There are many different forms of capitalism. Before 1979, the UK had a mixed economy or ‘embedded liberalism’. However, the post war system of a welfare state, NHS and nationalized industries has been progressively dismantled by successive governments, and for most of the last 32y, it has been the global consensus that ‘There is no alternative’ to Neoliberal Capitalism. A ’false consciousness’ that has been largely unchallenged by the mainstream media or politicians. (1)
‘Prior to neoliberalism, the global political economy was dominated by the form of capitalism called embedded liberalism, whereby liberal market economies were embedded inside the regulatory framework of the state. These regulations included strong union rights, unemployment insurance, strict regulation of the financial system, and other such limits to the scope of market activities.’ (2)
‘Neoliberalism is in the first instance, a theory of political economic practices that proposes that human well-being can best be advanced by liberating individual entrepreneurial freedoms and skills within an institutional framework characterized by strong private property rights, free markets, and free trade.’ (3)
Neoliberalism requires the role of the state to be ‘small’. The state only exists to create and preserve an institutional framework which guarantees quality and integrity of money, military, defence, police, legal structures, property rights, and the proper functioning of the markets. The state also has a role in ‘creative destruction’ to further the ‘ethical social good’ of maximizing the reach and frequency of market transactions. Hence, the deregulation, privatization and withdrawal of the state from many areas of social provision; and the challenging of prior institutional frameworks such as divisions of labour, social relations, welfare provisions, ways of life and thought, and even traditional state sovereignty.
Essentially, the underlying assumption is that the ‘market’ knows best if it is allowed to function without interference. It is even argued that the ‘markets’ produce more ‘democratic decisions’. However, according to Harvey, within a brief period, neoliberalism was co-opted by the economic elites and was essentially used to ‘privatise the commons for a second time’; a vehicle to restore the power and the wealth of the power elites back to that condition which they had enjoyed prior to World War II and the creation of the Welfare State.
‘… demands for the rollback of government intervention in the economy have always been one sided. The government is called on to lesson regulations and intervention in the economy only when it will benefit the economic elites. Thus labour and environmental regulations were attacked by neoliberals as distorting the price mechanisms of the free market and were seen as examples of how government intervention in the economy always leads to inefficiency. Yet the same neoliberals were surprisingly quiet in 2001 when President Bush approved a massive bailout for the airline industry. Surely if government intervention in the economy distorts prices and subverts the more efficient market mechanisms then they would oppose such “government overreach” as a gross violation of neoliberal theory? Here is where we can apply Harvey’s insight about neoliberalism as more of a practical attempt to restore elite class power than as a theoretical project driven by the works of Hayek or Friedman. Thus we end up in practice with a kind of one sided neoliberalism, where government intervention is bad if it would protect labour or the environment, but government intervention is good if it will help economic elites.’ (2)
The concept of neoliberalism, as furthering the ‘freedom’ of the market, has thus become another part of the ‘smoke and mirrors’ which is employed to befuddle the majority, including the middle classes, from recognizing the hidden agenda. In the US, and increasingly in the UK, the term Plutonomy is used to differentiate the real intention of current policies.
‘..neoliberalism has not so much been about increasing wealth, but about redistributing it. Here we have an explanation of why, despite neoliberal theory which states that market mechanisms are more efficient and therefore better at generating wealth than forms of state intervention, GDP growth rates during the neoliberal era actually declined as shown by Harvey’s statistics…… Harvey terms these techniques of upward redistribution of wealth, accumulation by dispossession.’ (2)
The success of this strategy in the US can be seen in a highly recommended series of graphs produced by the Wall Street Protesters. (4)
Richard Murphy justifies reproducing the first two graphs (on his Tax Research UK blog) because he says “OK this is US data, but the US is very like the UK in this respect: Corporate profits just hit another all-time high.” (5)
Definition: Economic growth that is powered and consumed by the wealthiest upper class of society. Plutonomy refers to a society where the majority of the wealth is controlled by an ever-shrinking minority; as such, the economic growth of that society becomes dependent on the fortunes of that same wealthy minority. (6)
InjusticeFacts Injustice Facts
The wealthiest 1 percent of Americans receive as much after-tax income as the bottom 45 percent of the population combined (105 million)
The term ‘Plutonomy’ was first coined by Citigroup analysts in 2005, to “describe a country that is defined by massive income and wealth inequality” and specifically identifies the U.K., Canada, Australia, and the United States as plutonomies.
In their report, published three years before the onset of the financial crisis in 2008, the Citigroup report stated that:
“…asset booms, a rising profit share and favourable treatment by market-friendly governments have allowed the rich to prosper and become a greater share of the economy in the plutonomy countries,” and that, “the rich are in great shape, financially.”
As the Federal Reserve reported, “the nation’s top 1% of households own more than half the nation’s stocks,” and “they also control more than $16 trillion in wealth — more than the bottom 90%.” (6)
‘In fact, (the Citigroup report) said, America was composed of two distinct groups: the rich and the rest. And for the purposes of investment decisions, the second group didn’t matter; tracking its spending habits or worrying over its savings rate was a waste of time. All the action in the American economy was at the top: the richest 1 percent of households earned as much each year as the bottom 60 percent put together; they possessed as much wealth as the bottom 90 percent; and with each passing year, a greater share of the nation’s treasure was flowing through their hands and into their pockets. It was this segment of the population, almost exclusively, that held the key to future growth and future returns. The analysts, Ajay Kapur, Niall Macleod, and Narendra Singh, had coined a term for this state of affairs: plutonomy.’ (7)
Worryingly, the Plutonomy Update (14.08.11) concludes:
The report further asserted that, “the middle-class has suffered more than the wealthy from the housing crash because middle-class families tended to rely more on their homes to build savings through rising equity. Also, the wealthy naturally had a much larger and more diverse portfolio of assets — stocks, bonds, etc.”
In short, when the day comes where the rest of the industrialized world falls into the same trap as Greece, the middle class will be pushed down into the lower class, and a global socio-economic plutonomy will emerge. The middle class cannot survive the perfect storm of fiscal austerity, increased interest rates, inflation and ‘Structural Adjustment.’ We are entering a global age of austerity, where our political leaders commit social genocide for the benefit of the global banks, and at the behest of the institutions that represent them. The IMF and other supranational institutions increase their own powers and authority in order to punish and impoverish large populations. What has been done to the ‘Third World’ – the ‘Global South’ – over the past several decades is now being done to us, in the industrialized North. (8)
In similar vein, Larry Elliott recently wrote in the Business section of the Guardian (9.10.11):
‘The dystopian vision of the future sees Britain displaying many of the traits of a developing country. Here’s what a typical developing country looks like. It is governed by an elite and there is a gulf between rich and poor. The elite extracts economic rents from the rest of the population, then salts them away in tax havens. Developing economies often rely heavily on one commodity, which crowds out activity in other sectors. To the extent that they have an industrial base, it is as an assembly plant for foreign-owned transnational corporations. The country tends to be deficient in physical infrastructure and human capital. All too often the best brains leave the country. Now consider Britain. The country is dominated by the City, which exerts an extraordinary amount of political power. There is a widening gap between rich and poor. The rich find ingenious ways to avoid paying taxes. Large parts of the country are dependent on the public sector, while the private sector is increasingly dominated by financial services. Industry makes up a smaller and smaller part of the economy and not one world-class manufacturing firm has been developed from scratch since the second world war. Firms complain they can’t find skilled labour. The infrastructure is a joke – witness the lack of snowploughs to keep Heathrow open during last winter’s snow. This is not an economy that is going places: it is going south.’ (9)
Think left’s article (10) asks whether George Osborne’s policies are leading us towards the dystopia presented in the film ‘Soylent Green’. It also asks the question of whether this Tory-LD government are more properly described as plutonomists rather than neoliberals. Under the ‘liberalisation’ and ‘globalisation’ process began by Margaret Thatcher’s government in the UK, and Ronald Reagan in the US, ‘the Financial Class were set ‘free’ … but the rest of the global community was well and truly ‘stitched up’. It is no coincidence that in the UK and US, there has been a corresponding lack of rise in real wages and huge increases in personal debt. Meanwhile, the 1000 richest list published the other day shows that their wealth has increased 18% since last year and they are now worth 400 bn.‘ (1)
However, instead of calling this economic structure ‘Plutonomy’, it might be more transparent to substitute the self-explanatory, and more accurate, term suggested by Chris Stone (11) which is so evocative of British history, Neo-feudalism !
Neo-feudalism seems to be our back-to-the-future economic prospect.
* Living standards in Greece, Spain and Portugal are predicted to fall by 20-50%.
.(1) Red Labour must address the elephant in the room. https://think-left.org/2011/07/21/red-labour-must-address-the-elephant-in-the-room/
(3) David Harvey 2005 ‘A Brief History of Neoliberalism’ Oxford University Press ISBN 978-0-19-928326-2
(10) Soylent Green, George Osborne and Plutonomy https://think-left.org/2011/09/08/soylent-green-george-osborne-and-plutonomy/
(11) Chris Stone ‘The Empire of Things.’ https://think-left.org/2011/08/26/the-empire-of-things/
Michael Hudson: Debt Deflation in America
I presume the “middle class” referred to is what we used to refer to as the proletariat?
What astonishes me is that political leaders think they can redistribute money to the richest forever without a backlash/the economy falling apart. In these circumstances a socialist revival isn’t inevitable, but it will over time become more probable.
I mean the 99% of the population who are not super-rich. The ‘middle class’ should certainly be against these policies in their own interests… and I believe that the green shoots of realisation have been evidenced by Charles Moore and Peter Oborne’s Telegraph articles.
I was puzzled for some time as to why all George Osborne’s activity after the CSR seemed to involve tax havens. However, it makes perfect sense if he is deliberately allowing the economy to crash. Tax havens provide the means to keep the wealth of the transnationals and super-rich safe, and will facilitate their domination in a much poorer world. There is also an argument advanced that in order for the West to compete with China and the other BRICS, our economic and social structures need to become like those of the developing world.
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a fascinating and brilliantly written piece!
Neoliberalism gets talked about by politicos, often loosely in ways that aren’t accurate and don’t facilitate understanding.
I like the use of the term, plutonomy (and can see the “neo-feudalism”), and I like your “a kind of one-sided neoliberalism”. My own preference is to regard as neo-conservatism this partial appropriation by conservatives of neo-liberal economics (e.g. pure, theoretical neo-liberal economics has nothing really to do with a large defence budget or military campaigns against oil-possessing Arab countries).
Eisenhower, tragically too late in the day, only as he was leaving office, was correct in his earnest warning to the West about the rise of what he called “the military-industrial complex” and the very real threat it would pose to democracy.
The old struggle was : the capitalists & bourgeoisie versus the proletariat.
Now the class war is : the transnational super-rich capitalist class versus all the rest (bourgeois middle-class & proletarian working-class).
One can only hope the middle classes wake up soon to this new reality and have the courage to act in their own real best interests – overcoming any fear they have of socialism. (btw, this is another reason why the Labour Party ought to be coming up with new modern ways of social ownership and participation and devolved powers and environmentalism and a favourable attitude towards SMEs. Socialism for the majority of the population; socialism for the 21st Century).
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I got the term “neo-feudalism” from Michael Hudson, here: http://michael-hudson.com/
Wouldn’t want people to think I was claiming it as my own. It’s quite a common term these days – Max Keiser uses it a lot – but it is brilliantly suggestive, and I think describes our current economic tendencies really well.
As far as I’m concerned, you coined the term Chris! Thanks for the Michael Hudson link. As you say, neo-feudalism is ‘brilliantly suggestive’ whereas plutonomy is much more opaque.
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