Neo-Marxist analysis: Neo-liberal policies

What is the neo-Marxist assessment of neo-liberal policies and to what extent do you agree with this assessment?

Neo-Marxism is a school of economic thought which applies Marxist ideas to the present global economic conditions. It became prevalent during the 1960s and 1970s as neo-Marxist scholars demonstrated how capitalist policies hindered development and increased the inequality between the Global North and South. Henceforth, neo-Marxists produced the dependency and modern world system theories as clear illustrations as to how neo-liberal capitalism has brought increased inequality to the global economy. Therefore, in order to examine neo-Marxist assessments of neo-liberal policies, it is firstly important to consider different neo-Marxist perspectives in detail and analyse the elements which are contested and by whom. It is also important to evaluate the arguments for and against the doctrine, which would help to gauge to what extent the neo-Marxist assessments are credible. Thus it will be argued that neo-Marxist theories provide an accurate analysis of how neo-liberal capitalism has created an increase in political and economic subordination of the South to the North and further, its critical examination of the New International Economic Order.

The argument which supports the development problem analysis stems from neo-liberal economics. The theoretical basis is that, ‘rather than protecting national markets and production, neo-liberal theory promotes openness and allows more efficient use of resources, exchange of technology and greater opportunities for economic growth.’ This approach has been influential in modernisation theory, which asserts that, once states implement neo-liberal restructuring measures and entrepreneurs accumulate sufficient capital, the benefits of growth and efficiency would ‘trickle down’ to the poor. Neo-liberals argue that underdeveloped societies, ‘should learn from the development experiences of the already developed or pioneer countries,’ striving to become more like existing developed societies. In the early 1990s, the IMF and World Bank in conjunction with the US Treasury Department ‘arrived at a consensus that neo-liberal policies were needed in less developed and emerging market economies.’ These policies included the strengthening of the free market, supporting private enterprise and increasing deregulation allowing entrepreneurial initiative. The Washington Consensus had several key policies for the Global South to increase development and these were said to be market-led. These included the issuing of loans so long as ‘Southern’ governments followed strict policy conditions, state-led development was replaced with market-led development and to use foreign exchange from export-led growth to pay off debts and promote development. However, neo-Marxists criticise these policies and have lead them to introduce theories which address the level of underdevelopment caused by neo-liberalism and the Washington Consensus.

The neo-Marxist theories of Dependency and World System Theories both share the idea that the Global North and South are in a structural relationship with one another. The former theory originated in the South, and its subject area is explicitly geared towards the problems and interests of the South and is seen as, ‘bottom up,’ approach to international political economy, which prioritises the conditions faced by the poor and the oppressed. Furthermore, having emerged from the development economics studies of the 1960s, dependency theory simultaneously links underdevelopment and capitalist exploitation to trade and monetary relations, and the role of corporate actors and economic institutions. The theory claims that the impoverishment of the South is a direct outcome of their exploitation by the advanced countries in the age of imperialism, which led to the superior development of the North. While the countries in the North accumulate sizeable capital, the countries in the South are further plunged into underdevelopment. The dependency theory further claims that a new form of imperialism is now dominant, ‘in which an economic imperialism continues the exploitation of the South, without the direct political rule of colonialism.’

When analysing neo-Marxist assessments of neo-liberalism it is important to consider where neo-liberalism has been implemented in both developed and underdeveloped nations. When taking the example of how neo-liberalism was embedded in Latin America; there were several distinct policies that lead the transition into neo-liberal economics. A specific policy was the exchange-rate overvaluation which, ‘artificially reduces the local price of imports,’ however lead to a, ‘devastating impact on the balance of payments and employment.’ Other policies such as domestic financial liberalisation and liberalisation of capital account of the fiscal reforms lead to investment and savings rates declining and public debt levels increasing sharply due to high interest rate levels respectably. Neo-liberal economic policies were implemented by Thatcher’s government of 1979-1990. However, she left behind the highest inflation and interest rates among advanced economies, including large scale bankruptcies, high and rising unemployment and the largest current account deficit in history. The UK’s economic downturn highlights and emphasises the weakness within the doctrine of neo-liberalism.

Critical analysts, including those associated with World Systems Theory, neo-Marxism and postcolonial theory; suggest that underdevelopment is actually a problem of dependency, arising within a world system operating as a whole. Underdeveloped societies are not in the position they are in due to internal inadequacies, but because of an ongoing history of dependency, economic exploitation, political subordination and military violence. Whereas the mainstream analysis suggests that any and all underdeveloped societies can in principle “catch up” with the West through the adoption of development-led, typically neo-liberal policies, critical theorists suggest that such a “catch-up” cannot happen in a world dominated by the developed societies. Any improvement in the status of underdeveloped societies would require a radical transformation of the entire world system, including the position within it of the developed societies. It could not take the form of a “catch-up” but only of a general structural transformation. This is because the position of developed countries is itself a product of the world system and requires the continued existence of underdevelopment to sustain it.

Despite significant differences, critical approaches share the view that, ‘there exists a world structure in which dominant interests located in the advanced industrial world dominate and exploit the rest of the world using economic, political and military means.’ Andre Gunder Frank argues that, ‘the global system is a whole chain of metropolis-satellite relations. Each metropolis dominates, exploits and draws wealth from its satellite or satellites.’ This chain, with northern societies at the top, keeps societies in Africa, Asia and Latin America at the bottom of a global system. Frank sees surplus exported upwards and outwards from the bottom of the chain to the top. For Frank, development is not possible without a complete break from the system. Once a state has become a satellite, it can only develop when its ties with the metropolis are broken or weakened, for example in times of war or recession. In this view development is always dependent development and a “catch-up” is ruled out. Any context in which development occurred would involve the construction of a new international economic order which, far from conforming underdeveloped societies to models set in the north, would alter economic relations in a manner which would transform developed as well as underdeveloped societies.

However, Dependency theory is weak in its analysis of capitalist relations as being inherently negative and based purely on exploitation. Although underdevelopment and poverty are vital problems of a global scale, they are not sole features of the international economy. Development has occurred in peripheral areas, and not all relations between the North and South are about exploitation; indeed, not all international relations involve interrelation between underdeveloped and developed as Dependency focuses, but relationships between advanced states must too be studied. Therefore, the extent to which one believes the issue of underdevelopment is salient in the international political economy can dictate how much one believes dependency theory enables an understanding of these economic relations to a degree, however this approach is inherently limited because International Political Economy must also be studied by looking at a system of wealth production and not just monopolistic exploitation of wealth. Similarly, the even faster growth of development in less industrialised states over the industrialised in examples of Taiwan and Singapore indicate that Dependency theories do not encapsulate fully the potential nature of economic relations through ignoring any possibility of cooperation and mutual advantage through capitalism.

Additionally, in the Dependency theory’s analysis of underdevelopment itself, flaws are also found. The fact that the ‘development of the underdevelopment.’ is still as crucial an issue today as it was when Gunder Frank wrote his piece in 1969 is proof that ‘dependency’ does not offer a real understanding of underdevelopment, despite highlighting it, because it cannot offer a solution to it. Its analysis in explaining the reasons why certain countries are underdeveloped is singular and base because it is using dependence alone as justification, and so is not able to offer structural adjustment programmes to actually change the economic position of the underdeveloped in the international economy. The fact that underdevelopment is always equated with capitalism also adds to a tendency for Dependency to criticise capitalism rather than explain the reasons why underdevelopment is not solved and analyse the causes of poverty.

When placing primary emphasis on the level of economic development, with political or ideological differences, this approach yields the ‘North-South’ divide. Though there are some anomalies, such as South Africa and Australia, the world is seen as divided essentially between the wealthy and powerful countries of the Northern Hemisphere and the poor, less-developed countries of the Southern Hemisphere. However, the North-South dichotomy, though useful in debate, is inaccurate and misleading. A more precise economic model of the world system distinguishes among the superpowers, solely the United States at the end of the 20th century; other developed countries, such as Japan, Germany, and Britain; and the underdeveloped countries, such as China and Bolivia. We then have First, Second, and Third Worlds.

A further refinement of the economic model looks past the level of three worlds of development to a single underlying and developing world system. Based on a historical perspective, this view, advanced especially by the American theorist Immanuel Wallerstein, argues that there is but a single world economy, the capitalist world economy, which has been expanding since the 17th century. Wallerstein’s World Systems Theory, developed in 1974, utilised many features found in the Dependency Model, such as viewing development in global conditions rather than focussing on economic development in individual countries. However, there are differences between the two theories and Wallerstein, ‘moves beyond the static dualism of the dependency models…rather than viewing the world in terms of ‘core’ and ‘periphery.’’ There are ‘core countries,’ such as the United States and Japan; ‘semi-peripheral countries,’ such as Brazil, most eastern European states, and China; and ‘peripheral countries,’ such as Cuba and most of the poor countries of Africa and Asia. Depending on economic fortunes and fluctuations, as well as the logic of the developing system itself, countries can move in and out of these categories. This is in stark contrast to the Dependency Theory which advocates that periphery nations would permanently be in a state of exploitation, ‘some countries of the world were experiencing economics development in terms of industrialisation…including the ‘Asian Tigers’ of South Korea, Hong Kong, Singapore and Taiwan, as well as Latin American nations such as Brazil.’

In order to move a country’s status from the periphery to the core, Wallerstein proposes import substitution as a solution. Import substitution is a phenomenon that responds to external disruption of trade by domestically producing substitutes for those goods previously imported. This is a policy that the governments in less developed countries may use to undertake industrialisation and structural changes. Wallerstein supports the core and periphery to create globalization. Wallerstein’s theory helps globalization in the international context. He believes that the rich creates the poor. Unless the poor country eventually changes it economy and accumulates its own capital, it will continue to stay in the periphery.

The plausibility and appeal of this model lie in its recognition of the growing internationalisation of the industrial economy. Nation-states, whether capitalist or communist, are becoming increasingly subordinate to world economic developments. Decisions about capital investment and growth are made in a world context and on a global scale. The giant multinational corporations are the most significant new actors on the world stage and have been establishing a new international division of labour. From their point of view, it makes more sense to manufacture goods in South Korea or Taiwan, where labour is still cheap and governments compliant, than in the United States or Britain, where labour is expensive and regulation stringent. Such high-level functions as central planning and research and development can be retained in their Western homelands, where there are the necessary reserves of highly trained professional and scientific personnel. Profits can be declared in those countries where taxes are lowest. In such a way do the multinationals illustrate, even embody, the interdependence of core and periphery nations. In order to move a country’s status from the periphery to the core, Wallerstein proposes import substitution as a solution. Import substitution is a phenomenon that responds to external disruption of trade by domestically producing substitutes for those goods previously imported. This is a policy that governments in less developed countries may use to undertake industrialisation and structural changes.

However, there are criticisms of Wallerstein’s theory with regards to the semi-periphery. They describe it being an improvised, ‘invention to deal with those cases that do not fit neatly into the core-periphery framework.’ Critics deduce this because the majority of development economic theory in recent years has centred upon, ‘the elaboration of dependent development in the countries of the semi-periphery.’ Furthermore, other criticisms include the fact that the theory is, ‘too deterministic both economically and in terms of the constraining effects of the global capitalist system.’

Therefore, it is arguable that the neo-Marxist assessments of an increased inequality and subordination between the Global South and North which has been constructed through neo-liberal policies are valid and well-founded. The development of critical theories such as the Dependency and Modern World System have accurately criticised neo-liberal policies of market-led reforms and how underlying capitalism will lead to the core being concentrated in areas of the North. However, there are flaws in the Dependency Theory, as mentioned, including the need to address the solutions of development in peripheral countries. Furthermore, Wallerstein’s World Systems Theory has successfully been able to incorporate not only core and periphery states but that of the semi-periphery, which include emerging market economies such of India, Brazil and China. These states act as a buffer between the core and periphery countries. Despite these flaws both theories present an excellent assessment of neo-liberal policies.

BIBLIOGRAPHY

Balaam, David and Veseth, Michael – Introduction to International Political Economy (London: Pearson Prentice Hall 2001) pp. 70-90
Brewer, Anthony – Marxist Theories of Imperialism: A Critical Survey (London: Routledge, 1990) pp. 60-73
Byres, Terence, ‘Neoliberalism and Primitive Accumulation in LDCs’ in Saad-Filho, Alfredo and Johnston, Deborah – Neoliberalism: A Critical Reader (London: Pluto Press, 2005) pp. 83-91
Chase-Dunn, Christopher and Grimes, Peter, ‘World-System Analysis,’ Annual Review of Sociology, Vol. 21. (1995), pp. 387-417
Chomsky, Noam – Profit Over People: Neo-Liberalism and Global Order (New York: Seven Stories Press, 1999) p. 7-34
Corbridge, Stuart – Development Studies: A Reader (London: Edward Arnold, 1995) pp. 1-15
Frank, Andre Gunder – Capitalism and Underdevelopment in Latin America: Historical Studies of Chile and Brazil (New York: Monthly Review Press, 1969) pp.3-12
Helleiner, Eric, ‘Alternatives to Neo-Liberalism? Towards a More Heterogeneous Global Political Economy,’ in Stubbs, Richard and Underhill, Geoffrey – Political economy and the changing global order (Oxford: Oxford University Press, 2006) pp.77-88
Nicholson, Michael – International Relations: A Concise Introduction (Basingstoke: Macmillan, 1998) p. 4-23
Olson, Richard Stuart – ‘Economic Coercion in World Politics: With a Focus on North-South Relations,’ World Politics, Vol. 31, No. 4. (Jul., 1979), pp. 471-494
Radice, Hugo, ‘Neoliberal Globalisation: Imperialism with Empires?’ in Saad-Filho, Alfredo and Johnston, Deborah – Neoliberalism: A Critical Reader (London: Pluto Press, 2005) pp. 91-99
Saad-Filho, Alfredo, ‘The Political Economy of Neoliberalism in Latin America’ in Saad-Filho, Alfredo and Johnston, Deborah – Neoliberalism: A Critical Reader (London: Pluto Press, 2005) pp. 222-230
Scharpf, Fritz and Schmidt, Vivien – Welfare and Work in the Open Economy Volume II (Oxford: Oxford University Press, 2000) pp.36-41
Sklair, Leslie – Globalization: Capitalism and its alternatives (Oxford: Oxford University Press, 2002) pp. 30-48
Smith, Tony, ‘The Underdevelopment of Development Literature: The Case of Dependency Theory,’ World Politics, Vol. 31, No. 2. (Jan., 1979), pp. 247-288
Thomas, Caroline, ‘Globalization and Development in the South,’ in Ravenhill, John – Global Political Economy (Oxford: Oxford University Press, 2005) pp. 317-344
Willis, Kate – Theories and Practices of Development (London: Routledge, 2006) pp.62-75, 173-179