Economic Transitions to Neoliberalism in Middle-Income Countries

Policy Dilemmas, Economic Crises, Forms of Resistance

Alfredo Saad-Filho, Galip L. Yalman, Alfredo Saad-Filho, Galip L. Yalman

• Publisher: Routledge
• Year: 2009
• Print ISBN: 9780415492539
• eBook ISBN: 9781135233679
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Neoliberalism is based on the systematic use of state power to impose, under the veil of 'non-intervention', a hegemonic project of recomposition of capitalist rule in most areas of social life. The tensions and displacements embedded within global neoliberalism are nowhere more evident than in the middle-income countries. At the domestic level, the neoliberal transitions have transformed significantly the material basis of social reproduction in these countries. These transformations include, but they are not limited to, shifts in economic and social policy. They also encompass the structure of property, the modality of insertion of the country into the international economy, and the domestic forms of exploitation and social domination. The political counterpart of these processes is the limitation of the domestic political sphere through the insulation of 'markets' and investors from social accountability and the imposition of a stronger imperative of labour control, allegedly in order to secure international competitiveness.

These economic and political shifts have reduced the scope for universal welfare provision and led to regressive distributive shifts and higher unemployment and job insecurity in most countries. They have also created an income-concentrating dynamics of accumulation that has proven immune to Keynesian and reformist interventions. This book examines these challenges and dilemmas analytically, and empirically in different national contexts.

This edited collection offers a theoretical critique of neoliberalism and a review of the contrasting experiences of eight middle-income countries (Brazil, China, India, Mexico, South Africa, South Korea, Turkey and Venezuela). The studies included are interdisciplinary, ranging across economics, sociology, anthropology, international relations, political science and related social sciences. The book focuses on a materialist understanding of the workings of neoliberalism as a modality of social and economic reproduction, and its everyday practices of dispossession and exploitation. It will therefore be of particular interest to scholars in industrial policy, neoliberalism and development strategy.

Part I
Neoliberalism and globalisation

1
Neoliberalism as financialisation¹

Ben Fine

Engaging neoliberalism

When it first emerged, neoliberalism seemed to be able to be defined relatively easily and uncontroversially. In the economic arena, the contrast could be made with Keynesianism and emphasis placed on perfectly working markets. A correspondingly distinctive stance could be made over the role of the state as corrupt, rent-seeking and inefficient as opposed to benevolent and progressive. Ideologically, the individual pursuit of self-interest as the means to freedom was offered in contrast to collectivism. And, politically, Reaganism and Thatcherism came to the fore. It is also significant that neoliberalism should emerge soon after the post-war boom came to an end, together with the collapse of the Bretton Woods system of fixed exchange rates.

This is all 30 or more years ago and, whilst neoliberalism has entered the scholarly if not popular lexicon, it is now debatable whether it is now or, indeed, ever was clearly defined. How does it fare alongside globalisation, the new world order, and the new imperialism, for example, as descriptors of contemporary capitalism. Does each of these refer to a similar understanding but with different terms and emphasis? And how do we situate neoliberalism in relation to Third Wayism, the social market, and so on, whose politicians, theorists and ideologues would pride themselves as departing from neoliberalism but who, in their politics and policies, seem at least in part to have been captured by it (and even vice versa in some instances)?

These conundrums in the understanding and nature of neoliberalism have been highlighted by James Ferguson (2007) who reveals how what would traditionally be termed progressive policies (a basic income grant for example) have been rationalised through neoliberal discourse. At the very least, he closes, ‘We will also need a fresh analytic approach that is not trapped within the tired “neoliberalism versus welfare state” frame that has until now obscured many of the key issues from view’. The tensions within the notion of neoliberalism have also drawn the attention of human geographers, not least because of their sensitivity to how a general and abstract term should allow for differences in time and place (or context) even to the point of inconsistency and, thereby, undermining itself. In surveying the literature, Castree (2006: 6) concludes,

‘neoliberalism’ will remain a necessary illusion for those on the geographical left: something we know does not exist as such, but the idea of whose existence allows our ‘local’ research finding to connect to a much bigger and apparently important conversation (emphasis added).

Are we, then, alongside globalisation for example, to accept ‘neoliberalism’ for its investigative and polemical purchase despite knowing that it is conceptually flawed to the extent of not existing at all?

To the extent that they can be, I seek to resolve these conundrums through a two-pronged assault upon them. The first, in characterising neoliberalism, is to distinguish between its rhetoric (advocacy or ideology), its scholarship and its policy in practice. Each of these is shifting in content and emphasis (across time and place) and, whilst they have connections with one another, these too are shifting and by no means mutually consistent. In addition, there is a complex and shifting relationship between neoliberalism across these three elements and the reality that they purport both to represent and influence. I have, for example, emphasised these considerations in unpicking the putative shift from Washington to post Washington Consensus (Fine 2008) most recently. But, second, these considerations around the contradictions within the spirit of an age, neoliberalism or otherwise, can be grounded in what has been a defining feature of contemporary capitalism over the past 30 years, the extraordinary rise and spread of finance.

As argued in the final section, by way of conclusion, it is this material factor that underpins, constrains and, thereby, defines the current period as neoliberal and which also is a major factor in explaining its otherwise illusory character. I begin, though, in the next section by addressing the role of contemporary finance.

Financialisation²

From a Marxist perspective, as a system of accumulation, capitalism is heavily dependent upon finance in the form of interest-bearing capital, that is finance deployed for the exclusive purpose of expanding production for profit. But this specific role for finance is embedded, to coin a phrase, in other aspects of the circulation of commodities, money and credit.³ What is uniquely characteristic of the current period of capitalism is the extraordinary extent to which such embedding has been both deepened and broadened. Such developments have been best captured within the literature by the notion of financialisation. This has been addressed from a number of perspectives, but not always explicitly and wittingly since however much recognised as such, its effects are inescapable. The explicit literature on financialisation is both limited and marginalised from mainstream thought. For Epstein (2005: 3), ‘financialization means the increasing role of financial motives, financial markets, financial actors and financial institutions in the operation of the domestic and international economies’. Stockhammer (2004: 720) offers an overview of financialisation, acknowledging that it ‘is a recent term, still ill-defined, which summarises a broad range of phenomena including the globalisation of financial markets, the shareholder value revolution and the rise of incomes from financial investment’. His own focus is upon ‘changes in the internal power structure of the firm’.

Before turning to this literature directly, three further elements need to be added. The first is the role of the state as regulator of the monetary and financial systems, and itself as a major agent in the provision of financial instruments, not least through its own indebtedness, paper bonds as a form of fictitious capital.⁴ Second is the nature and role of world money, how it is that the relations, properties and functions of money in general are realised on a global scale in light of the presence of numbers of national currencies. And third is historical specificity in relation to both of the previous two elements and their interaction, reflecting particular patterns of accumulation at a global level. In this respect, there are generally identifiable and agreed historical periods in which the role of nation-states and of world money are distinct, most recently the rise and fall of the Bretton Woods system (see Arrighi (2003) for a deeper and longer account), for example.

The current period is one in which finance has penetrated across all commercial relations to an unprecedented direct extent. I emphasise ‘direct’ here because the role of finance has long been extensive both in promoting capital accumulation and in intensifying its crises, most notably in the Great Crash of 1929 and the ensuing recession. For Krippner (2005: 199), in her overview of contemporary financialisation in the United States, it neither necessarily ‘represents an entirely novel phase of capitalism…[nor] do these data allow us to draw any conclusions regarding the permanency of the trends documented here’. But, these reservations aside, in qualitative terms, finance is different today because of the proliferation of both purely financial markets and instruments and the corresponding ranges of fictitious capitals that bridge these to real activities. Most obviously, and a major element in the financialisation literature, especially in the United States, is the drawing in of personal finance in general and of pension funds in particular. As Langley (2004: 539) has put it, citing Richard Minns,

it is this commitment to ‘the extension and growth of stock markets and “liberalised” financial markets’ that has underpinned pension reform initiatives in Anglo-American state-societies over recent decades, also becoming central to the ‘model’ for reform favoured by the World Bank and the Organisation for Economic Co-operation and Development (OECD).⁵

Yet the breadth of financialisation goes much further than institutionalised investment funds, as finance has inserted itself into an ever-expanding range of activities, not least in managing personal revenues as emphasised by Lapavitsas (2009) and dos Santos (2009).

As already indicated this fundamental feature of contemporary capitalism, other than in a piecemeal fashion dealing in it bit by bit rather than as a systemic property, has best been broached by the financialisation literature, limited in both volume and influence, and practically non-existent for developing countries. The work around Epstein (2005) is the most prominent, although more important in some respects is the initiative on financialisation furnished by the ESRC Centre for Research on Socio-Cultural Change at the University of Manchester (see especially Froud et al. (2006)).

From this literature, a number of important elements can be teased out, not least from a labour movement contribution concerned with the impact of financialisation upon labour market conditions (Rossman and Greenfield 2006). First is the rise of institutional investors and the extent to which their interests have been channelled more generally into financial channels concerned with ‘shareholder value’, effectively the making of money out of ownership as such as opposed to the making of investments with real returns. In effect, this is to acknowledge the increasing importance of fictitious capital, with the presumption that, second, all financial institutions are embroiled in light of the rising significance of market analysts. Third, the result is to place financial restructuring and short-termism in a position of precedence over long-term investment plans and productive restructuring. Fourth, the impact on wages, employment and working conditions is inevitably undermined as a high investment, high productivity, high employment, high wage nexus is broken in favour of low investment, low productivity, low wage and casualised employment. As Froud and Williams (2007: 14) suggest, companies have increasingly become perceived as a bundle of assets to be traded, an exercise in value capture as opposed to value creation. The result is to create a new cadre of intermediaries, continuously financially restructuring enterprises (Folkman et al. 2006). As Perry and Nölke (2006: 566) put it: ‘Financial analysts gain power and traders/fund managers pay more attention to them; enterprise managers lose power… Most of the principals in the financial system—i.e. investors, savers, pensioners, future pensioners (workers) —are not in the picture’. From Keynes’ euthanasia of the parasitic rentier, we are suddenly confronted with the heroic financial entrepreneur, who creates nothing but fictitious value (Erturk et al. 2006). But the highly publicised benefits that have accrued both to corporate management and to those working in finance are real enough. As Erturk et al. (2004: 707) observe, ‘the explosive rise in CEO pay reflects the value skimming opportunities of bull market euphoria’, although bear markets are not without their opportunities either. This has to be set in the wider context of financialisation itself with two elements. On the one hand, the proportion of corporate profits as a whole being derived from financial activity has been rising, so this is where major sources of rewards are to be found (Krippner 2005). On the other hand, a point taken to be crucial in arguing for the presence of financialisation itself, non-financial corporations have been accruing increasing proportions of their profits from financial activity. Stockhammer (2004: 720), in particular, defines financialisation as ‘the increased activity of non-financial businesses on financial markets’, and finds that, ‘For France, financialisation explains the entire slowdown in accumulation, for the USA about one-third of the slowdown. Financialisation, therefore, can potentially explain an economically significa...

Table of contents

• Routledge studies in development economics
• Contents
• Figures
• Tables
• Contributors
• Introduction
• Part I Neoliberalism and globalisation
• Part II Country experiences
• Index