Neoliberalism and Fashionable Nonsense Galore


Every era has its quota of nonsense, made fashionable by the powers-that-be. Recall the bygone days when it was asserted that the earth was stationary and the sun went round it. The Catholics held that Rome was the centre of the earth. Anyone that questioned this belief was made to suffer torture and hardship.

In the 19th century, when the English workers began agitating for reduction of the maximum working hours to ten, a prominent economist of the day, Nassau William Senior, came out with a seemingly scientific theory that surplus was created only during the eleventh hour. Thus, if workers’ demand was conceded, it would spell the doom for capitalists and they would close down all their factories, as they would not be able to make any profit. Similarly, in the absence of surplus, there would be no interest and rent payments. Obviously, workers would be rendered unemployed and forced to starve. Preceding Senior, Malthus had pontificated that British working people were in a miserable state not because of exploitation and being property less but by producing more children than they could support. Thus, he put an ideological weapon in the hands of the propertied to fight back the ideas and impact of the French Revolution. He did not care to explore whether his theory had any objective basis. It is needless to add that journals aligned to the existing establishment propagated the nonsensical ideas, propounded by Malthus and Senior and tried to make them fashionable.

During those days another nonsense became fashionable in order to hide the real face of British colonial rule in India. The British politician Edmund Burke came out with a piece of nonsense in the garb of a doctrine, claiming, “colonial government was a trust,” which worked for the benefit of the subject population till it was able to have self-rule!

Since the beginning of the present era of neo-liberalism, various types of nonsense have been propagated by the media and the researchers connected with institutes founded and funded by the corporate sector. They have been presented as epoch-making discoveries. To begin with, there is post-modernism that claims that there is nothing like reality. In India, there is no dearth of Hindi writers and journalists who are as infatuated with post-modernism as they were, some decades ago, with existentialism. The second piece of fashionable nonsense is “the end of history.” In 1989, Francis Fukuyama, then a neo-con and former employee of the US State Department wrote an article “The End of History” in The National Interest. Three years later, it was expanded and brought out in the form of a book The End of History and the Last Man. By 1989 the Soviet Union had collapsed and the Cold War had come to an end, leaving America as the only super power on our planet. In this context, Fukuyama declared that what we were witnessing was not merely the end of the Cold War or of a particular phase of the post-Second World War, but it was, in fact, the end of history itself. In other words, it was the termination of the ideological evolution of mankind and the final victory and acceptance of Western liberal form of government. Thus, historical materialism, propounded by Karl Marx, was finally sought to be buried fathoms deep. The existence of classes, and the class struggles as the engine of transition from one socio-economic system to another were totally rejected and immortality of capitalism was sought to be established beyond all doubts.

In 1999, Fukuyama came out with another book, The Great Disruption, in which he attempted to explain, at length, the working of the socio-economic system, propelled by information technology. To quote: “In the economy, services increasingly displace manufacturing as a source of wealth… The role of information and intelligence, embodied in both people and increasingly smart machines, becomes pervasive, and mental labor tends to replace physical labor. Production is globalized as inexpensive information technology makes it increasingly easy to move information across national borders, and rapid communications by television, radio, fax, and e-mail erodes the boundaries of long-established cultural communities.

“A society built around information tends to produce more of the two things people value most in a modern democracy: freedom and equality. Freedom of choice has exploded…. Hierarchies of all sorts, whether political or corporate, come under pressure and begin to crumble. Large, rigid bureaucracies, which sought to control everything in their domain through rules, regulations, and coercion, have been undermined by the shift toward a knowledge-based economy, which serves to “empower” individuals by giving them access to information.” And Fukuyama went on to declare: “there is little real alternative to liberal democracy and market capitalism as fundamental organizing principles for modern societies. Individual self-interest is a lower but more stable ground than virtue on which to base society.”

Around this time, another piece of nonsense became fashionable. It was claimed that revolutionary changes in information and communications technologies had given birth to the New Economy that was to be less inflation-prone and was not subject to business cycles. In other words, the New Economy was free from inflationary pressures and business cycle fluctuations. With the availability of correct and adequate information, the chances of taking wrong decisions were minimized. This fond hope, however, was rubbished by the severe DOT COM recession that afflicted the US economy as it entered the new millennium.

There came yet another piece of fashionable nonsense. Its author was Thomas L. Friedman, the foreign affairs expert of The New York Times. In his The Lexus and the Olive Tree, he propounded that, sooner or later, the entire world would accept American cultural hegemony and follow the American life style. Verily, people eating MacDonald’s burger and drinking Coke-Pepsi would not fight among themselves and peace would reign over the world. This thesis found a supporter in no less a person than Henry Kissinger who underlined in a lecture at Trinity College at Dublin that people world over had no alternative but to take to American culture and values. Needless to add that this approach prompted the Bush administration to launch its mission of imposing American culture and values on the rest of the world, beginning with Afghanistan and Iraq. This mission has proved to be disastrous to both the victims and America.

In this series of fashionable nonsense, an addition has been made by Martin Wolf on December 18, 2007 through his article “The dangers of living in a zero-sum world economy,” carried by The Financial Times. Wolf is associate editor and chief economic commentator of this newspaper. He has also authored a widely read book on globalisation.

To comprehend what he says in his article, one has to understand the two related concepts, namely, zero-sum economy and positive-sum economy. They have come from the domain of Game Theory in mathematics. The zero-sum means that, at the end of the game, the sum total of the gains and losses is zero. To understand this, let us say there are two gamblers and each one of them has $100 when they begin the game and, at the end, first gambler wins $50 and carries home $150 while the other one loses $50 and is left with only $50. If we add the gains and losses: (+)$50+ (-)$50, the result is zero. The first gambler, however, is happy while the other one is unhappy and he may harbour ill will towards the winner. Take another example, the size of a cake is fixed and, in this situation, if some people, by hook or by crook, grab more, the others will have less and this, at times, can lead to conflicts between the two groups. In every situation, the shares of all added together will equal the size of the cake.

Take another example where the size of the cake goes on increasing. In this situation everyone will get more though some will have greater portion than others but everyone will be better off and there will be no cause for resentment or ill will towards others. This will be a win-win situation for all. This is a positive-sum state where all players are better off at the end.

These two concepts are quite often used in economic analysis. Every economic analyst has to familiarize himself with famed Italian economist Vilfredo Pareto’s “optimality”, Albert W. Tucker’s “Prisoner’s Dilemma” and Theory of Games and Economic Behavior by John von Neumann and Oskar Morgenstern. Martin Wolf is fully acquainted with them as is evident from his attempt to make his pontification appear as a serious piece of research.

Wolf holds that, so long as people lived in a zero-sum world economy, i.e., where GDP was either not increasing or growing at a very slow pace, conflicts within a nation, invasion of one country by another, robbery, etc. were the order of the because the strong wanted to snatch away the incomes and assets of the weak. Exploitation, oppression, colonialism, imperialism, etc. were prevalent. After the pace of Industrial Revolution quickened, this situation began changing as the world had entered a positive sum economy where every one more or less improved one’s lot without grabbing the shares of others. Martin Wolf claims: “We live in a positive–sum world economy and have done so for two centuries. This, I believe, is why democracy has become a political norm, empires have largely vanished, legal slavery and serfdom have disappeared and measures of well-being have risen almost everywhere. What then do I mean by a positive-sum economy? It is one in which everybody can become better off. It is one in which real incomes per head are able to rise indefinitely.”

He bases himself on Angus Madison’s computation that per capita average real income worldwide has gone up by 10-fold since 1820 and people in all parts have, in some measure or the other, have benefited. The American per capita income has increased 23-fold while in Africa the rise has been just four-fold. In other words, no one is worse off. The skillful use of commercial energy has extended the working hours and the range of goods and services. “It has also substantially reduced both our own drudgery and our dependence on that of others. Serfs and slaves need no longer satisfy the appetites of narrow elites. Women need no longer devote their lives to the demands of domesticity. Consistent rises in real incomes per head have transformed our economic lives.”

The transition from a zero-sum to a positive-sum economy has radically changed the nature of politics. “A zero-sum economy leads, inevitably, to repression at home and plunder abroad. In traditional agrarian societies the surpluses extracted from the vast majority of peasants supported the relatively luxurious lifestyles of military, bureaucratic and noble elites. The only way to increase the prosperity of an entire people was to steal from another one.” In the present positive-sum economy, it is possible for every one to become better off without robbing others and this sustains the democratic polity. And elites are willing to allow enfranchisement of the masses and allow them a say in running the government.  How magnanimous they have become! Wars that characterized the preceding world economy have receded into the background. In the present positive-sum economy, internal development and external commerce are now the powerful engine of economic growth. Nuclear weapons and the rise of developmental states have ruled out wars among great powers. Hence, there is no danger of another world war.

It is obvious that Wolf lends his support to the maximization of the rate of economic growth and the strategy of “trickle-down” for the distribution of the gains. He rules out any significant role for the state in economic processes, especially production and distribution. Thus neo-liberalism must remain the ruling ideology.

There are a number of perturbing queries that he has side tracked. For example, why did the two World Wars, Bolshevik Revolution, the Chinese Revolution and the Cuban Revolution, and national liberation movement in the erstwhile-colonized countries take place when the world was already enjoying the fruits of the positive sum economy? Why did America intervene in Vietnam and Korea? Why has it invaded Afghanistan and Iraq? Has it anything to do with grabbing their natural resources? Why is America trying to penetrate Central Asia? Why is it in conflict with Latin American countries and with Cuba? Why did France and Britain invade Egypt when it nationalized Suez Canal? Why was the Falklands war fought? Why are the Blacks, the American Indians and the Hispanics still discriminated against in the USA? There is no dearth of such questions that raise a strong doubt about the validity of the Wolf thesis and make it another piece of fashionable nonsense with a short span of life. 

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