On Neoliberalism:
An Interview with David Harvey
by Sasha Lilley

Neoliberalism has left an indelible, smoldering mark on our world for the last thirty years. Eminent Marxist geographer David Harvey, author of A Brief History of Neoliberalism (Oxford, 2005), spoke earlier this year to Sasha Lilley, of the radical radio program Against the Grain, about the origins and trajectory of the neoliberal creed.

SL: Could you give us a working definition of “neoliberalism” — a term that’s particularly confusing to people in the US who associate liberalism with socially progressive policies?

DH: There are two things to be said. One is, if you like, the theory of neoliberalism and the other is its practice. And they are rather different from each other. David HarveyBut the theory takes the view that individual liberty and freedom are the high point of civilization and then goes on to argue that individual liberty and freedom can best be protected and achieved by an institutional structure, made up of strong private property rights, free markets, and free trade: a world in which individual initiative can flourish. The implication of that is that the state should not be involved in the economy too much, but it should use its power to preserve private property rights and the institutions of the market and promote those on the global stage if necessary.

SL: Talk about the intellectual origins of neoliberal thought associated with the Austrian economist Friedrich von Hayek.

DH: Liberal theory goes back a very long way, of course, to the 18th century: John Locke, Adam Smith, and writers of that sort. Then economics changed quite a bit towards the end of the 19th century and neoliberalism is a really revival of the 18th century liberal doctrine about freedoms and individual liberties connected to a very specific view of the market. And the leading figures in that are Milton Friedman in this country and Friedrich Hayek in Austria. In 1947 they formed a society to promote neoliberal values called the Mont Pelerin Society. It was a minor society but it got a lot of support from wealthy contributors and corporations to polemicize on the ideas it held.

SL: Did this group see their role as promoters of these ideas in the political realm?

DH: They took the view that state interventions and state domination were something to be feared. And they weren’t only talking about fascism and communism, but they were also talking about the strong welfare state constructions that were then emerging in Europe in the postwar period and also talking about any kind of government intervention into how the market was working. They saw their role as very political, not only against fascism and communism, but also against the power of the state, and particularly against the power of the social democratic state in Europe.

SL: The welfare state was characterized by a compact of sorts between labor and capital, the idea of a social safety net, a commitment to full employment — you call this “embedded liberalism.” Up until the 1970s it was supported by most elites. Why was there a backlash against the welfare state and the push for a new political economic order in the 1970s that gave rise to the political implementation of neoliberal thought?

DH: I think there were two main reasons for the backlash. The first was that the high growth rates that had characterized the embedded liberalism of the1950s and 1960s — we had growth rates of around 4 percent during those years — those growth rates disappeared towards the end of the 1960s. That had a lot to do with the stresses within the US economy, where the US was trying to fight a war in Vietnam and resolve social problems at home. It was what we call a guns and butter strategy. But that led to fiscal difficulties in the United States. The United States started printing dollars, we had inflation, and then we had stagnation, and then global stagnation set in in the 1970s. It was clear that the system that had worked very well in the 1950s and much of the 1960s was coming untacked and had to be constructed along some other lines. The other issue which is not so obvious, but the data I think show it very clearly, is that the incomes and assets of the elite classes were severely stressed in the 1970s. And therefore there was a sort of class revolt on the part of the elites, who suddenly found themselves in some considerable difficulty, for economic as well as for political reasons. The 1970s was, if you like, a moment of revolutionary transformation of economies away from the embedded liberalism of the postwar period to neoliberalism, which was really set in motion in the 1970s and consolidated in the 1980s and 1990s.

SL: What do you think was the underlying reason for the falling rate of profit in the 1970s, the symptoms of which you’ve just described?

DH: There were a number of other reasons connected with it. The postwar compromise had certainly empowered labor and labor organizations and therefore labor contracts were relatively favorable for those who were in the privileged unions and again that put certain stresses in the system. That is, if wages go up, profits tend to go down. So there was an element of that in the situation in the 1970s as well. In many ways the neoliberal argument that the labor market should be flexible and open and free of any union constraints became very appealing in the 1970s, as you can imagine.

SL: The intellectual fathers — and I think they were primarily fathers — of neoliberalism clustered around monetarist Milton Friedman at the University of Chicago had a chance to put their ideas into action following the US-backed coup against the socialist Allende government in Chile in 1973. I wonder if you could tell us about this — the first application of neoliberalism to a country’s economy.

DH: This arose after the coup against the socialist, democratically elected government under Salvador Allende and Pinochet and the others were faced with the dilemma of how to reconstruct the economy along lines that would revive it. For a couple of years they didn’t know what to do and then Pinochet turned to a business elite in Chile that had been very important in the coup, and who had established relationships with economists who were Chilean but who had been trained in Chicago under Milton Friedman. Those economists came into government in 1975 and completely restructured the government under neoliberal lines, which meant privatization of all state assets except — in the Chilean case — copper, opening the country to foreign investment, not preventing any repatriation of profits out of the country. So it just opened the country to foreign capital and opened everything to the privatization, including, interestingly in the Chilean case, the privatization of social security, which we have been hearing about in this country over the last year.

SL: What were the consequences for both the Chilean people and the accumulation of capital in Chile following those reforms?

DH: It went very well for a few years and then ran into serious problems in 1982. But when I say it went very well, it went very well for the political and economic elite. It was one of those situations where the country seemed to do well, but the people were doing very badly because of course after the coup all labor organizations had been destroyed, all social welfare structures had been dismantled. For the general population things did not go very well, but for elite they went very well, and for foreign investors things went very well for few years. And then they ran into a serious crisis and it was at that point that they started to realize that neoliberal theory in its pure form didn’t necessarily work that well. And there were some major adjustments that occurred in the theory after that, which led into a different kind of neoliberalization practice.

SL: A second example of the application of at least some of the ideas associated with neoliberalism came about in New York City in the mid-1970s which then provided lessons for neoliberalism. Tell us about New York City’s fiscal crisis and how it was resolved, as it were.

Ford to City: Drop DeadDH: In the New York case, the city was heavily indebted for a variety of reasons which are rather complicated to go into. And at a certain point in 1975, the investment bankers in the city decided not to roll over the debt, that is, they decided not to fund New York City debt any more. Now, I don’t think this was an application of neoliberal theory; I think it was the way in which the investment bankers were beginning to think about the city. And it was a kind of major experiment, in which the investment bankers took over the budgetary structure of the city. It was a financial coup as opposed to a military coup. And they then ran the city the way they wanted to do it and the principles they arrived at was that New York City revenues should be earmarked so that the bondholders were paid off first and then whatever was left over would go to the city budget. The result of that was that the city had to lay off a lot workers, had to cut back on municipal expenditures, had to close schools and hospital services, and also had to make user charges on an institution like CUNY, which up until that point was tuition-free. What the bankers did was to discipline the city along ways which I think they didn’t have a full theory for, but they discovered neoliberalism through their practice. And after they had discovered it, they said, ah yes, this is the way in which we should go in general. And of course this then became the way that Reagan went and then it became, if you like, the standard way the International Monetary Fund starts to disciple countries that run into debt around the world.

SL: You argue that a major shift in political economic practices, such as neoliberalism, could not come about — at least in democracies like the US and United Kingdom — without some degree of consent, not just from traditional elites but also the middle classes. How was this consent engendered in the 1970s?

DH: There was a concerted program that worked at a number of levels. To me, the beginning point was a memo that Lewis Powell, who became Supreme Court justice shortly afterwards, sent to the American Chamber of Commerce in 1971. What he said, in effect, was that the anti-business climate in this country has gone too far, we need a collective effort to try to turn it around. After that we see the formation of a whole set of think tanks, the massing of money by various organizations to try to influence public policy and to do it through the media, do it through think tanks. We also see the formation in 1972 of something called the Business Roundtable, which was a very influential organization. They were very concerned to try to roll back that legislation which had emerged during the 1960s and early 1970s that set up things like the Environmental Protection Agency, OSHA, consumer protection, and all of those sorts of things. And of course they gained considerable influence in the press through the Wall Street Journal and business pages and business schools and the like, and through their think tanks they started to influence public opinion. But then they also needed to be able to get a hold of the political process. This was a very interesting process where the Political Action Committees that got set up in the 1970s were very active and there was a tremendous formation of them and they started to get together collectively to fund the Republican Party. So what we see is the corporate takeover of the Republic Party along neoliberal lines, conservative lines, rather than the liberal Republicans like the Rockefellers, who were the old style Republicans. There was a takeover by Reagan and people like that in the 1970s of the Republican Party. But then the Republican Party needed a mass base and one of the things that then happened was that they turned to the Christian Right, and remember it was Jerry Falwell in 1978 who formed the Moral Majority, and there was a coalition that then emerged, a popular base amongst the evangelical Christians on the one hand and then tremendous corporate funding of the political process on the other hand, which made the Republican Party solidly behind the neoliberal agenda.

SL: You write that a fundamental feature of neoliberalism is the disciplining and disempowerment of the working class. Paul Volcker, who headed up the Federal Reserve first under Carter and then under Reagan, played a pivotal role in doing this in the United States. Describe for us the conditions in the US in the 1970s — the array of class forces, so to speak, at that time — and how Paul Volcker played a crucial role in shifting the balance of power.

DH: There had been, during the late 1960s and throughout the 1970s, a steady process of deindustrialization, that is, the loss of manufacturing jobs. It was a slow process and in many areas of the country that process was held back by an increase in public expenditures. This was true, for instance, in New York City. Manufacturing jobs had been drained away but public service jobs were booming. And that meant that public funding was needed for that. The federal government — the Federal Reserve — had a policy that full employment was a very worthwhile, very important objective of public policy. What Paul Volcker did in 1979 was to reverse that, to say, we’re no longer interested in full employment; what we’re interested in is control of inflation. He brought inflation down quite savagely in about three or four years, but in the process he generated massive unemployment. And massive unemployment of course was disempowering for workers and at the same time the deindustrialization that I mentioned accelerated. So there was quite a massive loss of industrial jobs, manufacturing jobs, in the early 1980s. And of course that means less union power. If you close down the shipyards and the steel industry lays off people, then you have fewer people in the unions. The loss of jobs in the unionized sector disempowered the unions at the same time unemployment was rising; unemployment disciplines the labor force to accept lower paying jobs if necessary. So Volcker’s shift away from full employment strategy at the Federal Reserve to control inflation, no matter what the impact on unemployment, was a major shift in public policy and which we still implement.

SL: That attack on unionized employment was epitomized by British Prime Minister Margaret Thatcher, whose Conservative Party came to power in May of 1979. Thatcher famously said that “there is no such thing as society, only individual men and women.” I wonder if youcould talk about the politics in the UK in the mid and late 70s, the power of the unions and the way that elites responded to that power — and what Thatcher did in response.

DH: The unions in Britain, of course, were very strong and there was a very large public sector. Embedded liberalism in Britain involved the nationalization of coal, steel, transportation, telecommunications, and the all rest of it. The unions were relatively strong in the 1970s but again there was a lot of economic pressure in Britain and it ran into very serious problems in the mid-1970s. The Labour government really didn’t have a good way to solve them. So the Labour government started to push for austerity in the public sector. The result of that was a huge wave of public sector strikes in 1978 and that created considerable discontent in the country in general. Margaret Thatcher came to power with a mandate really to control union power, and that is what is what she effectively did by an almost pure neoliberal strategy. Most famously of course, she took on the most powerful union in British history, both politically and sentimentally, which is the miners’ union. There was a huge strike in 1984 which she fought through to victory for herself. That was, if you like, the beginning of the end of the real strong power of the labor movement. After that she privatized steel, she privatized automobiles, she privatized coal mining, she privatized pretty much everything in the British economy at some point. She wanted to privatize national health, but she never managed quite to do that.

SL: She also attacked municipal government, which was a stronghold of the left in the UK.

DH: She faced significant opposition to her program by the fact that most of the large city governments were controlled by the Labour Party. And the Labour Party was not going to play ball with her program at that level. So when she started to cut funds to the local municipalities, what they did was to increase the local taxation and still keep their programs in place. What she then did was to cap the amount of local taxation they could take and that way she was involved in this huge struggle with Labour governments. In Liverpool, for example, the council there refused to cap their expenditures or their taxes and she had to have them put in jail for disobeying the national law. So there was a huge struggle on a municipal level. Eventually she reformed — tried to reform — all local finances around something called the poll tax and there was again huge resistance to this, so there was struggling going on over municipal financing in Britain in the 1980s under Margaret Thatcher as she tried to impose her will on recalcitrant municipal governments.

SL: You write of the years 1979 to 1980 as a key moment for the ascendancy of neoliberalism, the Volcker shock that you spoke of earlier, the rise of Margaret Thatcher, take place during this time. Another event took place around those years, in 1978 in fact: the Chinese Communist Party under the leadership of Deng Xiaoping embarked on a path of economic liberalization that ultimately massively transformed the Chinese economy. You argue this event was connected in its own way to the rise of neoliberalism — how so?

DH: I think what we have to look at here is a concordance of events. It’s hard to see the reforms in China were triggered by events in Britain or events in the United States. Nevertheless, the liberalization in China set China off into a market-based kind of socialism, which then found a way to integrate into the global economy in ways that I think FULL INTERVIEW