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The Fall of the Social State and Rise of Neo-liberalism

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Baku, 23 May 2019 – Newtimes.az

Emergence of neoliberalism and erosion of Social State

European integration has been transformed into neo-liberal project when the economic crisis and global competition were strengthened starting from 1970s. There were other important occurrences which caused a shift in economic model, like 1973 oil price hike, 1975 U.S. defeat in Vietnam, halt in Bretton Woods System in 1971. After Keynesianism, rising social responsibilities of states and caring the class which consumes without producing also accelerated unavoidable economic shift.

Particularly, after economic crisis in 1973, it was identified that traditional approaches to economy is insufficient. Structural weakness of the economy was also revealed in the comparison with the U.S. and Japan’s economic development. In this situation, three main debates appeared over restructuring socio-economic order of Europe. The fundamental axis of ideological struggles within the European capitalist class in the beginning of 1980s constituted the contrast between neo-mercantilism and neo-liberalism. Neo-mercantilists had the view of "Europeanism”. They were the main industries which were producing for only Europe. Therefore, they wanted to create a strong European market which is resilient to outside competition. Thus, how and to what extent the European capitalist class has shaped the transformation of the European order largely depended on the outcome of the struggle between Europeanists and globalists.

The third adversary capitalist model – social democratic model appeared in the second half of 1980s. The main concern of this model was that social dimension should be added to the completion of internal market. Social democracy model was suggested by Jacques Delors in 1985 (president of European Commission) with promising high level of social protection against the possible disruptive forces of neoliberalism and globalization.Thus, European Social Model appeared in Delors’ vision that European capitalism should combine both the needs for welfare and sustainable growth, social solidarity and competitive market. To reach these goals, it was aimed to create strong European institutions and support state-building programs together with market-building. To make European market stronger against the global competition converged social model defenders to neo-mercantilists.

Indeed, all three models supported the accomplishment of internal market. However, the significant friction occurred on the question how the single market should be completed. The answer of neoliberalism was that trade liberalization should be increased and large external openness should be added there. On the other hand, social model supported regulation of market by a single supra-national power, namely Commission.The third project – neo-mercantilism supported interventionist industrial policy by increasing external tariffs in order to protect the internal market form outside competition.

The debate on the completion of market was resulted with the victory of neo-liberalist model of capitalism. The steady support and lobbying of corporate sector, while the weakness of labor unions were the main reasons for the victory of neo-liberalism. In Europethe shift towards state ownership or privatization, labor markets’ flexibilisation and pressure on wage demands started to be strengthened form 1980s which significantly decreased the power of labor unions. While support for further liberalization has been increased with the 200 TNCs and 500 corporate lobby groups based in Brussels, it wasn’t thought that the ignorance of labors’ social demands will cause resurgence of social model. Neo-Gramscian theorist van Apeldoorn particularly mentions the promotion activities of European Round Table Industrialists for global liberalism.

The turn of neo-liberalism has certainly been started in European integration after the creation of Single Market in 1987. Neo-liberalist approach was promoted with the claim of treating the deficiencies of the social welfare state, like increase in welfare, formation of rational and responsible individuality and productivity.In the beginning, it was accepted to provide a middle path (social democratic) and state intervention along with the free market. However, the further development of the approach was far from meeting the expectations of social policy and social welfare.In particular, the increasing welfare gap among social classes, income inequalities, increase in poverty and interest rates, erosion of job security and rise in the levels of unregistered employment increased the discontent substantially in the social sectors.

After completion of Single Market, further steps in integration, like European Monetary Union, Lisbon Strategy have been totally based on economic liberalization and preference for competition. Considering anti-globalization movements, EU became active in social policy improvement, whereas these movements were constrained by the claims for competitiveness, economic efficiency and stabilization. For example, PhipipWhyman, Mark Baimbridge and Andrew Mullen exemplify 1989 Social Charter and 1999 Luxembourg and Cologne process for the creation of European Employment Pact. They argue that the former process aimed to respect for national differences in social systems and the latter planned to deliver job-creating growth and decrease the burden on workers by reforming taxation and social security systems. However, the authors criticize that Employment policy guidelines have been left for the decision and control of member states. According to Cologne process, member states had to develop and implement their national action plans for employment improvement on their own and then they could publish the consequences in the joint employment report after Commission’s approval. They further claim that in this situation, there can’t be formed a unified EU level welfare state.

Social Policy Agenda (2000) under Lisbon strategyaimed to modernize social protection and to create more and better jobs. However, there was a critic about EU’s social initiatives that all social policies were limited to voluntary coordination and social dialogue which shows the absence of willing for formulating a common and regulated mechanism.

Starting from 1990s, there appeared important deficiencies in neoliberalism which gave a way for resurgence of ESM discourse. One of the main flaws was related to the rising power of Trans National Corporations. Corporations’ unwillingness for organized labor market, stabilizing welfare benefits by ensuring work pays and increase in payment for social expenditure resulted with rise in poverty and social inequalities. They have played a crucial role in transforming of World Order by penetrating not only to economy, but also to policy-making process through lobbying endeavors and media by using propaganda. PhipipWhyman, Mark Baimbridge and Andrew Mullen argue in their book that TNCs started to govern the economics and became more wealthy and powerful after neo-liberal revolution and spreading the dominance of globalization. For example, worldwide sales of TNCs were smaller than world exports in 1960, however they got 247 per cent of world exports in 2000. Following this, Chomsky also declared neo-liberal world order as "new imperial age” by claiming that World Bank, GATT, IMF were programmed to serve the interests of TNCs and investment firms.

Global trade in services and goods started to be dependent on TNCs and this process of corporate concentration has been speed up by trade deals, like Single Market (in 1987) or NAFTA (in 1994). Moreover, as the two-third of TNCs were based in North (Japan, Europe, North America), FDIs in the form of acquisitions and cross-border mergers were substantially centered in core countries. This concentration of FDIs deepen core-periphery divergence and make periphery stay outside by increasing interpenetration of core countries.

Neo-liberal policies and its social consequences

Neoliberalism has been unsuccessful to reach its aims in terms of social well-being and economic efficiency. If we compare the period 1980-2000 with the previous twenty years (1960-1980), then we can easily identify that the latter period has been more successful in terms of well-being indicators and quality of life, than the former. Furthermore, annual rate of economic growth per capita has been lower in the EU when neo-liberalism peaked in 2000. The author also elaborates that class inequalities have increased substantially in Europe’s capitalist countries.To prove the hypothesis of increasing income inequality, Branco Milanovic came a conclusion that world population’s top 1 per cent obtained 57 per cent of the world income between 1995 and 2000.

Income and other social inequalities have appeared due to the class-determined policies. In other words, as neo-Gramscian theorists argue, hegemon classes in the form of lobby groups (European Round Table of Industrialists, World Economic Forum, Trilateral Commission and so on) directly influence to the decisions of governments. These decision and policies constitute the core of neo-liberalism which undermined the implementation of social policies.

One of the main public policy in neoliberalism was the deregulation of labor markets. John Peters argues in his article that the most significant consequence of labor markets’ deregulation was the decline in salaries and job security, while rise in temporary employment. This policy also eliminated the power of trade unions to change the nature of jobs through collective negotiations. The initiative of deregulation and allowing businesses to define wages have been started by Ronald Reagan and Margaret Thatcher with claim of supporting businesses. Table 1 shows the percentage of trade union membership in the EU after the launch of neoliberalism until its peak – 2003. Between this period of time we can observe a slight decline in the membership for Trade Unions in developed countries.

Table 1: Trade Union density

Source: Peters, John. «Labour market deregulation and the decline of labour power in North America and Western Europe.» Policy and Society, 2008: 83-98.

Then deregulation of financial markets and commerce in goods and services were followed. Deregulation for consumers was beneficial in terms of having more choices and superior customer service, however it was more detrimental for consumers who have worse socio-economic conditions. These types of customers can’t pay more for products and have been left for the mercy of businesses who mainly care their profits than social responsibility.

Another crucial neo-liberal policy was the reduction of social public expenditures which was harmful for working class. Government spending on social programmes has been cut through austerity measures which aimed to reduce budget deficits. Member countries started to reduce public debts and budget deficits within austerity measures after Maastricht Convergence Criteria which sharpened the already high unemployment rates. The trouble due to rising unemployment rates persuaded European Council to formulate European Stability Pact in 1997 which has played a crucial role in the process of cutting social expenditures. The main objective of Stability and Growth Pact was to ensure the commitment of member states to the Maastricht Convergence Criteria. However, the commitment about keeping deficit below 3 per cent of GNP has been strengthened which resulted with large reductions of social public expenditures.

The situation deteriorated for working class who use public services,with the next policy of privatization of services. U.K.’s large privatization experience has been a model for other countries, in particular afterMaastricht Convergence Criteria. Privatization aimed to reduce public debt level and budget deficit.Privatization of assets and public sector services was continued after euro crisis in 2008 under Troika.

From the beginnings of 1990s the discourse of promotion of ant-interventionism has been reinforced under neo-liberal model. Despite the acceptance of state interventionism in neo-liberalism, the new discourse of ant-interventionism appeared to support the interests of TNCs and dominant classes.

Matthew Eagleton-Pierce explains the promotion of individualism and consumerism in neo-liberalism and relates the term of individualism with the term of choice. He further claims that the relationship between neo-liberalism and consumer choice is in contrast with the culture of collectivism. Starting from the 1970s, collective forms of socio-economic organization has been challenged by business lobbies and conservative governments. To show the correlation, he exemplifies that the decline in trade union participation in Western Europe started to weaken socialist-inspired goals and to erode bargaining positions.

Sabina Jahanli

References

Apeldoorn, Bastiaan Van. The Struggle over European Order: Transnational Class Agency in the making of 'Embedded Neo-liberalism'. Basingstoke: Palgrave, 2001.

Apeldoorn, Bastiaan Van. «Transnational Class Agency and European Governance: The case of the European Round Table of Industrialists.» New Political Economy 5, № 2 (2000): 157-81.

Eagleton-Pierce, Matthew. «On Individualism in Neo-liberal Period.» PSA 66th Annual International Conference. Brighton: SOAS University of London, 2016. 4-8.

Gill, Stephen. A Neo-Gramscian Approach ro European Integration.Редактор A. Cafruny & M.Ryner. Oxford: Rowman and Littlefield, 2003.

Grath, Patricia Mc. Financial Deregulation and Economic Growth in the Czech Republic, Hungary and Poland. The William Davidson Institute, 2005.

Hermann, Christoph. «Neoliberalism in the European Union.» Studies in Political Economy, 2007: 61-90.

Milanovic, Branko. Global Income Inequality by the numbers: In History and Now. Washington: World Bank’s Research Department, 2012.

Mullen Andrew & Philip B. Whyman & Mark J. Baimbridge. The political economy of the European social model. New York: Routledge, 2012.

Navarro, Vicente. Neoliberalism, globalization, and inequalities : consequences for health and quality of life. New York: Baywood Publication, 2007.

Padoan Pier Carl & Paolo Guerrieri. «Neomercantilism and international economic stability.» International Organization (The MIT Press) 40, № 1 (1986): 29-42.

Rodrigues, Maria João. The Debate over Europe and the Lisbon Strategy for Growth and Jobs. Lisbon: Social Sciences and Humanities in the European Research Area, 2005.

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