Though neo-liberalism is the “usual suspect” for the miseries of our institutions and society, it is not nearly as relevant as people think. Our miseries were caused by an historical conjuncture of forces that led to the loss of core values and a failure of people to collectively replace them.
A sea-change occurred across the world around 1976. Many people—but not all—view this change as bad. They feel that our institutions have changed for the worse and they often blame these changes on “neo-liberalism”.
I will argue that neo-liberalism is a red-herring, an after-the-fact smoke-screen. To make this argument I will start with a short version of a long story:
The United States, and much of the rest of the developed world, experienced unprecedented economic growth and upper mobility from after WWII until the mid-1970s. Let’s call these “The Wonder Years”. This period of economic grace was due to a variety of factors.
One of these factors was the 1944 Bretton Woods Agreement. This agreement established the U.S. dollar as the global currency. It simultaneously created the World Bank and the International Monetary Fund to monitor the new global economic system. Bretton Woods established the United States as the dominant economic power in the world, but, it also coordinated and controlled competition among most of the world’s developed economies to the benefit of all.
Another factor was that science and technology—much of it controlled by the U. S.—transformed the efficiency of work and the productivity of workers. In the act, commodities—standardized, mass-produced, relatively cheap, and widely available goods (such as televisions, washing machines, and cars) came to set the standard of a middle-class life, even for many people in so-called “working class” jobs, and created a mass market of shared (or, at least, widespread) tastes, values, and aspirations.
The Wonder Years were also a product of the peace between labor and business that was both, in part, caused by the boom economy of the Wonder Years and helped facilitate that boom. This represented the victory of labor in the often brutal struggle between labor and business.
It needs to be said that certain minorities—including African-Americans—did not fare as well in the Wonder Years. But, in economic terms, almost everyone in the United States, save for the so-called “under-class”, fared better before 1976 than they did afterward and the numbers of the poor (black and white) have increased since 1976. During the Wonder Years segregation was decreased and the Civil Rights movement arose.
The Wonder Years ended in the seventies. The end of Bretton Woods was formally ratified in 1976. What happened? U. S. domination of the world economic global-order ended as the world became global in a new networked, high-tech way. New inventions in science and technology eventually allowed a great many countries to produce commodities, heretofore dominated by the United States. As the world saw a massive over-production of, and lower profits from, commodities, companies moved to low-wage countries and wages in the high-cost countries deteriorated. Companies that had had deep relationships with their home-towns (“company towns”) now became global players, untethered from any need for loyalty to any one place. New digital technologies meant that companies no longer needed to pool large numbers of workers in one place (like Detroit for cars), but could disperse production all over the world. This led to the demise of unions and to the demise of businesses with special relationships to specific places.
Change eventually went further. Financiers (people who make their living through investments) came to see the value of companies not in terms of what they made, but in terms of how they could be bought (sometimes “raided”), manipulated to increase their stock prices, and then sold for a profit. Or, if that didn’t work, how they could be dismantled to sell off their assets as so many spare parts.
In the final stage of change, financiers came to see that they did not need to invest in, bet on, or dismantle just companies that made real things, but could bet on anything, whether it be stock prices, the changing prices of commodities like corn, the changing rates of different currencies across the world, or even numbers in a computer tagged to almost any variable (even fictional ones), things like derivatives (e.g., products such as bonds composed of the same, often risky, mortgages rolled many times over into different bonds) and credit default swaps.
The end of all this change was the world we have now: a form of financialized capitalism or “casino capitalism”. Today, economic emphasis in developed countries is not on work and production, but on risk-taking, debt, and short term bets. What happens in the long run matters less—much less—than short term gains that can be capitalized on immediately. Companies became burdened by massive debts (often based on loans raiders used the companies’ own funds to secure) run up by short-term investors using practices meant to raise stock prices, not to make good products or services or pay workers living wages.
The outcome was unprecedented. For all of capitalism’s history, economies were about producing and consuming things. As Marx famously argued, the “system of production” was the center of action in an economy. It is for this reason that there has long been a correlation between worker productivity and wages. As workers produced more, companies made more profit, and some of this profit was shared with the workers. Casino capitalism ended that correlation.
The outcome, as well, has been a massive growth in inequality in the United States and across the world. Wages, benefits, and the dignity of work have been destroyed for a great many people. Many towns, rural areas, and cities have also been destroyed, if they cannot become tourist or financial centers. Institutions of all sorts have become focused on short-term goals. Creativity, new inventions, and productivity have all declined.
As the world has become a casino where the “house” (the rich) always wins, health has plummeted, and drug addiction has spiraled out of control. Across the world, environmental degradation, violence, extremism, and dislocation have increased massively thanks to short-term reward-seeking.
…to be continued…