The late 70s and 80s marked a massive turning point in economic and cultural orthodoxy, the consequences of which are being laid before our eyes today. The soaring inequality we experience, both on a local and global dimension, can be traced back to the genesis of neoliberalism. David Harvey understands liberalism as an attempt to restore power to the capitalists, who were threatened by both the welfare state and labor. It advocated cutting back on social spending, offered tax breaks to the ultra-wealthy, and used the military to make the whole globe a playground for investors.
What is Neoliberalism (According to David Harvey)?
Neoliberalism has become one of those words that is thrown around frequently, to the degree that its meaning seems to have become somewhat muddled. However, according to David Harvey, neoliberalism marks a very specific form of capitalism: the establishment of its total hegemonic domination, in all aspects of life.
The genesis of neoliberalism can be traced back to the political and economic movements of 1978-1980. Deng Xiaoping was already convinced that communism had to give way to market liberalization in China; the USSR was also giving ground, slowly turning towards the West; Margaret Thatcher was elected Prime minister in the UK, and Ronald Reagan was president in the USA.
Advanced capitalist countries had once enjoyed a temporary, stable, crystallized set of economic relations that diffused the tension between labor and capital. Most workers in advanced countries enjoyed a relatively high quality of life, in contrast to other times and places in history. Neoliberalism was set to undo all of that in what would become an assault on labor, trade unions, social spending on various services, along with industry regulation.
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These new, neoliberal policies were designed to unleash the powers of the market, which neoliberals believed lay still latent due to government regulations keeping them in check. Capital had to become global, faster, larger, and more dynamic in order to free countries from their apparent stagnancy. The state was to be withdrawn from its points of intervention in the economy. Its duty would be to create the markets, maintain strong property rights, and expand them elsewhere—by force if needed. Everything else would be an overreach of government.
How and Why Did the Turn to Neoliberalism Happen?
The compromise between labor, state, and capital had the function of providing some tranquillity after World War II and the Great Depression. Indeed, the labor movements at the time were so big and influential that a revolution wasn’t out of the imagination of the workers at the time. In the US, for example, socialist activist Eugene Debs managed to gather almost one million votes running whilst being imprisoned in 1920.
With the great economic slump and the triumph of the Soviets, socialism had gotten even more popular by the end of World War II. China and the Soviet Union also strongly limited the reach of the US across the globe before their eventual liberalization. The belief at the time was that the state had to interfere to make sure both the workers and the capitalists were getting a fair deal. The underlying idea in the Western world was that both extremes, Capitalist and Communist, were very damaging when adopted raw. The state had to lessen the friction between class relations and keep them at arm’s length. This is what Harvey calls “Embedded liberalism.” According to Harvey, by the end of the 1960s, this order of liberalism and Keynesianism began to break down.
The Effects of Neoliberalism
After the economic boom of the 50s and 60s, the contradictions inherent in capitalism began to surface again. Inflation was soaring, and unemployment was rising yearly. This led to a point of stagnation that persisted throughout the 70s. Tax revenues could no longer match up with social expenditures. Fixed exchange rates were also abandoned in 1971, and gold could longer function as the foundation of international exchange. The friction between social classes, now that economic growth had somewhat stagnated, was now bubbling to the surface. Neoliberalism was a project that had the purpose of restoring the power of the ruling class in its raw nature, with no state interference to soften the blow.
The implementation of neoliberal policies has always had a tight correlation to increases in the national income share of the wealthiest one percent of the population. This increase was almost never followed by an increase in real wages to the same degree, which is why neoliberalism has always widened the inequality gap whenever it is applied. The national income share of the top one percent in the US went from less than 8% in the 70s to almost double that, at 15%, by the end of the millennium. In the UK, it went from 6.5% in 1982 to 13% by the year 2000.
How Neoliberalism Manufactures Consent
Convincing the masses that the ultra-wealthy need even more money, and that they need to be taxed even less, presents some very obvious difficulties. Proponents of neoliberalism would need to buy the consent of the masses with a different currency. The first strategy is that of stoking anti-government sentiment.
Obviously, a lot of people take issue with politicians and governments. They’re thought to be corrupt, bloated, inefficient, and even authoritarian. The existence of the government beyond its market-designed parameters is a threat to the freedom of the individual. These kinds of anti-government sentiments are then later used to make running on platforms of cutting social spending and tax breaks for the rich more acceptable.
The concept of freedom promoted and protected by anti-government ideas is a negative type of freedom. The individual freedom in the neoliberal confine is freedom in the market, your freedom to submit your labor for exploitation, and the capitalist’s freedom to make a profit from it.
Neoliberalism in Practice: The Chilean Experiment
Within neoliberalism, the ethics of capitalist transactions mark the horizon of the imagination of the subjects living under its rule. Alternative ways of functioning become unimaginable. The figures of neoliberalism hijacked the notion of individual freedom and rendered it a one-dimensional freedom: the freedom of buying and selling. This freedom was threatened by all forms of state intervention in the market and had to be preserved. The neoliberal state had the sole function of creating the conditions necessary for capital accumulation but not to interfere with its process.
According to David Harvey, the first real neoliberal experiment took place in Chile. In 1973, Chile’s democratically elected socialist leader, Salvador Allende, was overthrown in a military coup which was backed by US intervention. The coup resulted in the dictator Augusto Pinochet being installed as Chile’s leader. Pinochet brutally suppressed every movement on the left, from strikes, to trade unions, to any similar popular organization. Pinochet killed thousands in his crusade against leftist movements that threatened US and capitalist interests.
A group of economists from the Chicago school of economics would become close advisors of the dictator in regard to his policies; in particular, economist Milton Friedman played a central role. With the help of their advice, the Chilean economy was opened wide, ready for exploitation and accumulation once again.
This experiment had devastating effects on the Chilean quality of life, which dropped significantly, and the crisis culminated with the debt crisis in 1982. The experiment, however, yielded data and results that could now be applied from the periphery of the world economy to its center: the UK and USA.
The Neoliberal State
David Harvey notes that the neoliberal state has often evolved beyond its initial theoretical functions proposed by Hayek or Friedman. The state uses its monopoly on violence to guard and preserve personal freedom. Private property and free trade are seen as the fundamental building blocks of this freedom. The state should keep industry nationalization at the lowest possible minimum, ideally only having control over the legal bodies, banking, law enforcement, and the military.
In this sense, the state only draws the parameters necessary for fee exchange to take place. Anything more is off the table. If there were any other sectors run by the state, they must be given up to privatization. This climate serves as the final inversion where the subject-object relation can take place. As David Harvey notes:
“While personal and individual freedom in the marketplace is guaranteed, each individual is held responsible and accountable for his or her own actions and well-being.”
This framework discourages any systematic analysis and replaces it with the individual judgment of specific actors. Therefore, when a crisis occurs, it is the fault of the bankers who loaned money without careful consideration of the debtor’s ability to pay them back, or maybe even the fault of the debtors for taking loans they can’t pay, but it is never the fault of the system. However, it is the rules of the system that lead actors towards following in their best interest in the manner that is permitted by the system itself. Critique of the system becomes far more difficult to articulate, as the system of relations in neoliberalism achieves an internalization in the subject: the system is not even perceived as being there, nor can its alternatives be conceived.
The Consequences of Neoliberalism According to David Harvey
Neoliberals often justify the rising inequality caused by their policies as being a consequence of growing economies. However, David Harvey notes that neoliberalism also failed to stimulate growth, which was the main rationalization behind its adoption. Growth rates before neoliberal policies were 3.5 % in the 60s and 2.4 in the 70s. After its adoption, growth rates fell to 1.4 in the 80s and 1.1 in the 90s. These policies lead to a thinning of the middle class and, eventually, into a clearer split between those living paycheck to paycheck and those living on surplus value, interest, or rent.
In Russia, the consequences of neoliberal shock therapy were catastrophic, with millions slipping into poverty after the fall of the USSR, and per-capita income diminishing by 3.5% annually. Life expectancy dropped rapidly, up to 5 years in men. In the UK, the percentage of the population living below 60% of the median income went from 13.4 before Thatcher to 22.2% under Thatcher. Income inequality soared everywhere neoliberal policies were implemented, from Chile to the US and the UK. Safety nets and labor movements were dismantled, leaving working people at the mercy of their employers.