Neo-Liberalism . . .

Russ Kleinbach, Ph.D. Philadelphia University,
Presented at The University Conference,
The American University in Kyrgyzstan,
May 30, 1999

Sustainable development emerged from international organizational efforts to address long range world ecological concerns, but is also concerned with sustainable economic processes. Neo-liberalism emerged with the debt crises in developing countries. Both sustainable development and neo-liberalism developed in the 1980’s. This paper will first attempt to briefly define the characteristics of each. Secondly, it will identify areas of conflict between the two. A thesis of this paper is that the goals and processes necessary for sustainable development are often in conflict with those of neo-liberal restructuring programs and reforms. It is also the value position of this paper that sustainable development should be given priority over neo-liberal reforms when there is a conflict between the two.[i]

1. Sustainable development is development which meets the human and environmental needs of the present and improves the quality of life, without compromising the ability of future generations to meet their own needs.[ii]

2. There are many models of sustainable development since each region must deal with different problems but all people must consider the environment a valuable, finite resource in itself.

3. It cannot be assumed that sustainable development (SD) problems will be solved quickly through the transfer of finance, technology and experience from developed countries, nor can SD be equated with or driven by economic development or measured by growth in GNP.[iii]

1. People-centered initiatives are needed because human beings, who live in communities, are the primary resource in sustainable development.

2. Help for the very poor should include employment, education, health care, clean water and shelter for all. Perhaps 1.3 billion live in absolute poverty caused primarily not by over-population, lack of technology or lack of food but by inequality. Currently around 20% of the world’s population consumes 70% of it material resources.[iv]

3. Economic and political systems that secure effective citizen participation in decision making, and are flexible with the capacity for self-correction. Participation is key to empowerment. Empowerment breeds self-reliance, and self-reliance means more effective action. [v]

4. Population planning based on development, i.e., adequate employment, living wages, literacy, adequate health care, contraception and social services, and male-female equality together are necessary for reducing population growth rates.

5. Self-reliant development, especially of food and basic necessities within natural resource constraints. “Self-reliance” is good because it prevents “dependence” and thus helps ensure equality, democracy and accountability. Self-reliant economies consume fewer resources and create less pollution in the transport of goods.

6. National Investment balanced in these areas, 1) human Resources, e.g., schools, hospitals, libraries, 2) infrastructure, e.g., rail roads, electricity, water treatment, and 3) production structures and facilities, e.g., factories. The first two areas will be mostly public funding.

7. Savings and investment policies and agencies based primarily on national and regional saving and funding. Consistent with the general goal of self-reliance, interest from loans is recycled through the local economy and dependence on external economic forces is reduced.[vi] “Debt servicing accounts for 20% of Africa’s export income.”[vii] International debt, which must be repaid in dollars, is particularly harmful for countries like Kyrgyzstan where the domestic inflation rate (1998 = 18%)[viii] is much lower than the loss of value of the local currency in relation to the dollar (nearly 100% in last 10 months).

8. Appropriate and cost-effective technologies, i.e., technology that does not degrade the environmental quality, does not reduce productivity in the long run, and does not develop structured economic or technological dependence on other regions.

9. Regulated local markets and international trade that encourage regional self-reliant development, and equality of standards of living within and among nations.[ix]

10. Agricultural and industrial development, and urban building that are planned and regulated in such a way that resources such as fuels, water and soils are used with the greatest efficiency, that the by-products of these activities such as waste and pollution are kept to a minimum and that irreparable damage to the environment is not done.

11. A ‘polluter pays principle.’ International agreements and national policies that require that the external costs of production, which are often spatially and temporally removed from the production site, are borne by those who receive the benefits.[x]

13. Rule of law, and honesty are the norm for economic, political and social relations. Bribery and corruption are discourage by the cultural values and prosecuted with due process by the courts.

14. Foreign aid for sustainable development should be non-commercial from the point of view of the donor. Secondly it should have interest and repayment terms that are less stringent than those of the commercial world. Thirdly, it should not be linked to “neo-liberal reforms.”

15. Non-Governmental Organizations which organize popular participation in development actions, decision making, and advising and lobbying governments.

16. Conversion of significant amounts of military spending to development funding.

17. Technical, economic, political and social information necessary for sustainable development should be publicly, non-commercially and internationally shared.[xi]

5. Sustainable development requires “Freedom of Movement” between nations be as “free” for labor, i.e., workers as it is for capital and commercial goods.

6. Sustainable development requires relative equality within a nation and between regions.

- Where significant inequalities exist the very powerful exploit and consume resources beyond sustainable levels (e.g., automobile use of resources and production of pollution), and the very powerless exploit the limited resources to which they have access beyond sustainable limits (e.g., the destruction of forests and endangered species for heat and food) In both cases there is unsustainable use of resources. Inequality is a greater threat to sustainable development than population growth itself.

- Where there is significant inequality there will eventually be dominance and exploitation of the weak by the more powerful which will lead to civil and political conflict.

1. Neo-liberalism is the name often given to the political-economic restructuring or reform program proposed for developing countries by developed country economists, the IMF and the World Bank in the last 15-20 years. Neo-liberal reforms are often called “structural adjustment programs.”

2. The “liberalism” comes from the 18th & 19th century liberal movements for individual freedom from restrictions by the state regarding individual human, civil and property rights. Neo-liberalism extends these individual rights to corporations and banks,[xiii] and moves the rights of property from the status of a social right to that of a fundamental right. The result is that neo-liberalism treats a transnational bank or corporation as equal to a small farmer in Kyrgyzstan. The policy treats the social property rights of the international banks as equal to the fundamental human rights of peasants and workers in developing countries.[xiv] In one significant way neo-liberalism gives significantly more freedom to the corporations, i.e., neo-liberalism internationalizes and extends the freedom of movement across borders to corporations (including their finances and commodities), but it does not extend these freedoms to working people.

3. The background for neo-liberalism is that in the 1970’s and 80’s, the international banks loaned billions of dollars to developing countries. The money was to be spent for economic development. Some money was invested wisely, some was not and some was lost to corruption.[xv] Many of these countries increased the export of raw materials or raw agricultural products at low prices to pay the interest on these loans. They also began to buy finished products from developed countries at high prices using borrowed money. With the increased energy costs and the world recession of the early 1980’s many of these countries could not pay the interest or principal on their loans, or they were paying so large portion of the profits they earned from their exports just to pay the interest on their loans that they had little left for development. Often they had to make new loans just to pay the interest on old loans. This is a common result when poor developing nations become dependent and indebted to the financial centers of developed countries. They then often turn to the International Monetary Fund (IMF) and the World Bank for assistance.[xvi] The IMF and the World Bank often demand the implementation of “Neo-liberal Reforms” before they will grant assistance and further loans.

Privatization: This is the selling or giving of publicly owned resources, businesses and services to private, for-profit capitalist enterprises. These resources include (1) natural resources such as gold, forests and farmland, (2) businesses such as collective farms, textile mills and auto or tractor factories, and (3) services such as universities, electric companies and hospitals. This also means the decrease of national public investment in infrastructure and human development.

Free Markets: This includes allowing the global market to set the price of all commodities -- including labor, food, clothing, housing, industrial machines, oil and electricity, as well as luxuries such as jewelry and luxury autos. It also means the free flow of goods and capital (but not labor, i.e., working people) across national borders.

De-regulation: This means a decrease in laws governing many things; these include wages &, safe-working conditions, protection of the environment & prices of products, tariffs which protect young industries, and quality control and safety features of products. [xvii]

Austerity: This includes the reduction of public spending on services such as education, health care and public employment, on public structures such as water and heating systems, on railroads, trolleys, parks, & museums, and on pubic investment in university research for industry and agriculture.

Comparative advantage: It means that countries or regions should specialize in those products and services for which they have a comparative advantage in the global market. For example, Kyrgyzstan should export raw cotton and tobacco, and Japan should make finished clothes and computers for export. This means a shift away from countries and regions developing self-reliance in terms of basic necessities.

4. Shrinking of the welfare state.
These first four conflict with increased equality needed for sustainable development.

5. Decrease in national economic development planning.
This conflicts with national/regional planning for such things as environmental protection, appropriate technology & domestic credit agencies needed for sustainable development.

6. Decrease in public investment in infrastructure & human development.
This conflicts with equitable investment in infrastructure & human development, as well as economic development.

7. Increase in the Gross National Product (GNP).
This is good if in the context of increased equality and of meeting needs for human development.

8. Increase in developing country debt and dependency on the developed countries. This conflicts with national and regional self-reliance needed for sustainable development.

-- Regionalization over Globalization
-- Self-Reliance over Comparative Advantage
- Regulated Regional Cooperation over Global Market Competition
-- Human Development and Equality over Economic Growth
-- National/Local Savings & Credit over International Loans

And that we put
-- Sustainable Use Limits on Exploitation of Resources
-- Local Ownership, Decentralization & Democratic Management
Guidelines on Privatization

1. A shift from international loans to local credit associations and national savings banks. Kyrgyzstan now has approximately a $1 billion dollar foreign debt costing approximately $60 million/year. This is wealth leaving the country, and it is in dollars at an inflated rate of exchange much higher than domestic inflation.[xviii]

2. Regulation of the national privatization program so that ownership of what is sold is decentralized, ownership is local or regional, and businesses are democratically operated.

3. Establishing and enforcing a progressive tax system and a minimum wage that is a living wage.

4. Cleaning up of the corruption at all levels, from the central government to buying grades in universities.

5. The maintaining of universal public access to essential services of health care and education (including university).

6. A focus on regional economic development and cooperation – Cooperative and preferential political-economic relations with Kazakstan, Tajikistan and Uzbekistan should have priority over economic relations with WTO, IMF, the European Union and the United States.

7. Making regional self-reliant production and distribution of essential foods, clothing, housing, and energy products a priority.

8. Shifting the focus away from enterprise zones where there is foreign ownership and the use of local labor to produce profits and products for export, unless the industries in the zones are regionally owned and the profits as well as the workers’ salaries fuel the local economy.

9. Being careful to measure development success in terms of “equality” and “rising standards of living” for the poorest of the region’s population, as well as growth in the GNP.

[i] The defining characteristics of capitalism, such as the private ownership of resources, the need to maximize profits, and the competition within a free-market economy often leads to exploitation of environmental resources without sufficient concern for the long-term conservation or the environmental impact of such activities. As more people and places become incorporated into the global market societies come under pressure to raise production and sell goods on the competitive market. The nature of these goods is dictated by overseas rather than local needs. The cumulative effect is substantial change in the ecology of regions. An Introduction to Sustainable Development. Jennifer A. Elliot, New York: Routledge, 1994, p. 28.

[ii] World Commission on Environment and Development, Brundtland Report, 1987. Out of concern for the environment, non-human life, and future generations, our use of resources and creation of waste should be such that the resources we leave behind are as great as those we found, and the waste we create is all recycled and digested by the environment.

[iv] By the end of the 1970s, nearly 40 % of the population of the developing countries lived in ‘absolute poverty’ defined in terms of income levels that were insufficient to provide adequate nutrition. These poorest people are resident largely in the world’s environmentally most fragile areas. An Introduction to Sustainable Development. p. 20-21. “From 1990 to 1995, the 33 African countries officially classified as heavily-indebted and poor experienced forest loss 50% greater than that in better-off countries. Those 33 countries' forest loss was 140% greater than the world average during the same period.” Africa: Debt Cancellation Testimony before Congress, April 13, 1999, by Njoki Njoroge Njehu, Director 50 Years Is Enough: U.S. Network for Global Economic Justice

[v] Local authorities and communities themselves are best able to set priorities for and implement projects to affect the nature of much urban development. There is a need for the decentralization of power and resources from central government, the mobilization of municipal revenue through local sources with the active participation of private sector and community organizations, and an emphasis on enabling strategies targeted on the weakest sections of society. An Introduction to Sustainable Development. p. 101.

[vi] Suppose, for example, that every financial institution in the country had to place a percentage of its assets (maybe 5% raising to 10% over time) in a National Investment Fund. The money invested would pay less than market rate, though still a fair and safe return, e.g., inflation plus 1-2 percent. Individuals wanting to invest in this fund out of solidarity could buy “Investment Bonds,” the return could be higher, perhaps inflation plus 2-3%. The Fund would have a board of directors appointed by the government with the responsibility to allocate the funds according to regional priorities. “Notes on Labor at the End of the Century: Starting Over,” by Sam Gindin. Monthly Review, Vol. 49, July-August, 1997, pp. 154-155.

[vii] Africa: Debt Cancellation Testimony before Congress, April 13, 1999, by Njoki Njoroge Njehu, Director 50 Years Is Enough: U.S. Network for Global Economic Justice

[ix] Most developing economies will require governmental intervention in markets, including pricing policies. Farmers are unlikely to conserve resources if there are powerful economic incentives driving them in the other direction. Policies regarding exchange rates, food prices, subsidies and the activities of marketing boards all have an impact on the prices of agricultural goods to the consumer and the prices paid to the producer. An Introduction to Sustainable Development. p. 74.

[xi] See Article 21, Chapter 34 on “Technology Transfer,” Report Of The United Nations Conference On Environment And Development (Rio de Janeiro, 3-14 June 1992) for a detailed statement on the need for favourable access to and transfer of environmentally sound technologies to developing countries.

[xii] The basic outline of Neo-liberalism presented here is credited to “Report on Mexico,” in NACLA REPORT ON THE AMERICAS, Vol. XXX, No 4, p. 20 Jan/Feb, 1997. This outline is supported with material from many other sources.

[xiii] “Political rights belong to people, not to artificial legal entities. As instruments of public policy, corporations should obey the laws decided by the citizenry, not write those laws. Corporations’ claim to the same constitutional rights as natural born persons is a gross distortion of the concept of rights. . . . We must give high priority to legislative and judicial action aimed at establishing the legal principle that corporations are public bodies created to serve public needs and have only those privileges specifically extended to them by their charters or in law.” David C. Korten, When Corporations Rule the World. West Hartford, Connecticut: Kumarian Press, 1995, p. 308.

[xiv] Fundamental human rights, are those rights necessary for people to live democratically, i.e., a) freedom of conscience, speech, press, assembly, movement, b) the right to democratically elect one’s leaders and legislators, c) the right of due process, and d) positive right of access to the materials necessary to exercise these rights (food, housing, education, healthcare, etc). Social rights, are those rights a) which are sometimes useful, b) which can be regulated or limited, and c) are not necessary for a democratic society, e.g., rights of corporations, property rights to productive land, factories, or natural resources, regulation on trade and the use of property and natural resources & wild life, driver’s licenses, and licenses for professionals such as doctors, lawyers and teachers. See Robert A. Dahl, A Preface to Economic Democracy. Berkeley, CA: University of California Press, pp. 20-27. & 62-83.

[xv] Africa: Debt Cancellation Testimony before Congress, April 13, 1999, by Njoki Njoroge Njehu, Director 50 Years Is Enough: U.S. Network for Global Economic Justice

[xvi] Between 1970 and 1989, the external debt of the developing nations grew by 1800 per cent from US$68.4 billion to US$1,283 billion. Growing interest rates and the accumulation of debt from the previous decade combined to produce huge debt-servicing obligations for most developing countries. The implications include a need to increase short-term productivity by over exploiting natural resources, which in the long term raises the costs of correcting the environmental destruction and reduces the potential for sustainable development. In addition the austerity necessitated by debt servicing reduces governments capacity to deal with environmental protection and rehabilitation, and meeting the basic needs of the population. An Introduction to Sustainable Development. p. 54-55.

[xvii] World Trade Organization and World Bank operate as though all trade is good trade. Any obstacle to its expansion is considered harmful. The environment is viewed as a mass of raw materials to be processed and marketed, preferably through the international trading system, to increase GNP. Low environmental standards (natural resources, low wages, and plentiful land) are viewed as one element in a country’s comparative advantage to be exploited through trade. An Introduction to Sustainable Development. p. 52.