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Home , Franz Oppenheimer, Vilfredo Pareto

THE ROOTS OF

ELMAR ALTVATER

he modern version of began under Thatcher and Reagan, Twho provided the political basis for Milton Friedman’s triumphant de- claration of the ‘neoliberal counter-’ following the crisis of the Keynesian in the West, the dismantling of the ‘planning state’ in the South, and the collapse of the planned economies of the East. However, the roots of neoliberalism go back much further than the past thirty-five years. Some of the most striking ingredients of neoliberal theoretical approaches can be traced back to the origins of liberal thinking in the early 18th century, to , , Bernard de Mandeville, etc. In the ‘fable of the bees’ Mandeville even tried to show that private vices turn into public virtues, and that in free markets also produces social equilibrium (later formulated mathematically by Leon Walras, Vilfredo Pareto and in the vast literature on their ‘optima’). Long before Fukuyama’s famous statement about ‘the end of history’, after the demise of ‘actually existing’ , An- toine-Augustin Cournot was saying much the same thing when he argued that since such ‘optima’ are the outcome of economic processes there is no need to change the political order and its ruling principles. Some trace twentieth century neoliberalism back to a conference which took place in 1938 in , where Friedrich August Freiherr von Hayek and Walter Eucken, among others, presented the (‘freie Verkehrs- wirtschaft’) as the only real alternative to the centrally managed markets (‘Zentralverwaltungs-wirtschaften’) of Soviet Russia and Nazi Germany. All planning systems follow the ‘road to serfdom’ – the title of Hayek’s very in- fluential book published at the end of the Second World War. Their assault on socialist and capitalist planning presaged in this respect ’s theory of totalitarianism, published a few years later in 1951. Thirty years later still, a new twist was famously given to this by Reagan’s ambassador to the United Nations, Jeane Kirkpatrick, who in trying to for- mulate the fundamental principles of US foreign policy drew a distinction NEOLIBERALISM AND THE LEFT 347 between totalitarian and authoritarian regimes. A totalitarian regime was any one with a planned economy and widespread public or state property, even if it was manifestly less dictatorial and oppressive in political terms than what she called merely ‘authoritarian regimes’, which sustained and protected pri- vate property in a capitalist market economy. Fidel Castro’s Cuba was ‘totali- tarian’; Chile under Pinochet was merely ‘authoritarian’. In fact, however, the central idea behind this distinction had already been developed by the Freiburg School of ‘Ordo-Liberalism’, particularly by Wal- ter Eucken, in the 1930s. In his view the fundamental principles of a social order are: private property ; the unregulated formation of prices on free markets; free decision-making by the autonomous (vis-à-vis and trade unions) managers of enterprises; sovereign consumers; the absence of monopolies; and monetary stability. Only when these fundamental economic principles (‘Grundprinzipien’) are realized will the political order be a ‘free’ one. Since modern are characterized by a so-called ‘interdepen- dence of orders’, no free and democratic political order can be said to exist, according to Euken, unless it sustains a free market economy and an efficient private property regime. After the Second World War such ideas still were influential, not least with Germany’s first minister of economic affairs, and his secre- tary, Alfred Müller-Armack. But as was clear from the fact that Erhard was also a disciple of the early ‘third way’ theorist Franz Oppenheimer, and the fact that Müller-Armnack coined the term ‘Soziale Marktwirschaft’ (), a consistent economic policy based on neoliberal ideo- logy could not then be as extreme as it was to become after the neoliberal counter-revolution in the 1970s. It is indeed worth recalling that even this decade began with Richard Nixon declaring that ‘we all are Keynesians’ now. Keynesianism had indeed become the hegemonic concept in both economic theory and policy under the post-war umbrella of an international monetary system of fixed exchange rates and restrictions on the convertibility of cur- rencies. Relatively small international capital flows allowed considerable au- tonomy for national and central banks which influenced fiscal and rate policy with an eye to balancing the priorities of , full employment, price stability and balance of payment equilibrium. The first quarter century after the Second World War was thus a period in which it made sense for Andrew Shonfield to translate the title of his famous 1965 book Modern Capitalism (on the highly developed market economies of the USA, Great Britain, France, Germany and ) as Geplanter Kapitalismus (planned capitalism) for the 1968 German edition. 348 SOCIALIST REGISTER 2008

Yet neoliberal ideas had actually been spreading across the Western world even during the Keynesian ‘golden age’ of capitalism, during which there was a modernization of simple-minded earlier liberal (what might now be seen as ‘paleoliberal’) ideas. ‘Establish a free order of competition and its outcome will be the best for the people’ was the simple expression of the promise that market competition was the means of transforming the self-interest of individuals into a social welfare optimum for the collective good. Such ideas were spread with the aid of highly sophisticated methods, heavily funded by businesses and wealthy individuals. The foundation of the Mont Pélerin as an international venue for neoliberals, and of national organizati- ons such as the ‘Aktionsgemeinschaft Soziale Marktwirtschaft’ in Germany, preceded by decades the setting up in 1983 of the European Round Table of industrialists to coordinate neoliberal lobbying in the EU. This was ac- complished by intensifying the cooperation between well-endowed national policy foundations sponsored and financed by big business in the US and in Europe in order to produce harmonized manifestos for the propagation of free market policies against the welfare- and interventionist-state. But in terms of its influence over political decision-makers more globally, it was of utmost importance that neoliberalism also became hegemonic in internatio- nal institutions such as the IMF, the , the GATT (later the WTO), staffed by the students of neoliberal at American elite universities, who also showed up as -consultants (and even as NGO activists) in third world countries to help apply dose after dose of structural adjust- ment, following the rules of the Washington consensus. The strategy of establishing a world-wide ideological hegemony for ne- oliberalism, however, could not have succeeded without the deep changes that occurred in the world economy in the 1970s. First of all, the Keynesian carapace of economic policy literally broke into pieces with the end of the Bretton Woods system of fixed exchange rates, followed by the flotation of exchange rates in globalized financial markets. After that the formation of the crucial prices of the world economy – the exchange rate and the – was no longer left up to state agencies and officials but was rather in the hands of international banks, speculative funds and transnational corporations. This was one of the first acts of privatization which swept over the entire world in the following years. The new private actors immediately used their new freedom to invent new financial instruments to increase their profits and to force countries lagging behind in financial market deregulation to give up their ‘financial repression’. Thus it happened that financial markets came to exert their own repression on one society after another. Not to wor- ry – in the words of Margaret Thatcher: ‘There is no such thing as society’. NEOLIBERALISM AND THE LEFT 349

But neoliberalism’s spread was also enhanced by another dramatic change, and this time by no means left to private bodies, in how another crucial price in the world economy was determined. Only a few months after the final breakdown of the Bretton Woods system in October 1973, the dramatic change in the way oil prices were formed – i.e. by the formation of OPEC – triggered radical repercussions in the relationship between the industriali- zed world and the ‘Third World’. Liberalized financial markets helped recycle the so-called ‘petrodollars’ accumulated by the OPEC countries into oil-im- porting Third World countries. The enormous debts they now accumulated soon landed them in the debt crisis of the 1980s. The priority of servicing their debts, imposed by the IMF and World Bank, was an early expression of what Stephen Gill would later appropriately call ‘disciplinary neoliberalism’. Paradoxically, therefore, just as the Bretton Woods system broke down, the Bretton Woods institutions became more powerful than ever. They moved from protecting a system of fixed exchange rates to protecting the flow of capital in the of rich private lenders, multinational corporations and financial institutions. The ‘crisis of governability’ proclaimed by Samuel Huntington and the Trilateral Commission amidst the inflationary pressures and fiscal crises that attended the crisis of Keynesianism led, moreover, to the formation at Ram- bouillet in 1975 of the G6 (later the G7 and today the G8). The annual summits of the leading capitalist leaders were a very visible sign of what would have called the changing ‘pluriverse’ of nation states, characterized by the emergence of new informal modes of global political regulation – what by the 1990s would come to be called ‘global governance’ – which stressed their collective responsiveness to ‘market signals’ rather than coordinated Keynesian-style policy-making. The internationalization of the state changed the form of the nation state as well as the system of internati- onal relations. But it was the end of full employment and the emergence of a new reser- ve army of unemployed across the world that was the most important change brought about in the 1970s. in the industrialized countries became structural, and now became the fate of large masses of workers there. In the Third World, however, a new form of labour was discovered in the ‘informal economy’. Workers who were not formally employed in any way comparable to workers in industrialized countries could by the same token not be considered ‘formally unemployed’. Labelled ‘informal’ workers (ini- tially by the ILO at the beginning of the 1970s in East Africa), the category of informal labour has since experienced an astonishing career. Thirty-five years later nearly 90 per cent of workers in Africa, nearly 60 per cent in Latin 350 SOCIALIST REGISTER 2008

America, and even up to 30 per cent in the OECD-countries are categori- zed as informal. The new ‘precariat’ of informal labour has become ‘normal’; formal labour is now a reality for only a relatively small minority of workers in the world. These changes marked the passage from the ‘golden age’ of post-war Key- nesianism to a neoliberal era defined in terms of pressures to increase the competitiveness of local sites of production (and ‘workfare’) in competitive global spaces. Nothing less was involved in this transformation than a radical rupture of many of the key forms which had earlier regulated economic de- velopment, social life and policy concepts. Neoliberal ideology thus stepped into the open space left by the crisis of the post-war economic and social model of the Keynesian welfare state. It was against this background that Milton Friedman could speak in terms of the neoliberal ‘counterrevolution’ against Keynesianism, with ‘’ as his own favourite alternative eco- nomic policy concept. The neoliberal dogma can be summarized in the following way: its basic assumption is that the private sector is fundamentally stable. If instability or even crisis tendencies occur, this can only be due to political actors and institutions taking irresponsible actions that violate the laws of the market. Inflation or a devaluation of the is caused by such actions and has nothing to do with real economic processes. Therefore an independent cen- tral bank must commit itself to preventing inflation and nothing else as its sole priority (even controlling the quantity of in circulation proved a chimera). In the long run fiscal policy has no influence on the growth rate and employment and therefore it should serve monetary stability alone, and not the policy target of full employment. Unemployment is the result of an inefficient allocation of labour and economically unjustified wage levels pu- shed up by oligopolistic unions. The final obstacle to the full victory of neoliberalism in the world was removed at the end of the 1980s in the course of the ‘velvet ’ in Central and Eastern Europe, and with the crumbling of the Soviet Union into a series of new states. It was Margaret Thatcher who again coined the most famous slogan of neoliberalism’s final victory: ‘There is no alternative’. No alternative to what? To a neoliberal world order. The theoretically more ambitious and demanding expression of the political triumph of neolibera- lism was Fukayama’s ‘the end of history’. Neoliberalism was by this point also well on the way to becoming dominant as an ideology in the social sciences, and in the political domain of social ; it was also adopted by the green movements and parties – sometimes only partly, but often fully. Repre- sentatives of all of these act as the spokespersons of corporations, of founda- NEOLIBERALISM AND THE LEFT 351 tions or lobby-associations. They are the conscious-unconscious incarnation of neoliberal hegemony. Neoliberalism is a very optimistic ideology because it also follows the supposition that humankind finds solutions for all its problems. Yet the result of neoliberalism has been by no means convincing. The political practice of neoliberalism in following a simple set of rules, all of which point to more competition in the global capitalist space, requires that the impact of democratic politics be reduced while states enforce the market power of powerful private capitalist agencies. Unemployment has increased in nearly all countries. The of income and wealth has become more une- qual in most countries and in the world as a whole. The Gini-coefficient of global distribution of income as of 2005 was 0.892, i.e. about 10 per cent of the world population disposes of 90 per cent of global wealth, whereas 90 per cent of the world population dispose of only 10 per cent of the wealth. Economic development is everywhere crisis-ridden. From the debt crises of the 1980s to the financial crises of the 1990s, the liberalization of financial markets destabilized one society after another. The world rule of the di- sembedded market proved extremely destructive for the social fabric – the- reby paradoxically reinforcing the crackpot validity of Margaret Thatcher’s perverse claim that ‘there is no such thing as society’. The notion that the solution to all problems can be found through mar- kets is supposed to apply even to environmental problems, because markets are – as von Hayek so often repeated – held to be the best available method of making discoveries and thus of making technical and organizational inno- vations. A good example of this kind of neoliberal hegemony is the success in promoting the concept of emissions trading as the most effective (and as some say, only) instrument for mitigating CO2 emissions. The establishment of a market in atmospheric pollution rights is broadly accepted by main- stream academia, the political class, business and finance, and even by green parties, NGOs and trade unions. Only a few left academics and political movements doubt the ecological sense of emissions trading. Business and finance see profit opportunities in new fields of investment, new deals on a new market, through calculating the costs of emissions rights which never have to be paid by the companies, a licence for riskless profit making. But why do green party representatives and concerned ecologists support this? In some cases it is pure naiveté; in most cases, however, it is an emana- tion of a belief-system that sees the market alone as the adequate problem- solver. Yet markets only work when some crucial prerequisites are fulfilled: the establishment of private property rights and the subsequent commodi- fication of all , whether formerly private or public. Global financial 352 SOCIALIST REGISTER 2008 markets are required to circulate the highly unconventional commodities of securitized ‘pollution rights’. This complex of preconditions is a further powerful vehicle of privatization, liberalization and financial globalization. Thus the constructed double character of atmospheric pollution – of real

CO2 emissions into the air, and of paper emissions traded on markets – per- fectly fits the neoliberal ideal world. At the end of the day the atmosphere, an undeniable global common, is increasingly privatized, because the right to use it as a dumping-site for CO2 emissions has been legally established by the state or by international institutions. Liberal markets for the trading of new commodities (pollution certificates) have been created and financial investors can crowd into this new politically created area in order to offer innovative and profitable financial instruments and to absorb part of the world’s excess liquidity. Emissions trading, designed for the reduction of CO2 emissions, is transformed into a new vehicle of financial speculation. Neoliberalism does not only know that ‘there is no such thing as society’; it also knows there is no such thing as nature. It only takes notice of it when it is securitized for trading in markets. Neoliberalism’s disdain for both society and nature is a consequence of the conception of the world as made up of homines oeconomice whose operates in a spaceless and timeless world, lacking the coordinates of nature. These artificial creatures are comparable to the homunculus in the ‘Faust’ of Goethe, while the capitalist ‘annihilation of time by space and of space by time’, as Marx called it in the Grundrisse, finds its fullest and most enthusiastic expression in a neoliberal belief-system that cares nothing for the specificities of time or history, space or territories. Only thanks to this reduction was it possible to develop and then apply a menu like that of the ‘Washington consensus’ to all countries at all times – countries which have just two cha- racteristics in common: they are highly indebted and they have to follow the rules of global financial markets. Because societies and nature are not taken into account, the application of the neoliberal agenda can be as ruthless as necessary in order to meet the requirements of financial capital. Shareholders want high returns on their investment, in the range of 20 per cent and more. Interest rates and rates of return on investment are pushed upwards in the global competition of finan- cial places whose returns in the last instance can only be obtained by ove- rexploiting labour and nature. This is why the promise of the paleoliberals of yesteryear, and of the neoliberals today, that the wealth of nations will incre- ase by widening and deepening the international division of labour through establishing free markets everywhere and in everything, becomes more and more hollow. The real experience of billions of people is that neoliberalism NEOLIBERALISM AND THE LEFT 353 is a predatory order, harmful for people who depend on their labour and de- structive for local and global ecosystems. Moreover, neoliberalism threatens in the world. For the appropriation of surpluses also relies on using coercion, including military force, to sustain the economic mechanisms for the expropriation of the world’s masses. Neoliberals and neoconservatives converged in the first decade of the 21st century to produce the aggressive politico-economic project of the Bush-Cheney-type. However, this is not so different from the paleoliberal notions of Adam Smith who, while he was an ardent advocate of free trade, was also a suppor- ter of the protectionistic Navigation Act, of diplomatic relations conducted on the basis of aristocratic noblesse oblige among the ‘civilized’ nations, and of their military suppression of ‘barbarians’. But the consequences of suppor- ting those who follow the bourgeois mission of integrating the whole earth into the capitalist -chain, and repressing those who try to defend their class-interest in decent work and life, and in the survival of nature, were soon felt when people rose up against the bourgeois project in the 19th and 20th centuries. And like their paleoliberal ancestors, neoliberalism’s 21st century advocates will surely sooner or later reap the whirlwind of protest against what they have sown.