globalization, neoliberalism and the state of underdevelopment in the new periphery

8/17/2019 Globalization, Neoliberalism and the State of Underdevelopment in the New Periphery

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Globalization, Neoliberalism, andthe State of Underdevelopment in

the New Periphery

JORGE NEF and WILDER ROBLES¤

ABSTRACT

This study provides an analytical sketch of the context, culture, structures, processes, andconsequences of neoliberalism. It examines the subject from two fundamental and complementaryperspectives. The rst involves an appraisal of the history and evolution of neoliberalism as a socio-political phenomenon from its origins to the present. The second perspective provides a systematicanalysis of the theory and practice of neoliberalism, its circumstances and effects, with specialreference to the issue of globalization and its impact upon the weaker sectors of society. The authorsconcludethat neoliberalglobalizationhas contributed to the emergence of a new centre and periphery,

no longerbased on distinctgeographicalregions, but on differentpoliticaland economicstrata in boththe North and South.

Introduction

THE 1998 FINANCIAL meltdown has exposed the mutual vulnerabilityof the present global order. It has also signalled a profound crisis in the theoryand practice of international development. The domino-like collapse of the Asian,Latin American, and East European economies, underscores the inability of theworld economic regime to foresee, avert, and manage multiple dysfunctions.The structures that emerged from the Breton Woods agreements of 1944 —the International Monetary Fund (IMF), the World Bank (WB) and the GeneralAgreements on Tariffs and Trade (GATT; today the World Trade Organization,WTO) — far from steering countries away from their grave predicament, haveostensibly compounded their difculties. The once deemed secure “developed”

countries of the “North” are increasingly vulnerable to events in the lesser secure¤ Jorge Nef is the Director of the School of Government, Public Administration, and Politics at

the University of Chile in Santiago, Chile. Wilder Robles is a PhD candidate at the Universityof Guelph.

c° Koninklijke Brill NV, Leiden, 2000 JDS 16,1


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28 JORGE NEF AND WILDER ROBLES

and hence “underdeveloped” areas of the “South,” in a manner that conventionalinternational relations and development theories have not been able to predict(Head 1991).

The main thesis of this essay is that the aforementioned crisis of development

is rooted in the logic of a distinct ideological and programmatic policy “software,”often referred to as neoliberalism. The latter alludes to a ubiquitous set of beliefs,doctrines and policies, favouring the interests of transnational capital (especiallynance capital), and inuencing decision-making at the highest levels within theGroup of Seven nations and beyond. This discourse has been far more successfulin articulating a rationalization for the globalization of market relations andunprecedented (as well as unencumbered) capital accumulation than in effectivelyimproving the living conditions of most human beings (Rist 1997). The neoliberal

development model has brought about a massive deterioration of living standards,growing income disparities, environmental destruction, an erosion of nationalsovereignty and the undermining of equity-producing policies. Most importantly,neoliberalism has implied a redenition of the implicit “social contract” that hassustained — at least in developed countries — the pattern of labour and socialrelations of the post-World War II Welfare State.

The purpose of this study is to offer an analytical sketch of the context,culture, structures, processes, and consequences of neoliberalism. Due to its very

nature, this undertaking will be broad, tentative, and interpretative. It will examinethe subject from two fundamental and complementary perspectives. One involvesan appraisal of the history and evolution of neoliberalism as a sociopoliticalphenomenon from its origins to the present. The second perspective involves asystematic analysis of the theory and practice of neoliberalism, its circumstancesand effects, with special reference to the issue of globalization and its impact uponthe weaker sectors of society.

From Keynesianism to Neoliberalism

One way to explain and understand the neoliberal discourse is to concentrateupon its genesis and evolution as an induced historical construct. In this sense,and without attempting a sweeping review of economic and political ideologies,it is possible to sketch the circumstances of its emergence, as well as the existingdoctrines against which it rose. As a bundle of ideas with hegemonic pretensionsand tied to an explicit political project, the neoliberal reaction appeared in fullforce in the 1970s. The “neoliberal” label, however, had been in use since the1950s. Most social science encyclopaedias did not have an entry under this term; asituation observable even today. Nor did it exhibit its present ideological vigour andaggressiveness as a hegemonic counter-revolutionary discourse of global reach.From the times in which Friedrich von Hayek “lost” the debate on the causes of


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THE STATE OF UNDERDEVELOPMENT 29

the Depression to John Keynes in 1936, the intellectual “software” that was later tomerge in the neoliberal synthesis, existed in an almost latent and underground state.Monetarism and neoclassical economics were conned to a small but inuentialgroup of conservative economists, business people, politicians, and thinkers. They

shared a deeply ingrained belief in the inappropriateness of Keynesianism andtheir common ground centred on a scathing critique of “statism,” both Marxistand social democratic. Bureaucratism, the welfare state, and the myriad of induceddevelopment and demand-side schemes which, by the end of World War II hadbecome the orthodox staple of government policy, were the immediate targets of their attack. At a deeper level, their stand also involved an assault on politicalliberalism and its acceptance of equity as a guiding principle for choice.

Until the First and Second UN Development Decades (1961 to 1981), the

predominant view of development, and public sector involvement in it, was moldedby the experience of the Depression, World War II, and European reconstructionthrough the Marshall Plan. This scheme was also the predominant frameworkand prescription for international development (McMichael 1996). The acceptedview among theorists and practitioners was one in which universal and replicablestages of economic growth, would transform social and political relations, bringpolitical stability (and democracy) and prevent communist-inspired insurgency.President Kennedy summarized the essence of Cold War liberalism by contending

that those who made social change in the short-run impossible made violentrevolution in the long-run inevitable. Thus, the transformation of ‘traditional’societies into “modern” ones was not only a means to free people from poverty,hunger, malnutrition, and disease, but a way to protect them from tyranny and the“appeals of Communism.”

By the end of the First Development Decade (1961 to 1971) it had becameevident that induced development strategies had failed. The optimistic expectationthat poor countries could “catch up” by merely emulating the Western experienceof industrialization, did not materialize. On the contrary, the economic gap betweenrich and poor had increased. Instead of stability, revolutionary insurgency threat-ened the status quo, while a scal and an institutional crisis of major proportionsloomed on the political horizon of the West. For radical thinkers, the Keynesianmodel had exacerbated the contradictions between accumulation and legitimisationinherent in the liberal-democratic hybrid. For conservative critics, the scal crisisof the Welfare State had moralistic and economic overtones. In their view, the prob-lem was the inevitable consequence of generous social entitlements to the lowerclasses and political “over-participation” (Huntington et al. 1975), resulting in theundermining of the “traditional” moral fabric of society and deation of authority.In other words, it created a “crisis of democracy,” making society ungovernable.The prescription was to bring about scal prudence and a more restricted form of democracy (Hobsbawm 1994; Sklar 1980).


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Neoliberalism, as a concept appeared rst in Europe and Latin America inthe 1950s and 1960s. It was tied to Western strategies and tactics deployed inthe ideological front of the Cold War. Originally, the term referred specicallyto movements of the “modern right.”1 These included business and professional

organizations at the margins of party politics (especially in Germany and Italy),that were attempting to modernize capitalism. Their goal was to ght socialism inthe extra-parliamentary arena, rather than in the realm of elections and politicalparties. The intellectual backbone of this counter-revolutionary and U.S.-inducedmovement was provided by ideologues and thinkers like Friedrich von Hayek,Ludwig von Mises, Milton Friedman, Karl Popper, Louis Baudin, Leonard Read,and Ayn Rand. Elite think-tanks in the West, including the Mont Pelerin Societyand the Bilderberg Group established in 1947 and 1954 respectively, facilitated the

dissemination of the neoliberal viewpoint. The idiom emerged in Latin America afew years later, unequivocally as a conservative response to the Cuban revolution.In 1964, a sympathetic observer2 described the movement as one of “organizationsdedicated to the maintenance of political and economic liberty and backed by therelatively new business-professional sector of society.”3

According to this same source, the Latin American modern right was well orga-nized. It operated on a multitude of counter-revolutionary fronts, including policyanalysis, ideological indoctrination, propaganda, inltration, and paramilitary vigi-

lantism. The new right was active in creating “alternative” structures through “apo-litical” labour movements, grassroots organizations, cooperatives, armed militias,and research centres. Since new right ideas had difculty in penetrating universi-ties, a multitude of business schools, foundations, and “productivity centres” werecreated, among others the Center for Productivity in Montevideo and the BusinessSchool of the Adolfo Ibáñez Foundation in Chile. In many cases, a wide arrayof connections with governments, political parties, and organized religion wereforged. In particular, it is important to note its relationship with the ultraconserva-tive and fundamentalist Opus Dei, then a minority within the Catholic church. Mostimportant, however, were the connections with the aforementioned First Worldintellectuals and private international assistance programs, such as the German-based Ludwig Erhard and Seidel foundations. But the international ramicationsof early neoliberals did not stop there. Many of these groups, as subsequently re-vealed in U.S. congressional hearings in the 1970s, received signicant supportfrom transnational corporations and the Central Intelligence Agency (CIA). Groupsof this stripe were to play, by means of their research centres and their U.S.-trainedeconomists, a central role in shaping the policies of military regimes in Latin Amer-ica’s Southern Cone: from Brazil after 1964 to Uruguay and Chile after 1973. Infact, Chile became and continues to be a construed showcase of “Chicago-boys”neoliberalism at work, with implications far beyond the region. During the periodof military rule, neoliberals gained control of crucial academic departments, es-


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pecially faculties of economics, by forcefully displacing “radicals” and structural-ists espousing the once mainstay U.N. Economic Commission for Latin Americadoctrine.4 From these positions, ideological control of the commanding heights inthe bureaucracy and academia was secured. This control over the ideological, pro-

grammatic and policy “software,” as well as right wing control over the media, hasmade it possible for neoliberalism to establish its hegemony as an overwhelmingdiscourse in the “transitions to democracy” in the 1980s and 1990s.

To understand the historical implications of militant neoliberalism as a counter-revolutionary project it is essential to sketch the broader international circum-stances which facilitated its emergence and dissemination as a global ideology.In recent decades, a profound restructuring of the world economy has taken place.Globalization, interdependence, skewness, dynamism, and fragility are appropriate

characterizations of the aforementioned restructuring. Central to the transnational-ization of production, and the whole gamut of socio-political relations accompany-ing it, is the “cosmocorporation” (Müller 1973). The emergence and consolidationof transnational corporations (TNCs) over the past two or three decades has createda global network of transactions and business alliances. The spectrum of TNCs haschanged: from primarily extractive and manufacturing concerns to include servicesand nance. The emerging forms have exhibited a remarkable degree of adaptabil-ity, evolving into more than a mechanism for the transfer of capital and technology

across jurisdictional boundaries. They now are a most effective vehicle for the ex-traction of surplus from peripheral sectors, via credit-indebtedness devices, wage-differentials, tax advantages, franchises, transfer pricing, and the like (Collinworthet al. 1993) to semi-peripheral sectors and from there to the various groups at thecore of corporate power. In addition, TNCs play a fundamental role in the integra-tion of elites and their ideologies at the transnational level.

One of the most important developments in recent decades has been therapid and profound globalization of trade and nance (Hirst 1996). New tradingregimes, under the rules laid down by the World Trade Organization (WTO) andthe emergence of dominant trading blocs — the European Union, ASEAN andnow NAFTA and MERCOSUR — have facilitated a transnational integration of business elites into extended circuits of trade, capital, information, and power,often by-passing national “interests” and regulatory structures. Today it is possibleto transfer nancial resources from one country to another at the ick of akey, crossing national borders and affecting the national balance of payments.In this process of transnationalization, combined with shifting economic policy,from demand-side Keynesianism to supply-side monetarism, there have beenclear winners and losers. Finance capital, telecommunications, and in generalproprietary high-tech cosmocorporations have emerged on top.

Meanwhile, important sectors in the old post-1930 social contract such aslabour, consumers, farmers, the bulk of the white-collar, employee middle class and


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nationally-based medium-sized manufacturers have been severely hurt. The ensu-ing social and political restructuring has affected the nature of contemporary poli-tics, the state, the denition of citizenship and the very essence of governance, bothglobally and within countries (Sassen 1996). Macroeconomic decision-making, as

in the case of central banks, has tended to escape national and democratic controls.This has brought about a persistent tendency of external involvement (e.g., theIMF, foreign creditors, transnational corporations) in seemingly internal mattersof credit, scal and monetary policy. Domestic concerns have become peripheraland subordinate to the interests of transnational capital. While consumerism and“prosperity” are peddled as popular ideology, or mesmerizing chant produced bythe business elite for popular consumption, this discourse conceals the objectivereality — and operational doctrine — of massive unemployment and the creation

of a low-wage economy (Standing 1989).Alternative trading regimes to those controlled by the major trading blocswithin the Group of Seven have all but crumbled. The dismantling of the social-ist trading block known as COMECON has eliminated the presence of a tradearrangement which encompassed the Soviet Union, the Eastern European countriesand a number of centrally-planned economies in the Third World. The initiativesfor a New International Economic Order, or a “Trade Union of the Third World”proposed by former President Julius Nyerere of Tanzania and endorsed by succes-

sive United Nations Conferences on Trade and Development (UNCTAD) also havefailed to materialize. UNCTAD itself and the Non-Aligned Movement, the latterresulting from the 1955 Bandung Conference of Non-Aligned Countries in 1955,now lie in shambles, crushed between the death of the so-called socialist SecondWorld and the debt crisis of the former Third World. More recently, with the crisesof the Brazilian and the Argentinean economies, the future of economic union inthe Southern cone of Latin America under the aegis of MERCOSUR is very muchin question. The possiblies of South-South cooperation are not very promising.

Western elites and their clients elsewhere in the world are now in a position todictate the terms of global surrender, not only to the populations of the former Sec-ond and Third worlds, but to their own populations as well. Externally-imposed“structural adjustment” policies severely undermine economic sovereignty, deepenunderdevelopment, and spread poverty. We now have “trickle up, or recessive in-come distribution” on an unprecedented global scale.

The Neoliberal Regime

In the post Cold War and largely unipolar world, neoliberalism has become en-trenched as a global ideology (Sklar 1980). This mind-set has hegemonic strengthamong the core sectors within the Group of Seven countries. Substantively, theideological foundation of this “New Internationale” is distinctively neoclassical,


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elitist, and monistic. Despite an outwardly progressive rhetoric of democratiza-tion, with support for individual freedoms, “open societies,” and the “rule of law,”this new worldview is every bit as Manichean and dogmatic as the old Cold War,national security discourse it has replaced (Drury 1993). In fact, this type of reac-

tionary modernism has more than a casual continuity with its military predecessor.Most important though, is the fact that the new orthodoxy has a strong appeal tothe afuent, globally-integrated, consumption-intensive, and modern elite sectorsin what used to be called the Third and Second Worlds. From this perspective, the“triumph of the West,” the “End of History,” the “Clash of Civilizations” (Hunting-ton 1993) and “Manifest Destiny” blend in a synthesis with distinct functionalistovertones.

At least ve identiable streams of thought converge in contemporary neolib-

eralism. The rst source is neoclassical economics, rooted in von Hayek’s inter-pretation of Adam Smith, and the premise that economic rationality is solely theconsequence of individuals maximizing choices. The second source is monetarismand its prescription of scal restraint, privileging anti-inationary measures overemployment. Its major proponent has been Milton Friedman, associated with the“Chicago school,” the latter closely connected to nancial speculative circles. Thethird source is political neoconservatism: an offshoot of a moralistic and cultur-alistic reaction amalgamating on the one hand disillusioned welfare liberals, with

outright reactionaries and “cold warriors” on the other. The fourth source is a re-vamped version of nineteenth century social darwinism á la Herbert Spencer, withMalthusian and deterministic connotations. Last, but equally relevant, is the quasi-mystical “objectivist” individualism à la Ayn Rand, with a poetic and highly nor-mative avor.

The Communications Counter-Revolution

Ideologically, neoliberalism can be seen as a discourse legitimating elitistnational and international regimes. The emerging global cultural regime, morethan a dened set of circumstances, values and structures, with its own boundariesand dynamics, represents a massive onslaught of Western culture by means of a revolution in communications. According to some, and paraphrasing Tofer,we live in a world of “future shock;” one so dependent on computers andtelecommunications that should these gadgets cease to function, this would betantamount to switching off global civilization (Pelton 1981). Communicationstechnology, irrespective of its wide spread is neither neutral, nor freely available. Itis a highly concentrated business,5 driven by transnational capital and deregulation(U.S. Department of Commerce 1993). This has meant a disappearance of bothstate-owned public information systems as well as small independent, privatemedia operations. A highly stratied global information order, managed by private


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international consortia has emerged. The development of a global news andentertainment industry has meant an unprecedented explosion of cultural importspractically everywhere. This expansion is mainly unidirectional. The centre of thedissemination is clearly the United States, where the fastest growing industry is the

entertainment industry.6

In addition to unidirectionality, media programming, especially in radio andtelevision, shows marked uniformity. The production and dissemination of infor-mation ows from North to South. Therefore it is possible “that all forms of na-tional transformation converge towards a small number of common and hence uni-versal types” (UNESCO 1982). One emerging cultural pattern has been referredto as an elite managerial culture: “a set of attitudes, values and behaviour mod-els, and a set of forms and models of organization” (Ibid.) centred on the market

and the myth of achievement. Its mass ideological correlate is the culture of con-sumerism in its mainstream and pop versions. The global news and entertainmentnetworks are the conveyor-belts in the transmission of a common neo-materialistand hedonistic worldview. Its foundations are inserted in the same possessive indi-vidualism and competitiveness of classical liberalism, yet this time the message isdirected to transnational consumers conditioned by a massively-marketed coatingof pop culture. The elite doctrine underpinning this deceivingly chaotic ideologicalveneer is a complex amalgam of “cyberpunk” and market economics. There is a

phenomenal gap between a minority accessing the technology and a majority whoare experiencing “digital inequity” as well as material inequality.7

The Pervasiveness of Modernity

The cultural thrust of neoliberalism discussed above has been equated by elitesat the core with the idea of modernity. While the Marxist-Leninist strain of mod-ernization has fallen in disrepute with the disintegration of the “really existing

socialisms” of Eastern Europe, the capitalist variety has become, by default, thedominant paradigm. A central aspect of this hegemonic construction is the manu-factured belief that there is no alternative to neoliberalism at the present time, otherthan the re-assertion of religious fundamentalism — as with the “Clash of Civi-lization” thesis — or the imsy critique offered by the postmodernism of Westernintellectuals. However, even this apparently radical post-structural critique startsfrom the premise of a hegemonic Western culture. What appears on the surfaceof most post-modernist critical analyses of modernity is, linguistic pyrotechnicsnotwithstanding, at closer scrutiny a manifestation of neo or hyper-modernism,not a substantial departure from mainstream thought. Thus, despite the rhetoricsurrounding the “crisis of modernity,” modernization remains unchallenged as theprevailing teleology of development.


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Social Forces and Interests

Ideologies are not disembodied “systems of thought,” without reference to con-crete social forces. Beyond the exhaustion of Keynesianism and induced develop-ment as a containment doctrine, the upsurge of neoliberalism is grounded in the

advent of a powerful constituency for whom this ideology provides both a policyroadmap and an intellectual justication for their interests. The transnationalizationof production and capital weakens territorial sovereignty, and governments every-where are affected by external economic forces beyond their control. The abilityof business to transcend national boundaries has strengthened the role of externalconstituencies. The latter include the mighty transnational investors and manage-rial elites in transnational corporations, in alliance with a vast array of equallytransnationalized service clientele of technocrats and politicians. The TNCs have

been able to break the “sovereignty barrier,” and create a venue for the transnationalintegration of the powerful and inuential. Not only are these sectors in a domi-nant position within the developed world, but their leverage is even more decisivein the Third World. Furthermore, directly as well as through the intermediation of friendly governments in the G-7 countries, they have expanded their control overthe crucial agencies of the Bretton Woods system (chiey the IMF and the WorldBank), and within the European Union. As business in the more developed coun-tries has gone global and nance capital increasingly plays the leading role in the

world economy, the strength, solidity, and mobility of this internationalized newbourgeoisie have expanded.

Organizations

The aforementioned Mont Pelerin Society and the Bilderberg Group haveprovided global outlets where neoliberal ideas have been debated and where theinterests of the dominant social groups they represent have been articulated on aninternational scale. It was, however, the establishment of the Trilateral Commissionin 1973 (by the U.S. based Council for Foreign Relations and the BilderbergGroup), which gave the anti-Keynesians world-wide prominence. The WorldEconomic Forum, or Davos Group, created in the 1980s, has further articulated andprojected the views of international capital by bringing together likeminded leadersin the political, business, media, and academic communities. These individualsare the most inuential people in the world. Numerous and well-nanced nationalgroupings, combining policy-research and propaganda have also proliferated, suchas the Institute of Economic Affairs in the UK, the American Enterprise Institute(AEI) in the United States and the Fraser Institute in Canada. Neoliberal ideas havealso become predominant in academia, particularly in disciplines like economicsor political science, but most importantly, they inuence in no small manner theupper levels of university administrations.


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The macro impact of contemporary neoliberalism is manifested institutionallyin two ways. One is through the control of the political/technocratic high groundand the government agendas by the political and business elites of the OECDcountries. Virtually all political parties, from conservative to social democrats have

embraced neoliberal economics as “the only way” to promote prosperity. Such“fatalism” prevails also in Latin America and in the former socialist countries of Eastern Europe. This relational control (Baumgartner et al. 1978), or hegemonymanifests itself especially in the allegedly “technical” scal and monetary policiesarticulated by the ministries of nance and the central banks. These policies setthe fundamental parameters of the economic game, which in turn affect materialproduction and distribution. The other systemic impact materializes by means of the control that the very same nancial and political elites have over the major

international institutions which are at the core of the global economic regime:the IMF, the World Bank and the World Trade Organization (WTO). From there,via regulation (and deregulation), international law and conditionalities, neoliberalpolicies are entrenched and legitimated in the domestic modus operandi of lesserdeveloped and “transitional” economies. The transnationalization of scal policiesmakes it virtually impossible for national governments to legislate neoliberalnorms out of existence, since rule-making in this area is effectively removed fromthe domestic political process, irrespective of how representative it is. Deviant

behaviour is often punished by business blackmail and “capital ight,” before directintervention. Beyond pure ideological conviction and even opportunism, this mayhelp to explain why governments of diverse political orientation end up adoptingneoliberal policies, often against the manifest and overwhelming mandate of theirconstituencies.

The Constructed Hegemony of Neoliberal Economics

The central tenet of the above-mentioned belief-system is that only competitiveand unregulated markets hold the key to development. Conversely, those unableor incompetent to adapt, compete and abide by the objective laws of the market,or who fail to acquire the attributes of outward success, deserve to descend tothe abyss of abject squalor. “No pain, no gain” is the capsular ideological chainof signication of the new scolasticism. Behind this Kuznetsian slogan there liesan operational doctrine characterized by an extreme inequity in the domestic andglobal distribution of pain for the many and gain for the few. Neo-liberalism hasevolved into a new form of fundamentalism or “economic correctness,” a sort of holistic economic determinism of the right, draped in “common sense” and folksyclothes.

It encompasses a theory of history, a political economy (“Public Choice The-ory”) and a theory of world politics (“Complex Interdependence”). Neoliberalism


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is also a vanguard political movement of the well-to-do which exhibits many of the epistemologically fallacious assumptions of its now-defunct and discreditedideological opposite. “Really-existing capitalism,” rather than “really-existing so-cialism” is erected as the only possible teleology at the end of history, and market

reductionism substitutes for class-reductionism. As billionaire nancier and formerCold Warrior, George Soros has pointed out: the “arch enemy of an open societyis no longer the Communist threat but the capitalist one” (Soros 1997). The dif-culty with present day exclusionary scolasticism, is that, it soon runs out of ideas.Thought processes evolve into tautological slogans; education into indoctrination,while critical thinking becomes anathema. This dysfunctional cultural “loop” isreproduced through the acritical institutions of higher education and by the evermore homogeneous and transnationally integrated systems of diffusion of ideas as

a form of “Musak” or mesmerizing chant.

The Abandonment of Politics

The fundamental connection between politics and human security is publicpolicy; a process the outcome of which is the allocation of rewards and deprivationsamong various publics. The issues of participation and regulation are as centralto the question of “good governance” as are the issues of accumulation orenforcement. Since the 1970s, Western political theory has consistently abandoneda normative ideal based on participation, democracy and the “input side” of politics favouring another teleology centred on order, stability and governability(O’Brien 1968; Leys 1982). The new political economy (Huntington 1967, 1968)exemplied by Public Choice theory, emphasises the role of the merchant overthe prince, ignoring the citizen. Politics, as in vulgar Marxism, is subordinated toa techno-bureaucracy of experts who manage “objective,” natural-like economiclaws, laws that cannot be legislated or debated but dictated by those who interpretthe arcane and reied realm of the behavior of capital and the market.

Beyond this political and economic philosophy, the neoliberal package is bestknown for the simplicity of its formula. This recipe, which economic experts inbilateral and multilateral agencies actively encourage, contains six major intercon-nected policy recommendations.

1) The rst is re-establishing the rule of the market. This means liberatingprivate enterprise from the “articial” bonds imposed by governments. It alsoinvolves greater openness to international trade and investment. In the labour front,wages are made competitive by de-unionizing workers and eliminating “articialbarriers” such as workers’ rights, minimum wages and the like. The eliminationof price controls allows the market to nd its own equilibrium. Last, but not least,currency controls, tariff barriers, and other impediments to free trade are phasedout, and, if possible, eliminated. All in all, total freedom of movement for capital,


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goods, and services (but not labour) is to be attained. A central postulate in marketsovereignty is that an unregulated market is the best way to increase economicgrowth, which will ultimately benet everyone: “supply-side” economics wouldproduce “trickle-down.”

2) The second prescription is reducing taxes. Public revenues, especially directtaxation on income and wealth are to be drastically cut down. This is gearedto increase disposable earnings among the well-to-do, resulting in a favorableinvestment climate. Conversely, taxation on consumption, or indirect taxation isboosted, especially in the form of value added or goods and services taxes (VATand GST). These policies are clearly set to benet big business and are essentiallyanti-labour and anti-consumer. They also reduce the scal base of government.

3) The third is reducing public expenditure. Social disbursements, including

welfare assistance, education, health care, unemployment insurance, and pensionsare considered inimical to economic efciency. The same goes for social safetynets and even the maintenance of physical infrastructure such as roads, bridges,water supply, and other services. Whenever possible these activities are to be takenover by “revenue generating” private enterprises. Protability, not service is themain criteria.

4) The fourth recommendation is deregulating the private sector. Governmentregulation of everything that could diminish private prots is to be drastically re-

duced. In principle, deregulation is geared to enhancing competitiveness, elimi-nating red tape, bureaucratism, and corruption. As markets become the automaticcomptrollers, greater efciency is supposed to ensue.

5) The fth is the privatization of the public sector. State-owned enterprises,as well as public-sector produced goods and services are to be sold to private in-vestors. This includes banks, key industries, railroads, highways, energy, water andcommunications utilities, schools, hospitals, and even natural resources. The as-sumption here is that private enterprise, driven by prot-maximization, is inher-

ently efcient, risk-taking and innovative.6) Finally is the elimination of the collectivist concept of the “public good.”This is to be replaced with a view of the common good emphasizing “individualresponsibility.” The subsidiary state has a minimal role to play in dealing withindividual “failures.” Thus, those who are not able to fend for themselves areblamed for their own problems and left largely on their own to solve them.

The Neoliberal Threat

The effort by socioeconomic elites and their institutional intellectuals to cir-cumvent established democratic traditions and make politics “governable” andmarkets “free” is a potentially antidemocratic trend. The tendency to favour “lim-ited” democracies, able to respond to “market” forces, constitutes an attempt to


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reduce participation and depoliticize politics. The challenge presented by the 1975report on The Crisis of Democracy (Huntington et al. 1975) to the Trilateral Com-mission was how to reconcile market politics with unrestricted private accumula-tion leading to monopoly. The neoliberal solution has been to limit the role of the

state and to facilitate private accumulation, while reducing the scope and salienceof popular participation and social policies, all this in the name of freedom. Elitepolitics offers very few real options and transforms the state’s allegedly “populist”and welfare functions into mere symbolism. Without the legitimizing trappings of welfarism, a strong connection develops between neoliberal policies, the enhance-ment of law-and-order, penalization and criminalization, and the possible emer-gence of police states.

The implementation of this project involves essentially re-drafting the implicit

social contract among the various social actors, which regulates the pattern of labour relations (and income-distribution) in society. It also relates to the den-ition of what social actors, especially non-elite actors, are considered legitimate.The neoliberal project is, for this reason, distinctively exclusionary and heavilyclass-biased. The so-called “leaner but meaner” state resulting from structural ad-

justment and debt-reduction policies has built-in safeguards to prevent possibleredistributive policies resulting from “irresponsible” majority demands and “over-participation.” The choices of citizenship are stripped of substance. Monetarist eco-

nomic policies and those referred to as macroeconomic equilibrium are, as men-tioned earlier, effectively taken away from public debate. They remain connedwithin acceptable limits by means of transnationalized regional trading agree-ments, central banking mechanisms and bureaucratic expertise. This elitist ten-dency to facilitate the governability of democracies reduces the governments’ ca-pacity for governance, as an expression of sovereign national constituencies. It alsoproduces an effective loss of citizenship.

In the last analysis, the only possible outcome is the maintenance of an in-

equitable socioeconomic order. Attempts to resist the inevitability of this regressiveorder brings out the seamy side of democracy: the manipulation of public opinion,the induced fragmentation and trivialization of the opposition, the application of “authorized” force and intimidation as insurance policies against dissent. Criticsand dissidents end up being labelled “subversives” and are subjected to numeroussecurity regulations. As John Sheahan has commented, the neoliberal policy pack-age is “inconsistent with democracy because an informed majority would reject it.The main reason it cannot win popular support is that it neither assures employ-ment opportunities nor provides any other way to ensure that lower income groupscan participate in economic growth” (Sheahan 1987). The rationality of the econ-omy ends up in contradiction with social and democratic rationality. In fact, theeconomic policies charted under this economic doctrine have been best suited for


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authoritarian political regimes, such as Brazil under the Generals, Pinochet’s Chile,or some of the Asian “miracles” in South Korea, Taiwan, and Singapore.

The juxtaposition of economic “freedom” with political repression is theessence of the formula known as “authoritarian capitalism” (Letelier 1976), which

preceded the current “democratic opening” in Latin America. There is a denitesolution of continuity between the authoritarian and the electoral phase of neolib-eralism. As the national security states orderly retreated into their barracks, thereemerged restricted democracies with entrenched neoliberal economic agendas. Asimilar trend towards liberalization is observable in many of the former socialistrepublics of Eastern Europe. These new democracies are “receiver states” (Nef andBensabat 1992) based upon restricted participation and a peculiar consociationalarrangement: a pact of elites. The key role of this state is to secure macroeconomic

equilibrium, private accumulation, privatization, and deregulation. These goals areaccomplished via debt service and the execution of the conditionalities attached tothe negotiation of such service.

However, receiver states are not circumscribed nowadays to the peripheryof the Third World and former Second World. Nor is a large foreign debt oneof their intrinsic characteristics. Western elites have been applying a similarpolitical agenda in their own societies. Its manifestations have been Thatcherism,Reaganomics, and the supply-side policies applied in Canada for over a decade

and repudiated by the electorate in 1993. These socioeconomic policies have beenrationalized on grounds of keeping ination down, reducing the tax burden, or morerecently the current internal debt-crisis. Economic “restructuring” and the newsocial contracts are their programmatic expressions. In all cases, these policies haveled to growing income disparities. Two examples can be illustrative. In Chile duringthe 17-year Pinochet dictatorship, hailed in conservative circles as a neoliberal“miracle,” real income per capita grew a paltry .3 percent per annum on the averagewhile the proportion of people below the poverty line increased at a record 7

percent per year (Nef 1996). In Canada, for nearly a decade the top ranking countryin the UNDP’s Human Development Index, a recent study indicated that between1973 and 1996, the income differential between the top and bottom 10 percent of the population increased from a ratio of 21 to 1 to 314 to 1.8

Effects: An Incomparable Disadvantage

The transnationalization of production and the displacement of manufacturingto the semi-periphery, on account of alleged comparative advantages broughtabout by depressed economic circumstances and the low-wage economy, resultsin plant closures and the loss of jobs in the “developed” countries. Such globalismreplicates in the centre similarly depressed conditions to those in the periphery.Manufacturing, in this context, evolves into a global maquiladora9 type industry


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under economies of scale and integrating its nances and distribution by means of major transnational companies and franchises. Abundant — and above all cheap— labour and pro-business biases on the part of host governments are fundamentalconditions for the new type of productive system.

Since there are many peripheral areas with easy access to inexpensive rawmaterials and with unrepresentative governments willing to go out of their wayto please foreign investors, a decline of employment and wages at the centrewill not necessarily create incentives to invest, or increase productivity in thepoorer countries. Nor will wage reductions increase “competitiveness,” one of thefavourite neoliberal buzzwords. Since production, distribution, and accumulationare now global, neoliberal globalization is likely to lead to a situation of permanentunemployment, transforming the bulk of the blue collar workers — the “working”

class — into a “non-working” underclass. In the current global environment,production, distribution, consumption, and accumulation are not constrained bythe tight compartments of the nation state, national legislation or responsiblegovernments.

The new correlation of forces is one where blue-collar workers have lost, andlost big. In contrast to the fragmented and increasingly marginalized condition of both the blue and white collar sectors of the workforce, the present structure of theglobal economic order is transnational, centralized, concentric, and institutional-

ized at the top. Its fundamental components are trade, nance, and the protectionof the proprietary rights of international business. Rules, actors, and instrumental-ities constitute a de-facto and de jure system of global governance in which eliteinterests in the centre and the periphery are increasingly intertwined.

Conclusion

The historical and structural circumstances of this new economic order are

dened by three fundamental structural parameters, the common denominator of which is global macroeconomic restructuring. The rst is the end of the Cold Warand the collapse of the socialist Second World. This circumstance is construed asthe victory of capitalism. The second contextual parameter of this new order is thedisintegration and further marginalization of the Third World. The third parameteris economic globalization on a scale and depth unprecedented in human history.

The most crucial ideological trait that underpins the present global regime isthe pervasiveness of neoliberalism as a hegemonic and homogenizing discourse.This discourse contains in its core a distinctive ethics of possessive and preda-tory individualism with very few moral constraints. Whether under the spell of monetarism or the so-called “Trilateral” doctrine (Sklar 1980), conventional eco-nomic thinking has displaced not only socialism but practically all manifestations


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of structuralism. Most important, however, is the entrenchment of inequality andthe devaluation of labour as the guiding principles of economic life.

The formal decision-making structures of the global economic regime areclearly recognizable, encompassing the General Agreements on Tariffs and Trade

(GATT) and its successor, the World Trade Organization (WTO), the InternationalMonetary Fund (IMF), the World Bank, the various regional banks, the Organi-zation for Economic Cooperation and Development (OECD), the Group of Seven(now Group of 8 with the inclusion of Russia) and the established major trad-ing blocs: the European Union, ASEAN, NAFTA, and MERCOSUR. The WTOwas established at the 1993 Geneva meeting of the GATT to substitute a moni-toring, regulatory, and enforcement agency for the GATT conference itself. Thisis tantamount to the establishment of a formal mechanism for the regulation of

world trade, thus formalizing the leading role of trade in both the internationaleconomic regime and the over-all global order. The proposed Multilateral Agree-ment on Investment (MAI)10 is another complementary set of rules — a charter of rights for nance capital. This global structure has its correlate inside the mech-anisms of macroeconomic management at the level of nation-states: ministries of nance, treasury boards, and central banks. The formal linkage between global anddomestic management is provided by international agreements and external con-ditionalities attached to scal, monetary, and credit policies; especially those of

debt-management. This linkage is, in turn, re-enforced by common ideology andprofessional socialization on the part of national and international experts.Through these devices, world economic elites manage their interests and

negotiate regulatory structures to serve their common interests and maximizeprots. As Huntington (1992) rather cynically put it:

Decisions : : : that reect the interest of the West are presented to the world as : : : thedesire of the world community. The very phrase “the world community” has becomethe euphemistic collective noun (replacing “the Free World”) to give global legitimacy

to actions reecting the interest of the United States and other Western powers: : :

Through the IMF and other international economic institutions, the West promotesits economic interests and imposes on other nations the economic policies it thinksappropriate (P.)

But harmony and predictability at the transnational summit does not necessarilytranslate into order and security at the base. As production, nance and distributionin a rapidly globalizing economy become transnationalized, so does economic vul-nerability. After the years of world-wide prosperity during the 1960s and the 1970s,economic instability and vulnerability to external economic forces have becomeendemic. The effects of economic insecurity, manifested in poverty, unemploymentand sheer uncertainty are felt by the bulk of the population in the periphery. Eco-nomic globalization under the neoliberal formula has disenfranchised people from


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fullling their basic human needs, namely, access to food, housing, and employ-ment. It has caused social polarization within and across national boundaries. It hascontributed to the emergence of a new centre and periphery no longer based on ge-ographical regions, but on political and economic groupings in both the North and

South. On the one hand, there stands the highly transnationalized, afuent, mobile,and inuential elites in the First World, former Second World, and Third World.On the other, there is the heterogeneous and fragmented majority of the inhabitantsof the planet — living in all the “worlds of development” — who are increasinglymarginalized and disenfranchised in the “global village.” As the process of global-ization under the banners of neoliberalism advances, the proportion of those in the“other world” increases. So does the probability of human insecurity and mutualvulnerability.

There is a great deal of optimistic triumphalism among those who espouseneoliberalism. From the perspective of its supporters, the inherent superiority of this global project has been demonstrated by the collapse of socialism in EasternEurope, the disintegration of African societies and Latin America’s “lost decade.”Yet, the sharp schism between these two worlds and the conict between anexpanding Western civilization and an increasingly fragile, unstable and besiegedglobal and domestic periphery, offers a scenario of violent confrontation: a new“World War III.” The growing squalor of the many, which makes the prosperity

of the few possible, has intrinsically destabilizing effects. It is a direct threat toeverybody’s security. The extreme vulnerability of the South and the East, far fromenhancing the security of the North and the West, is a symptom of a profoundmalaise in the entire global system. With hindsight neoliberalism may well beperceived as one of the greatest and most elaborate deceptions in modern history.But today its consequences are real and go beyond a clever global con game. Thisdysfunctional system is already eroding post-industrial civilization’s vitality, notonly in what is contemptuously referred to as “down there” but essentially “up

there” too.

NOTES

1 See Carl Friedrich, “The Political Thought of Neoliberalism,” American Political Science Review, XLIX: 2, 1955, 509ff.

2 According to the Portuguese Times (June 12, 1997), Norman Bailey, an academic and a formerSenior Director of International Academic Affairs for the National Security Council during theReagan Administration, has had longstanding connections to the US intelligence community.

3 Norman Bailey, “Organization and Operation of Neoliberalism in Latin America,” in Bailey

(ed.), Politics, Economic and Hemispheric Security, New York, Praeger 1965, 193. The entirevolume is a collection of pieces by right-wing thinkers, resulting from a conference organizedby the Center for Strategic Studies at Yorktown University in July 1964.

4 The ECLA Doctrine refers to the keynesian approaches to economic recovery and import-substitution industrialization followed by the relatively more advanced Latin American coun-


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tries — Mexico, Brazil,Uruguay, Argentina,and Chile, and to a lesser extent Peru and Colombia— between thelate 1930s and the early 1960s,and articulatedby the UN Economic Commissionfor Latin America (ECLA). The names of economists such as Raúl Prebisch, from Argentina,Celso Furtado, from Brazil, José Antinio Mayobre, from Venezuela and Osvaldo Sunkel, fromChile are considered to be representative of the “doctrine.”

5 In 1988, the top 10 information and communication enterprises which virtually controlled thetechnology and R&D of global communications and informatics, included 2 American (IBMand AT&T), four Japanese (NTT, Matsushita, NEC and Toshiba), one German (the state-ownedDeutsche Bundespost), one Dutch (Phillips), one British (British Telecom) and one French(France Telecom).

6 In 1991 foreign sales accounted for 39 percent of U.S. lm and television revenue, a 30 percentincrease over 1986. Between 1987 and 1991, net exports in this sector doubled: 7 billion, overthe past record of 3.5 billion. In addition, the export of American records, tapes and otherrecordings rose from $286 million in 1989 to 419 million in 1991; an increase of 47 percent.In 1998, it was estimated that the musical industry alone had grown to about 20 billion dollarsin annual sales, 70 percent of it coming from abroad (D+C 1998). To this, one must add theever-expanding computer software market.

7 A few gures are illustrative. According to a 1992 report by ITU/BTD there were about onebillion telephones in the world and a population of about 5.7 billion. Of these, only 15 percentof the inhabitants of the planet had access to 71 percent of the main global lines. At the sametime 50 percent of the people of the world reportedly had never used a telephone: “lower incomecountries (where 55 percent of the population lives) have access to less than 5 percent of thetelephone lines. While the high-income countries possess 50 telephone lines for every 100inhabitants, many low income countries have less than one telephone line for 100 inhabitants”

(Hamelik 1998).8 See “Rich get richer as wage widens,” The Toronto Star , Thursday October 22, 1998, A1.9 For an analysis of maquiladoras, see Kathryn Kopinak, “The Maquiladora in the Mexican

Economy”, in Ricardo Grinspun and Maxwell Cameron (eds), The Political Economy of North American Free Trade, (Montreal & Kingston: McGill-Queen’s University Press, 1993), pp. 141-162.

10 See Tony Clarke, “The Multilateral Agreement on Investment.” Document accessedvia the webat http://www.nassist.com/mai/mai(2)x.html. Date November 17, 1998.

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