Wednesday, 11 November 2015

Neoliberal myths of a free market

Neoliberalism has been the dominant creed in recent times. In one form or another it has underlined economic strategies followed in the UK by both Labour and Tory governments. New Labour embraced and worked with it. It seemed that global capitalism had won the day in the post-war conflict of ideas, and despite the banking crisis, it continues as the dominant influence.

If measured by the accumulation of wealth and the developments of new technologies it might be regarded as a success. But the cost of that success has been a heavy price. Socially it has failed, and the cost of that failure has damaged the environment increased inequalities. But who benefits from it? Who is it for?

Some 3 billion people live on less than $2 a day whilst 86 percent of the world’s resources are consumed by the world’s wealthiest 20 percent. That is the success of the neoliberal myth.

When government chooses not to ‘intervene in the market’ it is making a political not an economic decision. The neoliberal view assumes there can be a ‘free market’ where there is no government or public intervention. It believes that aggregate individual good is social good. The ‘free market’, the argument goes, settles everything through price – if only it was left alone to ‘do its job’. This view has a simple underlying philosophy – that there is no ‘social need’, only private or individual need.

Society is regarded as an aggregate of individuals. Any expression of ‘social need’, as for example in health or education, becomes, in this view, a distortion of this ideal ‘free market’. Neoliberalism contends that the free movement of goods, resources and enterprises will always find cheaper resources and maximise profits and efficiency.

Neoliberalism specifically rules out the role of the state in regulating such markets. It is against Tariffs, Regulations, standards, laws, legislation and regulatory measures and restrictions on capital flows and investment.

This neoliberal view tends to ignore that individuals have little weight in determining ‘market price’ against big global corporations. The market is in that sense badly distorted between consumer and producer. Behind so many brands in food there are just 10 big global corporations with revenue of tens of billions of dollars. They dictate the market and have food producers under their thumb. Nestle had more than $100 billion in sales and more than $11 billion in profits in 2013.

These big giants create the needs or markets as much as respond to them. They are the largest media spenders in the world spending huge sums on branding and marketing - Mars Inc. for example spends over $2 bn on advertising; Unilever spends over $7.5 bn. Their ability to manipulate demand and ‘brand awareness’ outweighs that of their competitors. These big corporations are big lobbyists of government when it comes to food and health policies. Their activities have huge impact on environment, health and workers rights.

Four giants dominate the raw materials of the global food system. These giants, big as they are, operate below the radar of the average consumer. Most will not have heard of the group known as the ABCD group for the alphabetic convenience of their initials - ADM, Bunge, Cargill and Dreyfus – but they are estimated to account for between 75% and 90% of the global grain trade.

The neoliberal view has also another underlying assumption, that there will be some kind of equilibrium where the free market distribution will produce an optimum distribution of goods. It makes the assumption that the only distorting player could be the state, yet globally and nationally major corporations are players bigger than any state influencing the market. The market is not ‘free’ in the sense of being without big players.

Four giants dominate the raw materials of the global food system. These giants, big as they are, operate below the radar of the average consumer. Most will not have heard of the group known as the ABCD group for the alphabetic convenience of their initials - ADM, Bunge, Cargill and Dreyfus – but they are estimated to account for between 75% and 90% of the global grain trade.

The rise of global capital controls markets in ways that individual states cannot. Economic policy is at the whim of global capital. Global capital is often expressed in terms of the ‘free movement of capital’, yet the movement of capital is not free of big corporate decisions. What ‘free movement of capital’ really means is that it is not controllable by any state or government.

A handful of players dominate, not just in primary agriculture but in food manufacturing and retailing. The result, according to Oxfam, is that "they extract much of the value along the chain, while costs and risks cascade down on to the weakest participants, generally the farmers and labourers at the bottom".

This is not a fair or free market. It is a market where a small group globally dominate and take action to determine the ‘market’. When health issues are raised about food, they are powerful lobby against change.

It is a market where the primary producers are suffering loss whilst the big fish gain. Think while we drink our cups tea and coffee of where and how it is produced. Cocoa growers now receive just 3.5% of the average retail value of a bar of chocolate. In the 1980s they would have received 18%. Here in the UK farmers are going out of business because the big supermarkets won’t pay them a fair price. The food giants rule the market.

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