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Trickle Down Economics

The big brother from the North misled the South.. The slogan "More Market, Less State" is losing a few old friends in Europe. The wind shifts.. What is changing is the discourse, the eulogy of the market.. If capitalism is a religion, there are fewer and fewer believers.

Faith in the blessings of the free market is shattered. New figures conquer the political stage

By Thomas Assheuer

[This article published in: DIE ZEIT, January 2007 is translated from the German on the World Wide Web,  http://images.zeit.de/text/2007/04/Neoliberalismus.]

The economic magic formula was alluringly simple even for inexperienced sorcerers. Rubbish would be changed into gold, water into wine and poverty into affluence. The magic formula that will enter history as the "Washington Consensus" sounded: If all nations rein in the state and trust the invisible hand of the market, if they lower taxes, revitalize budgets, fight inflation, privatize public assets and welcome capital investors with open arms - then the sad lot of all people on earth would improve. Their prosperity will grow and multiply in the course of time. People, hear the signals: "More Market, Less State."

An economic program has hardly wounded the economies of the world society like that propounded harmoniously by experts of the World Bank, the International Monetary Fund (IMF) and the US Treasury Department at the beginning of the nineties. Whole continents bowed to the Washington Consensus in the hope of growth and prosperity, not only a handful of countries. The hope remains but the euphoria fades. The magic formula "More Market, Less State" loses credit despite respectable successes in fighting inflation and revitalizing budgets.

In Latin America, former model students bid farewell to their American mentors. Governments fall like dominos and seek their own national way. Even in Europe, politicians consider protectionism and state intervention. The same ministers who were intoxicated yesterday by the blessings of free trade now demonize finance market capitalism as the invasion of "mosquitoes."

On their side is the non-partisan singing community of leftist globalization critics, rightwing conservatives and children of local pastors. For them, the Washington Consensus was always poison from neoliberal think-tanks - and part of that "devil's work" developed by economists like Milton Friedman after the failure of Keynesian prescriptions.

Critics now have a backwind and good arguments. The IMF must admit that rash trade liberalization in developing countries fuels a nice straw fire and extensive social fires. The World Bank must end its embittered attack on redistribution policy and emphasize that sustainable growth is only possible with combating poverty. A natural connection does not exist between privatization and general prosperity. The unemployment rate is 30 to 40 percent in South Africa that leaped into the world economy through the Washington program.

This is not surprising. For years, economists like Paul Krugman and Joseph Stiglitz pestered the world with their criticism of the Washington magic formula. What is surprising is the panic of many politicians. Politicians become nervous because exclusion and inequality grow in their own affluent belt, not only in exotic outposts of the world society. The globalized rich live in direct proximity with the localized poor. The periphery grows rampantly in the center and the class society returns. In the US, the super-rich doubled their annual income since 1980 while the lower class stagnates. According to an estimate of the US tax authority, one-fifth of the 300 million Americans had seven dollars a day in 2004 while the 140,000 richest households could spend $13,500 daily. This is one example among many. Worldwide there are more and more rich countries with poor people. Wealth and lower classes, luxury and misery proliferate.


Absolute poverty grows like the assets of millionaires. The latter grew globally 8.2 percent in 2004 alone - fastest of all in Africa.

Latin America - that continent for which the Washington Consensus was originally conceived under the leadership of American economist John Williamson -
shows the most shocking form of social inequality, The per capita income is lower today than 1980. According to the UN, 60 million Latin Americans live on less than a dollar a day - after the last social safeguards were shattered in the nineties amid the notorious privatization campaign. "Privatization awakened false hopes." This is not information from the global justice organization Attac but the conclusion of the repentant World Bank complicit in the Latin American tragedy.

Still the continent is also the scene of a spectacular counter-movement. Within a few years, a series of leftist politicians were hurled into office on a wave of sympathy after promising to cancel the hated Washington Consensus and free their countries from the stranglehold of the IMF and the World Bank.

In Brazil, labor leader Lula de Silva came to power, in Argentina the left-Peronist Nestor Kirchner and in Ecuador, the left catholic and economist Rafael Correa ("The long sorry years of neoliberal power are ending"). In Nicaragua, an old friend from revolutionary times, Daniel Ortega, swims in the stream of the leftist turn. In Bolivia, the union leader Evo Morales won the presidential election announcing the "capitalist plundering" is at an end. Hardly in office, he nationalized the oil- and gas-economy and raised the minimum wage to $100 a month. The spark leaped from country to country. The once fickle Nestor Kirchner cancelled the privatization of the water supply forced by the IMF. 90 percent now belongs again to the Argentinean state and ten percent to the employees.

The figurehead of the great turn is Hugo Chavez. An overwhelming election victory catapulted the America- critic and Castro-admirer to power in 1998 - in Venezuela, where a cynical clique divided the oil-billions among themselves for 40 years.


The left-nationalist Hugo Chavez sees himself as the successor of the freedom hero Simon Bolivar and yearns to liberate the whole continent from the US-conquistador, not only Venezuela. "Yankee, go home." Last week he proclaimed the nationalization of the oil sector, telecommunications and the electricity supply. "We are moving toward socialism and no one can stop us."

The former officer is not merely a typical macho leader. He prepares for his immortality. By emergency powers, he can change the electoral law so he can be reelected to the end of his days ensuring Bolivarian independence.

Rhetorical talent alone did not propel figures like Chavez into office. The masses acclaimed them because the great promise of the Washington Consensus, the famous "trickle-down" effect was an empty promise. Trickle-down means: when the market's powers are freed from the state, the new wealth trickles down to the poor because constant drops hollow out the stone.

Trickle-down was the prophetic core of the Washington program, its secular utopia. Whoever is only patient long enough and keeps the state, the bureaucratic monster, in chains would be personally rewarded by the market. However the perseverance was often in vain; the poor remained poor and the surge in no way lifted all boats. For this reason, the first official act of the new Latin American governments rich in raw materials was to break a strict Washington taboo. They fight the great distress with poverty programs and state spending. In Brazil, Lula de Silva's "Bolsa Familia" guarantees the minimum for survival to eleven million households, the human right to food - even if the root of poverty is not changed (ZEIT Nr. 51/060.

The question remains why the Latin American rage explodes in an unsavory mixture of populism and nationalism. The answer is clear. After decades of military dictatorship, the prescriptions of the World Bank and the IMF enforced with the carrot and whip were seen as a new form of colonial extortion.

In addition, many see the Argentinean state bankruptcy as a consequence of a self-enslavement to American economic theory (and the dollar). The big brother from the North misled the South. The United States is not a model any more. Whoever would be successful must throw out the neoliberal horse dealers.

While the Pan American free trade agreement is on ice, Lula is forging a trade axis with South Africa and India. If this succeeds, the old hegemon, the United States, with its defeat in the Iraq war will also lose influence here. The world will be reordered in a diffuse multi-polarity of powers and the powerful. The American century, the forcible connection of democracy export and neoliberalism, ended before it even began.

The slogan "More Market, Less State" is losing a few old friends in Europe. The wind shifts and even the spic-and-span capital-elite panel that regularly feels the pulse of prominent European managers and politicians in surveys records a surprising resistance against the market radical doctrine. Countries like Finland show impressively that even corporate societies can shine with a strong state without having to pay the Californian price, the extreme inequality of a class society. In England, the motherland of free trade, the Tories suddenly discover "responsible conservatism" and criticize the "heartless" neoliberalism of a Tony Blair. While a former Maoist rose to be the hero of the lower class in the last election in the Netherlands, by redefining the role of the state, conservatives suspected of being neoliberal swallowed a resounding defeat in Austria - despite good economic statistics. In Eastern Europe after 16 years of compliant market opening, those populists have the upper hand and help the state to its old power, glory in freedom from the neoliberal doctrines of salvation and solve the new social question with the vague slogan of the "national community."

What about Germany? The avant-garde of market radicalism, the FDP, discovers the lost middle and decries the parallel-society of top managers who send thousands of employees into the Hartz IV-wilderness while stuffing their own pockets. The change of mind in parts of the CDU (centrist party of Helmut Kohl) is more honest. Unlike the sad Greens who bravely stood by Gerhard Schroeder's "tax gift policy" (Franz Walter) like the incense guard, it dawned on Christian democrats that capital gains are not reflected in jobs. They owe this discovery to Josef Ackermann, the head of Deutsche Bank.


Prime Minister Jurgen Ruttgers spoke the word breaking the tension. He described the liturgical formula "More Market, Less State" as the grand delusion of his party. The train is now moving in the other direction. This change is not "leftist." It is classical conservatism that still has a consciousness that state action is not exhausted in serving the bridal bed for the economic class.

State conservatives like Ruttgers keep a distance to the faith community of the "new bourgeoisie" who - like the talk-show guest and historian Paul Nolte - preach in sublime simplicity "we Germans" should be warmly drawn into the ice storm of globalization because risk and uncertainty are now part of economic life like the cover is part of the pot.

While there is some truth in that simplicity, there is even more that is false. Insecurity and uncertainty are not mythical powers rising from a dark bottom of the world wreaking havoc and terrorizing German living rooms. Nothing proves this better than the spectacular heart of capitalist restlessness, the private equity funds feared as "mosquitoes." On an over-liquidated capital market, three trillion dollars in funds are now on the lookout for rich spoils, often only to exploit the managed firms and resell them for profit. Even the strictly neoliberal Spiegel has cold feet. Blinded by money-multiplication magic, foreign "finance jugglers" bought old German businesses to "squeeze out their output in ever shorter cycles." Spiegel is right here. What it hides are the politicians who gave free rein to speculation capital and thus intensified the systemic instabilities of the world economy.

What should be done? The optimism that these excesses of investor capitalism may be reduced through a global social contract has evaporated. A blind tax-cutting competition within the European Union (EU) has not been stopped. The Nobel Prize winner for economics, Joseph Stiglitz, rightly summarizes in his new book "The Chances of Globalization": "We have never needed global institutions as urgently as today but trust in them has disappeared." With the Iraq war and its contempt for the United Nations, the US has weakened those "political fundamentals" necessary for implementing rules to capitalist freedom.

To prevent any misunderstanding, the magical code "More Market, Less State" has fallen in popularity. This does not mean reality is suddenly different or the era of neoliberalism will end over night. Revolution is not called in Latin America. Rather capitalism should be tamed and some of its obscenities removed.

One thing is sure. The neoliberal group think, the pensee unique, is losing its magic spell and song-and-dance charm. Economics seemed to have a monopoly on solving global crises while sociologists were marginalized as expellees of the welfare state. Abstract economic theories, for instance the theories of a Milton Friedman that are neither universal problem solvers nor export goods may not be forced on other countries with impunity. In a globalized world society, every economy must find its own path without being completely handed over to an imported one-size-fits-all wisdom.

Something else must be emphasized. Economic ideas are never only economic. Economic conceptions propagate a worldview and make statements about the good life and the weal and woe of people. The sample case world of neoliberalism seems to know only the homo oeconomicus who carries his cheap labor power to the market in a capitalism without a state and taxes. This is a very Spartan idea of human happiness that isn't really happiness at all. Survival, the rat race between winners and losers, is the only theme. However doubt is also growing in the guild. Some economists bid farewell to the idea of the cold calculating subject enslaved to economic reason alone in everyday life and in the functions of his finite existence.

In a word, what is now changing is a discourse, the eulogy of the market and its possibilities. This discourse seems more skeptical and free from illusions. The dogmatic core of the old theory dissolves. If capitalism is a religion, there are fewer and fewer believers.

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