"Charity is commendable, everyone should be charitable. But Justice aims to create a social order in which, if individuals choose not to be charitable, people still don't go hungry, unschooled or sick without care. Charity depends on the vicissitudes of whim and personal wealth, justice depends on commitment instead of circumstance.
Faith-based charity provides crumbs from the table; faith-based justice offers a place at the table"
~Bill Moyers

Saturday, June 5, 2010

Neoliberalism Triumphant


by Richard Lyon Sat Jun 05, 2010 at 01:16:04 PM PDT

The 1980s brought the dawn of a neoliberal era in the Anglo-Saxon world. That era has continued to the present day in much the same way that the social democratic era persisted from the 1940s to the 1970s. When the neoliberals came to power they had a well developed agenda that had been building for 30 years. They promptly and aggressively set about implementing it.

These three diaries provide background for this diary.

Globalization, A Pictorial History

Neoliberals: Where Do They Come From?

Birth Of Neoliberalism

During the 1950s and 1960s the business and financial elite grudgingly tolerated the regime of social democracy. They chafed at its regulatory restrictions and tax rates. They strongly backed the campaigns that led to the election of Margaret Thatcher and Ronald Reagan. At last it was Morning In America and Nirvana In Albion.

At this point let us compare some of the basic policy positions of social democracy and neoliberalism. As with any political and economic movements there is no universal dogma to which all people who are associated with the movement consistently adhere. However, there are some basic areas of difference that have remained consistently apparent.

Social Democrats          Neoliberals

Fair Trade                     Free Trade

Regulated Markets        Deregulated Markets

Labor Rights                 Labor Flexibility

Mixed Economy           Privatization

Economic Democracy   Tax Cuts

I am going to confine this discussion to the Regan administration. The Thatcher government was not fundamentally different in its basic philosophy and approach and the two governments worked in close concert on international issues. We will start with a look at the international economic policies of the Regan administration. They developed into what has become known as the Washington consensus and it is this group of policies that have been most frequently associated with the term neoliberal in the general media. However, it is my view that the domestic economic policies that became popularly known as Reaganomics are an integral part of neoliberalism.

The Breton Woods conference of 1944 developed two international financial institutions The International Monetary Fund and what eventually became known as The World Bank. The conference proposed the development of an International Trade Organization. It was more difficult for that organization to see the light of day. It got off to a start as the General Agreement On Tariffs And Trade in 1947 and eventually emerged as the World Trade Organization in 1995.

Originally the stated purpose of these organizations was to bring financial stability to the world after the chaos of the Great Depression and WWII. Their governance and organizational structure were developed in a manner that assured that they would be consistently dominated and controlled by an American-British coalition.

Reagan had an explicit policy objective of moving the programs of these international organizations in a neoliberal direction. The IMF has by far been the most notorious of the organizations in its policy initiatives.

It is the sledge hammer that has been used to open the economies of the world's poorer countries to the domination of global capital. The core approach is the

Washington Consensus

  1. Fiscal policy discipline;

  2. Redirection of public spending from subsidies ("especially indiscriminate subsidies") toward broad-based provision of key pro-growth, pro-poor services like primary education, primary health care and infrastructure investment;
  3. Tax reform – broadening the tax base and adopting moderate marginal tax rates;
  4. Interest rates that are market determined and positive (but moderate) in real terms;
  5. Competitive exchange rates;
  6. Trade liberalization – liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by low and relatively uniform tariffs;
  7. Liberalization of inward foreign direct investment;
  8. Privatization of state enterprises;
  9. Deregulation – abolition of regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudent oversight of financial institutions;
 10. Legal security for property rights.

Third world countries facing financial crises have been forced to adhere to policies in compliance with the WC as a condition of stabilization and development loans from the IMF and World Bank. Rather than possitive economic development, this approach has often resulted in serious economic disruption and increased poverty. Indigenous agriculture has been supplanted by imports from agribiz creating a flood of migrants in search of a means of survival.

The fundamental goal of Reagan's domestic economic policies was to roll back the New Deal. To this day his devoted followers are campaigning to have his head replace that of FDR on the dime. The programs and policies became known as Reaganomics. One of the memorable notions is that of trickle down wealth. If we allow the rich to get richer, somehow we are all supposed to benefit.
The general outlines of the program were:

  1. Reduce government spending,
  2. Reduce income and capital gains marginal tax rates,
  3. Reduce government regulation of the economy,
  4. Control the money supply to reduce inflation.

One of his first dramatic acts upon taking office was to destroy the air traffic controllers union Patco. Yet when he ran for reelection four years later, large numbers of blue collar union members proudly supported him under the banner of Reagan Democrats. Ronald Reagan's greatest achievement was to be the country's unequaled champion in the sale of snake oil. He did it with a Democratic majority in congress. George H. W. Bush essentially continued the same policies during his administration.

By the beginning of the 1990s neoliberalism had become so entrenched that traditional social democratic parties despaired of ever holding office again if they followed the platforms of their predecessors. This quandary gave rise to what became known as the Third Way movement. It proponents have claimed to be seeking a synthesis between neoliberalism and social democracy.

In 1992 in the teeth of a difficult recession Bill Clinton won the presidency running on a platform of the New Democrats. A few years later Tony Blair became UK prime minister on a platform of New Labour. Bill and Tony became a dynamic trans-Atlantic duo equal to Ronnie and Maggie.
Gerhard Schröder leader of the German Social Democratic Party followed a somewhat similar path.

One of the impacts of eights years of the Clinton White House was to cut into the ratings of the more traditional soap operas. The administration never lacked for entertainment. It has now been long enough to close the books on the Clinton administration and conduct a political accounting. On the economic front the net effect was a continuation of the neoliberal policies of the Reagan/Bush era. Clinton actively participated in the advancement of those policies in several instances.

  1. The establishment of NAFTA the North Atlantic Free Trade Area.
  1. The full establishment of the World Trade Organization with its committment to open free trade.
  1. The repeal of New Deal income assistance programs replaced by "workfare".

Clinton had the good luck to be riding a major bubble in the stock market during most of his presidency. There is little plausibility that his policies had much to do with its beginning or with its end. It did provide him with the opportunity to establish a balanced budget.

While neither Clinton nor any other Democratic president would ever engage in Regan's union busting antics, the policies of the Clinton years were decidedly detrimental to the American labor movement. Manufacturing and technology jobs declined and union membership in the private sector continued to shrink.

A five member majority of the United States Supreme Court gave us George W. Bush and his compassionate conservatism. Economically what this turned out to be was to cut taxes for the wealthy, maintain government programs at essentially the same level to keep the middle class happy, drastically increase military spending with two wars and pay for it all by gargantuan increases in the public debt. Like Clinton he was helped by a housing bubble for much of his presidency. Unlike Clinton the bubble burst in a spectacular explosion before he could get out the door.

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