THE RISE OF THE NEOLIBERAL CONSENSUS

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1 THE RISE OF THE NEOLIBERAL CONSENSUS THE CIRCULATION OF IDEAS AND POLICIES CLASS 8

2 THE BASIC PREMISE Government is not the solution to our problem; government is the problem. [ Ronald Reagan, inaugural address, ]

3 SETTING THE PEOPLE FREE I would like to take the lead in taking government off your backs and out of your pockets and turning you loose to do what Americans have been able to do for two hundred years. [ Ronald Reagan, speech during the 1980 presidential campaign ]

4 DISCIPLINING GOVERNMENT We are here to discuss the taming of government because it has become wild out of control, undisciplined, inordinate. We therefore think it can be cut down to size, be put in its place. [ Arthur Seldon, The Taming of Government, 1979 ]

REENGINEERING THE STATE It is too often forgotten that neoliberalism seeks not so much the retreat of the state, and an expansion of the spaces of capital accumulation, as the transformation of state

5 REENGINEERING THE STATE It is too often forgotten that neoliberalism seeks not so much the retreat of the state, and an expansion of the spaces of capital accumulation, as the transformation of state action by making the state itself a sphere governed by rules of competition and subject to efficiency constraints similar to those experienced by private enterprises. The state has been restructured in two ways that tend to be confused: from without, by massive privatization of public enterprises, putting an end to the producer state ; but also from within, by the institution of an evaluating, regulating state that mobilizes new instruments of power. [ Pierre Dardot & Christian Laval, The New Way of the World, 2013 ]

6 THE UNLEASHING OF MARKET FORCES SECTION 1

LIBERALIZATION Since the 1980s, Western countries have increased their efforts to establish a single global market through regional and international trade-liberalization agreements

7 LIBERALIZATION Since the 1980s, Western countries have increased their efforts to establish a single global market through regional and international trade-liberalization agreements The elimination or reduction of existing trade barriers is supposed to enhance consumer choice, increase global wealth, secure peaceful international relations, and spread new technologies

DEREGULATION In 1978 the USA had the least regulation out of 21 OECD countries By 1998 only three countries (Greece, Italy and Portugal) had a greater degree of regulation than the USA had in 1980

8 DEREGULATION In 1978 the USA had the least regulation out of 21 OECD countries By 1998 only three countries (Greece, Italy and Portugal) had a greater degree of regulation than the USA had in 1980 In 15 countries the index was at least one-third lower in 1998 than 20 years earlier The UK had become the least regulated country of all, with a level of regulation one-quarter of the US level in 1978

PRIVATIZATION NATIONAL INDUSTRIES The share of state-owned enterprises in global GDP fell from more than 10% in 1979 to less than 6% in 2004 Privatization reduced the contribution of state-owned

9 PRIVATIZATION NATIONAL INDUSTRIES The share of state-owned enterprises in global GDP fell from more than 10% in 1979 to less than 6% in 2004 Privatization reduced the contribution of state-owned companies from 12% of UK GDP in 1979 to less than 2% British Telecom, British Gas, British Airways, British Steel, British Rail, British Coal, the water authorities and the electricity industry were privatized between 1984 & 1993

PRIVATIZATION NATURAL RESOURCES Both the NAFTA and the WTO define water as a tradable good In 2000, the annual profits of the water industry amounted to about 40% of

10 PRIVATIZATION NATURAL RESOURCES Both the NAFTA and the WTO define water as a tradable good In 2000, the annual profits of the water industry amounted to about 40% of those of the oil industry and were 30% larger than those of the pharmaceutical industry Water will be to the 21st century what oil was to the 20th. [ Fortune, 2000 ]

PRIVATIZATION LIVING ORGANISMS Before the 1980s, discoveries and living organisms were not patentable, only inventions and inanimate objects were Biotech companies can now patent the genes

11 PRIVATIZATION LIVING ORGANISMS Before the 1980s, discoveries and living organisms were not patentable, only inventions and inanimate objects were Biotech companies can now patent the genes responsible for asthma, obesity, heart attack, cancer, Alzheimer s disease, schizophrenia In 1998, Decode Genetics bought the DNA of the Icelandic people; in 2001 it filed patent claims for the discovery of 350 genes

12 AN OVERVIEW

13 BUSINESS-FRIENDLY TAXATION STATUTORY CORPORATE INCOME TAX RATE United States United Kingdom France Germany

14 BUSINESS-FRIENDLY TAXATION EFFECTIVE CORPORATE INCOME TAX RATE (US)

15 THE MACRODISCIPLINES OF GOVERNMENT SECTION 2

CENTRAL BANK INDEPENDENCE Central banks must be independent to prevent government from creating inflation by printing excessive money in an attempt to boost economic growth Central banks were made

16 CENTRAL BANK INDEPENDENCE Central banks must be independent to prevent government from creating inflation by printing excessive money in an attempt to boost economic growth Central banks were made independent in New Zealand (1989), Italy and Portugal (1992), Japan and the UK (1997), Sweden (1998), and the EU (1999) The only good central bank is one that can say no to politicians. [ The Economist, 1990 ]

THE GOLDEN RULE Government must be constitutionally prohibited from unbalancing the budget, since excessive national debt raises interest rates and slows growth down Germany (2009), Hungary (2011),

17 THE GOLDEN RULE Government must be constitutionally prohibited from unbalancing the budget, since excessive national debt raises interest rates and slows growth down Germany (2009), Hungary (2011), Spain (2011), Italy (2011), France (2011), and the European Union (2012) have introduced a Golden Rule of balanced budgets in their constitutions The Cut, Cap and Balance Act passed the US House of Representatives on July 19, 2011, but was rejected by the President and the Senate In the UK, the Golden Rule was officially adopted by Gordon Brown while he was Ch of the Ex ( )

18 CONVERGENCE CRITERIA A country s inflation rate must not exceed by more than 1.5% the average of the 3 best performing member states of the EU The ratio of the annual government deficit to GDP must not exceed 3%, while the ratio of gross government debt to GDP must not exceed 60%

19 THE MACRODISCIPLINES OF GOVERNMENT SECTION 3

CONTRACTING OUT Public services are contracted out to private companies because they are supposed to be cheaper and more efficient providers Through Private-Public Partnerships, the government

20 CONTRACTING OUT Public services are contracted out to private companies because they are supposed to be cheaper and more efficient providers Through Private-Public Partnerships, the government entrusts private companies with the construction or renovation and the maintenance or management of public infrastructures (hospitals, schools, prisons, social housing, etc.) Between 1987 and 2003 the proportion of UK government expenditure on goods and services purchased from the private sector rose from 37% to 48%

TARGET-SETTING In 2000, the British government introduced a system of Public Service Agreements to improve the performance of public services Each department was now obliged to

21 TARGET-SETTING In 2000, the British government introduced a system of Public Service Agreements to improve the performance of public services Each department was now obliged to make an agreement with the Treasury to the effect that, for a given level of funding, it would pursue a defined set of objectives, each of which had one or more targets attached

introduced in health and education by the Thatcher and Blair governments Teachers could

22 INCENTIVIZING Linking pay with targets to be achieved provides incentives for public employees to become more productive Performance-Related Pay (PRP), or merit pay, was introduced in health and education by the Thatcher and Blair governments Teachers could get an extra 2000 to 7000 a year if the academic results of their students improve beyond a given standard

AUDITING The creation of state agencies aimed at monitoring that the delivery of public services is cost-efficient, userresponsive and socially effective marks the advent of the audit state Among

23 AUDITING The creation of state agencies aimed at monitoring that the delivery of public services is cost-efficient, userresponsive and socially effective marks the advent of the audit state Among others, the Office for Standards in Education, Children s Services and Skills (OFSTED), the National Institute for Health and Clinical Excellence (NIHCE), and the Commission for Health Improvement (CHI) were set up during the 1990s

24 NEW PUBLIC MANAGEMENT Mixture of bureaucratic and market disciplines: Targets are set by the central government Financial incentives are provided to drive services into meeting their targets Audits are conducted to compare performances and evaluate efficiency (aka benchmarking) L objectif principal consiste à remplacer une culture de moyens ( un bon budget est un budget qui augmente ) par une culture de résultats ( un bon budget est celui qui permet, au moindre coût, d atteindre les objectifs préalablement définis ). [ Jean Arthuis, LOLF: culte des indicateurs ou culture de la performance?, 2005 ]

THE REGULATORY STATE The regulatory state is a colonizing state characterized by the growth of a vastly expanded apparatus of surveillance and control within the

25 THE REGULATORY STATE The regulatory state is a colonizing state characterized by the growth of a vastly expanded apparatus of surveillance and control within the public sector. Overall, the direction of change has been towards more hierarchy, more formality, and more state control. [ Michael Moran, The British Regulatory State, 2003 ]

26 A WARNING FROM LÉON WALRAS Le principe de la libre concurrence, applicable à la production des choses d intérêt privé, ne l est plus à la production des choses d intérêt public. [ Léon Walras, Éléments d économie politique pure, 1874 ]

27 A WARNING FROM LUDWIG VON MISES There are many things about government administration which need to be reformed. Of course, all human institutions must again and again be adjusted anew to the change of conditions. But no reform could transform a public office into a sort of private enterprise. A government is not a profit-seeking enterprise. The conduct of its affairs cannot be checked by profitand-loss statements. Its achievement cannot be valued in terms of money. This is fundamental for any treatment of the problems of bureaucracy. [ Ludwig von Mises, Bureaucracy, 1944 ]

28 THE WASHINGTON CONSENSUS SECTION 4

29 THE WASHINGTON CONSENSUS SYSTEM OBJECTIVE INSTRUMENT(S) RESPONSIBLE AUTHORITY Price stability Interest-rate policy Central bank Balance-of-payments adjustment Floating exchange rates Promotion of international trade Tariff reductions etc. WTO Economic development Loans World Bank Private lending

FROM INDEPENDENCE TO INTERDEPENDENCE The Washington consensus, based on trade liberalization, or economic interdependence, displaced the Keynesian consensus, based

30 FROM INDEPENDENCE TO INTERDEPENDENCE The Washington consensus, based on trade liberalization, or economic interdependence, displaced the Keynesian consensus, based on import substitution, or economic independence The Washington consensus is supported by powerful international institutions, such as the WTO, the IMF, and the WB

31 TEN POLICY INSTRUMENTS 1. Fiscal Discipline 2. Reordering Public Expenditure Priorities 3. Tax Reform 4. Liberalizing Interest Rates 5. Competitive Exchange Rates 6. Trade Liberalization 7. Liberalization of Inward Foreign Direct Investment 8. Privatization 9. Deregulation 10. Property Rights [ John Williamson, What Washington Means by Policy Reform, 1989 ]

32 NOT A NEOLIBERAL CONSENSUS? I believed that most of the neoliberal innovations of the Reagan administration in the United States or the Thatcher government in Britain had by then been discarded as impractical or undesirable fads, so no trace of them, except privatization, can be found in what I labeled the Washington Consensus. [ John Williamson, A Short History of the Washington Consensus, 2004 ]

33 FREE TRADE ADVOCACY Liberalism emphasizes freedom as the ultimate goal and the individual as the ultimate entity in the society. It supports laissez-faire at home as a means of reducing the role of the state in economic affairs and thereby enlarging the role of the individual; it supports free trade abroad as a means of linking the nations of the world together peacefully and democratically. [ Milton Friedman, Capitalism and Freedom, 1962 ]

34 MONTESQUIEU S DOUX COMMERCE L effet naturel du commerce est de porter à la paix. Deux nations qui négocient ensemble se rendent réciproquement dépendantes: si l une a intérêt d acheter, l autre a intérêt de vendre; et toutes les unions sont fondées sur les besoins mutuels. [ Montesquieu, De l esprit des lois, 1748 ]

35 NEW TRADING PARTNERS TRADE AS A % OF GDP China India Russia Mexico Brasil

36 WORLD TRADE IN GOODS AS A % OF WORLD GDP

37 WORLD GOODS EXPORTS VS WORLD GDP 1950 = GDP Exports

38 WORLD FOREIGN DIRECT INVESTMENT AS A % OF WORLD GDP 5 4,5 4 3,5 3 2,5 2 1,5 1 0,5 0

39 A SYNTHETIC VIEW SECTION 5

41 GOING FURTHER CHAPTER 1 Power to the Middle Classes: Entrepreneurs and Ideologues in the Reagan Revolution CHAPTER 4 France: Neoliberalism and the Developmental State

HIGHLIGHTS. There is a clear trend in the OECD area towards. which is reflected in the economic and innovative performance of certain OECD countries.

HIGHLIGHTS. There is a clear trend in the OECD area towards. which is reflected in the economic and innovative performance of certain OECD countries. HIGHLIGHTS The ability to create, distribute and exploit knowledge is increasingly central to competitive advantage, wealth creation and better standards of living. The STI Scoreboard 2001 presents the