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The Origins of Neoliberalism
Neoliberalism a s break from Keysian economy
Jan 30, 2012 | www.wsws.org
... ... ...
This analysis has been vindicated by scholarly investigations into the causes of the Soviet economic collapse that facilitated the bureaucracy's dissolution of the USSR. In Russia Since 1980, published in 2008 by Cambridge University Press, Professors Steven Rosefielde and Stefan Hedlund present evidence that Gorbachev introduced measures that appear, in retrospect, to have been aimed at sabotaging the Soviet economy. "Gorbachev and his entourage," they write, "seem to have had a venal hidden agenda that caused things to get out of hand quickly." [p. 38] In a devastating appraisal of Gorbachev's policies, Rosefielde and Hedlund state:
History reveals that the grandsons of the Bolshevik coup d'état didn't destroy the Soviet Union in a valiant effort to advance the cause of communist prosperity or even to return to their common European home; instead, it transformed Soviet managers and ministers into roving bandits (asset-grabbing privateers) with a tacit presidential charter to privatize the people's assets and revenues to themselves under the new Muscovite rule of men. [p. 40]
Instead of displaying due diligence over personal use of state revenues, materials and property, inculcated in every Bolshevik since 1917, Gorbachev winked at a counterrevolution from below opening Pandora's Box. He allowed enterprises and others not only to profit maximize for the state in various ways, which was beneficial, but also to misappropriate state assets, and export the proceeds abroad. In the process, red directors disregarded state contracts and obligations, disorganizing inter-industrial intermediate input flows, and triggering a depression from which the Soviet Union never recovered and Russia has barely emerged. [p. 47]
Given all the heated debates that would later ensue about how Yeltsin and his shock therapy engendered mass plunder, it should be noted that the looting began under Gorbachev's watch. It was his malign neglect that transformed the rhetoric of Market Communism into the pillage of the nation's assets.
The scale of this plunder was astounding. It not only bankrupted the Soviet Union, forcing Russian President Boris Yeltsin to appeal to the G-7 for $6 billion of assistance on December 6, 1991, but triggered a free fall in aggregate production commencing in 1990, aptly known as catastroika.
In retrospect, the Soviet economy didn't collapse because the liberalized command economy devised after 1953 was marked for death. The system was inefficient, corrupt and reprehensible in a myriad of ways, but sustainable, as the CIA and most Sovietologists maintained. It was destroyed by Gorbachev's tolerance and complicity in allowing privateers to misappropriate state revenues, pilfer materials, spontaneously privatize, and hotwire their ill-gotten gains abroad, all of which disorganized production. [p. 49]
The analysis of Rosefielde and Hedlund, while accurate in its assessment of Gorbachev's actions, is simplistic. Gorbachev's policies can be understood only within the framework of more fundamental political and socioeconomic factors. First, and most important, the real objective crisis of the Soviet economy (which existed and preceded by many decades the accession of Gorbachev to power) developed out of the contradictions of the autarkic nationalist policies pursued by the Soviet regime since Stalin and Bukharin introduced the program of "socialism in one country" in 1924. The rapid growth and increasing complexity of the Soviet economy required access to the resources of the world economy. This access could be achieved only in one of two ways: either through the spread of socialist revolution into the advanced capitalist countries, or through the counterrevolutionary integration of the USSR into the economic structures of world capitalism.
For the Soviet bureaucracy, a parasitic social caste committed to the defense of its privileges and terrified of the working class, the revolutionary solution to the contradictions of the Soviet economy was absolutely unthinkable. The only course that it could contemplate was the second-capitulation to imperialism. This second course, moreover, opened for the leading sections of the bureaucracy the possibility of permanently securing their privileges and vastly expanding their wealth. The privileged caste would become a ruling class. The corruption of Gorbachev, Yeltsin and their associates was merely the necessary means employed by the bureaucracy to achieve this utterly reactionary and immensely destructive outcome.
On October 3, 1991, less than three months before the dissolution of the USSR, I delivered a lecture in Kiev in which I challenged the argument-which was widely propagated by the Stalinist regime-that the restoration of capitalism would bring immense benefits to the people. I stated:
In this country, capitalist restoration can only take place on the basis of the widespread destruction of the already existing productive forces and the social- cultural institutions that depended upon them. In other words, the integration of the USSR into the structure of the world capitalist economy on a capitalist basis means not the slow development of a backward national economy, but the rapid destruction of one which has sustained living conditions which are, at least for the working class, far closer to those that exist in the advanced countries than in the third world. When one examines the various schemes hatched by proponents of capitalist restoration, one cannot but conclude that they are no less ignorant than Stalin of the real workings of the world capitalist economy. And they are preparing the ground for a social tragedy that will eclipse that produced by the pragmatic and nationalistic policies of Stalin. ["Soviet Union at the Crossroads," published in The Fourth International (Fall- Winter 1992, Volume 19, No. 1, p. 109), Emphasis in the original.]
Almost exactly 20 years ago, on January 4, 1992, the Workers League held a party membership meeting in Detroit to consider the historical, political and social implications of the dissolution of the USSR. Rereading this report so many years later, I believe that it has stood the test of time. It stated that the dissolution of the USSR "represents the juridical liquidation of the workers' state and its replacement with regimes that are openly and unequivocally devoted to the destruction of the remnants of the national economy and the planning system that issued from the October Revolution. To define the CIS [Confederation of Independent States] or its independent republics as workers states would be to completely separate the definition from the concrete content which it expressed during the previous period." [David North, The End of the USSR, Labor Publications, 1992, p. 6]
The report continued:
"A revolutionary party must face reality and state what is. The Soviet working class has suffered a serious defeat. The bureaucracy has devoured the workers state before the working class was able to clean out the bureaucracy. This fact, however unpleasant, does not refute the perspective of the Fourth International. Since it was founded in 1938, our movement has repeatedly said that if the working class was not able to destroy this bureaucracy, then the Soviet Union would suffer a shipwreck. Trotsky did not call for political revolution as some sort of exaggerated response to this or that act of bureaucratic malfeasance. He said that a political revolution was necessary because only in that way could the Soviet Union, as a workers state, be defended against imperialism." [p. 6]
I sought to explain why the Soviet working class had failed to rise up in opposition to the bureaucracy's liquidation of the Soviet Union. How was it possible that the destruction of the Soviet Union-having survived the horrors of the Nazi invasion-could be carried out "by a miserable group of petty gangsters, acting in the interests of the scum of Soviet society?" I offered the following answer:
We must reply to these questions by stressing the implications of the massive destruction of revolutionary cadre carried out within the Soviet Union by the Stalinist regime. Virtually all the human representatives of the revolutionary tradition who consciously prepared and led that revolution were wiped out. And along with the political leaders of the revolution, the most creative representatives of the intelligentsia who had flourished in the early years of the Soviet state were also annihilated or terrorized into silence.
Furthermore, we must point to the deep-going alienation of the working class itself from state property. Property belonged to the state, but the state "belonged" to the bureaucracy, as Trotsky noted. The fundamental distinction between state property and bourgeois property-however important from a theoretical standpoint-became less and less relevant from a practical standpoint. It is true that capitalist exploitation did not exist in the scientific sense of the term, but that did not alter the fact that the day-to-day conditions of life in factories and mines and other workplaces were as miserable as are to be found in any of the advanced capitalist countries, and, in many cases, far worse.
Finally, we must consider the consequences of the protracted decay of the international socialist movement...
Especially during the past decade, the collapse of effective working class resistance in any part of the world to the bourgeois offensive had a demoralizing effect on Soviet workers. Capitalism assumed an aura of "invincibility," although this aura was merely the illusory reflection of the spinelessness of the labor bureaucracies all over the world, which have on every occasion betrayed the workers and capitulated to the bourgeoisie. What the Soviet workers saw was not the bitter resistance of sections of workers to the international offensive of capital, but defeats and their consequences. [p. 13-14]
The report related the destruction of the USSR by the ruling bureaucracy to a broader international phenomenon. The smashing up of the USSR was mirrored in the United States by the destruction of the trade unions as even partial instruments of working-class defense.
In every part of the world, including the advanced countries, the workers are discovering that their own parties and their own trade union organizations are engaged in the related task of systematically lowering and impoverishing the working class. [p. 22]
Finally, the report dismissed any notion that the dissolution of the USSR signified a new era of progressive capitalist development.
Millions of people are going to see imperialism for what it really is. The democratic mask is going to be torn off. The idea that imperialism is compatible with peace is going to be exposed. The very elements which drove masses into revolutionary struggle in the past are once again present. The workers of Russia and the Ukraine are going to be reminded why they made a revolution in the first place. The American workers are going to be reminded why they themselves in an earlier period engaged in the most massive struggles against the corporations. The workers of Europe are going to be reminded why their continent was the birthplace of socialism and Karl Marx. [p. 25]
The aftermath of the dissolution of the USSR: 20 years of economic crisis, social decay, and political reaction
According to liberal theory, the dissolution of the Soviet Union ought to have produced a new flowering of democracy. Of course, nothing of the sort occurred-not in the former USSR or, for that matter, in the United States. Moreover, the breakup of the Soviet Union-the so-called defeat of communism-was not followed by a triumphant resurgence of its irreconcilable enemies in the international workers' movement, the social democratic and reformist trade unions and political parties. The opposite occurred. All these organizations experienced, in the aftermath of the breakup of the USSR, a devastating and even terminal crisis. In the United States, the trade union movement-whose principal preoccupation during the entire Cold War had been the defeat of Communism-has all but collapsed. During the two decades that followed the collapse of the Soviet Union, the AFL-CIO lost a substantial portion of its membership, was reduced to a state of utter impotence, and ceased to exist as a workers' organization in any socially significant sense of the term. At the same time, everywhere in the world, the social position of the working class-from the standpoint of its influence on the direction of state policy and its ability to increase its share of the surplus value produced by its own labor-deteriorated dramatically.
Certain important conclusions flow from this fact. First, the breakup of the Soviet Union did not flow from the supposed failure of Marxism and socialism. If that had been the case, the anti-Marxist and antisocialist labor organizations should have thrived in the post-Soviet era. The fact that these organizations experienced ignominious failure compels one to uncover the common feature in the program and orientation of all the so-called labor organizations, "communist" and anticommunist alike. What was the common element in the political DNA of all these organization? The answer is that regardless of their names, conflicting political alignments and superficial ideological differences, the large labor organizations of the post-World War II period pursued essentially nationalist policies. They tied the fate of the working class to one or another nation-state. This left them incapable of responding to the increasing integration of the world economy. The emergence of transnational corporations and the associated phenomena of capitalist globalization shattered all labor organizations that based themselves on a nationalist program.
The second conclusion is that the improvement of conditions of the international working class was linked, to one degree or another, to the existence of the Soviet Union. Despite the treachery and crimes of the Stalinist bureaucracy, the existence of the USSR, a state that arose on the basis of a socialist revolution, imposed upon American and European imperialism certain political and social restraints that would otherwise have been unacceptable. The political environment of the past two decades-characterized by unrestrained imperialist militarism, the violations of international law, and the repudiation of essential principles of bourgeois democracy-is the direct outcome of the dissolution of the Soviet Union.
The breakup of the USSR was, for the great masses of its former citizens, an unmitigated disaster. Twenty years after the October Revolution, despite all the political crimes of the Stalinist regime, the new property relations established in the aftermath of the October Revolution made possible an extraordinary social transformation of backward Russia. And even after suffering horrifying losses during the four years of war with Nazi Germany, the Soviet Union experienced in the 20 years that followed the war a stupendous growth of its economy, which was accompanied by advances in science and culture that astonished the entire world.
But what is the verdict on the post-Soviet experience of the Russian people? First and foremost, the dissolution of the USSR set into motion a demographic catastrophe. Ten years after the breakup of the Soviet Union, the Russian population was shrinking at an annual rate of 750,000. Between 1983 and 2001, the number of annual births dropped by one half. 75 percent of pregnant women in Russia suffered some form of illness that endangered their unborn child. Only one quarter of infants were born healthy.
The overall health of the Russian people deteriorated dramatically after the restoration of capitalism. There was a staggering rise in alcoholism, heart disease, cancer and sexually transmitted diseases. All this occurred against the backdrop of a catastrophic breakdown of the economy of the former USSR and a dramatic rise in mass poverty.
As for democracy, the post-Soviet system was consolidated on the basis of mass murder. For more than 70 years, the Bolshevik regime's dissolution of the Constituent Assembly in January 1918-an event that did not entail the loss of a single life-was trumpeted as an unforgettable and unforgivable violation of democratic principles. But in October 1993, having lost a majority in the popularly elected parliament, the Yeltsin regime ordered the bombardment of the White House-the seat of the Russian parliament-located in the middle of Moscow. Estimates of the number of people who were killed in the military assault run as high as 2,000. On the basis of this carnage, the Yeltsin regime was effectively transformed into a dictatorship, based on the military and security forces. The regime of Putin-Medvedev continues along the same dictatorial lines. The assault on the White House was supported by the Clinton administration. Unlike the dissolution of the Constituent Assembly, the bombardment of the Russian parliament is an event that has been all but forgotten.
What is there to be said of post-Soviet Russian culture? As always, there are talented people who do their best to produce serious work. But the general picture is one of desolation. The words that have emerged from the breakup of the USSR and that define modern Russian culture, or what is left of it, are "mafia," "biznessman" and "oligarch."
What has occurred in Russia is only an extreme expression of a social and cultural breakdown that is to be observed in all capitalist countries. Can it even be said with certainty that the economic system devised in Russia is more corrupt that that which exists in Britain or the United States? The Russian oligarchs are probably cruder and more vulgar in the methods they employ. However, the argument could be plausibly made that their methods of plunder are less efficient than those employed by their counterparts in the summits of American finance. After all, the American financial oligarchs, whose speculative operations brought about the near-collapse of the US and global economy in the autumn of 2008, were able to orchestrate, within a matter of days, the transfer of the full burden of their losses to the public.
It is undoubtedly true that the dissolution of the USSR at the end of 1991 opened up endless opportunities for the use of American power-in the Balkans, the Middle East and Central Asia. But the eruption of American militarism was, in the final analysis, the expression of a more profound and historically significant tendency-the long-term decline of the economic position of American capitalism. This tendency was not reversed by the breakup of the USSR. The history of American capitalism during the past two decades has been one of decay. The brief episodes of economic growth have been based on reckless and unsustainable speculation. The Clinton boom of the 1990s was fueled by the "irrational exuberance" of Wall Street speculation, the so-called dot.com bubble. The great corporate icons of the decade-of which Enron was the shining symbol-were assigned staggering valuations on the basis of thoroughly criminal operations. It all collapsed in 2000-2001. The subsequent revival was fueled by frenzied speculation in housing. And, finally, the collapse in 2008, from which there has been no recovery.
When historians begin to recover from their intellectual stupor, they will see the collapse of the USSR and the protracted decline of American capitalism as interrelated episodes of a global crisis, arising from the inability to develop the massive productive forces developed by mankind on the basis of private ownership of the means of production and within the framework of the nation-state system.
February 12, 2009 | Blog Is Dead
Review of David Harvey's A Brief History of NeoliberalismDavid Harvey's 2005 book A Brief History of Neoliberalism
traces the origins of neoliberalism as a form of political economy through its recent history in an attempt to explain what the overarching goal of neoliberalism actually is. Although Harvey can be vague as to what the actual economic policies of neoliberalism entail, his argument as to what this new form of political economy sought to accomplish is definitely on the mark. For Harvey neoliberalism is essentially about the reconstitution of class power by the global economic elite. Thus neoliberalism in its practice has not been a "utopian project to realize a theoretical design for the reorganization of international capitalism" (Harvey, 2005, p. 19) but a practical political project meant to restore the power of economic elites. Harvey goes on to state that any time the theoretical economic principles of neoliberalism came into conflict with elite power, elite power took precedence. This is borne out by the willingness of governments who are certainly committed to theoretical neoliberalism, such as the Bush administration, to throw out free market neoliberal principles when they seriously threatened elite power. The obvious examples are the various bailouts of companies or entire industries, whom according to neoliberal theory, should be allowed to fail as a kind of punishment for market inefficiency.
On this notion of class power Harvey is at his best, since a recurrent theme promoted by neoliberals has been the idea of allowing the free market to take its course and for the government to back off. Yet these demands for the rollback of government intervention in the economy have always been one sided. The government is called on to lesson regulations and intervention in the economy only when it will benefit the economic elites. Thus labour and environmental regulations were attacked by neoliberals as distorting the price mechanisms of the free market and were seen as examples of how government intervention in the economy always leads to inefficiency. Yet the same neoliberals were surprisingly quiet in 2001 when President Bush approved a massive bailout for the airline industry. Surely if government intervention in the economy distorts prices and subverts the more efficient market mechanisms then they would oppose such "government overreach" as a gross violation of neoliberal theory? Here is where we can apply Harvey's insight about neoliberalism as more of a practical attempt to restore elite class power than as a theoretical project driven by the works of Hayek or Friedman. Thus we end up in practice with a kind of one sided neoliberalism, where government intervention is bad if it would protect labour or the environment, but government intervention is good if it will help economic elites.
The second major point that Harvey makes which is well taken, is his argument that neoliberalism has not so much been about increasing wealth, but about redistributing it. Here we have an explanation of why, despite neoliberal theory which states that market mechanisms are more efficient and therefore better at generating wealth than forms of state intervention, GDP growth rates during the neoliberal era actually declined as shown by Harvey's statistics. Again this relates to the practical aspect of neoliberalism as a reconstitution of the power of economic elites, rather than adhering to any strict form of economic theory. So despite the poor growth rates, we have seen a dramatic increase in the wealth of the economic elite, borne out by the massive increase in CEO salaries, accompanied by a decline in real wages for the poorer sectors of the population. Thus the more unequal distribution of wealth that Harvey talks about, which also reinforces the class division between the economic elite and everyone else.
Harvey terms these techniques of upward redistribution of wealth accumulation by dispossession. Harvey argues that accumulation by dispossession is the main mechanism whereby neoliberalism achieved this redistribution of wealth. He sees accumulation by dispossession as a kind of continuation or extension of the Marxian concept of primitive accumulation whereby during the onset of capitalism, common lands were privatized, labour was commodified, and exchange was monetized and financialized. Harvey lists the main aspects of accumulation by dispossession in the modern neoliberal sense as privatization and commodification, financialization, the management and manipulation of crises, and state redistributions. This defining of the precise mechanisms of accumulation by dispossession is as close as Harvey comes to giving a definition of neoliberalism itself, but he sees accumulation by dispossession as a kind of technique of neoliberalism, not as what neoliberalism itself consists of.
By sketching out the brief history of neoliberalism, Harvey explains why the techniques of accumulation by dispossession were required as a means to reconstitute class power. Prior to neoliberalism the global political economy was dominated by the form of capitalism called embedded liberalism, whereby liberal market economies were embedded inside the regulatory framework of the state. These regulations included strong union rights, unemployment insurance, strict regulation of the financial system, and other such limits to the scope of market activities. Harvey explains that neoliberalism essentially sought to disembed the liberal economies from the state's regulatory framework, and thus went about essentially privatizing the commons a second time. This contrast of neoliberalism to embedded liberalism in a historical context is useful in explaining why economic elites gravitated towards neoliberalism as a way to restoring their class power and provides an example in the form of embedded liberalism of what neoliberalism is not.
In giving his brief history of neoliberalism, Harvey touches on a couple of intriguing points which would have been interesting to pursue further. The first is the way in which neoliberals were able to find an electoral base by aligning themselves with conservative religious groups, in particular the evangelical Christian Right in the United States. He also mentions the Hindu Nationalist Party in India which used religious and nationalist sentiment to win election, after which it preceded to undertake neoliberal economic reforms. In terms of the neoliberal harnessing of the Christian Right for an electoral base, Harvey shows the interesting symmetry between the anti-state economic approach of neoliberals, and the anti-state social approach of conservative Christians who saw the liberal state as providing special privileges or affirmative action to groups such as gays and lesbians (same sex marriage), and women (abortion), which they morally disagreed with. The interesting aspect here is of course that much of the American Bible belt which provides the core of the Christian Right is also the poorest part of the United States and stood the most to lose from an adoption of neoliberal economic reforms.
Harvey alludes to a kind of false consciousness going on where people are blinded to their material economic interests by their religious beliefs, which could certainly be the case to some extent, but in many cases neoliberal ethics have become part of the sermons of various megachurches themselves. Thus if we have neoliberalism involving a return to the primitive accumulation during the rise of capitalism, it seems we also have a re-emergence of Weber's protestant ascetics espousing a neoliberal economic ethic. This means that neoliberalism is not all a top down imposition which uses religion to trick people out of their true interests as Harvey alludes to in his standard Marxist reading of the situation, but as being spurred on by religion itself from below. Thus the Christian Right electoral base was not simply concerned about conservative moral values which the neoliberals in the Reagan Republicans hooked their wagon to in order to be elected, but they were in many ways already in favour of neoliberal economics as a result of their religious beliefs. A study of the symmetry between neoliberal economic elites pushing from above, and evangelical Christians pushing for neoliberalism from below would be interesting to pursue, but it is doubtful this would interest Harvey.
Sticking with the issue of religion, the second interesting albeit underdeveloped issue that Harvey raises is the depoliticization of society. Harvey talks about how neoliberalism entails a preference for technocratic rule over democracy, and how this has stripped political institutions of their democratic and inclusive character. Harvey explains that the result of this depoliticization and creation of a disposable workforce is that people seek out social solidarity in other non-political institutions. The biggest one of these institutions of course being religion, but people have also sought to find new means of social solidarity in everything from gangs to NGOs. This concept is much better developed by Rose (1999) in his concept of the Third Sector, which is neither social nor political, but takes on a community aspect. Thus neoliberalism has the effect of privatizing politics itself, as social welfare is off loaded to religious charity, trade unions are replaced with criminal gangs, and in less developed countries the role of the developmental state is replaced by international development NGOs. As Rose focuses more on the social and political aspects of neoliberalism whereas Harvey focuses on the economic aspects, Rose can be read as a supplement to Harvey in this manner.
Where Harvey starts to run into trouble is when his vague definition of neoliberalism starts to cause confusion, especially in his chapter on China where neoliberalism is used as a synonym for capitalism. To find an entire chapter dedicated to China in a book on neoliberalism seems extremely strange, as China is one of the few states that managed to resist the global trend of neoliberalism. As Nonini (2008) points out, China has certainly been undertaking a process of capitalist reform, but in an explicitly non-neoliberal form in which the state plays an extremely strong part in intervening and directing the economy. There certainly is a process of accumulation by dispossession as Harvey points out, but the newly created capitalist class is still subservient (in the cases where they are actually different people) to the direction of the political elites in the Communist Party.
If we are to talk about neoliberalism, then we need to realize that there are different forms of capitalism, with neoliberalism being one of them. At the same time, we must realize that all transitions to capitalism are not the same, and thus can adopt different forms. As Pollin (2005) points out, China's approach to the transition to capitalism was radically different from that of Russia, who legitimately did take a neoliberal path under Yeltsin where the economy was turned over to the market wholesale with disastrous results. The cautious state-directed approach towards capitalist transition taken by China is clearly a very different method from the turn everything over to the market approach taken by Russia. Calling both of these approaches neoliberalism is messy and confusing as clearly they are substantially different.
On this point I believe Harvey is making a common mistake that opponents of not just neoliberalism, but of capitalism in general make. Harvey no doubt does not like much of the economic changes happening in China and most likely would prefer them to take another path that was less explicitly capitalist, but since the term neoliberalism conjures up much more negative connotations than the word capitalism, Harvey lumps China in with neoliberalism in an attempt to paint its transition to capitalism in a negative light. This lumping of all types of capitalism under the neoliberal umbrella is also often employed by anti-capitalist critics of the recently elected left-wing South American governments who have for the most part rejected neoliberalism, but not capitalism. Thus in an attempt to paint Presidents Chavez or Morales in a negative light for not dismantling all aspects of capitalism overnight, they are mislabelled as neoliberal as a kind of slur rather than a descriptive category. Harvey is guilty of this with regards to China, and would have been better off including a chapter on Russia under Yeltsin instead, which would have shown a dramatic example of both turning a state-managed economy over to the market, and a much more extreme form of accumulation by dispossession than is found in his Chinese examples. In Harvey's defense it may have seemed like neoliberalization was inevitable for China back in 2005, with the US constantly pressuring China to undergo reforms, but in light of the recent financial crisis, any movement towards neoliberalism by China is now completely out of the picture.
In addition to the chapter on China which is out of place, the last chapter entitled Freedom's Prospect is problematic as well. Here Harvey gives an optimistic account of how neoliberalism can be overcome from below and places his hope in a kind of reconstituted class consciousness where class struggle can resume and replace neoliberalism from below. However this seems hopelessly optimistic, as while neoliberalism certainly restored class power to the economic elites, it at the same time worked to undermine any sense of class cohesion for those below. How can class struggle be reconstituted in an era of de-unionization, of labour flexibilization, of outsourcing? Not to mention the depoliticizing effects which have led people to find social cohesion in religion or identity and cultural groups, rather than any kind of economic or political groups like class or party. Harvey, like Hardt and Negri in Multitude (2004) thinks the lack of democracy inherent in neoliberalism will be enough to form an oppositional movement which can displace neoliberalism from below.
Although Harvey's point about a lack of democracy under neoliberalism is certainly valid, this is not a concern for most people, on account of precisely the depoliticizing factors inherent in neoliberalism. People in our post-political neoliberal world find their identities in religion or culture, and are increasingly hostile to other religious or cultural groups, thus placing stark divisions between those who are supposed to resurrect the class struggle. Do evangelical Christians and Islamists want democracy, let alone oppose neoliberalism as Harvey claims they do? Not at all, and even if they did favour democracy, there is no way they would ever work together to bring it about. Furthermore most of these religious movements Harvey cites as possible sources of opposition are thoroughly neoliberal in their outlook, or at least profit greatly from it, and in no way offer any resistance. As we are witnessing now in the aftermath of the global financial crisis which has demonstrated the failure of neoliberalism--even to many of the elites who benefitted from it--any new form of capitalism is going to come from the top down, it will be a technocratic solution which will aim to abate the economic problems that are hurting everyone in the world right now, while doing as little as possible to reign in the power of economic elites. The biggest advocates of an alternative to the global neoliberal economy seem to be political leaders like Gordon Brown of the UK and newly elected Australian Prime Minister Kevin Rudd, while grassroots activists in places like the United States are inexplicably aligning with die hard neoliberals to oppose bailouts, nationalizations, and the new found lust for government intervention in the economy.
David Harvey's A Brief History of Neoliberalism could work as an excellent introduction to the concept of neoliberalism for those unfamiliar with the term if it was just a little more brief. The chapter on China is completely out of place and the overly optimistic final chapter can be either viewed as an annoying statement of false hope or as somewhat irrelevant now that neoliberalism seems bound to be replaced or at least dramatically restructured in a technocratic manner. The book is useful in explaining why neoliberal practice has not always followed neoliberal theory, and the concept of accumulation by dispossession is certainly useful analytically. Harvey's focus on neoliberalism as political economy could be supplemented by Nikolas Rose's Powers of Freedom which focuses on neoliberalism in the social and political realm.
Hardt, M. & Negri. A. (2004). Multitude: War and Democracy in the Age of Empire. New York: Penguin Books.
Harvey, D. (2005). A Brief History of Neoliberalism. Oxford: Oxford University Press.
Nonini, D. M. (2008). Is China Becoming Neoliberal? Critique of Anthropology 28(2). 145-176.
Pollin, R. (2005). Contours of Descent: U.S. Economic Fractures and the Landscape of Global Austerity (2nd ed.). London: Verso.
Rose, N. (1999). Powers of Freedom: Reframing Political Thought. Cambridge: Cambridge University Press.Posted by T at 7:47 PM
Labels: books, politics
by Anup Shah This Page Last Updated Sunday, August 22, 2010
This page: http://www.globalissues.org/article/39/a-primer-on-neoliberalism
Neoliberalism is promoted as the mechanism for global trade and investment supposedly for all nations to prosper and develop fairly and equitably. Margaret Thatcher's TINA acronym suggested that There Is No Alternative to this. But what is neoliberalism, anyway?
This section attempts to provide an overview. First, a distinction is made between political and economic liberalism. Then, neoliberalism as an ideology for how to best structure economies is explained. Lastly, for important context, there is a quick historical overview as to how this ideology developed.
This web page has the following sub-sections:
- Political versus Economic Liberalism
- Neoliberalism is...
- Brief overview of Neoliberalism's History: How did it develop?
- Free Markets Were Not Natural. They Were Enforced
- Rooted in Mercantilism
- Colonialism and Imperialism Needed To Succeed
- Going Global
- Going bust? The Global Financial Crisis Shakes Confidence
- More Information
Political versus Economic Liberalism
There is an important difference between liberal politics and liberal economics. But this distinction is usually not articulated in the mainstream.
As summarized here by Elizabeth Martinez and Arnoldo Garcia:
"Liberalism" can refer to political, economic, or even religious ideas. In the U.S. political liberalism has been a strategy to prevent social conflict. It is presented to poor and working people as progressive compared to conservative or Right wing. Economic liberalism is different. Conservative politicians who say they hate "liberals" - meaning the political type - have no real problem with economic liberalism, including neoliberalism.
- Elizabeth Martinez and Arnoldo Garcia, What is "Neo-Liberalism"?, National Network for Immigrant and Refugee Rights, January 1, 1997 (posted at CorpWatch.org)
The web site, Political Compass, also highlights these differences very well.
They show Left and Right as an economic scale, with Authoritarian and Libertarian making up the political scale, crossing the economic scale resulting in quadrants:
© Political Compass
In addition, they note that, "despite popular perceptions, the opposite of fascism is not communism but anarchism (ie liberal socialism), and that the opposite of communism (i.e. an entirely state-planned economy) is neo-liberalism (i.e. extreme deregulated economy)." This is made clear by another chart they have:
A few other charts of theirs are of interest:
1) The positions of some well-known political figures in the world
(In the above, it is interesting to note how most of the world's influential leaders, from the wealthiest and most poweful countries all fall into the area of authoritarian-right.)
2) A look at English political parties and how they fair (even the "left" ones.)
3) It is also interesting to see how the three main British political parties have changed over time, as Political Compass shows:
4) The last US elections (2004) show the political spectrum between John Kerry and George W. Bush was note that wide:
They also make a distinction about neo-conservatives and neoliberals:
U.S. neo-conservatives, with their commitment to high military spending and the global assertion of national values, tend to be more authoritarian than hard right. By contrast, neo-liberals, opposed to such moral leadership and, more especially, the ensuing demands on the tax payer, belong to a further right but less authoritarian region. Paradoxically, the "free market", in neo-con parlance, also allows for the large-scale subsidy of the military-industrial complex, a considerable degree of corporate welfare, and protectionism when deemed in the national interest. These are viewed by neo-libs as impediments to the unfettered market forces that they champion.
- About the Political Compass, January 6, 2004
What the above highlights then, is that in some countries, discourse on these topics may appear to fit into left-right balance, but when looked at a more global scale, the range of discourse may be narrow. Economic issues such as globalization, especially as it affects third world countries as well as those in the first world, require a broader range of discussion.
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Neoliberalism, in theory, is essentially about making trade between nations easier. It is about freer movement of goods, resources and enterprises in a bid to always find cheaper resources, to maximize profits and efficiency.
To help accomplish this, neoliberalism requires the removal of various controls deemed as barriers to free trade, such as:
- Certain standards, laws, legislation and regulatory measures
- Restrictions on capital flows and investment
The goal is to be able to to allow the free market to naturally balance itself via the pressures of market demands; a key to successful market-based economies.
As summarized from What is "Neo-Liberalism"? A brief definition for activists by Elizabeth Martinez and Arnoldo Garcia from Corporate Watch, the main points of neoliberalism includes:
- The rule of the market - freedom for capital, goods and services, where the market is self-regulating allowing the "trickle down" notion of wealth distribution. It also includes the deunionizing of labor forces and removals of any impediments to capital mobility, such as regulations. The freedom is from the state, or government.
- Reducing public expenditure for social services, such as health and education, by the government
- Deregulation, to allow market forces to act as a self-regulating mechanism
- Privatization of public enterprise (things from water to even the internet)
- Changing perceptions of public and community good to individualism and individual responsibility.
Overlapping the above is also what Richard Robbins, in his book, Global Problems and the Culture of Capitalism (Allyn and Bacon, 1999), summarizes (p.100) about some of the guiding principles behind this ideology of neoliberalism:
- Sustained economic growth is the way to human progress
- Free markets without government "interference" would be the most efficient and socially optimal allocation of resources
- Economic globalization would be beneficial to everyone
- Privatization removes inefficiencies of public sector
- Governments should mainly function to provide the infrastructure to advance the rule of law with respect to property rights and contracts.
At the international level then we see that this additionally translates to:
- Freedom of trade in goods and services
- Freer circulation of capital
- Freer ability to invest
The underlying assumption then is that the free markets are a good thing. They may well be, but unfortunately, reality seems different from theory. For many economists who believe in it strongly the ideology almost takes on the form of a theology. However, less discussed is the the issue of power and how that can seriously affect, influence and manipulate trade for certain interests. One would then need to ask if free trade is really possible.
From a power perspective, "free" trade in reality is seen by many around the world as a continuation of those old policies of plunder, whether it is intended to be or not. However, we do not usually hear such discussions in the mainstream media, even though thousands have protested around the world for decades.
Today then, neoliberal policies are seeing positives and negatives. Under free enterprise, there have been many innovative products. Growth and development for some have been immense. Unfortunately, for most people in the world there has been an increase in poverty and the innovation and growth has not been designed to meet immediate needs for many of the world's people. Global inequalities on various indicators are sharp. For example,
- Some 3 billion people - or half of humanity - live on under 2 dollars a day
- 86 percent of the world's resources are consumed by the world's wealthiest 20 percent
- (See this site's page on poverty facts for many more examples.)
Joseph Stiglitz, former World Bank Chief Economist (1997 to 2000), Nobel Laureate in Economics and now strong opponent of the ideology pushed by the IMF and of the current forms of globalization, notes that economic globalization in its current form risks exacerbating poverty and increasing violence if not checked, because it is impossible to separate economic issues from social and political issues.
And as J.W. Smith has argued:
One cannot separate economics, political science, and history. Politics is the control of the economy. History, when accurately and fully recorded, is that story. In most textbooks and classrooms, not only are these three fields of study separated, but they are further compartmentalized into separate subfields, obscuring the close interconnections between them.
- J.W. Smith, The World's Wasted Wealth 2, (Institute for Economic Democracy, 1994), p. 22.
Issues such as the criticisms of "free" trade, of protests around the world, and many others angles are discussed on this section's subsequent pages.
The history of neoliberalism and how it has come about is worth looking at first, however, to get some crucial context, and to understand why so many people around the world criticize it.
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Brief overview of Neoliberalism's History: How did it develop?
Free Markets Were Not Natural. They Were Enforced
The modern system of free trade, free enterprise and market-based economies, actually emerged around 200 years ago, as one of the main engines of development for the Industrial Revolution.
In 1776, British economist Adam Smith published his book, The Wealth of Nations. Adam Smith, who some regard as the father of modern free market capitalism and this very influential book, suggested that for maximum efficiency, all forms of government interventions in economic issues should be removed and that there should be no restrictions or tariffs on manufacturing and commerce within a nation for it to develop.
For this to work, social traditions had to be transformed. Free markets were not inevitable, naturally occurring processes. They had to be forced upon people. John Gray, professor of European thought at the London School of Economics, a prominent conservative political thinker and an influence on Margaret Thatcher and the New Right in Britain in the 1980s, notes:
Mid-nineteenth century England was the subject of a far-reaching experiment in social engineering. Its objective was to free economic life from social and political control and it did so by constructing a new institution, the free market, and by breaking up the more socially rooted markets that had existed in England for centuries. The free market created a new type of economy in which prices of all goods, including labour, changed without regard to their effects on society. In the past economic life had been constrained by the need to maintain social cohesion. It was conducted in social markets - markets that were embedded in society and subject to many kinds of regulation and restraint. The goal of the experiment that was attempted in mid-Victorian England was to demolish these social markets, and replace them by deregulated markets that operated independently of social needs. The rupture in England's economic life produced by the creation of the free market has been called the Great Transformation.
- John Gray, False Dawn: The Delusions of Global Capitalism, (The New Press, 1998), p.1
A detailed insight into this process of transformation is revealed by Michael Perelman, Professor of Economics at California State University. In his book The Invention of Capitalism (Duke University Press, 2000), he details how peasants did not willingly abandon their self-sufficient lifestyle to go work in factories.
- Instead they had to be forced with the active support of thinkers and economists of the time, including the famous originators of classical political economy, such as Adam Smith, David Ricardo, James Steuart and others.
- Contradicting themselves, as if it were, they argued for government policies that deprived the peasants their way of life of self-provision, to coerce them into waged labor.
- Separating the rural peasantry from their land was successful because of "ideological vigor" from people like Adam Smith, and because of a "revision of history" that created an impression of a humanitarian heritage of political economy; an inevitability to be celebrated.
- This revision, he also noted has evidently "succeeded mightily."
Rooted in Mercantilism
Adam Smith's work did, however, expose the previous fraud that was the mercantilist system, which enriched the imperial powers at the expense of others. This mercantilism had its roots in the Middle and Dark Ages of Europe, many hundreds of years earlier and also parallels various methods used by empires throughout history (including today) to control their peripheries and appropriate wealth accordingly. Furthermore, as J.W. Smith argues, even though it is claimed to be Adam Smith free trade, neoliberalism was and is mercantilism dressed up with more friendly rhetoric, while the reality remains the same as the mercantilist processes over the last several hundred years:
The powerful throughout the past centuries not only claimed an excessive share of the wealth of nature which was properly shared by all within the community, through the unequal trades of mercantilism they claimed an excessive share of the wealth on the periphery of their trading empires. Adam Smith describes mercantilism for us:
[Mercantilism's] ultimate object… is always the same, to enrich the country [city or state] by an advantageous balance of trade. It discourages the exportation of the materials of manufacture [tools and raw material], and the instruments of trade, in order to give our own workmen an advantage, and to enable them to undersell those of other nations [cities] in all foreign markets: and by restraining, in this manner, the exportation of a few commodities of no great price, it proposes to occasion a much greater and more valuable exportation of others. It encourages the importation of the materials of manufacture, in order that our own people may be enabled to work them up more cheaply, and thereby prevent a greater and more valuable importation of the manufactured commodities.
William Appleman Williams describes mercantilism at its zenith: "The world was defined as known and finite, a principle agreed upon by science and theology. Hence the chief way for a nation to promote or achieve its own wealth and happiness was to take them away from some other country."
When the injustice of mercantilism was understood, it became too embarrassing and was replaced by the supposedly just Adam Smith free trade. But free trade as practiced by Adam Smith neo-mercantilists was far from fair trade. Adam Smith unequal free trade is little more than a philosophy for the continued subtle monopolization of the wealth-producing-process, largely through continued privatization of the commons of both an internal economy and the economies of weak nations on the periphery of trading empires. So long as weak nations could be forced to accept the unequal trades of Adam Smith free trade, they would be handing their wealth to the imperial-centers-of-capital of their own free will. In short, Adam Smith free trade, as established by neo-mercantilists, was only mercantilism hiding under the cover of free trade.
- J.W. Smith, Cooperative Capitalism; A Blueprint for Global Peace and Prosperity, (Quality Books, Inc, 2003), pp.4-5
Colonialism and Imperialism Needed To Succeed
Free trade formed the basis of free enterprise for capitalists and up until the Great Depression of the 1930s was the primary economic theory followed in the United States and Britain. But from a global perspective, this free trade was accompanied by geopolitics making it look more like mercantilism. For both these nations (as well as others) to succeeded and remain competitive in the international arena, they had a strong foundation of imperialism, colonialism and subjugation of others in order to have access to the resources required to produce such vast wealth. As J.W. Smith notes above, this was hardly the free trade that Adam Smith suggested and it seemed like a continuation of mercantilist policies.
However, even during its prevalent times before the Second World War, neoliberalism had already started to show signs of increasing disparities between rich and poor.
Because of the Great Depression in the 1930s, an economist, John Maynard Keynes, suggested that regulation and government intervention was actually needed in order to provide more equity in development. This led to the "Keynesian" model of development and after World War II formed the foundation for the rebuilding of the U.S-European-centered international economic system. The Marshall Plan for Europe helped reconstruct it and the European nations saw the benefits of social provisions such as health, education and so on, as did the U.S. under President Roosevelt's New Deal.
In fact, the Bretton Woods Institutions (the International Monetary Fund (IMF) and World Bank) were actually designed with Keynesian policies in mind; to help provide international regulation and control of capital. As Susan George notes, "when these institutions were created at Bretton Woods in 1944, their mandate was to help prevent future conflicts by lending for reconstruction and development and by smoothing out temporary balance of payments problems. They had no control over individual government's economic decisions nor did their mandate include a license to intervene in national policy." This is very different from what they are doing today.
In 1945 or 1950, if you had seriously proposed any of the ideas and policies in today's standard neo-liberal toolkit, you would have been laughed off the stage at or sent off to the insane asylum. At least in the Western countries, at that time, everyone was a Keynesian, a social democrat or a social-Christian democrat or some shade of Marxist. The idea that the market should be allowed to make major social and political decisions; the idea that the State should voluntarily reduce its role in the economy, or that corporations should be given total freedom, that trade unions should be curbed and citizens given much less rather than more social protection - such ideas were utterly foreign to the spirit of the time. Even if someone actually agreed with these ideas, he or she would have hesitated to take such a position in public and would have had a hard time finding an audience.
- Susan George, A Short History of Neoliberalism: Twenty Years of Elite Economics and Emerging Opportunities for Structural Change, Conference on Economic Sovereignty in a Globalising World, Bangkok, 24-26 March 1999
However, as elites and corporations saw their profits diminish with this equalizing effect, economic liberalism was revived, hence the term "neoliberalism". Except, that this new form was not just limited to national boundaries, but instead was to apply to international economics as well. Starting from the University of Chicago with the philosopher-economist Friedrich von Hayek and his students such as Milton Friedman, the ideology of neoliberalism was pushed very thoroughly around the world.
Even before this though, there were indications that the world economic order was headed this way: the majority of wars throughout history have had economics, trade and resources at their core. The want for access to cheap resources to continue creating vast wealth and power allowed the imperial empires to justify military action, imperialism and colonialism in the name of "national interests", "national security", "humanitarian" intervention and so on. In fact, as J.W. Smith notes:
The wealth of the ancient city-states of Venice and Genoa was based on their powerful navies, and treaties with other great powers to control trade. This evolved into nations designing their trade policies to intercept the wealth of others (mercantilism). Occasionally one powerful country would overwhelm another through interception of its wealth though a trade war, covert war, or hot war; but the weaker, less developed countries usually lose in these exchanges. It is the military power of the more developed countries that permits them to dictate the terms of trade and maintain unequal relationships.
- J.W. Smith, The World's Wasted Wealth 2, (Institute for Economic Democracy, 1994), p. 120.
As European and American economies grew, they needed to continue expansion to maintain the high standards of living that some elites were attaining in those days. This required holding on to, and expanding colonial territories in order to gain further access to the raw materials and resources, as well exploiting cheap labor. Those who resisted were often met with brutal repression or military interventions. This is not a controversial perception. Even U.S. President Woodrow Wilson recognized this in the early part of the 20th century:
Since trade ignores national boundaries and the manufacturer insists on having the world as a market, the flag of his nation must follow him, and the doors of the nations which are closed against him must be battered down. Concessions obtained by financiers must be safeguarded by ministers of state, even if the sovereignty of unwilling nations be outraged in the process. Colonies must be obtained or planted, in order that no useful corner of the world may be overlooked or left unused.
- Woodrow Wilson, President of the United States, 1919, Quoted by Noam Chomsky, On Power and Ideology, (South End Press, 1990), p.14.
Richard Robbins, Professor of Anthropology and author of Global Problems and the Culture of Capitalism is also worth quoting at length:
The Great Global Depression of 1873 that lasted essentially until 1895 was the first great manifestation of the capitalist business crisis. The depression was not the first economic crisis [as there had been many for thousands of years] but the financial collapse of 1873 revealed the degree of global economic integration, and how economic events in one part of the globe could reverberate in others.…
The Depression of 1873 revealed another big problem with capitalist expansion and perpetual growth: it can continue only as long as there is a ready supply of raw materials and an increasing demand for goods, along with ways to invest profits and capital. Given this situation, if you were an American or European investor in 1873, where would you look for economic expansion?
The obvious answer was to expand European and American power overseas, particularly into areas that remained relatively untouched by capitalist expansion - Africa, Asia, and the Pacific. Colonialism had become, in fact, a recognized solution to the need to expand markets, increase opportunities for investors, and ensure the supply of raw material. Cecil Rhodes, one of the great figures of England's colonization of Africa, recognized the importance of overseas expansion for maintaining peace at home. In 1895 Rhodes said:
I was in the East End of London yesterday and attended a meeting of the unemployed. I listened to the wild speeches, which were just a cry for "bread", "bread," and on my way home I pondered over the scene and I became more than ever convinced of the importance of imperialism.… My cherished idea is a solution for the social problem, i.e., in order to save the 40,000,000 inhabitants of the United Kingdom from a bloody civil war, we colonial statesmen must acquire new lands for settling the surplus population, to provide new markets for the goods produced in the factories and mines. The Empire, as I have always said, is a bread and butter question. If you want to avoid civil war, you must become imperialist.
As a result of this cry for imperialist expansion, people all over the world were converted into producers of export crops as millions of subsistence farmers were forced to become wage laborers producing for the market and required to purchase from European and American merchants and industrialists, rather than supply for themselves, their basic needs.
- Richard H. Robbins, Global Problems and the Culture of Capitalism, (Allyn and Bacon), pp. 93-94
World War I was, in effect, a resource war as Imperial centers battled over themselves for control of the rest of the world. World War II was another such battle, perhaps the ultimate one. However, the former imperial nations realized that to fight like this is not the way, and became more cooperative instead.
Unfortunately, that cooperation was not for all the world's interests primarily, but their own. The Soviet attempt of an independent path to development (flawed that it was, because of its centralized, paranoid and totalitarian perspectives), was a threat to these centers of capital because their own colonies might "get the wrong idea" and also try for an independent path to their development.
Because World War II left the empires weak, the colonized countries started to break free. In some places, where countries had the potential to bring more democratic processes into place and maybe even provide an example for their neighbors to follow it threatened multinational corporations and their imperial (or former imperial) states (for example, by reducing access to cheap resources). As a result, their influence, power and control was also threatened. Often then, military actions were sanctioned. To the home populations, the fear of communism was touted, even if it was not the case, in order to gain support.
… you have to sell [intervention or other military actions] in such a way as to create the misimpression that it is the Soviet Union the you are fighting…
- Professor Samuel Huntingdon, Harvard University, Quoted by Noam Chomsky in Latin America: From Colonization to Globalization, (Ocean Press, 1999), p.18)
The net effect was that everyone fell into line, as if it were, allowing a form of globalization that suited the big businesses and elite classes mainly of the former imperial powers. (Hence, there is no surprise that some of the main World War II rivals, USA, Germany and Japan as well as other European nations are so prosperous, while the former colonial countries are still so poor; the economic booms of those wealthy nations have been at the expense of most people around the world.) Thus, to ensure this unequal success, power, and advantage globalization was backed up with military might (and still is).
Hence, even with what seemed like the end of imperialism and colonialism at the end of World War II, and the promotion of Adam Smith free trade and free markets, mercantilist policies still continued. (Adam Smith exposed the previous system as mercantilist and unjust. He then proposed free market capitalism as the alternative. Yet, a reading of Adam Smith's Wealth of Nations would reveal that today is a far cry from the free market capitalism he suggested, and instead could still be considered monopoly capitalism, or the age-old mercantilism that he had exposed! More about this in the next section on this site.) And so, a belief system had to accompany the political objectives:
When the blatant injustices of mercantilist imperialism became too embarrassing, a belief system was imposed that mercantilism had been abandoned and true free trade was in place. In reality the same wealth confiscation went on, deeply buried within complex systems of monopolies and unequal trade hiding under the cover of free trade. Many explanations were given for wars between the imperial nations when there was really one common thread: "Who will control resources and trade and the wealth produced through inequalities in trade?" All this is proven by the inequalities of trade siphoning the world's wealth to imperial centers of capital today just as they did when the secret of plunder by trade was learned centuries ago. The battles over the world's wealth have only kept hiding behind different belief systems each time the secrets of laying claim to the wealth of others' have been exposed.
- J.W. Smith, Economic Democracy; The Political Struggle for the 21st Century, (M.E. Sharpe, 2000) p.126
The Reagan and Thatcher era in particular, saw neoliberalism pushed to most parts of the globe, almost demonizing anything that was publicly owned, encouraging the privatization of anything it could, using military interventions if needed. Structural Adjustment policies were used to open up economies of poorer countries so that big businesses from the rich countries could own or access many resources cheaply.
Lori Wallach, Director of Global Trade Watch, also describes in a video clip (4:30 minutes, transcript) how even the term free "trade" is misleading, for the free trade agenda pushed through the World Trade Organization includes many non-trade issues, such that trade is just one small part:
Lori Wallach, Free Trade-The Price Paid (Part One), April 13, 2005, © Big Picture TV
The belief in free markets (or the version being promoted) was very ideological:
So, from a small, unpopular sect with virtually no influence, neo-liberalism has become the major world religion with its dogmatic doctrine, its priesthood, its law-giving institutions and perhaps most important of all, its hell for heathen and sinners who dare to contest the revealed truth. Oskar Lafontaine, the ex-German Finance Minister who the Financial Times called an "unreconstructed Keynesian" has just been consigned to that hell because he dared to propose higher taxes on corporations and tax cuts for ordinary and less well-off families.
1979, the year Margaret Thatcher came to power and undertook the neo-liberal revolution in Britain. The Iron Lady was herself a disciple of Friedrich von Hayek, she was a social Darwinist and had no qualms about expressing her convictions. She was well known for justifying her program with the single word TINA, short for There Is No Alternative. The central value of Thatcher's doctrine and of neo-liberalism itself is the notion of competition - competition between nations, regions, firms and of course between individuals. Competition is central because it separates the sheep from the goats, the men from the boys, the fit from the unfit. It is supposed to allocate all resources, whether physical, natural, human or financial with the greatest possible efficiency.
In sharp contrast, the great Chinese philosopher Lao Tzu ended his Tao-te Ching with these words: "Above all, do not compete". The only actors in the neo-liberal world who seem to have taken his advice are the largest actors of all, the Transnational Corporations. The principle of competition scarcely applies to them; they prefer to practice what we could call Alliance Capitalism.
- Susan George, A Short History of Neoliberalism: Twenty Years of Elite Economics and Emerging Opportunities for Structural Change, Conference on Economic Sovereignty in a Globalising World, Bangkok, 24-26 March 1999
As former World Bank Chief Economist Josepth Stiglitz notes, it is a simplistic ideology which most developed nations have resisted themselves:
The Washington Consensus policies, however, were based on a simplistic model of the market economy, the competitive equilibrium model, in which Adam Smith's invisible hand works, and works perfectly. Because in this model there is no need for government - that is, free, unfettered, "liberal" markets work perfectly - the Washington Consensus policies are sometimes referred to as "neo-liberal," based on "market fundamentalism," a resuscitation of the laissez-faire policies that were popular in some circles in the nineteenth century. In the aftermath of the Great Depression and the recognition of other failings of the market system, from massive inequality to unlivable cities marred by pollution and decay, these free market policies have been widely rejected in the more advanced industrial countries, though within these countries there remains an active debate about the appropriate balance between government and markets.
- Joseph Stiglitz, Globalization and Its Discontents, (Allen Lane/Penguin Books, 2002), p.74
Activist and academic Raj Patel explains that prices do not accurately reflect the value of commodities due to so many externalities (a $4 hamburger should cost $200 for example if some environmental aspects are factored in, for example), and also notes that various leading proponents of neoliberalism are now admitting it too, in the wake of the financial crash in 2008. Furthermore, markets aren't separate from social and political contexts in which they function, yet, business leaders and governments were all too willing to go for the simpler soundbites:
The problem with the Efficient Markets Hypothesis is that it doesn't work. If it were true, then there'd be no incentive to invest in research because the market would, by magic, have beaten you to it. Economists Sanford Grossman and Joseph Stiglitz demonstrated this in 1980, and hundreds of subsequent studies have pointed out quite how unrealistic the hypothesis is, some of the most influential of which were written by Eugene Fama himself [who first formulated the idea as a a Ph.D. student in the University of Chicago Business School in the 1960s]. Markets can behave irrationally-investors can herd behind a stock, pushing its value up in ways entirely unrelated to the stock being traded.
Despite ample economic evidence to suggest it was false, the idea of efficient markets ran riot through governments.
- Raj Patel, Flaw , The Value of Nothing, (Picador, 2010), pp.10-11, 12-13
Since the Cold War has ended, it is almost no surprise that today's globalization has come in the form we see it - that is where it would have been had the Cold War not got "in the way". The World Wars were about rival powers fighting amongst themselves to the spoils of the rest of the world; maintaining their empires and influence over the terms of world trade, commerce and, ultimately, power.
Throughout the Cold War, we contained a global threat to market democracies: now we should seek to enlarge their reach.
- Anthony Lake, National Security adviser, 1990, quoted from Noam Chomsky, World Orders Old and New, (Columbia University Press, 1996), p.71.
John Gray, mentioned above, notes that the same processes to force the peasantry off their lands and into waged labor, and to socially engineer a transformation to free markets is also taking place today in the third world:
The achievement of a similar transformation [as in mid-nineteenth century England] is the overriding objective today of transnational organizations such as the World Trade Organisation, the International Monetary Fund and the Organisation for Economic Cooperation and Development. In advancing this revolutionary project they are following the lead of the world's last great Enlightenment regime, the United States. The thinkers of the Enlightenment, such as Thomas Jefferson, Tom Paine, John Stuart Mill and Karl Marx never doubted that the future for every nation in the world was to accept some version of western institutions and values. A diversity of cultures was not a permanent condition of human life. It was a stage on the way to a universal civilization, in which the varied traditions and culture of the past were superseded by a new, universal community founded on reason.
- John Gray, False Dawn: The Delusions of Global Capitalism, (The New Press, 1998), pp.1-2
Gray also notes how this western view of the world is not necessarily compatible with the views of other cultures and this imposition for a western view of civilization may not be accepted by everyone. Ironically then, using terms like "Enlightenment", "freedom", "liberty", etc, which is common in such discourse, as Gray notes, results in conformity, almost totalitarian in nature.
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Going bust? The Global Financial Crisis Shakes Confidence
Around mid-2008 a financial crisis, starting in the US, spread around the world into a global financial crisis, and then into a more general economic crisis, which, as of writing this, the world has still not recovered from.
The crisis has been so severe, criticisms of market fundamentalism and neoliberalism are more widespread than before.
The Value of Nothing, Raj Patel, July 28, 2010
Raj Patel argues that the markets in their current shape have created a convoluted idea of value; "value meals" are cheap but unhealthy whereas fruit and veg are often more expensive; rainforests are hardly valued whereas felling trees adds to the economy.
Flawed assumptions about the underlying economic systems contributed to this problem and had been building up for a long time, the current financial crisis being one of its eventualities.
This problem could have been averted (in theory) as people had been pointing to these issues for decades. Yet, of course, during periods of boom no-one (let alone the financial institutions and their supporting ideologues and politicians largely believed to be responsible for the bulk of the problems) would want to hear of caution and even thoughts of the kind of regulation that many are now advocating. To suggest anything would be anti-capitalism or socialism or some other label that could effectively shut up even the most prominent of economists raising concerns.
Of course, the irony that those same institutions would now themselves agree that those "anti-capitalist" regulations are required is of course barely noted. Such options now being considered are not anti-capitalist. However, they could be described as more regulatory or managed rather than completely free or laissez faire capitalism, which critics of regulation have often preferred. But a regulatory capitalist economy is very different to a state-based command economy, the style of which the Soviet Union was known for. The points is that there are various forms of capitalism, not just the black-and-white capitalism and communism. And at the same time, the most extreme forms of capitalism can also lead to the bigger bubbles and the bigger busts.
In that context, the financial crisis, as severe as it was, led to key architects of the system admitting to flaws in key aspects of the ideology.
At the end of 2008, Alan Greenspan was summoned to the U.S. Congress to testify about the financial crisis. His tenure at the Federal Reserve had been long and lauded, and Congress wanted to know what had gone wrong. Henry Waxman questioned him:
I found a flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak.
In other words, you found that your view of the world, your ideology, was not right, it was not working.
Precisely. That is precisely the reason I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well.
[Greenspan's flaw] warped his view about how the world was organized, about the sociology of the market. And Greenspan is not alone. Larry Summers, the president's senior economic advisor, has had to come to terms with a similar error-his view that the market was inherently self-stabilizing has been "dealt a fatal blow." Hank Paulson, Bush's treasury secretary, has shrugged his shoulders with similar resignation. Even Jim Cramer from CNBC's Mad Money admitted defeat: "The only guy who really called this right was Karl Marx." One after the other, the celebrants of the free market are finding themselves, to use the language of the market, corrected.
- Raj Patel, Flaw , The Value of Nothing, (Picador, 2010), pp.4, 6-7
Quoting Stiglitz again, he captures the sentiments of a number of people:
We had become accustomed to the hypocrisy. The banks reject any suggestion they should face regulation, rebuff any move towards anti-trust measures - yet when trouble strikes, all of a sudden they demand state intervention: they must be bailed out; they are too big, too important to be allowed to fail.
America's financial system failed in its two crucial responsibilities: managing risk and allocating capital. The industry as a whole has not been doing what it should be doing … and it must now face change in its regulatory structures. Regrettably, many of the worst elements of the US financial system … were exported to the rest of the world.
- Joseph Stiglitz, The fruit of hypocrisy; Dishonesty in the finance sector dragged us here, and Washington looks ill-equipped to guide us out, The Guardian, September 16, 2008
Some of these regulatory measures have been easy to get around for various reasons. Some reasons for weak regulation that entrepreneur Mark Shuttleworth describes include that regulators
- Are poorly paid or are not the best talent
- Often lack true independence (or are corrupted by industries lobbying for favors)
- May lack teeth or courage in face of hostile industries and a politically hostile climate to regulation.
Given its crucial role, it is extremely important to invest in it too, Shuttleworth stresses.
However, this crisis wasted almost a generation of talent:
It was all done in the name of innovation, and any regulatory initiative was fought away with claims that it would suppress that innovation. They were innovating, all right, but not in ways that made the economy stronger. Some of America's best and brightest were devoting their talents to getting around standards and regulations designed to ensure the efficiency of the economy and the safety of the banking system. Unfortunately, they were far too successful, and we are all - homeowners, workers, investors, taxpayers - paying the price.
- Joseph Stiglitz, The fruit of hypocrisy; Dishonesty in the finance sector dragged us here, and Washington looks ill-equipped to guide us out, The Guardian, September 16, 2008
Paul Krugman also notes the wasted talent, at the expense of other areas in much need:
How much has our nation's future been damaged by the magnetic pull of quick personal wealth, which for years has drawn many of our best and brightest young people into investment banking, at the expense of science, public service and just about everything else?
- Paul Krugman, The Madoff Economy, New York Times, Opinion, December 19, 2008
The wasted capital, labor and resources all add up.
British economist John Maynard Keynes, is considered one of the most influential economists of the 20th century and one of the fathers of modern macroeconomics. He advocated an interventionist form of government policy believing markets left to their own measure (i.e. completely "freed") could be destructive leading to cycles of recessions, depressions and booms. To mitigate against the worst effects of these cycles, he supported the idea that governments could use various fiscal and monetary measures. His ideas helped rebuild after World War II, until the 1970s when his ideas were abandoned for freer market systems.
Keynes' biographer, professor Robert Skidelsky, argues that free markets have undermined democracy and led to this crisis in the first place:
What creates a crisis of the kind that now engulfs us is not economics but politics. The triumph of the global "free" market, which has dominated the world over the last three decades has been a political triumph.
It has reflected the dominance of those who believe that governments (for which read the views and interests of ordinary people) should be kept away from the levers of power, and that the tiny minority who control and benefit most from the economic process are the only people competent to direct it.
This band of greedy oligarchs have used their economic power to persuade themselves and most others that we will all be better off if they are in no way restrained-and if they cannot persuade, they have used that same economic power to override any opposition. The economic arguments in favor of free markets are no more than a fig leaf for this self-serving doctrine of self-aggrandizement.
- Bryan Gould, Who voted for the markets? The economic crisis makes it plain: we surrendered power to wealthy elites and fatally undermined democracy, The Guardian, November 26, 2008
Furthermore, he argues that the democratic process has been abused and manipulated to allow a concentration of power that is actually against the idea of free markets and real capitalism:
The uncomfortable truth is that democracy and free markets are incompatible. The whole point of democratic government is that it uses the legitimacy of the democratic mandate to diffuse power throughout society rather than allow it to accumulate-as any player of Monopoly understands-in just a few hands. It deliberately uses the political power of the majority to offset what would otherwise be the overwhelming economic power of the dominant market players.
If governments accept, as they have done, that the "free" market cannot be challenged, they abandon, in effect, their whole raison d'etre. Democracy is then merely a sham. … No amount of cosmetic tinkering at the margins will conceal the fact that power has passed to that handful of people who control the global economy.
- Bryan Gould, Who voted for the markets? The economic crisis makes it plain: we surrendered power to wealthy elites and fatally undermined democracy, The Guardian, November 26, 2008
Despite Keynesian economics getting a bad press from free market advocates for many years, many are now turning to his policies and ideas to help weather the economic crisis.
We are all Keynesians now. Even the right in the United States has joined the Keynesian camp with unbridled enthusiasm and on a scale that at one time would have been truly unimaginable.
… after having been left in the wilderness, almost shunned, for more than three decades … what is happening now is a triumph of reason and evidence over ideology and interests.
Economic theory has long explained why unfettered markets were not self-correcting, why regulation was needed, why there was an important role for government to play in the economy. But many, especially people working in the financial markets, pushed a type of "market fundamentalism." The misguided policies that resulted - pushed by, among others, some members of President-elect Barack Obama's economic team - had earlier inflicted enormous costs on developing countries. The moment of enlightenment came only when those policies also began inflicting costs on the US and other advanced industrial countries.
The neo-liberal push for deregulation served some interests well. Financial markets did well through capital market liberalization. Enabling America to sell its risky financial products and engage in speculation all over the world may have served its firms well, even if they imposed large costs on others.
Today, the risk is that the new Keynesian doctrines will be used and abused to serve some of the same interests.
- Joseph Stiglitz, Getting bang for your buck, The Guardian, December 5, 2008
Some of the world's top financiers and officials are reluctantly accepting that the version of capitalism that has long favored them may not be good for everyone.
Stiglitz observed this remarkable resignation at the annual Davos forum, usually a meeting place of rich world leaders and the corporate elite, who usually together reassert ways to go full steam ahead with a form of corporate globalization that has benefited those at the top. This time, however, Stiglitz noted that
[There was a] striking … loss of faith in markets. In a widely attended brainstorming session at which participants were asked what single failure accounted for the crisis, there was a resounding answer: the belief that markets were self-correcting.
The so-called "efficient markets" model, which holds that prices fully and efficiently reflect all available information, also came in for a trashing. So did inflation targeting: the excessive focus on inflation had diverted attention from the more fundamental question of financial stability. Central bankers' belief that controlling inflation was necessary and almost sufficient for growth and prosperity had never been based on sound economic theory.
… no one from either the Bush or Obama administrations attempted to defend American-style free-wheeling capitalism.… Most American financial leaders seemed too embarrassed to make an appearance. Perhaps their absence made it easier for those who did attend to vent their anger. Labor leaders working for the … business community were particularly angry at the financial community's lack of remorse. A call for the repayment of past bonuses was received with applause.
- Joseph Stiglitz, Fear and loathing in Davos, The Guardian, February 6, 2009
Some at the top, however, have tried to play the role of victim:
Indeed, some American financiers were especially harshly criticized for seeming to take the position that they, too, were victims … and it seemed particularly galling that they were continuing to hold a gun to the heads of governments, demanding massive bailouts and threatening economic collapse otherwise. Money was flowing to those who had caused the problem, rather than to the victims.
Worse still, much of the money flowing into the banks to recapitalize them so that they could resume lending has been flowing out in the form of bonus payments and dividends.
- Joseph Stiglitz, Fear and loathing in Davos, The Guardian, February 6, 2009
And as much as this crisis affects wealthier nations, the poorest will suffer most in the long run:
… This crisis raises fundamental questions about globalization, which was supposed to help diffuse risk. Instead, it has enabled America's failures to spread around the world, like a contagious disease. Still, the worry at Davos was that there would be a retreat from even our flawed globalization, and that poor countries would suffer the most.
But the playing field has always been uneven. If developing countries can't compete with America's subsidies and guarantees, how could any developing country defend to its citizens the idea of opening itself even more to America's highly subsidized banks? At least for the moment, financial market liberalization seems to be dead.
- Joseph Stiglitz, Fear and loathing in Davos, The Guardian, February 6, 2009
In effect, the globalization project, an ideal that sounded appealing for many around the world, was flawed by politics and greed; the inter-connectedness it created meant that as any flaws revealed themselves, the unraveling of such a system would have far greater reach and consequences, especially upon people who had nothing to do with its creation in the first place.
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The above may seem long, but many volumes could be written to expand on the above themes. Until I can get to do something like that, the following are links to some useful resources to help understand neoliberalism and its historical and current context:
- A Short History of Neo-Liberalism: Twenty Years of Elite Economics and Emerging Opportunities for Structural Change by Susan George, from a conference on Economic Sovereignty in a Globalising World, Bangkok, 24-26 March 1999
- What is "Neo-Liberalism"? A brief definition for activists by Elizabeth Martinez and Arnoldo Garcia, National Network for Immigrant and Refugee Rights, January 1, 1997 (posted at CorpWatch.org)
- Has Globalisation Really Made Nations Redundant? The States We are Still In, by Noelle Burgi and Philip S. Golub, Le Monde Diplomatique, April 2000.
- The Essence of Neoliberalism by Pierre Bordieu, Le Monde Diplomatique, December 1998
- The Institute for Economic Democracy has a wealth of information.
- Program on Corporations Law & Democracy looks at the creation and development of English commercial corporations and the abolition of democratic control over their behavior. From UK-based Corporate Watch (not related to the above-mentioned US-based organization of the same name!)
- This web site's look at projecting power introduces the link between geopolitics and economics; of the use of military to back up trade objectives.
- The Citizens' Guide to Trade, Environment and Sustainability from Friends of the Earth gives an overview of the world trade system, the ideology, the impact on society, environment, etc.
- Neoliberalism: origins, theory, definition is a detailed look by Paul Treanor, a political thinker and writer.
- The Luckiest Nut In The World is an 8 minute video (sorry, no transcript available, as far as I know), produced by Emily James. It is a useful and light way of explaining some of the issues around free trade (in its current form) and its impact on poorer countries. Under their license, it has been reposted here. (Please note the license of this video is not covered by this site's own license).
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- Global Financial Crisis
- A Primer on Neoliberalism
- Criticisms of Current Forms of Free Trade
- The WTO and Free Trade
- WTO Doha "Development" Trade Round Collapse, 2006
- Deregulation or Protectionism?
- Some Regional Free Trade Agreements
- The Mainstream Media and Free Trade
- Public Protests Around The World
- WTO Protests in Seattle, 1999
See more related articles
Anup Shah, A Primer on Neoliberalism, Global Issues, Updated: August 22, 2010
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