The world is returning to the predatory laissez-faire capitalism that immiserated millions in the early 20th century and is predicated on neoliberal "voodoo economics," void of empirical reference.
Since the late 1970s, most capitalist economies have been marching to the tunes of neoliberalism - a term originally coined in the 1930s as a moderate alternative to classical liberalism but used in our own times to signify preference for a set of economic policies favoring privatization, deregulation and a "minimal" state. This is the version of neoliberalism developed by Milton Friedman and the so-called Chicago School and is usually associated with the Pinochet regime in Chile and later on with the so-called "free-market" policies of Margaret Thatcher and Ronald Reagan. In more popular usage, it can simply be referred to as predatory capitalism.
The neoliberal transition is associated with financial capital's rise to dominance and sharp changes in the social structure of capital accumulation, with developments in the US economy leading the way among advanced capitalist economies. The economic slowdown in the 1970s and the inflationary pressures that went along with the first major postwar systemic capitalist crisis created a window of opportunity for anti-statist economic thinking, which had been around since the 1920s but was spending most of its time hibernating because it lacked support among government and policy-making circles and had very few followers among the members of the chattering classes. The postwar capitalist era was dominated by the belief that the government had a crucial role to play in economic and societal development. It was the Keynesian legacy, even though Keynesian economics was never fully and consistently applied in any capitalist country.
To read more articles by CJ Polychroniou and other authors in the Public Intellectual Project, click here.
Industrial capitalism, the production of real goods and services for the benefit of most members of a society, required extensive government intervention, both as a means to sustain capital accumulation and as a way to ensure that the toiling population improved its standards of living so it could purchase the goods and services that its own members produced in the great factories of the western industrial corporations. The rise of the middle class in the West takes place predominantly in the first few decades after World War II, and it is an outcome brought about by the combination of a thriving western capitalist industrial economic base and interventionist government policies. Governments and the industrial capitalist classes understood only too well that economic growth and social prosperity went hand in hand if the system of industrial capitalism was to survive. Maintaining "social peace," a long sought after objective of governments and economic elites throughout the world, mandated that the wealth of a nation actually trickle down to the members of the toiling population. The improvement of the standards of living for the working class was essential to the further growth of industrial capital accumulation.
To be sure, it took at least a couple of centuries before industrial capitalism reached a stage where its own survival and future growth was predicated on a steady increase of the standards of living among a nation's general population. In postwar capitalist economies, providing the working classes with the means for their reproduction meant constantly improving their economic purchasing power and providing them with access to educational opportunities so they could make a substantially greater contribution to productivity as well as become potential consumers. In all this, the government had a key role to play, as it was the only agent with the capability of providing the opportunities and the resources needed for the materialization of a society of plenty, where the fruits of labor were not the exclusive domain of the class that owned the means of production.
All this comes to a rather abrupt end sometime around the mid-to-late 1970s, when advanced capitalism finds itself in the grip of a major systemic crisis brought about by new technological innovations, declining rates of profit, and the dissolution of the social structures of accumulation that had emerged after the Second World War.
The Rise of Global Capitalism in Late 20th Century
The new world order initiated in the aftermath of the 1973 crisis takes the form of a new wave of globalization, actually not very dissimilar to what had taken place from the 1870s up to the start of World War I: a cycle of upswing in the movement toward the global integration of national economies enforced by the market liberalization policies of leading and ascending states.
The difference in this new era of globalization is that it is finance capital that has now gained the upper hand in spite of the fact that the sector represents a very small share of the GDP. With the "financialization" of the economy and the adoption of neoliberalism as the preferred model of economic governance, financial markets begin to dominate economic decision making processes and the financial elite exercise enormous influence on government policies. In the United States, the adoption of neoliberalism as an economic model coincides with the deindustrialization period, which undermined the economy's industrial base and undercut the power and influence of the labor movement. Thus, the "financialization" of the economy is directly related to developments in the real economy. In the 1970s, it reflected the crisis that industrial capitalism had entered after nearly 25 years of continuous growth and expansion.
In this sense, the much-talked about globalization phenomenon of the 1980s and 1990s is neither a novel nor a progressive development. It had its roots in the restructuring of the process of capitalist accumulation due to inevitable crises in the workings of the capitalist economy and the squeeze in the rate of profit. But it is not the "logic of the market" nor the new technologies that provided the impetus for the new wave of globalization. The push toward globalization came from domestic institutions (core and ascending capitalist states), powerful economic players (industry and finance) and international organizations (International Monetary Fund, World Bank). The new information technologies have facilitated the drive toward globalization. Decisions about the future direction of the economy are political in nature and highly antidemocratic. Labor's voice is totally ignored. But that should not be surprising. Capitalism is antithetical to economic democracy.
In fact, the expansion of capitalism takes place with the financial (and even political and military) support of the state through subsidies and the facilitation of internal exploitation, which includes the transfer of valuable resources from domestic society for the reproduction of capitalist accumulation abroad. Opening new markets and creating investment sites has always been a key role of the capitalist state - and this has been no less true under the global neoliberal order initiated after the 1973 crisis. Far from being anti-government, big business and finance capital demand an interventionist state - but one that rolls back the standard of living for the working populations and dismantles the welfare state in favor of market liberalization and globalization. Policies that increase the upward flows of income and the availability of public property for private exploitation rest at the core of the global neoliberal project, where predatory capitalism reigns supreme. So does privatizing profits and socializing losses.
Contrary to neoliberal discourse, the state has not disappeared under the process of globalization; nor has it become weaker. It has merely been refocused so it can perform activities more amenable to the needs and demands of the global financial elite. The state, as a social institution, does retain a certain degree of relative autonomy, and thus it can be recaptured by progressive forces determined enough to work toward the realization of a just and decent society, instead of standing idly by and watching elected public officials squander the common good (officials often eager to get into office to serve big business interests so they can later pursue lucrative private-sector roles). But that is another story. The point underlined here is that the spread of neoliberal capitalism is deeply rooted in changes in the correlation of class forces. The near collapse of industrial labor and the subsequent weakening of trade unions ensured the success of the transition from managed capitalism to global neoliberalism. So did the shift to the right of the Democratic Party in the United States and of the social democratic parties in Europe.
In sum, the post-1973 global and neoliberal version of capitalist development basically iterates the policy context of finance-led capitalism and includes (a) changes in the postwar social structure of capital accumulation; (b) the shift in the balance of power between industrial capital and finance capital and the consolidation of monopolistic interests across the capitalist economy; and (c) the declining influence of organized labor, mainly through ideological and political historic defeats by the forces of global capitalism. As such, the global neoliberal transition in the world economy is a reflection of fundamental changes in the "movement of capital," but also the outcome of specific class policies pursued by international financial organizations, such as the International Monetary Fund (IMF) and the World Bank, and domestic agents and institutions (the national corporate/financial/cultural elite and the state).
The Contours and Myths of the Neoliberal Vision
At the heart of the neoliberal vision is a societal and world order based on the prioritization of corporate power, laissez-faire markets and the abandonment of public services. The neoliberal claim is that capitalist economies would perform more effectively, producing greater wealth and economic prosperity for all, if markets are allowed to perform their functions without government intervention. This mainly Hayekian claim is predicated on the idea that unregulated markets are inherently just and can create effective low-cost ways to produce consumer goods and services. Conversely, an interventionist or state-managed economy is wasteful and inefficient, choking off growth and expansion by constraining innovation and the entrepreneurial spirit.
Neoliberal economics is, of course, plain "voodoo economics." The intellectual foundations of neoliberal economic discourse are couched in profusely vague claims and ahistorical terms. Notions such as "free markets," "economic efficiency" and "perfect competition" are so devoid of any empirical reference that they belong to a discourse on metaphysics, not economics. More important, the facts debunk the stubborn myths built around the efficiency of neoliberal economics.
During the period known as "state-managed capitalism" (roughly from 1945-1973, and otherwise known as the classical Keynesian era), the western capitalist economies were growing faster than any other time in the 20th century, and wealth was reaching those at the bottom of the social pyramid more effectively than ever before. OECD (Organisation for Economic Co-operation and Development) countries experienced real GDP growth rates averaging "over 4 percent annually in the 1950s and near 5 percent in the 1960s, compared with 3 percent in the 1970s and 2 percent in the 1980s." Economic performance in the world's biggest capitalist economy was particularly impressive: "From the late 1940s to the early 1970s, the US economy grew at an average annual rate of nearly 4%. The annual unemployment rate only exceeded 6% twice in the 25 years between 1949 and 1973. The annual inflation rate, too, only topped 6% twice and was actually under 2% for 14 of the 25 years in this period. The real average hourly earnings of production workers increased at an average rate of over 2% per year."
The extent to which capitalism is capable of maintaining constant rates of growth is of course highly debatable. We also know that the reproduction of capitalism means ever-increasing damage to natural resources and the environment. But seen from a purely political economy perspective, what neoliberalism represents is a counterrevolution to the postwar regime in the area of economic and social rights that serves the interests of the rich, corporations and the needs of the dominant form of capital in contemporary capitalism, finance. It is a socio-economic and political project that stands for the systematic attempt to roll back the course of history - a return journey to the age of predatory capitalism when labor power was completely "free," nature at the mercy of unrestrained capital exploitation, state policies catering exclusively to the interests and needs of the plutocrats, and philanthropy serving as a means to disguise the exploitation of the poor and deny the structural problems of the capitalist system. In sum, neoliberalism is a new form of laissez-faire capitalism wrapped up in old-fashioned class warfare.
It is thus hardly surprisingly that the neoliberal capitalist order has given rise to a "Great U-Turn," an amazing growth in the spread between rich and poor that has accumulated in the course of the past 35 years largely as a result of sharp distortions that have taken place in the real economy. Neoliberalism has allowed the castration of labor rules, privatization of state assets, budget cuts in social programs, public education and public health. It has enacted and protected sharp tax cuts for the rich, real estate, banks and financial transactions. It has worked to strengthen the penal state. It has supported the penalization of poverty and criminalization of many social movements resisting the collapse of the public sphere.
Neoliberalism has turned out to be the new dystopia of the contemporary world, as British philosopher John Gray powerfully argued at a time when mass media and most academics were raving about the virtues of globalization and the alleged superiority of "free markets," with the unfolding crisis in southern Europe representing the latest episode of the catastrophic impact that "free market" fundamentalism and financial capitalism have on contemporary economies and societies. During the last three to four years, several southern European nations, under the management of debt crises, have been subjected to a brutal experiment in neoliberal social engineering, not unlike the ones that many Latin American and African countries were subjected to back in the 1980s. The debt crisis is being used as an opportunity to dismantle the social state, to sell off profitable public enterprises and state assets at bargain prices, to deprive labor of even its most basic rights after decades of hard-fought struggles against management, and to substantially reduce wages and rob pensions. This is predatory capitalism at its best.
Predatory capitalism is pushing societies to a breaking point. After having caused the biggest financial crisis since the crash of 1929 and having already rolled back the progress made under the Keynesian order of capitalism, global neoliberalism has put millions in Europe and the United States into unemployment and poverty and is digging even bigger graves for the generations to follow.
So far, resistance to the deadly effects of predatory capitalism have had rather limited effect. Progressive forces worldwide remain fragmented and largely unorganized while economic elites have hijacked national governments. In this context, representative democracy has deteriorated to a political instrument used to maintain, promote and legitimize plutocracy.
The challenges ahead are daunting. Predatory capitalism has created the synergy needed for the exploitation of labor at national, regional and global levels. Developing types of international organization should become therefore a top priority for labor and the progressive forces - an old vision of the left, but more vital today than ever before - while resistance on the home front should be intensified. How this ought to be done is, of course, not yet clear.
1. For example, U.S. financial services accounted for less than 5 percent in 1980, and still remained in single digit figures just before the global financial crisis of 2007-08, as shown by the data provided in a recent paper by Robin Greenwood and David Scharfstein titled "The Growth of Modern Finance," Journal of Economic Perspectives, Vol. 27, No. 2 (Spring 2013).
2. Stephen A. Marglin, "Lessons of the Golden Age: An Overview" in Stephen A. Marglin and Juliet. B. Schor, The Golden Age of Capitalism: Reinterpreting the Postwar Experience. Oxford: Oxford University Press, 1991.
4. John Gray, False Dawn: The Delusions of Global Capitalism. Granta Books, 1998