The Failure of Neoliberalism
and the Future of Capitalism
Ha-Joon Chang
Faculty of Economics &Centre of Development Studies
University of Cambridge
Website: www.hajoonchang.net

Advocates of neo-libreralism I• There is no need for regulation of derivatives because
these products are mainly traded by “largely
sophisticated financial institutions that would appear
to be eminently capable of protecting themselves fromfraud and counterparty insolvencies” (1998, Larry
Summers, Deputy Treasury Secretary)• “[P]roblem of depression prevention has been solved”(Robert Lucas, 2003, 1995 Nobel Laureate)• “Great moderation” (Ben Bernanke, 2004, as theChairman of the Council of Economic Advisors)

Advocates of neo-libreralism II• While there are “signs of froth in some local markets… a ‘bubble’ in home prices for the nation as a whole
does not appear likely”. (Alan Greenspan, June, 2005,Chairman, Federal Reserve Board)• The 25% increase in home prices in the previous twoyears “largely reflect strong economic fundamentals”.
(Ben Bernanke, October, 2005, Chairman, the Councilof Economic Advisors)• “It is hard for us, without being flippant, to even see ascenario within any kind of realm of reason that would
see us losing one dollar in any of the [CDS] transactions.” (Joe Cassano, the Chief Financial Officer, AIG)

Records of neo-liberalism: Inequality• According to an authoritative study by Andrea Cornia,
between the 1950s and the 1990s, within-country
inequality rose in two thirds of the 73 countries
reviewed.
• The 2008 ILO report, The World of Work, shows that,between 1990 and 2000, inequality increased in 16 of20 rich countries studied and in 41 out of 65
developing countries studied.
• Global inequality (treating the world as a single unit)
may have fallen slightly, but it does not really matterthat much (inequality is defined only in relation to areference group)Records of neo-liberalism: Instability I• Prince instability has fallen in many, although not all,countries since the 1980s, but other forms of instability
has increased.

• Numerous financial crisis– 1982: Chilean banking crisis– Late 1980s: the S&L crisis (bail-out equivalent to 3% of USGDP)– Late 1980s – early 1990s: Scandinavia– 1994-5: Mexico– 1997-8: Asia (Korea, Malaysia, Indonesia, Thailand)– 1998: Russia (LTCM debacle)– 1999: Brazil– 2002: Argentina

Records of neo-liberalism: Instability II• Between the Second World War and the mid1970s: virtually no country in banking crisis• Between the mid-1970s to the late 1980s:
5-10% of countries (weighted by their share ofworld income) in banking crisis• Mid-1990s: 20%• A few years in the mid-2000s: 0%• After the 2008 crisis: 35%• Reported inC. Reinhart & K. Rogoff, This Time isDifferent

Records of neo-liberalism: Growth I
Per capita GNP Growth, 1960-80
1960-70(%)

1970-80(%)

1960-80(%)

Low-income countries

1.8

1.7

1.8

Sub-Saharan Africa

1.7

0.2

1.0

Asia

1.8

2.0

1.9

Middle-income countries

3.5

3.1

3.3

East Asia and Pacific

4.9

5.7

5.3

Latin America and the Caribbean

2.9

3.2

3.1

Middle East and North Africa

1.1

3.8

2.5

Sub-Saharan Africa

2.3

1.6

2.0

Southern Europe

5.6

3.2

4.4

All Developing Countries

3.1

2.8

3.0

Industrialised Countries

3.9

2.4

3.2

Records of neo-liberalism: Growth II
Per capita GDP Growth Rates, 1980-2010

DevelopingCountries
East Asia andPacific
Europe andCentral Asia
Latin
America andthe Caribbean
Middle EastandNorth
AfricaSouth Asia
Sub-SaharanAfricaDeveloped
Countries

1980-90(%)

1990-2000(%)

1980-2000(%)

2000-10(%)

1980-2010
(%)

1.1

2.3

1.7

4.6

2.7

5.8

7.0

6.4

8.2

7.0

1.9

-0.7

0.6

3.9

1.7

-0.6

1.3

0.3

1.8

0.8

-0.1

1.8

0.8

2.5

1.3

3.1
-1.0

3.2
-0.5

3.2
-0.7

5.5
2.1

3.9
0.2

2.4

1.9

2.1

1.1

1.8

Kicking
awaytheladderpicture