Thursday, October 26, 2017

Defining Neoliberalism


The saints of neoliberalism. Bill Clinton just put a Democratic Party face on it (source).

by Gaius Publius

For years I've been using the term "neoliberalism" (or sometimes neo-liberalism*) and I'm always uncomfortable, since it sounds so academic. So I usually add one-phrase definitions and move on. For example, this from a recent piece on Puerto Rico:
If neoliberalism is the belief that the proper role of government is to enrich the rich — in Democratic circles they call it "wealth creation" to hide the recipients; Republicans are much more blatant — then the "shock doctrine" is its action plan.
That's sounds pretty blunt, but it's a true statement, even among academics. See this great interview (start at about 6:15) with Professor Philip Mirowski of the University of Notre Dame on how modern neoliberals have come to see the role of government in society. It's weedy but excellent.

I want to offer our readers a better description of neoliberalism though, yet not get into too many weeds. So consider these exceprts from a longer Guardian essay by the British writer George Monbiot. (My thanks to Naked Capitalism commenter nonclassical for the link and the idea for this piece.)

Neoliberalism — The Invisible Water the West Is Swimming In

We'll start with Monbiot's brief intro, just to set the scope of the problem:
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?
Ask people to define "neoliberalism," even if they've heard of it, and almost no one can. Yet the comparison of our governing ideology to that of the Soviet Union's is a good one — like "communism," or the Soviet Union's version of it, neoliberalism defines and controls almost everything our government does, no matter which party is in office.

The Birth of Neoliberalism

What is neoliberalism and where did it come from? Monbiot writes:
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.
Neoliberalism is an explicit reaction to Franklin Roosevelt and the welfare state, which by a quirk of history was called "liberalism" at the time, even though, in the nineteenth century, "liberalism" had roughly the same meaning that "neoliberalism" has today. In other words, "FDR liberalism" is in many ways the opposite of classical "liberalism," which meant "liberty (freedom) from government," and a quirk of history has confused these terms.

Back to Monbiot and Hayek:
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 in Masters of the Universe as “a kind of neoliberal international” [a term modeled on "the Communist 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.
Note the mention of Milton Friedman above. Neoliberalism is a bipartisan ideology, not just a Clintonist-Obamist one.

Democrats, Republicans and Neoliberalism

As Monbiot explains, for a while neoliberalism "lost its name" and was more or less a fringe ideology in a world still dominated by the ideas of John Maynard Keynes and Keynesian economics. When neoliberalism later came back strong in the Republican Party, it wasn't called "neoliberalism" but "Milton Friedman free market conservativism" or something similar.

Only when Bill Clinton and his Democratic Party allies adopted it in the 1980s did the term "neoliberal" re-emerge in public discourse.
[I]n 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. [emphasis added]
Note the role of Jimmy Carter and start of deregulation in the late 1970s. For that reason, many consider Jimmy Carter to be the "proto-neoliberal," both for the nation and the Democratic Party.

Neoliberalism — "Just Deserts" for Predators and Prey

What makes "neoliberalism" or "free market conservatism" such a radical — and destructive — ideology? It reduces all human activity to economic competition. It creates and glorifies, in other words, a world of predators and prey, a world like the one we live in as today:
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.
In a world where competition is right and good, a world in which the "market" is the defining metaphor for human activity, all social ties are broken, the individual is an atom left to survive as an individual only, the strongest relentlessly consume the weakest — and that's as it should be. It's easy to imagine how the apex predators of our social order would be attracted to this, and insist on it with force.

Thus the bipartisan world we live in today. Under a neoliberal regime, everyone gets what they deserve. Big fish deserve their meal. Little fish deserve their death. And government sets the table for the feast.

The Role of Government in a Neoliberal World

Since for neoliberals, the "market" is the source of all that is good in human interaction, non-interference in "the market" is rule one for government.

Over time that has changed, however, as winners have grown more successful and their control of government more absolute. The proper role of government in today's neoliberal regime is not merely to allow the market to operate for the benefit of wealth-holders; it's to make sure the market operates for the benefit of wealth-holders.

In other words, the role of government is to intervene in the market on behalf of wealth-holders, or, as I put it more colloquially, to proactively enrich the rich. The interview with Professor Mirowski, as I noted above, makes that same point, but from an academic standpoint.

From this it should be also clear that until we free ourselves of rule by neoliberals and the pain and misery they create, we'll always be victim to the predatory giants — the very very wealthy and the corporations they use as power-extenders — those, in other words, who want merely to own everything else in the world.

This means we need to free ourselves from neoliberals in both parties, not just the ones in current seats of power. But that idea seems to have been excised from most discussions these days. Fair warning though. If the Age of Trump ends with the Restoration of Mainstream Democrats, we'll have won almost nothing at all.


* I sometimes spell "neo-liberalism" with the hyphen to suggest the following connection: Neo-liberalism is "new liberalism," and has the same relationship to FDR liberalism as New Labour has to Labour — the two are exactly opposite.

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At 4:40 PM, Anonymous Anonymous said...

Thank you soooo much, GP. A fine distillation of its history and its meaning.

As I so often say, to fix a problem, you first have to understand the problem.

This was Carter's great flaw. I think he never understood the fundamental evil in deregulation. He was looking at a real uphill re-election in 1980 and needed support from banking whores and millionaires to try to defeat Reagan and his treasonous horde. And his admin made the dubious decision to try to monetize the Viet Nam war debt coincident with a cyclical capitalist recession.

American voters had been groomed to be morons for decades without realizing it; Reagan kept the hostages in captivity until after the election and ran on a fantasy of tax cuts, bigger military spending and a balanced budget, and voters became the potted plants the Rs needed...

Carter made his mistakes, but he is and was a far better human being than anyone soiling the oval office since.

But the usa chose the path toward evil that day. And we've not wavered on our inexorable march to Nazi Germany ever since.

After all, the major factor in making hitler viable was the Versaille-induced economic Armageddon the germans faced in '32.

At 6:32 PM, Anonymous Anonymous said...

Many, many analysts have accurately dated the beginning of the resurgence of the Republican Party to the release of the Lewis Powell Memo in August 1971. I've always believed that the beginning of the death of the Democratic Party and of the grip of neoliberalism on the U.S. and the world also is traceable to 1971, when, as Yale Law students, Bill Clinton and Hillary Rodham had their first date -- crossing a picket line and scabbing a sanitation workers strike for which they were on the student support committee! All so they could browse a museum closed because of the strike. It seems like a small seed for their embrace of elite privilege at the expense of the working class and their hijacking of the Democratic Party away from that cause and firmly onto the path of liberalism, with methods that other Quislings like Tony Blair would adopt. But I have always found that episode so telling. And one seed can start a forest.

At 8:49 PM, Blogger Tony Wikrent said...

I believe you cannot fully understand neoliberalism, and liberalism, without reference to republicanism, which, after all, was the dominant concept of political economy when the U.S. Constitution was framed and adopted. The Constitution makes no mention of capitalism; and neither do the Federalist Papers. Central to republicanism is the concept of public virtue: people must put aside their own selfish interests when those interests clash with the general welfare. Indeed, it is the actual enshrining of the General Welfare in the U.S. Constitution which separated the U.S. from the countries of Europe, and marked the U.S. as the culmination of the Enlightenment, bit political and scientific (it was no coincidence that the world's leading scientists of the time were among the American revolutionaries and their supporters; the best example, of course, is Benjamin Franklin). In the countries of Europe, all economic activity was steered, directed, and/or incentivised to redound to enhancing the wealth and power of the country. This, of course, was mercantalism. The key point is that while the countries of Europe were ruled by small cliques of monarchs and oligarchs, the direction given to economic activity enriched only a small group of highly privileged people; whereas in the U.S., there was the Constitutional mandate to promote the General Welfare.

This Constitutional mandate to promote the General Welfare took specific form in explicit passages in corporate charters intended to ensure that corporations promoted the General Welfare. Such attempts to control corporations through their charters began to be abandoned in the 1820s and 1830s as various states adopted laws providing for general incorporation.

This Constitutional mandate to promote the General Welfare also took the form of government assistance and promotion of emerging industries, such as granting public lands to build canals and railroads. Less well known is that Army officers--the only pool of civil engineering expertise--were assigned to supervise and manage the surveying, design, and construction of most canals, roads, and railroads. Governments at all levels in the U.S. sponsored fairs and exhibitions that awarded cash prizes and bounties to the best new machines and implements, especially those powered by steam. Direct funding was given to build a telegraph. Without roads, the automobile industry would have been literally stuck in the mud. Government promotion helped create aviation, radio, electricity, electronics, computers, and the internet. The example occurs repeatedly of the military deliberately spreading new technological knowledge into the rest of the economy, such as the Moore School Lectures in July and August 1946 to teach industry how to design and build computers.

Liberalism emerges in Europe as a rising bourgeois class struggles for their own economic opportunities against the mercantilism of the monarchs and oligarchs.

By the 20th century, economic and technological development in the U.S. and Europe had reach a level of industrial complexity that required a blanket of rules and regulations to ensure the safety of workers and the general population. Neoliberalism emerges as vested interests become intolerant of the rules and regulations that increasingly hinder and obstruct their profit seeking, which, as financialization accelerates, increasingly is merely rent seeking.

At 9:22 PM, Anonymous Anonymous said...

Have you read "Democracy in Chains" by Nancy Maclean, GP? I recommend it.

Kim Kaufman

At 7:00 PM, Anonymous Anonymous said...

Now that more heterodox economists like Michael Hudson, Steve Keen and Stephanie Kelton are speaking out, not to mention the growing movement among economics students worldwide who are demanding to be taught economic history and pluralism, it does look like the 2008 crash marked the end of a very long and brutal 40-yr. economic era.

Here are a few links that provide further clear description and a vision for a fairer society beyond neoliberalism:


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