From David Harvey's A Brief History of Neoliberalism
Part 4 - Neoliberalism's second big experiment after Chile: the financial coup by the banking mafia to take over New York
One line of response to the double crisis of capital accumulation and class power arose in the trenches of the urban struggles of the 1970s. The New York City fiscal crisis was an iconic case. Capitalist restructuring and deindustrialization had for several years been eroding the economic base of the city, and rapid suburbanization had left much of the central city impoverished. The result was explosive social unrest on the part of marginalized populations during the 1960s, defining what came to be known as ‘the urban crisis’ (similar problems emerged in many US cities).
The expansion of public employment and public provision –– facilitated in part by generous federal funding –– was seen as the solution. But, faced with fiscal difficulties, President Nixon simply declared the urban crisis over in the early 1970s. While this was news to many city dwellers, it signalled diminished federal aid. As the recession gathered pace, the gap between revenues and outlays in the New York City budget (already large because of profligate borrowing over many years) increased.
At first financial institutions were prepared to bridge the gap, but in 1975 a powerful cabal of investment bankers (led by Walter Wriston of Citibank) refused to roll over the debt and pushed the city into technical bankruptcy. The bail-out that followed entailed the construction of new institutions that took over the management of the city budget. They had first claim on city tax revenues in order to first pay off bondholders: whatever was left went for essential services. The effect was to curb the aspirations of the city’s powerful municipal unions, to implement wage freezes and cutbacks in public employment and social provision (education, public health, transport services), and to impose user fees (tuition was introduced into the CUNY university system for the first time).
The final indignity was the requirement that municipal unions should invest their pension funds in city bonds. Unions then either moderated their demands or faced the prospect of losing their pension funds through city bankruptcy.
This amounted to a coup by the financial institutions against the democratically elected government of New York City, and it was every bit as effective as the military coup that had earlier occurred in Chile. Wealth was redistributed to the upper classes in the midst of a fiscal crisis. The New York crisis was, Zevin argues, symptomatic of ‘an emerging strategy of disinflation coupled with a regressive redistribution of income, wealth and power’. It was ‘an early, perhaps decisive battle in a new war’, the purpose of which was ‘to show others that what is happening to New York could and in some cases will happen to them’.
Whether everyone involved in negotiating this fiscal compromise understood it as a strategy to restore class power is an open question. The need to maintain fiscal discipline is a matter of concern in its own right and does not, like monetarism more generally, necessarily entail regressive redistributions. It is unlikely, for example, that Felix Rohatyn, the merchant banker who brokered the deal between the city, the state, and the financial institutions, had the restoration of class power in mind. The only way he could ‘save’ the city was by satisfying the investment bankers while diminishing the standard of living of most New Yorkers.
But the restoration of class power was almost certainly what investment bankers like Walter Wriston had in mind. He had, after all, equated all forms of government intervention in the US and Britain with communism. And it was almost certainly the aim of Ford’s Secretary of the Treasury William Simon (later to become head of the ultra-conservative Olin Foundation). Watching the progress of events in Chile with approval, he strongly advised President Ford to refuse aid to the city (‘Ford to City: Drop Dead’ ran the headline in the New York Daily News ). The terms of any bailout, he said, should be ‘so punitive, the overall experience so painful, that no city, no political subdivision would ever be tempted to go down the same road’.
While resistance to the austerity measures was widespread, it could only, according to Freeman, slow ‘the counterrevolution from above, it could not stop it. Within a few years, many of the historic achievements of working class New York were undone’. Much of the social infrastructure of the city was diminished and the physical infrastructure (for example the subway system) deteriorated markedly for lack of investment or even maintenance. Daily life in New York ‘became gruelling and the civic atmosphere turned mean’. The city government, the municipal labour movement, and working-class New Yorkers were effectively stripped ‘of much of the power they had accumulated over the previous three decades’. Demoralized, working-class New Yorkers reluctantly assented to the new realities.
But the New York investment bankers did not walk away from the city. They seized the opportunity to restructure it in ways that suited their agenda. The creation of a ‘good business climate’ was a priority. This meant using public resources to build appropriate infrastructures for business (particularly in telecommunications) coupled with subsidies and tax incentives for capitalist enterprises. Corporate welfare substituted for people welfare.