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.
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