The rise of neoliberalism since 1979 is the major factor in transforming the world at the global scale to its current state.
The current state of the world is characterized by issues such as rising income inequality, populist discontent, and increased nationalism and protectionism in the United States (US) and Europe. Is there a common link among these issues? The answer is yes, and the rise of neoliberalism since 1979 is the major factor in transforming the world at the global scale to its current state. The effect of neoliberalism is both inconspicuous such as its role in the dissolution of the Soviet Union, and overt such as its role in rapid globalization marked by rising economic nationalism. How did this come to be and will the spread of populism affect the future of neoliberalism?
The rise of neoliberalism
Neoliberal ideas began gaining acceptance in Western nations in the 1970s following the failure of Keynesian policies that had advocated an active government role in managing the economy. In contrast, neoliberalism believes that a globalized free market will produce the greatest possible prosperity.[1] This is achieved through deregulation, privatization and tax reform—the principles which are embodied in the Washington Consensus.[2] Neoliberalism was fully embraced in 1979 by Margaret Thatcher and subsequently by Ronald Reagan.[3] While there were many important events in the last four decades, neoliberalism was arguably the one factor that has affected every person on this planet.
The effects of neoliberalism
Globalization has been a feature of trade long before the arrival of the free market system—the Silk Road trade route connected Asia and Europe as early as the 2nd century BC. However, neoliberalism was the main driver for the rapid acceleration of globalization starting in the late 20th century.[4] The neoliberal principles of deregulation and trade liberalization provided the incentive to facilitate the flow of capital, goods and services through improvements in communications, transportation and information technology. The quantum leap in globalization resulted in the features of contemporary life such as worldwide interconnectivity and e-commerce.
A free market has been shown to increase the GDP of its participants[5] and the increased wealth of Western countries directly led to the inability of the Soviet Union to keep pace in the arms race. In addition, the contrast in material standards contributed to widespread public discontent in the Soviet Union and influenced Gorbachev to implement glasnost (openness) and perestroika (restructuring), leading to the eventual dissolution of the Soviet Union.[6] The demise of the Soviet Union and its socialist model of development as an alternative to the capitalist system was regarded as a triumph of global neoliberalism.[7]
However, neoliberalism has also eroded states’ authority and ability to regulate their own affairs. In their place, global corporations and non-state actors exercise global influence, often for their own benefit. Corporate self-interest, coupled with deregulation, has led to various financial meltdowns such as the 2008 global financial crisis. In developed countries, deindustrialised regions of high unemployment appeared as a direct impact of corporations relocating their manufacturing overseas in search of cheap labour. While developing countries initially received the benefit of these manufacturing jobs, a large supply of cheap labour and the constant prospect of factory relocation kept wages and labour standards low.
Additionally, the overall increase in GDP was attributed to an elite group obtaining enormous wealth at the expense of the middle class and the poor. In the US, the top 1% has accounted for 60% of the aggregate growth from 1976 to 2007.[8] The stagnation of the working class, coupled with the degradation of the environment and the collapse of social welfare,[9] led to political discontent and populism in many countries, symbolized by the Occupy movement and anti-globalization protests. In the Middle East, global neoliberalism was seen as a form of cultural and economic imperialism that led to the 9/11 attack.[10]
The future of neoliberalism
The growing pushback against neoliberalism has led to the growth of nationalism and protectionism: the rise of left-wing governments in Latin America from 1998 to 2009,[11] Brexit, and the Trump administration’s trade and migrant policies are just a few cases. However, neoliberalism remains “the only show in town.” Other alternative ideologies are not in a position to take over.[12] In addition, many countries are actively supporting neoliberalism. For example, 22 countries in Africa are actively pursuing the African Continental Free Trade Area, while Canada recently signed the Trans Pacific Partnership trade deal and the Comprehensive Economic and Trade Agreement with the European Union. Further, a recent Canada’s World Survey report indicates that most Canadians strongly support free trade.
Ironically, while the US has been increasingly abandoning the Washington Consensus, China has defended it and promised to exercise a leadership role.[13] At the same time, as neoliberalism’s principal supporter, the IMF has recognized its negative effects and was willing to be more flexible in the application of neoliberal conditionalities to aid-recipient countries. However, populist discontent against neoliberalism will not disappear unless a fundamental reform is undertaken to address income inequality and the preservation of local culture.
Conclusion
In the last four decades, neoliberalism has transformed the world into a globalized environment. It also contributed to the demise of the socialist model of development, eroded the authority of states and the ability to regulate their own affairs, and increased income inequality and political discontent. The stagnation of the working class has further led to a growing pushback against neoliberalism, typified by rising nationalism and protectionism especially in the West.
However, with the prevalence of free trade agreements and the absence of a competing ideology, neoliberalism is far from dead. At the same time, there is no more illusion that unchecked neoliberalism can offer the best future for the majority of citizens. Without a much improved neoliberalism 2.0, increasing populism may well spell the end of neoliberalism in the future.
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Notes
[1] Jan Aart Scholte, “Governing a More Global World,” Corporate Governance 10, no. 4 (2010): 468.
[2] The Washington Consensus refers to a set of economic principles—originally stated by the British economist John Williamson—that the IMF, World Bank and US Department of Treasury first used in the 1980s, specifically as conditions for providing aid to developing countries. In addition to the principles of deregulation, privatization and tax reform, the Washington Consensus principles advocate fiscal discipline to limit budget deficits, reprioritization of public expenditures to areas that can spur economic growth, market-driven interest and exchange rates, liberalization of trade and foreign direct investment, and legal protection for intellectual property rights.
[3] Montbiot, “Neoliberalism – the ideology . . ., n.p.
[4] David Fasenfest, “Neoliberalism, Globalization and the Capitalist World Order,” Critical Sociology 36 no. 5 (2010): 629.
[5] Lambrecths et al utilizes cross-regional 16-year data from 19 countries to demonstrate a strong correlation between a country’s trade freedom and its average GDP per capita.
[6] Jarle Simensen, “The Global Context of 1989,” in Transnational Moments of Change: Europe 1945, 1968, 1989, ed. Gerd-Rainer Horn and Padraic Kenney (New York: Rowman and Littlefield, 2004), 162.
[7] Ibid., 165; Michael Rustin and Doreen Massey, “Rethinking the Neoliberal World Order,” Soundings no. 58 (2014): 118.
[8] Thomas Piketty and Emmanuel Saez, “Top Incomes and the Great Recession: Recent Evolutions and Policy Implications,” IMF Economic Review 61, no. 3 (2013): 458. Academic Search Complete, EBSCOhost (accessed April 11, 2018).
[9] Neoliberalism advocates fiscal discipline and tax cuts, leading to a reduction in government’s tax base and social programs. Meanwhile, deregulation and corporate self-interest result in the ‘freedom to pollute.’ Montbiot, “Neoliberalism – the ideology . . ., n.p; Hyde, “Neoliberalism, Finance, and Income Inequality . . ., 21-22.
[10] This economic and cultural imperialism is exemplified by the disappearance of traditional souks replaced by Western fast food restaurants, a cause that was of interest for Mohammed Atta (one of the ringleaders of the 9/11 attackers). M.K. Al-Sayyid et al, “The Impact of 9/11 on the Middle East,” Middle East Policy 9, no. 4 (2002): 83; Wayne C. McWilliams and Harry Piotrowski, “September 11, Afghanistan, and Iraq,” in The World Since 1945. A History of International Relations (Boulder: Lynne Reinner Publishers, 2009), 569.
[11] This ‘Leftist Tsunami’ was caused by the failure of two decades of neoliberalism that had caused a high level of inequality and the doubling of the number of urban poor in Latin America.
[12] Scholte, “Governing a More Global World,” 468-470.
[13] China’s leadership should be viewed with skepticism. Despite participating in free trade, it has applied its own “Beijing Consensus” to protect and develop its domestic sectors.
Author
Lieutenant-Colonel Haryadi Christianto is an officer with the Canadian Armed Forces, currently serving within the Directorate-General of Capability and Structure Integration, Canadian Forces Development. His article on neoliberalism was written as part of his studies while a student attending the Joint Command and Staff Program at the Canadian Forces College in Toronto, Ontario.
