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A brief History of Neoliberalism: Part II

by andrethegiant Tue Mar 20th, 2007 at 08:40:03 AM EST

Sunday I began posting on David Harvey's A Brief History of Neoliberalism. Part I centered on the "birth" of neoliberalism and some of its central contradictions involving the power of the state, monopoly power, the strong tendency towards establishing class power, and notions of freedom.  In fact, as for the latter, the Right sucessfully used neoliberalism's framing of economic libery to seduce large categories of traditionally working class voters.  The history of neoliberalism is thus instructive to those on the left who are seeking new ways of framing issues of personal liberty, the economy and possibilities self-realization within modern society. The following summarizes what Harvey sees as the first example of hardcore neoliberalism's implementation in the U.S. (the case of NY City), how consent was created.  He then goes on to delineate the basic (and contradictory) components he sees in the neoliberal state.


Click here for Part I (Freedom and Class)
Neoliberal's First Examples
Harvey points often to the case of Chile, where the "little September 11th" of 1973 brought Pinochet to power, and right along side of him were a group of neoliberal economists trained mostly at the University of Chicago under the tutelage of Milton Friedman.  (Hayek too saw Chile as a positive example.)  There is indeed much to be said about that regime and the brutal repression it used to implement the supposed "freedoms" of neoliberalism, but Harvey comes back time and again to the example of New York City.  The reason he does, I think, is because what was of particular interest initially to the Neoliberals--even more than bringing about regime change in places like Chile--was implementing change at home.  The financial troubles of New York City in the 70s, became this opportunity for transformation while also becoming a model for neoliberal conquest within U.S. borders.

New York City, like many major cities, was undergoing hard times during the 1970s.  Suffering from an exodus of the middle class to the suburbs and from deindustrialization, the city had a diminishing and shifting financial base.  Compounding this, the Nixon administration declared, in spite of evidence to the contrary,  that "urban crises" were over in America and subsequently cut funding.  The post-oil-embargo recession thus gathered steam and New Yorkers, used to some of the most progressive spending in the country, were literally left out in the cold.  The situation only got worse as the years passed. The financial elite of the New York, primarily Walter Wriston of Citibank, led the way in putting the city on the spot by refusing to allow  city loans to roll over to the next year.  New York was faced with either bankruptcy or tremendous budget cuts.  "The bail-out that followed entailed the construction of new institutions that took over management of the city budget," Harvey writes.  He pursues this line of thought:

They had first claim on the city tax revenue in order to first pay of bondholders...the effect was to curb the aspirations of the city's powerful municipal unions, to implement wage freezes...the final indignity was the requirement that municipal unions should invest their pension funds in city bonds.  Unions then either moderated their demands or faced the prospect of losing their pension funds through city bankruptcy.
    This amounted to a coup by the financial institutions against the democratically elected government of New York City... (45)

Of course, fiscal discipline is important, but forces inside and outside of the city in effect created a situation of bankruptcy where it could have been avoided.   Ford's secretary of treasury, a proponent of neoliberal "reforms" in Chile, convinced Ford not to help the city and said that the terms of any bailout should be "...so punitive...that no city, no political subdivision would ever be tempted to go down the same road" (Harvey 46).

The financial leaders of New York, successful in demoralizing and defunding many of the social infrastructures the working class had built over many years, leaned in harder to "create a good business climate. [...] Corporate welfare substituted for people welfare" (Harvey 47).  As poorer sections of New York's populace found themselves with a social support network, they turned to underground economies and crime.  And, as crack cocaine and AIDS took on increasingly epidemic proportions, whole sections of the population were intentionally stigmatized.  "The victims were blamed, and Giuliani was to claim fame by taking revenge [on them]" (Harvey 48).

Harvey summarizes the city's role in becoming an exemplar:

The management of the New York fiscal crisis pioneered the way for neoliberal practices both domestically under Reagan and internationally through the IMF in the 1980s.  It established the principle that in the vent of a conflict between the integrity of the financial institutions and the bondholders returns, on the one hand, and the well-being of the citizens on the other, the former was to be privileged.  It emphasized that the role of government was to create a good business climate rather than look to the needs and the well-being of the population at large. (48)

During this time, Manhattan was reinforced, after struggles with unions, with increases in the police force and firefighters.  A publicity campaign was launched to sell NY ("I love NY").  Indeed, the island of manhattan would become a playground,of shopping and arts, but one mostly limited to those who could afford it.  The Bronx, Brooklyn and the periphery would not reap the benefits of Manhattan's revival in Wall Street's image.

Creating Consent
Besides bringing a city (or a country) to the brink of bankruptcy as a innovative coercive measure, Reagan used his power to appoint people in key positions that would dismantle government regulations.  Over 40% of the Nat. Labor Relations Board's 1970s regulations were overturned in just six months during 1983 (Harvey 52).  Conversely, industry was rapidly being relieved of its attachments to the public trust.  Labor was also brought under control.  The air traffic controller's strike was handled without mercy by the Reagan administration, and no protectors were to be found anywhere in the government thanks to Regan's appointments.  Work that had formerly been unionized labor was transferred to southern states or out of the country.  Here again, neoliberal policy and philosophy had appeal that the Left at the time could not match:

The unions' rigid rules and bureaucratic structures made them vulnerable to attack.  The lack of flexibility was often as much a disadvantage for individual laborers as it was for capital.  The virtuous claims for flexible specialization in labour processes and and for flexible time arrangements could become part of the neoliberal rhetoric that could be persuasive to individual laborers, particularly those who had been excluded from the monopoly benefits that strong unionization sometimes conferred.  Greater freedom and liberty of action in the labour market could be touted as a virtue for labour and capital alike [and easily became] the 'common sense' of much of the workforce (53)

While this process--that has indeed caused our notions of 'common sense' to trump our notions of common good--happened more easily in the already highly individualistic U.S., Thatcher faced much greater resistance to her policies in Britain, especially from cities such as Liverpool, and thus had to take more extreme measures to counter them: jailing council members, abolishing councils, etc.  Her poll tax ultimately failed though it remains a symbolic piece of neoliberal distrust of popular democracy.  Both Reagan and Thatcher also turned to populism and nationalism to motivate their publics even though those represent in many ways the antithesis of neoliberal ideas and the goals of global capital.

The Neoliberal State
Though, as Harvey correctly asserts, the real implementations of neoliberalism almost always diverge from theory and though it thrives because of some of it contradictory practices, there are some easily definable features of neoliberalism that allow for a general understanding of the neoliberal state.

Neoliberals are particularly assiduous in seeking the privatization of assets.  The absence of clear private property rights...is seen as one of the greatest of all institutional barriers to economic development and the improvement of human welfare.  Enclosure and the assignment of private property rights is considered the best way to protect against the so-called 'tragedy of the commons' (the tendency for individuals irresponsibly super-exploit common property) [...] Sectors formerly run by the state must be turned over to the private sphere and deregulated. [...] Privatization and deregulation combined with competition, it is claimed, eliminate bureaucratic red tape, increase efficiency and productivity, improve quality, and reduce costs, both directly to the consumer through cheaper commodities and services and indirectly through reduction of the tax burden [...] While personal and individual freedom in the marketplace is guaranteed, each individual is held responsible and accountable for his or her own actions or well-being.  This principle extends into the realms of welfare, education, health care, and even pensions. (Harvey 65)

In practice, of course, the neoliberal state is more complicated and more contradictory.  What can be said, though, is that the above represents the strongest and most central tendencies of neoliberal regimes.  It can also be noted that neoliberal states tend to prefer rule by elites and distrust popular democracy, hence, these states often bureaucratize governments in specific ways in order to reinforce their outlook while they opt to use legal decisions and methods to achieve their goals, as this allows them to bypass legislatures and elections.  (The fissures in this systems are beginning to show in the U.S., though the institutionalization is nearly complete.) Courts and key departments of government thus become firewalls to popular democratic action because access to courts is limited largely by financial barriers and the selective appointments of key positions within the judiciary.  The sway of the Federalist society in the U.S. provides numerous examples of this, as does the packing of certain federal disctrict courts to contain pro-corporate lawyers willing to put the rights of the corporate "individual" over those of common people.

Harvey underlines some of the main grey areas of neoliberal practice as well: competition almost inevitably leads to monopoly and therefore requires state intervention.  Electricity, water, gas, rail and other infrastructures work better when they are monopolistic and regulated.   Indeed, deregulation can have disastrous consequences (California power crisis in 2002, British rail).  Another major contradiction is market failure.  This arises when markets themselves are imperfect, as is the case where pollution is not calculated as a cost and corporations can therefore externalize their responsibilities and charges.  It is also assumed that all players in a market have access to the same information, allowing them to make the best decisions and therefore allow society to reap the benefits of the wisdom of the marketplace.  There are, however, great asymmetries among even large corporations, which then lead to even greater inequalities.  Intellectual property rights and "rent-taking" enforcement of these "rights" also leads to monopolistic power and a subversion of the marketplace of ideas.  "The neoliberal assumption of perfect information and a level playing field for competition appears as either innocently utopian or a deliberate obfuscation of processes that will lead to the concentration of wealth and, therefore, the restoration of class power" (Harvey 68).

The neoliberal state also harbors some fundamentally antithetical political practices:

A contradiction arises between a seductive but alienating possessive individualism on the one hand and the desire for a meaningful collective life on the other.  While individuals are free to chose, they are not supposed to choose to construct strong collective institutions (such as trade unions) as opposed to weak voluntary associations (like charitable organizations).  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., [...] Faced with social movements that seek collective interventions, therefore, the neoliberal state is itself forced to intervene, sometimes repressively, thus denying the very freedoms it is supposed to uphold. (Harvey 69)

Harvey then goes on to list a series of major contradictory elements inside the neoliberal fold.  "All is not well," he writes, "and it is for this reason that [the neoliberal state] appears to be a transitional or unstable political form":


  1. On the one hand the neoliberal state is expected to take a back seat and simply set the stage for market functions, but on the other it is supposed to be activist in creating a good business climate and to behave as a competitive entity in global politics. In its latter role it has to work as a collective corporation, and this poses the problem of how to ensure citizen loyalty. Nation­alism is an obvious answer, but this is profoundly antagonistic to the neoliberal agenda. This was Margaret Thatcher's dilemma, for it was only through playing the nationalism card in the Falklands/Malvinas war and, even more significantly, in the campaign against economic integration with Europe, that she could win re-election and promote further neoliberal reforms internally. Again and again, be it within the European Union, in Mercosur (where Brazilian and Argentine nationalisms inhibit integration), in NAFTA, or in ASEAN, the nationalism required for the state to function effectively as a corporate and competitive entity in the world market gets in the way of market freedoms more generally.

  2. Authoritarianism in market enforcement sits uneasily with ideals of individual freedoms. The more neoliberalism veers towards the former, the harder it becomes to maintain its legitmacy with respect to the latter and the more it has to reveal its anti-democratic colours. This contradiction is paralleled by a growing lack of symmetry in the power relation between corporations and individuals such as you and me. If 'corporate power steals your personal freedom' then the promise of neoliberalism comes to nothing. This applies to individuals in the workplace as well as in the living space. It is one thing to maintain, for example, that my health-care status is my personal choice and responsibility, but quite another when the only way I can satisfy my needs in the market is through paying exorbitant [80 begins] premiums to inefficient, gargantuan, highly bureaucratized but also highly profitable insurance companies. When these companies even have the power to define new categories of illness to match new drugs coming on the market then something is clearly wrong.  Under such circumstances, maintaining legitimacy and consent, as we saw in Chapter 2, becomes an even more difficult balancing act that can easily topple over when things start to go wrong.

  3. While it may be crucial to preserve the integrity of the financial system, the irresponsible and self-aggrandizing individualism of operators within it produces speculative volatility, financial scandals, and chronic instability. The Wall Street and accounting scandals of recent years have undermined confidence and posed regulatory authorities with serious problems of how and when to intervene, internationally as well as nationally. International free trade requires some global rules of the game, and that calls forth the need for some kind of global governance (for example by the WTO). Deregulation of the financial system facilitates behaviours that call for re-regulation if crisis is to be avoided. 17.

  4. While the virtues of competition are placed up front, the reality is the increasing consolidation of oligopolistic, monopoly, and transnational power within a few centralized multinational corporations: 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 news, much of which then becomes pure propaganda.

  5. At the popular level, the drive towards market freedoms and the commodification of everything can all too easily run amok and produce social incoherence. The destruction of forms of social solidarity and even, as Thatcher suggested, of the very idea of society itself, leaves a gaping hole in the social order. It then becomes peculiarly difficult to combat anomie and control the resultant anti-social behaviours such as criminality, pornography, or the virtual enslavement of others. The reduction of 'freedom' to 'freedom of enterprise' unleashes all those 'negative freedoms' that Polanyi saw as inextricably tied in with the [81 begins] positive freedoms. The inevitable response is to reconstruct social solidarities, albeit along different lines-hence the revival of interest in religion and morality, in new forms of associationism (around questions of rights and citizenship, for example) and even the revival of older political forms (fascism, nationalism, localism, and the like). Neoliberalism in its pure form has always threatened to conjure up its own nemesis in varieties of authoritarian populism and nationalism. As Schwab and Smadja, organizers of the once purely celebratory neoliberal annual jamboree at Davos, warned as early as 1996:
'Economic globalization has entered a new phase. A mounting backlash against its effects, especially in the industrial democracies, is threatening a disruptive impact on economic activity and social stability in many countries. The mood in these democracies is one of helplessness and anxiety, which helps explain the rise of a new brand of populist politicians. This can easily turn into revolt.' (Harvey 79-81)

One of the most disturbing trends and contradictions of neoliberalism is its turn toward authoritarian morality based on supposed national "values."  This can be seen in the theocratic tendencies in the U.S., in China's emphasis on "personal responsibility," in Putin's Russia.  Nationalism and "national values," though in direct competition with neoliberalism's globalizing tendencies, often provides governments with  tools to appeal to populist sentiment.  They use these tools to maintain power and unite their publics, distracting attention away from the very problems caused by neoliberal policy.

End of Part II. Click here for Part I (Freedom and Class)

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Thanks for all the comments on part I...
by andrethegiant on Tue Mar 20th, 2007 at 09:04:31 AM EST
Thanks for this very interesting second diary. It raises  some important issues to debate.

I think the relative resistance of Europe to neoliberalism is explained by several factors, among them:

  • the fact that nationalism is not as strong as it was, thanks(!) to WWII
  • the role and functioning of unions and collective bargaining, which is very different from the US
  • the importance of local social networks for European citizens.

What we should also debate is how to highlight and exacerbate the contradictions of the neoliberal narrative and how to promote alternative values.

"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet
by Melanchthon on Tue Mar 20th, 2007 at 11:45:34 AM EST
I totally agree.  Another aspect is that your journalistic (though imperfect, as to be expected) have never entirely subscribed to the "objective" center as they (naively, manipulatively) have in the U.S.
by andrethegiant on Tue Mar 20th, 2007 at 11:53:15 AM EST
[ Parent ]
Oops.  Let me repeat that without mistakes: I totally agree.  Another aspect is that your journalistic traditions (though imperfect, as to be expected) have never entirely subscribed to the "objective" center as they naively and manipulatively have in the U.S.
by andrethegiant on Tue Mar 20th, 2007 at 11:54:22 AM EST
[ Parent ]
I'm curious as to whether the book touches on the neoliberal presence in Canada (or relative lack thereof compared to the United States)?

Progressive Historians and The Next Agenda
by aphra behn (aphra (underscore) behn (at) bigfoot (dot) com) on Tue Mar 20th, 2007 at 06:20:48 PM EST
No, not really at all.  Too bad.
by andrethegiant on Tue Mar 20th, 2007 at 09:37:51 PM EST
[ Parent ]
too bad, indeed. But it still sounds like a book I would like to read.

Oh, and consider this a renewed invite to post this over at Progressive Historians as well!

Progressive Historians and The Next Agenda

by aphra behn (aphra (underscore) behn (at) bigfoot (dot) com) on Wed Mar 21st, 2007 at 08:15:38 AM EST
[ Parent ]
Thanks!
by andrethegiant on Wed Mar 21st, 2007 at 08:49:52 AM EST
[ Parent ]
I hit upon the website of Henry C K Liu (via here),  born in Hong Kong, educated in Harward, and currently chairman of a New York based private investment group. He opines very impressively on a spectrum of things, from international politics to subtleties of financial markets.

The following series look relevant to neo-liberalism history (and future):

THE WAGES OF NEO-LIBERALISM
   - Most of the material concerns China, but most of the first piece is on post-war Western matters. Just imagine... neoliberalism in China.

The Organization of Labor-intensive Exporting Countries
   - Solving labour matters in the neo-liebralist world

by das monde on Thu Mar 22nd, 2007 at 04:00:35 AM EST
what happened to my own company and what is about to happen to my unit in it.

Once upon a time, there was a loss-making state railway company, but also a public opinion not friendly to the idea of its privatisation, and no prospective buyers on the horizon.

What do governments advised by neoliberals/adhering to neoliberalism do?

Until they don't dare a direct attack, the company is subject to

  1. denial of investment funds (except for projects co-funded by the EU, and those are done with lack of system awareness), while rival transport modes get major funding (highways, airports);
  2. further centralisation of decisionmaking especially on money issues, ostensibly to control what's spent but in practice stiffling autonomous actions and putting sand in the gears;
  3. constant alibi reorganisations, ostensibly towards a 'more rational' or a 'market-oriented' constellation, but in practice achieving a situation where people don't know who is responsible for what (sometimes not even what organisational unit they belong to), and  workers are demoralised (you can live better even in a bad system if you can at least get to learn it);
  4. reductions of the workforce, ostensibly to raise productivity, in practice achieving the loss of the best people (who retire or go into a different business), operational problems where key people were spared, and of course mid-level bosses protecting their favourites and firing able men.

With this practice, a loss-making state company can be run down into a ghost of its former self in a few years. And then the hyper-hypocritical arguments can come: it is hopelessly loss-making despite our best efforts, let's cut it up and privatise its parts!

They best leave a further few years between the cutting up and the sell-off, because cutting up brings further de-coordination and broken-up dependencies.

This is the macro view, now for the micro view.

Despite all prior difficulties and one re-organisation a year, my small unit within the state railway company managed to mostly stay together, makes a profit by also taking industry orders, and is highly productive.

But we learnt today that (1) we have been transplanted from one big branch to another, (2) our new owners are eyeing us for their quota for further workforce reduction ordered by the government. That we make profit doesn't count, in fact it appears that they will take away our right to take on orders. And even so, we already reached the minimum practicable level of workforce, taking away more will mean that we simply won't be able to do our job.

If we can't find connections who can change something, here is my 95% certain prediction: (1) we will turn unprofitable, (2) most of the unit will be dissolved, (3) as different branches of the cut-up company are privatised, they will discover that other branches aren't functional without parts of ours, so our branch will be cut up between them and a rump will remain, (4) the rump will be dissolved.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Thu Mar 22nd, 2007 at 05:40:24 AM EST
And then peak oil will hit and everyone will wonder "what ever happened to our railways?"

Could your unit take the fight to the press?

"It's the statue, man, The Statue."

by Migeru (migeru at eurotrib dot com) on Thu Mar 22nd, 2007 at 05:42:05 AM EST
[ Parent ]
No. We would be finished in a day.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Thu Mar 22nd, 2007 at 05:46:06 AM EST
[ Parent ]
Keep a record and write a book after they are done destroying the railways. By then you'll have another job (sadly, given your love of trains).

"It's the statue, man, The Statue."
by Migeru (migeru at eurotrib dot com) on Thu Mar 22nd, 2007 at 06:01:51 AM EST
[ Parent ]
Being depression-resistant is required job qualification in the current state of the company ;-)

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Thu Mar 22nd, 2007 at 07:50:33 AM EST
[ Parent ]
That is really dramatic and I hate to hear there is no rebellion left.  Migueru said the press and I am expanding... international press, youtube, trade press (rail, shipping, transportation) and the REAL media:  bloggers, railway bloggers that have come up lately are worth a try.  Just hoping it is not a foregone conclusion.

Our knowledge has surpassed our wisdom. -Charu Saxena.
by metavision on Thu Mar 22nd, 2007 at 06:56:17 AM EST
[ Parent ]
It could still be that our lower bosses can talk our new mid-level bosses out of part of this. Or that we find some connections on other parts of the hierarchy who could intervene. (Happened before.) Or that part of us could be saved into a private limited company -- but then our dependence on the cooperation of other parts of the railway will grow more of a problem. All this won't save the railway itself on the long run, only radical political change would.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Thu Mar 22nd, 2007 at 07:48:26 AM EST
[ Parent ]
Awful, just awful.  This stuff has become so predictable (and yet the press can't get the narrative right...), and yet it still angers me every time I hear it.
by andrethegiant on Thu Mar 22nd, 2007 at 06:36:04 AM EST
[ Parent ]
sounds eerily like Amtrak in the US.

some call it the Cinderella treatment:  starve it and make it sleep on the hearth while the stepsisters (air and highway) wallow in free handouts and subsidies.

The difference between theory and practise in practise ...

by DeAnander (de_at_daclarke_dot_org) on Thu Mar 22nd, 2007 at 07:52:14 PM EST
[ Parent ]
of ProgressiveHistorians, a community site dedicated to the intersection of history and politics, I would be honored if you would cross-post this excellent diary there.

The whole series, even better.  Your work here is magnificent.

The Crolian Progressive: as great an adventure as ever I heard of...

by Nonpartisan on Thu Mar 22nd, 2007 at 07:27:38 AM EST
The invite has SO already been extended.  My bad.  (I'm in perpetual transit at the moment, so I'm pretty checked out as far as blogosphere stuff is concerned.)

The Crolian Progressive: as great an adventure as ever I heard of...
by Nonpartisan on Thu Mar 22nd, 2007 at 07:32:20 AM EST
[ Parent ]


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