Neo-Liberalism as Creative Destruction

Notes taken an article written by David Harvey in The ANNALS of the American Academy of Political and Social Science in 2007.

  • Neo-liberalism has become a hegemonic discourse. How has it achieved such a dominant and unquestioned position?
  • The author contends that the ideology and it’s policies have become a means through which class dominance can be exerted & represents a move to combat the ascent of social and democratic endeavours post-WW2.
  • Neo-liberalism is a theory of political-economic practices prosing that human well-being can be advanced by the maximisation of entrepreneurial freedoms within an institutional framework characterised by private property rights, individual liberty, unencumbered markets, and free trade.
  • The state is to facilitate this, whilst filling the gaps where markets are unlikely to exist without intervention.
  • Neo-liberalism in practice however has diverged significantly from such principles.
  • Every state, whether voluntarily or through coercion, has been influenced by these policies (e.g. post-apartheid South Africa, China).
  • Key proponents of neo-liberalism now occupy strategically important positions in education, think tanks, the media, government and international financial institutions.
  • This has impacted negatively not only on prior institutional frameworks and powers, but also on divisions of labour, welfare provisions, technological mixes, ways of life, attachments to the land etc.
  • In whose particular interests is it that the state take a neo-liberal stance, and in what ways have those interests used neo-liberalism to benefit themselves, rather than as they claimed, everyone, everywhere?

The ‘Naturalisation’ of Neo-Liberalism

  • To reach such a status or position, an ideology needs to become deeply embedded within a society to the point at which it becomes unquestioned and the ‘common sense’ view.
  • It has been founded on the political principles of individual freedom and liberty; from this it has been argued that any state intervention is a threat to these ideals.
  • Both are undeniably important and were behind resistance from Moscow to Tienanmen Square.
  • It is therefore unsurprising that the US has used appeals to these values are numerous points.
  • “A peaceful world of growing freedom serves American long-term interests, reflects enduring American ideals and unites America’s allies” – George Bush in the New York Times in 2002. “As the greatest power on earth [theUnited Stateshas] an obligation to help the spread of freedom”.
  • After scrutiny revealed the reality of the war inIraq, the US frequently appealed to the idea of freedom for the Iraqi people as the motivation behind the conflict.
  • Neo-liberalism was imposed on Iraq. Nearly all trade barriers were eliminated, full privatisation was to occur & Iraq’s banks were to be opened to foreign control.
  • The first experiment with the policy was Pinochet’s Chile following the coup. Strong support from the CIA and Henry Kissinger (US Secretary of State) ensured the implementation of a repressive state which proceeded to dismantal any left-of-centre political organising and social movements.
  • Chile witnessed growth after the enforcement of market fundamentalism and was cited as an example of the wonders of the policy and used to justify subsequent policy changes in the US & UK.
  • Iraq & Chile: the difference between these two situations highlights the reach ofUSimperial power. But the US did not force Thatcher into it?
  • The forces explaining the rise of neo-liberalism are diverse (e.g. China/India/Sweden/UK).

Why the Neo-Liberal Turn?

  • By the end of the 1960’s, global capitalism was falling into disarray. The Bretton Woods exchange rate mechanism was abandoned in 1973 during a major recession.
  • Urgent alternatives to capital accumulation were needed.
  • The uneven geographical distribution of neo-liberalism, and its partial and lopsided application from one country to another, testifies to its tentative character and the complex ways in which political forces, historical traditions, and existing political arrangements all shaped why and how the process actually occurred on the ground.
  • One factor deserves attention – the crisis of capital accumulation in the 70s affected everyone (rising unemployment and inflation). The socialist alternative was proving to be a particularly attractive.
  • There was a clear political threat to the ruling classes.
  • The unequal distribution of gains from neo-liberalism were fully understood; in the US the top 0.1% of earners increased their share of income 2% in 1978 to more than 6% by 2000.
  • This has occurred in the majority of nations where neo-liberalism has been applied (although there are exceptions).
  • Neo-liberalism has not proven effective at revitalizing global capital accumulation, but it has succeeded in restoring class power.

Towards the Restoration of Class Power

  • The project has been implemented in various locations in numerous different circumstances – Mexico/Chile/Britain/China.
  • How did the dominance unfold it the US?
  • There was a growing sense among the US upper-class during the late ’60s that the anti-business and anti-imperialist climate had emerged and had gone to far. The Republican party decided to act.
  • The incorporation of leaders in the Christian right, depicted as a moral majority, together with a Business Round Table (formed to co-ordinate business interests) and the white-working class that voted on cultural, national and religious grounds (against their own interests) formed the core support based.
  • Another factor was fiscal discipline. Tax revenues fell massively between 1973-5 due to a recession and New York City was held ransom by powerful banks. The repercussions for New York were severe but this set the tone for US domestic and international policy for years to come; the priority was keeping a good business climate and not the general well-being of the population.
  • Whether the consequences were intended is debatable; the need for fiscal discipline is important. Political elites however believed the city needed to be subject to the harsh repercussions of over-expenditure to ensure social obligations to that scale were not undertaken again.
  • The other component was an ideological assault on the media and educational institutions. Right-wing think tanks flourished alongside a flood of policy proposals and papers. The promotion of liberty and individual freedom rung home with the 60s generation; the libertarian argument for neo-liberalism proved a powerful catalyst for change.
  • The Keynesian policies of the IMF were stopped; the institution began to play a key role in the spread of the ideology through Structural Adjustment Policies.
  • The creation of new institutional practices, such as those set out in the IMF & WTO, provided convenient vehicles through which financial and market power could be exercised. The force of globalisation was channelled to further US (& its allies) interests in the tradition of imperialism.

Neo-Liberalism as Creative Destruction

  • Have changes improved capital accumulation? It has broadly failed to stimulate economic growth – global average growth rates have fallen.
  • High economic growth in the 80s was achieved byJapan, the ‘Asian Tigers’ & West Germany. This success cannot be pinned to neo-liberalism.
  • Germanykept strong monetary policy (West German Bundesbank) & invested heavily in research and innovation, keeping industry strong.
  • Japan relied on state intervention in technological and organisation change, as well as the tight relationship between corporations and financial institutions.
  • If we consider the distributional (vs. generative) effects of neo-liberalism, it has been an effective mechanism through which wealth has been transferred from the mass population to wealthy elites. This has occurred in various ways:
    • Privatisation: open up new fields for capital accumulation in previously off-limits sectors (e.g. welfare and social provisions). Commercialisation, commidification and privatisation of public assets. TRIPS, depletion of the ‘global commons’ etc.
    • “the transfer of productive public assets from the state to private companies. Productive assets include natural resources: earth, forest, water, air. These are the assets that the state holds in trust for the people it represents. . . . To snatch these away and sell them as stock to private companies is a process of barbaric dispossession on a scale that has no parallel in history.” Arundhati Roy.
    • Financialisation: total daily turnover of financial transactions in international markets stood at $2.3 billion in 1983, it was $130 billion in 2002. Merger between the owners and managers of capital. Speculative raiding by hedge funds, credit and stock manipulations etc.
    • The management and manipulation of crises: Volcker raised US interest rates in 1979 and forced developing nations into structural adjustment to avoid defaulting.
    • State redistributions: supports this transfer through reductions in provisions and privatisation of public assets.
  • Though it has been effectively disguised, we have lived through a whole generation of sophisticated class struggle on the part of the upper strata to restore or, as in China and Russia, construct class dominance.