Deconstructing Neoliberalism, part I

note: This is the first in a series of posts, the idea for which I mentioned here. I am certain Sach’s arguments have been addressed by writers and thinkers far better than myself. However, I am writing this to deepen my own understanding of ideas to which I am relatively new. I hope it will also allow me to more readily address the points of mainstream economists.

The book jacket gives us the first indication of Sachs’ direction, and a very clear picture of the framework he’s using.

“Ultimately, The End of Poverty leaves readers with an understanding, not just of how grave the problem of poverty is but how solvable it is- and why making the necessary effort is a matter of both moral obligation and strategic self-interest of the rich countries.”

Sachs here is trying to sell his agenda to both the humanists and the capitalists alike, and judging by his stature and influence, he has been incredibly successful. He has received accolades for his pragmatism, though his desire to reconcile capitalist imperatives with moral ones smacks of utopian idealism. Žižek noted the hypocrisy of the modern capitalists: they accuse communists of being too utopian, while their ideals- universal healthcare, voting rights, decent living standards (all within a capitalist system of accumulation)- are every bit as utopian as those of Marx and Engels. Sachs’ focus, however, is on the “strategic self-interest,” of rich countries, indicating the plans he has for them.

The only way for development of the third world to serve the first world capitalists’ interests is for a very specific kind of development to take place. The economies of poor countries must have very small public sectors to maximize potential for capital investment, and have absolutely no barriers to the repatriation of profits in order to encourage western firms to undertake this investment. This means that local labor will be utilized, but the profits of any investment will go overseas, where they may or may not be reinvested in further development. So the development of these countries, if we are to assume it serves the “strategic self-interest” of rich countries, will be contingent upon its profitability.

Now, Sachs thinks the state should take on the role of at least some of the development, making profit less of an issue at first. But ultimately, if we assume his economic doctrines are consistent, the development funded and spearheaded by first-world states will be turned over to private interests- a perfect example of “accumulation by dispossession.”

“Let me dispose of one idea from the start. Many people assume the rich have gotten rich because the poor have gotten poor… This interpretation of events would be plausible if gross world product had remained roughly constant, with a rising share going to the powerful regions and a declining share going to the poorer regions. However, that is not at all what happened… Every region of the world experienced some economic growth…Technology has been the main force behind the long-term increases in income in the rich world, not exploitation of the poor.” (p.31)

Sachs here makes the mistake that many economists before him have made before him (as far back as J.S. Mill), and that is the assumption that production and distribution of goods are not necessarily related to each other. This assumption fuels the notion that there are no problems within our mode of production, merely within our mode of distribution.

Let me dispose of that idea. Marx argued in Capital that production and distribution are linked to one another. This is because the way a capitalist production process is organized requires an ample amount of wage labor to work machinery. This affects every part of the production process, from the spatial organization of workers, to labor relations, to the very way production machinery (a form of fixed capital) is designed. Therefore, in order to reproduce the conditions of this production, a certain distribution that will ensure a steady supply of wage labor is required. This in turn implies a certain class structure and labor relations that is inherently unequal in the name of “efficiency.” The owners of factories can most “efficiently” run them when a large supply of surplus labor is available (a “competitive labor market”), and they have an extremely high degree of authority and control over the workforce.

While there certainly have been increases in the standard of living (cynically measured in terms of amount of consumer goods), these are a reflection of the continued need for sustained economic growth inherent in a system based on perpetual accumulation. This is an attempt to displace a contradiction in capitalism.

“This contradiction can be overcome by wage increases or alterations in the value of labor power. Changes of this sort… result in the conversion of luxuries into necessities.” David Harvey, The Limits to Capital (p.90)

The distribution of more material goods to the lower classes is only done when it serves capitalist class interests, thereby preserving the same mode of social relations even as the material standard of living increases. So the rich have gotten rich while the poor have remained poor, if we look past the outward appearance of commodities. Therefore Sachs’ conclusion that long-term investment in impoverished countries serves both the strategic interest of rich countries and a moral imperative is, at best, only partially right. Development will occur only when it is profitable to do so, and when it does occur, it will preserve a very specific kind of social relation and distribution of wealth.

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2 responses to “Deconstructing Neoliberalism, part I

  1. A better answer to ending poverty can be found in the thought and writings of Henry George (b. 1839, Philadelphia; d. 1897, NYC). His landmark book “Progress & Poverty” is widely available online, including several abridgments and the original masterpiece.

    You might also look for Bob Andelson’s essay, “Henry George and the Reconstruction of Capitalism,” available, among other places, at http://www.wealthandwant.com/

    Those who know George’s ideas well realize that economics is not a dismal science. Properly understood, it can be used to make this earth a paradise for all, and to create a sustainable, stable environment and economy in which all can live.

    I commend George’s ideas to your attention.

    And, by the way, parts of the new documentary film “The End of Poverty?” ultimately comes out of George’s ideas. Check out http://povertythinkagain.com/ for more information.

  2. The Georgist solution doesn’t go far enough, in my opinion- it leaves the same mode of production intact by its use of a market framework. With the capitalist mode of production intact (albeit with a strong socialist framework applied), the disparity of wealth implied by the way goods are produced is reduced, but society still remains fundamentally unequal. It also preserves the motive for accumulation inherent in capitalist society that gives rise to the irrational and periodic crises of overaccumulation (as we see now).

    “His fundamental dogma is that everything would be all right if ground rent were paid to the state.” Marx here refers to George in a letter to Frederich Sorge, and it’s a criticism that I certainly agree with. While certainly George’s ideas would certainly reduce the ecological devastation taking place in our society right now, they do little to fight against the motive for profit that drives people to destroy the environment.

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