Notes taken from David Harvey's book "A Brief History of Neo-liberalism"

 

                                            Notes taken from David Harvey's book

                  "A Brief History of Neo-liberalism"

Introduction

·        Future historians may well look upon the years 1978–80 as a revolutionary turning-point in the world’s social and economic history. In 1978, Deng Xiaoping took the first momentous steps towards the liberalization of a communist-ruled economy in a country that accounted for a fifth of the world’s population.

 

 On the other side of the Pacific, and in quite different circumstances, a relatively obscure (but now renowned) figure named Paul Volcker took command at the US Federal Reserve in July 1979, and within a few months dramatically changed monetary policy. The Fed thereafter took the lead in the fight against inflation no matter what its consequences (particularly as concerned unemployment). Across the Atlantic, Margaret Thatcher had already been elected Prime Minister of Britain in May 1979, with a mandate to curb trade union power and put an end to the miserable inflationary stagnation that had enveloped the country for the preceding decade.

 

Then, in 1980, Ronald Reagan was elected President of the United States and, armed with geniality and personal charisma, set the US on course to revitalize its economy by supporting Volcker’s moves at the Fed and adding his own particular blend of policies to curb the power of labour, deregulate industry, agriculture, and resource extraction, and liberate the powers of finance both internally and on the world stage. From these several epicentres, revolutionary impulses seemingly spread and reverberated to remake the world around us in a totally different image.

 

·        Neoliberalism is in the first instance a theory of political economic practices that proposes that human well-being can best be advanced by liberating individual entrepreneurial freedoms and skills within an institutional framework characterized by strong private property rights, free markets, and free trade. The role of the state is to create and preserve an institutional framework appropriate to such practices. State interventions in markets (once created) must be kept to a bare minimum because, according to the theory, the state cannot possibly possess enough information to second-guess market signals (prices) and because powerful interest groups will inevitably distort and bias state interventions (particularly in democracies) for their own benefit.

 

Chapter 1 Freedom’s Just Another Word...

 

·        The founding figures of neoliberal thought took political ideals of human dignity and individual freedom as fundamental, as ‘the central values of civilization’. Concepts of dignity and individual freedom are powerful and appealing in their own right. Such ideals empowered the dissident movements in eastern Europe and the Soviet Union before the end of the Cold War as well as the students in Tiananmen Square. The student movements that swept the world in 1968––from Paris and Chicago to Bangkok and Mexico City––were in part animated by the quest for greater freedoms of speech and of personal choice. More generally, these ideals appeal to anyone who values the ability to make decisions for themselves.

 

·        The idea of freedom, long embedded in the US tradition, has played a conspicuous role in the US in recent years. ‘9/11’ was immediately interpreted by many as an attack on it. ‘A peaceful world of growing freedom’, wrote President Bush on the first anniversary of that awful day, ‘serves American long-term interests, reflects enduring American ideals and unites America’s allies.’ ‘Humanity’, he concluded, ‘holds in its hands the opportunity to offer freedom’s triumph over all its age-old foes’, and ‘the United States welcomes its responsibilities to lead in this great mission’. This language was incorporated into the US National Defense Strategy document issued shortly thereafter. ‘Freedom is the Almighty’s gift to every man and woman in this world’, he later said, adding that ‘as the greatest power on earth we have an obligation to help the spread of freedom’.

 

·        When all of the other reasons for engaging in a pre-emptive war against Iraq were proven wanting, the president appealed to the idea that the freedom conferred on Iraq was in and of itself an adequate justification for the war. The Iraqis were free, and that was all that really mattered. But what sort of ‘freedom’ is envisaged here, since, as the cultural critic Matthew Arnold long ago thoughtfully observed, ‘freedom is a very good horse to ride, but to ride somewhere’. To what destination, then, are the Iraqi people expected to ride the horse of freedom donated to them by force of arms?

 The Bush administration’s answer to this question was spelled out on 19 September 2003, when Paul Bremer, head of the Coalition Provisional Authority, promulgated four orders that included ‘the full privatization of public enterprises, full ownership rights by foreign firms of Iraqi businesses, full repatriation of foreign profits . . . the opening of Iraq’s banks to foreign control, national treatment for foreign companies and . . . the elimination of nearly all trade barriers’. The orders were to apply to all areas of the economy, including public services, the media, manufacturing, services, transportation, finance, and construction. Only oil was exempt (presumably because of its special status as revenue producer to pay for the war and its geopolitical significance). The labour market, on the other hand, was to be strictly regulated. Strikes were effectively forbidden in key sectors and the right to unionize restricted. A highly regressive ‘flat tax’ (an ambitious taxreform plan long advocated for implementation by conservatives in the US) was also imposed.

The freedoms it embodies reflect the interests of private property owners, businesses, multinational corporations, and financial capital. Bremer invited the Iraqis, in short, to ride their horse of freedom straight into the neoliberal corral.

 

·        The first experiment with neoliberal state formation, it is worth recalling, occurred in Chile after Pinochet’s coup on the ‘little September 11th’ of 1973 (almost thirty years to the day before Bremer’s announcement of the regime to be installed in Iraq). The coup, against the democratically elected government of Salvador Allende, was promoted by domestic business elites threatened by Allende’s drive towards socialism. It was backed by US corporations, the CIA, and US Secretary of State Henry Kissinger.

 

It violently repressed all the social movements and political organizations of the left and dismantled all forms of popular organization (such as the community health centres in poorer neighbourhoods). The labour market was ‘freed’ from regulatory or institutional restraints (trade union power, for example). But how was the stalled economy to be revived? The policies of import substitution (fostering national industries by subsidies or tariff protections) that had dominated Latin American attempts at economic development had fallen into disrepute, particularly in Chile, where they had never worked that well. With the whole world in economic recession, a new approach was called for.

 

A group of economists known as ‘the Chicago boys’ because of their attachment to the neoliberal theories of Milton Friedman, then teaching at the University of Chicago, was summoned to help reconstruct the Chilean economy. The story of how they were chosen is an interesting one. The US had funded training of Chilean economists at the University of Chicago since the 1950s as part of a Cold War programme to counteract left-wing tendencies in Latin America. Chicago-trained economists came to dominate at the private Catholic University in Santiago. During the early 1970s, business elites organized their opposition to Allende through a group called ‘the Monday Club’ and developed a working relationship with these economists, funding their work through research institutes.

After General Gustavo Leigh, Pinochet’s rival for power and a Keynesian, was sidelined in 1975, Pinochet brought these economists into the government, where their first job was to negotiate loans with the International Monetary Fund. Working alongside the IMF, they restructured the economy according to their theories. They reversed the nationalizations and privatized public assets, opened up natural resources (fisheries, timber, etc.) to private and unregulated exploitation (in many cases riding roughshod over the claims of indigenous inhabitants), privatized social security, and facilitated foreign direct investment and freer trade. The right of foreign companies to repatriate profits from their Chilean operations was guaranteed. Export-led growth was favoured over import substitution. The only sector reserved for the state was the key resource of copper (rather like oil in Iraq).

 

The immediate revival of the Chilean economy in terms of growth rates, capital accumulation, and high rates of return on foreign investments was short-lived. It all went sour in the Latin American debt crisis of 1982.

 

Why the Neoliberal Turn?

·        The restructuring of state forms and of international relations after the Second World War was designed to prevent a return to the catastrophic conditions that had so threatened the capitalist order in the great slump of the 1930s. It was also supposed to prevent the re-emergence of inter-state geopolitical rivalries that had led to the war. To ensure domestic peace and tranquillity, some sort of class compromise between capital and labour had to be constructed. The thinking at the time is perhaps best represented by an influential text by two eminent social scientists, Robert Dahl and Charles Lindblom, published in 1953. Both capitalism and communism in their raw forms had failed, they argued. The only way ahead was to construct the right blend of state, market, and democratic institutions to guarantee peace, inclusion, well-being, and stability.

 

 Internationally, a new world order was constructed through the Bretton Woods agreements, and various institutions, such as the United Nations, the World Bank, the IMF, and the Bank of International Settlements in Basle, were set up to help stabilize international relations. Free trade in goods was encouraged under a system of fixed exchange rates anchored by the US dollar’s convertibility into gold at a fixed price. Fixed exchange rates were incompatible with free flows of capital that had to be controlled, but the US had to allow the free flow of the dollar beyond its borders if the dollar was to function as the global reserve currency. This system existed under the umbrella protection of US military power. Only the Soviet Union and the Cold War placed limits on its global reach.

 

A variety of social democratic, Christian democratic and dirigiste states emerged in Europe after the Second World War. The US itself turned towards a liberal democratic state form, and Japan, under the close supervision of the US, built a nominally democratic but in practice highly bureaucratic state apparatus empowered to oversee the reconstruction of that country. What all of these various state forms had in common was an acceptance that the state should focus on full employment, economic growth, and the welfare of its citizens, and that state power should be freely deployed, alongside of or, if necessary, intervening in or even substituting for market processes to achieve these ends. Fiscal and monetary policies usually dubbed ‘Keynesian’ were widely deployed to dampen business cycles and to ensure reasonably full employment. A ‘class compromise’ between capital and labour was generally advocated as the key guarantor of domestic peace and tranquillity. States actively intervened in industrial policy and moved to set standards for the social wage by constructing a variety of welfare systems (health care, education, and the like). This form of political-economic organization is now usually referred to as ‘embedded liberalism’ to signal how market processes and entrepreneurial and corporate activities were surrounded by a web of social and political constraints and a regulatory environment that sometimes restrained but in other instances led the way in economic and industrial strategy. Stateled planning and in some instances state ownership of key sectors (coal, steel, automobiles) were not uncommon (for example in Britain, France, and Italy).

 

Embedded liberalism delivered high rates of economic growth in the advanced capitalist countries during the 1950s and 1960s. By the end of the 1960s embedded liberalism began to break down, both internationally and within domestic economies. Signs of a serious crisis of capital accumulation were everywhere apparent. Unemployment and inflation were both surging everywhere, ushering in a global phase of ‘stagflation’ that lasted throughout much of the 1970s. Fiscal crises of various states (Britain, for example, had to be bailed out by the IMF in 1975–6) resulted as tax revenues plunged and social expenditures soared. Keynesian policies were no longer working. Even before the Arab-Israeli War and the OPEC oil embargo of 1973, the Bretton Woods system of fixed exchange rates backed by gold reserves had fallen into disarray. The porosity of state boundaries with respect to capital flows put stress on the system of fixed exchange rates. US dollars had flooded the world and escaped US controls by being deposited in European banks. Fixed exchange rates were therefore abandoned in 1971. Gold could no longer function as the metallic base of international money; exchange rates were allowed to float, and attempts to control the float were soon abandoned. The embedded liberalism that had delivered high rates of growth to at least the advanced capitalist countries after 1945 was clearly exhausted and was no longer working.

 

 

·         Some alternative was called for if the crisis was to be overcome.

One answer was to deepen state control and regulation of the economy through corporatist strategies (including, if necessary, curbing the aspirations of labour and popular movements through austerity measures, incomes policies, and even wage and price controls). This answer was advanced by socialist and communist parties in Europe, with hopes pinned on innovative experiments in governance in places such as communist-controlled ‘Red Bologna’ in Italy, on the revolutionary transformation of Portugal in the wake of the collapse of fascism, on the turn towards a more open market socialism and ideas of ‘Eurocommunism’, particularly in Italy (under the leadership of Berlinguer) and in Spain (under the influence of Carrillo), or on the expansion of the strong social democratic welfare state tradition in Scandinavia.

 

The capitalist world stumbled towards neoliberalization as the answer through a series of gyrations and chaotic experiments that really only converged as a new orthodoxy with the articulation of what became known as the ‘Washington Consensus’ in the 1990s. By then, both Clinton and Blair could easily have reversed Nixon’s earlier statement and simply said ‘We are all neoliberals now.’

 

·         The uneven geographical development of neoliberalism, its frequently partial and lop-sided application from one state and social formation to another, testifies to the tentativeness of neoliberal solutions and the complex ways in which political forces, historical traditions, and existing institutional arrangements all shaped why and how the process of neoliberalization actually occurred.

 

There is, however, one element within this transition that deserves specific attention. The crisis of capital accumulation in the 1970s affected everyone through the combination of rising unemployment and accelerating inflation. Communist and socialist parties were gaining ground, if not taking power, across much of Europe and even in the United States popular forces were agitating for widespread reforms and state interventions. There was, in this, a clear political threat to economic elites and ruling classes everywhere, both in the advanced capitalist countries (such as Italy, France, Spain, and Portugal) and in many developing countries (such as Chile, Mexico, and Argentina). In the US, for example, the share of the national income taken by the top 1 per cent of income earners fell from a pre-war high of 16 per cent to less than 8 per cent by the end of the Second World War, and stayed close to that level for nearly three decades. While growth was strong this restraint seemed not to matter. To have a stable share of an increasing pie is one thing. But when growth collapsed in the 1970s, when real interest rates went negative and paltry dividends and profits were the norm, then upper classes everywhere felt threatened. The upper classes had to move decisively if they were to protect themselves from political and economic annihilation. The coup in Chile and the military takeover in Argentina, promoted internally by the upper classes with US support, provided one kind of solution. Gérard Duménil and Dominique Lévy, after careful reconstruction of the data, have concluded that neoliberalization was from the very beginning a project to achieve the restoration of class power. After the implementation of neoliberal policies in the late 1970s, the share of national income of the top 1 per cent of income earners in the US soared, to reach 15 per cent (very close to its pre-Second World War share) by the end of the century. The top 0.1 per cent of income earners in the US increased their share of the national income from 2 per cent in 1978 to over 6 per cent by 1999, while the ratio of the median compensation of workers to the salaries of CEOs increased from just over 30 to 1 in 1970 to nearly 500 to 1 by 2000. The US is not alone in this. the top 1 per cent of income earners in Britain have doubled their share of the national income from 6.5 per cent to 13 per cent since 1982. A small and powerful oligarchy arose in Russia after neoliberal ‘shock therapy’ had been administered there in the 1990s. Extraordinary surges in income inequalities and wealth have occurred in China as it has adopted free-market-oriented practices. Globally, ‘the countries of Eastern Europe and the CIS have registered some of the largest increases ever . . . in social inequality. OECD countries also registered big increases in inequality after the 1980s’, while ‘the income gap between the fifth of the world’s people living in the richest countries and the fifth in the poorest was 74 to 1 in 1997, up from 60 to 1 in 1990 and 30 to 1 in 1960’. the evidence strongly suggests that the neoliberal turn is in some way and to some degree associated with the restoration or reconstruction of the power of economic elites.

 

We can, therefore, interpret neoliberalization either as a utopian project to realize a theoretical design for the reorganization of international capitalism or as a political project to re-establish the conditions for capital accumulation and to restore the power of economic elites. The theoretical utopianism of neoliberal argument has, I conclude, primarily worked as a system of justification and legitimation for whatever needed to be done to achieve this goal.

 

The Rise of Neoliberal Theory

·        A small and exclusive group of passionate advocates––mainly academic economists, historians, and philosophers––had gathered together around the renowned 19 Freedom’s Just Another Word... Austrian political philosopher Friedrich von Hayek to create the Mont Pelerin Society (named after the Swiss spa where they first met) in 1947 (the notables included Ludvig von Mises, the economist Milton Friedman, and even, for a time, the noted philosopher Karl Popper). The group’s members depicted themselves as ‘liberals’ (in the traditional European sense) because of their fundamental commitment to ideals of personal freedom. The neoliberal label signalled their adherence to those free market principles of neoclassical economics that had emerged in the second half of the nineteenth century (thanks to the work of Alfred Marshall, William Stanley Jevons, and Leon Walras) to displace the classical theories of Adam Smith, David Ricardo, and, of course, Karl Marx. Yet they also held to Adam Smith’s view that the hidden hand of the market was the best device for mobilizing even the basest of human instincts such as gluttony, greed, and the desire for wealth and power for the benefit of all. Neoliberal doctrine was therefore deeply opposed to state interventionist theories, such as those of John Maynard Keynes, which rose to prominence in the 1930s in response to the Great Depression. Many policy-makers after the Second World War looked to Keynesian theory to guide them as they sought to keep the business cycle and recessions under control. The neoliberals were even more fiercely opposed to theories of centralized state planning, such as those advanced by Oscar Lange working close to the Marxist tradition. State decisions, they argued, were bound to be politically biased depending upon the strength of the interest groups involved (such as unions, environmentalists, or trade lobbies). State decisions on matters of investment and capital accumulation were bound to be wrong because the information available to the state could not rival that contained in market signals.

 

·        And there are, as we shall see, enough contradictions in the neoliberal position to render evolving neoliberal practices (vis-à-vis issues such as monopoly power and market failures) unrecognizable in relation to the seeming purity of neoliberal doctrine. We have to pay careful attention, therefore, to the tension between the theory of neoliberalism and the actual pragmatics of neoliberalization.

·        Neoliberal theory gained in academic respectability by the award of the Nobel Prize in economics to Hayek in 1974 and Friedman in 1976. This particular prize, though it assumed the aura of Nobel, had nothing to do with the other prizes and was under the tight control of Sweden’s banking elite. Neoliberal theory, particularly in its monetarist guise, began to exert practical influence in a variety of policy fields. During the Carter presidency, for example, deregulation of the economy emerged as one of the answers to the chronic state of stagflation that had prevailed in the US throughout the 1970s. But the dramatic consolidation of neoliberalism as a new economic orthodoxy regulating public policy at the state level in the advanced capitalist world occurred in the United States and Britain in 1979.

 

 In May of that year Margaret Thatcher was elected in Britain with a strong mandate to reform the economy. Under the influence of Keith Joseph, a very active and committed publicist and polemicist with strong connections to the neoliberal Institute of Economic Affairs, she accepted that Keynesianism had to be abandoned and that monetarist ‘supply-side’ solutions were essential to cure the stagflation that had characterized the British economy during the 1970s. This entailed confronting trade union power, attacking all forms of social solidarity that hindered competitive flexibility (such as those expressed through municipal governance, and including the power of many professionals and their associations), dismantling or rolling back the commitments of the welfare state, the privatization of public enterprises (including social housing), reducing taxes, encouraging entrepreneurial initiative, and creating a favourable business climate to induce a strong inflow of foreign investment (particularly from Japan).

 

In October 1979 Paul Volcker, chairman of the US Federal Reserve Bank under President Carter, engineered a draconian shift in US monetary policy.18 The long-standing commitment in the US liberal democratic state to the principles of the New Deal, which meant broadly Keynesian fiscal and monetary policies with full employment as the key objective, was abandoned in favour of a policy designed to quell inflation no matter what the consequences might be for employment. The real rate of interest, which had often been negative during the double-digit inflationary surge of the 1970s, was rendered positive by fiat of the Federal Reserve . The nominal rate of interest was raised overnight and, after a few ups and downs, by July 1981 stood close to 20 per cent. Thus began ‘a long deep recession that would empty factories and break unions in the US and drive debtor countries to the brink of insolvency, beginning the long era of structural adjustment’.19 This, Volcker argued, was the only way out of the grumbling crisis of stagflation that had characterized the US and much of the global economy throughout the 1970s.

 

Ronald Reagan’s victory over Carter in 1980 proved crucial, even though Carter had shifted uneasily towards deregulation (of airlines and trucking) as a partial solution to the crisis of stagflation. Reagan’s advisers were convinced that Volcker’s monetarist ‘medicine’ for a sick and stagnant economy was right on target. Volcker was supported in and reappointed to his position as chair of the Federal Reserve. The Reagan administration then provided the requisite political backing through further deregulation, tax cuts, budget cuts, and attacks on trade union and professional power. Reagan faced down PATCO, the air traffic controllers’ union, in a lengthy and bitter strike in 1981. This signalled an allout assault on the powers of organized labour at the very moment when the Volcker-inspired recession was generating high levels of unemployment (10 per cent or more). The market, depicted ideologically as the way to foster competition and innovation, became a vehicle for the consolidation of monopoly power. Corporate taxes were reduced dramatically, and the top personal tax rate was reduced from 70 to 28 per cent in what was billed as ‘the largest tax cut in history’.

 

·         There was, however, one other concomitant shift that also impelled the movement towards neoliberalization during the 1970s. The OPEC oil price hike that came with the oil embargo of 1973 placed vast amounts of financial power at the disposal of the oil-producing states such as Saudi Arabia, Kuwait, and Abu Dhabi. We now know from British intelligence reports that the US was actively preparing to invade these countries in 1973 in order to restore the flow of oil and bring down oil prices. We also know that the Saudis agreed at that time, presumably under military pressure if not open threat from the US, to recycle all of their petrodollars through the New York investment banks. The latter suddenly found themselves in command of massive funds for which they needed to find profitable outlets. The options within the US, given the depressed economic conditions and low rates of return in the mid-1970s, were not good. More profitable opportunities had to be sought out abroad. Governments seemed the safest bet because, as Walter Wriston, head of Citibank, famously put it, governments can’t move or disappear. And many governments in the developing world, hitherto starved of funds, were anxious enough to borrow. For this to occur required, however, open entry and reasonably secure conditions for lending. The New York investment banks looked to the US imperial tradition both to prise open new investment opportunities and to protect their foreign operations.

 

While the US had toyed with colonial conquest at the end of the nineteenth century, it evolved a more open system of imperialism without colonies during the twentieth century. The paradigm case was worked out in Nicaragua in the 1920s and 1930s, when US marines were deployed to protect US interests but found themselves embroiled in a lengthy and difficult guerrilla insurgency led by Sandino. The answer was to find a local strongman––in this case Somoza––and to provide economic and military assistance to him and his family and immediate allies so that they could repress or buy off opposition and accumulate considerable wealth and power for themselves. In return they would always keep their country open to the operations of US capital and support, and if necessary promote US interests, both in the country and in the region (in the Nicaraguan case, Central America) as a whole. This was the model that was deployed after the Second World War during the phase of global decolonization imposed upon the European powers at US insistence. For example, the CIA engineered the coup that overthrew the democratically elected Mosaddeq government in Iran in 1953 and installed the Shah of Iran, who gave the oil contracts to US companies (and did not return the assets to the British companies that Mossadeq had nationalized). The shah also became one of the key guardians of US interests in the Middle Eastern oil region. In the post-war period, much of the non-communist world was opened up to US domination by tactics of this sort.

 

Before 1973, most US foreign investment was of the direct sort, mainly concerned with the exploitation of raw material resources (oil, minerals, raw materials, agricultural products) or the cultivation of specific markets (telecommunications, automobiles, etc.) in Europe and Latin America. The New York investment banks had always been active internationally, but after 1973 they became even more so, though now far more focused on lending capital to foreign governments.22 This required the liberalization of international credit and financial markets, and the US government began actively to promote and support this strategy globally during the 1970s.

 

The first major test case of this came in the wake of the Volcker shock that drove Mexico into default in 1982–4. The Reagan administration, which had seriously thought of withdrawing support for the IMF in its first year in office, found a way to put together the powers of the US Treasury and the IMF to resolve the difficulty by rolling over the debt, but did so in return for neoliberal reforms. This treatment became standard after what Stiglitz refers to as a ‘purge’ of all Keynesian influences from the IMF in 1982. The IMF and the World Bank thereafter became centres for the propagation and enforcement of ‘free market fundamentalism’ and neoliberal orthodoxy. In return for debt rescheduling, indebted countries were required to implement institutional reforms, such as cuts in welfare expenditures, more flexible labour market laws, and privatization. Thus was ‘structural adjustment’ invented. Mexico was one of the first states drawn into what was going to become a growing column of neoliberal state apparatuses worldwide.

What the Mexico case demonstrated, however, was a key difference between liberal and neoliberal practice: under the former, lenders take the losses that arise from bad investment decisions, while under the latter the borrowers are forced by state and international powers to take on board the cost of debt repayment no matter what the consequences for the livelihood and well-being of the local population. If this required the surrender of assets to foreign companies at fire-sale prices, then so be it.

 

The Meaning of Class Power

·        But what exactly is meant here by ‘class’? This is always a somewhat shadowy (some would even say dubious) concept. Neoliberalization has, in any case, entailed its redefinition. Margaret Thatcher, for example, attacked some of the entrenched forms of class power in Britain. She went against the aristocratic tradition that dominated in the military, the judiciary, and the financial elite in the City of London and many segments of industry, and sided with the brash entrepreneurs and the nouveaux riches. She supported, and was usually supported by, this new class of entrepreneurs (such as Richard Branson, Lord Hanson, and George Soros). The traditional wing of her own Conservative Party was appalled. In the US, the rising power and significance of the financiers and the CEOs of large corporations, as well as the immense burst of activity in wholly new sectors (such as computing and the internet, media, and retailing) changed the locus of upper-class economic power significantly. While neoliberalization may have been about the restoration of class power, it has not necessarily meant the restoration of economic power to the same people. In addition there have been strong currents of differentiation in terms of class identity formation and re-formation in different parts of the world.

·        Nevertheless, there are some general trends that can be identified. The first is for the privileges of ownership and management of capitalist enterprises––traditionally separated––to fuse by paying CEOs (managers) in stock options (ownership titles). The second trend has been to dramatically reduce the historical gap between money capital earning dividends and interest, on the one hand, and production, manufacturing, or merchant capital looking to gain profits on the other. This separation had at various times in the past produced conflicts between financiers, producers, and merchants. During the 1970s much of this conflict either disappeared or took new forms. The large corporations became more and more financial in their orientation, even when, as in the automobile sector, they were engaging in production. Since 1980 or so it has not been uncommon for corporations to report losses in production offset by gains from financial operations (everything from credit and insurance operations to speculating in volatile currency and futures markets).

·        Increasingly freed from the regulatory constraints and barriers that had hitherto confined its field of action, financial activity could flourish as never before, eventually everywhere. A wave of innovations occurred in financial services to produce not only far more sophisticated global interconnections but also new kinds of financial markets based on securitization, derivatives, and all manner of futures trading. Neoliberalization has meant, in short, the financialization of everything. This deepened the hold of finance over all other areas of the economy, as well as over the state apparatus and, as Randy Martin points out, daily life. It also introduced an accelerating volatility into global exchange relations. There was unquestionably a power shift away from production to the world of finance. Gains in manufacturing capacity no longer necessarily meant rising per capita incomes, but concentration on financial services certainly did. For this reason, the support of financial institutions and the integrity of the financial system became the central concern of the collectivity of neoliberal states.

 

Freedom’s Prospect

·        This history of neoliberalization and class formation, and the proliferating acceptance of the ideas of the Mont Pelerin Society as the ruling ideas of the time, makes for interesting reading when placed against the background of counter-arguments laid out by Karl Polanyi in 1944 (shortly before the Mont Pelerin Society was established). There are, he noted, two kinds of freedom, one good and the other bad. Among the latter he listed ‘the freedom to exploit one’s fellows, or the freedom to make inordinate gains without commensurable service to the community, the freedom to keep technological inventions from being used for public benefit, or the freedom to profit from public calamities secretly engineered for private advantage’. But, Polanyi continued, ‘the market economy under which these freedoms throve also produced freedoms we prize highly. Freedom of conscience, freedom of speech, freedom of meeting, freedom of association, freedom to choose one’s own job’. While we may ‘cherish these freedoms for their own sake’,––and, surely, many of us still do––they were to a large extent ‘by-products of the same economy that was also responsible for the evil freedoms’.

 

Unfortunately, Polanyi noted, the passage to such a future ( a society can afford to be both just and free) is blocked by the ‘moral obstacle’ of liberal utopianism (and more than once he cites Hayek as an exemplar of that tradition):

 Planning and control are being attacked as a denial of freedom. Free enterprise and private ownership are declared to be essentials of freedom. No society built on other foundations is said to deserve to be called free. The freedom that regulation creates is denounced as unfreedom; the justice, liberty and welfare it offers are decried as a camouflage of slavery.

 

The idea of freedom ‘thus degenerates into a mere advocacy of free enterprise’, which means ‘the fullness of freedom for those whose income, leisure and security need no enhancing, and a mere pittance of liberty for the people, who may in vain attempt to make use of their democratic rights to gain shelter from the power of the owners of property’. But if, as is always the case, ‘no society is possible in which power and compulsion are absent, nor a world in which force has no function’, then the only way this liberal utopian vision could be sustained is by force, violence, and authoritarianism. Liberal or neoliberal utopianism is doomed, in Polanyi’s view, to be frustrated by authoritarianism, or even outright fascism. The good freedoms are lost, the bad ones take over.

 Chapter 2 The Construction of Consent

·         How was neoliberalization accomplished, and by whom? The answer in countries such as Chile and Argentina in the 1970s was as simple as it was swift, brutal, and sure: a military coup backed by the traditional upper classes (as well as by the US government), followed by the fierce repression of all solidarities created within the labour and urban social movements which had so threatened their power. But the neoliberal revolution usually attributed to Thatcher and Reagan after 1979 had to be accomplished by democratic means.

·         What Gramsci calls ‘common sense’ (defined as ‘the sense held in common’) typically grounds consent. Common sense is constructed out of longstanding practices of cultural socialization often rooted deep in regional or national traditions. It is not the same as the ‘good sense’ that can be constructed out of critical engagement with the issues of the day. Common sense can, therefore, be profoundly misleading, obfuscating or disguising real problems under cultural prejudices. Gramsci  concluded that political questions become ‘insoluble’ when ‘disguised as cultural ones’. In seeking to understand the construction of political consent, we must learn to extract political meanings from their cultural integuments.

·         The ‘long march’ of neoliberal ideas through these institutions that Hayek had envisaged back in 1947, the organization of think-tanks (with corporate backing and funding), the capture of certain segments of the media, and the conversion of many intellectuals to neoliberal ways of thinking, created a climate of opinion in support of neoliberalism as the exclusive guarantor of freedom. These movements were later consolidated through the capture of political parties and, ultimately, state power.

·         An open project around the restoration of economic power to a small elite would probably not gain much popular support. But a programmatic attempt to advance the cause of individual freedoms could appeal to a mass base and so disguise the drive to restore class power. Furthermore, once the state apparatus made the neoliberal turn it could use its powers of persuasion, co-optation, bribery, and threat to maintain the climate of consent necessary to perpetuate its power. This was Thatcher’s and Reagan’s particular forte, as we shall see.

How, then, did neoliberalism negotiate the turn to so comprehensively displace embedded liberalism? In some instances, the answer largely lies in the use of force (either military, as in Chile, or financial, as through the operations of the IMF in Mozambique or the Philippines). The active construction of consent has also varied from place to place.

 

·         Any political movement that holds individual freedoms to be sacrosanct is vulnerable to incorporation into the neoliberal fold. The worldwide political upheavals of 1968, for example, were strongly inflected with the desire for greater personal freedoms. But the ’68 movement also had social justice as a primary political objective. Values of individual freedom and social justice are not, however, necessarily compatible. Pursuit of social justice presupposes social solidarities and a willingness to submerge individual wants, needs, and desires in the cause of some more general struggle for, say, social equality or environmental justice. The objectives of social justice and individual freedom were uneasily fused in the movement of ’68. Neoliberal rhetoric, with its foundational emphasis upon individual freedoms, has the power to split off libertarianism, identity politics, multiculturalism, and eventually narcissistic consumerism from the social forces ranged in pursuit of social justice through the conquest of state power. Neoliberalism did not create these distinctions, but it could easily exploit, if not foment, them.

 

·         In the early 1970s those seeking individual freedoms and social justice could make common cause in the face of what many saw as a common enemy. Powerful corporations in alliance with an interventionist state were seen to be running the world in individually oppressive and socially unjust ways.

 

The Vietnam War was the most obvious catalyst for discontent, but the destructive activities of corporations and the state in relation to the environment, the push towards mindless consumerism, the failure to address social issues and respond adequately to diversity, as well as intense restrictions on individual possibilities and personal behaviours by state-mandated and ‘traditional’ controls were also widely resented. Civil rights were an issue, and questions of sexuality and of reproductive rights were very much in play. For almost everyone involved in the movement of ’68, the intrusive state was the enemy and it had to be reformed. And on that, the neoliberals could easily agree. But capitalist corporations, business, and the market system were also seen as primary enemies requiring redress if not revolutionary transformation: hence the threat to capitalist class power.

 

 By capturing ideals of individual freedom and turning them against the interventionist and regulatory practices of the state, capitalist class interests could hope to protect and even restore their position. Neoliberalism was well suited to this ideological task. But it had to be backed up by a practical strategy that emphasized the liberty of consumer choice, not only with respect to particular products but also with respect to lifestyles, modes of expression, and a wide range of cultural practices. Neoliberalization required both politically and economically the construction of a neoliberal market-based populist culture of differentiated consumerism and individual libertarianism. As such it proved more than a little compatible with that cultural impulse called ‘postmodernism’ which had long been lurking in the wings but could now emerge full-blown as both a cultural and an intellectual dominant. This was the challenge that corporations and class elites set out to finesse in the 1980s.

 

·         American Chamber of Commerce subsequently expanded its base from around 60,000 firms in 1972 to over a quarter of a million ten years later. Jointly with the National Association of Manufacturers (which moved to Washington in 1972) it amassed an immense campaign chest to lobby Congress and engage in research. The Business Roundtable, an organization of CEOs ‘committed to the aggressive pursuit of political power for the corporation’, was founded in 1972 and thereafter became the centrepiece of collective pro-business action. The corporations involved accounted for ‘about one half of the GNP of the United States’ during the 1970s, and they spent close to $900 million annually (a huge amount at that time) on political matters. Think-tanks, such as the Heritage Foundation, the Hoover Institute, the Center for the Study of American Business, and the American Enterprise Institute, were formed with corporate backing both to polemicize and, when necessary, as in the case of the National Bureau of Economic Research, to construct serious technical and empirical studies and political-philosophical arguments broadly in support of neoliberal policies. Nearly half the financing for the highly respected NBER came from the leading companies in the Fortune 500 list. Closely integrated with the academic community, the NBER was to have a very significant impact on thinking in the economics departments and business schools of the major research universities. With abundant finance furnished by wealthy individuals (such as the brewer Joseph Coors, who later became a member of Reagan’s ‘kitchen cabinet’) and their foundations (for example Olin, Scaife, Smith Richardson, Pew Charitable Trust), a flood of tracts and books, with Nozick’s Anarchy State and Utopia perhaps the most widely read and appreciated, emerged espousing neoliberal values. A TV version of Milton Friedman’s Free to Choose was funded with a grant from Scaife in 1977. ‘Business was’, Blyth concludes, ‘learning to spend as a class.’

 

·         One line of response to the double crisis of capital accumulation and class power arose in the trenches of the urban struggles of the 1970s. The New York City fiscal crisis was an iconic case. Capitalist restructuring and deindustrialization had for several years been eroding the economic base of the city, and rapid suburbanization had left much of the central city impoverished. The result was explosive social unrest on the part of marginalized populations during the 1960s, defining what came to be known as ‘the urban crisis’ (similar problems emerged in many US cities).

 

The expansion of public employment and public provision––facilitated in part by generous federal funding––was seen as the solution. But, faced with fiscal difficulties, President Nixon simply declared the urban crisis over in the early 1970s. While this was news to many city dwellers, it signalled diminished federal aid. As the recession gathered pace, the gap between revenues and outlays in the New York City budget (already large because of profligate borrowing over many years) increased.

 

At first financial institutions were prepared to bridge the gap, but in 1975 a powerful cabal of investment bankers (led by Walter Wriston of Citibank) refused to roll over the debt and pushed the city into technical bankruptcy. The bail-out that followed entailed the construction of new institutions that took over the management of the city budget. They had first claim on city tax revenues in order to first pay off bondholders: whatever was left went for essential services. The effect was to curb the aspirations of the city’s powerful municipal unions, to implement wage freezes and cutbacks in public employment and social provision (education, public health, transport services), and to impose user fees (tuition was introduced into the CUNY university system for the first time). The final indignity was the requirement that municipal unions should invest their pension funds in city bonds. Unions then either moderated their demands or faced the prospect of losing their pension funds through city bankruptcy.

 

 This amounted to a coup by the financial institutions against the democratically elected government of New York City, and it was every bit as effective as the military coup that had earlier occurred in Chile. Wealth was redistributed to the upper classes in the midst of a fiscal crisis. The New York crisis was, Zevin argues, symptomatic of ‘an emerging strategy of disinflation coupled with a regressive redistribution of income, wealth and power’.

 

New York investment bankers seized the opportunity to restructure it in ways that suited their agenda. The creation of a ‘good business climate’ was a priority. This meant using public resources to build appropriate infrastructures for business (particularly in telecommunications) coupled with subsidies and tax incentives for capitalist enterprises. Corporate welfare substituted for people welfare. The city’s elite institutions were mobilized to sell the image of the city as a cultural centre and tourist destination (inventing the famous logo ‘I Love New York’). The city’s elites acceded, though not without a struggle, to the demand for lifestyle diversification (including those attached to sexual preference and gender) and increasing consumer niche choices (in areas such as cultural production). New York became the epicentre of postmodern cultural and intellectual experimentation. City government was more and more construed as an entrepreneurial rather than a social democratic or even managerial entity. Inter-urban competition for investment capital transformed government into urban governance through public– private partnerships. City business was increasingly conducted behind closed doors, and the democratic and representational content of local governance diminished.

 

Working-class and ethnic-immigrant New York was thrust back into the shadows, to be ravaged by racism and a crack cocaine epidemic of epic proportions in the 1980s that left many young people either dead, incarcerated, or homeless, only to be bludgeoned again by the AIDS epidemic that carried over into the 1990s. Redistribution through criminal violence became one of the few serious options for the poor, and the authorities responded by criminalizing whole communities of impoverished and marginalized populations.

 

·         The management of the New York fiscal crisis pioneered the way for neoliberal practices both domestically under Reagan and internationally through the IMF in the 1980s. It established the principle that in the event of a conflict between the integrity of financial institutions and bondholders’ returns, on the one hand, and the well-being of the citizens on the other, the former was to be privileged. It emphasized that the role of government was to create a good business climate rather than look to the needs and well-being of the population at large. The politics of the Reagan administration of the 1980s, Tabb concludes, became ‘merely the New York scenario’ of the 1970s ‘writ large’.

 

·         In order to realize this goal, businesses needed a political class instrument and a popular base. They therefore actively sought to capture the Republican Party as their own instrument. The supposedly ‘progressive’ campaign finance laws of 1971 in effect legalized the financial corruption of politics. The supposedly ‘progressive’ campaign finance laws of 1971 in effect legalized the financial corruption of politics. A crucial set of Supreme Court decisions began in 1976 when it was first established that the right of a corporation to make unlimited money contributions to political parties and political action committees was protected under the First Amendment guaranteeing the rights of individuals (in this instance corporations) to freedom of speech. Political action committees (PACs) could thereafter ensure the financial domination of both political parties by corporate, moneyed, and professional association interests. Corporate PACs, which numbered eighty-nine in 1974, had burgeoned to 1,467 by 1982.

 

·         The political structure that emerged was quite simple. The Republican Party could mobilize massive financial resources and mobilize its popular base to vote against its material interests on cultural/religious grounds while the Democratic Party could not afford to attend to the material needs (for example for a national health-care system) of its traditional popular base for fear of offending capitalist class interests. Given the asymmetry, the political hegemony of the Republican Party became more sure.

 

Reagan’s election in 1980 was only the first step in the long process of consolidating the political shift necessary to support Volcker’s turn to monetarism and the prioritization of the fight against inflation. Reagan’s policies, Edsall noted at the time, centred on ‘an across the board drive to reduce the scope and content of federal regulation of industry, the environment, the workplace, health care, and the relationship between buyer and seller’. Budget cuts and deregulation and ‘the appointment of antiregulatory, industry-oriented agency personnel’ to key positions were the main means.

 

The National Labour Relations Board, established to regulate capital–labour relations in the workplace in the 1930s, was converted by Reagan’s appointments into a vehicle for attacking and regulating the rights of labour at the very moment when business was being deregulated.23 It took less than six months in 1983 to reverse nearly 40 per cent of the decisions made during the 1970s that had been, in the view of business, too favourable to labour.

Reagan construed all regulation (except of labour) as bad. The Office of Management and Budget was mandated to do thorough cost-benefit analyses of all regulatory proposals (past and present). If it could not be shown that the benefits of regulation clearly exceeded the costs then the regulations should be scrapped.

To top it all, elaborate revisions of the tax code––mainly concerning depreciation on investments––allowed many corporations to get away without paying any taxes at all, while the reduction of the top tax rate for individuals from 78 to 28 per cent obviously reflected the intent to restore class power.

Worst of all, public assets were freely passed over into the private domain.

 

But all of this required that labour and labour organization be brought to heel to conform to the new social order. If New York pioneered this by disciplining powerful municipal unions in 1975– 7, Reagan followed at the national level by bringing down the air traffic controllers in 1981 and making it clear to the trade unions that they were unwelcome as participants in the inner councils of government. The uneasy social compact that had ruled between corporate and union power during the 1960s was over. Deindustrialization of formerly unionized core industrial regions (the so-called ‘rust belt’) disempowered labour. Corporations could threaten plant closures, and risk––and usually win––strikes when necessary (for example in the coal industry).

 

The unions’ rigid rules and bureaucratic structures made them vulnerable to attack. The lack of flexibility was often as much a disadvantage for individual labourers as it was for capital. The virtuous claims for flexible specialization in labour processes and for flexitime arrangements could become part of the neoliberal rhetoric that could be persuasive to individual labourers, particularly those who had been excluded from the monopoly benefits that strong unionization sometimes conferred.

 

Neoliberal theory conveniently holds that unemployment is always voluntary. Labour, the argument goes, has a ‘reserve price’ below which it prefers not to work. Unemployment arises because the reserve price of labour is too high. Since that reserve price is partly set by welfare payments (and stories of ‘welfare queens’ driving Cadillacs abounded) then it stands to reason that the neoliberal reform carried out by Clinton of ‘welfare as we know it’ must be a crucial step towards the reduction of unemployment.

 

All of this demanded some rationale, and to this end the war of ideas did play an important role. The economic ideas marshalled in support of the neoliberal turn amounted, Blyth suggests, to a complex fusion of monetarism (Friedman), rational expectations (Robert Lucas), public choice (James Buchanan, and Gordon Tullock), and the less respectable but by no means uninfluential ‘supply-side’ ideas of Arthur Laffer, who went so far as to suggest that the incentive effects of tax cuts would so increase economic activity as to automatically increase tax revenues (Reagan was enamoured of this idea). The more acceptable commonality to these arguments was that government intervention was the problem rather than the solution, and that ‘a stable monetary policy, plus radical tax cuts in the top brackets, would produce a healthier economy’ by getting the incentives for entrepreneurial activity aligned correctly.

The business press, with the Wall Street Journal very much in the lead, took up these ideas, becoming an open advocate for neoliberalization as the necessary solution to all economic ills.

 

·         The construction of consent in Britain occurred in a very different way. What happened in Kansas was quite different from what happened in Yorkshire. The cultural and political traditions were very different. In Britain, there is no Christian right to speak of to be mobilized into a moral majority. Corporate power there was little inclined to support overt political activism. The political situation was also radically different, given that the Labour Party had largely been constructed as an instrument of working-class power, beholden to strong and sometimes quite militant trade unions. Britain had consequently developed a far more elaborate and all-encompassing welfare state structure than would have ever been dreamed of in the US. The commanding heights of the economy (coal, steel, automobiles) were nationalized, and a large proportion of the housing stock was in the public sector. Even when the Conservative Party took power for prolonged periods after the Second World War it largely refrained from any attempt at dismantling the welfare state it had inherited.

 

The Labour government of the 1960s had refused to send troops to Vietnam, thus saving the country from direct domestic traumas over participation in an unpopular war. After the Second World War, Britain had  agreed to decolonization, and after the abortive Suez venture of 1956 gradually shed much of the mantle of direct imperial power. Thereafter, Britain largely participated as a junior partner within NATO under the military shield of US power. But Britain did continue to project a neocolonial presence throughout much of what had been its empire, and in so doing frequently tangled with other great powers. The issue of Britain’s relations with and responsibilities towards its ex-colonies was often fraught, both at home and abroad. Neocolonial structures of commercial exploitation were often deepened rather than eradicated. But migratory currents from the ex-colonies towards Britain were beginning to bring the consequences of empire back home in new ways.

 

·         The most important residual of Britain’s imperial presence was the continuing role of the City of London as a centre of international finance. During the 1960s this became increasingly important as the UK moved to protect and enhance the position of the City with respect to the rising powers of globally oriented finance capital. This created a series of important contradictions. The protection of finance capital (through interest rate manipulations) more often than not conflicted with the needs of domestic manufacturing capital (hence provoking a structural division within the capitalist class) and sometimes inhibited the expansion of the domestic market (by restricting credit). The commitment to a strong pound undermined the export position of UK industry and helped create balance of payments crises in the 1970s. Contradictions arose between the embedded liberalism constructed within and the free market liberalism of London-based finance capital operating on the world stage. The City of London, the financial centre, had long favoured monetarist rather than Keynesian policies, and therefore formed a bastion of resistance to embedded liberalism.

 

The welfare state constructed in Britain after the Second World War was never to everyone’s liking. Strong currents of criticism circulated through the media (with the highly respected Financial Times in the lead), which were increasingly subservient to financial interests. Individualism, freedom, and liberty were depicted as opposed to the stifling bureaucratic ineptitude of the state apparatus and oppressive trade union power. Such criticisms become widespread in Britain during the 1960s and became even more emphatic during the bleak years of economic stagnation during the 1970s.  People then feared that Britain was becoming ‘a corporatist state, ground down to a gray mediocrity’. The undercurrent of thought represented by Hayek constituted a viable opposition and had its advocates in the universities and even more importantly dominated the work of the Institute of Economic Affairs (founded in 1955), where Keith Joseph, later to be a key adviser to Margaret Thatcher, rose to public prominence in the 1970s. The foundation of the Centre for Policy Studies (1974) and the Adam Smith Institute (1976), and the increasing commitment of the press to neoliberalization during the 1970s, significantly affected the climate of public opinion.

 

 The earlier rise of a significant youth movement (given to political satire) and the arrival of a freewheeling pop culture in the ‘swinging London’ of the 1960s both mocked and challenged the traditional structure of networked class relations. Individualism and freedom of expression became an issue and a left-leaning student movement, influenced in many ways by the complexities of coming to terms with Britain’s entrenched class system as well as with its colonial heritage, became an active element within British politics, much as it did elsewhere in the movement of ’68. Its disrespectful attitude towards class privileges (whether of aristocrats, politicians, or union bureaucrats) was to ground the later radicalism of the postmodern turn. Scepticism about politics was to prepare the way for suspicion of all metanarratives.

 

·         Stagflation was hurting everyone. In 1975 inflation surged to 26 per cent and unemployment topped one million. The nationalized industries were draining resources from the Treasury. This set up a confrontation between the state and the unions. In 1972, and then again in 1974, the British miners (a nationalized industry) went on strike for the first time since 1926. The miners had always been in the forefront of British labour struggles. Their wages were not keeping pace with accelerating inflation, and the public sympathized. The Conservative government, in the midst of power blackouts, declared a state of emergency, mandated a three-day working week, and sought public backing against the miners. In 1974 it called an election seeking public support for its stand. It lost, and the Labour government that returned to power settled the strike on terms favourable to the miners.

 

The victory was, however, pyrrhic. The Labour government could not afford the terms of the settlement and its fiscal difficulties mounted. A balance of payments crisis paralleled huge budget deficits. Turning for credits to the IMF in 1975–6, it faced the choice of either submitting to IMF-mandated budgetary restraint and austerity or declaring bankruptcy and sacrificing the integrity of sterling, thus mortally wounding financial interests in the City of London. It chose the former path, and draconian budgetary cutbacks in welfare state expenditures were implemented.

 

The Labour government went against the material interests of its traditional supporters. But it still had no solution to the crises of accumulation and stagflation. It sought, unsuccessfully, to mask the difficulties by appealing to corporatist ideals, in which everyone was supposed to sacrifice something for the benefit of the polity. Its supporters were in open revolt, and public sector workers initiated a series of crippling strikes in the ‘winter of discontent’ of 1978. ‘Hospital workers went out, and medical care had to be severely rationed. Striking gravediggers refused to bury the dead. The truck drivers were on strike too. Only shop stewards had the right to let trucks bearing “essential supplies” cross picket lines. British Rail put out a terse notice “There are no trains today” . . . striking unions seemed about to bring the whole nation to a halt.

 

The mainstream press was in full cry against greedy and disruptive unions, and public support fell away. The Labour government fell, and in the election that followed Margaret Thatcher won a significant majority with a clear mandate from her middle-class supporters to tame public sector trade union power.

 

·         The commonality between the US and the UK cases most obviously lies in the fields of labour relations and the fight against inflation. With respect to the latter, Thatcher made monetarism and strict budgetary control the order of the day. High interest rates meant high unemployment (averaging more than 10 per cent in 1979–84, and the Trades Union Congress lost 17 per cent of its membership in five years). The bargaining power of labour was weakened. Alan Budd, an economic adviser to Thatcher, later suggested that ‘the 1980s policies of attacking inflation by squeezing the economy and public spending were a cover to bash the workers’. Britain created what Marx called ‘an industrial reserve army’, he went on to observe, the effect of which was to undermine the power of labour and permit capitalists to make easy profits thereafter.

 

And in an action that paralleled Reagan’s provocation of PATCO in 1981, Thatcher provoked a miners’ strike in 1984 by announcing a wave of redundancies and pit closures (imported coal was cheaper). Thatcher further reduced union power by opening up the UK to foreign competition and foreign investment. Foreign competition demolished much of traditional British industry in the 1980s––the steel industry (Sheffield) and shipbuilding (Glasgow) more or less totally disappeared within a few years, and with them a good deal of trade union power. Thatcher effectively destroyed the indigenous nationalized UK automobile industry, with its strong unions and militant labour traditions, instead offering the UK as an offshore platform for Japanese automobile companies seeking access to Europe. These built on greenfield sites and recruited non-union workers who would submit to Japanese-style labour relations. The overall effect was to transform the UK into a country of relatively low wages and a largely compliant labour force (relative to the rest of Europe) within ten years. By the time Thatcher left office, strike activity had fallen to one-tenth of its former levels. She had eradicated inflation, curbed union power, tamed the labour force, and built middle-class consent for her policies in the process.

·         But Thatcher had to fight the battle on other fronts. A noble rearguard action against neoliberal policies was mounted in many a municipality––Sheffield, the Greater London Council (which 59 The Construction of Consent Thatcher had to abolish in order to achieve her broader goals in the 1980s), and Liverpool (where half the local councillors had to be gaoled) formed active centres of resistance in which the ideals of a new municipal socialism (incorporating many of the new social movements in the London case) were both pursued and acted upon until they were finally crushed in the mid-1980s.

 She began by savagely cutting back central government funding to the municipalities, but several of them responded simply by raising property taxes, forcing her to legislate against their right to do so. Denigrating the progressive labour councils as ‘loony lefties’ (a phrase the Conservative-dominated press picked up with relish), she then sought to impose neoliberal principles through a reform of municipal finance. She proposed a ‘poll tax’––a regressive head tax rather than a property tax––which would rein in municipal expenditures by making every resident pay. This provoked a huge political fight that played a role in Thatcher’s political demise.

 

Thatcher also set out to privatize all those sectors of the economy that were in public ownership. The sales would boost the public treasury and rid the government of burdensome future obligations towards losing enterprises. These state-run enterprises had to be adequately prepared for privatization, and this meant paring down their debt and improving their efficiency and cost structures, often through shedding labour. Their valuation was also structured to offer considerable incentives to private capital–– a process that was likened by opponents to ‘giving away the family silver’. In several cases subsidies were hidden in the mode of valuation. British Aerospace, British Telecom, British Airways, steel, electricity and gas, oil, coal, water, bus services, railways, and a host of smaller state enterprises were sold off in a massive wave of privatizations.

The legitimacy of this whole movement was successfully underpinned, however, by the extensive selling off of public housing to tenants. This vastly increased the number of homeowners within a decade. It satisfied traditional ideals of individual property ownership as a working-class dream and introduced a new, and often speculative, dynamism into the housing market that was much appreciated by the middle classes, who saw their asset values rise––at least until the property crash of the early 1990s.

 

·         Dismantling the welfare state was, however, quite another thing. Taking on areas such as education, health care, social services, the universities, the state bureaucracy, and the judiciary proved difficult. Here she had to do battle with the entrenched and sometimes traditional upper-middle-class attitudes of her core supporters.

·         Thatcher forged consent through the cultivation of a middle class that relished the joys of home ownership, private property, individualism, and the liberation of entrepreneurial opportunities. With working-class solidarities waning under pressure and job structures radically changing through deindustrialization, middleclass values spread more widely to encompass many of those who 61 The Construction of Consent had once had a firm working-class identity. The opening of Britain to freer trade allowed a consumer culture to flourish, and the proliferation of financial institutions brought more and more of a debt culture into the centre of a formerly staid British life.

·         While from a solid middle-class background herself, she plainly relished the traditionally close contacts between the prime minister’s office and the ‘captains’ of industry and finance. She frequently turned to them for advice and in some instances clearly delivered them favours by undervaluing state assets set for privatization. The project to restore class power––as opposed to dismantling working-class power––probably played a more subconscious role in her political evolution.

·         Perhaps the greatest testimony to their (Reagan and Thatcher) success lies in the fact that both Clinton and Blair found themselves in a situation where their room for manoeuvre was so limited that they could not help but sustain the process of restoration of class power even against their own better instincts. Reagan and Thatcher seized on the clues they had (from Chile and New York City) and placed themselves at the head of a class movement that was determined to restore its power

 

 

Chapter 3 The Neoliberal State

 

The role of the state in neoliberal theory is reasonably easy to define. The practice of neoliberalization has, however, evolved in such a way as to depart significantly from the template that theory provides. The somewhat chaotic evolution and uneven geographical development of state institutions, powers, and functions over the last thirty years suggests, furthermore, that the neoliberal state may be an unstable and contradictory political form.

The Neoliberal State in Theory

·        According to theory, the neoliberal state should favour strong individual private property rights, the rule of law, and the institutions of freely functioning markets and free trade. These are the institutional arrangements considered essential to guarantee individual freedoms.

·        By extension, the freedom of businesses and corporations (legally regarded as individuals) to operate within this institutional framework of free markets and free trade is regarded as a fundamental good. Private enterprise and entrepreneurial initiative are seen as the keys to innovation and wealth creation. Intellectual property rights are protected (for example through patents) so as to encourage technological changes. Continuous increases in productivity should then deliver higher living standards to everyone. Under the assumption that ‘a rising tide lifts all boats’, or of ‘trickle down’, neoliberal theory holds that the elimination of poverty (both domestically and worldwide) can best be secured through free markets and free trade.

·        Neoliberals are particularly assiduous in seeking the privatization of assets. The absence of clear private property rights––as in many developing countries––is seen as one of the greatest of all institutional barriers to economic development and the improvement of human welfare.

·        Privatization and deregulation combined with competition, it is claimed, eliminate bureaucratic red tape, increase efficiency and productivity, improve quality, and reduce costs, both directly to the consumer through cheaper commodities and services and indirectly through reduction of the tax burden.

·        While personal and individual freedom in the marketplace is guaranteed, each individual is held responsible and accountable for his or her own actions and well-being. Individual success or failure are interpreted in terms of entrepreneurial virtues or personal failings (such as not investing significantly enough in one’s own human capital through education) rather than being attributed to any systemic property (such as the class exclusions usually attributed to capitalism).

·        The free mobility of capital between sectors, regions, and countries is regarded as crucial. All barriers to that free movement (such as tariffs, punitive taxation arrangements, planning and environmental controls, or other locational impediments) have to be removed, except in those areas crucial to ‘the national interest’, however that is defined. State sovereignty over commodity and capital movements is willingly surrendered to the global market.

·        International competition is seen as healthy since it improves efficiency and productivity, lowers prices, and thereby controls inflationary tendencies. States should therefore collectively seek and negotiate the reduction of barriers to movement of capital across borders and the opening of markets (for both commodities and capital) to global exchange. Whether or not this applies to labour as a commodity is, however, controversial.

·        Neoliberal theorists are, however, profoundly suspicious of democracy. Governance by majority rule is seen as a potential threat to individual rights and constitutional liberties. Democracy is viewed as a luxury, only possible under conditions of relative affluence coupled with a strong middle-class presence to guarantee political stability. Neoliberals therefore tend to favour governance by experts and elites.

·        A strong preference exists for government by executive order and by judicial decision rather than democratic and parliamentary decision-making. Neoliberals prefer to insulate key institutions, such as the central bank, from democratic pressures.

·        Given that neoliberal theory centres on the rule of law and a strict interpretation of constitutionality, it follows that conflict and opposition must be mediated through the courts. Solutions and remedies to any problems have to be sought by individuals through the legal system.

Tensions and Contradictions

·        First, there is the problem of how to interpret monopoly power. Competition often results in monopoly or oligopoly, as stronger firms drive out weaker. Most neoliberal theorists consider this unproblematic (it should, they say, maximize efficiency) provided there are no substantial barriers to the entry of competitors (a condition often hard to realize and which the state may therefore have to nurture).

·        The second major arena of controversy concerns market failure. This arises when individuals and firms avoid paying the full costs attributable to them by shedding their liabilities outside the market (the liabilities are, in technical parlance, ‘externalized’). The classic case is that of pollution, where individuals and firms avoid costs by dumping noxious wastes free of charge in the environment. While neoliberals admit the problem and some concede the case for limited state intervention, others argue for inaction because the cure will almost certainly be worse than the disease. Most would agree, however, that if there are to be interventions these should work through market mechanisms (via tax impositions or incentives, trading rights of pollutants, and the like).

·        Competitive failures are approached in a similar fashion. Rising transaction costs can be incurred as contractual and subcontractual relations proliferate. The vast apparatus of currency speculation, to take just one example, appears more and more costly at the same time as it becomes more and more fundamental to capturing speculative profits. Other problems arise when, say, all competing hospitals in a region buy the same sophisticated equipment that remains underutilized, thus driving up aggregate costs. The case here for cost containment through state planning, regulation, and forced co-ordination is strong, but again neoliberals are deeply suspicious of such interventions.

·        All agents acting in the market are generally presumed to have access to the same information. There are presumed to be no asymmetries of power or of information that interfere with the capacity of individuals to make rational economic decisions in their own interests. This condition is rarely, if ever, approximated in practice, and there are significant consequences.

·        The establishment of intellectual property rights (patents), furthermore, encourages ‘rent seeking’. Those who hold the patent rights use their monopoly power to set monopoly prices and to prevent technology transfers except at a very high cost.

·        The neoliberal presumption of perfect information and a level playing field for competition appears as either innocently utopian or a deliberate obfuscation of processes that will lead to the concentration of wealth and, therefore, the restoration of class power.

·        The neoliberal theory of technological change relies upon the coercive powers of competition to drive the search for new products, new production methods, and new organizational forms. This drive becomes so deeply embedded in entrepreneurial common sense, however, that it becomes a fetish belief: that there is a technological fix for each and every problem. … There is an inner connection, therefore, between technological dynamism, instability, dissolution of social solidarities, environmental degradation, deindustrialization, rapid shifts in time–space relations, speculative bubbles, and the general tendency towards crisis formation within capitalism.

·        There are, finally, some fundamental political problems within neoliberalism that need to be addressed. A contradiction arises between a seductive but alienating possessive individualism on the one hand and the desire for a meaningful collective life on the other. While individuals are supposedly free to choose, they are not supposed to choose to construct strong collective institutions (such as trade unions) as opposed to weak voluntary associations (like charitable organizations). …  To guard against their greatest fears––fascism, communism, socialism, authoritarian populism, and even majority rule––the neoliberals have to put strong limits on democratic governance, relying instead upon undemocratic and unaccountable institutions (such as the Federal Reserve or the IMF) to make key decisions. This creates the paradox of intense state interventions and government by elites and ‘experts’ in a world where the state is supposed not to be interventionist.

The Neoliberal State in Practice

The general character of the state in the era of neoliberalization is hard to describe for two particular reasons. First, systematic divergences from the template of neoliberal theory quickly become apparent, not all of which can be attributed to the internal contradictions already outlined. Secondly, the evolutionary dynamic of neoliberalization has been such as to force adaptations that have varied greatly from place to place as well as over time.

 

·        There are two arenas in particular where the drive to restore class power twists and in some respects even reverses neoliberal theory in its practice. The first of these arises out of the need to create a ‘good business or investment climate’ for capitalistic endeavours. In the event of a conflict, the typical neoliberal state will tend to side with a good business climate as opposed to either the collective rights (and quality of life) of labour or the capacity of the environment to regenerate itself. The second arena of bias arises because, in the event of a conflict, neoliberal states typically favour the integrity of the financial system and the solvency of financial institutions over the well-being of the population or environmental quality.

·         President Bush advocates free markets and free trade but imposed steel tariffs in order to bolster his electoral chances (successfully, it turned out) in Ohio. Quotas are arbitrarily placed on foreign imports to assuage domestic discontents. Europeans protect agriculture while insisting upon free trade in everything else for social, political, and even aesthetic reasons. Special interventions of the state favour particular business interests (for example armaments deals), and credits are arbitrarily extended from one state to another in order to gain political access and influence in geopolitically sensitive regions (such as the Middle East).

 

The conditions that prevailed in central and eastern Europe after the collapse of communism were very special, for example. The speed with which privatization occurred under the ‘shock therapy’ that was visited upon those countries in the 1990s created enormous stresses that reverberate to this day. Social democratic states (such as those in Scandinavia or Britain in the immediate post-war period) had long taken key sectors of the economy such as health care, education, and even housing out of the market on the grounds that access to basic human needs should not be mediated through market forces and access limited by ability to pay. Developmental states (such as Singapore and several other Asian countries), for quite different reasons, rely on the public sector and state planning in tight association with domestic and corporate (often foreign and multinational) capital to promote capital accumulation and economic growth.

Developmental states become consistent with neoliberalization to the degree that they facilitate competition between firms, corporations, and territorial entities and accept the rules of free trade and rely on open export markets. But they are actively interventionist in creating the infrastructures for a good business climate. But, by the same token, neoliberalization creates conditions for class formation, and as that class power strengthens so the tendency arises (for example in contemporary Korea) for that class to seek to liberate itself from reliance upon state power and to reorient state power along neoliberal lines.

As new institutional arrangements come to define the rules of world trade––for example, the opening of capital markets is now a condition of membership of the IMF and the WTO–– developmental states find themselves increasingly drawn into the neoliberal fold. One of the main effects of the Asian crisis of 1997– 8, for example, was to bring developmental states more in line with standard neoliberal practices. And as we saw in the British case, it is hard to maintain a neoliberal posture externally (for example to facilitate the operations of finance capital) without accepting a modicum of neoliberalization on the inside (South Korea has struggled with exactly this sort of stress in recent times). But developmental states are by no means convinced that the neoliberal path is the right one, particularly since those states (like Taiwan and China) that had not freed up their capital markets suffered far less in the financial crisis of 1997–8 than those that had.

 

·         Neoliberal states typically facilitate the diffusion of influence of financial institutions through deregulation, but then they also all too often guarantee the integrity and solvency of financial institutions at no matter what cost. This commitment in part derives (legitimately in some versions of neoliberal theory) from reliance upon monetarism as the basis of state policy––the integrity and soundness of money is a central pinion of that policy.

But this paradoxically means that the neoliberal state cannot tolerate any massive financial defaults even when it is the financial institutions that have made the bad decisions. The state has to step in and replace ‘bad’ money with its own supposedly ‘good’ money––which explains the pressure on central bankers to maintain confidence in the soundness of state money. State power has often been used to bail out companies or avert financial failures, such as the US savings and loans crisis of 1987–8, which cost US taxpayers an estimated $150 billion, or the collapse of the hedge fund Long Term Capital Management in 1997–8, which cost $3.5 billion.

 

Internationally, the core neoliberal states gave the IMF and the World Bank full authority in 1982 to negotiate debt relief, which meant in effect to protect the world’s main financial institutions from the threat of default. This practice is hard to justify according to neoliberal theory, since investors should in principle be responsible for their own mistakes. More fundamentalist-minded neoliberals therefore believe that the IMF should be abolished. This option was seriously considered during the early years of the Reagan administration, and Congressional Republicans raised it again in 1998. James Baker, Reagan’s Secretary of the Treasury, breathed new life into the institution when he found himself faced with the potential bankruptcy of Mexico and serious losses for the main New York City investment banks that held Mexican debt in 1982. He used the IMF to impose structural adjustment on Mexico and protect the New York bankers from default.

 In the international context this meant extracting surpluses from impoverished Third World populations in order to pay off the international bankers. ‘What a peculiar world’, Stiglitz quizzically remarks, ‘in which the poor countries are in effect subsidizing the richest.’

 

The extraction of tribute via financial mechanisms is an old imperial practice. It has proven very helpful to the restoration of class power, particularly in the world’s main financial centres, and it does not always need a structural adjustment crisis to work. When entrepreneurs in developing countries borrow money from abroad, for example, the requirement that their own state should have sufficient foreign exchange reserves to cover their borrowings translates into the state having to invest in, say, US Treasury bonds. The difference between the interest rate on the money borrowed (for example 12 per cent) and the money deposited as collateral in US Treasuries in Washington (for example 4 per cent) yields a strong net financial flow to the imperial centre at the expense of the developing country.

 

·         The habit of intervening in the marketplace and bailing out financial institutions when they get into trouble cannot be reconciled with neoliberal theory. Reckless investments should be punished by losses to the lender, but the state makes lenders largely immune to losses. Neoliberal theory should warn ‘Lender, beware’, but the practice is ‘Borrower, beware’.

 

·         There are limits to the capacity to squeeze out surpluses from developing countries’ economies. Strapped by austerity measures that lock them into chronic economic stagnation, the prospect of their repaying debts has frequently receded into some distant future. This happened under the Brady Plan of 1989. Financial institutions agreed to write down 35 per cent of their outstanding debt as a loss in exchange for discounted bonds (backed by the IMF and the US Treasury), guaranteeing repayment of the rest (in other words creditors were guaranteed repayment of debts at the rate of 65 cents on the dollar). By 1994 some eighteen countries (including Mexico, Brazil, Argentina, Venezuela, and Uruguay) had agreed to deals that forgave them some $60 billion in debt. The hope, of course, was that this debt relief would spark an economic recovery that would permit the rest of the debt to be paid off in a timely way. The peso crisis in Mexico in 1995, the Brazilian crisis of 1998, and the total collapse of the Argentine economy in 2001 were predictable results.

·        ‘Flexibility’ becomes the watchword with respect to labour markets. It is hard to argue that increased flexibility is all bad, particularly in the face of highly restrictive and sclerotic union practices. There are, therefore, reformists of a left persuasion who argue strongly for ‘flexible specialization’ as a way forward.8 While some individual labourers may undoubtedly benefit from this, the asymmetries of information and of power that arise, coupled with the lack of easy and free mobility of labour (particularly across state borders), put labour at a disadvantage. Flexible specialization can be seized on by capital as a handy way to procure more flexible means of accumulation. The two terms––flexible specialization and flexible accumulation––have quite different connotations. The general outcome is lower wages, increasing job insecurity, and in many instances loss of benefits and of job protections. Such trends are readily discernible in all states that have taken the neoliberal road. Such trends are readily discernible in all states that have taken the neoliberal road.

 Given the violent assault on all forms of labour organization and labour rights and heavy reliance upon massive but largely disorganized labour reserves in countries such as China, Indonesia, India, Mexico, and Bangladesh, it would seem that labour control and maintenance of a high rate of labour exploitation have been central to neoliberalization all along. The restoration or formation of class power occurs, as always, at the expense of labour.

 

·        Neoliberalization has entailed, for example, increasing reliance on public–private partnerships (this was one of the strong ideas pushed by Margaret Thatcher as she set up ‘quasi-governmental institutions’ such as urban development corporations to pursue economic development). Businesses and corporations not only collaborate intimately with state actors but even acquire a strong role in writing legislation, determining public policies, and setting regulatory frameworks (which are mainly advantageous to themselves).

The state typically produces legislation and regulatory frameworks that advantage corporations, and in some instances specific interests such as energy, pharmaceuticals, agribusiness, etc. In many of the instances of public–private partnerships, particularly at the municipal level, the state assumes much of the risk while the private sector takes most of the profits. If necessary, furthermore, the neoliberal state will resort to coercive legislation and policing tactics (anti-picketing rules, for example) to disperse or repress collective forms of opposition to corporate power. Forms of surveillance and policing multiply: in the US, incarceration became a key state strategy to deal with problems arising among discarded workers and marginalized populations. The coercive arm of the state is augmented to protect corporate interests and, if necessary, to repress dissent. None of this seems consistent with neoliberal theory.

 

·        But all is not well with the neoliberal state, and it is for this 78 The Neoliberal State reason that it appears to be either a transitional or an unstable political form. At the heart of the problem lies a burgeoning disparity between the declared public aims of neoliberalism––the well-being of all––and its actual consequences––the restoration of class power. But beyond this there lies a whole series of more specific contradictions that need to be highlighted.

1.       On the one hand the neoliberal state is expected to take a back seat and simply set the stage for market functions, but on the other it is supposed to be activist in creating a good business climate and to behave as a competitive entity in global politics.

2.       Authoritarianism in market enforcement sits uneasily with ideals of individual freedoms. The more neoliberalism veers towards the former, the harder it becomes to maintain its legitimacy with respect to the latter and the more it has to reveal its anti-democratic colours. This contradiction is paralleled by a growing lack of symmetry in the power relation between corporations and individuals such as you and me. If ‘corporate power steals your personal freedom’ then the promise of neoliberalism comes to nothing.

3.       While it may be crucial to preserve the integrity of the financial system, the irresponsible and self-aggrandizing individualism of operators within it produces speculative volatility, financial scandals, and chronic instability. Deregulation of the financial system facilitates behaviours that call for re-regulation if crisis is to be avoided.

4.       While the virtues of competition are placed up front, the reality is the increasing consolidation of oligopolistic, monopoly, and transnational power within a few centralized multinational corporations: the world of soft-drinks competition is reduced to Coca Cola versus Pepsi, the energy industry is reduced to five huge transnational corporations, and a few media magnates control most of the flow of news, much of which then becomes pure propaganda.

5.       At the popular level, the drive towards market freedoms and the commodification of everything can all too easily run amok and produce social incoherence. The reduction of ‘freedom’ to ‘freedom of enterprise’ unleashes all those ‘negative freedoms’ that Polanyi saw as inextricably tied in with the positive freedoms.

 

The Neoconservative Answer

If the neoliberal state is inherently unstable, then what might replace it? In the US there are signs of a distinctively neoconservative answer to this question.

·         Like the neoliberals that preceded them, the ‘neocons’ had long been nurturing their particular views on the social order, in universities (Leo Strauss at the University of Chicago being particularly influential) and well-funded think-tanks, and through influential publications (such as Commentary). US neoconservatives favour corporate power, private enterprise, and the restoration of class power. Neoconservatism is therefore entirely consistent with the neoliberal agenda of elite governance, mistrust of democracy, and the maintenance of market freedoms. But it veers away from the principles of pure neoliberalism and has reshaped neoliberal practices in two fundamental respects: first, in its concern for order as an answer to the chaos of individual interests, and second, in its concern for an overweening morality as the necessary social glue to keep the body politic secure in the face of external and internal dangers.

 

In its concern for order, neoconservatism appears as a mere stripping away of the veil of authoritarianism in which neoliberalism sought to envelop itself. But it also proposes distinctive answers to one of the central contradictions of neoliberalism. If ‘there is no such thing as society but only individuals’ as Thatcher initially put it, then the chaos of individual interests can easily end up prevailing over order. It may even lead to a breakdown of all bonds of solidarity and a condition verging on social anarchy and nihilism. In the face of this, some degree of coercion appears necessary to restore order. The neoconservatives therefore emphasize militarization as an antidote to the chaos of individual interests.

 

Neoconservatism has long hovered in the wings as a movement against the moral permissiveness that individualism typically promotes. It therefore seeks to restore a sense of moral purpose, some higher-order values that will form the stable centre of the body politic. Their aim is to counteract the dissolving effect of the chaos of individual interests that neoliberalism typically produces. They in no way depart from the neoliberal agenda of a construction or restoration of a dominant class power. But they seek legitimacy for that power, as well as social control through construction of a climate of consent around a coherent set of moral values.

 

But the moral values that have now become central to the neoconservatives can best be understood as products of the particular coalition that was built in the 1970s, between elite class and business interests intent on restoring their class power, on the one hand, and an electoral base among the ‘moral majority’ of the disaffected white working class on the other. While this alliance was mainly tactical under Reagan, the domestic disorder of the Clinton years forced the moral values argument to the top of the agenda in the Republicanism of Bush the younger. It now forms the core of the moral agenda of the neoconservative movement.

 

·         In principle, neoliberal theory does not look with favour on the nation even as it supports the idea of a strong state. The umbilical cord that tied together state and nation under embedded liberalism had to be cut if neoliberalism was to flourish. This was particularly true for states, such as Mexico and France, that took a corporatist form. The Partido Revolucionario Institucional in Mexico had long ruled on the theme of unity of state and nation, but that increasingly fell apart, even turning much of the nation against the state, as a result of neoliberal reforms during the 1990s. Nationalism has, of course, been a long-standing feature of the global economy and it would have been strange indeed if had sunk without trace as a result of neoliberal reforms; in fact it has revived to some degree in opposition to what neoliberalization has been about. The rise of right-wing fascist parties expressive of strong anti-immigrant sentiments in Europe is a case in point. Even more distressing was the ethnic nationalism that arose in the wake of Indonesia’s economic collapse, which resulted in a brutal assault upon the Chinese minority.

 

But, as we have seen, the neoliberal state needs nationalism of a certain sort to survive. Forced to operate as a competitive agent in the world market and seeking to establish the best possible business climate, it mobilizes nationalism in its effort to succeed. In China, the appeal to nationalist sentiment in the struggle to procure the state’s position (if not hegemony) in the global economy is overt (as is the intensity of its training programme for athletes for the Beijing Olympics). Nationalist sentiment is equally rife in South Korea and Japan, and in both instances this can be seen as an antidote to the dissolution of former bonds of social solidarity under the impact of neoliberalism. Strong currents of cultural nationalism are stirring within the old nation-states (such as France) that now constitute the European Union. Religion and cultural nationalism provided the moral heft behind the Hindu Nationalist Party’s success in enhancing neoliberal practices in India in recent times. The invocation of moral values in the Iranian revolution and the subsequent turn to authoritarianism has not led to total abandonment of market-based practices there, even though the revolution was aimed at the decadence of unbridled market individualism. The case of Singapore is particularly instructive. It has combined neoliberalism in the marketplace with draconian coercive and authoritarian state power, while invoking moral solidarities based on the nationalist ideals of a beleaguered island state (after its ejection from the Malaysian federation), Confucian values, and, most recently, a distinctive form of the cosmopolitan ethic suited to its current position in the world of international trade. The British case is particularly interesting. Margaret Thatcher, through the Falklands/Malvinas war and in her antagonistic posture towards Europe, invoked nationalist sentiment in support of her neoliberal project, though it was the idea of England and St George, rather than the United Kingdom, that animated her vision––which turned Scotland and Wales hostile.

 

·         Clearly, while there are dangers in the neoliberal dalliance with nationalism of a certain sort, the fierce neoconservative embrace of a national moral purpose is far more threatening. What seems like an answer to the contradictions of neoliberalism can all too easily turn into a problem. The spread of neoconservative, if not outright authoritarian, power (of the sort Vladimir Putin exercises in Russia and the Communist Party exercises in China), albeit grounded very differently in different social formations, highlights the dangers of descent into competing and perhaps even warring nationalisms. To avoid catastrophic outcomes therefore requires rejection of the neoconservative solution to the contradictions of neoliberalism.

 

Chapter 4 Uneven Geographical Developments

The Moving Map of Neoliberalization

·         A moving map of the progress of neoliberalization on the world stage since 1970 would be hard to construct. To begin with, most states that have taken the neoliberal turn have done so only partially––the introduction of greater flexibility into labour markets here, a deregulation of financial operations and embrace of monetarism there, a move towards privatization of state-owned sectors somewhere else.

·         And in the struggle to restore or establish a distinctive upper-class power all manner of twists and turns occur as political powers change hands and as the instruments of influence are weakened here or strengthened there. Any moving map would therefore feature turbulent currents of uneven geographical development that need to be tracked in order to understand how local transformations relate to broader trends.

·         Competition between territories (states, regions, or cities) as to who had the best model for economic development or the best business climate was relatively insignificant in the 1950s and 1960s. Competition of this sort heightened in the more fluid and open systems of trading relations established after 1970. The general progress of neoliberalization has therefore been increasingly impelled through mechanisms of uneven geographical developments.

·         Leapfrogging innovations put this or that state (Japan, Germany, Taiwan, the US, or China), region (Silicon Valley, Bavaria, Third Italy, Bangalore, the Pearl River delta, or Botswana), or even city (Boston, San Francisco, Shanghai, or Munich) in the vanguard of capital accumulation.

 

·         Clearly, the UK and the US led the way. But in neither country was the turn unproblematic. While Thatcher could successfully privatize social housing and the public utilities, core public services such as the national health-care system and public education remained largely immune. In the US, the ‘Keynesian compromise’ of the 1960s had never got close to the achievements of social democratic states in Europe. The opposition to Reagan was therefore less combative. Reagan was, in any case, heavily preoccupied with the Cold War. He launched a deficit-funded arms race (‘military Keynesianism’) of specific benefit to his electoral majority in the US south and west. While this certainly did not accord with neoliberal theory, the rising Federal deficits did provide a convenient excuse to gut social programmes (a neoliberal objective).

 

·         In spite of all the rhetoric about curing sick economies, neither Britain nor the US achieved high levels of economic performance in the 1980s, suggesting that neoliberalism was not the answer to the capitalists’ prayers. To be sure, inflation was brought down and interest rates fell, but this was all purchased at the expense of high rates of unemployment (averaging 7.5 per cent in the US during the Reagan years and more than 10 per cent in Thatcher’s Britain). And in Latin America, where the first wave of forced neoliberalization struck in the early 1980s, the result was for the most part a whole ‘lost decade’ of economic stagnation and political turmoil.

 

·         The 1980s in fact belonged to Japan, the East Asian ‘tiger’ economies, and West Germany as competitive powerhouses of the global economy. To be sure, the central banks in these countries generally followed a monetarist line (the West German Bundesbank was particularly assiduous in combating inflation). And gradual reductions in trade barriers created competitive pressures that resulted in a subtle process of what might be called ‘creeping neoliberalization’ even in countries generally resistant to it.

 

 The Maastricht agreement of 1991, for example, which set a broadly neoliberal framework for the internal organization of the European Union, would not have been possible had there not been pressure from those states, such as Britain, that had committed themselves to neoliberal reforms. But in West Germany the trade unions remained strong, social protections were kept in place, and wage levels continued to be relatively high. This stimulated the technological innovation that kept West Germany well ahead of the field in international competition in the 1980s (though it also produced technologically induced unemployment). Export-led growth powered the country forward as a global leader. In Japan, independent unions were weak or non-existent and rates of labour exploitation were high, but state investment in technological change and the tight relationship between corporations and banks (an arrangement that also proved felicitous in West Germany) generated an astonishing export-led growth performance in the 1980s, very much at the expense of the UK and the US.

 

Such growth as there was in the 1980s did not depend, therefore, on neoliberalization except in the shallow sense that greater openness in global trade and markets provided the context in which the export-led success stories of Japan, West Germany, and the Asian ‘tigers’ could more easily unfold in the midst of intensifying international competition. By the end of the 1980s those countries that had taken the stronger neoliberal path still seemed to be in economic difficulty. It was hard not to conclude that the West German and Asian ‘regimes’ of accumulation were deserving of emulation. Many European states therefore resisted neoliberal reforms and embraced the West German model. In Asia, the Japanese model was broadly emulated first by the ‘Gang of Four’ (South Korea, Taiwan, Hong Kong, and Singapore) and then by Thailand, Malaysia, Indonesia, and the Philippines.

 

The West German and the Japanese models did not, however, facilitate the restoration of class power. The increases in social inequality to be found in the UK and particularly in the US during the 1980s were held in check. While rates of growth were low in the US and the UK, the standard of living of labour was declining significantly and the upper classes were beginning to do well. In Britain, a new wave of entrepreneurial financiers began to consolidate large fortunes. If the project was to restore class power to the top elites, then neoliberalism was clearly the answer. Whether or not a country could be pushed towards neoliberalization then depended upon the balance of class forces (powerful union organization in West Germany and Sweden held neoliberalization in check) as well as upon the degree of dependency of the capitalist class on the state (very strong in Taiwan and South Korea).

 

·         The means whereby class power could be transformed and restored were gradually but unevenly put into place during the 1980s and consolidated in the 1990s. Four components were critical in this.

First, the turn to more open financialization that began in the 1970s accelerated during the 1990s. Foreign direct investment and portfolio investment rose rapidly throughout the capitalist world. But it was spread unevenly often depending on how good the business climate was here as opposed to there. Financial markets experienced a powerful wave of innovation and deregulation internationally. Not only did they become far more important instruments of co-ordination, but they also provided the means to procure and concentrate wealth. They became the privileged means for the restoration of class power. The close tie between corporations and the banks that had served the West Germans and the Japanese so well during the 1980s was undermined and replaced by an increasing connectivity between corporations and financial markets (the stock exchanges). Here Britain and the US had the advantage. In the 1990s, the Japanese economy went into a tailspin (led by a collapse in speculative land and property markets), and the banking sector was found to be in a parlous state. The hasty reunification of Germany created stresses, and the technological advantage that the Germans had earlier commanded dissipated, making it necessary to challenge more deeply its social democratic tradition in order to survive.

 

Secondly, there was the increasing geographical mobility of capital. The gradual reduction in artificial barriers to movement of capital and of commodities, such as tariffs, exchange controls, or, even more simply, waiting times at borders (the abolition of which in Europe had dramatic effects) played an important role. While there was considerable unevenness (Japan’s markets remained highly protected, for example), the general thrust was towards standardization of trade arrangements through international agreements that culminated in the World Trade Organization agreements that took effect in 1995 (more than a hundred countries had signed on within the year). This greater openness to capital flow (primarily US, European, and Japanese) put pressures on all states to look to the quality of their business climate as a crucial condition for their competitive success. Since degree of neoliberalization was increasingly taken by the IMF and the World Bank as a measure of a good business climate, the pressure on all states to adopt neoliberal reforms ratcheted upwards.

 

Thirdly, the Wall Street–IMF–Treasury complex that came to dominate economic policy in the Clinton years was able to persuade, cajole, and (thanks to structural adjustment programmes administered by the IMF) coerce many developing countries to take the neoliberal road. The US also used the carrot of preferential access to its huge consumer market to persuade many countries to reform their economies along neoliberal lines (in some instances through bilateral trade agreements). These policies helped produce a boom in the US in the 1990s. The US, riding a wave of technological innovation that underpinned the rise of a so-called ‘new economy’, looked as if it had the answer and that its policies were worthy of emulation, even though the relatively full employment achieved was at low rates of pay under conditions of diminishing social protections (the number of people without health insurance grew). Flexibility in labour markets and reductions in welfare provision (Clinton’s draconian overhaul of ‘the welfare system as we know it’) began to pay off for the US and put competitive pressures on the more rigid labour markets that prevailed in most of Europe (with the exception of Britain) and Japan. The real secret of US success, however, was that it was now able to pump high rates of return into the country from its financial and corporate operations (both direct and portfolio investments) in the rest of the world.

 

Lastly, the global diffusion of the new monetarist and neoliberal economic orthodoxy exerted an ever more powerful ideological influence. As early as 1982, Keynesian economics had been purged from the corridors of the IMF and the World Bank. By the end of the decade most economics departments in the US research universities––and these helped train most of the world’s economists––had fallen into line by broadly cleaving to the neoliberal agenda that emphasized the control of inflation and sound public finance (rather than full employment and social protections) as primary goals of economic policy.

 

All of these strands came together in the so-called ‘Washington Consensus’ of the mid-1990s.5 The US and UK models of neoliberalism were there defined as the answer to global problems. Considerable pressure was put even on Japan and Europe (to say nothing of the rest of the world) to take the neoliberal road. It was, therefore, Clinton and then Blair who, from the centre-left, did the most to consolidate the role of neoliberalism both at home and internationally. The formation of the World Trade Organization was the high point of this institutional thrust (though the creation of NAFTA and the earlier signing of the Maastricht accords in Europe were also significant regional institutional adjustments). Programmatically, the WTO set neoliberal standards and rules for interaction in the global economy.

 

None of this is particularly consistent with neoliberal theory except for the emphasis on budgetary restraints and the continued fight against what by the 1990s was an almost non-existent inflation. Of course, there were always considerations of national security which would inevitably upset any attempt to apply neoliberal theory in pure terms. The preparedness to intervene in currency markets by agreements such as the Plaza Accord of 1985, which artificially lowered the dollar against the Japanese yen, followed shortly thereafter by the Reverse Plaza Accord, which sought to rescue Japan from its depressed state in the 1990s, were instances of orchestrated interventions attempting to stabilize global financial markets.

 

·         Financial crises were both endemic and contagious. The debt crisis of the 1980s was not limited to Mexico but had global manifestations. And in the 1990s there were two sets of interrelated financial crises that yielded a negative trace of uneven neoliberalization.

The ‘tequila crisis’ that hit Mexico in 1995, for example, spread almost immediately, with devastating effects on Brazil and Argentina. But its reverberations were also felt to some degree in Chile, the Philippines, Thailand, and Poland. unregulated financialization plainly posed a serious danger of contagious crises. The ‘herd mentality’ of the financiers (no one wants to be the last one holding on to a currency before devaluation) could produce self-fulfilling expectations. These could have aggressive as well as defensive manifestations. Currency speculators made billions when they forced European governments to loosen the European Exchange Rate Mechanism in July 1993, and, in October of that year, George Soros alone made nearly $1 billion in two weeks, betting against the ability of Britain to keep the pound within ERM limits.

The second and much broader wave of financial crises began in Thailand in 1997 with the devaluation of the baht in the wake of the collapse of a speculative property market. The crisis first spread to Indonesia, Malaysia, and the Philippines, and then to Hong Kong, Taiwan, Singapore, and South Korea. Estonia and Russia were then hit hard, and shortly afterwards Brazil fell apart, with serious and long-lasting consequences for Argentina. Even Australia, New Zealand, and Turkey were affected. Only the US seemed immune, although even there a hedge fund, Long Term Capital Management (with two Nobel prizewinning economists as key advisers), which had bet the wrong way on Italian currency movements, had to be bailed out to the tune of $3.5 billion.

 

·         The whole ‘East Asian regime’ of accumulation facilitated by ‘developmental states’ was being put to the test in 1997–8. The social effects were devastating: As the crisis progressed, unemployment soared, GDP plummeted, banks closed. The unemployment rate was up fourfold in Korea, threefold in Thailand, tenfold in Indonesia. In Indonesia, almost 15 per cent of males working in 1997 had lost their jobs by August 1998, and the economic devastation was even worse in the urban areas of the main island, Java. In South Korea, urban poverty almost tripled, with almost a quarter of the population falling into poverty; in Indonesia, poverty doubled . . . In 1998, GDP in Indonesia fell by 13.1 per cent, in Korea by 6.7 per cent, and in Thailand by 10.8 per cent.

 As Indonesia’s GDP fell and unemployment surged, the IMF stepped in to mandate austerity by abolishing subsidies on food and kerosene. The capitalist classes, mainly ethnic Chinese, were widely blamed for the debacle. While the wealthiest Chinese business elite decamped to Singapore, a wave of revenge killings and attacks on property engulfed the rest of the Chinese minority, as ethnonationalism reared its ugly head in search of a scapegoat for the social collapse. The standard IMF/US Treasury explanation for the crisis was too much state intervention and corrupt relationships between state and business (‘crony capitalism’). Further neoliberalization was the answer. The Treasury and the IMF acted accordingly, with disastrous consequences. The alternative view of the crisis was that impetuous financial deregulation and the failure to construct adequate regulatory controls over unruly and speculative portfolio investments lay at the heart of the problem. The evidence for this latter view is substantial: those countries that had not liberated their capital markets––Singapore, Taiwan, and China––were far less affected than those countries, such as Thailand, Indonesia, Malaysia, and the Philippines, that had. Furthermore, the one country that ignored the IMF and imposed capital controls–– Malaysia––recovered faster.10 After South Korea likewise rejected IMF advice on industrial and financial restructuring it also staged a faster recovery.

 

The IMF first told countries in Asia to open up their markets to hot short-term capital. The countries did it and money flooded in, but just as suddenly flowed out. The IMF then said interest rates should be raised and there should be fiscal contraction, and a deep recession was induced. Asset prices plummeted, the IMF urged affected countries to sell their assets even at bargain basement prices . . . The sales were handled by the same financial institutions that had pulled out their capital, precipitating the crisis. These banks then got large commissions from their work selling the troubled companies or splitting them up, just as they had got large commissions when they had originally guided the money into the countries in the first place.

 

Behind this conspiratorial view lies the shadowy and largely unexamined role of the New York-based hedge funds. If Soros and other speculators could make billions at the expense of European governments by betting against their ability to stay within the guidelines of the ERM, then why could not the hedge funds, armed with trillions of dollars of leveraged funds from the banks, engineer an attack upon not only East and South-East Asian governments but some of the most successful corporations in global capitalism, simply by denying them liquidity at a point of minor difficulty?

 

Dispatches from the Frontlines

Mexico

The Partido Revolucionario Institucional (PRI) was the sole governing party in Mexico from 1929 until Vicente Fox’s election in 2000. The PRI pursued a state-led modernization and economic development model mainly focused on import substitution and a vigorous export trade with the US. A significant monopoly state sector emerged in transport, energy, and public utilities, as well as in some basic industries (such as steel). Controlled entry of foreign capital under the maquila programme, which allowed mainly US capital to produce in Mexico’s border zone, using cheap labour unhindered by any tariffs or restrictions on commodity movements, had begun in 1965. In spite of relatively strong economic development in the 1950s and 1960s, the benefits of growth had not spread very far. The violent suppression of the student movement protesting social inequalities in 1968 left a bitter legacy that threatened the PRI’s legitimacy. But the balance of class forces began to shift in the 1970s. Business interests strengthened their independent position and deepened their links to foreign capital.

The global crisis of the 1970s hit Mexico badly. The PRI’s response was to extend the public sector by taking over failing private enterprises, maintaining them as sources of employment to stave off the threat of working-class unrest. But these enterprises were losing money and the state had to borrow to fund them. The New York investment banks, awash with petrodollars to invest, obliged. Mexico’s oil discoveries made lending to it an attractive bet. The foreign debt rose from $6.8 billion in 1972 to $58 billion by 1982. Then came Volcker’s high interest rate policy, the recession in the US that diminished demand for Mexican products, and the slump in oil prices. Mexican state revenues fell and the cost of servicing the debt soared. Mexico declared bankruptcy in August 1982. The massive capital flight already under way in anticipation of a devaluation of the peso accelerated, and President Portillo nationalized the banks as an emergency measure.14 The business elite and the bankers disapproved.

 De la Madrid, who assumed the presidency just a few months later, had to make a political choice. He sided with business. De la Madrid was reform-minded, less embedded in the traditional politics of the PRI, and had close relations with capitalist class and foreign interests. The new combination of the IMF, the World Bank, and the US Treasury pulled together by James Baker to bail Mexico out of its difficulties put additional pressure on him. They not only insisted on budgetary austerity; they insisted, for the first time, on broad neoliberal reforms, such as privatization, reorganization of the financial system in ways more consistent with foreign interests, the opening of internal markets to foreign capital, lowering tariff barriers, and the construction of more flexible labour markets. In 1984 the World Bank, for the first time in its history, granted a loan to a country in return for structural neoliberal reforms. De la Madrid then opened Mexico to the global economy by joining GATT and implementing an austerity programme.

From 1983 to 1988 Mexico’s per capita income fell at a rate of 5 per cent per year; the value of workers’ real wages fell between 40 per cent and 50 per cent; inflation, which had oscillated between 3 and 4 per cent per year in the 1960s, had gone up to the mid teens after 1976, and surpassed 100 per cent in several of those years . . . At the same time, due to government fiscal problems and the re-orientation of the country’s governing economic model, state expenditure on public goods declined. Food subsidies were restricted to the poorest segments of the population, and the quality of public education and health care stagnated or declined.  The crime wave that followed turned Mexico City from one of the more tranquil into one of the most dangerous of all Latin American cities within a decade.

De la Madrid saw that one way out of the debt dilemma was to sell off public enterprises and use the proceeds to pay down the debt. But the initial steps towards privatization were both tentative and relatively minor. Privatization entailed the wholesale restructuring of labour contracts and this provoked conflict. Fierce labour struggles broke out in the late 1980s only to be put down ruthlessly by the government. The attack on organized labour intensified under the Salinas presidency that took over in 1988. Salinas accelerated and formalized the process of privatization. He was US-trained and looked to US-trained economists for advice. His economic development programme was couched in language close to neoliberal orthodoxy.

Opening Mexico up further to foreign direct investment and competition became one of the key elements in Salinas’s reform programme. The maquila programme expanded rapidly along the northern border to become fundamental to Mexico’s industrial and employment structure. He began and successfully completed the negotiations with the US that produced NAFTA. Privatization proceeded apace. Employment in the state sector was cut in half between 1988 and 1994. The terms of privatization were increasingly set to encourage foreign ownership. The banks that had been so hastily nationalized in 1982 were re-privatized in 1990. To conform with NAFTA, Salinas also had to open up the peasant sector and agriculture to foreign competition. He had, therefore, to attack the powers of the peasantry that had long formed one of the key pillars of the PRI’s support. The 1917 Constitution from the Mexican Revolution protected the legal rights of indigenous peoples and enshrined those rights in the ejido system that allowed land to be collectively held and used. In 1991 the Salinas government passed a reform law that both permitted and encouraged privatization of the ejido lands, opening them up to foreign ownership. The subsequent lowering of import barriers delivered yet another blow, as cheap imports from the efficient but also highly subsidized agribusinesses in the United States drove down the price of corn and other products to the point where only the most efficient and affluent Mexican farmers could compete. Resistance to the ejido reform was, however, widespread, and several peasant groups supported the Zapatista rebellion that broke out in Chiapas in 1994.

Having signed on to what became known as the Brady Plan for partial debt forgiveness in 1989, Mexico had to swallow, mainly voluntarily as it turned out, the IMF’s poison pill of deeper neoliberalization. The result was the ‘tequila crisis’ of 1995, sparked, as had happened in 1982, by the US Federal Reserve raising interest rates. This put speculative pressure on the peso, which was devalued. The trouble was that Mexico had earlier taken to issuing dollar-denominated debt (called tesobonos) to encourage foreign investment, and after the devaluation could not mobilize enough dollars to pay them off. The US Congress refused to help, but Clinton exercised executive powers to put together a $47.5 billion rescue package. He feared a loss of jobs in those US industries exporting to Mexico, the prospect of increasing illegal immigration, and, above all, the loss of legitimacy for neoliberalization and the NAFTA agreements. As a convenient side-effect of the devaluation, US capital could then rush in and buy up all manner of assets at fire-sale prices. While only one of the Mexican banks privatized in 1990 was foreign-owned, by 2000 twenty-four out of thirty were in foreign hands. The exaction of tribute from Mexico by foreign capitalist class interests then became unstoppable. But foreign competition also began to be a problem. Mexico lost a significant number of maquila jobs after 2000 as China became a much cheaper and therefore preferred location for many foreign firms looking to employ low-wage labour.

In 1994, Forbes magazine’s list of the richest people in the world revealed that Mexico’s economic restructuring had produced twenty-four billionaires. Carlos Slim, Mexico’s richest man, was twenty-fourth on the Forbes list, and he controlled four of Mexico’s twenty-five largest firms. His strategy for cellphone service became renowned: capture and monopolize the high-density and affluent markets and leave the low-density and poorer markets without service. By 2005 Mexico ranked ninth in the world (ahead of Saudi Arabia) for its number of billionaires.

 

The Argentinian Collapse

Argentina emerged from its period of military dictatorship heavily indebted and rigidly locked into a corporatist, authoritarian, and quite corrupt system of governance. Democratization proved difficult, but in 1992 Carlos Menem came to power. Though a Peronist, Menem set about liberalizing the economy, partly to curry favour with the US but also to re-establish Argentina’s credentials in the international community in the wake of the revelations of the ‘dirty war’ that sullied its reputation. Menem opened the country to foreign trade and capital flows, introduced greater flexibility into labour markets, privatized state-owned companies and social security, and pegged the peso to the dollar in order to bring inflation under control and provide security for foreign investors. Unemployment rose, putting a downward pressure on wages, while the elite used privatization to amass new fortunes. Money flooded into the country and it boomed from 1992 until the ‘tequila crisis’ spilled over from Mexico.

Unemployment soared to 18 per cent. While the peso was clearly overvalued, devaluation (in contrast to the situation in Mexico) was precluded by insistence upon maintaining the security of the dollar peg. A brief recovery based on foreign capital inflows followed, until the effects of the Asian economic crisis of 1997–8 spread first to Russia and then to neighbouring Brazil. With that and high interest rates pushing the domestic budget into deficit, an unbearable pressure was put upon the Argentine peso. Argentina’s debt more than doubled between 1995 and September 2001, while foreign exchange reserves were fast disappearing. The interest payment due on the debt soared to $9.5 billion by 2000. The IMF, which had backed the dollar peg and which was firmly set against devaluation for fear of inflationary consequences (as it had been in Russia and Brazil with, in Stiglitz’s judgement, disastrous consequences in both cases), bailed Argentina out with a $6 billion loan (the second largest in IMF history). But even this could not stanch the outflow. In 2001 the Argentine banking system lost more than 17 per cent of its deposits ($14.5 billion). The IMF refused an emergency loan on the grounds that Argentina had not cured its budgetary imbalance. Argentina defaulted on its debt. The government restricted bank withdrawals on 1 December to $250 per week and regulated all foreign account transactions over $1,000.

By 6 January 2002, the new president, Duhalde, had abandoned the dollar peg and devalued the peso. But he also decided to freeze all savings accounts above $3,000 and eventually to treat the dollar deposits as if they were pesos, thus reducing savings to about onethird of their former value. The consequences in terms of social unrest were dramatic and far-reaching. Unemployment soared and incomes fell. Idle factories were occupied by militant workers and set to work, neighbourhood solidarity committees were set up to seek better collective means of survival and the piqueteros (street pickets) blocked transportation networks and mobilized around key political demands.

In the face of popular opinion, which held the banks, foreign investors, and the IMF in total contempt, Kirchner, the newly elected populist president who succeeded Duhalde, could only snub the IMF, default on $88 billion in debts, and initially offer to pay off outraged creditors at the rate of 25 cents on the dollar. Interestingly, Kirchner’s economics team does not have a single US-trained economist in it. Locally trained, they take the ‘heterodox’ view that while the repayment of the external debt is important it should not entail a collapse of living standards in Argentina. With signs of recovery in 2004, particularly in the manufacturing sector helped by the devaluation, the big problem for Argentina is to face down fierce competition from Brazil and, in the near future, from China as the latter conforms to WTO rules and gains open access to Argentine markets.

This story of Argentina’s rollercoaster experience with neoliberalization illustrates all too well how little neoliberal theory has to do with practice. As a member of the neoliberal Ludwig von Mises Institute has pointed out, the ‘confiscatory deflation’ that occurred in Argentina was quite properly interpreted by its Argentine victims as ‘bank robbery by the political elites’.

 

South Korea

South Korea emerged from the war of 1950–3 a devastated country in a parlous economic and geopolitical position. Its economic turn around is usually dated from the military coup of 1961 which brought General Park Chung Hee to power. Per capita income was less than $100 in 1960 but now stands at more than $12,000. South Korea had two initial geopolitical advantages. Since the country was at the frontline of the Cold War the US was prepared to support it militarily and economically, particularly in the early years. But, less obviously, the ex-colonial relationship with Japan conferred benefits that varied from familiarity with Japanese economic and military organizational strategies (Park was trained in the Japanese Military Academy) to active Japanese assistance in penetrating foreign markets.

Korea was still basically an agrarian country in 1960. After arresting the main business leaders for corruption, Park came to an accommodation with them. He reformed the state bureaucracy, set up an economic planning ministry (following the successful Japanese model), and nationalized the banks to gain control over credit allocation. He then relied on the entrepreneurial vigour and investment strategies of a nascent group of industrial capitalists who were invited to enrich themselves in the process. During the early 1960s industrialists became export-oriented because Japan increasingly used them as an offshore platform to re-export its own partially manufactured goods to the US market. Joint ventures with the Japanese flourished. Koreans used them to gain technology and experience of foreign markets. The Korean state supported this export-led strategy by mobilizing internal savings, rewarding successful businesses, and encouraging their merger into chaebols (large integrated firms such as Hyundai, Daewoo, and Samsung) through easy access to credit, tax advantages, procurement of inputs, control over the labour force, and support in gaining access to foreign (particularly US) markets. With support from a heavy industry development strategy (focusing on steel, shipbuilding, petrochemicals, electronics, automobiles, and machinery) several chaebols switched focus and became global players in these industries from the mid-1970s on. As their size and resources grew (by the mid-1980s three chaebols accounted for one-third of the national product) the relationship between chaebol and state changed. By the mid-1980s, they ‘wielded enough power and influence to launch a successful campaign for the steady dismantling of the state’s impressive regulatory apparatus’. No longer dependent on the state given their well-established position in international trade and independent access to credit, the capitalist class came to favour its own version of neoliberalization.

This version rested on protecting its privileges while shedding regulatory controls. The banks were in effect privatized. Korean businesses also needed liberalization of trade relations and of capital flows (something that was also forced from outside through the Uruguay Round in 1986) so that they could invest surplus capital freely abroad. Korean capital explored offshore production using cheaper and more compliant labour forces. So began the export of degrading labour practices through Korean-owned subcontracting networks that reached into Latin America and South Africa as well as across much of East and South-East Asia. After the revaluation of the yen in 1995, Japan shifted to offshore production in lower-cost locations in Thailand, Indonesia, and Malaysia. This, together with China’s entry into the world market, intensified intra-regional competition. While the Chinese initially challenged South Korea (and other countries in the region) in low-value-added sectors of production (such as textiles) it quickly moved up the value-added chain. The South Korean response was to offshore a lot of production into China through direct investment, which may have been good for Korean corporations but was not good for employment at home.

After a boom in exports in the late 1980s, Korean industry succumbed to the competition, experiencing a loss of export markets and a collapse of profitability after 1990. The chaebols resorted to borrowing, increasingly from foreign banks. Korean businesses acquired a very high debt-to-equity ratio and therefore became vulnerable to any rapid rise in interest rates. Massive industrialization entailed equally massive proletarianization and urbanization, which favoured labour organization. In the early years, independent union organizations were fiercely repressed. But Park’s assassination (by his own director of intelligence) in 1979, followed by a brutal massacre of civilian protesters in Kwangju in 1980, sparked a popular movement of students, citizens, and workers for democratization. This was formally achieved in 1987. Wages then rose as unions consolidated their power in the face of continuing governmental repression. Employers wanted more flexible labour markets, but successive governments found this hard to deliver. The formation and legalization of the democratic Korean Confederation of Trade Unions in 1995 confirmed the growing power of organized labour.

The declining ability of the state to discipline capital during the 1990s was exacerbated by the crisis of 1997–8. Foreign capital had long campaigned for easier access to a traditionally protected domestic market as well as for further financial liberalization. In March 1997 the government passed a new labour code that introduced a far higher level of flexibility into labour relations and so tacitly sanctioned the lay-offs. Many of the chaebols, however, were heavily indebted to increasingly suspicious foreign lenders and to national banks that already had a preponderance of non-performing loans. The government had such a weak foreign reserve position that it could do nothing. Several chaebols, such as Hansin and Hambo Steel, declared bankruptcy in the first half of 1997 before the currency crisis hit. When it erupted, the foreign banks withdrew support from Korea, forcing many more chaebols, as well as the country itself, close to bankruptcy. The US saw no reason to offer financial support (the Cold War was over) and instead followed the dictates of Wall Street, which had long pushed for financial liberalization for its own specific reasons of profitability. When the Asian crisis broke, South Korea was encouraged by the IMF to raise interest rates to defend its currency and in so doing plunged its own economy even deeper into recession. This forced many companies with a high debt-to-equity ratio into bankruptcy. High unemployment, falling wage rates, and even more chaebol bankruptcies (Daewoo went under, and Hyundai came very close) immediately followed. The government appealed to the IMF and the US. In exchange for a $55 billion bail-out it agreed to open up financial services to foreign ownership and to let foreign firms operate freely. These bail-out terms were not convincing, and ten days later, in the face of imminent default, another agreement had to be struck in which the lending banks rescheduled Korean debt (a ‘bail-in’) in return for a privileged lock on future income (shades of the New York City solution). As a result ‘Koreans suffered through massive bankruptcies of big and small firms, and a recession that contracted national income by seven per cent, bringing down wages for the average worker by ten per cent and sending the jobless rate to nearly nine per cent’.

The Wall Street–Treasury–IMF alliance had, in effect, done to South Korea what the investment bankers had done in the mid-1970s to New York City. The subsequent revival of the Korean economy (in part based on ignoring IMF advice on restructuring as well as on a much less militant labour situation) has first and foremost augmented the flow of tribute into the coffers of Wall Street and thereby augmented concentrated elite class power in the US. The power of the chaebols has been either shattered or reconstituted as foreign capital moved in on a wave of mergers and acquisitions engineered by what became impolitely known as ‘vulture capital’ from abroad.

Sweden

Probably nowhere in the Western world was the power of capital more democratically threatened in the 1970s than in Sweden. Ruled by the Social Democrats since the 1930s, Sweden’s balance of class forces had been stabilized around a strong centralized trade union structure that bargained collectively with the Swedish capitalist class directly over wage rates, benefits, conditions of contract, and the like. Politically, the Swedish welfare state had been organized around the ideals of a redistributive socialism with progressive taxation and a reduction of income inequality and poverty achieved in part through the provision of elaborate welfare services. The capitalist class, though small, was extremely powerful. Unlike many other social democratic and dirigiste states, Sweden had refrained from nationalizing any of the commanding heights of the economy (with the exception of transportation and public utilities). While there were many small businesses, a few families owned a disproportionate share of the means of production.

As in almost all advanced capitalist societies, labour unrest burgeoned in the late 1960s, sparking a wave of regulatory reform that curbed the power of capital and extended the power of labour even into the workplace. The proposal that most threatened the capitalist class was the Rehn–Meidner plan. A 20 per cent tax on corporate profits would flow into wage earner funds controlled by the unions to be reinvested in the corporations. The effect would be to steadily reduce the significance of private ownership and to build towards collective ownership managed by the representatives of the workers.

From the mid-1970s onwards, the Swedish Employers’ Federation (doubtless emulating its counterpart in the US) increased its membership, mobilized a massive war-chest, and launched a propaganda campaign against excessive regulation and for the increasing liberalization of the economy, the reduction of the tax burden, and the rolling back of excessive welfare state commitments which, in its view, caused economic stagnation. But when a centre-right Conservative Party came to power in 1976, replacing the Social Democrats for the first time since the 1930s, it failed to act on the employers’ proposals. The labour unions were too strong and the public was not persuaded. When it became clear that direct confrontation with the labour unions through lock-outs and non-collaboration in wage negotiations did not work either, the employers moved more towards undermining rather than confronting the institutional arrangements of the corporatist state. In 1983 they refused to participate in central bargaining. Thenceforth, wage and benefits negotiations would have to proceed on a company-by-company basis. They managed to persuade one union to go along with this, and so seriously damaged the collective power of labour.

But most efficacious of all was the propaganda campaign waged by the employers. They used their control over the Nobel Prize in Economics to consolidate neoliberalism within Swedish economic thinking. Above all, the employers’ think-tank––the Center for Business and Policy Studies (SNS)––funded serious research on economic structures and prospects (like the NBER in the US) that again and again proved ‘scientifically’ to policy elites and to the public that the welfare state was the fundamental cause of economic stagnation.

The real shift towards neoliberalism came with the election of a Conservative government in 1991. But the way had already been partially prepared by the Social Democrats, who were increasingly pressed to find ways out of the economic stagnation. But the way had already been partially prepared by the Social Democrats, who were increasingly pressed to find ways out of the economic stagnation. Their partial implementation of some parts of the neoliberal agenda suggested acceptance of the persuasive analyses of the SNS. It was the left rather than the right that now lacked ideas. The unions were persuaded to exercise wage restraint in order to raise profits and encourage investment. Deregulation of banking (which led to a classic speculative bubble in credit allocation and the housing market) and tax cuts for the wealthiest (again supposedly to encourage investment) had already occurred in the late 1980s. The central bank (always Conservative) finally switched its mission to fighting inflation rather than maintaining full employment. The collapse of the speculative bubble in asset prices that followed upon the oil price rise of 1991 led to capital flight and internal bankruptcies that cost the Swedish government dear. The blame for the crash was instinctively placed upon the inefficiencies of the welfare state and the Conservative government that came to power listened sympathetically to the Swedish Chamber of Commerce’s plan for the complete privatization of the welfare state.

Blyth considers that the proposed remedies were wholly inappropriate to the circumstances. The problem, he argues, was ‘cognitive locking’––the inability to think of any other policy solution than that prescribed by neoliberal orthodoxy. The practical result was a serious depression that diminished output and doubled unemployment rates in two years. With the government losing public confidence, another way had to be found to sustain the neoliberal reforms. The answer was to join the European Union, a move that is ‘perhaps best understood as an attempt by business and the Conservatives to let the economic ideas and institutions of the EU achieve by international convergence what they had failed to do through domestic reform’. Joining the EU in 1993–4 deprived the state of many of the tools it had previously maintained to fight unemployment and advance the social wage. The result was that even when the Social Democrats returned to power in 1994, the neoliberal programme of ‘deficit reduction, inflation control and balanced budgets rather than full employment and an equitable distribution of income became cornerstones of macroeconomic policy’. Privatization of pensions and of welfare provision was accepted as inevitable.

 Embedded liberalism was eroded, but by no means fully dismantled. The public still remained broadly attached to its welfare structures. Inequality certainly increased, but by no means to the levels seen in the US or the UK. Poverty levels remained low and levels of social provision remained high. Sweden is an example of what might be called ‘circumscribed neoliberalization’, and its generally superior social condition reflects that fact.

Forces and Fluxes

·         The evidence assembled here suggests that uneven development was as much an outcome of diversification, innovation, and competition (sometimes of the monopolistic sort) between national, regional, and in some instances even metropolitan models of governance as it was an imposition by some hegemonic outside power, such as the US.

·         Most conventional analyses of the forces at work concentrate on some combination of the power of neoliberal ideas (held to be particularly strong in the cases of Britain and Chile), the need to respond to financial crises of various sorts (as in Mexico and South Korea) and a more pragmatic approach to reform of the state apparatus (as in France and China) to improve competitive position in the global market.

·         The possibility that financial crises might be caused by capital strikes, capital flight, or financial speculation, or that financial crises are deliberately engineered to facilitate accumulation by dispossession, is ruled out as far too conspiratorial even in the face of innumerable suspicious signs of co-ordinated speculative attacks on this or that currency.

·         Some attention must be paid to contextual conditions and institutional arrangements, since these vary greatly from Singapore to Mexico, Mozambique, Sweden, and Britain, and the ease of conversion to neoliberalism has varied as a consequence.

·         The South African case is particularly troubling. Emerging in the midst of all of the hopes generated out of the collapse of apartheid and desperate to reintegrate into the global economy, it was partly persuaded and partly coerced by the IMF and the World Bank to embrace the neoliberal line, with the predictable result that economic apartheid now broadly confirms the racial apartheid that preceded it.

·         The changing internal balance of class forces within a particular state over time has also been a crucial determinant. To the degree that organized labour has managed to maintain or acquire (in the case of South Korea) a powerful presence, neoliberalization has faced strong and in some instances insurmountable barriers. Weakening (as in Britain and the US), bypassing (as in Sweden), or violently destroying (as in Chile) the powers of organized labour is a necessary precondition for neoliberalization.

·         By the same token, neoliberalization has frequently depended upon the increasing power, autonomy, and cohesion of businesses and corporations and their capacity as a class to put pressure on state power (as in the US and Sweden). This capacity is most easily exercised directly via financial institutions, market behaviours, capital strikes, or capital flight, and indirectly through influencing elections, lobbying, bribery and corruption or, even more subtly, through commanding the power of economic ideas.

·         But perhaps the most interesting aspect of neoliberalization arises out of the complex interplay of internal dynamics and external forces. While in certain instances the latter may reasonably be construed as dominant, in most cases the relationships are far more intricate. In Chile, after all, it was the upper classes that sought US help in mounting the coup, and it was they who accepted neoliberal restructuring as the path forward, albeit on the basis of advice from US-trained technocrats. And in Sweden it was the employers who sought European integration as the means to lock in a neoliberal domestic agenda that was in difficulty. It is only when the internal power structure has been reduced to a hollow shell and when internal institutional arrangements are in total chaos, either because of collapse (as in the ex-Soviet Union and central Europe), or because of civil wars (as in Mozambique, Senegal, or Nicaragua), or because of degenerative weakness (as in the Philippines), that we see external powers freely orchestrating neoliberal restructurings. And in these instances the success rate tends to be poor precisely because neoliberalism cannot function without a strong state and strong market and legal institutions.

·         It has undoubtedly also been the case that the burden on all states to create ‘a good business climate’ to attract and retain geographically mobile capital has played its part, particularly in the advanced capitalist countries (such as France). But what is odd here is the way in which neoliberalization and a good business climate are so often held as equivalent, as in the 2004 World Bank Development Report.  If neoliberalization produces social unrest and political instability of the order of that in Indonesia or Argentina in recent years, or if it results in depression and restrictions on the growth of internal markets, then it could just as easily be said that neoliberalization repels rather than encourages investment.

·         Even when some aspect of neoliberal policy with respect to, say, flexible labour markets or financial liberalization has been solidly implanted it is not clear that this is in itself sufficient to lure mobile capital.

·         And beyond this there is the even more serious problem of what kind of capital is being attracted. Portfolio capital is just as easily attracted by a speculative boom as it is by solid institutional and infrastructural arrangements that might attract high-value-added industries. Attracting ‘vulture capital’ hardly seems a worthwhile venture, but this in effect is what neoliberalization has all too frequently accomplished (as critics like Stiglitz freely acknowledge).

·         Contingent geopolitical considerations have also played their part. South Korea’s position as a frontline state in the Cold War initially gave it US protection for its developmentalism. Mozambique’s position as a frontline state led to a civil war fomented by South Africa to undermine Frelimo’s attempt to construct socialism. Heavily indebted as a result of the war, Mozambique fell an easy prey to the IMF’s penchant for neoliberal restructuring.

·         The incredible concentrations of wealth and power that now exist in the upper echelons of capitalism have not been seen since the 1920s. The flows of tribute into the world’s major financial centres have been astonishing. It has been part of the genius of neoliberal theory 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, locally as well as transnationally, but most particularly in the main financial centres of global capitalism.

 

Chapter 5 Neoliberalism ‘with Chinese Characteristics’

 

In December 1978, faced with the dual difficulties of political uncertainty in the wake of Mao’s death in 1976 and several years of economic stagnation, the Chinese leadership under Deng Xiaoping announced a programme of economic reform. The outcome in China has been the construction of a particular kind of market economy that increasingly incorporates neoliberal elements interdigitated with authoritarian centralized control. Elsewhere, as in Chile, South Korea, Taiwan, and Singapore, the compatability between authoritarianism and the capitalist market had already been clearly established.

While egalitarianism as a long-term goal for China was not abandoned, Deng argued that individual and local initiative had to be unleashed in order to increase productivity and spark economic growth. The corollary, that certain levels of inequality would inevitably arise, was well understood as something that would need to be tolerated.

Under the slogan of xiaokang––the concept of an ideal society that provides well for all its citizens––Deng focused on ‘four modernizations’: in agriculture, industry, education, and science and defence. The reforms strove to bring market forces to bear internally within the Chinese economy. The idea was to stimulate competition between state-owned firms and thereby spark, it was hoped, innovation and growth. Market pricing was introduced, but this was probably far less significant than the rapid devolution of political-economic power to the regions and to the localities. This last move proved particularly astute. Innovations that failed could simply be ignored. To supplement this effort, China was also opened up, albeit under strict state supervision, to foreign trade and foreign investment, thus ending China’s isolation from the world market. One aim of this opening to the outside was to procure technology transfers (hence the emphasis on joint ventures between foreign capital and Chinese partners). The other was to gain enough foreign reserves to buy in the necessary means to support a stronger internal dynamic of economic growth.

The gathering strength of neoliberal policies on international trade during the 1980s opened up the whole world to transformative market and financial forces. In so doing it opened up a space for China’s tumultuous entry and incorporation into the world market in ways that would not have been possible under the Bretton Woods system. The spectacular emergence of China as a global economic power after 1980 was in part an unintended consequence of the neoliberal turn in the advanced capitalist world.

Internal Transformations

For what the Chinese had to learn (and to some degree are still learning), among many other things, was that the market can do little to transform an economy without a parallel shift in class relations, private property, and all the other institutional arrangements that typically ground a thriving capitalist economy. The evolution along this path was both fitful and frequently marked by tensions and crises, in which impulses and even threats from outside certainly played their part. What can be said with precision, is that China, by not taking the ‘shock therapy’ path of instant privatization later foisted on Russia and central Europe by the IMF, the World Bank, and the ‘Washington Consensus’ in the 1990s, managed to avert the economic disasters that beset those countries. By taking its own peculiar path towards ‘socialism with Chinese characteristics’ or, as some now prefer to call it, ‘privatization with Chinese characteristics’, it managed to construct a form of state-manipulated market economy that delivered spectacular economic growth (averaging close to 10 per cent a year) and rising standards of living for a significant proportion of the population for more than twenty years. But the reforms also led to environmental degradation, social inequality, and eventually something that looks uncomfortably like the reconstitution of capitalist class power.

It is hard to make sense of the details of this transformation without a rough map of its general path. Key decisions ratified at party congresses set the stage for each step on the reform trail. It is unlikely, however, that the party would have easily countenanced the active reconstitution of capitalist class power in its midst. It almost certainly embraced economic reforms in order to amass wealth and upgrade its technological capacities so as to be better able to manage internal dissent, to better defend itself against external aggression, and to project its power outwards onto its immediate geopolitical sphere of interest in a rapidly developing East and South-East Asia.

 Furthermore, the actual developmental path taken seems to fit with the aim of preventing the formation of any coherent capitalist class power bloc within China itself. Heavy reliance upon foreign direct investment (a completely different economic development strategy to that taken by Japan and South Korea) has kept the power of capitalist class ownership offshore (Table 5.1), making it somewhat easier, at least in the Chinese case, for the state to control. The barriers erected to foreign portfolio investment effectively limit the powers of international finance capital over the Chinese state. The reluctance to permit forms of financial intermediation other than the stateowned banks––such as stock markets and capital markets–– deprives capital of one of its key weapons vis-à-vis state power. The long-standing attempt to keep structures of state ownership intact while liberating managerial autonomy likewise smacks of an attempt to inhibit capitalist class formation.

But the party also had to face a number of awkward dilemmas. The Chinese business diaspora provided key external links and Hong Kong, reabsorbed into the Chinese polity in 1997, was already structured along capitalistic lines. China had to compromise with both, as well as with the neoliberal rules of international trade set up through the WTO, which China joined in 2001. Political demands for liberalization also began to emerge. Worker protests surfaced in 1986. A student movement, sympathetic to the workers but also expressive of its own demands for greater freedoms, climaxed in 1989. The tremendous tension in the political realm that paralleled economic neoliberalization culminated in the massacre of students in Tiananmen Square. Deng’s violent crackdown, carried out against the wishes of party reformers, clearly indicated that neoliberalization in the economy was not to be accompanied by any progress in the fields of human, civil, or democratic rights. While Deng’s faction repressed the political it had to initiate yet another wave of neoliberal reforms to survive. Wang summarizes these as follows:

“monetary policy became a prime means of control; there was a significant readjustment in the foreign currency exchange rate, moving towards a unified rate; exports and foreign trade came to be managed by mechanisms of competition and assumption of responsibility for profits or losses; the ‘dual track’ pricing system was reduced in scope; the Shanghai Pudong development zone was fully opened and the various regional development zones were all put on track.”

After an ageing Deng toured the southern region in 1992 to see for himself what effect the opening to the outside was having on economic development, he pronounced himself fully satisfied. ‘To get rich is glorious’ he said, adding: ‘What does it matter if it is a ginger cat or a black cat as long as it catches mice?"

When Deng initiated the reform process in 1978, almost everything of significance in China lay within the state sector. Stateowned enterprises (SOEs) dominated the leading sectors of the economy. By most accounts these were reasonably profitable. They offered not only security of employment to their workers but a wide range of welfare and pension benefits (known as ‘the iron rice bowl’ or the state’s guarantee of a livelihood). There were in addition a variety of local state enterprises under provincial, city, or local government control. The agrarian sector was organized according to a commune system, and most accounts agree it was lagging in productivity and badly in need of reform. Rural dwellers were the least privileged and were kept separate from urban populations by way of a residency permit system which conferred many welfare benefits and rights on the latter while denying them to the former. This system also helped hold back any mass rural migration to the cities. Each sector was integrated into a regionally organized state planning system in which output targets were assigned and inputs allocated according to plan. State-owned banks largely existed as a depository for savings and provided investment moneys outside of the state budget.

The SOEs were long maintained as the stable centrepieces of state control of the economy. A more open market economy was created around them by dissolving the agricultural communes in favour of an individualized ‘personal responsibility system’. Township and village enterprises (TVEs) were created out of the assets held by the communes, and these became centres of entrepreneurialism, flexible labour practices, and open market competition. A wholly private sector was permitted at first only in small-scale production, trade, and service activities, with limits (gradually relaxed over time) on the employment of wage labour. Finally, foreign capital flowed in, gathering momentum during the 1990s. Initially limited to joint ventures and certain regions, it ultimately bore down everywhere, though unevenly. The state-owned banking system expanded during the 1980s and gradually substituted for the central state in providing lines of credit to the SOEs, the TVEs, and the private sector. The TVEs drew their initial finance from the agrarian sector and provided markets for outputs or furnished intermediate inputs to the SOEs. Foreign capital integrated into the TVEs and the SOEs as time went on, and the private sector became much more significant both directly (in the form of owners) and indirectly (in the form of stockholders). When the SOEs became less profitable they received cheap credit from the banks. As the market sector gained in strength and significance, so the whole economy moved towards a neoliberal structure.

·         In agriculture, peasants were given the right to use communal lands under a ‘personal responsibility’ system in the early 1980s. Initially, they could sell surpluses (over and above the commune target) at free market rather than state-controlled prices. By the end of the 1980s the communes had been totally dissolved. Though the peasants could not formally own the land, they could lease it and rent it out, hire in labour, and sell their product at market prices (the dual price system effectively collapsed). As a result, rural incomes increased at the astonishing rate of 14 per cent annually and output similarly surged between 1978 and 1984. Thereafter, rural incomes stagnated and even fell in real terms (particularly after 1995). The disparity between rural and urban incomes increased markedly. Furthermore the loss of the collective social rights earlier established within the communes–– weak though they may have been––meant the peasants had to face burdensome user charges for schools, medical care, and the like. This was not the case for most permanent urban residents, who were also favoured after 1995 when an urban real-estate law conferred real-estate ownership rights on urban residents, who could then speculate on property values. The urban/rural differential in real incomes is now, according to some estimates, greater than in any other country in the world.

·         Forced to seek work elsewhere, rural migrants––many of them young women––have consequently flooded––illegally and without the rights of residency––into the cities to form an immense labour reserve (a ‘floating’ population of indeterminate legal status). Remittances back to the rural regions are now a crucial element in the survival of rural populations. The dire condition of the rural sector and the instability it is generating is today one of the most serious problems facing the Chinese government.

When the communes were dissolved their previous political and administrative powers were turned over to newly created township and village governments set up under the Constitution of December 1982. Later legislation allowed these governments to take possession of the communes’ industrial assets and restructure them as TVEs. Liberated from central state control, local administrations typically took an entrepreneurial stance. The initial surge in rural incomes provided savings that could be ploughed back into the TVEs. Depending on location, joint ventures with foreign capital (particularly from Hong Kong or through the Chinese business diaspora) also flourished. The TVEs became an incredible source of dynamism in the economy during the first decade and a half of the reform period. They centred grassroots experimentation, functioning as proving grounds for reforms.10 Whatever worked with the TVEs could later become the basis of state policy. And what largely worked was a surge of development in light industry producing consumer goods for export, thus leading China down the exportled industrialization path. Only in 1987, however, did the state finally commit to the idea that development should be export-led.

During the 1980s it became clear that most of China’s phenomenal growth rate was being powered from outside the SOE sector. In the revolutionary period the SOEs provided job security and social protections for their workforces. But in 1983 SOEs were allowed to hire ‘contract workers’ with no social protections and limited tenure. They were also granted greater managerial autonomy from state ownership. Managers could retain a certain proportion of their profits and sell any surplus they produced over their targets at free market prices. In spite of these incentives, the SOEs did not flourish. In 1993, therefore, the state decided ‘to turn targeted large and medium state enterprises into limited liability or shareholding companies’. The former would have ‘two to fifty shareholders’ while the latter would have ‘more than fifty shareholders and could offer public issues’. A year later a far more extensive programme of corporatization was announced: all but the most important of the SOEs were to be converted into ‘share-based co-operatives’ in which all employees had the nominal right to purchase shares. Further waves of privatization/conversion of the SOEs occurred in the late 1990s so that, by 2002, SOEs accounted for only 14 per cent of total manufacturing employment relative to the 40 per cent share they had held in 1990. The most recent step has been to open both the TVEs and the SOEs to full foreign ownership.

Foreign direct investment, for its part, met with very mixed results in the 1980s. It was initially channelled into four special economic zones in southern coastal regions. These zones ‘had the initial objective of producing goods for export to earn foreign exchange. They also acted as social and economic laboratories where foreign technologies and managerial skills could be observed. They offered a range of inducements to foreign investors, including tax holidays, early remittances of profits and better infrastructure facilities.’ But initial attempts by foreign firms to colonize the internal China market in areas such as automobiles and manufactured goods did not do well. More than two-thirds of the foreign direct investment that came in during the early 1990s (and an even great percentage of the business ventures that survived) was organized by the overseas Chinese (particularly operating out of Hong Kong but also from Taiwan). Subsequently the Chinese government designated several ‘open coastal cities’ as well as ‘open economic regions’ for foreign investment. After 1995 it virtually opened the whole country up to foreign direct investment of any type. The wave of bankruptcies that hit some of the TVEs in the manufacturing sector in 1997–8, spilling over into many of the SOEs in the main urban centres, proved a turning-point. Competitive pricing mechanisms then took over from the devolution of power from the central state to the localities as the core process impelling the restructuring of the economy. The effect was to severely damage, if not destroy, many of the SOEs and create a vast wave of unemployment.

Since 1998, the Chinese have sought in part to confront this problem through debt-financed investments in huge megaprojects to transform physical infrastructures. It is deficit-financed (in classic Keynesian style). It also entails high risks, since if the investments do not return their value in due course, then a fiscal crisis of the state will quickly ensue. Astonishing rates of urbanization (no fewer than forty-two cities have expanded beyond the 1 million population mark since 1992) required huge investments of fixed capital.  Rapid urbanization provides one way to absorb the massive labour reserves that have converged on the cities from rural areas. Such new tier cities are locked in ferocious inter-urban competition. Cities have also become venues for frenzied real-estate development and property speculation.

Behind much of this lay the financial role of China’s largely state-owned banking system. This sector expanded rapidly after 1985. By 1993, for example, the number of branches of state banks had risen ‘from 60,785 to 143,796 and the number of employees increased from 973,355 to 1,893,957. By then the banks’ disbursements exceeded government budget expenditures by a factor of five. A lot of money went to failing SOEs and the banks clearly ‘played a leading role in creating “asset bubbles”, especially in the volatile real estate and construction sectors’. Non-performing loans became a problem and in the end the central government had to spend ‘almost as much to clean up bad loans’ as the US did to rescue the savings and loan industry in 1987 (the cost of that bail-out was ‘$123.8 billion in public funds and $29.1 billion in supplemental deposit insurance premiums from financial institutions’). In 2003, for example, China announced a complex transfer of $45 billion from its foreign exchange reserves to two big government banks, and this was ‘the third largest bailout in the banking system in less than six years’.

In one key respect China evidently learned from Japan. The modernization of education and science had to go hand in hand with a definitive strategy of research and development for both military and civilian purposes. Chinese investment in these fields has been significant. But from the late 1990s on, foreign corporations began to transfer a significant amount of their research and development activity into China. These corporations often complain at what they consider the illegal pirating of their technologies and designs by indigenous Chinese companies. But they can do little about it given the reluctance of the Chinese government to intervene and the power of the Chinese state to make things difficult for them to operate in the world’s largest market if they press too hard on such issues. Both Japan and South Korea have invested in large-scale ‘research cities’ in China to position themselves to take advantage of highly skilled but low-cost labour. The overall effect is to make China a much more attractive location for high-tech sector activities.

External Relations

Foreign trade accounted for only 7 per cent of China’s GNP in 1978 but by the early 1990s it had soared to 40 per cent and it has stayed at that level ever since. China’s share of world trade quadrupled during the same period. By 2002, over 40 per cent of China’s GDP was accounted for by foreign direct investment (and manufacturing accounted for half ). By then China had become the largest recipient of foreign direct investment in the developing world, and multinationals were exploiting the China market profitably.

It seemed as if an export-led development strategy had succeeded brilliantly. It was not until 1987 that the party, noting the success of the Guangdong experiment, accepted that growth should be exportled. And it was only after Deng’s ‘southern tour’ in 1992 that the full force of the central government was put behind the opening to foreign trade and foreign direct investment. In 1994, for example, the dual currency exchange rate (official and market) was abolished by a 50 per cent devaluation of the official rate.

The initial success of Deng’s strategy depended upon the Hong Kong connection. As one of the first of Asia’s ‘tiger’ economies, Hong Kong was already a significant centre of capitalist dynamism. Unlike the other states in the region (Singapore, Taiwan, and South Korea), which resorted to high levels of state planning, Hong Kong had developed in a more chaotic entrepreneurial way without significant state guidance. It conveniently stood at the centre of a Chinese business diaspora that already had significant global connections. Hong Kong’s manufacturing had developed along labour-intensive and low-value-added lines (textiles being in the lead). But by the late 1970s it was suffering from severe foreign competition and acute labour shortages. Guangdong, just across the border in China, had all the cheap labour in the world. Deng’s opening therefore came as a godsend. Hong Kong capital seized the opportunity. What attracted the Hong Kong capitalists were the newly created TVEs in rural areas. Hong Kong capital provided the machinery, the inputs, and the marketing while the TVEs did the work. Once established, this style of operation could be emulated by other foreign capitalists (particularly Taiwanese, mainly around Shanghai after it was opened up). The sources of FDI diversified greatly during the 1990s as Japanese and South Korean as well as US corporations began to use China as an offshore production centre in a big way.

The heavy reliance on FDI makes China a special case, very different from Japan or South Korea. Chinese capitalism is not well integrated as a result. Inter-regional trade is rather weakly developed, even though there have been massive investments in new means of communication. Capital does not flow easily from one part of China to another, in spite of a recent spate of merger activity and state-led efforts to create regional alliances among different provinces. Reliance on FDI will therefore diminish only to the extent that resource allocation and capitalist interlinkages improve within China itself.

In the 1980s China’s position in global markets was mainly through low-value-added production, selling cheap textiles, toys, and plastics in international markets in large volume. Maoist policies had left China self-sufficient in energy and many raw materials (it is one of the largest cotton producers in the world). It merely needed to import the machinery and the technology and gain access to markets (with Hong Kong conveniently obliging). It could use its cheap labour to great competitive advantage. Highly productive US plants use expensive automated systems, but ‘Chinese factories reverse this process by taking capital out of the production process and reintroducing a greater role for labor’. The total capital required is typically reduced by one-third. ‘The combination of lower wages and less capital typically raises the return on capital above the US factory levels.

Incredible wage labour advantages of this sort mean that China can compete against other low-cost locations such as Mexico, Indonesia, Vietnam, and Thailand in low-value-added production sectors (such as textiles). Mexico lost 200,000 jobs in just two years as China (in spite of NAFTA) overtook it as the major supplier of the US market in consumer goods. During the 1990s China began to move up the value-added ladder of production and to compete with South Korea, Japan, Taiwan, Malaysia, and Singapore in spheres such as electronics and machine tools. This occurred in part as corporations in those countries decided to move their production offshore to take advantage of the large pool of low-cost and highly skilled labourers being churned out by the Chinese university system. Initially, the biggest inflow came from Taiwan. Japanese outsourcing of production to China contributed to the decline in Japanese manufacturing employment from 15.7 million in 1992 to 13.1 million in 2001. Japanese companies also began to withdraw from Malaysia, Thailand, and elsewhere in order to relocate in China. China has displaced more manufacturing jobs from Japan, South Korea, Mexico, and elsewhere than it has from the US.

China’s dramatic growth has, on the other hand, made it more dependent upon foreign sources of raw materials and energy. In 2003 China took ‘30 per cent of the world’s coal production, 36 per cent of the world’s steel and 55 per cent of the world’s cement’. It went from relative self-sufficiency in 1990 to being the second largest importer of oil after the US in 2003. The rapidity of the reorientation of trade relations is best illustrated by the case of Taiwan. China overtook the US as the prime destination of Taiwanese exports (mainly of intermediate manufacturing goods) in 2001, but by the end of 2004 Taiwan was exporting twice as much to China as to the US.

China effectively dominates the whole of East and South-East Asia as a regional hegemon with enormous global influence. When confronted by Argentina’s worries about cheap Chinese imports destroying the vestiges of its indigenous textile, shoe, and leather industries that began to revive in 2004, the Chinese advice was simply to let such industries die and concentrate on being a raw material and agricultural commodity producer for the booming China market. It was not lost on the Argentines that this was exactly how Britain had approached its Indian empire in the nineteenth century.

As invariably happens with the dynamics of successful capital accumulation, there comes a point at which internally accumulated surpluses require external outlets. One path has been to fund the US debt and thereby keep the market for Chinese products buoyant while keeping the yuan conveniently pegged to the value of the dollar. But Chinese trading companies have long been active globally, and they expanded their scope and range markedly from the mid-1990s on. Chinese businesses also invest overseas to secure their position in foreign markets. Chinese television sets are now being assembled in Hungary to assure access to the European market and in North Carolina to assure access to the US. A Chinese auto company plans to assemble cars and eventually build a factory in Malaysia. Chinese companies are even investing in Pacific region tourism to meet their own surging demand.

***

But in one respect the Chinese depart glaringly from the neoliberal template. China has massive labour surpluses, and if it is to achieve social and political stability it must either absorb or violently repress that surplus. It can do the former only by debtfinancing infrastructural and fixed-capital formation projects on a massive scale (fixed-capital investment increased by 25 per cent in 2003). The danger lurks of a severe crisis of over-accumulation of fixed capital (particularly in the built environment). Abundant signs exist of excess production capacity (for example in automobile production and electronics) and a boom and bust cycle in urban investments has already occurred.

 But all of this requires that the Chinese state depart from neoliberal orthodoxy and act like a Keynesian state. This requires that it maintain capital and exchange rate controls. These are inconsistent with the global rules of the IMF, the WTO, and the US Treasury. While China is exempt from these rules as a transitional condition for WTO membership, it cannot remain so in perpetuity.

The enforcement of capital flow controls is becoming increasingly difficult as Chinese yuan seep across a highly porous border via Hong Kong and Taiwan into the global economy. It is worthwhile recalling that one of the conditions that broke up the whole Keynesian post-war Bretton Woods system was the formation of a eurodollar market as US dollars escaped the discipline of its own monetary authorities. The Chinese are already well on their way to replicating that problem, and their Keynesianism is correspondingly threatened.

_

The Chinese banking system, which is at the heart of the current deficit financing, cannot currently withstand integration into the global financial system because as much as half its loan portfolio is non-performing. Fortunately, the Chinese have a balance of payments surplus that can be applied, as we have already seen, to wiping the banks’ slates clean. But it is at this point that the other shoe is liable to drop, because the only way the Chinese can afford this is by piling up balance of payments surpluses against the US. A peculiar symbiosis emerges, in which China, along with Japan, Taiwan, and other Asian central banks, fund the US debt so that the US can conveniently consume their surplus output. But this renders the US vulnerable to the whims of Asian central bankers.

 Conversely, Chinese economic dynamism is held hostage to US fiscal and monetary policy. The US is also currently behaving in a Keynesian fashion––running up enormous federal deficits and consumer debt while insisting that everyone else must obey neoliberal rules. This is not a sustainable position, and there are now many influential voices in the US suggesting that it is steering right into the hurricane of a major financial crisis.

 For China, this would entail switching from a politics of labour absorption to a politics of overt repression. Whether or not such a tactic can succeed, as it did in Tiananmen Square in 1989, will depend crucially upon the balance of class forces and how the Communist Party positions itself in relation to those forces.

Towards a Reconstitution of Class Power?

China is now the largest market in the world for Mercedes-Benz cars. Somebody, somewhere and somehow, is getting very rich. Though China may have one of the world’s fastest-growing economies it has also become one of its most unequal societies (Figure 5.2). The benefits of growth ‘have been bestowed mainly on urban residents and government and party officials. Social inequality was never eradicated in the revolutionary era. The differentiation between town and country was even written into law. But with reform, writes Wang, ‘this structural inequality quickly transformed itself into disparities in income among different classes, social strata, and regions, leading rapidly to social polarization’. Formal measures of social inequality, such as the Gini coefficient, confirm that China has travelled the path from one of the poorest and most egalitarian societies to chronic inequality, all in the space of twenty years (see Figure 5.2). Regional inequalities have also deepened, with some of the southern coastal zone cities surging ahead while the interior and the ‘rust belt’ of the northern region have either failed to take off or floundered badly.

Mere increases in social inequality constitute an uncertain indicator of the reconstitution of class power. There has been a wholesale process of proletarianization going on in China, marked by the stages of privatization and the steps taken to impose greater flexibility on the labour market (including the shedding of welfare and pension obligations on the part of public enterprises). The government has ‘gutted’ services as well. According to China Labor Watch, ‘Rural governments get almost no support from wealthier areas. They tax local farmers and impose endless fees to finance schools, hospitals, road building, even the police.’ Poverty is intensifying among those left behind even as growth roars ahead at 9 per cent. Between 1998 and 2002, 27 million workers were let go from SOEs as their numbers fell from 262,000 to 159,000. Even more surprising, the net loss of manufacturing jobs in China over the past decade or so has been around 15 million.

The accumulation of wealth at the other end of the social scale is a more complicated story. It seems to have proceeded in part via a combination of corruption, hidden ruses, and overt appropriation of rights and assets that were once held in common. As local governments transferred shares of enterprises to management as part of their restructuring strategy, so many managers ‘have overnight come to hold shares worth tens of millions of yuan through various means, forming a new group of tycoons’. When SOEs were restructured into joint stock corporations ‘the managers were given significant portions of the shares’ and sometimes received a yearly salary one hundred times that of their average worker. The privileged relationships between party members, government officials, and private entrepreneurs and the banks have also played an important role. Managers of newly privatized businesses who have received a certain number of shares may borrow from banks (or from friends) to buy up the remaining shares from the workers (sometimes coercively, by threatening layoffs for example). Since a large number of bank loans are non-performing, the new owners either run the companies into the ground (asset-stripping for personal gain along the way) or find ways to renege on their debts without declaring bankruptcy (bankruptcy law is not well developed in China).

Indigenous capital is also playing an increasingly important role in wealth creation. Having benefited from more than twenty years of technology transfer through joint ventures, blessed with access to large pools of skilled labour and managerial skills and above all harnessing the ‘animal spirits’ of entrepreneurial ambition, many Chinese firms have now positioned themselves to compete with foreign rivals not only in the domestic market but also in the international arena. And this no longer occurs only in the low-valueadded sectors. What is now the eighth-ranked computer maker in the world, for example, was set up in 1984 by a group of Chinese scientists backed by government funds. By the late 1990s it had transformed itself from a distributor to a maker and held the largest share of the Chinese market. While the state may hold shares in companies like Lenovo, their managerial autonomy guarantees an ownership and reward system that permits increasing concentrations of executive officer wealth on a par with that found elsewhere around the world.

Real-estate development, particularly in and around the large cities and in the export development zones, appears to be another privileged path towards amassing immense wealth in a few hands. Commune leaders, for example, frequently asserted de facto property rights over communal land and assets in negotiations with foreign investors or developers. These rights were later confirmed as belonging to them as individuals, in effect enclosing the commons to the benefit of the few. In the confusion of transition, writes Wang, ‘a significant amount of national property “legally” and illegally was transferred to the personal economic advantage of a small minority’. Speculation in land and property markets, particularly in urban areas, became rife even in the absence of clear systems of property rights. So serious had the loss of arable land become that the central government had to put a moratorium on conversions in 1998 until more rational land-use planning could be implemented. But a lot of the damage had already been done.

A surging consumer culture has emerged in the main urban centres, to which the increasing inequalities add their particular features, such as gated and protected communities of high-income housing (with names like Beverly Hills) for the rich, and spectacular privileged consumption zones, restaurants and nightclubs, shopping malls, and theme parks in many cities. Postmodern culture has arrived in Shanghai, big time.

The other source for amassing wealth arises out of the superexploitation of labour power, particularly of young women migrants from rural areas. Much of the capital accumulated by private and foreign firms comes from unpaid labour. The result has been the eruption of fierce labour protests in many areas. Until recently, conflicts of this sort have been successfully managed by keeping them isolated, fragmented, unorganized, and certainly under-reported. But recent accounts suggest that more widespread conflicts are erupting. Whether or not this will all give rise to a mass movement is hard to predict. But the party is clearly fearful of the potential breakdown in order and is mobilizing party and police powers to forestall the proliferation of any general social movement that may arise.

While there are several aspects of Communist Party policy that were designed to frustrate capitalist class formation, the party has also acceded to the massive proletarianization of China’s workforce, the breaking of the ‘iron rice bowl’, the evisceration of social protections, the imposition of user fees, the creation of a flexible labour market regime, and the privatization of assets formerly held in common. It has created a social system where capitalist enterprises can both form and function freely. In so doing it has achieved rapid growth and alleviated the poverty of many, but it has also embraced great concentrations of wealth in the upper echelons of society. Moreover, business membership within the party has been growing (up from 13.1 per cent in 1993 to 19.8 per cent by 2000). The links between workers and the party organization have, on the other hand, become strained. Whether this internal transformation of party structure will consolidate the ascendance of the same sort of technocratic elite that led the Mexican PRI towards total neoliberalization remains to be seen. But it cannot be ruled 150 Neoliberalism ‘with Chinese Characteristics’ out either that ‘the masses’ will seek a restoration of their own unique form of class power.

China, we may conclude, has definitely moved towards neoliberalization and the reconstitution of class power, albeit ‘with distinctly Chinese characteristics’. The authoritarianism, the appeal to nationalism, and the revival of certain strains of imperialism suggest, however, that China may be moving, though from a quite different direction, towards a confluence with the neoconservative tide now running strongly in the US. That does not bode well for the future.

 

Chapter 6 Neoliberalism on Trial

The two economic engines that have powered the world through the global recession that set in after 2001 have been the United States and China. The irony is that both have been behaving like Keynesian states in a world supposedly governed by neoliberal rules. The US has resorted to massive deficit-financing of its militarism and its consumerism, while China has debt-financed with non-performing bank loans massive infrastructural and fixedcapital investments.

True blue neoliberals will doubtless claim that the recession is a sign of insufficient or imperfect neoliberalization, and they could well point to the operations of the IMF and the army of well-paid lobbyists in Washington that regularly pervert the US budgetary process for their special-interest ends as evidence for their case. But their claims are impossible to verify, and, in making them, they merely follow in the footsteps of a long line of eminent economic theorists who argue that all would be well with the world if only everyone behaved according to the precepts of their textbooks.

If we lay aside, as I believe we must, the claim that neoliberalization is merely an example of erroneous theory gone wild (pace the economist Stiglitz) or a case of senseless pursuit of a false utopia (pace the conservative political philosopher John Gray ), then we are left with a tension between sustaining capitalism, on the one hand, and the restoration/reconstitution of ruling class power on the other. Previous phases of capitalist history––one thinks of 1873 or the 1920s––when a similarly stark choice arose, do not augur well. The upper classes, insisting on the sacrosanct nature of their property rights, preferred to crash the system rather than surrender any of their privileges and power. In so doing they were not oblivious of their own interest, for if they position themselves aright they can, like good bankruptcy lawyers, profit from a collapse while the rest of us are caught most horribly in the deluge.

Neoliberal Achievements

Aggregate global growth rates stood at 3.5 per cent or so in the 1960s and even during the troubled 1970s fell only to 2.4 per cent. But the subsequent growth rates of 1.4 per cent and 1.1 per cent for the 1980s and 1990s (and a rate that barely touches 1 per cent since 2000) indicate that neoliberalization has broadly failed to stimulate worldwide growth (see Figure 6.1).

During the 1990s, Russian per capita income declined at the rate of 3.5 per cent annually. A large proportion of the population fell into poverty, and male life expectancy declined by five years as a result. Ukraine’s experience was similar. Only Poland, which flouted IMF advice, showed any marked improvement. In much of Latin America neoliberalization produced either stagnation (in the ‘lost decade’ of the 1980s) or spurts of growth followed by economic collapse (as in Argentina).

 Informal employment has soared worldwide (estimates suggest it rose from 29 per cent of the economically active population in Latin America during the 1980s to 44 per cent during the 1990s) and almost all global indicators on health levels, life expectancy, infant mortality, and the like show losses rather than gains in well-being since the 1960s. The proportion of the world’s population in poverty has, however, fallen but this is almost entirely due to improvements in India and China alone. The reduction and control of inflation is the only systematic success neoliberalization can claim.

Circumscribed neoliberalization in Sweden, for example, has achieved far better results than sustained neoliberalization in the UK. Swedish per capita incomes are higher, inflation lower, the current account position with the rest of the world better, and all indices of competitive position and of business climate superior. Quality of life indices are higher. Sweden ranks third in the world in life expectancy compared to the UK’s ranking of twenty-ninth. The poverty rate is 6.3 per cent in Sweden as opposed to 15.7 per cent in the UK, while the richest 10 per cent of the population in Sweden gain 6.2 times the incomes of the bottom 10 per cent, whereas in the UK the figure is 13.6. Illiteracy is lower in Sweden and social mobility greater.

 

Why, then, are so many persuaded that neoliberalization through globalization is the ‘only alternative’ and that it has been so successful? Two reasons stand out. First, the volatility of uneven geographical development has accelerated, permitting certain territories to advance spectacularly (at least for a time) at the expense of others. If, for example, the 1980s belonged largely to Japan, the Asian ‘tigers’, and West Germany, and if the 1990s belonged to the US and the UK, then the fact that ‘success’ was to be had somewhere obscured the fact that neoliberalization was generally failing to stimulate growth or improve well-being. Secondly, neoliberalization, the process rather than the theory, has been a huge success from the standpoint of the upper classes. It has either restored class power to ruling elites or created conditions for capitalist class formation (as in China, India, Russia, and elsewhere). With the media dominated by upper-class interests, the myth could be propagated that states failed economically because they were not competitive (thereby creating a demand for even more neoliberal reforms). Increased social inequality within a territory was construed as necessary to encourage the entrepreneurial risk and innovation that conferred competitive power and stimulated growth. If conditions among the lower classes deteriorated, this was because they failed, usually for personal and cultural reasons, to enhance their own human capital.

Of course there have been a number of spectacular shifts of emphasis under neoliberalization and these give it the appearance of incredible dynamism. The rise of finance and of financial services has been paralleled by a remarkable shift in the remuneration of financial corporations as well as a tendency for the larger corporations (such as General Motors) to fuse the two functions. Employment in these sectors has burgeoned remarkably. But there are serious questions as to how productive this has been. Speculative gains are perpetually being sought, and to the degree that they can be had all manner of shifts in power can be accomplished. Along with this has gone an extraordinary burst in information technologies. In 1970 or so investment in that field was on a par with the 25 per cent going into production and to physical infrastructures respectively, but, by 2000, IT accounted for around 45 per cent of all investment, while the relative shares of investment in production and physical infrastructures declined. During the 1990s this was thought to betoken the rise of a new information economy. Information technology is the privileged technology of neoliberalism. It is far more useful for speculative activity and for maximizing the number of shortterm market contracts than for improving production.

The main substantive achievement of neoliberalization, however, has been to redistribute, rather than to generate, wealth and income. I have elsewhere provided an account of the main mechanisms whereby this was achieved under the rubric of ‘accumulation by dispossession’. Accumulation by dispossession comprises four main features:

1.       Privatization and commodification:  The corporatization, commodification, and privatization of hitherto public assets has been a signal feature of the neoliberal project. Its primary aim has been to open up new fields for capital accumulation in domains hitherto regarded off-limits to the calculus of profitability. Public utilities of all kinds (water, telecommunications, transportation), social welfare provision (social housing, education, health care, pensions), public institutions (universities, research laboratories, prisons) and even warfare (as illustrated by the ‘army’ of private contractors operating alongside the armed forces in Iraq) have all been privatized to some degree throughout the capitalist world and beyond (for example in China). The intellectual property rights established through the so-called TRIPS agreement within the WTO defines genetic materials, seed plasmas, and all manner of other products as private property. Rents for use can then be extracted from populations whose practices had played a crucial role in the development of these genetic materials. The commodification (through tourism) of cultural forms, histories, and intellectual creativity entails wholesale dispossessions (the music industry is notorious for the appropriation and exploitation of grassroots culture and creativity).  The reversion of common property rights won through years of hard class struggle (the right to a state pension, to welfare, to national health care) into the private domain has been one of the most egregious of all policies of dispossession, often procured against the broad political will of the population. All of these processes amount to the transfer of assets from the public and popular realms to the private and class-privileged domains.

 

2.       Financialization: The strong wave of financialization that set in after 1980 has been marked by its speculative and predatory style. Deregulation allowed the financial system to become one of the main centres of redistributive activity through speculation, predation, fraud, and thievery. Stock promotions, ponzi schemes, structured asset destruction through inflation, asset-stripping through mergers and acquisitions, the promotion of levels of debt incumbency that reduced whole populations, even in the advanced capitalist countries, to debt peonage, to say nothing of corporate fraud, dispossession of assets (the raiding of pension funds and their decimation by stock and corporate collapses) by credit and stock manipulations––all of these became central features of the capitalist financial system. Since brokers get a commission for each transaction, they can maximize their incomes by frequent trading on their accounts (a practice known as ‘churning’) no matter whether the trades add value to the account or not. High turnover on the stock exchange may simply reflect churning rather than confidence in the market. The emphasis on stock values, which arose out of bringing together the interests of owners and managers of capital through the remuneration of the latter in stock options, led, as we now know, to manipulations in the market that brought immense wealth to a few at the expense of the many.

 

3.       The management and manipulation of crises:  Beyond the speculative and often fraudulent froth that characterizes much of neoliberal financial manipulation, there lies a deeper process that entails the springing of ‘the debt trap’ as a primary means of accumulation by dispossession. Crisis creation, management, and manipulation on the world stage has evolved into the fine art of deliberative redistribution of wealth from poor countries to the rich. I documented the impact of Volcker’s interest rate increase on Mexico earlier. While proclaiming its role as a noble leader organizing ‘bail-outs’ to keep global capital accumulation on track, the US paved the way to pillage the Mexican economy. Greenspan at the Federal Reserve deployed the same Volcker tactic several times in the 1990s. Debt crises in individual countries, uncommon during the 1960s, became very frequent during the 1980s and 1990s. Hardly any developing country remained untouched, and in some cases, as in Latin America, such crises became endemic. These debt crises were orchestrated, managed, and controlled both to rationalize the system and to redistribute assets.

 

Wade and Veneroso capture the essence of this when they write of the Asian crisis of 1997–8:

Financial crises have always caused transfers of ownership and power to those who keep their own assets intact and who are in a position to create credit, and the Asian crisis is no exception . . . there is no doubt that Western and Japanese corporations are the big winners . . . The combination of massive devaluations, IMF-pushed financial liberalization, and IMF-facilitated recovery may even precipitate the biggest peacetime transfer of assets from domestic to foreign owners in the past fifty years anywhere in the world, dwarfing the transfers from domestic to US owners in Latin America in the 1980s or in Mexico after 1994.

 

The analogy with the deliberate creation of unemployment to produce a labour surplus convenient for further accumulation is exact. Valuable assets are thrown out of use and lose their value. They lie fallow until capitalists possessed of liquidity choose to breathe new life into them. The danger, however, is that crises might spin out of control and become generalized, or that revolts will arise against the system that creates them. One of the prime functions of state interventions and of international institutions is to control crises and devaluations in ways that permit accumulation by dispossession to occur without sparking a general collapse or popular revolt (as happened in both Indonesia and Argentina). The structural adjustment programme administered by the Wall Street–Treasury–IMF complex takes care of the first while it is the job of the comprador state apparatus (backed by military assistance from the imperial powers) in the country that has been raided to ensure that the second does not occur.

 

4.       State redistributions: The state, once neoliberalized, becomes a prime agent of redistributive policies, reversing the flow from upper to lower classes that had occurred during the era of embedded liberalism. It does this in the first instance through pursuit of privatization schemes and cutbacks in those state expenditures that support the social wage. Even when privatization appears to be beneficial to the lower classes, the long-term effects can be negative.

 

At first blush, for example, Thatcher’s programme for the privatization of social housing in Britain appeared as a gift to the lower classes, whose members could now convert from rental to ownership at a relatively low cost, gain control over a valuable asset, and augment their wealth. But once the transfer was accomplished housing speculation took over, particularly in prime central locations, eventually bribing or forcing low-income populations out to the periphery in cities like London and turning erstwhile working-class housing estates into centres of intense gentrification. The loss of affordable housing in central areas produced homelessness for some and long commutes for those with low-paying service jobs.

In the US, revenue-strapped municipalities are now regularly using the power of eminent domain to displace low- and even moderate-income property owners living in perfectly good housing stock in order to free land for upper-income and commercial developments that will enhance the tax base (in New York State there are more than sixty current cases of this).

 

The neoliberal state also redistributes wealth and income through revisions in the tax code to benefit returns on investment rather than incomes and wages, promotion of regressive elements in the tax code (such as sales taxes), the imposition of user fees (now widespread in rural China), and the provision of a vast array of subsidies and tax breaks to corporations.

 

The Commodification of Everything

To presume that markets and market signals can best determine all allocative decisions is to presume that everything can in principle be treated as a commodity. Commodification presumes the existence of property rights over processes, things, and social relations, that a price can be put on them, and that they can be traded subject to legal contract. The market is presumed to work as an appropriate guide––an ethic––for all human action. In practice, of course, every society sets some bounds on where commodification begins and ends. Where the boundaries lie is a matter of contention.

Neoliberalization has unquestionably rolled back the bounds of commodification and greatly extended the reach of legal contracts. It typically celebrates (as does much of postmodern theory) ephemerality and the short-term contract––marriage, for example, is understood as a short-term contractual arrangement rather than as a sacred and unbreakable bond. The divide between neoliberals and neoconservatives partially reflects a difference as to where the lines are drawn.

Individuals enter the labour market as persons of character, as individuals embedded in networks of social relations and socialized in various ways, as physical beings identifiable by certain characteristics (such as phenotype and gender), as individuals who have accumulated various skills (sometimes referred to as ‘human capital’) and tastes (sometime referred to as ‘cultural capital’), and as living beings endowed with dreams, desires, ambitions, hopes, doubts, and fears. For capitalists, however, such individuals are a mere factor of production, though not an undifferentiated factor since employers require labour of certain qualities, such as physical strength, skills, flexibility, docility, and the like, appropriate to certain tasks. Workers are hired on contract, and in the neoliberal scheme of things short-term contracts are preferred in order to maximize flexibility. Employers have historically used differentiations within the labour pool to divide and rule. Segmented labour markets then arise and distinctions of race, ethnicity, gender, and religion are frequently used, blatantly or covertly, in ways that redound to the employers’ advantage. Conversely, workers may use the social networks in which they are embedded to gain privileged access to certain lines of employment. They typically seek to monopolize skills and, through collective action and the creation of appropriate institutions, seek to regulate the labour market to protect their interests. In this they are merely constructing that ‘protective covering of cultural institutions’ of which Polanyi speaks.

Neoliberalization seeks to strip away the protective coverings that embedded liberalism allowed and occasionally nurtured. The general attack against labour has been two-pronged. The powers of trade unions and other working-class institutions are curbed or dismantled within a particular state (by violence if necessary). Flexible labour markets are established. State withdrawal from social welfare provision and technologically induced shifts in job structures that render large segments of the labour force redundant complete the domination of capital over labour in the marketplace. The individualized and relatively powerless worker then confronts a labour market in which only short-term contracts are offered on a customized basis. Security of tenure becomes a thing of the past (Thatcher abolished it in universities, for example). A ‘personal responsibility system’ (how apt Deng’s language was!) is substituted for social protections (pensions, health care, protections against injury) that were formerly an obligation of employers and the state. Individuals buy products in the markets that sell social protections instead. The second prong of attack entails transformations in the spatial and temporal co-ordinates of the labour market. While too much can be made of the ‘race to the bottom’ to find the cheapest and most docile labour supplies, the geographical mobility of capital permits it to dominate a global labour force whose own geographical mobility is constrained. Captive labour forces abound because immigration is restricted. These barriers can be evaded only by illegal immigration (which creates an easily exploitable labour force) or through short-term contracts that permit, for example, Mexican labourers to work in Californian agribusiness only to be shamelessly shipped back to Mexico when they get sick and even die from the pesticides to which they are exposed.

Under neoliberalization, the figure of ‘the disposable worker’ emerges as prototypical upon the world stage. Accounts of the appalling conditions of labour and the despotic conditions under which labourers work in the sweatshops of the world abound. The social consequences of neoliberalization are in fact extreme. Accumulation by dispossession typically undermines whatever powers women may have had within household production/ marketing systems and within traditional social structures and relocates everything in male-dominated commodity and credit markets. The paths of women’s liberation from traditional patriarchal controls in developing countries lie either through degrading factory labour or through trading on sexuality, which varies from respectable work as hostesses and waitresses to the sex trade (one of the most lucrative of all contemporary industries in which a good deal of slavery is involved). Neoliberalization has transformed the positionality of labour, of women, and of indigenous groups in the social order by emphasizing that labour is a commodity like any other.

 Stripped of the protective cover of lively democratic institutions and threatened with all manner of social dislocations, a disposable workforce inevitably turns to other institutional forms through which to construct social solidarities and express a collective will. Everything from gangs and criminal cartels, narco-trafficking networks, minimafias and favela bosses, through community, grassroots and nongovernmental organizations, to secular cults and religious sects proliferate. The rapid progress of evangelical proselytizing in the chaotic informal economies that have burgeoned under neoliberalization in Latin America, and the revived and in some instances newly constructed religious tribalism and fundamentalism that structure politics in much of Africa and the Middle East, testify to the need to construct meaningful mechanisms of social solidarity. The progress of fundamentalist evangelical Christianity in the US has some connection with proliferating job insecurities, the loss of other forms of social solidarity, and the hollowness of capitalist consumer culture.

 

Environmental Degradations

While Reagan cared nothing for the environment, at one point characterizing trees as a major source of air pollution, Thatcher took the problem seriously. She played a major role in negotiating the Montreal Protocol to limit the use of the CFCs that were responsible for the growing ozone hole around Antarctica. She took the threat of global warming from rising carbon dioxide emissions seriously.

The accelerating destruction of tropical rain forests since 1970 is a well-known example that has serious implications for climate change and the loss of biodiversity. The era of neoliberalization also happens to be the era of the fastest mass extinction of species in the Earth’s recent history.

The Bush administration’s approach to environmental issues is usually to question the scientific evidence and do nothing (except cut back on the resources for relevant scientific research). But his own research team reports that the human contribution to global warming soared after 1970. The Pentagon also argues that global warming might well in the long run be a more serious threat to the security of the US than terrorism. Interestingly, the two main culprits in the growth of carbon dioxide emissions these last few years have been the powerhouses of the global economy, the US and China (which increased its emissions by 45 per cent over the past decade).

Increasing US dependency on imported oil has obvious geopolitical ramifications. In the case of China, the rapidity of industrialization and of the growth of car ownership doubles the pressure on energy consumption. China has moved from selfsufficiency in oil production in the late 1980s to being the second largest global importer after the US. Here, too, the geopolitical implications are rife as China scrambles to gain a foothold in the Sudan, central Asia, and the Middle East to secure its oil supplies. The astonishing increase in car ownership and use, largely replacing the bicycle in large cities like Beijing in ten years, has brought China the negative distinction of having sixteen of the twenty worst cities in the world with respect to air quality.

The preference for short-term contractual relations puts pressure on all producers to extract everything they can while the contract lasts. Even though contracts and options may be renewed there is always uncertainty because other sources may be found.

Neoliberal insistence upon privatization makes it hard to establish any global agreements on principles of forest management to protect valuable habitats and biodiversity, particularly in the tropical rain forests. In poorer countries with substantial forest resources, the pressure to increase exports and to allow foreign ownerships and concessions means that even minimal protections of forests break down. The over-exploitation of forestry resources after privatization in Chile is a good case in point. But structural adjustment programmes administered by the IMF have had even worse impacts. Imposed austerity means that poorer countries have less money to put into forest management. They are also pressurized to privatize the forests and to open up their exploitation to foreign lumber companies on short-term contracts. Under pressure to earn foreign exchange to pay off their debts, the temptation exists to concede a maximal rate of short-term exploitation. It is only when states and other interests are prepared to buck the neoliberal rules and the class interests that support them––and this has occurred on a significant number of occasions––that any modicum of balanced use of the environment is achieved.

On Rights

Neoliberalization has spawned within itself an extensive oppositional culture. The opposition tends, however, to accept many of the basic propositions of neoliberalism. It focuses on internal contradictions. It takes questions of individual rights and freedoms seriously, for example, and opposes them to the authoritarianism and frequent arbitrariness of political, economic, and class power. It takes the neoliberal rhetoric of improving the welfare of all and condemns neoliberalization for failing in its own terms.

The rise of opposition cast in terms of rights violations has been spectacular since 1980. Human rights issues came to prominence after 1980 and positively boomed after the events in Tiananmen Square and the end of the Cold War in 1989. Undoubtedly, the neoliberal insistence upon the individual as the foundational element in politicaleconomic life opens the door to individual rights activism. But by focusing on those rights rather than on the creation or recreation of substantive and open democratic governance structures, the opposition cultivates methods that cannot escape the neoliberal frame. Neoliberal concern for the individual trumps any social democratic concern for equality, democracy, and social solidarities. The frequent appeal to legal action, furthermore, accepts the neoliberal preference for appeal to judicial and executive rather than parliamentary powers. But it is costly and time-consuming to go down legal paths, and the courts are in any case heavily biased towards ruling class interests, given the typical class allegiance of the judiciary.

Since most needy individuals lack the financial resources to pursue their own rights, the only way in which this ideal can be articulated is through the formation of advocacy groups. The rise of advocacy groups and NGOs has, like rights discourses more generally, accompanied the neoliberal turn and increased spectacularly since 1980 or so. The NGOs have in many instances stepped into the vacuum in social provision left by the withdrawal of the state from such activities. In some instances this has helped accelerate further state withdrawal from social provision. NGOs thereby function as ‘Trojan horses for global neoliberalism’. Furthermore, NGOs are not inherently democratic institutions. They tend to be elitist, unaccountable (except to their donors), and by definition distant from those they seek to protect or help, no matter how wellmeaning or progressive they may be. They frequently conceal their agendas, and prefer direct negotiation with or influence over state and class power. They often control their clientele rather than represent it. They claim and presume to speak on behalf of those who cannot speak for themselves, even define the interests of those they speak for (as if people are unable to do this for themselves). But the legitimacy of their status is always open to doubt.

But there is another reason why this particular oppositional culture has gained so much traction in recent years. Accumulation by dispossession entails a very different set of practices from accumulation through the expansion of wage labour in industry and agriculture. The latter, which dominated processes of capital accumulation in the 1950s and 1960s, gave rise to an oppositional culture (such as that embedded in trade unions and working-class political parties) that produced embedded liberalism. Dispossession, on the other hand, is fragmented and particular––a privatization here, an environmental degradation there, a financial crisis of indebtedness somewhere else. It is hard to oppose all of this specificity and particularity without appeal to universal principles. Dispossession entails the loss of rights. Hence the turn to a universalistic rhetoric of human rights, dignity, sustainable ecological practices, environmental rights, and the like, as the basis for a unified oppositional politics.

This appeal to the universalism of rights is a double-edged sword. It may and can be used with progressive aims in mind. The tradition that is most spectacularly represented by Amnesty International, Médecins sans Frontières, and others cannot be dismissed as a mere adjunct of neoliberal thinking. Universalism seems to work particularly well with global issues such as climate change, the ozone hole, loss of biodiversity through habitat destruction, and the like. But its results in the human rights field are more problematic, given the diversity of political-economic circumstances and cultural practices to be found in the world. Furthermore, it has been all too easy to co-opt human rights issues as ‘swords of empire’ (to use Bartholomew and Breakspear’s trenchant characterization). So called ‘liberal hawks’ in the US, for example, have appealed to them to justify imperialist interventions in Kosovo, East Timor, Haiti, and, above all, in Afghanistan and Iraq. They justify military humanism ‘in the name of protecting freedom, human rights and democracy even when it is pursued unilaterally by a self-appointed imperialist power’ such as the US.

 

 

I think it unfortunate to abandon the field of rights to neoliberal hegemony. There is a battle to be fought, not only over which universals and what rights should be invoked in particular situations but also over how universal principles and conceptions of rights should be constructed.

I cannot convince anyone by philosophical argument that the neoliberal regime of rights is unjust. But the objection to this regime of rights is quite simple: to accept it is to accept that we have no alternative except to live under a regime of endless capital accumulation and economic growth no matter what the social, ecological, or political consequences. Reciprocally, endless capital accumulation implies that the neoliberal regime of rights must be geographically expanded across the globe by violence (as in Chile and Iraq), by imperialist practices (such as those of the World Trade Organization, the IMF, and the World Bank) or through primitive accumulation (as in China and Russia) if necessary. By hook or by crook, the inalienable rights of private property and the profit rate will be universally established. This is precisely what Bush means when he says the US dedicates itself to extend the sphere of freedom across the globe.

 

Chapter 7 Freedom’s Prospect

·         In his annual message to Congress in 1935, President Roosevelt made clear his view that excessive market freedoms lay at the root of the economic and social problems of the 1930s Depression. Freedom from want was one of the cardinal four freedoms he later articulated as grounding his political vision for the future. These broad themes contrast with the far narrower neoliberal freedoms that President Bush places at the centre of his political rhetoric. The only way to confront our problems, Bush argues, is for the state to cease to regulate private enterprise, for the state to withdraw from social provision, and for the state to foster the universalization of market freedoms and of market ethics. This neoliberal debasement of the concept of freedom ‘into a mere advocacy of free enterprise’ can only mean, as Karl Polanyi points out, ‘the fullness of freedom for those whose income, leisure and security need no enhancing, and a mere pittance of liberty for the people, who may in vain attempt to make use of their democratic rights to gain shelter from the power of the owners of property’.

 

·         Karl Marx, for example, also held the outrageously radical view that an empty stomach was not conducive to freedom. ‘The realm of freedom’, he wrote, ‘actually begins only where labour which is determined by necessity and of mundane considerations ceases’, adding, for good measure, that it therefore ‘lies beyond the sphere of actual material production’. He well understood that we could never free ourselves from our metabolic relations with nature or our social relations with each other, but we could at least aspire to build a social order in which the free exploration of our individual and species potential became a real possibility. By Marx’s standard of freedom, and almost certainly by that laid out by Adam Smith in his Theory of Moral Sentiments, neoliberalization would surely be regarded as a monumental failure. For those left or cast outside the market system––a vast reservoir of apparently disposable people bereft of social protections and supportive social structures––there is little to be expected from neoliberalization except poverty, hunger, disease, and despair.

 

·         It is in this context that we can better understand the emergence of diverse oppositional cultures that from both within and without the market system either explicitly or tacitly reject the market ethic and the practices that neoliberalization imposes. Within the US, for example, there is a sprawling environmental movement hard at work promoting alternative visions of how to better connect political and ecological projects. There is also a burgeoning anarchist movement among the young, one wing of which––‘the primitivists’––believes that the only hope for humanity is to return to that stage of hunter-gathering that preceded the rise of civilization and, in effect, start human history all over again. Others, influenced by movements like CrimeThink and authors such as Derrick Jensen, seek to purge themselves of all traces of incorporation into the capitalist market logic. Others seek a world of mutual support through, for example, the formation of local economic trading systems (LETS) with their own ‘local moneys’ even in the very heart of a neoliberalizing capitalism. And many sectors of organized religion, the evangelical Christians, Wahabi Islam, and some variants of Buddhism and Confucianism, preach an intensely anti-market and specifically anti-neoliberal stance. Then there are all those social movements struggling against specific aspects of neoliberal practices, particularly accumulation by dispossession, that either resist predatory neoliberalism (such as the Zapatista revolutionary movement in Mexico) or seek access to resources hitherto denied them (such as the landless peasant movement in Brazil or those leading the factory occupations in Argentina). Centre-left coalitions, openly critical of neoliberalization, have taken over political power, and seem poised to deepen and extend their influence all over Latin America.

 

·         There are even signs of discontent within ruling policy circles as to the wisdom of neoliberal propositions and prescriptions. Some earlier enthusiasts (such as the economists Jeffrey Sachs, Joe Stiglitz, and Paul Krugman) and participants (such as George Soros) have now turned critical, even to the point of suggesting some sort of return to a modified Keynesianism or a more ‘institutional’ approach to the solution of global problems––everything from better regulatory structures of global governance to closer supervision of the reckless speculations of the financiers. In recent years there have been not only insistent calls but also major blueprints for the reform of global governance.

 

·         Objectives of this sort cannot be realized without challenging the fundamental power bases upon which neoliberalism has been built and to which the processes of neoliberalization have so lavishly contributed. This means not only reversing the withdrawal of the state from social provision but also confronting the overwhelming powers of finance capital. Keynes held the ‘coupon clippers’, who parasitically lived off dividends and interest, in contempt and looked forward to what he called ‘the euthanasia of the rentier’ as a necessary condition for not only achieving some modicum of economic justice but also avoiding the devastation of those periodic crises to which capitalism was prone. The virtue of the Keynesian compromise and the embedded liberalism constructed after 1945 was that it went some way to realizing those goals. The advent of neoliberalization, by contrast, has celebrated the role of the rentier, cut taxes on the rich, privileged dividends and speculative gains over wages and salaries, and unleashed untold though geographically contained financial crises, with devastating effects on employment and life chances in country after country. The only way to realize the pious goals is to confront the powers of finance and to roll back the class privileges that have been built thereon. But there is no sign anywhere among the powers that be of doing anything of the sort.

 

·         With respect to the return to Keynesianism, however, the Bush administration, as I earlier pointed out, has beaten everyone to the gun, being prepared to countenance spiralling federal deficits stretching on endlessly into the future. Contrary to traditional Keynesian prescriptions, however, the redistributions in this case are upwards towards the large corporations, their wealthy CEOs, and their financial/legal advisers at the expense of the poor, the middle classes, and even ordinary shareholders (including the pension funds), to say nothing of future generations.

The End of Neoliberalism?

·        The internal economic and political contradictions of neoliberalization are impossible to contain except through financial crises. So far these have proven locally damaging but globally manageable. The manageability depends, of course, upon departing substantially from neoliberal theory. The mere fact that the two main powerhouses of the global economy––the US and China––are deficit financing up to the hilt is, surely, a compelling sign that neoliberalism is in trouble if not actually dead as a viable theoretical guide to ensuring the future of capital accumulation. This will not prevent it from continuing to be deployed as a rhetoric to sustain the restoration/creation of elite class power. But when income and wealth inequalities reach a point––as they have today––close to that which preceded the crash of 1929, then the economic imbalances become so chronic as to be in danger of generating a structural crisis. Unfortunately, regimes of accumulation rarely if ever dissolve peacefully. Embedded liberalism arose out of the ashes of the Second World War and the Great Depression. The authoritarian option of neoconservatism is now emerging in the US.

 

·        The financial crises that have so frequently preceded the predatory raiding of whole state economies by superior financial powers have usually been characterized by chronic economic imbalances. The typical signs are soaring and uncontrollable internal budgetary deficits, a balance of payments crisis, rapid currency depreciation, unstable valuations of internal assets (for example in property and financial markets), rising inflation, rising unemployment with falling wages, and capital flight. Of these seven main indicators the US now has the distinction of scoring high on the first three and there are serious concerns with respect to the fourth. The current ‘jobless recovery’ and stagnant wages suggest incipient problems with the sixth. Such a mix of indicators elsewhere would almost certainly have necessitated IMF intervention (and IMF economists are on record, as are both former and current Federal Reserve chairs Volcker and Greenspan, complaining that the economic imbalances within the US are threatening global stability). But since the US dominates the IMF this means nothing more than that the US should discipline itself, and that appears unlikely. The big questions are: will global markets do the disciplining (as according to neoliberal theory they should), and if so how and with what effects?

 

·        It is unthinkable but not impossible that the US will become like Argentina in 2001 overnight. The consequences would, however, be catastrophic not only internally but also for global capitalism. Since almost everyone who constitutes the capitalist class and its global managers everywhere is well aware of this fact, the rest of the world is currently willing (in some cases reluctantly) to continue to support the US economy with sufficient credits to sustain its profligate ways.

Private capital flows into the US have, however, seriously diminished (except to buy up relatively cheap assets given the fall in the value of the dollar) and so it is the world’s central bankers––particularly in Japan and China––that now increasingly own America Inc. For them to withdraw support from the US would be devastating for their own economies since the US is still a major market for their exports. But there is a limit to which this system can progress.

 

Already nearly one-third of stock assets on Wall Street and nearly half of US Treasury bonds are owned by foreigners, and the dividends and interest flowing out to foreign owners are now roughly equivalent to, if not more than, the tribute that US corporations and financial operations are extracting from abroad (Figure 7.1).

This balance of benefits will turn more strongly negative the more the US borrows, and it is now borrowing from abroad at a rate approaching $2 billion per day. Furthermore, if US interest rates rise (as at some point they must) then what happened to Mexico after the Volcker interest rate increase in 1979 starts to loom as a real problem. The US will soon be paying out far more to service its debt to the rest of the world than it brings in. This extraction of wealth from the US will not be welcome domestically. The perpetual increases in debt-financed consumerism that have been the foundation of social peace in the US since 1945 would have to stop.

 

It may be that the US economy can finesse the current imbalances (much as it did after 1945) and grow its own way out of its self-inflicted problems. There are some weak signs that point in that direction. This could also be the fate of America Inc., and the fantasy-like statements from the current leadership ought to trouble everyone who has the interests of the country at heart. It could also be that the US ruling elite calculates it can survive a global fiscal crisis in good shape and use it to complete its agenda of total domestic domination. But such a calculation could turn out to be a monumental error. The result may be to hasten the transfer of hegemony to some other regional economy (most probably based in Asia) while undercutting the ruling elite’s capacity to dominate both internally and externally.

 

·         The most immediate question concerns what sort of crisis might serve the US best in resolving its own situation, for that choice is indeed within the realm of policy options. In presenting these options it is important to recall that the US has not been immune to financial difficulties over the last twenty years. The stock market crash of 1987 deleted nearly 30 per cent of asset values, and at the trough of the crash that followed the bursting of the new economy bubble in the late 1990s more that $8 trillion in paper assets was lost, before the recovery to former levels. The bank and savings and loan failures of 1987 cost nearly $200 billion to remedy, and in that year matters became so bad that William Isaacs, chairman of the Federal Deposit Insurance Corporation, warned that ‘the US may be headed towards the nationalization of banking’.  And the huge bankruptcies of Long Term Capital Management, Orange County, and others who speculated and lost, followed by the collapse of several major companies in 2001–2 in the midst of astonishing accounting lapses, not only cost the public dear but also demonstrated how fragile and fictitious much of neoliberal financialization has become. The fragility is by no means confined to the US, of course. Most countries, including China, face financial volatility and uncertainty. The debt of the developing world, for example, rose ‘from $580 billion in 1980 to $2.4 trillion in 2002 and much of it is unrepayable. In 2002 there was a net outflow of $340 billion in servicing this debt, compared to overseas development aid of $37 billion.’15 In some cases the debt service exceeds foreign earnings and, understandably, some countries, such as Argentina, are exhibiting considerable recalcitrance in the face of their creditors.

 

·         Consider, then, the two worst-case scenarios from the standpoint of the US. A short burst of hyper-inflation would provide one way to delete the outstanding international and consumer debt. The US would in effect pay off its debts to Japan, China, and the others in grossly depreciated dollars. Such inflationary confiscation would not be well received in the rest of the world (though it could do little about it since sending gunboats up the Potomac is not a feasible option). Hyper-inflation would also destroy savings, pensions, and much else internally within the US. It would entail reversing the monetarist course that Volcker and Greenspan have generally followed. At the least hint of such a switch away from monetarism (in effect declaring neoliberalism dead), however, central bankers everywhere would almost certainly create a run on the dollar and thus prematurely precipitate a crisis of capital flight that would be unmanageable by US financial institutions alone. The US dollar would lose all credibility as a global reserve currency and lose all the future benefits (for example of seignorage––the power to print money) of being the dominant financial power. A more modest return to inflation may also be on the cards, for there is abundant evidence that inflation is by no means the inherent evil that monetarists describe, and that some modest relaxation of monetary targets (as Thatcher showed in the more pragmatic phases of her drive towards neoliberalization) is workable.

 

The other option is for the US to accept a long-drawn-out period of deflation of the sort that Japan has been experiencing since 1989. This would create serious global problems unless other economies––with China, perhaps coupled with India, obviously in the vanguard––can pick up the slack of lagging dynamism. But, as we have seen, the China option is deeply problematic for both economic and political reasons. Long-drawn-out deflation will be extremely hard for the US to absorb internally. If the debt problems of the federal government and of financial institutions are to be resolved without threatening the wealth of elite classes, then ‘confiscatory deflation’ (deeply inconsistent with neoliberalism) of the sort Argentina experienced (hints of which could be found in the US savings and loan crisis of the late 1980s when many depositors could not get access to their moneys) will be the only option. The substantial public programmes that still exist (Social Security and Medicare), pension rights, and asset values (property and savings in particular) will likely be the first victims, and under such conditions popular consent will almost certainly begin to fray at the seams. The big question would then be how extensive and expressive the discontent is, and how it might be handled.

 

The consolidation of neoconservative authoritarianism then emerges as one potential answer. Neoconservatism, I argued in Chapter 3, sustains the neoliberal drive towards the construction of asymmetric market freedoms but makes the anti-democratic tendencies of neoliberalism explicit through a turn into authoritarian, hierarchical, and even militaristic means of maintaining law and order. But the neoconservatives also assert a higher moral purpose, at the core of which lies an appeal to a nationalism that has long had, as we saw in Chapter 3, a fraught relationship with neoliberalization. US nationalism also has a darker side in which paranoia about fearful threats from enemies and evil forces from outside take over. The fear is of foreigners and of immigrants, of outside agitators, and now, of course, of ‘terrorists’. This leads to the internal circling of wagons and the closing down of civil liberties and freedoms in episodes like the persecution of anarchists in the 1920s, the McCarthyism of the 1950s directed against communists and their sympathizers, the paranoid style of Richard Nixon towards opponents of the Vietnam War and, since 9/11, the tendency to characterize all critics of administration policies as aiding and abetting the enemy. This kind of nationalism easily fuses with racism (most particularly now towards Arabs), the restriction of civil liberties (the Patriot Act), the curbing of press freedoms (the gaoling of journalists for not revealing their sources), and the embrace of incarceration and the death penalty to deal with malfeasance. A substantial proportion of the US populace, after all, views the US Bill of Rights as a communist-inspired document, while others, a minority to be sure, welcomes anything that smacks of Armageddon. The anti-terrorism laws, the abandonment of the Geneva Conventions in Guantánamo Bay, and the readiness to depict any oppositional force as ‘terrorist’ are warning signs.

 

Alternatives

·         Neoliberalization has spawned a swath of oppositional movements both within and outside its compass. Many of these movements are radically different from the worker-based movements that dominated before 1980. In South Korea and South Africa vigorous labour movements arose during the 1980s and in much of Latin America working-class parties are flourishing if not in power. In Indonesia a fledgling labour movement of great potential importance is struggling to be heard. And it is not clear either that the mass of the working people in the US, who have over this last generation often willingly voted against their own material interests for reasons of cultural nationalism, religion, and moral values, will for ever stay locked into such a politics by the machinations of Republicans and Democrats alike.

 

·         But struggles against accumulation by dispossession are fomenting quite different lines of social and political struggle. The Zapatista rebellion in Chiapas, Mexico, for example, did not seek to take over state power or accomplish a political revolution; it sought instead a more inclusionary politics. The idea is to work through the whole of civil society in a more open and fluid search for alternatives that would look to the specific needs of the different social groups and allow them to improve their lot. Organizationally, it tended to avoid avant-gardism and refused to take on the form of a political party. It preferred instead to remain a social movement within the state, attempting to form a political power bloc in which indigenous cultures would be central rather than peripheral. Many environmental movements––such as those for environmental justice––proceed in the same way. They draw strength from being embedded in the nitty-gritty of daily life and struggle, but in so doing they often find it hard to extract themselves from the local and the particular to understand the macro-politics of what neoliberal accumulation by dispossession and its relation to the restoration of class power was and is all about. Elsewhere they have degenerated into inter-ethnic violence and civil war as accumulation by dispossession produced intense social and political rivalries.

 

·         The movements themselves have produced a plethora of ideas regarding alternatives. Some seek to de-link wholly or partially from the overwhelming powers of neoliberal globalization. Others (such as the ‘Fifty Years Is Enough’ movement) seek global social and environmental justice by reform or dissolution of powerful institutions such as the IMF, the WTO, and the World Bank (though, interestingly, the core power of the US Treasury is rarely mentioned).

 

Still others (particularly environmentalists such as Greenpeace) emphasize the theme of ‘reclaiming the commons’, thereby signalling deep continuities with struggles of long ago as well as with struggles waged throughout the bitter history of colonialism and imperialism.

 Some (such as Hardt and Negri) envisage a multitude in motion, or a movement within global civil society, to confront the dispersed and decentred powers of the neoliberal order (construed as ‘Empire’), while others more modestly look to local experiments with new production and consumption systems (such as the LETS) animated by completely different kinds of social relations and ecological practices. There are also those who put their faith in more conventional political party structures (for example the Workers Party in Brazil or the Congress Party in India in alliance with communists) with the aim of gaining state power as one step towards global reform of the economic order.

 

·         progressives of all stripes seem to have caved in to neoliberal thinking since it is one of the primary fictions of neoliberalism that class is a fictional category that exists only in the imagination of socialists and crypto-communists. In the US in particular, the phrase ‘class warfare’ is now confined to the right-wing media (for example the Wall Street Journal) to denigrate all forms of criticism that threaten to undermine a supposedly unified and coherent national purpose (i.e. the restoration of upper-class power!).

 

·         Analysis also shows how and why popular movements are currently bifurcated. On the one hand there are movements around what I call ‘expanded reproduction’ in which the exploitation of wage labour and conditions defining the social wage are the central issues. On the other hand there are movements against accumulation by dispossession. These include resistance to classic forms of primitive accumulation (such as displacement of peasant populations from the land); to the brutal withdrawal of the state from all social obligations (except surveillance and policing); to practices destructive of cultures, histories, and environments; and to the ‘confiscatory’ deflations and inflations wrought by the contemporary forms of finance capital in alliance with the state. Finding the organic link between these different movements is an urgent theoretical and practical task.

 

But our analysis has also shown that this can only be done by tracking the dynamics of a capital accumulation process that is marked by volatile as well as deepening uneven geographical developments. This unevenness, as we saw in Chapter 4, actively promotes the spread of neoliberalization through inter-state competition. Part of the task of a rejuvenated class politics is to turn this uneven geographical development into an asset rather than a liability. The divide-and rule politics of ruling-class elites must be confronted with alliance politics on the left sympathetic to the recuperation of local powers of self-determination.

 

·         The more neoliberalism is recognized as a failed utopian rhetoric masking a successful project for the restoration of ruling-class power, the more the basis is laid for a resurgence of mass movements voicing egalitarian political demands and seeking economic justice, fair trade, and greater economic security.

·         There is a far, far nobler prospect of freedom to be won than that which neoliberalism preaches. There is a far, far worthier system of governance to be constructed than that which neoconservatism allows.

 

 

·         Prepared ( Notes taken from book ) By :  M.S. Bhusal

·         e-mail : antarmukhibhusal@gmail.com

·         Blog : https://www.msbhusal.blogspot.com

 

THANK YOU !