#ABHON post

[fr-economics]

A Brief History of Neoliberalism #1

This is the first post in my series in which I interpret and discuss David Harvey's A Brief History of Neoliberalism. This fantastic book is one of my favorites because it neatly explains with historical facts as well as analysis why we currently live in Hellworld™ and how it came to be.

I strongly believe that understanding what neoliberalism is and how it manifests in all aspects of human life is integral to imagining how to better improve our world. It is a pervasive ideology that must be unlearned, much like racism or patriarchal attitudes, and in order to do that, we must first thoroughly understand it.

NOTE: This series will assume that readers share my basic values of being pretty left, eg: socialism is cool and good. I don't have the energy to debate people who disagree on top of writing this series, so I won't be responding to comments in that vein. However, I welcome ALL questions, no matter how dumb you think they are, because this is a complex topic and there's a lot to digest.

A Brief History of Neoliberalism: Introduction

A series of specific events mark the rise of neoliberalism as the dominant global economic ideology. The details of these events will be discussed later, but these are the main ones which mark the beginning of the neoliberal era, even though the theory itself was created decades before.

1978 - Deng Xiaoping comes into power in China.

1979 - Paul Volcker takes command at the US Federal Reserve.

1979 - Margaret Thatcher is elected PM of Britain.

1980 - Ronald Reagan is elected President of the US.

What is neoliberalism?

A theory of political economic practices that proposes that "human well-being can best be advanced by liberating individual entrepreneurial freedoms"

Holds that "the social good will be maximized by maximizing the reach and frequency of market transactions"

Seeks “to bring all human action into the domain of the market"

Requires "an institutional framework characterized by strong private property rights, free markets, and free trade"

Requires "technologies of information creation and capacities to accumulate, store, transfer, analyse, and use massive databases to guide decisions in the global marketplace", AKA why Big Data is such a thing these days

What is the state's role under neoliberalism?

Guarantee "the quality and integrity of money", ie: making sure your currency is actually worth something

Create "military, defense, police, and legal structures in order to secure private property rights and guarantee the proper functioning of markets" by force, if necessary

Create markets if necessary in areas where they do not exist, eg: "land, water, education, health care, social security, or environmental pollution"

Do absolutely nothing else to interfere with the functioning of the free market! Why? Because, according to the theory...

A) the market will always have more information than the state in the form of market signals (ie: prices) and can thus better advance human well-being

B) "powerful interest groups will distort and bias state interventions for their own benefit (especially in democracies)"

The dominance of neoliberalism

Nearly all states in the present day have implemented neoliberal theory, whether voluntarily or through coercion (*cough* CIA, Central America, overthrowing democratically-elected socialist leaders... *cough*)

Neoliberalism has "become incorporated into the common-sense way many of us interpret, live in, and understand the world"

The essence of neoliberalism is turning literally everything into a market. This can happen in a literal sense, as with the privatization of water or other natural resources. But it can also happen in a metaphorical sense. Think of dating apps, for example. It's literally a marketplace for people in which users try to sell themselves.

Have you ever heard someone refer to public school students as "consumers" or "customers"? Those words signal that the speaker is thinking of public school as a business, when it is in fact a taxpayer-funded public institution. The main goal of business is profit. The main goal of public institutions is the well-being of citizens. Of course, a public school can't turn a profit because it doesn't even sell anything. But neoliberal ideology's pervasiveness means people implement it even where it doesn't belong.

FURTHER READING...

These articles provide good explanations of what neoliberalism is, if you'd like to understand more before we get to Chapter 1.

Neoliberalism – the ideology at the root of all our problems

Dissent magazine: What Exactly Is Neoliberalism?

Neoliberalism's Dark Path to Fascism

[fr-economics]

A Brief History of Neoliberalism  #2

Here's the second post in which I summarize and discuss David Harvey's A Brief History of Neoliberalism. In this post, you'll learn:

how a specific group of people plotted to advance neoliberal theory and ideology

how the U.S. created the Iraqi and Chilean governments to benefit the wealthy

the historical events that led to the adoption of neoliberal policies

how the Darkest Timeline emerged, as the 1% started to consolidate political and economic power

Please feel free to ask any questions. This post is longer than the previous one and this material is a lot to take in.

Chapter 1: Freedom’s Just Another Word...

The founding figures of neoliberalism specifically aimed for neoliberal thought to become dominant. In order to do this, they advanced a “conceptual apparatus,” as Harvey puts it, that appeals to our intuitions, instincts, values, and desires.

They aligned their theory closely with "political ideals of human dignity and individual freedom." These were, of course, threatened "by all forms of state intervention that substituted collective judgements for those of individuals free to choose.”

So who were these founders? In 1947, Austrian political philosopher Friedrich von Hayek and a group of advocates (including Ludvig von Mises and Milton Friedman) created the Mont Pelerin Society. They called themselves neoliberals after liberalism, in the traditional European sense, because of their (supposed) commitment to personal freedom, and neoclassical economics from the 19th century.

In the 1970s, advocates of neoliberalism aimed to garner financial and political support, such as in think tanks and academia (most notably, the University of Chicago). The theory also gained credibility "by the award of the Nobel Prize in economics to Hayek in 1974 and Friedman in 1976."

The Creation of Neoliberal States

According to Harvey, a neoliberal state is "a state apparatus whose fundamental mission [is] to facilitate conditions for profitable capital accumulation on the part of both domestic and foreign capital."

The promotion of "freedom" was used as a key justification for invading Iraq by President Bush. However, Bush had no intention of actually promoting the well-being of the Iraqi people. In 2003, Paul Bremer, head of the Coalition Provisional Authority, promulgated orders for "full privatization of public enterprises, full ownership rights by foreign firms of Iraqi businesses, elimination of nearly all trade barriers" and more. However, the labor market was strictly regulated. Strikes were forbidden in key sectors and the right to unionize restricted.

Some argued these orders violated the Geneva Conventions, "since an occupying power is mandated to guard the assets of an occupied country and not sell them off." However, "they would become legal if confirmed by a ‘sovereign’ government." The interim government appointed by the US was given the power to only confirm the existing laws, not edit them for the benefit of the Iraqi people.

We've seen this creation of a neoliberal state under the "coercive influence of the U.S." before. This famously happened for the first time in Chile in 1973, when Augusto Pinochet enacted a coup against the democratically elected government of Salvador Allende. This coup was backed not only by "domestic business elites threatened by Allende’s drive towards socialism" but also by U.S. corporations and the CIA.

This coup violently repressed and dismantled leftist social movements and popular organizations, such as community health centers. Pinochet then brought Chicago-trained economists into the government. Since the '50s, the U.S. had funded training of Chilean economists there "as part of a Cold War programme to counteract left-wing tendencies in Latin America." These economists "privatized public assets" and "opened up natural resources to private and unregulated exploitation." They also facilitated direct foreign investment.

Why the Neoliberal Turn?

After WWII, the aim of the "restructuring of state forms and of international relations" was to "prevent a return to the catastrophic conditions that had so threatened the capitalist order in the great slump of the 1930s." The new post-WWII states all accepted 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.”

Keynesian policies were widely deployed to meet these goals. States regulated industry and constructed welfare systems, including healthcare, education, etc. State-led planning and even ownership of specific sectors were not uncommon. "This form of political-economic organization is now usually referred to as ‘embedded liberalism'," and it delivered high rates of economic growth in the '50s and '60s.

However, by the end of the '60s, problems emerged. Unemployed and inflation surged, causing "stagflation" well into the '70s.

One potential solution was to "deepen state control and regulation of the economy." "The left assembled considerable popular power behind such programmes," even in the U.S., where even Republican President Nixon oversaw a wave of regulatory reform, including creating the EPA. There was an "emergence of a socialist alternative to the social compromise between capital and labour" and "popular forces were agitating for widespread reforms and state interventions." This was obviously a threat to ruling elites.

Elites were also threatened by reduced economic growth in the ‘70s. U.S. control of wealth by the 1% plunged during this decade. Implementation of neoliberal policies in the ‘70s, such as deregulation under President Carter, helped the income and wealth of the 1% so much that some writers "have concluded that neoliberalization was from the very beginning a project to achieve the restoration of class power." "...Increasing social inequality [has] in fact been such a persistent feature of neoliberalization as to be regarded as structural to the whole project."

However, keen observers of American politics in the past couple of decades will note that there's often a tension or outright clash between actual neoliberal theory and what neoliberal politicians implement. There is even a tension within neoliberalism itself. For example, distrust of the state's intervention sits alongside the need for a coercive state that will enforce private property rights. Harvey says, "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."

Harvey concludes that the "theoretical utopianism" of neoliberal theory, meaning all that talk about human freedom and individual liberty, "primarily worked as a system of justification and legitimation for whatever needed to be done to achieve" the restoration of class power after the crisis of the 70s.

The Reagan Administration

Reagan's presidency was preceded by "the Volcker shock" in 1979. Paul Volcker, chairman of the US Federal Reserve Bank under President Carter, promoted "a policy designed to quell inflation no matter what the consequences might be for employment." This was in contrast to Keynesian policies that aimed for full employment. By steeply raising interest rates, Volcker jumpstarted a recession "that would empty factories and break unions in the US and drive debtor countries to the brink of insolvency."

Reagan himself, starting with the 1981 air traffic controllers' strike, began an "all-out assault on the powers of organized labour at the very moment when the Volcker-inspired recession was generating high levels of unemployment (10% or more)." This began the long decline in wages, and was accompanied by massive deregulation in many industries and huge tax cuts for corporations and the wealthy—the top personal tax rate was reduced from 70% to 28%.

A series of events had begun in the '70s which came to a head in the '80s. The OPEC oil crisis of 1973 led to Middle Eastern oil-producing states being pressured militarily by the U.S. to funnel their wealth through New York investment banks. These banks needed new outlets for this influx of funds, and turned their predatory gaze towards foreign governments.

Previously, the U.S. exerted military pressure on various nations to meet its own financial needs, and primarily exploited raw material resources or cultivated specific markets. However, the New York investment banks became more active internationally by lending capital to foreign governments. Developing nations were "encouraged to borrow heavily... at rates that were advantageous to the New York bankers."

However, since the loans were in U.S. dollars, any rise in U.S. interest rates "could easily push vulnerable countries into default," leaving the banks exposed to huge losses. This was proved when the Volcker shock drove Mexico into default in 1982. Reagan's administration oversaw the pioneering of structural adjustment, in which the IMF, World Bank, and other lenders rolled over debt in return for the debtor countries implementing neoliberal reforms, such as cuts in welfare, privatization, and reduction of labor protections.

Remember that tension between neoliberal theory and practice, though? If free market principles were truly implemented, then the lenders would be on the hook for the loss if their borrowers default. They took the risk of lending, so it's their problem. However, in this case, borrowers are forced by the U.S. to repay their debts no matter the consequences for the well-being of their people.

The Meaning of Class Power

"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." There are several trends under neoliberalism that reorganized what it meant to be part of the upper class.

First is the fusion of ownership and management of companies, for example, CEOs being paid in stock options. Stock values are then prioritized rather than production. Second is the reduction of the gap between capital earning dividends/interest and production/manufacturing. Large corporations became more financial in their orientation. An example of this is car companies opening departments to finance car purchases, instead of simply making cars. Mergers helped spur this trend, creating larger and larger diversified conglomerates.

There were also new innovations in financial services, creating "new kinds of financial markets based on securitization, derivatives, and all manner of futures trading." "Neoliberalization has meant, in short, the financialization of everything." Finance's tentacles became embedded in all areas of the economy as well as the state, and companies became more profitable not through gains in manufacturing, but through increased financial services.

All of these changes allowed "new processes of class formation to emerge," for example, the creation of tech millionaires and billionaires who got newly rich on new technologies, as well as newly acquired wealth through creation of conglomerates.