era marked by increased American funding of development in penetrated states such as South Korea and the formation of the foundations for dependency. This historical bloc began to modify in the 1970s.
The 1970s can be characterised by what Rupert calls a ‘laissez-faire fundamentalism’ (2000: 44). Liberal globalization that led to neo- liberalism’s global popularity for economic development included not just trade but also finance. During this period, the increase and ease of financial exchanges were affected by excess liquidity from US balance of payments deficits. Furthermore, the fixed rate regime and capital controls, implemented at Bretton Woods, saw their own demise. Rates of specu- lation and foreign exchange trade increased. American hegemony did not last, and Cox claims that this was evident from the late 1960s and onward, when America’s ‘consensual’ fragility was revealed. A space revealed itself for a new organisation of the global economy: for new leadership, or dissent.
Neoliberalism originates in 1971, when President Richard Nixon overthrew the original gold standard and replaced it with a system of free- floating exchange rates. This controversial move symbolises a moment of transformation for a previous period of economic history. As the institutions created at Bretton Woods represent a managed international economy, so the collapse in 1971 represents a shift to less regulation and thus increased free market ideology, which I argue is the basis of Neoliberalism. Friedman of the Chicago School is perhaps one of the best known authors to condone a sophisticated neoliberal thesis. He advocates competitive capitalism as the paramount social economic model, believing that capitalism, when effectively instituted and socialised, provides freedom. Political freedom is conditional upon free markets, and a society that operates upon the principles of neoliberalism will theoretically find the benefits in all levels, and that education and income distribution will provide freedom from poverty. Of course, reality is often very different from the utopias that theorists visualise.
The 1970s set the stage for international neoliberal economic relations.
Governments concentrated on international markets and outward planning. One of the first neoliberal development projects occurred in Chile beginning in 1973. The CIA, in this case, supported the coup against the ‘Marxist’ Allende regime, despite the fact that it had been popularly elected. Pinochet, the next leader, restructured the economy at the advice and prompting of consultants from the Chicago School of Economics including Friedman, who visited to advise him on how to apply a functional neoliberal state. Despite Friedman’s confidence that capitalism under neoliberal policies is the ultimate choice, Pinochet’s policies of trade liberalisation led to suppression of workers and various corrupt practices, causing mass social strife and eventually outbreaks of violence. Other countries took similar routes, such as in the case of Mexico, where, in the first year of North American Free Trade Agreement (NAFTA), wages decreased 40–50 per cent, and the cost of living rose by 80 per cent. The policies executed in Mexico for the sake of neoliberal restructuring resulted in the failure of thousands of small and medium sized businesses and the privatisations of more than 1,000 state-owned enterprises.
Whilst the 1970s paved the way for a neoliberal historical bloc, policy recommendations for developing Latin American countries were encapsulated in the ‘Washington Consensus’ in 1989. The ‘Washington Consensus’ is a term coined by John Williamson, Chief Economist of the World Bank in the South Asian Region and senior fellow at the Institute
for International Economics. The Consensus is based on Williamson’s ten policy recommendations for Latin American countries. These recommen- dations found a consensus with ‘most of official Washington’, and include:
1. Fiscal discipline.
2. A redirection of public expenditure priorities toward fields offering both high economic returns and the potential to improve income distribution, such as primary health care, primary education, and infrastructure.
3. Tax reform (to lower marginal rates and broaden the tax base).
4. Interest rate liberalisation.
5. A competitive exchange rate.
6. Trade liberalisation.
7. Liberalisation of FDI inflows.
8. Privatisation.
9. Deregulation (in the sense of abolishing barriers to entry and exit).
10. Secure property rights. (Williamson 1990)
These recommendations were part of a partnership between British Prime Minister Margaret Thatcher, and American President Ronald Reagan, whose own national policies heavily reflect the criteria within the Consensus. The conception of the Washington Consensus was particularly timely with the collapse of the Soviet Union. The disillusionment with Socialist ideology and Keynesianism may have sparked the urgency to utilise an alternative methodology for political and economic planning (Naim 1999).
While the Washington Consensus is only a set of ‘recommendations’, it provides foreshadowing of what would occur within the historical bloc of neoliberal capitalism in these early years and likewise greatly informs the restructuring requirements of Structural Adjustment Programmes (SAPs).
Neoliberalism as an economic theory is based on the rule of market, on the liberation of free enterprise or private enterprise from government bonds, no matter how much social damage this causes. It is a system within which governments advocate greater openness to international trade and investment. Businesses and employers often reduce wages in the initial stages of neoliberal adjustment, by de-unionising workers, and pigeon holing workers as human capital rather than considering the
importance of workers’ rights. Governments eliminate price controls and allow total freedom of movement for capital, and goods and services likewise. In the public sector, governments typically cut public expenditure for social services, deregulate government regulation of anything that might diminish profits, even if it means negative impacts on the environment or health and safety. States furthermore sell any state-owned enterprises to private investors. And finally, in the ideology of Neo- liberalism the idea of communities is transformed, which is manifest in policy-making. The idea of public good is not condoned, and responsibility of the individual for his/her own affairs and survival appears to become universal. Martinez and Garcia, members of Comite Emiliano Zapata affiliated to National Commission for Democracy in Mexico, critique this process by documenting several cases of exploitation and inequalities instigated by the expansion of neoliberalism (Martinez and Garcia 1996).
Conclusion
In conclusion, this chapter has outlined a modern global history of capitalism to provide a background of global hegemonic struggles surrounding forms of state and production relations. Positivist IR theories based in realism have not deeply pursued these matters, but it is possible to evaluate several aspects of struggle utilising Cox’s configurations of power (1981, 1987) and to explore the dynamic between forms of state, relations of production and emerging social forces.
Elite groups evangelised capitalist norms and set down liberal ideologies through the consolidation of groups of organic intellectuals across the globe, beginning in the era of hegemonic Pax Britannica.
During Pax Americana, the World Bank and IMF directed the discourse on globalization and capitalism. This rhetoric involves the prescription of certain norms for economic development that are advocated in the terminology of the Washington Consensus and IMF restructuring require- ments, whose development programmes are often quite direct and explicit mechanisms of socialisation within nations. Those requirements have, over time, become increasingly integrated into an emerging transnational network of capitalist apologists who aim to educate societies accordingly.
Because the final stage discussed here is not hegemonic, even according to Cox’s criteria, social forces are positioning themselves in a war of position.
Chapter 3 now looks at the way in which Korea has dealt with
international hegemonic struggle over time by elite led development and the trasformismo of workers during the ongoing passive revolution. In order to understand how this has occurred, I identify conditions for this paralysis by looking at non-hegemonic forms of state as well as limited concessions provided to workers to keep them from successfully carrying out their own revolution.