The Canary Wharf tower grew out of the undeveloped industrial landscape of South Dock in London Docklands, seen here on 18 July 1991. Photo by Richard Baker/Getty Images If Western democracies were companies, they would be dismissed as lifestyle businesses whose managers (ie, political leaders) run them to promote their own interests and wealth. Leaders pursue projects that benefit the few, rather than national goals, and leave their countries with low economic growth, heavy debt and rampant white-collar crime.
We entered this era of an unjust social order, political malaise and destabilisation almost half a century ago when the US president Ronald Reagan and the UK prime minister Margaret Thatcher introduced libertarian reforms that were embraced globally. At his first cabinet meeting as president in 1981, Reagan distributed copies of Mandate for Leadership, whose 3,000 pages came out of the Heritage Foundation, a conservative research group in Washington, DC. This became the ideology of neoliberalism, which advocated a smaller state, industry deregulation, tax cuts, strengthened defence, and roll-back of social engineering.
A year later, 60 per cent of the Mandate’s proposals had been adopted by the Reagan administration, and The New York Times called it ‘the manifesto of the Reagan revolution’. His initiative engaged Thatcher, and spread globally to dominate public policy in democracies around the world. My perspective is that of an engineer with a career as a corporate strategist and, more recently, finance academic.
In 2000, shortly after the Y2K scare, I left the corporate world for academia and research into decision-making by international finance organisations. In a round of industrial tourism, I interviewed more than 50 finance executives in Istanbul, London, Melbourne and New York. This led to three books, including Applied Investment Theory (2016), which criticised the justice system’s failure to prosecute corruption and criminal activity in large companies and among elected officials.
A framework used in corporate finance to explain the behaviour of organisations and individuals is the structure-conduct-performance (SCP) model, and it can help us understand the effects of the changes that Reagan and Thatcher brought to Western democracies. SCP conceptualises decisions within a multidimensional framework; when applied to countries, this framework postulates that their conditions are driven by the structure of institutions, laws and conventions; which drives the conduct or decisions of government, individuals and organisations; and that in turn leads to performance or outcomes. Reagan and Thatcher asserted that unleashing markets and shrinking the state would ensure prosperity.
Their signature initiatives of industry deregulation, tax reduction, market liberalisation and labour market reform won the day. It did not take long, however, for the trickle-down effects of tax cuts funded by government debt to prove disastrous. Most obvious was the Black Monday stock market crash of October 1987.
Extract — continue reading at the source.
