Neo-Liberalism and Globalization

Cliff DuRand,
Morgan University

‘Neo-liberalism’ and ‘globalization’: these have been two of the key buzzwords of our times. What is neo-liberalism and what is ‘neo’ about it? For that matter, we might also ask, “what is ‘neo’ about globalization?” for it too has often been claimed to be a new phenomenon.

In the United States neo-liberalism has been the dominant public ideology of the last quarter century, replacing the welfare liberal ideology that emerged out of the Roosevelt ‘New Deal.’ And thanks to the International Monetary Fund and the World Bank, neo-liberalism has also become the dominant ideology in much of the Third World. I want to analyze the basic claims of this ideology and offer a critique of it that exposes how it actually functions in social practice.

The core of neo-liberalism is its insistence on the separation of the political sphere from the economic sphere. An autonomous economic sphere is envisioned in which the market is supreme. As neo-liberals conceive of it, the market is made up of individual actors who freely engage in exchanges based on self-interest. Whether buyer or seller, each seeks to maximize their individual gain and enters into contractual agreements only if it is perceived to be to ones own advantage. The market is then the mechanism for summing up individual goods, producing the maximum good for the greatest number. This utilitarian calculus is performed through the invisible hand of the market a la Adam Smith. For neo-liberalism there is no common good, there is only the sum of individual goods.

But in order for the market to work its magic it must be free of social, i.e. collective interference. A ‘free market’ is one that is free of governmental action, which is seen as distorting the market and its outcomes. In a strict neo-liberal view, the only actors allowed are individuals who are guided not by altruism, conscience or compassion, or even enlightened self-interest, but only by their own individual self-interest. Neo-liberalism accepts the adage that the best government is the one that governs least, a minimalist state. The only legitimate role for the state is to maintain or establish the conditions necessary for a market to operate. This includes establishing a common currency and standard weights and measurers as well as enacting laws and accompanying institutions to protect private property and enforce contracts. Allowed state action might even extend to the public provision of necessary infrastructure like roads, ports, utilities and communications facilities that require large lumps of investment but where the benefits are long term and socially dispersed so that costs cannot be easily captured. But even here, the state should withdraw as much as and as soon as possible so that these facilities should be privatized.

Throughout, the underlying assumption is that the market is the sole effective means for integrating society and making the decisions that can determine its development.

Neo-liberalism is well represented in the game of Monopoly. I’m sure everyone here has spent many pleasant hours playing this popular Parker Brothers game with friends and family. It gives players the excitement of being a business tycoon with all of the risks and rewards of competition. It also offers children an initial socialization into the free market.

If we can reflect on this game of Monopoly for a few minutes, it can tell us much about neo-liberalism. For it is a fair simulation of the operation of a neo-liberal market, revealing its logic and its limits. First of all, what is the objective of the game? To win, of course, by buying up all the property around the board. One wins by bankrupting the other players, forcing them to pay rent every time they land on your property. You win by driving them into destitution so they can no longer continue to play. It is a zero sum game; what one wins is at the expense of another. This is a game in which each is to be guided by self-interest alone. Compassion for another player who is not doing well, can simply make you vulnerable to your competitors. This is not to say that you may not enter into alliances with others. But in the free competition of Monopoly there are no permanent friends, only permanent interests.

What makes this game of such interest to me is the fact that all the players begin at the same starting point. They all begin at the same place on the board with the same amount of money. In spite of this egalitarian initial position, after a sufficiently long play of the game, they end up grossly unequal, with one player having it all and the others having nothing. The logic of the game inevitably, inexorably moves toward this outcome. The free market competition of Monopoly inevitably transforms a condition of perfect equality into one of maximum inequality. The only thing to be determined by the play of the game is who will be the winner and who will be destroyed in the process. The answer to this question is based on strategic skill and luck. One time it may be you, another time a different player. But what is certain is that every time the game is played, the perfect equality of the original position will be destroyed as wealth becomes increasingly concentrated.

And so the game ends. Indeed, it must end. Without money, the other players are forced out of the game one by one. The game must end because it breaks down when the winning player becomes the monopolist. No one else can continue; they must simply die as economic actors. And curiously, the winner can no longer continue to advance his own self-interest. He can no longer collect rents on his property; he no longer has income and so might just as well close up his hotels and board up his houses.

Of course, in a game this is not a problem. You just clear the board, redistribute the money so as to restore the original position and begin a new play of the game. And those who lost last time can hope to be the successful monopolist next time. But in the real world free market the board game is intended to simulate, this does not happen. There is no Jubilee Year when all debts are forgiven and we can all start over again from a position of equality. Real world market exchanges continue to go on, and we all prefer that they do so. We don’t want the game to break down into the utter destitution and mass starvation of almost everyone as wealth becomes so concentrated in the hands of a diminishing few that it becomes useless. As real life players in the economic game, we want life to go on.

How might this be accomplished? Returning to the Parker Brothers board game again, consider what it would take to keep the game of Monopoly going not just for hours, but for years and even generations. Within the neo-liberal rules of the game it might be possible to prolong it, but it is not possible to keep it going indefinitely. For that to happen, the players would have to agree among themselves to modify the Parker Brothers rules. They could decide to impose a graduated tax on property and use the funds collected from that to assist losing players so they could survive in the game even though they might be property poor. Or they might agree to put a cap on how much property a player can acquire. But whatever mechanism they might devise to sustain the game (and thus themselves), it would be a political intervention into the market. It would amount to a democratic decision to use the collective power of all in pursuit of a common good. And as such, it would represent an abandonment of neo-liberalism engendered by a recognition that neo-liberalism is ultimately self-destructive.

Returning now to the real world, this is basically what happened in the United States in the 1930s. The free market capitalism of the Roaring Twenties broke down, resulting in the Great Depression of the 1930s. Few could afford any longer to stay in expensive Boardwalk hotels and more and more couldn’t even hold on to their humble homes on Mediterranean Avenue as they were driven from the economic game altogether. A massive social movement of the dispossessed formed and demanded a political intervention to change the rules of the economic system. The New Deal was the response of the political elite who responded to popular cries for social justice in order to save capitalism from itself. Thus was Welfare Liberalism born.

Before turning to this new public ideology that was to dominate US politics for the middle half of the 20th century, let me focus briefly on three criticisms of neo-liberalism that have been implied in our discussion of the game of Monopoly.

First, neo-liberalism is profoundly anti-democratic. Not just undemocratic, but anti-democratic. By removing politics from the market, it denies the popuaces the possibility of any collective decision-making that might promote their common interests. But that is what democracy is all about. It is the possibility of collective decision making about collective action for the common good. The democratic use of the state makes government the instrument for such collective action. But neo-liberalism envisions no common good except for maintaining the conditions for markets and the common defense. Aside from that, there are only individual private goods. The only collective action neo-liberalism can envision is that of private corporate bodies and special interest groups. This amounts to a negation of the very idea of democracy.

Consequently, individuals are rendered powerless, powerless in the face of the giant corporations that have come to dominate the market. In the real life market, it is not flesh and blood individuals like you and me who are winning in the game of Monopoly, it is those fictitious individuals called corporations. We are not all equal players in the free market, and consequently we are not effectively free. The neo-liberal market had promised to promote individual liberty. In fact it has dwarfed the individual, leaving him defenseless against corporate giants. More on this in a moment.

A third critical point about neo-liberalism is that it has widened immensely the income and wealth gap, as the rich get richer and the poor get poorer and the middle gets squeezed. The average real income of the bottom 90% of US taxpayers has declined by 7% over the last 25 years. In 1979 that average for males was $43,000 per year, but it fell to $39,000 by 2001. Meanwhile, the after tax income of the top 1% shot up by 72% by 1994 and no doubt has increased even more by now dues to targeted tax cuts for the wealthy. [These figures cited by Paul Krugman, “The Death of Horatio Alger”, The Nation, January 5, 2004; Richard Wolff and Max Fraad-Wolff, “Glass Fortress America”, paper presented at Global Studies Association conference, April 24, 2004; and Kevin Phillips, Wealth and Democracy: A Political History of the American Rich, Broadway Books, 2002, p. 137.] While the fabled ‘middle class’ was being squeezed, the Fortune 500 corporations were flush with cash as their profits leaped by an incredible 540% from 2003 to 2004. [reported by David Ignatius, “Adaptability, Inc.” Washington Post, April 2, 2004.]

Neo-liberalism is not altogether insensitive to this economic polarization, particularly as it affects the poor. But the remedy is to be found in acts of private charity rather than through public provision, which might establish an entitlement. Beyond that, the poor are told to help themselves through work and self-discipline —the Protestant work ethic of individual responsibility. What neo-liberalism denies is that there is a social responsibility to ensure the well being of its members or a right of the individual to expect that from society.

On all these points, welfare liberalism contrasts with neo-liberalism. As we have said, welfare liberalism arose as a response to the crisis brought on by a neo-liberal economic order in collapse. To save monopoly capitalism from its breakdown, decisive state intervention into the market was necessary. This has taken place on a number of levels. First, welfare liberalism seeks to alleviate the plight of the poor through public supports such as unemployment benefits, direct aid to dependent families, social security for the elderly, etc. This is where the word ‘welfare’ enters into the name ‘welfare liberalism’. Basically the state intervenes into the market, protecting individuals from the outcomes of market forces, by establishing a floor below which no one needs to fall. This public provision of a minimal level of material well-being is established not just out of a sense of compassion for the unfortunate, but in the interest of social harmony. Without such social insurance, an economic crisis might well develop into a revolutionary situation. Thus welfare liberalism can be seen as a system response that protects itself from dangerous social turmoil.

This welfare liberal response is administered through governmental agencies staffed by experts from the ‘helping professions’ such as social workers. Rather than mobilizing the energies of communities or the dispossessed themselves, welfare liberalism bureaucratizes mechanisms for public provision. This bureaucratic feature of welfare liberalism has been the target of much attack by neo-liberals in recent years.

A second role of the welfare liberal state involves regulation of economic institutions. This is the most direct form of intervention into the market. It involves more than just establishing the conditions for markets to operate. It involves regulating how they operate so as to ensure they will not break down and individuals can have some protection from their harmful effects. The Securities and Exchange Commission and the Food and Drug Administration are two familiar federal agencies that serve this purpose.

In addition to this, the welfare liberal state also seeks to promote economic growth by stimulating capitalist economic activities. Welfare liberalism embraces Keynesian policies so as to ensure corporate profitability and effective consumer demand through deficit spending and taxation. This was the approach adopted by the New Deal to try to lift the economy out of the Great Depression and a kind of military Keynesianism was employed to sustain prosperity in the decades after World War II. Thus we can speak of a Keynesian welfare state.

On each of these levels welfare liberalism embraces an active state so as to ensure the survival of a capitalist economic system. In the words of Robert Bellah, “the public good is defined as national harmony achieved through sharing the benefits of economic growth.” [Robert Bellah, et. al. Habits of the Heart, p. 264.] While the welfare liberal state endeavors to ensure that individuals have the means to pursue their private ends, it does not seek to empower citizens collectively to pursue a common good. Instead it empowers an unaccountable bureaucratic administrative apparatus. While this has been a strength of welfare liberalism, it has also been a particularly vulnerable point in the ideological struggles of recent decades as welfare liberalism has been attacked from the Left in the name of a democratic collective empowerment and from the Right in the name of individual freedom.

The political basis for welfare liberalism lay in a certain balance of power between capital and labor. It reflected a sufficiently mobilized working class to be able to press its demands on the state and a capitalist class weakened by the economic crisis. But at the same time, the working class was not strong enough to take full control of the state, nor was capital so weak that the state could not save it from itself. In other words, a revolutionary endgame had not been reached. Instead, a capital-labor accord was struck in the decades following World War II in which capital shared with labor some of the fruits of rising productivity in exchange for labor peace. This was the culmination of the Fordist regime of production that had evolved over the first half of the 20th century. It served to dampen class struggle and fostered a false consciousness in America's working class who self-identified as a ‘middle class’ and by the 1950s had come to identify their interests, indeed the interests of the nation, with those of capital. As articulated by former GM chairman and Defense Secretary Wilson, "What's good for GM is good for the U.S."

But in the mid 1970s capital broke this accord and launched a class war against labor. As capital moved toward a new regime of flexible accumulation, it carried out an offensive against unions and worker’s standards of living as it sought flexibility through other forms of labor besides that of wage labor and the mobility to tap lower wage labor abroad. And the state weighed in on the side of capital in this transition to flexible accumulation --not only during periods of Republican governments like that of Ronald Reagan, but also during Democratic governments like that of Bill Clinton. This was made patently obvious by Clinton's pushing through the NAFTA negotiated by Republican Bush against the opposition of organized labor. Recycling old illusions, Clinton claimed that NAFTA was in the national interest. But workers came to understand that it was actually in the interest of the large corporations. No longer did they buy the illusion that the interest of capital is identical to the national interest.

With the Reagan administration, as with the Thatcher government in Britain, we saw a return to neo-liberalism as the dominant public philosophy. The long process of weakening and dismantling the institutions of welfare liberalism began, a process that was politically enabled by a highly individualistic culture and mass consumerism that privatized normal life and led to the collapse of the public sphere. Without a politically engaged populace, the state reverted to its natural neo-liberal function of promoting the interests of capital by restoring the freedom of the market.

Deregulation, privatization, free trade became national policy as corporate capital sought a union-free environment as it shed fixed relations with massive in-house, high wage workforces and gained the mobility to move production off-shore into globalized assembly lines that could tap low wage Third World labor while still being able to access high income consumer markets with its commodities. Next week we will explore this new phase in the expansion of capitalism. But for now, suffice it to say that globalization came hand in glove with neo-liberalism. The fix for the fiscal crisis of the state, the stagflation of the economy and the declining profits of corporate capital in the 1970s was found in a global neo-liberalism. Such a solution would not have been possible if the popular classes had been socially conscious and politically mobilized. Without that ability to struggle, capital’s class war was fought by only one side for a long time.

It is only in recent years that resistance movements have begun to form against this neo-liberal globalization. Emerging in the Zapatista struggle in Chiapas, the WTO demonstrations in Seattle, and the anti water privatization protests in Bolivia, this developing global justice movement is challenging the received orthodoxy of neo-liberalism. In addition, populist governments have come to power in several Latin American nations such as Venezuela and Brazil. The neo-liberal Washington Consensus is now being widely questioned. The current second play of a global neo-liberal game of monopoly capitalism is being challenged as it fails to fulfill its promise of increasing prosperity for all, having produced instead undemocratic governance systems, disempowered peoples and increased economic polarization within nations and between nations —just as we saw in the board game of Monopoly.

One thing that has become clearer now is that the neo-liberal ideology has been a cover that conceals as much as it reveals. While neo-liberalism eschews state intervention into the market on behalf of labor, it welcomes state intervention on behalf of capital. This can be seen in the way that states have structured the rules of the world market in the name of ‘free trade.’ Under claims of equal treatment for foreign and domestic capital, global neo-liberalism in fact favors transnational corporate capital. It would hardly be a level playing field in the game of Monopoly if some players started with only a few dollars in their pocket and other players started with millions as well as hotels on Boardwalk. It can also be seen in the way that states that champion removing restraints on trade maintain generous state subsidies to their agriculture while requiring poor states to remove theirs. About the only area where global trade rules treat all equally is when it comes to anti-labor policies.

Thus we can see how neo-liberalism functions as an ideology, i.e. a body of ideas that legitimate certain social interests over others. Neo-liberalism is the ideology of capitalists -- the winners in the real life game of Monopoly now being played on the world stage -- just as welfare liberalism was the ideology of that game’s losers who nevertheless wanted to stay in the game in the illusory hope of one day themselves becoming winners.

Much of the ideological obfuscation of neo-liberalism comes from its antiquated image of the market. That image comes from Adam Smith. It is the image of peasant and handicraft markets of a pre-capitalist era. Locally here in San Miguel de Allende we find a close approximation of that at the Tuesday market near Gigante, Tianguis del Martes. There are similar smaller scale mercados in many neighborhoods and villages. Vendors set up temporary stalls offering for sale everything imaginable from fresh produce to clothing, hardware, cassettes, birds, etc., etc. The sellers are often also the producers and deal directly with buyers who may negotiate prices in face to face interactions that are often as personal as they are business in their character. The products are largely expressions of local culture and the revenues realized circulate back into the local community. These are the genuinely free markets of an earlier era.

It is memories of such markets that neo-liberalism congers up in its effort to legitimate the real markets of the present capitalist system. But in fact, they are very different. In many ways they are the direct opposite of a free market. Buyers do not face producers but rather a middle man, the merchant capitalist, or actually his employees. Prices are fixed by the seller and generally not subject to bargaining. Products are mass produced at distant points by alienated wage labor unknown to the buyer. Consumer demand is largely stimulated by advertising rather than the result of autonomous need. And the surplus value realized by sale goes to distant non-producing stockholders and corporate managers and thus does not recirculate in the local community. Such are the real national and global markets of today. They are found in the malls of America rather than the Tuesday markets of the global South. They embody highly asymmetric relations between buyer and seller that are far from the fabled free markets of neo-liberal lore. In fact, as we said earlier, individual consumers find themselves powerless against the corporate giants that dominate today’s real markets. [This contrast is well developed by John McMurtry, The Cancer Stage of Capitalism, Pluto Press, 1999, pp. 37-62; cf. also his more recent Value Wars: The Global Market Versus the Life Economy, Pluto Press, 2002.]

Today’s real neo-liberal markets are increasingly tied into world markets that are structured by states in the interest of transnational corporations. These are the giants that condition our lives under rules established by neo-liberal states. As William I. Robinson points out,

“Transnational capital requires that states perform three functions: (1) adopt fiscal and monetary policies which assure macroeconomic stability (2) provide the basic infrastructure necessary for global economic activity (air and sea ports, communication networks, educational systems which impart the specific skills among labor which capital requires in different spatial locations, etc. and (3) provide social order, that is, stability, which requires sustaining instruments of direct coercion and ideological apparatuses.” [William I. Robinson, Promoting Polyarchy: Globalization, US Intervention, and Hegemony, Cambridge University Press, 1996, p.36.]

The governments of highly capitalist economies like the United States and Britian have long served these three requirements, although often tempered by the forceful demands of popular classes for social justice. But in recent decades, since the advent of Reaganism and Thatcherism, the dominant neo-liberal states have sought to create similar neo-liberal states throughout the world. The IMF and World Bank and now the World Trade Organization have been primary instruments for imposing neo-liberal rules on sometimes reluctant states. When these fail, the US Marines are called in to assure success.

What transnational capital requires are neo-liberal states that are strong enough to serve these three functions, but not so strong as to be able to protect their nation’s interests when that is inconsistent with the interests of transnational capital. The institutions of welfare liberalism have to be dismantled and a deaf ear turned to the weak cries for social justice by the subject populations. This is not always easy to do, if only because governments require some measure of legitimacy to be able to rule effectively. It is here that the global economic system is called in to quiet restless populations. In order to be effective competitors in global neo-liberal markets, they are told, they must accept the discipline of those markets. In effect, popular sovereignty must give way to the interests of transnational capital as the neo-liberal state claims it is powerless in the global market. Thus, we find ourselves victims of one market, under god, with liberty and profits for some. Or so it will be until popular social movements can win some measure of justice within this system, or create a new one in its place.

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