The ‘free-market’ theory provides a pseudo-scientific justification for the greed and poverty endemic to the system, and the main beneficiaries are the global mega-corporations of neoliberal capitalism

Neoliberalism – or what has been called in the past ‘monetarism’ and ‘Thatcherism’ – is sometimes dismissed as little more than an ideological aberration. This is seriously mistaken.

It is certainly true that the ‘free-market’ theory espoused by neoliberal academics, journalists, politicians, bankers, and ‘entrepreneurs’ completely fails to explain how the capitalist economy actually works.

Instead, it provides a pseudo-scientific justification for the greed, poverty, and chaos endemic to the system, and for the grotesque unearned wealth of the political and business elite. In this sense, neoliberalism is simply the self-justifying ideology of the modern ruling class.

But until the 1970s, neoliberalism was confined to an obscure right-wing fringe. Free-market theorists like Friedrich Hayek and Milton Friedman were regarded as little more than cranks. The great majority of economists and policy-makers favoured a ‘mixed economy’ with high levels of state intervention and public spending.

What changed in the 1970s was that the accumulating contradictions of state-managed capitalism precipitated a crisis which ended the Great Boom of 1948-1973 and tipped the world into the Long Recession of 1973-1992. Neoliberalism is a response to that crisis.

In essence, it is a class war of the global rich against the rest of humanity. Its purpose is to destroy the gains made by working people since 1945, to increase the rate of exploitation and profit, and to redistribute wealth from labour to capital.

The initial impulse to do this was intensified competition between capitalists during the Long Recession. Shrinking markets meant that bosses needed to cut costs by sacking workers and driving down wages.

But once begun, the global ‘race to the bottom’ became a permanent feature of a new economic order emerging from the crisis.

The age of national economies, ‘autarkic’ (self-contained) blocs, and state-managed capitalism was passing. A new age in which the global economy was dominated by international banks and multinational corporations outside the control of nation-states was dawning.

The rise of the financial and industrial mega-corporations of neoliberal capitalism can be measured in many ways. US direct investment overseas, for instance, rose from $11 billion in 1950 to $133 billion in 1976. The long-term borrowing of US corporations increased from 87% of their share value in 1955 to 181% in 1970.

The foreign currency operations of West European banks, to take another example, increased from $25 billion in 1968 to $200 billion in 1974. The combined debt of the 74 less-developed countries jumped from $39 billion in 1965 to $119 billion in 1974.

The drip-drip-drip of these quantitative changes during the Great Boom reached a tipping point in the 1970s. Global corporations by then had come to overshadow the nation-states.

Commenting on the Long Recession in 1984, Marxist economist Chris Harman put it thus: ‘It is as if the film of the pre-war crisis is being re-run – but with a difference. The competing individual firms which borrowed from banks within a national economy have given way to state capitalisms and multinational firms borrowing from international banks within an international economy.’

The effect was to impose a relentless pressure on national ruling classes to increase the exploitation of ‘their own’ working class. High wages might deter new investment. So might taxes on business to pay for public services or welfare payments. Ditto laws designed to make workplaces safe, limit working hours, or guarantee maternity leave.

The ruling-class counteroffensive was pioneered in Britain, where Margaret Thatcher was elected leader of the Tory Party in 1975. She became prime minister in 1979 and went on to win two more general elections, remaining in office until 1990. She was a firm advocate of neoliberalism – or what was then called ‘monetarism’.

The previous Tory government had been broken by industrial action in 1972 and 1974. Thatcher was determined to mount a full-scale counterattack against the unions, the welfare state, and the working class. The miners were the most important target. They had spearheaded the struggle against the previous Tory administration.

A massive programme of pit closures provoked the miners into a desperate battle to save their livelihoods and communities. It turned into the longest mass strike in history – 150,000 men on strike for a year (1984-1985). The miners faced paramilitary police violence, courtroom frame-ups, and a barrage of media lies. They were eventually starved back to work.

The defeat of the miners broke the back of British trade unionism. In the early 1970s, the British working class was one of the best organised and most militant in the world. Since 1985 union membership has halved, and over the last 20 years the British strike rate has been lower than at any time since the 19th century.

It is now clear that the defeat of the British miners had global significance: it was the single most important breakthrough in the international ruling class’s attempt to smash working-class resistance to neoliberalism.

Most immediately, it enabled Thatcher and her successors in Britain to unroll a programme of cuts and sell-offs. Privatising nationalised industries and public services fragments large bargaining units formed of well organised public-sector workers, creating conditions in which wages can be driven down as rival employers seek to undercut each other in the competition for franchises and contracts.

This is the real purpose of ‘marketisation’ and ‘privatisation’: they are mechanisms to weaken union organisation, ratchet up insecurity, drive down wages, and redistribute wealth from working people to the corporate rich.

Private capital replaces state capital as the main provider of public services. Instead of recycling tax revenues as a ‘social wage’ in the form of homes, hospitals, schools, and welfare, the state pays corporate profiteers to become ‘providers’, and they remodel provision according to ability to pay.

Unions are weakened, services rationed, and costs cut. The main beneficiaries are the global mega-corporations of neoliberal capitalism.

The security firm G4S is an example. It is the product of a series of acquisitions and mergers. It now employs 650,000 people in 125 countries – 39% of them in Asia, 19% in Europe, 17% in Africa, 9% in North America, 8% in Latin America, and 8% in the Middle East.

In Britain, it runs prisons, police services, and security at public events. It is one of the main beneficiaries of public-sector privatisation. Its revenue from British operations in 2011 was £1.59 billion. It paid only £67 million (1.5%) in corporation tax.

The end of state-managed capitalism does not, therefore, mean the end of the state. Its roles in economic management, industrial investment, and welfare provision have been curtailed. But other roles have been enhanced.

The state has always been a huge market for capital. But business opportunities are increasingly massively as public services are sold off. The British government is currently privatising the National Health Service, for example. The annual health budget is worth £125 billion. A handful of private companies will soon dominate healthcare in Britain.

The state (including inter-state bodies like the EU and the IMF) also continues to play a central role in economic crisis-management. Since 2008, it has functioned as a mechanism for shovelling trillions of dollars into bankrupt banks in order to prop up international finance-capital.

And the state’s primary and original role as an armed force for use against the enemies of the ruling class at home and abroad – anti-capitalist demonstrators, striking workers, guerrilla insurgents, independent regional powers – has increased during the neoliberal era.

Cuts, privatisation, and growing inequality have made society less cohesive and consensual. If you are building hospitals, you need nurses. If you are shutting them, you need police.

Globalisation, privatisation, and militarisation are the characteristic features of neoliberal capitalism. They have given us a new world order radically different from the state-managed capitalism of the Great Boom.

That new world order has a geopolitical as well as an economic form. Two events – the fall of the Berlin Wall in 1989 and the destruction of the Twin Towers in 2001 – have signalled the shift from the bi-polar world of the Cold War to the multi-polar world of the War on Terror.

We turn next to the ‘new imperialism’ which is the geopolitical correlate of neoliberal capitalism.