Summary of David Harvey: Neoliberalism as Creative Destruction

David Harvey's essay from the AAPSS (American Academy of Political and Social Science) is a very easy to read piece that clearly and concisely lays out what neoliberalism is, how it came to be and what it entails socially, politically and economically. In a way, it is standard leftist criticism of neoliberalism.

Harvey begins with the claim that "neoliberalism has become a hegemonic discourse with pervasive effects on ways of thought and political- economic practices to the point where it is now part of the commonsense way we interpret, live in, and understand the world." He then contends that is a "project that restores class dominance". In a way, this is a normative claim, one that operates from the tradition of the left.

To the question of what is neoliberalism, Harvey begins by emphasizing the outcome: the maximization of entrepreneurial freedom. Underlying this discourse are values such as private property rights, individual liberty, unencumbered markets and free trade. One can easily trace these ideas to the liberal traditions of Hayek. Delineating the conditions in which states should interfere, Harvey acknowledges that if markets do not exist in areas such as education, health care, social security and environmental pollution, then state action is necessary - but nothing more. State action, thus, can exist with neoliberalism, on the condition that it is kept minimal.

Harvey also acknowledges that this definition of neoliberalism is simply an "ideal type"(not his words). He argues that while actual practices differ from country to country, one can trace an "emphatic turn" towards neoliberalism, notably in the 1980s, during the Thatcher/Reagan era. States such as the Soviet Union, New Zealand, Sweden, postapartheid South Africa and contemporary China have all adapted "some version of neoliberal theory". The "neoliberal mindset" is argued to occupy "positions of considerable influence" such as universities, media, financial institutions, the IMF, and the WTO.

Next, Harvey asks the question of how neoliberalism has become naturalized. The notion of naturalization is defined as a process where "fundamental concepts that become so deeply embedded in commonsense understandings that they are taken for granted and beyond question". He cites, first of all, the inviolable, sacrosanct nature of two principles: "individual liberty and freedom". State non-interference then becomes the natural policy choice if these principles are to be preserved. He notes that the second argument doesn't necessarily follow from the first. Indeed, socialism - or state interference - seeks to achieve individual liberty and freedom as well, from the exploitative grips of capitalists.

Nonetheless, the pursuit for freedom continues. In Iraq, 2003, "freedom" was treated by the Bush administration as the end-in-itself. The exact nature of this freedom is spelt out by Paul Bremer of the Coalition Provisional Authority as "the full privatization of public enterprises, full ownership rights by foreign firms of Iraqi U.S. businesses, full repatriation of foreign profits . . . the opening of Iraq’s banks to foreign control, national treatment for foreign companies and . . . the elimination of nearly all trade barriers." This is neo-liberalism at work. Freedom, taken for granted, translates into neoliberal open-market ideology. Indeed, the right to strike and unions - anchors of socialist freedom - is banned, in this version of freedom.

Harvey also brings our attention to the other great neo-liberal project, Chile after Augusto Pinochet's coup. Supported by Henry Kissinger, all "left-of-centre social movements and political organizations" are violently suppressed, in favour of market reforms. Harvey calls it a "brutal experiment in creative destruction".

So why the neoliberal turn?

Harvey underlines several factors. The oil price hike of the 1970s threatened the dominance of the embedded capitalist model of state intervention. The Bretton woods accord was also abandoned for floating exchange rates. "The preexisting arrangements were exhausted and a new alternative was urgently needed to restart the process of capital accumulation". It is thus through a "series of gyrations and chaotic motions" that resulted in the Washington Consensus of the 1990s. The Washington Consensus is a set of 10 economic policy prescriptions considered to constitute the "standard" reform package promoted for crisis-wracked developing countries by Washington, D.C.–based institutions such as the International Monetary Fund (IMF), World Bank, and the US Treasury Department. It is the ultimate symbol of neoliberalism. To illustrate, I'll reproduce the ten ideologically rich "policy recommendations" in full:

1. Fiscal policy discipline, with avoidance of large fiscal deficits relative to GDP;
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 prudential oversight of financial institutions;
10. Legal security for property rights.

It is also the double whammy of "rising unemployment and inflation" that has led to the notion that a new kinds of policy is needed. Stagflation of the 1970s contributed, to a large extent, to neoliberalism.

An interesting statistics raised by Harvey points out that the "share of the national income taken by the top 1 percent of earners fell from a prewar high of 16 percent to less than 8 percent by the end of the Second World War and stayed close to that level for nearly three decades." This implies that from the 40s to the 70s, there has been less income inequality than the other periods, emphasizing the workings of embedded capitalism, or the "social compromise of capital and labour"(Harvey). Harvey argues that this poses "an economic threat to the positions of the ruling class". Compare this to the following piece of post 80s statistic: "share of the top 1 percent of income earners in the United States soared rapidly to reach 15 percent by the end of the century". So it's a prewar 16%, 8% for 3 decades, and then 15% again after the 80s. The effects of neoliberalism on income inequality is clear.

Class Power

Harvey then moves on to discuss how class power is restored, country by country.

He saw Chile and Argentina, first of all, as a "a swift, brutal, and self-assured military coup backed by the upper classes and the subsequent fierce repression of all solidarities created within the labor and urban social movements that had so threat- ened their power."

The IMF also leads efforts to cut social expenditure, welfare programs and reestablish fiscal probity.

Then there's Thatcher in Britain. He notes that despite efforts, NHS survived, and it is ironically the Labour government of 2004 that introduced a fee to higher education.

The primary focus of Harvey is still on the US, due to its pivotal influence globally. There are a few stages to how neoliberalism became dominant in America. Firstly, Harvey contends that by the 70s, "there was a growing sense among the U.S. upper classes that the antibusiness and anti-imperialist climate that had emerged toward the end of the 1960s had gone too far". Following that is a series of manoeuvres of which I will reproduce here in full.

In a celebrated memo, Lewis Powell (about to be elevated to the Supreme Court by Richard Nixon) urged the American Chamber of Commerce in 1971 to mount a collective campaign to demonstrate that what was good for business was good for America. Shortly thereafter, a shadowy but influential Business Round Table was formed that still exists and plays a significant strategic role in Republican Party politics. Corporate political action committees, legalized under the post-Watergate campaign finance laws of 1974, proliferated like wildfire. With their activities protected under the First Amendment as a form of free speech in a 1976 Supreme Court decision, the systematic capture of the Republican Party as a class instrument of collective (rather than particular or individual) corporate and financial power began. But the Republican Party needed a popular base, and that proved more problematic to achieve. The incorporation of leaders of the Christian right, depicted as a moral majority, together with the Business Round Table provided the solution to that problem. A large segment of a disaffected, insecure, and largely white working class was persuaded to vote consistently against its own material interests on cultural (antiliberal, antiblack, antifeminist and antigay), nationalist and religious grounds. By the mid-1990s, the Republican Party had lost almost all of its liberal elements and become a homogeneous right-wing machine connecting the financial resources of large corporate capital with a populist base, the Moral Majority, that was particularly strong in the U.S. South.

 In a sense, it is due to the business class's exercise of political control and exploitation of the electorate that business interests came to be the ultimate interest of American society.

Secondly, the fiscal crisis of the 1970s became an opportunity for the entrenchment of neoliberal ideologies. The recession of 1973 to 1975 diminished tax revenues at the time of rising social expenditures. Financial institutions which controlled the lines of credit to the government "refused to rollover New York's debt and forced the city to the edge of bankruptcy". The standard "hair trimming" was given to New York: "layoffs, wage freezes, cutbacks in social provision (education, health, transport)". The condition of bailouts entailed the construction of new institutions that had first rights to city tax revenues in order to pay off bond holders, essentially channelling money, at first instance, away from city essential services. Municipal unions were to invest their pension funds in city bonds, to ensure that unions moderate demands to avoid losing their pension funds through city bankruptcy. Harvey viewed such action as a "coup d'etat by financial institutions against the democratically elected government of NYC". This crisis set the template for neoliberal practices, for it established the principle that "in the event of a conflict between the integrity of financial institutions and bondholders on one hand and the well-being of the citizens on the other, the former would be given preference."

Finally, the US transition came also in the form of ideological assault upon the media and educational institutions. "Independent “think tanks” financed by wealthy individuals and corporate donors proliferated", "corporate acquisition of media channels", etc. The purge of Keynesian economists and their replacement by neoliberal monetarists such as Milton Friedman. The G7 as a model that brings capitalists powers together and "forces" all other nations to "submit to their global finance and trading system".

At the same time, movements towards collective negotiation and social solidarities were crushed. Harvey cites Reagan’s destruction of the air traffic controllers (PATCO) in 1980 and Margaret Thatcher’s defeat of the British miners in 1984 as crucial moments in the global turn toward neoliberalism. In a similar way, perhaps, we can identify such "crucial moments" in China's recent history, one of them being Deng's Southern tour, as well as the establishment of the China Stock Market.

In one of the final sections of the paper, Harvey explores the idea of neoliberalism as creative destruction. Citing global growth rates, as slowing down from the 60s from 3.5% to the 1% today, he contends (and this is indeed controversial) that "neoliberalism has broadly failed to stimulate economic growth". He puts forth the claim that neither UK or the US achieved high economic growth rates in the 1980s. However, Harvey turns around later in the paragraph and recognizes that "only in the 1990s that neoliberalism began to pay off for both the US and UK". Surely this only points to the logical conclusion that it takes time for policies to take effect, not that it doesn't work? The empirical arguments in this section is not very useful for it contains surface level economic analysis of key economies such as Germany, Argentina, Japan, Brazil, Mexico. With the lack of detailed social, political and economic analysis, conclusions cannot be easily drawn.

Finally, Harvey lays out four key components of neoliberalism: privitization, financialization, management and manipulation of crises and state redistribution. With apart from state redistribution, which looks at privatization (e.g. Thatcher's privitisation of social housing, privatization of Ejidos in Mexico) and asset transfers (Chinese), none of these are new, so I won't be exploring it further. Obviously, the degree to which these components exist differs across countries, and detailed analysis of each countries' social, political and economic climate through time is necessary for the understanding of how exactly neoliberalism came to be / or came not to be. However, an interesting idea raised in the "manipulation of crises bit" points to how the Fed has the propensity to raise the proportion of foreign earnings that borrowing countries had to put to debt-interest payments, forcing countries into bankruptcy and therefore structural adjustment programs.

The final final section points to alternatives to the current order, which is interesting, especially the bit on the "exploitable contradictions" within the neoliberal agenda:

1. The gap between rhetoric (for the benefit of all) and realization (for the benefit of a small ruling class) increases over space and time, and social movements have done much to focus on that gap. 
2. The idea that the market is about fair competition is increasingly negated by the facts of extraordinary monopoly, centralization, and internationalization on the part of corporate and financial powers. 
3. The startling increase in class and regional inequalities both within states (such as China, Russia, India, Mexico, and in Southern Africa) as well as internationally poses a serious political problem that can no longer be swept under the rug as something transitional on the way to a perfected neoliberal world. 
4. The neoliberal emphasis upon individual rights and the increasingly authoritarian use of state power to sustain the system become a flashpoint of contentiousness.