What is Neoliberalism?
The story begins with the Great Depression of the 1930s. A crazy situation had developed where ordinary Americans had been persuaded to borrow money, at interest, in order to invest in stocks and shares, which would generate for them more money than they had borrowed. The economy was growing so fast that no-one could possibly lose. However, most closely established with events on October 24, 1929, "Black Thursday", the stock market crashed and triggered the great depression. Millions of people suddenly found themselves in unsustainable debt. Between 1929 and 1932, the economic shock affected most countries across the world, some effects lasting until World War II. Neither rich nor poor countries were exempt from the effects; collapsing incomes, trade devastated, mass unemployment and widespread poverty.
In response to this, economists proposed policies that would try to avoid further economic destabilisation and the social problems that arose from it. The thinking was that 19th century free-market economic practices, established in the Industrial Revolution, had led to the stock market crash and ensuing depression. In practice, this meant that economists worked closely with politicians to devise interventionist policies that would seek to regulate & control economic practices in order to create socially desirable outcomes. The British economist John Maynard Keynes was a key figure in this process and his ideas largely dominated UK political/economic policy until the advents of Margaret Thatcher (UK) in 1979 and Ronald Reagan (US) in 1981.
Keynes was one of the main architects of the 1944 Bretton Woods agreement. Under this system, the value of gold was pegged to the US dollar, which was in turn pegged to the other 44 participating world currencies, including the British pound. The agreement resulted in the creation of two institutions enduring to this day; the International Monetary Fund and the World Bank. These bodies were initially founded to regulate world trade, with a specific brief to stabilise currencies and support nations that had been financially devastated by the second world war. The Bretton Woods agreement collapsed in the early 1970s when US president Richard Nixon announced that dollars could no longer be exchanged for gold. There wasn´t enough of it any more!
While the general consensus was that the great depression, producing severely decreased economic activity, poverty & unemployment, was a failure of free market economics, not everyone agreed. Amongst others, the Austrian-British economist & philosopher Friedrich Hayek and others proposed in 1938 a new liberal economic system with the name "neo-liberalism". Hayek argued that the ONLY purpose of governments was to remove all barriers to free economic activity. Deliberating with other intellectuals & academics over a period of years, the next landmark was the establishment of the Mont Pelerin Society in 1947. By this time, Keynesian economics was widely practised worldwide. The society was united in a belief that individual freedom was under threat from such policies. They wrote:
The central values of civilization are in danger. This group´s object is solely, by facilitating the exchange of views among minds inspired by certain ideals and broad conceptions held in common, to contribute to the preservation and improvement of the free society.*
The idea of freedom from democratic control was central to their aims and continues to this day.
The group spent decades nurturing the concept until events of the 1970s provided them the opportunity to bring their ideas into the mainstream. This decade saw in the UK the collapse of manufacturing, widespread strikes, 20% mortgage rate, high unemployment, inflation above 10% and a 300% price rise of consumer goods. The 1978-79 "winter of discontent" paved the way for the election of Margaret Thatcher as prime minister in 1979. The Iron Lady was a disciple of Friedrich Hayek and was reported to have slammed down a copy of Hayek´s "The Constitution of Liberty" onto the cabinet table, stridently proclaiming: "THIS is what we believe in! ".
Over the period of her premiership, Mrs Thatcher instigated sweeping reforms based on Hayek´s ideas, including changes to the currency exchange rate mechanism (ushering in the age of globalisation), the transfer of state/public owned assets into the private sector and, importantly, deregulation of the financial sector; paving the way for the financial crash of 2008, resulting in austerity, a strengthening of neoliberal principles and a progressive ongoing collapse of public service funding.
Since that time, most governments, including the UK, subscribe to the ideology. It is important to note that neoliberalism and the power of financial corporations have become not just a policy of government, but now take precedence over democratic processes. Currently, this can especially be seen in the areas of Water and Energy. All pursue contentious policies that have results people intensely dislike; pollution, profiteering, exploitation and abuse of the natural environment. All justify their policies in the name of economic growth and all are resistant to the will of the people as sought through the election of representatives.
Many, perhaps the majority, believe that we are governed by a system of democracy. We aren´t. Virtually all areas of collective life throughout the world are now governed by the values of "the market" and those that control the markets.
Is this what we actually want?