The end of free market capitalism

The coronavirus pandemic is now expected to end the “neoliberal era” or free market capitalism, which will make it one of the biggest societal shake ups since the Industrial Revolution or the rise of communism. Before this COVID-19 pandemic, people were looking at a future which will be reshaped by climate change and artificial intelligence. Then came this health crisis that is literally causing one of the biggest societal shake ups since the end of the second world war.

What is neo-liberalism? This is a group of ideas associated with economic liberalism and free market capitalism. It is generally associated with policies of economic liberalization which include privatization, deregulation, globalization, free trade, and reduction in government spending in order to increase the role of private sector in the economy and society.

One of the most outspoken and brilliant advocates of free market principles was economist Milton Friedman. He believed that the driver of an economy was self interest. Whatever the problem, his solution was simple: out with government, long live business. Governments should turn every sector into a marketplace, from healthcare to education. Even in a natural disaster, competing companies should be the ones to take charge of organising relief.

After the fall of communism, neoliberalism now reigned supreme in corridors of power and even in the academe. One by one state owned enterprises the world over were privatised. Unions were curtailed as being a barrier to capitalism. Social benefits were cut. Even Clinton in his 1996 State of the Union address said “the era of big government is over....” After the fall of communism in 1989, the only alternative left to free market capitalism was the doctrine of the social democrats. But even they seemed to lose faith in government and began advancing policies which were a mixture of free market economy and socialism.

In 2008 the banks and capitalist financial institutions brought about a global financial meltdown. Even then the world did not learn its lessons. Deep cuts were made in education, healthcare and social security and the global income inequality widened. It was reported that bonuses of top corporate executives all over the world soared to record heights.

There was, however, the beginning of an intellectual rebellion against a situation causing so much income inequality.Thomas Piketty was one of the first authors that inspired me to start writing about income inequality. He began with a book that showed the first ever graph of the income shares of the top 1%.

Then came a very young economist, Gabriel Zucman, who while working at a French brokerage was struck by the astronomical sums flowing through small countries like Luxembourg and Bermuda, the tax havens where the world’s super rich hide their wealth. He wrote a book in 2015 where he said that $7.6 trillion of the world’s wealth is hidden in tax havens.

Before this pandemic, there were many concepts advanced by social democrats that were considered radical. Some of these ideas include wealth taxes, guaranteed basic income, free health care and that term that turns businessmen against social democracy – redistribution of wealth. I am sure most members of the business sector and the economists who align their principles with those in the business sector will consider these ideas radical.

The Financial Times is the world’s leading business daily. It is not a progressive or a radical publication. Its audience are the richest and most players in politics and finance around the world. Every month it has a magazine supplement about yachts, mansions, watches and cars. On April 4, 2020, The Financial Times published this editorial:

“Radical reforms – reversing the prevailing policy direction of the last four decades – will need to be put on the table. Governments will have to accept a more active role in the economy. They must see public services as investments rather than liabilities and look for ways to make labor markets less insecure. Redistribution will again be on the agenda; the privileges of the elderly and wealthy in question. Policies until recently considered eccentric such as [guaranteed] basic income and wealth taxes will have to be in the mix.”

A journalist who has worked in the FT since 1986 said: “Throughout the years I’ve worked there, the Financial Times has advocated free market capitalism with a human face. This from the editorial board sends us in a bold new direction.”

Even before the coronavirus pandemic, the rise of populist leaders was already a sign of discontent with neoliberalism or free market capitalism among the majority of the masses.

There are several reasons often cited as the causes for this discontent leading to rise of populism. The first is that free market capitalism and neoliberalism fostered globalization and new technologies. The economic winners were multinational corporations which gained from lower production costs by outsourcing jobs to China, Bangladesh and other countries. The losers were mainly blue collar and factory workers who lost their jobs or had to settle for very low paying jobs. In the meantime, capitalists kept fighting against higher minimum wages saying it would make us “non-competitive.”

Free market capitalism failed to address rising inequality in income and wealth because of the policies of neoliberalism. Free trade, corporate tax cuts, deregulation, financialization and so on benefited corporations and the more affluent. These policies did not lead to meaningful increases in income of blue collar workers and those living in rural areas.

The decline and fall of free market capitalism will lead to search for alternatives such as democratic socialism or social democracy or progressive populism.

These changes were coming. The coronavirus pandemic has simply accelerated the time.

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