The world woke up last Friday to the reality of Britain exiting from the European Union. The exit has opened up gaping schisms in British society, given how divided it was on the vote in terms of class, race, age and region. If one puts aside the wildly exaggerated and xenophobic claims of the Brexit campaigners on immigration and refugees, there may still be plenty of persuasive reasons for both the Bremain and Brexit sides, though in the long run it seems remaining in the EU would have been more beneficial. But the important question for the world at large is — is Brexit the beginning of the end for the ‘neo-liberal’ consensus?
Over the last three decades, neo-liberalism — broadly classified as free markets, free movement of capital and labour, lower tariffs, free trade, financial deregulation and a general retreat of the state from the economic sphere — has been the reigning ideology the world over, for good or for bad. Globalisation was a by-product of this ideology, aided in no small measure by information technology and the internet.
The swing towards neo-liberalism began in the late 1970s in the West, when most western economies were in the grips of stagflation. Ronald Reagan and Margaret Thatcher were its political high-priests, with a galaxy of economists for support. The IMF and, to a lesser extent, the World Bank too were ardent proponents of this ideology, advising countries to move towards greater liberalisation. India went in for economic reforms and liberalisation in 1991 after confronting a crippling balance of payments crisis – though there was a growing consensus for adopting more market-friendly policies even in the 1980s.
Collapse of communism
China began its reform in a small way in 1979 and, by the 1990s, had become a full-fledged free market economy, albeit under a communist government, recording spectacular growth rates.
After the collapse of communism most of the erstwhile Eastern Bloc countries and the Soviet Union adopted a free market ideology with varying degrees of success. Countries like the Hungary, Poland and erstwhile Czechoslovakia, and East Germany (which merged with West Germany in 1990) adapted to a free market economy better and managed to record good growth and improve the standards of living for their citizens. But the story was not so rosy in other countries.
The impact of free market policies and large scale privatisation of public assets had a particularly devastating impact on Russia during the 1990s, where a few — the oligarchs — made a killing by acquiring public firms for a song, with the active connivance of sections of the political class. But for the vast majority it was a miserable existence. Even in Russia, though, there was no going back to the socialist regime, as things started looking up in the early part of this century, aided by the oil boom and a strong political leadership that re-nationalised the crucial oil and gas sector.
The first cracks in the neo-liberal consensus started showing after the Lehman Brothers collapse triggered a financial meltdown and global recession not seen since the bad old days of the 1930s.
Debt crisis, disenchantment
The troubles of the Euro Zone started with the Greek debt crisis and were further exacerbated by the futility of austerity prescriptions forced down its throat by the EU. Then it spread to Italy and Spain, where youth employment was close to 25 per cent. The anaemic recovery in the US and the UK has not helped and, slowly but surely, there was a growing disenchantment with the prevailing economic ideology.
Increasing inequality further fuelled the opposition to free trade and globalisation which hinged on open borders. The feeling that the neo-liberal policies had benefited the rich more than the poor, as seen by the vast income disparity in western societies, was becoming increasingly hard to counter and even institutions such as the IMF began to have doubts about earlier policy prescriptions.
There is a growing anger against globalisation by those who have been left by the wayside and that is being tapped, ironically, by politicians like Boris Johnson and Donald Trump, who belong to the very elite class that gained so much from the neo-liberal policies.
Keeping the faith
A bigger irony is that, despite the increasing weariness with globalisation and neo-liberalism in the West, countries such as India and China are reposing faith in this economic ideology and have vowed to carry out further reform. Prime Minister Narendra Modi’s election campaign two years ago hinged on selling the institution of free market as a viable vehicle for achieving social and economic aspirations, whereas the ‘welfarist’ policies and subsidies of the previous regime carried the faint stench of handouts.
So the West now stands at a crucial juncture, where the people as well as the politicians and policy-makers are aware of the fault-lines in the neo-liberal programme but seem to be floundering in coming up with a credible alternative to set things right.