The Age of Neoliberalism

8/3/2019 The Age of Neoliberalism

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The Political Economy ofGlobal Development 2:

The Age of Neoliberalism

Alf Gunvald Nilsen

SOS110/Autumn 2011


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RECAP AND ORIENTATIONS


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Chile, 11 September, 1973:

The CIA-backed forces of the Chilean Army, leadby Augusto Pinochet, launch a violent coup

detat and overthrows the democraticallyelected government of Salvador Allende

3,200 people executed or disappeared, 80,000imprisoned the inauguration of two decades of

military dictatorship

US-trained Chicago Boys, with the direct

support of Milton Friedman, implements thepolicy designs outlined in The Brick a 500-page plan for economic restructuring of the

Chilean economy designed in dialogue witharmed forces prior to the coup

Inflation, unemployment and debt spiralled

when the economy stabilized in 1988 45% of thepopulation had fallen below the poverty line,whilst the incomes of the richest 10% had

increased by 83%

Next to join the experiment was Argentina/1976


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The shift from liberal to organized capitalism in mid-C20 represented are-embedding of market forces through state regulation propelled by

social movements from below

Labour-friendly regimes (GN) Development-friendly regimes (GS)

Workers movements Anti-colonial movements

With the breakdown of labour- and development-friendly rgimes andthe resurgence of international finance and free trade, neoliberal

capitalism can be regarded as the first phase of a new doublemovement

Ray Kiely Clash of Globalizations

We can, therefore, interpret neoliberalization as apolitical projectto re-establish the conditions for capital accumulation and to restore

the power of economic elites

David Harvey A Brief History of Neoliberalism

Central to the transition to neoliberal capitalism has been thedisembedding of markets from state regulation


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One condition of the post-warsettlement was that the

economic power of the upperclasses be restrained and that

labour be accorded a muchlarger share of the economic pie

To have a stable share of anincreasing pie is one thing. Butwhen growth collapsed in the

1970s then the upper classes

everywhere felt threatened The upper classes had to movedecisively if they were to protect

themselves from political andeconomic annihilation.

David Harvey A Brief History ofNeoliberalism

The decisive move came in theform of neoliberalism across

the global North and South


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In the GN, neoliberalism became hegemonic as a new economicorthodoxy that regulated public policy at state level in the 1980s

Neoliberalism = A policy regime which restructured the relationshipbetween state and market by disembedding the economy from socialregulations and restrictions imposed during the age of OC

Accumulation strategies:

! The rise of flexibleaccumulation! Financialization and thecentrality of shareholder value

! The rise of a transnationalproduction process

Form of state:

! Restrictive monetary and fiscal policies! Reduced levels of state intervention

! Reduced public expenditures! Tax cuts

! Privatization/liberalization

Neoliberalism in the Global North

In the GN, the key agency promoting neoliberalism as a political projectwas the New Right conservative political parties that had broken with the

Keynesian consensus of the post-war era and developed an ideologycentred on neoclassical economic theory/liberal individualism


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The policy-response to the international debt crisis was shaped by theemergent neoliberal hegemony in the development community

Think-tanks

The WashingtonConsensus

IFIs and theFederal Reserve

US Congress andAdministration

Consensus on what would be regarded in Washington as a desirableset of economic policy reforms based on neoliberal economics

JohnW

illiamson:WhatWashing

tonMeansbyPolicyRef

orm

JohnWilliamson:Democracy

andtheWashingtonCo

nsensus

This generated a particular conception of the debt crisis:

! Countries with balance of payments problems had been pursuingflawed economic policies

! The source of the problem was internal the inefficiency and cronyismgenerated by state intervention

Reforms centred on policy changes and internal economic restructuring

Neoliberalism in the Global North


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Devaluation ofcurrency

Downsizing publicexpenditure

Deregulation ofprices and trade

Privatization

Imports dearer, exportscheaper improvedtrade balance

Reduce the needfor externalcapital supplies

Remove subsidiesand enhancecompetition

Sale of public

utilities to increaseefficiency

IMF Short-termeconomic stabilization

World Bank Long-termeconomic restructuring

Structural adjustment

From 1978 to 1992, 70 states underwent 556 stabilization and structuraladjustment programmes primarily in Africa and Latin America

NB! Neoliberal restructuring in the global South was not simply an impositionby the IMF/WB/GN it was pursued through alliances with domestic

economic/political elites in the GS

The 1990s witnessed a new round of structural adjustment this time centredon Eastern Europe and Asia

Engberg-Pedersen Limits of Adjustment in Africa Mosley, Harrigan and Toye Aid and Power

D. Green - Silent RevolutionS. George:A Fate Worse than Debt


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Neoliberalism in the 1990s: The Third Way in the Global North

The 1990s witnessed a shift from the pure neoliberalism of the New Right tothe softer Third Way agenda pursued by New Labour, i.e. social

democratic parties that had distanced themselves from the workers

movement and state-centred policy regimes

3W politics was posited as an alternative to the state-centrism of OC andthe market-centrism of the New Right

But: A defining feature of the 3W agenda was that globalization wastaken for granted as a reality that it was impossible to escape from:

Globalisation is an unstoppable forceTony Blair

The development of markets and technologies are posited as being arealm that is beyond the reach of politics

In this context, the imperative for states is to adopt policies in order to draw

on the opportunities that globalization presents In particular, it is importantto develop policy regimes that develop the skills of the workforce to be in

sync with the demands of the New Economy and the information age

A flexible, skilled labour market will ensure competitiveness in the worldeconomy Competition will ensure growth


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The discourse of the Third Way has beenused to depoliticize social and politicalprocesses Social change is portrayedas a technical matter of adaptation, as

opposed to conflictual politicaldecision-making

Political tasks are handed over toneutral expert institutions that developrules and regulations that are binding ongovernments e.g. independent central

banks or transnational institutions likethe WTO

This context a context that has beencreated by deliberate political actions

is then portrayed as an objective, non-political constraint that defines what it is

possible and what it is impossible forgovernments to do in the context of

globalization

3W = Acceptance of globalization in itscurrent neoliberal form


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Neoliberalism in the 1990s: The Third Way in the Global South

In the 1990s, there was a turn away from the Washington-consensus and its understanding of development as successful

participation in the world market towards a more comprehensive

emphasis on institution-building and poverty reduction

Good governance Market-friendly intervention Social capital

The emergence of the post-Washington consensus became manifestin the reorientation of World Bank strategy from Structural Adjustment

Programmes to the Comprehensive Development Framework and

Poverty Reduction Strategy Papers

PRSPs = A strategy paper that describes a countrys macro-economic,structural and social policies and programmes over a 3-year period,

and serve as the basis for concessional lending from IFIs

Intended to promote country ownership and participation, thePRSPs is (a) to be formulated by developing countries themselves, inorder to reflect the specific circumstances of the country in question,and (b) to include input from civil society organizations in order to

strengthen domestic support for policy reform


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But: The content of a PRSP has to be in line with the Country AssistanceStrategy of the WB and the Poverty and Growth Reduction Facility of the IMF

For example there is a clear convergence in terms of what is definedas good macroeconomic policy: trade/financial liberalization,

privatization, fiscal prudence, and deregulation of labour markets

And while the importance of social safety nets is recognized, this is (a)conceived of in terms of targeted subsidies of the poor, not universal welfareentitlements, and (b) limited by the overall framework on public expenditure

And non-economic aspects of development are still conceived of interms of their utility to the market: Investment in education contributes tothe accumulation of human capital, which is essential for higher incomesand sustained economic growth Education helps reduce poverty by

increasing the productivity of the poor (WB)

Washington-consensus:

! Shallow neoliberalism! Shallow interventionismMacroeconomic focus onmarket reforms/minimal state

Post-Washington-consensus:

! Deep neoliberalism! Deep interventionism

Wider focus on reshaping socialrelations/institutional frameworks

P.Cammack:Wh

attheWorldBankMeansbyPovertyReduction

A Rckert: Producing Neoliberal Hegemony?Craig/Porter: The Third Way and the Third World


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A Global Neoliberal Regime: The WTO

1947/GATT: Intended to promote free trade and long-term reduction intariffs on imported goods, but with exceptions (textiles/agriculture/services)

Retained space for protection of infant industries

1970s to the 1990s

Selective extension offree trade principles

Regional free tradeagreements

1995: The WTO

Continuing work towardsreduced tariff rates

Expansion of the remit ofthe free trade principle

The WTO has served as a vehicle for both the extensive and the intensiveexpansion of neoliberal capitalism

The WTO is an example of the expert institutions that are central todecision-making in the 3W project

! Undemocratic decision-making! Double standards in free trade

! What about the need for trade protection?


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NEOLIBERALISM IN PERSPECTIVE


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Between 1980 and 2000, neoliberalismbecame hegemonic on a world scale

The neoliberal counterrevolution has

been a transnational process theneoliberal market logic has come to

define economic policy regimesglobally:

Synchronizing each national economicenvironment with an integrated global

economic environment, neoliberalism isthe policy grease of global capitalism

(William Robinson:A Theory of Global Capitalism)

Neoliberal restructuring was sold as asolution to the problem of economic

stagnation both in the global North andSouth

So what has 3 decades of neoliberalismachieved?


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M-C-M

M-C-M

M-C-M

M-C-M

M-C-M

Neoliberal restructuring has facilitated a shift in thespatial organization of capitalism

M C M = The production process

from national production processes linked through international trade


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The Myth of Global Convergence

Countries that align themselves with the forces of globalization andembrace the reforms needed to do so, liberalizing markets and pursuing

disciplined macroeconomic policies, are likely to put themselves on a path

of convergence with advanced economies, following the successful Asiannewly industrializing economies (NIEs).

International Monetary Fund

Kiely: The argument that the globalization of the market logic leads to globalconvergence between the economies of the North and the South is a myth

What is occurring in the global economy is a process of unevendevelopment characterized by increasing concentration of capital which

enhances accumulation in some regions and undermines it elsewhere

the globalization of production, insofar as it exists, has not led to anythinglike convergence in the world economy (Kiely)

There is a persistent core-periphery structure which is both social and spatial and this is evident in the workings of global commodity chains

GCC a transnationally linked sequence of functions in which each stageadds value to the process of production of goods and services


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A dynamic of polarization

Those parts of the production processrelocated to the South tend to be inlow-cost and lower value production

Core countries recovers most of thevalue added at the higher value endof production/distribution/marketing

Africas share of world trade: 4.1% in 1970 1.5% in 1995

LAs share of world trade: 5.5% in 1970 4.4% in 1995

Africas share of merchandise exports: 5.6% in 1960 2.1% in 2002

LAs share of merchandise exports: 7.5% in 1960 5.4% in 2002

Over 90% of manufacturing imports still come from ACCs

The same pattern can be found in FDI and global financial flows

developing countries face a problem not because theyare insufficiently globalized or integrated into the world

economy, but because the form that such integration takesserves to reinforce their (relatively) marginalized position

Ray Kiely: The New Political Economy of Development


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The failure of neoliberalism to promote developmental convergence acrossthe GN/GS divide is paralleled by its general failure to boost growth

Aggregate growth of world GDP per capita:

1960s: 3.5%1970s: 2.4%1980s: 1.4%1990s: 1.1%

Since 2000 the aggregate growth rate has barelytouched 1%

This combines with unprecedented levels ofinequality within and between countries and

persistently high rates of unemployment

But - neo-liberalism has been a huge successfrom the standpoint of the upper classes as it has

effected a systematic transfer of wealth and

income towards elites and upper classes

For example - US Top 0.1% income earners/share ofpersonal income = 1975: 2.5%/1999: 6%/2008: 10%

Top 1%, 2008 = 20% of all personal income


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Accumulation by Dispossession

Accumulation by Dispossession

Neoliberalism has been a political project for the restoration of the classpower of capital over labour It has worked by reversing the gainsmade by social movements across the North-South divide in C20

Privatization

Financialization Crisis management

Stateredistribution

The key effect of accumulation by dispossession is to redistribute existingsocial wealth rather than generate new social wealth

This is done by converting assets that were previously the common property

or public goods typically through state ownership or in the form of a socialwage to private property and the realm of capital accumulation

The outcome = Increase in inequality and the erosion of social citizenship

A by D has been instrumental in the intensive expansion of capitalism


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28.08.11: we could easily see the furtherspread of economic weakness to core

countries, or even a debilitating liquidity crisis

Christine Lagarde

01.09.11: PMIs across Asia, Europe and the USproduced the lowest readings of manufacturingactivity and orders since mid-2009 This came

at the end of a month that had witnessed thestagnation of growth in the Eurozone and its

core economies UK: Manufacturing shrunk atfastest pace in 2 years US credit downgrading

New austerity measures in Italy/Spain/ France

The summer months witnessed the second IMF/EU bailout of Greece and bailout of Portugal

This is the latest phase in a financial crisis thatstretches back to the 2008 sub-prime crisis,

which became a sovereign debt crisis with thebailout of Greece and Ireland in 2010, and thatnow seems to be on its way to a 2x recession

The crisis originates in the financialization thatis a central feature of neoliberal capitalism


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What is Financialization?

1980s By the end of the decade, the old structure of the economy,consisting of a production system served by a modest financial adjunct, hadgiven way to a new structure in which a greatly expanded financial sector

had achieved a high degree of independence and sat on top of theunderlying production system

John Bellamy Foster

Corporations rely lesson banks and are

more engaged infinancial markets

Households have becomeheavily involved in

financial markets: (i)assets/(ii) liabilities

Banks have changed seeking profits through

fees, comissions,currency trading

Financial liberalization Financial innovation

Finance as a modest helper ofproduction

Finance as an independentsector of the economy

From 1980 to 1995 international currency transactions increased six timesmore than world trade the ratio of currency transactions to total world

exports increased from 8:1 in 1980 to 48:1 in 1995


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Why Financialization?

The ACCs of the GN have experienced relatively low rates of profit from theend of the 1960s This reflects the decline of economic growth in the 3 core

areas of the global economy

A crisis of overaccumulation

Increase the rate of surplus value Eliminate unproductive capital

The neoliberal counterrevolution proceeded via a confrontation withorganized labour that established the basis for wage repression from 1979-90

As a result, productivity and profits didincrease but:

! The fruits of growth increasinglyaccrued to capital

! Profits have remained low at 75% ofthe average value of 1956-65

US: Profitability peaked in 1997;declined to 1979-83 levels by 2001

How is growth sustained in this context?


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Growth in the US economy has becomeincreasingly based on financial bubbles

Asset price bubbles: From1992-2000 the US experienced aneconomic boom centred onventure capital investments in theIT/high tech sector

VCI increased from $14.3 bill/1998to $54.5 bill/2000 1st ! 2000:

Corporate asset values = $15.7 trill The bubble went bust: 33% fall invalue of corporate assets

The IT industry collapsed with $230bill in bankruptcies/$2 trill marketvalue wiped out/$110 bill defaults

Household credit expansion : The

1990s boom was consumption-led Consumption/GDP = 67%

The period witnessed a substantialincrease in debt 65% of income inthe 1960s/95% of income in the late

1990s/139% of income in 2007

2007/US household debt = 99.9% ofGDP/total US debt = 352% of GDP

Debt-financed consumption, basedon a rise in asset values, fuelled the

boom/offset impact of decliningreal wages/budget deficit cuts

2000s: Economic downturn and impact of 9/11 countered by reducedinterest rates House prices rose 56% in 5 years US households extraced$750 bill against value of homes Sub-prime mortgages = $1.3 trill by 2007


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The response to the global banking crisis camein the form of massive bailouts:

! 12.7% of US GDP! 9.1% of UK GDPIn the recession that followed world real tradegrowth declined from an annual average of 7%1996-2005 to 2.5% in 2008 and !13.2% in 2009 A global jobs crisis: Between 2007-2010unemployment increased by 30 million

Recession prompted extensive public stimulus ofthe economy, amounting to 2.5% of nationalincome in OECD Driven by deleveraging byfirms, banks and households, the recession inturn undermined public revenue at a time whengovernments were facing increased expenses

2010: The EU/IMF bailouts of Greece andIreland signals the onset of sovereign debtcrises and a new age of austerity in the EU Austerity has resulted in a growth crisis


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The austerity drive is manifest in cuts in public deficits across the EU the 27 EU member states aim to cut deficits to a maximum of 3% of GDP

by the financial year 2014-15

Across the EU, these cuts have been concentrated on:-! Social benefits/welfare-! Public sector jobs and wages/pensions

-! Public infrastructure investments/privatizationSpain: Constitutional reform to introduce a cap on future public deficits

Limit to public deficit will be set at 0.4% of GDP from 2020

Similar measures have been taken in Germany and France i.e. neoliberal market discipline is embedded in the constitution

Recall Harvey on the modalities of accumulation by dispossession

Financialization Crisis management

Cp. the international debt crisis and the policing of developmentthrough structural adjustment in the global South


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We are ordinary people. We are likeyou: people, who get up every morningto study, work or find a job, people whohave family and friends. People, who

work hard every day to provide a betterfuture for those around us.

Some of us consider ourselvesprogressive, others conservative. Someof us are believers, some not. Some of ushave clearly defined ideologies, others

are apolitical, but we are all concernedand angry about the political,economic, and social outlook which wesee around us: corruption amongpoliticians, businessmen, bankers,leaving us helpless, without a voice.This situation has become normal, adaily suffering, without hope. But if wejoin forces, we can change it. Its time tochange things, time to build a bettersociety together.

Documents

The Age of Neoliberalism