I see a lot of discussions about Neoliberalism where it clear that the people using the term don’t really know what it means. As the historian of Neoliberalism, Philip Mirowski remarked, Neoliberalism has become, for many, “a blanket swear-word for everything they despise, or a brainless synonym for modern capitalism.” And the Guardian similarly notes, “the word has become a rhetorical weapon, a way for anyone left of centre to incriminate those even an inch to their right.” Many people also have trouble defining it. It’s a bit like the definition of porn: hard to define in precise terms, but you know it instinctively when you see examples of it in real life.
But there’s nothing complicated about Neoliberalism. It’s actually quite simple. From a few fundamental axioms, all the political ideas of Neoliberalism can be constructed.
It all has to do with how resources are allocated.
A resource is anything society produces – guns, butter, energy, doctors, medicines, roads, automobiles, iPads, MRI machines, snowplows, BMW’s, eggs, you name it. These resources must be allocated somehow. You want resources to go where they are needed. You don’t want shortages, but you don’t want resources to lie idle either. How do you accomplish this on a societal scale?
Neoliberalism is based on the argument that only markets can allocate resources efficiently.
Everything in Neoliberalism proceeds from this assumption!
The inverse assumption is that alternative means of resource distribution—whether that be central planning, command and control, public provisioning of goods and services, gift economies, rationing, or what have you—are necessarily inefficient. In short:
• Markets = efficient; good allocation of resources (resources match wants and needs).
• Government allocation = inefficient; poor allocation of resources. Resources end up where they don’t belong, surfeits and (especially) shortages result.
Following from this is the idea that since markets are, by their very nature, efficient, they will produce the most goods at the best price, and hence that higher-quality goods will be more available to more people then if government provides them at cost.
Another premise that follows from that is this: a dollar spent in the market by an individual consumer is going to be far more effective (i.e. it will go further) than a dollar spent by the government.
Why? It all has to do with how Neoliberals perceive markets. In their view, markets are aggregates of millions of individual people making decisions. This leads to ideal outcomes that no central planner could comprehend. As Philip Mirowski puts it, Neoliberals see markets as “information processing devices” par excellance; more powerful than any single human brain, but still patterned on the human brain. Governments, by contrast, do not have enough information processing power to allocate resources properly. This is called the calculation problem.
Much of this comes from idea that markets are competitive, and that they naturally head towards equilibrium.
Competition is self-explanatory: many firms competing against one another to deliver the best goods at the best price, such that no one company can overcharge, or produce shoddy goods.
Equilibrium is often expressed in terms of graphs. The ideas is that there are a certain amount of people who want to sell their goods and services at a high price, and a number of buyers who want to pay for those goods and services at a low price. Through millions and millions of individual choices, the argument goes, a price will be arrived at over time through the workings of the “invisible hand,” where the amount of stuff to be sold will exactly match the desire to buy, such that no products will be left unsold, and no buyers will be left unsatisfied. The supply and demand graphs on the blackboard intersect. According to Investopedia, it’s “the state in which market supply and demand balance each other, and as a result, prices become stable.”
The drive to compete, Neoliberals argue, makes private firms “lean and mean,” unlike “wasteful” governments. Private firms cannot be inefficient, they say, because otherwise they would be outcompeted by their rivals. This relentless drive towards efficiency means that private firms can always deliver goods and services far more cheaply and effectively than any government can.
By contrast, since governments do not have to compete within their own borders, the argument goes, this makes governments inherently inefficient and sclerotic. Neoliberals constantly deride “lazy, incompetent bureaucrats,” “useless pencil pushers,” and “wasteful government spending.” Conversely, they like to celebrate stories of “heroic” entrepreneurs sleeping only three hours a night, and “genius” inventors bringing new products to market. The garage-based startup is their latest totem, and the “shark-tank” is their idealized environment.
Since it follows that only markets can allocate resources efficiently, it makes sense for governments to utilize markets as well, by purchasing all sort of things from private contractors rather than producing them directly or owning companies outright. This, the thinking goes, will save taxpayers money. Often times, government
getting into bed linking up with private contractors is expressed by the term, “public-private partnerships.”
It also follows that anything not allocated by markets will be misallocated, and so things not currently allocated by markets must be transformed into things which can be. This process is called commodification—turning things into commodities to buy and sell, in order that markets can allocate them according to their dictates.
These are the core ideas animating Neoliberalism. That’s why it’s sometimes called “free market fundamentalism” by its critics, or somewhat less generously, “market fetishism.”
Neoliberalism is obsessed with markets. This is clearly true. That’s why one of the major Koch-funded Neoliberal/Libertarian thinktanks is called the Mercatus Center. Mercatus is the Latin word for “market” (it was originally called the Center for Market Processes).
Based on the core Neoliberal assumptions above, since markets are efficient and allocate resources well, while governments are inefficient and allocate resources poorly, it makes more sense for people to simply go out and shop for the things they need, rather than having governments provide them directly to the public.
This is the idea behind the mania for vouchers. The government simply hands you a check, and you go out and shop in the one big market for the things that government used to provide to you. “School choice” is the most obvious example—competition in markets is expected to raise the quality of schools, while the government strips back its commitment to funding free public education for all.
Funneling public (government) money to the private sector to deal with social problems is fundamentally Neoliberal.
This is also the theory underlying seemingly endless rounds of tax cuts. Rather than the government taking a dollar and doing something for you, the government could leave that dollar in your wallet and let you go out and shop for the things need. The rationale is, that since markets are so much better than governments at allocating resources, a dollar spent in the market is far more effective than a dollar taken as taxes and spent by the government.
The constant refrain is, “You know how to spend *your* money better than governments do.” It’s a great bumper-sticker slogan, and it’s never really questioned or examined.
The other aspect of this argument is a moral one. Neoliberals are not as extreme in their hatred of taxes and governments as libertarians are; they recognize that the state requires some revenue in order to function. They don’t consider the very idea of taxes as theft. They reluctantly recognize the need for some bare-bones public services, such as police and firefighters, as well as basic infrastructure. Nevertheless, they agree with Libertarians’ core framing that government revenues must be taken “at the point of a gun!”
Also, you don’t choose what the government spends your money on, they say. To some extent you do, of course, because you elect the representatives that decide on your behalf how the government spends its money and allocates its resources. But given the size and complexity of most modern governments—not to mention the unpopularity of today’s politicians—many people don’t really buy into that argument anymore.
But in markets, Neoliberals say, you are “free to choose.” Any economic transaction, they say, is a completely voluntary transaction that leaves both parties better off, and thus there can be no coercion in markets. Therefore, they say, it is more moral to let people keep more of “their own money,” and spend it ways that they choose, rather than the state taking it away via taxation and spending it in ways that some people might not like or approve of.
By “leaving more money in people’s wallets,” people can then go out and buy whatever they need from the markets through shopping, and not have to spend money on things they may not want or need. Governments force you to pay taxes, but no one forces you to shop at Amazon, they argue. Therefore, you can get everything through the market, with absolutely no coercion required!
That’s the crux of the morality argument: one alternative is spending freely “by choice,” while the other is necessarily coercive, that is, “at the “point of a gun!” In this conception, wealth is generated exclusively by the private sector, which “earns” all the money through business activities. The government, on the other hand, can only operate on what is “seizes” from the private sector “by force!” And, as we’ve said before, Neoliberals view governments everywhere as, almost by definition, lazy, feckless, inefficient, incompetent, corrupt and cruel, unlike the “benevolent” private sector, which creates all the jobs and wealth.
Neoliberalism places a great emphasis on “personal responsibility.” Rather than governments providing everything for you, they say, it’s your responsibility to be a smart shopper. You need to save adequate money out of your own paycheck for retirement— no more “dependency” on government pensions or “bankrupt” Social Security. You need to make sure you have adequate insurance for any contingency—don’t expect the government to come and bail you out! And you’d better make sure you have enough savings for any possible emergency—government is there to make markets, not to help “scroungers” who weren’t “responsible” enough!
Neoliberalism also believes that when markets appear to fail, it must always be due to some sort of unnecessary “interference” by the state. Interference is anything government does that “distorts” the market from achieving equilibrium—that is, anything that keeps self-adjusting markets from finding their “natural” price for goods and services where supply matches demand. If markets fail, the thinking goes, it must be the government’s fault in some way. The solution, then, is to strip away such government “interference” as much as possible, and let the markets do their thing. Often this is done in practice by limiting governments’ very power to intervene in markets via deregulation and legal restrictions, even in the public’s best interest. Regulations “distort” markets, they argue, and so Neoliberals always favor more deregulation.
So, things like unions, minimum wages, worker safety, environmental regulations, and rent controls, are seen as unnecessary “interference” in the natural workings of the free market; that is, they prevent the market from working the way that it should. Free markets cannot fail, they say, they can only be failed.
They also believe that actors in markets are always rational. When people do not act the way Neoliberals say that they should, they advocate something called “nudge theory.” Nudge theory is a kind of social engineering undertaken by governments designed to get people to behave like the idealized consumers that Neoliberalism insists that we all are. “By knowing how people think, we can make it easier for them to choose what is best for them, their families and society,” wrote Richard Thaler, the Nobel (Bank of Sweden) Prize-winning Neoliberal economist who developed the theory. Instead of governments shaping markets, people are shaped to markets.
Since markets theoretically provide everything we could possibly want or need, Neoliberals argue, the government should confine itself to creating and policing markets, and little else. Unlike Libertarians, they realize that markets do not magically spring from nothing, but are created and sustained by government action. Therefore, they do not necessarily favor “small government,” since that might impact markets. Instead, they argue for a superempowered government that can make markets work, but not “interfere” in their inscrutable workings. As noted above, these superempowered governments are also encouraged to engage in large-scale social engineering if it helps create better market outcomes, but no interfere in the markets themselves.
An example of the superempowered state is seen with intellectual property rights. To adequately enforce these, governments need extreme spying powers to make sure that no one anywhere in the world is violating the rights of copyright owners by, say, making copies of DVDs, or distributing digital music for free. Just try putting up copyrighted material on YouTube, for example. Or note the dire warnings from the FBI at the beginning of every DVD. Clearly “small government” cannot do these things. Because of this, Neoliberals support the coercive powers of the state insofar as they make markets—international courts for example—but not to do things like provide goods and services to the public, or redistribute wealth, which they views as “punishing success.”
As Mirowski notes, if a market ever seemingly fails, the Neoliberal solution is to create “new and stranger markets” to alleviate the failure, rather than to impose new regulations.
The classic example here is climate change. Many companies are profitable only because they can freely spew unlimited amounts of carbon into the atmosphere, altering the climate for everyone. The solution, Neoliberals argue, is not to restrict the amount of carbon, as might be expected. Instead, Neoliberals advocate “cap and trade” agreements, where “carbon credits” are traded across the world in strange, new “carbon markets” which are created and sustained by international governments. A new class of traders can then “wheel and deal” with such credits so that carbon spewing can be “priced correctly,” and “allocated efficiently” across the globe. This solution is considered to be simply “common sense” by most politicians and the entire mainstream economics profession, and no other solution is seriously considered.
This is also behind the drive to put a price tag on nature. Rather than restrict our impact on the natural world through rules, restrictions, and regulations, Neoliberals argue that we need to let the market sort it out. In order to accomplish this, they say, nature must be fully accounted for on the balance sheets of corporations. To that end, nature must be transformed into “ecosystem services” which can then be “priced adequately.” Then, the argument goes, markets will no longer see nature as a free service anymore, and everything will then be allocated correctly and efficiently by the “free” market! Again, government regulations are depicted as inherently coercive, with anarchic markets providing true “freedom.” Neoliberals also believe that individual consumer choices will solve serious structural problems like climate change without the need for new regulations (e.g. “eat less meat,” “take shorter showers,” etc.). A small number of Neoliberals deny man-made climate change altogether.
In addition to the moral justifications regarding coercion and freedom, another argument is that the market naturally solves problems through “private initiative” without the need for any sort of government intervention. In other words, regulations are actually counterproductive!
The classic story here is told by the wildly popular Neoliberal economics book, Freakonomics. In that story, manure from horses used for transportation threatens to drown entire cities in mountains of poo in the early twentieth century. Planners look ahead at urban growth during this time period and realize that there is just too much manure for them to possibly deal with. Government regulations are contemplated. Then, the private sector magically solves the problem through the invention of the automobile—no harmful or coercive restrictions required, just plucky “private initiative!” The fact that automobiles transform visible pollution—manure—into invisible pollution—air particles—is conveniently ignored in the story. So, too, are the massive amount of government regulations and infrastructure expenses that the automobile called forth.
The bigger and more all-encompassing markets are, the better off we will all be, claim Neoliberals. That’s why they favor unrestricted globalization and free-trade agreements that create transnational globalized markets, removing all restrictions on the movements of capital, labor, money, goods, people, and information. They see the whole world as one giant market.
The evangelism of Neoliberalism comes from the fact that Neoliberals sees markets as a kind of secular salvation. The “perfection” of markets will solve poverty, environmental crises, inequality, sickness, war, and so on. They believe that anything NOT solved by markets is fundamentally unsolvable and divinely ordained. Poverty can be cured if people only save enough money and invest properly. Any attempts by governments to intervene in markets or redistribute wealth (ideas they deride as “Marxism”) must be resisted, they say. This is why Neoliberals tout the rosy statistics that claim the world is getting better for the average global citizen (purposely ignoring increasing poverty and inequality within developed countries).
This provides a good short explanation:
The economic paradigm which promotes the small state and reliance on market forces is generally known as neo-liberalism, or the Washington Consensus. Under neo-liberalism, the state does little more than maintain the rights of ownership and internal and external security through criminal justice and armed services – notwithstanding, the state may bail out financial services if they require public aid.
In the UK and the USA politicians from both main parties adopted this point of view, often in sincere, if misguided, belief in its validity. Thus, neo-liberalism maintains the appearance of democracy, in that citizens may vote for political leaders, but limits the range of policies on offer to those which are acceptable to markets – or rather, those who command market forces.
Dude, Where’s My Democracy (Open Journal)
Wendy Brown, author of Undoing the Demos: Neoliberalism’s Stealth Revolution, defines Neoliberalism more succinctly as, “a peculiar form of reason that configures all aspects of existence in economic terms.” The Guardian argues that Neoliberalism,
…is a name for a premise that, quietly, has come to regulate all we practise and believe: that competition is the only legitimate organising principle for human activity.
In a similar vein, in a widely read-column, Guardian columnist George Monbiot declares,
Neoliberalism sees competition as the defining characteristic of human relations. It redefines citizens as consumers, whose democratic choices are best exercised by buying and selling, a process that rewards merit and punishes inefficiency. It maintains that “the market” delivers benefits that could never be achieved by planning.
Nathan Robinson, while admitting that the word makes him “cringe,” nevertheless agrees with Brown that it is the framing of every aspect of life through an economic lens tied to GDP growth at all costs, to the exclusion of any other cultural values or social goals:
Neoliberalism, then, is the best existing term we have to capture the almost universal convergence around a particular set of values. We don’t have debates over whether the point of teaching is to enrich the student’s mind or prepare the student for employment, we have debates over how to prepare students for employment. Economic values become the water we swim in, and we don’t even notice them worming their way into our brains. The word is valuable insofar as it draws our attention to the ideological frameworks within which debates occur, and where the outer boundaries of those debates lie. The fact that everyone seems to agree that the purpose of education is “job skills,” rather than say, “the flourishing of the human mind,” shows the triumph of a certain new kind of liberalism, for which I can only think of one word.
How Neoliberalism Worms Its Way Into Your Brain (Current Affairs)
Paul Mason defines Neoliberalism as, “a time-limited global system sustained by coercive imposition of competitive behaviour, parasitic finance & privatisation.”
Here are some other definitions by a number of economic thinkers:
Examples of Neoliberalism in Action
It might help to illustrate this by examples of Neoliberal policies in action. These policies, it must be emphasized, are implemented at all levels of government: local, state, federal, and even internationally (the World Bank, the IMF, trade agreements, etc.).
Here’s a local example taken from real life. County M owns and operates its buses through a company owned directly by the county. Later, the county spins off that company into a private entity that runs its bus system. The company itself is technically private, but it has only one customer – the county. From the county’s standpoint, it no longer has to worry about running and managing a business; it only has to allocate a given sum for that company. The company runs and manages itself; the county has washed their hands of it.
But later on, the country decides that it will instead contract with a private “transportation company” operating out of another remote state. This privately-owned company also runs other transportation systems around the country (and perhaps even around the world). The local bus company is subsequently disbanded, throwing a large number of local people out of work. Some may be hired back as drivers, mechanics, etc., but most will not be; those incomes simply disappear. Taxpayer money for the bus company is now funneled to employees in another state across the country, instead of to local citizens. The argument is that this move this will save taxpayer money, despite throwing a lot of people out of work, since private firms operating in a “competitive” environment are always more efficient than government bureaucracies, say the Neoliberal politicians.
Another example is something as simple as, say, police uniforms. Police uniforms used to be made by the city which needed them. Or, they might be made by a local company. But under Neoliberalism, it is simply another purchase in the market from a private company, and that company can be anywhere in the world. So the city purchases police uniforms from China or Bangledesh, even while its own local factories shut down from lack of work.
Rohan Grey summarizes Neoliberal alternatives to publicly provisioned goods and services:
Generally, speaking, the Progressive position on most things has been, it is better to offer direct public services for free, than to presume that the way to give people access to their basic needs is to give people a check…The classic example here is school vouchers. School vouchers are typically seen—quite rightly I think—as a Neoliberal alternative to public schools. Don’t give people public schools, give them some cash and let the “market” provide their schooling needs for them. Healthcare–don’t give people Medicare for All, give them a health care rebate and let them go purchase health care on the market. Don’t give them public housing, give them a rental tax credit and let them go get housing from private landlords. These are the Neoliberal alternatives to public service provisioning.
This is why there is so much resistance to public health care systems among Neoliberals. To be fair, a few Neoliberals have given up arguing that private companies are more effective and efficient than governments because the evidence from the United States is just too overwhelming. But, even if they don’t admit it, the bias against anything associated with the government—and the attempts to preserve private power—continues to be deployed in political rhetoric and policy proposals.
That’s how you end up with something like the Affordable Care Act (Obamacare). Under the ACA, you have to go buy insurance on the market from private insurance companies rather than have it provided to you at cost by the state. You are also required by law to purchase this product (the same goes for auto insurance) or face penalties. A few regulations on company practices are also reluctantly adopted.
Even now, rather than promoting government-provided healthcare, Neoliberals simply argue for “honest pricing” by doctors and hospitals so that people can see prices upfront, and this will theoretically permit “comparison shopping” to bring prices down to affordable levels. Rather than “free” college or healthcare, they argue for such things to be “affordable,” which is Neoliberal code-speak (c.f. the “Affordable Care Act”). They also like to heavily promote “choice”, as if shopping around is somehow effective or desirable when one is sick or injured and in need of healthcare services.
You see a similar discussion surrounding higher education. Its not price-gouging that’s raising college costs, say Neoliberals, nor elite status competition, rather it’s the government “distorting” the market for education via student loans! Just make the government stop providing loans to low-income students, they say, and college prices will magically come down to more acceptable levels thanks to the magic of the market. If education is a publicly-provided good, they argue, it will not be priced correctly or allocated properly (as per the above concepts). In addition, Neoliberals argue, we do not adequately “appreciate” that which we do not pay for (an argument also made in the case of health care services, hence the existence of co-pays and deductibles).
The same goes for the housing crisis. Just remove all building regulations and restrictions, they say, and the market will automatically provide sufficient shelter for people. Just, whatever you do, do not “interfere” in the market with things like rent control, they say, because you will actually make everyone worse off! The idea that “impersonal market forces” will not solve the housing crisis—or that government has any important role to play besides simply “getting out of the way”—is unthinkable. So, too, is the notion of shelter as a basic human right. Neoliberalism does not believe in human rights, only in what the market provides. Naked Capitalism cheekily defined Neoliberalism by two simple rules: a.) Because markets, and b.) Go die!
Upon close examination, I see Neoliberalism as encompassing these core principles:
- Austerity, “Paygo,” and Balanced Budgets
- Flexible Labor
- Low Taxes and Supply-Side Economics
- Private Charity
Let’s tackle them one at a time.
Monetarism: This is the idea that “inflation is always and everywhere a monetary phenomenon,” and that “tight money” must be strictly maintained to prevent inflation. That is, the government’s major role is to guarantee the “soundness” of money, rather than take care of people needs, and leave it to the market do the rest.
This policy was implemented as a response the high inflation of the 1970s. Yet over forty years later, with no sign of inflation in sight, it continues to be religiously maintained, regardless of the macroeconomic conditions, the low costs to borrow, or the amount of idle resources sitting around and failing to be utilized by the private sector:
Despite the prolonged existence of idle plant and heavy unemployment among a literate, trained labour force, the United States seems unable to mobilize these resources to rebuild our decaying cities, to revitalize mass transit, to regenerate clear air and waterways, and so on. Why are we so impotent?
Conventional wisdom suggests that any mobilization of idle resources for a war on such things as decay, pollution, poverty will require either additional government expenditures or private sector tax cuts. This means huge deficits financed by increasing the quantity of money which, monetarists claim, can only fuel the fires of inflation. Until we tame the dragon of inflation, we are told, these projects – no matter how desirable – must wait. Conventional wisdom says we must stoically accept tight money and stringent constraint on governmental spending for many years (the long run?) if inflation is to be stopped.
Monetarists continue to argue that government spending generates unacceptable inflation. But, increasingly, this is seen as out of date, as David Graeber describes:
Economists still teach their students that the primary economic role of government—many would insist, its only really proper economic role—is to guarantee price stability. We must be constantly vigilant over the dangers of inflation. For governments to simply print money is therefore inherently sinful.
If, however, inflation is kept at bay through the coordinated action of government and central bankers, the market should find its “natural rate of unemployment,” and investors, taking advantage of clear price signals, should be able to ensure healthy growth.
These assumptions came with the monetarism of the 1980s, the idea that government should restrict itself to managing the money supply, and by the 1990s had come to be accepted as such elementary common sense that pretty much all political debate had to set out from a ritual acknowledgment of the perils of government spending. This continues to be the case, despite the fact that, since the 2008 recession, central banks have been printing money frantically in an attempt to create inflation and compel the rich to do something useful with their money, and have been largely unsuccessful in both endeavors.
Against Economics (NY Review of Books)
Counter-monetarists argue that most money is created, in effect, by private sector bank lending, and thus restricting government spending has little effect on money creation in the overall economy (the idea that money creation by private entities effects the macroeconomy is called the endogenous money theory.).
Since modern money is simply credit, banks can and do create money literally out of nothing, simply by making loans. Almost all of the money circulating in Britain at the moment is bank-created in this way. Not only is the public largely unaware of this, but a recent survey by the British research group Positive Money discovered that an astounding 85 percent of members of Parliament had no idea where money really came from (most appeared to be under the impression that it was produced by the Royal Mint).
Against Economics (NY Review of Books)
Austerity, “Paygo”, and Balanced Budgets. These are all of a piece. Neoliberals argue that too much public debt is inherently a drag on the economy, and thus distorts markets. Therefore they argue, government must not spend more than it collects in tax revenues, even on the national level. In other words, governments at every level must balance their budgets, just like you and me! They even advocate for this principle to be enshrined into law. Of course, this puts severe restrictions on what governments can do for their citizens. These ideas are dropped like a bad habit, however, when it comes to funding wars and bailouts. Per Wikipedia:
Austerity is a set of political-economic policies that aim to reduce government budget deficits through spending cuts, tax increases, or a combination of both…The measures are meant to reduce the budget deficit by bringing government revenues closer to expenditures, which is assumed to make the payment of debt easier. Austerity measures also demonstrate a government’s fiscal discipline to creditors and credit rating agencies.
“Paygo” means that any new spending proposals put forward by politicians must account for every single penny of new spending via new taxes. This essentially limits what governments can spend to how much they can tax. That is, they cannot spend without first taxing the equivalent amounts “away from” the private sector where Neoliberals argue that all wealth is generated. It also means that new government initiatives will always be inherently unpopular, since they will always necessitate raising someone’s taxes. Paygo is heavily supported by the so-called “Leftist/Liberal” Democratic party in the United States (or at least by the people running it).
Austerity in practice means that government programs which serve the public—especially low-income and vulnerable citizens—are pared back in an attempt to cut government budget deficits, even during a recession. It’s often couched in moral rhetoric; that is, “we spent like drunken sailors” during the “good times,” and now the time has come to “pay the piper.” Crucial to this argument, of course, is that government debt is intrinsically bad, and that governments are just like households. David Graeber describes how austerity unfolded in the United Kingdom following the banking crisis:
It was center-left New Labour that presided over the pre-crash bubble, and voters’ throw-the-bastards-out reaction brought a series of Conservative governments that soon discovered that a rhetoric of austerity—the Churchillian evocation of common sacrifice for the public good—played well with the British public, allowing them to win broad popular acceptance for policies designed to pare down what little remained of the British welfare state and redistribute resources upward, toward the rich.
“There is no magic money tree,” as Theresa May put it during the snap election of 2017—virtually the only memorable line from one of the most lackluster campaigns in British history. The phrase has been repeated endlessly in the media, whenever someone asks why the UK is the only country in Western Europe that charges university tuition, or whether it is really necessary to have quite so many people sleeping on the streets.
Against Economics (NY Review of Books)
The contrary belief is that the a sovereign government which controls the issuance of its own currency is not revenue constrained at the national level, and additional spending would create additional revenue; in other words, spending precedes taxation, and not vice-versa. Also, national debts are debts owed primarily to the nation’s own citizens, by and large. And a government is not like a household; one person’s spending is another person’s income.
In addition, much of the current public debt was incurred by putting the private sector’s debts—run up mainly by a small investor class–onto the public’s books. Thus, it is unfair to ask the public—especially the most vulnerable citizens—to pay for the excesses of the super-rich, argue critics. Such criticisms are dismissed by Neoliberals.
Privatization. The philosophical justification for this is provided above. The argument is that private firms competing in markets are inherently efficient, and that government is not, since governments are not subject to competitive market pressured and the need to maximize profit.
Thus, by selling off government assets to private firms in order to run them, Neoliberals argue, they will be run much more efficiently and effectively. This will save taxpayer money in the long run, they claim.
Although theoretically justified under idealized markets, empirical evidence of such extensive savings has never materialized. Yet privatization and the permanent selling off of the public’s assets in order to raise the money to cover short-term budget shortfalls (mainly due to tax cuts) continues unabated.
Ironically, this has also unfolded against an unprecedented monopolization of the private sector, often in business sectors that the public has little direct contact with such as wholesalers.
The inverse of privatization is nationalizing assets. The U.S. commonly nationalizes assets only when they are failing, bails them out with public money, and then turns them back over to the same people who caused the failure. Other nationalizations—particularity of successful or profitable businesses—have not been contemplated since the 1980’s.
In other sovereign countries where profitable resources or businesses have been nationalized during the Neoliberal era, it has often been followed by an invasion, economic sanctions, or a coup backed by Western governments (Iran, Chile, Venezuela, Bolivia, etc.).
Globalization. This is intrinsically wrapped up with “free trade” agreements. The idea is that global free trade makes everyone better off. It’s easy to see how the rhetoric of idealized markets leads to this conclusion.
In practice, globalism meant that manufacturing labor was allocated to where it was cheapest, i.e. the developing world—especially places like China and India—but also places like Southeast Asia and Latin America.
Of course this meant that the people in those developing countries saw their wages rise relative to where they were before. In addition, many people who had been subsistence farmers working for themselves now became manufacturing employees working for wages in overcrowded cities.
What this meant was that, on paper, incomes for much of the developing world rose relative to what they were before.
This has subsequently provided the major moral justification for Neoliberalism by its most prominent spokespeople: that it has “raised millions of people out of poverty,” by harnessing the remarkable power of “free markets.”
Meanwhile, The rampant poverty, economic devastation, despair, hopelessness, anger, and even shortened life expectancy in the developed world are waved away by Neoliberals, because numerically, when all the sums are all totaled up, on balance more people are relatively better off than worse off across the entire planet! This is documented by the so-called “elephant chart” developed by economist Branko Milanovic. This chart also demonstrates that the world’s richest people have profited more than anyone else in absolute and relative terms under Neoliberalism.
This reduction in global poverty is attributed to “freeing” markets from their shackles, claim Neoliberal apologists, and any rollback or restrictions would condemn millions to poverty, they say. As far as the “losers” of globalization go, well, that’s just too bad. Neoliberals typically advocate for “retraining” such people to compete in the new job markets, or for “more education,” or, barring that, to simply “move to where the jobs are.” If that doesn’t work, see rule b.), above. In the early days of globalization, Neoliberals argued that is was theoretically possible to “compensate the losers”, however, such compensation never came, especially in the Anglo-Saxon world.
Flexible Labor. By making it much easier to hire and fire people, the thinking goes, labor will be allocated more efficiently, which leads to economic expansion that makes more jobs available overall, and so is actually better for everyone, even if it seems like it’s not.
This also ties into ideas about immigration. Neoliberals tend to favor open borders, with the idea that people will flow around the world like capital to the places where they will be most needed. Thus, labor will find its “highest and best uses” the theory goes.
An ideal example of the deregulation of labor protections and the increase in “flexible” (i.e. precarious) labor are so-called zero-hours contracts. As the BBC describes them, “Zero-hours contracts, or casual contracts, allow employers to hire staff with no guarantee of work. They mean employees work only when they are needed by employers, often at short notice. Their pay depends on how many hours they work.”
Another example is the “gig economy,” which has created a whole new class of precarious workers. The “gig economy” is where workers are classified as “independent contractors,” and hence companies that utilize such labor are exempt from having to provide any benefits at all (such as Uber and Taskrabbit).
…the gig economy provides a new way of concealing employers’ authority. People who work for such online platforms as Uber, Lyft and Deliveroo are classed not as employees but as self-employed. They are supposedly flexible entrepreneurs, free to choose when they work, how they work and who they work for.
In practice, this isn’t the case. Unlike performers in the entertainment industry (which gives the ‘gig’ economy its name), most gig workers don’t work for an array of organisations but depend for their pay on just one or two huge companies. The gig worker doesn’t really have much in common with the ideal of the entrepreneur – there is little room in their jobs for creativity, change or innovation – except that gig workers also take a lot of risks: they have no benefits, holiday or sick pay, and they are vulnerable to the whims of their customers.
In many countries, gig workers (or ‘independent contractors’) have none of the rights that make the asymmetry of the employment contract bearable: no overtime, no breaks, no protection from sexual harassment or redundancy pay. They don’t have the right to belong to a union, or to organise one, and they aren’t entitled to the minimum wage. Most aren’t autonomous, independent free agents, or students, part-timers or retirees supplementing their income; rather, they are people who need to do gig work simply to get by.
What is new about the gig economy isn’t that it gives workers flexibility and independence, but that it gives employers something they have otherwise found difficult to attain: workers who are not, technically, their employees but who are nonetheless subject to their discipline and subordinate to their authority. The dystopian promise of the gig economy is that it will create an army of precarious workers for whose welfare employers take no responsibility. Its emergence has been welcomed by neoliberal thinkers, policymakers and firms who see it as progress in their efforts to transform the way work is organised.
What counts as work? (London Review of Books)
This concept of flexible labor also eschews what it describes as “distortion” of the labor market. It regards things like minimum wages, unions, and any restrictions on hiring/firing employees to be examples of such “distortions.”
A draft of the World Bank’s annual flagship World Development Report says that its creditor-states (the poorest countries in the world) should eliminate their minimum wage rules, allow employers to fire workers without cause, and repeal laws limiting abusive employment contract terms. The bank argues that this is necessary to stop employers from simply investing in automation and eliminating workers altogether.
Are there no workhouses? (BoingBoing)
Low Taxes and Supply-Side Economics. By leaving more money in the private economy, with less of it in the public purse, that money will be invested more wisely in markets by the investor class than anything the government does with it, claim Neoliberals. That because the investors are seeking profits, while the government is not. It’s “your money” they say.
According to Investopedia, Supply-side economics is, “the controversial idea that greater tax cuts for investors and entrepreneurs provide incentives to save and invest, and produce economic benefits that trickle down into the overall economy.” Essentially, since government is the problem, if less money winds up in the hands of government, and more in the hands of the private sector, investors, and entrepreneurs; then everyone will be better off. Recall that resource allocation argument, above.
In the past, this has been derided as “horse and sparrow” economics. The idea is that if you feed enough oats to the horse, some will eventually pass through to feed the sparrows. Yet it remains a core feature of Neoliberalism. In reality, the demise of progressive taxation has led to an unprecedented explosion of income and wealth inequality across the entire world:
The triumph of the rich…is generally described as largely the reflection of two factors. The first, of course, is the explosion of income among top earners, in which a tiny minority has vacuumed up a ballooning share of the gains from the past few decades of economic growth. The second factor…has been the hidden decline in the progressivity of the tax code at the top, in which the wealthiest earners have over those same decades seen their effective tax rates steadily fall.
Put those two factors together, and they tell a story about soaring U.S. inequality that is in some ways even more dramatic than each is on its own….Among the bottom 50 percent of earners, average real annual income even after taxes and transfers has edged up a meager $8,000 since 1970, rising from just over $19,000 to just over $27,000 in 2018.
By contrast, among the top 1 percent of earners, average income even after taxes and transfers has tripled since 1970, rising by more than $800,000, from just over $300,000 to over $1 million in 2018. Among the top 0.1 percent, average after-tax-and-transfer income has increased fivefold, from just over $1 million in 1970 to over $5 million in 2018. And among the top .01 percent, it has increased nearly sevenfold, from just over $3.5 million to over $24 million.
I’m emphasizing the phrase “after taxes and transfers” because this is at the core of Zucman’s new analysis. The idea is to show the combined impact of both the explosion of pretax income at the top and the decline in the effective tax rate paid by those same earners — in one result. As they demonstrate, the effective tax rate (federal, state, local and other taxes) paid by top earners has steadily declined since the 1950s and 1960s, when the tax code really was quite progressive, to a point where the highest income groups pay barely more, percentage wise, than the bottom.
The massive triumph of the rich, illustrated by stunning new data (Washington Post)
Financialization and financial engineering. Money is made through financial speculation rather than creating and selling useful goods and services. All sorts of new and exotic financial instruments are now created and traded in order to make money. The size of the financial sector (banks, trading houses, hedge funds, etc.) relative to the real productive economy has increased dramatically. Gambling has become by far the economy’s most profitable activity.
Many of the largest companies in the United States are highly financialized, distributing almost all, and often more, of their profits to shareholders in the form of stock buybacks and cash dividends…In their book, Predatory Value Extraction…William Lazonick and Jang-Sup Shin call the increase in stock buybacks since the early 1980s “the legalized looting of the U.S. business corporation,” while in a forthcoming paper, Lazonick and Ken Jacobson identify Securities and Exchange Commission Rule 10b-18, adopted by the regulatory agency in 1982 with little public scrutiny, as a “license to loot.” A growing body of research, much of it focusing on particular industries and companies, supports the argument that the financialization of the U.S. business corporation, reflected in massive distributions to shareholders, bears prime responsibility for extreme concentration of income among the richest U.S. households, the erosion of middle-class employment opportunities in the United States, and the loss of U.S. competitiveness in the global economy.
Financialization of the U.S. Pharmaceutical Industry (Naked Capitalism)
So, for example, automobile companies make more money by selling loans for cars than they do by making and selling the actual cars. This idea is subsequently expanded to all businesses in all sectors of the economy. The earnings of companies are increasingly plowed into investment vehicles rather than back into the business, or as wage increases. Companies inflate their stock price through stock buybacks. Mergers and acquisitions concentrate economic activity. Consumption is increasingly financed by borrowing from financial institutions. Everything is leveraged via debt. As the Roosevelt Institute notes:
…ﬁnancialization has brought about a “portfolio society,” one in which “entire categories of social life have been securitized, turned into a kind of capital” or an investment to be managed. We now view our education and labor as “human capital,” and we imagine every person as a little corporation set to manage his or her own investments. In this view, public functions and responsibilities are mere services that should be run for proﬁt or privatized, or both.
Some effects of ﬁnancialization include: Hedge funds, asset-stripping, stock buybacks, leveraged buyouts, hostile takeovers, pump and dump, derivatives, private equity, junk bonds, shareholder primacy, corporate mega-mergers, and offshore tax havens.
Much of this has been enabled by financial deregulation. Many of the above things used to be illegal.
Deregulation. Deregulation is based the idea that people in markets are rational actors with perfect information, and that markets are self-adjusting in the long run. The reasoning is quite complex and involves a lot of math (the relationship between the math and the real world is rather questionable, however). But the core idea is that since no single person or entity controls the market, the market cannot remain wrong forever. In other words, the aggregate of millions of individual people making decisions means that the market is self-correcting; “irrational” behavior will always be weeded out in the end, and everything will end up at it’s “natural” price just as water runs downhill, including financial assets such as stocks and bonds.
Thus, regulations are not needed, and are, in fact, counterproductive. By giving actors in the market total “freedom,” we will all be made better off, argue Neoliberals. Also, since transactions in the market are all about “voluntary contracts” that are “freely negotiated,” the thinking goes, there is no need to step in and constrain people’s “freedom” to make whatever choices they wish, good or bad. Laws that attempt to protect the public are derided as the “nanny state.” Again, this is dressed up in the rhetoric of “freedom” versus “coercion”, which is why so many Neoliberal and Libertarian think-tanks have the words “freedom” and “liberty” in their names.
“Beginning in the latter half of the Obama administration, Federalist Society gatherings grew increasingly fixated on diminishing the power of federal agencies to regulate businesses and the public — an agenda that would severely weaken seminal laws such as the Clean Air Act and the Clean Water Act. On Monday, Justice Brett Kavanaugh signaled that he is on board with this agenda.”
Brett Kavanaugh’s latest opinion should terrify Democrats (Vox)
Furthermore, in addition to restricting “freedom,” it is argued that regulations “stifle economic growth.” Economic growth for its own sake is the lodestar of Neoliberalism, and anything that gets in the way of growth is bad according to them. For example, this is from the Web site of what’s been called the “libertarian internationale,” the Atlas Network (named for the Ayn Rand novel, Atlas Shrugged):
These massive regulatory codes have serious effects on taxpayers, namely that they restrict their freedoms and ability to do business, and, more broadly speaking, too much regulation stifles economic growth and jobs [sic] creation. To illustrate this point, recent research from Mercatus indicates that the accumulation of rules over the past several decades has slowed economic growth, amounting to an estimated $4 trillion loss in U.S. GDP in 2012.
Mercatus Center Case Study: Provide [sic] a Catalyst for Reining in Out-of-Control Government Regulations (The Atlas Network)
Vouchers. We covered this above. Since only markets can allocate resources effectively, Neoliberals argue, it makes more sense to give you vouchers so that you can go out and shop for all your needs, rather than letting governments provide them for you. This is also said to increase “self-reliance” and “personal responsibility.”
Their first preference is, as I said, to “leave more money in your pockets!” But for essential services that people might not have enough money to purchase on their own, rather than governments providing them, Neoliberals advocate for vouchers so that people can go out and wheel and deal in the market.
Of course, what happens if the vouchers don’t go quite far enough? Well, since the market cannot fail, and its prices are typically in “equilibrium”, then people simply have to go without.
Also because vouchers are only given to certain targeted groups by design, it becomes very easy to demonize the recipients of such vouchers as “lazy” or “moochers”, as opposed to benefits that are provided to everyone as a condition of citizenship. In practice, this has led to vouchers being stripped back for political reasons, or even eliminated altogether over time by Neoliberal politicians, many of whom previously supported such voucher schemes.
Private Charity. Have you noticed that in nearly every store you go to today, you are asked by these these huge mega-corporations (either by a low-paid employee or the card reader) to make a donation to some sort of private charity? Even Amazon—owned by the wealthiest person to ever live—hits up everyone who comes to the site for donations to “private charity”.
Yep, that’s Neoliberalism in action, too.
After all, if you’re going to a store just to buy some goods, why should that store rattle a cup in your face and ask you to help feed hungry people, or help disabled veterans, or help fund cures for diseases, or whatever? The purpose of commerce is to exchange goods and services, not to raise money for important social needs. We all know that none of this used to happen before the advent of Neoliberlism.
Back in the day, the thought used to be, “shouldn’t the government be taking care of those things?” And that’s exactly the point! The point is to train people under Neoliberalism to accept the fact that no, the government shouldn’t be taking care of those things—whether it’s disabled veterans, hungry children, orphans, the homeless, cures for diseases, and so forth. Rather, we are being trained to see private companies and individual actors as the means to “change the world”, and not to depend on democratic governments, which Neoliberalism depicts as ineffective and coercive.
Because Neoliberalism favors minimalist government, it doesn’t like the idea of government providing a social safety net for “irresponsible” citizens, nor does it want governments to actively solve social problems. They believe that governments taxing people to do such things is inherently “coercive”. By contrast, charity donations are totally “voluntary” and thus, more moral. They believe that private charities and voluntary philanthropy are the best ways to meet the needs of the most vulnerable citizens, rather than the government taking responsibility for its own citizens.
Under Neoliberalism, the “winners” in the market economy make a big show of donating large parts of their incalculable fortunes to various “good causes”, and this is touted as proof positive that philanthropy is better at alleviating pressing social problems than any government. Of course, this is by design.
In other words, it follows from their glorification of “private initiative” and their lionization of individual wealth: the privatization of the social safety net via philanthropy. Doing well by doing good. Of course, the offloading of what used to be government’s responsibilities to its citizens to the whims of individuals and corporations could less charitably be seen as a return to a kind of feudalism.
If a single cultural idea has upheld the disproportionate power of this [the winners of our new Gilded Age], it has been the idea of the “win-win.” They could get rich and then “give back” to you: win-win. They could run a fund that made them sizable returns and offered you social returns too: win-win. They could sell sugary drinks to children in schools and work on public-private partnerships to improve children’s health: win-win. They could build cutthroat technology monopolies and get credit for serving to connect humanity and foster community: win-win.
How America’s Elites Lost Their Grip in 2019 (Time)
Hopefully, that clears things up a bit. I’ve tried more to explain the way Neoliberals think about the world rather than a detailed critique of the ideas. That’s material for another post. But I’m sure you’ve realized why Neoliberalism persists—and will persist—no matter how often it is invalidated by real life circumstances. What it has done very effectively is empower the richest people on the planet, and redistribute collective wealth upward like never before. That is why its theoretical justifications—which I hope I’ve adequately explained—continue to be propagated by politicians, economists, academics, and the mainstream corporate media, no matter how badly they’ve failed in the real world, or the sophistication of the arguments against them.
If you want to learn more, here are some of the best resources that I’ve found:
First, listen to this documentary: Is Neoliberalism Destroying the World? from the Canadian Broadcasting Corporation.
Neoliberalism: Political Success, Economic Failure (Naked Capitalism)
Neoliberalism: the idea that swallowed the world (Guardian Long Read)
Neoliberalism, the Revolution in Reverse (The Baffler)