Economic Policies After the Death of Neoliberalism

The international economic system that took shape after the collapse of the Soviet Union is not dead yet, but it is dying. We see that daily, not only in reports on the crisis but also in other news from around the world that tells the same story: the system isn’t working.

The truth is that the system has never worked for the poor and for the toiling classes. It wasn’t designed for that purpose, no matter what its propagandists and various corrupt intellectuals keep telling us. The system did work for the elites; it generated a tremendous redistribution of wealth and power in favour of those already rich and powerful, in favour of the bourgeoisie. But now it no longer delivers even for them. Though the elites aren’t brave enough to admit it, the system has to be transformed.


This is a real systemic crisis, if not for capitalism, then at least for its neoliberal form. And this crisis can’t be overcome until neoliberalism is eliminated. Whether this will also be the end of capitalism will depend on the scale of global struggles and their outcomes.


The neoliberal system was based on exploiting cheap labour. This race to the bottom first resulted in job losses in Europe, but soon Latin American, North African and even Asian workers became its victims. Many industrial jobs moved to China; in fact, the rise of China has hit the development potential of the periphery of world capitalism harder than it has affected the system’s core.

Europe is no longer losing many jobs to China, but Latin American countries are. In many ways, the Arab revolutions of 2011 were provoked by this logic of growth without development – real opportunities for creating good industrial employment have been eliminated.


The shift to the service and finance economies has thus occurred not just in the core countries but also on the periphery. Moreover, it has had nothing to do with new technologies. It has resulted from the destruction of the welfare state, from the growing weakness of domestic markets and from the shift to cheap labour, which in fact has blocked technological innovation and development in the field of production.


The innovation we hear about these days rarely has much to do with producing goods. It is chiefly about consumption; most of the “innovative, revolutionary products” we encounter are not new at all, but merely represent ways of selling us different versions of the same goods, pretending they are new and forcing us to replace the old ones. Consumers and common sense resist this absurdity, thus slowing down the global economy which can’t go forward without it.


The so-called financialisation of global capitalism is not the cause of the current crisis, but itself amounts to a sequence in much more important changes – the degeneration and elimination of the welfare state, accompanied inevitably by lower wages and weaker domestic markets. The growing importance of international and global markets is inseparable from the stagnation and decline of their national counterparts. Now, however, we are coming to the point where this domestic decline makes a continuation of global growth impossible. Without radical changes to social and economic models, including the rebuilding of the welfare state, it will be impossible to switch production and development strategies toward domestic markets even if, technically speaking, the necessary resources exist. Even in China, it will soon become clear, domestic markets will not “take off” without the implementation of social reforms and a massive redistribution of wealth.


The time has therefore come to turn the page and to reorient development strategies toward production, toward more educated, better-paid labour, toward reindustrialisation, and toward social programs and a new welfare state. But to do this we have to tear down the economic and political institutions of neoliberalism, just as neoliberalism earlier destroyed the social democratic and communist institutions of the one-time Sozialstaat (social state). Can this be achieved without revolutions? Perhaps in some cases, but only in the context of revolutions elsewhere, in something like the way that Scandinavian social democracy benefited from the Russian Revolution of 1917.


There is no returning to the Keynesian model of the 1950s and 1960s. This is not simply because technologies and social structures have changed, and because Keynesianism had negative aspects which we now understand much better. The key reason is that the Western welfare state of past decades maintained itself in the so-called advanced capitalist countries through using resources extracted from the periphery. Democracy was also reserved as a luxury for the so-called developed First World, with the only notable and enduring exception that of India. For some time the Soviet model of the welfare state also performed passably well without exploiting the periphery, but also without having democracy at its core. In many ways, this lack of democracy set the stage for the defeat of the USSR in the Cold War and for the Soviet collapse.


We now face the formidable task of creating a new model of the welfare state which will not only include democracy as a functioning internal element, but which will also be based on an expansion of democratic practices outside of politics, into the economic and social spheres. This model cannot depend on the current world-system hierarchy of rich and poor states, and indeed, must act as a means for overcoming it. Is this task feasible? I believe that in the long run it is, but only through a revolutionary process that must take place internationally. This process has only just begun, and we are now in its first stage.

Meanwhile, the need for new economic policies is pressing. What are the short-term priorities that we, as the left, should now fight for? The first need is for complex development, creating productive jobs, cultural opportunities, education and research facilities as well as housing and infrastructure. All these elements must be interconnected, and the people concerned (from technical professionals to consumers and local residents) must be informed, consulted, and involved in planning. Some elements of technocratic planning can be used – there are things that cannot be done spontaneously – but these elements must face the test of democratic discussion and control. Professionals are necessary, but good professionals take their lead from the public; bad professionals are the ones who try to tell the public what to do, then ignore the doubts and protests of the public when its members remains unconvinced.


A further aspect of the new policy needs to be the recreation and development of domestic markets. This can’t be done without protectionism – but what’s so wrong about that? Protection has bad results when it serves the self-interest of local elites against foreign competitors, but there is no reason why we can’t protect our welfare and public goods against attempts to take them away from us. When products are cheap because of the over-exploitation of labour and the environment, we have the right to shut our markets to these goods, thus aiding the improvement of labour standards and the environment everywhere. The development of local markets should not, however, be based on a renewed consumerism; most of the new demand should be generated by collective needs and collective consumption. Good public transport and affordable housing are needed, along with universally available, public-funded internet access, cultural programs, and scientific research and development oriented toward popular needs such as health care and cleaning up the environment. Last but not least, new infrastructure is necessary to provide, energy, water and communications. These are the new demands that will drive the economy forward much more powerfully than individual consumption.


Finally, we can’t have a new economy without a new public sector. Most of the privatisations of the past few decades have proven to be failures, something now broadly accepted by the public, by experts and even by the media. The wealthy elites are now forced to recognise that privatisation has not worked, but for obvious reasons they do not want to reverse it. The task of reversing it, therefore, falls on us. Much more is involved, though, than simply bringing back numerous companies into public ownership. We have to restructure these companies, interconnecting their technologies, practices and knowledge. All these elements must be integrated so as to serve the needs of development, and management must be democratised.


We need a new model of public enterprise based on openness, on doing away with boundaries within the public sector, and on new criteria of efficiency that include contributing to social development. We have to socialise the banking system, suppressing financial speculation and encouraging investment, while providing micro-credits for small businesses, for municipalities, for job creation and for technological experimentation at the local level. Energy and transport must become public services like health care and education, and much of the production that is oriented toward these sectors must also be carried out by public enterprise. This should be part of a general effort to bring about greater interaction and integration. Producers, users and consumers must cooperate directly through public networks.


If something is public, that does not automatically mean it belongs to the state. Nevertheless, public property is created through state property, and if nationalisations are to be carried out (there is no other way we can create a new public sector), we have to transform the state. Neoliberals speak at length about the evils of bureaucracy and about official corruption, but in the world of total privatisation they happily tolerate both. Moreover, they have an interest in many ways in keeping the state inefficient and corrupt so as to deter the public from wanting to expand it through socialising private property. That is why after three decades of neoliberalism in the West, and two decades elsewhere, there has been no decrease in the level of corruption, in the number of scandals, or even in the army of often-incompetent bureaucrats. To the contrary, these have increased everywhere, including in European countries that are proud of their democratic traditions and efficiency. The state needs to be decentralised, democratised and made more open to the public. We should remember what Lenin said of the soviets in 1905 and 1917. We need bodies that are directly involved with the population. Parliamentary democracy is good, but it is not sufficient; we need institutions of direct democracy.


Finally, we need regional integration, which is not about providing open markets for Western corporations intent on selling us Chinese goods. It is about collectively protecting industrial development and introducing standards of education that fit the needs of the region. It is about science, oriented toward these same local needs, about developing new technologies that are cheap, easy to use, and friendly to a particular type of environment. It is about creating markets for local industries, in the process not just opening the way for industrialisation and reindustrialisation, but also linking them with human development. It is about integrating transport systems. It is about collectively abolishing the absurd intellectual property system imposed on us by multinational corporations, while speaking out against these corporations with a united voice. It is not about abolishing national sovereignty, as the European Union has tried to do, but about strengthening it through international representative institutions responsible to the public.


The Arab revolutions that are now shaking the world provide an opportunity to move the region and all of humanity in the direction of democratic change, which in the long run will lead us toward overcoming capitalism. These revolutions need to put forward the questions of regional integration and of economic policies oriented toward social interests. But revolutions can also fail, and be defeated. The struggle to make revolutions and to defend them takes place at a national level, but it is truly international in its meaning. To start a revolution, popular anger and the will for change can be enough, but for it to triumph, a serious political force is essential. The left in Arab countries faces the task of uniting itself and of helping to build such a force, not just as a way of contributing to the transformation of the Arab world, but in order to help change the world as a whole.


Boris Kagarlitsky is director of the Institute for Globalisation Studies and Social Movements. This paper will be presented at a conference in Ramallah, occupied Palestine, on December 20 to discuss alternative economic policies, organised by Palestinian Center for Peace and Democracy. 

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