Sunday, June 26, 2011


The East Asian crisis of the late 90s raises an interesting question. Why did the West insist that Asian economies adopt neoliberal policies? There was no evidence that this would create growth for the region. Indeed, those whose markets were the least free withstood the crash better than their more “liberated” neighbours. It appeared that neoliberalism was being foisted upon developing countries to enrich Western investors.

This raises a further question. Is neoliberalism applied for dogmatic or pragmatic reasons? Do its advocates believe it to be the lubricant which makes capitalism work for everyone, or is it an expedient for reorganising society along class lines? We should be very clear whether neoliberalism is a well-intentioned theory that has gone disastrously wrong, or whether from the start it intended to concentrate wealth and power among the elite. This is the question which David Harvey addresses in Chapter 3 of his Brief history of neoliberalism.

We know the basic tenets of neoliberalism: property rights are fundamental, and eliminating the barriers to buying and selling will create a productive society in which everyone can benefit from economic growth. State capital must, as far as possible, be freed into private hands. Individuals and corporations must be free to compete against each other within legally defined parameters. In becoming more competitive, individuals will become more efficient. Just as the state should not interfere with activities in the marketplace, neither should it interfere in other spheres of human life. Humans should take responsibility for their actions, which in turn determine whether or not they succeed. If you fail, that is unfortunate, but you cannot claim you had no opportunity to succeed. Within this theory, the place of democracy is ambiguous, since collective government may compromise individual rights. In general, neoliberal theory prefers executive power to outright democracy but, as we shall see, this is problematic.

So proceeds the theory of neoliberalism. Yet, as soon as we begin to unpick that theory, we find instances where neoliberals do things in practice which are the precise opposite to what they believe in theory. Harvey lists these “tensions and contradictions,” some economic, some political.


The first arises from the problem of monopolies. As Lenin and others have noticed, competition logically leads to monopolies, as competitive individuals drive out less competitive ones. A situation where, as Harvey says, “the world of soft drinks competition is reduced to Coca Cola versus Pepsi, the energy industry is reduced to five huge transnational corporations, and a few media magnates control most of the flow of the news, much of which then becomes pure propaganda,” sits easily with neoliberal theory, since competition and efficiency are maintained. But what about situations where competition is inefficient? It makes no sense, for example, for multiple businesses to build railway lines from London to Ipswich (though, since the privatisation of the railways, we now have a messy and sometimes fatal proliferation of transport providers which operate on the same line).

Or, to take another example, what about the rising costs we now see as a result of the gradual privatisation of the public sector? Commissioners now manage contracts with a huge range of public and private health providers, which has increased bureaucracy (by the need to set up multiple contracts, arrange the payments of millions of invoices etc). Neoliberals claim that the alternative – a single provider of health services working outside of the market – would be even less efficient, since it would stifle innovation. While this latter point may be true, it is undeniable that unit costs of healthcare in the UK have risen as the NHS has been pushed further into the marketplace.

That issue of innovation is problematic, and has become something of a fetish. Technology often develops outside the marketplace so that, for example, medicines are invented for illnesses which do not exist and which have to be invented. Or, to take a more straightforward example, labour-saving technologies may be developed which lead to mass unemployment. This would not in itself be a problem for neoliberal theorists, but there is, as Harvey says, “an inner connection between technological dynamism, instability, dissolution of social solidarities, environmental degradation, deindustrialisation, rapid shifts in time-space relations, speculative bubbles, and the general tendency towards crisis formation within capitalism.”

These are economic contradictions.


But the central contradiction is political. “While individuals are supposedly free to choose,” writes Harvey, “they are not supposed to choose to construct strong collective institutions ... they most certainly should not choose to associate to create political parties with the aim of forcing the state to intervene in or eliminate the market.” One of the propaganda coups of neoliberalism (and the failures of Trade Unions) has been to convince workers that, by dissolving their collective power, they will each be freer. However spurious the claim, workers have been bullied when they have come together.

And yet, coming together is precisely what the elite have done, via institutional and financial means. The IMF found its feet when Mexico ran into severe debt in the early 1980s, and since Mexico owed lots of money to US banks, Treasury Secretary James Baker used the collective institution of the IMF to impose structural adjustment to protect Wall Street from default. The same thing is happening now in Greece, Ireland and – potentially – the other PIIGS, and it is the citizens of those countries who will pay.

This is not to mention the power of corporate lobbyists. Are they in nature any different from Trade Unions? No – except that they are allowed to pool their resources to bid for assistance or benefits, whereas the rest of are not. We see the effects of special interest groups nowhere more clearly than in the NHS. The links between Arthur Anderson and the Labour government are well-documented – the former convinced the latter to proceed with this policy whereby “the state assumes much of the risk while the private sector takes most of the profits.” Indeed, people like Patricia Hewitt were actors on both sides of the revolving door.


We have a paradox. We are all constrained by the requirements of neoliberal ideology. We must be actors in the marketplace; we must take responsibility for what we do there; we must make the most of our opportunities. But some are more duty-bound than others. Indeed, it seems the neoliberals are the only ones who can rip up the rulebook when it suits them. Harvey cites George W Bush, who “advocates free markets and free trade but imposed steel tariffs in order to bolster his electoral chances.” And that “credits are arbitrarily extended from one state to another in order to gain political access and influence in geopolitically sensitive regions (such as the Middle East).”

More blatantly, advanced economies protect their institutions, refusing to let the market determine success or failure. As we have seen, the role of the IMF and World Bank – said to be guarantors of free markets – is really “to protect the world’s main financial institutions from the threat of default ... Reckless investments should be punished by losses to the lender, but the state makes lenders largely immune to losses.” We have seen this again and again, in the savings and loans crisis of the 80s, the hedge fund crisis of the 90s, and the banking crisis of the 00s. Citizens are forced to bail out the very institutions over which they are denied any control. This must be the most prescient of neoliberalism’s contradictions. On the one hand, the economy must be run by financial elites; on the other, if the elites mess up, we must bear the cost. Or to put it another way, we must take responsibility for being healthy and successful, but out of control men in suits who gamble with our money need take no such responsibility – for we will always rescue them.


Whether or not actors must abide by neoliberalism depends on who will profit by their actions. Even if the concentration of wealth into the hands of the few was not the objective of neoliberalism, it is undeniable that this has been the result. And Harvey argues that this was the objective all along. During the so-called golden age of capitalism, income equalised a little, so that the top 1%’s share halved between the 1930s and 1960s. But when growth collapsed, so did the value of assets. In 1965, the top 1% owned more than 35% of assets. By the mid 1970s, this had dropped to 20%.

Neoliberalism reversed this trend sharply. Harvey cites the French economists Gerard Dumenil and Dominique Levy who have demonstrated that “neoliberalisation was from the very beginning a project to achieve the restoration of class power.” The figures are well-known, but no less shocking for that: “the top 0.1% of income earners in the US increased their share of the national income from 2% in 1978 to over 6% 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.”

It is hard not to see neoliberalism as a deliberate, pragmatic policy to increase the wealth of the wealthy. Indeed, if its purpose was to iron out the kinks of capitalism, to promote competitive efficiency or revitalise global capital accumulation, it has resolutely failed. Neoliberal theory is, for the most part, a glossy justification for anything which bolsters the power and wealth of the elite. Far from being a dry economic doctrine of applied mathematics, it is in fact that most old-fashioned of things: class struggle.


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