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Part I. Hegemonic Transformation and the Trade Regime: A Conceptual Framework

CHAPTER 2: A NEO-GRAMSCIAN FRAMEWORK TO ANALYSE THE ROLE OF SOCIAL FORCES IN REGIME CHANGE

2.2. Hegemonic Transformation

2.2.2. Neoliberal Hegemony

eroded in capitalist countries as the bloc itself disintegrated during the 1970s (Cox 1987: 276-285).

The pax Americana had paved the way for two significant developments: 1) the internationalisation of production mainly through foreign direct investment (FDI) by U.S. based corporations, and 2) the internationalisation of the state (Cox 1981: 107-10).

This trend continued parallel to the dissolution of the U.S. hegemony, with the emergence of a new form of capital accumulation which replaced Fordism and re-energised the globalisation process in the 1970s. To distinguish social forces of globalisation, scholars put emphasis on the shift in the capital accumulation and production processes to a post-Fordist mode.22 During this process the nature of production changed with new patterns of manufacturing through networks and outsourcing and with diminishing costs of telecommunication, storage and transmission of information (Lairson and Skidmore 2003 128). TNCs have pursued the transnationalisation of production via foreign direct investment, subcontracting, global commodity chains, and worldwide alliances (Portnoy 2000, 160; O’Brian and Williams 2004, 185). Intra-firm trade increasingly constituted the major part of current international trade (Gill and Law 1988: 192). The world economy was gradually structured around networks of finance and production within which firms are able to move around the globe to avoid regulatory limitations of the states (Cox 1996: 22).

22 Because of the miniaturization of production and its non-tangible quality, and particular economies of time and space characteristics, Van der Pijl labels the post-Fordist mode of accumulation as “virtual mode” (Van der Pijl 1998: 57).

Neo-Gramscian authors contend that neoliberal hegemony was built upon a novel transnational historic bloc with new elements of transnational capital coalescing around productive TNCs, banks, skilled labour and governments (Gill and Law 1988;

355-6; Gill 2008: 71).23 Gill (1994) calls the core of hegemonic power the “G-7 nexus”

and points out a shift of political economic decision-making to gradually mobilised

“globalising elites.” TNCs in knowledge and technology-intensive sectors as well as finance industries are argued to be the forces that shaped the ideological framework of the new world order (Overbeek 2004: 118; Rupert 2000, 49). Their active part in determining the hegemonic framework rests in the enhanced structural power of transnational forms of capital. Gill and Law point out that compared to different fractions of capital, other class or class fractions and states, TNCs representing large-scale, globally mobile capital have been able to exercise their power directly and structurally on a larger scale (Gill and Law 2008: 107-115). The structural form of power rests on the rising mobility of transnational capital vis-à-vis other factors of production (Lairson and Skidmore 2003; 115). This enables TNCs’ ability to set policy agendas. As Fuchs (2007: 64) argues:

23 Rupert (2000: 49) argues that the historic bloc underlying neoliberal hegemony was in a sense a continuation of the Fordist historic bloc, the only difference being that it was now led by finance capital rather than productive capital and its loss of allies in organized labour.

given the high degree of capital mobility in today’s globalized world, TNCs exercise agenda-setting power through their ability to punish and reward governments for their policy choices by moving investments and jobs.

Gill and Law (2008: 104) assert that direct forms of power of transnational capital have been based on the TNCs’ possession of financial resources, their control over media, and intensive contacts with governments. Consequently, governments seeking financial resources and investment have become more responsive to the demands of TNCs. TNCs seek competitive advantage in world markets through corporate strategies. This is achieved by decreasing their costs with new production strategies and innovation, expanding their markets globally, and by increasing the quality of products applying new techniques and strategic alliances (Lairson and Skidmore 2003: 197; Gill and Law 1988: 84-89). They also pursue political strategies to enhance their competitiveness, especially by pushing for competitive deregulation (Gill (2008:

103).

As frequently stipulated by different authors, as a consequence of the rise of the neo-liberal order the authority, legitimacy and accountability has swayed away from the states in tandem with a redesignation of authority relations domestically (Cutler 1999, 2001).24 Cutler claims that private corporate power enforces the norms of private

24 There is a scholarly production from different experts exploring the role of private authority in the global politics such as the edited volumes of Hall and Biersteker (2002) and Higgott et

international trade law or the law merchant (lex mercatoria) to expand corporate power at the global scale. In this context, she maintains that “public” nature of power -embedded in the conventional Westphalian understanding- is no longer explanatory since it obscures the “private” authority within the global political economy (Cutler 2003). Sinclair shows that private actors are authoritatively engaged in quasi-regulative arrangements such as standard-setting and shape the policies of the governments as in the case of bond-rating agencies (Sinclair 1999).25 In other words, a particular consequence of the neoliberal hegemony is the privatisation of political authority and the enhanced legitimate role of markets and market actors to set policy-agendas globally. Indeed, Susan Strange admitted that “the retreat of the state” was partially because of the given consent of different actors including the governments to the legitimacy of market actors to regulate the domains which were conventionally under the purview of the public authorities (Strange 1997: 12-4). In this regard, the structural power of capital has a normative dimension to discipline the states:

Capital, and particularly the financial fractions of capital, may have the power to indirectly discipline the state. In so far as many of the top financiers have al. (2000), and Cutler’s book (2003). More broadly, the rise of non-state actors and the role of social forces are explored by a number of scholars such as Josselin and Wallace (2001) and Bieler and Morton (2001).

25 The authority of non-state agents is also recognised because of the technical nature of new issues, standards, and areas of regulation. Since knowledge-production and authority are associated, think tanks and epistemic communities enjoy determinative roles in the re-configuration of authority (Haas 1992).

access to the government leaders, this indirect power may be supplemented by direct use of power, e.g. lobbying, and “gentlemanly” arm-twisting. However, such arm-twisting is secondary to what can be termed the “power” of markets (Gill and Law 2008: 106).

In fact, as underlined by Gramscian authors the ideological framework of neo-liberal hegemony rests in this disciplinary dimension. In this vein, Gill (1995; 2003: 130-131) introduces “disciplinary” in defining neoliberalism26 to underline the dominant

“socio-economic” form solidifying the ability of capital to discipline states and influence public policies in order to ensure the capitalist market construction and to promote market norms, freedoms and mechanisms at a global scale. According to Gill, states are subjected to market disciplines and are obliged to prove their compliance with “the three C’s of the power of capital,” i.e. they need to produce public policies in “consistency” with investors’ expectations, in order to gain the “confidence” of markets and to sustain their own “credibility” (Gill 2000a, 4). Similarly, Overbeek puts the accent on the expansion of market norms and mechanisms under the neoliberal order:

The dominant tendency under neo-liberalism is the extension of commodification and the application of market principles to new geographic zones of the global system, to new spheres of economic activity, and to new areas of human existence not previously subjected to the search for private profit (Overbeek 2004: 132).

26 Instead of neoliberalism, Cox prefers using the term “hyper-liberalism” to encapsulate the emerging policy synthesis in the early 1980s (Cox 1987: 285-98).

In this regard, it is argued that neoliberalism serves the acceleration of the markets to gain dominance over further social space (Rupert 2000: 42-54; Agnew and Corbridge 1995: 164). Similarly, Cox (1996: 23) contends that globalisation has become an ideology that necessitates states and states system to serve the operation of “market logic” by providing stability and security for markets. In other words, neoliberal social purpose differs from corporate (or embedded) liberal social purpose as it recognizes enhanced legitimate authority of markets and market actors vis-à-vis states in the domains which were traditionally under government control. On the other hand it acknowledges the necessity to create binding constraints and disciplines over the states.27

How does neoliberal hegemony operate in a receptive environment recognizing the enhancement of private authority? One dimension is the rise of the “neoliberal form”

of states, situated primarily in the capitalist heartland, but also extended to developing countries and transition economies. Starting with the U.S. and Britain, states in advanced capitalist countries removed Keynesian interventionist tools from the policy repertoire and promoted a limited role for the government in the economy through deregulation and privatisation, tax and budgetary cuts, tight monetary

27 This perspective is similar to Harvey’s who argues that neoliberalism is a political project to

“disembed” capital from the constraints created by embedded liberalism (Harvey 2009:11).

measures, and measures to keep wages down (Harvey 2009: 25; Cox 1987: 286-288).

Coercion and consent worked hand in hand in the spread of neoliberal hegemony to the Third Word. Integration into the global economy and production processes became a significant factor in developing countries’ adoption of neoliberal policies.

Countries such as South Korea, Hong Kong, Singapore, Taiwan, as well as Brazil, Malaysia and Thailand, increasingly became competitive and developed productive capacities from labour intensive to capital and technology intensive production and integrated into the new international division of labour in the last decades (Bhagwati 1993: 62-63; Mittelman 1996: 4). Cox and van der Pijl argue that neoliberalism was initially challenged by advanced developing countries such as Brazil and South Korea where “state-capitalism” had been pursued as a means for industrial catch-up (Cox 1987: 292; van der Pijl 1998: 85-88). Nevertheless, these countries together with “neo-mercantilist developmentalist states,” such as Mexico, India and former Communist states, underwent significant transformations and gradually adopted neoliberal reforms (van der Pijl 1998: 85-88; 96). As will be discussed in Chapter 3 and 5, developing countries became active participants in the trade regime as they actively adopted market-based development strategies.

In addition to unilateral reforms and market-driven policies, neoliberal hegemony is also disseminated through certain international arrangements towards anchoring

governments to provide longer term guarantees to transnational capital. These arrangements include international constitutional and institutional measures and quasi-constitutional regional and multilateral arrangements to lock in the privatisation of public authority and market disciplines (Gill 2000a: 11-12; Gill 2008: 161-5). Gill (2000; 2008) defines this political-judicial dimension of neoliberal hegemony as “new constitutionalism.” New constitutionalism includes all set of measures to “reconfigure state apparatuses” and to “construct and extend liberal capitalist markets” to materialise economic globalisation (Gill 2000a: 11-14). In fact, it encapsulates both national measures such as constitutional changes (regardless of whether it is in connection with international arrangements), and institutional and legal measures taken to regulate rights of capital in foreign jurisdictions. These regulatory measures are often in the form of structural adjustment programs of international financial organisations and the disciplines of the WTO (Gill 2000a: 11-13).

Having said this, neo-Gramscian scholars also point out a number of inherent contradictions produced by the neoliberal hegemony. They contend that institutionalisation of a self-regulating market program through commodification of social forms and nature has generated significant dislocations and resistance in global civil society in the 1990s. For instance, agreeing with Cox (1987: 253-265), Mittelman (1996: 7-11) contends that the state has become an agent of globalisation, facilitating

economic integration while accommodating itself to new conditions through allocating resources for the needs of private actors to gain competitiveness in the world markets. Thus, as an agent of globalisation serving interests of transnational capital, the states became “accountable” to markets more than to society (Mittelman 1996: 9). Similarly, Gill contends that disciplinary neoliberalism is imposed by new constitutionalism as a “top-down” project that isolates politics from economics, states from markets while institutionalising protection for TNCs and investors from democratic accountability and social control (Gill 2000a: 12). In fact, the accountability problem creates a significant contradiction for the re-production of neoliberal hegemony. Gill lays out this contradiction in the following terms:

[Neoliberal] reforms are largely imposed from above on populations, and are largely premised on the subordination of democracy to the pursuit of profit. As such, they lack substantive legitimacy and hegemonic appeal. This is one reason why the new constitutional reform project is not complete since it contains political and economic contradictions, and it provokes resistance from across the political spectrum, that is resistance to the projects of new constitutionalism and neo-liberal globalisation (Gill 2000a: 19 emphasis original).

Indeed, the legitimacy of neoliberal states and institutions are being widely questioned within civil society. The 1990s observed harsh criticisms towards the IMF, World Bank and WTO for spearheading neoliberal disciplines and structural adjustment programs which have arguably had negative impacts on economic

development, income distribution, social, environmental and public health policies.

This crisis of legitimacy turned civil society to a realm of vocal protests, which leads Gill (2000b: 135) to suggest that neoliberal hegemony entered the phase of “authority crisis.” This contested nature of neoliberal order was a significant factor in the failure of the investment case as argued in Chapter 7.