A Brief History Of Neoliberalism

In Chapter 3, Harvey describes the difference between neoliberal theory and its practice. He begins by giving a summary of the theoretical neoliberal state. The key belief of neoliberal theory is that the state, or a government, “should favour strong individual private property rights, the rule of law, and the institutions of freely functioning markets and free trade” (64). In this view, free markets are the best way to reduce poverty. The state should use its power to ensure free markets and the rule of law while reducing barriers to trade, such as tariffs and regulation, but it should not support individuals. Instead, individuals are responsible for all of their own outcomes, such as paying for health care costs. Internationally, states should work together through institutions like the G8 to ensure low barriers to trade between countries. Neoliberal theory holds that democratic power could threaten this framework and therefore seeks to insulate regulatory institutions like central banks from democratic control.

In the section entitled “Tensions and Contradictions,” Harvey outlines some of the ways that applied neoliberalism differs from its ideal theory. First, while neoliberals do not find commercial monopolies problematic, they oppose state monopolies, even where “‘natural monopolies’” exist, such as in the case of electricity or railways. It creates chaos and poor outcomes when there are multiple companies competing for the same railway route, for example. Second, free markets create negative “externalities” that are not taken care of by private industry, such as pollution, which can hurt the labor pool, through illness and disease. Neoliberals might allow for some state intervention in these situations but hold that these should be done through the creation of new markets, such as pollution credits. Likewise, state intervention may provide solutions to competitive failures like hospitals buying up sophisticated equipment that goes underutilized but drives up the cost in the market. However, neoliberals reject this possibility. Another tension is that neoliberal theory holds that all market actors have equal access to information, but in practice this is rarely true, leading to monopolies and “rent seeking,” a term for generating wealth without producing anything new, such as when companies hold patents on a technology and refuse to let other producers use it.

Neoliberal theory holds that competition will generate new technologies. However, this results in “a fetish belief: that there is a technological fix for each and every problem” (68). This can result in technological solutions in search of a problem but can also destabilize society.

One of the key contradictions between neoliberal theory and practice that Harvey identifies is the idea of individual free choice. While neoliberal theory holds that individuals should have free association, in practice neoliberals do not want them choosing to form unions or political parties that would limit the free market. They rely on undemocratic institutions, such as the IMF, propaganda, and police violence to curb this activity.

In the section “The Neoliberal State in Practice,” Harvey describes the common features of existing neoliberal states, while acknowledging that there are many unique differences between them. First, a neoliberal state privileges business over the quality of people’s lives. Second, it preserves the financial system’s solvency (ability to meet debts) over well-being or environmental concerns. Further, neoliberal states will often abandon strict neoliberal principles for political reasons, such as protecting agriculture while insisting on free trade in all other markets. In other examples, neoliberal states will not pursue neoliberal policies because of specific historical legacies, such as Scandinavian commitments to a large welfare state. Developing countries engaging in neoliberalism tend to be more interventionist because they are seeking to compete on the world market and therefore invest more in education, for example.

One of the largest contradictions between neoliberal theory and practice can be found in the tendency for neoliberal states to bail out financial institutions when they fail. In theory, financial institutions are responsible for their own poor investments. In reality, the state will bail them out for overspeculation or in the event of a market crash. One example of this occurred in 1982, when New York investment banks threatened to crash as a result of the potential bankruptcy of Mexico. In response, Ronald Reagan’s Secretary of the Treasury worked with the IMF to restructure Mexico’s debt and save the New York banks. As a result, in this example and others, developing nations subsidize developed ones, such as the United States. Effectively, “reckless investments should be punished by losses to the lender, but the state makes lenders largely immune to losses. Borrowers have to pay up instead, no matter what the social cost” (74). Even when debt is written off, it comes with structural adjustment policy requirements that result in economic crises, which Harvey discusses in more detail in Chapter 4.

The neoliberal state is particularly concerned with disciplining labor by enforcing flexible employment practices. Since workers have less access to information and movement (such as across borders) than the elite class, this puts them at a disadvantage in the market. In the meantime, the state has reduced access to welfare, which makes workers even more precarious.

Neoliberalism has changed the structure of the state itself. A neoliberal state works closely with business to provide services and write legislation. Under a public-private framework, the state takes on all the risk while companies earn profits. To protect advantages like these, the neoliberal state seeks to discipline workers who oppose the free-market system or are considered excess to it, such as through mass incarceration in the United States. In theory, neoliberalism seeks to avoid the control of the state by special interests. In reality, neoliberalism pushes the state to act in the special interests of corporations. In theory, people have access to the legal system to ensure their rights are protected. In reality, corporations have access to funds that help them win cases. Rather than doing away with the state, neoliberalism has fundamentally changed how it works.

Harvey then briefly lists a number of other contradictions between neoliberal theory and practice: 1) the use of nationalism despite the theoretical belief in international free trade, 2) neoliberal states require authoritarianism to maintain free markets, 3) the volatility created by deregulation, 4) the tendency of free markets toward monopoly rather than competition, and 5) the dissolution of society because commercialization creates anti-social behaviors and result in dangerous forms of authoritarian populism.

In the final section, “The Neoconservative Answer,” Harvey describes how neoconservatives, such as George W. Bush, have responded to these contradictions. Like neoliberals, they are supportive of free markets and authoritarianism. However, they seek to limit and order individual choices and use morality to create social bonds. One method they use to do this is to emphasize nationalism and militaristic responses to threats such as “Radical Islam” (83). They also promote moral issues associated with evangelical Christianity, such as the importance of family and anti-gay, anti-feminist rhetoric, to create social cohesion. Harvey notes that this kind of response is also found in other countries, such as the rise of right-wing fascism in Europe. While, generally speaking, nationalism is essential to the survival of the neoliberal state, the neoconservative form of nationalism may turn what seems like a solution to neoliberal theory’s contradictions into a problem for global free markets and individual choice.