Neoliberalism and the Global Financial Crisis

Abstract

First I make a case for the possibility of defining neoliberalism in a sufficiently evident and coherent way as a programme of resolving problems of, and developing, human society by means of competitive markets. Second, I argue that the more narrow, technical and short-term one's definition of Keynesianism is, the more plausible the claim about a new era of Keynesianism may seem. A multidimensional comparison between ideal-typical models of social democracy and neoliberalism shows, however, that the ongoing global economic crisis has so far prompted responses that are leaving neoliberalisation intact in most dimensions and may even elicit further neoliberalisation. I conclude by discussing the limits of thinking about ideologies in territorial-statist terms. The current era may well be replaced by an era of green global Keynesianism; but a full-scale return to mere national social democracy is unlikely, especially given the discrepancy between the reaches of territorial states and private capital operating in competitive, liberalised world markets.

Notes

² Milton Friedman, “Letter: Friedman & Keynes,” Time, February 4, 1966, available at: < http://www.time.com/time/magazine/article/0,9171,898916-2,00.html> (accessed April 20, 2009).

¹ “We Are All Keynesians Now,” Time, Friday, December 31, 1965, available at: < http://www.time.com/time/magazine/article/0,9171,842353,00.html> (accessed April, 20, 2009).

³ As reported by Leonard S. Silk, “Nixon's Programme—‘I am now a Keynesian,’” New York Times, January 10, 1971. Nixon made this statement in the context of bad economic news and announcing a deficit-spending budget involving 8% rise of expenditure, which was tailored to secure full employment—a common interpretation also in view of the 1972 elections.

⁴ As James Tobin has pointed out, many economists, of whom Milton Friedman was an eloquent and persuasive spokesman, had been advocating floating exchange rates: “By the early 1970s [this] view was the dominant one in the economics profession, though not among central bankers and private financiers. And all of a sudden, thanks to Nixon and Connally, we got our wish. Or at least we got as much of it as anyone could reasonably have hoped, since it could never have been expected that governments would eschew all intervention in exchange markets.” James Tobin, “A Proposal for International Monetary Reform,” The Eastern Economic Journal 4:3–4 (1978), p. 153.

⁵ The earliest studies using the term neoliberalism in its now common negative, pejorative sense appeared soon after the 1973 coup d'etat in Chile. See for example Michael Chossudovsky, “The Neoliberal Model and the Mechanisms of Economic Repression,” Co-existence 12 (1975), pp. 34–57.

⁶ This debate and related vote is available at: < http://www.economist.com/debate/overview/140>.

⁷ For an excellent critical scrutiny of the concept of neoliberalism, see Taylor C. Boas and Jordan Gans-Morse, “Neoliberalism: From New Philosophy to Anti-Liberal Slogan,” Studies in Comparative International Development 44:2 (June 2009), pp. 137–161.

⁸ Competition and competitive can be contrasted to either (i) monopoly and monopolistic, or (ii) to cooperation (in the theory of markets, these two antinomies can be close as when cooperation between firms enables monopolistic pricing practices; paradoxically, a successfully competitive firm can become monopolistic). In popular discourse and newspaper articles, the terms “competition” and “competitive” have become dramatically more frequent than “monopolistic” or “cooperative”; and “competition” and “competitive” are being used increasingly often in a positive sense, whereas earlier in the 20^th century the positive effects of cooperation prevailed and competition was seen more often negatively than not. David George, “On Being ‘Competitive’: The Evolution of a Word, ”real-world economics review, 48:6 (December 2008), pp. 319–334, available at: < http://www.paecon.net/PAEReview/issue48/George48.pdf>.

¹⁰ Boas and Garse-Morse, op. cit., p. 138.

⁹ This is partly true of David Harvey, A Brief History of Neoliberalism (Oxford: Oxford University Press, 2005). A striking recent example is Naomi Klein's Shock Doctrine, which is based on the claim that strategies of physical torture, implementation of Milton Friedman's political philosophy, securitisation, and war are all based on the same underlying logic. Naomi Klein, The Shock Doctrine: The Rise of Disaster Capitalism (New York: Metropolitan Books, 2007). Another alarmist example is Henry A. Giroux, The Terror of Neoliberalism: Authoritarianism and the Eclipse of Democracy (Boulder, CO: Paradigm Publishers, 2004). Giroux fails to distinguish between neoliberalism and neoconservatism; for a summary of the relevant differences and connections, see Manfred B. Steger, Globalism: Market Ideology Meets Terrorism (Lanham, MD: Rowman & Littlefield: 2005), pp. 16–17.

¹¹ Boas and Garse-Morse, op. cit, pp. 145–150.

¹² Friedrich A. Hayek, The Road to Serfdom (Chicago, IL: University of Chicago Press, 1944), p. 240. Cf. Milton Friedman, “Liberalism, Old Style,” Collier's Year Book (New York: P.F. Collier & Son, 1955), pp. 360–363. Nonetheless, 19th-century ideas have not been replicated in the late 20th and early 21st century. Rather, pro-market ideas are now more technical and abstract than in classical liberalism; the principles of social market economy are widely accepted; and new theories such as New Public Management are constitutive of the contemporary formation.

¹³ “Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.” John Maynard Keynes, The General Theory of Employment, Interest and Money (London: MacMillan: 1961 [1936]), p. 383. I would only add that this can be shown by means of discourse analysis capable of revealing the presuppositions of claims being made in bureaucratic memoranda, newspaper articles, and public speeches.

¹⁴ Claims that welfare benefits have not been reduced in the OECD countries are based on overtly mechanical way of reading quantitative figures about state expenditure and do not reflect changes in social mechanisms and experiences in everyday life. Nonetheless, the situation is drastically worse in those parts of the global south, where lack of genuine economic growth has been associated with stagnation or decline in already low welfare spending. Cf. John Glenn, “Welfare Spending in an Era of Globalization,” International Relations 23:1 (March 2009), pp. 27–50.

¹⁵ For the Enlightenment era conceptual transformations, see Reinhart Koselleck, “Time and Revolutionary Language,” Graduate Faculty Philosophy Journal 9:2 (1983), pp. 117–127.

¹⁶ Cf. the Hayek quote cited in footnote 12.

¹⁷ Milton Friedman (with the assistance of Rose Friedman), Capitalism and Freedom (Chicago, IL: University of Chicago Press, 1962).

¹⁸ “We're All Keynesians Now,” Wall Street Journal, January 18, 2008, available at: < http://online.wsj.com/article/SB120062129547799439.html?mod = opinion_main_commentaries> (accessed April 23, 2009).

¹⁹ For a causal analysis, see Heikki Patomäki, “Global Financial Crisis: A Causal Explanation and Two Short-term Scenaries,” Globalizations, 7:1 (Februrary 2010), forthcoming.

²⁰ Stephen S. Roach, “Whither Capitalism?” Journal of Applied Corporate Finance 21:1 (Winter 2009), p. 27.

²¹ Keynes, The General Theory, pp. 372, 382.

²² Of all the models of the actually-existing systems, this ideal type resembles most closely the universalist social democracy of Sweden at its watershed moment in the early 1980s. See Gøsta Esping-Andersen, The Three Worlds of Welfare Capitalism (Cambridge: Polity Press, 1990); Magnus Ryner, Capitalist Restructuring, Globalization and the Third Way: Lessons from the Swedish Model (London: Routledge, 2002).

²³ Eduard Bernstein, Evolutionary Socialism, trans. by Edith C. Harvey (London: The Independent Labour Party, 1907), available at: < http://www.marxists.org/reference/archive/bernstein/works/1899/evsoc/index.htm>.

²⁴ Robin Hahnel, “Why the Market Subverts Democracy,” American Behavioral Scientist 52:2 (March 2009), pp. 1006–1022.

²⁵ See John Dryzek, Democracy in Capitalist Times: Ideals, Limits and Struggles (Oxford: Oxford University Press, 1996).

²⁶ See Colin Crouch, Post-democracy (Cambridge: Polity, 2004).

²⁷ J.M. Keynes, “Proposals for an International Currency Union,” in J.M. Keynes, The Collected Writings of John Maynard Keynes, Vol.XXV (London: Macmillan, 1980 [1941]), p. 46.

²⁸ J.M. Keynes, “Proposals for an International Currency Union,” in J.M. Keynes, The Collected Writings of John Maynard Keynes, Vol.XXV (London: Macmillan, 1980 [1941]), p. 52.

²⁹ Philip O'Hara, Growth and Development in the Global Political Economy: Social Structures of Accumulation and Modes of Regulation (London: Routledge, 2006), p. 208.

³⁰ Richard Swedberg, “The Doctrine of Economic Neutrality of the IMF and the World Bank, Journal of Peace Research, 23:4 (December 1986), p. 378. On the doctrine of economic neutrality, see also Teivo Teivainen, Enter Economism, Exit Politics: Experts, Economic Policy and the Damage to Democracy (London: Zed Books, 2002).

³¹ See Heikki Patomäki, The Political Economy of Global Security: War, Future Crises and Changes in Global Governance (London: Routledge, 2008), pp. 184–194.

³² And if the 2008–2009 financial crisis can be contained and limited, the next crisis is probably going to be even bigger, given the growth of the underlying super-bubble. See Patomäki, “Global Financial Crisis,” op.cit.

³³ Noticeably, the Prime Minister of Australia Kevin Rudd has argued in favour of such a return under the (rather moderate) rubrics of “saving capitalism from itself and its own excesses” and “balancing the private and the public, profit and wages, the market and the state.” While proposing a few reasonable global governance reforms, he too suspects that “when the financial system stabilises and the global recession eases, we can expect to see governments pulling back from direct involvement in the ownership and operation of the banking sector.” Kevin Rudd, “The Global Financial Crisis,” The Monthly: Australian Politics, Society & Culture, 42 (Feb 2009), available at < http://www.themonthly.com.au/tm/node/1421>.

³⁴ Robert Triffin, Our International Monetary System: Yesterday, Today, and Tomorrow (New York: Random House, 1968), p. 179.