NeoLiberalism 101

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What’s wrong with Global Free Trade?

October 17th, 2008 · No Comments

Criticisms of Current Forms of Free Trade
by Anup Shah

http://www.globalissues.org/print/article/40
The emergence of capitalism represents a culture that is in ma2007-520-stock-market-roller-coaster.jpgny ways the most successful that has ever been deployed in terms of accommodating large numbers of individuals in relative and absolute comfort and luxury. It has not been as successful, however, in integrating all in equal measure, and its failure here remains on of its major problems. It has solved the problems of feeding large numbers of people (although certainly not all), and it has provided unprecedented advances in health and medicine (but, again, not for all). It has promoted the development of amazingly complex technological instruments and fostered a level of global communication without precedent. It has united people in common pursuits as has no other culture. Yet it remains to be seen when the balance sheet is tallied whether capitalism represents the epitome of “progress” that some claim.
— Richard H. Robbins, Global Problems and the Culture of Capitalism, (Allyn and Bacon, 1999), pp. 11–12
A form of globalization and global trading where all nations prosper and develop fairly and equitably is probably what most people would like to see.
It is common to hear of today’s world economic system as being “free trade” or “globalization”. Some describe the historical events leading up to today’s global free trade and the existing system as “inevitable”. The UK’s former Prime Minister, Margaret Thatcher, was famous for her TINA acronym. Yet, as discussed in the Neoliberalism Primer page earlier, the modern world system has hardly been inevitable. Instead, various factors such as political decisions, military might, wars, imperial processes and social changes throughout the last few decades and centuries have pulled the world system in various directions. Today’s world economic system is a result of such processes. Power is always a factor.
Capitalism has been successful in nurturing technological innovation, in promoting initiative, and in creating wealth (and increasing poverty). Many economists are agreed that in general capitalism can be a powerful engine for development. But, political interests and specific forms of capitalism can have different results. The monopoly capitalism of the colonial era for example was very destructive. Likewise, there is growing criticism of the current model of corporate-led neoliberalism and its version of globalization and capitalism that has resulted. This criticism comes from many areas including many, many NGOs, developing nation governments and ordinary citizens.

Simplistic Ideology; Rhetoric versus Reality
Free trade and free markets are essentially about making trade easier by allowing the market to balance needs, supply and demand. Within a nation, it can be a positive engine for development. With the Cold War over, politicians, economists and others have been promoting unfettered free trade and free market ideology, pushing it to an even wider international arena to facilitate international trade. (Though, as will be suggested below, the current system in its reality is hardly the free trade that the theories describe.)
While these are not new ideas, their resurgance in the last few decades has led to naming the ideology as neoliberalism. Rich2008-013-stock-market-tidal-fluctuations.jpgard Robbins, quoted above, also summarizes (p.100) some of the guiding principles of this ideology, which include:
Sustained economic growth as the way to human progress
Free markets without government “interference” allow for the most efficient and socially optimal allocation of resources
Economic globalization is beneficial to everyone
Privatization removes inefficiencies of the public sector
Governments should mainly function to provide the infrastructure to advance the rule of law with respect to property rights and contracts.
Ideas such as markets being self-balancing to meet supply and demand, while increasing propsperity for those who participate freely sounds very appealing, in theory. However there are increasing concerns that go to the heart of the system itself such as,
What about the reality of the current form of globalization, compared to the theory?
How has it affected various segements of society around the world?
What has been the impact on the environment?
Is it even free trade?
How have the functions of power and politics (which cannot be ignored) affected the process of globalization? Have the old imperial powers just managed to (intentionally or unintentionally) devise a more sophisticated way of appropriating the world’s wealth?
Many in the developing world have been welcome to the ideas of globalization, but are wary of the realities as well. For example, on November 16, 2000, during a lecture at the British Museum Nelson Mandela said, “We welcome the process of globalisation. It is inescapable and irreversible.…” However, he added, “…if globalisation is to create real peace and stability across the world, it must be a process benefiting all. It must not allow the most economically and politically powerful countries to dominate and submerge the countries of the weaker and peripheral regions. It should not be allowed to drain the wealth of smaller countries towards the larger ones, or to increase inequality between richer and poorer regions.” These types of concerns have given rise to many criticisms of the current form of globalization, and given a bad name to “free trade” and “free market capitalism” in various circles.
Robbins goes on to point out some of the assumptions that are made to support the neoliberalism ideology:
Humans are motivated by self-interest, greed etc, expressed best through pursuit of financial gains
Actions that result in greatest financial gains benefit society the most
Competitive behavior is more rational for individuals than cooperation, hence societies should be structured around this motive
Progress is measured by increased materialistic consumption and so ever more consumption should be favored.
There are elements in the above assumptions of what some have called “Social Darwinism” or others have described as “survival of the fittest”, in a literal sense, to human societies. Yet,
Cooperation is also often a survival mechanism as is competition, and sometimes these can go hand in hand or even overlap (e.g. cooperation within a species or group, but competition with others).
While there are no doubts elements of self-interest in human nature, there are also elements of cooperation due to the perceived need for a stable society in which to live.
(And cooperation also predates just modern civilization, and can also be seen in hunter-gatherer societies, as pointed out by anthropologists, such as Robbins, quoted above, and Jared Diamonds, author of Guns, Germs and Steel (W.W. Norton & Company, 1997).
The implementation of overly simplified theories and ideologies are meeting growing criticisms. For example, former chief economist of the World Bank Joseph Stiglitz in his popular book, Globalization and its Discontents (Penguin Books, 2002), heavily criticizes the IMF for pursuing an ideology of neoliberal “market fundamentalism” which is overly simplistic, without paying attention to real human needs while also being influenced by, and meeting the needs of, the finance community. At the same time, Stiglitz makes a great case for market economics, but without the ideology, recognizing the complexities, and the roles society and democracy must play. In addition, the definition of progress and success is measured in material terms, and other concerns such as environmental issues, or human perspectives of emotional richness or social well being, are not necessarily factored in. For example,
Different cultures also have a different meaning of progress and poverty, etc.

Exporting one culture’s definition via such an ideology can risk causing societal problems if not done in an open and democratic way. (See Stiglitz, mentioned above for more details of why institutions such as the IMF and World Bank are not doing this in a very democratic way, even if it is claimed so. Also, see for example, John Gray’s False Dawn: The Delusions of Global Capitalism, (The New Press, 1998). Gray was an influential conservative political thinker, influencing Margaret Thatcher and the New Right in Britain. Yet, he has argued that the current form of global capitalism is not a naturally ocurring process, but an imposed Anglo-American political project. Where the market has become so detatched from society and does not meet its needs, this project is doomed for failure he suggests. Those cultures that realize the market works best when it is embedded in society will, if given the chance by the powerful countries, be likely to succeed.)
Environmental concerns are typically not taken into account of directly. It is argued that the environment will benefit indirectly because the same process of individual greed will create markets that address environmental problems. Yet, this creates unnecessary jobs (which also uses more resources) because sustainable development that would not have to adversely affect the environment in the first place would be a more efficient form of development. This site’s section looking deeper behind consumerism and consumption highlights how economic interests do not match or deliver on environmental concerns or human needs and also leads to wasted labor.
Furthermore, and very importantly, those who are wealthier tend to wield more economic and political power and influence. Hence,
Leaders and elite of powerful nations or segments of society are more able to exert their influences, if needed
This can happen not only in places where rule of law and strong institutions are lacking, but also the most democratic of societies
In more developed economies, such influence can be subtle, or appear to be distant because it may not affect the local society as much as it does to people half way around the world
Hence, what can be promoted in the interest of some political and business elite, may not necessarily be the same as society’s interests in general and it can also “distort” markets
As explained in the corporations section of this web site, the rise of corporations included giving them the rights that ordinary individuals have. This has allowed even more concentrated power and influence to be exerted.
The use of political influence includes using the military as well, if needed. Such use and abuse of power has been there throughout history. “Gun boat diplomacy” for example, was a common tactic by the British Empire to force open other countries to trade in terms favorable to the Empire. Military power has also contributed to the processes in the current forms of globalization as well. (See for example, the Institute for Economic Democracy for more details on this aspect.)
Similar influences of power have given rise to disastrous policies of the International Monetary Fund (IMF) and World Bank, such as the Structural Adjustment Programmes that have forced poor countries to cut back on health and education expenditures for example, as discussed in detail on this web site. Such things, combined with the contentious rules of the World Trade Organization (WTO) form a backbone to today’s globalization. As J.W. Smith of the Institute for Economic Democracy suggests, this maintains unequal rules of trade and, ultimately, continues to deepen inequality, poverty and exploitation.

Tags: political economy