An incomplete agenda

Figure 5.1 Delang, Claudio, 2016 Singapore’s genuine progress 1968-2014

Genuine Progress - Fully accounting for costs

One of the strengths of free market capitalism is its ability to define its own measure of success - rising aggregate standard of living measured in wealth. As a corollary it’s main weakness is what it neglects to measure - inequality and systemic hazards. Market failures are situations where “markets themselves cannot repair and that thus require active policy” (Birdsall, 2010). One way of visualizing the cumulative net effects of the externalities cost of free-market unfettered growth is the Genuine Progress index (GPI) shown in Figure 5.1.

GPI aims to account for the less visible social and environmental costs that are missed from GDP measurement. Social costs include family separation, and the unpaid labor of childcare in the home, and it adds to GDP any unpaid volunteer work. The GPI also subtracts environmental costs such as climate change costs from carbon pollution. The GPI analysis for Singapore by Claudio Delang confirms the criticism of the World Bank Economists that the income growth success claimed by the free-market policies is not as successful once all of the costs are accounted for. Singapore’s Genuine Progress was estimated to have peaked in the early 2000’s at around US $35k and declined from 2000 to 2014 (Delang, 2016) as presented in Figure 5.1.

Dropped qualities - equity and sustainability

Prosperity for a society extends beyond the minimum provision of essential needs to include other shared goals. These shared concerns extend beyond immediate material demands to include equity, resilience in response to disturbances and sustainability in the long run. The concept of prosperity loses its meaning if it were only realized by a minority, even if they had “earned it” or if the benefits could not extend further than the current living generation. The free market policy agenda resists the restraint, moderation needed to ensure equitable and sustainable prosperity and is poorly equipped at considering this wider perspective needed to strike these balances. In the critique of the Washington Consensus, the World Bank economists explained that these areas were left out in part because the ideology “relied on well-functioning markets to solve the relevant development challenges and viewed any state interference in the economy with suspicion“ (Birdsall, 2010). The other factor lamented by Williamson was that “Washington of the 1980’s was [...] essentially contemptuous of equity concerns” (Birdsall, 2010). The shortcomings listed by the World Bank economists are related to known market failures.

Missing agendas from free market capitalism

(Birdsall, 2020)

1. Moral hazard of risk in financial institutions

2. Wealth, income inequality

3. Environmental conservation, especially climate change.

Volatility

Economic volatility has a negative relationship with growth and this is one factor attributed to the mitigated outcomes for Latin America following the free market reforms (Gavin, 1997). Two factors identified are poor fiscal discipline, and short term “footloose” capital (Gavin, 1997). Higher volatility was estimated to cost 1% of economic growth in Latin America (Birdsall, 2010). Free market reforms in the financial sector particularly outside Chile may have been implemented too quickly without the corresponding regulatory institutions to monitor, manage risk and buffer against volatility (Birdsall, 2010). Deregulation of financial institutions can lead to instability in boom-bust patterns from the build-up over time of risk due to moral hazard, such as the case in the financial crisis of 2008. In his testimony to the US Congress in October 2008, Alan Greenspan described how poor statistical modeling choices, diffusion of financial risk to 3rd parties and ineffectiveness of counter-party surveillance undermined the basic premise that free markets would be better at regulating themselves than the state (Greenspan, 2008). The crisis of 2008 and the successful recovery of the Keynesian stimulus response has shifted the consensus to embrace state intervention and confirmed the risk potential of the global financial system (Jahan, 2014).