A War Waged by the Wealthy

In January New York based academic David Harvey spoke at a packed London School of Economics public lecture to promote his latest book, A Brief History of Neo-Liberalism. He set out, with characteristic precision, the story of three decades of assaults carried out by a global ruling class. These attacks, made in the name of neo-liberalism, have seen growing social polarisation, the rise of new elites and the impoverishment of many of those at the bottom of society. He ended by telling his audience, ‘If this looks like class struggle and feels like class struggle, we should call it class struggle. And we should wage class struggle back.’ This vision of neo-liberalism and the need to fight against it run through Harvey’s new book. When we met, the morning after his lecture, I asked him to explain why he wrote it.

‘Two things are distinctive in this work,’ he said. ‘First the historical-geographical emphasis I give to the rise of neo-liberalism – its uneven development on the world stage. I think you come away with a different view of how neo-liberalism works in different places and at different times. It’s not just a monolithic historical change.

‘The second thing is the theoretical framework, which is very much based on class, and the mechanics of surplus extraction from workers across what is now a global capitalist system.’ Following Karl Marx, Harvey sees the exploitation of workers as a central fact of capitalist society. Marx argued that while workers labour for a whole working day, only part of this time goes toward generating the value of their pay packet. The rest of the time workers are generating ‘surplus value’, which passes into the hands of capitalists and is the source of profit.

Some of this profit can then be pumped back into production, allowing capitalists to draw together ever-greater concentrations of machinery, raw materials and workers. Marx called this process accumulation. Squeezing workers to generate profits, which then feed into accumulation and future profits in an apparently endless cycle, is capitalism’s central driving force.

Neo-liberalism is, for Harvey, a response to a dual crisis that emerged in the mid-1970s for the ruling class. On the one hand capitalists faced a ‘crisis of accumulation’ – the capitalist system was stagnating and profits had fallen from the rates achieved immediately after the Second World War. Secondly, a rising tide of workers’ struggle in the 1960s and 1970s posed a threat to the political power of the ruling elite.

The ideas of neo-liberalism, policies that Harvey describes as ‘deregulation, privatisation and the withdrawal of the state from many areas of social provision’, had existed on the fringes of intellectual life for decades. In the 1970s they were forced centre-stage as an answer to the dual crisis. Harvey argues forcefully that neoliberalism has dramatically failed to resolve the crisis of accumulation. But it has seen a major shift in class power to the benefit of a tiny elite. ‘Many of the other accounts of neo-liberalism talk about its relationship with accumulation, but very few see it clearly as a class project,’ said Harvey.

One of the key moments in the rise of neo-liberalism, which Harvey returns to frequently, comes from the city of New York. He told me, ‘The city ran up a lot of debts, for a variety of reasons. One reason was as a response to the urban crisis of the 1960s in the US. Money was poured into inner cities by the federal government to deal with race problems, unemployment and so on. Out of that came strengthened unions and increased employment in the public sector.’

But as economic crisis hit the US in the 1970s, the federal government funding dried up: ‘At that point the city could either shed a lot of workers or it could borrow. In the short term it borrowed and was encouraged to do so by the banks.’ This borrowing was based partly on a boom in real estate in the early 1970s, which the city’s administration was heavily involved in. ‘When this market crashed in 1973 the city found itself vulnerable to the bankers. The bankers saw this as a possibility for them to launch a coup against the city – reshaping it according to a very different model. It’s a bit like the Iraq war. They had wanted to go into Iraq in the early 1990s, but they couldn’t do it. Then 9/11 gave them the opportunity they needed.

‘The bankers had wanted to discipline New York City in the 1960s and early 1970s. The crisis of 1973-5 gave them their chance. They implemented a pioneering ‘structural adjustment programme’, shearing off a lot of public services and renegotiating contracts. It was a full frontal attack on the population of the city. Then of course they had to reconstruct it, because they had tremendous interests in real estate values, especially in Manhattan. This is when they started using public largesse to rebuild the city around their project.’

This tactic of seizing opportunities created by economic crisis to drive through free market policies has formed the pattern ever since. ‘It was exactly the same people involved in the debt crisis that hit Latin America in the 1980s – New York investment bankers. The difference was that this time they needed the federal government to bail them out.’ The US government, now led by Ronald Reagan, found a use for the International Monetary Fund (IMF), which many neo-liberals had previously been suspicious of. Along with the World Bank, the IMF forced through neo-liberal structural adjustment programmes across Latin America in exchange for debt relief.

However, Harvey points out, the US ruling class is not the lone beneficiary or agent of neo-liberalism. ‘It’s very rare for the US to intervene without internal support. Take the coup led by Augusto Pinochet in Chile in 1973. It was the upper classes of Chile who really led the coup, with the support of the CIA, US corporations and Henry Kissinger. When Pinochet took power it was the Chilean ruling class who really pushed the neo-liberal agenda.

‘It’s not just the US sucking wealth out of the rest of the world – it’s ruling elites who have loose alliances with each other, and who are amassing surpluses for themselves. Some of the richest people in the world live in Mexico or East Asia.’

The ideas of neo-liberalism have spread like wildfire since the 1970s. ‘One of the conundrums is how so many people have been persuaded that neo-liberalism is a good thing, when actually it doesn’t work very well,’ said Harvey. ‘I think the answer is that it has been very successful for certain groups of people, including those who control the media and various ideological apparatuses. The other thing is that you can always point to a bit of the world where the neo-liberal order seems to be doing well – for example China today.’

But the irony is that economic growth has usually come where governments ignore neo-liberal doctrine. ‘You get a perverse form of neo-liberalism because practical self-interest dominates over the theory.’ The theory of neo-liberalism says that state interference in the economy should be minimised, but in practice the state continues to play a central role in economies such as China and the US.

The US has been financing its economic growth by running up huge debts based on ‘an inflow of capital to the tune of more than $2 billion a day. The budget deficit and consumer debts have been soaring. What you are seeing is a debt financed economy. The creditors are mainly East Asian and South East Asian banks. Even the war in Iraq is being funded by the Chinese and Japanese lending money to the US.

‘I’m nervous about the possibility of a major financial crisis breaking out in the US. What would be the response if they went through the kind of crisis seen in Argentina in 2001? If you look at the aggregate features of the economy – such as the budget deficit and the trade deficit – it is a typical case where the IMF would normally intervene. But of course the US is the IMF, so it’s not going to intervene.’

The Chinese boom is also financed by debts: ‘Chinese banks lend the money. The government owns a majority share in all the banks.’ It can use some of its surpluses to keep them afloat, but nonetheless, the boom is debt-financed. Unlike the US, China is being dramatically reshaped. But even here the growth is creating new instabilities: ‘There is huge overinvestment in China. For example, you have five international airports in the Pearl River delta. They’re vying with each other to be a hub for Pacific trade. They can’t all last. If you look at the automobile industry there’s massive overcapacity. And a crisis in China will have a global impact.’

The unstable growth experienced by the US and China has not restored the fortunes of world capitalism. A graph in Harvey’s book shows that the rate of growth per head has fallen every decade since the 1960s – from growth rates of over 3 percent a year to about 1 percent a year today. ‘The original crisis of the 1970s was a crisis of over-accumulation,’ said Harvey. ‘The ruling class had great difficulty in finding profitable outlets for their capital. They’ve never really solved that problem.’

Because of this, what Harvey calls ‘accumulation by dispossession’ now plays a major role alongside traditional forms of accumulation. Accumulation by dispossession means the opening up of new fields to the capitalists, for example the NHS or council housing, or clawing back pension rights previously taken for granted: ‘But it’s not really about increasing the actual stock of assets in a society. When you privatise housing you don’t actually increase the stock of housing. Neo-liberalism isn’t very good at expanding goods and services.’

The failures of neo-liberalism don’t just have economic consequences. For Harvey they are leading to political and military instability as well. His earlier book, The New Imperialism, charted the long-term decline in US economic power. The rise of the neo-conservatives, the right wing thinkers around Bush who want to use US military might to maintain US power over potential rivals, flows out of this.

His new book also takes a look at the neoconservatives, emphasising their project inside the US itself. Harvey sees this as a response to the hollowing out of social solidarity through neo-liberalism. The neo-conservatives have sought to restore social cohesion through religious moralism, authoritarian measures and fear: ‘I think something similar is happening in many areas. If you look at France you’ve got [interior minister and presidential hopeful] Nicolas Sarkozy, who is close to the neo-cons in his philosophy. Or look at some of the things Tony Blair does, the way he runs an almost presidential style of government and is involved in moral exhortation. Neo-conservatism is a global phenomenon.’

While neo-conservatism is the ruling classes’ response to the social instability of neo-liberalism, the rise of the anticapitalist movement has been the reply of those at the bottom of society. Harvey is keen that the non-governmental organisations (NGOs), which have often played a major role in gatherings such as the World Social Forum, are not seen as the ‘official opposition’ to neo-liberalism: ‘The growth of the NGO phenomenon has been amazing during the neo-liberal period. There is clearly a connection between the two. The NGOs vary enormously, and some I admire enormously. But often they are Trojan horses for privatisation.’ NGOs can step into the vacuum created by the withdrawal of the state from social provision. Harvey argues that a critical perspective is necessary, and that different NGOs can play positive or negative roles. But renewed class struggle is the real key to rolling back neo-liberalism.

New class struggles will not simply be a repetition of those of the 1960s and 1970s, because the structure of society has changed since that period. Harvey argues that class has to be treated as a fluid concept: ‘We have to look again at the concepts of class formation and reformation. When I talk in my book about the restoration of class power for the ruling class, I’m not necessarily talking about the return of power to the same group of people. It’s a different configuration now, very much more centred on finance and services than before.

‘One of the big shifts in the 1970s is that the gap between owners and managers has closed. They used to be two different categories, but then they started paying the managers in ownership shares, which changed their whole psychology. Class formation is an unfinished, dynamic process.’

Harvey believes there are positive signs of increasing organisation among service workers in the US, citing examples of health workers in Los Angeles and New York transit workers, who recently took strike action. These struggles can give form to the new working class created by neo-liberalism. Harvey is particularly interested in how ‘struggles around accumulation by dispossession can come together with struggles of a more traditional leftist sort’. He sees the movement demanding the nationalisation of gas in Bolivia as one source of hope.

Isn’t there a danger of nostalgia for earlier forms of capitalism? ‘I think you have to recall where we were in the 1970s,’ said Harvey. ‘There was a strong critique of the welfare state – its class and gender biases, and so on. If we are going to construct a new welfare system we have to be aware of the limitations.

‘The other problem we face is the whole reconstruction of notions of social solidarity. Margaret Thatcher argued that she was out to change the soul. We have to confront the fact that social solidarities are much shallower today. We saw this recently in the US. Right wingers like Thomas Friedman are always going on about neo-liberalism’s virtues, but when the Katrina hurricane struck they kept asking, “What’s happened to social solidarity?” The answer is it’s gone because assholes like him keep preaching this stuff. We have to confront that – which is a long term project.’

Harvey believes that the working class needs a political project of its own to begin to restore its power. I asked him what such a project might look like. ‘I can’t derive theoretically what the working class political project should be,’ he said. ‘I may have some ideas about it, but the crucial thing is for me to engage in conversations and learn about the possibilities. I have to put my ideas into dialogue with the movements and listen to what they say.’ His new book is a brilliant intervention into this conversation.

A Brief History Of Neo-liberalism (£14.99) and David Harvey’s earlier book, The New Imperialism (£10.99) are available from Bookmarks, phone 020 7637 1848.