excerpts from the book
The Silent Takeover
Global Capitalism and the Death of Democracy
The Revolution Will Not Be Televised
Living In A Materal World
by Noreena Hertz
Arrow Books, 2001, paper
The Revolution Will Not Be Televised
All over the world, concerns are being raised about governments'
loyalties and corporations' objectives. Concerns that the pendulum
of capitalism may have swung just a bit too far; that our love
affair with the free market may have obscured harsh truths; that
too many are losing out. That the state cannot be trusted to look
after our interests; and that we are paying too high a price for
our increased economic growth. They are worried that the sound
of business is drowning out the voices of the people.
there is a fundamental paradox at the heart of laissez-faire capitalism,
that by reducing the state to its bare minimum and putting corporations
at centre stage the state risks jeopardising its own legitimacy.
Over the last two decades the balance of power between politics
and commerce has shifted radically, leaving politicians increasingly
subordinate to the colossal economic power of big business. Unleashed
by the Thatcher-Reagan axis, and accelerated by the end of the
Cold War, this process has grown Hydra-like over the last two
decades and now manifests itself in what are diverse positive
and negative forms. Whichever way we look at it, corporations
are taking on the responsibilities of government.
And as business has extended its role, it has ... actually
come to define the public realm. The political state has become
the corporate state. Governments, ( by not even acknowledging
the takeover risk shattering the implicit contract between state
and citizen that lies at the heart of a democratic society, making
the rejection of the ballot box and the embracing of non-traditional
forms of political expression increasingly attractive alternatives.
Living In A Materal World
The rise of the New Right
The watershed came in 1979 and 1980 with the election first
of Margaret Thatcher and then of Ronald Reagan - politicians from
the New Right, who enthusiastically advocated the free market
and were determinedly hostile to the concept of an
interventionist state. Rejecting Keynesianism, the grocer's
daughter and the Hollywood actor embraced the views of economists
such as Milton Friedman and Friedrich Hayek. These economists
didn't dispute that markets could and did fail; but they believed
that the free market was capable of allocating goods and services
more effectively than the state could, and that government attempts
to combat market failures did more harm than good. They harked
back to the ideas that had shaped economic policy from the Victorian
era through to the Wall Street crash, that 'The role of the state
was to enforce contracts, to supply sound money . . . to ensure
that market forces were not distorted and, essentially, to provide
the best environment for business to flourish, evoking memories
of the 1920s US President Calvin Coolidge's dictum, 'The business
of America is business.'
The extent to which this new religion embodied a coherent
ideology, a creed of Reaganism or Thatcherism which could be adopted
by other states, remains a matter of dispute. The two leaders'
goals and priorities were often different. Thatcher adopted monetarism
- emphasising tight control of the money supply - whereas the
Reagan administration was dominated by supply-side economists,
who advocated tax cuts to give the greatest incentive to production.
But there were themes running through the policies of Reagan and
Thatcher that gave a discernible character to their politics,
and made it possible to identify their followers in other countries.
Their views are easiest to define in the negative: as a rejection
of all the pillars of the post-war Keynesian consensus. In place
of the goals of full employment and a generous welfare state,
the New Right favoured the reduction of inflation and cuts in
public spending (which they regarded as a major cause of the current
economic malaise); rather than a mixed economy, they wanted the
state cut back to its core, with many of its functions privatised
or contracted out.
The New Right felt that too much had been expected from government
in the post-war period. Its view was that the role of government
should be to alleviate the worst evils of the human lot and provide
a framework within which people and communities could pursue their
various goals - not, as in previous decades, to positively guarantee
general welfare. John Moore, Thatcher's Social Services Secretary,
explained in 1987: 'For more than a quarter of a century after
the last war public opinion in Britain, encouraged by politicians,
travelled down the aberrant path towards even more dependence
on an even more powerful state. Under the guise of compassion
people were encouraged to see themselves as "victims of circumstance".
According to the New Right, the welfare mentality had bred indolence
Under these new leaders there was a clear shift of priorities.
Interdependence was replaced by independence and egalitarianism
was rejected on ideological grounds: the state was no longer to
have a role to play in redistributing wealth. Relative standards
of poverty were deemed irrelevant; poverty was to be defined by
absolute standards of need. As Thatcher argued in 1985, 'You are
not doing anything against the poor by seeing that the top people
are paid well. And the state no longer accepted responsibility
to provide unquestioning support for those who for whatever reason
were denied an ability to be productive. In 1981, in the aftermath
of the Brixton riots, Norman Tebbit, the then Secretary of State
Employment, made the infamous assertion that 'My father didn't
riot but got on his bike to look for work. 'Get on your bike'
became the moral imperative of Thatcherism.
And greed was declared good. Oliver Stone's Wall Street, Tom
Wolfe's The Bonfire of the Vanities, Martin Amis's Money and Michael
Lewis's Liar's Poker faithfully chronicled the times. Power dressing
and padded shoulders clad those aspiring to partake in the capitalist
dream. Economists of the Chicago school wrote of man as a selfish
utility maximiser and, almost in a self-fulfilling prophecy, Homo
economicus, or economic man, was born.
The new Conservative government of Margaret Thatcher abandoned
the ambitions of both the Labour and Conservative governments
of the 1950s and 60s, jettisoned the government's commitment to
sustain full employment, celebrated the virtues of private rather
than public provision, and set itself to reduce the burden of
social expenditure which, it argued, had seriously eroded those
economic incentives which alone made sustained economic growth
possible. The private sector was to be set free, and the state
was to be rolled back.
In the UK the 'family silver' was sold off as Thatcher came
to see privatisation as the main cure for the ills of the British
economy as well as a convenient way of balancing the budget. A
massive sale of assets from the public to the private sector was
conducted during the eighties and nineties with the Conservative
government raising £67 billion between 1979 and 1997. While
in 1979 government institutions owned much or all of coal, steel,
gas, electricity, water, railways, airlines, telecommunications,
nuclear power and shipbuilding, and had a significant stake in
oil, banking, shipping and road haulage.
By 1997, nearly all of this was in private hands. Nigel Lawson,
the then Secretary of State for Energy, summed up the party position,
with his argument in 1982 that 'no industry should remain under
state ownership unless there is a positive and overwhelming case
for it so doing.
Steps were taken to create an economic culture that rewarded
enterprise and innovation. Rates of corporate and individual taxation
were reduced; price, dividend and foreign exchange controls were
removed with no thought for the vulnerable state in which this
would leave the nation. At the Bank of England thousands of people
lost their jobs. Restrictions on bank lending and hire purchase
were abolished. Controls over broadcasting, telecommunications,
transport and advertising were withdrawn. Right-to-buy schemes
for council houses were set up, and shares, not least in the formerly
publicly-owned utilities, became available much more widely than
before. In 1979, there were four times as many trade unionists
as share holders. Within a decade the latter exceeded the former.
Capitalism was made 'popular' - everyone was to share Thatcher's
economic success. Anything or anyone that potentially stood in
the way of this success came under attack. Regulation was dismantled,
for it was seen as a stranglehold on corporations. The unions
were attacked with ferocity, and held largely to blame for the
poor economic performance of British industry. The denunciation
of trade unionism became an article of faith on the New Right.
In the United States, the long period of increased involvement
of the national government in domestic affairs that began with
Roosevelt's New Deal was now over, succeeded by the 'New Federalism'.
Reaganomics (and Thatcherism too) rested on a firm belief in the
'trickle-down' theory, which claims that if the rich are provided
with incentives such as lower taxation, they will in turn have
more incentive to act as entrepreneurs and so will boost growth
and create jobs. Or that if public service industries are turned
over to the private sector, they will be run more efficiently
and provide more jobs for people who will then start disappearing
off the welfare rolls. Providing incentives for the poor to work,
such as making welfare less attractive, was also believed to boost
economic growth. Eligibility requirements for benefits were tightened,
and rights to food stamps and funds from AFDC (Aid to Families
with Dependent Children) were withdrawn from some recipients.
Unlike in Europe, public ownership had never taken off in the
USA, so Reagan's main tool of liberalisation was deregulation
of the economy, a process kicked off by Jimmy Carter in the 1970s.
The Reagan administration cancelled oil price controls, loosened
restrictions over railroad transportation, broadcasting, and the
oil and natural gas industries and was reluctant to enforce anti-trust
legislation. Despite the fact that US trade union leaders had
never wielded much political clout, Reagan echoed Thatcher in
a strong cornmitment to curbing union power. Shortly after assuming
office, he was confronted with a strike by the nation's air traffic
controllers. He promptly sacked them all, substituting military
controllers and newly trained workers in their place.
As well as making life considerably easier for the private
sector, Reagan promised to 'get government off the backs of the
people'. Through tax cuts, he aimed to recreate the structure
of incentives and rewards that had been frozen by the high-tax
policies of his predecessors. The top marginal rate of income
tax in the United States fell from 70 per cent to 28 per cent.
By the early 1980s the role of government in England and America
had fundamentally and irreversibly changed. Free enterprise was
seen as the key to economic success, and the task of government
was now 'to create a framework in which individuals and groups
can successfully pursue their respective ends'...
This creed of free market capitalism, Anglo-American style,
was soon disseminated across the world. Aided by developments
in communications and the media which ensured that ideas spread
quickly, and by the single-mindedness of the neoliberal international
lending institutions, the IMF and the World Bank, who were promoting
the so-called 'Washington Consensus', capitalism's foot soldiers
marched from Latin America to East Asia, India and most of Africa,
from old and declining capitalist nations such as the UK to vigorous
capitalist economies with strong traditions of regulation, such
as Germany; and eventually even to the former command economies
of the Communist world. 'The market' became the catchphrase of
the 1980s and 1990s as liberalised states bore witness to the
benefits of the capitalist system.
The first countries to embrace Anglo-American free-market
capitalism were Britain's former dominions. Sliding economic performance
in Australia in the 1980s led Treasury Minister (and later Prime
Minister) Paul Keating to warn that the country risked becoming
a 'banana republic' if it did not reform,. His methods - deregulation,
fiscal rectitude and privatisation - were highly reminiscent of
Thatcher's. In Canada during the same period, Brian Mulroney liberalized
the laws restricting foreign investment in the country, opening
up the Canadian market for free trade. In New Zealand, 'One of
the world's most comprehensive social democracies became a neo-liberal
state . . . Uncompromising neo-liberal ideology animated a programme
of radical reform in which no major social institution was left
In Latin America, the military dictators who dominated politics
in the 1980s also showed themselves to be keen disciples of the
New Right. In Chile, under General Pinochet, the lack of democratic
constraints facilitated the imposition of painful monetarist economic
policies carried out under the guidance of a team of economists
from the University of Chicago. And by the early 1990s, all major
Latin American leaders, 'President Carlos Salinas de Gortari in
Mexico, President Carlos Menem in Argentina and President Femando
Collor de Mello in Brazil [sought] to implement far-reaching programs
of economic liberalization accepting the need for market competition
and openness to the world economy,' believing that their underdevelopment
was due to the 'insufficient degree of capitalism that had been
practised in their countries in the past,' and recognizing that
their only chance of securing IMF loans was by implementing reform
packages along the 'Washington Consensus' lines.
Across Europe high levels of inflation and public indebtedness
forced governments to question the basis of their economic policies.
Helmut Kohl in Germany and Jacques Chirac in France were not New
Right zealots like Thatcher and Reagan, yet they appreciated the
financial benefits of privatisation; and both showed an understanding
of the realities of the new global environment in which they too
would have to display willingness to bring down business taxes
and deregulate the labour market, or else lose out on inward investment.
So under Kohl, 'social benefits and health provisions were restricted,
companies privatised, strike laws changed in bosses' favour, business
taxes trimmed.' In Italy and France, companies worth roughly X50
billion in all were privatised in the ten years to 1995, resulting
in a massive increase in privately held big business.
The end of the Cold War
In the meantime communism, the only other major ideological
contender, was dying an ignoble death. In the autumn of 1988 Mikhail
Gorbachev travelled to New York to deliver a historic address
to the UN General Assembly. The Cold War was over, he proclaimed.
Communism had failed in its seventy-year battle against the global
capitalist system. A year later the Berlin Wall came crashing
down. Three years after that, the Soviet Union collapsed.
But while William the Conqueror took Britain with the Sword,
the Soviet bloc was vanquished by the Coca-Cola bottle. Free market
capitalism demolished communism by transmitting Rupert Murdoch
and Ted Tumer's Weltanschaung, making it impossible for communist
governments to continue to shield their populations from awareness
of the prosperity of Western states. McDonalds, Levis, BMWs and
rock music had become symbols of the Western way of life as important
to the East Europeans as multi-party democracy or freedom of speech
and travel. And the Soviet government could no longer resist an
international capitalist system that had grown more and more wealthy
over the preceding two decades. Huge expenditure on the military
had taken its toll. Matching Reagan's proposed Star Wars programme
was a financial impossibility. The Soviet Union's need to be ready
to fight the rest of the world had become increasingly untenable.
The collapse of Soviet-style communism in turn affected those
states outside Europe that had looked to the Russian model in
structuring their economies. In India, for example, which traded
extensively with communist countries, the revolutions in Eastern
Europe spurred the liberalisation of its own economy. It is now
moving ahead with privatisation and easing the process of foreign
direct investment. In Africa after 1989, Zambia and Tanzania were
among several countries that began to convert to more market-minded
philosophies. Communism's terminal crisis began in China when
the leadership recognised that the country was being left behind
by the rest of capitalist Asia and began to feel that it was socialist
central planning that had condemned it to backwardness and poverty.
Frustrated with the poor yields of closed economic policy and
import substitution, and having witnessed the success of the Asian
'tiger economies' - Singapore, Hong Kong, Taiwan and South Korea
- many other developing countries increasingly declared a willingness
to open up their markets and welcome the doctrines of free market
capitalism. They had seen how these countries had entered into
licensing agreements and joint ventures and utilised the capital
or the technology of foreign corporations and investors with notable
success. Furthermore, with the collapse of the Communist trading
bloc and the implementation of international trade treaties such
as the GATT Uruguay Round, which promoted liberalisation and deregulation
of global markets, developing countries had few options. By the
middle of the l990s there was only one game in town. Governments
that were once wary of foreign capital became caught up in the
worldwide race for export-oriented growth.
In the meantime, aid, the traditional tool for development,
was being steadily withdrawn by First World nations. In 1992 foreign
direct investment (FDI) overtook aid for the first time, and the
gap has continued to widen. In 1997 FDI in the developing world
exceeded $160 billion, while official development flows (that
is, aid) in that year reached a mere $40 billion; by contrast,
in 1990 aid totaled almost $60 billion.
By the early l990s, the laissez-faire neo-liberal capitalism
of Thatcher and Reagan had unquestionably become the dominant
world ideology. Even the traditional left now embraces many of
its key tenets.
We see this most clearly in the UK and USA, where much of
the legacy of the Thatcher - Reagan era is now ineradicable. In
Britain, for example, the shareholding class created in the Thatcher
revolution has made a policy of renationalisation unfeasible for
any party seeking election. Clause Four of the Labour Party's
constitution, with its commitment to public ownership of the means
of production, has been dropped. Industry will now be in private
hands for keeps.
In 1994 the Labour Party, recovering from its fourth successive
election defeat, made a decisive break with the past, abandoning
its traditional tax-and-spend policies (which were widely seen
as the primary reason for its defeat) and embracing neo-liberal
free-market economics. The new leader of the Labour opposition,
Tony Blair, actually endorsed the framework created by Conservative
Chancellor Nigel Lawson in the 1980s, saying that a Labour government
would balance the budget and have an explicit target for low and
stable inflation. Employment would be managed by supply-side policy.
This ideological realignment was paralleled by developments
on the other side of the Atlantic. In the United States the Democratic
Leadership Council - an influential group of modernisers within
the Democratic Party - pushed the party away from Michael Dukakis'
leftish position towards the centre, reinventing it as the 'New
Democrats'. In place of the former concern for social justice,
the New Democrats, exemplified by Bill Clinton, emphasised business,
investment, competitiveness and free trade.
In both New Zealand and Australia in the 1980s, it was 'Labor'
administrations, not conservative ones, that presided over the
dismantling of the social democratic order and were the first
architects of neo-liberal restructuring.
In a world governed by free market capitalism - for no other
system has proven as effective in generating wealth - the traditional
political spectrum defined decades ago by pro- and anti-capitalists
is no longer fitting. The new parties of the centre left no longer
place themselves anywhere along a left-right axis. Blair has frequently
spoken of the need to 'move the political debate beyond the old
boundaries between left and right altogether'. Clinton in his
1992 manifesto denounced
'the brain-dead old parties of left and right'. Today Republicans
and Democrats alike are free traders who back the North American
Free Trade Agreement (NAFTA) and the role of the World Trade Organisation
(WTO). Neither party would want to raise taxes or public expenditure,
or change current monetary policies. Neither would be prepared
to starve the burgeoning private sector.
In newly emerging markets such as Eastern Europe and South
Africa, thanks to the Washington Consensus and the influence of
private corporations on policy creation, the Anglo-American system
has also gained primacy. In Eastern Europe, where explicitly left-wing
parties are tarnished by the legacy of Communism, there is no
space for a constructive left-of-centre opposition to economic
liberalisation. Outside the extremist parties, politics in these
countries is premised on the assumption that free-market capitalism
is essential to prosperity. In South Africa the Marxist rhetoric
of the ANC in the 1990s, which espoused redistribution, social
and public spending, and welfare, had by the end of the millennium
adopted the now standard Anglo-American line of fiscal and monetary
conservatism, trade liberalisation and privatisation.
Only Asia and Continental Europe have seemed reluctant to
fully embrace the new consensus. Asian governments continued to
intervene in the economy throughout the nineties. To their cost
- as the free marketeers later claimed, blaming the Asian financial
crisis and subsequent downturn on excessive government intervention,
crony capitalism and market inefficiencies. Subsequently, aid
has been provided only in exchange for market reforms of the American
ilk, and little attention has been paid to the fact that these
countries are not at all like America, with significantly different
cultures, levels of development and institutions and very different
The ruthlessness of the Anglo-American model never sat well
with most Continental European politicians, who still value the
underlying principles of the social model - solidarity, achieved
through comprehensive welfare systems and economic co-operation,
and a belief that the economy should be regulated for the sake
of society - and instinctively feel laissez-faire capitalism,
with its emphasis on deregulation and privatisation, to be excessive.
They see the UK as a Trojan horse, infiltrating Europe with American
pro-business ideology. However, concerns about increasingly ageing
populations, unemployment pressures, and moves towards monetary
union in Europe have meant that even traditional European socialists
are having to accept the predominant Zeitgeist to a certain degree
at least, and are adopting policies that not long ago would have
been seen as frankly heretical.
Most of Europe now acknowledges that the social model must be
reformed in the interests of economic competitiveness. Increased
competition from other countries for inward investment has forced
all social market economies to buy into the free market doctrine
to some degree, and deregulate, lower taxes and shrink their welfare
states in order to remain a contender in the eyes of increasingly
portable global corporations.
Even traditional left-of-centre parties in the l990s began
advocating slimmer government, lower taxes and privatisation,
Three hundred multinational corporations now account for 25 per
cent of the world's assets. The annual values of sales of each
of the six largest transnational corporations, varying between
$111 and X126 billion, are now exceeded by the GDPs of only twenty-one
Corporate sales account for two thirds of world trade and
a third of world output (Coca-Cola, Toyota and Ford derive nearly
half of their revenues outside their base in the USA), while as
much as 40 per cent of world trade now occurs within multinational