The over-scaling of the neoliberal period dooms it to its demise

Excerpted from a talk by Natalia Fernández of lasindias.net:

(we recommend reading the whole article)

“What is optimal scale? The optimum size for the use of resources, starting with capital itself, that are used as means of production. Logically, scale is optimal for a particular market size and for a given technology.

If markets do not grow sharply, starting at a certain level of economic development, all the force of technological evolution will tend to reduce the optimum scale of production. Those who continue producing above that scale, using excessive capital, with larger dimensions, simply will accumulate inefficiencies.

Scales

That’s why technological development negatively affected the countries of the Soviet bloc first. Why? Because of the way they had developed, and because of the centralized nature of their economy. Both inertia and gigantism were in the DNA of their industrial organization. By the ’70s, the situation was so bad that the USSR had to assure its basic supply by buying grain from the US. The protest movements in Poland, and strikes in Russia, were the product in the ’80s of a shortage that seemed to have no remedy. The centralized system of State property was leaking everywhere. It wasn’t President Reagan who “overthrew” the Soviet bloc, but nor was it the popular protest movements. The Soviet system crumbled after dragging growing inefficiencies for two decades.

But was it different in Europe or the USA?

No, and in fact, it is precisely because of that crisis of scale that big economic changes happened in the ’80s and ’90s. What is usually known neoliberalism.

What is neoliberalism, really? A set of policies oriented towards breathing life into an over-scale of capital. What do Thatcher, Reagan and finally, Clinton do?

* Deregulate, feed the large consortia of the military and aerospace industry, in the case of the two first, and of intellectual property in the third… modify international agreements in favor of big interests… in a word, generate rents from states who compensate for the inefficiencies of Big Businesses

* Expand the size of markets, so over-scaled big businesses would make sense, which was called globalization
Capital itself was more and more over-scaled. New companies in new sectors require less and less scale, and therefore, less capital. In the ’80s, gigantic funds began to appear, masses of capital that looked for places to go.

They have to to distribute their risks in ever more places. And that means management costs and growing inefficiencies. These are typical symptoms of a problem of over-scaling. So, the neoliberal state helps, through financial deregulation and the opening of borders to capital flows, giving rise to new financial areas that will group sectors and entire regions through securitization, financialization, and a whole new series of financial products that distribute and globalize risks, making them, in the end, as we’ve seen, systemic.”

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