The Neo-Liberal Dogma and Canada

By L. Abu-Jazar - August 2009.

Ideology plays a significant role in our daily activities. It is the foundation on which our moral beliefs and values are based. It is entrenched in our interactions between each other and with our government. It guides the development of public policies and laws that impact all aspects of our lives. The current dominant ideology guiding government decision is neo-liberalism.

Neo-liberalism is a set of economic policies that have dominated politics for the last 25 years. Essentially, neo-liberalism contains many elements. The foundation of neo-liberalism is a free-market economy, where there is as little government intervention as possible. Secondly, neo-liberals aim towards the privatization of public services. They argue that the private sector will deliver these services more efficiently. Neo-liberals also advocate for less spending on social services in order to minimize government intervention. Overall, a neo-liberal state is one in which each individual competes against every other individual – everyone is out for him or herself. Therefore business cards are readily handed in every walk of life so that one can further his own agenda.

Neo-liberalism is credited with economic growth, but it is also blamed for economic and social disasters such as the widening gap between the rich and poor in developed countries, and the current global financial meltdown that was created by the deregulation of banks. Canada has been governed by adamant believers in the neo-liberal philosophy from Brian Mulroney and Mike Harris to Stephen Harper, as well as others who implemented many neo-liberal ideas - Jean Chretien, Paul Martin and Dalton McGuinty. In the last 25 years we have seen leaders implement neoliberal policies such as the privatization of Canada’s hospitals, schools, municipal services, community centres, social services and utilities. They also promote free trade agreements, which have been described as “corporate bill of rights” (Keuhn, 2008:91). It also includes the cuts in funding among services that were once funded by the government such as education, child care provisions and welfare programs. In order for us to understand how neo-liberalism has become so embedded into our society, we must first understand the historical events and individuals that have gestated this ideology.

History of Neo-liberalism

Neo-liberals cite the economist Adam Smith as their founding philosopher. Adam Smith was one of the revolutionary thinkers of the 18th century, with his famous book An Inquiry into the Nature and Causes of the Wealth of Nations. As a classical liberal theorist, Smith advocated for a free market alongside minimal government intervention in the activities of the economy (Brown, 2007:145). His writing embraces the idea of an ‘invisible hand’ by which the “economic activities of profit-seeking individuals result in the greatest economic good for society as a whole” (Brown, 2007:146).

According to Smith, in a free market, the relationship between supply and demand will work itself out and weed out those goods and services that are less profitable. This market, with freedom of choice as to what an individual buys, does not need any interference by the state. And thus, those goods and services in demand will be produced in quantity, providing everyone with what they need. Essentially, a competitive market promotes the self-interest of every person because those individuals will want to accumulate capital. Smith’s idea of the economy as a self-regulating system that will thrive under competition is the central tenet in the development of neo-liberalism.

Neo-liberal beliefs first circulated in Europe, as a response to the totalitarian ideologies that existed at the time (Friedrich, 1955:509). This ideology was strongly advocated in Germany as it served as a remedy to Germany’s strong Communist and Fascist movements (Friedrich, 1955:509).

The term ‘neo-liberal’ was first coined by Alexander Rustow, in 1938 (Friedrich, 1955:510). Rustow is regarded as one of the fathers advocating for a “social market economy”. Under this economy, neo-liberals assign the government a minimum role with the exception of “hastening impending changes by facilitating them” (Friedrich, 1955:511). It calls for the government at all times to allow a free competitive market (Friedrich, 1955:511).

Rustow urged for a new form of liberalism that would intensify the role of the market economy (Friedrich, 1955:511). Rustow and his fellow neo-liberals continuously advertise their ideology as the elucidation of human freedom. However, they do not address the issue that under an economy guided by neo-liberal policies, most poor individuals will remain in a continuous cycle of poverty. The neo-liberal idea of freedom is guided by the misconception that all individuals within society have the same means to participate competitively in the market. In fact this is not the case and thus the wealthier will remain at the top while the poor struggle to climb the same ladder.

Another extremely important individual in the movement of neo-liberal economics was Friedrich Hayek, an Austrian born economist. Hayek had lectured at the University of Vienna and the London School of Economics between 1931 and 1950, when he was then appointed as a professor of social and moral sciences at the University of Chicago (Blundell, 2001:8). During his career at the Chicago School of Economics, Hayek had influenced Milton Friedman, a determined free market advocate. In 1974, Hayek was awarded the Nobel Prize in Economics and in 1991 George Bush presented Hayek with the Presidential Medal of Freedom (Blundell, 2001:8). He wrote The Road to Serfdom in 1944, where he emphasized the limitations on individual freedoms that centrally planned governments impose (Blundell, 2001:8).

Hayek adamantly believed that socialism is the mechanism that creates tyranny and chaos within society. In his literature, he uses Fascism and Nazism as the examples of how central planning can create a destructive society (Hayek, 1945:31). Hayek’s, Road to Serfdom, examines how the socialist tendencies that led Germany to its destruction were being played out in America and England during the time he was writing (Hayek, 1945:31). These symptoms include: “the increasing veneration for the state; the fatalistic acceptance of ‘inevitable trends’; the enthusiasm for ‘organization’ of everything (we now call it ‘planning’)” (Hayek, 1945:31). He suggests that the only system that will serve to minimize centralized power, exercised by one man over another, is a competitive economic system (Hayek, 1945:33).

Hayek advocates that the most effective way of planning is to make the best possible use of the forces of competition as a means of coordinating human efforts (Hayek, 1945:37). Thus, competition is the most effective way of guiding individual opportunities and capabilities. He suggests that competition works because it is the only tool that does not require the intervention of central authority (Hayek, 1945:38).

Furthermore, he believes that political freedom is meaningless without economic freedom (Hayek, 1945:43). The notion that economic and political rights are interrelated has been strongly supported by neo-liberals, as a way to influence governments and people that a free-market produces the best outcome for society. Essentially, Hayek believes that running a ‘planned state’ is unfair and inefficient and that (similar to neo-liberal advocates before him) only a truly free market will secure individual freedom (Hayek, 1945:78).

Following in Hayek’s footsteps is Milton Friedman, an extremely determined advocate for the free-market. Similar to Hayek, Milton Friedman suggested that the government should intervene in the economy as little as possible because he viewed the concentration of government power as a threat to freedom. In his book, Capitalism and Freedom, Milton Friedman discusses the relationship between economic and political freedom. He believes that socialism is bound by the idea that individual freedom is a political problem and material welfare is an economic problem (Friedman, 1962:22). He argues, that economics and politics are interconnected and a society that is socialist cannot also be democratic in guaranteeing individual freedoms (Friedman, 1962:18).

In essence, he suggests that competitive capitalism not only promotes economic freedom but also political freedom, in that it separates economic power from political power, which in turn decentralizes power (Friedman, 1962: 20). Friedman claims that capitalism is a necessary condition for political freedom. He claims that the free market gives individuals what they want and not what a group of people believe they ought to want (Friedman, 1962: 24). Essentially, the government’s role is to enforce laws and rules of the market (Friedman, 1962: 24). Friedman suggests that in a free market there should be no concentration of power and the limited power that is impossible to eliminate must be dispersed (Friedman, 1962:25). He suggests that economic power is easy to decentralize but political power is more difficult to disperse (Friedman, 1962: 26).

In Friedman’s view, public services should be privatized because the competitiveness within the market would create better quality services. He argues that if education is to be privatized then this would promote better quality education (Friedman, 1962: 31). For most of his life, Friedman has strongly advocated for a privatized education system, and has successfully persuaded governments that education is better administered through private players.

Friedman and Hayek have developed what is now known as ‘The Chicago School of Thought’. The Chicago school of thought is neo-liberal in every sense of the word. It boasts about the benefits of a free-market, capitalism, deregulation, privatization and that in order to secure human freedom, the economy must be completely free from any unnatural intervention (Mudge, 2008: 710).

Evidently, Neo-liberalism formulated in academic literature long before it became entrenched into political and economic life (Mudge, 2008:703). The re-emergence of neo-liberalism in North American political and economic systems occurred in the 1970’s, and was promoted by Anglo-Americans alongside European economists (Mudge, 2008:704). Neo-liberalism in North America became prominent during a period dominated by Soviet communism, the rise of the welfare state in Western democracies and Keynesian-like approaches to economic organization (Mudge, 2008:710). As a previous welfare state, Canada has undergone radical reformations that coincide with neo-liberal principles.

Canadian Neo-liberalism

When the Harris Conservatives were elected in Ontario in 1995, they implemented reforms that were consistent with the neo-liberal ideology (Cohen, 2004: 23), The government reduced taxes while simultaneously reducing welfare programs; minimized the government; combined municipal governments and reformed health care and education (Cohen, 2004: 24). Harris claimed these changes as apart of his ’common sense revolution’; a phrase he knew would be easy to sell in a world of marketable products. Cohen proclaims that these ideas came from economists gloating about the benefits of the free market, such as Friedman and Hayek.

With the underlying agenda of neo-liberals, the Harris government introduced Bill 26 in 1995 (Cohen, 2004: 24). This bill gave Mike Harris more authority to make budgetary cuts at his discretion. The aim of this bill was to promote economic prosperity through public sector efficiency, restructuring and streamlining (Cohen, 2004:25). While in office, Mike Harris had slashed social assistance benefits by 21.6% and frozen benefits for the disabled (Mackenzie, 2006:4).

A decade later, criminologists blamed the increase in violent crime in Toronto shootings on Harris’ cuts in social programs, education and welfare projects, (Broadbent, 2009: 102). After the large social cutbacks from Harris’ policies, Toronto had witnessed what is called the ‘summer of the gun’; where 52 people were shot dead in the span of a year. During his reign, the Harris government was conveying the belief that governments should be run like businesses. Thus, they should be concerned with profit, competition and efficiency.

When the Liberals were in government between 2003 and 2006, social spending had decreased from about 53.3% to 39.5%, which had made Canada the weakest welfare state in the North Atlantic region (Broadbent, 2009: 100). The massive cuts in spending were taken from areas such as health care, post-secondary education, affordable housing, environment protection and infrastructure (Broadbent, 2009:101).

In Ontario, funding in early childhood education, on a per-student basis has declined by nearly $2.3 billion since 1995 (Robertson, 2001:12). In British Columbia, between 2000-2001, funding per student had decreased to approximately $6529, and as a result 92 schools have been closed (leaving approximately 14000 displaced students) and 2881 teacher positions have been cut (Robertson, 2001:13). In 2009, British Columbia had an enormous $16 million cut in funding towards education, making way for more school closures and displaced students (Robertson, 2004:13).

Between 1990 – 1991 and then 2000 - 2001, enrolment in post-secondary institutions increased by 8% and the cost of living increased by more than 20% while provincial student grants declined by 5% (Mackenzie & Rosenfield, 2002:3). The Council of Ontario Universities demonstrates that provincial funding for universities decreased by $635 million within those years (Mackenzie & Rosenfield, 2002:3). In 2002 it was reported that the 11 largest universities in Ontario increased tuition by a total of $513 million (Mackenzie & Rosenfield, 2002:3).

Between 1995 and 2004, all the income growth was accumulated by the top 20% of income earners (Broadbent, 2009;104). Thus, instead of increasing taxes on the upper income groups to compensate for the lack of equality in the market distribution of the growing national income, the Liberal government had decreased the level of progressivity in the income tax system (Broadbent, 2009:105). The rate for 95% of taxpayers fell by 1 point, however for the top 1% it fell 2 points. Moreover, for the richest Canadians earning about 5.9 million dollars, the income tax rate fell from 42% to 31% in 2004 (Broadbent, 2009:105). In the 2008 OECD report, it was stated that inequality in Canada grew much more rapidly in comparison to any other OECD country (Broadbent, 2009:104).

In our contemporary Canadian state, Stephen Harper’s government is as neo-liberal as the last. Harper seeks to maximize market oriented values. Stephen Harper has decreased taxes for citizens while decreasing state funding in programs such as education and health care (Browne, 2008:37). Harper has fervently promoted for self regulatory food safety and airline safety inspections. The Harper government has provided millions of dollars in subsidies and restrained government scientists to prevent them from commenting on the negative environmental effects of tar-sands developments (Broadbent, 2009:106). The amount of money that Harper had spent to ensure that Canada’s oil industry remains competitive, could have been spent on social programs, education and the health care system. Harper has put the needs of large oil companies in Canada, over the needs of the citizens, all in the name of ensuring a competitive advantage within the global economy.

Even after the economic crisis, Harper clings to old neo-liberal values. In 2008 the corporate tax rate in Canada dropped from 22% to 19% (Broadbent, 2009: 108). Harper has made a commitment to cut the corporate tax rate to 15% by 2012 (Broadbent, 2009:108). In 4 years, all companies in Canada will have the lowest tax rate in comparison to all major industrialized countries (Broadbent, 2009:109). Thus, he is taxing corporations less, at the cost of the average citizen. Canadians will now be short-changed of public goods and services that once were seen as a government responsibility. Harper is obsessed with big businesses and what they can do for Canada rather than being concerned with how well he can serve the people who voted him in.

In my opinion, Friedman, Hayek and more recent pro-free-marketers, such as our very own Harper, have dismantled the social and ethical teachings in which their ancestors, such as Smith, served. Although neo-liberalism is a term that is very broad and covers a wide array of topics, when it comes to personal finance, the neo-liberal ideas work to fulfill the interests of a minority; the very rich, capitalist loving, predominantly male part of society. I believe this because complete privatization of goods and services illuminates inequalities between individuals. Today, it seems to be the case that social change is being shaped by capitalist ideology and in turn our modern democratic system is being ambushed by a modern economic structure; neo-liberalism.