The concept of neoliberalism first arose out of the left in November 1999, amidst the cataclysmic protests surrounding the World Trade Organization. From the beginning, the term was bound up in anti-capitalist and anti-globalization movements . Despite this, there was a section of the movement that saw neoliberalism not as an outgrowth of capitalism, but as something different from it entirely. Susan George, who spoke about ““the harmful consequences of globalization,” is one such thinker . In this essay, I want to outline what exactly neoliberalism is, and then explain how it is connected to capitalism. Ultimately, I will argue, Marxist political economy is the only lens through which we can properly understand-and fight against-neoliberalism.
In order to understand why this is the case, we need to familiarize ourselves with some basic aspects of Marxist political economy. Chiefly, we need to understand contradictions. It may be obvious to readers, but a contradiction is essentially “a combination of statements, ideas, or features of a situation that are opposed to one another” . It is “a…situation in which inconsistent elements are present” . For Marxists, capitalism itself is founded on a number of important contradictions. For our purposes, we need to understand that there is the contradiction between the social character of production in large scale machine production by collective labor in factories on the one hand and the private appropriation of the product of labor due to private ownership of the means of production on the other hand. A small part of the new material values created by the workers goes to them as wages for their subsistence. The surplus value is divided among the capitalists as profit, the banks as interest on loans, and the landlord as rent.
To maximize profits, the capitalists keep on enlarging the constant capital for equipment and raw materials and keeping down the variable capital for wages. Every commodity contains the old material values (previously congealed labor) from the use of the raw materials and depreciation of equipment and new material values that only living labor power (expressible in average socially necessary labor time) can create .
The drive of the capitalists to maximize profits by enlarging constant capital and pushing down wages is that it results in the crisis of relative overproduction. It becomes more difficult for workers to buy what they produce as the capitalist class takes in more profit and the real purchasing power of the working class declines. As such, workers become increasingly immiserated while capitalists accumulate more and more wealth. In common parlance, “the rich get richer and the poor get poorer” . Capitalism, therefore, is based on exploitation. Workers operate machines collectively, and they are all paid wages for doing so. This wage, however, amounts to only a fraction of the value the workers produced. It is just enough to keep them coming to work the next day, and to ensure that the next generation of workers can survive to sell their labor power in the future. The rest of the value is appropriated-stolen-by the capitalist who owns the machines the worker used to produced the value.
This is where the collective-private contradiction makes itself clear. The process of producing value-the labor process-is performed by large masses of people packed into factories, side by side. They are forced to interact with one another in order to produce value. Under capitalism, there is no such thing as individual labor. Even small business owners, Marx argued, would undergo a process known as proletarianization, in which market mechanisms drove small owners out of market competition and into factories. For Marx, the growth of capital meant the growth of the working class. As capitalism develops, as the means of production become concentrated in fewer and fewer hands, small owners would be stripped of their own means of production. They would eventually be left with nothing to sell but their labor power. As such, social labor would proliferate-become more and more common. In this sense, social labor is a defining characteristic of the capitalist mode of production .
Despite this, means of production under capitalism are not owned by workers as a class. They are operated by workers (note the plural) but are owned by a singular capitalist. The process of value production is collective, but the process of value extraction is private. This is what makes exploitation possible. The value stolen from the worker goes to the capitalist, who can dispose of it however they desire. They can reinvest it into their business to make it more competitive, or (as is becoming increasingly more common) they can consume it themselves. Regardless of what the capitalist chooses to do, the value produced by the working class (in a collective fashion) will never go to benefit that class. It will always benefit the private capitalist (or small group of private capitalists) who owns means of production. Value produced collectively goes to benefit individuals. This is the contradiction at the heart of capitalism.
How does this relate to neoliberalism? I think it is necessary, here, to offer a simple, working definition of what neoliberalism is. David Harvey, in his book A Brief History of Neoliberalism, provides just such a definition. Neoliberalism, Harvey writes, is “a theory of political economic practices that proposes that human well-being can best be advanced by liberating individual entrepreneurial freedoms…within an institutional framework [of] strong private property rights, free markets, and free trade” . He goes on to write that neoliberalism “seeks to bring all human action into the domain of the market” . In short, neoliberalism offers a set of market-based solutions to social ills. It supposes that problems experienced collectively can be conquered by individuals. An important aspect of this an antipathy to state intervention. The state, in the neoliberal understanding, only gets in the way of individual entrepreneurs who want to alleviate problems. Hence, deregulation is a prime aspect of neoliberal practice. To quote Steger and Roy in Neoliberalism: A Very Short Introduction, “the state is to refrain from interfering with the economic activities of self-interested citizens” . Neoliberalism presents a profound hatred of collective action in favor of individual motivation. This does not mean, however, that the state under neoliberalism is impotent, ineffectual, or meaningless. On the contrary. Although the regulatory and public service components of the state will be stripped bare under neoliberalism (we will examine this in more detail later), the military and police-the repressive state apparatus-will be inflated to new heights. Harvey writes that the state must “secure private property rights and…guarantee, by force if need by, the proper functioning of markets. Furthermore, if markets do not exist [in water, healthcare, and education, for example] then they must be created, by state action if necessary” . Neoliberalism, then, is not against the state. It is against the state when it interferes with market mechanisms, but is perfectly happy to lean on the state when the neoliberal order is resisted or challenged. Under neoliberalism, the state must protect the interests of the aforementioned entrepreneurial individuals (the capitalists). It will not hesitate to use violence to do this.
It should be noted that this process of violent state intervention has been common, literally, since the very beginning of capitalism. An important part of the development of capitalism in England, for instance, was the land enclosure. Rich landowners used their control of state processes to appropriate public land for their private benefit. This created a landless working class that provided the labor required in the new industries developing in the north of England. EP Thompson writes, “in agriculture the years between 1760 and 1820 are the years of wholesale enclosure in which, in village after village, common rights are lost” . He goes on to say, “Enclosure (when all the sophistications are allowed for) was a plain enough case of class robbery” .
As I alluded to above, a particularly important feature of neoliberalism is a hatred of regulation and, therefore, a desire to privatize key industries or sectors of the economy. This stands in sharp contrast to the Keynesianism of the 1920s and 30s. During the Great Depression, state intervention was deemed necessary as an instrument for countering crisis and reviving demand, production and employment. The Roosevelt administration established the New Deal and created the Works Progress Administration in order to re-employ large numbers of the unemployed in public works projects intended to “pump-prime” the economy. Subsequently, the use of fiscal policy and public works projects would become known as Keynesianism under Keynes’ theory of general equilibrium .
The use of Keynesianism in civil construction projects did not solve the crisis, but it did hold off fascism in America. In Nazi Germany, the use of public works to stimulate the economy glided into feverish military production. The worst consequences of the Great Depression were fascism and World War II. In the United States, expanded and intensified civil and military production for the war effort overcame the crisis and stagnation brought about by the Great Depression .
Neoliberalism did not arise until much later, in the 1970s and 1980s. Up to the 1970s, Keynesianism was touted as the economic policy of state intervention that countered the Great Depression, strengthened the US as a bulwark of capitalism, guided the reconstruction of the war-devastated capitalist economies under the Marshall Plan, and maintained equilibrium in capitalist economies. But this could not hold out for long. There was always some resistance to the new Keynesian orthodoxy. A minority of economists, notably Friedrich von Hayek and Milton Friedman, continued to hold on to the old doctrine. Campbell claims that “most finance capital never accepted the Keynesian compromise” , but that it accounted for only fifteen percent (15%) of capital . Governments and big corporations accepted Keynesian ideology, not because it was imposed upon them by working class strength, but because increased economic activity by the state was accompanied by much higher levels of profitability in the US and major European states than under the pre-war ideology of economic liberalism .
Keynesianism as an ideology reflected the reality of capitalism in the period after the Second World War. National economies were increasingly dominated by near-monopolies that worked with the state to struggle for global dominance against near-monopolies based in other national economies. The result was a seemingly relentless trend towards increased state involvement in capitalist accumulation that had begun in the 1880s. To those of us who were taught economics in the early 1960s, Keynesianism was the explanation for the sustained economic growth of the post-war years .
An important byproduct of the stratified capitalist economy (and of its arms spending in particular) in the industrially advanced countries was full employment and therefore a degree of working class strength, which, in the late 1950s and 1960s, capital had to make concessions to. But to see these concessions as causing the stratification or the long boom is to mistake cause for effect .
Keynesianism as an economic practice, rather than an ideology, was not put to the test until the first serious economic crisis in 40 years erupted in the mid-1970s – and it proved incapable of dealing with it. Capitalists were faced with a combination of recession and rising prices known as “stagflation” . The Keynesians were at a loss. As one, Francis Cripps, put it, they suddenly realised that “nobody really understands how the modern economy works. Nobody really knows why we had so much growth in the post-war world” . Within three or four years Keynesianism had been replaced as the orthodoxy by reborn versions of the ideas it had pushed aside four decades earlier. This was how neoliberalism came into being. It was not a question of states somehow coming to accept a wrong set of ideas. Rather, as Chris Harman writes, “there was a structural crisis of capitalism. That is, the policies, practices and institutions that had been serving well capitalism’s goal of capital accumulation ceased to do so. More narrowly, one can say that capitalism abandoned the Keynesian compromise in the face of a falling rate of profit, under the belief that neoliberalism could improve its profit and accumulation performance” .
When the economic policymakers deployed monetary and fiscal measures to stimulate the stagnant economy inflation would surge and when they applied the measures to dampen inflation, stagnation would further deepen. Dogmatic proponents of the “free market” based in the University of Chicago School of Economics took the lead in attacking Keynesianism and state intervention in the economy. They blamed wage inflation and social spending as the product of state intervention and the cause of stagflation .
The exponents of neoliberal economic policy stressed that the market must be given free rein and that the state must limit itself to the monetarist policy of adjusting the money supply and interest rates in order to cope with fluctuations in the market. They demanded the pushing down of wages and the cutback on social spending by government and making more capital available to the capitalists for investment by reducing taxes on them and giving all opportunities to raise capital and profits through trade and investment liberalization, privatization of state assets, deregulation and the denationalization of the economies of client-states .
It was here, at the peripheries of global capitalism, that neoliberalism was first put to the test. The Chicago Boys were brought in to reconstruct the Chilean economy. This was partly a reaction to working class militancy in the country. The reformist socialist Salvador Allende had gained massive popular support among the working class, students, and other disenfranchised groups. The business elite of Chile formed an opposition group known as “The Monday Club” and constructed deep ties with the Chicago Boys. Neoliberalism originated as an unabashedly anti-working class ideology meant to crush socialism and keep capitalists in power. Pinochet, after a coup against Allende in 1975, brought the Chicago Boys into the government. The team reversed nationalizations, crushed unions, and invaded indigenous territories in search of profits .
it is important to note the particular ramifications that neoliberalism has on states: it is not just an adoption of an economic model but rather a profound change in the order and makeup of a society. As Taylor notes, “the attractiveness of neoliberalism was its professed ability to reshape Chilean society” . The goal, then, is not merely economic reform, but the establishment of a new idea of society: one in which the market reigns supreme. The model not only offered a solution to the economic crisis, as described above, but also a move away from the state enterprise models of the past. This option must have seemed too alluring to turn down, and from 1975 onwards the regime moved towards full adoption of the model. The declared central tenets of the new model were strict monetary control, opening of the market to international trade, liberalization of capital markets, privatization of state assets and the orientation of the market towards increased exports as opposed to internal industrialization. As Barton notes, “within a five year period (1970-1975), the Chilean economy shifted from a command economy to neoliberalism,” . The military junta was fundamental for such a process to be realised, the harsh repression had effectively allowed the measures to be implemented with little resistance and with the banning of trade unions labor was very flexible with regards to low wages and discipline. As such, Chile became a haven for multinational corporations willing to invest and exploit such conditions along with domestic economic groups. As one would imagine this brought about a major change in Chilean society as a whole. The country was dubbed the Chilean Miracle by several economic observers, including free-market fundamentalist Milton Friedman . It may have been a miracle for the capitalist class, but the same could not be said of the workers who made up the majority of the population. Within two years, Chile was in the grip of a major financial crisis. Wealth inequality skyrocketed . In 1988 Chile had averaged seventeen percent (17%) unemployment, which peaked at thirty percent (30%) during the recession . In this period, wages plummeted to around the same level as 1956 levels . Per capita income was only eight percent (8%) above the 1971 rate and the average GDP growth rates of 3.4% were below those of previous governments . The numerous “modernizations” that took place under the regime, as we can see, had a profound effect on the people of Chile. The miracle must be viewed within the wider socio-economic context that centers the working class. Barton writes, “Chile retains a large social sector of marginalised urban and rural poor who have seen little or nothing of the fruits of the last quarter century of development” . Economic reforms did not coincide with improvement of social conditions for large swathes of the Chilean populace. The regime’s attempts at social policy were run by top down technocrats who managed the situation with no intention of involving those they were allegedly seeking to help. It also concentrated on specific sections of the populace rather than the whole; as such, vast swathes of people were simply ignored and left to fend for themselves. The “fuck you, got mine” mentality of market competition was on full display.
Perhaps the most telling impact of neoliberalism was the complete destruction of employment rights and labor freedom during the period. Neoliberalism, as we have seen, is characterized by its distrust of trade unions and labor organizations. In the Chilean context this can be seen in its extreme form. Not only were rights completely removed but also low level wages were a consistent feature. The rights of the working classes, it would seem, are not a part of the “freedom” neoliberalism professes to hold dear .
The neoliberal experiment had brutal effects on the working class of Chile, and it was not long before other capitalists-concerned as they were with extracting as much surplus value as possible from workers-came to adopt it themselves.
The neoliberal economic policy became dominant in world capitalist from 1979 to 1981, with Thatcher and Reagan wielding it as a weapon against the working class at home and abroad. The two had seen how effective it had been at holding down labor in Chile and understood the value it had for capitalism as a whole. They claimed that the more savings or capital in the hands of the monopoly capitalists translates automatically into productive investment in the so-called free market. In the next three decades, it was made to appear that there was no economic problem that could not be solved by opening up the market and allowing the interests of a few individuals to dictate the lives of millions of people .
The ruling-class counteroffensive was put to the test in Britain, where Margaret Thatcher was elected leader of the Tory Party in 1975. She became prime minister in 1979 and went on to win two more general elections, remaining in office until 1990. She was a firm advocate of neoliberalism .
The previous Tory government had been broken by industrial action in 1972 and 1974. Thatcher was determined to mount a full-scale counterattack against the unions, the welfare state, and the working class. The miners were the most important target. They had spearheaded the struggle against the previous Tory administration .
A massive program of pit closures provoked the miners into a desperate battle to save their livelihoods and communities. It turned into the longest mass strike in history-150,000 workers on strike for a year (1984-1985) . The miners faced paramilitary police violence, courtroom frame-ups, and a barrage of media lies. They were eventually starved back to work .
The defeat of the miners broke the back of British trade unionism. In the early 1970s, the British working class was one of the best organized and most militant in the world. Since 1985, union membership has halved . Over the last 20 years, the British strike rate has been lower than at any time since the 19th century .
Most immediately, neoliberalism enabled Thatcher and her successors in Britain to unroll a program of cuts and sell-offs. privatizing nationalized industries and public services fragmented large bargaining units formed of well organized public-sector workers, creating conditions in which wages could be driven down as rival employers seek to undercut each other in the competition for franchises and contracts .
This is the real purpose of ‘marketization’ and ‘privatization’: they are mechanisms to weaken union organization, ratchet up insecurity, drive down wages, and redistribute wealth from working people to the capitalist class. Neoliberalism is a weapon against labor .
In the United States, Ronald Reagan also pursued the neoliberal agenda. The international economic institutions-the International Monetary Fund (IMF), World Bank and now the World Trade organization-became fortresses of neoliberalism, pitilessly dominating the “poor” countries on behalf of imperialism to open up their services, industry and agriculture to the rich countries, privatise their industries and make their natural resources freely available to foreign looters. The councils of the European Union, especially the European Central Bank when it was founded, became increasingly influenced by neoliberal market fundamentalism.
Reagan declared that “government was not the solution, but the problem” . As head of the government he strove to make that true for the working class. One of his first acts as President was to destroy the air traffic controllers’ union. When PATCO went on strike in August 1981 Reagan declared the strike illegal and sacked more than 11,000 strikers . Neoliberalism is thus a return to the economic liberalism of the nineteenth century. It is necessarily repressive of the working class, as its central aim is to restore the unfettered hegemony of capital.
Even more important than the election of Reagan was the appointment of Paul Volcker as head of the Federal Reserve, the US central bank, in 1979 . Volcker proceeded to ‘deal with’ inflation by yanking up interest rates and allowing mass unemployment to develop. Since the United States was the hegemonic capitalist power, this caused interest rates to rise all over the world. Financial shenanigans from the previous decade came back to haunt the world economy. In the two oil price crises of 1973 and 1979 the oil exporting countries had won a fistful of ‘petrodollars’ on the back of the oil price rises . They actually did not know what to do with all this money. The big western banks had been congratulating themselves at how they had recycled the petrodollars. They took this money and hurled it at less developed countries in the form of third world debt, twisting the arms of finance ministers in Latin America to take the cash. But the increase in interest rates in the 1980s made these less developed countries unable to keep up the payments.
Mexico was first country to default, in 1982. Throughout the decade the IMF moved pitilessly through Latin America demanding their pound of flesh on behalf of the imperialist powers. They demanded that the governments of Latin America stop trying to improve the living standards of their citizens and instead pump out natural resources to pay their debts. This was called export led industrialisation, all part of the neoliberal project .
The result was a catastrophe for Latin America, what was dubbed the ‘lost decade.’ From 1980-89 output and living standards fell throughout the continent. Latin America’s share of world output fell from six percent (6%) to three percent (3%) over the decade. Whereas output had gone up by 2.5% a year through the crisis decade of 1973-80, from 1980-89 it fell by 0.4% a year. As late as 2005 Latin America still had a debt burden of $2.94 trillion, most of it inherited from the 1980s. This was nearly two thirds of all ‘emerging market’ debt .
In 2003 a CEPR Briefing Paper predicted miserable growth of 0.2% from 2000-2004 – 1% for the whole period. They pointed out that over the previous 20 years 1980-99 the region grew by just 11%, a worse result than during the Great Depression. By contrast in 1960-79 Latin America grew by eighty percent (80%) . These figures paint a picture of the poverty, malnutrition and disease that are the achievements of neoliberalism.
Under neoliberalism, private capital replaces state capital as the main provider of public services. Instead of recycling tax revenues as a ‘social wage’ in the form of homes, hospitals, schools, and welfare, the state pays corporate profiteers to become ‘providers’, and they remodel provision according to ability to pay. Unions are weakened, services rationed, and costs cut. The main of neoliberal capitalism beneficiaries are the owners of huge multinational corporations .
The security firm G4S is an example. It is the product of a series of acquisitions and mergers. It now employs 650,000 people in 125 countries: thirty-nine percent (39%) of them in Asia , nineteen percent (19%) in Europe , seventeen percent (17%) in Africa , nine percent (9%) in North America , and eight percent (8%) in Latin America .
In Britain, G4S runs prisons, police services, and security at public events. It is one of the main beneficiaries of public-sector privatization. Its revenue from British operations in 2011 was £1.59 billion. It paid only £67 million (1.5%) in corporation tax .
The end of state-managed capitalism does not, to return to an above point, mean the end of the state. Its roles in economic management, industrial investment, and welfare provision have been curtailed. But other roles have been enhanced.
The state has always been a huge market for capital. But business opportunities are increasing massively as public services are sold off. The British government is currently privatizing the National Health Service, for example. The annual health budget is worth £125 billion. A handful of private companies will soon dominate healthcare in Britain .
The state (including inter-state bodies like the EU and the IMF) also continues to play a central role in economic crisis-management. Since 2008, it has functioned as a mechanism for shovelling trillions of dollars into bankrupt banks in order to prop up international finance-capital .
The state’s primary and original role as an armed force for use against the enemies of the ruling class at home and abroad-anti-capitalist demonstrators, striking workers, guerrilla insurgents, independent regional powers-has increased during the neoliberal era .
The relationship between neoliberalism and capitalism proper is hopefully become clear. Neoliberalism offers a set of market-based solutions to social ills. Poverty, bigotry, etc can all be cured by unchaining the market. David Harvey writes that Neoliberalism is about “liberating individual entrepreneurial freedoms” . There seems to be a contradiction here: poverty (for example) is experienced collectively, almost in a literal sense. Think of slums in which people are packed into houses like sardines. One in six urban Indians lives in slum housing that is cramped, poorly ventilated, unclean and “unfit for human habitation,” according to the country’s first complete census of its vast slum population. In other words, nearly 64 million Indians live in a degrading urban environment . This example demonstrates that there is no individual poverty.
Marx, as I discussed above, wrote about proletarianization, in which the petty bourgeois were forced into selling their labor through market mechanisms. In this sense, poverty “makes collective.” It subsumes the individual to a greater whole, the “unwashed masses” . Poverty is collective precisely because the labor process under capitalism is collective. This is the fundamental contradiction. Neoliberalism is an expression of this contraction. Collective, social problems are mitigated by private, individual interests. The base of Neoliberalism is the extension of the collective-private contradiction to spheres outside the labor process. It privatizes healthcare, in contradiction to the collective experience of illness . It privatizes water while thirst remains a social ill .
Neoliberalism is the marketization of everything. Therefore, it is also the “contradictization” of everything. It makes life contradictory, spreading the social-private contradiction of the capitalist labor process. Neoliberalism, in this sense, is capitalism set free. Capitalism writ large. Capitalism unchained. Neoliberalism is not the concoction of a cabal of evil men (although the Chicago Boys could certainly be described in these terms). Neoliberalism is a specific stage in the development of capitalism: brought about to crush labor struggles and maintain the supremacy of capital amid intensifying struggle against it . Neoliberalism is an effort to roll back the gains of five decades of working class struggle around the world. It was an enforced spreading of capital on a global scale, bringing markets to people who had been “left out” of the “benefits” of capitalism.
There is no way to construct a “compassionate capitalism” without neoliberalism, because the central contraction that neoliberalism is an extension of the central contradiction of capitalism-the contradiction between social labor and private ownership. This is, as I have argued, an intrinsic feature of capitalism. Since neoliberalism is simply the extension of this contraction to the whole of social life, the seeds of neoliberalism are embedded within the capitalist mode of production itself. If we want to defeat neoliberalism-and we do-we must defeat capitalism as a whole.
- Interview in Socialist Review 242 (June, 2000).
- Bourdieu, 1998, pp.6-7.
- Marx, Op. Cit.
- David Harvey, A Brief History of Neoliberalism. 1989. p.2
- Ibid, 3.
- Steger and Roy, Neoliberalism: A Very Short Introduction. 2010. p.3.
- Harvey, 4.
- Thompson, E. P. (1991). The Making of the English Working Class. Penguin. p. 217.
- Campbell, Al, 2005, The Birth of Neoliberalism in the United States, in Alfredo Saad Filho and Deborah Johnston (eds), Neoliberalism, A Critical Reader (Pluto).
- Campbell, 2005, p.189.
- Quoted in Matthews, 1968, p.556. See also Tomlinson, 1981.
- Harman, Chris, 1995, Economics of the Madhouse: Capitalism and the Market Today (Bookmarks).
- Harvey, 8-10
- Taylor, M. (2006) From Pinochet to the ‘Third Way’ Neoliberalism and Social Transformation in Chile (London, Pluto Press).p.51 2006
- Barton, J. (1999) Chile, in Buxton, J. and Phillips, N. (editors) Case studies in Latin American Political Economy (Manchester, Manchester University Press) 1999. p.67
- Barton p.66 1999
- Barton p.67 1999
- Maloney, W.F. (1997) Chile, in Randall, L. (editor) The Political Economy of Latin America in the Post-war Period (Austin, University of Texas Press) p. 53 1997
- Taylor p. 53 2006
- Harvey, Op. Cit.
- “Paul A. Volcker – Council on Foreign Relations”. Cfr.org.
- Another Lost Decade? CPER. Mark Weisbrot and David Rosnick.
- Oppenheim, L.H. (1993/1999) Politics in Chile: Democracy, Authoritarianism, and the search for Development, 2nd edition (Oxford, Westview Press).p. 143. 1999
- Oppenheim p. 143 1999
- Maloney p. 53 1997
- Barton p. 72 1999