A Brief History of Neoliberalism This page intentionally left blank A Brief History of Neoliberalism David Harvey 1 3 Great Clarendon Street, Oxford ox2 6dp Oxford University Press is a department of the University of Oxford. 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EAN 978 0 19 928326 2 13579108642 Contents List of Figures and Tables vi Acknowledgements vii Introduction 1 1. Freedom’s Just Another Word . 5 2. The Construction of Consent 39 3. The Neoliberal State 64 4. Uneven Geographical Developments 87 5. Neoliberalism ‘with Chinese Characteristics’ 120 6. Neoliberalism on Trial 152 7. Freedom’s Prospect 183 Notes 207 Bibliography 223 Index 235 Figures and Tables Figures 1.1 The economic crisis of the 1970s: inflation and unemployment in the US and Europe, 1960–1987 14 1.2 The wealth crash of the 1970s: share of assets held by the top 1% of the US population, 1922–1998 16 1.3 The restoration of class power: share in national income of the top 0.1% of the population, US, Britain, and France, 1913–1998 17 1.4 The concentration of wealth and earning power in the US: CEO remuneration in relation to average US salaries, 1970–2003, and wealth shares of the richest families, 1982–2002 18 1.5 The ‘Volcker shock’: movements in the real rate of interest, US and France, 1960–2001 24 1.6 The attack on labour: real wages and productivity in the US, 1960–2000 25 1.7 The tax revolt of the upper class: US tax rates for higher and lower brackets, 1913–2003 26 1.8 Extracting surpluses from abroad: rates of return on foreign and domestic investments in the US, 1960–2002 30 1.9 The flow of tribute into the US: profits and capital income from the rest of the world in relation to domestic profits 30 4.1 Global pattern of foreign direct investments, 2000 91 4.2 The international debt crisis of 1982–1985 95 4.3 Employment in the major maquila sectors in Mexico in 2000 102 vi Figures and Tables 4.4 South Korea goes abroad: foreign direct investment, 2000 109 5.1 The geography of China’s opening to foreign investment in the 1980s 131 5.2 Increasing income inequality in China: rural and urban, 1985–2000 143 6.1 Global growth rates, annually and by decade, 1960–2003 155 6.2 The hegemony of finance capital: net worth and rates of profit for financial and non-financial corporations in the US, 1960–2001 158 7.1 The deteriorating position of the US in global capital and ownership flows, 1960–2002: inflow and outflow of US investments and change in foreign ownership shares 191 Tables 5.1 Measures of capital inflows: foreign loans, foreign direct investments, and contractual alliances, 1979–2002 124 5.2 Changing employment structure in China, 1980–2002 128 Acknowledgements Figures 4.1, 4.3, 4.4 and 5.1 are reproduced by kind permission of the Guilford Press from P. Dicken, Global Shift: Reshaping the Global Economic Map in the 21st Century. 4th Edition, 2003. Figure 1.3 is reproduced courtesy of MIT Press Journals from Thomas Piketty and Emmanuel Saez, ‘Income Inequality in the United States, 1913–1988,’ The Quarterly Journal of Economics, 118:1 (February, 2003). Figure 5.2 is reproduced courtesy of J. Perloff from Wu, X and Perloff, J, China’s Income Distribution over Time: Reasons for Rising Inequality. CUDARE Working Papers 977. Figure 1.6 is reproduced courtesy of Verso Press from R. Pollin, Contours of Descent, 2003. Figures 1.4, 1.7, 1.8, 1.9 and 7.1 are reproduced by kind permission of Gérard Duménil and are available on the website http://www.cebremap.ens.fr/levy. Figures 1.2, 1.5 and 6.2 reprinted by permission of the publisher from Capital Resurgent: Roots of the Neoliberal Revolution by Gérard Duménil and Dominique Lévy, translated by Derek Jeffers, Cambridge, Mass.: Harvard University Press, Copyright © 2004 by the President and Fellows of Harvard College. Figure 4.2 is reproduced courtesy Blackwell Publishing from S. Corbridge, Debt and Development, 1993. vii This page intentionally left blank Introduction Future historians may well look upon the years 1978–80 as a revo- lutionary turning-point in the world’s social and economic history. In 1978, Deng Xiaoping took the first momentous steps towards the liberalization of a communist-ruled economy in a country that accounted for a fifth of the world’s population. The path that Deng defined was to transform China in two decades from a closed backwater to an open centre of capitalist dynamism with sustained growth rates unparalleled in human history. On the other side of the Pacific, and in quite different circumstances, a relatively obscure (but now renowned) figure named Paul Volcker took command at the US Federal Reserve in July 1979, and within a few months dramatically changed monetary policy. The Fed thereafter took the lead in the fight against inflation no matter what its con- sequences (particularly as concerned unemployment). Across the Atlantic, Margaret Thatcher had already been elected Prime Minister of Britain in May 1979, with a mandate to curb trade union power and put an end to the miserable inflationary stagna- tion that had enveloped the country for the preceding decade. Then, in 1980, Ronald Reagan was elected President of the United States and, armed with geniality and personal charisma, set the US on course to revitalize its economy by supporting Volcker’s moves at the Fed and adding his own particular blend of policies to curb the power of labour, deregulate industry, agriculture, and resource extraction, and liberate the powers of finance both internally and on the world stage. From these several epicentres, revolutionary impulses seemingly spread and reverberated to remake the world around us in a totally different image. Transformations of this scope and depth do not occur by acci- dent. So it is pertinent to enquire by what means and paths the 1 Introduction new economic configuration––often subsumed under the term ‘globalization’––was plucked from the entrails of the old. Volcker, Reagan, Thatcher, and Deng Xaioping all took minority argu- ments that had long been in circulation and made them majoritar- ian (though in no case without a protracted struggle). Reagan brought to life the minority tradition that stretched back within the Republican Party to Barry Goldwater in the early 1960s. Deng saw the rising tide of wealth and influence in Japan, Taiwan, Hong Kong, Singapore, and South Korea and sought to mobilize market socialism instead of central planning to protect and advance the interests of the Chinese state. Volcker and Thatcher both plucked from the shadows of relative obscurity a particular doctrine that went under the name of ‘neoliberalism’ and transformed it into the central guiding principle of economic thought and management. And it is with this doctrine––its origins, rise, and implications–– that I am here primarily concerned.1 Neoliberalism is in the first instance a theory of political eco- nomic practices that proposes that human well-being can best be advanced by liberating individual entrepreneurial freedoms and skills within an institutional framework characterized by strong private property rights, free markets, and free trade. The role of the state is to create and preserve an institutional framework appropriate to such practices. The state has to guarantee, for example, the quality and integrity of money. It must also set up those military, defence, police, and legal structures and functions required to secure private property rights and to guarantee, by force if need be, the proper functioning of markets. Furthermore, if markets do not exist (in areas such as land, water, education, health care, social security, or environmental pollution) then they must be created, by state action if necessary. But beyond these tasks the state should not venture. State interventions in markets (once created) must be kept to a bare minimum because, according to the theory, the state cannot possibly possess enough information to second-guess market signals (prices) and because powerful interest groups will inevitably distort and bias state interventions (particularly in democracies) for their own benefit.