NEOLIBERALISM: A

FURTHER LOOK
For SOCECON 10 sections ACC, XB, YB (The Contemporary World)
Prepared by Conan Tan
 DEFINITIONS
• Neo-liberalism (David Harvey, 2005)
oLiberal commitment to individual liberty, a belief in the
free market and opposition to state intervention in it
oContemporary advocate: Milton Friedman (Economics
Professor at Chicago University.)
oAgainst: John Maynard Keynes, FDR’s New Deal,
Marxism.
 DEFINITIONS
• Mechanics of Neo-liberalism
oShock Doctrine: A total overhaul of an economy required
a shock.
oExample: Chilean coup (Pinochet), WW2, EDSA PP1.
oInvolves privatization and deregulation.
oThe government is only a “regulator” (e.g. Money supply)
oFreemen but not equal men.
 DEFINITIONS
• Washington Consensus (Cavanagh and Broad. 2007:
1243)
oUnimpeded market forces are engines of growth.
oAbsent was any concern for equity, redistribution, social
issues, and environment.
oThe theory was referred to as the Washington Consensus,
due to its close association with the US.
 DEFINITIONS
• Basic idea of neo-liberalism (William Easterly,
2006: 35)
oAny form of collectivism and state planning destroys
freedom.
oIf there’s freedom, there’s economic success.
o“Permits the decentralized search for success that is the
hallmark of free-markets”
 EASTERLY’S IDEA OF NEOLIBERALISM
• Why economic freedom is related to economic success?
• Why central planning has been an economic failure?
• Answers:
oFIRST: Economic freedom permits a multitude of
attempts and the failures are weeded out. Central
planners can never have nearly as much knowledge as
myriad individuals seeking success and learning from
their failures.
 EASTERLY’S IDEA OF NEOLIBERALISM
• Answers:
oSECOND: Markets offer continuous feedback on what is
succeeding and failing. Central planners lack such feedback.
oTHIRD: Economic freedom leads to the ruthless reallocation of
resources to that which is succeeding. Central planners often have
vested interests that prevent such reallocation.
oFOURTH: Economic freedom permits large and rapid increases
in scale by financial markets and corporate organizations. Central
planners lack the flexibility to make large-scale changes rapidly.
 DEFINITIONS
• Neo-Liberal State (Harvey, 2006: 25)
oThe focus is on those who gain from capital accumulation
–the capitalists.
• Social Democratic State
oEmphasis on the well-being of all, especially through
maintaining something approximating full employment.
CHARACTERISTICS OF NEO-LIBERAL STATES
Democratic Political System: The freedom of
individual to amass great individual wealth (Norberg,
2003)
Low taxes and tax cuts: Believed to stimulate the
economy by encouraging people to earn more, invest
more, and spend more.
CHARACTERISTICS OF NEO-LIBERAL STATES
Tax cuts for business and industry: To invest more in
operations and infrastructures through the tax savings.
In turn, generating more income and profit.
Minimal welfare and safety net spending: To allow
government to cut taxes and spend more on
“productive” undertakings. Without safety net, more
poor will be “forced” to find work. More workers, more
productivity, more profits, better standards of living.
CHARACTERISTICS OF NEO-LIBERAL STATES
• In short, the neo-liberal state has limited government.
• Theory: No government or government agency can do
things as well as the market.
• Proof: Failure of the Soviet Union, Mao’s Great Leap
Forward.
• A less expensive government, one that collects less taxes.
In turn, put more money in the hands of the public.
CHARACTERISTICS OF NEO-LIBERAL STATES
• The neo-liberal state is very interested in:
oPrivatization;
oFree movement of capital;
oReduce barriers of free movement of capital;
oFee competition.
 THOMAS FRIEDMAN

• Robert Antonio sees Thomas Friedman’s work as

offering “what may be the most comprehensive, widely
read defense of neoliberal globalization” (Antonio 2007:
67–83).
• The Lexus and the Olive Tree
• The World is Flat
 THE LEXUS AND THE OLIVE TREE
• In The Lexus and the Olive Tree, Friedman sought to capture the
essence of globalization, especially the tensions associated with
it, in his distinction between the modern automobile (the Lexus)
and the ancient forces (the olive tree) that continue to dominate
much of the world (Friedman 2012).
• While Friedman definitely sees movement toward the Lexus-
model in the global world of today, he argues that there is a need
for a “healthy balance” between it and the model of the olive tree.
 THE LEXUS AND THE OLIVE TREE

• Friedman has a highly positive view of globalization

seeing it as involving the democratization of technology,
finance, and information. Above all else, globalization
marks the triumph of one of the hallmarks of
neoliberalism– free-market capitalism
• When a country recognizes the rules of the free market and
agrees to abide by them, that is, when it accepts
neoliberalism, it dons the “Golden Straitjacket”
 THE LEXUS AND THE OLIVE TREE

• It dons the “Golden Straitjacket” which involves acceptance

of the following ideas:
• the primary engine of economic growth is the private
sector;
• maintenance of a low rate of inflation and price stability;
• reduction of the size of the state bureaucracy;
• lowering or elimination of tariffs on imported goods;
 THE LEXUS AND THE OLIVE TREE

• Golden Straitjacket cont’d:

• elimination of restrictions on foreign investment;
• dropping of quotas;
• elimination of domestic monopolies;
• increase of exports;
• privatization of state-owned industries, utilities;
 THE LEXUS AND THE OLIVE TREE
• deregulation of capital markets;
• making currency convertible;
• opening of industries and stock and bond markets to direct foreign investment and
ownership;
• creation of as much domestic competition as possible by deregulatingt he economy;
• reduction or elimination of government corruption, subsidies, and kickbacks;
• opening of banking and telecommunications to private ownership and to competition;
• allowing citizens to choose among a range of foreign and domestic pension plans and
mutual funds
 THE LEXUS AND THE OLIVE TREE
• Friedman acknowledges that this is a one-size-fits-all model
(neoliberalism is often accused of that) and therefore that some are going
to be “pinched” and “squeezed” by it. But, as a cheerleader for free-
market globalization, Friedman goes no further in his criticisms.
• Those that do not (accept neoliberalism), or do not do so fully, risk the
wrath of the “electronic herd,” especially those like electronic stock,
bond, and currency traders (the electronic herd also includes large
corporations that engage in Foreign Direct Investment), who will flock to
countries that adopt market principles fully, but will flee from those that
do not.
 THE WORLD IS FLAT
• The World is Flat: A Brief History of the Twenty-first
Century(Friedman 2005, 2007) is even better-known and more
influential than Friedman’s earlier book on globalization.
• The central point of this book is that the world has grown
increasingly flat meaning that the barriers and hurdles to
competing successfully in it have declined if not completely
disappeared. In other words, the global playing field has been
increasingly leveled making it possible for more and more people
to play, to compete, and to win.
 THE WORLD IS FLAT
• That Friedman is not just describing a trend, but praising it as well, is clear
when he says that the “world is flattening and rising at the same time” (2005:
231). In other words, all are benefiting from the flat world
• Friedman lists a number of factors, as well as their convergence, in the
emergence of the flat world, as well as in its increasing flatness over time:
1. The end of the Cold War and the destruction of the Berlin Wall.
2. The arrival of IBM personal computers and the Windows operating
system.
3. The coming of Netscape in 1995; the “first broadly popular commercial
browser to surf the Internet” (Friedman 2005: 56).
 THE WORLD IS FLAT
4. The standardization of the way things are digitized and transported on the
Internet so that people can work on the Internet from anywhere and any
computer and communicate to anywhere else and with any other computer.
5. Open-sourcing through self-organizing collaborative communities (e.g. free
software, Linux, Wikipedia).
6. Outsourcing and offshoring leading to new forms of collaboration in widely
scattered locales throughout the world.
7. Supply-chaining, or “a method of collaborating horizontally – among
suppliers, retailers, and customers – to create value” (Friedman 2005: 129).
 THE WORLD IS FLAT
8. Insourcing allows firms, even small firms, to bring in large ones in order to handle
specific functions (e.g., having UPS handle a company’s package delivery). The
playing field is leveled because small firms can have package delivery – or any
other insourced activity – done as well as can huge corporations. At the same time,
the latter can function better by insourcing many of the same functions.
9. In-forming, or the “ability to build and deploy your own personal supply chain – a
supply chain of information, knowledge, and entertainment. Informing is about
self-collaboration – becoming your own self-directed and self-empowered
researcher, editor. . .” (Friedman 2005: 153).
10.New technologies that amplify and turbocharge the flatteners described above
including digital, mobile, personal, and virtual technologies.
 THE END OF HISTORY
• A well-known and wide-ranging argument implies that the
neoliberalism discussed throughout this chapter is the culmination
of history and that no major changes are to be expected in it.
Neoliberalism is not only seen as a good thing, but it is with us for
the foreseeable future, if not forever.
• This argument is to be found in Francis Fukuyama’s (1989, 1992)
“The End of History?”; one of the most controversial essays (and
books) in recent intellectual history. It achieved great notoriety and
was the subject of much discussion, both pro and con.
 THE END OF HISTORY

• Fukuyama suggests a model of economic and political

liberalism that he sees becoming increasingly dominant
throughout the globe. To put it more specifically, liberal
ideas and liberal structures, especially political and
economic, have become increasingly predominant
throughout the world.
• Fukuyama clarifies what he (and Hegel) means by the
“end of history”: (next slide)
 THE END OF HISTORY

• “This did not mean that the natural cycle of birth, life
and death would end, that important events would no
longer happen, or that newspapers reporting them would
cease to be published. It meant rather, that there would
be no further progress in the development of underlying
principles and institutions, because all of the really big
questions had been settled” (Fukuyama 1992: xii).
 THE END OF HISTORY
• Thus, the end of history is the end of big ideas and big
systems built on the basis of those ideas. Many things
continue to happen and to change after the end of history, but
those transformations are never again monumental.
• While this has been a popular argument for many years,
inherent weaknesses of the argument, and recent
developments, have made Fukuyama’s thesis less convincing.
 POLANYI’S CRITICISM OF
NEOLIBERALISM
• Polanyi’s critique of neoliberalism highlights the fact that the
laissez-faire system came into existence through the assistance of
the state. Left to itself, that system threatens to destroy society.
• Indeed, it was such threats, as well as real dangers, that led to
counter-reactions by society and the state (e.g. socialism,
communism, the New Deal) to protect themselves from the
problems of a free market, especially protection of the products
of, and those who labored in, it (Munck 2002a).
 POLANYI’S CRITICISM OF
NEOLIBERALISM
• While economic liberalism saw such counterreactions (including any
form of protectionism) as “mistakes” that disrupted the operation of
the economic markets, Polanyi saw them as necessary and desirable
reactions to the evils of the free market.
• Definitions:
• Laissez faire: policies of nonintervention by the nation-state in
market, trade, or the economy more generally.
• Double movement: Coexistence of the expansion of the laissez
faire market and the reaction against it.
 KARL POLANYI
• Presciently, Polanyi (1944: 145) pointed to “the inherent
absurdity of the idea of a self-regulating market.”
• He also described as mythical the liberal idea that socialists,
communists, New Dealers, and so on were involved in a
conspiracy against liberalism and the free market.
• Rather than being a conspiracy, what took place was a natural,
a “spontaneous,” collective reaction by society and its various
elements that were threatened by the free market.
 KARL POLANYI

• It is interesting to look back on Polanyi’s ideas with the

passage of more than 60 years and especially with the
rise of a global economy dominated by the kind of free-
market system he so feared and despised.
• Polanyi’s hope lay with society and the nation-state, but
they have been rendered far less powerful with the rise
of globalization, especially the global economy.
 CRITICISMS OF NEO-LIBERALISM
• Trickle-down Economics is
a failure.
• Reagan and Thatcher.
 CRITICISMS OF NEO-LIBERALISM
• Produced financial crises in various countries.
• Dismal economic record since it distributed wealth
(from the poor to rich) rather than generating new
wealth.
• Contributed to the degradation of the environment.
• The “shock” doctrine is a failure since there is more
inequality and corruption.
 CRITICISMS OF NEO-LIBERALISM
• Structural adjustment is a failure
oIn order to receive aid from supranatural organizations,
receiving nations had to restructure their economies and
societies in line with neo-liberal theory.
oReceiving nations are expected, among other things, to
put into place tight monetary and fiscal policies, to
liberalize financial markets and trade, to privatize, and to
deregulate.
oExamples: World bank, the International Monetary Fund,
EU GSP+ Grant.
 NEOLIBERALISM IN POST-
COMMUNIST RUSSIA
• After communism has collapsed in the 1990s, the IMF
called for the immediate privatization of all government
industries.
• The IMF assumed that such a move would free these
industries from corrupt bureaucrats and pass them on to
the more dynamic and independent private investors.
 NEOLIBERALISM IN POST-
COMMUNIST RUSSIA
• What happened however, was that only individuals and
groups who had accumulated wealth under the previous
communist order had the money to purchase these
industries.
• This practice has entrenched an oligarchy that still
dominates the Russian economy to this very day.
 DEATH OF NEOLIBERALISM?

• In the wake of the Great Recession, many people called

for, and predicted, the beginning of the end of
neoliberalism.
• Sarkozy argued that “we need to rebuild the whole world
financial and monetary system from scratch.” Accordingly,
scholars have begun to theorize what a post-neoliberal
society might look like (Macdonald and Ruckert 2009;
Peck et al. 2009).
 DEATH OF NEOLIBERALISM?
• But despite the mounting resistance to neoliberalism in the wake of the
Great Recession, many governments have continued their neoliberal
policies.
• the Obama administration continued to staff its cabinet with neoliberal
economists (Leonhardt 2011),
• several European countries have maintained extreme austerity measures
that prioritized deregulation over social welfare (Jolly 2012), and
• “most of the ‘solutions’ to the crisis are in the spirit of neoliberalism,
rather than enraptured by neoliberal spirit” (Aalbers 2013: 1083).