ECONOMY: Neoliberalism Ailing but Alive

By Julio Godoy Reprint | | Print |

Julio Godoy

BERLIN, Jan 15 2010 (IPS) - The global financial crisis led many European economists and civil society activists to believe that the neo-liberal paradigm in social and economic policies across the industrialised world and many developing countries had passed away, victim of its own flaws.

But almost two years later, and despite all the talk and actions by governments in the industrialised world to counter the social and economic disaster caused by deregulated capitalism, neo-liberalism is still around in Europe. Ailing, maybe, but still alive.

“Unfortunately, most governments in Europe never really renounced the neo- liberal paradigm, despite the profound social and economic crisis deregulation and radical market policies provoked in the continent,” Kerstin Sack, who tracks international financial institutions and economic solidarity at the German anti-globalisation movement ATTAC tells IPS.

Policy calls from civil society groups such as the World Social Forum (WSF) remain “as urgent as ever,” Sack says. “The world needs to establish firm controls over international financial transactions, pursue a global environmental policy to forestall climate change, and promote a fair international trade policy, and give expansion opportunities to developing countries’ producers, both in industries and in agriculture.”

The WSF, which was founded in January 2001 in the Brazilian city Porto Alegre, defines itself as a political space for groups and movements of the civil society opposed to neo-liberalism and to domination of the world by capital and any form of imperialism. Its warnings still need to be heeded in Europe.

In Germany, the crisis provoked an economic downturn of almost 5 percent in 2009. In France, economic growth slowed down by 2.2 percent last year. Britain was also heavily hit by the recession, with a decline of almost 5 percent.

In all European countries, the crisis brought a substantial rise in unemployment and an explosion in deficits, almost leading to state bankruptcies in some countries such as Greece, Ireland, and Iceland.

The leading economic indicators of the Organisation for Economic Cooperation and Development, representing the most industrialised countries, shrank by almost 15 percent in 2009.

Despite the negative effects of deregulated market economy policies, Sack says the conservative new German government in office since last September “is acting as in the most dogmatic neo-liberal years of the 1980s.”

Indeed, the German government, composed of the Christian Democratic Union of Chancellor Angela Merkel, and the neo-liberal Free Democratic Party, has deepened the neo-liberal regime of the last 20 years, with tax cuts for the high income sectors of society, reduction of social benefits for workers and low income families, and a call for further salary freeze for public servants and employees of private enterprises.

The tax cuts are likely to increase state deficit and indebtedness, already at a record high. In 2010, the German deficit will amount to some 125 billion dollars, well over 5 percent of the country’s gross national product. The state debt amounts to more than 1,660 billion euros – almost 2,400 billion dollars.

“Tax cuts (for the rich) and and a further dismantling of social welfare benefits do not fit into the needs of our times,” Gustav Horn, head economist at the German Macroeconomic Policy Institute tells IPS. Horn also condemned salary cuts for employees. “What the economy needs in these times of crisis is a higher domestic demand, and not its contraction.”

Similar criticism has been directed at the French government of conservative President Nicolas Sarkozy. Philippe Frémeaux, former director of the Agency for Economic Research and Forecast, and now chief editor of the monthly magazine Alternative Economiques, accuses Sarkozy of “remaining faithful to a neo-liberal programme which long ago crashed against reality.”

Frémeaux tells IPS that Sarkozy came into office in 2006 armed with a programme of “cutting taxes for the better-off and reducing the size of government, allegedly with the aim of accelerating economic growth and increasing the citizens’ purchasing power.”

But more than three years later, “the global economic crisis destroyed these dreams, and the indicators of the French economy tell a different, depressing story.” Unemployment, he says, has reached almost ten percent. “Among youth under 25 years of age, unemployment is much worse, and affects almost 25 percent of the population.”

And yet, Sarkozy does not appear ready to change his policies. “The government is not ready to discuss a tax increase,” Frémeaux says. “On the contrary, Sarkozy’s government has just approved yet another tax cut in favour of restaurants and hotels owners, and is paying additional subsidies to physicians.”

European governments’ reluctance to give up neo-liberal policies is hard to understand because the worst of the crisis may lie ahead, Xavier Timbeau, director of the French Observatory of the Economic Conjuncture, tells IPS.

“The crisis will continue destroying jobs, which in turn will affect domestic demand,” Timbeau says. “In addition, banks and insurance companies suffered losses of well over 1,000 billion euros, and are facing very obscure prospects.

“That’s why we are calling for revising the mechanisms of injustice that feed the instability of the global capitalism. We are calling to share the burdens of the global disaster in the most just possible way.”

Kerstin Sack of ATTAC says “the radical anti-globalisation rhetoric European governments used in 2009, especially against the global financial economy, was only lip service. New regulation of the financial business has not advanced a jot. Meanwhile, new finance bubbles are in the making, with the support of governments and central banks.”

European policies towards developing countries, in international trade and the functioning of financial institutions such as the International Monetary Fund, “remain firmly anchored in the neo-liberal paradigm,” Sack adds. “For instance, the European Union continues to call for the unconditional opening of Latin American and African markets, to allow for further export of European goods, especially in the agricultural sector.”