Global Journal of Human Social Science, E: Economics, Volume 21 Issue 4

By the late-1960s, the postwar compromise experienced turbulence as a series of events unfolded. First, Western European, and Japanese industries were by then fully recovered from World War II. The U.S. trade balance narrowed significantly in response to rising competition and the U.S. was funding a balance of payments deficit that generated a glut of U.S. dollars. From 1967 to 1971, foreign central banks absorbed the US dollars as their economies imported inflation from the U.S. The Johnson administration’s decision to finance the war in Vietnam and the Great Society also fueled rising inflation. Another source of stress was attributable to the strength of organized labor. The economist Michal Kalecki had argued in 1943 that the loss of the “sack” to business owners, or what Marx had called the “reserve army of labor,” would result in heightened class consciousness of workers, reducing workplace discipline and elevating demands by owners of capital for greater control over the workplace. Kalecki argued that ultimately discipline mattered more to capital than profits. In 1968 and 1969, wildcat strikes erupted that added tension to an already unsettled situation, providing one more source of pressure on prices. In August 1971, President Nixon severed the link between the U.S. dollar and gold; several years later, capital controls were lifted by the U.S. and subsequently by other developed nations. These steps increased the mobility of capital strengthening its hand in negotiations with labor over wages, benefits, etc. Capital was now mobile; labor was not. Also in August 1971, a memorandum was prepared for the Chamber of Commerce by Lewis Powell, at the time a corporate attorney (and later a Supreme Court justice), that helped launch a counterattack by capital: The memorandum stated “Business must learn the lesson that political power is necessary, that such power must be assiduously cultivated, and that when necessary it must be used aggressively and with determination – without embarrassment and without the reluctance which has been characteristic of American business.” 2 Jacob Hacker (2011) states that the resultant “organizational counterattack” by business was both “swift and sweeping.” He notes that corporations assembled a major lobbying presence in Washington D.C.: (1) corporations with public affairs offices increased from 11 in 1968 to 400 a decade later; (2) firms with lobbyists increased from 175 in 1975 to 2,500 in 1982; and (3) political action committees (PACs) representing business increased from 300 in 1976 to 1,200 by mid-1980. The results of these efforts became clear as business scored several major victories against 2 Powell (1971). consumer interests and labor unions during the Carter administration. For this effort to succeed, Hayek believed that strategically the MPS had to attract interest among the intellectuals (who he called the “second-hand dealers in ideas”). Once the intellectuals had “bought in” to the cause, they would help spread the word. To help facilitate this outcome, members of the MPS created numerous think tanks, including the American Enterprise Institute (AEI), the Cato Institute and later the Heritage Foundation. Institutes were also setup in the UK, including the Adam Smith Institute and the Institute for Economic Affairs. James Buchanan would launch Public Choice Theory (which viewed governments as “at At the time the neoliberal program was introduced, Keynesian policies and the New Deal (managed capitalism) were meeting with success as the world recovered from WWII. In addition, unfettered markets were viewed as having been responsible for the Great Depression, and memories of that disastrous experience remained fresh in policymaker’s minds. However, Hayek and other members of the MPS understood that they were playing the “long-game.” They created the foundation for a free-market approach and were prepared to wait for an opening. Wealthy individuals and various corporations supported the MPS and provided necessary funding to the organization and its affiliates over the next several decades as the MPS patiently waited its turn. 3 For more detailed interpretations of neoliberalism, see Mirowski (2013) and Harvey (2005). 4 Other members of MPS included Milton Friedman, James Buchanan, Ronald Coase, and George Stigler. Friedman, Coase, and Stigler were professors at the conservative University of Chicago, where Hayek would subsequently be employed. 5 The initial test-case for neoliberal policies occurred in Chile following the coup against the democratically elected president, Salvador Allende. The imposition of policies resulted in massive oppression of the Chilean people. The thrust of the movement remains closely aligned with the objectives of the global financial sector. Volume XXI Issue IV Version I 3 ( E ) Global Journal of Human Social Science - Year 2021 © 2021 Global Journals Transforming Financialization and Inequality in a Post-Covid World These initiatives dovetailed well with the neoliberal program that had been incubating in the wings for several decades. 3 This program originated in 1947 when Friedrich Hayek arranged a meeting of a group that would be known as the Mont Pelerin Society (MPS). The meeting consisted of forty men (all men) who supported free markets, individual liberty, and private property. They also opposed the New Deal and what they called “collectivist” or “statist” policies. Hayek was convinced that these policies would lead to totalitarianism . 4 Members of the MPS supported private property and the free movement of capital. Unlike libertarians, they viewed enforcement of those rights as the primary mission of a strong state, which would be allied with capital. They did not object to corporate monopolies, but they vehemently opposed organized labor . 5