Where there are good times comes bad times and vice versa. The 20th century experienced a shift in economic and ideological systems. The very liberal laisse faire mentality of the 1920’s saw a big boom and but then a bust in 1929 that carried on until Roosevelt became president and there he applied more socialist Keynesian policies. This continued up until the oil crisis of 1973. Then, Neoliberalism was more into favour and was rigorously applied and advocated by Ronald Reagan and Margaret Thatcher. Nowadays Neoliberalism dominates politicians and their policies in the West. The period of the later 1940’s to the early 1970’s was known as the “golden age of capitalism”, where it was generally in favour that the government was needed to rebuild the infrastructure after WWII, lessen inequality, provide social and basic services using a lot of loans therefore raising the state debt. During that time, leaving the markets without restriction was seen as dangerous, since it allows capitalism’s boom and bust cycle. Neoliberalism arose as a result of the economic crises of the 1970’s that plagued the majority of industrial western nations. This terminated a time of economic success, in the United States and Western Europe at which the economic growth was at an average of 4% annually. It was a time of where unemployment was at a very low. The post WWII “Golden Age” of capitalism declined as a result of Keynesianism and Fordism that were not able to deal with stagflation that caused a rise in Neoliberalism. This caused a change of overall mentality in particular within the US and British states, where politicians and the media came to the general agreement that past crises was because of the state and its involvement in the economic arena state. Also that it is the root of problems, in which the market would thrive if it is free of regulation and meddling. The essay will discuss on what caused the end of the “Golden Age” of capitalism and why Neoliberalism seemed like a better alternative.
The second world war destroyed Japan and countries in Western Europe, therefore many workers and aid were needed to rebuild the nations. Advancements in science and technology helped contribute to the creation of new businesses and job opportunities. Areas such as the entertainment, food, tourism, and retail industries managed to experience success as a result. The average citizen got to live these benefits by having more time for leisure, secure jobs, increased entertainment choices and services as well as home appliances that facilitate daily life. The invention of plastic made products easier to produce and more affordable for the general population. The mass production of motor vehicles was one of the core factors that help grow these new markets. Full employment during the golden age was the result of the automobile industry.
The idea of mass production was due to Fordism and that was at the core of other industries. Fordism permitted industries to mass produce using the assembly line, with many workers and machines. This produced product in large and affordable quantities that even workers could then buy. The workers producing the goods were also the consumers thanks to fairly high wages. This concept was thought of by Henry Ford who used this system for his automobile company in the early 20th century. As a result of the rise of the auto industry, the employment effect was seen as transportation infrastructure including bridges, highways, tunnels etc. was needed to accommodate the increasing reliance on automobiles. This positively impacted other sectors such as the petroleum and cement industries. Millions of workers were needed to build the infrastructure and keep up with the increasing demand on products and the consumer culture. Fordism and the mass production of cars was a crucial component of the golden age of capitalism. Japan and Germany developed the way they did because of the auto industry and was the backbone of their economy and still is today.
Keynesianism, an economic policy that was thought of by economist John Keynes. This policy was used as a result of the economic crisis of 1929 since the classical liberal economic policy failed to resolve the crisis. A political policy based on demand, so that the demand for purchasing power would sustain the mass production of products. The state funded a lot of the infrastructure and social programs, in order to kick start the economy again and prevent recession. At the same time, corporatism grew and all employees in companies and factories now viewed themselves as one and not divided between classes that created conflict in the past, but where everyone works together for the livelihood of business. Corporatism led to better relations with unions so higher wages and less work hours also contributed to increased mass demand. The Keynesian fiscal and monetary policy the financial sector was highly regulated and was used by the state and businesses to take loans from in order to fund all the infrastructure and social programs as well as fuel the mass demand. High employment and profits were counted on to repay the loans. During time, the state in these industrial nations funded improvements in the health and education sector as well as the social welfare system. Believers in Keynesianism thought it was the system of the future due to full employment, high salaries, demand and economic growth, and also advancement in technology.
Stagflation is a problem that led to the crisis in the early 1970’s and marked the end of the golden age of capitalism. This was due to the Keynesianism’s failure to overcome it. Stagflation is the extensive inflation in a deteriorating and stagnant economy and it plagued almost all the industrial nations of the west. Business profits started to decrease after the mid 1960’s and posed a problem since these industries invested a lot of their capital. Profit is an important factor in a market economy because it is the main source of motivation for a business. Capital is used by businesses to produce their products in order to increase profits. With these profits they produce more goods and capital is increased. This is a system that has occurred since the start of the capitalist method of production. In order for a business to sustain itself, and increase its competitiveness, the reinvestment of profits is important. The problem is that, as productivity increases, the price of goods falls, but more is then needed to sustain revenue. As a result, the growth of a business is crucial to break even and increase profits.
Profits started to fall because all these new areas of industry such as the entertainment and auto industry could no longer expand since there were not enough consumers after a certain point which started in the second half of 1960’s. The industries grew to fast but demand stagnated. Decreased profit led to many businesses suffering, and had to either downsize, went bankrupt or moved production overseas to lesser developed nations where labour was cheaper. Also by the 1970’s much of the infrastructure after the world war was rebuilt. This further caused a spike in unemployment, and that caused less consumer demand for products. The possibilities for expansion in the developed industrial nations was deficient. Moreover, the oil crisis of 1973 that happened because of OPEC increasing the price of oil, and rose the price of products in the industrial nations. This also contributed to the increasing inflation and in response, unions increased their salary demands.
The progress in science and technology, helped open up new markets and increased growth and productivity, but this system of prosperity has been proved to be temporary. Technology and productivity continued to increase in the 1970’s as new markets continued forming. The problem was that the previous industries such as the coal and steel industry declined and caused rampant unemployment in particular in the rust belt region of the United States and Northern England. Also, machinery and automation produced more goods, more efficiently and was slowly replacing workers. The 70’s experienced new markets such as the electronics industry with the introduction of computers. This also contributed the increase in unemployment due to workers being replaced by machines. Technology decreased the reliance on humans to produce, and this impacted the 1970’s crisis in the western capitalist nations. The capitalist system of a working society ultimately leads to its own destruction because of unemployment due to less workers necessary in production. The Fordist and Keynesian approach during the golden age of capitalism, eventually led to a huge crisis in the early 70’s. This happened as a result of the businesses keeping on growing but demand stagnated that caused decreased profits and mass layoffs. This crisis, raised questions about whether the Keynesian approach was worth continuing, and other alternatives began to be considered, most notably, Neoliberalism.
Neoliberalism represents the characteristics of the freedom of markets, little government intervention, laissez faire and security for the market. These features challenge Keynesianism and its mass employment and welfare state. Deregulation and privatisation of public services, is advocated by Neoliberals that it reduces lack of efficiency by encouraging competition, and this leads to a free market with little government intervention. In addition, another factor that will also lead to minimal state involvement in the market is the reduction in taxes and expenditure on social programs. Moreover, Neoliberals also believe in lessening the influence of unions and keeping wages to a low. This in term will increase profits for the rich and will provide with more capital for investment. This creates business growth and expansion which ultimately will increase employment and improve overall welfare. The ‘trickle down’ effect is used to describe this method. Neoliberals are pro globalisation and think it is a benefit to all, but Keynes disagrees and considers that prosperity is achieved on a more national level. Little state involvement is seen as positive at the international arena due to its encouragement for freedom of capital circulation, investing and freedom of trade in services and goods.
The right and the left have different versions on how Neoliberalism came to dominate economic policies in the western world in particular the United States and United Kingdom. The left argues that neoliberalism can to domination, because of lobbies that constantly influenced the government to deregulate regulations from the post war period. On the other hand, the right argues that the socialist, Keynesian approach led to the crisis and could not resolve it. The author of the book ‘Masters of the Universe: Hayek, Friedman, and the Birth of Neoliberal Politics’ Daniel Stedman Jones, disagrees with both stories from the right and the left. Jones opposes the fact that failures from the socialist Keynesian policies or the influence of lobbies made neoliberalism’s rise. He believes, that neoliberalism gained power, as a result of the quick decisions that politicians had done to resolve the economic and political crisis at the beginning of the 1970’s. Jones also states that UK and US politicians used a policy called monetarism in order to reduce inflation.
Monetarism is usually accredited to Milton Friedman; also one of the founders of neoliberalism, believes that free markets have more chance in effectively governing a society, than the government. Monetarists consider that in order to stabilize instabilities in the economy, governments control the money supply. On the other hand, Keynesians believe in both the fiscal and monetary interference can be applied to stabilize the economy. The monetarist approach only helped curb inflation temporarily and the labour and democratic parties were replaced by Ronald Reagan and Margaret Thatcher which are conservative governments. Both these politicians argued that the free market neoliberal policies that have been implemented have saved the industrial nations especially the US and UK; and that these neoliberal policies are to be applied again if needed in the future. This claim has been widely accepted and that Neoliberalism saved the industrial nations from Keynesianism, that failed to handle stagflation and resolve the crisis. Stedman Jones from the book ‘Masters of the Universe’, believes that the growth of neoliberalism, was due to the Keynesian governments accepting to use monetarist policies.
Cultural and economic factors influenced the rise of neoliberalism. Economically, the growing distrust in Keynesianism due to false beliefs of unemployment and prosperity impacted peoples view and that an alternative is welcome. During the golden age, people thought the problem of inequality and unemployment was solved but got hit by a crisis in which Keynesianism was not able to resolve and was no longer favourable. Culturally speaking, America values individualism and neoliberalism is matches this respected characteristic. Moreover, the Cold War, also added to impact the popularity in neoliberalism, because anything that was associated with socialism and communism was seen as against Democratic and Western values. Keynesianism represented a type of collective economy where the state has power on the free market and was closely tied and compared to the economic method done by the Communists.
Overall, one event leads to another, which greatly impacts the course of history. The laissez faire approach on the 1920’s caused the great depression and Keynesianism was the response which successfully worked and the industrial nations got out of the crisis. The post war period demonstrated the most successful years of Keynesianism that resulted in the ‘golden age of capitalism’ where growth at the national level was at its peak. Efficiency and cooperation by the implementation of Fordism and corporatism in the business world also contributed to the economic success of the post war period. The never ending growth of businesses with the lack of demand was one of the weak points of Keynesianism that was unexpected until the crisis of the early 1970’s, where the oil crisis happened and stagflation. These problems were unable to be resolved using the Keynesian approach and Neoliberalism became more in favour. The states control over the money supply using the monetarist method and the strong culture of individualism and financial success also fuelled the rise of neoliberalism. The vision that globalisation is the future and that the neoliberal belief of deregulation and privatisation correlated well together also made it a more favourable alternative to Keynesianism. The fact that neoliberalism was able to successfully curb the effects of the crisis was advocated by in particular Reagan and Thatcher. Neoliberalism was seen was the savour and best alternative to continue the capitalist system of the seek for economic prosperity.