Take neoliberalism seriously

Issue: 122

Eddie Cimorelli

The International Socialist tradition has made some remarkable intellectual breakthroughs, above all the theories of state capitalism, the permanent arms economy and deflected permanent revolution. A strength of our tradition has been the ability to look reality in the face, no matter how unpalatable. Our recognition of the post-war boom and the downturn in industrial struggle in the late 1970s are examples. In recent years, however, our theory has not played the same role in understanding the latest developments in capitalism, variously known as the Washington consensus or neoliberalism.

The key issue is the extent to which neoliberalism involved, if not a boom comparable to that of the post-war period, then at least significant growth of the system, without this leading to a rise in class confidence and combativity. We have successfully defended the centrality of the working class against those on the left who argue that under the neoliberal project it has ceased to be an agent of change. But what is missing from our analysis of neoliberalism is an understanding of the impact of the reorganisation of capital and an assessment of its success in its own terms. For example, the section of Chris Harman’s recent article that asks “How effective is neoliberalism for capitalism?”,1 does not consider how successful it has been in raising profitability or in undermining working class organisation and consciousness.

Neoliberalism is a particular organisation of capitalism. Its most basic feature is the use of the state to protect capital, impose market imperatives on society and curb the power of labour. This strategy has shifted power and wealth away from the majority. The state remains paramount but its role has changed. Privatisation and deregulation have introduced greater flexibility and made workers more compliant. Instead of a demand management approach with government intervention, which was previously used to ease the worst excesses of the productive process, the lives of most people are now subordinated to the system.


Financialisation does not represent a “coup” by financial capital as some on the left claim; it represents a new dominance of finance primarily in the US and UK. Financial markets now play an important role in accelerating the restructuring of capitalism. Banking changed dramatically in the quarter of a century after the mid-1980s. Capital controls were removed to restore the unrestricted flow of finance. Features of financialisation include: asset-price bubble blowing; the drive to maximise leverage and expand balance sheets; the financialisation of much economic activity, with most significant manufacturers increasingly profiting from finance and banking profits increasingly made from individual customers; the rise of the shadow banking system, whose operations made the City of London a kind of economic Guantanamo Bay in which Wall Street could indulge in practices banned at home.

Readily available credit has meant that consumption for workers has continued to climb, despite falls in real take_home pay. The ratio of outstanding consumer debt to consumer disposable income more than doubled from 1975 to 2005 in the US. In the neoliberal context debt has two functions. One is to ensure that consumption and consequently realisation can still take place. The other is as a means of disciplining the working class. The pressure of debt repayment can force an extreme work discipline on people—long hours in multiple jobs, which are often less secure, casual, temporary and precarious.

What was different about the neoliberal boom?

The ruling class offensive that ran through the recessions in the 1970s and 1980s resulted in restructuring and generated a new wave of capitalist expansion. Previously growth and reducing unemployment were priorities for the system. Now these were replaced with fighting inflation. This slowed growth, weakening the ability of labour to fight back against capital’s assault. Slow growth was combined with direct assaults on organised labour. For example, overseas production was increased. Consequently domestic unemployment rose, leading to downward pressure on wages and benefits. Sometimes the success of this strategy is overstated, as Bill Dunn has noted.2 Often what was more important was its value as a threat against demands for wage increases or unionisation.

However, it is important to try to understand the actual impact of the neoliberal offensive. According to the UK Trade and Investment website:

Hourly compensation costs for production workers in the UK are…lower than in many other European Union countries…social costs on wage bills are amongst the lowest in Western Europe… Compared to the European Union average of 41.8 hours, full-time employees in the UK work an average of 43.0 hours per week. UK law does not oblige employers to provide written employment contracts… The UK has a highly flexible labour market.3

Of course, this website is likely to overstate the flexibility of labour in Britain. Nevertheless it should be acknowledged that British capitalism has had a greater degree of success than most of its competitors in disciplining labour. In the aerospace industry production has remained in the UK but changed dramatically over the past two decades. The outsourcing
and/or off-shoring of many components has led to significant reductions in numbers of employees and considerable changes to skill sets.

Dunn correctly points out that this is a double-edged process, which is usually associated with the introduction of more efficient production techniques, such as “just in time”. Two years ago workers at the Rolls Royce plant in Derby struck for an hour against a below inflation pay deal. They won a significant rise, which had to be rolled out across the group. So the changes increase the potential power of workers where they are organised. However, changes imposed during the neoliberal era, with low levels of class conflict, have, on balance, been quite successful for the employers.

Recovery and boom

According to Fred Moseley there has been a substantial recovery of the rate of profit in the US, much of this attributed to a successful three-decade neoliberal wage squeeze. This underpinned expanded capitalist reproduction, by helping to produce new centres of accumulation, particularly in China.4

The growth of financial markets and profitability is tied to the neoliberal wage squeeze. The recovery after 1997 was built on exceptionally low US interest rates and a steady growth in consumer indebtedness, with a swelling US current account deficit, creating a kind of Keynesian global engine to drive the world economy.

Although the world economy has grown, levels of UK employment have not increased significantly. This is what could be termed a jobless boom and is characteristic of neoliberal growth. The reduced living standards of working class people contrast with concentrated wealth at the top of the economic ladder as workers have increasingly been forced to borrow. Half of all earners saw no growth at all and a third saw their real pay fall—mainly due to public sector pay and the minimum wage being held below inflation for several years. Moreover, working class confidence and organisation have not grown as they did in the long post-war boom. This is not to say that working class organisation has been defeated. However, a process of capitalist reorganisation has had an impact on working class organisation, and this impact has been extremely uneven.

The capitalist expansion enabled the finance industry to significantly increase its share of corporate profits through recycling surplus capital. As the first signs of over-accumulation set in, with the Asian Crisis in 1997, massive credit expansion, combined with a turn to blowing bubbles in the “new economy”, real estate and commodities, postponed the slump. As financial markets seized up with the credit crunch in summer 2007, over-accumulation meant that financial meltdown triggered global slump in an accelerated and unprecedented fashion, the dynamics of which to date the left have yet to properly explain. Whatever happens next, there is unlikely to be much more scope for blowing bubbles. Problems of over-accumulation and the overproduction of goods that cannot profitably be sold can only be resolved in capitalist terms via bankruptcies, plants closing and mass layoffs. As world demand and sales fall, the effects of overcapacity, previously masked by credit, are already having a serious impact.

The current crisis is unlike all the others of the past decade. While previous financial shocks in the US were contained, this one has become a generalised economic crisis. Previous crises have been regionally confined. However, this is a globalising crisis at the heart of the system. We are now faced with a generalised global crisis of over-accumulation combined with a banking crisis that leaves neoliberal capitalism systemically shaken. It is impossible to predict exactly how this crisis will play out or how long the slump will last, though there is a strong possibility that it will be deep and protracted. The recession has revealed that Britain is not the successful and prosperous society purportedly created by the neoliberal turn. In fact, it is now widely recognised that UK PLC is the proverbial basket case of Western capitalism.

Social liberalism and its impact on the movement

As we enter the crisis it is important to understand the impact of neoliberalism on our movement. Many social democratic parties and national liberation movements have accepted the neoliberal agenda. One of the more extreme examples is of the African National Congress (ANC) in South Africa. Naomi Klein, in her very readable and detailed work on the neoliberal onslaught, The Shock Doctrine,5 describes the disastrous transformation of the ANC as apartheid collapsed. The ANC dropped their “freedom charter” and adopted a full-blown neoliberal programme which had a tragic impact on those liberated from the apartheid regime. However, she spoils her argument by seeing this through the prism of her “shock doctrine”, which runs like a conspiracy where, following a societal “shock” such as war, coup or disaster, the Chicago Boys are waiting in the wings to apply neoliberal medicine.

John Newsinger has described the fundamental transformation Brown and his supporters have engineered in the Labour Party.6 Brown regularly boasted to business that New Labour made Britain “the most business friendly environment in Europe”. To achieve this Brown admitted that making Britain a playground for business and the rich involved a break from 100 years of Labour history. These changes were fundamental. The Labour Party has haemorrhaged members and support. What has been the wider political impact on the labour movement? Previously Labour’s stated commitment to reformism with genuine reforms was the ideological glue holding together a political cadre of activists in the unions. This ideology was combined with varying degrees of support for the Stalinist states, helping to provide this core of activists with something approaching a worldview.

The combination of the ideological assault of New Labour with the loss of the ideological ballast of Stalinism presents some unique problems. How does Brown’s commitment to the neoliberal project impact upon the unions? When union leaders such as Derek Simpson, Tony Woodley and Dave Prentis claim that Brown represents “Old Labour” values, how does this affect the lower levels of the bureaucracy and layers of activists? When the neoliberal frenzy of experiments on British society is pushed both through and against our movement, the left needs to assess the impact. The corrosive combination of the decline of organised reformism, the demise of Stalinist politics, the neoliberal offensive and the importation of neoliberal ideology via New Labour and the union bureaucracy is a unique phenomenon. The dislocation of many workers from the official labour movement and its leadership is but one consequence with potentially explosive connotations. We need to understand the impact on confidence, class consciousness and organisation as the movement approaches its greatest of political challenges.


The neoliberal global model has enabled the system’s failures to spread throughout the world. The previously beneficial symptoms of this reorganisation of capital are now, with a neat dialectical twist, turning into their opposite and stoking up the problems of over-accumulation. The working class has experienced significant change at work in the recent decades of the neoliberal offensive. The revolutionary left must assess:

(1) The neoliberal framework that prioritises capital accumulation over all else.

(2) The dynamics of capital accumulation that preceded the crisis, which must be analysed in order to understand the likely trajectory of the Great Crash.

(3) New Labour’s transition from reformism to neoliberalism and its impact on the labour movement, working class confidence, consciousness and organisation.

The problem is not that we have avoided the issue of neoliberalism; it is rather that we have focused almost exclusively on downplaying the economic changes it involves, while exaggerating its purely ideological aspect and completely ignoring the social implications. We must get to grips with the intersection of over-accumulation, declining profitability and financialisation with the changes the neoliberal project has had on society and our movement. The onus is on us as a tradition to prepare our class for the dangers and opportunities this historic period offers.


1: Harman, 2008, pp108-112.

2: Dunn, 2009.

3: www.uktradeinvest.gov.uk

4: Moseley, 2008.

5: Klein, 2007.

6: Newsinger, 2007.


Dunn, Bill, 2009, “Myths of Globalisation and the New Economy”, International Socialism 121 (winter 2009), www.isj.org.uk/?id=509

Harman, Chris, 2008, “Theorising Neoliberalism”, International Socialism 117 (winter 2008), www.isj.org.uk/?id=399

Klein, Naomi, 2007, The Shock Doctrine: The Rise of Disaster Capitalism (Allen Lane).

Moseley, Fred, 2008, “Some Notes on the Crunch and the Crisis”, International Socialism 119 (summer 2008), www.isj.org.uk/?id=463

Newsinger, John, 2007, “Brown’s Journey from Reformism to Neoliberalism”, International Socialism 115 (summer 2007), www.isj.org.uk/?id=334