An Excellent Introduction to Neoliberalism. How Our Political Caste Came to Serve the Special Interest Over the Public Interest.

The first thing you need to know about neoliberalism is that it's made up. It's an economic ideology, one of a succession of belief-based theories that have come and gone on a 30 to 40-year cycle for the past two centuries. It is a belief-based construct, similar to other philosophies or faith-based religions. Neoliberalism has, for a number of very bad reasons, become deeply embedded and remarkably hard to shake off even though it failed and has triggered a variety of destructive social outcomes including inequality, the accumulation of economic and political power in the hands of a few and the weakening of liberal democracy. It isn't finished wreaking havoc on our society and our politicians do not even raise a finger to stop it.

A lot of us see neoliberalism, manifested in the rise of market power and the spread of globalism, as a plague on society. It is a plague on democratic society. That purpose was forged almost a century ago in Austria as it emerged from the ashes of WWI.

With the end of the war, Austria became a democratic republic, and socialist candidates won repeated victories in its cosmopolitan capital, Vienna. From 1918 to 1934, “Red” Vienna became a model city for democratic socialism, with social housing and expanded schooling for children and adults, all protected by a militant labor movement. The city inspired one resident, Karl Polanyi, to a lifelong defense of social democracy. Red Vienna, he wrote, caused “a moral and intellectual rise in the condition of a highly developed industrial working class,” which “achieved a level never reached before by the masses of the people in any industrial society.”

...Ludwig von Mises, an economist in the Vienna Chamber of Commerce, wanted to restore free trade and the sanctity of property. The prewar version of the Austro-Hungarian empire became a point of reference for Mises and those who joined the study circle he organized: It had been a multi-ethnic empire that lowered barriers to trade while not insisting on cultural homogeneity. A relatively small, landlocked place like Austria, they reasoned, could never be economically self-sufficient in the industrial age. It had to be open to the world market, and to succeed there it would have to be competitive.

The labor movement, then, was a further obstacle to the realization of Mises’s project. The same forces that inspired Polanyi, Mises found oppressive. Labor unions marched in the streets, demanding higher-than-market wages and lower-than-market housing. The city kept budgets balanced with high and progressive taxes, and businesses fared about as well as elsewhere in Austria. But social housing undermined the position of landlords, and the bourgeoisie felt targeted by taxes on conspicuous consumption. For a time, there was even a dog tax that scaled upward with the breed and pedigree of the dog. Mises saw Red Vienna as a standoff between the power of labor and the power of capital. He was pleased when an anti-fascist uprising was violently suppressed in 1927—leaving dozens dead and more than a thousand injured—since it broke the power of the social democratic masses to mobilize. 

Democracy, for Mises, was not an absolute value to be respected at all times. It was a good system insofar as it made peaceful, gradual change possible. Democracy’s “function is to make peace,” he wrote, “to avoid violent revolutions.” When it failed in that task, Mises thought that enforcing order by other means was preferable to letting democracy destroy the economic foundations of prosperity, as he understood them. Although it is frequently said that neoliberals want a weak state, in which the market can be left to do most of the work, that is not quite correct. Against the enemies of the market—economic nationalism and democratic demands—the state has to play a role, mostly by creating a system of laws that protects property and by representing enough force to deter challenges. 

The neoliberals sought to “encase” markets, not to liberate them. Their project was not anarchy: It was a global system that sufficiently ordered the world so that capitalism would be safe from certain forms of political interference. Friedrich Hayek, who had worked under Mises, imagined an organization independent of any one country that would set the rules of the market. Hayek envisioned separate cultural and economic governments: The former would satisfy the demand for mass participation, while the latter would make sure that democratic enthusiasms did not interfere with the functioning of markets across the world. The neoliberal world, “is not a borderless market without states but a doubled world kept safe from mass demands for social justice and redistributive equality by the guardians of the economic constitution.” Neoliberalism places property, in other words, beyond the reach of democracy.

In the wake of the next world war, the leading neoliberals formed the Mont Pelerin Society.  The neoliberal world view became clear from their approach to the apartheid regime of South Africa and the rise of Pinochet in Chile.

Hayek himself called apartheid “both an injustice and an error.” The system interfered, after all, with the allocation of resources, by keeping black Africans from participating in free markets and preventing them from the most efficient application of their talents and labor. Yet granting black South Africans suffrage rights would inevitably lead to a reordering of property relations, since the black majority would favor reclaiming land that had been taken by white settlers. This was unacceptable in Hayek’s view. 

Within the Mont Pelerin Society, the problem of how to end colonialism without destroying property rights was much debated. The English economist William Hutt imagined that voting power in postapartheid South Africa could be made proportional to economic weight. Milton Friedman agreed that one man, one vote would be terrible for South Africa, and Hayek worried that putting sanctions on South Africa would upset the global order. They didn’t favor apartheid, but they were against almost anything that might bring it to an end. 

The story is a similar one in Chile. Hayek visited Chile under the Pinochet dictatorship twice and met with Pinochet once. During his second visit, Hayek told a Chilean newspaper that it was possible for a “dictator to govern in a liberal way,” and that he preferred a “liberal dictator to a democratic government lacking liberalism.” Given the widespread use of torture by Pinochet’s government, this has often been seen by critics of neoliberalism as a link between the intellectual architect of neoliberalism and authoritarian repression, while Hayek’s defenders have seen it as an aberration. In fact, it was simply consistent with the way that he saw the world: The socialism of Salvador Allende, whom Pinochet had overthrown, was democracy gone wrong. Restoring a market economy took priority over human rights and social justice. A dictatorship was not desirable, but he objected more to those who protested its abuses.

Neoliberalism in the 21st century.

The current rules all but ensure that governments act in the interests of capital, since, if businesses do not like a certain country’s policies (say, a proposal that corporations pay their fair share of taxes), they can disrupt the economy by abruptly withdrawing from that country. Preserving the rights of capital is the goal, even when that means sacrificing democratic demands. That is why our world is a more neoliberal one than it once was, and why it matters. However fractious and internally contradictory neoliberal thought may be, and however overused it can be as a term, it is describing something real. 

It is the nature of ideologies to see some things clearly and place other things out of view—to serve up a combination of useful concepts and to conceal self-interest. Sets of ideas that become influential can usually do a great deal of the latter. The point is surely not that neoliberalism is wrong about everything: It makes sense to seek to avoid hyperinflation, for example, and it is reasonable to note that price fluctuations in market economies provide information to consumers and business owners about how to behave—if apples become scarce, and their price goes up, consumers can substitute, say, cheaper oranges.

...But the things that neoliberalism has trouble seeing are, at the present, far more consequential: deep inequalities, accompanied by a sense of powerlessness, of being left behind by a global system that operates with no regard for the interests or voice of the majority.  ...The rise of the far right in the United States and Europe cannot be explained solely as a reaction against neoliberal globalization (not least because many of its supporters are thriving economically), but the financial crisis of 2008—caused by inadequate regulation—did give the far right its opportunity to grow. 

Furthermore, the primacy of capital in neoliberalism means that crises will be resolved on the backs of the poor, with cuts to the welfare state and public services, though it is not the poor who cause them. Even the International Monetary Fund, which demanded austerity as a response to debt crises in the 1980s, now acknowledges that some neoliberal ideas have been oversold, concluding that increased inequality hurts “the level and sustainability of growth.” Similarly, much of the economics profession has moved on from neoliberalism, recognizing that there are many ways to operate a healthy economy. Dani Rodrik* points out that rich countries have public sectors ranging in size from 33 percent to nearly 60 percent of gross domestic product. A large state sector is not the antithesis of personal liberty: Indeed, it can sustain it.

What neoliberalism misses or ignores is that a world of apparently neutral rules is still a world of power inequalities. When capital has more freedom than people, serious democratic deficits are guaranteed. Voters may prefer a strong welfare state, but they may get austerity instead. In many nations, including the United States, the power of money in politics gives concentrated wealth a sword to hold over democracy’s neck.

It's important to realize that neoliberalism, despite its grip on the developed nations, is merely an ideology. Like any of the thousands of religions man has devised over the millennia, neoliberalism is a faith-based construct. It is not etched in stone. It did not come down from the mountains inscribed on tablets.

Neoliberalism is belief-based. Before his death, even America's leading neoliberal, Milton Friedman, admitted that neoliberalism was a failed experiment. It was an ideology, one that ascended to a cult-like status as it conquered the political arena. Friedman was telling the truth, it was deeply flawed and it has failed. Our political caste, however, are maintaining the status quo, keeping neoliberalism on life support despite the deep social injuries it inflicts. It's as though they can't imagine what follows and are waiting for the next ideological messiah to arrive. That day may never come.

In my view the antithesis of neoliberalism is progressivism, the belief in popular democracy espoused by Abraham Lincoln and the Roosevelts, Theodore and Franklin. It is progressivism that places labour ahead of capital. It is progressivism that holds capital and capitalism must advance the wellbeing of the state and its people. It is progressivism that does not shy away from wealth redistribution as championed by Theodore Roosevelt who said:

One of the chief factors in progress is the destruction of special privilege. The essence of any struggle for healthy liberty has always been, and must always be, to take from some one man or class of men the right to enjoy power, or wealth, or position, or immunity, which has not been earned by service to his or their fellows. 

At many stages in the advance of humanity, this conflict between the men who possess more than they have earned and the men who have earned more than they possess is the central condition of progress. In our day it appears as the struggle of freemen to gain and hold the right of self-government as against the special interests, who twist the methods of free government into machinery for defeating the popular will.

I've looked around but I still can find nothing remotely as promising as a return to progressivism to heal the wounds inflicted on our society, our nation, by the neoliberals.

*It was Harvard economist Dani Rodrick who warned of what he called "the inescapable trilemma of the world economy":

“democracy, national sovereignty and global economic integration are mutually incompatible: we can combine any two of the three but never have all three simultaneously and in full”

"...Historically, the rise of capitalism and the pressure for an ever-broader suffrage went together. This is why the richest countries are liberal democracies with, more or less, capitalist economies. Widely shared increases in real incomes played a vital part in legitimising capitalism and stabilising democracy. Today, however, capitalism is finding it far more difficult to generate such improvements in prosperity. On the contrary, the evidence is of growing inequality and slowing productivity growth. This poisonous brew makes democracy intolerant and capitalism illegitimate. 

"...Consider the disappointing recent performance of global capitalism, not least the shock of the financial crisis and its devastating effect on trust in the elites in charge of our political and economic arrangements. Given all this, confidence in an enduring marriage between liberal democracy and global capitalism seems unwarranted. 

"So what might take its place? One possibility would be the rise of a global plutocracy and so in effect the end of national democracies. As in the Roman empire, the forms of republics might endure but the reality would be gone. (Was it not Trudeau who declared Canada a "post national" country?)

"An opposite alternative would be the rise of illiberal democracies or outright plebiscitary dictatorships, in which the elected ruler exercises control over both the state and capitalists. This is happening in Russia and Turkey. Controlled national capitalism would then replace global capitalism. Something rather like that happened in the 1930s. It is not hard to identify western politicians who would love to go in exactly this direction. 

"...Meanwhile, those of us who wish to preserve both liberal democracy and global capitalism must confront serious questions. One is whether it makes sense to promote further international agreements that tightly constrain national regulatory discretion in the interests of existing corporations. My view increasingly echoes that of Prof Lawrence Summers of Harvard, who has argued that “international agreements [should] be judged not by how much is harmonised or by how many barriers are torn down but whether citizens are empowered”. Trade brings gains but cannot be pursued at all costs."

More recently, professor Rodrik, discussed populism. He distinguished negative from positive populism. Negative nationalism, the variety favoured by authoritarian and illiberal states, is a blend of paranoia and xenophobia. It posits the "other" as a threat. Positive nationalism is internal and focuses on what is right and good within one's nation and what can be done to make it better. Negative nationalism perceives the nation as awash in threats and perils. Positive nationalism works to improve.

If our economic rules empower corporations and financial interests excessively, then the correct response is to rewrite those rules — at home as well as abroad. If trade agreements serve mainly to reshuffle income to capital and corporations, the answer is to rebalance them to make them friendlier to labor and society at large. If governments feel themselves powerless to institute the tax policies and regulations needed to address the dislocations caused by economic and technological shocks, the solution is not just to seek more national autonomy but also to deploy it toward such reforms. 

A populism of this kind can seem like a frontal attack on the economic sacred cows of the day — just as earlier waves of American populism were. But it is an honest populism that stands a chance of achieving its stated objectives, without harming fundamental democratic norms of tolerance and equal citizenship.