(This is the second post in a series on the rise of finance capital in the United States, for part 2, click here)
The introduction of neoliberal policy and creation of the Financial Hegemony began both as a response to the global economic crisis of 1970s, and a vehicle for the advancement of United States class and imperial interests. As I make my way to our current crisis, it should be noted that capitalism only masks its contradictions when “resolving” its crises - each crisis is a result and intensification of all those preceding it. Empowering capital and finance was the answer purported along with the rise of neoliberalism, and its massification is the reason for our current disaster.
I will expand on the “Neoliberal turn” further in later posts but would like present a beginning to the narrative here.
Neoliberalism is a school of economic and political thought that claimed optimal social welfare would be reached in a political-economic environment that fostered individual freedoms and the “entrepreneurial spirit.” The state apparatus was thought to be a inhibitor in individuals’ well being, personal freedom, and the creation of a proper “business climate.” It’s role under neoberalism would be limited to maintaining strong property rights, open markets, and free trade: the optimal conditions for capital accumulation. The state would resist intervention in all economic and business activity, for it is impossible to obtain the amount of information necessary to process, critique, or correctly respond to “market signals.” “Open markets, deregulate, and privatize, and you’ll get freedom, justice, and liberty” was the war cry of the neoliberal ideologists.
In 1973 Saudi Arabia was “asked” to recycle its Petrodollars into New York investment banks in the midst of global recession and stagflation. With a huge amount of capital on hand and the domestic economy looking bleak (The US stock market crashed in January 1973), the banks sought capital gains outside of the US. In neocolonialist fashion, the state apparatus opened and deregulated global investment and encouraged the banks to invest in foreign government debt. This would expose the banks considerably if the governments were to default on their credit, which was the case of Mexico in 1982. But foreign countries’ banks failing turned out to catalyze the proliferation of neoliberalism and the creation of the financial hegemony. In 1982 the United States treasury and the IMF co-opted a “solution” for misbehaved foreign treasuries. Where lenders (banks) would usually take the hit, the borrowers (foreign states) were to take the blame. (The inversion of who is supposedly "risk-bearing" is one of neoliberalism and modern finance's most significant attributes.) Thus “structural adjustment programs” were enacted, which allowed governments in crisis to restructure their debt on the condition that they institute a healthy dose of privatization and deregulation - in other words, steadily create a neoliberal state apparatus.
During the stagflation period of the 1970s and early 80s it was also postulated that the crisis was due to labor having too much power over capital - that trade unions and regulated markets were the reason for falling profitability, and low rates of growth and capital accumulation.The United States neoliberalists, with their ideology of “free markets equals freedom” answered the call again. Capital was to be further empowered and labor disciplined via wage repression, the dismantling of unions, and offshoring (aka globalization). In October of 1979 the United States, via Paul Vocker and the Carter Administration, began shifting to neoliberal economic policy in a radical effort to combat inflation. In 1980 Ronald Reagan acted where Carter hesitated, and deregulated more industries while opening up options for financiers through tax breaks on investments and removing restrictions on global capital flows. As finance proliferated stock values were prioritized over production as a means to counter stagnating manufacturing profits. Eventually gains made through speculation transcended any potential returns on concrete production. Competition and innovation within the banking sector resulted, and the creation of the Hegemony was on its way.
(For part 2, click here)