Neoliberalism: Authoritarian Progressivism or Authoritarian Reactionary (fake) Libertarianism With That?
How have we arrived at the point where neoliberalism is the only option on the menu in the UK and the white settler colonies (with the possible exception of New Zealand), with the two possible side dishes of authoritarianism combined with either social progressivism or a somewhat fake reactionary libertarianism? Both blame the individual for their successes or failures, lionising the success of the rich, while picking different scapegoats to focus their supporters on; either the reactionary “white” lumpen proletariat “deplorables”, or the professional managerial class courtiers and unionized public workers that have managed to maintain their incomes over the last four decades of elite exploitation. Below, I have lain out my understanding of how we got here. Forgive me my meanderings, as there is so much to cover.
During the past fifty years, starting in the US and UK but then expanding outwards, the Western elites have dismantled the post-WW2 bargain between themselves and the rest. This was a compact wherein the rest, especially the (white) working class, would not directly challenge the elite in return for a share of the ongoing growth in national income and wealth. This was the period of the “great compression” with the extremes of wealth and income inequality being reduced, and government services that benefitted the rest coming into place – such as pensions, national health services, regulators that oversaw the safety of food, the workplace and the environment, and unemployment benefits. In the immediate aftermath of WW2, the UK electorate rejected the victorious prime minister Churchill in favour of a Labour Party that would not return them to the exploitation of the pre-war years. In the US, the legacy of the New Deal continued on, with high taxes for the wealthy and a significantly unionized workforce. The decade and a half after the war was one of great conformity, with the US displaying the greatest post-WW2 “Red Scare” and the extensive operations under COINTELPRO and Hoover’s FBI to constrain “acceptable” or “unamerican” political beliefs. In Europe, communist movements that had gained prestige through their war-time resistance were defeated by a mixture of arms (Greece), US connivance with conservative interests (Italy and France) and Soviet circumspection. At the same time, many of the conservative elements that had served the Nazi regime were allowed back into positions of power and Japanese socialist forces were destroyed by the US occupation to make way for the long reign of the CIA-funded LDP. The rebuilding of so many nations destroyed by the war, together with the huge technical advances made during it, helped spur a quarter century of economic growth. War spending, first for the Korean War and then for the Vietnam War also helped, especially for the Japanese economy. Another great aid was the peace in Europe and Japan imposed by the US security umbrella and occupation forces (said to be protection against a Soviet and/or Chinese attack that never came). Outside the Western world, and the Soviet bloc and China, the time was much more one of colonial struggles falling to neocolonial response and overly nationalist governments being overthrown, as they did not understand that it was the West’s resources that were within their national boundaries not theirs. Democracy, if it were too nationalist, was no protection from Western aggression and subversion as the people of Guatemala, the Congo, Iran, Chile, Brazil and many other nations were to find out.
With unemployment in the Western nations low, and no “reserve army of labour” to put pressure on wages, increases in national income were shared across the spectrum. Even those making cars could enjoy a “middle class” lifestyle, and sociologists talked about the “embourgeoisement” of the (white) working class. Workers could relatively easily quit a job and find a new one, greatly reducing the disciplinary nature of the job market. Strike levels also increased as unions pushed for a greater share of the pie for their members, and even worse many of those members pushed for more say in the workplace in defiance of their conservative union leaders. With the recovery of the European and Japanese economies from the WW2 destruction creating competitors for US firms, and the mounting costs of the US war in Vietnam (as well as its troop bases that spanned much of the world) in combination with Johnson’s “Great Society”, the position of the US was becoming financially untenable. By the late 1960s, the US either had to pick between “guns and butter” or find a magic trick; a position exacerbated by the peak of US oil production in 1970. As Michael Hudson has noted the whole US current account deficit during this period was caused by US foreign military expenditures.
At home, the 1960s became an increasingly violent decade in the US; brutal racist violence against Blacks in the US South, the assassinations of JFK (1963), Malcom X (1965), Martin Luther King and Bobby Kennedy (within months of each other in 1968), and Fred Hampton (1969); together with the race riots and Democratic convention riots of 1968, and the Kent State massacre of 1970. In the 1970s there were hundreds of bombs set off by the Weather Underground and other such groups across the US, and over 100 domestic plane hijackings. The Red Brigade and Baader Meinhof gangs terrorized Italy and Germany, with the former kidnapping and murdering the Italian president in 1978 and the Palestinian Black September group massacring Israeli Olympic athletes in Munich in 1972. At the same time, opinion surveys showed a rapidly diminishing level of respect and trust of the younger generations in corporations and the state; with the latter in the US not helped by a president’s criminal acts and the revelations of hearings into CIA and FBI misdeeds at home and abroad. In the UK, the coal miners had brought down the Conservative government in 1974 with power-cuts rolling through the nation and a three-day week followed by widespread strikes in the 1978-79 “Winter of Discontent”. The US progressive wave stayed alive long enough for Nixon to establish OSHA and extend the reach of the FDA in the early 1970s, but was ebbing too much later in the decade to support a national healthcare system.
In 1971, Nixon had removed the convertibility of the US dollar into gold, as the US gold reserves had continued to fall. Instead of accepting financial constraints on US foreign policy he found a new magic trick, floating the dollar while maintaining its position as the world’s reserve currency. The oil exporters were made aware that any movement away from the US dollar would be considered a hostile act by the US, and the US was made a friendly home for criminal money, as Mr. Hudson details. The result was that the dollars earned by foreign nations from selling goods to the US were recycled into US treasury bonds (the buying of controlling stakes in important US assets was not allowed) to count as part of their national currency reserves; especially by the oil exporters who were soaking up dollars due to the increasing oil prices. In addition, the loans made by the IMF and World Bank remained denominated in US dollars. By the mid-1970s, the elites had decided that enough was enough, there was too much democracy, and things needed to be changed. Test runs of the neoliberal agenda had been carried out in Chile after the US supported coup there in 1973 and with the New York financial crisis of the mid-1970s. Starting with the second half of the Carter administration and with the Callaghan administration in the UK, a turn to neoliberalism was begun (with austerity also being employed by the French Barre government). With the “Volcker Shock” in 1979 that drove up the Fed Funds rate (at which US banks can lend from the US Federal Reserve) to 22% in 1980 and 1981, only slowly falling below 10% in 1983, then jumping back to 16% in 1986, a new reserve army of labour was created through mass unemployment. By 1983 inflation was below 4%, with real interest rates (the interest rate minus inflation) kept historically high throughout the decade. The rise in interest rates also pushed up the value of the dollar and US foreign loan interest rates while crushing commodity prices; creating the 1980s Third World Debt Crisis that facilitated the neoliberal restructuring of Latin America and crushing the alternative policies pushed by third world nationalists (the New International Economic Order). The high interest rates were mirrored by those in the UK, and both US and UK governments strove to cut government services and facilitate the crushing of the unions (e.g. the Air Traffic Controllers union by Reagan and the Miners union by Thatcher) while cutting taxes and regulations for business and the rich.
At the end of the 1980s the Fed Funds rate was raised again to nearly 10% in 1989 (with inflation peaking at 5%), with the Canadian central bank outdoing the Federal Reserve with a lending rate of nearly 14% in 1990 (with inflation peaking at 5.5%); further disciplining the workforce and debtor nations. The decade of the 1990s produced an expanding reserve army of labour to be exploited by Western capitalists, at the expense of Western workers. First of all, the collapse of the Soviet bloc brought Eastern Europe into the Western camp. The signing of the North American Free Trade Agreement (NAFTA) also added the lowly paid Mexican workforce to that of the high-paid US and Canadian workforces. The result was a continuing deflationary pressure upon wages through wage arbitrage, as maquiladora factories were opened up in Mexico and foreign factories proliferated in Eastern Europe. The deregulation of India and many other nations also added their workforces as a pool for Western exploitation, aided by IMF Structural Adjustment programs. In addition, “welfare reform” in the US and “flexible contracts” further reduced worker bargaining power (an attempt to privatize the US public pension system being sidelined by the Monica Lewinsky scandal), while the economic losers were scapegoated and villainized; to be further disciplined in the US by a massively expanded prison population that furnished a growing market for the private prison sector. At the start of the new century, the huge Chinese workforce was added with the acceptance of China into the World Trade Organization in 2001. With such a huge reserve labour army, there was little or no upward pressure on Western wages – the benefits of economic growth flowed to the rich and senior managers and professionals. The raising of interest rates as unemployment fell to low levels was no longer needed, as the relationship between employment levels and incomes started to break down.
Also, at the end of the last decade of the twentieth century the US removed the last of the protections against financial speculation; even though deregulated financial flows were creating repeated crisis in Asia (1997), Russia (1998) and the US LTCM hedge fund (1998), to be followed soon after by the “.com” crash. In parallel, large swathes of public property and the state were “privatized” to open up new economic sectors to profit extraction; even the US military was not immune to widespread contracting out that enabled many cozy cost-plus deals. Public sector managers were suddenly magically transformed into “private sector entrepreneurs” worthy of huge pay raises and stock options! “Private/Public” partnerships proliferated, with seemingly all the risk taken by the public and the risk-free profits taken by the private investors; many based out of tax havens. Investigations repeatedly found that in many cases it would have been cheaper for the private sector not to have been involved. Another good trick was for the state to fund all of the highly-risky development of new technology, such as the MRNA technology in some of the COVID vaccines, then hand it over to investors for free to make massive profits from; or in the case of the MRNA vaccines to even publicly fund product development and sales. At one time many nations had public sector organizations that could provide such vaccines at a very reasonable price; in the US the state has even removed its own rights to regulate drug prices. The public sector was also invaded by the “New Public Management” that saw business management as the best way to run the public sector, mainly to the benefit of management consultancy firms and stealth privatization (as with the UK NHS), while redefining citizens as customers and public servants as costs to be tightly managed, controlled, and “optimized”. At the same time the US reigned supreme, with “capitalist democracy” seeming to be the only socio-economic option; denoting an “End of History”; aided by US covert and overt pressures. If pride comes before a fall, US elite pride had established a new level.
The result of the financial deregulation in the US was an orgy of speculation and the building of monopolistic positions (aided by a near complete lack of anti-monopoly actions), aided by a Fed Funds rate pushed down to 1% (inflation was 2.28%, held in check by the “China Price”) and massive deficit war spending as the US flexed its imperial muscles in Afghanistan and Iraq together with more tax cuts and deregulation for business and the rich. At the same time a swathe of Western factories closed as production moved to China and other cheap labour locations. When the Fed Funds rate was “normalized” to 5% in 2007 the result was the 2008 Great Financial Crisis. Instead of the financial actors that had caused the crisis being jailed and the financial sector being reregulated, and rich investors taking the losses they deserved, the corporations and the rich were bailed out with many trillions of dollars of new money created by the Federal Reserve and other central banks. So interesting that money always seemed to be found for tax cuts for corporations and the rich, bailouts for corporations and the rich, and massive military expenditures, but when social programs came begging the cupboard was always bare. The Fed Funds rate was reduced to near zero; where it stayed for more than six years, from 2009 to 2015 (no risk of inflation with the “China price” and the threatening of striking workers with plans to move production abroad or to cheap none union labor in the US South). At the same time, the government deficits produced by the fallout from the shenanigans of the financial speculators and the very bailouts they received were used as an excuse to slash public spending. At no time was the question of taxing the rich who had benefitted most from the boom and the bailouts raised, instead public services were sacrificed; with the UK government seeming to be the most sadistic. Such sadism was practised on an international scale, as the Greek people were punished for the reckless lending of foreign banks and the corruption and tax dodging of their elites; the first Greek bailout simply moving debts from the books of European banks to the books of the European Central Bank with little new money for the Greeks – a socialization of private losses. In 2015, the Federal Reserve attempted to remove some of the massive money printing that had taken place, but investors panicked in a “Taper Tantrum” with the Fed rapidly retreating after understanding how much the financial markets were still on financial life support.
When the Fed attempted to normalize interest rates once again, raising them very slowly to only 2.5% by late 2019, the US financial system started to seize up; requiring reductions in interest rates and increased Fed liquidity to stave off a crash. In the 2010s, US corporations had fed on the cheap debt to massively leverage up their firms. In the short term it flattered Earnings Per Share, as shares were “bought back” and dividends fattened by companies using debt – driving up share prices and the value of executive’s stock options. Yet more tax cuts for the rich by the Trump administration made it even more fruitful to pump up the capital gains of rising share prices and stock option payouts. Such behavior, an obvious conflict of interest for the corporate executives had been legalized by the Reagan administration in 1982. The result was huge payouts to senior executives, and a lack of cash reserves for many corporations. Even a small recession may place many in severe cash-flow difficulties. At the same time the gutting of corporate institutional knowledge and abilities in the name of “efficiency” savings that always seemed to increase share prices, and executive stock option values, was becoming visible; with great corporate industrial names such as General Electric and Boeing being shown to be mere shadows of their former selves. Added to this were the “private equity” specialists that loaded up firms with debt, sold off the prize assets for their own benefit, and left the carcass for the workers, state and bond holders – a strip mining of US corporate assets that had been built up over decades. Many of the “managers” and “owners” of US corporations only seemed interested in value extraction rather than value creation. Many of the rest seemed to be happy to run “virtual” corporations that managed “global value networks” with only the head office functions seemingly still in the home country. Vast networks of foreign contractor and sub-contractor corporations existed that were disciplined through the financial, marketing and intellectual property power exercised by US (and other Western nation) corporations that had little need for Western non-professional workers; aided by globalized service firms (financiers, accountants, lawyers, marketers, political lobbyists etc.) located in “global cities” such as New York, London and Paris that sat like social, economic and political islands separate from the rest of the nations in which they were located.
Whatever one thinks about the providence of the COVID epidemic, it came along at an incredibly beneficial time to act as a useful cover for the ensuing bailout of banks and corporations through zero interest rates, massive money printing, and massive government deficit spending; with a few crumbs for the lesser people. At the start of 2022, the US (and the UK) now finds itself massively deindustrialized, with extreme inequality in income and wealth (the latter understated through hidden offshore assets), with private debt higher than in 2008 at 226% of GDP, public debt at 125% of GDP now double that of 2008, and even more overvalued stock and bond markets. If a 2.5% Fed Funds rate broke the financial markets in 2019, what rate will break them today as the Fed talks about normalizing interest rates? The provision of liquidity predominantly to large corporations, while medium and small ones came under pressure, has also aided the continued concentration of ownership. The rentier oligopolistic US economy that Hudson describes significantly pushes up the cost of living for workers, through expensive house prices and rents, healthcare, insurance, education, bank fees, internet and mobile services; combined with a lack of public transport and basic government services. The overhead of elite rentier extraction makes the US significantly more unattractive as a manufacturing base, while reducing living standards for the majority. This is exacerbated by an underspending on basic infrastructure that has continued for decades. Such a rentier structure is also becoming prevalent in the UK but has been limited somewhat in Western Europe and Japan.
One way out for the US would be an inflationary period that reduced the real value of debts, but this would negatively impact financial assets and further impoverish a working class with very limited bargaining power (that China price again, or is it the Vietnam price, or the Indonesia price?). Another would be to “grow out” of the debt load, but with the level of deindustrialization such growth would rapidly increase the US current account deficit and significantly devalue the dollar (feeding back into domestic inflation and increasing the US$ costs of US foreign bases and expeditionary forces). Any attempt to significantly raise interest rates and reign in money printing would trigger the debt deflation spiral that was stopped in 2008 and 2020. Any attempt to claw back the huge levels of business and rich tax cuts implemented in the past 40 years is also off the agenda given the hold of those groups over the state. Bringing back industrial jobs to the US would both greatly reduce US corporate profits and be greatly constrained by the destruction of so much of the US skill base and industrial infrastructure over the past four decades. The only other option is to increase the exploitation of the US population and/or gain advantageous access to other nations assets (as with Latin America in the 1980s and Russia and Eastern Europe in the 1990s). The former action may be limited by the increasing restiveness of the general population, and the latter by the rise of the competing economic model of China.
The continued immiseration of the majority of the population during the past four decades, with the so-called “left-wing” parties becoming socially progressive but neoliberal (the “New Democrats” in the US and the “Blairites” in the UK), or sidelined by their lack of connection with working people and their overly internationalist and “woke” alignment (in France and Germany for example) has created a large swathe of people who are both exasperated and feeling not represented. The few attempts at a left comeback have been quickly quashed by the establishment, as with Syriza in Greece, Occupy Wall Street and Bernie Saunders in the US, and Corbyn in the UK, and the “Yellow Vests” protesting against regressive carbon taxes in France. With no true left-wing alternative offered, the right-wing reactionary libertarian (fake) populist option becomes the next best thing for many. The focus is kept away from the elite and kept on scapegoats such as the progressives who look down upon many as uneducated “deplorables”, immigrants who “take jobs” and “threaten our way of life”, and state bureaucrats that “limit their freedoms”. As seen in the overwhelming campaign from within and without the Labour Party to destroy Jeremy Corbyn, and the obvious cheating of Bernie Saunders out of two Democratic Party nominations, any option that reminds the majority of their shared interests will be subject to extensive elite subversion. President Donald Trump and BREXIT were natural outcomes of the above, with Trump doing little or nothing for the average person whilst slashing taxes for business and the rich (his main sins were attempting détente with the Russians, not being part of the internationalist establishment, and being generally vulgar in the eyes of that establishment). The outcome of BREXIT will likely be a further deregulated cheap labour paradise for the rentiers, although the level of economic damage may be significantly worse than its backers expected. The recent trucker protests in Canada are also a symptom, consisting of petit bourgeois owner operators revolting against the progressive neoliberal elites who they see as restricting their freedoms.
With so many internal economic and social issues to deal with, it is not a good time for the West to be faced with a rapidly rising and industrialized China (with a larger GDP in PPP terms than the US; US$24 trillion vs US$21 trillion and growing at 6% per year) which is allied with Russia and Iran while increasing its economic reach through Eurasia, Africa and Latin America. China represents a very different economic model, one where a highly efficient Party-state bureaucracy focused on national development utilizes markets for its own aims and does not allow economic elites to become politically powerful. The actions taken against Jack Ma and others who threatened to develop a rentier style financial capitalism and challenged the authority of the Party-state, as well as Party members who had become increasingly corrupt during the rapid growth of the first decade of the century, are evidence of this under the leadership of Xi. Such balancing by the state between the interests of the people and commercial interests has been practised in China for thousands of years, it is not just a communist party creation. China’s ability to weather the COVID storm so much better than the US, and to develop advanced industries and public infrastructure which support the ongoing growth of worker incomes is a powerful counterpoint to the US neoliberal model. Independent opinion surveys show overwhelming support for the Chinese Party-state within the country, in contrast to the very low levels of support for governments in Western nations. The promise of development without political interference in other nations internal affairs also acts as a competitive advantage when contrasted to the neocolonial US and Western model; one grasped most recently by Argentina. The vastness of China’s still-growing markets also creates a gravitational pull upon European corporations (e.g. more than 30% of the sales of German car manufacturers are in China) and Asia in general. Over this decade, China will continue to undermine the remaining bases of a US economy which is heavily reliant upon the control of Global Value Chains through technology leadership, the financial exploitation of other nations, massive arms sales, and the reserve currency status of the US dollar.
US and UK (and Canadian and Australian) elites are trapped by their own actions that were focused on massive self-enrichment and a regeneration of their social and political power, but which resulted in the debilitation of their own national strength (even military strength due to cost-plus profit-laden military contracts) while building up a new global competitor and furnishing it with an increasing number of allies (Russia, Iran, Central Asia) and those that will not be dragged into a coalition against it (Association of South East Asian Nations, Central Asian, India). The rebuilding of the national strength would require sacrifices by the elites which they are not ready to give (e.g. an end to wage arbitrage, monopolistic and rentier practices and significantly higher taxes for the rich) and would embolden the workers that were made so quiescent by four decades of neoliberalism and offshoring. It would also require a retrenchment of the military industrial complex (MIC) that would be very painful for private military contractors and remove much of the support for the profit extraction abroad and the recycling of US$s into US treasury bonds. Instead, those elites are continuing to deepen their rentier and extractive activities, while intensifying surveillance and security services; including the recent linking of social media platforms to the security services. For example, the cooperation between Facebook and the Atlantic Council under the cover of combatting “fake news” and “misinformation” (i.e. alternative sources of news and analysis), and limiting the available political options to those that will maintain the current power structure. While also blocking any attempts at raising taxes and rebuilding US national strength, as with the defeat of the mild “Build Back Better” plans of the Biden administration; as well as any benefits for the workers through such things as a raised minimum wage or tuition debt cancellation. In the UK, all of the alternatives to the flailing Boris Johnson are for much more neoliberalism not less. All while their financial system and asset values have become completely dependent upon repeated doses of zero interest rates and financial bailouts.
Without being willing to make the sacrifices required to increase national strength, the only way left to compete with the budding Russia-China-Iran alliance is to goad them into actions that will allow for a new Cold War through which others nations could be brought around to support a sanctions regime and a cordon sanitaire; even though those actions may be extremely damaging to those nations interests (e.g. a lack of Russian oil and gas for Europe). Extreme sanctions, threats, and assassinations have not worked with Iran and the restrictions on the sale of Iranian oil on world markets is one of the reasons for current high oil prices (the same with Venezuelan sanctions and the destruction of Libya). Sanctions on Russia have driven it to develop its own oil and gas technologies, reduce its dependence upon the US$ and become a net food exporter. Attempts to damage Chinese high technology development through removing access to operating systems and the latest chip technology have only lead to a greater drive within China to develop its own technology; speeding up the day when the Western technology lead, and the profits from the related Global Value Chains, are challenged. The US has also been unable to goad China into making a false move with respect to Taiwan, and ASEAN etc. have refused to be part of an anti-China coalition. Currently, the US seems to be attempting to push Russia to invade the Ukraine, to produce support for more extreme sanctions. Unfortunately, Russia has not taken the bait and the European nations are realizing how disastrous such sanctions would be for them; placing pressure on Europe-US relations. The latest presentation of the US Secretary of State to the UN about the Russian “threat” to the Ukraine seems too reminiscent of the notorious “Iraq WMD” presentation of Colin Powell to that body. Moves to destabilize Eurasian nations that will not ally with the US are also coming up short in Kazakhstan (a defeated attempted colour revolution) and Thailand (taking actions to control Western destabilizing NGOs).
The UK, US and other white settler colony elites, with some resistance from New Zealand, are struggling through their domestic and international challenges with no real strategy than “more of the same”; a somewhat chaotic muddling through. This may be all they are capable of, or willing to do. Their populations are becoming increasingly restive, especially with the botched COVID responses, while Russia, China, and Iran know that patience is a virtue when the opponents are so obviously without a strategy and weakening in relative terms by the day. European elites are increasingly faced with the challenge of how to straddle the path between US pressures and their need for Russian resources and Chinese markets, while understanding the true function of the US troops stationed within their nations and the readiness of the US to punish and destroy those that veer too far from the US preferred path.
And in the background climate change slowly builds while being pretty much ignored for now, apart from the odd climate summit where leaders pretend to take it seriously. They have far too many higher priorities.