The end of neoliberalism

Philip Lawn

The neoliberal era is over. Neoliberalism fails in the long-run. It had its moment in the sun when the natural environment was something that could be plundered a little more without major economic repercussions and when wages, conditions of employment, public infrastructure, and environmental standards, which had been built up over 30 years following WW2, could be diluted and dismantled with little social unrest. Globalisation has also kept the masses happy by providing cheap goods that were once produced at greater expense in the developed world. However, the rising cost of production simply reflected our preparedness to pay more for goods to ensure a cleaner environment and to allow people to earn decent wages and endure decent working conditions. Thanks to rising productivity at the time, the increased cost of production was far exceeded by the value of the additional benefits.

With this in mind, is it really true to say that Asia produces goods more efficiently. No! Cheaper production does not mean more efficient production. China uses more energy, emits more greenhouse gases, and requires more labour hours to produce a similar item as one produced in Australia. Production is cheaper in China because wages and compliance costs are so low. As manufacturing has declined in the developed world, employment levels have been kept buoyant (until 2008) by transferring the services from the non- paid sector of society to the market place. We now pay each other to scratch each other’s backs. A lot of the rise in GDP over the past 30 years hasn’t been the result of a lot more production – it has been the result of production that was never captured by the national accounts now appearing in the national accounts. Meals used to be prepared free of charge in the household; child care used to be done free of charge in the household; and people used to mow their own lawns, wash their own dogs, and perm their own hair. We now pay for all of this because we don’t have time to do it ourselves because we are too busy providing a service that used to be done free of charge in the household! A case of a cat chasing its own tail and appearing as beneficial economic activity in the national accounts. If we are so much better off, why was it that when I was a kid, my family (2 adults and 2 kids) lived comfortably on the income of one full-time working adult on a modest wage, yet a family of the same size today requires both adults to be working full-time?

This aside, there simply isn’t room for more neo-liberal attacks on standards to enable businesses to cut their costs – sometimes referred to as deregulation. Deregulation in the form we saw in the 1990s in Australia never had anything to do with boosting productivity, which in any case stalled during the Howard years. Nor is it a time for destructive austerity measures – but, then again, it is never time for such measures. Neoliberalism is destroying Europe. I’m apolitical and believe the recent Gillard Labor Government had its failings. But under an Abbott Government (assuming Abbott wins the upcoming election), times will be tough and will be made tougher by his government. An Abbott Government will quickly become one of the most hated governments of all time, simply because their policies will fail disastrously. There will be protests in the streets.

The Howard-Costello years coincided with a global economy that went gang-busters. John Howard was one of the luckiest PMs of all time. However, his policies and governments like his elsewhere in the world took the world down the path to where it is now. A return to a Howard-like government will have devastating consequences for Australia. That’s what we’ll get with Tony Abbott. You can’t deal with modern problems with ideology – that is, by waving an ideological wand. Today’s problems require real solutions in a world where the extraction of many non-renewable resources has peaked, where we have to drastically cut greenhouse gas emissions, and where any level-headed policy that adds an iota to the cost of production results in production shifting to a low-wage, low environmental compliance-cost location, and all because international trade is now governed by the principle of absolute (cost) advantage, not comparative advantage.

I have no problem with capitalism, but capitalism as we know it and how it has been conducted for most of the past 250 years has not been based on ‘good’ economics. It has been based on chrematistics. Neoliberals hate economics. Abbott tells us that the carbon tax and the resource rent tax are bad economic policies. If this is so, he should rewrite ECON101 textbooks. Neoliberals hate economics because economics is about the efficient allocation of scarce resources. This requires costs to be internalised (to be borne by those who impose costs on others) and for economic rents to be confiscated (because they constitute unearned income and distort incentives and reward unproductive forms of investment). Capitalism has been largely characterised by government policy designed to enable individuals and firms to externalise costs and capture economic rents. That works, albeit ineffectively in so many ways, only while we live in a world where costs can be easily passed on and where capturing economic rents does not have major economic and distributional effects. That’s why most avoidable costs have been passed on in the form of extinction of other species (can’t vote or protest), future generations (can’t vote or protest), and the disadvantaged – the latter once being the working class of developed nations (who eventually won the right to vote, protest, and organise itself) and now the Third World (most of which can’t vote, protest, and organise itself – e.g. China). But species extinction and environmental stress is affecting us now; we are now the future generation being affected by two centuries of unjust, dirty, and ecologically destructive growth. There’s no easy way out now. There used to be. We have entered a new era and neoliberalism will not provide any relief whatsoever.

Time, scarcity, and over-population have caught up with the failings of neo-liberalism – failings of chrematistics and the denial of biophysical limits.

Oikonomia and Chrematistics

(taken from http://www.gaianeconomics.org/chrematistics.htm)

We can trace back to Aristotle the distinction between the social and natural resources economies (oikonomia), and the money economy (chrematistics). The term oikonomia, from which the term ‘economics’ is derived, is concerned with the management of the resources of the household for the benefit of all its members over the long run. If the term ‘household’ is expanded to include the ecological resources of the land and its peoples, its institutions, language, shared values and history, we can visualise an economics designed to benefit the community as a whole. Chrematistics, on the other hand, relates to the manipulation of property and wealth so as to maximize short-term monetary exchange benefits to the individual owner. We conclude, in The Politics of Money, that no community or civilisation can exist without oikonomia, the natural and social resources economies which sustain human life on earth. However, chrematistics, the economy of short-term personal monetary gain, has come to dominate human society. Its cancerous growth now threatens the human species with extinction. Ordinary people in their everyday lives collude in this destruction as they secure their money incomes first, with the never-quite-achieved intention of getting around to thinking about the longer term implications of their impact on the social and ecological infrastructures – eventually.

The chrematistics economy became all-powerful in Western ‘civilization’ through the mortgaging of land and the creation of money debt secured by landed ‘property’. Thus land ceased to belong to the community, but was re- defined as a money-valued asset capable of being held in individual rather than communal ownership. Under the ‘modern’ economy which evolved at the end of the middle ages, production, became geared towards the securing of a monetary reward through trade and exchange so that monetary obligations could be met. There is no reason at all for these monetary obligations to relate to the social or ecological needs of the wider community, and on the whole they do not, in fact, do so. Hence the conventional history of the evolution of western civilisation presents the replacement of feudal ties and obligations with the freedoms of the universal money economy as an unmitigated ‘good’. In this scenario, the necessity to respect social and ecological obligations is viewed as objectionably oppressive of the freedom of the individual. The time has come to scrutinise these conventional value-judgements.