The first part of this three-part series asks what neoliberalism is and why it is possible, and necessary, to imagine an alternative economic system.
The New Political Divide
The French Revolution voiced three demands: liberty, equality, and fraternity. These three demands gave rise to three dominant ideologies of the modern world- liberalism, socialism, and nationalism, birthing a 21st century defined by sovereign nation-states engaging in international trade, competition, and cooperation.
We live in a globalized world and it is liberalism’s ideology that underpins this globalization. Never, since the Second World War, have these ideas been more seriously questioned than today. Populist, anti-immigrant European parties enjoy nearly twice as much support as they did in 2000 and a man who declares that “Americanism, not globalism, will be our credo,” has the chance to become president of the free world.
The new political divide is not left versus right, but whether we want to live in an open or closed society. What I am suggesting in this three-part series is not that we unequivocally reject the benefits of globalization; rather, we recognize that certain liberal ideas, particularly the economic logic of neoliberalism, are largely to blame for the politics of fear and nostalgia now making headlines and driving policy.
The first step is understanding the logic of neoliberalism and where its architects went wrong.
The Neoliberal Reformation
In The Road to Serfdom, Austrian economist F.A. Hayek writes that “there is nothing in the basic principles of liberalism to make it a stationary creed….The fundamental principle that in the ordering of our affairs we should make as much use as possible of the spontaneous forces of society, and resort as little as possible to coercion, is capable of an infinite variety of applications.” Here Hayek highlights liberalism’s flexibility in terms of organization and implementation. Given that neoliberalism lays its foundation on the freedom of individuals to make their own choices, the ideology is able to change and adapt.
Neoliberalism is an extreme denomination of liberalism as much as communism is a radical form of socialism. David Harvey, author of A Brief History of Neoliberalism, 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 core argument of liberalism and neoliberalism alike is that markets, i.e. the collective interactions of self-interested agents, are more efficient than the government in controlling the economy and allocating wealth. This in itself, however, does not preclude government intervention in the form of wealth redistribution. F.A. Hayek himself, a staunch supporter of market liberalism, stated that “in no system that could be rationally defended would the state just do nothing.”
It was the Chicago School of Economics, pioneered by Nobel Laureate Milton Friedman, that articulated the ultra-free market ideas that then became the creed of Reagan, Thatcher, and global institutions like the International Monetary Fund (IMF). In the name of efficiency, the Chicago School prescribed deregulation and privatization to all sectors of the economy, including industry and finance and even public services such as health care, transport, and education.
The widespread adoption of neoliberal policies from the 1970s onwards turned globalization into a far nastier affair than needed be the case. The unregulated movements of capital and finance beyond borders, tax cuts for the rich and corporations, and the disintegration of social welfare programs led to unprecedented social dislocation and inequality. Not surprisingly, the persons negatively affected by inequality – the 99 percent – equate the harmful effects of neoliberalism with the general idea of globalization.
Instead of conflating neoliberalism and globalization, I propose we consider the possibility of a different form of openness: an openness still based on the principles of liberalism and the individual rights of man. An openness still built on the market economy and “the spontaneous forces of society,” but where equality and social justice come first.
Neoliberalism emerged from considerations on how to best organize society. The Chicago School positioned itself as a counterweight to both Keynesian interventionism and Soviet central-planning. It successfully suggested a reordering of our economic priorities towards the accumulation of wealth rather than its distribution. The very success of the Chicago School proves that the reordering of our economic priorities is in fact reversible.
J.M. Keynes writes that “the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist . . . I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas.”
Keynes’ critical insight is that there is no determinism in the way we organize our society. It is popular theories and the way we see the world, rather than empirical facts, that ultimately determine policy. People are ready for new ideas, and it will only be the gradual encroachment of these ideas that will toss neoliberalism into the dustbin of history.
The second part of this series looks at how neoliberalism emerged as economic policy after the 1970s, under Reaganomics, Thatcherism, the IMF, and the expansion of the European Union. We will then trace the rise of inequality and how the Great Recession destroyed neoliberalism’s moral legitimacy, but not its hold on power. As we established, economic policies are reversible. The question now is whether or not the priorities behind neoliberalism should be reversed.