Neoliberalism and the World Economic

Neoliberalism and the World Economic Crises

Neo-liberalism: Is the current economic crisis a death-knell for neo-liberalism?

After the end of the Cold War, the triumph of capitalism was taken as a given. Not only was communism dead, so was traditional, welfare state social liberalism, historians and politicians alike cried. However, in the wake of the international recession, such 'givens' have been subjected to increasing scrutiny. The economic crisis that took hold of the world in the fall of 2008 was often described as the "end of neo-liberalism" (Kampfe 2009). But although faith in current capitalist norms, unfettered globalization, and deregulation are all curtailed, proclaiming the death of the philosophy known as neo-liberalism seems premature.

Criticisms of neo-liberalism are not new. Even during the time neo-liberal policies were most in vogue, neo-liberalism was not without its critics: "the rich grow richer and the poor grow poorer," was a common lament as social theorists proclaimed it merely a reformulation of 'trickle-down' economics or Adam Smith-style capitalism based upon the idea that eventually prosperity at the highest levels would trickle down to the lowest stratum of society (Martinez & Garcia 2000). But now, even the middle-class members of the developing world draw back in horror at the burgeoning bonuses of CEOs and Wall Street managers who have ruined their companies as well as the necessary bailouts of major industries deemed too big to fail. The mass disgust at the excess and consumption that fueled neo-liberal expansion of both the very wealthy and the upper middle-class has grown. The credit crisis and the helplessness of major financial institutions makes the idea of tax cuts for the highest tiers of society, deregulation of the financial risks companies may take, and the belief that the free market will 'sort itself out' seem suspect.

In contrast, the 1990s was often called a decade-long triumph of neo-liberal dogma. The core principles of neo-liberalism involved liberating "free enterprise or private enterprise from any bonds imposed by the government (the state)" even if this meant economic pain for many workers (Martinez & Garcia 2000). This pain was supposed to be short-term, as in the case of the 'shock therapy' imposed upon the governments of Eastern Europe and the former republics of the Soviet Union. Privatizing industries and functions formerly performed by the state (including utilities and defense contracting), eliminating price controls, encouraging free trade rather than protecting state industries, and making social services more difficult to obtain were all part of the neo-liberal program. Although many of these principles seem conservative, they were called neo-liberal because of the enthusiasm with which they were embraced by many 'liberal' politicians, including Bill Clinton (the architect of both NAFTA and welfare reform in the U.S.) and the 'New Labor' of the United Kingdom. Neo-liberalism was "a strategy to change the relative strengths within the state -- in favor of finance capital, property owners and transnational corporations" (Kampfe 2009).

Liberalism has been equated with political freedom; neo-liberalism was equated with economic freedom. Of course, it could be questioned how 'free' most of the peoples of the world really were under neo-liberal governance. Much of the developing world worked for companies based in the developed world, or to create goods and services for the developed world. Economic polarization between rich and poor grew, and political power shifted along with it -- in a lopsided manner, just as lopsided as the burgeoning growth of the wealthiest and poorest people at the opposite sides of the world's economic continuum.

Globalization was also a cornerstone of neo-liberalism, along with the bolstering of international institutions. But although this opened up new markets and made the world more interconnected or 'flatter,' many nations found themselves less, rather than more in control of their economic fates. For example, the International Monetary Fund (IMF), the World Bank and the Inter-American Development Bank made loans and aid contingent upon developing nations pursuing neo-liberal policies, often to the detriment of many workers. Even in October 2009, the IMF pressured on the South African government "to maintain a budget surplus; and to implement privatization for infrastructure and social needs, including electricity and transport," as well as to maintain current inflation-targeting and raise interest rates….to remove protections against international economic volatility, especially financial and trade rules… [And] the labor ministry to revoke workers' rights in labor markets. This is despite the protection that South Africa's residual capital controls have provided against the global crisis" (Carreon 2009).

Neo-liberal ideology mandated capitalist competition not simply within the government of a particular nation, but for all nations. "A general characteristic of neo-liberalism is the desire to intensify and expand the market, by increasing the number, frequency, repeatability, and formalization of transactions. The ultimate (unreachable) goal of neo-liberalism is a universe where every action of every being is a market transaction, conducted in competition with every other being and influencing every other transaction, with transactions occurring in an infinitely short time, and repeated at an infinitely fast rate. It is no surprise that extreme forms of neo-liberalism, and especially cyberliberalism, overlap with semi-religious beliefs in the interconnectedness of the cosmos" (Treanor 2009). It is no coincidence that neo-liberalism coincided with the cultural connectivity enabled by the World Wide Web, the creation of 24-hour shopping and share trading online, and the desire for mimicking Western lifestyles enabled by the promotion of such lifestyles through the new media. The explosion of an unregulated world market of commerce and information made neo-liberalism far easier to actualize.

But the dangers of a swift news cycle in the Internet age were revealed when stock markets plummeted as soon as news of failing banks was reported. America's credit crisis revived the old adage that when the American economy is sick, the world catches a cold. Even the European Union, once proclaimed as the proudest success of neo-liberalism, has been rife with factionalism now that it too has caught America's credit 'cold.' Within the EU nations with different economic interest struggle to find a solution to revive their economies, going against the harmony prophesized by proponents of economic globalization. While rampant debt spending may seem useful for aiding some of the less developed nations of the EU, more established and fiscally conservative nations such as Germany are reticent about pursuing such a policy that will increase debt and inflation.

Old neoliberal habits and advice die hard, not simply within developed, wealthy nations that have prospered through its ideals but also institutions such as the IMF. The current reaction to the economic crisis, despite Neo-Keynesian gestures such as the stimulus plan in the U.S., has placed relatively mild restrictions capitalist behemoths, rather than letting them be subject to the will of the market: "The neoliberal ideology sees the nation primarily as a business firm, as explained above. The nation-firm is selling itself as an investment location, rather than simply selling export goods. If no-one in government believes in this ideology, it will have no consequences. If however, a neoliberal government is in power, it will pursue policies designed to make the nation more attractive as an investment location. These policies are generally pro-business, and are perceived as such by the opponents of the policies. But remember that the ideology is neo-mercantilist: the policies are national policies, directed ultimately at the welfare of the nation and not of the market" (Treanor 2009). The current government policy has been to improve the financial health of banks and corporations in the interest of the nation, a fundamentally neoliberal idea. The failure of the free market to regulate itself, the idea that sensible fear will limit irrational exuberance has proved false but also according to neoliberal ideology, the nation-as-business must 'shore up' its institutions of commerce first, before individuals.

Government bailouts of industry are not, strictly speaking, purely capitalist in spirit. "Hard-line classic market liberals would shrug their shoulders at the failure of a company and say that it is the nature of the business cycle" (Treanor 2009). Bolstering the major national banks, investment firms, and now car companies are all part of the neoliberal agenda of ensuring an internationally competitive state rather than preserving free market principles as a whole. Although neo-liberalism is not generally protectionist, it will allow a certain amount of protectionism to preserve the integrity of state enterprise and state strength in the free market.

The U.S. And the world may not, in fact, be undergoing as fundamental shift in ideology as some analysts have predicted: "when a booming private capitalism in the U.S. hit a stone wall in 1929, the country shifted over into welfare-state capitalism. When the 1960s and 1970s produced crises in that welfare-state capitalism, the country shifted over to private capitalism (neo-liberalism). Now, after thirty years of globalized private capitalism yield proliferating difficulties, too many leftists have joined the chorus that sees the only solution in yet another swing back to welfare-state capitalism…As forms, private and state capitalism are oscillating phases of the capitalist system. When one phase cannot solve its problems, the solution has been a shift to the other phase. Thus, crises of capitalism have so far avoided provoking the alternative solution of a transition out of capitalism" (Wolffe 2009). Welfare state capitalism is merely one incarnation of capitalism, and neo-liberalism is not such a striking reformation of the capitalist system: it is merely one part of the cycle of managing capitalism without really changing the nature of neoliberal, state-protected capitalism.

While the U.S. government's approach to the crisis may be 'more of the same' of the past twenty years, if not longer, one contrarian view suggests that from a grass-roots level there has been a fundamental shift in terms of the way Americans view prosperity and consumerism, which may have a more fundamental and long-standing effect on the way that corporations function. By reducing spending, Americans have slowed the astounding rate of growth and commercialism of the past twenty years, and by disdaining consumption for the sake of consumption and worship of the ultra-rich as ultra successful, have challenged the neo-liberal notion that success in a hypercompetitive global economy is always deserved. One of the great revelations of recent months has been how rich the 'very rich' really are, and also how little top executive do to deserve their exorbitant salaries and bonuses, compared to average Americans. The demystification of Wall Street and the degree to which the government is complacent in facilitating the growth of enterprise may make Americans far less trusting of politicians who seem overly beholden to the special interests of corporations and may deflate the cache given to entering financial industries.