excerpts from the book

The Silent Takeover

Global Capitalism and the Death of Democracy

Part 1

The Revolution Will Not Be Televised
Living In A Materal World

by Noreena Hertz

Arrow Books, 2001, paper

The Revolution Will Not Be Televised

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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.

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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.

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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.

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Living In A Materal World

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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 and dependency.

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 for

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'...

Exporting capitalism

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 unreconstructed.'

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.

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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.

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Ideological consensus

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 needs.

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.

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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,

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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 nation states.

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 corporations.

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