Home Opinion Op-Ed The tyranny of markets under neoliberalism – II – Omer Javed

The tyranny of markets under neoliberalism – II – Omer Javed

neoliberalism
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Dr. Omer Javed |

Overall, as the PTI government tries to strongly hold the reins of the issues facing the people, it needs to guide policy out of this neoliberal mindset. This is indeed no mean task because they will have to provide an alternative agenda that can beat the propaganda machine of the neoliberal philosophy.

They will have to bring their likeminded set of intellectuals, who understand the shrewd ways of intellectuals who have knowingly or unknowingly played their part (in connivance with government and certain sections of the private sector, to their own advantage) in manufacturing consent among the masses, into believing the otherwise overall largely overestimated advantages of neoliberal market related policies, so that they can beat such ideas- for example that (a) government in the business of doing things in the public goods/utilities sector is inherently bad, that (b) markets need to be least regulated, and even then will produce the right or true price signals, that (c) private sector needs both little regulation and regressive taxation for the (infamous) trickle-down effect, that (d) being protectionist in almost any sense is giving air to unfair trade, and that (e) the role of welfare state is basically a drain on the economy and should be curtailed to a very limited subsidy and social protection agenda.

Involving private sector in such strategic areas like electricity generation could be tricky, especially in the regulatory environment determined by policy highly influenced by Neoliberal mindset.

The current PTI-led government can make many task forces, but till the time it reforms its public service and markets, and right-sizes its role under the overall non-neoliberal mindset, it will not be able to deliver on a welfare state, where (i) public do not remain out of the domain of public policy and where there is equality of opportunity to grow, and where (ii) there is ample work for those willing to work.

In this sense, for instance, PTI is well advised to use the proposed Wealth Fund for State-Owned Enterprises (SOEs) in which it intends to involve the private sector management to guide through restructuring, to the extent that it limits itself to getting the house in order with regard to SOEs, but keep the control in its own hands thereafter. What PTI should avoid is to adopt the mindset of previous governments with regard to the role of government under the neoliberal mindset (that those governments apparently had).

Read more: The tyranny of markets under neoliberalism – I – Omer Javed

Private interest, in the light of above, will under-invest in anything that does not maximize its profits, and public utilities and goods will not be provided in the welfare and socially responsible manner, including properly handling environmental and welfare issues. On the other hand, the public sector that is answerable to its electorate will feel more responsible and pushed to deal with the above in a totally opposite way. Here, the very fear of likely scrutiny of the electorate and overall public opinion of the general citizenry would serve as a disincentive for it to follow the ways of neoliberalism.

The private sector would feel no such pressure, and since the conduct of its affairs remains mostly out of the sight and scrutiny of the general public, there would be more incentive for self-serving governments and private sector to connive and act in the ways indicated above, to the overall disadvantage of the public. To exemplify the impact of neoliberalism in Pakistan, take say, in involving the private sector on the electricity distribution side, no one has forgotten the misery brought upon by K-Electric Ltd, the only privatized electricity distribution company in Pakistan, on its consumers.

Shunning the neoliberal mindset is also important if PTI wants to engage people in mortgage financing in a viable and affordable way, for fulfilling one of their election campaign promises.

Also, according to an article published in Bloomberg on September 12, 2018, Engro Corp is partnering with China in establishing projects that enhance electricity generation in Pakistan. Involving private sector in such strategic areas like electricity generation could be tricky, especially in the regulatory environment determined by policy highly influenced by Neoliberal mindset. What if there is a course correction, which there should be, and markets beyond the neoliberal influence may not be that lucrative for the private sector and can jeopardize national energy supply levels if Engro re-evaluates and pulls out, partially or fully, out of the power sector.

Therefore, energy markets like many other markets of strategic importance in Pakistan need public sector primarily, because of the reasons indicated above and the logical conclusions that can be drawn from them; one being that the sheer size of the government, and the sense of responsibility it could face towards it electorate or citizenry would allow it to remain in the energy market in difficult financial times, and along with the financial capacity available due to its size and multiple avenues to raise finance (tax resources, and debt markets), to remain interested in socially viable returns.

Read more: Western liberal totalitarianism: friendly and subordinate fascism

What PTI should avoid is to adopt the mindset of previous governments with regard to the role of government under the neoliberal mindset (that those governments apparently had), especially with regard to their very positive position in favour of large-scale privatization and liberalization. Hence, the PTI-led government should not go back to a list similar to the one that the previous government of PML-N negotiated with IMF (International Monetary Fund) in the last EFF (Extended Fund Facility) programme in 2013, whereby wholesale privatization programme was planned for some of the most strategic public sector assets.

Under it decision was made to hold (a) capital market transactions of companies in the oil, gas, petroleum sectors and some banks, (b) strategic private sector participation for a long list of corporations ranging from the national airlines to steel mills to a number of energy supply companies, among others, and (c) a list of companies to be restructured followed by privatisation. The current PTI led government should not follow in the footsteps of the previous government in this regard, may that be through the proposed Wealth Fund or more directly; may that be in its possible negotiations with IMF for a programme, or otherwise.

One way to reach it is through policies of the nature of social democracy that believes in the right sizing of government and underlines its role in creating a welfare state.

If the PTI government wants to follow the example of the Scandinavian countries then it should try to remove itself from the neoliberal policy and practices, which on one hand have made markets and private sector more a problem than a solution, and on the other hand has undercut democracy by keeping the public out of both policy-making and its scrutiny.

Let’s take another example, in the shape of the financial market in Pakistan. Here, the private banks, working in the overall environment of weak regulation under the neoliberal policy framework, have been earning huge profits for quite a long time, where at the back of weak regulation, incorrect price signals have been allowed to the benefit of banks (and their conniving political elites that have influence over policy), whereby, among other things, banks could earn high levels of ‘spread’ (the difference between the interest rate on loanable funds and the deposit rate). Moreover, governments by keeping financial markets least regulated (especially in affairs of banks as indicated above) they raised high volumes of bank financing at higher interest rates than would have settled if there was mostly less ‘desperate’ private sector demand for loanable funds. On the other hand, what it also meant was that it kept the private sector crowded out.

Shunning the neoliberal mindset is also important if PTI wants to engage people in mortgage financing in a viable and affordable way, for fulfilling one of their election campaign promises. Moreover, PTI should avoid such situations whereby: in the wake of pressure of government on banks to dish out such loans at lower rates than should be, or in the case banks to tap in on high house demand give risky loans without putting necessary collateral demands on borrowers, could end up with devastating results similar to the one faced by US banks and insurance companies during the Global Financial Crisis of 2008.

Read more: Not the IMF way – Omer Javed

The strength of the US government could bail those financial intermediaries out of the crisis, but will this government be willing (given other expenditure priority areas) or have the financial capacity given the paucity of revenues (and high competing needs), and the high level of indebtedness the government finds itself currently. Could the PTI-led government afford to be the ‘nanny state’ (to these financial intermediaries) a phenomenon propounded by the famous US economist, Mr. Dean Baker. Will doing that even be correct? I do not think so, since the tax-payers’ money is not for bailing out ‘too big to fail’ corporations but for spending on their such needs as health and education, among others.

Read more: IMF programmes, institutional quality and export performance – Omer Javed

There is a place, way, and extent of involving the private sector (for example primarily in the social and financial sectors), and a course of action (different from the Neoliberal one) for markets to be made a source of providing true/correct price signals. One way to reach it is through policies of the nature of social democracy that believes in the right sizing of government and underlines its role in creating a welfare state.

Omer Javed holds Ph.D. in Economics from the University of Barcelona, Spain. A
former economist at International Monetary Fund, he is the author of Springer published
book (2016), ‘The economic impact of International Monetary Fund programmes:
institutional quality, macroeconomic stabilization, and economic growth’. This article was first published in Pakistan Today and has republished with author’s permission. The views expressed in this article are author’s own and do not necessarily reflect the editorial policy of Global Village Space.


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