By DAVID HARVEY*

Excerpt from the recently published book

Contradictions of neoliberalism

I analyzed the neoliberal project through the lens of The capital, by Karl Marx. I have sought to identify the central contradiction of neoliberalism as a project. The theme of contradictions in Marx's work has several dimensions, but there is a simple way of looking at the issue. In Book I of The capital, Marx analyzes what happens in a society characterized by a considerable degree of technological change and a strong search for profit. He analyzes the “production of surplus value” that rests on the exploitation of labor power in production. Therefore, the suppression of labor power carried out in the 1970s corresponded to the analysis that Marx presented in Book I of The capital.

At the end of Book I of The capital, Marx describes a situation in which capitalists, given that they have so much power, can increase the exploitation of workers in order to maximize their rate of profit. The maximization of the rate of profit rests on reducing the wage. One of the main graphs you will see in my book on neoliberalism^[1] shows that the share of wages in national income has progressively decreased since the 1970s.

Productivity increases were not accompanied by any rise in real wages (Fig. 1). Book I of The capital predicts a growing impoverishment of large segments of the population, rising unemployment, the generation of disposable populations and the precariousness of the workforce. This is an analysis that comes from Book I of The capital.

But if you read Book II of The capital, the story is different, because Marx analyzes the circulation of capital and studies how it relates supply and demand, how it

maintains its equilibrium as the system reproduces itself. In order to maintain an equilibrium, you have to stabilize the wage rate. Simply put, if you continually reduce the power of workers, and real wages continue to fall, the big question is: “Where is the market? What about market demand?” So Marx begins to say that the story in Book I produces a situation in which capitalists will face difficulties at the market end because they are paying workers less and less, and in doing so, they are drying up the market more and more. This is one of the central contradictions of the neoliberal period, of the neoliberal era, namely: “How do we solve the problem of effective demand? Where is the market going to come from?”

There are a number of possible responses to this problem. One is geographic expansion. The incorporation of China, Russia, and the former Soviet countries of Eastern Europe into the global capitalist system has opened up enormous new markets and possibilities. There are many other ways to try to deal with this problem of effective demand. The biggest strategy of all, however, has been to start handing people credit cards and encouraging ever higher levels of debt.

In other words, if workers don’t have enough money to buy a house, you lend them money. And then the housing market booms because you’ve lent money to workers. Throughout the 1990s, more and more money was being lent to people who had increasingly modest household incomes. This was one of the roots of the 2007-2008 crisis. At one point, credit was being offered to almost everyone, regardless of their income or ability to afford a mortgage over the long term. This was fine while housing prices were rising. If homeowners eventually got into trouble, they (or their bank) always had the option of refinancing the mortgage at a markup.

The big question, however, was how to manage demand in a situation of wage squeeze. As I suggested, one way to deal with this mismatch is to expand the credit system. The figures here are quite startling. In 1970, total debt in a typical capitalist country was relatively modest. And most of it was not cumulative. It was the kind of thing where you borrow here and pay back there. So total debt was not growing very rapidly up until then.

From the 1970s onwards, however, total debt began to rise in relation to gross domestic product (GDP), and today we have a situation in which total debt in the world is about 225% of the world's production of goods and services. Of course, these are just raw numbers and the difficulty is to contextualize them properly. One way to try to capture this process is to remember that when Mexico entered a foreign debt crisis in the early 1980s, the country's debt only represented about 80% or 90% of its GDP.

In other words, at that time, being 80% or 90% in debt was seen as a critical situation that needed to be addressed. Today, however, the world is three or four times more in debt and the issue doesn't seem to bother anyone very much. So one of the things we've witnessed throughout this period of neoliberalism is increasing debt.

Another aspect that I considered absolutely important to understand during the 1980s was that, given these contradictions, the neoliberal project could not survive without a strong state. In ideological terms, this statement may sound a bit controversial, because much of the neoliberal rhetoric goes along the lines of antagonizing the state, railing against the “bloated state” and opposing state interventions. To borrow Ronald Reagan’s famous phrase: “Government is not the solution […]. Government is the problem.”

But the truth is that under neoliberalism the State did not disappear, it just changed its function: it stopped supporting people by creating social welfare structures – such as health, education and a wide range of social services – and started supporting capital. The State became an active agent of support, and sometimes even subsidy, to capital. From the 1980s onwards, we began to see the State playing all sorts of games to support capital.

A recent example was when Amazon decided to build a new distribution center and invited states and cities to submit proposals and bids. “What will you offer us in return?” Amazon said. “Who will give more?” Here is one of the richest companies in the world saying, in essence, that it needs subsidies to operate. “New Jersey said it will offer this, another city promised to offer that.” It has become commonplace these days for corporations to be subsidized by the public purse in exchange for doing their jobs. New York state and city offered all sorts of incentives, but in this case the public revolted, and Amazon was forced to back out. That is rare, however.

Foxconn, which just closed a deal to build a factory in Wisconsin, received incentives equivalent to 4 billion dollars from the state government. Instead of investing these resources in education, health and other things that people need, the state government goes and gives 4 billion to Foxconn. The justification, of course, is the supposed creation of jobs, but the truth is that this type of initiative does not create that many jobs, and worse, when you do the math, each job costs the equivalent of 230 thousand dollars in subsidies.

For comparison, like many states, Wisconsin has offered subsidies to businesses in the past, but never to a value greater than $35 per job created. In other words, the state has essentially shifted from supporting individuals to supporting corporate ventures in every possible way: tax deals, direct subsidies, infrastructure provision, and regulatory evasion. To achieve this, you need a strong state. You cannot have a weak state under neoliberalism.

Another aspect that I discussed in my 2005 book is the alliance that was emerging between neoliberalism and neoconservatism. The “neocons,” as they were called in the 1990s, formed a powerful faction in the government. They came to power during the George W. Bush administration, which was very focused on combining neoconservative ethics—represented by figures like Donald Rumsfeld and Dick Cheney—with neoliberal economic principles. The neocons advocated a strong state, which meant a militarized state that would also support the neoliberal project of capital. It turns out that this militarized state ended up going to war with Iraq, which proved to be absolutely disastrous. But the point is that the neoliberal project was articulated with a strong neoconservative state. This alliance was very important and grew stronger over time as neoliberalism lost its popular legitimacy.

State support for big capital did not disappear in 2007-2008. During the Bush era, for a number of reasons, the neoconservative project was gradually delegitimized. One of the main factors was the aforementioned Iraq war. It was the neocons who had gotten us into that disastrous foreign adventure. By the end of the Bush administration, the alliance between neocons and neoliberalism had frayed. The neocons were effectively finished. Their leading figures, such as Condoleezza Rice and Donald Rumsfeld, simply faded into the political background. This meant that the legitimacy that the neocon movement had provided to Bush-era neoliberal policies ceased to exist. Then came the crisis of 2007-2008. The State needed to show its strength and rescue big capital. That was the big story of 2007-2008.

Here in the United States, what got us out of the crisis was a strong mobilization of state power from the ashes of the neoconservative project. This may have been ideologically inconsistent with the neoliberal argument against major state interventions. But the state was forced to show what it was made of and intervened on behalf of capital. Faced with the choice between, on the one hand, bailing out the banks and financial institutions, and, on the other, supporting the people, the first alternative was clearly chosen. This became one of the key rules of the neoliberal political game that was ruthlessly played out in the following years.

The 2007-2008 crisis could have been solved by offering massive subsidies to homeowners who were at risk of foreclosure. There would have been no huge wave of foreclosures. The financial system would have been saved that way, without people losing their homes. So why was this obvious solution even tried?

Well, the answer is simple: basically, letting people lose their homes was in the interests of capital. Because then there would be a lot of real estate that financial capital – in the form of hedge funds (hedge) and groups of private equity – could snap it up for a song and then sell it for a huge profit when the real estate market revives. In fact, one of the largest real estate owners in the United States today is Blackstone, a real estate investment firm. private equity. They bought as many foreclosed homes as they could and turned them into a very profitable venture. They made a killing on the back of the housing market crash. Overnight, Steven Schwartzman, the CEO of Blackstone, became one of the richest people on the planet.

All of this became evident in 2007-2008. The state was not serving the needs of the people; it was serving the interests of big capital. The neocon movement had already lost credibility. So where would the system get its political legitimacy from? How could it rebuild it in the aftermath of 2007-2008? This brings us to one of the key points of what has been happening more recently. I suggested that the people were left behind in 2007-2008. People felt that no one was willing to help them, that no one cared about their situation.

We had already gone through almost three decades of deindustrialization that had devastated entire communities and left many people without decent employment opportunities. People were alienated, and alienated populations tend to be very unstable. They tend to fall into melancholy and depression. Some of the consequences were drug addiction and alcoholism. The opioid epidemic took hold, and the suicide rate went up. In many parts of the country, life expectancy actually went down, so the population was not in a good state. People as a whole began to feel increasingly harassed.

At this point, people are starting to wonder who is responsible for all this. The last thing the big capitalists and their media want is for people to start blaming capitalism and capitalists. This has happened before, back in 1968 and 1969. People started blaming capital and corporations, and the result was an anti-capital movement. Sure enough, it was done. In 2011, as we know, the movement broke out. Occupy, pointing the finger firmly at Wall Street as responsible for what was happening.

People began to sense that something was deeply wrong. They saw that bankers were doing very well while the majority of the population was struggling with the impact of the crisis. They noticed that many of these executives were constantly involved in criminal activities and ethically questionable practices, but no one was being arrested. In fact, the only country in the world that arrests top bankers (and not just the occasional stray subordinate) is Iceland.

The Wall Street crowd was indeed a bit distressed when the move Occupy began to name the 1% and say that the problem was upstairs. Immediately, the media and all the major institutions (which by that time were already completely dominated by capital) began to present a whole range of alternative explanations (often with ethnic-racial overtones) to divert from the uncomfortable narrative that the “occupiers” were promoting.

Anything goes to insist that the problem is not the ultra-rich, but rather immigrants, “those who are on the back foot who are taking advantage of welfare policies,” “unfair competition from China,” “the losers who fail to invest adequately in themselves,” and so on. In fact, the entire explanation of the opioid epidemic has been built around an individualistic narrative about the tragedy of the failure of willpower.

This type of discourse and rumor is therefore beginning to appear in the mainstream press and within many of the institutions controlled by the extreme right and the alt-right – which at that point suddenly begins to be financed by the Tea Party, the Koch brothers and some factions of big capital, who also begin to allocate a flood of money to the purchase of electoral power in order to control state governments and the federal government.

It was the continuation of a trend from the 1970s, which implied the consolidation of capitalist class power around a political project. But now the culprits would be immigrants, Chinese competition, the state of the world market, the hindrance caused by excessive regulations, and so on. Blame everything but capital!

Ultimately, we end up with Donald Trump, who is paranoid, erratic, and a bit of a psychopath. But look what he did: He deregulated everything he could. He destroyed the Environmental Protection Agency, which is one of the things that big capitalists had been trying to get rid of since the 1970s. He did a tax reform that gave almost everything to the top 1 percent and to big corporations and shareholders, and left almost nothing for the rest of the population.

The deregulation of mining, the opening of federal lands, and so on are guaranteed. This is a set of purely neoliberal policies. The only elements that deviate somewhat from the neoliberal playbook are the tariff wars and perhaps the anti-immigration policies. From an economic perspective, Donald Trump is basically following the neoliberal gospel.

But how does he justify this economic policy? How does he legitimize it? He tries to secure this legitimacy through nationalist, anti-immigrant rhetoric. This is a classic capitalist move. We see the Koch brothers controlling electoral politics with the power of their money, dominating the media through outlets like the Breitbart and Fox News. They are blatantly carrying out this neoliberal project (without the tariff wars and anti-immigration policy).

At this point, however, the capitalist class is not as consolidated and unified as it was in the 1970s. Some wings of the capitalist class realize that there is something wrong with the neoliberal economic model. Furthermore, there are aspects of Donald Trump that do not necessarily align with the interests of the Koch brothers – for example, his tariffs, anti-free trade and anti-immigration policies. This is not what the capitalist class as a whole wants. In other words, we have a situation in which the capitalist class itself is somewhat frayed, even though the desperate move to “blame anyone but capital” after the 2007-2008 crisis was clearly a class move.

So far, the capitalist class has been successful in this move. But the overall situation is clearly fragile and unstable. And unstable populations, particularly alienated populations, can take any number of different political directions.

*David Harvey He is a professor at the City University of New York. He is the author of, among other books, The New Imperialism (Loyola). [https://amzn.to/4bppJv1]

Reference

David Harvey. Anti-Capitalist Chronicles: A Guide to Class Struggle in the 21st Century. Translation: Artur Renzo. New York, New York, 2024, 238 pages. [https://amzn.to/43g0QQv]

Editor's Note

[1] David Harvey, Neoliberalism: history and implications. Translation: Adail Sobral and Maria Stela Gonçalves, São Paulo, Loyola, 2008. [https://amzn.to/4igf8Vy]

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