The word ‘recession’ has an essentially negative quality, defined as ‘the act of withdrawing or going back’. As an idea it goes against our western sensibilities of linear progress.

In its purely economic meaning, recession is described as ‘an extended decline in general business activity’. The current decline seems set to last for the foreseeable future. Despite earlier optimistic predictions, the Bank of England has stopped taking bets on an upswing in the economy until at least mid-2010.

As the recession unfolds, I find myself less and less interested in the blame game that has gripped the media. What interests me more is the economics equivalent of the ‘science vs religion’ debate: we may know how the current situation arose and have our opinions on who is to blame, but do we really understand why?

Before the banking implosion, a number of other crises were exposing the tremendous pressure the global economy was putting on the planet.  The food crises, rising energy prices and a rapidly approaching climate tipping point sounded an alarm warning for some time before the collapse of Bear Stearns hit the panic button on Wall Street.

The common thread across the crises is, I would argue, the dogma of economic neo-liberalism and its central tenets of liberalisation, deregulation and privatisation. This ideology and its expression through economic policymaking in both advanced and developing economies around the world has sewn the seeds for the current set of overlapping crises in five key ways.

Firstly, it has exacerbated inequality. Even the most ardent supporters in laissez-faire economics will usually acknowledge that, for all its successes in delivering high global growth, free markets do not make any judgement about the distribution of wealth. The concentration of capital in the hands of a few wealthy individuals and corporations has been a key feature of modern turbo-capitalism.

In defence of this, champions of unfettered markets argue that global growth is good for all, and that a rising tide lifts all boats: the so-called trickle-down effect. Yet the evidence suggests otherwise. Since 1980, global GDP has more than doubled. And yet very little of this has been captured by the world’s least affluent people. Just two per cent of the world’s population own over half of global assets, while the world’s poorest 50 per cent control just one per cent of global assets between them.

The second major reason for the system shocks caused by neoliberal economic policymaking relates to the dismantling of state systems of social protection and the provision of public services. The presumed desirability of ‘light-touch’ government intervention in markets has translated into a global fire-sale of public assets and services upon which the poor often depend heavily; including municipal water supplies, transport systems, forests, mineral resources, financial institutions, food marketing boards and even health care and educational systems.

The public interest functions of these have been stripped back and in some cases wholly lost in the interests of market efficiencies – a case of the cart coming squarely before the horse. World Development Movement research into the impacts of water privatisation in Tanzania, Zambia, Afghanistan and the Philippines; and of liberalised and deregulated banking in Mexico and India has shown how these policies have curtailed access to these vital services to the poor.

The third systemic risk resulting from the dominance of neoliberal ideology has been the misplaced faith in the ability of laissez-faire approaches to deliver market efficiency and transparency through corporate self-regulation. It was this faith that lay behind the evisceration of financial regulators powers’ to monitor and enforce good practice in the banking sector. Yet the clear inability of the banks to sacrifice unprecedented short-term growth at the expense long term prudence and stability has ended up costing the world dearly. As noted by the billionaire investor, George Soros, unregulated financial markets have proven to be inefficient.

Meanwhile, the dismantling of cross-border capital controls has made it increasingly possible for banks and other institutions to obfuscate their balance sheets through the shadow banking system and off-shoring their assets. Approximately US $10 trillion is currently held by wealthy individuals, banks and other corporations in off-shore tax havens. This money not only represents potentially vital lost public tax revenue, but also makes a mockery of notions of trickle down wealth dispersal. Current estimates suggest that the uncaptured tax attributable to this runs to $255 billion, more than double the current total amount of official aid going to poor countries.

The fourth flaw within free market ideologies is its assumption that the private good equates to the public good, and that as a result market principles apply equally and universally to any sector of the economy. Hence, speculative activities on essential goods such as energy and food have been treated by governments and regulators as on a par with those on IT companies and car manufacturers. This has contributed to massive volatility in food and energy prices, with serious consequences for those living on the margins of economic survival. As President Bill Clinton noted in October, world leaders ‘blew it’ by treating food crops as commodities instead of as a vital right of the world’s poor.

The fifth and potentially most fatal flaw of neoliberal economic policymaking has been its inability to fairly and adequately consider the wider social costs and consequences into the market price mechanism. Thus, the credit-driven, fossil-fuelled and consumption-led growth treadmill has led to a highly unsustainable pattern of resource use in terms of impacts on the planet’s ecosystems and climate.

By the same token, the social costs of things such as child labour within retailer supply chains, human rights abuses associated with mineral extraction have generally failed to register within the pricing system. Indeed the opposite, with products that reflect the real costs of production, such as fair trade goods, usually costing more than the world market price, while the majority of globally traded goods continue to disguise the hidden social and environmental costs of production.

Despite these multiple flaws, challenging the doctrinal hegemony of neoliberal ideology was, until recently, to cast oneself as the modern version of a heretic.  But as the current financial crisis continues to expose the multiple system risks built up over the past three decades, a wave of public debate has been unleashed that openly questions the philosophy that has underpinned our broken economy.

That’s why the World Development Movement, along with over 80 other organisations are calling on G20 leaders to disavow the fallen ideology of neo-liberalism and adopt policies which “Put People First” when they meet in London next month.

The Put People First policy manifesto – which presents an economic recovery plan that would help create jobs, redress imbalances in global economic power and inequality, and tackle climate change – doesn’t seek to replace neo-liberalism with another economic monotheism. Indeed, heterodoxy is an essential feature of our beliefs: the ability for countries, and especially poor nations, to choose their own economic policies that meet its short and long-term development objectives.

Nor does Put People First reject globalisation. One of the mistakes commonly made by leaders and opinion formers alike, including Gordon Brown, is that rejecting the economic orthodoxy of liberalised markets is equivalent to a rejection of globalisation. Not so. The globalisation of technology through, for example, open source patenting, the globalisation of ideas, of cultural learning, of political cooperation to tackle truly global challenges such as climate change and HIV/AIDS, of dealing with corporate tax evasion and stronger human rights frameworks, can all thrive in the absence of a neo-liberal economic doctrine.  Indeed, some of these things would flourish more readily in the absence of an economic system that concentrates wealth and power in the hands of a few at the expense of the many.

The millions of people represented by the Put People First alliance believe that pursuing alternatives to neo-liberalism is not just politically desirable in this time of crisis, but a question of economic and ecological survival. That’s why we want people to join us in London on March 28. We must tell the G20 leaders that now is the time for reformation: the time to move from neoliberal theology to economic democracy.

- Benedict Southworth is the Director of the World Development Movement
- This article first appeared on the Open Democracy website.

March 16th, 2009 World Development Movement