Have you ever thought that the global economic system might seem slightly dictatorial? (There’s no viable alternative to the system, claim defenders.) The way the corporate world lobbies and funds political parties, pushes for privatisation and a relaxing of regulation because ‘it’s better if the market was left alone to do its thing’. The bailout of banks and corporations contradicts the basic tenets of a free market but this didn’t stop governments stepping in to save them ‘in everybody’s interest’. Austerity measures subsequently provide a ‘perfect’ balance to these bailouts – the bankers get saved and everyone else has to do their bit. Flawless.
Or maybe the global economic system generates an impositional feel on you? You really must buy that house, do it up, remortgage and get another house, buy a car or two, live the lifestyle you want, pay in to your private pension(s) to then continue that lifestyle when you retire at age 65, (or is it 67? Or will it be 70 by the time you finish reading this blog post? I forgot – it also depends on where you’re from), go on holiday twice a year…and look at all that available credit for you to pursue that lifestyle with now…‘buy now, pay later’; ‘interest-free credit’…
Writer, environmentalist and political activist George Monbiot sums it up like this in a recent article in the Guardian and which provoked this post on neoliberalism: “A programme that promised freedom and choice has instead produced something resembling a totalitarian capitalism, in which no one may dissent from the will of the market and in which the market has become a euphemism for big business. It offers freedom all right, but only to those at the top.”
So, what is neoliberalism and what explains its longevity over the last 30 years?
Neoliberalism combines insights from neoclassical economics, including those of Adam Smith, and describes a set of economic policies that build on the laissez faire conviction of classical liberalism and suggests that unrestricted market forces naturally bring liberty, prosperity, democracy and peace. The ‘invisible hand’ of the market, as Adam Smith put it, would ensure free and fair trade and prosperity for all with the market correcting itself naturally in cases of hardship. Its main features include the primacy of the market, deregulation, trade liberalisation, the opening up of economies to foreign investment and cutting public spending and welfare.
Neoliberalism’s defenders highlight four key components: Firstly, the more ‘global’ a state’s economy, the more manufacturers or producers can take advantage of commodities, production processes and markets in other states. Secondly, globalisation encourages a diffusion of knowledge, skills and technology which in turn increases opportunities for economic growth. Thirdly, richer states and corporations in the global North have capital that they can lend to, or use in, developing states if those states accept neoliberal economic terms. This point is one of the key reasons the global power of neoliberalism took off – the roles of multinational corporations and Foreign Direct Investment are key – despite the repeated claim that global trade only persists strongly between the three big trading blocs of the USA, the EU and Japan. Finally, if trade barriers are minimal and a government reduces its role in managing its economy, the chances for government corruption and interference are minimised. This last point sounds ideal in theory, but how seriously should this be taken when we know the severity of corruption across the Third World?
But even the West fails to implement the ideals of the free market perfectly, and in some cases for very sinister reasons – think of the EU’s and the USA’s agricultural subsidies and Food Security policies which undermine Third World farmers; think of the Airbus v Boeing funding dispute; think of the uneven nature of the liberalisation of the aviation sectors in Europe and America…the West, seemingly, cannot practice fully what it preaches, or does so selectively.
Some of the ideals of the free market aren’t necessarily sinister, however – anyone can see the benefits of honest competition between service providers, for example. But critics claim the state’s position shouldn’t be undermined in regulating the behaviour of service providers, arbitrating disputes and legislating the methods of doing business, amongst others. The absence of regulation leaves the door open to abuse and exploitation, and human nature is one of greed and self-interest – hence the need for regulation.
One commentator, Deepak Lal, seeks to highlight a natural dimension to free market economics: ‘There is now a vast body of empirical evidence from different cultures and climates which shows that uneducated peasants act economically as producers and consumers. They respond to changes in relative prices much as neo-classical economic theory predicts. The ‘economic principle’ is not unrealistic in the Third World. Nor has the experience proved the conventional technological assumptions of neo-classical theory (about the possibilities of substituting different inputs in production) to be unrealistic. The degree to which inputs of different factors and commodities can be substituted in the production of the national product is not much different in developed and developing countries.’
The USA, largely unscathed after World War II, drew up plans for the creation of a post-war international order with the United Nations, the International Monetary Fund and the World Bank plus the General Agreement in Tariffs and Trade (GATT), later the World Trade Organisation, providing the foundation of a liberal international economic order based on the pursuit of free trade and an era of Pax Americana.
During the 1970s Europe was dominated by social-democratic states with protectionist policies and government management of the economy as a result of adopting Keynesian policies after World War II, and in the mid-1970s nationalisation of industries and enterprises had reached an all-time high. After the oil crisis of 1973 capitalist economies experienced long periods of inflation, recession and mass unemployment and existing methods of economic governance were questioned. In fact they had been questioned a long time previous to this. One influential work was that produced by Friedrich Hayek, The Road to Serfdom, said to be carried by Margaret Thatcher in her handbag at all times, opposed interventionist methods of economic governance and supported free markets. Hayek wasn’t the only promoter of free market economics. Milton Friedman also propogated the ideals of a free market with minimal state intervention, and was an advisor to Ronald Raegan. Both Friedman and Hayek were from the famous University of Chicago.
Neoliberalism’s distinctive political economic philosophy took meaningful shape in the early 1970s and a defining moment occurred in 1973 in Chile where CIA-backed General Pinochet initiated a coup d’état and implemented a free market economic model. Neoliberalism had also been helped by the collapse of the Bretton-Woods system in the early 1970s when the USA introduced floating exchange rates that put an end to the convertibility of the dollar, and later the fall of USSR also aided it.
With the elections of Ronald Reagan in the USA and Margaret Thatcher in the UK, neoliberalism had two supporters which would see it dominate the next thirty years. Reagan called for the developing world to get its house in order and to allow the ‘magic of the market’ to do its work, and since the USA remains arguably hegemonic, changes there could be expected to spread and influence the rest of the world. Even recently In Iraq, post-Saddam Hussein, The Iraqi National Development Plan for the Years 2010-2014 “proposes a new economic philosophy that is based on a market economy.”
However, the ultimate cause of the neoliberal success can be found in the intellectual divisions of its alternative – Keynesianism – and its failure to develop an understanding of the economy which could compete with the neoliberal rhetoric of ‘free markets’. This was coupled with the Left’s decline in the North at the time. The success of neoliberalism was not just the result of new victories by the Right but also the consequences of Left-wing defeats. In the UK the Left suffered successive electoral defeats and Thatcher’s crushing of the miners’ strike left the labour movement weak and disunited. By the late 1980s social-democratic parties and most Communist parties in the advanced capitalist world had undergone huge ideological shifts which resulted in them moving ideologically to the moderate, left-of-centre part of the political spectrum – the UK’s New Labour is probably the best example of this. Neoliberal policies are now a feature of any left-of-centre party and are accepted as a ‘political common sense’. Tony Benn regularly reminds us that Margaret Thatcher jokes that Tony Blair and New Labour was her greatest achievement.
Another interesting point is that of individualism. America has always celebrated individualism. This individualism was further promoted by the ideological conflict found in the Cold War and opposed collective economic action, ie the USSR’s centrally-planned economy. And so, since the fall of the Soviet Union, welfare and social-democratic states have come under pressure and left free market ideals with little resistance.
Within industrialised countries economic policy has been dominated by the US model and international economic policy has been dominated by the ‘Washington Consensus’. The global recession of the 1980s provoked a rethinking of the basis of economic policy throughout the developing world and Structural Adjustment Programs given to poor states through international financial institutions have been a force in ensuring neoliberalism remains strong. Institutions such as the World Bank and International Monetary Fund implemented conditions for states receiving loans and aid. These programmes aimed to ‘re-stabilise’ and ‘adjust’ the economic situation of debtor countries and included cutbacks in public spending, devaluing currencies, promoting exports and opening up trade – all neoliberal ideals. These were vigorously enforced by the financial institutions which were run on behalf of neoliberal governments and by the 1990s no major financial institution would extend credit to countries unwilling to undertake structural adjustment. These international financial institutions and multilateral institutions, such as the Organisation for Economic Co-operation and Development and World Trade Organisation, have thus acted as vehicles of neoliberal globalisation and contributed to its longevity. It goes without saying that these ‘adjustment programmes’ are seen in a sinister light.
In conclusion, neoliberalism can chart a history from the 1970s after major events such as the oil crisis of 1973 and the 1980s’ recession which saw the governments of the USA and UK promote a less-interventionist government role in the economy and attempt to reduce it to a ‘night-watchman’. Other events, such as the fall of Communism, enabled neoliberalism to go forward unchallenged and conditional aid programmes to developing countries enabled neoliberal policies to be implemented in developing countries.
So, is there an alternative?
Britain’s rail users can tell you first-hand the discomforts of Britain’s privatised railways, and which are amongst the most expensive in Europe. On the other hand, aviation liberalisation has kicked off a revolution and has seen low-cost carriers bring air travel to the masses and flight prices, largely, come down.
One interesting alternative is presented by Professor John Quiggin who talks about a return to Keynesian macroeconomic management and regulation of the financial sector, and about a new form of mixed economy and ‘social innovation’.
But with the marginalisation of protest movements like Occupy and other dissenters, and with the speed with which governments are pushing through austerity measures and cutting public spending and welfare provisions, it looks unlikely that any alternative, or even a dilution of what we have now, could be entertained. Even the idea of more regulation doesn’t seem to be shared by everybody. Governments are currently attempting to stabilise economies so as to carry on their neoliberal policies – can you really imagine a return to ‘big government’ and current welfare levels if the UK Coalition’s austerity plans succeeded? Of course not, and that’s why suspicion suggests that austerity measures are actually ideological in nature.
But I’ll leave the last word to George Monbiot, who masterfully summarises in his Guardian article: The neoliberal hypothesis has been disproved spectacularly. Far from regulating themselves, untrammelled markets were saved from collapse only by government intervention and massive injections of public money. Far from delivering universal prosperity, government cuts have pushed us further into crisis. Yet this very crisis is now being used as an excuse to apply the doctrine more fiercely than before.
- Neoliberal Penality and the Chicago Police State (harvardpress.typepad.com)
- There is an alternative to neoliberalism that still understands the markets | Colin Crouch (guardian.co.uk)
- Neoliberalism: Not Just A Financial Crisis But A Crisis Of Democracy (notnumber.wordpress.com)
- Michael Hudson: Financialized neoliberalism as a weapon against free markets and industry (p2pfoundation.net)
- Economic policy in the hands of the few serves those few – just ask Adam Smith | David Wearing (guardian.co.uk)
- The main points of neo-liberalism (danpoulton.wordpress.com)
- Our economic ruin means freedom for the super-rich | George Monbiot (guardian.co.uk)