Economists exposing the disasters of market fundamentalism (neoliberalism)

All around us is evidence that market fundamentalist (neoliberal) policies and practices  are a disastrous failure for the bulk of the population, whilst enriching the corporate, business and political elite and the top 20% of the population.

We everyday, ordinary people know this and see it everyday.

So we should value the work of contrarian economists and economic commentators in this country, like Bill Mitchell, John Quiggin, Richard Dennis, John Passant, Ben Spies- Butcher and Frank Stilwell, to name just a few, who provide the intellectual and policy evidence to expose the myths and fallacies of the neoliberal world view, propagated by most economists, that dominates economic policy making, the business world, politics, public policy and media commentary.

 

What they provide are analytical frameworks and ways to critique and speak out against market fundamentalism in all its forms.

This week John Quiggin wrote of the disastrous failure of the belief that private for-profit corporations and business can do a better job of providing a variety of services previously provided by the public and not-for-profit sector.

Quiggin notes the failure of market based neoliberal processes such as privatisation, competitive tendering, contracting, public-private partnerships and greater for-profit provision in sectors such as health, education, water, electricity, telecommunications and social services.

Quiggin challenges the claim that these processes are good for the public and calls for a fundamental reassessment of the market based reform being imposed by Federal and State Governments.

Quiggin cites the case of for-profit and corporate delivery of education and training, which has been a disastrous failure wherever it has been tried. He cites three examples:

• US reports that for-profit universities continue to receive millions of dollars in public funds despite a sustained track record of fraud and failure.
• the growing body of evidence here in Australia of rampant abuse, gouging of fees, unlawful behaviour, accelerating costs and doubling of debt as a result of the market based reforms of Australia's vocational education and training sector, in which corporations and private firms have become major providers of publicly funded vocational education with access to the publicly funded FEE-HELP scheme.
• Growing evidence from Sweden (the poster child of for-profit education) that the sector is now in a state of crises with declining performance and growing inequality.

Bill Mitchell writes a daily blog, Billy Blog, in which he demolishes the fallacies, idiocy and deceit of the global and Australian neoliberal order.

 

This week he described the disastrous state of the teenage employment market under neoliberal policy, in which the actual level of teenage unemployment is likely to be close to 30% (or higher), than the 18% figure cited by Governments. 

 

In a recent piece The neoliberal wages scandal, Mitchell writes about the scandal of low wages growth. He notes that one of the defining characteristics of the neoliberal era has been the real divergence between real wages growth and productivity growth, as shown in Mitchell's graph showing movements in real wages and GDP per hour worked since 1971 in Australia

 

Mitchell contends this has been deliberately engineered by pro-business governments and policy makers who impose policy initiatives that allow corporations, business, investors and capital to gain a greater share of national income to build a 'booty' that is then pumped into deregulated financial markets and siphoned off to allow executives and managers to take their obscenely high salaries and pay packages. Mitchell says the dynamics unleashed by these distributional shifts helped cause the Global Financial Crisis.

 

John Passant's blog En Passant provides a radical leftist analysis of  economic and public policy matters, particularly taxation policy, tax evasion and tax avoidance by the rich and corporate Australia. John Passant is a former Assistant Commissioner of the Australian Taxation Office.

 

This week he has published a letter to the Age, this piece in the Canberra Times and a blog piece about Prime Minister' Turnbull's investments in the Cayman Islands tax haven.

 

Richard Denniss's work appears in the mainstream press and on the website of The Australian Institute where he is currently the Chief Economist (after previously being the Executive Director).

Ben Spies Butcher's work focuses on the impact of neoliberalism in social policy, social welfare and civil society. He argues that Australia is  in the vanguard of introducing neoliberal social and welfare policy that has produced a dual or hidden welfare state which includes an increasingly marketised public welfare state (public funding and provision of welfare through income support, Medicare, pensions, unemployment benefits and support), as well as growing private welfare state involving the private provision of welfare funded by public money (the hidden welfare state).

 

This private welfare state benefits the affluent, the well off and the wealthy and includes tax related expenditure, and public subsidies and benefits such as superannuation concessions, private health insurance concessions, childcare funding, housing benefits (such as exemption on capital gains and negative gearing).

 

This private or hidden welfare state encourages private purchasing in the private market and subsidises private and corporate welfare providers.

 

The private welfare state creates new constituents of powerful corporate providers and affluent customers. It is also expensive, regressive and growing and entrenches inequality. It is also protected by Governments from the sort of cuts, austerity and reform imposed on the public welfare state.

Frank Stilwell is Emeritus Professor at the Department of Political Economy at the University of Sydney and has been responsible for the development of radical political economics in Australia, as well as the excellent Journal of Australian Political Economy.

Learning from the pioneering work of Elinor Ostrom (1933-2012)

 

Three years after her death in 2012 the work of  Elinor Ostrom remains more relevant than ever for those of us campaigning for alternatives to the contemporary orthodoxy of market fundamentalism and neoliberalism.

 

 Ostrom who was a Professor at Indiana University was the first woman to be awarded the Nobel Prize for Economic Sciences in 2009.

Ostrom's work challenged and rebutted fundamental economic beliefs, particularly free market and neo-classical economic paradigms. Ostrom was particularly concerned with  relational aspects of economic activity — the ways in which people interact and negotiate with each other to forge rules and informal social understandings.

Ostrom's early work focused on what she called co-production.

 

Ostrom argued that many public services depend heavily on the contribution of time and effort by the persons who consume these services, i.e. the clients and citizens.

 

Ostrom believed that services rely as much upon the unacknowledged knowledge, assets and efforts of service ‘users’ as the expertise of professional providers. It was the informal understanding of local communities and the on the ground relationships that make services more effective.

Co-production describes the relationship that exist between ‘regular producers’, like health workers, police, and schoolteachers and their ‘clients’ who may be transformed by the services into safer, better educated and/or healthier persons.

Ostrom defined co-production as

 “…the mix of activities that both public service agents and citizens contribute to the provision of public services. The former are involved as professionals, or ‘regular producers’, while ‘citizen production’ is based on voluntary efforts by individuals and groups to enhance the quality and/or quantity of the services they use”

One implication is that privatization of public services and the turning over of services to the market fundamentally transforms the relationship between provider and service user, hampering the development of co-production and democratic governance.

Her later work examined how people and communities collaborate and organize themselves to manage collective shared resources like forests, fisheries and natural and social resources. The research overturned the conventional wisdom about government regulation  and challenged the idea that private ownership of public resources is better and more effective than the public and collective sphere.

Ostrom's work provides clear evidence  that the commons-based traditions of cooperation and communal management of resources is not a violation of basic economic common sense.

Her work undermines political conservatives and mainstream economists who denigrate collectively managed property and government and who argue that only private property and the "free market" can responsibly manage resources.  Her work also directly challenges current ideas that privatization and private ownership and expert management of resources is a more effective strategy than collective and public management

Ostrom advocated a “polycentric” approach to managing shared or common resources involving oversight “at multiple levels with autonomy at each level. She argued that shared management of resources helps to establish rules that “tend to encourage the growth of trust and reciprocity” among people who use and care for a particular commons.

Ostrim argued that key management decisions should be made as close to the scene of events and the people and groups involved as possible. Her work showed that the people most affected by or with a stake in shared or common resources are the ones best able to collaborate to use and manage those shared resources effectively and sustainably.

Her work demonstrates that ordinary people are able to create rules, institutions and systems that ensure the equitable and sustainable management of shared and common resources, what is often called our 'common wealth'.

She demonstrated the importance of shared (collective) rather than expert or private management of resources and knowledge and emphasises the importance of active citizen participation. She cited a comprehensive study of 100 forests in 14 countries that detailed how the involvement of local people in decision making is more important to successfully sustaining healthy forests than who is actually in charge of the forests.

 David Bollier writes of the significance of Ostrom's work:

In the 1970s, economics was quickly veering into a kind of religious fundamentalism. It was a discipline obsessed with “rational individualism,” private property rights and markets even though the universe of meaningful human activity is much broader and complex. Lin Ostrom pioneered a different, more humanistic way of thinking about “the economy” and resource management. She originally focused on property rights and “common-pool resources,” collective resources over which no one has private property rights or exclusive control, such as fishers, grazing lands and groundwater. This work later evolved into a broader study of the commons as a rich, cross-cultural socio-ecological paradigm. Working within the social sciences, Ostrom proceeded to build a new school of thought within the standard economic narrative while extending it in vital ways.

 Ostrom's work also has direct relevance to the current economic and environment crises. She wrote:

"We cannot rely on singular global policies to solve the problem of managing our common resources: the oceans, atmosphere, forests, waterways, and rich diversity of life that combine to create the right conditions for life, including seven billion humans, to thrive.....Success will hinge on developing many overlapping policies to achieve the goals,.......We have a decade to act before the economic cost of current viable solutions becomes too high. Without action, we risk catastrophic and perhaps irreversible changes to our life-support system.”

Articles written in memory of her work are here, here, here and here.

A reading list of her work is here.

The last article she wrote before she died is here

Her last book, published just before her death was titled Working Together: Collective Action, the Commons, and Multiple Methods in Practice, and describes the advantages of using several different research methods to study a problem.

When profit drives the delivery of human services the quality of care suffers

More evidence of the danger of allowing for- profit corporations to provide human and caring services to vulnerable people.

A major US study  to be published in the Journal Health Services Research has found that for-profit nursing homes deliver significantly lower quality of care than not-for- profit and government run nursing homes.

In the US the 10 largest for-profit corporate providers of hursing homes  operate about 2,000 nursing homes, controlling approximately 13 percent of the country’s nursing home beds.

The study found that the main reason that the quality of care is worse in corporate and for-profit run  nursing homes is that corporate and for- profit providers employ fewer staff  to keep costs down and profits up. In studying staffing and quality in the 10 largest corporate for profit providers of nursing homes the researchers found that the corporate providers  have a strategy of keeping labor costs low to increase profits, with the result that the quality of care suffers and there is a higher number of rated deficiencies.

The researchers found that low nurse staffing levels are the strongest predictor of poor nursing home quality.

The study found that between 2003 and 2008, both the percent of registered nurses and the numbers of all nursing staff were significantly less (30 percent) in the corporate for profit providers than the non-profit homes.  The lower staffing correlated with a considerably higher number of rated deficiencies - the private chains having 36 percent more deficiencies, and 41 percent more serious deficiencies than the non-profits.  Deficiencies include failure to prevent pressure sores, resident weight loss, falls, infections, resident mistreatment, poor sanitary conditions, and other problems that could seriously harm residents.

What is also troubling is that the study found that the quality of care worsened in nursing homes taken over by private equity companies. Nursing homes had more deficiencies after being acquired by a private equity company.This is directly relevant to Australia where private equity companies are increasingly involved in aged care and nursing home provision. The study is the first to make the connection between worse care following acquisition by private equity companies.

"In recent decades, nursing home chains have undergone a considerable expansion.A number of chains were publicly-traded companies until the early 2000s, when five of the country’s largest chains went bankrupt. Following restructuring and ownership changes, as well as increases in Medicare payments, the largest chains became more financially stable. More recently, some of the largest publicly held chains were purchased by private equity investment firms, which invest funds received from investors, with whom they share profits and losses. 

The researchers compared staffing levels and facility deficiencies at the for-profit chains to those at homes run by five other ownership groups to measure quality of care. The 10 largest chains were selected because they are influential in the nursing home industry and are the most successful in terms of growth and market share. 

The study found that for-profit homes strive to keep their costs down by reducing staffing, particularly RN staffing.

The 10 largest for-profit chains in 2008 were HCR Manor Care, Golden Living, Life Care Centers of America, Kindred Healthcare, Genesis HealthCare Corporation, Sun Health Care Group, Inc., SavaSeniorCare LLC, Extendicare Health Services, Inc., National Health Care Corporation, and Skilled HealthCare, LLC.

From 2003 to 2008, these chains had fewer nurse “staffing hours” than non-profit and government nursing homes when controlling for other factors. Together, these companies had the sickest residents, but their total nursing hours were 30 percent lower than non-profit and government nursing homes. Moreover, the top chains were well below the national average for RN and total nurse staffing, and below the minimum nurse staffing recommended by experts.

 The study also found that the four largest for-profit nursing home chains purchased by private equity companies between 2003 and 2008 had more deficiencies after being acquired. The study is the first to make the connection between worse care following acquisition by private equity companies.

There is now a growing body of evidence that demonstrates conclusively that for-profit corporate run nursing homes deliver lower quality care than not-for profit nursing homes.

A study in the British Medical Journal  compared quality-of-care measurements in 82 individual studies that collected data from 1965 to 2003 involving tens of thousands of nursing homes, mostly in the United States. It found that

The authors' meta-analysis, i.e. their integration and statistical analysis of the data from the multiple studies, shows that nonprofit facilities delivered higher quality care than for-profit facilities for two of the four most frequently reported quality measures: (1) more or higher quality staffing and (2) less prevalence of pressure ulcers, sometimes called bedsores.

The results also suggest better performance of nonprofit homes in two other quality measures: less frequent use of physical restraints and fewer noted deficiencies (quality violations) in governmental regulatory assessments.

"The reason patients' quality of care is inferior in for-profit nursing homes is that administrators must spend 10 percent to 15 percent of revenues satisfying shareholders and paying taxes..... For-profit providers cut corners to ensure shareholders achieve their expected return on investment."

Phillip Pullman on the "greedy ghost of market fundamentalism"

"there are things above profit, things that profit knows nothing about.. things that stand for civic decency and public respect for imagination and knowledge and the value of simple delight"   Phillip Pullman

This speech by the British novelist and writer Phiilip Pullman describes the 'greedy ghost of market fundamentalism' that haunts the offices, meeting rooms and conference rooms of Governments all over the world. 

Pullman describes how everything that sustains the fabric of a decent society and of communities is destroyed by the onslaught of the market fundamentalists and their acolytes. He is right. A great speech.

 "And it always results in victory for one side and defeat for the other. It’s set up to do that. It’s imported the worst excesses of market fundamentalism into the one arena that used to be safe from them, the one part of our public and social life that used to be free of the commercial pressure to win or to lose, to survive or to die, which is the very essence of the religion of the market. 

Like all fundamentalists who get their clammy hands on the levers of political power, the market fanatics are going to kill off every humane, life-enhancing, generous, imaginative and decent corner of our public life. I think that little by little we’re waking up to the truth about the market fanatics and their creed. We’re coming to see that old Karl Marx had his finger on the heart of the matter when he pointed out that the market in the end will destroy everything we know, everything we thought was safe and solid. It is the most powerful solvent known to history. “Everything solid melts into air,” he said. “All that is holy is profaned.”

Market fundamentalism, this madness that’s infected the human race, is like a greedy ghost that haunts the boardrooms and council chambers and committee rooms from which the world is run these days"

Economists who document the failure of market driven reform in Australia

John Quiggin is one of a growing number of Australian economists who continue to make the case that the market-based reforms imposed by Federal and State Governments over the last two decades have not delivered the anticipated benefits for consumers and ordinary citizens, and in many cases have been unmitigated failures.

Market led reform assumes that market-based solutions are always best, regardless of the problem.

Other important contrarian economic voices about market driven neoliberal reform championed by mainstream economists and Australian governments of all persuasions can be found on the pages of Dissent, the excellent journal edited by the Age and Sydney Morning Herald economics writer Kenneth Davidson and in the Journal of Australian Political Economy produced out of the University of Sydney. Bloggers such as Billy Blog (Bill Mitchell) also provide important critiques of mainstream economics, as do academic economists and public commentators such as Con and Betty Walker.

In today's Australian Financial Review John Quiggin argues that:

The failure of reform is most dramatically evident in the infrastructure sector, and particularly for utilities such as electricity, telecommunications and water.

Quiggin argues that the benefits of market led reform that were promised by its proponents have not resulted. Whilst there were some benefits in the short term, in the longer term the proposed benefits for consumers and society have not been sustained. Prices have not lowered but increased. Supposedly, allowing the market to rip would bring more choice and better quality of service. Neither have happened.

As Quiggin points out, the privatization of telecommunications and electricity have been unmitigated failures for consumers and society. Electricity price inflation has reached double digit levels and the break up of electricity utilities into separate generation, distribution and retail sectors has created massive new problems.

Quiggin argues that it is time for policy makers, politicians and commentators to accept that the mantra of market led reform has been a complete failure in the infrastructure sector. He writes that:

Faith in reform has proved utterly impervious to contrary evidence. The only answer to the failure of reforms has been to conclude that more reform in needed.

But as John Quiggin notes the lure of market led reform is still all powerful:

Despite this and other failures, the incantation of ‘reform’ retains its magical power. The politically and economically disastrous privatisation program in NSW was justified entirely on the basis that it was needed in order that reform could continue.

It is, perhaps, too much to ask that such an appealing word should be abandoned. But can’t we at least admit that the 1980s reform program has had its day, and look for some reforms more appropriate to the 21st century?

The failure of market driven neoliberal reform in the infrastructure sector (water, telecommunications, utilities, and public infrastructure) and in many other areas of Australian social and economic life, including health, housing, social welfare, retirement incomes, aged care, education, child care, human and community services and the environment and climate change, are core themes in Australian journals such as Dissent and  the Journal of Australian Political Economy, which in each edition document the harm that has been done by market driven neoliberal reform in this country.

More Australians need to support and read the important work done by economists such as John Quiggin, Bill Mitchell, Con and Betty Walker and all those associated with journals such as Dissent and The Australian Journal of Political Economy.

Market mechanisms and the destruction of the Murray Darling Basin

Bruce Haigh on the madness of using market mechanisms to manage water in the Murray Darling Basin and the need for a radically different approach to the management of Australia's water resources:

"The management of water should not be left to markets where the pursuit of profit has water abused, devalued and often powerless with respect to sustainability. Water needs a voice and a value beyond the market. At the moment it comes a very poor second in calculations relating its use - agriculture and industry have the upper hand and water is required to comply".

"The National and Liberal Parties presided over the slow decline of rural Australia. They had the opportunity to reverse this during almost 12 years of government. They declined to do so and as a result many jobs were lost and economic opportunities that may have come through the provision of better services and infrastructure were not created, but were lost. This neglect saw the rise of rural Independents who now hold the balance of power". 

For an alternative perspective on economic policies- read Billy Blog

Bill Mitchell's blog Billy Blog-alternative economic thinking is an excellent site to read about the myths and propaganda promulgated by mainstream economists, economic commentators in the media and most politicains and political commentators. 

As a non-economist interested in economic matters I greatly appreciate Billy blog's sustained critique of neoliberal and neo-conservative market economics.

Reading one of his latest posts about the standard myths that dominate most neoliberal economic thinking I found this:

"The overwhelming sentiment of the business community and the conservative nature of our political system (and its participants) leads to a largely anti-government swell of opinion which is continually reinforced by the media – the “debt-deficit hysterics”. The neo-liberal expression of this over the last three decades has overwhelmingly imposed massive political restrictions on the ability of the government to use its fiscal policy powers under a fiat monetary system to ensure we have full employment.

We now accept very high unemployment and underemployment rates as a more or less permanent feature of our economic lives because of the political constraints imposed on government"

Challenging the Market

Over on one of the other blogs I edit- Challenging the Market- are two new pieces by West Australians who write on contemporary social and political issues.

Susie Byers shows that a publicly run woman's prison can deliver successful outcomes in terms of rehabilitation and integration of prisoners into the community. Sarah Burnside critiques the market logic and contradictions involved in Opposition Leader Tony Abbot's plans to reform the Disability support pension.

Challenging the Market is an initiative of the WA Social Justice Network (of which I am the co-convenor) to publicize the writings of Western Australian citizens and activists who support economic, environmental, racial and social justice. The extension of market, corporate and business values into so many spheres of daily life is detrimental to the wellbeing and social fabric of WA. Relying on the market to solve social and environmental problems it has created is shortsighted and dangerous.

The blog provides a space for people concerned about the extension of market, corporate and business values into so many spheres of daily life with the resulting debasement of democracy, public policy, civic life and political debate. The blog is part of a larger project to challenge the dominant market and corporate worldviews.

Market truimphalism is alive and well in Western Australia

Just prior to Xmas the Barnett Government released the final report of its Economic Audit Committee which was established soon after the Liberal National Government came to power. The Report "Putting the Public First: Partnering with the Community and Business to Deliver Outcomes" is available here and a summary here.

On initial reading (and based on my reading of the Draft Report) the Final reports demonstrates that "market triumphalism" is alive and well in WA. Given the composition of the Committee this is hardly surprising.

The Report seems to be predicated on the belief that markets are the best way and primary mechanism for achieving the public good and addressing social needs. A key assumption underlying the Report is that "the market" can solve any social problem or meet any social need, and that the delivery of public services should be "market driven".

This market dogma is a myth. It was the excesses of the market that shattered the global financial system. What the global financial and economic crises demonstrated is that the certainties about the market- that markets are a civilizing force, that markets are efficient and effective, that markets promote creativity and innovation- are illusions.

The Report proposes a radical process of privatization and outsourcing of public services to the private and not for profit sector, and the introduction of market and business practices to the delivery of public and human services.

The Report cleverly draws the non-profit sector into its vision for a "market society" with its proposal to outsource more public services and human services to the publicly funded non-government sector and its vision of making NGO's more business like and run as social enterprises. On the surface this will be attractive to many NGO's, particularly the larger corporate NGO's, who have long argued that they should provide more services on behalf of government, and see plenty of opportunities in the new landscape.

But for medium sized and smaller community based NGO's, who make up the bulk of human service providers in WA, and for the West Australians they service and represent, this Report, if implemented, would be a disaster. So this will be a significant document for the not for profit, non-government sector in Western Australia and it will be interesting to see the sector's response over coming months. My guess is that the big NGO's and their public spokespersons will support the Report's recommendations, but with some reservations.

There is much to be concerned about in this Report and it should be a cause for great concern, among civil society groups and those who advocate and stand for social and economic justice and the public good. A longer analysis of the Report will appear on this blog in 2010.

Michael Sandel on the failure of markets

As part of its Radio National Summer Programs ABC Radio National is replaying the 2009 Reith Lectures featuring Michael Sandel. Michael Sandel is currently Anne T. and Robert M. Bass Professor of Government Theory at Harvard University.

In the lectures Sandel explores the prospects of a new politics of the "common good" and develops a sustained critique of the role of markets and market values.

Sandel argues that the expansion of markets and market values into spheres of life traditionally governed by non-market means has had devastating consequences for democracy and for the public good, and was one of the factors contributing to the global financial crises. Instead of extending markets into more spheres Sandel argues that we need to restrict the reach of markets into spheres involving public goods (education, health, transport, housing).

Sandel's is hardly a radical or original critique, but it is an important one. Sandel is a high profile philosopher and writer with a wide audience and the presentation of these ideas in mainstream public forums provides an alternative view to the dominant market triumphalism that continues to dominate the media, public discourse and public policy making in Australia, despite the rhetoric of the Prime Minister and his pro- market government.