By now it is clear that neoliberalism is a project of big market players who seek to tilt the balance in their favour vis-a-vis the state in running an economy.
For this purpose, neoliberals have reinterpreted classical free market or laissez fair concept to stretch liberalism to the extreme and devised Public Choice theory to focus on 'government failure' to undermine the state.
But why should the free market running an economy cause alarm?
For one, here is what Nobel laureate Joseph Stiglitz has been highlighting.
In an article in 2019, Stiglitz writes: "Well, after 40 years (of neoliberalism)...growth has slowed and the fruits of that growth went overwhelmingly to very few at the top. As wages stagnated and the stock market soared, income and wealth flowed up, rather than trickling down. How can wage restraint - to attain or maintain competitiveness - and reduced government programmes possibly add up to higher standards of living?..."
In his 2019 book 'People, Power and Profits: Progressive capitalism in an age of discontent' he writes that "...over recent decades, markets have not done a good job of ensuring the basic requisites of a decent life for all..."
A 2014 book was titled "Economics of the 1%", popularising the idea. It was written by economist John F Weeks, professor emeritus at the University of London. This assertion is not disputed even by neoliberals.
Market needs state and the rest 99%
Markets or market players wouldn't be what they are without state's generous helpings.
Prof. Dirk Philipsen, an economic historian at the Duke University, bluntly drove home the point in April this year in an article, 'Private gain must no longer be allowed to elbow out the public good'.
The article reads: "...without massive public assistance, late-stage extractive capitalism, turbocharged by private interest and greed, would long be dead...Boeing, Goldman Sachs, Bank of America, Exxon - all would be bust without public bailouts and tax breaks and subsidies. Every time the private system works itself into a crisis, public funds bail it out - in the current crisis (following the pandemic), to the tune of trillions of dollars. As others have noted, for more than a century, it's a clever machine that privatises gains and socialises costs."
It goes on to add: "When private companies are back up and running, they don't hold themselves accountable to the public who rescued them. As witnessed by activities since the 2008 bailouts at Wells Fargo, American Airlines, and AIG, companies that have been rescued often go right back to milking the public...Now is the time to assert the obvious: without a strong public, there can be no private. My health depends on public health. My freedom depends on social freedom. The economy is embedded in a healthy society with functional public services, not the other way around."
Right from Adam Smith (18th-century economist and father of modern economics) nobody expects market or market players to provide public or social goods - health, education, social security, and other public services - to all, or at an affordable cost to most. The pandemic has demonstrated that in healthcare in the US and India.
Where market fails, state has to step in.
In any case, market is set by public policy, the rules of which are set by state, and that there is no evidence to suggest that unfettered or unbridled market is fair, equitable, or efficient. Markets need to be regulated. Markets fail, economists would tell you, when information is imperfect, competition is limited, and monopoly and monopsony thrive.
Market power translates into political power
Stiglitz warns in his 2019 book that "market power gets translated into political power" in a way that it evolves into "an economy and democracy of the 1 per cent, for the 1 per cent and by the 1 per cent".
He is stating the obvious when he writes "politics and economics are intertwined" and that, "our economic inequalities get translated into political inequalities, reverberating back with rules exacerbating these inequalities even more. So too, our economic failures reverberate on our political system. Trump is a manifestation..."
What has fashioned this collusion between market power and political power?
Stiglitz, again, writes the obvious. It is the "money-driven political system". Hence, the problem is "not the economics but the politics". Though said in the US context, what he says holds true for similar systems anywhere in the globe.
He explains that such collusion leads to government failure as the powers that enable the state to improve societal well-being can be used by some groups or individuals within society to advance their interests at the expense of others.
Judiciary has not remained untouched by neoliberal thinking either. In 2014, the US's Supreme Court struck down the limit on election campaign contributions, allowing unlimited contributions, thereby giving a free reign to money power to influence and distort democracy.
Back home in India, the electoral bonds introduced in 2017 facilitated "anonymous" corporate donations for political parties, took it out of the Election Commission of India's scrutiny, removed limits on donations by corporates and legalised foreign funding to elections (read: Part I and II of General Elections 2019: Who is funding the electioneering of our political parties?).
The nexus between state and market is bound to cause even bigger government and market failures.
Neoliberalism is also linked to the rise of populists, nationalists, nativists, and protectionists in response to the social and economic turmoil that it unleashes. History tells that any such drift poses an even bigger threat to people's wellbeing.
So what is the answer?
Restore balance, says former RBI governor Raghuram Rajan.
In his 2020 book 'The Third Pillar: How markets and the state leave the community behind', Rajan calls for a balance among the three pillars of society: state, market, and community.
He writes: "Society suffers when any of the pillars weakens or strengthens overly relative to the others. Too weak the market and society becomes unproductive, too weak a democratic community and society tends towards crony capitalism, too weak the state and society turns fearful and apathetic. Conversely, too much market and society becomes inequitable, too much community and society becomes static, and too much state and society becomes authoritarian. A balance is essential."
Among other measures, he suggests empowering people through decentralisation of power and funding local communities to revive those economically distressed and state action to make the market competitive and accessible to others.
For Stiglitz, the answer is in his 2019 book: "Before economic reform there will have to be political reform".
He explains that a strong government is needed to "offset the political power of concentrated wealth" and suggests three changes for this: "ensuring fairness in voting, maintaining an effective system of checks and balances in government, and reducing the power of money in politics".
Here is more food for thought.
Literature talks about an era called "The Golden Age of Capitalism".
This marks the post-World War II years of 1950-73. Stiglitz begins his 2019 book with, "I grew up in the golden age of capitalism..."
British tax expert and author Nicholas Shaxson sheds more light in his 2018 book 'The Finance Curse: How global finance is making us all poorer'.
He writes that in this era "economic growth in both rich and poor countries was collectively higher - much much higher - during this period than any other age of human history, before or since". Sixteen major advanced countries grew at 3.8%, for developing countries it was 3%.
"Golden Age growth was, moreover, much more equitable than in other eras, benefiting the poor and middle classes disproportionately", he adds.
He also points out that during this period tax rates for the wealthy were very high.
Average top tax rates remained around 70-80% in the US while that in the UK went up to 99.25% during World War II, came down to 97.5% for most of 1950s, before falling to 80% in 1959.
So much for lower-tax-for-higher-growth caper of neoliberals.
He also writes that there was the Bretton Woods system then, an agreement among advanced countries (signed in 1944), that allowed fairly free trade but restricted cross-border finances only to finance trade or real investment; strictly disallowing financial flow for speculation.
The US's New Deal brought in strong anti-monopoly (or anti-trust) laws, split up megabanks, and put strong regulations on financial institutions like banks.
America's radical right managed to reverse all of it, some with the help of judicial pronouncements in the US (as in case of anti-trust laws). The result was a repeat of 1929 in 2007-08. The story is the same.
An unbridled financial sector first builds up bubbles, which then bursts causing banking collapse, massive job losses, and damage to non-financial sector too (the US's housing sector in 2007-08). There have been many regional or local financial crises in between.
Liberal economists have been pleading to bring back the checks and balances of the Bretton Woods system. They have been asking for anti-trust laws to break up big banks, separating their commercial operations from investment operations, for instance, to reduce risks of failures. Rajan writes in his book that allowing unnecessary financial flows "may indeed do damage to some countries".
Prof. Mazzucato highlights in her book how the financial sector is proving counterproductive to economy. It is increasingly relying on rent-seeking, speculative activities, and extracting value from other sectors of economy (through interest differentials and expensive transaction costs), rather than producing any value on its own.
Here's something from the International Monetary Fund (IMF), which has been pushing neoliberal agenda across the globe.
Its internal study of January 2020, 'Finance and Inequality', says that, beyond a point, growth of financial sector worsens inequality and then causes financial crises (read Coronavirus Lockdown XVI: Why India should be wary of excessive push for liquidity or credit).