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Collateral Damage: Neo-Liberalism

By Jeremy Brecher and Tim Costello


Even as they were planning military action in Afghanistan, US leaders were struggling with the contradictions of capitalism. One can almost hear them sighing, ah, if only we could bomb the recession!

Capitalism is an amazingly dynamic system, but it has some flaws. We're seeing one of them as millions of people in the US and around the world lose their jobs as a result of global recession.

In orthodox economic theory, the market automatically assigns human and material resources to meet human needs. Unfortunately, the history of capitalism indicates otherwise. Capitalism's amazing growth spurts have been punctuated by recessions, depressions, and long periods of stagnation. While every such period has its own specific causes, underlying them all is the fact that in a capitalist system production is conducted not to meet human needs but to make profit for private enterprises. No matter how great the unmet needs, people will be laid off and production facilities closed down when conditions make them unprofitable.

Over the centuries, capitalist societies developed a wide range of non-market structures that reduced the gyrations of boom and bust. 19th century banking crises led to the development of central banks like the US Federal Reserve Board to control money and credit. The Great Depression led to the use of low interest rates and government budget deficits to "prime the pump" of stagnating economies -- generally known as "Keynesian" policies after their famous advocate the British economist John Maynard Keynes. Even minimum wage laws and trade unions were seen by progressive economists as non-market means to correct the downward spiral of capitalist crises.

While conservatives regularly attacked Keynesian policies, in practice they generally turned to them when economies went south. Back in the recession of the early 1970s, President Richard Nixon, a life-long conservative Republican, astonished many when he declared himself a Keynesian. He cut interest rates, let Federal budget deficits soar, and imposed wage and price controls. But the notorious "stagflation" -- a continuation of inflation even in times of recession -- intensified. Long-term profits fell steeply worldwide.

Enter neo-liberalism, aka the global free market. Economists, corporate leaders, pundits, and politicians joined in a soaring chorus demanding a return to their imagined Victorian capitalism of world markets unrestricted by social legislation or government regulation. They called this fast-forward to the past "globalization."

Now, faced with the prospect of a global recession, the whole pack suddenly turns back to Keynes's classic formula for economic stimulus. Federal Reserve Chairman Alan Greenspan cuts interest rates to their lowest levels in 40 years. Greenspan and former Clinton Treasury Secretary Robert Rubin meet with leaders of Congress and agree on a target of $100 billion in deficit spending. President Bush, no doubt hoping to preempt Democratic exploitation of "another Bush recession," chimes in with tax cuts for the non-wealthy (as well as the wealthy), extended unemployment compensation, and payments for impacted state governments. Sometimes the cost of sticking to your principles is just too high. Sic transit gloria neoliberalism.

While the forces of global recession have been gathering at least since the Asian financial crisis of the late 90s, it was masked by the bubble economy in the US. But that was punctured well before the September 11 attacks. The atmosphere of national crisis that followed September 11 allowed US political elites to switch from neoliberalism to Keynsianism with a speed that would otherwise have been unimaginable.

There's a problem: In the era of globalization, traditional Keynesian stimulus has proved to be of limited value. Governments abandoned Keynesianism in the 1970s largely because in the global economy its policies produced paradoxical effects: Stimulus to the national economy generated imports instead of jobs. The same is even more likely to be true today. The economic stimulus measures being pursued so far are likely to have a trivial effect in the face of a global downturn.

Recession causes vast suffering to people who lose their jobs. It also intensifies competition among workers, driving down wages and conditions. In a global economy, it does this globally. Workers around the world are being told that only those who accept lowest wages and social protections will keep their jobs. (Increasingly China is setting the standard for to which others must conform if they wish to retain jobs and investment.) Recession intensifies the race to the bottom.

The end of capitalism's period of manic expansion and the coming of global recession creates a new context for the efforts of workers and social movements in the U.S. and worldwide. In the past, periods of economic downturn have had contradictory effects, promoting both social reaction and social progress. While it is far too early to predict the effects of today's global recession, it is by no means too early to begin trying to discuss constructive responses from social and labor movements and the left.

While the terrorist attacks of September 11 and the US retaliatory attacks have left the movement against corporate-sponsored globalization understandably stunned, the emerging global recession makes the need for such a movement -- and its potential for worldwide popular support -- greater than ever. But the next phase of its development is less likely to start from a renewal of large protests at elite international gatherings than from grassroots resistance to a recession-intensified race to the bottom.

While "the era of 'big government is over' is over," the new turn toward Keynesianism is not necessarily progressive. For decades, the US used Cold War military spending to "prime the pump." Bush busted the deficit with spending for the "War on Terrorism" -- and for Star Wars weapons in space.

But elites embrace of Keynesianism reframes public debate. The issue ceases to be whether government should intervene in the economy, and becomes in what way and in whose interest it should do so. Indeed, Keynesianism, in spite of its benefits for the orderly management of capitalism, is ideologically dangerous for elites precisely because it poses such questions. We can begin posing such questions today:

• In a neo-liberal conception, government should tax business and the wealthy as little as possible so they will invest and accumulate wealth that then will "trickle down" to the rest of society. But now President Bush proposes a tax cut for low-income people who were neglected in his previous tax cut, partially on the grounds that they are most likely to spend the money the fastest, thus expanding demand. If so, shouldn't we address the broader issues of the maldistribution of income in the US and worldwide? Underlying the emerging global recession is the redistribution of income from poor to rich that has marked the era of globalization. One reason for global recession is that most working people around the world are paid to little to purchase what they produce. Shouldn't we apply Bush's logic to the whole global distribution of wealth and income?

• In a neo-liberal conception, social welfare is a tax on enterprise that should be eliminated, leaving individuals to provide for themselves through their individual labor and effort. But now President Bush and Congress are preparing to extend unemployment benefits. If that's ok, then isn't time we started talking about rebuilding welfare, health insurance, and the rest of the social safety net?

• In a neo-liberal conception, countries that run deficits in their budgets and pile up foreign debts should be forced to raise interest rates, balance their budgets, and impose austerity on their people. But now the US, the world's largest debtor with the world's largest trade deficit, is deliberately slashing interest rates and expanding budget deficits in order to stimulate its economy and create employment. Why shouldn't Argentina, Mexico, the Philippines, South Africa, and other countries around the world be allowed to do the same? And if the IMF, on US prompting, can provide debt relief to Pakistan, despite its failure to meet its economic commitments, because it helps the "war on terrorism," why can't the international community do the same for poor countries around the world whose people are starving by the millions due to structural adjustment austerity programs?

• In a neo-liberal conception, the development of industry should be left to the wisdom of the market. Nothing is more anathema than the idea that the government should "pick winners and losers." Now the US government is providing tens of billions of dollars for the airline industry. Not only that, it is establishing a government board, headed by until-now ultra-freemarketeer Alan Greenspan, with the power to decide which airlines it will subsidize and which ones it will force to merge. (Officials piously chanted that the board will not pick winners and losers). If the government can do that to keep airlines from going bankrupt, why shouldn't it establish public boards with a few tens of billion dollars to save workers jobs, or to fund community-based investments, or to rebuild the economy on a low-carbon basis to reduce global warming, or to develop and supply technology to provide solar energy and safe water to people around the world?

And one more thing. Maybe there is a way to bomb the recession. With the approach of winter, unemployed Americans are threatening to swamp soup kitchens and food pantries. Now that US leaders have decided it's ok for Afghanistan, maybe we should beg them to begin bombing the US with food as well.

Jeremy Brecher and Tim Costello are co-authors with Brendan Smith of Globalization from Below and the producers of the video documentary Global Village or Global Pillage? [].

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