business in the United States paid no federal income taxes for at least one year between 1998 and 2005”. The situation has not changed much since then.
The governments in the West that are now struggling with massive debts due to having bailed out banks and financial institutions, are announcing to their citizens that they cannot ‘afford’ their essential functions of subsidising public goods. Take an example of the UK. The savage cuts to education or health (introduced by highly paid corporate advisors) are being presented as necessary pain. The official line is that ‘we’re all in it together’. Nothing could be further from the truth. Who is the ‘we’? Is it the vast pool of those unemployed? The UK unemployment currently stands at its highest level for 17 years, and a record number of young people are jobless, while numbers of people getting help from the state is reduced (The Independent). In self-serving irony of our neoliberal era, when financial institutions, as channels of capital, are threatened, the state steps in to rescue them. When large numbers of people are struggling to survive, and the most vulnerable (women and children, see The New Internationalist) are the hardest hit, the government simply rolls out words like ‘Big Society’. Notwithstanding the differences over the timing of deficit reduction, or the balance of taxation versus spending, the larger issue concerns the question of who our governments really rely on for their survival. The governing elite within nation-states does not depend upon the impoverished, and so it speaks to the ideology and values of the privileged global middle class that has been shaped to fit the capital that it controls – international, fluid, ever-convertible.
The rationale of the state cutback argument comes from its supposed economic fundamentals. The deficit (never mind how we got here courtesy the banks) needs to be reduced for long term macroeconomic health. But, this is not borne out in reality. As a commentator wrote, “George Osborne [Chancellor of the Exchequer] has just gambled your future on an extreme economic theory that has failed whenever and wherever it has been tried”. Joseph Stiglitz warned the UK that it was embarking on a “highly risky experiment”, that it “could not afford austerity” which converts downturns into recessions, recessions into depressions. David Blanchflower condemned the £81 billion assault on the welfare state as the “greatest error seen in our lifetime”, yet the UK Chancellor Osborne placed a “less than 0.01 per cent levy on banks which is set to generate £2.5 billion a year – barely a seventh of the amount welfare recipients are losing”. After the deepest public spending cuts since the 1920s, which were necessitated by the bank bailout, the government’s banking levy barely matches the cut in child benefits.
It is clear that the economics is not about the economy alone. “The Tory-led coalition is using the economic crisis not only to rein in the state, but to reorder society” (The Guardian). George Monbiot pointed out that for the Conservatives, this is not a financial crisis but a long-awaited opportunity. A classic case of ‘disaster capitalism’, where “the cuts are being used to reshape the economy in the interests of business – and to trash the public sector”. He gives examples of how, while almost all the public bodies charged with protecting the environment, animal welfare and consumers have been either hobbled or killed, the quangos (quasi non-governmental organsations) that survived are the ones close to, or concerned with, subsidising private corporations. Meanwhile, in the UK, the boardroom pay rose by 55% (The Guardian). Earnings of FTSE 100 directors increased due to sharp rises in bonuses and performance-related pay so that “the average FTSE 100 chief executive now earns £4.9m a year, or almost 200 times the average wage”. As for public opposition, police used CS Gas on UKUncut demonstrators (OurKingdom) and the British PM Cameron ridiculed the BBC for publicising the cuts (calling it the BBCC, or British Broadcasting Cuts Corporation).
Never mind all the wrongs that neoliberalism has burdened us with, the diagnosis by European politicians on what has failed is: ‘multiculturalism’. And, what do we need? A ‘muscular liberalism’!
Fourth, contrary to neoliberal assertions, prejudices do not get evolved out of systems without intervention.
A lot of neoliberalism gets its ‘moral’ plausibility from the assertion that: “in theory this should not happen”. That is, if we let the principles of cost and benefit operate, equilibrium forces will ensure that any wrinkles due to prejudice and discrimination will get ironed out because it is costly to discriminate in a ‘free market’ environment. The argument was most famously made by Gary Becker (of the Chicago School) as follows: black people earn less than white people; one can ‘explain’ this in terms of some employers having a ‘taste’ (a term used by Becker) for discrimination, which will, in time and with competition, prove to be costly to sustain, and so wage gaps will decrease as the competitive markets will force the discriminating employers to realise the increasing costs of their otherwise rational decision made in accordance with their ‘tastes’. Going further, some economists (Glenn Loury) have even argued that discrimination could benefit those who are discriminated against by forcing them to accumulate more ‘human capital’. The upshot being that affirmative action or government intervention prevents the acquisition of human capital.
But, of course, it doesn’t. As the ‘economy’ is but an embedded subset of society, the social realities of class, caste, race and so on, in fact shape the economy more than the other way around. Prejudice persists even when it is costly to sustain. Last year, thirty ‘lower caste’ families at a Murshidabad village in West Bengal, India were not allowed to take part in Puja (major religious event) festivities (Telegraph (India) because they belonged to the ‘mochi’ or ‘cobbler’ caste. The organisers refused to accept monetary subscription from them.
Stepping past the Thomas Friedman-style hype about India, one sees studies that demonstrate how “liberalisation and a free market economy have not changed traditional biases in companies”. In the Indian private sector, companies prefer to recruit upper-caste candidates even if they are less qualified:
“The researchers responded to 548 job advertisements in over 66 weeks and sent about 4,800 applications were sent. The applicants were divided into three broad categories: those who had conspicuous upper-caste surname, those who had clear Dalit surnames and the third group comprised those who had Muslim names. Broadly, all three categories had similar professional qualifications. The results were shocking: For every 100 upper-caste candidates who received calls for interviews, only 67 Dalit and 33 Muslim candidates were called. Upper-caste candidates who were not well qualified got better responses than Dalit applicants with higher degrees. This has proved beyond a doubt that there is an upper-caste preference in the job market. The study comes at a time then the government has been trying to attempting to convince the private sector that there is a need for affirmative action.”
The report quotes B C Mungekar of the Planning Commission saying, “There is a basic conflict of the ascriptive role of caste in Indian society, in an achievement-oriented, market-based economy, over a period of time, particularly after 1991.” Similarly, Prakash Karat, the CPI (M) General Secretary, recently opined that the Indian Left was historically wrong in writing off the institution of caste which “continued to retain its importance at various levels in public and private lives”.
Other prejudices retain salience in other markets; differential treatment by race was found to be important in the US labour market in the field experiment by Marianne Bertrand and Sendhil Mullainathan (“Are Emily and Greg More Employable than Lakisha and Jamal? A Field Experiment on Labor Market Discrimination”, 2004) where they found that White-sounding names received 50% more callbacks for interviews than African-American sounding ones, a racial gap that was uniform across occupation, industry, and employer size.
Fifth, inequality per se is not a neoliberal concern, but ought to be a human one.
In India, a country with 166 million Dalits (which makes 1 in every 40 people worldwide a Dalit (BBC)), the opportunities available to people are heavily circumscribed by their caste identity. What concept of economic ‘choice’ can be used to rationalise the nature of employment in manual scavenging, that some of the poorest have to do when they manually clean human faeces for Rs.250 a month (The Hindu). The booming Indian economy, with an annual growth rate of over 8%, sees both – the entry of a Rs16 crore plus super premium sports car ‘Bugatti Veyron 16.4 Grand Sport‘ (the most expensive car ever to hit Indian roads, ) – and, a 23% rise since 2001 in the number of people living in slums, likely to cross 93 million by 2011.
Globally, CNN reports that the current $90 rate for a human slave is actually at an historic low, compared with 200 years ago when a slave cost about $40,000 in today’s money. The “increased supply of “slaveable” people”, primarily from developing countries, means that “at this very moment, between 12 million and 30 million slaves are working around the world” in industries including prostitution, sweatshop manufacturing, coffee and tea trades, food processing, health care.
As the value of human life is constantly lowered by the inhumane neoliberal ideologies and lack of ethics, it becomes ever easier to deprive people of what little resources they have left by extraction and exploitation in return for the promise of development which will, one-day, ‘trickle down’ to the masses (trickle down is comprehensively bogus concept; for more zombie neoliberal economic ideas that refuse to die, see Foreign Policy).The missing ethics of neoliberalism are evident not just in the ponzi finance schemes, and the undeclared conflicts of interests between private sector and academic economics, but equally in the development-related deaths: land-grabs, illegal mining, forcible removal of indigenous communities from ancestral lands, and clashes over irrigation projects, such as the one in Peru recently where protestors were injured and killed. The increasing adoption of neoliberal tenets worldwide is fundamentally hampering the cause of economic justice.
An important dispute in academic economics is called the ‘Cambridge Capital Controversy’ (between economists at the Cambridges in UK and US), which concerned the ‘nature of capital’, an issue that was not conclusively resolved. But while economists may disagree over the precise nature of ‘capital’, we cannot as people cease functioning under the sign of the ‘human’.