Neoliberalism


 

Table of Contents

What is Neoliberalism

Examples of Neoliberalism Affecting Systemic Racism

Neo-Liberal Outcomes


What is Neoliberalism

“From the growing wealth inequality in our country, to the Koch Brothers clandestinely funding the tea party movement, to the environmentally collapse of the world’s ecosystems, to the rise of Donald Trump, neoliberalism has been a dominating force in US politics and economics.  Yet most people in this country have never heard to hear this word.

Imagine if the people of the Soviet Union had never heard of communism. The ideology that dominates our lives has, for most of us, no name. Mention it in conversation and you’ll be rewarded with a shrug. Even if your listeners have heard the term before, they will struggle to define it. Neoliberalism: do you know what it is?” George Monbiot – The Guardian

Definitions of neoliberalism

1. A modern politico-economic theory favouring free trade, privatization, minimal government intervention in business, reduced public expenditure on social services, etc
thefreedictionary.com
2. A political theory of the late 1900s holding that personal liberty is maximized by limiting government interference in the operation of free markets. – thefreedictionary.com
3. A policy model of social studies and economics that transfers control of economic factors to the private sector from the public sector. It tends towards free-market capitalism and away from government spending, regulation, and public ownership.
investopedia
“Attempts to limit competition are treated as inimical to liberty. Tax and regulation should be minimised, public services should be privatised. The organisation of labour and collective bargaining by trade unions are portrayed as market distortions that impede the formation of a natural hierarchy of winners and losers. Inequality is recast as virtuous: a reward for utility and a generator of wealth, which trickles down to enrich everyone. Efforts to create a more equal society are both counterproductive and morally corrosive. The market ensures that everyone gets what they deserve.
We internalise and reproduce its creeds. The rich persuade themselves that they acquired their wealth through merit, ignoring the advantages – such as education, inheritance and class – that may have helped to secure it. The poor begin to blame themselves for their failures, even when they can do little to change their circumstances.
After Margaret Thatcher and Ronald Reagan took power, the rest of the package soon followed: massive tax cuts for the rich, the crushing of trade unions, deregulation, privatisation, outsourcing and competition in public services. Through the IMF, the World Bank, the Maastricht treaty and the World Trade Organisation, neoliberal policies were imposed – often without democratic consent – on much of the world.
Freedom from trade unions and collective bargaining means the freedom to suppress wages. Freedom from regulation means the freedom to poison rivers, endanger workers, charge iniquitous rates of interest and design exotic financial instruments. Freedom from tax means freedom from the distribution of wealth that lifts people out of poverty.” George Monbiot: Neoliberalism – the ideology at the root of all our problems

Examples of

  • Free trade
    • Minimal government intervention in business
      • Liberating “free” private enterprise from gov regulations no matter how much social damage it causes
    • Believed if the free market was doing well everyone would be taken care of
      • “Supply-side” and “trickle-down” economics, Reaganomics, laissez-faire
  • Deregulation
    • Reduce any regulation that could decrease profits
      • Including environment, public health, safety, or worker regulation/rights
  • Cutting funding to social services
    • Cuts to education, health care, social safety nets, infrastructure, Austerity programs, etc
      • No problem w/ government subsidies and tax benefits for business
  • Privatization
    • Sell state-owned enterprises, goods and services to private investors
      • banks, key industries, railroads, toll highways, electricity, schools, hospitals, water, public housing
      • Often sold after public disinvestments or after a disaster (disaster capitalism)
  • “Individualism” over “Public Good”
    • Removing society’s responsibility for helping the most vulnerable
      • Everyone is responsible for their own situation, marginalized people are just “lazy”
    • ignores past and present marginalizations that created and preserve our stratified society
  • Transforming “Rights” into “Commodities”
    • Human rights, such as housing, healthcare, water, etc., is a commodity for profit

“Well, “neoliberal” is somebody of any color who sees a social problem and does three things; privatize, financialize and militarize. You’ve got a problem in the schools, privatize the schools, push back public education. Bring in the financiers, the profiteers. Make money on the test, make money on the teachers while you push out the teachers unions, and then you militarize the schools. You bring in security. We’ve got precious young brothers and sisters in the hoods going to schools like you and I going through the airport. That’s the militarization of the schools. Police, the same way. Outsource, militarize right across the board, so that a neoliberal is somebody who is obsessed with markets..” Cornel West

History of Neo-liberalism

  • Economic Liberalism
    • Not to be confused with political liberalism
    • Rose in response to mercantilism and feudalism
    • Wealth of the Nations – 1776
      • published by Adam Smith, a Scottish economist
      • Help spread liberal economics across Europe
    • Advocated polices such as:
      • Opposing government intervention in economic matters
        • No restrictions on manufacturing, no barriers to commerce, no tariffs, etc.
      • Free trade was the best way for a nation’s economy to develop
      • Protection of private property, especially the means of production
      • Encouraged individualism
        • “free” enterprise,” “free” competition, free for capitalists to make huge profits
      • Economic liberalism prevailed in the US through the 1800s and early 1900s
  • Keynesian Economics
    • Created in the 1930s during the Great Depression by economist John Maynard Keynes
    • Challenged liberalism as the best policy for capitalists
    • Believed
      • Full employment is the best way to grow an economy
        • Governments could increase employment
      • Government should advance the common good
      • Influenced New Deal, Great Society, Obama’s stimulus
  • Rise of Neo-liberalism
    • Movement to go back to economic liberalism, despite all the lessons learned
    • Leaders included Chicago School of Economics, Reagan, Milton Friedman (Reagan advisor), Thatcher
    • Spread internationally through Neo-colonialism, Cold War, World Bank, IMF, WTO, trade agreements, etc

“The freedom that neoliberalism offers, which sounds so beguiling when expressed in general terms, turns out to mean freedom for the pike, not for the minnows. Freedom from trade unions and collective bargaining means the freedom to suppress wages. Freedom from regulation means the freedom to poison rivers, endanger workers, charge iniquitous rates of interest and design exotic financial instruments. Freedom from tax means freedom from the distribution of wealth that lifts people out of poverty.” George Monbiot – Guardian

George Monbiot: Neoliberalism – the ideology at the root of all our problems

Financial meltdown, environmental disaster and even the rise of Donald Trump – neoliberalism has played its part in them all. Why has the left failed to come up with an alternative?

Imagine if the people of the Soviet Union had never heard of communism. The ideology that dominates our lives has, for most of us, no name. Mention it in conversation and you’ll be rewarded with a shrug. Even if your listeners have heard the term before, they will struggle to define it. Neoliberalism: do you know what it is?

Its anonymity is both a symptom and cause of its power. It has played a major role in a remarkable variety of crises: the financial meltdown of 2007‑8, the offshoring of wealth and power, of which the Panama Papers offer us merely a glimpse, the slow collapse of public health and education, resurgent child poverty, the epidemic of loneliness, the collapse of ecosystems, the rise of Donald Trump. But we respond to these crises as if they emerge in isolation, apparently unaware that they have all been either catalysed or exacerbated by the same coherent philosophy; a philosophy that has – or had – a name. What greater power can there be than to operate namelessly?

So pervasive has neoliberalism become that we seldom even recognise it as an ideology. We appear to accept the proposition that this utopian, millenarian faith describes a neutral force; a kind of biological law, like Darwin’s theory of evolution. But the philosophy arose as a conscious attempt to reshape human life and shift the locus of power.

Neoliberalism sees competition as the defining characteristic of human relations. It redefines citizens as consumers, whose democratic choices are best exercised by buying and selling, a process that rewards merit and punishes inefficiency. It maintains that “the market” delivers benefits that could never be achieved by planning.

Attempts to limit competition are treated as inimical to liberty. Tax and regulation should be minimised, public services should be privatised. The organisation of labour and collective bargaining by trade unions are portrayed as market distortions that impede the formation of a natural hierarchy of winners and losers. Inequality is recast as virtuous: a reward for utility and a generator of wealth, which trickles down to enrich everyone. Efforts to create a more equal society are both counterproductive and morally corrosive. The market ensures that everyone gets what they deserve.

We internalise and reproduce its creeds. The rich persuade themselves that they acquired their wealth through merit, ignoring the advantages – such as education, inheritance and class – that may have helped to secure it. The poor begin to blame themselves for their failures, even when they can do little to change their circumstances.

Never mind structural unemployment: if you don’t have a job it’s because you are unenterprising. Never mind the impossible costs of housing: if your credit card is maxed out, you’re feckless and improvident. Never mind that your children no longer have a school playing field: if they get fat, it’s your fault. In a world governed by competition, those who fall behind become defined and self-defined as losers.

Among the results, as Paul Verhaeghe documents in his book What About Me? are epidemics of self-harm, eating disorders, depression, loneliness, performance anxiety and social phobia. Perhaps it’s unsurprising that Britain, in which neoliberal ideology has been most rigorously applied, is the loneliness capital of Europe. We are all neoliberals now.

***

The term neoliberalism was coined at a meeting in Paris in 1938. Among the delegates were two men who came to define the ideology, Ludwig von Mises and Friedrich Hayek. Both exiles from Austria, they saw social democracy, exemplified by Franklin Roosevelt’s New Deal and the gradual development of Britain’s welfare state, as manifestations of a collectivism that occupied the same spectrum as nazism and communism.

In The Road to Serfdom, published in 1944, Hayek argued that government planning, by crushing individualism, would lead inexorably to totalitarian control. Like Mises’s book Bureaucracy, The Road to Serfdom was widely read. It came to the attention of some very wealthy people, who saw in the philosophy an opportunity to free themselves from regulation and tax. When, in 1947, Hayek founded the first organisation that would spread the doctrine of neoliberalism – the Mont Pelerin Society – it was supported financially by millionaires and their foundations.

With their help, he began to create what Daniel Stedman Jones describes in Masters of the Universe as “a kind of neoliberal international”: a transatlantic network of academics, businessmen, journalists and activists. The movement’s rich backers funded a series of thinktanks which would refine and promote the ideology. Among them were the American Enterprise Institute, the Heritage Foundation, the Cato Institute, the Institute of Economic Affairs, the Centre for Policy Studies and the Adam Smith Institute. They also financed academic positions and departments, particularly at the universities of Chicago and Virginia.

As it evolved, neoliberalism became more strident. Hayek’s view that governments should regulate competition to prevent monopolies from forming gave way – among American apostles such as Milton Friedman – to the belief that monopoly power could be seen as a reward for efficiency.

Something else happened during this transition: the movement lost its name. In 1951, Friedman was happy to describe himself as a neoliberal. But soon after that, the term began to disappear. Stranger still, even as the ideology became crisper and the movement more coherent, the lost name was not replaced by any common alternative.

At first, despite its lavish funding, neoliberalism remained at the margins. The postwar consensus was almost universal: John Maynard Keynes’s economic prescriptions were widely applied, full employment and the relief of poverty were common goals in the US and much of western Europe, top rates of tax were high and governments sought social outcomes without embarrassment, developing new public services and safety nets.

But in the 1970s, when Keynesian policies began to fall apart and economic crises struck on both sides of the Atlantic, neoliberal ideas began to enter the mainstream. As Friedman remarked, “when the time came that you had to change … there was an alternative ready there to be picked up”. With the help of sympathetic journalists and political advisers, elements of neoliberalism, especially its prescriptions for monetary policy, were adopted by Jimmy Carter’s administration in the US and Jim Callaghan’s government in Britain.

After Margaret Thatcher and Ronald Reagan took power, the rest of the package soon followed: massive tax cuts for the rich, the crushing of trade unions, deregulation, privatisation, outsourcing and competition in public services. Through the IMF, the World Bank, the Maastricht treaty and the World Trade Organisation, neoliberal policies were imposed – often without democratic consent – on much of the world. Most remarkable was its adoption among parties that once belonged to the left: Labour and the Democrats, for example. As Stedman Jones notes, “it is hard to think of another utopia to have been as fully realised.”

***

It may seem strange that a doctrine promising choice and freedom should have been promoted with the slogan “there is no alternative”. But, as Hayek remarked on a visit to Pinochet’s Chile – one of the first nations in which the programme was comprehensively applied – “my personal preference leans toward a liberal dictatorship rather than toward a democratic government devoid of liberalism”. The freedom that neoliberalism offers, which sounds so beguiling when expressed in general terms, turns out to mean freedom for the pike, not for the minnows.

Freedom from trade unions and collective bargaining means the freedom to suppress wages. Freedom from regulation means the freedom to poison rivers, endanger workers, charge iniquitous rates of interest and design exotic financial instruments. Freedom from tax means freedom from the distribution of wealth that lifts people out of poverty.

Naomi Klein
Naomi Klein documented that neoliberals advocated the use of crises to impose unpopular policies while people were distracted. Photograph: Anya Chibis/The Guardian

As Naomi Klein documents in The Shock Doctrine, neoliberal theorists advocated the use of crises to impose unpopular policies while people were distracted: for example, in the aftermath of Pinochet’s coup, the Iraq war and Hurricane Katrina, which Friedman described as “an opportunity to radically reform the educational system” in New Orleans.

Where neoliberal policies cannot be imposed domestically, they are imposed internationally, through trade treaties incorporating “investor-state dispute settlement”: offshore tribunals in which corporations can press for the removal of social and environmental protections. When parliaments have voted to restrict sales of cigarettes, protect water supplies from mining companies, freeze energy bills or prevent pharmaceutical firms from ripping off the state, corporations have sued, often successfully. Democracy is reduced to theatre.

Another paradox of neoliberalism is that universal competition relies upon universal quantification and comparison. The result is that workers, job-seekers and public services of every kind are subject to a pettifogging, stifling regime of assessment and monitoring, designed to identify the winners and punish the losers. The doctrine that Von Mises proposed would free us from the bureaucratic nightmare of central planning has instead created one.

Neoliberalism was not conceived as a self-serving racket, but it rapidly became one. Economic growth has been markedly slower in the neoliberal era (since 1980 in Britain and the US) than it was in the preceding decades; but not for the very rich. Inequality in the distribution of both income and wealth, after 60 years of decline, rose rapidly in this era, due to the smashing of trade unions, tax reductions, rising rents, privatisation and deregulation.

The privatisation or marketisation of public services such as energy, water, trains, health, education, roads and prisons has enabled corporations to set up tollbooths in front of essential assets and charge rent, either to citizens or to government, for their use. Rent is another term for unearned income. When you pay an inflated price for a train ticket, only part of the fare compensates the operators for the money they spend on fuel, wages, rolling stock and other outlays. The rest reflects the fact that they have you over a barrel.

Carlos Slim In Mexico, Carlos Slim was granted control of almost all phone services and soon became the world’s richest man. Photograph: Henry Romero/Reuters

Those who own and run the UK’s privatised or semi-privatised services make stupendous fortunes by investing little and charging much. In Russia and India, oligarchs acquired state assets through firesales. In Mexico, Carlos Slim was granted control of almost all landline and mobile phone services and soon became the world’s richest man.

Financialisation, as Andrew Sayer notes in Why We Can’t Afford the Rich, has had a similar impact. “Like rent,” he argues, “interest is … unearned income that accrues without any effort”. As the poor become poorer and the rich become richer, the rich acquire increasing control over another crucial asset: money. Interest payments, overwhelmingly, are a transfer of money from the poor to the rich. As property prices and the withdrawal of state funding load people with debt (think of the switch from student grants to student loans), the banks and their executives clean up.

Sayer argues that the past four decades have been characterised by a transfer of wealth not only from the poor to the rich, but within the ranks of the wealthy: from those who make their money by producing new goods or services to those who make their money by controlling existing assets and harvesting rent, interest or capital gains. Earned income has been supplanted by unearned income.

Neoliberal policies are everywhere beset by market failures. Not only are the banks too big to fail, but so are the corporations now charged with delivering public services. As Tony Judt pointed out in Ill Fares the Land, Hayek forgot that vital national services cannot be allowed to collapse, which means that competition cannot run its course. Business takes the profits, the state keeps the risk.

The greater the failure, the more extreme the ideology becomes. Governments use neoliberal crises as both excuse and opportunity to cut taxes, privatise remaining public services, rip holes in the social safety net, deregulate corporations and re-regulate citizens. The self-hating state now sinks its teeth into every organ of the public sector.

Perhaps the most dangerous impact of neoliberalism is not the economic crises it has caused, but the political crisis. As the domain of the state is reduced, our ability to change the course of our lives through voting also contracts. Instead, neoliberal theory asserts, people can exercise choice through spending. But some have more to spend than others: in the great consumer or shareholder democracy, votes are not equally distributed. The result is a disempowerment of the poor and middle. As parties of the right and former left adopt similar neoliberal policies, disempowerment turns to disenfranchisement. Large numbers of people have been shed from politics.

Donald TrumpSlogans, symbols and sensation … Donald Trump. Photograph: Aaron Josefczyk/Reuters

Chris Hedges remarks that “fascist movements build their base not from the politically active but the politically inactive, the ‘losers’ who feel, often correctly, they have no voice or role to play in the political establishment”. When political debate no longer speaks to us, people become responsive instead to slogans, symbols and sensation. To the admirers of Trump, for example, facts and arguments appear irrelevant.

Judt explained that when the thick mesh of interactions between people and the state has been reduced to nothing but authority and obedience, the only remaining force that binds us is state power. The totalitarianism Hayek feared is more likely to emerge when governments, having lost the moral authority that arises from the delivery of public services, are reduced to “cajoling, threatening and ultimately coercing people to obey them”.

***

Like communism, neoliberalism is the God that failed. But the zombie doctrine staggers on, and one of the reasons is its anonymity. Or rather, a cluster of anonymities.

The invisible doctrine of the invisible hand is promoted by invisible backers. Slowly, very slowly, we have begun to discover the names of a few of them. We find that the Institute of Economic Affairs, which has argued forcefully in the media against the further regulation of the tobacco industry, has been secretly funded by British American Tobacco since 1963. We discover that Charles and David Koch, two of the richest men in the world, founded the institute that set up the Tea Party movement. We find that Charles Koch, in establishing one of his thinktanks, noted that “in order to avoid undesirable criticism, how the organisation is controlled and directed should not be widely advertised”.

The words used by neoliberalism often conceal more than they elucidate. “The market” sounds like a natural system that might bear upon us equally, like gravity or atmospheric pressure. But it is fraught with power relations. What “the market wants” tends to mean what corporations and their bosses want. “Investment”, as Sayer notes, means two quite different things. One is the funding of productive and socially useful activities, the other is the purchase of existing assets to milk them for rent, interest, dividends and capital gains. Using the same word for different activities “camouflages the sources of wealth”, leading us to confuse wealth extraction with wealth creation.

A century ago, the nouveau riche were disparaged by those who had inherited their money. Entrepreneurs sought social acceptance by passing themselves off as rentiers. Today, the relationship has been reversed: the rentiers and inheritors style themselves entrepreneurs. They claim to have earned their unearned income.

These anonymities and confusions mesh with the namelessness and placelessness of modern capitalism: the franchise model which ensures that workers do not know for whom they toil; the companies registered through a network of offshore secrecy regimes so complex that even the police cannot discover the beneficial owners; the tax arrangements that bamboozle governments; the financial products no one understands.

The anonymity of neoliberalism is fiercely guarded. Those who are influenced by Hayek, Mises and Friedman tend to reject the term, maintaining – with some justice – that it is used today only pejoratively. But they offer us no substitute. Some describe themselves as classical liberals or libertarians, but these descriptions are both misleading and curiously self-effacing, as they suggest that there is nothing novel about The Road to Serfdom, Bureaucracy or Friedman’s classic work, Capitalism and Freedom.

***

For all that, there is something admirable about the neoliberal project, at least in its early stages. It was a distinctive, innovative philosophy promoted by a coherent network of thinkers and activists with a clear plan of action. It was patient and persistent. The Road to Serfdom became the path to power.

Neoliberalism’s triumph also reflects the failure of the left. When laissez-faire economics led to catastrophe in 1929, Keynes devised a comprehensive economic theory to replace it. When Keynesian demand management hit the buffers in the 70s, there was an alternative ready. But when neoliberalism fell apart in 2008 there was … nothing. This is why the zombie walks. The left and centre have produced no new general framework of economic thought for 80 years.

Every invocation of Lord Keynes is an admission of failure. To propose Keynesian solutions to the crises of the 21st century is to ignore three obvious problems. It is hard to mobilise people around old ideas; the flaws exposed in the 70s have not gone away; and, most importantly, they have nothing to say about our gravest predicament: the environmental crisis. Keynesianism works by stimulating consumer demand to promote economic growth. Consumer demand and economic growth are the motors of environmental destruction.

What the history of both Keynesianism and neoliberalism show is that it’s not enough to oppose a broken system. A coherent alternative has to be proposed. For Labour, the Democrats and the wider left, the central task should be to develop an economic Apollo programme, a conscious attempt to design a new system, tailored to the demands of the 21st century.

American Prospect: Neoliberalism: Political Success, Economic Failure

The invisible hand is more like a thumb on the scale for the world’s elites. That’s why market fundamentalism has been unmasked as bogus economics but keeps winning politically.

 

Since the late 1970s, we’ve had a grand experiment to test the claim that free markets really do work best. This resurrection occurred despite the practical failure of laissez-faire in the 1930s, the resulting humiliation of free-market theory, and the contrasting success of managed capitalism during the three-decade postwar boom.

Yet when growth faltered in the 1970s, libertarian economic theory got another turn at bat. This revival proved extremely convenient for the conservatives who came to power in the 1980s. The neoliberal counterrevolution, in theory and policy, has reversed or undermined nearly every aspect of managed capitalism—from progressive taxation, welfare transfers, and antitrust, to the empowerment of workers and the regulation of banks and other major industries.

Neoliberalism’s premise is that free markets can regulate themselves; that government is inherently incompetent, captive to special interests, and an intrusion on the efficiency of the market; that in distributive terms, market outcomes are basically deserved; and that redistribution creates perverse incentives by punishing the economy’s winners and rewarding its losers. So government should get out of the market’s way.

By the 1990s, even moderate liberals had been converted to the belief that social objectives can be achieved by harnessing the power of markets. Intermittent periods of governance by Democratic presidents slowed but did not reverse the slide to neoliberal policy and doctrine. The corporate wing of the Democratic Party approved.

Now, after nearly half a century, the verdict is in. Virtually every one of these policies has failed, even on their own terms. Enterprise has been richly rewarded, taxes have been cut, and regulation reduced or privatized. The economy is vastly more unequal, yet economic growth is slower and more chaotic than during the era of managed capitalism. Deregulation has produced not salutary competition, but market concentration. Economic power has resulted in feedback loops of political power, in which elites make rules that bolster further concentration.

The culprit isn’t just “markets”—some impersonal force that somehow got loose again. This is a story of power using theory. The mixed economy was undone by economic elites, who revised rules for their own benefit. They invested heavily in friendly theorists to bless this shift as sound and necessary economics, and friendly politicians to put those theories into practice.

Recent years have seen two spectacular cases of market mispricing with devastating consequences: the near-depression of 2008 and irreversible climate change. The economic collapse of 2008 was the result of the deregulation of finance. It cost the real U.S. economy upwards of $15 trillion (and vastly more globally), depending on how you count, far more than any conceivable efficiency gain that might be credited to financial innovation. Free-market theory presumes that innovation is necessarily benign. But much of the financial engineering of the deregulatory era was self-serving, opaque, and corrupt—the opposite of an efficient and transparent market.

The existential threat of global climate change reflects the incompetence of markets to accurately price carbon and the escalating costs of pollution. The British economist Nicholas Stern has aptly termed the worsening climate catastrophe history’s greatest case of market failure. Here again, this is not just the result of failed theory. The entrenched political power of extractive industries and their political allies influences the rules and the market price of carbon. This is less an invisible hand than a thumb on the scale. The premise of efficient markets provides useful cover.

The grand neoliberal experiment of the past 40 years has demonstrated that markets in fact do not regulate themselves. Managed markets turn out to be more equitable and more efficient. Yet the theory and practical influence of neoliberalism marches splendidly on, because it is so useful to society’s most powerful people—as a scholarly veneer to what would otherwise be a raw power grab. The British political economist Colin Crouch captured this anomaly in a book nicely titled The Strange Non-Death of Neoliberalism. Why did neoliberalism not die? As Crouch observed, neoliberalism failed both as theory and as policy, but succeeded superbly as power politics for economic elites.

The neoliberal ascendance has had another calamitous cost—to democratic legitimacy. As government ceased to buffer market forces, daily life has become more of a struggle for ordinary people. The elements of a decent middle-class life are elusive—reliable jobs and careers, adequate pensions, secure medical care, affordable housing, and college that doesn’t require a lifetime of debt. Meanwhile, life has become ever sweeter for economic elites, whose income and wealth have pulled away and whose loyalty to place, neighbor, and nation has become more contingent and less reliable.

Large numbers of people, in turn, have given up on the promise of affirmative government, and on democracy itself. After the Berlin Wall came down in 1989, ours was widely billed as an era when triumphant liberal capitalism would march hand in hand with liberal democracy. But in a few brief decades, the ostensibly secure regime of liberal democracy has collapsed in nation after nation, with echoes of the 1930s.

As the great political historian Karl Polanyi warned, when markets overwhelm society, ordinary people often turn to tyrants. In regimes that border on neofascist, klepto-capitalists get along just fine with dictators, undermining the neoliberal premise of capitalism and democracy as complements. Several authoritarian thugs, playing on tribal nationalism as the antidote to capitalist cosmopolitanism, are surprisingly popular.

It’s also important to appreciate that neoliberalism is not laissez-faire. Classically, the premise of a “free market” is that government simply gets out of the way. This is nonsensical, since all markets are creatures of rules, most fundamentally rules defining property, but also rules defining credit, debt, and bankruptcy; rules defining patents, trademarks, and copyrights; rules defining terms of labor; and so on. Even deregulation requires rules. In Polanyi’s words, “laissez-faire was planned.”

The political question is who gets to make the rules, and for whose benefit. The neoliberalism of Friedrich Hayek and Milton Friedman invoked free markets, but in practice the neoliberal regime has promoted rules created by and for private owners of capital, to keep democratic government from asserting rules of fair competition or countervailing social interests. The regime has rules protecting pharmaceutical giants from the right of consumers to import prescription drugs or to benefit from generics. The rules of competition and intellectual property generally have been tilted to protect incumbents. Rules of bankruptcy have been tilted in favor of creditors. Deceptive mortgages require elaborate rules, written by the financial sector and then enforced by government. Patent rules have allowed agribusiness and giant chemical companies like Monsanto to take over much of agriculture—the opposite of open markets. Industry has invented rules requiring employees and consumers to submit to binding arbitration and to relinquish a range of statutory and common-law rights.

Neoliberalism as Theory, Policy, and Power

It’s worth taking a moment to unpack the term “neoliberalism.” The coinage can be confusing to American ears because the “liberal” part refers not to the word’s ordinary American usage, meaning moderately left-of-center, but to classical economic liberalism otherwise known as free-market economics. The “neo” part refers to the reassertion of the claim that the laissez-faire model of the economy was basically correct after all.

Few proponents of these views embraced the term neoliberal. Mostly, they called themselves free-market conservatives. “Neoliberal” was a coinage used mainly by their critics, sometimes as a neutral descriptive term, sometimes as an epithet. The use became widespread in the era of Margaret Thatcher and Ronald Reagan.

To add to the confusion, a different and partly overlapping usage was advanced in the 1970s by the group around the Washington Monthly magazine. They used “neoliberal” to mean a new, less statist form of American liberalism. Around the same time, the term neoconservative was used as a self-description by former liberals who embraced conservatism, on cultural, racial, economic, and foreign-policy grounds. Neoconservatives were neoliberals in economics.

Beginning in the 1970s, resurrected free-market theory was interwoven with both conservative politics and significant investments in the production of theorists and policy intellectuals. This occurred not just in well-known conservative think tanks such as the American Enterprise Institute, Heritage, Cato, and the Manhattan Institute, but through more insidious investments in academia. Lavishly funded centers and tenured chairs were underwritten by the Olin, Scaife, Bradley, and other far-right foundations to promote such variants of free-market theory as law and economics, public choice, rational choice, cost-benefit analysis, maximize-shareholder-value, and kindred schools of thought. These theories colonized several academic disciplines. All were variations on the claim that markets worked and that government should get out of the way.

Each of these bodies of sub-theory relied upon its own variant of neoliberal ideology. An intensified version of the theory of comparative advantage was used not just to cut tariffs but to use globalization as all-purpose deregulation. The theory of maximizing shareholder value was deployed to undermine the entire range of financial regulation and workers’ rights. Cost-benefit analysis, emphasizing costs and discounting benefits, was used to discredit a good deal of health, safety, and environmental regulation. Public choice theory, associated with the economist James Buchanan and an entire ensuing school of economics and political science, was used to impeach democracy itself, on the premise that policies were hopelessly afflicted by “rent-seekers” and “free-riders.”

Market failure was dismissed as a rare special case; government failure was said to be ubiquitous. Theorists worked hand in glove with lobbyists and with public officials. But in every major case where neoliberal theory generated policy, the result was political success and economic failure.

For example, supply-side economics became the justification for tax cuts, on the premise that taxes punished enterprise. Supposedly, if taxes were cut, especially taxes on capital and on income from capital, the resulting spur to economic activity would be so potent that deficits would be far less than predicted by “static” economic projections, and perhaps even pay for themselves. There have been six rounds of this experiment, from the tax cuts sponsored by Jimmy Carter in 1978 to the immense 2017 Tax Cuts and Jobs Act signed by Donald Trump. In every case some economic stimulus did result, mainly from the Keynesian jolt to demand, but in every case deficits increased significantly. Conservatives simply stopped caring about deficits. The tax cuts were often inefficient as well as inequitable, since the loopholes steered investment to tax-favored uses rather than the most economically logical ones. Dozens of America’s most profitable corporations paid no taxes.

Robert Bork’s “antitrust paradox,” holding that antitrust enforcement actually weakened competition, was used as the doctrine to sideline the Sherman and Clayton Acts. Supposedly, if government just got out of the way, market forces would remain more competitive because monopoly pricing would invite innovation and new entrants to the market. In practice, industry after industry became more heavily concentrated. Incumbents got in the habit of buying out innovators or using their market power to crush them. This pattern is especially insidious in the tech economy of platform monopolies, where giants that provide platforms, such as Google and Amazon, use their market power and superior access to customer data to out-compete rivals who use their platforms. Markets, once again, require rules beyond the benign competence of the market actors themselves. Only democratic government can set equitable rules. And when democracy falters, undemocratic governments in cahoots with corrupt private plutocrats will make the rules.

Human capital theory, another variant of neoliberal application of markets to partly social questions, justified deregulating labor markets and crushing labor unions. Unions supposedly used their power to get workers paid more than their market worth. Likewise minimum wage laws. But the era of depressed wages has actually seen a decline in rates of productivity growth. Conversely, does any serious person think that the inflated pay of the financial moguls who crashed the economy accurately reflects their contribution to economic activity? In the case of hedge funds and private equity, the high incomes of fund sponsors are the result of transfers of wealth and income from employees, other stakeholders, and operating companies to the fund managers, not the fruits of more efficient management.

There is a broad literature discrediting this body of pseudo-scholarly work in great detail. Much of neoliberalism represents the ever-reliable victory of assumption over evidence. Yet neoliberal theory lived on because it was so convenient for elites, and because of the inertial power of the intellectual capital that had been created. The well-funded neoliberal habitat has provided comfortable careers for two generations of scholars and pseudo-scholars who migrate between academia, think tanks, K Street, op-ed pages, government, Wall Street, and back again. So even if the theory has been demolished both by scholarly rebuttal and by events, it thrives in powerful institutions and among their political allies.

The Practical Failure of Neoliberal Policies

Financial deregulation is neoliberalism’s most palpable deregulatory failure, but far from the only one. Electricity deregulation on balance has increased monopoly power and raised costs to consumers, but has failed to offer meaningful “shopping around” opportunities to bring down prices. We have gone from regulated monopolies with predictable earnings, costs, wages, and consumer protections to deregulated monopolies or oligopolies with substantial pricing power. Since the Bell breakup, the telephone system tells a similar story of re-concentration, dwindling competition, price-gouging, and union-bashing.

Air travel has been a poster child for advocates of deregulation, but the actual record is mixed at best. Airline deregulation produced serial bankruptcies of every major U.S. airline, often at the cost of worker pay and pension funds. Ticket prices have declined on average over the past two decades, but the traveling public suffers from a crazy quilt of fares, declining service, shrinking seats and legroom, and exorbitant penalties for the perfectly normal sin of having to change plans. Studies have shown that fares actually declined at a faster rate in the 20 years before deregulation in 1978 than in the 20 years afterward, because the prime source of greater efficiency in airline travel is the introduction of more fuel-efficient planes. The roller-coaster experience of airline profits and losses has reduced the capacity of airlines to purchase more fuel-efficient aircraft, and the average age of the fleet keeps increasing. The use of “fortress hubs” to defend market pricing power has reduced the percentage of nonstop flights, the most efficient way to fly from one point to another.

Charles Tasnadi/AP Photo

Robert Bork’s spurious arguments that antitrust enforcement hurt competition became the basis for dismantling antitrust. Massive concentration resulted. 

In addition to deregulation, three prime areas of practical neoliberal policies are the use of vouchers as “market-like” means to social goals, the privatization of public services, and the use of tax subsides rather than direct outlays. In every case, government revenues are involved, so this is far from a free market to begin with. But the premise is that market disciplines can achieve public purposes more efficiently than direct public provision.

The evidence provides small comfort for these claims. One core problem is that the programs invariably give too much to the for-profit middlemen at the expense of the intended beneficiaries. A related problem is that the process of using vouchers and contracts invites corruption. It is a different form of “rent-seeking”—pursuit of monopoly profits—than that attributed to government by public choice theorists, but corruption nonetheless. Often, direct public provision is far more transparent and accountable than a web of contractors.

A further problem is that in practice there is often far less competition than imagined, because of oligopoly power, vendor lock-in, and vendor political influence. These experiments in marketization to serve social goals do not operate in some Platonic policy laboratory, where the only objective is true market efficiency yoked to the public good. They operate in the grubby world of practical politics, where the vendors are closely allied with conservative politicians whose purposes may be to discredit social transfers entirely, or to reward corporate allies, or to benefit from kickbacks either directly or as campaign contributions.

Privatized prisons are a case in point. A few large, scandal-ridden companies have gotten most of the contracts, often through political influence. Far from bringing better quality and management efficiency, they have profited by diverting operating funds and worsening conditions that were already deplorable, and finding new ways to charge inmates higher fees for necessary services such as phone calls. To the extent that money was actually saved, most of the savings came from reducing the pay and professionalism of guards, increasing overcrowding, and decreasing already inadequate budgets for food and medical care.

A similar example is the privatization of transportation services such as highways and even parking meters. In several Midwestern states, toll roads have been sold to private vendors. The governor who makes the deal gains a temporary fiscal windfall, while drivers end up paying higher tolls often for decades. Investment bankers who broker the deal also take their cut. Some of the money does go into highway improvements, but that could have been done more efficiently in the traditional way via direct public ownership and competitive bidding.

Housing vouchers substantially reward landlords who use the vouchers to fill empty houses with poor people until the neighborhood gentrifies, at which point the owner is free to quit the program and charge market rentals. Thus public funds are used to underwrite a privately owned, quasi-social housing sector—whose social character is only temporary. No permanent social housing is produced despite the extensive public outlay. The companion use of tax incentives to attract passive investment in affordable housing promotes economically inefficient tax shelters, and shunts public funds into the pockets of the investors—money that might otherwise have gone directly to the housing.

The Affordable Care Act is a form of voucher. But the regulated private insurance markets in the ACA have not fully lived up to their promise, in part because of the extensive market power retained by private insurers and in part because the right has relentlessly sought to sabotage the program—another political feedback loop. The sponsors assumed that competition would lower costs and increase consumer choice. But in too many counties, there are three or fewer competing plans, and in some cases just one.

As more insurance plans and hospital systems become for-profit, massive investment goes into such wasteful activities as manipulation of billing, “risk selection,” and other gaming of the rules. Our mixed-market system of health care requires massive regulation to work with tolerable efficiency. In practice, this degenerates into an infinite regress of regulator versus commercial profit-maximizer, reminiscent of Mad magazine’s “Spy versus Spy,” with the industry doing end runs to Congress to further rig the rules. Straight-ahead public insurance such as Medicare is generally far more efficient.

An extensive literature has demonstrated that for-profit voucher schools do no better and often do worse than comparable public schools, and are vulnerable to multiple forms of gaming and corruption. Proprietors of voucher schools are superb at finding ways of excluding costly special-needs students, so that those costs are imposed on what remains of public schools; they excel at gaming test results. While some voucher and charter schools, especially nonprofit ones, sometimes improve on average school performance, so do many public schools. The record is also muddied by the fact that many ostensibly nonprofit schools contract out management to for-profit companies.

Tax preferences have long been used ostensibly to serve social goals. The Earned Income Tax Credit is considered one of the more successful cases of using market-like measures—in this case a refundable tax credit—to achieve the social goal of increasing worker take-home pay. It has also been touted as the rare case of bipartisan collaboration. Liberals get more money for workers. Conservatives get to reward the deserving poor, since the EITC is conditioned on employment. Conservatives get a further ideological win, since the EITC is effectively a wage subsidy from the government, but is experienced as a tax refund rather than a benefit of government.

Recent research, however, shows that the EITC is primarily a subsidy of low-wage employers, who are able to pay their workers a lot less than a market-clearing wage. In industries such as nursing homes or warehouses, where many workers qualified for the EITC work side by side with ones not eligible, the non-EITC workers get substandard wages. The existence of the EITC depresses the level of the wages that have to come out of the employer’s pocket.

Neoliberalism’s Influence on Liberals

As free-market theory resurged, many moderate liberals embraced these policies. In the inflationary 1970s, regulation became a scapegoat that supposedly deterred salutary price competition. Some, such as economist Alfred Kahn, President Carter’s adviser on deregulation, supported deregulation on what he saw as the merits. Other moderates supported neoliberal policies opportunistically, to curry favor with powerful industries and donors. Market-like policies were also embraced by liberals as a tactical way to find common ground with conservatives.

Several forms of deregulation—of airlines, trucking, and electric power—began not under Reagan but under Carter. Financial deregulation took off under Bill Clinton. Democratic presidents, as much as Republicans, promoted trade deals that undermined social standards. Cost-benefit analysis by the Office of Information and Regulatory Affairs (OIRA) was more of a choke point under Barack Obama than under George W. Bush.

“Command and control” became an all-purpose pejorative for disparaging perfectly sensible and efficient regulation. “Market-like” became a fashionable concept, not just on the free-market right but on the moderate left. Cass Sunstein, who served as Obama’s anti-regulation czar,uses the example of “nudges” as a more market-like and hence superior alternative to direct regulation, though with rare exceptions their impact is trivial. Moreover, nudges only work in tandem with regulation.

There are indeed some interventionist policies that use market incentives to serve social goals. But contrary to free-market theory, the market-like incentives first require substantial regulation and are not a substitute for it. A good example is the Clean Air Act Amendments of 1990, which used tradable emission rights to cut the output of sulfur dioxide, the cause of acid rain. This was supported by both the George H.W. Bush administration and by leading Democrats. But before the trading regime could work, Congress first had to establish permissible ceilings on sulfur dioxide output—pure command and control.

There are many other instances, such as nutrition labeling, truth-in-lending, and disclosure of EPA gas mileage results, where the market-like premise of a better-informed consumer complements command regulation but is no substitute for it. Nearly all of the increase in fuel efficiency, for example, is the result of command regulations that require auto fleets to hit a gas mileage target. The fact that EPA gas mileage figures are prominently disclosed on new car stickers may have modest influence, but motor fuels are so underpriced that car companies have success selling gas-guzzlers despite the consumer labeling.

J. Scott Applewhite/AP Images

Bill Clinton and his Treasury Secretary, Robert Rubin, were big promoters of financial deregulation. 

Politically, whatever rationale there was for liberals to make common ground with libertarians is now largely gone. The authors of the 2017 Tax Cuts and Jobs Act made no attempt to meet Democrats partway; they excluded the opposition from the legislative process entirely. This was opportunistic tax cutting for elites, pure and simple. The right today also abandoned the quest for a middle ground on environmental policy, on anti-poverty policy, on health policy—on virtually everything. Neoliberal ideology did its historic job of weakening intellectual and popular support for the proposition that affirmative government can better the lives of citizens and that the Democratic Party is a reliable steward of that social compact. Since Reagan, the right’s embrace of the free market has evolved from partly principled idealism into pure opportunism and obstruction.

Neoliberalism and Hyper-Globalism

The post-1990 rules of globalization, supported by conservatives and moderate liberals alike, are the quintessence of neoliberalism. At Bretton Woods in 1944, the use of fixed exchange rates and controls on speculative private capital, plus the creation of the IMFand World Bank, were intended to allow member countries to practice national forms of managed capitalism, insulated from the destructive and deflationary influences of short-term speculative private capital flows. As doctrine and power shifted in the 1970s, the IMF, the World Bank, and later the WTO, which replaced the old GATT, mutated into their ideological opposite. Rather than instruments of support for mixed national economies, they became enforcers of neoliberal policies.

The standard package of the “Washington Consensus” of approved policies for developing nations included demands that they open their capital markets to speculative private finance, as well as cutting taxes on capital, weakening social transfers, and gutting labor regulation and public ownership. But private capital investment in poor countries proved to be fickle. The result was often excessive inflows during the boom part of the cycle and punitive withdrawals during the bust—the opposite of the patient, long-term development capital that these countries needed and that was provided by the World Bank of an earlier era. During the bust phase, the IMFtypically imposes even more stringent neoliberal demands as the price of financial bailouts, including perverse budgetary austerity, supposedly to restore the confidence of the very speculative capital markets responsible for the boom-bust cycle.

Dozens of nations, from Latin America to East Asia, went through this cycle of boom, bust, and then IMF pile-on. Greece is still suffering the impact. After 1990, hyper-globalism also included trade treaties whose terms favored multinational corporations. Traditionally, trade agreements had been mainly about reciprocal reductions of tariffs. Nations were free to have whatever brand of regulation, public investment, or social policies they chose. With the advent of the WTO, many policies other than tariffs were branded as trade distorting, even as takings without compensation. Trade deals were used to give foreign capital free access and to dismantle national regulation and public ownership. Special courts were created in which foreign corporations and investors could do end runs around national authorities to challenge regulation for impeding commerce.

At first, the sponsors of the new trade regime tried to claim the successful economies of East Asia as evidence of the success of the neoliberal recipe. Supposedly, these nations had succeeded by pursuing “export-led growth,” exposing their domestic economies to salutary competition. But these claims were soon exposed as the opposite of what had actually occurred. In fact, Japan, South Korea, smaller Asian nations, and above all China had thrived by rejecting every major tenet of neoliberalism. Their capital markets were tightly regulated and insulated from foreign speculative capital. They developed world-class industries as state-led cartels that favored domestic production and supply. East Asia got into trouble only when it followed IMFdictates to throw open capital markets, and in the aftermath they recovered by closing those markets and assembling war chests of hard currency so that they’d never again have to go begging to the IMF. Enthusiasts of hyper-globalization also claimed that it benefited poor countries by increasing export opportunities, but as the success of East Asia shows, there is more than one way to boost exports—and many poorer countries suffered under the terms of the global neoliberal regime.

Nor was the damage confined to the developing world. As the work of Harvard economist Dani Rodrik has demonstrated, democracy requires a polity. For better or for worse, the polity and democratic citizenship are national. By enhancing the global market at the expense of the democratic state, the current brand of hyper-globalization deliberately weakens the capacity of states to regulate markets, and weakens democracy itself.

When Do Markets Work?

The failure of neoliberalism as economic and social policy does not mean that markets never work. A command economy is even more utopian and perverse than a neoliberal one. The practical quest is for an efficient and equitable middle ground.

The neoliberal story of how the economy operates assumes a largely frictionless marketplace, where prices are set by supply and demand, and the price mechanism allocates resources to their optimal use in the economy as a whole. For this discipline to work as advertised, however, there can be no market power, competition must be plentiful, sellers and buyers must have roughly equal information, and there can be no significant externalities. Much of the 20th century was practical proof that these conditions did not describe a good part of the actual economy. And if markets priced things wrong, the market system did not aggregate to an efficient equilibrium, and depressions could become self-deepening. As Keynes demonstrated, only a massive jolt of government spending could restart the engines, even if market pricing was partly violated in the process.

Nonetheless, in many sectors of the economy, the process of buying and selling is close enough to the textbook conditions of perfect competition that the price system works tolerably well. Supermarkets, for instance, deliver roughly accurate prices because of the consumer’s freedom and knowledge to shop around. Likewise much of retailing. However, when we get into major realms of the economy with positive or negative externalities, such as education and health, markets are not sufficient. And in other major realms, such as pharmaceuticals, where corporations use their political power to rig the terms of patents, the market doesn’t produce a cure.

The basic argument of neoliberalism can fit on a bumper sticker. Markets work; governments don’t. If you want to embellish that story, there are two corollaries: Markets embody human freedom. And with markets, people basically get what they deserve; to alter market outcomes is to spoil the poor and punish the productive. That conclusion logically flows from the premise that markets are efficient. Milton Friedman became rich, famous, and influential by teasing out the several implications of these simple premises.

It is much harder to articulate the case for a mixed economy than the case for free markets, precisely because the mixed economy is mixed. The rebuttal takes several paragraphs. The more complex story holds that markets are substantially efficient in some realms but far from efficient in others, because of positive and negative externalities, the tendency of financial markets to create cycles of boom and bust, the intersection of self-interest and corruption, the asymmetry of information between company and consumer, the asymmetry of power between corporation and employee, the power of the powerful to rig the rules, and the fact that there are realms of human life (the right to vote, human liberty, security of one’s person) that should not be marketized.

And if markets are not perfectly efficient, then distributive questions are partly political choices. Some societies pay pre-K teachers the minimum wage as glorified babysitters. Others educate and compensate them as professionals. There is no “correct” market-derived wage, because pre-kindergarten is a social good and the issue of how to train and compensate teachers is a social choice, not a market choice. The same is true of the other human services, including medicine. Nor is there a theoretically correct set of rules for patents, trademarks, and copyrights. These are politically derived, either balancing the interests of innovation with those of diffusion—or being politically captured by incumbent industries.

Governments can in principle improve on market outcomes via regulation, but that fact is complicated by the risk of regulatory capture. So another issue that arises is market failure versus polity failure, which brings us back to the urgency of strong democracy and effective government.

After Neoliberalism

The political reversal of neoliberalism can only come through practical politics and policies that demonstrate how government often can serve citizens more equitably and efficiently than markets. Revision of theory will take care of itself. There is no shortage of dissenting theorists and empirical policy researchers whose scholarly work has been vindicated by events. What they need is not more theory but more influence, both in the academy and in the corridors of power. They are available to advise a new progressive administration, ifthat administration can get elected and if it refrains from hiring neoliberal advisers.

There are also some relatively new areas that invite policy innovation. These include regulation of privacy rights versus entrepreneurial liberties in the digital realm; how to think of the internet as a common carrier; how to update competition and antitrust policy as platform monopolies exert new forms of market power; how to modernize labor-market policy in the era of the gig economy; and the role of deeper income supplements as machines replace human workers.

The failed neoliberal experiment also makes the case not just for better-regulated capitalism but for direct public alternatives as well. Banking, done properly, especially the provision of mortgage finance, is close to a public utility. Much of it could be public. A great deal of research is done more honestly and more cost-effectively in public, peer-reviewed institutions such as the NIHthan by a substantially corrupt private pharmaceutical industry. Social housing often is more cost-effective than so-called public-private partnerships. Public power is more efficient to generate, less prone to monopolistic price-gouging, and friendlier to the needed green transition than private power. The public option in health care is far more efficient than the current crazy quilt in which each layer of complexity adds opacity and cost. Public provision does require public oversight, but that is more straightforward and transparent than the byzantine dance of regulation and counter-regulation.

The two other benefits of direct public provision are that the public gets direct evidence of government delivering something of value, and that the countervailing power of democracy to harness markets is enhanced. A mixed economy depends above all on a strong democracy—one even stronger than the democracy that succumbed to the corrupting influence of economic elites and their neoliberal intellectual allies beginning half a century ago. The antidote to the resurrected neoliberal fable is the resurrection of democracy—strong enough to tame the market in a way that tames it for keeps.

Read Further

Investopia: Neoliberalism

: Neoliberalism has brought out the worst in us

Guardian: Neoliberalism: the deep story that lies beneath Donald Trump’s triumph

Guardian: It was the Democrats’ embrace of neoliberalism that won it for Trump

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Examples of Neoliberalism Affecting Systemic Racism

Reagan Disinvestments

  • Reagan drastically divested in welfare, HUD, social safety net programs, and public health programs
    • While increasing military budget/rich tax breaks (income, capital gains, estate)
      • Lowered top tax rate from 70% to 28%, while increasing payroll taxes/starting Social Security Tax
    • Cuts were especially focused on programs helping urban settings
    • Started a divestment trend that continued for decades
  • Cuts
    • 500,000 lost eligibility for Aid to Families with Dependent Children
    • A million children lost reduced-price school lunches
    • 600,000 people lost Medicaid
    • Million lost food stamps
    • WIC could only serve 1/3 of those eligible
    • 500,000 lost eligibility for Aid to Families with Dependent Children
    • 250 community health centers
    • 294 urban hospitals and 309 rural hospitals
    • One million Native Americans lost access to Indian Health Service care
  • Impacts
    • Launched an epidemic of homelessness and a public health crisis
    • Significantly increased income inequality still being felt
    • increase in infant mortality
    • increase in preventable childhood diseases
    • 15% of the population lacked health insurance
    • Significantly hurt gov agencies ability to handle HIV, coli outbreaks and crack epidemic
    • 2% increase in the total poverty rate
    • 3% increase in number of children in poverty
    • Between 1982-85, poorest Americans lost 9% of their wealth
      • while the wealthiest gained 9%
  • Disproportionately felt by people of color
    • Life-expectancy-at-birth of black Americans decreased

”If only every church took care of 10 welfare families, there would be no poverty problem.’’ Reagan 1982

Further Readings

Timeline: Here’s what happened when Reagan went after healthcare programs. It’s not good.

2008 Great Recession

  • Most significant economic downturn since Great Depression
    • In 1933 the Glass-Steagall Act was passed separating commercial and investment banking, to prevent future depressions
    • Repealed in 1999 by Republican congress/President Clinton in an effort to expand neo-liberal free market investments
    • 8 years later, unregulated toxic mortgage lending and shady investment practices caused a massive recession
  • Approximate Effects of Great Recession
    • 4 million homes were foreclosed each year of the Great Recession
    • 7 million jobs
    • American households lost roughly $16 trillion
    • 5 million businesses were shuttered
  • 2010, President Obama signed Dodd-Frank Act giving gov some regulatory power over the financial sector
    • GOP are currently fighting to curb/overturn Dodd-Frank Act
  • Effects disproportionately felt by people of color
    • Blacks and Latinos households were 2.4x more likely to receive a subprime loan
    • Black and Latino households were nearly 50% more likely to face foreclosure

Privatization of Public Services into Commodities 2nd Half of 20th Century

  • Public Housing
    • Urban Renewal/Highway programs (1950-70s), Reagan/Bush cuts to HUD, Clinton’s HOPE VI (1990s), Obama’s RAD
      • All programs and polices that “renewed” and “privatized” public housing, often while displacing thousands of people
  • Healthcare
    • 1980s Reagan starts massive defunding of public health programs
      • pushes individual responsibility for health
  • Schools
    • 1950s Milton Friedman advocates free market “school choice”
      • First school vouchers used to avoid desegregation
    • 1980s Reagan starts modern push for “school vouchers”
  • Prisons
    • 1980s created modern private prisons to handle War on Drugs
      • First contract in 1984 to Corrections Corporation of America (CCA)

The rise of neoliberal institutions

  • Funded by the people like the Koch Brothers, who stand to gain the most, by attacking anything that opposes neoliberal ideology from issues like climate change to financial regulations

American Enterprise Institute
The Heritage Foundation
The Cato Institute
The Institute of Economic Affairs
The Centre for Policy Studies
The Adam Smith Institute

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Neo-Liberal Outcomes

  • Increases in
    • Wealth inequality
    • Political corruption
      • Rich tax breaks
    • Homelessness
    • Debt
    • Systemic racism
  • Decreases in
    • Wages
    • human, worker, environment rights
    • Pubic health
    • Education
    • Affordable housing
    • Political accountability

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Gini Index

  • measure of inequality of wealth
    • 0 is most equal
    • 1 is least equal

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Class Reductionism

“To ignore the fact that one of the oldest republics in the world was erected on a foundation of white supremacy, to pretend that the problems of a dual society (black vs white) are the same as the problems of unregulated capitalism, is to cover the sin of national plunder with the sin of national lying. The lie ignores the fact that reducing American poverty and ending white supremacy are not the same. The lie ignores the fact that closing the “achievement gap” will do nothing to close the “injury gap” Ta-Nehisi Coates

  • If the US solve its class warfare problem this country would still have:
    • Institutions that pay white men more than women and people of color
    • Unconscious implicit racism that are more likely to hire white names on resumes and shoot black people during traffic stops
    • Centuries of systemic racism and housing discrimination that has created enormous wealth disparities that will be felt for generations
    • Some of the worst segregation/spatial racism in our history
  • Class reductionists
    • people who believe economic equality is cure-all for societal ills, and would neglect policy prescriptions which seek to remedy identity-based disparities

“…race and class are so interwoven that any political project that aims to resolve one while ignoring the other does a disservice to both” Briahna Gray – Intercept

Robert Reich: Why Taxes Have to Be Raised on the Rich

Further Reading

The Guardian: Neoliberalism is creating loneliness. That’s what’s wrenching society apart

Fast Company: Are You Ready To Consider That Capitalism Is The Real Problem?

 

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Market Watch: Three decades of neoliberal policies have decimated the middle class, our economy, and our democracy

NEW YORK (Project Syndicate) – Three years ago, President Donald Trump’s election and the United Kingdom’s Brexit referendum confirmed what those of us who have long studied income statistics already knew: in most advanced countries, the market economy has been failing large swaths of society.

Nowhere is this truer than in the United States. Long regarded as a poster child for the promise of free-market individualism, America today has higher inequality and less upward social mobility than most other developed countries.

Reversing this malaise requires that we figure out what went wrong and chart a new course forward, by embracing progressive capitalism, which, while acknowledging the virtues of the market, also recognizes its limitations and ensures that the economy works for the benefit of everyone.

After rising for a century, average life expectancy in the U.S. is now declining. And for those in the bottom 90% of the income distribution, real (inflation-adjusted) wages have stagnated: the income of a typical male worker today is around where it was 40 years ago.

Meanwhile, many European countries have sought to emulate America, and those that succeeded, particularly the U.K., are now suffering similar political and social consequences.

The U.S. may have been the first country to create a middle-class society, but Europe was never far behind. After World War II, in many ways it outperformed the U.S. in creating opportunities for its citizens. Through a variety of policies, European countries created the modern welfare state to provide social protection and pursue important investments in areas where the market on its own would underspend.

The European social model, as it came to be known, served these countries well for decades. European governments were able to keep inequality in check and maintain economic stability in the face of globalization, technological change, and other disruptive forces. When the 2008 financial crisis and subsequent euro crisis erupted, the European countries with the strongest welfare states, particularly the Scandinavian countries, fared the best.

Contrary to what many in the financial sector would like to think, the problem was not too much state involvement in the economy, but too little. Both crises were the direct result of an under-regulated financial sector.

Now, the middle class is being hollowed out on both sides of the Atlantic.

Reversing this malaise requires that we figure out what went wrong and chart a new course forward, by embracing progressive capitalism, which, while acknowledging the virtues of the market, also recognizes its limitations and ensures that the economy works for the benefit of everyone.

We cannot simply return to the golden age of Western capitalism in the decades after World War II, when a middle-class lifestyle seemed within reach of a majority of citizens. Nor would we necessarily want to. After all, the “American dream” during this period was mostly reserved for a privileged minority: white males.

We can thank former President Ronald Reagan and former British Prime Minister Margaret Thatcher for our current state of affairs. The neoliberal reforms of the 1980s were based on the idea that unfettered markets would bring shared prosperity through a mystical trickle-down process.

We were told that lowering tax rates on the rich, financialization, and globalization would result in higher standards of living for everybody. Instead, the U.S. growth rate fell to around two-thirds of its level in the post-war era — a period of tight financial regulations and a top marginal tax rate consistently above 70% — and a greater share of the wealth and income from this limited growth was funneled to the top 1%.

Instead of the promised prosperity, we got deindustrialization, polarization, and a shrinking middle class. Unless we change the script, these patterns will continue — or worsen.

Fortunately, there is an alternative to market fundamentalism.

Through a pragmatic rebalancing of power between government, markets, and civil society, we can move toward a freer, fairer, and more productive system. Progressive capitalism means forging a new social contract between voters and elected officials, workers and corporations, rich and poor.

To make a middle-class standard of living a realistic goal once again for most Americans and Europeans, markets must serve society, rather than vice versa.

Invasion of the wealth snatchers

Unlike neoliberalism, progressive capitalism is based on a proper understanding of how value is created today. The true and sustainable wealth of nations comes not from exploiting countries, natural resources, and people, but from human ingenuity and cooperation, often facilitated by governments and civil-society institutions.

Since the second half of the eighteenth century, productivity-enhancing innovation has been the real driver of dynamism and higher living standards.

The rapid economic progress inaugurated by the Industrial Revolution, following centuries of near stagnation, rests on two pillars. The first is science, through which we can apprehend the world around us. The second is social organization, which allows us to be more productive working together than we ever could be on our own.

Over time, institutions such as the rule of law, democracies with systems of checks and balances, and universal standards and norms have strengthened both pillars.

On brief reflection, it should be obvious that these are the sources of material prosperity. And yet wealth creation is often confused with wealth extraction. Individuals and corporations can become rich by relying on market power, price discrimination, and other forms of exploitation. But that does not mean they have made any contribution to the wealth of society.

On the contrary, such behavior often leaves everyone else worse off overall. Economists refer to these wealth snatchers, who seek to grab a larger share of the economic pie than they create, as rent-seekers. The term originated from land rents: those who received them did so not as a result of their own efforts, but simply as a consequence of ownership, often inherited.

Such harmful behavior is especially prevalent in the U.S. economy, where more and more sectors have come to be dominated by just a few firms. These mega-corporations have used their market power to enrich themselves at the expense of everyone else. By charging higher prices, they have effectively lowered consumers’ living standards.

With the help of new technologies, they can — and do — engage in mass discrimination, such that prices are set not by the market (finding the single price that equates demand and supply), but by algorithmic determinations of the maximum each customer is willing to pay.

At the same time, U.S. corporations have used the threat of offshoring to drive down domestic wages. And when that hasn’t sufficed, they have lobbied pliant politicians to weaken workers’ bargaining power further.

These efforts have proved effective: the share of workers who belong to unions has fallen across most advanced economies, but especially in the U.S., and the share of income going to workers has declined precipitously.

No excuses

While advances in technology and emerging-market growth have certainly played some role in the decline of the middle class, they are of secondary importance to economic policy.

We know this because the same factors have had different effects across countries. The rise of China and technological change have been felt everywhere, but the U.S. has significantly higher inequality and less social mobility than many other countries, such as Norway.

Likewise, where financial deregulation has gone the furthest, so have financial-sector abuses such as market manipulation, predatory lending, and excessive credit-card fees.

Or consider Trump’s obsession with trade agreements.

Insofar as U.S. workers have been ill-served by policy makers, it is not because trade negotiators from developing countries outsmarted U.S. negotiators. In fact, the U.S. usually gets almost everything it asks for.

The problem is that what it asks for reflects the interests of U.S. corporations, not of ordinary citizens.

And as bad as things are now, they are about to get worse. Consider America’s income inequality.

Already, artificial intelligence and robotization are being hailed as the engines of future growth. But under the prevailing policy and regulatory framework, many people will lose their jobs, with little help from government to find new ones. Autonomous vehicles alone will deprive millions of their livelihood.

At the same time, our tech giants are doing what they can to deprive government of the ability to respond, and not just by campaigning for lowering taxes: They are demonstrating the same genius in avoiding taxes and exploiting consumers that they previously showed in developing cutting-edge innovations.

Moreover, they have shown little, if any, regard for people’s privacy. Their business models and behavior are effectively exempt from oversight.

Still, there is hope in the fact that our economic dysfunction is the result of our own policies. Some countries facing these same global forces have adopted policies that have led to dynamic economies in which ordinary citizens have prospered.

Through progressive-capitalist reforms, we can start to restore economic dynamism and ensure equality and opportunity for all. The top priority should be to curb exploitation and encourage wealth creation, and this can best — or only — be done by people working together, especially through government.

The indispensable state

Whatever form wealth-snatching takes — from the abuse of market power and information asymmetries to profiting from environmental degradation — there are specific policies and regulations that could both prevent the worst outcomes and yield far-reaching economic and social benefits. Having fewer people die from air pollution, drug overdoses, and “deaths of despair,” will mean having more people who contribute productively to society.

Regulation has had a bad name since Reagan and Thatcher made it synonymous with “red tape.” But regulation often improves efficiency. Anyone living in a city knows that without stoplights — a simple “regulation” governing the flow of cars through an intersection — we would live in perpetual gridlock. Without air quality standards, the smog in Los Angeles and London would be worse than the air in Beijing and Delhi.

The private sector would never take it upon itself to curb pollution. Just ask Volkswagen VW, +1.95%  .

Trump and the lobbyists he has appointed to dismantle the U.S. government are doing everything they can to strip away regulations protecting the environment, public health, and even the economy.

For more than four decades after the Great Depression, a strong regulatory framework prevented financial crises, until it came to be seen, in the 1980s, as “stifling” innovation. With the first wave of deregulation came the savings and loan crisis, followed by more deregulation and the dot-com bubble in the 1990s, and then the global financial crisis in 2008.

At that point, countries around the world tried to rewrite the rules to prevent a recurrence. But now the Trump administration is doing what it can to reverse that progress.

So, too, the antitrust regulations implemented to ensure that markets work like they are supposed to — competitively — have been stripped back. By curbing rent-seeking, anticompetitive practices, and other abuses, we would improve efficiency, increase production, and spur more investment.

Better still, we would free up resources for activities that actually improve well being. If fewer of our best students went into banking, perhaps more would go into research. The challenges in both are great, but one is focused on taking advantage of others, the other on adding to what we know and to what we can do.

And, because the burden of exploitation tends to weigh most heavily on those at the bottom of the economic pyramid, we would reduce inequality and strengthen the fabric of American society.

As the term implies, progressive capitalism recognizes both the power and the limitations of markets. It is simply a fact that, left to its own devices, the private sector will always produce too much of some things, like pollution, and too little of others, like basic research, which is the taproot of innovation and economic dynamism.

Government has a central role to play not just in restraining the private sector from doing what it shouldn’t, but in encouraging it to do what it should. And through collective action — through government — we can do things that we couldn’t do alone and which the market on its own won’t.

Defense is the obvious example, but the large-scale innovations — such as the creation of the internet and the Human Genome Project — are examples of public expenditures that have transformed our lives. Nor will the private sector ever provide many of the universal services that are the basis of any decent society.

The reason the U.S. government created Social Security, Medicare, Medicaid, and unemployment and disability insurance is that entrepreneurs and corporations would not provide these essential services, or did so with unacceptable costs and restraints (such as denial of health insurance to those with pre-existing conditions).

And in many of these areas, the government has proved to be more efficient than the private sector. Social Security’s administrative costs are a fraction of those for private retirement plans, and Social Security covers a broader array of risks, such as those associated with inflation.

Our only option

The kind of common sense regulations and reforms I have described are necessary to restore growth and to bring a middle-class life back into reach for most Americans and Europeans.

But they are not sufficient. What we need is a new twenty-first-century social contract to ensure that all citizens are guaranteed access to health care, education, security in retirement, affordable housing, and a decent job with decent pay.

Many countries have already shown that discrete elements of this social contract are achievable.

The U.S., after all, stands alone among developed countries in not recognizing health care as a basic human right. Ironically, while the U.S. spends more on health care — both per capita and as a share of gross domestic product — than any other developed country, its predominantly private system delivers worse outcomes. U.S. life expectancy is barely higher than that of Costa Rica, a middle-income country with one-fifth the per capita GDP of America.

The U.S. pays a high price for these failures, the costs of which will most likely continue to grow over time.

The labor-force participation rate for prime-age men is at historic lows, and the rate for women has begun to decline, too. Many of those who have left the labor market are suffering from chronic health problems and are taking prescription pain medications, contributing to the opioid crisis that has come to define Trump’s America.

With 21% of American children growing up in poverty, persistent underinvestment in public education will undoubtedly weigh on future productivity.

From a progressive-capitalist perspective, the key to delivering a new social contract is through a public option for services that are essential to well being. Public options expand consumer choice and spur competition. Competition, in turn, will lead to lower prices and more innovation.

Many hoped that the 2010 Affordable Care Act (Obamacare) would include a public option for health insurance. But, in the event, industry lobbyists succeeded in getting it dropped it from the final bill. That was a mistake.

Beyond health care, the U.S. also needs a public option for retirement accounts, mortgages, and student loans.

In the case of retirement, this could mean that individuals who want more income during retirement would have the option to contribute more to Social Security during their years in the labor force, with commensurate increases in retirement benefits.

This would not only be more efficient than paying into a private supplemental plan; it would also protect citizens from exploitative wealth-management firms. In fact, many of these firms have lobbied against having to abide by any fiduciary obligations at all, effectively arguing that if they can’t fleece their clients, then they can’t make enough money to justify their existence.

Conflicts of interest, from this perspective, are just part of the rough-and-tumble of 21st-century capitalism: why even force firms to disclose them?

Moreover, because U.S. banks now claim that they can’t take on the risk of underwriting mortgages, roughly 90% of all home loans are backed by the federal government. But if taxpayers have already assumed nearly all of the risk while the private sector continues to reap all of the profits, there is no reason not to have a public option.

The government could start offering a conventional 20% down 30-year mortgage to anyone who has paid taxes for five years, at a rate just a little above the rate at which it borrows money. And, unlike private mortgages, which were virtually designed to ensure that millions would lose their homes in the financial crisis, a public option could be devised to enable workers to stay in their homes when they faced a temporary hardship.

Back to morality

Most of these proposals are no-brainers; yet the economic reforms we need will face serious political challenges because of the influence of vested interests. That’s the problem with severe economic inequality: it inevitably gives rise to and reinforces political and social inequality.

When the original Progressive movement emerged during America’s late-19th-century Gilded Age, its main objective was to wrest democratic governance from the great monopoly capitalists and their political cronies.

The same goes for progressive capitalism today. It requires that we reverse the Republican Party’s systematic effort to disenfranchise large segments of the electorate through voter suppression, gerrymandering, and other anti-democratic techniques. It also requires that we reduce the influence of money in politics, and restore proper checks and balances.

The Trump presidency has reminded us that such checks are indispensable for the proper functioning of democracy. But it has also exposed the limits of existing institutions (such as the Electoral College, through which the president is chosen, and the Senate, where a small state like Wyoming, with fewer than 600,000 people, has the same vote as California, with nearly 40 million), underscoring the need for structural political reform.

At stake in both America and Europe is our shared prosperity and the future of representative democracy. The explosion of public discontent across the West in recent years reflects a growing sense of economic and in political powerlessness on the part of citizens, who are seeing their chances of having a middle-class life evaporate before their eyes.

Progressive capitalism seeks to curb the excessive power of concentrated money in our economy and our politics.

But there is even more at stake: our civil society and our sense of identity, both as individuals and collectively. Our economy shapes who we are, and over the past 40 years, an economy built around a core of amoral (if not immoral) materialism and profit-seeking has created a generation that embraces those values.

It doesn’t have to be this way. We can have a more compassionate and caring economy, built around cooperatives and other alternatives to for-profit enterprise. We can design better systems of corporate governance, where more than just short-run profit matters. We can and should expect better behavior from our profit-maximizing firms — and proper regulation will take away some of the temptations to misbehave.

We have conducted a 40-year experiment with neoliberalism. The evidence is in, and by any measure, it has failed. And by the most important measure — the well being of ordinary citizens — it has failed miserably.

We need to save capitalism from itself. A progressive capitalist reform agenda is our best chance.

 

Further Readings

Nation: Welcome to the Global Rebellion Against Neoliberalism