A Brief History of Neoliberalism

by David Harvey

To ensure domestic peace and tranquillity, some sort of class compromise between capital and labour had to be constructed. The thinking at the time is perhaps best represented by an influential text by two eminent social scientists, Robert Dahl and Charles Lindblom,

A ‘class compromise’ between capital and labour was generally advocated as the key guarantor of domestic peace and tranquillity. States actively intervened in industrial policy and moved to set standards for the social wage by constructing a variety of welfare systems (health care, education, and the like).

The neoliberal project is to disembed capital from these constraints.

as a political project to re-establish the conditions for capital accumulation and to restore the power of economic elites. In what follows I shall argue that the second of these objectives has in practice dominated. Neoliberalization has not been very effective in revitalizing global capital accumulation, but it has succeeded remarkably well in restoring, or in some instances (as in Russia and China) creating, the power of an economic elite. The theoretical utopianism of neoliberal argument has, I conclude, primarily worked as a system of justification and legitimation for whatever needed to be done to achieve this goal.

By capturing ideals of individual freedom and turning them against the interventionist and regulatory practices of the state, capitalist class interests could hope to protect and even restore their position. Neoliberalism was well suited to this ideological task. But it had to be backed up by a practical strategy that emphasized the liberty of consumer choice, not only with respect to particular products but also with respect to lifestyles, modes of expression, and a wide range of cultural practices.

Lewis Powell to the US Chamber of Commerce in August 1971. Powell, about to be elevated to the Supreme Court by Richard Nixon, argued that criticism of and opposition to the US free enterprise system had gone too far and that ‘the time had come—indeed it is long overdue—for the wisdom, ingenuity and resources of American business to be marshalled against those who would destroy it’.

This amounted to a coup by the financial institutions against the democratically elected government of New York City, and it was every bit as effective as the military coup that had earlier occurred in Chile. Wealth was redistributed to the upper classes in the midst of a fiscal crisis. The New York crisis was, Zevin argues, symptomatic of ‘an emerging strategy of disinflation coupled with a regressive redistribution of income, wealth and power’.

Social policy was in effect put in the care of the Wall Street bondholders (much as had happened in New York City earlier), with predictable consequences. The political structure that emerged was quite simple. The Republican Party could mobilize massive financial resources and mobilize its popular base to vote against its material interests on cultural/religious grounds while the Democratic Party could not afford to attend to the material needs (for example for a national health-care system) of its traditional popular base for fear of offending capitalist class interests.

The virtuous claims for flexible specialization in labour processes and for flexitime arrangements could become part of the neoliberal rhetoric that could be persuasive to individual labourers, particularly those who had been excluded from the monopoly benefits that strong unionization sometimes conferred.

both mocked and challenged the traditional structure of networked class relations. Individualism and freedom of expression became an issue and a left-leaning student movement,

The real secret of US success, however, was that it was now able to pump high rates of return into the country from its financial and corporate operations (both direct and portfolio investments) in the rest of the world. It was this flow of tribute from the rest of the world that founded much of the affluence achieved in the US in the 1990s

The evidence for this latter view is substantial: those countries that had not liberated their capital markets—Singapore, Taiwan, and China—were far less affected than those countries, such as Thailand, Indonesia, Malaysia, and the Philippines, that had. Furthermore, the one country that ignored the IMF and imposed capital controls— Malaysia—recovered faster.10

The 1917 Constitution from the Mexican Revolution protected the legal rights of indigenous peoples and enshrined those rights in the ejido system that allowed land to be collectively held and used. In 1991 the Salinas government passed a reform law that both permitted and encouraged privatization of the ejido lands, opening them up to foreign ownership.

The proposal that most threatened the capitalist class was the Rehn–Meidner plan. A 20 per cent tax on corporate profits would flow into wage earner funds controlled by the unions to be reinvested in the corporations. The effect would be to steadily reduce the significance of private ownership and to build towards collective ownership managed by the representatives of the workers. This amounted to ‘a frontal assault on the sanctity of private ownership’. However generous the terms of the buy-out may have been, the capitalist class was threatened with gradual annihilation as a distinctive class. And it responded accordingly.

neoliberalization has frequently depended upon the increasing power, autonomy, and cohesion of businesses and corporations and their capacity as a class to put pressure on state power (as in the US and Sweden). This capacity is most easily exercised directly via financial institutions, market behaviours, capital strikes, or capital flight, and indirectly through influencing elections, lobbying, bribery and corruption or, even more subtly, through commanding the power of economic ideas.

If neoliberalization produces social unrest and political instability of the order of that in Indonesia or Argentina in recent years, or if it results in depression and restrictions on the growth of internal markets, then it could just as easily be said that neoliberalization repels rather than encourages investment.

Furthermore, the actual developmental path taken seems to fit with the aim of preventing the formation of any coherent capitalist class power bloc within China itself. Heavy reliance upon foreign direct investment (a completely different economic development strategy to that taken by Japan and South Korea) has kept the power of capitalist class ownership offshore (Table 5.1), making it somewhat easier, at least in the Chinese case, for the state to control.

China is now ‘in the midst of the largest mass migration the world has ever seen’ which ‘already dwarfs the migrations that reshaped America and the modern Western world’. By official count, it has ‘114 million migrant workers who have left rural areas, temporarily or for good, to work in cities’, and government experts ‘predict the number will rise to 300 million by 2020, eventually to 500 million’.

They typically appeal instead to the traditional Maoist notion of the masses constituted by ‘workers, the peasantry, the intelligentsia and the national bourgeoisie whose interests were harmonious with each other and also with the state’. In this way workers ‘can make moral claims for state protection, reinforcing the leadership and responsibility of the state to those it rules’.60 The aim of any mass movement, therefore, would be to make the central state live up to its revolutionary mandate against foreign capitalists, private interests, and local authorities.

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.

après moi le déluge,

One of the prime functions of state interventions and of international institutions is to control crises and devaluations in ways that permit accumulation by dispossession to occur without sparking a general collapse or popular revolt (as happened in both Indonesia and Argentina).

the neoliberal insistence upon the individual as the foundational element in political-economic life opens the door to individual rights activism. But by focusing on those rights rather than on the creation or recreation of substantive and open democratic governance structures, the opposition cultivates methods that cannot escape the neoliberal frame. Neoliberal concern for the individual trumps any social democratic concern for equality, democracy, and social solidarities.

‘Between equal rights force decides.’ Political struggles over the proper conception of rights, and even of freedom itself, move centre-stage in the search for alternatives.