Globalization - NEOLIBERALISM: AN EXEMPLARY

A number of well-known scholars, especially economists, are associated with neoliberalism

(e.g. Milton Friedman). Here, we begin by briefly examining some of the ideas of one

neoliberal

economist8 – William Easterly – in order to give the reader a better sense of

this perspective from the point of view of one of its supporters.

Easterly is opposed to any form of collectivism and state planning9 because it inhibits, if

not destroys, freedom. To Easterly, freedom, especially economic freedom, is highly correlated

with economic success. This is the case because economic freedom “permits the

decentralized search for success that is the hallmark of free markets” (Easterly 2006a: 35).

Easterly offers several reasons why economic freedom is related to economic success and

why central planning has been an economic failure. First, it is extremely difficult to know in

advance what will succeed and what will fail. Economic freedom permits a multitude of

attempts and the failures are weeded out. Over time, what remains, in the main, are the successes

and they serve to facilitate a high standard of living. Central planners can never have

nearly as much knowledge as myriad individuals seeking success and learning from their

failures and those of others. Second, markets offer continuous feedback on what is succeeding

and failing; central planners lack such feedback. Third, economic freedom leads to the

ruthless reallocation of resources to that which is succeeding; central planners often have

vested interests that prevent such a reallocation. Fourth, 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. Finally, because of sophisticated

contractual protections, individuals and corporations are willing to take great risks; central

planners are risk-averse because of their personal vulnerability if things go wrong.

More generally, neoliberalism as a theory comes in various forms, but all are undergirded

by some or all of the following ideas (Antonio 2007). Great faith is placed in the free market

and its rationality. The market needs to be allowed to operate free of any impediments,

especially those imposed by the nation-state and other political entities. The free operation

of the market will in the “long run” advantage just about everyone and bring about both
improved economic welfare and greater individual freedom (and a democratic political

system). George Soros calls this market fundamentalism, or the idea that “markets will

take care of all our needs.”10 To help bring this about, it is important to champion, support,

and expand a wide range of technological, legal, and institutional arrangements that support

the market and its freedom. The free market is so important to one neoliberal, Johan

Norberg (2003: 16), that he defines capitalism not as “an economic system of capital ownership

and investment opportunities” but rather as “the liberal market economy, with free

competition based on the right to own one’s property and the freedom to negotiate, to

conclude agreements, and to start up business activities.”

The principles of the free market are not restricted to the economy (and the polity) but

can be applied to every sphere of society.

My aim is not for economic transactions to supplant all other human relations. My aim is

freedom

and voluntary relations in all fields. In the cultural arena that means freedom of

expression and of the press. In politics, it means democracy and the rule of law. In social life, it

means the right to live according to one’s own values and to choose one’s own company. And in

the economy, it means capitalism and free markets. (Norberg 2003: 17, italics added)

Some go even further and argue that transactions in every sphere of life should be like those

in the economy. The key to all those transactions is the individual; neoliberalism is radically

individualistic.

Related to the belief in the free market is a parallel belief in free trade. Where there are

restraints on the free market and free trade, the theory leads to a commitment to deregulation

to limit or eliminate such restraints. Thus, for example, a so-called “banana war” has raged

between the European Union and the US over bananas grown in the Caribbean (Myers

2004). The EU maintained a quota system that discriminated in favor of banana imports

from several small Caribbean nations. The US, reflecting the interests of its large corporations

involved in the banana business, saw this as a restraint on free trade and it took the

lead in bringing complaints to GATT (the General Agreement on Tariffs and Trade) and

later the WTO (see Chapter 6). The issue is ongoing, but the fundamental question is
whether restraints and limits on free trade are warranted under certain circumstances.

While neoliberalism argues that there should be no such restrictions, others argue for them.

For example, the Prime Minister of St. Vincent and the Grenadines, small banana-growing

Caribbean islands focally involved in the dispute, said:

The battle is not just about bananas. It is about the readiness of the WTO and the international

trading community to meet the special problems of small island states which have vulnerable

economies and very limited natural resources. Without special help, their economies will inevitably

be destroyed by the juggernaut of free trade. (Gonsalves 2004: x–xi)

There is great belief in the need for the global capitalist system to continue to expand. It is

presumed that such expansion would bring with it increased prosperity and decreased

poverty.

Many of the ideas associated with the neoliberal economy apply to the closely linked

concept of the neoliberal state. In Spaces of Global Capitalism Harvey (2006: 25) gives us a

sense of such a state:

The fundamental mission of the neo-liberal state is to create a “good business climate” and

therefore to optimize conditions for capital accumulation no matter what the consequences for

employment or social well-being. This contrasts with the social democratic state that is

committed

to full employment and the optimization of the well-being of all of its citizens

subject

to the condition of maintaining adequate and stable rates of capital accumulation.

The clear implication of the above is that in either case, the state is subordinated to the

economy, although in the case of the neoliberal state the focus is on those who gain from

capital accumulation (the capitalists), while in social democracy the emphasis is on the wellbeing

of all, especially through maintaining something approximating full employment.

Neoliberals argue that free markets and free trade are linked to a democratic political

system. Thus the political system, especially the freedom of democracy, is associated with

economic well-being and with the freedom of individuals to amass great individual

wealth. According to Norberg (2003: 61; italics added): “No one can doubt that the world
has more than its share of serious problems. The fantastic thing is that the spread of

democracy and capitalism has reduced them so dramatically. Where liberal policies have

been allowed to operate longest, they have made poverty and deprivation the exception

instead of the rule.”

There is a commitment to low taxes and to tax cuts (especially for the wealthy) where

taxes are deemed too high and too burdensome. Low taxes and tax cuts are believed to

stimulate the economy by encouraging people to earn more and ultimately to invest and to

spend more.

Tax cuts for business and industry are also encouraged with the idea that they would use

the tax savings to invest more in their operations and infrastructure, thereby generating

more business, income, and profits. This is seen as benefiting not only them, but society as

a whole. Higher profits would “trickle down” and benefit most people in society.11

Spending on welfare should be minimized and the safety net for the poor should be

minimized.

Such spending and such a welfare system are seen as hurting economic growth

and even as harming the poor (Norberg 2003: 97). Cuts in welfare are designed to reduce

government expenditures and thereby to allow the government to cut taxes and/or to invest

in more “productive” undertakings. It also is presumed that without the safety net more

poor people would be forced to find work, often at minimum wage or with low pay. More

such workers presumably allow companies to increase productivity and profits. Reduction

of the safety net also creates a larger “reserve army”12 that business can draw on in good

economic times in order to expand its workforce.

There is a strong and generalized belief in limited government. The theory is that no

government or government agency can do things as well as the market (the failure of the

Soviet Union is seen as proof of that). Among other things, this leaves a government that is,

at least theoretically, less able, or unable, to intervene in the market. It also presumably

means a less expensive government, one that would need to collect less in taxes. This, in

turn, would put more money in the hands of the public, especially the wealthier members

of society who, in recent years, have benefited most from tax cuts. Wolf (2005: xvii) argues
that the state must not only be limited, but its job is to cooperate with open global markets:

“I am arguing for a better understanding by states of their long-run interest in a co-operative

global economic order.”

The neoliberal state is very interested in privatizing various sectors (e.g. “transportation,

telecommunications, oil and other natural resources, utilities, social housing, education”

[Harvey 2006: 25]) in order to open up these areas for business and profit-making. It seeks

to be sure that those sectors that cannot be privatized are “cost effective” and “accountable.”

It works to allow the free movement of capital among and between economic sectors and

geographic regions within the borders of a given nation-state. The neoliberal state also

works hard to reduce barriers to the free movement of capital across national borders and

to the creation of new global markets.

The neoliberal state extols the virtues of free competition. And it is opposed to, and

works against, groups (e.g. unions, social movements) that operate to restrain business

interests and their efforts to accumulate capital.

In sum, contrary to many observers, Harvey (2006: 28) argues that “neo-liberalism has

not made the state or particular institutions of the state (such as the courts) irrelevant.”

Rather, the institutions and practices of the state have been transformed to better attune

them to the needs and interests of the neoliberal market and economy.

However, the neoliberal state is riddled with internal contradictions. For one thing, its

authoritarianism co-exists uncomfortably with its supposed interest in individual freedom

and democracy. For another, while it is committed to stability, its operations, especially in

support of financial (and other) speculation, leads to increased instability (as is clear from the

Great Recession and austerity measures). Then there is its commitment to competition while it actually
operates on behalf of monopolization. Most generally, there is the contradiction

that its public support for the well-being of everyone is given the lie by its actions in support

of the economic elites.