By Judy Cox
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Is neoliberalism dead?

This article is over 2 years, 5 months old
Does the big spending response to the pandemic mean neoliberalism is really dead? Judy Cox explores.

Big spending by Joe Biden and Boris Johnson has led some to question if the neoliberal era is over. (Flickr/Creative commons)

Has the coronavirus pandemic hammered the final nail into the coffin of neoliberalism? Governments across the world have spent billions on propping up their national economies and have intervened to co-ordinate lock down measures and public health responses. The scale of this spending is huge. Donald Trump’s administration enacted the Coronavirus Aid, Relief and Economic Security Act in March 2020 which enabled them to hand over $500 billion almost exclusively to big corporations. Joe Biden wrote a $1,400 cheque for every US household, but this was nothing compared to the additional $1.9 trillion stimulus package for corporate America. Between them, Biden and Trump have injected $5 trillion into the US economy. In Britain the furlough scheme took a lot of the headlines, but this was dwarfed in significance by the support for private corporations. The government handed over £37 billion to Serco to run the disastrous track and trace system. Two of Serco’s top executives paid themselves £7.4 million in pay and bonuses for 2020. So a feature of the pandemic has been politicians from across the political spectrum talking of spending big.

Bailing out the system?

But the policies have been contradictory. On the one hand, free market governments and international organisations have agreed to raise taxes. At the same time, they have given huge hand outs to private companies. And throughout the pandemic, most governments have let the virus rip to protect their economies while simultaneously using the power of the state to enforce draconian regulations on their populations. The result is threefold. Billions of pounds of public money has flowed into private corporations, millions of people died from the virus and nation states accrued stronger powers to repress whole populations.

All this can seem a million miles from the low tax, free market ideology associated with neoliberal economics. Neoliberalism was adopted by governments in the 1980s, who looked to the ideas of economists Milton Freidman and Friedrick Hayek and their Mont Pelerin Society. It was nurtured into life by Margaret Thatcher and Ronald Reagan but consolidated by the governments of Bill Clinton, Barack Obama and Tony Blair. It drew strength from the defeats of striking air traffic controllers in the US and steel workers, printers and, above all, miners in Britain. It was a ruthless ruling class response to the economic, political and industrial crises of the 1970s.

This neoliberal outlook was centred on the idea that the market was the best way to distribute resources. The effective functioning of the market depended on free trade, the end of state subsidies and the privatisation of public assets. To take one topical example, care homes used to be run by the NHS and local councils. In 1987 the NHS had 181,000 geriatric and acute care beds, offered free at the point of need. After decades of privatisation, only 3 percent of care homes are run by local councils and 84 percent of care home beds are owned by private companies or charities. By 2018, the care home industry was worth £15.9 billion. Today some 50,000 beds are owned by private equity firms who will be one of the main beneficiaries of the recently announced hike in national insurance contributions.

As left wing economist Grace Blakely has written, in the last 50 years, “statecraft moved away from governance of the markets towards governance by the markets.” The rise of neoliberalism led to the rise of finance capital, privatisation and globalisation, the suppression of labour and the disciplining of the Global South through debt restructuring.

Neoliberalism oversold?

These neoliberal markets depended on freeing up the “wealth creators” from unnecessary constraints such as taxes. The likes of Jeff Bezos and Elon Musk bestride the neoliberal world. Elizabeth Holmes was once among this group. Holmes became the world’s youngest female billionaire with her company which promised easy blood test results. She was feted by the press, attracted investment from influential figures like Rupert Murdoch and Henry Kissinger and won accolades from Bill Clinton and Joe Biden. Holmes is now facing a lengthy prison term for fraud. Her healthcare technology simply did not exist. This gaming of the system was generalised and made visible during the economic crisis of 2008, the first of several major blows to the legitimacy of neoliberalism.

The financial crash of 2008 prompted the part nationalisation of the banks. Profits were private but losses were socialised. Governments propped up the banks which were too big to fail and passed the bill onto working class people through austerity, which heralded a renewed neoliberal offensive across the Global North.

The year 2016 saw serious political blows to neoliberalism. The Brexit vote was opposed by much of big business and institutions that were central to the neoliberal order including the International Monetary Fund (IMF). The same year saw the election of Donald Trump, who withdrew from the international organisations which upheld neoliberalism and used tariffs to pursue a trade war with China. These two developments led IMF researchers to ask whether neoliberalism had been “oversold”.

The covid-19 crisis has prompted central bank interventions on an even more spectacular scale than during the crisis of 2008. This dramatic shift in attitudes was illustrated by the IMF scolding a notionally left wing Mexico for failing to run up a large enough budget deficit! States intervened in national economies on a massive scale, but in line with neoliberal orthodoxy, this was geared to the enormous benefit of the wealthy. In the last year, 500 new billionaires have been created in the US alone.

One result of 40 years of neoliberalism has been the last ten years being characterised by financial crisis, which in turn has led resistance to the economic order and the rise of right wing populism. We have seen inspiring revolts from against inequality and poverty from Chile to Lebanon to the US. But we have also seen a significant boost in the forces of the radical right, from the far right in Europe to the dangerous coalition assembled behind Trump.

And a constant in this political picture is the looming figure of China, a hugely successful economy which depends on high levels of state direction. Joe Biden explicitly linked his $1.2 trillion infrastructure spending package to the need to compete with China. The threat of China to the superpower status of the US is manifested in economic competition and growing geopolitical wrangling in the South China sea.

Going, going, gone?

Some commentators have suggested that government actions to deal with covid-19 signal the end of the neoliberal era. Cedric Durand recently wrote in New Left Review that responses to the pandemic were so significant that 2021 was 1979 in reverse. Neoliberalism has certainly lost legitimacy. Few commentators seriously argue that the market alone can be trusted to solve the climate crisis or address the glaring growing inequality between countries and within them.

But the coronavirus crisis was not such an abrupt reversal as Durand suggests. Even at the point of peak neoliberalism, nation states always governed in the interests of capital. Governments of all creeds have played the role of stabilising the system and ensuring, as far as possible, the conditions under which capitalism could flourish.

This is a contradiction built into neoliberalism. To secure the best conditions for free market capital to flourish, states can be compelled to take over running those sectors of industry which are indispensable to the economy such as energy, rail, finance and telecoms. A recent OECD Report pointed out that in 2011, 10 percent of the 2000 largest globally listed firms were owned by nation states. In the last decade, that figure had doubled to 20 percent. State-owned enterprises are now worth $45 trillion, or half of global GDP owned by nation states. “Free markets” depend on interventionist nation states to provide the conditions for markets to flourish.

Such figures point to the underlying structural interdependence between the state and capital. States need profitable companies to raise taxes. Markets can only function if nation states create the infrastructure, clean up after crises and repress resistance. National governments have also financed the innovation, in universities for example, which private corporations then exploit. Economist Mariana Mazzucato has pointed out that huge corporations owe their success to state-funded investment in innovation and technology. Both Apple and Google used technology developed by the US government.

Neoliberal states have not been characterised by being “small”. In fact, public spending never fell significantly throughout the 1980s. But the period was characterised by the state turning away from welfare and towards meeting the needs of capital. Dirty air is the world’s biggest environmental killer, causing around 4 million deaths a year. According to a new report, just 1 percent of global development aid is devoted to cutting air pollution, while 20 percent of international aid funds fossil fuel projects. The neoliberal state washes its hands of health and turns instead towards bankrolling ‘profitable’ polluters.

Politics and economics

Writers and activists have long debated whether neoliberalism is primarily a political ideology or an economic strategy. It is both. Economically, neoliberalism has meant privatisation, deregulation and the free movement of finance capital. Politically, neoliberalism was what David Harvey has called a “counterrevolutionary project” which aimed to undermine the confidence workers showed in the strike movements of the 1970s.

Thatcher famously announced the end of society as a collective in which everyone was entitled to support and care from the state. Individuals had to learn to be resilient and stand on their own two feet. While wealth did not trickle down, neoliberal ideas did. Primary schools now teach children to be “resilient”, to prepare them for the obstacles they must overcome through individual effort.

Articles on neoliberalism often refer to “moral hazard”, an idea borrowed from the insurance industry where it was used to describe how people who were insured might indulge in irresponsible behaviour. In the 1970s, the idea of “moral hazard” was mobilised by neoliberals to argue that state insurance schemes such as social security, healthcare, and unemployment benefits were detrimental to society. In the US, for example, Aid to Families with Dependent Children was denounced as “a prominent symbol of social pathology inimical to good citizenship”. It was dismantled in 1996.

The risks of generating “moral hazard” do not stop governments intervening, but it shapes that intervention in the interests of the corporations. The OECD report published in June 2020 advised governments to attach strict conditions to bailouts to avoid, “the moral hazard risks related to expectation of future bailouts.” Scott Minerd, Chief Investment Officer of Guggenheim Investments, argued that US federal bank and treasury support for corporations risked “creating a new moral hazard”. Government bailouts must not create the idea that industries could turn to the state for support to save steel plants or engineering factories. And state bailouts must never set precedents which could undermine the “morals” of the old, young or unemployed by encouraging them to raise their own demands for support.

Neoliberalism sought to “depoliticise” the economy. The market was presented as something similar to the weather—beyond human control. Tony Blair told Labour Party conference in 2005, “people say we should stop and have a debate about globalisation. You might as well debate whether autumn should follow summer”. In 2007, former chair of the US federal reserve Alan Greenspan was asked which prospective candidate for the US presidency would be best for the economy. “Policy decisions”, he replied, “in the US have been largely replaced by global market forces.” The logic of neoliberalism was that economics and politics were two distinct and separate spheres and that the role of the state should be confined to creating conditions in which efficient markets could thrive. This fed the sense that workers were powerless to influence their employers, and that there was no alternative to the market. Except of course when those markets demanded political intervention and support.

What next?

Neoliberalism has failed to restore economic profitability. Low economic growth coexists with repeated crisis in the financial sector. Most governments look set to veer between state directed Keynesianism and neoliberalism, leading to conflict, division and chaos for them and opportunities for resistance for our side.

The neoliberal era is not withering away. The scale of the covid-19 crisis led capital to put huge pressures on states to undertake the action and spending necessary to protect profits. This is not a sign of a break with the neoliberal playbook—it is consistent with how states under capitalism act as guardians of the markets. The rich aren’t about to let 40 years of market rule go down without a fight. Grace Blakely has argued that, “rather than the end of neoliberalism, we are witnessing the birth of a form of authoritarian capitalism and a kind not seen in decades.” These authoritarian trends have the goal of consolidating the wealth of those at the top. The recent spate of expansions of state powers, withdrawals of civil liberties and the “anti-woke offensive” are part of this pattern.

But there are limits to this authoritarianism. Clamping down on freedom risks provoking resistance. Indeed a feature of the series of global revolts in the last few years—from Sudan to Chile to Haiti to Iraq—is that increased repression has led to increased resistance. Many large corporations and institutions now seek to co-opt social movements rather than oppose them. Salesforce, a software giant, is offering to relocate employees from Texas following the state’s enactment of a draconian anti-abortion law. The Black Lives Matter movement is both an indictment of the failure of neoliberalism to address inequality, and a new marketing opportunity for corporations like Sky TV who regularly run anti-racist adverts while avoiding any meaningful structural change.

The idea that we are entering a dangerous phase of authoritarian capitalism can be used to justify “progressive alliances” with reformist and liberal parties, or even with the small businesses marginalised by the rise of giant, state-backed corporations. This view is most clearly expressed in the recent writings of journalist Paul Mason. The Wall Street Journal recently proclaimed that Joe Biden is implementing Bernie Sanders’ “anti-business” agenda. Socialists should not fall for this fantasy Biden.

The covid-19 crisis has shattered the myth that markets are unstoppable or uncontestable.  Politics are back. Governments make choices and if governments can find money to bailout banks and fund private corporations, then we can force them to find money for health, education and the key workers who were suddenly noticed during the pandemic. Neoliberalism is not the only enemy. It is capitalism itself which is the main enemy, whether the state is neoliberal, authoritarian, surveillance or Keynesian. State intervention in the economy in itself does not equal progressive.

The left’s strategy must be to build the widest possible campaigns in defence of civil liberties, against climate change, in defiance of oppression and against the inequality of the system. Such campaigns can raise the combativity of working class people and open up new possibilities for solidarity and militant working-class struggle. Crucially our vision has to go beyond the narrow confines of left projects that aim for a fairer deal between people and profits, mediated by a softer state. We don’t want another version of capitalism with a friendlier face. We want a different world.

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