As David Harvey and many others have since argued, the downturn of the 1970s presented not only a crisis but also an opportunity for the ruling classes to break with the compromises with organized labor and the regulatory state that had been instituted after World War II. In 1979, the richest 1% of Americans owned only approximately 20% of the nation's wealth and about 8% of its income--the lowest figures we've seen either before or since. As we know, that was about to change in dramatic fashion. Harvey describes the crisis facing the capitalist class at this juncture:
To have a stable share of an increasing pie is one thing. But when growth collapsed in the 1970s, when real interest rates went negative and paltry dividends and profits were the norm, then upper classes everywhere felt threatened. In the US the control of wealth (as opposed to income) by the top 1 per cent of the population had remained fairly stable throughout the twentieth century. But in the 1970s it plunged precipitously as asset values (stocks, property, savings) collapsed. The upper classes had to move decisively if they were to protect themselves from political and economic annihilation (A Brief History of Neoliberalism, p. 15)
Enter neoliberalism. The main tenets of neoliberalism were initially developed by the economists Frierich Hayek and Milton Friedman during the post-war period, when Keynesianism was the dominant paradigm in an economic system where state intervention and regulation played a key role. In opposition, Friedman's Capitalism and Freedom (published in 1962) argued that governments should remove all restrictions that might impede the accumulation of profits, sell off any public assets to the private sector and privatize public services, and substantially decrease funding for social welfare and programs. The discourse of neoliberalism touts "freedom" in the sense of free trade and free markets, though of course they don't mean free trade and free markets so much as the freedom of monopolistic corporations to maximize their profits wherever and however they can. Likewise, neoliberalism posits the individual as a hypothetical entrepreneur seeking to maximize his or her rational interests, and its concept of liberty basically boils down to the right to earn, keep, and spend money. As a matter of faith, neoliberalism maintains that economies grow and societies as a whole benefit when the allegedly natural urges of competition are unleashed from government or any other form of social control. The tenets of neoliberalism are not very consistent with the original economic theories of Adam Smith, but the neoliberals did appropriate Smith's idea that the market is guided by an "invisible hand" that, if left to its own, will regulate itself and "naturally" return to a state of equilibrium.
During the 1960s, Friedman was a professor of economics at the University of Chicago, and his ideas were still relatively marginal in a world where Keynesianism was still orthodox. However, students from across Latin America but in particular from Chile came to the University of Chicago--assisted by U.S. government funding--to study economics with Friedman, leading them to be nicknamed the "Chicago Boys" when they returned to Chile (who alone sent one hundred students to pursue advanced degrees in economics at the University of Chicago between 1957 and 1970) or Argentina, Brazil, or Mexico.
On September 11, 1973, General Augusto Pinochet and his right-wing supporters in the Chilean military and government staged a brutal coup d'etat that overthrew the democratically elected and socialist-leaning administration of Salvador Allende. They did so with a substantial assist from the Nixon administration and the CIA, which had been spreading anti-socialist throughout Chile following the election of Allende in 1970 and his efforts to nationalize some key industries including the phone company, whose majority owner was the U.S.-based International Telephone and Telegraph (ITT). Following the coup--in which tens of thousands were arrested and imprisoned in Chile's football stadiums, untold numbers were tortured, executed, or "disappeared," and Allende shot himself inside the presdential palace following his farewell speech--the Chicago Boys who had been trained in Friedman's brand of neoliberalism, previously rebuffed in the 1970 election, were now suddenly given the keys to the Chilean economy by the Pinochet regime. This came on the heels of a proposal published on the day of the coup by the Chicago Boys to restructure Chile as a kind of laboratory of neoliberalism. In The Shock Doctrine, Naomi Klein reveals this connection that links Friedman and his Chicago School with the new Pinochet regime's economic policies:
The proposals in the final document bore a striking resemblance to those found in Milton Friedman's Capitalism and Freedom: privatization, deregulation and cuts to social spending--the free-market trinity. Chile's U.S.-trained economists had tried to introduce these ideas peacefully, within the confines of a democratic debate, but they had been overwhelmingly rejected. Now the Chicago Boys and their plans were back, in a climate distinctly more conducive to their radical vision. In this new era, no one besides a handful of men needed to agree with them. Their staunchest political opponents were either in jail, dead or fleeing for cover; the spectacle of fighter jets and caravans of death was keeping everyone else in line.
***Check out the short (7 minutes) film version of Klein's The Shock Doctrine with filmmaker Alfonso Cuaron, but it is disturbing so consider yourself warned***
Latin America's laboratory of neoliberalism got off to an inauspicious start, as the rates of inflation and unemployment each skyrocketed during the initial years of the new regime. However, Chile did, at least by mainstream economic indicators, begin to turn things around and eventually delivered some of the highest rates of growth and greatest increases of wealth in Latin America, leading neoliberal economists to proclaim a "miracle." But if the characteristics of this "miracle" actually look quite familiar and even typical to us today, it is because Chile provided a blueprint that would be carried out across most of the world during the next few decades. The increase of wealth was mostly concentrated among the country's elites along with financial speculators and foreign investors, making Chile one of the most unequal countries on Earth. Naomi Klein describes Chile as a harbinger of things to come in the rest of the world:
Chile under Chicago School rule was offering a glimpse of the future of the global economy, a pattern that would repeat again and again, from Russia to South Africa to Argentina: an urban bubble of frenetic speculation and dubious accounting fueling superprofits and frantic consumerism, ringed by the ghostly factories and rotting infrastructure of a development past; roughly half the population excluded from the economy altogether; out-of-control corruption and cronyism; decimation of nationally owned small and medium-sized businesses; a huge transfer of wealth from public to private hands, followed by a huge transfer of private debts into public hands. In Chile, if you were outside the wealth bubble, the miracle looked like the Great Depression, but inside its airtight cocoon the profits flowed so free and fast that the easy wealth made possible by shock therapy-style "reforms" have been the crack cocaine of financial markets ever since. And that is why the financial world did not respond to the obvious contradictions of the Chile experiment by reassuring the basic assumptions of laissez-faire. Instead, it reacted with the junkie's logic: Where is the next fix? (The Shock Doctrine, pp. 86-7)
Neoliberalism represents its ideas as a socially neutral means for curing and improving some homogenous entity called THE ECONOMY, which is bestowed with magical powers that could benefit all of humanity while correcting itself if those meddling and inefficient governments, unions, and other social institutions would just stay out of the way. But if we reflect on what has happened around the world since the 1970s, it seems that every time a society has put its faith in this doctrine, the “invisible hand”reaches into the wallets of the working masses and hands over their money to corporations and a small class of people who were wealthy to begin with. Then the invisible hand slaps us in the face, reminds us that we still owe more money, and orders us to get back to work. In this sense, we should consider neoliberalism as an ideology--not as an outright lie but as a collection of half-truths that make universal claims but are in fact designed to favor an elite class at the expense of the majority. Neoliberalism has created a social crisis in our world not because of its failures but because of its successes in redistributing more wealth to the wealthy. Here is David Harvey's pespective:
We can, therefore, interpret neoliberalization either as a utopian project to realize a theoretical design for the reorganization of international capitalism or as a political project to re-establish the conditions for capital accumulation and to restore the power of economic elites...I shall argue that the second of these objectives has in practice dominated. Neoliberalization has not been very effective in revitalizing global capital accumulation, but it has succeeded remarkably well in restoring, or in some instances (as in Russia and China) creating, the power of an economic elite. The theoretical utopianism of neoliberal argument has, I conclude, primarily worked as a system of justification and legitimation for whatever needed to be done to achieve this goal.(Harvey, A Brief History of Neoliberalism, p. 19)
Neoliberalism is both an economic technique for restoring the class power of the richest capitalists (especially in finance) and an ideological smokescreen that disguises this upward redistribution of wealth in a haze of pseudo-scientific propositions. For his argument, Harvey draws on data accumulated by the French economists Gérard Duménil and Dominique Lévy, who have documented the increasing holdings of wealth and national income among the richest of the rich in every part of the world where neoliberal "reforms" have been enacted since the 1970s.
***In the video below, Duménil discusses Neoliberalism 101 with Real News in a 9 minute interview that is worth watching if for no other reason than to hear a French academic say "bullshit" with his cute little accent around the 7 minute mark***
In the United States, neoliberalism became a dominant ideology with the ascent of Ronald Reagan to the Presidency in 1980, but its tenets were first imposed through non-democratic measures during the fiscal crisis of New York City in 1975. The city had been running a budget deficit due to a combination of rising expenses and a declining tax base resulting from deindustrialization and decades of white flight. In the final hour before the city was to declare bankruptcy in 1975, a group of investment bankers led by Walter Wriston--Citibank CEO and future economic adviser to Ronald Reagan and George W. Bush--arranged a bailout on terms that cut deeply into the power of municipal unions, imposed wage freezes, defunded social services, and charged tuition on students in the city's public university system. This proved to be the first instance of neoliberal "shock therapy" applied on American shores, again without any sort of democratic mandate. In David Harvey's words,
This amounted to a coup by the financial institutions against the democratically elected government of New York City, and it was every bit as effective as the military coup that had earlier occurred in Chile. Wealth was redistributed to the upper classes in the midst of a fiscal crisis.
As discussed in my book, the social chaos that ensued in New York during the second half of the 1970s spawned, at roughly the same time, the growth of punk at CBGB's in Lower Manhattan and the hip hop subculture in the South Bronx. The 1975 fiscal crisis has proven to be a decisive turning point in the destruction of the Keynesian welfare state in favor of neoliberal policies imposed primarily by financial interests. As Harvey says,
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 event of a conflict between the integrity of financial institutions and bondholers' 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 well-being of the population at large.
No comments:
Post a Comment