Tuesday, December 27, 2016
In its simplest form neoliberalism represents a belief in that free markets will do better for all, or at least for most, than government with its central planning.
So many failures have been attributed to neoliberalism and its bad intents that it takes too long to explain them all. In this respect I will here refer briefly to only two aspects that have been sold as neoliberalism, but that in reality are quite far from it, namely financial deregulation and privatizations.
Bank regulations: In 1988 the Basel Committee for Banking Supervision, for the purpose of setting the capital requirements for banks, decided that the risk weight of the Sovereign, meaning the central government was 0%, while that of We the People was 100%. That meant banks would be allowed to leverage more their equity when lending to the public sector than when lending to the private sector; which meant banks could earn higher expected risk adjusted returns on equity when lending to the public sector than when lending to the private sector; which meant banks would lend more to the public sector than to the private sector; which de facto meant that regulators believed the public sector could make better use of bank credit than the private sector.
That principle is still well and alive today. How it has anything to do with neoliberalism, with financial deregulation and not with financial missregulation, is beyond my comprehension.
For instance those who attribute the financial meltdown of 2007‑8 to neoliberalism must ignore completely the decisive role that bank regulations played in distorting the allocation of credit to the real economy. It suffices to understand the definite role regulations played in the subprime mess and in the excessive lending for instance to Greece. Those regulations basically decreed inequality.
Privatization: Many or perhaps most of the privatizations of public services were allocated, not to those who offered to provide those services in the cheapest and best way, but to those who offered to pay the government the most for the rights. That in all essence signified the government collecting taxes in advance, leaving the citizens to repay these by mean of higher tariffs. How that has anything to do with neoliberalism, is beyond my comprehension.
Why have so many swallowed the myth of neoliberalism? One reason is that the world has too uncritically accepted using the term of crony capitalism, when most of the deviations it suffers are the direct consequence of crony statism.