National Law institute university Bhopal

Project Work in Economics

On
Market Fundamentalism

Submitted to Prof C. Rajshekhar Submitted by: Dushyant Singh

2012 BA-LLB60

Table of Contents
Acknowledgement……………………………………………..2
1
Introduction…………………………………………………….3

Policies of Western Economies………………………………...6

Case study: Chicago Boys…………………………………….8

Conclusion…………………………………………………….11

Bibliography………………………………………………….13

Acknowledgement

2
I would like to thank my Economics professor C Rajshekhar for his constant
guidance and support. I would also thank NLIU for its facilities and my friends for
their timely help.

Introduction

3
Definition:

Market fundamentalism (also known as free market fundamentalism) is a

pejorative term applied to a strong belief in the ability of laissez-faire or free
market economy views or policies to solve economic and social problems.

In simple words Market Fundamentalism is an approach, prevalent in capitalist

economies that the market should be free from any type of regulation or control by
the government or any other agent outside the market. It is believed that the
concept of free market is a panacea to all of society’s economic problems. In brief
market fundamentalism is “that free markets provide the greatest possible
equity and prosperity, and that any interference with the market process
decreases social well being.”

The literal term market fundamentalism is relatively new and was entered in the
Oxford dictionary after 1950s.

The concept of market fundamentalism advocates the complete liberty of market,

absence of subsidies, abolition of trade and custom duties etc.

The chief objectives of market fundamentalism approach can summed up as

 deregulate business and trade

 restrict state intervention
 Let the energies of entrepreneurship and free-flowing capital generate wealth
for all of those who participate in the economy.

One of the first examples of adaptation of market fundamentalism approach was

the case of Chicago Boys of the Chilean economy, which is discussed later. After
which, in 1980s, many western nations including US and Britain adopted models
similar to the concept of market fundamentalism and many other American and
4
European countries. And ever since, these countries have tried to spread the
approach of market fundamentalism and free market. These countries have
constantly criticized the other communist, socialist and restrictive economic
models like India and China.

Policies of Western Economies

5
 United States
The market fundamentalism model was adopted by US under then president
Ronald Reagan. The four main goals of Reagan’s economic policy were  

i. to reduce the growth of government spending,

ii. reduce the federal income tax and capital gains tax,
iii. Reduce government regulation, and control the money supply in order to
reduce inflation.

The model was a result of the rising unemployment and inflation. The first step
towards the deregulation of the economy was phasing out Nixon’s wage and price
control laws and domestic petroleum price and allocation controls during 1981.

One of the main policies of this model was to reduce tax rates for more investment
in the markets. One of the most peculiar steps taken by the Reagan government
was lower marginal tax rates for the wealthy and significantly higher taxes on
those earning less than $50,000., which witnessed some rollback in 1982. But in
1986, the economic model again sought to raise taxes on lower incomes, eliminate
many deductions, and reduce tax rates on the wealthy.

These policies to free the market and lower tax rates on the wealthy significantly
raised the GDP of US in 80s but at the same time witnessing the greatest decline in
the share of Federal Revenue from the GDP.

Under the Reagan government the employment grew by 2.7% per annum and the
unemployment averaging 7.5%. During this period the wage rates decreased
following the recession but the real median family income rose by 4000$.

6
Poverty levels rose from 13% in 1980 to 15.7% in 1983 but then saw a 6% decline
in subsequent years and a 33% decline from the highest level in 1983.

Inspite of these growths in the Reagan model, the U.S saw a transformation from
the world's largest international creditor to the world's largest debtor nation.

United Kingdom
In the United Kingdom the market fundamentalist model was adopted under
Margaret Thatcher and often called Thatcherism. This model claims to promote
low inflation, the small state and free markets through tight control of the money
supply, privatization and constraints on the labor movement.

The Thatcher model gave more importance to controlling the inflation rate than
reducing unemployment. Thatcherite economists believed that there was too much
money in the British economy and to solve the inflation problems the government
must control the flow of money in the economy. Thatcherism was a classic
example of a libertarian model.

The Thatcher government employed it policies by selling of the governments share

in many enterprises like BP and controlling the movement of labor and labor
markets.

7
 Case study

Chile: Chicago Boys

The Chicago Boys were a group of young Chilean economists most of whom
trained at the University of Chicago under Milton Friedman and Arnold Harberger.
The training was the result of a "Chile Project" organized in the 1950s by the US
State Department and funded by the Ford Foundation, which aimed at influencing
Chilean economic thinking. Chicago School's ideas called El ladrillo ("the brick").
On 11 September 1973, Augusto Pinochet came to power, and El ladrillo became
the basis of the new regime's economic policy. Eight of the ten principal authors of
"The Brick" were Chicago Boys.

 Chile Project was a striking example of an organized transfer of ideology from the
United States to a country within its direct sphere of influence. The education of
these Chileans derived from a specific project designed to influence the
development of Chilean economic thinking.

The Chicago Boys included:

 Jorge Cauas (Minister of Finance, 1975–1977)

 Sergio de Castro (Minister of Finance, 1977–1982)

 Pablo Barahona (Minister of Economy, 1976–1979)

8
 José Piñera (Minister of Labor and Pensions, 1978–1980, Minister of
Mining, 1980–1981) (although his PhD is from Harvard)

 Hernán Büchi (Minister of Finance, 1985–1989) (although he did his MBA

in Columbia University)

 Alvaro Bardón (Minister of Economy, 1982–1983)

 Juan Carlos Méndez (Budget Director, 1975–1981)

 Emilio Sanfuentes (Economic advisor to Central Bank)

 Sergio de la Cuadra (Minister of Finance, 1982–1983)

 Miguel Kast (Minister of Planning, 1978–1980)

 Martín Costabal (Budget Director, 1987–1989)

 Juan Ariztía Matte (Private Pension System Superintendent, 1980–1990)

 Maria Teresa Infante (Minister of Labor 1988–1990)

 Joaquín Lavín (Minister of Education, 2010–2011, Minister of Planning

2011–present)

 Cristián Larroulet (Minister of General Secretariat to the Presidency

[SEGPRES], 2010–present)

 Juan Andrés Fontaine (Minister of Economy, 2010–2011)

These economist framed the the new Chilean Economic policy which was
essentially pro-American, libertarian and allowed easy access to the enterprises
based in the US directly in the Chilean economy.

9
The major effect of these policies was the destruction of the domestic market
players and businesses and a complete domination of the market by the US
based giants.

10
 Conclusion
In reference to Sainath on Market Fundamentalism.

Sainath is a leading Indian economist known for his work in Vidarbha,

Maharashtra on farmer suicide. He has written several books and articles revolving
around the ground realities of economic policies and problems. Some of his views
are discussed here.

Sainath has, sarcastically, time and again called market fundamentalism the
“ultimate solution.” He points out that in the 90s South East Asia saw a
tremendous amount of surplus production even though they house nearly half of
the world’s hungry.

Some of the extracts of his views on market fundamentalism comment directly on

how the free market ideology creates a pseudo reality for the common people
which tells them economic problems like hunger and poverty are the problems of
anti-market economies, whereas there is evident contradiction. He also speaks how
inequality is the most prevalent feature of market fundamentalist economies, which
evident from the UNDP’s Human Development Report of 1999, which says that
world’s richest 200 people, ‘more than doubled their net worth in the four years to
1998, to over $ 1 trillion. The assets of the top three billionaires are more than the
combined GNP of all least developed countries and their 600 million people
together.’

The income gap between the top 20 per cent of the world’s population and the
bottom fifth had more than doubled between 1960 and 1997. In 1998, the top 20
per cent consumed 86 per cent of all goods and services. The bottom 20 per cent
made do with 1.3 per cent.

11
The modern day recession is a result of the blind following of the US-British
model of market fundamentalism.

The government of India has already made its first step towards it through FDI.

12
 Bibliography
 http://dilawars.wordpress.com/2012/12/08/and-then-there-was-a-the-
market/#more-199
 http://www.alternet.org/story/11059/
poverty,_market_fundamentalism_and_the_media
 http://www.longviewinstitute.org/projects/marketfundamentalism/
marketfundamentalism
 http://en.wikipedia.org/wiki/Market_fundamentalism
 http://en.wikipedia.org/wiki/Thatcherism#Thatcherite_economics
 http://en.wikipedia.org/wiki/Reaganomics
 http://en.wikipedia.org/wiki/
Financial_crisis_of_2007%E2%80%932008#Background

13