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The End of Neoliberalism?
Neoliberalism is about more than deregulation, it is also about the distribution of political and economic power
For the last 20 years neoliberalism has been dominant globally. Across the world, governments of the Right, and many nominally of the Left, have privatized and deregulated—opening up the state to private sector capital, removing regulatory restrictions on firms, and increasingly relying on markets for the delivery of social services. Not only has neoliberalism become the orthodoxy of political and economic elites, but, until recently, it was widely held that "there is no alternative" to this pervasive agenda.
In the space of a year the unthinkable occurred. What began as a collapse in one segment of the U.S. housing market has spilled over into a crisis of the global financial system. In response, the governments of two of the world's most powerful capitalist nations, the U.S. and Britain, have nationalized major financial institutions, reversing the privatization trend of the last two decades. French President Nicholas Sarkozy proclaimed, "Laissez-faire is finished." Dominique Strauss-Kahn, head of the International Monetary Fund (IMF)—which requires developing nations to impose neoliberal structural adjustment programs on their citizens in order to qualify for loans—laid blame for the crisis on "not enough regulations or controls."
In light of such events it is tempting to conclude that the neoliberal policy agenda is dead. Some, such as British economist Will Hutton, argue that the policy responses to the financial crisis marks a return to Keynesian style "managed capitalism." His argument reflects the tenor of many leftist interpretations of the current crisis and the policy responses to it: that the crisis demonstrates the failure of neoliberal capitalism and state bailouts of financial markets signal its death. Another extreme perspective is offered by the conservative magazine the Economist, which laments that "economic liberty is under attack and capitalism, the system which embodies it, is at bay." Such diagnoses might be welcomed by many on the Left as heralding a new era in which the economy is directed to progressive ends, after two decades of neoliberalism feeding corporate profits at the expense of much of humanity. Such diagnoses, however, rely on a misunderstanding of the nature of neoliberalism, and, indeed, of capitalism. They confuse state regulation of finance with a retreat from capitalism, or at least from its latest neoliberal manifestation. Neoliberalism is about more than deregulation and privatization. It is also about the distribution of political and economic power. Moreover, the state has been central to the neoliberal project, as it has been to the development of capital accumulation. Indeed, to identify the implications of the current crisis for neoliberalism, it is necessary to distinguish between neoliberal theory and practice and then reflect on how the balance of political forces might shape future policy outcomes.
Neoliberalism: Theory and Practice
Neoliberal theory draws on the writings of economists such as Milton Friedman and Friedrich von Hayek, who advocated a radical winding back of the size and scope of government. According to Friedman and Hayek, markets are self-regulating mechanisms which, when freed from government "interference," are the most efficient and the most moral form of social and economic organization. The welfare state and other forms of "collectivism" stifle efficiency and stymie individual liberty. Hayek went so far as to argue that all forms of collectivism, whether socialism or social democracy, inevitably lead to totalitarianism (F.A. Hayek, The Road to Serfdom, 1944). With these arguments, neoliberals justify their calls for cuts to the size of government and the transfer of responsibility for the provision of services from the public to the private sector.
While neoliberal ideas had been promoted by the likes of Hayek and Friedman since the 1940s through forums such as the Mont Pelerin Society, it wasn't until the 1970s that they began to gain currency among policymakers. This was when global capitalism faced an economic and political crisis. Profit rates were in decline and the power and prerogatives of capital were threatened by a number of social movements. The environmental movement, for example, called for restrictions on the freedom of businesses to exploit the natural environment. Meanwhile, a growing militancy among workers manifested in a wave of official and wildcat strikes throughout the major capitalist nations.
This crisis provided a context in which such previously marginal neoliberal ideas enjoyed new legitimacy. Since the 1970s the influence of neoliberal ideas has been evident in the broad policy agendas of most capitalist governments. Despite its "uneven geographical developments," neoliberalism has become the dominant logic of policymaking globally. Across the capitalist world, restrictions have been removed upon the ability of private firms to operate within and across national economies through processes of deregulation. Assets have been transferred from the state to the private sector through a wave of privatizations and markets have been created for social services formerly monopolized by the state, such as health, education, and welfare.
However, while a broad correspondence exists between the prescriptions of neoliberal polemicists and the policy agendas of neoliberal governments, a closer examination reveals that there is a significant disparity between neoliberal theory and practice. This is particularly so with respect to the role of the state. Rather than withering away, as neoliberal theory would have it, the state has played an active, indeed activist, role in the introduction, implementation, and reproduction of neoliberalism.
This activist role of the state was evident from the very first instance of neoliberalism in practice—Chile under the Pinochet dictatorship, for example. As Naomi Klein demonstrates in The Shock Doctrine, after deposing the elected President Salvador Allende through a military coup in 1973, the new military government led by General Augusto Pinochet engaged in a process of privatization, dismantling protectionist barriers and cuts to social expenditure. Concurrently, the coercive powers of the state were used to suppress organized labor and other dissenters through the imprisonment, torture, and murder of left-wing activists. In fact, neoliberalism was enabled by the state's ultra-violence.
While the case of Chile is an extreme one, it highlights the centrality of the state to the project of neoliberalism and the contrast between neoliberal theory and practice. Other pathbreaking neoliberal governments also used authoritarian political strategies to enforce market prerogatives. When federal air traffic controllers took strike action in 1981, the Reagan government confronted their union, PATCO, sacking striking workers, jailing its activists, and fining the union. In the mid-1980s the Thatcher government in Britain used the coercive powers of the state, including the police and secret services, to undermine the powerful National Union of Miners (NUM). Not only did this pave the way for the privatization of coal mines, but by defeating the NUM, Thatcher also weakened the labor movement, paving the way for further neoliberal measures. These trends have been continued by later neoliberal governments. In 2006, for example, the conservative coalition government of Australia, led by Prime Minister John Howard, introduced WorkChoices—a package of changes to industrial relations laws that placed severe restrictions on the ability of unions to organize, increased the discretionary powers of government to intervene in industrial disputes, and increased the range of industrial actions for which fines and prison terms apply.
Nor has the size of the state been reduced. Indeed, quite the opposite has occurred. Between 1980 and 1996, government expenditure as a proportion of GDP in the 17 major industrial capitalist economies grew from 43.1 percent to 45.6 percent. While some of this growth is due to a rising tax share of national product (even though marginal income tax rates have generally fallen), some of the growth is also a result of the costs of implementing neoliberalism. The engagement of private sector agents to deliver social services, for example, has often entailed the socialization of risk—whereby the state underwrites the profitability of firms either through some form of subsidy or by accepting liability for corporate failure or loss of revenue. Extra cost responsibilities for the state also arise due to new layers of bureaucracy created to facilitate deregulated markets.
Although paradoxical, these features of neoliberalism should not be surprising. Throughout its history, the capitalist mode of production has been nurtured, reproduced, and its reach expanded by the active involvement of the state in the economy and society. For example, the state was instrumental in the creation of property-owning and property-less classes in England during the 18th and 19th centuries through the enclosure of common land. As Karl Polanyi demonstrated, even "laissez faire capitalism" in England in the mid-to-late-19th century, during which time the market is presumed to have been free of the regulatory involvement of the state, entailed "an enormous increase in continuous, centrally organized and controlled interventionism" (Karl Polynai, The Great Transformation: The Political and Economic Origins of Our Time, 2001). Viewed in this context, while contravening the central tenets of neoliberal theory, state economic and social regulation in the neoliberal era can be understood as the latest example of the pervasive and coercive role of the state under capitalism.
Some scholars use the term "actually existing neoliberalism" to encapsulate these differences between neoliberalism in practice and the fetishistic abstractions of its advocates. Neoliberalism has not led to a withering away of the state, but to the creation of new social and economic regulations. It has reconfigured the state's role, rather than diminished it. This reconfiguration of the state's role is crucial to an understanding of neoliberalism. The economic freedoms advocated so stridently by neoliberal theorists have been established, for the most part, only for a small minority of the population and only by an activist state that restrains and suppresses the rights and freedoms of labor as a class. Over a period of three decades actions by the state facilitated greater freedoms for capital, the expansion of the sphere of commodification, and a weakening of the power of organized labor. All of this granted greater political and economic power to the capitalist class. This, rather than the free market, is the hallmark of the neoliberal era.
The Current Crisis
Predictions that policy responses to the current crisis mark the end of neoliberalism are typically ignorant of such arguments. For example, Will Hutton's contention that the world may be returning to a system of "managed capitalism," like that which underpinned the post-war boom, ignores that neoliberalism is itself a form of managed capitalism.
While recent bank nationalizations signal a retreat from neoliberalism on one front, many other aspects of the neoliberal order remain intact. This is true even in the financial sector of the economy. Nationalizations aside, the dominant regulatory solution to the current crisis has been the injection of liquidity into financial markets. Bailouts have been preferred to significant restrictions on the freedoms gained by financial capital during the neoliberal era. (Rather than protecting working class living standards, the state has acted to protect the viability of the system of capital accumulation.) While such actions certainly contravene the letter of neoliberal theory, similar activities have been a persistent feature of "actually existing neoliberalism."
Throughout the history of neoliberalism there are numerous instances of the state acting to underwrite the profitability of corporations and the viability of markets—a recent example is the opening up of the U.S. war machine and the Iraqi state to private capital in the Iraq war. As Naomi Klein writes, "U.S. corporations that were in Iraq to take advantage of the reconstruction were part of a vast protectionist racket whereby the U.S. government had created their markets with war, barred their competitors from even entering the race, then paid them to do the work, while guaranteeing them a profit to boot—all at taxpayer expense." The capitalist state tends to privilege the interests of the dominant economic class. Under neoliberalism this has become much more pronounced. Despite the crisis, there is as yet no sign of a broad-based commitment by policymakers to dismantling the political and economic power gained for capital through neoliberalization. Indeed, in other areas of the economy, neoliberalism is alive and well.
Nonetheless, the current accumulation crisis may well undermine the legitimacy of neoliberalism. Actually existing neoliberalism is inherently contradictory. One such contradiction now being felt is that neoliberalism fed both the expansion of the financial sector of the economy and the development and spread of speculative financial instruments that ultimately led to the current economic crisis. On the one hand, financial deregulation removed restrictions on the movement of money and on the activities of financial institutions. On the other hand, the financial sector provided an outlet for the profits generated through the neoliberal assault on labor, in turn generating further profits. This led to the speculative bubble that burst when the sub-prime market crashed in 2007. Thus the contradictions of neoliberalism created some of the conditions for the accumulation crisis that now besets the world capitalist economy. For this reason, the crisis of the global financial system is also a crisis of neoliberalism.
However, there is no guarantee that this crisis will result in the death of neoliberalism, nor, if it does, that the alternative will be more democratic or socially protective. The rise of neoliberalism was not inevitable. It occurred through political conflict among state elites, labor, and capital over economic priorities. The outcome of this process was, as Mark Berger argues, an "historic victory of capital over labor." The future of neoliberalism and the future of global economic regulation are also likely to be significantly determined by political conflict. In such conflicts the state will not be a neutral player.
In The Fiscal Crisis of the State, James O'Connor offers a useful framework for understanding the state's current predicament. O'Connor argues that the state is governed by the twin, sometimes contradictory, imperatives of securing conditions for capital accumulation and legitimization, or of social harmony. This is precisely what has happened in recent months. States across the globe have acted to shore up the viability of capital accumulation and the legitimacy of the capitalist system. They have acted to restore trust in money as a store of value and a unit of exchange among financial market participants by substituting private sector money for state money.
States have done this not only because powerful interests are threatened in the current crisis, but also because the erosion of trust in money threatens the viability of the capitalist system itself. When banks stop lending because they do not trust that others will repay their loans, the credit that lubricates the system of capital accumulation dries up. Investment in productive capacity slows. Businesses are unable to pay their staff. Workers are laid off. When the paper assets held by corporations become worthless, such as occurred to those holding sub-prime mortgage backed securities, other tangible assets are sold off. Prices fall and more job losses follow. The crisis of the financial sector of the economy spills over into the rest of the economy, directly affecting the lives of people with no direct interest in share markets or derivatives. This is what has happened in the global economy to date and it could quickly turn into a general crisis of political and economic legitimacy if people come to feel that the political and economic systems are not able to deliver basic needs such as a living wage. It is for these reasons, rather than because they have been converted to the virtues of social democracy, that state elites have intervened in financial markets. Material rather than ideological factors have been most important.
History demonstrates it is possible to have capital accumulation alongside forms of, albeit limited, social protections. However, there are strong forces mobilized against states moving in such a direction. The "historic victory of capital over labor," identified by Berger as an outcome of neoliberalism, has a three-fold significance in the current context. First, it has weakened the power of organized labor and granted enormous political power to capital. Second, it has facilitated greater freedoms for capital. Third, in extending the sphere of capital accumulation and the extent of commodification, it has created greater market dependence. That is, ordinary people have a greater dependence on markets to secure their everyday necessities than was the case prior to the neoliberal era. The first of these factors means that capital as a class has enormous influence over the direction of state policy making. The second and third factors mean capital is likely to oppose attempts to wind back the transformations to capital accumulation facilitated by neoliberalism, even if the specific regulatory modes by which this occurred are altered. Capital is likely to oppose, for example, moves to quarantine workers from the market. The political power of capital would make it difficult for state elites to pursue such an agenda.
In any case, the neoliberal common sense that still dominates state elites means that socially protective proposals are unlikely to arise from current capitalist governments or opposition parties. Furthermore, even if governments do move away from neoliberal forms of regulation in some areas of the economy, other aspects of neoliberal regulation—for example, those pertaining to industrial relations—may well remain.
This is not to suggest that a retreat from neoliberalism is impossible. The example of the Chavez government in Venezuela demonstrates that neoliberalism can be dismantled, but that it takes more than deteriorating economic conditions for this to occur. In Venezuela and other Latin American countries, neoliberalism has been wound back as a result of a political mobilization by the working and peasant classes of society. Because the forces and structures supportive of neoliberalism remain strong globally, it is likely that a popular political mobilization would also be necessary in other countries to wind back neoliberalism, even given the current financial crisis and the obvious failures of the neoliberal model. Neoliberalism is not inevitable, but a new politics is required to impose democratic and socially protective alternatives upon both capital and the state.
Damien Cahill is a lecturer in political economy at the University of Sydney, Australia.
Z Magazine Archive
HUMAN RIGHTS - The U.S. Human Rights Network will celebrate its 10th anniversary with the Advancing Human Rights 2013 Conference, December 6-8, in Atlanta, GA.
Contact: 250 Georgia Avenue SE, Suite 330, Atlanta, GA 30312; email@example.com; http:// www.ushrnetwork.org/.
AFRICAN/SOCIALIST - The Sixth Congress of the African People’s Socialist Party USA will be held December 7-11, in St. Petersburg, FL.
Contact: 1245 18th Avenue South, St. Petersburg, FL 33705; 727- 821-6620; info@aps puhuru.org; http://asiuhuru.org/.
SCHOOLS - The Dignity in Schools Campaign (DSC) will host a workshop on the DSC “Model Code on Education and Dignity: Presenting A Human Rights Framework for Schools” at the Mid-Hudson Region NY State Leadership Summit on School Justice Partnerships, December 11 in White Plains, NY.
Contact: http://www.dignityin schools.org/.
ANARCHIST/BOOKFAIR - The Humboldt Anarchist Book Fair will be held December 14, in Eureka, CA.
Contact: humboldtgrassroots @riseup.net; http://humbold tanarchist bookfair.wordpress. com/.
CLIMATE - The World Symposium on Sustainable Development at Universities is hosting a follow-up event to the 2012 Rio de Janeiro symposium. The gathering will be held in Qatar on January 28-30, 2014.
Contact: http://environment.tufts. edu/.
LABOR - The United Association for Labor Education (UALE) will host Organizing for Power: A New Labor Movement for the New Working Class in Los Angeles, March 26-29. Proposals are due December 15.
Contact: LAWCHA, 226 Carr Building (East Campus), Box 90719, Duke University, Durham, NC 27708-0719;lawcha @duke. edu; http://lawcha.org/.
MEDIA FELLOWSHIP - The Media Mobilizing Project is seeking applicants for the first annual Movement Media Fellowship Program. The Fellow will work with MMP to produce the spring season of Media Mobilizing Project TV. MMPTV is a news and talk show that tells the stories of local communities organizing to win human rights and build a movement to end poverty.
Contact: 4233 Chestnut St., Philadelphia, PA 19104; 215-821- 9632; milena@media mobilizing.org; http://www.media mobilizing.org/.
RACE - The 7th Facing Race: A National Conference will be held in Dallas, TX November 13-15, 2014. Organizers, educators, artists, funders and everyone interested in racial equity is invited to exchange best practices and learn about innovative models and successful organizing initiatives. Proposals must be submitted by January 24, 2014.
Contact: Race Forward, 32 Broadway, Suite 1801, New York, NY 10004; 212-513-7925; media @raceforward.org; http://race forward.org/.
VETERANS - They Were Soldiers: How the Wounded Return from America’s Wars - The Untold Story, by Ann Jones, is about the journey of veterans from the moment of being wounded in rural Afghanistan to their return home.
Contact: Haymarket Books, PO Box 180165, Chicago, IL 60618; 773-583-7884; http://www.haymarketbooks.org/.
LIBYA - Destroying Libya and World Order: The Three-Decade U.S. Campaign to Terminate the Qaddafi Revolution, by Francis A. Boyle, is a history and critique of American foreign policy from Reagan to Obama.
Contact: Clarity Press, Inc., Ste. 469, 3277 Roswell Rd. NE, Atlanta, GE 30305; 404-647-6501; firstname.lastname@example.org; http://www. claritypress.com/.
CHILDREN - Fannie and Freddie by Becky Z. Dernbach is about two bumbling villains who gamble away the savings of the people of Homeville.
Contact: fannieandfreddiebook @gmail.com; http://fannieand freddie.org/.
PROTEST/COMIC - Fight the Power!: A Visual History of Protest Among English Speaking Peoples, by Sean Michael Wilson and Benjamin Dickson is a graphic narrative that explains how people have fought against oppression.
Contact: Seven Stories Press, 140 Watts Street, New York, NY 10013; 212-226-8760; info@ sevenstories.com; http://www. sevenstories.com.
CHILDREN - Brave Girl by Michelle Markel and illustrated by Melissa Sweet is the true story of Clara Lemlich, a young Ukrainian immigrant who led the largest strike of women workers in U.S. history.
Contact: http://www.harpercollins childrens.com/Kids/.
FESTIVAL - The 2014 Queer Women of Color Film Festival will be held June 13-15 in San Francisco. The festival is currently accepting submissions until December 31.
Contact: QWOCMAP, 59 Cook Street, San Francisco, CA 94118-3310; 415-752-0868; email@example.com; http://www.qwocmap.org/.
IRAQ/REFUGEES - Ten years after the U.S.-led war in Iraq, thousands of displaced Iraqi refugees are still facing a crisis in the United States. The Lost Dream follows Nazar and Salam who had to flee Iraq in order to avoid threats by Al- Qaeda-affiliated groups and Iraqi insurgents that consider them “traitors” for supporting U.S. forces in Operation Iraqi Freedom.
Contact: Typecast Films, 888- 591-3456; info@type castfilms. com; http://type castfilms.com/.
HUMAN RIGHTS - Lyrical Revolt! III will be held December 4 in Syracuse, NY. The event will feature hip-hop musician Anhel whose album Young, Gifted, and Brown was just released. The event is sponsored by ANSWER Syracuse, Liberation News, and SyracuseHip Hop.com. Performers and artists are encouraged to send submissions.
Contact: firstname.lastname@example.org; http://www.answercoalition.org/syracuse/.
FOLK - Musician Painless Parker has released his album Music for miscreants, malcontents and misanthropes featuring “Fuck Yeah, the Working Class.”
Contact: email@example.com; http://painlessparkermusic.com/.
COMEDY - Political comedian Lee Camp’s new album Pepper Spray the Tears Away has been released.