This will be a bit of a history lesson, but one that I hope I’ve made concise and that you’ll find the overview you’ll gain worth the effort of reading. If you want a clear, accurate lens through which to view what’s happening in our country today, we need an understanding of the recent economic history of the world – otherwise, it’s like trying to guess the size of something with nothing to gauge it against. A proper perspective and context will massively change how you see things.
‘Neoliberal’ is a word I don’t like using, for fear that a lot of people might not know what it means. But sometimes, it’s the easiest shorthand for a hateful worldview and set of values that dominates much economic thinking these days.
So much so that a prominent US neoliberal, Francis Fukuyama, with entirely typical but still staggering arrogance, wrote an essay and later a book titled ‘The End of History’ after the fall of the Soviet Union, basically claiming that the political and economic argument was now over, and the neoliberal, free-market system was the only worldview left standing and always would be. The mindset is less frankly stated these days, but still runs deep and wide, to the extent that many people can’t even imagine another way of seeing the world or another viable economic system.
This mindset, and this lack of imagination, is what has consigned us for years to a system that is based on the vagaries of ‘the markets’, which is about the same as trying to build a jenga tower on the back of a very nervous sheep.
What do neoliberals believe? Neoliberalism refers to an economic system devised primarily by a Chicago-based economist, Milton Friedman. Friedman – who unbelievably received a Nobel prize for economics for his theory – believed that the best way for the world to run is to have absolutely unfettered markets, free to do what they wish, with the minimum of regulation or government interference.
Moreover, he believed that state ownership of anything is bad, private ownership is always best, and that prices and wages should always be allowed to find their own level without government interference. Friedman posited that implementing these policies was best achieved in times of crisis, when the populace would be dazed and ready to believe policies that were clearly designed to rob them were actually for their good. The crisis could just happen, or it could be created – it didn’t matter as long as the neoliberals could take advantage of it There’s more to it, of course, but if you grasp that much about them, you’ve got the key points.
Friedman was reacting, in large part, to the ‘developmentalist’ economic and political system whereby countries controlled their resources and access to their markets in the best interests of their own citizens – the very opposite of globalism, in fact. Developmentalism, implemented by democratically-elected socialist leaders, was causing a steady increase in standard of living in the countries where it operated, with good wages the norm, fair distribution of wealth, decent taxes of corporations and the wealthy, and so on. Friedman hated it – and was able to align it with Cold War objectives and the US fear of Communism to win considerable funding and influence.
Because of Friedman’s worldview, which is embraced with a quasi-religious fervour as incontestible fact, neoliberals will hate the NHS, hate welfare, hate the minimum wage, hate any kind of social safety net and any kind of economic plan that is not based entirely on what’s most profitable, what’s best for ‘the markets’. In effect, these policies add up to a programme of planned misery for the majority of people, with the excuse that it’s ‘good for the economy’, even though such economic ‘recovery’ is of no benefit at all to the vast majority of a country’s inhabitants.
The ruling clique within the Tory party are devoted to a neoliberal worldview. Which in short means the UK is screwed – unless we resist.
Since its inception in the 1950s, numerous countries have been subjected to the neoliberal experiment. Yet in spite of the terrible results of these experiments, the media and politicians have managed the public perception of events so that few have understood. ‘Chicago School’ graduates have taken leading positions in the World Bank, the IMF and many national banks, so that countries with a differing view have faced a united wall of determined neoliberalism ready to strongarm them into toeing the small-state, low-spending, low-taxation line.
So much for the background. Since very few people will be aware of the facts, and of the Big Picture they create, unless you’ve read the outstanding book ‘The Shock Doctrine’ by Naomi Klein, I thought it would be useful to offer a very potted account of the results of neoliberalism – what have been the effects on the countries who operate according to its principles.
Neoliberalism has been foisted on nations via military coup, via fiscal blackmail by the IMF, the World Bank and ‘the markets’, and via a sleight-of-hand pseudo-democratic route (Margaret Thatcher being one such). It’s a versatile system in terms of how it takes power – and entirely ruthless and rigid in what it does when it gets there. So, let’s look at a very brief overview of the results in countries that have suffered it in the last 60 years or so:
Chile
– Democratically-elected President Salvador Allende deposed & murdered by Pinochet (bosom pal of Thatcher) in a military coup.
– Economic reform instituted through terror, with hundreds executed and tens of thousands imprisoned/exiled, to pave the way for the removal of price controls on food and other critical items, followed immediately by massive price rises.
– Slashed wages for all but a small ‘elite’.
– Rapid sell-off of key nationalised industries to private (and usually foreign-owned) corporations.
– Deregulation of finance and markets.
– Rapid enrichment of the ruling elite matched by rapid impoverishment of the middle and working classes.
– Suborning of the media to allow the illegitimate government to propagandise the population.
Brazil
– Military coup
– Complete roll-back of Joao Goulart’s programmes to improve the lot of the poor
– Slashed social spending
– Complete opening of the country to foreign investment and control
– Massive inequality (still the 3rd worst in the world as of 2010!), with massive poverty and the creation of a small, vastly-rich clique
Argentina
– Military coup
– Ban on strikes
– Employers allowed to fire employees at will (Beecroft, anyone?!)
– Price controls that made food affordable abolished
– Massive concentration of wealth in the hands of military leaders & the landed ‘elite’
– 40% wage reduction within first year
– Massive increase in unemployment & poverty, and rise in company profits
– Social security privatised
– Privatisation of utilities left huge parts of the population without water & electricity
Bolivia
– Elimination of food subsidies
– Removal of price controls
– 300% increase in oil & petrol prices
– Massive cuts to government spending
– Abolition of currency & border controls
– State companies downsized then sold
– Banning of strikes
– Massive police action against unions, with leaders imprisoned/exiled
– A shift of all social cost onto the poor
UK
The first ‘developed’ economy to implement neoliberalism, when Thatcher – a Friedman devotee and ardent fan of Chile’s dictator Pinochet.
– War on unions
– Tax-cuts for the rich
– Massive cuts to social spending, including a denuding of the NHS
– Massive deregulation of banks & markets
– A sudden, drastic upswing in income inequality
– Massive sell-off of state utilities and social housing
US
– Thatcher’s kindred spirit Reagan takes power
– Massive tax-cuts for the rich
– Massive cuts in social spending
– Massive increase in income inequality (even sharper than in Thatcher’s UK, with zero real-terms increase for the lower paid in the following almost 3 decades)
– Entrenched impoverishment of large parts of populace
Russia
– Massive concentration of wealth in the hands of a small group of foreign-connected ‘oligarchs’ as state companies sold at knock-down prices
– Increase in people living below the poverty line from 2 million to 74 million in only 8 years with 25% of the population in ‘desperate’ poverty by 1996
– 3.5 million children homeless according to Unicef in 2006
– Massive increase in alcoholism, drug use and a doubling in suicides as people try to escape from the ‘economic miracle’
– Erasure of state structures to allow a ‘capitalist feeding frenzy’
I could also include Indonesia, Iraq, Uruguay and others, and point out that the very same policies are being forced on Greece, Spain, Portugal and Ireland using the same crisis-excuse, while the bankers and corporatists magically still get richer. But for the sake of brevity I won’t go into detail.
If you think some of the symptoms and effects above look familiar, you’re absolutely right. And in each of the examples mentioned above, a political or economic crisis – in many cases a deliberately engineered and talked-up one – was the excuse for the ‘reforms’ imposed to ‘save’ the economy.
The UK’s coalition government, true to its neoliberal values, is doing exactly the same. In spite of voting strongly in favour of Labour’s bail-out measures which are entirely the cause of the UK’s increased national debt, Cameron and co are using the ‘crisis’, blamed squarely on Labour in spite of the hypocrisy of it, as an excuse for the massive deconstruction of our social structures.
Claiming that it’s our social spending on public-sector wages, pensions, the NHS, welfare that is ‘unaffordable’ and has to be slashed to balance the budget, the Tories are carrying out a classic Friedmanite ‘shock therapy’, exploiting the perception of crisis and ignoring the real causes as an excuse for decimating the state and handing out fat tax-cuts to their backers, friends and sponsors.
Once you grasp the context, it’s as plain and unmistakeable as the nose on your face. If we grasp the lesson and the context of history, we can see the neoliberal crisis-tactic it for what it is. If we don’t, we’re doomed to become merely another example in a list that future societies might, or might not learn from.
The Tories in government would love us to be ignorant of the history of their philosophy, and to believe the lie that there’s no other viable economic system that we could possibly implement.
Let’s make sure we disappoint them – and learn from history, rather than repeating it!
Been reading The Shock Doctrine for the last few days. Had some previous knowledge of what happened in Chile, Argentina, etc. but not the full extent of US involvement , Chicago boys, etc. It immediately opened my eyes to the “shock treatment” we are seeing currently in the UK. The pattern is so clear and predictable and absolutely evil. Thanks for your clear summary.
HI, v/well writen.Covers what I have been saying for the past year. There is no crisis in the Brit economy, it is in the Banks,& long may we keep it contained there. There is hope with the NEXT GENERATION VISION that this evil Coalition will be crushed
Thanks for this. I hope you won’t mind me reblogging it. If you do just let me know.
Cheers,
Stuart
Not in the slightest, mate – help yourself!
Hi Steve,
Always nice to read your blog. Although as usual I’m probably going to be the sole right winger to take some issue… sorry!
When Francis Fukuyama penned that essay and book he was clearly taking things too far, there are always alternatives. However I think many people would argue it’s the best system we’ve got. Most of the wealthier nations in the world operate some kind of free market capitalism with varying restrictions from government depending on where you live. Personally I would far rather live in the UK/US with all the opportunities we have than for instance the socialist state of Venezuela or for that matter any of the other far left wing countries out there.
Also had to briefly comment on the person above me, stating there’s no crisis in our economy save for the banks, it may not look like a crisis but we do currently have the highest levels of state spending since the war. Ultimately the state is spending more money than it has coming in from tax revenues, clearly that can’t continue forever as you will run out of money. Or in this case run out of people willing to lend to you. Yes the banks have had a huge crisis and personally I would have allowed RBS to go to the wall, the state rescuing banks is not any kind of capitalism I recognise. However the banks are irrelevant to our public spending problems, which have to be sorted out and every mainstream party recognises that. The question is how do you approach the solution, the Tories want cuts, Labour want cuts at a very slightly slower rate with some government spending to fuel growth. The problem for Labour is the Keynsian economics they are espousing may well boost growth now but they didn’t stick to their cyclical spending plans when in office. Keynsian economics calls for saving in the good times and spending in the bad so you promote growth, the clear issue with that is that during all the good times Labour were in power they never saved they simply accelerated spending which has lead to the huge state sector we now have.
Personally I do agree there needs to be some spending at the moment, the problem is you can’t do this via more borrowing, yes borrowing rates are small right now but even at 2% compound interest soon ratchets up and makes our budget deficit even worse. So what’s the solution? Well I’d argue we have trillions of pounds in private pension funds out there that are being eroded by inflation and the quantitative easing being used by the Bank of England. Let’s have a change in the law and allow pension funds to invest in national infrastructure projects, especially revenue generating ones like say the channel tunnel or the Forth Road Bridge. These long term projects are good for the pension funds who are struggling to find decent long term investments and good for the country as we get many new jobs created and some shiny new whatever it is they build. There’s a lot of money out there so let’s use it to make the country better, a new London airport to solve the Heathrow problem maybe? High speed train network? New Forth Road Bridge? In the future a high speed tunnel to New York? All these things and more are possible so let’s get things moving.
Hi Chris, always a pleasure!
I don’t think it’s the best system we *could* have – there have to be better ways to tax & incentivise business to make its money more ethically, to have more realistic profit expectations and to see a good social structure as something more than worth investing in. I’ve suggested a few, but there are far more qualified people than me and there can’t be a lack of options if we use our imagination.
I agree with you re Keynes. When things are booming, we can better afford to save. But our current government has no clue about that lesson and is only digging us into a deeper hole with every cut it makes in the vain hope that somehow it will increase confidence.
Your idea about the pension funds investing is interesting. But how would they recoup their money? Since pension funds need to grow, they’d have to take out more than they put in, which (as with anything privatised and profit-driven) means it’s more costly than the state doing it and funding it by taxation.
As for the ‘overspending’, I’m sure you won’t be surprised to hear that I don’t think we’re overspending so much as undertaxing. If revenues aren’t sufficient, increase revenues – which takes us back to the first point, I guess. If companies and the wealthy made a proper contribution, spending wouldn’t need to be funded by borrowing in the first place.
Venezuela is an interesting point. You and I might find life better here than there – we’re both doing ok professionally and financially. But if you asked the same question of someone disadvantaged here, would you get the same answer? If they had any knowledge of the differences, maybe not. I’d like to see us build a society that combines opportunity with justice – they don’t have to be mutually-exclusive, but you’d think so sometimes from the way governments behave.
I\’m just dashing out for a meeting but wanted to reply re pension funds, pension funds aren\’t driven to make a profit, simply to payout the pension at the agreed rate (assuming it\’s a DB pension) \’til the last member kicks the bucket as it were. The company and person contribute to the fund the amount needed at todays rate to pay that level of pension but the fund invests its cash effectively to stay ahead of inflation and other issues. Of course sometimes there are problems, such as now when interest rates are nowhere near high enough to outstrip inflation and when quantitative easing is eroding their value. Essentially if there was a return of a few percent for the pension fund in the long term then the investment is well worth doing. Infrastructure like say the channel tunnel which actually generates income is perfect for them as that income covers that return on money. The other way is for the operating company of the piece of infrastructure to pay a rent of some form to the pension fund which would cover that return. Either way it should be a possibility and there are huge sums of money that could be used in this way.
Hope the meeting goes well! Profit or return – you say potato.. lol
Either way it adds up to an extra layer of cost. More so if other companies rent the new infrastructure and add their profit layer. Why not have these things funded via taxation and then the rents, fees, ticket prices etc go to fund more public spending? Profit being made by the Channel Tunnel or the rail companies could be additional revenue if the tunnel was publicly owned and the railways hadn’t been privatised. And the latter are not exactly offering fantastic punctuality, service or ‘efficiency’ with their constant above-inflation price increases, are they?
I don’t actually object to the state running them, I just think its worthwhile having pension funds pay for them as it kills two birds with one stone. The government doesn’t have to borrow which means it doesn’t pay investors the compound interest it otherwise would, so as taxpayers we save money and the pension fund makes a small amount of interest to keep its members (ie normal British OAP’s) in funds. The extra layer of cost, which is fairly minimal is offset by the state saving on the borrowing costs so there’s no losers in the scenario. Frankly considering the HUGE ticking pension timebomb government would be wise to allow them to do this kind of thing anyway, not just private pension funds but funds like the Royal Mail also. (Very interesting article here on one of the problems modern pension funds face http://www.pensions-insight.co.uk/a-uniq-parable/1467531.article )
Agreed our railways are rubbish, though the channel tunnel was a private venture from the beginning. Being fair though I can think of great state owned railway networks around the world and very good privately owned ones, I’m not sure either way is by necessity better but whichever one runs our railways in the future I hope they hurry up and sort it out!
Hi Steve,
Not sure why but I suddenly remembered this post last night when I couldn’t sleep and realised I’d wanted to reply to the Venezuela point and had forgotten!
Well more of a question really and that’s what is the value of opportunity? Lets assume as you say that if you’re disadvantaged and poor, would you prefer to live in Venezuela or the UK? Even if you’re poorer in the UK (which I really don’t believe you would be but hypothetically for my point) wouldn’t you still be better off being slightly poorer but to have the advantage of the opportunity to do better? In other words what value does opportunity add, for myself I would far prefer to be poor in a country where there’s a reasonable chance that through my own hard work and effort I can make a comfortable life rather than to live in a country where all are equally disadvantaged. I’d personally rather see richer people above me doing well and know that I am in a society where I may be able to do the same than one where I know there is an artifical barrier to social mobility.
Yes the two aren’t necessarily mutually exclusive but the constant fixation on the ‘gap’ between rich and poor is for me a misnomer. Poverty is defined by the Government as ‘household income below 60 percent of median income’, for me this is a poor way of defining poverty, certainly not a definition someone coming from an impoverished background in say a struggling African country would recognise. Poverty isn’t or shouldn’t be defined by what others have but by what is a comfortable lifestyle to live ie you have food, water, heat, clothing and shelter. Yes we should strive to make a society where these things are taken for granted and where even the poorest and most vulnerable in our society live without fear of being without any of those staples. Yes I’d like them to also have some of the luxuries of life (though I do object to pushing this too far out of the tax payers pockets) but to have these things without the social mobility behind it is to have a society without hope of doing better.
Hi Chris, you have some good points.However the best one was “there is plenty of money out there”. Sure there is.Stashed away in TAX HAVENS.All your blarney about labour spending 2 much has been proved wrong, so pls don’t spoil a good story. I know there is the money but to spend it NOW on a BRIDGE wud b wrong
The nation needscto be inspired, and the best way to do that is to build Council Houses. It’s infrastructure that has been neglected for decades and has many add-ons that will strech across the nation benefiting everyone. I agree with again. LETS GET ON & DO IT
Money stashed as you say in tax havens isn’t accessible to the UK government though, you can close loopholes and simplify the system but you can’t tax money that’s already left. Nor can you stop tax havens, well not short of invading many smaller nations anyway to stop them doing it, there will always be countries who don’t have income tax or have very low income tax because of their circumstances. The money I was referring to was private money in pension funds that isn’t being used at the moment for much at all, most of it is invested in bonds, gilts etc.
I’m not sure why you think Labour didn’t increase public spending, it’s a simple matter of public record, there’s a graph here of public spending as a percentage of gdp from 1990 to 2010 http://www.ukpublicspending.co.uk/spending_chart_1990_2011UKp_12c1li011mcn_F0t