The Free-Trade Doctrine of the Neoliberal Globalization
An Article in the Compendium of Market-Based Social-Ecological Economics
Key issues in view of the neoliberal crisis:
How can we guarantee employment and fair income?
How can we protect the environment effectively?
How should we shape the economic globalization?
What should the economic sciences contribute?
What must be the vital tasks of economic policy?
How can we legitimize economic policy democratically?
Table of Contents
The neoliberal economic doctrine has been determining the fate of the world for years now, even though it is nowhere documented and is hardly comprehensible in its entirety. With good reason, as the neoliberal protagonists have no desire to trigger an unfavorable public controversy confronting them with the contradictions of their actions. However, in the face of increasing economic and social devastations it is about time to lay down the doctrine on paper and decode it for the political debate.
2. Preliminary Remarks
It is characteristic of the neoliberal economic doctrine that its protagonists were finally forced to present it as a supposedly coherent conceptual construct, when the devastations caused by excessive deregulation of national markets and the emergence of »liberalized« global markets could no longer be overlooked.
The process of deregulation began with the failure of the post-war economic order (the Bretton Woods System) in the early seventies of the last century, and is still being pursued. From the start, the striving for expansion and profit of industrial and financial players was the essential driving force. The postulate of »liberalization«, representing the core of the doctrine, was enhanced during the nineties to include a growth paradigm in response to increasing saturation of major industrial markets – primarily to justify tax and other cost cuts, glossed over as growth stimuli, to be demanded from the nation states to benefit export initiatives aimed at global markets (in addition, see the article Bretton Woods System (English)).
It is not surprising that the protagonists avoid to record the doctrine in writing – for example as a new economic theory – given its unscientific character and its inherent contradictions. Instead, they prefer to propagate it through individual, tactically motivated political demands.
The curtained industrial self-interest behind the doctrine reveals itself most bluntly through the machinations and inner contradictions of the World Trade Organization (WTO). Most notably, when member countries demand open export markets and, at the same time, exclusive import restrictions for themselves to combine a maximum of benefits from exports with a minimum of price disturbences caused by imported products. When countries subsequently accuse each other of protectionism, the contradictions of the doctrine become even more obvious. Instead of promoting a prosperity-enhancing global trade, the WTO advocates a »liberalized« trade and competition, interprets the entrepreneurial expansionism as an economic maxim, and consequently transforms the markets into a battlefield of mutual displacement and elimination. Accordingly, the self-conception of the WTO is based on an economic »life-lie« (read more on this in the article World Trade Organization (WTO)). Despite, or perhaps because of this, the WTO succeeds repeatedly in expediting the process of »liberalization« through irreversible multilateral agreements between its 153 member countries.
However, the WTO suffered a first setback, when the so-called Doha Round failed in 2008 after the developing countries had formed an alliance against the superior power of the industrialized countries and refused to accept a further diktat of market »liberalization«. In the course of the financial market crisis the speculative excesses backed by the doctrine were seriously questioned for the first time in autumn 2008 when the devastating impact of speculative overvaluation (so-called bubbles) on the real economy became subject to public discussion. As it stands, the crisis ensures, on the one hand, that the safety nets for banks, companies, and also for investors, are slightly reinforced, and, on the other hand, that the process of industrial power and capital concentration is further accelerated. This proves that each neoliberal crisis already nourishes the next crisis. Since it is generally agreed that the core of the doctrine is not negotiable, there is no need for a prophetic gift to predict a continued social and ecological decline.
The economic and political controversy regarding the doctrine requires a solid base to forward substantial counterarguments and to introduce measures into public discourse for a transition to a sustainable world economic order and economic globalization. Therefore, the neoliberal economic doctrine has been compiled here based on the assertions of its industrial, political and economic protagonists as well as on the actual facts of the economic development.
So, caution (!), the following italicized text is an interpretation compiled to the best of my knowledge and judgement. For whom the internal logic of the text appears plausible upon first reading, be warned that this is only proof of the well-disguised treachery and dangerousness of the selfish intentions of the protagonists:
3. Interpretation of the Neoliberal Economic Doctrine
»The global challenges such as population growth, underdevelopment and starvation require a global mass supply of goods and services industrially produced with maximum efficiency and productivity, particularly regarding agricultural products. Only the global dimension of highly specialized industrial production and global free trade guarantee that corporate profits and consumer benefits ban be optimized likewise and all people can live in prosperity.
Liberalized global markets – freed from national and supranational political influences and especially from trade barriers such as capital controls, tariffs, quotas and restricted labor migration – constitute the regulatory instrument of the global economy. With flexible exchange rates and a free pricing mechanism being calibrated for world market prices in U.S. dollars within the global arena of supply and demand, the best enterprises are being guided to success, poor performances being penalized, self-healing powers being activated, and finally, progress being secured around the globe. Liberalized financial markets provide innovative derivative financial instruments suitable to transfer economic risks to those who are willing and able to bear them, rewarding the risk bearers with high bonuses.
Worldwide prosperity requires to consistently apply the principle of economic efficiency to production: In open and freely competitive global markets fair market-oriented prices are initially being formed for the factors of production – for the mobile factors such as raw materials, financial and physical capital, for the less mobile factor labor (wages), and for the immobile locational factor. The mobile factors are heading towards locations that offer them the most cost-minimizing conditions – such as low taxes and reduced political conditions – to entrepreneurially congregate there and jointly achieve the highest possible productivity and return on investment.
Countries whose factor prices are above world level are motivated by the locational competition to reduce prices in their own interests, initiating an ongoing process of global factor price equalization directed downward to an ever lower price level. The dynamics of this process constantly ensure efficient international specialization and division of labour, multinational networks of value-added chains, equal distribution of macroeconomic profits, and eventually, equal distribution of goods and services at lowest prices throughout the world with a maximum global trading volume .
Global company mergers and strategic alliances generate further productivity gains and are the ultimate means to exploit existing markets and open up new markets. High global market shares allow the production of high numbers of product units and high transaction volumes of services – resulting in economies of scope and scale and thus translating into reduced costs due to synergistic effects, on the one hand, and into low production and transaction costs on the other, and finally into low-price offers.
High productivity and high market shares are also the source of high corporate profits that are invested into technological progress to induce new productivity boosts by means of rationalization and automation, to shorten product innovation cycles, and to generate permanent economic growth. Economic growth in turn is the basis for new, more demanding jobs as well as for an economic and technological potential that is large enough to ultimately mitigate inevitable social hardships and to compensate for unavoidable damages and inventory losses of natural resources.
Job-seekers, individually competing for jobs in the global labor market, are motivated for lifelong learning under the pressure of global competition. Their compensation is assessed according to individual performance to generate a broad diversification of income and incentives for high performers at all levels, and to finally establish a system-affirmative elite. The locational competition additionally motivates nation states and supranational economic unions to adapt their educational systems to economic requirements.
State-owned undertakings are privatized to the greatest possible extent to expose them to market-oriented productivity and pricing levels. Publicly funded social security systems are replaced by self-reliant investments in global financial markets. State bodies are confined to ensure entrepreneurial freedom and political security (laissez-faire). Developing countries are required by commitments of the World Bank, the International Monetary Fund and the World Trade Organization to open their markets in order to accelerate their industrialization through free trade with developed countries. Social inequalities, being a natural consequence of differing performance capabilities, are compensated by the productivity generated by top performers and high levels of capital investment, letting a reasonable amount of prosperity trickle through to the underachieving segment of the population (trickle-down effect).«
4. Questions, Nothing But Questions …
After 30 years of practiced neoliberalism, the doctrine inevitably challenges us to put its promises to the test. For example with these specific questions:
Well, even anyone who is not concerned with economic issues would have to answer all of these questions with a clear No.
Note on the COVID-19 Pandemic
The pandemic has noticeably revealed the significant weaknesses of the neoliberal economic system for everyone, above all the shortage of medical, but also other products, caused by disruptions in the absurdly networked value and supply chains across the globe.
The analyses of the neoliberal system as well as the principles and practical procedures based on them for building a sustainable system, which are presented in this compendium, thereby obtain an unexpected topicality. Now is the time to seize the opportunity and build up economic policy pressure to enforce the development of an economic order that is sustainably oriented towards social and ecological welfare.
The following article refers to the targeted arguments contained in the Compendium: COVID-19 and Globalization
Click here for the German-language version: Neoliberale Wirtschaftsdoktrin