The lethal mixture of neoliberalism and corporate capitalism
Bob Sheak, January 26, 2020
The US political-economic system of corporate capitalism is beset with multiplicity of problems that will only be intensified if Trump is re-elected in 2020. This is the thesis of economist Jack Rasmus in his new book, The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump. Rasmus presents a persuasive case that the US economy has not recovered from the 2008-2009 crisis and, despite the claims of Trump and his allies, the economy is hardly “great.” Rather, it is plagued with problems (“contradictions’) that cannot be surmounted by the policies advanced by the Trump administration and Republican Party. Rasmus is also skeptical that modest reforms of the system will be adequate. The US is coming to a historic fork in the road. On one path, the neoliberal-based policies, selectively implemented, of the Trump/Republicans will not only continue but be strengthened. This path will only deepen the crisis. The other path, rarely taken, will be taken if a radical alternative is chosen by voters, an alternative that is committed to a policy agenda more aligned with the spirit and content of the New Deal, European Social Democracy, or the idea of democratic socialism. The ideas of a Green New Deal or Medicare for All are in these intellectual currents.
The title of Rasmus’ book highlights the importance of Neoliberal, but it would have been better if he had used the concept “corporate capitalism,” with the title “the scourge of corporate capitalism.” Neoliberalism is an ideological framework that justifies policies and programs that serve the interests of the mega-corporations, the private sector of the economy generally, and calls (selectively) for minimal government. Corporate capitalism is an economic-political system dominated by mega-corporations whose principal goals are to maximize profits and who have a disproportionate influence on the political system.
The powerful advocates and political and intellectual enablers of Neoliberalism do two things to mystify the public about their real goals, which are about maximizing/optimizing profits, satisfying their shareholders, and keeping executive compensation going up. They equate less government with “freedom,” however they love tax cuts, government subsidies, and military spending, Indeed, they promise that tax breaks, deregulation, privatization, de-unionization, a low-interest monetary policy, bailing out big banks, will generate economic growth, innovation, and lots of good jobs. The reality is different. Corporate concentration increases, as competition is stifled. The number of multi-millionaires and billionaires rise. Income and wealth inequalities reach levels not seen since before the 1930s. The number of “good jobs” in the economy shrink. And government support for all sorts of social, educational, and health care benefits declines, while the prison population remains the largest in the world. The system is rigged against democracy because, in the absence of massive grassroots mobilizations and the rise of a progressive/radical Democratic candidates, the corporate and political decision-makers have the power to make it that way.
Neoliberalism was given intellectual legitimacy in right-wing circles by the work Friedrich Hayek, Ludwig von Mises in Europe who argued for a political system based on “unfettered individualism,” a system very different from what Classic Liberals such as Adam Smith, David Hume, and John Locke had in mind (Rasmus, p. 6).
In 1947, there was “a watershed meeting of what was called the Mont Pelerin Society” that laid the foundation for a Neoliberal policy agenda. Wendy Brown points out that the term “neoliberalism “was coined at the 1938 Colloque Walter Lippman, a gathering of scholars who laid the political-intellectual foundations for what would take shape at the Mont Pelerin Society a decade later” (In the Ruins of Neoliberalism: The Rise of Antidemocratic Politics in the West, p. 17).
The Mont Pelerin Society convened its first meeting in Geneva as Hayek and Milton Friedman and other right-wing economists gathered to contest the precepts and practices of John Maynard Keynes, whose economic ideas influenced the New Deal, and where an alternative framework of how the economy should operate was articulated. It took time for the ideas to congeal into a full-blown economic doctrine. According to Rasmus, Neoliberalism developed “a cohesive…set of related economic, political, and philosophical ideas sometime in the 1970s” (p. 2). Wendy Brown adds this about the fortunes and meaning of neoliberalism: “By the end of the 1970s, exploiting a crisis of profitability and stagflation, neoliberal programs were rolled out by Margaret Thatcher and Ronald Reagan, again centering on deregulation capital, breaking organized labor, privatizing public goods and services, reducing progressive taxation, and shrinking the social state” (p. 18).
The doctrine entered the mainstream of US politics with the 1980 election of Ronald Reagan. Since then, through both Republican and Democratic administrations, Neoliberalism has significantly shaped the content and limits of government economic policies and justified attacks on Democracy. However, Neoliberalism is not the basic driver of the policies and attacks, as already indicated. Rasmus cogently analyzes how Neoliberalism and its variants gain influence as ideological response to economic crises linked to changing political realities and technological changes. In the course of the crises, Neoliberalism is modified, but not basically compromised. In crises, there is among decision-makers the aim of offering rationales, policies, and programs that continue to aid and abet the positions and interests of the corporate power and the rich.
Rasmus makes clear that the advocates of Neoliberalism, ideological advocates, corporate elites, and those who occupy the White House, along with many of those in the US Congress, call for policies that reflect the Neoliberal framework. At the same time, their very assertions and proposals increasingly contradict economic realities. Rather than looking for alternatives, these advocates continue to endorse Neoliberalism’s basic principles and goals, now with a blustering, authoritarian champion in the White House. The questions are how far will the advocates for Neoliberal policies and the maintenance and strengthening of corporate power stretch the truth and how long will US publics continue to go along with their self-serving, anti-democratic narrative?
Economic reality contradicts Neoliberal principles and rhetoric
The advocates of Neoliberalism favor economic policies and an economy based on “free markets,” but in practice they support the mega-corporations that dominate all sectors of the economy and “do all they can to suppress free markets and competition.” Here are the points made by Rasmus on pp. 3, 7-19 of his book.
They say they are “concerned about the individual,” but “these same corporations have moved tens of millions of jobs from the US to cheaper costs of production abroad.”
They say they favor “efficient markets” that keep prices for their products and services low, arguing that markets are always better than “government intervention or production of public goods and services. But prices typically decline not so much in response to market forces as to the power of corporate executives to keep wages low and other practices that have little to do with efficiency in production (e.g., union-busting and avoidance, two-tier labor contracts, opposition to raising the minimum wage).
They say they favor “free trade,” but trade deals are “rife with tariffs, quotas and other limits on free trade,” with the goal of “guaranteeing favorable terms and conditions for US corporations,” ensuring the repatriation of profits back to the multinational corporations’ headquarters in the US.
They want to minimize government intervention in the economy, but they do so selectively, allowing, for example, “spending on social programs and public works to decline in the name of austerity, while pushing for increases in military spending.”
They contend that lower taxes have the effect of increasing the number of jobs in the labor market, without providing any empirical evidence. Trump’s recent tax cut overwhelmingly favored the corporations and the rich and affluent.
They maintain that deregulation and privatization are good, but express little or no concern for the environmental devastation or climate-disrupting emissions that are linked to corporate activities.
They think that there is nothing worrisome about the rising national debt or large and growing government budget deficits, but such budgetary realities rests on the strength of the US dollar currency and the willingness of trading partners to use the currency and buy US “debt” from the Federal Reserve in the form of US securities. It is an increasingly fragile arrangement, given that China and other countries are in a position to develop alternative currencies for the purposes of international trade and
And finally, they express a decided bias in favor of monetary policy on the false assumptions that increases in the money supply will lower interest rates and the excess cash will be invested in the production of goods and services; however, much of the money generated in this way goes to buy backs their own stocks or for acquisitions of and mergers with already existing businesses. In the meantime, sectors of the real economy have difficulty raising money for investment purposes.
The “material forces” driving the economy will push Neoliberal narratives beyond their limits
Thus, Rasmus argues that the economy is plagued by “contradictions” that are not acknowledged by those in power. But Rasmus digs deeper into the crisis-laden economy. It is not the Neoliberal-inspired ideas and apologies that explain economic conditions and trends but rather specific “material forces” that will either lead to radical changes in policies or intensify the contradictions.
However, the current situation and the way it is unfolding are disconcerting. Rasmus analyzes “concurrent revolutions in several key technologies, accelerating changes in production and distribution processes, change in the very nature of money, and the consequent rapid changes in product markets, financial markets due to technological processes, financial markets, and labor markets due to the technological, processes, and money form revolutions.” His chief contention: “Neoliberal policy will not be able to harness, nor contain, the negative consequences of these forces as they evolve full blown into the 2020s decade ahead.” Unless these changes are addressed based on radically different assumptions, policies, and practices, “[g]rowth will continue to slow, stagnate and even contract, and financial instability will grow in frequency, scope, and magnitude” (p. 211). In this case, a growing share of the society will face economic hardship.
Trump’s policies of maximizing fossil fuels in the production and distribution of electricity will exacerbate the climate crisis (pp. 213-214). The rapid introduction of Artificial Intelligence will increase “the automation of decision making made possible by massive databases of information plus equally massive computing power to withdraw and process information virtually instantaneously from those databases.” Among other developments, “5G wireless technology” will accelerate “sensor technologies,” which, in turn, “will enable driverless cars, trucks, public transport, and even aircraft, “while also expanding “private corporate and government surveillance capabilities” (p. 215). With the onset and expansion over the 2020s of driverless vehicles, “more than one million truck drivers in the US alone will be displaced.” AI will enable online commerce and the faster delivery of goods and will have the effect of replacing millions of small manufacturing companies and distribution companies (p 218). Amazon is a leader in this area. Warehouses will become increasingly automated, as the “stocking and retrieving of goods warehoused will be done by intelligent machines which will know where every item is stored” (p. 220). Photovoltaic cells are being embedded in glass technology, solar panels will be replaced by “cells embedded in the windows of a building, and thereafter, eventually, in new forms of paint” (p. 220). Again, there will be major labor dislocations that Neoliberal ideology leaves to the working of the “free market,” but also perhaps create the conditions to give rise to oppositional social movements.
There is no place in the Neoliberal policy arsenal for a universal basic income, major infrastructure projects, Medicare for All, re-unionization, a sufficient federal minimum wage, money for retraining dislocated workers, expansion of vocational education, support for debt-burdened college students, or for the potential job-creation that would accompany a Green New Deal. Large corporations like Google, Facebook, Amazon, and Microsoft will destroy more jobs than they create (p. 231). Rasmus refers to a recent survey by Mckinsey Consultants that “estimates no less that 30% of the US workforce will be negatively impacted by AI, with either complete loss of jobs or severe reduction in hours worked, that is “more than 50 million redundant workers in the next decade,” and these will be added to “the already 50 million “contingent, part-time-temporary-independent contractor…jobs.” There will be good jobs for about 10%-15% of the workforce, but “two thirds or more will in AI/GIG/Amazoned/low paid/few benefits/no job security employment” (p. 236).
The US has already, since the 1980s, “flooded the world economy with excess dollars, leading to “widespread and chronic excess money supply and chronic negative interest rates,” and thus limiting the ability of central banks to manage monetary policy. In addition, Rasmus writes: “the flooding has reached extreme and is resulting in financial over-investment and asset bubbles” (p.225). The potential spread of cryptocurrencies (e.g., Bitcoin) will exacerbate the problem. The financial problem has been further complicated by the growth of a shadow banking system, which is “essentially unregulated, global in scope, and determined to engage in highly speculative risk taking investments in derivatives, properties, and other financial securities….The shadow banking system was at the center of the cause of the 2008-2009 crash. Shadow banks consist of investments banks (like Lehman Brothers, Bear-Stearns, etc.) private equity companies, hedge funds, finance companies, pension funds, sovereign wealth funds, insurance companies, and so on” (227-228). In the event of a recession, Neoliberal policies of reducing interest rates will not be available and there will be no controls over rampant financial speculation that will divert financial support away from investment in the real economy.
Under the current corporate-dominated power structure and Neoliberal rationalizations, profits and tax savings will continue to go to shareholders. Rasmus refers to these stunning facts. “Trillions of dollars have been distributed, more than $1 trillion on average every year, by US corporations to their shareholders in the form of stock buybacks and dividend payouts since 2010. Trillions more in personal income tax cuts. That has produced a $23 trillion national government debt load, projected to rise further to $34 trillion by 2028. Meanwhile, chronic low interest rates have enabled US corporations to raise more than $1 trillion a year more in debt – much also distributed to shareholders” (240). The tax cuts, combined with enormous military expenditures, have “produced massive deficits and debt and thus have now largely negated future fiscal spending on much needed infrastructure and other social investments” (240). To have any hope in reversing such trends, it will take a “democratic revolution” in the 2020 elections. But those in power have done their utmost to eliminate this option.
This is been done in many ways. Republicans have used their control in the US Senate to influence appointments to the US Supreme Court. As a result, the Supreme Court now has a conservative majority that, among other decisions, has eliminated limits on corporate political spending (p. 248). At least a dozen states, mainly concentrated in “red” states like Georgia, Florida, Ohio, North Dakota, Texas, and others, have used their power over congressional redistricting to gerrymander such districts. Today, Rasmus writes, “22 states are firmly in Republican control – both through the governorship and the combined legislative houses.” With respect to gerrymandering, Chief Justice Roberts has argued that “the Supreme Court justices lacked the competence to decide when partisan politics in gerrymandering was undermining democracy,” thus allowing partisan gerrymandering to be permitted everywhere (p. 252). Meanwhile, gerrymandering technology has made it “possible to draw precise and detailed ‘voter maps’ showing where one’s party’s voters were distributed and concentrated, and where the other party’s voters might be broken up and allocated to another district” (p. 252).
The Electoral College allows states with small populations to have a disproportionate effect on the outcome of presidential elections. Rasmus quotes the expert political forecaster, Nate Cohn on the implications of this fact and writes: “Trump could very well win the 2020 election even if he loses the popular vote by an even greater margin than the 2.8 million by which he lose it n 2016” (p. 256). Red states have as well employed various voter suppression laws to limit the votes of populations who tend to vote for Democratic candidates, including purging voter rolls, placing holds on voter registration just prior to an election, using old voting machines without paper trails that can be hacked, requiring voter IDs that many voters may not have, reducing the number of voting places, and limiting the days before an election that citizens can register to vote Ari Berman documents such anti-democratic political tactics in articles for The Nation magazine and in his book, Give US the Ballot: The Modern Struggle for Voting Rights in America. Carol Anderson’s book, One Person, No Vote: How Voter Suppression Is Destroying Our Democracy buttresses the authoritative documentation of how the political system works against democracy.
There is more. The assault on democracy is undermined when 35,000 lobbyists work the halls of the US Congress, “the vast majority of whom are either direct employees of corporations, or of their trade associations, or their law firms.” Rasmus adds that the number of lobbyists is under-estimated and does not include “the ‘unregistered’ lobbyists or lobbying at the state and local government level” (p. 258). He draws out attention to how the corporate, Neoliberal, agenda is articulated and fostered by the American Legislative Exchange Council (ALEC), an organization created by the Koch Brothers to provide right-wing “boilerplate” bills for states to pass into legislation.
Trump’s assault on democracy takes it to another level
Rasmus sums it up well. Trump is taking us – “Toward a view that his presidency is more than a ‘co-equal’ branch of government. Toward a view he can and should govern when necessary by bypassing Congress. Toward a view the Constitution means he can force states to abandon their rights to govern. And toward a view the president can publicly attack, vilify, insult, coerce, and threaten opponents, critics, and whomever he chooses” (266). This is a path that leads to tyranny. (See Timothy Snyder’s book On Tryanny for an explanation of the concept and its relevance for the US political system today.)
For example, Rasmus reminds us, Trump invoked a national emergency and “transferred money allocated by Congress and authorized by the US House for defense spending to fund the border wall” (266-267). Trump has proclaimed periodically that he “considers himself personally ‘above the law’” (267). He abuses the presidential authority to “pardon” and says that he can pardon himself and anyone else (267). He refuses “to allow executive branch employees to testify to Congress, subpoenas notwithstanding” (268). He “expands” the typical reading of the Supremacy Clause by ordering that California’s fossil fuel emission standards cannot be any stricter that the much lower federal standards (268). He uses the billions the US has received from his tariffs to subsidize sympathetic interests, like US farm interests. And he attacks opponents in the media as “fake news,” and others as “traitors” and “criminals,” and incites his supporters at his rallies to violent attack protestors (269).
Rasmus makes a strong case that the economic conditions of a growing number of Americans are not so good, and if the economy falters as his analysis indicates, the number will increase over the next decade, if not longer. The evidence supports the proposition that many Americans are not able or are having a hard time making ends meet. At the same time, Trump promised that the steep tax cuts for corporations and the ultrarich in 2017 have not fostered increased investment, increased economic growth, and a rise in good jobs in manufacturing and generally across the economy. At the January 2020 meeting of the World Economic Forum (WEF) in Davos, Switzerland, Trump blustered triumphantly, as reported by Sonali Kolhatkar: “The US is in the midst of an economic boom the likes of which the world has never seen before,” “America is thriving, American is flourishing, and yes America is winning again like never before,” and “No one is benefiting more than America’s middle class” (https://www.truthdig.com/articles/trumps-rosey-economic-outlook-is-a-big-lie).
But the evidence gathered by Rasmus and others challenge Trump’s rosy claims. Here are some other accounts that support the thrust of Rasmus’ analysis.
Contrary to Trump’s claims, economist Joseph Stiglitz reports that the tax cuts favored corporations and the rich, and when fully implemented will “result in tax increases for most households in the second, third, and fourth income quintiles,” that for 60% of households in the broad middle class” (https://www.commondreams.org/views/2020/01/17/heres-the-truth-trumps-economy-absolute-disaster-people-and-planet).
With respect to investment, Stiglitz writes that instead of a new wave of investment, the tax cuts “triggered an all-time record binge of share buybacks – some $800 billion in 2018 – by some of America’s most profitable companies.” Economist Dean Baker refers to data from the Commerce Department for December 2018, and finds that investment was down or hardly rising in orders for new equipment, for intellectual property products, and nonresidential construction (https://truthout.org/articles/trumps-tax-cut-has-failed-to-deliver-promised-investment-boom).
The stock market has risen, but most Americans do not own stocks or bonds. Trump said there would be economic growth of 4%, even 6%, but economic growth has been barely above 2 to 2.4%. Stiglitz says this is a “remarkably poor performance considering the stimulus provided by the $1 trillion deficit and ultra-low interest rates.” And Trump’s “great economy” has not stopped budget and trade deficits from rising.
What about Trump’s claim that his policies would “bring manufacturing jobs back to the US. and create good jobs generally. Stiglitz reports employment in manufacturing “is still lower than it was under his predecessor, Barak Obama…and markedly below its pre-crisis level.” On wages, Stiglitz writes: “Real median weekly earnings are just 2.6% above their level when Trump took office. The modest increases in median wages have not offset long periods of wage stagnation. For example,” he continues, “the median wage of a full-time male workers (and those with full-time jobs are the lucky ones) is still more than 3% below what it was 40 years ago.” Martha Ross and Nicole Bateman find in an analysis of data for nearly 400 metropolitan areas that “low wage work is more pervasive than you think, and there aren’t enough ‘good jobs’ to go around. Their central finding is that “53 million Americans between the ages of 18 to 64 – accounting for 44% of all workers – qualify as ‘low-wage,” with “median hourly wages” of just $10.22 and median annual earnings” of $18,000” (https://www.brookings.edu/blog/the-avenue/2019/11/21/low-wage-work-is-more-pervasive-than-you-think-and-there-arent-enough-good-jobs-to-go-around).
In short, there are many well-founded facts that dispute Trump’s triumphant claims about the US economy. In the current partisan-divided political environment, however, facts will not persuade those who are hard core supporters of Trump and his right-wing policies. However, if the Neoliberal policies of Trump have the anticipated negative impacts on his supporters that Rasmus and others anticipate, then perhaps some of these supporters may eventually look for other candidates who address their concerns. In the meantime, the facts may help to solidify the views and commitments of those who already recognize the Neoliberal rationale and the system of corporate capitalism for what they are. It is a rationale for a system that offers only disinformation, inequality, a worsening of economic prospects, and increasingly authoritarian political remedies.