Neo- Liberalism Concept - Practices And Challenges Before The Arab World

Dr. Zohdi ElShamy*


Neo- Liberalism is considered the intellectual compass of the international and local policies of the Right that were imposed on the world's peoples in the last years. Such policies resulted in huge disasters and increasing poverty that still raise a lot of arguments.

Yet in the meantime, these policies are still a source of ambiguity to many segments of public opinion especially when confused with Liberalism in its classic sense. This article focuses on removing this ambiguity, determining the meaning of Liberalism from the conceptual and economic perspectives, the relationship between classic Liberalism and Neo - Liberalism and the differences between them, as well as the impact of Neo- Liberalism and the repercussions of its policies on the Third and Arab world.

First: Neo- Liberalism - Origins- Policies - Ascension

In the first half of last century (the Twentieth century), the traditional Liberalism faced main political challenges that announced its decline from the world conceptual hegemony. The Socialist Russian revolution that burst under the flare up of armed conflict between the major imperialistic powers in the First World war was the first challenge. The second challenge that accompanied the big recession in 1929 was the escalation of the intellectual power of the Keynesianism in the main capitalist countries which formulated the intellectual base of what was called "the Welfare State" that formed the ideal example to capitalist countries in the West during The post second world war period. As a result of the reaction between the two previously mentioned trends with the conditions of third world countries that obtained their independence, a wide trend of development theories to deal with conditions of economic and social backwardness, has emerged .These theories were far from the traditional liberalism theory that overpowered during the imperialistic period. Traditional liberalism proved its failure to offer a solution for the development problem, or overcome the imperialistic subordination. It as well, failed to understand the new social powers springing from and connected to the natural product of some ongoing industrialization processes at that time, nor the urbanization and the population momentum in addition to the expansion in modern education systems.
Under such circumstances, liberalism at the end of the second world war was not but a marginal economic trend that tries to gather its powers, and reformulate thesis by adapting to the changing economic and social reality of the mid- twentieth century world. While this process of reformulation and which was called Neo-liberalism,was applied, liberalism had to wait for thirty years to dress in its new outfit and jump once more to conceptual hegemony. It took advantage of the conditions of the general crises of the international capitalism system, represented in the fall down of Bretton Woods system in mid seventies.

Classic liberalism that goes back to Physiocrats and Adam Smith and extends to Bentham and Say, then the Austrian school of Individualism is that intellectual trend emerging from the necessity to avoid the interfering of the state in economy, advocating the free transactions, looking at the spontaneous capitalist market as being the only active organizer of economic transactions and the rational use of resources. The state should keep only the role of the protecting state.

The general methodological basis of different liberal trends is that of individualism. All different forms of social relationships of the individual are but a means to achieve his/her personal objectives. Hence, liberalism advocates the concept of the natural freedom of the individual and views the social phenomena as being an outcome of a strong independent individuality. Liberalism highlights that achieving the individual economic welfare will lead at the end to achieving the social welfare. These concepts were materialized in the well- known principle "let it work, let it pass". If the progressive role of liberal theories can not be denied during the formulation of the capitalist system as being an important tool in the conflict with the old feudal classes, one can say that liberalism is the best expression of the free competition capitalism. It witnessed a subsequent transformation towards identity at the hand of the new school that carried out psychological analysis of the consumers apart from the objective classic basis of the Value according to work theory.

Neo- liberalism was then introduced where it was expressed through what were known as London School and Chicago Monetary school. Neo- liberalism was spread on a larger scale in West Germany after the Second World War as the concept of the social market Economy introducing amendments to the classic liberal concepts. It tried to consider the growing monopolization aspects opposed to the capitalism of the free competitiveness period with the emergence of economy deficiencies. By this, neo- liberalism permitted the government interference in economy, but only in order to provide enabling environment for capitalist competitiveness and free prices. Contrary to socialism and even Keynesianism that formed the basis of "the welfare state" in the West, neo- liberalism remained opposing the direct interference of the state or cartel. It allowed only the interference through credit and tax policies. It harshly criticised Keynesianism policies which considered inflationary and for targeting full employment.

As Mr. Perry Anderson highlights, the neo- liberals attack on the state interference, which they considered a dangerous threat to economic and political freedom, did not prove to be successful in the post Second World war years. This period during which the world capitalism witnessed a long term ongoing expansion. The liberals formed later on a group called Mon Belliran (the name of the Swiss resort in which they held their meeting in 1947, the meeting was attended by their leaders among whom were Maurice Allais, Milton Friedman, Walter Leapman, Wihelm Ropke, Ludwig Von Mises)

As Anderson clarifies, everything has changed with the great crise of the economic model during post war period in 1974. All capitalist countries entered a deep state of recession. For the first time a low growth rate coincides with a high inflation rate (stagflation). It was then when the liberal ideas were accepted. F.A. Von Hayek and his comrades emphasized that the roots of the crise lie in the excessive and harmful power of trade unions in general. They confirmed that trade unions destroyed the basis of private accumulation (of investment) through their continuous demanding of raising wages, and the ongoing lobby of government to increase the expenditure on parasite social services. Such pressure led to a decrease in profit margin of corporations. It led as well to inflating directions (raising prices)which necessarily resulted in a general crise in market economies. Consequently, the solution according to the neo- liberals prescription is clear as Anderson says: (consolidate the State authority to be able to break the thorn of trade unions and fully control the growth of monetary lump i.e. a strict financial policy). On the other hand, such state should economize its expenditure of social characteristic, and refrain from interfering in the economy affairs. Financial equilibrium should be the ultimate goal of all governments. That is why the budget should be controlled with reducing social expenditure, returning back to what is called the normal rate of unemployment that is to say, creating a stand- by army of labour (i.e. an army of unemployed labour) which help in weakening the trade unions. Moreover, tax reforms should be introduced to encourage the economic players to saving and investment, or in other words, reduce the income taxes on the highest individual incomes as well as on corporations profits. One can see that those same policies are recommended or ordered to third world governments today through international institutions and western governments. This was after neo- liberalism reached the position of actual power in the west since the eighties with the advent of conservative Right governments to authority of which Thatcher and Regan are the most famous examples, and with the increasing acceptance and indulgence from European Socialistic democratic parties to new liberalism ideas.

Generally, neo- Liberalism succeeded in achieving some of the main objectives in Western countries as represented in reducing inflation, labour, and wages, as well as increasing profit rates. However, they failed to achieve the basic objective that is to encourage investment and economic growth correspondent to the poid expensive price which is prevailing inequality and increasing the number of the unemployed.

When comparing neo- Liberalism to classic liberalism, on can find the neo- liberalism is characterized by the following:
- It is an expression of capitalism under crises on the contrary to classic liberalism that expresses the rising capitalism. This truth is not altered by coinciding with the fall of the Soviet Union and the bureaucratic socialist model crises.
- Definitely the severe campaign of neo - liberalism against what it called the evil empire contributed to achieve a spiritual hegemony of neo- liberalism for a period of time. Yet, this will not change the truth of the previous conclusion.
- Neo- Liberalism, contrary to the classic in its expression of the rising burgeois class, tends more explicitly to express its hostile attitude towards the labouring class and its trade unions.
- This overlaps with strengthening the State's authority in developed capitalist countries with all reflections on the decline of the concept of democracy at the hands of the world new Right.
- The influence of neo- liberalism extends to re- draft the international economic relations system, as well as re-direct the economic policies in other countries of the world of which are the South countries . It goes on in its expansion as we can see in the Arab states to the direct interference including military action.

Second: Neo- Liberalism And Developing Countries
Transformation In Development Concepts

Traditional development economies, that were predominant during the national liberation period, correlated with two basic groups of hypothesis: first, guarantee development as a structural transformation process resting on industry, supported and strengthened by the flow of resources from developed countries. Second, markets in developing countries, and those in between developing and developed countries , had more tendency to failure and inconsistence. The government actions to strengthen protection, or protective procedures for the emerging industries was an inevitable necessity.

These ideas were liable to transformation to the opposite since mid eighties with the rising of neo - liberalism to political and theoretical hegemony worldwide, where the emphasis on the market importance, and he need to limit the government interference and central planning appear. As well as considering price incentives capable of performing actively in developing countries, new liberals took advantage of the success that the countries of south east Asia have achieved in boosting economic growth to prove their theory. They believed such successes were achieved by virtue of limited government interference, low level of price distortions and a strategy of increasing exports. Yet, the mentioned conclusions of new liberals always confronted strong opposition from other tends' economic aspect, on top of which were Structuralists and Marxists Who considered the previous reading of the Asia experience a wrong reading. They pointed out for instance that the Korean model givens for development proved the opposite of what had been mentioned. The Korean model dependence on foreign capital was weak. (less than 2% of the total investment). It was also characterized by a continuous relatively high level of protection of local industries if compared to other countries . the Korean success was achieved under the previously mentioned points in addition to other elements of which is that the Korean model was more interested in human resources development than other models in other developing countries. It was able to achieve a deeper agricultural reform and spent money on scientific research and development (1.1% of the national product). The model was characterized by a higher level of state independence regarding its relations with authorities and social classes. Finally, the Korean model benefited from geopolitical elements that relate to American and Western concern, taking advantage of war conditions.

A Failure Agenda And Catastrophic Results:

The neo- Liberalism agenda in developing countries included financial ascetical policies, fighting inflation through controlling monetary circulation, applying privatization on large scales, freeing trade, importation and creating free capital market. It is noticed that the liberal transformation in the nineties as witnessed in Latin America was accompanied by the callapse of military and authoritarian systems and a transformation to representative democracy. While the masses,topped by the labouring class, were the main actors in toppling these systems, the first beneficent was the liberal powers that turned Latin America to a trial field for applying neo- liberalism policies in the world. Latin America has offered an important lesson clarifying that transformation to democracy does not necessarily mean solving social and economic problems, yet under new liberal policies, these problems might be aggravated. The Latin American experience proved that the positive outcome of liberal governments was limited and very short- termed. Such governments were able in the first half of the nineties to restore rates of economic growth after an epoch of lost development resulting from the debt crises in the eighties. They were also able to reduce inflation rates, increase exportation and restore foreign capital flow. Yet, the economic conditions were still characterized by instability and fragility.

Privatization transferred many concessions of privatized projects to the new investors, thus nothing has changed but the ownership model. Although exportation has increased, importation increased in high percentages. Thus, the everlasting problem of payments deficit remained with the enormous foreign capitals flow, which proved to be not a result of the stability of economic conditions , but a benefit from the interest price differential. Hence, the Mexican crises unveiled the danger of weak financial control and speculative capitals in stock exchange.

As a result of all mechanisms related to the financial and monetary liberation, the national public debt problem turned into a time bomb. This is what was clearly demonstrated in Brazil and reminds us of the status quo of Egypt with all the resulting consequences of economic unrest and burden the low income section with the consequences of this crise. All this added to the increasing rates of outside exposure, the sensitivity towards the deteriorating international economic structure and the successive shocks (the Mexican debt crise, the Asian crises, then the Russian crise) led at the end to the rapid regression of economic growth rates for a second time.

These results, beside the aggravated social problems like polarization, marginalization , unemployment, poverty, and social deterioration as well as other old social problems, led to basic intellectual revisions, based on which a new Latin American consistency was formed opposing the new liberal one of Washington. The social and institutional agendas of the region were emphasized along with the necessity of addressing inequality and observing social justice. The whole image was completed during last years with significant political transformations with the defeat of liberal governments in a number of the countries and the success of leftist governments in some of the continent's countries at the backyard of the United States of America.

Third: The Status quo And Lessons For Arabs

The status quo on the world level is characterized by an increasing exposureof delusions of neo- liberalism and the springing of what we might call "the age of post neo- liberalism". It is an age whose features are still under formulation and is crystallized by the contribution of branched striving powers. These are the powers that revealed the delusions spread all over the world, including what the World Trade Organization says of free trade according to the relative privileges theory, and the illusions of development depending on the flow of fluctuating foreign capitals. On the other hand the situation on the Arab and Egyptian levels seem different.

Probably, the Arab countries lagged behind regarding the required economic liberalization processes and the integration in the world capitalist economy to the necessary limit. Yet, this process is being carried out nowadays. It is a process that is strongly urged.

Egypt has witnessed a slow process of micro- economic liberalization since mid- seventies. This process was performed in deeper levels since 1991 after the agreement concluded with the International Monetary Fund. The first phase of the process witnessed a focus on monetary and financial aspect. The second generation witnesses the focus on privitization and liberalization of other economic sectors including the services, with the privitization of the social services sector.

In general, the results were disppointing. Since entering in this process , the rates of economic growth decreased and the country could not restore the previously achieved growth rates during the sixities and seventies. Inequality spread over in a serious manner, while the income contribution to national product decreased from 50% in the early seventies to reach less than 30%. The population percentage below poverty line reached 48% with the increase in the unemployed numbers. The problem of national debt emerged. The debt reached 521 billion pounds that is to say 97% of the growth national product. In addition to social marginalization due to unemployment and early pension, the continuous discrimination among peasants and their inability to obtain lands monopolized by big investors and the decline of the middle class. This was accompanied by the break up of industry and Egypt lag in this field as well as scientifiic, technological and human resources indicators.

Recently, what is called economic and political reform, is put forth befor Egypt and the Arab countries to implement. That is to say, more procedures for economic liberalization regardless their economic or social results. It is important to note some observations regarding this issue:

The requirements of the mentioned reform come with clear American instructions in the first place and Western ones in general. Such requirements are are according to reo-liberals is amixture of democratizing the political system, liberalizing economy, and freeing trade. They are related to a general plan to restructure the region economically and politically by the direct use of military force (Iraq and Palestine), sectarian fragmentation and different pressures (Sudan- Syria- Lebanon)

From the governing Arab Systems side, a trade- off is done to linger the required political reforms with introducing a direct concession of economic liberalization, that sometimes takes the form of national concessions in the context of Western Middle Eastern Plan (Q.I.Z agreement- the agreement to supply natural gas to Israel)

As for the opposition powers, the rightist powers either civil (al Wafd or Al Ghad Parties) or religious (the Muslim Brothers) go for the plans of liberalization and privitization and integration in world economy, though they criticize some related aspects like corruption accompaning privitization process.

In a sector of Arab intellectuals, there is a mix up between liberalism in its classic humane sense, to emphasize the values of individual freedom, and neo- liberalism with its previously mentioned economic and social content. Consequently, the lessons of humane experience require Arab popular social powers to make their own way toward democratic transformation benefiting from other countries' experience. Such powers should avoid the mix up that the American media machinery and local neo-liberalism succeeded to propagating it between democarcy and new liberal policies. What is required is to begin from where others ended not where they started, and search for a new Arab National project.

*Assistant Secretary-General of Political Affairs-El Tagmaa Party (Egypt)