‘The term “neoliberalism” suggests a system of principles that is both new and based on classical liberal ideas… The doctrinal system is also known as the “Washington consensus,” which suggests something about global order. A closer look shows that the suggestion about global order is fairly accurate, but not the rest. The doctrines are not new, and the basic assumptions are far from those that have animated the liberal tradition since the Enlightenment.” – An excerpt from the (1999) book ‘Profit over people: neoliberalism and global order’ by renowned linguist and philosopher, Noam Chomsky
One of the important lessons of the Great Depression of the 1930s was the important role of government in directing markets, and one of the main manifestations of that in the aftermath of that was the development of industrial policies for making a concerted effort to raise living standards in a concerted way, and to overall close the gap between the rich, advanced countries, and those that belonged to the developing world. Yet, with the onslaught of neoliberalism, and the related austerity policies around 1980s, especially in the wake of major flagbearers of these policies in the shape of US President Ronald Reagan, and UK Prime Minister Margaret Thatcher during that time, with emphasis on the core principles of austerity, market fundamentalism, privatization, deregulation, and liberalization.
In the same book, Noam Chomsky pointed out with regard to neoliberalism, for instance, as ‘The neoliberal Washington consensus is an array of market oriented principles… often as stringent structural adjustment programs. The basic rules in brief, are: liberalize trade and finance, let market set price (“get prices right”), and inflation (“macroeconomic stability”), privatize. The government “should get out of the way” – hence the population too, insofar as the government is democratic, though the conclusion is implicit.’ Hence, neoliberalism, in principle, undercuts democracy, and perpetuates ‘elite capture’ or politico-economic extractive institutional design.
These policies – which also got practiced through the structural adjustment programmes of IMF, and through World Bank development policy loans during the last four decades, or so– resulted among other negative outcomes, in the rollback of industrial policies, especially in terms of the diminishing role of public sector through active privatization programmes.
To better understand neoliberalism, it is first important to dig deep into the roots of capitalism to bring greater clarity of its deeper shades, as pointed out by a 2024 book Invisible doctrine: the secret history of neoliberalism co-authored by renowned Guardian columnist, George Monbiot, as follows: ‘Neoliberalism is often described as “capitalism on steroids.” …If we are to understand neoliberalism, we must first understand capitalism. …Capitalism is an economic system founded on colonial looting. It operates on a constantly shifting and self-consuming frontier, on which both state and powerful private interests use their laws, backed by the threat of violence, to turn shared resources into exclusive property, and to transform natural wealth, labor, and money into commodities that can be accumulated.’
Related to neoliberalism is the concept of austerity, which renowned economist Clara Mattei in her noted 2022 book The capital order: how economists invented austerity and paved the way to fascism identifies as a tool used to perpetuate this ‘capital order’. She points out in this regard ‘While austerity policies may not be identified by name, they underscore the most common tropes of contemporary politics: budget cuts (especially in welfare expenditures such as public education, health care, housing, and unemployment benefits), regressive taxation, deflation, privatization, wage repression, and employment deregulation. Taken together, this suite of policies entrenches existing wealth and the primacy of the private sector… But to the extent that we stop perceiving austerity as a sincere toolbox for managing an economy, and when we consider its history through the lens of class, it becomes clear that austerity preserves something foundational to our capitalist society. …economic growth presupposes a certain sociopolitical order, or capital order. Austerity, viewed as a set of fiscal, monetary, and industrial guardrails on an economy, ensures the sanctity of these social relations.’
These policies – which also got practiced through the structural adjustment programmes of IMF, and through World Bank development policy loans during the last four decades, or so– resulted among other negative outcomes, in the rollback of industrial policies, especially in terms of the diminishing role of public sector through active privatization programmes, which in turn produced a significantly reducing effect on state capacities; as evidenced from a lack of public sector capacity, and overall practice of market fundamentalism, including moving into an environment of very little regulation, to overall indicate serious cracks in state capacity, for instance, in anticipating Global Financial Crisis of 2007-08, in effectively dealing with climate change crisis, and during the Covid-19 pandemic.
One important way, to effectively deal with existential threats, and to reach much better levels of productive-, and allocative efficiencies is to adopt purpose-driven industrial policies, as pointed out by renowned economist, Mariana Mazzucato, in her January 28, ‘Foreign Affairs’ published article ‘Making industrial strategy great again’ as ‘For much of the last four decades, mainstream economic commentary largely ignored the key stabilizing role the state played. Successive administrations and policymakers in both parties [in the U.S.] dismissed the tools of industrial policy as economically inefficient or politically suspect, even as government-led innovation never went away. The result was an economy in which the state remained central to value creation, but the gains were too easily privatized. …Now, industrial policy has returned to center stage. …Industrial policy will fail, economically and politically, unless it is organized around clear missions to create public value. Direction and discipline are necessary to guide investment, innovation, regulation, and procurement toward outcomes that people can see in their lives. And delivering on a mission requires capable institutions with the expertise to design contracts, coordinate across departments, and learn from results.’
Effective industrial policy requires a well-oiled public sector, with regard to which Mariana Mazzucato in her December 15, 2014, ‘Foreign Affairs’ published article ‘The innovative state’ pointed out ‘The conventional view of what the state should do to foster innovation is simple: it just needs to get out of the way. At best, governments merely facilitate the economic dynamism of the private sector; at worst, their lumbering, heavy-handed, and bureaucratic institutions actively inhibit it. …That view is as wrong as it is widespread. In fact, in countries that owe their growth to innovation, the state has historically served not as a meddler in the private sector but as a key partner of it – and often a more daring one, willing to take the risks that businesses won’t.’
