In one more sign of the breakdown of globalisation, the US has further tightened Chinese access to semiconductors produced by US firms. In October 2022, the US Commerce Department announced restrictions on the export of crucial chip manufacturing equipment to China and prohibited US citizens and companies from providing support services to Chinese chip manufacturers. In October 2023, the Joe Biden administration decided to strengthen these rules to significantly limit the ability of firms like Nvidia to sell high-performance semiconductors to China.
Some also see in this evidence of a global retreat from neoliberalism. Two broad tendencies underlie that perception. The first is evidence that globalisation is unravelling. The prolongation of low growth because of clogged global supply chains during and after the COVID pandemic has made a case for onshoring and protectionist support for domestic production. That has triggered a rethink of the trade and investment liberalisation that drove the post-1980s globalisation of production.
This process has been intensified by the US government decision, reflected in the Inflation Reduction Act, to facilitate the green transition by offering transfers to domestic corporates, and tax incentives in areas like electrical vehicles to incentivise the required investment. That discriminates against foreign firms in favour of domestic players. And, finally, the economic war on China has led to sanctions on trade with and investment into that country.
This use of interventionist measures to strengthen national players by discriminating in their favour is often interpreted as a retreat from neoliberalism. Neoliberalism, in this view, is defined as an adherence to market fundamentalism, in which the market, or “free economic exchange”, is presented as the most efficient economic mechanism. It privileges markets and reduces intervention by the state to a minimum.
The global recognition of the efficacy of such policies and their consequent adoption by most nation states is seen as having rescued capitalism from the impasse it experienced in the 1970s and early 1980s. Political borders lost their economic salience, and finance and the production of goods and services were internationalised and globally integrated. The consequence was the relocation of production to the most competitive sites, including China, from the point of view of Capital.
However, this was not the meaning attributed to the term “neoliberalism” when it gained popularity in the 1970s and after. At that time, it served to describe a shift away from the form of interventionism that characterised the Golden Age of Capitalism between the Second World War and the 1970s recession.
Golden-age interventionism had two principal components. One was reliance on countercyclical fiscal policy (inspired by the New Deal and elaborated conceptually by Keynes and his associates) to deliver sustained and relatively stable growth. The second was the stringent regulation of markets, especially financial markets following the banking crisis of the 1930s. “Neoliberalism” referred broadly to the dismantling of that regime of intervention, with deregulation of production and finance, and a greater reliance on monetary as opposed to fiscal policy. This by no means meant that the state and its role in the economic sphere was in retreat but that the nature of that role and the form of intervention changed. Even the choice of the areas to be deregulated and extent of that deregulation were reflective of the form of the new interventionism since the process had to be initiated and implemented by the state.
- The US has further tightened Chinese access to semiconductors produced by US firms.
- This use of interventionist measures to strengthen national players by discriminating in their favour is often interpreted as a retreat from neoliberalism.
- In reality, markets had never functioned independent of state regulation in ‘free’ market economies, but the state was periodically used to retrieve capitalism and capital from periodic breakdowns.
The myth of ‘free’ markets
Moreover, the state remained a major player and most markets were not “free” but dominated by Big Capital and conglomerates. In fact, the popular “definition” of the term helped conceal the actual substance of “neoliberalism”, which was a project aimed at engineering a redistribution of income and wealth from the bottom and middle to the top of the wealth and income pyramid by ensuring open and hidden transfers to Capital from or mediated by the state.
This involved the advocacy of fiscal conservatism to pre-empt taxation by a proactive state, leading to cuts in redistributive expenditures. Even when crises hit, though fiscal stimuli were unavoidable, they were deployed late and only for a limited time since a proactive role for public finance was not favoured by the wealth holders populating the world of private finance. But monetary policy was crucial to inflate capitalist profits in the good times and to rescue capitalism and ensure the solvency of the financial system during crises.
In the good times, monetary easing, or the expansion of money supply, was used to trigger the credit boom on which economic growth rode. When inflation was the problem, monetary contraction and high interest rates were used to rein in the erosion of financial wealth. And when recession and deflation were the problems, as during the decade following the global financial crisis of 2008, the policy of “quantitative easing” and near-zero interest rates was adopted to take worthless assets off the balance sheets of the banks and restore financial super-profits.
Seen in that light, the conventional reading of neoliberalism as a process of returning power to markets (as opposed to Capital) and limiting the role of the state (as opposed to changing it), which was the view sold to citizens in rich and poor countries, was wrong. In reality, state intervention under neoliberalism was the means to shore up profits of big business and finance through tax concessions and exemptions, the underwriting of losses, and even direct transfers. Markets did not function independent of state regulation, but the state was periodically used to retrieve capitalism and capital from the periodic breakdowns that the functioning of unregulated markets resulted in.
This required departing from the rules that a purely market-driven strategy was expected to follow. Thus, the response to the 2008 crisis involved reliance on monetary policy in the form of an expansion of the Federal Reserve’s balance sheet and a reduction of interest rates to near zero. That was for capitalism nothing short of a bizarre turn in policy, which was painted as merely “unconventional”.
More recently, in an unusual response to the collapse of Silicon Valley Bank, the US government declared that given the systemic dangers associated with this turn, it had decided to protect all depositors in the institution. That went against all norms associated with deposit insurance that was meant to protect smaller depositors, and against the principles that the US has preached on the need to allow markets to work and discipline “rogue” operators.
This is the true role of the state under neoliberalism. The execution of that role shows that there are no rules in the neoliberal “order”, but only an objective to serve partisan interests.
C.P. Chandrasekhar taught for more than three decades at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi. He is currently Senior Research Fellow at the Political Economy Research Institute, University of Massachusetts Amherst, US.