cj#1012-rn> Societal destabilization and the neoliberal revolution

1999-11-17

Richard Moore


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  Copyright (C) 1999, Richard K. Moore, All Rights Reserved
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4. Societal destabilization and the neoliberal revolution
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In this investigation we have so far identified a single revolutionary
shift: the shift in thinking of an elite inner-circle of U.S. policy
planners that occurred during the war years. This shift led to a postwar
pax-americana regime and a global economy - and it brought about an
unprecedented stable peace in Europe. But that shift does not account for
globalization in its modern form. The postwar system was radically different
that what we have today.

In the postwar years the West continued to exploit the third world as it had
been doing for centuries. The only difference was that the imperial
partitions had been removed and a single nation was providing overall
"security". Imperialism went from being competitive to being collective -
but it was still centered on industrialized nation states. Those nations,
apart from America, shed their roles as first-rate military powers - but
strong industrialized economies continued to be the fulcrum of global
economic affairs. The vision of the postwar era, as articulated by Willkie,
was one of prosperous and contented populations in the industrialized world,
living in economically sound nations.

When Volkswagens sold on world markets, the economic benefits went largely
to German workers, to a German corporation, and to the German national
budget. The story was similar for Renault & France, Fiat & Italy, General
Motors & America - or Toyota & Japan. As the global economy grew, the
general prosperity of the populations in industrialized nations reached
unprecedented levels. The postwar system worked to the benefit of
industrialized nations, their corporations, and their populations.

Today - as was discussed above in The crisis of globalization -
industrialized nations are in decline. Economic power has shifted from
nations to transnational corporations and financial institutions. The WTO -
which acts as the agent of international capital - is able to dictate
economic policy even to the USA, the world's only super power. General
Motors no longer "belongs to" the U.S. - its factories are spread around the
world, Detroit is cluttered with abandoned factories, auto workers have
sought new jobs or have become unemployed, and the U.S. treasury receives
little direct benefit from GM's immense profits.

Modern globalization did not simply evolve from the postwar system. There
were later revolutionary shifts that occurred and which made globalization
possible in its modern form.

The postwar economy was governed by two things: the industrialized nations
themselves, and the Bretton Woods institutions. These institutions -
primarily the IMF and the World Bank - acted as system gyroscopes. They were
designed to stabilize the system and to buffer it against financial and
market fluctuations. The U.S. dollar was pegged to gold at thirty-five
dollars per ounce, and other major currencies were linked to the dollar by a
schedule of stable exchange-rates. Industrialized nations controlled the
flow of currencies and capital across their borders. They could establish
trade restrictions and could regulate industry so as to maintain the overall
health of their national economies.

The Bretton Woods institutions were dominated by Western nations, insuring
that the global economic system would work to the benefit of the West. But
non-Western nations benefited as well. Japan in particular was also able to
compete in global markets and develop a first-rank national economy of its
own. Such non-Western upstarts were tagging along - and quite successfully -
on an ordered global regime that was designed primarily around Western
interests.

For two decades the elite-designed system operated according to plan. On the
surface it seemed ideal for all parties in the West - the general
population, nations, and investors. But stresses were building up beneath
the surface and by the late 1960s those stresses were leading to serious
problems for Western capital interests. One of these stresses was caused by
the very success of the system. Economic growth had been so strong up
through the 1960s that maintaining that rate became problematic. Western
corporations were finding it difficult to keep up their record levels of
growth.

Another source of stress came from the emergence of non-Western economic
powers such as Japan. Lower Japanese wages allowed their products to be
priced attractively on world markets. The Western commitment to general
prosperity - and decent wages - made it difficult for Western firms to
compete against such non-Western upstarts. The principle of general
prosperity in the West was coming into conflict with the goal of capital
growth for Western investors. The postwar system was under stress, and as
Japanese products flooded world markets this source of stress mounted.

Western prosperity was important to the postwar regime for two reasons. One
reason was that well-paid Westerners were good consumers - their buying
power created demand for the products the capitalist system was producing.
Prosperity was also important because it provided public support for the
regime. The elite planners had assumed that a prosperous population would be
a content population, and that a content population would be a politically
docile population. Why would people be concerned about how the inner circle
was running the world, if those people were well off and had lots of goodies
to enjoy? A democratic political system was no problem for the inner circle
who ran the regime - as long as voters were docile. A prosperous electorate,
it was assumed, would be happy to simply vote and leave the elite regime to
run things.

Then quite unexpectedly in the mid 1960s a significant wave of popular
discontent began to arise throughout the West. Prosperity was experiencing
all-time highs but people were beginning to demonstrate that they lived by
more than bread alone. A civil-rights movement sprang up in America, along
with an anti-Vietnam War movement. An environmental movement arose
throughout the West, challenging the exploitive practices of capitalist
development. A general sentiment against militarism and interventionism
prevailed, challenging the methods by which the regime managed world
affairs. In America there arose a broad-based and fairly well-organized New
Left political movement. In Europe, 1968 took its place with 1848 as an
historic milestone of popular unrest.

Environmental protection laws were passed which raised corporate costs and
cut into profits. Anti-militarist sentiment remained high, making it
difficult for interventions to be justified - a phenomenon that came to be
known as the Vietnam Syndrome. Even the system of government secrecy -
enabling the inner circle to exercise covert control - came under attack in
the U.S. with the passage of the Freedom of Information Act. The elite
regime was under attack from below, and continued prosperity was failing to
quell the tide.

As a consequence, the democratic process itself was becoming a net liability
to the regime. Popular idealism was taking the political initiative and was
pushing politicians in directions that were contrary to elite interests. As
environmental and other popular reform measures were implemented, the strong
nation state - with its ability to regulate capital flows and corporations -
was also becoming a hindrance to corporate growth.

In the war years, a crisis had arisen and in response elite planners had
designed architectures for a global regime and for Western national regimes.
The goal of both architectures was to facilitate capital growth for Western
investors. Growth was to be achieved in two ways - through the development
of healthy Western economies and through exploitive development of the third
world. The Western national regimes were to be based on strong nation states
operating under a democratic political process. The stability of these
regimes was to be ensured by public docility, which in turn was to be
ensured by general prosperity. The stability of the global regime was to be
ensured by the pax-americana umbrella and by the Bretton Woods institutions.

The system was making Western nations strong and wealthy, and it was
performing very well for the general population - but by the early 1970s the
postwar architecture as a whole had become dysfunctional for the elite. The
global architecture was hampering Western capital growth because it allowed
competition from non-Western industrialized nations. The Western national
architecture was hampering growth because it required general prosperity and
because it permitted national governments to regulate corporate operations
and the cross-border flows of capital and currencies.

Meanwhile, the elite inner circle remained in control of the upper echelons
of the American government. The top advisors, the elite think tanks, and the
intelligence community continued to exert decisive influence over critical
policy issues. Hierarchical, secret, strategic planning continued - guided
by the interests of capital investors and large corporations. The primary
interests of the elite were being seriously challenged, and the architecture
they had designed was spinning out of control. A crisis had arisen for the
elite, and by the early 1970s the time had come to make fundamental
adjustments in the postwar architecture.

And in fact, in the period from 1972-1980 a host of fundamental changes were
made. The global architecture was adjusted significantly, and a radically
altered national architecture was designed and deployed in the USA &
Britain. In order to understand the significance of these changes, and the
thinking behind them, we need to understand something about how the
capitalist system operates. Capitalism is all about growth, and a good way
to understand the problems the elite planners were facing is to think in
terms of growth vehicles.

A growth vehicle is simply some method by which an investor can achieve
capital growth within some market. For example, Western investors use
development projects as growth vehicles in the third world market.
Investment in corporate stock is a very general growth vehicle that is
available to large and small capital investors. Different vehicles offer
different rates of growth, and a vehicle's performance is limited by
competition, by the growth rate of its market, and by the total market size.

Under the postwar regime Western capital had several growth vehicles at its
disposal - some relating to trade and some to investment. Trade between
industrialized nations was one growth vehicle, and trade between those
nations and the third world was another. Between industrialized nations
trade was generally on a mutual-benefit basis, while trade with the third
world was carried out under rules set by the West and generally favored the
industrialized nations at the expense of the third world. Internal domestic
trade - the sale of corporate products to local markets - was also an
important growth vehicle.

Investment in third world development projects had been identified by the
elite as a primary growth vehicle for Western capital in the postwar world,
and that vehicle was used extensively. Western capital could also be
invested in the local domestic economy, and that continued to be an
important growth vehicle. Investors in one industrialized nation could also
invest in other industrialized economies, and this vehicle too was used.
Ford for example invested in manufacturing plants in Europe, enjoyed the
benefit of lower wages, and experienced considerable profitability from its
European operations. Those who had invested in Ford Motor Company
experienced capital growth as Ford's stock price increased based on its
profitable operations.

Western corporations were the primary growth vehicles used by most Western
investors. A corporation which was able to increase its own stock valuation
provided growth to those who had invested in the stock. For most Western
investors corporate stock was the favored growth vehicle, and capital growth
was achieved through the growth of the corporations themselves. Western
investors could also buy stock in foreign corporations, but controls on
capital and currency flows detracted from the utility of that vehicle.

The elite crisis that was being faced can be described in terms of
obstructions that were hampering the use of the available growth vehicles.
In order to alleviate the crisis the elite could make - within practical
limits - architectural changes. Such changes could aimed at removing
obstructions or they could be aimed at creating entirely new vehicles. We
will first take a look first at the obstructions that had accumulated, and
then we'll investigate the changes that were made to alleviate them.

The success of Japan was a source of several obstructions. The West was
being obstructed in its use of the third-world growth vehicle due to a
downward pressure on prices and a loss of market share - both of which were
due to lower-priced Japanese products. Investment in the Japanese economy
had been a good Western growth vehicle right after the war, but that vehicle
was now obstructed by local Japanese domination of that economy. Western
producers were being obstructed in their use of their own domestic trade &
investment vehicles by competition from low-priced Japanese imports.

The policy of general Western prosperity was obstructing the growth of
Western corporations in several ways. Corporate profits were reduced by the
high wages paid, and corporate sales were being reduced by Japanese
competition which benefited from lower-waged workers. In addition, the
relocation of Western production to lower-waged areas had to be limited so
as not to create undesired levels of unemployment in the West.

The Western strong nation state was obstructing corporate growth both
domestically and internationally. Regulations were reducing the
profitability of corporate operations and restrictions on capital flows were
obstructing investment vehicles in the third world and in other
industrialized nations.

The open democratic process was also obstructing Western corporate growth
because popular sentiment was expressing itself as political influence which
increased the obstructiveness of national governments.

The Bretton Woods institutions were obstructing Western growth because they
permitted other industrialized nations to exploit markets on an equal basis
with the West. In addition, the stabilization of markets and currencies made
it difficult for risk-taking investors (speculators) to use international
markets as speculative vehicles. In the case of Brazil, whose stability was
of only secondary importance to the Bretton Woods regime, speculators were
able to use currency fluctuations as a significant growth vehicle when
Brazil went through a major boom & bust cycle in the mid 1970s.

The first revolutionary shift in the postwar regime came in 1972 when
President Nixon took the U.S. off the gold standard. That act immediately
removed the solid anchor to which major currencies had been pegged. Soon
after that the system of fixed exchange rates had to be abandoned since the
real value of the American dollar was now subject to fluctuations. In fact
the ongoing escalation of the Vietnam War was requiring extensive deficit
financing, and the market price of gold soon soared far above thirty-five
dollars per ounce. Speculation in major currencies became possible and
currency-exchange markets developed. This created growth vehicles for
speculators and for international financial institutions and their
stockholders.

Even more significant, Nixon's decision represented a significant change in
the architecture of the global regime. A centerpiece of that architecture
had been the stability offered by the Bretton Woods institutions. The
de-anchoring of major currencies was destabilizing in itself, and it
severely undercut the ability of the IMF and World Bank to perform their own
stabilizing roles. When currency fluctuations occur in major currencies huge
sums of money can be involved, and the Bretton Woods institutions were
ill-equipped to deal with this new source of instability. In the emerging
new architecture, Western economic stability was being given lower priority,
and new capital growth vehicles were being created as a result.

Possibly Nixon's decision was forced in order to finance the Vietnam War.
But he would not have taken a decision of such fundamental long-range
significance without the agreement of his elite economic policy advisors.
Even if reluctantly, the policy advisors apparently assented. Once that
decision had been made, and new growth vehicles came into use, an elite
motivation existed to further destabilize Bretton Woods in order to expand
those vehicles and to create still new ones. In fact, a process of creeping
destabilization did occur, leading to the gradual development international
financial markets of astronomical size and extreme volatility. Ultimately,
in the modern era of globalization, the Bretton Woods institutions
themselves have become a vehicle of intentional destabilization - and hence
a vehicle of capital growth.

Nixon's 1972 decision signals a revolutionary shift in thinking on the part
of elite planners - the most significant such economic shift since the
original postwar regime was established. That shift in elite thinking -
whether voluntary or forced - began to eliminate Bretton Woods as an
obstruction to capital growth. The natural processes of economic evolution
then led to the further destabilization of Bretton Woods and to the ongoing
refinement of capital growth vehicles.

In 1980, under the charismatic leadership of Ronald Reagan and Margaret
Thatcher, a host of other revolutionary changes were introduced. The
Reagan-Thatcher revolution goes under several names, and the term that is
used most in international circles is "neoliberal revolution". Economic
liberalism is the doctrine that Adam Smith advocated: free markets
unhampered by government interference. In the late 1800s economic liberalism
was dominant in the USA and Britain, and it was referred to as laissez-faire
capitalism. This era was disastrous for society, and the doctrine fell into
general disrepute. Reagan & Thatcher re-introduced the doctrine with a
vengeance. Economic liberalism was being revived, and hence the name
"neoliberalism". The American political term "liberal" is quite a different
thing altogether - American liberals tend to favor government regulation of
industry if they think it will be "good for society". Neoliberals always put
capital growth first, American liberals would put societal benefit first.

The central themes introduced by the neoliberal revolution were
deregulation, tax cuts, privatization, and the use of mass propaganda to
create support for neoliberal policies and to undermine confidence in
government itself. This turned out to be a very radical program of change
and sophisticated propaganda was central to its success. Anyone with the
slightest knowledge of economic history knew that neoliberalism would
devastate society as it had in the late 1900s. The elite planners faced a
major challenge: how to somehow hoodwink the electorate into tolerating its
inevitable consequences.

As in the war-years, a dual-agenda propaganda strategy was adopted. The
hidden agenda, as one would expect, was about the creation and expansion of
capital growth vehicles - and the elimination of obstructions to their
operation. Later on we will examine the new architecture that resulted from
this hidden agenda. The public agenda was one of liberation: liberating
individuals and businesses from "bungling government interference".

Tax cuts - the propaganda line goes - would take money away from "the
politicians" and put it into the hands of businesses and ordinary people -
where it could be used "more efficiently". Deregulation would put an end to
"government meddling" and allow the "efficient private sector" to "get on
with business". All of our societal woes have been caused by "government
bungling" and "special interest politicians". If those evil forces can be
reined in, then corporations can get on with the job of "rebuilding our
economies" and everyone will benefit. Privatization of government-run
industries and services is obviously a good thing - it gives some "efficient
private operator" a chance to clean up the mess that must have been created
by government ownership.

A notable feature of this propaganda line is its radical fundamentalism.
That is, there aren't any qualifiers: government is always bad, it is always
inefficient, and it never does anything right. Private business on the other
hand is always efficient and never does anything wrong - and it certainly
never needs to be regulated by government. There are no balancing
considerations, no data to be looked at, no debate to be entered into. The
question, once this line has been swallowed, is simply how quickly the
project can be undertaken. How quickly can government be made "smaller"? How
quickly can business be "freed"? How rapidly can taxes be cut and by how
much?

There were in fact two limits to the rate at which the neoliberal agenda
could be pursued. The first limit came from the elite planners themselves.
Their own agenda was about the orderly expansion of growth vehicles, which
does require the balancing of various considerations, and looking at data,
and debating tradeoffs. But in terms of public resistance, the only limit
was that society shouldn't be allowed to deteriorate so quickly that unrest
outstripped the ability of propaganda to placate that unrest. As long as the
ongoing propaganda campaign remained effective, its fundamentalist nature
allowed the elite to push things along at their own chosen speed. There was
no obvious point where a new propaganda line would be needed - as long as a
single regulation remained on the books, the neoliberal revolution could
continue to march forward.

In the postwar regime Western governments were expected to regulate industry
so as to achieve healthy and balanced national economies. Critical
industries or infrastructures might be subsidized, so as to support better
operation of the economy as a whole. Financial institutions were prevented
from investing in over-risky ventures so that stable financing would be
available to businesses and individuals generally. Regulations of wages and
working conditions protected workers interests and encouraged general
prosperity. Other regulations protected public health and safety, and helped
ensure the quality of products and foodstuffs. Regulations on mergers and
acquisitions helped maintain competition and prevent the formation of
monopolies. Regulations on capital transfers across borders encouraged
capital to stay at home where it could be re-invested in the domestic
economy. Naturally, elite economic planners used their influence to minimize
the impact of regulations on corporate profits, but this was balanced
against other considerations.

The removal of regulations under the neoliberal assault led to exactly the
results you might expect - and most certainly elite planners were well aware
of the inevitable consequences. Over time, the effect of neoliberal
deregulation drove down wages, reduced worker safety, increased industrial
pollution and environmental degradation, encouraged more corporations to
relocate their production facilities "offshore" to lower-waged countries,
increased unemployment and poverty, caused the collapse of industries such
as the Savings & Loan industry in the U.S., and permitted the increasing
concentration of ownership and the domination of markets by big operators.
Quite predictably, the same kind of social devastation arose which had
characterized the Robber Baron era of the late 1900s. Corporate profits were
skyrocketing, the stock market grew wildly, and many fortunes were made.
Television told people the system was working and that only more
deregulation could make things better.

The postwar regulatory regime had served society's best interests and it had
been intentionally encouraged by the elite planners themselves. Neoliberal
propaganda, on the other hand, claimed that all regulations had arisen out
of the perversity of "interfering bureaucrats". Neoliberal propaganda was
and still is shallow and simplistic, it ignores all history, and it flies in
the face of direct experience. The fact that neoliberal doctrines are taken
seriously by those who should know better - the economic pundits and experts
- is a sign of either intellectual prostitution, alignment with anti-social
elite interests, or some kind of unexplainable mass delusion.

But the population generally, I suggest, can be forgiven their confusion. As
propaganda pioneer Paul Goebbels discovered, if you tell a big enough lie,
and you tell it often enough, people will eventually believe it. When that
philosophy is augmented by the talents of Madison Avenue and Hollywood, and
the mass channels of film and television - it is very difficult for the
average viewer to know what is real and what is not.

The postwar tax regime was designed to encourage corporate growth and
general prosperity - and to provide adequate funding for government
operations and programs. Taxes were graduated, especially in Britain, so
that those who could afford it paid the most and those at the bottom paid
less. Corporate taxes were an important source of government funding, and
rising corporate profits were a boon to national treasuries. Most people
would prefer to pay less tax rather than more, but they understood that
government had a job to do and that it cost money to do it.

The neoliberal line is that all taxes represent "wasted money". Every penny
the government takes in could be better used by leaving it where it was. Of
course the needs "national defense" would be considered an exception, but
not much else would be. Those who voted for Reagan & Thatcher no doubt
expected their own pockets to benefit from tax reductions. In fact what
happened is that tax reductions started at the top - with taxes on
corporations and wealthy individuals. One of Reagan's first acts in office
was to issue a ruling that saved the big oil companies - and cost the U.S.
treasury - thirty billion dollars in taxes. Reagan's old employer - General
Electric - paid no taxes at all during Reagan's first term in office. What
"reduced taxes" really meant was that the burden of supporting government
operations was shifted from those who could afford to pay for it to those
who couldn't.

In addition, overall taxes were reduced by more than was warranted by
cutbacks in government spending. Reagan talked about "smaller government",
but in fact government budgets remained large. With tax revenues recklessly
slashed, the Reagan years led to dramatic increases in the national debt.
The national economy was being stressed and weakened. Corporations were
benefiting from reduced taxes, and banks were benefiting from the increased
deficit spending. But the principle of a strong and stable national economy
was being gradually abandoned in the U.S., as well as in Britain. From that
time forward "funds not available" became the standard excuse as cutbacks
were made in education, health care, and nearly every other sector of public
services.

In Britain, whose economy had been more socialized than America's, the
revolutionary emphasis was on privatization. Government officials and media
commentators alike spoke as if the superiority of private operation was a
self-evident absolute truth. The debate was not about whether to privatize
but how quickly. It was always presumed that those who resisted
privatization, such as labor unions, were doing so out of narrow
self-interest. Little consideration was given to the possibility that
privatization might lead to less efficiency, and to a less healthy economy.

One of the industries that was eventually privatized was British Rail. This
turns out to be a good illustration of the realities of privatization. The
public rhetoric promised that rail service would improve and prices would
decline - all due to the marvels of private efficiency. The public was led
to believe that efficiency gains would occur, and that their benefits would
be passed on directly to consumers. In fact, the goal of the investors who
purchased the rail assets was to maximize the return on their capital, not
to lower prices or improve service. The easiest way to immediately boost
profits was to slash costs.

There were indeed some shiny new private rail ventures launched, and some
immediate price reductions did occur. But the more general picture was one
of wholesale cost-cutting - by reducing staff levels, by postponing system
maintenance, by cutting back on low-traffic routes, by ignoring safety
problems, and by generally failing to invest in new equipment and
technologies. The executives who carried out these massive cuts received
huge bonuses for their bold "efficiency measures" and investors saw the
value of their shares rise. Meanwhile service and equipment deteriorated,
schedules became unreliable, prices were raised on the busiest routes, and
safety hazards were allowed to accumulate. If one looked across the Channel
at France's vastly superior publicly owned rail system - one might begin to
suspect that privatization might not be the best path after all.

In fact there is very little logic to privatization. When a natural-monopoly
infrastructure is run by the government, the primary management objectives
are efficiency, quality of service, and careful maintenance of equipment. If
the government puts in incompetent managers, that is not the fault of public
ownership per se. In France and elsewhere in Europe one can see that
competent rail management is indeed possible. Competent management, with the
objectives noted above, is a very sound formula for rail systems or any
other societal infrastructure which is by its very nature monopolistic.

When such a natural-monopoly infrastructure is privatized, all
considerations are secondary to maximizing the return on investment. Prices
might be lowered if the owners believe that will increase ridership
significantly, but otherwise there is no incentive - since the service is a
monopoly. Equipment might be upgraded and kept well maintained - if the
owners are intending to hold and develop the asset for the long term. But it
often turns out in practice that a more attractive strategy is to milk the
asset in the short term, spend as little on maintenance as possible, make
sure the books show steady profitability - and then seek a buyer or
acquisition partner to whom the asset can be sold at a profit. Or in other
cases - when public outcry demands attention to safety problems - the owners
can simply turn to the government and demand subsidies for system
improvements.

To an investor, "efficiency" refers to the efficiency of the investment -
its "rate of return". That is the sense in which privatization leads to
"efficiency". It has no necessary relationship to "running a well-managed
railroad". In order to guarantee an adequate level of service and
maintenance for privatized services, the only mechanism available is
government regulation. But since deregulation is a primary principle of the
neoliberal revolution, regulation of privatized industries has generally
been very lax. As a consequence, privatization in Britain and elsewhere has
been typically a net loss for society and for the economies of the nations
involved.

Across the board, in both the U.S. and Britain, the economic consequences of
the neoliberal revolution were always quite different than the rhetoric had
predicted. What was clear is that capital growth vehicles were being created
and exploited. The ability of governments to maintain strong healthy
economies was being undermined, and public services were deteriorating. Tax
burdens were being shifted to those least able to pay and general prosperity
was declining. Corporations were enjoying greater profits and increased
freedom of action to pursue mergers or to move production operations to the
third world.

Perhaps even more significant than the policies of the neoliberal revolution
was the very existence of the revolution. What Reagan and Thatcher
represented was a political counter-attack by the elite regime. The
grass-roots rebellions of the 1960s and 1970s had amounted to a democratic
attack-from-below on the elite regime. That attack had in fact achieved some
victories, such as environmental protection measures. Rather than stay on
the defensive, the elite inner circle was re-capturing the political
initiative they enjoyed up until the 1960s. The democratic process had
become a liability to the elite regime - Reagan and Thatcher skillfully
turned that process into an elite asset. In Reagan's case, his profession
had been acting and advertising - those were precisely the skills needed to
sell a rotten product like neoliberalism to the American public.

Neoliberalization systematically attacked the various obstructions which had
been retarding growth vehicles under the postwar regime. One of these
obstructions had been competition from non-Western producers. This continued
to be a problem, but deregulation reduced corporate costs and made American
and British firms more competitive on world markets. Accelerated use of
offshore production was particularly effective in increasing corporate
competitiveness. Trade restrictions were often used to protect domestic
markets from foreign competition, but rarely to protect the jobs of domestic
workers.

The general prosperity obstruction was largely removed by neoliberalism.
Higher unemployment was considered a good thing - it pushed down wages and
it provided a labor pool for industry. Benefits declined and jobs became
increasingly part time or temporary. Tax cuts forced reductions in
beneficial social programs such as education and health care. Offshore
relocations destroyed whole communities and society in general seemed to be
falling apart and losing its bearings. The emphasis was on the individual -
everyone for themselves. Margaret Thatcher even said there was no such thing
as "society" - there were only individuals. Poverty and crime increased and
homeless people on the streets became commonplace. Unions were under attack
and Reagan personally led the attack against striking Air-Traffic
controllers to help set the climate for increased union-busting.

The strong nation state obstruction was removed as a barrier to corporate
growth - that's what deregulation was mostly about. The power roles of
government vs. domestic corporations were essentially reversed. Corporate
welfare came first - economic stability and the financial strength of
government were secondary. The increasingly unstable international financial
markets further eroded national stability while providing growth vehicles
for speculators and financial institutions.

Privatization gave governments moderate short-term windfalls from the sale
of assets - but those assets had been developed at considerable public
expense and their true long-term value was far in excess of the prices paid
by private buyers. The same politicians who were pushing through
privatization measures were the very same folks who decided how much to sell
the assets for - and they were also the very same folks who on principle
assign higher importance to corporate profits than to the public good. These
privatization sales amounted to giveaways of public assets - a direct
transfer of net asset value from public ownership into the hands of capital
investors. Privatization became a major capital growth vehicle within the
domestic economy.

Although the nation state was losing its power over corporations, it
remained as powerful as ever over ordinary people. Social deterioration led
to unrest and increased crime, as was easily predictable. Policing was
increased, tough-on-crime policies were adopted, and prison populations
increased. Police forces started getting better equipment and elite police
groups were formed which used military-style automatic weapons. Films like
"Dirty Harry" depicted police as being hampered by bureaucratic and
constitutional restrictions - generating public support for more aggressive
policing. Social order in the postwar regime had been largely based on
voluntary compliance with laws. Under neoliberalism, the beginnings of
police-state tactics and a police-state mentality began to emerge. With
general prosperity abandoned, and society rapidly deteriorating, a strong
nation state - in terms of police power - was important to the success of
neoliberalism.

The open democratic process obstruction was attacked in several ways. Part
of the police-state mentality was the belief that constitutional civil
liberties were a "bureaucratic nuisance" that hampered police investigations
and contributed to crime. Popular opinion began to revile the very
protections that had been so greatly valued by the earlier citizens who had
fought and died to achieve them. The denigration of politicians and
government - a central theme of neoliberal propaganda - further eroded
public support for democratic institutions. Citizens were applauding the
weakening of the only institutions which could possibly represent their
interests effectively.

A more direct assault on democracy was represented by the political methods
used to bring about neoliberalism and the sophisticated propaganda campaign
that accompanied it. The political party process had been essentially
hijacked by Reagan & Thatcher's campaigns. Instead of competing parties,
based to some degree on bottom-up constituencies, neoliberalism brought a
completely top-down process. Policies and platforms were set at the highest
levels and then the whole thing was sold as if a new line of automobiles
were being promoted. Television and centralized propaganda had supplanted
political parties and political debate. With the abandonment of general
prosperity, mass mind control - through sophisticated media propaganda - was
becoming the primary tactic of maintaining popular political docility under
neoliberalism.

The Bretton Woods obstruction was further undermined by neoliberal
deregulation which gave up controls over capital and currency flows.
Offshore "tax havens" came into existence - financial centers like Panama
which functioned in effect as money-laundering operations. Corporate profits
could be protected from taxation and investment funds could be more easily
moved around the world. By these means corporate profits were significantly
increased and national treasuries were correspondingly impoverished. This
development rendered somewhat irrelevant the official corporate tax rates in
Western nations. In this way deregulation contributed directly to national
impoverishment and corporate enrichment.

Let us review.

Beginning in the in the late 1960s the elite regime was facing a growing
crisis. A number of obstructions to capital growth had developed and radical
architectural changes were required in order to create room for
elite-desired levels of growth. The neoliberal revolution and the erosion of
Bretton Woods stability effectively attacked those obstructions, creating
new growth vehicles and giving old ones more room to operate. The results
for society were disastrous and this was easily predictable by anyone with
even a minimal knowledge of economic history. Democratic institutions which
had been developed over centuries came under severe attack. Political
control was increasingly centralized, superseding the competitive party
process. Mind-control propaganda and police-state methods were increasingly
employed as a means of maintaining social "order" as the ravages of
neoliberalism continued to undermine society and general prosperity.

The destabilization of the Bretton Woods system represented a significant
reversal in the architecture of the global economic regime. Vehicles were
created with immense potential for capital growth. Eventually trillions of
dollars of paper wealth were floating around on unregulated financial
markets, dwarfing all but the very largest national economies. All nations -
not just the neoliberalized ones - were made less financially stable, and
became highly vulnerable to volatile currency speculation. Nations found it
harder and more expensive to obtain needed financing since international
capital had so many growth vehicles at its disposal to choose from. The
budgetary pressures which neoliberal countries were experiencing began to
spread to other nations, forcing some of the same kinds of cutbacks in
social services. In addition the increased competitiveness of corporations
under neoliberalism added more pressure on other nations to emulate
neoliberal policies and reduce regulatory controls.

Strong Western nation states had been the centerpiece of the postwar
architecture and those nations controlled the Bretton Woods institutions and
hence the global financial system. In the new neoliberal architecture
international finance was controlled by capital interests - nation states no
longer played a central role. Neoliberalized nations were weakened even
further, consolidating control still more into the hands of private capital
interests.

The architecture of neoliberal national regimes was also radically different
from the postwar national architecture. The central role of national
governments was replaced by a central role for domestic capital interests.
Popular prosperity was sacrificed to increase corporate profitability.
Democracy was undermined and the role of government shifted away from
representing the people and moved toward controlling the people by means of
propaganda and police-state tactics.

The "players" involved in this Western drama are "capital", "nations", and
"the people". In the old architecture nations were on top, the interests of
the people were reasonably represented, and capital sought its growth within
those constraints. The effect of the neoliberal revolution was to promote
the power of capital at the expense of both nations and the people. The
societal values of democracy, prosperity, and social harmony were abandoned
in favor of the promotion of capital growth.

Let us now take a look at some of the elite thinking that went into the
formulation of this bold new architecture. Recall that the Council on
Foreign Relations was the elite think tank which had been responsible for
designing the postwar architecture. CFR has continued to be highly
influential in planning circles. One of the most prominent spokesmen for the
CFR is Harvard history Professor Samuel P. Huntington. Huntington has
published several pivotal articles and books which serve to promote elite
regime changes in terms which appeal to wider leadership circles in
government and industry.

In May 1975, a remarkable report was made public - the Report of the
Trilateral Task Force on Governability of Democracies. In the book
Trilateralism Alan Wolfe discusses this report. He focuses especially on the
analysis presented by Huntington in a section of the report entitled the
Crisis of Democracy. In the following paragraphs I will paraphrase from
Wolfe's discussion, which begins on p. 295.

Huntington tells us that democratic societies "cannot work" unless the
citizenry is "passive". The "democratic surge of the 1960s" represented an
"excess of democracy", which must be reduced if governments are to carry out
their "traditional policies", both domestic and foreign. Huntington's notion
of "traditional policies" is expressed in the following passage from the
report:

     To the extent that the United States was governed by anyone during
     the decades after World War II, it was governed by the President
     acting with the support and cooperation of key individuals and
     groups in the executive office, the federal bureaucracy, Congress,
     and the more important businesses, banks, law firms, foundations,
     and media, which constitute the private sector's "Establishment."

As you can see, Huntington's analysis was in complete agreement with the one
we have been developing. He concurs that citizen docility ("passivity") is
central to the success of the elite regime - if "traditional policies" are
to be carried out. In other words, docility is necessary if the interests of
elite capital ("important businesses, banks" and the rest of the
"Establishment") are to be served. His words also re-confirm that policy
making is indeed an elite process, centered at the top echelons of U.S.
government. Even the title "Crisis of Democracy" was unusually candid - as
the "crisis" was one being faced by the elite, not by the public or by
government.

Huntington was accurately describing the fact that the democratic process
was becoming a hindrance to elite objectives, and he was recommending that
the "excess of democracy" be "reduced". Huntington's remarks were
surprisingly candid - he was giving us a rare glance into inner-circle
thinking. Huntington, takes it for granted that the purpose of government is
to support capitalist growth - democracy is only useful if it serves that
purpose. As Wolfe expressed it:

     The warning that comes across clearly from a reading of The Crisis
     of Democracy is that some people with access to the center of
     power now understand that the change in popular attitudes toward
     government will necessitate a rapid dismantling of the whole
     structure of liberal democracy.

As we have seen, neoliberalism indeed did lead to "a rapid dismantling of
the whole structure of liberal democracy". Five years before Reagan &
Thatcher unleashed the neoliberal assault the clear signals about the agenda
were already visible - if you knew where to look. As it turns out,
Huntington has published subsequent material which forecasts in some detail
later dramatic regime changes. His book The Clash of Civilizations will
prove to very useful in section 5 when we investigate the meaning of the
ominous phrase President George Bush uttered upon the completion of Desert
Storm - The New World Order.

The changes caused by neoliberalism were extensive and all-pervasive. They
were revolutionary changes and they transformed not only British and
American society but they also exerted pressure on other nations to adopt
similar policies in order to remain competitive. But as dramatic as it was,
the neoliberal revolution did not result in modern globalization. The core
of the globalization agenda is about radical free trade - the elimination of
all restrictions on international trade and investment. Under neoliberalism,
trade barriers remained as an acceptable tool for governments to use to
protect local industry. Under globalization transnational corporations are
the center of power and national boundaries are irrelevant to corporations
and investors. Under neoliberalism corporations retain a bond with their
home nation, and continue to depend on government for protection from
foreign competition.

Furthermore, globalization applies to the whole world while neoliberalism
was primarily limited to Britain & the U.S. Nixon's gold-standard decision
complemented the neoliberal revolution, but in many ways that act can be
seen as a very early first step toward globalization - it affected all
nations and it significantly enhanced the power of capital on a global
scale.
  ------------------------------------------------------------------------
Recommended reading:

William Greider, Who Will Tell the People, the Betrayal of American
Democracy, Touchstone - Simon & Schuster, New York, 1993.
  ------------------------------------------------------------------------



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