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A brief history of neoliberalism part 1

By: 
Pam Johnson

August 27, 2013

The economic period since the 1970’s has been referred to generally as the neo-liberal period both by the right and left wing. In the simplest terms it is characterized by the "market must rule" mantra of the leaders of the western world: British Prime Minister Margaret Thatcher (IronLady), US president Ronald Reagan, and now our own Stephen Harper picking up the gauntlet. Privatization, layoffs, attacks on trade unions and social services were the order of the day and this logic has had a lasting impact on the organization of society today.
 
The 2008 economic crisis saw banks deemed “to big to fail” rescued as the foundations of the market system. There was a 180 degree turn around and suddenly capital was begging to be bailed out by governments. However, just as suddenly, we saw a return to the "market must rule" mantra. The logic of austerity has seen the very governments that used public money to prop up dying banking firms and corporations cry bankruptcy and insist that we need to get rid of government (i.e. public services) so the market can bring us back to economic health.
 
This flip flop has raised the bar on taking a clear-eyed look at the capitalist economic system in order to figure out how to effectively fight for a better system. It will also give us an opportunity to see some of the contradictions with what is being presented to us a "reality" and "common sense."
 
There is also the notion mostly coming from the left but certainly encouraged by the right that capitalism has altered its structure in the neo-liberal era; the development of the finance side of capitalism has fueled this. There is also the claim that neoliberalism is an unnatural ideology forced on capitalism from the outside, that the problem is not capitalism but neoliberal capitalism or disaster capitalism. How we see the system has huge implications for how we will be able to fight.
 
 
From long boom to crisis
Facing the Great Depression of the 1930s, capitalism returned to growth by the end of the 1940s through the barbarism of world war that created an arms economy and carpet-bombed countries that had to be rebuilt. This period has been characterized one of the longest booms, highlighted by continual expansion of the world economy. Some economists began to believe that capitalism would never return to the boom and bust cycle.
 
The situation for workers mostly in the advanced industrial countries improved. Nearly full employment, the need for skilled labourers, etc. meant that workers could get something from employers without a huge struggle.
 
Public sector workers unionized in massive numbers without the bitter battles of the previous period when industrial unionism had to be fought for with blood. What people did fight for in this period was expansion of the social wage: including things like social security, health care, greater access to education and public services and so on. It was in this period that the anti-Vietnam war movement and civil rights struggles in the US and the fantastic May 68 struggles in Paris occurred.
 
The tide turned in the 1970s when capitalist growth slowed and there were a series of crises around oil that changed the terrain. The classic problem of overproduction, too many goods and not enough buyers at the right price returned. Economists argued that this time the problem with capitalism was too much regulation, taxation and government involvement and greedy trade unions. Their solution was a return to truly unfettered "free market" system that would rev up growth and expansion again.
 
 
Neoliberalism's "solution"
In 1947, 39 scholars, mostly economists, with some historians and philosophers, were invited by Professor Friedrich Hayek to meet at Mont Pelerin, Switzerland, and discuss the state, and possible fate of classical liberalism and to combat the “state ascendancy and Marxist (read Stalinist) or Keynesian planning sweeping the globe.” The group also stated that it is "difficult to imagine a society in which freedom may be effectively preserved" without the "diffused power and initiative" associated with "private property and the competitive market."
 
A classical notion of liberalism, the primacy of the individual and individual choice were at the core of the professed new turn. The notion especially how it’s most famous members, Freidrich Hayek (Austrian economist) and Milton Friedman (American economist) express it, is an almost libertarian, almost Social Darwinist view of the market: the idea of individual freedom with no fetters from the state. Margaret Thatcher famously stated there is no society only individuals. It would be Thatcher in Britain and Reagan in the US who would articulate and amplify the neo-liberal agenda.
 
Neoliberalism was not a right-wing conspiracy imposed on capitalism, but an attempt by the 1% to deal with very real problems of capitalist crisis by attacking public services and workers' wages--in the name of free and unfettered markets. But the myth of the free market doesn't match the reality of the structure of capitalism in the neo-liberal era.
 
 
The reality of capitalism in neoliberal era
Despite the mantra of smaller government, there has never been more direct involvement in the economic system by governments than there is today--like control of the money supply and interest rates through central banks, corporate subsidies and tax breaks. There was no clearer example of the failure of neoliberalism to save capitalism, and of the ongoing relationship between capitalism and the state, than the 2008 economic crisis and the reponse of governments to bail out corporations. The questions about why the crisis happened were not directed at the perpetrators but at US Federal Reserve Bank president, Alan Greenspan. He said he didn’t know.
 
The professed foundation of neoliberalism has also effected analysis by the left. There was a popular notion during the rise of the anti-globalization movement in the late 1990s that the power of global capital in the neoliberal period had become so great that it made nations and states irrelevant; that the economic system had in effect decoupled from the political system and was operating in its own sphere. The 2008 economic crisis and corporate bailout (not to mention the "war on terror") has effectively demolished this argument.
 
It is true that in this period capital has become more internationalized, but this has not separated corpations from states but has actually created more complexly intertwined relations between them with the states as arbiters for their home-grown corporations.
 
There is also the idea that the development of the financial side of the capitalist economy has supllanted the productive side (manufacturing). Sub-prime mortages and the exotic debt packages "asset backed derivatives" and collateralized debt obligations that were being bought and sold by banks looked like something new. But there is nothing new about it. Speculation has always been an intrinsic part of capitalism, betting on prices. What is new is the new areas in which this betting is happening—the debt market. And some new regulations that have in effect made it possible for any corporation to be it’s own bank. Big corporations like GM have financial capital divisions that are now that making more profit than their car production business. Loblaws is in the game with its own financial products in addition to the groceries.
 
The globalization of markets, where for example parts of cars are made in five different countries and sold in a sixth, means that production is globally interdependent. Despite the internationalization of capital, its relation and organic connection to states continues. This connection between the state and capital is explained by Karl Marx : “The executive of the modern state is nothing but a committee for managing the common affairs of the whole bourgeoisie.”
 
So while the mantra of small government continues, the capitalist class wants the state to intervene on its behalf.  
 
This will be continued in Part II: Can neoliberalism save capitalism? 

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