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The Rise and Fall of Neoliberal Capitalism

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The Rise and Fall of Neoliberal Capitalism The Rise and Fall of Neoliberal Capitalism David M. Kotz Harvard University Press February, 2015 1 The Golden Age of Capitalism 2 Homelessness after 1980 3 Three Puzzles 1. Why had the previous form of capitalism been replaced by a harsh new form? 2. Why had long-discredited free-market economic ideas returned? 3. How could a capitalist economy bring sustainable economic expansions if wages stagnate or fall? 4 Outline 1. What is the contemporary form of capitalism, that arose around 1980? 2. Why did it arise? 3. How has it worked? 4. Why did it give rise to a big financial crisis and Great Recession in 2008? 5. What lies ahead? 5 Neoliberalism as Ideas only 6 Broader Meaning of Neoliberalism Neoliberalism is a coherent, mutually reinforcing set of economic and political institutions, together with supporting dominant ideas. The coherence of the institutions of neoliberalism is their support for the predominant role of market relations and market forces in the regulation of economic activity. 7 Neoliberalism: Capital Fully Dominates Labor 8 Location of Neoliberal Institutions Global economy State-economy relation Labor market Corporate sector 9 Examples of Institutions of Neoliberal Capitalism Globalization Deregulation Weakening of social regulation Privatization and contracting out of public goods and services Cutbacks in social programs Tax cuts for business and the rich Marginalization of collective bargaining Casualization of jobs Unrestrained competition Market principles penetrate inside corporations Financialization 10 Neoliberal Capitalism and the Capital Accumulation Process Neoliberal capitalism -- and the previous regulated capitalism -- are institutional structures that promote and stabilize the process of capital accumulation. History shows a sequence of such “social structures of accumulation” emerging and, after one or a few decades, eventually is replaced by a new institutional structure. 11 Big Business Representatives Affiliated with the Committee for Economic Development,1944 Champion Paper Coca-Cola Eastman Kodak Fidelity & Casualty Co General Foods Goldman, Sachs & Co Hormel Foods J. P. Morgan & Co. Quaker Oats R.H. Macy and Company Scott Paper Studebaker Union Pacific Railroad Co. 12 Big Business Representatives Affiliated with the Committee for Economic Development, 1948 Allegheny Ludlum Steel General Mills Anderson, Clayton and Co Goldman, Sachs & Co Arkansas Power & Light Company Hormel Foods Bankers Trust Company International Harvester B. F. Goodrich J.P. Stevens Bristol-Myers Lehman Brothers Bausch and Lomb Optical Libbey-Owens-Ford Glass Champion Paper National Broadcasting Co Chicago, Indianapolis & Louisville Railway New York Life Insurance Co. Cincinnati Street Railway Company Northern Pacific Railway Company Cleveland Electric Illuminating Company Northwest Bancorporation Coca Cola Owens-Illinois Glass Colgate-Palmolive Pennsylvania Railroad Company Continental Insurance Co Philco Corning Glass Works Procter & Gamble Crown Zellerbach Quaker Oats Eastman Kodak R. H. Macy Federated Department Stores Scott Paper Ford Motor Shell Union Oil Co General Electric Sinclair Coal Company General Foods Texas Power and Light Company United Air Lines 13 CED on Collective Bargaining "To compensate for the weakness of their individual bargaining position, wage earners need the right to combine into organizations for collective bargaining.“ – 1944 “America cannot afford industrial strife… It would put in jeopardy not only the attainment of our domestic goals of high production and employment but the existence of our free economy as well.” -- 1947 “International peace and prosperity depend, to a large degree, upon the achievement of industrial peace and prosperity in this country.” -- 1947 14 CED on Keynesian Policy “Constructive policies respecting taxation and public expenditure … and enlightened control over credit and money can greatly retard or prevent excessive swings of the business cycle….” and maintain “the flow of buying power needed to sustain high level of employment and productivity” – 1946 “…monetary and fiscal policies are essential functions of government ... [that] encourage or discourage financial expansion." -- 1948 15 CED on Social Programs The federal government “should continue to provide…a program of … unemployment insurance and old-age pensions – for the benefit of those who are unable to work or … are for any reason unable to find sufficiently remunerative employment to protect themselves against want. Such individual protection against hazards should be extended as rapidly as possible.” – 1944 16 New View of Trade Unions Henry Ford II in 1946 stated that the corporation had "no desire...to turn back the clock...We do not want to destroy the unions" Dwight D. Eisenhower in 1952: “I have no use for those -- regardless of their political party -- who hold some foolish dream of spinning the clock back to days when unorganized labor was a huddled, almost helpless mass.... Today in America unions have a secure place in our industrial life. Only a handful of unreconstructed reactionaries harbor the ugly thought of breaking unions. Only a fool would try to deprive working men and women of the right to join the union of their choice. 17 Why Big Business Supported Regulated Capitalism 1) Big business had been unable to crush organized labor and decided to strike a deal 2) Fear that the great depression would return 18 Fear that Depression Would Return “This generation, after the worst depression … in our history, knows that our economy can have great fluctuations of production, employment and prices.” “We also know what the costs of extreme swings in business conditions are: … ● the resulting deep sense of injustice and frustration; ● the growing receptivity to futile or dangerous ideas that appear to promise relief from all ills…” (emphasis added) – 1948 CED document. 19 Why Big Business Supported Regulated Capitalism 3) Strength of Socialist and Communist parties in the Developed capitalist countries. 4) Emergence of a large bloc of Communist Party ruled states. 20 Selected Business Roundtable Members, 1972 and 1979 Allied Chemical Corporation*+ Firestone Tire & Rubber Co.*+ Aluminum Company of America* Ford Motor Company*+ American Can Company*+ General Dynamics Corporation*+ American Electric Power Company* General Electric Company*+ AT&T+ General Foods Corp.*+ Atlantic Richfield Company*+ General Mills, Inc.*+ B.F. Goodrich+ General Motors Corporation*+ Bank of America+ Gulf Oil Corp.*+ Bethlehem Steel Corporation*+ International Harvester Company*+ Burlington Industries, Inc.*+ International Nickel Co.*+ Burlington Northern, Inc.*+ International Paper Co.*+ Campbell Soup Company*+ J.C. Penney Co., Inc.*+ Champion International Corp.*+ J.P. Stevens+ Chase Manhattan Bank*+ Kennecott Copper Corporation*+ Chrysler Corporation*+ Mobil Oil Corporation*+ Citibank*+ Morgan Guaranty Trust Co. of N.Y.+ Coca Cola+ Morgan Stanley & Co., Inc.+ Consolidated Edison* Procter and Gamble+ Corning Glass Works*+ R.H. Macy & Co., Inc.*+ Crown Zellerbach Corp.*+ Scott Paper Company*+ Dow Chemical Company*+ Sears, Roebuck and Co.*+ E.I. du Pont de Nemours & Company*+ Shell Oil Company*+ Eastern Air Lines*+ Texas Power & Light Co.* Eastman Kodak Company*+ United Aircraft Corp.* Exxon Corporation*+ United States Steel Corporation*+ Federated Department Stores, Inc.*+ * Member in 1972 21 + Member in 1979 Business Roundtable Reports late 1970s 1977 report called for tax cuts for business to spur investment. 1979 report called for cuts in social security benefit levels with more reliance on private savings for retirement income. 1979 report criticized cost to business of social regulations. 1979 report proposed that the finding of an “adverse health effect” from bad air quality should be limited to conditions resulting in “permanent damage or incapacitating illness.” 22 Business Roundtable Reports 1981 “The business community feels strongly that all four parts of the economic recovery plan [Reagan Administration’s plan for cuts in social spending, tax cuts, regulatory reduction, and tight monetary policy] are essential, interrelated, and must be acted upon...” “An economic crisis confronts the American people and requires far-reaching changes in economic policy.” 23 Right Wing Think Tanks Expenditures in Million of Dollars 1970 1980 American Enterprise Institute 0.9 9.7 Hoover Institution 1.9 5.7 Heritage Foundation NA 5.3 Total 2.5 20.7 Brookings Institution 5.5 9.2 24 Political Donations 1964: More big business donations go to Lyndon Johnson than to Barry Goldwater. Johnson won an overwhelming victory over Goldwater in the 1964 presidential election. 1980: Big business donations go overwhelmingly to Ronald Reagan. Reagan defeated the incumbent President Jimmy Carter. 25 Figure 3.4. Rate of Profit in the U.S. Nonfinancial Corporate Business Sector 18% 16% 14% 12% 10% 8% 6% 26 1) Effect of Declining Rate of Profit Business Roundtable slide show 1973: “After-tax profits peaked in 1966 ... but declined sharply in the ensuing period of cost-squeeze” “Starting in 1966 ... unit labor costs accelerated sharply, and the aftermath was excessive inflation and a severe profit squeeze.” 27 2) Expansion of Social Regulation Starting in late 1960s government social regulation expanded greatly: 1) Environmental regulation 2) Occupational safety and health regulation 3) Consumer product safety regulation This was not part of the original bargain. 28 More Reasons Why Big Business Supported Neoliberal Restructuring by the late
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