The difference between classic liberalism and neo-liberalism

A contribution by Charlie Companyero

One of the big differences between classic liberalism and neo-liberalism lies in the investment risk:

In business there are two roles: one is the supplier of the means of production, the owner of the business. The other is the supplier of the labour, the worker. The worker works and gets a salary (hopefully). But the owner of the business pays less than the value of the labour, and the business owner gets money for that without working. (for running the business, which is work, the manager gets paid and if it is also the owner this is not against the work ethic). This is called profit, and it is justified by classic liberalism:

The investor takes a risk. If the business fails the investor loses her investment. This should be compensated for. This risk is the best guarantee that investments are done in an efficient way, so that the economy flourishes, and with it the population.

This may hold some truth. But in neo-liberalism this is reversed: the investor does not run a risk, the common man runs the risk. Look at it: when in the US the banks and car industry failed in 2008, the neo-liberal President Obama saved them with huge amounts of tax money. He hired Wall Street bankers to set the policies which consequently were in the interests of the banks and car industry. It is not like after giving a lot of money the tax payer owned the banks and car industries. No, the tax payer got nothing but the old situation back.

The same holds for the neo-liberal policies of the IMF. If a borrower cannot repay, then the bank should wrote off the loan and take the loss. But it does not work that way in our neo-liberal age. The IMF interferes when a country cannot repay its loans. Then it forces a Structural Adjustment Plan on the country. This passes on the investment risk to the population. Often a corrupt ruler took out a loan, and through corruption enriched himself. Then the IMF imposed a SAP, which means that the public services like health care and education are being underfunded, and the value is transferred to the foreign capitalists (the banks). This happened first in Mexico, and later in many African countries, as well as Latin American countries, and currently the neo-liberal Bundes Kanzler Angela Merkel is imposing this on the Greek population, to give the money to German Banks that were over eager to lend to the Greek ruling class. Again the population is made to pay for the frivolities of the rich.

Clearly, this undermines the ethic of the liberal investment theory, and it makes big investors reckless: the risk is passed on to the common man, while the profits go to the ruling elite. This is neo-liberalism, that is imposed upon us from the ruling class of rich countries (who own stocks in the big companies!)

Look beyond our own borders

When analyzing our situation, and looking at policy perspectives, we should not limit ourselves to just Malawi. In the 21st century, globalization is a fact. In fact it has been going on for a long time, for Malawi at least since the beginning of the slave trade here. We should look at the international situation to understand where we stand and what measures will be effective to reach our goals as a people and as world citizens. I propose that we want to graduate from being a periphery country (like many other African countries as well as countries in Latin America and Asia) to the equal of others. Development does not go according to one route: the route that currently developed nations took is not open to us. We must look at new perspectives, and new opportunities, as well as at ways to shift the global balance of power away from the big corporations from the core countries, which are exploiting our poverty, to more equal terms where all world citizens can enjoy a decent quality of living. These ideals are not found in the business sector or in governments from core countries. They are found mostly in the Global Justice Movement. There is where we have a lot ot find to achieve a decent life for all of us.

Currently, in the World-System, there is a division of labour, with strong hierarchy. The core countries (mostly in Europe and North America) have the capital intensive, highly paid work. The periphery countries (most African countries) are supplying labour intensive lowly paid work, and supplying core countries with raw materials. In the case of Malawi mostly tobacco. The consequence of this division of labour is perennial poverty in periphery nations like Malawi.

Individual nations may try to move within this World-System, but upward mobility is constrained by unfavourable trade relations with core countries, and an unfavourable balance of power. We simply cannot insist on good prices for our exports. Malawi has little opportunity for upward movement, both because of internal constraints (corruption and the consequent inefficiency), and external constraints: the core nations are stopping Malawi from moving upwards so we will keep on supplying cheap raw materials like tobacco and uranium.

 

Political, military and economic actions within states and between states are essential to the powers of the ruling classes in those states. The ruling classes in core states appropriate surplus value from periphery states. These funds are used to maintain political economic and military power nationally, regionally and world-wide. Core ruling classes maintain connections with periphery ruling classes like ours, to stay in power, and keep accumulating more surplus value from us. Our ruling class fares well by this system, and has no reason to sever ties with core ruling classes. However there is continuous bickering between core ruling classes and periphery ruling classes over the division of the spoils. The Malawian ruling class is strongly dependent on approval from abroad. Bingu misbehaved and got himself into big trouble. This big trouble he passed on to the population in the form of shortages of forex, drugs, fuel and even sugar.

 

Both states and corporations are strong centres of power in the modern World-System. Core corporations, in Malawi mostly tobacco corporations, but also suppliers like Monsanto, are the biggest economic players, but they rely on national governments to guarantee their property rights and markets assets. Also they use state governments to strengthen their rights as corporations to act like virtual persons, and for interests like strong copyright protection on their products. The existence of many states stabilises the system to the advantage of capitalist corporations: it allows them to move their activities and assets around, thus limiting the powers of nation states to regulate and tax them. Increasingly corporations have power over states: in the US all political candidates are dependent on corporate donations for their campaign funding. Now even the US President is a unapologetic capitalist.