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This article first appeared in Forum, The Edge Malaysia Weekly on November 25, 2019 - December 1, 2019

Many years ago, at the urging of a friend, I put myself through the ordeal of reading The Road to Serfdom, a 1944 classic on political and economic ideas by eminent Austrian economist Friedrich Hayek. It turned out to be a challenging but engaging read.

Reading it as a law student with no prior exposure to philosophy, the old paperback gave me a fresh insight into the doctrine that shaped the modern world and its battle for supremacy in the political, economic and social order: democracy versus authoritarianism; market versus state; capitalism versus socialism.

Until the collapse of the communist regime and the formation of the Western liberal consensus in 1989, the world was dominated by the battle between the two sets of ideals and doctrines on how society should be organised.

As the city of Santiago in Chile burned in the past weeks, I am reminded of Hayek’s argument. The Latin American country is a prime example of an economy run on the basis of the doctrine he set out to be the panacea for all economic and social ills — laissez-faire, free market and fiscally conservative. The state has a very limited role to play and the market is largely left to its own devices to operate without intervention from the government.

Chile is best known for hiring the “Chicago boys”, a group of University of Chicago economists aligned to the ideas Hayek considered supreme, to be cabinet ministers and to formulate economic policies for the country in the 1980s. To nobody’s surprise, laissez-faire was placed at the centre of Chile’s economic policy. Consequently, privatisation, deregulation and market competition are the only principles by which Chile runs its economy.

The government takes a hands-off approach even in areas where one would expect it to have a role, such as utility services and pension management. Labour union, an essential platform to allow workers to have greater leverage to negotiate for fair wages, is deemed as a menace that disrupts its economic growth.

In the early decades of the policy implementation, Chile experienced phenomenal growth. Within a decade, it leapt from the middle to the top spot of the Latin American league table by gross domestic product (GDP) per capita and became the first country in the region to be admitted to the rich nations club, the Paris-based Organisation for Economic Co-operation and Development.

Like anywhere else in the Western hemisphere at the time, any attempt to deviate from the “Chilean model” and inject some dose of social protection in the system were met with condemnation and labelled as either socialist or leftist, a term often meant to be derogatory.

But Chile’s obsession with what economic thinkers term as neo-liberalism comes at a high cost. In fact, as the violent unrest that killed and blinded protesters in Santiago has demonstrated, the doctrine has reared its ugly head.

While Chile is the richest nation in Latin America, it is also the most unequal. Numerous newspaper columns have recorded the extent of inequality as a result of Chile’s economic policy. But prominent economist and the author of bestseller Global Inequality, Branko Milanovic, perhaps has the best description to illustrate the gravity of the problem.

The bottom 5% of the poor in Chile has the same level of income as the poorest in Mongolia, whereas the top 2% enjoys an income equal to the top income earner in Germany. As if this is not distressing enough, Chile is the country where the share of billionaires, in terms of GDP, is the highest in the world. The 12 billionaires, the scions of the richest families in Chile, control wealth equivalent to 25% of the country’s GDP.

It is a similar story elsewhere where neo-liberalism shapes economic policy. Yet, as the recent European Union parliamentary elections and the US presidential campaign have shown, politics and policymaking around the world remain mired in the old paradigm. Politics is either right, considered to be pro-market, or left, the anti-market, and their policy either conservative or progressive, or worse, socialist.

While the Western notion of right and left has not crept in a big way into politics and policymaking in Malaysia, it is obvious from our national budget and economic approach that our policies continue to be driven by the precepts of neo-liberalism. Despite the alarming data on the state of income level or the concentration of wealth, for example, our policymakers have been reluctant to re-evaluate even the very policy that produces such undesirable outcomes, let alone the doctrine underpinning the policy.

It is high time that we approached our economic policy not on what ideologies and doctrines would prescribe but based on the notion of justice. Matching policies with doctrines only requires adoption of a fixed “model” but formulating them in a way that seeks to achieve social justice demands creativity and an intense understanding of context.

The former is easy, but the latter requires knowledge, expertise and a full utilisation of that body of knowledge now known as data science. It calls for decision-makers not to be constrained by ideological thinking but to exercise wisdom to make judgements on a policy-by-policy basis.

Hayek could not have foreseen the social injustice that we see today when he made his argument in favour of the neo-liberal doctrine. As the world begins to acknowledge its limitations and starts to search elsewhere for ideas that will deliver better outcomes, there is no reason why Malaysia should do otherwise.


Nazim Rahman works in private equity and is head of the World Bank and IMF’s Asia Parliamentary Network secretariat

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