Case against un­bri­dled cap­i­tal­ism grow­ing

A new con­sen­sus is emerg­ing that more ac­tive and ef­fec­tive gov­ern­ment is re­quired to boost growth and ex­pand op­por­tu­nity

Gulf News - - THE VIEWS - Spe­cial to Gulf News

ree-mar­ket cap­i­tal­ism is on trial. In the United King­dom, Labour Party leader Jeremy Cor­byn ac­cuses ne­olib­er­al­ism of in­creas­ing home­less­ness, throw­ing chil­dren into poverty, and caus­ing wages to fall be­low sub­sis­tence level. For the de­fence, Con­ser­va­tive Prime Min­is­ter Theresa May cites the im­mense po­ten­tial of an open, in­no­va­tive, free-mar­ket econ­omy. Sim­i­lar “pro­ceed­ings” are tak­ing place around the world.

Just a quar­ter-cen­tury ago, the de­bate about eco­nomic sys­tems — state-man­aged so­cial­ism or lib­eral democ­racy and cap­i­tal­ism — seemed to have been set­tled. With the Soviet Union’s col­lapse, the case was closed — or so it seemed.

Since then, the rise of China has be­lied the view that a stateled strat­egy will al­ways fail, and the global fi­nan­cial cri­sis ex­posed the per­ils of in­ad­e­quately reg­u­lated mar­kets. In 2017, few of the world’s fastest-grow­ing economies (Ethiopia, Uzbek­istan, Nepal, In­dia, Tan­za­nia, Dji­bouti, Laos, Cam­bo­dia, Myan­mar, and the Philip­pines) have free mar­kets. And many free-mar­ket economies are suf­fer­ing from growth slow­downs and rapidly ris­ing in­equal­ity.

Against this back­ground, some politi­cians are no longer de­fend­ing free-mar­ket cap­i­tal­ism in terms of eco­nomic growth or the gains from glob­al­i­sa­tion. In­stead, they fo­cus on in­di­vid­ual op­por­tu­nity.

Start with ma­ter­nal mor­tal­ity. Much of the world has made great strides in mak­ing child­birth safer. From 1990 to 2015, Al­ba­nia re­duced its ma­ter­nal deaths per 100,000 live births from 29.3 to 9.6. China, the poster child for state-led growth, re­duced its rate from 114.2 to 17.7.

Mean­while, the trend in the United States, the paragon of free-mar­ket democ­racy, has gone in the op­po­site di­rec­tion, with ma­ter­nal deaths per 100,000 live births ac­tu­ally ris­ing, from 16.9 in 1990 to 26.4 in 2015. Equally shock­ing, the mor­bid­ity and mor­tal­ity of white (non-His­panic) mid­dle-aged men and women in the US in­creased be­tween 1999 and 2013.

The claim that free-mar­ket poli­cies “slash il­lit­er­acy” is also mis­lead­ing. In Eng­land, some 15 per cent of adults (5.1 mil­lion peo­ple) are still “func­tion­ally il­lit­er­ate”, mean­ing that they have lit­er­acy lev­els at or be­low those ex­pected of an 11-yearold. Scot­land’s most re­cent sur­vey showed a de­cline in lit­er­acy, with less than half of the coun­try’s 13 and 14-year-olds now per­form­ing well in writ­ing.

The con­ser­va­tive case, elo­quently ar­tic­u­lated by May, is that a free-mar­ket econ­omy, op­er­at­ing un­der the right rules and reg­u­la­tions, is the great­est agent of col­lec­tive hu­man progress ever cre­ated. If that claim is true, the only log­i­cal con­clu­sion is that Bri­tain is do­ing it wrong.

So what mea­sures are needed to get it right?

De­liv­er­ing cheaper ser­vices

In the United King­dom, the first sug­ges­tion is to en­sure econ­omy-wide in­vest­ment and growth, which will re­quire gov­ern­ment in­ter­ven­tion. Cor­byn pro­poses a Na­tional In­vest­ment Bank and Trans­for­ma­tion Fund to mo­bilise pub­lic in­vest­ment and cre­ate wealth and good jobs. May, for her part, sug­gests an in­dus­trial strat­egy to pro­mote “growth across the whole coun­try”, help­ing to “turn lo­cal ar­eas of ex­cel­lence into na­tional ex­port cham­pi­ons”.

Sec­ond, pri­vate-sec­tor lead­er­ship must change, in or­der to pre­vent short-term think­ing, tax avoid­ance and other forms of op­por­tunism and per­sonal en­rich­ment. Here, Cor­byn fo­cuses on ac­count­abil­ity in cor­po­rate boardrooms, while May calls for giv­ing work­ers and share­hold­ers a stronger voice.

A third cor­rec­tive is to im­prove em­ploy­ees’ pay and work­ing con­di­tions.

Fi­nally, there is need for more ef­fec­tive rules and reg­u­la­tions to en­sure that pri­va­tised util­i­ties de­liver cheaper, more sus­tain­able ser­vices. In the UK, Cor­byn ac­cuses com­pa­nies of hand­ing out large div­i­dends to share­hold­ers, while in­fra­struc­ture crum­bles, ser­vice de­te­ri­o­rates, and com­pa­nies pay far too lit­tle in taxes. May promises to end “rip-off en­ergy prices”.

A new con­sen­sus is emerg­ing that more ac­tive and ef­fec­tive gov­ern­ment is re­quired to boost growth and ex­pand op­por­tu­nity. The jury is still out, how­ever, on whether gov­ern­ments will be given the tools and sup­port they need to re­ha­bil­i­tate the de­fen­dant.

Ngaire Woods is dean of the Blavat­nik School of Gov­ern­ment and founder of the Global Eco­nomic Gover­nance Pro­gramme at the Univer­sity of Ox­ford.

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