Home > Archives (2006 on) > 2008 > December 20, 2008 - Annual Number 2008 > Myth and Reality of Capitalism: Neo-Liberalism and Globalisation

Mainstream, Vol XLVII, No 1, December 20, 2008

Myth and Reality of Capitalism: Neo-Liberalism and Globalisation

Sunday 21 December 2008, by P R Dubhashi

Prof Galbraith of Harvard University had been, through his copious and widely read books, a sustained critic of unbridled capitalism and its adverse consequences on the living of the common people. Thus in his celebrated book, The Affluent Society, he drew pointed attention to the glaring contradiction between private opulence and public squalor. In his New Industrial State, he showed how the operations of the “techno structure” of the corporations which now dominate the economy, have completely overthrown the “conventional wisdom” of traditional economics. The “myths” sedulously fostered by the latter have no relation to the reality of the economic world. The slim volume “Economics of Innocent Fraud”, his last offering, distills the essence of Galbraith several criticisms of the capitalist economy.1
The capitalist economy now a days masquerades in some what neutral impersonal term “the free market economy”. This enables it to escape from the responsibility of its historic crimes and blunders—subjugation of workers by the owners of the means of production, monopolistic abuses, roles of European arms and steel combines in engineering world wars and cyclical booms and busts ravaging the economy.
Galbraith exposes a series of myths attributed to the market economy.
The myth is that in the market “consumer sovereignty” prevails. The reality in the market is that the consumer sovereignty has been impaired by the manipulation of consumer demand through advertisement, salesmanship with the help of the powerful medium of television and mislending product differentiation
The myth is that the economy rewards work in proportion to the discomfort experienced in course of work. The reality is that those who do not have to do physical work and enjoy it are the best paid.
The myth is that the market economy consists of innumerable producers including small business and family agriculture. In reality, it is dominated by big corporations.
The myth is that the corporations are governed by the decisions of shareholders and their representative Boards of Directors. The reality is that the corporations are managed by its “bureaucracy” who award munificent compensation to themselves despite falling profits and stock market prices.

The myth is that the economy consists of two sectors—the private sector and the public sector. The reality is that on expanding part of what is called the public sector it is for all practical purposes in the private sector. Military expenditure (euphemistically termed defence expenditure) by government is determined by the military industry complex. Even foreign and military policies of the government are determined by it.

The myth is that the upturns and downturns of the economy can be forecast by “consultants” and experts with the help of economic and statistical analysis. The reality is that they are unpredictable. Sometimes well-published predictions by consultants are intended to serve personal gain.

The Federal Reserve system, especially under Allen Greenspan, was endowed with the capacity to use monetary measures such as modification of bank rate to manage the economy. In reality the Central Bank action had minimal effect and no decisive role.
The myth had been that the standards of corporate finances are maintained by professional auditors and accountants. The reality is that they had been parties to corporate scandals.
The myth is that corporate scandals can be avoided by appropriate regulation. The reality is that public officials, including those of the Security and Exchange Commission, can be unduly compliant and corporate influence does extend to regulators.
The myth is that the economic well-being of the people is measured by the GDP. The reality is that the negative social affects of the so-called productive activity like pollution, destruction of environment, the neglect of citizen’s health and education, threat of military action and mass destruction are not taken into account. No wonder human progress is marked by unimaginable cruelty and death caused by wars.

It is these myths and frauds which are the basis of the structural adjustment programme, the so-called economic reforms, which were imposed on the developing countries by the international economic organisations, namely, the World Bank, the IMF and the WTO under the influence of global capitalism led by the USA and its allies.

II

IN these days of uncritical acclaim of globalisation by economists and the rest, the Bad Samaritans, a book by the Cambridge University economic historian, comes like an eye-opener.2 The “Unholy Trinity” of the World Bank, the IMF and the WTO, and the financial institutions under their control or influence of those whom the author rightly describes as “Bad Samaritans” have taken advantage of the weaknesses of the developing countries, imposed on them the so-called package of economic reforms of liberalisation, privatisation and globalisation otherwise known as the structural adjustment programme, that is, fiscal discipline, strict money policies, deregulation, dismantling public projects and programmes, reduced role of the state, low tariffs and removal of barriers to private investment—all aimed at making them a part of the free market world economy. In fact it is a self-serving strategy of the rich countries led by the USA intended to impose their dominance on the world economy through unfettered operation of their multinational corpo-rations even though it is detrimental to the economic interests of the common people of the developing countries. The rich countries have systematically tried to hide their real purpose by justifying their strategy of globalisation in a self-righteous manner as based on sound principles of free market economies which they advocate for the developing countries though they themselves had found it necessary to give a go-by to these principles and resort to economic protection in their own early stages of development. In tende-ring their advice to the developing countries they do not find it necessary to pay any attention to the well-being of the common people of the develo-ping countries nor the sovereign right of the governments of these countries to chalk out their own policies. They have sedulously fostered myths of rationality and sanctity of the principle of the free market economy though they are inconsistent with the economic reality. This has been facilitated by the recent upsurge of new-classical economics under the leadership of the Chicago School of Economics—Milton Friedman and his followers—which has virtually banished Keynesian Economics and the countervailing fiscal policies advocated by it as also the newly born Developmental Economics formulated by economists like Ragner Nauske and Roscustein Roden to evolve a positive strategy of development for the developing countries.

Free Trade versus Protection

THE “official” history of globalisation has spread the myth that the rich countries, of which Britian was the first, owed their economic development and prosperity to free market and free trade liberal laissez faire policies, low barriers to the international flow of goods and labour and principles of sound money (low inflation) and balanced budgets. The facts are otherwise. The protectionist policies initiated by the first Prime Minister of Britain, Robert Walpole (1721-42), continued until the middle of the 19th century. It helped the British manufacturing industries to establish themselves. At the same time it banned cotton textile imports from India, destroyed the Irish woolen industry and banned the construction of new steel mills in America as also manufacture of high technology products. It wanted colonies to be producing primary commodities to supply raw material at low cost to British manufactures. Once the British industry became internationally competitive, Britain adopted the free trade policy since it was in her interest. In 1846 the Corn Law was repealed and tariff on many manufactured goods was abolished.

It was not long before America realised the harmful effects the of the British policy. As the first Finance Minister of the USA, Alexander Hamilton, in his report on the state of manufactures submitted to the US Congress, pointed out, a backward country like the USA should protect its industry in “infancy”. He was the first, not Freindrich List of Germany, who coined the word. Since the USA needed a big progress of industrialisation, the USA progressively raised import tariffs to an average of 45 per cent by 1800. When President Lincoln of the Republican Party come to power, he raised tariffs to the highest level in US history. Thrifts on manufacturing imports remained at 50 per cent until World War I. Following the onset of the Great Depression in 1929, came in 1930 the Smoot Hawley Act which raised tariff even higher. It is with the help of those protectionist policies that the US became the fastest growing economy. The USA was the most protectionist country in the world right up 1930. It was only after the Second World War that the US with its unchallenged industrial supremacy liberalised its trade and started advocating the cause of free trade. But it is still aggressive in taking non-tariff measures when necessary; for example, without liberal federal funding for R & D, the US would not have been able to maintain its technological lead over the rest of the world in key industries like computers, semi-conductors, life sciences, the internet and aero space. It was only after they became the world’s dominant industrial powers that Britain and the USA themselves practised free-market economics. However, they forced non-Western countries like India, China and Japan to practise free trade even though their economies needed protection.

Other countries which followed the footsteps of Britain and the USA on the path of industria-lisation were France, Germany and Japan. The myth is that they were homes to protectionism. But the truth is they had lower tariffs than Britain and the USA.

It was only after realising, following 1945, that the “hands-off” policies of the state were responsible for its relative economic decline and defeats in two world wars, that the French state took to a much more active role in the economy through “indicative planning”, nationalisation of key industries and active role of the state owned banks in channelling investment in strategies areas. Countries like Finland, Norway, Italy and Austria which were relatively backward at the end of World War II used similar strategies like high tariffs, state owned enterprises (SOEs) and directing bank credit to strategic industries.

Japan, which led the “miracle economies” in East Asia after World War II, did not do so through a neo-liberal policy. Though it did not keep industrial tariffs at a high level, it controlled import through foreign exchange regulation. Exports were promoted to earn the foreign exchange needed to buy up better technology from abroad. Its MITI (Ministry for Industrial Trade and Industry) became well known for its orchestrated drive for industrial development programmes. Through directed credit programme, it subsidised credit into key sectors. Foreign investment was barred in key industries. Foreign companies were required to transfer technology and had to buy specific pro-portions of inputs locally. There were strict ceilings on foreign ownership upto a maximum at 49 per cent.

An outstanding example of development in key sectors in Japan was the Toyota Automobile. It started as a manufacturer of textile machinery. It moved into car production in 1933. The Japanese Government kicked out General Motors and Fort in 1939 and with its own money bailed out Toyota. After 25 years of trying it slowly established itself as a car manufacturer. Today Toyota’s luxury brand Lexus has become an icon for globalisation.

Korea’s economic growth over the last four-and-a-half decades has been spectacular. From being one of the poorest countries of the world, it has come on par with some European countries like Portugal and Slovenia in terms of per capita income. A myth has been propagated that to achieve this miracle Korea pursued a neo-liberal economic strategy. The reality was different. Korea used measures like tariff protection, subsidies and various forms of government support to nurture new industries. The government owned all banks and directed credit for them. Big projects were undertaken directly by state owned enterprises, POSCO, the steel maker, being the best example. The Korean Government controlled foreign exchange to use hard-earned foreign currencies for importing vital machinery and inputs. The Korean Government controlled foreign investment as well.

Taiwan used a strategy very similar to that of Korea. It used state owned enterprises more extensively while being somewhat friendlier to foreign investment than Korea.

Singapore is cited as an example of development achieved through free trade and foreign invest-ment. But it is not all laissez faire. The government’s role is considerable by way of investment in infrastructure and education targeted to particular industries. It has one of the largest state owned enterprise sectors in the world including the Housing Development Board. Even Hong Kong, cited as an example of free economy, had all land in ownership of the government in order to control the housing situation.

The more recent economic stories are of China and India. They also show the importance of the strategic role of the state rather than unconditional integration with the global economy.

It is a myth that development took place through free trade and free market policy. Virtually all successful countries used some mixture of pro-tection, subsidies and regulation in the early stages of development.

Despite this, the World Bank and IMF imposed, as a part of the “conditionality” of their aid, neo-liberal policies on the countries of Latin America and Africa. From the 1980s when Latin America embraced neo-liberalisation, it had been growing at less than one-third the rate of the earlier days of protectionist policy; Chile’s experiment with neo-liberalisation led by the so-called Chigago Boys (a group of Chilean economists trained at the University of Chicago—the leading centre of neo-liberalisation) was a disaster; while African countries saw a fall in living standards, a damning indictment of neo-liberal orthodoxy of the World Bank and IMF which have been practically running these economies.

Following the launching of the WTO in 1995, the rich countries made concerted efforts to push the developing countries into free trade through its regime as well as through bilateral and regional free trade agreements forgetting that industries in several developing countries would not survive if exposed to international competition before they had the time to improve their capabilities by mastering advanced technologies and building effective organisation. No wonder massive trade liberalisation proved harmful to several develo-ping countries. For example, whole swathes of Mexican industry, built during the period of import substitution, were wiped out. In Ivory Coast the chemical, textile, shoe and automobile industries collapsed. The agricultural sector in Mexico was also hit hard by subsidised US products, especially maize. Trade liberalisation has reduced growth rates. The Theory of Comparative Cost, on which the free trade policy is based, may be conducive to efficiency in the use of resources in the short run but not for economic development in the long run. There is a great deal of hypocrisy in the advocacy of free trade by the rich countries. In the Doha negotiations (2001) the USA and EU introduced the proposal dubbed NAMA (Non-agricultural market access) which wanted the developing countries to open up markets for their agricultural products. The rich countries give out subsidies of $ 100 billion every year. In return for cutting tariffs by developing countries, they were not ready to reduce their subsidies substantially. Also while the USA has an overall tax rate of 1.6 per cent, the tax rates raised for the products of a large number of developing countries—four per cent for India and Peru and 14-15 per cent for poor countries like Bangladesh, Nepal and Cambodia. The so-called level playing field gives one sided benefit to the rich countries, through non-trade policies like TRIPS which strengthened protection to Patents and other intellectual property rights. Subsidies are allowed for R & D, extensively used by rich countries. The rich countries give huge subsidies in the name of “reducing regional unbalances”. Thus in the name of the myth of free trade, the rich countries have in reality erected a new international trading system rigged in their favour.

Foreign Investment

LIKE TRIPS, TRIMS was devised as yet another instrument to rig the system in favour of the rich countries. TRIMS (Trade Related Investment Measures) restricts the ability of the WTO member countries to regulate foreign investors. It bans countries from laying down local content requirements, export requirements or foreign exchange balancing requirement. This has enabled MNCs to be foot-loose, though their decision-makers are still mostly home country nationals. The argument of the neo-liberals is that foreign firms won’t come into a country unless it offers attractive market. Indeed developing countries were encouraged to enter into competition to offer concessions to MNCs to attract investment. The argument is misleading. China gets 10 per cent of the world’s FDI not because of the concessions it offers but because of good infrastructure, cheap labour force and growing market. Nor is foreign investment needed for a country’s development as is shown by the examples of Finland which classified projects with more than 20 per cent foreign investments as dangerous. Liberalisation of foreign investment came only in 1993 as a condition of access to the EU in 1995. Despite its anti-foreign investment policy over half-a-century, Finland became a success story, its mobile phone company Nokia became an icon.

Liberal economists praise the benefits of free international movement of capital. It fills saving gap and spreads the best practices of corporate governance. But this view needs critical examination. Foreign capital has three components —grants, debts, (government and corporate bank) and investment (portfolio and FDI)—in view. Neo-liberal economics asserts that foreign aid does not work, foreign trade does. But this is not true. Bank debt and portfolio investment are notoriously volatile. For example, during the 1997 Asian crisis, they turned negative. Also in the case of Russia and Brazil in 1998 and Argentina in 2002, they came and went at the wrong time. As a result, the developing countries opening capital markets, at the urge of “Bad Samaritans”, have experienced frequent financial crises. Direct investment is more stable and often brings advanced organisation, skills and technology but through FDI, MNCs often shift most of their profits to a paper company registered in a tax haven. They create demands on foreign exchange through their import requirements. They also resort to “transfer pricing”. Foreign direct investors also sometimes resort to “asset stripping” of under-valued enterprises bought during a crisis.

The US had a terrible record of dealing with foreign investors. The US Federal Government strongly regulates foreign investment, particularly in relation to acquisition of natural resources like land and mining rights. Despite this, the US was the largest recipient of foreign investments. The UK, France and Germany also imposed perfor-mance requirements on FDI. Thus the neo-liberal argument that regulation of foreign investment harms the growth prospect is a myth and an example of selective historical amnesia. In recent years Singapore and Ireland succeded by actively encouraging FDI but even they did not adopt the laissez faire approach as recommended by “Bad Samaritans”. FDI may help developing countries only as part of a long term development strategy.

SOEs versus Privatisation

NEO-LIBERAL thinkers have spread the myth that state owned public enterprises do not work since people do not take care of things that are not theirs. Public enterprises secure finances from the govern-ment treasury and fritter them away. This was the justification for the massive privatisation programme resolutely implemented by Margaret Thatcher in Britain in the early 1980s.

It is forgotten that private enterprises like big corporates have dispersed share ownership and are run by hired managers as in the case of state owned enterprises. Key private enterprises in trouble also get subsidies and government bailouts as in the case of Rolls Royce, nationalised by the Conservative Government in 1967 and British Leyland and British Aerospace by the Labour Government in 1977. The Swedish ship-building industry was nationalised by its first Right-wing government in 44 years.

SOEs, like private companies, have to work in a market environment. SOEs are often success stories like the Singapore Airlines. Government linked companies in Singapore not only operate public utility industries like telecommunication, power and transport but also ship-building, shipping, banking, engineering and semi conductors. Eighty-five per cent of housing is provided by publicly owned entities.

The Housing and Development Board of Korea also provides another example of successful public enterprise in the form of POSCO (Pohang Iron and Steel Company). Within 10 years of starting production in 1973 (financed by the Japanese Bank after being rejected by the World Bank in the late 1960s), it became one of the most efficient steel producers. Taiwan has had a very large SOE sector accounting for 15 per cent of national output.

China has also come up with a unique type of hybrid form of ownership called Town and Village Enterprises formally owned by local authorities but which operate as if they are privately owned by local political leaders.

The economic success of many European countries such as France, Italy, Austria, Finland and Norway was achieved with very large SOEs sector at the forefront of technological moderni-sation. The Brazilian state owned company, Petrobras, is a world class firm with leading edge technologies. Embraer, the Brazilian manufacturer of “regional jet”, has become a world class firm.

German car marker Volkswagen has the State Government of Lower Saxony as the largest share holder with 18.6 per cent shares. Large scale projects with long-gestation period and enterprises which are natural monopolies can best be taken up by the state. Also people in remote areas can be provided essential services only by state enterprises. Disinvestments of SOEs is not always easy. Privatisation must be done at the right scale, at the right time, at the right price and to the right buyer. The sale of the Cochabamba water system in Bolivia to the American company, Bechtel, in 1999, that resulted in immediate tripling of water rates is a bad example of privatisation. SOEs’ performance can be improved without privatisation by providing competition.

Patent Protection by TRIPS

TRIPS extended the duration, widened the scope and heightened the degree of protection to patent rights to an unprecedented extent making it difficult for developing countries to acquire the new knowledge they need for economic development as well as essential drugs. Much needed medicines have become very expensive, for example, HIV/AIDS drugs which most African countries need. When these countries acquired generic products from India, pharmaceutical companies banded together and took them to court though after public uproar they withdrew the law-suit.

The argument that patents are necessary to provide incentive to private companies to invest in research for development of new drugs and vaccines is not entirely valid. Material incentives are not the only things that motivate people to develop new ideas and products and promote discovery and inventions. Scientific curiosity and desire to benefit humanity have been of greater importance. Throughout history, government research institutions and universities have done a lot of research motivated by profit from patent monopoly. Actually patents block knowledge flows into technologically backward countries which is needed to develop their economies. Switzerland had no patent law till 1888. They borrowed a lot of chemical and pharmaceutical technologies from Germany. The Netherlands abolished the patent law of 1871. Philips, the Dutch electronic company, exploited the absence of patent law to produce light bulbs on the patents “borrowed” from the American inventor, Thomas Edison. Today’s rich countries, when they were backward themselves in terms of knowledge, blithely violated other people’s patents, trademark and copyrights. And now the same rich countries are strengthening the protection of intellectual properties through TRIPS to a historically unprecedented degree. They are lengthening the terms of IPR protection so that the developing countries pay more for new knowledge. The American system has only encouraged the theft of traditional “knowledge” like the curative use of turmeric (haldi).

Actually patent infringement suits have become a major obstacle to technological progress by making producing new ideas more expensive because existing ideas are important inputs to producing new ideas. The World Bank estimated that following the TRIPs agreement, the increase in technology licence payment will cost the developing countries an extra $ 45 billion a year which is nearly half the total foreign aid given by rich countries. Thus IPR has become a rent extracting device. In the interest of developing countries, patent life should be shorter, the licence and royalty fee lowered and parallel imports allowed or compulsory licensing made easier. Also an international tax law on patent royalty should be imposed to provide technological support to developing countries.

Fiscal and Monetary Discipline

THE IMF has insisted on strict monetary and fiscal discipline to be observed by the developing countries before expecting any financial support. Inflation should be tightly controlled and should never exceed three per cent, since it is bad for economic growth. Low inflation is a prerequisite for investment. Controlling inflation is the primary responsibility of the Central Bank which should be politically independent. The Central Bank should strictly ensure the capital adequacy norm to be followed by all banks. The government should live within its means, since budget deficit causes inflation. All these stipulations are not quite realistic. During 1960-70, Brazil had high inflation but it was one of the fastest growing economies. In the 1960s the inflation rate in South Korea was much higher than in several Latin American countries considered as profligate. Sometimes moderate inflation is conductive to dynamic economy and rapid growth. Moderate inflation is not harmful.

The IMF imposed strict monetary discipline on South Africa and prevented it from generating rapid growth needed for promoting employment. Despite the monetary discipline or because of it, the unemployment rate in South Africa is very high. By insisting on the Central Bank of the developing countries to follow the single object of inflation, the IMF overlooks the fact that the US Federal Reserve Bank itself defines its objectives as “pursuit of maximum employment, stable prices and moderate long term interest rates”. Such is the gap between the preaching of the developed countries and the reality in the developing countries. During the Asian crisis of 1997, the advice of the Bad Samaritans prevailed on Korea and Indonesia to cut spending despite high rates of unemployment and depressed the economy. Cut in interest rates and increase in deficit spending would have boosted their economies and pre-vented distress. This is what Keynesian Economics would advice but Milton Friedman Economics would not allow it.

Corruption

UNDER the World Bank leadership of the former US Deputy Defence Secretary Paul Woofowitz, corruption was identified as the biggest obstacle to development. Loan disbursements to several developing countries was halted on grounds of corruption. In fact it was a convenient justification for reduction in aid commitments. Corruption is also used as an explanation for the failure of neo-liberal policies promoted by the World Bank over the past two-and-a-half decades. Most of today’s rich countries, including Britain, France and the US, successfully industrialised despite the fact that they were spectacularly corrupt.

A country has to rise above poverty before it can significantly reduce venality in the system. It is argued that deregulation and privatisation would reduce corruption by depriving policy-makers and bureaucrats the opportunities to extract bribes. Hence a new public management system, which advocates introducing market forces in government, is advocated. These include (1) performance related pay and short term contracts, (2) contracting out, and (3) exchange of personnel between private and public sectors. In reality, these reforms increased rather than reduce corruption by creating new opportunities for bribes. Civil servants with short term contracts cultivate private business with an eye on fortune employment prospects. Hence following the liberalisation policies corruption has often increased.

Culture

SOME developing countries are condemned by the rich countries for their “culture” which makes them lazy and easy going. But these traits attributed to a people are not immutable. The Japanese are nowadays considered to be hard working. But they were in the past condemned as easy going, living chiefly for the present. Before their take-off in the mid-19th century, the Germans were described by the British as “dull and heavy” people. Francis Fukuyama, in his 1995 book Trust, attributed to lack of trust in the cultures of China and Korea which makes it difficult for them to run large firms. These in fact are utter prejudices. The habits of a people are not unchangeable. Culture changes with economic development as is shown by the economic history of many countries in Japan and Germany. Culture can be changed deliberately through persuasions, changes of policies and institution-building.

III

Democracy and Free Market

NEO-LIBERALS postulate that democracy and free market are natural partners in promoting economic development. Francis Fukuyama, a senior policy-maker in the US State Department, in his speech at University of Chicago in 1989 titled—“Are we approaching the end of history?”, claimed that free markets and free people are a part of an inseparable project of modernity and progress and represented the end-point of mankind’s ideological evolution and final form of human organisation. There is no question of a “third way”. Fukuyama’s claim turned but to be a myth because it was fundamen-tally illogical.

There is a basic contradiction between democracy and free market. Democracy gives equal rights to each person while markets give weightage to the rich people. Hence democratic decisions usually subvert the logic of the market.

No wonder “Bad Samaritans” here recom-mended policies that actively seek to undermine democracy. They have promoted the concept of “minimal state”—reduction in the scope of government activity and depoliticisation of the economy by establishing politically independent policy agencies like an independent Central Bank, independent regulatory agencies and even independent tax office. These policies in fact amount to undermining democracy by dimini-shing the scope of democratic control.

In her powerful indictment of neo-liberal policy, comprehensively documented, Naomi Klein, the best selling author of No Logo, has shown how the radical advocates of capitalism sought to impose neo-liberal policies on the developing countries of the world by subverting democratic institutions and supporting authoritarian rulers and military dictators.3

The intellectual epicentre of radical capitalism and neo-liberal policies of marketisation, privatisation, deregulation, globalisation, based on free trade and free movement of capital and minimal state, was the Chicago School of Economics led by Milton Friedman. He formulated the theory that “crisis is the mother of change”, that is, crisis in any form—economic, political or military. Advocates of free market should not hesitate to create a crisis situation since it provides them with the opportunities to push through their neoliberal policies. The goal should be to see that “neo-liberalism” rules the world.

When a crisis situation arises anywhere in the world, the neo-liberaliser should push through a whole gamut of new-liberal policies at one go irrespective of the consequences on the well-being of the people. This came to be known as the “shock therapy” administered by the “Chicago Boys” in Chile and other Latin American countries as also in China, the “Berkley Boys” in Indonesia and the wonder boy of Harvard, Jeffrey Sachs, who administered it in Bolivia, Poland and Russia. The ruthlessness of the “shock therapy” is analogous to the electric shock treatment administered by the CIA to the detainees in the Guantnamo Bay and Abu Ghraib prisons to extract confessions and the “shock-and-awe strategy” the American Army used in their attack on Iraq. The idea is that the individual or the country at the receiving end should be completely benumbed, disoriented and lose the will and the capacity to resist.

Klein’s extensive documentation of the “economic shock therapy” should open the eyes of the “economic reformers” who indiscriminately support the neo-liberal policies. Like the Tsunami waves, the “neo-liberal policies” hit the fragile economies of Latin American and African countries as well as the economies of Russia and Poland shattered by the breakdown of communism leaving a trail of human distress and misery. In the somewhat different circumstances of China and South Africa the application of the neo-liberal policies had the same consequences, namely, gross inequality and human misery. In all these countries people were cowed down by authoritarian governments using ruthless power to crush resistance.

IMF and World Bank

THE IMF and World Bank were at the forefront in thrusting the neo-liberal agenda on the developing countries approaching them for help in times of financial need. After World War II these institutions were set up for a specific purpose—the World Bank to provide investment funds for long term economic development and the IMF to provide short term funds to fill in temporary gaps in the balance of payment. After Ronald Reagon took over as the US President, he, supported by Margaret Thatcher who took over as the conser-vative Prime Minister in Britain, totally changed the mission and role of these institutions. They were now to spread the free market economy in every part of the world. Every assistance would have on it attached ‘conditionality’ in the shape of the Structural Adjustment Programme (SAP) which was indiscriminately insisted upon irres-pective of different situations. “One-size-fits-all” became the rule. The disciples of the “Chicago School”, who held commanding positions in those institutions, spread the gospel of “market fundamentalism” through the SAP—cut public expenditure, eliminate all subsidies, privatise all public enterprises and services, deregulate the economy, remove or drastically reduce tarrifs, open the economy for foreign investment in all forms and make the currency convertible on capital account.

Britain

MARGARET THATCHER set the example of “conservative radicalism” (another name for neo-liberalisation) by using the “crisis situation” created by the entirely avoidable war with Argentina on the issue of control over the Falklands Island. By winning the war, she stirred up the suppressed jingoistic imperial frenzy of her people which enabled her to boost her sagging popularity. She then went ahead full steam with her programme of breaking the strength of the trade unions, dismantling the welfare state and privatising the enterprises nationalised by the Labour Government which came to power after World War II, namely, British Railway, British Telecom, British Gas, British Airways). For achieving these ends she did not hesitate to use force to put down resistance in a manner entirely inconsistent with the tenor of British democracy at home.

Chile and other Latin American Countries

MARGARET THATCHER had derived inspiration from General Augusto Pinochet of Chile. On September 11, 1973 in a bloody coup d’etat he overturned the rule of democratically elected and popular socialistically inclined President Salvador Allende. The Army attacked the Presidential Palace and killed the President. Thousands of citizens were arrested. People were terrified. The peaceful socialist revolution ended. Next day the “Chicago Boys” transmitted by wire “The Brick”, a plan for “liberalisation” of the economy to be executed by the military junta. According to Orindeo Letlier, a Chilean leader in exile, Milton Friedman shared responsibility for Pinochet’s crimes. As per the enforced plan, borders were flung open to foreign imports pulling down barriers that had protected Chilean manufactures. Government spending, except on military, was cut completely. Price controls were eliminated on all commodities, including bread and cooking oil. Inflation reached 375 per cent. The common people suffered because much of the family income was spent just on buying bread. Foreign companies made a killing on speculations. In March 1975, Miton Friedman and Arnold Harberger of Chicago University flew to Santiago to offer advice. They recommended further “shock treatment”. The Chicago Boys were appointed to head the Central Bank and other government departments. Four hundred state owned companies were privatised. The shock treatment led to the contraction of the economy by 15 per cent. The unemployment rate rose from three to 20 per cent. The social security system was privatised. Public schools were replaced by vouchers and chartered schools. Billions of dollars were taken from the pockets of wage earners and placed in the hands of capitalists and landowners. The middle class was wiped out. By 1982, with hyperinflation, unemployment and exploding debt, Pinochet was forced to make a radical course correction.

Following Chilie, the Chicago School’s counter-revolution quickly spread to Brazil which was already under a US supported military junta and several of Friedman’s Brazilian students held key positions there. Friedman travelled to Brazil in 1973 and declared the economic experiment there a miracle.

In Uruguay the military staged a coup in 1973 and decided to go the Chicago route. The effects on Uruguay’s previously egalitarian system were immediately visible. Real wages dropped by 28 per cent.

In 1976 the junta seized power in Argentina from Isabel Peron. The Chicago Boys landed in key positions in Argentina. Argentina became a hospitable place for multinationals. Strikes were banned, workers could be fired at will. Price control was lifted and that sent the cost of food soaring. Wages lost 40 per cent of value. Those who resisted the reforms “disappeared”.

Argentina, Brazil, Uruguay and Chile are the four states in Latin America’s ”Southern Cone” which were show-cases of development. The UN Economic Commission for Latin America, based in Santiago and headed by economist Rault Prebisch from 1950 to 1963, has trained economists in development theory. They were working as policy-advisers to these countries. They began to look like developed countries of Europe and North America than parts of the Third World. Uruguay had a literacy rate of 95 per cent and offered health care to all citizens. Developmentlism was a success. Latin America’s “Southern Cone” became a symbol for poor countries around the world. The US multinationals in these countries were required to redistribute their wealth through corporate taxes and workers salaries. In the sixties and seventies the Left was the dominant culture of Latin America nurtured by the poetry of Pablo Neuida and the folk music of Victor Jara.

All this changed during junta rule. They became laboratories of the Chicago experiment. In all these countries terror was the central tool of free-market transformation. American multinational companies supported the terror apparatus.

The CIA provided training to the Argentinians, Brazilians and the Uruguay Police in interrogation techniques according to the CIA manual. As many as 150,000 citizens, including social and community workers, went through the torture machines, many died. This was the Chicago School model of neo-liberalisation.

Bolivia

FOR 21 years till 1985 Bolivia had been living under some form of dictatorship. In 1984 the Ronald Reagan Administration funded an unprecedented attack on its coco farmers. This cut the source of half of the country’s export revenue, triggering an economic meltdown. Inflation went up to 1400 per cent. It was in these circumstances that Bolivia entered into the 1985 historic elections. Jeffrey Sachs, then at Harvard University, claimed that he could turn around the inflationary crisis in a day. He was invited to develop an anti-inflation economic plan, Sachs advised “sudden shock therapy” to cure the hyper-inflation crisis. Gonzalo Sanchers de Lozada (known in Bolivia as Goni), who had studied at the University of Chicago, shaped the bipartisan economic plan prepared according to Sachs’s therapy Bolivia’s entire state-centred economic model was to be dismantled; food subsidies were to be eliminated; price control cancelled; government spending drastically cut. As a result of the shock therapy, a small elite grew far wealthier, while a large portion of the working class was discarded from the economy altogether. Full-time jobs were eliminated. Thousands of kids were undernourished. Families were forced to live in tents. When there were demonstrations against these economic measures and labour leaders went on hunger strike, quasi-fascist measures were used to force the plan.

Post-dictatorship Latin America

THE Argentinian junta collapsed in 1983 after the Falklands war. Raul Alfonsin was elected as the new President. Washington insisted that the new government should pay off the debt amassed by the Generals to fight the war—$ 456 billion to the IMF, US Import-Export Bank and private banks. In Uruguay, the junta had left a debt of $ 5 billion for a population of three million. In Brazil the junta, which had seized power on 1964 promising financial order, took the debt from $ 3 billion to $ 103 billion in 1985. In these countries, as in Chilie, the money borrowed by the Generals went into military spending as also in boosting corruption. General Pinoctet had 125 secret foreign bank accounts. The US Government gave approval of these loans to the corrupt military regimes. The dramatic increase in interest rates by the US (Voleker Shock) increased the debt burden. The fall in prices of export commodities like coffee, coco and tin devastated the economies of these countries. Added to this was the currency shock by speculative transfer of funds. In the dire financial position in which they found themselves, the Latin American countries had to accept the SAP of the IMF and World Bank dominated by the Chicago Boys (Bad Samaritans)—privatisation, deregulation and drastic cut in public expenditure.

The hyper-inflation crisis forced out President Alfonsin of Argentina. He was replaced by Carlos Menem, a Peronist. However, he came under the influence of the Chicago Boys who were given top economic posts. In the early nineties, Argentina rapidly sold off the riches of the country: 90 per cent of all state enterprises were sold to private companies—Citi Bank, Bank Boston etc.—after firing workers. In the crisis created by hyper-inflation, Menem made drastic changes relating to privatisation, deregulation and opening the economy. Cheap imported goods flooded the country, jobs were lost and people were pushed below the poverty line.

Poland

THE same doctor, Jeffrey Sachs, who administered “shock treatment” which caused acute distress to Bolivia, was also invited after the collapse of communism to deal with the economic crises situation in Poland and Russia where he gave the same treatment with the same consequences.

In Poland the widespread “Solidarity” labour movement led by Lech Walesa forced the well-entrenched communist regime to slowly liberalise. Thanks to Gorbachev, the President of the USSR, elections were held bringing the Solidarity to power. But Solidarity leaders could not fulfil the promise of workers’ cooperatives or councils replacing the communist oligarghy in running the enterprises. Instead Jeffrey Sachs forced them to accept free-market capitalist economy as a condition of getting the IMF loan which was badly needed to prevent economic catastrophe. Sachs claimed that he was the first to write down a comprehensive plan for the transformation of a socialist economy to a market economy. His plan included privati-sation of state industry, a convertible currency, shift from heavy industry to consumer products, creation of stock exchange and capital market, and steep budget cuts—all at once. The consequences—soaring prices, rising unemployment, deeper debts, deindustrialisation and poverty—forced the Solidarity to give up the “reforms” halfway and later give up power as well when in the 1993 elections the Left parties, including former Communists, won 46 per cent of the seats in parliament, a resounding rejection of shock therapy.

Russia

WINDS of change started blowing over the Soviet Union with Gorbachev’s programme of “glasnost” (open society) and perestroika (economic reconstruction). Gorbachev was thinking of replacing the centrally planned socialist economy with some sort of socially oriented market economy on the Seandinavian model. But the Western leaders let him down. The IMF refused to provide the support which he needed for reconstruction of the economy. This rebuff to his efforts weakened his position. The old-guard Communist leaders, who were suspicious of his reforms staged a coup. At that moment of crisis, Yeltsin, the head of the Russian Federation, a constituent of the Soviet Union, successfully challenged the coup leaders and the coup fizzled out. Gorbachev temporarily returned as the President of the Soviet Union. But political power had passed on to Yeltsin after the triumphant showdown. Yeltsin managed to dissolve the Union itself making Gorbachev’s position untenable. He had to resign. Yeltsin become the powerful head of the Russian Federation. He was determined to dismantle the communist economic system. He invited the aid economist, Jeffrey Sachs, who again recommended the “shock therapy” and promised to arrange aid from the IMF and World Bank. But Sachs could not keep his word. In the meanwhile to implement the “shock therapy”, Yeltsin made parliament give him a free hand, absolute power to reform the economy. But “shock therapy” caused havoc ushering in “gangster capitalism” or “casino capitalism” under which upstart oligarchs seized control over national and public enterprises which were sold even without tenders at throwaway prices. The immense public wealth built during the Soviet era was simply frittered away. Yeltsin appointed Yegor Gaider and his associates to implement the “Chicago School programme” of privatisation and liberalisation. They brought about sudden changes to make resistance impossible. In the very first phase of rapid privatisation, 22,500 state enterprises were privatised. Price controls were lifted. The communist state became a corporation state. The new oligarchs teamed with Yelstsin’s Chicago Boys and stripped the country of everything of value in Russia. Public riches were auctioned off for a fraction of their worth. An oil company of the size of France’s total public ownership was sold for $ 88 million. Norsik nickel, which produced a fifth of nickel of the world, was sold for paltry $ 170 million. This was not all. There was massive corruption. Yeltsin’s Ministers transferred large sums of public funds to private bank accounts abroad. The Harvard Professors invited as consultants were discovered profiting from the free market which they were supposed to help create. They exemplified greed which was supposed to be the engine for rebuilding the Russian economy. Oligarchs became billionaires shamelessly flaunting their affluence while the people suffered because of loss of jobs and means of living. There was further collateral damage from the shock therapy. By 1998 more than 80 per cent of Russian farms had gone bankrupt and 70,000 state factories closed creating an epidemic of unemployment. A third of the population fell below the poverty line. There was a dramatic decline in Russia’s population. Still sound “reformers” like Yegor Gaider and Chubaish pressed on with the so-called reforms. Yeltsin’s own family prospered through this plunder of public wealth. Naturally there was widespread resistance. Parliament tried to curb the absolute power given to Yeltsin to enable him for a year to deal with the economic crisis. Yelstin’s answer was to render it impotent and abolish the Constitution. Parliament almost unanimously decided to impeach President Yeltsin who sent the Army to encircle Parliament. In the military assault 500 people lost their lives. He held fresh elections and won but his time was over. He handed over power to Putin, his chosen successor and an old KG hand, on the condition of being given legal amnesty from all punishment because of his misdeeds. Putin retained the change towards free capitalist economy but took punitive action against the oligarchs found to be indulging in economic misdeeds.

China

WHEN Mao Zedong, the founding father of Communist China died, Deng Xiaopeng, whom Mao had exiled during his disastrous “cultural revolution”, managed to succeed him as the head of the Communist Party. He was determined to change the communist system of social ownership of all the means of production and central planning in favour of a capitalist, corporate, market economy, yet firmy holding the reins of power in the Communist Party under his leadership. He invited Milton Friedmen in 1980 to China to tutor hundreds of top-level civil servants and party economists in the fundamentals of free market economy. Under his guidance was started the programmes of privatisation of public enterprises and opening up the economy for foreign investment. He also removed price controls and allowed the market economy to function. The change gave a tremendous boost to China’s economy. For years China had a steady economic growth rate near or above 10 per cent. The public enterprises under the Communist Party were mainly taken over by the party functionaries whose families enormously benefited. Land was taken over for infrastructure development without paying compensation and little care was taken for rehabilitation of the uprooted people. There was forced migration from the rural areas to provide labour power for enterprises in the urban areas and “special economic zones”, a Chinese innovation. China become the “sweat shop” of the world. Every multinational located their contract factories in China.

Job security was eliminated creating waves of unemployment. On the other hand party officials fattened themselves turning into business tycoons taking illegal possession of public assets. Competition and nepotism spread in the party’s layers. Yet visiting Shanghai in 1988, Friendman and his wife were so dazzled that they said that mainland China was looking like Hong Kong. However, in the face of lowering wages, rising prices and unemployment due to layoffs, protests spanned in the whole range of Chinese society. Billionaires flaunted their wealth while the common people suffered. There was rising employment and no safety for mine workers who died in large numbers in accidents.

The countryside was denuded of natural resources while the urban areas and rivers were polluted. Rising inequalities and widespread dissatisfaction amongst the common people posed a real threat to the future of the Chinese economy.

Student leaders held public demonstrations at the Tiananmen Square demanding democratic freedom. But Deng was not ready to grant such freedom. He harshly put down the student demonstrations with the brutal use of force by the Red Army. People’s Liberation Army indiscri-minately fired on the crowd and thousands died and were injured. The students’ revolt was crushed. This gave full freedom to Deng to go ahead speedily with the “economic reforms”. He became China’s General Pinochet.

Asian Countries

AFTER India, Indonesia was the next big country to attain independence. Soekarno, the nationlist leader, became the first President. He sent out foreign companies and nationalised the natural resources of the country. This was not to the liking of the US and their associate capitalist countries and their multinationals. They were determined to end Soekarno’s rule. They hatched a plot to unseat Soekarno with the help of General Suharto in 1965. The General unseated Soekarno and seized power and remained the undisputed leader for several years. He parcelled out the immense natural resources of the country, including oil, to multinational companies of several ex-imperial powers and in that his family had a big slice. The people greatly suffered when Suharto fully implemented the neo-liberal economic reforms under the guidance of the “Berkley Boys”, that is, economists of Berkley University. Prices rose, so did unemployment and the standard of living of the common people went down. But there could be no resistance because people were terrorised by brutal and indiscriminate massacre and oppression by the Army in which a million people lost their lives. The entire Indonesian Left was annihilated.

Ultimately the long suffering people revolted and the dictator had to give way to elected governments. But the dictator, in spite of all his proverbal corruption and brutality, was left scot-free and died at a ripe old age.

Asian Meltdown, 1997

SOUTH KOREA, Thailand, Taiwan, Malaysia were all applauded by the World Bank and IMF as “Asian dragons” which thrived because of their free economies and booming export factories. But they all came in the grip of an economic crisis which none of the “experts” of the IMF had anticipated. The crisis, dubbed as the “Asian Flu”, was caused by a sudden outflow of hot money facilitated by the capital account convertability of their currencies. A huge sum of $ 600 billion disappeared from the stock market of Asia. Families saw their savings disappear. Thousand of small businesses were shut down. There was a wave of suicides. Once the crisis came upon these countries, the IMF started attributing it to their “crony capitalism”, that is, rampant nepotism, favouritism and corruption in their banks and business houses. When these countries (except Malaysia) approached the IMF and World Bank to salvage the situation, they refused any bailout, asserted that the market show be left to correct itself and imposed uncom-promisingly the SAP, that is, huge deep budget cuts and low social spending, lay off of public sector workers, privatisation of basic services and removal of all restrictions on trade and investment. A huge privatisation programme had to be taken up under which several public and major enterprises went into the hands of the multinational companies. Local brands were placed by multinationals. Klein described it as a veritable “Asia loot”. The Korean Samsung was broken up and sold in parts. Volvo got heavy industry division, SC Johnson and Son the pharmaceutical division and GE the lighting division. Daewoo’s car division, valued at $ 6 billion, was sold to GM, for just $ 400 million. Local firms were wiped out by multinationals. Several South Korean banks were privatised. The adoption of these measures under compulsion was looked upon as loss of economic sovereignty and national humiliation. The SAP turned the crisis into a catastrophe. As per the ILO, 24 million people lost their jobs, unemployment soared. The ideology of unfettered capitalism, advocated by the IMF and World Bank, were held responsible for the fate that fell upon the Asian countries.

South Africa

AFTER 27 years in jail in the Robben Island, Nelson Mandela was released on February 11, 1990. The apartheid regime preferred to negotiate with him for the transfer of power bowing to the relentless pressure of the outside world. The negotiatons led to the transfer of political power to the Black majority. Mandela became the first President after the transfer of power. But the transfer of political power remained illusory because, under the terms of negotiations, the economy was manoeuvred by the Whites, economic power firmly remained in the hands of the White minority. Emancipation of the Blacks was born in chains. The Central Bank became independent and the former White Minister remained as the Finance Minister, and he in the name of fiscal discipline tightly controlled the purse and made little provision for the welfare programmes. The National Freedom Charter of the ANC, drafted before the end of apartheid, under which land had to be redistributed so that the Blacks could became owners of land, remained on paper, 10 per cent Whites continued to own 70 per cent. Houses had to be built for the poor and enterprises like gold mines had to be nationalised. None of these programmes could be implemented as per the terms of the negotiated agreement. The poor Africans remained poor in their slums while the Whites lived in splendour in their fabulous mansions with Black servants working for them. South Africa remains an extremely unequal society. President Mandela and Thabo Mbeki failed to fulfil the programmes of the ANC for the Black people.

Both Madela and Mbekei thought, after they assumed political power, that the ANC Charter of Freedom must be surrendered at the altar of the market economy. After a series of secret meetings with White corporate executives, the neo-liberal shock reforms were introduced in South Africa—more privatisation, cut-back in government spending and labour “flexibility”. Mbeki started calling himself a Margaret Thatcher! But his announcement of the new programmes failed to attract long term investment. His government failed to give compensation to apartheid victims and their families in the name of “truth and forgiveness”. On the other hand, his government continued to pay the debts incurred by the previous apartheid regime which took away all funds that could have been used for the welfare of the people. Since 1994, the year the ANC took power, the number of people living on less than a dollar a day has risen from two million to four million in 2006. The unemployment rate for Blacks has doubled from 23 to 48 per cent. One million Black people have been evicted from farms and two million lost their houses. The number of shanty dwellers has grown by 50 per cent. The promises of freedom were betrayed.

Conclusion

THE entire thirty-year history of the Chicago School experiment has been one of collusion between authoritarian states and large corporations and massive corruption. The history of neo-liberalism has been a “second colonial pillage”. The IMF and World Bank were a party to this after they betrayed their original objectives and became a tool of the Washington Consensus.

US’ Disaster Capitalism

EVER since Ronald Reagan of the Republican Party was elected the President of the US, an extremely conservative economic ideology advocating unbridled capitalism and free market, as preached by Milton Friedman and his Chicago School, has become the ruling economic ideology of the USA, going by the name of “Washington Consensus”. Under the Presidency of George Bush (Junior), it has reached its acme. This was manifested in the privatisation of even “core” functions of government, maximum deregulation, cut in expenditure on people’s welfare programmes and promotion of neo-liberal policies all over the world.

The prolonged Iraq war from 2003 till date is an example of the extreme ideology. Defence Secretary Donald Rumsfield brought the corporates into the heart of the US military. Logistic functions relating to the war were handed over to private companies like Halliburton with which Vice-President Cheney has been intimately connected. Health care and housing for soldiers were privatised. All the security functions were discharged by Blackwater including the security the US military base and its seat of governance (Paul Bremmer’s Green Zone area). Of course, production and supply of weapons and material were all handled by private companies. The contracts for Iraq oil exploitation were prepared by private firms. The selected contractors, whether for oil exploitation or constru-ction in infrastructure projects, sub-contracted, since they themselves had no operational base. The local Iraqi public sector enterprises were left-outs, so were the local professionals. The Defence Minister, Donald Rumsfeld, was a strong advocate of this approach of slim military, supported by a huge network of corporations. Billions of dollars spent on the Iraq War want to the coffers of these private corporations.

The Department of Homeland Security, set up after 9/11, handed over $ 130 billion to private contractors to develop and install detection equipment and cameras against unproven threats. The war on terror, an un-winnable proposition, has become a permanent fixture of the global economic architecture. In the name of security. The Bush Administration fulfilled the corporate mission of merging political and corporate interests.

The same approach was adopted in dealing with the calamity of Hurricane Katrina which hit New Orleans in September 2005. The poor people were left homeless as their public housing was washed away. So were the public schools where their children studied. Milton Friedman saw in this the opportunity for privatisation of housing and schooling system. Here again the private contractors failed in housing the poor. The poor were provided with vouchers to be paid to the owners of the private schools which had a good business opportunity to make money. The money-making got the better of the provision of public services like education and health to the poor. No wonder the New Orleans rehabilitation programmes did no good to the poor.

The Iraq war and Hurricane Katrina, both “disasters”, have been good opportunities to corporate business for making money.

Israel, the mini-USA in the Middle East, has discovered that “perpetual” war with Arabs, whether in Palestine or in Lebanon, is conducive to its dynamic economy. The rise of insecurity the world over has been an opportunity for Israel to develop the “security industry” in a big way. This is what Klein calls the “Disaster Capitalism” of today.

IV

Revolt Against Neo-Liberalisation

THE theory, rather myth, of neo-liberalisation that the market is always efficient and right and public service is always inefficient and public intervention and regulation always wrong has not worked well in reality. In fact, it has proved a disaster to the well-being of the common people who have not benefited from the so-called “trickle-down effect”. As this realisation has grown, a reaction against neo-liberalism has set in.

(a) Latin America—Country after country has thrown out military rulers and their neo-liberal 7“democratic” successors. They have elected Left-of-Centre governments: Hugo Chavez in Venezuela, Lula de Silva in Brazil, Rafael Corera in Equador, Krichner in Argentina, Michelle Bachlet in Chile and Evo Morales in Bolivia. (1) They have renationalised the ownership and management of natural resources for their use for public benefit and public service. In Venezuela Chavez gave top priority to cooperative enterprise by offering incentives. By 2006, there were 100,000 coops in the country employing more than 700,000 workers. (2) They have started social welfare programmes discontinued during the military regimes and their neo-liberal successors. (3) They have asserted their economic sovereignty and refused to go to the IMF and World Bank for assistance, since they are no longer willing to accept their conditionalities. As a result the business of both these institutions has diminished. They don’t want to listen any longer to their “expert advice” of “shock therapy”. In 2005, Latin American countries accounted for 80 per cent of the IMF’s lending portfolio. In 2007 it was reduced to one per cent. The IMF’s worldwide lending portfolio has fallen from $ 81 to $ 15 - $ 11.8. It has become a pariah and has started withering away. (4) They have countered US domination by building “regional organisation” of Latin American countries. Under the auspices of the organisation there is a barter between the health services provided by Cuba and petrol supplied by Venezuela. Such barter exchanges have been found to be of mutual advantage.

(b) Russia—Under Putin, Russia is trying to build its own strength and is no longer prepared to go down before the US. Well-connected businessmen like Mikhail Khodorovsky, former head of the oil giant Yukos, and Boris Berezovsky, who made billions from privatisation, are either in jail or in exile.

(c) China—Growing inequality, rural-urban divide, environmental pollution and rural revolts have created challenges before the communist regime. The recent incident of contaminated milk has exposed the weaknesses of the regulatory regime of China. Hereafter party authoritarianism would not work. The Chinese Communist rule will have to respond to the woes of the common people. There were 87,000 protests in China in 2005 involving four million workers and peasants.

(d) South Africa—The Mbeki Government did little for the common Black people. Unrest amongst them has grown. His recent unseating is indication of the winds of change blowing over South Africa.

(e) The USA itself has not escaped the reality. Enron’s Ken Lay was convicted of financial conspiracies and died in jail. The recent “financial meltdown” has thoroughly exposed the hollowness of unbridled capitalism. Major companies, like Fanni Mae and Freddy Mac, and AIG, had to be nationalised. Some others, like Lehman Brothers, faced bankruptcy. Nam Klenri has described the public takeover of financial institutions as “socialism for the rich” while capitalism has been for the poor to rob them of their savings, houses and jobs. These financial disasters have shown that market is not always right and public regulation is not redundant. Unbridled capitalism can lead to disaster.

REFERENCES

1. The Economics of Innocent Fraud by John Kenneth Galbraith, Houghton Milfni Company, Boston, New York, 2004.

2. Bad Samaritans—The Guilty Secrets of Rich Nations and the Threats to Global Prosperity by Ha-Joon Chay, published by Random House Business Books 2008, pages 276, price: $ 8.99.
3. The Shock Doctrine—The Rise of Disaster Capitalism, Allen Lane, 2007, pages 558, price: £12.99.

Dr P.R. Dubhashi is the former Vice-Chanceller, Goa University, and an erstwhile Secretary, Government of India. He can be contacted at e-mail: dubhashi@giaspn1.vsnl.net.in

ISSN : 0542-1462 / RNI No. : 7064/62