[Noah] Smith is keen to refute the ‘mixed economy’, anti free trade ideas that have been sneaking into mainstream economics since the Great Recession, namely that ‘neo-liberalism’ and free markets are bad for living standards. Instead, a little dose of protectionism on trade (Rodrik) and state intervention and regulation (Kwak) helps capitalism to work better.
But no, says Smith. Neoliberalism works better. He cites China’s growth phenomenon as his main example! In China, “the shift from a rigid command-and-control economy to one that blended state and market approaches — and the liberalization of trade — was undoubtedly a neoliberal reform. Though Deng’s changes were mostly done in an ad-hoc, common sense manner, he did invite famed neoliberal economist Milton Friedman to give him advice.”
He then adds India to this argument: “A decade after China began its experiment, India followed suit. In 1991, after a sharp recession, Prime Minister Narasimha Rao and Finance Minister Manmohan Singh scrapped a cumbersome system of business licensing, eased curbs on foreign investment, ended many state-sanctioned monopolies, lowered tariffs and did a bunch of other neoliberal things.”
Boy, does this take the biscuit. China’s economy is an example of successful neoliberal economic policy!? In several posts I have shown that China is not a free market economy by any stretch of the evidence and may not even be described as capitalist. It is state-owned and controlled with investment and production state-directed, with profit secondary to growth as the objective. Indeed, the IMF data on the size of public investment and stock globally put China in a different league compared to any other economy in the world.
As for India, the state sector also remains significant, something which continually upsets the World Bank and neoliberal economists. The policy measures of the 1990s can hardly be used as the explanation of the pick-up in economic growth in India. During the 1990s, productivity growth in all the major ‘emerging economies’ picked up – only to fall back again after the Great Recession. Globalisation and foreign capital were drivers then everywhere.
Anyway it is not really true that Indian government policy is ‘neo-liberal’ – on the contrary. In contrast, the clear shock switch to neoliberal capitalism by Russia’s post-Soviet governments and its oligarchs was a total disaster (Smith calls it a ‘mixed success’!). Growth, living standards and life expectancy collapsed. Indeed, the conclusion that might be drawn is not that ‘neo-liberal reforms’ have driven the relative economic success of China and India in the last 30 years but their resistance to such policies....
Michael Roberts Blog
Neoliberalism works for the world?Michael Roberts
The US elite went for maximum profits and there is nothing clever about that even if they did get economists to praise neoliberalism. Greed was good, they said, because the selfish pursuit of maximum profit meant there would be more businesses and more jobs yielding a 'trickle down effect'. To maximize profits CEO off-shored the jobs and private equity firms came along and bought failing companies up and asset stripped them while loaded them up with loans and then they sold the companies walking off with the loot. They also often would sell off all the property the companies owned and then lease it back again making massive short term profits but this, plus the loans, reduced long term profits. Rather than invest in new businesses banks, companies, and ordinary people speculated in property instead further eroding the industrial base.
ReplyDeleteNow a tiny elite own massive wealth but the rest of society is a lot poorer. US infrastructure is in a bad way because the elites preferred tax cuts instead of rebuilding their country. With the its industrial base decimated the US empire is now falling apart. So much for neoliberalism and Ayn Rand selfishness. Look where that got the US?
China listened more to Keynesian economists like James Tobin and James Galbraith and many others. Being ignored in the USA, they had plenty of time on their hands. :-) Came across a recent Chinese book on their Keynesian advisers, will see if I can dig it up again.
ReplyDeleteUS elites went more for maximum return to the 19th century, maximum wealth monopolization by the elite. Chinese elites went for national development and listen(ed) more to pressure from below. As the US had done until 1970 or so. In both cases the income and profits were higher in the less "neoliberal" state and era.
This comment has been removed by the author.
ReplyDeleteRoberts claims China “is state-owned and controlled with investment and production state-directed, with profit secondary to growth as the objective.”
ReplyDeleteBit hard to square with the fact that China is closing down loss making state enterprises as fast as it can.
Kaivey the main problem here has been the zero interest rates over the last 8 years...
ReplyDeleteThis is due to a conflict between the Economics Dept which teaches Monetarism and the Business Dept which teaches modern portfolio theory for long term retirement savings...
B school teaches to expect a 5%+ APR while the Econ Dept says zero rates are stimulative... both cant be correct...
Its a classic textbook case of lack of coordination 101 between these two departments in the academe....
If we had 4% rates today, the interest payments on the 20T of bonds would be $800B instead of basically zero...
An additional $800B of leading USD flow annual and all of this goes away...
ReplyDeleteOnly to a limited degree, Ralph. China learned from the Russian experiment in fast privatization based on the neoliberal assumption promoted by Western advisers that increased efficiency would "sort things out" optimally. That advice blew up almost taking Russia down. China is not going to repeat that mistake. They are reforming the economy as quickly as they see possible without threatening stability. They are also not under the illusion that privatization of public goods is always in the interest of the public. In the big picture, effectiveness is more important than efficiency. The Chinese leaders are big picture people, and that is serving them well so far.
https://static.treasury.gov.au/uploads/sites/1/2017/06/5-China-SOE-reforms.pdf