"Neo Liberalism and the World Economy," by David Held
" With every other justification for the invasion of Iraq discredited, President Bush has increasingly resorted to the argument that at least Iraq is free. "Freedom,"he says, "is the Almighty's gift to every man and womanin this world" and "as the greatest power on earth we have an obligation to help the spread of freedom."But, as Matthew Arnold long ago argued, "freedom is agreat horse to ride but to ride somewhere." So whereare the Iraqis supposed to ride their horse of freedom? The US answer was spelled out in September 2003, whenPaul Bremer, head of the Coalition ProvisionalAuthority, promulgated decrees that included the fullprivatization of the economy, full ownership rights byforeign firms of Iraqi businesses, the right of foreignfirms to take profits abroad and the elimination ofnearly all trade barriers. The orders applied to allareas of the economy, including public services,banking and finance, the media, manufacturing,services, transportation and construction. Only oil wa exempt. A regressive tax system much in favor with conservatives in the US known as "the flat tax" was also imposed. The right to strike was outlawed and unionization banned in key sectors. This amounts to the imposition of a particular kind of state apparatus - called neo-liberal - on Iraq. Interestingly, the first case of neo-liberalizationoccurred thirty years earlier in Chile. In the wake ofa violent US supported coup by General Pinochet againstthe democratically elected Salvador Allende inSeptember 1973, US economic advisors espousing the neo-liberal doctrines of Milton Friedmann went to Chile tohelp set up an almost identical state structure to thatnow decreed for Iraq. The era that separates the violence in Chile and Iraqhas seen the creation of neo-liberal states -capitalist dream regimes as the Economist calls them -all around the world by mixes of coercion and consent.Britain's Margaret Thatcher was the first world leaderfreely to embrace free-market fundamentalism whenelected in the spring of 1979. She attacked tradeunion power, diminished the welfare state and reducedtaxes. She sought privatization, to liberateentrepreneurial energies, and argued that social well-being depended upon personal responsibility and not thestate. "There is no such thing as society," shefamously said, "only individuals and their families."She accomplished all this by democratic means."Economics are the method," she said, "but the objectis to change the soul." And change it she did. In the fall of 1979, Paul Volcker, then Chair of theFederal Reserve under President Carter, shifted thetarget of monetary policy in the US from fullemployment to curbing inflation. He raised interestrates to a very high level and plunged the US into recession. In the event of any conflict between the integrity of the financial system and the welfare ofthe population, he signaled, the former interest would prevail. President Reagan, taking office in 1981, took the necessary political steps to consolidate Volcker'smove. He attacked union power, dramatically reduced taxes, cut back on state benefits and failed to enforceregulatory laws covering consumer rights, occupational health and safety, consumer protection, the minimum wage, and the like. With two of the major capitalist powers going neo-liberal could the rest of the world befar behind? Neo-liberal orthodoxy, pushed by both Britain and theUS, swept through the international financial institutions after 1980. The International MonetaryFund became a prime agent in the promotion of neo-liberal "structural adjustment" policies whenever ithad to deal with a credit crisis. As a result, countries like Mexico, Argentina, Brazil and SouthAfrica were swept into the neo-liberal camp. The price of entry into the global economic system for much ofthe old Soviet Empire was privatization and the assumption of a neo-liberal stance. Global competition has drawn many other countries, even China and India ,into something approximating a neo-liberal state structure. There are still some states, as in Europe and Scandinavia that are holdouts for social democracy and in East Asia many states have managed to combineneo-liberalism externally with concern for equity at home. But some variant of the neo-liberal state now dominates world-wide. This all happened in part because of a crisis of capitalism in the 1970s. Profit rates were low, inflation and unemployment were everywhere soaring upwards when the economic consensus (called Keynesian) of the 1960s said they should offset each other. Financial systems were in a mess, the stockmarket was in decline, and there was a fiscal crisis of state expenditures (with the bankruptcy of New YorkCity in 1975 being emblematic). The "socialdemocratic" state form that had emerged after 1945could not cope. Something new had to be invented. Neo-liberalism won out as the answer. But has it beensuccessful? In terms of stimulating growth it has been a dismal failure. Global growth rates in the 1950s and1960s stood at around 3.5 percent and fell in the troubled 1970s to around 2.4 percent. But in the 1980s they came down to 1.4 percent and fell even further inthe 1990s to 1.2 percent and since 2000 have barely made it above 1 percent. So why are we so persuaded of the benefits of neo-liberalism? There are two main answers. Firstly, neo-liberalismhas introduced considerable volatility into the global system so there are usually some places that are doing well while the rest do badly. In the 1980s it wasJapan and West Germany that led the pack and the US wasin the doldrums, but in the 1990s both fell behind withJapan suffering from a decade of severe recession. In the 1990s the US, Britain and some of the "tiger"economies of Southeast Asia came out on top. ThenSoutheast Asia crashed in 1997 followed by the collapseof the "new economy" in the US and now China and Indiaseem to be racing ahead. In a Darwinian world, theneo-liberal argument runs, you fall behind because youare not competitive. You only survive if you are fitenough. There is nothing systemically wrong. Thefault lies with you. You are not neo-liberal enough. Secondly, and more importantly, the richest incomegroups have become infinitely better off under neo-liberalism. Social inequality has increased rather thandiminished. In the US, for example, the top onepercent of income earners claimed 16 percent of thenational income before World War Two but during the1950s and 1960s this fell to 8 percent and the failuresof the 1970s threatened their power even more. But by2000 this group was back to claiming 15 percent of thenational income and this may shoot up to 20 percent inthe near future if the tax cuts stand. Similar trends,though not quite so dramatic, can be detected in other countries. So neo-liberalism has been about the restoration of class power to a small elite of financiers and CEOs.And since that class has overwhelming control of the political process and of instruments of persuasion, of course it insists that the world is a much better place. And it is, for them. Yet in the US, as elsewhere, most of the people are worse off than theywere in 1970, particularly when access to decent public education, health care, and the like is factored in. In those countries that have recently turned to neo-liberalism, like China, Russia and India, we see the emergence of extraordinarily rich oligarchies at the expense of the rest of the population. But if aggregate growth is so low, how does the upper class accumulate such wealth? They largely do so through predatory practices, by dispossessing others. This "accumulation by dispossession" takes many forms. Cheap labor is everywhere preyed upon and the cheaper and more docile the better. Profit rates of UScorporations are twice as high abroad as they are athome. Common property rights (water, land, etc) getprivatized. Peasant populations get thrown off the land. Environments are degraded. Patent rights oneverything from genetic materials, seeds, pharmaceutical products to ideas allow rents to be extracted from low-income populations. Fundamental goods like education and health care get commodified and user fees escalate. The list goes onand on. But most important of all the credit andfinancial system is actively used to accumulate wealthat one pole while extracting it from another. Family farms are foreclosed even in the US. Pension rights areprivatized (Chile pioneered with social security) andthen all too often diminished or erased (as with Enronor in China most recently). Even more dramatic are theviolent financial crises that have periodically wrackedmuch of Latin America, Central and East Europe, andEast and Southeast Asia. These allow productive assetsto be bought up by wealthy investors for a song. Neo-liberalism has seen a massive transfer of asset wealthfrom the poor to the rich. These injustices have sparked innumerable protests around the world, loosely knit together in the anti-globalization or global justice movement. The neo-liberal response has often been state repression.Mexico, for example, is advised by the US to crush theZapatista movement for indigenous rights. Given itsclass basis, the neo-liberal state is understandably antidemocratic. In some cases, such as Singapore andChina, it never bothered with democracy at all. And inthe West, it easily morphs into neo-conservativeauthoritarianism. The so-called "war on terror" nowprovides a cover for the extension of policesurveillance, militarization and authoritarianmeasures. Curiously, the protest movements against neo-liberalism often accept its terms. Before 1980, individual human rights were a fringe interest, but neo-liberalism's emphasis upon individual responsibility has sparked ahuge wave of interest in them in recent years. Evocation of such rights can provide a rhetoric for progressive politics. But this can also legitimize interventions in sovereign states by imperialistpowers. Furthermore, since most individuals cannotbring their cases to court a vast apparatus of advocacyhas emerged. The rise of the NGOs to politicalprominence has been another stunning consequence of theneo-liberal turn. NGOs sometimes aid and abet thewithdrawal of the state from social provision. Inother cases they offer tough critiques of neo-liberalpolicies. But, unfortunately, NGOs are no more democratic and transparent than the neo-liberal statethey criticize. The rise of human rights discourses and of NGO power provides a limited terrain upon which to mount effective opposition. The fear of social dissolution under an individualizing neo-liberalism has also sparked the search for a moral high-ground from which to secure the restoration ofclass rule. Appeals to nationalism (China, Japan, USA),to superior cultural values ("American," "Asiatic.""Islamic"), to religion (Christian, Confucian, Hindu)or to ethical commitments ("rights" and cosmopolitanethics) erupt into the discussion. The so-called"culture wars" - however misguided some of them mayhave been - cannot be sloughed off as some unwelcome distraction. The transformation of moral repugnance towards the alienations of neo-liberalism into cultural and then political resistance is one of thesigns of our times. Social movements against neo-liberalism, for example, frequently articulate theiropposition in moral economy terms. But purely moralargument is at best a weak ground on which to contestthe alienations and anomie that neo-liberalismproduces. We have, in short, lived through an era of sophisticated class struggle on the part of the upper strata in society to restore or, as in China and Russia, to reconstruct an overwhelming class power. The turn to authoritarianism and neo-conservatism isillustrative of the lengths to which that class will goand the strategies it is prepared to deploy in order topreserve and enhance its powers. The mass of thepopulation has either to submit to this overwhelmingclass power or respond to it in class terms. If this looks like, acts like and feels like class struggle then we must be prepared to name it for what it is and act accordingly. Though class movements may make themselves, they do notdo so under conditions of their own choosing. These conditions are currently highly diverse and fragmented.Finding the organic links between highly variegatedoppositional social movements is an urgent task. The links are there. The gap between the promise of neo-liberalism (the benefit of all) and its realization(the benefit of a small ruling class) increases. Class and regional inequalities both within states (such asChina, Russia, India and Southern Africa) as well as internationally pose a serious political problem. The idea that the market is about competition is negated bythe facts of monopolization, centralization and internationalization of corporate and financial power.The idea that neo-liberalism is about fairness is brutally offset by the extensive facts of dispossession. The idea that neo-liberalism is aboutindividual freedoms confronts the increasing authoritarianism of the neo-liberal and now neo-conservative state apparatus. The more neo-liberalismis revealed as a failed utopian project masking the restoration of class power for the few, the more itlays the basis for a resurgence of mass movementsvoicing egalitarian political demands, seeking economicjustice, fair (rather than "free") trade and greatereconomic security. The profoundly anti-democratic nature of neo-liberalismis becoming a potent political issue. The democratic deficit in nominally democratic countries is nowenormous. Institutional arrangements, like the FederalReserve, are biased, outside of democratic control.They lack transparency. Internationally, there is noaccountability let alone democratic control overinstitutions such as the IMF, the WTO and the WorldBank. To bring back the demands for democraticgovernance and for economic, political and cultural equality and justice is not to suggest some return to agolden past. The meaning of democracy in ancient Athenshas little to do with the meanings we must invest it with today. But right across the globe, from China,Brazil, Argentina, Taiwan, Korea as well as SouthAfrica, Iran, India, Egypt, the struggling nations of Eastern Europe as well as in the heartlands of contemporary capitalism, there are groups and socialmovements in motion that are rallying to the cause ofdemocratic values. The Bush Presidency has projected upon the world theidea that American values are supreme and that valuesmatter since they are the heart of what civilization isabout. The world is in a position to reject that imperialist gesture and refract back into the heartland of neo-liberal capitalism and neo-conservatism acompletely different set of values: those of an open democracy dedicated to the achievement of social equality coupled with economic, political and cultural justice. "
David Harvey is Distinguished Professor of Anthropologyat the Graduate Center of the City University of NewYork. His most recent book is The New Imperialism, published by Oxford University Press.
