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Time to bid farewell to neoliberalism?

Following the decision to leave the European Union and the election of Donald Trump, Boris Arnold argues that neoliberalism is to become a thing of the past.

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Image: Shizhao
Image: Shizhao

"Neoliberalism? There is no alternative", argued the leaders of the western world when they started to open up markets, deregulating and privatising the economy in the 1980s. Since then, the establishment has been stubbornly pursuing what the 2008 crisis has proven to be, a self-destructive economic theory, based on the fairy tale belief that society will endlessly flourish and prosper when markets are left to operate on their own.

The reality is different: while the global output of goods and services might have quadrupled between 1970 and 2008, the gains of globalisation in the western world have not trickled down the social classes. Real term median wages have stagnated, while poverty and inequality levels have risen.

The middle class is collapsing, while the top one per cent is doing extremely well. With youth unemployment at a record high and social mobility extremely low, the kids born today are the first generation in modern history who will be likely to face a worse quality of life than their parents. The neoliberal system replaced collectivism and altruism with individualism, creating a society based mainly on ostentatious consumption, skyrocketing the levels of depression.

When the great recession began in 2008 these facts became common knowledge and demand for change began. The anti-austerity movements denounced the extent to which governments, decreasing services and public investments, left their citizens to pay for the burden of a crisis that made the people accountable for it richer, and the finance sector larger than ever before. For too long have those calls only found a deaf ear in the establishment.

The decision to exit the European Union, the rise of populism in Europe and the election of Donald Trump illustrate two related issues: the burst of the neoliberal bubble with millions of people ready to support anyone who proposes an alternative to mainstream free market politics; and, more worryingly, the poor answer given by the left and social democrats, to the rise of an angry majority falling into populism.

Donald Trump aims to stop globalisation, crediting it with the massive loss of manufacturing jobs. He proposes to do so by adopting nationalist economic policies including the setting up of trade barriers and the reshaping of trade agreements, "putting America's interest first." This could trigger a trade war between countries, turning themselves inwards both politically and economically and thereby freezing international cooperation. Global issues such as climate change, the most urgent and worrying problem of our century, are only resolvable with constructive global dialogues. The issue demonstrates that populism is a dangerous path to follow.

With presidential elections coming up in France, Austria and Germany, the challenge policy-makers face today is twofold.

Firstly, like Keynes and Roosevelt did in the 1930s, propose an alternative to the obsolete neoliberal system. Secondly, replace unelectable candidates rooted in the establishment by those able to credibly stand against men such as Donald Trump. For the latter, many suggest that leftist candidates with a strong foundation of popular support such as Bernie Sanders are best suited.

Regarding the first, democratic parties will need to paddle back the centralisation undertaken at the end of the 90s; represent again the rural areas and small towns citizens' interests that globalisation has too often left behind. They also need to replace Keynesian economics with a coherent new theory focusing on equality and the environment.

Whether leftist alternatives will be able to effectively offset the rise of populism will depend on the time that it takes to address the two challenges that were highlighted above.

What is certain is that neoliberalism is dying - let's see by whom it will be buried.

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