Neoliberalism as Creative Destruction Author(s): David Harvey Source: The Annals of the American Academy of Political and Social Science , Mar., 2007, Vol. 610, NAFTA and Beyond: Alternative Perspectives in the Study of Global Trade and Development (Mar., 2007), pp. 22-44 Published by: Sage Publications, Inc. in association with the American Academy of Political and Social Science Stable URL: https://www.jstor.org/stable/25097888 JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact email@example.com. Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at https://about.jstor.org/terms and Sage Publications, Inc. are collaborating with JSTOR to digitize, preserve and extend access to The Annals of the American Academy of Political and Social Science This content downloaded from 126.96.36.199 on Mon, 20 Sep 2021 14:14:16 UTC All use subject to https://about.jstor.org/terms Neoliberalism as Creative Destruction Neoliberalism has become a hegemonic discourse with pervasive effects on ways of thought and political economic practices to the point where it is now part of the commonsense way we interpret, live in, and under stand the world. How did neoliberalism achieve such an exalted status, and what does it stand for? In this article, the author contends that neoliberalism is above all a project to restore class dominance to sectors that saw their fortunes threatened by the ascent of social democratic endeavors in the aftermath of the Second World War. Although neoliberalism has had limited effectiveness as an engine for economic growth, it has succeeded in channeling wealth from subordinate classes to dominant ones and from poorer to richer countries. This process has entailed the dismantling of institutions and narratives that promoted more egalitar ian distributive measures in the preceding era. Keywords: neoliberalism; globalization; fiscalization; class dominance; subordination By DAVID HARVEY Neoliberalism is proposing a theory political eco nomic practices thatof human well-being can best be advanced by the maxi mization of entrepreneurial freedoms within an institutional framework characterized by pri vate property rights, individual liberty, unen cumbered markets, and free trade. The role of the state is to create and preserve an institu tional framework appropriate to such practices. The state has to be concerned, for example, with the quality and integrity of money. It must also set up military, defense, police, and juridi cal functions required to secure private prop erty rights and to support freely functioning markets. Furthermore, if markets do not exist (in areas such as education, health care, social security, or environmental pollution), then they David Harvey is Distinguished Professor in the Graduate Center of the City University of New York. He is author of several books, including A Brief History of Neoliberalism, The New Imperialism, Spaces of Hope, The Limits to Capital, and The Condition of Postmodernity. DOI: 10.1177/0002716206296780 22 ANNALS, AAPSS, 610, March 2007 This content downloaded from 188.8.131.52 on Mon, 20 Sep 2021 14:14:16 UTC All use subject to https://about.jstor.org/terms NEOLIBERALISM AS CREATIVE DESTRUCTION 23 must be created, by state action if necessary. But beyond these tasks the state should not venture. State interventions in markets (once created) must be kept to a bare minimum because the state cannot possibly possess enough information to second-guess market signals (prices) and because powerful interests will inevitably distort and bias state interventions (particularly in democracies) for their own benefit. For a variety of reasons, the actual practices of neoliberalism frequently diverge from this template. Nevertheless, there has everywhere been an emphatic turn, ostensibly led by the Thatcher/Reagan revolutions in Britain and the United States, in political-economic practices and thinking since the 1970s. State after state, from the new ones that emerged from the collapse of the Soviet Union to old-style social democracies and welfare states such as New Zealand and Sweden, have embraced, sometimes voluntarily and sometimes in response to coercive pressures, some version of neoliberal theory and adjusted at least some of their policies and practices accordingly Postapartheid South Africa quickly adopted the neoliberal frame and even contemporary China appears to be headed in that direction. Furthermore, advocates of the neoliberal mindset now occupy posi tions of considerable influence in education (universities and many “think tanks”), in the media, in corporate board rooms and financial institutions, in key state institutions (treasury departments, central banks), and also in those inter national institutions such as the International Monetary Fund (IMF) and the World Trade Organization (WTO) that regulate global finance and commerce. Neoliberalism has, in short, become hegemonic as a mode of discourse and has pervasive effects on ways of thought and political-economic practices to the point where it has become incorporated into the commonsense way we interpret, live in, and understand the world. Neoliberalization has in effect swept across the world like a vast tidal wave of institutional reform and discursive adjustment. While plenty of evidence shows its uneven geographical development, no place can claim total immunity (with the exception of a few states such as North Korea). Furthermore, the rules of engagement now established through the WTO (governing international trade) and by the IMF (governing international finance) instantiate neoliberalism as a global set of rules. All states that sign on to the WTO and the IMF (and who can afford not to?) agree to abide (albeit with a “grace period” to permit smooth adjustment) by these rules or face severe penalties. The creation of this neoliberal system has entailed much destruction, not only of prior institutional frameworks and powers (such as the supposed prior state sovereignty over political-economic affairs) but also of divisions of labor, social relations, welfare provisions, technological mixes, ways of life, attachments to the land, habits of the heart, ways of thought, and the like. Some assessment of the positives and negatives of this neoliberal revolution is called for. In what follows, therefore, I will sketch in some preliminary arguments as to how to both under stand and evaluate this transformation in the way global capitalism is working. This requires that we come to terms with the underlying forces, interests, and agents that have propelled the neoliberal revolution forward with such relentless This content downloaded from 184.108.40.206 on Mon, 20 Sep 2021 14:14:16 UTC All use subject to https://about.jstor.org/terms 24 THE ANNALS OF THE AMERICAN ACADEMY intensity. To turn the neoliberal rhetoric against itself, we may reasonably ask, In whose particular interests is it that the state take a neoliberal stance and in what ways have those interests used neoliberalism to benefit themselves rather than, as is claimed, everyone, everywhere? In whose particular interests is it that the state take a neoliberal stance, and in what ways have those interests used neoliberalism to benefit themselves rather than, as is claimed, everyone, everywhere? The “Naturalization” of Neoliberalism For any system of thought to become dominant, it requires the articulation of fundamental concepts that become so deeply embedded in commonsense under standings that they are taken for granted and beyond question. For this to occur, not any old concepts will do. A conceptual apparatus has to be constructed that appeals almost naturally to our intuitions and instincts, to our values and our desires, as well as to the possibilities that seem to inhere in the social world we inhabit. The founding figures of neoliberal thought took political ideals of indi vidual liberty and freedom as sacrosanct?as the central values of civilization. And in so doing they chose wisely and well, for these are indeed compelling and greatly appealing concepts. Such values were threatened, they argued, not only by fascism, dictatorships, and communism, but also by all forms of state inter vention that substituted collective judgments for those of individuals set free to choose. They then concluded that without “the diffused power and initiative associated with (private property and the competitive market) it is difficult to imagine a society in which freedom may be effectively preserved.”1 Setting aside the question of whether the final part ofthe argument necessar ily follows from the first, there can be no doubt that the concepts of individual liberty and freedom are powerful in their own right, even beyond those terrains where the liberal tradition has had a strong historical presence. Such ideals empowered the dissident movements in Eastern Europe and the Soviet Union before the end ofthe cold war as well as the students in Tiananmen Square. The student movement that swept the world in 1968?from Paris and Chicago to Bangkok and Mexico City?was in part animated by the quest for greater freedoms This content downloaded from 220.127.116.11 on Mon, 20 Sep 2021 14:14:16 UTC All use subject to https://about.jstor.org/terms NEOLIBERALISM AS CREATIVE DESTRUCTION 25 of speech and individual choice. These ideals have proven again and again to be a mighty historical force for change. It is not surprising, therefore, that appeals to freedom and liberty surround the United States rhetorically at every turn and populate all manner of contemporary political manifestos. This has been particularly true ofthe United States in recent years. On the first anniversary ofthe attacks now known as 9/11, President Bush wrote an op-ed piece for the New York Times that extracted ideas from a U.S. National Defense Strategy document issued shortly thereafter. “A peaceful world of growing freedom,” he wrote, even as his cabinet geared up to go to war with Iraq, “serves American long-term interests, reflects enduring American ideals and unites America’s allies.” “Humanity,” he concluded, “holds in its hands the opportunity to offer freedom’s triumph over all its age-old foes,” and “the United States welcomes its responsibilities to lead in this great mission.” Even more emphatically, he later proclaimed that “freedom is the Almighty’s gift to every man and woman in this world” and “as the greatest power on earth [the United States has] an obligation to help the spread of freedom.”2 So when all of the other reasons for engaging in a preemptive war against Iraq were proven fallacious or at least wanting, the Bush administration increasingly appealed to the idea that the freedom conferred upon Iraq was in and of itself an adequate justification for the war. But what sort of freedom was envisaged here, since, as the cultural critic Matthew Arnold long ago thoughtfully observed, “Freedom is a very good horse to ride, but to ride somewhere.”3 To what desti nation, then, were the Iraqi people expected to ride the horse of freedom so self lessly conferred to them by force of arms? The U.S. answer was spelled out on September 19, 2003, when Paul Bremer, head of the Coalition Provisional Authority, promulgated four orders that included “the full privatization of public enterprises, full ownership rights by for eign firms of Iraqi U.S. businesses, full repatriation of foreign profits . . . the opening of Iraq’s banks to foreign control, national treatment for foreign compa nies and . . . the elimination of nearly all trade barriers.”4 The orders were to apply to all areas ofthe economy, including public services, the media, manufac turing, services, transportation, finance, and construction. Only oil was exempt. A regressive tax system favored by conservatives called a flat tax was also insti tuted. The right to strike was outlawed and unions banned in key sectors. An Iraqi member of the Coalition Provisional Authority protested the forced impo sition of “free market fundamentalism,” describing it as “a flawed logic that ignores history.”5 Yet the interim Iraqi government appointed at the end of June 2004 was accorded no power to change or write new laws?it could only confirm the decrees already promulgated. What the United States evidently sought to impose upon Iraq was a full fledged neoliberal state apparatus whose fundamental mission was and is to facil itate conditions for profitable capital accumulation for all comers, Iraqis and foreigners alike. The Iraqis were, in short, expected to ride their horse of free dom straight into the corral of neoliberalism. According to neoliberal theory, Bremer’s decrees are both necessary and sufficient for the creation of wealth and This content downloaded from 18.104.22.168 on Mon, 20 Sep 2021 14:14:16 UTC All use subject to https://about.jstor.org/terms 26 THE ANNALS OF THE AMERICAN ACADEMY therefore for the improved well-being of the Iraqi people. They are the proper foundation for an adequate rule of law, individual liberty, and democratic gover nance. The insurrection that followed can in part be interpreted as Iraqi resis tance to being driven into the embrace of free market fundamentalism against their own free will. It is useful to recall, however, that the first great experiment with neoliberal state formation was Chile after Augusto Pinochet s coup almost thirty years to the day before Bremer’s decrees were issued, on the “little September 11th” of 1973. The coup, against the democratically elected and leftist social democratic gov ernment of Salvador Allende, was strongly backed by the CIA and supported by U.S. Secretary of State Henry Kissinger. It violently repressed all left-of-center social movements and political organizations and dismantled all forms of popular organization, such as community health centers in poorer neighborhoods. The labor market was “freed” from regulatory or institutional restraints?trade union power, for example. But by 1973, the policies of import substitution that had for merly dominated in Latin American attempts at economic regeneration, and that had succeeded to some degree in Brazil after the military coup of 1964, had fallen into disrepute. With the world economy in the midst of a serious recession, something new was plainly called for. A group of U.S. economists known as “the Chicago boys,” because of their attachment to the neoliberal theories of Milton Friedman, then teaching at the University of Chicago, were summoned to help reconstruct the Chilean economy They did so along free-market lines, privatiz ing public assets, opening up natural resources to private exploitation, and facili tating foreign direct investment and free trade. The right of foreign companies to repatriate profits from their Chilean operations was guaranteed. Export-led growth was favored over import substitution. The subsequent revival of the Chilean economy in terms of growth, capital accumulation, and high rates of return on foreign investments provided evidence upon which the subsequent turn to more open neoliberal policies in both Britain (under Thatcher) and the United States (under Reagan) could be modeled. Not for the first time, a brutal experiment in creative destruction carried out in the periphery became a model for the formulation of policies in the center.6 The fact that two such obviously similar restructurings of the state apparatus occurred at such different times in quite different parts of the world under the coercive influence ofthe United States might be taken as indicative that the grim reach of U.S. imperial power might lie behind the rapid proliferation of neolib eral state forms throughout the world from the mid-1970s onward. But U.S. power and recklessness do not constitute the whole story. It was not the United States, after all, that forced Margaret Thatcher to take the neoliberal path in 1979. And during the early 1980s, Thatcher was a far more consistent advocate of neoliberalism than Reagan ever proved to be. Nor was it the United States that forced China in 1978 to follow the path that has over time brought it closer and closer to the embrace of neoliberalism. It would be hard to attribute the moves toward neoliberalism in India and Sweden in 1992 to the imperial reach of the United States. The uneven geographical development of neoliberalism on the This content downloaded from 22.214.171.124 on Mon, 20 Sep 2021 14:14:16 UTC All use subject to https://about.jstor.org/terms NEOLIBERALISM AS CREATIVE DESTRUCTION 27 world stage has been a very complex process entailing multiple determinations and not a little chaos and confusion. So why, then, did the neoliberal turn occur, and what were the forces compelling it onward to the point where it has now become a hegemonic system within global capitalism? Why the Neoliberal Turn? Toward the end of the 1960s, global capitalism was falling into disarray. A sig nificant recession occurred in early 1973?the first since the great slump of the 1930s. The oil embargo and oil price hike that followed later that year in the wake ofthe Arab-Israeli war exacerbated critical problems. The embedded capitalism of the postwar period, with its heavy emphasis on an uneasy compact between capital and labor brokered by an interventionist state that paid great attention to the social (i.e., welfare programs) and individual wage, was no longer working. The Bretton Woods accord set up to regulate international trade and finance was finally aban doned in favor of floating exchange rates in 1973. That system had delivered high rates of growth in the advanced capitalist countries and generated some spillover benefits?most obviously to Japan but also unevenly across South America and to some other countries of South East Asia?during the “golden age” of capitalism in the 1950s and early 1960s. By the next decade, however, the preexisting arrange ments were exhausted and a new alternative was urgently needed to restart the process of capital accumulation.7 How and why neoliberalism emerged victorious as an answer to that quandary is a complex story. In retrospect, it may seem as if neoliberalism had been inevitable, but at the time no one really knew or under stood with any certainty what kind of response would work and how. The world stumbled toward neoliberalism through a series of gyrations and chaotic motions that eventually converged on the so-called “Washington Consensus” in the 1990s. The uneven geographical development of neoliberalism, and its partial and lopsided application from one country to another, testifies to its ten tative character and the complex ways in which political forces, historical tradi tions, and existing institutional arrangements all shaped why and how the process actually occurred on the ground. There is, however, one element within this transition that deserves concerted attention. The crisis of capital accumulation of the 1970s affected everyone through the combination of rising unemployment and accelerating inflation. Discontent was widespread, and the conjoining of labor and urban social move ments throughout much ofthe advanced capitalist world augured a socialist alter native to the social compromise between capital and labor that had grounded capital accumulation so successfully in the postwar period. Communist and social ist parties were gaining ground across much of Europe, and even in the United States popular forces were agitating for widespread reforms and state interven tions in everything ranging from environmental protection to occupational safety and health and consumer protection from corporate malfeasance. There was, in This content downloaded from 126.96.36.199 on Mon, 20 Sep 2021 14:14:16 UTC All use subject to https://about.jstor.org/terms 28 THE ANNALS OF THE AMERICAN ACADEMY this, a clear political threat to ruling classes everywhere, both in advanced capi talist countries, like Italy and France, and in many developing countries, like Mexico and Argentina. Beyond political changes, the economic threat to the position of ruling classes was now becoming palpable. One condition of the postwar settlement in almost all countries was to restrain the economic power of the upper classes and for labor to be accorded a much larger share of the economic pie. In the United States, for example, the share of the national income taken by the top 1 percent of earners fell from a prewar high of 16 percent to less than 8 percent by the end ofthe Second World War and stayed close to that level for nearly three decades. While growth was strong such restraints seemed not to matter, but when growth collapsed in the 1970s, even as real interest rates went negative and dividends and profits shrunk, ruling classes felt threatened. They had to move decisively if they were to protect their power from political and economic annihilation. The coup d’etat in Chile and the military takeover in Argentina, both fomented and led internally by ruling elites with U.S. support, provided one kind of solution. But the Chilean experiment with neoliberalism demonstrated that the benefits of revived capital accumulation were highly skewed. The country and its ruling elites along with foreign investors did well enough while the peo ple in general fared poorly. This has been such a persistent effect of neoliberal policies over time as to be regarded a structural component of the whole project. Dumenil and Levy have gone so far as to argue that neoliberalism was from the very beginning an endeavor to restore class power to the richest strata in the pop ulation. They showed how from the mid-1980s onwards, the share of the top 1 percent of income earners in the United States soared rapidly to reach 15 percent by the end of the century. Other data show that the top 0.1 percent of income earners increased their share of the national income from 2 percent in 1978 to more than 6 percent by 1999. Yet another measure shows that the ratio of the median compensation of workers to the salaries of chief executive officers increased from just over thirty to one in 1970 to more than four hundred to one by 2000. Almost certainly, with the Bush administration’s tax cuts now taking effect, the concentration of income and of wealth in the upper echelons of soci ety is continuing apace.8 And the United States is not alone in this: the top 1 percent of income earners in Britain doubled their share of the national income from 6.5 percent to 13 per cent over the past twenty years. When we look further afield, we see extraordinary concentrations of wealth and power within a small oligarchy after the application of neoliberal shock therapy in Russia and a staggering surge in income inequalities and wealth in China as it adopts neoliberal practices. While there are exceptions to this trend?several East and Southeast Asian countries have contained income inequal ities within modest bounds, as have France and the Scandinavian countries?the evidence suggests that the neoliberal turn is in some way and to some degree asso ciated with attempts to restore or reconstruct upper-class power. We can, therefore, examine the history of neoliberalism either as a Utopian project providing a theoretical template for the reorganization of international This content downloaded from 188.8.131.52 on Mon, 20 Sep 2021 14:14:16 UTC All use subject to https://about.jstor.org/terms NEOLIBERALISM AS CREATIVE DESTRUCTION 29 capitalism or as a political scheme aimed at reestablishing the conditions for cap ital accumulation and the restoration of class power. In what follows, I shall argue that the last of these objectives has dominated. Neoliberalism has not proven effective at revitalizing global capital accumulation, but it has succeeded in restoring class power. As a consequence, the theoretical utopianism ofthe neolib eral argument has worked more as a system of justification and legitimization. The principles of neoliberalism are quickly abandoned whenever they conflict with this class project. Neoliberalism has not proven effective at revitalizing gfobal capital accumulation, but it has succeeded in restoring class power Toward the Restoration of Class Power If there were movements to restore class power within global capitalism, then how were they enacted and by whom? The answer to that question in countries such as Chile and Argentina was simple: a swift, brutal, and self-assured military coup backed by the upper classes and the subsequent fierce repression of all soli darities created within the labor and urban social movements that had so threat ened their power. Elsewhere, as in Britain and Mexico in 1976, it took the gentle prodding of a not yet fiercely neoliberal International Monetary Fund to push countries toward practices?although by no means policy commitment?to cut back on social expenditures and welfare programs to reestablish fiscal probity. In Britain, of course, Margaret Thatcher later took up the neoliberal cudgel with a vengeance in 1979 and wielded it to great effect, even though she never fully over came opposition within her own party and could never effectively challenge such centerpieces of the welfare state as the National Health Service. Interestingly, it was only in 2004 that the Labour Government dared to introduce a fee structure into higher education. The process of neoliberalization has been halting, geo graphically uneven, and heavily influenced by class structures and other social forces moving for or against its central propositions within particular state forma tions and even within particular sectors, for example, health or education.9 It is informative to look more closely at how the process unfolded in the United States, since this case was pivotal as an influence on other and more recent transformations. Various threads of power intertwined to create a transi tion that culminated in the mid-1990s with the takeover of Congress by the This content downloaded from 184.108.40.206 on Mon, 20 Sep 2021 14:14:16 UTC All use subject to https://about.jstor.org/terms 30 THE ANNALS OF THE AMERICAN ACADEMY Republican Party. That feat represented in fact a neoliberal “Contract with America” as a program for domestic action. Before that dramatic denouement, however, many steps were taken, each building upon and reinforcing the other.
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