This article shall investigate the emergence of neoliberalism, with a specific focus on monetarism. I question the notion that neoliberalism embodies the fruition of a market mechanism over the state. Rather, the state has changed its role to meet the needs of the financial sector.
The emergence of monetary policy and the crisis the preceded it
Monetarism is, in its strictest sense, merely a government policy. Grounded in the quantity theory of money, monetarism restricts government economic policy to simply ensuring a fixed growth in the money supply in line with a growth in output. It represents a fundamental turn away from the Keynesian policies that preceded it. The Keynesian economic ideology, practised in its various forms, extends government economic policies to demand management. Through government managed investment and social welfare, the role of policy is to target full employment (Clarke, 1987).
Monetary policy is predicated on the notion that with stable prices the market provides optimal allocation of credit, both nationally and internationally. Thus the role of government to monetarists remained crucial, but its scope shrunk. In October 1979 when the US Federal Reserve announced a shift towards monetary policies, chairman Volcker suggested, “monetarism offered the right policy prescriptions at the right time” (Volcker 2002). In attempting to understand why these policies emerged it is, therefore important to locate monetarism within a historical context.
The post-war economies, haunted by the ghosts of the Great Depression, instilled the ‘embedded liberal’ consensus: a recognition of the role that Keynesian demand management played in economic and political stability.
Capital controls were considered necessary to prevent the policy autonomy of the interventionist Keynesian state from being undermined by speculative capital flows. Faced with the recognition that open trade in both goods and finance were not compatible, finance was sacrificed to secure stable exchange rates, that was considered crucial to the open trade that the US economy, in particular desired. This normative framework was encrusted in the Bretton Woods institutions, which were the architecture of the post war global political economy (Heillenier, 1994).
The so called Keynesian period between the end of the war and the 1960’s saw great progress in economic growth, social welfare and employment, alongside continued progress of technology and production in both the US and Western European economies.
However, the progress in technology and diffusion of productive techniques had increased competition and squeezed profits. Faced with declining profit margins businesses were forced either raise prices, or cut costs (labour). The tension between declining rates of capital accumulation and the Keynesian commitment to countercylical demand expansion, gave way to the dramatic inflationary hikes – UK inflation touched 15% in January 1981. This inflationary pressure saw the US abandon the gold standard and with it the fixed exchange rate pillar of the Bretton Woods architecture. Thanks to the unique structural power that the Bretton Woods agreements had offered the US, they could continue to expand demand without fear of a run-on the dollar, as the rest of the world still demanded dollars (Hudson, 2003). Yet, even with this devalued dollar, the Keynesian contradiction of expanding demand in times of declining capital accumulation, inflation, debt and unemployment, could not be repaired. Eventually, they abandoned expanding demand and focused on the supply-side of economic management – a stable inflation rate. Releasing caps on interest rate and allowing market mechanisms to organise the allocation of credit (Clarke, 1987).
Understanding the policy and ideological shift of the late 1970’s is, I maintain, crucial to understanding the political and economic landscape that we see today. An assessment of the competing classical market-led the critical class-led explanations sheds light on the changes that were taking place and their effects.
The Classical Explanation for Monetarism
The market-led case for monetarism rests on the classical economic notion that the ‘market knows best’. Yet this timeless rallying cry tells us very little about why monetary policy emerged when it did or how its effects were felt across the economy. As late as 1976, when the post-war picture of the world economy was being redrawn, the Bretton Woods framework of controlling capital movements and ensuring domestic economic autonomy was retained in the amended IMF Articles of agreement. Yet a number of structural changes in the financial market were undercutting the rationale for such controls (Goodman & Pauly, 1995).
I shall outline the market driven reasons that compelled financial liberalization.
Initially, with faith gradually being restored to the European economic order following the war, there was generally more confidence in financial transactions, which was essential for greater involvement in financial speculation Technological progress, particularly communications and container ships, had allowed an increase in international trade and a growth in multinational firms. These large firms engaged in both productive and financial activity and so demanded greater use of international financial services. Digital technology had amplified that mobility and fungibility of money that made instant transfers very cheap and almost untraceable (Heillenier, 1994). This made it easier for firms to adopt swift exit and evasion strategies from state regulation and aided the movement of money between competing countries in search of higher returns. Where governments were serious about restricting such flows, they ran the risk of sacrificing the domestic productivity of their firms by preventing offshore direct investments. This made the gradual easing of controls in advanced countries inevitable, as they sort increasing deregulation to ensure their firms remained competitive (Goodman & Pauly, 1995). The declining domestic profits and strong regulatory environment in the US had forced banks to abandon their domestic focus and look abroad, particularly to the Euromarkets for greater returns. In addition massive financial activity caused by the oil price shock in 1973. From an almost negligible level in 1950’s, financial transactions had reached over $1trn-a-day by the 1990’s (Heillenier, 1994).
The increasing complex market forces backed by technological improvement had, according to this market explanation rendered capital controls a costly and unproductive policy and compelled policymakers to allow market forces to best manage credit accumulation, allocation and distribution.
The problem with this overly teleological, naturalised conception of market forces is that is ignores the pivotal role that states play. “Politics, within distinct state structures remains the axis around which international finance revolves” (Pauly, 1988:2).
State led neoliberalism
The role of the state in neoliberalism is often misunderstood. Conventional support and critiques neoliberalism, through limiting government to monetary policy only entails “the shrinkage of the state to regulatory functions only, and then as minimal as possible” (Mason, 2008).
Neoliberalism, rather than reduce state activity in the economy has is a transformation of its functions. Where Keynesianist government intervention involved supporting demand and labour in the economy – through social welfare spending, minimum wages etc, neoliberal government intervention entails supporting supply side concerns – those of business.
Federal spending in the in the US in 1980 was $59bln, by the turn of the century it had almost tripled – to $1789bln. The neoliberal era had seen state swell to an unprecedented size, but rather than social security and welfare, the state spent enormous quantities on subsidising corporations and funding the military-industrial complex. In addition to limiting the power of labour unions the neoliberal state has privatised many of its national industries, even the flagship NHS in Britain, is being gradually hired out to private companies, with the state picking up the tab.
In terms of financial markets that the importance of the state can clearly be seen today where, in time of liquidity crisis, $700bln of US state funds are being employed to absorb unreliable assets and to try and prompt confidence in the ‘market system’ by signalling its role as a lender of last resort. The finance industry has successive crises, with increasing magnitude since the return to monetarism in the 1970s Crisis management, by the state is an essential part of the financial apparatus in both the US and the rest of the world (Heillenier, 1994). Its role however extends beyond this.
The policy choices that allowed greater financial liberalisation were first in evidence is the creation of the Euromarkets in the 1960’s. At the time when Bretton Wood’s controlled financial framework still held sway, this market was a regulation-free environment for multinational corporations and banks to operate in. A supposedly ‘offshore’, ’stateless’ zone, the Euromarkets could not have developed without the sponsorship of the US state and British government allowing it to function free of regulation in London (Heillenier, 1994).
This initial baby step to the financial liberalization we see today, required state authority for its creation, and again the US had to play an important role in its survival when the Euromarket’s were threatened in the early 1970’s. The speculative capital flows that were threatening Bretton Woods exchange-rate stability compelled Japanese and Western European governments to consider coordinated capital controls in both sending and receiving countries, as well as in through-flow zones such as the Euromarkets. The US, with its strong position in finance blocked these moves and further extended pressure on other countries to relax their controls (Heillenier, 1994).
This liberalisation, led by the US across the world did not extend to trade, partly because the unique mobility of money makes policy coordination and regulation very difficult but also because the US benefited greatly from international currency speculation. The status of the US Dollar, as the international reserve currency made finance critical to US interests (Hudson, 2003).
This is an essential contribution. Global financial markets, and globalisation in general is too often characterised as an economic zone, torn away from state control for businessmen and market interests to run rampant. Yet precisely the opposite is true, state authority has played the fundamental role in the creation, maintenance and expansion of the global financial structures that determine the content of the market. Why the US chose to restructure the US economy along these financial lines, rather than adopting more radical Keynesian options such as centralised capital accumulation is an important.
History is not compelled by theories and logic; no assessment of policy can end in the abstract. Consequences are crucial to understanding the theory of neoliberalism and monetarism and why they came about. While the outcomes varied, in line with the different practices of neoliberal theory in different countries, they can be broadly characterised by three features: raising inequality, raising debt, and, most significantly a return to the hegemony the financial industry.
‘Finance’ is a complex network of institutions behind which stand individuals. The choice of governments such as the US or Britain to adopt the policies that transformed the economy in a way which benefited finance was, its argued, dictated by the whims of financial institutions and the individuals who operate them – the financial class (Dumenil & Levy, 2001).
Rooted in Marxist orthodoxy this argument rests on the principle that capitalism recurrently evolves towards large structural crises (which today’s crash could arguably considered the latest expression of). Capital only reasserts its dominance at these times of turbulence through transformations of its basic functionings (Dumenil & Levy, 2001).
The policy response to the structural inflationary crisis of the 1970’s, shaped capital’s transformation in the US and Britain. The monetarist policy of price stability over full employment meant that the interest rate to jumped to 18%, in the US in 1981.This resulted in the redistribution of profits from non-financial companies to the financial sector. In the US non-financial corporations were gifting almost a third of their profits to financial institutions through real interest payments throughout the 1980’s. Profit rates of US financial corporations, consequently, grew throughout that period to stand 10% higher than that of non-financial companies by the end of the 1990’s. Over the same period indebted developing countries, who had received large cheap loans in the 1970’s ended up transferring large proportions of wealth to financial corporations in the US and elsewhere, following the monetarist interest rate shock (Dumenil & Levy, 2001). Crucially “most of this profit is not generated from financing productive business: the world’s total stock of financial assets is three times as large as global GDP. In 1980, it was about equal to GDP” (Mason, 2008).
The key implication of this argument is that the sudden interest rate rises prolonged the effects of the crisis, as benefits from the recovery of firms profitability were transferred to lenders and diverted from employment and investment (Dumenil & Levy, 2001).
The class implications cannot be ignored. Between 1947 and 1973, the Keynesian era, the income of the poorest fifth of US families grew 116%, higher than any other group. Over the last three decades, while growth has averaged 1974 to 2004 it grew by just 2.8%. With declining real wages, debt has had to finance household spending. Personal household debt in the US now represents 98% of GDP, whereas in 1979 this figure was just 46%.
Any analysis that discounts the benefits and losses of certain interests group cannot be considered whole, which is why the Marxist approach here remains essential.
The recent financial crash has, momentarily at least, opened the intellectual space to question the dominant ideology that has ruled for the past three decades. Even Britain’s most conservative paper, The Daily Mail felt the need to run a double page spread titled “In defence of Capitalism” (Daily Mail, 25/09/08). Emerging economies, challenge the hegemonic status of the US, increasing the likelihood of protectionist responses. The British government is excising some leverage over financial corporations by directing their interest rates downwards, and new president elect Barack Obama had discussed measures for state supported public healthcare and a raise in the taxes of the richest.
However, when the ‘nationalised’ UK bank Northern Rock, repossess houses in order to secure the salaries of its directors, notions of a transformation of the state to support social justice over business interests, remains dubious.
I have recently had the dubious fortune of becoming a research assistant with an MEP in the European Parliament. As I was thrust into this new skin I was told that I was entering the ‘frontline of politics’.
It has been fascinating to lend my eyes a perspective I had never come across and in doing so I have tried to distill the essence of the political. It seems to me that the role of a government basically boils down passing a law, or not passing a law. All the familiar debates spiral out from this point.
In the last week the EU Parliament has agreed on a motion to improve energy efficiency by phasing out wasteful goods such as Patio Heaters. Whilst the frantic colluding, compromising and horse-trading was going on around the parliament it became apparent that the political frontline is far from such politicians. Ultimately politics is experienced in everyday life, it’s omnipresent and inescapable. When you sit outside a pub no longer experiencing the absurd comfort of heating up the outdoors, you are on the political frontline.
Power, as opposed to politics is more opaque. Politicians, elected solely by citizens appear in submission to a myriad of other influences. In the name of pragmatism ideals, values and morals are easily relinquished.
The battle to prevent run-away climate change, for example needs decisive political action (law making) but politicians seem unable to manage this. The minority who dismiss climate change as the new ‘millennium bug’ are thankfully giving way to reason, yet despite democratic demand for action politicians remain impotent. Instead unaccountable private groups, corporations and their lobbies appear to run the debate and corrupt democracy. With skilled lobbyists, lawyers and PR departments they create a yawning information asymmetry and stifle political action.
In terms of the media, Britain’s leading left-leaning weekly, The New Statesman, for example, obtains of much of its revenue from advertising companies such as BP and BAE systems. This compromises its ability to criticise both these companies and the wider social structure that allows information to be constrained by such companies. Information is perhaps key to an effective democracy yet it’s blatantly undermined in almost all aspects of the media.
If citizens can overcome this hurdle they face further barriers trying to negotiate the lobbyists of unaccountable interests groups. When debating over legislation or other political action, politicians will face a barrage of highly skilled, well versed people who represent the interests of a tiny minority. When these same interest groups also command the funding of political parties, what hope can the majority have of their voices being heard and getting the appropriate law being passed.
It is a crime to blockade the offices of BP but perfectly legal for BP to emitt 100 million tonnes of CO2 producing crude oil from tar sands.
It is the general public who experience politics but unaccountable minority who dictate it. In this situation where power resides is debatable. Perhaps if people realised that they are the ultimate politicians we could retrieve control over our public lives.
THE TRUTH ABOUT BLACKS!
The other race explained by a black who knows!
“My mates tell me the reason I don’t have a black friend is because my bedroom is a bit on the messy side. Do blacks really make an issue out of that kind of thing?”
To be honest, I don’t know any black who’d be happy to be invited back to a filthy flat. Admittedly some blacks can be obsessive about cleanliness but if you really want to get lucky you’ll just have to live with that.
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The above passage, adjusted from last Friday’s Nuts Magazine shows how quickly ‘harmless fun’ disintegrates into something more sinister when placed in a different context. From the original copy the references made to ‘women’ were changed to ‘blacks’ and ‘men’ to ‘whites’. Whilst the analogy may not be perfect the prejudices it displays remain. Nuts may be a flaccid target for critics but with almost 6000 copies a week sold in the UK it demands attention.
‘Lad’s Mags’ often attract criticism for their objectification of people. Whether objectification need be dehumanising is an important debate. However, in this example I simply question whether the attitudes on display would be deemed unacceptable in a different context.
Like racism, you will never rid society of sexism. Thankfully in the last century much progress has been made on both fronts. The common defence of such publications and the attitudes portrayed is that they are simply what the market demands. Yet, in today’s age it would be unthinkable for companies to sell their goods through a racist card. Why should it be different when dealing with an equally ignorant prejudice?
Racism entails assigning behavioural and cultural traits to the different biological ethnicities. On the basis of these imaginary characteristics a racist concludes that one ethnic group is superior to another. The above article carried a similar process of behavioural assumptions about men and women.
The shocking statistics released last month by the British Crime Survey estimated 200,000 incidents of rape and sexual abuse, of which the police recorded only 12,000 and disgracefully only 5% ended in conviction. This means that of the 200,000 cases of rape committed only 600 men end up in prison.
Too often the pervasive notions of gender prescribed the media are divorced from the visible crimes they reveal themselves in. In no way does reading Nuts amount to raping women but the complacent attitude that brushes aside offensive writing as ‘harmless fun’ does seem to exhibit itself in these far uglier forms.
Last year Anna was savagely beaten up in Notting Hill late one evening. She called the police the morning after, only to be questioned about whether she’d been drinking and what she’d done to provoke this assault. The officer rounded off the call with the news that they were unlikely to catch the man who did this to her so there was little point in proceeding. Yet, in the same area, there is no shortage of yellow Metropolitan police incident boards seeking information when men are the victims of unprovoked violence. Rather than being an isolated incident the statistics suggest cases like this are indicative of the entire system.
Returning to race, if there were numerous magazines reducing and homogenising ethnic groups to imbeciles, accompanied by evidence of intrinsic racism in the police force, there would, quite rightly be public outrage. The two things would be discussed together and wider questions about our attitudes towards race would be raised.
The dominant ideas of both women and men that pervade are ignorant and offensive. The contest to the millennia of misogyny has only just begun. If progress is to be made we must challenge ourselves to make a stand and demand debate about these issues.
The debate surrounding the NHS superbug crisis infecting Gordon Brown’s young premiership has too become riddled with a virus of party political manoeuvrings. All the while the root issue remains unchecked.
This weeks report by the government’s health watchdog revealed that scores of NHS patients have been killed by Britain’s deadliest superbug, c-difficile. This, alongside the continued spread of MRSA has prompted Alistair Darling to announce a £270million investment to combat hospital-acquired infections.
Despite Gordon Brown championing his ‘deep clean’ of NHS hospitals, the actual issue of cleaners remains entirely anonymous. Instead the rumblings over Labour targets, and Tory under investment continue.
Cleanliness is a vital factor in tackling hospital superbugs and is an essential component of good nursing. As the Daily Mail was in pains to note “In her seminal Notes On Nursing, published in 1860, Florence Nightingale wrote that the greater part of nursing consists in preserving cleanliness”. Sadly, thanks to a Thatcher introduced privatisation policy, continued under Labour, nurses play little role in cleaning hospitals anymore, and hospital managers have no direct control over what is cleaned and when in NHS hospitals.
The NHS was once the bastion of Labour values and yet they have allowed the policy of outsourced firms running hospital cleanliness to remain. The rationale was that private companies could provide a more cost effective way of ensuring clean hospitals. Yet studies show that whilst private companies can indeed save costs – by hammering down on wages, they retain the mark-up and walk away with the profits. As a result, workers who are the lowest paid, often unregistered and with little English manage an essential part of patient safety. The average wage of a contracted cleaner hovers around £4.20/hour. This grossly represents the disregard with which both the main political parties have for such a fundamental part of patient care.
Whilst some bemoaned ‘modern-day feminism’ as the cause of nurses indifference to ensuring cleanliness, and the Conservative’s harped on about Labour’s top-down, centralised targets, critics and the government have failed to touch upon the loss of control and accountability that the outsourced cleaner system entails. Compared to the early 1980s there are now less then half the number cleaners, who are lower paid and contracted to a external third-party, have no relationship with nurses and hospital staff. It is an absurd situation where if a hospital manager finds a dirty ward, she cannot call upon a cleaner to sort it out, she would have to contact an entirely separate management system.
The dominant parties have failed to recognise this inadequacy and much of the media debate has been poisoned with the same impotence. It is not just our hospitals that require a deep clean but our media analysis, which needs to root out the dirt of dogmatic ideology that prevents reasoned debate.
The great thing about the party conference season and possibly the only source of interest is that you get a feel for a party’s true colours. The MPs pile out the same old media-inspired drivel you get all year but the party members, with their unkept beards and ill-fitting sweaters have little time for image, they instead betray the true essence of the party and its supporters.
The Tory hearts today poured out over the state of Britain’s public services and from all corners of (middle) England there were outcries over our shocking ’socialist’, ‘centralist’ and ‘Stalinist’ government. This would have sent economic students wild, scurrying around and dusting down their Keynesian textbooks. They would all have been thoroughly perplexed, because despite the cries of the opposition members and the calls from government itself, Britain’s public services are barley within touching distance of the state any more.
The NHS, the sentimental and ideological heart of the social-democratic movement, has had billions of taxpayers’ pounds thrown at it. Yet little of this money has been directed at strengthening public healthcare. Instead subcontractors, PFI schemes and private firms have seized upon and weakened the public’s grip on its health service. Under the guise of the Public Finance Initiative, private companies use taxpayers money to build, run and manage many NHS projects. This flagship, ‘modernising’ policy of New Labour was meant to introduce market style competition into health care. The debates about any supposed benefits of competition are completely misplaced here because private subcontractors are given fixed, lengthy deals lasting up to thirty years.
Rather then fret, the Tory heartland could have eased their ailments about a socialist state by hearing that New Labour plans a £64bln sell off of NHS management to multinational firms. In the name of ‘competitiveness’ New Labour worked with massive US healthcare corporations such as Kaiser Permanente and began the process of restructuring the NHS along privatised, American lines. Their market ’solutions’ include paying private firms vast sums of money to run Human Resource departments for the NHS. Whilst you’d have thought that the key human resource – patient care would get investment priority, downsizing and cutbacks will instead see PFI firms collect a handsome £23bln profit over the next thirty years.
This new brand of socialism would make Thatcher proud, not even she had the gall to sell off the NHS and now New Labour is doing it for her. Perhaps the Daily Mail may boast ‘we’re all Socialists now.’
In August we shall have our annual ‘assessment’ of education standards and our perennial outcry over falling standards. The A-Level and GCSE results are but one of the many incomplete and misleading indicies in which we project our notions of education into.
Gordon Brown, inheriting a country with a profound distrust of politicians, faces a key challenge in trying to overhaul our failing approach to education that is failing our young people.
The New Labour obsession with targets was one of Blair’s primary weapons in convincing the public that a Labour government can spend public money accountably. In education these targets, means by which we judge the governments success with education, are based on the numerous examinations that kids are put under. Every three years we test our youth’s aptitude of English, maths and science (whatever that means), the results supposedly giving us a clear illustration of how successful our education system is. The limited scope, means and ambition of these targets lift the lid on just how fundamentally flawed our approach to education is.
Recently, a study found Britain to be one of the worst places in the world to be a child. Both a cause and consequence of this is the apparent ‘anti-social behaviour’ of much of youth culture. Though the topic is poisoned with class snobberies (in both directions), I’d argue that the disillusioned, alienated, and too often aggressive culture that pervades is an essential issue facing our society (terrorism, supposedly the gravest threat to our society has caused a fraction of the misery in comparison). Given that our kids are subjected to six hours of school, five days a week (until they take matters into their own hands), the obvious place to start, when looking at this issue, is our schools. And where better then Labour’s very own targets?
These suggest that under 10 years of Labour management schooling is improving, yet our children are seemingly unhappier and face more problems with and in society. All of which, points to a (for there are a few) route of the problem – our conception of education. Notice that for all that the targets do include, there is no mention of social confidence, personal contentment, relationships with others etc. Obviously these are harder to index (though we happily measure anti-social-ness), but their absence illustrates the misplacement of our priorities with education.
Our teacher training, national curriculum and targets by which we evaluate education should include wider personal and social issues. Key social factors such as identity, relationships and (imagined) concepts of race and gender our harnessed at school, yet completely ignored by educators. When this alienation manifests itself in society we are all suddenly surprised and offended.
Perhaps, rather then banning hoodies in shopping centers, or even hugging hoodies in shopping centers, we should have a radical and honest public debate about what education means, what we want from it, and how we should achieve it.
