A Brief History Of Neoliberalism

Nonfiction | Reference/Text Book | Adult | Published in 2005

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Summary

Background

Chapter Summaries & Analyses

Introduction-Chapter 1

Chapter 2

Chapter 3

Chapter 4

Chapter 5

Chapter 6

Chapter 7

Key Figures

Themes

Index of Terms

Important Quotes

Essay Topics

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Discussion Questions

Themes

The Creation and Consolidation of Elite Class Power

Harvey applies a Marxist geographic analysis to neoliberal economic policies to determine what their effects have been on the global economy. This analysis focuses on how neoliberalism has impacted wealth distribution and the well-being of ordinary people. He notes first that neoliberal policies fail to adhere to neoliberal theory and do not achieve the stated goals of neoliberalism. He then concludes that the true goal of neoliberal policies is The Creation and Consolidation of Elite Class Power.

Neoliberal theory states that policies that limit the role of the state, expand the reach of free markets, and facilitate trade between countries are “both necessary and sufficient for the creation of wealth and therefore the improved well-being of the population at large” (7). In analyzing a variety of metrics, including poverty rates and indicators of well-being, Harvey concludes that “almost all global indicators on health levels, wealth expectancy, infant mortality, and the like show losses rather than gains in well-being since the 1960s” (156). He grants that global poverty has fallen somewhat, but most of the gains were made in India and China, countries that have not broadly instituted neoliberal policies. The largest impact neoliberal policies have had is the control of inflation. Using this set of data, Harvey argues that neoliberalism has failed on its own terms.

Harvey then argues that the reason neoliberal policies continue to be implemented globally despite their apparent failure is because of their success at their true goal, “restoring elite class power” (201). To support this argument, Harvey relies on a series of studies concerning the economies of several countries from the 1970s to the early 2000s, including the United States, Mexico, Argentina, and China. Despite the differences in the histories, geography, and politics of these nations, they all experience more income inequality after the implementation of neoliberal policy. Income inequality indicates that the wealthy are becoming much wealthier in comparison to the average person.

When neoliberal theory comes into conflict with the desires of the elite class to further ensure their wealth grows or is protected, neoliberal policy will act contrary to the theory. Harvey argues that this further proves that neoliberalism’s real goal is not the realization of a utopian society—where people from all classes enjoy freedom and prosperity—but instead to give power to the elite class. An example of this can be seen in the way that neoliberal policies interact with organized labor. In theory, neoliberalism values individual freedom of association, including association with trade unions (69). In practice, neoliberal policies seek to curtail the ability of people to organize unions because organized labor is a threat to the elite class’s ability to control the economy. This can be seen in the methods President Reagan and Prime Minister Thatcher undertook to break strikes and change legislation to make it harder for workers to organize.

Crises Caused by Neoliberalism

Throughout A Brief History of Neoliberalism, Harvey describes the crises caused by neoliberal policies. These policies, such as financialization, deregulation, privatization, and globalization, create rolling financial crises that then result in difficult circumstances for workers. A crisis in one country can quickly spread to another. Harvey argues that these crises, while painful for workers, are ultimately beneficial to elite classes and therefore endemic to neoliberalism.

There are many examples of the crises caused by neoliberal policies that Harvey identifies. Two of the key examples are the restructuring of Chile’s economy in the 1970s and the “Volcker shock” of the 1980s. In Chapter 1, Harvey describes how a US-backed coup in Chile in 1973 led to the rise of dictator General Pinochet, who brought in economists from the University of Chicago to restructure the economy along neoliberal principles. They “privatized public assets, opened up natural resources (fisheries, timber, etc.) to private and unregulated exploitation …, privatized social security, and facilitated foreign direct investment and freer trade” (8). After the 1982 Latin American debt crisis, Chile’s neoliberal economy collapsed. After this international experiment, these kinds of policies were also implemented in the United States in the 1980s. Harvey focuses on the Volcker shock, where the Federal interest rate was raised dramatically to control inflation, prompting high unemployment in the United States and causing cascading crises in Mexico and elsewhere.

While high unemployment, economic recessions, and financial volatility might seem like poor policy outcomes, Harvey argues that they are beneficial to the elite class. High unemployment rates increase the precarity of the working classes and makes them less likely to organize for higher wages or better working conditions. Economic recessions and currency volatility create opportunities for finance capital to speculate and “amass enormous fortunes” (33). Citing New Keynesian economist Joseph Stiglitz, in Chapter 4 Harvey describes one of many examples of how this works: The IMF encourages countries to open their markets to “‘hot short-term capital’” that comes in and then leaves when it can no longer find quick investment opportunities. The IMF then encourages countries to raise their interest rates (as in the example of the Volcker shock), which causes high unemployment and an economic recession. As a result of the recession, the IMF encourages countries to privatize their assets and sell them cheaply. Harvey goes a step further than Stiglitz to argue that finance capital can also influence this process by refusing to lend to countries or companies in debt, cause a downturn, and then buy up these companies at low prices through foreign direct investment. This process, among others, allows the elite classes to benefit from financial crises all over the world. As Harvey concludes, the inequality caused by neoliberalism is “its raison d’être” [reason for existing] (98).

Political Dynamics of Neoliberalism

Neoliberal theory is a utopian ideal that is implemented in policy in highly differentiated ways across countries, regions, and time periods. The kind of neoliberal policy created, as well as the degree of its coherence with theory, is largely driven by the political dynamics of a given place. Harvey relies on a series of case studies and evidence from around the world to assess these dynamics, including the United States, United Kingdom, Sweden, Mexico, Argentina, and China, among others. He argues that the differences between neoliberal theory and neoliberal policies highlight the extent to which the true goal of neoliberalism is to strengthen elite class power.

The United States is an important source of the push for neoliberal policy globally and Harvey focuses most on how neoliberal ideology interacts with US political dynamics. Harvey describes how neoliberalism as outlined by economist Friedrich Hayek, his colleagues, and the elite class generated support in US policy through messaging around the concept of freedom. Making use of the historically important value of freedom, US neoliberals were able to define the concept of freedom as something achieved through individual choice in a free market. They then promoted this definition through a system of think-tanks, universities, and media. Under President Reagan in the 1980s, neoliberal ideology was implemented as policy in the form of welfare reduction, deregulation, strike breaking, and privatization. It was exported globally through US pressure on and control of international institutions such as the IMF. Under President Bush, neoliberal policies were pursued differently due to changing political dynamics, namely the rise of neoconservativism. This led to more Keynesian policy to support military spending for the wars in Iraq and Afghanistan, even as other elements of neoliberalism were maintained, such as tax cuts and privatization.

In developing countries, neoliberal policies were adopted not necessarily because of domestic support for the ideology but because of outside pressure from institutions like the IMF and World Bank, which mandated structural adjustment in return for loans amid economic crises. These countries also engaged in some Keynesian policies like investment in education to more effectively compete in the global marketplace. More powerful countries, such as Sweden and China, implemented some neoliberal policies while keeping aspects of their historical government structures such as an expansive welfare state and state regulation. Even in countries where neoliberal ideology was supported by the country’s leader, as in the case of the United Kingdom under Margaret Thatcher, implementation of these policies was limited somewhat by opposition within the political system and from the populace. Harvey argues that countries that implemented fewer neoliberal reforms, such as Sweden, were less affected by financial crises and better supported their citizens. He uses this as evidence that neoliberalism is not a theory that actually improves economies but is rather one that weakens them, and he suggests that political opposition can be created to limit the extent to which neoliberal economic policies are implemented in a given place.