Announcement: Neoliberal Political Economy: Regressive Distribution on a Global Scale

Global Geopolitics & Political Economy

By Alan F. Fogelquist, Ph.D

This essay discusses some of the main characteristics of today’s neoliberal political and economic order. Other terms exist to describe the same general set of institutions and policy prescriptions, but neoliberalism is a convenient expression for designating them in one word that is now widely used and understood.

Neoliberalism is now used as a generic term to characterize an economic ideology that favors unrestricted “free” markets, “free trade”, macro-economic stability, and a set of related economic policies. Neoliberal ideology favors unrestricted freedom of private corporations to pursue profit, the privatization of public enterprises and services, and the elimination or reduction of public or government control, regulation, and guidance of economic activity. Neoliberal policy prescriptions give priority to the prevention and control of inflation over economic growth and employment. In some versions of neoliberalism, there are also prescriptions for tax reductions for corporations and upper income groups under the assumption extra income retained after tax reduction will be reinvested in productive capacity. The ideology also calls for free trade and the elimination of tariffs or government support of domestic manufacturing. The ideology assumes that unregulated markets will correct themselves and produce optimal outcomes for society as a whole.

Over the decades neoliberal ideology has evolved and received a variety of labels ranging from monetarism in the 1980s to the Washington Consensus in later years. Despite some changes and refinement, the policy prescriptions have remained much the same in terms of their regressive effects on distribution of income and wealth and also their contribution to financialization of the economy and the decline of the manufacturing industry in many countries. Rightwing politicians have culled political slogans from popularized works of neoliberal economists or political ideologues like Milton Friedman and his successors. In advanced developed economies, the introduction of neoliberal institutions and policies began in the 1980s under the governments of Ronald Reagan in the United States and Margaret Thatcher in the UK In subsequent years neoliberal policy came to dominate much of the economic landscape of the capitalist world and in one form or another was adopted by major political parties and governments in many countries. In the United States both Republican and Democratic governments adopted key elements of neoliberal thinking including free trade dogmas. The notable exception to neoliberal capitalism in recent decades has been in the rapidly developing economies of Asia that rejected some of the core doctrines and practices of neoliberalism as practiced in the United States and much of Europe and Latin America.

Set of Badges, Labels, Tags "Made in China". Vector illustration. Grunge stamp with text The neoliberal economic order produces institutionalized inequality – unequal power, unequal advantage, and unequal exchange. Those without power are forced to exchange their labor and expertise for less than the real value of their product or contribution. While any economic transaction has the potential for unequal or unfair exchange, the current system of rewards is completely in favor of those with political and economic bargaining power and against those who depend on wages and salaries for their work, either physical or mental. The neoliberal order is one where institutionalized inequality and perverse incentives prevent technological advances from reaching their full potential to improve the human condition. Instead tiny minorities reap most of the benefits while the majority of the world’s inhabitants receive marginal benefits or are left out. Neoliberal ideology based on fallacious assumptions presented as science is used to justify regressive economic policy and race-to-the bottom competition based on lower wages and special state favors to monopolistic or speculative “enterprises.” In the Orwellian language of neoliberalism speculation is confused with productive investment. Speculation becomes coterminous with investment.

The vast expansion of the global market economy to include countries with enormous populations of desperately poor workers and farmers has created an enormous downward pressure on employment and wages in countries that had achieved higher incomes and economic security for the wage and salary workers after decades of economic development and social struggles. Globalization following the inclusion of China, India, and Russia in the world market economy has created race-to-the bottom competition and increased levels of exploitation. It has contributed to the imbalance between wage income paid to workers directly engaged in production and the performance of services on the one hand and income in the form of profits or executive and upper managerial salaries that accrues to the economically powerful on the other hand.

Also intensifying inequality has been the change in policy regime starting in the early 1980s when neoliberal monetarist macroeconomic policy replaced more expansionary policies of the early post war compact between labor and capital. Also accentuating inequality were measures to break labor unions and increase the power of employers to step up the level of exploitation of workers and employees.

Increased profit and upper managerial and executive income beyond increases in labor productivity have repeatedly produced a chronic imbalance between effective demand or purchasing power and the supply of goods and services even in times of economic expansion. This has resulted in a growing accumulation of income at the top with no productive outlet for investment. The existence of large pools of capital without profitable outlets for productive investment fuels speculation. These pools of capital are funneled into financial institutions that clamor for deregulation in order to have a free hand to engage in high-risk asset speculation driving up the price of tangible and intangible assets and distorting the structure of the economy. The collapse of asset prices fueled by speculation has led to repeated financial panics and economic crises. Following neoliberal policy prescriptions, step-by-step deregulation of financial institutions in the 1980s and 1990s accelerated the growth of the private financial sector at the expense of manufacturing and public services. The growth of the financialized speculative sector fueled by excess profits, higher managerial income, and increased exploitation of an underpaid labor force also increased the capacity of large corporations and wealthy individuals to use their financial power to gain political power. The same corporations and individuals were able to influence politics through domination of the mass media, intensified lobbying efforts, funding of electoral campaigns, funding of policy institutes, and ideological influence over business and economic education in universities. All of these activities contributed to the growing dominance of plutocratic capitalism over policy discussion and to the promotion of policies that serve the interests of tiny wealthy minorities rather than the general public.

After decades of testing neoliberal ideology as the dominant paradigm it is now possible to see its deep flaws and inhuman consequences. Austerity economics prescribed by neoliberal politicians and economists, especially during a crisis or recession produces massive unemployment and downward pressure on the wages and salaries. These policies intensify and prolong recessions. Free trade dogma has led to a decline in manufacturing and the transfer of factories and jobs to low wage countries placing additional downward pressure on wages and loss of employment in many middle income and developed countries without proportional benefits to workers and ordinary people in poor countries. Outsourcing of information technology and jobs to lower wage countries now threatens the economic security even in the technologically advanced sectors of developed economies. In the meantime factory workers in countries that have gained jobs from this zero-sum activity are severely exploited and live under inhuman conditions while the multinational elites profit from the transfer. Everywhere it is the multinational capitalists and elites in the emerging economic giants like China and India that receive the benefits of uncontrolled globalization. In short, neoliberal policies have resulted in a massive transfer of income and wealth upwards and contributed to global imbalances and instability.

Unless there as a fundamental change in ideology, these trends will certainly continue and there will be major crises that inflict enormous but preventable human casualties. Highly volatile and imperfect markets characterized by unequal power, an unequal advantage, crony capitalism, reckless casino finance, environmental wreckage, and plutocratic domination of government and the media will continue their unsustainable course creating mass misery, and periodic crises.

Choice of economic policy usually involves tradeoffs between goals that may be in partial conflict such as low inflation versus high employment or cheap manufactured goods versus jobs and decent wages, but most tradeoffs benefit some groups more than others. The best tradeoffs are those that benefit the majority of the people, those engaged directly in the creation of useful goods or performance of needed services for the general population. The best tradeoffs are those that serve the public good rather than the good of tiny minorities. The real choice in economic policy boils down to who gets what and fair versus unfair exchange.

Neoliberalism is not the only analytical framework available. There are real and feasible alternatives to neoliberalism that can lead to better living conditions and better economic outcomes for the majority of the world’s inhabitants. There have always been alternative frameworks for economic and political analysis and successful examples of alternative economic practices that have led to better outcomes. Examples of successful economic policies outside the framework of neoliberalism can be found in many countries and forms ranging from government policies to promote the development of domestic manufacturing in East Asia and Brazil to social democratic support for health care, education, vocational training and pensions for the elderly in Scandinavia, Germany, and France. Argentina offers lessons for overcoming financial crises aggravated by neoliberal austerity and some examples of worker owned enterprises. The Mondragon industrial cooperative in Spain shows that plutocratic ownership of industry is not the only alternative. Many countries and regions have successful experiments in public support for green development and efforts to preserve the environment.

No set of policies is perfect, but some serve the needs of the many and human well being much better than others. From the beginning, there have been social scientists, economists and observers of economic and political life who have challenged what proved to be flawed assumptions and claims of the neoliberals. The reason for the power and influence of neoliberalism lies largely in the tremendous economic, political, and media power of the minorities that have benefited from its prescriptions. In future essays we will go into more detail in our analysis of the dynamics of neoliberalism, alternative frameworks, and the experience of various regions and countries around the world.

© Copyright 2012 Alan F. Fogelquist, Ph.D. All rights reserved.

This article should not be republished or redistributed without the permission of the original author or copyright holder.

Alan F. Fogelquist is an economic historian and analyst of geopolitical and economic issues. He is editor of the Global Geopolitics & Political Economy and Real Political Economy websites.

World’s Nuclear Facilities Vulnerable to Cyber-Attacks

Global Geopolitics and Political Economy Net – IPS News

Thalif Deen

UNITED NATIONS, Aug 1A7 (IPS) – As hackers continue to rampage through closely-guarded information systems and databases with monotonous regularity, there is a tempting new target for cyber-attacks: the world’s nuclear facilities.

A warning has already been sounded by the International Atomic Energy Agency (IAEA), which has urged the world community to intensify efforts to protect nuclear facilities from possible attacks.

Pointing out the nuclear industry was not immune to such attacks, IAEA Director-General Yukiya Amano says there should be a serious attempt at protecting nuclear and radioactive material – since “reports of actual or attempted cyber-attacks are now virtually a daily occurrence.”

The United States, whose defence networks at the Pentagon and also its intelligence agencies have already been compromised by hackers largely from Russia and China, is increasingly concerned about possible cyber-attacks by terrorist organisations – specifically the Islamic State (IS) with its heavy and sophisticated presence on social media.

Ironically, the United States reportedly collaborated with Israel to launch a virus attack on Iran’s nuclear enrichment programme years ago.

Tariq Rauf, director of the Disarmament, Arms Control and Non-Proliferation Programme at the Stockholm International Peace Research Institute (SIPRI), told IPS nuclear power plants and the nuclear industry rely intensively on computer systems and computer codes.

“Any corruption, malware or targeted attacks potentially could have catastrophic consequences for nuclear safety and security,” he warned.

In this regard, he said, it is deplorable that Israel and the United States targeted Iran’s uranium enrichment programme in past years with malware and viruses, thus initiating unprovoked cyber warfare, he added.

Stuxnet, the computer virus introduced into the Iranian nuclear programme by these two countries, has now escaped into other programmes in other countries, said Rauf, the former head of IAEA’s Verification and Security Policy Coordination unit.

“This clearly demonstrates that cyber warfare agents cannot be contained, can spread uncontrollably and can potentially create many hazards for critical infrastructure in the nuclear field,” he said.

He said cyber warfare at the state level is much more dangerous and difficult to defend against than cyber-attacks by hackers, though the hacking of nuclear safety and security systems by amateurs or criminals also pose major risks for radioactive and nuclear materials.

Randy Rydell, a former senior political officer at the U.N’s Office of Disarmament Affairs (ODA), told IPS the real question here is not capabilities but motivation: “Why would someone wish to launch such an attack?”

The answer, he said, is political.

“We need to drain the swamp and stop developing technologies that are vulnerable to catastrophic attacks,” said Rydell, former senior counsellor and Report Director of the Weapons of Mass Destruction (WMD) Commission.

IAEA’s Amano pointed out that last year alone there were cases of random malware-based attacks at nuclear power plants, with such facilities being specifically targeted.

He said staff responsible for nuclear security should know how to repel cyber-attacks and to limit the damage, if systems are actually penetrated.

“The IAEA is doing what it can to help governments, organisations, and individuals adapt to evolving technology-driven threats from skilled cyber adversaries,” he added.

At the next IAEA ministerial conference, scheduled for December 2016, one of topics for discussion would be how best to elaborate a Code of Conduct for Cyber Security for the Nuclear Industry.

Asked about the cyber capability of terrorist groups and their use of social media, Admiral Cecil Haney, commander U.S. Strategic Command, told reporters last March the Islamic State (IS) and various other organisations have been able to recruit and threaten – “and so we see more and more sophistication associated with that.”

“This is something that we look at very, very closely,” he said, pointing out that U.S. Cyber Command, as well as its interagency team, is working on this.

“And, quite frankly, it is looked at on a day-to-day basis,” he added.

In one of the major breaches of security, the U.S. Office of Personnel Management, which maintains security clearance for millions of federal employees, was one of the targets of hackers last year.

“The threat we face is ever-evolving,” Josh Earnest, the White House press secretary, told reporters last June. “We understand that there is persistent risk out there and we take it seriously,” he added.

But cyber-attacks are also increasingly a policy decision by governments in the United States, Western Europe, Russia and China, as a means of fighting back when attacked.

SIPRI’s Rauf said the IAEA is recognised as playing the central role in setting nuclear security standards for peaceful nuclear activities and has issued guidance documents in this regards for operators of nuclear facilities.

Addressing the IAEA International Conference on Computer Security in a Nuclear World, held in Vienna on June 1, Amano correctly drew attention to the risks and dangers of actual or attempted cyber-attacks against nuclear power plants and the nuclear industry, he noted.

Amano said that “computers play an essential role in all aspects of the management and safe and secure operation of nuclear facilities, including maintaining physical protection, and thus it is vitally important that all such systems are properly secured against malicious intrusions”.

In a statement released last month, the White House said that from the beginning of his current administration, President Barack Obama “has made it clear that cyber security is one of the most important challenges we face as a nation.”

In response, “the U.S. Government has implemented a wide range of policies, both domestic and international, to improve our cyber defences, enhance our response capabilities, and upgrade our incident management tools.”

As the cyber threat continues to increase in severity and sophistication, so does the pace of the Administration’s efforts, the White House noted.

Edited by Kitty Stapp

All rights reserved, IPS – Inter Press Service, 2015.

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Did Argentina Default or Not? It’s More Than Semantics


Argentine President Cristina Fernández addressing supporters in a courtyard in the government palace on Jul. 31, after giving a speech to the nation to explain the country’s debt payment situation. Credit: Casa Rosada

Global Geopolitics & Political Economy / IPS

Analysis by Fabiana Frayssinet

BUENOS AIRES, Aug 4 2014 (IPS) – Argentina’s supposed “default”, an unprecedented case in the history of world capitalism, sets a legal, political and financial precedent that indicates the need for concrete measures regarding the fine line between legal, ethical business activities and criminal usury.

In the debate, the orthodox financial sectors say Argentina’s failure to comply with U.S. Judge Thomas Griesa’s ruling means it has once again defaulted, while others argue that it has actually honoured its commitments and made its payments, and the fact that the funds have not reached the creditors is not the government’s fault.

“Preventing someone from paying is not default,” said President Cristina Fernández in a Jul. 31 nationally televised address, after a meeting with the so-called vulture funds – opportunistic investors who purchase the debt of heavily indebted countries at pennies to the dollar and then vigorously pursue full repayment in court – which failed to come up with a solution to the conflict.

“Now they invented a new term: ‘selective default’. It doesn’t exist. Preventing someone from taking our payments is not default. I told them they would have to invent a new word,” she said with irony.

At a Jul. 30 meeting in New York with Argentine officials, the mediator named by the U.S. court, Daniel Pollack, rejected Argentina’s offer to restructure the debt in the hands of “holdout” creditors – those who did not agree to the 2005 or 2010 debt swaps.

Since Argentina defaulted on nearly 100 billion dollars in debt in late 2001, during the worst economic crisis in the country’s history, 92.4 percent of the bonds have been restructured at a deep discount, with lower interest rates and at longer terms.

But a group of hedge funds that refused to participate in the two debt restructurings sued for full payment of 1.3 billion dollars in Argentine bonds in federal court in New York.

The offer made by Argentina in the Jul. 30 negotiations was for the holdouts to restructure their debt in conditions similar to those accepted earlier by the vast majority of creditors – under late president Néstor Kirchner (2003-2007) in 2005, and under his successor and widow Fernández in 2010.

Jul. 30 was the deadline to pay 539 million dollars in interest due on the discount bonds.

The Fernández administration had deposited the funds with the bond trustee, the Bank of New York Mellon (BoNY Mellon). But Judge Griesa blocked the payments to the bondholders because the Argentine government ignored his order to also pay the hedge funds.

”Unfortunately, no agreement was reached and the Republic of Argentina will imminently be in default,” Pollack said after the meeting in New York. “Default is not a mere ‘technical’ condition, but rather a real and painful event that will hurt real people.”

In an Aug. 1 court hearing, Argentina’s representatives unsuccessfully demanded that Pollack be removed as mediator, because of his remarks.

Some credit rating agencies lowered the rating on Argentina’s foreign currency bonds to “selective default”, while the judge avoided using that term in the Aug. 1 hearing but said it was clear that there had been no payments.

Argentine Economy Minister Axel Kicillof said “Argentina is not in default, because it has already paid. The bondholders did not pick up their payments because of a ban put in place by Judge Griesa.

“They talk about technical default, selective default — some have called it Griesa default, Griefault. No one knows what to call it because it is new, because it doesn’t exist, because no one would have thought that a judge could come along, and say – after the payment – ‘I’m going to order the banks to not meet their contracts.’ ”

Alejandro Drucaroff, a lawyer who specialises in banks and finance, pointed out to IPS that the debt swaps accepted by the vast majority of creditors “involved major discounts of capital and interest and very long terms for repayment.” But he also stressed that Argentina has punctually met all of its payments.

Some of the holdouts – the 7.6 percent of the creditors, who refused to accept the swaps that offered about 35 cents on the dollar – sold their bonds to hedge funds, two of which later sued in federal court in New York for full payment of 1.3 billion dollars in bonds, roughly one percent of the total debt.

The vulture funds acquired the bonds in 2008 at 20 to 30 percent of their nominal value.

In 2012 Judge Griesa ordered Argentina to pay the bonds at full-face value, plus interest and fees – some 1.5 billion dollars.

On Jun. 16, the U.S. Supreme Court rejected an appeal by the Argentine government, thus upholding the earlier ruling, which banned Argentina from making payments on the restructured debt unless it also paid the holdouts.

“That ban, which has no legal basis and goes beyond the judge’s legal authority, has no practical effect because Argentina met its payments anyway,” Drucaroff said.

But after BoNY Mellon was “warned” by Griesa that transferring the money to bondholders would violate his ruling, the bank held on to the funds.

“Griesa does not have the authority to keep Argentina from paying its debts to third parties not involved in the trial. Nor does he have authority over funds that aren’t from the U.S. – he can’t embargo them,” Drucaroff argued.

“There is no default; what this is, is an absolutely unprecedented legal situation,” the lawyer added.

“BoNY should be held accountable by the 92.4 percent of creditors and by Argentina for failing to comply with its function,” he said. “It could argue that it acted the way it did because it could be found guilty of contempt of court as a result of Griesa’s ruling – and in my opinion, in that case Griesa would also be responsible for preventing the money from reaching the creditors.”

According to University of Buenos Aires economist Fernanda Vallejos, the wording in the contracts makes it clear that a default would only occur “if Argentina didn’t pay.”

“However, the country not only has the will and the capacity to pay, but it has already paid and will continue to do so,” she added.

That, in her view, is independent of the credit rating agencies, “which in their eagerness to pave the way for the vulture funds to do business, because of the payment of default insurance, invent terms like ‘selective default’, which have nothing to do with reality or with Argentina’s financial solvency.”

The problem, the Argentine government says, are not the 1.5 billion dollars that the judge and the plaintiff are demanding payment of, but the fact that the debt would skyrocket if the bondholders that accepted a discount sued for repayment at full value as well.

The government said the debt could climb as high as 500 billion dollars in that case, which would throw the country back into a crisis similar to the one that triggered the 2001 default in the first place.

Political analyst Alejandro Horowicz said: “A plunge in our foreign reserves of that magnitude would not only affect international trade but would make the fixed exchange rate impossible to control and hence the rest of the reserves would face the same fate and would end up fleeing in a vain attempt to curb the stampede in the price of the dollar.”

Vallejo warned that the U.S. court ruling discouraged any process of debt restructuring by favouring “a small minority who represent the most savage face of international financial capital.”

“Who would accept a restructuring like Argentina’s if by bringing legal action in the courts of any country you can get that level of returns and repayment at full face value?” she asked.

The economist said an international regulatory framework is needed “that would preserve debt restructuring processes and put limits on the complete deregulation of the financial markets which trod roughshod over states and subjugate people.”

Vulture funds are already under scrutiny from governments and international bodies, among which there is a growing consensus that they should be reined in.

Nearly all of them “were involved in the latest international financial crisis [which broke out in 2008] by means of a range of speculative maneuvers that in many cases were actually illegal,” Drucaroff said.

“In theory a large part of the ‘formal’ financial system rejects them and sees them as running counter to business ‘ethics’. But no concrete step has been taken to curtail their activities which, to a large extent, are carried out through tax havens,” he said.

An area in which the question of whether Argentina defaulted or not is just one tip of the iceberg.

Edited by Estrella Gutiérrez/Translated by Stephanie Wildes

All rights reserved, IPS – Inter Press Service, 2014.

This article may not be republished, broadcast, framed, or redistributed without the written permission of IPS – Inter Press Service. Republication of this material without permission from IPS, the copyright holder, constitutes a violation of United States and international copyright laws and may result in legal action.