Gulf News

Case against unbridled capitalism growing

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

- 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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