Opinion Neo-liberalism,old slogan
A short history of an idea that has outlasted its resonance.
The Supreme Court order on black money makes some strong observations about the macro-economic policies followed by successive governments in recent decades. It characterises the economic policies of various regimes as neo-liberal,promoting a form of capitalism that is predatory in nature. The court also chose to dwell on Indias economic policy regime,describing it as neo-liberal and guided by the Washington Consensus.
In fairness,the descriptions used by the learned judges have long been rejected as unworkable even by the institutions that gave birth to these ideas! The Washington Consensus was an idea propounded in the late 1980s by John Williamson,who later became chief economist for South Asia at the World Bank. The United States,then still economically strong and somewhat arrogant,had sought to impose on the developing world the idea that they must contribute robustly to global growth by accepting unfettered liberalisation,privatisation and globalisation as the fundamental tenets of economic policy.
This was aimed at furthering the neo-liberal agenda of the West,which had realised that growth was saturating in that part of the world and that new markets will necessarily have to open up rapidly in Asia,Africa and Latin America. However,the World Bank itself realised the sheer fallacy of the Washington Consensus as the political economy of various developing countries rejected such prescriptions.
In the past decade,many Asian and African economies have come into their own,and have started following home-grown prescriptions that are perhaps more palatable in the context of domestic politics.
The world has changed quite dramatically since Williamson coined the term Washington Consensus. If anything,America and other crisis-ridden European economies probably need to follow various prescriptions relating to structural adjustments that the Washington Consensus had originally proposed for the debt-ridden developing world.
A key principle of neo-liberal economics which the Washington Consensus had proposed was the near-total opening up of trade in goods and services to maximise global output. However,when India proposed a comprehensive free trade agreement in goods and services during President Barack Obamas visit last year,US officials were not responsive because they were not sure how the American public would respond,given the persistent stagnation in their economy,with the unemployment rate failing to come down in any significant way.
So it is America that is fighting shy of signing a comprehensive FTA with India. This is how the world has changed in the last two decades. It is not for nothing that the Doha round of WTO negotiations has not reached a conclusion for a decade now. It is an open secret that the negotiations had been stonewalled on previous occasions because America was going to the polls. The US was never sure how the people would react to massive cuts in agriculture subsidies or to the opening up of textile markets which could result in massive loss of jobs in that sector.
So the question is: why would the original proponents of neo-liberal economics fight shy of it now? The learned judges of the Supreme Court may want to study this issue in detail.
Neo-liberal economics was always a bit of a misnomer. Even when economists like Adam Smith propounded the original version of neo-liberal economics,by posing it as an improvement upon the mercantilist (protectionist) policies followed by the colonising European powers,many critics said that liberal economics was merely mercantilism in a new garb. No wonder the original mercantilists of the West are today accusing China and India of following mercantilist policies!
So the truth is India is not a victim of neo-liberal policies dictated by the West. It could be suffering because of flaws in the way it has designed its own domestic policies relating to critical sectors,such as infrastructure,manufacturing,agriculture and so on.
In fact,in some areas India seems to have shown clear alternative paths to the neo-liberal policy design. For instance,the global financial crisis of 2008 showed the resilience of the Indian banking system and regulatory mechanisms.
The liberal financial sector in the US had in the 1990s blurred all distinctions between commercial banking and investment banking activities which had led to massive risks from the stock and securities market entering the banking system. For years before the 2008 financial crisis,Americans were pushing very hard developing economies like India to import some of these neo-liberal ideas. But that did not happen. India is opening up its financial sector at its own pace,and with its own unique brand of regulation.
The other big neo-liberal (Washington Consensus) idea which got comprehensively rejected some years ago was outright privatisation of the public sector. Today,the policy is far more nuanced,based on the needs of individual public-sector enterprises. Indeed,India has evolved a model where public-sector companies compete with private-sector entities in most sectors.
The alternative to a neo-liberal agenda has happened because the people have voted for it. Left critics of the former CPM government in West Bengal used to complain that the Buddhadeb Bhattacharjee government was following neo-liberal economic policies by favouring big businesses. Now Mamata Banerjee promises to follow a different model of development.
The Supreme Court has observed that in neo-liberal economics the market begins to function like a bureaucratic machine dominated by big business,and the State begins to function like the market. This may have been true in recent years when crony capitalism has been rampant,especially in sectors such as mining,telecom and real estate.
However,it would be fair to say that of late state-appointed regulators,including the Comptroller and Auditor General,have shown their mettle and sent shivers down the spine of big business. So it might have been a bit excessive for the Supreme Court to suggest that the state has begun to function like the market. The jury is still out on what model of development India is evolving,given the uncertainties that surround the global economy. It is an interesting phase,and it is best to discard overused slogans of the past to describe the emerging scenario.
The writer is managing editor,The Financial Express
mk.venu@expressindia.com
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