Essay on Neoliberalism

Name: James Stuart Pevreal
ID Number: 1140558
Course Number: GEOG306 – 14A
Lecturers: John Campbell & Colin
McLeay
Disasters and Development
GEOG306-14A
Faculty of Social Sciences
University of Waikato/Te Whare Wananga o Waikato
Essay 1: Development Theme Topic A –
What is neo-liberalism?
Why has it been fatal to development?
Wordcount: 2000 – 2500 words
Marks Allocation: 30 %
Due Date: Tuesday 15th April 2014

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James Pevreal ID 1140558 GEOG306-14 Essay 1
What is Neoliberalism? and How has it Been Fatal to Development?
The discussion that follows provides a description of the concept of
neoliberalism and its origins, as well as the social, economic, and environmental
impacts of adopting neoliberalism as a developmental ideology. Key strategies
such as the introduction of international monetary organisations and a tool used
by such organisations—Structural Adjustment Programmes—to facilitate
development, are outlined. Then, the impacts of this developmental ideology are
demonstrated, using a specific example of how neoliberal practices and strategies
have not only failed to facilitate development by the means originally stated by
its proponents, but rather have served to increase poverty, dependency and
undermine national sovereignty of developing target countries through wealth
and power aggregation and social stratification.
What is neoliberalism? Neoliberalism is the current dominant socio-
economic ideology in Western mainstream society (Desai & Potter, 2013). It is
an econocentric concept which manifests through policies formulated and
applied to and regulating the expansion of commercial activity into public and
non-commercial sectors of society (Haslam, Schafer, & Beaudet, 2012). Policies
associated with neoliberal reform include:
 the free-flow of goods, services, and capital (money/currency) across national
borders
 deregulation of the economy
 privatisation of industry and state-owned-enterprises (SOEs)
 increasing the role of foreign and domestic private investment
 as well as corporatisation of the public sector, which essentially means
streamlining governing institutions to operate in a more fiscally grounded
business structure (Desai & Potter, 2013; Haslam et al., 2012).
Neoliberalism has its foundations in classical liberal beliefs which assert that the
free market is maintained in equilibrium naturally, and that an unhindered business
model is the most efficient structure for facilitating financial growth (McLeay, 2014).

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As an ideology, neoliberalism has its origins towards the end of World War II when
the Bretton Woods Conference took place to develop an economic plan proposed to
help rebuild and develop countries which had been devastated as a result of the
conflict. This proposal was known as The Marshall Plan which focused on
international banks lending money to the countries which had been significantly
affected by the conflict in order to facilitate economic growth (Harvey, 2005). The
prevailing belief at the time was that if countries were significantly developed there
would be no cause or need for another conflict to occur again on the scale of World
War II.
The Bretton Woods Conference set the stage for modern monetary fiscal
management, however, in order to facilitate loans to affected countries, an institution
dedicated to administering the international loans was needed. This administrative need
formed the basis for the introduction of the International Monetary Fund (IMF) as well
as the International Bank for Reconstruction and Development (IBRD) which today is
part of the World Bank group (Harvey, 2005).
The Bretton Woods monetary system was utilized up until the early 1970s when
the post-war economic boom—referred to as the ‘long boom’—collapsed (McLeay,
2014). One of the reactions to the long boom collapse was that the USA removed the’
Gold Standard’ on the United States Dollar (USD)—an action termed the ‘Nixon
Shock’ (Kollen Ghizoni, 2013). The removal of the Gold Standard from the USD
resulted in an economic system which produced unprecedented capital expansion
(financial growth), especially in the corporate sector regarding stock markets and
commodity trading (Kollen Ghizoni, 2013). This effectively ended the era of the
Bretton Woods monetary system and provided a platform for the neoliberal
socioeconomic paradigm, initiated by economic deregulation and which upholds
deregulation as one of its core principles.
Hayek, who is a proponent of neoliberalism, critiques collectivism (a differing
socioeconomic ideology) by saying that “it destroys morals, personal freedoms, and
responsibility, impedes the production of wealth and sooner or later leads to
totalitarianism” (as quoted in Anderson, 2005, p 16). Watts (2009) also cites Hayek’s
eurocentric description of Western civilization as

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conceived of as liberty, science,and the spontaneous orders that co-evolved to
form modern society” (great society as he termed it). It is a defence of the
liberal (unplanned) market order from which the preconditions of
civilization—competition and experimentation—had emerged. (p 128)
It is arguable, however, that this liberal, and affirmed as unplanned, system is in
no real sense ‘unplanned’ at all; any ‘system’ must employ a structure and that said
structure must be implemented. Therefore, neoliberalism could be asserted to be just as
planned as collectivism, however, its purpose appears to serve a different agenda
regarding impacts on the global socioeconomic framework. In the following sections
of this essay, the circumstances surrounding one example of the application of
neoliberal ideology is described, as well as the reasons for its failure as a tool for
facilitating development.
In the wake of the 1973 to 1979 oil shocks (when OPEC countries sought to raise
the price of oil), the global recession, and the global debt crisis of 1981-82 (when the
USA increased its interest rates), many predominantly ‘developing’ countries were in
serious financial trouble (McLeay, 2014). This prompted the IMF and the World Bank
to initiate what are collectively known as Structural Adjustment Programmes (SAPs)
(Simon, 2008). These programmes were to serve as emergency loans which would be
made available to a country in order to re-establish its failing economy in times of
crisis. SAPs came with conditionality requiring that, for the loan to be approved, the
country in question would have to bring its financial policies into alignment with the
‘modern Western model’, that is, adopt neoliberal economic policies (Simon, 2008).
The primary changes required to satisfy the criteria for approval of a structural
adjustment programme include monetary discipline, reduction in public spending, trade
liberalisation, reduction and/or removal of subsidies, privatisation of public enterprises,
wage restraints, and various other institutional reforms (Simon, 2008). These
requirements were designed to bring underdeveloped economies into the modern era
by providing them with a market-based streamlined fiscal business model (Simon,
2008). The rationale for such a preference to move developing economies into the
Western model was that during the long boom period between 1945 through 1973,

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Western countries (for example, the USA, France, and the United Kingdom) were seen
as model examples of the successful neoliberal market-led development paradigm.
According to McLeay (2014), “between 1980 and 1990, 187 Structural
Adjustment Programmes were applied in 64 countries” (p 2). SAPs were a tool used by
large international lenders such as the World Bank and the International Monetary
Fund, and purportedly a means to reduce poverty and fiscal imbalances within a
country, whilst promoting increased trading through ‘free market’ related policy
changes such as privatisation and market deregulation. Such policy changes are
implemented by conditionality, as part of the signing of the loan contract.
The 1992 television documentary by John Pilger and David Munro entitled, War
by Other Means (Pilger & Munro, 1992), follows the socioeconomic impacts of the
introduction of SAPs in the Philippines. The film focused on the increased poverty in
the Philippines as the country struggled to keep up with SAP loan repayments to the
World Bank. The SAP had been introduced in order to develop the Philippines’ energy
sector by means of the construction of the Bataan Nuclear Power Plant (BNPP). The
filmmakers describe how the American company Westinghouse Electric was
contracted to build the power plant and to supply the reactor, with construction
beginning in 1976. However, building work was halted following the 1979 nuclear
crisis at Three Mile Island in the United States. It was then later discovered, during a
subsequent inspection of the Bataan plant, that there were approximately 4000 defects
in its construction. Following the 1986 nuclear disaster at Chernobyl in the Soviet
Union, anti-nuclear protests focused on the BNPP which had been constructed in an
earthquake-prone area as well as being situated near the then long-dormant volcano,
Mt Pinatubo (McCormick, Thomason, & Trepte, 1995), which later erupted in 1991
causing worldwide climatic effects and air travel disruptions.
This aborted unfinished disused project cost the Philippines government
approximately US$2.3 billion in loans to construct, with a further US$95million in
accumulating maintenance costs, and from which the country has had no economic
benefit (Amadora, 2011). It took until April 2007—30 years after the doomed
construction began—for the Philippines to compulsorily repay the World Bank loan for
the abandoned power plant, (ABS-CBN News, 2007). This repayment would have

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been greatly extended if the BNPP had been rehabilitated at a cost of approximately
USD$1 billion. Repayment of the SAP loan designed to produce the BNPP was the
Philippines’ single largest financial commitment during this time (Anonymous, 2011).
The abandonment of the project, with no evident benefit, cost the Philippines society
an enormous amount of money, however, Westinghouse Electric experienced no loss
or requirement to recompense or correct the 4000 faults identified at inspection. This
example clearly illustrates that the Philippines would have been financially far better
off without the SAP, which achieved nothing to enhance the country’s development in
this instance.
There is a dearth empirical sources of information which correlate the
implementation of an SAP with long term economic benefit. Some of the main
criticisms of the introduction of SAPs and their equivalents such as Enhanced
Structural Adjustment Facilities (ESAF) and Poverty Reduction Strategies (PRS) relate
to the long term consequences of privatisation, austerity measures, and the potential
erosion of national sovereignty (Desai & Potter, 2013). In the following paragraphs,
concerns regarding the effects of these three processes are described.
Privatisation refers to the selling off of all or most state owned enterprises
(SOEs) in order to improve efficiency and reduce expenditure, that is, to follow the
capitalist business model, and the pursuit of profit. The criticisms come from sectors of
society who believe profit should not be the goal of such enterprises, but rather that the
goal be to provide relatively low cost services such as electricity supply, infrastructure
maintenance, or even educational providers (Simon, 2008). Some hold views that
privatisation is a way of altering a service which serves a society and changing it so
that it services those who directly own and control it, frequently resulting in price rises
in return for (often) poorer levels of service (Simon, 2008).
Austerity measures are the processes by which government spending is cut back
in order to reduce or remove financial imbalances (Desai & Potter, 2013). Critics of the
implementation of such measures, such as Rick Rowden (2009) point to social
programmes being the main casualty of a reduction in public spending. In his book,
The Deadly Ideas of Neoliberalism, Rowden illustrates how social programmes such as
education, social welfare, and primarily healthcare are affected. He argues that these

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social programmes are usually underfunded prior to austerity measures being
implemented and that further reduction in funding for these sectors frequently, even
inevitably, lead to widespread chronic health issues from the spread of disease, lower
levels of education, as well as increased levels of poverty as social welfare is reduced.
It could also be argued that because this societal model is based on money, that only
those who have money will have adequate access to these often basic public services,
resulting in the formation or perpetuation of a class system and social stratification
consisting of the ‘haves’ and ‘have nots’.
Furthermore, the core criticism of SAPs, and therefore neoliberalism, is concern
over the erosion of national sovereignty. The term national sovereignty refers to the
right of a country to self-govern with no external interference. Critics argue that ‘good
policy’ is policy which serves a sovereign nation’s own best interests, but SAPs allow
outside organisations, such as the IMF, IBRD, and the International Development
Association (IDA)1 to dictate national economic policy, which in effect usurps national
sovereignty (Desai & Potter, 2013). For example, in the event that an SAP is
unsuccessful, and the debtor country is more economically challenged than it was prior
to the implementation of the SAP, the usual response is that the lender, one of the
international banks, will amend the loan contract in such a way as to either extend the
repayment period or reduce the interest rate—provided the debtor country sells its
commodity resources at greatly reduced prices. This then results in local industry
collapse and dependence on foreign investment and companies to supply the
population with resources (Desai & Potter, 2013). As there is often a localised
monopoly on certain goods such as forestry or agricultural products, prices are often
set high to increase profits (Desai & Potter, 2013). This reflects the process by which
the introduction of an SAP can erode a country’s national sovereignty with regard to
policy change affecting the population’s access to primary resources.
David Harvey (2005) in his book, A Brief History of Neoliberalism, discusses the
transition from social democracy to neoliberalism. Harvey’s view is that the rise of
neoliberalism has “not only restored power to a narrowly defined capitalist class…
[but] also produced immense concentrations of corporate power in energy, the media,
1 Together, the IBRD and the IDA form the World Bank.

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pharmaceuticals, transportation, and even retailing” (as cited in Watts, 2009, p 127).
He suggests that neoliberalism has not served as a tool for socioeconomic
development, but rather a means to aggregate monetary wealth and corporate power
into the hands of this class—in other words, the ruling elite. Harvey then goes on to
ask the question, “how is it, then, that the rest of us have so easily acquiesced in this
form of developmentalism?” (p 128). This acquiescence reflects a society in which
monetary value supersedes the value of all other things, and an unwavering
commitment to the current monetary system and inability to conceive of any potential
alternative socioeconomic platforms.
Harvey was by no means the first to call into question the potential consequences
of corporate accumulation. On the 21st November, 1864, the President of the United
States, Abraham Lincoln (Shaw & Lincoln, 1950), addressed a letter to Colonel
William F. Elkins regarding the state of political affairs in their country towards the
end of the American Civil War:
We may congratulate ourselves that this cruel war is nearly at its end. It has
cost a vast amount of treasure and blood…. It has indeed been a trying hour
for the Republic, but I see in the near future a crisis approaching that
unnerves me and causes me to tremble for the safety of my country. As a
result of the war, corporations have been enthroned and an era of corruption
in high places will follow, and the money power of the country will
endeavour to prolong its reign by working upon the prejudices of the people
until all wealth is aggregated in a few hands and the Republic is destroyed.
I feel at this moment more anxiety for the safety of my country than ever
before, even in the midst of war.
God grant that my suspicions may prove groundless. (p 40)
In summary, neoliberalism is purported to be a means of facilitating
development through capital expansion and greater economic freedom. Development
is initiated through the actions of institutions such as the IMF and the World Bank
group which provides developmental assistance by issuing SAPs, ESAFs, and PRSs
as emergency loans with conditionality. However, such loans effectively trap target
countries in long term or perpetual debt cycles. It is these debt cycles, compounded by

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loan conditionalities which serve to strip countries of their fiscal wealth and deprive
the population of basic services. As an end result of the application of neoliberal
policies national sovereignty falls victim to the interests of foreign investors, thus
power and wealth are re-allocated to the top echelons of society and personal
freedoms are eroded.
To conclude, it would appear that Lincoln’s concerns regarding the
accumulation of wealth and power have come to fruition under the developmental
ideology of neoliberalism. Whether or not neoliberalism has led—or will lead to—the
fall of the United States republic, or any other social democratic nations, Lincoln’s
observations have merit, perhaps worryingly prophetic, in view of the effects on
national sovereignty of multinational corporations and banks having as much, if not
more, influence over internal and external policy making, than the supposed sovereign
governments of countries offered developmental assistance.

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References
ABS-CBN News. (2007). ABS-CBN Interactive, from http://www.abs-cbnnews.com
Amadora, L. (2011). BNPP to power the future? Manila Bulletin.
Anderson, P. (2005). Spectrum. London: Verso.
Anonymous. (2011). Official: Napocor to get paid P4.2B for BNPP. Retrieved 7 April,
2014, from www.gmanetwork.com/news/story/213671/economy/official-
napocor-to-get-paid-p4-2b-for-bnpp
Desai, V., & Potter, R. B. (2013). The companion to development studies. London:
Routledge.
Harvey, D. (2005). A brief history of neoliberalism: Oxford University Press.
Haslam, P. A., Schafer, J., & Beaudet, P. (2012). Introduction to international
development: approaches, actors, and issues: Oxford University Press.
Kollen Ghizoni, S. (2013). Nixon ends convertability of US dollars to gold and
announces wage/price controls. Retrieved 10 April, 2014, from
http://www.federalreservehistory.org/Events/DetailView/33
McCormick, M. P., Thomason, L. W., & Trepte, C. R. (1995). Atmospheric effects of
the Mt Pinatubo eruption. Nature, 373(6513), 399-404.
McLeay, C. (2014). Neoliberalism and structural adjustment programmes. In
Disasters and development. Course lecture notes for GEOG306-14. Hamilton:
University of Waikato.
Pilger, J., & Munro, D. (1992). War by Other Means. Retrieved 25 March, 2014, from
http://www.johnpilger.com
Rowden, R. (2009). The deadly ideas of neoliberalism: how the IMF has undermined
public health and the fight against AIDS. New York: Zed Books.

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Shaw, A. H., & Lincoln, A. (1950). The Lincoln Encyclopedia: The Spoken and
Written Words of Abraham Lincoln, Arranged for Read Reference. New York:
MacMillan.
Simon, D. (2008). Neoliberalism, structural adjustment and poverty reduction
strategies. New York: Routledge.
Watts, M. (2009). Developmentalism. In R. Kitchin & N. Thrift (Eds.), International
Encyclopaedia of Human Geography. Oxford: Elsevier Science.

Essay on Neoliberalism

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