A Brief History Of Neoliberalism

In Chapter 2, Harvey describes how neoliberalism was installed around the world, focusing on places where it could not be installed through military action and social repression, as in the case of Chile described in Chapter 1. He focuses on the implementation of neoliberalism in the United States and the United Kingdom under Reagan and Thatcher in the 1980s.

Harvey begins with a discussion of the work of 20th-century Marxist philosopher Antonio Gramsci, who described how “common sense” is used to create political consent. In the United States, the notion of “freedom” is central to people’s cultural common-sense understanding of values. Through institutions like think-tanks, universities, and the media, elites created a common-sense understanding that neoliberalism was essential to freedom. As common sense, this understanding is imbued with a certain matter-of-factness that renders it largely unquestionable. Armed with this common-sense understanding, elites gain state power and create laws inspired by a neoliberal ideology rooted in this notion of freedom.

In the 1960s and 1970s, social movements globally advocated for greater freedom as well as social justice. Neoliberalism was able to use the idea of freedom to create splits between collective traditional organized labor, such as unions, and student movements that wanted more individual freedoms, as in France in 1968. There were points of commonality between those contributing to social justice movements and those desiring individual freedoms, such as the fights against state-supported racism and anti-gay discrimination. Neoliberalism captured this energy by focusing on “liberty of consumer choice,” which reduced demand for radical transformation of capitalism (42), thereby preserving economic elites. By the 1980s, the class elites were perfecting this process.

Harvey then describes how the business elite consolidated their class interests beginning in 1971 with a memo by future Supreme Court justice Lewis Powell to the US Chamber of Commerce, encouraging them to organize against those who opposed free enterprise. Afterward, the US Chamber of Commerce expanded its operations and created institutions to collectively lobby the government, such as the Business Roundtable. Think-tanks like the Heritage Foundation and the National Bureau of Economic Research (NBER) created studies to support their efforts, and their work was integrated into the economics departments and business schools of universities (as the example of the “Chicago boys” demonstrates).

Harvey then turns to a discussion of the New York City fiscal crisis in the 1970s as an example of how the state created common-sense understandings of neoliberalism. In the 1970s, due to the recession at that time, the NYC government was spending more money than it captured in taxes. In 1975, investment bankers agreed to bail out the city as long as they paid them back first before spending on municipal services. This led to austerity measures. Harvey describes this as “a coup by the financial institutions against the democratically elected government of New York City” that was supported by the federal government under Gerald Ford (45). After this, the investment bankers and their allies implemented structural adjustment policies to the local New York government to reduce democratic control and make it more business-friendly, even as NYC residents suffered under the austerity measures. This cemented the principle that business concerns should come before the welfare of people. In the 1980s, under Reagan, this principle was applied nationally and internationally through institutions such as the IMF.

In the mid-1970s and onward, the consolidated business class sought to use the Republican Party to further their goals through coordinated spending employing Political Action Committees (PACs) and other mechanisms. The Democratic Party likewise was beholden to capitalist donations but also had to respond to demands by its diverse constituency. The Republican Party at this time gained the constituency of the Christian right and expelled liberal elements from the party. Because the Democratic Party likewise had to privilege capitalists over its base to compete with the big money bolstering the Republic Party—in turn depressing support for the Democratic Party—the Republican Party gained hegemonic power.

Under Republican President Reagan in the 1980s, neoliberal policies of deregulation and labor discipline were pursued with great speed. For example, the National Labor Relations Board (NLRB) was weakened, and corporate taxes were reduced or eliminated. This was promoted to the workers as an opportunity for greater flexibility and freedom in the workplace. This messaging and rationale were spread through the press, universities, and international institutions, and they cemented neoliberalism in business and state policy.

The process of spreading neoliberalism during the 1980s took a different form in the United Kingdom under Margaret Thatcher. Organized labor under the left-wing Labour Party had a lot more power and had created a larger welfare state compared to the United States. However, beginning in the 1960s, the City of London (a small economic area where international finance capital is concentrated, not to be confused with London, the larger geographic area) became a more important source of wealth in the United Kingdom as its colonial holdings dwindled. This was an important source of support for monetarist policies. In the 1960s and 1970s, critique of Labour policies increased due to economic crises provoked by the conflict between the City and manufacturing. This came to a head during the “balance of payments” crisis during which the United Kingdom, in debt to the IMF, either had to reduce welfare payments, which would harm the welfare of people, or reduce the value of the currency (the pound sterling), a move which would have hurt the city. The Labour government pursued austerity measures, leading to widespread strikes, the fall of the Labour government, and the election of Margaret Thatcher in 1980. Thatcher fought the unions, most notably the coal miners’ union, opened the United Kingdom up to foreign direct investment, privatized national industries such as water and coal, and turned public housing over to private ownership. While Thatcher faced protests, she was able to create a middle class, or an aspiring middle class, that valued individualism and private property and that supported her reforms.

Harvey concludes that Thatcher and Reagan successfully took a previously marginal set of economic principles and made them mainstream. They used examples from Chile and New York City to justify their efforts and cemented neoliberalism as a set of policy choices that subsequent Labour and Democrat governments under Tony Blair and Bill Clinton, respectively, had few options but to maintain, “whether they liked it or not” (63).