Neoliberalism on Trial: Preventing the Rise of Free Developing Nations
By lucas@endneoliberalism On 14 Nov, 2015 At 10:11 AM | Categorized As Neoliberalism on Trial | With 0 Comments


By the mid 1950‘s, developing countries from all around the world had suffered over three centuries of European imperialism. Consequently after gaining independence, there was a great need for locals to use their resources and develop their industries. As a rule, economies with an impoverished and illiterate population suffers from a market equilibrium favoring  imperialist industries; therefore, developing countries sought for protectionism policies in order to  advance their local industries and provide for their people.

Many economists and historians agree that protectionism provides many positive tradeoffs to developing countries and new industries seeking to emerge.   In How Rich Countries Got Rich, Erik Reinert argues that “countries specializing in supplying raw materials to the rest of the world will sooner or later reach the point where diminishing returns set in”. According to Reinert, the law of diminishing returns occurs because natural resources are potentially non-renewable, while adding more capital and/or more labour will yield a smaller return for every unit of capital or labour added. Simply put, a country that sells its resources to buy machinery and consumer goods will always be at a price-disadvantage with the country that sells at a premium after turning those resources into products, such that eventually the poorer country’s resources will be depleted. In addition to this depletion, there is a tradeoff between “the short-term interests of consumers and the long-term interests of the same consumers in their role of producers, who will have more employment at higher wages than before” [i].

Just as the market ideology is not an absolute truth, protectionism needs to be implemented progressively and objectively in order to work. Jeffry Frieden points out in his Global Capitalism that countries which have implemented Import Substitution (such as Argentina and India) experienced lower growth rates than countries that implemented  ESE policies (e.g., South Korea and Taiwan)[ii]; incidentally, however, IS countries benefited more than ESE countries under dictatorial and IMF rule.  Greg Grandin shows in Empire’s Workshop that “taking Latin America as a whole, between 1947 and 1973 the heyday of state developmentalism—per capita income rose 73 percent in real wages. In contrast, between 1980 and 1998 -the heyday of free-market fundamentalism- median per capita income stagnated at 0 percent. By the end of the 1960s, 11 percent of Latin Americans were destitute, defined as those who live on today’s equivalent of two dollars a day. By 1996, the total number of destitute grew to a full third of the population. That’s 165 million people. As of 2005, 221 million lived below the poverty level, an increase of over 20 million in just a decade”[iii]

With good economic reason, democratically elected leaders from developing countries promoted protectionist policies that taxed exports of natural resources, subsidized or fully nationalized whole industries, invested in infrastructure and social services such as education and health care, and placed high tariffs on imports to make local products more competitive.  Such governments immediately became a threat to the corporations that were profiting vastly from the comfortable market equilibrium provided by former empires and dictatorial rule. In an attempt to dismiss their sovereignty, these democratically elected governments were labeled as “communist” and “deposed”.

It is interesting to note that Adam Smith’s free trade theory had not been widely adopted as policy in Britain at the time his Wealth of Nations was published in 1776. By the 1820’s, however, British factories had a competitive advantage in virtually every market and “British manufacturers wanted to lower costs by importing cheap raw material so they saw local protectionism as a barrier for growth. At the same time, they now saw mercantilism as a backward policy as they needed access to many markets in order to sell their mass produced goods” [iv]

Similarly, the United States did not advocate free trade until having obtained the competitive advantage they gained in the aftermath of WWII. As Robert Reich explains in Supercapitalism, every technology that is crucial to run a global enterprise today can be traced back to a government subsidy.  He comments: “ the critical ingredient igniting globalization was a raft of new transportation and communications technologies, mostly associated with fighting the Cold War—cargo ships and cargo planes, overseas cables, steel containers, internet, and eventually satellites bouncing electric signals from one continent to another.”[v]

As a point in fact, the US government continued to heavily subsidize its industries throughout the 20th century. Ha-Joong Chang explains in Bad Samaritans that “between the 1950s and the mid-1990s, US federal government funding accounted for 50-70% of the country’s total R&D funding, which is far above the figure of around 20%, found in such ‘government-led’ countries as Japan and Korea”.[vi] In the Entrepeneurial State, Mariana Mazzucato provides a comprehensive expose on how the US government has supported early-stage innovation through DARPA, 0% interest loans, and countless of Economic Development funds. Every big corporation known for their entrepreneurial spirit, such as Apple Computers or Tesla Motors, was the product of bright minds and savvy businesspeople but also extensive government support.

The politico-economic accounts of the United States and Britain’s rise to ‘super powerdom’ serve to dismiss right-wing prejudices of how rich countries got rich during the Neoliberal era and of how poor countries ought to develop. Closer inspection reveals that the greatest imbalance between rich and poor countries is not merely a result of heavy protectionist policies, but also of the constant support of brutal dictators and IMF programs that ratified such violence.

Neoliberals excuse dictators responsible for the torturing and disappearances of hundreds of thousands as “collateral damage” in a war against Communism. Not only was the supposed threat the USSR posed to the world a farce, but the negative implications of dictators and IMF interventions, and the consistency under which Neoliberal policies were implemented despite all failures, serve to show that the underlying reason for intervention has always been colonization. In a very systematic manner, Neoliberalism terrorized and killed hundreds of millions of people with the clear intent of monopolizing the global economy, which became inefficient at satisfying basic human needs as a result of the inefficiencies inherit in all centralized systems of production. The next chapters will expose how Neoliberalism has proved far more totalitarian than communism, for its capacity to face out the USSR with much more sophisticated methods for delivering propaganda, repressing global populations, and monopolizing the global market.


Chapter 2: Military Coups to Depose of Democratically Elected Governments

Chapter 3: Ratifying Totalitarianism Through Odious Debts 

[i] Reinert, Erik S. How Rich Countries Got Rich and Why Poor Countries Stay Poor. PublicAffairs (October 7, 2008)

[ii] Frieden, Jeffry A. Global Capitalism: Its Fall and Rise in the Twentieth Century. W. W. Norton & Company; Reprint edition (April 17, 2007)

[iii] Grandin, Greg. Empire’s Workshop. Latin America, the United States, and The Rise of The New Imperialism. Holt Paperbacks; Reprint edition (May 1, 2007)

[iv] Frieden, Jeffry A. Global Capitalism: Its Fall and Rise in the Twentieth Century. W. W. Norton & Company; Reprint edition (April 17, 2007)

[v] Reich, Robert B. Supercapitalism: The Transformation of Business, Democracy, and Everyday Life. Vintage; Reprint edition (September 9, 2008)

[vi] Chang, Ha-Joon. Bad Samaritans. The Myth of Free Trade and The Secret History of Capitalism. Bloomsbury Press; Reprint edition (December 23, 2008)


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