Is it the Beginning of the End for the Neo-Liberal Era?

Across the world, people are jostling with many ideas during the present COVID-19 pandemic. Some of their major concerns are: What will happen once the pandemic is over? Will things return to normal? Will the system continue to function as it did before the pandemic or will there be a radical shift in the socio-economic and political discourse? All of these concerns are being addressed by different people, differently. That is bound to happen because the socio-economic background that we all come from induces us to think differently.

In an interesting article titled “The neo-liberal era is ending, what comes next”, Rutger Bregman writes: “There are those who say this pandemic shouldn’t be politicised. That doing so is tantamount to basking in self-righteousness. Like the religious hardliner shouting it’s the wrath of God, or the populist scaremongering about the “Chinese virus”, or the trend-watcher predicting we’re finally entering a new era of love, mindfulness, and free money for all. There are also those who say now is precisely the time to speak out. That the decisions being made at this moment will have ramifications far into the future. Or, as Obama’s chief of staff put it after Lehman Brothers fell in 2008: You never want a serious crisis to go to waste.”

But the silver lining is that changes are immanent and imminent. Crisis, be it economic, like the 2008 financial melt down or the present pandemic, which is morphing into an integrated crisis encompassing health and economics, sprouts a new beginning within the system. We will have to wait and see how the present pandemic will induce such a beginning, and make it happen with all our efforts.

The economic paradigm professed and advocated throughout the world, from federal governments to provincial, and even to city governments, was the neo-liberal laissez faire model. Minimum government and maximum governance was the dictum of rule. A whole bunch of bureaucrats from the Indian bureaucracy were sent to such schools across the world to become ardent supporters of this model.

One of the foremost fallouts of this model has been the complete unsustainability of the system. The 2008 crisis led to the development of the ideas of sustainable development goals. The 17 SDGs, out of which nine goals directly are to address inequity in the system and the society at large, have not been able to address core issues. During a discussion in UN Habitat III at Quito on the SDGs, John Closs, the executive director of the Habitat, kept stressing on the idea that one has to go back to the basics of planning. The free market economy, among other ideas, will not make the system more sustainable, but will increase the vulnerability of the cities and the people.

The present pandemic has further exposed the un-sustainability of the system. According to CMIE data, 27 million youth in the age group between 20-30 years have lost jobs in India and the unemployment rate is almost 27%. In the United Kingdom, according to the British central bank, England is on the eve of the largest recession since the year 1709.  In the US, 17 million people applied for economic impact payments over the space of three weeks. In the 2008 financial melt down, it took two whole years for the country to reach even half that number. This explains the widespread impact that the pandemic is having across the world, its people, economies and their livelihoods.

The drive towards privatisation has been exposed during the present pandemic. The private health infrastructure was hardly seen across the globe as mitigating the crisis due to COVID-19. Spain and a few other nations had to nationalise their health care system. Even in India, public health institutions and the states that rely more on them were able to tackle the crisis for the moment. The vibrant Gujarat model that had a crumbled health infrastructure faltered badly. In such a scenario where governments were not seen as investors, nation states across the globe have infused an economic stimulus in their economies.

The five G20 countries with the largest COVID-19 stimulus programmes are:

1. United States: $2.3 trillion (11% of GDP)
2. Germany: $189.3 billion (4.9% of GDP)
3. China: $169.7 billion (1.2% of GDP)
4. Canada: $145.4 billion (8.4% of GDP)
5. Australia: $133.5 billion (9.7% of GDP)

Does it mean that the role of the nation state has once again been reinforced as a prime investor and that the neo-liberal era is at the beginning of its end?

Look at the Indian story. Instead of following the trend of infusing liquidity into the market and giving cash to the people to buy goods, the stimulus packages announced by Finance Minister Nirmala Sitharaman were nothing but a big fraud committed by the PM and the FM in order to cast a veneer over their blunder rather than accept their failure.

The demand in the economy has fallen massively owing to the lockdown. Daily wagers and even the salaried earners who have been laid off, are in no position to buy. The middle classes are also confined to their homes and are not buying items except for alcohol and food. The hospitality, entertainment and transport sectors are closed.

The basic premise of the ‘stimulus’ of awarding loans to the entrepreneurs and other sections has just not taken off, for the simple reason that there is no security in the economy. Even if loans are taken, there is no guarantee that they will be paid back. Moreover, it is down to the delinquency of the buyer and for that the purchasing power of the buyer must be enhanced. Instead, the government has harped on facilitating loans, which are not going to take off.

Many economists, including those who are not from the Left, have argued for a Keynesian pump in the economy to ensure that demand gets generated. However, the government chose a different path. Why? Some of them are of the opinion that it is the gibberish mindset of the leader of the government, which was initially felt during demonetisation, and another such round happened during the lockdown which was followed by the ‘stimulus’ package. However, Prabhat Patnaik makes a distinction between the two decisions. Demonetisation could have been a foolish idea, but the present package which does not infuse currency in the market to create demand, thereby increasing the fiscal deficit, is actually linked to credit ratings by the globalised financial capital. The Modi government does not want to annoy foreign capital by increasing the fiscal deficit in the fear that it will fly off. However, the reality is that the global financial capital is moving out and what is required are more regulations.

In such a scenario, where the government is committed to appease corporates by even allowing for the dilution of the labour laws, its legitimacy comes under question. In order to distract from the real issue of its failure to provide any relief to its people, the government is harping on greater authoritarianism and spreading the communal virus to legitimise its presence.

Whether it is the beginning of the end of the neoliberal era would be quite premature to say, at least in the Indian context!

The author is former Deputy Mayor of Shimla. The views are personal.