Unlike the neo-classical economic theory, which recognized labor as a homogenous commodity, capitalists acknowledged that labor is not an entirely homogenous commodity. Employees have a tendency to disagree on how they spend in preparation and edification, work experience and job skills also; they vary in their preferences and tastes. They also differ on monetary rather than non-monetary incentives hence resulting in labor market segmentation.
Social inequality is defined as how categories of persons are socially placed about various social goods, such as, the labor market and other income sources. Income inequality levels, for example, although moderately steady in the western countries, have risen in some of the countries most of which are experiencing extremes of wealth and poverty. In turn, this divergence in levels of inequality shows that channels of social mobility, and the degree to which these are open to various social groups, are developing in diverse ways (Charles, 2009 par. 2).
Surplus population according to Karl Marx is determined by the immanent conditions of the mode of social production. It is as a result of capital accumulation, that is, an increase in the organic element of capital and relative decline in the variable part of capital. Marx differentiates the surplus population into two kinds: the ancient population presses on the productive power, while modern power of production presses on population. In class society based on private ownership of the means of production, laborers can realize the integration with the means of production only under the condition that they provide the exploiters with surplus product; therefore, a certain percentage of the laboring population is always turned into the relative surplus population (Liu Z, 1985, pp.1-5). Surplus-population does not arise from the capital’s lack of ability to keep speed with the population growth, it arises from capitalism itself. Capitalists’ concerns are only about making the maximum profits for themselves.
With the development of new technologies and more efficient ways of production, the need for workers decreases. The invention of better means of production makes capitalists decrease the number of laborers and still be able to increase their profits at the same cost to them. In Marx’s terms, it is the change in proportion of constant to variable capital. Since there is a decrease in the demand for workers this creates surplus population. It is a result of capitalists adjusting to the changes in production and technology the best they can while maximizing their profits, even if this means hurting the laborers.
Model of Neo-Liberal f Development
This model can be regarded as a laydown of financial actions that have become extensive in about the past twenty-five years. ‘Liberalism’ signifies religious, political or economic ideas. ‘Neo’ means a new kind of liberalism. The impacts of neo-liberalism are realized when the poor become poorer and the rich more wealthy. It seeks to transfer part of the control of the economy from public to the private sector, under the belief that it will produce a more efficient government and improve the economic conditions of the nation.
Neo-liberalism means that the most influential global capital owners go back to the power of finance. This began at the end of the 1970,s because the increase in interest rates in the United States in 1979 led to the third world debt crisis. The declining profits recorded in the major countries at the end of 1960s increased and in the 1970s, led to a major capitalist crisis characterized by a swing of the entire system into financial crisis, leading to inequalities and mass unemployment. There was need to remove external rigidities and treat labor like any other commodity.
Main features of Neo-liberalism according to Elizabeth and Arnold (1996, par 2-6):
First, liberating private enterprises from any bonds imposed by the government no matter how much social damage this causes. It is through openness to international trade and investment and, cutting price controls. Also decrease of earnings by de-unionizing employees and abolishing employees’ rights that they had acquired through struggle. They argue that an unregulated market is the best way to increase economic growth, which benefits everyone. That, it is like the Reagan’s supply-side and trickles down economics, though the wealth did not trickle down.
Secondly, they advocated for cutting down public expenditure for social services like education and healthcare. In the name of reducing government’s role, the safety net for the poor, maintenance of roads, bridges and water supply are to be reduced. They never opposed the tax benefits for businesses or government subsidies.
Thirdly, it advocated for privatization of state-owned enterprises to private investors. These comprise major industries, banks, toll highways, schools, freshwater, hospitals, railways and even electricity. This led to the concentration of wealth in the hands of a few and making the public have more responsibilities.
Fourthly, they eliminated the concept of public good and replaced it with individual responsibility. This forced the poor in the society to cater for their own social security, healthcare and education by themselves.
Lastly, they promote the decline in government control of everything that could decrease earnings. It includes protection of the setting and works security through de-regulation.
Capital has required global solutions for its increase and expansion for centuries, and while recent events have made its inherent contradictions, history of capitalism shows that neo-liberalism is the most recent embodiment of a well-established cycle of movement and reconfiguration, production and investment.
Liberalism demanded the existence of the modern free market which was politically enforced through the state. The neo-liberal market had the aspiration to strengthen and develop the space and time of the market. It is hostile to economic self-sufficiency that it believed in war ‘open up markets’ and cut welfare measures taken up by the government. Neo-liberalism advocated for unrestricted government intervention and this allowed free enterprises to make a lot of money. Moreover, it led to reduction of wages through workers’ de-unionization and elimination of their rights and, all social life to be determined by market because it produced the best society design. All agents acting in the market were presumed to have access to the same information. They were presumed to be asymmetries of power or of information that interfere with capacity of individuals to make rational economic decisions in their own interest.
The establishment of intellectual property rights like patents encourages rent-seeking. Those who hold the patents rights use their monopoly to set monopoly prices and to prevent technology transfers except at a very high cost. Asymmetric power relation therefore, tends to increase rather than diminish over time unless the state steps in to counteract them. The neo-liberal assumption of perfect information and a level playing ground for competition appears as innocently utopian or a deliberate obfuscation of processes that will lead to the concentration of wealth and, therefore reinstatement of class power (David, 2005 p.68).
Neo-liberalism was founded as a result of the collapse of countrywide financial barriers. It stalwartly recommended for the elimination of exchange and capital control, and therefore opened up monetary markets to overseas investment. Furthermore, neo-liberalism was concerned with import controls, and more so the imposing of quotas and tariffs over intellectual property rights. Moreover, government contract awarding was also impacted by neoliberalism. Accordingly, these were abolished, and placed under the management of WTO (World Trade Organization). There is utmost liberty to employers in terms of hiring and firing employees and firm limitations on trade union rights. The State forced limits on companies’ behavior such as interest rates controls and lending activities to be removed. In addition, the role of states as regulators only covers anti-trust approaches, and competition, with an inclination towards capitalism. This is with the intention of protecting their business interests against an emerging cartel that could pose a danger to their business operations, as opposed to ensuring that a balance in terms of capital power is struck.
The main focus of neo-liberalism is on the microeconomic side of the economy, the operation at individual market by capitalists; rather than the macroeconomic side for function of the whole nation. Neo-liberalism is seen to be compatible to some extent with the Keynesian policies which focused on boosting government expenditure, lowering taxes and interest rates to increase the economic growth.
Labour Market Flexibility
Firms should adopt the policy of labor flexibility to avoid the frequent hiring and firing of employees. The workforce should seek new types of work to enhance diversity and should learn to go where the work opportunities are. Also, economic and national policies and, practices should be formulated to meet the requirements of firms and the workforce. In addition, firms should adopt the strategy of recruitment where they hire on temporal and flexible employment contracts. They should hire high skilled individuals and move from internal integrated to transparent pay structures. In industrialized countries, labor market flexibility was proposed by OECD which regarded higher job creation in US compared to Europe, and both World Bank and IMF have often taken a similar view. The World Development Report (2005) for instance, argued that labor market deregulation would improve the investment climate, while the IMF has argued that labor market flexibility is the key to employment creation.
Marx’s concept of the reserve army of labor implies the unemployed in capitalist society. He argued that each specific mode of manufacture had its demographic laws hence; there were no perfect substantive laws of population. With increased capitalism, the volumes of constant capital grow at a faster rate compared to variable capital. In addition, capital will become concentrated in the hands of a few and part of the working population will tend to become surplus to the requirements of capital buildup over time. The larger the prosperity of society, the larger the trade reserve army will become.
Third Way
Third way is a political and economic model which relies heavily on upon, and to some extent is defined by, its relationship to the political and social philosophies of socialism and Keynesian social democracy and neo-liberalism. Its policies and objectives occupy a broad political space that overlaps considerably with both previous social democratic thinking and neo-liberalism. This allows opportunities for significant philosophical and policy disagreements. Its cornerstone is the recognition that to lead effectively, Third Way governments need to enter into partnerships with a wide range of sectors. Neo-liberalism is a third way between capitalism and communism. Markets generally worked well under complete competition.
To employment relations, Harris asserts that “the state has a role in creating industrial laws that balance the rights of workers and employers and prevent the subservience of one to the other” (1999, p. 27). Non-liberal employment promotes unstable, low-skilled and low-paid jobs. This will in turn result in job insecurity among the population and increased competition. Inequality will increase and the gap between the rich and the poor continues to increase.
Neo-liberal governance projects have featured deep cut in state fiscal and administrative resources, and functions. The policies aimed at curbing socially and environmentally destructive effects of capitalist production, are ‘rolled’ back, and attacked through the discourses of national, regional, and urban economic competitiveness. Neo-liberal theorists are suspicious of democracy because governance by majority rule is seen as a potential threat to individual rights and constitutional liberties. Democracy is viewed as a luxury, only possible under conditions of relative wealth coupled with a strong middle-class presence to guarantee political stability. They prefer to insulate key institutions, such as central bank, from democratic pressures.
Neo-liberalism Critics
Development of Neo-liberalism based on establishment of free trade, free market and amalgamation building policies predict a global-order gleaming with augmentation and affluence. Nevertheless, international capitalism has not fetched any considerable alteration in socio-economic status of glowing states. Global capitalism widens the gap between the developing and the already developed nations. Apart from the inequalities, the global capitalistic institutions were financially superior hence they were able to control the political elites, so that they could accomplish their interests. This led to a lack of accountability and poor governance resulting in a poor delivery system. Attempts to protest against these mistakes were viewed as hindrances to freedom of people and the process of expansion.
International information communications boosted the cultural commerce of the West. They comprised: Sony, CNN, Viacom, Poly Gram and New Corporation. The global market was largely dominated by major industries such as Coca-Cola, Nike, McDonald’s; sports stadiums, and Disney branded restaurants (Jajati, 2008 par. 1). Neo-liberalism systematically tries to draw apart many of the structures that limit and regulate the functioning of the market, both with consideration to interaction between capital and labor and about relations between diverse commercial enterprises.
Conclusion
The model has not achieved either prosperity or guaranteed safety and stability. The model is viewed as a handicap to local cultures, in effect paving way for the emergence of global inequalities, in addition to worsening the plights of the part of the population that is financially challenged. In the process it creates a world of winners and losers where a few are flourishing with wealth and many are ruined in a life of suffering. There are chances that socialists in the future will intervene and fight policies that attack workers’ values in their ways of living which arise from neo-liberalism.
Reference
Andy K. (2004). Understanding Neo-liberalism: Socialist outlook. 2009. Web.
Charles W. (2009). New dimensions of social inequality: Centre for East European Language Area Studies. Web.
David H. (2005). A brief History of Neo-liberalism. New York: Oxford University Press.
Elizabeth M. & Arnold G. (1996). What in Neo-liberalism? National Network for immigrant and refugee rights. 2009. Web.
Harris P. (1999). Rogernomics, the ‘Washington consensus’ and New Zealand economic policy. In Chatterjee, S. [et al].The new politics: A third way for New Zealand). Palmerston North: Dunmore Press.
Jajati K. (2008). A critique of Neo-Liberal Development and Alternatives: Mainstream weekly, 64(26): 1-2.
Liu Z. (1985). Marx’s scientific theory of surplus population: Department of Health and Human Service, 2(3): 1-5.