By David Harvey
Oxford University Press – 2005
Reviewed by Steve Halpern
All of the mainstream news from the written press, to the radio, to the television, to the internet, have one thing in common. They all report on how well corporations are doing in their business sections. From their perspective, our lives are influenced by how well the stock market is doing on a given day.
David Harvey has been a college professor in Britain, Baltimore, and New York City. Harvey’s book is about the basic capitalist strategies that have been utilized in the last fifty years, known as neoliberalism. He summarizes what his book is about with the three words: accumulation by dispossession.
The capitalist economics of John Maynard Keynes and Milton Friedman
We can begin this story in the year 1944 in Bretton Woods, New Hampshire. Before the Second World War was over, capitalist representatives of the Allied Powers met in that town to decide how the economics of the world would be organized. The essence of that meeting decided that the tens of millions of people who died in the First and Second World Wars, died so that capitalists in the United States would be able to dominate the world and gouge out super-profits.
The United States would fund the rebuilding of Europe and Japan with its Marshall Plan. The dollar would become the currency of the world, and it was tied to the gold standard. The United States would become the manufacturing center of the world. Corporations would adhere to certain government regulations aimed at establishing capitalist stability. These policies roughly followed the ideas of the economist John Maynard Keynes.
We might consider that after the First World War, the allied powers imposed harsh economic sanctions on Germany. After the Second World War, the priority of the United States was to isolate the Soviet Union and China. So, instead of punishing Germany and Japan, the U.S. floated huge loans to those countries so they could rebuild.
As a result, the United States favored free trade, while other nations imposed tariffs to protect their industries from competition from the United States. Because manufacturing was centered in this country, unions had political leverage with corporations because they could deny corporate profits by going on strike. This state of affairs, as well as the militancy of the trade unions, the civil rights, and women’s liberation movements all created an atmosphere where the standard of living improved for many from the 1950s to the 1970s.
However, we can also say, that during those same years, perhaps the least affluent twenty percent of the population continued to live in poverty. Millions didn’t have enough food to eat, and there were many who were homeless.
Another meeting took place in 1947 in Switzerland organized by the Austrian political philosopher Friedrich von Hayek. Also attending this meeting was the U.S. based economist Milton Friedman. This is where the ideas that came to be known as neoliberalism were first discussed. Those ideas went in a different direction from the ideas promoted at Bretton Woods and advocated by Keynes.
One of the ideas promoted by those who supported neoliberalism was a twisted concept of what personal freedom is. They argued that that the government interfered with corporate power after World War II. They countered that each individual should be able to determine for themselves their options in life. In making these decisions, the neoliberal theory also argued that workers need to take responsibility for their condition.
Today, we see this trend where individuals choose health care insurance, pensions, employment, as well as the homes they live in and the cars they drive. While some people benefitted from this system, the majority of the population either experienced stagnating or deteriorating living standards.
As we might see from this point of view, there are serious problems with that perspective. Most people in the capitalist world work for a living. During our working day, employers tell us exactly what to do, when to do it, and how that work is to be performed. If any of us has a problem with this, the boss can fire us, or we can resign. Then, we might not have the means to support ourselves.
We also might think about the reality of chattel slavery. In that system, slave owners purchased slaves to derive a profit from the labor of slaves. Slave owners motivated slaves with the use of physical torture.
Today, employers hire workers to derive a profit. They motivate workers with the threat of termination. So, for those who support the system of neoliberalism, they believe that modern day wage-slavery is equivalent to personal freedom. Clearly, I do not agree with that perspective.
So, in essence, neoliberalism is about more or less unrestricted corporate policy. The people who support this theory believe that corporate officers are more qualified to run corporations than government officials.
What they don’t understand, is that the primary goal of corporate officers is to maximize profits, and not to produce quality goods and services at reasonable prices. The only class interested in a rational political economic system is the working class. As workers, we understand the best way of producing commodities in the most efficient way possible. Since corporate officers rarely do this work, they have no idea what workers do every day.
As we will see, while the neoliberals favor unrestricted corporate power, they also demand harsh repressive measures against the working class of the world.
How and why did neoliberalism become an international economic model?
Chile
In the early 1970s, the Chilean military headed by General Augusto Pinochet removed the democratically elected government of Salvador Allende from power. Allende tried to nationalize the most profitable enterprises in Chile, so the standard of living in that country would improve. The new government, headed by General Augusto Pinochet, murdered thousands, placed many of his opponents in prison, or forced them to leave the country.
Pinochet collaborated with Milton Friedman in an attempt to make that country more friendly to corporate interests. Friedman argued that Chile needed a form of “shock therapy.” That shock therapy meant that the worker’s rights would be stripped. There would be no meaningful regulation of corporations. However, the rights of workers would be highly regulated.
As a result, corporations cut down Chilean forests, huge fishing ships overfished the waters off of Chile’s coast. People started using gas masks in the Chilean capital, Santiago. Since there was no pollution control of the busses, the exhaust from vehicles made the air of the city unhealthy.
The people who organized this disastrous system were students of Milton Friedman at the University of Chicago. They became known as the “Chicago Boys.”
While those policies represented a disaster for most of the Chilean people, Wall Street investors in Chile were rewarded with handsome dividends. As a result, Milton Friedman received a Nobel Prize in economics.
By the 1980s, the Chilean economy went through an inevitable downturn. However, no one asked Friedman to return his Nobel Prize because of the unmitigated disaster his policies created. This was another case of accumulation by dispossession.
New York City
In the year 1975, the New York City government went bankrupt. City governments routinely sell bonds in order to finance their operations, but in 1975 Walter Winston of Citibank refused to roll over the city’s loans. So, the government had a choice. They could give bondholders a “haircut” where they might lose money on their investments. Or, there would be a drastic cutback in social services.
We might consider that many of the bondholders were extremely affluent. They made a bet that they might make money by investing in city bonds.
We might think about the fact that when workers make bets and lose money in the casinos, we don’t ask for our money back. We certainly wouldn’t ask the workers in the casino to compensate us for the money we lost.
However, the banker Felix Rohatyn brokered a deal between the city, state and financial institutions. That deal allowed for the city to make massive cutbacks in social services, while bondholders would get every penny that they expected. Again, we see the accumulation by dispossession.
Treasury Secretary Paul Volcker
Paul Volker was an investment banker who worked in the Treasury Department while Richard Nixon was President. Volker was one of those who influenced the President to take the dollar off the gold standard. That decision made it clear that the Bretton Woods international agreement was dead.
The U.S. economy then experienced double digit inflation. Volcker then got a promotion under the Carter Presidential administration to Secretary of the Treasury. To deal with the inflation that Volker helped to create, he raised interest rates to the double digits.
Reading this information, we might think about the fact that the interests of workers were never a consideration. I don’t think Volker ever considered giving workers a Constitutional right to health care, housing, and food. This certainly was possible if the government made the needs of people it’s priority. However, because we live in a system known as capitalism, that isn’t what happened.
When the interest rates went up, corporations cut back on their investments and there were massive layoffs. Clearly corporations are in business to profit. Because corporations rely on financing, when interest rates go up, manufacturing corporations receive less in profits and hand over more money to the banks.
So, when we see all these events emerging at the same time, we might see why corporations started to close down factories, and move to nations where wages are between one and ten dollars per day.
So, up until the 1970s, unions had real leverage with respect to corporations. When workers went on strike, corporations could lose millions of dollars every day. As corporations cut back on production and moved to other countries, they dealt with the threat of strikes by closing down factories. The government that pretends to represent all the people went along with this, and allowed for more accumulation by dispossession.
China
During the 1980s Ronald Reagan and Margaret Thatcher became the heads of state of the United States and Britain. Reagan used his political power to break the strike by the Professional Air Traffic Controllers Organization (PATCO). Thatcher used her power to break the strike of the mine-workers union.
These actions demonstrated that in order for corporations to have a free rein of the economy, the government would need to take repressive actions against the workers who create all wealth. Reagan and Thatcher followed the trend established by Augusto Pinochet in Chile.
During the 1980s the economies of Germany and Japan increased significantly. German sales of cars and machinery increased, while Japan’s car and electronic sales increased. However, by the year 1987 there was an international downturn of the economy. That downturn would be followed by downturns in the years 2001, 2008, and 2020.
China had a revolution in 1949 where that nation was taken out of the capitalist orbit. However, the Chinese Revolution was different from the Russian Revolution.
The Russian Revolution was about an alliance of workers and farmers symbolized in their red flag with the hammer and sycle. The new revolutionary Russian government made the needs of workers and farmers their ultimate priority. The many oppressed nations within Tzarist Russia would move away from the routine discrimination of the past. The new nation became the Union of Soviet Socialist Republics.
However, this new nation experienced unimaginably difficult times and new government officials headed by Joseph Stalin betrayed the fundamental goals of the revolution. Stalin used his influence in China to demand adherence to his idea of a block of four classes. So, unlike the Russian revolutionaries, who made the interests of workers and farmers their priorities, the Chinese Communist Party worked for a block of classes that had opposing interests.
Because of this approach, the government headed by Mao Zedong did not attempt to make China a worker’s democracy. Instead, Mao’s government, like the government of Stalin, ruled from the top down.
As a result, Mao initiated his Great Leap Forward that proved to be a disaster. The CCP dealt with this crisis by making Liu Shaoqi the head of the party. Mao then advanced his disastrous policy of Cultural Revolution through the military. As a result, Mao regained the leadership of the party, and the government sent Liu Shaoqi to the countryside.
After Mao died, a supporter of Liu Shaoqi named Deng Xiaoping became President of China. While Deng reversed many of Mao’s policies, he continued to support the idea of a block of four classes. As a result, Deng opened up China to capitalist investment, while suppressing the 1989 Tiananmen demonstrations.
During these years, as we have seen, capitalists were looking around the world for places where worker’s wages were low. Initially, capitalists from Hong Kong began investing in China. Those investments became so successful that capitalists from South Korea, Singapore, and Taiwan also began investing in China. Investments from the United States also mushroomed. Those nations didn’t just invest, they also gave the Chinese the technological skills they needed to develop state of the art industries.
One of the capitalist attractions of China was its huge population of people who lived in the countryside. As of the year 2020, about 300 million Chinese people from the countryside migrated into the cities, where they made China the manufacturing center of the world.
Then, with the capitalist crisis of 2008 Chinese exports plummeted, and employers eliminated tens of millions of jobs. Workers protested those layoffs.
So, the Chinese government decided to use the credit they had with their banks to make massive investments within China. As a result, in about three years, China used more concrete than the United States used in about 100 years.
In the United States, the government responded to the 2008 economic crisis with the Troubled Asset Relief Program or TARP. This program consisted of hundreds of billions of dollars that the government gave to U.S. banks. President Barrack Obama then gave the banks trillions of dollars in his program called quantitative easing.
However, David Harvey Spoke about this development after the publication of this book. He argued that the astronomical amount of money given to banks by the U.S. government wasn’t nearly enough to fix the 2008 capitalist economic crisis. It was the extraordinary development of China that stabilized the world capitalist economy for a while.
Conclusion
When we look at this entire history, we see some clear trends. From the end of the Second World War until the 1970s many workers in the United States experienced an improved standard of living. Then, the inevitable happened. The improvement in the standard of living for workers caused capitalists to have a slight decline in their share of the economy.
Capitalists responded by raising prices, rather than accepting this slightly reduced share. Then the dollar went off the gold standard, and interest rates shot up. Capitalists began to move their factories to nations with extremely low wages. The percentage of workers who belonged to unions went down.
So, while the United States financed the Marshall Plan after WWII, capitalists in the United States have been profiting off of international investments to the tune of fifty Marshall Plans. While African Americans and Latinos might have lost eighty billion dollars, capitalists cashed out on eighty billion dollars during the same years.
President Donald Trump was only one of the Presidents in the world that favored increasingly repressive policies. Today, there are Presidents in Brazil, India, and the Philippines who also favor brutal repression of workers. As we have seen, these Presidents are merely following the course set by General Augusto Pinochet in Chile.
So, when we look at this history, we see that the working class of the world has decisions to make. First, we need to understand that we are the working class of the world. An injury to one, anywhere in the world, is an injury to all.
When we look at the unprecedented development in China, we need to understand that that development will need to continue to sustain capitalist stability. With all of the concrete China used in the past years, China will need to increase that level of production or eliminate jobs. We can see that there will be severe problems in the attempt to continuously increase production.
The nation of Cuba has made a courageous effort to stand up against the capitalist rape of the world for the past 61 years. They have shown by example that it is possible to have a government that makes the needs of people more important than corporate profits.
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