invisable-hand

In the beginning, once upon a time, economist Adam smith looked out of his window and observed the economy’s slow rate of growth during the early industrial revolution and thought to himself the states not doing a very good job of this! An “invisible hand “could do better.

And soon after the Neoliberal ideology was born, the idea that growth and development was dependent on Market Competitiveness permeating all aspects of life.

The main way in which this was achieved was through increasing ‘labour market flexibility’ which transferred the risk of de-regulation and insecurities onto workers and their families creating what Guy Standing labelled the “Global Precariat” referring to a dangerous new emerging social class. (Standing.2014)

I’m sure when the socialist group named ‘Robin Hood gang’ consisting of 20 youths in a 2006 stunt, raided a gourmet supermarket and later re distributed the goods to interns; the class they believed were most exploited in society (Standing.2014), would have had Karl Marx sitting on a cloud looking down with popcorn cheering, but whether neoliberalism has sparked ‘class consciousness’ by the masses is an entirely different argument. However, I’m sure we can agree that neoliberalism has created a mass of inequality.

Neoliberalism is a model for ‘trickle down’ economics (notably favoured by none other than Osborne and Trump). It’s justified by the subtlety of replacing consumer choice with consumer welfare, this means any action by a firm to improve consumer welfare is welcomed however unequal that might be. It is always seen as desirable because some of the benefits the wealthiest receive will ‘trickle down’ to the poorest. This ‘handy’ device vindicates supply side economics; where the shift in economic thinking went from encouraging people to consume (Keynesian thinking) to encouraging producers to produce (Supply side, because producers supply goods and services). One result has been that instead of the ‘invisible hand’ (which requires the existence of a large number of firms so that no individual firm can manipulate prices) small to medium sized enterprises have been destroyed/taken over while giant corporations are predominant (Crouch, 2011).

Cuts in corporation tax are advocated and labour is just another commodity whose price must be kept low to encourage production. It has been ‘handy’ when governments step in so that when this results in pay so low people cannot maintain an adequate standard of living the government supplements low wages via working tax credits. In effect governments subsidise firms stingy pay regimes, Jobs tend to become less secure, more intense patterns of work results in exploitation and unhappiness, but it’s all justified by the concept of consumer welfare because some of the extra profit generated will trickle down to the poor.

Simultaneously, with the same supply side justification, governments have reduced regulations resulting in huge company crashes for example Enron US and the financial crash of 2008. Banks are considered too big to fail and so squeezed tax payers are forced to bail out irresponsible banks. Then austerity imposed, thus state spending was very high but much of this is subsidising firms’ low pay and bailing out corporate greed. Its ‘handy’ how the arguments we are fed are that we must cut costs to giant corporations whereas people’s incomes must be minimised. High profits will trickle down.

Furthermore, these huge conglomerates Google, Apple, Starbucks etc. get away with paying risible levels of tax. Globalisation allows companies to have a ‘virtual’ HQ in countries with favourable tax regimes; Irish government are fighting an EU decision to make Apple Pay 11 billion euros back in taxes to them (Robinson, 2016). The power of multinationals might not be the biggest threat to world peace, but they are undemocratic and unaccountable and can only get more huge and powerful. Its ‘handy’ we must always cut their costs.

I’m going to have to agree with Joseph Stiglitz when he says it’s called the invisible hand because it doesn’t exist (Stiglitz, 2009), how ‘handy’ can it really be then? Economic models always rely on underlying assumptions – any assumptions that such a thing as the perfectly free market exists are wrong. Hence conclusions based on such assumptions are unreliable.

Natasha Boyce (Dubai Campus)

Bibliography:

The Precariat: the new dangerous class, Guy Standing, p.1-8, June 5th 2014

The global crisis, social protection and jobs, Joseph Stiglitz, 2009

The strange non-death of neoliberalism, Collin Crouch, 2011

Apple holds Europe to ransom: Tech giant threatens to cut jobs in EU after Brussels orders it to pay back £11BILLION in tax over ‘illegal’ sweetheart deal with Irish government, Martin Robinson, 2016 http://www.dailymail.co.uk/news/article-3764393/Apple-faces-bill-billions-Irish-tax-affairs-EU-rules-company-effectively-received-state-aid.html

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