Neoliberalism and the Global Financial Crisis
Beder, Sharon, Social Alternatives
The new right advocated policies that aided the accumulation of profits and wealth in fewer hands with the argument that it would promote investment, thereby creating more jobs and more prosperity for all. However financial markets provide opportunities for investment without creating jobs and, as the global financial crisis has revealed, speculative investment feeds an ephemeral prosperity that can be wiped out in a short time period. Inequities resulting from new right policies - including the deregulation of labour markets and the reduction of government spending - reduced consumer demand which had to be propped up with consumer credit and mortgage debt. Financial deregulation, also promoted by the new right, enabled financial institutions to dictate government policy and enabled wealth to be channelled into speculative investments exacerbating the volatility of share and housing markets. The combination of household debt and unregulated speculative investment led to the collapse of the subprime mortgage market followed by the bankruptcy of major financial institutions and the collapse of share markets around the world. Yet the Rudd government continues to place its faith in markets as a way out of the crisis.
The new right promoted a fundamentalist view of markets that came to be referred to as economic rationalism in Australia and, more widely, as neoliberalism. It advocated the replacement of government functions and services with those provided by private profit-seeking firms operating in the market (privatisation); deregulation of labour and financial markets; deregulation of business activities; free trade; and smaller government through reduced taxes, spending and regulation. These policies were promoted in the name of free markets, economic growth and the public interest (Beder 2006b).
The new right argued that competition and unrestrained selfishness was of benefit to the whole society in capitalist societies (Sheil 2000, 26). It asserted that, as a nation gets wealthier, the wealth will 'trickle down' to the poor because it is invested and spent, thereby creating jobs and prosperity. In fact, the global financial crisis has shown that financial markets provide opportunities for investment that provide relatively few extra jobs and that feed an ephemeral prosperity that can be wiped out in days.
Neoliberal theories were embraced by big business because they provided a legitimation for their pursuit of self-interest and avenues for business expansion (Beder 2006a, 151). They supported the argument that government regulation interfered with business and undermined 'enterprise culture' (Self 1993, 72). In this view, government intervention in the management of the economy is unnecessary and unwise because the Market is a self-correcting mechanism. There was, also, some appeal in free market ideology for governments too, in that it absolved them of responsibility for economic performance (Beder 2006a, 8).
Outcomes and Inequities
As neoliberal policies were implemented around the world, disparities in wealth and income increased and poverty increased, contradicting neoliberal theories that by increasing the wealth at the top everyone would be better off.
In Australia economic rationalism - adopted by the Hawke/Keating governments in the 1980s and continued by the Howard government in the 1990s - resulted in efforts to reduce government deficits, reduced taxation for high income earners, deregulation of financial institutions, floating of the dollar, reduction in tariffs and import restrictions, privatisation, and business deregulation (Garnaut 1994, 53-4). These reforms - termed 'restructuring' - were supposed to enhance economic efficiency, productivity and industrial competitiveness (Beder 2006b, 65).
The reinvigoration of the Australian manufacturing sector that was supposed to result from this 'economic restructuring' never occurred. The extra money generated in the 1980s by lower corporate taxes, higher profits and deregulation was seldom reinvested in productivity. …