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Neoliberal Globalization and The Washington Consensus: September 2017
Neoliberal Globalization and The Washington Consensus: September 2017
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Chapter 5
Neoliberal Globalization
and the Washington
Consensus
CONTENTS
I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
II. Dixie Capitalism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
III. The Cold War and Neoliberalism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
IV. The Washington Consensus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
I. Introduction
During the past two decades, neoliberal globalization has been the domi-
nant approach, not in the sense that it is all there is to globalization but in
the sense that it became a global regime. Most protest against globalization
concerns neoliberal globalization and this is the actual problem, rather than
91
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Like many accounts, this focuses on economic ideas (of the Mont Pèlerin
Society, Friedrich von Hayek, and Milton Friedman) and the policies of
Reagan and Thatcher. However, by locating the origins of neoliberalism in
the realm of ideas and the theories of the Chicago school, this overlooks
the actual economic policies that shaped “real neoliberalism” already
before the Reagan era. The low-taxes, low-services regime envisioned by
free market advocates already existed one in the American South. Real neo- Q1
liberalism in the United States in the 1970s and 1980s meant the implemen-
tation of the low-wage, low-tax model of Southern economics. The political
power of the Southern conservatives and the welcome mat of the anti-union
South for corporations fleeing the Northeast are what gave the “Reagan
revolution” its depth and punch. Eventually, this led to the rollback of the
regulatory and social functions of the state as a national trend.
This is worth considering for several reasons. As we do not analyze Soviet
society by reading the texts of Marx but by examining “real existing social-
ism,” we should look at the material political economy of neoliberalism
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and not just its theoretical claims. Had the American South with its low wages,
high exploitation, and reactionary culture been upheld as the model of
economic growth, it would never have exercised the glossy appeal that the
“free market” did in theory. The Chicago school provided an economic
rationale and intellectual gloss to what was and remains a backward and
impoverished economic condition. Revisiting Chicago economics to under-
stand neoliberalism is largely revisiting smoke and mirrors. A further omis-
sion in most accounts of neoliberalism is that it ignores the setting of the
cold war and glosses over the affinities between neoliberalism and the cold
war. Both these elements are fundamental to understand the actual character
of neoliberal globalization and its subsequent metamorphoses.
financial sector. With the institutional restraints gone, the Wall Street-driven
preoccupation with short-term stock value gradually transformed the char-
acter of American corporations. As corporations needed to show profits at
the end of each quarter, the organizational weight within firms shifted to
the financial department and elevated the status of financial over productive
operations. The institutionalized obsession with earnings led to fraud and
eventually culminated in Enron and the cascade of related scandals. Both
forms of capitalism, the high-exploitation capitalism of the South and Wall
Street financial engineering, are essentially predatory and profoundly differ-
ent from the productive capitalism that had originally been the basis of
American economic success.
The Bush II administration adds a Texan chapter to the magnolia model
and reflects an ethos unlike any previous administration, which Lind
describes thus: “Although Bush’s ancestors were Northeastern, the culture
that shaped him was made in Texas — a culture that combines Protestant
fundamentalism and Southern militarism with an approach to economics
that favors primitive commodity capitalist enterprises like cotton and oil pro-
duction over high-tech manufacturing and scientific R&D” (Lind, 2003: 80).
While this sheds light on the Bush II administration, Lind easily lapses
into schematic judgments, at times capitalizes the South, assumes sweeping Q4
continuities over time, and dichotomizes Texas elites into modern and pre-
modern factions. Applebome notes that “the South’s stock in trade has been
the myth and reality of its distinctiveness: the only part of the nation with
institutionalized apartheid; the only part of the nation to know the crushing
burden of losing a war” (Applebome, 1996: 10).
There is an American “Dixie industry” that produces a “Southern mys-
tique,” which operates as an “internal orientalism” within the United
States (Zinn, 1964; Jansson, 2003). This comes with the usual North–
South dichotomies of modern–traditional, rational– irrational, secular–
fundamentalist, urban–rural, tolerant –racist that are familiar from other
regions of the world. So while tucked within American exceptionalism,
there is a “Southern exceptionalism,” but this is not a simple matter. The
South is internally differentiated and quite dynamic; for decades it has led
the United States in population growth and economic growth. Traditional
Southern elites represent a different political economy, but to classify it as
“premodern” is too easy; it may well be considered an alternative modernity.
This means to acknowledge that it has dynamics of its own and is not simply
locked in a premodern pattern. So assessing the significance of the
American South is not simply a matter of adding up stereotypes and indi-
cators of regional uneven development, but of navigating representations
and deciding what kernels to keep.
While avoiding the trap of “internal orientalism,” a few points stand out
when we seek to understand the ongoing changes in American policies.
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making sure that the books show higher numbers at the end of each quarter.
The conservatives have been so busy dismantling government and the New
Deal that they have paid little attention to the actual American economy,
which has experienced a 30-yr decline. Long-term trends include massive
deindustrialization, shrinking or inadequate investments in plants and
equipment in many sectors, decline in research and development, and the
growth of service jobs with low productivity, low wages, low job security
and long working hours. Downsizing corporations has resulted in employee
alienation and low morale. Income inequality has grown steadily.
The result of trying to be competitive on the cheap is that American
industries have lost international competitiveness in several sectors (cf.
Porter, 1990). This is reflected in the U.S. trade deficit and growing indebt-
edness at every level of the American economy, in households, corpor-
ations, cities, states, and the federal government. The bottom line is a
current account deficit that has grown to unsustainable levels.
From time to time, various circumstances have boosted the numbers,
such as financial crisis in other parts of the world (in part as an effect of
American-induced liberalization of capital markets) and the new economy
bubble of the Clinton years. What keeps the American economy going in
a structural fashion is a combination of expansion, government deficit
spending, and the influx of foreign funds. Expansion takes the form of
corporations branching into other areas of business (as in conglomerates,
frequently leading to business failure), waves of mergers and acquisitions
(spinning fortunes in Wall Street while usually leading to less productive
combinations), and opening up other markets by means of free trade
agreements that liberalize capital markets and export American financial
engineering overseas. The main form of government funding is the mili-
tary– industrial complex. The inflow of foreign funds is a major cornerstone
of the American economy. The influx of low-priced goods from China and
Asia (and increasingly also services) keeps prices low as American incomes
stagnate; also significant is the steady inflow of cheap migrant and immi-
grant labor, in particular from Mexico.
financial institutions based in Washington. So in the shift from the cold war
to neoliberalism some elements remained constant — such as a strong U.S.
military and support for strategic allies such as Israel — while in other
respects there were marked shifts of emphasis (see Table 5.1). T1
The Washington Consensus that took shape in the late 1980s as a set of
economic prescriptions for developing countries echoes the core claim of
cold-war ideology: the free market and democracy go together. The main
tenets of the Washington Consensus are monetarism, reduction of
government spending and regulation, privatization, liberalization of trade
and financial markets, and the promotion of export-led growth. A difference
is that postwar modernization was a rival project, a contender in the cold
war, while the Washington Consensus no longer looks to national security
states to withstand communist pressure. Hence, if modernization theory
was state-centered and part of the postwar governmental Keynesian consen-
sus in development thinking, the Washington Consensus turns another leaf,
to government rollback and deregulation, now elevated from domestic
policy to international program. In this sense, the Reagan era was a foretaste
and then consummation of American cold-war victory, acknowledging no
rival, no competition. This imprint shows in the policies of the international
financial institutions: “the end of the Cold War has been associated with the
increasing politicization of the IMF by the United States. There is evidence
that the United States has been willing to reward friends and punish
enemies only since 1990” (Thacker, 1999: 70).
The 1990s has been described as a time of contestation between
American and Asian capitalism, and American capitalism won (Hutton
and Giddens, 2000). Speculative capital and hedge funds unleashed by
Reagan deregulation played a major part in the Asian crisis of 1997 and
subsequent financial crises. In the United States, the Asian crisis was
hailed as an opportunity for the further Americanization of Asian economies
(Bello, 2003).
The Washington institutions have been governed by the Wall Street-
Treasury –IMF complex in accordance with American economic orthodoxy,
so a shorthand account of neoliberal globalization is American economic
unilateralism. These policies resulted in a rollback of developing
country government spending and the growth and mushrooming of
non-governmental organizations (NGOs).
Amid all the criticism of neoliberalism, little attention is given to the
counter-revolution in the United States that prefigured the “counterrevolu-
tion in development.” Changes in the United States prefigure those
undertaken in the global South in the name of structural reform; in both,
there is an attempt to dismantle the regulatory state. In the United States,
government cutbacks were implemented through Reaganism; on a world
scale the drive to liberalize and privatize economies was implemented by
means of IMF stability lending and World Bank structural adjustment.
Through structural reform, the combination of Dixie capitalism and Wall
Street financial engineering has been extrapolated on a global scale.
Southern economics and its depth structure of plantation economics shed
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light on the realities of structural adjustment in the global South. Real neo-
liberalism, on display in the American South, is also known as “the
Haitian road of development.” So it is no wonder that during neoliberal glo-
balization, development policies were a paradox, which is politely referred
to as “policy incoherence”: institutions matter, but governments are rolled
back; capacity building is key, but existing public capacities are defunded;
accountability is essential, but privatization eliminates accountability; the
aim is “building democracy by strengthening civil society,” but NGOs are
professionalized and depoliticized (cf. Nederveen Pieterse, 2001).
Neoliberalism sought to do away with “development economics” and
instead presented the free market as the answer to all economic questions.
If we would consider only the economic theories of the free market advo-
cates, there might be a rationale to this, even if at best half true; enough
of a rationale to serve for a while as the basis of a transnational hegemonic
compromise. During the Clinton years, the WTO became the overarching
framework of neoliberal globalization. However, neither structural reform
nor multilateral trade would conceal the actual character of neoliberalism
as a high-exploitation regime. Stepping in as a debt collector for western
lenders and investors, the IMF weakened states in the South. This is frontier
capitalism that thrives on low wages and high exploitation.
Commenting on 9/11, Beck (2001) observes that “The terrorist attacks on
America were the Chernobyl of globalization. Suddenly, the seemingly irre-
futable tenets of neoliberalism — that economics will supersede politics,
that the role of the state will diminish — lose their force in a world of
global risks . . . . America’s vulnerability is indeed much related to its political
philosophy . . . . Neoliberalism has always been a fair-weather philosophy,
one that works only when there are no serious conflicts and crises.”
9/11 has shaken the “animal spirits” of late capitalism. An economy
driven by replacement demand and consumer spending on status goods,
kept going by marketing mood making, comes tumbling down like a
house of cards once consumer confidence fades. Aviation, tourism, retail,
stocks, banks, insurance, advertising, Hollywood, fashion, media — all
sectors have been trembling and repositioning under the impact of 9/11.
Global capitalism turns out to be as interconnected as network analysis
has suggested and as vulnerable. With the exception of insurance rates,
the economic impact of 9/11 has been temporary; the impact of the
Enron episode is probably far more significant.
The fact that neoliberalism is crisis-prone rather than crisis-proof is no
news to most of the world but a novel experience for the United States.
There is a glaring inconsistency between federal government support
for sectors hit by the 9/11 crisis — especially airlines and insurance —
and the Washington Consensus which has been urging all governments,
crisis or no, to liberalize economies and cutback spending. If the insurance
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References
Applebome, P., Dixie Rising: How the South is Shaping American Values, Politics
and Culture, Times Books, New York, 1996.
Beck, U., The Chernobyl of globalization, Financial Times, November 6, 2001. Q7
Bello, W., Deglobalization: Ideas for a New World Economy, Zed, London, 2003.
Carrier, J.G., Ed., Meanings of the Market: The Free Market in Western Culture, Berg,
Oxford, 1997.
Cassidy, J., Master of disaster, The New Yorker, July 15, 2002. Q8
Cummings, S.D., The Dixiefication of America: The American Odyssey into the
Conservative Economic Trap, Praeger, Westport, CT, 1998.
Halliday, F., The Second Cold War, Verso, London, 1986.
Hutton, W., The World We’re In, Little, Brown, London, 2002.
Hutton, W. and Giddens, A., Eds., Global Capitalism, New Press, New York, 2000.
Jansson, D.R., Internal orientalism in America: W.J. Cash’s the mind of the south and
the spatial construction of American national identity, Political Geogr., 22,
293–316, 2003.
Johnson, C., American militarism and blowback: the costs of letting the Pentagon
dominate foreign policy, New Political Sci., 24 (1), 21 –38, 2002.
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Lind, M., Made in Texas: George W. Bush and the Southern Takeover of American
Politics, Basic Books, New York, 2003.
Nederveen Pieterse, J., Development Theory: Deconstructions/Reconstructions,
Sage, London, 2001.
Porter, M.E., The Competitive Advantage of Nations, Free Press, New York, 1990.
Soros, G., The Crisis of Global Capitalism, Public Affairs, New York, 1998.
Stiglitz, J.E., Globalization and its Discontents, Norton, New York, 2002.
Thacker, S.C., The high politics of IMF lending, World Politics, 52, 38–75, 1999.
Tickell, A. and Peck, J., Making global rules: globalisation or neoliberalisation? Q9
in Remaking the Global Economy: Economic-Geographical Perspectives,
Peck, J. and Cheung, H.W.-C., Eds., Sage, London, pp. 163–181.
Williamson, J., What Washington means by policy reform, in Latin American
Adjustment: How Much Has Happened? Williamson, J., Ed., Institute for
International Economics, Washington, DC, 1990, pp. 5–20.
Wood, P.J., The rise of the prison– industrial complex in the United States, in
Capitalist Punishment: Prison Privatization and Human Rights, Coyle, A.,
Campbell, A., and Neufeld, R., Eds., Clarity Press and Zed, Atlanta, GA and
London, 2003, pp. 16–29.
Zinn, H., The Southern Mystique, Knopf, New York, 1964.