The term neoliberalism is usually heard in the pejorative sense, often coming from Latin American leaders such as Hugo Chavez and Evo Morales. The term refers to an international economic policy that has been predominant in policy-making circles and university economics departments since the 1970's. The four faces on the cover of this book (Reagan, Deng, Pinochet, and Thatcher) are considered by David Harvey the primemovers of this economic philosophy. Reagnomics, Thatcherism, Deng's capitalism with Chinese characteristics, and Pinochet's free market policies marked the beginning of new era of global capitalism.
Neoliberlism as a philosophy holds that free markets, free trade, and the free flow of capital is the most efficient way to produce the greatest social, political, and economic good. It argues for reduced taxation, reduced regulation, and minimal government involvement in the economy. This includes the privitization of health and retirement benefits, the dismantling of trade unions, and the general opening up of the economy to foreign competition. Supporters of neoliberlism present this as an ideal system. Detractors, such as Harvey, see it as a power grab by economic elites and a race to the bottom for the rest.
In this short, but very well researched book, Harvey charts the capital flows of the last thiry years. In the 1970's, there was the breakdown of the Bretton Woods system, with its fixed exchange rates, tariff barriers, and capital controls. It gave way to floating currencies and high trading volumes. Capital started searching the globe for comparative advantage. Proponents claimed that this routed out corruption and inefficiencies, while opponents saw instability and exploitation. Indeed, Harvey produces ample statistics showing how the rich got richer and the poor stagnated. More surprisingly, he points out that the aggregate economic growth during the years of Keynesian management (the decades between World War II and the 1970's) was greater than during the neoliberal era (the 1970's to the present). The neoliberal era benefitted mainly the wealthy. In the US, the richest 1% now control 15% of the wealth as opposed to 8% at the end of World War II.
When Reagan and Thatcher came to power in the late 1970's and early 1980's they used their control of the IMF and World Bank to impose neoliberal policies on the developing world - especially Latin American countries. In the case of Chile, Pinochet - after violently ousting the Allende government - instituted free market policies as prescribed by the Chicago school, and was relatively successful. Other Latin American countries were not so successful, and it created a backlash of populist nationalisms in the form of Hugo Chavez in Venezuela and Evo Morales in Bolivia.
The section on China is one of the best in the book: "Neoliberalism with Chinese Characteristics". Harvey points out that China is not a pure neoliberal state. There is still heavy state intervention in the economy and management of the currency. And as a further criticiem of neoliberalism, he reminds us that China has produced some of the highest growth rates - 9 to 10 percent annually. On the downside, the gap between the rich and poor is growing, and because their currency is held artificially low they are building dangerous overcapacity.
Neither does the US, for that matter, operate according to neoliberal principles. Even as it is urging other countries to maintain minimal goverment and balanced budgets, it is running huge deficits and issuing ever more t-bills to cover its excess spending.
With China and the US - two linchpins in the world economy - not playing according to the rules of the game a crisis is bound to happen. One country is totally geared toward producing and exporting, while the other is content with importing, consuming, and creating more debt. Harvey believes that the global economic readjustment that is going to take place will be painful and possibly violent.
Harvey's excellent little book illustrates, once again, that the perfect market, presupposed by neoliberalism and classical liberalism, does not exist. Unfortunately, he does not offer any remedies to rectify the current situation, nor does he offer an alternative system. Nevertheless, this book is very insightful.