Post by unlawflcombatnt on Apr 7, 2007 4:02:31 GMT -6
Below are excerpts from an excellent article by Susan George titled A Short History of Neo-liberalism
"A Short History of Neo-liberalism
Twenty Years of Elite Economics and Emerging Opportunities for Structural Change
by Susan George
Conference on Economic Sovereignty in a Globalising World
Bangkok, 24-26 March 1999
The Conference organisers have asked me for a brief history of neo-liberalism which they title "Twenty Years of Elite Economics". I'm sorry to tell you that in order to make any sense, I have to start even further back, some 50 years ago, just after the end of World War II...
On the whole, the world had signed on for an extremely progressive agenda. The great scholar Karl Polanyi published his masterwork, The Great Transformation in 1944, a fierce critique of 19th century industrial, market-based society. Over 50 years ago Polanyi made this amazingly prophetic and modern statement: "To allow the market mechanism to be sole director of the fate of human beings and their natural environment...would result in the demolition of society" [p.73]. However, Polanyi was convinced that such a demolition could no longer happen in the post-war world because, as he said [p.251], "Within the nations we are witnessing a development under which the economic system ceases to lay down the law to society and the primacy of society over that system is secured".
Alas, Polanyi's optimism was misplaced--the whole point of neo-liberalism is that the market mechanism should be allowed to direct the fate of human beings. The economy should dictate its rules to society, not the other way around. And just as Polanyi foresaw, this doctrine is leading us directly towards the "demolition of society".
So what happened?...
As I've argued in detail in the US quarterly journal Dissent, one explanation for this triumph of neo-liberalism and the economic, political, social and ecological disasters that go with it is that neo-liberals have bought and paid for their own vicious and regressive "Great Transformation". They have understood, as progressives have not, that ideas have consequences. Starting from a tiny embryo at the University of Chicago with the philosopher-economist Friedrich von Hayek and his students like Milton Friedman at its nucleus, the neo-liberals and their funders have created a huge international network of foundations, institutes, research centers, publications, scholars, writers and public relations hacks to develop, package and push their ideas and doctrine relentlessly.
They have built this highly efficient ideological cadre.... the ideological and promotional work of the right has been absolutely brilliant. They have spent hundreds of millions of dollars, but the result has been worth every penny to them because they have made neo-liberalism seem as if it were the natural and normal condition of humankind....
Let me stress how important it is to understand that this vast neo-liberal experiment we are all being forced to live under has been created by people with a purpose....neo-liberalism is not a force like gravity but a totally artificial construct...
So, from a small, unpopular sect with virtually no influence, neo-liberalism has become the major world religion with its dogmatic doctrine, its priesthood, its law-giving institutions and perhaps most important of all, its hell for heathen and sinners who dare to contest the revealed truth. Oskar Lafontaine, the ex-German Finance Minister who the Financial Times called an "unreconstructed Keynesian" has just been consigned to that hell because he dared to propose higher taxes on corporations and tax cuts for ordinary and less well-off families.
Having set the ideological stage and the context, now let me fast-forward so that we are back in the twenty year time frame. That means 1979, the year Margaret Thatcher came to power and undertook the neo-liberal revolution in Britain. The Iron Lady was herself a disciple of Friedrich von Hayek, she was a social Darwinist and had no qualms about expressing her convictions. She was well known for justifying her programme with the single word TINA, short for There Is No Alternative. The central value of Thatcher's doctrine and of neo-liberalism itself is the notion of competition--competition between nations, regions, firms and of course between individuals. Competition is central because it separates the sheep from the goats, the men from the boys, the fit from the unfit. It is supposed to allocate all resources, whether physical, natural, human or financial with the greatest possible efficiency.
In sharp contrast, the great Chinese philosopher Lao Tzu ended his Tao-te Ching with these words: "Above all, do not compete". The only actors in the neo-liberal world who seem to have taken his advice are the largest actors of all, the Transnational Corporations. The principle of competition scarcely applies to them; they prefer to practise what we could call Alliance Capitalism. It is no accident that, depending on the year, two-thirds to three-quarters of all the money labeled "Foreign Direct Investment" is not devoted to new, job-creating investment but to Mergers and Acquisitions which almost invariably result in job losses....
In pre-Thatcher Britain, about one person in ten was classed as living below the poverty line, not a brilliant result but honourable as nations go and a lot better than in the pre-War period. Now one person in four, and one child in three is officially poor. This is the meaning of survival of the fittest: people who cannot heat their houses in winter, who must put a coin in the meter before they can have electricity or water, who do not own a warm waterproof coat, etc. I am taking these examples from the 1996 report of the British Child Poverty Action Group. I will illustrate the result of the Thatcher-Major "tax reforms" with a single example: During the 1980s, 1 percent of taxpayers received 29 percent of all the tax reduction benefits, such that a single person earning half the average salary found his or her taxes had gone up by 7 percent, whereas a single person earning 10 times the average salary got a reduction of 21%.
Another implication of competition as the central value of neo-liberalism is that the public sector must be brutally downsized because it does not and cannot obey the basic law of competing for profits or for market share. Privatisation is one of the major economic transformations of the past twenty years. The trend began in Britain and has spread throughout the world.
Let me start by asking why capitalist countries, particularly in Europe, had public services to begin with, and why many still do. In reality, nearly all public services constitute what economists call "natural monopolies". A natural monopoly exists when the minimum size to guarantee maximum economic efficiency is equal to the actual size of the market. In other words, a company has to be a certain size to realise economies of scale and thus provide the best possible service at the lowest possible cost to the consumer. Public services also require very large investment outlays at the beginning--like railroad tracks or power grids--which does not encourage competition either. That's why public monopolies were the obvious optimum solution. But neo-liberals define anything public as ipso facto "inefficient".
So what happens when a natural monopoly is privatised? Quite normally and naturally, the new capitalist owners tend to impose monopoly prices on the public, while richly remunerating themselves. Classical economists call this outcome "structural market failure" because prices are higher than they ought to be and service to the consumer is not necessarily good. In order to prevent structural market failures, up to the mid-1980s, the capitalist countries of Europe almost universally entrusted the post office, telecomms, electricity, gas, railways, metros, air transport and usually other services like water, rubbish collection, etc. to state-owned monopolies. The USA is the big exception, perhaps because it is too huge geographically to favour natural monopolies.
In any event, Margaret Thatcher set out to change all that. As an added bonus, she could also use privatisation to break the power of the trade unions. By destroying the public sector where unions were strongest, she was able to weaken them drastically. Thus between 1979 and 1994, the number of jobs in the public sector in Britain was reduced from over 7 million to 5 million, a drop of 29 percent. Virtually all the jobs eliminated were unionised jobs. Since private sector employment was stagnant during those fifteen years, the overall reduction in the number of British jobs came to 1.7 million, a drop of 7% compared to 1979. To neo-liberals, fewer workers is always better than more because workers impinge on shareholder value.
As for other effects of privatisation, they were predictable and predicted. The managers of the newly privatised enterprises, often exactly the same people as before, doubled or tripled their own salaries. The government used taxpayer money to wipe out debts and recapitalise firms before putting them on the market--for example, the water authority got 5 billion pounds of debt relief plus 1.6 billion pounds called the "green dowry" to make the bride more attractive to prospective buyers. A lot of Public Relations fuss was made about how small stockholders would have a stake in these companies--and in fact 9 million Brits did buy shares--but half of them invested less than a thousand pounds and most of them sold their shares rather quickly, as soon as they could cash in on the instant profits.
From the results, one can easily see that the whole point of privatisation is neither economic efficiency or improved services to the consumer but simply to transfer wealth from the public purse--which could redistribute it to even out social inequalities--to private hands. In Britain and elsewhere, the overwhelming majority of privatised company shares are now in the hands of financial institutions and very large investors. The employees of British Telecom bought only 1 percent of the shares, those of British Aerospace 1.3 percent, etc. Prior to Ms Thatcher's onslaught, a lot of the public sector in Britain was profitable. Consequently, in 1984, public companies contributed over 7 billion pounds to the treasury. All that money is now going to private shareholders. Service in the privatised industries is now often disastrous--the Financial Times reported an invasion of rats in the Yorkshire Water system and anyone who has survived taking Thames trains in Britain deserves a medal.
Exactly the same mechanisms have been at work throughout the world....
I submit that we should stop talking about privatisation and use words that tell the truth: we are talking about alienation and surrender of the product of decades of work by thousands of people to a tiny minority of large investors. This is one of the greatest hold-ups of ours or any generation.
Another structural feature of neo-liberalism consists in remunerating capital to the detriment of labour and thus moving wealth from the bottom of society to the top. If you are, roughly, in the top 20 percent of the income scale, you are likely to gain something from neo-liberalism and the higher you are up the ladder, the more you gain. Conversely, the bottom 80 percent all lose and the lower they are to begin with, the more they lose proportionally.
Lest you thought I had forgotten Ronald Reagan, let me illustrate this point with the observations of Kevin Phillips, a Republican analyst and former aid to President Nixon, who published a book in 1990 called The Politics of Rich and Poor. He charted the way Reagan's neo-liberal doctrine and policies had changed American income distribution between 1977 and 1988. These policies were largely elaborated by the conservative Heritage Foundation, the principle think-tank of the Reagan administration and still an important force in American politics. Over the decade of the 1980s, the top 10 percent of American families increased their average family income by 16 percent, the top 5 percent increased theirs by 23 percent, but the extremely lucky top 1 percent of American families could thank Reagan for a 50 percent increase. Their revenues went from an affluent $270.000 to a heady $405.000. As for poorer Americans, the bottom 80 percent all lost something; true to the rule, the lower they were on the scale, the more they lost. The bottom 10 percent of Americans reached the nadir: according to Phillip's figures, they lost 15% of their already meagre incomes: from an already rock-bottom average of $4.113 annually, they dropped to an inhuman $3.504. In 1977, the top 1 percent of American families had average incomes 65 times as great as those of the bottom 10 percent. A decade later, the top 1 percent was 115 times as well off as the bottom decile....
The full article can be found at
www.globalexchange.org/campaigns/econ101/neoliberalism.html
"A Short History of Neo-liberalism
Twenty Years of Elite Economics and Emerging Opportunities for Structural Change
by Susan George
Conference on Economic Sovereignty in a Globalising World
Bangkok, 24-26 March 1999
The Conference organisers have asked me for a brief history of neo-liberalism which they title "Twenty Years of Elite Economics". I'm sorry to tell you that in order to make any sense, I have to start even further back, some 50 years ago, just after the end of World War II...
On the whole, the world had signed on for an extremely progressive agenda. The great scholar Karl Polanyi published his masterwork, The Great Transformation in 1944, a fierce critique of 19th century industrial, market-based society. Over 50 years ago Polanyi made this amazingly prophetic and modern statement: "To allow the market mechanism to be sole director of the fate of human beings and their natural environment...would result in the demolition of society" [p.73]. However, Polanyi was convinced that such a demolition could no longer happen in the post-war world because, as he said [p.251], "Within the nations we are witnessing a development under which the economic system ceases to lay down the law to society and the primacy of society over that system is secured".
Alas, Polanyi's optimism was misplaced--the whole point of neo-liberalism is that the market mechanism should be allowed to direct the fate of human beings. The economy should dictate its rules to society, not the other way around. And just as Polanyi foresaw, this doctrine is leading us directly towards the "demolition of society".
So what happened?...
As I've argued in detail in the US quarterly journal Dissent, one explanation for this triumph of neo-liberalism and the economic, political, social and ecological disasters that go with it is that neo-liberals have bought and paid for their own vicious and regressive "Great Transformation". They have understood, as progressives have not, that ideas have consequences. Starting from a tiny embryo at the University of Chicago with the philosopher-economist Friedrich von Hayek and his students like Milton Friedman at its nucleus, the neo-liberals and their funders have created a huge international network of foundations, institutes, research centers, publications, scholars, writers and public relations hacks to develop, package and push their ideas and doctrine relentlessly.
They have built this highly efficient ideological cadre.... the ideological and promotional work of the right has been absolutely brilliant. They have spent hundreds of millions of dollars, but the result has been worth every penny to them because they have made neo-liberalism seem as if it were the natural and normal condition of humankind....
Let me stress how important it is to understand that this vast neo-liberal experiment we are all being forced to live under has been created by people with a purpose....neo-liberalism is not a force like gravity but a totally artificial construct...
So, from a small, unpopular sect with virtually no influence, neo-liberalism has become the major world religion with its dogmatic doctrine, its priesthood, its law-giving institutions and perhaps most important of all, its hell for heathen and sinners who dare to contest the revealed truth. Oskar Lafontaine, the ex-German Finance Minister who the Financial Times called an "unreconstructed Keynesian" has just been consigned to that hell because he dared to propose higher taxes on corporations and tax cuts for ordinary and less well-off families.
Having set the ideological stage and the context, now let me fast-forward so that we are back in the twenty year time frame. That means 1979, the year Margaret Thatcher came to power and undertook the neo-liberal revolution in Britain. The Iron Lady was herself a disciple of Friedrich von Hayek, she was a social Darwinist and had no qualms about expressing her convictions. She was well known for justifying her programme with the single word TINA, short for There Is No Alternative. The central value of Thatcher's doctrine and of neo-liberalism itself is the notion of competition--competition between nations, regions, firms and of course between individuals. Competition is central because it separates the sheep from the goats, the men from the boys, the fit from the unfit. It is supposed to allocate all resources, whether physical, natural, human or financial with the greatest possible efficiency.
In sharp contrast, the great Chinese philosopher Lao Tzu ended his Tao-te Ching with these words: "Above all, do not compete". The only actors in the neo-liberal world who seem to have taken his advice are the largest actors of all, the Transnational Corporations. The principle of competition scarcely applies to them; they prefer to practise what we could call Alliance Capitalism. It is no accident that, depending on the year, two-thirds to three-quarters of all the money labeled "Foreign Direct Investment" is not devoted to new, job-creating investment but to Mergers and Acquisitions which almost invariably result in job losses....
In pre-Thatcher Britain, about one person in ten was classed as living below the poverty line, not a brilliant result but honourable as nations go and a lot better than in the pre-War period. Now one person in four, and one child in three is officially poor. This is the meaning of survival of the fittest: people who cannot heat their houses in winter, who must put a coin in the meter before they can have electricity or water, who do not own a warm waterproof coat, etc. I am taking these examples from the 1996 report of the British Child Poverty Action Group. I will illustrate the result of the Thatcher-Major "tax reforms" with a single example: During the 1980s, 1 percent of taxpayers received 29 percent of all the tax reduction benefits, such that a single person earning half the average salary found his or her taxes had gone up by 7 percent, whereas a single person earning 10 times the average salary got a reduction of 21%.
Another implication of competition as the central value of neo-liberalism is that the public sector must be brutally downsized because it does not and cannot obey the basic law of competing for profits or for market share. Privatisation is one of the major economic transformations of the past twenty years. The trend began in Britain and has spread throughout the world.
Let me start by asking why capitalist countries, particularly in Europe, had public services to begin with, and why many still do. In reality, nearly all public services constitute what economists call "natural monopolies". A natural monopoly exists when the minimum size to guarantee maximum economic efficiency is equal to the actual size of the market. In other words, a company has to be a certain size to realise economies of scale and thus provide the best possible service at the lowest possible cost to the consumer. Public services also require very large investment outlays at the beginning--like railroad tracks or power grids--which does not encourage competition either. That's why public monopolies were the obvious optimum solution. But neo-liberals define anything public as ipso facto "inefficient".
So what happens when a natural monopoly is privatised? Quite normally and naturally, the new capitalist owners tend to impose monopoly prices on the public, while richly remunerating themselves. Classical economists call this outcome "structural market failure" because prices are higher than they ought to be and service to the consumer is not necessarily good. In order to prevent structural market failures, up to the mid-1980s, the capitalist countries of Europe almost universally entrusted the post office, telecomms, electricity, gas, railways, metros, air transport and usually other services like water, rubbish collection, etc. to state-owned monopolies. The USA is the big exception, perhaps because it is too huge geographically to favour natural monopolies.
In any event, Margaret Thatcher set out to change all that. As an added bonus, she could also use privatisation to break the power of the trade unions. By destroying the public sector where unions were strongest, she was able to weaken them drastically. Thus between 1979 and 1994, the number of jobs in the public sector in Britain was reduced from over 7 million to 5 million, a drop of 29 percent. Virtually all the jobs eliminated were unionised jobs. Since private sector employment was stagnant during those fifteen years, the overall reduction in the number of British jobs came to 1.7 million, a drop of 7% compared to 1979. To neo-liberals, fewer workers is always better than more because workers impinge on shareholder value.
As for other effects of privatisation, they were predictable and predicted. The managers of the newly privatised enterprises, often exactly the same people as before, doubled or tripled their own salaries. The government used taxpayer money to wipe out debts and recapitalise firms before putting them on the market--for example, the water authority got 5 billion pounds of debt relief plus 1.6 billion pounds called the "green dowry" to make the bride more attractive to prospective buyers. A lot of Public Relations fuss was made about how small stockholders would have a stake in these companies--and in fact 9 million Brits did buy shares--but half of them invested less than a thousand pounds and most of them sold their shares rather quickly, as soon as they could cash in on the instant profits.
From the results, one can easily see that the whole point of privatisation is neither economic efficiency or improved services to the consumer but simply to transfer wealth from the public purse--which could redistribute it to even out social inequalities--to private hands. In Britain and elsewhere, the overwhelming majority of privatised company shares are now in the hands of financial institutions and very large investors. The employees of British Telecom bought only 1 percent of the shares, those of British Aerospace 1.3 percent, etc. Prior to Ms Thatcher's onslaught, a lot of the public sector in Britain was profitable. Consequently, in 1984, public companies contributed over 7 billion pounds to the treasury. All that money is now going to private shareholders. Service in the privatised industries is now often disastrous--the Financial Times reported an invasion of rats in the Yorkshire Water system and anyone who has survived taking Thames trains in Britain deserves a medal.
Exactly the same mechanisms have been at work throughout the world....
I submit that we should stop talking about privatisation and use words that tell the truth: we are talking about alienation and surrender of the product of decades of work by thousands of people to a tiny minority of large investors. This is one of the greatest hold-ups of ours or any generation.
Another structural feature of neo-liberalism consists in remunerating capital to the detriment of labour and thus moving wealth from the bottom of society to the top. If you are, roughly, in the top 20 percent of the income scale, you are likely to gain something from neo-liberalism and the higher you are up the ladder, the more you gain. Conversely, the bottom 80 percent all lose and the lower they are to begin with, the more they lose proportionally.
Lest you thought I had forgotten Ronald Reagan, let me illustrate this point with the observations of Kevin Phillips, a Republican analyst and former aid to President Nixon, who published a book in 1990 called The Politics of Rich and Poor. He charted the way Reagan's neo-liberal doctrine and policies had changed American income distribution between 1977 and 1988. These policies were largely elaborated by the conservative Heritage Foundation, the principle think-tank of the Reagan administration and still an important force in American politics. Over the decade of the 1980s, the top 10 percent of American families increased their average family income by 16 percent, the top 5 percent increased theirs by 23 percent, but the extremely lucky top 1 percent of American families could thank Reagan for a 50 percent increase. Their revenues went from an affluent $270.000 to a heady $405.000. As for poorer Americans, the bottom 80 percent all lost something; true to the rule, the lower they were on the scale, the more they lost. The bottom 10 percent of Americans reached the nadir: according to Phillip's figures, they lost 15% of their already meagre incomes: from an already rock-bottom average of $4.113 annually, they dropped to an inhuman $3.504. In 1977, the top 1 percent of American families had average incomes 65 times as great as those of the bottom 10 percent. A decade later, the top 1 percent was 115 times as well off as the bottom decile....
The full article can be found at
www.globalexchange.org/campaigns/econ101/neoliberalism.html