Finance and the Rise of Neoliberalism Dr Bruce Cronin University of Greenwich Business School, London Bruce Cronin 2004
The Rise of Financial Capital Creation of Reserve Banks Repeated banking crises 30s and 40s Great Depression and War Speculative excess Keynesian Compromise Strict state control over mass of credit at national level Free firm-level managerial control over sources of funding 1960s Financial Capital Expanded Internationally Euromarkets outside national regulation Dollar circulation accompanying internationalisation of production Monetarist theory refined & popularised 1970s Economic Crisis Traditional state intervention failed Sustained theoretical critique Political organisation Duménil & Lévy 2001
Hegemony more than Conspiracy Size of Eurodollar market 1964 $9 billion 1968 $25 billion 1973 $132 billion 1976 $247 billion 1979 $475 billion 1980 $1200 billion Source: Strange 1986: 35. Size of International capital market 1980 International Bank Lending $324 bn Financial Sector s Regulatory Concerns a huge international network of foundations, institutes, research centers, publications, scholars, writers and public relations hacks to develop, package and push their ideas and doctrine relentlessly. (George 1999) International Bond Issues International Equity Offerings $259 bn $120 bn Context Economic Crisis 1979 Policy Coup Change of US Monetary Policy Exclusive focus on price stability
US Real Interest Rates Duménil & Lévy 2001
Redistribution to Financial Capital From industrial and commercial capital From the state No fiscal deficit before interest in Germany, UK, France, US. From households (net borrowing) From third world states Net capital transfer from third world rose from $7 billion in 1981 to $74 billion 1985. (Guardian 9/1/87). Duménil & Lévy 2001
Financial Interests Underpinning Neoliberal Policies Removal of impediments to free flow of capital. Enables optimal financial returns. Supremacy of shareholders and rate of return. the financial conception of control (Fligstein 1990) Primacy to price stability. Maintains value of financial assets. Reduces investment risk. Fiscal restraint Aids price stability. Conservative financial principle. High currency value Maintains or enhances value of domestic assets. Allows purchase of foreign assets at low cost. Cheapens overseas borrowing for domestic.
NZ - Share of surplus value retained 70% 60% 50% 40% 30% 20% 10% Industrial Financial 0% Commercial 1972 1975 1978 1981 1984 1987 1990 1993 1996 Extractive
NZ Share of GDP 1987-2001 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Financial Resources Foreign 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Industrial Composition of the New Zealand Business Roundtable 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 1981 1983 1985 1987 1989 1991 1993 1995 Manuf acturing Trade Transport Finance
Allies Mining Company funding of NeoLib Think Tanks Fraser Institute, Canada (Carroll & Shaw 2001) Institute of Public Affairs, Australia (Mendes 2003) Centre for Independent Studies, Australia (Mendes 2003) Capitalist Farmers (NZ, Cairns group?) Oppose trade restrictions and subsidies Support more flexible labour markets Support fiscal & monetary restraint Oppose currency appreciation Multinationals Oppose trade restrictions Oppose capital restrictions Support more flexible labour markets Support fiscal & monetary restraint
NZ Evolution of Business Alliances National Development 1960-75 Export farming, Domestic manufacturing, British capital, commercial and financial support. Export diversification, industrial development, firm exchange rate, cautious capital import. Turning Point 1975-79 UK turning to Europe, Growing strength of financial capital. Partial liberalisation supported by farmers and financial capital. Hegemonic Crisis 1980-83 Economic stagnation outside resources sector. Diverse policy proposals protection, devaluation, increased FDI, overseas expansion, trade support. Wage and price freeze. Representational Crisis 1983-84 Widespread business dissatisfaction with economy and government. Support for some form of liberalisation against government.
NZ Evolution of Business Alliances Financial Putsch 1984-86 Financial sector led with acquiescence from farmers and multinationals against manufacturing and labour. Radical liberalisation, High dollar, fiscal & monetary restraint. Poulantzas (1968) the old alliance is unable to continue; one fraction must take the initiative to create a new alliance. Reactionary rhetoric (Laclau 1977). Contested Alliances 1986-90 Finance and farmers joined by new Aus & US multinationals against manufacturers and commercial sector and labour movement. Reflected in factional struggles within Labour Government. Stalemate won by manufacturers with devaluation and no further fiscal restraint or labour market devaluation. But instability = change of Government and isolation of labour movement. New Dominant Alliance 1990-99 Attempt by finance to consolidate a radical neo-liberal programme with reduced state spending failed. Finance isolated from Aus/US capital, Farmers and manufacturers. Devaluation, monetary relaxation, relaxed trade liberalisation, active foreign investment programme. Stable policy framework.
References Carroll, W. K. & Shaw, M. (2001). Consolidating a neoliberal policy bloc in Canada, 1976 to 1996. Canadian Public Policy Analyse de Politiques, 27(2), 195-217. Duménil, G. & Lévy, D. (2001). Costs and benefits of neoliberalism. A class analysis. Review of International Political Economy, 8(4), 578-607. Fligstein, N. (1990). The transformation of corporate control. Harvard, MA: Harvard University Press. George, S. (1999) A short history of neoliberalism. Conference on Economic Sovereignty in a Globalising World, March 24-26. http://www.globalpolicy.org/globaliz/econ/histneol.htm Laclau, E., 1977. Politics and ideology in Marxist theory: Capitalism-fascismpopulism. London, New Left Books. Mendes, P. (2003) Australian neoliberal think tanks and the backlash against the welfare state. Australian Journal of Political Economy, 51, 29-56. Poulantzas, N., 1968. Political power and social classes, transl. T. O Hagan, 1973 edn. London, New Left Books. Strange, S. (1986). Casino capitalism. Oxford: Basil Blackwell.