Neoliberalism and the Social Contract: A Historical Perspective

(This is the first part of the essay. Two more will follow in the next few weeks)


Analyzing aspects of the tide of rightwing populism arising from the pluralistic-diversity model of neoliberalism, this essay examines the evolving social contract that normalizes systemic exploitation and repression in the name of capitalist growth. Baffled about what the social contract entails under the neoliberal regime, the dwindling middle class, most of which is in fact the embattled working class is becoming increasingly poorer. Amid incessant indoctrination by the media representing big capital, people try to make sense of whether their interests are best served under the classical liberal pluralistic model of globalist neoliberalism with a shrinking social welfare safety net at the base or an authoritarian-economic nationalist model that provides the promise of salvation for the amorphous majority at the expense of further marginalizing workers. 
The inevitable socioeconomic polarization under the neoliberal social contract has laid the groundwork for political polarization clearly evident not just in President Donald Trump’s America and Prime Minister Narendra Modi’s India representing that have mobilized a poplar political base under a rightwing populist neoliberal ideology, but France’s President Emmanuel Macron’s La République En Marche that espouses a pluralist–diversity-environmentalist model aiming at the same neoliberal goals as the populists. The differences of the ruling political parties with regard to their policies on pluralism notwithstanding, all operate under the neoliberal umbrella and aim at the same goals despite differing on best ways to achieve them.
Whether under the pluralist or the authoritarian model, neoliberalism represents what Barrington Moore described in Social Origins of Dictatorship and Democracy(1966) a capitalist reactionary route that Italy, Japan, and Germany followed under totalitarian regimes in the interwar era to protect the capitalist class after the crisis that wars of imperialism (1870-1914) and WWI had created in core capitalist countries. While the world is much more thoroughly integrated under capitalism today than it was a century ago, the same marked absence of a revolutionary trend as there was in the interwar era is evident in our era, which accounts for the neoliberal revolution from above to culminate increasingly toward variations of authoritarian regimes throughout the world. This does not only signal a crisis in capitalism but social discontinuity that will precipitate sociopolitical instability as contradictions within the political economy foster polarization across all sectors of society.
Historical Introduction
Most people today have no reason to be familiar with the term “social contract” any more than they are familiar with neoliberalism that inordinately influences public policy on a world scale. For many analysts contemplating the relationship of the individual to organized society, the social contract is about the degree to which government advances a set of social and economic policies articulated by an ideology designed to benefit certain institutions and social groups, while safeguarding sovereignty in the name of the governed. The problem arises when the ‘governed’ no longer view the social contract as legitimate.
The social contract has its origins in the transition from subsistence agriculture of the feudal-manorial economy to commercial agriculture and long-distance trade under capitalism in the 15th and 16th century. With the advent of the Scientific Revolution in the 17th century and the Enlightenment in the 18th century coinciding with England’s first industrial revolution accounted for more rapid evolution of the division of labor, European intellectuals challenged the old social order based on birth-right privilege of the aristocracy representing the agrarian-based economy of the past. Changes taking place in the economy and social structure gave rise to bourgeois social contract theories that articulated a core role in the state for the merchant-banking class, especially in northwest Europe where mercantile capitalism consolidated.
As the ideological force of the English Glorious Revolution (1689), John Locke, the father of Western Liberalism, argued for a regime that reflected the emerging bourgeoisie inclusion into the political mainstream to reflect the commensurate role in the economy. Interestingly, Locke provided a philosophical justification for overthrowing the government when it acted against the interests of its citizens, thus influencing both the American War of Independence and the French Revolution. Building on Locke’s liberal philosophy and views on the tyranny of absolutism, Jean-Jacques Rousseau wrote in The Social Contract (1762) that: “Man is born free, but everywhere in chains.” This statement reflected the views of many bourgeois thinkers who believed that modernization of society is not possible in the absence of a new social contract that takes into account natural rights of the individual, an approach to government that would mirror a merit based criteria.
Departing from Locke’s liberalism that had property ownership and individualism at the core of his political thought, in the Discourse on Inequality, (1754) Rousseau argued that property appropriation rests at the root of institutionalized inequality and oppression of individuals against the community. The role of the state plays a catalytic role for it as an “association which will defend the person and goods of each member with the collective force of all.” The basis of social contract theory is what accounts for sovereign power’s legitimacy and justice, thus resulting in public acceptance. (Jason Neidleman, “The Social Contract Theory in a Global Context”; C. B. Macpherson. The Political Theory of Possessive Individualism, 1962)
Rooted in the ascendancy of the European bourgeoisie, social contract theory has evolved in the last three centuries, especially after the Revolutions of 1848 and the rise of the working class as a sociopolitical force demanding inclusion rather than marginalization and exploitation legalized through public policy that the representatives of capitalism legislated. The cooptation of the working class into bourgeois political parties as a popular base in the age of mass politics from the mid-19th century until the present has obfuscated the reality that social contract under varieties of parliamentary regimes continued to represent capital. The creation of large enterprises gave rise not only to an organized labor movement, but to a larger bureaucratic regulatory state with agencies intended to help stabilize and grow capitalism while keeping the working class loyal to the social contract. Crisis in public confidence resulted not only from economic recessions and depressions built into the economy, but the contradictions capitalism was fostering in society as the benefits in advances in industry, science and technology accrued to the wealthy while the social structure remained hierarchical.
For the past half century or so, neoliberals have been promising to address these contradictions, insisting that eliminating the Keynesian (New Deal social welfare) state and allowing complete market domination of society would result in society’s modernization that would filter down to all social classes and nations both developed and developing. Such thinking is rooted in the modernization theory that emerged after WWII when the US took advantage of its preeminent global power to impose a transformation model on much of the non-Communist world. Cold War liberal economist Walt Rostow best articulated the modernization model of development in his work entitled The Stages of Economic Growth: A Non-Communist Manifesto, 1960. By the 1970s, neoliberals adapted Rostow’s modernization theory as their bible and the core of the social contract. (Evans Rubara, “Uneven Development: Understanding the Roots of Inequality”
The challenge for the political class has always been and remains to mobilize a popular base that would afford legitimacy to the social contract. As the following excerpt illustrates, the issue is not whether there is a systemic problem with the social contract intended to serve the capitalist class, but the degree to which the masses can be co-opted through various methods to support the status quo. “A generation ago, the country’s social contract was premised on higher wages and reliable benefits, provided chiefly by employers. In recent decades, we’ve moved to a system where low wages are supposed to be made bearable by low consumer prices and a hodgepodge of government assistance programs. But as dissatisfaction with this arrangement has grown, it is time to look back at how we got here and imagine what the next stage of the social contract might be.”
Considering that Keynesianism and neoliberalism operate under the same social structure and differ only on how best to achieve capital formation while retaining sociopolitical conformity, the article above published in The Atlantic illustrates how analysts/commentators easily misinterpret nuances within a social contract for the covenant’s macro goals. A similar view as that expressed in The Atlantic is reflected in the New America Foundation’s publications, identifying specific aspects of Arthur Schlesinger’s Cold War militarist policies enmeshed with social welfare Keynesianism as parts of the evolving social contract.
Identifying the social contract with a specific set of policies under different administrations evolving in time to reflect the political class and economic elites extends beyond the US to European Union officials and analysts who contend that there is a European Union-wide social contract to which nationally-based social contracts must subordinate their sovereignty; a model that has evolved to accommodate neoliberal globalism through regional trade blocs on the basis of a patron-client relationship between core and periphery countries. A European export and integral part of cultural hegemony in the non-Western world, the social contract for most Africans has failed to deliver on the promise of socioeconomic development, social justice and national sovereignty since independence from colonial rule. Just as in Africa, the Asian view of the social contract is that it entails a liberal model of government operating within the capitalist system rather than taking into account social justice above all else. Embracing pluralism and diversity while shedding aspects of authoritarian capitalism associated with cronyism and the clientist state, the view of the Asian social contract is to subordinate society to neoliberal global integration and work within the framework of Western-established institutions. In each country, traditions governing social and political relationships underlie the neoliberal model. (Sanya Osha, The Social Contract in Africa, 2014;
Despite its far reaching implications for society and despite the political and business class keen awareness of neoliberalism, the vast majority of the people around the world are almost as perplexed by the term neoliberalism as they are with social contract theory. Many associate neoliberalism with the economic philosophy of Milton Friedman and the ‘Chicago School’, rarely mentioning the political dimension of the economic philosophy and its far-reaching implications for all segments of society. In an article entitled “Neoliberalism – the ideology at the root of all our problems” The Guardiancolumnist George Monbiot raised a few basic questions about the degree to which the public is misinformed when it comes to the neoliberal social contract under which society operates.
Neoliberalism: do you know what it is? Its anonymity is both a symptom and cause of its power. It has played a major role in a remarkable variety of crises: the financial meltdown of 2007-2008, the offshoring of wealth and power, of which the Panama Papers offer us merely a glimpse, the slow collapse of public health and education, resurgent child poverty, the epidemic of loneliness, the collapse of ecosystems, the rise of Donald Trump. But we respond to these crises as if they emerge in isolation, apparently unaware that they have all been either catalysed or exacerbated by the same coherent philosophy; a philosophy that has – or had – a name. What greater power can there be than to operate namelessly?
Advocates of neoliberalism, both from the pluralist-social welfare wing and the  rightwing populist camp, have succeeded in institutionalizing the new social contract which has transformed the historically classical notion of the individual’s freedom in society into freedom of capitalist hegemony over the state and society. Whether operating under the political/ideological umbrella of pluralism-environmentalism in Western nations, combined with some version of a Keynesian social welfare model, or with rightwing populism or authoritarianism in one-party state, political and corporate elites advancing the neoliberal model share the same goal with regard to capital formation and mainstream institutions. Neoliberals committed to diversity and pluralist political model wish to retain aspects of the social welfare state and the political cover as a means of ensuring public support of neoliberalism. The more conservative elements want to return to an era of the early industrial revolution in the 18th century when the father of laissez-faire economics Adam Smith argued that the state must have a very limited role in the economy without any regulatory or social welfare measures to protect society and project the image of a ‘legitimate democracy’ rooted in popular consent.
Weakening the social welfare corporatist state model by reaching political consensus among mainstream political parties by the late 1980s-early 1990s, whether operating under a centrist-pluralist part, or a traditional conservative party, neoliberals have been using the combination of massive deregulation with the state providing a bailout mechanism when crisis hits; fiscal policy that transfers income from workers and the middle class – raising the public debt to transfer wealth to the wealthiest 10% -; providing corporate subsidies and bailouts; and privatizing public projects and services at an immense cost to the declining living standards for the middle class and workers.
As much in the US as in other developed nations beginning in the 1980s, the neoliberal state has become status quo by intentionally weakening the social welfare state and redefining the social contract throughout the world. Working with large banks and multilateral institutions such as the International Monetary Fund (IMF) and World Bank that use loans as leverage to impose neoliberal policies around the world in debtor nations desperate to raise capital for the state and attract direct foreign investment, the advanced capitalist countries impose the neoliberal social contract on the world.
As reflected in the integrated global economy, the neoliberal model was imbedded in IMF stabilization and World Bank development loans since the late 1940s. After the energy crisis of the mid-1970s and the revolutions in Iran and Nicaragua in 1979, international developments that took place amid US concerns about the economy under strain from rising balance payments deficits that could not accommodate both ‘military Keynesianism’ (deficit spending on defense as a means of boosting the economy) and the social welfare system, neoliberalism under the corporate welfare state emerged as the best option for corporate elites. The political winds favored neoliberal policies intended to transfer income from the middle class and workers to the richest segment of the population only partly because it was the only way to keep military Keynesianism. (J. M. Cypher, “From Military Keynesianism to Global-Neoliberal Militarism”Monthly Review Vol. 59, No. 2, 2007; Jason Hickel, A Short History ofNeoliberalism,
Under the neoliberal social contract, the goal was market domination of institutions both public and private; everything from government agencies whose role is strengthening capital, to public schools and hospitals emulating the market-based management model and treating patients and students as customers. Advocates of the neoliberal social contract no longer conceal their goals behind rhetoric about liberal-democratic ideals of individual freedom and the state as an arbiter to harmonize the interests of social classes. The market unequivocally imposes its hegemony not just over the state but on all institutions, subordinating peoples’ lives to market forces and equating those forces with democracy and national sovereignty. In pursuit of consolidating the neoliberal model on a world scale, the advocates of this ideology subordinate popular sovereignty and popular consent from which legitimacy of the state emanates to capital formation at any cost to social welfare.
As an integral part of the social environment and hegemonic culture reflecting the hierarchical class structure and values based on marginalization, the neoliberal social contract has become institutionalized in varying degrees world-wide reflecting the more integrative nature of capitalism after the fall of the Communist bloc coinciding with China’s increased global economic integration. Emboldened that there was no competing ideology from any government challenging capitalism, neoliberals aggressively pursued globalization. Some countries opted for mixed policies with a dose of quasi-statist policies as in the case of China. Others retained many aspects of the social welfare state as in the case of a number of EU members, while some pursue authoritarian capitalism within a pluralistic model. Still other nations in the Middle East, Africa, and Asia where pluralism and multi-party are weak or do not exist, neoliberal policies were tailored to clientist politics and crony capitalism. In all cases, ‘market omnipotence theory’ is the catalyst under the umbrella of the neoliberal social contract.
When confronted with blatant disregard of human rights, civil rights, and social justice under the ‘market omnipotence theory’, people are expected to embrace systemic exploitation and oppression as normal. The justification is the larger goal to achieve economic growth, presumably ‘for the wealth of the nation’ but in reality to enrich a few thousand billionaires and multimillionaires linked to and benefiting from the corporate welfare state. In this sense, the neoliberal model deviates from the classical Liberal model of social contract of the 17th and 18th century by subordinating national sovereignty and the individual’s life in every respect to market forces more thoroughly than ever.
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