The dark side of the omnipotent ideology

iWrite Essay Competition: 1st Winner

The Indian School of Business and Finance conducted an essay writing competition, iWrite, for its students, providing them with an opportunity to express their knowledge on Economics, Management and Finance by citing real-world examples or issues and their possible solutions. The competition received tremendous response from the students, where the jury shortlisted three participants for the prizes. These students were honoured during ISBF’s first virtual assembly called iAssembly. The assembly was conducted online where Chiraag Mehta, Associate Director of ISBF announced the winners and congratulated them. Aryan Gooty Agraharam, a student of BSc. Economics and Finance programme for 2020-23, attained the 1st position in the iWrite competition.

The Dark Side of the Omnipotent Ideology

Aryan Gooty Agraharam | BSc. Economics and Finance (2023)

Time is a deific tool which has the power to hide the obscenest mistakes and also concretise fundamental flaws. Like this, it has enabled a persuasive ideology to rule over us like a natures law. This ideology is called neoliberalism and has been a core element for every economical decision. Neoliberalism was one of the causes of child poverty, offshore wealth power, 2008 financial crisis and etc. You may think that this is an exaggeration, then why do you these are these crises recurrent or persistent in nature?

In 1980, the USA passed the Depository Institutions Deregulation and Monetary Control Act representing the start of their neoliberal era. Today, after 30 years, the top 1% of their citizens are $21 trillion dollars richer, while the bottom 50% are $900 billion poorer. The USA being a prime neoliberal economy has caused such unequal income distribution and their economic policies support capitalists by reducing labour power. Example: The real value of the federal minimum wage has dropped 17% since 2009 and 31% since 1968. Neoliberalist believes that an economy is at equilibrium and that if costs increase the producer tend to reduce their production. This simple ideology has resulted in such minimalist interest shown for minimum wage act in the USA, without realising how faulty it is.

Opposing this ideology an incident has took place in Seattle in 2014, where the city passed a law that would gradually increase its minimum wage to $15 an hour by 2021. As expected, the neoliberalists freaked out, but then the results were unexpected. In 2015, Seattle/Tacoma’s job growth outpaced that of the state of Washington as a whole, at 12.9% and an increase in average hourly wage by 14.5%. How did this happen? Doesn’t it defy the basic principles? Well, according to studies by CEPR, it has been found that increases in the minimum wage have no discernible effect on employment, and the Economic Policy Institution (EPI) reports showcased that a rise in the minimum wage is likely to put additional income directly back into the economy, kick-starting a virtuous cycle of greater demand for goods and services, job growth, and increased productivity. The sole reason for this being a low-income citizen has a higher propensity to consume than a high-income citizen.

When we come to India, low wage workers face the same problem. 60% of Indian population is agriculture-based, while only contributing 18% of their GDP. Even with a strong labour legislation, our country is still prone to neoliberalism. One of the key principles of neoliberalism is that people are valued by their productivity, however, in reality this statement doesn’t totally hold. People are valued by their bargaining power, which is prominent only if there is the availability of capital. An average Indian farmer owns 1.2 hectors, while an American farmer owns 179.3 hectors of land for cultivation. Therefore, imagine the difference in their average production, further remembering their difference in seeds, machinery, fertilizers and etc. In the Indian agriculture market, there is an intermediary between the buyer and seller. They might be the government but are mostly regional traders. Due to their inability to reach consumers, because of high transportation costs, and their minimal supply they are prone to unfavourable prices by traders. They become the price takers and the minimal income they receive further traps them into the poverty cycle. Due to this, approximately 76% of the farmers want to give up farming itself. Imagine how badly the Indian agriculture sector can take a hit in near future due to this known but hidden problem!

Neoliberalism is not all bad. It has brought forward globalisation, greater market competition, social reforms and etc. It lays between the shades of grey. The nature of economics is meant to be arbitrary, dynamic and uncertain. But with our collective knowledge and ability to adapt new ideas, we can tilt it towards the direction of a utopian society we all desire.