By Dr. Jim Leontiades
Cyprus International Institute of Management
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“Neoliberalism” – what does it mean? The term is most often used by persons who are skeptical of the free market and market based decisions. It appears to refer to a distinction between the decisions based on market forces as opposed to “top down” decisions by state planners. The term has also been used by anti-globalization campaigners.
Most recently, the President of the House, Dimitris Christofias has used the term to refer to economic measures taken by the Finance Minister which were aimed at balancing the budget but which obstructed certain social measures favoured by the President of the House. The term has also been connected with the recent attempts by foreign banks to acquire Cypriot banks.
All governments are in fact characterized by a mixture of the two types of decisions, those made by the market and those by  state bodies. In all cases, it is a matter of balance. It may well be that the “right balance” depends to some degree on a nations stage of development. In the case of some less developed countries the economic necessity for certain fundamentals such as water, roads, schools, hospitals, etc., are so obvious that government planning can hardly go wrong if it allocates resources to such projects. As countries develop toward higher levels of income and wealth, economic decisions become more complicated.
The swing generally over the past two or three decades has been toward a greater emphasis on markets as opposed to state guidance by political appointees. This has been most obvious among the former Soviet Block countries. Having had a strong dose of state directed policies over some 30-40 years, they abandoned them as soon as they were free to do so, moving enthusiastically toward market based economies. Since then, their economic performance has overall shown marked improvement.
They are not alone – even Libya’s Muammar Gaddafi, an unlikely convert, is moving in this direction. He has recently dismissed some 400,000 civil servants (1/3 of the Libyan civil service) in a declared effort to move his country toward privatisation and the market.
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Market Not Always Right
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None of this implies that the market is invariably right.
In fact, many persons who might qualify as neoliberals would agree with the President of the House in opposing the acquisition by foreign investors of the Bank of Cyprus. Markets in the final analysis also require government protection and intervention to function properly.
In Cyprus, an emphasis state planning was undoubtedly useful in the past, particularly after the disruption that followed the Turkish invasion. The problem is making the transition, away from a predominance of “top down†decisions by political officials. This is particularly the case on subjects related to the economy where their professional skills typically have very little in the way of the necessary expertise that is required today if Cyprus is to comply with its EU commitments and compete successfully in a fast moving, increasingly global, world economy. In testimony, we are still encumbered with the leftovers of the political planning era in the form of numerous state projects (Cyprus Airways, RIK, Post Office, Potato Board) which testify to the disastrous results this approach can have in today’s more complex economic environment.
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A Remarkable Achievement
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Although our politicians have made very little mention of it, the fact is that our technocratic, “neoliberal” Finance Minister has engineered a remarkable economic achievement. It was only a few years ago that the economy appeared to be in dire straits- a slower rate of economic growth was compounded by major deficits in the national accounts. The state deficit in 2003 was approaching 5%. Continuation along this path would have put us in clear violation of EU guidelines and very probably obstructed our entry into the Eurozone, not to mention its long term impact on the economy. The deficit has now been turned into a surplus and our public debt is within the limits considered acceptable by the EU.
All this has been achieved with deceptive ease. Many (including myself) did not think it could be done so quickly. Other countries in similar situations have had to undergo years of cutbacks, including extensive austerity measures in order to get their economy back on track. Â But credit where credit is due. Mr. Sarris has accomplished this balancing act in record time and with very little if anything in the way of cutbacks, even if he has not been able to agree to all the social benefits that he had been asked to approve. Of course, he has made very little progress in his objective of curbing our bloated civil service, but nobody said he was a magician.
