Chapter 2. History and Lessons of Neo-liberalism, by Perry Anderson
It is not enough to simply look at figures to gain an understanding of how a system functions and its intrinsic logic. Figures can encourage a reaction, raise awareness and provoke doubts and demands for explanations and/or understanding. It is with this in mind that we offer a series of analyses. Each of them has been written by a member of a network of associations or intellectuals working in this area, and each of them emphasises one aspect of today’s economic scenario. Each text will be preceded by a short presentation by the organisation or the individual who wrote the text. But before moving on to this analysis of current capitalism, it may be appropriate to look back at its recent evolution.
The first contribution is by Mr. Perry Anderson (USA) who retraces the history of neo-liberalism. We only present here the first part of the text. The second part, which is more of a forward view, will be dealt with in the second part of the book.
Perry Anderson teaches at the University of California in Los Angeles (UCLA). He is the author of many works covering various topics. We quote from some of them: The move from antiquity to federalism, Paris, 1977; The absolutist state, its origins and its paths, Paris, 1978; On Gramski, Paris, 1978. From 1962 Anderson published a review which became highly respected in the intellectual Anglo-Saxon world: The New Left Review, published in London. He recently published Zone and Engagement, Verse, 1992 and Mapping the West European Left (ed.), Verse, 1994. The text on neo-liberalism is taken from the speech written/or a conference given to the Faculty of Social Sciences at the University of Buenos Aires in Argentina.
The construction of a unique way
In the beginning, the author examines the origins of what can be defined as neo-liberalism, as a distinct current from the strict classic liberalism of the past century. Then, he establishes the balance of neo-liberalism in power. Finally, he draws some lessons for the left.
Neo-liberalism was born after the Second World War in Western Europe and in North America. It translates a vehement political and theoretical reaction against the interventionism of the State and the Welfare State. Friedrich August Von Hayek published in 1944 The Road to Serfdom. This work constitutes in a certain way the founding charter of Neo-liberalism. Here is developed a passionate attack against all limitations by the State of the free functioning of the mechanisms of the market. These obstacles are denounced because to his mind they contain a mortal threat against economic and political liberty. In this period, the immediate target of Von Hayek is the English Labor Party. Elections are announced in Great Britain and this party is finally going to win them in July 1945, bringing Clement Attlee into the position of Prime Minister. The message of Von Hayek, clear, can be summarised like this despite his good intentions, the moderated English social-democracy leads to the same disaster as German Nazism, to the modern serfdom.
The Companions of Mont-Pèlerin
Three years later, in 1947, when the foundations of the Welfare State were effectively built in Europe of the post-war, Von Hayek invited those who shared his ideological orientation. He gathered them in a small holiday place in Switzerland, in the Mont-Pèlerin, above Vevey, in the canton of Vaud. Among the famous participants of this encounter we can find not only the decided adversaries of the Welfare State in Europe, but also fierce enemies of the U.S. New Deal.
In the chosen assistance, gathered m April 1947 in the Hôtel du Parc, we will mention Maurice Went, Milton Friedman, Walter Lippman, Salvador de Madariaga, Ludvig von Mises, Michael Pölanyi, Karl Popper, William E. Rappart, Wilhelm Röpke and Lionel Robbins. At the end of this meeting, the Society of Mont-Pèlerin is founded, a kind of neo-liberal freemasonry, well organised and devoted to the spread of the neo-liberal theses, with regular international meetings.
The objective of the society of Mont-Pèlerin was on the one hand, to combat Keynesianism and the social solidarity measures that prevailed after the Second World War and, on the other hand, to prepare for the future the theoretical foundations of another kind of capitalism, hard and liberated from any rule. During this period, the conditions for such an enterprise were not favorable at all. Indeed, capitalism – that will be called later neocapitalism – comes then in an expansive long wave. It represents its golden age. The growth is particularly rapid and permanent during the ‘50s and ‘60s. For this reason, neo-liberals’ warning about the danger of any form of control of the market by the State seems hardly believable. Nevertheless, the more specific polemic against a social regulation has quite a big impact. Von Hayek and his friends argue against new egalitarianism – very relative – of this period. For them, this egalitarianism promoted by the Welfare State is destructive of the liberty of the citizens and the vitality of abilities, two qualities on which depends the prosperity for all. The organisers of the Society of Mont – Pèlerin defy the dominant ideas and the official theories of the period. They profess that inequality has a positive value – in fact indispensable as such – which western societies need. This message has remained in the purely theoretical” state during more than twenty years.
The turn of 1974
All this changes with the great crisis of the post-war economic model, in 1974. The totality of the developed capitalist countries enters then in a deep recession. For the first time a low growth rate and a high inflation rate (slumpflation) come together. Taking advantage of this situation, the neo-liberals’ ideas begin to advance. Von Hayek and his comrades assert that the roots of the crisis are to be found in the ominous and excessive power of unions, and in a more general way, of the labour movement; according to them, unions have undermined the base of private accumulation (of investment) by their salary claims and by their pressure against the rise by the State of the parasitical social expenses without end.
These two pressures have started to cut the profit of the enterprises and have unleashed inflationary processes (growth of prices) that could only end in a generalized crisis of the market economies. From then on, the remedy is clear to maintain a strong State, capable to break the power of the unions and to strictly control the evolution of the monetary mass (monetarist policy). This State has, on the other hand, to be frugal in the area of social expenses and has to avoid economic interventions. The monetary stability has to constitute the supreme objective of all governments. For this purpose, a budgetary discipline is necessary, accompanied by a social expenses restriction and the restoration of a so-called natural unemployment rate; in other words the creation of a ‘reserve army of wage earners” (battalions of unemployed people) that allows to weaken the unions. In addition, fiscal reforms have to be introduced so as to encourage the “economic agents” to save and to invest. In other words, this proposal implies simply a reduction of taxes on the highest incomes and on the profits of corporations.
Thus, a new and healthy inequality will reappear and will give a new dynamism to the economies of developed countries sick of the slumpflation, sickness coming from the combined inheritance of policies inspired by Keynes and Beveridge, i.e. of the anti-cycle intervention of the State (aiming at cushioning) and of the social redistribution. These cushioning measures have deformed in a disastrous way the normal process of the accumulation of capital and the free functioning of the market. According to this theory, the growth will return naturally when the monetary stability will be reached and when the main incentives will have been reactivated (detaxation, social cost limitation, deregulation, etc.)
Thatcher, Reagan and the others
The hegemony of this program didn’t happen overnight. A decade was necessary to achieve it. At first, the majority of countries of the OECD was tempted to apply Keynesist remedies to this crisis opened by the generalized recession of 1974 – 1975. Nevertheless, from the end of the ‘70s – in 1979 more exactly – a new political situation is established. That year in Great Britain begins the reign of Margaret Thatcher. It is the first government of an advanced capitalist country that is publicly committed to put into practice the neo-liberal programme. One year later, in 1980, Ronald Reagan is elected president of the United States. In 1982 Helmut Kohl and the coalition CDU – CSU (Christian Democrats) beat the social democracy of Helmut Schmidt. In 1982-1984, in Denmark, symbol of he Scandinavian model of the Welfare State, a coalition clearly right-oriented takes over the power under the direction of Paul Schluter. Thereafter, almost all northern countries of Western Europe, except for Sweden and Austria, are turning towards the right. The wave of “turning to the right” of these years which allowed putting together the necessary political conditions for the application of neo-liberal recipes was supposed to end the economic crisis. In 1978, the “Second Cold War” gets tougher following the Soviet intervention in Afghanistan and the decision taken by the United States to install a new nuclear missile generation (cruise missiles, Pershing II) in Western Europe. Among the pro-capitalist currents of the post-war, the neo-liberal school has always integrated as a central element one of the most virulent forms of anti-communism. The new combat against “the evil empire’ – the most complete human slavery from Von Hayek’s point of view – strengthens inevitably the power of attraction of Neo-liberalism as political current. The hegemony of a new right in Europe and in North America is consolidated. Thus, in the course of 80’s, one is witnessing the indisputable triumph of the neo-liberal ideology in the advanced capitalist countries.
Neo-liberalism in power
In practice, what are the achievements of the neo-liberal governments of this period ? The British model is the purest and constitutes at the same time a pioneer experience. The different governments lead by Mrs. Thatcher restrain the emission of the monetary mass, raise the rate of interest, reduce in a drastic way the taxes on the highest incomes, abolish the control of the financial flows, strongly raise the rate of unemployment, provoke strikes, put in place an anti-unions legislation and cut the social expenses. Finally, they have run – with a surprising delay if one considers hierarchy in the neo-liberal dogma – a wide program of privatisations, beginning with public housing, then sector of the basic industry such as steel, electricity, oil and the distribution of water… These measures constitute the most systematic and ambitious of all the neo-liberal experiences within an advanced capitalist country.
The North American variation is different. In the United states, where there exists no Welfare State similar to the European one, Reagan and his administration give priority to the military competition with the Soviet Union. This competition is conceived as a strategy to undermine the Soviet economy and, by this means, to topple the existing regime in the USSR. In the realm of domestic policy, it is also necessary to notice that Reagan reduces taxes in favour of the rich, raises the rate of interest and crushes the unique serious strike the one of the air controllers that mars his term of office. Nevertheless, practically, Reagan does not respect the budgetary discipline; On the contrary, he goes into an armament race without precedents, that implies huge military expenses provoking a public deficit bigger than those known under any other President. Furthermore, these expenses constitute an indirect and direct subsidy to a vast industrial sector. The other countries do not follow this use of such a crazy military Keynesianism. Only the United States, because of his weight in the world economy, can afford the luxury of a massive deficit in the balance of payment induced by such a policy.
On the European continent, the governments of the right of this period – often with Christian democratic origins -implemented the neo-liberal program a bit more carefully. They insisted more on the priority of the monetary discipline and fiscal reforms and less on the drastic cuts of social expenses. They did not deliberate search confrontation with unions. Nevertheless, the distance between these policies and those led by the social democracy during previous period is great.
While the majority of countries of Northern Europe elected governments of the right applying various versions of the neo-liberal program, in the south of the continent – it means in countries which were governed by Franco, Salazar, De Gaulle, the Greek colonels – arrived for the first time to power governments of the left. We will talk then about euro-socialism. It is the period of François Mitterrand in France, Felipe Gonzales in Spain, Mario Soares in Portugal, Bettino Craxi in Italy, Andreas Papandreou in Greece. All of them appear as progressive alternatives, taking support from the popular and labour movement and opposed to the reactionary orientation of Reagan, Thatcher, Kohl, and others of Northern Europe. Indeed, at first, Mitterrand and Papandreou at least try to implement a policy of redistribution, full employment and social protection. This attempt fits in the perspective of creating in the south of Europe a model analogous to that put in practice in the post-war period by the social-democracy in Northern Europe. Nevertheless, the project of the French socialist government runs out of the steam at the end of 1982, and fails openly from March 1983 onwards. This government, under the “international stock market constraint”, changes radically its economic course. In its economic orientation it is close to the neo-liberal orthodoxy, with priorities such as monetary stability, public deficit control and fiscal concessions to the orders of capital. The objective of full employment is abandoned. At the end of the ‘80s, the level of the unemployment in France is higher than in the conservative England, something that Mrs. Thatcher likes to underline.
In Spain, the government of Gonzales has never looked for implementing a Keynesian or redistributive policy. On the contrary, from the beginning of the regime of the PSOE (Spanish Labor Socialist Party), the monetarism is the prevalent position. Linked to the financial capital, in favour of the principles of privatisation, the government of the PSOE demonstrates even a certain serenity facing an unemployment rate that rapidly reaches 20% of the active population, a European record.
On the other side of the world, in Australia and New Zealand, the same neo-liberal scheme is applied with a brutal force. The various labor party governments surpass the conservative right forces in the application of radical neo-liberal programs. New Zealand certainly represents the most extreme case. The Welfare State is dislocated there in a more complete and a more fierce way than Thatcher’s in Great Britain.
Impact and limits of the neo-liberal program
These experiences show the hegemony of Neo-liberalism as ideology. In the beginning, just the clearly right oriented have risked to put into practice the neo-liberal orientations. Then, various types of governments, included self-proclaimed left ones, have competed with the previous ones in this neo-liberal fervor.
Neo-liberalism had begun by pointing out social-democracy as its main enemy in the advanced capitalist countries, which provoked a reaction of hostility from social-democrat forces. Thereafter, the governments claiming to represent social democracy have appeared as the most resolute ones m the application of the neo-liberal policies. There are indeed some exceptions. At the end of the ‘80s, in Austria and Sweden, a certain resistance to the Neo-liberalism which spread in Europe, was seen.
Nevertheless, in most of the countries of the OECD, the ideas of the Society of the Mont Pèlerin had fully triumphed. From then on, it would be convenient to ask a question: what are the effective results of the neo-liberal hegemony in the industrialised countries during the ‘80s ? Has Neo-liberalism kept its promises? To answer it, we can draw a global panorama. The most immediate priority of Neo-liberalism was aimed at containing the inflation of the ‘70s. In this field, its success has been real. In the totality of countries of the OECD, the rate of inflation has decreased from 8.8% to 5.2% between the ‘70s and the ‘80s. This tendency was confirmed during the ‘90s. The disinflation, in its turn, had to create conditions for a revival of profits. In this area as well, Neo-liberalism has had real success. If during the ‘70s the rate of profit in the industry of the countries of the OECD decreases around 4.20/o, it increases to 4.7% in the ‘80s. This rise of the rate of profit is even more impressive if one examines Western Europe as a whole. It passed from -5.4% to + 5.3%. The main reason of this transformation is grounded, without any doubt, on the defeat of the union movement. This last fact was translated in the dramatic recession of the number of strikes during the ‘80s and in the stagnation or the decline of the salaries. This new situation of the union movement – whose moderation is increasingly manifest – is the result, mainly, of the third victory obtained by Neo-liberalism, in other words the rise of unemployment rates was considered as a necessary and natural mechanism for the efficient functioning of every market economy. The average unemployment rate in countries of the OCED, situated around 4% during the ‘70s, has at least doubled during the ‘80s. This result has been considered satisfactory according to the objectives of the neo-liberals.
Finally, the inequalities of incomes – another very important objective for the neo-liberals – were deepened. While the purchasing power of salaries stagnated or sometimes declined already, depending on the countries, the values in the stock market saw their quotings triple or quadruple. Concerning these goals – decline of inflation, jobs, wages and increase of the rate of profit – we can tell that the neo-liberal program has triumphed. Nevertheless, all these measures had been conceived as instruments to reach a historical objective the revival of developed capitalist economies on the international scale, the restoration of a stable growth rate such as it existed before the crisis of the ‘70s. On this terrain, the failure is manifest, without any possible doubt. Between the ‘70s and the ‘80s and again more in the beginning of the ‘90s, a significant change of the average growth rate did not happen. In the totality of the countries of the OCED, the revival has remained weak and unsteady, far away from the rhythms of the expansive wave during the ‘50s and 60s.
Crises and respite
Why this paradoxical result ? Despite all the new institutional conditions installed in favour of capital, the rate of accumulation – i.e. the effective net investment in the area of productive equipment goods – has grown very little since the ‘80s. It has even declined if one compares it to the levels of the ‘70s. In the totality of the advanced capitalist countries, the productive investment rate on the annual average developed thus : 5.5% in the ‘60s; 3.6% in the ‘70s; only 2.9% during the ‘80s. The curve is clearly declining.
Hence, a question rises : for what reasons did the recovery of the profit rate not lead to a revival of the investment? On the one hand, one can find one important element of reply in the deregulation of the stock markets (liberty of capital movements, sales and purchases of obligations, creation of new financial products, etc.). This deregulation belongs intrinsically to the neo-liberal program. But it leads to the fact that the speculative investments are more profitable than productive investments. Thus, during the ‘80s, one has assisted to a real explosion of operations on the international exchange of stock markets, monetary transactions have taken such a dimension that they have become a multiple of the trade on real goods. The private and parasitic aspect of the capitalist functioning has strongly been strengthened during these years. On the other hand, and that constitutes a failure for Neo-liberalism, the financial weight of the Welfare State has not decreased considerably, despite all the measures taken to contain the social expenses. Their participation to the gross domestic product (GDP) has remained stable or has even increased in the ‘80s in the countries of OECD. This situation can be explained by two basic reasons: the social expense growth linked to unemployment, that increases in thousands of millions of dollars in the State social budget, and the increase of the share of pensioners in the population which also contributes to the increase of social expenses. During the ‘90s, the social security programs will therefore become targets of the new neo-liberal measures.
Finally, when capitalism comes into a new and deep recession in 1991, one can observe with a certain irony that the public debt of almost all western countries reaches alarming levels, including Great Britain and United States, all the more so because the private family debt and one of the enterprises there have reached an unprecedented level since the second world war. With the recession at the beginning of the ‘90s, all economic clues have appeared more negative in the countries of the OECD. There one counts 38 million persons without a job, which is almost twice the current population of all Scandinavia. In these deep crisis conditions, it was justified to hope for a strong reaction against this Neo-liberalism from the beginning of the ‘90s. But, on the contrary, even if that looks strange, neo-liberalism gets a new lease of life, at least in its native land, Europe. Thatcherism survives Mrs. Thatcher, with the victory of John Major in the elections of 1992. In Sweden, the social democracy that had resisted the neo-liberal assault in the ‘80s is beaten by a united right front in 1991. French socialists suffer a clear defeat in 1993. In Italy, in 1994, Silvio Berlusconi gets power at the head of a coalition that includes a neo-fascist force. In Germany, the government of Kohl is renewed and in Spain, Jose Maria Aznar, at the head of the right wing popular party, is going to beat the PSOE.
Latin America: a laboratory
The impact of the neo-liberal triumph in Eastern Europe has been felt in other parts of the world, particularly in Latin America. It is the third great region of the experimentation of neo-liberal policies. In fact, even if some massive privatisation measures have been taken after those initiated in countries of the OECD or in some countries of Eastern Europe, the Latin-American continent has been the witness of the first neo-liberal experience applied in a systematic way. I refer here to Chile under the dictatorship of Pinochet after the coup of September 1973. This regime has the “merit” to have announced the beginning of the neo-liberal cycle in the present historical phase. The Chile of Pinochet has applied immediately its program, in a very hard way: deregulation, massive unemployment, antiunion repression, redistribution of the wealth in favour of the rich, privatisation of the public sector. All this has begun almost one decade before Thatcher. In Chile, the theoretical inspiration of the Pinochet experience was more directly North American; Milton Friedman was there a more direct reference than the Austrian Von Hayek was. It is convenient to underline that the Chilean experience of the ‘70s has interested a lot to the English counselors of Mrs. Thatcher. Excellent relationships have been established between the two regimes during the ‘80s. The Chilean neo-liberalism, of course, presupposed the abolition of democracy and the installation of one of the cruelest post-war dictatorships.
The democracy as such – as it has been repeated without ceasing by Von Hayek – has never been a central value of neo-liberalism. The Liberty and democracy, explained he, can easily become irreconcilable if the democratic majority decides to interfere in the unconditional rights of each economic agent to have at its disposal, as it likes, its property and its income. In this sense, M. Friedman and F. A. Von Hayek could admire the Chilean experience without succumbing to an incoherence at the theoretical order and without making compromises with their principles. They could all the more justify their admiration to the Chilean economy that had known a rhythm of relatively rapid growth under the power of Pinochet, unlike the capitalistic advanced countries submitted to the neo-liberal programs. This rhythm has elsewhere continued under post-Pinochet regimes that essentially have applied the same economic orientation. If Chile represents a pilot experience for neo-liberalism in the countries of the OCED, Latin America has also served as ground to experiment plans that will be applied in the East. I allude here to the “reforms applied in Bolivia since 1985. Jeffrey Sachs, the young U.S. economist guru, has developed its shock treatment in Bolivia, before proposing it to Poland and Russia. In Bolivia, the imposition of the structural adjustment plan did not need the crushing of a powerful labour movement, as was the case in Chile. Putting an end to the hyperinflation was the declared objective. The political regime that applied itself to the plan of Jeffrey Sachs did not take the form of dictatorship. It was situated in the inheritance of the populist party that had led the revolution of 1952.
Chile and Bolivia have therefore served as a laboratory for the neo-liberal experiments. But these were exceptions in Latin America until the end of the ‘80s. The turn towards a profiled neo-liberalism begins in 1988 in Mexico with the arrival of President Carlos Salinas de Gortari. It is prolonged with the election in 1989 of Carlos Menem in Argentina and with the beginning of the second presidency of Peru in 1990. None of these governments made it known to the population elected the content of the policies that they were going to apply once they were elected. Menem, Pérez and Fujimori, on the contrary, had promised exactly the opposite measures of the antipopular ones that they will apply in the 80s. As for Salinas, it is public that he would not have been elected if the institutional revolutionary party (PRI) had not organised a massive electoral fraud.
Of the four experiences, three have known an immediate impressive success against hyperinflation – Mexico, Argentina, and Peru and a failure -Venezuela. The difference is important. Indeed, necessary political conditions for a deflation, for a brutal deregulation, for the climbing of the unemployment and for privatisations have been provided by the existence of executives concentrating on enormous power. That has always existed in Mexico thanks to what is practically a one-party system. On the other hand Menem and Fujimori have had to innovate this by urgently instituting legislations, constitutional reforms or doing coups d’etat. This type of authoritarian policy could not be applied in Venezuela.
It would nevertheless be risky to conclude that only authoritarian regimes can impose neo-liberal policies in Latin America. The case of Bolivia where all governments elected after 1985 – that of Paz Zamora or Sanchez Losada – have applied the same programs, shows that the dictatorship as such is not necessarily needed, even if antipopular crackdown measures are taken. The Bolivian experience provides a lesson hyperinflation – with the effect of daily pauperisation for the very large majority of the population – can serve to have people “accept” brutal neo-liberal policy measures, while preserving democratic forms. In 1987, a Brazilian economist, member of an international financial institution, admirer of the Chilean experience of Pinochet, made the confidential statement that the critical problem of Brazil at that moment, under the presidency of Sarney, did not lie on a too high inflation rate, as the officials of the World Bank spread. He claimed that the rate of inflation was too low and told it openly let us hope that the dikes will break. Why? His reply was simple : In Brazil, we need a hyperinflation to create the conditions that push the population to accept a necessary drastic deflationist process for this country. Hyperinflation has begun in Brazil and conditions have been put together to initiate a neo-liberal program without dictatorial instruments…