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!)


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