George Bush is fond of letting us know he makes decisions from his gut and doesn’t like to think too deeply about issues. But as we know, his administration proclaims principles which, on the economic front, can be called neoliberal and on the international political scene, can be called neoconservative. The neoliberal perspective is how we try to shape the economies of the of the world.
In what is probably a dreadful metaphor, we can call neoconservatism and neoliberalism the Yin and Yang of the Bush administration world. The reasons for this are the contradiction in terms that “neoconservative” and “neoliberal” might seem to imply – the overt existence of opposites, and also the notions that each produces its opposite and that under the surface of one the opposite exists. Whether we are about to cycle from the extraordinary, self-serving dogmatism of the present age to a no-dogmatism age as the nature of yin and yang would suggest only the future knows.
It is also important to note that practices associated with both neoliberalism and neoconservatism are not new and are not limited to the Bush Administration, but have been gaining strength, especially since the early 1980´s. Extremely briefly, neoconservatism emerged in the public consciousness maybe twenty five years ago when a bunch of intellectuals who had considered themselves liberals turned to a darker view of the international scene, a view in which internationalism, multiculturalism, etc. were scene as leaving us vulnerable to dark forces. Neoliberalism, equally roughly, is what has happened to the liberalism we inherited from the American version of the Enlightenment first morphed into modern American corporate culture and now completely cut off from its roots as a system that was supposed to have the interests of individuals at heart and to be ethically grounded. Neoliberalism is our heritage of laissez-faire economics and individualism so far run amuck that you can find neither laissez-faire economics nor individualism as the Founding Fathers intended (a varied picture, granted) in it.
In this blog entry you will find my reading notes from an article called THE ECONOMICS OF EMPIRE: NOTES ON THE WASHINGTON CONSENSUS by William Finnegan. This appeared in Harper’s Magazine in May, 2003. The link can be found in the left hand column of this blog under “Politics and Ideas 2004”. It is worth reading the whole thing.
WHAT NEOLIBERALISM IS: (also called The Washington Consensus, “free trade”):
It’s the economy, Stupid! Promoted by U.S. foreign policy and multilateral financial institutions such as World Bank, International Monetary Fund, World Trade Organization. Basically a theory of how the world economy should be run (with special implications for developing countries) “under American supervision.” It can be thought of as “Market fundamentalism globally applied.” Quoting Bush: “free trade is good for both wealthy and impoverished nations.”
THE NEOLIBERAL CREED AS IT APPEARS IN “THE NATIONAL SECURITY STRATEGY OF THE UNITED STATES, 2002” (The same document that declared our right to make preemptive war)
-- We offer a “single sustainable model for national success.”
-- We will actively work to bring the hope of democracy, development, free markets, and free trade to every corner of the world.”
-- Through “lower marginal tax rates” and “pro-growth legal and regulatory policies.”
-- The concept of ‘free trade’ arose as a moral principle even before it became a pillar of economics. If you can make something that others value, you should be able to sell it to them. If others make something that you value, you should be able to buy it. This is real freedom for a person- or a nation. To make a living.”
“Openness” to foreign investment and imports
Unrestricted movement of capital
-- That open markets and increased trade “lead invariably to economic growth” Argument against: Latin America during 1960s and 70s, era PRECEDING trade boom of globalization per capita income rose 73%. In last 80s and 90s under neoliberal globalization per capita income rose 6%. IN the U.S. between 1947 and 1973, economic growth averaged 4% and non-managerial salaries (80% of US salaries) rose 63%. Since 1973, real wages have FALLEN 4%, economic growth has averaged 3%. While free marketers insist this is temporary, has lasted more than twenty years. Markets favors the rich and are fickle. They need careful regulation.
-- That the developed world is turning into postindustrial service economy while rest of world industrializes. Argument against: See the rest of the article.
-- That everyone who wants to develop must go through the sweatshops, child labor, egregious pollution, health and safety nightmares, and subsistence level wages that accompany industrialization: “we went through it….” Argument against: not the same: now it is unregulated, untaxed foreign ownership with profits going abroad and good infrastructure not being built.
-- That lower taxes promote economic growth by encouraging people to work harder and invest more. Argument against: No study of US or other countries’ economies bears out a corollary between tax rates and growth.
-- That economic growth is automatically an overall social good. Argument against: Unequal growth leads to heightened social conflict and increased repression. Some economic growth is so environmentally destructive that it detracts from community’s quality of life. Hidden environmental costs of trade itself: giant polluting transport ships, trucks and planes, for instance. Literal Destruction of communities,family and group social structures and livelihoods as countries reshape their economies around exports and specialization. In the United States, loss of millions of good jobs with globalization, just vanishing or going overseas with domestic job growth in low-paying, low- or no-benefit jobs like in Wal-Mart.
-- That the Gross Domestic Product (GDP) is a good measure of total economic output. Argument against: It counts resource extraction as a plus but does not register resource depletion: strip mining, clear-cutting, overfishing, pumping an aquifer or oil reserve result in unaccounted-for and permanent losses. Income distribution is not considered, that is while the GDP may register growth, most people may in fact be getting poorer. Medical bills and legal bills count as growth.
-- Democracy and free markets go hand in hand. Argument against: China.
Singapore. U.S. threatening Brazil’s economic situation if anti-neoliberalist elected. Situations in many other countries.
-- That trade always enhances the economy. Argument against: See Japan’s collapse. U.S. running a growing trade deficit, currently about $2.4 trillion dollars. This is DEBT to foreign countries, including the biggest creditor, China. What if some country started to call in the debts? “While we make the world safe for multinational corporations, it is by no means clear that they intend to return the favor.” And of course the devolving economies of African countries among others.
THE ROLE OF THE INTERNATIONAL MONETARY FUND AND THE WORLD BANK IN NEOLIBERALISM AND GLOBALIZATION
-- The International Monetary Fund and The World Bank are the two most powerful institutions in the world today.
-- IMF and World Bank took effective control of large areas of public policy, imposed standardized “structural adjustment”…austerity and “openness” measures typically including removal of restrictions on foreign investments, abolition of public subsidies and labor rights, reduced state spending, deregulation, lower tariffs, tighter credit, encouragement of export-oriented industries, lower marginal tax rates, currency devaluation, sale of major public enterprises.
The history and development of the IMF and the World Bank:
--Conceived at Bretton Woods, New Hampshire originally intended to finance post WWII reconstruction according to principles of John Maynard Keynes which included “assumptions that markets need state guidance, whether to stabilize currencies and prevent panics (IMF) or to build infrastructure necessary for economic development (WB). Marshall Plan took over this task, so World Bank turned to problems in Asia, Africa and Latin America lending money to poor governments for specific short-term projects meant to stabilize currencies and balance of payments and to promote international economic cooperation and to prevent another Depression.
-- Power originally divided according to relative financial strength and contributions: US had the most power from start. US only country with effective veto over IMF decisions. IMF evaluates a nation’s financial situation and as such as huge power to dictate public policy especially in developing world.
-- During Cold War, political influence of anti-communism: loans to anticommunist dictatorships and other repressive governments in Ethiopia, Uruguay, Philippines, Romania, South Africa.
--1968, The epoch of Robert S. McNamara with focus on poor countries: “aggressively expanded IMF-World Bank operations, pushing poor countries to accept loans to build factories, highways, huge power projects, vast agro-industrial schemes.
-- 1981: End of McNamara tenure revealed many abandoned megaprojects, uprooted populations, ravaged forests and watersheds, loss of self-sustaining agriculture, huge debt.
-- 1980’s: Reaganite and Thatcherite free-market economics pushed IMF and WB towards “the Washington Consensus.” IMF is seen as more ideological than WB. Idea that open markets and increased trade “lead invariably to economic growth” has repeatedly failed in practice and in fact “have had a negative effect on economic growth in participating countries as measured by 40% increase in numbers of people living on less than $1.00 day since 1972. Nearly half world’s population lives on less than two dollars a day. Some improvement in access to health care and education projects but multinational corporations the main beneficiaries. American corporations received $1.35 in procurement contracts for each dollar the US government contributed to development banks. The original $1.00 comes from U.S. taxpayers, not corporations.
-- Current additional major problems with this international development financing system: New loans to indebted countries to “avoid the embarrassment of non-prforming loans” condemning poorest countries to permanetnt debt. Policies and practices enrich corporations and poor-country bureaucras and politicians
RICH COUNTRIES AND CORPORATIONS PRACTICE ECONOMICS OF EMPIRE RATHER THAN FREE TRADE, THOUGH THEY DEMAND FREE TRADE FROM OTHERS:
-- IMF and World Bank took effective control of large areas of public policy, imposed standardized “structural adjustment”…austerity and “openness” measures typically including removal of restrictions on foreign investments, abolition of public subsidies and labor rights, reduced state spending, deregulation, lower tariffs, tighter credit, encouragement of export-oriented industries, lower marginal tax rates, currency devaluation, sale of major public enterprises
-- Export-processing zones (EPZs) also known as free-enterprise zones. Used by multinationals for distributing “the different aspects of production and assembly to different contractors and subcontractors often in different countries with the lowest skilled, most tedious, unhealthy, labor-intensive work going to the least developed country. Mobility is essential…ability to quickly transfer from country to country in search of cheapest production costs, least hassle. EPZ facilities usually vast prefab sheds and plants that companies lease.” Flaws of EPZs low wages, workers drawn from far-flung areas for temporary work, fear that companies will withdraw meant little or no taxing or regulation, little or no profit for local governments. Rarely introduces foreign technology or capital to the local landscape.
EXAMPLES OF BIG-TIME NEOLIBERAL FAILURES IN DEVELOPING COUNTRIES:
Argentina: in 1990’s privatization, deregulation, trade liberalization, tax reform…called model of neoliberalismo. Collapsed in 2001.
Bolivia (Finnegan uses Bolivia as an extended example in the article): Early 1980’s emered from military dictatorship in “economically impossible” position with overwhelming foreign debt, inflation at “surreal annual rate 24,000%.” To halt inflation implemented “structural adjustment” per measures described above. In Bolivia, privatized railways, national airlines, telephone system, tin mines and many municipal utilities. International companies invited in. Countries flooded with cheap foreign products after 1985. Hundreds of local Bolivian bankruptcies, World Bank and IMF more or less as the government of Bolivia, prosperity of los ricos. After 17 years of “structured adjustment,” Bolivia is still poorest country in South America. Benefits of controlled inflation and “modest” economic growth concentrated among wealthy. Has been growth of “the informal sector” : sweatshops producing “knock-offs of brand name clothing,” street peddling and coca farming. Privatization of national railway to Chilean multinacional consortium resulted in loss of numerous lines in a rugged, transportation-poor country, including line connecting third largest city to La Paz, the capital.
East Asia: successful pressure to liberalize capital markets and US recommendation against capital controls to impede international investors and speculators led to economic crisis of 1997-98 except in Malaysia which defied these recommendations.
ECONOMIC SUCCESSES INVOLVING VIOLATING PRINCIPLES OF NEOLIBERALISM during 1980’s and 1990’s and reasons for them:
High protective tariffs around beginning industries (“infant industry trategy”) selectedf or export potential.
Local-content laws (requiring investors to buy locally produced components when possible)
Cutting deals for training local employees in technical skills
Capital controls (laws to impede international investors and speculators)
Large populations providing cheap labor
Export processing zones also known as free-trade zones (EPZs) which are tzx free manufacturing zones with suspension of labor and environmental laws to attract foreign capital. (Actually exist in seventy countries including Bolivia)
Strict capital controls.
Only limited stock ownership available to foreigners
State control of the banking system
Does not have the democratic “niceties” that are supposed to come with a free market economy.
In China, tens of millions unemployed and destitute in capitalism upheavals, millions work seven days a week in dangerous, “abysmally paid factory jobs.”
Less successful than china and has beenhurt by aspects of corporate globalization including seed patenting, huge World Bank –backed dams that have “displaced millions of villagers.”
Successes: growth of middle class benefiting from technology-led “boom”…outsourcing of software programming, back-office work.
Protection of domestic industries
Use of capital controls.
Large population of educated people
Proposed Free Trade Area of the Americas (FTAA)
Would include all 35 countries of the Amreicas except Cuba.
Would virtually eliminate barriers to foreign investment, strengthen investor rights, eliminate tariffs, ban capital controls, establish secret courts for multinational countries to sue governments over health, labor or environmental laws shown to impede profits.
Would go beyond NAFTA by demanding that national markets be opened to foreign corporations not only for banking and insurance but for public services like health, education and welfare. Not popular among the people of Latin America.
THERE REALLY IS NO FREE TRADE – HOW THE UNITED STATES, THE EUROPEAN UNION AND JAPAN BEHAVE IN THE WORLD TRADE ARENA, SOME EXAMPLES:
--Forceful in demanding free trade from others as individual rich countries and through the IMF and the World Bank.
-- Protectionism in the United States include farm subsidies mostly going to big agribusinesses (possibly in amount of $180 billion over next ten years) . Tariffs on agricultural products. International effects: to close US markets to many poor country food producers. Flooding poor-country markets with cheap food putting poor-country farmers out of business.
--Consequence of NAFTA on Mexican farmers…Wages have fallen, half million families driven off their land by a collapse of prices as local markets swamped with subsidized corn produced by US agribusiness.
-- United States steel tariffs which have been protested with the WTO.
-- The European Union subsidizes farmers lavishly, as does Japan
--World Bank and International Monetary Fund rules and appeals systems are designed by rich countries with the resources to make use of them in their own interests. For example, the European Union had IMF and World Bank approval for dumping subsidized powdered milk in Jamaica and forcing the destruction of hundreds of thousands of gallons of fresh milk. In similar fashion, the US dumped subsidized rice on Haiti putting thousands of Hiaitan rice farmers out of work and causing rise in child malnutrition. (Not ironically, Haiti does well on IMF trade-openess rankings)
-- Structured obstructions: impose tariff peaks which raise tariffs according to how many levels of processing. Like peanuts to peanut butter. Keeps poor countries from adding value to raw products, thus preventing stages of industrial development.
-- AIDS drugs: in response to worldwide pressure, US acceded in November 2001 to consider public health and allow poor countries access to generics. Reversed this in late 2002 under pharmaceuticals pressure.
--Balanced budgets: In the US and other rich countries, deficits, often large ones, exist during a recession and other times as well! IMF insists on balanced budgets and high interest rates for borrowing for poor countries (ultraorthodox austerity approach)
IS THIS HOW THE RICH COUNTRIES REALLY WANT IT?
--Probably not (except for “vulture capitalists”) because it destabilizes life, security, economics for everyone. But the basic model insures billions of people “struggling to stay afloat in the world economic maelstrom.”
-- The developing world understands that we provide very little foreign aid in addition to insisting on punishing trade policies. Most Americans think we provide between 15 to 24% of our budget to foreign aid, but in fact, we only provide 0.1 % -- that’s one tenth of one per cent. Net transfer of money in form of corporate profits and government deficits runs from the poor countries to the rich.