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Putting the Brakes on Neoliberal Economics

Race to the Bottom

by ISMAEL HOSSEIN-ZADEH

While the harrowing economic hardship that started in late 2007 and early 2008 rages on, and countless people in the United States, Europe and other parts of the world are losing their jobs, their homes and their sources of livelihood, policy-makers in the advanced capitalist countries of the West are standing idly by without lifting a finger to alleviate the onerous burden of the crushing recession. On the contrary, they have embarked on an orchestrated series of cruel belt-tightening austerity policies that have, indeed, contributed to the worsening of the recession.

The question is why? How can the policy makers’ callous indifference to the plight of the people, or their pathetic inability to carry out effective policies of economic recovery, be explained?

The official explanation for not investing in the revival of the economy is that, due to the already huge debt and deficit, additional public spending would be “fiscal irresponsibility.” In light of the fact that governments in the US, EU and other debt-ridden countries have showered the powerful international banksters and other financial moguls with trillions of dollars, this explanation falls miserably short of credibility; indeed, it can more appropriately be called an excuse than an explanation.

Explanations offered by most of the left, liberal, or Keynesian critics of the Neoliberal austerity policies are not satisfactory either. As I have argued in an earlier essay, these critics tend to characterize such policies simply as “shortsighted,” “reckless,” “misguided,” “unwise,” and the like—as if the governments that make such policies do not know what they are doing; or as if policy making is a simple matter of technical expertise or personal proclivities of policy makers, that is, a matter of choice. In other words, liberal/Keynesian critics tend to explain the class-biased austerity policies of the vicious global Neoliberalism in (the benign) terms of policy makers’ “inability to distinguish ‘good’ from ‘bad’ policies: inability to realize that we can grow our way out of this crisis through deficit spending, just as we did in response to the Great Depression of the 1930s.” (See, for example, any of the Nobel laureate Paul Krugman’s economic columns in the New York Times.)

AN ALTERNATIVE EXPLANATION: THE RACE TO THE BOTTOM

The fact remains, however, that the kleptocratic rulers in the US, EU, and other debt-burdened countries know exactly what they are doing: to let the recession drag on, to take advantage of the crushing recession in order to extract “enough” concessions from the working people until welfare states are dismantled and labor costs in the more developed capitalist countries are made competitive with those of the less-developed countries. This explains why despite new signs of further global economic contraction, the reigning governments in these countries (whether they are nominally headed by Socialist, Social-Democratic, Labor, Democratic, Conservative or other parties) are maintaining their coordinated abstention from expansive or stimulating fiscal policies while continuing their brutal spending cuts on health, education, wages, pensions, and the like.

This is not to say that these governments do not want to have economic growth or job-creation—they do—but that they want them on their own (Neoliberal) terms, that is, through Neoliberal policies that would create jobs that would pay wages on a par with those of workers in less-developed countries. In other words, they prefer the kind of lopsided economic growth whose fruits would be reaped mostly by the wealthy—the so-called trickle-down or supply-side economic growth. As writer/reporter Patrick O’Connor points out, “In the US, Europe and other advanced capitalist economies, the aim is permanently reducing the living standards of working people.

It is not surprising then that, instead of calling for bold expansionary policies of growth promotion and job creation, US and European government heads, their economic policy makers and the collusive corporate media are frequently calling for “tolerance” and “endurance” in the face of economic hardship, exhorting the unemployed and economically distressed that they “need to be patient” because, as President Obama has occasionally put it, “the road to economic recovery does not follow a straight line,” and that “it’s going to take some time to fix it." (The President made this statement on ABC News’ "This Week with George Stephanopoulos." Mr. Stephanopoulos obligingly spared the President the obvious question: “why is it, Mr. President, that fixing the enormously expensive problem of Wall Street gamblers did not take much time, but reviving the economy and creating jobs, which would take only a fraction of the cost of the Wall Street bailout, would take a long time?”)

Through its editorials and columnists such as Thomas Friedman, The New York Times has been playing a leading role in preparing the American public to accept the new, protracted phase of economic challenges, and to reconcile with lower standards of living. Here is an example of how Friedman explains the need for belt-tightening:

“Welcome to the lean years. Yes, sir, we’ve just had our 70 fat years in America, thanks to the Greatest Generation and the bounty of freedom and prosperity they built for us. And in these past 70 years, leadership — whether of the country, a university, a company, a state, a charity, or a township — has largely been about giving things away, building things from scratch, lowering taxes or making grants. . . . Indeed, to lead now is to trim, to fire or to downsize services, programs or personnel. We’ve gone from the age of government handouts to the age of citizen givebacks.”

In a similar vein, The Times further opined:

“American workers are overpaid, relative to equally productive employees elsewhere doing the same work. If the global economy is to get into balance, that gap must close. . . . The global wage gap has been narrowing, but recent labor market statistics in the United States suggest the adjustment has not gone far enough.”

Without using blunt words such as “the need to cut wages,” President Obama also frequently preaches to the American people to be prepared for the looming lean years: “We must lay a new foundation for growth and prosperity – a foundation that will move us from an era of borrow and spend to one where we save and invest; where we consume less at home and send more exports abroad.” Obviously, by “we” Mr. Obama means the working class and the general public, not the ruling Kleptocracy; and by “consume less” he means earn less, get used to a lower standard of living—because wages, benefits, pensions and all kinds of social safety net programs are going to be cut or eliminated.

In their efforts to push wages in the more developed countries down toward slave wages, the powerful financial interests (and the ruling kleptocracy in general) are pursuing multiple objectives. An obvious objective is, of course, to pay for the gambling losses of the Wall Street swindlers. Another objective is to make US producers more competitive in global markets, a strategy of export promotion at the expense of the working class that President Obama calls National Export Initiative: “Boosting America’s exports strengthens our economic growth and supports millions of good, high-paying American jobs. That’s why I set a goal during my State of the Union address to double our exports over the next five years.” Stripped from its Orwellian veneer, the President’s “national export initiative” simply means bringing US wages and benefits down on a par with those of China, Vietnam, India, and other less-developed countries so that American manufacturers can compete more effectively in international markets.

These are ghastly Neoliberal policies of super exploitation that are sometimes called “the race to the bottom,” or competing backward to the Dickensian days of working class misery. Naomi Klein has aptly called this sinister strategy “the shock doctrine,” a strategy that takes advantage of the overwhelming crisis times to implement Neoliberal austerity programs and redistribute national resources from the bottom up.

Of course, the Neoliberal strategy of dismantling the welfare state and driving the labor pay down to slave wages is not limited to the United States. Downward competition is pursued in other advanced capitalist countries as well. Indeed, the competitive capitalist pressure of profitability and survival has driven almost all countries of the world to participate in this retrogressive (but capitalistically rational!) race to the bottom.

CHECKING THE LOGIC OF DOWNWARD COMPETITION: INTERNATIONAL TRADE UNIONISM

Regrettably, most trade union leaders in the US and Europe are actively collaborating with the Neoliberal austerity policies of their capitalist rulers against their own class interests. This disgraceful policy of labor bureaucracy follows from a self-defeating philosophy that is called “business unionism,” or more accurately, “national business unionism.” National business unionism accepts capital’s needs for profitability as a precondition for labor’s need for survival and, therefore, advocates collaboration with the capitalist class on a national basis and shoulders the burden of onerous economic sacrifices to maintain corporate profitability.

Growth and/or circulation of nationalist sentiments in the labor ranks (and the resulting international labor rivalry) is of, course, a boon for the ruling kleptocracy that loves to pit workers against their class brothers and sisters internationally. It is not surprising that as the grueling economic conditions continue unabated and the high rates of unemployment remain unrelenting, many politicians and policy makers are increasingly trying to whip up xenophobia and nationalist sentiments among workers. This includes not only the unabashedly right-wing or conservative politicians, but also the purportedly liberal Democratic President of the United State, Barack Obama, who has recently been promoting his new, nationalist approach—“made in America”—to comforting the jobless Americans. “So the message I want to deliver to our competitors . . . is that we are going to rebuild this economy stronger than before. And at the heart of it are going to be three powerful words: Made in America. (Applause.) Made in America," stated the President in a recent address to the AFL-CIO Executive Council.

Note that, once again, Mr. Obama is careful not to use the bluntly nationalist/protectionist “buy American” slogan. Instead, he uses a more subtle, Orwellian version of it: “made in America.” While prima facie reasonable, and may be pleasing to populist sentiments, the “buy American” or “made in America” policy suffers from a number of weaknesses. While the policy may save some jobs in import-competing industries, it would hurt employment in export industries, as it is bound to create protectionist retaliation among international trading partners. Furthermore, since the policy accepts the primacy of the needs of (national) capital, it heightens international labor rivalry, thereby making labor hostage to the profitability imperatives of national capital.

Of course, destructive effects of international capital’s blackmailing policy (of plant relocation or capital flight) reach beyond the curtailment or elimination of jobs and wages—vital as these are to the working class. This pernicious policy has become a weapon in the hands of the footloose and fancy-free multinational capital when it opposes any humane social program, or essential social needs: science, technology, education, health care, use of natural and/or environmental resources, and so on. Attempts to place environmental standards on firms are met with the threat of moving production elsewhere. Higher taxes to improve the schools? Again, the same threat. Better health and safety standards? The same response, or blackmailing strategy.

What can the working people and other grassroots do to protect their jobs, their sources of livelihood, their communities and their environment? Is there a defense against these threats? Are there alternatives to the global corporate agenda? What can communities do to undermine the strategies of multinational corporations that block progressive social and economic reforms?

A logical, first step deterrent to multinational corporations’ blackmailing strategies, and their actual export of jobs, would be to remove the lures that induce plant relocation, or capital/manufacturing flight. Making labor costs of production comparable on an international level would be crucial for this purpose. This would entail taking the necessary steps toward the establishment of wage parity within the same company and the same trade, subject to (a) the cost of living, and (b) productivity in each country. It would also entail abandoning the current business unionist policies of the labor bureaucracy in major industrialized countries and, instead, organizing international trade unions.

A strategy of this sort would replace the current downward competition between workers in various countries with coordinated bargaining and joint policies for mutual interests and problem-solving—just as the World Bank, the International Monetary Fund, World Trade Organization and other capitalist international organizations are constantly seeking solutions for the problems facing international capital.

Some may view this suggestion as unrealistic. But the rapid internationalization of production, technology, and information is increasingly creating favorable conditions for such an alternative. The evolving internationalization of capital and integration of world markets is pulling the workers of the world together to an unprecedented extent. "More and more workers around the globe not only work for the same 1,000 or so dominant multinational corporations (MNCs) or their contractors," as Kim Moody points out, "but are linked in common production or service delivery system."

ISMAEL HOSSEIN-ZADEH, author of The Political Economy of U.S. Militarism (Palgrave-Macmillan 2007), teaches economics at Drake University, Des Moines, Iowa.