Neo-liberalism may be another COVID-19 victim

Posted on May 8, 2020 in Policy Context

Source: — Authors: – Opinion/Contributors

A particular form of free-market ideology has dominated political thinking since the fall of the Berlin Wall.

Known sometimes as neo-liberalism, sometimes as the Washington Consensus, it eventually came to be accepted without question by most mainstream analysts.

No more. The Washington Consensus has come under attack before, particularly during the Great Recession of 2008-09. The COVID-19 pandemic may finally signal its death.

Neo-liberalism is built on three principles: the free movement of goods and services, the free movement of capital and the free movement of labour.

In all three cases, the aim is to erase national boundaries. Governments aren’t supposed to favour their own citizens. That is called protectionism and is deemed bad.

Rather, governments are to restrict themselves to setting rules that encourage efficient globalization.

At first, the Washington Consensus had many victories. The 1994 North American Free Trade Agreement between Canada, Mexico and the United States was an early one. It encouraged manufacturers to shift production to low-wage Mexico.

That was followed by the 1995 Schengen Agreement that allowed labour to move freely throughout the European Union and the 2002 launch of the euro, a common currency for the EU. Both were lauded as positive examples of neo-liberal economic policy.

Along the way, the World Trade Organization was set up, a move that by lowering trade barriers in the developed world encouraged manufacturers to relocate to low-wage countries, such as China.

In Canada, successive federal governments did their bit for labour mobility by bringing in temporary foreign workers to do low-wage jobs.

These same governments signed additional free-trade pacts, including ones with the European Union and selected Asia-Pacific countries, such as Vietnam, South Korea and Japan. All were designed to encourage global supply chains and cheapen labour costs.

Overall, neo-liberalism seemed to be working. The developed world got its foreign-made goods at bargain basement prices. The workers of the developing world were usually exploited. But at least they had jobs.

The Great Recession of 2008-09 delivered a body blow to neo-liberalism, particularly in Europe. It revealed the dangers involved in allowing financial systems to operate without robust regulation. It highlighted the weakness of the euro.

It also spawned a populist reaction to labour mobility policies that workers, not illogically, thought were designed to keep wages down.

Now we have a pandemic that strikes right at the heart of globalization.

Neo-liberalism tells us we should scour the world looking for cost efficiencies. Yet the coronavirus punishes those who stray from home.

Neo-liberalism warns against those who would have government play a significant role in the economy. Yet the coronavirus reminds us that sometimes the state is the only game in town.

Global supply chains may work in neo-liberal theory. But in the real world of disease, fear and sharp practices, these supply chains are strikingly vulnerable. Consider the federal government’s recent difficulty in taking possession of Chinese face masks it had already bought and paid for.

Temporary foreign workers, like those employed at the Cargill slaughterhouse south of Calgary, may allow employers to save money. But when these workers contract the coronavirus, as more than 900 at the Cargill plant have done, they must still be dealt with by Canada’s health care system.

New Brunswick has handled this aspect of the labour mobility problem by banning temporary foreign workers from the province. Premier Blaine Higgs argues that, at a time when politicians are advising Canadians against travel, it makes no sense to risk COVID-19 infections by importing short-term, foreign workers from abroad.

True, employers might have to offer higher wages if they wish to attract Canadian workers. But in a world no longer defined by the Washington Consensus, what’s wrong with that?

Thomas Walkom is a Toronto-based freelance contributing columnist for the Star. Reach him via email:

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