NEOLIBERAL STATE - 3 The Neoliberal State The role of the...

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Unformatted text preview: 3 The Neoliberal State The role of the state in neoliberal theory is reasonably easy to define. The practice of neoliberalization has, however, evolved in such a way as to depart significantly from the template that theory provides. The somewhat chaotic evolution and uneven geo— graphical development of state institutions, powers, and functions over the last thirty years suggests, furthermore, that the neoliberal state may be an unstable and contradictory politicalform. The Neoliberal State in Theory According to theory, the neoliberal state should favour strong indi— vidual private property rights, the rule of law, and the institutions of freely functioning markets and free trade.] These are. the insti- tutional arrangements considered essential to guarantee 1nd1v1dual freedoms. The legal framework is that of freely negotiated con— tractual obligations between juridical individuals in the market— place. The sanctity of contracts and the individual right to freedom of action, expression, and choice must be protected. The state must therefore use its monopoly of the means of violence to pre- serve these freedoms at all costs. By extension, the freedom of businesses and corporations (legally regarded as individuals) to operate within this institutional framework of free markets and ‘ free trade is regarded as a fundamental good. Private enterprise , and entrepreneurial initiative are seen as the keys to innovation ‘ and wealth creation. Intellectual property rights are protected (for example through patents) so as to encourage technological changes. Continuous increases in productivity should then deliver higher living standards to everyone. Under the assumption that ‘a rising tide lifts all boats’, or of ‘trickle down’, neoliberal theory 64 The Neoliberal State holds that the elimination of poverty (both domestically and worldwide) can best be secured through free markets and free trade. Neoliberals are particularly assiduous in seeking the privatiza- tion of assets. The absence of clear private property rights—as in many developing countries—is seen as one of the greatest of all institutional barriers to economic development and the improve— ment of human welfare. Enclosure and the assignment of private property rights is considered the best way to protect against the so— called ‘tragedy of the commons’ (the tendency for individuals to irresponsibly super—exploit common property resources such as land and water). Sectors formerly run or regulated by the state . must be turned over to the private sphere and be deregulated (freed from any state interference). Competition—between indi— viduals, between firms, between territorial entities (cities, regions, 3 nations, regional groupings)—is held to be a primary virtue. The . ground-rules for market competition must be properly observed, of course. In situations where such rules are not clearly laid out or 'where property rights are hard to define, the state must use its power to impose or invent market systems (such as trading in “apollution rights). Privatization and deregulation combined with .a' petition, it is claimed, eliminate bureaucratic red tape, increase .3 ciency and productivity, improve quality, and reduce costs, both fiectly to the consumer through cheaper commodities and vices and indirectly through reduction of the tax burden. ~ neoliberal state should persistently seek out internal reorgan- n'ns and new institutional arrangements that improve its petitive position as an entity vis-a—vis other states in the global Ct. While personal and individual freedom in the marketplace is . ‘ anteed, eachindividual is held responsible and accountable for L or her own actions and well—being. This principle extends into ‘ realms of welfare, education, health care, and even pensions in 1 security has been privatized in Chile and Slovakia, and .. sals exist to do the same in the US). Individual success or e are interpreted in terms of entrepreneurial virtues or per- . failings (such as not investing significantly enough in one’s human capital through education) rather than being 65 The Neoliberal State attributed to any systemic property (such as the class exclusions usually attributed to capitalism). The free mobility of capital between sectors, regions, and coun- tries is regarded as crucial. All barriers to that free movement (such as tariffs, punitive taxation arrangements, planning and environmental controls, or other locational impediments) have to be removed, except in those areas crucial to ‘the national interest’, however that is defined. State sovereignty over commodity and capital movements is willingly surrendered to the global market. International competition is seen as healthy since it improves effi— ciency and productivity, lowers prices, and thereby controls inflationary tendencies. States should therefore collectively seek and negotiate the reduction of barriers to movement of capital across borders and the opening of markets (for both commodities and capital) to global exchange. Whether or not this applies to labour as a commodity is, however, controversial. To the degree that all states must collaborate to reduce barriers to exchange, so co—ordinating structures such as the group of advanced capitalist nations (the US, Britain, France, Germany, Italy, Canada, and Japan) known as the G7 (now the G8 with the addition of Russia) must arise. International agreements between states guaranteeing the rule of law and freedoms of trade, such as those now incorporated in the World Trade Organization agreements, are critical to the advancement of the neoliberal project on the global stage. ' Neoliberal theorists are, however, profoundly suspicious of democracy. Governance by majority rule is seen as a potential threat to individual rights and constitutional liberties. Democracy is viewed as a luxury, only possible under conditions of relative affluence coupled with a strong middle—class presence to guarantee political stability. Neoliberals therefore tend to favour governance by experts and elites. A strong preference exists for government by executive order and by judicial decision rather than democratic and parliamentary decision—making. Neoliberals prefer to insulate key institutions, such as the central bank, from democratic pres- sures. Given that neoliberal theory centres on the rule of law and a strict interpretation of constitutionality, it follows that conflict and opposition must be mediated through the courts. Solutions and 66 The Neoliberal State remedies to any problems have to be sought by individuals through the legal system. Tensions and Contradictions There are some shadowy areas as well as points of conflict within fire general theory of the neoliberal state. First, there is the prob- .iem of how to interpret monopoly power. Competition often mults in monopoly or oligopoly, as stronger firms drive out . er. Most neoliberal theorists consider this unproblematic (it uld, they say, maximize efficiency) provided there are no sub— tial barriers to the entry of competitors (a condition often hard realize and which the state may therefore have to nurture). The . of so—called ‘natural monopolies’ is more difficult. It makes no v to have multiple competing electrical power grids, gas pipe— - , water and sewage systems, or rail links between Washington . a Boston. State regulation of provision, access, and pricing 5 unavoidable in such domains. While partial deregulation y be possible (permitting competing producers to feed elec- " 'ty into the same grid or run trains on the same tracks, for ple) the possibilities for profiteering and abuse, as the 'fornia power crisis of 2002 abundantly showed, or for deadly , ddle and confusion, as the British rail situation has proven, are real. The second major arena of controversy concerns market failure. ans arises when individuals and firms avoid paying the full costs ‘ 'butable to them by shedding their liabilities outside the market ~ liabilities are, in technical parlance, ‘externalized’). The classic ‘ is that of pollution, where individuals and firms avoid costs by ‘~ ping noxious wastes free of charge in the environment. Pro- tive ecosystems may be degraded or destroyed as a result. ‘ posure to dangerous substances or physical dangers in the kplace may affect human health and even deplete the pool of thy labourers in the workforce. While neoliberals admit the 1 lem and some concede the case for limited state intervention, * s argue for inaction because the cure will almost certainly be e than the disease. Most would agree, however, that if re are to be interventions these should work through market 67 The Neoliberal State The Neoliberal State the military in particular), it produces powerful t trends of technological change that can become , if not counterproductive. Technological develop— run amok as sectors dedicated solely to technological emote new products and new ways of doing things that ' no market (new pharmaceutical products are produced, new illnesses are then invented). Talented interlopers ore, mobilize technological innovations to under— '_ ant social relations and institutions; they can, through 'ties, even reshape common sense to their own pecuniary - ' There is an inner connection, therefore, between tech— - dynamism, instability, dissolution of social solidarities, ‘ tal degradation, deindustrialization, rapid shifts in .- relations, speculative bubbles, and the general mechanisms (via tax impositions or incentives, trading rights pollutants, and the like). Competitive failures are approached n similar fashion. Rising transaction costs can be incurred as u tractual and subcontractual relations proliferate. The vast . . a» atus of currency speculation, to take just one example, ap w more and more costly at the same time as it becomes more more fundamental to capturing speculative profits. Other probl arise when, say, all competing hospitals in a region buy the sophisticated equipment that remains underutilized, thus dri . up aggregate costs. The case here for cost containment thro state planning, regulation, and forced co—ordination is strong, I again neoliberals are deeply suspicious of such interventions. All agents acting in the market are generally presumed to ha 2 access to the same information. There are presumed to be asymmetries of power or of information that interfere with towards crisis formation within capitalism.3 capacity of individuals to make rational economic decisions in th — ,. , are, finally, some fundamental political problems within own interests. This condition is rarely, if ever, approximated i i ism that need to be addressed. A contradiction arises practice, and there are significant consequences.2 Better informed _ ‘9 a seductive hUt alienating possessive individualism on the and more powerful players havean advantage that can'all too easily dtand the desire for a meaningful collective life on the be parlayed into procuring even better information and greater ‘While individuals are supposedly free to choose, they are not relative power. The establishment of intellectual property righz: v" to choose to construct strong collective institutions (such (patents), furthermore, encourages ‘rent seeking’. Those who hold unions) as opposed to weak voluntary associations (like the patent rights use their monopoly power to set monopoly prices ' ‘ organizations). They mOSt certainly should not choose and to prevent technology transfers except at a very high cost. “ iate to create P0htie31 parties With thee-aim 0f forcing the Asymmetric power relations tend, therefore, to increase rather t0 intervene in 01' eliminate the market. To guard 333th“ their than diminish over time unless the state steps in to counteract" t fears—fascism, communism, socialism, authoritarian them. The neoliberal presumption of perfect information and a‘ "m, and even majority rule—the neoliberals have to put level playing field for competition appears as either innocently - . .»-_ limits on democratic governance, relying instead upon utopian or a deliberate obfuscation of processes that will lead to ’ e ocratic and unaccountable institutions (such as the Federal the concentration of wealth and, therefore, the restoration of class e or the IMF) to make key decisions. This creates the para— of intense state interventions and government by elites and rts’ in a world: where the state is supposed not to be inter— . u'nist. One is reminded of Francis Bacon’s utopian tale New ntis (first published in 1626) where a Council of Wise Elders y . ates all key decisions. Faced with social movements that seek : ctive interventions, therefore, the neoliberal state is itself ed to intervene, sometimes repressively, thus denying the very .» u oms it is supposed to uphold. In this situation, however, it can ucts, new production methods, and new organizational forms. This drive becomes so deeply embedded in entrepreneurial common sense, however, that it becomes a fetish belief: that there is a tech— nological fix for each and every problem. To the degree that this takes hold not only within corporations but also within the state 68 69 The Neoliberal State marshal one secret weapon: international competition and global— ization can be used to discipline movements opposed .to the neolib- eral agenda within individual states. If that fails, then the state must resort to persuasion, propaganda or, when necessary, 'raw force and police power to suppress opposition to neoliberalism. This was precisely Polanyi’s fear: that the liberal (and by extension the neoliberal) utopian project could only ultimately be sustained by resort to authoritarianism. The freedom of the masses would be restricted in favour of the freedoms of the few. The Neoliberal State in Practice The general character of the state in the era of neoliberalization is hard to describe for two particular reasons. First, systematic divergences from the template of neoliberal theory quickly become apparent, not all of which can be attributed to the internal contra- dictions already outlined. Secondly, the evolutionary dynamic of neoliberalization has been such as to force adaptations that have varied greatly from place to place as well as over time. Any attempt to' extract some composite picture of a typical neoliberal state from this unstable and volatile historical geography would seem to bea fool’s errand. Nevertheless, I think it useful to sketch in some general threads of argument that keep the concept of a distinctively neoliberal state in play. There are two arenas in particular where the drive to restore class power twists and in some respects even reverses neoliberal theory in its practice. The first of these arises out of the need to create a ‘good business or investment climate’ for capitalistic endeavours. While there are some conditions, such as political sta— bility or full respect for the law and even-handedness in its applica— tion, that might plausibly be considered ‘class neutral’, there are others that are manifestly biased. The biases arise in particular out of the treatment of labour and the environment as mere commod— ities. In the event of a conflict, the typical neoliberal state will tend' to side with a good business climate as opposed to either the colv. lective rights (and quality of life) of labour or the capacity of the», environment to regenerate itself. The second arena of bias arise-s because, in the event of a conflict, neoliberal states typically faVM 70 The Neoliberal State the integrity of the financial system and the solvency of financial institutions over the well—being of the population or environmental quality. These systematic biases are not always easy to discern within the welter of divergent and often wildly disparate state practices. Pragmatic and opportunistic considerations play an important part. President Bush advocates free markets and free trade but imposed steel tariffs in order to bolster his electoral chances (suc— cessfully, it turned out) in Ohio. Quotas are arbitrarily placed on foreign imports to assuage domestic discontents. Europeans pro— m agriculture while insisting upon free trade in everything else ”far social, political, and even aesthetic reasons. Special interven- * s of the state favour particular business interests (for example aments deals), and Credits are arbitrarily extended from one e to another in order to gain political access and influence in politically sensitive regions (such as the Middle East). For all - ~ sorts of reasons it would be surprising indeed to find even the at fundamentalist of neoliberal states cleaving to neoliberal odoxy all of the time. 'In other instances we may reasonably attribute divergences een theory and practice to frictional problems of transition ecting the different state forms that existed prior to the neolib- turn. The conditions that prevailed in central and eastern ope after the collapse of communism were very special, for ple. The speed with which privatization occurred under the k therapy’ that was visited upon those countries in the 1990s ted enormous stresses that reverberate to this day. Social , a ratic states (such as those in Scandinavia or Britain in the " vi diate post—war period) had long taken key sectors of the omy such as health care, education, and even housing out of ~ market on the grounds that access to basic human needs should be mediated through market forces and access limited by abil— 0 pay. While Margaret Thatcher managed to change all that, ‘ . . Swedes resisted far longer even in the face of strong attempts capitalist class interests to take the neoliberal road. Develop- ; ”*1 states (such as Singapore and several other Asian coun- i‘ ), for quite different reasons, rely on the public sector and state ing in tight association with domestic and corporate (often 71 The Neoliberal State The Neoliberal State with neoliberal orthodoxy. Neoliberal states typically facilitate Husion of influence of financial institutions through deregu— , but then they also all too often guarantee the integrity and ncy of financial institutions at no matter what cost. This . itment in part derives (legitimately in some versions of neo- . theory) from reliance upon monetarism as the basis of state y—the integrity and soundness of money is a central pinion : t policy. But this paradoxically means that the neoliberal state tolerate any massive financial defaults even when it is the ‘al institutions that have made the bad decisions. The state to step in and replace ‘bad’ money with its own supposedly ‘ . ’ money—which explains the pressure on central bankers to tain confidence in the soundness of state money. State power often been used to bail out companies or avert financial fail— such as the US savings and loans crisis of 1987—8, which cost taxpayers an estimated $150 billion, or the collapse of the fund Long Term Capital Management in (1997—8, which ' $3.5 billion. ternationally, the core neoliberal states gave the IMF and the ld Bank full authority in 1982 to negotiate debt relief, which t in efiect to protect the world’s main financial institutions the threat of default. The IMF in effect covers, to the best of ity, exposures to risk and uncertainty in international finan— markets. This practice is hard to justify according to neoliberal .. , since investors should in principle be responsible for their mistakes. More fundamentalist—minded neoliberals therefore ve that the IMF should be abolished. This option was ser— ': considered during the early years of the Reagan administra— and Congressional Republicans raised it again in 1998. James Reagan’s Secretary of the Treasury, breathed new life into institution when he found himself faced with the potential uptcy of Mexico and serious losses for the main New York investment banks that held Mexican debt in 1982. He used IMF to impose structural adjustment on Mexico and protect ew York bankers from default. This practice of p...
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