The Neoliberal Paradox
 9781788114417

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© Ray Kiely 2018 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited The Lypiatts 15 Lansdown Road Cheltenham Glos GL50 2JA UK Edward Elgar Publishing, Inc. William Pratt House 9 Dewey Court Northampton Massachusetts 01060 USA

A catalogue record for this book is available from the British Library Library of Congress Control Number: 2017953280 This book is available electronically in the Social and Political Science subject collection DOI 10.4337/9781788114424

ISBN 978 1 78811 441 7 (cased) ISBN 978 1 78811 442 4 (eBook) Typeset by Columns Design XML Ltd, Reading

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Acknowledgements Thanks to James Dunkerley, Andrew Gamble, Mike Kenny, Leo Panitch, Alfredo Saad-Filho and Rick Saull for reading material that eventually went into the book. Thanks also to those at Edward Elgar Publishing who ensured that the process of transition from draft to completion was as smooth as could be. Particular thanks to Matt Pitman, Caroline Cornish, Carol Lucas, Tracey Smith and Rosalba Putrino. More widely, love and thanks to Emma, Will and Ella, and in terms of the extended family, welcome little Sophie! During the writing of this book, I particularly enjoyed listening to (among many others) Gabriel-era Genesis, PJ Harvey, Julia Holter, Low, Will Oldham and REM.

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This book is dedicated to the memory of James Nottidge (1965–2016), a wonderful friend who is sadly missed.

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Contents Acknowledgements

vii

1 Introduction

1

PART I

HISTORY AND THEORY

2 History and the crisis of liberal modernity: mass society and the crisis of the 1930s and 1940s

15

3 Neoliberalism and the crisis of liberal modernity in the 1930s

35

4 The second crisis of liberal modernity, the Chicago School and the rise of the New Right

66

5 Neoliberal theory: the core ideas

95

PART II

HISTORY AND PRACTICE

6 Neoliberalism in practice I: the 1980s

129

7 Neoliberalism in practice II: the 1990s to 2008

151

PART III

THEORY AND PRACTICE

8 Neoliberalism and the 2008 financial crisis

187

9 Actually existing neoliberalism I: post-politics and the new spirit of capitalism

216

10 Actually existing neoliberalism II: bureaucracy, corporate rule and the asset economy

236

11 Actually existing neoliberalism III: global competitiveness and inequality

270

12 Neoliberal theory assessed: the core ideas revisited

295

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The neoliberal paradox

13 Conclusion: definitions, paradoxes and futures of neoliberalism

333

References Index

370 417

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1. Introduction The financial crisis of 2008 was followed by unprecedented government bail-outs of financial institutions which did not have to face the discipline of market forces. The total value of the renationalisation of banks and insurance companies in the US, the UK and Europe was equivalent to reversing about half of the total global privatisations of the past 30 years; the nationalisation of the insurance agency AIG was the equivalent in value terms of reversing all the privatisations in post-Communist Europe; in 2008, the UK government’s liability for Northern Rock debts was greater than the combined total value of all private finance provided by European Union-wide private finance initiatives since 1991 (Hall 2008). This followed a period, dating back to the 1980s, in which free markets (allegedly) increasingly dominated the provision of goods and services in many societies, both in the developed world (especially the US and the UK), and to some degree in the European Union (EU), the former Communist countries and the developing world. The bail-outs in 2008 thus appeared to challenge this shift in a market-friendly direction, and thus some predicted the ‘end of neoliberalism’ (Stiglitz 2008). However, after 2008, and specifically from 2010, the financial crisis came to be redefined by some as a public sector crisis, thus reinvigorating arguments which called for reductions in government spending (Conservative Party 2010: 7–9). Further afield, the Tea Party in the US called for sharp cuts in government spending while in the EU a sovereign debt crisis from 2010 led to sharp austerity measures in parts of the union. This seeming paradox – that a ‘neoliberal crisis’ actually strengthened neoliberalism – is not the only paradox that this book focuses on. In his book on the crisis in contemporary politics, Zygmunt Bauman (1999: 1) noted a commonly held belief in the western world, whereby people believe that they are freer than any period in history, and yet they simultaneously feel that there is no alternative to the kind of society in which they live. This judgement is not based on a normative assessment that this is how we should live, but rather the analytical assessment that there is no alternative, which begs the question of what these same respondents meant when they said they were free. We might go further: why, since the 1980s third wave of democratisation, in which increasing 1

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numbers of countries have shifted to liberal democratic forms of government, has this same system entered a period of crisis, in which politicians and other public servants are so distrusted? Why, at the same time as the state has been subject to all forms of criticism and supposed ‘rollback’, has it become, in some respects, increasingly intrusive? Why, in the name of markets against bureaucracy, has the state in many respects expanded and become more bureaucratic, and the separation of public and private sector has actually become increasingly blurred. Not unrelated to this point, why has the neoliberal critique of planning led to the growth of all kinds of government experts and the so-called audit society? Also, how is it that in 2016, the (marginal) left-wing case for exit from the EU rested on the argument that the EU is an increasingly neoliberal institution, while at the same time at least one right-wing case for ‘Brexit’ was made on the basis that leaving the EU was necessary for the proper implementation of neoliberalism? How do we square these circles? Perhaps we have never been neoliberal? (Booth 2012; Birch 2015). These real-world developments, and above all the fallout from the 2008 financial crisis, have led to a significant growth in the literature focusing on neoliberalism, analysing what the term means through historical analysis (Stedman-Jones 2011; Burgin 2012; Peck 2010), political theory (Plant 2011) and public policy (Crouch 2011). This book draws on this work, but does so in order to focus more explicitly on the question of how neoliberalism has successfully reinvented itself, through a consideration of tensions, paradoxes and renewal, a novel and distinctive approach that is increasingly being addressed in the literature (Mirowski 2013; Schmidt and Thatcher 2013; Davies 2014). The book asks questions addressed by others, namely: (1) what is neoliberalism and have we ever been neoliberal? (2) What are the tensions between neoliberal theory and practice? However, in addition it asks, what is the neoliberal paradox (and uses this question to address the ‘end’ of neoliberalism)? The book addresses these issues by taking seriously neoliberalism as a distinctive body of thought and rejecting the all too easy approach which draws out differences between neoliberal theory and practice and in effect leaves it there (see Harvey 2005; Cahill 2014). The first two questions addressed above therefore are considered, but only explicitly at the end of the book. Instead the book addresses these questions after consideration of the history of neoliberal thought, the content of neoliberal thought, the history of neoliberal practice, and a detailed consideration of the tensions, paradoxes and contradictions, not only between theory and practice, but within neoliberal thought itself – and how these tensions have informed neoliberal practice. This is not to say that

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Introduction

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everything about neoliberalism is reducible to its ideas but, equally, neoliberal ideas should not be reduced to an epiphenomenon of particular social forces or wider social change, as though ideas do not matter. Indeed, the book argues that it is the very flexibility of neoliberal ideas which helps renew neoliberal practice in changing circumstances, including what would seem to be a crisis of neoliberalism such as in 2008. This project therefore transcends two ways of approaching neoliberalism, one focused primarily on ideas, and the other on wider social and political forces. Ideas-based approaches focus on neoliberal theory: the Austrian School, ordo-liberalism, the Chicago School, public choice theory, plus some libertarian thought, and a number of excellent critical (see Plant 2011) and historical (Burgin 2012) accounts have been produced. More critical approaches examine neoliberalism in terms of governmentality (Foucault 2008; Dardot and Laval 2014; Davies 2014) and, very usefully, focus on how ideas influence particular ways or rationalities of governing. Political economy approaches focus on the reality of economic power and social relations, and how these might influence public policy and uneven processes of ‘neoliberalisation’ (Harvey 2005; Cahill 2014). Most literature on neoliberalism focuses on either ideas or public policy, and this project attempts to transcend this divide. While the focus on ideas is essential for understanding the meaning of neoliberalism, it can underestimate how these ideas exist in a particular context, and how neoliberal policies have unexpected consequences (though this point does not apply to those Foucauldian approaches identified above). On the other hand, public policy and political economy approaches tend to use the term neoliberalism too broadly, almost in complete isolation from the views of neoliberals themselves, so that any identification of something called neoliberalism is rendered meaningless – neoliberalism simply becomes capitalism, or a term of abuse that purports to explain everything and ends up explaining nothing. Ideas thus matter, but so too do their social context and location, and throughout, the project will focus on neoliberal theory and practice in terms of the paradoxes of neoliberalism. In considering in depth both ideas and practices, the book identifies two further questions, the first of which is present throughout the book and the second of which becomes more prominent as the book unfolds. First, can we identify a series of paradoxes within neoliberalism, both in theory and in practice? Second, in what ways might these paradoxes be a source of strength for the renewal of neoliberal practice? In terms of the former, we might first identify the tensions within neoliberal thought, and between theory and practice. The 2008 crisis is far from unique in the history of neoliberalism, which has always been characterised by a series

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of paradoxes. Margaret Thatcher (1993: 745), the most ‘neo-liberal’ of Prime Ministers, wanted to ‘roll back the frontiers of the state’, but state spending increased in real terms for every year but two of her premiership (IFS 2011). The ‘neoliberal’ Reagan administration in the US saw an unprecedented increase in the country’s budget deficit from 1981 to 1988. Both Reagan and Thatcher were associated with the New Right, a coalition of political forces in the 1970s and 1980s that ostensibly combined ‘libertarian’ economic principles, with more traditional conservative principles, such as respect for the family and the importance of political obligation to the state (Kristol 1999), the latter of which (for some) sat uneasily with arguments which suggested that government intervention conflicts with individual ‘negative’ freedom (Friedman 2002; Hayek 2006). The tensions run deeper however: two detailed studies of regulation of a variety of economic sectors across the developed world concluded that the rate of creation of new state regulatory agencies increased once privatisation increased (Levi Faur 2005; Jordana et al. 2011). More generally, neoliberal governments have generally been happy to promote the privatisation of utilities but were more reluctant to do so in fields such as education and health, or to promote a legally recognised free market in drugs, security services or labour (most New Right politicians supported immigration controls and very few – in the developed world at least – have been prepared to argue for the removal of government restrictions on child labour). These tensions and ambiguities have also been apparent in ‘neoliberal practice’ in the developing world. Following the Latin American debt crisis of 1982, the International Monetary Fund (IMF) played a central role in regulating the debt crisis and ensuring that western financial institutions received a substantial return on their investments. Loans often came with ‘neoliberal’ conditions, such as cuts in government spending, trade liberalisation and privatisation. Neoliberal advocates suggested that ‘rolling back the state’ would promote growth and poverty reduction, while critics questioned the assumption that merely integrating more closely into the world economy would lead to development. However, beyond this debate there was a paradox, namely, that the IMF came to be seen by critics as a neoliberal institution, though neoliberals themselves had long argued for its abolition (Bauer 1971), as IMF monitoring went against the principle that both creditors and debtors be left to market discipline and face bankruptcy (Buiter and Srinivasan 1987). A similar position was taken by some neoliberals in their opposition to the 2008

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Introduction

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bail-outs (Nothstine 2009). In perhaps the most neoliberal of all countries, Chile from 1973 to 1988, there were extensive government bailouts and nationalisations in the period from 1981 to 1983, a dress rehearsal for what happened in 2008. This book therefore reflects on whether the theory–practice gaps means that ‘we have never been neoliberal’ (Booth 2012; Birch 2015), but also asks whether it might mean something else about neoliberalism, namely, its utopianism (Polanyi 2001)? These issues reflect an ongoing tension within both liberal and neoliberal thought, namely, the boundaries between state intervention, on the one hand, and the free market, on the other. Although critics have identified something called neoliberalism, those they identify as neoliberals have long ceased to use the term (Friedman 1951), although it has recently made something of a comeback (Adam Smith Institute 2016; Bowman 2016). Neoliberals have argued that the 2008 crisis was not a crisis caused by neoliberal policies, because such policies have never been properly implemented (Booth 2009, 2012). While there has been a voluminous literature on the causes of the financial crisis (Booth 2009; Gamble 2009; Reinhart and Rogoff 2011), given the ambiguities that the crisis and its aftermath demonstrated, and those more general ambiguities identified above, it has also given rise to a wider literature which essentially asks the question, ‘what is neoliberalism?’ (Birch 2015; Springer 2016). This book can be seen as a contribution to these debates, but at the same time it seeks to address the question through consideration of the paradoxes of neoliberalism. The book explores these paradoxes through an examination of a number of discrete but overlapping tensions, which are apparent in both neoliberal theory and practice, but which ‘play out’ in distinctive ways. These include: 1.

2.

market and the state – in some respects all of the other paradoxes follow from this starting point. In particular the focus here is on understanding the boundaries between where the state ends and the market begins, and how neoliberal practice has focused as much on public sector reform as on privatisation; decentralised markets and corporate power – this paradox is reflected in the tensions within neoliberal thought itself, and the gradual shift from rejection of private monopolies in the 1930s and 1940s towards their growing acceptance via the second Chicago School from the 1950s onwards; and in neoliberal practice, where corporations have grown to such an extent that some are deemed, to return to 2008, ‘too big to fail’;

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3.

freedom and virtue – this tension reflects the neoliberal focus on individual, ‘negative’ freedom where the individual is said to be free to pursue their own interests provided they do not impede others from doing the same thing, and thus rejected approaches to freedom which suggest the need for a common purpose for society as a whole (such as respect for authority from the right or social justice from the left); liberty and democracy – this tension reflects the commitment to negative freedom and the belief that democracy can have illiberal outcomes. This is a standard argument of a great deal of political thought from the late eighteenth century to the early twentieth century, from Burke, Tocqueville, Nietzsche, Pareto, Schmitt and eventually Hayek, who distinguished between totalitarian regimes (which can be democratic but illiberal) and authoritarian regimes (which can be liberal in that they uphold the principle of negative freedom). In practice, we might also see this distinction in the EU which, in the context of the Eurozone crisis, saw an increase in technocratic government in some states; elitism and populism – this tension follows from the others and we can see this in the neoliberal origins of the 1930s, which was in part as a response to the inter-war crisis, regarded as a crisis of collectivist mass democracy, and was implicitly at least an elite project to protect the market from such pressures. However, it increasingly developed a populist character, not only through its alliances with the conservative New Right, but through its characterisation of the marketplace as a site of democracy and freedom where ‘the people’ exercise their free choice in contrast to the paternalist state; neoliberal renewal in the face of adversity, and the paradox that neoliberalism and its tensions, weaknesses, inconsistencies and omissions are in some respects sources of strength in the ongoing renewal of the neoliberal project.

4.

5.

6.

The book explores these questions through a detailed consideration of neoliberal theory and practice. It is divided into three parts. Part I, which comprises Chapters 2 to 5, explores the questions of history and theory. Chapter 2 contextualises the origins of neoliberal thought in the context of the crisis of liberal modernity in the 1930s, showing how older nineteenth-century concerns about the irrational crowd culminated in elite theories that attempted to restrict democracy, and how these concerns were heighted in the 30-year crisis of 1914 to 1945. The chapter also shows the development of another manifestation of mass society, the

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Introduction

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corporation and how management theory emerged which paralleled the concerns of elite theory in the political sphere. Chapter 3 then examines how neoliberalism emerged in response to this crisis of so-called mass society and traces its emergence in the 1930s through the Colloque Walter Lippmann in 1938 and the formation of the Mont Pelerin Society in 1947. This chapter particularly highlights some of the different factions in early neoliberal thought, and in comparing neoliberalism with those theories of mass society considered in the previous chapter, examines authoritarian tendencies within neoliberalism. This elitism is also a theme in Chapter 4, which examines the rise of neoliberalism in the context of the British and American New Right responses to a second crisis of liberal modernity, in the 1960s and 1970s. While some parallels are drawn with the crisis of the 1930s, especially in the Weimar Republic, some important contrasts are also highlighted, perhaps above all the development of a more populist neoliberalism. This not only drew from conservative responses to perceived enemies, such as a new class operating in the public sector, welfare ‘scroungers’ and the counterculture (including anti-racism), but also the notion of an individual in need of liberation from pluralist governments suffering from too many demands made by politicised citizens. The free individual, liberated from the shackles of government, would promote economic efficiency, and the liberty to choose through the democracy of the marketplace (Friedman 2002; Mises 2002). At the same time, the tension between conservative and libertarian arguments are highlighted, not only in terms of the New Right, but also within specifically neoliberal thought. Chapter 5 is the final chapter of the first part of the book, and it consolidates the discussion by providing a detailed exposition of the core elements of neoliberal theory, and particularly focuses on four overlapping themes, namely: (1) the individual and freedom; (2) the state, intervention and the rule of law; (3) the question of the concentration of power; and (4) money, inflation and the market order. The chapter finishes by focusing more explicitly on the question of what Hayek (2013: ch. 1) called constructivism, something that Hayek rejected but which neoliberalism itself cannot avoid, and which is central to understanding both what neoliberalism is and one of the paradoxes of neoliberalism. Part II of the book examines history and practice, and Chapter 6 provides a brief but context-setting account of neoliberal practice in the 1980s, in (1) the US; (2) the UK; and (3) the developing world. The narratives outlined are necessarily brief but allow for an initial assessment of neoliberal practice, which focuses on all the case studies, but in particular discusses the British case and some of the questions about the relationship between states and markets in both neoliberal theory and

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practice. Chapter 7 further examines neoliberal practice from the 1990s up to the financial crisis in 2008, and does so through looking at four cases: (1) the third way and the Anglo-American growth model; (2) the third way and public sector reform in the UK; (3) Europe and the European project; and (4) globalisation, good governance and the developing world. These empirical accounts are then used for a further theoretical discussion, looking again at the question of the state in neoliberal theory and practice with particular attention to the so-called third way in the run-up to the 2008 crisis. The final part is composed of five chapters, which look at the question of neoliberal theory and practice, and which more explicitly focuses on a critique of neoliberalism. Chapter 8 examines neoliberalism in the context of the 2008 financial crisis and its aftermath, including the shift to austerity in some parts of the world. The chapter argues that neoliberal interpretations, both of the causes of, and the proposed remedies for, the financial crisis are unconvincing. However, despite these weaknesses, neoliberalism has (to some extent) successfully renewed itself and the reasons why are also considered, with particular attention paid to how neoliberals can always identify regulation and therefore always place the blame for crisis on government and politics. This argument is addressed further in Chapter 9 which considers the question of actually existing neoliberalism and the post-political condition, arguing that there is a close relationship between a crisis of formal politics and neoliberal arguments, especially those about public choice. Paralleling the arguments of the previous chapter, it is argued that we need to focus on the productive appeal as well as destructive consequences of neoliberalism, and this is done through a consideration of the relationship between neoliberalism and what might be called a new spirit of capitalism. This section considers in some depth both the notion of the return of the entrepreneur and the associated rise of a new individualism. Chapter 10 develops these themes further but focuses more explicitly on the dark side of actually existing neoliberalism, focusing on the rise of a new bureaucracy designed to implement neoliberal ideas, and the economic domination of politics as reflected in both public sector reform and corporate rule. However, the chapter also shows the ways in which people have been effectively incorporated into neoliberal practice, in particular through the growing significance of debt and assets in economies. At the same time, the growing importance of asset-based economies is one reason for growing inequality, and this is considered in Chapter 11, which examines in more depth the neoliberal discourse of competitiveness, and the question of global inequality and poverty. The chapter relates this discussion back to the significance of the entrepreneur

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Introduction

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and philanthro-capitalism, both discussed in Chapters 9 and 10. Chapter 12 brings the arguments together and, in paralleling the structure of Chapter 5, outlines the same four key features and providing a critique of neoliberal accounts of each of them. The main sections are therefore: (1) the individual and freedom: a critique; (2) state intervention and the rule of law: a critique; (3) economic concentrations of power: a critique; and (4) money, inflation and the market order: a critique. Like Chapter 5, the question of neoliberalism as a constructivist project is then considered, this time in far greater depth. Finally, Chapter 13 returns to the question addressed at the start of this Introduction, namely, ‘what is neoliberalism?’, and sums up what I have identified as the paradoxes of neoliberalism, and how these might help us to understand the future(s) of neoliberalism. In particular it addresses the question of the extent to which neoliberalism has been renewed since the 2008 financial crisis, and whether or not we are still living with the consequences of the latter. In looking at the continued legacy of 2008, the chapter concludes with an account of perhaps the biggest paradox of all, namely, that in some respects we live in a neoliberal society but not a market economy. We then turn to a final question which asks whether neoliberal renewal has now exhausted itself in the context of a neoliberal impasse. In particular, we identify three challenges: the rise of Donald Trump to the presidency of the US, the decision of Britain to leave the EU, and the rise of state capitalism in the developing world, and in Brazil, Russia, India and China (BRICS) in particular. Before moving on to the substance of the book, some final points need to be made about definitions. The book deliberately avoids defining neoliberalism or identifying the neoliberal paradox in any depth until the final chapter. Nonetheless, much of the detailed theoretical and historical discussion in Chapters 2 to 12 do rest on implicit definitions and identify examples of a broader paradox. We therefore should briefly say something here, at the end of the introductory chapter, about the book’s argument and its distinctiveness. Briefly the argument defines neoliberalism and identifies its central paradox by suggesting that neoliberalism is a body of thought and a practice of government, or governmentality,1 which takes as its starting point a distinction between spontaneous markets and constructed politics. However, in both theory and practice, this distinction cannot hold, and neoliberalism is itself an example of a constructivist project. This takes a variety of forms within neoliberal theory (Hayek and Austrian theory, ordo-liberalism and the Chicago School) and practice (from the New Right to the Third Way, from structural adjustment to good governance, and so on). Put differently,

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neoliberalism promises spontaneity but cannot avoid constructivism. This paradox is central to a proper definition of neoliberalism, but also to identifying its central paradox, namely, that neoliberalism is a utopian project in that it seeks to eradicate politics, to eliminate the collective or social and to rid the world of moral hazard, all in the name of individual responsibility, but it requires politics, the social, collective institutions and, therefore, moral hazard to do so. Note also that while other utopian projects might be undermined by such contradictions, this is not the case with neoliberalism, for any crisis it faces can be blamed on constructivism and the spontaneous promise of neoliberalism might then be restored, at least as a project. Furthermore the social bonds created in part by neoliberalism might then reinforce its hegemony even as has been challenged so seriously by events such as the 2008 financial crisis. This recovery is not an easy or automatic process, but to some extent took place after 2008, even if 2016 might present a watershed. None of this means that neoliberalism can be identified easily and this may be one reason why it is such a source of frustration for those critical of the concept (Venugopal 2015; Talbot 2016). Thus, Venugopal (2015: 171) contends that ‘[n]eoliberalism is now an overloaded and unwieldy term that occupies a fluid and growing terrain that expands and contracts arbitrarily across several dimensions, but which increasingly lacks firm foundations in real world referents.’ We might respond that a similar point could apply to ideologies such as liberalism or socialism, or perhaps even more to social science concepts such as ‘globalisation’ and ‘modernisation’, but this does not deal with the specifics of the argument when applied to neoliberalism. However, it is precisely neoliberalism’s paradox, its claim to separate spontaneity and constructivism, which makes neoliberalism so difficult to define. Thus, a wide range of literature has focused on neoliberalism as a set of ideas, a particular way of governing, a process and a project of class rule (see Larner 2000; Mudge 2008; Springer 2016; Springer et al. 2016). Ong (2007: 3) distinguishes between neoliberalism as a ‘fixed set of attributes with predetermined outcomes’ and neoliberalism, which operates ‘as a logic of governing that mitigates and is selectively taken up in diverse political contexts’. The possible gap between these two things has led some to reject the concept (Braithwaite 2005; Barnett 2009; Venugopal 2015; Talbot 2016), but this book seeks to explore this gap, through exploration of neoliberalism as both a set of ideas and a logic of governing, and it does so by seeking to show, in contrast to Venugopal, that we can retain ‘firm foundations in real world referents’. For it is precisely this gap which is central to understanding the neoliberal paradox.

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Introduction

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NOTE 1.

The use of the term ‘governmentality’ implies an endorsement of Foucault’s (2008) approach to understanding neoliberalism. In some respects this is indeed the case, as the chapters that follow show. Furthermore, although briefly commented on, this book does not take an explicit position on whether or not Foucault’s critical account of neoliberalism was actually an endorsement of it (see Chapter 10, note 8). This is a book on neoliberalism and not on Foucault. On the other hand, this use of Foucault is not at the expense of the use of other approaches to understanding neoliberalism, including those derived to some extent from Marxist political economy. This is particularly useful for understanding both the origins of neoliberal practice in the context of the 1970s crisis, and the unequal effects of neoliberalisation. However, as Chapter 6 makes clear, although some capitalists did organise to promote capitalist restructuring, it is far more problematic to suggest that this took place because the capitalist class successfully acted as a class for itself in the 1970s. The book therefore draws on both Foucauldian and Marxist critical literature in order to understand neoliberalism.

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2. History and the crisis of liberal modernity: mass society and the crisis of the 1930s and 1940s Neoliberalism emerged as both a set of ideas and a political movement in the 1930s, in part in response to the crisis of that decade. This was in some respects a crisis of liberal modernity, characterised by a political (the rise of mass democracy), economic (the Great Depression) and international crisis (Japanese, Italian and German expansion). Neoliberalism emerged as one response, among others, to this crisis but there is considerable overlap with some of these other arguments, and these are considered in this chapter before we move on to a full consideration of neoliberal ideas in the 1930s and 1940s in the next chapter. This chapter therefore examines various conservative and liberal responses in the nineteenth century to what came to be called by the twentieth century, the mass society. It then moves on to consider one particular manifestation of mass society, that of the large, bureaucratic corporation. Much of the argument in this book is that while neoliberalism emerged as a critical response to mass society, its relationship to the large corporation was far more ambivalent and ambiguous. As we see in the next chapter, neoliberals tended to be critical of such corporations in the 1930s, but we also see in later chapters that neoliberalism later made its peace with such institutions. In this chapter we examine the rise of the corporation and explore it through the lens of management and accounting practices, all products of mass society but in effect deployed by later neoliberals. Finally, the chapter returns to a wider focus on mass society and briefly explores the 30-year crisis from 1914 to 1945.

THE RISE OF MASS SOCIETY: CONSERVATISM, CLASSICAL LIBERALISM AND ELITE THEORY Although the crisis of liberalism is usually dated to take in the period from the late nineteenth century to the 1930s, tensions existed within and beyond liberal thought from a much earlier period stretching back at least 15

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as far as 1789. Much of the conservative response to the rise of mass society can be traced back to earlier reaction to the French Revolution. Burke (1969: 151) argued just after the revolution that attempts to radically change this organic social order would lead to disorder, with society crumbling ‘into the dust and powder of individuality’. A new tyranny would emerge in which a new concentration of power will replace the old hierarchy of crown, church and nobility with ‘the iron rule of attorneys, estate agents, “money jobbers”, speculators, and adventurers’ (Burke 1969: 313), and the so-called will of the people will be nothing more than the outcome of manipulation by politicians, intent on the pursuit of power (Burke 1969: 155–6). Burke’s contemporary, Joseph de Maistre similarly argued that existing social institutions were the only safeguard against humanity descending into barbarism. Social order depends on the existence of myths, which reinforce apolitical authority and obligation. Democracy, on the other hand, allows for no authority other than support for the passing, transient whims of ‘the people’, and is thus a recipe for chaos (de Maistre 1994: 56–8). In this way, the French Revolution led to despotism when it promised democracy, and thus order gave way to chaos. The Jacobin Terror, predicted by Burke and witnessed by de Maistre, was the logical outcome. Moreover, the revolution challenged the divine authority of God and so was bound to lead to chaos. In the 1830s, Tocqueville (2004: 341) similarly warned that democracy could lead to enslavement because the former insists on the ‘unity, the ubiquity, the omnipotence of the supreme power’. At the same time, individuals feel isolated and insecure in modern society and so turn to the state as a source of cohesion. The growth of individualism also means the growth of atomisation, so that we have the paradox that individualism undermines individuality. Individuals thus cut themselves off from society but at the same time look to public opinion as a unifying force, so that it is this rather than reason, that dominates. Public opinion ‘does not persuade others to its beliefs, but it imposes on them and makes them permeate the thinking of everyone by a sort of enormous pressure of the mind of all upon the individual intelligence’ (Tocqueville 2004: 428). In this way democracy could lead to a new despotism based on the ‘immense tutelary power’ of the state. However, at the same time he did see some hope that despotism could be avoided by the existence and promotion of intermediate associations in civil society, acting as a buffer between the state and public opinion, on the one hand, and isolated individuals, on the other. What was therefore needed was a mediating mechanism which ensured that the exercise of power could never become the prisoner of public opinion. Benjamin Constant (1988: 215) had

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argued in 1819 that this could occur through the representative principle, and specifically that in such ‘representative assemblies it is essential that those assemblies, whatever their further organization, should be formed by property holders’. John Stuart Mill (2010: 133) also expressed concern that the poor majority might impose its will on the rich minority, but also stressed the importance of representation, which meant that there was a two-way relationship between ruler and ruled, so that the former could control the freedom-restricting instincts of the latter. More critically, Mill argued that Tocqueville confused equality with the existence of a commercial civilisation in which aspirations to equality exist alongside other views and aspirations. The quest for wealth could potentially conquer other values. The danger in this case was not only the potential conformity of public opinion, but also business values in which everything but money is devalued (Mill 2010: 68, 93). Thus, Mill argued that the market economy itself carried with it some dangerous threats to freedom and suggested that individuals combined in associations to acquire power that individuals do not possess, an argument similarly made by Tocqueville. Such views reflect concerns about the threat to freedom in liberal society, and how the rise of ‘the masses’ could lead to a stifling collectivism and conformity, although in Mill’s case his critique of commercial civilisation provided the basis for the development of a far more interventionist new liberalism in the late nineteenth century. These tensions existed within liberal thought throughout the nineteenth century (Landa 2010; Mullholland 2011), as the movement for an extended franchise threatened, not only absolutism, but also the sanctity of private property which was so central to classical liberal thought (Tocqueville 1997: 12–13). Marx (1963: 65) thus argued that ‘[t]he bourgeoisie had a true insight into the fact that all the weapons it had forged against feudalism turned their points against itself’. These tensions were only enhanced throughout the nineteenth century as the franchise was extended in much of Europe, socialism and the labour movement emerged, and the state became increasingly powerful. However, for a number of liberal and conservative thinkers what emerged was a mass society in which individuals lost their sense of coherent identity, and the close-knit ties of community were displaced by a fractured and confused sense of the self (Bramson 1970). While this did give rise to a ‘left’ critique of such a society, which blamed this largely on the emergence of capitalist society, conservative approaches tended to blame the irrationality of politics. As Bellamy (2003: 71) suggests, there were three main features of this mass condition. First, the ‘crowd-like’ masses were motivated by passion and not reason. Second, new forms of

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mass organisation, including state regulation and the increasing size of corporations, meant that bureaucratisation impacted on the mass individual in new ways. Third, as a result of this second feature, traditional elites were increasingly displaced by new managerial technocrats, but also potentially by new demagogues. Central to these debates was the fear of the urban crowd and the new industrial proletariat. For conservatives, these new social forces were prone to strikes, riots and vulgar behaviour (Le Bon 1960). Socialism emerged as a new political force and there was a fear that the deliberation and reason associated with the rational liberal had given way to a populist socialism. Some liberals responded pragmatically to these developments, and at the turn of the twenty-first century, the new liberal movement emerged and accommodated itself to these new collectivist realities (Hobhouse 1994; Hobson 2009). While this new liberalism still placed the individual at the centre of its analysis, it drew on Bentham’s earlier concept of social utility (1781) and John Stuart Mill’s (1988) conception of individual self-development to argue that individual liberty could only meaningfully exist within a wider conception of the ‘social good’ (Green 1999). Hobhouse (1994: 71) argued that the individual was still central to liberalism, but this individual required certain collective rules which allowed everyone to participate, and this might involve constraints on private property and the market as these individual freedoms may undermine the freedoms of others. That is, the extremes of social inequality could undermine individual liberty and therefore liberalism’s challenge lay in its ‘intellectual and moral ability to accept a positive progressive policy which involved a new conception of the state’ (Hobson 2009: xi). The new liberals rejected the socialist case for nationalisation and instead argued for a new relationship between the state and the individual, in which the former in some ways helped to facilitate the liberty of the latter, provided that the role of the state was still kept within strict limits. As did later neoliberals, conservatives wanted to resist the collectivist tide. In late nineteenth-century France, Gustave Le Bon (1960) responded to the crisis of the Third Republic in the 1880s, and particularly the outbreak of strikes from 1886 and rise of Boulangism in 1888, by warning of a threat to civilisation owing to the breakdown of the family, the decline of religion and the rise of the masses.1 Drawing on earlier work by Tarde, about the mutual suggestibility, imitative behaviour and ‘feminine irrationality’ of crowds (see Borch 2012: 49–63), Le Bon argued that crowd-like behaviour increasingly came to characterise so-called popular democracy. For Le Bon, the masses were too stupid to think for themselves and so could be manipulated or seduced by popular

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appeals to the crowd. He argued that the popularity of socialism could be explained in this way (Le Bon 1960), but also elections were influenced or even determined by crowd-like behaviour. In particular the masses were easily bought off or manipulated by politicians presenting a package of policies similar to any other consumer item available in the marketplace. As a result, the masses were constantly seduced by government buying off the electorate, and they did so in part through the growth of the state and of bureaucracy. This was potentially a recipe for political sclerosis, but Le Bon held out the hope that citizens would eventually see through this electoral bribery, and thus act as a force of creative destruction, challenging the corruption of parliamentary democracy. Le Bon increasingly saw little hope for parliamentary democracy and argued that a nationalist, charismatic leader would be necessary to control and manipulate the masses (Borch 2012: 34–47). Le Bon’s work was characterised by racism and sexism, but it has had an influence on later political thought, including in some respects, via its acute analysis of the symptoms of liberal democratic malaise, those on the left (see Borch 2012: ch. 7). However, it was a much greater influence on the right, including on Walter Lippmann (2010), an important figure in the formation of a neoliberal movement in the 1930s. Perhaps the most important critique of the emergence of mass society came from a number of European thinkers in the late nineteenth and early twentieth centuries. These included Max Weber and Joseph Schumpeter, but also the now rather neglected work of the elite theorists, Pareto, Mosca and Michels, who shared some common ground with neoliberalism. Pareto is a particularly significant figure for our purposes, because he was in many respects a classical liberal who advocated ‘free market’ economics and ‘limited government’, but whose interests increasingly turned away from economics towards sociology from the 1890s onwards. From that period his work can in part be seen as an attempt to explain the seeming paradox that the rationality of liberalism had increasingly given way to what he called ‘bourgeois socialism’ (Pareto 1966), which was based on state protection for industry and the rise of monopolies. Thus, there is a considerable degree of continuity between the free-market economic liberal and the political sociologist of elites (Bellamy 1988: ch. 2). Given that for Pareto, the free market was the most efficient economic system available, this process could only be explained by recognising both the psychological appeal of non-rational ideas, and the ability of elites to exploit these ideas by appealing to the masses and thus winning power. Pareto argued that ‘reason is of little worth in giving form to social phenomena. Quite different forces are at work’ (cited in Bellamy 1988: 22). That is, for Pareto, the rationality of the economic

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market was threatened by the irrationality of the political (mass) state. He extended these insights to argue that history is a circular process in which one set of elites would rule, only to be replaced later by another set of elites. He argued that there were two kinds of political elites, cunning foxes who aspired to win the consent of the masses, and lions who were more conservative and more prepared to use force in order to stay in power. Drawing on his earlier economics, he related this circulation of elites to an interpretation of the business cycle, in which foxes seduced innovators and undermined the more conservative rentiers (shareholders and savers) (Pareto 1966: 116). This would lead to a rise in prosperity but would also undermine the values that underpinned society, and would lead to an increase in debt owing to over-consumption, cheap credit and a scarcity of capital for productive investment. This in turn would lead to a need for restraint and would encourage the rise of a more conservative government of lions, until a new wave of innovation and rule by foxes would emerge. Pareto argued that the rise of Mussolini was not only a ‘splendid’ confirmation of his views as a disinterested social scientist, but also something to be supported on normative grounds because Mussolini was ‘a statesman of the first rank’ who could bring about ‘the resurgence of Italy’ (cited in Bellamy 1988: 33). Pareto died just a year after the march on Rome that saw Mussolini’s accession to power, and as an economic liberal he may well have criticised the dictator’s economic policies. Nonetheless, it is argued further below that there was a clear continuity between his economic liberalism and elitist sociology, and this is significant for understanding some key components of neoliberalism. Indeed, Pareto’s contemporary and friend, the Italian neoclassical economist, Maffeo Pantaleoni (1898), had first been described as a neoliberal as early as 1898 by the French writer Charles Gide (1898), a full 40 years before the Lippmann Colloquium in Paris (see Chapter 3).2 As well as influencing American public choice theory after 1945 (see Chapter 4), Pantaleoni was a well-known supporter of Mussolini’s Fascist regime. Gaetano Mosca (2012) also argued that elite rule was inevitable but that the reasons for this were primarily organisational rather than psychological. Above all, elite minorities are simply better organised than the fragmented masses. Initially he argued that parliaments did not necessarily display crowd-like qualities, but there was a need for representatives to be independent, and thus in some respects insulate themselves from the masses. In mass society this was increasingly difficult as the masses had an increasing influence. Mosca (2012: 158–61) argued that democracy needed to limit itself and this could be done through a

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system of checks and balances in which different institutions counterbalanced the influence of other organisations through a dispersal of power. The danger with democracy was that it could centralise power in the hands of an elite, thus leading to despotism. This point was also made to defend the existence of private property, which provided independence from the state. In particular Mosca called for a juridical defence of liberal values such as liberty and the preservation of private property, which meant a defence of the rule of law against encroachment by the masses and democracy. This would act as an important counterbalance to the existence of a governing class which ‘can permit itself anything in the sense of a sovereign who can do anything’ (Mosca 2012: 134), which could occur as a result of unlimited democracy. He also argued that collectivism (and thus socialism) carried the danger that it fused economic and political power and so ‘the officials who control and apportion production become the arbiters of the fortunes and welfare of all’ (Mosca 2012: 143). These arguments resonate very much with neoliberal arguments, as we will soon see. Robert Michels was the last classical elite theory, and he developed his approach in the context of Germany before 1914. Initially a syndicalist critical of the increasing conservatism of the German Social Democrats (SPD), from 1907 he argued that that a particular organisation’s direction told a more universal story about organisational politics than he first envisaged. Rather than simply being the product of Germany’s centralised bureaucratic-military political culture, Michels increasingly argued that this was a wider, indeed universal, story of elite circulation and oligarchical organisation. In contrast the masses were politically immature, apathetic and ignorant. He argued that ‘[t]he incompetence of the masses is almost universal throughout the domains of political life, and this constitutes the most solid foundation of the power of the leaders’ (Michels 1959: 59). This owed something to the influence of Le Bon and his views of the irrational crowd,3 but also Mosca’s observations on organisation and oligarchy; he argued that modern society could not do without organisation (Michels 1959: 40). As was the case of all organisations, oligarchy led to conservatism and inertia, which (he argued) was true of all organisations. For this reason, Michels came to admire Mussolini because he transcended organisational conservatism and mobilised the masses, and thus fascism represented the ‘new human material destined to regenerate a tired and demoralized world’ (quoted in Beetham 1977b: 171). Indeed, he took up a chair in political science in the fascist faculty at the University of Perugia in 1928, where he stayed until his death in 1936 (Beetham 1977b: 161; Schwarzmantel 1987: 74).

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Weber’s justly famous account of the tragedy of modern society is also important in that he was also concerned with finding ways to limit the reach and scope of democracy. While he gave qualified support to political equality as a counter to the social inequality generated by the market (Weber 1994: pt vii), he also argued that the masses were irrational. The masses were not so much an actor in, but more a condition of, modern society. Traditional sources of legitimacy had broken down with the rise of mass society, and charismatic authority was undermined by war and incompetence, and so democracy was inevitable. However, alongside democracy there was disenchantment, which was also a product of industrialisation, bureaucratisation and rationalisation, and the rise of science and decline of religion (Weber 1994: pt viii). In this context, individuals could affirm the fragmented world in a spirit of self-conscious realism (Weber 1994: pt xiii), but this was not the case with the masses. They focused only on the short term, and were passive unless mobilised from the outside. Democracy – albeit of a limited kind – was possible, in contrast to what Weber called the democracy of the street, which was most common where political parties and parliaments were at their weakest (Weber 1994: 224–7). Weber was arguing that machine-like politics were inevitable and actually desirable in modern democracies. This was not only because parties needed resources to participate in elections, but also so that they could organise the masses and therefore constrain their mob-like tendencies. In this way, the passive, unorganised mass was recruited by politicians, but the latter still had to respond in some respects to the concerns of the former. Weber argued that there needed to be competing political parties which acted as a balance on the sources of political power. He strongly argued that politics should remain an activity separate from the rest of society, and that politicians should embrace an ethics of responsibility, in which they hold themselves accountable for their actions. Although Weber (1994: pt iv) thought that it was difficult to separate an ethics of conviction and an ethics of responsibility, he argued that the conviction politician carried certain dangers, above all that they think that their own good intentions are enough to excuse bad if unintended consequences, and so such actions are the world’s problem not his or her own. Weber’s analysis was aimed largely at what he considered to be utopian political projects such as socialism, and Weber had much in common with elite theory, but he did not contrast political irrationality with economic rationality in the way that Pareto did. His argument was that an instrumental rationalisation pervaded all parts of society, and so the private corporation was as bureaucratised as much as the political process (see Turner and Holton 2011: ch. 2). Weber’s work can therefore be used as a critical resource

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against contemporary neoliberal political practice, as we will see. Nonetheless, Weber’s work was in many respects concerned with preserving elite power at the expense of the masses, although, unlike some other thinkers in the 1920s and 1930s, he was concerned with finding ways in which elite rule could be responsible and proportionate (Weber 1994: 224–7). In Bellamy’s (2003: 100) words, in ‘Weber’s view, democracy does not promote the popular formulation of and allegiance to the public interest. Rather, it offers a mechanism whereby elites can manipulate the masses and, through competing with each other for their support, provide mutual checks that promote the selection of suitable political leaders’. Joseph Schumpeter owed a great deal to Weber and in his 1942 work, Capitalism, Socialism and Democracy (2012), developed perhaps the most sophisticated theory of what has been called democratic elitism. He argued, like Weber, that liberal values were not universal but were actually rooted in an early stage of capitalist development, and specifically what Weber had called the Protestant ethic. However, with the development of capitalism this had been eroded, with the growth of large corporations, and bureaucracy, so that the individual entrepreneur had given way to administrators. At the same time, these developments were reinforced by the growing complexity of modern industrial society, so that the world was made up of a plurality of moralities, social roles and identities, which undermined the capacity for autonomous selfreflection that was so essential to the liberal individual. It was also essential to the entrepreneurial spirit which lay at the heart of the dynamic competitive process. Such a spirit was the gift of an elite few, a capacity confined to the individual psychology of selected individuals who drove the expansion of earlier periods of capitalism through endless innovation. However, modern phenomena such as urbanisation, a mass electorate, popular press, large corporations and state bureaucracies meant that the individual did not have the time, resources or expertise to either influence public opinion or rationally deliberate on the public issues of the day (Schumpeter 2012). As a result, mass politics through a universal franchise led not to the politics of deliberation, but rather to a machine politics of political parties committed above all to electoral victory, and governance by expert civil servants. The mass voter was thus passive, recruited only at elections by specialised politicians, where debate was less about deliberation and persuasion and more about manipulation and passion. Schumpeter argued that democracy was an ‘institutional arrangement for arriving at political decisions in which individuals acquire the power to decide by means of a competitive struggle for the people’s vote’ (Schumpeter 2012: 272) In this way, Schumpeter’s view of democracy is that the winner secures a mandate

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‘by providing a method for the manufacture rather than the execution of the general will’ (Bellamy 2000: 97). This is because in complex modern societies the general will cannot be anything other than a myth and the masses are incapable of ruling directly. However, Schumpeter believed that this did not mean that elites could rule in a way in which they were completely sealed off from the masses, and competition between political parties meant that there would at least be some elite accountability, thus providing some protection against authoritarian rule. This does beg the question, of which Schumpeter was well aware, that with the rise of oligopoly in the formerly competitive market, will this also arise in the political sphere (Schumpeter 2012: 269–73) and, if so, does this really constitute democratic elitism rather than simply rule by elites? Related to this point, what if oligopoly in the economic sphere came to dominate, or even colonise the political sphere? This is considered in the next section (and in Chapter 3).

THE RISE OF MASS SOCIETY II: THE CORPORATION AND MANAGEMENT We see in the next chapter how neoliberalism should be understood as a response to the rise of so-called mass society. Much of the concern of neoliberals, similar to elite theorists, was focused on labour and the rise of socialist movements as well as an increased social and economic role played by the state. However, as should be clear from the above, mass society also involved the rise of large corporations which were a world away from an economy of small enterprises that existed when liberal thought first developed. There were some bigger companies which enjoyed monopoly trading rights and state guarantees, such as the East India Company, but the shift in Britain towards the promotion of free trade was supposed to challenge these companies, and instead support free exchange between independent and largely small-scale producers (Bratton 1989). This period of so-called laissez-faire distrusted artificial large-scale organisations which were said to disrupt the natural order. Instead, this period of ‘proprietor capitalism’ was dominated by small and medium-sized enterprises and ownership and control were generally not separated. However, the second half of the nineteenth century saw the rise of large corporations in much of Europe, Japan and, despite anti-trust legislation, the US. This was partly fostered by states promoting new industries and protecting such concerns from competition with Britain, which was the most competitive producer in the world economy and which benefited from free trade for this reason (Chang 2002; see also

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Chapter 3). However, this concentration and centralisation of capital also took place within Britain, as the state and investors encouraged the rise of joint-stock companies, thereby allowing the pooling of investment into larger concerns (Ireland 2010; Taylor 2014). The move to limited liability and the shift to less stringent bankruptcy laws meant that risk was in some respects socialised, thus allowing for larger and riskier investment. This was extended in the period after 1945, and much emphasis was placed on the benefits of mass production (and consumption), responsible (and hierarchical) corporate management and cost accounting within the firm, and corporations were recognised as legal entities and ownership and control were separated (Bowman 2009; Ireland 2010). This shift to large-scale corporations was far from a smooth process, as the extension of the division of labour meant that formerly skilled work was in effect de-skilled, and was thus resisted by small-scale craft workers (Montgomery 1987). This meant that the Weberian process of rationalisation applied to the factory (Weber 1994: 261), and this in turn led to the rise of management as a science designed to control the workforce (Hanlon 2015). Management was necessary because in the context of large-scale organisation, the amorphous mass ‘needs the division of labour, specialization and guidance’ (Michels 1959: 404). In this way, the management of the corporation paralleled the concerns of elite theory ‘around the division of labour, the superiority of managers, the necessity of discipline and obedience, and the natural leadership qualities of the organizational elite’ (Hanlon 2015: 45). As early as the late eighteenth century, Smith (1981: 782) had recognised these tendencies and their dehumanising and alienating impact on the workforce, arguing that: [the] man whose whole life is spent in performing a few simple operations, of which the effects too are, perhaps always the same, or very nearly the same, has no occasion to exert his understanding, or to exercise his mind in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human being to become.

Management theory developed to ensure that the workforce could be controlled in the factory, but that there would also be some compensation for the monotony of the tasks of labour. Frederick W. Taylor is often seen as the father of management studies and Taylorism in many respects can be seen as the extension of the principles of rationalisation to the mass factory. In particular it involved the promotion of hierarchical management, the monopoly of knowledge by management, an intensification of the division of labour, and the rigid individualisation and demarcation of

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tasks in the workplace (see Montgomery 1987: 217; Hanlon 2015: 107). This was a planned bureaucracy, in which the elite theories of society were applied specifically to the workplace (Mills 2000: 109–11); it was not a market because ‘allocation and coordination are carried out by administrative rather than by market transactions’ (Hodgson 2005: 550– 51). In particular, the mass corporation was composed of unskilled workers, management control of the knowledge needed for production, reduced worker autonomy (compared with craft production) and training around specific tasks. Worker motivation was therefore a central issue and this involved discipline but also compensation in the form of wages and access to consumer goods. This principle was extended under Fordism (Gramsci 2005: 277–316) where the mass industrial worker was increasingly subject to the prioritisation of work, but with the compensation of wage increases. Although Elton Mayo’s human resources approach is often regarded as the human face of management in contrast to Taylor’s more authoritarian approach, Hanlon (2015: ch. 5) convincingly suggests that the two approaches complemented each other. Both wanted to remould the worker-subject, stressing the ‘moral’ or political role of management, and stressed managerial objectivity in the face of worker resistance to change. Mayo was a part of the Pareto circle at Harvard University in the 1930s, the thinkers of whom attempted to apply theories derived from the natural sciences to the social sciences, and to economics in particular. As with elite theory, Mayo feared the dangers of democracy, arguing that ‘we have elicited the fact that the “completely popular government” which is the very essence of democracy has, in practice, led to control by “collective mediocrity” and the more so, the more widely the franchise is extended’ (Mayo 1919: 24). Just as elite theory set about reconciling the rise of the masses to elite rule, so management theory set about reconciling the mass industrial worker to hierarchical management. In particular, in the context of the anonymity of mass society, there was a need to convince the worker that they played a functional part in such a society, including in the factory. This is necessary to prevent workers being attracted to collectivist projects such as socialism – indeed, towards the end of his life, Mayo (1949: 25) compared the US-led international labour union the Industrial Workers of the World with Hitler, at least in terms ‘of attitude and history’ (Mayo 1949: 25). There was a need for management to find ways for the individual to rediscover ‘self-control and sanity’ (Mayo 1922: 63). In an analysis strikingly similar to Hayek’s conception of spontaneous order (see Chapter 5), Mayo (1937: 336) argued that the ideal workplace was based on spontaneous cooperation led by management, and that ‘the intelligent development of civilisation

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is impossible except upon the basis of effective social collaboration and … such collaboration will always be dependent upon semiautomatic routines of behaviour made valuable by personal association and high sentiment’. As Hanlon (2015: 167) states, there was a contradiction here and the fact that Mayo ‘never highlights the logical flaw in his position: that this spontaneous cooperation needs to be manufactured by management’ (Hanlon 2015: 167). The rise of the corporation was of particular concern, as we have seen, to Weber, but also to Schumpeter. While Weber suggested that capitalism’s rise rested on ‘pre-capitalist’ ideas which were eroded by the extension of rationalisation, Schumpeter agreed and explicitly extended this idea so the corporation which, he contended, undermined the entrepreneur of early capitalism. He argued that: [the] perfectly bureaucratized giant industrial unit not only ousts the small or medium sized firm and ‘expropriates’ its owner, but in the end it ousts the entrepreneur and expropriates the bourgeoisie as a class which in the process stands to lose not only its income but also what is infinitely more important, its function. The true pacemakers of socialism were not the intellectuals or agitators who preached it but the Vanderbilts, Carnegies and Rockefellers. (Schumpeter 2012: 134)

Schumpeter’s concerns echoed the wider disillusionment with the (always compromised) egalitarian promise of liberalism. The likes of Locke and Smith supported (limited) emancipation from autocracy and envisaged a future of free men (and to some extent women) exercising their liberty through the ownership of private property and the exchange the fruits of their labour in ‘free markets’ (Pack 1991). As the nineteenth century progressed, it became clear that these ideals had not been met and, as we have seen, though many liberals ‘preached independence, freedom, and autonomy in polity and market, they preached order, routine, and subordination in factory, school, poorhouse and prison’ (Kramnick 1990: 97). In effect what had emerged was a new system of ‘private government’, embedded in the rise of the private corporation (Anderson 2017a). Neoliberalism emerged in part as a response to this problem, and as we will see in Chapter 3, in its early, especially ordo-liberal, form it tended to support attempts to break up private concentrations of power. However, at the same time, neoliberals also made the argument that even in mass society, the consumer exercised their freedom through the choices they made in the marketplace. Thus, Mises (1944: 227) argued that:

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The neoliberal paradox [t]he real bosses are the consumers. They, by their buying and by their abstention from buying, decide who should own the capital and run the plants. They determine what should be produced and in what quantity and quality. Their attitudes result either in profit or in loss for the enterpriser. They make poor men rich and rich men poor.

Mont Pelerin Society member William Hutt (1940) developed and popularised the term ‘consumer sovereignty’, arguing that it reflected the power of the consumer independently of the state, and drew a parallel between consumer choice in the marketplace and voter choice at the ballot box. This parallel was also close to Schumpeter’s definition of democracy, which he defined not as a process in which citizens participate in the political process and work for the common good, but rather it is a discovery process in which citizens choose between competing elites in the political marketplace, just as consumers choose between various brands in the economic market. This is discussed further in the next chapter, but we should also note that the development and popularisation of the concept of the sovereign consumer also coincided with another feature of mass society, namely, the rise of mass marketing techniques. The 1930s saw the development of consumer focus groups, consumer juries, product-testing panels, all of which became standard features of marketing practice, and each of which was justified in the name of the consumer. These research techniques took for granted the rise of mass production, mass consumption and the mass market, and thus as with neoliberalism, these ‘were instrumental in the shift of attention away from phenomena of production to the political economy of consumer decision making’ (Schwarzkopf 2011: 11). The corporation was thus a central part of the rise of mass society, as the principles of rationalisation existed in the mass factory as much as anywhere else. This brief section has specifically focused on the corporation because, as we will see, it is an important part of the story in the emergence and development of neoliberalism. This becomes clearer in the chapters that follow, but a few brief comments are necessary here. First, the rise of the mass corporation is not intrinsically ‘neoliberal’. The mass industrial factory and wage worker carrying out tedious work but receiving wage increases as productivity rose was central to the rise of a Fordist-Keynesian hybrid, which emerged in much of the developed world after 1945, and which neoliberalism rejected. Moreover, in the 1930s, neoliberalism was critical of the rise of large corporate monopolies, particularly the ordo-liberal tradition, as the next chapter shows. On the other hand, as we will see, neoliberal thought developed in ways where it increasingly made its peace with large-scale corporations

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(Chapters 4 and 5), albeit in ways which attempted to restore some elements of ‘proprietor capitalism’ and thus challenge the separation of owner from manager (Birch 2016b), and in ways which sought to more explicitly champion the sovereign consumer. The doctrine of shareholder value is discussed in Chapter 10. For the moment, though, we need to return once again to a broader analysis of mass society, in particular as applied to the 30-year crisis from 1914 to 1945.

MASS SOCIETY AND THE 30-YEAR CRISIS So far we have seen how much of the concern of the rise of mass society manifested itself in political and social thought and in the rise of management. In these approaches, democracy was a cause for regret or, at least, something that needed to be limited. This collective body of work ‘essentially reversed the priorities of classical democratic theory, turning the democratic process from a means whereby the ruled controlled their rulers into a mechanism for legitimating and improving the quality of control exercised by rulers over the ruled’ (Bellamy 2003: 100). This fear of the masses was central to the political climate between the two world wars. As Muller (2013: 20) argues: The anxiety about ‘the masses’ was a qualitative, not a quantitative problem. ‘Mass man’ was characterized primarily by what he lacked: the supposed qualities of the good nineteenth century liberal self, above all rationality and self-restraint. Even worse, ‘mass man’ was getting hold of the levers of the state and modern technology, which in turn further homogenized ‘the masses’. The state, ‘the machine’ and ‘the masses’ almost inevitably appeared together as a single threat.

On the face of it, the rise of Bolshevism and fascism in both Italian and German varieties might be regarded as confirmation of the thesis that the masses were not to be trusted. At its crudest, the argument is simple, namely, that if the masses have power then intolerant, illiberal regimes will emerge. This danger is all the more prevalent because of the destruction of organic communities, and their replacement by a nihilistic individualism, where the absence of shared values breaks down the possibility of social order (Ortega y Gasset 1960). This is not simply because of the ignorance of the masses, it is also because – in the context of social dislocation and isolation – they are so easy to manipulate, leaving them as easy prey for demagogues such as Lenin, Stalin, Mussolini and Hitler. In this regard, Mussolini appealed to a mass of people isolated and confused by the atomisation brought about by liberal

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civilisation (Ortega y Gasset 1960: 92–4). More specifically, the result of the rise of the masses and of democracy is an excessive collectivism which undermines the freedom of the liberal individual. We have already seen that Mosca supported juridical defence of liberal values and ideals, and this amounted to a defence of the rule of law against the dangers of collectivism which arose from democratic government. This is a similar argument to nineteenth-century liberal fears of the tyranny of the majority, associated with Tocqueville and John Stuart Mill, and Hayek’s defence of the rule of law, as we see in Chapter 5. Similarly, in the case of Pareto: the assumptions behind his sociology were clearly the same as those inspiring his earlier liberalism. He retained the atomistic model of society, as made up of independent individual units continuously seeking different states of equilibrium. He was equally committed to the belief that the best balance of forces was that which yielded the greatest social utility, in terms of the maximum want-satisfaction of each individual, and that this would be achieved in a libertarian free market society. Pareto’s hostility towards ideologies expressed his frustration at what he deemed the irrationality of humankind … Authoritarian politics appeared to be the only way to free the market from the political spoliation of a democratic order. In this respect he remained perfectly consistent, carrying through to the 1920s his convictions about the proper relation between the market and state developed in the 1890s. (Bellamy 1988: 30–31)

We need to be clear here, for the argument is not that economic liberalism necessarily leads to a justification for fascism, but in the case of Pareto there was a clear relationship between his support for the so-called free market and his support for authoritarian politics, because the latter was in some respects necessary to protect and promote the former, especially in the context of democratic pressures. These concerns about the rise of the collective were also central to geopolitics in the period from 1914 to 1945. This period saw the undermining of much of the optimism of the liberal nineteenth century, as ‘[t]he First World War put into question every single institutional arrangement and every single political idea (or even just moral institution) on which the age of security had rested’ (Muller 2013: 16). It undermined the liberal view of progress through reason, ended the Russian, Austro-Hungarian, Ottoman Turkish and German empires, it eroded the legitimacy or ended the rule of monarchs and led to the promotion of new republics, and, consistent with the wider rise of the masses and collectivism, ‘the war marked the end of that era of freedom from the state’ as it had ‘demanded an unprecedented mobilization of

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populations’ which, directly and as a consequence of new demands after the war, led to ‘an unprecedented growth in state power’ (Muller 2013: 18). In the period from 1815 to 1914, there had been no significant war involving most of the major powers of the time, that is, Britain, France, Russia, Austria-Hungary, Prussia or Germany, Italy, the US and Japan. There was one brief war, the Crimean war of 1854 to 1856, involving three powers (Britain, France and Russia), and one involving two powers, Japan and Russia, from 1904 to 1905. In the period from 1871 to 1914, there were no major wars in Europe at all. In stark contrast, the so-called Great War involved all the major powers, as well as other European states, and a global naval conflict. There was also a significant change in the character of war, from what had been limited wars to total wars, affecting not only those employed by the military but civilian populations as well (Mann 1988). In the First World War, Britain mobilised 12.5 per cent of its eligible men, Germany 15.4 per cent, and France 17 per cent and the proportions were closer to 20 per cent in the Second World War (Hobsbawm 1994: 44). It was not only the mobilisation of personnel for armed conflict that was different, but also of the wider economy. Before the start of the First World War, France planned for a munitions output of between 10 000 and 12 000 shells a day, but ended up producing 200 000 shells a day (Hobsbawm 1994: 45). Moreover, total war meant that ‘civilians and civilian life became the proper, and sometimes the main, targets of strategy’ (Hobsbawm 1994: 49). This was also an era of mass killing on an unprecedented scale. While it is true that colonialism often involved appalling levels of treatment of forced labourers, and mass deaths based on sins of omission (Davis 2001), this period saw commissioned mass murder, such as the Armenian massacre in 1915 and the extermination of Jews and others in the Second World War. These developments undermined much of the hope that the creation of a liberal international order, and particularly the belief that cooperation, interdependence and liberal democracy represented a new, unprecedented era of progress in the international order (Howe 1997; Angell 2012). In some respects war was also part of the problematic associated with the rise of mass society. This was because it involved mass killing, the use of industrial technology for warfare on an unprecedented scale and the rise of total war (Overy 2014). Finally, this period also saw great economic uncertainty and ultimately the catastrophe of the 1930s. As Hobsbawm (1994: 86) argues, without the Great Depression of the 1930s it is unlikely that there would have been a New Deal in the US, or what at the time was seen by many as an attractive Soviet alternative to the crisis of capitalism. However, above

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all, without the Wall Street crash it is highly unlikely that Hitler and the Nazis would ever have won power in Germany. All these developments ‘destroyed economic liberalism for half a century’ (Hobsbawm 1994: 94–5). After 1918 there was deflation and high unemployment, and most seriously, the inflationary crisis in Germany in 1923, which rendered the national currency effectively worthless (Evans 2004: ch. 2). This crisis led to the introduction of a new currency in Germany, the rentenmark, and the period from 1924 onwards saw the emergence of the ‘roaring twenties’, a boom essentially fuelled by capital flows from the US. This included flows to Germany, some of which were used to finance reparations payments to France and Britain, which in turn helped them to meet their war debts to the US (Tooze 2007: 12). Following the 1919 settlement, German reparations had been fixed at 2.5 billion Goldmarks in 1921, but this was rearranged following the Dawes Plan of 1924, in response to the German crisis of 1923. This was again rearranged following the Young Plan in 1929, and by 1932, both reparations and war debt payments had effectively ceased (Tooze 2007: 14). The causes of the Wall Street crash of 1929, and more specifically the Great Depression which followed, are a matter of intense debate, not least by (and among) neoliberal economists. In terms of the international consequences, Germany had borrowed heavily from the US to finance its payments obligations, and while this had financed its debt, it also financed a consumer boom that included the import of consumer goods. Thus, Germany faced increasing deficits alongside continued debt obligations, and in the context of the rapid slowdown of new US loans after 1929, this scenario became unsustainable. For those challenging economic liberalism at the time, these developments were accompanied, especially in the US, by a growing crisis of aggregate demand, as money wages rose only slowly and so much of the consumer boom was financed by growing debt, with the result that the means for financial expansion was exhausted by 1929, leading to the collapse of banks, mortgages and credit agencies financing longer-term consumer items. This also had a knock-on effect for US industries such as automobiles, which did not recover to its 1929 level of production before the Second World War. In 1938, production stood at a level just above that of 1920 (Hobsbawm 1994: 101). Again, for those challenging economic liberalism, it was argued that government policy of financial orthodoxy, balanced budgets and protection of the gold standard, all supported by the Hoover administration in the US, exacerbated the problem and led to a crisis of contractionary deflation (Galbraith 2009: ch. 3).

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Beyond the US, it is worth recalling that even in the boom years of the second half of the 1920s, unemployment remained as high as 10 to 12 per cent in Britain, Germany and Sweden (Hobsbawm 1994: 90). Following the slump, this figure increased to a 1932–33 peak of 22 per cent in Britain and Belgium, 24 per cent in Sweden, 27 per cent in the US, 29 per cent in Austria and 44 per cent in Germany (Hobsbawm 1994: 92–3). In the capitalist world, it remained as high as 16 to 20 per cent everywhere, except in Nazi Germany. It was this context that gave rise to what was a new liberal approach to macroeconomic policy, associated mainly with John Maynard Keynes. As early as 1926, Keynes pronounced the ‘end of laissez faire’, in which he argued that the old order of ‘natural liberty’, balanced budgets, limited government, the gold standard and thrift had come to an end. He argued that in order to save the liberal capitalist order, the state must play a role where the private sector did not act, in particular in stimulating demand. His argument was further developed in his General Theory, first published in 1936, which made the case for counter-cyclical intervention by government to stimulate aggregate demand, in part by loose monetary policy but mainly by an aggressive fiscal policy, which would act to stimulate demand in a situation – such as that in the Great Depression – where private actors were all simultaneously retrenching, which led to deflation based on the paradox of thrift (Keynes 1973). By this time, the New Deal was in operation in the US which drew in part on Keynesian ideas (albeit with attempts at more orthodox economic policy such as in 1936–37), while in Germany the rise of the Nazis led to a massive fiscal stimulus through rearmament (Tooze 2007: ch. 2). Such stimuli went further with the outbreak of war, which also led to all kinds of state planning, and was thus a further extension of the collectivist tide that accompanied the emergence of mass society. All of this was challenged by neoliberals.

CONCLUSION This chapter has provided a brief but necessary survey of how conservative and some liberal thought responded to changes that emerged from 1789, through to the First and Second World Wars. In particular, it did so by highlighting the idea of mass society and the collectivist dangers that emerged out of mass social development. This included the rise of mass voting, mass political parties and labour movements, and irrational mobs and crowds that were attracted to collectivist ideas. While there were significant differences between the ideas of those surveyed in this chapter, all were suspicious of, if not hostile to, the rise of mass

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democracy. This was because of the perceived threat to the freedom of the individual (liberalism) and/or cultivated elites who were more capable of ruling effectively than the masses (conservatism). These warnings were, in the eyes of many conservatives and some liberals, confirmed by the events from 1914 to 1945. However, we also noted that mass society also saw the emergence of the large-scale corporation, and of management practices, but these deployed similar methods in the workplace to those supported by elite theorists in political society. We will see that this is an important part of the development of neoliberalism in the chapters that follow. The next chapter examines how neoliberalism emerged in response to the crisis of the 1930s.

NOTES 1.

2. 3.

Boulanger was a popular military general who was appointed Minister of War in 1885, but was forced to resign two years later. This led to widespread street protests, which increased in response to his exile to the provinces. Boulangism emerged as a mass movement and he won a Parisian by-election in January 1889. There was fear of a Boulanger-led coup and he was eventually forced to flee to Belgium. For Le Bon, the rise of this movement showed how the masses could easily be led by a charismatic, populist leader (see Borch 2012: 35–6). Throughout, chapter cross-references are to other chapters in this book unless indicated otherwise. Le Bon was a significant influence in getting Political Parties translated into French (see Beetham 1977a).

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3. Neoliberalism and the crisis of liberal modernity in the 1930s Neoliberalism emerged as a set of ideas and a political movement in the 1930s, in part in response to the crisis of that decade. It had its own interpretation of the crisis and of mass society more widely, but it was one that closely paralleled the concerns of those conservative and elite theorists considered in the previous chapter. This chapter charts the emergence of neoliberal theory, and the diverse movements which constituted the early neoliberal thought collective (Mirowski and Plehwe 2009), which emerged through the formation of the Mont Pelerin Society (MPS) after the Second World War, which is discussed in the opening section. The chapter then goes on to examine the various strands of neoliberal thought at the time, and in particular the Austrian School, the German ordo-liberal school, and the early Chicago School (the later Chicago School and Virginia school of public choice are examined in Chapter 4). Finally, the chapter provides a critical reflection on both the mass society thesis considered in Chapter 3, and the neoliberal interpretation of it considered in this chapter.

FROM COLLOQUE WALTER LIPPMANN TO THE MONT PELERIN SOCIETY The rise of collectivism in the nineteenth century did not go unchallenged by those claiming allegiance to what they considered to be classical liberalism. In the nineteenth century, Herbert Spencer attacked government intervention which challenged the market, and was critical of legislation on child labour, compulsory vaccination, and factory inspections on the grounds that they represented coercive cooperation. In addition, assistance to the ‘undeserving poor’ was harmful, and democracy was dangerous as it encouraged government intervention at the expense of individual freedom. The extension of education to the masses was also dangerous as it would lead to an increase in their desires and demands. For Spencer, the state had no role apart from simply guaranteeing and shaping what already exists, such as the execution of 35

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contracts. If some people failed in the marketplace, this was simply their own responsibility, as ‘[t]hey are simply good for nothings, who in one way or other live on the good for somethings’ (Spencer 2012: 23). Thus, Spencer (2012: 23) asked, ‘[i]s it not manifest that there must exist in our midst an immense amount of misery which is a normal result of misconduct, and ought not to be dissociated from it?’ For Spencer, the liberalism of the past challenged and set limits to royal power, while the liberalism of the future should limit the power of parliament in the face of pressure from the masses. States should not concern themselves with the well-being of people but with simply guaranteeing the market economy and the competition that arises from this order. However, it was not until the 1930s that an organised neoliberal movement emerged. This was at the Colloque Walter Lippmann in Paris in 1938, a gathering to discuss Lippmann’s The Good Society which had been published the previous year, which railed against the ‘dominant dogma of the age’ (Lippmann 2004: 9), namely collectivism, an illusion shared by ‘communists, socialists, fascists, nationalists, progressives and even liberals’ (Lippmann 2004: 3). He argued that the market economy was superior to state intervention, and that in a free society ‘the state does not administer the affairs of men. It administers justice among men who conduct their own affairs’ (Lippmann 2004: 267). The Colloquium took place in August 1938 and was organised by the French philosopher Louis Rougier. What united participants was regret at the rise of this collectivism and the search for an appropriate role for the state. It was this discussion – namely, finding the appropriate balance between state coercion and market freedom – which led to the formulation ‘neoliberal’, used first in the 1930s by the German ordo-liberal Alexander Rustow (see Nicholls 1994: 96–7). Neoliberals argued that the state should go beyond laissez-faire, but not promote intervention that undermines competition between private interests (Dardot and Laval 2014: 47). Rather, the state must provide the legal framework for the market to operate. An important figure at the colloquium, Hayek (2001: 84) argued a few years later that ‘[t]he question whether the state should or should not “act” or “interfere” is a highly ambiguous and misleading description of the principles on which a liberal policy is based’. He later argued in a similar vein: ‘it is the character rather than the volume of government activity that is important’ (Hayek 2006: 194). Rougier himself argued for a new interventionism and so rejected laissez-faire and Spencer’s strict anti-state policies. However, this interventionism differed greatly from the new liberals and instead championed the view that the state must plan for liberty to

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ensure, in Rougier’s words, ‘the victory of the fittest in a fair competition’ (quoted in Dardot and Laval 2014: 61). This was easier said than done and reflected an ongoing tension in neoliberal thought, to which we will return, for as Dardot and Laval (2013: 63) point out, ‘[t]o break with the “phobia about the state” as manifested in exemplary fashion in Spencer is one thing; to fix the boundary that separates legitimate from illegitimate intervention is quite another’. In the 1930s there were a number of positions: the Austrian thinker, Ludwig von Mises, was most uncompromisingly anti-state, while Rougier and Hayek argued for a general rules approach to state intervention, in the case of the former drawing on a highway code metaphor to distinguish the idea from laissez-faire (where cars can go in any direction) and central planning (where journeys are determined by a central authority) (see Jackson 2010: 137–9). Ordo-liberals emphasised the importance of the state in upholding the market order, but at the same time were in many respects the most critical of the welfare state (Jackson 2010: 140–42; and see further below). This in part was because at this time, neoliberals were generally hostile to private monopolies and saw an important role for the state in maintaining and promoting competition in the face of corporate monopoly. This was again an issue highlighted above all by the ordoliberals, but the early Chicago School shared this view. For instance Henry Simons (cited in Jackson 2010: 142) wrote in 1934 that ‘the great enemy of democracy is monopoly in all its forms: gigantic corporations, trade associations and other agencies for price controls’. It was also a view endorsed by Hayek (2001: 200) who went so far as to argue that ‘the impetus of the movement toward totalitarianism comes mainly from the two great vested interests: organized capital and organized labour’. While this view was also shared by Friedman as late as 1951 (see Chapter 4), and even to some extent beyond this, we will see in the next chapter that neoliberalism from the 1950s onwards, especially in its (increasingly dominant) Chicago variant, made its peace with corporate monopoly, though not with trade unions. The Colloquium settled on a definition of neoliberalism that emphasised the priority of the price mechanism, free enterprise, competition and a strong and impartial state (cited in Plehwe 2009a: 14). The Colloquium launched a journal (Cahiers du Liberalisme) and a think tank (Centre international d’etudes pour la renovation du liberalisme) with a head office in Paris and other offices in Geneva, London and New York. Following a number of national initiatives, such as the founding of the Society of Individualists in Britain in 1942, the American Enterprise Institute in 1943 and the Foundation for Economic Education in 1946 in the US (Cockett 1995: ch. 2; Stedman Jones 2012: ch. 4), Hayek took it

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upon himself to restore the Colloque Walter Lippmann after the war (Cockett 1995: 55–6). This was given an added urgency with the 1945 landslide victory for Labour in Britain (still Hayek’s home at this point) against a Conservative Party which, although clearly divided, was influenced by Hayek through the 1944 publication of The Road to Serfdom, particularly through the Conservative Party Chair, Ralph Assheton (who later became Lord Clitheroe).1 The MPS was formed to challenge this encroachment of the state on the individual, and in some respects resist the interventionist claims made by new liberalism (Hartwell 1995: chs 1 and 2). The founding MPS conference was attended by a number of likeminded thinkers brought together by what they conceived to be the collectivist threat to individual freedom. Among the initial members were the English contingent, located at the London School of Economics and Manchester, which included Hayek, Lionel Robbins, Ronald Coase, John Jewkes and Michael Polanyi; Austrian exiles including Gottfried Harbeler and Ludwig von Mises; a Paris contingent which had emerged out of the Colloque Walter Lippmann, and which included Raymond Aron and Louis Rougier; a fourth group from Germany, largely comprising the Freiburg School of ordo-liberalism, including Ludwig Erhard, Walter Eucken and Wilhelm Ropke; and, finally, Americans largely from Chicago including Henry Simons, Aaron Director and Milton Friedman (Hartwell 1995: 45–6). In the draft statement of aims, the MPS stated that: ‘Individual freedom can be preserved only in a society in which an effective competitive market is the main agency for the direction of economic activity. Only the decentralization of control through private property in the means of production can prevent those concentrations of power which threaten individual freedom’ (cited in Plehwe 2009a: 22–3). The draft statement also emphasised the centrality of consumer choice, planning at the level of the individual, the need for framework for a competitive order, and the rule of law and the need to curtail discretionary state power (see Hartwell 1995: 49–50). In addition, the statement warned of the dangers of historicism and relativism, the need for a widely accepted moral code, and the dangers of totalitarianism. In particular, following Hayek’s account in The Road to Serfdom it was stated that: ‘The decline of competitive markets and the movement toward totalitarian control of society are not inevitable. They are the result mainly of mistaken beliefs about the appropriate means of securing a free and prosperous society and the policies based on these beliefs’ (cited in Hartwell 1995: 49). However, there was no agreement on this draft statement and, instead, a far more general and vague statement of aims was adopted, which

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again highlighted the dangers of relativism and the need for a competitive market, the rule of law and the centrality of private property (Hartwell 1995: 41–2). The MPS was the most important think tank for the dissemination of neoliberal ideas after the Second World War, and in many respects was the ‘international’ think tank that sat alongside a growing number of national think tanks. There was no single neoliberalism adopted by the MPS, and from its formation there were significant groupings around the Austrian School and Hayek in particular, the German ordo-liberals, and the Chicago School. Chapter 5 considers these ideas in some depth, but some initial introduction is necessary at this point.

HAYEK AND THE AUSTRIAN SCHOOL The Austrian School had its origins in debates in economic theory in the 1880s and 1890s, and particularly the shift away from classical political economy’s search for an objective measure of value. This was the marginalist revolution which gave rise to neoclassical economics, and particularly the idea that value cannot be measured outside of the subjective preferences of individuals expressed in and through the market. The Austrian School’s main theorist at this time was Carl Menger, who played a leading role in debates with the German-speaking historical school, the latter of which argued that there can be no universal ideas (such as individual utility) outside specific historical and institutional contexts (see Hodgson 2001). In this debate, Menger had much in common with neoclassical economists such as Jevons and Walras, although in other ways the Austrian School was highly critical of the equilibrium assumptions of this school of economic thought. Two of the leading thinkers of the Austrian School by the 1920s and 1930s were Mises and Hayek. Both used the methodological individualism that was central to the original development of the school, to develop wider analyses of the rise of collectivism. Central to Hayek’s analysis in his best-selling 1944 work, The Road to Serfdom was the argument that the rule of law and the market order were being undermined by the rise of collectivist politics in mass democracies, and that the latter would undermine the prospects for both liberty and prosperity. The collectivist nature of both state socialism and Nazism meant that Hayek considered both to be socialist doctrines that were not conducive to individual freedom and the rule of law. Hayek consistently argued that Nazi Germany was socialist and that while it was a major threat to liberal civilisation, ‘[i]t is necessary now to state the unpalatable truth that it is

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Germany whose fate we are in some danger of repeating’ (Hayek 2001: 2). This was because ‘[f]ew are ready to recognise that the rise of Fascism and Nazism was not a reaction against the socialist trends of the preceding period, but a necessary outcome of these tendencies’ (Hayek 2001: 4). He went on: [w]ith the decline of the understanding of the way in which the free system worked, our awareness of what depended on its existence also decreased … We have in effect undertaken to dispense with the forces which produced unforeseen results and to replace the impersonal and anonymous mechanism of the market by collective and ‘conscious’ direction of all social forces to deliberately chosen goals. (Hayek 2001: 20, 21)

At this point, and broadly consistent with the arguments made in Paris in 1938, Hayek was critical of monopoly (see above). Hayek’s objection to collectivism was influenced strongly by Mises. As early as the 1920s, he had argued that goods could not be effectively allocated through the mechanism of central planning. This was part of the socialist calculation debate, in which supporters attempted to show that a socialist economy was perfectly feasible and could include the price mechanism, while opponents argued that socialism could not work because of the complexity of coordinating all economic activities in the hands of public authorities (see Lavoie 1985). Hayek’s argument was that no individual could possibly hold the information or knowledge that could make central planning efficient. In contrast to the utility-maximising individual of neoclassical economics, Hayek argued that individual knowledge was limited (Hayek 1972a), and it was precisely for this reason that the market order is the most effective way of organising society, because it coordinates all the limited but spontaneous actions of individuals. The price system is the way of transmitting information about the actions of many individuals, but it operates above the actions of any one individual. It is thus a spontaneous order. State planning is a constructed order which undermines these spontaneous actions. This is detrimental to both efficiency, as it undermines the price mechanism, and to freedom, as it leads to the state undermining the liberty of the individual. This point applies as much to the New Deal and to the post-war consensus as it did to totalitarian regimes, for there can be no middle way. While the effect ‘of Socialist doctrine on Capitalist society is to produce … the Servile State’ (Hayek 2001: 13), Hayek also poured scorn on the ‘inglorious years’ of the coalition government in Britain after 1931 and regretted the transformation of the economic system beyond recognition (Hayek 2001: 12–17). The government’s sins included the suspension of the gold

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standard, though this was after a tortuous deflationary period of attempting to go back on to the gold standard at pre-1914 parity, culminating in severe deflation and unemployment once Britain fixed sterling’s value to gold in 1925. Hayek was not necessarily conflating Keynesianism, social democracy and totalitarian government, and The Road to Serfdom contains little explicit discussion of Keynes and Keynesianism and gives some support for social welfare spending (see Jackson 2010), but at the same time, there was clearly an implication that the expansion of the state was the start of a slippery slope on the road to totalitarianism. This was why he argued that interventionism in Weimar Germany led to ‘a stage in which it had, in effect … to be governed dictatorially’ and Hitler ‘merely took advantage of the decay of democracy’ (Hayek 2001: 71). This is why that book is dedicated to ‘socialists of all parties’. In terms of the Great Depression, Hayek (2008) and Mises (2006) argued that the crisis had its roots in the misallocation of resources that followed from a period of boom. Money should serve as an effective signalling device which should ordinarily mean that changes in consumer demand will lead to changes in production. There should be a balance between consumption and investment, and between consumer and capital goods, and this would be maintained through changes in the price paid for money, or the interest rate. However, the issuing of credit through the banking system (including the central bank) meant that interest rates might reflect changes in monetary conditions rather than changes in consumer demand, thus leading to a misallocation of resources between production and consumption, and over-investment by producers in response to easy monetary conditions (see Rothbard 1963). More specifically, the availability of credit at low rates of interest encourages investment in capital goods at the expense of consumer goods. This was in effect Hayek’s account of the business cycle, but in contrast to Keynes, Hayek rejected the idea that government intervention, such as Keynesian fiscal policy, could promote recovery. He instead argued that such policies would merely delay the recovery, and what was necessary was a deep recession which would purge the economy of inefficient and uncompetitive branches, and thus lay the ground for a recovery led by efficient and competitive sectors. Hayek also made some observations on the crisis of international security, and although his remarks were tentative and mainly focused on the impact of war on planning (Caldwell 1997), they were consistent with his overall theoretical framework. The road to war was also the product of collectivism, and in particular the restrictions imposed by national planning. Hayek envisaged a system of free trade relatively unhindered by national government and was especially hostile to the effect that

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national economic planning would have on international relations. He argued (Hayek 2001: 226) that ‘[i]f the resources of different nations are treated as exclusive properties of these nations as wholes, if international economic relations, instead of being relations between individuals, become increasingly relations between whole nations organised as trading bodies, they inevitably become the source of friction and envy between whole nations’. On the eve of war, he advocated an inter-state federation with a common defence and foreign policy (Hayek 1972a: 255–72). Crucially, Hayek argued that this could only occur with a common defence regime (Hayek 1972a: 256), based on a single market and the free movement of capital and labour (Hayek 1972a: 258). So, Hayek was arguing that there was a need for an international federation that limited the power of individual nation states, and in effect acted to limit the power of collectivism at a national level, including democracy (an argument that resonates with some debates over the EU in the early twenty-first century, as we will see). His argument was that: If, in the international sphere, democratic government should only prove to be possible if the tasks of the international government are limited to an essentially liberal programme, it would do no more than confirm the experience in the national sphere, in which it is daily becoming more obvious that democracy will work only if we do not overload it and if the majorities do not abuse their power of interfering with individual freedom. Yet, if the price we have to pay for an international democratic government is the restriction of the power and scope of government, it is surely not too high a price. (Hayek 1972a: 271)

Hayek’s mentor, Mises, perhaps most consistently developed what was a neoliberal theory of war, arguing that the interdependence that arises from free trade means that ‘there are no incentives for war and conquest’ (Mises 2009: 3). He thus argued that war was a production of protectionism and economic nationalism and that the German policy of expansion for living space – propagated by German imperialism both before and by the Nazis – was counterproductive and unnecessary (see Westley et al. 2011: 28). Mises believed that the promotion of free trade and the preservation of the Gold Standard would preserve social harmony. Both Mises and Hayek recognised the necessity of defeating the Nazis, but both were critical of the planning process that accompanies war and argued that it was counterproductive and should be reversed as soon as possible (Hayek 1941; Westley et al. 2011). In effect they were arguing for a version of what came to be called liberal peace theory (Streit 1939; Ikenberry 2001), in which peace would be based on economic interdependence between nations. Crucially however, this also meant that the

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international sphere could and should undermine any national democratic collective will.

GERMAN ORDO-LIBERALISM The inter-war period also saw the growth of a neoliberal movement in Germany. This school of thought, which came to be known as the Freiburg School (after the University of Freiburg), or more widely the ordo-liberal school, developed in the context of the collapse of the Weimar Republic and the rise of the Third Reich (Foucault 2008: 106). However, it also regarded itself as attempting to preserve and reactivate a liberal tradition in Germany which had been undermined by the development of a more statist and corporatist direction, which stretched back from Hitler to Bismarck, and the formation of the German empire in 1871. In particular it sought to restore a Rechtsstaat, a constitutional state bound by law, thus limiting the jurisdiction of any state so that individual freedom could be preserved. In some respects it sought to retrieve, but also update, the liberal principles espoused by Kant (1891). Among its influential thinkers were Walter Eucken, Wilhelm Ropke, Alexander Rustow and Franz Bohm. This group developed what came to be known as the Ordo Manifesto in 1936, and then the journal Ordo, founded in 1948, which explicitly described itself as neoliberal (Rieter and Schmolz 1993). It is this group which most clearly distinguished itself from the laissez-faire liberalism of the nineteenth century, arguing not only against the concentration of state power associated with totalitarian regimes, but also the concentration of economic, private power which resulted from laissez-faire. Like Mises, ordo-liberals argued that ‘a market is an economic form of political democracy’ (see Friedrich 1955: 511), but otherwise dismissed the Austrian as a paleo-liberal for what amounted to a defence of laissez-faire on his part. Instead, the ordo-liberals argued that only a strong state could facilitate and promote market competition, entrepreneurship, private property and the price mechanism, which were central features of a free society. They argued that, on the one hand, powerful interests in the market order can develop and capture the state, and thereby lead to a concentration of power. Ordo-liberals were particularly concerned with the rise of cartels. Ropke (in Turner 2008: 82) argued that liberals should fight ‘for the idea of the state and against the lack of freedom in which private economic monopolies – supported by government leading a shadow existence – keep the economy active’. On the other hand, there is also the danger that the state may intervene too much in the economy so that market freedom is undermined, as was the

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case with the New Deal and the welfare state for example. The ‘rotten fruit’ of the welfare state reflects the rise of collectivist politics which endangers individual freedom and is an expression of ‘mass emotion and mass passion’ (Ropke 1957: 14, 1998: 152). Although (with some exceptions) critical of the Nazis, ordo-liberals regarded their rise as the product of the weak state that existed under the Weimar Republic, an argument also made by a German contemporary of the ordo-liberals, Carl Schmitt (see further below). What was needed was a strong state that could order the market economy, so that liberalism, according to Rustow, has to ‘look outside the market for that integration which is lacking within it’ (cited in Bonefeld 2013a: 111). For the ordo-liberals, society is based on a particular relationship between individuals in which competition is the norm (Dardot and Laval 2013: 92). Capitalism has been distorted by monopoly and bad government intervention, the latter of which can lead to the former (Ropke 2009). What is needed is a ‘policy of society’ in which the market economy requires an appropriate social framework. In particular, proletarianisation and the welfare state must be resisted. According to Ropke (2009: 218) millions of property-less workers existed and worked for an ‘industrial mammoth’. There is thus a need to de-proletarianise these workers through the extension of property ownership and independent production. What was needed was a vitalpolitik, a politics of life, which contains the proletarianisation of society through the fostering of a combination of entrepreneurship and civic engagement through family and community. The welfare state simply exacerbates the proletarian condition, exposing the masses to commercialism and cheap materialism. The masses benefit from the creation of wealth that arises from the market society but they do not fully understand it, and so social policy is needed to reconcile the market and individual responsibility, which thus maintains ‘society as an enterprise society’ (Bonefeld 2013a: 107). In contrast to the welfare state, this involves the extension of private property through ‘restoring small property ownership’ (Campbell 2009: xvi), including the renting of garden plots and the expansion of home ownership. Ropke even goes so far as to suggest that the social ideal is best represented by the figure of the peasant, at least when they are not burdened by debt (Ropke 2009: 203). Seen in this way, the ordo-liberals were most explicit in their critique of the outcome of liberal modernity and sought to ‘revive’ the liberal dream of the individual entrepreneur. This can be seen as in some respects hopelessly romantic,2 but an important legacy of Ropke’s work is its focus on individual empowerment through property ownership, and his vision of the individual as, in the words of Foucault (2008: 241), ‘an enterprise’.

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Ordo-liberals therefore argued for a strong state, but one that is strong enough only to provide the order necessary for a market economy to flourish. Rustow thus used the term ‘free economy-strong state’ to describe the ordo-liberal position (Turner 2008: 84). What was of vital importance for the ordo-liberals was that these rules are clear, and that everyone must abide by them. Crucially, while ordo-liberals did recognise a downside to the market economy, and specifically the rise of cartels and the expansion of the proletarian condition, they argued that while state intervention was necessary to deal with these problems, such intervention should be compatible with the market, and not run against its logic. Vitalpolitik therefore was designed to conform to the principles of free competition, and was consequently market supplementing rather than market controlling. The ordo-liberal interventionist project thus represented ‘not a politics against the logic of the free economy. Rather, it is meant to render free economy effective’ (Bonefeld 2013a: 119). The state therefore sets the rules, in which a market economy can flourish. This is in contrast to Keynesian policies for example, where discretionary spending constitutes an intervention in the market order. For the ordoliberals there is a demarcation of state and market, but the former is regarded as being absolutely necessary for the latter to work effectively. Indeed, as Foucault (2008: 242) suggested, this involves a vigilant policy of interventionism, in which the free economy is constructed ‘anew each day’ (Ropke 1998: 27). These ideas were influential in post-war Germany and the development of the ‘social market’ economy (Muller-Armack 1965), especially in the context of currency reform during 1947–48, the promotion of an independent central bank, low inflation and an export-led boom. Although ordo-liberals were themselves concerned about some of the developments around the formation of the European Economic Community in the 1950s (see Turner 2008: 87–8), in some respects recent developments in the EU are compatible with ordo-liberal ideas, particularly around monetary union, independent central banks and low inflation (see Chapters 7 and 8). In terms of vigilant interventionism, we also see that this has some overlap with ideas about the third way, although the latter was far more relaxed about rising debt than were the ordo-liberals (see Chapter 7). The relationship of ordo-liberals to other neoliberals was also ambiguous. Hayek contributed to the journal Ordo, and became a professor at Freiburg in 1962, and various ordo-liberals were members of the MPS. He was however uncomfortable with the term social market economy (Turner 2008: 85), while Mises was far more dismissive of the ordoliberals for their statism (see Chapter 4). Meanwhile, in West Germany,

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as the social market economy developed over time, there was a growing willingness to support the state provision of social safety nets for the poor, and so ‘it was the “social” element that began to predominate over the market, and throughout the 1960s the country began to resemble a Scandinavian welfare state, to which its original liberal theorists had originally been vehemently opposed’ (Barry, N. 1989: 119). Interestingly, alongside some other features of German capitalism that stretched back to the late nineteenth century, namely, the close coordination of state, finance and industry in investment decisions, this development culminated in the promotion of a Rhineland, corporatist capitalism as a progressive alternative to the Anglo-American neoliberal capitalism of the 1980s and 1990s. However, this was something very different from the ordo-liberal conception of a social market economy.

THE (EARLY) CHICAGO SCHOOL The Chicago School is often regarded as the third strand of neoliberalism established by the foundation of the MPS. At the founding conference there were a number of important Chicago economists, including Frank Knight, Milton Friedman and Aaron Director. Henry Simons and Jacob Viner were also important figures, but Simons died in 1946 and Viner did not attend the inaugural MPS meeting. These figures were important influences on what became the ‘second’ Chicago School, a more clearly identifiable school of thought that emerged and developed in the 1950s, and included Ronald Coase, Aaron Director and Milton Friedman (and, more indirectly, Hayek) among its most significant figures. This second school – and the Virginia ‘public choice’ tradition that developed out of Chicago – became important for developing a critical account of inflation based on the theory of monetarism, and in gradually developing a defence of private monopoly and critique of government attempts to regulate the size of corporations. These are discussed in the next chapter. The initial Chicago School was based around three important figures: Jacob Viner, Frank Knight and Henry Simons. Viner had some links with Lionel Robbins, and thus indirectly with Hayek, and both he and Knight forged some links with the London School of Economics (Burgin 2012: 32). Each of these were critical of Keynes. Knight for instance wrote in 1940 (to Viner) of Keynes’s anti-intellectual populism which was guilty of ‘passing the keys of the citadel out of the window to the Philistines hammering at the gates’ (cited in Burgin 2012: 28). They were also critical of some forms of government intervention and Keynesianism (Viner 1936; Knight 1937). Simons argued that the New Deal was

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leading the US down the road of ‘authoritarian collectivism’ (cited in Burgin 2012: 39). Knight’s (2009) distinction between risk and uncertainty in many ways anticipated Hayek’s argument that knowledge was too fragmented and reason too limited for collective plans to be efficient or freedom enhancing. In particular he argued that while some forms of uncertainty – risks – are measurable, others are not. Cost–benefit analyses are used to measure public policy, and reflect the growth of information in society. However, Knight argued that uncertainty cannot be eliminated because decision-making occurs without full information. This argument thus had parallels with Mises and Hayek’s critique of state planning. On the other hand, the early Chicago economists were suspicious of what they saw as the excessive rationalism of the Austrian School; Viner dismissed some of Mises’ work as ‘crank economics’, while Knight regarded it as dogmatic (cited in Burgin 2012: 33). Viner said much the same about Hayek’s The Road to Serfdom, while Knight argued that it downplayed the necessity of government intervention (Burgin 2012: 34). While each warned of the dangers of intervention, they all argued that this was not the same as arguing against any forms of intervention in the economy. What was perhaps most distinctive about this first Chicago School was that they argued – like the German ordo-liberals – that, in terms of private corporations, there should be ‘direct limitations upon size, for the purpose of preventing unnecessary concentrations of power’ as the corporation is ‘simply running away with our enterprise system’ (cited in Burgin 2012: 40). Despite the differences both within and between these schools of thought, we can identify the emergence of a neoliberal intellectual movement at the Lippmann Colloquium and after the war, with the formation of the MPS. This was not necessarily a united movement, but there was sufficient common ground, above all a hostility to the rise of collectivism, which included totalitarian movements, but also the extension of state activities within liberal democracies. While there was suspicion of the state, at this time no neoliberal was prepared to defend laissez-faire, and the term neoliberal was conceived in such a way as to find an appropriate role for the state that would defend individual freedom and the market order, including against the rise of private concentrations of economic power. This was in stark contrast to the management theory that was discussed in the previous chapter and which was developed in order to deal with the reality of the large corporation. However, the neoliberal critique of private monopoly at this time also contrasted with the development of neoliberal ideas from the 1960s onwards, as we see in the next two chapters.

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CRITICAL REFLECTIONS ON NEOLIBERALISM AND ‘MASS SOCIETY’ In terms of common agreement then, there were three strands to the neoliberal argument concerning the crisis of the 1930s. First, the rise of collectivism had undermined the freedom of the individual. Second, this in turn had led to the rise of policies which undermined not only the freedom of the individual but the efficiency of the market. Socialism, National Socialism, the New Deal and planning in liberal democracies were all part of this turn, which was expressed intellectually by the rising influence of the idea of Keynes. Third, these developments led to national protectionist policies which increased tensions between countries, and ultimately led to war. There is then in early neoliberal thought a relatively straightforward linear process of causality from the rise of collectivist ideas, through to misguided economic policies and on to increased international tensions. In the relatively early stages of the development of neoliberalism, some of the ideas were tentative, especially in the case of Hayek, and only became more explicit in later writing. In terms of the first argument, at first sight there is a great deal of truth to the claim that liberalism was undermined in the inter-war period and in the crisis of the 1930s in particular. Fascism in both its Italian and German varieties was a collectivist project that mobilised ‘the masses’, and thus politicised them in ways that did undermine individual freedom. This was also true of the state in these countries, as well as in the Soviet Union. The collectivist project of fascism in both its Italian and German varieties involved the idea of reinvigorating a supposed national community, which was said to be under threat from the forces of liberalism, democracy and socialism (Griffin 2006). In this regard it is committed to a collectivist project antithetical to liberalism, including to neoliberalism. Mises (2009: 578) thus claimed after the war that ‘[t]he philosophy of the Nazis … is the purest and most consistent manifestation of the anticapitalistic and socialistic spirit of the age’. Hayek also famously argued that liberalism was dead by the time that Hitler came to power and that ‘it was socialism that had killed it’ (Hayek 2001: 31). This argument became central to some versions of the totalitarian thesis which became influential at the height of the Cold War in the 1950s, and again during the second Cold War in the 1980s (Kirkpatrick 1979; see also Halliday 1983: ch. 5). Irrespective of the instrumentalisation of various theories that were put to use for Cold War purposes, we see in Chapters 4 and 5 that much of the neoliberal critique of the state is that intervention

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favours particular interests at the expense of others, a charge that can be laid at the door of both fascist and state socialist regimes. However, after the Bolshevik Revolution the threat to liberal constitutional government came largely from the right and not from the left. In the period from 1918 to 1939, 17 legislative assemblies were dissolved or became ineffective and this increased by a further five countries as a result of German occupation in 1940 (Hobsbawm 1994: 111). Some of this was a result of fascism but most was a conservative response to what was regarded as the threat from the masses. Neoliberalism on the other hand saw no difference between left and right when it came to collectivism, as should by now be clear. The question that needs to be addressed in this section is whether this final claim is accurate, and related to that, where does neoliberalism ‘sit’ in terms of its relationship with those theories of mass society discussed in the previous chapter? This latter question is far from straightforward and we return to it again in the chapters that follow. This section can only begin to address this question, rather than fully answer it, and much of the critique here is on the particularities of the neoliberal understanding of the 1930s crisis, although these specifics often have wider general significance for understanding the problems of neoliberal theory and practice. Nonetheless, in terms of a beginning, we might start with the observation that all forms of liberalism are characterised by a dialogue – or tension – between liberty and equality. If liberty, in the sense of the individual being free to do what they want as long as they do not coerce others,3 is paramount, then this might to some degree be at the expense of equality. However, liberalism also believes in some forms of equality, and at the very least equality in the sense that everyone is equally subject to the rule of law. However, as we saw in Chapter 2, new liberals such as Hobhouse and Green argued that this formal equality was insufficient in promoting the liberty of the individual and there needed to be some social guarantees to allow all individuals to flourish. For Hayek, this is the start of a slippery slope towards totalitarianism. Chapter 2 also showed how various conservative and elite theorists were concerned that equality carried with it a number of dangers and that in this respect democracy was dangerous. These kinds of theories are often regarded as being attacks on liberalism as much as socialism, for the former’s support for extended franchises and parliamentary rule also means that the masses can increasingly ‘rule’. However, we have also seen that some liberals themselves also expressed concerns about the extension of the franchise and the danger of rule by the masses. The dilemma faced by liberals was how to square the circle of the extension of the franchise, on the one hand, and the freedom of the marketplace, on the other.

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The last third of the nineteenth century saw the extension of the franchise but it also saw strict limits in terms of the power of elected assemblies, continued limits on adult voting, weighted voting, property qualifications and deliberate manipulation of voter registration (Hobsbawm 1987: 86). In the real world, the question concerning Adam Smith’s (qualified) support for the free market was asked in a more candid way, namely: ‘Would not democracy inevitably interfere with the operations of capitalism, and – as businessmen considered – for the worse? Would it not threaten free trade in Britain, to which all parties were religiously attached? Would it not threaten sound finance and the gold standard, keystone of all respectable economic policy?’ (Hobsbawm 1987: 96). That is, the fear of the masses was shared by those liberals who did not accommodate themselves to the new liberalism, and this fear reflected concerns that the rise of mass democracy also meant the end of the liberal individual and the free market. We have seen that this was also a concern of elite theorists, and particularly Pareto and Michels, both of whom gave their support to Mussolini. Mosca, by contrast, saw Mussolini and the fascists as uncultured and preferred to place his faith in older elites, but this was less a concern with authoritarianism per se and more of which set of elites should rule. Interestingly, in September 1921, the Italian fascist Massimo Rocca talked of a ‘neo-liberalism’ and suggested that a movement ‘would rebel against the collectivist mania … [and] would end up being a liberal neo-conservatism from the right’ (cited in Landa 2010: 8–9). Seen in this way, ‘fascism became feasible because of the profound difficulties of liberalism in its classical form to cope with the challenge represented by that many-sided phenomenon to which we now refer as “mass society”’ (Landa 2010: 13). The German theorist, Carl Schmitt is often seen as one of the leading critics of liberalism, and has influenced theorists hostile to liberalism from both left and right. He was clearly a theorist of the right, and indeed shifted from a conservative stance to Nazi Party membership in the years between 1933 and 1936 (see Muller 2003). Schmitt was hostile to the reality of mass democracy, and his views strongly echoed those of other theorists of mass society. He argued that: Discussion means an exchange of opinion that is governed by the purpose of persuading one’s opponent through rational arguments of the truth or justice of something … To discussion belonged shared convictions as premises, the willingness to be persuaded, independence of party ties, freedom from selfish interests. Most people today would regard such disinterestedness as scarcely possible … The situation of parliamentarism is so critical today because the development of modern mass democracy has made argumentative public discussion an empty formality … The parties … do not face each other today

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discussing opinions, but as social or economic power groups calculating their mutual interests and opportunities for power, and they actually agree compromises and coalitions on this basis … (Schmitt 1988: 5–6)

Schmitt’s argument here essentially followed a similar path to that of both Weber and Schumpeter. Mass society, including the emergence of mass markets, massive inequality and large corporations, undermined the liberal individual consumer and entrepreneur. Mass society was thus made up of conflicting group interests rather than rational individuals. Mass politics generated increased demands on the state and, therefore, the role of the state became politicised and thus extended beyond its role as a mere regulator. In the process the rule of law was undermined because the state must arbitrarily choose between conflicting interests which reflect the ‘politicization of all economic, cultural, religious and other dimensions of human existence’ (Schmitt 1976: 216, original emphasis). What is distinctive is Schmitt’s critique of liberal accounts of politics. In a world of conflict, the distinction between friend and enemy is central to politics. In contrast, liberals naively believe in negotiation rather than conflict (Schmitt 1985: 63). Schmitt upholds a pluralism which questions the idea that all forms of life can be unified in a single framework. Liberalism believes that the political can be linked to the ethical via the rule of law, but this downplays the fact that the state and the rule of law are the products of political struggle. The state is established to both stabilise internal conflict and preserve territorial authority from external threats, and thus defend friends from enemies. Sovereignty is thus a political act (Schmitt 1985: 5). Similarly in mass democracy liberalism presupposes the de-politicisation of large areas of social life, and the rule of law provides the framework which enables social activity to take place without leading to conflict. However, ‘in the concrete reality of the political no abstract orders or norms but always real human groupings and associations rule over the other human groupings and associations’ (Schmitt 1976: 72–3). In democracies, where sovereignty is invested in the will of the people, the notion of a constitutional order upheld by the state loses any meaning. As Bellamy (2000: 80) describes it: ‘In a situation where a putative popular will and the rule of law are one and the same, the latter offers no check on the former but is rather formulated by it. Consequently, it becomes constitutionally possible to undo the constitution.’ In the dying days of the Weimar Republic, Schmitt considered these questions, and argued not only that the liberal interpretation of the rule of law was inadequate in the context of the rise of parties committed to

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ending the constitution, but also that the decision over what constituted legitimate activity was political, and could not be resolved by the rule of law. Schmitt argued strongly that the president was sovereign and therefore could act in an extra-legal manner in exceptional circumstances. Hindenburg’s presidency was weak, as was the German Reichstag, and it was relatively easy for the Nazis to claim absolute power. Schmitt joined the Nazis on the grounds that as the rule of law rests on political power, we must obey whoever has the authority to lead. By 1936 however he was subject to a Nazi campaign against him as he tried to establish a new constitutional order, reflecting that fact that he ‘had failed to see that for the Nazis, the exception was the norm’ (Bellamy 2000: 81). Schmitt’s account of the limits of liberalism looks initially like a powerful critique. However, this is not necessarily the case, and while some have argued that Schmitt’s analysis of liberalism highlights the ways in which it depoliticises political processes (Mouffe 1999), Schmitt actually regretted mass democracy because it placed too many items on the political agenda, and he wished these to be taken off that agenda (Cristi 1998; Hardt and Negri 2004: 6). We might argue that Schmitt, a conservative, had much in common with neoliberalism. Although Hayek was dismissive of ‘Adolf Hitler’s crown jurist, Carl Schmitt’ (Hayek 1967: 169), who defined sovereignty as the capacity of the state to declare exceptional power, his case for market freedom was uncomfortably close to that view. Schmitt’s argument rested on a distinction between general legal norms and specific commands, and he claimed that only the former could satisfy the condition of upholding the rule of law. His problem with the Weimar republic was that as a pluralist party state it led to rule through specific discretionary demands, that is, by specific commands. The state was the prisoner of powerful interest groups in civil society which therefore undermined the rule of law; in some respects Weimar replicated a Hobbesian state of nature (Drolet 2011: ch. 2). The state was thus entangled in far too many activities and this undermined the constitutional order, an argument close to Hayek’s defence of the rule of law and later neoliberal criticisms of government overload in the post-war era (see Chapters 5 and 6). In Schmitt’s (1998: 226–7) words: only a strong state can depoliticize, only a strong state can openly and effectively decree that certain activities … remain its privilege and as such ought to be administered by it, that other activities belong to the … sphere of self-management, and that all the rest be given to the domain of a free economy.

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Schmitt argued that the liberal rule of law might be abandoned in a time of crisis, such as the Depression of the 1930s (see Scheuerman 1997: 176), that is, he was arguing that the liberal constitution needed to be abandoned in order to save itself from democratic forces that threatened the liberal order. As Scheuerman (1997: 175) argues: ‘By means of a remarkable intellectual sleight of hand, Schmitt … can depict precisely those voices who fought to the end to defend Weimar … as revolutionaries bent on debilitating the “substantial kernel” of the Weimar constitutional order.’ That is, the rule of law might be abandoned in a state of emergency. Thus by 1930 and especially 1932: [in] the face of the left’s attempt to construct the democratic welfare state … just such an emergency is what Schmitt now proposes … The ‘quantitative total state’ – a weak, social democratic inspired interventionist state – should be replaced by a ‘qualitative total state’ – an alternative brand of interventionism, but one which guarantees authentic state sovereignty and simultaneously manages to provide substantial autonomy to owners of private capital. (Scheuerman 1997: 176, original emphasis)

In a sense then, Schmitt was questioning the extent of Weberian rationalisation in mass societies. While he accepted that this was a growing tendency in modern societies, Schmitt also argued that the world could be partially re-enchanted through executive decision carried out by charismatic leaders. So for Schmitt there is a realism which challenges liberal views concerning the rule of law, because he argues that the sovereign may always ultimately challenge the generality of the law, for this is precisely how we define and characterise sovereignty. However, at the same time, this realism about arbitrary government is based in part on Schmitt’s normative evaluation that a social democratic pluralist state is not desirable and exceptional measures can and should be used to undermine such a state, and thus depoliticise and re-establish the ‘free economy’. In this way there is considerable common ground, not only between Schmitt and Hayek, but also to some extent with Schumpeter. For just as Schmitt applies charismatic leadership to the political sphere, so Schumpeter applied this to the economic sphere, highlighting the entrepreneur as the heroic leader of the capitalist economy (see Scheuerman 1999: 185–9). While Schumpeter was not a neoliberal, his vision of the entrepreneur is a central feature of neoliberalism. Hayek (2001: 73) also distinguishes between the rule of law and specific commands, a distinction he develops further in his work after The Road to Serfdom (see Chapter 5 in this volume). In 1944 he argued that democracy can only exist within a framework ‘based on free disposal of private property’ he went on that ‘[w]e have no intention … of making

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a fetish of democracy … Democracy is essentially a means, a utilitarian device for safe-guarding internal peace and individual freedom. As such it is by no means infallible or certain’ (Hayek 2001: 73). However, from there he went on to say that ‘[n]or must we forget that there has often been much more cultural and spiritual freedom under an autocratic rule than under some democracies – and it is at least conceivable that under the government of a very homogeneous and doctrinaire majority democratic government might be as oppressive as the worst dictatorship’ (Hayek 2001: 73–4). As we shall see in later chapters, after the war Hayek began to develop distinctly authoritarian proposals designed to protect the market order from liberal democracy. Herman Finer’s argument (1946: 1) that Hayek’s book ‘constitutes the most inopportune offensive against democracy to emerge from a democratic country for many decades’ was not without merit. Hayek implicitly defends an exception to the rule of law that he otherwise suggests is central to the existence of freedom. This is done in the name of the primacy of private property and the so-called free market. Thus, while classical liberals feared that democracy could undermine the rule of law through the promotion of a tyranny of the majority, Hayek agreed but extended this further, suggesting that under certain circumstances, both democracy and the rule of law could be suspended, in what amounted to the freedom of private property owners. Some might choose to call this a tyranny of the minority. The ordo-liberals were even more explicit in their support for authoritarianism at this time, with some openly acknowledging their debt to Schmitt (Tribe 1995: 212). Although sometimes presented as a body of thought that proposed a liberal democratic alternative to Nazism (see Rieter and Schmolz 1993), such an argument ‘is confronted by the paradox that its founding thinkers did not write in defence of liberal democracy. Rather they perceived Nazism as the tyrannical consequence of the lamentable weakness of the Weimar Republic to maintain a liberal economy’ (Bonefeld 2013a: 108). In the words of Alexander Rustow (quoted in Bonefeld 2013a: 108), Weimar was: being pulled apart by greedy self-seekers. Each of them seeks out a piece of the state’s power for himself and exploits it for his own purposes … This phenomenon can best be described by a term used by Carl Schmitt – ‘pluralism’. Indeed, it represents a pluralism of the worst possible kind. The motto for this mentality seems to be the ‘role of the state as a suitable prey’. What is needed is a state that ‘governs, that is, a strong state, a state standing where it belonged, above the economy and above the interest groups.

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Rustow thus advocated a dictatorship within the bounds of democracy, or what Ropke called a ‘commissarial dictatorship’ and Muller-Armack called a strong state which ‘suppresses the class struggle’ (cited in Bonefeld 2013a: 108). Thus, the collectivist, welfare-based revolt of the masses must be countered by a ‘revolt of the elite’ (Ropke 1998: 130), in which democracy must be ‘hedged in by such limitation and safeguards as will prevent liberalism being devoured by democracy’ (Ropke 1969: 97). A weak state has no independence from the vested interests operating in civil society, and is thus easily captured by these interests (Rustow, cited in Bonefeld 2012: 640). Muller-Armack thus called for a total state in order that the free economy could properly exist, and at the same time suppress ‘the class struggle’ (cited in Bonefeld 2012: 649). Indeed, he was the one prominent ordo-liberal to join the Nazi Party, and he described the Nazi state as an ‘accentuated democracy’ (cited in Bonefeld 2012: 649). These views are very close to those of Schmitt who, as we have seen, was critical of liberalism, but only that liberalism which gave rise to the politicisation of economic life, and on these grounds advocated dictatorship in part to depoliticise the free economy. Echoing the earlier views of Michels (see Beetham 1977b: 175), another leading ordo-liberal, Walter Eucken, claimed that Weimar gave rise to unrestrained socio-political forces, and thus a politicised pluralism which eventually led to mass democratic demagogy (see Bonefeld 2013a: 109). However, we might here remind ourselves of Raymond Williams’ (1989) observation that there is no such thing as the masses, only ways of seeing people as masses. What he meant by this was that while collectives existed in society, the idea of a homogenous, atomised and irrational mass was a political construct, and far from an innocent one. In normative terms it was designed to preserve and protect elite rule, and in analytical terms it glossed over the conflicts and differing interests that existed between varieties of collective movements. Thus, in terms of the specifics of Germany, if we examine the historical evidence, there is little to suggest that the political left voted for Hitler, nor that the so-called masses were attracted to Hitler simply because of their atomised social existence. In the period from 1928 to 1932, the Nazi vote went up from 2.6 per cent to 37.3 per cent of the vote, while the nationalist and conservative vote fell from 41 to 11 per cent (Hagtvet 1980: 79). The combined vote of the Social Democrats (SPD) and communists (KPD) stood at 37.3 per cent in November 1932, a small decline from 37.6 per cent in 1930, but an increase from 35.9 per cent in July 1932, the most significant shift over the period being leftward from the SPD to the KPD. Over the same period, the Catholic vote – an important social bond in an ostensibly atomised society which took form in the guise of Zentrum and

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the Bavarian People’s Party – remained constant at around 15 per cent (Hagtvet 1980: 80–81). Over this period there was an increase in the electorate and a massive increase in unemployment, but the evidence points to the Nazi vote increasing most in rural areas, where Nazi support was already more firmly entrenched (Hagtvet 1980: 81). The rise of fascism in Germany reflected the specific nature of that country’s socio-economic development. This does not mean that Nazism was the product of a unique German exceptionalism, rooted in some timeless conception of German culture or explained by supposedly ‘abnormal capitalist development’, a thesis which has some parallels with Hayek’s argument that classical liberalism was undermined by German ideas (Stern 1961; Mosse 1964; Hayek 2001: 21–2), but rather reflected a combination of specific manifestations of a more universal theme, namely the ambivalent relationship between liberalism and democracy. As Hagtvet (1980: 104; see also Blackbourn and Eley 1984; Eley 2013) argues: In Germany, due to the absence of any thoroughgoing democratic revolution, agrarian protest and middle class unrest did not appeal to democratic ideals against established rulers. On the contrary, because capitalism was never forced to make itself legitimate through democracy in Germany, agrarian and lower middle class rebellions almost immediately revealed their antidemocratic and authoritarian potential.

Furthermore, it was the right in Germany which invited Hitler into office, which certainly puts Hayek’s assertion that socialism was in some way responsible for the Nazis into perspective. We could argue again then that when faced with a trade-off between liberalism and democracy, or between economic liberalism and political liberalism, conservatives, fascists and neoliberals are all prepared to choose the former. Recall Tocqueville’s distaste for the coup which abolished the Second Republic in France in 1848, but at the same time his acceptance that he was ‘much more concerned with putting a powerful leader quickly at the head of the Republic than with drafting a perfect republican constitution’ (Tocqueville 1997: 201, 178). This is precisely ‘the exception’ that led conservatives to invite the Nazis into office, Schmitt to join the Nazis, and neoliberals to support authoritarianism as preferable to the collectivist demands generated by liberal democracy. Mises4 (2002: 51) was quite explicit on this point: It cannot be denied that Fascism and similar movements aiming at the establishment of dictatorships are full of the best intentions and that their intervention has, for the moment, saved European civilization. The merit that

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Fascism has thereby won for itself will live on eternally in history. But … Fascism was an emergency makeshift. To view it as something more would be a fatal error.

Furthermore, once in office the Nazis departed from their middle-class social base and did not challenge the economic dominance of large-scale corporations. In his later distinction between totalitarian and authoritarian regimes, Hayek (2006: 90) argues that Nazi Germany was in the latter camp, when in fact private property was preserved and not abolished under Hitler. As with Italy after 1922, there was a substantial programme of privatisation following the Nazi accession to power (Bel 2010, 2011). Hayek argued in 1944 that ‘[i]f we want to form a picture of what society would be like if, according to the ideal which has seduced many socialists, it was organised as a single great factory, we have to look at contemporary Germany’ (Hayek 2001: 132). We have already suggested reasons why this argument is unconvincing, but Hayek appears to be arguing that the growth of collectivism can be explained by the development of ‘wrong-headed’ ideas. In this regard at least, he implies that ideas are autonomous but this contention ‘conflicts with Hayek’s other argument, that economic and social institutions cannot be chosen but evolve spontaneously’ (Gamble 1996: 83). This reflects a central tension in Hayek’s thought, and indeed neoliberalism more generally, in that: he moves uneasily between arguing that the only institutions capable of co-ordinating the Great Society are the product of spontaneous evolution, without the exercise of any rational foresight on the part of human beings, and at the same time arguing that human beings have to exercise rational foresight and make a positive choice between the individualist road and the collectivist road, otherwise they will unwittingly destroy what has evolved spontaneously. After centuries of blind evolution, human societies have reached a point where evolution can no longer be trusted to ensure progress. The free society has to be consciously endorsed if it is to survive. (Gamble 1996: 83)

This argument sounds suspiciously like an endorsement of the constructivist rationalism that Hayek otherwise rejects, an issue taken up in more detail in later chapters, but which is also apparent in what amounts to a call for an authoritarian liberalism that stands above the so-called masses. This recourse to constructivism is a theme to which we return throughout this volume. Moreover, in terms of the more specific argument concerning the influence of foreign and especially German ideas, Hayek’s arguments are weak. Although there were nationally specific variations, capitalism had changed character in all of the advanced capitalist countries, not least in

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Britain. This was a product of war, social pressure from below, the extension of the franchise, and new political forces which emerged as a result (Harling and Mandler 1993: 49). In the context of rising defence spending and increased welfare budgets, dependence on borrowing from capital markets and especially indirect taxation proved unreliable and expensive sources, thus paving the way for the introduction of income tax. To reduce these developments to being the product of foreign, and specifically German influences and ideas, does appear to be onedimensional in the extreme. Moreover, this fits uneasily with Hayek’s other argument that the market serves as a spontaneous coordinator of the fragmented knowledge which exists throughout society. In terms of the rise of collectivist and welfare-based ideas, we might argue alongside Karl Polanyi that these reflected, in Hayekian terms, a spontaneous process rather more than simply being the product of a conspiracy of collectivist ideas (see further below). Similarly, the rise of the joint-stock company and the growing concentration and centralisation of capital were general features of capitalist development, better theorised by Weber and Schumpeter as well as Marx (Chang 2002; Taylor 2014; see also Chapter 2). In terms of security, the neoliberal position is equally problematic. Tooze (2015: 81) suggests that: [b]efore 1914, all powers may have been struggling to get to grips with the implications of globalisation for international security, but not all of them were equally bellicose or insecure. Those that seemed most anxious for a clash of arms were the least democratic and had the least to lose in any breakdown of global economic integration.

On the face of it, this appears to confirm the contentions of liberal peace theory, namely, that with integration peace is far more likely. This was precisely the argument made by Hayek and Mises, the latter of whom explicitly argued that free trade and the gold standard were necessary features of international harmony (see above). However simply to point to the collapse of integration is not sufficient to demonstrate causality in terms of 1914 or 1939, for, as Tooze (2015: 81) also implies, we need to ask why free trade (prior to 1914) and the gold standard (between the wars) collapsed. Before 1914 the more liberal democratic states were less willing to go to war than some in the Balkans, but: in resting their case on this reassertion of a development hierarchy, theorists of the liberal peace reveal their failure to recognise the implications of the entanglements of the international system. For it was an essential feature of the alliance system that exploded into war in August 1914 that it harnessed

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together countries at very dissimilar stages of development. What the liberal theory captures is the unevenness of international development. What it does not address are the mechanisms by which those differences were produced, or how they were brought into combination with one another. (Tooze 2015: 81)

In terms of the First World War, the assumption that some countries were more liberal, and therefore at a higher stage of civilisational development than others was an important factor in justifying the call for war (Tooze 2015). Thus, while the theory of liberal peace was developing from around the turn of the century (Streit 1939), it generally still upheld hierarchy in the international order, and reflected John Stuart Mill’s division between civilised and barbaric peoples (see Bell 2014). More generally, three points are relevant. First, liberalism itself has a history of imperialism. Second, the economic nationalist or mercantilist turn that preceded both world wars responded to liberal competitive pressures in the context of uneven development. Third, and closely related to the previous point, the collapse of the gold standard must be situated within this context. In terms of imperialism, there was a long-standing tradition of opposition based on the expense of colonies and the fact that interaction with other territories can occur through free trade rather than through territorial acquisition (Ricardo 1973: 227), an argument repeated by Mises in his critique of Nazi expansion in the East (see above). Adam Smith (1981: 606–14, 616) linked colonialism to the vested interests associated with mercantilism rather than free trade, while Jeremy Bentham (1793) called for the emancipation of the colonies. On the other hand, Smith wrote in disparaging terms about ‘backward territories’ and ‘miserable savages’ (1981: 559), and his opposition to colonialism was largely based on its negative effects on the coloniser rather more than any concern for the colonised (see Williams 2014). Even Bentham eventually suggested that limited government could occur in a colonial context, and gave his support to the colonisation of South Australia in 1831 (Winch 1965: 38). John Stuart Mill gave his active support to colonial endeavours on both narrowly economic – it would relieve population and upward pressure on wages at home and provide an overseas market for British products – and cultural grounds – it would enable advanced nations to civilised barbarian ones (Mill 1984: 121). Locke (1980: ch. 16) had earlier argued a case for colonialism based on commercial improvement through the creation of private property and the diffusion of rational ideas among backward peoples.

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To some degree there was a significant difference between nineteenthcentury British imperialism and the more explicitly protectionist imperialism associated with rising powers from the late nineteenth century (Kiely 2010: ch. 3). In particular, Britain envisaged an empire and a wider international order based on the principles of free trade, whereas European and Japanese imperialism involved the use of protectionist policies such as tariffs at home, and more exclusive trading policies with its colonies abroad. Rather than being the product of German ideas, as Hayek suggested, this was instead a response to competitive pressures and the fact that Britain advocated free trade because it was the industrial leader at the time. Thus, as early as 1841, List (1966: 79) had argued that: A country like England which is far in advance of all its competitors cannot better maintain and extend its manufacturing and commercial industry than by a trade as free as possible from all restrictions. For such a country, the cosmopolitan and the national principal are one and the same thing. This explains the fervour with which the most enlightened economists of England regard free trade, and the reluctance of the wise and prudent of other countries to adopt this principle in the actual state of the world.

Even in the US, this argument was commonly made. Future President Ulysses Grant argued that: For centuries England has relied on protection, has carried it to extremes and has obtained satisfactory results from it. There is no doubt that it is to this system that it owes its present strength. After two centuries, England has found it convenient to adopt free trade because it thinks that protection can no longer offer it anything. Very well then, Gentlemen, my knowledge of our country leads me to believe that within two hundred years, when America has gotten out of protection all that it can offer, it too will adopt free trade. (Cited in Chang 2006: 287)

Seen in this way, the breakdown of free trade and, eventually, the gold standard reflected the fact that these were not institutions or policies which reflected a universal good but rather they were ‘the policy of English domination’ (Foucault 2008: 108). Protectionism, the gradual shift from the gold standard and colonialism were all policies designed to find ways to catch up with Britain, the dominant economic power at the time. Moreover, both liberal Britain and the US were in some respects inspirations for colonialism in Germany both in the pre-Nazi and Nazi eras (Tooze 2007; Mazower 2008; Kakel 2011). Hitler’s second book asserted that the growth of US wealth as being the product of western expansion and conquest and the extermination of native Americans, an argument repeated by Göring during his incarceration at Nuremberg (see

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Tooze 2007). Hitler was also an enthusiast for the Wild West novels of Karl May, and during the war had 200 000 copies printed for German troops (Evans 2015: 355). Hitler also stated that ‘What India is for England, the territories of Russia will be for us’ (cited in Evans 2015: 361). This is not to say that Nazi imperialism was identical to other imperialisms, be it the British or German empires before 1914 or the frontier expansion of the US. The Nazis were more extreme in terms of their repressive apparatus,5 and while other colonialisms carried out many significant atrocities, only the Nazi empire committed itself to the extermination of a perceived race that they believed was a threat to the existence of Germany, no matter where Jews actually lived (Arendt 1966: 410, 415; Evans 2015: 365–89). Nonetheless, there was also some degree of similarity between previous empires, both liberal and illiberal, and the Nazi expansion after 1936 (Mazower 2008). In Arendt’s (1966: 206) words, ‘African colonial possessions became the most fertile soil for the flowering if what later was to become the Nazi elite’. In 1944 Karl Polanyi (2001: 32) argued that ‘[i]n order to comprehend German fascism, we must revert to Ricardian England’. What he meant by this statement was that the uneven development of the liberal political economy meant that there was bound to be a reaction, both domestically and internationally. In terms of domestic politics the reaction took the form of a counter-movement to the state promotion of liberal economic policy, and ‘the utopian endeavour of economic liberalism to set up a self-regulating market system’ (Polanyi 2001: 31). Polanyi thus argued that there was a double movement, the first of which was the attempt to promote a market economy and the second of which was an attempt to deal with the destructive consequences of the first movement, including inequality, displacement, unemployment, and so on. Polanyi recognised that liberals and neoliberals were fully aware of this movement, but they put an entirely different interpretation on it. While in our view the concept of a self-regulating market was utopian, and its progress was stopped by the realistic self-protection of society, in their view all protectionism was a mistake due to impatience, greed, and short-sightedness, but for which the market would have resolved its difficulties. (Polanyi 2001: 148)

Liberals ‘from Macaulay to Mises, from Spencer to Sumner, there was not a militant liberal who did not express his conviction that popular democracy was a danger to capitalism’ (Polanyi 2001: 234). While Hayek saw the rise of planning as the product of constructivist ideas, Polanyi turned the tables and instead suggested that ‘this creation of barriers was a spontaneous and unplanned response by all groups in

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society against the impossible pressures of a self-regulating market system’ (Block 2001: xviii). Fascism was in some respects part of this collectivist turn but it was not identical to all forms of collectivism, but rather a response to the growing power of the working class and socialism (Polanyi 2001: 200). Seen in this way, fascism was not so much a socialist challenge to capitalism but rather reflected the fact that capitalism had increasingly led a strained existence alongside democracy, and thus Nazism was a reaction to ‘the chronic deficiencies of unbridled competition as the governor of the modern economic order’ (Finer 1946: 24). Thus in this account, the rise of fascism occurred ‘when neither movement was able to impose its solution to the crisis (and so) tensions increased until fascism gained the strength to seize power and break with both laissez faire and democracy’ (Block 2001: xxviii–xxix). Polanyi argued that this analysis applied to international politics as well. He placed particular emphasis on the gold standard, which was increasingly adopted by leading capitalist powers in the last third of the nineteenth century. The gold standard meant that the value of currencies were fixed at a certain weight against the value of gold, and which was supposed to facilitate a market-based approach to regulating such trade. Thus a country that imported more than it exported would see a flow of gold out of the country to pay for those imports. The effect would be a fall in the money supply, a rise in interest rates (as money was scarcer) and a fall in wages and prices. This would then lead to a fall in demand for imports and cheaper exports which would return the country to a position of trade equilibrium, and thus a process of market clearing without government intervention. However, the cost of this system was great as countries in deficit could only adjust to falling gold reserves through deflation, which could lead to an ongoing process of contraction as wages and prices fell, unemployment increased and businesses went bankrupt, and the vicious cycle could then restart again. International trade was supposed to alleviate these problems as the outflow of gold would restore competitiveness through lower prices and wages, but in fact an outflow of gold would have the effect of diminishing the supply of loanable capital, and raise the rate of interest, thus further stifling investment. A deficit country may receive loans from surplus countries attracted by higher interest rates, but these loans (or at least the interest on them) have to be repaid, and there is no guarantee that such loans will encourage investment in production rather than financial speculation. This lays the basis for free trade and the gold standard promoting uneven development between countries (Shaikh 1980: 38–9, 2005), and crucially is not simply uneven in the sense of development taking place at a

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differential pace, but rather one in which unevenness is a cumulative process (Kiely 2016). It was therefore not surprising that countries responded to this by increasingly pursuing protectionist policies, including tariffs at home and colonialism abroad (Polanyi 2001: 19). In the period from circa 1880 to 1914, average tariff rates in all countries apart from Britain rose substantially (Bairoch and Kozul-Wright 1996: 8), and even though the famous Underwood Tariff substantially reduced tariff rates in the US in October 1913, this only meant a still high average rate of 25 per cent. For much of the period the US average was 44 per cent (Bairoch 1993: 40). Polanyi accepted that the collapse of the liberal system and the move to war in 1914 did coincide, but in contrast to the neoliberals, he saw this collapse as a reflection of the contradictions of that liberal order (Dale 2010: 48). This point applied also after 1918 when attempts were made to restore the gold standard, leading to stalemate in the 1920s and then the revolutionary 1930s, which saw the collapse of the liberal system. A fourth point might be added, which is more specific to neoliberalism, and this relates back to the question of politics. This is that 1914 gave rise to the collapse of old regimes, some of which were distinctly illiberal. However, as should be clear by now, neoliberals were prepared to countenance politically illiberal regimes provided that they resisted the rise of collectivism and defended the market order. Also, as we have seen, this puts neoliberals very much in the camp of conservative authoritarianism in the 1930s. Again this is not to say that neoliberalism was identical to fascism and Hayek’s (2010) question ‘Was the rise of the fascist regimes really simply an intellectual reaction fomented by those whose privileges were abolished by social progress?’ is partly a valid one. However, Polanyi’s arguments concerning the rise of fascism was less a theory of fascism per se and more an understanding of the conditions that gave rise to fascism. Seen in this way, fascism was in part a defensive reaction to the threat of collectivist forces, particularly once it achieved power, and it was certainly far more than the unfolding of a singular collectivist project as imagined by Hayek. Notwithstanding some problems with Polanyi’s wider theory (see Chapter 13), his account is far more convincing than Hayek’s reduction of fascism to the rise of collectivist ideas, and fascism was partly a reaction to, rather than conformation of, the rise of socialism.

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CONCLUSION This chapter has provided a historical account of the emergence of neoliberalism in the 1930s and 1940s. In contrast to much treatment of neoliberalism, which starts with the promise that it is mainly concerned with the defence of free markets, here I have focused on the political origins of the neoliberal movement. In particular I have shown that neoliberalism emerged as part of a much wider critique of the rise of collectivism, outlined in this and the previous chapter. The neoliberal critique of collectivism tended to conflate distinct collectivist projects, such as Stalinist state socialism, German and Italian fascism, the New Deal in the US and, to varying degrees, Keynesian liberalism. However, most important, what should be clear from the analysis of this chapter is that neoliberalism from the outset was prepared to use state power in ways that would defend the market order. In this respect, as Ropke suggested, it was a revolt of the elite that, implicitly or explicitly, defended an authoritarian position in order to deal with the revolt of the masses and the politicisation of the economy. This points to one possible paradox of neoliberalism, central to the arguments that follow, which is that neoliberalism has always been prepared to use maximalist politics in its task of minimising or even eliminating politics from public life. In this respect neoliberalism can be regarded as an authoritarian liberalism (Heller 2015), which certainly has close parallels with Schmitt’s view of the sovereign exception. Seen in this way, neoliberalism might be considered a designed and not a spontaneous order. On the other hand, at this point the illusion of spontaneity is maintained, for while a sovereign exception might be necessary in order to restore or (re-)construct ‘the impersonal and anonymous mechanism of the market’, this is premised on precisely the kind of uncertainty and limited knowledge that renders sovereignty problematic. The state is necessary to protect and plan for competition. It is the one form of planning that is deemed acceptable because it has no definite outcome, and thus ‘to be impartial means to have no answer to certain questions’ (Hayek 2001: 80). The sovereign state thus plays the supposed role of impartiality and agnosticism (albeit leaving unquestioned the distribution of property ownership), while the price mechanism coordinates the plans of each individual operating in the market order. Given the centrality of the price mechanism and the market order, neoliberalism in the 1930s was critical of corporate power, and the concentration of private economic power, as well as the collectivism associated with the state and socialism. However, at the same time, the market came to be defined as a democracy, in which ‘consumers by their

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buying and abstention from buying elect the entrepreneurs in a daily repeated plebiscite’ (Mises 2008: 113). In this way, what Ropke called ‘the democracy of the consumers’ is guaranteed by the marketplace (cited in Schwarzkopf 2011: 12), and the rise of mass marketing and advertising is explained as a service in the market for information (Stigler 1961). The next chapter examines the rise of neoliberalism in the context of a second crisis of liberal modernity, this time in the 1960s and 1970s. Part of this story is neoliberalism increasingly downplayed the significance of limited knowledge and the price mechanism, and instead moved increasingly towards an acceptance of private monopoly and consumer sovereignty, alongside both expert economic knowledge and price theory (Davies 2014). At the same time, and perhaps paradoxically, neoliberalism also increasingly developed as a (market) populist rather than simply an elite project. This is considered in the next chapter.

NOTES 1.

2.

3. 4.

5.

Assheton incorporated Hayekian ideas into his speeches at the election campaign, and the Conservative Party surrendered 1.5 tons of its paper assignment for the election campaign to Routledge so that they could publish an abridged version of the book, which was edited by future Heath government minister Geoffrey Rippon. The abridged version came too late for the election and was not published until March 1946. Churchill’s notorious party election broadcast of 4 June 1945, in which he talked of Labour’s need for ‘some form of Gestapo’ to implement its programme, clearly owed something to a crude reading of Hayek, probably via Assheton. Although often seen as an aberration, the Conservative campaign made heavy use of the ‘National Socialist’ card (see Cockett 1995: 93–4). Albeit one which chimes with some strands of the so-called ‘anti-globalisation’ or ‘global justice movement’ of the 1990s and beyond, despite this ‘movement of movements’ espoused hostility to neoliberal capitalism. In particular some argue for small-scale private ownership of land and exchange based on perfect competition between these landowners. See, for example, Shiva (1988). On the related question of ‘neo-classical neo-populism’, see the debate between Byres (2004) and Griffin et al. (2004). A much fuller discussion of liberty can be found in Chapters 5 and 12. Mises also served as an economic adviser to the Austro-fascist regime led by Dollfuss in Austria. Dollfuss was anti-Nazi and pro-Mussolini and argued that Hitler’s Germany had more in common with Stalin’s USSR, a view which accords with Mises’ later views, as quoted previously in the chapter. However, this was at least in part because he feared Nazi designs on Austria and, in any case, his regime was still authoritarian. Also, as the chapter shows, the Nazis were hardly anti-capitalist once in power. At the same time, however, the Nazi state apparatus was far from totalitarian, in the sense of a centralised state apparatus controlling local states and the people (see Kershaw 1997).

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4. The second crisis of liberal modernity, the Chicago School and the rise of the New Right Neoliberalism began to gain considerable influence in the AngloAmerican world, and beyond, from the 1960s onwards. In practice it emerged alongside other ideas, as a kind of hybrid political formation. This chapter examines one such hybrid, that of the New Right, which was important for the initial development of neoliberal practice from the 1980s. The main focus will be on the emergence of the New Right in Britain and the United States, and we explore both the rise of the New Right as a movement, and the tensions within the New Right, especially between neoliberal and conservative thought in the 1960s and 1970s. The chapter shows how the New Right combined elements of economic liberalism and political conservatism in a sometimes complementary and sometimes uneasy relationship. In particular it shows how the New Right, as for neoliberalism before it in the 1930s, gained prominence in response to a crisis of liberal modernity, particularly in the 1960s and 1970s. The chapter identifies some key components of its rise, namely, the Cold War, the New Deal and social democracy, the growing role of the state, and the culture wars from the 1960s. In doing so it also shows the influence of one particular strand of neoliberalism, the Chicago School, which developed and aligned itself with the New Right in the US and Britain. The chapter starts by tracing the development of neoliberal thought in the post-war period, particularly through developments at the Mont Pelerin Society, and the growth of a distinctive Chicago School. The chapter then moves on to consider the rise of the New Right, first in the US, and then in Britain, and in both cases traces how it attempted a fusion between liberal economics and conservative politics. The chapter then moves on to discuss the rise of both neoliberalism and the New Right in the context of the beginning of the cultural and economic crises of the 1960s and 1970s in the developed world. It demonstrates the populism of both neoliberalism and the New Right, but also highlights some of the conflicting tendencies within the New Right, and how these 66

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illustrate some of the tensions within neoliberal thought. The conclusion draws this together by showing how the commonalities between conservatives and liberals in the New Right might lead us to question some of neoliberalism’s claims concerning spontaneity, the free market and limited government, a task addressed in the chapters that follow.

NEOLIBERALISM AND THE CHICAGO SCHOOL AFTER THE WAR Neoliberalism underwent some important changes after the formation of the Mont Pelerin Society, and the development of what was in effect a second Chicago School, which differed in important respects from the first. The most famous Chicago economist was Milton Friedman, who argued that the depression of the 1930s was caused by incompetent monetary policy on the part of government, and in particular a failure of the Federal Reserve to expand the money supply (Friedman and Schwartz 2008). Friedman emerged as the public face of the Chicago School, although it is also true that Hayek – who moved to Chicago in 1950, albeit not as a member of the economics faculty – was also influential (van Horn and Mirowski 2009). In 1951, Friedman published an article which actually used the term neoliberalism in the title, in which he argued that it would ‘accept the nineteenth century liberal emphasis in the fundamental importance of the individual, but it would substitute for the nineteenth century goal of laissez faire as a means to this end, the goal of a competitive order’ (Friedman 1951: 5). This position placed him close to that of the ordo-liberals, who had similarly argued for a strong state to promote and foster competition, in contrast to nineteenth-century laissez-faire which ‘underestimated the danger that private individuals could through agreement and combination usurp power and effectively limit the freedom of other individuals’ (Friedman 1951: 4). From the 1950s onwards however, this position was gradually sidelined by the Chicago School. Much of this is discussed in analytical depth in the next chapter, but some initial comments are necessary at this point. For the ‘new’ Chicago School, monopoly was the product of government regulation and not the outcome of competitive market forces, and even where the latter might be blamed, it was argued that attempts to regulate to promote competition might make the situation even worse. More specifically both the Chicago School and the Virginia School of public choice theory argued that government regulation carried costs which might be greater than those associated with private monopoly (Coase 1960). Insofar as monopoly was the product of competition, this

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reflected the efficiency of the company and its capacity to respond to the needs of consumer welfare (Bork 1978; Posner 2001). The implications of this argument for understanding neoliberalism are enormous and are discussed in depth in the next chapter, but for now we should continue tracing the historical change that took place through the Chicago School. In 1962, Friedman published Capitalism and Freedom which, like Hayek’s The Road to Serfdom, was a popular book which made the case for neoliberalism. While he recognised the reality of the post-war boom, and the significant advancement of living standards and social mobility, he argued that: [this] has been the product of the initiative and drive of individuals co-operating through the free market. Government measures have hampered not helped this development. We have been able to afford and surmount these measures only because of the extraordinary fecundity of the market. The invisible hand has been more potent for progress than the visible hand of retrogression. (Friedman 2002: 199–200)

That is, economic efficiency occurred because of the market, and progress took place despite rather than because of the role of the state. In terms of monopoly, Friedman (2002: 131) drew on the more sophisticated Chicago theories that were developing at the time, and added his own assertion that they are ‘generally unstable and of brief duration unless they can call government to their assistance’. Furthermore, the state was not only inefficient, it was a threat to freedom. Following Hayek’s argument in The Road to Serfdom (Hayek 2001) totalitarianism and neo-Keynesianism were conflated, albeit this time with an emphasis focused more on Soviet Communism rather than German fascism. The preservation and expansion of freedom are today threatened from two directions. The one threat is obvious and clear. It is the external threat coming from the evil men in the Kremlin who promise to bury us. The other threat is far more subtle. It is the internal threat coming from men of good intentions and good will who wish to reform us. (Friedman 2002: 201)

He argued against government intervention in the economy, including agricultural subsidies, tariffs, export restrictions, a minimum wage, social security, public housing and national parks (Friedman 2002: 35–6). He did accept that there may have to be some state interference, arguing the case for education vouchers, whereby parents have a voucher to fund their choice of school for their children, and a negative income tax in which people earning below a certain amount receive government funding rather than pay tax. However, these appeared to be based on the

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recognition of the need for change to be pragmatically introduced, and, as he suggested to Patrick Buchanan in 1973, saw them as stepping stones to the end of state welfare and education (cited in Burgin 2012: 197). This critique of the New Deal state was extended by public choice theory and the related theory of regulatory capture (Stigler 1971). The essential argument of all these approaches was that government regulation and public administration do not represent something called the public interest, and so there is no neutral state apparatus (beyond that necessary for the preservation of the rule of law). Government officials act in their own interest, and not that of the so-called public good. This ‘economics of politics’ approach assumes ‘that all individuals in government aim at raising their own utility, that is, serve their own interests within certain institutional limits’ (Tullock 1976: 34). When public bodies expand their administrative size or area of competence, this is not because of the needs of the public, but rather because of the selfinterested behaviour of those who ran these bureaucracies (Niskanen 1971: 38; also Buchanan and Tullock 1962). Similarly, in terms of regulation, this did not operate on behalf of the interests of the public, but rather self-interested firms, which actively sought subsidies from the state, and attempted to control the market entry of potential competitors, and fix prices in their favour. Following Mandeville’s (1989) arguments concerning private vices and public benefits, and Smith’s (1981) invisible hand, Stigler, Buchanan and Tullock argued that self-interested behaviour dominated both private and public sectors, but in the case of the latter there was no effective way of controlling such behaviour for the greater good. However, in the case of the private sector, self-interested behaviour could serve a greater good because it was subject to the discipline of market competition. The clear implication was that the market would provide the necessary guarantee of a wider social good, and that state regulation and public administration was counterproductive. We see in later chapters that, while we can identify plenty of current examples of poor regulation, it may not be the coherence of public choice theory which reflects its current ability to point to this problem, but rather its ‘performative strength’ which has led to public choice theory becoming a self-fulfilling prophecy. This in turn implies that public choice theory helps to lay the ground for a constructivist neoliberal political project. This section has briefly outlined a significant development in post-war neoliberal thought. In particular it emphasised that regulation carried significant costs, even when designed to prevent monopoly. This was reinforced by the fact that regulators were not public servants but

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self-interested state bureaucrats. More generally, the regulation associated with the New Deal and its effective post-war development was a disaster and the post-war boom occurred despite, and not because of, such regulation. Furthermore, the New Deal represented a domestic accommodation to communism, and this mirrored a growing tendency among the US right to accept coexistence with its communist enemy, as we will see. In practice these ideas became increasingly influential in the US, particularly in the context of the rise of the New Right.

NEOLIBERALISM AND THE NEW RIGHT IN THE US As we have already seen, neoliberal ideas emerged and developed partly as a response to, and as critique of, Roosevelt’s New Deal policies and their legacy in the post-war period. United States conservatism shares with neoliberalism the belief that individual, ‘negative’ freedom is paramount and that property ownership is central to the exercise of such freedom. Given its commitment to increased discretionary state intervention, the New Deal was considered a threat to individual freedom. In the post-war period, the Republican Party increasingly made its peace with the New Deal, particularly under Eisenhower’s presidency. However, this acceptance was far from complete and by the early 1960s, a new conservatism emerged around the Arizona senator, Barry Goldwater, whose economic advisers included Milton Friedman. He was a critic of the New Deal at home and what he regarded as the increased tendency of the Republican Party to accept the existence of communism abroad (Goldwater 2007: 81 ff.). Goldwater won the Republican candidacy for the 1964 presidential election, where he was convincingly defeated, but this was still a significant moment in the rise of a New Right that challenged both the New Deal and the containment of communism, and which eventually paved the way for the electoral victory of Ronald Reagan in 1980. In the words of Milton and Rose Friedman (1980: 369): ‘Despite the subsequent election results, the defeat of the hitherto dominant Rockefeller Republicans was a crucial step in the gradual shift of public opinion away from liberalism as popularly understood and towards free market conservatism.’ This New Right was not, however, simply based on economic liberalism. As Horwitz (2013: 9) states, since 1980 ‘anti-establishment conservatism has manifested in an effective, if somewhat discordant alliance of re-energized anti-New Deal business, the Christian or evangelical right (embodying social conservatism), neoconservatism … and the libertarian conservative tradition now embodied in the Tea Party movement’. We

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might add Donald Trump to that mix, someone who in some respects represents a conservatism at odds with neoliberalism (see Chapter 13). The point, however, still holds that the New Right represented a combination of three distinct if overlapping factors, namely, the critique of the New Deal and rise of anti-communism, the significance of religion, and the rise of neoconservatism. The rest of this section examines each of these factors. In the 1930s, although Roosevelt enjoyed widespread support, there were also significant pockets of opposition from some industrialists, leading Republicans and some Democrats. Pre-dating Hayek’s The Road to Serfdom by a few years, and the Tea Party’s critique of Obama by many years, Democrat Senator Carter Glass described the New Deal as ‘an utterly dangerous effort of the federal government to transplant Hitlerism to every corner of the nation’ (quoted in Horwitz 2013: 29). Some leading Republicans such as Robert Taft were also critical of the New Deal, as were some industrialists and a growing number of conservative think tanks, such as the American Enterprise Institute and the Foundation for Economic Education (Phillips-Fein 2009). Nonetheless, by the 1950s both political parties were committed to New Deal policies. At the same time, the 1950s was a period of rabid anticommunism culminating in the McCarthy era, which purged different sectors of the economy of alleged communist influences. This period saw the beginning of the conservative–libertarian fusion that characterised the New Right, led initially by William F. Buckley, who became the first President of the Intercollegiate Society of Individualists in 1953, and set up the influential organ, National Review, in 1955. Founded in 1958 by Robert Welch, the John Birch Society claimed that between 40 to 60 per cent of the US government was controlled by communists, and was hostile to what it considered to be the communist civil rights movement (McGirr 2001). Anti-communism per se was not intrinsically allied to the conservative right, and many New Deal Democrats called for a more aggressive anti-communist foreign policy which went beyond mere containment. Moreover, a commitment to a more aggressive anticommunism meant support for a more interventionist state, at least in terms of foreign policy, and thus support for the military industrial complex. In the 1950s then, there was not yet the clear libertarian– conservative coalition that was central to the rise of the New Right. Hayek was influential, and Ayn Rand was a best-selling author, but none of this had yet led to the formation of a New Right coalition.1 Goldwater’s ascendancy can be traced to the publication of his 1960 book The Conscience of a Conservative. In this book Goldwater attacked welfare policies, but also civil rights, not in the name of overt racism, but

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rather in support of the right of local government freedom against encroaching federal government. This was very significant in terms of the breakdown of the coalition that gave rise to the New Deal (Katznelson 2014), and the rise of a New Right. The New Deal won the support of southern Democrats in the 1930s, in part through playing down civil rights. The price of support for neo-Keynesian public and social policies was therefore a failure to fully confront the question of racism and segregation, particularly (though not exclusively) in the South. This uneasy tension was sometimes exposed, such as with the move to promote full racial integration of the armed forces in 1948, and especially with the decision in the Brown v. Board of Education case in 1954, which outlawed the segregation of public schools. Goldwater (2007: 31) argued that he supported the objectives of the Brown case, but he was not prepared ‘to impose that judgment of mine on the people of Mississippi or South Carolina’, an argument echoed by Milton Friedman at the time (see Burgin 2012: 202). The conservative critique of such cases echoed those of disillusioned southern Democrats which, in the words of Charles Wallace Collins (founder of the States’ Rights Democratic Party, or Dixiecrats) rejected both ‘Negro equality’ and ‘state capitalism’ (cited in Horwitz 2013: 57). In the 1944 election, around 80 per cent of southern whites voted for Roosevelt, but by 1948 only 50 per cent voted for Truman. In that latter election, the Dixiecrats won Louisiana, Mississippi, Alabama and South Carolina. By 1964, the Goldwater election, all of these states plus Georgia were won by the Republicans. Although these states (except South Carolina) were lost in 1968, this was to George Wallace’s American Independent Party and not to the Democrats. This reflected a gradual breakdown in support among southern whites for the Democrats, and by the time of Ronald Reagan’s second presidential election victory in 1984, the majority of these had shifted to supporting the Republican Party (Horwitz 2013: 56–7). Although the New Deal remained in place, the 1960s saw growing anxiety around what some considered to be the growing encroachment of the federal state on the lives of individuals, alongside growing polarisation around the question of race. Both of these were exploited by conservatives, alongside a growing populist rhetoric which criticised a new liberal elite (see further below), welfare recipients, anti-war protestors, rioters, students and so on. Central to this populist conceit was an appeal to the forgotten American, to Middle America, to those (largely white men) said to be increasingly left out of American society, and which ‘depicted racial segregation as the class-based outcome of meritocratic individualism rather than the unconstitutional product of structural racism’ (Lassiter 2006: 1).

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Religion – and specifically the rise of a new Christian, predominantly Protestant, right – was also central to this process. While from the 1950s through to the 1970s, evangelicals were less politically active than modernist Protestants, by the early 1980s they were the most politically engaged religious group among Christians (Horwitz 2013: 78–9). In this case, mobilisation also occurred in part because of what was regarded as the growing encroachment of the federal state (Horwitz 2013: 84–5). This was indicative of the way in which a growing New Right challenged what was perceived to be the growing interventionism of the federal state in regulating the lives of individuals and private institutions, combined with a covert and at times overt racism. Indeed, affluent white suburbs used the language of civil rights to attack what they perceived to be growing state influence in their lives (Lassiter 2006). Paralleling Friedman’s Capitalism and Freedom, communism became a term of abuse for almost all forms of collectivism by the state, a central argument of the Young Americans for Freedom which did so much to promote a New Right takeover of the Republican Party after it was formed in 1960 (McGirr 2001). The Supreme Court decision to legalise abortion was also seen as another example of state interventionism, combined with an increasingly permissive society. In this case, opposition was initiated by Catholics but it was increasingly taken up by the Protestant right. This critique of state encroachment was given a final twist by the rise of neoconservative intellectuals, such as Irving Kristol and Norman Podhoretz. While initially critical of foreign policy which attempted to only contain rather than roll back communism, in the 1960s they turned their attention to Johnson’s Great Society programme, and began to develop a theory of the New Deal state that attempted to combine elements of neoliberal public choice theory with a conservative focus on the need for order. Irving Kristol in particular rejected what he saw as the nihilism of liberal modernity. For him, the 1960s was a crisis caused by the relativism associated with liberal values and which culminated in student radicalism, the counter-culture, black power and welfare dependency. From 1965 onwards, Kristol and his collaborators argued that the social programmes associated with the New Deal and extended by the Great Society programme had failed to alleviate poverty, and had actually exacerbated social problems. Though not a neoconservative, Moynihan’s (1965) report The Negro Family: The Case for National Action was indicative of the New Right argument that African American problems were cultural, pointing to high rates of illegitimacy, welfare participation and self-destruction. Social welfare was not about enhancing the life chances of underprivileged groups, but rather reflected the growth of an increasingly self-sustaining liberal, metropolitan elite. Echoing in part

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Buchanan’s public choice theory, this argument was further developed in the 1970s with the development of the theory of a new class, which ‘consists of scientists, lawyers, city planners, social workers, educators, criminologists, sociologists, public health doctors, etc. – a substantial number of whom find their careers in the expanding public sector rather than the private’ (Kristol 1995: 221). The New Right thinker William Rusher (1975: 14) argued most clearly that: ‘A new economic division pits the producers – businessmen, manufacturer, hard-hats, blue-collar workers, and farmers – against the new and powerful class of nonproducers comprised of a liberal verbalist elite … and a semi-permanent welfare constituency, all coexisting happily in a state of mutually sustaining symbiosis.’ This is not to say that new class theory was identical with public choice theory, but the critique of the state did provide the basis for a contingent alliance between the two approaches, and thus the basis for the alliance that became the New Right. At its heart was a critique of collectivism which was regarded as being part of an overt (the Soviet Union) and covert (the New Deal) expansion of the communist ideal. The state, and especially the federal state, is not a publicly interested organisation, acting on behalf of citizens, but rather it represents the interests of a parasitic new class, encroaching on the lives of ‘middle America’. These kinds of arguments were increasingly influential within government bodies too, and by the late 1970s, the Federal Trade Commission was investigating far fewer cases of company mergers than it had in the past, and the work of neoliberal legal theorists Richard Posner and Robert Bork were increasingly cited in arguments justifying corporate takeover and private monopoly (Miller 1989; Davies 2014: 92). However, like neoliberals (including Hayek) the New Right in the US stopped short of endorsing full-scale libertarianism. Kristol was particularly concerned that neoliberalism effectively endorsed a nihilism in which there could not be any social cohesion, while the religious right most obviously called for absolute values which transcended those of any single individual, and which should be embodied in law. In terms of practical politics, on the libertarian side, Friedman was an economic adviser to Goldwater in the 1964 presidential election, while on the conservative side, Brent Bozell, a Goldwater speechwriter2 argued in 1962 that ‘the chief purpose of politics’ was ‘to aid the quest for virtue’ and that ‘the story of how the free society has come to take priority over the good society is the story of the decline of the West’ (quoted in Edgar 1986: 56). We consider these arguments further in depth below. For now, we need to re-emphasise the fact of the alliance and this was facilitated further by one other factor, namely, the Cold War. Most of the

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New Right placed an enormous amount of faith in the capacity of the state in terms of foreign policy and the roll back of communism. During the Cold War Jeanne Kirkpatrick (1979) borrowed Hayek’s distinction between totalitarian and authoritarian regimes (see Chapters 5 and 12 in this volume) to make the case that the US could do business with the former, an argument that strongly influenced the Reagan Doctrine, particularly in Central America and the Caribbean (Halliday 1983). By the end of the Cold War she was arguing for a far more pragmatic approach, but other neoconservatives argued that the post-Cold War world presented an opportunity for the US to be even more aggressive in its foreign policy and to ‘Americanise’ the world. The case was often made on the grounds that Ronald Reagan had won the Cold War through his hostile stance towards the Soviet Union (Kristol and Kagan 1996), although at the time at least some neoconservatives were critical of Reagan’s conciliatory approach to the Soviet Union, likening it to Neville Chamberlain in 1938 (Podhoretz 1983). Neoconservatives enjoyed some considerable influence in the second Bush administration and played an important role in influencing George W. Bush’s decision to go to war with Iraq in 2003, although they were hardly alone in supporting this policy.

THE NEW RIGHT IN BRITAIN In Britain, the New Right arose in response to the agenda set by the Labour government that was elected in 1945. Labour’s victory was a surprise to the Conservatives who fought an aggressive campaign against the dangers of socialism, and which reflected their at best lukewarm response to the Beveridge Report of 1942, which laid the foundations for the welfare state after 1945 (Bale 2012: 13–14). The Conservatives recovered quickly, narrowly losing in the 1950 election but securing a majority in 1951. However, rather than roll back the reforms of the Attlee government, these were largely left in place, giving rise to the notion of a post-war consensus in British politics. This was the period of the golden age of capitalism, with high growth rates across the developed world, and although Britain did not do as well as some other countries, most notably West Germany and Japan, growth rates were healthy, inflation was generally low at around 3 per cent or less, and unemployment rarely went beyond 500 000, most of which was short term (Gamble 1988: 65). There was tension, however, over British national identity in the context of the beginning of the end of empire, post-war immigration and

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growing racism, and the Cold War. There was also the growing sense that though Britain was booming, it was doing less well in relative terms than its competitors, and in 1964 Labour was narrowly re-elected on a programme of modernisation, based around new technology, national planning and an incomes policy. This was not very successful and it was in this period that the New Right gained some momentum. There had been some challenges to the economic policy consensus in the 1950s, most notably the resignation of Peter Thorneycroft as Chancellor of the Exchequer in 1958 (and more junior Treasury minister Enoch Powell), who argued that greater limits on public spending were needed to combat inflation (Bale 2012: 53). Outside parliament, the Institute of Economic Affairs (IEA) was founded in 1955 by Antony Fisher, who made his fortune through mass-produced chicken farms, and Oliver Smedley, a Liberal who broke with Fisher and the IEA a few years later (Cockett 1995: 133). It was under the joint directorship of Ralph Harris and Arthur Seldon, from 1956, that the IEA really took off, and in 1959 it hosted the Mont Pelerin Society meeting at Oxford, amid considerable acrimony (see below). At this point the IEA was producing material that went very much against the grain of the post-war settlement, but some of which was to become policy in later years, such as the abolition of fixed prices (Yamey 1960) and the widespread closure of the coal mines (Tugendhat 1963). At this time Enoch Powell was regarded as the main economic liberal supportive of the ideas coming out of the IEA. Powell (quoted in Gamble 1974: 116) argued in 1964 that ‘[w]hatever else the Conservative Party stands for, unless it is the party of free choice, free competition and free enterprise, unless – I am not afraid to use the word – it is the party of capitalism, then it has no function in the contemporary world’. In the 1960s, the burgeoning New Right’s focus was less on economics (which would be central in the 1970s) and more on the cultural revolution taking place in Britain. Similar to Kristol in the US, conservatives were increasingly concerned with what they considered to be the breakdown in traditional values, the rise of nihilism and the consequent threat to law and order, throughout Britain but particularly in Northern Ireland. As early as 1968, Margaret Thatcher stated: [w]e started off with a wish on the part of the people for more government intervention in certain spheres. This was met. But there came a time when the amount of intervention got so great that it could no longer be exercised in practice by government but only by more and more officials or bureaucrats. Now it is difficult if not impossible for people to get at the official making the decision and so paradoxically although the degree of intervention is greater, the government has become more and more remote from the people. The

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present result of the democratic process has therefore been an increasing authoritarianism. (Thatcher 1986: 64–5, original emphasis)

Enoch Powell (1970: 108) similarly feared in 1970 that the crisis of government was such that ‘the majority are reduced to a condition in which they finally distrust their own senses … and surrender their will to the manipulator’. Powell (1970) argued for the extension of the free market, and against incomes policies, corporatism, trade union power, high income tax, high public spending and the growing welfare state. However, this economic liberalism was also married with a more conservative focus on the nation, and particularly immigration, culminating in his infamous ‘rivers of blood’ speech of 1968. This speech combined populist rhetoric with a barely disguised attempt to conceal this beneath a veneer of faux objectivity, with the result that by ‘using his speech to publicise the fears expressed by his constituents he took on the role of a tribune of the people attacking the conspiracy of silence of the progressive Establishment’ (Gamble 1988: 70–71). The right in the Conservative Party strengthened enormously in the context of disappointment with the Heath government of 1970 to 1974. Heath was elected in 1970 and there were some reversals of Labour policy around planning, industrial policy, as well as attacks on trade unions (the 1971 Industrial Relations Act) and incomes policy. However, in this period the economic situation worsened, alongside growing conflict in Northern Ireland, in the form of confrontation with trade unions and growing unemployment (Gamble 1988: 76). This led in 1972 to a policy of reflation combined with the previously criticised incomes policy, but talks broke down and led to a confrontation with the miners. In this period there were frequent power cuts, restricted television hours and a three-day week, and it was perceived by the government that the trade unions were actually running the country. Enoch Powell, still a Conservative Member of Parliament (MP) at this time before becoming an Ulster Unionist in October 1974 (after advising people to vote Labour in February 1974), voted against the Tory whip as many as 133 times (Gamble 1988: 77). Inflation increased in this period and for some ‘was taken as vindicating the monetarist critique of Keynesianism’ (Gamble 1988: 79). It was certainly true that the reflation after 1972 was made easier by the end of the fixed exchange rate system established at Bretton Woods. Friedman supported the shift to floating exchange rates but also argued that governments should meet monetary targets and not attempt to reflate in a futile effort to maintain full employment. This ignored the US policy of deficit financing, much of which was used to pay for the war in Vietnam, and the

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massive oil price rises of 1973 and 1974 (Brett 1983). Nonetheless, the monetarist critique of Keynesianism had an instinctive appeal in the context of growing or high rates of inflation in much of the 1970s. It was above all the economic crisis, and specifically inflation, and the perceived power of the trade unions that was central to the increasing influence of the New Right in the 1970s. Milton Friedman’s ideas became increasingly influential in Britain following his speech to the American Economic Association in 1967, where he repeated his argument that inflation was a monetary phenomenon and so there needed to be strict control of the money supply (Friedman 1968). Keynesian full employment policies were inflationary, which eroded competitiveness, and so there was a need for an anti-inflationary policy based on control of the money supply, which in turn also meant a reduction in the public sector borrowing requirement (Friedman 1976b; Minford 1980). While trade unions did not cause inflation, wage rises in effect priced some workers out of jobs and therefore led to unemployment, as wages rose above market rates. Hayek (1972b: 119) therefore concluded that we must ‘restore the effectiveness of the price mechanism’ and that the ‘chief obstacle to its functioning is a trade union monopoly’. Seen in this way, as Alan Waters suggested in 1976, ‘the IEA was responding to a new demand for ideas that reflected the wider socio-economic predicament of Britain during the 1960s’ (cited in Cockett 1995: 159, original emphasis). More specifically, ‘[m]onetarism was the battering ram that made the breach. The result was a considerable widening of the political agenda’ (Gamble 1986: 32). A number of new initiatives started in this era, such as the formation of the right-wing Selsdon group in 1973, and the Salisbury Group which became popular under the lead of Roger Scruton from the late 1970s. These developments reflected leading Conservative Lord Blake’s observation in 1976 in The Conservative Opportunity that: ‘there are signs of one of those rare and profound changes in the intellectual climate which occur once or twice in a hundred years … There is a wind of change in Britain and much of the democratic world – and it comes from the right, not the left’ (quoted in Cockett 1995: 217). Most significant in this regard was the formation of the Centre for Policy Studies in 1974, which shared similar views to the IEA but which was directly linked to the Conservative Party. Indeed, the formal founder was Keith Joseph and he explicitly argued that the ‘aim was to convert the Tory Party’ (quoted in Cockett 1995: 237). In an early Centre for Policy Studies (CPS) publication, Joseph (1975: 4) stated that ‘it was only in 1974 that I was converted to Conservatism’, which in his case largely meant economic liberalism. Interestingly, in 1975 at a speech at Oxford, Joseph argued against laissez-faire (and implicitly the Chicago School), and sounded far

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more like an ordo-liberal, arguing that ‘government will need to ensure that there is genuine competition: there will need to be an effective policy to watch for and break up monopolies … So certainly I am very far from laissez faire’ (quoted in Cockett 1995: 252–3). This focus on the importance of competition did not fit so easily with a distrust of government, which appeared to be given the task of promoting the public good of competition, something that both Chicago and public choice theory had problematised. Equally, Friedman made the populist case that he was suspicious of big business and rather supported ‘free enterprise’, which he sometimes claimed was similar to the views of ‘small businessmen’ (quoted in Burgin 2012: 194). This focus on small business was an important part of the populist appeals of the New Right in Britain, although it sat uneasily with debates among neoliberals (see further below). The Tory electoral defeats of 1974, in the face of a campaign over who governs Britain, was a surprise and in 1975, Edward Heath was ousted as leader by Margaret Thatcher, who was identified as someone on the right of the party. Enoch Powell was no longer a Conservative MP, and so many on the right placed their hopes in Joseph, the main cheerleader for neoliberal ideas (see Cockett 1995: 245; Payne 2012: 78–9). His instincts as a politician were less canny, not least when he suggested the distinctly non-libertarian policy of restricting the number of children for those on low incomes (Gamble 1988: 81). Thatcher was an effective politician in opposition, first making her ‘neoconservative’ mark as someone hostile to détente and advocating a more confrontational policy towards the Soviet Union, in the context of growing revolution in the Third World. As we see in Chapter 5, by 1976, Labour had adopted a broadly monetarist policy, but Thatcher argued that ‘Labour’s conversion to monetarism was produced by circumstances, not by conviction, and would be reversed at the earliest opportunity’ (Gamble 1988: 90). Moreover, as Joseph had argued in 1976, monetarism is ‘not enough’ (Payne 2012: 78–9) as it only set the context for the extension of the free market, and there was the need to deal with trade union power. The CPS developed a strategy in 1977 for dealing with trade union power, entitled Stepping Stones (Hoskyns and Strauss 1977) which, argued for a gradual process of eroding trade union power, with a clear long-term goal of making trade union power ineffective. The Conservative shadow Cabinet was now far more openly critical of incomes policy, the influence of trade unions, attempts to introduce workers representations on company boards, high rates of taxation and nationalisation. One of Thatcher’s advisers, Norman Tebbit, compared trade union appeasers to French collaborationists (Bale 2012: 233), an ironic analogy given the fact that Lippmann Colloquium organiser Louis Rougier was actually close to the Vichy regime of Petain

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in France from 1940. In this period organisations such as the National Association for Freedom became heavily involved in labour disputes, successfully taking to the European court a case of three workers who refused to join a closed shop, and aiding companies in their efforts to bypass pickets such as that at the Grunwick dispute in 1977 (Cockett 1995: 221). However, it should be noted that during this period, inflation began to fall, there was the prospect of the windfall from newly discovered North Sea oil, the frequency of strikes fell and the rise in unemployment slowed down significantly. Nonetheless, there was a growing perception of a crisis of government and this in part was owing to the rise of the pluralist state that was the product of the democratic process. Friedman (1976b: 10) argued that the political mechanism’s central defect is that ‘it is a system of highly weighted voting under which the special interests have great incentive to promote their own interests at the expense of the general public’. Inflation was caused by government printing too much money in response to pressures generated by the pluralist state. The question thus faced by neoliberals in the 1960s and 1970s was similar to that asked in the 1930s, namely, in the context of the rise of collectivism, how can mass democracy be limited? Or, how does government deal with the problem of what Schmitt had previously called the politicisation of the economy (see Chapter 3), or what in the 1970s was called government overload (Crozier et al. 1975; Buchanan et al. 1978). Samuel Brittan (1975: 129) argued that the crisis of the 1970s was generated by the generation of excessive expectations placed on government and the closely related ‘disruptive effects of the pursuit of group self-interest in the market place’. This resulted in an ‘excessive burden … placed on the “sharing out” function of government’ (Brittan 1975: 130). Brittan (1975: 133, 135) thus advocated the return of a limited democracy, which conformed to the principle of democratic elitism along the lines espoused by Schumpeter (see Chapter 2). This is discussed further in Chapter 6. For now we need to take stock and examine in more analytical depth the relationship between neoliberalism and the New Right.

NEW RIGHT THEORY: THE CRISIS OF LIBERAL MODERNITY AND AUTHORITARIAN (NEO)LIBERALISM This section examines in more depth why the New Right shifted from being a fringe movement to part of the mainstream in the US and Britain

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in the 1970s. This was a product of economic slowdown and stagflation in the 1970s, and the perceived cultural crisis of the 1960s and 1970s. In terms of the economy, we need to understand the wider international context that existed after 1945 as a result of the Breton Woods Conference of 1944. This was based on a system of exchange rates fixed against the price of the dollar (to avoid the competitive devaluations of the 1930s), which was established as the international reserve currency, and which in turn had a value fixed to the price of gold (see Helleiner 1994; Kiely 2005). Initially there was non-convertibility of exchange rates fixed to the dollar so post-war macroeconomic policy focused on keeping interest rates low and maintaining domestic demand. Fiscal policy was also used to maintain demand, but with the growth of world production and world trade, liberalisation proceeded and controls were gradually relaxed. Monetary policy in the 1950s grew in importance but in the context of fixed exchange rates there was still scope for using fiscal instruments, such as taxation and government spending, to influence the level of demand. However, with the continued growth of production and trade ‘the difficulties of maintaining external balance and fixed exchange rates and a high level of domestic activity increased’ (Gamble 1986: 33; Brett 1983). The old trade-off between inflation and unemployment no longer seemed to work and rising US deficits undermined the system of fixed exchange rates against the dollar, culminating in the end of fixed rates and dollar devaluation in the period from 1971 to 1973 (Brett 1983; Gowan 1999). This shift from fixed to floating exchange rates, greatly strengthened the practical and theoretical case for monetarism. Fixed exchange rates had forced monetary control on national governments, since the result of excessive domestic expansion of the money supply would be to create inflation and a deficit of trade, which would have to be corrected if the established parity of the currency were to be preserved. Under floating exchange rates this external financial discipline was removed. The prospect loomed of unrestrained domestic monetary expansion and an acceleration of inflation. If no external financial discipline existed, it followed that governments needed to adopt definite rules on money supply so as to reduce inflation and currency fluctuations. (Gamble 1986: 33–4)

In addition, trade unions used their monopoly and hence coercive power in the marketplace (Hayek 1972b) which led to unemployment because they ‘cannot in the long-run increase real wages for all wishing to work, above the level that would establish itself in a free market’ (Hayek 2006: 267). However, while the crisis of stagflation was important in the shift towards neoliberal ideas, these were not the only reasons why the New

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Right became so influential. Important here was the power of New Right ideas in the context of the crisis of the 1960s through to the 1980s and beyond. For central to the New Right’s account of the crisis from the 1960s onwards was a cultural critique of liberal modernity, one which echoed the arguments considered previously in Chapter 2, in the context of liberal modernity’s crisis in the 1930s. We might even say that the inflationary crisis constituted a crisis for the consumer, whose ‘sovereignty’ was increasingly undermined by the state and its inflationary policies (Phillips-Fein 2009: 34–52), but the conservative crisis constituted a crisis for the citizen. At the heart of the conservative analysis of the crisis from the 1960s was what Daniel Bell (1976: 84) called the cultural contradictions of liberal modernity, in which ‘the social order lacks either a culture that is a symbolic expression of any vitality or a moral impulse that is a motivational or binding force. What, then, can hold the society together?’ This analysis owed something to the previous accounts of the crises of the 1930s, particularly that of Schumpeter. Irving Kristol (1970) made the neoconservative case that capitalism had succeeded in its promise to increase living standards and expand individual freedom. However, the liberal hope that these two factors would allow the individual to fulfil a virtuous life in a free and just society was far from secure. Indeed, on their own, the promotion of the first two factors had served to undermine the third. Neoliberals such as Hayek are too individualist and do not provide sufficient grounds for establishing political order. Hayek rejected the concept of social justice on the grounds that no single individual can distribute goods according to merit, and argued that the market distributes goods in a way that is beyond the intentions of any single individual, and thus according to the subjective preferences of many individuals (Kristol 1970). Hayek’s thought, and specifically his ‘thin rationalism’ is vulnerable to attack from both libertarians and conservatives, the former claiming that he is not sufficiently rationalist and the latter arguing that he is too much of a rationalist. The neoconservative critique challenged the rationalist, and indeed libertarian side of Hayek’s thought, and of neoliberalism more generally. Kristol argued that the liberal celebration of the individual is dangerously relativist and a recipe for nihilism. While Hayek’s critique of central planning and socialism is to be commended, his alternative celebration of the individual is dangerous. This is also true of Friedman (2002: 200), who argued that government intervention conflicts with ‘one of the strongest and most creative forces known to man – the attempt by millions of individuals to promote their own interests, to live their lives by their own values’. Kristol (1995: 96) noted that ‘if there is no superior

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authoritative information available about the good life or the true nature of human happiness, and if this information is implicit only in individual preferences, individuals have to be free to develop and express these preferences’. However, for Kristol, this opens the door to a libertarian nihilism in which individual preferences are paramount and there are thus no bonds to unite society. Echoing these concerns, leading post-war conservative thinker Russell Kirk argued that ‘economic self-interest is ridiculously inadequate to hold an economic system together, and even less adequate to preserve order’ (cited in Nash 1976: 151). This argument makes a powerful case against libertarians, although Hayek (2006: 130–41) himself does not simply argue that individuals are sovereign, and indeed he argues that the sovereignty of the individual only exists in the context of the general rules which underpin a free society. This argument again points to the paradox that lies at the heart of Hayekian theory, namely, that ‘[i]ndividuals are sovereign in the market order, and no one else can determine value. But individuals are not sovereign when it comes to determining the rules of that market order, particularly the moral and political rules’ (Gamble 1996: 113). Kristol’s critique, at least applied to Hayek, thus appears to be misplaced. However, Kristol does have a powerful response, which is that Hayek’s distinction between general rules and particular choices is unsustainable. Individual choice as expressed in the market will, if given free rein, impact on all spheres and not just that of the economy. The result is that a threat to both the polity and to culture can arise from the individualism of the liberal market order. In particular such a society lacks any grounds for establishing political obligation. Thus the 1960s counterculture is for Kristol every much a threat to liberal society as the collectivist threat was for Hayek in the 1930s and 1940s. In effect, Kristol inherits the tradition of Schumpeter and the idea that the contradictions of liberal society can undermine that order (Gamble 1996: 118). There is some overlap, however, with Hayek, whose political thought implies that the market order rests on institutional foundations inherited from the past (specifically the rule of law), which have increasingly been eroded by modern, constructivist rationalism including the false individualists of liberalism and socialism. Nonetheless there remains a significant difference and that is that Kristol believes that a strong Protestant moral code is necessary to ensure that freedom and virtue can be made compatible. This implies that political obligation and authority are just as important as liberty. Hayek, on the other hand, does not necessarily reject this argument entirely (and certainly not as much as Kristol thinks), but at least implies that as long as the institutions necessary for a free society exist and are defended, then freedom and virtue can go hand in hand.

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In terms of Hayek’s rejection of social justice, Kristol argues that society cannot be free if people do not also believe it is just, for ‘in the same way as men cannot for long tolerate a sense of spiritual meaninglessness in their individual lives, so they cannot for long accept a society in which power, privilege and property are not distributed according to some morally and meaningful criteria’ (Kristol 1970: 8). Drawing on Weber and Schumpeter, Kristol (1995: 118) argues that in the past, capitalism in effect had a claim to justice based on a correspondence between merit and virtue, derived from the Protestant or Puritan work ethic. This gave the market a moral anchor outside or beyond the market. Neoliberalism, by contrast, seeks to construct entrepreneurial subjectivity in all areas of life, not just the economy (Dardot and Laval 2014). Kristol (1995: 192–3) argues that capitalism lived off the accumulated capital of the Judeo-Christian tradition, but this had given way to a materialist society in which there was no moral anchor outside of the market. A variant of this argument was common in US conservative circles after the war (Kirk 2008) and, as we have seen, is actually present in Hayek, albeit with some considerable ambiguity.3 However, Kristol argued that neoliberalism was part of the problem and that the promises of modernity were unfulfilled amid the victory of nihilism (Kristol 1995: 92–105). As Bell (1976: 28) argued, the problem of modernity is ‘the problem of belief. To use an unfashionable term, it is a spiritual crisis, since the new anchorages have proved illusory and the old ones have become submerged’. What is needed to counter the aestheticisation of public life is a new (or restored) moral anchor. For neoconservatives, as we have already seen, this role can usefully be played by religion ‘even though they themselves may not be believers’ (Kristol, quoted in Drolet 2011: 101–2). So, Kristol’s argument is that republican virtue was an important source of restraint in the American tradition, but the development of modernity saw the transformation of the bourgeois citizen into the bourgeois consumer (Kristol 1995: 195, 336). It is at this point in the argument that Kristol (1995) links the crisis of modernity to the crisis of the American state in the 1960s, for: One used to be encouraged to control one’s appetites; now one is encouraged to satisfy them without delay. The inference is that one has a right to satisfy one’s appetites without delay, and once this ‘right’ is frustrated, as it always is in some way or other, an irritated populace turns to the state to do something about it. (Kristol 1995: 196, original emphasis)

This is a crisis that has some considerable parallels with the crisis of the 1930s, or at least that crisis as interpreted by conservatives, neoliberals

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and in some respects (particularly via elite theory), fascists (see Chapter 2). As Drolet (2011: 103) argues: The unconstrained pursuit of self-interest dissolves the citizens’ sense of obligations to each other and eventually erodes their commitment to the values embodied by the state. The effect of economic interests to promote themselves through the electoral system falsifies the genuinely political nature of the national interest by forcing on it concerns which ultimately belong to the private realm. Under such conditions, democracy ultimately becomes a threat to the reproduction of the liberal capitalist state.

Following Schmitt’s earlier critiques (see Chapter 3), the argument of neoconservatives is that the liberal state fails to mobilise the citizen, and instead reduces obligation to negative constraints about restrictions on the harm of other individuals. Thus ‘[w]hatever positive content life may have has to be filled by the individual himself’ (Fukuyama 1992: 188), as Fukuyama somewhat ambiguously concluded in his The End of History, a book otherwise known as a work of liberal triumphalism. How did neoconservatives aim to reverse this trend? Again, drawing on Schumpeter (2012), and Max Shachtman’s (1962) critical account of the rise of a bureaucratic collectivism in the Soviet Union, they first addressed the rise of a new class under the New Deal and extended by the Great Society programme. Schumpeter (2012: 151) argued that capitalism would be replaced by socialism and the main agent for bringing about this change would be the rise of an intellectual class, committed to egalitarianism in the name of liberal rationalism. As we have seen, Schumpeter argued that this critical rationalism destroyed old regimes, but it then ‘turns against its own; the bourgeois finds to his amazement that the rationalist attitude does not stop at the credentials of kings and popes but goes on to attack private property and the whole scheme of bourgeois values’ (Schumpeter 2012: 145). This development had laid the basis for a new class, which has a vested interest in the extension of public programmes (Kristol 1995: 208). The new class fails to recognise the limits of politics, and in promoting egalitarianism it attempts to eliminate all distinctions based on race, status, income, gender and, indeed, right and wrong. For Kristol (1995: 175), the war on poverty was actually concerned with the pursuit of power in the name of equality. Rawls (1971) and his egalitarian liberalism is a particular target of attack (Kristol 1995: 165), and Kristol rejects the notion that social justice can be equated with equality, instead arguing that inequalities ‘are generally perceived by the citizenry as necessary for the common good’ (Kristol 1995: 167). The politics of the new class have constructed a dichotomy between reasonableness and rationality, and in that regard

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replicate the errors of the French revolution (Kristol 1995: 186, 237). This utopian rationalism has played a central role in the crisis of liberal modernity as it has served to undermine institutions of integration such as the church and the president. It has led to a new distrust of authority, and politics has become a forum for the presentation of antagonistic alternatives rather than a bargaining process between elites. Liberal elites thus present themselves as morally superior but at the same time fail to take account of the constraints of politics,4 and thus disenchantment results. Kristol (1995: 196, 197) therefore argues that, ‘one cannot continue in a condition in which reality is always offending our expectations … the utopian impulse, in the end, must actively seek its own liquidation because it is impossible to sustain indefinitely’. In Britain, the new class referred to ‘the burgeoning bureaucrats of expanded local and central government; the new breed of “administrators” who control schools and hospitals and even the arts; sociology lecturers and others on the fringe of the higher education afflatus; so-called social workers with their glib pseudo-solutions to nonproblems’ (Johnson 1980: 72). In 1977, Alfred Sherman similarly berated the armies of social workers ‘recruiting armies of welfare claimants’ (cited in Edgar 1986: 74–5), while Enoch Powell (1969) earlier argued that this reflected a crisis of liberal modernity and regretted the ‘translation of a want or need into a right’. Neoconservatives therefore argued that there needs to be a cultural revolution, and that the state plays a central part in this process. In particular, they argued that the liberal elite needs to be challenged and, in the process, the welfare state should be restructured. As we saw previously, neoconservatives argue that the New Deal state has produced a culture of dependency, and not unrelated to this a white liberal romanticisation of ‘blackness’, part of which involves seeing crime as somehow more normal than employment (Himmelfarb 1995). The neoliberal focus on individual responsibility, and thus welfare retrenchment, is not enough, and neoconservatives see a case for state expansion which seemingly sits at odds with the claims of public choice theory (although we question this argument in later chapters). Rather than retrenchment per se, there needs to be a cultural shift, part of which is the establishment of a conservative welfare state. This would involve provision for those unable to work, such as the old and the ill, but which also promotes the recovery of American values such as hard work and family values. In this way, the welfare state is seen less as an institution to promote social solidarity by providing social safety nets for the poor, and more an institution which acts as a moral tutor. It thus ‘substitutes the “rehabilitative” and “solidarist” rationale that underpinned the post-war approach

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to social security for a retributive one by which welfare and social security benefits are made conditional upon certain moral behaviours’ (Drolet 2011: 113–14). This policy also entails an extension of law and order, as the state plays a central educative role, and in particular (echoing Schmitt’s critique of liberalism) it constructs a clear distinction between ‘us’ and ‘them’ and ‘friend’ and ‘enemy’, and thus cultivates the cultural homogeneity of the political community. As Drolet (2011: 119) argues: Neoconservatism negotiates the tension between its commitment to market capitalism and liberal democracy on the one hand, and its commitment to conservative socio-cultural values on the other, by means of a symbolic politics of security that places the myth of the undesirable other and the enemy of society at the centre of public policy debates. By doing so, neoconservative practices of statecraft translate into an executive-centred conception of politics in which the elite must produce social order through the sovereign allocation of right and wrong. Whether it is the demoralised street criminal, the welfare cheat, the illegal immigrant, the godless communist or the religious fanatic, the moment of antagonism and unease prompted by the identification of the enemy forces the liberal state to abandon its claim to value neutrality and give normative substance to the relationship between protection and obedience. It forces a transcendent element of irrationalism not admitting of compromise into the public sphere that negates liberal and pluralist conceptions of politics altogether.

This friend–enemy distinction is central to foreign as well as domestic policy, as we briefly saw previously. Central to this distinction within the US was the idea of a criminal underclass, and that this was largely African American in composition. As McCarthy (2009: 12) argues, ‘[l]ike racist discourses in the past, neo-racist discourses today attempt to explain away entrenched injustices by reference to their victims’ own shortcomings, which are now taken to be cultural rather than biological’. Much of this has at least some parallels with the New Right in Britain, but also in some respects the workfare policies of the Democrats and New Labour (Cooper 2016). As we have seen previously, the British New Right emerged as a significant movement in the 1970s against a background of the end of empire, the rise of racial tensions from the 1950s but especially in the 1970s, stagflation and relative economic decline, growing concern about law and order, the crisis of government overload and the perceived breakdown of political obligation. We also saw previously that much of this was linked to the perceived social disorder of the 1960s and 1970s, which the New Right in particular helped to construct, and specifically the moral panics around youth rebellion, black immigration and trade union militancy (Hall et al. 1978).

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The conservative strand of New Right thinking shared Thatcher’s concern with law and order and to some extent with ‘freeing the individual’ from the constraints of the welfare state, but some argued that ‘the value of individual liberty is not absolute but stands subject to another and higher value, the authority of established government’ (Scruton 1980: 19). Thatcher herself stated in 1982 that ‘[w]e are reaping what was sown in the sixties … The fashionable theories and permissive claptrap set the scene for a society in which the old virtues of discipline and self-restraint were disregarded’ (quoted in Edgar 1986: 55). Some even went so far as to argue that the 1960s had led to too much freedom, and that ‘the urgent need today is for the state to regain control over “the people”, to re-exert its authority’ (Worsthorne 1978: 149). The argument here was that in Britain there was not so much a lack of freedom but ‘excessive abundance … The trouble about Labour on this view is that it has set too many people far too free’ (Worsthorne 1978: 148; see also Cowling 1978: 9). This kind of thinking led Scruton to argue the need for government intervention into ‘any area of social life which is vital … to the strength of the social bond’, which included ‘family law, planning laws, laws which regulate the days and times when men may work, drink, or seek recreation, even laws which control the nature of permitted intoxicants’ (Scruton 1980: 80), although this does not prevent him from also arguing for sweeping cuts to local government, especially in planning and social services (see Levitas 1986: 93). Scruton (1980) also argued that there is a limit to reason and at least some of his arguments rested on intuition. As we have seen above, Kristol also argued that there were limits to reason and accused Hayek of being excessively rationalist, an argument which to some extent ignores Hayek’s own account of social evolution which gives at least some room to intuition (see above and Chapter 5). Hayek (1988) argues that intuition is the production of social evolution and that socialism was in some respects more intuitively natural than liberalism. Social evolution leads to a restraint on the natural appeal of socialism, although there is an ever-present danger that it will return, but this is not simply because of the rise of individual reason, which for Hayek is always limited. His argument is that spontaneous order arises through the actions of many individuals, and this is beyond the comprehension of any single individual. This again suggests that Hayek has a foot in both liberal and conservative camps, despite his objections to both of them. Equally, it also suggests that in so far as socialism is an ever-present intuitive danger, there is a need to construct neoliberal individuals and thus a role for the strong state, not least as a neoconservative moral tutor.

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As we have seen, in both the US and Britain, race was central to the rise of the New Right. Friedman (2002) opposed civil rights legislation but he did so on the grounds that government legislation was unnecessary and counterproductive. He argued that segregation reflected the absence of institutional alternatives to state education and that competition between competing private institutions was more effective as in the marketplace, the ‘man who objects to buying from or working alongside a Negro … thereby limits his range of choice’ (Friedman 2002: 101). The rise of multiculturalism was linked to the rise of a liberal elite, Alfred Sherman arguing in the Daily Telegraph in September 1976 that ‘the imposition of mass immigration from backward alien cultures’ was an attack on ‘all that is English and wholesome’ (quoted in Edgar 1986: 71). Hayek (2006: 405) had criticised Conservative nationalism in 1960, and had supported civil rights legislation in the US in the 1960s (Burgin 2012: 203), but in a letter to The Times in March 1978, he stated that, ‘ordinary man only slowly reconciles himself to a large increase in foreigners among his neighbours, even if they differ only in language and manners, and … therefore the wise statesman, to prevent an unpleasant reawakening of primitive instincts, ought to aim at keeping the rate of influx low’ (quoted in Edgar 1986: 71). This was a long way from the expectations of Friedman, that a free market, including for labour, could undermine racism. While neoliberals argue that the individual consumer, exercising choice in the marketplace is central to their understanding of freedom, in practice this was assumed to be the male head of the household. Thus, Papps (1980: 59) argues that ‘men will expect to specialize in market work and women will expect to specialize in household work’. Here there is considerable overlap with the conservative argument that the standard nuclear family with the male breadwinner is the norm and women have a particular role, expressed most candidly by Roger Scruton (quoted in Levitas 1986: 95) that ‘a woman’s body has a rhythm, a history and a fulfilment that are centred upon the bearing of children: this is what it means to be a woman’. Indeed, the centrality of the family with the male as head of household was central to the alliance between neoliberalism and neoconservatism (Cooper 2016). Thus, just as Daniel Bell (1976) argued that instant gratification was encouraged and facilitated by Keynesianism, Buchanan et al. (1978) argued that inflation was a moral as well as economic threat as welfare undermined individual and family responsibility. In practice, as Gamble (1986: 46–7) observed in 1986 most of the New Right, neoliberals included, ‘love to parade as “libertarians”, but the libertarianism of most of them is meagre. They apply it as a remedy to

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the ills of contemporary society only in miniscule doses. Few are libertarian about life-styles, or gender relations, or race, or defence issues, or crime and punishment’. Thus in terms of the family: [m]aintaining the solidarity and cohesion of families by non-market means is seen as an essential prop for a free market economy … On these terms the individualism of New Right economics is perfectly compatible with the individualism of many conservative politicians who proclaim the family as the foundation of social order and social discipline. (Gamble 1986: 47)

This reflects a tension within the New Right between its conservative and liberal sides, but equally it might reflect the fact that neoliberalism might champion ‘spontaneity’ in name, but actually supports a constructivist political project. Like Hayek, conservatives champion the importance of spontaneously grown institutions and activities such as language, law and morality. However, Hayek explicitly rejected conservatism on the grounds that it too easily resists change and champions authority at the expense of liberty. There is some similarity between Hayek’s (2013: 34–52) distinction between cosmos and taxis and Michael Oakeshott’s distinction between nomocracy and telocracy (Hayek 2013: 182; and see Chapter 5). This is reflected in the support given to limited politics by both conservatives and neoliberals, but the former object to the arbitrary use of state power and do not support limited government per se. In some respects neither do neoliberals, but they do envisage a limited role for government in the economic sphere in principle, even if in reality the boundaries between state and market are not and cannot be clearly made. From the conservative side of the debate, Roger Scruton (1980) argued that constraints on individual freedom should be judged on the basis of their impact on society, and specifically authority, rather than whether or not they infringe upon individual rights. These are not simply questions reflecting tensions within the New Right, however. These debates were also evident in debates at the Mont Pelerin Society in the 1940s and 1950s. Anti-communism became a major theme, with Lionel Robbins baldly stating that ‘[y]ou only get so far with the Russians … if you treat them as though they are not human beings’ and Michael Polanyi asking the questions, ‘[a]re we going to make the same mistakes as appeasement?’ (quoted in Burgin 2012: 105, 106). However, it was not only the Cold War that potentially united conservatives and neoliberals. At the 1947 meeting, Hayek advocated the development of a social philosophy that went beyond material enrichment and which, echoing Kristol’s arguments, advocated healing the

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breach ‘between true liberal and religious convictions’ (cited in Burgin 2012: 103). At the 1950 meeting, Wilhelm Ropke argued that the ‘dislodging of religion means the complete “politicization” of existence’ and the ‘relativization of everything’ (quoted in Burgin 2012: 114–15). Ropke again expressed his regret for the decline of what he described as traditional agriculture and the growing dehumanisation that occurred through unregulated competition. While some may have dismissed this as typical of the interventionist ordo-liberals, even the most libertarian thinker of them all, Mises, suggested some reservations about the cultural effects of capitalism (Burgin 2012: 114). These arguments echoed earlier concerns about the rise of mass society, and at the 1954 meeting James Buchanan stated that the ‘maintenance of free society may well depend on the removal of certain decisions from majority-vote determination’, so that the pressures for redistribution on the part of the masses could be averted (cited in Burgin 2012: 118). Repeating earlier interpretations of the rise of the Nazis, as well as earlier fears about mass society, Ropke (2009: 85) argued that democracy could ‘lead to the worst forms of despotism and intolerance’. Also, at the 1954 Mont Pelerin Society meeting Arthur Shenfield repeated the neoliberal argument that ‘[i]t does no service either to liberalism or to democracy to assume that democracy is necessarily liberal or liberalism is necessarily democratic’ (cited in Burgin 2012: 119). This suspicion of democracy pervaded thinking on colonial policy, and at the 1957 Mont Pelerin meeting, Arthur Shenfield argued that although in ‘a world completely safe for liberalism it might be right for the West to give up its bases and depart from its positions of power’, in ‘the world as it is, to do so is to betray the hopes of liberalism’, and ‘anti-colonialism, not colonialism’ was ‘the problem’ (quoted in Burgin 2012: 119). Karl Brandt was even more explicit, suggesting that for an ‘enlightened liberalism, the problem is not how to rid the colonial areas of the white people’ but rather ‘how to create, as soon as possible, conditions in the colonial areas under which the white people not only can stay but where more of them can enter the areas as welcome partners and friends’ (quoted Burgin 2012: 119–20). These debates were highly visible in 1950s Mont Pelerin Society (MPS) meetings, but became less visible from the 1960s onwards, although Kristol himself was invited to attend the 1972 MPS meeting, where he suggested that the organisation ‘has been winning an impressive series of battles but is in grave danger of losing the war’ (quoted in Burgin 2012: 211). Burgin (2012: ch. 4) suggests that this shift to a more economic-centric approach was caused in part by the major split in the MPS from 1957 onwards, culminating in the removal of Ropke as president in 1961 and the resignation of MPS secretary and benefactor

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Albert Hunold (see also Hartwell 1995: ch. 5). This laid the ground for the domination of the Chicago School under Friedman from 1962 and a turn to what he calls laissez-faire, a description previously rejected by neoliberals. Both the Chicago School and Hayek had by this time made their peace with large corporations and therefore had broken with the earlier arguments of ordo-liberalism, and the MPS moved in a more economistic direction from the 1960s, partly because of the growing influence of Friedman. The description laissez-faire also represented a useful shorthand for neoliberals as a critique of the post-war economic order. Growing economic problems allowed neoliberals to shift their emphasis away from the more overt elitism of the 1930s through to the 1950s, and instead present a more populist approach which emphasised the individual becoming free from the state. This was crucial not only to Friedman’s popularity as a public intellectual, but also the electoral appeal of Margaret Thatcher in Britain and Ronald Reagan in the US. This did not mean, however, that neoliberals were now anti-state or simply advocates of nineteenth-century laissez-faire, a point which applies to both neoliberal theory and practice as we see in the next three chapters.

CONCLUSION This chapter has traced both the development of neoliberal theory after the formation of the Mont Pelerin Society and the rise of the New Right in the US and Britain, in which neoliberal ideas played an important role. In particular, neoliberalism also saw significant developments in terms of a critical theory of inflation, and while monetarism is not necessarily neoliberal, the principle of sound money was used to critique neoKeynesian welfare and New Deal policies, and overly politicised states suffering from government overload. In so doing, the argument was made that government needs to get off the back of the individual. These arguments overlapped with the concerns of the New Right, and particularly conservative critiques of the welfare state, and the new class of public administrators. As the post-war boom faced increased economic difficulty, neoliberals increasingly presented themselves as classical liberals committed to the principles of limited government and laissez-faire. While in some respects this facilitated an alliance with conservatives, it also led to tensions, which continued once they had achieved power, for as Gamble (1996: 124) states:

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If the order of the civil association had been so corrupted by the evils which both conservative and liberal strands in the New Right diagnosed, there needed to be a period of struggle and reconstruction. The problem for both Oakeshottian conservatism and Hayekian liberalism was that such a project was a rationalist enterprise of the kind with which radical politics has always been familiar, but which they had always deplored … To restore limited politics, the Conservatives had to abandon limited politics … In this enterprise, the Conservatives were aided by the libertarians and economic liberals, who provided them with maps and plans for reconstructing every public and private institution. But these other groups proved dangerous allies. Libertarians and conservatives came to fear that the attempt to set the economy free, as Hayek prescribed, required a progressive extension of the reach of government.

However, we can perhaps go further than this, for we have seen that the New Right owes its emergence to a perceived crisis of democracy not unlike the arguments made by Schmitt, elite theory and ordo-liberalism and Hayek in the 1930s. Moreover, in the 1980s both conservative and liberal factions of the New Right converged on who their enemies might be, namely, liberal elites, welfare dependents, immigrants, trade unions and communists. In this context, the contradiction between the anti-statism of free market ideology, and the authoritarianism of the traditionalists, suddenly appears less acute. Indeed, in this sense, it’s possible to see Thatcherism not as a libertarian ideology, calling for the dismantling of the state, but as the articulation of demands for the reassertion of the parental authority of the state over its pampered and infantilized subjects for the firing of the indulgent nanny and the hiring of the no-nonsense martinet. From this perspective, the crucial role of the free market is not to emancipate the entrepreneur but to chastise the feckless, an instrument not of liberation but of discipline. (Edgar 1986: 75)

Seen in this way, neoliberalism’s attempt to champion spontaneity and freedom over constructivism appears less clear, and this is taken up in the next chapter.

NOTES 1.

It should also be stressed that tensions persisted throughout the formation of the New Right, particularly among intellectuals and organisers or various think tanks and movements. For instance, Robert Welch’s John Birch Society was hostile to much of the New Right (and preferred to describe itself as Old Right), and especially William Buckley, while Ayn Rand disliked most New Right figures and was very hostile to religion (see Burns 2009). However, these often petty disagreements did not prevent the formation of an alliance that can accurately be called the New Right. The more serious tensions are examined in the text of the chapter.

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2. Also before that, a speechwriter for Senator Joseph McCarthy in the 1950s. 3. The relationship between Hayek and Kirk and Buckley is very usefully explored in Burgin (2012: 140–45). Though he had some sympathy, Hayek declined to have his name associated with Buckley’s National Review, unlike Ropke who enormously admired the journal. At the 1957 St Moritz MPS meeting, Kirk attended but was ambushed by Hayek’s speech, ‘Why I am Not a Conservative’, which became the basis of his appendix to The Constitution of Liberty (see Chapter 5 in this book). Kirk for his part wrote a critical response to the ‘excessively rationalist’ MPS in National Review in October 1961, arguing that the Society should have been called ‘The Jeremy Bentham Memorial Association’. As we see in Chapter 5 in this book, for Hayek, Bentham was guilty of precisely the constructivist rationalism which took liberalism down a wrong route (though neoliberalism is equally guilty in this respect, as much of the book argues). Aaron Director, Milton Friedman and George Stigler wrote a response to Kirk in National Review in December 1961 (see Burgin 2012: 145). 4. The irony of neoconservative calls on the limits of politics in terms of US foreign policy, particularly in the George W. Bush years, has already been noted earlier in the chapter.

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5. Neoliberal theory: the core ideas This chapter examines in more depth the key arguments made by neoliberals. Unlike the previous two chapters, the focus here is thematic and analytical rather than historical, with a particular focus on political philosophy and political economy. At this stage I mainly focus on presenting the ideas in depth rather than providing a critique of these ideas, which is the subject of later chapters, although the discussion undoubtedly implies some initial level of criticism. Nonetheless, this chapter is necessary in that it clearly outlines the key tenets of neoliberal thought, and briefly hints at and shows how these have influenced neoliberal practice. For the purposes of clarity, four themes are identified although there is some considerable overlap with the arguments presented in earlier chapters. First, the question of the individual and freedom. Second, the question of the limits of state power, intervention and the importance of the rule of law. Third, the question of how to limit the concentration of power in modern societies, in which some concentrations of power are acceptable and some are not. Fourth, the question of money and inflation. Finally, following from the previous four points, in the conclusion to the chapter we briefly examine some of the internal tensions within neoliberal thought, which we have already alluded to in the previous chapters. This will be done through a brief focus on Hayek’s distinction between spontaneous and constructed orders, and it will be suggested that neoliberalism is itself an unavoidably rationalist, designed, project, an argument already implied in the previous chapters. However, at the same time, neoliberalism rejects rationalism, and while this might undermine its intellectual consistency, it is also a sign of its adaptability, flexibility and its seeming ability to never have to apologise for past misdemeanours.

THE INDIVIDUAL AND FREEDOM This section outlines the neoliberal case for freedom. As we will see, this is largely defined as negative freedom in that it involves allowing individuals to be free to pursue their own goals and interests, as long as these do not infringe the rights of others. This negative view of freedom 95

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is then related to a ‘limited’ role for the state and an emphasis on the importance of private property and the free market as important sources of liberty. Hayek (2006: 18) defines freedom as ‘that condition of men in which coercion of some by others is reduced as much as possible in society’. The role of the state is to prevent the coercion of one individual by another through the law. In this account freedom is the absence of coercion and is to be valued as it allows individuals to follow their own plans (Hayek 2006: 20). The rule of law only sets the framework for what that plan might be, and it does this by preventing coercion by one individual over another. The state does not play a role in setting common goals, and it does not therefore provide for a minimum set of goods which might then be utilised to follow a coherent plan of life – although, as we see later, Hayek did allow some important exceptions to this rule. Neoliberals are thus largely committed to a negative view of liberty, which corresponds with Berlin’s (1969: 121–2) famous distinction between negative and positive liberty in which the former refers to ‘the area within which the subject – a person or group of persons – is or should be left to do, or be what he is able to do, or be, without interference by other persons’. In this definition of liberty, the focus is on freedom from external constraints, and not the positive pursuit of common goals or ends. The individual should be left alone to pursue their own individual ends, provided this does not lead to the coercion of other individuals. This theory of rights is also characterised by a high degree of clarity, as it also means that the duties which follow are transparent and general, such as the right not to kill or to take someone’s property. In contrast, positive freedom asks ‘what, or who, is the source of control or interference that can determine someone to do, or be, this rather than that?’ (Berlin 1969: 121–2). In the positive conception of liberty then, the focus is very much on the abilities, powers, capacities and resources for individual self-determination. For neoliberals, this conflates freedom, on the one hand, and power and ability, on the other, and this is unsustainable as no single individual has the power to do everything (Rothbard 2002: 42). Moreover, in conditions of scarcity, where resources are unavoidably limited, distribution of such resources is bound to be arbitrary and discretionary, and thus incompatible with the universal claims made for the rule of law (see further below). Furthermore, and not unrelated to this point, there is no clarity in the case of positive rights as to who has the duty to make sure such rights are enforced. A negative right infringement is categorical as it can identify an individual wrongdoer, but this is not the case with the promotion and enforcement of positive rights. Thus Steiner (1974: 35) argues, ‘[t]o ask

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whether an individual is free to do A, is not to ask a moral question. It is, rather, to ask a factual question, the answer to which is logically prior to any more questions about his doing A’. In contrast, duties to provide education, health, and so on, are open-ended, and deemed particularly problematic in conditions of scarcity, and this is central to the neoliberal critique of the welfare state, as we will see. Perhaps above all, positive freedom can have totalitarian political implications for, in supporting common ends as against individual interests, states can effectively impose what people’s interests are said to be in the name of a greater, common good. This was a central argument made by Hayek in The Road to Serfdom, as we saw in Chapter 3. As against the unconvincing claims made by positive freedom’s advocates, liberty describes the absence of a particular obstacle – coercion by other men. It becomes positive only through what we make of it. It does not assure us of any particular opportunities, but leaves it to us to decide what use we shall make of the opportunities in which we find ourselves. (Hayek 2006: 19)

It therefore follows from this definition of freedom that for Hayek, and for other neoliberals, that coercion must be intentional. Berlin (1969: 122) argues that coercion ‘implies the deliberate interference of other human beings within the area in which I would otherwise act’. For instance, a person acts coercively if they rob another person and leave that individual financially poorer. However, if that person is poor but not robbed, and their poverty is not the result of any intentional individual act, then that person is not coerced. Thus, and this is central to the neoliberal rejection of social justice, poverty is an unfortunate but not coercive outcome of market forces, and so there is no collective responsibility for dealing with this problem.1 For liberty to operate, Hayek (2006: 19) argues that four conditions must be met: ‘if he is subject to the same law as all his fellow citizens, if he is immune from arbitrary confinement and free to choose his work, and if he is able to own and acquire property, no other group of men can coerce him to do their bidding’. The first two conditions are relatively uncontroversial but this is not true of the latter two. The freedom to choose my own work might easily be contrasted to slavery or some other form of forced labour, but there is at least a hint of positive freedom, and the potential to recognise that my ability to work might be constrained by particular social circumstances. In terms of the acquisition of private property, questions might arise if a government only allowed certain groups to own property. Hayek is suspicious of planned action by government to change this situation. However, Hayek (2006: 120) also

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uses the example of monopoly ownership of a desert spring which he argues is coercive because of the nature of the good, water, which is a basic necessity. Whether this is consistent with his own account of freedom and coercion is questionable, because it implies that property rights are not the absolute principle he otherwise claims. On the other hand, he argues that an employment contract is not coercive, ‘even if I am “at the mercy” of the only man willing to employ me’ (Hayek 2006: 121). This is not coercive because an employment contract is an offer and not a threat. The monopolist spring owner intends coercion through withholding an essential supply, while the employer offering the employment contract does not intend starvation if the potential employee rejects the contract. This is consistent with Hayek’s freedom–coercion distinction and his insistence that the latter must be intentional, and his argument that poverty may be unfortunate but it is not unjust, as it is an unintended outcome of market processes. If freedom is defined as the absence of coercion by others, then there is a clear role for the state in preventing such coercion. However, at the same time the role for the state should, on the face of it, be limited to securing a framework for mutual non-coercion, and the rule of law is central to this task. The question then follows is that while the role of the state is quite clear in this scenario, how do we guarantee that this role will be confined to these limits? Here the importance of private property and the free market are central, because they guarantee those negative liberties which secure individual independence from the state, and thus leave people to pursue their own goals and express their preferences. This might take the form of choosing to dispose of, or utilise their private property in a particular way, but equally it involves individuals expressing their preferences through choosing to buy particular goods in the marketplace. Hayek (2006: 123) argues that there is a clear link between the absence of coercion and a free sphere, and the recognition of property. We can only carry out a coherent plan of action if we are in exclusive control of some material objects (Hayek 2006: 123). This sounds like an argument that each individual should have a positive right to property, and thus potentially a case for redistribution of property ownership. However, Hayek (2006: 123–4) argues that: ‘It is one of the accomplishments of modern society that freedom may be enjoyed by a person with practically no property of his own … and that we can leave the care of the property that serves our needs largely to others.’ That is, as long as ownership is not in the exclusive control of one agent, the distribution of property does not matter. This argument parallels the Chicago School’s case for private monopoly, as we see below.

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A related argument for negative liberty and the minimal state was also made by Robert Nozick (1974), a major libertarian thinker in the 1970s. Although strictly speaking not a neoliberal, his arguments overlap with key neoliberal contentions and so it is worth considering his work in some detail. Nozick makes a case for a state, albeit a minimal one, based on inalienable human rights. In a condition of nature a state will spontaneously arise among some individuals. Influenced by Locke’s Second Treatise (1980), Nozick argues that the state of nature was one in which people did recognise the right to life, liberty and property. However, problems arose around disputes over what constitutes natural law, over enforcement of rights, and so on, and so individuals cooperated in the creation of a minimal state. While this initially might take the form of a mutual protection agency, this remains too small and cumbersome. Competing commercial agencies do not resolve every problem, especially if there are disputes between members of different agencies, and so they join forces and form a dominant protection agency. This agency will eventually announce a monopoly on the use of force because it cannot risk the safety of its clients by permitting non-clients to punish its members. Those individuals who did not purchase protection from the agency are then compensated by extending to them the same level of protection, so that a monopoly on the use of force is now combined with strict territorial jurisdiction which applies to all. In this way a minimal state comes into being by a process that Nozick (1974: 18–21, 118) calls the invisible hand theory of the origins of the state. This minimal state is redistributive in the sense that protection of all will be financed from the tax revenues of some, but this is only to promote the negative rights to life, liberty and property, and not the positive rights of welfare and equality. Thus, any redistributive measure cannot be justified as it involves the use of coercive measures which undermine the rights of the individual (Nozick 1974: 160–74). For Nozick (1974: 160) then, just distribution is based on the principle ‘from each as they choose, to each as they are chosen’. It therefore follows that ‘a minimal state, limited to the narrow functions of protection against force, theft, fraud, enforcement of contracts, and so on, is justified; any more extensive state will violate persons’ rights not to be forced to do certain things, and is unjustified’ (Nozick 1974: ix). Individuals are entitled to their property and to dispose of it as they wish, as long as they do not violate the rights of others. While this might involve acts of philanthropy (Nozick 1974: 265–8) and the voluntary financing of education, health care, and so on, this should not be an obligation as it violates the rights of the individual, for individuals ‘may not be sacrificed or used for the achieving of other ends without their consent’ (Nozick 1974: 31). The most important

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individual right is that of self-ownership, and this is not compatible with a share of society’s resources, as this implies that other individuals have a right over my own individual talents. Nozick’s case for limited government and the free market is grounded in rights. His starting point is that rights put ‘side constraints’ on an individual’s actions, and the individual must act within such constraints for their behaviour to be just. If A has a right to something, then, B, C and D have an obligation to not infringe that right. A person shapes their life according to their individual plan of action, and this gives meaning to their life. Principles based on common goals involve treating individuals as means to the ends of others. Each individual is separate, inviolable and so has an absolute property right to his or her own person, powers and capacities. However, the question then arises, for Nozick as it did for Locke, as to how through my labour I come to have a private, unquestionable property right in un-owned things? Following Locke, Nozick argues that the action of mixing my labour with un-owned things leads to the idea of a property right in those goods. The crucial question for Locke is the transition from when a person mixes his or her labour with a particular good, and how a property right is then bestowed on that good. As Plant (2011: 99–100) points out, Nozick actually problematizes this argument rather more than he makes a positive case for endorsing it. In particular, there are three difficult questions for Locke: 1.

What are the boundaries of what labour is mixed with? We only labour on parts of objects, why do we then have a right to the whole object? Why does mixing my labour which I own with something which I do not own lead me to own the whole thing, rather than losing what I own? Why should mixing one’s labour with something entitle you to the whole of that thing, rather than just the value added by your labour?

2.

3.

Nozick asks these questions only to avoid a fully convincing answer. Instead, he moves on to discuss the proviso that my original acquisition of property should not worsen the position of others. This is an important question in situations where there are few un-owned resources left to be claimed by individuals. For Nozick, this is not so much a question of acquisition of property but rather one of access to and use of resources. What he argues is that private property will increase the overall social product but puts resources into the hands of those that can use them efficiently, for what Locke called ‘improvement’. In addition, private

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property encourages experimentation (as we do not have to convince others), risk-taking (as individuals bear the risk) and protection as there are many sources of employment. Private property and the free market thus do not run up against the Lockean proviso because the position of others (not holding property) is not worsened. This echoes Hayek’s arguments concerning the unequal distribution of private property and Locke’s famous argument in the Second Treatise that the day labourer in England is better off than the king in an American tribe (Locke 1980: ch. 5). Nozick does actually discuss the case for social distribution, based on the principle of rectification, and we return to this in Chapter 12. For the moment we need to say a little more about Nozick’s (1974: 150–53) position on original acquisition, and what counts as a just acquisition. Similar to Locke, Nozick (1974: 171–2) argues that individuals enter the world with a right of self-ownership and acquisition is just provided that ‘as much and as good in common’ (Locke 1980: 277) is left for others to use. It is not altogether clear what Locke meant by this statement but it is unlikely that he meant that the acquisition of property is not justified in the case of a zero sum game. Nozick (1974: 176–8) suggests that appropriation is legitimate as long as no one is worse off than they would have been in a state of nature. This sounds like a utilitarian argument but it is based on rights, for ‘the argument is designed to show that those who do not own property and are excluded from the opportunity of doing so by initial acts of appropriation cannot complain that their rights have been infringed. This would be a legitimate argument only if their position had been worsened’ (Plant 2011: 102). This still leaves the question of the justification for the transfer of property. Transfer is just when it is voluntary and not coerced; that is, when it is compatible with the side constraints which embody the principle of inviolability. Similar to Hayek, Nozick sees coercion as an intentional act, but unlike Hayek, he analyses this in terms of rights. So in the case of the spring owner in the desert, Nozick agrees with Hayek that this is a coercive act. However, Hayek bases his argument on the nature of the essential good, whereas Nozick argues that it is coercive because of the lack of possibility of additional appropriation. Once these conditions are met, then the right or entitlement to self-ownership is considered to be more important than any other right. Taxation is justified in that it provides the resources for a minimal state committed to law, the defence of private property and defence, but beyond that it is considered to be a form of theft comparable to forced labour, because it undermines the individual’s right to dispose of their property how they wish, as long as it does not harm others (Nozick 1974: 169). This type of argument is implicit in those assumptions that tax cuts give back to individuals that

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which is rightfully theirs, an important example of neoliberal populism. This is discussed in later chapters, but Grover Norquist gives us a sense of how it has been used by American conservatives when he suggests that compared to taxation, ‘your average street mugger is an improvement. He knows it’s your wallet. He knows you earned the money. He just wants it for himself and he is straightforward enough to say “Give me your money, I have a knife”. Muggers understand this transaction’ (cited in Frank 2008: 241). Less crudely, and overlapping with Hayek’s position on unintended market outcomes, Nozick (1974: 161–3) uses the example of a famous basketball player, Wilt Chamberlain, to further his case. He argues forcefully against those theories of social justice which assume that there is social ‘pie’ which can be distributed according to particular patterns. For Nozick (1974: 155–9), and in contrast to egalitarian liberals such as Rawls (1971), justice is not about patterned distributions but is based on entitlements. Distribution cannot be examined in isolation from production and the property rights which gave rise to the goods that are produced, and if a person acquires goods through a voluntary transfer of goods from a just situation, than that person is entitled to those goods (Nozick 1974: 151). Thus, if we start from a position of perfect equality, unequal outcomes are bound to occur. Due to his prodigious talent, Wilt Chamberlain is in demand from a number of basketball teams, so to ensure that he continues to play for his existing team, he does a deal whereby an extra 25 cents for each home game ticket goes to him. At the end of the season, after 1 million people have paid to see the team’s home games, he ends up with a $250 000 bonus and so ends up much richer than anyone else. All of this has taken place through voluntary transfers and so is legitimate. The only way to alter this situation would be to infringe the rights of Chamberlain and indeed those people who chose to pay an extra 25 cents to that individual. This is an example of what Nozick regards as a legitimate transfer of property. Another libertarian thinker, Murray Rothbard (2002), argues that Hayek is wrong in that his theory of rights is derived from evolutionary change and not from moral theory. As a result, Hayek argues that rights are derived from government and the rule of law. Rothbard argues that rights create the rule of law and not vice versa, and for Rothbard, all rights are property rights. Freedom of speech can only be understood in the context of property rights as it can only be exercised on one’s own property or on someone else’s property if they allow it. Shouting ‘fire!’ in a theatre where there is none, is not wrong because of a supposed breach of public utility, but because it infringes property rights – in this case, the rights of the ticket owners if the owner shouts fire, or the other ticket

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owners and the property owner if a single ticket holder shouts fire. Seen in this way, we can then deal with the question of rationing free speech at say, a public meeting. Rather than be subject to the arbitrary will of the chair, it can be rationed via the price mechanism (Rothbard 2002: 116). In the case of the desert spring, Rothbard rejects both Hayek’s and Nozick’s (different) arguments about coercion and constraints on private ownership. He argues that the Lockean proviso that others not be made worse off cannot apply because, in a situation of moral subjectivism (which Hayek and Nozick advocate, albeit inconsistently) there is no way for this to be determined. Plant (2011: 109) describes Rothbard’s view: We now live with the consequences of those initial and now completely exercised forms of initial acquisition. Others will have acquired these titles through voluntary transfer – bequest and contract typically. So the rest of us, if we desire access to those legitimately owned resources, have to pay a market price for them. If the owner refuses to sell or rent, that is their privilege in a free society.

Despite their differences, it should be clear how these views impact on approaches which support the notion of social justice. In particular, neoliberals argue that cases for social justice and the welfare state wrongly conflate power and freedom. Neoliberals argue that injustice implies intention, and the unfortunate outcomes of market processes (such as poverty) are not intended. Furthermore, there can be no agreement on what is social justice, which in addition assumes the existence of social wealth existing independently of property rights, which is not the case. As a result, social justice attempts to uphold and promote positive rights, but these must be discretionary and arbitrary because they exist in conditions of scarcity. Neoliberals are not in principle opposed to a minimal equality of opportunity, in that intentional acts of discrimination should be outlawed in accordance with the rule of law.2 However, positive acts in favour of marginalised groups are not acceptable, as this is based on subjective acts of discretion by administrators and where there can be no objective criteria for distribution. This principle applies not only to, say, positive discrimination in favour of marginalised groups in labour markets, but also what amounts to positive discrimination in favour of marginalised groups through welfare state provision. What matters is not inequality, but only that the absolute position of the worse off improves – as we have seen, Nozick makes this case in terms of rights, whereas Hayek tends to make the case (despite his wider aversion to common goals) in terms of a thin utilitarianism. They go on to argue that improving the position of the worse off will be better done

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through the market mechanism rather than government welfare. This point applies to national welfare systems but also to international transfer mechanisms such as aid (Bauer 1971). This argument is made on the following grounds. First, in terms of freedom, as we have seen, the welfare state is incompatible with the rule of law because it must lead to discretionary and not general and universalisable practices. Second, in terms of outcomes, the price mechanism provides a crucial information system for buyers and sellers, and finance for welfare through taxation undermines this information system. A variation on this argument is the idea that incentives are needed for growth to occur and the tax system undermines these. Third, the welfare or social justice state will not necessarily work for the poor because it might be captured by the middle class and thus benefit more privileged groups. Fourth, in so far as the welfare state impacts on the poor, it is negative because it creates a culture of dependency, an argument commonly made by the New Right in the 1960s and 1970s (see Chapter 4) and various governments after the 1980s (see Chapters 6, 7 and 11). The American Enterprise Institute (1987) argued that dependency damages the poor by separating welfare dependents from the world of work, thus eroding self-discipline and thus autonomy. This has led to a number of policy proposals such as conditional welfare benefits (Mead 1986), but the danger here is that this can lead to an expansion of state power, and with it an extension of the discretionary powers of welfare officials, something to which we return in later chapters. In terms of neoliberal theory, Hayek did sometimes advocate social safety nets. One of the main arguments in favour of social justice and the welfare state is that it can meet people’s needs, as opposed to the wants and desires generated by the market. However, neoliberals tend to argue against the view that needs can be objectively defined, because they are always related to an individual’s goals and purposes, and therefore are subjective (Pennington 2011: 130–36). As we have seen, Hayek argues along these lines in his case against social justice but he also argues the case that the monopolist spring owner in the desert is acting coercively on the grounds that he is depriving people of basic needs. Hayek also accepts the need for a minimum safety net, but as Plant (2011: 123) asks, ‘how is this … to be set if not with reference to some account of basic needs?’ Alternatively, some have made the more libertarian case for ending benefits and leaving individuals to rely on family, friends and charities (Murray 1988), a position closer to Rothbard and Nozick. Nozick, for example, argues that any attempt to meet needs by collective provision is coercive because it leads to depriving people of their individual entitlements. So neoliberals have tended to debate the issue of

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welfare in terms of ending benefits, or making them conditional. In practice, as we will see, this dilemma has been central to neoliberal practice, especially the workfare policies advocated by neoliberal governments of both right and left. In effect, welfare has increasingly been redefined as a process by which individuals are forced back into the (labour) markets, rather than being regarded as a right for all citizens (see Chapter 7). This section has established that neoliberalism upholds an individualist view of freedom which is defined simply as the absence of coercion by others. The role of the state is therefore only to ‘coerce, coercive behaviour’, leaving the individual free to do as they please. Above all, this is secured by private property which established individual freedom from the state, a freedom that applies to all even if they do not own private property. This argument is not necessarily as clear-cut as it seems, not least because individuals might then operate collectively in ways which are regarded as threats to freedom by neoliberalism, or they might simply choose not to engage with the market. Collective action is acceptable provided it is voluntary but it is not acceptable when it leads to pressure on states to pursue a common good, precisely the problem that led to the emergence of neoliberalism in the first place. Failure to engage with the market is regarded as a choice made by individuals (and some states) by neoliberals, and this opens the way into support for all kinds of interventions to support the market (as Foucault and both ordo-liberalism and Hayek, suggested, and which has been central to third way interventionism as we will see). For now however, we must continue with our detailed analytical exposition.

THE STATE, INTERVENTION AND THE RULE OF LAW The second central factor for neoliberals is how to find ways that ensure the state is confined to appropriate forms of intervention. In Studies in Philosophy, Politics and Economics (1967), Hayek establishes a tripartite division between the artificial, the natural and an intermediate category. The artificial proceeds directly from human will, and the natural is independent of human action. The intermediate category, which is central to his thought, refers to things which are the outcome of human action but which are independent of any intention. This is central to his distinction between human action and human design, in which a taxis refers to planned and intended actions and outcomes, while a cosmos refers to an order independent of human will and design but not of human action. This has evolved naturally and spontaneously, and the

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market is one such example of a spontaneous order, which ‘rests not on common purposes but on reciprocity, that is on the reconciliation of different purposes for the mutual benefit of the participants’ (Hayek 1967: 163). Elsewhere he provides a broader definition, when he argues that spontaneous order is a state of affairs in which a multiplicity of elements of various kinds are so related to each other that we may learn from our acquaintance with some spatial or temporal part of the whole to form correct expectations concerning the rest, or at least expectations which have a good chance of proving correct. (Hayek 2013: 35)

In this spontaneous order, cohesion is based on formal general rules about what people cannot do, but do not set rules about what they can do. The spontaneous, market order is governed by law or nomocracy, but not by (common) purpose or telocracy. Society is a spontaneous order in which the market is central, though society also embodies some constructed orders such as government. The central role of the market in society reflects not only the division of labour, as in Adam Smith, but also the division of knowledge, which is fragmented throughout society and cannot be embodied in any single individual. For Hayek, all knowledge is partial and limited, and so the task of philosophy was to discover the limits of reason. At the same time, this view of the limits of knowledge was central to the case Hayek made in favour of the market, because it coordinates the sum of individual ‘knowledge’ without any overall conscious direction (Hayek 1972a). The abstract market order does not ‘aim at the achievement of known particular results, but is preserved as a means for assisting in the pursuit of a great variety of purposes’ (Hayek 2013: 173). This point applies not only to the market order, but also to the rule of law. For Hayek, law does not emerge simply from the legislative action of a sovereign body, but also through an unintended process based on the interaction between many individuals. The sovereign does not so much create as enforce the content of the law. Common law develops spontaneously, as part of the norms and habits of existing society. At the same time, the rule of law: presupposes complete legality, but that is not enough: if a law gave the government unlimited power to act as it pleased, all its actions would be legal, but it would certainly not be under the rule of law. The rule of law, therefore, is more than constitutionalism: it requires that all law conform to certain principles. (Hayek 2006: 180)

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The question then arises as to why we should value the rule of law. Hayek, in contrast to Oakeshott (1962: 457) argues that the general rules and universalisability associated with the rule of law arose spontaneously, in an unintended way that met people’s needs (Hayek 2013: 169–96). This justification appears to accept the utilitarian argument that the abstract general order of the rule of law has certain ends or goals, an argument he is otherwise keen to reject (Plant 2011: 32). Nonetheless, Hayek then moves on to make the argument that a socialist or social democratic state is incompatible with the rule of law because it is based on a telocratic state which is particularist, discretionary and arbitrary. He goes on to argue that tradition and spontaneous order is central to the achievement of government by and through the rule of law. For Hayek (2013: 498), ‘[t]radition is not something constant but a process of selection guided not by reason but by success’. However, as Plant (2011: 34–5) argues, ‘the problem with this is that there is no guarantee that a spontaneous order rooted in a tradition of behaviour, however vivid and dynamic, will produce results favourable to a liberal society and the Rechtsstaat ideal’. If this is the case, we cannot simply accept tradition in the way that Hayek implies and some critics, including neoliberals (Buchanan 2000: 13), have suggested that there is a crucial contradiction in Hayek’s thought here (see also Gray 1998: 69–70), namely, one between accepting tradition uncritically and dealing with ‘a process of selection’ incompatible with the liberal constitutional order and the rule of law. Shearmur (1996: 95) however suggests that Hayek can and does make a case for identifying desirable processes of selection from undesirable ones, and this is based on the ‘negative’ test of whether or not change is compatible with the adaptation of universalisable rules (Hayek 2013: 182–4). Hayek partly makes this case on the basis that societies have shifted from face-to-face to more general interaction, and the unintended effects of this interaction is what he essentially identifies as an example of spontaneous order. However, this (rather thin) historical case is also supplemented by a philosophical defence, which draws in particular on Kant’s argument concerning a rational basis for morality. If morality is to be rational, we need to specify the necessary and specific conditions for it to be rational, and this must be separated from the various specific goals that each of us might have. As moral laws should be held for everyone as rational beings, the principles of a rational morality have to be derived from the universal concept of a rational being. Universalisabilty rests on the principle of non-contradiction, which requires someone to consider that if something becomes a universal law, this must apply to a specific individual as much as to anyone else. If that specific

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individual rejects a law on the basis that it would apply to them, then they cannot support the law without contradiction. Hayek accepts this Kantian argument and then adds what is in effect a neoliberal twist. He argues that the law must be neutral between different goals and purposes and so the law must be formulated in such a way that legal requirements do not conflict with one another, and duties imposed by the law should be capable of being discharged to all people in similar circumstances. This is not possible in socialist systems because such a telocratic system secures goods to people in specific circumstances, and is therefore discretionary and arbitrary, above all because of conditions of scarcity. In the case of nomocracies which only secure general rules of conduct and thus negative rights, the duties of others in respect of such rights are duties of forbearance, of non-interference. Plant (2011: 38) thus summarises this distinction that is central to neoliberal defences of the rule of law: These duties of forbearance are forms of inaction and as such do not run up against scarcity of resources. Positive rights and positive freedom cannot form part of a rational moral basis for society because they offend against universalizability and in doing so bring in their wake the exercise of discretion by public authorities and arbitrariness in the distribution of resources.

Hayek thus argues that the rule of law is central to the preservation of a market order. Private law evolves through a process of spontaneous selection rather than the arbitrary will of legislators. Judges do not so much judge as arbitrate between private disputes, and so in this sense judges do not make, so much as discover, law. In this account liberty is the product of moral rules transmitted by custom and tradition, and their very generality prohibits any person from constraining others, which, as we have seen, accords with his definition of liberty. Law protects the individual against coercion by others, so in a regime of liberty ‘the free sphere of the individual includes all action not explicitly restricted by a general law’ (Hayek 2006: 189). For Hayek, individual rights are grounded not in Lockean laws of nature but in the rules of just conduct themselves (Dardot and Laval 2014: 131). Thus, for Hayek ‘everything depends on prior recognition of a “private” or “reserved sphere” guaranteed by general rules’ (Dardot and Laval 2014: 131). These general rules are primarily rules of composition of the protected, private sphere (Hayek 2006: 180–92). This recognition of a reserved sphere is central to his account of what constitutes legitimate and illegitimate intervention. For Hayek (2006: 195), ‘the rule of law provides the criterion which enables us to distinguish between

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those measures which are and those measures which are not compatible with a free system’. Hayek goes on: From the fact that the rule of law is a limitation on all legislation, it follows that it cannot itself be a law in the same sense as the laws passed by the legislator … the rule of law is therefore not a rule of the law, but a rule concerning what the law ought to be, a meta-legal doctrine or a political ideal. (Hayek 2006: 180–81)

The rule of law thus determines or governs the elaboration of general rules, and thus limits the power of the state, which should ‘act under the same law and therefore be limited in the same manner as any private person’ (Hayek 2006: 184). Three conditions must be met for true law to be realised: generality, certainty and equality before the law. Government may only infringe on a person’s private sphere as a punishment for breaking a general rule (Hayek 2006: 180–84). Above and beyond this respect for the rules of just conduct, there can be no discretionary powers targeted at an individual and his or her private sphere (Hayek 2006: 184). The state must be able to punish infringements of the rules of conduct and in doing so must have a monopoly on the means of violence (Hayek 2006: 184), but otherwise the state must act on the same terms as everyone else. The state must not be arbitrary or particular and thus must confine itself to the implementation of general rules. Interventions that distort the market, such as price controls or redistribution of income or wealth, are particularly dangerous as they undermine the freedom of a spontaneous order. Notions such as social justice are incompatible with a catallaxy, and can only exist in telocracies, which undermine freedom. He goes so far as to claim that ‘[s]o long as the belief in “social justice” governs political action, the tendency to totalitarianism is present’ (Hayek 2013: 67). Although at times Hayek allows some space for social protection against extreme deprivation (Hayek 2013: 249), he argues that income distribution is simply the unintended outcome of the market order, and so can be neither just nor unjust (Hayek 1967: 171; 2006: 82–3). Any attempt to interfere in the market-based allocation of resources will benefit special interests, and undermine both freedom and prosperity. These very general arguments are closely related to and can be applied to the crisis of the state in the 1970s (Chapter 4), which reflected the growth of ‘distributive coalitions’ (Olson 1971) influencing the state and enjoying particular and concentrated benefits, at the cost of the wider taxpaying public. While the costs were dispersed among such a large public, these gradually increased and had disastrous long-term effects

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which came to fruition in the phenomenon of government overload and the economic crises of the 1970s (Brittan 1975). This reflects the paradox of planning, in that the social justice state will bring into being all kinds of interest groups that make a claim on the state, but at the same time, as Plant (2011: 159) describes (but does not endorse), ‘the planning system necessary to maintain the patterned principle of justice, whatever it is, will in fact run counter to the legitimacy of such groups organizing their interests’. This argument replicates those concerning the crisis of the Weimar Republic in the early 1930s, and the associated suspicion of democracy that followed from this. The point here is that democracy can be dangerous because it potentially undermines the rule of law. Friedman (1976a) argued that the political mechanism’s central defect is that ‘it is a system of highly weighted voting under which the special interests have great incentive to promote their own interests at the expense of the general public’. We saw in the previous chapter how both Enoch Powell and Margaret Thatcher suggested that pluralist democracy led to outcomes which undermined individual liberty, and this reflected the wider neoliberal argument that democracy is problematic because it encourages precisely the discretionary state power that neoliberals regard as being a threat to the market order. The problem, as we have already seen, is that democracy encourages collectivism and the extension of discretionary bureaucratic decisions rather than a rules-based system which is compatible with freedom and the market order. This is particularly problematic in democracies as politicians carry out short-term policies in order to win (buy) votes at elections (Tullock 1976). However, short-term measures designed to alleviate unemployment cannot work in the long term as government expansionary policies lead to inflation, which undermines the market order by distorting the price mechanism. Once again we see how the suspicion of the state quickly becomes suspicion of democracy, which in turn can be traced back to the ‘fall’ of the liberal individual and ‘rise’ of mass society. As we saw in Chapters 2 and 3, this argument was used to explain – in part at least – the crisis of liberal modernity in the 1930s. For Wilhelm Ropke (1998: 130), liberty was undermined by the concentration of private power and rise of large corporations, and by a revolt of the masses which destroyed the achievement culture. The task for neoliberals was therefore to restore individual freedom in the face of a revolt of the masses, and this must be done by a revolt of the elite (see Chapter 3). The individual entrepreneur must therefore be championed at the expense of large corporations and the welfare state, which means the promotion of a ‘policy towards the organisation of the market’ and the securing of

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the ‘possibility of spontaneous action’ (Eucken 1989: 45, 34). Neoliberals suggested that individuals should therefore not be dependent on the state but should instead be regarded as entrepreneurs, who should exercise responsibility for their condition. While the welfare state enslaves the individual, the social market economy frees the entrepreneur. This is an argument that has influenced neoliberal politics since the 1980s, taking in everything from the discourse of the undeserving poor against hardworking families, the need for clearly defined property rights to encourage entrepreneurship in the developing world, and the extension of financial transactions into ever-expanding areas and the rise of the ‘financialised individual’. For ordo-liberals, this meant that the promotion of a strong state was needed, not in the sense of a state that intervenes on behalf of vested interests (as in the case of a welfare state), but in order to guarantee market competition and therefore freedom (see Bonefeld 2012: 638–9). The question of what kind of strong state is particularly important. If mass society is regarded completely negatively then this has implications for how we might think about democracy. Neoliberals are not hostile to democracy per se, but there is clearly a concern that the collectivist pressures which accompanied the rise of liberal democracy has helped to undermine individual freedom. Hayek’s (2006: 90–102; also Talmon 1952) distinctions between democracy and freedom, and between totalitarianism and authoritarianism are relevant here. He argued that ‘[l]iberalism and democracy, although compatible, are not the same … the opposite of liberalism is totalitarianism, while the opposite of democracy is authoritarianism. In consequence, it is at least possible in principle that a democratic government may be totalitarian and that an authoritarian government may act on liberal principles’ (Hayek 1967: 161). While democracy is acceptable and indeed preferable as a form of government to others, it is not indispensable and can be problematic. This is because it encourages discretionary power on the part of states and the practice of interventionist policies which undermine market freedom, which explicitly does not include political participation by citizens (Hayek 2006: 101–2). Therefore a strong state is needed to defend negative freedom, but not to promote the positive freedoms associated with the welfare state and social justice. The neoliberal case against the welfare state, and state expansion in the name of distributive justice, is simultaneously a case for markets. The argument here rests less on the question of freedom, and more on the efficiency of the market order. Though Hayek in particular questions the view that individuals are simply rational utility-maximisers, neoliberals generally agree that individuals are largely motivated by

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self-interest. Hayek himself questions rational choice assumptions on the grounds that individuals simply do not have sufficient knowledge to make such choices, but it is precisely the limits of knowledge that leads him to make the case for free markets. In contrast, the case for expanded state provision is largely made on the grounds of the concept of public service, in which public servants develop a professional ethos based on a commitment to serve the wider public. Neoliberals reject the idea of public service (Buchanan and Tullock 1962), partly on the grounds that there can be no agreement on collective goals, common purposes, and so on, and partly on the grounds that this ‘realistic’ argument better captures what motivates individuals to behave in the way that they do. As state departments expand, so do salaries, budgets, staff, and so on, because state officials are motivated by self-interest and not by a commitment to a mythical public service. This expansion is made all the more easy by the discretionary nature of state provision, in contrast to the universalism of the rule of law and the market order. While social democrats argue this problem can be dealt with by democratic accountability, neoliberals argue that this is unlikely to be effective as the motivation and knowledge of the state official is likely to be far greater than that of the citizen. In the market sphere, self-interest is far more effective because the market disciplines dysfunctional behaviour. In particular, competition through the market means that only those individuals and companies meeting the needs of consumers will survive, and ineffective service providers will go bankrupt. In terms of solutions, some neoliberals argue that the state should be made to operate more like the private sector, and thus incentives should be made to state departments to cut budgets, improve performance through some observable measures, and so on. This is associated with the new public management (Hood 1991; Osborne and Gaebler 1993), and might include contracting out services to the private sector, league tables, and so on. This is discussed in depth in later chapters, but some neoliberals argue that this still suffers from the problem of information asymmetry between service providers and regulators or ‘customers’, and in any case this again implies an extension of the state. Libertarians therefore argue for a much more extensive rollback of the state (although generally do not argue for full-scale abolition in the name of anarcho-capitalism). In addition, some argue for the growth of the third sector, in which non-government and not for profit organisations within ‘civil society’ expand, as has happened in recent years. Civil society is considered to be a positive breeding ground for social entrepreneurs, competing for government or private sector funding, or for not for profit companies ploughing profits back into the company. In both cases, the market acts as a disciplinary mechanism, unlike the

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state sector. Arguments in favour of an expansion of the ‘third sector’ are not exclusively neoliberal, and a case can be made on the grounds that civil society can be a positive breeding ground for democratic citizenship (Mackintosh 1992). While the development of civil society based on voluntary organisations existing independently of the state is acceptable, neoliberals are far less sympathetic towards interest groups that attempt to influence and ‘capture’ the state. One of the arguments made in favour of interest group activity in the post-1945 period was that they provided a space for individuals to organise independently of the state. Moreover, they also provided a mechanism for representing otherwise isolated individuals in mass societies, who otherwise might be susceptible to collectivist and totalitarian ideas (Kornhauser 1959). These developments are welcome by neoliberals. However, unlike pluralist views of politics (Dahl 1961), which support the development of interest groups because these both promote and reflect the dispersal of power throughout society, neoliberals argue that these developments within civil society should not be politicised. This once again brings us back to the government overload thesis, in which too many demands are placed on government, resulting in the arbitrary and discretionary distribution of goods rather than the upholding of the rule of law. The result of the collectivist state committed to social justice is thus the erosion of the free market and the rule of law, and thus a creeping totalitarianism. Some of these ideas were also applied to the developing world, above all by Peter Bauer (1971), who argued that there is no such thing as the third world, and that the only thing that unites so-called third-world countries was their demand for aid. Neoliberals argue that demand for aid reflects unnecessary western guilt about colonialism (Bauer 1976; see Plehwe 2009b), and the argument for a specifically development economics, designed to analyse the specific situation of ‘third world’ countries was rejected (Lal 1984). Neoliberals were particularly critical of development strategy in the post-war period, and the rise of importsubstitution industrialisation (ISI). This was another example of state intervention which undermined freedom and efficiency. It involved state planning, and protectionism designed to foster the development of industrialisation though high tariffs, import controls and subsidies. This undermined market competition and therefore had the effect of protecting inefficient producers from competition. State regulations also encouraged corruption and rent seeking behaviour as officials used them to enrich themselves rather than promote a mythical public good (Krueger 1974). The result was low growth, inefficiency and lack of freedom. What should instead happen in the developing world is economic liberalisation

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and specialisation in goods in which these countries had a comparative advantage (Bauer 1991), openness to foreign investment, and the end of aid which encouraged dependence and precisely the kind of development planning that was part of the problem (Bauer 1991; also Easterly 2007). Ironically, in the period up to the 1980s, neoliberals were particularly hostile to the Bretton Woods institutions, the International Monetary Fund (IMF) and the World Bank, the former for its regulation of current account imbalances in the context of a fixed exchange rate regime, the latter for its dispensation of unnecessary aid. We see in Chapters 6 and 7 that these two institutions were central to the promotion of neoliberal policies in the developing world in the 1980s and 1990s. However, first we must continue with our analytical exposition and further examine the key arguments of neoliberal theory.

THE QUESTION OF THE CONCENTRATION OF POWER In attempting to limit coercion, neoliberals are particularly concerned with limiting the concentration of power in the hands of some institutions. This point applies above all to the state, which can undermine freedom, for reasons outlined above. In civil society, trade unions are also regarded as being problematic because they pressurise the state to exercise discretion in the market order. Trade unions distort labour market prices and make some economic activity unprofitable, and so create unemployment. They also restrict technological innovation, and so freeze employment patterns while market demand has shifted to new products (Joseph 1979). In order to enhance an economy not performing at full capacity, governments respond by promoting expansionary policies, but this too is at the cost of further distortions to the market order, and government overload (Hayek 1972a; and see above). This should all be familiar from the discussion that has already taken place but here I focus on a significant shift in neoliberal views towards private economic power, which was described in the previous chapter, not least in the case of the significant splits in the Mont Pelerin Society from 1957. Here I want to show how neoliberals justified this shift, and in doing so, perhaps hint at how this relates to one of the central paradoxes of neoliberalism, namely its tendency to shift from a position which emphasises spontaneity to one which endorses constructivism. In the 1930s and 1940s, neoliberals were generally hostile to the concentration of private economic power. We saw in Chapter 3 how the ordo-liberals in Germany argued against large corporations, and in favour

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of competition between a large number of small producers. One prominent ordo-liberal, Walter Eucken, argued that cartels had actually assisted Hitler’s rise to power (see Bonefeld 2016). What was needed was for the competitive principle to be embedded in the constitution, and so a strong state was needed to prevent the emergence of monopoly. As we see in Chapter 7, this influenced the construction of the European Community in 1957, though its ideals were increasingly eroded after this time. As was briefly detailed in the previous chapter, from the 1950s onwards, a ‘second’ Chicago School increasingly argued that monopoly might be justifiable, at least when compared with the alternative option of government legislation to prevent monopolies (van Horn 2009). Following Schumpeter’s arguments in the 1930s and 1940s, Aaron Director argued that monopoly might be efficient if it emerges from innovation and cost-cutting, which were by-products of the competitive process (van Horn and Mirowski 2009). In a famous paper Ronald Coase (1960) contended that the argument for the efficiency of decentralised markets rested on the assumption of low or no transaction costs, which hardly corresponds to reality. Transaction costs meant that we cannot assume optimality, and that this is an open question. He had earlier argued (Coase 1937) that this helps us to explain the nature of the hierarchical firm, rather than endless market transactions between employer and employee which are too costly and time-consuming. However, in his 1960 paper the principle of concentrated power was implicitly applied not only to the private firm, but to other spheres if society, and particularly government. Coase argued that neoclassical economists had previously assumed costless transactions and then place their focus on externalities, and on that basis made a case for regulation to deal with this market failure. However, Coase argued that transaction costs also apply in cases of regulation, which is a far from costless process, and that therefore economists should focus on examining which legal arrangements are the least costless in the aggregate, relative to other courses of action. He argued, for example, that the clarification of property rights between two individuals might be more efficient than a system of general (government) regulation, and they could settle damages among themselves. In a sense then, there is no perfect market, but contingent situations. However, although sceptical about how far his argument could be generalised (see Medema 2013: 169, 174), Coase at least implied that these can be quantified and measured on the basis of their capacity to enhance efficiency. This was taken up and developed further by the Law and Economics approach at Chicago, which essentially argued that law’s ‘basic function … is to alter incentives’ (Posner 1981: 75). The ordo-liberal tradition

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argued that law had a role in facilitating the freedom which was central to the market order. Competition was a basic principle that should be defended, if necessary by government action (Amato 1997). In contrast, the Chicago School focused on a comparison of public and private actions, including in law, and argued that the latter tended to be more efficient than the former. In this respect neoliberalism developed to not only challenge socialist planning, as in the 1930s, but also liberal ideas of justice which were increasingly displaced by the focus on efficiency. For the Chicago School, private self-interested decisions are by nature what people want, otherwise they would not select them, but public decisions are those made on behalf of others and therefore can be erroneous because we do not know what others want. At the same time the Chicago School argued that while individual preferences must be taken seriously, this is not identical with consumer choice. The attempt to square these apparent circles is central to understanding Chicago neoliberalism. Hayek and the ordo-liberal tradition (and Friedman 1951) argued that the price system coordinated the diverse forces in society, and in this way also acts as a guarantor of individual freedom. The Chicago School increasingly argued that, faced with a range of options (be they market or not), individuals will select the one which delivers the greatest welfare to themselves, however understood … any situation can therefore be analysed as if it were a market, even when it appears that choice making behaviour is neither free nor calculated.

What the Chicago School were in effect saying is that market-like behaviour can be ‘analysed according to a psychology of price, which may not be apparent to the agent being analysed’ (Davies 2014: 86, original emphasis). This approach can be contrasted with Hayek. As we have seen, his argument is that the market acts as a coordinator of the great diversity of decisions and plans, not made by collective agents but rather by individuals operating in the market place. Order thus arises as a spontaneous, unplanned process, which is beyond the control or comprehension of any specific individual. The Chicago School draws on but also partially transcends this approach, for as Davies (2014: 86) suggests: The Hayekian faith in ‘unconscious’ processes is converted, from a sociological level, whereby competition accidentally produces the best outcome, to a psychological level, in which pragmatically engaged individuals are not really conscious of what they are doing or why it works … ‘Price’ becomes a methodological tool, through which random, uncritical and complex behaviours are rendered empirical, quantifiable and judgeable.

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Thus in terms of monopolies, the US tradition of anti-trust law was codified in the 1890 Sherman Act, the 1914 Clayton Act (which led to the formation of the Federal Trade Commission, FTC) and the 1936 Robinson-Patman Act. These three Acts gave the legal justification for some resistance to mergers between competitors, and between suppliers and customers, and restricted price fixing, predatory prices and made cartels illegal (Posner 2001: ch. 2). While the FTC argued that high profits and the concentration of capital arose from anti-competitive behaviour, the Chicago School argued that they reflected the competitiveness of the most efficient companies. For Friedman (1970) the ‘social responsibility of business is to increase profits’. Coase argued that regulation led to inconsistencies whereby high prices were blamed on monopoly but low prices on predatory pricing, thus implying that the private sector was damned on all counts. Neoclassical economics recognised the existence of market imperfections and externalities and then made a case for regulation to deal with these issues. However, the Chicago School suggested that this argument assumed that regulation was a costless process, which was far from the case. Thus in the case of anti-trust legislation, the law was used to identify incriminating documents which showed the bad intentions of companies bent on undermining competition. The Chicago School instead argued that such intentions or norms were irrelevant and what mattered were measurable outcomes and effects. The question then was less one of consumer choice and more one of consumer welfare (Bork 1978; Posner 2001). Central to the argument of Posner and Bork was the view that we must factor in the costs of regulation and that monopoly through competitive efficiency was not necessarily problematic because ‘more efficient methods of doing business are as valuable to the public as they are to businessmen’ (Bork 1978: 4). This was a position that Hayek increasingly adopted as well. In a significant departure from his position in The Road to Serfdom, by 1960 Hayek (2006: 231) was arguing that: I have … become convinced that it would be disingenuous to present the existing monopolies in the field of labour and those in the field of enterprise as being of the same kind … I have become increasingly sceptical … about the beneficial character of any discretionary action against particular monopolies, and I am seriously alarmed at the arbitrary nature of all policy aimed at limiting the size of individual enterprises.

There did however remain some ambiguity around the question of private monopoly. Friedman (2002: 132), for example, argued in Capitalism and Freedom that enterprise monopoly ‘should be subject to … anti-trust laws’. Hayek (1967: 310) also expressed concern that the corporation as

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a legal entity undermines individual ownership assigned to concrete individuals, and suggested that the individual should have a legally enforceable claim to his or her share in the profit of a corporation, rather than having a situation where it was decided, on management advice, what part of profits should be reinvested and what part should be distributed as dividends. On the whole though, there was a discernible shift in the attitude to monopoly, which was reflected in the early 1960s split at the Mont Pelerin Society, increased distrust of government regulation including anti-trust laws, and the increasing influence of Chicago School lawyers in the formulation of public policy. Friedman (2002: 120) thus also argued that ‘I have become increasingly impressed with how wide is the range of problems and industries for which it is appropriate to treat the economy as if it was competitive’. Indeed, Hayek’s concern about management undermining individual ownership has in some respects been overcome through the doctrine of shareholder value, as we see in Chapter 10. What is perhaps most interesting in this respect are the possible implications that follow from this shift. What is also interesting is how Hayek can accommodate this shift and be consistent with his wider beliefs about the limits of knowledge. Hayek argues the case for the market order on the grounds that it coordinates the individual life plans of millions of people whose knowledge is limited to such a degree that collective plans are both impossible and undesirable. Concentrations of power also imply the concentration of knowledge and the partial erosion of the market mechanism. However, from the 1950s onwards the Chicago School was arguing that concentrations of private economic power reflect consumer welfare more than choice, and so it was acceptable for private monopoly to emerge. While state regulation took some of the blame for these monopolies, and the Chicago School emphasised the costs of regulation, at the same time they were equally at home with knowledge being concentrated in large corporations. Even more important, if the market mechanism is replaced by market price theory, so that any interaction can be analysed as if it was a market, then this has two enormous implications. First, it leads to the development of a new system of knowledge, in which the Chicago variety of neoclassical economics can be seen as a new area for technocratic expertise, in which all kinds of social activity can be measured and quantified according to price theory, which in turn incentivises human behaviour. Consumer welfare is a technocratic concept in which ‘judges and economists decide what is good for consumers’ (Crouch 2011: 55). This is a far cry from Hayek’s observations concerning the limits of knowledge. Second, and not unrelated to the first issue, this gives rise to various mechanisms for

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measuring social activity, including within the state itself. This opens up the possibility of constructing not only ‘the economy’, but also the state, and indeed the individual, according to neoliberal price theory (Davies 2014: 73–4). Chicago neoliberalism thus ‘transcends the classical liberal tension between self-interested agent and the patriotic duty of the citizen by reducing both state and market to the identical flat ontology of the neoclassical model of the economy’ (van Horn and Mirowski 2009: 174). In other words, we begin to see how neoliberalism is not only about a market economy, but is, in Foucault’s sense, a new political rationality, ‘extending a specific formulation of economic values, practices, and metrics to every dimension of human life’ (Brown 2015: 30). This is a society in which the individual is reformulated through ‘the dynamic of competition’ (Foucault 2008: 85). Thus, for Margaret Thatcher (1981) ‘economics is the method. The object is to change the soul.’ Particularly important here is the shift outlined in the previous chapter, from the neoliberal normative focus on freedom in the 1930s to the Chicago School emphasis on economic efficiency from the 1950s. For the shift from the market mechanism to market theory opened up the possibility of the extension of market principles to spheres other than the economy. While early neoliberalism thus attempted to deal with the question of the appropriate boundaries between state and market, later Chicago School neoliberalism attempted to eradicate such boundaries, so that the state could be conquered on the grounds that it should be analysed and assessed as if it was a market. This meant extending market principles into ever-expanding fields, such as culture, education and government. In particular, Coase’s arguments (above) laid the basis for the shift to price theory, and thus applying such a theory to sectors where the market mechanism was absent (see Foucault 2008: 163; Davies 2014). Chicago School economics is then applied to the family, education, the public sector and so on. Gary Becker (1976) thus argued that economics is not simply the study of the production, distribution and consumption of goods but is actually a science of human behaviour. All areas of life can be analysed through cost–benefit analyses which can thus tell us which particular choice enhances our welfare or utility (Becker 1976: 3–4; see also Levitt and Dubner 2006). Thus, Becker (1976: 10) even identifies ‘a market in marriages’ and argues that a person decides to marry when the utility expected from marriage exceeds that expected from remaining single or from additional search for a more suitable mate. Similarly, a person terminates his (or her) marriage when the utility anticipated from becoming single or marrying someone else exceeds the loss in utility from separation.

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This kind of cost–benefit analysis can be applied to all walks of life (although Becker himself stalled at applying it to the family once the marriage transaction was sealed). But again the role of the expert is enhanced because, similarly to Coase, Becker (1976: 5) is suggesting that people are not ‘necessarily conscious of efforts to maximize their utility’. Nonetheless, this is what they have done and Chicago economists can therefore be deployed to analyse this at an aggregate level, not just in the sphere of markets, but in all areas of social life. Some have argued that this amounts to the colonisation of economics into all spheres of life (Fine and Milonakis 2009). In an article approved by Gary Becker, Febrero and Schwartz (1995: xx–xxi) contend that many non-economic activities ‘are actually economic problems. Economic theory can thus help explain phenomena traditionally located outside the scope of economics, in the areas of law, sociology, biology, political science and anthropology.’ Indeed they approvingly refer to Becker’s methodology as ‘economic imperialism’. One way of understanding this shift is through a brief examination of Michael Walzer’s (1983) examination of the logics of different spheres operating in society, and in particular his distinction between monopoly and domination. The neoliberal position in the 1930s still held on to the notion of ‘monopoly’ in the Walzer sense, in that the existence of separate institutional spheres was recognised. While this led to authoritarian liberal solutions, in which (negative) liberty was to be supported at the expense (if necessary) of democracy, ordo-liberals supported social policies in the face of market dislocation, Hayek supported welfare safety nets and the first Chicago School supported nationalisations (see Chapter 3). However, with the opening up of the market principle to all areas of social life, the shift from monopoly to dominance was possible, so that Chicago School economics could be applied to all areas of society. This not only meant support for private monopoly, but also reform of the state according to market principles of efficiency. What this means is that neoliberalism is not only about privatisation, liberalisation and financialisation, but just as much it concerns the ‘marketization of the public institution’ (Dardot and Laval 2014: 218). However, this means that neoliberalism becomes an example of the constructivist rationalism that Hayek supposedly rejected.

MONEY, INFLATION AND THE MARKET ORDER One of the main arguments of neoliberalism is that sound money is needed for markets to function effectively. Neoliberals are far from

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united on how to achieve ‘sound money’, and Hayek (1976) himself shifted from a position which gave some support to central banks in order to deal with financial uncertainty, to a position in the 1970s which largely blamed external government intervention, including central banks, for economic crisis, and advocating a free market in currencies as an alternative to central banking. In contrast to Hayek, Friedman saw a central role for government in controlling the money supply, and argued that the Great Depression was caused by the Federal Reserve and its failure to increase the money supply at a time of economic contraction (Friedman and Schwartz 2008). For Friedman and Schwartz, in contrast to Keynes, the Depression was caused not by lack of demand but by a decline in the level of money in the economy (see also Bernanke 2000). This argument was related to his broader claim that an increase in government spending does not create employment, but rather it causes inflation. If government expands the money supply, employers expand output in response to rising prices, and unemployment falls and wages increase as a result. However, there is an unreal quality to this development as it is only workers’ money wages that have increased, not their real wages (as prices have also increased). Workers therefore press for higher wages in response to price increases, but this furthers the inflationary spiral. At a certain point, expectations are adjusted and some workers refuse or choose not to work and so unemployment would return, albeit at a higher rate of inflation (Friedman 1968). Although there were significant differences among them, this argument was as the heart of the neoliberal critique of inflation in the 1970s, and especially the (increasingly simplified) neo-Keynesian idea that governments could choose to trade-off a certain level of inflation for a certain level of employment (Phillips 1958). This argument was unconvincing in the context of high unemployment and high inflation, an increasingly common feature of advanced (and other) economies in the 1970s. The neoliberal critique of the social democratic state goes deeper than this. As we have seen, the crisis of the 1970s was central to the growing popularity of neoliberal ideas that were otherwise isolated in the period from the 1930s onwards. Keynes had argued that output is determined by effective demand and depressed demand can lead to a downward deflationary spiral. Government can play an important role in expanding demand and therefore influencing the level of output, and could do so through a combination of monetary and fiscal policies, including lower interest rates, direct government investment including public works schemes, deficit financing and redistribution of income as the poor are likely to spend their money rather than save it. In the 1970s, high

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unemployment existed alongside high inflation, which appeared to confirm the increasingly influential view propagated by Milton Friedman that inflation and unemployment should not be seen in terms of a ‘trade-off’, but that in fact in the long term inflation caused unemployment. Despite their differences, neoliberals agreed that inflation was the main problem because it undermined price stability and thus the price mechanism which coordinated the market order. In terms of monetarism the argument was made that an increase in the money supply will lead to a rise in the price of goods. In contrast to other neoliberals, Friedman argued that there was a role for government in targeting monetary policy, and in particular identifying a clear definition of money and ensuring a stable supply of money. In this regard, monetarism was in some respects an attempt to bind monetary discipline in the same way that the gold standard worked in the past. The control of the money supply and government spending is not necessarily neoliberal. For instance government deficits might be reduced by an increase in taxation. It is linked to neoliberalism in that the focus on the price mechanism is central, and in addition monetarists in the 1970s and 1980s tended to argue that there was also a need to restrict the role of government (beyond setting monetary targets) and promoting the free market. The argument here is well known, that the free market provides incentives which are conducive to higher growth, and that at least some of this growth will trickle down and so the poor will be better off via the market mechanism rather than via a welfare state. Indeed, some argued that lower taxes would increase growth at such a rate that it would actually lead to an increase in tax revenue for the state (Laffer 1986). Public spending crowds out the private sector through taxation or through government gaining access to limited supplies of money at the expense of the private sector, an argument re-made in favour of austerity in the context of the period after the 2008 financial crisis (see Chapter 8). Government priority should therefore be given to dealing with inflation, and government should resist the temptation to deal with short-term unemployment, and therefore should not attempt to buy votes (Buchanan 1967) or cave into the demands of distributive coalitions (Olson 1971). On one level this commitment to dealing with inflation could be regarded as an example of a telocratic government committed to constructivist rationalism. The neoliberal response would be that in fact low inflation is simply necessary for providing an appropriate framework for the market to operate (Friedman 2002). In terms of government spending, neoliberals accept the case regarding the provision of public goods, dealing with market failure and providing some basic welfare. Neoliberals argue that states should either not intervene in markets, or should

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only intervene in ‘market friendly’ ways, not only on the ethical ground of championing freedom, but also for reasons of efficiency. As we have seen, this meant in practice supporting policies where states only set the rules which allow markets to flourish, rather than intervening in ways that distort these markets. In the 1970s, some British neoliberals made the case for a bill of rights which would limit the legislative discretion of any democratically elected government in the name of individual freedom (Moss 1975). This begs questions concerning the boundary between states and markets, and neoliberals disagree among themselves where this should be set. As already noted, some argued for a free market in currencies so that sound currencies force unsound ones out of the market (Hayek 1976; Dowd 1992), while others suggest the more pragmatic approach of supporting central bank independence from immediate political pressures and vested interests. Where there is agreement among neoliberals is in their argument that states should not be vulnerable to political pressures and that, specifically on the question of money, inflation must be kept to a minimum in order to allow the price mechanism to work effectively in a free market (Friedman 1968; Hayek 1976). This led to advocacy of monetarism in the 1970s and 1980s, a policy based on the premise that government control the money supply and so they should not pursue expansionary policies which would lead to inflation. This argument enjoyed quite wide appeal in the context of stagflation in the 1970s in the developed world, and indeed high inflation in parts of the developing world in the 1980s. The central problem with its key contention was the assumption that government alone is responsible for controlling the money supply when in fact the supply of money can expand through the supply of private credit, a central feature of the financial crisis of 2007–08. Nonetheless, what in practice has happened in much of the world over the last thirty years is that governments have increasingly committed to prioritising low inflation, and central bank independence has been a key feature of this policy. The key argument made by Friedman was that state fiscal policy was not part of the solution to economic crisis, as Keynes had maintained, but it was part of the problem. James Buchanan similarly argued that when the state intervenes to prevent recession, expectations adapt, inflation increases and over the long run the real rate of unemployment is unchanged. However, public choice’s extension of this argument was to contend that in a democracy, politicians reflate to ensure re-election, so that inflation is an outcome of the democratic process. Italian neoliberalism argued a similar case but suggested that government deficits were as likely an outcome (Alesina and Ardagna 1998). In both cases, this is because politicians attempt to buy votes through the electoral process

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(Buchanan and Tullock 1962), and so once again the question becomes one of what should be done about restricting the scope of intervention to that deemed compatible with freedom and efficiency. George Stigler (1971) argued a similar position in relation to state regulation, which was supposed to be in the public interest, but was actually ‘captured’ by those who were supposed to be regulated. This theory of regulatory capture argued that there was therefore no neutral public administration, but that in contrast to state regulation, companies were accountable through the market. As we will see, this theory has been used by the left to critique neoliberalism, but in some respects it is a theory which can be part of a neoliberal rationality that serves to renew rather than undermine neoliberalism. The neoliberal critique of inflation and argument for sound money is not necessarily a particularly strong intellectual case, but as we saw in the last chapter, it did serve important rhetorical purposes in the context of inflation in the 1970s and 1980s. It has also led to a shift in macroeconomic frameworks in which the policy of full employment and high growth (or development in the South) has been given a secondary place, and low inflation has priority.

CONCLUSIONS: TENSIONS WITHIN NEOLIBERAL THOUGHT AND THE QUESTION OF CONSTRUCTIVIST RATIONALISM This chapter has drawn on political philosophy and political economy to identify the key components of neoliberal theory. There are clear tensions in how each of these commitments are implemented, above all, the issue of how the state protects, promotes and constructs the market order, and what is meant by the market order, including the implementation of market-based principles in contexts where markets do not exist. These ideas are also related to what we have already identified as libertarian and conservative tensions in neoliberal thought, and Hayek is particularly interesting in this regard. Thus, on the libertarian side, both Rothbard and Nozick share a common desire to found a libertarian politics on the idea of fixed, inalienable individual rights. They provide the principles against which all policy proposals and institutions can be tested. Hayek offers no such certainty. The ambiguities in his thought in some respects make him more congenial to conservatives, despite Irving Kristol’s objections (see Chapter 4). Yet Hayek remains firm that he is not a conservative, precisely because conservatives lack principles and

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clear criteria for determining what should or should not be done by the state (Gamble 1996: 111–12). This ambiguity in Hayek leaves him vulnerable to attack from both libertarians and conservatives, charged with both insufficient and too much rationalism. We have already seen how this tension played out within New Right and even strictly neoliberal circles, and the chapters that follow also reveal how this tension has pervaded neoliberal practice. Hayek (1967: 63) himself set up a rigid demarcation of the spontaneous order of the market, or cosmos, which is the outcome of individual interactions but not consciously designed by any one individual, against the designed, or rationally constructed orders, or taxis. However, this is never consistently applied, and ‘[w]hen it comes to actually organizing something, almost anything … suddenly the cosmos collapses to a taxis’ (Mirowski 2009: 425–6). This brings us back to the neoliberal case made for authoritarian liberalism in the 1930s, and the (ambiguous) relationship between neoliberalism and the Schmittian exception, in which neoliberals argue that an authoritarian political order is acceptable in order to reverse the collectivist conceit, and at the same time promote and construct an order of market uncertainty. In this way, Hayek can be regarded as a constructivist rationalist. Hayek’s distinction between spontaneous and constructed orders is therefore problematic, not least for the claims made for his own neoliberal project. However, we might add that the development of price theory and the extension of neoclassical economics to all social spheres by the Chicago School, opened up further possibilities for, and extensions of, a neoliberal constructivist project. This argument is developed further in the chapters that follow.

NOTES 1.

2.

Neoliberals and others also argue that poverty might be caused by other factors such as welfare policies, an argument briefly examined in the context of neoconservatism in the previous chapter and considered in depth in later chapters. Our focus here, however, is on the question of intention. Although see the discussion of Friedman on civil rights and Hayek on immigration controls in Chapter 4 of this book.

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6. Neoliberalism in practice I: the 1980s The first part of the book discussed some tensions in neoliberal thought, which include its conservatism and libertarianism, its elitism and populism, its attempt to properly demarcate the boundaries between state and market, and the tension between spontaneity and constructivism. We established that these tensions go to the heart of neoliberal thought. We now turn in the next two chapters to a consideration of neoliberalism in practice, and examine what we might consider to be neoliberal governments and governance, both in the developed and the developing world. This chapter mainly covers the decade of the 1980s, through three case studies: first the United States (US), chiefly in the Reagan era; second, the United Kingdom (UK), mainly in the Thatcher era; third, neoliberalism in the developing world after the 1982 debt crisis. The final section will provide a wider analysis of ‘neoliberalism in power’ in the 1980s, examining the relationship between neoliberal theory and practice, and thus the extent to which the cases can be considered examples of neoliberal practice.

THE UNITED STATES It was the Reagan presidency, elected in 1980, which is often regarded as the first neoliberal government in the US. However, the Carter administration before it (1977–80) did carry out some significant reforms, and had attempted to balance the budget and promoted some deregulation, particularly in airlines, trucking and financial services. The Depository Institutions Deregulation and Monetary Control Act 1980 gave more freedom to savings and loans associations and mutual savings banks to loan money, and the interest rate ceiling for bank lending was abolished. Inflation was also given central priority, particularly following the second oil price shock in 1979, and Paul Volcker was appointed Chair of the Federal Reserve in 1979. On 6 October 1979, interest rates were increased and a number of further hikes followed, and targets were set for monetary growth. 129

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However, the eight years of the Reagan administration was more explicitly both neoconservative and neoliberal. In particular the administration emphasised the need for tax cuts in order to stimulate economic activity, in accordance with the arguments of Arthur Laffer (1986), who suggested that tax revenues would not necessarily be adversely affected by tax cuts as the stimulus to economic activity would more than compensate. According to Reagan’s Budget Director, David Stockman, ‘our capitalist economy’s natural capacity to expand and generate new wealth and societal welfare was being badly hobbled by the sweeping anti-supply and incentive-destroying policies of the modern state’ (cited in King 1987: 143). The Reagan era did see a number of significant policies, such as tax cuts, confrontation with trade unions, and anticommunism. In this period there was a serious recession, both before and at the start of the administration (1980–82), then some recovery, a significant restructuring of US capitalism, increasing inequality and continued high rates of poverty. In foreign affairs, there was a new, second Cold War in Reagan’s first administration, and then a thaw in relations during Reagan’s second term, particularly as changes began to take place in the Soviet Union, two years after Gorbachev’s appointment as Communist Party General Secretary in 1985 (Halliday 1989). In terms of economic policy, there were tax cuts, control on the money supply, reduced (non-defence) state spending, especially on welfare, increased defence spending, and liberal economic reforms. The 1981 budget saw the start of a series of tax cuts, with the top rate falling from 70 per cent to 50 per cent in 1981, and then down to 28 per cent in 1986 (Stedman Jones 2012: 265). The tax burden for the richest 10 per cent fell by about 10 per cent in the period from 1977 to 1987 (Plant and Hoover 1989: 118). The first budget in 1981 saw the start of a number of federal government cuts on social spending, and although there was some resistance from Congress, between 1980 and 1983, government spending per capita for the poor fell from around $1700 to $1575, a 7.3 per cent cut (Plant and Hoover 1989: 113). From 1979 to 1984, the lowest 20 per cent in terms of income lost 23.8 per cent of mean income, while the next three quintiles lost 14 per cent, 10.5 per cent and 3.2 per cent. The richest quintile gained by 1.5 per cent (Plant and Hoover 1989: 115). The poverty rate rose from 13 per cent in 1980 to 15.3 per cent in 1983 so there were more people living in poverty in 1986 (32.4 million) than there were at the start of Johnson’s war on poverty in the 1960s (Plant and Hoover 1989: 115–16). By 1987, after economic recovery, the poverty rate for African-American children stood at 45.6 per cent (Plant and Hoover 1989: 126) and the incarceration rate for African-Americans increased by 68 per cent in the period from 1977

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to 1987 (Plant and Hoover 1989: 127). Some Reagan apologists argued that the figures on poverty rates were exaggerated because they often failed to include relief measures which provided some alleviation from the worst effects of poverty, including subsidised school meals, food stamps, Medicare and public housing. There is some truth to this argument, but it sits rather uneasily with the neoliberal claim that state benefits are at best ineffective, and at worst counterproductive, in dealing with poverty and these measures were increasingly targeted by the Reagan administration (Plant and Hoover 1989: 118). At the same time that tax cuts were introduced and attempts were made to cut relief for the poor, government spending increased. The Laffer hope that growth would be so great that tax revenue would not suffer proved to be a failure, and the reality was a massive increase in the federal deficit, from $700 billion in 1981 to over $3 trillion once Reagan left office (Stedman Jones 2012: 266). In the period from 1979 to 1985, around half of the jobs created were in low-paid service work, which paid less than poverty-level incomes (which, in turn put pressure on total poor relief state spending even as relief was cut for each individual family) (Plant and Hoover 1989: 120). The neoliberal argument that welfare cuts would have the effect of providing incentives for individuals to find higher rates of pay in the labour market was increasingly replaced by the conservative rhetoric of blaming welfare and poverty on lifestyle choices, such as the high rate of female headed households living in poverty (Murray 1984). This argument ignored the social pressures generated by welfare cuts, structural unemployment and the prevalence of low pay. Indeed, aggregate outlays for non-defence spending increased, as individual cuts to social welfare payments were more than offset by higher demand for such welfare, owing to high rates of unemployment and low wage employment (King 1987: 148–50). The increases in state spending that did take place were in large part a product of the big increases in military spending which occurred in the context of increasing antagonism between the US and the Soviet Union. The 1986 budget saw the first US trillion-dollar deficit, an unprecedented expansion. While welfare payments as a percentage of the budget saw a small fall of about 1 per cent (although this meant a real-term increase in spending), military spending increased from 23 per cent of the 1981 budget to 28 per cent by 1987 (Plant and Hoover 1989: 122). Some prominent neoliberals, such as William Niskanen, stated in October 1987 that ‘[w]e have a bigger government, with higher spending. We’ve slowed regulation down, but we haven’t reversed it. In other words, there was no Reagan revolution’ (quoted in Plant and Hoover 1989: 110). Echoing the earlier claims of public choice theorists, Reagan adviser David Stockman

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wrote in his book The Triumph of Politics: ‘By means of flagrant agitation and excitement of a democratic electorate’s most singular vulnerability – resentment of the taxation its collective demands for public expenditures compel – Ronald Reagan has transformed the nation’s institutionalized budgetary process into an extraordinary plebiscite’ (quoted in Plant and Hoover 1989: 110). At the same time as growing inequality, there were a series of corporate mergers. By this time, anti-trust regulation was increasingly influenced by the claims of the second Chicago School, and so there was a relaxed attitude to increased concentration and centralisation, and in the period from 1981 to 1986, corporate mergers increased by around 40 per cent. Premiums paid for takeovers soared, from an average of 25 per cent in 1960 to an average of around 50 per cent in the 1980s, with some cases having far higher rates (Plant and Hoover 1989: 108). In addition to budget deficits, the US ran increasing trade deficits in the Reagan era. These were financed by overseas investment, attracted initially by high rates of interest but also because of the fact that the dollar was the major international reserve currency (see further below). The high value of the dollar in the period before 1985 (after which there was a managed devaluation of the dollar against other currencies1) helped to fuel a consumer boom, including of imports from overseas, which in turn had the effect of helping to restore demand in the international order, particularly for countries like Japan which had a high concentration of exports (Schwartz 2000: 212). At the same time, Japan was a major foreign funder of US deficits (Brenner 1998: 184). Some argued that this reflected US decline (Kennedy 1989), although this thesis was quickly replaced by the suggestion that the US was a unipolar power or even an empire (Gowan 1999; Mallaby 2002), and some argued that the US increasingly exercised its hegemony through the promotion of a global, neoliberal capitalism (Panitch and Gindin 2012; Saull 2012; Kiely 2016), an argument challenged by the Trump administration in 2017 (see Chapter 13 in this book).

THE UNITED KINGDOM As we saw in Chapter 4, it was the Labour government in Britain that first shifted the focus of macroeconomic policy from prioritising full employment to focusing on inflation. We also saw that this occurred in the context of the stagflation of the 1970s, which combined higher inflation with growing unemployment. Labour’s conversion occurred

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before the government entered into a loan agreement with the International Monetary Fund (IMF) in December 1976, which was brought on by a balance of payments crisis and run on sterling. This was often presented as a technocratic solution in which there was no alternative, but the crisis was in part constructed and heavily politicised (Ludlam 1992), and the technocratic solution was music to the ears of the right of the Labour government. At the Labour Party conference in autumn 1976, Prime Minister James Callaghan stated that: We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists, and in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step. (Cited in Stedman-Jones 2012: 242)

The IMF loan came with conditions, which included the prioritisation of lower inflation, in part through public spending cuts. These had been in place to some extent since 1975, but they increased with the loan. This made a social contract with the trade union movement increasingly difficult and in effect this contract amounted to wage restraint, which in the context of high inflation meant significant wage cuts. Contrary to the New Right construction of this period as one of excessive trade union power, from 1975 to 1978 average real wages fell by 13 per cent, the worst fall since 1931–32 (Hay 2010: 450–51). The government attempted to impose a wage ceiling of 5 per cent in 1978. At this point, and contrary to the representation of the period as one of a crisis of government, overloaded by the burden of social pressure from different vested interests (Brittan 1975), inflation had fallen (but remained high) and the growth in unemployment had slowed, and Labour held a lead in the opinion polls. Prime Minister Callaghan surprisingly did not call an election in late 1978, and in early 1979, the Conservatives soared ahead in opinion polls in the context of what came to be called the Winter of Discontent (see Hay 1996, 2009). This followed a number of disputes in the private sector, in which workers won wage increases above the 5 per cent pay ceiling, and which left the government powerless. A public sector day of action was called on 22 January 1979 in which 1.5 million workers went on strike for a basic minimum wage. The Conservatives capitalised on this event, backed by a compliant media which represented the strike as a sign of the un-governability of Britain,2 and thus fed into the idea of government overload discussed previously in Chapters 4 and 5. As we also saw in Chapter 4, the

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Conservative Party in opposition were increasingly influenced by neoliberal and New Right ideas. Given that they won the 1979 election with 43.9 per cent of the popular vote, and a majority of 43, there was some expectation that this would be a radical government that would challenge the social democratic consensus of the post-war era. The first budget under the new administration, led by Chancellor of the Exchequer Geoffrey Howe, appeared to confirm these expectations. Direct taxation was lowered for average income earners from 33 to 30 per cent, personal tax allowances were raised, and the top rate of income tax was lowered from 83 to 60 per cent. In addition, there were new thresholds for investment income, cuts in land tax and the abolition of dividend controls. Indirect taxation such as value added tax (VAT) increased from 8 to 15 per cent and prescription charges were also raised. In accordance with the focus on inflation, the public sector borrowing requirement (PSBR)was reduced to £8.25 billion, public spending was cut by £1.5 billion and the minimum lending rate (MLR) increased from 12 to 14 per cent (Gamble 1988: 99). In addition, in the same year the market was extended so that restrictions on currency exchange were completely removed, and there were sell-offs of state assets at the National Enterprise Board and the British National Oil Corporation, and the closure of the steel works at Corby, owned by the nationalised industry the British Steel Corporation. Government stakes in ICI, British Petroleum, British Aerospace, British sugar and Cable and Wireless were also sold off in the period from 1979 to 1981. In its first 18 months of office, the government closed 57 quasi-autonomous non-government organisations (QUANGOs), withdrew the instruction to local authorities to organise schools on comprehensive lines, and introduced legislation to restrict picketing by trade unions and limit the closed shop. Even after the June 1979 oil price rises, engineered by the Organization of the Petroleum Exporting Countries (OPEC), and the start of a new and deep recession, the government continued on its course. The March 1980 budget announced the Medium Term Financial Strategy, which included targets for controlling the money supply and government borrowing. It was envisaged that the supply of money – defined as the total of coins and notes in circulation – would decline by 6 per cent by 1983–84 (Gamble 1988: 100). At the same time, the recession deepened, with inflation reaching 21.9 per cent in May 1980, the value of sterling rising sharply, thus undermining competitiveness and sending unemployment soaring (Gamble 1988: 101). Alongside selective public spending cuts, there were further pressures on living standards, especially for lowerincome earners, including council rent increases, further prescription

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charge increases and school meal increases. The increase in unemployment led to an increase in the social security bill, even as the government made access to benefits more difficult and eroded earnings-related additions to benefits (Hill and Walker 2014). The effect was an erosion of benefits for individuals but an increase in aggregate spending as more people became dependent on social security (Taylor-Gooby 2013). State spending was also deliberately increased in some areas, especially security and defence. The government committed to the replacement of the Polaris-led ‘nuclear deterrent’ by Trident in July 1980, although the previous Labour government had already put this plan in place, and the police and army both secured significant wage increases. But the government also honoured the Clegg Commission report on public sector pay, which recommended closing the gap between public and private sector wages (ironically undermining one of the Winter of Discontent myths deployed by the New Right). Given the severity of the recession, and despite the Prime Minister’s rhetorical aversion to U-turns, the government increased state subsidies in some areas, and in February 1981, the government retreated from a confrontation with the National Union of Mineworkers over pit closures (Gamble 1988: 103). There was particular pressure to sell off the assets of state-owned British Leyland, but instead there were some efforts to restructure the industry and make it profitable. Ironically this was under the stewardship of Industry Secretary Keith Joseph, but at this point there were no blue-prints for public sector reform. In autumn 1980 the MLR was reduced even though the money supply target figures were not met and fiscal spending was over target. For much of this period, the government was very unpopular but it won the election in 1983. An economic recovery occurred from 1982 and although it was claimed that this was a product of the sound money policies of the government, there was actually a general recovery throughout the developed capitalist world. In any case, monetarist policies had effectively been abandoned as monetary targets were commonly revised, usually in an upward direction. Also important in terms of the Conservative electoral victory was the surge in popularity that followed the 1982 Falklands conflict, and the divided opposition. In this period the administration took on many of its opponents, not only Argentina abroad, but the miners, print workers and other unions, ‘over-spending’ local authorities and the peace movement at home, and won. Riots were also a common occurrence, but were dismissed by most Conservatives as problems of law and order and the government largely ignored any wider explanations, including that of the official Scarman inquiry report (Scarman 1982). Despite continued redefinitions of who counted as unemployed, unemployment remained over 3 million in the

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period from January 1982 to July 1987, and it has been estimated that these revisions lowered the official count in 1987 by as much as 600 000 (Gamble 1988: 117). This period also saw the defeat of movements of opposition to what became known as Thatcherism (Hall and Jacques 1983). In the process this led in some respects to the centralisation of state power, for instance, through the abolition of metropolitan councils including the Greater London Council in 1986. At the same time, privatisations intensified, including of British Telecom, British Gas and British Airways in the second Thatcher government. While monetary targets were effectively abandoned (Thompson 2014), inflation rather than full employment remained the government priority. The government also cut the standard rate of income tax in 1986 and 1987 but there were actually real increases in public spending, financed by the proceeds of privatisation and North Sea oil. In the period from 1979 to 1987, asset sales reached £12 billion and oil revenues expanded in this period to reach up to £12 billion a year, which meant a larger total than the PSBR (Gamble 1988: 124). The third term followed electoral victory in June 1987, and there were further income tax cuts, more privatisation, but also a stock market crash in October 1987 followed by a short boom, and a further slowdown in 1989 and especially in 1990. This period also saw the introduction of the poll tax in 1989 in Scotland, and 1990 in England and Wales, which was a flat-rate tax which was enormously unpopular and helped to bring down Thatcher in November 1990. The other main factor was ongoing discussion around Europe, and especially the question of whether Britain should join the Exchange Rate Mechanism (ERM). Chancellor Nigel Lawson was in favour of membership, regarding it as a mechanism for prioritising exchange rate stability to keep inflation low, but he resigned in the face of ongoing opposition from Thatcher and her chief economic adviser, Alan Walters. It was John Major as Chancellor who finally won Thatcher’s approval for membership, which came into effect under Major’s premiership in September 1991. This was a Thatcherite policy in that it targeted inflation, but it went against the domestic monetary policy that was pursued in the early years of Thatcher, and in this sense it ‘might best be understood as representing the failure of the Thatcher governments over time to identify and pursue any kind of coherent or distinctive policy of their own’ (Thompson 2014: 61). The policy also ended in a fiasco when attempts to protect the value of sterling failed and Britain was forced out of the ERM in 1992. The changes undertaken in the Thatcher era, and in particular the agency of Thatcher herself, are sometimes exaggerated. We have seen

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that there were areas where she compromised and even retreated. Nonetheless, there were significant changes, but again we should note that at least some of these occurred across much of the capitalist world in the 1980s. As Gamble (2015: 11) comments, the ‘unleashing of unemployment and bankruptcy, deregulation and privatisation, and spending and tax cuts were designed to reignite the “creative destruction” and economic dynamism which had always marked the Anglo-Saxon model, shaking out inefficient firms and making space for new activity’. At the same time there was not the significant rollback of the state that Thatcher championed. Nonetheless we can identify six key features of Thatcherism which are compatible with neoliberalism, namely, liberalisation of the domestic market, deregulation of corporatist regulations, privatisation, the (tentative) creation of quasi-markets in the public sector, reductions in direct taxation and the internationalisation of the state and capital (Jessop 2015: 23–4). However, these were not unique to Britain and some actually started under the Labour government that preceded Thatcher.

THE DEVELOPING WORLD Although neoliberalism is often associated with the Thatcher and Reagan governments, in the 1980s it was perhaps above all in the developing world as a whole that it became most entrenched. Although the extent of neoliberalisation varied enormously from country to country, there is some justification in treating the developing world as a whole. This is because, in some respects at least, neoliberalism was regarded as an external imposition, in which it served to discipline countries to conform to the changing requirements of the international economy. In particular, neoliberalisation was regarded as something that was imposed on developing countries in response to the 1982 debt crisis, a product of ‘structural adjustment policies’ developed by the two institutions associated with what came to be known as the Washington Consensus (Williamson 1989), namely, the World Bank and the IMF. We will see in a moment that while there is some truth to this characterisation it is also something of an exaggeration, and there were significant domestic sources of support for neoliberalisation within developing countries. However, we also might add that there was something of an irony in the fact that the World Bank and IMF came to be seen as neoliberal institutions, because many neoliberal theorists were previously very critical of these institutions, which were a product of the 1944 Bretton Woods agreement, and thus tainted by association with a commitment to fixed exchange rates, capital controls and aid. Peter Bauer in particular

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was critical of aid because it represented a transfer of resources from government to government, when development should in fact be led by market forces. For this reason, he argued that the World Bank was both unnecessary and counterproductive, while IMF stabilisation policies were similarly castigated because countries and individuals should draw on loans from private rather than public institutions to aid their development (Bauer 1958, 1971, 1991). We therefore need to explain how these institutions came to be regarded as neoliberal, and here we need to contextualise the rise of neoliberalism by examining the causes and consequences of the 1982 debt crisis. This has to be located in the breakdown of the Bretton Woods agreement in the 1970s, the end of the post-war boom, the rise of international finance and the oil price rises of the 1970s. Briefly, the Bretton Woods system was the product of an agreement between the Allies (except for the Soviet Union) in 1944 in New Hampshire, in which a new post-war liberal international order was to be established once the war was won. This involved the long-term commitment to free trade, though in practice this was compromised by the failure to establish a formal international trading organisation until 1995, when the World Trade Organization was established. Instead, a more informal General Agreement on Trade and Tariffs (GATT) was established in which members would periodically meet to discuss and extend trade liberalisation. This was accompanied by a commitment to fixed exchange rates, in which the values of currencies were fixed against the dollar, the value of which was in turn fixed against the value of gold. Although it is often characterised as a Keynesian agreement, Keynes was the main British representative at the Bretton Woods meeting and he failed to get his way (Helleiner 1994). In particular, he wanted the establishment of new global currency, called the bancor, which could be used to recycle funds from surplus to deficit countries, and thus maintain demand in the latter for goods produced in the former (Davidson 2009: chs 7 and 8). Instead, the dollar came to play the role of the global reserve currency and, in the face of trade imbalances, the burden of adjustment would be placed on deficit countries. A new organisation, the IMF, would play a role in managing these imbalances, and providing limited funds for those countries in deficit. A second organisation, the International Bank for Reconstruction and Development, the most significant arm of which was the World Bank, was also established to provide concessional loans, or aid, to developing countries. This period also saw a commitment – from both the US and the Soviet Union – to the end of empires and the extension of formal sovereignty to the colonial world.

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In practice, this liberal order was always compromised. Cold-War considerations in effect meant that sovereignty was eroded by strategic thinking on the part of both superpowers, although this also sometimes gave newly independent states considerable bargaining power in their dealings with these powers. Neoliberals were also critical of the system of fixed exchange rates. This system was justified on the basis of the strong liberal argument that these would facilitate free trade as it undermined the kind of competitive devaluations that helped to undermine trade in the 1930s. Instead, neoliberals usually argued that the value of currencies should be determined by market demand and there should therefore be floating currency values (Johnson 1969). Even more problematic for neoliberals were the compromises in terms of free trade. The GATT system allowed for considerable flexibility. Few developing countries were members, particularly in its early years, and in any case considerable scope was allowed for protectionist policies through the Generalised System of Preferences (Bello 2005: ch. 5). While sometimes developing countries were critical of protectionism by the developed countries, such as the 1974 Multi-Fibre Agreement, which protected the clothing and textiles industries, the informal nature of the GATT also facilitated the development of protectionist policies in the developing world. This gave the green light to the dominant development policy of the post-war period, import substitution industrialisation (ISI), which was carried out by almost all developing countries in the period from the 1940s through to the early 1980s. This policy promoted the development of industry through protectionist policies and, in particular, the use of high tariffs, selected subsidies and even import quotas. For neoliberals, however, this commitment to ISI was wrong-headed. Following public choice theory, it was argued that this interventionism led to the growth of a self-interested bureaucracy, in which state elites enriched themselves through a process of corruption, in part facilitated by the regulatory system itself (Krueger 1974). For instance, the granting of licences for imports under a quota system meant that access to these goods was determined by state elites who regulated trade. Entrepreneurs thus put their efforts (and resources) into bribing these officials rather than creating wealth and thus promoting development. Following Hayek, it was also argued that state elites simply did not have the knowledge to plan effectively for the economy as a whole, and efforts to do so led to all kinds of unsuitable projects which were wasteful and inefficient (Easterly 2007). These problems were reinforced by aid, which was said to take resources from the private sector and thus undermine the wealth-creating private sector. The only motivation for dispensing aid was to assuage western guilt, which was unnecessary because ‘contact

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with the West has been the prime agent of material progress in the Third World’ (Bauer 1976). There were clearly problems with post-war development. Growth rates were uneven, poverty remained high and inequality persisted, and there were plenty of examples of disastrous state-led projects. However, it is an exaggeration to suggest that the era was simply a disaster. Growth rates for much of this period were impressive, from 1950 to 1975 averaging around 3 per cent per year (Glyn et al. 1990: 41–2; Maddison 2003). Nonetheless, whatever the strengths or weaknesses of the neoliberal critique of development, by the 1970s the post-war development project was seriously compromised. As we saw in Chapter 4, by this time a new offshore currency market had developed, known as the Eurodollar market. By the 1970s, growth rates had slowed and inflation was a major problem. The fixed exchange rate system had effectively collapsed when the US devalued the dollar and states increasingly abandoned their pegged rate to the dollar in the period from 1971 to 1973. In 1973–74, oil price rises sharply increased, and oil importing developing countries found that their import costs had increased enormously. This was exacerbated by slowing demand and therefore falling prices for many exports from the developing world. The windfall profits for oil producers expanded the Eurodollar market so there was now a petrodollar, as exporters deposited their windfall profits in western banks. These banks then loaned this money to a number of countries, including developing countries in Latin America. In the period from 1973 to 1982, the total outstanding debt of Latin America and the Caribbean grew at an annual rate of 25 per cent, twice the rate of export earnings and four times the rate of growth of gross national product (Kuczynski 1988: 36). In this period, interest rates were low and banks were happy to lend vast amounts of capital. By 1982, when the debt crisis exploded, the nine largest US banks had committed over twice their combined capital base to a handful of developing countries. However, while interest rates were initially low, the loans were usually set at floating rates of interest and as we have seen, interest rates increased substantially in the period after 1979, in the context of inflation and the rise of ‘neoliberal’ governments in the US and the UK. The London Interbank Offered Rate (LIBOR), used to set the basic rate of interest for loans to developing countries, increased from 9.2 per cent in 1978 to 16.63 per cent in 1981 (Corbridge 1993: 38). Developing countries – primarily in Latin America but also elsewhere – now faced an enormous debt burden in terms of high interest payments. At the same time, attracted by high interest rates, capital left the developing world and was invested in the US, and commodity prices fell by an average of one-third from 1980 to 1982 (Roddick 1988: 65).

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In 1982 there was the threat of default by a small number of large developing countries, such as Brazil and Mexico. In the context of the commitment of western banks to Latin America, there was thus a real danger of bankruptcy on the part of these same banks, for they faced the prospect of non-repayment of interest on loans having over-committed in terms of lending. There is a perfectly consistent ‘spontaneous neoliberal’ response to this (which we will come across again in relation to the 2008 bail-outs following that financial crisis), which is that this is a matter for the market, and thus these banks should be allowed to go bankrupt (Bauer 1991; see also Buiter and Srinivasan 1987). Alternatively, this could instead be regarded as a problem of international collective action. In order for banks to have guarantees that they would continue to receive interest payments on their loans, there needed to be more money loaned to these countries. Thus, from the viewpoint of all of the banks, it was rational for lending to continue. However, from the perspective of each individual bank, it was not rational at all, as there was no guarantee that all the other banks would follow suit. Thus, in the period from mid-1983 to mid-1986, bank lending to heavily indebted countries fell from $19 billion to $6.7 billion (Corbridge 1993: 53) – and as we will see, this latter figure might well have been a lot lower in the absence of measures to restore some lending. Following the principles of Keynes in 1944, some argued that there should be a collective mechanism by which finance from surplus countries was transferred to deficit countries, which would maintain demand in the system as a whole (Brandt 1980). For neoliberals, this solution came up against the moral hazard that it would allow the deficit countries to continue with the policies that had created the economic problems in the first place. In the absence of any commitment to allowing for widespread bankruptcy in the financial sector, what was needed from a neoliberal perspective was a solution which guaranteed continued interest payments, but which still placed the burden on those countries deemed to be at fault, namely, the indebted countries – that is, a constructivist neoliberalism. Ironically, this role was undertaken by the IMF, which policed the debt crisis and ensured that most financial institutions did not go bankrupt and that interest payments on the part of debtor countries were met. Perhaps even more ironic, it was this very policing that facilitated the extension of neoliberal policies in the developing world. At this time, the IMF and even the World Bank became increasingly populated by economists who owed some allegiance to neoliberal ideas (Toye 1987: ch. 4; Bair 2009), and the content of official reports at the time reflected this changing context (see World Bank 1981). In terms of the debt crisis, the assumption was that indebted

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countries faced difficulty, not because of any external factors like declining commodity prices or rising interest rates, but because of bad development policies. Although the rhetoric of rolling back the state was sometimes deployed, it would be more accurate to refer to the rolling back of ISI. While this rollback was uneven, sometimes contested and sometimes happily promoted, there was clearly a reversal of ISI policies in the period after 1982. The rationale for this was similar to those arguments made by neoliberal dissenters such as Bauer from the 1950s onwards, namely, that government intervention, or dirigisme (Lal 1984), undermined those market forces that could create wealth. Instead, what was needed was set of policies which would ‘free’ the economy from the restrictions and burdens placed on it by the state. That is, it was envisaged that indebted countries would promote what came to be known as ‘market friendly’ policies (see Chapter 7), which were sometimes (problematically) said to have been promoted in East Asian countries such as South Korea and Taiwan (Lal 1984). The extent of the implementation of such policies did vary, but there was a certain ‘family resemblance’ between them, and they included (selective) reductions in state spending, privatisation, and liberalisation of the economy, which meant reductions in tariffs, subsidies and import controls, as well as allowing currencies to float which often led to devaluations (Toye 1994). Implementation of these policies was a condition for the granting of new loans from the IMF, or even aid from the World Bank, and private financial institutions increasingly relied on an IMF seal of approval before granting new loans. What had happened was that neoliberal policies were in part a product of those institutions (the IMF and the World Bank, as well as states in the developing world) which were previously criticised by neoliberals as too committed to dirigiste policies. Neoliberals became less hostile to such institutions in the context of changing membership and ideas, but also because of the changed context in the international order.

CONCLUSION: NEOLIBERALISM IN THE 1980S – A PRELIMINARY ASSESSMENT The 1980s is widely seen as the first decade of neoliberal practice, in which governments influenced by neoliberal ideas carried out policies which rolled back the welfare state and New Deal policies in the developed capitalist world, and undermined statist developmentalism in the Global South. This extended conclusion makes some broad observations and analysis to assess whether this is the case, with a particular

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focus on the Thatcher administration in Britain. As we saw above, there is some evidence to support this assertion, and inflation did take priority in terms of macroeconomic policy, privatisations were common and finance was liberalised, particularly in 1979 and 1986–87. Direct taxation was also cut and trade unions were strongly undermined. There was also a reforming zeal to the Prime Minister which showed some real commitment to ideological politics, even on occasion citing Hayek. We also saw that despite this zeal, there were retreats and some considerable pragmatism, especially in education and health care. If we focus on fiscal policy, then we see that public spending as a proportion of gross domestic product (GDP) rose from 42 per cent in 1979 to 46 per cent in 1983 (Thompson 2014: 50). Although GDP fell after this period, it did not match the Thatcherite rhetoric of rolling back the state. While there were significant cuts in some sectors, in others there were increases. In some cases, such as social security, these were unintentional consequences of the rise in unemployment and in poverty, but in others – and not only in departments concerned with law and order, but health care too – it was deliberate policy. While there was some discussion of National Health Service (NHS) privatisation, and of student loans to replace the government grant system, these were not implemented. Again, some of this was due to possibly unexpected factors around welfare spending, but still the committed neoliberal might ask, why not cut such spending on each individual even more sharply, so that aggregate spending as well as individual benefits are cut. This is easier said than done, but it does show the limits of the neoliberal revolution under Thatcher (Pierson 2001). This becomes even clearer if we look at tax revenue as a proportion of GDP, which rose from 31 per cent in 1979 to 35 per cent in 1990 (Thompson 2014: 50). If we compare this with 1976 to 1978, public spending as a proportion of GDP fell by 4.4 percentage points in this period (Thompson 2014: 49). These figures do not tell the whole story, not least because of fluctuations in revenue based on the number of people in work, and in the case of the Thatcher era, tax revenue from North Sea oil. Nonetheless, they still tell something about the limits of ‘state rollback’. Also, while inflation did take priority in terms of economic policy, this did not necessarily mean that monetarist policies were consistently carried out. They were not, and nor could they be, for government and central banks do not control the money supply. Much of the debate on Britain in the 1980s focused on the end of the post-war consensus and the extent to which Thatcherism broke with the principles of conservatism, and specifically British Conservatism (Hall and Jacques 1983; Marsh and Rhodes 1992; Heffernan 2000; Kerr 2001). In assessing the impact and legacy of Thatcherism, there is a need for

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some care in making comparisons with the rest of Europe. For if Thatcherism echoed some general trends in Europe, one possible conclusion might be that all of Europe was neoliberal, rather than no one. However this would be a difficult argument to sustain, because Europe at this point was not regarded as in any way neoliberal, and it was only with the growing shift towards a single currency in the 1990s that some identified a growing neoliberal trend in Europe, as we see in the next chapter. More important is the fact that while in many ways the debate over Thatcherism is distinctive, focused largely on Britain, there is wider resonance with the wider discussion of neoliberalism, as the ‘Thatcher break’ is partly a debate over the extent to which her governments were ideological, and specifically economically liberal. It is thus useful to look at these debates in some detail, not least to more explicitly see how they relate to neoliberalism. As we saw in the previous two chapters, Hayek had an ambiguous relationship to conservatism, and was critical of its excessive pragmatism. For Ian Gilmour (1977), one of Thatcher’s strongest critics from inside the Conservative Party, this was precisely what was good about Conservatism. Hayek’s views to some extent paralleled that of Michael Oakeshott, one of the most influential British conservative thinkers of the twentieth century (see Chapter 4). Oakeshott was particularly critical of rationalism in politics, and rejected the idea that the state should be organised as an enterprise, dedicated to the pursuit of a common purpose. Instead the state should be a civil association, which allowed individuals to make their own choices and set their own goals. The role of government should be impartial and enforce general rules in accordance with current (and diverse) beliefs, but no more than this. Although Oakeshott was critical of what he considered to be Hayek’s excessive rationalism, his arguments were not dissimilar to those of Hayek’s concerning the rule of law, and ‘constructivist rationalism’ (see Chapter 4). In terms of the Conservative Party in the 1980s, Gilmour (1977) could claim the mantle of Oakeshott and suggest that the Thatcherite project was too rationalist and dedicated to a blueprint for the future, based on the promotion of the free market. In this way Thatcherism was a project based on the state as an enterprise and not a civil association. However, there is a ‘Thatcherite conservative’ response to this, albeit one that once again demonstrates some of the tensions within neoliberalism. At the level of theory, the argument might be that the Thatcher government was committed to certain common principles, but these were necessary for the state to operate as a civil association in the first place, as without them the market order could not exist and so individuals would not be able to pursue their choices and goals. Second, it could be argued that the grand

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project of Thatcherism was necessary to reverse the growth of the enterprise rather than the civil state (see Gamble 1988: 160). Seen in this way, doctrinal Conservatism is necessary in times of reversal and decline, as opposed to positional Conservatism in times of stability (Huntington 1957). Indeed, some Conservatives argue that the period from 1945 to 1975 was actually the anomaly in Conservative history, and not 1979 onwards (Blake 1976; Willetts 1992). There is plenty of historical evidence for this view, such as Peel’s support for free trade, and deflationary politics in the inter-war period, and the two traditions of collectivism and libertarianism in British politics have always cut across party lines (Greenleaf 1983). Perhaps most interesting for our purposes is the parallel with Lord Salisbury in the late nineteenth century (see Bulpitt 1986). The Salisbury Group had some influence in British New Right circles, and Salisbury is interesting because he was the Conservative leader who developed a strategy for the party in a time of the expansion of mass democracy. He opposed the extension of the franchise in 1867, but then came to terms with its extension (then and in 1884) through limiting the jurisdiction of politics. In particular he developed a distinction between the high politics of empire and foreign policy and low politics, which was acceptable to ‘mass jurisdiction’ and included the granting of considerable autonomy to local authority, provided there was close cooperation with central government. In this way, Salisbury was a strategist who attempted to deal with what he considered to be the negative fallout from the rise of mass society, and in this his practice overlapped with those theorists discussed in Chapters 2 and 3. Thatcherism in practice severed this informal alliance between central and local government, and in this way broke with Salisbury, but did so for reasons fully compatible with Salisbury, namely, that it was seeking to recreate a hierarchical political order. Central government had to undermine the post-war order because local government was challenging the authority of the British state. This authority could only be revived by the ‘freeing’ of the economy but this, in turn, relied on the promotion of a strong state. This strong state was necessary to challenge and defeat those excessively politicised forces (unions, local authorities, communists, rioters and the ‘new class’) that were undermining both the market order and the rule of law. In one sense – the breakdown of trust between central and local government – Thatcherism was a substantial break from the legacy of Salisbury. Some therefore argue that in so far as Thatcherism was neoliberal, it was so only for instrumental reasons in order that the Conservatives could re-establish themselves as the natural party of government (Bulpitt 1986).

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We could however argue that this account is not necessarily as incompatible with those who emphasise the centrality, rather than just the instrumentality of neoliberalism, for as Salisbury established a high-low politics distinction in response to the threat of democracy, Thatcherism was a response to the reality of democracy, and specifically social democracy. Seen in this way, Thatcherism was a constructivist neoliberal project, and we should remind ourselves again of Hayek’s view (Chapter 3) that it is not the amount but the type of intervention by the state that is important. Alternatively, in terms of breaking with the legacy of social democracy, we have already seen that the welfare state in many respects expanded in this period. State spending from 1979 to 1990–91 on the NHS increased from £7.3 billion to £26 billion, on social security from £17.2 billion to £61.8 billion, and on education from £9.4 billion to £28.1 billion (IFS 2011). These figures support the argument that even in those sectors where state rollback was an aspiration, it did not happen. On the other hand, the increase in state spending in health and social security is partly accounted for by the fact of an ageing population, and a result of the expansion of unemployment and low wages which left people dependent on state benefits. More significant were the cuts in housing spending, which almost halved from 1980 to 1985 (King 1987: 116). In terms of revenue sources there was significant change as the contribution of income tax to government revenue declined from 43.5 per cent in 1978 to 33.1 per cent in 1990, and the top rate of income tax fell from 83 per cent to 40 per cent (Jackson and Saunders 2012: 15–16). This meant that indirect taxation – which is closer to the kind of flat-rate tax envisaged by neoliberal theorists – contributed a growing proportion of government revenue. Inequality also increased sharply, as the incomes of the poorest one-fifth rose by 13 per cent from 1979 to 1993, compared with over 60 per cent for the richest one-fifth (Jackson and Saunders 2012: 15–16). The poverty rate – measured as the percentage of people living in households below 60 per cent of the contemporary media income – increased from 13 per cent in 1979 to 22 per cent in 1990, and the figures after housing costs are factored in were 14 per cent for 1979 and 24 per cent for 1990 (IFS 2011). This suggests then that the record of the Thatcher government in breaking from the post-war period was mixed but real, and many of the changes that occurred were hardly exclusive to Britain. In terms of state expansion, the record was in many ways disappointing for neoliberals, but as we see in the next chapter, this laid the basis for a new round of reforms, which focused less on privatisation and liberalisation and more on public sector reform and the marketization of

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the state. Some shifts were made under Thatcher, such as the move to compulsory competitive tendering, which made it compulsory for local service provision to be subject to competitive tendering, which was central to the Next Steps report published in 1988 (HMSO 1988). In the US, Reagan had famously stated that ‘[t]he best minds are not in government … If any were, business would steal them away’ (cited in Frank 2008: 125), and in 1984 the Grace Commission was set up to root out waste in the public sector and proposed mass privatisation, outsourcing and deficit reduction. Although it had a limited impact in the Reagan era (particularly in terms of deficit reduction), both the Grace Commission and the Next Steps report in Britain laid the basis for greater change focused on the public sector in the 1990s, as we see in the next chapter. We have also seen from the case studies in this chapter that neoliberalism was not necessarily always associated with governments of the right, and we discuss this further in a moment. One of the possible weaknesses of the discussion of Thatcherism as a hegemonic project in the 1980s was that it focused too much on the Thatcher government (see Hall and Jacques 1983). Peter Riddell (1989) famously argued that the so-called Thatcherite experiment started with Denis Healey in 1976 and the changes that occurred would have happened anyway. On the other hand, the focus on Thatcherism as a hegemonic project, primarily associated with the journal Marxism Today in the 1980s, did also stress that Thatcherism reflected a local manifestation of broader global trends, and particularly the breakdown of the post-war Fordist order, the crisis of the social democratic consensus and a new phase in the Cold War (see Jacques 1979; Hall and Jacques 1989). Some of the specifics of these arguments – particularly a rigid dichotomy between Fordist and postFordist regimes of accumulation, a belief that the state per se was being challenged and decentralised, and an overestimation of the wider appeal of some Thatcherite ideas around health, welfare and inequality – were problematic (see Jessop et al. 1988; Rustin 1989; McKibbin 1990). Perhaps above all, the Marxism Today analysis tended to downplay the neoliberalism of the Thatcherite project. On the other hand, we might note that while Thatcherism was a hegemonic project, it might also be seen as ‘a local embodiment of a global revolution, making Thatcher the architect … of an explicitly ideological reconfiguration of domestic politics’ (Jackson and Saunders 2012a: 13). This point therefore brings us back to a consideration of neoliberalism more widely and thus to the other case studies discussed in this chapter. In the US, there were significant changes in terms of some attempted welfare reforms, tax cuts and high defence spending, and growing budget

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and trade deficits. To some extent the administration retreated from its bold budget agenda of 1981–82, and in 1986 even promoted modest tax rises alongside some benefit cuts (Hacker and Pierson 2011: 187–8). Nonetheless, the defeat of organised labour, most famously with the lay-off of 11 000 air traffic controllers in 1981, the growth of unemployment and poverty, and the growing liberalisation of the economy alongside the concentration of capital through mergers and acquisitions was significant. In the developing world, as we have seen, the shift to neoliberalism was paradoxical in that one of the main reasons for the promotion of neoliberal policies was the conditionality favoured by the IMF, an institution that had previously met with great hostility from neoliberals. Similarly, the promotion of neoliberal policies had to be entrusted to states, but these states had previously been castigated for promoting self-interested policies. It was unclear – at least in terms of the assumptions of public choice theory – why and how they would suddenly change from promoting self-interested, market-unfriendly policies, to (indirectly) publicly interested, market-friendly policies. This became even more of an issue in the 1990s as we see in the next chapter, but for the moment we might suggest a parallel between Hayek’s hopes for Chile, a country that came to be strongly associated with neoliberalism after the military coup of 1973 (Valdes 2008). The military regime had a very poor human rights record, but from 1975, when General Pinochet emerged as the unquestioned leader of the Chilean state, the regime really committed to neoliberal policies. These included financial liberalisation, privatisation, trade liberalisation, and much tighter controls over state spending and attempts to control the money supply (Taylor 2006: ch. 3). Much of this was carried out under the influence of Chilean economists who had trained at the University of Chicago, and Milton Friedman (among others) visited Chile from 1974 onwards (Fischer 2009: 320). When there were signs of economic recovery from 1976, the ‘Chicago Boys’ as they came to be known, took much of the credit, only for another severe recession to re-emerge in the early 1980s, the blame for which was put on insufficient neoliberalisation in the earlier period. Following a further wave of neoliberal reforms in the period from 1979 to 1981, 1982 saw a serious crisis which saw widespread bankruptcies, especially among financial institutions. This period saw widespread IMF involvement in the economy, but also the nationalisation and bail-outs of some financial institutions in 1982–83, which socialised private debt (Fischer 2009: 329–30). We return in later chapters to the question of the seeming paradox of neoliberal nationalisation, but what was clear was that while this period of neoliberalism in Chile did not necessarily see the

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retreat of the state, it did see the rollback of a particular kind of state policy, namely, developmentalism through ISI. The Chilean example leads us to again ask questions about the relationship between politics and economics in neoliberal theory and practice. Hayek visited Pinochet’s Chile, on more than one occasion, and the Mont Pelerin Society held their 1981 meeting at Vina del Mar in Chile, the place where the coup against Allende was planned. In 1978, in a letter to The Times, Hayek wrote that ‘I have not been able to find a single person even in much maligned Chile who did not agree that personal freedom was much greater under Pinochet than it had been under Allende’ (cited in Robin 2013a). While some libertarians have suggested that Hayek’s apologies for Pinochet’s dictatorship were merely the mistakes of an ageing man (see Robin 2013b), others have rightly suggested that such statements were consistent with neoliberal views on the distinction between freedom and democracy, and between totalitarian and authoritarian regimes (Robin 2013c). Thus, in an interview in the Chilean newspaper El Mercurio in 1981, Hayek argued that ‘[a]s long term institutions, I am totally against dictatorships. But a dictatorship may be a necessary system for a transitional period.’ He went on that ‘a dictatorship can place limits on itself and a dictatorship that deliberately sets limits on itself can be more liberal in its policies than a democratic assembly without limits’ (quoted in Farrant et al. 2012: 522, 523). These kinds of statements were perfectly consistent with neoliberalism’s earlier case for authoritarian liberalism. Indeed, Hayek made sure that Pinochet was sent a copy of what became chapter 17 of the third volume of his Law, Legislation and Liberty (see Farrant et al. 2012: 524), which argued that the basic principles of a free society may ‘have to be temporarily suspended when the long term preservation of that order is itself threatened’ (Hayek 2013: 458). We might briefly highlight Hayek’s rather naive faith in a benevolent dictator, as against his own earlier argument against interventionism which would ‘necessitate further and further measures of control until all economic activity is brought under one central authority’ (Hayek 1972a: 134), or the arguments made by public choice theory against self-interested state elites (Tullock 1987). This is a question once again not only of drawing the appropriate boundaries between state and market, but also the tensions between Hayek’s taxis and cosmos, and constructivism and spontaneity. However, these statements also point to something else, more relevant to our more immediate concerns. This is the fact that Hayek is prepared to accept that there are risks in supporting transitional dictators, but he is prepared to downplay such risks on the grounds that there is the promise of long-term benefit. As we saw in the main body of the chapter, something like this argument

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was made by the IMF in the developing world, through the promotion of structural adjustment policies (DiMartino 2011: 145). These are issues to which we return in Chapters 7 and 11, but for now we emphasise that the immediate results of the neoliberal reforms were unimpressive. In particular, the reforms failed to generate the expected increase in investment, either local or foreign, and living standards for many declined in absolute terms (Mosley et al. 1991). This is why some have called the 1980s the lost decade of development (Bertola and Ocampo 2012: ch. 5). Even the IMF (1989) admitted that the results of the reforms were disappointing. However, as we see in the next chapter, this gave rise to a renewed neoliberalism, which rejected the view that the reforms were misguided, and instead suggested that they had not been properly implemented, and that there was a need for institutional reform (good governance) so that market-friendly intervention could be properly implemented. That is, what was needed were certain institutional reforms, above all at the level of the state, so that the market order could be properly constructed, and this involved the marketization of spheres other than the economy. While this might not accord with Hayek’s characterisation of the market as a spontaneous order, or with libertarian arguments critical of the state, we have already noted that even he argued for appropriate institutional support for this order. Moreover, we have also seen how ordo-liberals constantly called for institutional support for the market order. What we might argue then is that in some respects neoliberalism needed to show its more constructivist, and even authoritarian (or at least anti-democratic) side, so that the market order could be expanded in the 1990s. This is the subject of the next chapter.

NOTES 1.

This managed devaluation, known as the Plaza accord, once again is in some respects inconsistent with neoliberal theory, but how we interpret this is another matter. 2. The author recalls that on the day of the 1997 Labour election victory, a West Midlands television reporter interviewed a new Labour Member of Parliament (MP), and brought up the question of the crisis of the 1970s, referring to power cuts and the three-day week. As the MP pointed out, these occurred during the Heath Conservative government of 1970 to 1974. Somehow the reporter had conflated these events with the Winter of Discontent.

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7. Neoliberalism in practice II: the 1990s to 2008 This chapter further examines neoliberalism in practice, by focusing on the period from the 1990s up to the financial crisis of 2008. In particular it examines the relationship between various projects – the third way, the expansion of the European Union (EU) and the rise of the postWashington Consensus and of the so-called BRIC countries – and the question of neoliberal theory and practice. These are examined in five sections. The first section examines the third way in the context of the so-called new economy and globalisation. The second section again examines the third way, but in the context of what has been called the Anglo-American growth model, and specifically the housing boom in those countries. This involves a consideration mainly of the third way administrations associated with Bill Clinton’s Democrats and Tony Blair (and Gordon Brown’s) ‘new’ Labour, but also (more briefly) the Republican government that followed Clinton’s presidency and the Conservative government that preceded Blair’s premiership. The third section focuses on public sector reform under New Labour and considers the extent to which this was compatible with neoliberalism. The fourth section examines neoliberalism and its relationship to Europe, the European project and the extension of the EU. The fifth section examines neoliberalism in the developing world, in the context of the postWashington Consensus, ‘globalisation’ and the rise of emerging powers in the 2000s. In each case we focus on the question of the relationship between state and market, and whether or not each case can be defined as neoliberal, an issue discussed in more depth in the concluding section.

NEOLIBERALISM AND THE THIRD WAY I: GLOBALISATION AND THE NEW ECONOMY The idea of a third way was developed in the 1990s by the Democrats in the US, and under their influence, ‘new Labour’ in Britain. The third way refers to an alternative to the statist socialism of both the former Soviet Union and social democracy in the post-war period, on the one hand, and 151

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of the market fundamentalism of neoliberalism, on the other. This gave rise to an extensive debate over the extent to which the third way, particularly in its British incarnation, was a break from social democracy and an accommodation to, Thatcherism and neoliberalism (Kenny and Smith 1997; Hay 1999). While some of these debates on Thatcherism focused too narrowly on British specificity, a shift in focus during the period of ‘late Thatcherism’ focused on the extent to which the Thatcher government was less a radical ‘governmental’ break from the post-war consensus, and more a response to wider global changes associated with new times (Hall and Jacques 1989). In its focus on global change, the debate then became one about the extent to which both Thatcherism and the third way were pragmatic responses to changes in economies and social structures, and whether or not these changes have taken place beyond both Britain and the US. In particular, we consider the rise of globalisation which was said to have placed new demands on all governments.1 This was combined with the (supposed) erosion of mass production, the rise of the information society, and the fragmentation and individualisation of society. That is, society had shifted from being based on mass production, mass consumption, and service delivery based on standardised needs and preferences, to a society in which needs and preferences were more individualised and diverse. This provided individuals with enhanced opportunities but, in a more globalised and competitive world, these must be secured by ensuring that these individuals can access markets. The emergence of the third way therefore took place in the context of debates around globalisation, modernisation and the new economy, and the extent to which the information economy (Castells 1996) changed the context in which politics took place, in some respects altering the very meaning of politics. In particular modernising forces had placed demands on states, which needed appropriate policies to respond to these changes. This did not necessarily lead to a wholesale adoption of Thatcherite policies, although in both the cases of Labour and the Democrats there was some continuity with the economic policies of both Reagan and Thatcher. What was distinctive, however, was that the third way tried to reconcile an older problem associated with capitalism, first discussed in Chapter 2, namely, how to reconcile the market economy and its tendency to uproot and disembed all social relations, while simultaneously preserving a cultural, social and institutional infrastructure which allows the market economy to operate in the first place. For the third way, as we will see, the concept of social capital played a particularly important role. In some respects the third way can be seen as a break from the so-called market fundamentalism of neoliberalism.

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However, we have already questioned the idea that neoliberalism can simply be reduced to market fundamentalism, or laissez-faire, and in some respects the third way extended the rule of the market beyond that envisaged by the Reagan or Thatcher governments. Much of the focus of the third way was thus on the way in which globalisation, which referred to an increasingly interconnected and interdependent world, had laid the ground for a new era of politics. According to Al Gore (1999): ‘In this fast moving, fast changing, global economy – when the free flow of dollars and data are sources of economic and political strength, and whole new industries are born every day – governments must be lean, nimble and creative, or they will surely be left behind.’ This laid the ground for the promotion of a new social democratic approach in the era of globalisation, in contrast to national isolationism or the supposedly localist utopianism of ‘anti-globalisation’ movements (Desai 2000; Lloyd 2001). What was required in this new era of globalisation, was the modernisation of the state. In the words of Tony Blair (1997) we either ‘[s]tay as we are and decline. Or modernise and win’. Globalisation refers to all the modernising forces at work to which states must adapt, as against those ‘forces of conservatism’ which ‘kept people down’ and ‘stunted people’s potential’ (Blair 1999). In particular, social change has swept away the post-war social democratic consensus and the market fundamentalism of neoliberalism, and this includes the rise of global markets, global culture, the information revolution and the changing role of women (Blair 1998). In terms of politics, what was needed was a state that responded appropriately to these changes, in contrast to Thatcherism and the New Right. Put bluntly, the world has been transformed but political ideas had not kept up. The rise of the information economy has increased the importance of knowledge, and thus everyone has the chance to fulfil their potential. Human capital was central to the third way project and ‘[p]eople are the contemporary resources that matters’ (Blair 1999). The role of government is to promote a ‘dynamic knowledge-based economy founded on individual empowerment and opportunity, where governments enable, not command, and the power of the market is harnessed to the public interest’ (Blair 1998). Government must create ‘a positive climate for entrepreneurial independence and initiative’ (Blair and Schroeder 1999: 5). Thus, Tony Blair (2000) asserted that: ‘Because 90% of new jobs will need skills with computers, there will be 6000 centres round Britain, giving access to the internet and help with technology. Everyone will get an 80% discount on computer courses, the unemployed will get it for free.’

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What did the third way mean by adapting to the needs of the globalised, new economy, and therefore modernising the state? It did not mean rolling back the state as some 1980s neoliberals had (inconsistently) argued. Instead, the third way attempted to reconcile individual market freedom with the responsibilities of citizenship. In this regard the concept of social capital was very important, and this ‘refers to trust networks that individuals can draw upon for social support just as financial capital can be drawn upon to be used for investment. Like financial capital, social capital can be expanded – invested and reinvested’ (Giddens 2000: 78). Social capital is therefore central in providing a social underpinning to the market. Important here is the work of James Coleman (1988), who argued that the rational utilitymaximising individual does not exist in isolation but in specific social relations. Seen in this way, social relations function to secure individual interests, based on ‘the notion of different actions (or in some cases, different goods) having a particular utility for the actor and is accompanied by a principle of action which can be exercised by saying that the actor chooses the action which will maximise utility’ (Coleman 1990: 13–14). For the third way, social capital attempts to reconcile individual and community by showing how individual economic gain can only take place through the community. Coleman (1993: 14) argues something similar when he states that the ‘opportunities lie in a future in which social control no longer depends principally on coercion, constraints, and negative sanctions, under the oppressive blanket of closed communities, but instead depends principally on positive incentives and rewards performance’. On the face of it, this sounds like a challenge to the methodological individualism of Hayekian neoliberalism. However, what is significant about this usage of the concept of social capital is that it ‘facilitates the interpretation of social phenomena and problems in the language of economics’ (Finlayson 2003: 159). Finlayson (2003: 159–60) is worth quoting at length on this fundamental point: [S]ince the concept of social capital provides a way of accounting for the external structuring of economic behaviour, it makes it possible to begin conceiving the economic itself as a generalised sphere of governance: as if a pure neoliberalism has been turned inside out; as if there is nothing external to the field of economic relations because there is nothing other than economic relations. Thus, that which was at the centre of the neoliberal theory of the economy (relationships between rationally acquisitive and competing individuals) is now understood not as the force generating the conditions for economic activity but as part of that activity. All social action is identified by its function in terms of furthering economic/instrumental ends. Erosion of social bonds and resources is not understood as an effect of economic activity,

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which clashes with it, but as a result of imperfect or improperly understood economic activity. The correct response is to begin accounting for social capital and auditing it.

Social relations are themselves always economic activities. The economy (through globalisation and the information revolution) is something to which we must all respond, but equally it is something that penetrates all social relations, so that: more and more aspects of social life are seen … as economic in nature. This necessitates and legitimates policies aimed at ensuring there is social capital out there and that people are not only able but willing to participate in the new knowledge economy. Thus, ultimately, policy … aims at the creation of a new subject: the good, self-governing citizen. (Finlayson 2003: 160)

What this meant in practice was a new kind of state intervention. In the foreword to the 1998 White Paper on competitiveness, Blair (cited in Finlayson 2003: 177–8) argued that: [o]ld fashioned state intervention did not and cannot work. But neither does naïve reliance on markets. The Government must promote competition, stimulating enterprise, flexibility and innovation by opening markets … In Government, in business, in our universities and throughout society we must do much more to foster a new entrepreneurial spirit.

In particular this meant the elimination of social exclusion. In contrast to the New Right, the third way embraced a social liberalism which challenged discrimination on the basis of race, gender or sexuality, partly as a progressive end in itself, but partly also to eliminate distortions in the labour market, so that all could contribute to the production of wealth for society. Central to the elimination of social exclusion was the participation of everybody in the new economy, and therefore the equipping of all individuals with the necessary human and social capital which would enable them to enter the labour market. The third way saw an important role for the ‘social investment state’, particularly in investment in skills and education (Giddens 1998: 99), and Blair was keen to emphasise social justice, equal opportunity and the importance of society and community in third way thinking (Blair 1995). We have already seen how neoliberals such as Hayek reject any notion of social justice, so on the face of it this sounds like a break with neoliberalism. However, the focus on skills and education was designed to ‘equip citizens with the … aspirations they need to succeed in the modern economy’ (Blair 1998). This meant that the state should play an interventionist role, but to equip individuals so that they could enter the labour markets and deploy their

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entrepreneurial skills. This meant an expansion (as well as reform – see next section) of the public sector, but this was to promote social inclusion, which meant participation on the labour market. Government should therefore be an ‘enabler’ (World Bank 1997), allowing market forces to do their job effectively, but it was also a state which regulated the conduct of individuals in order to make them behave in more market-conforming ways. In this account, social justice was reformulated from a social democratic argument concerning the need to alleviate inequality through redistribution of wealth and social protection in the workplace, to an argument where the new era of globalisation presented a challenge for everyone, rich and poor. The most successful ‘enterprises’, from firms to individuals, would respond to the competitive challenge by harnessing their skills, knowledge and creativity. The state therefore had a crucial role in the enhancement of human capital, and so employees were redefined as targets of investment rather than objects of exploitation (see Finlayson 2009: 404). Social justice therefore came to mean the amelioration of social exclusion around disability, sexuality, gender and race (Levitas 2005). Class was redefined as something that was less about hierarchical and exploitative social relations, and more something that limited the opportunities available to individuals. Following the 1994 Commission on Social Justice report, the term came to mean the ‘abolition of impediments to inclusion within the labour market’ (Finlayson 2009: 405). New Labour in government enacted legislation to outlaw or extend existing provisions against discrimination. While much of these provisions could be justified on the basis of the progressive extension of human rights to excluded groups, they were also a project designed to deal with social exclusion through widespread entry into the labour market, which was seen as central to the development of individual responsibility. This was also true of other important, and progressive, reforms such as child tax credits and the introduction of the minimum wage. In the case of welfare, social democracy normally argues that it is central to the rights of citizens. The third way did not see it in this way, and increased conditions were justified on the grounds of ‘protection of the taxpayer’, and on the grounds that this would help to promote social inclusion by ‘imposing requirements on individuals that will shape behaviours and mean they acquire new skills and habits that will improve both their own and their family’s life chances’ (Gregg 2008: 22). This represented a shift from ‘the traditional welfare state to the opportunity society’ which would ‘put middle class aspirations in the hands of working class families and their children’ (Blair 2004). Education was

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thus also regarded as a central plank of third way policy, whereby higher government spending was accompanied by constant change, reflecting the constantly changing dynamics of the global economy. Labour market entry was therefore central to overcoming social exclusion because it is ‘the best form of welfare for people of working age’ (DSS 1997). Thus for Blair (1997), the greatest challenge is ‘to refashion our institutions to bring the new workless class back into our society and into useful work’. Thus, as Watson (2013: 11) suggests: ‘The poor were told that they were responsible for their own social exclusion, and that this could only be reversed if they activated those aspects of their character that were lost amid the “something-for-nothing” culture of passively receiving benefits.’ This was intervention then, but designed to construct individual responsibility. With rights came responsibilities and the third way rejected the older (alleged) welfare principle of ‘something for nothing’. This involved ‘exhorting’ individuals (Finlayson 2003) to behave in certain ways. In some respects, this contrasted with 1980s neoliberal practice which believed that this would occur voluntarily and spontaneously. For New Labour, this meant a rejection of old Labour in government and what was perceived to be its overly close relationship with the trade unions, which continued in opposition under the influence of the Bennite left after 1979 (Mandelson and Liddle 1996). It also meant that there was a break from traditional social democracy which placed great emphasis on redistribution, social protection and the limited democratisation of the economic sphere (Hay 1999: 57). Thus, Geoff Mulgan (1997: 165), one of the principal influences on the third way and specifically the New Labour Social Exclusion Unit, warned that ‘when welfare systems become more generous they tend to promote the very behaviour they are designed to alleviate’, a problem particularly pronounced in single-parent families (Mulgan 1997: 129). With at least some echo of the work of Charles Murray, he suggested that it is ‘wrong to make it too easy for them to dump their children onto the responsibility of the state’ (Mulgan 1997: 172) and he described those who ‘abuse their own health when health care is socialised, safe in the knowledge that others will pick up the bill’ as ‘parasites’ (Mulgan 1997: 185). In Clinton’s US, the ‘end of welfare as we know it’ was introduced through the 1996 Personal Responsibility and Work Opportunity Reconciliation Act, which abolished automatic aid to families with dependent children, and replaced it with Temporary Assistance to Needy Families (TANF), which devolved welfare provision to individual states, and cut grant levels to those states who failed to meet targets to get people off welfare and into work (Levitas 2005: 18), a policy which helped to double the number of Americans living on less than $2 a day (Jilami 2016).

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NEOLIBERALISM AND THE THIRD WAY II: HOUSING AND THE ANGLO-AMERICAN GROWTH MODEL The imperatives of globalisation were used to justify the argument that Keynesian economic policies must be rejected. Macroeconomic policy had to prioritise low inflation above full employment and high welfare bills (Balls 1992). New Labour gave operational independence to the Bank of England to set interest rates, in order to meet a target of annual retail price inflation of 2.5 per cent, but at the same time were far more relaxed about asset price inflation. In this respect both the Democrats and New Labour gradually shifted their focus away from so much emphasis on the new economy (which crashed with the bursting of the dotcom bubble), although this remained important (see Chapter 9), and in practice accepted what turned out to be another bubble, namely, that associated with the housing boom in the run up to the 2007 crash. This also followed the logic of third way social inclusion because it focused on individuals’ accessing markets, albeit this time it was the housing rather than the labour market. As Payne (2012: 135) argues: Consumers were still to have their borrowing demands met unrationed as if they were businesses in their own right. There was to be no modification to the liberalized banking system. Inflation on the high street was still the indicator and sign of an inflationary psychology. All the while consumer prices were stable; movements in other assets, however much affected by new ‘innovations’ in the funding market were ultimately seen as benign.

The emergence of a new Anglo-American growth model in this period was in some respects contingent, incremental and even partly accidental (Crouch 2009; Hay 2009). While in some respects overlapping with the idea of an Anglo-American liberal market capitalism (Hall and Soskice 2001; Coates 2000), what was really distinctive was that the ‘model’ rested on a booming property market, easy access to credit and low interest rates (Hay 2013: 22–32). It also rested on highly securitised mortgage markets, so that mortgages could be repackaged and sold on as new debts. While this practice existed from the 1930s in the US,2 it really gained enormous momentum in the neoliberal period, and was facilitated in Britain by the liberalisation of financial services under Thatcher in the 1980s. As Hay (2013: 25) argues, the key features of this model ‘were consistently liberal or market conforming’, and included fiscal conservatism, central bank independence and financial market liberalisation. It was also fully compatible with the third way emphasis on individual responsibility, which was reflected not only in greater conditions attached

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to welfare, but also in the promotion of an entrepreneurial spirit which envisaged all individuals saving and investing in assets, above all housing, for their future welfare (Langley 2007; Watson 2013: 14). This had the macroeconomic ‘benefit’ that it demonstrated to financial markets that government was serious about controlling public spending, and specifically the welfare bill (in theory at least) (Finn 2001), but was also central to the third way’s attempt to construct the rational investor, part of a vision of what Gordon Brown called a ‘strengthened savings culture’, or the Treasury called a ‘savings habit’ (quoted in Finlayson 2009: 410). This ‘privatised Keynesianism’ was where that demand was sustained in the context of stagnant real wages by increases in consumer and household debt, as opposed to the government debt and investment advocated by Keynes (Crouch 2009). Keynes had argued for fiscal spending to deal with shortfalls in demand in the context of economic downturns or recession, and distinguished between investment and consumer spending. So-called privatised Keynesianism took place in a context where it was widely believed that boom and bust had come to an end; in the words of Robert Lucas (2003: 1) the ‘central problem of depression prevention has been solved’. What had replaced it was a whole series of market transactions by ‘entrepreneurial individuals’, facilitated by a macroeconomic framework which enabled the market to operate effectively, and exhorted individuals to behave responsibly. While in opposition, Gordon Brown and Ed Balls sometimes referred to ‘post-neoclassical endogenous growth theory’ as the appropriate policy for new times (see Crafts 1996), while other accounts focused on efficient markets (Fama 1991). This theory argued that government intervention is necessary in order to enable markets, and especially labour markets, to operate more effectively, and indeed they expanded greatly in this period through the process of securitisation. In the US there were two pieces of legislation that were important in the boom period. In 1999, the Gramm–Leach–Bliley Act was passed (FCIC 2011: 55), which repealed the 1933 Glass–Steagall Act. Glass–Steagall had placed a major restriction on the activities of US banks, and had specifically enforced the separation of commercial and investment banking. In the 1930s, many people had their savings wiped out by speculative activity, and Glass–Steagall was designed to ensure that this could not happen again. New Deal measures also ensured that banks had limited access to capital across different states, thus ensuring that they could not become too big (to fail). Investment banks existed but these limits on their activities meant that they largely acted as intermediaries for the savings of very wealthy individuals, while the commercial banks dealt mainly with the savings of ordinary Americans. The 1999 Act, in

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many respects simply formalised, although it also enhanced, processes that were already in place. Under Reagan, George H.W. Bush and Clinton, measures had already been put in place which allowed commercial banks to invest some of their capital in investment banking. The proportion increased from 5 per cent in 1987 to 25 per cent in 1996 (Mason 2009: 62). In these years it was also made easier for mergers to take place between banks across state boundaries, and for banks to expand into insurance activities. Similar liberalisation processes took place in Britain, and even to some extent in Germany and Japan. These developments led to a wave of mergers, culminating in the merger of Travelers and Citicorp into Citigroup in 1998, even though this was contrary to the Glass–Steagall rules still in place (Mason 2009: 62–3; FCIC 2011: 92–3). This was followed in 2000 by the passing of the Commodity Futures Modernisation Act which exempted futures and derivatives from any meaningful regulation by government. This applied particularly to energy futures, reflecting the influence of Enron on the passage of the Act, just one year before it collapsed in the wake of massive corporate fraud. Together these two Acts liberalised investment banking, expanded mortgage lending, especially in the sub-prime market, expanded the derivatives market, and facilitated the growing merger between banking and insurance. It was around this time that new derivatives, known as collateralised debt obligations (CDOs) and credit default swaps (CDSs) were developed by JP Morgan (see Tett 2010: 59–60). How this worked was simple: JP Morgan (and, later, other banks) took a bundle of loans worth $10 billion, set up an arm’s length company, and swapped the risk/insurance on these loans (which were valued at $700 million) with that company. That is, they swapped the risk of default with that front company – this was a CDS. The debt of $10 billion was not an actual debt, but rather a debt that might be incurred in the future – a derivative. JP Morgan then sold off the front company in chunks to investors; this was a collateralised debt obligation or CDO. What this meant was that JP Morgan got $10 billion of risk off their books at a cost of only $700 million, and so it was not surprising that other investment banks followed. This bundling of risk into chunks which were then sold off to investors was central to the securitised markets that played a leading role in the Anglo-American growth model (see Tett 2010: 51–4). In the context of the promotion of an enabling role for financial markets, the banking system developed new methods that effectively evaded any regulations that might restrict them. In particular, banks have capital reserve requirements, as agreed at Basel II, a treaty signed in 2004 and designed to set international standards for banks; banks were

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supposed to hold 4 per cent of their capital in case of economic downturns. Banks evaded this system of capital requirements so that they could borrow short (at low interest rates) and lend long (at higher interest rates), but under this shadow banking system ‘they were doing it with no depositors, no shareholders and no capital cushion to fall back on. They were pure intermediaries’ (Mason 2009: 78). The most significant of these were structured investment vehicles (SIVs), which ‘allowed banks to increase their borrowing without breaching minimum capital requirements’ (Thompson 2010: 76). In effect the shadow banking system took on the form of an elaborate global Ponzi scheme whereby money was effectively being transferred from one source on to another to give the illusion of continually expanding wealth and the supposed end of boom–bust cycles, as Lucas had argued (see Minsky 1982: 36; Kindleberger 2000; ch. 5). As Mason (2009: 80) suggests, ‘[i]t could only work as long as every piece of paper on sale could find a buyer. It collapsed because certain pieces of paper that had become central to the profitability of the system suddenly became unsellable’. The collapse is considered in Chapter 8, but for now we need to consider how this facilitated a boom, and here the housing market was central. As argued previously, it was about 2001 that the growth model was more consciously developed. In response to the economic downturn of 2000–2001, exacerbated by the uncertainty around the terrorist attacks in September 2001, the US Federal Reserve successfully boosted a recovery by cutting interest rates, from 6.5 per cent to 1 per cent in 2001, lower than the rate of inflation (Mason 2009: 84). At the same time, money poured in from surpluses generated in East Asia and so there was a great deal of cheap money looking for profitable investment. This outlet was to be housing, and in particular the market for mortgages for low-income families, which in turn would help to keep the whole housing market booming, at least for a time. From 2001 to 2005, sub-prime mortgages grew from 7 to 20 per cent of the total US mortgage market, and Alt-A loans from 2.5 per cent to 12 per cent (Thompson 2010: 74). What happened in the boom years was simple. Mortgages were packaged together with other debts, or securitised, into a CDO. In the US, approximately $6 trillion of the $10 trillion owed in outstanding mortgages had been packaged into mortgage backed securities, and the issuing of CDOs rose by almost 10 per cent in 2006 to $1.2 trillion (Elliott and Atkinson 2009: 204). In 2001, sub-prime and Alt-A mortgages made up 9 per cent of the new mortgages that were securitised; by 2006, this figure had risen to 40 per cent (Thompson 2010: 74). Banks then bought insurance on the CDOs, thus (in theory) averaging out the

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securitised risks, and moving them off the company’s balance sheet. With the averaging out, and backed by some complicated (and ultimately spurious or at least inappropriately used) mathematical formulae for spreading risk (Black and Scholes 1973; Merton 1973; Li 2000), credit rating agencies generally gave their approval. The CDOs were then broken into chunks and sold on, and CDO buyers had a ‘guaranteed’ return. The value of asset backed securities (of which mortgage backed securities were one type) soared from a few billion in the late 1990s to $2 trillion in 2007, and CDSs grew from zero to $58 trillion in 2008, while the profits of investment banks increased from $9.5 billion in 2002 to $30 billion in 2006 (Mason 2009: 94). Mortgage lenders had little interest in repayment as they sold the debt on the mortgages to willing purchasers. This practice could continue as long as house prices continued to rise, and credit ratings agencies joined the herd in giving AAA ratings to all kinds of financial products. However, there was an enormous problem. The value of the original debts fell as house prices began to fall, the growth model began to unravel and boom gave way to bust. We return to the crisis and its causes and consequences in Chapter 8, but now we reflect briefly on the crisis and the modified neoliberalism associated with the third way. In doing so, I emphasise once again that the crisis was not caused by Labour or the Democrats in government, and there was considerable agreement on the need for financial liberalisation in both the UK and the US. We also consider those accounts of the crisis which argued that it was caused because of insufficient rather than too much neoliberalism in Chapter 8. Briefly though, what this critique amounts to, at least in part, is an objection to the third way’s social engineering and its attempts to re-fashion individuals to behave in new ways (Rose 1990; Foucault 2008). However, this social engineering was actually compatible with neoliberalism, for under the third way: Liability is transferred from the collective via the state to individuals and as responsibilities that once fell primarily on the state are shifted to individuals the state takes up the task of ensuring that those individuals will be capable of carrying out their responsibilities. Just as the state seems to withdraw from one area of social life it extends deeper into individual life seeking to engender within people what are believed to be the appropriate aspirations. (Finlayson 2009: 407)

One neoliberal response to this might be that while the transfer of liability from the collective to the individual is to be welcomed, the state should not take up the task of ensuring those individuals carry out their responsibilities. That is, to return to Hayek (see Chapter 5), the third way

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is guilty of precisely the kind of constructivist rationalism that he supposedly rejected, including in areas such as interventions in labour, housing and financial markets. However, neoliberalism itself can in some respects be considered a constructivist rationalist project, including the work of Hayek. The third way was constructivist in that it attempted to provide a solid foundation for the operation of the market economy. It did so first by attempting to incorporate more citizens into that economy, initially through the labour market and then later through the housing market, and it did so through ensuring that the institutional foundation was itself increasingly marketised, which was seen as a necessary response to globalisation. This reflected the Third Way’s economistic understanding of social capital. Becker (1976) and Posner (2001) also saw economisation and utility maximisation not as a specific feature of economic relations, but as a way of accounting for all human activities and relations. The deployment of the concept of social capital should also be seen in this light. While Becker’s focus is on the extension of the principle of utility maximisation to the non-economic sphere, Coleman attempts to ‘recast sociology on the basis of rational choice’ (Swedberg 1990: 6). As Fine (2001: 77) points out. ‘these differences can only be exaggerated since they reflect a difference in starting point, rather than content, and their common commitment to rational choice must be emphasised’. This becomes clearer if we consider the question of public sector reform under New Labour, to which we now turn.

NEOLIBERALISM AND PUBLIC SECTOR REFORM: THE CASE OF NEW LABOUR As we saw in the previous chapter, the Thatcher government privatised a number of industries and services, and liberalised trade, investment and financial services. At the same time, however, there was no unambiguous rollback of the state, and aggregate state spending increased in real terms on an annual basis for most of Thatcher’s years in government. There were some attempts to reform the public sector, such as the recruitment of business leaders to run organisations and to reform public bodies such as the National Health Service (NHS) (Needham 2007: 54). There were also attempts to make public services more responsive to the needs of consumers, particularly in education, health, housing and local government. It was under the Major governments, from 1990 to 1997, however, that public sector reform really gathered momentum, particularly with the announcement in 1991 of the Citizens Charter, which attempted to improve governance in the public sector by focusing on service users

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(Burton 2013: 23). This development led to some opposition from the right of the Conservative Party, which favoured full-scale privatisation (see Plant 2003), but at the same time, this development was an attempt to remake public service users as consumers, something taken up by the Labour Party when they were elected in 1997. In opposition, Labour had increasingly argued that ‘Old Labour’ was too in thrall to producer interests rather than service users. In 1992, Labour developed their own Citizens Charter which promised a better deal for citizens and consumers, and there was increasing emphasis placed on the needs of service users and taxpayers. In some respects, the Labour government therefore continued, but also deepened, reforms carried out by previous Conservative administrations since 1979. Sometimes these reforms are referred to as the ‘new public management’, although there is some debate over when precisely this new approach to public sector reform started (see Pollitt 1990). It is true that New Labour had a more holistic approach to reform, and was less hostile to the growth of the public sector than the Conservatives. Indeed, public spending increased after the initial period of sticking to Conservative government spending plans in the two years after 1997. At the same time, however, this public sector expansion was accompanied by reforms that were compatible with a wider process of marketisation, including the construction of the investor-subject discussed in the previous section. As Needham (2007: 67–8) points out, ‘[a]n assumption of the Thatcher, Major and Blair governments has been that public services will flourish through adopting the entrepreneurialism, efficiency and customer focus of the market’. Anthony Giddens (1998: 74–5) was quite clear that ‘[m]ost governments still have a great deal to learn from business best practice – for instance target controls, effective auditing, flexible decision structures and increased employee participation’. This marketisation was justified not only on the basis of good business practice but through the belief that such practice meant having to respond to consumer demand. Again following the Democrats in the US, New Labour wanted a leaner government, and this led to tighter control of civil service through cash limits, cash planning, tighter ministerial control over civil service pay and competitive tendering. While public spending increased after 1999, the government was committed to increasing productivity in the public sector so that more could indeed be obtained from less. In 2003 a spending review called for efficiency savings of £21.5 billion (HM Treasury 2004), and reforms were generally made on the basis of cutting costs. These included expanded means testing for welfare benefits, primarily through the use of tax credits, thus further challenging the post-war principle of universalism, the increased use of co-payments

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such as extended tolls for roads, and most controversially, the increase in university tuition fees to £3000 in 2006. Council housing was transferred on a large-scale basis to arm’s-length management organisations, and while some services (such as waste collection and care homes) continued to be contracted out, New Labour extended performance targets and audit regimes so that some central control persisted (Painter 1999). Perhaps above all, and in contrast to the wishes of some neoliberals on the right, the government encouraged public–private partnerships. In education this led to the creation of city technology colleges, in which high-technology independent schools were created in inner city areas, and capital funding and management expertise was provided by the private sector, while ongoing resource funding was provided by the state. Although this was heralded as a ‘unique partnership between government and business’ (DES 1986), the programme was extremely limited in its impact, and few colleges actually got off the ground. More extensive, was the creation of an academies programme in which schools deemed to be failing by the education regulatory body, the Office for Standards in Education, Children’s Services and Skills (Ofsted), could be re-opened with private money to finance new premises. The funder could name the school and nominate the majority of the membership of the governing body. At the same time, the financial risks were still to be borne by the public sector via the taxpayer. Similarly, in the NHS, Labour allowed hospitals to become public interest companies with foundation trust status. These new foundation hospitals were given greater freedom to manage their finances and sell off capital assets, while more scope was given for private provision to take place. In particular, there was the creation of internal markets and the separation of purchasers and providers of services, which facilitated a pricing system based on payment by results, funding provision which went directly to private providers through the tendering of services, while the cap on the proportion of income derived from private patients increased sharply, and new hospital infrastructure was largely financed through the Private Finance Initiative (PFI). Under PFI, the private sector financed the design, construction and maintenance of hospitals and these were then leased back to the NHS at high cost (Leys and Player 2011; Bayliss 2016). These partnerships were central to New Labour reform programmes. The Building Schools for the Future initiative aimed to update all secondary school building stock within a ten-year period, and was conditional on the use of private finance schemes to design, build, finance and operate the premises (Painter 1999: 105). Social housing was also to be built by private or social enterprises and NHS outsourcing drew on the use of private independent sector treatment centres to cut

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waiting lists for elective surgery. In each of these cases, the involvement of the private sector had to rely on certain incentives and inducements, which in effect amounted to shielding them from major risks (Grieve Smith 2002: 9; Hencke 2005). Private sector involvement in these partnerships was based on the reduction of the risk that was supposed to make that particular sector efficient. Risk transfer also took place through the use of internal markets. This was introduced by previous Conservative governments and included the creation of an internal market between purchasers (GPs) and providers (hospitals) of health care. While the Labour government nominally abolished this internal market in 1997, in practice it was maintained and extended though a payment by results system. In 2005, primary care reform involved the NHS only as a commissioner rather than a provider of services, and contracts were awarded to the private and voluntary sectors to provide care (see Needham 2007: ch. 8). Risk transfer also took place from government to the individual. This was discussed in the previous section but, briefly, this process started with the Conservative right-to-buy scheme in the 1980s, as well as subsidies for private health insurance, and was extended through compulsory work schemes, such as the Jobseeker Allowance, which ratcheted up benefit conditionality. This principle was extended by Labour’s New Deal. In particular, the New Labour government extended principles previously introduced by Conservative governments such as the Youth Training Scheme, as did the Democrat administration under Clinton. Much of this was seen as helping people back into paid employment, and initiatives included education and training, subsidies to employers who gave work to the long-term unemployed, and national insurance exemptions for employers employing low-paid workers. There was, however some compulsion too, and individuals were compelled to choose work over continued training in order to receive benefits. This again reflected the role of the third way state, and the shift away from demand-led, neo-Keynesian welfare regimes to supply-led, Schumpeterian workfare schemes, where the role of the state was ‘to promote product, process, organisational and market innovation in open economies in order to strengthen as far as possible the structural competitiveness of the national economy by intervening in the supply side, and to subordinate social policy to the needs of labour market flexibility and/or to the constraints of international competition’ (Jessop 1993: 9). The reference to Schumpeter3 is deliberate and can be seen as part of a wider process of promoting a more entrepreneurial ‘competition state’ (Cerny 1997; Jessop 2002), although in practice in Britain this was at low levels and much of the claims made for competitiveness were about flexible and low-cost labour (Jessop 2003). In terms of welfare, the

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principle was that individuals should be helped into the labour market, and therefore it is welfare which ‘helps people to help themselves’ (DSS 1998: 10). On one level this new public management involved the extension of the public sector, and in this regard it was met with hostility from some neoliberals. Alternatively, as we have argued, neoliberalism itself might be seen as a ‘constructivist rationalist’ project, and the justifications for many of these reforms drew on neoliberal ideas around choice, consumerism, individualism and the need to overcome producer interests. Most significant, public service was marketised so that reforms were designed to make public servants behave ‘as if’ there was a market, an argument we have already come across in the case of both the Chicago School and public choice theory. That is, new public management essentially argued the need for improved public service to take place through consumer demand, and it was envisaged that this would involve decentralisation, management by objectives, contracting out and competition (Hood 1991; Osborne and Gaebler 1993). This meant the replacement of bureaucratic government by entrepreneurial government (Osborne and Gaebler 1993). In the words of Tony Blair (2010: 286, 499) himself: we had to divest power away from the dominant interest groups, unions and associations, and put it into the hands of the people, the consumer, the parent, the patient, the user … By the time I left choice and competition were embedded in the NHS; academies were powering ahead; the crime bills had passed; tuition fees were in place and welfare and pension reforms were formulated, if not introduced. These weren’t small items. They were major changes.

Seen in this way, public sector reform was part of wider project to marketise society. This is not simply a project about the rollback of the state, or even the construction of a new hegemonic project, but also ‘entails a bringing into line … not merely of institutions but also of the way in which actors orientate their actions’ (Scott 1996: 92). This is considered in much greater depth in the third section of the book.

NEOLIBERALISM AND EUROPE Europe is often regarded as a continent that has largely rejected neoliberalism, an argument that sometimes draws on the idea of different varieties of capitalism, which contrasts the Anglo-American liberal model

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with social democratic Scandinavian models or a German model characterised by close relationships between the state and industry, worker co-management, and so on (Albert 1993; Hall and Soskice 2001). Added to this, until the late 1980s and early 1990s there was the clear rejection of capitalism, let alone neoliberalism, in the state socialist countries of Eastern Europe. This section briefly examines first the post-communist experience of rapid marketisation in Eastern Europe, before moving on to examine the European project through the development of the EU. Although this too has often been regarded as a project which challenges neoliberalism (Haseler 2004), and a closely related US primacy in the international order (Clark 2008), these views have been challenged in recent years, not least through the development of the Eurozone crisis. This crisis is more fully examined in Chapter 8, but much of the discussion here can be seen as setting the scene for understanding that particular crisis. In terms of formerly communist Eastern Europe, an economic theory of transition was developed which is sometimes known as shock therapy. This was intended to bring about a rapid transition to capitalism and thereby ensure, ‘a recovery of human freedom and a democratically based rise in living standards’ (Sachs 1994: 25). Shock therapy included at least six key reforms, including greater openness to international trade, currency convertibility, a leading role for the private sector, corporate ownership, openness to foreign investment and membership of international institutions such as the IMF and the World Bank, although sometimes some safety nets were envisaged for the poor during the period of transition (Sachs 1994). Much of this was similar to the structural adjustment policies discussed in the previous chapter, although on a far greater and more rapid scale. It meant policies around the liberalisation of prices and reduction or elimination of state subsidies, rapid privatisation and the liberalisation of trade. In the long term, it was envisaged that these countries would join the EU, which indeed did occur, and thus the regional links that were strong under state communism through the Council for Mutual Economic Assistance (COMECON), which was disestablished in 1991, were eroded. The immediate aftermath of shock therapy was nothing short of a disaster, with declines in gross domestic product (GDP) of 11.6 per cent (1990) and 7.2 per cent (1991) in Poland, 4.3 per cent (1990) and 10.2 per cent in Hungary and 7 per cent in both the Czech Republic and Slovakia in 1992 (Gowan 1999: 201). In the first six months of 1992, Russia saw a decline in average real income of around 40 per cent (Gowan 1999: 200). While much of the blame was placed on the Communist legacy or regional disintegration, shock therapy massively exacerbated the problem. Some shock therapists argued that wages should decline further, but it begs the question of just how low wages would have to go, and it leaves

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demand-side questions out of the equation. It is also based on the circular argument that competitiveness is a product of low wage costs, and so any uncompetitive economy must therefore not have sufficiently low wages (Gowan 1999: 203–4). One might also note here the terrible social cost of the transition, and the United Nations Children’s Fund’s (UNICEF’s) identification of an excess mortality figure for Russia, Ukraine, Bulgaria, Hungary and Poland of 800 000 between 1989 and 1993 (Gowan 1999: 204). Nonetheless, the extension of the EU did take place, and the question of the EU, and before it the European Community, is a contentious one. Many have regarded it as a challenger to both US hegemony and neoliberalism in the international order (Haseler 2004), and there have been geopolitical and public policy differences with the US. Nonetheless, this formerly dominant view has been increasingly challenged, and some have suggested that the European project was a neoliberal project from the outset (Panitch and Gindin 2005), an argument based on a very different understanding of the ‘German model’. When Margaret Thatcher led the Conservative government, it was suggested that she follow a German model for the United Kingdom (Cockett 1995). This did not mean the Rhenish capitalism of close state–industry links, a generous welfare state, strong trade unions and collective bargaining, and comanagement of enterprises (Albert 1993), but rather the ordo-liberal tradition that was discussed in Chapter 3, namely, the formation of a strong state which established the general rules for the making of a market order. This was linked to the economic reforms established in the west of Germany in 1948, and formation of the Federal Republic of Germany the following year. These reforms focused on the creation of a new Deutschmark currency, and the lifting of price controls, and were implemented (in the case of price control removals, against the wishes of the occupying allies) by the ordo-liberal, Ludwig Erhard. In accordance with ordo-liberal ideas, other market enhancing policies were introduced in the years that followed, including anti-cartel laws and in 1958, an independent central bank, the Bundesbank. It was also in this period that the term social market economy was used by the ordo-liberal thinker Alfred Muller-Armack, something that took on a very different meaning from the 1960s onwards after the Social Democratic Party (the SPD) started to win elections, and draw on older German traditions of welfare reform, albeit without the Bismarckian authoritarianism of the nineteenth century. It is in this latter, more social democratic sense that the idea of a German model later developed. The post-war period saw the development of a German economic miracle, where inflation was controlled and living standards increased

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sharply, despite the fact that Germany was devastated by the war. This gave some considerable credence to the ordo-liberal argument that a rule-based market order provided the basis for both stability and growth. Crucial here is the central role of the West German constitution in May 1949, the introduction of the Deutschmark in June 1948 and the (eventual) successful construction of an independent central bank. The ordo-liberal Ludwig Erhard was West Germany’s Minister of Economics from 1949 to 1963, and then became Chancellor from 1963 to 1966. However, the country’s first attempt at rapid liberalisation ended disastrously, with a massive trade deficit as imports flooded into the German economy, and a crisis of low foreign exchange reserves, which led to restrictions on the provision of credit and movement of capital (see Reinert 2003; Tooze 2011). Moreover, explaining West German recovery is inconceivable without a wider explanation of the links between geopolitics and political economy at the time, and especially the role of the US recovery after the Morgenthau Plan (which envisaged Germany as an open agricultural economy after 1945) was effectively abandoned (Reinert 2003). In this regard, the following were particularly important: the downward adjustment of all the European currencies, including the Deutschmark, led by Britain in September 1949, which was important in addressing the European dollar shortage; the adoption of the European Payments Union (EPU) as a means of facilitating multilateral trade within Western Europe; the Marshall Plan; and substantial debt relief in 1953 (Tooze 2011). Nonetheless, Germany’s role and influence was central to the development of the European project, and for some writers, this can be seen as ordo-liberal from the outset. Thus, for Dardot and Laval (2014: ch. 7), the formation of the Economic and Steel Community in 1951 and the Treaty of Rome, which established the European Economic Community (EEC) in 1957, started the development of an ordo-liberal market order across Europe. The Treaty of Rome saw four liberties as central to the European project, namely, the circulation of persons, goods, services and capital, while the 1992 Maastricht Treaty (which created the EU and eventually led to the development of the euro) stressed the objective of ‘a system ensuring that competition in the internal market is not distorted’ (quoted in Dardot and Laval 2014: 198). This was further stressed by the amendments to Maastricht through the 2007 Lisbon Treaty which promoted a ‘highly competitive social market economy’, premised on an independent central bank and competition (see Dardot and Laval 2014: 198). Of particular importance here were state aid rules, established as early as 1951 with the European Coal and Steel Community, which stipulated that all subsidies to steel and coal producers was incompatible

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with the single market, a principle extended (although not necessarily enforced) to most economic sectors as the single market expanded (EC 1992: Art. 87). However, the extent to which the European project can be considered neoliberal from the outset is a matter of some debate. Certainly some of the statutes and agreements from 1957 onwards did have an ordo-liberal tone, and one prominent Mont Pelerin Society member, Jacques Rueff, wrote in 1958 that the development of an institutional market through the EEC was ‘the result and culmination of the endeavour to renew liberal thinking, which emerged two decades ago, and which, under the name of neoliberalism, or social liberalism, or even liberal socialism, has gradually become conscious of its aspirations and the appropriate way to satisfy them’ (quoted in Dardot and Laval 2014: 201). However, the content of the statutes and agreements are far from straightforwardly neoliberal, and there is evidence that some states saw the development of a Europe-wide project as on that provided the basis for a more regional industrial policy, for example (see Thatcher 2013). Nonetheless, the ambiguity of these statutes, when combined with the growing prominence of neoliberal practice from the 1980s onwards, did mean that the European project became increasingly neoliberal. Nonetheless, as Wilkinson (2016: 17) states: [o]rdoliberal influence on the micro-economic constitution through the enforcement of competition rules is well known, but the idea of constitutionalizing macro-economic policy choices by making monetary stability and open financial markets as constitutionally significant as private property and contractual freedom would become vital to the shape of later European integration.

In particular, with enlargement in the 1990s, the attempts to promote further a European social model were placed in a secondary position, despite a brief attempt through the Lisbon Strategy of 2000 to link the creation of more jobs to better jobs, as part of the discourse around the new economy (Hay and Wincott 2012: 149–50). Much like the third way, this was undermined by the bursting of the dotcom bubble and competitiveness was restored as the dominant discourse. Monetary union was led by an independent European Central Bank (ECB), and various convergence criteria were established, including inflation rates within 1.5 percentage points of those three EU countries with the lowest rates, budget deficits of less than 3 per cent of GDP, public debt of less than 60 per cent of GDP, and long-term interest rates within two percentage points of the three countries with the lowest rates (Hay and Wincott 2012: 155–6). The Stability and Growth Pact, established in 1997,

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formalised this and, although this has in practice been only selectively implemented, it does show the commitment to prioritising inflation above growth. The European Commission’s competition authority, Directorate General Competition, attempted to limit concentration on the grounds that this disrupted the competitive market order, but by the 1990s, there had developed a new ‘effects based approach’ which measured concentration largely on the grounds of an assumed welfare maximisation which suggested – in classic Chicago fashion – that efficiency was more important than the competitive market principle (Davies 2013: 46). It was during this period that adherence to state aid rules was taken seriously, less on the basis of the ordo-liberal principle which attempted to make market competition an economic principle, and more on the grounds of Chicago notions of efficiency (Davies 2013: 42–3). These tendencies were further extended with the establishment of the euro, a single currency for European member states except for those that opted out and maintained their national currencies. Although there were many neoliberals who were critical of the formation of the euro (Friedman 1997), much of the case made for its formation was that a single currency would overcome obstacles to free trade, investment and the movement of people. It would also end the prospect of competitive devaluation by member states with different national currencies. That is, it was established to prevent Keynesian discretionary intervention, and in this respect was a useful substitute for the old gold standard (see Streeck 2014; Elliott and Atkinson 2016). The more positive case for the euro was that it would enable all countries to integrate and therefore converge with Germany. Prior to the euro, and after the post-war fixed-rate system agreed at Bretton Woods had collapsed, there was sometimes a system of floating rates which meant that less competitive countries could devalue if their economies became less competitive. The problem then was that import costs could increase sharply, leading to inflation and/or a further loss of competitiveness in import-dependent sectors. An alternative approach, implemented in different ways from the 1970s onwards, was to peg a currency to the German mark, so that prices and inflation rates would be similar to Germany. This alone, however, did not deal with the question of competitiveness, and the fact that German productivity was so much higher than other countries, and so its unit labour costs were low, even if its real wages were high. In this case it becomes difficult to defend a currency peg, although it might be done through building up foreign currency reserves, which allows a central bank to use such reserves to buy back its own currency to maintain the desired rate and therefore allow the peg to continue. Alternatively, the peg may be maintained by deflating the economy and thus cutting wages and prices.

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In this scenario, which is not dissimilar to some neoliberal arguments made in favour of austerity in the 1930s, the mark acted as a disciplinary mechanism in the same way that the gold standard previously operated (see Chapter 2). The problem with this latter approach is, first, that – as public choice theorists (among others) remind us – this is difficult in the context of democratic elections, and second that – as Keynes reminds us – this might start a downward spiral of deflation and thus economic contraction. Building up foreign exchange reserves thus appears to be more feasible, but this too is problematic because ‘if the markets can figure out how much foreign currency you have in reserve, they can bet against you, force a devaluation of your currency, and pocket the difference between the peg and the new market value in a short sale’ (Blyth 2013: 76–7). This is precisely what happened in 1992 when the British government was forced to leave the Exchange Rate Mechanism. The formation of the single currency locked countries into this system even further because it removed the option of building up foreign currency, as there was now only one single currency. Nonetheless, member states signed up to the Maastricht agreement in 1992, and the single currency was introduced at the start of 2002. Initially there was great optimism and member states enjoyed a period of significant economic growth. In practice, the provisions of the Growth and Stability Pact were often ignored, and most countries except Germany ran current account deficits. These were financed by bond markets, the yields on which increasingly converged (see Blyth 2013: 80), although there remained small (but hugely significant) differences. This facilitated an economic boom and the possible belief that all had converged with Germany as the euro was ‘an expanded deutsche mark’ (Blyth 2013: 79). Bonds were still issued by national governments, and banks purchased them assuming that they were no-risk purchases. This led to a flood of cheap money into the periphery states of the Eurozone, and local banks, property developers and consumers benefited, the latter not least through the purchase of German imports, thus further exacerbating current account imbalances. The periphery was particularly attractive to investors as interest rate yields had almost converged, but the small differentials in bond yields meant that bulk purchases of these bonds could lead to enormous gains. This arrangement unfolded in the context of the 2008 financial crisis, and especially its extension into Europe in 2010 in the context of the sovereign debt crisis. Similar to the other case studies in this chapter, in one respect it is hard to regard such a project as neoliberal, as it was a state-directed political project. However, much of this project was

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justified in terms compatible with neoliberalism, particularly ordoliberalism, namely, an independent central bank setting the general rules to allow the market to operate, and which prioritised anti-inflationary policy. These became central to the management of the Eurozone crisis, as we will see.

NEOLIBERALISM AND THE DEVELOPING WORLD: FROM GLOBALISATION TO EMERGING POWERS How did neoliberalism operate in the developing world from the 1990s? As we saw in the previous chapter, the short-term results of structural adjustment policies in the ‘lost decade’ of the 1980s were disappointing, a point accepted by the IMF (IMF 1989; UNDP 1999). This did not mean the abandonment of the neoliberal policies of the Washington Consensus, so much as their reformulation through a post-Washington Consensus, as the World Bank (1989, 1992) encouraged institutional reforms and ‘good governance’, which in some respects paralleled public sector reforms carried out in the developed world. Good governance was defined as transparent, open and accountable government, and a commitment to the rule of law (World Bank 1994), something which on paper was uncontentious but which in practice meant a commitment to reforms that would help to facilitate more effective market-friendly intervention (World Bank 1993, 1994). This was contentious, and the argument was based on an interpretation of the East Asian miracle (World Bank 1993), and the rise of the newly industrialising countries (NICs) of South Korea, Taiwan, Hong Kong China and Singapore. In contrast to those countries that experienced negative growth and declining social development in the 1980s, there was also a set of countries in East Asia whose success ‘was achieved not by economic tricks, but by sensible policies based on sound neo-classical economic principles’ (Tsiang and Wu 1985: 329; see also Lal 1984). This neoliberal interpretation was challenged by the fact that the developmental state was central to the success of the East Asian NICs, in which industrial policy, state planning and direction of economic activity, and subsidies, tariffs and controls on finance and investment played a central role (White 1988; Amsden 1989; Wade 1990). This led to pressure for a World Bank investigation into the reasons for the East Asian miracle, culminating in the 1993 report, which concluded that though there was intervention, this was either ineffective or it in effect simulated a free market (World Bank 1993: 325; see also Berger 1979: 64), so that intervention was market friendly. That is, in explaining the success of the first-tier NICs, state intervention was either inefficient,

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as was the case with dirigiste regimes elsewhere, or it was ineffective in that the efficient outcomes would have occurred without government in any case. We have come across this argument before – Friedman argued much the same in his examination of the post-war US boom, and the 1980s failures of structural adjustment (in Chile and elsewhere) were put down to insufficient rather than too much neoliberalisation (see Chapters 4 and 6). In addition, when South Korea suffered a major recession following the Asian financial crisis of 1997–98, this was also explained by the argument that crony capitalism reflected insufficient neoliberalisation, even though the successes of the miracle that preceded it were also explained by effective neoliberalisation (IMF 1998). Nonetheless, this account reflected a new optimism, in which it was said that market-friendly policies and good governance would promote development. This was part of an ongoing narrative stretching back to the early 1980s (World Bank 1983) in which the more market-friendly countries grew fastest, and began to converge with the already rich countries. This narrative has been modified in the face of certain challenges, such as the reality of state intervention in the first-tier East Asian NICs, the Asian financial crisis, and a policy shift towards emphasising institutional change as well as market-friendly policies. However, the story is of limited or market-friendly intervention and outward orientation leading to the growth of the South, to emerging markets, and the rise of emerging powers. This narrative suggests that the more integrated a country is into the world economy, the more likely development will follow. As we saw in the previous chapter, this was precisely the argument made by neoliberals such as Peter Bauer when they were marginalised from the dominant views on development. Third way advocate Anthony Giddens (2002: 73) similarly argued that the developing world is poor because it is ‘insufficiently globalised’, and that the main reasons for lack of development ‘don’t come from the global economy itself, or from the self-seeking behaviour on the part of richer nations. They lie mainly in the societies themselves – in authoritarian government, corruption, conflict, over-regulation and the low level of emancipation of women’4 (Giddens 2000: 129). In the 1990s and 2002, this was modified slightly in that there was increased recognition of the need for institutional change, but this change was a means to an end, namely, integration into the world economy so that countries embrace ‘globalisation’. State policy should include investment in skills and education, but these are means to the wider end of global competitiveness (Giddens 1998: 99). There is thus a close parallel between the third way’s account of social exclusion in labour markets and social exclusion in the world market (see further Chapter 11). In both cases there is a need for

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inclusion to take place through market entry, so that exclusion is regarded as a behavioural and not a social phenomenon, be it individual welfare dependency in the case of labour markets, or protectionist policies in the case of developing countries. Following a decade of better average growth rates than the 1980s, the World Bank (2002: 5) attempted to give some empirical weight to these claims, arguing that: The more globalized developing countries have increased their per capita growth rate from 1 per cent in the 1960s, to 3 per cent in the 1970s, 4 per cent in the 1980s, and 5 per cent in the 1990s. Their growth rates now substantially exceed those of the rich countries: they are catching up just as during earlier waves of globalization there was convergence among OECD countries …

In distinguishing between 24 ‘more globalised’ and 49 ‘less globalised’ countries, the report argued that the former saw significant advances in economic growth and poverty reduction in comparison with the latter (World Bank 2002: 35–6). Two of the report’s authors, Dollar and Kraay (2001) concluded that ‘[t]he accelerated growth rates of globalizing countries such as China, India and Vietnam are consistent with crosscountry comparisons that find openness going hand in hand with faster growth’. The IMF (1997: 72) similarly argued that: Countries that align themselves with the forces of globalization and embrace the reforms needed to do so, liberalizing markets and pursuing disciplined macroeconomic policies, are likely to put themselves on a path of convergence with advanced economies, following the successful Asian newly industrializing economies (NIEs). These countries may be expected to benefit from trade, gain global market share and be increasingly rewarded with larger private capital flows. Countries that do not adopt such policies are likely to face declining shares of world trade and private capital flows, and to find themselves falling behind in relative terms.

This optimism was facilitated by a new foreign investment boom in the 1990s, in which, from 1990 to 1994, $524 billion in capital flowed into the South, an annual average of $105 billion, which was three times the annual average in the years preceding the debt crisis (1977–82), and 12 times the 1983–89 average (Henwood 1997: 14). Neoliberals argued that open investment policies allow companies to take advantage of low (labour and other) costs, which in the long run will lead to growth and poverty reduction, as occurred in the case of the earlier developers (World Bank 2000: 1). While for much of the post-1992 period around two-thirds of foreign direct investment (FDI) went to developed countries and one-third to developing (and transition) economies, by 2015,

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developing and transition economies accounted for as much as 55 per cent of global FDI inflows (UNCTAD 2015: 2). The so-called BRICS countries (Brazil, Russia, India, China and South Africa) were central to this change, with (in 2013) China the second largest recipient of foreign investment (and Hong Kong China fourth), Russia third, Brazil fifth and India fourteenth (UNCTAD 2014: 4). Furthermore, the BRICS (including South Africa) have also emerged as major foreign investors themselves, and in 2013, outward FDI flows from developing countries stood at 32.2 per cent of the total outflows (of $1.41 trillion), in contrast to 1998 when the proportion (of a much lower figure) was just 7 per cent (UNCTAD 2014: 5). Thus by the 2000s there was a great deal of discussion about the rise of emerging powers, and especially the BRICs (O’Neill 2013). While this led to a renewed debate over the extent to which these countries emerged through adopting market-friendly or state-capitalist policies which in effect ‘governed over the market’ (The Economist 2012; Beeson 2013), the dominant neoliberal view was that their emergence, and of the wider rise of the South, could be explained by the fact that many countries which ‘have opened up to international trade and foreign direct investment, have adopted some kind of market economy and have reached the minimum threshold level of institutional quality and political stability that enables them to launch themselves on a path of rapid convergence and catch up growth’ (Buiter and Rahbari 2011: 4). In this account then, they governed for rather than over the market. In practice not all countries opened themselves up and developed market-friendly policies. This was why good governance was deemed necessary, and much of the targeting associated with the Millennium Development Goals can be considered in a similar way (Weber 2015). The shift from the Washington Consensus to the more institutionally grounded post-Washington Consensus from the 1990s was accompanied by the need for countries to ‘own’ their development strategies, in contrast to the outside imposition of conditionality in the 1980s. Similar to the third way, this included some significant features such as greater focus on poverty reduction, and health and education spending, but the institutional changes involved a similar enabling role for the state to draw on the opportunities presented by the world market, and attempts to marketise the state in ways that paralleled the new public management in the developed world (North 1995; World Bank 1997, 2000, 2009). In some respects this has represented a deeper process of neoliberalisation than that in the 1980s, for it ‘has enabled the expansion of neoliberal social practice and facilitated increasingly ambitious discourses of social engineering – away from macroeconomic recalibrating “shocks” (for example a shift to the rudimentaries of cash budgeting) and towards

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deeper social transitions’ (Harrison 2010: 42–3). As Abrahamsen (2004: 1463) argues, ‘various types of auditing technologies are instruments of a new form of governance and power, designed to engender new forms of conduct. They become technologies for the creation of new kinds of subjectivities, of self-managed individuals and states who render themselves auditable’. This can again be seen as an example of what Gill (1995) calls ‘disciplinary neoliberalism’, which requires (as Foucault argued) constant vigilance, so that reform failures can be met by remedial measures such as the withdrawal of development aid and credit. This accords fully with the argument that neoliberalism is a constructivist project. Equally, however, a blunter form of social engineering in the developing world can also be considered neoliberal, and this is the wave of military interventions in failed and rogue states in the developing world after the Cold War, and especially after 2001 (Roberts et al. 2003; Kiely 2010). Similar to other forms of social engineering discussed in this chapter, post-cold War military intervention attempted to construct neoliberal states and eliminate rogue and failed states (Barnett 2005), and thus pave the way for the development of states that will promote open-market policies and thus incorporate these territories into the world market. This involves more overt repression, or the expansion of what Bourdieu (1999) called the state’s right hand, which polices those marginalised by neoliberalism. There is thus a close parallel between powerful states policing failed and rogue states in the international order (Roberts et al. 2003) and states policing ‘failed’ domestic populations marginalised within the domestic order (Wacquant 2009; Panitch 2015: 63–4). While much of the justification for such interventions is that they replace dictators with democratic regimes, the (limited) democracy that has occurred in the developing world in the context of the ‘third wave’ of democratisation from the 1980s (Huntington 1991) has largely come from domestic pressures and not foreign intervention, the latter of which has generally had not wholly unexpected but devastating political and social consequences (Kiely 2010: chs 7 and 8). Moreover, even in countries where democratisation has been a more successful process, this has generally involved one in which at best, there is competition between competing political elites, and conflict exists only within parameters set by the dominant neoliberal discourse (Sumner 2006). This ‘scientific capitalism’ (Ferguson 2006) or ‘technocratisation of politics’ (Abrahamsen 2000) very much accords with the limited democracy envisaged by Schumpeter and Schmitt (Chapters 2 and 3), and the market democracy envisaged by Chicago and public choice theories (Chapter 4).

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The effects and outcomes of these questions of neoliberal development are considered in depth in Chapter 11, where we consider the question of inequality. What should be clear from this discussion is that much of the rise of neoliberalism in the developing world can be considered part of the rise of ‘free market’ policies, but this is far from being the whole story. Instead, what we have seen is all kinds of attempts to construct neoliberal subjects, both at the level of the individual and whole populations within national territories, through what amounts to neoliberal social engineering such as poverty reduction targets, institutional reform and, even, military intervention. Where this leaves Hayek’s conceptualisation of the market as a spontaneous order is something to be considered in later chapters.

CONCLUSION: NEOLIBERALISM IN PRACTICE? Andrew Gamble (2001) has argued that there is a tendency among those critical of neoliberalism to reify the concept, so that it becomes something that purports to explain everything and thereby ends up explaining nothing. At the same time, and in contrast to a number of writers, on both right (Booth 2012) and left (Birch 2015), he argues that for all its problems, the concept remains important and useful. How might this argument be applied to this chapter? First, if we define neoliberalism as the rollback of the state and the expansion of market forces, then it is difficult to see how, say, the third way, the European project and at least some aspects of contemporary development (such as military intervention) can all fall under the umbrella of neoliberalism (see Wren-Lewis 2016). In Britain, for every year from 2000–01 to 2005–06, annual increases in total state spending were over 4 per cent5 (IFS 2011), which hardly conforms to the (simplistic) view that equates neoliberalism with the rollback of the state. This might be one reason, indeed the main reason, why some neoliberals are so often disappointed with the performance of so-called neoliberal governments. It is also a reason why so many neoliberal theorists always have a ready-made, ‘libertarian’ critique of governments, something to which we will return again. Perhaps we might conclude that there is a body of thought, which we might call neoliberal theory, but which bears little resemblance to supposedly neoliberal practice, and that the characterisation of much of the world as neoliberal since the 1980s is mistaken? It is true that neoliberal governments bear little resemblance to the spontaneous market orders as envisaged by Hayek, and this is a major reason why one recent critical work

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on neoliberalism downplays his contribution to the rise of neoliberal practice (Dardot and Laval 2014: 143). However, we have also seen that neoliberal theorists, including Hayek, were far more ambiguous on the role of the state than is captured by the idea of a ‘nightwatchman’. We thus need to move away from what amounts to a ‘quantity theory of the state’ in which state regulation is measured purely through counting aggregate state spending as a proportion of GDP. This does not mean that neoliberal theorists would then support any form of government intervention, and they are generally critical of, among others, welfare states, state ownership, (some) state subsidies, tariffs, capital controls and so on. In the period from the 1980s there has been a significant global transformation: thus Bortolotti and Siniscalo (2004) estimate that in the period from 1977 to 1999 there were 1451 full or partial privatisations of state-owned assets in the developed world; 424 in Latin America, 149 in the Middle East and North Africa, 448 in Asia, and (from 1990 to 2001) 919 in the former communist countries in eastern Europe and the former Soviet Union. From 1986 to 2000 the IMF approved the use of 131 structural adjustment programmes in the developing world in over 50 countries (IMF 2004). There has also been widespread trade and financial liberalisation. For instance in 1970, 97 per cent of IMF member countries had fixed exchange rates; by 1980 the figure was 39 per cent and by 2000 it was 11 per cent (Reinhart 2000: 65). However, two detailed studies of regulation of a variety of economic sectors concluded that the rate of creation of new regulatory agencies increased by 5 a year before 1980, but by a rate of 15 a year in the ‘deregulated’ period from 1980 to 1995, and by 20 per year in the period from 1995 to 2001 (Jordana et al. 2011). That is, privatisation has been accompanied by the enhancement of state regulation, not its rolling back (Levi Faur 2005). Even in the case of welfare spending, as we have seen, there have been some attempts to shift this to asset-based welfare, and at an aggregate level this has generally increased, but at the level of the individual its real value has declined and there are increased pressures in terms of the move to workfare, in contrast to the notion that welfare is a basic right for citizens. The assumption behind workfare was that people were unemployed because they had the wrong attitudes and outlook and so they needed to be prepared for the labour market by state intervention programmes (run by the private sector). This meant conditions attached to benefits, and the outsourcing of the process to private companies (discussed in subsequent chapters) which were paid by results, where there was little oversight over sanctions. Public sector reform can also be seen in this light, for it is partly justified on the perceived need to control costs and to help shift the blame in cases where difficult policy choices

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have to be made, an issue which again parallels wider economic reform such as central bank independence. These points have far wider implications, for as Needham (2007: 207–8) argues, public service accountability should not be measured only on the basis of outcomes for individual consumers, because the notion of public service rests on some form of collective accountability. This is all the more important when individual choices do not have optimal outcomes, for instance, if all parents want to send their children to the same school, or health-care issues impact beyond the immediate individual. Seen in this way: [i]nstructing people to think of themselves as consumers or customers when they use public services amounts to telling people that in as far as they get good quality service in the public sector, it is because they are customers … It is hard to see why those same people will accept the collective responsibilities of citizenship – to participate in democratic structure, to contribute to redistributive taxation – when everything they get back from the state they get as customers not citizens. (Needham 2007: 207–8)

This brings us back to the third way and its relationship with neoliberalism. In one sense, the third way attempted to promote an enabling environment for the market to operate, and this was justified on the grounds that there was no alternative to (neoliberal) globalisation. At the same time this ‘necessitarian’ logic (Hay 2005) was complemented by the argument that globalisation and labour markets represented opportunities for countries and individuals, provided they were induced to behave in appropriate, market-conforming ways. Seen from this point of view, the third way attempted to promote a supportive framework which ensured, and indeed, induced certain kinds of behaviour. This included commitment to and extension of public–private partnerships, free trade and capital mobility, rules-based macroeconomic policy (and central bank independence to avoid politicians ‘buying votes’), fiscal prudence in the boom years and particularly an antipathy to deficit financing, labour market flexibilisation and the belief that unemployment was a supplyside phenomenon and not an issue for Keynesian demand management policies (Hay 1999). Moreover, New Labour was comfortable with high inequality (Dorling 2010) and, according to Peter Mandelson in 1998, ‘intensely relaxed’ about people getting filth rich (see Malik 2012). For New Labour inequality was functional, and in response to calls for a top rate of income tax at 50 per cent, Prime Minister Blair claimed in 2004 that ‘every single analysis’ has shown that this would lead to less tax revenue (see Adams 2004). Most analyses are sharply critical of this supply-side claim made by the neoliberal Arthur Laffer (see Chapter 6). What the third way did argue was that people should participate in

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markets (especially labour and housing markets) in order to benefit from the opportunities these present, just as (failed and rogue) states should be exhorted to participate in the opportunities presented by the world market. One of the leading British third way intellectuals, Charlie Leadbeater (2000) proposed an economic constitution, which would lead to the promotion of the new economy operating in everyone’s interests. In contrast to the old social democracy which suggested that workers needed partial protection from the labour market, Leadbeater argued that the freedom of the workforce would be enhanced by entering the marketplace, and that restricting workers through ‘protection’ was tantamount to lacking freedom. In this way, workers could enhance their human capital. We note here that like much else about the third way, this sounds remarkably similar to Gary Becker’s work on human capital, and Ropke’s (1998) vitalpolitik, and his call for a politics of life and enterprise society in contrast to the welfare state (see Chapter 3). Following the examples of Australia and New Zealand in the 1980s (Schulman 2015), much of this was reconciled with social democracy because it was said that the new economy and globalisation challenged the hierarchical constraints of tradition, and it allowed higher rates of spending, including on social policy. One reason why this gained such wide acceptance among public sector professionals was that audit came to be experienced not only as a constraint, but also as the basis for more funding in the case of successful ‘players’ (Davies 2015a), although this was also reinforced by new hierarchies around the new public management (see Chapter 10). This notion of audit as opportunity, however, became much more problematic as economic growth and state spending gave way to the financial crisis and the shift to austerity. To reiterate, it was also problematic because the economy, and more specifically ‘globalisation’, is taken as a given, and here we see perhaps the clearest accommodation for neoliberalism (Watson and Hay 2003). Similarly, there were rules and interventions established through the EU and through good governance policies in the developing world which look like bureaucratic regulations. Indeed, we will see in later chapters that some neoliberals argue precisely this about the EU and some forms of intervention in the developing world (see Easterly 2015; Economists for Brexit 2016; Gillingham 2016). However, again this rests on an unsustainable distinction between neoliberalism, on the one hand, and regulation, on the other, and downplays the ways in which regulation can be market expanding. In effect then we have arrived back at Foucault’s account of the notion of neoliberalism as a form of rationality. Brown (2003: 3) suggests that ‘[n]eoliberal rationality, while foregrounding the

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market, is not only or even primarily focused on the economy; rather it involves extending and disseminating market values to all institutions and social action, even as the market itself remains a distinctive player’. While this quote possibly downplays the significance of privatisation, and the liberalisation of investment, trade and finance, it still usefully reminds us that neoliberalism is a governmental rationality rather than just a supposed rollback of the state. This brings us back to a distinction made throughout the book, namely, that between Hayek’s support for the price mechanism and the Chicago School’s emphasis on price theory. For if neoliberalism is a rationality, in which individuals are constructed as entrepreneurs, then this applies to state officials as much as to anyone else. Also, because price theory espouses measurement as if different entities were markets, then state policy is reconfigured in a particular way. Therefore, ‘[b]ecause neoliberalism casts rational action as a norm rather than an ontology, social policy is the means by which the state produces subjects whose compass is set by their rational assessment of the costs and benefits of certain acts’ (Brown 2003: 6–7). Seen in this way, the expansion of state spending per se does not necessarily challenge or undermine neoliberal rationalities because this spending might be accompanied by reforms designed to make the state act more like a (perceived) market. This echoes the view of the Chicago School view that the state does not necessarily (or at least not always) cede power to markets, but comes to justify its decisions, policies and rules in terms that are commensurable with the logic of markets. Neoliberalism might therefore be defined as the elevation of market-based principles and techniques of evaluation to the level of state-endorsed norms. (Davies 2014: 6, original emphasis)

Thus, even when not operating in a market, individual behaviour is judged as if it were, and this is because, as Coase (1960) argued, there are no externalities beyond market exchange. Thus, neoliberalism is ‘not a question of freeing an empty space, but of taking the formal principles of a market economy and referring and relating them to, of projecting them on, to a general art of government’ (Foucault 2008: 131). Public sector reform under New Labour, the ECB, and good governance and even military intervention in the developing world can all therefore be seen as practices compatible with the extension of neoliberalism – even if (as we see in Chapter 8) they might then be the subject of neoliberal critique.

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NOTES 1.

2.

3. 4. 5.

The extent to which the British journal Marxism Today paved the way for ‘Blairism’ is a matter of some contention, but see in particular the special issue of Marxism Today (1998) and Hall et al. (2015). The issue of structure and agency is discussed in the text, but it should also be noted how much the third way owed to the worst kind of economic reductionism, embraced by only the crudest Marxist. The fact that this practice did exist does show the difficulty of a neat periodisation of Keynesianism from the 1930s and neoliberalism in the 1980s (not least as Reagan combined neoliberalism with military Keynesianism in the 1980s). This point applies not only to the housing market in the US but, as Panitch and Gindin (2012: 86–7, 117–22) write, also to the centrality of finance to the post-war boom, and indeed its internationalisation in the Keynesian era. See also the discussion of post-war West Germany in the text of this chapter. Schumpeter’s ambiguous relationship to neoliberal theory has been briefly considered in earlier chapters, and his legacy is considered in more depth in later chapters. Authoritarian government, lack of women’s rights, corruption and over-regulation were not barriers to ‘success’ in the first-tier NICs, nor indeed, was China. This compares with increases of always less than 4 per cent and only three times more than 2 per cent under Thatcher, although the Major era saw two years of increases of more than 4 per cent (IFS 2011).

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8. Neoliberalism and the 2008 financial crisis This chapter examines neoliberalism in the context of the 2008 financial crisis. The focus is on how neoliberals accounted for the causes of the crisis and the necessary responses to it. The chapter does not therefore provide a detailed narrative account of the crisis (see Gamble 2009; Mason 2009), although a brief outline is presented. The more important focus is on how neoliberals accounted for the causes, what they see as solutions, and to provide some understanding of what appears to be a paradox, namely, that neoliberalism in some respects emerged from the crisis in a strengthened rather than weakened position, at least until 2016. It is clear in what follows that while neoliberal accounts of the reasons for, and way out of, the crisis are unconvincing, this did not in itself undermine neoliberal renewal after the financial crisis. This is because neoliberals can always point to the reality of regulation and therefore the existence of ‘external’ political forces, which can then be used as the basis for critique, alternative and renewal. The chapter examines these issues in four sections. First, the causes of the crisis are considered. This involves paying detailed attention to neoliberal interpretations of the crisis, but also subjecting them to a critical analysis from the outset. Second, neoliberal medicine for resolving the crisis is considered, with detailed critical analysis of austerity. Both these sections demonstrate the weaknesses of neoliberal interpretations of the causes and consequences of the crisis. However, this begs the question of how and why neoliberalism has renewed itself in the face of such a crisis, and here we shift our attention to understanding neoliberalism’s ability to always point to government regulation and thus identify – no matter how unconvincingly – this as the main cause of the crisis. Finally, this discussion leads to a wider focus on how neoliberals understand and utilise politics, an issue discussed in earlier chapters and discussed in more depth in the next three chapters. Before considering these issues, we outline the way that the crisis unfolded in the period 2007–08 and from 2008 to 2010, and the neoliberal interpretation of this crisis. Briefly, in the autumn of 2008, the slowdown in the global economy threatened to turn into a meltdown, 187

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especially after the leading investment bank Lehman Brothers collapsed (FCIC 2011: 324–42). Panic ensued and lending between banks, crucial to the circulation of credit, effectively dried up, as the interest rate at which banks were prepared to lend to one another increased substantially. This rate is usually quite close to the rate at which it costs governments – and the US government in particular – to borrow, with an average discrepancy of around 0.3 points, but on 18 September 2008, it reached 3.02 percentage points. At the same time, the cost of borrowing for non-financial firms increased from around 2 to 8 per cent (Mason 2009: 17). This was followed by bail-outs and takeovers of financial institutions, including investment banks and the major insurance company American Investment Group which faced bankruptcy owing to insurance claims made by companies that had accrued massive losses, and reinforced by the fact that it was increasingly exposed to the drying up of short-term lending by money markets, and the declining value of its collateral, much of which was in mortgage-backed securities (MBSs) (FCIC 2011: 344). The interdependent nature of financial markets had enormous effects beyond the immediate point of crisis, the US mortgage market. United States mortgages had been securitised in that mortgages were packaged together with other debts into a collateralised debt obligation (CDO). These were then sold on to new parties, not just in the US but elsewhere. As a result, government bail-outs and nationalisations of loss making financial companies was widespread, as we noted at the start of this book. For some, this constituted a Polanyian moment, a new double movement in which the first movement of laissez-faire capitalism was displaced by a new second movement, and what many expected to be the end of neoliberalism (Germain 2009). However, with the bail-outs and the slowdown in growth, the crisis increasingly came to be seen as a sovereign debt crisis, particularly in Europe (see below). This led to debates about whether the crisis was caused by ‘unregulated’ financial markets, or a market in which there was actually ‘too much’ regulation by the state. This, in turn, leads us to consider a question which this book opened with, namely, how, despite the expectations of contemporary Polanyian analysis, neoliberalism actually strengthened after the crisis?

INTERPRETING THE CRISIS: A CRITIQUE OF NEOLIBERALISM Following Friedman (2009: 136), we can identify four neoliberal explanations for the financial crisis. First, in the US there were government

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directives (directly through the Department of Housing and Urban Development and indirectly through the private but government sponsored enterprises – GSEs – Fannie Mae and Freddie Mac) to expand home ownership (Schwartz, A. 2009; Wallison 2009; Pennington 2011: 15). Second, there was loose monetary policy carried out by the Federal Reserve (Schwartz, A. 2009). Third, there were regulations to protect the much maligned credit rating agencies, including legally protected status by the Securities and Exchange Commission (SEC) (Friedman 2009: 134). Fourth, there were too many forms of government insurance for creditors and debtors, such as no recourse laws which allowed mortgage holders to walk away from mortgage obligations (Friedman 2009). In terms of the first argument, Lawrence White (2009) has argued that ‘the housing bubble and its aftermath arose from market distortions created by the Federal Reserve, government backing of Fannie Mae and Freddie Mac, the Department of Housing and Urban Development, and the Federal Housing Authority’, Peter Wallison (2009) wrote a dissenting statement in response to the Financial Crisis Commission of Inquiry official report (FCIC 2011) arguing much the same. So the issue is not (financial) markets but rather (government) regulations that distorted these markets. The crisis was therefore a crisis of politics/the state and not of economics/markets (Friedman 2009). For Wallison (2009: 365), the crisis is ‘a shattering demonstration that ill-considered government intervention in the private economy can have devastating consequences’. It is indeed the case that government directives existed, for instance through the Community Reinvestment Act passed in 1977. It is also true that targets were re-set for minority home ownership from 1993 through to 2005. However, these targets were never met, and Wallison himself was critical of limited home ownership among minorities as late as 2006 (Payne 2012: 160). The re-setting of targets took place partly in response to the failure to reach targets. Moreover, most of the high-risk, sub-prime mortgages were issued by private companies independently of government directives or of the involvement of the GSEs, Fannie Mae and Freddie Mac. By 2005–06, at the height of the bubble, Wall Street investment banks were securitising one-third more loans than the GSEs, and sub-prime mortgages rose from 8 per cent of mortgage originations in 2003 to 20 per cent in 2005 (FCIC 2011: 102, 104). The GSEs did attempt to become more involved in sub-prime securitisation, but this was in response to falling market share. Wallison implies (but cannot prove, and does not attempt to) a causal link from the Community Reinvestment Act to targets to private lending, suggesting that the last of these was a victim of government distortion, but the private sector was not forced to do anything. What was central was the emergence of a

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shadow banking system which government allowed and encouraged – in so far as regulation existed, it was designed to expand and not distort the market. Finally, attempts to blame the GSEs (see Pinto 2009) have relied on definitions of sub-prime that are so wide as to be meaningless. Edward Pinto identified 27 million sub-prime mortgages and argued that 19–25 million of these were attributable to government steering of the housing market. He then highlighted a serious default rate of 25 per cent, but this figure does not refer to his figure of 27 million. Pinto’s figures include loans completely outside the remit of the Community Reinvestment Act, and 65 per cent of Pinto’s high-risk loans were outside of government targets (Min 2011: 3). Private securitisation mortgages defaulted at over six times the rate of those originated by Fannie Mae and Freddie Mac (Min 2011: 2). Furthermore, the financial crisis was not just caused by a housing market bubble, but included real estate (Palley 2012: 83–5), where there were no ‘distorting’ GSEs, and the crisis was not just confined to the US, but to countries such as the UK, Ireland and Spain where there were no GSEs (Mirowski 2013: 316). In the period from 1998 to 2008, the five leading investment banks benefited from a regulatory system which encouraged rather than distorted or compelled them to expand their activities. In 1999 the Gramm– Leach–Bliley Act was passed, which repealed the 1933 Glass–Steagall Act which had restricted investment activity by enforcing a strict separation of commercial and investment banking. Although this was gradually liberalised under Reagan, George H.W. Bush and Clinton, the 1999 Act furthered the liberalisation process so that banks could invest increasing amounts of their capital in investment banking (see FCIC 2011: 55). The 2000 Commodities Futures Modernisation Act was passed which in effect exempted futures and derivatives markets from any meaningful government oversight (FCIC 2011: 92–3). In 2004, the SEC further relaxed its rules concerning the gross leverage limits of investment banks. The effect of these changes was to liberalise investment banking, expand sub-prime mortgage lending, expand the derivatives market and facilitate a growing merger between banking and insurance (the last of which was significant once bank losses became apparent). None of these developments can be linked in any causal way to state pressure to expand home ownership. The work of Hyman Minsky (1982, 1986, 1992) is particularly important in this respect. The conventional neoclassical theory of financial markets is known as the efficient markets hypothesis, which was hugely influential before 2008, and most associated with the Chicago economist Eugene Fama (1991). The basic contention of this thesis is that individual decision-makers may well get market prices wrong, but

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this will be counterbalanced by others, because one investor’s overconfidence is another investor’s under-confidence. Therefore, market prices – including for financial products – reflect the sum of rational entrepreneurs buying and selling in markets. It was on these grounds that many economists argued that the debt build-up before 2007–08 was not a problem because this must reflect the sum of rational investor action, so that the build-up of debt was balanced out by rising asset prices, especially in housing and real estate. Of particular relevance here is the distinction (outlined in Chapter 5) between the price mechanism associated with Hayek and his argument concerning the limits of knowledge, and price theory, which leads the Chicago School to giving a prominent role to economic experts as repositories of knowledge (Davies and McGoey 2012: 71). This distinction means that: [w]here the price mechanism of the market relieves centralized authorities from offering a complete and authoritative view of the whole, price theory of economics is permitted to develop more and more elaborate models and representations as a means of controlling risk and seeking the most efficient path through complex situations. (Davies and McGoey 2012: 72)

This point applies not only to the kind of public sector reform discussed in previous chapters, but also to the kind of modelling that preceded the financial crisis. This has led some critics to argue that financial traders mistook the models for reality (Tett 2010) or, even, that such models help to construct the reality (MacKenzie 2006). Minsky (1982: 22–3, 1986: 206–13) argued, in contrast, that capitalism tends towards financial crises, based on shifts from manias, to panics to crashes (Kindleberger 2000). Thus, in a boom period, enterprises in the most profitable sectors took on more debt which was then used to generate more profits, which encouraged others to follow. With the build-up of profits, more debt is taken on as the fear of non-payment is assuaged by rising profits (or rising asset prices such as housing). For Minsky, this process has three stages: (1) hedge finance, where creditors are paid back interest and the principal when a loan is due; (2) speculative finance, where interest only is paid back, and so financing of the principal is rolled over; and (3) Ponzi finance, in which companies borrow more just to meet interest payments on their existing liabilities. For example, A borrows from B in order to pay back interest to C. The danger is that at some point, C might realise that A cannot meet interest payments and B realises A cannot meet principal or interest payments, and so the boom rapidly turns to bust as risk becomes uncertainty, and panic turns to crash, as cash shortfalls and forced selling of assets leads

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to rapid revaluations of financial structures (including those assets rapidly sold). These processes are reinforced by the role of money and credit in the system (see Ingham 2004). Contrary to the claims of neoclassical theory, financial companies are not simply conduits for the exchange of goods, but rather they are ‘merchants of debt’ which ‘strive to innovate with regard to both the assets they acquire and the liabilities they market’ (Minsky 1992: 6). Minsky thus argued that without external intervention – by states – there could be complete financial meltdown and certainly a period of debt and deflation (falling asset prices which increases the debt burden and leads to contraction of economic activity). Minsky’s thesis is a critique of neoclassical economics and its conceptualisation of money. His argument is that debt influences economic behaviour and that reflects the fact that economic transactions are based on the spread of time, so that many transactions are the exchange of present money for future money, with the result that in this period risk can become uncertainty. A Minskyan account of the 2007–08 crisis thus contends that ‘[t]he mortgage bundles, financial derivatives (such as futures and options trading) and other investment tools widely used by these investment funds involve a lot more Keynesian uncertainty than probabilistic risk’ (Whalen 2008: 102, original emphasis). However, there is a neoliberal account of financial crisis which rejects neoclassical equilibrium, and this is derived from the work of Hayek. Hayek accepts that banks create money through credit provision, and argues that this process is further encouraged by central banks which provide liquidity as a lender of last resort. This credit expansion signals to each entrepreneur that real capital costs have fallen, and so this leads to further expansion on the basis of cheap credit, with the result that expansion continues on the basis of less saving and more borrowing and so a credit bubble emerges. At some point the bubble bursts and real fundamentals are restored through a slowdown and even a recession, which as we have seen, for Hayek (1976, 2008), should be allowed to take its course. While there appears to be some common ground between Minsky and Hayek, at least over the causes of crises, the similarity is superficial (van den Hauwe 2014). Minksy is proposing ‘a model of a capitalist economy that does not rely upon exogenous shocks to generate business cycles’ (Minsky 1992: 8), while Hayek’s view is based less on the internal workings of financial markets and more on the distorting effects of external factors. Once these factors are dealt with, the market will return to some kind of ‘normal state’, even though time, uncertainty and money (credit creation) rule this out (Davidson 1989: 468). Thus, as we have seen above, non-neoclassical neoliberal views of the crisis argue that the crisis was caused by factors such as social engineering by the US

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state in housing, or by central bank policy. Hayek himself argued that central banks played a crucial role in generating crises because they acted as lenders of last resort, and so acted as a form of insurance for private investors, thus generating moral hazard. Before the 1970s, Hayek favoured central banks but he then shifted his position and argued for a free market in currencies (see Chapters 5 and 12). This is an argument to which we return below, as it goes to the heart of the neoliberal paradox. For the moment, we should immediately emphasise that this discussion leads us back to the position that the crisis was not one of over-regulation but of under-regulation, and thus a crisis of ‘market fundamentalism’ (Roubini and Mihm 2011). However, this argument tends to set up a rigid dichotomy between the state, on the one hand, and the market, on the other, that neoliberalism itself sometimes tends to construct but which does not exist. In terms of housing, and specifically the US housing market, it is the case that government was heavily involved in the housing market in the US from an early period (see Thompson 2010, 2012; and from a Marxist position see Panitch and Konings 2009). From as early as 1918 (the ‘Own Your Own Home’ campaign), government encouraged home ownership, which continued into the 1930s (when Fannie Mae and the Department for Housing and Urban Development were created), through to the creation of Freddie Mac in 1970, and the targets that followed, to the passing of the Community Reinvestment Act in 1977.1 In particular Thompson (2012: 403) shows that while Fannie Mae and Freddie Mac were not early leaders in the purchase of sub-prime loans from primary lenders, nor in issuing MBSs on the basis of such loans, they were central to the purchase of MBSs as part of their investment portfolio. In 2008 Fannie Mae held in its portfolio predominantly sub-prime and Alt-A backed MBSs, and the demand for these securities was important, not least as the losses from these securities were central to the government takeover in September 2008. For this reason Thompson (2012) argues that it is problematic to blame neoliberalism for the 2008 financial crisis. If neoliberalism is defined simply as the expansion of free markets, then this is indeed the case, but as should be clear by now, this is a problematic definition. As we saw in Chapter 7 in the context of the third way, government directives were issued in order to expand individual ownership of assets and thus the ‘free market’, above all in housing. This was part of a government project to extend home ownership, and so was about expanding and not distorting the market. In the words of George W. Bush (quoted in Payne 2012: 159) ‘[o]wning something is freedom, as far as I’m concerned. It’s part of a free society’.

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The purchase of MBSs was thus the main way that both the Clinton and Bush administrations attempted to meet targets for expanding home ownership (Thompson 2012: 405). It was in this context that the likes of Greenspan and Bernanke failed to identify a bubble in the housing market because rising debt and falling savings took place at the same time as increasing wealth and ‘assetisation’ through home ownership alongside low interest rates. Credit markets were not restricted by government regulation; rather they were liberalised by government in order to allow (but not order) financial institutions to extend credit to consumers and homeowners. Government might play a role, but this was not to restrict or command private financial institutions; rather it was to encourage the full involvement of all of the population in both home ownership and the consumer boom. In terms of US minorities, these were the elements in society and in the economy that were deemed in most need of directing. Low home ownership was itself taken as a sign of unenterprising and, in the US, un-American habits of thought. Home ownership was a policy that could, in the minds of government, Americanise America, a country in which the proportion of ‘minorities’, especially Hispanics, and immigrants, was increasing. For Clinton and Bush, one can venture that this was a battle for what they perceived to be the soul of the country. (Payne 2012: 159)

Seen in this way the state project was neoliberal and attempted to incorporate marginalised groups through home ownership, while simultaneously promoting authoritarian law and order policies to punish those that failed to incorporate and chose instead the path of criminality (Wacquant 2009). This paralleled military intervention that was intended to deal with another set of neoliberal failures, that of failed and rogue states (see Chapter 7). What is being suggested in terms of the first argument is that government did play a role in the US housing market, but this does not mean that government caused the financial crisis. The specific role of the US state is particularly important because of its capacity to generate overseas capital, especially from East Asia, and specifically Japan and China (see Panitch and Gindin 2012; Kiely 2015). Treasury Secretary Hank Paulson’s memoirs are particularly instructive for he argued that while the collapse of Bear Stearns was just about manageable, the collapse of Fannie Mae would have been a catastrophe because almost every financial actor in some way ‘owned their paper or was a counterparty. Investors would lose billions. Foreigners would lose confidence in the US. It might cause a run on the dollar’ (quoted in Thompson 2012: 406). Without state engagement with Fannie Mae, East Asian investors

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(especially central banks) would never have loaned so much money to the US, and would not have entered the sub-prime and MBS markets without some implicit guarantee for their loans, something that became explicit in September 2008. This, in turn, allowed Fannie Mae and Freddie Mac to borrow at low rates of interest and then purchase assets with a greater yield (Schwartz, H. 2009; Thompson 2010; Kiely 2015). This served domestic political purposes around expanding home ownership. However, again this is not a story of state imposition on reluctant private actors but rather a story of the state ‘setting such actors free’ from restrictive state legislation, and thus constructing neoliberal subjects. There were some fears throughout the 1990s and beyond that Fannie and Freddie were not being sufficiently monitored, but attempts to introduce closer scrutiny of their investment activities were not introduced. In particular, the Federal Housing Enterprises Financial Safety and Soundness Act in 1992 had a very weak regulatory structure, and the George H.W. Bush administration restricted SEC monitoring. In 2000 the Clinton administration supported legislation to curtail government insurance for their activities, and the George W. Bush administration made some attempt to introduce greater scrutiny following financial irregularities at Fannie Mae. However, none of these initiatives were effective and greater liberalisation (albeit with implicit government backing) was dominant. Fannie Mae lobbying was particularly effective in curtailing any restrictive regulation, as was what in effect amounted to a neoliberal ‘antiracism’, in which concerns expressed about financial standards were sometimes dismissed as implicitly racist (see Thompson 2012: 413–15). How then do we analyse the role of Fannie Mae and Freddie Mac in the crisis? Clearly the state did play some role in the crisis, but this is not the same thing as saying that it caused it. Relatedly, to explain the crisis in terms of a state–market dichotomy makes no sense at all, not least when it comes to considering the unique role of the US state in the international monetary order, and its ability to draw on foreign capital (see Panitch and Konings 2009). More directly relevant to our purposes, government intervention was designed largely to extend and expand the market, not to limit it. Payne (2012: 170) is again very useful when he states that ‘what is being problematized is not direct intervention in the economy, but the referencing of an imagined figure of the consumer that the government sought to foster and subsequently misidentified’. Many of these points also apply to the question of the Federal Reserve and low interest rates. Many critics argue that the Federal Reserve kept interest rates too low for too long, although it should be pointed out that this is an argument made not only by neoliberals (Schwartz, A. 2009; White 2009) but also Keynesians (Stiglitz 2009). Ben Bernanke (2015),

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the Chair of the Federal Reserve from 2006 to 2014, has argued that higher interest rates had only a small effect on adjustable rate mortgages. However, perhaps the more important question is, why did central banks do so much to limit any fall in asset prices (such as cutting interest rates in responses to the fall-out from the dotcom boom and bust and recession of 2001), but did nothing to curtail any rise in these same prices (Schwarz, A. 2009; White 2009)? Interest rate reductions occurred after 2001 and some neoliberals have argued that this was a major reason for the financial crisis, as it led to excess money which led to the housing bubble (Schwartz, A. 2009), but it is not clear how action to stop the latter would not have been accused of instigating the very state paternalism that neoliberals are at pains to reject. After all, the dominant narrative before the crisis – and one shared by neoliberals – was that any build-up in debts was compensated for by the rising value of assets (Payne 2012: 146–7). However, once the crisis hit, a new libertarian narrative emerged, which we consider further below. The third argument made by neoliberals concerning the crisis is that the three credit ratings agencies (Moody’s, S and P, and Fitch) enjoyed the protection of the US state against competition from any potential new market entrants. Friedman (2009: 134) particularly identifies a 1975 ruling by the SEC, the result of which was ‘to licence the agencies to be sloppy, corrupt … or simply inaccurate’. The result of the state limiting competition was thus, in the long run, to promote ‘a perfect storm of ignorance’ (Friedman 2009: 134), and had greater competition existed, then financial investors would have acted on the basis of greater knowledge, but the action of the SEC in 1975 prevented this from occurring. This Hayekian argument differs from the Chicago acceptance of private monopoly but, more important, it is not clear how and why the existence of more agencies would have altered the behaviour of investors. As we will see, in some respects financial traders used the limits of their own knowledge in functionally useful ways once the crisis emerged (see Davies and McGoey 2012: 79–80).

DEALING WITH THE CRISIS: A CRITIQUE OF AUSTERITY Neoliberal interpretations of the crisis are thus unconvincing. Nonetheless, neoliberalism in many respects strengthened after the crisis (Crouch 2011; Mirowski 2013), as some countries carried out programmes of austerity. Austerity is usefully defined by one of its leading critics as ‘a form of voluntary deflation in which the economy adjusts through the

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reduction of wages, prices, and public spending to restore competitiveness, which is (supposedly) best achieved by cutting the state’s budget, debts and deficits’ (Blyth 2013: 2). The case made for austerity rests on a number of contentions, but it asserts that the private sector must lead the recovery and should not be crowded out by the public sector, and so governments should not run budget deficits. Keynesian stimulus policies can in this respect be regarded as harmful as they take money away from the private sector. Thus, according to the Chicago economist John Cochrane (2009): ‘Every dollar of increased government spending must correspond to one less dollar of private spending. Jobs created by stimulus spending are offset by jobs lost from the decline in private spending. We can build roads instead of factories, but fiscal stimulus can’t help us to build more of both.’ This kind of argument was developed further by a number of Italian economists, including Alberto Alesina, Francesco Silvia Ardagna, Francesco Giavazzi and Marco Pagano. Collectively their work combines ordo-liberalism and public choice theory. While Virginia and Chicago public choice theory suggested that democracy can have inflationary consequences, these authors argued that there was a close connection between democracy and government deficits. In particular, they argued that elected governments succumb to the temptation to run budget deficits in the knowledge that this becomes a problem for successor governments. Seen in this way, government debt is less a problem of economic business cycles, and more one of political electoral cycles (see Blyth 2013: 168; Helgadottir 2016). In terms of economic growth this is counterproductive, and the argument is made that spending cuts can increase growth by increasing confidence among investors and consumers (Giavazzi and Pagano 1990). Thus, Alesina and Ardagna (1998: 526) contend that ‘when spending cuts are perceived as permanent, consumers anticipate a reduction in the tax burden and permanent increase in their lifetime disposable income’. Based on an examination of 107 cases of positive and negative adjustment from 1970 to 2007, they suggested that 26 of these constituted cases of expansionary fiscal adjustment, defined as having above average rates of growth and a lower debt three years after adjustment (Alesina and Ardagna 2009). In 2010, an updated version was presented to the Economic and Financial Affairs Council of the European Council of Ministers (see Blyth 2013: 173). In this influential account, the authors recognised that the deficits and growing debt were largely caused by the financial crisis, but said that on this, they ‘have nothing to say’, and that whatever the cause of the crisis, the only solution is government cuts. Alesina and Ardagna’s work was cited by

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the European Central Bank (ECB) and the UK Treasury’s 2010 Emergency Budget, and Reinhart and Rogoff (2011) was also influential as was their claim that a government debt to gross domestic product (GDP) ratio of 90 per cent or above would have negative consequences for economic growth (see Krugman 2015). The argument here is that fiscal contraction can be expansionary because it allows the private sector to lead the way out of the crisis. This is in part a question of confidence, but an additional and compatible case is often made that high government deficits can only be financed by high interest rates, which will also undermine recovery. This version of austerity is not averse to using monetary policy – including low interest rates and (possibly) quantitative easing – to help aid the recovery, but it argues that fiscal policy is counterproductive because it simply transfers wealth from the private sector to the public sector, and its inflationary consequences will lead to high interest rates (Ferguson 2009). Much of the debate on austerity is rooted in the management of the Eurozone crisis. As we saw in Chapter 7, the formation of the Eurozone area was followed by a boom in which the peripheral states benefited from massive lending by European banks, but these loans were found to be worthless when peripheral states, and Greece in particular, threatened default on their debts. Faced with higher interest rates, Greece, and then Ireland and Portugal, received bail-outs from the troika (the ECB, the European Commission and the IMF) and from bilateral loans. Similar to the Latin American debt crisis of the 1980s, these bail-outs came with conditions such as spending cuts and tax increases. This came to be seen as a crisis caused by the debtors and, more specifically, by their excessive government spending policies, and on this basis austerity was said to be justified. The comparison with Greece was central to the British coalition (2010–15) government’s initial policies of austerity, as supposed overspending by the previous Labour government was said to be the causes of Britain’s financial crisis. Thus, newly elected British Prime Minister, David Cameron, stated in 2010 that ‘Greece stands as a warning of what happens to countries that lose their credibility, or whose governments pretend that difficult decisions can somehow be avoided’ (cited in Krugman 2015: 16). The Conservatives had committed themselves to Labour’s spending plans before the crisis (Conservative Home 2007). We will also see that, more convincing in the case of Britain, is that the fiscal crisis was the consequence and not the cause of the crisis, and this point applies also to the euro crisis. This does not mean that there were no problems with specific areas of government spending and revenue collection, particularly in Greece where the latter was poorly coordinated

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and debt to GDP ratios were much higher. Nonetheless, while Ireland’s debt to GDP ratio was just 12 per cent in 2007 and Spain’s was 26 per cent, Germany’s stood at 50 per cent (Blyth 2013: 65). Why did the Eurozone crisis come to be seen as a fiscal crisis of the state? The answer lies in the way that the euro worked, and why the boom unfolded from 2008–10 onwards. As we saw in the previous chapter, the boom occurred in part because investors flooded money into the Eurozone periphery to take advantage of small differences in bond yields, which became significant differences when these bonds were purchased on a massive scale. Some of this might be explained by herd behaviour, but it was also clear that Greece was not as secure an investment as Germany, but it was more lucrative, and so it might make sense to purchase so many bonds that there would be no choice but to bail out investors if their assets became worthless. This is because, as Blyth (2013: 81–2) points out: If you were not bailed out, given your exposures, cross-border linkages to other banks, and high leverage, you would pose a systemic risk to the whole European financial sector. As such, the more risk that you took onto your books, especially in the form of periphery sovereign debt, the more likely it was that your risk would be covered by the ECB, your national government, or both. This would be a moral hazard trade on a continental scale.

For this reason it made perfect sense for any single individual bank to in effect trade in ‘moral hazard’. The problem though was that: While bank lending and borrowing may be cross-border in the Eurozone, bank resolution and bailout responsibilities … are still national. So, while any individual bank could play this moral hazard trade, if they all did it, all at once, then what was individually too big to fail became very quickly too big to bail as a whole. Once again the dynamics of the system were different from those of the sum of the parts. (Blyth 2013: 82)

The scale of the problem can be seen if we compare the assets of the top six US banks in the third quarter of 2008 – which amounted to 61 per cent of US GDP and were thus rendered too big to fail – with European finance, and how this impacted on specific nation states in Europe. In France in 2008 the assets of the top three banks amounted to 316 per cent of French GDP, while in Germany the figure was 114 per cent of German GDP. Deutsche Bank alone had assets equivalent to 80 per cent of GDP. Outside the Eurozone, the top four banks in Britain had assets which amounted to 394 per cent of British GDP (Blyth 2013: 83). Banks acquired much of this money through short-term borrowing and by June 2011, $755 billion of the $1.66 trillion in US money market finds was

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held in the form of short-term European bank debt. European banks were also heavily exposed to US mortgage markets, and when this combined with the sovereign debt crisis from 2010, banks found that they were unable to fund themselves through further short-term borrowing. This was exacerbated by falling asset prices and so banks had to put up more funds as collateral for further loans. By 2010, Eurozone banks had a collective exposure to Spain of $727 billion, $402 billion to Ireland, $206 billion to Greece, and it has been estimated that French and German exposure to the ‘PIIGS’ (Portugal, Ireland, Italy, Greece and Spain) was close to $1 trillion (Blyth 2013: 86). Austerity is thus a policy designed to ensure that these exposed financial institutions continue to receive income on loans that have gone bad. However, it is ultimately self-defeating. In May 2010 Greece received a €110 billion loan in exchange for a 20 per cent cut in public sector pay, a 10 per cent pension cut and tax increases. The troika forecast a return to growth by 2012, but instead Greece received a further bail-out in July 2011, which was extended in October 2011. Ireland and Portugal also received substantial bail-outs which were subject to similar conditions. For most countries in the Eurozone, the threat of widespread default declined, once the ECB started to act as a lender of last resort and purchased bonds from issuing countries such as Spain (Gamble 2014: 180). This brings us back to the question of the effectiveness of austerity. Those making the case for austerity are suggesting that there is too much debt and individuals, governments and companies are living beyond their means. As with all good households, there is a need for these overspenders to deleverage and deal with their debts. For those advocating austerity, this means that public spending cuts are inevitable and this must eventually mean a challenge to the principle of universal welfare, because upholding such a principle means that government spending is potentially unlimited, especially as populations grow older (see Gamble 2016). We have seen in previous chapters that since the 1980s, governments have attempted to deal with this problem through effective cuts to, and greater conditions placed on, individual benefits, but none have been completely successful in undermining the principle of the welfare state – indeed aggregate welfare spending has increased in the neoliberal era. This argument suggests that austerity is a political project designed to further undermine the principle of universal welfare. It has negative consequences in terms of distribution, as it is lower-income groups dependent on welfare who are expected to suffer the main costs of austerity, even though they might have benefited the least in the run up to the crisis. Those advocating austerity might suggest that this is a

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regrettable necessity, arguing, in the words of the critic, Mark Blyth (2013: 7), that ‘you cannot cure debt with more debt’. However, he then goes on to ask a further question, namely, ‘what happens if we all try to pay back our debts at one time?’, ‘we cannot all cut our way to growth at the same time’ (Blyth 2013: 7, 8). That is, the paradox of thrift suggests that while it makes sense for any individual debtor to pay back its debts, it makes no sense for all to do so as this would lead to stagnation. It was for this reason that Keynes made the case for fiscal stimulus, because in the context of everyone cutting back, recovery would be delayed, something that would carry both social and economic costs. That is, the state – or the macroeconomy – is not like an individual household, precisely because of the interconnections and interdependencies between individuals, corporations and government (Gamble 2013). Fiscal expansion is thus necessary to deal with shortfalls in demand and is not ‘crowding out’ private investment. Indeed, it is a supplement to, and a stimulus for, such investment (Keynes 1973: 217–18). We might go further and actually suggest, in contrast to Keynes, that the assumption that the private sector is productive and the public sector unproductive is untrue at all times, and not just in a recession or slump. As Gamble (2014: 166) argues: Seeing this as a deduction from private income is an ideological fiction because private wealth could not be preserved without the public framework of law and security, and also because so much public spending takes the form of purchases from private companies or raises the productivity of the economy through investment in human capital or in infrastructure or in the science base.

These kinds of arguments have also dominated the debate on austerity in both the US and the UK. In the US, the debate was largely about whether or not fiscal stimulus policies have worked. President Obama’s fiscal stimulus was criticised as insufficient by Keynesians and unnecessary and counterproductive by those favouring austerity, and this led to confrontations in Congress in 2011 and 2013. Rather than balancing the budget, the Reagan era saw an unprecedented expansion in deficits and the national debt, which increased further under George H.W. Bush and especially under the George W. Bush administration (Chapter 6). Echoing the arguments of those favouring austerity, Republicans argued that there was a need for public spending cuts, but the burden for these should be placed on welfare, rather than defence, and that tax increases on the rich would undermine wealth creation. Thus the Ryan Plan (House Committee on Budget 2011), led by 2012 Vice-President candidate Paul Ryan, proposed a cut in US federal government spending from 22 per cent to

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17 per cent of GDP, with protection for defence and Medicare. Had it been implemented this could have meant the end of all other government programmes (Wolf 2012). The Tea Party, which emerged as force in the Republican Party around 2007–08 (Skocpol and Williamson 2012), called for even bigger cuts, while the libertarian Cato Institute adapted the Laffer (now Rahn) curve and argued that there is a causal relationship between public spending to GDP ratios and the rate of economic growth, and specifically argued that if government spending rises above 15 to 25 per cent of GDP, then this adversely affects economic growth (Mitchell 2013). In this conservative vision, US debt is essentially an exploding time bomb that might go off at any time. The government overload thesis of the 1970s has been replaced by a right-wing version of the fiscal crisis of the state. For much of the libertarian right, and above all the Tea Party, austerity meant rejection not only of the fiscal stimulus, but the monetary stimulus too. Here we again see the difference between the monetarist view of the Depression, which argued that the US should have pursued a policy of cutting interest rates and of quantitative easing (Friedman and Schwartz 2008; Bernanke 2015), and the Austrian view that a slump was necessary so that resources could be properly reallocated and all the toxic assets could be purged from the system. In the words of US Treasury Secretary Andrew Mellon,2 in response to the crisis in the early 1930s, ‘Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate’ (Ahamed 2011: 364). Seen in this way a short, sharp slump would represent a process of creative destruction (Schumpeter 2012: 81) by which capitalism would renew itself by purging inefficient and uncompetitive entrepreneurs. Government intervention – monetarist or Keynesian – has the effect of protecting the inefficient and sending the wrong price signals to the efficient, and so it only delays the crisis. Thus, Ben Bernanke’s proposal to expand quantitative easing in 2011 was dismissed as treasonable by prominent conservative Republican Rick Perry (McGreal 2011). It was in this climate that attempts were made to limit fiscal stimulus by raising the amount of debt that could be raised by the US government. Although this had been consistently raised by previous administrations, and above all Reagan and George W. Bush, Republicans in the House of Representatives attempted to use this as a weapon against Obama in both 2011 and 2013. If this had been successful, then the US would have defaulted on its loans, throwing both the US and the world economy into turmoil. Although last-minute deals were made, and debt ceilings raised, conservative Republicans had successfully used it as a weapon, through the passage of the Budget Control Act 2011, to force a retreat on

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Obama’s part on the question of tax increases for the wealthy, and the implementation of some spending cuts, as well as major concessions around Obamacare. It can be argued that government spending did not rise fast enough to promote recovery, and from June 2009, it took 51 months for employment to reach its pre-recession peak. Per capita government spending was actually 3.5 per cent lower in the first quarter of 2016 than it was 27 quarters earlier, at the height of the recession. Twenty-seven quarters on from the early 1990s recession, per capita government spending was 3 per cent higher; for the 2000s recession, the figure (23 quarters on) was 10 per higher; and for the early 1980s, the figure was (27 quarters on) 17 per cent higher (much accounted for by defence spending) (EPI 2016: 5). Furthermore, previous recessions allowed more scope for monetary policy through interest rates cuts, but in the context of low interest rates by 2009, this tool was not as effective in the post-2008 years. The UK is in many ways the most interesting case, because after 2010 there was a coalition government ostensibly committed to austerity, and from 2013 onwards some major claims were made for the link between this supposed austerity and growth rates in the country. We have already seen that Prime Minister Cameron compared the situation in Britain to Greece, even though the former has its own currency. Nonetheless, in 2010 the new government implemented an emergency budget because it was suggested that Britain was facing the prospect of a new financial crisis owing to its high budget deficit. Similar sorts of claims were made in the 2015 election campaign. Comparisons were made with Greece and the respective budget deficits of the two countries, both of which were around 11 per cent of GDP in 2010 (although Greece’s was subsequently upgraded to 15.7 per cent). There was, however, a crucial difference, namely, that that maturities were shorter and interest payments higher on Greek bonds while the UK paid lower rates and had longer average maturity rates. This is not surprising given that Greece was part of the euro and Britain, with a floating exchange rate and its own central bank, was not. Nonetheless, Chancellor Osborne said much the same thing and cited Reinhart and Rogoff’s now discredited argument concerning negative growth when public debt reached 90 per cent of GDP (Moore 2013). Similarly, the claim was made that the Labour government’s spending was a major cause of the financial crisis in 2008. As we have seen, New Labour was far too accommodating of a growth model which rested on the growth of the housing market and financial sector debt, and in the process overestimated the tax revenue that could be collected from growth on this basis, especially when the financial crisis occurred. However, this is not the same as arguing that Labour caused the crisis by

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over-spending. The public debt to GDP ratio was 37 per cent on the eve of the financial crisis, while in 1997, when Labour entered office, the figure was 42 per cent. In 1997 the budget deficit stood at 3.9 per cent of GDP while in 2008 it was 2.1 per cent (Weeks 2012). Whatever the political hysteria in 2010, it has also been argued that from 2013 onwards, Britain experienced high rates of growth and this was a consequence of the sensible austerity policies of the coalition government. As one supporter of austerity argued, in 2014 the UK had the highest rate of growth among the G7 countries of 2.6 per cent, and a lower unemployment rate than leading European competitors such as France and Italy (Ferguson 2015). Figures such as these are then used to discredit the supposed Keynesian argument that in the absence of a fiscal stimulus, economies will always be stuck in a slump. Thus, in the words of Chancellor George Osborne (2013): Proponents of the ‘fiscalist’ story cannot explain why the UK recovery has strengthened rapidly over the last six months. The pace of fiscal consolidation has not changed, government spending cuts have continued as planned, and yet growth has accelerated and many of the leading economic indicators show activity rising faster than at any time since the 1990s.

There are a number of issues here. First, the coalition government always talked a much stronger language of austerity than they actually practised. The Emergency Budget of 2010 actually delayed already planned spending cuts (Weale 2010). In practice, government expenditure (at constant prices) showed a slight increase in 2010–11 and a small decrease in 2012–13, but for 2013–14, government spending still amounted to 41.2 per cent of GDP (Wren-Lewis 2015a: 11). In a recession, it is expected that government spending will increase owing to greater reliance on welfare, but also in the case of a fiscal stimulus owing to the shortfall in investment from the private sector. What the data on spending shows is that in the first two years of the coalition there was not a fiscal stimulus, and in so far as there was austerity, it was real but not as great as that which took place in the Eurozone, where the consequences were disastrous. Nonetheless, there were important cuts from 2010 in school building, capital expenditure and flood prevention (Pearce 2013). There was also increased pressure to cut welfare benefits for individuals, but as we have seen, this was hardly new and had taken place since the 1970s. The Office for Budget Responsibility has estimated that austerity, in 2010–11 and 2011–12, even in this mild form, led to a reduction in GDP of around 1 per cent each year, and this seriously undermined the recovery that had begun to take place in early 2010 (Wren-Lewis 2015a:

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9–11). In the 2010 plans for austerity, it was envisaged that the budget deficit would be reduced from 7.5 per cent of GDP in 2010–11 to 5.75 per cent in 2011–12, 4 per cent in 2012–13, 2.3 per cent for 2013–14, less than 1 per cent by 2014–15 and zero by 2015–16. In fact, while the 2010–11 target was more than achieved, by 2011–12 the target was not met and in 2012–13 the actual figure was 5 per cent and in 2013–14 it was 4.24 per cent, around 2 percentage points higher than the original plan (Wren-Lewis 2015a: 10). In terms of percentage points, by 2014 the UK’s deficit was around twice that of Greece. That is, there was a slowdown in the pace of deficit reduction, which was a product of lower than expected tax receipts, which in turn was a product of the fact that wage growth was negative. The response of the government was not to introduce more cuts or raise taxes, but rather to ignore their deficit targets. This begs the question of why the panic in 2010, and then the relaxed attitude just over two years later. There was a moderate recovery in 2013, but this clearly cannot be explained by a commitment of the government to meeting its deficit targets set in 2010, even though these had been deemed essential in 2010. The government did not meet the targets set by the Labour Party in the run up to the 2010 general election (Arestis and Sawyer 2014). At the same time the government, elected on a promise to provide a much needed rebalancing of the British economy (Conservative Party 2010), did introduce a prominent stimulus measure, namely, the Help to Buy scheme designed to re-boost the housing market. This was partly designed to lead to various multipliers, especially in terms of boosting the construction industry, but equally it showed how the government was essentially committed to the continuation of the Anglo-American growth model discussed in Chapter 7. In terms of the debate over austerity in Britain, we can observe that in the period 2011–12 when austerity was most acute, there was no growth in per capita GDP. We also observe that in the period from 2010 to 2015, inflation-adjusted weekly earnings fell at a higher rate than in any period of government after 1945. After 2013 there was a slow recovery, which was stronger than in Europe, but austerity was much stronger there. This is not to say that lighter austerity caused the recovery, but it is to say, contrary to those advocating austerity (Ferguson 2015), that recovery cannot be explained by austerity (Wren-Lewis 2015a). Finally, the argument that Keynesians believe that in the absence of stimulus there will be never be a recovery is simply false. The argument is rather that in the absence of government action, economic recovery will occur at a lower level than would otherwise be the case (Keynes 1973). Much of the debate is therefore about the strength and sustainability of the recovery. Here we could do worse than recall the words of Chancellor George

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Osborne in 2010, when he stated that ‘we cannot go back to the last decade’s debt-fuelled model of growth’ and argued that there is a need for recovery based on ‘an internal and external rebalancing of our economy: in other words a higher savings rate, more business investment, and rising net exports’ (cited in Berry 2013: 10). Similarly the Conservative Party Manifesto of 2010 argued that ‘A sustainable recovery must be driven by growth in exports and business investment, and through a better environment for wealth creation’ (Conservative Party 2010: 21). This attempt at rebalancing was quietly abandoned once the coalition entered office, and much of the recovery focused on the financial sector and the housing market, and in terms of geography, London and the south-east. Furthermore, after 21 quarterly economic figures that followed the bust of 2008, GDP per capita was still 7 per cent below its pre-recession peak (Berry 2013: 15). Finally, while the unemployment level did not increase, the UK had a high rate of underemployment, whereby just less than one-fifth of part-time workers reported working part-time as they could not get a full-time job (Berry 2013: 18). In many respects, the debate on austerity in Britain has distorted the bigger picture, not least when we consider that all of the major parties were committed to austerity by the time of the 2015 general election. What is clear is that recovery from 2008 has been slow, with productivity stagnant and income growth slow, and for all its criticisms of New Labour before it, the coalition in many respects attempted to continue a growth model based on the expansion of the financial sector and the housing market. The government of 2015 initially committed to a more consistent and painful process of austerity under the Chancellor George Osborne, and indeed to budget surpluses in times of economic normality. However, the Brexit vote in June 2016 led to the dismissal of Osborne and the quiet dropping of any budget surplus targets, and austerity was quietly abandoned as respectable government strategy following the June 2017 election. None of this meant that there was no government action. Selective austerity involved an increase in government attempts to get individuals to behave in ways expected of the neoliberal subject. This involved, for instance, a ratcheting up of the workfare schemes developed by New Labour and the increased use of private companies in running such programmes. These workfare policies could not however hide the reality that: [t]here is no evidence that work programme psycho-interventions increase the likelihood of gaining paid work that lasts any length of time. In perpetuating notions of psychological failure, they shift attention away from the social patterning of unemployment and from wider trends: market failure, precarity,

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the rise of in-work poverty, the cost of living crisis and the scale of income inequalities. (Friedli and Stearn 2015: 45)

According to the British Department for Work and Pensions own data, from December 2011 to February 2014, 2380 people died shortly after their claim for employment and support allowance (ESA) ended because a work capability assessment (WCA) found they were found fit for work (Butler 2015). This figure does not establish clear causality in these cases but it is reflective of widespread concern over disability assessments carried out by private companies Atos and then Maximus, and the shift to a more overtly punitive neoliberalism under austerity (Gentleman 2011). Similar developments occurred through the Troubled Families Programme, another example of punitive neoliberalism carried out by the ‘exhorting state’. Introduced by the coalition government, this was an attempt to regulate the behaviour of poor, ‘troublesome families’ who were deemed to be a financial burden on the state in the context of welfare spending cuts. Low-income, low-qualified families were targeted and local authorities paid initial sums to deal with these families and then made further payments on the basis of results. Interventions focused on getting absentee children back to school. The issue in this case was not necessarily intervention per se, but the way in which the programme assumed that poverty was a behavioural rather than structural problem, and that while ‘it is the City of London and the failure of austerity-led growth that cause high public debt levels, but it is troubled families that require policies in order to get public finances in order’ (Tepe-Belfrage and Montgomerie 2016: 91). Women in particular were targeted, and this reflected a more general trend in which the impact of austerity is highly gendered, with women workers more affected by public sector cuts in Britain (Fawcett Society 2012), by the impact of austerity on households, by the fact that women and specifically poorer women (Pearson and Elson 2015) are more likely to be dependent on public and welfare services, and by an increase in household stress levels and an associated increase in domestic violence (Hozic and True 2016).

NEOLIBERAL RENEWAL I: THE CRISIS AND THE REALITY OF REGULATION There are additional arguments however around neoliberalism that we need to consider, which relate to all of the cases discussed, and more specifically the question of the euro, Britain and regulation, and the US and central bank and housing market interventions. What is clear in all

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these cases is that while the causes of the crisis undermine neoliberal assumptions, equally there are neoliberal arguments which suggest that the crises were caused by market distorting interventions and thus too little rather than too much neoliberalism (Booth 2012). In the case of the euro, we might identify the existence of other forms of moral hazard in the form of risks being covered by national governments and the ECB, and even the formation of the euro currency itself (Friedman 1997). For the euro project was always hindered by a specific contradiction, namely, the fact that at some stage the members of the Eurozone would be forced to choose between on the one hand a move to fiscal union and the creation of a political authority to stand behind the currency, and on the other hand an abandonment of the single currency and a return to national currencies. (Gamble 2014: 180)

Seen in this way, the crisis was not caused by private investors but by external interventions that led to the wrong price signals for such investors. Alternatively, the deflationary pressure put on peripheral members of the Eurozone, including those that have seen some relief from ECB intervention, closely parallels the austerity that existed between the wars, which in part was a product of the gold standard. As we saw in Chapters 2 and 3, the decision of countries to come off the gold standard was a cause of regret to neoliberals in the 1930s, who (correctly) saw that this gave government the freedom to pursue expansionary policies, thus laying the basis for the rise of Keynesianism (Helgadottir 2016: 397). For those countries in the Eurozone periphery, in the absence of exit from the euro, it appears that the only possibility is for unit labour costs to decline to such a level that their products can compete with those in the core countries. This is almost as unlikely as those structural adjustment programmes in the 1980s which were in part premised on the belief that African labour could compete on the basis of lower labour costs with the core countries, an argument that led one critic to suggest that this would mean that African workers would have pay their employers a wage to compete in the world market (Leys 1994). This did not prevent the claim being made that Ireland was the ‘model’ for austerity in the Eurozone following the crisis of 2010. In particular it has been argued that Ireland has pursued the correct ‘economic policy priorities’ of macroeconomic stability, and cost competitiveness through real wage cuts and cuts on government spending (European Commission 2016). The argument is that any contraction in domestic demand is more than offset by export growth, which comes about through cost-cutting policies which restore competitiveness. However, export-led growth after

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2010 in Ireland was led by the information technology (IT) service sector, where wages did not fall but rose, as opposed to the rest of the economy. This reflects a long-term strategy on the part of the Irish state in attracting foreign investment in the IT sector and the corporate strategies of predominantly US multinational companies. In terms of the former, the Irish state has not simply promoted labour market flexibility in this sector, but has instead included industrial development strategy, fostered over decades and thus is hardly a model for others to follow. Moreover, multinational companies (MNCs) have themselves tended to cluster in Ireland, encouraged by Irish state policies (Regan 2016). Such companies have also benefited from low taxation, but on its own this cannot explain the decision of firms to cluster there. Moreover, the fact that MNCs do open their books in Ireland has had the effect of exaggerating the degree of recovery there, for to some extent this has acted as an accounting mechanism (Regan 2016). Furthermore, the degree of austerity in Ireland has been far less than that of, say, Greece (Wren-Lewis 2015b). A related argument concerning regulation can be derived from the British case. As we saw in Chapter 6, in many respects the British as well as the American ‘growth model’ from the 1990s until 2007–08 can be described as neoliberal. However, it is also clear that this was an era of regulation, not just in the case of acceptance and reform, rather than full-scale privatisation of, the public sector, but also in terms of regulation of financial markets. Thus, in June 1998, the Financial Services Authority was created, designed to protect the consumer purchasing financial products. From a ‘spontaneous neoliberal’ perspective, it might be asked, why was this organisation necessary when the consumer was sovereign (Benston 1998)? Even if there was information asymmetry between purchaser and provider of a financial product, competition was sufficient protection as consumers could exit and move to a more efficient supplier, they could insure against losses incurred in particular transactions, and regulation was an expensive exercise met by the taxpayer (Lodge and Williams 2002). As in other sectors, regulation betrayed an outmoded paternalism in which the state, rather than the sovereign individual, was said to know best. However, as was argued in Chapter 7, regulation was designed less to restrict the market and more to expand the market and ensure that sufficient information existed to allow financial services customers make informed decisions about their choices. According to Watson (2013: 19), the Financial Services Authority ‘adopted a risk-based approach when assessing the viability of the banking structure over which it presided, but in doing so merely mimicked the methods used by the banks it was

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meant to be regulating when they assessed their own exposure to adverse market trends’. This was more a case of setting the general rules for financial markets to operate, closer to Rougier’s highway code analogy (Chapter 3) than to any notion of letting the state determine consumer decisions. There was at the time some awareness that household debt was rising in proportion to disposable income, but this was dismissed. According to Monetary Policy Committee member, Stephen Nickell, speaking in 2004, ‘it is said we are living in the middle of a long-lived consumption boom in the UK funded by a tidal wave of debt … this statement is more or less completely wrong’ because ‘the increasing rate of accumulation of debt has been closely matched by the increasing rate of accumulation of financial assets’ (quoted in Payne 2012: 141). Seen in this way, the warning signs of an under-pricing of risk were ignored because current prices had to reflect the investment and savings preferences of sovereign consumers operating in financial markets (King 2006). For as Payne (2012: 142–3) notes: If value ultimately stemmed from the individual subjective assessment of demand then unless one could prove that those making the assessment were somehow infected with irrationalism … who could say that anything was not the right value? Instead all government could do was to protect consumerentrepreneurs, that is, wealth owners, from another, potential irrationalism: debt deflation.

From this point of view, even the bail-outs and nationalisations were compatible with neoliberalism in its constructivist form. We have already noted the bail-outs and nationalisations that took place in Chile in 1982 and 1983 (Chapter 6). Those that followed the 2008 crisis did undermine some of the arguments made by those advocating neoliberalism, but at the same time the policies themselves were designed to save and reconstruct the neoliberal growth model, including that associated with the New Labour government. Writing in the British context, Watson (2013: 18) argues that: By stepping in to assist responsible worker-saver-investor-subjects, New Labour sacrificed its reputation for economic governing competence in allowing the public finances to spiral out of control. Yet it placed itself in this position in the first instance only because its understanding of responsible macroeconomic policy required it to lecture the population on the advantages of welfare self-sufficiency and to promise to protect accumulated wealth with public money in the interests of such self-sufficiency. Its own account of what a responsible government is required to do to promote responsibility in its welfare citizens therefore had a self-destruct button contained within it.

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At the same time, however, there is a close parallel between the reality of state regulation and financial modelling before the crisis, and bail-outs and austerity after it. Moreover, these shifts reflect wider tensions within neoliberal theory over the status of knowledge. This represented a shift from a Chicago emphasis on neoclassical economic experts to a Hayekian retreat back to the limits of knowledge. The 2008 crisis was a crisis of knowledge, for the indicators that were supposed to measure the quality of bundles of assets became worth what market players believed other market players would believe other market players would believe they were worth, and so on. What was being traded was not even the indicators, but a whole chain of beliefs about what others might believe about the indicators. (Crouch 2016: 93)

In this way the market price did not send anything like the correct signals and led to a crisis of trust between financial institutions based on heightened uncertainty, but this very uncertainty helped to revitalise the neoliberal project, because it allows neoliberalism to have both, for ‘what is worth stressing is the sheer usefulness of unknowns to those alternately stressing the infallibility of models for predicting risk and then calling attention to the fallibility of those same models when things go wrong’ (Davies and McGoey 2012: 73). One result of this was that financial actors ‘were always able to claim just enough knowledge to retain power within the system, but just enough ignorance to evade responsibility’ (Davies and McGoey 2012: 73). Alan Greenspan identified a ‘flaw’ in mainstream financial models and saw this as central to the financial crisis (see Gamble 2009), in which he argued that liquid markets and risk managers would be incapable of mispricing risk. Post-crisis neoclassical theory has thus largely concerned itself with the search for greater transparency in markets (Booth 2009) to enable risk-modelling to take place, and there have been a number of attempts to prop up the neoliberal order by reconstructing the neoliberal individual, and we return to this question in the final chapter.

NEOLIBERAL RENEWAL II: POLITICS AS SCAPEGOAT, POLITICS AS NECESSITY The question alluded to above concerning moral hazard is ultimately about neoliberalism’s utopian attempt to eradicate politics, a doomed and self-contradictory project, but which paradoxically helps to sustain neoliberalism in practice. We have already seen that neoliberalism always has an answer to the question of what caused the crisis, and this is

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because the state is always present. This allows neoliberalism to make the leap from a conservative defence of law and order, to a libertarian critique of the interventionist state. It is as if the state’s economic presence is always irrelevant in the cases of a boom but always causal in the case of a crisis. This is true not only in 2008, but also in other instances. For example, in the 1997–98 financial crisis in East Asia, the blame was placed firmly on crony capitalism (see Chang 2000), while only a few years before, the neoliberal argument was that the state was irrelevant to the boom in that region (Lal 1984; World Bank 1993). In the 2008 financial crisis, we have state pressure to expand home ownership (and thus implicit guarantees to government sponsored enterprises), state backing for credit ratings agencies or state misallocation of resources through central bank policy as explanations for the crisis (Wallison 2009). This argument is all the more ironic for, in 2004, Wallison himself said that ‘in recent years, study after study has shown that Fannie Mae and Freddie Mac are failing to do even as much as banks and S&Ls in providing financing for affordable housing, including minority and low income housing’ (quoted in Konczal 2013). What this amounts to is an argument that government-sponsored enterprises were artificially restricting the market before the crash, but at the same time, they were responsible for the crash because they artificially expanded the market. Nonetheless, the state is indeed always present and this means that the ‘pure market’ does not exist. This might be considered a problem because the principle of methodological individualism or of true selfentrepreneurship is never fully instigated. Thus, in the final argument about the crisis, we have those holding mortgages not being fully responsible for their debts because they can simply walk away from their mortgages (although they do lose their homes). All these principles reflect the fact that the individual entrepreneur is ultimately insured in some way by the government, and so they cannot be fully responsible for their actions, and this is why there ‘has never been a neoliberal world order’ (Booth 2012). Even in the case of liberal banking systems, such as in the US and Britain, there are guarantees for depositors and so this means that investors and savers are not fully responsible for their actions. In free societies, individuals are free to purchase goods, some of which they may do as investments, but they have no guarantee that such purchases will increase in value. There are issues here around state guaranteed safety standards and contract law, which again reflects the difficulty of establishing a clear boundary between state and market, but that need not concern us here. What does need stressing, however, is that in the case of money, the principle is different. If savers choose to invest in a bank, there are safety valves in the form of government guarantees should lenders fail or

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borrowers default, including mortgage holders. If we are to take the individual entrepreneur as the true champion of neoliberalism, then such a person is not fully entrepreneurial. As Payne (2012: 171–2) shows, this problem lies at the heart of Friedman (1965) and Hayek’s (1976) proposals to effectively de-socialise money, and put in place a system of 100 per cent reserve money. Friedman argues that this can occur through a system in which central banks have to hold government bonds as reserves against all lending, buying them when necessary. Hayek argues that the government monopoly over the issue of notes and coins should be abolished, and instead financial institutions should compete for consumers to use their currency. A free market in currencies would incentivise consumers to insist that there were always reserves from which they could redeem their money, so that deposits and currency would effectively match each other. This would have the effect of de-socialising money because at any one time all individuals could receive all of their deposits, as opposed to a system in which notes and coins only cover around 10 per cent of deposits. In this scenario one bad loan would have no knock-on effect which might undermine confidence in a bank and cause a run on its reserves, which would lead to losses not only for bad but also good depositor-investors. This was precisely the problem faced by neoliberals when it came to the government bail-outs in autumn 2008 because, on the one hand, these were necessary to protect good as well as bad investors (in so far as anyone could distinguish the two) but, on the other, it promoted precisely the kind of paternalism and moral hazard which neoliberals (inconsistently) challenged. Such a ‘state of market exception’ (Davies 2013) allows for bail-outs, but it is an exception which activates patterns of normalization. In such situations, even as we are in the dark about the specific origins of the problem, it is often perfectly clear what must be done: we must protect the banks, the nodal points of our investments. In the context of profound uncertainty about the future, there is certainty as the only possible course of action. (Konings 2016: 283)

At the same time however, we also have neoliberal renewal as the bail-outs are criticised and the case made for creative destruction, in which all the bad investments are cleansed from the system, which lays the ground for austerity. These positions closely paralleled Hayek’s (1976) shift from an early understanding of crisis which recognised the role of banks in the creation of money credit, to where the state simply undermines both money and the market order, and therefore calls for the end of state central banking. If money was de-socialised in the ways envisaged by Hayek, then:

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[n]o longer would the government have to step in to rescue good depositors and in the process rescue ‘bad’ ones. De-socialising money would force each and every member of the population, as an entrepreneur and consumer of money, to take personal responsibility for his or her own money, ensuring either that savings were warehoused securely (for an appropriate fee) or allocated to a financial intermediary offering consumers a choice of investments, none of which would have government insurance. There would be no recourse to government if a bank made bad lending decisions with consumers’ deposits. (Payne 2012: 172)

What is envisaged is a situation in which moral hazard is eliminated and each individual takes full responsibility for their actions. Herbert Spencer (cited in Kindleberger 2000: 46) described moral hazard as the ‘ultimate folly of shielding man from the effects of folly’, the effect of which ‘is to people the world with fools’. In terms of the specifics of de-socialising money, Keynes argued that this would lead to an excess of savings as individuals would be reluctant to invest in a situation of excess uncertainty, including in the purchase of homes. That is, risk and uncertainty would be so great that investment would not occur in the first place. This point can be extended to the broader argument, which goes to the heart of the neoliberal paradox, which is that the division of labour – and indeed of knowledge – means that it is impossible for each individual to be completely responsible for their own actions. Full responsibility could only take place in a society with no division of labour, in which private property might exist (for everyone) but in which the products of such private property could not be exchanged through a market. It is impossible to abolish reliance on others, and the de-socialisation of money cannot eliminate interconnectedness. The history of capitalism has been accompanied by the socialisation of risk, which does carry the risk of moral hazard, but the absence of which carries far greater social risks (Chang 2000). The rise of limited liability, central banking and deposit insurance have been central to the rise of large-scale corporate investment (and thus modern industrialisation) and the modern banking system, and while they may be convenient scapegoats for neoliberals in times of economic downturn, they have also been central to the development of modern capitalism.

CONCLUSION This chapter has detailed how the financial crisis of 2007–08 onwards served to undermine, but in some respects reinvigorate, neoliberalism. The crisis was a product of the financialisation that took place in the

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period after the collapse of Bretton Woods, and especially in the 1990s onwards. However, the state was always present, and with it regulation of markets. It is this fact that allowed neoliberalism to lay the blame on exogenous factors, and thus argue that institutional factors distorted free markets. Nonetheless, the crisis still presents enormous problems for neoliberalism. In particular, ‘the enormous short term gains that could be made – both by individual traders and by the banks for whom they were working – were so vast that it ceased to be rational to have such professional long-term concerns’ (Crouch 2016: 94). The market was thus not so much a repository of knowledge as a distorter of it. Moreover, once faced with crisis, ‘[t]he very aspect of sovereignty that had long bothered neoliberals, namely its incalculable and “metaphysical” quality, is what rescued neoliberalism from collapse in 2008’ (Davies 2014: 156). Seen in this way, neoliberalism’s project to eradicate politics came face to face with the reality that politics is precisely what saved it, just as the promise of eradication facilitated neoliberal renewal. Even if we put to one side the financial crisis, this leads to a further question, namely, what form of politics has emerged with actually existing neoliberalism. This is considered in the next three chapters.

NOTES 1.

2.

This argument has also been used by Steve Bannon, an influential member of the Trump administration, although in his case he is more prepared to give this argument an overtly racist spin, and actually blame liberals and African-Americans for the crisis. See his 2010 film, Generation Zero. It is however doubtful that Mellon would have rejected tax rises along the lines suggested by the Tea Party.

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9. Actually existing neoliberalism I: post-politics and the new spirit of capitalism The previous chapter considered the financial crisis and its aftermath. While this constituted a challenge to neoliberal rule, in some respects it emerged stronger, at least up until 2016. The chapter suggested that part of the reason for this is because the contradictions within neoliberalism can paradoxically serve as sources of strength, and that while neoliberals always need politics, in some respects their proclaimed aim to want to abolish politics is an important source of its rejuvenation. This is linked to a project of de-politicisation, associated with neoliberals and Schmitt, which in turn relates to what some have called the ‘post-political condition’ (Crouch 2004; Ranciere 2004), the subject of this chapter. The first section provides a basic introduction to the post-political condition, and the second section demonstrates the close link between depoliticisation, post-politics and neoliberalism. The third section broadens the analysis and explores more widely the question of neoliberalism as a ‘new spirit of capitalism’ (Boltanski and Chiapello 2007). This involves some wider consideration of the sources of neoliberal strength and renewal, and here we look at questions around the new entrepreneurialism and the development of a new capitalism. The main focus here is to try to explain some of the sources that sustain and indeed rejuvenate neoliberalism. The final brief section does, however, provide a preliminary assessment of the new capitalism and new times, which we move on to consider in more depth in the next two chapters.

POST-POLITICS AND THE POST-POLITICAL CONDITION Post-politics can be defined as a condition that characterises the postCold War world, in which there is widespread acceptance that the market and liberal democracy are the only viable institutions in the organisation of society, and that politics thereby is reduced to a technocratic process 216

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of administration of this order. One version of this argument is associated with Francis Fukuyama’s (1992) ‘End of History’ thesis, and it is sometimes linked to a western triumphalism in international relations. Interestingly however, Fukuyama’s (1992: pt V) book ended on a rather pessimistic note and, echoing Kristol’s concerns (see Chapter 4), he expressed the worry that a society ordered on the basis of individual preferences through free markets might be insufficient to maintain cohesion. Most of the debate over post-politics, however, comes from the disaffected left, and thinkers such as Zizek (2010), Badiou (2004) and Ranciere (2004). The argument is made that while there may be strong grounds for continued political engagement, a sense of ideological alternatives to deal with big issues such as conflict, insecurity, financial crises and marginalisation has been lost and instead these issues are administered by liberal technocrats. While during the post-war boom Schattschneider (1960) worried that control over decision-making was something increasingly beyond citizens, and so there was at best semisovereignty, now we have a condition in which citizens are in effect non-sovereign. In contrast to the mid-twentieth century, in the more established liberal democracies we have a situation of ‘post-democracy’ (Crouch 2004) where increasingly meaningless elections offer ‘publics the opportunity formally to validate programmes whose contents they have virtually no control over, and which differ little between competing parties’ (Gilbert 2014: 1). One of the paradoxes of recent years has been that there has been a new, third wave of democratisation (Huntington 1991) across the globe, at precisely the time when the democratic process in established liberal democracies has come under severe strain. The symptoms of this post-political condition include declining voter turnout at elections, sharp falls in party membership and declining trust in public organisations, while at the same time commitment to the ideal of democracy remains high. In terms of electoral participation, there has generally been a downward trend in turnout at elections in western liberal democracies, with quite small declines up to the 1980s, and then an acceleration from the 1990s onwards. There have been some outliers, such as the 2009 election in Iceland following the financial crisis, and the 2008 presidential election in the US, but the general trend has been downward (Mair 2013: 24; Hay 2007: 14). More significant has been the decline in party membership; in 1964 the two main political parties in the UK had a combined membership of 2.4 million people but by 2007 the corresponding figure was less than half a million (Hay 2007: 22), a figure partially reversed after the election of Jeremy Corbyn as Labour Party

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leader in 2015 (and his re-election in 2016) and the general election of June 2017. Perhaps most significant has been the decline in trust in public institutions, with politicians and political parties doing particularly badly. Thus, based on surveys in the US in 2004, the police had positive approval ratings of 44 per cent and the military of 40 per cent. In contrast, trade unions had a rating of minus 32 per cent, the press minus 40 per cent, national government minus 28 per cent and political parties minus 69 per cent (Hay 2007: 34–5). It should be noted, however, that corporations had approval ratings of minus 58 per cent, which may not accord with the expectations of the Chicago School, although no doubt the polls would be dismissed as irrelevant when compared with the consumption of the products of these corporations. In the UK, the figures for national government were (in 2004) minus 50 per cent, for political parties minus 68 per cent and the press minus 53 per cent, while in the professions (in 2005), teachers had an approval rating of 80 per cent and doctors 85 per cent, both journalists and politicians had approval ratings of minus 51 per cent (Hay 2007: 34–5). Interestingly, as Hay (2007: 36) notes, levels of trust in politicians have not significantly declined since the early 1980s, but levels of participation in the formal political process declined sharply from the early 1990s. At the same time, there is still considerable support for the ideal of democracy, with percentages across countries running from the high 80s to low 90s, based on the 2002 World Values survey (see Hay 2007: 31), although recent populist trends have partially eroded this support. What this suggests, recent events notwithstanding, ‘is that citizens may well regard democracy as the best available system of government – indeed, they may well do so in increasing numbers – but … they do so at a time when they are increasingly pessimistic about what they can deliver’ (Hay 2007: 33). How might we account for this post-political condition? As we will see in a moment, the answer to this question partly depends on how we define and think about politics. In terms of formal politics, explanations tend to focus on declining civic engagement, particularly in the US (Putnam 2000), the development of more critical citizens who expect less of politicians and political parties (Norris 1999), or the changing demographics of the electorate (Franklin 2004). Briefly, the declining civic engagement account focuses on declining social networks and thus declining social capital among US citizens, so lower voter turnout is one manifestation of the growing tendency of US citizens to ‘bowl alone’ (Putnam 2000) rather than in organised bowling clubs. The critical citizen account suggests that the better informed citizen means that we are now less deferential to politicians. Finally, the changing demographic argument suggests that lower voter turnout is a reflection of the fact that in

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many countries, the shift of the voting age from 21 to 18 has had the effect of lowering turnout because 18-year-olds are less likely to vote, and if you do not vote at your first opportunity, then this is more likely to become a habit in future elections. Each new set of 18-year-olds are potential non-voters compared with, say, 21-year-olds who are first-timer voters. The explanation for this is that 18-year-olds are more atomised and have less social capital than 21-year-olds. This is not the place for a full analysis of the merits of these arguments, but we can make the following brief points. First, in the case of Putnam, it may be the case that his analysis betrays a certain nostalgia for a mythical US past of high civic engagement, and there is less evidence of declining civic engagement outside the US (see further below). Second, in the case of the critical citizen thesis, the focus is on the disposition to be critical on the part of the citizen, rather less than the question of whether citizens might have more to be critical about (Hay 2007: 41, 48–9). Third, in terms of the changing generation of first-time voters, this argument focuses too narrowly on voting at the expense of other examples of political engagement. If 18-year-olds lack social capital then we would expect widespread disengagement, but if we widen our understanding of politics to include less formal, sub-politics (Beck 1997), outside of the political mainstream, then 18-year-olds are highly politically active. The fact that they have not engaged with the formal political process may be part of a post-political condition, only if we understand post-politics to mean a crisis of engagement in the formal political process. However, if that is the case, then disengagement can just as easily be understood as a symptom, rather than cause of, the post-political condition. This final point is crucial, for these kinds of explanations tend to be descriptive and do not help us get to grips with a much wider context of formal political disengagement, of which lower voter turnout may be but one symptom. Similarly, to talk of the decline of social capital does not in itself tell us why such a decline might have taken place. To begin to undertake this task, we need to consider the question of the relationship between neoliberalism and post-politics, and to return to a question considered in earlier chapters, that of de-politicisation.

DE-POLITICISATION, POST-POLITICS AND NEOLIBERALISM De-politicisation can be defined as ‘the denial of political contingency and the transfer of functions away from elected politicians’ (Flinders and

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Wood 2014: 135; see also Burnham 2001). Ironically, the need for de-politicisation has been accepted by public officials, something that we have already noted in relation to the third way (Chapter 7). Thus, Lord Falconer stated in 1997 that ‘[w]hat governs our approach is a clear desire to place power where it should be … increasingly not with politicians, but with those best fitted in different ways to deploy it … This de-politicisation of key decision making is a vital element in bringing power closer to the people’ (cited in Hay 2007: 93). Tony Blair also famously stated that ‘I was never really into politics’ (cited in Mair 2013: 4), not least because politics involves finding solutions from above, when the role of government should be to help citizens find their own solutions, and the state should simply play an enabling role in this process (World Bank 1997). Alan Blinder (1997: 115), a former central bank official in the US was even more explicit when he argued that: Those who say that big government is the problem have got it wrong. The real problem is that government is pushed and pulled by interest groups and partisan politicking, often at the public’s expense … Shift responsibility for things like tax from the politicians to the experts; besides knowing more, they work in a politics-free zone.

What is interesting about these statements is that in some respects, the political class has accepted de-politicisation, or the need to replace politics with technocracy. We have already come across this argument a number of times in this book. In the 1930s, Schmitt, Hayek and the ordo-liberals all saw the collectivist project as the products of politicisation and promoted authoritarian liberalism as a de-politicising response to these collectivist pressures, above all in the Weimar Republic. From the 1950s onwards, the Chicago School increasingly saw the need for politics to give way to the economic expertise of its own brand of neoclassical economics, in which economic experts could measure the aggregate preferences of individuals and efficiency could displace ‘passions’ and ‘interests’, in contrast to politics the ‘differences about which men can only fight’ (Friedman 1953: 5). In the 1970s, stagflation was blamed on self-interested politicians effectively printing money in order to buy votes and an overloaded government captured by competing interests. The 1980s ‘third world’ debt crisis was blamed on rent-seeking behaviour by state elites, who in the name of development carried out protectionist import substitution industrialisation (ISI) policies which were inefficient and unproductive. Finally, as we saw in the previous chapter, the 2008 financial crisis was explained away as the product of social pressures on government, leading to policies such as the expansion

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of home ownership and low interest rates, which distorted market prices for investors. In each case, crisis was ultimately traced back to government and the politicisation of processes best left to ‘real markets’ or (as in the public sector) ‘market like behaviour’. Although we concluded Chapter 8 by suggesting that neoliberalism might never be able to eradicate politics from all social processes, it is also clear that there is a close connection between neoliberalism and the project of depoliticisation. Fareed Zakaria’s (2007: 248) contention that ‘what we need in politics today is not more democracy but less’ could have been written by Pareto or Mosca in the early twentieth century. Hay argues that de-politicisation is linked to neoliberalism in two ways: first, through public choice theory and, second, through the idea of globalisation. As we have already seen, public choice theory follows the Chicago School in focusing on the costs of regulation in cases of market failure, and adds that politicians (and public sector workers in general) are not interested in public service. Rather, like everyone else, they are rational, calculating utility-maximisers who seek to exercise and promote their self-interest. For politicians, this means that their behaviour is designed to ‘buy votes’ in the electoral marketplace. For government officials, it means attempting to extend government departments, expand government finances, and so on. It is precisely these problems which lead to inflation (Buchanan et al. 1978) and/or government deficits (Alesina and Ardagna 1998). This is another version of neoliberal de-politicisation, or ‘de-democratisation’, for what it is suggesting is that there should be limits on what democratically elected governments can do.1 There is an inconsistency in public choice theory however, specifically between their account of the symptom and their proposed method of dealing with the problem, for they argue that what is needed to avert these problems is a government that limits the capacity of politicians to buy votes and subjects government departments to ongoing audits and efficiency drives. The problem with this argument is that it is not clear why any government would do this if it is simply made up of rationally self-interested utility-maximisers – instead they would carry on trying to buy votes. If they do change, then they are acting in ways which do not maximise their utility – but this contradicts the founding assumption of public choice theory (Hay 2007: 107). As we have seen in many places throughout this book, at some point neoliberals thus come to depend on a set of public officials to act in ways that are outside the market-based behaviour which is said to be a universal feature of all human behaviour, or at least all human behaviour which matters in terms of social interaction.

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Hay’s argument is that this contradiction is less significant than that public choice theory in effect becomes a performative, self-fulfilling prophecy. As we saw in the case of the third way, the new public management reforms initiated were based on the idea, traceable back to Chicago and Virginia, which we can identify and measure market-like behaviour even in contexts where real markets do not exist. The effect of such reforms then ‘has been to oblige service providers and users increasingly to behave in accordance with these norms, whether they wanted to or not’ (Gilbert 2014: 44). This applies, for instance, to housing markets (where social housing is neglected and so individuals purchase property), and to education (where supposed consumer choice and academies displace local authority accountability). In terms of formal politics, we see a shift away from formal organisation and campaigning, towards media management, branding and focus groups, techniques borrowed from private corporations and marketing. There is a new focus on agencies outside formal political networks, such as unelected technocrats, think tanks, quangos and auditors, all of whom in effect lie outside of the formal political process (see further, Chapter 10). The great irony of the post-political condition is that we expect public servants to be self-serving, but this encourages either the self-serving behaviour which is problematised in the first place (such as gaming the system) or it encourages de-politicising reforms by politicians, which are justified on the assumption that they are necessary to remove the temptation to be self-serving. We might argue – in contrast to public choice theory – that the post-political condition is characterised by a choice between political parties where winning votes is based not on the promise of high public spending, but rather low taxation, and the sell-off of public services because they are so inadequate (mainly because of low taxation). What has happened is companies demand flexibility and low taxation, otherwise jobs will be lost, but then, [a]s governments oblige them, the fiscal burden shifts from firms to individual taxpayers, who in turn become resentful of high tax levels. The major parties respond to this by conducting general elections as tax-cutting auctions; the electorate duly favours the party offering the biggest tax cuts, and a few years later discovers that its public services have severely deteriorated. (Crouch 2004: 33)

Furthermore, as we have already seen, one of the most significant depoliticising measures has been the introduction of central bank independence so that economic experts can influence monetary policy and set interest rates. This is a contentious issue and there is little evidence that independence has led to greater efficiency (as the 2008 crisis bears out),

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and neither is it necessarily the case that it leads to de-politicisation rather than the promotion of financial interests and, as a result, asset bubbles (Grabel 2000; Hay 2013; Watson 2013). We might ask if politicians are self-serving, why would they ever introduce any reform which eradicated the possibility of further selfserving practices, but this is an issue more about the performativity of the theory, for the theory itself helps to produce a new reality. Finlayson (2003: 23) makes a similar argument, namely, that: public services have been undermined politically and organisationally, with the expectations of the public systematically lowered. It thus contributes to a declining sympathy for politics, which it is in the interests of politicians to foster, because it enables them to shift blame for policy failures onto executive agencies, quangos, private contractors and so on.

Hay’s constructivist account is also clear in his discussion of globalisation, for here it is not so much the reality, but the discourse of globalisation that is important. Increasingly, up to 2016, politicians in the developed world of all mainstream political persuasions argued that in the context of globalisation, there is no alternative but to carry out certain reforms because of the pressures of competitiveness. This means that in the global competitive market, countries must adopt policies such as flexible labour markets, liberal financial markets, lower taxes, freer trade and restrictions on government spending. There are problems with these contentions however; for instance, there is evidence that tax rates vary considerably across countries, welfare spending remains high in many countries, and capital is not as mobile as much of the globalisation discourse contends (Hay 2005). Nonetheless, the discourse rather than the reality of globalisation is used by political actors to justify policies (such as flexible labour markets or attempted welfare retrenchment) on the grounds that there is no alternative to such policies in the era of globalisation (Watson and Hay 2003). The effect of this process of de-politicisation is to reduce formal politics to a process of administration, whereby governance is carried out by technocratic elites. This might meet resistance, including in the form of the rise of populist politicians that attempt to set themselves (and an imagined people) apart from the political mainstream and an imagined ‘non-people’ (Muller 2016). We return to the question of whether or not this populism is a break from, or compatible with neoliberalism, in the final chapter. For now, however, we should just note that the rise of a variety of populist movements might be considered to be a symptom of the post-political condition.

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Hay’s argument linking post-politics and neoliberalism is useful, and implicit in the analysis is the idea that neoliberal norms have pervaded public life and that this is in many respects a cause for regret. While this may be so, we also need to know how neoliberalism became dominant, for it did not simply arrive out of thin air, and had some popular mandate both in electoral terms and in speaking to a wider common sense about distrust of the state, of the public and so on. Chapter 4 discussed some of this in historical terms but here we focus more specifically on the fact that ‘neoliberalism is not only a cause of a general malaise with politics and politicians, it’s also an effect of it’ (Tormey 2015: 68, original emphasis). This issue is discussed in the next section.

NEOLIBERALISM AND THE NEW SPIRIT OF CAPITALISM: INDIVIDUALISATION AND ENTREPRENEURIALISM As was made clear in Chapter 2, representative democracy has always in some sense been in crisis. In different ways Tocqueville and Mill both expressed concerns about the rise of democracy and collective politics, and this was developed later by Italian elite theory, Weber, Schumpeter, Schmitt and others. Both the ordo-liberals and Hayek were part of this theoretical movement which sought to limit the sphere of democratic politics. While there certainly is a case for certain limits being placed on any executive decision when certain rights are infringed, much of the wider debate is about the relationship between capitalism and democracy, particularly in the case of neoliberalism. The current post-political condition, and project of de-politicisation, can thus be seen in this light (see Streeck 2014). However, if this is so, then what does neoliberalism promise as a viable and desirable alternative? This section attempts to provide an analysis of how the neoliberal project is linked to so-called new times and the ‘new spirit of capitalism’ (Boltanski and Chiapello 2007), although we should be careful not to exaggerate its popularity. As we saw previously, Tormey suggests that Hay’s account of the neoliberal sources of de-politicisation is one-sided and too negative. Neoliberalism must have some resonance, and Tormey (2015: 8; see also Hardt 2002) links this to the decline of representative politics, which ‘has its roots in something deeper and more difficult to negotiate: the ongoing transformation of modernity, of political subjects, of the nature and form of our interaction with others’. In particular he argues that the ‘postrepresentation’ era of politics is based on a gradual erosion of vertical

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forms of politics, ‘whereby top down ways of organising politics have given way to a new era of horizontal politics’ (Tormey 2015: 8). This is a challenge to forms of politics which distrust democracy. Seen in this way, the rise of horizontality represents a new, more democratic form of politics and so should be a challenge to neoliberalism. The new social movements of the 1960s and beyond emphasised identity politics, networks and horizontal forms of organisation, which were less vertical and top down than the ‘modern’ forms of politics associated with ‘mass society’. These ‘new left’ movements were very much a product of the counter-culture of the 1960s, and were a source of great concern to neoconservatives of the New Right. Despite New Right hostility, in some respects the network forms of organisation, the attention to difference as opposed to the collective masses, and distrust of the state, has helped to promote, in the Weberian sense, a new spirit of capitalism. This involves the promotion of an ostensibly less bureaucratic capitalism and a new discourse of entrepreneurial capitalism (even if this might be problematic in reality). Following Weber, Boltanski and Chiapello (2007) suggest that previous spirits of capitalism were associated with the bourgeois entrepreneur (Weber’s Protestant ethic), which was followed by the rise of the large bureaucratic corporation, the Keynesian state, based on planning and rationalisation (1930s to the 1960s). The post-1960s spirit is based on a network capitalism which borrowed and co-opted the anti-state, antirationalisation, anti-hierarchy of the New Left but promoted a new capitalism, based on vision, networks, teamwork and entrepreneurial vision – and which in many respects culminated in the third way. Thus, just as Weber and Schumpeter suggested that the entrepreneur had been undermined by rationalisation, the new spirit suggests that we have seen the revival, and indeed the extension, of the entrepreneur. The revival refers to those individuals with vision working in corporations and who are constantly alert to new opportunities and new sources of profit (Mises 1996: 328), and prepared to innovate and thus carry out processes of creative destruction (Schumpeter 2012). Florida (2002) links this rise to the growing importance of the informational economy, and the production of new ideas, so that (intellectual) property exists in the creative entrepreneur’s head. Echoing McClelland’s (1962) older idea that nation states have developed on the basis of their ‘n’ factor, which reflects their ‘need to achieve’, Florida suggests that entrepreneurial regions have developed on the basis of a high creativity index, with high proportions of creative thinkers compared with overall workforce, high patents per capita, the settlement of high-technology businesses, and cultural diversity (as entrepreneurs sell to all irrespective of gender, race or sexuality).

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We might argue that entrepreneurs are the new elites within corporations, the creators differentiating themselves from the herd (Rand 2008), or the masses (Florida 2002), and prepared to act as a Schmittian state of exception for the company itself (Casson 1982). The entrepreneurial principle is extended to all spheres of life, so that entrepreneurial initiative acts as a kind of ‘universal therapy for everyone and everything’ and ‘deficiency in entrepreneurial spirit (is seen) as the cause of all ills’ (Brockling 2016: 76). In this sense, while Friedman was suspicious of passion in (democratic) politics, neoliberalism champions entrepreneurial passion as a challenge to rationalisation (see Peters 1992; Chang 2002).2 A distinct though parallel argument has been made by Thomas Frank in his discussion of the 1960s counter-culture. As we saw in Chapter 4, US neoconservatives argued that the New Left undermined American values, leading to ‘revolutionary nihilism’ (Bork 1996) and the ‘unmitigated disaster’ that was the 1960s (Bloom 1987). In contrast, the counter-culture suggested that this decade eroded the cultural conformity associated with American post-war mass society, but these challenges were eventually eroded, not least by corporate interests. For example the original Woodstock of 1969, which was eventually made a free festival, was followed 25 years later by Woodstock II in 1994, the latter of which was dominated by commercial sponsorship. So we have either a nihilism of the 1960s for neoconservatives, or an authentic counter-culture for the New Left, albeit eventually betrayed by corporate capitalism. Frank (1997) challenges these positions, arguing that they both wrongly assume that the counter-culture was anti-capitalist and that US corporate culture was passive in the face of these events. United States business ‘imagined the counterculture not as an enemy to be undermined or a threat to consumer culture but as a hopeful sign, a symbolic ally in their own struggles against the mountains of dead-weight procedure and hierarchy that had accumulated over the years’ (Frank 1997: 9). Seen in this way, the 1960s might be regarded less as a decade of cultural confrontation, and more an era when bohemia itself was ‘massified’ (Harrington 1972). In Frank’s (1997: 29) words, ‘[i]t suggests instead that the counterculture may be more accurately understood as a stage in the development of the values of the American middle class, a colourful instalment in the twentieth century drama of consumer subjectivity’. United States companies therefore both took advantage of and extended these developments so that the counter-culture ‘served corporate revolutionaries as a projection of the new ideology of business, a living embodiment of attitudes that reflected their own’ (Frank 1997: 27). Much of this debate parallels that associated with new times, discussed in Chapters 6 and 7, which argued that a hierarchical, national, Fordist

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and neo-Keynesian capitalism had given way to a capitalism based on networks, post-Fordist flexible production, and globalisation (Hall and Jacques 1989). In these new times, the left in the developed world has declined in the face of the shift from manufacturing to informational capitalism, the rise of precarious employment, the rising significance of consumption and disillusionment with the hierarchical, bureaucratic state. In some respects this debate has intensified in the context of the further development of the new knowledge economy, new technologies and the rise of the network society (Castells 1996). Like the earlier debates associated with new times in the late 1980s and early 1990s, it is not always clear if commentators are analysing or welcoming many of these developments (Rustin 1989; Sivanandan 1990). The third way in particular saw these processes as inevitable and something to which politics must respond in a purely reactive way, but at the same time saw this an opportunity for social inclusion for everyone. While this argument was seriously undermined by the dotcom crash in 2001, the idea of the knowledge economy has since gained wider resonance. In current debates, some writers suggest that the development of new technologies might result in the mutation of capitalism into a post-capitalist future, in which the productive forces have outgrown capitalist relations of production, where the information economy has outgrown the market (Mason 2015a; see also Barbrook 2006). Much is made of the common pooling of knowledge through file sharing and the partial erosion of copyright, and so the argument is made that the sharing economy has radical potential (Barbrook 2006; Mason 2015a). For instance, Rifkin (2014) refers to a collaborative commons, where networked individuals pool and share information, while more ambiguously, Chris Anderson (2009) argues that business can give away some services for free in order to forge trust and long-term relationships in order to make more money in the longer term. The question of the novelty of a common pool of knowledge is considered in more depth in Chapter 11, but we can note here that the appropriation of socially produced wealth by individuals is far from a new phenomenon, and was central to Ricardo and Mill’s consideration of land rent, and Veblen’s analysis of the relationship between knowledge and the industrial system. That the production of knowledge is indeed a social phenomenon which reflects the ‘rich social inheritance of long accumulation’ (Hobson 1936: 67) does not necessarily mean that entrepreneurs might not find ways of capturing this value for private ends. Information technology (IT) entrepreneurs commodifying knowledge is far from being a new phenomenon, although much of the current debate is applied to the idea of a post-industrial information society of

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‘sharing economy’ companies such as Airbnb and Uber, as well as collective consumption where people have the benefit of consumption but not the burden of ownership or environmental cost (such as Netflix or iTunes). In the 1990s, Barbrook and Cameron (2006) argued that this new capitalism was based on a combination of the San Francisco hippie movement of the 1960s and Silicon Valley libertarianism, in which both are anti-state and supportive of alternative lifestyles. While some technooptimists suggested that new technology could facilitate a new direct democracy led by e-citizens, others instead placed their hope in the ability of the new technologies to further expand the global marketplace. Prominent conservatives in the US, such as Dinesh D’ Souza and Newt Gingrich, began to champion the libertarian potential of the Internet (see Frank 2008: 98–9), popularising the techno-optimism of Alvin Toffler (1980). In particular, we now have the idea that companies are platforms that link individuals in particular ways, so that ‘[i]nstead of the tired conventional model, with individual firms competing for customers, we are witnessing the emergence of a new, seemingly flatter and more participatory model, whereby customers engage directly with each other’ (Morozov 2015: 6). Such companies have very high stock market valuations and low balance sheets, and operate on the basis of distributed knowledge in which reputations are established through market transactions, rather than, say, the law. In this respect the so-called sharing economy sounds both Coasian and Hayekian. It should be clear that much of the debate over the potential of the Internet rests on the notion that it has given rise to a new entrepreneurial class which challenges the hierarchies of old manufacturing capitalism (see Castells 1996; Giddens 1998). Conveniently glossing over the centrality of federal government to the development of the Internet, and in particular publicly funded research, particularly in the US military and in universities (Barbrook and Cameron 1996; and see Chapter 11), the rise of the IT sector has also seen the emergence of new, single-minded individuals whose entrepreneurial vision was taking society to a new technological frontier. The vast wealth that went to such entrepreneurs was said to be justified by their entrepreneurialism, and so the ‘bureaucratic rationalisation’ of the hierarchical corporation was being displaced by entrepreneurs and non-hierarchical forms of organisation, an argument that appealed in different ways to both the New Right and the New Left. For instance, Justine Tunney was a leading figure in the US Occupy movement which emerged in 2011 in response to the financial crisis. By 2014, she had circulated a petition to retire all government employees (with full pensions), transfer administrative authority to the IT sector, and

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declare Google Chief Executive Officer (CEO) Eric Schmidt the CEO of the United States (see Hern 2014). This entrepreneurial vision is also manifested in the rise of various philanthropic foundations which are committed to sharing and disseminating the enterprise culture which is said to have led to the creation of such wealth in the richer world (Martin and Osberg 2008). Much of this sees the free market and private enterprise, led by the private entrepreneur, as the model to be disseminated into the poorer regions of the world (Bishop and Green 2008). As we have seen, this is not necessarily new, as the rise of structural adjustment and good governance in the 1980s and 1990s demonstrates. However, what is distinctive about this entrepreneurialism is that it is more direct than the neoliberalism and post-Washington Consensus of previous decades, so that rather than encouraging states to promote more market-friendly policies, such as attracting direct foreign investment, the investment itself, and the multinationals carrying out such investment, are directly leading development projects, albeit with state subsidies (McGoey 2014). For example, multinational companies have become directly involved in development aid projects such as the Southern African Growth Initiative, which is co-financed by government bodies such as the Department for International Development (DFID), alongside projects run by Unilever, SAB Miller and Monsanto (Harrison 2016). This project has attempted to promote smallholders as entrepreneurs, integrated into global markets through cash-crop production and purchasing chemical inputs, seeds and fertilisers in order to increase productivity and output. In this way the new entrepreneurial vision is extended to the developing world.

NEW TIMES AND THE NEW SPIRIT: A PRELIMINARY ASSESSMENT Some of the arguments made about new times can be challenged on empirical grounds. For those advocates of new times who focus on the significance of new technologies, we might also note that we need to be careful not to generalise from the development of information and communication technology (ICT) in a small number of economic sectors. Thus, at the height of the new economy boom in 2000, ICT-producing and ICT-using industries accounted for a minority of employment in both the European Union (EU) and the US, with non-ICT employment accounting for 68.6 per cent of employment in the EU and 66.4 per cent in the US (Doogan 2009: 59) – a figure which puts Blair and Leadbeater’s rhetoric concerning the new economy into perspective (see

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Chapter 7). This point also applies to the new economy and the rise of platform capitalism, as we see in Chapter 11. However, here we focus more on how new times and the new spirit can be conceptualised as a political project. Hay (2005) has argued that some of the empirical claims made for the reality of globalisation are wide of the mark, but this is of less significance than the discourse of globalisation which is intended to create a new reality (Doogan 2009: 33). From this point of view, new times or the new spirit of capitalism might best be regarded as a neoliberal project designed to create a new reality (Cameron and Palan 2004). As we have seen, in this new capitalism everyone was expected to become an entrepreneur, and while increased job insecurity and growing inequality were unfortunate side effects of this development, individuals could more than compensate through the opportunities presented to them through investment in various markets, such as housing and pensions. Giddens (1998: 33) linked individualisation to the rise of a post-traditional order in which there are no social pressures on how to act and conform, thus allowing individuals to exercise ‘an active orientation to their lives’. In this order, agents become empowered to create their own self-identity, removed from social constraints. This rise of individualisation applies as much to the poor, single, black mother as it does to anyone else, as the quest for equality is displaced by social inclusion (Giddens 1991: 85–6). Seen in this way, all individuals have the capacity to become entrepreneurs. Mirowski (2013) has identified a paradox with this contention, for if this is the case, then the sovereign individual of liberal thought, disappears, and we return once again to the argument that neoliberalism is a constructivist project. In Mirowski’s (2013: 115) words: ‘It is a mug’s game to trumpet the virtues of a market that gives people what they want, if people are portrayed as desperate to transform themselves into the type of person who wants what the market provides.’ This argument – that the individual entrepreneur is not devoid of social pressure – is considered in depth in the next chapter, but for now we can briefly further explore the idea of the sovereign individual. This is central to liberal thought, and neoliberal ideology also draws on this idea through the concept of consumer sovereignty. In particular, methodological individualism argues that analysis of social reality must start from the premise that society is made up of autonomous individuals and that the ‘social’ has no existence over and above the individuals that are part of society. Thus, we have the idea that individuals have fixed interests which can be expressed through the choices that they make in the market. Similarly, international relations can be analysed by thinking about states having fixed national interests and competing in the context of international anarchy, an approach which

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closely parallels the assumptions of much neoliberal theory (Amadae 2003, 2016). The main problem with such an approach is that it makes no attempt to understand how such interests are constructed and how they might change over time. For neoliberalism, as we saw in the previous chapter, this approach comes up against the reality of interdependence in the market order, and the fact, for example, that moral hazard can never be completely abolished. Also there is a tension between the sovereign individual, on the one hand, and the need to adapt to the market, on the other. This problem also manifests itself in the case of entrepreneurship in the developing world. A standard neoliberal argument is that the entrepreneurial spirit needs to be released in the developing world in order to promote growth (Bauer 1971; de Soto 2001). Microfinance initiatives targeted at the poor are often seen as useful supplements to releasing such a spirit. However, given the starting point of poverty experienced by such entrepreneurs, they commonly face high rates of interest on loans which undermine any prospect of making sufficient profits to repay loans – and there is evidence that much of these loans actually finance consumption in times of particular hardship (see Chang 2010: 162–4). Even more important, microfinance initiatives often finance activities which may make sense for one individual, but do not make sense when a large number of individuals concentrate in the same activity (see Bateman 2010). This is the fallacy of composition argument, which is considered further in the context of inequality in Chapter 11. Notwithstanding these problems, we might still argue that in terms of the new spirit of capitalism, methodological individualism is best understood less as an analytical framework and more as an ideology. Methodological individualism serves as a rhetorical device which first challenges the paternalism of the state and provides a simple, unreflective account of freedom as an alternative. This is a central part of the ‘populist turn’ of neoliberalism from the 1960s, and indeed Milton Friedman criticised colleagues at the 1960 Mont Pelerin Society meeting for their ‘lack of respect for the masses of the people’, and he later told Playboy magazine that ‘under capitalism, consumers get what they want rather than what the critics think they should have’ (quoted in Burgin 2012: 193). Thus, just as some neoliberals criticised the creation of the Financial Services Authority in Britain as the product of a paternalist, nanny state (see the previous chapter), so market populists dismiss as elitist any criticism of populist television such as The X Factor. This liberal focus on the sovereign individual sits uneasily with the neoliberal attempt to reconstruct the individual as an entrepreneur. Nevertheless, consumer sovereignty does have a significant intuitive appeal, not least in the way that it

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can dismiss state elites as paternalist outsiders, attempting to impose their will on individuals. Consumer sovereignty was discussed in Chapter 2, where we identified a close correspondence between early neoliberal accommodations to the corporation, on the one hand, and the development of mass marketing techniques, on the other. The idea is that consumers exercise their sovereignty through the choices that they make in the marketplace, and this is the real meaning of the liberal idea of the sovereign individual. According to James Buchanan (1984: 14), ‘[w]e commence with individuals as utility maximizers … [which] is his utility function. This function defines or describes a set of possible trade-offs among alternatives for potential choice, whether the latter be those between apples and oranges at the fruit stand or between peace and war for the nation’. This instrumental rationality, already discussed in Chapter 5, is discussed in greater depth in Chapters 10, 11 and 12, but we add here that, although he popularised the concept, William Hutt (1940) implied that consumers might not know what their best interests are, and thus consumer sovereignty was more an aspirational project than an existing reality. Moreover, much of the debate about consumer sovereignty is based on the positivist contention that consumer choice in the market reveals the real preferences of individuals, and it is the job of economists to observe these preferences. Furthermore, a strict adherence to consumer sovereignty implies an exact correspondence between preferences expressed in the marketplace and individual preferences, and without this, market prices convey misleading information. The 2008 financial crisis is an example of one enormous mismatch between ‘consumer preferences’ (purchases of financial instruments) and the financial market, and, like other markets, this might lead us to ask wider questions about the role of knowledge and information in market transactions. At this point neoclassical economists and indeed many neoliberals accept the need for government intervention, although there are some more libertarian arguments which suggest that competition itself is largely sufficient (on the licensing of health-care workers, see Friedman 2002: ch. 9). Thus, as we saw in the previous chapter, the Financial Services Authority was established in Britain to provide information to financial investors, and similar cases for intervention are made in cases of food safety standards, the state licensing of professionals such as doctors, nurses and teachers, and the European single market which facilitates trade through common standards. However, this concession leaves the neoliberal facing a problem, because ‘accepting that there is no such thing as a fully informed human being with perfect information means undermining the very foundations for believing consumers can be sovereign’ (Felner and Spash

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2014: 20). Moreover, the consumer sovereignty thesis rests on the premise that preferences are revealed through the market, but this leaves aside the question of how preferences are shaped by the market and leads to a tautological argument, for [i]f markets themselves importantly shape a person’s preferences, if our preferences are ‘endogenous’ to markets, that is, originating from within markets, then it is circular to appeal to a market’s ability to satisfy those preferences as its central justification. Market outcomes cannot be ranked unambiguously by preference rankings if the preference rankings themselves depend on markets. (Satz 2010: 49)

The use of the term sovereignty to refer to the consumer is particularly problematic, for (c)onsumers are citizens but they cannot be sovereigns as they lack internal consistency of preferences and, most crucially, they often lack the necessary information about the consequences of their choices. Nor are their choices sovereign ‘votes’, as they are constantly influenced by other market actors, like companies and their marketing communications. Sovereign and subject remain ‘clean different things’. As consumers, we might be choosers, indulgers, identity-seekers, communicators, explorers, activists, citizens and rebels … Yet to believe that the market makes us sovereigns is an illegitimate self-delusion. (Schwarzkopf 2011: 12)

For all its analytical faults, the idea of consumer sovereignty does have some considerable ideological appeal, not least in its capacity to reject the paternalism of the state, and uphold the supposed sovereignty of individuals and entrepreneurs. This can also be seen in the case of celebrity philanthro-capitalism, where debate tends to focus on the (presumably noble) individual motives of entrepreneur-philanthropists, rather more than the wider question of how such individuals came to acquire such vast wealth in the first place. In each case, methodological individualism lends itself to the libertarian promise of neoliberalism, even if this can never be fulfilled as neoliberalism rests on authoritarian and constructivist measures designed to construct market-friendly individuals, and regulations which make market transactions possible in the first place.

CONCLUSION This chapter has considered the relationship between neoliberalism and de-politicisation and linked this to public choice theory and to the idea

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that neoliberalism represents a new spirit of capitalism. This spirit has seen the revival of the entrepreneur, and the rise of a new individualism as against the supposedly stifling bureaucracy of both the large corporation and the welfare state, as well as representative political parties. The claim that everyone can be an entrepreneur does not reflect the reality, but the claim that everyone should be an entrepreneur is a component part of a political project which aims to construct a new reality. However, the reality that is constructed may differ greatly from the political project, and the following chapters consider in greater depth the downside of the reality of actually existing neoliberalism. Before moving on to consider these in more detail, we should return to the work of Tormey. As we have seen, he argues that the rise of this new individualism is a cause for celebration, because it undermines the aura of authority.3 This is because the way is opened for a ‘post-representational, post-Mill’ politics based on direct action, immediacy and the erosion of both state hierarchy and vertical politics. Tormey (2015: 76) argues that ‘[t]he idea of one’s fate as bound up with the destiny of a collective subject, whether it be class, caste, nation or other identity, is at the very least contested by the idea of the individual as author of his or her own destiny’. This statement could be made by any neoliberal ideologue. While Tormey (2015: 76–7) accepts that the realisation of individual self-fulfilment is problematic in the context of high degrees of inequality, he actually says no more than this. His celebration of the erosion of state authority could be interpreted as a celebration of the decline of collective sources of provision in health, welfare and education. Tormey (2015: 80) himself favourably cites Richard Posner’s (2003) thesis concerning the decline of public intellectuals, suggesting that this again demonstrates the undermining of the aura of authority. The problem with this argument is that Posner wants to undermine all auras of authority but one, the market. In some respects, this aura has been shared by many mainstream political parties, particularly in the western world, but also to some extent in the developing world (see Chapter 7), which is one of the main reasons for the process of de-politicisation that characterises these societies. This brings us back to a consideration of the claims of public choice theory, for as Hay (2004: 523) argues: the internalization of a neoliberalism predicated on rationalist assumptions may well serve to render the so-called ‘rational voter paradox’ something of a self-fulfilling prophecy. The rational voter paradox – that in a democratic polity in which parties behave in a ‘rational’ manner it is irrational for citizens to vote (since the chances of the vote they cast proving decisive are negligible) – has always been seen as a central weakness of rational choice theory as a set of analytical techniques for exploring electoral competition.

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The paradox here is that voters do vote in the first place. However, when it is assumed by political parties that politics has increasingly become a technocratic process of administering the dominant economic paradigm, which politicians should not and cannot challenge, then this is bound to have predictable results, namely that ‘[p]olitical parties behaving in a narrowly “rational” manner, assuming others (electors and market participants) to behave in a similarly “rational” fashion will contribute to a dynamic which sees real electors (rational or otherwise) disengage in increasing numbers from the façade of electoral competition’ (Hay 2004: 523). This is the central feature of de-politicisation in the context of actually existing neoliberalism. To some extent, this process of de-politicisation has been challenged in recent years, particularly with the rise of left- and (especially) right-wing movements that in some respects reject neoliberalism. This might be considered part of a growing crisis, and possibly even the beginning of the end of neoliberalism, and it is considered further in Chapter 13. For the moment, though, we need to look in more depth at the reality of actually existing neoliberalism, and this is done in the next two chapters.

NOTES 1.

This account of limits is not necessarily entirely wrong, and we have already encountered the idea that democracy might lead to a tyranny of the majority. This is a perfectly acceptable argument if we apply it to, say, minority rights in democracies, but neoliberalism’s main concern is not with socially excluded minorities so much as with one privileged minority, namely, property owners. 2. How entrepreneurial passion works in (authoritarian) neoliberal politics is considered in Chapter 3 via Schmitt, and in the concluding chapter through a consideration of President Trump as a combination of Schumpeterian entrepreneur and Schmittian exception. 3. In some respects this argument again parallels the New Times arguments associated with Marxism Today in the 1980s. In the case of some writers – Mulgan and Leadbeater in particular – it was increasingly unclear how their arguments were actually critiques of the ‘libertarian’ strand of Thatcherism, as was suggested in Chapter 7, and is also discussed in later chapters.

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10. Actually existing neoliberalism II: bureaucracy, corporate rule and the asset economy This chapter looks further at the new spirit of capitalism discussed in the last chapter, with a greater emphasis on the dark side of actually existing neoliberalism. It does so, first, by examining the question of entrepreneurship and freedom, and in particular contrasts this with the reality of increased bureaucracy, particularly in the public sector. This argument is developed further in the second section through a consideration of what Wolin (2010) calls inverted totalitarianism, which refers to the increased domination of politics by economics. This section examines what some have called the corporate takeover of the state, and does so through examining the ‘shadow state’ and subcontracting, corporate lobbying and tax avoidance. The third section then re-examines the issue of debt and ‘assetisation’ (Birch 2015), and considers the continued importance, post-2008, of the debt and asset economy, not least for understanding neoliberal renewal. The conclusion then discusses further the question of (post-)politics.

ENTREPRENEURSHIP AND TOTAL BUREAUCRATISATION As we have seen in previous chapters, neoliberalism contends that liberalism undermined the absolutist state and gave rise to the liberal individual and the free market. However, state power once again expanded with the rise of mass society and collectivist pressures associated with democracy (Mises 1944). Neoliberalism emerged as a response to the collectivist dangers of mass society and warned of the slippery slope towards totalitarianism. In this account the resurgence of entrepreneurialism, and the new spirit of capitalism, reflects the success of the rise of a new individualism. In the 1980s the French philosopher Paul Thibaud identified a ‘triumph of the entrepreneur’, where society was shifting away from the idea of the economy working directly for the good 236

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of society to one where economic values dominated across all of society and where the social good was the accidental by-product of the unleashing of these individualised economic values. In contrast to the possible nihilism associated with individual freedom, he suggested that freedom and virtue could be reconciled by the fact that even in the realm of consumption, individual initiative and civic prudence could be combined through individuals becoming an ‘entrepreneur of one’s own pleasure’ (cited in Brockling 2016: 23–4). The Centre for Policy Studies similarly argued in the 1980s that ‘[e]nterprise culture is defined as the full set of conditions that promote high and rising levels of achievement in a country’s economic activity, politics and government, arts and sciences, and also the distinctly private lives of the inhabitants’ (cited in Morris 1991: 23). However, there is a paradox that lies at the heart of this account of entrepreneurial freedom, both in terms of history and the present. Market expansion did not emerge spontaneously and independently of state authorities, but was closely linked to the development of money, central banking, war, the corporation and limited liability, and contracts (Polanyi 2001; Chang 2002; Knafo 2013). The expansion of the market thus went hand in hand with the expansion of bureaucracy; the free market ‘required a thousand times more paperwork than a Louis XIV-style absolutist monarchy’ (Graeber 2015: 9; see also Harcourt 2011). This can also be applied to the present. In the case of public sector reform, ‘management by objectives has often been translated as meaning setting quantifiable targets; and the overall idea of becoming more like the private sector has come to mean concentrating all power within a service in the hands of managerial leaders as opposed to professional staff’ (Crouch 2016: 68). This, in turn, can be traced back to earlier neoliberal and public choice advocacy of strategies designed to break public monopoly through competition between different offices within government (Niskanen 1971: 195). In an argument that replicates the Chicago and Virginia schools, this new managerialism (Pollitt 1990) sees the state not as external to the market order, but instead ‘an entity completely integrated into the space of exchange, into the interdependent system of economic agents’ (Dardot and Laval 2014: 238). What has taken place is that, in the name of consumerism for the customer and entrepreneurialism for the public servant, bureaucratisation has increased in order to both measure and administer reforms such as meeting key performance indicators, targets and so on. This is a process where the ‘enterprise must replace bureaucracy whenever possible and, when this is not possible, bureaucrats must as far as possible conduct themselves like entrepreneurs’ (Dardot and Laval 2014: 238, original emphasis).

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In contrast to the new spirit of capitalism’s self-image, this takes place, not through the end of Weberian bureaucratic rationalisation but its extension. In this new spirit, everyone is expected to construct their own iron cage, will be audited to check if they do so, and therefore instrumental rationality further erodes professional vocation. Thus, [i]n reality, an act of judgement, involving ethical and political criteria, is replaced by a measure of efficiency that is alleged to be ideologically neutral. The purpose of each institution thus tends to be obscured in favour of an identical accounting norm, as if each institution did not possess constitutive values that are peculiar to it. (Dardot and Laval 2014: 249)

However, this then begs the question of ‘[w]ho in effect evaluates the evaluation? … One verifies only what one has constructed; one measures only what can be reduced to being measurable (Dardot and Laval 2014: 251). We can therefore see where rationalisation has actually intensified, for ‘[t]he three Es of management – “economy, effectiveness and efficiency” have erased the categories of professional duty and conscience from the logic of power’ (Dardot and Laval 2014: 254). Where this does differ from Weber is that this neoliberal rationalisation rests on the increased role of experts that have authority because of the methods that they use, which are essentially efficiency measures based on metrics and auditing, and which are then applied across the field, rather than Weberian bureaucrats who derive authority from their specialised knowledge in their field of expertise. For example, in Britain, the National Health Service (NHS) experienced one major reform in the 1980s, followed by four in the 1990s and six in the 2000s. In schools, there were four major reforms in the 1980s, three in the 1990s, nine in the 2000s, and two from 2010 to 2016, the second of which is the most radical reform since 1870 (Crouch 2016: 91). Graeber (2015: 9) identifies an iron law of liberalism in which ‘any market reform, any government initiative intended to reduce red tape and promote market forces will have the ultimate effect of increasing the total number of regulations, the total amount of paperwork, and the total number of bureaucrats the government employs’. Much of this is associated with the third way, discussed in Chapter 7, and in Britain Labour’s reconstruction as a party of white-collar bureaucrats.1 To take just one example, according to the Conservative Party, in 2006 there were more administrators (264 012) in the NHS than there were hospital beds (175 646) (Elliott and Atkinson 2007: 124). This is a product of the attempt to construct markets even where ‘real markets’ do not exist, and therefore can be traced back not only to the

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new public management or (in Britain) the ‘Next Steps’ report of 1988 (HMSO 1998), but also to the Chicago School and its account of price theory so that competition is constructed by the marketised state. In Davies’s (2014: 30) words: Once we are speaking of these deliberately constructed competitions, and not some existential or biological idea of emergent competition. We get a clearer view of the strange forms of authority which neoliberalism has generated and depended upon. We see new breeds of expert – coach, regulator, risk manager, strategist, guru – offering toolkits and advice on how to navigate and act upon a constantly changing and unpredictable environment … In a world organized around the pursuit of inequality, that is, by an ethic of competiveness, these experts are able to represent the world in numerical hierarches of relative worth. It is not just cold instrumental reason that underpins the authority of economics in the neoliberal state, but also its capacity to quantify, distinguish, measure and rank, so as to construct and help navigate a world of constant, overlapping competitions.

The new spirit of capitalism should thus also been seen as a constructivist project, as ‘the discourse of the entrepreneurial self does not so much tell people what they are; rather it tells them what they have to become’ (Brockling 2016: 21). This, in turn, reflects that fact that neoliberalism is ‘not laissez-faire but behaviour modification, in all areas of life’ (Brockling 2016: 28). There is ‘an obligation to be free’ (Rose 1990: 258). Thus, as we have already seen, this means for Foucault permanent vigilance and intervention, in which neoliberalism ‘is better understood as a form of governmentality that runs from the market to the state, and which plays out through new practices of regulatory intervention and surveillance’ (Gane 2012: 614). For instance, the British Conservative Member of Parliament (MP) and Policy Minister in the coalition government, Oliver Letwin, stated that public sector workers need ‘some real discipline and some fear’ of job losses in order to release their entrepreneurial spirits (Boffey 2011). These points apply across the board, from government policy designed to make different agents more entrepreneurial, from individuals encouraged to invest in financial markets, to states disciplined by military intervention to join the zone of ‘globalising states’ (see Chapter 7). The major British third way welfare advocate, Julian Le Grand (2006) thus argues that in the past the system of public sector provision assumed that officials were ‘knights’, acting benignly for the interests of others. However – in accord with the precautionary principle and distrust of politics – he argued that we should assume that such officials are all potentially knaves, who need to be incentivised to behave in more

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efficient ways. This laid the basis for all kinds of reforms designed to make the public sector more efficient, and although there is no direct lineage back to Chicago (although there is an indirect lineage via James Coleman), we saw in Chapter 5 how the Chicago School argued that all social interaction could be measured as if it was a market. In practice, this gave an enhanced role to economists (and judges) who could measure outcomes in terms of efficiency, and thus laid the basis for the rise of the audit culture in the public sector, where performance targets, key performance indicators, league tables and internal and external completion are all used as indicators of efficiency, as if the public sector could be modelled on a market-like basis (Power 1999; Muniesa 2015). The effect of these reforms was an expansion of the state sector, and particularly of the role of management and auditing practices in that sector. This has given rise to a considerable hierarchy within the public sector, and a conflict of values between those public sector workers espousing collectivist notions, and those managers espousing ‘new’ entrepreneurial notions (Taylor-Gooby 2004). Thus, in contrast to both neoconservative new class theory and neoliberal public choice theory (Chapter 4), expansion has increased hierarchy and division within the public sector as there has emerged a new group that carries out neoliberal-inspired reforms around new public management. For example in Britain in 1991, the UK Benefits Agency involved a reconstruction of the former Department of Social Security, which involved the creation of a senior management board, the restructuring of local offices into district management units, each with their own individual managers and costs centres, and new work practices influenced by the new public management (Davidson 2015). This was justified on the grounds that it would promote entrepreneurial initiative and undermine hierarchy, but at the same time it involved new forms of control and a new management within the public sector, a new third way elite. Graeber (2015: 18) calls this the era of ‘total bureaucratisation’. As well as regulation designed to construct the entrepreneur, this intervention sees a new double movement at odds with Polanyi, because this is about extension of the market through the state. One manifestation of this process was that ‘corporate management became more financialized, but at the same time, the financial sector became corporatized, with investment banks, hedge funds, and the like largely replacing individual investors. As a result, the investor class and the executive class became almost indistinguishable’ (Graeber 2015: 19–20). Moreover, the rise of new public management has not led to costs savings, and in the case of Britain, Hood and Dixon (2015) suggest that from the late 1980s to the mid-2010s, while the Civil Service has been cut by one third, public

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spending has doubled and administration costs have risen by 40 per cent. This has been done in the name of the market: put bluntly, we have seen the increased dominance of economics over politics at the level of both the corporation and government. This is considered further in the next section.

INVERTED TOTALITARIANISM: THE ECONOMIC DOMINATION OF POLITICS The economic domination of politics takes a number of forms, some of which we alluded to in previous chapters, and which include public sector reform as outlined above. In this section, though, we discuss examples of corporate power, with specific attention paid to the relationship between it and the state. The first idea that needs some consideration is that of corporate welfare. This concept attempts to capture the ways in which private companies benefit from public provision (Farnsworth 2015). It is an idea that has attracted some criticism on the grounds that while it may be true that corporations might benefit in some ways from such provision, it is far from clear that they alone benefit from specific cases of government expenditure (Wilkes 2015). For example, companies benefit from healthy and educated labourers but so do the citizens that comprise this workforce. However, this criticism misses the point of the concept, which is explicitly not a normative attack on all forms of corporate welfare, nor an argument which suggests that there are necessarily always zero sum games in government spending so that when corporations benefit, citizens lose, or vice versa (Farnsworth 2015: 8). Corporate welfare refers to the idea that the welfare state is not something that exists for the poor simply as a safety net, but operates on behalf of all citizens so that in some respects the welfare state is a common good for all (Gamble 2016). Thus, while health is a public good available to all through the NHS, it is significant to note that the two largest providers of private health care insurance in the US are General Motors and Ford, and the former has suggested that the costs of such insurance adds somewhere between $1500 and $2000 to the cost of a new car (Farnsworth 2015: 29). Much of the differential between non-wage costs to employers in the US (22.8 per cent of hourly wages) and Britain (16.4 per cent) is accounted for by health-care costs (Farnsworth 2015: 29). In Britain, Farnsworth (2015: 10) suggests that direct corporate welfare amounted to £93 billion a year in 2012–13, and this category included official subsidies, capital grants and tax benefits. Indirect corporate

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welfare, which included wage subsidies, education and public health amounted to £52 billion a year. In the same year, corporate income tax totalled £42 billion a year. Subsidies and grants went to (among others) agriculture, train operators (see further below), and the nuclear and defence industry, and capital grants were provided to business more widely to induce investment. Tax benefits amounted to £44 billion and include capital allowances which enable companies to write off investment in physical plant and machinery vehicles, and IT and office equipment against corporation tax. In terms of infrastructure it has been estimated that after road and fuel tax, freight made a net gain of £5 billion in 2014 (Better Transport 2014). In 2012–13, 5 million families received tax credits at a cost of £20 billion, a large increase in the number of working families receiving such credits over the previous ten years. From 2008–09 to 2012–13 there was an 86 per cent increase in the number of those working and claiming housing benefit, and while in 2008 10 per cent of housing benefit claimants were in work, by 2013 the figure was 19 per cent (Farnsworth 2015: 24). It should again be stressed, not least in the context of austerity, that corporate welfare is not intrinsically bad, but it does help to put Herbert Spencer’s still influential idea that the welfare state is simply a burden produced by and for the feckless, undeserving poor into a much wider context. In the US, despite popular perceptions, the state also plays a central role in public services. However, the nature of this provision is not always clear, and the famous Tea Party slogan, ‘Keep your hands off my Medicare’ (Mettler 2011: 40), ignores the fact that Medicare involves substantial state provision. This notion of ‘hidden’ state provision is captured by the concept of the ‘submerged state’, which ‘includes a conglomeration of federal policies that function by providing incentives, subsidies, or payments to private organizations or households to encourage or reimburse them for conducting activities deemed to serve a particular purpose’ (Mettler 2011: 4). Over the past 30 years, there has been a shift from direct to indirect benefits, and the value of these benefits have often declined in real terms, especially for the young and lower-income groups, while the benefits to the private sector and richer individuals have increased. The submerged state includes a range of tax breaks, for corporations and for home owners, the latter of which increase in value for those holding larger mortgages, and subsidies for private schemes in health, housing and so on. The private sector benefits enormously from this and has mobilised to maintain and enhance the benefits for specific companies. From 1999 to 2009, the amount spent on lobbying increased in real terms from $1.93 billion to $3.55 billion (Mettler 2011: 33). At the same time, the hidden nature of public service

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and provision in many respects serves to further undermine a belief in any notion of the public good or common interest, even while in many respects it has been the neoliberalisation of such provision which has undermined the value of these benefits. Once again this shows that state spending and the welfare state is not simply a phenomenon restricted to the poor and in many respects the submerged state is also corporate welfare. If we are to accept the idea of corporate welfare then, we need a better sense of the mechanisms that produce and sustain it, particularly in an era of neoliberalism. To do this, we need to first briefly put this into context by examining the notion of shareholder value (Fama and Jensen 1983). This is the idea that corporations should represent the interests of property owners, namely, shareholders, above all other ‘stakeholders’ (workers, government and consumers) because what is good for property owners is good for society (Hansmann and Kraakman 2001). Large firms should not be run for the interests of agents such as managers, but rather for the interests of the principals, the shareholders who will then be subject to market discipline. What the doctrine of shareholder value does is to attempt to restore some of the characteristics of nineteenth-century proprietor capitalism to the age of large-scale corporations. In this respect it parallels the Chicago School’s acceptance of, and apology for, monopoly. In effect what this doctrine argues is that the market is a series of contracts (see Hodgson 2015: ch. 8) and that, following Coase’s lead, firms are ‘legal fictions which serve as a nexus for a set of contracting relationships among individuals’ (Jensen and Meckling 1976: 310, original emphasis). Thus, the market is reconceived as a series of contracts rather than price transactions and this ‘enables anything to be remade as part of the market in neoliberalism since everything can be turned into a contract’ (Birch 2016a: 116). In making this argument, neoliberals argue that the corporation is a legal fiction and is simply an agglomeration of market based contractual exchanges. The corporation (and monopoly) does not exist as a separate, legal entity but is, rather, a representation of a group of individuals contracting with each other. Within these transactions, property rights must be respected and so there must be some mechanisms which ensure that the principals, the property owners (shareholders), must retain control against agents such as managers. While some libertarians have called for the return of unlimited liability (Rothbard 1978: ch. 13), so that property (share) owners are fully liable, most neoliberals are happy to accept the principle of shareholder value as that which most closely approximates reconciling

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the principle of property ownership and market discipline, on the one hand, and the mass corporation, on the other (see Ireland 2010). The rise of shareholder value is central to understanding changing corporate strategy in the neoliberal era. Facilitated by financial liberalisation, increased information to investors about company performance, the growing use of executive share options and (paradoxically2) the rise of institutional investors, companies increasingly focus strategies on generating fees and capital gains through trading in securities (Lazonick and O’Sullivan 2000). This paved the way for a surge in mergers and acquisitions, in many cases designed not to develop long-term strategies based on a ‘retain and reinvest’ principle, but to ‘downsize and distribute’ with the intention of increasing shareholder value. What happened was that increasingly, ‘the sole measure of corporate performance became the enhanced market capitalization of the company after the takeover’ (Lazonick and O’Sullivan 2000: 18). The share of profits in national income rose sharply from the mid-1980s (see Dumenil and Levy 2004), with shareholders commanding an increasing share of those rising profits. Distributed profits as a share of US corporate profits increased from an average of between 35 and 45 per cent from the 1950s to the 1970s, up to circa 60 per cent since the late 1970s (Palma 2009: 851). In Britain in the 1970s, about 10 per cent of corporate profits went to shareholders, but by 2015 the figure was between 60 and 70 per cent on average (Chakrabortty 2016a). Therefore, shareholder value has intensified possible conflict between private and wider social interests. While agency theory sees it as being good for both firm and society, it can lead to slower investment growth, short-term profit maximisation and reduced labour costs. By maximising shareholder value and payments to shareholders, less revenue is available for investment. In the US, investment as a share of national output fell from 20.5 per cent in the 1980s to 18.7 per cent during 1990 to 2009 (Chang 2010: 19). Profits might also be used to buy back shares and so keep profits high, and while these buybacks accounted for less than 5 per cent of corporate profits in the 1980s, by 2007 the figure was 90 per cent, and by 2008 it was 280 per cent (Chang 2010: 19–20). While agency theory argues that efficiency will increase through effective owner-control of companies, in reality smaller shareholders simply might not have the information available to make judgements about the performance of a company. Moreover, in many respects shareholders are the least committed of all to the company, because they can easily exit the company if it runs into difficulties. Some optimistic accounts, especially those associated with the third way (see Giddens 1998) argued that these changes represented the erosion of hierarchical capitalism and its replacement by a new flexible

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and horizontal capitalism associated with the new economy and new times (Hall and Jacques 1989; Castells 1996). While there is greater flexibility and an increase in the speed of mergers and takeovers, and an increase in the contracting out of core business activity, this has not led to the end of the hierarchical firm, but rather its reconfiguration. The old hierarchical firm of stable ownership and a concentration of direct employees in one location has been undermined (although not ended), and there have been changes in groups of asset holders, company names and a company’s range of activities, but this has not given way to a new spirit of independent entrepreneurs so much as large groups of disorganised and casualised workers. In terms of the firm, while the purchase and sale of firms has become far more rapid, it tends to be the same large groups of owners of corporate wealth that are doing the buying and selling, and hoping to make quick profits through maximising shareholder value (see Crouch 2011). What of the conflict between corporate ownership and wider social interests? The 2010 British Petroleum (BP) oil rig disaster is a useful starting point. Drilling for oil involves risk and the need for protection from accidents, even if the risk of such an accident is low. The problem with this from the company’s – and the company’s shareholders – point of view is that such safety amounts to redundant capacity, which is very expensive and thus not conducive to maximising shareholder value. In this case, both BP and its collaborator, Halliburton, favoured the expansion of financial specialists in the company at the expense of engineers and scientists. This kind of cost–benefit analysis is not unusual. In 2016, the accountancy firm PricewaterhouseCoopers paid €37 million to the Spanish government so that four of its employees did not have to go to jail for fraud (Burgen 2016). Since the financial crisis, there have been a series of scandals in financial services, such as those associated with LIBOR, EURIBOR and FOREX. The first of these, LIBOR, is the London Interbank Offered Rate which relates to offered rates of interest for banks, and EURIBOR is the equivalent for the Eurozone. In 2010, some banks were found to have misreported the evidence which is used to help set rates of interest, and thus rigged the rates which led to them making massive amounts of money at the expense of their competitors. Barclays were fined by the Financial Services Authority, and their Chairman, Bob Diamond, resigned, albeit after receiving a very generous compensation package of around £23 million (Crouch 2016: 45). It was soon discovered that Barclays was not the only company involved in the practice. This was even more so in the case of foreign exchange trading scandals, where it was discovered that some traders had information about currency demand which they used to buy and sell particular

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currencies ahead of everyone else, and make lots of money in the process. After some early exposures, the practice continued and involved a number of major banks including UBS, Citigroup, Deutschebank, Goldman Sachs and JP Morgan Chase. In 2014 fines of £2.6 billion were imposed. Importantly, however, this figure was reached after negotiation by public bodies with these organisations (Crouch 2016: 47). Much of these profits made were at the expense of banks’ clients, and so this scenario is a world away from the neoliberal expectation that customers can make informed decisions about their purchases, in this case financial investments. Also, given that these companies continue to exist, it is hardly the case that exposure has led to a loss in market share. Much the same point can be made about the mis-selling of payment protection insurance (PPI) sold by financial institutions in Britain. It also begs the question that we asked in the case of BP, namely, will such organisations actually change their behaviour or will they continue to be involved in questionable practices as they consider it worth the gains before they are found out, and then accrue some losses (which they might recover though increasing charges to customers)? These points also apply to the relationship between private companies and the public sector, particularly in the context of so-called publicprivate partnerships. In education, Britain has shifted away from a system where schools in the public sector were maintained by local authorities. This occurred to some extent under New Labour from 1997 onwards (see Chapter 7) but more so under the coalition government from 2010 to 2015 and the Conservative government from 2015 onwards, the latter of which made plans in 2016 for full conversion of all state schools to academy status by 2022. Facing opposition from its own MPs, the Conservative government backtracked slightly but remained committed to the principle of full-scale academisation. The rationale for this programme was that there was a bureaucratic ‘blob’ holding back necessary education reforms, and this was composed of self-interested teachers and educationalists (Sewell 2010). This argument echoed the earlier concerns of new class theory associated with neoconservatives. When the full-scale academisation programme was initially rolled out in 2016,3 the Department for Education (2016) stated that academisation did not mean full-scale privatisation, and it was true that academies were largely run on a not-for-profit basis. However, what was also true was that academy trusts could outsource their operations to a for-profit provider, including those with direct links to the academy trust, provided this was ‘at cost’, a problematic term which has led to a number of investigations of links between trusts and private providers (see Boffey and Mansell 2016). The Perry Beeches scandal of 2016 was just one of a number faced by

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academy trusts that reflected these practices, and the earlier government celebration of this model academy was quietly dropped and the chief executive officer of the academy trust resigned, while other academy trusts were served financial notices to improve (Downs 2016). Former Education Secretary, Michael Gove, explicitly supported the idea of conglomerates such as Serco running schools, a company discussed further below. In 2013, JB Education in Sweden, a subsidiary of the private equity firm Axcel, filed for bankruptcy and 10 000 pupils in their free schools found out about the bankruptcy through the media (Benn and Downs 2016: 46–7). This final point about conglomerates is particularly important. For example, in Britain the partial privatisation of NHS services was justified in part on the grounds that it would provide an opportunity for local groups of (‘entrepreneurial’) medical practitioners to take control from central bureaucracy and thus run services more appropriate to local needs and circumstances. Most contracts were awarded to large corporations (Watt et al. 2015). Much like the Perry Beeches Academy, Hinchingbrooke hospital in Cambridge was lauded as a model of public–private partnership by the government after it was taken over by a hedge fund. However, when in early 2015 the company was criticised by the Care Quality Commission the hedge fund walked away from the contract. These are not isolated examples. Bowman (2015: 2) has referred to the franchise state in which outsourcing of public services to private contractors has grown at an enormous rate. The Institute for Government (2012: 5) has referred to a ‘public service industry’ of private provision amounting to circa £100 billion a year, so that £1 in every £3 of government expenditure is now provided by independent contractors. Thus, in the period from 2010 to 2012, as much as £1.5 billion was outsourced in incarceration and justice services alone. This franchising system has expanded in local government as well, especially since the 2008 financial crisis, and from 2000 to 2013 the contractual value of partnerships between local authorities and private providers amounted to £14 billion (Bowman 2015: 3). About 40 companies account for 25 per cent of all central government contracts, and above all there are four conglomerates that operate across the board in a whole range of sectors, namely, Serco, G4S, Capita and Atos. Serco’s operations have included operating the Docklands Light Railway in London; running the Barclays Cycle Hire Scheme; management of the National Nuclear Laboratory; running prisons; providing some security to the National Border Agency; supplying electronic tagging systems; providing maintenance systems for missile defence systems and military bases; management in hospitals; operating leisure services; waste collection; and providing educational services.

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These conglomerates have developed a comparative advantage in obtaining government contracts; that is, their expertise is not necessarily in running these services, but in ‘how to bid, how to develop contracts with officials and politicians’ (Crouch 2016: 104). This process itself can be regarded as part of the neoliberal turn, for as Sayarer (2016) states: ‘Our collective autism, with its mania for testing, the quantifiable and the standardised, has led to a situation in which outsourcing firms specialise in winning contracts and managing reports but have considerably less aptitude for providing human care.’ This practice has also helped to facilitate a revolving-door policy whereby politicians, regulators and senior public service managers operate in both the private and public sectors over time. This is perhaps most visible in the US, where 43 per cent of senators and representatives who left Congress from 1998 to 2008 became lobbyists, compared with just 9 per cent in the 1970s (Frank 2008: 153). However, it is also common practice in Britain. Thus, in health, Ian Dalton, Deputy Chief Executive of NHS England left in 2013 to develop BT’s health operations, and the company won £18 million of NHS contracts the following year. Simon Stevens advised the government on health policy from 1997 to 2004, then left for a senior post at United Health before returning as Head of NHS in 2014. Mark Britnell, head of commissioning and systems management in NHS England from 2007 to 2009, moved to KPMG, but continued to advise the British government and the EU on health policy. His successor at NHS England, Gary Belfield, also went to KPMG, which was later awarded a £5 billion contract to provide advisory services for general practitioners (GPs) on how to commission health contracts (Crouch 2016: 105). In the period from 1999 to 2013, G4S and Serco were awarded prisoner-tagging services, which were never provided (White 2016: 207–16). After this came to light, police were called in response to non-cooperation by the companies with government investigations. In both cases, out of court settlements were made and G4S repaid £109 million and Serco repaid £68.5 million (Crouch 2016: 108). In 2012, after being awarded a £184 million contract for the provision of security services at the London Olympics, it became clear that G4S did not have the capacity to provide such services. While it lost its tagging contracts, it continued to receive other public contracts, including for both the NHS and Her Majesty’s Revenue and Customs (HMRC) (Crouch 2016: 108–9). Meanwhile Serco was found to have falsified reports on its conduct of General Medical Practitioner services in Cornwall in 2013, and was criticised for its provision of educational services in Lincolnshire in 2015. In the case of the former, it lost the contract but continued to be awarded government contracts. Indeed, while G4S and Serco

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claimed that they did not win any business while under investigation for the tagging scandal, it later emerged that the firms had received contracts worth £350 million in that period (White 2016: 212). It also became clear that despite the scandal, both companies received money for tagging services after they had been exposed, as Capita, the replacement company for such services, subcontracted some of this work to G4S (White 2016: 212–13). These are not isolated examples. In March 2014, the Department for Work and Pensions’ contract with Atos, in which the latter was supposed to assess the capacity of people to work, was effectively ended a year early after Atos faced 600 000 appeals by claimants, about 40 per cent of which had been upheld (Bowman 2015: 33). The new contract was awarded to another major conglomerate Maximus, in October 2014 (Bowman 2015: 34). Capita’s purchase of Applied Language Solutions led them to promise to provide interpreters for court hearings, but they only supplied around 25 per cent of such interpreters, leading to the postponement of court hearings (Bowman et al. 2015: 38). Much childcare in Britain is run by private equity firms, whose overriding commitment to shareholder value may well undermine any conception of public service. There have been cases where children in care have been moved to homes far away from their areas of origin and where they know no one, which undermines the professional service in which trust is built between client and key workers, teachers and other professional workers. Social Enterprise (2012) claimed that these malpractices helped to facilitate the sexual exploitation of young girls in cities such as Rochdale. In the case of care for the elderly, Southern Cross nursing homes was purchased by a US firm Blackstone in 2004 (Wearden 2011). The parent company made £640 million by floating Southern Homes on the stock exchange, and then sold the business to RBS in 2007, which then sold it on to Qatari Investors Group. All Southern Cross homes were sold to investors and then leased back to Southern Cross, but after rent increases Southern Cross went bankrupt in June 2011 – but by then a combination of maximising the profits of the homes, high rents and pressure on standards saw an increase in the unexplained deaths of 11 residents at one home in 2010–11 (Crouch 2016: 114–15). The takeover of Boots in 2007 followed similar patterns. The private equity group, Kohlberg Kravis Roberts (KKR) bought the company and the purchase was led by Stefano Pessina. The purchase was financed from £2.5 billion of investment plus a £9 billion loan from a number of banks. The borrowed money was placed straight on to the assets of Boots UK, so profits were quickly used to repay creditors. The KKR funds that owned Boots (or the new company, Alliance Boots) were held in the

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Cayman Islands and stakes were held by Pessina in Luxembourg, thus facilitating legal tax avoidance (War on Want 2013), although a complaint made to the Organisation for Economic Co-operation and Development (OECD) by War on Want and the UNITE union was rejected. Interestingly, the purchase of Boots by KKR was at the expense of Terra Firma, a company centrally involved in the care homes crisis in Britain (Ruddick 2015). Since then, there have been accusations that, faced with high debt, skilled Boots employees are under pressure to meet targets, sometimes at the expense of the NHS. For example, Medicine User reviews can be made by pharmacists to patients at a cost to the NHS of £28 a consultation. There is a limit for each pharmacy of 400 a year, but this has been turned into a target for each pharmacy. Nationally this amounts to a potential £30 million of additional revenue for the company (Chakrabortty 2016a). At the same time as these developments have taken place, rates of corporate taxation have generally fallen. In Britain corporation tax stood at 52 per cent for large companies and 42 per cent for small companies in 1973, but by 2011 had fallen to 26 per cent for large companies and 20 per cent for small companies. By 2015 the figure was 20 per cent across the board. This is one of the lowest rates in the western world, although British employers claim that when various forms of tax relief are factored in, Britain is a high corporation tax country when measured by the amount actually levied. However, employer National Insurance contributions in Britain are lower than elsewhere, comprising 18.5 per cent of tax revenues in Britain in 2014, compared with an OECD average of 23.7 per cent (Farnsworth 2015: 32–3). There is a trend towards lower corporation tax or more loopholes to avoid payment, but this applies to most developed countries and not just Britain. In the US, while the official figure of 39 per cent was high, special provisions and various loopholes meant that the real figure was far lower and, as a result, the contribution of corporation tax to federal government revenue fell from 30 per cent in the mid-1950s to just 9 per cent by 2012 (Stiglitz 2012: 92). Perhaps above all, tax avoidance is a major issue as companies can declare profits in lower tax locations, even if they have been made in territories with higher rates of taxation, and this includes the common practice of parking funds in tax havens (see Palan et al. 2010). Estimates vary, but possibly as much as $21 trillion was held offshore in 2010, the equivalent of the combined gross domestic products (GDPs) of the US and Japan (Urry 2014: 47). One Swiss canton, Zug, hosts around 30 000 corporations, including Alliance Boots, Glencore and Informa. The Cayman Islands hosts around 80 000 companies and around $2 trillion is deposited there, while the British Virgin Islands hosts around 1 million companies, and it

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is thought that money from that territory has helped to fuel the London super-rich property boom, where investors can avoid stamp duty, capital gains tax and inheritance tax, and proper names are not even registered on the Land Registry (Urry 2014: 530). Since 2008, many companies have combined high levels of corporate savings (cash hoarding) with the use of tax havens, a practice particularly common among information technology (IT) companies, where both Apple and Microsoft hold over 90 per cent of their vast reserves in offshore accounts (Srnicek 2017: 31). In the period from 2008 to 2014, offshore wealth grew by as much as 25 per cent (Srnicek 2017: 32). Many of the offshore territories are linked to the City of London, which re-emerged as a major financial centre in the context of the rise of the Eurodollar and Eurobonds markets from the 1960s, which allowed for the development of investment banking outside the controls that existed in the Bretton Woods, neo-Keynesian era (see Shaxson 2011). In the state of Delaware, a single building is host to 217 000 companies, including almost two-thirds of the Fortune 500, including General Motors, Walmart, Ford, Boeing and Coca Cola. While tax avoidance is technically legal, in contrast to tax evasion, in practice there are significant grey areas which are utilised by taxation professionals to ensure that companies pay lower rates of taxation, even while benefiting from what we have described as corporate welfare (Palan et al. 2010). Tax havens are thus a central part of neoliberal practice, as they are central to facilitating both lower taxation collection rates and the wider financialisation of the global economy.4 Not unrelated to this point is the shift in taxation collection in Britain in recent years, some of which has been subcontracted, but which more generally has assumed a more customer-orientated direction. The House of Commons Public Accounts Committee has suggested that HMRC’s relationship with large corporations was ‘too cosy’ (UK Parliament 2011: 4). Crouch (2016: 118) provides the example of the case of the Swiss arm of HSBC, which since 2010 had helped (among others) over 6000 British residents set up illegal tax-evading accounts in Switzerland. While others involved in the activity were the subject of arrests (in Greece, Spain, the US, Belgium, Argentina and France), by 2014, only one person had been arrested in Britain and £135 million had been recovered through discreet informal deals. David Hannett, the head of HMRC for much of that time, was criticised for deals with Goldman Sachs and Vodafone, left HMRC in 2012 and became an advisor to HSBC on financial crime governance. The problems lie deeper than public fiascos or questions of tax avoidance however. Private contractors provide a range of services, although on the face of it they received relatively low rates of return on

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sales, or profit margins. Bowman (2015: ch. 3) discussed the cases of G4S Forensic and Medical Services (FMS) and Service Birmingham Ltd. The former is based on the supply of forensic medical services to police and primary health care in prisons, plus immigration removal centres and sexual assault referral centres. The latter is based on the provision of relatively mundane services for the local authority, such as IT systems, call centres, tax billing and payments systems. The rate of return on sales, calculated as profit divided by sales revenue (which in this case is the annual contract value) saw pre-tax returns of 6.7 per cent for Birmingham from 2006 to 2012, and 12.7 per cent for G4S FMS from 2008 to 2013 (Bowman 2015: 43). However, because the requirement for capital investment is small, the return on capital employed is extraordinarily high, with a pre-tax return on capital of 64.7 per cent over six years for G4S FMS and 120 per cent over seven years for Birmingham (Bowman et al. 2015: 43–5). This is a rate of return higher than pharmaceutical companies benefiting from patent protection. Such a rate of return on capital employed is very favourable in terms of shareholder value, which is also important because in many cases these companies may have substantial debts on their books, which have to be serviced. Train operators in Britain also benefit from average rates of return on sales but very high rates of return on capital employed. In 2011–12 the former figure was just 3 per cent but the latter an extraordinary 120 per cent (Bowman 2015: 47). Capital expenditure and operations on track is provided by Network Rail, and track access charges are levied at a low rate, and so Network Rail subsidises the operating costs of the rail franchises. Franchises are allocated for a given period, usually around seven years, and successful bidders pay government a premium through passenger-generated revenue. Successful bidders make their case partly on the basis of expected future passenger revenue, which has proved to be unpredictable, especially in the case of franchises which do not cover inter-city or high-commuter franchises. In these cases, bidders have sometimes back-loaded premium payments, so that in the early years of a franchise low rates of payments are made, while in later years higher premium payments are promised. The problem, however, is that in some cases franchises have walked away early from contracts when faced with lower than expected passenger revenue, thus saving on premium payments and particularly the higher payments promised in later years. While companies might then face penalty payments, these are considerably less than the benefits from the franchise. Thus, in the case of the East Coast mainline, GNER walked away from the franchise in 2007, and faced several penalties, both direct and indirect, such as lost shareholder equity (£17 million), a performance bond payment (£15 million) and

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re-franchising costs (£2.5 million). Over the period 1996 to 2007, GNER received over £200 million in profit and paid £197 million in dividends to the parent company (Bowman 2015: 49). Similar processes also operate in the developing world, where questions have been asked about state support for private initiatives, such as Vodafone’s successful development of a bill payment text system for mobile phones in parts of sub-Saharan Africa from 2007, and worldwide through a partnership with Citibank from 2010. While often presented as a successful case of entrepreneurship and technology transfer to the developing world, in reality the company explicitly stated at the start of the project that it would not carry it out without a direct, non-repayable grant, from the British Department for International Development and a later substantial donation by the Gates Foundation.5 As the same time as the company expanded, it was criticised for tax avoidance in 2011. Similar concerns have been expressed over advanced market commitments, in which companies are incentivised to invest in drugs targeted at diseases more likely to affect the world’s poor and which involve guaranteed prices by aid donors (McGoey 2014). How do these issues of corporate power relate to the question of neoliberalism? The Chicago School’s anti-trust policies tolerate, and indeed support, large agglomerations of private power. However, we might also need to ask questions about the relationship between markets and knowledge, for what if, contrary to Hayek, the market does not so much produce but actually distort knowledge? For as Crouch (2016: 49) suggests, for neoliberalism, [i]t is up to the market to punish the corruption and distortion of information and knowledge. If it fails to do so, then there is no market in honesty. In that case, since the market is the only yardstick of value, honesty can have no value, and the rational individual should not have it as part of his or her repertoire of behaviour.

This problem is perhaps most immediately visible in the mass media where journalists actually have incentives to distort information and where ethical standards barely exist. This leads to sensationalism and, at times, the illegal use of obtaining information. The run-up to the Leveson Inquiry (2012) and the illegal use of accessing mobile phones in Britain is of relevance here. One response to this practice – paralleling the explanation of the financial crisis that we are all to blame as we all entered into debt – is that all individuals are to blame because we chose to purchase in the marketplace newspapers which peddle such untruths. However, this begs much deeper questions about the need for informed

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citizens engaging in the public sphere, a central feature of a healthy democracy. In contrast we might argue that large media conglomerates uninterested in any standard but that of selling newspapers might be enemies of democracy, and indeed freedom. News is reduced to being a commercial product rather than a public service, and this paves the way for distortion and the undermining of informed citizens which is central to any democratic process. This has been reinforced by too close a relationship between British prime ministers and newspaper proprietors, as Leveson clearly demonstrated, the concentration of media ownership in the hands of a few individuals, and interference in the daily running of these papers, all of which ‘is part of a much broader political shift in focus from citizenship to consumerism’ (Fenton 2016: 83). The decline in readership of newspapers and rise of social media does not necessarily undermine these trends, not least because leading websites essentially reproduce the same kind of news (Curran 2013). This is again a central feature of the post-political condition characterised by increasing deregulation of corporate media interests that allows excessive influence over and inappropriate interference in the political public sphere; that ever more commodifies the news such that its only value is in the profit that it generates; wherein accountability is lost and the logic of capital becomes the sole driver of commercial newspaper practice. (Fenton 2016: 84)

Indeed, we might argue that tabloid journalists, rather than IT entrepreneurs, best exemplify the new spirit of capitalism, as they endlessly chase news items regardless of their truth, eager to sell them in the marketplace for knowledge. This undermines rather more than it promotes knowledge.6 This idea of corporate power as a knowledge distorter can be applied far more widely. For instance, patents and intellectual property rights are particularly contentious for neoliberals because they involve a relationship between innovation and monopoly. Schumpeter theorised this in terms of innovation leading to above-average profits or rents (see below). Patents and intellectual property rights give legal backing to such claims as it allows companies to monopolise knowledge for a given period of time, a practice reinforced by the World Trade Organization (WTO) TRIPS (Trade Related Intellectual Property Rights) agreement, first negotiated in 1994 but since subject to considerable debate and controversy. The argument is that, just as the privatisation of land led to ‘improvement’ in the Lockean sense, so innovation will be incentivised through legal backing of the monopolisation of knowledge. While intellectual property rights should not necessarily be rejected, the balance

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is such that the resulting monopoly which arises from the property rights too often exceeds the benefits that are derived from the new knowledge. Over 90 per cent of all patents and most copyrights are held by rich countries,7 which means that the cost of acquiring new knowledge for developing countries is increasingly expensive. The cost of the increase in technology licence payments alone for developing countries was $45 billion a year in 2004–05 (Chang 2007: 141). In 2001, the South African government was taken to court by multinational companies (MNCs) because it had imported cheap generic drugs from India and Thailand to treat HIV/AIDS patients, on the grounds that this was contrary to the TRIPS agreement. The MNCs withdrew their case and some even began to send cheap drugs to the African continent, but only after they met strong resistance from social movements operating in civil society (Chang 2007: 123–4); that is, the reversal occurred not because of the market or competition but because of collective action and politics. There has also been great concern that some companies have become monopoly providers to farmers in the developing world, forcing the latter to purchase patented pesticides and herbicides when in the past these farmers used older seeds rather than make such regular purchases which they can ill afford (Shiva 2001). There have also been cases where firms have claimed a patent over a natural plant, thus claiming a patent over something that was previously openly accessible to all. The US corporation Rice Tec attempted to patent basmati rice in 1997, and justified this on the basis that they crossed basmati rice with another variety (Rai 2001). A US court awarded the patent, giving Rice Tec a monopoly use for basmati rice all over the world, except in India and Pakistan where the term basmati rice had been used for many years. The effect was to undermine India and Pakistani rice exporters, thus leading to protests, particularly by India at the 1999 WTO talks at Seattle, which were the subject of much wider conflict both within the talks and outside in all kinds of street protests (Kiely 2005: ch. 5). The outcome was that Rice Tec withdrew its patent claims for some of the types of grain covered by the original patent, although they retained it for three that were mainly found in Pakistan (which was less visible in protests than India). Moreover, private firms appear to enjoy far greater protection from competition than workers displaced from job through technological change, or public services increasingly subject to competition from private firms, not least through lobbying on the part of the latter. This has been the subject of considerable debate around the WTO’s General Agreement on Trade and Services, which exempts some services from competition, but at the same time states that if such services are currently being delivered commercially then competition and privatisation is an

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option. Similar concerns have arisen in the context of the Transatlantic Trade Investment Partnership (TTIP) (European Commission 2015), particularly concerning issues of privatisation, food standards, and financial regulation. Above all, however, there is the possibility that TTIP’s proposed Investor-State Dispute Settlements (ISDS) will allow companies to sue governments if those governments’ policies cause a loss of profits. This is another example of where ‘the market’, which actually means corporate power, can undermine democracy. All of the examples used here indicate the growing links between company, state and law. Perhaps most famously, corporate lobbying in the name of the free market led to Congress passing legislation allowing a firm employed by the corporation to audit the accounts of that firm, and sell it other consultancy and accountancy services. This gave audit firms an incentive to keep quiet about irregularities, rather than lose contracts. Eventually this led to the collapse of Enron, WorldCom and the accountancy firm Arthur Andersen (McLean and Elkind 2004). More recently, in response to President Obama’s plans for a universal health-care system in the US, private health insurance companies, private hospitals and pharmaceutical companies lobbied Congress and spent $380 million campaigning against the proposals. When legislation was eventually passed, it was heavily diluted so that citizens were obliged to purchase private health insurance, albeit with some subsidies for those on lower incomes. The system provided subsidies for users, but also for an expanded private health system. As we saw in Chapter 8, the run-up to the financial crisis saw similar problems, with legislation favouring unmonitored securitisation practices, and credit ratings agencies having an incentive to give good ratings to their clients. What is so significant about the examples briefly cited here is that it has not undermined the position of these companies. There is a parallel here with the financial crisis of 2008, in that many (although not all) financial institutions, and credit rating agencies, survived the crisis. As we also saw in Chapter 8, some (‘spontaneous’) neoliberals argue that this was because of the bail-outs so that market discipline was never applied. This is true in some respects, although it begs the question of what social and economic consequences would have occurred had full market discipline been applied and, as important, whether full market discipline could ever be applied. What of the examples in this chapter? Here, the neoliberal argument might be that market discipline is not being applied and that this can only be done if public–private partnerships are replaced by full-scale privatisation. If there is a new oligarchy in Britain, so the argument goes, then this is because of the partnership between state and the private sector, and not because of neoliberalism

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and market forces in themselves (Mount 2012). In response to this argument, we might first endorse Crouch’s (2016: 109–10) observation that ‘the position in British public life of these and similar firms seems secure; like the banks involved in the 2008 crash, and the PPI, Libor, Euribor and Forex scandals, they have become central to it and cannot be dislodged’. We might also recognise that one of the paradoxes of neoliberalism is that we have in many respects seen closer ties between the economic and the political spheres. However, contrary to widespread contentions that this goes against neoliberal principles, we could argue that it is in some respects consistent with both neoliberal theory and practice. There is a straightforward lineage between the 1988 Next Steps report (HMSO 1988) (see Chapter 6) in which general policy-making and advice might be given by government, but delivery by a specialist private provider, and the outsourcing boom that has followed. Also, much of the rationale for this was the idea that government had become overloaded in the crisis of the 1970s. However, it is also consistent with neoliberal theory because it does not so much argue for the separation of economics and politics but, rather, the domination of the latter by the former. This has led to the vigilance associated with public sector reform, but also the corporate takeover of the social democratic state. This also applies to the practice of lobbying, which leads to discomfort for some neoliberals (see Bork 1978), because companies are supposed to rely only on the general principles of the law, and it is the social democratic state which supposedly supports discretionary behaviour on the part of government. Indeed, we might criticise such practices on the neoliberal grounds of regulatory capture (Stigler 1971) and thus, like Mount (2012), argue for a fuller privatisation and liberalisation programme. This argument however is naive, for as Crouch (2011: 66) argues, corporations ‘are not themselves required to abide by the strict principles of the neoliberal doctrines from which they may benefit’. Gamble (1983: 28) makes a similar point, namely, that ‘in any actual economy the creation of rigidities and obstacles to the functioning of markets was not accidental or the product of malign external influences but a result of the way in which markets were in fact organized’. Thus, for all the talk of rolling back government, in practice we have seen the increased dominance of government by market principles and powerful actors, the two of which cannot be separated. Neoliberalism is not innocent in this process because ‘[b]y assisting in the growth of truly giant corporations, it connives at a mighty combination of private economic power and state power’ (Crouch 2011: 68–9). What should be clear by now is that scandal and corruption pervades the economic domination of politics, within both public and private

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sectors, and between them. This is even more problematic in countries where shadow markets exist in government contracts, jobs and licences. One of the most common forms of conditionality applied to good governance (see Chapter 7) are anti-corruption programmes, but when combined with liberalisation and privatisation, these actually encourage an increase in corruption (Harris-White and White 1996). One further argument made against anti-corruption as conditionality is that it addresses a symptom rather than a cause, and that with further development and thus potentially greater wealth for all, the incidence of corruption and incentive to carry it out will fall, as it did in the developed countries. However, while this argument has some force, it needs qualification given the increase opportunities for, and incidence of, corporate–state corruption in developed countries. Indeed, commenting on the rise of new public management in Britain, former academic and public servant Robert Neild (2002: 198) argued: ‘I cannot think of another instance where a modern democracy has systematically undone the system by which incorrupt public services were brought into being.’

DEBT AND ASSETISATION In this section, we return to the question of debt, investment and finance. For our purposes here, what is significant is the way that this is said to reflect the democratisation of finance and the construction of the neoliberal entrepreneurial self. At the time of the Wall Street Crash, 3 per cent of American households held a stake in the stock market, but by 2001 the figure was almost 52 per cent, up from 25 per cent in 1987 (Langley 2008: 2). Furthermore, the share of the value of financial assets accounted for by stocks and mutual funds has increased, while the share of assets accounted for by deposit accounts has fallen (Langley 2008: 53). In Britain, the privatisation from 1979 to 1991 led to an increase in the number of shareholders from 3 million (11 per cent of the adult population) to 11 million (25 per cent), although this was followed by a decline, to 9 million by 1995 (Langley 2008: 56). The Building Societies Act 1986 led to the de-mutualisation of building societies, and their effective reconstitution as banks, thus turning thrift savers into shareholders, and encouraging carpetbaggers to become building society members on the basis that financial windfalls would occur once conversion took place. Furthermore, the inflation of the 1970s combined with the interest rate ceiling on deposit accounts in the US led to money pouring into money market funds (Langley 2008: 59). By the time inflation was reduced and the interest rate ceiling abolished, savings had

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shifted into equities, mutual funds and (as we have seen) housing, where inflation was ‘acceptable’. However, this widening of the ownership of financial assets should not be conflated with its deepening. Wealth inequality has increased in most of the developed world, and in particular in those countries – above all, the US and Britain – where ownership of financial assets is above the average. The US Survey of Consumer Finance Data suggests that in 2001, the top 10 per cent of US wealth owners (directly and indirectly) owned around 76.9 per cent of shares, the next 40 per cent owned 21.7 per cent and the bottom 50 per cent owned just 1.4 per cent (Ireland 2005: 60). At the same time, this period also saw a sharp rise in debt. In G-7 countries household liabilities as a percentage of household income rose from 53 per cent in 1985 to 74 per cent in 1996, and US household debt as a percentage of GDP rose from 11–12 per cent in the 1960s, to 51 per cent by 1980, and 69 per cent by 1997 (Langley 2008: 140). In the US, student loan debt increased from $90 billion in 1999 to $550 billion in 2011, a 511 per cent increase (Birch 2015: 131). By June 2008, aggregate (household, corporate and government) debt had reached a total of $51 trillion, compared with a GDP of $14 trillion (Lazzarato 2012: 112). This has occurred in the context of lower rates of growth and higher rates of debt than that which occurred in the Bretton Woods era. In the US, private investment as a share of GDP fell from 18.5 per cent in 1979 to 15.5 per cent in 2007 (Palma 2009: 851). We have already seen the significance of lower taxation and tax avoidance, and US corporate tax as a percentage of public expenditure fell from 15 per cent in 1978 to 6 per cent in 1982, while in the same period the government deficit rose from 6 to 16 per cent of total public spending (Palma 2009: 858). Thus ‘rather than paying taxes to get free public goods, it was much more fun for the top income earners and big corporations to “part pay/part lend” these taxes to the government’ (Palma 2009: 858). Similarly, consumer spending has been sustained not by real wage increases but by rising debt and the hope of rising asset prices, and so the bottom 90 per cent of consumers also saw a big increase in debt levels. This is important in terms of understanding both ‘high’ and ‘low’ finance, and the interaction between the two. In terms of the former, with the Volcker interest rate hikes from the late 1970s, inflation no longer acted as a weapon for closing the gap between the demands of citizens and those of the markets, so this gap was filled by the state and the rise of public debt (Streeck 2011: 14). As public debt rose, the US under Bill Clinton shifted its priorities and ran tighter budgets, and by 1998 the government ran a budget surplus. At the same time, the debt burden was

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now placed on individual citizens, through what Crouch (2009) has called privatised Keynesianism (see Chapter 7). This in many respects was the high point of neoliberalism, when the attempt to construct individuals as entrepreneurs was most pronounced, but this paved the way for the financial crisis, which in turn led to the conversion of private debt into sovereign debt. In terms of the latter, Foucault’s conceptualisation of neoliberalism8 and its focus on constructing the entrepreneurial subject is important here (see also Langley 2008; Panitch and Gindin 2012; Konings 2016), even if we should remember that this is a ‘construction, a process never completed’ (Hall 1996: 2). We therefore need to consider how debt works to construct such an individual, for ‘today’s neoliberal policies produce human capital and “entrepreneurs of the self” who are more or less in debt, more or less poor, but in any case always precarious’ (Lazzarato 2012: 94). Increased debt is only one side of the story, the other side being the rise of asset-based economies, and neoliberal practice has meant the partial shift from economies (in the developed world) based on increased production, and rising consumption financed by increases in wages, to economies based increasingly on asset creation, and increasing consumption based on increases in asset values and debt. In practice, production and rising asset values are often linked, for example, through the use of intellectual property rights and patents which work to increase rents in industries producing certain goods. However, this also applies more generally, as the share of national income that goes to wage earners has declined while that going to financial asset owners has increased (Dumenil and Levy 2004, 2013). This is a major reason for growing inequality, discussed in the next chapter, but equally we could argue that wage-earners themselves have an interest in rising asset prices, as this can help to fuel further consumption through the selling of assets or the purchase of debt which is guaranteed by rising asset prices. This applies most obviously to rising house prices (see Chapter 7), but could equally be applied to student debt, where students invest in their education by taking out loans, but calculate that the payback will be a return on the investment in human capital through a higher paid job at some point in the future.9 This reduces education to an instrumental means to an end, rather than an end in itself, and so undermines values other than those associated with the market, but this is precisely the kind of entrepreneurial behaviour which characterises the neoliberal subject. Similarly, we have already seen how neoliberalism has led to the dominance of shareholder value as a priority of the corporation, and indeed some contemporary economists have taken up Coase’s earlier arguments and suggested that the firm as such does not exist, but rather

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represents a nexus of contracts between market participants (Jensen and Meckling 1976). With the growing centrality of asset ownership, including shares in companies, there is growing pressure for share values to continually rise because they represent the interests of all investors, big and small. Related to this phenomenon is the growing importance of intangible assets, which are non-monetary assets beyond buildings, labour, machinery and so on. These intangible assets have risen in significance for firms in recent years, and it has been estimated that they represented 80 per cent of the intangible assets of the market value of Standard & Poor’s (S&P’s) top 500 in 2011, compared with less than 20 per cent in 1975 (Birch 2015: 136–7). This shift reflects the growing importance of brands, research and knowledge to business, including intellectual property rights. However, the effect of the rise of intangible assets alongside shareholder value maximisation parallels the housing market in the run up to 2007–08, namely, that ‘asset values (or, really, shareholder value) are determined by the operations of traders making trades on the stock market; in this sense, there is no underlying value to any business’ assets’ (Birch 2015: 140, original emphasis). What we have is something not unlike Keynes’ and Minsky’s contention that market prices may be formed not by rational utility maximising individuals, but instead by each individual’s expectations about the behaviour and actions of other individuals. In contrast to the efficient markets hypothesis, [w]hat has happened is that corporations have been turned into assets whose value needs to keep rising forever; this is because their share value represents the assets of individual investors who are dependent on those rising asset values to ensure returns for their constituents … All this, however, has been underpinned by assumptions about rational self-interest on the part of individual human actors, rather than the consequences of the emergent properties of inter-subjective expectations. (Birch 2015: 141, original emphasis)

We have seen how this scenario played out in terms of housing and securitisation in the run-up to the financial crisis, but this shows clearly how our life chances, particularly in the western world, are tied to financial markets and shareholder value. In the US, personal saving for the bottom 90 per cent of the population fell from around 16 per cent of disposable personal income in 1981 to about 0.5 per cent in 2006 (Palma 2009: 850). If we compare the growth of aggregate income of the bottom 90 per cent between 1950 and 1980, and then 1980 and 2006, we see a sharp fall in the rate of growth, with a figure of 3.5 per cent for the first period and 1.8 per cent for the second. However, in both periods the rate of growth of personal consumption was 3.5 per cent (Palma 2009: 858).

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The shortfall was made up of increased debt, which itself was financed by asset price increases and expectations of continued increases, which came to an abrupt end in 2007 and 2008. Consumer credit as a percentage of wages and salaries increased from around 25 per cent in the early 1980s to over 40 per cent by 2007 (Palma 2009: 859). Similar processes took place in Britain, Ireland and Iceland. Soederberg (2010) argues that this has led to a ‘cannibalistic capitalism’ in which workers have in effect settled for real-wage stagnation or decline while at the same time supporting and benefiting from rising asset prices (such as pension funds and housing), and that the latter in part relies on the former. While we may be increasingly incorporated into markets in one way or another, we do not necessarily behave in ways which accord with the entrepreneurial spirit, not least because so many have so little knowledge of where their investment goes. However, it is equally clear, and this again demonstrates the weakness of methodological individualism, that the incorporation of individuals into markets makes them vulnerable to forces beyond their control. Hayek’s call for modern agents to submit themselves to the forces of the market, and then take self-responsibility if there is a collapse in market prices thus rings hollow, and we saw in Chapter 8 that, ultimately, any economy based on an interdependent division of labour cannot ultimately abolish all forms of moral hazard. This point is all the more significant when we consider that while the development of asset-based economies has affected many people beyond the wealthiest, these are still economies characterised by inequality. This issue is discussed in the next chapter.

CONCLUSION: NEOLIBERALISM AND POST-POLITICS REVISITED We have seen in this chapter that neoliberalism promises a new society based on the entrepreneurial spirit and consumer choice and welfare, and that in some respects this is available to all. At the same time, such a society has to be constructed, not least by the state. For example, public sector reforms involve transferring public services away from direct management by public bodies to the market, or subjecting such services to competition and targets. This is justified on the grounds that this will lead to greater efficiency as it will lead to greater control over how professionals do their job, and greater choice for the users of such services, and thus there is a need to manage public servants through

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targets and internal competition, and cheaper services through outsourcing. Furthermore, targets and competition provide the customer with the necessary information about services for them to make an informed choice. Much of this information is ‘quick’ and easily accessible, another advantage of market-based reforms. For instance, as Crouch (2016: 110–12) outlines, historically in Britain, school inspections took place through Her Majesty’s Inspectorate (HMI) and these were done, only occasionally, by experienced teachers. Reports were long, nuanced accounts aimed at the teaching staff in the schools inspected. Since the 1990s, a ‘shadow market’ approach has gradually been implemented, with a shift to league tables and many more regular inspections carried out by a new body created in 1992, Ofsted. This new regime undermined the old, ‘slow’ model as more regular inspections meant the need for far more inspectors, and a standard, short template form, designed more for potential ‘customers’ (parents) rather than teachers. The provision of inspectors was contracted out to private companies (including the ubiquitous Serco). This is one example of how the market favours speed over the slower, deliberative processes that might characterise a more informed process. In some respects speed is not necessarily a bad thing, and the Ofsted example might show the importance of both rapid (although possibly distorted) information for parents and that a faster inspection regime might save on costs, and this is the bottom line for markets and marketisation. We have cited many examples of where it might distort knowledge, but equally it could be argued that some signal to ‘customers’ is not intrinsically bad. This brings us back to the mass society thesis, for the extension of neoliberalism reflects what some see as the inability of the public sphere to generate reasoned and rational debate. The idea of the public sphere here replicates the earlier arguments concerning mass society and mass democracy, so that the market replaces the passions of the public sphere. The mass society thesis does not so much reflect reality, constructed as a political project in which (some) people are regarded as masses (Williams 1989). The project argues for a reliance on new elites, although the arguments for authoritarian liberalism (Chapter 3) have been partially displaced by the valorisation of the figure of the economic expert (Chapter 5), including the entrepreneur (Chapter 9). In accordance with a methodologically individualist view of the world, these are deemed to be effective leaders because in a supposedly meritocratic order, they have innovated and enriched, not only themselves, but society. They represent a model for all, not only in terms of aspiration, but also in terms of influencing the public sector, through public–private links and the marketisation of the public sphere to ensure public sector workers are equally entrepreneurial and accountable

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to their customers. The problem with this, however, is similar to that faced by elite theory, namely, that it assumes that elites are actually better equipped at governing, when this is not necessarily the case. More specifically, it has incentivised precisely the kind of fast thinking, self-interest and substantive irrationality which it identified as the problem of the public sphere in the first place. This might be a problem for neoliberal theory, but paradoxically it serves to enhance neoliberal practice in that it is the public sphere and public sector which often take the blame for such problems, rather than the process of marketisation. Indeed, as we have seen in many cases, the state actually encourages marketisation to such a degree that prosecution of companies is limited. It was revealed in 2016 that the US government did not pursue criminal charges in 2012 against HSBC for money laundering (involving terrorists and drug dealers) after British Chancellor of the Exchequer George Osborne and the Financial Services Authority warned that it could lead to a global financial disaster (Neate 2016). These issues bring us back to the post-political condition that was outlined at the start of the last chapter, for as Dardot and Laval (2014: 305), this is manifested in: Cynicism, lies, contempt, philistinism, lax language and behaviour, ignorance, the arrogance of money, and the brutality of domination – these are regarded as credentials for governing exclusively in the name of ‘efficiency’. When performance is a policy’s sole criterion, what price respect for conscience, freedom of thought and expression? What price respect for legal forms and democratic procedures? The new rationality promotes its own criteria of validity, which no longer have anything to do with the moral and legal principles of liberal democracy. A strictly managerial rationality, it views laws and norms merely as tools whose utterly relative value depends solely on achieving objectives. In this sense we are not dealing with some passing ‘democratic disenchantment’, but with a much more radical mutation whose scope is conveyed, in its own way, by the de-symbolization affecting the political.

This brings us to the question of voice in public affairs (Hirschmann 1970). As we have seen, neoliberalism emerged in the 1930s in response to what it perceived to be a crisis of liberalism caused by the rise of mass society and collectivism. It argued for a process of de-politicisation, for a reduction in voice, and support for the principle of exit fostered by the market. This was an elitist project in that it argued that ‘the masses’ should not involve themselves in the polity, or that their involvement should be as limited as possible – if necessary, by authoritarian government. The ‘masses’ can however be trusted as long as their choices are

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individualised in the marketplace through the practices of choice and exit, and this is the basis for the market populist project associated with the Chicago School, but also tabloid newspapers and significant sections of the entertainment industry. We might add that this contraction of public life also provides the basis for the development of cultures of fear and scapegoating (Bauman 1999; Robin 2006), not necessarily specific to neoliberalism, but something that neoliberalism helps to foster. In this respect it can be related to the New Right populisms around race and the rise of Far Right organisations in the 2000s, in part in response to EU austerity (Davidson and Saull 2016). The neoliberal elitism of the 1930s and the neoliberal populisms of the 1980s and beyond are thus two sides of the same coin. Hannah Arendt (1958: 160) thus reminds us that ‘[i]n Greece it was the ever frustrated ambition of all tyrants to discourage the citizen from worrying about public affairs … and to transform the agora into an assemblage of shops like the bazaars of oriental despotism’. Today’s neoliberals might suggest that citizens should not concern themselves with public affairs, and indeed their views on such matters should not be trusted, but they might like to watch and vote for the winner of The X Factor (or even vote for a reality television star and ‘heroic entrepreneur’ as President). In terms of de-politicisation, much like public choice views of politics, this becomes a self-fulfilling prophecy. The messy business of public affairs should be de-politicised as much as possible and replaced by the ‘objectivity’ of consumer choice, where for Milton Friedman, values are reduced to preferences and desires, expressed through the competitive marketplace, albeit a marketplace constructed by neoliberal entrepreneurs like Simon Cowell. In terms of voice, we can go further and it might be argued that public sector reforms do not necessarily legitimise user interests, as the transfer of public provision might actually lead to a reduction in accountability, as in the academies programme in Britain. A further development taken up in a number of countries after the financial crisis was the concept of ‘nudge’ (Thaler and Sunstein 2009). Derived from behavioural economics, this concept questions the idea of the utility maximising individual and argues for a ‘real third way’ (Thaler and Sunstein 2009: 5) between laissez-faire individualism and state paternalism. Specifically, nudge theory distinguishes between the rational individual and real human beings, the latter of which may have insufficient information, be subject to external influences and make mistakes in their decisionmaking. Real individuals are also subject to a choice architecture, whereby an ‘architect’ ‘has the responsibility for organizing the context in which people make decisions’ (Thaler and Sunstein 2009: 3). The existence of this wider framework is inevitable because choices have to

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be framed in some way, and given this inevitability ‘it is legitimate for choice architects to try to influence people’s behaviour in order to make their lives longer, healthier and better’ (Thaler and Sunstein 2009: 5). This idea of nudge is not unlike some of the ideas discussed in the context of the third way in Chapter 7, but it was the coalition administration in Britain and the Obama administration in the US which has really taken up the cause (see Osborne and Thaler 2010). Richard Thaler acted as an informal adviser to David Cameron and the British Cabinet Office which created the Behavioural Insights Team, colloquially known as the ‘Nudge Unit’ (see Leggett 2014). While the libertarian strand in neoliberalism might reject the idea of nudge as too paternalist, top down and statist, nudge can be considered as perfectly consistent with a government project designed to construct neoliberal subjects. Indeed, we might go further and argue that in the face of the 2008 financial crisis, nudge served a useful purpose in that the blame can be placed at the door of individuals who fail to conform to market principles, rather than to markets themselves (Wilby 2010). There is a neoliberal response to these arguments, namely, that states are incompetent because they continue to sell franchises while subsidising operating costs. The solution is thus not a public–private hybrid but, rather, full privatisation and competition as a better form of ‘regulation’. However, it is not so much a matter of ongoing government incompetence but more one of co-dependence because there is a need to run essential services such as care work, railways and transport in less populated areas, but these might not be profitable if fully marketised. This is why governments tend to provide guarantees such as low exit barriers, high returns and subsidies. However, it also reflects the unprecedented power of corporations and their gaming of profitable opportunities in public services. This, in turn, brings us back again to the post-political condition, for while citizens are subject to the tyranny of small choices, a financial oligarchy exists, supported by executive power at the expense of parliament and the supposedly sovereign but increasingly atomised people (Pabst 2016). This has in many respects given rise to precisely the kind of conformism that Tocqueville feared, not because of an excess of democracy but rather because of its relative absence. Indeed, we could go further and argue that in some respects it is the market that has eroded freedom as it has facilitated the rise of a financial oligarchy (Beetham 2011). Finally, there is a further paradox that takes us back to the contentions of public choice theory. The previous chapter cited a 2002 poll which suggested that, among public servants, politicians had low levels of trust compared with, among others, teachers and doctors. We have also seen

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that there are two versions of public choice theory. The first theory focuses on politicians and how they seek to buy votes in order to remain in office. The second focuses on (state) bureaucracies and how officials attempt to expand their areas of jurisdiction. In both cases the idea that public servants work for the public interest is rejected, and instead the argument is made that self-interest is the main or sole motivation and this alone can explain the behaviour of public servants. However, as we have seen, particularly in the case of public service reform, we have a scenario where one set of public servants – politicians – are carrying out reforms designed to make another set of public servants (public sector workers) behave in ways which make them more responsive to the needs of ‘consumers’. Politicians are carrying out reforms in the name of the market and, in doing so, claiming to champion the cause of patients or parents as consumers of health or education, partly on the grounds that public sector workers cannot be trusted (as they are self-interested). Politicians therefore attempt to construct an ‘alliance’ with the consumers of public services, as against the self-interested bureaucracies that actually run such services. However, as the 2002 poll shows, public trust of politicians (the consumer’s friend in this supposed alliance) is far lower than that of health workers and teachers (the consumer’s supposed enemy). While such polls might be limited, this paradox does suggest that it is not only the users but also the ‘producers’ of such services, who to some extent recognise the limits of a market-led approach and have, despite all the distorting effects of reform, held on to some notion of trust and professional ethics. These weaknesses notwithstanding, we have also seen that neoliberalism has in many ways strengthened, and here we might contrast the technocratic neoliberalism of, say, the Democrats and New Labour, with the populist neoliberalism of the conservative right. The latter always assumes the status as an outsider, presenting a pure market politics as a promise uncorrupted by say, Washington and the federal state. Newt Gingrich thus denounced in 1990 the money politics of Washington in which ‘[c]orruption, special favours, dishonesty and deception corrode the very process of freedom and alienate citizens from their country’ (quoted in Frank 2008: 186). Following a series of corruption scandals involving prominent American conservatives, American lawyer Fred McChesney argued that ‘[i]f government is the enemy of free markets, bribery is just the market acting in self defense’ (cited in Frank 2008: 247). Conservative businessman and lobbyist, Jack Abramoff, who was convicted of fraud, conspiracy and tax evasion in 2006, argued that same year that the ‘only thing that a clever lobbyist cannot manipulate is the absence of something to lobby for or fight against’ (cited in Frank 2008:

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248). This is pure Chicago School theory in which efficiency is the only game in town, and that corruption is the fault of government that can only be ended by eliminating government. Thus, ‘[e]ven in this heyday of the free market, business is still society’s great victim, honest and hardworking; government is still the corrupt tyrant that exploits everyone else with its misbegotten power to tax and regulate’ (Frank 2008: 245). In this way, ‘[g]overnment failures can be made into conservatism’s fuel, even when it’s conservative bungling that has brought them about’ (Frank 2008: 250–51). Neoliberal government feeds off this notion of postpolitics, because it is a project designed to abolish politics, but it can never do so. In times of economic crises, the project renews itself through its disavowal of politics and the never-ending argument that politics must be the cause of economic crisis. The next chapter considers the realities of global inequality in the context of the discourse of competitiveness, and examines how this final argument is once again reiterated.

NOTES 1. 2.

3.

The social consequences of which are discussed further in Chapter 13, in the context of ‘Brexit’. See the discussion in Chapters 4 and 5 on monopoly. Hayek was particularly concerned that the corporation undermined individual ownership, even though he effectively made his peace with monopoly at the same time. Shareholder value attempts to reconcile individual property owners and the interests of management, but at the same time its rise coincides with, and in many respects is facilitated by, the emergence of institutional investors. The White Paper of 2016 envisaged the forced academisation of all local authority maintained schools in England by 2022. Following widespread opposition, not least in the Conservative Party, a less heavy-handed approach was rolled out, but the aim was still that all schools would become academies by 2022, and ‘failing’ local authority schools would be forced to become academies and regional school commissioners would maintain the pressure on all schools (see Mansell 2016). What was less clear was what would be done about failing academies, for progress and achievement in like-for-like schools was a worse among academies. In 2016, outgoing Head of Ofsted, Michael Wilshaw, stated that out of more than 900 academy chains, only six could really be described as good. He also argued that many embraced a Walmart philosophy of ‘pile ’em high and sell ’em cheap’ (Vaughan 2016). In terms of the evidence at the time of the 2016 White Paper, that cited by the government was spurious. Two main statements were made. First that ‘2015 GCSE results show that secondary converter academies are performing 7.2 percentage points above the national average, with 64.3% of pupils achieving five or more good GCSEs, including English and Maths’ (Stewart 2016a). Second that, ‘2015 results show that primary sponsored academies open for two years have improved their results, on average, by 10 percentage points since opening, more than double the rate of improvement in local authority maintained schools over the same period’ (Stewart 2016a). The first point is nonsense as converter academies were those schools already judged good when they chose to become an academy – that is, when they were local authority schools. It was therefore nonsense to imply that such schools are good because they are academies. In terms of the second contention, if we examine schools at similar levels and compare academies and

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non-academies, then the UK government’s own data suggested that non-academies performed better. For a detailed analysis of this data, for both primary and secondary schools, see Stewart (2016b). This example might be seen as not unrelated to the notion of contingent or zombie neoliberalism, discussed in Chapter 13. The US and Britain have led this process, although the referendum outcome in 2016, when Britain voted to leave the EU, may place this in jeopardy. There is a certain irony in this, given that many of the intellectual architects of ‘Brexit’ see leaving the EU as central to renewed Anglo-American hegemony in the world order. This is discussed further in the final, concluding chapter, which briefly considers Brexit as creative destruction. Corporate donations by charitable foundations are increasingly common. The Gates Foundation, for instance, has donated a great deal to private education companies, many of which have promoted academisation policies in the US and elsewhere (see McGoey 2015b). None of this is meant to undermine the freedom of the press, but it is to problematise the notion that such freedom can simply be guaranteed by private ownership and competition. Moreover, public service broadcasting is not the same thing as state monopoly in broadcasting. See more detailed data in Kiely (2015: ch. 8) and Kiely (2016: ch. 3) which shows the limits of the rise of the BRICs. Foucault’s focus on the individual was very useful, but he had little to say about the specifics of debt, and instead concentrated on ordo-liberalism’s understanding of the industrial firm (Lazzarato 2012: 91; Brown 2015: 70–78 and ch. 3). While in some respects this is understandable given the time in which Foucault’s lectures on neoliberalism took place (1978–79), it may also be one reason why some have detected sympathy for neoliberalism in these lectures (see Dean and Villadsen 2016; Zamora and Behrent 2016). See the UK Government White Paper on Higher Education reform for one example of this kind of rationale (HM Government 2016).

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11. Actually existing neoliberalism III: global competitiveness and inequality This chapter examines inequality in the global economy, linking it to the competitiveness discourse which is central to neoliberalism, both in the developing and the developed world. The first section examines the discourse of competitiveness and shows how neoliberalism promotes competition (and inequality). In doing so, it bears some resemblance to older traditions of liberal thought, such as the theory of comparative advantage, but also more explicitly focuses on competition rather than exchange. The section therefore examines these earlier debates in some depth, and shows how inequality is intrinsic to the neoliberal project. The second section then moves on to examine neoliberalism and global inequality with particular reference to the question of development, examining recent claims that the world is either converging through neoliberal policies, or at least poverty reduction is taking place. The section questions most of these claims, and shows how inequality is an entrenched and cumulative process and how this impacts on the narrower question of poverty. The third section examines inequality in the developed countries, challenging the techno-optimism of the new economy thesis and highlighting the extent of inequality in the developed world. The fourth section brings the argument together by focusing in more detail on the question of neoliberalism and social exclusion. This section examines again neoliberal explanations for this phenomenon, and challenges these approaches. Finally, the conclusion extends this discussion by examining the question of inequality, deserts and reward.

THE COMPETITIVENESS DISCOURSE The discourse of competitiveness is central to the neoliberal era, and while the idea pre-dates the neoliberal era, its significance has increased in recent years. What is new, however, is the ‘self-conscious construction of a common global language through which business and political 270

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leaders could discuss how public policy influenced corporate and entrepreneurial performance, and a measurement framework through which all public policy, public investment and executive political decision making could be subjected to a blanket economic audit’ (Davies 2014: 109). What this amounts to is a development closely paralleling the Chicago School’s ‘colonisation’ of the public sector, namely, that the state, and indeed the nation, should be regarded as a quasi-corporation, whose very existence depends on it being competitive. This is necessary because globalisation is an irreversible trend, and so nation states (and regions) must play a central role in attracting globally mobile elites. Globalisation presents enormous opportunities, but also significant risks (Blair 1998; Giddens 2000), and there is a never-ending need to adapt to changing circumstances. In this context there is a need for government as well as private planning, not in the sense of socialist planning but, rather, planning in the context of uncertainty. This represents a further economisation of politics in which the state plays the role of responding to and extending markets. In particular, given the global mobility of capital, the developed world must invest in education and research and development in order to compete, as the developing world can always produce at a lower cost. This may be accompanied by calls to work harder (see Mason 2015a), but staying ahead in the competitive game also means reliance on new entrepreneurs. The World Economic Forum (WEF) has attempted to quantify competitiveness through its annual Global Competitiveness Report that started in 1979. By 2013, this included certain ‘pillars of competitiveness’, such as the importance of institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods and labour market efficiency, financial market development, market size, business sophistication, and innovation (WEF 2014). What is important about such measures is that individual entrepreneurship is regarded as important but also that nation states (and regions and international institutions such as the European Union) must play a key facilitating role, both in allowing entrepreneurs to thrive and providing support for them through various forms of public investment. This is a far cry then from the 1930s argument that the entrepreneur had been subsumed by the forces of bureaucratic rationalisation, but equally it is an argument where the state is not so much ‘limited’ as ‘economised’ in its forms of intervention. Important here is Schumpeter’s argument that entrepreneurs are in effect rewarded through monopoly rents derived from their innovative practices which in effect break the rules of rationalisation (Schumpeter 2012; Davies 2014: ch. 4). There is also some parallel with the idea of the heroic entrepreneur as envisaged by

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Ayn Rand (see Burns 2009). However, there is also the idea that the state in effect becomes a Schumpeterian state, in which states compete with each other to attract mobile capital (Cerny 1997; Jessop 2002). The most influential competitiveness academic, Michael Porter (1990) argues that both corporations and states must differentiate themselves in the context of an increasingly global economy, because competition is becoming more intense and risks are increasing, although so too are potential rewards. Some have suggested that US competiveness is closely linked to its national security (Cole 2012). This is not the free-trade game as envisaged by Ricardo, neither is it outright war, but rather ‘the economic and the political are fused together, into a Schumpeterian game in which the “winner” is the firm or state that imposes its will on how and where wealth is produced’ (Davies 2014: 128). There is, however, a deeper and more troubling question, which relates back to the question of competitiveness and to global inequality – and to the Chicago School’s case for private concentrations of power. For if there is a global competitive race, not all can be winners.1 As Brockling (2016: 77) observes of the entrepreneur: You only act enterprisingly when you are more innovative, alert, daring, self-responsible and more of a leader than all the others … Everyone should become an entrepreneur, but if everyone really did, none of them would be. Individually, everyone could be, but not everyone together. This fact of a general possibility that can only be realized in a select few, forces the individual to self-optimize on the economic terms dictated by the entrepreneurial self, at the same time accusing those lagging behind of being personally responsible for their failure. No one is an entrepreneur all the time but everyone can and ought to work to increase their entrepreneurial virtues.

There is a further argument that competition will raise standards across the board, but much of the discourse on competitiveness is arguing that loss is an existential threat and so cannot be tolerated. As we have argued in earlier chapters, there are plenty of cases where the effect of competition is to lower standards, or at least change the priorities associated with particular professional practices. The methodological individualism of the competitiveness discourse is such that what might be good for one company, or one part of the economy, might not be good for all of it.2 Wolf (2004: 63–4, 256–60) points out that a devalued exchange rate might increase competitiveness for exporters but undermine it for those dependent on the import of inputs, and for consumers. Lower corporation tax might be good for some companies, but not for the whole economy if its effect is to undermine infrastructure and skills through lower state spending (and there is considerable variation in corporation

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tax in the ‘developed world’, and no correlation between competitiveness and low rates of taxation). Moreover, much of what makes up the gross domestic product (GDP) of particular economies is not subject to the forces of global competition, at least in the sense that it cannot be easily relocated to another territory, including many domestic services, education and health-care delivery. There is a further argument however, which suggests that competition serves to entrench inequality and through a cumulative process undermines the supposed equal starting point of competitiveness. In terms of corporations, this means that there are barriers which might be so great that there is little prospect of late developers ‘catching up’ as long as they remain part of the global free market game (Chang 2002; Kiely 2007). Thus, we can argue that there are firms with low barriers to entry, which have relatively low skills and low start-up and labour costs. However, there are also firms with high barriers to entry, and high start-up and running costs. Entrepreneurship might exist in the former just as much as, if not more than, the latter, but through a process of cumulative development the latter sustains the further development of massive amounts of wealth when compared to the former (Myrdal 1968). For the former firms, low barriers to entry, low skills and low wages might be regarded as advantages, not least for any potential entrepreneur, but precisely because those barriers to entry are low, competition is particularly intense and largely determined by cost price. This is where entrepreneurialism meets the limits placed on it by the fallacy of composition, which means that what might be good for one entrepreneur, might not be good for all. In terms of nation states, they do not have the range of business strategies that are available to corporations, such as mergers and outsourcing. If nations (or regions) are left behind, they simply have to deal with the prospect of keeping up in an environment where they do not have the same capacity to reinvent in the same way as the most dominant regions (or corporations). In so far as the discourse of competitiveness can be applied to nation states, it can do so only in the negative sense that there is a global North–South divide in which firms with high barriers to entry still tend to be concentrated in the developed world (and parts of East Asia), while firms with low barriers to entry dominate in the developing world. For instance, the clothing industry, where developing countries have achieved considerable increases in world export shares in recent years, has a very low degree of market concentration. In contrast, more capital-intensive or high-technology sectors have very high degrees of market concentration, and are mainly located in the developed world (UNCTAD 2002: 120–23).3

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How do these observations relate to neoliberal accounts of poverty and inequality? First, the argument is made that the world is becoming less unequal and less poor, because of neoliberal policies and the extension of the market (OECD 2010; O’Neill 2013). Second, even if inequality is not being reduced, this does not matter as long as the poorest people are lifted out of poverty. That is, it does not matter if the rich are getting richer provided that the poor are also seeing an increase in their income and wealth (Frankfurt 2015). What is important is that all countries embrace the logic of globalisation and ensure that their economies are globally competitive in at least some sectors. While much of the discourse of competitiveness has focused on the developed world, and emphasised the need for innovation in the context of capital mobility and the capacity of all countries to compete on the basis of price, it has also been argued that the developing world also needs appropriate policies (World Bank 1997, 2002), such as those supposedly carried out by recent success stories in terms of development. The argument on competitiveness here is treated slightly differently from that in the developed world. For as we have seen, much of the discourse on competitiveness is a winner-take-all phenomenon, and a matter of life or death for the nation’s very existence. In the developing world, while this rhetoric also exists, competition through the ‘free market’ is also seen in a more straightforward positive light, in that embracing the opportunities of globalisation will lead to win-win situations for these countries, as they can at least specialise in producing and exporting some commodities in which they have a comparative advantage. This is an instance of where competitiveness emphasises equality of opportunity. For Giddens (1994: 96), globalization today can no longer be spoken of as a matter of one-way imperialism. Action at a distance was always a two-way process; now increasingly there is no obvious direction to globalization at all as its ramifications are more or less ever present. The current phase of globalization should not be confused with its preceding one, whose structures it acts increasingly to subvert.

This argument suggests that globalisation is desirable, provided that all countries are prepared to take the opportunities presented by the world market. If this represents competitiveness, then it is an argument also based on mutual advantage and win-win situations. However, what if this supposed equality of opportunity is compromised because of unequal outcomes, both within and between countries? This is considered in the next section.

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INEQUALITY, DEVELOPMENT AND THE GLOBAL NORTH–SOUTH DIVIDE Much of the debate in recent years in the area of development has been over the question of poverty reduction, and claims that the number of people living in absolute poverty has declined over recent years, with the latest estimate, based on a $1.90 measure, suggesting a reduction from 1.75 billion in 1999 to 0.98 billion in 2011 (see Reddy and Lahoti 2016: 106). This positive trend is said to be the result of high rates of economic growth, in turn caused by policies of trade and investment liberalisation, as recommended by neoliberalism. Poverty is thus seen as a residual problem, a result of insufficient globalisation, reflecting poor policy choices by some states in the South. Good policies are those that encourage competition and specialisation, rather than protection, such as tariff and subsidy reduction, the removal of import controls and an openness to foreign investment, so that by 2015, developing and transition economies accounted for 55 per cent of global FDI inflows (UNCTAD 2015: 2). According to the centre-right British magazine The Spectator, 2012 was ‘the best year ever’ as ‘people are being lifted out of poverty at the fastest rate ever recorded’, and globalisation ‘means the world’s not just getting richer, but fairer too’ (The Spectator 2012; see also O’Neill 2013: 232). However, there are good reasons for questioning such upbeat assessments. Absolute poverty has been defined as living on less than $1.25 or $1.90 a day, adjusted to take account of local purchasing power. Crucial here is the way in which purchasing power parity (PPP) is measured, and this is done through a system of international price comparisons (in 1985, 1993, 2005 and 2011) which are adjusted to take account of annual changes to particular economies. With different methodologies used for different comparisons, poverty decline might simply reflect these shifts rather than any reality on the ground. This is examined further below, but there is also the question of the relationship between poverty reduction and globalisation. As we saw in Chapter 7, the World Bank (2002) report Globalization, Growth and Poverty argued that the most market-friendly countries are those that have experienced higher rates of growth and of poverty reduction, an argument repeated by those who attempt to explain the rise of the BRIC (Brazil, Russia, India and China) countries (O’Neill 2013). However, the central contentions (discussed in more depth in Chapter 7) of the World Bank’s work are seriously flawed (Wade 2003; Kiely 2007a). First, it uses trade/GDP ratios as a proxy for marketfriendly policies and specifically openness to trade, but this measures

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trade outcomes and not trade policy, Second, the trade/GDP ratios of many of the poorest countries are not low – the average in 1997–98 for the poorest 39 countries was 43 per cent, about the same as the world average (UNCTAD 2002: pt 2, ch. 3). Third, the World Bank’s attempt to overcome this problem by measuring changes in trade/GDP ratios (from 1977 to 1997), rather than actual amounts, had the effect of excluding those with high but unchanging ratios from the list of high globalisers, and this included many poor countries with little or no growth in this period. Fourth, China and India have seen shifts in these ratios, as well as trade policy such as tariff rates, but they have not necessarily been more open than some of the poorest developing countries that have experienced little growth. Average tariff rates in India declined from 80 per cent at the start of the 1990s to 40 per cent at the end of the decade, while China’s declined from 42.4 per cent to 31.2 per cent in the same period, but the latter figures remain higher than the average for developing countries (Rodrik 2001). Fifth, if we measure trade policy indicators such as average tariff rates, then the World Bank’s own data suggest that if we measure openness not by trade/GDP ratios or changes in these ratios since 1975, but instead focus on trade and investment policies in 1997, allegedly high globalisers had higher average tariffs (35 per cent) than low globalisers (20 per cent) (Sumner 2004: 1174). The International Monetary Fund (IMF) index of trade restrictiveness measures trade policy through quantifying average tariff rates and non-tariff barriers, and there is no evidence of greater trade restrictiveness on the part of the poorest countries. Thus, even if there has been poverty reduction, it is unclear that this is because of globalisation-friendly policies. However, there is a further issue, which goes to the heart of the debate over inequality. Following the 2011 International Comparison Program (ICP) it appeared that two of the favoured poverty headline counts are $1.44 and $1.78. Based on provisional estimates, the lower figure would give us a count of 449 million, while the latter would be 745 million (Edward and Sumner 2015: 33). However a common criticism is that either of these benchmarks are far too low and if we shift to $2 then the figure is 963 billion, and $2.50 gives us a figure of 1.45 billion. Most disturbing of all, $10 a day gives us a figure of 4.7 billion (Edward and Sumner 2015: 33). Ten dollars is a world away from the lower figures of $1.25 to $2.50 a day, and these measures do not tell us about trends, and whether or not the number of people living below $2.50 or $10 a day is declining over a period of time. In response to this, a number of points may be made. First, even if there is a downward trend, this does not establish causality in terms of ‘market-friendly policies’ (see above). Moreover, such downward trends existed in periods before neoliberal

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globalisation. Second, even $2.50 is a very low benchmark – if we consider the PPP figure for the US, this would be US $2.50, and a figure just above that does not sound like one where an American citizen would be lifted out of absolute poverty. Third, and related to this point, even a slight shift in income for people living in poverty could translate to a massive downward measurement in poverty numbers, a point reinforced by the methodological issues addressed above. Reddy and Lahoti (2016) uses a methodology based on what the poor are more likely to consume rather than the more general basket of goods favoured by the international price comparisons and used by the World Bank. Specifically, Reddy uses the US Department of Agriculture Thrifty Food Plan based on the cost of meeting recommended dietary allowances in the US, and then translating these into comparable measures for other countries based on local purchasing power (Reddy and Lahoti 2016: 122). If this is used as a benchmark, then the number of people living in absolute poverty has increased, from around 2.9 billion in 1980 to around 4.7 billion in 2011 (Reddy and Lahoti 2016: 124–5). For reasons such as this, Pritchett (2006) argues that there has not been a significant reduction in poverty so much as a shift in the degree of poverty. Fourth, this point applies particularly to those living just above the $2.50 line but below the $10 line, so that even if there are ‘only’ 1.5 billion people living in absolute poverty, there are 3 billion more people close to, or at risk of, falling back into absolute poverty. Sumner (2016) estimates that if the consumption of a person on PPP $2.50 a day grows at an annual rate of consumption growth from 1990 to 2012, then it will take almost 130 years to get up to PPP $10 a day. Fifth, almost all of those living below $2.50 mean and (to a slightly lesser extent) the $10 measure live in the Global South. According to the International Labour Organization (ILO), insecure employment has increased so that it constitutes 19.9 per cent of the labour force in high-income countries, but also as much as 84.1 per cent of the labour force in middle-income countries (ILO 2015). Furthermore, there is a stark contrast to be made with the period from circa 1945 to 1990, when most of the poor were concentrated in the least developed countries. This is no longer the case. Based on earlier World Bank data, Kanbur and Sumner (2012: 688) estimate that between 71 and 76 per cent of the world’s poor live in middle-income countries (850–950 million people), while between 24 and 29 per cent (350 million people) live in low-income countries, mainly in sub-Saharan Africa. China and India (both middle-income countries) accounted for half of the world’s poor in 2007–08, compared with circa 66 per cent in 1990. However, this is not the whole story as there is a significant concentration of the world’s poor in five middle-income countries, namely, Pakistan, India,

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China, Nigeria and Indonesia (Kanbur and Sumner 2012: 688–9). More recent data (Edward and Sumner 2015: 33) broadly confirms this thesis that growth in middle-income countries has left significant numbers of people behind, and the assumption that the poor can simply be lifted out of poverty by economic growth is problematic. To some extent this reflects the fact that some low-income countries have moved up to middle-income countries from 1990 to 2007–08, but equally, it shows that the benefits of economic growth does not automatically trickle down to the poor, as the Sumner projection concerning poverty reduction (above) makes clear. In short, inequality matters and impacts on poverty, as even the IMF increasingly accepts (Ostry et al. 2016). Whereas in the past poverty was more concentrated in low-income countries where almost everyone was poor, and therefore the residual account of poverty might have been more plausible (although there may still have been relational causes operating at a global level), the geography of global poverty today suggests that a relational account which highlights inequality is more convincing. In China, inequality has risen rapidly and the Gini co-efficient has risen from 0.28 in the early 1980s to 0.48 in 2008 (Nolan 2012: 69). Moreover, while incomes might have risen, the financial burden of health care or education might have risen for some even more sharply, leading to less than impressive social development indicators (Reddy 2007). From 1980 to 2010, life expectancy rose from 67.8 to 73.5 years, but this is actually around 50 per cent slower than other countries with similar life expectancy levels in 1980, even though these latter countries experienced much slower growth rates (Reddy 2007: 53). More widely, there was a clear trend of increased inequality within countries in the 1980s and 1990s. Based on household income in 104 countries, inequality increased in 73 of these countries in this period and fell in only 24, with the rest remaining broadly the same (UNCTAD 2012: 57). It is not just a question of inequality between the Global North and Global South but, rather, a more general trend of inequality within countries. In China, it has been estimated that 0.1 per cent of households have 45.8 per cent of total household wealth – that is, 1.3 million people hold almost half of the household wealth of 1.3 billion people (Nolan 2012: 69). According to a new survey, the top 10 per cent of Chinese households took home 57 per cent of the income in 2010 (Beddoes 2012). House prices are also high, and have increased by 500 per cent in China in ten years, and by 200 per cent in India in five years (Beausang 2012: 110). One of the most striking features of the recent history of growth in India is that the pace of poverty reduction has slowed down since the late 1980s (Topolova 2008).

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There are a number of neoliberal responses to these issues. First, inequality is a necessary outcome of the competitive process and is central to the dynamism of capitalism. Second, insofar as inequality (but more commonly, poverty) is problematic, it is caused by insufficient incorporation into the global market and the distortions of state-managed development. Poverty is thus always a residual phenomenon, caused by ‘insufficient’ rather than ‘too much neoliberalism’, another case of the ‘too little’ fall-back position of neoliberalism, where the medicine is always more, not less, neoliberalism because the state is always the problem. This argument is also implicit in the recent turn to philanthrocapitalism in recent years. A great deal of faith has been placed in the development of secure property rights, both in towns and smallholdings in rural areas (North 1995; De Soto 2001), and philanthro-capitalists have been significant supporters of such projects (McGoey 2015a: 207–34), not least because the expectation is that the developing world’s next entrepreneurs will arise from such projects. However, as in the case of micro-finance, what this ignores is the extent to which smallholders then become locked in and dependent on technologies and production contracts, and the greater market power of large corporations who face far less risk in cases of market downturn than smallholders. Moreover, this neoclassical faith in smallholders (Griffin et al. 2004) downplays the significance of economies of scale, so that philanthro-capitalism’s promoters want their happy and globally disciplined mini-entrepreneurs in the countryside buying their ‘property right’ inputs and growing their cash crops for corporately dominated commodity chains. The result is that poor communities are locked into a life of contracted production, micro-financed small-scale investment, and social projects that aim for healthy and appropriately skilled workers. (Harrison 2016: 6–7; see also Byres 2004)

This downplays issues of social transformation, social justice and redistribution and essentially assumes ‘that many of the woes created by indirect neoliberalism are best resolved by encouraging a more direct version of the same’ (Harrison 2016: 7). This point brings us back to the structural inequalities addressed in the first section, and specifically the ways in which early developers enjoy competitive advantages over later developers, and free trade policies reinforce these hierarchies. This kicking away of the ladder (Chang 2002) has occurred in the history of capitalism where now developed capitalist countries have used protectionist measures against established producers, only to then impose free trade when their own particular country has

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become more competitive in the international order. This remains true in the case of countries such as China, which have attempted to develop national champions though state protectionist policies while also attracting foreign capital to secure employment and generate foreign exchange through exports (Kiely 2015). Furthermore, as production processes have increasingly globalised, different stages of the production process exist in different parts of the world, but the higher value end still tends to concentrate in the developed countries, along with parts of East Asia (Kiely 2008). Methodologically individualist accounts of entrepreneurship downplay the existence of this wider socio-economic context.

NEOLIBERALISM AND COMPETITIVENESS IN THE DEVELOPED WORLD For the developing world, the neoliberal contention is that countries should liberalise their trade and investment policy and in doing so reap the benefits of attracting capital in low-cost production, which will allow upgrading to higher value production at a later date. The previous section problematised this argument. For the developed world, the argument is that these countries should specialise in higher-value production, using their advantages in skills, infrastructure and technology (see Beck 2006: 108–9). This argument is often linked to the new times and the new spirit of informational capitalism where all have the capacity to be entrepreneurs. However, this ‘new capitalism’ is characterised by inequality and precarity. In contrast to the idea of a new economy driven by information technology (IT) entrepreneurs, Morozov (2015) argues that ‘[m]ost platforms are parasitic, feeding off existing social and economic relations. They don’t produce anything on their own – they only rearrange bits and pieces developed by someone else’. Hanlon (2015: 184) discusses a number of examples of companies which increasingly outsource research and development (R&D) in the name of open innovation and a strategy of connect and develop (C&D). From 2000 to 2008, the clothing company Threadless received more than 133 000 design submissions from 41 666 community members. These designs were subject to a vote and the winners saw their designs produced and sold. The company now uses a blog to enable its community to comment on designs in progress, and the winners receive prizes ranging from $2000 in cash to $500 in gift vouchers. This is an example of drawing on open source software and social media in order to generate high profits. A large number of companies have instigated similar C&D strategies in which suppliers,

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subcontractors and individuals submit ideas for development on secure platforms, and intellectual property rights are then handed over to the corporation, and the initiator receives a very small share of the profits. Thus in the name of a return to creative skills and craft production, corporate rule is maintained and heightened. Hanlon (2015: 184–5) estimates that around 75 per cent of large European and US firms draw on open innovation and cites one company, Procter and Gamble, which has an aspiration to account for half of its innovation in this way in the near future. In this context, the entrepreneur is less an innovator and more someone (or something) that captures value already created. In the words of Israel Kirzner (1973: 74), a business economist closely associated with the Austrian School, the entrepreneur is someone who is ‘alert to the opportunities that exist already’. However, this alertness is facilitated by the firm, which uses its organisational and financial advantage to find ways to capture such value. Unequal benefits apply not only to value capture, but more widely. Andre Gorz (1989: 6) argued that: automation is able to produce a reduction in price because it reduces wage costs or, in other words, the number of paid workers. Obviously the people who will enjoy this additional purchasing power as a result of prices coming down will be the ones who can retain well-paid employment and not the workers who will be excluded from production.

It is also far from true that in the developed world, most job creation is in skilled jobs. In a study of 702 occupations in the US, Frey and Osborne (2013) project that 47 per cent of these are likely to be computerised and of high risk to employment in those sectors. Techno-optimists suggest that new jobs can be created or that leisure time can increase (see Brynjolfsson and McAfee 2014), thus reflecting the capacity of technology to meet our expanding needs and desires. However, in the context of growing inequality and insecure employment, we might argue that the rise of platform capitalist companies such as Airbnb and Uber reflect less the rise of the new entrepreneurial self, and more a situation in which people are increasingly desperate to find new or additional sources of income, and thus owe much to wider processes of outsourcing, unemployment and underemployment (exacerbated since 2008), digitisation, easy monetary policy and capital searching for new investment opportunities where growth levels and interest rates are low (Srnicek 2017). Even then, venture capital investment in lean platforms was considerably lower in 2015 than IT investment at the height of the dotcom boom in 2000 (Srnicek 2017: 86).

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More broadly, the knowledge economy is not generating a large amount of skilled work. In the US in 2010, 20 per cent of jobs required an undergraduate degree, 43 per cent a high school education and 20 per cent almost no education at all. There has been a decline in knowledgeintensive workers requiring a degree since 2000, and automation is more likely to erode some skilled jobs such as auditing. There is an irony here because higher education has moved more towards an instrumental, neoliberal approach to education, and has expanded enormously in this period, and the cost of a degree has increased. This has led to enormous levels of debt, but it is also clear that a university education is not necessary for many of the jobs in the so-called new economy. The older liberal view of education as an end in itself has been eroded by internal and external changes, with universities expanding administration, brand building, gyms, spas and buildings, but with far less expansion in terms of academic staff and library provision (Spicer 2016). At the same time, student loan debt in the US surpassed credit card debt levels in 2011, while in Britain it is likely that in the near future the student debt market will be passed on to banks, who are likely to charge higher rates of interest (Birch 2015: 170). Above all, and in contrast to the optimism concerning the hightechnology sector and creation of skilled jobs and creative entrepreneurs, there is the reality of growing inequality in the developed world. In the US, the top 1 per cent income group increased its share of national income from 8 per cent in 1979 to 18 per cent in 2007, and if capital gains are included, then the figures are 8.5 per cent (1979) and 23.5 per cent (UNCTAD 2012: 49–50). The share of national income going to the richest 1 per cent of Americans has doubled since 1980, from 10 per cent to 20 per cent, and the share going to the top 0.01 per cent – some 16 000 families with an average income of $24 million – has quadrupled, from just over 1 per cent to almost 5 per cent (Beddoes 2012). From 1993 to 2000, the top 1 per cent of income earners captured 45 per cent of total pre-tax income in the US, and in the 2002–06 period, the figure was as much as 73 per cent (Palma 2009: 842). In 2010 alone, 93 per cent of the additional income created in the US went to just 1 per cent of taxpayers, and 37 per cent went to the top 0.1 per cent (Streeck 2014: 53). Thomas Kochan (in Streeck 2014: 52–3) has estimated that while productivity, household income and average hourly wage rates increased more or less at the same rate from 1945 to 1975 in the US, since then, although productivity increased from 200 in 1975 to 400 in 2010, wages remained at their 1975 level of 200. From 1973 to 2006, the average annual income of the bottom 90 per cent fell in real terms – from $31 300 to $30 700 at 2006 prices (Palma 2009: 841). Clinton’s 1996 welfare

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reform, the Temporary Assistance for Needy Families Act (see Chapter 7), had the effect of reducing the extent of protection from children in extreme poverty from around 1 million households to 300 000 by 2011. In the US in 2016, around 1.5 million households (involving 3 million children) live below the extreme poverty line, double the number in 1996, and an estimated 6.7 million households used a foodbank or other food charity in 2014 (Edin and Schaefer 2015). In Britain, from 1979 to 2012, the bottom 20 per cent saw a decline in income of 12.1 per cent. The next quintile (20 to 40 per cent) also saw a small decline, of 0.1 per cent, while the 40 to 60 per cent quintile saw an increase of 8.4 per cent and the 60 to 80 per cent quintile saw an increase of 20.3 per cent. The 80 to 100 per cent quintile saw an increase of 48.8 per cent. Most tellingly, however, the top 0.01 per cent saw an increase in income of 685 per cent (Sayer 2015: 5). Even under New Labour the much trumpeted successes in terms of poverty reduction were limited. While there was increased welfare spending and significant falls in pensioner and child poverty in Britain, there was also an increase in poverty among those of working age without children (IFS 2016) and poverty reduction targets were not met. Child poverty rates declined from about 26 per cent in 1997 to 18 per cent in 2010, but this was still higher than the 14 per cent when Thatcher entered office. Overall poverty rates fell from 19 to 16 per cent in the same period, compared with 13 per cent in 1979 (Hills 2013). Moreover, in the 2010 election campaign Labour committed itself to austerity measures which might have increased poverty rates had Labour entered office (although falling incomes for so many might have had the perverse effect of lowering the poverty line). Perhaps most significantly, following the 2015 general election defeat, most Labour MPs abstained rather than voted against welfare reform which was likely to negatively affect around 300 000 children (Butler and Arnett 2015). In terms of income inequality after tax and benefits, Britain was the fifth most unequal society among industrialised countries in 2010–11 (Hills 2015: 28–9). Since 1980, the share of wages in GDP fell by 5 percentage points or more in Australia, Belgium, Finland, France, the Netherlands, Norway, Sweden, the UK and the US, and by 10 points or more in Austria, Germany, Ireland, New Zealand and Portugal (UNCTAD 2012: 52). Long-term unemployment in Organisation for Economic Co-operation and Development (OECD) countries increased by 85 per cent in the period from 2008 to 2016 (LeBaron 2016). According to the New York Times, in 2014, corporate profits were at their highest level for at least 85 years, while employee compensation was at its lowest for 65 years (LeBaron 2016). Real wages have declined in Britain for much of the population and this is reflected in the numbers and proportion of

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working-age population dependent on various forms of government welfare. The number of working-age households living in Britain receiving more in benefits than paying out in taxes increased from 27.6 per cent in 1979 to 38.9 per cent in 2010 (Bowman 2015: 56). The Conservative government elected in 2015 expressed a commitment to a living wage whereby the private sector minimum wage should rise. The problem the government faces is that one of the main reasons why the real wage in the private sectors has declined in recent years is that outsourcing encourages low wages, and the most successful franchise bids have come from companies that have kept wages down – another example of the corporate welfare discussed in the previous chapter. Income shares tell only part of the story, and asset ownership is central to understanding inequality today. Piketty (2014: 116) shows that housing in the developed world is the single major component of national capital. In the UK, housing wealth was about the same as national income in the 1920s but was about 300 per cent of national income by 2014 (Savage 2015: 76). The sale of council housing was significant in expanding home ownership in Britain, but it was forbidden to use the proceeds from these sales to build more social housing. With the increase in house prices, home ownership fell from 69 per cent in 2001 to 64 per cent in 2011 (Savage 2015: 77). With the financial crisis, house prices fell but quickly recovered in the context of central bank action, support for homeowners, foreign purchases of luxury homes and acute housing shortages. The burden for dealing with this problem has been placed on council tenants deemed to have ‘surplus space’, through the mechanism of the ‘bedroom tax’. In the first six months following its imposition, 4.5 per cent of tenants vacated their properties, while 59 per cent of those affected had fallen into rent arrears (Savage 2015: 78). The amount of personal wealth in Britain tripled from £2000 billion in 1980 to £6000 billion by 2005 (at constant prices), and the proportion of wealth as a percentage of GDP doubled from less than 300 per cent to over 500 per cent (Savage 2015: 73). However, as we saw in the previous chapter, ownership of these assets is highly unequal. At constant 2005 prices, the average marketable wealth of the top 1 per cent more than tripled from £700 000 in 1976 to £2 230 000 by 2005. The average wealth of the bottom 50 per cent increased from £5000 to £13 000 in the same period (Savage 2015: 74). That is, the absolute gap has increased from £695 000 to £2 217 000. It is in this context that household debt has increased enormously (see Chapter 10).

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NEOLIBERALISM AND SOCIAL EXCLUSION The neoliberal response is that these problems of inequality – both in the developed and developing world – are irrelevant and the problems of poverty are essentially residual ones, caused by and reflecting insufficient incorporation into the market economy or the culture of dependency fostered by the welfare state. Thus, measures were put in place to get people back into the labour market including, in Britain, the seriously ill, through a scheme administered by a private company, Atos, which garnered much negative publicity in the years of the coalition government of 2010 to 2015, and the Labour government before that. For Murray (1984), the welfare state rewarded laziness and incentivised welfare recipients to become dependent.4 This led to high crime, illegitimacy and high rates of unemployment. While the third way rejected the racialised discourse associated with Murray, there were similar statements concerning welfare dependency and single-parent families, and punitive measures by both New Labour and the Democrats (see Chapter 7). The more significant solution proposed by the third way was the reconfiguration of the welfare state, more trade or investment liberalisation, and more entrepreneurial intervention from philanthropists. The state – a neverending presence – was always something that must be blamed, except when it is deployed to change the alleged anti-entrepreneurial activity of the poor (Levitas 2005). This is an argument we have come across on numerous occasions before, but here we should again stress the cumulative nature of inequality and how this impacts on poverty. Thus, in terms of globalisation, Giddens’s (2000: 129) implicit neoliberalism is all too clear in his assertion that the problem for poor countries must be internal to those countries, thus ruling out the possibility that globalisation can be anything else other than inclusive (see Chapter 7). For this (neoliberal) discourse, globalisation is an external reality to which nations must adapt, and therefore it cannot ‘bear responsibility for its consequences’ (Cameron and Palan 2004: 140), and poverty is again seen as a residual phenomenon explained by insufficient incorporation into (labour, housing or world) markets (for a critique, see Winlow and Hall 2013). In terms of the world market, globalisation is reduced to being a benign force, to which countries simply choose to integrate (see Davis 2004). However, as Ferguson (2006: 14) suggests for Africa, its participation in globalisation ‘has certainly not been a matter simply of “joining the world economy”; perversely, it has instead been a matter of highly selective and spatially encapsulated forms of global connection combined with widespread disconnection and exclusion’. Rather than theorising in

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terms of being sufficiently or insufficiently globalised, we need to better understand the forms of global integration, and how these are unequally structured. In terms of development, both the ‘developmental’ lead established by earlier developers, and the neoliberal policies of trade liberalisation undermine the prospects for upgrading to higher value production. Once such production processes are shed by developed countries, these processes are no longer high value. The existence of massive global unemployment and underemployment (see ILO figures previously in this chapter) reinforces these processes as producers can continue to pay low wages and draw on the unemployed and underemployed. At the same time, this does not lay the ground for an international division of labour in which the rich world specialises in high-technology production and services, and the poorer world in labourintensive production. The latter faces the problem of trying to upgrade in the context of a very steep ladder and, in many cases, developing countries have begun processes of de-industrialisation and thus reliance on cheap services in the context of low per capita incomes (see Rodrik 2015; Kiely 2016). In the case of the former, job creation has been far greater in low-paid service work than in high-paid, new technology creative work (Henwood 2003; Winlow and Hall 2013). The post-2010 era of austerity has only exacerbated these trends, with Britain – one of the supposed leaders of the new economy – experiencing the second biggest fall in real wages in a developed country (after Greece) from 2007 to 2015, according to the British Trades Union Congress (Allen and Elliott 2016). While some analyses have linked the de-industrialisation of the Global North and the industrialisation of parts of the Global South (Frobel et al. 1980; Winlow and Hall 2013), the picture is more complex than direct causality, which is a particular problem for the Trump presidency which has promised the return of high paid manufacturing jobs to the US which have supposedly been lost to parts of the Global South. Outside parts of Asia, most of the South is de-industrialising (Rodrik 2015), and in the North most of the low-paid jobs are in services which cannot be relocated, and are sometimes linked to manufacturing processes which persist in the developed countries. For example, while US manufacturing workers as a proportion of the labour force has declined from 15 per cent in 1994 to around 10 per cent in 2016, but in the same era the proportions in Mexico have also fallen, from 20 to 15 per cent (Benanav 2016). What is more significant has been that growth has been relatively slow in recent years, and while manufacturing productivity has increased, so too has overcapacity in global manufacturing. Moreover, the rise of shareholder value maximisation and the need to keep wages low in order to maintain high share prices, including in

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‘public service’ work subcontracted out to private companies, where again there is pressure to keep wages low, in order to win government contracts and maximise shareholder value, have all served to encourage the rise of low wage jobs in the developed world. It is in this context that some writers highly critical of neoliberal capitalism have identified the rise of a new precariat of insecure workers, existing not only in the South (Munck 2013) but also in the Global North (Standing 2011; see also Hardt and Negri 2004). Others have suggested that the fragmentation of the working class in the Global North has been exaggerated (Doogan 2009), and reflects the political defeats of organised labour rather than any more fundamental change. However, it is not just a question of the direct effects of declining unionisation or higher unemployment, but also the wider impact of unemployment on those still in work. In the US, part-time workers constituted around 20 per cent of the labour force in 2015, compared with 15 per cent in 1968. Moreover, if other forms of non-standard employment are factored in, this figure rises to 40 per cent in 2015 (Benanav 2016). Some of these figures reflect the increasing participation of women in the labour force, but this is due in part to stagnant wage growth and the need for both partners to earn a wage, and even then, as we have seen, this has not halted a sharp increase in household debt. The period since 1973 has also seen a significant decline in employer-sponsored benefits such as health care and pension schemes, despite significant state subsidy (see Chapter 10), and only a third of men employed in the private sector had worked in the same job for ten years by 2015, compared with half in 1973 (Benanav 2016). In the period from 1984 to 2010, US workers who lost their job found work with a wage on average 15 to 20 per cent lower than their previous post. Since 2008, between two-thirds and all net employment growth in the UK and US is accounted for by the rise of self-employment or alternative employment such as payment by the day. While this growth has sometimes been put down to the dynamism of potential entrepreneurs operating in the knowledge economy, the reality is that employment within the platform capitalism sector is only a small proportion of the labour force – between 3 and 6 per cent of the total in Britain in 2015 – and is in any case part of a much wider trend towards casual employment across all sectors of the economy, which has increased since 2008 (Srnicek 2017: 79–80). In this context, much has been made of the decline of relatively secure jobs in manufacturing and the resentment of the ‘white working class’ (see Winlow and Hall 2013), and there is evidence (above) that suggests wage declines have been significant among former manufacturing workers that were forced to take up a new job, but low wages have also affected younger and ethnic minority

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workers in the US (Benanav 2016). Recognising these social realities takes us a long way from the methodological individualism and supposed entrepreneurial spirit that is central to neoliberalism, and again shows the important of a relational account of social exclusion, in which the inequality discussed earlier in the chapter matters. Finally, while earlier chapters demonstrated that neoliberalism in practice has not destroyed the welfare state, it has led to its reconstruction. This has involved cuts in benefits at an individual level, more conditions and the introduction of workfare policies, as we have seen. It has also involved the expansion of what Wacquant (2009) has called ‘prison-fare’, particularly in the US, whereby the neoliberal era has been accompanied by higher rates of incarceration. This has involved the vigorous deployment of police, courts and prisons in marginalised and resistant spaces. In the 1980s, the state of California passed almost 1000 laws to expand the use of prison sentences, alongside reduced public assistance, and the Clinton administration complemented its welfare reform policies in 1996 with the Violent Control and Law Enforcement Act 1993 and No Frills Prison Act 1996 (Wacquant 2010: 202). Seen in this way, the ‘misery of American welfare and the grandeur of American prison-fare at century’s turn are the two sides of the same political coin’ (Wacquant 2010: 203). This took place at a time when there was no significant increase in crime in the preceding years, and indeed there was some reduction in crime rates. Moreover, excluding homicide and assault, US crime rates were not noticeably higher than those in Western Europe, but incarceration rates were much higher in the US. Within Europe they were significantly higher in Britain and much of this took place under the third way premiership of Tony Blair, just as rates substantially increased in the US under Clinton (Wacquant 2010: 215). In the past, welfare was used in part to prevent serious outbreaks of disorder, but increased reliance on welfare, alongside conditions and penalties, has made reliance on ‘prison-fare’ to police (some of) neoliberalism’s losers a central feature of governance in the current era.5

CONCLUSION: INEQUALITY, DESERTS AND REWARD This chapter has argued that neoliberalism argues for the notion of mutuality and equality, on the one hand, and competitiveness and inequality, on the other. Everyone – individual, firm and country – can be an entrepreneur and therefore make the most of opportunities in the marketplace. This will benefit consumers through the exercise of choice in the marketplace, but also other entrepreneurs. However, as this chapter

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has made clear, market competition gives rise to highly unequal outcomes, not only between individuals, but also between companies and countries. In this competitive scenario, there are winners and losers. Seen in this way, the new spirit of capitalism is every bit as hierarchical as that which preceded it, and in many respects it is more so. One of Venugopal’s (2015) objections to the concept of neoliberalism should be seen in this light. He argues that neoliberalism ‘is judged as technically inadequate and also over-technocratic, de-politicized and deeply political, obsessed by economic growth and responsible for the lack thereof’ (Venugopal 2015: 178). What we have argued is that neoliberalism’s emphasis on spontaneous market forces and entrepreneurial initiative has involved all types of technocratic or constructivist measures to promote entrepreneurship and the market. This has also meant the construction of attempts to seal off much of society from the demands of politics, but this project has taken, and can only take, place through political means. Also – most relevant to our concerns in this chapter – while neoliberals might believe that their policies will promote growth through (spontaneous or constructed) markets, the reality is that this ‘obsession’ has not translated into a growth record of any note. Instead – to return to the post-political condition that we first introduced in Chapter 9 – we have a condition which ‘resembles the situation in pre-Revolutionary France, where the monarchy and aristocracy were exempt from taxation but monopolized political power, while the middle classes and peasantry paid taxes but had no political rights’ (Crouch 2004: 33). The resurgence of philanthropy on the parts of rich capitalists has not altered this situation, not least because this reinforces the fallacy that inequality should not be regarded ‘as something that neoliberal capitalism has caused but as something it has not yet resolved’ (Fridell and Konings 2013: 9). Moreover, this resurgence should be put into context, because for all the visibility of a few well-known individuals, charitable donations by corporations has fallen from a high of 2.1 per cent of pre-tax profits in the mid-1980s to 0.8 per cent of profits in 2012 (McGoey 2015b). In one respect the neoliberal response is that this is what the electorate have voted for, but we have also suggested that this choice was conditioned by corporations threatening low investment or capital flight if taxes were too high or flexibility of labour was insufficient. The rest of this conclusion, however, wants to add a final factor into the discussion, and that is the question of reward and deserts, and the idea that companies and wealthy individuals deserve their high rewards, or that these are accidental side effects of the market order, and that therefore inequality does not matter. Alternative traditions argue that wealth is not produced by entrepreneurial individuals acting in isolation from the rest

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of society, and wealth is largely socially produced. Marx (1976) famously argued that the source of capitalist profit was the surplus value extracted through the exploitation of the working class, thus reflecting their ownership of the means of production and the fact that the working class had no choice but to sell their labour power to the capitalist class. Chapter 5 considered the Lockean argument (further enunciated by Nozick) which suggested that a person’s right to ownership can be derived from the mixing of labour with unowned things. This is problematised in the next chapter, but here we might identify the case of where the price of something increases irrespective of the action of the owner of the land. Ricardo (1973: ch. 2) famously upheld Locke’s argument that a person is entitled to what he or she actually creates but not anything above and beyond that, and the price of land (rent) may rise because of factors external to the individual. Thus, in the case of land, competitive demand may drive prices up, a situation that could equally be applied to house prices in the twenty first century. Thomas Paine argued in Agrarian Justice (1796) that, in isolation from society, the individual cannot acquire personal property and all accumulation beyond one’s own labour ‘is derived to him by living in society’ (cited in Alperovitz and Daly 2008: 110). John Stuart Mill argued a similar case when he suggested that private ownership is necessary to increase output, but the right of appropriation ‘is only valid for leasing to the owner the full enjoyment of whatever value he adds to the land by his own exertions and expenditure’ (cited in Alperovitz and Daly 2008: 105). Beyond that, the benefits should go to the community and therefore there should be a national land tax policy. These kinds of arguments were central to the development of new liberalism from the late nineteenth century onwards, which accepted the need for private property but equally suggested that private property’s unearned increments should be subject to taxation and the promotion of the social good. Hobhouse (in Alperovitz and Daly 2008: 115) argued that the absence of redistributive taxation ignored the social production of wealth and thus promoted a ‘private socialism’, in which the propertied few enriched themselves at the expense of the social wealth produced by the property-less many. Fabian socialism argued along similar lines but widened this analysis to the industrial system, with Sidney Webb arguing that business opportunities reflect changes beyond those generated by individual entrepreneurs, such as the oil industry’s windfall from the development of automobiles (Alperovitz and Daly 2008: 115). Veblen (1967: 62) developed this analysis further, and explicitly contrasted Lockean original acquisition with that of the modern industrial system, where ‘accumulated knowledge, skill, and judgement that goes

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into work’ alongside inequality reflects the ‘joint possession of knowledge and its individual appropriation which has come to be effectually vested in a relatively small number of persons’ (Veblen 1946: 57). The egalitarian liberal philosopher Brian Barry (1989: 518) makes a similar case, namely, that: the whole process of capital formation presupposes an inheritance of capital and technology. To a considerable extent, then, we can say that, from the standpoint of the current generation, natural resources are not as sharply distinguished from capital and technology as might at first appear. Both are originally inherited, and thus fall outside of any special claims based on the present generation’s having done something to deserve them.

These arguments suggest that wealth is not the creation of entrepreneurial individuals but is instead socially produced. The debate on corporate welfare (Chapter 10) should also be seen in this light, as should philanthro-capitalism, for the high praise given to generous high networth individuals downplays the ways in which such individuals came to have such wealth in the first place. This was not because they created such wealth, but rather that they benefited from existing and historical social wealth and used this for their own enrichment. In 2004, US federal government findings accounted for almost two-thirds of all basic research and development in the US (Alperovitz and Daly 2008: 76). The vast wealth of IT entrepreneurs would not have occurred without the development of the ARPANET, which was launched in the late 1960s by the US government to focus on defence-related technology. Gradually, this system moved out of defence into other sectors, and by the mid to late 1980s, the ARPANET had given rise to the Internet (Alperovitz and Daly 2008: 78–9). Similar arguments could be made about the modern jet engine and public health systems, and sewer and water treatment systems. These arguments concerning the social production of wealth have been further developed by neo-Schumpeterian writers, who replace Schumpeter’s focus on the entrepreneurial individual with collective sources of entrepreneurship, and national systems of innovation. This was central to the argument that developing societies needed ‘developmental states’ to climb up the value chain, which involved protectionism, the unpacking (and partial copying) of technology and high research and development outlays (White 1988). However, in the context of low rates of productive investment in the developed world, it has also led to the argument that states are both necessary to lead, and have led, innovation and investment as private companies attempt to secure (shareholder) value once states have picked and developed winners in the first place (Mazzucato 2013). In contrast to Nozick (1974: 169; and see Chapter

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12), taxation is not a form of slavery or theft but reflects the reality of how wealth is produced in society. Neoliberalism attempts to undermine this by limiting redistributive, direct taxation, by accepting or even encouraging tax avoidance and evasion, conflating increased asset prices with increased wealth in society as a whole, or capturing value which may well have been produced by public investment and the ‘corporate welfare state’. The neoliberal objection to these kinds of arguments can take three, not wholly unsurprising, forms. First, is the Hayekian contention that a patterned theory of just deserts rests on any single individual having the knowledge to identify what a just system might look like, and this is beyond the knowledge of any single individual. Second, is the Chicago argument that redistributive taxation undermines efficiency. Posner (1990: 344) accepts that the ‘long life, spacious liberties, and extensive property of the average American citizen are the creation not of that American alone but of society’ and thus the case for some redistribution in the form of taxation, but he subjects this to the qualification that it must not reduce the incentives of utility maximising individuals. There are two responses to this argument, however: (1) as we have seen in the many examples cited in the previous chapter, such incentives can have perverse social outcomes; (2) Posner accepts that wealth creation is socially produced, but then argues that any attempt to tax to reflect this reality cannot upset the incentive of individual utility maximisation, which is said to lead to efficiency. However, if wealth is – in part at least – socially produced, then why should individual utility maximisation override the social good, when the social good is not only an outcome of increased wealth, but is central to its creation in the first place? Hayek’s (1972a: 18) support for ‘rules which, above all, enable man to distinguish between mine and thine’ should also be seen in this light, because the social character of information and knowledge makes this task impossible in many circumstances, and is precisely why neoliberals have called for government protection through patents (see Hodgson 2005). Third, is the argument that individuals deserve the wealth they acquire as they have done so through their own efforts (Bauer 1981: 12). This argument is based on a crude reading of neoclassical marginal productivity theory, which argues that there are three factors of production (land, capital and labour) and that the wage or profit received is equal to the increase in the value of the product. This theory does not clearly demonstrate which factor of production has produced how much of the total output and so cannot be the basis for a theory of just market distribution. Moreover, what a person produces is not the same as what a person happens to own, and this question is ignored by Bauer (see Sen 1982). One response to

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this objection, made by Chicago economist Richard Epstein (2004: 8–9) is that while an individual theory of deserts may be problematic, this does not in itself justify a social theory: ‘[i]f I do not own the fruits of my labor, generic endowments and parental endowments, then who does?’ As with Posner, this begs the question for it accepts that individual entitlement is problematic, only to then reassert it by then referring to ‘fruits of my labour’ in an entirely individualist way (Alperovitz and Daly 2008: 140). According to Bill Gates senior and Chuck Collins, ‘[f]or someone to assert that he or she has grown wealthy in America without the benefit of substantial public investment is pure hubris’ (quoted in Alperovitz and Daly 2008: 140). This point applies to questions of law which protect private property and market exchange through contracts, so that tax is not theft from private property but a precondition for its existence. However, as should be clear from the discussion in this and previous chapters, it also applies to the social development of knowledge. Thus, [j]ust as no individual or privileged group has the right to enclose commonly owned land without the consent of the rest of the community, so too no particularly privileged group has the right to claim the lion’s share of the benefits produced by the common inheritance of knowledge at the same time that others are largely or completely excluded. (Alperovitz and Daly 2008: 157)

These issues take us back to some of the more theoretical and philosophical debates around neoliberalism, and we return to them in the next chapter.

NOTES 1. 2.

3.

Thus, on a not unrelated point, former Education Secretary in Britain, Michael Gove, contended that he wanted all schools to be above the average, which of course is an impossibility (Parliament 2012). Neoliberalism, however, tends to conflate the individual and the collective because of this individualism, and thus downplays collective action problems. Marxists might fruitfully suggest that neoliberalism represents the ideology of an individual capitalist at the cost of capital in general. The standard critique of competiveness is that what might apply to firms – competition and the exercise of comparative advantage – should not apply to countries, largely on the grounds of rejecting methodological individualism as outlined in the text (Krugman 1994). However, it might also be argued that the theory of comparative advantage is also problematic and certainly should not be divorced from wider questions of political economy (Chang 2002; Kiely 2010). As Watson (2017) shows, Ricardo’s original formulation of the theory reflected not some hypothetical trading relationship between England and Portugal but was, rather, the outcome of specific trading relations between English cloth and Portuguese wine producers, and the powers of the former in brokering a favourable trading

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agreement both for cloth exports and wealthy imports of Portuguese wine, all of which was sustained from 1703 by British military backing. This, in turn, condemned Portugal to unequal terms of trade and deficits, but these were financed through gold that was extracted from Brazil, under conditions of African slave labour. Similar points apply to the British conversion to free trade principles in the nineteenth century, only after it had developed competitive advantage over other countries, and which still involved the use of state power, including military force (see Semmel 1970; Chang 2002; Kiely 2010). Perkins (2016) makes some similar claims for Britain, suggesting that welfare dependence leads to the development of a work-resistant personality and leads to welfare claimants having more children than in-work families. The book, however, is riddled with basic methodological errors, including the central claim that parents receiving welfare have more children than those in work. In particular, Perkins makes this claim by excluding all those that have no children at all from his measurement, and his definition of workless includes stay-at-home parents, lone parents including those with young babies, students, volunteers and so on. Moreover, the proportion of the population claiming out-of-work benefits has declined since 1999, and this reflects Perkins conflation of being a welfare recipient and being out of work. Excluding pensions, most welfare payments go to those in work but receiving low wages. Harvey’s narrow definition of neoliberalism, discussed in Chapter 13, is such that he argues (2005: 77) that the ‘coercive arm of the state is augmented to protect corporate interests and, if necessary to repress dissent. None of this seems consistent with neoliberal theory’. We have noted the authoritarian origins and development of neoliberalism throughout, however, and widened out meanings of neoliberalism beyond an excessively economistic focus on the roll-out of neoclassical economics. But as Venugopal (2015: 181) notes, Harvey does not engage with neoliberal theory in any depth at all.

4.

5.

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12. Neoliberal theory assessed: the core ideas revisited This chapter brings together the key arguments of neoliberal thought and presents a more thorough and detailed critique of these ideas, drawing on and developing arguments made in previous chapters. It follows a similar structure to that of Chapter 5, examining the core themes but this time subjects them to a much more detailed critique, again in four sections. The first section provides a critique of neoliberal conceptions of the individual and freedom. The second provides a critique of neoliberal conceptions of how and why state power and intervention should be ‘limited’ and of the neoliberal understanding of the rule of law. The third re-examines and critiques the neoliberal approach to the concentration of power in modern societies. The fourth section questions neoliberal critiques of Keynesianism and inflation. Finally, the conclusion summarises and further examines some of the internal tensions within neoliberal thought.

NEOLIBERALISM AND FREEDOM: A CRITIQUE As we saw in Chapter 5, neoliberals are committed to a negative view of freedom, defined as the absence of coercion by others. For coercion to operate it must be intentional, and state intervention must conform to the rule of law in that it must be applicable to all and must function to uphold the duties of individuals to respect the rights of others, and thus not coerce them. For Hayek freedom should be ‘accepted as a value in itself’ but it also has an instrumental character because ‘we shall not achieve the results we want if we do not accept it as a creed or prescription so strong that no actions of expediency can be allowed to limit it’ (Hayek 2006: 60). That is, freedom facilitates certain benefits ‘because we have learned to expect from it the opportunity of realising many of our aims’ (Hayek 2006: 27). It allows us, through the autonomy of a private sphere, to follow a ‘coherent plan of our own’ (Hayek 2006: 19). Freedom is intrinsically good in itself but also a means to greater ends, because it refers to a set of conditions which renders us free from 295

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coercion, under which we can deploy our (limited) knowledge for our benefit. The market is central to this sphere of freedom as it entails a private sphere where we can plan our lives, including the buying and selling of goods, but also because it coordinates the sum of individual, dispersed knowledge through the price mechanism. Hayek (2006: 123) argued that private property was essential for freedom as it led to individual independence from the state. For example, it meant that property owners had exclusive control of some material objects independently of the state. However, we also saw in Chapter 5 that this does not necessarily mean that everyone can or should own private property, for as long as ownership is not in the exclusive control of one agent, the distribution of property (and thus inequality) does not matter. For Hayek, the rule of law is reinforced by the existence of general and universalisable contracts which is ‘as important a part of our own protected sphere, as much as the basis of our plans as any property of our own’ (Hayek 2006: 124). If we recall, his example of the desert spring is deemed coercive because of the nature of the good, water, which is a basic necessity, whereas an employment contract is not coercive, because it is an offer and not an intended threat (Hayek 2006: 121). The monopolist spring owner intends coercion through withholding an essential supply, while the employer offering the employment contract does not intend starvation if the potential employee rejects the contract. Poverty is thus not coercive because it is not intended by any single individual. This argument is central to Hayek’s rejection of the concept of social justice. The role of the state is to protect individuals from coercive actions of individuals, not to establish common goals. As we have seen, as does Oakeshott, Hayek’s favours nomocracy over telocracy, and thus processes over patterns, such as a socially determined pattern of income or wealth distribution. There may be unequal starting points in terms of property ownership, and inequality may increase as a result of market transactions, but neither of these can be deemed coercive for Hayek because they are not the intended consequence of individual behaviour. Seen in this way, the inequality outlined in the previous chapter does not matter. The state might intervene to establish equal opportunity in cases of discrimination against particular social groups, although in common with most neoliberals the expectation is that discrimination is counterproductive in situations of market transactions (as employers will limit the supply of labour which might push up costs and will limits their access to the widest possible pool of talent).1 However, the state should not intervene to positively discriminate in favour of marginalised groups. Equally, the state should not intervene to try to steer social patterns based

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on equalising the distribution of income, because this will be arbitrary and thus a threat to liberty and the rule of law. Although Hayek himself – as the spring in the oasis example shows – did leave some room for a collective commitment to some basic needs (much to the consternation of his libertarian critics such as Nozick and Rothbard), many neoliberal theorists argue that any attempt to promote social justice will be arbitrary and ineffective. This is an important contrast with theories of the third way. Discretionary behaviour by the state is thus contrasted to the universalism of the rule of law, but this is where we can begin to see problems with Hayek’s conception of liberty. From the libertarian right, Murray Rothbard (2002: 228) has argued that we could have a general law preventing foreign travel, which technically would conform to the rule of law and thus not be coercive in Hayek’s sense. While Rothbard problematically links this argument to natural law doctrine, the wider point he makes suggests that ‘we cannot make sense of coercion without some conception of important or central human goods’ (Plant 2011: 201). Whether or not a conception of generally held ‘important’ goods is compatible with an individualist libertarian position need not detain us, for what is interesting is how this position chimes with much wider critiques of negative liberty. For Taylor (1985: 229), ‘our attributions of freedom make sense against a background of more and less significant purposes’. This contrasts with negative freedom, for if we cannot make judgements about which freedoms are most significant, then the only ‘judgement’ we can make about whether or not a society is freer than another is quantitative, based on the number of restrictions on freedom made by any particular government. We cannot go further and make a judgement on the significance of the preventative acts, because this would presuppose a collective view about which goods are more important, something that the concept of negative liberty rules out (Taylor 1985; Plant 2011: 202). This point has further implications. As we saw in Chapter 5, neoliberals argue that freedom represents a potential to do many things but not the power to do so. At the same time, neoliberals value freedom because it frees us from coercion and thus enables us to pursue a coherent plan of life. In this way, ‘the value of liberty in human life is linked indissolubly to the idea of what being free will enable us to do. If the value of freedom involves the idea of what being free enables us to do, is it possible to regard freedom and ability as categorically different?’ (Plant 2011: 209, original emphasis). While this might not amount to an argument that freedom and power are identical, it does entail accepting the notion that the two are not as separable as neoliberals would suggest.

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We also saw that intention is necessarily linked to the neoliberal definition of coercion. However, this is too limited a definition, for there are plenty of examples of foreseeable outcomes even when they are not intended, such as driving without due care and attention leading to serious injury, or some degree of violence leading to death. The question then becomes one of the foreseeability of (market) outcomes. In keeping with Hayek on the limits of knowledge, one neoliberal view is that such outcomes are not foreseeable because they reflect millions of isolated and fragmented transactions. However, there are two problems with this argument. First, neoliberals themselves make the case for privatisation and marketisation on the (constructivist) grounds that they can foresee certain social benefits related to efficiency and growth. Here neoliberals appear to argue that the ‘goods’ of the market can be foreseen, but the ‘bads’ cannot, but they cannot have it both ways. Second, an unintended consequence is not the same as an unpredictable consequence, and the market must function with some degree of predictability. Sen (1999: 357) thus argues that ‘the confidence of each party in the continuation of such market relations rests specifically on such predictions being made or being implicitly assumed’. In terms of foreseeability, and how it might relate to freedom, we might argue that people (or countries) enter markets on unequal terms and that this is bound to have negative consequences in terms of outcomes. Thus Hayek’s argument about the non-coercive character of an employment contract rests on a rigid separation of freedom, on the one hand, and ability, on the other. Sen (1985: 137) is again very useful here when he asks the following questions: ‘Why should our concern stop at only protecting negative freedoms rather than be involved in what people actually do? Should one be under an obligation to save the person who has been pushed into the river but not the person who has fallen in?’ Similarly, with technological development, societies have increasingly assumed social responsibility for what were previously regarded as natural phenomena. Diseases are increasingly seen not just as natural or unintended problems if there are readily available cures for them. This places them within the orbit of collective provision and thus social justice. In terms of those public goods which cannot be provided by the market owing to the free-rider problem (such as street lighting), Hayek (2013: 384–7) accepts that there has to be some degree of coercion for these goods to be produced, but suggests that this can be justified on the grounds that it is equally available to all, and thus compatible with the general rule of law. But is this the case? Buchanan (1999: 52) highlights the case of a fire station serving a community, but where not all homes in that community have equal proximity to the fire station. He also points to

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the possible example of where there is only one fire engine but two fires, which presumably means that the discretion of the fire station chief is unavoidable. Hayek argues that public goods can be justified so long as a person’s gain equals, or enhances, the cost of providing it. However, as Plant (2011: 188) argues, ‘why should his own principle of allocation – the benefit exceeds the cost – be accepted? These are surely questions of distributive justice and political deliberation which on the whole he wishes to exclude from the spheres of economic exchange’. Moreover, there is also the question of how and when public good agendas become politicised, as in the case of the health example above. This is likely to be a product of the type of interest-group activity in which pressure is placed on the distributive state, of which neoliberals are so suspicious. Seen in this way, Hayek is attempting to construct a project in which politics is subsumed to the market and the rule of law, only to then reluctantly concede that politics is bound to re-enter the picture at some point. Specifically on safety nets, Jeremy Shearmur’s (1996) response to these kinds of arguments is that neoliberals are happy to concede them and that there is a case to be made for some kind of social provision. Hayek (2013: 249) accepted the case for some form of safety nets, arguing that there is no reason why in a free society government should not assure all protection against severe deprivation in the form of an assured minimum income or a floor below which nobody need to descend … Such a uniform minimum income provided outside the market to all those who, for any reason, are unable to earn in the market an adequate maintenance, this need not lead to a restriction of freedom or a conflict with the rule of law.

Earlier Hayek was even more explicit, arguing that [a]ll modern governments have made provision for the indigent, unfortunate and disabled and have concerned themselves with health and the dissemination of knowledge. There is no reason why the volume of these pure public services should not increase with the general growth of wealth. These are common ends that can only be satisfied by collective action and which can be thus provided for without restricting individual liberty. It can hardly be denied that, as all grow richer, the minimum subsistence which the community has always provided for those who cannot look after themselves, and which can be provided outside the market, will continually rise and that government may usefully, and without doing any harm, assist or even lead in such endeavours. (Hayek 2006: 224–5)

Shearmur is thus right in the sense that Hayek at least has accepted the need for some minimum standards. However, this is at the cost of

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undermining the foundations of Hayek’s wider thought, for how do the two quotations coexist with his wider arguments concerning the myth of social justice, the discretionary nature of welfare and its threat to the rule of law, and the argument that collective provision ultimately leads to totalitarian government? While Hayek might respond that needs and safety nets would be strictly limited, and thus questions of discretionary social justice could be avoided, but there are unavoidable value questions about needs, such as which should be provided by collective provision. Furthermore, if Hayek wants to limit needs and safety nets, why does he claim that there is ‘no reason why the volume of these pure public services should not increase’ (Plant 2011: 221). What of the libertarian argument, which rejects the case for any safety nets on the grounds that it undermines the right of the individual? As we have seen in Chapter 5, Nozick (1974: 171–2) interprets Locke in such a way that initial acquisition of property can be defended on the grounds that it does not make any other individual worse off. While this argument is made on the grounds of the defence of individual rights, there does appear to be an implicit consequential argument which suggests that in the case of commonly held land, there is no incentive for individuals to improve the land as everyone could benefit from the fruits of ‘improvement’, even if these individuals had not contributed anything. This remains a rights-based argument in that everyone has the right to appropriate land, but when there is no land left to appropriate, improvement will result from the accumulation that arises from private property (see Cohen 1995: 85). Enclosure of the land deals with the free-rider problem associated with the tragedy of the commons (Hardin 1968), whereby, in situations of commonly held land there is an incentive for everyone to deplete resources, because individual A knows that if he or she does not take any resources, individuals B, C and D will. In a situation where land is appropriated, improvement will benefit not just the owner but those who now have to work on the land (Nozick 1974: 177). However, there are a number of problems with Nozick’s argument. As Cohen (1995: ch. 3) has argued, Nozick assumes only two scenarios, one in which there is commonly held land (the ‘before’) and one in which there is individual ownership as A appropriates the land (the ‘after’). B now has to work for A, and the justification for this is simply that A appropriated the land first. This seems to be a weak justification, as B might have been a more effective appropriator than A, but B has lost all just claims to property simply because A appropriated first. This argument has some similarity with Hayek’s rather weak justification for the market, and is different from some populist cases for market outcomes on

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the basis of deserts, as we saw in the previous chapter. Similarly, Nozick assumes a situation of non-ownership before appropriation, but there may have been a situation of joint ownership and, in this case, how might appropriation be justified? However, the problems with Nozick go deeper than this, for his justification for appropriation can lead to some odd conclusions. As we have seen, the choice for Nozick is a system of commonly held (but not owned) property against a system of libertarian capitalism. In such a system, where property has already been divided, and where welfare states are ruled out on the grounds that they undermine the freedom of the individual, some people will inevitably starve as their labour power will not be utilised by property owners. However, as they also would starve under a state of nature, their situation has not been worsened, so under the Lockean proviso their starvation is justified (see Cohen 1995: 83–90). Moreover, Nozick’s case for just initial acquisition is inconsistent with his claims for the inviolability of the individual. As we saw, as long as B is better off under the acquisition made by A, then this is justified, but this means that B no longer has any say over the land that she or he had previously been using, nor over how his or her labour will be utilised. Central to Nozick’s libertarianism is the argument that freedom means the ability to lead our lives in accordance with our own preferences, and this means that it cannot be sacrificed to ‘social justice’ or the common good, but clearly in this example B’s freedom is being sacrificed, not least as B’s consent to A’s initial appropriation is not required by Nozick, who himself argues that individuals ‘may not be sacrificed or used for the achieving of other ends without their consent’ (Nozick 1974: 31). It might be the case that if B refuses consent, then B is wrong to do so as he or she fails to see the gains that can be made through A’s appropriation, but this is hardly a conclusion consistent with the broader claims of libertarian political thought, for A’s appropriation is being supported on the paternalist grounds that it is good for B, even if he or she does not realise it is good for them (Cohen 1995: 89). Libertarian cases against the welfare state are made on the basis that social welfare undermines individual freedom, but ‘the private appropriation of common resources can contradict a person’s will as much as levying a tax on him’ (Kymlicka 2001: 117). Finally, there is the principle of rectification, which receives scant attention in Nozick’s work. This reflects the fact that historically, many of the acquisitions made in history have been based on conquest, theft and so on. In these cases, there is an argument to be made that rectification is compatible with justice. Nozick argues that rectification would require information about the origins of such injustices, and identification of victims and perpetrators. In the absence of

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such information, a patterned principle of distributive justice, along Rawlsian lines might be the best option so that we ‘organize society so as to maximize the position of whatever group ends up least well off in society’ (Nozick 1974: 231). This opens up all kinds of issues around past injustices, such as land rights in many parts of the world, but clearly it implies that Nozick’s thought could be used in the service of all kinds of redistributions justified on the grounds that initial acquisitions were unjust. This quasi-Rawlsian position is regarded as being a temporary necessity, but given the thrust of his libertarian case against egalitarianism throughout the bulk of his work, this reads like an enormous concession. Indeed, read next to his earlier acceptance that his case for libertarianism is very incomplete, it sounds unconvincing. Thus, Nozick (1974: 9) concedes that, the ‘completely accurate statement of the moral background, including the precise statement of the moral theory and its underlying basis, would require a full-scale presentation and is a task for another time’. This is precisely why some have described his work as ‘libertarianism without foundations’ (Nagel 1982). The counter-argument that we should look less at the past and focus more on current distributional outcomes (Sanders 1987) is not available to Nozick because history is so central to his arguments around justice and unequal distributional outcomes (Nozick 1974: 153–4). For all these reasons, neoliberalism’s initial premise for justifying inequality is unfounded, and the neoliberal focus on negative freedom is too one-sided. We can agree that freedom from coercion is desirable as it allows an individual to pursue a life shaped by their own goals, purposes and ends. However, while freedom might not be identical to capacity or ability, it is also inseparable from them (and to questions of property ownership and hence inequality). Furthermore, freedom is specific to human beings (Ollman 1976; Geras 1983) and it must therefore incorporate some notion of (human) agency (Plant 2011: 232). As we have seen, strong conceptions of negative liberty rule out any attempt to determine which freedoms are more important than others, which leads to purely quantitative accounts of freedom. However, what makes some freedoms more important than others ‘is that there are certain basic or genetic capacities for agency which we regard as being valuable and these freedoms protect these capacities’ (Plant 2011: 234). This implies that resources are necessary to ensure freedom, that is, to ensure the capacity for agency, a point which applies not only to a minority of private property owners but to everyone in society (Cohen 1995: ch. 4). Thus, a case for social justice can be made on the grounds that freedom and ability or power cannot be easily separated. Each individual therefore needs certain goods before they are in a position to follow a coherent

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plan of life, and markets might deprive people of access to those goods necessary for this to occur. This is a case for positive liberty and while there are questions about what these goods might be, this is a matter for democratic deliberation through politics. However, this argument rests on a view of liberty and democratic politics far beyond that accepted by neoliberals. The neoliberal response to this argument would be that while negative freedoms involve duties to abstain from interference, and this abstention is a costless exercise, securing positive rights comes up against the issue of scarcity and resources and thus the provision of these goods has to be rationed, and therefore they are distributed in a discretionary and therefore arbitrary way. However, the distribution of negative rights does not meet the criteria of universalisabilty demanded by neoliberals because the enforcement of such rights carries costs, and ‘those costs are going to involve questions of justice and fairness in the distribution of the resources necessary to enforce rights’ (Plant 2011: 238). In terms of providing and thus enforcing negative rights, this has to involve certain levels of discretion. We have already seen the example of the case of two fires in a community where there is only one fire station, but we could also think of real-world examples such as the high costs of securing freedom of speech in the context of the Rushdie affair, or debates after 2010 in the UK over police numbers. Thus, the provision of negative rights is hardly outside the political process, and we might argue that the provision of a positive right to a universal basic income for all could be far less discretionary than some over the questions of enforcing negative rights. While a negative right infringement may identify an individual wrongdoer, and this is not so with the promotion and enforcement of positive rights, it remains the case that the duty of an individual is to support the system of collective provision which enforces rights. Indeed, this point applies as much to the enforcement of negative rights as it does to positive ones. Once again we see how the neoliberal support for negative rights is intimately tied up with the wider neoliberal project of eradicating politics from public life. We return to the question of social justice below, but before moving on we need to consider one final factor regarding the individual and freedom, and this is the account of the ‘fall’ of the liberal individual, first discussed in Chapter 2. For what is clear is that while neoliberals champion the individual, they also remain suspicious of that same individual, at least when applied to those without property. This is because these individuals subvert the market order through collectivist political action and the rise of large-scale capital and cartels (although, as we have seen, the latter became a non-problem for most neoliberals by

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the 1960s). On the one hand, the free market presupposes socially satisfied individuals but, on the other, the state is necessary to prevent individual action distorting the market. It is unclear why such distortion should take place if the market order presupposes socially satisfied individuals. The state is therefore required to ensure that dissatisfied individuals placing demands on the democratic state are controlled and their demands restricted. In this neoliberals are anything but advocates of a spontaneous order.

NEOLIBERALISM, STATE INTERVENTION AND THE RULE OF LAW: A CRITIQUE Hayek argued that evolutionary change led to the growth of liberty and a spontaneous market order, protected and governed by the rule of law. Central to these processes was the growth of the distinction between law and government, and in particular the emergence of government based on the general rules which made up the rule of law, as opposed to government by command, which was based on specific and discretionary rules. These developments emerged first in ancient Greece but declined in the late Roman Empire, which Hayek argues declined in large part because it moved in a socialist direction (Hayek 2006: ch. 11). Individual liberty re-emerged in seventeenth-century England, and Hayek again emphasised the importance of the development of law as a spontaneous process and its development as a set of general rules. Hayek also argued that the English Civil War was important in the development of liberty and followed Acton in regarding the abolition of the prerogative courts such as the Star Chamber as crucial to the development of the rule of law. With the growth of constructivist rationalism in the twentieth century, the Star Chamber had in effect made a comeback. He also argued that disputes between King and Parliament in the seventeenth century were similar to policy debates in the post-1945 western political order, where the economy was said to be threatened by industrial monopolies which owed their existence, not (as in the ordo-liberal analysis) to the contradictions of the liberal market order, but to state protection (Hayek 2006: ch. 11). Whatever the specifics of these highly questionable historical analogies, Gamble (1996: 138) shows that there is a contradiction in Hayek’s account between his evolutionism and focus on the importance of spontaneous order, and his implicit and inconsistent assumption that liberty is the product of what he would elsewhere call constructivist rationalism, for

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it shows Hayek arguing that conscious acts of policy making, even involving civil rebellion, are necessary to establish the rule of law which the full flowering of the market order requires … the triumph of liberalism in England is represented by Hayek as the result of both political and intellectual struggle. It was not the result of an evolutionary process.

Nonetheless, Hayek still sees the growth of liberty as the product of a system of checks and balances, and in particular the growth of the rule of law, an independent judiciary and limits on executive power. However, by the nineteenth century, in Britain the House of Commons had become the most important power and the franchise was increasingly extended, a situation exacerbated in the twentieth century. This threatened liberty, the market order and the rule of law. However, Hayek placed considerable hope on the US constitution as a way forward for liberal limited politics. On the face of it the US Constitution was precisely the kind of exercise on constructivist rationalism that Hayek rejected, but he argued that there was a distinction between the constitution’s design and its more pragmatic procedures. In particular, the principle that all power derives from the people is not based on the doctrine of popular sovereignty, but rather, ‘the fact that the people, organized as a constitutional making body, had the exclusive right to determine the powers of the representative legislature’ (Hayek 2006: 156). The US Constitution is meant to protect people from arbitrary government, and citizens agree to be governed by the elected government because they know this party will govern within constitutional limits. Hayek particularly admired the balance of power between central and local government, initially designed to limit royal power, but equally capable of limiting mass democracy through federalism. In contrast the French revolution was a disaster, not only because it gave rise to terror but also because it led to the kind of constructivist rationalism which Hayek regarded as a threat to liberty. In particular, it laid the ground for the centrality of popular sovereignty as the basis for legitimate government, and therefore concepts such as equal rights and entitlements, which had the effect of giving more power to administration at the expense of the rule of law and market order. Hayek argued that a constitution of liberty must make paramount the distinction between law as command and law as a system of general rules. The constitution should reflect the fact that justice should be defined independently of personal interest, legislation should not be designed for specific groups and the functions of government should not be entrusted to the representative assembly. Influenced by the checks and balances of the US constitution, Hayek argued that there should be two

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separate assemblies, the legislative assembly and the government assembly. The latter would be elected by citizens and would probably be chosen from competing political parties that would be committed to specific, particular measures. All citizens would be able to vote except those either employed by, or financially dependent on, the public sector, including pensioners (Hayek 2013: 447–55). This would effectively lead to a very limited franchise in modern liberal democracies. The legislative assembly would establish the general rules which would set the boundaries for what the government assembly could actually implement and change (Hayek 2013: 443–7). Membership of this assembly would be made up of 45-year-olds who would serve 15-year terms, with onefifteenth of the assembly being elected each year, each time by voters, who would also be 45 years of age (Hayek 2013: 449). This constitutional order is designed to uphold the rule of law and therefore limit democracy to a procedural mechanism rather than to endorse popular sovereignty (Hayek 2006: 90–94, 2013: 443–5). That is, the order is designed to implement Hayek’s wider social and political philosophical world view. As we have seen, democracy as popular rule leads to the sovereignty of parliament and the unification of legislative, executive and law-making powers which come to be subject, not to tradition and the inherited rule of spontaneous order, but to the expediencies of democratic rule. For Hayek this is potentially worse than an authoritarian government because the former leads to inconsistency and lack of consensus, beyond that agreed by a small and powerful group of interests. The result is that democracy degenerates into ‘the name for the very process of vote buying, for locating and remunerating those special interests which in more naive times were described as “sinister interests”’ (Hayek 2013: 374). The result of this is that special interests will ‘capture’ the state via a process of vote-buying by politicians, and so a constructed order will displace the spontaneous order (Hayek 2013: 354–62). Hayek’s constitutional proposals are designed to avoid these problems by once again separating the processes of governing and law-making, and subordinating the former (and his government assembly) to the latter (his legislative assembly). What is not clear is how this institutional arrangement would guarantee the dominance of liberal ideas, but Hayek argued that the electorate and the representatives would be wise without being too old, and that in any case the superiority and efficiency of liberal ideas would prevail. However, as Bellamy (1994: 428) argues, Hayek’s attempt to circumvent and circumscribe politics by deriving legal principles from social processes proves too neat. Hayek’s argument is both

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circular, in that the legal principles are said to derive from the very process they make possible and in part create, and vulnerable to sociological criticism as implausible within modern societies.

What Hayek is accepting is the Schmittian argument that the rule of law relies on a sovereign exception. Thus, not only democracy, but also the rule of law, relies on exceptional powers and these defend and uphold the market order. As was pointed out in Chapter 3, this amounts to an extension of the nineteenth-century liberal position that the rule of law is necessary to defend society from a possible tyranny of the majority to one that defends exceptional powers against both democracy and the rule of law. Moreover, while nineteenth-century liberals were concerned with a variety of potential conflicts between collectives and individuals, Hayek’s particular concern was to defend the market order which rested on a prior, highly particularist, distribution of private property. The implausibility can be traced back to a tension examined in earlier chapters, namely, between his constructivist and positional conservative tendencies, on the one hand, and his libertarian and spontaneous tendencies, on the other. In particular Hayek places a certain amount of faith in the belief that the liberal order has emerged through a spontaneous process of evolution, only to then counter it by arguing that there are no guarantees that this is the case. Indeed, the very need for a constitution designed to guarantee the liberal order is testament to the unreliability of falling back on notions of evolution and spontaneous order. He then makes a philosophical defence based on the universalisability of general rules (Hayek 2013: 194–5). The problem here is that ‘the second thesis contradicts the anti-constructivism of the first … In itself, the social thesis leads not to liberalism but to a form of traditionalist conservativism Hayek explicitly repudiates’ (Bellamy 1994: 431). The philosophical defence must take precedence over the evolutionary/social thesis, but this then leads to the kind of constructivist rationalism that Hayek is at pains to reject, because it must highlight the importance of some liberties or preferences over others. John Gray (1998: 59–61) has argued that there is a minimal utilitarianism in Hayek, who does indeed talk of the consequential benefits of a liberal society in terms of its capacity to meet the demands of a growing population and growing prosperity (Hayek 2006: ch. 3). However, this is also inconsistent with his wider views, because the strongly anti-rationalist stance of his social theory, with its antipathy to all constructivist ethics, rules out even the most sophisticated forms of utilitarianism … From the standpoint of his social theory, the chief virtue of the liberal order is not that it promotes any given goal but that it simply enables

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human beings to adapt to an ever-changing environment, the moral quality of which remains an open question. (Bellamy 1994: 432)

In terms of his constitutional arrangements, this leads to a conclusion distinctly at odds with Hayek’s wider theory, for as Bellamy (1994: 432) suggests, ‘[i]f the lawmakers are to frame the law in Kantian terms, then for the Kantian test of universalizability to produce widely acceptable determinate outcomes it will be necessary to assume a common good amongst the members of the community’. Hayek rules out the notion of a common good but [n]either the social nor the philosophical theses can provide a determinate content to Hayek’s notion of the rule of law without surreptitiously drawing on the sort of substantive moral reasoning he disavows. Consequently, there is nothing in Hayek’s theory to curb government intervention in social life, since this could always be reconciled with the purely formal Kantian criteria of universalizability or presented as a necessary adaptation to the evolving needs of society. (Bellamy 1994: 433)

Hayek also argues that liberalism and capitalism are evolutionary necessities in modern society (Hayek 1988,2 2013: 486–507), but here he is let down by poor sociological reflection on the challenges of pluralism in complex liberal democracies. Any government has to deal with difficult clashes of ethical principles, and Hayek seeks to undercut these through his legislative assembly. However, Hayek’s political theory does not address the challenge posed to liberal democracy by these apparently contradictory demands. In particular, he fails to extend his arguments concerning dispersed knowledge to his understanding of the political system and the formulation of law. He simply assumes that the particularistic concerns that he criticizes in current democratic arrangements can be abstracted from by members of his Legislative Assembly, although why this should be so is far from obvious … For if, as Hayek insists, it would be impossible to direct centrally all the activities of a complex society, it appears equally problematic to employ solely abstract procedural norms possessing no determinate content. (Bellamy 1994: 436, 437)

More broadly, most neoliberals argue that a major justification for the market order is that it allows self-interested individuals to serve a wider social good through competition, and this is not possible in the uncompetitive state sector. This view assumes that individuals are purely self-interested and incapable of committing themselves to something called the public interest. However, even neoliberals ultimately believe that there is something called the public interest as they believe in the need for a state of some sort to serve such an interest (we address

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neoliberal reform of the state in a moment). However, if this is so, then individuals are not purely motivated by self-interest, and if this is the case, then the rationale for the a priori efficiency of the market economy (to allow pure self-interest to be exercised) is undermined (see Mackintosh 1992). This argument can be developed further if we consider a well-known definition of neoliberalism by one of its leading Marxist critics. David Harvey (2005: 2) defines neoliberalism as: a theory of political economic practices that proposes that human well-being can best be advanced by liberating individual entrepreneurial freedoms and skills within an institutional framework characterized by strong private property rights, free markets and free trade. The role of the state is to create and preserve an institutional framework appropriate to such practices.

The question then is what constitutes an ‘appropriate institutional framework’? This is a problem not only for neoliberals, but also those critics who argue that neoliberalism is simply about the promotion of free markets supported by a limited state. Harvey argues that for neoliberals, the state should guarantee the supply and value of money, and should provide military, defence and legal structures, and where appropriate, create markets. However, this list is far from straightforward. We have already seen that some ‘libertarian’ neoliberals reject the view that states should be responsible for the supply of money and argue that central banks should be abolished (Hayek 1976; Dowd 1992). Much the same point could be made about nationalised defence or security forces, which could be provided via private insurance schemes (Rothbard 1978). Perhaps even more fundamentally, which laws are compatible with, and which laws challenge, the free market? Immigration controls, universal restrictions on the working day, safety standards in food or the outlawing of child labour can all in some respects be seen as paternalist government interventions in choices made between freely contracting individuals. This paradox reflects the great tension in neoliberal thought and practice, namely, that ‘their revolution in government requires that a group of individuals be found who are not governed by self-interest, but are motivated purely by the public good of upholding the rules of the market order. Yet if such a group existed it would contradict a basic premise of neo-liberal analysis’ (Gamble 2006: 28; see also Evans 1995). Keynes made a similar point about The Road to Serfdom when he wrote (of Hayek) that: You admit here and there that it is a question of where to draw the line. You agree that the line has to be drawn somewhere, and that the logical extreme is

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not possible. But you give no guidance whatever as to where to draw it … [a]s soon as you admit that the extreme is not possible, and that a line has to be drawn, you are, on your own argument, done for, since you are trying to persuade us that so soon as one moves in the planned direction you are necessarily launched on the slippery path which will lead you in due course over the precipice. (Keynes 1944, cited in Stedman Jones 2012: 67 and Cockett 1995: 89–90)

Although Keynes’s reference to ‘no guidance’ is an exaggeration, his basic point remains a strong one. Even in the case of ordo-liberalism, the idea of ‘interventionist liberalism’ (see Chapter 3) still fails to draw convincing boundaries between interventions which are market conforming and those which challenge the market.3 Related to this argument, it should be clear that for the free market to exist, it must rely on some ‘pre-market’ context or the existence of ‘non-market’ values. The rule of law is deemed by Hayek to provide some of the necessary requirements, but for this to be effective it must have legitimacy and therefore rest on some moral codes that go beyond, or even precede the market. However, if this is the case, it poses some difficulties for neoliberals who tend to make the case for the market based on individual utility maximisation, moral subjectivism or the limits of individual knowledge, none of which can help us to explain these non-market codes. This kind of argument was made by Schumpeter, who believed that the development of capitalism would undermine its own legitimacy as the latter rested on precapitalist values, and is central to the critique made by neoconservatives, who, as we saw in Chapter 4, believe that neoliberals are moral nihilists. This argument is also central to those debates about social capital (Chapter 7), which focus on how trust and loyalty can be guaranteed and thus facilitate market transactions. Hayek’s response to these kinds of questions is to resort to historical evolutionism, and his argument that appropriate values will survive and develop if they perform a useful function for the maintenance of the great society. He is also acutely aware that other values have also emerged which threaten the rule of law and the market order, so this hardly seems to be a convincing argument. More recently, Meadowcroft and Pennington (2007) have tried to combine Hayek’s conservative argument concerning moral evolutionism, with the more libertarian argument that markets in effect create their own social capital, for instance, through factors such as brand loyalty, an industry standard, and so on. This argument does not tell us how trust is created in the first place, how it might be fully reproduced over time, or the reality of the market’s continued reliance on social connections (see further the next section on shareholder value).

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What this discussion suggests is that the market order rests on a non-market institutional framework that embodies a role for the state and certain cultural values that cannot be reduced to the market. As this book has argued, neoliberals are not advocates of the so-called night-watchman state, but if this is so, then it is at the cost of some of the claims made for both free markets and spontaneous orders, and it does not provide compelling reasons why ‘spontaneous collectivist’ projects should be automatically rejected. In Chapter 3 we saw how ordo-liberals and Hayek were advocating an authoritarian liberalism in response to the development of mass society and collectivism, but Hayek then faces a problem, for in his own words: it is a real dilemma to what extent we ought to encourage in the young the belief that when they really try they will succeed, or should we rather emphasise that inevitably some unworthy will succeed and some worthy fail … and whether without such erroneous beliefs the large numbers will tolerate actual differences in rewards which will be based only partly on achievement and partly on mere chance. (Hayek 2013: 238)

Thus, just as Hayek sees no case for social justice in response to unintended market outcomes, neither does he see a case that such outcomes are just. They are rather the result of chance and luck as much as hard work and skill. This does not provide much in the way of grounds for legitimacy, as we saw in Chapter 4 in the case of neoconservative critiques of neoliberalism (Kristol 1970). If the justification for the market is so thin, it is not surprising that there have been calls for increasing collective provision through the democratic process, the very things that gave neoliberals such cause for concern when they first emerged in the 1930s. Plant (2011: 223) is particularly convincing here: If it is right to argue the case for legitimacy and, indeed, the extension of markets has to depend on their foreseeable and predictable consequences, and if Sen is right in arguing that the whole basis of economic exchange involves some degree of reciprocity based upon predictability and foreseeability, and if Hayek is right in thinking that a false belief in social justice may be central to the legitimacy of the market economy – a belief that is rendered false because of the unintended and unforeseen nature of market transactions – then it is difficult to believe that the neo-liberal position has any force in terms of arguing for the legitimacy of markets since that legitimacy and sustainability depends on exactly the aspects of social morality that Hayek denies.

Furthermore, while there are tensions between majority rule and the rights of minorities, democracy should not be reduced to the notion of majority rule under any circumstances, as we have argued there is one

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minority whose liberty neoliberals most seek to preserve, and that is private owners of property. As we saw in Chapter 5, while Hayek (2006: 123) stresses the importance of the absence of coercion and a free sphere, on the one hand, and the recognition of property on the other, this does not mean that everyone can and should hold private property. The exercise of a coherent plan of one’s own is a strictly exclusive practice and most individuals willingly submit to a propertied class because it ‘gives them what they mainly want: an assured fixed income available for current expenditure, more or less automatic raises, and provision for old age. They are thus relieved of some of the responsibilities of economic life’. Indeed, ‘[t]o do the bidding of others is for the employed the condition of achieving his purpose’ (Hayek 2006: 105). However what these same people cannot do is organise to alleviate their subordinate position and so politicise the liberal economy – like elite theory and Schmitt, Hayek is essentially arguing for a state of exception to prevent this from occurring. Hayek thus sounds elitist, paternalist and an authoritarian. This is in sharp contrast to Adam Smith (1981: 83, 725) who worried that employers might ‘force the other into a compliance with their terms’ and who argued for a system of progressive taxation so that ‘the indolence and vanity of the rich is made to contribute in an easy manner to the relief of the poor’. He also argued that the division of labour and the market do not only reflect our preferences but shape them as well, arguing that the ‘difference between the most dissimilar characters, between a philosopher and a common street porter, for example, seems to arise not so much from nature, as from habit, custom and education’ (Smith 1981: 356–7). Finally, and related to these points, Hayek’s case for the market rested initially on the grounds of negative liberty, which we have questioned above, but it is clear that he increasingly shifts his position closer to that of the Chicago School, namely, the consequentialist argument that markets have generally positive outcomes for all in terms of efficiency and growth. He therefore refuses to criticise the concentration of economic power associated with the increased concentration and centralisation of capital (Hayek 2006: 231). This is a major weakness in Hayek’s work and in neoliberal thought more generally, for Hayek deplores the fact that most individuals are forced to be employees, but at the same time sees no incompatibility between large scale economic organizations and a liberal society. He continues to believe that individualism can be reconciled with a society in which most individuals have no scope for economic independence. (Gamble 1996: 82–3)

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This is reflected in his shift to paternalist and elitist statements about the willing submission of employees, but again is in stark contrast to Smith (1981: 29) who supports market restricting regulation even when this undermines ‘efficiency’, such as labour markets that are so unequal that any sense of public spirit is eroded as a consequence. This shift is also not consistent with either his methodological individualism or his central arguments concerning the limits of knowledge, but it does brings him closer to the claims made by the Chicago School concerning the role of the state. This is discussed in the next section.

NEOLIBERALISM AND ITS CHALLENGE TO THE CONCENTRATION OF POWER: A CRITIQUE As we saw in Chapters 4 and 5, the Chicago School increasingly shifted away from the idea of the market as a guarantor of freedom through competition between individuals, towards an idea that emphasised the market as a guarantor of efficiency and welfare maximisation. The issue became one of consumer welfare rather than freedom of choice per se, even if individuals were not fully aware of this. In Bork’s (1978: 51) definition competition is ‘any state of affairs in which consumer welfare cannot be increased by judicial decree’. This is because ‘more efficient methods of doing business are as valuable to the public as they are to businessmen’ (Bork 1978: 4). As we have already seen, this view reflects an important distinction within neoliberal thought, not only between small and large companies, but also in terms of neoliberal approaches to knowledge. For ‘[w]here Hayek had questioned the possibility of any authoritative economic knowledge claims on a priori grounds, the Chicago School opened up the possibility that concentrations of bureaucratic and calculative capacity within the market might be a basis for better and more efficient decision-making’ (Davies and McGoey 2012: 71). At the same time, for the Chicago School, the best outcome is still in some respects a matter for the individual, and it is this central argument which prevents its approach from repeating utilitarian and neoclassical arguments in favour of collective welfare in order to address market failures. But there is still a distinction between what individuals perceive to be happening and what is actually happening, and the latter can be measured by outcomes which in effect measure ‘revealed preferences’ (Buchanan 2001). It is precisely on these grounds that cases for and against state regulation (of monopolies, but also anything else) are made, but also for reform of the public sector itself. For as we have seen, what

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lies at the heart of this difference is a distinction between price mechanisms and price theory, in which the former are devices which reflect attitudes, preferences and values of pragmatically engaged actors in the economy, whereas price theory is the neo-classical analysis and modelling of how these attitudes, preferences and values ought rationally to be acted on. In the first instance, market price is a reflection of available knowledge; in the second, economic knowledge is a reflection of imputed prices and assumed incentives, both inside and outside markets. (Davies and McGoey 2012: 71)

Thus, in the context of concentrations of power, both private and public, neoliberalism can draw on its own expert knowledge to inform and change behaviour. This argument thus elevates the economist to the role of expert, for while regulators, judges and so on are all deemed to be self-interested, the economist can stand above these constraints and evaluate ‘revealed preferences’ in a wholly objective way (Buchanan 2001; see also Mirowski 2013: 76). Central to the argument made by Chicago theorists is the notion that they are objective precisely because ‘they lack substantive concepts of fairness: their metaphysical emptiness is their prime value’ (Davies 2014: 103). However, there is a problem with this argument because it wrongly assumes that the neoclassical or utilitarian approach is itself devoid of values, norms and assumptions. As Davies (2014: 106) argues: [t]his means that the authoritative facts of economic activity are entirely visible to those who conduct it. If something seems ‘unfair’ or mispriced or exploitative, this is irrelevant. Price loses any form of moral authority over people, and becomes purely a metaphor or methodological trope. There is a right and a wrong way to conduct neo-classical economics, but there is no right or wrong way for businesses to behave. This effectively legitimates any type of industrial behaviour, no matter how apparently unreasonable, but so long as it meets the expert test of being objectively efficient.

This supposed objectivity applies across all social spheres. In contrast, many institutions in society, such as the family, law, the democratic state, the arts, education, economic and professional vocations, and so on, may be said to still be ‘enchanted’ in the Weberian sense, in that they all believe in virtue beyond simple quantification (Walzer 1983). Neoliberalism seeks to ‘disenchant’ through the replacement of normative evaluation with economic evaluation, so that ‘visions of “the public”, “social justice” “fairness” and “right” are all calculated and evaluation, in terms of the quantitative language of efficiency, price and preference’ (Davies 2014: 22). This is a project designed to displace intrinsic

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authority with external evaluation, but ‘this necessarily bestows intrinsic authority upon the economic techniques via which that evaluation is carried out’ (Davies 2014: 22–30). Influential (former) third way thinker Geoff Mulgan (1996: 196) complained in 1996 that ‘the constant theme about Britain’s cultural policy not only since 1945, but probably long before, has been its exclusivity: the overwhelming skew of funding to the pleasures of the elite, to London and to traditional art forms, and the deep hostility of any kind of democratisation’. In an application of public choice theory to British cultural policy, he argues that it ‘subsidised the rich’ (Mulgan 1996: 212). Commercial culture and competition (which impacted on the BBC) entailed liberation ‘through the market – through Hollywood cinema, cheap magazines, Sky Television and the Sun, through Zoot suits and Mohicans, Northern Soul and rave … it subtly called into question the social democratic project’ (Mulgan 1996: 212). While Mulgan’s critique of the top-down nature of public policy has some merit, his pro-market solution is far more problematic. As Finlayson (2003: 214) states, there is little common ground between a rave on the one hand, and the Sun on the other (indeed, before it became marketised the latter spent much of its time trying to stop the former). Mulgan’s conflation of marketisation and democratisation is a common neoliberal evasion, designed as we have seen to replace politics with supposedly objective evaluation. However, democracy is not simply the sum of individual preferences in an assumed political market, because ‘Consumers are individuals acting on individual preference. A public is something else entirely. Being part of a public means being part of a collective group of some kind, and precisely not thinking only of individual preference but of what might be good for the whole public’ (Finlayson 2003: 215). While Hayek distinguished between freedom and democracy, and preferred the former to the latter, Friedman (and Mulgan) collapse the two, but in doing so impoverish both concepts, for: The libertarian individual can only respond with freedom to that which is put before them. He or she is still constrained by the structure of the society in which he or she lives. The democratic individual is able to have some say over that structure. This is why (as every liberal knows and as John Stuart Mill made plain) democracy is to be understood as a transformatory system: it changes the individuals who participate in it and they in turn change the kind of society in which they live. (Finlayson 2003: 206; see also Sandel 2012: 202)

Adam Smith (1981: 29; see also Sen 1992) did not regard freedom as the simple expression of market choices, and we need to understand both

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freedom and democracy not simply as a choice exercised in and through the marketplace but also the market’s effects on a person’s actual capabilities, that is, the person’s ability to do and achieve … To see how markets affect these capabilities, we have to focus not only on the moment of an individual’s particular market choices, but also on the way market institutions can enhance or restrict a person’s range of choices, that is the real options that are open to her. (Satz 2010: 50, original emphasis)

This might involve closing off some market choices so that an individual might have a better range of choices in terms of health, work and information. As we have seen, however, neoliberalism essentially defines freedom as the choice made in a market and indeed reduces democracy to being simply just another choice exercised in the political marketplace. This definition takes us to the heart of the freedom paradox identified by Bauman at the start of this book. It also shows the ways in which neoliberalism has redefined freedom and democracy, and used the (sometimes justified) critique of experts imposing their will on the public. However, in its place it has championed a populist consumerism, in which normative judgement is supposedly suspended. Thus in its Chicago variant, neoliberalism has sought to eliminate normative judgement from public life to the greatest possible extent … Just as Bentham reduced all forms of experience to different quantities of utility, Friedman and his colleagues reduced all values, tastes, beliefs and political ideals to the status of ‘preferences’, eliminating the distinction between a moral stance and a desire. (Davies 2014: 8)

This view has been extended by Brennan and Jaworski (2015), whose libertarian case for markets rests on three key arguments: first, that the meanings attached to commodities is highly contingent and is not reducible to instrumental rationality; second, if there are cultural objections to markets than it might be that the cultural objection needs to be changed rather than the market be restricted; and third, that therefore, if something can be given away, then it can also be sold. While it is true that purchasing a commodity is not reducible to a single value, what is also true is that when we buy a good we express a preference for it – this is not historically contingent, but part of the fact of purchase. Sandel argues that this leads to a corruption of a particular good, but it might be more accurate to state that when we buy or sell a good, we might undermine certain related but not identical goods or values. We might think here of intimacy and love as against the purchase of sex, or public

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approval through election based on ‘gifted votes’ as opposed to bought votes (see Anderson 1995). This final point is significant because Brennan (2016) has further developed his argument and, like Hayek and some nineteenth-century liberals, argues that politics is bad for us and that democracy undermines liberty. Instead, democracy should be replaced by an epistocracy, or rule by the knowledgeable. Much like Hayek’s constitutional proposals, it is difficult to see quite how this might take place. Unlike Hayek, Brennan (2012) does argue that social injustice is a reality and accepts that one problem with his proposal is that social disadvantage would mean that epistocrats might be disproportionately white. The implication appears to be that democracy is one of the causes of social injustice, and that therefore social justice might be better promoted by the end of democracy. While we might point to voting by racists to seemingly confirm Brennan’s position (see also the discussion of President Trump in Chapter 13), by reducing democracy to voter choice, Brennan reduces democracy to a market (though, ironically, a market that needs controlling). This ignores the collective and political mobilisation of anti-racists and instead suggests that rule by experts is the most effective way for dealing with social injustice. This sits uneasily with Hayek’s concerns about central planners, but the experts that Brennan has in mind would be those that – like Hayek – promote rule by the market. Such rule might actually be part of the problem as markets might be constructed on the basis of social relations that exclude and marginalise, and indeed might also undermine the prospects for politics committed to alleviating social injustice – the very thing that Brennan advocates. That is, Brennan appears to advocate an extension of the post-political condition as outlined in Chapters 9 to 11, but this advocacy addresses only the symptoms and not the causes of that condition. Moreover, as with neoliberalism, epistocracy is not an escape from, but just another form of, politics. The question of who decides what kind of knowledge is important cannot be abolished in the name of individual preferences expressed in markets. This view, shared by Brennan and by Chicago economists, can never avoid questions of ethics as the view that everything can be quantified ‘is an implicitly moral agenda, which makes certain presuppositions about how and what to value’ (Davies 2014: 8, original emphasis). These discussions are of huge relevance to more everyday issues. For example, in terms of public policy, assessment targets and league tables have ‘nothing to say about what we actually want a public service to do and cannot offer any guidance on this question’ (Finlayson 2003: 111). Thus, Gary Becker (1997) argued in the 1980s that immigration into the US should not be based on bureaucratic points systems, quotas or queues,

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