Neoliberalism is just a term of abuse, Ed Conway, the economics editor of Sky News tells us, thereby dismissing one of the key tenets of Corbynism. Ben Chu at the Independent thinks that, if the social market at the heart of the EU project can be described as “neoliberal”, the term is meaningless. Both writers take specific exception to my blog here last week, so, for the sake of edification, I will try to explain why they are talking nonsense.
First, let’s understand what mainstream economic pundits find most problematic about the concept of neoliberalism: it is used to describe a phenomenon that is complex and has morphed over time. Something with a beginning, a middle and an end.
People trained in formalistic thinking – where “philosophy” equals analytical logic and economics is the creation of static models, as on the PPE course – often assume that social phenomena can be contained by static definitions, and that, as Hegel once said, “what is rational is real” – i.e. reality is a direct product of human intent.
This is the implication behind Ben Chu’s question to me via Twitter: “if neoliberalism, in your definition, is not an ideology but a system, what’s the intellectual root of that system?”
Historical materialists assume that, on the contrary, it is ideas that have roots in systems, not the other way round – that “being determines consciousness”. And that social phenomena are complex, contradictory and unstable: impossible to contain within static definitions.
After describing the breakdown of Keynesianism and its replacement by first phase neoliberalism in the late 1970s/early 80s Conway asserts: “The majority of these events took place by happenstance; they were not co-ordinated; they were mostly reactions to an overarching problem: the system of economic regulations constructed in the wake of the Second World War fell apart and policymakers had to construct something in the vacuum”.
Actually, the neoliberal response was co-ordinated, via conservative networks, think tanks and politicians – but that’s not the point. Materialism tries to answer the question: why did the Keynesian system fall apart, and why is the neoliberal system falling apart? “It just happened” is fine if you want to live in an anti-theoretical universe, where at every moment, a carefully crafted static model has to be abandoned because reality has changed. But not if you want to take political action informed by rational thought.
For me, as I made clear both in Meltdown and Postcapitalism, the left’s identification of neoliberalism primarily as an ideology, or single set of policies, was a weakness. Probably the most widely-read book on neoliberalism – David Harvey’s A Brief History of Neoliberalism – suffers from this flaw, as did much left-wing writing about the new system before 2008.
As Philip Mirowski pointed out, neoliberal ideology became a kind of underground secret religion among the elite. And as William Davies points out in The Limits of Neoliberalism, there is – after 2008 – an extreme disjuncture between the arguments justifying neoliberalism (markets work better than states, the state should be small, financial complexity brings safety) and the reality of a state-backed banking system and growth fuelled by central bank printed money.
For me, neoliberalism is an economic model, not an ideology. This school of thought is gaining traction for a reason Hegel would have recognised: the “owl of minerva flies at dusk” – it’s likely that a comprehensive theory of neoliberalism will only be written once it is over, which will be soon.
When I say neoliberalism is an objective reality, not a set of ideas, I don’t just mean certain states that have adopted overtly free market policies; it is a total global system, encompassing China, Russia, organised crime, offshore finance, the EU and its social market, post-Thatcherite Britain, the World Trade Organisation (WTO), the Bank for International Settlements (BIS) and so on.
I’ve said this again and again – at the OECD Spring Meeting, at the Alpbach Conference, to Ebert Stiftung, the Renner Institut, the Feltrinelli Foundation and to numerous investment and strategy conferences. Almost nobody has a problem with the idea that there is a global model that has become dysfunctional. Indeed, the work of Anton Brender and Florence Pisani, who explained that the financial crisis of 2008 was a necessary correction to imbalances within a single global system, is now seen as mainstream.
As a whole system, neoliberalism has to be studied dynamically – as a phenomenon with inner contradictions which are, at times a source of strength and at others a source of weakness. So, for example, highly leveraged banks were in the early 2000s a driver of growth; between 2007 and September 2008 they were a millstone around the neck of growth. Inflation targeting worked for a bit; then, on the eve of crisis, it made things worse.
The idea of studying neoliberalism as a time-limited system comes not from Marxism but from the work of Nikolai Kondratieff and those who have followed him. Capitalism survives by mutating, sometimes in a big way, and the mutations give rise to definable periods in which the core dynamics settle, for a while, around a techno-economic paradigm.
For me, neoliberalism is the logic regulating the whole world’s capital accumulation process after 1989, which works as follows:
– Domestic wage bargaining power is suppressed by smashing trade unions and offshoring.
– Profit rates are restored by privatising state enterprises and outsourcing
– The social wage is reduced through repeated bouts of austerity.
– Profits accruing to capital flow increasingly through the channels of rent and interest, not operating profits of producers and service providers (the financialisation thesis).
– Significant behavioural changes take place among economic actors: e.g. workers see themselves more as financial entities and consumers, less as wage earners
– The major transmission channels for behavioural change include
o Management – as documented by Luc Boltanski and Eve Chiapello, also Richard Sennett
o Marketisation of public sector decision making – as promoted by Gary Becker and critiqued by, among others, Michel Foucault
o Financialisation – with the SOAS-based financialisation theorists around Costas Lapavitsas making superb contributions to understanding how financial, not production dynamics came to dominate everyday life.
– Colonisation of non-market spaces inside industrialised societies, dragging an extra 1.5bn people into the wages/market dynamic, off the land and into the cities (described by Richard Freeman as “the great doubling” of the global workforce).
What went wrong with neoliberalism? For me, almost everything can be traced to its unique desire – compared to other historical forms of capitalism – to atomise organised labour and suppress wage bargaining power.
Having reduced the wage share in the G20 economies by 7-10 per cent since the peak of the early 1970s, consumption had to be sustained by credit. Parallel to this, capital itself became financialised: the highest returns accrued to financial actors, not providers of goods and services, with the result that, over time, all economic agents had a stake in policies favouring high leverage, financial deregulation and cheap central bank money.
My explanation of how this fed through to the worst financial crisis in the history of capitalism is multicausal (see both Postcapitalism and Clear Bright Future, forthcoming). But the move by capital towards asset-based incomes, parasitism and semi-legality, and the move towards credit dependency among the working population are twin phenomena which, taken together, look like the primary dysfunction.
As orthodox Marxists have pointed out, for example the late Chris Harman in 2007, the above critique of neoliberalism leaves open the possibility that another kind of capitalism is possible. That is exactly what radical social democracy needs to create.
To do so, does not require a series of piecemeal “policy changes”, as often conceived by the traditional Labour left. Nor a return to Keynesianism, which is what some Jeremy Corbyn supporters fantasise about. It needs an organised systemic change, centred around changed behaviour by the state, new national and global institutions, and new treaties.
This, incidentally, is why it is no big problem for me that, if Britain leaves the neoliberal EEA it will still be bound by WTO state aid rules. The modern WTO is a product of the neoliberal era. A coalition of radical left, social democratic and progressive governments – think Corbyn, Bernie Sanders, Christian Kern, Jean-Luc Mélenchon plus Pablo Iglesias, backed by left governments in Brazil, Ecuador and Mexico – should table changes to both the WTO itself and to the governance of the IMF, World Bank and BIS which embody the principles outlined below.
The change I am proposing will run as deep as the one that transformed General Agreement on Tariffs and Trade into the WTO, and the EC into the post-Maastricht EU, and which turned the IMF from a hands-off player in a stable global system into an enforcer of misery and coercion against the world’s poorest countries. I am not talking about a simple roll-back or reversal, as Italy’s Five Star/Lega Nord coalition seems to be proposing with regard to Maastricht, but a roll-forward, to align the multilateral institutions with the new model I want to create.
What should we do to create a better model of capitalism than neoliberalism? Here’s a brief list, in order of priority, of state-level actions (or actions by combinations of states) – with the effects I would expect from each action, and the institutions/treaties that would have to be amended. Please assume that in each case the aim of zero carbon emissions, gender equality and minimal environmental pollution is built in.
1. Switch off the privatisation machine. Stop handing capital one-way opportunities to make guaranteed profits through the operation of monopoly public services. That means taking much of public facilities management, prisons, schools, the NHS and the railway system back into public ownership.
a. EFFECT: Raise the bargaining power of workers across the public sector. Crowd capital out of rent-seeking from public sector contracts and force it into innovative, higher-risk sectors. Increase economies of scale. Cheapen basic goods like transport, education, healthcare and housing.
b. TREATY CHANGES: Lisbon would have to be amended; TTIP/TPP scrapped forever; WTO rules changed.
2. Stop coercing people, businesses and public services into needlessly competitive behaviours. So, for example, stop trying to measure the output of secondary education as “value added”. Instead, encourage collaborative behaviours and mandate the achievement of basic but flexible targets. (Interestingly, targets were the Blairite mantra before total neoliberalism was applied to the NHS under Alan Milburn and his successors.)
a. EFFECT: Ends the use of business management techniques as a transmitter of destructive and chaotic behavioural imperatives in public and private sectors. Empowers managers to innovate through difference; allows failure and – that ultimate Schumpeterian ideal – the “creative destruction” of existing public sector business models.
b. LAWS/TREATIES: Various standing orders and methodologies imposed by the Treasury would have to be scrapped; the Health and Social Care Act 2012 (which Labour is committed to repealing) together with other laws and regulations introducing market disciplines into public sector management
3. Provide universal basic services free of charge out of taxation. Pay for it with an increase in progressive income taxes, corporation tax equal to personal income taxes and targeted taxes on assets. Plus, numerous measures designed to bring billions of pounds of financial assets onshore. Specifically:
i. free education to degree level;
ii. the guaranteed right to a home on affordable rent or shared-ownership schemes, underwritten by the state;
iii. an integrated public transport system with fares per mile below the European average;
iv. free healthcare, including comprehensive elderly care, mental health care and “quality of life” services like physio, dentistry diet, addiction therapies etc.
b. EFFECT: Massively cheapens the cost of reproducing labour power. Allows a highly precarious workforce to experience immediate improvements in living standards and security. Gives everybody a stake in the national economy.
c. MEANS: Primary legislation, law enforcement against the tax dodgers.
4. Unleash automation. Enact a new Companies Act to accommodate tech companies that want to develop outside the stock market driven short-termist culture of Wall Street, or to break themselves up, or to simply become public utilities. Allow managers to act against their short-term fiduciary duty to shareholders, to draw on the state investment bank for capital, at the price of making specific commitments amounting to a new, explicit social licence to operate with limited liability. At the same time, empower citizens with a revocable “permission dashboard” through which to manage their relationships to companies like Amazon, Google and Facebook.
a. EFFECT: Combined with 3, possibly with the addition of a universal basic income, the effect should be to encourage rapid automation. The rapid reduction of the working day, week, and life; the adoption of hi-tech production methods for both goods and services. The rapid integration of city management systems and the exploitation of public user data for the public good, not private gain.
b. LAWS/TREATIES: On top of a new Companies Act, there would have to be a concerted push at the EU/EEA level for new standards on intellectual property and probably international accounting standards would need to be revised. There would need to be an “office of the non-market economy” to co-ordinate access to capital for credit unions, co-ops; to measure voluntary work and develop non-money measurements of economic development and to co-ordinate experimental projects like a universal basic income, wages for domestic labour.
5. Repress complex and unregulated finance. Financial repression this time around (as opposed to 1948-1979) would have to be more targeted but its aim should be: moderate but consistently positive inflation, the creation of national pools of debt (to be eroded by inflation), suppressing speculative and rent-seeking business models, eradicating offshore finance and high-value organised financial crime through tough law enforcement, increasing rewards for non-financial entrepreneurship while decreasing the ratio of financial to non-financial profits. The creation of a state investment bank to set new investment patterns, behaviours and standards in the private sector.
a.EFFECT: The world’s $250trn debt mountain gets eroded by inflation; the savings of the older generation get transferred to the younger generation in the form of productive investment, rather than coupon-clipping; capital begins to flow to high risk, innovative and entrepreneurial activities in production and service provision. The financial sector declines as a share of GDP – and as a source of taxation on incomes – while the productive sector grows. Financial markets become less globalised, less complex and – though potentially more volatile – therefore begin to reflect real risks rather than a system of state backed financial investment as now.
6. Lead the developed world in a controlled retreat from extreme globalisation. To save what we can of the multilateral global system, and prevent an endgame where major states default on each other, we need to do less globalisation and set new rules of behaviour. No reintroduction of TTIP and TPP. Promote a Norway-style solution to Brexit. And reform the WTO/IMF/BIS, removing everything that mandates structurally neoliberal behaviours. Give the central banks new mandates to maintain high-wage employment, high distribution, moderately positive inflation and mitigate climate change.
a.EFFECT: Competition becomes a race to the top, not the bottom, as it did in the Keynesian era. National parliaments and city governments regain sovereignty over economic decision making. People rekindle their interest in democratic instututions, lose their fatalism that “it’s all controlled by the global elite” and begin to take responsibility for, and engage with, democratic processes. There will be less risk-free economic development in the global south; China, Russia, India, Turkey, South Africa and Brazil (and parts of Eastern Europe) will experience fewer easy options when it comes to breaking out of the middle income trap; their authoritarian elites will face a crisis of legitimacy and, if they are really unlucky, get overthrown by democratic revolutions.
The new model created by these actions would itself be unstable; as I explained in Postcapitalism, it would have to be a transitional form of capitalism towards a low-work, zero carbon and high well-being economic model.