ust need to make TWO substantive posts on Canvas discussion forums. It doesn’t matter if it is an original post or a response to someone else’s post. If it is a question, make sure to elaborate more on the thinking behind your question, and/or your own thoughts about the possible answers or responses

A Brief History of Neoliberalism

 

David Harvey

 

 

 

 

 

 

 

 

 

 

 

 

1

 

3

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Contents

 

 

 

 

List of Figures and Tables	vi
Acknowledgements	vii
Introduction	1
1. Freedom’s Just Another Word . . .	5
2. The Construction of Consent	39
3. The Neoliberal State	64
4. Uneven Geographical Developments	87
5. Neoliberalism ‘with Chinese Characteristics’	120
6. Neoliberalism on Trial	152
7. Freedom’s Prospect	183
Notes	207
Bibliography	223
Index	235

 

 

 

 

Introduction

 

 

Future historians may well look upon the years 1978–80 as a revo- lutionary 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. The path that Deng defined was to transform China in two decades from a closed backwater to an open centre of capitalist dynamism with sustained growth rates unparalleled in human history. 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 con- sequences (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 stagna- tion 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.

Transformations of this scope and depth do not occur by acci-

dent. So it is pertinent to enquire by what means and paths the

 

Introduction

new economic configuration –– often subsumed under the term ‘globalization’ –– was plucked from the entrails of the old. Volcker, Reagan, Thatcher, and Deng Xaioping all took minority argu- ments that had long been in circulation and made them majoritar- ian (though in no case without a protracted struggle). Reagan brought to life the minority tradition that stretched back within the Republican Party to Barry Goldwater in the early 1960s. Deng saw the rising tide of wealth and influence in Japan, Taiwan, Hong Kong, Singapore, and South Korea and sought to mobilize market socialism instead of central planning to protect and advance the interests of the Chinese state. Volcker and Thatcher both plucked from the shadows of relative obscurity a particular doctrine that went under the name of ‘neoliberalism’ and transformed it into the central guiding principle of economic thought and management. And it is with this doctrine –– its origins, rise, and implications –– that I am here primarily concerned.1

Neoliberalism is in the first instance a theory of political eco-

nomic 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. The state has to guarantee, for example, the quality and integrity of money. It must also set up those military, defence, police, and legal structures and functions required to secure private property rights and to guarantee, by force if need be, the proper functioning of markets. Furthermore, if markets do not exist (in areas such as land, water, education, health care, social security, or environmental pollution) then they must be created, by state action if necessary. But beyond these tasks the state should not venture. 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.

There has everywhere been an emphatic turn towards neoliber-

alism in political-economic practices and thinking since the 1970s.

 

Introduction

Deregulation, privatization, and withdrawal of the state from many areas of social provision have been all too common. Almost all states, from those newly minted after the collapse of the Soviet Union to old-style social democracies and welfare states such as New Zealand and Sweden, have embraced, sometimes voluntarily and in other instances in response to coercive pressures, some version of neoliberal theory and adjusted at least some policies and practices accordingly. Post-apartheid South Africa quickly embraced neoliberalism, and even contemporary China, as we shall see, appears to be headed in this direction. Furthermore, the advo- cates of the neoliberal way now occupy positions of considerable influence in education (the universities and many ‘think tanks’), in the media, in corporate boardrooms and financial institutions, in key state institutions (treasury departments, the central banks), and also in those international institutions such as the Inter- national Monetary Fund (IMF), the World Bank, and the World Trade Organization (WTO) that regulate global finance and trade. Neoliberalism has, in short, become hegemonic as a mode of dis- course. It has pervasive effects on ways of thought to the point where it has become incorporated into the common-sense way many of us interpret, live in, and understand the world.

The process of neoliberalization has, however, entailed much

‘creative destruction’, not only of prior institutional frameworks and powers (even challenging traditional forms of state sover- eignty) but also of divisions of labour, social relations, welfare provisions, technological mixes, ways of life and thought, repro- ductive activities, attachments to the land and habits of the heart. In so far as neoliberalism values market exchange as ‘an ethic in itself, capable of acting as a guide to all human action, and substi- tuting for all previously held ethical beliefs’, it emphasizes the significance of contractual relations in the marketplace.2 It holds that the social good will be maximized by maximizing the reach and frequency of market transactions, and it seeks to bring all human action into the domain of the market. This requires tech- nologies of information creation and capacities to accumulate, store, transfer, analyse, and use massive databases to guide decisions in the global marketplace. Hence neoliberalism’s intense interest in and pursuit of information technologies (leading some

 

Introduction

to proclaim the emergence of a new kind of ‘information society’). These technologies have compressed the rising density of market transactions in both space and time. They have produced a particu- larly intensive burst of what I have elsewhere called ‘time-space compression’. The greater the geographical range (hence the emphasis on ‘globalization’) and the shorter the term of market contracts the better. This latter preference parallels Lyotard’s famous description of the postmodern condition as one where ‘the temporary contract’ supplants ‘permanent institutions in the pro- fessional, emotional, sexual, cultural, family and international domains, as well as in political affairs’. The cultural consequences of the dominance of such a market ethic are legion, as I earlier showed in The Condition of Postmodernity.3

While many general accounts of global transformations and

their effects are now available, what is generally missing –– and this is the gap this book aims to fill –– is the political-economic story of where neoliberalization came from and how it proliferated so com- prehensively on the world stage. Critical engagement with that story suggests, furthermore, a framework for identifying and con- structing alternative political and economic arrangements.

 

I have benefited in recent times from conversations with Gerard Duménil, Sam Gindin, and Leo Panitch. I have more long- standing debts to Masao Miyoshi, Giovanni Arrighi, Patrick Bond, Cindi Katz, Neil Smith, Bertell Ollman, Maria Kaika, and Erik Swyngedouw. A conference on neoliberalism sponsored by the Rosa Luxemburg Foundation in Berlin in November 2001 first sparked my interest in this topic. I thank the Provost at the CUNY Graduate Center, Bill Kelly, and my colleagues and students pri- marily but not exclusively in the Anthropology Program for their interest and support. I absolve everyone, of course, from any responsibility for the results.

1
Freedom’s Just Another Word . . .
For any way of thought to become dominant, a conceptual apparatus
has to be advanced that appeals to our intuitions and instincts,
to our values and our desires, as well as to the possibilities inherent
in the social world we inhabit. If successful, this conceptual apparatus
becomes so embedded in common sense as to be taken for
granted and not open to question. The founding figures of neoliberal
thought took political ideals of human dignity and individual
freedom as fundamental, as ‘the central values of civilization’. In so
doing they chose wisely, for these are indeed compelling and
seductive ideals. These values, they held, were threatened not only
by fascism, dictatorships, and communism, but by all forms of
state intervention that substituted collective judgements for those
of individuals free to choose.
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
5
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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’.1
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’.2 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’.3 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.
These orders were, some argued, in violation of the Geneva and
Hague Conventions, since an occupying power is mandated to
guard the assets of an occupied country and not sell them off.4
Some Iraqis resisted the imposition of what the London Economist
6
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called a ‘capitalist dream’ regime upon Iraq. A member of the USappointed
Coalition Provisional Authority forcefully criticized the
imposition of ‘free market fundamentalism’, calling it ‘a flawed
logic that ignores history’.5 Though Bremer’s rules may have been
illegal when imposed by an occupying power, they would become
legal if confirmed by a ‘sovereign’ government. The interim government,
appointed by the US, that took over at the end of June
2004 was declared ‘sovereign’. But it only had the power to confirm
existing laws. Before the handover, Bremer multiplied the
number of laws to specify free-market and free-trade rules in minute
detail (on detailed matters such as copyright laws and intellectual
property rights), expressing the hope that these institutional
arrangements would ‘take on a life and momentum of their own’
such that they would prove very difficult to reverse.6
According to neoliberal theory, the sorts of measures that
Bremer outlined were both necessary and sufficient for the creation
of wealth and therefore for the improved well-being of the
population at large. The assumption that individual freedoms are
guaranteed by freedom of the market and of trade is a cardinal
feature of neoliberal thinking, and it has long dominated the US
stance towards the rest of the world.7 What the US evidently
sought to impose by main force on Iraq was a state apparatus
whose fundamental mission was to facilitate conditions for profitable
capital accumulation on the part of both domestic and foreign
capital. I call this kind of state apparatus a neoliberal state. 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
7
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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).
This proved crucial to the budgetary viability of the state since
copper revenues flowed exclusively into its coffers. The immediate
8
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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. The result was a much more pragmatic and less ideologically
driven application of neoliberal policies in the years that followed.
All of this, including the pragmatism, provided helpful evidence to
support the subsequent turn to neoliberalism in both Britain
(under Thatcher) and the US (under Reagan) in the 1980s. Not for
the first time, a brutal experiment carried out in the periphery
became a model for the formulation of policies in the centre (much
as experimentation with the flat tax in Iraq has been proposed
under Bremer’s decrees).8
The fact that two such obviously similar restructurings of the
state apparatus occurred at such different times in quite different
parts of the world under the coercive influence of the United
States suggests that the grim reach of US imperial power might lie
behind the rapid proliferation of neoliberal state forms throughout
the world from the mid-1970s onwards. While this has undoubtedly
occurred over the last thirty years, it by no means constitutes
the whole story, as the domestic component of the neoliberal turn
in Chile shows. It was not the US, furthermore, that forced Margaret
Thatcher to take the pioneering neoliberal path she took in
1979. Nor was it the US that forced China in 1978 to set out on a
path of liberalization. The partial moves towards neoliberalization
in India in the 1980s and Sweden in the early 1990s cannot easily
be attributed to the imperial reach of US power. The uneven
geographical development of neoliberalism on the world stage
has evidently been a very complex process entailing multiple
determinations and not a little chaos and confusion. Why, then,
did the neoliberal turn occur, and what were the forces that made it
so hegemonic within global capitalism?
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
9
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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.9 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
10
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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.10 Stateled
planning and in some instances state ownership of key sectors
(coal, steel, automobiles) were not uncommon (for example in
Britain, France, and Italy). The neoliberal project is to disembed
capital from these constraints.
Embedded liberalism delivered high rates of economic growth
in the advanced capitalist countries during the 1950s and 1960s.11
In part this depended on the largesse of the US in being prepared
to run deficits with the rest of the world and to absorb any excess
product within its borders. This system conferred benefits such as
expanding export markets (most obviously for Japan but also
unevenly across South America and to some other countries of
South-East Asia), but attempts to export ‘development’ to much of
the rest of the world largely stalled. For much of the Third World,
particularly Africa, embedded liberalism remained a pipe dream.
The subsequent drive towards neoliberalization after 1980 entailed
little material change in their impoverished condition. In the
advanced capitalist countries, redistributive politics (including
some degree of political integration of working-class trade union
power and support for collective bargaining), controls over the free
mobility of capital (some degree of financial repression through
capital controls in particular), expanded public expenditures and
welfare state-building, active state interventions in the economy,
and some degree of planning of development went hand in hand
with relatively high rates of growth. The business cycle was
successfully controlled through the application of Keynesian
fiscal and monetary policies. A social and moral economy (sometimes
supported by a strong sense of national identity) was
fostered through the activities of an interventionist state. The state
in effect became a force field that internalized class relations.
Working-class institutions such as labour unions and political
11
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parties of the left had a very real influence within the state
apparatus.
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 left assembled considerable
popular power behind such programmes, coming close to power in
12
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Italy and actually acquiring state power in Portugal, France, Spain,
and Britain, while retaining power in Scandinavia. Even in the
United States, a Congress controlled by the Democratic Party legislated
a huge wave of regulatory reform in the early 1970s (signed
into law by Richard Nixon, a Republican president, who in the
process even went so far as to remark that ‘we are all Keynesians
now’), governing everything from environmental protection to occupational
safety and health, civil rights, and consumer protection.12
But the left failed to go much beyond traditional social democratic
and corporatist solutions and these had by the mid-1970s proven
inconsistent with the requirements of capital accumulation. The
effect was to polarize debate between those ranged behind social
democracy and central planning on the one hand (who, when in
power, as in the case of the British Labour Party, often ended up
trying to curb, usually for pragmatic reasons, the aspirations of
their own constituencies), and the interests of all those concerned
with liberating corporate and business power and re-establishing
market freedoms on the other. By the mid-1970s, the interests of
the latter group came to the fore. But how were the conditions for
the resumption of active capital accumulation to be restored?
How and why neoliberalism emerged victorious as the single
answer to this question is the crux of the problem we have to solve.
In retrospect it may seem as if the answer was both inevitable and
obvious, but at the time, I think it is fair to say, no one really knew
or understood with any certainty what kind of answer would work
and how. 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.
13
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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 (Figure 1.1). Discontent
Figure 1.1 The economic crisis of the 1970s: inflation and unemployment
in the US and Europe, 1960–1987
Source: Harvey, The Condition of Postmodernity.
14
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was widespread and the conjoining of labour and urban social
movements throughout much of the advanced capitalist world
appeared to point towards the emergence of a socialist alternative
to the social compromise between capital and labour that had
grounded capital accumulation so successfully in the post-war
period. 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 Sweden, for example, what was known as
the Rehn–Meidner plan literally offered to gradually buy out the
owners’ share in their own businesses and turn the country into a
worker/share-owner democracy. But, beyond this, the economic
threat to the position of ruling elites and classes was now becoming
palpable. One condition of the post-war settlement in almost all
countries was that the economic power of the upper classes be
restrained and that labour be accorded a much larger share of the
economic pie. 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. In the US the control of
wealth (as opposed to income) by the top 1 per cent of the population
had remained fairly stable throughout the twentieth century.
But in the 1970s it plunged precipitously (Figure 1.2) as asset
values (stocks, property, savings) collapsed. 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. The subsequent Chilean experiment with
15
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neoliberalism demonstrated that the benefits of revived capital
accumulation were highly skewed under forced privatization. The
country and its ruling elites, along with foreign investors, did
extremely well in the early stages. Redistributive effects and
increasing social inequality have in fact been such a persistent
feature of neoliberalization as to be regarded as structural to the
whole project. 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 (Figures 1.3 and 1.4). Almost certainly, with the
Bush administration’s tax reforms now taking effect, the concentration
of income and wealth in the upper echelons of society is
Figure 1.2 The wealth crash of the 1970s: share of assets held by the top
1% of the US population, 1922–1998
Source: Duménil and Lévy, Capital Resurgent.
16
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continuing apace because the estate tax (a tax on wealth) is being
phased out and taxation on income from investments and capital
gains is being diminished, while taxation on wages and salaries is
maintained.13
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. And when we look further afield
we see extraordinary concentrations of wealth and power emerging
all over the place. 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.
The wave of privatization in Mexico after 1992 catapulted a few
individuals (such as Carlos Slim) almost overnight into Fortune’s
list of the world’s wealthiest people. Globally, ‘the countries of
Eastern Europe and the CIS have registered some of the largest
increases ever . . . in social inequality. OECD countries also
Figure 1.3 The restoration of class power: share in national income of
the top 0.1% of the population, US, Britain, and France,
1913–1998
Source: Task Force on Inequality and American Democracy, American Democracy
in an Age of Rising Inequality.
17
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Figure 1.4 The concentration of wealth and earning power in the US:
CEO remuneration in relation to average US salaries, 1970–
2003, and wealth shares of the richest families, 1982–2002
Source: Duménil and Lévy, ‘Neoliberal Income Trends’.
18
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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’.14 While there are exceptions
to this trend (several East and South-East Asian countries
have so far contained income inequalities within reasonable
bounds, as has France––see Figure 1.3), 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. In what follows I shall argue that the second of
these objectives has in practice dominated. Neoliberalization has
not been very effective in revitalizing global capital accumulation,
but it has succeeded remarkably well in restoring, or in some
instances (as in Russia and China) creating, the power of an economic
elite. 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 evidence suggests, moreover, that when neoliberal principles
clash with the need to restore or sustain elite power, then the
principles are either abandoned or become so twisted as to be
unrecognizable. This in no way denies the power of ideas to act as a
force for historical-geographical change. But it does point to a
creative tension between the power of neoliberal ideas and the
actual practices of neoliberalization that have transformed how
global capitalism has been working over the last three decades.
The Rise of Neoliberal Theory
Neoliberalism as a potential antidote to threats to the capitalist
social order and as a solution to capitalism’s ills had long been
lurking in the wings of public policy. A small and exclusive group
of passionate advocates––mainly academic economists, historians,
and philosophers––had gathered together around the renowned
19
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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 founding statement of the society read as
follows:
The central values of civilization are in danger. Over large stretches of the
earth’s surface the essential conditions of human dignity and freedom
have already disappeared. In others they are under constant menace from
the development of current tendencies of policy. The position of the
individual and the voluntary group are progressively undermined by
extensions of arbitrary power. Even that most precious possession of
Western Man, freedom of thought and expression, is threatened by the
spread of creeds which, claiming the privilege of tolerance when in the
position of a minority, seek only to establish a position of power in which
they can suppress and obliterate all views but their own.
The group holds that these developments have been fostered by the
growth of a view of history which denies all absolute moral standards and
by the growth of theories which question the desirability of the rule of
law. It holds further that they have been fostered by a decline of belief in
private property and the competitive market; for without the diffused
power and initiative associated with these institutions it is difficult to
imagine a society in which freedom may be effectively preserved.15
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
20
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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.
This theoretical framework is not, as several commentators
have pointed out, entirely coherent.16 The scientific rigour of its
neoclassical economics does not sit easily with its political commitment
to ideals of individual freedom, nor does its supposed
distrust of all state power fit with the need for a strong and if
necessary coercive state that will defend the rights of private property,
individual liberties, and entrepreneurial freedoms. The juridical
trick of defining corporations as individuals before the law
introduces its own biases, rendering ironic John D. Rockefeller’s
personal credo etched in stone in the Rockefeller Center in New
York City, where he places ‘the supreme worth of the individual’
above all else. 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.
Hayek, author of key texts such as The Constitution of Liberty,
presciently argued that the battle for ideas was key, and that it
would probably take at least a generation for that battle to be won,
not only against Marxism but against socialism, state planning,
and Keynesian interventionism. The Mont Pelerin group garnered
financial and political support. In the US in particular, a
powerful group of wealthy individuals and corporate leaders who
were viscerally opposed to all forms of state intervention and
21
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regulation, and even to internationalism sought to organize opposition
to what they saw as an emerging consensus for pursuing a
mixed economy. Fearful of how the alliance with the Soviet Union
and the command economy constructed within the US during the
Second World War might play out politically in a post-war setting,
they were ready to embrace anything from McCarthyism to neoliberal
think-tanks to protect and enhance their power. Yet this
movement remained on the margins of both policy and academic
influence until the troubled years of the 1970s. At that point it
began to move centre-stage, particularly in the US and Britain,
nurtured in various well-financed think-tanks (offshoots of the
Mont Pelerin Society, such as the Institute of Economic Affairs in
London and the Heritage Foundation in Washington), as well as
through its growing influence within the academy, particularly at
the University of Chicago, where Milton Friedman dominated.
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. She recognized that this meant nothing short of
a revolution in fiscal and social policies, and immediately signalled
a fierce determination to have done with the institutions and
22
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political ways of the social democratic state that had been consolidated
in Britain after 1945. 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). There was,
she famously declared, ‘no such thing as society, only individual
men and women’––and, she subsequently added, their families. All
forms of social solidarity were to be dissolved in favour of individualism,
private property, personal responsibility, and family
values. The ideological assault along these lines that flowed from
Thatcher’s rhetoric was relentless.17 ‘Economics are the method’,
she said, ‘but the object is to change the soul.’ And change it she
did, though in ways that were by no means comprehensive and
complete, let alone free of political costs.
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
(Figure 1.5). 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.
The Volcker shock, as it has since come to be known, has to be
23
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interpreted as a necessary but not sufficient condition for neoliberalization.
Some central banks had long emphasized antiinflationary
fiscal responsibility and adopted policies that were
closer to monetarism than to Keynesian orthodoxy. In the West
German case this derived from historical memories of the runaway
inflation that had destroyed the Weimar Republic in the 1920s
(setting the stage for the rise of fascism) and the equally dangerous
inflation that occurred at the end of the Second World War. The
IMF had long set itself against excessive debt creation and urged,
if not mandated, fiscal restraints and budgetary austerity on client
states. But in all these cases this monetarism was paralleled by
acceptance of strong union power and a political commitment to
build a strong welfare state. The turn to neoliberalism thus
depended not only on adopting monetarism but on the unfolding
of government policies in many other arenas.
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
Figure 1.5 The ‘Volcker shock’: movements in the real rate of interest,
US and France, 1960–2001
Source: Duménil and Lévy, Capital Resurgent.
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‘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). But PATCO was more than
an ordinary union: it was a white-collar union which had the character
of a skilled professional association. It was, therefore, an icon
of middle-class rather than working-class unionism. The effect on
the condition of labour across the board was dramatic––perhaps
best captured by the fact that the Federal minimum wage, which
stood on a par with the poverty level in 1980, had fallen to 30 per
cent below that level by 1990. The long decline in real wage levels
then began in earnest.
Reagan’s appointments to positions of power on issues such as
environmental regulation, occupational safety, and health, took the
Figure 1.6 The attack on labour: real wages and productivity in the US,
1960–2000
Source: Pollin, Contours of Descent.
25
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campaign against big government to ever higher levels. The
deregulation of everything from airlines and telecommunications
to finance opened up new zones of untrammelled market freedoms
for powerful corporate interests. Tax breaks on investment effectively
subsidized the movement of capital away from the unionized
north-east and midwest and into the non-union and weakly regulated
south and west. Finance capital increasingly looked abroad
for higher rates of return. Deindustrialization at home and moves
to take production abroad became much more common. 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’ (Figure 1.7).
And so began the momentous shift towards greater social
inequality and the restoration of economic power to the upper
class.
There was, however, one other concomitant shift that also
impelled the movement towards neoliberalization during the
Figure 1.7 The tax revolt of the upper class: US tax rates for higher and
lower brackets, 1913–2003
Source: Duménil and Lévy, ‘Neoliberal Income Trends’.
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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.20 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.
The US imperial tradition had been long in the making, and to
great degree defined itself against the imperial traditions of Britain,
France, Holland, and other European powers.21 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
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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. This became
the method of choice to fight off the threat of communist insurgencies
and revolution, entailing an anti-democratic (and even
more emphatically anti-populist and anti-socialist/communist)
strategy on the part of the US that put the US more and more in
alliance with repressive military dictatorships and authoritarian
regimes (most spectacularly, of course, throughout Latin America).
The stories told in John Perkins’s Confessions of an Economic
Hit Man are full of the ugly and unsavoury details of how this was
all too often done. US interests consequently became more rather
than less vulnerable in the struggle against international communism.
While the consent of local ruling elites could be purchased
easily enough, the need to coerce oppositional or social democratic
movements (such as Allende’s in Chile) associated the US with a
long history of largely covert violence against popular movements
throughout much of the developing world.
It was in this context that the surplus funds being recycled
through the New York investment banks were dispersed throughout
the world. 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
28
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globally during the 1970s. Hungry for credit, developing countries
were encouraged to borrow heavily, though at rates that were
advantageous to the New York bankers.23 Since the loans were
designated in US dollars, however, any modest, let alone precipitous,
rise in US interest rates could easily push vulnerable countries
into default. The New York investment banks would then be
exposed to serious losses.
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.24
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. This, it turns
out, is not consistent with neoliberal theory. One effect, as Duménil
and Lévy show, was to permit US owners of capital to extract
high rates of return from the rest of the world during the 1980s
and 1990s (Figures 1.8 and 1.9).25 The restoration of power to an
economic elite or upper class in the US and elsewhere in the
advanced capitalist countries drew heavily on surpluses extracted
29