Neoliberalism has been exposed as a failed doctrine, first by the financial crisis that erupted more than a decade ago and now by the Covid-19 pandemic. What replaces it?
The seismic events of the financial crash of 2008 revealed the consequences of allowing rampant financial capitalism to operate without meaningful regulation. As capitalism teetered on the edge of collapse, the response of governments and central banks across the western world was to forego the neoliberal doctrine of limited government intervention in the economy.
Governments launched massive bailouts of banks and initiated huge fiscal stimulus programs. Central banks printed money in unprecedented amounts and trillions of dollars of new money was lavished upon the financial sector, which soon returned to profitability and to its culture of obscene bonuses.
Of course, ordinary people continued to feel the pain of neoliberalism. The cost of saving the financial system was borne by the masses as harsh austerity measures proliferated across the western world. It was, to put it crudely, socialism for the rich and neoliberalism for the poor.
Today, we are witnessing once more the failures of neoliberalism. The two nations which have been its most ardent adopters — the UK and the US — have fared particularly badly. Decades of denigrating government effectiveness and ruthlessly undermining confidence in the state, whilst at the same time reducing the actual capabilities of government has, unsurprisingly, left these two countries profoundly under-equipped to deal with the effects of a pandemic. By contrast, societies with a much stronger tradition of state intervention have done markedly better, for example South Korea, Japan and Vietnam.
Once more, capitalism is being rescued by the state, which — under neoliberal theory — simply shouldn’t happen. Corporations are receiving billions of dollars in government aid. Millions of workers across the world are on government schemes to protect their incomes. Neoliberalism was, in the words of David Harvey, “a radical ideological assault upon what the state should be about”. Yet today, the pandemic is once more revealing that the state still has a central role to play in promoting capitalist economic growth, as well as protecting the general well-being of its citizens. The idea that public health could in any way be left to the free market is surely completely discredited. And who but the most zealous of ideologues could argue that the government does not now have a crucial role to play in the material well-being of society?
Yet the ideology of neoliberalism was, in reality, about so much more than the mere theoretical exaltation of the free market. In practice, the doctrine was all about transferring wealth and power away from the majority and into the hands of the elite. In this core aim it was remarkably successful.
In the US, the neoliberal era (starting roughly in the late 1970s/early 1980s) witnessed CEO pay rise by more than 700 per cent. By 2016, CEOs in top US companies earned on average 347 times more than the average worker, up from only 42 times more in 1980. At the same time, the income of the poorest fifth of US workers declined, even though productivity soared. Such trends were most pronounced in America but were mirrored anywhere neoliberalism was embraced.
In practice, neoliberalism was the ideology of the hypocrite: it advocated lower taxes but delivered these only for the wealthy — ordinary workers suffered tax hikes under the neoliberal stalwarts of Ronald Reagan and Margaret Thatcher, while corporations and the wealthy enjoyed tax cuts.
Neoliberalism promised deregulation and delivered this for the financial and corporate sectors. Yet at the same time a host of new regulations were introduced that curtailed the power of workers. The proliferation of neoliberal trade agreements means that the world economy is perhaps now more regulated than it ever has been but, of course, such regulations exist only to promote capitalist accumulation.
In short, neoliberal ideology emphasized non-intervention in the economy but, time after time, governments intervened to protect the bank balances of the wealthy. Whether the state was following neoliberal principles or whether it was not, one thing has remained constant: the ongoing transfer of wealth away from the majority and toward the elite. The Great Recession that followed from 2008 bore witness to this, as did the decades leading up to it. Subsequent backlashes against neoliberalism — namely Brexit and the election of Donald Trump — have not slowed this trend and government policy continues to favor the wealthy.
Policies of class warfare (let’s call a spade a spade) have continued through this pandemic. Central banks continue to lavish trillions upon the capitalist system and stock markets are once more booming. Obscene reports have emerged of Jeff Bezos increasing his net worth by $13 billion in just one day and of Mark Zuckerberg breaking the $100 billion mark. The Guardian reports that “more than three-quarters of the world’s richest people have reported an increase in their already vast family fortunes”, despite an economic contraction that could exceed that of the Great Depression.
At the same time, the Covid-19 pandemic is increasingly becoming a disease of the poor, with most of the new outbreaks “now occurring in some of Europe’s most deprived neighborhoods, often those inhabited by minorities or immigrants who work in low-paid jobs that are crucial to buttressing the economy”. Clusters of cases now tend to emerge among poorly paid meat-factory workers rather than in Alpine ski resorts.
The pandemic has meant that the doctrine of neoliberalism has more or less been abandoned by the core capitalist western states. Massive government intervention is, once more, the order of the day. Yet the key aim that lies behind neoliberalism remains: the continued and accelerating accumulation of wealth in the hands of the elite.
We can see the continuation of this key policy of political economy in the manner in which governments and central banks are dealing with the economic fallout caused by the pandemic. Quantitative easing, for example, continues to prop up the wealth of investors and oligarchs alike. Capitalism retains its decadence even though it is on life-support, while at the same time the income supports that workers have been given are under attack. The practice of neoliberalism may have changed, but its priorities have not.
Particularly revealing is one of the key countries in which neoliberalism originated as an actual practiced ideology, the UK. The government has launched massive bailouts of the corporate sector, the effect of which has been an almost direct transfer of wealth into private hands. Firms in receipt of bailout funds have paid out hundreds of millions in dividends to their shareholders, even as they shed thousands of jobs.
One instructive example is the UK oil firm Schlumberger which received £415 million of public money in June 2020. Just one month later it announced plans to cut 21,000 jobs from the company payroll while at the same time paying out £135.2 million in shareholder dividends. The state is essentially being used to transfer public resources into the hands of the elite.
Also instructive is the way the British Conservative party is using the pandemic to enrich its allies and funders, with government contracts being handed out to firms connected to the party. Often the firms receiving such contracts have no connection with the services they are meant to carry out.
An employment agency with assets of £623, for instance, received an £18m government contract to supply face masks while, even more perversely, a “family office” (a vehicle for handling investments for a wealthy family) registered in Mauritius managed to receive a £250 million contract to supply PPE.
Similar practices have occurred in that other former giant of neoliberalism, the US. Forbes magazine reports, for example, that much of the billions of dollars in low-interest, federally guaranteed loans allocated to help small businesses survive the pandemic went to those firms who had strong personal connections with the banking sector. None of this has anything to do with the supposed efficiencies of the free market but has everything to do with proximity to political power.
Could this be the future of western capitalism? The type of society that neoliberalism has created means that meaningful economic growth will remain anemic in the core states of western capitalism. Neoliberalism impoverished whole segments of society, meaning that consumer demand was significantly dampened. Prior to the crash, demand was propped up by ever-increasing credit creation, a process sometimes referred to as “Privatized Keynesianism”.
Following the crash, capital accumulation was facilitated by the abandonment of neoliberal principles and an unprecedented rolling of the money printing presses. This has continued to this day and the pandemic has only reinforced the trend.
The political economy of the western world is displaying no signs of returning to the pre-neoliberal era of strong economic growth supported by rising incomes. Nor is there any prospect of a return to a neoliberal capitalism that can “prosper” without massive interventions by central banks and governments.
What we are left with then is a capitalism of naked class war, one in which subsidies to workers are viewed as being tainted with intolerable levels of moral hazard but where subsidies to corporations and to financial markets are treated like slush funds for the shareholding class. Business success will increasingly be determined by proximity to political power and the oligarchic nature of western ‘democracy’ will intensify.
Neoliberalism, as a theoretical doctrine, may have had its day but the effects of the class war which it was a mere vehicle for is set to continue.
If you enjoyed this article, you might like my new book, Donald Trump: Deadbeat Tyrant, published 13th January, 2021.
This article originally appeared on Irish Broad Left.
If you enjoyed this article, you might like my recent essay: