Before the Neoliberal Turn: The Rise of Energy Finance and the Limits to US Foreign Economic Policy. Simone Selva. Palgrave. 2018.
‘If we abandon Saudi [Arabia] it would be a terrible mistake,’ said US President Donald Trump, making a reference to the Kingdom’s influence over oil prices while explaining the US government’s position regarding the murder of journalist Jamal Khashoggi. ‘I am about to make America great again […I am] not going to destroy the economy of our country.’ What Trump communicated in this statement is neither new nor unexpected. Oil has defined the twentieth century, including its democracies. Our lifestyle, work and quest for unlimited growth require large amounts of energy and money, all derived from oil. With this insight, Selva identifies the often overlooked but equally detrimental role that the extraction, distribution and profits of oil played ‘Before the Neoliberal Turn’ of the late 1970s.
While reading his work, it is obvious that Selva does not want his research to simply be part of the rising number of books produced on the influential doctrine of the twentieth century, ‘neoliberalism’. This is why he has not chosen to analyse the influence of the Mont Pelerin Society, the pro-market governance of the 1970s and 1980s, the ‘Chicago Boys’ or the financial crisis of 2007-2008. Instead, he analyses the events that have given rise to neoliberalism, especially in the US, where foreign economic policy has been restructured since the 1960s despite the public outcry. This is discussed in the preface of the book where Selva shares his personal history as an academic – working as a guest co-editor for Journal 900 – and how he started seeing the influence of oil and petrodollars at work in today’s world.
Chapter after chapter, Selva uses archival material to analyse how in the post-war era, the US balance of payments plummeted for the first time and drained its gold reserves. He asks how US monetary policy not only negatively affected its industrial productivity, but also caused capital outflow from the US to the Eurodollar market. He also explores how the weak dollar in the international monetary market not only caused the Bretton Woods system to collapse, but also gave meteoric ascendency to oil-producing countries in global politics.
Before the Neoliberal Turn is divided into two sections: the first deals with the recurrent dilemma of the plummeting balance of payments in the US since the 1950s; the second concerns how US foreign economic policies gave rise to energy finance in the 1960s and 1970s. Selva examines how US Presidents from John F. Kennedy to Jimmy Carter, with the backing of the political and financial elite, each tried to tackle the dwindling importance of the US dollar in their own way. For example, in the 1960s, the US authorities raised interest rates on long-term financial assets to unsuccessfully curb capital flight to the Eurodollar markets. Other policies included asking for early repayments of outstanding debts from capital-surplus European countries and an increase in foreign military sales while stressing cost-sharing NATO expenditures with European allies.
Unfortunately, things did not go as planned: instead of restoring the balance of payments, what the US instead witnessed was decline in the manufacturing industry and continued depreciation of the US dollar as various countries started trading in a number of currencies to minimise the fluctuation risk. Moreover, Selva highlights the crushing effects of the devaluation of the British pound and the impact of the collapse of the gold pool on overseas US military and development assistance commitments.
After explaining the US economic situation, Selva moves on to examining how access to oil and petrodollars has become a privilege for both the Organisation of Petroleum Exporting Countries (OPEC) and the US. It is in this section that Selva’s knowledge of the functioning of international finance and the neoliberal ideal market utopia shines as he elucidates the US recycling mechanism for petrodollars: namely, the selling of US assets to Saudi Arabia and Kuwait and the use of US banks to boost domestic growth. For example, the Gerald Ford administration facilitated Saudi investment worth $100 million in the tech giant AT&T, ignoring the concerns of the economist Arthur Burns and Congress relating to the OPEC countries taking over key national industries.
Subsequently, Kuwait joined hands with the Bank of America and Chase Manhattan and made investments in the US stock and real estate markets. At first glance, these and other OPEC direct investments looked profitable, giving a boost to the US economy with less detrimental effects on the US dollar, especially at a time when Saudi Arabia and Iran began giving long-term loans to Least Developed Countries (LDCs) instead of investing in Eurodollars. Unfortunately, the entry of petrodollars in the US economy has only accelerated the neoliberal process – including Washington’s adoption of relaxed lending policies, the privatisation of the national industries and an increase in national and international debt – leading to the global financial crisis.
Before the Neoliberal Turn is an ambitious book which makes it a challenging read, especially for readers beyond the academy. Nonetheless, the book is relevant across a range of topics. For example, the discussion in Chapters Four and Five of the US government’s simultaneous use of development rhetoric and the institutions of the International Monetary Fund (IMF) and the World Bank to maintain its hegemonic power under the guise of knowledge and technology transfer was of particular interest to me. As my research is focused on innovation and regional economic development, I found Selva’s in-depth analysis of US finance policies a welcome addition to the scholarship in aiding understanding of the actors who have co-created the market for alternative fuels through subsidies, mandates and the much-hyped knowledge-based economy.
Trump has declared: ‘it’s a very simple equation […] I’m about make America great again […] our relationship is with the Kingdom of Saudi Arabia.’ Selva has underscored the history of this relationship – at a time when balancing the budget through the market is a priority – by providing a review of US economic policies of the 1960s and 1970s. Overall, Before the Neoliberal Turn is a valuable book for social scientists interested in the history of energy finance and American democracy.
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Ayesha Umar is a graduate student at the department of social science, York University, Canada. She has conducted ethnographic fieldwork among higher education administrators and graduate students in Lahore. Currently, her research is focused on bio-economy, innovation and regional economic development. She tweets @umaenauman_09.