Review Essay: The Blinding March of Neoliberalism

reviewed by
Philip S. Golub

Material Reviewed: 

David Harvey, A Brief History of Neoliberalism, (New York: Oxford University Press, 2005)

In his seminal account of the collapse of the 19th century liberal European order, the rise of fascism and the outbreak of general war, Karl Polanyi traced the ultimate source of the “self-destruction of (European) civilization” to the ravages produced by the institutionalized utopia of a “self adjusting market”[i]. Anchored in a metaphysical construct (the “invisible hand”) detached from the anthropological realities of social life, the self-adjusting market became the dominant paradigm of market societies that commodified labor, land and money. Over the course of the century, the market became “the only organizing power in the economic sphere” and the dominant institution of society. Whereas economic activity had forever been “a function of the social in which it was contained”, it became a law unto itself, severed from its social foundations, “subordinating the substance of society itself to the laws of the market.”

This process of universal commodification, Polanyi argued, “could not endure for any length in time without annihilating the human and natural substance of society”. Indeed, most European societies ultimately took measures to protect themselves from the corrosive effects of the self adjusting market by opting in the late 19th and early 20th centuries for strong mercantilist states that pursued narrow national goals and strove for imperial monopoly at each others’ expense. Mid-century transnational capitalist cooperation, embodied by pan-European networks of haute finance whose functional role was to “avert general wars”, gave way to ruthless national power politics: despite the high degree of European economic integration at the turn of the century, the webs of capitalist interdependence were swept away in the rising nationalist wave.

The outcome was “a social transformation of planetary range, topped by wars of an unprecedented type in which a score of states crashed (and new empires emerged) out of a sea of blood”. Fascism, a deadly pathological “solution to the impasse reached by liberal capitalism… a reform of market economy achieved at the price of the extirpation of all democratic institutions”, was the predominant but not the only “solution” to the impasse of market societies: Soviet socialism in one country and Roosevelt’s New Deal were synchronous alternative pathways out of universal commodification. Both emerged strengthened from the war.

In the West, social states with varying levels of protection and state intervention, reflecting different national pathways and traditions, were created and/or consolidated around a new growth regime and a new international institutional order. At the national level, the “Keynesian welfare state” appeared to resolve two of the central contradictions of capitalism: cyclical uncontrolled slides into depression and unrestrained class warfare. At the national level, the compromise between capital and labor, mediated by the state, helped to mute the competitive pressures of the market by promoting relative social fairness: throughout the industrialized West, income and wealth inequalities were significantly reduced. In Europe, this helped to contain potential challenges to liberalism from mass based Communist parties. At the international level, the institutional architecture created at Bretton Woods created a stable international regulatory framework for the capitalist political economy. In David Harvey’s words, “the restructuring of state forms and of international relations after the Second World War was designed to prevent a return of the catastrophic conditions that had so threatened the capitalist order in the 30’s.”

As the core state in the post-war capitalist order, the United States was the driving agent of the restructuring process. It sustained the international institutions it had helped to create, and supported the establishment of (liberal) interventionist welfare states in Europe and (authoritarian or semi-authoritarian) developmental states in East Asia. This mixed-economy policy, contrary to the US’s pre-war liberal credo, was not driven by altruism but by self interest: the US hegemonic project during the Cold War required a belt of stable hence prosperous subordinate states ringing the Soviet Union and the Peoples’ Republic of China[ii]. This could not be achieved through the markets alone. The Marshall Plan embodied the US’s interventionist management of the capitalist world economy. In the US itself the Rooseveltian welfare state took on a minimal form but it nonetheless became a major component of the postwar US state and the American political economy. Apart from a few isolated followers of the Austrian school (Friedrich von Hayek, Ludwig von Mises) Keynesianism was hegemonic economic policy: government intervention and counter-cyclical policies to stimulate demand and support the unemployed had become the orthodoxy, even within the conservative camp. “We are all Keynesians now”, said Richard Nixon in 1971. Ironically, that statement was uttered the year the Bretton-Woods system began to unravel, ushering in the monetarist counter-revolution of the 80’s and contemporary neo-liberal hegemony.

The proximate causes of the breakdown of the Keynesian paradigm are well known. Facing inflationary pressures due to the war in Vietnam, declining productivity, intensifying trade competition from Europe and Japan, and hence rising foreign claims to redeem dollars with gold, the US unilaterally tore down the fixed but adjustable exchange rate regime set up at Bretton Woods. The convertibility of the dollar to gold, the pillar of the post-war international monetary system, was ended. John Connolly, Nixon’s Treasury Secretary, put matters bluntly: “it’s our currency but it’s your problem”, delicately adding: “foreigners are out to screw us and it is our job to screw them first”. Two years later generalized floating exchange rates reintroduced pre-war international monetary anarchy. Meanwhile, on the domestic front, prolonged “stagflation” and mass unemployment challenged counter-cyclical macro-economic policies. Inflation that had been building up since the early years of Vietnam peaked at 13.58% in 1980. In 1979, the Federal Reserve launched the global monetarist backlash by implementing highly restrictive monetary policies. Monetarism had a series of profound domestic and global effects: it forced drastic industrial restructuring and decisively shifted the balance of forces between labor and capital. By favoring rentier capitalism it restored and expanded the power of the increasingly autonomous financial sphere.

Globally, as Giovanni Arrighi points out[iii], the prolonged US rates rise restored the US’s declining world hegemony by redirecting capital flows back to the US and disciplined the periphery into submission (the Latin American debt crisis of 1982). The neo liberal reconfiguration that followed was not the work of an “invisible hand”. Though structural transformations played an underlying role, notably the decline of the “rust belt” industries, the  neo literal mutation would not have been possible without coercive state intervention: In the early 80’s, the leaders of the “conservative revolution” in the US and UK joined forces to lock in the transformation by crushing organized labor. Ronald Reagan suppressed the air controllers’ strike in the US and Margaret Thatcher waged a vicious and ultimately victorious war against the miners in the UK[iv]. Neo liberalism was thus a “political project” mobilizing the repressive powers of the state to “restore the power of economic elites.”

This narrative goes some way to explaining the macro mechanisms of the paradigm shift. But it does not tell us why neo-liberalism, a contemporary globalized variant of the “self regulating market” of the 19th century, subsequently gained near universal hegemony. That is the central question of David Harvey’s latest, intellectually stimulating, book. As a doctrine and a practice, neoliberalism was designed, writes Harvey, to “liberate corporate and business power (and) re-establish market freedoms” that had been contained by the social state, that is to restore “the conditions for the resumption of active capital accumulation”. The restoration, theorized by a tightly knit group of ideologues in the UK and US, and legitimized by a discourse deeply embedded in the American mind on individual freedom and autonomy, had four major components: the financialization of the economy; the growing mobility of capital; the dominance of the “Wall Street-IMF-Treasury” complex in the 90’s; and the “global diffusion of the new monetarist and neoliberal economic orthodoxy”. These components, writes Harvey, were fused in the “Washington Consensus of the mid-1990’s which “defined the US and UK models of neoliberalism as the answer to global problems”. Those models called for limitless market freedom. “Shareholder value” became the war cry of the business class during the 90’s, culminating in the later part of the decade with shameless displays of wealth, crony capitalism and corruption. Today, one of its most obscene expressions is the unrestrained enthusiasm of the financial markets whenever mass lay offs occur.

The last frontier of the free market project was opened with the collapse of the Soviet Union in 1991. Liberalization, deregulation and privatization spread worldwide to areas previously outside of market control. Led by an oligarchy of robber barons, Russia underwent “shock therapy” which it has still not fully recovered from. India began its own deregulation and privatization process, though in a far more controlled fashion. China, which had initiated an gradual state-managed policy of agricultural de-collectivization and selective international opening in the late seventies, accelerated the liberal turn in the mid 1980’s. After a parenthesis in the late 80’s, liberalization was deepened again when Deng toured southern China in 1992.

As anyone who has visited China over the past decade knows, the labor market has been nearly entirely “freed” from regulatory constraint, leading to Darwinian competition between the “old” industrial working class in the declining state sector and the great mass of disenfranchised and unprotected workers flowing from the countryside into the cities. Health care and the best parts of the school system have been privatized. Meanwhile, the dynamic developmental states of northeast Asia and the emerging states of Southeast Asia were subjected to intense western pressure to liberalize their capital accounts and open them to foreign investors. The outcome was the great financial crisis of 1997/1998, caused by overinvestment in short term speculative assets, whose ripple effects nearly engulfed the global financial system. That said, the spread of neoliberalism has not been a uniform process: Harvey is right to point out that neoliberalization proceeded unevenly, with local outcomes depending on the “interplay of internal dynamics and external forces”, and the institutional configurations of different societies.

The external forces were the US state, the international institutions dominated by the US, and the transnational companies with a vested interest in unfettered global investment, trade and financial flows. Since the early 80’s, successive US governments intervened overtly and covertly to produce outcomes favorable to American business and, more broadly, transnational companies, American or not. Given the permanence of US economic nationalism this may at first sight appear contradictory. Yet as Susan Strange pointed out in the late 1980’s, “globalization” did not submerge all states, merely the weaker states of the international system: “all the decisions about the regulation of market operators and intermediaries that used predominantly to be the prerogative of each national government are now shared unevenly between a few governments of the largest and richest countries, of which the US is by far the most important”. As a result, transnational firms are less autonomous than many post national theorists have claimed. They were and remain "responsible to policy decisions taken by the US government.”[v] Global liberalization affirmed the US’s comparative advantages in the FIRE sector (Finance, Insurance, Real Estate). Capital account liberalization allowed the US to reshape national development paths, and to dig deeply into the savings of the rest of the world (at high rates of return).

Simply put, the establishment of a global free capital market was essential for the economic and financial well being of the world’s leading debtor. This helps to understand the continuity of US global liberalization policy since the mid 80’s. In 1985, Ronald Reagan set out to knock down barriers to trade, foreign investment and the free movement of capital between industrialized countries, especially in Japan. His successor continued this effort though the Enterprise for the Americas Initiative, designed to support free markets and the free movement of capital in the western hemisphere. The policy was globalized under Bill Clinton: "Previous administrations had pushed for financial liberalization principally in Japan, but under President Clinton it became a worldwide effort" directed in particular at the new area of wealth accumulation in East Asia, "seen as a potential gold mine for American banks and brokerages". According to The New York Times, the Clinton White House worked out a plan, coordinated by the Department of Commerce, that “identified 10 rising economic powers from the Pacific to the Atlantic whose economies were to be opened up, and it called upon all government departments, from the CIA, to US Ambassadors abroad”[vi].

During the 90’s the power political objectives of the US State and the wealth maximization objectives of market actors coincided to an extraordinary degree. Robert Wade suggested a few years ago that liberalization and the "increasing mobility of information, finance and goods and services frees the American government of constraints while putting everyone else under tighter constraints". This is undoubtedly the case. Yet, as Harvey argues, “the grim reach of US imperial power…by no means constitutes the whole story” of the global slide to neoliberalism. The US did not directly impose liberalization and opening on China, India, or continental Europe for instance. What it did was set the global agenda and create a global context favorable to local forces pursuing their own market objectives. In most emerging countries the small domestic constituencies favoring the liberal turn that were strengthened by internationalization (they are now in retreat in Latin American and South East Asia). This was also obviously the case in continental Europe and Japan where thin but very influential business circles (the European Business Round Table) were empowered by the US’s turn to neoliberalism. These constituencies acted to reshape government agendas as part of a growing global elite consensus around common objectives. Indeed, private institutions of global governance became the locus of transnational elite dialogue and convergence around the neoliberal agenda (World Economic Forum), buttressing the global disciplinary function of public institutions such as the IMF.

The continuity of US foreign economic and financial policy over the past two decades does not mean however that there was continuity in other domains. While Harvey is very persuasive in his detailed discussion of the complex mix of factors leading to neoliberal hegemony, he is less so when he argues more speculatively that neo-conservatism (and implicitly the US’s imperialist drive since 2000) emerged as an “answer” to the contradictions of the neoliberal state in crisis. While neoliberalism entails forms of social control, surveillance and repression – of governmentality in the Foucauldian sense – that are inherently disciplinary, it does not necessarily follow that neo-conservative authoritarianism is, as Harvey seems to imply, an outcome of a critical moment in neo-liberal rule. Underlying this is the assumption that the US hegemony has been “crumbling” since the 70’s and that militarism is a convulsive response to that trend.

In fact, US hegemony which was indeed waning in the 70’s and early eighties was restored in the late eighties and the nineties. Under Bill Clinton neoliberalism proceeded without militarization, through the subtle operation of governmentality within and muscular economic “diplomacy” abroad. Though it is neoliberal in the sense that it has done more than any other government to favor the owners of capital (mostly in the energy and national security sectors), the sovereign authoritarian state of George Bush, or what Judith Butler calls the Bush administration’s “lawless exercise in state sovereignty”, has little to do with its predecessors in all other regards. This is not a minor matter: different forms of exercise of  state power under specific hegemonic configurations produce very different outcomes. There is no continuity between the silky discussion on the trading state and interdependence of the 90’s and the forward march of neo-imperialism since 2000. Indeed, the US’s lawless exercise of power of the past years has deeply split ruling elites within the US, but also globally.

Be that as it may, the outcome of the decades-long reconfiguration of social forces has been an extraordinary increase in social inequality. In the US, income and wealth polarization has reached levels not seen since the twenties, with a tiny fraction of the population concentrating most of the country’s income and wealth. According to the Economic Policy Institute, in 2000 “the share of income held by the top 1% by income was the largest  since the run-up to the Great Depression. In 1979, the average income for the top 1% was 33.1 times the income of the  lowest 20% and 10.1 times the middle fifth. By 2000, the average income of  the top 1% was 88.5 times that of the bottom fifth, an increase of 55.4 points.” In the US and in continental Europe, average living standards have either stagnated or regressed. Inequality has also risen sharply in Asian societies with historic traditions of relative social equity (Japan, South Korea). Everywhere, large fractions of the population, the “unqualified”, have been written off and left to fend for themselves. Apologists of this brutal process of social selection have naturalized the transformation, making it appear an historic necessity. Like all hegemonic narratives, neoliberal theory has cloaked the real world objectives of the reconfiguration behind high sounding ideals: “the genius of neoliberal theory is to provide a benevolent mask full of wonderful-sounding words like freedom, liberty, choice and rights, to hide the grim realities of the restoration or reconstitution of naked class power.”

The reconstitution of market societies marked by extreme inequalities is not sustainable in the long run. Polanyi’s analysis and warning must be kept in mind. Social backlashes of various types will emerge, indeed are already apparent: right-wing populism and religious conservatism, on the one hand, progressive movements of global social transformation (the World Social Forum) on the other. The growing demand for protection from world market forces is already translating in nationalism (Russia, for instance) or regionalism (Mercosur) in various parts of the world. Ultimately, the content and pathway of change will depend on the balance of forces of the social agencies at work. For the moment, the constituencies favoring social and democratic alternatives to commodification are in retreat in the West. But they are still sufficiently present to influence the course of events. The real test will come in times of crisis. The timing and trigger of fundamental crisis, at systemic level, is of course hard if not impossible to predict (likewise mass mobilizations still elude the grasp of the social sciences). Nonetheless, some of the conditions may be crystallizing now. In particular, the US, the main normative agent in the process of global marketization over the past decades, appears to be losing control: the country’s rapidly growing indebtedness and reliance on foreign capital flows creates global financial volatility and generates systemic vulnerabilities. If the trend continues it will severely strain the world financial system.

The US already consumes 75% of world savings to meet its daily financing needs. At some point not yet determined, rising US foreign debt will conflict with the requirements of the US’s main financiers. The US will then be forced to adjust. Harvey argues that to free itself from growing external constraints, the US has a polar choice: hyper-inflation or deflation, both of which imply a crisis of the US hegemonic order and hence a fundamental and possibly violent restructuring of the world system. This may be too starkly put: Clearly, under its present leadership the US is heading towards financial disaster (not to speak of the disaster produced by imperial foreign policy in the Gulf). Yet, under wiser management, the US may be able to find a softer middle way out of its present economic and financial dilemma. That pathway would however require the US’s acceptance of real interdependence, that is a downsizing of US imperial ambitions and a major change in economic policy…

One needn’t agree with Harvey’s hypothesis, widely shared in Marxist circles, that neo-conservatism emerged as an authoritarian solution to the instabilities and contradictions of neooliberalism, or his assumptions about structural US decline, to share his intellectual and ethical concern over the neoliberal destruction of society. His Brief History is a valuable conceptual and descriptive history of the great regression of our times. It also a normative statement about what should be. In denouncing universal commodification Harvey rightly suggests that it is urgent that we reinvent and reinvest the meanings of  “democratic governance”, of “political, economic and cultural equality and justice”. With the renaissance of the left, neoliberal hegemony has ended in Latin America. It is being challenged in parts of Asia. What is needed now is a progressive global agenda in a difficult but not hopeless reactionary age.


[i] Karl Polanyi, The Great Transformation, Beacon Press, Boston, 1973 (1944).

[ii] See Bruce Cumings, Parralax Visions (Durham, NC: Duke University Press, 1999).

[iii] Giovanni Arrighi, “The social and political economy of global turbulence”, New Left Review, N° 20, March/April, 2003.

[iv] For a Foucauldian reading of this critical turning point see Noelle Burgi, L’Etat britannique contre les syndicates”, Kimé, Paris, 1993.

[v] Susan Strange, “Toward a Theory of Transnational Empire”, in Ernst_otto Czempiel and James Rosenau, eds, Global Change and Theoretical Challenges

[vi] Nicholas D. Kristof and David Sanger, "How US  Wooed Asia to let the Cash In",  New York Times, 16 February 1999.


Philip S. Golub is an editor of Le Monde Diplomatique.