The Social Contract of the Neoliberals

We should not forget that the definition of poor people and the attitude towards them has always been one of the mechanisms of economic systems that create inequality. Once the status of the poor was part of a religious view of society – the poor person thought to be in a blessed state led to the cultural acceptance of poverty. The Church taught that giving alms to the poor was the most important good work that a layperson could do. The merit system of salvation not only depended on good works in exchange for forgiveness of sins but created ‘the social contract of the High Middle Ages’: the duty of the poor to remain poor so that the salvation of the rich could be secured. The poor person was the one who made it possible for the rich person to reach heaven, thanks to his generosity. The perpetuation of poverty was thoroughly entangled with the doctrine of salvation.

There was ambiguity in the ideology of the Church in defining and judging the ‘involuntary poor’. Theological and cultural attitudes to poverty gradually became more hostile, as ideas on the virtues of poverty receded. Furthermore, putting the blame on the poor led to the criminalization of poverty and the identification of the poor person as a delinquent. There was no standard interpretation of poverty among Reformers. However, the Protestant Reformers held an important conviction in common: they all agreed the Roman understanding of poverty desperately needed revision. This ‘lust for profits,’ Martin Luther (1483-1546) observed, had many clever expressions: selling on time and credit, manipulating the market by withholding or dumping goods, developing cartels and monopolies, falsifying bankruptcies, trading in futures, and just plain misrepresenting goods. Such usury, Luther argued, affects everyone. “The usury which occurs in Leipzig, Augsburg, Frankfurt, and other comparable cities is felt in our market and our kitchen. The usurers are eating our food and drinking our drink.”1

Jeremy Bentham (1748-1832) advocated utilitarianism as the basis for penal reforms in the early 19th century. He claimed that it was possible to decide by scientific means what was morally justifiable by applying the principles of utility. He advocated that actions were right if they tended to produce ‘the greatest happiness for the greatest number of people.’ In his day, the ‘people’ were individuals who could vote – workers at that time did not have the vote. While he died in 1832, his ideas were applied to the 1834 Poor Law Amendment Act, with the goal to reduce the rates of poverty in the country in order to reduce the cost to the landowners.

In 19th century England most members of the working class likely slipped into poverty at some point in their lives because of such things as unemployment, sickness or old age. They had to rely on their friends, children or credit in hard times, and this was considered proper as it encouraged the poor to work. Poverty was not seen as a social problem – destitution was felt to be the result of character weakness. The Poor Law reform that reorganized the workhouses was expected to have a very good effect on the moral character of the workingman, because it was believed that poverty was caused by the bad habits of the poor.

The Reform Act of 1832 organized workhouses based on utilitarian principles – paupers would be forced work in the poorhouses – the conditions of the inhabitants were not to be better than the conditions of the lowest classes not working in the workhouses. This Poor Law reform was expected to work wonders for the moral character of the workingman, while reducing the costs of the relief system. The choice to incorporate the principles of utilitarianism in this legislation created an unmitigated disaster.

Edwin Chadwick (1800-1890), a leader in sanitary reform, noted that it was necessary to address issues of sewage and good water supplies before actually being able to determine the contribution of crowded housing to health problems. He was appalled at the number of people admitted to the workhouses and became convinced that if the health of the working population could be improved then there would be a drop in the numbers of people on relief. Chadwick used an economic argument to drive change – loss of revenue to the government because of early death of so many people. He believed that a healthier population would be able to work harder and would cost less to support, and if all of his recommendations were carried out the average life expectancy for the laboring classes would increase by at least 13 years.

In 1984, Charles Murray published Losing Ground. Its central thesis was that all government welfare programs should be abolished, supposedly because welfare hurt the very people it was intended to help by “rewarding bad behavior” such as “illegitimate babies.” Murray also called for ending food stamp programs. The New York Times wrote in 1985 that Losing Ground became “this year’s budget-cutters’ bible” noting, “in agency after agency, officials cite the Murray book as a philosophical base” for slashing social programs. Also Murray observed, by lowering the punishment for criminal activity (which was deemed to be society’s fault and not the perpetrator – who was seen as a victim) it encouraged more criminal activity and longer criminal records. These ideas supported the neoliberal mantra: the market ensures everyone gets what they deserve.

Murray’s manipulation of data claimed to show welfare programs were the cause of minority poverty, rather than the cure. In order to get the numbers to work to “prove” that liberal social welfare spending created poverty, Murray excluded government spending on the elderly from his “evidence.” As Lester Thurow, former dean of MIT’s Sloan School of Management noted, 86% of federal social welfare spending went to programs to help the elderly; and the poverty rate for the elderly dropped from 25.3% in 1969 to 14.1% in 1983, refuting Murray’s thesis. (The welfare system was actually working.) Thurow’s conclusion: “The purpose of Losing Ground is to help President Reagan shoot a silver bullet into the heart of the monster called social welfare spending.”2

Under the cultural trope of ‘individual responsibility’ welfare for the poor is cut and restructured to make welfare recipients more responsible for their economic status. The first way that neoliberalism facilitates an expansion of the criminal justice system is that the rise of neoliberal ideology helps justify increasingly punitive government intervention into crime and punishment – incarceration becomes a solution to structural economic inequality and political instability. Faced with increasing populations situated outside the reaches of the disciplinary structure of the wage labor system, the neoliberal state reforms welfare into prison-fare to exert social control and regulation of poor and deviant populations and, therefore, limit social instability. However, poverty and socioeconomic inequality are both positively correlated with crime and particularly with violent crime.

The Bretton Woods Institutions (the International Monetary Fund (IMF) and World Bank) were actually designed with Keynesian policies in mind; to help provide international regulation and control of capital. As Susan George notes, “when these institutions were created at Bretton Woods in 1944, their mandate was to help prevent future conflicts by lending for reconstruction and development and by smoothing out temporary balance of payments problems. They had no control over individual government’s economic decisions nor did their mandate include a license to intervene in national policy.” This is very different from what they are doing today.3

Ronald Reagan facilitated neoliberalism becoming a mainstream ideology. It was in 1972 that the World Bank took up the theme of poverty, which more or less corresponds to the beginning of the neoliberal global political economy, later to be known as the Washington Consensus. With the passing of time and according to the intentions of the user, the vocabulary evolved. ‘Elimination’ of poverty became ‘reduction’ of poverty and, over the last few years the concept of extreme poverty appeared, associated with hunger. These, it was declared, must gradually be eliminated, while poverty must be mitigated.

Francine Mestrum arrives at the conclusion that poverty should be defined as ‘the lack of means to provide for one’s existence’, adding that ‘in a market economy this signifies the lack of financial means’. Thus, to understand poverty, it is necessary to know existing social relationships and the mechanisms for reproducing them, because poverty is socially constructed. It is not created by nature [Alternatives Sud, Vol. VI (1999), No. 4].

The World Bank and IMF documents – not to mention those of the World Trade Organization – are convinced about the best way to reduce poverty. They cite the evidence: growth must be increased because it is not possible to share out a cake if there is no product in the first place. The best way to trigger growth, according to this view, is to allow the market to function and thus to liberalize the economy and remove all obstacles to trading in goods, services and capital. Thus it is necessary to privatize state enterprises and the public services to the maximum, and to deregulate the social protection that is hindering the whole process. In the end, they say, this can only benefit the poor who can at least profit from the trickle-down effect.

As global demand for cheap clothing rises rapidly, Bangladesh’s position as the second biggest exporter in the world continues to hold strong, which is mainly due to its large population and low labour costs. Bangladesh rose to its position largely because of its lack of regulation and the low wages it pays its garment workers, most of whom are women. Bangladesh’s minimum wage for the sector is one of the world’s lowest – or according to some groups, the very lowest – even after the government raised it in response to fallout from the Rana Plaza disaster. As a witness has testified: ‘They work for 12 hours a day, very often 7 days a week for a wage of 15 to 35 euros a month. They are locked in, body searched when they leave, and are not allowed to talk among themselves. Union freedom is purely theoretical, as the ‘subversives’ are sacked…”[Le Monde Diplomatique, August 2005]. 4

The living wage is a wage that is high enough to maintain a family’s basic needs of living: food, clothes, rental housing, childcare, transportation and small savings to cover illness and emergencies. The minimum wage is significantly lower than the living wage. The two largest private employers in the US are Wal-Mart Stores with 1.4 million employees and McDonald’s (including franchises) with 420,000. In the year ended Jan 31, 2016, Wal-Mart generated $482.13 billion in revenue and posted net income of $14.69 billion, recently raised wages to $10.00 an hour. The challenge is many only get 34 hours a week work, and the $18,000 a year cannot maintain a family’s basic needs. The majority of MacDonald’s employees make less than $10.00 an hour in the US while in Demark they are paid $20.00 an hour. Since 1989 Mitch McConnell, presently the Senate Majority leader, has voted 17 times against minimum wage increases.

The rich persuade themselves they acquired their wealth through merit, ignoring the advantages – such as education, inheritance and class – that may have helped to secure it. The social contract of the neoliberals: the creed of docile respectful working poor to depend on inequality to drive the motor of the ideal market system. What is the mechanism behind the perpetuation of poverty in Canada and the US? Government social insecurity maintains the minimum wage – if you raise wages, jobs will disappear. This message disciplines various factions of the post-industrial working class. Of the 1.4 million Wal-Mart employees in the US, one million of them slip into poverty at any given time. It is a neoliberal ideology that defines the social relationships of poor people and the attitude towards them that supports an economic system that creates inequality.

1 Lindberg, Carter. (1987) Luther on the Use of Money.

2 “Project S.H.A.M.E: The Recovered History of Charles Murray.” (10 Jan 2013)

3 Shah, Anup. (2010) Primer on Neoliberalism

4 François Houtart Neoliberalism and Poverty

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