A Brief History Of Neoliberalism

In Chapter 4, Harvey analyzes the development of neoliberal states around the world. He assesses the varying degrees to which neoliberal policies have been adopted, the reasons for their adoption, and the effects they have had. He describes in particular the cases of Mexico, Argentina, South Korea, and Sweden.

In the first section, “The Moving Map of Neoliberalization,” Harvey describes how the implementation of neoliberal policies around the world since 1970 is highly variegated. Some countries only adopt some neoliberal policies. Others have implemented neoliberal policies and then reversed them after crises. Geographic competition between states and regions creates pressure to implement neoliberal policies. However, the drive has been primarily driven by the United States and the United Kingdom, even as they did not entirely implement neoliberal policies themselves.

Harvey then describes the global economy in the 1980s and argues that neoliberalism did not achieve what it said it would, based on its theory. In the United States and the United Kingdom, inflation decreased but there was high unemployment and growing income inequality. In Latin America, neoliberalism led to a decade of weak economies and political instability. Japan, other East Asian countries, and West Germany did well in the 1980s despite not implementing neoliberal policies to the same extent as the United States, United Kingdom, and Latin America. For example, in West Germany, strong labor unions helped spur technological advancement. Despite poor overall economic outcomes, economic elites in the United States and the United Kingdom made a lot of money. Harvey argues that this is the real reason neoliberal policies are implemented. The extent to which neoliberal policies were implemented in any given country “depended upon the balance of class forces (powerful union organization in West Germany and Sweden held neoliberalization in check) as well as upon the degree of dependency of the capitalist class on the state (very strong in Taiwan and South Korea)” (90).

In the 1990s, the elite class power that had begun in the 1980s was strengthened. Harvey gives four methods by which this was achieved. First, highly connected international financial markets were spread more widely throughout the world. Second, more international free trade agreements and mechanisms were established. Third, the US, in partnership with the IMF, encouraged more countries to pursue neoliberal policies by using access to its consumer market as an incentive. Four, proponents of neoliberal ideology gained primacy in economics departments and international organizations like the IMF and World Bank. These measures collectively are known as the “Washington Consensus.”

As a result of this globalized, underregulated system, financial crises were common and spread quickly from one country to another. For example, a property bubble collapse in Thailand in 1997 led to a devaluation of the Thai currency, the baht, which in turn caused economic crisis throughout Asia, spreading to Russia and Estonia, Brazil and Argentina, Turkey, Australia, and New Zealand and causing widespread poverty. When the IMF imposed austerity measures in Indonesia in response, this sparked violence against the Chinese minority who were blamed for the deprivation. Countries that did not implement neoliberalism were better shielded from the effects of this downturn than those that followed the neoliberal path. Harvey argues that the reason the IMF and the US Treasury seek to implement neoliberal policies even though they cause economic crises is because New York-based hedge funds and similar economic elite corporations benefit from the crises and the inequality that neoliberalism generates.

In the section “Dispatches from the Frontlines,” Harvey assesses a series of four case studies on neoliberal policies. The first is Mexico. In the 1970s, Mexico borrowed heavily from New York investment banks to prop up its nationalized industries. After the Volcker shock, Mexico could no longer afford to service its debt and declared bankruptcy in 1982. As part of the debt restructuring, the World Bank loaned Mexico money as long as it undertook structural adjustment policy (in other words austerity measures alongside neoliberal public policy measures). As a result, Mexican municipal services declined, unemployment rose, and crime rates soared. The government used the military to discipline labor, jailing union organizers. In 1991, the government privatized agricultural land that had been collectively owned by underprivileged Indigenous people and imported subsidized corn from the United States at cheap prices. This drove many agricultural workers into poverty and out of the countryside into the cities. Many Mexican assets were bought by foreign investors, particularly Americans. The sell-off of Mexican assets and the implementation of neoliberal policies led to a dramatic increase in income inequality, as exemplified by the case of Carlos Slim, a telecommunications mogul and the richest man in Mexico, who profited dramatically from Mexico’s economic crisis.

Next, Harvey describes “The Argentinian Collapse.” Beginning in 1992 under President Carlos Menem, Argentina pursued neoliberal policies of opening up the country to foreign trade, privatizing state-owned corporations and services, including social security, and reducing inflation by tying the Argentinian peso to the US dollar. (The US dollar was seen as more credible and reliable; one implication of this is that it makes Argentina more attractive to foreign investors.) This resulted in increased unemployment and a greater concentration of wealth. In 1992, because of a Mexican currency crisis, Argentina experienced a massive economic downturn. Despite an IMF bailout, the crisis deepened and in 2001 it defaulted on its debt. The government froze bank transactions, sparking riots that left 27 people dead. In 2002, a new president, Duhalde, reversed the peg to the US dollar and devalued the peso. This led to a further deepening of unemployment and economic crisis. In 2003, new populist President Néstor Kirchner defaulted on IMF loan payments on the advice of his non-US trained economists, who said that “while the repayment of the external debt is important it should not entail a collapse of living standards in Argentina” (106). Harvey argues that Argentina’s experience of neoliberal policy shows how different theory is from practice.

South Korea, under the dictatorial US-backed General Park Chung Hee, rapidly industrialized in the 1960s and 1970s through support of large corporations, known as chaebols, by the Korean state. By the 1980s, these firms were large enough and wealthy enough to begin to advocate for a reduction in government regulation. Throughout the 80s, these corporations used the loosening of trade restrictions to move more of their labor offshore, leading to higher unemployment in Korea. In the 1990s, due to greater global competition, particularly from China, Korean businesses faced downturns that led them to borrow more from foreign lenders. By the mid-1990s, chaebols were laying off many workers, sparking labor unrest, and eventually many of them went bankrupt. The IMF encouraged South Korea to raise its interest rate to protect its currency, which further deepened the economic crisis. Similar to New York City in the 1970s, the United States and the IMF agreed to bail out Korean industry as long as its debts were paid before the state provided any services. As a result, the Korean government were effectively ordered to give “tribute” to support Wall Street and the US economic elite class (111).

In the 1970s, Sweden’s labor sector was highly organized and threatened the capitalist classes through a proposed Rehn-Meidner plan that would have changed businesses from privately to publicly owned. In response, the Swedish Employers Federation launched a massive propaganda campaign against it. The Conservative Party came into power in 1976 and while they weren’t able to entirely defeat labor, they were able to splinter it in 1983 by negotiating with unions on a case-by-case basis. Employers also used their power over the Nobel Prize in Economics and the creation of the think-tank known as The Center for Business and Policy Studies (SNS) to legitimate neoliberal economic policies. Throughout the 1980s, under a Social-Democrat government, the banks were deregulated and taxes were cut. In 1991, when oil prices rose, Sweden experienced an economic downturn, and this led to their joining of the European Union in 1993-4. This limited Sweden’s ability to manage its own fiscal policy and led to further privatization and reduction of the welfare state. Harvey cites political economist Mark Blyth to describe how these insufficient solutions are emblematic of “cognitive locking” (that is, only thinking in terms of neoliberal policy). However, Sweden kept some of its extensive welfare state, resulting in what Harvey calls “circumscribed neoliberalization” (115).

In the final section, “Forces and Fluxes,” Harvey analyzes these case studies collectively. He critiques other explanations of neoliberalism for ignoring the role of class in creating and implementing neoliberal policies. He also notes that strong organized labor reduces the extent to which neoliberal policies are enacted. Further, the extent to which neoliberal policies are implemented depends on complex relationships between internal and external forces. Countries will not implement external IMF-determined policies if there is not an internal constituency that supports them. Commonly, it is said that neoliberal policies are designed to create good investment opportunities, but Harvey points out that these policies also lead to social unrest, as in Argentina, which seemingly would make investment riskier. The investment that is attracted is often “vulture capital” that relies on speculation. Geopolitics also partially determines the extent to which neoliberalism is adopted, as in the case of Mexico, which shares a border with the United States and therefore is more susceptible to its pressure to implement neoliberal policies. Overall, neoliberal policies create greater inequality and contribute to the strengthening of the elite class.