About Neoliberalism

(updated discussion 1.16.2024)

Don’t be confused by this ungainly word. Capitalism is not a static entity. It has been undergoing changes in its structures and functions throughout its entire history. Over the last forty years, and a bit more, it has continued to evolve. A central driver of this evolution has been neoliberalism1, a political movement to change government policies and regulations and the functions of corporations. Neoliberalism is probably the most successful social movement of the twentieth century continuing to this day. Unlike the traditional bottom-up social movements that we most often think of, this is a top-down social movement. The rich and corporations are driving the movement.

Neoliberalism features a set of key concepts about how capitalism works and how the rest of society should be organized. At its core neoliberalism is all about the transfer of power from the public sector to private hands.

  • free markets – the ideal for economic activity
  • success or failure is in each person’s hands, every person is in their own boat
  • minimal government – low taxes and spending
  • privatization of government activities – education, healthcare, prisons, transportation, water, to name a few
  • deregulation – limit government to protections of private property, contract enforcement, national defense, etc.
  • deregulate business, especially anti-trust and finance. End environmental laws, decrease support for unions, reduce tax law enforcement
  • financialization – the only purpose of a business is to increase share price and shift to the extraction of money instead of the creation of real products and services – for a more in-depth discussion, see Financialization – from production to extraction(opens new tab)
  • free trade – no tariffs, free flows of money
  • globalization – maximizing each country’s competitive advantages – enforce property rights
  • economic growth originates in the market economy – government plays no positive role

Neoliberalism claims market activities as the ideal; individuals are entirely responsible for their fate in life. Capitalism provides the opportunities; you need to work hard to succeed. In practice, it has produced aggressive attacks on unions, the privatization of many government services to profit-making enterprises, de-regulation of the financial sector, and a general attack on government programs of almost every kind except defense, energy, and other favorites like real estate development. The globalization of the world economy over the last 40 years is a direct result of neoliberalism’s focus on “free” markets.

A key development in the path of Neoliberalism was the emergence of “shareholder value theory”. Most prominently touted by Milton Friedman in the 1970s and onward. “There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception fraud.”2 3 This view of the function of corporations came to dominate management thinking the 1980s. Combined with deregulation and changes in the compensation of top management and boards of directors, this led to the shedding of earlier notions that management has responsibilities for the long-term growth of the firm and its products, as well as to its customers, workers, and communities. The focus came to be meeting the quarterly expectations of Wall St. analysts, bankers and investors.

And the rich and corporations rushed in to change the laws and regulations to suit their own objectives, more income and wealth. Despite the rhetoric of the founders of neoliberalism, in practice neoliberals love government. They spend enormous sums every year to control government and create new regimes of laws and regulations to fit the rules of the capitalist game to their needs.

The development of neoliberalism originated among European academics and philosophers in the Mont Pelerin Society following WWII4. Milton Friedman was the most prominent American in this early phase. For our purposes we will skip forward to the 1971 memorandum by Lewis F. Powell5, “CONFIDENTIAL MEMORANDUM: ATTACK ON AMERICAN FREE ENTERPRISE SYSTEM”.6 The memorandum is frequently cited as the blueprint for the implementation of neoliberalism in the US. The memorandum calls for pro-business actions on campuses with a staff of speakers, a speaker’s bureau, evaluation of textbooks, equal time on campus for pro-business events, balancing of faculties around ideology, graduate schools of business, and the replication of these activities at the secondary school level. Scholarly journals must become a home for neoliberalism. Similarly, books, paperbacks and other printed materials must be readied and made available to the general public.  He called for monitoring the TV networks for content. Paid advertising should be rolled out. The memo goes on to call for “A More Aggressive Attitude” by business interests, “especially big business and their national trade organizations….”.

With the election of Ronald Reagan as President in 1981 neoliberal policies of de-regulation, privatization, and anti-union practices came to the fore. To be clear it was not just the Republican Party that supported these policies. Democrats got on board.  Bill Clinton and the so-called New Democrats of the 1980s and onward embraced the neoliberal agenda. Much of the early work to set up free trade around the globe was carried out during this time.  Clinton and the Democrats badly damaged the social safety net with the Personal Responsibility and Work Opportunity Reconciliation Act of 1996.7  One of the final acts of the Clinton Presidency was the de-regulation of the banking industry through the Gramm-Leach-Bliley Act of 1999 and Commodity Futures Modernization Act of 2000. These led almost immediately to speculation and instability. Most cite this deregulation as the key source of the Great Recession of 2008.

One regulatory change in particular can be cited as an example of neoliberalism in action. Before 1982 stock buybacks[fn]A stock buyback occurs when a company uses company financial resources to buy its own shares on the market. The reduction in the number of shares outstanding in the market produces a rise in the price of the remaining shares.[/fn] by corporations were essentially forbidden. It was seen by lawmakers and regulators as stock price manipulation. In 1982 the Federal Exchange Commission issued Rule 10B-18 that legalized the practice.8  Stock buybacks in 2021 in the US reached over $850 billion.9 These are corporate profits that might otherwise have been invested in new plant, equipment, and personnel. Or, returned to shareholders as dividends. Combined with the addition of stock options as a key feature of corporate chieftains’ pay packages, this creates enormous perverse incentives for these chieftains to act to their own benefit not for the longer-term interests of shareholders, employees, customers, and the public.10

Before moving on, let’s take note that these concepts and policies are largely religious in nature. They do not have a factual basis in how the world works nor even our nature as a species. The role of government is an example. President Reagan said, “Government is not the solution to our problem; government is the problem.”11 This summarizes the neoliberal view of government as an impediment, not an enabler. This notion defies the entire history of the development of capitalism in which government actions and investment have been central to the growth of capitalism. If you are reading this post on a smartphone, for example, all of the basic technologies are the product of government-funded research.12

If you can recall the air pollution of the 1950s and ’60s, government regulations have produced the much cleaner air we breathe today. Absent government regulation capitalist enterprises will crap up the environment as much as possible since doing so increase their profits.

This is the strategy of getting somebody else to pay for as much of my production costs as possible. As has been proven repeatedly in the history of capitalism, concentration of ownership and control of markets by a few firms is a built-in tendency. The US economy is much, much more monopolized today than in 1970. Reduction in government regulation of mergers and acquisitions facilitated this transformation. Finally, the invocation of Ricardo’s competitive advantage argument, “…maximizing each country’s competitive advantages.” as a reason to support open markets, low tariffs, and low regulation is not what is happening today at all. Freed to move money and production wherever they wanted, global capitalism sought out the lowest-wage countries with the most favorable political systems to move their factories. These global corporations are not interested in developing any country’s competitive advantage. They only want the lowest total cost of production. This is just an introduction to the faith-based nature of neoliberalism’s policies.

As you will see, neoliberalism, combined with enormous technological change, especially the now ubiquitous Internet and container shipping, has altered the workings of capitalism in profound ways. The emergence of global capitalism and the enormous growth in the financial sector and other changes that have financialized companies and much of day-to-day life are also largely driven by the neoliberal agenda.

Neoliberal Wealth Supremacy – the most successful social movement of the last 100 years

Let’s try to tie all this together. The rich and corporations are working with a system of tools and strategies that have produced Wealth Supremacy on a global scale. Most of these are sourced from the neo-liberal, free-market thinking that was discussed earlier.

Many of these policies and strategies will appear later in the book in more depth.

Do not be tempted to think of this a conspiracy a la The Federal Reserve, QAnon, the Rothchild Family, or the New World Order. No, this is the combination of lots of money (many $ billions) and a plan to embed this thinking throughout society and put it into action through government action. As such, this social movement is a top-down movement, unlike the bottom-up movements we most frequently associate with the concept of a “social movement”.

 

Footnotes

  1. The “liberalism” of neoliberalism is not the liberalism we associate with FDR and the Democratic Party here in the US. The academics who coined this word were referring to 18th and 19th century European liberalism. A different beast.
  2. Friedman, Milton. “A Friedman Doctrine‐- The Social Responsibility Of Business Is to Increase Its Profits.” The New York Times, September 13, 1970, sec. Archives. https://www.nytimes.com/1970/09/13/archives/a-friedman-doctrine-the-social-responsibility-of-business-is-to.html.
  3. One cannot help but note the irony of the closing phrase, “it stays within the rules of the game, which is to say, engages in open and free competition without deception fraud.” As discussed elsewhere, here it is exactly the rich and corporations who set the rules of the game.
  4. Neoliberalism is not limited to the US. These policies can be found in many places around the world. US foreign policy, the World Bank, and the International Monetary Fund enforce adherence to neoliberal policies.
  5. Powell delivered his memorandum to the US Chamber of Commerce in August, 1971. President Nixon nominated him to the Supreme Court and he was confirm in December 1972. He served on the court until 1987.
  6. Lewis Powell, “Memorandum: Attack On American Free Enterprise System | Lewis F. Powell Jr. Papers | Washington and Lee University School of Law,” accessed March 16, 2022, https://scholarlycommons.law.wlu.edu/powellmemo/.
  7. “The End of Welfare as We Know It – The Atlantic,” accessed January 6, 2022, https://www.theatlantic.com/business/archive/2016/04/the-end-of-welfare-as-we-know-it/476322/.
  8. Lenore Palladino and William Lazonick, “Regulating Stock Buybacks: The $6.3 Trillion Question” (Roosevelt Institute, 2021).
  9. https://www.cnbc.com/2021/12/30/buybacks-are-poised-for-a-record-year-but-who-do-they-help.html accessed 2.29.2022
  10. See William Lazonick et al., “US Pharma’s Financialized Business Model,” Institute for New Economic Thinking Working Papers, no. No. 60 (July 13, 2017): 28. for a discussion of big pharma’s use of financialized strategies.
  11. First Inaugural Address on January 20, 1981
  12. Mariana Mazzucato, The Entrepreneurial State: Debunking Public vs. Private Sector Myths, Revised edition (New York, NY: PublicAffairs, 2015).