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The most important findings for this year was the article are:
Neoliberalism and the Demise of Democracy by Henry A. Giroux
August 7, 2004 | www.dissidentvoice.orgNeoliberalism and the Demise of Democracy: Resurrecting Hope in Dark Times
Neoliberalism has become one of the most pervasive, if not, dangerous ideologies of the 21st century. Its pervasiveness is evident not only by its unparalleled influence on the global economy, but also by its power to redefine the very nature of politics itself. Free market fundamentalism rather than democratic idealism is now the driving force of economics and politics in most of the world, and it is a market ideology driven not just by profits but by an ability to reproduce itself with such success that, to paraphrase Fred Jameson, it is easier to imagine the end of the world than the end of neoliberal capitalism.
The Blinding March of Neoliberalism by Philip S. Golub
LOGOS 5.2 SPRING-SUMMER 2006
reviewed by Philip S. Golub
David Harvey, A Brief History of Neoliberalism, (New York: Oxford University Press, 2005)
In his seminal account of the collapse of the 19th century liberal European order, the rise of fascism and the outbreak of general war, Karl Polanyi traced the ultimate source of the “self-destruction of (European) civilization" to the ravages produced by the institutionalized utopia of a “self adjusting market"[i].
Anchored in a metaphysical construct (the “invisible hand") detached from the anthropological realities of social life, the self-adjusting market became the dominant paradigm of market societies that commodified labor, land and money. Over the course of the century, the market became “the only organizing power in the economic sphere" and the dominant institution of society. Whereas economic activity had forever been “a function of the social in which it was contained", it became a law unto itself, severed from its social foundations, “subordinating the substance of society itself to the laws of the market."
This process of universal commodification, Polanyi argued, “could not endure for any length in time without annihilating the human and natural substance of society". Indeed, most European societies ultimately took measures to protect themselves from the corrosive effects of the self adjusting market by opting in the late 19th and early 20th centuries for strong mercantilist states that pursued narrow national goals and strove for imperial monopoly at each others’ expense. Mid-century transnational capitalist cooperation, embodied by pan-European networks of haute finance whose functional role was to “avert general wars", gave way to ruthless national power politics: despite the high degree of European economic integration at the turn of the century, the webs of capitalist interdependence were swept away in the rising nationalist wave.
The outcome was “a social transformation of planetary range, topped by wars of an unprecedented type in which a score of states crashed (and new empires emerged) out of a sea of blood". Fascism, a deadly pathological “solution to the impasse reached by liberal capitalism… a reform of market economy achieved at the price of the extirpation of all democratic institutions", was the predominant but not the only “solution" to the impasse of market societies: Soviet socialism in one country and Roosevelt’s New Deal were synchronous alternative pathways out of universal commodification. Both emerged strengthened from the war.
... ... ...
October 24, 2008 | finance.yahoo.com
When I heard Alan Greenspan's testimony before Congress last Thursday, I had one immediate thought: This is the beginning of the end for the free-market ideologues.
According to press reports of the testimony, Greenspan told Congress that he "had put too much faith in the self-correcting power of free markets." That's no small statement.
In fact, it struck me that if 1989 was the year when no reasonable person could still believe in communism (or any of its government-intensive relatives), then 2008 will go down in history as the year in which the free-market zealots saw their "wall" come crumbling down.
Too Free to Last
You don't have to take it from me. Just look around. One by one, the economic meltdown is slaying one shibboleth of the uber-free-market camp after another.
Here are some of the inflexible, hardcore beliefs that are crashing along with the stock market:
- Individuals always know best. Not so much, it turns out. The whole financial crisis is rooted in irrational personal decisions. Consumers borrowed more than they could afford based on the naive assumption that housing prices would always go up. Not just a few people -- lots and lots of them.
- Firms always manage resources better than government Let's take a poll of Lehman Brothers shareholders to see how they feel about that statement. One of the most remarkable things about the whole crisis is the amount of wealth destroyed by private firms. The shareholders and managers of firms like Bear Stearns, Lehman, AIG, Countrywide, and others destroyed themselves.
That can't be blamed on flawed regulation. No matter how bad the regulatory scheme, it's never rational for private firms to destroy themselves along with all of the wealth of their shareholders.
It's definitely true that government incompetence deserves a share of the blame (e.g., Fannie and Freddie, or the push to put low-income citizens in homes they couldn't afford), but that doesn't make blindly eliminating regulations the answer. Deregulation and sensible regulation are not synonymous.
- Tax cuts are an economic miracle balm I suppose one could argue that the economy would be in even worse shape right now without the Bush tax cuts -- but that's pretty thin gruel. The more reasonable argument is that the deficits that have accumulated over the last eight years -- during relatively good economic times -- are a hugely destabilizing force going forward. Everything happening right now is made much worse by the fact that the United States is highly indebted to the rest of the world. The ideologues pushed tax cuts without demanding corresponding spending cuts, and that's just plain irresponsible.
Three entities borrowed recklessly over the past decade: homeowners, Wall Street, and the U.S. government. So far, only two of them have had their reckoning.
- Less government is always better I don't think most Americans are prepared to tell Hank Paulson and Ben Bernanke to leave the markets alone right now. Nor are they pushing for the FDIC to scrap the insurance on bank deposits. And many of us are wondering: 1) What is a credit default swap? 2) How could something I've never heard of be destabilizing the economy? and 3) Why didn't someone do something about this?
Does all of this mean that economics books should be burned and Nobel Prizes returned to Stockholm? Absolutely not. The free-market zealots were never right in the first place; they twisted, bastardized, and oversimplified conventional economic thinking. They saw simplicity where the bulk of economists saw tradeoffs and qualifications. They clung to simple and elegant views despite all evidence to the contrary -- and the analysis in the first 10 chapters of any basic microeconomics text.
A colleague of mine, who worked in (and was frustrated by) the George W. Bush administration, coined a term that summarizes it best: faith-based economics. That's not supposed to be how it works.
- Mainstream economists have a profound belief in markets
But they also understand that markets fail in some cases. And they recognize that most markets work better with some government infrastructure, whether it's information, modest regulation, or just a place to sue someone who cheats you.
Mainstream economists recognize the costs of taxation; taxes take money out of people's pockets and distort behavior in ways that can have serious economic costs. But the non-ideologues also recognize that tax revenues can be used to provide government services that make people better off. Good policy is about managing that messy tradeoff.
Mainstream economists recognize that individuals have a pretty good idea of what they want -- but that those same individuals sometimes make systematic errors of judgment, which can lead to things like bubbles and panics.
Mainstream economists recognize that too much regulation can harm innovation and diminish prosperity. But they also recognize that sensible regulation provides information and security, both of which make it much easier to do business with strangers. Regulation also protects third parties from market behavior that has negative spillovers, whether it's the guy who drinks too much at the bar before getting into his car or the paint factory that cuts costs by dumping lead in your drinking water.
- A Monument to Self-Interest
There's now a museum in Berlin where visitors can go to see a remnant of the Berlin Wall and learn about the damage done by an overly rigid, poorly conceived ideology.
Maybe there should be some kind of 2008 Meltdown Museum. It would have a large subdivision of homes, all with "for sale" signs out in front. And there would be a quotation from Alan Greenspan inscribed over the arch at the entrance:
"Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity, myself included, are in a state of shocked disbelief."
August 13, 2008 | Economist's ViewComments on this?:
The '60s: Once Upon an Optimistic Time, by Barry Gewen, Book Review, NY Times: ..."The Liberal Hour"by G. Calvin Mackenzie and Robert Weisbrot ... [contends that t]oo many historians who write about the 1960s ... have focused on the decade's very visible rebellions and disruptions - all that sex, all those drugs, all that rock 'n' roll.
What is often ignored, they say, is the hard work of little-known politicians and bureaucrats who were methodically creating a '60s revolution from within. ... Senators and congressmen ... were permanently transforming the country with a tsunami of social and economic legislation.
Granted, it's more fun to read about Abbie Hoffman than about Edmund Muskie, but ... their overall argument is a valuable corrective to a lot of hackneyed thinking about the significance of the '60s.
The "liberal hour" lasted only a few years, from 1963 to 1966, from the final days of John F. Kennedy's presidency through the first three years of Lyndon B. Johnson's, but in that brief period of time came two civil rights acts...; ...Medicare and Medicaid; pioneering environmental laws; education and immigration bills; stronger protections for consumers; a host of antipoverty programs, including food stamps and Head Start; new federal departments of transportation and housing and urban development; and other reform measures, literally hundreds. Washington hadn't seen such legislative energy since the New Deal.
If it was poverty and want that drove the New Deal, it was prosperity that provided the momentum for the '60s, and with it the confidence to take on any challenge. "In the early years of the 1960s,"Mr. Mackenzie and Mr. Weisbrot write, "national optimism reached epidemic levels. "Inspired by Kennedy's rhetoric and Johnson's acumen, hundreds of inside-the-Beltway role players set about to change their country and the world. ...
[I]t seemed that liberals would be on top for a very long time..., even a liberal century. Yet their moment quickly passed. ... What happened?
It's not a question that lends itself to easy answers, but ... they come up with a powerful one: liberal overreaching. During the '60s liberals were certain they could solve any problem - at home or abroad - with the right expertise, appropriate government policies, the application of reason and gobs of money.
"Do we have or can we develop a knowledge of human social relations that can serve as the basis of rational, 'engineering' control?" the eminent sociologist Talcott Parsons asked. "The answer is unequivocally affirmative. "Officials puffed up with a sense of their own omnipotence spoke of a "world New Deal."Johnson himself exclaimed: "We're the richest country in the world, the most powerful. We can do it all."
Such arrogance led directly into the mire and jungles of Vietnam, the prime example of liberal overreaching... Suddenly, Americans were being called upon to make sacrifices, not only of money but also of blood, sacrifices that seemed endless.
It was little better at home. The legislation of the liberal hour was supposed to end poverty, heal racial divisions. Yet all at once, the cities were going up in flames. The primary beneficiaries of liberal largesse, it seemed, were ungrateful for the assistance, while Democratic leaders looked helpless in the face of riots and rising crime. Great Society solutions weren't working, and so voters turned elsewhere.
"By 1966,"Mr. Mackenzie and Mr. Weisbrot report, "more than half of northern whites had come to believe that government was pushing too fast for integration."
Johnson had come to grief because, to use Mr. Mackenzie and Mr. Weisbrot's word, he had "overpromised." Not every problem had a solution. Reasoning together didn't work in the urban ghettos or the Mekong Delta. "The Liberal Hour "presents itself as a book about the brilliant legislative legacy of the '60s, but by the end it has become a book about the legacy of the Johnson administration's failings....
More optimistic than most of his optimistic countrymen, more confident and overbearing too, Johnson seemed incapable of understanding the virtues of skepticism and caution, the wisdom of pessimism. He never appreciated the limits of good intentions, especially his own. Like many a tragic hero, Johnson was brought down by hubris. And Democrats, Mr. Mackenzie and Mr. Weisbrot tell us, are still paying the price.
Have we just been through a period of "conservative overreaching"? Andrew Samwick quotes Warren Coats on the swing back to the left:
The Death of the Right?: As public sentiment swings back to the left what the public wants (domestically), I think, are largely free but better regulated markets and a better social safety net (health care and pensions). Those like me who think that too much regulation stifles beneficial market innovation and worry about the work incentive stiffing effects of excessive or poorly designed safety nets need to take note of these sentiments. The freedom for me to lead my life largely as I choose and to enjoy the fruits of my labor depends heavily on the willingness of my neighbors (fellow citizens and residents) to accept those rules of the game. Our society functions as it does because of a broad social consensus on the rules of public behavior. This consensus rests in part on each player's confidence that if he fails there is a safety net that makes it worth his taking the risk of playing. We need to compromise what we consider first best for society (and Republicans and Democrats tend to differ on what this is) to the extent needed to preserve that broad consensus.
He goes on to say:
Congressman Barney Frank, Chairman of the House Financial Services Committee, epitomizes the best of the new left wing reaction to the Reagan Revolution. Frank is fully aware of the virtues of the market ... and the need to get the incentives right, but insists that market excesses and rough edges should be removed with limited and well focused regulation. His collaboration with Republican Treasury Secretary Henry Paulson to fashion a Housing Rescue and Foreclosure Prevention Law enjoyed sufficient bipartisan support to gain the President's signature on July 30. The bill's many provisions were generally sensitive to moral hazard problems and market incentives... There were things for both Republicans and Democrats to like and to dislike in this bill.
Frank is a pragmatist who is willing to sacrifice his version of "the best" for "the good." He sees a major victory for his preference for limited, market friendly regulations in the Federal Reserve's new rules (Regulation Z – Truth in Lending) to prohibit "unfair, abusive or deceptive home mortgage lending practices."... These are not the sentiments of a wild eyed socialist and this is not a return to the heavy handed economic (as apposed to prudential) regulations of the 50s and 60s when government regulated, e.g., capital flows and interest rates on bank deposits. When asked why congress refuses to pass the no brainer free trade treaty with Columbia, which Frank has visited several times, he replied that "it has nothing to do with Columbia, nor the failure to recognize the benefits of trade. No trade liberalization deal will be passed by this Congress until more attention is given to compensating the losers. And don't forget that today when someone losses their job, they also loss their health insurance."
For the next few years, maybe even a decade, until the next swing back in the political center, we can expect more regulation and more extensive safety nets. If we collaborate with market friendly Democrats like Frank, we can not only fix some of the genuine deficiencies with existing arrangements, but we can probably prevent some of the worst excesses of the over extension of government, until it is our turn again. ...
Would health care reform guaranteeing universal coverage be considered one of "the worst excesses of the over extension of government"? The "brilliant legislative legacy of the '60s" produced important programs that are still with us today. If Obama wins the election, I'm not too worried about overreaching, I more worried about Democrats not reaching far enough.
January 21, 2008 | http://www.nytimes.com/2008/01/21/opinion/21krugman.html
Historical narratives matter. That's why conservatives are still writing books denouncing F.D.R. and the New Deal; they understand that the way Americans perceive bygone eras, even eras from the seemingly distant past, affects politics today.
And it's also why the furor over Barack Obama's praise for Ronald Reagan is not, as some think, overblown. The fact is that how we talk about the Reagan era still matters immensely for American politics.
Bill Clinton knew that in 1991, when he began his presidential campaign. "The Reagan-Bush years," he declared, "have exalted private gain over public obligation, special interests over the common good, wealth and fame over work and family. The 1980s ushered in a Gilded Age of greed and selfishness, of irresponsibility and excess, and of neglect."
Contrast that with Mr. Obama's recent statement, in an interview with a Nevada newspaper, that Reagan offered a "sense of dynamism and entrepreneurship that had been missing."
Maybe Mr. Obama was, as his supporters insist, simply praising Reagan's political skills. (I think he was trying to curry favor with a conservative editorial board, which did in fact endorse him.) But where in his remarks was the clear declaration that Reaganomics failed?
For it did fail. The Reagan economy was a one-hit wonder. Yes, there was a boom in the mid-1980s, as the economy recovered from a severe recession. But while the rich got much richer, there was little sustained economic improvement for most Americans. By the late 1980s, middle-class incomes were barely higher than they had been a decade before - and the poverty rate had actually risen.
When the inevitable recession arrived, people felt betrayed - a sense of betrayal that Mr. Clinton was able to ride into the White House.
Given that reality, what was Mr. Obama talking about? Some good things did eventually happen to the U.S. economy - but not on Reagan's watch.
For example, I'm not sure what "dynamism"means, but if it means productivity growth, there wasn't any resurgence in the Reagan years. Eventually productivity did take off - but even the Bush administration's own Council of Economic Advisers dates the beginning of that takeoff to 1995.
Similarly, if a sense of entrepreneurship means having confidence in the talents of American business leaders, that didn't happen in the 1980s, when all the business books seemed to have samurai warriors on their covers. Like productivity, American business prestige didn't stage a comeback until the mid-1990s, when the U.S. began to reassert its technological and economic leadership.
I understand why conservatives want to rewrite history and pretend that these good things happened while a Republican was in office - or claim, implausibly, that the 1981 Reagan tax cut somehow deserves credit for positive economic developments that didn't happen until 14 or more years had passed. (Does Richard Nixon get credit for "Morning in America"?)
But why would a self-proclaimed progressive say anything that lends credibility to this rewriting of history - particularly right now, when Reaganomics has just failed all over again?
Like Ronald Reagan, President Bush began his term in office with big tax cuts for the rich and promises that the benefits would trickle down to the middle class. Like Reagan, he also began his term with an economic slump, then claimed that the recovery from that slump proved the success of his policies.
And like Reaganomics - but more quickly - Bushonomics has ended in grief. The public mood today is as grim as it was in 1992. Wages are lagging behind inflation. Employment growth in the Bush years has been pathetic compared with job creation in the Clinton era. Even if we don't have a formal recession - and the odds now are that we will - the optimism of the 1990s has evaporated.
This is, in short, a time when progressives ought to be driving home the idea that the right's ideas don't work, and never have.
It's not just a matter of what happens in the next election. Mr. Clinton won his elections, but - as Mr. Obama correctly pointed out - he didn't change America's trajectory the way Reagan did. Why?
Well, I'd say that the great failure of the Clinton administration - more important even than its failure to achieve health care reform, though the two failures were closely related - was the fact that it didn't change the narrative, a fact demonstrated by the way Republicans are still claiming to be the next Ronald Reagan.
Now progressives have been granted a second chance to argue that Reaganism is fundamentally wrong: once again, the vast majority of Americans think that the country is on the wrong track. But they won't be able to make that argument if their political leaders, whatever they meant to convey, seem to be saying that Reagan had it right.
December 21, 2006 | opednews.com
by Joel S. Hirschhorn
For the Holidays and All Days
The motto of the United States of Consumption is "In More We Trust." The contribution of American culture to humanity is consumption obsession. Our epidemic of obesity, our land gluttonous suburban sprawl, our monster-size environmental footprint, our ravenous automobile addiction, and our heartless greed are symptoms of a deep-seated, sick mental state that keeps the economy humming. And it keeps increasing economic inequality and apartheid.
Mass consumption is also a distraction from the self-inflicted defeat facing working- and middle-class Americans in the class war they are losing. Americans are enslaving themselves with their spending and delusional prosperity. The rich and super-rich in their McMansions, luxury cars, yachts, swank spas and private jets surely are laughing at how easy it is to manipulate the 80 percent of the population that keeps enriching them.
Many common folks are deluding themselves that they have a fair shot at joining America's super-rich - those households worth at least $10 million. According to an Elite Traveler poll, they will be spending 25 percent more this year than last on holiday parties, travel, and shopping. Among the top holiday spending categories: spirits for entertaining (up 57 percent to $22,300) and yacht charters (up 12 percent to $410,600). The awesomely affluent will also be averaging $91,100 on holiday jewelry, $36,400 on designer fashions, $52,000 on luxury watches, and $25,700 on flat screen TVs and other electronics. Nearly 25 percent of them will travel by private jet just to shop for holiday gifts. Of course, there are many Americans who do have a good chance of joining the super-rich. They are the rich Americans.
Any regular person who does not understand that Americans are in a class war is out of touch with our economic reality. Rich and powerful elites that are running and ruining our country have the upper hand. Wiping out the middle class to create a two-class society nationally and globally suits them. The Upper Class can steer most wealth to themselves and spread a small amount around to keep the Lower Class content enough not to revolt. Ordinary people have a powerful weapon to fight their oppressors, yet have not yet used it. It is their money, more specifically their discretionary consumer spending. The reasons for not controlling and politicizing their spending merit examination. Time is running out to understand why millions of supposedly rational people spend themselves into economic slavery.
The paradox is that though the rich and powerful rig many aspects of the economy, financial markets, and international trade, they remain dependent on consumer spending to create national wealth and keep the economy healthy, because it accounts for some 70 percent of the GDP. In one sense, they are not able to physically force people to spend money. But in another sense they have done something nearly as effective.
They use the mass media, marketing, advertising and technological change to stimulate consumer demand for a host of products and services that people could easily live without. Compulsive consumer spending results from training, conditioning and brain washing that starts in childhood. In a highly stressful society it becomes a form of self-medication. To conform, fit in and deem oneself successful, Americans unquestioningly and reflexively shop until they drop, borrow until they hurt, and spend until they go bankrupt. They have lost control. Personal and household progress is not measured in terms of real increases in income, savings or net worth (wealth), but rather as the consumption of more stuff. People may not have good health insurance or economic security or the money for their kid's college education, but they have a large plasma TV, a new cell phone and other electronic gizmos. They are networked and connected, and downloading themselves into economic oblivion.
While the Upper Class spends obscene sums on luxury products and services, the economic system creates relatively low prices for mass consumer goods. The key to this strategy has been globalization that uses low cost foreign labor to satisfy the consumption addiction of the Lower Class. Americans have lost and will continue to lose good-paying jobs, but are kept in check with low-priced products appropriate for lower-wage jobs. National wealth is created, but not shared equitably with working- and middle-class Americans. Those who own Wal-Mart became billionaires while providing what is necessary to stabilize the Lower Class.
Easy borrowing is the other way to keep the Lower Class spending and in stressful debt. Borrowing is spending. Credit cards, debit cards, ATMs, education loans and seductive mortgages keep borrowed prosperity alive. Money spent on interest and all sorts of fees pumps up the enormous financial services sector that has replaced domestic manufacturing as the core of the American economy. Debt is better than chains to keep economic slaves docile. Borrowing for home, car and consumer goods purchases creates massive wealth for the Upper Class, while indebtedness keeps the Lower Class compelled to take whatever jobs the system makes available.
Who paid the $40 million bonus for 2006 given to Morgan Stanley CEO (just part of the $16 billion paid in company bonuses)? Where did the company profits come from? Ultimately, it was many millions of working stiffs that paid higher prices for goods and services so that fees could be paid to the banking companies producing the enormous profits that enabled those obscene salaries and bonuses in the financial services sector. Capitalism and the profit motive are fine. But things have gotten completely out of control. Insane corporate compensation saps an inordinate amount of wealth from society. The greed-masters do NOT create wealth - they legally steal it from the system. This is reflected in this awful statistical reality: The share of the nation's income going to wages and salaries, according to the Commerce Department, has shrunk to 51.8 percent, the lowest share since 1929.
Illegal immigration was another stroke of genius to increase corporate profits. There have always been hordes of very poor people in Mexico and other third world nations. What changed was the decision among the power elites to make jobs readily available to all illegal immigrants that could get into the country. And political influence was used to ensure that the government would not effectively protect our borders. After gutting labor unions, corporate bigwigs realized that illegal immigrants offered the easiest way to depress all wages for ordinary workers. The icing on the cake was that illegal workers would increase demand for imported, low priced goods.
Another sector creating enormous wealth for the Upper Class is gambling, both legal and illegal. It is at remarkable levels among Lower Class people. This is just another form of spending that is critical to another core economic sector - entertainment and leisure. Gambling is the opiate of the masses, and local and state governments eagerly sanction gambling to expand tax revenues, necessary to offset the losses due to lower wages and the high costs of providing government services to illegals and the poor. Speaking of taxes, the more people spend, the more regressive sales taxes they pay. Compulsive consumer spending is important to minimize the tax burden on the Upper Class.
What is the holiday season all about? Wake up! It is not about whatever religious beliefs you have. It is all about spending. The only way to win the class war is to withhold discretionary consumer spending to obtain what is necessary from our MISrepresentative elected officials. Stop spending until our delusional president ends the loss of American lives and treasure in Iraq or the congress withholds funding for it, for example. The best gift of all to give to your loved ones is a drastic slowdown in your spending!
A tiny fraction of Americans have tried to shake consumption cravings, but obviously nothing has caught on sufficiently to reform our culture. A group in San Francisco, known as "the Compact," swore off buying new things, with very few exceptions. They have bought secondhand, bartered, borrowed, recycled and reused. As one member said, "And people hate us for it? Like it drives them nuts?" They are accused of being un-American. Another campaign is Buy Nothing Day. People are urged to take a 24-hour break from the consumption compulsion on the day after Thanksgiving. The book "Not Buying It: My Year Without Shopping" was a success. Yet these and other efforts have not put a dent in the nation's voracious consumption. In More We Trust remains strong.
All these marginal efforts only offer psychological or spiritual benefits for committed individuals. Like any addiction, ending compulsive consumption is difficult. By politicizing reduced consumption through buycotts, political gains offset any "suffering" from reduced consumption. So consider tradeoffs between less consumption and political actions that you feel are strongly needed. Your dollars are much more powerful than your votes.
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Joel S. Hirschhorn is the author of Delusional Democracy - Fixing the Republic Without Overthrowing the Government. His current political writings have been greatly influenced by working as a senior staffer for the U.S. Congress and for the National Governors Association. He advocates a Second American Revolution. He welcomes feedback and can be reached through www.delusionaldemocracy.com.
Cut taxes and privatise – this is the core of neoliberalism. But how exactly do the neoliberals view the state? On the one hand, they present it as a great bureaucracy that restricts individual enterprise but on the other they want a strong state, which curbs union activity and builds up its repressive apparatus. Michael McDowell, for example, constantly demands less interference in the market but he also wants identity cards for migrants and greater use of the Public Order Act against protestors.
The roots of the neoliberal approach to the state can be traced back to Frederick Hayek, who began his intellectual career working with Ludwig von Mises, the Austrian economist who polemicised against the idea of socialist planning. Hayek focused on the manner in which economic knowledge and information could be disseminated in society. Could any central authority, he asked, possibly accumulate all the fragmented bits of knowledge possessed by individuals? The answer to this false rhetorical question, was of course, no.
Hayek then conceived of the market 'as a system for the utilization of knowledge, which no one can posses as a whole'.i Only the market could overcome the fragmentation of knowledge by sending out price signals that indicated where investment was needed or where there was an abundance or scarcity of goods. Once this premise was accepted, there was little room for any political authority to intervene in the economy.
"It reduces the possible task of authority very much if you realize that the market has in that sense a superiority, because the amount of information the authorities can use is always very limited, and the market always uses an infinitely greater amount of information than the authorities can ever do."ii
Hayek moved to the London School of Economics in the 1931 and engaged in vigorous debates with Keynes. In 1944, he published his classic text, The Road to Serfdom which argued that Nazism was not a reaction to socialism but rather an outgrowth of 'collectivism'. By that he meant a tendency towards greater state control, which both Keynes and the social democratic left had advocated. The alternative to both was individualism and the rule of law. Laws needed to be fixed and announced beforehand in order to effect the necessary constraints on government and create the ensuing space for individual liberty. At the heart of Hayek's philosophy was a deep suspicion of democratic rule. He wrote:
"We have no intention, however, of making a fetish of democracy. It may well be that our generation talks and thinks too much of democracy and too little of the values its serves… Democracy is essentially a means, a utilitarian device for safeguarding internal peace and individual freedom. As such it is by no means infallible or certain."iii
Hayek saw no intrinsic value in people coming together discussing, debating and making decisions for a common good. His suspicion of democracy harked back to fears initially raised by the French aristocrat de Tocqueville in the nineteenth century: if the poor have the vote and if they are more numerous, might they not decide to limit the wealth of the few? Later in Law, Legislation and Liberty Hayek was even more explicit in arguing that:
"The predominant model of liberal democratic institution, in which the same representative body lays down the rules of just conduct and directs government, necessarily leads to a gradual transformation of the spontaneous order of a free society into a totalitarian system conducted in the service of some coalition of organised interests."iv
His aim, therefore, was to reduce the 'politicisation' of society in order to keep public action to a minimum. In this way the 'spontaneous order' of the market could be given a free reign. These anti-democratic instincts were expressed most clearly in Hayek's The Constitution of Liberty where he argued that while universal suffrage seemed to be the best arrangement in Western society, "this does not prove that it is required by some basic principle".v
He claimed that the limits on suffrage are largely determined by matters of expediency and he seemed to have little difficulty with suggestions that only people over forty or income earners might have a vote. He explicitly argued that: "it is also possible for a reasonable person to argue that the ideals of democracy would be better served if, say, all servants of government or all recipients of public charity were excluded from the vote".vi His key concern was to limit the scope of decision-making through a constitution which hemmed in the areas on which a democratic government could decide matters.vii
This anti-democratic approach has been at the heart of neoliberalism ever since. The fundamental aim of the market fundamentalists of today is to reduce the scope of democratic participation in society to a mere formality – so that corporations have the freedom to increase their wealth. Far from minimising the role of the state, they want a more bureaucratic state that becomes the complete handmaiden for capital. A number of techniques are typically employed to bring this about.
The first is a growth in the power of the executive over parliament. Bush's 'war on terrorism' provides the cover by which this important change is promoted. Today a relatively small clique around Bush takes many of the key decisions in the US by simply issuing executive orders which Bush simply signs. Before Bush arrived the first forty-two presidents of the US combined, had signed an executive order less than six hundred times. Bush by contrast, signed eight hundred such orders in the first six years of his presidency. His more notorious orders included sanction for the use of torture.
However, this shift in decision-making is by no means confined to Bush's America nor is it directly linked to the war against terrorism. In Ireland after the passing of the Waste Management (Amendment) Act 2001, the power to adopt or reject a local waste management plan was removed from elected councillors and transferred to city or county managers. Henceforth managers could overrule objections to bin charges or incinerators. It was one of the most serious attacks on the democratic rights of the majority of citizens which the state has imposed.
One of the first effects of the new measure was seen when elected councillors on Dublin City Council voted to have all refuse – including that of non-payers – collected in the interests of public health. However, in line with the new Waste Management Act, the councillors were simply told by unelected officials that the 'The vote means nothing. We're going to continue on as we have been'.viii
Another key feature of the neo-liberal state has been the transfer of greater powers to unelected semi-autonomous public bodies. 'Governance' is a term that has come into vogue to describe an apparent de-centralisation of state authority to a multitude of quasi-governmental institutions.
A study by the left leaning TASC think tank revealed that there were somewhere in excess of 450 public bodies at the end of 2005. In the first category belong executive bodies such as the Health Services Executive, which controls a budget of €12 billion per year and whose activities mean that the Department of Health has been reduced to smaller more general policy making unit. A similar executive function is played by the National Roads Authority and the Environmental Protection Agency.
In another category belong advisory bodies which often have a significant input into policy making. These include bodies such as the Food Safety Authority or the Enterprise Strategy Group which are charged with mapping the future direction of Irish industrial policy. Finally, there are a host of ad hoc 'taskforces' that are charged with producing recommendations on a number of specific issues. Ireland now has a ratio of one public body for every 5,000 people, which is almost the same as the ratio of one elected representative at national or local level for every 4,000 people.ix
Up to half of these public bodies have come into existence in the last ten years but despite a constant refrain about 'openness and transparency', they are often very slow to share information on their decision making process. The HSE, for example, is notorious for suppressing information – as it did on the Leas Cross report. Some of these public bodies are not subject to the Freedom of Information Act and in the particular case of Coillte, the state forestry company, deliberately claim reasons of 'commercial secrecy' to hide their activities from the public.x
Not all of these public bodies have an equal impact on decision-making and some are far more important than others. It is noticeable that corporate influence appears to grow the more the public bodies discuss issues that are closer to its concerns. A number of examples illustrate this.
Any proposed policy changes to do with the Irish Financial Services Centre is channelled directly through the Department of the Taoiseach and a special IFSC Clearing House group has been formed to advise on changes. The composition of this Clearing House Group is totally dominated by the representatives of large corporations. It is composed of groupings such as AIB Capital markets, Bank of Ireland, Merrill Lynch Capital markets, State Street International, the legal firms which service these types of companies and top state officials. There are no representatives of the trade unions, NGOs or poverty groupings to propose ways in which a levy could be placed on some of these huge financial transactions to bring greater benefit to Irish society.
One of the key advisory groups on migration policy is the Expert Group on Future Skills Needs (EGFSN). It is chaired by a director of Computer Placement Resources Plc, one of the largest recruitment and outsourcing agencies in the state and its board includes the Training and Communications Manager of Waterford Wedgwood, the Human Resources Director of Cement Roadstone Holdings, the Government and Human Affairs manager of Hewlett-Packard, the Managing Director of Arkon as well as one IBEC representative, two trade unionists and a number of public officials.
Few people have heard of the EGFSN but it works with FAS in detailed manpower planning. Rather bizarrely in a society that promotes market forces, it employs what can only be described as Soviet style planning methods to ascertain how many mushroom pickers or plumbers will be required in the coming years. The level of detail can be astounding. By 2008, for example, it is suggested that Ireland will need an extra 600 mushroom pickers, 30 propagation workers for plant nurseries and 50 food technology agronomists.xi The group advocates policies that treat migrants as simple economic units that are at the disposal of business. It argues for example, that ministers, 'should retain discretionary powers to either refuse or cancel permanent residency'.xii Yet many of its recommendations have found their way into legislation.
The Enterprise Strategy Group has played a key role in developing Irelands industrial strategy. Its document on 'Ahead of the Curve' sets the framework that guides much of government policy in this area. Its calls for a continuation of the 'attractive tax regime'; a new strategy to commercialise research in higher education; extra funds to encourage business networks and, bizarrely, special cabinet meetings twice a year on entrepreneurship to which four senior business people will be invited. However, these pro-business recommendations are hardly surprising when you consider its composition. It is made up of the managing directors of Wyeth, Combilift Ltd, Delta Partners, Masonite Ireland, Eurostyle Ltd, Aderra Limited, the CEO of the Kerry Group and Zalco Investment; the Chief Risk Officer of the AIB; a Vice President of Dell; five pro-business academics and one former trade union official.
Other more sectional bodies also reveal a strong corporate influence. The Taskforce on the Mushroom Industry is composed entirely of representatives of the mushroom producers, state officials, a consultant and an IFA figure. There are huge concerns in trade union circles about low wages that are paid to migrant workers and heath and safety standards within the industry but there is no trade unionist on the taskforce. The Dublin Docklands Development Authority is responsible for one of the most lucrative pieces of property in the Celtic Tiger that also happens to border poor inner city areas. The Board is composed of a representative of Anglo-Irish bank, McKinsey &Co Inc, Alexsam Corporate Finance, Byrne Curtin Kelly, OHM Group Arup Consulting Engineers, Interactive Project Managers and a top civil servant. There are no representatives of local working-class communities.
These examples reveal an extraordinary level of corporate influence. But there is one other crucial way in which government policy-making is being outsourced.
In the seven years between before 2005, the Irish government spent €174 million on consultants' reports.xiii Some of the money went on publicity campaigns as the state embraced a style of glossy packaging of information that had long been cherished by corporations. Some was spent on 'business management systems' that were often related to information technology projects. But a considerable amount was also spent on buying expert advice from supposedly independent sources.
However, there is nothing independent about the consultancy services provided by firms such as Deloitte and Touche or Goldman Sachs. Goldman Sachs, for example, was originally brought in by the government to give 'independent' advice on the future of Aer Lingus and, lo and behold, it recommended a form of privatisation. The fact that this same firm had made a fortune from the privatisation of Eircom and would eventually buy shares in Aer Lingus when it was privatised was of course entirely 'co-incidental'. The extensive use of consultants is another way by which neoliberal governments de-politicise decision making and render it a seemingly technical exercise where no democratic input is possible.
These shifts in the nature of the state have important implications for socialists. When imperialists try to cover their war-mongering by claiming to promote democracy, socialists often quite rightly point to their inconsistencies. Why do they say they champion democracy – but then not recognise the right of the people of Palestine or Algeria to elect Islamic parties? Why does the US talk about democracy and then give $500 million in aid to Uzbekistan? But as well as addressing the inconsistencies, we also need to show how our rulers favour only the most formal type of 'democracy' which is a thin veneer for the dictatorship of corporations. They see democracy only as a useful technique to legitimise existing holders of power. It is reduced to an electoral contest every four years between parties who are entirely dependent on corporate funding.
But there is another important implication. If the scope of even parliamentary democracy is being reduced in a neo-liberal society, then how can change really come about? In 1852, Karl Marx not only advocated universal suffrage but also suggested that it would inevitably result in the 'political supremacy of the working class'. By that he meant that voting would give workers a peaceful way of taking power. However twenty years later Marx had changed his mind. Writing in the aftermath of the Paris Commune, he stated that 'one thing was proved by the Commune, viz., that the working class cannot simply lay hold of the ready made state machine and wield it for its own purpose' but would have to smash it.
The reason was that the granting of universal suffrage was accompanied by a growth in the bureaucratic military apparatus of the state. The more workers got the vote, the more decision making within the state migrated to areas that were immune from democratic influence. The neoliberal turn has accelerated that process enormously and any who thinks that genuine socialism could be instituted by a vote in parliament is entirely deluded.
The key to all serious change today is therefore mass mobilisation and mass direct action. The most effective of such actions are when workers wield their vast economic power. When the power of the corporations have become so centralised, they have to be met with a greater force that can disrupt their dominance. That can only come in the form of 'people power' where thousands take part in mass collective actions to disrupt the functioning of capital.
Sometimes, of course, actions don't start with thousands but with relatively sizeable minorities influenced by activists. These minority actions can be inspiring but if they are to win they need to form part of a strategy of mobilising greater numbers. The actions of hundreds of protestors in blocking Shell's refinery in North Mayo or the attempted de-commissioning of Raytheon by Derry anti-war activist during the war on Lebanon show how struggles increasingly overstep the limits of official society. These actions spring from open democratic debate and arise from real movements that have built roots on the ground. But they also call out for further escalation if they are to be successful.
Some, however, advocate more conspiratorial forms of direct action because they believe that the mass of the population have become brainwashed by consumerism. So calls for mass demonstration are dismissed as 'boring' while the prospect of mobilising vast numbers is derided in favour of the actions of the brave few. The ironic thing is that such a concept of direct action fits neatly with a reformist approach because it suggests that no real systemic change is possible.
Marxists by contrast start with the existing world and analyse its contradictions to locate the springs of revolt. From this perspective, neoliberalism is bringing dramatic changes that weaken the connections that our rulers had to their own populations. As we have seen, their mode of rule increasingly relies on repression rather than consent. With these changes has come the prospect of socialists winning a mass influence in ways that have not been seen in decades. They should use that influence not just to channel grievances back into the safe and futile channels of parliamentary democracy – but to use any elected position to promote change from outside parliament by means of mass direct action.
Monthly Review January 2004 Minqi Li
Minqi Li Minqi Li was a political prisoner in China during 1990–1992. He teaches political economy at the Department of Political Science of York University, Toronto, Canada.
The author has benefited from discussions with David Kotz, Robert Pollin, James Crotty, Gerald Epstein, Leo Panitch, Gregory Albo, Samuel Gindin, and Patrick Bond.
Since the early 1980s, the leading capitalist states in North America and Western Europe have pursued neoliberal policies and institutional changes. The peripheral and semiperipheral states in Latin America, Africa, Asia, and Eastern Europe, under the pressure of the leading capitalist states (primarily the United States) and international monetary institutions (IMF and the World Bank), have adopted "structural adjustments,""shock therapies,"or "economic reforms,"to restructure their economies in accordance with the requirements of neoliberal economics.
A neoliberal regime typically includes monetarist policies to lower inflation and maintain fiscal balance (often achieved by reducing public expenditures and raising the interest rate), "flexible"labor markets (meaning removing labor market regulations and cutting social welfare), trade and financial liberalization, and privatization. These policies are an attack by the global ruling elites (primarily finance capital of the leading capitalist states) on the working people of the world. Under neoliberal capitalism, decades of social progress and developmental efforts have been reversed. Global inequality in income and wealth has reached unprecedented levels. In much of the world, working people have suffered pauperization. Entire countries have been reduced to misery.
According to United Nations' Human Development Report, the world's richest 1 percent receive as much income as the poorest 57 percent. The income gap between the richest 20 percent and the poorest 20 percent in the world rose from 30:1 in 1960, to 60:1 in 1990, and to 74:1 in 1999, and is projected to reach 100:1 in 2015. In 1999–2000, 2.8 billion people lived on less than $2 a day, 840 million were undernourished, 2.4 billion did not have access to any form of improved sanitation services, and one in every six children in the world of primary school age were not in school. About 50 percent of the global nonagricultural labor force is estimated to be either unemployed or underemployed.1
In many countries, working people have suffered an absolute decline in living standards. In the United States, the real weekly earnings of production and nonsupervisory workers (in 1992 dollars) fell from $315 in 1973 to $264 in 1989. After a decade of economic expansion, it reached $271 in 1999, which remained lower than the average real wage in 1962. In Latin America, a continent that has suffered from neoliberal restructuring since the 1970s, about 200 million people, or 46 percent of the population, live in poverty. Between 1980 and the early 1990s (1991–1994), real wages fell by 14 percent in Argentina, 21 percent in Uruguay, 53 percent in Venezuela, 68 percent in Ecuador, and 73 percent in Bolivia.2
The advocates of neoliberalism promised that the neoliberal "reforms"or "structural adjustments"would usher in an era of unprecedented economic growth, technological progress, rising living standards, and material prosperity. In fact, the world economy has slowed towards stagnation in the neoliberal era. The average annual growth rate of world GDP declined from 4.9 percent between 1950 and 1973, to 3.0 percent between 1973 and 1992, and to 2.7 percent between 1990 and 2001. Between 1980 and 1998, half of all the "developing countries"(including the so-called "transition economies") suffered from falling real per capita GDP.3
The global economy has been kept afloat by the debt-financed U.S. economy. Between 1995 and 2002, the U.S. economy accounted for 96 percent of the cumulative growth in world GDP.4 The U.S. expansion has been financed by reducing domestic savings, raising the private sector debts to historically unprecedented levels, and running large and ever-rising current account deficits. The process is unsustainable. The enormous imbalances have to be corrected one way or the other. If the United States cannot continue to generate ever-rising current account deficits and none of the other large economies are capable of functioning effectively as the autonomous driving force, the neoliberal global economy will be under powerful downward pressures and exposed to the threat of increasingly frequent and violent financial crises.
The social and economic disasters brought about by neoliberalism have already led to pervasive and growing popular resistance. The further deterioration of global economic conditions might well push hundreds of millions of people beyond the threshold of tolerance. A global rebellion against neoliberalism and capitalism cannot be ruled out. Those who consider themselves to be on the left, progressives or revolutionaries, should be ready, first of all intellectually, for such a development.
Neoliberalism and Global Stagnation
Neoliberalism is not able to provide an institutional framework for sustained global capital accumulation.
Neoliberalism undermines and dismantles the institutions set up to stabilize the capitalist economy and alleviate capitalist social contradictions. The capitalist global economy is therefore left exposed to increasingly frequent and violent financial crises. As the editors of Monthly Review put it: "Globalization under neoliberal regimes has meant in many ways the globalization of stagnation tendencies and financial crisis."5
Global effective demand is the sum of global private consumption, global private investment, and global government expenditures. Under neoliberalism, global inequality has reached unprecedented levels and working people in many parts of the world have suffered from absolute pauperization. It follows that the purchasing power of the great majority of the world population has fallen or grown more slowly than world output.
Private investment in the face of global overcapacity stagnates, and private capital turns to speculation in financial instruments. As a result of financial liberalization, cross-border speculative capital flows have greatly increased, raising the danger of capital flight and financial crisis. Against such dangers, some central banks are forced to maintain high interest rates, in effect paying a risk premium to global finance capital. The average ratio of real interest rate to GDP growth rate in the seven leading capitalist economies was 0.97 between 1881 and 1913, 2.40 between 1919 and 1939, 0.36 between 1946 and 1958, 0.55 between 1959 and 1971, 0.47 between 1972 and 1984, and 2.34 between 1985 and 1997. It is worth noting that the real interest rate has been higher than the economic growth rate only in two periods, the interwar depression years and the neoliberal era. A ratio greater than one implies an inversion of the roles of productive and speculative investment, and is a signal of systemic crisis.6
Under neoliberalism, governments have mostly pursued tight fiscal and monetary policies, restraining public spending. With liberalized financial markets, governments that run fiscal deficits are likely to be "punished"by private investors who may respond with capital flight and attacks on the currency. Therefore, governments (especially the governments of peripheral and semiperipheral countries) are under strong pressures to maintain fiscal balance by cutting expenditures. All neoliberal regimes seek to limit government expenditure. To summarize, in the neoliberal era, all three components of global effective demand are subject to strong downward pressures and have tended to either contract or stagnate.
The nineteenth century Marxists regarded the contradiction between socialized production and the capitalist system of private appropriation as the basic contradiction of capitalism. One may argue that the increasing socialization of production has found its expressions in the rising importance of fixed capital and the increasingly complex and interrelated financial structures. Since Keynes, many economists have understood that investment in fixed capital is subject to fundamental uncertainty and is often beyond the reach of rational calculation. The growing complexity of financial structures has greatly increased the chance that sudden movements in investors' confidence and psychological conditions may lead to drastic and substantial fluctuations of investment and through investment, the economy. To prevent capitalist economies from falling into deep recessions or depressions, it is necessary to have a "big government"that can function effectively as the macroeconomic stabilizer.7
Neoliberalism, by pursuing financial liberalization and attacking the public sector, has significantly undermined and in some cases totally dismantled its stabilizing functions. The neoliberal era has seen increasingly frequent and violent financial crises. The Mexican crisis in 1995 was followed by the Asian Crisis in 1997, the Russian and the Brazilian crises in 1998, and the Argentine crisis in 2001. The role of the global macroeconomic stabilizer has been played throughout by the U.S. Treasury and by U.S. imports of goods and services increasingly in excess of U.S. exports; can this continue?
The U.S Financial Bubble and Imbalances
Without a large economy capable of generating some autonomous demand, the global economy might have already entered into a downward spiral. The U.S. economic boom in the second half of the 1990s and its large and growing trade deficit have functioned as counteracting forces against the generally contractionary tendencies of neoliberalism.
The U.S. economic boom was led by debt-financed private sector consumption and by a burst of corporate investment in "high tech." The private sector financial balance (incomes less expenditures) moved from the historically normal range of 3–4 percent of GDP to unprecedented negative territory, reaching negative 5.5 percent by the third quarter of 2000. Household and corporate sector debts as a percentage of GDP were at historical peaks. Households were willing and able to borrow at such a rate because of the great asset price bubble. Measured by indicators such as Tobin's "Q" (the ratio of market value of assets to replacement cost of capital) or by reference to price-earning ratios, the U.S. stock market bubble that reached its greatest expansion in 2000 is the most extreme in U.S. economic history.8
When the stock market bubble burst, corporate sector spending slowed significantly (particularly in "high tech"). To avoid a deep recession, the U.S. general government fiscal balance has moved from a surplus of 1.4 percent of GDP to a deficit of 4.6 percent of GDP between 2000 and 2003, or a swing of 6 percent of GDP, and the U.S. Federal Reserve has lowered the short-term interest rate from 6.5 percent to 1.25 percent. Despite the dramatic loosening of fiscal and monetary policy, U.S. growth has been sluggish and employment stagnant. These policies have in effect helped to sustain the bubble. Household sector debt expansion has been sustained, the stock market bubble has not been fully deflated, and a housing market bubble is in turn approaching its peak.
The U.S. current account deficit, largely the result of a steadily increasing deficit in its international trade in goods and services, reached 5 percent of GDP in late 2002. For the capitalist world's hegemonic power to run a current account deficit on such a large scale is without historical precedent. By contrast, on the eve of the First World War, Britain ran current account surpluses close to 4 percent of GDP.
The U.S. current account deficits are matched by reciprocal capital inflows from the rest of the world. For the ever-rising U.S. current account deficits to continue, the rest of the world must be willing to hold an increasingly bigger proportion of their financial reserves in dollar-denominated assets. Stephen Roach, the chief economist of Morgan Stanley, points out:Currently, about 75 percent of the world's total foreign exchange reserves are held in the form of dollar-denominated assets-more than twice America's 32 percent share of world GDP (at market exchange rates). At the same time, foreign investors hold about 45 percent of the outstanding volume of US Treasury indebtedness, 35 percent of US corporate debt, and 12 percent of US equities. All of these ratios are at or near record highs. Never before has the world put more stock in America-both as an engine of growth and as a store of financial value. The problem is that the math gets exceedingly tenuous if it is projected into the future.9
Projections of current account deficits at current rates need not go far into the future to become "tenuous."
According to one study by the Levy Economics Institute, under plausible assumptions, and supposing the U.S. economy to grow at a rate sufficient to lower the unemployment rate, the U.S. net foreign liability would reach more than 60 percent of GDP and the current account deficits could reach 8.5–9.5 percent of GDP before 2010.
Alternative Scenarios of Global Economic Crisis
There are four possible ways for the unsustainable growth in the U.S. current account deficit to be reversed.
First, if the rest of the world grows more rapidly, indeed far more rapidly, than the current growth rate of the U.S. economy, there will be increased demand for U.S. goods and services, allowing U.S. exports to grow more rapidly to close the gap with the imports.
- Second, the U.S. current account deficit could be corrected by contracting U.S. domestic demand.
- Third, the explosive growth in the current account deficit may be corrected through adjustments in "relative prices"-i.e., devaluation of the U.S. dollar.
- Finally, the exercise of political and military power might affect the components of the growth in the current account deficit in a manner favorable for the United States.
There is no prospect in the next several years of the first possibility, i.e., growth in the rest of the world at a significantly faster pace than current growth in the United States. The burden shall fall on the second and third options which, while achievable, pose immense risks.
Limiting domestic U.S. growth, and therefore imports and the trade deficit, by raising domestic interest rates is certainly within the theoretical ability of U.S. policy makers. Indeed this would be the "orthodox"IMF medicine administered to any other state on the planet were it to find itself in anything like the U.S. current account difficulties. But the United States is not like any other state on the planet, it is the hegemon. No institution exists to force such medicine upon it. And for the U.S. ruling elite, this course is not politically possible, at least at this stage of the electoral cycle. But of even greater concern are the dangers posed by the vast unprecedented accumulation of U.S. consumer and mortgage debt. Absent a surge in domestic growth, which would itself aggravate the current account difficulty, rising interest rates risk a wave of personal bankruptcies of Great Depression proportions.
The remaining option is dollar devaluation, and it is clear that a gradual and controlled devaluation is the policy preferred by the U.S. Treasury, and already being put into effect. The depreciation of the dollar makes U.S. goods cheaper and foreign goods more expensive for U.S. households and corporations. It helps to stimulate exports and dampen imports. However, dollar depreciation reduces U.S. demand for foreign goods and exports deflationary pressures to the rest of the world.
The Asian economies (Japan, China, and Southeast Asia) together run current account surpluses of $230–240 billion a year, or nearly half of the U.S. current account deficits. But the Asian economies have either pegged their currencies to the U.S. dollar or have intervened heavily to prevent currency appreciation. This leaves the burden of adjustment almost entirely on Europe.
The European economy has not been able to generate any expansion in domestic demand, and its growth has relied exclusively on exports. Europe's largest economy, the German economy, is in recession and such signs of growth as exist elsewhere are weak. Dollar depreciation therefore is particularly threatening for the European economies. Further, the Euro-area governments are constrained by the so-called "Stability and Growth Pact"which requires fiscal deficits no greater than 3 percent of GDP.
Financial circles have urged the European governments to pursue "structural reforms,"bringing labor and product market policies to U.S. standards. "Structural reforms"will supposedly unleash productivity growth that "in the long run,"will create conditions for vigorous demand expansion. From the point of view of financial capitalists, for vigorous accumulation to take place there has to be a dramatic improvement in profitability and capitalist confidence. For the capitalists to be confident, "structural reforms"have to take place to break the resistance of the working class. At this moment, it is not at all clear that the European capitalist class can decisively defeat the resistance of the working class. But if the so-called "structural reforms"are indeed carried out, their negative effects on domestic demand (through further attacks on working people's living standards) may very well overwhelm whatever "positive"effects they may have on the "long run"accumulation.
With the European economy stagnating, it is inconceivable that it can absorb enough U.S. exports to correct the U.S. current account deficit. A correction that depends entirely on dollar depreciation would require a catastrophic decline in the dollar's value. By some estimates, the dollar may need to fall by 30–50 percent. Such a decline would be politically, economically, and psychologically unacceptable.10
If the U.S. dollar is not going to depreciate against any other currency, why does the current account deficit have to be corrected? If the rest of the world's central banks keep intervening, flooding the world with their own currencies (euros, Japanese yens, and the Chinese renminbi) to prevent dollar depreciation, why cannot the United States run an ever-larger current account deficit for an indefinite period of time? It cannot go on indefinitely because the rising U.S. current account deficits absorb a growing proportion of the global saving. A theoretical limit will be reached when the entire world's saving is exhausted to finance the U.S. current account deficit. But the practical limit will be reached long before the theoretical limit. This course would raise U.S. and Japanese government debt to astronomical levels. These gigantic government debts would exist along with enormous household and corporate debts in the United States and Europe.11
How can these debts be financed? There are two possibilities. First, a global depression and widespread household and corporate bankruptcies may destroy much of the private debts. This is the historical solution that has obtained in all prior systemic crises of capitalism. In theory, as debt is devalued the conditions for a new cycle of capitalist accumulation on an even higher level gradually come to exist. But in the last such global depression such spontaneous recovery was inadequate, for reasons inherent in monopoly capital that are even stronger today. This option therefore supposes an extended period of depression. Whatever the outcome on this hypothesis one thing is certain, neoliberalism would be dead for a very long time, if not forever.
Secondly, the enormous private and public sector debts could be inflated away, that is, financed by printing money. Given the magnitude of the enormous debts to be inflated away, the inflation strategy may send the global economy into vicious cycles of hyperinflation and skyrocketing interest rates. If there is any one option ruled out by all of the various global ruling classes, it is this.
Towards an Imperial Solution?
Is there a solution to the crisis within the existing exploitative, oppressive framework? The U.S. economy is in deep crisis, and given the role it plays in the world economy much depends upon it. But U.S. imperialism continues to control the world's most powerful, unchallenged military forces. Can the U.S. ruling elite use its forces to build an exploitative empire, establish unprecedented political and military dominance over the world, and in the process manage its economic crisis? In fact, current U.S. policy is an attempt to do just that.
To contain the explosion in the U.S. current account deficit, imports need to be reduced. One way is to reduce such key imports as motor vehicles and electronic goods by increasing their cost in U.S. dollars through a revaluation of the yen and the renminbi. This can only be achieved by political pressure, and it is being applied.
Other substantial imports, such as clothing and footwear, cannot be reduced in quantity since U.S. producers no longer exist to supply the amount needed. Here costs can be contained by the relentless imposition of a "race to the bottom"-the continual transfer of production to ever poorer and more desperate countries.
Here some military force works wonders in enforcing neoliberal immiseration; consider the results of U.S. intervention in Nicaragua and Africa. But the key import is mineral fuels, and here the long-term cost can only be contained by U.S. control of the physical resources. The hand on the spigot that regulates production (and therefore price) must be controlled by the United States. This is one aspect of the economic benefits of U.S. global political power sought through military strength.
The other aspect of any strategy to contain the unsustainable growth in the current account deficit needs to be an expansion of U.S. exports. Yet with the U.S. manufacturing base in terminal decline, only the prospect of monopoly prices for "intellectual property"offers hope.
Here too the imposition of monopoly prices for the licenses, genetically modified seeds, pharmaceuticals, songs and movies, is a matter purely of political power based on military strength.
But how can this imperialist project be financed? The costs of U.S. military expansion are likely to aggravate rather than alleviate the U.S. economic crisis.
Stephen Roach of Morgan Stanley asks the question: "Can a saving-short US economy continue to finance an ever-widening expansion of its military superiority?" His answer is: "The confluence of history, geopolitics, and economics leaves me more convinced than ever that a US-centric world is on an unsustainable path."12
Could the U.S. military expansion be financed by the expansion itself? Andy Xie of Morgan Stanley estimated that the direct and indirect effects of the U.S. occupation of Iraq could save the United States $40 billion a year in expenditures on oil imports.13 Assuming these "benefits"are fully realized, that is only a fraction of the U.S. current account deficits.
But faced with the increasingly pervasive popular resistance in Iraq, the United States has not yet been able to realize any of these projected "benefits." Months after the so-called "major combat operations "ended and despite the fact that the United States has committed half of its entire regular army in Iraq, the United States is losing its grip on Iraq, unable to control the roads and borders, the water, and the electricity supply.
Out of the U.S. Army's thirty-three combat brigades, sixteen are now in Iraq, two are in Afghanistan, two are in South Korea, and one is in Kosovo. Of the twelve brigades in the United States, three are in modernization training, three are in reserve for possible war in Korea, and two are going to relieve the troops in Afghanistan. There are only four brigades left to relieve the sixteen brigades in Iraq. In effect, the United States has exhausted its entire regular army just to occupy such totally impoverished third world countries as Afghanistan and Iraq.
Whatever the economic "costs"or "benefits," U.S. imperialism is losing the political and ideological battle.
According to the latest survey of the Pew Global Attitudes Project (based in Washington), "America's image around the world has taken a sharp turn for the worse."14 The project of a U.S. global neoliberal empire based on force has already failed. Not because of internal limits in the working of capitalism alone, but because the attempt to avoid the economic crisis that neoliberal policies produce through global military dominance has already come up against its limits in popular resistance in Iraq. The crisis of neoliberalism shall follow.
Towards Social Democracy?
What will the post-neoliberal world look like? One possibility is a return to social democratic capitalism. Between 1950 and 1973, with social democratic institutions such as big government, Keynesianism, class compromise, redistribution of income and wealth, and regulation of capital, world capitalism experienced the great "golden age."For a quarter of a century, the leading capitalist countries enjoyed rapid economic growth, low unemployment, rising living standards, and social stability. Peripheral and semiperipheral states were able to make some progress in national development through "import-substitution"or "socialist"industrialization. Could a return to social democracy bring about a return of the great golden age?
The inherent contradictions of capitalism did not stop developing under social democratic capitalism. Within certain limits, the social democratic institutions helped to alleviate the class conflicts and maintain a relatively high level of aggregate demand. Under certain historical conditions, these institutions were consistent with high and stable profit rates and facilitated rapid capital accumulation. However, as these institutions existed and operated, they tended to create new conditions that increasingly undermined worldwide accumulation. The changing balance of power between capital and labor, and between the core and the periphery resulted in the worldwide decline of profitability and contributed to the accumulation crisis in the 1960s and the 1970s.15 It was exactly in response to the crisis of social democratic capitalism that the global ruling elites started to pursue neoliberalism as the "solution"to the crisis.
Suppose the current crisis is to be resolved on a social democratic basis. National regulations of trade and capital flows are reintroduced, labor and financial markets are reregulated, income and wealth are significantly redistributed in egalitarian ways, and the public sector is again to play a significant role in the economy. Will these changes be sufficient to bring about a new golden age? Without changing the fundamental institutions of capitalism, what is to prevent the inherent contradictions of capitalism from developing? What is to prevent the "new"social democratic capitalism from entering into a new accumulation crisis?
The establishment of social democratic capitalism could not take place without at least a partial political victory of the working classes. But if that turns out to be the case, the working classes in different parts of the world will demand not only restoring their historical social and economic rights and consolidating their existing rights, but also greatly expanding these rights. How can these new social reforms be financed? If they have to be financed by additional taxes on capitalist profits, can the revival of social democracy survive the revival of the working classes' bargaining power? The growth rates of the post-Second World War golden age were an exception to the stagnation that characterizes global capitalism in its monopoly phase. Absent such growth rates, no social democratic capitalism is possible.
There are other problems that a revived social democratic capitalism would not be able to address. Can social democratic capitalism provide the necessary institutional framework for dealing with the global environmental crisis? Environmental investment and regulations increase the overall costs of capitalist production (this is not to be confused with the fact that environmental businesses may create profit opportunities for some individual capitalists). There is the question whether after taking full account of environmental costs, the remaining profits would be sufficient to induce an adequate level of accumulation. But more likely, in a capitalist world economy with nation states, the competition between different capitalist states will prevent them from taking full account of environmental costs. In that case, social democratic capitalism will simply be an "alternative"way towards global ecological catastrophe.
Marx said that the historical justification of capitalism was to develop the forces of production. Capitalism has clearly succeeded in the development of the forces of production. It has also succeeded in bringing about material prosperity for the top 15–20 percent of the world population. However, it has decisively failed to meet the basic physical and emotional needs of the great majority of human beings that live in the periphery and the semiperiphery. In fact, Immanuel Wallerstein questioned whether there has been any improvement of quality of life for the poorer majority of the world population since the beginning of the capitalist world economy.16
During the twentieth century, human beings twice went through the horrific catastrophes of imperialist wars that arose out of the fundamental contradictions of capitalism. The past quarter of a century was another dark age in human history. Under neoliberalism, inequality, oppression, and exploitation have reached new extremes. In the meantime, under capitalism humanity is rapidly approaching a global ecological catastrophe.
In the light of the enormous social and economic disasters brought about by neoliberalism, it is necessary to reevaluate the historical experience of socialism. Ten to fifteen years ago, the experience of state socialism in the former Soviet Union, Eastern Europe, China, and Cuba was generally considered to be a great failure. In addition to their undemocratic features, the state socialist societies were believed to have failed because they were not able to match capitalism in terms of efficiency and technical innovation. For a while, many have attempted to design new, "viable"models of socialism. Many of these models intend to be as efficient as capitalism by incorporating such capitalist features as markets, competition, and private incentives.
Now few would doubt that the majority of the Soviet and Eastern European people lived much better lives under state socialism than under the present "free"and "democratic"capitalism. Even in China, where the economy has been the most dynamic in the world, capitalist reforms since the early 1990s have substantially reduced the living standards of the peasants and the urban working class, so that in many respects (health care, education, job security, and workplace conditions), a significant portion of the Chinese working people now have lower living standards than during the Maoist era.
The historical achievements of state socialism should not be under-estimated. The accomplishment of full employment and job security (freedom from the fear of unemployment) for all capable adults, men and women, was of enormous importance. It is well known that state socialist countries had been more successful in meeting people's basic needs (nutrition, health care, education, housing, and pensions) and improving women's conditions than capitalist countries with similar levels of economic development. Soviet, Eastern European, and Cuban socialism had succeeded in meeting virtually all basic social needs, an achievement that most of the advanced capitalist countries cannot claim.
What will be the relevance of socialism for today's struggle against neoliberalism? As the crisis of neoliberalism deepens, in many peripheral and semiperipheral states (such as in Latin America), the situation has developed to the point that without a complete break with international finance capital, the imperialist states, and the international institutions that represent their interests, there are simply no resources left (after paying a significant portion of the national output each year to international finance capital) for even simple reproduction of the society, not to say to address grave social problems. In this situation, the only sensible solution that is in the interest of the majority of the people is to make a complete break with the existing international capitalist order. The national economy needs to be restructured so that resources are redirected towards production for basic needs rather than organizing the national economy around exports to the core countries, under conditions of unequal exchange, in order to import luxury consumer goods for the privileged elites and the means of production that are used to reproduce the existing pattern of the international division of labor, generating "trade surpluses"to serve debt payments and finance capital flight. But these arrangements will inevitably have conflicts with the interests of the big financial and industrial capitalists. At some point, nationalization of the major means of production and the development of a comprehensive economic plan will have to be pursued for the economic and social transformation to be sustained.
In the former Soviet Union, Eastern Europe, and China the corrupt capitalist privatization processes are extremely unpopular. Should new social revolutions take place, one can expect the renationalization of all the illegally privatized assets to be among the top popular demands. The renationalized assets then would form the basis of a new socialist economy. The revival of socialism in the periphery and the semiperiphery may set in motion a new wave of world socialist revolutions.
Can the next round of socialist revolutions do better than the twentieth century revolutions? In what way can socialism prove itself to be better than capitalism? Summarizing the historical lessons of Soviet socialism, David Kotz argues that, in purely economic terms, centrally planned state socialism was a viable system. The Soviet system disintegrated because a procapitalist political alliance (including the majority of the bureaucratic elite) arose and gained power. Kotz suggests that for a future socialism to be viable, it must have a democratic state and other institutions that prevent the development of a privileged and dominant elite.17
Provided that a future socialist society will be based on political democracy, how will a future socialist economy be organized and structured? In addition to many existing theoretical contributions on the subject, future socialist movements will certainly be able to develop a great variety of new institutions, new practices in actual historical struggles. Ultimately, the future socialist economy has to be organized in such a way that it is capable of addressing the historical contradictions to which capitalism has failed to provide a solution.
Given the historical record of state socialism, one can have great confidence that an economic system based on primarily public ownership of the means of production and democratic planning (democratic control over the allocation of the social surplus) will have a great chance to succeed in meeting the basic needs of all members of society. If this can be achieved, then at the very least, socialism will bring about a better material life for the poorest 60–70 percent of the population in the world, whose basic needs have never been met under capitalism.
Socialism offers the best hope for humanity to avoid global ecological catastrophe and to build harmonious relationships between human beings and our environment. In this respect, the record of state socialism was not favorable. But the record needs to be understood in its historical context. In addition to the bureaucratic, undemocratic nature of state socialist planning, state socialist societies were forced to engage in military and economic competition against hostile capitalist powers. Given the context, they were forced to sacrifice everything in order to "develop the forces of production."
The hope is that the future socialist society will have better, generally benign external environments (if there is not going to be a world socialist government). In that case, there will not be external pressures to force future socialism to develop the forces of production rapidly and in an unbalanced fashion. Given the arrangements of political democracy and socialist planning, people in these societies will be able to debate and decide, based on their own preferences, how much surplus they would like to generate as well as determine how the surplus should be allocated. The need to have a sustainable environment, through democratic processes, will be understood by the general public, and will be reflected in the planning, balanced against other needs and desires, including the desire for material comfort. Unless one believes that people will always be capitalist minded, always wanting more regardless of how that affects future generations, then it seems that sustaining the environment in which human beings live would certainly become one of the paramount objectives of future socialist planning.
- United Nations, Human Development Report (Oxford University Press, 2000 and 2002); James Petras and Henry Veltmeyer, Globalization Unmasked (London and New York: Zed Books, 2001), p. 24; Food and Agricultural Organization of the United Nations,The State of Food Insecurity in the World, 2003 (Rome, FOA, 2003).
- See Dollars & Sense, Real World Macro (18th edition, Cambridge, Mass.: Dollars & Sense, 2001), Appendix 3; Duncan Green, Silent Revolution (London: Cassell, 1995), p. 91 and Appendix A.
- Editors, Monthly Review, "The New Face of Capitalism,"Monthly Review, April 2002, 1–14.
- Stephen Roach, "Global: Do Imbalances Matter?,"Morgan Stanley Global Economic Forum, www.morganstanley.com/GEFdata/digests/latest-digest.html, September 2, 2003.
- Editors, Monthly Review, "The New Face..."
- It is an accounting truth that if the real interest rate is greater than the economic growth rate, then private and public debts tend to grow more rapidly than incomes or revenues (assuming zero primary financial balances), leading to ever-rising debt-income ratios. For data on real interest rates, see David Felix, "Asia and the Crisis of Financial Globalization,"in Dean Baker, Gerald Epstein, and Robert Pollin (eds.), Globalization and Progressive Economic Policy (Cambridge University Press, 1998), pp. 163–196.
- Hyman P. Minsky, Stabilizing an Unstable Economy (New Haven and London: Yale University Press, 1986).
- For neoliberalism and the U.S. expansion in the 1990s, see David Kotz, "Neoliberalism and the U.S. Economic Expansion of the 1990s,"Monthly Review, April 2003, 15–33. For statistics on U.S. household and corporate sector debts, see Wynne Codley, "The U.S. Economy: A Changing Strategic Predicament,"The Levy Economics Institute www.levy.org, 2003. For U.S. stock market valuation statistics, see John Y. Campbell and Robert J. Shiller. "Valuation Ratios and the Long-Run Stock Market Outlook,"Cowles Foundation Discussion Paper No. 1295, Yale University, 2001.
- Stephen Roach, "The Heavy Lifting of Global Rebalancing,"Morgan Stanley Global Economic Forum, May 27, 2003.
- See Martin Wolf, "The Rake's Progress of the Dollar Comes under Threat,"Financial Times, January 8, 2003.
- On the current explosion of public and private debts in advanced capitalist countries and the potential danger of hyper-inflation, see Joachim Fels, "Europe-All: Too Much Debt,"Morgan Stanley Global Economic Forum, September 5, 2003; Tim Lee, "Inflation Is a Bigger Danger than Deflation,"Financial Times, May 27, 2003; Martin Wolf, "The Fine Line between Deflation and Inflation,"Financial Times, May 28, 2003.
- Stephen Roach, "Worldthink, Disequilbirum, and the Dollar,"Morgan Stanley Global Economic Forum, May 12, 2003.
- See Andy Xie, "Asia Pacific: The Ying-Yang World Reloaded,"Morgan Stanley Global Economic Forum, June 2, 2003.
- Financial Times, June 4, 2003.
- On the stagnation tendency of monopoly capitalism and the limits of Keynesian policies, see Paul A. Baran and Paul M. Sweezy, Monopoly Capital (Monthly Review Press, 1966) and Harry Magdoff and Paul M. Sweezy, Stagnation and the Financial Explosion (Monthly Review Press, 1987). On the changing balance of power between capital and labor in advanced capitalist countries, worldwide decline of profitability, and accumulation crisis, among others, see Samuel Bowles, David M. Gordon, & Thomas E. Weisskopf, After the Waste Land (Armonk, N.Y.: M. E. Sharpe, Inc., 1990) and Philip Armstrong and Andrew Glyn, Capitalism since 1945 (Cambridge, Mass.: Basil Blackwell, 1991).
- Immanuel Wallerstein, Historical Capitalism with Capitalist Civilization (London: Verso, 1995).
- David Kotz, Revolution from Above (London and New York: Routledge, 1997).
March 31, 2006 | considerphlebas.blogspot.com
Blood and Treasure points out, here, that there are certain similarities of both style and substance between Blair, Berlusconi and Thaksin Shinawatra, the currently somewhat threatened Prime Minister of Thailand, which might be crudely summed up as populist neoliberalism. I tried to draw attention to my ex-supervisor's attempt to characterise New Labour as a bunch of One Nation Tories, which would give them certain ideologically similarities to an inegalitarian and hollowed-out populism, in response to Chris Brooke's exploration of the commonalities of New Labour and Petainism a while ago, so I feel I was ahead of the blogospheric wave here.
What's more interesting, in a way, is not the position that these parties have come to occupy, and the various trends in their membership and structure associated with that (re)position(ing), but rather the underlying social trends which provide the explanatory background against which these events occurred. I'm sure something needs to be said about falling party political identification, a trend identifiable since at least the seventies I think, but that then calls for a further explanation. The next gesture, I think, ought to be in the direction of a fragmenting and increasingly sophisticated class system, but that's not really conclusive, and also, even if it were, would not necessarily be particularly explanatory of itself, since a further explanation of the processes which caused that fragmentation would also seem to be required.
One of the reasons that it'd be interesting to understand the processes by which this kind of hollowed-out populism comes into being is that it would have some bearing on discussions about which, if any, conditions are pre-requisites of stable democracy, which is currently of not merely academic relevance. This is because one relatively popular theory of what it takes for a state to achieve democratic stability - by which I mean, non-collapse into either authoritarianism, serious and endemic political violence, or some other form of obvious and serious state failure, over a sustained period of time - claims that the basic precondition is that the state is made up of a society with one major, politically determining, cleavage - say a simple class system - with parties that reflect that cleavage. Britain after the Second World War is an excellent example of such a state, since although voting wasn't wholly along class lines - there was always a substanial working class Tory vote, for example - the political parties were, to all intents and purposes, class parties.
However, Britain now does not look like that, significantly because the heavily unionised manual working class which formed the bedrock of the support of the Labour Party is largely gone, Thatcher's crippling blow in the long winter of 1984 having been the end of a decline-induced series of public shows of strength. There is now not obviously any single class that identifies itself as such that a political party could hope to unite behind it to form the basis of a successful electoral coalition, which is, I would suggest, the underlying causal explanation for this phenomena of falling party membership and hence hollowed-out political ideologies. Whether this applies at all to the other two cases mentioned in the original article, I'm not sure. I don't know anything about the political sociology of Thailand at all, but it doesn't seem totally bizarre to think that the reshaping of Italian politics in the late eighties and early nineties which culminated in Tangentopoli and Mani Puliti could perhaps have represented the same sort of break with the post-war order that the winter of discontent and the triumph of Thatcherism did in Britain.
Still in Britain, the rise of populist neoliberalism seems to be associated with the end of (comparatively) simple class politics. Shuggy, commenting on criticisms of the indecisiveness of Israeli electoral system, argues that whilst the British system works well in a state with only one major political cleavage, it might not in states with series of cleavages which cut across each other, and says that "[t]he [electoral] system you should have... depends on what you want it to do". To take that as an injunction against all forms of 'voting system fundamentalism', of course, requires thinking that there are no or at least fairly minimal requirements for a voting system to fulfill, but equally, to reject it on grounds of 'voting system fundamentalism' would be to deny that there are political goods other than those directly related to electoral systems, both of which seem implausible. Perhaps then, despite its effects on those other political goods, the hollowing-out of British political parties and diffusion of class conflict has brought about something of a happy realignment elsewhere: no longer do we have to rely on political cranks to supply a conclusive moral argument for PR, as it now looks like it's actually what the country might need to give adequate representation to its increasingly sophisticated and cross-cutting political cleavages
August 7, 2004 | www.dissidentvoice.orgNeoliberalism and the Demise of Democracy: Resurrecting Hope in Dark Times
Neoliberalism has become one of the most pervasive, if not, dangerous ideologies of the 21st century. Its pervasiveness is evident not only by its unparalleled influence on the global economy, but also by its power to redefine the very nature of politics itself. Free market fundamentalism rather than democratic idealism is now the driving force of economics and politics in most of the world, and it is a market ideology driven not just by profits but by an ability to reproduce itself with such success that, to paraphrase Fred Jameson, it is easier to imagine the end of the world than the end of neoliberal capitalism.
Wedded to the belief that the market should be the organizing principle for all political, social, and economic decisions, neoliberalism wages an incessant attack on democracy, public goods, the welfare state, and non-commodified values. Under neoliberalism everything either is for sale or is plundered for profit. Public lands are looted by logging companies and corporate ranchers; politicians willingly hand the public's airwaves over to powerful broadcasters and large corporate interests without a dime going into the public trust; Halliburton gives war profiteering a new meaning as it is granted corporate contracts without any competitive bidding and then bilks the U.S. government for millions; the environment is polluted and despoiled in the name of profit-making just as the government passes legislation to make it easier for corporations to do so; public services are gutted in order to lower the taxes of major corporations; schools more closely resemble either malls or jails, and teachers are forced to get revenue for their school by hawking everything from hamburgers to pizza parties. As markets are touted as the driving force of everyday life, big government is disparaged as either incompetent or threatening to individual freedom, suggesting that power should reside in markets and corporations rather than in governments (except for their support for corporate interests and national security) and citizens.
Under neoliberalism, the state now makes a grim alignment with corporate capital and transnational corporations. Gone are the days when the state "assumed responsibility for a range of social needs." Instead, agencies of government now pursues a wide range of "'deregulations,' privatizations, and abdications of responsibility to the market and private philanthropy." Deregulation, in turn, promotes "widespread, systematic disinvestment in the nation's basic productive capacity." Flexible production encourages wage slavery and disposable populations at home. And the search for ever greater profits leads to outsourcing which accentuates the flight of capital and jobs abroad. Neoliberalism has now become the prevailing logic in the United States, and according to Stanley Aronowitz "...the neoliberal economic doctrine proclaiming the superiority of free markets over public ownership, or even public regulation of private economic activities, has become the conventional wisdom, not only among conservatives but among social progressives."
The ideology and power of neoliberalism also cuts across national boundaries. Throughout the globe, the forces of neoliberalism are on the march, dismantling the historically guaranteed social provisions provided by the welfare state, defining profit-making as the essence of democracy, and equating freedom with the unrestricted ability of markets to "govern economic relations free of government regulation." Transnational in scope, neoliberalism now imposes its economic regime and market values on developing and weaker nations through structural adjustment policies enforced by powerful financial institutions such as the World Bank, the International Monetary Fund (IMF), and the World Trade Organization (WTO). Secure in its dystopian vision that there are no alternatives, as England's former Prime Minister Margaret Thatcher once put it, neoliberalism obviates issues of contingency, struggle, and social agency by celebrating the inevitability of economic laws in which the ethical ideal of intervening in the world gives way to the idea that we "have no choice but to adapt both our hopes and our abilities to the new global market." Coupled with a new culture of fear, market freedoms seem securely grounded in a defense of national security, capital, and property rights. When coupled with a media driven culture of fear and the everyday reality of insecurity, public space becomes increasingly militarized as state governments invest more in prison construction than in education. Prison guards and security personnel in public schools are two of the fastest growing professions.
In its capacity to dehistoricize and depoliticize society, as well as in its aggressive attempts to destroy all of the public spheres necessary for the defense of a genuine democracy, neoliberalism reproduces the conditions for unleashing the most brutalizing forces of capitalism. Social Darwinism has been resurrected from the ashes of the 19th century sweatshops and can now be seen in full bloom in most reality TV programs and in the unfettered self-interests that now drives popular culture. As narcissism is replaced by unadulterated materialism, public concerns collapse into utterly private considerations and where public space does exist it is mainly used as a confessional for private woes, a cut throat game of winner take all, or a advertisement for consumerism.
Neoliberal policies dominate the discourse of politics and use the breathless rhetoric of the global victory of free-market rationality to cut public expenditures and undermine those non-commodified public spheres that serve as the repository for critical education, language, and public intervention. Spewed forth by the mass media, right-wing intellectuals, religious fanatics, and politicians, neoliberal ideology, with its ongoing emphasis on deregulation and privatization, has found its material expression in an all-out attack on democratic values and on the very notion of the public sphere. Within the discourse of neoliberalism, the notion of the public good is devalued and, where possible, eliminated as part of a wider rationale for a handful of private interests to control as much of social life as possible in order to maximize their personal profit. Public services such as health care, child care, public assistance, education, and transportation are now subject to the rules of the market. Construing the public good as a private good and the needs of the corporate and private sector as the only source of investment, neoliberal ideology produces, legitimates, and exacerbates the existence of persistent poverty, inadequate health care, racial apartheid in the inner cities, and the growing inequalities between the rich and the poor. 
As Stanley Aronowitz points out, the Bush administration has made neoliberal ideology the cornerstone of its program and has been in the forefront in actively supporting and implementing the following policies:
[D]eregulation of business at all levels of enterprises and trade; tax reduction for wealthy individuals and corporations; the revival of the near-dormant nuclear energy industry; limitations and abrogation of labor's right to organize and bargain collectively; a land policy favoring commercial and industrial development at the expense of conservation and other pro environment policies; elimination of income support to the chronically unemployed; reduced federal aid to education and health; privatization of the main federal pension programs, Social Security; limitation on the right of aggrieved individuals to sue employers and corporations who provide services; in addition, as social programs are reduced, [Republicans] are joined by the Democrats in favoring increases in the repressive functions of the state, expressed in the dubious drug wars in the name of fighting crime, more funds for surveillance of ordinary citizens, and the expansion of the federal and local police forces. 
Central to both neoliberal ideology and its implementation by the Bush administration is the ongoing attempts by free-market fundamentalists and right wing politicians to view government as the enemy of freedom (except when it aids big business) and discount it as a guardian of the public interest. The call to eliminate big government is neoliberalism's great unifying idea and has broad popular appeal in the United States because it is a principle deeply embedded in the country's history and tangled up with its notion of political freedom. And yet, the right wing appropriation of this tradition is racked with contradictions in terms of neoliberal policies.
The advocates of neoliberalism have attacked what they call big government when it has provided essential services such as crucial safety nets for the less fortunate, but they have no qualms about using the government to bailout the airline industry after the economic nosedive that followed the 2000 election of George W. Bush and the events of 9/11. Nor are there any expressions of outrage from the cheerleaders of neoliberalism when the state engages in promoting various forms of corporate welfare by providing billions of dollars in direct and indirect subsidies to multinational corporations. In short, government bears no obligation for either the poor and dispossessed or for the collective future of young people.
As the laws of the market take precedence over the laws of the state as guardians of the public good, the government increasingly offers little help in mediating the interface between the advance of capital and its rapacious commercial interests. Neither does it aid non-commodified interests and non-market spheres that create the political, economic, and social spaces and discursive conditions vital for critical citizenship and democratic public life. Within the discourse of neoliberalism, it becomes difficult for the average citizen to speak about political or social transformation, or to even challenge, outside of a grudging nod toward rampant corruption, the ruthless downsizing, the ongoing liquidation of job security, or the elimination of benefits for people now hired on part-time.
The liberal democratic vocabulary of rights, entitlements, social provisions, community, social responsibility, living wage, job security, equality, and justice seem oddly out of place in a country where the promise of democracy has been replaced by casino capitalism, a winner-take-all philosophy, suited to lotto players and day traders alike. As corporate culture extends even deeper into the basic institutions of civil and political society, buttressed daily by a culture industry largely in the hands of concentrated capital, it is reinforced even further by the pervasive fear and insecurity of the public that the future holds nothing beyond a watered down version of the present. As the prevailing discourse of neoliberalism seizes the public imagination, there is no vocabulary for progressive social change, democratically inspired visions, or critical notions of social agency to expand the meaning and purpose of democratic public life. Against the reality of low wage jobs, the erosion of social provisions for a growing number of people and the expanding war against young people of color at home and empire-building abroad, the market-driven juggernaut of neoliberalism continues to mobilize desires in the interest of producing market identities and market relationships that ultimately sever the link between education and social change while reducing agency to the obligations of consumerism.
As neoliberal ideology and corporate culture extend even deeper into the basic institutions of civil and political society, there is a simultaneous diminishing of non-commodified public spheres -those institutions such as public schools, independent bookstores, churches, noncommercial public broadcasting stations, libraries, trade unions and various voluntary institutions engaged in dialogue, education, and learning–that address the relationship of the individual to public life and foster social responsibility and provide a robust vehicle for public participation and democratic citizenship. In the vacuum left by diminishing democracy, religious zealotry, cultural chauvinism, xenophobia, and racism have become the dominant tropes of neoconservatives and other extremist groups eager to take advantage of the growing insecurity, fear, and anxiety that result from increased joblessness, the war on terror, and the unraveling of communities.
As a result of the consolidated corporate attack on public life, the maintenance of democratic public spheres from which to launch a moral vision or to engage in a viable struggle over politics loses all credibility–not to mention monetary support. As the alleged objectivity of neoliberal ideology remains largely unchallenged within dominant public spheres, individual critique and collective political struggles become more difficult.  It gets worse. Dominated by extremists, the Bush administration is driven by an arrogance of power and inflated sense of moral righteousness mediated largely by a false sense of certitude and never ending posture of triumphalism. As George Soros points out this rigid ideology and inflexible sense of mission allows the Bush administration to believe that "because we are stronger than others, we must know better and we must have right on our side. This is where religious fundamentalism comes together with market fundamentalism to form the ideology of American supremacy."
As public space is increasingly commodified and the state becomes more closely aligned with capital, politics is defined largely by its policing functions rather than an agency for peace and social reform. As the state abandons its social investments in health, education, and the public welfare. It increasingly takes on the functions of an enhanced police or security state, the signs of which are most visible in the increasing use of the state apparatus to spy on and arrests its subjects, the incarceration of individuals coincided disposable (primarily people of color), and the ongoing criminalization of social policies. Examples of the latter include anti-begging ordinances and anti-loitering that fine or punish homeless people for sitting or lying down too long in public places.  An even more despicable example of the barbaric nature of neoliberalism with its emphasis on profits over people and its willingness to punish rather than serve the poor and disenfranchised can be seen in the growing tendency of many hospitals across the country to have patients arrested and jailed if they cannot pay their medical bills. The policy, right out of the pages of George Orwell's 1984, represents a return to debtors prisons, which is now chillingly called "body attachment,"and is " basically a warrant for... the patient's arrest."
Neoliberalism is not simply an economic policy designed to cut government spending, pursue free trade policies, and free market forces from government regulations; it is also a political philosophy and ideology that effects every dimension of social life. Neoliberalism has heralded a radical economic, political, and experiential shift that now largely defines the citizen as a consumer, disbands the social contract in the interests of privatized considerations, and separates capital from the context of place. Under such circumstances, neoliberalism portends the death of politics as we know it, strips the social of its democratic values, and reconstructs agency in terms that are utterly privatized and provides the conditions for an emerging form of proto-fascism that must be resisted at all costs. Neoliberalism not only enshrines unbridled individualism, it also destroys any vestige of democratic society by undercutting its "moral, material, and regulatory moorings," and in doing so it offers no language for understanding how the future might be grasped outside of the narrow logic of the market. But there is even more at stake here than the obliteration of public concerns, the death of the social, the emergence of a market-based fundamentalism that undercuts the ability of people to understand how to translate the privately experienced misery into collective action, and the elimination of the gains of the welfare state. There is also the growing threat of displacing "political sovereignty with the sovereignty of the market, as if the latter has a mind and morality of its own." As democracy becomes a burden under the reign of neoliberalism, civic discourse disappears and the reign of unfettered social Darwinism with its survival-of-the-slickest philosophy emerges as the template for a new form of proto-fascism. None of this will happen in the face of sufficient resistance, nor is the increasing move toward proto-fascism inevitable, but the conditions exist for democracy to lose all semblance of meaning in the United States..
Educators, parents, activists, workers, and others can address this challenge by building local and global alliances and engaging in struggles that acknowledge and transcend national boundaries, but also engage in modes of politics that connect with people's everyday lives. Democratic struggles cannot under emphasize the special responsibility of intellectuals to shatter the conventional wisdom and myths of neoliberalism with its stunted definition of freedom and its depoliticized and dehistoricized definition of its own alleged universality. As the late Pierre Bourdieu argued, any viable politics that challenges neoliberalism must refigure the role of the state in limiting the excesses of capital and providing important social provisions.  At the same time, social movements must address the crucial issue of education as it develops throughout the cultural sphere because the "power of the dominant order is not just economic, but intellectual–lying in the realm of beliefs,"and it is precisely within the domain of ideas that a sense of utopian possibility can be restored to the public realm.  Most specifically, democracy necessitates forms of education that provide a new ethic of freedom and a reassertion of collective identity as central preoccupations of a vibrant democratic culture and society. Such a task, in part, suggests that intellectuals, artists, unions, and other progressive movements create teach-ins all over the country in order to name, critique, and connect the forces of market fundamentalism to the war at home and abroad, the shameful tax cuts for the rich, the dismantling of the welfare state, the attack on unions, the erosion of civil liberties, the incarceration of a generation of young black and brown men, the attack on public schools, and the growing militarization of public life. As Bush's credibility crisis is growing, the time has come to link the matters of economics with the crisis of political culture, and to connect the latter to the crisis of democracy itself. We need a new language for politics, for analyzing where it can take place, and what it means to mobilize alliances of workers, intellectuals, academics, journalists, youth groups, and others to reclaim, as Cornel West has aptly put it, hope in dark times.
Henry A. Giroux is the Global Television Network Chair Professor at McMaster University in Canada. His most recent books include: Take Back Higher Education: Race, Youth, and the Crisis of Democracy in the Post-Civil Rights Era (Palgrave, 2004); Public Spaces, Private Lives: Democracy Beyond 9-11 (Rowman and Littlefield 2003); The Abandoned Generation: Democracy Beyond the Culture of Fear (Palgrave, 2003). He can be reached at: email@example.com. Visit his website at: www.henryagiroux.com.
1. George Steinmetz, 'The State of Emergency and the Revival of American Imperialism; Toward an Authoritarian Post-Fordism,"Public Culture 15:2 (Spring 2003), p. 337.
2. George Steinmetz, Ibid., 'The State of Emergency and the Revival of American Imperialism; Toward an Authoritarian Post-Fordism,"p. 337.
3. Barry Bluestone and Bennett Harrison, The Deindustrialization of America: Plant Closings, Community Abandonment and the Dismantling of Basic Industry (New York: Basic Books, 1982), p. 6
4. Stanley Aronowitz, Ibid. How Class Works, p. 21.
5. Stanley Aronowitz, How Class Works (New Haven: Yale University Press, 2003), p. 101.
6. Stanley Aronowitz, "Introduction,"in Paulo Freire, Pedagogy of Freedom (Lanham: Rowman and Littlefield, 1998), p. 7
7. Doug Henwood, After the New Economy (New York: The New Press, 2003); Kevin Phillips, Wealth and Democracy: A Political History of the American Rich (New York: Broadway, 2003); Paul Krugman, The Great Unraveling: Losing Our Way in the New Century (New York: W.W. Norton, 2003).
8. Stanley Aronowitz, How Class Works (New Haven: Yale University Press, 2003), p. 102.
9. Of course, there is widespread resistance to neoliberalism and its institutional enforcers such as the WTO and IMF among many intellectuals, students, and global justice movements, but this resistance rarely gets aired in the dominant media and if it does it is often dismissed as irrelevant or tainted by Marxist ideology.
10. George Soros, "The US is Now in the Hands of a Group of Extremists," The Guardian/UK (January 26, 2004).
11. Paul Tolme, "Criminalizing the Homeless,"In These Times (April 14, 2003), pp. 6-7.
12. Staff or Democracy Now, "Uncharitable Care: How Hospitals are Gouging and Even Arresting the Uninsured,"CommonDreams (January 8, 2004).
13. John and Jean Comaroff, "Millennial Capitalism: First Thoughts on a Second Coming,"Public Culture 12:2 (2000), p. 332.
14. Comaroff, Ibid., (2000), p. 332.
15. Pierre Bourdieu, Acts of Resistance: Against the Tyranny of the Market (New York: The New Press, 1998).
16. Pierre Bourdieu and Gunter Grass, "The 'Progressive' Restoration: A Franco-German Dialogue,"New Left Review 14 (march-April, 2003), p. 66.
Other Articles by Henry A. Giroux
* George Bush's Religious Crusade Against Democracy
* Higher Education is More Than a Corporate Logo
* Authoritarianism's Footprint and the War Against Youth
* Why Aren't Children Included in the Debates About the Impending U.S. War with Iraq?
LOGOS 5.2 SPRING-SUMMER 2006
reviewed by Philip S. Golub
David Harvey, A Brief History of Neoliberalism, (New York: Oxford University Press, 2005)
In his seminal account of the collapse of the 19th century liberal European order, the rise of fascism and the outbreak of general war, Karl Polanyi traced the ultimate source of the "self-destruction of (European) civilization" to the ravages produced by the institutionalized utopia of a "self adjusting market"[i].
Anchored in a metaphysical construct (the "invisible hand") detached from the anthropological realities of social life, the self-adjusting market became the dominant paradigm of market societies that commodified labor, land and money. Over the course of the century, the market became "the only organizing power in the economic sphere" and the dominant institution of society. Whereas economic activity had forever been "a function of the social in which it was contained", it became a law unto itself, severed from its social foundations, "subordinating the substance of society itself to the laws of the market."
This process of universal commodification, Polanyi argued, "could not endure for any length in time without annihilating the human and natural substance of society". Indeed, most European societies ultimately took measures to protect themselves from the corrosive effects of the self adjusting market by opting in the late 19th and early 20th centuries for strong mercantilist states that pursued narrow national goals and strove for imperial monopoly at each others' expense. Mid-century transnational capitalist cooperation, embodied by pan-European networks of haute finance whose functional role was to "avert general wars", gave way to ruthless national power politics: despite the high degree of European economic integration at the turn of the century, the webs of capitalist interdependence were swept away in the rising nationalist wave.
The outcome was "a social transformation of planetary range, topped by wars of an unprecedented type in which a score of states crashed (and new empires emerged) out of a sea of blood". Fascism, a deadly pathological "solution to the impasse reached by liberal capitalism… a reform of market economy achieved at the price of the extirpation of all democratic institutions", was the predominant but not the only "solution" to the impasse of market societies: Soviet socialism in one country and Roosevelt's New Deal were synchronous alternative pathways out of universal commodification. Both emerged strengthened from the war.
In the West, social states with varying levels of protection and state intervention, reflecting different national pathways and traditions, were created and/or consolidated around a new growth regime and a new international institutional order. At the national level, the "Keynesian welfare state" appeared to resolve two of the central contradictions of capitalism: cyclical uncontrolled slides into depression and unrestrained class warfare. At the national level, the compromise between capital and labor, mediated by the state, helped to mute the competitive pressures of the market by promoting relative social fairness: throughout the industrialized West, income and wealth inequalities were significantly reduced. In Europe, this helped to contain potential challenges to liberalism from mass based Communist parties. At the international level, the institutional architecture created at Bretton Woods created a stable international regulatory framework for the capitalist political economy. In David Harvey's words, "the restructuring of state forms and of international relations after the Second World War was designed to prevent a return of the catastrophic conditions that had so threatened the capitalist order in the 30's."
As the core state in the post-war capitalist order, the United States was the driving agent of the restructuring process. It sustained the international institutions it had helped to create, and supported the establishment of (liberal) interventionist welfare states in Europe and (authoritarian or semi-authoritarian) developmental states in East Asia. This mixed-economy policy, contrary to the US's pre-war liberal credo, was not driven by altruism but by self interest: the US hegemonic project during the Cold War required a belt of stable hence prosperous subordinate states ringing the Soviet Union and the Peoples' Republic of China[ii]. This could not be achieved through the markets alone. The Marshall Plan embodied the US's interventionist management of the capitalist world economy. In the US itself the Rooseveltian welfare state took on a minimal form but it nonetheless became a major component of the postwar US state and the American political economy. Apart from a few isolated followers of the Austrian school (Friedrich von Hayek, Ludwig von Mises) Keynesianism was hegemonic economic policy: government intervention and counter-cyclical policies to stimulate demand and support the unemployed had become the orthodoxy, even within the conservative camp. "We are all Keynesians now", said Richard Nixon in 1971. Ironically, that statement was uttered the year the Bretton-Woods system began to unravel, ushering in the monetarist counter-revolution of the 80's and contemporary neo-liberal hegemony.
The proximate causes of the breakdown of the Keynesian paradigm are well known. Facing inflationary pressures due to the war in Vietnam, declining productivity, intensifying trade competition from Europe and Japan, and hence rising foreign claims to redeem dollars with gold, the US unilaterally tore down the fixed but adjustable exchange rate regime set up at Bretton Woods. The convertibility of the dollar to gold, the pillar of the post-war international monetary system, was ended. John Connolly, Nixon's Treasury Secretary, put matters bluntly: "it's our currency but it's your problem", delicately adding: "foreigners are out to screw us and it is our job to screw them first". Two years later generalized floating exchange rates reintroduced pre-war international monetary anarchy. Meanwhile, on the domestic front, prolonged "stagflation"and mass unemployment challenged counter-cyclical macro-economic policies. Inflation that had been building up since the early years of Vietnam peaked at 13.58% in 1980. In 1979, the Federal Reserve launched the global monetarist backlash by implementing highly restrictive monetary policies. Monetarism had a series of profound domestic and global effects: it forced drastic industrial restructuring and decisively shifted the balance of forces between labor and capital. By favoring rentier capitalism it restored and expanded the power of the increasingly autonomous financial sphere.
Globally, as Giovanni Arrighi points out[iii], the prolonged US rates rise restored the US's declining world hegemony by redirecting capital flows back to the US and disciplined the periphery into submission (the Latin American debt crisis of 1982). The neo liberal reconfiguration that followed was not the work of an "invisible hand". Though structural transformations played an underlying role, notably the decline of the "rust belt"industries, the neo literal mutation would not have been possible without coercive state intervention: In the early 80's, the leaders of the "conservative revolution"in the US and UK joined forces to lock in the transformation by crushing organized labor. Ronald Reagan suppressed the air controllers' strike in the US and Margaret Thatcher waged a vicious and ultimately victorious war against the miners in the UK[iv]. Neo liberalism was thus a "political project"mobilizing the repressive powers of the state to "restore the power of economic elites."
This narrative goes some way to explaining the macro mechanisms of the paradigm shift. But it does not tell us why neo-liberalism, a contemporary globalized variant of the "self regulating market"of the 19th century, subsequently gained near universal hegemony. That is the central question of David Harvey's latest, intellectually stimulating, book. As a doctrine and a practice, neoliberalism was designed, writes Harvey, to "liberate corporate and business power (and) re-establish market freedoms"that had been contained by the social state, that is to restore "the conditions for the resumption of active capital accumulation". The restoration, theorized by a tightly knit group of ideologues in the UK and US, and legitimized by a discourse deeply embedded in the American mind on individual freedom and autonomy, had four major components: the financialization of the economy; the growing mobility of capital; the dominance of the "Wall Street-IMF-Treasury"complex in the 90's; and the "global diffusion of the new monetarist and neoliberal economic orthodoxy". These components, writes Harvey, were fused in the "Washington Consensus of the mid-1990's which "defined the US and UK models of neoliberalism as the answer to global problems". Those models called for limitless market freedom. "Shareholder value"became the war cry of the business class during the 90's, culminating in the later part of the decade with shameless displays of wealth, crony capitalism and corruption. Today, one of its most obscene expressions is the unrestrained enthusiasm of the financial markets whenever mass lay offs occur.
The last frontier of the free market project was opened with the collapse of the Soviet Union in 1991. Liberalization, deregulation and privatization spread worldwide to areas previously outside of market control. Led by an oligarchy of robber barons, Russia underwent "shock therapy"which it has still not fully recovered from. India began its own deregulation and privatization process, though in a far more controlled fashion. China, which had initiated an gradual state-managed policy of agricultural de-collectivization and selective international opening in the late seventies, accelerated the liberal turn in the mid 1980's. After a parenthesis in the late 80's, liberalization was deepened again when Deng toured southern China in 1992.
As anyone who has visited China over the past decade knows, the labor market has been nearly entirely "freed"from regulatory constraint, leading to Darwinian competition between the "old"industrial working class in the declining state sector and the great mass of disenfranchised and unprotected workers flowing from the countryside into the cities. Health care and the best parts of the school system have been privatized. Meanwhile, the dynamic developmental states of northeast Asia and the emerging states of Southeast Asia were subjected to intense western pressure to liberalize their capital accounts and open them to foreign investors. The outcome was the great financial crisis of 1997/1998, caused by overinvestment in short term speculative assets, whose ripple effects nearly engulfed the global financial system. That said, the spread of neoliberalism has not been a uniform process: Harvey is right to point out that neoliberalization proceeded unevenly, with local outcomes depending on the "interplay of internal dynamics and external forces", and the institutional configurations of different societies.
The external forces were the US state, the international institutions dominated by the US, and the transnational companies with a vested interest in unfettered global investment, trade and financial flows. Since the early 80's, successive US governments intervened overtly and covertly to produce outcomes favorable to American business and, more broadly, transnational companies, American or not. Given the permanence of US economic nationalism this may at first sight appear contradictory. Yet as Susan Strange pointed out in the late 1980's, "globalization"did not submerge all states, merely the weaker states of the international system: "all the decisions about the regulation of market operators and intermediaries that used predominantly to be the prerogative of each national government are now shared unevenly between a few governments of the largest and richest countries, of which the US is by far the most important". As a result, transnational firms are less autonomous than many post national theorists have claimed. They were and remain "responsible to policy decisions taken by the US government."[v] Global liberalization affirmed the US's comparative advantages in the FIRE sector (Finance, Insurance, Real Estate). Capital account liberalization allowed the US to reshape national development paths, and to dig deeply into the savings of the rest of the world (at high rates of return).
Simply put, the establishment of a global free capital market was essential for the economic and financial well being of the world's leading debtor. This helps to understand the continuity of US global liberalization policy since the mid 80's. In 1985, Ronald Reagan set out to knock down barriers to trade, foreign investment and the free movement of capital between industrialized countries, especially in Japan. His successor continued this effort though the Enterprise for the Americas Initiative, designed to support free markets and the free movement of capital in the western hemisphere. The policy was globalized under Bill Clinton: "Previous administrations had pushed for financial liberalization principally in Japan, but under President Clinton it became a worldwide effort" directed in particular at the new area of wealth accumulation in East Asia, "seen as a potential gold mine for American banks and brokerages". According to The New York Times, the Clinton White House worked out a plan, coordinated by the Department of Commerce, that "identified 10 rising economic powers from the Pacific to the Atlantic whose economies were to be opened up, and it called upon all government departments, from the CIA, to US Ambassadors abroad"[vi].
During the 90's the power political objectives of the US State and the wealth maximization objectives of market actors coincided to an extraordinary degree. Robert Wade suggested a few years ago that liberalization and the "increasing mobility of information, finance and goods and services frees the American government of constraints while putting everyone else under tighter constraints". This is undoubtedly the case. Yet, as Harvey argues, "the grim reach of US imperial power…by no means constitutes the whole story"of the global slide to neoliberalism. The US did not directly impose liberalization and opening on China, India, or continental Europe for instance. What it did was set the global agenda and create a global context favorable to local forces pursuing their own market objectives. In most emerging countries the small domestic constituencies favoring the liberal turn that were strengthened by internationalization (they are now in retreat in Latin American and South East Asia). This was also obviously the case in continental Europe and Japan where thin but very influential business circles (the European Business Round Table) were empowered by the US's turn to neoliberalism. These constituencies acted to reshape government agendas as part of a growing global elite consensus around common objectives. Indeed, private institutions of global governance became the locus of transnational elite dialogue and convergence around the neoliberal agenda (World Economic Forum), buttressing the global disciplinary function of public institutions such as the IMF.
The continuity of US foreign economic and financial policy over the past two decades does not mean however that there was continuity in other domains. While Harvey is very persuasive in his detailed discussion of the complex mix of factors leading to neoliberal hegemony, he is less so when he argues more speculatively that neo-conservatism (and implicitly the US's imperialist drive since 2000) emerged as an "answer"to the contradictions of the neoliberal state in crisis. While neoliberalism entails forms of social control, surveillance and repression – of governmentality in the Foucauldian sense – that are inherently disciplinary, it does not necessarily follow that neo-conservative authoritarianism is, as Harvey seems to imply, an outcome of a critical moment in neo-liberal rule. Underlying this is the assumption that the US hegemony has been "crumbling"since the 70's and that militarism is a convulsive response to that trend.
In fact, US hegemony which was indeed waning in the 70's and early eighties was restored in the late eighties and the nineties. Under Bill Clinton neoliberalism proceeded without militarization, through the subtle operation of governmentality within and muscular economic "diplomacy"abroad. Though it is neoliberal in the sense that it has done more than any other government to favor the owners of capital (mostly in the energy and national security sectors), the sovereign authoritarian state of George Bush, or what Judith Butler calls the Bush administration's "lawless exercise in state sovereignty", has little to do with its predecessors in all other regards. This is not a minor matter: different forms of exercise of state power under specific hegemonic configurations produce very different outcomes. There is no continuity between the silky discussion on the trading state and interdependence of the 90's and the forward march of neo-imperialism since 2000. Indeed, the US's lawless exercise of power of the past years has deeply split ruling elites within the US, but also globally.
Be that as it may, the outcome of the decades-long reconfiguration of social forces has been an extraordinary increase in social inequality. In the US, income and wealth polarization has reached levels not seen since the twenties, with a tiny fraction of the population concentrating most of the country's income and wealth. According to the Economic Policy Institute, in 2000 "the share of income held by the top 1% by income was the largest since the run-up to the Great Depression. In 1979, the average income for the top 1% was 33.1 times the income of the lowest 20% and 10.1 times the middle fifth. By 2000, the average income of the top 1% was 88.5 times that of the bottom fifth, an increase of 55.4 points."In the US and in continental Europe, average living standards have either stagnated or regressed. Inequality has also risen sharply in Asian societies with historic traditions of relative social equity (Japan, South Korea). Everywhere, large fractions of the population, the "unqualified", have been written off and left to fend for themselves. Apologists of this brutal process of social selection have naturalized the transformation, making it appear an historic necessity. Like all hegemonic narratives, neoliberal theory has cloaked the real world objectives of the reconfiguration behind high sounding ideals: "the genius of neoliberal theory is to provide a benevolent mask full of wonderful-sounding words like freedom, liberty, choice and rights, to hide the grim realities of the restoration or reconstitution of naked class power."
The reconstitution of market societies marked by extreme inequalities is not sustainable in the long run. Polanyi's analysis and warning must be kept in mind. Social backlashes of various types will emerge, indeed are already apparent: right-wing populism and religious conservatism, on the one hand, progressive movements of global social transformation (the World Social Forum) on the other. The growing demand for protection from world market forces is already translating in nationalism (Russia, for instance) or regionalism (Mercosur) in various parts of the world. Ultimately, the content and pathway of change will depend on the balance of forces of the social agencies at work. For the moment, the constituencies favoring social and democratic alternatives to commodification are in retreat in the West. But they are still sufficiently present to influence the course of events. The real test will come in times of crisis. The timing and trigger of fundamental crisis, at systemic level, is of course hard if not impossible to predict (likewise mass mobilizations still elude the grasp of the social sciences). Nonetheless, some of the conditions may be crystallizing now. In particular, the US, the main normative agent in the process of global marketization over the past decades, appears to be losing control: the country's rapidly growing indebtedness and reliance on foreign capital flows creates global financial volatility and generates systemic vulnerabilities. If the trend continues it will severely strain the world financial system.
The US already consumes 75% of world savings to meet its daily financing needs. At some point not yet determined, rising US foreign debt will conflict with the requirements of the US's main financiers. The US will then be forced to adjust. Harvey argues that to free itself from growing external constraints, the US has a polar choice: hyper-inflation or deflation, both of which imply a crisis of the US hegemonic order and hence a fundamental and possibly violent restructuring of the world system. This may be too starkly put: Clearly, under its present leadership the US is heading towards financial disaster (not to speak of the disaster produced by imperial foreign policy in the Gulf). Yet, under wiser management, the US may be able to find a softer middle way out of its present economic and financial dilemma. That pathway would however require the US's acceptance of real interdependence, that is a downsizing of US imperial ambitions and a major change in economic policy…
One needn't agree with Harvey's hypothesis, widely shared in Marxist circles, that neo-conservatism emerged as an authoritarian solution to the instabilities and contradictions of neooliberalism, or his assumptions about structural US decline, to share his intellectual and ethical concern over the neoliberal destruction of society. His Brief History is a valuable conceptual and descriptive history of the great regression of our times. It also a normative statement about what should be. In denouncing universal commodification Harvey rightly suggests that it is urgent that we reinvent and reinvest the meanings of "democratic governance", of "political, economic and cultural equality and justice". With the renaissance of the left, neoliberal hegemony has ended in Latin America. It is being challenged in parts of Asia. What is needed now is a progressive global agenda in a difficult but not hopeless reactionary age.
[i] Karl Polanyi, The Great Transformation, Beacon Press, Boston, 1973 (1944).
[ii] See Bruce Cumings, Parralax Visions (Durham, NC: Duke University Press, 1999).
[iii] Giovanni Arrighi, "The social and political economy of global turbulence", New Left Review, N° 20, March/April, 2003.
[iv] For a Foucauldian reading of this critical turning point see Noelle Burgi, L'Etat britannique contre les syndicates", Kimé, Paris, 1993.
[v] Susan Strange, "Toward a Theory of Transnational Empire", in Ernst_otto Czempiel and James Rosenau, eds, Global Change and Theoretical Challenges
[vi] Nicholas D. Kristof and David Sanger, "How US Wooed Asia to let the Cash In", New York Times, 16 February 1999.
Philip S. Golub is an editor of Le Monde Diplomatique.
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