VTUFC Extractive Industries Under Neoliberal Globalization Discussion

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Answer the questions below with at least 3 paragraphs each. Use only material provided for sources, no outside sources.

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Question 1. How do nations present themselves to the world? What mechanisms and techniques do they use? For what purposes? Answer these questions through two specific examples. (3 paragraphs at least)

Question 2. Does the presence of a very valuable natural resource in a community or in a country readily produce benefits like wealth and development? For whom?Using a specific example, discuss the effects of extractive industries under conditions of neoliberal globalization. (3 paragraphs at least)

One book is attached below (Neoliberalism, Steger), and the other is an ebook (the origins of the modern world: a global and environmental narrative from the fifteenth to the twenty-first century, Robert B Marks) https://www.amazon.com/Origins-Modern-World-Enviro...

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Neoliberalism: A Very Short Introduction VERY SHORT INTRODUCTIONS are for anyone wanting a stimulating and accessible way in to a new subject. They are written by experts, and have been published in more than 25 languages worldwide. The series began in 1995, and now represents a wide variety of topics in history, philosophy, religion, science, and the humanities. The VSI library now contains over 200 volumes—a Very Short Introduction to everything from ancient Egypt and Indian philosophy to conceptual art and cosmology—and will continue to grow to a library of around 300 titles. Very Short Introductions available now: AFRICAN HISTORY John Parker and Richard Rathbone AMERICAN POLITICAL PARTIES AND ELECTIONS L. Sandy Maisel THE AMERICAN PRESIDENCY Charles O. Jones ANARCHISM Colin Ward ANCIENT EGYPT Ian Shaw ANCIENT PHILOSOPHY Julia Annas ANCIENTWARFARE HarrySidebottom ANGLICANISM Mark Chapman THE ANGLO-SAXON AGE John Blair ANIMAL RIGHTS David DeGrazia ANTISEMITISM Steven Beller The APOCRYPHAL GOSPELS Paul Foster ARCHAEOLOGY Paul Bahn ARCHITECTURE Andrew Ballantyne ARISTOTLE Jonathan Barnes ART HISTORY Dana Arnold ART THEORY Cynthia Freeland ATHEISM Julian Baggini AUGUSTINE Henry Chadwick AUTISM Uta Frith BARTHES Jonathan Culler BESTSELLERS John Sutherland THE BIBLE John Riches biblical archaeology Eric H. Cline BIOGRAPHY Hermione Lee THE BRAIN Michael O’Shea BRITISH POLITICS Anthony Wright BUDDHA Michael Carrithers BUDDHISM Damien Keown BUDDHIST ETHICS Damien Keown CAPITALISM James Fulcher CATHOLICISM Gerald O’Collins THE CELTS Barry Cunliffe CHAOS Leonard Smith CHOICE THEORY Michael Allingham CHRISTIAN ART Beth Williamson CHRISTIANITY Linda Woodhead CITIZENSHIP Richard Bellamy CLASSICAL MYTHOLOGY Helen Morales CLASSICS Mary Beard and John Henderson CLAUSEWITZ Michael Howard THE COLD WAR Robert McMahon COMMUNISM Leslie Holmes CONSCIOUSNESS Susan Blackmore CONTEMPORARY ART Julian Stallabrass CONTINENTAL PHILOSOPHY Simon Critchley COSMOLOGY Peter Coles THE CRUSADES Christopher Tyerman CRYPTOGRAPHY Fred Piper and Sean Murphy DADA AND SURREALISM David Hopkins DARWIN Jonathan Howard THE DEAD SEA SCROLLS Timothy Lim DEMOCRACY Bernard Crick DESCARTES Tom Sorell Deserts Nick Middleton DESIGN John Heskett DINOSAURS David Norman DOCUMENTARY FILM Patricia Aufderheide DREAMING J. Allan Hobson DRUGS Leslie Iversen THE EARTH Martin Redfern ECONOMICS Partha Dasgupta EGYPTIAN MYTH Geraldine Pinch EIGHTEENTH-CENTURY BRITAIN Paul Langford THE ELEMENTS Philip Ball EMOTION Dylan Evans EMPIRE Stephen Howe ENGELS Terrell Carver ETHICS Simon Blackburn THE EUROPEAN UNION John Pinder and Simon Usherwood EVOLUTION Brian and Deborah Charlesworth EXISTENTIALISM Thomas Flynn FASCISM Kevin Passmore Fashion Rebecca Arnold FEMINISM Margaret Walters THE FIRST WORLD WAR Michael Howard FOSSILS Keith Thomson FOUCAULT Gary Gutting FREE WILL Thomas Pink FREE SPEECH Nigel Warburton THE FRENCH REVOLUTION William Doyle FREUD Anthony Storr FUNDAMENTALISM Malise Ruthven GALAXIES John Gribbin GALILEO Stillman Drake GAME THEORY Ken Binmore GANDHI Bhikhu Parekh GEOGRAPHY John Matthews and David Herbert GEOPOLITICS Klaus Dodds GERMAN LITERATURE Nicholas Boyle GLOBAL CATASTROPHES Bill McGuire GLOBAL WARMING Mark Maslin GLOBALIZATION Manfred Steger THE GREAT DEPRESSION AND THE NEW DEAL Eric Rauchway HABERMAS James Gordon Finlayson HEGEL Peter Singer HEIDEGGER Michael Inwood HIEROGLYPHS Penelope Wilson HINDUISM Kim Knott HISTORY John H. Arnold THE HISTORY OF ASTRONOMY Michael Hoskin THE HISTORY OF LIFE Michael Benton THE HISTORY OF MEDICINE William Bynum THE HISTORY OF TIME Leofranc Holford-Strevens HIV/AIDS Alan Whiteside HOBBES Richard Tuck HUMAN EVOLUTION Bernard Wood HUMAN RIGHTS Andrew Clapham HUME A. J. Ayer IDEOLOGY Michael Freeden INDIAN PHILOSOPHY Sue Hamilton INTELLIGENCE Ian J. Deary INTERNATIONAL MIGRATION Khalid Koser INTERNATIONAL RELATIONS Paul Wilkinson ISLAM Malise Ruthven JOURNALISM Ian Hargreaves JUDAISM Norman Solomon JUNG Anthony Stevens KABBALAH Joseph Dan KAFKA Ritchie Robertson KANT Roger Scruton KIERKEGAARD Patrick Gardiner THE KORAN Michael Cook LAW Raymond Wacks LINCOLN Allen C. Guelzo LINGUISTICS Peter Matthews LITERARY THEORY Jonathan Culler LOCKE John Dunn LOGIC Graham Priest MACHIAVELLI Quentin Skinner THE MARQUIS DE SADE John Phillips MARX Peter Singer MATHEMATICS Timothy Gowers THE MEANING OF LIFE Terry Eagleton MEDICAL ETHICS Tony Hope MEDIEVAL BRITAIN John Gillingham and Ralph A. Griffiths MEMORY Jonathan K. Foster MODERN ART David Cottington MODERN CHINA Rana Mitter MODERN IRELAND Senia Pašeta MODERN JAPAN Christopher Goto-Jones MOLECULES Philip Ball MORMONISM Richard Lyman Bushman MUSIC Nicholas Cook MYTH Robert A. Segal NATIONALISM Steven Grosby NELSON MANDELA Elleke Boehmer THE NEW TESTAMENT AS LITERATURE Kyle Keefer NEWTON Robert Iliffe NIETZSCHE Michael Tanner NINETEENTH-CENTURY BRITAIN Christopher Harvie and H. C. G. Matthew The norman conquest George Garnett NORTHERNIRELAND MarcMulholland NOTHING Frank Close NUCLEAR WEAPONS THE RUSSIAN REVOLUTION Joseph M. Siracusa S. A. Smith THE OLD TESTAMENT SCHIZOPHRENIA Michael D. Coogan Chris Frith and Eve Johnstone PARTICLE PHYSICS Frank Close PAUL E. P. Sanders PHILOSOPHY Edward Craig PHILOSOPHY OF LAW Raymond Wacks PHILOSOPHY OF SCIENCE Samir Okasha PHOTOGRAPHY Steve Edwards PLATO Julia Annas POLITICAL PHILOSOPHY David Miller POLITICS Kenneth Minogue POSTCOLONIALISM Robert Young POSTMODERNISM Christopher Butler POSTSTRUCTURALISM Catherine Belsey PREHISTORY Chris Gosden PRESOCRATIC PHILOSOPHY Catherine Osborne PSYCHIATRY Tom Burns PSYCHOLOGY Gillian Butler and Freda McManus PURITANISM Francis J. Bremer THE QUAKERS Pink Dandelion QUANTUM THEORY John Polkinghorne RACISM Ali Rattansi The reformation Peter Marshall RELATIVITY Russell Stannard RELIGION IN AMERICA Timothy Beal The reagan revolution Gil Troy THE RENAISSANCE Jerry Brotton RENAISSANCE ART Geraldine A. Johnson ROMAN BRITAIN Peter Salway THE ROMAN EMPIRE Christopher Kelly ROUSSEAU Robert Wokler RUSSELL A. C. Grayling RUSSIAN LITERATURE Catriona Kelly SCHOPENHAUER Christopher Janaway SCIENCE AND RELIGION Thomas Dixon SCOTLAND Rab Houston SEXUALITY Véronique Mottier SHAKESPEARE Germaine Greer SIKHISM Eleanor Nesbitt SOCIAL AND CULTURAL ANTHROPOLOGY John Monaghan and Peter Just SOCIALISM Michael Newman SOCIOLOGY Steve Bruce SOCRATES C. C. W. Taylor The SOVIET UNION Stephen Lovell THE SPANISH CIVIL WAR Helen Graham SPINOZA Roger Scruton STATISTICS David J. Hand STUART BRITAIN John Morrill SUPERCONDUCTIVITY Stephen Blundell TERRORISM Charles Townshend THEOLOGY David F. Ford TRAGEDY Adrian Poole Thomas Aquinas Fergus Kerr THE TUDORS John Guy TWENTIETH-CENTURY BRITAIN Kenneth O. Morgan THE UNITED NATIONS Jussi M. Hanhimäki THE VIKINGS Julian Richards WITTGENSTEIN A. C. Grayling WORLD MUSIC Philip Bohlman THE WORLD TRADE ORGANIZATION Amrita Narlikar WRITING AND SCRIPT Andrew Robinson Available soon: Forensic science Jim Fraser EPIDemiology Rodolfo Saracci Progressivism Walter Nugent Information Luciano Floridi The laws of thermodynamics Peter Atkins Innovation Mark Dodgson and David Gann Witchcraft Malcolm Gaskill For more information visit our web site www.oup.co.uk/general/vsi/ Manfred B. Steger and Ravi K. Roy Neoliberalism A Very Short Introduction 3 3 Great Clarendon Street, Oxford ox2 6dp Oxford University Press is a department of the University of Oxford. It furthers the University’s objective of excellence in research, scholarship, and education by publishing worldwide in Oxford New York Auckland Cape Town Dar es Salaam Hong Kong Karachi Kuala Lumpur Madrid Melbourne Mexico City Nairobi New Delhi Shanghai Taipei Toronto With offices in Argentina Austria Brazil Chile Czech Republic France Greece Guatemala Hungary Italy Japan Poland Portugal Singapore South Korea Switzerland Thailand Turkey Ukraine Vietnam Oxford is a registered trade mark of Oxford University Press in the UK and in certain other countries Published in the United States by Oxford University Press Inc., New York # Manfred B. Steger and Ravi K. Roy 2010 The moral rights of the author have been asserted Database right Oxford University Press (maker) First published 2010 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission in writing of Oxford University Press, or as expressly permitted by law, or under terms agreed with the appropriate reprographics rights organization. Enquiries concerning reproduction outside the scope of the above should be sent to the Rights Department, Oxford University Press, at the address above You must not circulate this book in any other binding or cover and you must impose the same condition on any acquirer British Library Cataloguing in Publication Data Data available Library of Congress Cataloging in Publication Data Data available Typeset by SPI Publisher Services, Pondicherry, India Printed in Great Britain on acid-free paper by Ashford Colour Press Ltd, Gosport, Hampshire ISBN 978–0–19–956051–6 1 3 5 7 9 10 8 6 4 2 Contents Preface ix Abbreviations xiii List of illustrations xv List of figures xvii List of maps xviii 1 2 What’s ‘neo’ about liberalism? 1 3 Second-wave neoliberalism in the 1990s: Clinton’s market globalism and Blair’s Third Way 50 4 5 6 Neoliberalism and Asian development 76 First-wave neoliberalism in the 1980s: Reaganomics and Thatcherism 21 Neoliberalism in Latin America and Africa 98 Crises of neoliberalism: the 2000s and beyond 119 References 138 Index 145 This page intentionally left blank Preface The 21st-century world is a fundamentally interdependent place. Globalization has expanded, intensified, and accelerated social relations across world-time and world-space. The digital revolution has served as a catalyst for the creation of sprawling information and communication networks that enmesh individuals, states, and businesses alike. Transnational terrorist cells capable of acting anywhere have targeted symbols of secular power and prompted Western political leaders to declare a ‘global war on terror’. Global climate change and global pandemics have become a frightening reality, forcing countries to work out a common strategy aimed at preventing a catastrophe of planetary proportions. The bursting of the US housing bubble has triggered a global financial crisis that has wiped out trillions of dollars of assets worldwide and pushed the international community to the brink of yet another Great Depression. Triumphalist voices who once saw the collapse of Soviet communism as the ‘end of history’ and the beginning of the unchallenged rule of American-style free-market capitalism have been silenced as the new century has remained an ideological battlefield where all kinds of competing political ideologies vie for the hearts and minds of a global audience. ‘Neoliberalism’ is one of these new ‘isms’. The term was first coined in post-World War I Germany by a small circle of economists and legal scholars affiliated with the ‘Freiburg School’ to refer to their Neoliberalism moderate programme of reviving classical liberalism. In the 1970s, a group of Latin American economists adopted neoliberalismo for their pro-market model. By early 1990s, however, left-leaning critics of market reform in the global South had imbued ‘neoliberalism’ with pejorative meanings associated with the ‘Washington Consensus’ – a set of economic institutions and policies alleged to have been designed by the United States to globalize American capitalism and its associated cultural system. Other critics dismissed ‘neoliberalism’ as an opaque catchphrase invented by radical academics or reactionary economic nationalists for the purpose of downgrading the intellectual achievements of neoclassical economists such as Nobel-prize winners Milton Friedman and Friedrich von Hayek. Still others saw it as a postmodern version of quaint 18th-century ‘laissez-faire talk’ glorifying individual self-interest, economic efficiency, and unbridled competition. In spite of these criticisms, however, neoliberalism has stuck in the public mind. Today, it appears almost daily in the headlines of the world’s major newspapers. Over the last quarter century, ‘neoliberalism’ has been associated with such different political figures as Ronald Reagan, Margaret Thatcher, Bill Clinton, Tony Blair, Augusto Pinochet, Boris Yeltsin, Jiang Zemin, Manmohan Singh, Junichiro Koizumi, John Howard, and George W. Bush. But not one of these political leaders has ever publicly embraced this ambiguous label – although they all share some affinity for ‘neoliberal’ policies aimed at deregulating national economies, liberalizing international trade, and creating a single global market. In its heyday during the 1990s, neoliberalism bestrode the world like a colossus. It ate its way into the heart of the former Soviet bloc. It confronted countries of the global South with the new rules and conditions for their economic development. Showing itself to be a remarkably versatile creature, neoliberalism even charmed the post-Mao Chinese Communist Party cadres whose reformed ‘socialism with Chinese characteristics’ looks suspiciously like its supposed ideological nemesis. x At the dawn of the new century, however, neoliberalism has been discredited as the global economy built on its principles has been shaken to its core by a financial calamity not seen since the dark years of the 1930s. Is neoliberalism doomed or will it regain its former glory? Will reform-minded G-20 leaders embark on a genuinely new course or try to claw their way back to the neoliberal glory days of the Roaring Nineties? Is there a viable alternative to neoliberalism? The main ideas, policies, and modes of governance fuelling these neoliberal projects lie at the heart of this volume. Carrying out our publisher’s wish to keep this introduction very short, we are forced to engage in a rather selective and general discussion. Its main purpose is to present an accessible and informative – but bare – outline of a rich and complex phenomenon. Readers who have digested the materials offered here and feel prepared to delve more deeply into our subject are advised to consult the concluding reference section. xi Preface Culminating in a brief reflection on these crucial questions, this book has been designed to introduce readers to the origins, evolution, and core ideas of neoliberalism by examining its concrete manifestations in various countries and regions around the world. Our exploration will show that although neoliberals across the globe share a common belief in the power of ‘selfregulating’ free markets to create a better world, their doctrine comes in different hues and multiple variations. Reaganomics, for example, is not exactly the same as Thatcherism. Bill Clinton’s brand of market globalism diverges in some respects from Tony Blair’s Third Way. And political elites in the global South (often educated at the elite universities of the North) have learned to fit the dictates of the Washington Consensus to match their own local contexts and political objectives. Thus, neoliberalism has adapted to specific environments, problems, and opportunities. For this reason, it makes sense to think of our subject in the plural – neoliberalisms rather than a single monolithic manifestation. Neoliberalism We would like to thank the Global Cities Research Institute and the Globalism Research Centre at the Royal Melbourne Institute of Technology (RMIT University), as well as the Australian Research Council (ARC) for providing us with valuable research support. We also appreciate the helping hands extended to us by our colleagues and friends affiliated with RMIT University, the University of Hawai’i-Manoa, Claremont Graduate University, the University of California at Santa Barbara, the Shanghai Academy of the Social Sciences, the Free University Berlin, and the University of Oxford. Andrea Keegan and her able team at Oxford University Press have been wonderful to work with. But most of all, we wish to thank our respective families for their enduring love and support. Perle, Joan, and Nicole, this book is for you! Many people have contributed to making this a better book; its remaining shortcomings are our sole responsibility. xii Abbreviations ARC AT&T CCP CIA DLC EPA ERM EU FDR FTA FTAA G-7 G-20 GATT GDP GRH HDI HIPCs IMF LDP MITI MOF MTFS Australian Research Council American Telephone and Telegraph Chinese Communist Party Central Intelligence Agency Democratic Leadership Council Environmental Protection Agency Exchange Rate Mechanism European Union Franklin D. Roosevelt Free Trade Agreement Free Trade Area of the Americas Group of Seven Group of Twenty General Agreement on Tariffs and Trade Gross Domestic Product Gramm-Rudman-Hollings Initiative Human Development Index Heavily Indebted Poor Countries International Monetary Fund Liberal Democratic Party (Japan) Ministry of International Trade and Industry (Japan) Ministry of Finance (Japan) Medium Term Financial Strategy North American Free Trade Agreement North Atlantic Treaty Organization (British) National Health Service Purchasing Price Parity Index Institutional Revolutionary Party (Mexico) Structural Adjustment Programmes Savings and Loans Industry Special Enterprise Zones State-Owned Enterprises Transnational Corporation Trade-Related Aspects of Intellectual Property Rights United States (of America) Union of Soviet Socialist Republics World Trade Organization Neoliberalism NAFTA NATO NHS PPP PRI SAPs S&L SEZs SOEs TNC TRIPs US USSR WTO xiv List of illustrations 1 President Barack Obama delivering his 2009 Inaugural Address, 20 January 2009 2 # Rich Friedman/Corbis 2 Adam Smith (1723–90) 4 Courtesy of the Adam Smith Institute 3 John Maynard Keynes (1883– 1946) 8 7 Michael Douglas as financial tycoon Gordon Gekko in Wall Street: ‘Greed is good’ 32 # Collection Cinéma Photos12.com 8 Margaret Hilda Thatcher (1925– ), Prime Minister of the United Kingdom (1979–90) 39 # Manchester Daily Express/Science & Society Picture Library # Hulton Archives/Getty Images 4 Friedrich August von Hayek (1899–1992) 16 # Hulton Archive/Getty Images 5 Milton Friedman (1912– 2006) 18 # Bettmann/Corbis 6 Ronald Wilson Reagan (1911–2004), 40th President of the United States of America (1981–9) 26 Courtesy of the Library of Congress 9 Reagan and Gorbachev shaking hands at their 1988 summit in Moscow after exchanging ratifications of the Intermediate Nuclear Force Treaty 48 # RIA Novosli/TopFoto 10 President Bill Clinton and British Prime Minister Tony Blair in conversation at ‘Roundtable Discussion on the Third Way: Progressive Governance for the 21st Century’, held (2004– ) 95 on 25 April 1999 in Washington, DC 52 # AP/Press Association Images # Getty Images 11 14 Ernesto Zedillo Ponce de Léon (1951– ), President of Mexico (1994–2000) 109 Junichiro Koizumi (1932– ), Prime Minister of Japan (2001–6) 82 # AP/Press Association Images # AFP/Getty Images 12 Chinese Leader Deng Xiaoping (1904–97) 85 15 Jeremiah (Jerry) Rawlings (1947– ); Ghana’s Head of State (1979; 1981–93); President of Ghana (1993–2001) 113 # Hulton Archive/Getty Images 13 Manmohan Singh (1932– ), Prime Minister of India Neoliberalism # 2004 UPP/TopFoto xvi List of figures A. Reaganomics and Thatcherism: supply-side and monetarist neoliberalism 25 B. The best-paid US CEOs, 1996 61 C. Average hourly earnings of non-supervisory employees in private, non-farm employment, 1950–97 62 D. Household shares of aggregate income in the US, 1967–2003 63 E. The Big Mac Index and the overvalued Yuan F. India’s GDP growth rate, 2006–9 89 94 G. The 15 most unequal nations in the world 101 H. Ghana’s Human Development Index, 2005 116 I. 2008 compensation packages (salary, bonuses, and stock options) of the top-ten US CEOs 128 J. Global financial crisis: losses and bailouts for US and European countries in context 129 K. The collapse of world trade 132 L. The contraction of the world economy 132 List of maps 1. China’s Special Enterprise Zones 88 2. Countries falling into recession as a result of the global financial crisis 130 Chapter 1 What’s ‘neo’ about liberalism? Liberalism old and new Delivering his 2009 Inaugural Address in the throes of the worst economic crisis since the Great Depression of the 1930s, Barack Obama minced no words as he pointed his finger at what he considered to be the chief culprits of the global financial disaster: greed and irresponsibility on the part of some, and people’s collective failure to make hard choices and prepare themselves for a new age. Expanding his argument, the youthful President insisted that the key question today was no longer whether government was too big or too small, but whether it worked. Then, looking straight into cameras that projected his stern image onto countless TV and computer screens around the world, the American leader took issue with the reigning economic paradigm of the last 30 years: Nor is the question before us whether the market is a force for good or ill. Its power to generate wealth and expand freedom is unmatched. But this crisis has reminded us that without a watchful eye, the market can spin out of control. The reaction from news pundits was swift and unambiguous: Obama’s address was a clear indication that the age of ‘neoliberalism’ might be coming to an end. 1 Neoliberalism 1. President Barack Obama delivering his 2009 Inaugural Address To be sure, the object of the President’s criticism – the neoliberal ideal of the ‘self-regulating market’ as the main engine powering the individual’s rational pursuit of wealth – had been a core tenet of economists since the late 18th century. Opposed to the mercantilism of monarchs who exercised almost total control over the economy in their efforts to amass large quantities of gold for largely bellicose purposes, ‘classical liberals’ like Adam Smith and David Ricardo preached the virtues of the ‘free market’ and ‘laissez-faire’ economics. Smith is credited with creating the Scottish Enlightenment image of homo economicus – the view that people are isolated individuals whose actions reflect mostly their material 2 self-interests. According to this view, economic and political matters are largely separable, with economics claiming a superior status because it operates best without government interference under a harmonious system of natural laws. Thus, the state is to refrain from ‘interfering’ with the economic activities of self-interested citizens and instead use its power to guarantee open economic exchange. For classical liberals, producers were the servants of consumers who pursued their material needs and wants as they saw fit. Dedicated to the protection of private property and the legal enforcement of contracts, classical liberals argued that the ‘invisible hand’ of the market ensured the most efficient and effective allocation of resources while facilitating peaceful commercial intercourse among nations. Their ideas proved to be a potent force in fomenting the great 18th-century revolutions that toppled royal dynasties, separated church and state, and shattered the dogmas of mercantilism. For most of the 19th century, the heirs of classical liberalism sought to convince people that bad economic times always reflected some form of ‘government failure’ – usually too much state interference resulting in distorted price signals. 3 What’s ‘neo’ about liberalism? Ricardo’s theory of ‘comparative advantage’ became the gospel of modern free traders. He argued that free trade amounted to a win– win situation for all trading partners involved, because it allowed each country to specialize in the production of those commodities for which it had a comparative advantage. For example, if Italy could produce wine more cheaply than England, and England could produce cloth more cheaply than Italy, then both countries would benefit from specialization and trade. In fact, Ricardo even went so far as to suggest that benefits from specialization and trade would accrue even if one country had an absolute advantage in producing all of the products traded. Politically, Ricardo’s theory amounted to a powerful argument against government interference with trade and was used by 19th-century liberals like Richard Cobden as a formidable ideological weapon in the struggle to repeal the protectionist Corn Laws in England. Neoliberalism 2. Adam Smith (1723–90) 4 Classical liberalism and the Enlightenment Classical liberalism arose in tandem with the Enlightenment movement of the late 17th and the 18th centuries which proclaimed reason as the foundation of individual freedom. Enlightenment thinkers like John Locke (1632–1704) argued that in the ‘state of nature’, all men were free and equal, therefore possessing inalienable rights independent of the laws of any government or authority. Naturally endowed with the right to life, liberty, and property, humans could legitimately establish only limited governments whose chief task consisted of securing and protecting these individual rights, especially private property. But the turbulent 20th century soon cast a dark cloud on these ‘truths’ of classical liberalism. It wasn’t until the 1980s that ‘neoliberals’ managed to bring back some of these quaint ideas – albeit dressed in new garments. So what happened in the intervening period? The story is well known. The fury and longevity of the Great Depression convinced leading economic thinkers like John Maynard Keynes and Karl Polanyi that government was much more than a mere ‘night watchman’ – the role assigned to the state by classical liberals. At the same time, however, Keynes and his new breed of ‘egalitarian liberals’ disagreed with Marxists who saw the persistence of economic crises as evidence for the coming collapse of capitalism and the victory of a ‘revolutionary proletariat’ that had seen through the ‘ideological distortions’ of the ‘ruling bourgeoisie’: never again would workers fall into the clever trap of accepting their own exploitation in the name of highsounding liberal ideals like ‘freedom’, ‘opportunity’, and ‘hard 5 What’s ‘neo’ about liberalism? How could there be such a thing as ‘market failure’, they reasoned, if markets – properly shielded from the meddling state – were by nature incapable of ‘failing’? Neoliberalism work’. Seeking to prevent revolution by means of economic reform, egalitarian liberals like Prime Minister Clement Atlee and President Franklin D. Roosevelt remained staunch defenders of individual autonomy and property rights. And yet, they criticized classical liberalism for its inability to recognize that modern capitalism had to be subjected to certain regulations and controls by a strong secular state. Keynes, in particular, advocated massive government spending in a time of economic crisis to create new jobs and lift consumer spending. Thus, he challenged classical liberal beliefs that the market mechanism would naturally correct itself in the event of an economic crisis and return to an equilibrium at full employment. Keynes linked unemployment to a shortage of private capital investment and spending in the economy. For this shortfall, he blamed short-sighted and avaricious investors, whose speculative investments had destabilized the market. Committed to the market principle but opposed to the ‘free market’, ‘Keynesianism’ even called for some state ownership of crucial national enterprises like railroads or energy companies. Keynes led the British delegation at the 1944 Bretton Woods Conference in the United States, which established the post-war international economic order and its international economic institutions. The International Monetary Fund (IMF) was created to administer the international monetary system. The International Bank for Reconstruction and Development, later known as the World Bank, was initially designed to provide loans for Europe’s postwar reconstruction. During the 1950s, however, its purpose was expanded to fund various industrial projects in developing countries around the world. Finally, the General Agreement on Tariffs and Trade (GATT) was established in 1947 as a global trade organization charged with fashioning and enforcing multilateral trade agreements. In 1995, the World Trade Organization (WTO) was founded as the successor organization to GATT and subsequently became the 6 focal point of intense public controversy over its neoliberal design of free trade agreements. The golden age of controlled capitalism in the United States The economy was based on mass production. Mass production was profitable because a large middle class had enough money to purchase what could be mass produced. The middle class had the money because the profits from mass production were divided up between giant corporations and their suppliers, retailers, and employees. The bargaining power of this latter group was enhanced and enforced by government action. Almost a third of the workforce belonged to a union. Economic benefits were also spread across the nation – to farmers, veterans, smaller towns, and small business – through regulation (of railroads, telephones, utilities, and small business) and subsidy (price supports, highways, federal loans). Source: Robert B. Reich, Supercapitalism: The Transformation of Business, Democracy, and Everyday Life (New York: Knopf, 2008), p. 17 7 What’s ‘neo’ about liberalism? The political applications of Keynesian ideas inspired what some economists called the ‘golden age of controlled capitalism’, which lasted roughly from 1945 to 1975. The American ‘New Deal’ and ‘Great Society’ programmes spearheaded by FDR and President Lyndon Johnson, the much admired model of Swedish social democracy, and the British version of ‘welfarism’ launched in 1945 reflected a broad political consensus among Western nations that led some pundits to proclaim the ‘end of ideology’. National governments controlled money flows in and out of their territories. High taxation on wealthy individuals and profitable corporations led to the expansion of the welfare state. Rising wages and increased social services in the wealthy countries of the global North offered workers entry into the middle class. Neoliberalism 3. John Maynard Keynes (1883–1946) Even US President Richard Nixon, a conservative Republican, proclaimed as late as 1970 that ‘we are all Keynesians now’. It was the Keynesian advocacy of an interventionist state and regulated markets that gave ‘liberalism’ its modern economic meaning: a doctrine favouring a large, active government, regulation of 8 Keynesian macroeconomics John Maynard Keynes’s literary masterpiece, The General Theory of Employment, Interest and Money, was published in 1936 at the height of the Great Depression. The book gained instant prominence because it successfully challenged classical liberal ideas about how modern economies worked. Keynesian ideas proved to be crucial in the development of the theoretical framework of ‘macroeconomics’. This new field proclaimed that it was possible for national governments to aggregate data and predict economic crises in advance of their occurrence, thus proposing the use of various policies to intervene in and make adjustments to the economy. Specifically, governments were to spur growth, and reduce spending during periods of boom in order to keep inflation in check. Keynesian ideas dominated macroeconomics until the rise of neoliberal doctrines in the early 1970s. industry, high taxes for the rich, and extensive social welfare programmes for all. In the three decades following World War II, modern egalitarian liberalism delivered spectacular economic growth rates, high wages, low inflation, and unprecedented levels of material wellbeing and social security. But this golden age of controlled capitalism ground to a halt with the severe economic crises of the 1970s. In response to such unprecedented calamities as ‘oil shocks’ that quadrupled the price of petrol overnight, the simultaneous occurrence of runaway inflation and rising unemployment (‘stagflation’), and falling corporate profits, an entirely new breed of liberals sought a way forward by reviving the old doctrine of classical liberalism under the novel conditions of globalization. 9 What’s ‘neo’ about liberalism? increase public spending during economic recessions in order to Neoliberalism These ‘neoliberals’ subscribed to a common set of ideological and political principles dedicated to the worldwide spread of an economic model emphasizing free markets and free trade. And yet, they emphasized different parts of their theory according to their particular social contexts. Worshipped by their followers and detested by the Keynesians, neoliberals succeeded in the early 1980s in setting the world’s economic and political agenda for the next quarter century. As we shall discuss in Chapters 2 and 3, they argued that crippling government regulation, exorbitant public spending, and high tariff barriers to international trade had been responsible for creating conditions that led to high inflation and poor economic growth throughout the industrial countries in the 1970s. Once this premise became widely accepted, it was the logical next step to claim that these factors remained the major impediment to successful economic development in the global South. Thus was born a global neoliberal development agenda based primarily on so-called ‘structural adjustment programmes’ and international free-trade agreements. As we shall see in Chapters 4 and 5, powerful economic institutions like the International Monetary Fund and the World Bank imposed their neoliberal agenda on heavily indebted developing countries in return for muchneeded loans. The 1991 demise of the Soviet Union and the acceleration of market-oriented reforms in communist China led to the unprecedented dominance of the neoliberal model in the 1990s. During the last decade, however, neoliberalism has come under a series of criticisms. The global economic crisis of 2008–9 is only the latest in a series of challenges to the still dominant free-market paradigm. But before we can appreciate the full magnitude of the threat facing neoliberalism, we must familiarize ourselves with its various dimensions, varieties, and policy applications. So let us commence our journey with a brief consideration of its core ideas and principles. 10 The three dimensions of neoliberalism ‘Neoliberalism’ is a rather broad and general concept referring to an economic model or ‘paradigm’ that rose to prominence in the 1980s. Built upon the classical liberal ideal of the self-regulating market, neoliberalism comes in several strands and variations. Perhaps the best way to conceptualize neoliberalism is to think of it as three intertwined manifestations: (1) an ideology; (2) a mode of governance; (3) a policy package. Let us carefully unpack these fundamental dimensions. Serving as the chief advocates of neoliberalism, these individuals saturate the public discourse with idealized images of a consumerist, free-market world. Skilfully interacting with the media to sell their preferred version of a single global marketplace to the public, they portray globalizing markets in a positive light as an indispensable tool for the realization of a better world. Such market visions of globalization pervade public opinion and political choices in many parts of the world. Indeed, neoliberal 11 What’s ‘neo’ about liberalism? Ideologies are systems of widely shared ideas and patterned beliefs that are accepted as truth by significant groups in society. Such ‘isms’ serve as indispensable conceptual maps because they guide people through the complexity of their political worlds. They not only offer a more or less coherent picture of the world as it is, but also as it ought to be. In doing so, ideologies organize their core ideas into fairly simple truth-claims that encourage people to act in certain ways. These claims are assembled by codifiers of ideologies to legitimize certain political interests and to defend or challenge dominant power structures. The codifiers of neoliberalism are global power elites that include managers and executives of large transnational corporations, corporate lobbyists, influential journalists and public-relations specialists, intellectuals writing for a large public audience, celebrities and top entertainers, state bureaucrats, and politicians. Neoliberalism decision-makers function as expert designers of an attractive ideological container for their market-friendly political agenda. Their ideological claims are laced with references to global economic interdependence rooted in the principles of free-market capitalism: global trade and financial markets, worldwide flows of goods, services, and labour, transnational corporations, offshore financial centres, and so on. For this reason, it makes sense to think of neoliberalism as a rather economistic ideology, which, not unlike its archrival Marxism, puts the production and exchange of material goods at the heart of the human experience. The second dimension of neoliberalism refers to what the French social thinker Michel Foucault called ‘governmentalities’ – certain modes of governance based on particular premises, logics, and power relations. A neoliberal governmentality is rooted in entrepreneurial values such as competitiveness, self-interest, and decentralization. It celebrates individual empowerment and the devolution of central state power to smaller localized units. Such a neoliberal mode of governance adopts the self-regulating free market as the model for proper government. Rather than operating along more traditional lines of pursuing the public good (rather than profits) by enhancing civil society and social justice, neoliberals call for the employment of governmental technologies that are taken from the world of business and commerce: mandatory development of ‘strategic plans’ and ‘risk-management’ schemes oriented toward the creation of ‘surpluses’; cost–benefit analyses and other efficiency calculations; the shrinking of political governance (so-called ‘best-practice governance’); the setting of quantitative targets; the close monitoring of outcomes; the creation of highly individualized, performance-based work plans; and the introduction of ‘rational choice’ models that internalize and thus normalize market-oriented behaviour. Neoliberal modes of governance encourage the transformation of bureaucratic mentalities into entrepreneurial identities where government workers see themselves no longer as public servants and guardians of a qualitatively defined ‘public good’ but as self-interested actors 12 responsible to the market and contributing to the monetary success of slimmed-down state ‘enterprises’. In the early 1980s, a novel model of public administration known as ‘new public management’ took the world’s state bureaucracies by storm. Operationalizing the neoliberal mode of governance for public servants, it redefined citizens as ‘customers’ or ‘clients’ and encouraged administrators to cultivate an ‘entrepreneurial spirit’. If private enterprises must nurture innovation and enhance productivity in order to survive in the competitive marketplace, why shouldn’t government workers embrace neoliberal ideals to 1. Catalytic Government: Steering Rather than Rowing 2. Community-Owned Government: Empowering Rather than Serving 3. Competitive Government: Injecting Competition into Service 4. Mission-Driven Government: Transforming Rule-Driven Organizations 5. Results-Oriented Government: Funding Outcomes, Not Inputs 6. Customer-Driven Government: Meeting the Needs of the Customer, Not the Bureaucracy 7. Enterprising Government: Earning Rather than Spending 8. Anticipatory Government: Prevention Rather than Cure 9. Decentralized Government: From Hierarchy to Participation and Teamwork 10. Market-Oriented Government: Leveraging Change through the Market Source: David Osborne and Ted Gaebler, Reinventing Government (1992), cited in Robert B. Denhardt, Theories of Public Organization, 5th edn. (Wadsworth, 2007), pp. 145–6 13 What’s ‘neo’ about liberalism? Neoliberalism as new public management: ten government objectives Neoliberalism improve the public sector? Based on this neoliberal governmentality, US Vice-President Al Gore famously utilized new public management principles in the 1990s to subject various government agencies to a ‘National Performance Review’ whose declared objective was to cut ‘government waste’ and increase administrative efficiency, effectiveness, and accountability. Third, neoliberalism manifests itself as a concrete set of public policies expressed in what we like to call the ‘D-L-P Formula’: (1) deregulation (of the economy); (2) liberalization (of trade and industry); and (3) privatization (of state-owned enterprises). Related policy measures include massive tax cuts (especially for businesses and high-income earners); reduction of social services and welfare programmes; replacing welfare with ‘workfare’; use of interest rates by independent central banks to keep inflation in check (even at the risk of increasing unemployment); the downsizing of government; tax havens for domestic and foreign corporations willing to invest in designated economic zones; new commercial urban spaces shaped by market imperatives; anti-unionization drives in the name of enhancing productivity and ‘labour flexibility’; removal of controls on global financial and trade flows; regional and global integration of national economies; and the creation of new political institutions, think tanks, and practices designed to reproduce the neoliberal paradigm. As we shall see in later chapters, so-called ‘neoconservative’ initiatives often supported the neoliberal policy agenda in pursuit of shared political objectives. In turn, many neoliberals embraced conservative values, especially ‘family values’, tough law enforcement, and a strong military. The nearly universal adoption of at least some parts of this policy package in the 1990s reflected the global power of the ideological claims of neoliberalism. As we noted in the preface, the ensuing chapters of this book will pay special attention to the connection between the ideological and policy dimensions of neoliberalism by examining concrete policy applications in different settings around the world. But let us first complete our clarification of conceptual matters with a brief review 14 of the major economic theories that fuelled the rise of neoliberalism in the late 1970s. The intellectual origins of neoliberalism 15 What’s ‘neo’ about liberalism? Although neoliberalism comes in several varieties, one can find the first systematic formulation of its economic principles in the Mont Pelerin Society. Founded in 1947 by Friedrich August von Hayek, an influential member of the early 20th-century Austrian School of Economics, the Society attracted like-minded intellectuals committed to strengthening the principles and practice of a ‘free society’ by studying the workings and virtues of market-oriented economic systems. Vowing to stem what they saw as the ‘rising tide of collectivism’ – be it Marxism or even less radical forms of statecentred planning – Hayek and his colleagues sought to revive classical liberalism in their attempt to challenge the dominance of Keynesian ideas. A great believer in the free market’s spontaneous ability to function as a self-regulating and knowledge-generating engine of human freedom and ingenuity, Hayek considered most forms of state intervention in the economy as ominous milestones on the ‘road to serfdom’ leading to new forms of governmentengineered despotism. His economic theory was anchored in the notion of ‘undistorted price mechanisms’ that were said to serve to share and synchronize local and personal knowledge, thus allowing individual members of society to achieve diverse ends without state interference. For Hayek, economic freedom could never be subordinated to political liberty and confined to the narrow sphere of material production. Rather, it was a profoundly political and moral force that shaped all other aspects of a free and open society. Surprisingly, however, the members of the Mont Pelerin Society occasionally strayed into conservative ideological territory by emphasizing the limits of human rationality and the importance of time-honoured values and traditions in the constitution of human societies. Neoliberalism 4. Friedrich August von Hayek (1899–1992) 16 Libertarianism Often associated with the economic doctrines of Friedrich von Hayek and Milton Friedman, libertarianism is a political creed hostile to government intervention. While sharing general agreement with mainstream liberalism on the primacy of individual liberty, most libertarians are strictly opposed to other liberal values such as equality, solidarity, and social responsibility. Rejecting modern governments as illegitimate for their use of ‘coercive’ policies, many libertarians subscribe to the utopian ideal of a loose ‘society’ of autonomous individuals engaged in strictly voluntary forms of exchange. Indeed, some libertarians go even so far as to demand the wholesale abolition of the state. 17 What’s ‘neo’ about liberalism? The neoliberal principles advocated by Hayek’s Mont Pelerin Society greatly influenced the American economist Milton Friedman, winner of the 1976 Nobel Prize. The charismatic leader of the Chicago School of Economics (based at the University of Chicago), Friedman had an influential hand in guiding neoliberalism from constituting a mere minority view in the 1950s to becoming the ruling economic orthodoxy in the 1990s. Focusing on inflation as the most dangerous economic outcome of state interference – such as price controls imposed by Keynesian governments to guarantee low-income earners access to basic commodities – Friedman developed his theory of monetarism. It posited that only the self-regulating free market allowed for the right number of goods at correct prices produced by workers paid at wage levels determined by the free market. By the early 1980s, monetarists like Friedman insisted that slaying the dragon of inflation required that central banks like the US Federal Reserve pursue anti-inflationary policies that kept the supply and demand for money at equilibrium. In short, monetary policies should take precedence over fiscal policy (taxation and redistribution policies) devised by ‘big government’. Neoliberalism 5. Milton Friedman (1912–2006) 18 As we shall see in ensuing chapters, neoliberalism soon spread to other parts of the world – often by means of so-called ‘shock therapies’ devised by prominent neoliberal economists. Examples include Chile after General Augusto Pinochet’s 1973 CIAsupported coup, the economic transformation of formerly communist Eastern Europe, and post-Apartheid South Africa. In some cases, domestic elites, educated in elite universities abroad, embraced neoliberalism enthusiastically. Others adopted it only grudgingly because they felt that they had no choice but to swallow the bitter pill of structural adjustment demands that inevitably accompanied much-needed IMF or World Bank loan offers. Although Chicago School economists like Friedman disliked the 1940s Keynesian regulatory framework under which the IMF The ‘Washington Consensus’ is often viewed as synonymous with ‘neoliberalism’. Coined in the 1980s by the free-market economist John Williamson, the term refers to the ‘lowest common denominator of policy advice’ directed at mostly Latin American countries by the IMF, the World Bank, and other Washington-based international economic institutions and think tanks. In the 1990s, it became the global framework for ‘proper’ economic development. In exchange for much-needed loans and debt-restructuring schemes, governments in the global South were required to adhere to the Washington Consensus by following its ten-point programme: 1. A guarantee of fiscal discipline, and a curb to budget deficit 2. A reduction of public expenditure, particularly in the military and public administration 3. Tax reform, aiming at the creation of a system with a broad base and with effective enforcement 4. Financial liberalization, with interest rates determined by the market 19 What’s ‘neo’ about liberalism? The Washington Consensus 5. Competitive exchange rates, to assist export-led growth 6. Trade liberalization, coupled with the abolition of import licensing and a reduction of tariffs 7. Promotion of foreign direct investment 8. Privatization of state enterprises, leading to efficient management and improved performance 9. Deregulation of the economy Neoliberalism 10. Protection of property rights and World Bank had originally been devised, their neoliberal ideological descendants in the 1990s managed to capture the upper echelons of power in these international economic institutions. With the support of the world’s sole remaining superpower, they eagerly exported the ‘Washington Consensus’ to the rest of the world. Let us now examine in more detail the concrete ideological and policy manifestations of neoliberalism across countries, regions, and regimes. Its various strands sometimes diverge on issues such as the precise role and appropriate size of government or take different positions on policy priorities and prescriptions. But most neoliberals share broadly similar ideological positions regarding the superiority of self-regulating market mechanisms over state intervention in producing sustained economic growth. They also agree on policies promoting individual entrepreneurial growth and productivity. Finally, they are united in their view that maintaining low levels of inflation is more important than achieving full employment. We begin our journey through the landscapes of neoliberalism by exploring two of its earliest and most spectacular strands: Reaganomics and Thatcherism. 20 Chapter 2 First-wave neoliberalism in the 1980s: Reaganomics and Thatcherism The rise of neoliberalism in the English-speaking world is most notably associated with US President Ronald Reagan (1981–8) and British Prime Minister Margaret Thatcher (1979–90). Their fervent campaign to put an end to Keynesian-style ‘big government’ was shared by the Australian Prime Minister Malcolm Fraser (1975–83) and the Canadian Prime Minister Brian Mulroney (1984–93). These political leaders not only articulated the core ideological claims of neoliberalism but also sought to convert them into public policies and programmes. What distinguished Reagan and Thatcher from many other neoliberals, however, was their remarkable resolve to stand by their principles even when it was politically risky or inconvenient to do so. President Reagan, for example, seriously considered not running for a second term in office if doing so meant he would have to reverse his deep tax cuts. Similarly, when some conservative members within Thatcher’s own Tory Party stated that they could no longer tolerate her tough anti-inflation policies, she boldly declared, ‘You turn if you want to – this Lady is not for turning’. Indeed, the ‘Iron Lady’ was famous for coining other ideological slogans such as ‘There Is No Alternative’ (to her neoliberal agenda). Although the political Left in Britain lost no time in assailing such economic determinism, it nonetheless failed to assemble an alternative political vision that would prove the Prime Minister wrong. 21 Neoliberalism To be sure, these examples are not meant to suggest that Reagan and Thatcher were devoid of pragmatism or that they did not make significant political compromises when deemed necessary. Nor should one assume that Mulroney and Fraser’s attempts at neoliberal reform were not genuine despite their relatively vague generic policies. But what distinguished the Reagan and Thatcher revolutions, as they would be called, was their forceful articulation of very particular sets of neoliberal ideas and claims and their successful translation into concrete policies and programmes. Moreover, both leaders staffed their cabinets with loyal secretaries and advisers who shared their points of view. Finally, both Reagan and Thatcher sought to merge their economic neoliberalism with more traditional conservative agendas. Some commentators have even gone so far as to suggest that ‘neoliberalism’ and ‘neoconservatism’ should be used as interchangeable terms. As we shall see later in this chapter, however, such assertions appear somewhat exaggerated, for these ideologies are not identical. At the same time, however, there were significant areas of overlap between neoliberalism and neoconservatism – especially as applied to Reaganomics and Thatcherism. Neoliberalism and neoconservatism Contemporary neoconservatives are not ‘conservative’ in the classical sense, as defined by 18th-century thinkers like Edmund Burke, who expressed a fondness for aristocratic virtues, bemoaned radical social change, disliked republican principles, and distrusted progress and reason. Rather, the neoconservativism of Reagan and Thatcher resembles a muscular liberalism that is often associated with political figures like Theodore Roosevelt, Harry Truman, or Winston Churchill. In general, neoconservatives agree with neoliberals on the importance of free markets, free trade, corporate power, and elite governance. But neoconservatives are much more inclined 22 to combine their hands-off attitude toward big business with intrusive government action for the regulation of the ordinary citizenry in the name of public security and traditional morality. Their appeals to ‘law and order’ sometimes drown out their concern for individual rights – albeit not for the individual as the building block of society. In foreign affairs, neoconservatives advocate an assertive and expansive use of both economic and military power, ostensibly for the purpose of promoting freedom, free markets, and democracy around the world. In the United States, outspoken neoconservatives such as Irving Kristol mobilized CEOs of some of America’s wealthiest corporations to support neoliberal research institutes and think tanks such as the American Enterprise Institute, the Cato Institute, and the Heritage Foundation. They worked closely with Reagan and his staff to promote policies aimed at private-sector-led economic growth. A staunch supporter of neoliberal ‘supply-side’ economics, the President believed that high taxes were the prime cause of poor economic performance. 23 First-wave neoliberalism in the 1980s By the early 1980s, many of the key members of the British Treasury who had embraced monetarism became extremely influential in shaping Thatcher’s economic agenda. These included prominent Tories like Alan Budd, Terry Burns, David Laidler, Patrick Minford, and Tim Congdon. Most of them were affiliated with powerful conservative think tanks such as the Centre for Policy Studies (co-founded by Margaret Thatcher), the Institute of Economic Affairs, the Adam Smith Institute, and the Institute of Directors. Influential journalists working for the Financial Times, The Times, and The Sunday Times sympathetic to the Prime Minister’s neoliberal agenda included William Rees-Mogg, Samuel Brittan, Bernard Levin, Peter Jay, and Ronald Butt. All of these writers were chief proponents of Thatcher’s monetarist economic policy. Supply-side economics and the Laffer Curve Advocated by neoliberal economists like Arthur Laffer and embraced by President Reagan, ‘supply-side economics’ is based upon the assumption that long-term economic growth depends on ‘freeing up’ the amount of capital available for private investment. A crucial theoretical component of supply-side economics, the ‘Laffer Curve’ is a graphical illustration of the thesis that increases in taxation rates will not always lead to an increase in taxation revenue. As tax rates approach 100%, the curve suggests, revenue will drop as citizens will have no incentive to work harder. Supply-siders show a single-minded commitment to reducing taxes on private income. Relying on the Laffer Curve, they argue that new economic growth produced by Neoliberalism added investment will automatically generate sufficiently large tax revenue surpluses. These, in turn, could be used by governments to pay down their debts and ultimately balance their budgets. Also known as ‘trickle-down economics’, supplyside economics appealed to Reagan and Republican Party legislators in the US Congress who, eager to cut taxes, were nonetheless careful to preserve politically popular social programmes like Social Security and Medicare. Thatcher, by way of contrast, held that the growth of the money supply was the chief culprit of bad economic performance. Though cut from the same neoliberal cloth, the US President’s and the Prime Minister’s differing views inspired distinct policy agendas. Figure A illustrates these variations on the neoliberal theme. Reaganomics Immediately upon taking office in 1981, President Ronald Reagan announced his supply-side-oriented Program for Economic Recovery that was based on neoliberal principles, 24 25 Executive leader Core neoliberal beliefs Secondary beliefs Core neoliberal policy issue Secondary policy issue Reagan (supply-sider) Government is inefficient. Government predation leads to poor economic performance. Government is inefficient. Monetary and fiscal stability is necessary for economic growth. Monetary and fiscal stability is necessary for economic growth. Restrict the extent of government predation through minimal taxation. Create economic stability through deficit reduction and spending restraint. Create economic stability through deficit reduction and spending restraint. Restrict the extent of predation through minimal taxation. Thatcher (monetarist) Government predation leads to poor economic performance. A. Reaganomics and Thatcherism: supply-side and monetarist neoliberalism Neoliberalism 6. Ronald Wilson Reagan (1911–2004), 40th President of the United States of America (1981–9) derided by opponents in his own party as ‘Voodoo Economics’. Proclaiming to combat the toxic mixture of stagflation and high unemployment inherited from the Carter years, Reaganomics focused, first and foremost, on reducing marginal tax rates. But the President was no less determined to tackle deficit spending and existing government regulations. The only area in which 26 Reagan pushed strongly for spending increases was military defence, which he insisted was necessary for waging the Cold War against the Soviet ‘Evil Empire’ and other ‘communist aggressors’ around the world. We will return to the subject of foreign policy at the end of this chapter. But when Reaganomics struggled to deliver on its promise to end deficit spending, the President’s Budget Director, David Stockman, challenged this economic strategy. Stockman, a traditional fiscal conservative, publicly warned that deep tax cuts and increased military spending would make large deficits inevitable, the consequences of which could be disastrous. He therefore advised the President to further curtail funding for social programmes, including Medicare and Medicaid. Yet, Reagan did neither. Undeterred, he stayed his economic course. Judged in the short term, Reagan’s tax cuts might hardly be viewed as a neoliberal ‘revolution’. From a broader perspective, however, their cumulative effect amounted to nothing less than a full-blown assault on state-led redistribution of private wealth. The Tax Reform Act of 1986, in particular, reduced the number of tax brackets to four while reducing the average individual income tax rate by about 6%. In an attempt to address mounting fears over the growing budget deficit, the Tax Reform Act raised corporate taxes to offset cuts in personal income taxes, thus seeking to make the latter ‘revenue neutral’. But critics were quick to point out that Reagan’s tax reforms 27 First-wave neoliberalism in the 1980s Although both Reagan and Thatcher saw inflation as an impediment to growth, supply-siders like the US President were keen on portraying monetarism as the ‘politics of austerity’. Believing that the money supply would naturally adjust to market imperatives, Reagan did not share the Prime Minister’s monetarist sense of worry over budget deficits. Lower taxes, he asserted, promoted increased growth which, in turn, would automatically generate sufficient revenues to cover existing spending for public programmes. resulted in a dramatic widening of the income gap between the middle class and the wealthy. Reagan’s initial tax cuts, implemented in the early 1980s, led to a decline in government revenues that were required to cover existing spending commitments in social policy and dramatic increases in military expenditure. As a result, the administration was forced to resort to enormous levels of deficit spending to cover these revenue shortfalls. Neoliberalism Under intense pressure from many traditional conservatives, Reagan was eventually compelled to deal with what amounted to the largest budget deficit in US history. His long-standing resentment against government growth paved the way for the historic enactment of what became known as the Gramm-Rudman-Hollings Deficit Reduction Initiative. Sponsored by Republican Senators Phil Gramm and Warren Rudman, the legislation fuelled intense public debate in the global North over the potential dangers of deficit spending to the American and world economy. The Gramm-Rudman-Hollings Initiative (GRH) Also known as the Balanced Budget and Emergency Control Act, GRH was introduced in 1985 as a method of controlling excessive government spending by the Reagan administration. It outlined spending targets that would eliminate the deficit by 1991, prompting a public debate on the dangers of the growing tendency of government to borrow and spend. A major point of contention was GRH’s demand to cut social spending. Progressive members of the Democratic Party, in particular, were incensed that military spending was not subjected to the same stringent reduction schemes as social programmes. Although not all of the measures outlined in GRH were implemented, the neoliberal momentum behind it endured. 28 In addition, reducing taxes and increasing military expenditure – while simultaneously trying to balance the budget – turned out to be inconsistent objectives. This was particularly evident in the area of tax policy where cuts in income taxes led to increases in corporate tax revenues. These inconsistencies helped fuel volatile exchange rates. The US dollar reached its highest point in 1980 but proceeded to fall to its lowest level during Reagan’s final year in office, in 1988. What was the reason for this volatility? For one, Reagan’s initial tax cuts complemented the Federal Reserve’s tight monetary policy, thereby helping to create a strong dollar. Moreover, these early tax cuts encouraged international investment and spurred investor demand for US portfolio assets and treasury bonds. Subsequent increases in tax rates, particularly when levied on corporate income, however, reduced foreign investment and caused the dollar’s depreciation toward the end of Reagan’s second term. But the President was not particularly 29 First-wave neoliberalism in the 1980s The US Federal Reserve Bank had long enjoyed relative independence in setting monetary policy, particularly with respect to interest rates. Although not at the top of his neoliberal agenda, Reagan’s commitment to monetary objectives was evident in his re-appointment of Paul Volcker as Chairman of the Federal Reserve in 1983 and his subsequent appointment of the wellknown monetarist Alan Greenspan in 1987. Paul Volcker launched an aggressive campaign against inflation which, by 1980, had reached into the double digits. In response, Volcker aggressively pressed for higher interest rates. By 1986, his monetarist measures had cut inflation by nearly 50%. But this reduction came at a high price for many Americans who found exorbitant interest rates on mortgages and private loans a tough medicine to swallow. Financing new homes or cars became almost impossible for low- and middle-income earners. Impatient to reap the benefits of their President’s neoliberal agenda, millions of Americans initially directed their frustration at Reagan. As a result, his approval rating plummeted to just below 50% before soaring to record highs after the economy picked up in the mid-to-late 1980s. Neoliberalism alarmed about this currency volatility as a weak dollar made foreign imports more expensive and American goods more desirable to both domestic and foreign consumers. Though fiscal policy was the main focus of Reaganomics, regulatory reform was soon to follow. This effort was to be undertaken as part of Reagan’s ideological commitment to ‘New Federalism’. Rooted in the theories of the Public Choice School of Economics, new federalism was inspired by the neoliberal tenets of decentralization and individual choice. It regarded politics as a rational enterprise devoted to winning a maximum of votes rather than a messy strategy of governing in the public interest. Operating under the assumption that individual citizens ‘vote with their feet’, public choice economists argued that local governments were much better positioned to respond to individual citizens’ demands because of their close proximity to their ‘clients’. In other words, smaller, decentralized government was ‘better’ in terms of market efficiency and economic effectiveness. Moreover, new federalists saw small governments as less likely to regulate the market – hence their neoliberal slogan ‘less is more’. Reagan warmed up to the public choice/new federalist approach because it provided an appealing rationale for regulatory restraint. Believing in the value of rigorous economic statistical tools to assess policy decisions, he signed Executive Order 12291, which required federal agencies to utilize the methods of cost– benefit analysis in appraising government regulation proposals. Consequently, a substantial number of existing regulations were targeted for possible elimination. Moreover, the regulatory powers of government organizations like the Environmental Protection Agency (EPA) were significantly diminished. As we have seen in Chapter 1, these initiatives attest to the ability of neoliberalism to function not just as an ideology or set of polices, but also as a distinct mode of governance consistent with the principles of ‘new public management’ and public choice theory. 30 Perhaps the most controversial initiative of neoliberal Reaganomics was the deregulation of the Savings and Loans Industry (S&L). Previously, S&Ls had provided savings accounts to depositors and passed on those funds as loans in the form of home mortgages. Regarded as a relatively secure and prudent industry, S&Ls were heavily regulated while their customers’ savings accounts were insured by the federal government. Claiming that S&Ls needed to be given the opportunity to compete more aggressively with other commercial banks and security markets, President Reagan’s deregulation efforts allowed S&Ls to seek new forms of financing in their pursuit of higher short-term profits. These neoliberal measures fuelled a series of mergers, acquisitions, and leverage buyouts, involving some of the nation’s largest corporations. Innovative financing tools, including what came to be known as ‘junk bonds’, were sold to investors to finance many of these takeovers. Underperforming companies with lucrative assets, including employee pensions, were often targeted by ‘corporate raiders’ who initiated hostile takeovers and then sold off their 31 First-wave neoliberalism in the 1980s As part of his New Federalism Initiative, Reagan began to transfer federal regulatory power to the states – though often without providing them with the resources necessary for carrying out their new functions and mandates. In addition, deregulation measures were applied to key industry sectors such as communications, transportation, and banking. In one such bold move to deregulate the telecommunications industry, the administration authorized the settlement of interminable lawsuit filed by the Department of Justice against American Telephone and Telegraph (AT&T). This action resulted in the break-up of the Bell system monopoly of local telephone services into seven separate telephone companies. Under the terms of the deregulation deal, rates remained regulated but telecommunications products and services (including equipment leasing and long-distance service) were subjected to competitive market forces. Neoliberalism assets for huge profits, usually leading to significant layoffs. Thus, speculators and stockholders thrived during the legendary Wall Street-driven Bull Market that lasted from 1984 to the autumn of 1987. Lured by the promise of quick profits and high returns, shortterm investors often overlooked the substantial risks involved in such transactions. Thus, by October 1987, most stock values were seriously inflated. The disastrous correction came swiftly with the ‘Black Monday’ crash of the New York stock market, which lost a third of its value overnight. In the wake of this crisis, calls for the reinstatement of strict regulatory oversight grew louder. Once again, the Reagan administration turned a deaf ear to these pleas, refusing to support anti-takeover legislation on the new-federalist premise that corporate regulation was a state prerogative. Only a few years later, rising interest rates put a drastic end to another speculation-driven phenomenon: the real estate bubble that had been expanding during the 1980s finally burst in 1991, causing the collapse of hundreds of S&Ls. The ensuing federal 7. Michael Douglas as financial tycoon Gordon Gekko in Wall Street: ‘Greed is good’ 32 bailout cost American taxpayers well over 100 billion dollars. The effects of this financial crisis would be felt for years. Interestingly, some of the same dynamics – the deregulation of the financial sector and the ensuing creation of a gigantic real estate bubble built on bad subprime mortgages – led to the global financial crisis of 2008–9. Big corporate takeovers and mergers of the 1980s 1984 Lincoln First Bank/Chase Manhattan Corporation 1986 Ronald O. Perelman/Revlon General Electric, Incorporated/RCA Capital Cities, Incorporated/ABC Wells Fargo/Crocker National 1987 British Petroleum/Standard Oil 1988 Ames Dept. Stores/Zayre Philips Morris/Kraft 1989 Time-Warner/Bristol-Myers Squibb Kohlberg Kravis Roberts/RJR Nabisco Expanding some early neoliberal policies of his predecessor Jimmy Carter, Reagan decided to add to the Airline Deregulation Act of 1978. Effectively eviscerating the regulatory power of the Civil Aeronautics Board, the legislation would later promote competitive bidding for route destinations. The results were mixed. On the one hand, it expanded airline services, thus boosting competition. On the other, it dramatically increased air traffic while slashing federal funding for infrastructure. Existing resources were bedraggled and air traffic controllers became overwhelmed and overworked. When the Professional Air Traffic Controllers Association protested these deteriorating work 33 First-wave neoliberalism in the 1980s Loew’s, Incorporated/CBS Neoliberalism conditions and called for large-scale strikes, Reagan considered its demands ‘radical’ and proceeded to fire 11,000 employees. The President’s drastic anti-labour measure had its intended effect: it frightened many unions into accepting the business-oriented imperatives of the new neoliberal era. One of the most symbolically important neoliberal reforms undertaken by the Reagan administration was its attempt to privatize large portions of federally owned land. It is a relatively unknown fact that about 50% of the lands west of the Rocky Mountains are owned by the US federal government. The President argued that these lands had been ‘underused’ and would be managed more productively were they to be transferred into private hands. Consistent with Thatcher’s neoliberal claim that the transfer of public resources to private investors meant better management and increased productivity, Reagan asserted that revenues generated from the land sales could be used for servicing the public debt. In 1983, however, the privatization scheme came to a swift and unexpected close when many federal legislators, and even officials in the executive branch, were reluctant to sell off property under their control and management. Indeed, supporters of privatization within the administration itself failed to adequately identify key constituencies in building broader legislative and administrative support for the privatization initiative. Yet, on a symbolic level, the proposed land-sale initiatives underscored the high premium that neoliberalism places on private ownership. Furthermore, consistent with Reagan’s neoliberal mode of governance, major reform initiatives were attempted in the area of social policy. Programmes and policies ranging from those aimed at the poor – such as Aid to Families with Dependent Children, school lunch programmes, and Medicaid – were increasingly dropped into the lap of the 34 From the point of view of ardent free-trade neoliberals, Reagan’s record on promoting trade policy was rather disappointing. In fact, there appears to be a wide consensus among free-traders that he was one of the more protectionist modern presidents, especially when compared to Bill Clinton and or even George W. Bush. Reagan’s trade policies were often characterized by piecemeal attempts at fine-tuning and adjusting existing trade agreements pertaining to areas such as agricultural commodities and high-technology products. Supporters argue that the President’s positions were linked to the interests of some of his domestic core constituencies. For example, his protectionism with respect to Japanese automobiles was specifically adopted to force East Asian countries to open their economies to US agricultural exports. Whatever the explanation for these manoeuvres might be, there is little doubt that the Reagan administration’s free-trade agenda was relatively modest. 35 First-wave neoliberalism in the 1980s states. The use of a budgetary tool for providing federal funds to states, known as ‘block grants’, was significantly increased to facilitate the discreet implementation of these ‘reforms’. Only major entitlement programmes, such as Social Security and Medicare, were to continue to be managed and administered by the Federal Government. However, the Reagan administration did not hesitate to subject even these popular Keynesian-era social programmes to neoliberal reforms by, for example, seeking to introduce a lean voucher system in the Medicare programme to boost ‘competition’ and ‘efficiency’ in the name of reducing public expenditures. Though the voucher experiment did not produce the results the President had expected, it served as a strong neoliberal signal for the application of market principles to the delivery of social services. Protectionism and economic nationalism Often portrayed as the main alternative to the free-trade ideology espoused by Adam Smith and David Ricardo, protectionism is linked to the objectives of ‘economic nationalism’. One of the most influential economic nationalists of the 19th century, the German economic historian Friedrich List (1789–1846), asserted that nations, not global markets, were at the centre of commercial activity. He further argued that infant industries in the newly industrializing economies were relatively fragile and would be threatened if forced to compete under free-trade conditions with industries in the industrialized economies which already possessed capital-intensive methods of production and a skilled labour force. Thus, List proposed that newly industrializing economies adopt the use of tariffs until their infant industries were ready to compete in Neoliberalism global markets. In the United States, protectionism and economic nationalism went for a long time hand in hand. Treasury Secretary Alexander Hamilton, for example, was a staunch economic nationalist who supported protectionism for US industries to shield them from British industrial dominance. In 1890, President Benjamin Harrison (1888–92) signed the McKinley Act which imposed tariff rates that soared to nearly 50% on imports. In 1930, President Herbert Hoover (1928–32) signed the Smoot-Hawley Act that raised tariffs in an effort to protect domestic farmers from foreign competition. More recently, former Reagan speech writer Patrick J. Buchanan and CNN TV host Lou Dobbs have become influential supporters of economic nationalism in the United States. Buchanan frequently expresses the conviction that there exists at the core of contemporary American society an irrepressible conflict between claims of American nationalism and the neoliberal imperatives of the global economy. Fearing the loss of national self-determination and the destruction of AngloAmerican culture, protectionists like Buchanan see themselves as the populist leaders of a national struggle against the forces of globalization. 36 Major trade organizations and agreements In the 1980s and 1990s, the core neoliberal goal of establishing a single global market found its partial realization in major regional and international trade liberalization agreements. Leading the way forward have been many of the rich northern countries seeking to establish a single global market. GATT, for example, was successfully expanded to include nearly 120 countries. Eight rounds of negotiations ultimately resulted in tens of thousands of tariff concessions that fuelled tens of billions of dollars in international transactions. The Uruguay Round established the basis for the creation of what would later become known as the World Trade Organization (WTO) in 1995. Headquartered in Switzerland, the WTO would provide an ongoing forum for ‘implementing and enforcing trade agreements, managing trade disputes, monitoring national trade policies, and providing 37 First-wave neoliberalism in the 1980s But, from a strong free-trade perspective, Reagan’s trade legacy was somewhat redeemed in light of three crucial actions. The first was his administration’s strong involvement in the 1982 GATT negotiations, which focused on liberalizing trade in the agriculture and services sectors. However, the 1982 recession ultimately compelled Reagan to cede to domestic producer demands to opt out of the discussions. The second pro-free-trade initiative was the President’s active involvement in setting the agenda for a new comprehensive set of multilateral trade negotiations, known as the Uruguay Round (1986–94). Covering a range of areas from agriculture and services to intellectual property rights, the negotiations were a major force behind the ensuing free-trade trajectory of the 1990s. Third, the Reagan administration successfully negotiated the Free Trade Agreement (FTA) with Canada, which was later expanded to include Mexico. It fell to President Bill Clinton to complete this process in 1993 with the signing of the North American Free Trade Agreement (NAFTA). expertise and training for its members’. US Presidents George H. W. Bush (1989–93) and Bill Clinton (1993–2001) lobbied strongly for the adoption of NAFTA. Signed in 1994, NAFTA constitutes a comprehensive set of agreements that eliminated tariffs and duties on a variety of important products, ranging from automobiles to textiles and agricultural products. It ultimately covered protections on intellectual property and sought the removal of capital controls on financial capital. Immediately upon its completion, negotiations commenced to expand NAFTA to include countries in Central America, Latin America, and the Caribbean. President George W. Bush (2001–09), in particular, championed the establishment of this Free Trade Area of the Americas (FTAA). But left-leaning Latin American leaders such as Venezuelan President Hugo Chávez, Bolivian President Evo Morales, and the Argentine Neoliberalism President Nestor Kirchner undertook aggressive efforts to make sure that FTAA was never finalized. Thatcherism Deploring what she saw as a clear link between the growth of government and public spending increases, British Prime Minister Margaret Thatcher was vehemently opposed to the Keynesian credo of increasing taxes on private wealth to finance burgeoning state bureaucracies. Still, what she disliked even more was the negative effect of monetary growth on overall economic stability. Guided by this monetarist imperative, Thatcher unleashed a comprehensive set of neoliberal reforms aimed at reducing taxes, liberalizing exchange rate controls, reducing regulations, privatizing national industries, and drastically diminishing the power of labour unions. To fight inflation, Thatcherism set rigorous, some would even say draconian, monetary growth targets. Prior to this, monetary policy was used to cover any balance of payments issues that may have 38 First-wave neoliberalism in the 1980s 8. Margaret Hilda Thatcher (1925– ), Prime Minister of the United Kingdom (1979–90) ensued from increased government spending and related taxation. The perceived central importance of monetary policy was institutionalized with the adoption of the Medium Term Financial Strategy (MTFS), whose principal aim was to shift the focus of economic policy from a short-term tax-and-spend strategy to a 39 Neoliberalism longer-term monetary scheme. The MTFS took a comprehensive approach to economic policymaking by linking the growth of the money supply to the rising national deficit. Thus, the MTFS established a direct link between deficit spending and high interest rates. In contrast to Reagan’s rather vague strategies for reducing deficit expenditure, Thatcher’s MTFS contained explicit language on how these reductions should be achieved. In fact, the Prime Minister was so fixed on her monetarist objectives that she would ultimately even raise the value-added (national sales) tax and impose new taxes on North Sea oil revenues in order to reduce deficit spending – while at the same time supporting significant tax cuts on upper-income earners. Although Thatcherism shared Reaganomics’ contempt for ‘big government’ and large state bureaucracies, it showed little fondness for decentralization and the virtues of local government. In fact, Thatcher disliked local governing authorities, often viewing them as highly inefficient and susceptible to the corrupting influence of political patronage. For example, she made the highly controversial decision to abolish local tax rates and replace them with the infamous ‘poll tax’ – or ‘community charge’ – on a per head basis. This had the problematic effect of making fewer revenues available to local councils. Subjected to severe criticism from the public and members of her own party, the Prime Minister ultimately reversed her position. An ardent fan of Milton Friedman’s neoliberal economic theories, Thatcher was not a strong proponent of fixed exchange rates. However, in actuality, her Treasury adopted exchange rate targets that followed the German mark in the second half of the 1980s, only to withdraw from them shortly thereafter when the pound began to lose value. In 1990, she reluctantly joined the European Community’s Exchange Rate Mechanism (ERM), which formally pegged the pound to the mark. But this policy faltered when German reunification fuelled inflation and drove up interest rates. Faced with the possibility of a serious economic downturn, 40 Thatcher’s successor, John Major, withdrew from the ERM in 1992. This decision filled the coffers of shrewd currency speculators like the billionaire George Soros, who had wagered enormous sums against the British pound. In addition, the sale of vast amounts of public housing units known as ‘council houses’ created a new generation of homeowners in Britain – but not without considerable social costs. Several hundred local governing councils jointly oversaw the construction and management of more than several million properties. As these councils enjoyed wide autonomy in the administration of housing resources with little or no concrete legal and procedural guidelines or accountability, Thatcher found them ‘inefficient’ and ‘unresponsive’ to tenant needs. In a daring political initiative, the Prime Minister enacted national legislation that enfranchised tenants, placing them directly into the planning process. Passed as the Housing Act of 1980, the new legislation provided existing long-term tenants with a ‘right to buy’ option as well as arming them with specific and binding legal rights. But many tenants who could not afford to purchase their rental units in the more appealing areas were relegated to less desirable neighbourhoods, thus exacerbating existing disparities between social groups and classes. 41 First-wave neoliberalism in the 1980s Another distinguishing feature of Thatcherism was its neoliberal privatization drive, which facilitated the sale of substantial state assets to the private sector. Privatization started in earnest in the early 1980s with the sale of the National Freight Corporation, British Aerospace, various cable and wireless services, British Rail, and Associated British Ports. It continued with the sale of RollsRoyce Aircraft Engines, British Airports Authority, British Petroleum, British Steel, and several water and power utilities. Indeed, a significant number of state-owned industries were sold to private investors and corporations at substantially reduced prices in the hope that their new owners would upgrade their facilities in order to compete globally. When confronted with massive structural unemployment stemming from deindustrialization, Thatcher called on the ‘free market’ to determine which jobs should be saved or cut. No doubt, she must have been aware of the fact that job losses in the manufacturing sector would directly translate into a further decline in union power. Thatcher believed that Britain’s competitive advantage globally was in financial sector services, specifically centred in London. In an effort to expedite the structural shift leading to the financial rebirth of the ‘City’, the Prime Minister closed down coal pits, mines, and manufacturing plants when they did not meet private-sector performance standards. London’s ‘Big Bang’ Neoliberalism Under Prime Minister Margaret Thatcher, London’s financial system underwent a massive neoliberal transformation. Prior to late 1986, the City’s trading system was technologically outmoded and subjected to strict government rules and regulations. For example, high commissions levied on investors made it difficult for London to compete with New York, where commissions were substantially lower. Most significantly, foreign firms prepared to deal at better rates were not allowed to participate in the London stock and securities trading system. Most of these rules and exclusions were dropped literally overnight on 27 October 1986 – an event known as the ‘Big Bang’. Radically deregulated by a neoliberal Prime Minister who was a firm believer in no-holdsbarred competition, London quickly turned into a revitalized global financial centre. Now freely and aggressively courting large international investors, the London Stock Exchange – now upgraded to electronic, screen-based trading – became one of the most important financial markets in the world. On the down side, however, the deregulation of finance capital in Britain coincided with a massive overvaluation of stocks which contributed to the worldwide crash on ‘Black Monday’ (19 October 1987). 42 Considering state welfare policy to be at the heart of economic inefficiency, the Prime Minister targeted a variety of policies and programmes. Driven by her relentless quest to cut state expenditures, she sought to overhaul the child benefit provision that provided assistance to all working mothers regardless of means. Believing that such benefits should be available only to those she classified as the ‘truly needy’, she attempted to make the programme accessible on a strict means-tested basis. In the end, however, Thatcher abandoned her agenda after realizing that Keynesian social security and child benefit programmes had become too deeply embedded in the socio-political fabric of British society, making them politically untouchable. Envisioning public pension reform through the same neoliberal lens through which she viewed labour market training, the Prime Minister demanded that they be ‘flexible’, that is, responsive to shifting market conditions. To that end, she sought to make 43 First-wave neoliberalism in the 1980s Thatcher came to realize that England’s competitive advantage in the increasingly globalized ‘new economy’ depended on a ‘flexible’ and skilled workforce. The existing British employment training system, known as Active Labour Market Policy, had been run with strong union support through a pro-labour state agency called the Manpower Services Commission. The Prime Minister, however, envisioned a more neoliberal training scheme that would be more responsive to the market rather than the educational needs of unionized workers. To that end, she sought to shift the responsibility of employment from the state to the individual, arguing that well-trained and highly skilled workers would be easily employable while those with limited or outmoded skills would find themselves left behind. Ultimately, the Thatcher government would adopt an employment training scheme that diminished the role of unions in favour of a network of servicesector employers, known as Training and Enterprise Councils. This new system would lay the foundation for Thatcherism’s famous ‘workfare’ or ‘welfare to work’ programme. Neoliberalism individual employee pension accounts transferable from one job to the next. In her view, this would remove state-imposed hurdles that kept individuals from seeking higher-paying jobs with more solid futures. The plan would also ‘liberate’ employee accounts from traditional union pension structures, putting them in the hands of individual workers rather than unions. Once again confronted with a recalcitrant electorate still attached to the Keynesian legacy, Thatcher had to settle for more modest social reforms. Thus, she limited the bulk of her reform strategy to streamlining rules and procedures and instituting greater consistency among departments in the managing of means-testing eligibility requirements for those drawing on social benefits. At the same time, these administrative reforms were part of an attempt to change the motivational logic at the root of what she saw as bureaucratic inertia. Indeed, both Thatcherism and Reaganomics sought to apply to the public sector neoliberal management techniques taken from the private sector. True to the principles of ‘new public management’, both leaders insisted that objectives were to be clearly defined and results measured and assessed strictly in relation to costs. The strategic logic behind their thinking was to target those government programmes that did not demonstrate immediate measurable benefits. This neoliberal mode of governance would prove to be fatal for many social programmes whose true benefits were observable only over the long term, and, even then, were not easily quantifiable. However, regardless of the political party in power, expenditures on the British National Health Service (NHS) had continually increased throughout the 1970s. Thatcher rejected the idea that the problems with the NHS stemmed from funding shortages and attributed them instead to bureaucratic inefficiency. Again turning to market-based practices, she required that hospitals field competitive bids from the private sector for many services. The end of the decade of Thatcherism saw the passage of neoliberal reform legislation that gave local health authorities increased discretion and administrative powers over healthcare services – including the power 44 to manage costs by contracting with doctors and hospitals to provide services. Reaganomics and Thatcherism in foreign affairs The 1982 Falklands War In 1982, Margaret Thatcher decided to go to war with Argentina over a territorial dispute involving the Falklands (Malvinas) occupied by Britain. Indeed, the two countries had been embroiled in a long-standing disagreement over the sovereign control of this tiny group of islands in the South Atlantic. When 45 First-wave neoliberalism in the 1980s Reagan and Thatcher shared a pronounced neoconservative impulse in foreign affairs which sometimes conflicted with their neoliberal vision of establishing a single global free market. Attached to a national imaginary that, from time to time, exploded into hyper-patriotism, they saw themselves as the torch-bearers of an Anglo-American civilization anchored in the ideals of political liberty, free-market commerce, and love of country. This tension between the national and the global imaginary expressed itself clearly in Thatcher’s chauvinistic 1982 Falklands War and Reagan’s 1983 invasion of the tiny Caribbean island of Grenada. To be sure, decades of Cold War hostility and mistrust between the capitalist West and communist East only intensified Reagan’s and Thatcher’s desire to stand up to the ‘Evil Empire’. In this respect, both leaders showed a remarkably ‘un-neoliberal’ eagerness to utilize the state and its financial resources in their struggle against the Soviet Union and its satellites and dependencies around the world. Rather than confronting the USSR with direct military action – as feared by the political Left in the early days of the Reagan administration – the American President dramatically increased military spending in his risky effort to force the Soviets to compete in an intensive arms race they could ill afford. Argentina’s military government ordered several thousand troops to occupy the islands, Thatcher responded by launching a formidable naval assault to recover them. The Prime Minister’s bellicose response suggested that her neoconservative impulses had overwhelmed her professed neoliberal approach to policymaking. After all, neoliberal prescriptions would have encouraged the pursuit of a coordinated diplomatic initiative launched through international channels prior to direct military involvement. After two months of fighting, resulting in the loss of about 600 Argentine and 200 British forces, Argentina conceded a humiliating defeat that would ultimately bring down the country’s military regime. It fell to the newly elected neoliberal President Carlos Menem (1989–99) to normalize relations with Britain in 1990, when the two countries agreed to shelve the issue Neoliberalism of the Falklands sovereignty and instead focus on advancing Argentina’s neoliberal economic agenda. In 1991, these efforts contributed to the formation of Mercosur (Southern Common Market), a South American regional free-trade agreement. Perhaps in response to this strategy, the Communist Party’s Politburo elected in 1985 a political reformer who had built a reputation as a dynamic and competent ‘ideas man’. Ironically, Mikhail Gorbachev also showed some neoliberal tendencies in his efforts to spearhead modest market-oriented reforms ‘from within’. Retaining a healthy scepticism as to the ultimate objectives of the new Soviet leader, Reagan and Thatcher gradually warmed up to the charismatic Secretary General. They publicly endorsed both Gorbachev’s cultural revolution of glasnost (openness about public affairs) and his comprehensive economic and political restructuring programme, known as perestroika. Impressed by the Russian leader’s willingness to consider market-oriented reforms, his Western counterparts recognized that they could work with him to build a new relationship based on largely neoliberal ideals. 46 The first results of this ideological rapprochement were evident in a series of breakthroughs in arms-control agreements. As shown in Chapter 1, first-wave neoliberalism in the 1980s was interlaced with the geopolitical imperative to stop the spread of communism and socialist developmentalism in the Third World. Reagan, as we noted in the case of Grenada, intervened in regional conflicts, openly or covertly supporting guerrilla movements to overthrow Soviet-sponsored regimes based on their supposed ‘ideological threat’ to the US and its allies. The President came to understand that the most devastating blows against the USSR were dealt by his support of counter-revolutionary movements enjoying Soviet aid in different parts of the world. Two more examples of this strategy were Reagan’s effort to topple the socialist Sandinista government in Nicaragua and his response to the Soviet invasion of Afghanistan. Here, rather than confronting the Soviets head on, Reagan ordered a steady stream of arms 47 First-wave neoliberalism in the 1980s As everyone knows, Gorbachev’s reforms ultimately led to the unravelling of the Soviet Union and the political independence of its Eastern European client states. But it is difficult to gauge the precise extent to which the demise of communism was fuelled by neoliberalism. After all, the Soviet Union had long suffered from severe structural deficiencies. By the time Gorbachev took the reins of power, the country was overwhelmed by intractable economic stagnation, perennial shortages of essential consumer goods, staggering waste, bureaucratic inefficiency, and the Communist Party’s declining political legitimacy. Reagan’s muscular foreign policy, supported by excessive military spending, merely added to the Kremlin’s problems. Still, there is very little doubt that neoliberal pioneers like Reagan and Thatcher recognized the historic opportunity presented by Gorbachev’s new ideological outlook. The rapid decline and astonishing collapse of the Soviet Empire ultimately served to confirm and validate their own beliefs about the superiority of free markets and their liberal-democratic political systems. Neoliberalism 9. Reagan and Gorbachev shaking hands at their 1988 summit in Moscow after exchanging ratifications of the Intermedi...
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Running head: GLOBALIZATION

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Globalization
Name
Course
Professor
Date

GLOBALIZATION

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Globalization

The world has over the years found itself interconnected through interests and
transaction pitting different countries as well as organizations spanning more than one nation.
Even at an individual level, citizens of different countries move, communicate and transact
with their counterparts from various jurisdictions more freely, partly due to the demystified
demarcations separating these provinces and partly due to the increased connectivity in terms
of transport, communication and information technology. This article, however, focuses on
the interaction between countries at a national level, especially considering their ideological
leanings and persuasions. More specifically, it appreciates the now dominant concept of
neoliberalism as a factor that informs the interactions between the countries. The first
segment interrogates how countries present themselves to the global market, with elaborate
descriptions of the techniques and mechanisms they apply in this presentation. The second
segment, on the other hand, focuses on the utilization of the natural resources that are found
in respective countries, especially in the context of the benefits that they imbue to the
stakeholders involved in their extraction and utilization.
How do nations present themselves to the world? What mechanisms and techniques do
they use? For what purposes? Answer these questions through two specific examples.
The global economy is made up of all the nations that transact with each other.
Interestingly, very few transactions involve the countries in their respective capacities as
states, but rather individuals and corporations that hail fr...


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