Does Neoliberalism make economic inequality worse?
Neoliberalism, when combined with proper regulations, can have a positive outcome.
Chile’s pioneering experience received high praise from Nobel laureates, Friedman and Stiglitz. Indeed, it grew from a GDP of -11% in 1982 to +11.1% in 1992; at the same time, the unemployment rate shrank from +10% in 1982 to -15% in 1992.
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Forty years of neoliberalism jeopardized the world economy.
A paper published in June 2016 by the IMF warns that neoliberalism is jeopardising the future of the economy. For example, austerity - one of the pillars of the neoliberal agenda - has been increasing the rate of UK recessions since the 1970s.
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Increased inequality affects economic growth.
Osborne-style austerity increases inequality, thus undermining growth. In Britain, his policies were meant to cut the budget deficit to zero and generate healthy economic growth, but resulted into a double-dip recession.
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Policies that are an important part of the neoliberal agenda – such as austerity – have been overplayed.
According to the IMF, austerity affects employment. On average, a consolidation of 1 percent of GDP increases the long-term unemployment rate by 0.6% and raises by 1.5% within five years the Gini measure of income inequality.
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Neoliberalism offers some useful ideas.
In China, market-based incentives were tailored to the local context and mixed forms of ownership (state and private) were adopted. The GDP annual growth rate grew from 5.3% (from 1960-1978, before the reforms) to 10.4% in 2010.
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Some aspects of the neoliberal agenda have not delivered as expected.
Austerity and the freedom of capital to move across borders were examples of how neoliberal policies misfired.
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Neoliberal policies affect the weaker categories of society, with cuts to the welfare state and public services.
In Venezuela, the economy contracted 13% in 2017, as people suffered through shortages of medicine and food; this affected the weaker categories of society, those people who cannot afford to pay more for services or goods.
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Neoliberalism has reduced poverty in some countries.
In Chile, the so-called “economic miracle” took place, and this later applied to other countries around the world. The liberalisation of trade has also lifted people out of poverty in South Korea, Taiwan, Japan and Mauritius.
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Neoliberalism led to political instability.
The term ‘neoliberalism’ is associated with financial deregulation - culminating in the 2008 financial crash and in the Euro debacle - and fiscal austerity, which created political and social instability, fostering the current populist wave.
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Increases in minimum wage depress employment.
In a competitive market, an increase in the minimum wage has a negative effect on employment as it increases the cost of labour, causing more expenses for employers and reducing the availability of resources for additional compensation (e.g. benefits).
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The opening of borders,encouraged by neoliberal policies, had negative economic impacts and increased crises frequency.
Since 1980, there have been about 150 episodes of surges in capital inflows in more than 50 emerging market economies; about 20 percent of the time, capital inflows increased the probability of a financial crisis.
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Countries that embraced globalisation benefited from it.
Access to world markets in goods, technologies and capital has played an important role in virtually all of the economic miracles of our time—for example, China, South Korea, Taiwan, Japan and Mauritius.
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Neoliberalism causes world inequality in wealth distribution.
According to an OXFAM report, eight men hold as much wealth as the poorest half of the planet: 3.6 billion people. The super-rich are fuelling the inequality crisis, dodging taxes, driving down wages and investing less in their businesses.
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Neoliberalism worsens regulatory failure in local administrations.
The neoliberalization of municipal governance in Toronto in the 1980s, rather than resolving basic problems, triggered new forms of resistance in key regulatory arenas (economic development, environmental and transportation policy).
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Neoliberalism exacerbates lack of integration.
In present-day Montreal, as a result of neoliberal policies — market liberalization, domestic welfare-state cutbacks, etc. — immigrants have been channeled into depressed sectors of the economy in order to reignite regional development.
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Many countries have made progress thanks to neoliberal policies.
Spain, Brazil and India increased their competition through deregulation and opening to foreign capital. Brazil grew from a 0.1 index of competition in 1962 to 0.8 in 2002; India went from 0.2 to 0.4; Spain went from 0.3 to 0.9.
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Government spending increases employment.
When there is stagnation in the economy and wages do not rise, more government spending increases employment: more government spending means more jobs, and this consequently means more purchasing power.
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Neoliberalism will promote free markets, even when it entrenches inequality.
For the Mont Pelerin society, neoliberalism had to choose between being a threat to human rights or to free markets. In South Africa, granting black citizens suffrage rights would inevitably lead to an overhaul of property ownership distribution—but this was deemed unacceptable.
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Neoliberalism ignores that neutral rules lead to power inequalities.
When capital has more freedom than people, serious democratic deficits are guaranteed, and voters might get the opposite of what they expect (e.g. austerity instead of a strong welfare state).
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The Thatcher-Reagan agenda increased inequality in income share among neoliberal countries.
As a result of neoliberal policies by Thatcher and Reagan, some countries experienced an increasing inequality in income shares: in the US, for example, the difference between the bottom class and top class grew from 19.9% vs. 10.7% in 1980 to 12.6% vs. 20.2% in 2014.