Neoliberalism as an economic system seems to be the dominant orthodoxy right now, which gives a misleading impression that there aren’t any viable alternatives at the moment.
I don’t think that’s true. I feel that a social democratic economic system is the more ‘civilised’ way to go. I don’t believe that a free-market holds the answer to everything. Well documented instances of market failures have already proven that.
Lets look at some aspects of this argument. Starting with minimum wages. Most social democratic parties advocate the implementation or raising of the minimum wage, while most neoliberals howl at the idea. Why is it such a bad idea? One can’t treat workers as just another commodity, in which their wages are subject to the supply and demands of the market. Workers rely on decent wages to maintain their standards of living and provide for their families.
So what if the economic outlook isn’t so good at the moment? That shouldn’t be an excuse to lower worker’s wages. Why? Because when will it end? It’s a race to the bottom. Also, what’s stopping companies to all just agree to pay artificially low wages to all workers in their industry?
Furthermore, economic rationality has boundaries as well. Since having slaves as cheap labour is an economically rational thing to do, why isn’t that practice continued now? Because society views it as a unethical thing to do, and have set certain standards in regards to what’s acceptable. We can apply the same argument to minimum wages. If a McDonalds McValue meal costs US$6 in the USA, then should the the minimum wage there be only US$5.15? Compared to Australia, in which the same meal costs about AU$6, but the minimum wage here is AU$12.00. Working-class people here have higher standards of living compared to their counterparts in the US.
Some neoliberals would argue that minimum wages would lead to increased unemployment. I say to them, if you were in charge of a highly-developed or medium-developed economy, do you seriously still expect to still compete with China and India in the manufacturing industry? Instead of keep lowering workers wages in a futile attempt to do that (good luck), shouldn’t these countries instead increase their worker’s values and productivities through training or technology, things that the labour forces in third world countries don’t have yet?
Next we came to government intervention in the economy. I believe that governments have been unfairly demonised these days. I believe that governments can be a force of good in developing their countries.
For proof of this, I present the nations of Japan, South Korea and Singapore. The Asian Dragons and Tigers, in effect. The common trend in these nations are that their governments played a pivotal role in guiding the direction of their economies. For example, Korea under Park Chung-Hee embarked on an ultimately successful medium and heavy manufacturing industry which spawned Hyundai, Kia, LG and Samsung. Chaebols (modeled after Japan’s zaibatsus) were formed, which although had their negatives such as some instances of corruption, nepotism, cronyism, also undeniably have many positives. For one, these types of govt-business cooperations help ensure that government funds are channeled into industries which it wants to develop in a concentrated and systematic manner. It may be a bit oligopolistic, but it does help pool together a nation’s resources to compete against, and eventually overtaking its business competitors from more developed and wealthier countries. In return for the government providing those chaebols with contracts, there is an understanding between them that chaebols should ensure that they provide long-term employment to the citizens there, and share their acquired skills and technologies. Much of the economic development of Japan and Korea were based on these zaibatsu and chaebols. Malaysia tried to follow this model, but fell short due to the low productivity of its Government-Linked Corporations (GLCs).
For a comparison, Brazil and many South American nations initially embraced a neoliberal economic model as encouraged by the USA, and many of them have failed. MNCs from developed countries used these country’s relatively foreign-business friendly policies to hire workers on the cheap, exploit their nation’s resources, and channel most of their profits back to their original countries. Hardly any diffusion of high-level skills or transfer of technologies happened. Implementing economic policies with very little protectionism in the form of ‘infant industry argument’ has also resulted in stunted growth for local companies in those so-called neoliberal economic countries. These countries then become very dependent of foreign investments, and if for whatever reason those MNCs and TNCs decide to uproot and relocate to another country, these countries would face dire economic downturns. Most South American countries also have a relatively small middle-class, due to their huge gap between their elite business class who are involved with those MNCs, and the poor masses stuck with doing low skilled jobs. Instead of promoting capitalism, all this have the opposite effect instead, causing voters in those countries to vote in socialist governments.
Let’s move on to the social democratic taxation system now, shall we? Once a country has acquired a sustainable level of wealth, what’s so wrong about spreading it among its society more equitably? This is where the progressive taxation system comes in. Higher-income earners are taxed proportionally more compared to lower-income earners. This is because, honestly, if one is already multimillionaire, will a 45% tax on his income really put a dent on his lifestyle? What has he lost due to taxes? Another new yatch?
And the demonisation of welfare systems is also unfair, in my opinion. Is it so reprehensible to provide an adequate welfare system to citizens who have fallen on hard times? “It’s their own faults”, you might say. Then I’ll say this: Is it a family’s fault that their father, their sole breadwinner died suddenly? Is it that person’s own fault that he can’t be employed because he’s deemed too old by prospective employers? Is it a person’s fault that he can’t work because on an injury?
I don’t think so. I think that a person has an obligation to the society which he belongs to to care for those disadvantaged groups above. Unless they want to live in a class-based society with large differences between its member’s standards of living. What is the use of USA being the largest and wealthiest economy in the world when its poorest members, getting paid US$5.15/hour, cannot even afford a McValue meal after working for an hour? Much less support a family. Which results in them having to take on an extra job, causing them to spend less time with their kids. This in turn might cause their kids to socialise with gangs in order to obtain a sense of belonging which they were unable to get from their parents. This the could ultimately lead to increased crime and social fragmentation. Does that sound like a place you would wanna live in?
