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Miliband has reaffirmed the original neoliberal ideal

The early neoliberals recognised the need for a strong state to challenge private monopolies.

Ed Miliband sings at the conclusion of the annual Labour Party conference in Manchester. Photograph: Getty Images.

Last year, Ed Miliband proclaimed the neoliberal era of the last thirty years to be over when he argued that “responsible capitalism” should be instituted to promote producers and prevent economic predators. This year, the Labour leader’s challenge was to communicate how this path could be developed in a language that people can understand. His chosen idea was Disraeli’s “One Nation”, but the vision for the economy set out in Manchester drew upon a surprising source: the German Soziale Marktwirstschaft (the social market economy). In fact, in pronouncing the death of Anglo-American neoliberalism, the Labour leader has rediscovered the original European neoliberal idea.

In interwar Europe, a group of intellectuals from Freiburg, Vienna, Paris, London and Manchester reformulated liberalism. They advocated a strong state to prevent concentrations of economic power, “whether through cartels, trusts or giant enterprise”, in the words of Harvard Political Scientist Carl Friedrich. As Stephanie Flanders showed last week in her programme, Masters of Money, Friedrich Hayek was the leader of these early neoliberals. But instead of the Austrian business-cycle theory with which Hayek famously opposed Keynes, the group’s main aim was a new middle way between laissez-faire and economic planning. It was a vision that its adherents, including Hayek, saw as entirely compatible with a basic social security safety net.

In 1948, this early form of European neoliberalism entered power in Germany. Ludwig Erhard, a member of Hayek’s Mont Pelerin Society (founded in 1947) became finance minister under the Chancellorship of Konrad Adenauer. German neoliberalism was characterised by a firm commitment that the economic benefits of competition as guaranteed by the state were balanced with the solution of social problems. This included a robust welfare state, worker involvement in the management of companies (“codetermination”), and a strong trade union movement, which saw its role as protecting jobs.

As the German Social Democratic Party signed up to a neoliberal approach through the Godesburg Programme of 1959, free market ideas travelled across the Atlantic. In the United States, neoliberalism turned into an uncompromising creed of market fundamentalism. This movement, led by Milton Friedman and the Chicago School on the one hand, and by James Buchanan and the Virginia School on the other, inspired, among other things, monetarism, privatisation, and the introduction of market-style incentives into public services and administration under Thatcher and Reagan. This brand of neoliberalism most famously advocated the economic and financial deregulation that led ultimately to 2008. The original European neoliberal preoccupation with competition and the targeting of monopoly (as well as its concurrent pursuit of social justice) was almost entirely absent from the priorities of its transatlantic cousin.

Thus, in expressing his confidence that people are sick of the ‘greed is good’ culture brought about by the unconditional embrace of free markets since the 1980s, the Labour leader has given voice to a visceral popular anger at the excesses of finance capital. Although he has signalled the abandonment by Labour of many of the tropes of Anglo-American neoliberalism, Miliband has championed some important pillars of German neoliberalism as he attempts to flesh out the meaning of “responsible capitalism”.

In his speech in Manchester, Miliband said he would use procurement rules to encourage a more long-term culture among business by rewarding those who offer apprenticeships and vocational training with government contracts. In the past year, he has proposed worker representation and “codetermination” for British companies to tackle excessive executive pay and bonuses. On Sunday’s Andrew Marr Show, the Labour leader supported the German trade union model of protecting jobs. Most importantly, in pushing the gimmicky-sounding “predistribution”, a term coined by Yale Political Scientist Jacob Hacker, Miliband has embraced one of the most important insights of the German neoliberals: the crucial role of the state in designing the rules of the economy to achieve particular goals. As Miliband said on Tuesday, this means, for example, changing the rules and incentives in areas such as corporate takeovers or the promotion of a living wage.

Now, for the early neoliberals the aim of the state was the achievement and maintenance of competition. For Miliband and the Labour Party there is a fundamental difference, which adds an exciting twist to their new agenda. In place of competition, “responsible capitalism” substitutes the reduction of inequality, a fairer distribution of wealth and power and increased opportunity for all as its central aims. Moreover, the lesson of the German experience is that with a political will, there is a real alternative to the Anglo-American neoliberalism of Thatcher and Reagan.

Daniel Stedman Jones is a barrister practising in London. His book on the history of neoliberalism, Masters of the Universe, is published this month by Princeton University Press.