Monday, June 25, 2018

Harvey, David. A Brief History of Neoliberalism.

Harvey, David. 2005. A Brief History of Neoliberalism. New York: Oxford University Press. E-book.

I've read only the introduction and first chapter of this book. I think it basically gets the point across as well as I am going to need for my exam.

Harvey's points are simple. In the post-World War II era of the 1950s and 1960s, the U.S. and European nations set up states based on 'embedded liberalism.' The state served to promote the well-being of the people through public services, regulations, and a social safety net. The government was to work toward "full employment, economic growth, and the well-being of its citizens" and it was OK for the state to intervene in the market to achieve this (p. 11).

This worked well until the 1970s, when there was unemployment and inflation, leading to fiscal crises. The Bretton Woods system of fixed exchange rates was no longer working, and the fixed exchange rates were abandoned in 1971.

Meanwhile, the wealthiest segment of society did not like that it had been losing its share of power and wealth during the decades of embedded liberalism (p. 15). Harvey says neoliberalism is essentially a class project to restore power and dominance to wealthy elites (p. 16). Insofar as it is an economic theory, it is contradictory and more or less a thinly veiled attempt to help elites consolidate money and power at the expense of everyone else.

So what is neoliberalism?

"Neoliberalism is in the first instance a theory of political economic practices that proposes that human well-being can be best advanced by liberating individual entrepreneurial freedoms and skills within an institutional framework characterized by strong private property rights, free markets, and free trade" (p. 2).

"We can therefore, interpret neoliberalization either as a utopian project to realize a theoretical design for the reorganization of international capitalism or as a political project to re-establish the conditions for capital accumulation [i.e. the rich getting richer] and to restore the power of economic elites" (p. 19). Harvey sees it as the latter, and says that "the neoliberal argument has... primarily worked as a system of justification and legitimization for whatever is needed to be done to achieve this goal" (p. 19).
In short, the state should do what is needed to allow markets to function unimpeded and then get out of the way. In theory, the state can never have all of the information needed to make perfect decisions the way markets can. In practice, says Harvey, neoliberalism leads to a greater share of wealth trickling up to the wealthiest people in society, and to monopolies. Therefore, the idea that getting the state out of the way will lead to perfectly competitive markets is not correct.

Neoliberals base the ideas on human dignity and freedom. They equate freedom with individual freedom to make decisions - unfettered by state interference - and personal responsibility. He cites Margaret Thatcher claiming there is no society, only individual men and women. And because there are only individuals and no collective, neoliberalism calls for the end of "all forms of social solidarity" (p. 23) like trade unions, public enterprises, and the welfare state. He writes, "All forms of social solidarity were to be dissolved in favour of individualism, private property, personal responsibility, and family values" (p. 23).

As to history, the intellectual roots of neoliberalism trace back to a small group of economists, philosophers, and others that first met in 1947. Their ideas went back to neo-classical economics and stood in opposition to the reigning Keynesianism. The first major implementation of neoliberal economics he cites occurred in Chile in 1973 after Pinochet's coup. It achieved some legitimization in the 1970s when prominent neoliberals won Nobel Prizes for economics (Hayek in 1974, Milton Friedman in 1976). Carter took some steps toward neoliberalism, but it was Thatcher, Reagan, and the 1979 Volcker shock that really catapulted it forward.

He explains the Volcker shock as follows. The 1973 OPEC embargo and oil price hike left OPEC nations awash in petrodollars. The US was secretly planning to invade in 1973 but instead it made a deal with Saudi Arabia to get them to send all of their petrodollars to U.S. investment banks (p. 27). With so much money coming in, the investment banks needed to do something with it. They looked to foreign governments, giving out loans to nations all over the global south.

In 1979, Paul Volcker, chair of the Fed, ended Keynesian policies aimed at full employment in favor of policies intended to curb inflation at all costs regardless of the consequences to employment. Doing this raised interest rates practically overnight. Many developing nations were unable to repay their debts. That is the Volcker shock.

Harvey says that under a liberal regime, a bank that made a bad loan would be stuck taking the loss. Under a neoliberal regime, "the borrowers are forced by state and international powers to take on board the cost of debt repayment no matter what the consequences for the livelihood and well-being of the local population" (p. 29).

The first "major test case" following the Volcker shock was when Mexico defaulted on its owns in 1982-4 (p. 29). The IMF made a deal with them to "roll over the debt, but did so in return for neoliberal reforms" (p. 29). This was the first of the "structural adjustment programs" (SAPs), the set of neoliberal conditions imposed on any country accepting a bail out from the IMF. The policies included are codified as "the Washington Consensus" and they generally involve privatization, deregulation, austerity, and free trade. Often public services are cut, and populations suffer when SAPs are imposed.

Harvey adds that the consolidation of power and wealth to elites in the U.S. and Europe did not just come from taking a larger share of the pie within their own countries. SAPs and neoliberalism meant they were also extracting surpluses from the Global South as well.

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