Understanding Neo-Liberalism Over the last fifteen years, since the collapse of Stalinism in Eastern Europe, the term 'neo-liberalism' has become increasingly used to describe both the national and international strategies adopted by capital. Here Andy Kilmister opens up a debate about exactly what we mean by neo-liberalism. Recently, a major theme of the global justice movement National controls on imports of goods and services, espe- has been the struggle against neo-liberalism. However, in many ways, the theoretical understanding of this concept among revolutionary Marxists remains quite limited. This article will consider the following: the elements of neo- liberal strategy, how this strategy can be theorised within Marxism, why it has been adopted by capitalism in the current period and the nature of the internal contradictions within it. It does not aim to give definitive answers but to raise some questions that can feed into a collective discus- sion. The focus will be on the economics of neo-liberalism; however, these cannot be considered in isolation from polit- ical questions and these will also be taken up. What is neo-liberalism? Neo-liberal economics is based around three main elements. Firstly, there is a re-conceptualisation of the role of govern- ment expenditure. State spending is explicitly seen as jus- tified only by the need to make domestic capital more com- petitive. This allows for spending on education, health and other public services to a certain degree, but only when this can be justified in economic terms as leading to an increase in efficiency. In addition, the provision of such services is seen as something which can best be provided by the private sector, with the role of the state mainly to manage the awarding of the relevant contracts and ensuring that no single monopoly provider gains too much power in the market at the expense of other capitalists. So privatisation is central to neo-liberalism. Secondly, neo-liberal thought is based around the breaking down of national economic barriers. The most important of these is in the financial sector. Neo-liberalism strongly advocates the removal of capital and exchange controls and the opening up of financial markets to foreign investment. POLITICS cially tariffs and quotas, on intellectual property rights, on the awarding of government contracts and on produc- tive investment are all to be removed and handed to inter- national institutions, notably the World Trade Organisa- tion (WTO). However, national controls on the movement of labour remain. Thirdly, there is an extensive programme of domestic dereg- ulation. A central plank of neo-liberalism is a programme for 'flexible' labour markets, with maximum freedom for employers in the terms of hiring and firing workers and strict limits on trade union rights. Areas like pensions are also embedded as much as possible in a market framework. State- imposed limits on the behaviour of companies, such as the controls on interest rates and lending activities are removed - for example the Glass-Steagall Act separating commercial and investment banking, imposed in the wake of the 1930s depression in the USA, was recently repealed. Again, the regulatory role of the state is restricted to com- petition and anti-trust policy, in support of those capital- ists who might lose out if a monopoly becomes too strong, rather than providing a counterweight to the power of capital. It is worth noting here that the main focus of neo-liberalism is on the 'micro' side of the economy, the way in which cap- italism functions at the level of individual markets and com- panies; rather than on 'macroeconomics' - the operation of national economies as a whole. Certain macroeconomic policies, most notably the Stability and Growth Pact, which limits government borrowing within the countries partici- pating in the euro, can be used to further neo-liberal objec- tives. However, they are not central to neo-liberalism, as is shown both by the fact that the Pact has been ignored in effect by the two most important EU governments, France and Germany (to the disquiet of the European ••• Page 4 Socialist_Outlook spring. 2004 issue_003
acterise contemporary capitalism in Marxist terms con- of the motivation behind neo-liberalism. It • •• Commission) and by the way in which advocates of neo-liberalism such as The Economist magazine and the Financial Times are opposed to the continuation of the Pact. More generally, neo-liberalism is quite compat- ible with 'Keynesian' policies of boosting government spending, cutting taxes and lowering interest rates in order to increase economic growth, as has been done by the Bush government in the USA since 2001. The key question is who gets the benefit of such spending, tax cuts and cheap money. For neo-liberalism, these policies must be justified by the interests of capital, as has indeed been the case in the United States under Bush. To summarise, the central element of neo-liberalism is the opening up of spaces for capital that were previously restricted, either for geographical reasons or through state involvement or regulation, coupled with the increased integration of the state with business around an agenda of increased competitiveness within these newly opened Neo-liberalism and Marxism How should Marxists analyse neo-liberalism? This question relates to a broader issue which has stimulated consider- able debate within Marxism, that of the 'periodisation' of capitalism. This debate began with the work of Lenin and the Austrian Marxist Rudolf Hilferding. In 1910 Hilferding published his book Finance Capital: A Study of the Latest Phase of Capitalist Development that was used by Lenin as much of the basis for his 1916 pamphlet Imperialism: The Highest Stage of Capitalism (more accurately trans- lated as the 'latest' stage rather than 'highest').' The sig- nificance of these works in terms of periodisation was that they explicitly described capitalism as having moved onto a new, distinct phase since the work of Marx, and attempted to outline the key elements of this phase, notably the inte- gration between banks and industry, the export of capital and the exacerbation of inter-imperialist conflict leading to the inevitability of war. Following the survival of capitalist regimes in Western Europe after the revolutionary upsurge at the end of World War One the debate over how to char- tinued, and intensified after World War Two, as Marxists tried to analyse the long post-war boom of the 1950s and 1960s. The Communist Parties, following an interpreta- tion of Lenin heavily marked by the influence of Stalinism, analysed the period as one of 'State Monopoly Capitalism'. A variety of competing characterisations emerged from the Trotskyist movement. The most sophisticated account of the periodisation of capi- talism from the Fourth International was provided by Ernest Mandel, in his book Late Capitalism? For Mandel the post- World War Two period saw capitalism enter a new phase, of comparable significance to that identified by Hilferding and Lenin, typified by features such as a reduced life cycle for fixed capital, accelerated technological innovation, the per- manent arms economy, the growth of multinational corpo- rations and the expansion of credit. An important question for understanding neo-liberalism from a Marxist stand- issue_003 spring. 2004 Socialist_ Outlook Page 5; of globalisation, such as extent of capital move- ments, degree of openness to international trade and so on, were of comparable size in the late nineteenth century to today, as shown by Paul Hirst and Grahame Thompson," migration was much more extensive then. For the vast majority of even the largest capitalist companies a global identity in terms of owner- ship, markets and funding is still a considera- ble way off, though the tendency is in that direc- tion, as shown by Winfried Ruigrok and Rob van Tulder." Neither is the concept of globalisa- tion developed enough in itself for a clear link in Marxist terms to a particular economic strategy to be drawn, as is shown by the interesting debate within the British SWP on this question, in response to the work of Nigel Harris." A second approach is to build on Mandel's inte- gration of the theory of long waves (upswings and downswings of two decades or more in capitalist development) with Marxism in Late Capitalism. Neo-liberalism could then be seen as the economic strategy adopted by capital in the downswing of the current long wave, which began with the economic crisis of 1973-75. This view does capture an important element is indeed largely a response to the increased working class militancy, high government borrowing and inflation and low profitabil- ity of the 1970s. However, there are two key problems with this interpretation of neo-liber- alism. First. it presents neo-liberalism purely as a defensive and reactive strategy of capital in response to economic downturn, ignoring the ways in which neo-liberalism can also be an offensive strategy opening up new possibil- ities for accumulation and profit. Secondly, it does not examine why this particular strategy was chosen rather than another to overcome the downswing in the long wave: for example, a corporatist attempt to integrate capital with labour in a framework of tri-partite agreements following the model pioneered in Germany, Austria and Scandinavia. ••• point is how it relates to the theory of late capitalism. Three main alternative views can be put forward. The first is to see the dominance of neo-liberalism as indicat- ing a further phase in the periodisation of capitalism, super- seding Mandel's late capitalism. This is implicit in much of the discourse around globalisation mostly among bour- geois writers. but also in works such as Hardt and Negri's Empire? Neo-liberalism is then seen as the economic aspect of globalisation. This does not seem a convincing view for a number of reasons. Many of the features of late cap- italism as identified by Mandel remain valid, for example arms spending, credit creation and a rapid turnover of fixed capital. Conversely, to the extent that globalisation is valid as a concept, it does not seem of sufficient weight or novelty to indicate a new phase of capitalism. Many of the indices (1981) Finance Capital: A Study of and labour the Latest Phase of Capitalist Develop- ment edited with an introduction by I Bottomore, from translations by M Watnick and S Gordon, Routledge.. VI Lenin, (1975) Imperialism: The Highest Stage of Capitalism, Peking, Foreign Languages Press. 2 E. Mandel, (1975) Late Capitalism translated by J De Bres, New Left Books. 3M. Hardt and A. Negri. (2000)Em- pire. Harvard University Press. 4 P. Hirst and G. Thompson, (1996) Globalisation in Question, Polity Press. 5 W. Ruigrok and R van Tulder; (1995) The Logic of Inter- national Restructur- ing, Routledge. 6A. Callinicos Imperialism, Capi- talism and the State Today - A Revien of Nigel Harris's The End of the Third World', International Socialism 2:35 1987. C. Harman "The State and Capitalism Today', International Socialism 2:5/ 1991. C. Harman 'Globali- sation: A Critique of a New Orthodoxy'; International Social- ism 2:73 1996. POLITICS
••• A more fruitful. third app:caco is to start from the fact that Marx's method involves a progression from abstract concepts to concrete analyses through a number of levels of abstraction. Neo-liberalism is best seen as belonging to a lower level ei abstraction than a phase of capitalism such as late iapitalism. It represents a complex of capitalist strategies. arising from particular concrete conjunctures which themselves have been structured by the underlying fundamental features of late capitalism as a distinct period. The next section of this article examines these conjunctures. Why did neo-liberalism emerge? There are two main approaches to the emergence of neo- liberalism as a distinct strategy. The first is to argue that it is the 'natural' default strategy of capital, and that its emergence now is mainly the result of the removal of more or less artificial constraints on the ability of capital to follow its preferred policies. The second is to concentrate on the specific challenges facing capital in this particular period and the potential of neo-liberalism to overcome them. Both capture an important element of the truth. The central constraint on capital that has been removed is the existence of the USSR. This has been most important in facilitating the increased international dominance of the USA enabling it to play a much more interventionist role, especially through the International Monetary Fund (IMF) in shaping the economies of Asia, Africa and Latin America. The collapse of Stalinism had a dramatic effect in weaken- ing the left in many of the developing economies and turning them towards an increased dependence on the world market. This process was reinforced by IMF 'structural adjustment' programmes, which demanded privatisation, control and redirection of state expenditure towards 'market-friendly' objectives and deregulation. In addition, however, the emer- gence of neo-liberal strategies has been aided by the long- term crisis of the Japanese economy through the 1990s and the problems of the Western European economies, espe- cially Germany. During the 1970s and 1980s Japanese and European capitalism, especially the 'social market model' of Germany, were seen by many social democratic observ- ers, for example Will Hutton of The Observer, as a preferable alternative to the Anglo-American stress on the free market? Correspondingly, 7 W. Hutton (1996) The State We're In, the seeming success of the US in the follow- ing decade eroded much of the support for such 8 P. Gowan (1999) examples. The Global Gamble, However, neither the collapse of Stalinism nor the » See for example problems of Germany and Japan can fully explain R. Hatcher and N. either the desire or ability of capital to adopt Hirtt 'The Business Agenda Behind neo-liberalism, particularly in the imperialist Labour's Education countries. Neo-liberalism has also been seen Policy' in M. Allen et as a preferred response to a particular set of al (1999) Business, challenges. First, Peter Gowan has shown how Business, Business: many of the key elements of neo-liberalism were New Labour's Education Policy; 'exported' by the USA as part of a very conscious The Tufnell Press. attempt to re-establish American dominance in Also R. Hatcher's response to the crises of the late 1960s and the article in this issue of economic threat posed by Germany and Japan.® Socialist Outlook. POLITICS Second, neo-liberalism came to dominate the international financial sector largely as a result of both the threat posed and the opportunity opened up by the international debt crisis of the early 1980s. Third, neo-liberal strategies in the public sector are not simply a defensive attempt to cut costs but are also a response to the opportunities opened up by technological developments and social changes for making services previously provided publicly into central sources of capital accumulation and profit, as shown for the case of education by the work of Richard Hatcher? Fourth, employers and governments have taken a number of important developments within the world economy that raise genuine economic issues which could be responded to in a variety of ways, and have used them to justify particular elements of the neo-liberal approach. Examples here are the ageing of the population, the growth of manufacturing in developing economies, especially China, and technical change, especially in the area of information technology. Fifth, particular policy measures, partly taken to achieve other objectives, such as the Single European Act (designed to further European integration) have had the effect of reinforcing neo-liberal approaches. Thus, the emergence of neo-liberalism demands a concrete analysis, in which particular strategies can be seen as the result of a number of interacting and determining factors. This is exemplified by looking at the development of neo-lib- eralism within Britain. Here many of the key ideas of neo- liberalism arose as a result of the failure of an earlier capi- talist strategy, monetarism, in the years of the first Thatcher government. Monetarism originally arose, both theoretically in the work of Milton Friedman and practically in Conservative policy statements, as a macroeconomic doctrine. It was thought that controlling public expenditure and the money supply would, on their own, enforce behaviour by workers and employers that would lay the basis for profitable capital accumulation. Little attention was paid to questions of ownership or even to labour market reform - though exchange controls were removed. The strategy was largely a failure. Rises in interest rates pushed the exchange rate up to a level that brought about a tripling of unemployment and a major recession. This in turn meant that government expenditure could not be controlled effectively. In addition, the link between interest rates and the money supply proved much more unstable than had previously been thought, with the result that the money supply also spun out of control. As a result, in its second term the Thatcher government developed many of the policies now associated with neo- liberalism, notably flexible labour markets, anti-union laws and privatisation, initially almost in an improvisatory way, but gradually drawing such measures together into a more coherent strategy, emerging out of the weaknesses of the approach previously adopted. Can neo-liberalism be defeated? The relative coherence of neo-liberalism as an ideology and a strategy has led some on the left to become doe Page 6 Socialist Outlook spring, 2004 issue 003
• •• pessimistic about the possibilities for opposing it. build up of debt in the largest imperialist economy, the USA. Schooling in Europe: Richard Hatcher discusses the impact of neo-liberal policies on education in Europe, including in Britain, France and Italy, and proposes some ways of developing the opposition to them. by a neo-liberal agenda which is forcing the convergence of • To produce human capital for competitiveness in the This is mistaken. A full analysis of the weaknesses of neo- liberalism is beyond the scope of this article. However, one central point can be made in conclusion. Neo-liberalism systematically tries to dismantle many of the structures that limit and regulate the operation of the market, both with regard to relationships between capital and labour and with regard to relationships between different capitalist enterprises. As such it cannot but increase the potential instability in the system, since many of these limits were precisely designed to restrain such instability. To take just three examples, out of many: the reckless desire to remove all restrictions on international capital movements has led to a succession of currency crises over the last decade (in Mexico. East Asia, Brazil, Russia, Turkey and Argentina), while domestic financial deregulation has led to a dangerous