Neoliberalism
– the ideology at the root of all our problems
Financial
meltdown, environmental disaster and even the rise of Donald Trump –
neoliberalism has played its part in them all. Why has the left
failed to come up with an alternative?
George Monbiot
Friday 15 April 2016
12.00 BST
Imagine if the
people of the Soviet Union had never heard of communism. The ideology
that dominates our lives has, for most of us, no name. Mention it in
conversation and you’ll be rewarded with a shrug. Even if your
listeners have heard the term before, they will struggle to define
it. Neoliberalism: do you know what it is?
Its anonymity is
both a symptom and cause of its power. It has played a major role in
a remarkable variety of crises: the financial meltdown of 2007‑8,
the offshoring of wealth and power, of which the Panama Papers offer
us merely a glimpse, the slow collapse of public health and
education, resurgent child poverty, the epidemic of loneliness, the
collapse of ecosystems, the rise of Donald Trump. But we respond to
these crises as if they emerge in isolation, apparently unaware that
they have all been either catalysed or exacerbated by the same
coherent philosophy; a philosophy that has – or had – a name.
What greater power can there be than to operate namelessly?
Inequality is recast
as virtuous. The market ensures that everyone gets what they deserve.
So pervasive has
neoliberalism become that we seldom even recognise it as an ideology.
We appear to accept the proposition that this utopian, millenarian
faith describes a neutral force; a kind of biological law, like
Darwin’s theory of evolution. But the philosophy arose as a
conscious attempt to reshape human life and shift the locus of power.
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.
Attempts to limit
competition are treated as inimical to liberty. Tax and regulation
should be minimised, public services should be privatised. The
organisation of labour and collective bargaining by trade unions are
portrayed as market distortions that impede the formation of a
natural hierarchy of winners and losers. Inequality is recast as
virtuous: a reward for utility and a generator of wealth, which
trickles down to enrich everyone. Efforts to create a more equal
society are both counterproductive and morally corrosive. The market
ensures that everyone gets what they deserve.
We internalise and
reproduce its creeds. The rich persuade themselves that they acquired
their wealth through merit, ignoring the advantages – such as
education, inheritance and class – that may have helped to secure
it. The poor begin to blame themselves for their failures, even when
they can do little to change their circumstances.
Never mind
structural unemployment: if you don’t have a job it’s because you
are unenterprising. Never mind the impossible costs of housing: if
your credit card is maxed out, you’re feckless and improvident.
Never mind that your children no longer have a school playing field:
if they get fat, it’s your fault. In a world governed by
competition, those who fall behind become defined and self-defined as
losers.
Among the results,
as Paul Verhaeghe documents in his book What About Me? are epidemics
of self-harm, eating disorders, depression, loneliness, performance
anxiety and social phobia. Perhaps it’s unsurprising that Britain,
in which neoliberal ideology has been most rigorously applied, is the
loneliness capital of Europe. We are all neoliberals now.
***
The term
neoliberalism was coined at a meeting in Paris in 1938. Among the
delegates were two men who came to define the ideology, Ludwig von
Mises and Friedrich Hayek. Both exiles from Austria, they saw social
democracy, exemplified by Franklin Roosevelt’s New Deal and the
gradual development of Britain’s welfare state, as manifestations
of a collectivism that occupied the same spectrum as nazism and
communism.
In The Road to
Serfdom, published in 1944, Hayek argued that government planning, by
crushing individualism, would lead inexorably to totalitarian
control. Like Mises’s book Bureaucracy, The Road to Serfdom was
widely read. It came to the attention of some very wealthy people,
who saw in the philosophy an opportunity to free themselves from
regulation and tax. When, in 1947, Hayek founded the first
organisation that would spread the doctrine of neoliberalism – the
Mont Pelerin Society – it was supported financially by millionaires
and their foundations.
With their help, he
began to create what Daniel Stedman Jones describes in Masters of the
Universe as “a kind of neoliberal international”: a transatlantic
network of academics, businessmen, journalists and activists. The
movement’s rich backers funded a series of thinktanks which would
refine and promote the ideology. Among them were the American
Enterprise Institute, the Heritage Foundation, the Cato Institute,
the Institute of Economic Affairs, the Centre for Policy Studies and
the Adam Smith Institute. They also financed academic positions and
departments, particularly at the universities of Chicago and
Virginia.
As it evolved,
neoliberalism became more strident. Hayek’s view that governments
should regulate competition to prevent monopolies from forming gave
way – among American apostles such as Milton Friedman – to the
belief that monopoly power could be seen as a reward for efficiency.
Something else
happened during this transition: the movement lost its name. In 1951,
Friedman was happy to describe himself as a neoliberal. But soon
after that, the term began to disappear. Stranger still, even as the
ideology became crisper and the movement more coherent, the lost name
was not replaced by any common alternative.
At first, despite
its lavish funding, neoliberalism remained at the margins. The
postwar consensus was almost universal: John Maynard Keynes’s
economic prescriptions were widely applied, full employment and the
relief of poverty were common goals in the US and much of western
Europe, top rates of tax were high and governments sought social
outcomes without embarrassment, developing new public services and
safety nets.
But in the 1970s,
when Keynesian policies began to fall apart and economic crises
struck on both sides of the Atlantic, neoliberal ideas began to enter
the mainstream. As Friedman remarked, “when the time came that you
had to change ... there was an alternative ready there to be picked
up”. With the help of sympathetic journalists and political
advisers, elements of neoliberalism, especially its prescriptions for
monetary policy, were adopted by Jimmy Carter’s administration in
the US and Jim Callaghan’s government in Britain.
It may seem strange
that a doctrine promising choice should have been promoted with the
slogan 'there is no alternative'
After Margaret
Thatcher and Ronald Reagan took power, the rest of the package soon
followed: massive tax cuts for the rich, the crushing of trade
unions, deregulation, privatisation, outsourcing and competition in
public services. Through the IMF, the World Bank, the Maastricht
treaty and the World Trade Organisation, neoliberal policies were
imposed – often without democratic consent – on much of the
world. Most remarkable was its adoption among parties that once
belonged to the left: Labour and the Democrats, for example. As
Stedman Jones notes, “it is hard to think of another utopia to have
been as fully realised.”
***
It may seem strange
that a doctrine promising choice and freedom should have been
promoted with the slogan “there is no alternative”. But, as Hayek
remarked on a visit to Pinochet’s Chile – one of the first
nations in which the programme was comprehensively applied – “my
personal preference leans toward a liberal dictatorship rather than
toward a democratic government devoid of liberalism”. The freedom
that neoliberalism offers, which sounds so beguiling when expressed
in general terms, turns out to mean freedom for the pike, not for the
minnows.
Freedom from trade
unions and collective bargaining means the freedom to suppress wages.
Freedom from regulation means the freedom to poison rivers, endanger
workers, charge iniquitous rates of interest and design exotic
financial instruments. Freedom from tax means freedom from the
distribution of wealth that lifts people out of poverty.
Naomi Klein
documented that neoliberals advocated the use of crises to impose
unpopular policies while people were distracted. Photograph: Anya
Chibis for the Guardian
As Naomi Klein
documents in The Shock Doctrine, neoliberal theorists advocated the
use of crises to impose unpopular policies while people were
distracted: for example, in the aftermath of Pinochet’s coup, the
Iraq war and Hurricane Katrina, which Friedman described as “an
opportunity to radically reform the educational system” in New
Orleans.
Where neoliberal
policies cannot be imposed domestically, they are imposed
internationally, through trade treaties incorporating “investor-state
dispute settlement”: offshore tribunals in which corporations can
press for the removal of social and environmental protections. When
parliaments have voted to restrict sales of cigarettes, protect water
supplies from mining companies, freeze energy bills or prevent
pharmaceutical firms from ripping off the state, corporations have
sued, often successfully. Democracy is reduced to theatre.
Neoliberalism was
not conceived as a self-serving racket, but it rapidly became one
Another paradox of
neoliberalism is that universal competition relies upon universal
quantification and comparison. The result is that workers,
job-seekers and public services of every kind are subject to a
pettifogging, stifling regime of assessment and monitoring, designed
to identify the winners and punish the losers. The doctrine that Von
Mises proposed would free us from the bureaucratic nightmare of
central planning has instead created one.
Neoliberalism was
not conceived as a self-serving racket, but it rapidly became one.
Economic growth has been markedly slower in the neoliberal era (since
1980 in Britain and the US) than it was in the preceding decades; but
not for the very rich. Inequality in the distribution of both income
and wealth, after 60 years of decline, rose rapidly in this era, due
to the smashing of trade unions, tax reductions, rising rents,
privatisation and deregulation.
The privatisation or
marketisation of public services such as energy, water, trains,
health, education, roads and prisons has enabled corporations to set
up tollbooths in front of essential assets and charge rent, either to
citizens or to government, for their use. Rent is another term for
unearned income. When you pay an inflated price for a train ticket,
only part of the fare compensates the operators for the money they
spend on fuel, wages, rolling stock and other outlays. The rest
reflects the fact that they have you over a barrel.
In Mexico, Carlos
Slim was granted control of almost all phone services and soon became
the world’s richest man. Photograph: Henry Romero/Reuters
Those who own and
run the UK’s privatised or semi-privatised services make stupendous
fortunes by investing little and charging much. In Russia and India,
oligarchs acquired state assets through firesales. In Mexico, Carlos
Slim was granted control of almost all landline and mobile phone
services and soon became the world’s richest man.
Financialisation, as
Andrew Sayer notes in Why We Can’t Afford the Rich, has had a
similar impact. “Like rent,” he argues, “interest is ...
unearned income that accrues without any effort”. As the poor
become poorer and the rich become richer, the rich acquire increasing
control over another crucial asset: money. Interest payments,
overwhelmingly, are a transfer of money from the poor to the rich. As
property prices and the withdrawal of state funding load people with
debt (think of the switch from student grants to student loans), the
banks and their executives clean up.
Sayer argues that
the past four decades have been characterised by a transfer of wealth
not only from the poor to the rich, but within the ranks of the
wealthy: from those who make their money by producing new goods or
services to those who make their money by controlling existing assets
and harvesting rent, interest or capital gains. Earned income has
been supplanted by unearned income.
Neoliberal policies
are everywhere beset by market failures. Not only are the banks too
big to fail, but so are the corporations now charged with delivering
public services. As Tony Judt pointed out in Ill Fares the Land,
Hayek forgot that vital national services cannot be allowed to
collapse, which means that competition cannot run its course.
Business takes the profits, the state keeps the risk.
The greater the
failure, the more extreme the ideology becomes. Governments use
neoliberal crises as both excuse and opportunity to cut taxes,
privatise remaining public services, rip holes in the social safety
net, deregulate corporations and re-regulate citizens. The
self-hating state now sinks its teeth into every organ of the public
sector.
Perhaps the most
dangerous impact of neoliberalism is not the economic crises it has
caused, but the political crisis. As the domain of the state is
reduced, our ability to change the course of our lives through voting
also contracts. Instead, neoliberal theory asserts, people can
exercise choice through spending. But some have more to spend than
others: in the great consumer or shareholder democracy, votes are not
equally distributed. The result is a disempowerment of the poor and
middle. As parties of the right and former left adopt similar
neoliberal policies, disempowerment turns to disenfranchisement.
Large numbers of people have been shed from politics.
Chris Hedges remarks
that “fascist movements build their base not from the politically
active but the politically inactive, the ‘losers’ who feel, often
correctly, they have no voice or role to play in the political
establishment”. When political debate no longer speaks to us,
people become responsive instead to slogans, symbols and sensation.
To the admirers of Trump, for example, facts and arguments appear
irrelevant.
Judt explained that
when the thick mesh of interactions between people and the state has
been reduced to nothing but authority and obedience, the only
remaining force that binds us is state power. The totalitarianism
Hayek feared is more likely to emerge when governments, having lost
the moral authority that arises from the delivery of public services,
are reduced to “cajoling, threatening and ultimately coercing
people to obey them”.
***
Like communism,
neoliberalism is the God that failed. But the zombie doctrine
staggers on, and one of the reasons is its anonymity. Or rather, a
cluster of anonymities.
The invisible
doctrine of the invisible hand is promoted by invisible backers.
Slowly, very slowly, we have begun to discover the names of a few of
them. We find that the Institute of Economic Affairs, which has
argued forcefully in the media against the further regulation of the
tobacco industry, has been secretly funded by British American
Tobacco since 1963. We discover that Charles and David Koch, two of
the richest men in the world, founded the institute that set up the
Tea Party movement. We find that Charles Koch, in establishing one of
his thinktanks, noted that “in order to avoid undesirable
criticism, how the organisation is controlled and directed should not
be widely advertised”.
The nouveau riche
were once disparaged by those who had inherited their money. Today,
the relationship has been reversed
The words used by
neoliberalism often conceal more than they elucidate. “The market”
sounds like a natural system that might bear upon us equally, like
gravity or atmospheric pressure. But it is fraught with power
relations. What “the market wants” tends to mean what
corporations and their bosses want. “Investment”, as Sayer notes,
means two quite different things. One is the funding of productive
and socially useful activities, the other is the purchase of existing
assets to milk them for rent, interest, dividends and capital gains.
Using the same word for different activities “camouflages the
sources of wealth”, leading us to confuse wealth extraction with
wealth creation.
A century ago, the
nouveau riche were disparaged by those who had inherited their money.
Entrepreneurs sought social acceptance by passing themselves off as
rentiers. Today, the relationship has been reversed: the rentiers and
inheritors style themselves entre preneurs. They claim to have earned
their unearned income.
These anonymities
and confusions mesh with the namelessness and placelessness of modern
capitalism: the franchise model which ensures that workers do not
know for whom they toil; the companies registered through a network
of offshore secrecy regimes so complex that even the police cannot
discover the beneficial owners; the tax arrangements that bamboozle
governments; the financial products no one understands.
The anonymity of
neoliberalism is fiercely guarded. Those who are influenced by Hayek,
Mises and Friedman tend to reject the term, maintaining – with some
justice – that it is used today only pejoratively. But they offer
us no substitute. Some describe themselves as classical liberals or
libertarians, but these descriptions are both misleading and
curiously self-effacing, as they suggest that there is nothing novel
about The Road to Serfdom, Bureaucracy or Friedman’s classic work,
Capitalism and Freedom.
***
For all that, there
is something admirable about the neoliberal project, at least in its
early stages. It was a distinctive, innovative philosophy promoted by
a coherent network of thinkers and activists with a clear plan of
action. It was patient and persistent. The Road to Serfdom became the
path to power.
Neoliberalism’s
triumph also reflects the failure of the left. When laissez-faire
economics led to catastrophe in 1929, Keynes devised a comprehensive
economic theory to replace it. When Keynesian demand management hit
the buffers in the 70s, there was an alternative ready. But when
neoliberalism fell apart in 2008 there was ... nothing. This is why
the zombie walks. The left and centre have produced no new general
framework of economic thought for 80 years.
Every invocation of
Lord Keynes is an admission of failure. To propose Keynesian
solutions to the crises of the 21st century is to ignore three
obvious problems. It is hard to mobilise people around old ideas; the
flaws exposed in the 70s have not gone away; and, most importantly,
they have nothing to say about our gravest predicament: the
environmental crisis. Keynesianism works by stimulating consumer
demand to promote economic growth. Consumer demand and economic
growth are the motors of environmental destruction.
What the history of
both Keynesianism and neoliberalism show is that it’s not enough to
oppose a broken system. A coherent alternative has to be proposed.
For Labour, the Democrats and the wider left, the central task should
be to develop an economic Apollo programme, a conscious attempt to
design a new system, tailored to the demands of the 21st century.
• George Monbiot’s
How Did We Get into This Mess? is published this month by Verso.
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