“The source of the current global economic crisis lies in the failure of America’s neoliberal capitalism.”—Grzegorz W. Kolodko
The following essay is from Grzegorz W. Kolodko, the author of Truth, Errors, and Lies: Politics and Economics in a Volatile World. Kolodko, a key architect of Polish economic reforms, is also professor of political economy at Kozminski University. He blogs at www.volatileworld.net
The source of the current global economic crisis lies in the failure of America’s neoliberal capitalism. It could not have occurred in countries with a social market economy, but only under the conditions of the neoliberal Anglo-American model. The intense shock the world experienced took place as a result of the coincidence of numerous political, social, technological and economic circumstances. The intersection of these conditions was possible only under a special combination of values, institutions, and policies made possible under the United States special brand of neoliberalism.
First and foremost, neoliberalism definitely overestimates the power, purpose and usefulness of individualism. It unnecessarily supports greed — by elevating this vice to the level of an economy propelling virtue. It neglects the social cohesion aspects of the economy and does not perceive of human beings as the center of economic activities. In the place of people, there is money. Values are not accounted for under neoliberalism almost everything translates into monetary worth. According to the doctrine of neoliberalism it is possible and worthwhile to trade in everything which may bring profit, including expectations both rational and irrational.
From the institutional side, neoliberalism converted the government with its regulatory powers into a kind of a public enemy number one. By using (quite brilliantly, one has to admit) media to manipulate public opinion and, unfortunately, by using the opinion-forming capacity of some groups of social science experts, particularly economists, it imposes the idea of a small (read: weak) government and diminishes its interventions in the spontaneous market processes. However, lasting success is possible only due to an intelligent synergy of the power of the invisible hand of the market and the visible mind of the government. This applies particularly, though not exclusively, in the countries of emerging markets. Institutional intervention is the necessary corollary of contemporary capitalism. That principle is not valued by neoliberalism due to its intense focus on serving the needs of special interests groups.
As for neoliberal policy it confuses its purposes with its measures. The purpose of economic policy is sustainable long-term development. It should be sustainable not only economically, but also socially and ecologically. Low inflation, positive interest rates, a balanced budget, fast privatization, currency exchange rate, — these are instruments and tools of policies. It is not possible to subordinate any economic strategy or policy to indices, which only illustrate phenomena and processes from those areas. To improve the financial standing of narrow groups of elites at the expense of the majority of society, neoliberalism espouses ideas such as liberty and democracy, private ownership and entrepreneurship, competition and economic freedom. However, declaring such ideas as pro bono publico, but actually using them for the benefit of the minority at the expense of the majority, is a common tactic of neoliberals.
We are not in the midst of a crisis of capitalism, since capitalism has special capacities for adaptation. It has been proven on many occasions in the past — and will so be the case in the future. But the current crisis is a fundamental breakdown of the neoliberal model. Wherever neoliberal tendencies dominate — from the United States in the times of Reaganomics, to the United Kingdom during the primacy of Thatcherism, in Latin American countries which allowed the imposition of the Washington Consensus in the 1990s, to Russia during Yeltsin’s term of office or Poland during the “shock without therapy” period at the beginning of the post-communist transformation — the ensuing financial crisis has been most acute.
It is most important now to prevent the neoliberal doctrine, which attempts to lead the global political and economic recovery after minor cosmetic changes and insignificant adjustments, from imposing its trajectory on the world economy again. There is only one rational way to move forward, that is to adopt a post-GDP economics since we are already in the post-GDP economy. The new paradigm for development economics must exercise interdisciplinary and heterodox approaches, of the many choices available to replace neoliberalism I believe New Pragmatism is the most sensible way to move the world forward into a future looking economy.