The Welfare State Decline and the Rise of Neoliberalism since the 1980s: Some Approaches between Latin America's Core and Peripheral Countries
By Fabiane Santana Previtali, Cílson César Fagiani, and Carlos Lucena
I. The Decline of the Welfare State and the Rise of Neoliberalism
Capitalism is an economic, political, social and ideological system based on value-commodities exchanges requiring the political formation of the State, whose first expressions dates back to the sixteenth century (WOOD, 1999; MÉSZÁROS, 2010; MASCARO, 2013). The State serves the interests of capital insofar as it seeks to ensure and promote its expansion and the reproduction of the capitalist mode of production itself. Classical liberal political theory shared with classic economic theory a sharp separation between State and economy, which constituted the fundamental assumption of capitalist society’s organization until the 1930s, when there begun to take shape theories about a strong mediating role of the State in the economic arena. In societies where the means of production are appropriate by a particular social class, the State turns out to be appropriated by this class too, in order to manage its economic interests, so that “the State, is revealed as a necessary apparatus to the capitalist reproduction, ensuring the exchange of commodities and the proper exploitation of labour power under a salaried system” (MASCARO, 2013, p. 18).
In a capitalist society divided into classes, the State assumes the function of boosting the economy with policies aimed at the consolidation and expansion of capital, favouring the interests of the bourgeois class. It is noteworthy that this function is not deterministic and ahistorical. On the contrary, the State is formed from the social relations of production, being a constituent element of society in the dynamics of class struggle and for this reason it transforms itself in the dynamics of this fight. It is by necessity that the capitalist system articulates and strengthens itself as a command structure, developing a correlation between economics and politics (MÉSZÁROS, 2010). Therefore, the social-political shape of the Welfare State, as well as that of the Neoliberal State in the late twentieth century, are expressions of class struggles for the social control of labour in bourgeois society.
Regarding the Welfare State, also called Keynesianism, we should highlight two key elements for its establishment over the 1930s and 1940s. First, the workers' resistance to the processes of rationalization of capitalist labour through the introduction of Taylorism and Fordism, and second, the bourgeoisie’s ideological struggle, which vacillated between class liberalism and state interventionism (BIHR, 1998; HARVEY, 1998; COGGIOLA, 2012). Bihr (1998) argues that the labour movement’s trajectory, more precisely the success of the social-democratic reformist side over the revolutionary side is what made a “class compromise” possible through the intermediation and regulation of the State, leading to the development of the Taylorist-Fordist regime of capitalist accumulation. This regime did not put an end to class struggle, but circumscribed it within the limits of a compromise, which implied the working class’ acceptance of a set of changes in labour organization, such as the split between conception and execution of labour, the fragmentation and subdivision of labour, the control of time and motion by management, the immobilization of labour in work stations, the subordination to technology in exchange for a guarantee of the most immediate class interests of labour concerning social security.
The labour movement’s social-democratic regime began to stand out by adopting a discourse of legality and development of the Nation-State, being impregnated by a “fetishism of the state”,
The bourgeoisie was forced to renounce class liberalism and had to conform to interventionist State policies. With the liberal governments’ failure to hold back economic crisis of the early 1930s, several intellectuals and politicians began to consider state interventionism as a way to regulate the economy and to discipline labour relations. The Great Depression in the 1930s demonstrated for the capitalist class that the regime of accumulation based on Taylorist-Fordist principles of organisation of the productive process would only be viable if there was a profound change in wage relations, involving all economic, social and political-legal conditions, aiming at a new form of regulation. It is important to highlight the effort of mobilization during World War II, which implied the reduction of resistance, both by workers and by capitalists, to the process of working rationalization and regulation through the State.
The Welfare State arises at this particular historical conjunction, and presupposes the use of political power to impose, through the State, the necessary measures for the accumulation and expansion of capital, which were under threat. The intervention strategy in the economy had the purpose of finding new ways to maintain order in the dominant system and ensure the expansion of capital, given the exhaustion of the previous phase founded on the predominance of "free" market laws. The State began to intervene in the economy, exercising regulatory functions over the relationships between capital and labour and also endorsed a series of labour requests, introducing collective negotiation between workers and employers, through the recognition of labour unions as workers’ legitimate representatives. By way of compromising the State also insisted that increments in labour productivity and wage raises would be adjusted in such a way as to avoid under-consumption crises. (BIHR, 1998).
The Fordist regime and its political correlation, the Social State or Keynesian State, reached its peak during the 1950s. In this period, the productive capacity of the reconstruction phase of the post war was already surpassed and the patterns of production and consumption—based on the advantages of economies of scale and the use of a highly skilled labour force—were consolidating.
Nevertheless, in the early 1970s the stability and hegemony of the Social State began to show signs of crisis. The more evident characteristics were:
- The fall in the rate of profit, largely due to increases in the cost of labour;
- The militancy of the labour movement that began asking for changes in work management;
- The technical limitations that arose from the organization of work on the factory floor, due to the impossibility of increasing productivity through increased division of labour;
- International competition threatening already existing monopolies;
- New information technologies imposed as a new form of labour control.
As a response to the crisis, capital began, throughout the 1980s and 1990s, an extensive restructuring process, which involved, on one hand, changes in the productive sphere, with the introduction of “Toyotism” and new information technologies in the labour process. At the same time, neoliberal measures were taken in order to alter the ideological-political system of bourgeois domination. It is worth noting that the USSR and Eastern Europe’s collapse at the end of 1980s contributed significantly to boost neoliberal ideas and to dominate the world political scene due to the "absence", in the eyes of capital, of the "socialist threat" and the end of "socialism”.
Therefore, the Welfare State crisis was nothing but the rupture of a relatively stable class domination pattern. The assumptions of this policy form in no time thwarts the interests of capital. On the contrary, it meant an accumulation recovery strategy before the accumulation crisis that was presented and the need to contain the working class’ struggles for socialism.
The critical situation in the 1980s spurred the bourgeois class to seek new mechanisms of social control under the neoliberal umbrella, thereby making possible the dismantling of social rights, the fight against unionism, straightforward animosity against any proposal contrary to the values and interests of capital, and the spread of an exacerbated subjectivism and individualism of which so called "postmodern" culture was an expression. The Taylorist-Fordist pattern of accumulation and its political and legal corollary, the Keynesian regulation that was in force since after the war, began to collapse in Western Europe, especially in the United Kingdom during the Thatcher administration (1979-1990), and in the United States during the Reagan administration (1981-1989).
Neoliberalism, being the bourgeois class’ articulated reaction to the difficulties of capital’s expansion and accumulation, began grow in the 1990s amid a process of globalization of companies, which availed themselves of the economic advantages such as lower taxes and a large amount of labour force, offered by certain countries and regions, to seek new opportunities to maximize their profits.
Globalization implies a sharp acceleration in processes of internationalization, inherent in capitalism since its original phase in the fifteenth and sixteenth centuries. By the same token, the expansion of capitalism seeks the internationalization of countries, aimed at conquering new markets. The expansion of capitalism suffered a setback throughout the 1950s, with the consolidation of the Taylorist-Fordist pattern of accumulation as far as it enabled - even demanded - a steady growth in the domestic market. With the depletion of this pattern of accumulation, capital, by inner necessity, resumed the internationalization process and started a new phase of globalization, in terms of markets and of levels of production based on new information technologies, as well as in terms of the transnationalization of companies to countries and regions not previously occupied, and of the financialization of the economy and the worldwide intensification of labour exploitation.
It should be pointed out that globalization does not lead per se the Nation-State to decline. Rather, it recreates the power relations and balance of power between the public and private spheres in the production of domestic and internationally goods and in relations between countries. Globalization, therefore, is intrinsic to capitalism as a mode of production. We agree with Wood (1999) that the State is the main agent of globalization, since the decline in many of its activities in the productive sectors and basic services (health and education) is paralleled by the growth of other functions, such as favoring the free movement of capital, or incentivizing the mobility of capital while blocking that of workers, for example, through immigration laws.
As Marx and Engels stated (2007, p. 43) in The Manifesto of the Communist Party, capitalism needs a constantly expanding market, which drives the bourgeoisie to expand across the globe and recreate spaces of domination.
The need of a constantly expanding market for its products chases the bourgeoisie over the entire surface of the globe. It must nestle everywhere, settle everywhere, establish connexions everywhere. The bourgeoisie has through its exploitation of the world market given a cosmopolitan character to production and consumption in every country. To the great chagrin of Reactionists, it has drawn from under the feet of industry the national ground on which it stood. All old-established national industries have been destroyed or are daily being destroyed. They are dislodged by new industries, whose introduction becomes a life and death question for all civilised nations, by industries that no longer work up indigenous raw material, but raw material drawn from the remotest zones; industries whose products are consumed, not only at home, but in every quarter of the globe. In place of the old wants, satisfied by the production of the country, we find new wants, requiring for their satisfaction the products of distant lands and climes. In place of the old local and national seclusion and self-sufficiency, we have intercourse in every direction, universal inter-dependence of nations. And as in material, so also in intellectual production. The intellectual creations of individual nations become common property. National one-sidedness and narrow-mindedness become more and more impossible, and from the numerous national and local literatures, there arises a world literature.
Available at: https://www.marxists.org/archive/marx/works/download/pdf/Manifesto.pdf.
According to Ianni (1996, p. 11):
Globalisation expresses a new cycle of capitalist expansion, as a mode of production and as a civilizing process of global reach. A process of ample proportions involving nations and nationalities, political regimes and national projects, groups and social classes, economies and societies, cultures and civilizations. It signalizes the rise of global society, as a comprehensive wholeness, complex and contradictory.
It´s a free translation by the author.
The liberalising thesis in the globalized world, manifested in the market’s centrality concomitantly to the State’s decline as rights regulator, engenders a new international division of labour through the increasing concentration of capital under the power of transnational corporations, with disastrous consequences for labour. The basic principles of Neoliberalism are:
- Privatization policy for State-owned enterprise;
- Free movement of international capital and emphasis on globalization;
- Economic opening for multinational enterprises;
- Adoption of measures against economic protectionism;
- Less bureaucracy of the State: more simplified laws and economic rules to facilitate the operation of economic activities;
- State size decrease, making it more efficient;
- Opposition to taxes and excessive tributes;
- Increase in production, as a basic goal to achieve economic development;
- Opposition to price controls of goods and services by the State, ie, the law of supply and demand is enough to regulate prices;
- The basis of the economy should consist of private companies;
Seeking to enable these doctrines, neoliberal governments destroy, through an intense policy of privatization, public activities such as healthcare, education and social security and creates accumulation spaces for the private sector during times of falling profitability. As from the 1980s in the economic core countries, and as from the 1990s in the peripheral countries, the State promoted the opening of markets and allowed access of private capital to those activities known, up to that moment, as public in nature and as social right.
In this sense, the State does not cease to be a regulating agent. What changes is the focus of regulation that becomes the deregulation of relations between labour and capital side by side with the opening and guarantee of new ways for capital accumulation. What can be verified in the course of the last decades of the twentieth century is an even greater State intervention against the working classes’ labour achievements. The new order of capitalist accumulation anchors itself in labour relations based on flexibility and on intensive use of technology, in the requirements of greater education and professional training, in a significant reduction of secure and stable employment, alongside the increase in part-time, temporary and subcontracted employment. This process has implicated the globalization of precarious work in all countries of the world, including those of the Welfare State cradles, Western Europe and the United States.
According to Previtali and Fagiani (2014), in 2013, the European average of part-time employment was 19.5%, being more a rule than an exception in the economy. In countries like the Netherlands, part-time employment reaches 50% of total employment, which means that one in two Dutch workers are employed in this type of labour regime. Germany (26.2%), Austria (25.7%), United Kingdom (25.5%), Denmark and Sweden (24.7%), Belgium (24, 3%) and Ireland (23.5%), also exceed the European average. Among countries with over 10% of part-time employment are Luxembourg (18.7%), France (18.1%), Italy (17.7%), and Spain (15.9%). In Portugal, part-time employment rate was 10.9%. As reported by the ILO (2014), informal employment represented about 48% of the global labour market in 2013.
Still according to the authors of this study, among the workers employed worldwide, 375 million earn less than US$1.25 a day. At the same time, income concentration has increased worldwide. About 10% of the world population controls 86% of the planet’s assets while 70% of the poorest controls only 3%. The 85 largest fortunes in the world total US$1.7 trillion. Europe’s 10 richest countries possess fortunes in an amount equivalent to all of the rescue packages to countries in the region between 2008 and 2010. In the USA, 95% of the growth generated after the 2008 crisis ended up in the hands of 1% of the population. It must be said that precarious work possesses an involuntary character, since individuals are constrained to this type of employment relationship because they have no other choice, because of the lack of permanent employment and the majority low-income, leading workers to more than one employment relationship, as well as by the reduction or even by the absence of social rights. (DIOGO, 2010, ANTUNES, 2013).
If precarious work is spreading around the core countries, in the case of peripherals and late industrializing countries such as Brazil, its advance is even more brutal and it works supported by a enormous super-exploitation of labour that combines the absolute and relative exploitation of the surplus labour, providing exorbitant levels of surplus value to national and international capital.
II. Neoliberal Globalisation in Latin America: Considerations about Brazil
Huws (2003) asserts that the new international division of labour in the age of neoliberal globalization causes reductions in the workers’ power of negotiation vis à vis employers, since the latter can transfer labour between regions and nations, benefiting themselves from the competitive advantages as lower legal regulation of labour rights, lower wages, and demands for greater qualification.
As a Latin American country, Brazil is even more dependent on the neoliberal agenda dictated by the core countries. Pressured since the 1990s by big transnational private capital, the country is undergoing a process of deregulation, and advancement in privatization policies and monetary liberalization. During the 1980s, when neoliberal ideas and actions reached their climax, thereby defeating the labour union movement and the Welfare State in Europe and in the United States, Brazil witnessed a significant expansion in the numbers of its union movement and of strikers in several categories, from workers in metallurgy, to civil servants, to workers in construction, field workers and varied middle salaried sectors, such as teachers, service providers and physicians.
Figure 1: Annual Average Strikes per Political and Economic Periods in Brazil
Source: Noronha (2009).
Strikes marked the birth of the "New Unionism" in the country, which rose in the years 1978-1980, resulting in the creation of the Central Única dos Trabalhadores (CUT) in 1983, Movimento dos Trabalhadores Sem Terra (MST) in 1984, which laid the groundwork for the formation of the Workers Party (PT) under the leadership of Luis Inacio Lula da Silva. However, in the late 1980s and throughout the 1990s, cold water was poured over Brazilian unionism when the harmful effects of neoliberalism began to be felt as the country was being placed in the context of neoliberal globalization. It can be said that neoliberalism started in Brazil with the election of Collor de Mello in 1989, but it was in the government of Fernando Henrique Cardoso (FHC), between 1994 and 2002, that a broader State reform program was implemented, and neoliberal policies deepened.
State reforms in Brazil and in Latin American countries in general have been based upon reports and diagnoses produced by the World Bank, the International Monetary Fund (IMF), and the Organisation for Economic Co-operation and Development (OECD). Such organizations, particularly the IMF, proposed the increasing of deregulation, the reduction of State bureaucracy and the reduction in bills and budgets as prescriptions to overcome the economic crisis, as well as the crisis in the education and social protection’s public sectors (GRANEMANN, 2008). An important orientation document that guided the socioeconomic development in Brazil and Latin America was the so-called "Washington Consensus" in 1989, produced by government representatives of core and peripheral countries, central bank presidents and representatives of international financial institutions who all sat at the same table. The document prescribed a set of neoliberal measures, called “first generation reforms” (LUCENA, 2013) and highlighted the need for:
- Fiscal discipline, so that States would cut expenditure and eliminate or reduce their debts, reducing costs and staff;
- Tax reform, in which the government should reformulate its tax collection systems in order for companies to pay less taxes;
- Privatization of State-owned companies, both in commercial as well as in infrastructure areas in order to ensure the predominance of the private sector everywhere;
- Free trade and reduction of protectionism in order to open the economy to foreign investment and the progressive deregulation of the economy and labour laws.
Through these prescriptions, creditor institutions promoted the diffusion and adoption of the central components of the so-called New Public Management (HOOD, 1995), or Manager State in Latin America. Carvalho (2006) highlights the main features of the new State management model under neoliberal ideas:
- The emphasis on financial control, which seeks to increase gains in efficiency, translated in the notion of “doing more with less”, and to increase the value of money, developing to this end, a more elaborated information systems to monitoring and controlling costs;
- Management by hierarchy, entailing direct and vertical control, the definition of clear objectives, and the evaluation of performance, all aspects that accrue power to the top managerial strata;
- Auditing, both financial and professional, with emphasis on more transparent evaluation methods based on benchmarking, and the establishment of protocols of professional performance;
- Increased provider's liability to the consumer, accompanied by a growing importance attributed to non-public sector providers and an emphasis on orientation to the consumer;
- The deregulation of the labour market, accompanied by the erosion of collective agreements and the growth of individual agreements, based on short-term contracts and fast turnover in top positions;
- Constraints in the self-regulation of professions, resulting in the growth of management roles played by professionals;
- The development of less bureaucratic and more entrepreneurial management forms;
- The installation of new forms of government and management aimed at marginalizing elected representatives.
Although Hood (1995) draws attention to the particularities of the OECD member countries, he also identifies the new reality of public management everywhere from seven changing dimensions, namely:
- Management professionalization in public organizations;
- Explicit and quantified performance measures;
- Emphasis on results control;
- Disaggregation of units;
- Tendency to increase competition;
- Insistence on styles and practices of private management;
- Emphasis on greater discipline and parsimony in resource uses.
Brazil has joined the process of neoliberal globalization significantly expanding its foreign debt and its dependence to international capital. Especially in the government of FHC, we have witnessed a privatization and internationalization of the economy that has produced a profound change in the tripod that supported the national economy, previously formed by domestic capital, foreign capital and the State productive sector. As an example, take the loans from the Inter-American Development Bank (IDB). In the 1990s, the heyday of neoliberal policies, there took place a sharp increase of loans and technical cooperation agreements in the education sector, which reached more than US$800 million (Figure 2).
Figure 2: Cash amount Involved in Loans and Technical Cooperation for Brazil from the IDB between 1960 and 2010
Source: Fagiani (2016).
Empréstimos e Coop. Técnica = Loans and Technical Coop.
Milhões de dólares = Millions of Dollars.
Décadas = Decades.
The restructuring of production was implemented in Latin America under the guidance of the neoliberal political project. The attack on public institutions and the State, along with the defense of globalization by local elites and the support of international capital, resulted in a massive privatization of hitherto public enterprises, especially telecommunications, banking, electrical energy and health. The restructuring of production was implied in the tendency to reducing the stable and specialized industrial proletariat which had developed in the presence of Taylorism and Fordism. If in the 1970s industrial employment represented about 20% of workers in the manufacturing industry, in the 1990s it turned out to be less than 13% (ANTUNES, 2011).
Since the 1990s, nearly all Latin American countries have implemented the restructuring of production through privatization, outsourcing, subcontracting, and decentralization of productive physical space in the name of flexibility and quality. The latter greatly favored the fragmentation of the working class, the super-exploitation of labor, the precariousness of employment conditions, and high unemployment levels.
In the Brazilian automotive sector, where the new unionism arose, the restructuring of production has involved the introduction of two types of innovations, namely: (A) technical innovations, including layout change, the introduction of robots, and CAD / CAM systems and (B) organizational innovations, which lead to the reduction of hierarchical levels, the formation of mini-factories, production cells, and multifunctional work.
This combination of factors contributed towards productivity growth throughout the decade, concomitantly with the reduction in employment levels (Chart 3).
Figure 3: Evolution of the Employment and Productivity Level (1980-1999)
Source: Previtali (2002).
Emprego = Employment.
Ano = Year.
Produtividade = Productivity.
The victory of the Workers Party (PT) led by Lula in the 2002 elections, was of both symbolic and real significance, because, for the first time in Brazil’s history, there was a government originating from the working classes. It is worth noting that the country has always had a large conservative faction, particularly in its dominant and middle segments, which - as history clearly shows - has consistently opposed workers’ rights.
Pochman (2012) shows that between 1995 and 2004 there was a drop of 9% in wages’ share in the national income, whereas the income from property grew 12.3%.
Despite this significant change in the social pyramid, and the ensuing reduction of social inequality and poverty, Lula’s government found itself unable to promote economic and social changes that would have resulted in substantial changes in the country's subordinate and dependent relationship towards international capital. Lula’s government, in fact, carried out the IMF recommendations towards the dismantling of social security and its privatization through the encouragement to private pension funds, as well as the transfer of public funds to the private sector, especially in the area of education and health. Concerning healthcare, government policies exempted private medical groups from paying taxes, allowed their users to deduct part of their monthly installments from their income tax, and established that the Unified Health System (Sistema Único de Saúde - SUS) perform the most complex and expensive medical procedures for customers of private health plans without payment (PREVITALI, 2015). Lastly, there was a considerable increase in the power of the big bourgeoisie, producer of and exporter of commodities, agrofuels in particular, with great encouragement from Lula.
The only possible conclusion from the above analysis is that a radical critique of the “Neoliberal State”—as born of the demise of the Social Welfare State—is urgently needed for the advancement of workers’ rights. It is urgent to put it back on the agenda of workers’ political struggle in the process of transformation of capitalist societies, and thus disseminate theses and analyses showing that the process of globalization and the rise of the Neoliberal State are intrinsic to a particular form of human sociability, historically constituted in the social relations of production and founded in the production of value which have been leading to an unsustainable life on the planet. Capital still is, and always will be, a competitive economic and social form that is dedicated to a generalized production of goods that leads to the destruction of human sociability and ways of life. The systemic tendency toward decreasing profitability and the need to intensify labor exploitation impels capital towards global expansion. Neoliberal globalization implies precarious employment conditions, as well as the fragmentation of the working class, contributing to the collapse of the workers’ political organization. The changes in the form of the State in capitalism refer to the analysis of the labor process, in what is fundamental to societal organization: effective production control, what to produce, how and for whom.
It will only be possible to move forward in a social project beyond the global exploitation of labor when we come to the understanding that capital, abstract labor, and the State form an inseparable triad that must be destroyed in its entirety. The crisis and the decline of the Welfare State showed that capital is, as Mészáros (2000) puts it: an "uncontrollable social metabolism". Thus, it is urgent to show that the neoliberal ideology, proclaiming the disjunction between economics and politics, aims to hide the exploitation of labor by capital as the real source of wealth through the State.
In order to achieve a process of human emancipation, despite capital's offensive to promote fragmentation and intensify competition among workers, it isessential that the new working class of the neoliberal era build new practices of collective resistance that bring up again issues like class belonging, labor exploitation and the struggle for socialism in the world.
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