Sunday, 20 May 2012

Waiting for Copernicus: On the Slow-Death of Neoliberalism

Common Dreams

by John Feffer                                        Foreign Policy In Focus                                     May 9, 2012

It’s happening in Buenos Aires. It’s happening in Paris and in Athens. It’s even happening at the World Bank headquarters. The global economy is finally shifting away from the model that prevailed for the last three decades. Europeans are rejecting austerity. Latin Americans are nationalizing enterprises. The next head of the World Bank has actually done effective development work.

After the near-collapse of the global financial system four years ago, obituary writers rushed to proclaim the death of the prevailing economic philosophy known as neo-liberalism. It was a tempting conclusion. Everyone seemed to get the message. Everyone except Big Money. Washington continued with business as usual. The IMF and the World Bank, meanwhile, didn’t fundamentally change their policies. And the European Union, led by tight-fisted Germany, continued to back austerity. All the major economic actors held to the old orthodoxy.

The case for austerity, explains Washington Post columnist Harold Meyerson, “was that once governments began slashing their spending and deficits, markets would reward them by investing in their more productive economies. But the reverse has happened. As Greece, Ireland, Portugal and Spain have cut their budgets, investors have grown less willing to buy their bonds. By plunging themselves deeper into recession, these nations have convinced investors not that they’re fiscally virtuous but that they won’t become economically viable for many more years.”

French and Greek voters rejected austerity in the elections this weekend not because they are unruly children who refuse to swallow their medicine. Rather, they realize that austerity economics could very well precipitate a lot more pain. Moreover, they want the pain to be fairly shouldered. Francois Hollande, the new Socialist president in France, has called for a 75-percent tax rate on all earnings over $1.3 million. Now that’s a Buffet tax!

Europe at the moment is very much up for grabs. The far right has also rejected austerity, and it has a much simpler platform: blame the immigrants. The National Front in France has injected its xenophobic virus into the very heart of France’s center-right Union for a Popular Movement; the street thugs of Golden Dawn in Greece will enter parliament for the first time; Geert Wilders and his anti-Islamic chest-thumpers brought down the government in the Netherlands last month. Where the left has failed to provide an alternative to austerity, the right has prospered.

The Europeans could learn something here from Latin America, particularly Argentina. In the late 1990s, having racked up a huge debt, Argentina said no. It defaulted on $100 billion-plus in loans. According to the rules Argentina should have been banned from the global casino. But that didn’t happen. Most creditors – 93 percent – eventually accepted the 35 cents on the dollar haircut that the government offered. Foreign investors continued to supply capital. Unemployment dropped from 25 percent in 2001 to below 8 percent in 2010. Social programs reduced the percentage of the population living beneath the poverty line from 51 to 13 per cent.

Argentina is not the only country in the region to roll back the privatization mania. Brazil increased its control over the oil company Petrobras two years ago. Bolivia recently renationalized the electricity grid, Venezuela, under Hugo Chavez, has made enlarging the state sector a populist rallying cry. And Ecuador has followed suit with laws to allow the government to seize oil and gas companies that don’t comply with national regulations. Perhaps they will get some help from an unusual quarter – the World Bank. The new head Jim Yong Kim is a health professional, not a free-trader or a neocon. There are plenty of people at the World Bank who are waiting for this new kind of leadership.

As the world lurches from one economic crisis to another, one thing is certain: there is no longer any consensus in Washington over what to do. Neo-liberalism survives, but more out of inertia than conviction. Meanwhile, out there in the world, the economic Copernicans are busy reconstructing the order of things. 


© 2012 Foreign Policy In Focus

John Feffer is the co-director of Foreign Policy In Focus at the Institute for Policy Studies in Washington, DC.

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