Globalization, Neoliberalism, and

the State of Underdevelopment in

the New Periphery
JORGE NEF and WILDER ROBLES

ABSTRACT
This study provides an analytical sketch of the context, culture, structures, processes, and
consequences of neoliberalism. It examines the subject from two fundamental and complementary
perspectives. The rst involves an appraisal of the history and evolution of neoliberalism as a sociopolitical phenomenon from its origins to the present. The second perspective provides a systematic
analysis of the theory and practice of neoliberalism, its circumstances and effects, with special
reference to the issue of globalization and its impact upon the weaker sectors of society. The authors
conclude that neoliberal globalizationhas contributed to the emergence of a new centre and periphery,
no longer based on distinct geographical regions, but on different political and economic strata in both
the North and South.

Introduction

HE 1998 FINANCIAL meltdown has exposed the mutual vulnerability

of the present global order. It has also signalled a profound crisis in the theory
and practice of international development. The domino-like collapse of the Asian,
Latin American, and East European economies, underscores the inability of the
world economic regime to foresee, avert, and manage multiple dysfunctions.
The structures that emerged from the Breton Woods agreements of 1944
the International Monetary Fund (IMF), the World Bank (WB) and the General
Agreements on Tariffs and Trade (GATT; today the World Trade Organization,
WTO) far from steering countries away from their grave predicament, have
ostensibly compounded their dif culties. The once deemed secure developed
countries of the North are increasingly vulnerable to events in the lesser secure

Jorge Nef is the Director of the School of Government, Public Administration, and Politics at
the University of Chile in Santiago, Chile. Wilder Robles is a PhD candidate at the University
of Guelph.

c Koninklijke Brill NV, Leiden, 2000

JDS 16,1

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JORGE NEF AND WILDER ROBLES

and hence underdeveloped areas of the South, in a manner that conventional

international relations and development theories have not been able to predict
(Head 1991).
The main thesis of this essay is that the aforementioned crisis of development
is rooted in the logic of a distinct ideological and programmatic policy software,
often referred to as neoliberalism. The latter alludes to a ubiquitous set of beliefs,
doctrines and policies, favouring the interests of transnational capital (especially
nance capital), and in uencing decision-making at the highest levels within the
Group of Seven nations and beyond. This discourse has been far more successful
in articulating a rationalization for the globalization of market relations and
unprecedented (as well as unencumbered) capital accumulation than in effectively
improving the living conditions of most human beings (Rist 1997). The neoliberal
development model has brought about a massive deterioration of living standards,
growing income disparities, environmental destruction, an erosion of national
sovereignty and the undermining of equity-producing policies. Most importantly,
neoliberalism has implied a rede nition of the implicit social contract that has
sustained at least in developed countries the pattern of labour and social
relations of the post-World War II Welfare State.
The purpose of this study is to offer an analytical sketch of the context,
culture, structures, processes, and consequences of neoliberalism. Due to its very
nature, this undertaking will be broad, tentative, and interpretative. It will examine
the subject from two fundamental and complementary perspectives. One involves
an appraisal of the history and evolution of neoliberalism as a sociopolitical
phenomenon from its origins to the present. The second perspective involves a
systematic analysis of the theory and practice of neoliberalism, its circumstances
and effects, with special reference to the issue of globalization and its impact upon
the weaker sectors of society.
From Keynesianism to Neoliberalism
One way to explain and understand the neoliberal discourse is to concentrate
upon its genesis and evolution as an induced historical construct. In this sense,
and without attempting a sweeping review of economic and political ideologies,
it is possible to sketch the circumstances of its emergence, as well as the existing
doctrines against which it rose. As a bundle of ideas with hegemonic pretensions
and tied to an explicit political project, the neoliberal reaction appeared in full
force in the 1970s. The neoliberal label, however, had been in use since the
1950s. Most social science encyclopaedias did not have an entry under this term; a
situation observable even today. Nor did it exhibit its present ideological vigour and
aggressiveness as a hegemonic counter-revolutionary discourse of global reach.
From the times in which Friedrich von Hayek lost the debate on the causes of

THE STATE OF UNDERDEVELOPMENT

29

the Depression to John Keynes in 1936, the intellectual software that was later to
merge in the neoliberal synthesis, existed in an almost latent and underground state.
Monetarism and neoclassical economics were con ned to a small but in uential
group of conservative economists, business people, politicians, and thinkers. They
shared a deeply ingrained belief in the inappropriateness of Keynesianism and
their common ground centred on a scathing critique of statism, both Marxist
and social democratic. Bureaucratism, the welfare state, and the myriad of induced
development and demand-side schemes which, by the end of World War II had
become the orthodox staple of government policy, were the immediate targets of
their attack. At a deeper level, their stand also involved an assault on political
liberalism and its acceptance of equity as a guiding principle for choice.
Until the First and Second UN Development Decades (1961 to 1981), the
predominant view of development, and public sector involvement in it, was molded
by the experience of the Depression, World War II, and European reconstruction
through the Marshall Plan. This scheme was also the predominant framework
and prescription for international development (McMichael 1996). The accepted
view among theorists and practitioners was one in which universal and replicable
stages of economic growth, would transform social and political relations, bring
political stability (and democracy) and prevent communist-inspired insurgency.
President Kennedy summarized the essence of Cold War liberalism by contending
that those who made social change in the short-run impossible made violent
revolution in the long-run inevitable. Thus, the transformation of traditional
societies into modern ones was not only a means to free people from poverty,
hunger, malnutrition, and disease, but a way to protect them from tyranny and the
appeals of Communism.
By the end of the First Development Decade (1961 to 1971) it had became
evident that induced development strategies had failed. The optimistic expectation
that poor countries could catch up by merely emulating the Western experience
of industrialization, did not materialize. On the contrary, the economic gap between
rich and poor had increased. Instead of stability, revolutionary insurgency threatened the status quo, while a scal and an institutional crisis of major proportions
loomed on the political horizon of the West. For radical thinkers, the Keynesian
model had exacerbated the contradictions between accumulation and legitimisation
inherent in the liberal-democratic hybrid. For conservative critics, the scal crisis
of the Welfare State had moralistic and economic overtones. In their view, the problem was the inevitable consequence of generous social entitlements to the lower
classes and political over-participation (Huntington et al. 1975), resulting in the
undermining of the traditional moral fabric of society and de ation of authority.
In other words, it created a crisis of democracy, making society ungovernable.
The prescription was to bring about scal prudence and a more restricted form of
democracy (Hobsbawm 1994; Sklar 1980).

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JORGE NEF AND WILDER ROBLES

Neoliberalism, as a concept appeared rst in Europe and Latin America in

the 1950s and 1960s. It was tied to Western strategies and tactics deployed in
the ideological front of the Cold War. Originally, the term referred speci cally
to movements of the modern right.1 These included business and professional
organizations at the margins of party politics (especially in Germany and Italy),
that were attempting to modernize capitalism. Their goal was to ght socialism in
the extra-parliamentary arena, rather than in the realm of elections and political
parties. The intellectual backbone of this counter-revolutionary and U.S.-induced
movement was provided by ideologues and thinkers like Friedrich von Hayek,
Ludwig von Mises, Milton Friedman, Karl Popper, Louis Baudin, Leonard Read,
and Ayn Rand. Elite think-tanks in the West, including the Mont Pelerin Society
and the Bilderberg Group established in 1947 and 1954 respectively, facilitated the
dissemination of the neoliberal viewpoint. The idiom emerged in Latin America a
few years later, unequivocally as a conservative response to the Cuban revolution.
In 1964, a sympathetic observer2 described the movement as one of organizations
dedicated to the maintenance of political and economic liberty and backed by the
relatively new business-professional sector of society.3
According to this same source, the Latin American modern right was well organized. It operated on a multitude of counter-revolutionary fronts, including policy
analysis, ideological indoctrination, propaganda, in ltration, and paramilitary vigilantism. The new right was active in creating alternative structures through apolitical labour movements, grassroots organizations, cooperatives, armed militias,
and research centres. Since new right ideas had dif culty in penetrating universities, a multitude of business schools, foundations, and productivity centres were
created, among others the Center for Productivity in Montevideo and the Business
School of the Adolfo Ibez Foundation in Chile. In many cases, a wide array
of connections with governments, political parties, and organized religion were
forged. In particular, it is important to note its relationship with the ultraconservative and fundamentalist Opus Dei, then a minority within the Catholic church. Most
important, however, were the connections with the aforementioned First World
intellectuals and private international assistance programs, such as the Germanbased Ludwig Erhard and Seidel foundations. But the international rami cations
of early neoliberals did not stop there. Many of these groups, as subsequently revealed in U.S. congressional hearings in the 1970s, received signi cant support
from transnational corporations and the Central Intelligence Agency (CIA). Groups
of this stripe were to play, by means of their research centres and their U.S.-trained
economists, a central role in shaping the policies of military regimes in Latin Americas Southern Cone: from Brazil after 1964 to Uruguay and Chile after 1973. In
fact, Chile became and continues to be a construed showcase of Chicago-boys
neoliberalism at work, with implications far beyond the region. During the period
of military rule, neoliberals gained control of crucial academic departments, es-

THE STATE OF UNDERDEVELOPMENT

31

pecially faculties of economics, by forcefully displacing radicals and structuralists espousing the once mainstay U.N. Economic Commission for Latin America
doctrine.4 From these positions, ideological control of the commanding heights in
the bureaucracy and academia was secured. This control over the ideological, programmatic and policy software, as well as right wing control over the media, has
made it possible for neoliberalism to establish its hegemony as an overwhelming
discourse in the transitions to democracy in the 1980s and 1990s.
To understand the historical implications of militant neoliberalism as a counterrevolutionary project it is essential to sketch the broader international circumstances which facilitated its emergence and dissemination as a global ideology.
In recent decades, a profound restructuring of the world economy has taken place.
Globalization, interdependence, skewness, dynamism, and fragility are appropriate
characterizations of the aforementioned restructuring. Central to the transnationalization of production, and the whole gamut of socio-political relations accompanying it, is the cosmocorporation (Mller 1973). The emergence and consolidation
of transnational corporations (TNCs) over the past two or three decades has created
a global network of transactions and business alliances. The spectrum of TNCs has
changed: from primarily extractive and manufacturing concerns to include services
and nance. The emerging forms have exhibited a remarkable degree of adaptability, evolving into more than a mechanism for the transfer of capital and technology
across jurisdictional boundaries. They now are a most effective vehicle for the extraction of surplus from peripheral sectors, via credit-indebtedness devices, wagedifferentials, tax advantages, franchises, transfer pricing, and the like (Collinworth
et al. 1993) to semi-peripheral sectors and from there to the various groups at the
core of corporate power. In addition, TNCs play a fundamental role in the integration of elites and their ideologies at the transnational level.
One of the most important developments in recent decades has been the
rapid and profound globalization of trade and nance (Hirst 1996). New trading
regimes, under the rules laid down by the World Trade Organization (WTO) and
the emergence of dominant trading blocs the European Union, ASEAN and
now NAFTA and MERCOSUR have facilitated a transnational integration of
business elites into extended circuits of trade, capital, information, and power,
often by-passing national interests and regulatory structures. Today it is possible
to transfer nancial resources from one country to another at the ick of a
key, crossing national borders and affecting the national balance of payments.
In this process of transnationalization, combined with shifting economic policy,
from demand-side Keynesianism to supply-side monetarism, there have been
clear winners and losers. Finance capital, telecommunications, and in general
proprietary high-tech cosmocorporations have emerged on top.
Meanwhile, important sectors in the old post-1930 social contract such as
labour, consumers, farmers, the bulk of the white-collar, employee middle class and

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JORGE NEF AND WILDER ROBLES

nationally-based medium-sized manufacturers have been severely hurt. The ensuing social and political restructuring has affected the nature of contemporary politics, the state, the de nition of citizenship and the very essence of governance, both
globally and within countries (Sassen 1996). Macroeconomic decision-making, as
in the case of central banks, has tended to escape national and democratic controls.
This has brought about a persistent tendency of external involvement (e.g., the
IMF, foreign creditors, transnational corporations) in seemingly internal matters
of credit, scal and monetary policy. Domestic concerns have become peripheral
and subordinate to the interests of transnational capital. While consumerism and
prosperity are peddled as popular ideology, or mesmerizing chant produced by
the business elite for popular consumption, this discourse conceals the objective
reality and operational doctrine of massive unemployment and the creation
of a low-wage economy (Standing 1989).
Alternative trading regimes to those controlled by the major trading blocs
within the Group of Seven have all but crumbled. The dismantling of the socialist trading block known as COMECON has eliminated the presence of a trade
arrangement which encompassed the Soviet Union, the Eastern European countries
and a number of centrally-planned economies in the Third World. The initiatives
for a New International Economic Order, or a Trade Union of the Third World
proposed by former President Julius Nyerere of Tanzania and endorsed by successive United Nations Conferences on Trade and Development (UNCTAD) also have
failed to materialize. UNCTAD itself and the Non-Aligned Movement, the latter
resulting from the 1955 Bandung Conference of Non-Aligned Countries in 1955,
now lie in shambles, crushed between the death of the so-called socialist Second
World and the debt crisis of the former Third World. More recently, with the crises
of the Brazilian and the Argentinean economies, the future of economic union in
the Southern cone of Latin America under the aegis of MERCOSUR is very much
in question. The possiblies of South-South cooperation are not very promising.
Western elites and their clients elsewhere in the world are now in a position to
dictate the terms of global surrender, not only to the populations of the former Second and Third worlds, but to their own populations as well. Externally-imposed
structural adjustment policies severely undermine economic sovereignty, deepen
underdevelopment, and spread poverty. We now have trickle up, or recessive income distribution on an unprecedented global scale.
The Neoliberal Regime
In the post Cold War and largely unipolar world, neoliberalism has become entrenched as a global ideology (Sklar 1980). This mind-set has hegemonic strength
among the core sectors within the Group of Seven countries. Substantively, the
ideological foundation of this New Internationale is distinctively neoclassical,

THE STATE OF UNDERDEVELOPMENT

33

elitist, and monistic. Despite an outwardly progressive rhetoric of democratization, with support for individual freedoms, open societies, and the rule of law,
this new worldview is every bit as Manichean and dogmatic as the old Cold War,
national security discourse it has replaced (Drury 1993). In fact, this type of reactionary modernism has more than a casual continuity with its military predecessor.
Most important though, is the fact that the new orthodoxy has a strong appeal to
the af uent, globally-integrated, consumption-intensive, and modern elite sectors
in what used to be called the Third and Second Worlds. From this perspective, the
triumph of the West, the End of History, the Clash of Civilizations (Huntington 1993) and Manifest Destiny blend in a synthesis with distinct functionalist
overtones.
At least ve identi able streams of thought converge in contemporary neoliberalism. The rst source is neoclassical economics, rooted in von Hayeks interpretation of Adam Smith, and the premise that economic rationality is solely the
consequence of individuals maximizing choices. The second source is monetarism
and its prescription of scal restraint, privileging anti-in ationary measures over
employment. Its major proponent has been Milton Friedman, associated with the
Chicago school, the latter closely connected to nancial speculative circles. The
third source is political neoconservatism: an offshoot of a moralistic and culturalistic reaction amalgamating on the one hand disillusioned welfare liberals, with
outright reactionaries and cold warriors on the other. The fourth source is a revamped version of nineteenth century social darwinism la Herbert Spencer, with
Malthusian and deterministic connotations. Last, but equally relevant, is the quasimystical objectivist individualism la Ayn Rand, with a poetic and highly normative avor.
The Communications Counter-Revolution
Ideologically, neoliberalism can be seen as a discourse legitimating elitist
national and international regimes. The emerging global cultural regime, more
than a de ned set of circumstances, values and structures, with its own boundaries
and dynamics, represents a massive onslaught of Western culture by means of
a revolution in communications. According to some, and paraphrasing Tof er,
we live in a world of future shock; one so dependent on computers and
telecommunications that should these gadgets cease to function, this would be
tantamount to switching off global civilization (Pelton 1981). Communications
technology, irrespective of its wide spread is neither neutral, nor freely available. It
is a highly concentrated business,5 driven by transnational capital and deregulation
(U.S. Department of Commerce 1993). This has meant a disappearance of both
state-owned public information systems as well as small independent, private
media operations. A highly strati ed global information order, managed by private

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JORGE NEF AND WILDER ROBLES

international consortia has emerged. The development of a global news and

entertainment industry has meant an unprecedented explosion of cultural imports
practically everywhere. This expansion is mainly unidirectional. The centre of the
dissemination is clearly the United States, where the fastest growing industry is the
entertainment industry.6
In addition to unidirectionality, media programming, especially in radio and
television, shows marked uniformity. The production and dissemination of information ows from North to South. Therefore it is possible that all forms of national transformation converge towards a small number of common and hence universal types (UNESCO 1982). One emerging cultural pattern has been referred
to as an elite managerial culture: a set of attitudes, values and behaviour models, and a set of forms and models of organization (Ibid.) centred on the market
and the myth of achievement. Its mass ideological correlate is the culture of consumerism in its mainstream and pop versions. The global news and entertainment
networks are the conveyor-belts in the transmission of a common neo-materialist
and hedonistic worldview. Its foundations are inserted in the same possessive individualism and competitiveness of classical liberalism, yet this time the message is
directed to transnational consumers conditioned by a massively-marketed coating
of pop culture. The elite doctrine underpinning this deceivingly chaotic ideological
veneer is a complex amalgam of cyberpunk and market economics. There is a
phenomenal gap between a minority accessing the technology and a majority who
are experiencing digital inequity as well as material inequality.7
The Pervasiveness of Modernity
The cultural thrust of neoliberalism discussed above has been equated by elites
at the core with the idea of modernity. While the Marxist-Leninist strain of modernization has fallen in disrepute with the disintegration of the really existing
socialisms of Eastern Europe, the capitalist variety has become, by default, the
dominant paradigm. A central aspect of this hegemonic construction is the manufactured belief that there is no alternative to neoliberalism at the present time, other
than the re-assertion of religious fundamentalism as with the Clash of Civilization thesis or the imsy critique offered by the postmodernism of Western
intellectuals. However, even this apparently radical post-structural critique starts
from the premise of a hegemonic Western culture. What appears on the surface
of most post-modernist critical analyses of modernity is, linguistic pyrotechnics
notwithstanding, at closer scrutiny a manifestation of neo or hyper-modernism,
not a substantial departure from mainstream thought. Thus, despite the rhetoric
surrounding the crisis of modernity, modernization remains unchallenged as the
prevailing teleology of development.

THE STATE OF UNDERDEVELOPMENT

35

Social Forces and Interests

Ideologies are not disembodied systems of thought, without reference to concrete social forces. Beyond the exhaustion of Keynesianism and induced development as a containment doctrine, the upsurge of neoliberalism is grounded in the
advent of a powerful constituency for whom this ideology provides both a policy
roadmap and an intellectual justi cation for their interests. The transnationalization
of production and capital weakens territorial sovereignty, and governments everywhere are affected by external economic forces beyond their control. The ability
of business to transcend national boundaries has strengthened the role of external
constituencies. The latter include the mighty transnational investors and managerial elites in transnational corporations, in alliance with a vast array of equally
transnationalized service clientele of technocrats and politicians. The TNCs have
been able to break the sovereignty barrier, and create a venue for the transnational
integration of the powerful and in uential. Not only are these sectors in a dominant position within the developed world, but their leverage is even more decisive
in the Third World. Furthermore, directly as well as through the intermediation of
friendly governments in the G-7 countries, they have expanded their control over
the crucial agencies of the Bretton Woods system (chie y the IMF and the World
Bank), and within the European Union. As business in the more developed countries has gone global and nance capital increasingly plays the leading role in the
world economy, the strength, solidity, and mobility of this internationalized new
bourgeoisie have expanded.
Organizations
The aforementioned Mont Pelerin Society and the Bilderberg Group have
provided global outlets where neoliberal ideas have been debated and where the
interests of the dominant social groups they represent have been articulated on an
international scale. It was, however, the establishment of the Trilateral Commission
in 1973 (by the U.S. based Council for Foreign Relations and the Bilderberg
Group), which gave the anti-Keynesians world-wide prominence. The World
Economic Forum, or Davos Group, created in the 1980s, has further articulated and
projected the views of international capital by bringing together likeminded leaders
in the political, business, media, and academic communities. These individuals
are the most in uential people in the world. Numerous and well- nanced national
groupings, combining policy-research and propaganda have also proliferated, such
as the Institute of Economic Affairs in the UK, the American Enterprise Institute
(AEI) in the United States and the Fraser Institute in Canada. Neoliberal ideas have
also become predominant in academia, particularly in disciplines like economics
or political science, but most importantly, they in uence in no small manner the
upper levels of university administrations.

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JORGE NEF AND WILDER ROBLES

The macro impact of contemporary neoliberalism is manifested institutionally

in two ways. One is through the control of the political/technocratic high ground
and the government agendas by the political and business elites of the OECD
countries. Virtually all political parties, from conservative to social democrats have
embraced neoliberal economics as the only way to promote prosperity. Such
fatalism prevails also in Latin America and in the former socialist countries of
Eastern Europe. This relational control (Baumgartner et al. 1978), or hegemony
manifests itself especially in the allegedly technical scal and monetary policies
articulated by the ministries of nance and the central banks. These policies set
the fundamental parameters of the economic game, which in turn affect material
production and distribution. The other systemic impact materializes by means of
the control that the very same nancial and political elites have over the major
international institutions which are at the core of the global economic regime:
the IMF, the World Bank and the World Trade Organization (WTO). From there,
via regulation (and deregulation), international law and conditionalities, neoliberal
policies are entrenched and legitimated in the domestic modus operandi of lesser
developed and transitional economies. The transnationalization of scal policies
makes it virtually impossible for national governments to legislate neoliberal
norms out of existence, since rule-making in this area is effectively removed from
the domestic political process, irrespective of how representative it is. Deviant
behaviour is often punished by business blackmail and capital ight, before direct
intervention. Beyond pure ideological conviction and even opportunism, this may
help to explain why governments of diverse political orientation end up adopting
neoliberal policies, often against the manifest and overwhelming mandate of their
constituencies.
The Constructed Hegemony of Neoliberal Economics
The central tenet of the above-mentioned belief-system is that only competitive
and unregulated markets hold the key to development. Conversely, those unable
or incompetent to adapt, compete and abide by the objective laws of the market,
or who fail to acquire the attributes of outward success, deserve to descend to
the abyss of abject squalor. No pain, no gain is the capsular ideological chain
of signi cation of the new scolasticism. Behind this Kuznetsian slogan there lies
an operational doctrine characterized by an extreme inequity in the domestic and
global distribution of pain for the many and gain for the few. Neo-liberalism has
evolved into a new form of fundamentalism or economic correctness, a sort of
holistic economic determinism of the right, draped in common sense and folksy
clothes.
It encompasses a theory of history, a political economy (Public Choice Theory) and a theory of world politics (Complex Interdependence). Neoliberalism

THE STATE OF UNDERDEVELOPMENT

37

is also a vanguard political movement of the well-to-do which exhibits many of

the epistemologically fallacious assumptions of its now-defunct and discredited
ideological opposite. Really-existing capitalism, rather than really-existing socialism is erected as the only possible teleology at the end of history, and market
reductionism substitutes for class-reductionism. As billionaire nancier and former
Cold Warrior, George Soros has pointed out: the arch enemy of an open society
is no longer the Communist threat but the capitalist one (Soros 1997). The dif culty with present day exclusionary scolasticism, is that, it soon runs out of ideas.
Thought processes evolve into tautological slogans; education into indoctrination,
while critical thinking becomes anathema. This dysfunctional cultural loop is
reproduced through the acritical institutions of higher education and by the ever
more homogeneous and transnationally integrated systems of diffusion of ideas as
a form of Musak or mesmerizing chant.
The Abandonment of Politics
The fundamental connection between politics and human security is public
policy; a process the outcome of which is the allocation of rewards and deprivations
among various publics. The issues of participation and regulation are as central
to the question of good governance as are the issues of accumulation or
enforcement. Since the 1970s, Western political theory has consistently abandoned
a normative ideal based on participation, democracy and the input side of
politics favouring another teleology centred on order, stability and governability
(OBrien 1968; Leys 1982). The new political economy (Huntington 1967, 1968)
exempli ed by Public Choice theory, emphasises the role of the merchant over
the prince, ignoring the citizen. Politics, as in vulgar Marxism, is subordinated to
a techno-bureaucracy of experts who manage objective, natural-like economic
laws, laws that cannot be legislated or debated but dictated by those who interpret
the arcane and rei ed realm of the behavior of capital and the market.
Beyond this political and economic philosophy, the neoliberal package is best
known for the simplicity of its formula. This recipe, which economic experts in
bilateral and multilateral agencies actively encourage, contains six major interconnected policy recommendations.
1) The rst is re-establishing the rule of the market. This means liberating
private enterprise from the arti cial bonds imposed by governments. It also
involves greater openness to international trade and investment. In the labour front,
wages are made competitive by de-unionizing workers and eliminating arti cial
barriers such as workers rights, minimum wages and the like. The elimination
of price controls allows the market to nd its own equilibrium. Last, but not least,
currency controls, tariff barriers, and other impediments to free trade are phased
out, and, if possible, eliminated. All in all, total freedom of movement for capital,

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JORGE NEF AND WILDER ROBLES

goods, and services (but not labour) is to be attained. A central postulate in market
sovereignty is that an unregulated market is the best way to increase economic
growth, which will ultimately bene t everyone: supply-side economics would
produce trickle-down.
2) The second prescription is reducing taxes. Public revenues, especially direct
taxation on income and wealth are to be drastically cut down. This is geared
to increase disposable earnings among the well-to-do, resulting in a favorable
investment climate. Conversely, taxation on consumption, or indirect taxation is
boosted, especially in the form of value added or goods and services taxes (VAT
and GST). These policies are clearly set to bene t big business and are essentially
anti-labour and anti-consumer. They also reduce the scal base of government.
3) The third is reducing public expenditure. Social disbursements, including
welfare assistance, education, health care, unemployment insurance, and pensions
are considered inimical to economic ef ciency. The same goes for social safety
nets and even the maintenance of physical infrastructure such as roads, bridges,
water supply, and other services. Whenever possible these activities are to be taken
over by revenue generating private enterprises. Pro tability, not service is the
main criteria.
4) The fourth recommendation is deregulating the private sector. Government
regulation of everything that could diminish private pro ts is to be drastically reduced. In principle, deregulation is geared to enhancing competitiveness, eliminating red tape, bureaucratism, and corruption. As markets become the automatic
comptrollers, greater ef ciency is supposed to ensue.
5) The fth is the privatization of the public sector. State-owned enterprises,
as well as public-sector produced goods and services are to be sold to private investors. This includes banks, key industries, railroads, highways, energy, water and
communications utilities, schools, hospitals, and even natural resources. The assumption here is that private enterprise, driven by pro t-maximization, is inherently ef cient, risk-taking and innovative.
6) Finally is the elimination of the collectivist concept of the public good.
This is to be replaced with a view of the common good emphasizing individual
responsibility. The subsidiary state has a minimal role to play in dealing with
individual failures. Thus, those who are not able to fend for themselves are
blamed for their own problems and left largely on their own to solve them.
The Neoliberal Threat
The effort by socioeconomic elites and their institutional intellectuals to circumvent established democratic traditions and make politics governable and
markets free is a potentially antidemocratic trend. The tendency to favour limited democracies, able to respond to market forces, constitutes an attempt to

THE STATE OF UNDERDEVELOPMENT

39

reduce participation and depoliticize politics. The challenge presented by the 1975
report on The Crisis of Democracy (Huntington et al. 1975) to the Trilateral Commission was how to reconcile market politics with unrestricted private accumulation leading to monopoly. The neoliberal solution has been to limit the role of the
state and to facilitate private accumulation, while reducing the scope and salience
of popular participation and social policies, all this in the name of freedom. Elite
politics offers very few real options and transforms the states allegedly populist
and welfare functions into mere symbolism. Without the legitimizing trappings of
welfarism, a strong connection develops between neoliberal policies, the enhancement of law-and-order, penalization and criminalization, and the possible emergence of police states.
The implementation of this project involves essentially re-drafting the implicit
social contract among the various social actors, which regulates the pattern of
labour relations (and income-distribution) in society. It also relates to the de nition of what social actors, especially non-elite actors, are considered legitimate.
The neoliberal project is, for this reason, distinctively exclusionary and heavily
class-biased. The so-called leaner but meaner state resulting from structural adjustment and debt-reduction policies has built-in safeguards to prevent possible
redistributive policies resulting from irresponsible majority demands and overparticipation. The choices of citizenship are stripped of substance. Monetarist economic policies and those referred to as macroeconomic equilibrium are, as mentioned earlier, effectively taken away from public debate. They remain con ned
within acceptable limits by means of transnationalized regional trading agreements, central banking mechanisms and bureaucratic expertise. This elitist tendency to facilitate the governability of democracies reduces the governments capacity for governance, as an expression of sovereign national constituencies. It also
produces an effective loss of citizenship.
In the last analysis, the only possible outcome is the maintenance of an inequitable socioeconomic order. Attempts to resist the inevitability of this regressive
order brings out the seamy side of democracy: the manipulation of public opinion,
the induced fragmentation and trivialization of the opposition, the application of
authorized force and intimidation as insurance policies against dissent. Critics
and dissidents end up being labelled subversives and are subjected to numerous
security regulations. As John Sheahan has commented, the neoliberal policy package is inconsistent with democracy because an informed majority would reject it.
The main reason it cannot win popular support is that it neither assures employment opportunities nor provides any other way to ensure that lower income groups
can participate in economic growth (Sheahan 1987). The rationality of the economy ends up in contradiction with social and democratic rationality. In fact, the
economic policies charted under this economic doctrine have been best suited for

40

JORGE NEF AND WILDER ROBLES

authoritarian political regimes, such as Brazil under the Generals, Pinochets Chile,
or some of the Asian miracles in South Korea, Taiwan, and Singapore.
The juxtaposition of economic freedom with political repression is the
essence of the formula known as authoritarian capitalism (Letelier 1976), which
preceded the current democratic opening in Latin America. There is a de nite
solution of continuity between the authoritarian and the electoral phase of neoliberalism. As the national security states orderly retreated into their barracks, there
emerged restricted democracies with entrenched neoliberal economic agendas. A
similar trend towards liberalization is observable in many of the former socialist
republics of Eastern Europe. These new democracies are receiver states (Nef and
Bensabat 1992) based upon restricted participation and a peculiar consociational
arrangement: a pact of elites. The key role of this state is to secure macroeconomic
equilibrium, private accumulation, privatization, and deregulation. These goals are
accomplished via debt service and the execution of the conditionalities attached to
the negotiation of such service.
However, receiver states are not circumscribed nowadays to the periphery
of the Third World and former Second World. Nor is a large foreign debt one
of their intrinsic characteristics. Western elites have been applying a similar
political agenda in their own societies. Its manifestations have been Thatcherism,
Reaganomics, and the supply-side policies applied in Canada for over a decade
and repudiated by the electorate in 1993. These socioeconomic policies have been
rationalized on grounds of keeping in ation down, reducing the tax burden, or more
recently the current internal debt-crisis. Economic restructuring and the new
social contracts are their programmatic expressions. In all cases, these policies have
led to growing income disparities. Two examples can be illustrative. In Chile during
the 17-year Pinochet dictatorship, hailed in conservative circles as a neoliberal
miracle, real income per capita grew a paltry .3 percent per annum on the average
while the proportion of people below the poverty line increased at a record 7
percent per year (Nef 1996). In Canada, for nearly a decade the top ranking country
in the UNDPs Human Development Index, a recent study indicated that between
1973 and 1996, the income differential between the top and bottom 10 percent of
the population increased from a ratio of 21 to 1 to 314 to 1.8
Effects: An Incomparable Disadvantage
The transnationalization of production and the displacement of manufacturing
to the semi-periphery, on account of alleged comparative advantages brought
about by depressed economic circumstances and the low-wage economy, results
in plant closures and the loss of jobs in the developed countries. Such globalism
replicates in the centre similarly depressed conditions to those in the periphery.
Manufacturing, in this context, evolves into a global maquiladora9 type industry

THE STATE OF UNDERDEVELOPMENT

41

under economies of scale and integrating its nances and distribution by means of
major transnational companies and franchises. Abundant and above all cheap
labour and pro-business biases on the part of host governments are fundamental
conditions for the new type of productive system.
Since there are many peripheral areas with easy access to inexpensive raw
materials and with unrepresentative governments willing to go out of their way
to please foreign investors, a decline of employment and wages at the centre
will not necessarily create incentives to invest, or increase productivity in the
poorer countries. Nor will wage reductions increase competitiveness, one of the
favourite neoliberal buzzwords. Since production, distribution, and accumulation
are now global, neoliberal globalization is likely to lead to a situation of permanent
unemployment, transforming the bulk of the blue collar workers the working
class into a non-working underclass. In the current global environment,
production, distribution, consumption, and accumulation are not constrained by
the tight compartments of the nation state, national legislation or responsible
governments.
The new correlation of forces is one where blue-collar workers have lost, and
lost big. In contrast to the fragmented and increasingly marginalized condition of
both the blue and white collar sectors of the workforce, the present structure of the
global economic order is transnational, centralized, concentric, and institutionalized at the top. Its fundamental components are trade, nance, and the protection
of the proprietary rights of international business. Rules, actors, and instrumentalities constitute a de-facto and de jure system of global governance in which elite
interests in the centre and the periphery are increasingly intertwined.
Conclusion
The historical and structural circumstances of this new economic order are
de ned by three fundamental structural parameters, the common denominator of
which is global macroeconomic restructuring. The rst is the end of the Cold War
and the collapse of the socialist Second World. This circumstance is construed as
the victory of capitalism. The second contextual parameter of this new order is the
disintegration and further marginalization of the Third World. The third parameter
is economic globalization on a scale and depth unprecedented in human history.
The most crucial ideological trait that underpins the present global regime is
the pervasiveness of neoliberalism as a hegemonic and homogenizing discourse.
This discourse contains in its core a distinctive ethics of possessive and predatory individualism with very few moral constraints. Whether under the spell of
monetarism or the so-called Trilateral doctrine (Sklar 1980), conventional economic thinking has displaced not only socialism but practically all manifestations

42

JORGE NEF AND WILDER ROBLES

of structuralism. Most important, however, is the entrenchment of inequality and

the devaluation of labour as the guiding principles of economic life.
The formal decision-making structures of the global economic regime are
clearly recognizable, encompassing the General Agreements on Tariffs and Trade
(GATT) and its successor, the World Trade Organization (WTO), the International
Monetary Fund (IMF), the World Bank, the various regional banks, the Organization for Economic Cooperation and Development (OECD), the Group of Seven
(now Group of 8 with the inclusion of Russia) and the established major trading blocs: the European Union, ASEAN, NAFTA, and MERCOSUR. The WTO
was established at the 1993 Geneva meeting of the GATT to substitute a monitoring, regulatory, and enforcement agency for the GATT conference itself. This
is tantamount to the establishment of a formal mechanism for the regulation of
world trade, thus formalizing the leading role of trade in both the international
economic regime and the over-all global order. The proposed Multilateral Agreement on Investment (MAI)10 is another complementary set of rules a charter of
rights for nance capital. This global structure has its correlate inside the mechanisms of macroeconomic management at the level of nation-states: ministries of
nance, treasury boards, and central banks. The formal linkage between global and
domestic management is provided by international agreements and external conditionalities attached to scal, monetary, and credit policies; especially those of
debt-management. This linkage is, in turn, re-enforced by common ideology and
professional socialization on the part of national and international experts.
Through these devices, world economic elites manage their interests and
negotiate regulatory structures to serve their common interests and maximize
pro ts. As Huntington (1992) rather cynically put it:
Decisions : : : that re ect the interest of the West are presented to the world as : : : the
desire of the world community. The very phrase the world community has become
the euphemistic collective noun (replacing the Free World) to give global legitimacy
to actions re ecting the interest of the United States and other Western powers: : :
Through the IMF and other international economic institutions, the West promotes
its economic interests and imposes on other nations the economic policies it thinks
appropriate (P.)

But harmony and predictability at the transnational summit does not necessarily
translate into order and security at the base. As production, nance and distribution
in a rapidly globalizing economy become transnationalized, so does economic vulnerability. After the years of world-wide prosperity during the 1960s and the 1970s,
economic instability and vulnerability to external economic forces have become
endemic. The effects of economic insecurity, manifested in poverty, unemployment
and sheer uncertainty are felt by the bulk of the population in the periphery. Economic globalization under the neoliberal formula has disenfranchised people from

THE STATE OF UNDERDEVELOPMENT

43

ful lling their basic human needs, namely, access to food, housing, and employment. It has caused social polarization within and across national boundaries. It has
contributed to the emergence of a new centre and periphery no longer based on geographical regions, but on political and economic groupings in both the North and
South. On the one hand, there stands the highly transnationalized, af uent, mobile,
and in uential elites in the First World, former Second World, and Third World.
On the other, there is the heterogeneous and fragmented majority of the inhabitants
of the planet living in all the worlds of development who are increasingly
marginalized and disenfranchised in the global village. As the process of globalization under the banners of neoliberalism advances, the proportion of those in the
other world increases. So does the probability of human insecurity and mutual
vulnerability.
There is a great deal of optimistic triumphalism among those who espouse
neoliberalism. From the perspective of its supporters, the inherent superiority of
this global project has been demonstrated by the collapse of socialism in Eastern
Europe, the disintegration of African societies and Latin Americas lost decade.
Yet, the sharp schism between these two worlds and the con ict between an
expanding Western civilization and an increasingly fragile, unstable and besieged
global and domestic periphery, offers a scenario of violent confrontation: a new
World War III. The growing squalor of the many, which makes the prosperity
of the few possible, has intrinsically destabilizing effects. It is a direct threat to
everybodys security. The extreme vulnerability of the South and the East, far from
enhancing the security of the North and the West, is a symptom of a profound
malaise in the entire global system. With hindsight neoliberalism may well be
perceived as one of the greatest and most elaborate deceptions in modern history.
But today its consequences are real and go beyond a clever global con game. This
dysfunctional system is already eroding post-industrial civilizations vitality, not
only in what is contemptuously referred to as down there but essentially up
there too.
NOTES
See Carl Friedrich, The Political Thought of Neoliberalism, American Political Science
Review, XLIX: 2, 1955, 509ff.
2 According to the Portuguese Times (June 12, 1997), Norman Bailey, an academic and a former
Senior Director of International Academic Affairs for the National Security Council during the
Reagan Administration, has had longstanding connections to the US intelligence community.
3 Norman Bailey, Organization and Operation of Neoliberalism in Latin America, in Bailey
(ed.), Politics, Economic and Hemispheric Security, New York, Praeger 1965, 193. The entire
volume is a collection of pieces by right-wing thinkers, resulting from a conference organized
by the Center for Strategic Studies at Yorktown University in July 1964.
4 The ECLA Doctrine refers to the keynesian approaches to economic recovery and importsubstitution industrialization followed by the relatively more advanced Latin American coun-

44

8
9

10

JORGE NEF AND WILDER ROBLES

tries Mexico, Brazil, Uruguay, Argentina, and Chile, and to a lesser extent Peru and Colombia
between the late 1930s and the early 1960s, and articulated by the UN Economic Commission
for Latin America (ECLA). The names of economists such as Ral Prebisch, from Argentina,
Celso Furtado, from Brazil, Jos Antinio Mayobre, from Venezuela and Osvaldo Sunkel, from
Chile are considered to be representative of the doctrine.
In 1988, the top 10 information and communication enterprises which virtually controlled the
technology and R&D of global communications and informatics, included 2 American (IBM
and AT&T), four Japanese (NTT, Matsushita, NEC and Toshiba), one German (the state-owned
Deutsche Bundespost), one Dutch (Phillips), one British (British Telecom) and one French
(France Telecom).
In 1991 foreign sales accounted for 39 percent of U.S. lm and television revenue, a 30 percent
increase over 1986. Between 1987 and 1991, net exports in this sector doubled: 7 billion, over
the past record of 3.5 billion. In addition, the export of American records, tapes and other
recordings rose from $286 million in 1989 to 419 million in 1991; an increase of 47 percent.
In 1998, it was estimated that the musical industry alone had grown to about 20 billion dollars
in annual sales, 70 percent of it coming from abroad (D+C 1998). To this, one must add the
ever-expanding computer software market.
A few gures are illustrative. According to a 1992 report by ITU/BTD there were about one
billion telephones in the world and a population of about 5.7 billion. Of these, only 15 percent
of the inhabitants of the planet had access to 71 percent of the main global lines. At the same
time 50 percent of the people of the world reportedly had never used a telephone: lower income
countries (where 55 percent of the population lives) have access to less than 5 percent of the
telephone lines. While the high-income countries possess 50 telephone lines for every 100
inhabitants, many low income countries have less than one telephone line for 100 inhabitants
(Hamelik 1998).
See Rich get richer as wage widens, The Toronto Star, Thursday October 22, 1998, A1.
For an analysis of maquiladoras, see Kathryn Kopinak, The Maquiladora in the Mexican
Economy, in Ricardo Grinspun and Maxwell Cameron (eds), The Political Economy of North
American Free Trade, (Montreal & Kingston: McGill-Queens University Press, 1993), pp. 141162.
See Tony Clarke, The Multilateral Agreement on Investment. Document accessed via the web
at http://www.nassist.com/mai/mai(2)x.html. Date November 17, 1998.
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