East Asia and the Trials of Neo-Liberalism

Kevin Hewison, Richard Robison, KEVIN HEWISON, RICHARD ROBISON

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781317998785
• Edition: 1
• Topic: Business
• Subtopic: Business generale
• Index: Business

A much-needed examination of the impact of neo-liberalism in East Asia in the years since the 1997 to 1998 Asian Economic Crisis.

These leading contributors tackle the nature of neo-liberalism, and the forces and institutions driving it. With fresh case studies of Indonesia, Thailand, South Korea, Malaysia, China and Vietnam, showing how domestic elites are critical to the ways in which the neo-liberal agenda is manifested, modified and rejected. They also engage with the key question of why there has been a dramatic restructuring of state and economic power, with some elements of domestic elites having been decimated, others reinventing themselves, while important new elements have been constituted.

This book was previously published as a special issue of the leading Journal of Development Studies.

Neo-liberalism and East Asia: Resisting the Washington Consensus

MARK BEESON and IYANATUL ISLAM

I. INTRODUCTION

Current debates over the future direction of the reform agenda in post-crisis East Asia have to be set in the broader context of the global debate about the role of ideas and ideology in shaping economic policy-making. Particular ideas gain primacy at one stage but may fade at another juncture, especially at times of crisis [Blyth 2002]. The core argument of this article is that the contest of ideas in economic policy-making can evolve independently of their intellectual merit and empirical credibility. Political interests shape and mediate the process within which policy debates unfold. In the case of post-crisis East Asia, the notion that the political economies of the region need to be fundamentally reformed to re- ignite the ‘economic miracle’ of the pre-crisis era does not stem from a politically neutral, dispassionate and intellectually rigorous analysis of what went wrong in the recession-inducing 1997 financial crisis that engulfed the region. On the contrary, it represents an attempt to reinvent orthodoxy in the domain of economic ideas and ideology by a global policy community that is profoundly influenced by the US, the key international financial institutions (IFIs) over which it exerts such authority and financial sector interests associated with ‘Wall Street’ [Beeson, 2003: 305–26; Woods, 2003: 92–114].

This proposition is developed in a number of ways. First, the article delineates the conservative economic and political agenda of what is widely known as ‘neo-liberalism’. Neo-liberalism's influential advocates in the IFIs and elsewhere preach the primacy of the market economy in engendering and sustaining economic prosperity. In propagating such a view, neo-liberal ideas pose a direct challenge to the values and ethos of the sort of ‘regulated capitalism’ that held sway in the industrialised countries of the OECD for at least two decades after World War II. The dominance of conservative political forces towards the end of the 1970s in the United States and the United Kingdom undoubtedly played a role in the intellectual ascendency of neo-liberalism [Cockett, 1994].

The 1980s and 1990s cemented the rise of neo-liberalism even as a professional consensus appeared to emerge that markets alone could not explain rapid East Asian economic growth in the pre-crisis era and that institutional variables played an important, and perhaps even a decisive, role. As Chomsky [1993] argues, the end of the Cold War unleashed the hegemonic impulse of the United States, while the onset of the long economic boom in the 1990s under the Clinton administration lent a degree of legitimacy to a global project of ‘exporting’ neo-liberal ideas to the rest of the world. The Bretton Woods institutions – represented by the Washington-based World Bank and the IMF – became the principal conduit for the transmission of neo-liberal ideas to the developing countries. Williamson [1994] became famous for celebrating this proselytising role of the Bank and the IMF. He suggested that these institutions, in conjunction with the US Treasury, represented the ‘Washington consensus’ on what constituted ‘good’ economic policies. The Washington Consensus eventually became a global policy mantra. The centrality of the neo-liberal project was reinforced by both the authoritative position of the IFIs themselves [Barnett and Finnemore, 1999: 699–732] and by the fact that economic conservatism was endorsed by powerful financial markets and the ratings agencies that influenced their decisions [Sinclair, 2001: 441–52]. Yet, the legitimacy of the Washington Consensus is now being questioned as a whole range of actors – from dissident figures like Stiglitz and Soros, and governments in the developing world, to civil society organisations across the ‘developed’ world – contest the dominant paradigm pushed by the IFIs [Bird, 2001: 33–51].

Several factors and events have combined to force a re-thinking of the original tenets of neo-liberalism. These include the perceived mishandling of the East Asian crisis by the Bretton Woods institutions; the termination of the long economic boom of the 1990s in the United States; and a series of corporate scandals that has tarnished the image of American capitalism and dented the potency of the US-led global project to propagate neo-liberalism across the world.¹ The tragedy of ‘fast-tracking’ capitalism in Eastern Europe and the ex-Soviet Union, the failure of the neo-liberal experiment in Latin America and the highly circumspect nature of the evidence on global growth, inequality and poverty have all turned out to be influential in restraining the rise of neo-liberalism.² What we are witnessing is the reinvention of global neo-liberalism under the guise of an ‘augmented Washington consensus’.

This article counsels caution in embracing this modified version of global neo-liberalism – even if domestic political forces in East Asia turn out to be receptive to the adoption of such ideas.³ We argue that elements of the precrisis East Asian development strategy still have contemporary relevance, and that new – more assertive – forms of regional cooperation that have emerged in the wake of the 1997 crisis deserve greater attention. The more fundamental challenge, however, will be to create an enabling global environment that actually supports, rather than actively tries to undermine, national policy initiatives in post-crisis East Asia.

II. THE EVOLUTION OF NEO-LIBERALISM

Advocates of neo-liberalism argue that a market economy, especially when free of government ‘intervention’, is the critical prerequisite for engendering and sustaining economic prosperity – a proposition that is supposedly valid across both time and space. The rather doctrinaire and all-encompassing approach of some neo-liberals has led other – fairly mainstream – commentators, such as Stiglitz [2002] and Soros [1998], to use the term ‘market fundamentalism’ as a synonym for neo-liberalism. Neo-liberals espouse a conservative political agenda in which the political leadership should attenuate the activism of civil society and allow technocrats the discretion, freedom and scope to pursue the market-oriented economic agenda. This policy agenda stems from a world-view that sees political and economic processes as being inherently at risk from rent-seeking lobbyists, keen on acquiring special privileges and protection from the government, and thus ‘distorting’ optimal outcomes [Buchanan and Tullock, 1962]. Consequently, neo-liberals display an aversion to significant government intervention in a market economy. They adhere to an analytical framework in which government activism is either a reflection of the innate predatory instincts of the state or the basis for creating opportunities for rent-seeking interests to emerge that ultimately ‘capture’ the policy-making process to suit their partisan ends.⁴

For all the intellectual dominance that neo-liberal ideas have achieved over the last two or three decades, it is important to emphasise that there is and was nothing inevitable about this. On the contrary, neo-liberalism marks a significant departure from the ideas and ideology that guided the international order that emerged in the wake of World War II. The structures of liberal governance created primarily under US auspices in the immediate aftermath of World War II provided an overarching geopolitical and regulatory framework within which capitalism flourished. Crucially, however, as Ruggie [1982: 379–415] famously pointed out, despite the increasingly pervasive influence and reach of the so-called Bretton Woods institutions that were established at this time, the emergent liberal order was premised on the retention of a high degree of domestic autonomy. State intervention in the market economy to attain specific economic ends (most notably full employment) was widely regarded as a legitimate political aspiration. The compromise of ‘embedded liberalism’ meant that individual governments retained a good deal of independence in the management of the domestic economy, something that led to very different patterns of political relationships and economic structures. The Cold War environment, which gave a compelling strategic impetus for capitalist consolidation, not only provided a conducive environment for the successful resurrection of liberal capitalism generally [Latham, 1997], it also facilitated the development of very different types of capitalism that persist to this day [Berger and Dore, 1996; Coates, 2000].

In the first couple of decades after World War II, the so-called ‘golden age’ of capitalism [Glyn, 1990: 39–119], Keynesian policies were the accepted orthodoxy and dominant policy paradigm. Across the capitalist world, ‘interventionist’ macroeconomic policy was considered a necessary part of responsible economic management. A number of factors helped undermine the pre-eminent position of Keynesian ideas and pave the way for a transition, initially to monetarism, and subsequently to a more broadly based neo-liberal agenda. First, the breakdown of the managed system of exchange rates associated with the original Bretton Woods agreements and the subsequent exponential growth of financial markets meant that domestic policy-making autonomy had been undermined. Second, a series of interconnected economic crises in the 1970s, revolving around the inflationary impact of rising oil process, a fiscal crisis of the state and rising unemployment, led many to consider the Keynesian model to be exhausted and no longer appropriate. Over time, a great deal of emphasis was placed on fighting inflation as the core responsibility of governments, while the need to sustain full employment was no longer regarded as an explicit macroeconomic policy goal. It was argued that, once stable prices prevailed, a market economy had self-correcting properties and did not require Keynesian activism to cure recessions.

Neo-liberalism was enthusiastically and effectively promoted by an influential group of ‘policy entrepreneurs’ who were ultimately able to obtain the formidable political support of Margaret Thatcher in Britain and Ronald Reagan in the US [Cockett, 1994]. The combination of seemingly ineffective Keynesian policies and an enthusiastically supported alternative model meant that the preconditions for a fundamental paradigm shift were in place. Crucially, however, as Peter Hall has pointed out [1993: 275–96; 1986], it required the application of political power to overcome the institutionalised obstacles to reform ...