Financial meltdown,
environmental disaster and even the rise of Donald Trump – neoliberalism has
played its part in them all. Why has the left failed to come up with an
alternative?
Imagine if the people of the Soviet Union had never heard of communism.
The ideology that dominates our lives has, for most of us, no name. Mention it
in conversation and you’ll be rewarded with a shrug. Even if your listeners
have heard the term before, they will struggle to define it. Neoliberalism: do you know what it is?
Its anonymity is
both a symptom and cause of its power. It has played a major role in a
remarkable variety of crises: the financial meltdown of 2007‑8,
the offshoring of wealth and power, of which the Panama Papers offer us
merely a glimpse, the slow collapse of public health and education, resurgent
child poverty, the epidemic of loneliness, the collapse of ecosystems, the rise of Donald Trump. But we respond
to these crises as if they emerge in isolation, apparently unaware that they
have all been either catalysed or exacerbated by the same coherent philosophy;
a philosophy that has – or had – a name. What greater power can there be than
to operate namelessly?
So pervasive has
neoliberalism become that we seldom even recognise it as an ideology. We appear
to accept the proposition that this utopian, millenarian faith describes a
neutral force; a kind of biological law, like Darwin’s theory of evolution. But
the philosophy arose as a conscious attempt to reshape human life and shift the
locus of power.
Neoliberalism
sees competition as the defining characteristic of human relations. It
redefines citizens as consumers, whose democratic choices are best exercised by
buying and selling, a process that rewards merit and punishes inefficiency. It
maintains that “the market” delivers benefits that could never be achieved by
planning.
Attempts to
limit competition are treated as inimical to liberty. Tax and regulation should
be minimised, public services should be privatised. The organisation of labour
and collective bargaining by trade unions are
portrayed as market distortions that impede the formation of a natural
hierarchy of winners and losers. Inequality is recast as virtuous: a reward for
utility and a generator of wealth, which trickles down to enrich everyone.
Efforts to create a more equal society are both counterproductive and morally
corrosive. The market ensures that everyone gets what they deserve.
We internalise
and reproduce its creeds. The rich persuade themselves that they acquired their wealth through merit, ignoring the
advantages – such as education, inheritance and class – that may have helped to
secure it. The poor begin to blame themselves for their failures, even when
they can do little to change their circumstances.
Never mind
structural unemployment: if you don’t have a job it’s because you are
unenterprising. Never mind the impossible costs of housing: if your credit card
is maxed out, you’re feckless and improvident. Never mind that your children no
longer have a school playing field: if they get fat, it’s your fault. In a
world governed by competition, those who fall behind become defined and
self-defined as losers.
Among the
results, as Paul Verhaeghe documents in his book What About Me? are
epidemics of self-harm, eating disorders, depression, loneliness, performance
anxiety and social phobia. Perhaps it’s unsurprising that Britain, in which
neoliberal ideology has been most rigorously applied, is the loneliness capital of Europe. We are all neoliberals now.
***
The term
neoliberalism was coined at a meeting in Paris in 1938. Among the delegates
were two men who came to define the ideology, Ludwig von Mises and Friedrich
Hayek. Both exiles from Austria, they saw social democracy, exemplified by
Franklin Roosevelt’s New Deal and the gradual development of Britain’s welfare
state, as manifestations of a collectivism that occupied the same spectrum as
nazism and communism.
In The Road
to Serfdom, published in 1944, Hayek argued that government planning, by
crushing individualism, would lead inexorably to totalitarian control. Like
Mises’s book Bureaucracy, The Road to Serfdom was
widely read. It came to the attention of some very wealthy people, who saw in
the philosophy an opportunity to free themselves from regulation and tax. When,
in 1947, Hayek founded the first organisation that would spread the doctrine of
neoliberalism – the Mont Pelerin
Society – it was supported
financially by millionaires and their foundations.
With their help,
he began to create what Daniel Stedman Jones describes inMasters of the
Universe as “a kind of neoliberal international”: a transatlantic
network of academics, businessmen, journalists and activists. The movement’s
rich backers funded a series of thinktanks which would refine and promote the ideology. Among them were
the American
Enterprise Institute, the Heritage
Foundation, the Cato Institute, the Institute
of Economic Affairs, the Centre for Policy Studies and the Adam
Smith Institute.
They also
financed academic positions and departments, particularly at the universities
of Chicago and Virginia.
As it evolved,
neoliberalism became more strident. Hayek’s view that governments should
regulate competition to prevent monopolies from forming gave way – among
American apostles such as Milton Friedman – to the belief that monopoly power could be seen as a reward for
efficiency.
Something else
happened during this transition: the movement lost its name. In 1951, Friedman
was happy to describe himself as a neoliberal. But soon after that, the term began to disappear. Stranger still, even as
the ideology became crisper and the movement more coherent, the lost name was
not replaced by any common alternative.
At first, despite its lavish funding,
neoliberalism remained at the margins. The postwar consensus was almost
universal: John Maynard
Keynes’s economic prescriptions were widely applied, full employment
and the relief of poverty were common goals in the US and much of western
Europe, top rates of tax were high and governments sought social outcomes
without embarrassment, developing new public services and safety nets.
But in the 1970s, when Keynesian
policies began to fall apart and economic crises struck on both sides of the
Atlantic, neoliberal ideas began to enter the mainstream. As Friedman remarked,
“when the time came that you had to change ... there was an alternative ready
there to be picked up”. With the help of sympathetic journalists and political
advisers, elements of neoliberalism, especially its prescriptions for monetary
policy, were adopted by Jimmy Carter’s administration in the US and Jim
Callaghan’s government in Britain.
After Margaret Thatcher and Ronald
Reagan took power, the rest of the package soon followed: massive tax cuts for
the rich, the crushing of trade unions, deregulation, privatisation, outsourcing
and competition in public services. Through the IMF, the World Bank, the
Maastricht treaty and the World Trade Organisation, neoliberal policies were
imposed – often without democratic consent – on much of the world. Most
remarkable was its adoption among parties that once belonged to the left:
Labour and the Democrats, for example. As Stedman Jones notes, “it is hard to
think of another utopia to have been as fully realised.”
***
It may seem strange that a doctrine
promising choice and freedom should have been promoted with the slogan “there
is no alternative”. But, as Hayek
remarkedon a visit to Pinochet’s Chile – one of the first nations in
which the programme was comprehensively applied – “my personal preference leans
toward a liberal dictatorship rather than toward a democratic government devoid
of liberalism”. The freedom that neoliberalism offers, which sounds so
beguiling when expressed in general terms, turns out to mean freedom for the
pike, not for the minnows.
Freedom from trade unions and collective
bargaining means the freedom to suppress wages. Freedom from regulation means
the freedom to
poison rivers, endanger workers, charge iniquitous rates of interest
and design exotic financial instruments. Freedom from tax means freedom from
the distribution of wealth that lifts people out of poverty.
As Naomi Klein documents in The Shock
Doctrine, neoliberal theorists advocated the use of crises to
impose unpopular policies while people were distracted: for example, in the
aftermath of Pinochet’s coup, the Iraq war and Hurricane Katrina, which
Friedman described as “an opportunity to radically reform the educational
system” in New Orleans.
Where neoliberal policies cannot be
imposed domestically, they are imposed internationally, through trade treaties
incorporating “investor-state
dispute settlement”: offshore tribunals in which corporations can
press for the removal of social and environmental protections. When parliaments
have voted to restrict sales of cigarettes,
protect water supplies from mining companies, freeze energy bills or prevent
pharmaceutical firms from ripping off the state, corporations have sued, often
successfully. Democracy is reduced to theatre.
Another paradox of neoliberalism is that
universal competition relies upon universal quantification and comparison. The
result is that workers, job-seekers and public services of every kind are
subject to a pettifogging, stifling regime of assessment and monitoring,
designed to identify the winners and punish the losers. The doctrine that Von
Mises proposed would free us from the bureaucratic nightmare of central
planning has instead created one.
Neoliberalism was not conceived as a
self-serving racket, but it rapidly became one. Economic growth has been
markedly slower in the neoliberal era (since 1980 in Britain and the US) than
it was in the preceding decades; but not for the very rich. Inequality in the
distribution of both income and wealth, after 60 years of decline, rose rapidly
in this era, due to the smashing of trade unions, tax reductions, rising rents,
privatisation and deregulation.
The privatisation or marketisation of
public services such as energy, water, trains, health, education, roads and
prisons has enabled corporations to set up tollbooths in front of essential
assets and charge rent, either to citizens or to government, for their use.
Rent is another term for unearned income. When you pay an inflated price for a
train ticket, only part of the fare compensates the operators for the money
they spend on fuel, wages, rolling stock and other outlays. The rest reflects
the fact that they have you
over a barrel.
Those who own and run the UK’s
privatised or semi-privatised services make stupendous fortunes by investing
little and charging much. In Russia and India, oligarchs acquired state assets
through firesales. In Mexico, Carlos Slim was
granted control of almost all landline and mobile phone services and soon
became the world’s richest man.
Financialisation, as Andrew Sayer notes
in Why We Can’t
Afford the Rich, has had a similar impact. “Like rent,” he
argues, “interest is ... unearned income that accrues without any effort”. As
the poor become poorer and the rich become richer, the rich acquire increasing
control over another crucial asset: money. Interest payments, overwhelmingly,
are a transfer of money from the poor to the rich. As property prices and the withdrawal
of state funding load people with debt (think of the switch from student grants
to student loans), the banks and their executives clean up.
Sayer argues that the past four decades
have been characterised by a transfer of wealth not only from the poor to the
rich, but within the ranks of the wealthy: from those who make their money by
producing new goods or services to those who make their money by controlling
existing assets and harvesting rent, interest or capital gains. Earned income
has been supplanted by unearned income.
Neoliberal policies are everywhere beset
by market failures. Not only are the banks too big to fail, but so are the
corporations now charged with delivering public services. As Tony Judt pointed
out in Ill Fares the
Land, Hayek forgot that vital national services cannot be
allowed to collapse, which means that competition cannot run its course.
Business takes the profits, the state keeps the risk.
The greater the failure, the more
extreme the ideology becomes. Governments use neoliberal crises as both excuse
and opportunity to cut taxes, privatise remaining public services, rip holes in
the social safety net, deregulate corporations and re-regulate citizens. The
self-hating state now sinks its teeth into every organ of the public sector.
Perhaps the most dangerous impact of
neoliberalism is not the economic crises it has caused, but the political
crisis. As the domain of the state is reduced, our ability to change the course
of our lives through voting also contracts. Instead, neoliberal theory asserts,
people can exercise choice through spending. But some have more to spend than
others: in the great consumer or shareholder democracy, votes are not equally
distributed. The result is a disempowerment of the poor and middle. As parties
of the right and former left adopt
similar neoliberal policies, disempowerment turns to disenfranchisement. Large
numbers of people have been shed from politics.
Chris Hedges remarks that
“fascist movements build their base not from the politically active but the
politically inactive, the ‘losers’ who feel, often correctly, they have no
voice or role to play in the political establishment”. When political debate no
longer speaks to us, people become responsive instead to
slogans, symbols and sensation. To the admirers of Trump, for
example, facts and arguments appear irrelevant.
Judt explained that when the thick mesh
of interactions between people and the state has been reduced to nothing but
authority and obedience, the only remaining force that binds us is state power.
The totalitarianism Hayek feared is more likely to emerge when governments,
having lost the moral authority that arises from the delivery of public
services, are reduced to “cajoling, threatening and ultimately coercing people
to obey them”.
***
Like communism, neoliberalism is the God
that failed. But the zombie doctrine staggers on, and one of the reasons is its
anonymity. Or rather, a cluster of anonymities.
The invisible doctrine of the invisible
hand is promoted by invisible backers. Slowly, very slowly, we have begun to
discover the names of a few of them. We find that the Institute of Economic
Affairs, which has argued forcefully in the media against the further
regulation of the tobacco industry, has been
secretly funded by British American Tobacco since 1963. We
discover that Charles and
David Koch, two of the richest men in the world, founded the
institute that set up the Tea Party
movement. We find that Charles Koch, in establishing one of his
thinktanks, noted that “in
order to avoid undesirable criticism, how the organisation is controlled and
directed should not be widely advertised”.
The words used by neoliberalism often
conceal more than they elucidate. “The market” sounds like a natural system
that might bear upon us equally, like gravity or atmospheric pressure. But it
is fraught with power relations. What “the market wants” tends to mean what
corporations and their bosses want. “Investment”, as Sayer notes, means two
quite different things. One is the funding of productive and socially useful
activities, the other is the purchase of existing assets to milk them for rent,
interest, dividends and capital gains. Using the same word for different
activities “camouflages the sources of wealth”, leading us to confuse wealth
extraction with wealth creation.
A century ago, the nouveau riche were
disparaged by those who had inherited their money. Entrepreneurs sought social
acceptance by passing themselves off as rentiers. Today, the relationship has
been reversed: the rentiers and inheritors style themselves entre preneurs.
They claim to have earned their unearned income.
These anonymities and confusions mesh
with the namelessness and placelessness of modern capitalism: the franchise
model which ensures that workers do not know for
whom they toil; the companies registered through a network of
offshore secrecy regimes so complex that even the police cannot discover the
beneficial owners; the tax arrangements that bamboozle governments;
the financial products no one understands.
The anonymity of neoliberalism is
fiercely guarded. Those who are influenced by Hayek, Mises and Friedman tend to
reject the term, maintaining – with some justice – that it is used today only
pejoratively. But they offer us no substitute. Some describe
themselves as classical liberals or libertarians, but these descriptions are
both misleading and curiously self-effacing, as they suggest that there is
nothing novel about The Road to Serfdom, Bureaucracy or
Friedman’s classic work, Capitalism and Freedom.
***
For all that, there is something
admirable about the neoliberal project, at least in its early stages. It was a
distinctive, innovative philosophy promoted by a coherent network of thinkers
and activists with a clear plan of action. It was patient and persistent. The
Road to Serfdom became the path to power.
Neoliberalism’s triumph also reflects
the failure of the left. When laissez-faire economics led to catastrophe in
1929, Keynes devised a comprehensive economic theory to replace it. When
Keynesian demand management hit the buffers in the 70s, there was an
alternative ready. But when neoliberalism fell apart in 2008 there was ...
nothing. This is why the zombie walks. The left and centre have produced no new
general framework of economic thought for 80 years.
Every invocation of Lord Keynes is an
admission of failure. To propose Keynesian solutions to the crises of the 21st
century is to ignore three obvious problems. It is hard to mobilise people
around old ideas; the flaws exposed in the 70s have not gone away; and, most
importantly, they have nothing to say about our gravest predicament: the
environmental crisis. Keynesianism works by stimulating consumer demand to
promote economic growth. Consumer demand and economic growth are the motors of
environmental destruction.
What the history of both Keynesianism
and neoliberalism show is that it’s not enough to oppose a broken system. A
coherent alternative has to be proposed. For Labour, the Democrats and the
wider left, the central task should be to develop an economic Apollo programme,
a conscious attempt to design a new system, tailored to the demands of the 21st
century.
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