Government Intervention: An alternative view
The most recent edition of the IEU Stork contained among others an opinion piece entitled The Most Perverse Fetish of All: Government Intervention that cannot remain unaddressed. Before addressing the arguments put forth by the author, it should be highlighted that the author presents the reader with a distorted view of reality.
The author presents government intervention as one of the go-to instruments of modern mainstream economics, thereby setting up pro-free-market ideas as the underdog. Unfortunately, this is isn’t true. The heyday of government intervention was in the two decades after World War II. Keynesianism and its attempt to restrain and regulate economic markets have been slowly replaced by the currently mainstream neoclassical economics. Neoclassical economics, which champions the unleashing of market forces has been in the minds of policy-makers and academia alike.
Confusingly, the article lists The War on Drugs as its prime example for the failure of government intervention. However, it remains unclear how exactly a racist law enforcement campaign that was explicitly designed to stifle domestic opposition from groups opposing the Vietnam War can be construed as failed market intervention.
Moreover, the author highlights the issues arising from the European Union subsidizing the meat industry, such as overproduction, decline in price and pollution. Yet as the Guardian article cited by the author points out, the problem lies not in government intervention, but rather in “deregulation of markets, coupled with economic speculation”, which are usually associated with the lack of government intervention. Similarly, the Guardian article further points out that the problem originates not from the sheer existence of subsidies (as the article in consideration would have you believe) but rather from the “inability to distribute subsidies fairly”. Consequently, the problems correctly identified by the author are more related to the EU’s decision to prioritize large multinational corporations, such as the French Doux Group, which supplies Pizza Hut and KFC with processed chicken.
It should also be pointed out that the author over-dramatizes the environmental issues caused supposedly by the EU’s market intervention. On a global scale the greatest pollution from meat related industries is caused by South American cattle farming. It is particularly the absence of regulations in South American countries, such as Brazil, that enable corporations to inflict damage to the environment on a massive scale. The non-profit One Green Planet estimates that 2/3 of deforestation in the Amazon region is caused by cattle farming.
Furthermore, the opinion piece asserts that price ceilings are to blame for the decline in affordable housing in the center of Stockholm. Curiously, the article cited by the author gives an account that sharply contrasts the narrative presented in the opinion piece. The problem identified is not (as the author claims) caused by any price ceiling, but rather by a lack of supply. Moreover, the problem, as suggested by the author, is not that young Swedes are unable to afford housing, but rather that they are locked into never-ending waiting lists. Therefore, the issue is not government regulation, but the desire by suppliers to artificially limit supply so that they can drive up prices.
Regarding the wave of privatization that took place in the 1990s, the author reaches the conclusion that they were a shining example of how “getting rid of government can improve an economy”. The author’s sentiment couldn’t be any further from reality. The neo-liberal reforms, such as the repeal of the Glass-Steagall Act paved the way towards the disastrous economic crash of 2008.
Most recently the collapse of the UK’s second largest construction company and biggest government contractor even made the proudly neo-liberal magazine The Economist question the wisdom of privatization.
One does not need to look far and wide to find the countless victims of privatization. Neo-liberal reforms advocating limited government intervention in the economy devastated the Asian market in the late 1990s. Likewise, the similarly pro-free market and anti-government intervention Washington Consensus was successful in even further destabilizing volatile regions, such as Central America. The impact is still felt in Central American states, such as El Salvador, where economic and social neglect have culminated in mass migration and systematic violence. In the West, economic deregulation and government retreat have resulted in the deterioration of living standards and an increased feeling of social risk that expresses itself in the current xenophobic frenzy.
What the author’s opinion piece decries as “meddling in the economy” is in reality the achievement of decades of struggle between employers and organized labour. To label achievements such as the protection of workers, consumers and the environment as deceptive and ignorant is an insult to anyone interested in living in a world where dignity is valued over profits.