The Impact of Neoliberalism on Strategic Management

Understanding the nature, concept and negative effects of neoliberalism on strategic management is of utmost importance, as neoliberalism is one of the greatest philosophies leading to global transformations in capitalism. Neoliberalism is not a clear-cut singular concept (Plehwe and Walpen, 2006, p. 2), subject to “purely” theoretical definitions, and “straddles a wide range of social, political and economic phenomena at different levels of complexity” (Saad-Filho and Johnston, 2005, p. 1), yet it has defining characteristics as a political and economic philosophy. Originated in the 1970s, neoliberalism is “a political rationality that tries to render the social domain economic and to link a reduction in (welfare) state services and security systems to the increasing call for ‘personal responsibility’ and ‘self-care’” (Lemke, 2002, p. 203).

While Neoliberalism, as a doctrine of political and economic liberalism and set of policies, it has specific positive aspects, the overall impact of neoliberalism on the strategic management of the social, institutional, business and cultural operations is negative. Neoliberalism, profit-driven and exceptionally focused on finance, has negative social impact on strategic management, as it fosters corporatisation of state companies, and other assets, the shift of welfare policy toward philanthropy and entrepreneurship, and individual ‘responsibilisation’ for health, welfare and education.

Serving a wider community has always been the foundation and purpose of all domains. The latter is justified and legitimate due to developing and implementing principles that serve society and its needs (Abbott, 1988). “To allow the market mechanism to be the sole director of the fate of human beings and their natural environment would result in the demolition of society” (Polyani, 1957, p. 73). However, the strategic management of commercial organisations influenced by neoliberalism does not support the interests of the wider society, including stakeholders. Losing respect for non-financial industries, neoliberalism propagates self-perpetuating elite culture of strategic management.  Neoliberalism is based on the idea that the government makes the world worse for society instead of promoting economic growth. Neoliberalism supports the generation of private companies and unhindered markets considering them the driving force of economic growth and social welfare. Neoliberal strategic management prioritizes stock-prices and short-term goals by profit-driven shareholders and executives unlike the manufacture-oriented business leaders dedicate to managerial commitment to long-term investment (Davis, 2009).

In the South Africa, for example, the Financing Policy for Welfare treats users of welfare services as customers by talking about “business plans, contracts, affordability, efficiency, outputs, performance audits, outsourcing, venture financing, and service purchasing, thus effectively reconstructing” (Sewpaul and Hölscher, 2004).  According to a South African manager, “The State is an entrepreneur of its own. It must make a profit where it can. The state must be minimalist, it must really do the least and the last. Civil society, empowered civil society is to do the most” (Sewpaul and Hölscher, 2004, pp. 84–85).

A number of studies investigate the large financial institutions with their “contemporary capitalist-managerial dual facets, whose privileges are finally expressed in the income and wealth of top fractiles” (Duménil and Lévy, 2015). Present in almost all Western countries, the intensity of neoliberalism and its consequences are not the same in different areas (Gottschalk and Smeeding, 1997). Economic and social inequality, for example, was sudden and large in scale in the United States and United Kingdom, but relatively moderate in Sweden and Canada (MacPhail, 2000). In the USA and the UK, financial inequality resulted increased poverty, debt in the middle- and working-class, and the use of penal practices (Wacquant, 2009). For example, in the late 1980s, in his book The Bonfire of the Vanities, author Tom Wolfe described Wall Street culture. Ho (2009) supported the book that presented the reality of the apathetic and risk-centered finance industry (Roth, 2006). Risk-related behavior is typical to neoliberal management system, as the latter, anyway, does not bear the consequences of its irresponsible actions. Enron, for example, is known for its risk- taking culture and openly practiced bonus policy as a reward for manipulation of profits estimates (Tonge, Greer and Lawton, 2003).

The discussion of culture of Wall Street is not surprising, as finance and insurance, property and business services, construction and mining are the primary industries strongly affected by neoliberal strategic management.   Replacing the bureaucratic welfare state organization with market-driven processes and making management as the core of all industrial operations, neoliberalism eliminates chances for individuals to cope with the hardships of a competitive world (Meyer and Hammerschmid, 2006). Sociologist Ulrich Beck informs that becoming entrepreneurs in one’s own life becomes mandatory in the neoliberal world. Members of society are forced to face and cope with incessant process of making choices in an unbearably competitive world and suffer from the inevitable failures alone.  Denying any moral responsibility, a classic neoliberal ignores the failures, concerns and problems of employees, consumers, the poor who do not belong to neoliberal elite culture.

As the government no longer provides social services, society are obliged to fight and compete for the assets of religious organizations, educational institutions and other corporations within the large network of neoliberal management.   In this way, neoliberalism substitutes national government for public-private entrepreneurial management. As a result, certain sector of society is excluded due to inability to compete, such as the homeless, individuals who have even been incarcerated, etc. Neoliberals do not feel any responsibility, as they associate their rationality and decision making with ‘unbiased’, ‘equitable’ and ‘impersonal’ values. Their philosophy is based not on human compassion and idea of community sharing and mutual support, but numbers, data, spreadsheets, and computer programs.

The ideology of neoliberalism makes finances and competition as the focus of existence. Top management compensation becomes central, as the “role of financial motives, financial markets, financial actors and financial institutions in the operation of domestic and operational economies” (Dore, 2008, pp. 1097-1098) gradually increases (Tomaskovic-Devey and Lin, 2011). The case study of Enron demonstrates the destructive consequences of neoliberal strategic management focused on mere market and finance.  Enron, emerged from natural gas pipeline companies Houston Natural Gas and Internorth, provided products and services related to natural gas, electricity and communications for 15 years since 1986 (Tonge, Greer and Lawton, 2003). To have impact on markets, for example, Enron’s executives are believed to have manipulated prices in many fields (Quaker Oats, Quest, Blockbuster), as well as prices and supplies of electricity in California (Stevenson 2002).

Lawler and Rhode (1976) state that, “control systems are instituted in organizations because management and others feel they need information about what is going on in the organization so they can coordinate the activities of others” (p. 3). The ethical strategy implies that the Board of Directors should maintain the ethical code and always be in touch with the shareholders for successful business operations; however, Enron’s board has proven to fail in this important process.  However, finances being the ‘goal of living’ ultimately lead to destruction. At New York University’s Stern School of Business, Senator Joe Lieberman said, “As we saw with Enron, the drive for earnings, unchecked by other values, usually ends in disaster” (Tonge, Greer and Lawton, 2003).

Neoliberal has negative impact on strategic management as it leads to widespread unemployment, the expansion of low-wage service work, and employees’ loss of identity, autonomy, and sense of self-worth. Successful strategic management is possible in corporation in which employees improve or at least do not lose their identity and autonomy. The modern concept of ethics explains that the ethical responsibility should be based on the closeness, connection and mutual support between the members of society (Shrivastava, 1986).  Many executives following ethical code shift their activities to values-based or integrity-based methods (Weaver & Trevifio, 1999). “An integrity strategy … requires an active effort to define the responsibilities and aspirations that constitute an organization’s ethical compass (Paine, 1994, p.111).

Neoliberalism, however, supports the egocentric, self-absorbed, and socially prejudicial approach to management.  In the process of focusing all energy, efforts, time and finances on the organisational activities, the neoliberal shareholders and executives consider employees irrational, unimportant and symbolic. Many neoliberal companies and organisations “have all moved away from the idea that they are flogging a product made by someone else, and have come to think of themselves as brand factories, hammering out what is of true value: the idea, the lifestyle, the attitude. Brand builders are the new primary producers in our so-called knowledge economy. This slow but decisive shift in corporate priorities has left yesterday’s non-virtual producers – the factory workers and craftspeople – in a precarious position” (Klein, 2001).

According to Bakan (2004), organisations and companies adopting neoliberal policy, perfectly relate to FBI checklist of psychopathy, applied to the corporation (pp. 56-57).  Irresponsibility, manipulation, grandiosity, and lack of empathy are characteristics of psychopathic corporations. Neoliberal management focuses merely on its own goals and needs; manipulates anyone and anything, particularly, particularly employees and public, has unrealistic sense of superiority, and manifests asocial tendencies towards their employees and customers.

A number of neoliberal management strategies focusing on the shareholders’ interests and financial performance of the company deny the employees’ role and any form of productive investment by them. In neoliberal corporations, the reward and appraisal is based on the amount of the profit the employee is able to produce, rather than the quality of the delivery of the core values by employees. “High wages gradually become the main channel in the concentration of income to the benefit of the upper layers of the income pyramid besides the small sphere of rather unambiguously defined capitalist classes” (Duménil and Lévy, 2015). Employees who play ‘the game’ usually benefit from the unethical management system, opposed to those who disagree the system (Tonge, Greer and Lawton, 2003).

Employees’ ‘irrationality’ is manipulated by shareholders’ and executives’ who are considered ‘rational experts.’  The neoliberal organizations and companies ‘sell’ sense of belonging to community, in which workers are obliged to forget about their individual importance and are merely viewed as minor unintelligent tools serving the larger goals of the corporation.  Though neoliberal approach promises personal freedom, each individual is responsible for his or her own success and failure. Neoliberalism does not view poverty, failure and loss as results of structural barriers, but simply individual weaknesses causing employment issues. Neoliberals explain the wage inequality as a ‘natural’ consequence of ‘modernizing’ the economy and growth in jobs that require high-skilled employees. To find an ‘adequate’ solution to unemployment, which is one of the main contributors of inequality (Galbraith, 2012), the neoliberal managerial strategy proposes to focus on skills and training (Pappas, 2001).

Enron’s Mission Statement claims to follow ethical values, such as Integrity, Communication, Excellence and Respect, with latter being defined by them, `We treat others as we would like to be treated ourselves. We do not tolerate abusive or disrespectful treatment. Ruthlessness, callousness and arrogance don’t belong here.’ (Tonge, Greer and Lawton, 2003).

In reality, the Performance Review Committee’s controlling employees, the Board of Directors’ lying to staff about the state of the company, promotions and bonuses for the top employees, and dismissal of rewards and bonuses for the bottom ones, and executives’ benefits from compensation packages are unethical practices of neoliberal strategic management within the company (Tonge, Greer and Lawton, 2003).

Phil Knight, an American business magnate and philanthropist, production is not the foundation and important component of his branded empire, but is instead a boring, minor task. Ermatinger says, “Our strategic plan in North America is to focus intensely on brand management, marketing and product design as a means to meet the casual clothing wants and needs of consumers” (Klein, 2001). To delve into the causes of unemployment and wage inequality in Australia from 1982 to 2012, Watson (2016) conducted a study, using income distribution data from the Australian Bureau of Statistics. Watson found that the growth in wage inequality has been especially intense since 1996.  The findings show that the changes in the wage structure have mostly led to the growth of inequality among male full-time workers. Changes in this workforce composition besides the changes in the wage structure have also caused wage inequality among the female full-time workforce.

A survey conducted by Trevifio et al., (1999) investigated 10,000 employees of six firms. Based on findings, employee commitment and awareness of ethical issues are decreased, and misconduct generally increased when employees viewed ethics programs as mechanisms for deflecting blame from top management (Stansbury and Barry, 2007).  Thus, neoliberal policy does not take any responsibility for unemployment and calls the unemployed guilty for their own failures. The manipulation of employee’s opinions, perceptions, values, and self- identity becomes a regular and consistent habit among executives. The employees’ false sense of freedom and connection actually requires ‘selling’ autonomy and loss of meaning and identity (Wilmot, 1993).

Neoliberalism has negative impact on the strategic management of global industry due to labour exploitation and tax manipulation.  “Shifting a significant portion of our manufacturing from the U.S. and Canadian markets to contractors throughout the world will give the company greater flexibility to allocate resources and capital to its brands,” says John Ermatinger, president of Levi Strauss Americas division, while explaining the company’s decision to shut down twenty-two plants and lay off 13,000 North American workers between November 1997 and February 1999 (Klein, 2001).

Globalised neoliberal business strategy is strongly associated with exploitation of national resource efficiencies, tax loopholes, and cheap labour, aggressive tax avoidance, avoidance of social obligations, unfair trade, offshore registering of tax, the floating of exchange rates, transfers of ‘payments’ to subsidiaries in low tax countries for fictionalised ‘services,’ and the freeing up of controls on foreign investment. Neoliberal management of global industry usually uses ‘Free trade zones’ or ‘Economic Processing Zones,’ where managers can exploit the opportunities provided by highly develop economic structures. ‘Free trade zones’ or ‘Economic Processing Zones’ usually exist in poorly develop Asian and African countries, such as Indonesia, China, the Philippines, Vietnam, Kenya, the RSA, as well as Mexico. The products usually include garments, toys, shoes, electronics, machinery, and cars (Klein, 2001).

Neoliberal policy and practice are quite contradictory.  Short-term contracts are common among Asian sportswear and garment workers. Short-term collaboration is viewed as a ‘flexible’ arrangement, and employees rarely join human right unions as they know that top management will not renew existing contracts.  Neoliberal corporations replace the factories existing in their developed countries with mostly offshore manufacturing. By closing factories and leaving thousands of people without a job, neoliberal managers do not feel any responsibility and remorse. Neoliberal global management creates factories in poor countries that lack or have poorly developed health and safety legislation.

The exploited workforce cannot rebel or support their rights, as the strikes are officially illegal. For example, in Sri Lanka, it is illegal to even publish and distribute critical material that might remotely threaten the country’s export earnings. Ranjith Mudiyanselage, Sri Lankan zone worker was killed due to confronting this policy in 1993 (Klein, 2001). Though most sports brands require their workers to obey local laws and respect “country’s economy,” only Reebok has developed its own policy that supports workers and long-term yet flexible employment (Connor and Dent, 2006). According to Klein (2001), the number of closed factories is growing in North America and Europe each week, with 45,000 American workers being unemployed in 1997 alone.  The offshore companies where workforce is exploited are viewed as “contractors-throughout the world” by Ermatinger, explaining that 16,310 jobs are off the payrolls for good. Those ‘contractors’ or exploited workforce completes the same chore as the old factories owned by Levi, without actually being employed by Levi-Strauss.

Adidas, for example, provides a precise explanation of trade union rights to its suppliers. And if necessary, Adidas is likely to take steps to ensure that trade union rights are respected. However, Oxfam research questioned the company’s commitment to support employees’ rights when 33 members of a union at the Panarub factory in Indonesia were fired for taking part in a strike for their rights in 2005 (Connor and Dent, 2006). “We don’t employ anyone in Haiti,” said Disney spokesman Ken Green when the desperate conditions in a Haitian factory that produces Disney clothes became publicly known. Like other neoliberals, he said that the factory is just owned by a contractor (Klein, 2001). Thus, neoliberal corporations exploit governmental and intergovernmental overseas financial support and benefit from structural changes of banks. Neoliberal economic globalisation develops a ‘free market’ in order to unfairly use developed countries economic assets and aids.

To conclude, strategic management influenced by neoliberalism is destructive for the wellbeing of society. Neoliberalism does not take responsibility for own unfair actions and keeps exploiting people for its own financial benefits. Neoliberal management has separated itself from morality and actively conceals its true nature. Neoliberalism will not have a positive impact on the strategic management of the social, business and cultural structure as long as it promotes superficial democracy, the destruction of domestic production and markets, privatisation of state departments, and exploiting human rights.


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