A Brief History Of Neoliberalism

“All of this, including the pragmatism, provided helpful evidence to support the subsequent turn to neoliberalism in both Britain (under Thatcher) and the US (under Reagan) in the 1980s. Not for the first time, a brutal experiment carried out in the periphery became a model for the formulation of policies in the centre (much as experimentation with the flat tax in Iraq has been proposed under Bremer’s decrees).”

Harvey describes how the US-led economic restructuring of Chile after the coup in 1972 was a laboratory for neoliberals to implement their theory in policy. In this quote, he alludes to the centre-periphery geographic model, which describes relationships between nations through the metaphor of the centre, or core, countries or regions—which have wealthy capitalist economies—and the periphery, countries or regions that are developing or less wealthy. He uses this model to draw connections between Chile in the 1970s and Iraq in the 2000s, as they are both “peripheral” countries that are used by the “centre,” the United States, to experiment with policies.

“A ‘class compromise’ between capital and labour was generally advocated as the key guarantor of domestic peace and tranquillity.”

Harvey compares the neoliberal order of the 1970s-2000s with the dominant embedded liberal order of the post-World War II period. Under embedded liberalism and its Keynesian economic system, a blend of communist and capitalist policies was the norm. This ideology believed that the well-being of the working classes had to be balanced with the wealth accumulation of the elite class, a paradigm known as the “class compromise.”

“Redistributive effects and increasing social inequality have in fact been such a persistent feature of neoliberalization as to be regarded as structural to the whole project. Gérard Duménil and Dominique Lévy, after careful reconstruction of the data, have concluded that neoliberalization was from the very beginning a project to achieve the restoration of class power.”

Harvey relies in part on the work of two respected French Marxist economists, Duménil and Lévy, to argue that the true purpose of neoliberalism is to create and consolidate elite class power. The “redistributive effects” he is discussing here is the redistribution of wealth upward, away from the working classes and to the elite class.

“The word ‘freedom’ resonates so widely within the common-sense understanding of Americans that it becomes ‘a button that elites can press to open the door to the masses’ to justify almost anything.”

The concept of freedom is popular in the United States due to its historical resonance because the United States has consistently described itself as offering greater freedoms, such as freedom of religion and freedom of the press, compared to other nation-states. In this quote, Harvey cites political economist John Rapley’s Globalization and Inequality: Neoliberalism’s Downward Spiral (2004), a text that argues that neoliberal policies have harmed the developing world and created political instability, to describe how this notion was instrumentalized to promote neoliberalism in the United States, which then exported it around the world.

“Powerful ideological influences circulated through the corporations, the media, and the numerous institutions that constitute civil society––such as the universities, schools, churches, and professional associations. The ‘long march’ of neoliberal ideas through these institutions that Hayek had envisaged back in 1947, the organization of think-tanks (with corporate backing and funding), the capture of certain segments of the media, and the conversion of many intellectuals to neoliberal ways of thinking, created a climate of opinion in support of neoliberalism as the exclusive guarantor of freedom. These movements were later consolidated through the capture of political parties and, ultimately, state power.”

In this quote, Harvey describes how neoliberal ideals were promoted throughout civil society. This basis of support was then used to promote neoliberal policies through political parties and the government. While Republican Ronald Reagan and Tory Margaret Thatcher were initially the primary supporters of neoliberal policies in the United States and the United Kingdom, respectively, Democratic and Labour Party politicians also implemented neoliberalism. Harvey uses this as an example of how completely this ideology was supported by civil society and government.

“The more acceptable commonality to these arguments was that government intervention was the problem rather than the solution, and that ‘a stable monetary policy, plus radical tax cuts in the top brackets, would produce a healthier economy’ by getting the incentives for entrepreneurial activity aligned correctly.”

In this quote, Harvey cites political economist Mark Blyth’s text Great Transformations (2002), which develops Karl Polanyi’s analysis of market economies and its political dynamics for the modern era. Although neoliberal theories are highly variegated, Harvey via Blyth argues that these are the key components of all forms of neoliberal ideas.

“Britain created what Marx called ‘an industrial reserve army’, he went on to observe, the effect of which was to undermine the power of labour and permit capitalists to make easy profits thereafter.”

UK Prime Minister Margaret Thatcher faced opposition to her neoliberal policies from within her own Conservative Party. One such critique came from economic advisor Alan Budd who viewed her monetarist polices and the subsequent high unemployment rate as a method of disciplining labor so they would have less power to contest her ideas. To characterize the result of these policies, Budd goes so far as to cite Karl Marx’s notion of “an industrial reserve army,” or a pool of unemployed workers who live in such precarity due to the market that they can be “conscripted” to work in less than ideal conditions.

“Asymmetric power relations tend, therefore, to increase rather than diminish over time unless the state steps in to counteract them. The neoliberal presumption of perfect information and a level playing field for competition appears as either innocently utopian or a deliberate obfuscation of processes that will lead to the concentration of wealth and, therefore, the restoration of class power.”

Harvey describes how a free market with little regulation naturally results in concentrations of power between the elite class and the working class, or “asymmetric power relations.” Neoliberal ideologues tend to ignore this dynamic. Harvey critiques economists like Joseph Stiglitz for believing that these asymmetric power relations are the exception and not the rule under a capitalist system: Such is either a form of utopian thinking or “a deliberate obfuscation” or intentional minimizing or hiding of this reality.

“There is an inner connection, therefore, between technological dynamism, instability, dissolution of social solidarities, environmental degradation, deindustrialization, rapid shifts in time—space relations, speculative bubbles, and the general tendency towards crisis formation within capitalism.”

Harvey argues that technological development, such as the growth of the internet and communications technologies, accelerate the rate at which neoliberalism creates crises. To take a contemporary example, social media hype can create speculative bubbles that cause ordinary people to lose money, as in the case of “meme stocks,” stocks that appreciate in value through the collective investment of typically inexperienced investors who have been rallied via social media.

“The extraction of tribute via financial mechanisms is an old imperial practice. It has proven very helpful to the restoration of class power, particularly in the world’s main financial centres, and it does not always need a structural adjustment crisis to work.”

Harvey does not argue that neoliberalism is an entirely new form of economic relations. Instead, he sees it as arising from older forms of political economy, including embedded liberalism and imperialism. In this quote, he draws parallels between the role of financial mechanisms, such as investment banks, under both imperialism and neoliberalism to transfer wealth from poor countries (the “periphery”) to rich ones (the “centre”).

“The boundary between the state and corporate power has become more and more porous. What remains of representative democracy is overwhelmed, if not totally though legally corrupted by money power.”

As noted by Harvey, some argue that neoliberalization has led to the reduction or even the dissolution of the state (government). Harvey takes a different view. He argues that under neoliberalism, the government and corporate power have become more tightly integrated with one another.

“The general progress of neoliberalization has therefore been increasingly impelled through mechanisms of uneven geographical developments. Successful states or regions put pressure on everyone else to follow their lead.”

One challenge for Harvey in writing a history of neoliberalism is that it is a highly dynamic process that looks very different in different parts of the world. Harvey notes that this variegation is a core component of neoliberalism itself because it relies on the differences between regions or countries to earn a profit. For example, companies need the relatively low wages in some countries to create cheap exports for others.

“Behind this conspiratorial view lies the shadowy and largely unexamined role of the New York-based hedge funds. If Soros and other speculators could make billions at the expense of European governments by betting against their ability to stay within the guidelines of the ERM, then why could not the hedge funds, armed with trillions of dollars of leveraged funds from the banks, engineer an attack upon not only East and South-East Asian governments but some of the most successful corporations in global capitalism, simply by denying them liquidity at a point of minor difficulty?”

In this quote, Harvey outlines the possible role of finance capital in the creation of financial crises under neoliberalism. Traditional economists, like Joseph Stiglitz, do not analyze the role of hedge funds in the global economy in this way. Harvey argues that this is an oversight because large hedge funds are capable of betting against an economy or business, through shorting a stock, for example, and then refusing to lend them money, thereby causing a downturn in prices and creating the conditions by which they win the bet they made. Finally, after the prices are lowered, they can buy up the assets at reduced prices.

“This story of Argentina’s rollercoaster experience with neoliberalization illustrates all too well how little neoliberal theory has to do with practice. As a member of the neoliberal Ludwig von Mises Institute has pointed out, the ‘confiscatory deflation’ that occurred in Argentina was quite properly interpreted by its Argentine victims as ‘bank robbery by the political elites’. Or, as Veltmeyer and Petras prefer to characterize it, the whole episode reeks of ‘a new imperialism: pillage of the economy, growth of vast inequalities, economic stagnation followed by profound and enduring depression and massive impoverishment of the population as a consequence of the greatest concentration of wealth in Argentine history.’”

In this quote, Harvey cites neoliberal economist Joseph Salerno who himself describes the effects of neoliberal policies in Argentina in negative terms. This suggests there is some level of self-awareness among neoliberals of the way their policies can create economic and political crises. This view is echoed in the citation of Henry Veltmeyer and James Petras’s System in Crisis (2003) which, like Harvey does elsewhere in the book, draws connections between imperialism and neoliberalism.

“The possibility, for example, that the ruling ideas might be those of some ruling class is not even considered, even though there is overwhelming evidence for massive interventions on the part of business elites and financial interests in the production of ideas and ideologies: through investment in think-tanks, in the training of technocrats, and in the command of the media. The possibility that financial crises might be caused by capital strikes, capital flight, or financial speculation, or that financial crises are deliberately engineered to facilitate accumulation by dispossession, is ruled out as far too conspiratorial even in the face of innumerable suspicious signs of co-ordinated speculative attacks on this or that currency.”

In this quote, Harvey critiques mainstream economists for their failure to perceive the elite class as operating as a class—that is, as a group of people with similar positions within the economy who work collectively to gain or maintain power. This view, when considered by mainstream economists, is described derisively as a conspiracy theory. Harvey counters this by detailing the tools that the wealthy have at their disposal.

“It has been part of the genius of neoliberal theory to provide a benevolent mask full of wonderful-sounding words like freedom, liberty, choice, and rights, to hide the grim realities of the restoration or reconstitution of naked class power, locally as well as transnationally, but most particularly in the main financial centres of global capitalism.”

Throughout A Brief History of Neoliberalism, Harvey identifies the way that neoliberal rhetoric or theory differs from neoliberal policy and its outcomes. In this quote, Harvey characterizes mainstream neoliberal messaging as a form of propaganda that obscures its true goals, “the restoration or reconstitution of naked class power.”

“What can be said with precision, is that China, by not taking the ‘shock therapy’ path of instant privatization later foisted on Russia and central Europe by the IMF, the World Bank, and the ‘Washington Consensus’ in the 1990s, managed to avert the economic disasters that beset those countries. By taking its own peculiar path towards ‘socialism with Chinese characteristics’ or, as some now prefer to call it, ‘privatization with Chinese characteristics’, it managed to construct a form of state-manipulated market economy that delivered spectacular economic growth (averaging close to 10 per cent a year) and rising standards of living for a significant proportion of the population for more than twenty years. But the reforms also led to environmental degradation, social inequality, and eventually something that looks uncomfortably like the reconstitution of capitalist class power.”

Harvey details how the implementation of neoliberal policies is distinct in China due to its history of Communism and a planned economy. After the fall of the Soviet Union, market changes were implemented quickly in former Soviet countries, which led to concentration of wealth in the hands of oligarchs. China took a more incremental approach, but Harvey argues, has suffered some of the same effects, though to lesser degree.

“Saner voices within the capitalist class, having listened carefully to the warnings of the likes of Paul Volcker that there is a high probability of a serious financial crisis in the next five years, may prevail. But this will mean rolling back some of the privileges and power that have over the last thirty years been accumulating in the upper echelons of the capitalist class. Previous phases of capitalist history––one thinks of 1873 or the 1920s––when a similarly stark choice arose, do not augur well. The upper classes, insisting on the sacrosanct nature of their property rights, preferred to crash the system rather than surrender any of their privileges and power.”

A Brief History of Neoliberalism was published in 2005. This quote warns of the likelihood a of “a serious financial crisis in the next five years.” This concern proved correct, as the largest financial downturn since the Great Depression began in 2007, causing a global recession. It is noteworthy that monetarist economist Paul Volcker, architect of the Volcker shock, was one of those who warned about this possibility, suggesting that neoliberals are increasingly aware of the limits of their theory.

“Under neoliberalization, the figure of ‘the disposable worker’ emerges as prototypical upon the world stage.”

In Chapter 6, Harvey describes the terrible working conditions that people around the world experience under neoliberalism. The phrase “disposable worker” comes from Kevin Bale’s Disposable People: New Slavery in the Global Economy (2004), which describes contemporary labor conditions as a form of modern-day slavery. This is in contrast with the freedom promised by neoliberal ideologues.

“Stripped of the protective cover of lively democratic institutions and threatened with all manner of social dislocations, a disposable workforce inevitably turns to other institutional forms through which to construct social solidarities and express a collective will. Everything from gangs and criminal cartels, narco-trafficking networks, mini-mafias and favela bosses, through community, grassroots and nongovernmental organizations, to secular cults and religious sects proliferate. These are the alternative social forms that fill the void left behind as state powers, political parties, and other institutional forms are actively dismantled or simply wither away as centres of collective endeavour and of social bonding.”

Neoliberalism results in people having fewer opportunities to effect change and create bonds through traditional institutions. Harvey argues that, as a result, they turn to alternative social bonds. Some of these, such as gangs, contribute to anti-social behavior and higher crime rates.

“To live under neoliberalism also means to accept or submit to that bundle of rights necessary for capital accumulation. We live, therefore, in a society in which the inalienable rights of individuals (and, recall, corporations are defined as individuals before the law) to private property and the profit rate trump any other conception of inalienable rights you can think of.”

One of the key elements of liberalism is the idea that there are human rights that are protected by strong states. Under neoliberalism, many of these rights give way to the “rights necessary for capital accumulation,” such as the right to private property. This makes ordinary people more vulnerable to exploitation or poor working conditions.

“By Marx’s standard of freedom, and almost certainly by that laid out by Adam Smith in his Theory of Moral Sentiments, neoliberalization would surely be regarded as a monumental failure. For those left or cast outside the market system––a vast reservoir of apparently disposable people bereft of social protections and supportive social structures––there is little to be expected from neoliberalization except poverty, hunger, disease, and despair.”

Harvey cites both Karl Marx and classic liberal economist Adam Smith to argue that neoliberalism has failed in providing freedom and well-being to people. Because neoliberal policy requires the reduction of the welfare state, those who are unable to work or otherwise excluded from the labor market experience terrible living conditions.

“Obliged to live as appendages of the market and of capital accumulation rather than as expressive beings, the realm of freedom shrinks before the awful logic and the hollow intensity of market involvements.”

Throughout A Brief History of Neoliberalism, Harvey argues that the concept of freedom as defined by neoliberals is not sufficient for human flourishing. He emphasizes this by characterizing human life under neoliberalism as contingent on a society that views them as simply another part of a free market, like any inanimate object that can be exchanged, rather than as a whole “expressive” human.