Understanding Neoliberalism

Since the late 1970s countries from around the world have embraced an economic and political ideology that has transformed how we think about macroeconomic policy, the state, and international relations. Its name is neoliberalism and in the wake of the 2007-08 Great Recession people been exposed to the negative real-world implications of this ideological approach. Because its most famous proponents have been on the Right- Reagan, Margaret, Friedman- it has long been seen by the masses as an offshoot of conservatism but this characterisation should be rejected.

Neoliberals found themselves in left-wing organisations, as illustrated by Clinton’s New Democrats and Blair’s New Labour. The political concepts drawn on by neoliberal thinkers are found in many ideological traditions and is why they appealed across the political spectrum. Reactionary populism is on the rise and in order to meet this challenge we must first identify what people are reacting to. Neoliberalism is not just an approach to economics or politics but a world-view that needs to be examined and critiqued.
thatcher and reagan the australian
These two may be dead but their ideology lingers on. (The Australian)
The role of the state in neoliberalism is dramatically different to a Keynesian or socialist system. In Friedrich Hayek’s book The Road to Serfdom he equates economic freedom to political freedom, and that the restriction of the former will precipitate the loss of the latter: “economic control is not merely control of a sector of human life which can be separated from the rest; it is the control of the means for all our ends”. Accordingly, neoliberals believe that any attempt to restrict the freedom of the market is to restrict the political freedoms of people. The break with Keynesianism in the 1970s was justified on these grounds: if the state invests in or regulates the economy, it is interfering with the freedom of citizens to make a free choice.
In addition to this philosophical basis, the state must itself be bastardised. Neoliberals propose that the laws of the marketplace- the profit motive, competition, fiscal austerity etc.- should be applied to machinery and bureaucracy of the government. In practice this culminates in policies that in recent years have become the bane of many public sectors workers’ existence: performance ratings; peer reviews; privatisation; outsourcing; anti-union legislation; reductions in overtime; compulsory redundancies; long hours, and so on.
If the profit motive was introduced into bureaucracies, the argument goes, they will become more efficient and this will be good for taxpayers. There is an internal logic in the argument, however the premise of this way of thinking is that public services should be run for profit and that government should be run for a profit. Embracing this world-view means that things like prisons, healthcare, and public transport, are operated to make money even if the offered service declines or results in morally dubious outcomes.
virgintrains the independent
With public services run for profit the primary concern of management becomes the bottom line, and not the quality of that service. (The Independent)
In terms of economic theory, neoliberalism takes its cues from classical liberal thought. For neoliberals like Friedman and Hayek the marketplace should not be regulated, akin to the laissez-faire capitalism seen before the onset of WWII. The underlying belief of this is that the profit motive will spur innovation and efficiency. The argument goes that if the state intervenes in the marketplace it picks who wins and loses, and so those businesses that ‘win’ do not need to innovate and become inefficient.
The logic used by neoliberals is sound, but I disagree with the initial premise. The implicit assumption of the initial belief is that innovation and efficiency are the most important thing. Whilst this may be true in the case of for-profit entities, they discount the fact that businesses are part of a wider society. Take the example of an oil company. The purpose of that company is to produce profit by any means legally possible, however the desire of the government may be to protect the environment from pollution. If polluting the environment is most cost effective, the oil company will maximise its profits and wider society will suffer.
Classical liberal thinker Adam Smith had a conception of the ‘home bias’, which is the idea that companies will have a patriotic sense of voluntarily wishing to help their home country. In our globalised world, companies often don’t have a patriotic view of where they began and as such require regulation by the state to guard against their base urge to destroy everything standing in the way of more profit. Indeed this idea of a ‘home bias’ is so far removed from neoliberalism that many proponents of this world-view promote policies that economically bind nations together, so much so that power is transferred to supranational institutions. For many neoliberals the ideological endpoint is a global society in which all nation-states are economically dependent on one another which is governed by international institutions. I’ll go into more detail about the international dimension a bit later, but it’s worth mentioning that those of us who oppose monolithic corporate power find such an idea unnerving, especially when this hypothetical also includes diminished state power.
Further, the priority of fiscal policy becomes radically altered. The primary focus of neoliberal fiscal policy is to reduce inflation, irrespective of the other consequences, and this often done by reducing interest rates. Low inflation isn’t inherently a bad thing, nor are low interest rates, but by placing these two on a pedestal the state becomes unconcerned with other things. For example, under the Thatcher government in Britain (1979-1990) inflation was kept low by low interest rates, and so, in the eyes of neoliberals, the economy was in good shape. However in this same time-frame: there was a net increase in unemployment, with the final unemployment rate at around 7% after previously reaching a record high of 11.9%; manufacturing, as a proportion of GDP, declined from 17.62% to 15.18%; and income inequality increased, with the percentage of the population below 60% median income rising from 13.4% in 1979 to 22.2% in 1990. The clear lesson from this economic data is that low interest rates and low inflation are not the most important things.
alan greenspan
Alan Greenspan spent a lot of his time as Chairman of the Federal Reserve making sure that interest rates and inflation were low. (Adam Jeffrey/CNBC)
Another facet of neoliberalism is the concerted attempt to redefine political discourse. All proponents of any ideology seek to influence discourse in some way however I contend that neoliberalism does this in particular way. Neoliberals have historically sought to redefine proponents of their ideological position as experts or above politics, thus distancing themselves from the ‘partisan’ squabbles of ordinary politics. An example of this was the creation of think tanks and other groups to promote their policy proscriptions; groups like The Heritage Foundation, the Cato Institute, and Citizens for a Sound Economy were founded to churn out policy documents that would give neoliberals an air of authority.
What is a think tank? In its essence its a group of people who broadly agree on a certain set of ideological premises and want to convince others of their opinions. If ten people said upfront that they were trying to convince you to approach a problem a certain way, you would contemplate their suggestion and respond accordingly. However, if these ten people were representatives of Citizens for a Sound Economy, they are masking their ideological views and trying to appear objective and by doing so are trying to get you to accept economic premises that may well be highly contested. In Britain there is the Institute for Fiscal Studies, the Institute of Economic Affairs, and the Office for Budget Responsibility. If you didn’t know the differences between these three one could easily be tricked into thinking analysis from a free-market think tank was actually from a public body.
That isn’t to say that think tanks are inherently a bad thing or that neoliberals are the only ones who have people knowledgeable in specific fields supporting their ideological viewpoint. For instance in the UK the Fabian Society is an organisation established in 1884 to promote non-Marxist evolutionary socialism, and at one time had a number of prominent members like Emmeline Pankhurst, H.G Wells, and George Bernard Shaw. The point that I’m making is that the Fabian Society don’t attempt to hide their ideological position in their name or seek to advance policies in a way that makes them appear above politics. If you are relatively clued up on British politics you will probably know that the Fabian Society are broadly of the Left, but if a Conservative politician said that the Institute of Economic Affairs supported their position, it sounds more authoritative than ‘people who agree with me said that I was correct’, which is in essence what they have actually said.
The final aspect of neoliberalism I want to discuss is in regard to international relations. I alluded to the role of supranational organisations earlier however its worth putting some flesh on these bones. In the liberal approach to international relations international institutions have been used to try and provide governance for the anarchic nature of international diplomacy. The argument goes that if nation-states provide security against the state of nature, institutions governing how these nation-states operate with one another are also necessary. Initially this was about preventing the horrors of war, hence the establishment of the League of Nations in 1920 and later the United Nations in 1946.
UN meeting.png
The UN was founded to prevent war, but this wasn’t the only institution created to govern the world in the aftermath of WWII. (United Nations)
However towards the end of World War II economists from around the world sought to institutionalise capitalism as the world’s premier economic system, especially in response to the growth in popularity in alternatives like socialism and communism. At the 1944 Bretton Woods Conference international institutions were established to promote liberal capitalism around the world. These were the International Monetary Fund and the International Bank for Reconstruction and Development, the latter of which became part of the World Bank Group.
These institutions have tremendous power both in terms of coercing politicians and setting the policy agenda. If there is a country that is having financial troubles the IMF will often provide loans to that country, but these loans are almost always dependent on introducing a swathe of neoliberal economic policies such as privatising public services, austerity measures, and reducing inflation. After this is proposed the fact that an institution is suggesting these policies gives them more weight, just as think tanks do domestically, and this becomes conventional wisdom.
The countries requiring economic assistance are often between a rock and a hard place. The IMF and/or the World Bank have huge amounts of cash reserves and so a country on the edge would do anything to be given relief. This is why Alexis Tsipras’ government in Greece ended up accepting the terms of various bailouts even though he is a socialist that despises austerity. The acquiescence of people like Tsipras then reinforce this ‘wisdom’ as the IMF and World Bank can say that even someone as opposed to neoliberalism as Tsipras support these fiscal policies. These institutions then take these contested policies and use the vulnerability of desperate nation-states to convince people that neoliberal economics is actually ‘fiscal responsibility’ and as such anyone who opposes these policies are economically illiterate.
Neoliberalism is an ideology that is all encompassing in its scope, and proponents make claims about the world on a certain number of premises. Identifying these premises is important as without doing so we cannot argue against policies that are harmful to ordinary people. The rise in populism around the world is largely a response to an economic system that people feel alienated by, and us such we need to ditch neoliberalism.
On the Right conservative parties are no longer conservative, as many don’t support the deregulation of industry or the privatisation of public services, and on the Left socialist and social democratic parties have shifted to accepting a number of premises about the necessity of capitalism. Neoliberalism doesn’t allow for dissent as people from both the Left and Right are written off as lunatics who want to radically alter society. If we want vibrant democracies in Western countries than the electorate need to know that many of the things they have been told in the last forty years are opinions and not objective truths.
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