The alternative to neo-liberalism

2

Is the present neo-liberal economic system, which has caused so much misery to so many ordinary people, the best model we can think of? Jeyakumar Devaraj puts forward an alternative.

workers

The proponents of neoliberalism argue that:

  • the market mechanism is the most efficient provider of goods and services in society as the competition between different providers will drive down costs and constantly improve the quality of goods and services provided. Thus, it will lead to the most cost-effective provision of these services. The provision of these services by the public sector is, according to the proponents of neoliberalism, inefficient and slow because of the bureaucratic nature of government. (In practice, however, privatisation in Malaysia has produced large monopolies. For example in the health care sector, the support services – laundry, clinical waste disposal, housekeeping, maintenance of medical equipment, and building maintenance – for government hospitals throughout the country were divided out to three companies from three zones, and the screening of foreign workers was given exclusively to Fomema. So the story of healthy competition driving down costs isn’t true at all.)
  • private sector providers who are driven by the profit motive will perform much more efficiently than government employees whose monthly incomes are not dependent on customer satisfaction. (This is a very economistic conception of human beings. It completely ignores the fact that people are driven by many motivations including altruism, the satisfaction in completing a task successfully and the need to excel.)
  • the proper role of government is to establish standards and the regulatory framework3 for the network of private providers of goods and services. Direct provision of services by the government “distorts” the market for that service and thus causes inefficiencies. The government should therefore divest itself of the provision of services to the public. (The high probability of regulatory capture by large corporations is not addressed.)
  • too elaborate a safety net is bad for the nation. For it requires a large budget, which then translates to higher taxes on businesses and entrepreneurs. These taxes reduce the funds available to entrepreneurs to upgrade and improve their services as well as their motivation to earn more income by expanding their provision of services. At the same time, the provision of too many welfare benefits creates a dependent mentality in the poorer half of society, who over time come to expect a ‘free lunch’ as their birth right. It encourages laziness and is bad for national productivity.

Neoliberal policies, which have become ever more prevalent in many parts of the world since the 1980s, have resulted in:

  • privatisation of basic services such as the provision of water, health care and education in the name of efficiency – and the resulting commodification’ of those essential services;
  • the fencing up of the ‘commons’, for example land and knowledge, through ever expanding intellectual property rights legislation;
  • the depression of wages and the widening of the gap between the top 10 per cent and the rest of the population;
  • the dismantling of the safety net that had been set up in preceding decades;
  • economic hardships for the bottom 60 per cent of the population.

The policies that we could promote as alternatives to neoliberalism:

1. A decent minimum wage

At present wages only makes up 33.6 per cent of GDP in Malaysia (The Star, 8 September 2014, Pg 12. Quoting the preliminary report of the 2014 Household Income Survey done by the government). Increasing the minimum wages to say RM1500 from the present RM900 would benefit the families of the ordinary non-skilled workers. It would also improve the income of the 1m or so small businessmen and women in this country who stand to benefit from the increase in purchasing power of the population.

2. De-commodification of basic needs

Another strategy for redistributing national wealth in favour of the poorer 70 per cent of the population would be to take the provision of basic services – housing, health care, tertiary education, electricity, water, etc – out of the market and provide it through state-owned entities at subsidised prices. This is nothing new for us in Malaysia – our government was doing this quite well in the 1960s and 1970s.

This strategy would lessen the economic burden currently borne by the people, and would also augment the domestic market because if people do not have to spend so much on housing or put aside money monthly for their children’s tertiary education, they would have more disposable income.

3. Strengthening the safety net

Universal old age pension for all those aged 65 years and above would do a lot to improve the lives of our senior citizens most of whom now face their seventh decade without any savings. Only around 15 per cent of our elderly receive government pensions, and a smaller number are on Socso benefits.

The MTUC has been asking our government to implement a scheme guaranteeing retrenchment benefits for people who lose their jobs. However, this has been buried in study after study and has yet to see the light of day. Such a scheme would not only be of help to workers who are laid off but would also help prevent the rapid constriction of aggregate demand in times of recession, as the laid off workers would still be getting some income.

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4. Progressive taxation

The rich should be taxed. Poorer families should be spared tax. The government should stop the ongoing reduction of personal income tax and corporate tax (now pegged at 25 per cent for the top range of earners and for corporations). At the very least these should be maintained at current levels until we get the international cooperation that would enable us to increase the rates of these taxes without running the risk of relocation of businesses to neighbours with a lower tax regime. The GST should be withheld.

The Tobin Tax, which taxes financial transactions, should also be considered as a means to generate income for state coffers. (James Tobin, a Nobel Prize laureate suggested a 0.5 per cent tax on all foreign exchange transactions. That may be too large a rate. Even a tenth of that rate would generate a lot of income for the state. However, it is something that has to be implemented in all countries. Otherwise traders will just shun the forex market of the countries that implement this tax.)

None of these policy options are new. In fact they were implemented in many parts of the world in the three decades post-World War Two. Why were they dismantled and replaced by neo-liberal policies? Why are we in a position of trying to “re-invent the wheel”?

Social roots of neo-liberalism

Why did the neoliberal wave start in the late 1970s and gather strength over the next two decades? Why didn’t the social forces that brought about the welfare state in Europe and the “developmental” state in many countries in Asia and Africa resist and defeat the onslaught of neoliberal policies?

Some commentators ascribe these huge changes in how the wealth of our societies is distributed to the influence of strong leaders such as Thatcher, Reagan and Mahathir. That, in my opinion, is completely off the mark. These leaders came to be the spokespersons of the neo-liberal onslaught, but they certainly did not create it.

The history of hithero existing society is the history of class struggles. Freeman and slave, patrician and plebian, lord and serf, guild-master and journeyman, in a word, oppressor and oppressed, stood in constant opposition to one another, carried on an uninterrupted, now hidden, now open fight…

The Soviet Union and the Eastern Bloc were highly authoritarian, undemocratic societies with over developed repressive apparatuses and dismal human rights records. There is little dispute on that score. But at the same time, for a while, they seemed to represent a credible alternative to the ‘Free Market’ (capitalist) world order promoted by the US and Britain in the post-World War Two period.

The people of the world could see that capitalists were not essential for the development of technology. A massive industrial structure was built up in the USSR despite the complete absence of capitalists and entrepreneurs. The USSR could match the most advanced capitalist country of that time, the US, in terms of military technology, the space race and in nuclear weaponry.

The allure of a modern society built without capitalist exploitation of the working people captured the imagination of many people all over the world and resulted in political movements pushing for better conditions for the ordinary people. This was the cause of the evolution of the welfare state in the advanced countries and the promotion of the “developmental” state in the newly independent countries in Asia and Africa. It was an era when a significant percentage of the poorer peoples of the world believed that they could work towards a new society free of economic exploitation – a classless society. It was a vision that inspired millions throughout the world.

However this ‘god’ (socialism as practised in the USSR) had ‘clay feet’! The undemocratic and authoritarian nature of the regimes associated with the USSR could not be kept hidden for long. The use of lethal force by the USSR in putting down the Hungarian rebellion of 1956 was a significant turning point in the struggle for socialism in the 20th century.

(Samir Amin has proposed a more complex analysis. He argues that there were three inter-related but separate political developments that challenged Anglo-Saxon-led capitalism in the post-World War Two era. The Socialist states allied to the USSR was only one of these. The newly independent nations in Asia and Africa, which set up the Non-Aligned Movement, and the strong working class movements in Western Europe and North America were the other two. The failure of the NAM nations to consolidate their path of non-capitalist development independent of Western capitalism, and the failure of the relatively much better off working class in the advanced countries to stand in solidarity with the NAM nations both also contributed to the eventual defeat of this significant challenge to capitalist hegemony.)

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Many supporters of the USSR all over the world started asking questions and the process of disillusionment started. Right wing propaganda that centrally planned governments will lead inexorably to authoritarian rule and that the ‘free market’ economic system is the best guarantee of political freedom and democracy began to gain acceptance all over the world.

The undemocratic, authoritarian nature of nations comprising the Warsaw Pact resulted in the de-politicisation of the ordinary citizens in these countries and resulted in the absence of a sense of ownership of the socialist project being attempted there. This alienation of the ordinary people was aggravated by resentment against the emerging bureaucratic and political caste in these societies and compounded by irritations over the shortages and poor quality of consumer goods and services.

When the Eastern Bloc finally imploded in the late 1980s, there were very few people who were prepared to defend the socialist experiment, not the workers in whose name the regime existed, not even the privileged caste of bureaucrats and senior party officials many of whom sensed that they could transform themselves into the new bourgeoisie if capitalist restoration took place.

The “auto-lysis” (self-destruction) of then existing socialism in the Warsaw Pact countries and in China drastically altered the balance of class forces in the world:

  • It led to a profound loss of confidence that the global capitalist system could be challenged. People began doubting that there could be a credible alternative system.
  • The smaller socialist countries were denied financial assistance. Cuba and Vietnam had to struggle on their own without aid from the USSR.
  • Industrial capitalists battling with organised labour in the advanced countries outsourced production to China, Vietnam and Eastern Europe. This greatly reduced the bargaining power of the working people in the advanced countries and forced the weakened unions to accept lower terms of service because the alternative would have been further losses of jobs.
  • The loss of thousands of well paying industrial jobs and the migration of industrial production to lower-wage countries reduced the tax base for the advanced countries, and this led to budget deficits. The evolution of an international financial order that allowed the off-shoring of corporate ‘headquarters’ to obscure tax havens further aggravated the budget deficit. This in turn led to pressure to reduce the welfare budget.

Seen against this historical backdrop, it is clear that the neo-liberal tide, which started in the late 1970s and accelerated in the 1990s, has been driven by the weakening of the political power of the working classes and an enhancement of the position of the bourgeoisie. It is this shift of power to the advantage of the capitalist class that permitted the rise of leaders such as Reagan and Thatcher and not the other way around.

So then, where do we start in stemming the neoliberal tide, and what are the obstacles we might face in our efforts to reverse neo-liberal policies?

Malaysia is a relatively small country and we are deeply integrated into the global capitalist economy. About 50 per cent of what we produce in Malaysia is for export, and we have committed ourselves to trade agreements that are progressively lowering import tariffs to almost all goods. Therefore policies such as a decent minimum wage might backfire on us by making our manufactured goods uncompetitive leading to the loss of factory jobs.

Pro-people policies would require raising personal and corporate income tax rates. This can lead to the migration of our corporations to other countries so as to avoid paying taxes at rates that are higher than our neighbours. Some of these policies require to be implemented by a bloc of countries simultaneously who collectively develop an international economic agreement that is a mirror-image of the TPPA – by being pro-people and not pro-corporate. Latin America is currently showing us an example of how that could be done.

There is a serious danger of losing public support. If the pro-people policies we introduce causes economic dislocations and a drop in jobs for certain sectors or shortages in certain goods, the ordinary citizens would be unhappy with us, and we could be voted out in no time at all. This highlights the importance of political education so that a majority take ownership of the anti-neo-liberal transformation that we attempt.

Several of the elite groups in Malaysia are now making a lot of money from the commodification of basic needs. They would be quite upset with us for restricting their businesses and profits. Just imagine how the construction companies would react to a policy initiative that makes government responsible for providing affordable houses to the lower 70 per cent of the population. Various sections of the Malaysian elite ranging from businessmen and retired senior government servants are benefiting from the private provision of tertiary education.

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How would they view a policy initiative aiming for free tertiary education for all? It is quite possible that some among these groups would use race and religion to stir trouble and bring down the government that is trying to go against the neo-liberal tide. Obviously then, political education of our people and the building of strong bridges across ethnic and religious lines is an essential prerequisite for any sustained attack on the neo-liberal paradigm.

The countries comprising the ‘Triad’ 9 (especially its Anglo-Saxon core – Triad is a term used by Samir Amin to refer to the US, Western Europe and Japan) would be extremely unhappy with us for setting a bad example to other countries and regions. If we move decisively against neo-liberalism, then it would be extremely naïve of us to assume they would not respond as they responded

  • to Iran in the early 1950s (the CIA engineered a coup to displace Mohammad Mossadegh, the democratically elected, widely popular Prime Minster of Iran who had the “temerity” to nationalise Anglo-Iranian Oil Company (now BP). Mossadegh was replaced by the Shah of Iran. The emergence of conservative militant Islam in West Asia is due in large part to continual attempts by the US and Britain to undermine and displace progressive secular leaders who attempted to wrest back control of their country’s resources that has been monopolised by these colonial/imperialist powers),
  • to Cuba since 1960,
  • to Chile in 1973 (the CIA sponsored a coup that deposed President Salvador Allende after months of economic sanctions – refusal to buy Chilean copper, and a boss’ strike. President Allende died of gunshot wounds in his Presidential Palace on 11 September 1973, the day of the coup. Tens of thousands of leftists and labour activists were butchered by Augusto Pinochet’s regime in the subsequent weeks)
  • and to Afghanistan in the 1970s (the CIA worked with Pakistani intelligence to create a militant Islamic response against the left-leaning governments that replaced the Afghan monarchy in 1973. This eventually morphed into the Taliban).

We have to factor in the probability that members of the Triad would promote racial and religious sectarianism to sabotage our efforts to build a society based on a different model.

At this point in time, the majority of our people believe in Thatcher’s ‘Tina’ – There is no alternative. Many still believe in right-wing propaganda that any attempt to build a world based on solidarity must result in authoritarian, repressive, undemocratic societies. They would see us as idealists and dreamers – nice fellows, but certainly not the type you want to entrust the governing of the country to!

A minor irritation that we probably will face is the criticism from left groups that we are confused social democrat reformists who do not understand that we need to bring the productive assets of society under the democratic control of the majority – in other words we need to clearly and loudly proclaim a socialist programme that specifies nationalisation of productive assets from the outset.

(This derives from a misconception that large sections of the population can be persuaded to our point of view by clear intellectual arguments for a socialist solution. How far would Chavez have gone if he had taken this as his starting point? People need a process of praxis to arrive at the conclusion that they need to embark on the road to socialism. Initiating that process of praxis requires mobilising people out of their apathy, inertia and fear. They need to conceptualise clearly why they are joining street campaigns. At this current juncture, that praxis may have to take the form of lobbying for “social democratic” programmes, initially at least.)

I would suggest to such groups that they should evaluate what a “transitional programme” would look like in this day and age, and debate what forms of mass activities can educate the ordinary people in a situation where general strikes are not that frequent. (Rosa Luxemburg disagreed with those who asserted that the majority of ordinary workers would not be able to proceed beyond economic struggles to develop a radical consciousness. Rosa argued that it was their involvement in mass public activities (the Mass Strike) that exposes workers to the class nature of society and cultivates a radical consciousness in them.)

If we agree that the main determinant of historical trends is the relative strengths of the opposing classes, then a major part of our efforts should be to re create the confidence that “a better world based on solidarity is possible” and use this to rebuild the people’s movement. The fight against neo-liberalism will open up sufficient space for the direct involvement of the Malaysian Marhein in the struggle to create a better future for themselves and their children – an involvement essential for the deepening of their political conciousness.

The above piece was presented at a discussion on Alternatives to Neo-liberalism in Kuala Lumpur on 21 September 2014.

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Ed G
Ed G
21 Oct 2014 11.17am

As far as my memory holds, Reagan and Thatcher, on the back of their conservative outlook, came into prominence during the turbulent and uncertain period of the late 1970s. The leftist movement and mindset were at their peak then. Workers’ union led strikes were almost an everyday affair although unemployment were at the highest since the Great Depression as factories in the Western Europe and the US were laying off workers or even shutting down due to the onslaught by the Japanese manufacturers. Many of these strikes were in fact launched by the less affected service sectors such as healthcare, transportation and air traffic controller. On the political front, the communist threat was becoming ever more real with the US defeat in Vietnam, the Soviet military invasion in Afghanistan, and many other gains made by the communist/leftist in many other parts of the world. On top of that, there was also the Iranian hostage crisis while the Watergate scandal was not too far away from the peoples’ memories. Probably fed-up with the unceasing troubles and also to to a certain extent due to despair, the people… Read more »

charleskiwi
18 Oct 2014 8.14am

Was China given any aid ? Yet to day they are the second largest economy in the world and it would be long before they become the largest. Why ? Just like a child or a person who is given aid will never progress as fast as one that motivates oneself. That is China and did not still does not give their people too much freedom or human rights. So really too much of every thing is bad and does not motivate anyone when one is not ready. Why do you decides what milk your child is to take or he school the child goes to ? Look at America the people can have everything including guns, see what have to the rights to have guns ? So many innocent people, including young children, are killed every so often and that is the result of freedom. Many successful professionals will confess that they were will treated and well look after and most of all they were never ever given too much rights or freedom to do what they want when they were young and growing up.… Read more »