Research Foundation of SUNY

Neoliberalism: The Crime and the Beneficiary

Author(s): Grard Dumnil and Dominique Lvy
Source: Review (Fernand Braudel Center), Vol. 25, No. 4 (2002), pp. 393-400
Published by: Research Foundation of SUNY for and on behalf of the Fernand Braudel Center
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Neolberalism
The Crimeand theBeneficiary

GrardDumnl& DominiqueLevy
FINANCEIN POWER:A HISTORICALPERSPECTIVE
is used,theviewthatcontemporary
neoterminology
liberalpoliciesaretheexpression
Whatever
ofthepowerof"finance"
is
nowwidelyacceptedon theleft.Despitethecomplexity
ofevents,
sometraitsmaybe clearly
theriseofinterest
identified:
rates,the
the
of
and fiposition monetary
fightagainstinflation, prominent
nancialmarkets,
corporate
explicit
governance,
profitability
targets,
forthepoor.1
contempt
Ourinterpretation
ofthesephenomena
isnotoriginal.
Butonce
thisfirststephas been accomplished,
should
we
balk
at the
why
second?Pointing
to thepoweroffinance,
we are drivenintoa discussionofclassesand relations
ofproduction,
and theirhistorical
Ifwefurther
evolution.
broadenthescopeoftheanalysis
toincorporatetheviewthatlargetransformations
of capitalism,
suchas the
transition
fromKeynesianism
to neoliberalism,
are governedby
criseswhichshakeup previous
alliancesandpower
majorstructural
of
relationships
amongclasses,wearebacktoa veryoldframework
that
elaborated
Marx
in
the
middle
of
the
nineteenth
analysis:
by
thatthesestructural
crisesare
century.
Technically,
by asserting
linkedto thehistorical
trendsoftheprofit
rate,we are definitively
thisframework.
placedwithin
The structural
crisisof thelatenineteenth
century
provokeda
mutation
of
the
between
profound
capitalism: separation
ownership
and management,
combinedwiththe diminished
autonomyof
1The
analysisin thisarticleis partof a broader researchproject.See [http://www.
cepremap.ens.fr/levy].
review,xxv,4,2002,393-400

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393

394

GrardDumnil& DominiqueLvy

are used in the

Two expressions
workerswithinthe workshop.
The "corporate
UnitedStatesto designatethesetransformations.
and the
revolution"
refersto thelegalframework
(thecorporation
andits
ofthemeansofproduction,
oftheownership
shareholders)
to the
refers
revolution"
The
to
finance.
"managerial
relationship
and
clerical
personnel)
(managerial
expansionofthebusinessstaff
of production.
and the new (Tayloristor Fordist)organization
relevantto our analysisis thefactthatlargemodern
Particularly
orientedto privateenterpriseoperations
financialstructures
structures
as opposedto thetraditional
from
this
crisis,
emerged
ofthe
Dramatic
states.
of
the
linkedto
growth
financing
primarily
the
followed
ofcapitalism
institutions
andfinancial
rapidly
monetary
first
detwo
the
and
of
During
separation ownership management.
thestocksofcreditandmoneygrew
cadesofthetwentieth
century,
in its
wasestablished
to extraordinary
levels,and thestockmarket
of
class
the
the
From outset,
modernsetting.
personnel
managerial
shareholdof
the
that
was
and
(managers engineers) pittedagainst
How wouldthe
someemotionamongcapitalists.
ers,notwithout
ofcapitaloftheprofit
maximization
rate,thefundamental
principle
ism,be maintained?
personneland
Despitetheriseofmanagerial
thesefirstdecadesweremarkedby the
of workers,
thestruggle
ofcreditand
thecontrol
Inparticular,
dominant
positionoffinance.
in generalremainedtheunchallenged
financial
mechanisms
privlargebanksactingin theUnitedStatesas genuine
ilegeoffinance,
ofthefinancial
withthestability
privatecentralbanks,concerned
and
of
system,
prices.
As is wellknown,itis theGreatDepressionofthe1930's,and
this
thefailureof financeto cope withthecrisis,whichunsettled
the
The
era.
a
new
framework,
comproexpression Keynesian
opening
Some
miseis oftenused to referto thisnewsocialconfiguration.
on finance
wereputinplace,butingeneralthiscomprolimitations
withregardto
institutions
theroleoffinancial
misedid notaffect
orchestrate
the enterprises.
They continuedto issue securities,
theoverall
of
lost
control
allot
credits.
and
However,
they
mergers,
thegenerallevel
todetermine
and theability
ofthesystem
stability
ofcapitalwerealsoregulated.
movements
ofactivity.
International
was nowin
The state,i.e., a newgroupof government
officials,
After
exerciseofcontroland regulation.
chargeof thecentralized
first
the
of
theSecondWorldWar,despitetheextreme
experiences
but
wasdeemedtolerable
NewDeal,thenewframework
byfinance,

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neoliberalism: crimeand beneficiary

395

"financial
itwascalleditrepresented
a realsetbackrepression,"
financial
Thisnew
the
institutions.
whichwasnevertruly
acceptedby
between
theruling
waslinkedtoa compromise
powerconfiguration
classesand salariedworkersin general:risingreal wages,social
Theway
therighttowork,andtrade-union
welfare
benefits,
rights.
as wellas
theseconquestswererealizedhas oftenbeendescribed,
In Europe,thestategaineddirect
in varioussettings.
differences
and
oftheeconomy,
controloflargesegments
including
planning
or otherformsofprivileged
subsidies,
financing.
comThe crisiswhichbeganin the1970'sundidtheKeynesian
whichhadbeen
ofthepoweroffinancepromise.The restoration
in
the
field
of
international
in
for
prepared decades, particular
ofthe1970's.Its
wasmadepossiblebythelargeinflation
financewasthegreatchangein
realand symbolic,
climax,simultaneously
policyto pricestability,
monetary
policyin 1979,whichtargeted
Thisevolution
wasconsiderofitscostinunemployment.
regardless
of
internationalization
the
reinforced
production
by continuing
ably
multinational
within
corporations.
ofthesetransformaofthestagesandforms
Thedetailedanalysis
thanthediscussion
of
to our presentanalysis
tionsis lessrelevant
of therulingclasses,
and nature.One fraction
theirsignificance
hasrestored
ofcapitalist
thedirectincarnation
finance,
ownership,
rules
and
norms.
Itmustbe
its
itscontroloverthesystem,
imposing
thatfinancedid notreversetheevolutionof the
clear,however,
in particular
theseparation
of ownership
of production,
relations
It is powerwhichis at issuehere,in corporate
and management.
and thereturnforthe
to achieveprofitability
(activity
governance
the
in
the
control
of
well
as
as
shareholder),
macroeconomy
(policies
concerning
pricestability).
Whatdidfinanceachieve?Muchharmtoothersandadvantage
as maybe expectedfroma rulingclassnotdedicatedtoalforitself,
We
Thisiswhatweshalldemonstrate
truism.
byusinga fewfigures.
focuson theconsequencesof thechangein monetary
policyinitiatedin theUnitedStatesin 1979.The debtofThirdWorldcounofthis
a majorexampleoftheappalling
triesprovides
consequences
newpolicyoutsidetheUnitedStates.A specificpurposeof what
todoctouse theexampleoftheU. S. economy
follows
is,however,
in
a
counoftheriseofinterest
even
umenttheconsequences
rates,
as a majorsource
didnotuseborrowing
traditionally
trywherefirms
offinancing.

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396

GrardDumnil& DominiqueLvy

THE VIOLENCEOF FIGURES

The riseof interest
rateswhichfollowedfromthechangein
whosemajorsympmonetary
policyin 1979didnotcausethecrisis,
tomswerealreadyevidentin the1970's.The crisisis a structural
In fact,
ofcapitalism.
linkedto theinnertendencies
phenomenon
ofthecrisis.
theriseofinterest
ratesprolonged
theeffects
thebestaccountoftheevThesynthetic
variable
whichprovides
whosedecline
olutionistheprofit
rateofnonfinancial
corporations,
crisisofthe1970's.Figure
hadbeenthemainfactor
ofthestructural
ratefrom1970to 2000.Con1 showstwomeasuresof thisprofit
siderfirst
themeasurebeforeinterest
i.e.,in(netinterest,
payments
The
account.
are
taken
into
terestpaid minusinterest
received)
then
declineis clearin the1970's,up to 1982.A partialrecovery
at a levelstillinferior
however
ratefluctuating
occurs,witha profit
a measureof
tothatoftheearly1970's.Thesecondseriesdescribes
The gap betweenthetwo
theprofitafterthepayment
ofinterest.
is dramatic
seriesduringthetwodecadesofneoliberalism
and,to
The recentflucthisdegree,itis impossible
to speakofa recovery.
risenabovethelevelof1980,
tuations
oftheprofit
ratehavescarcely
and theprofit
ratein 2000remainsnearlytwiceas smallas thatof
netindebtedness
their
firms
diminished
1970.Asmight
be expected,
thepatternof their
as soon as theywereable to do so, altering
anddiminishing
theirinvestment.
financing
Figure1
Profit
Rate,BeforeInterest
(- ) and
Payment
after(
): U.S. Nonfinancial
Corporations

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NEOLIBERALISM: CRIME AND BENEFICIARY

397

Itiswellknownthatthenegative
ofthesetransfers
consequences
ofincometolenderswerenotlimited
toenterprises.
Allborrowers
wereaffected.
Thecostofthepublicdebt,whosefinancing
hadtobe
renewedat thenewrates,becamerapidly
unbearable,
accelerating
on publicexpenses(whiletheflowsofrevenueslowed
thepressure
downas a resultofdiminished
rates).Ifnotfortheburden
growth
have
ofinterest,
would
remained
balanced
publicexpenses
generally
in mostofthemajorcapitalist
countries!
ratessharply
affected
ThirdWorldcountries
Thisriseininterest
a largeexternal
debt.Thisfacthasoftenbeendenounced,
carrying
ofthephenomenon.
butitis important
to measuretheamplitude
forall developing
The apparentrealrateofinterest2
countries,
by
of theWorldBank,soaredfromthenegativerates
thedefinition
(whichhad madepossibletheriseof thedebt)to largely
positive
in theGNP
ratesin the1980's.Figure2 showstheshareofinterest
theirsuddenrise,simultaneous
to the
ofthesecountries,
revealing
it.3
in
in
which
caused
When
measured
dolpolicy
change monetary
ofpricesin theUnitedStates),the
forthevariation
lars(corrected
countries
of
the
GNP
of
appearsdramatic.
By
collapse
developing
recovered
thelevelof1979.Notallofthiscanbe
1996,ithadhardly
blamedon thecostofthedebt,butmostofitcan.
Figure2

The ShareofInterest
on theDebtin theGNP:
Countries
Developing

2 The ratioof interest

paid to the stockof debt,correctedforthe rate of variation
of pricesin the United States.
3 The data are fromthe World Bank. The seriesis not availableafter1996.

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398

GrardDumnil& DominiqueLvy

Theseexamplesofthemajorshockscausedbythepolicyofhigh
of
interest
inthecontext
ratesandlowinflation
mustbe understood
a moregeneraltransformation.
to conofshareholders
The ability
inparticular
welfare
trolmanagement
wasrestored.
Publicexpenses,
rules
were
new
neoliberal
were
constrained.
The
graduprograms,
situatheworld,usingtheemergency
allyputin forcethroughout
tionscreatedbythedebtcrisisoroffinancial
crisesingeneral.Proinparticular
finance
allofitseffects,
longingthecrisis,
perpetuated
thepressure
placedon laborcosts.
ofagentssuffered
One possibleobjectionis thatall categories
fromthecrisis,including
lenders,and thatnobodyreallybenefits
showsthatprecisely
fromunfavorable
circumstances.
Whatfollows
theoppositeis true.Duringthe1970's,a shareoftheburdenofthe
crisishadbeenplacedon lenders,butthenewcourseofmonetary
In theearlierdecto theiradvantage.
thesituation
policyreversed
sectorrethatthefinancial
interest
ades,thenetflowofmonetary
about3 or 4% of
ceived(itsmainsourceof profits)
represented
rosegradually,
ofthe1980's,thispercentage
GNP.Atthebeginning
for
isobserved
5 or6% duringthe1990's.A similar
picture
reaching
and
thefraction
ofhouseholds
i.e.,
shares,
securities,
loans,
holding
In the1970's,theflowsof
thewealthiest
fraction
ofthepopulation.
interest
and dividends
thattheyreceivedamountedto 12%ofthe
totalincomeof households;thisratereached18% in the 1990's.
the
theratiobetween
the1979changeinmonetary
policy,
Following
nonfinancial
and
rate
of
financial
corporations
profit
corporations
wasinverted.
Thisis shownin figure3.4Beforethelate1980's,the
to that
inferior
ofthefinancial
sectorwassignificantly
profitability
the
above
well
it
rose
ofthenonfinancial
when
sector,
prosuddenly,
sector.
fitratesachievedin thenonfinancial
andMarx,inAs alreadyarguedbyboththeclassicaleconomists
differentials
rate
vestments
are influenced
amonginby profit
rushedintothefinancial
dustries.As expected,investors
sector,
diswhich
in
This
is
shown
rate.
attracted
the
4,
figure
by largeprofit
net
the
to
corporations
playstheratioofthenetworthoffinancial
a measureoftherelThisratioprovides
worthofall corporations.
sectors(excluding
ativesizeofthefinancial
funds)in theeconomy,
In abouttenyearsthisratiogrewfrom
in termsofcapitalinvested.
4 The

figuresforthe financialsectorexclude funds.

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NEOLIBERALISM: CRIME AND BENEFICIARY

399

As iswellknown,
thegrowth
about13%to23%,a true"explosion."
ofmutualandpensionfundshasbeendramatic.
Figure3
Rate(%): U.S.,Nonfmcial
Profit
( - ) and
FinancialCorporations
(
)

Figure4
RatiooftheNetWorthofFinancialCorporations
to thatofNonfinancial
(%): U.S.
Corporations

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400

GrardDumnil& DominiqueLvy

IS AN OVERALLASSESSMENTSTILL PREMATURE?
is
ofneoliberalism
Thisrapidbalanceofthecostsand benefits
and benefits
ofthepopulation
costsforone fraction
unequivocalis thatofsocialclassesand
foranother.
variable
Andtheunderlying
No doubtnuancesshould
levelsofdevelopment
amongcountries.
in theforFinanceis involved
be addedto thisgeneralassessment.
sectoroftheeconoftheproduction
mationofthenewstructures
Thesestructures
play
probably
omywhichare presently
emerging.
are
which
oftechnical
a rolein thenewfeatures
presently
change
(theriseoftheoutput/
capitalratio).
emerging
is thatitignorestheissue
The maindeficiency
ofthisevaluation
crisesin Asia,
financial
recent
the
of financial
Indeed,
instability.
of thecostsof
LatinAmerica,
and Russiaare a majorcomponent
secfinancial
the
of
In addition,
thedramatic
neoliberalism.
growth
of
the
fall
rise
and
with
the
in
tordescribed
infigure
combination
4,
of theworld
stockmarket,
pose a seriousthreaton thestability
Great
here
the
One
should
not
Depressionofthe
economy.
forget
alsoin a
offinance,
theprevious
1930's,whichfollowed
hegemony
The pointsthetwo
newtrendsoftechnology.
periodofemerging
in
common
are
verystrong.
periodshave

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