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State-led development and neoliberalism

26th March 2010

By: Seeraj Mohamed


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There is much anti-State sentiment in South Africa, which is given much voice in the media. A great deal of negative sentiment is due to the behavior of politicians. Other disapproving views are the result of poor service delivery. There is also a free market, or neoliberal, ideological perspective that the State should be as small as possible so that markets can take care of society’s problems.

Often the negative sentiment and ideology are incorrectly conflated and confuse the real problems in society. We all know that markets will not solve societal problems. We have lived through a global economic crisis that showed in no uncertain terms that withdrawal of the State and deregulation of markets can cause great damage, with long-term implications for society.


The neoliberal revolution of the 1980s was about the role of the State in an economy. This revolution was tied to the growth in size and power of the financial institutions of countries such as the US and the UK. There was a political campaign that started in Margaret Thatcher’s Britain and Ronald Reagan’s US to deregulate finance, not only in these two countries, but also around the world.

The aim of neoliberalism was to allow big business, particularly financial institutions, in these countries more freedom to increase market control and profits around the world. This freedom entailed owning, trading and speculating anywhere in the world. It would require deregulation of labour, trade and financial markets and offshore currency markets; privatisation of State assets and more freedom for transnational corporations. The rallying cry of this movement was a call for reducing the role of the State and freeing markets.


This political campaign for freeing the markets required that the US and the UK break international agreements to control and regulate finance. These were rules that had been put in place to secure macreconomic stability within countries and prevent another Great Depression. The US and the UK were willing to threaten global economic stability. The reason for these actions was that their industrial profits were under pressure from more productive industries in Germany and Japan and cheaper products from the newly industrialised Asian countries, such as South Korea and Taiwan.

Once the US and the UK started breaking the financial and economic agreements and regulations that had promoted stability since World War II, other countries entered the race to deregulate. This competitive deregulation was how countries ensured that their corporations were not disadvantaged if they kept rules in place when other countries were liberalising. Since this period, there have been increasing financial crises and macroeconomic instability around the globe.

The US and the UK remained global financial powers after the depression and during the post-World War II period. They would bolster their global political and economic power through ensuring global market control for their financial institu-tions by pushing for the opening up of global markets to their financial firms and speculators. The language of this political campaign, which started during the Cold War and escalated after the fall of the Soviet Union, was very powerful. The rhetoric for free markets was offered as an alternative to the failed communist experiments. As a result of the Cold War, free markets were presented as necessary for democracy. The experience of State regulation in democratic capitalist countries and international agreements to maintain financial stability, which allowed recovery from the Great Depression and the war and high levels of economic growth and development, was conveniently forgotten.

The language and ideology of the neoliberal political campaign were very powerful because they became so closely tied to the Cold War. However, the campaign served the interests of a few countries and their financial institutions. If we are to develop South Africa, we have to move past neoliberal ideology and accept that there is a huge role for the State in the economy. There are weaknesses in the State, but we do not reject it because of these weaknesses – it would serve us all to help strengthen the State and to work with it to build and develop society.


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