Neoliberalism explained

I frequently use the label ‘neoliberal’ to describe a certain political stance that is common among Democrats. I use it in a pejorative way and on occasion commenters have said that the term itself is meaningless and is used as a gratuitous slur. Via reader Jeff Hess, I learned about this long essay titled Neoliberalism: the idea that swallowed the world by Stephen Metcalfe that explains in detail what the neoliberalism economic philosophy is and who its creator Friedrich Hayek was. Metcalfe says that those who say that it is a meaningless label that used mainly to attack so-called ‘centrists’ are wrong. He says that neoliberalism represents a particular economic and political view that has proven to be seriously damaging and that is why those who are described as neoliberals are the ones who most angrily shy away from the label.

Last summer, researchers at the International Monetary Fund settled a long and bitter debate over “neoliberalism”: they admitted it exists. Three senior economists at the IMF, an organisation not known for its incaution, published a paper questioning the benefits of neoliberalism. In so doing, they helped put to rest the idea that the word is nothing more than a political slur, or a term without any analytic power. The paper gently called out a “neoliberal agenda” for pushing deregulation on economies around the world, for forcing open national markets to trade and capital, and for demanding that governments shrink themselves via austerity or privatisation. The authors cited statistical evidence for the spread of neoliberal policies since 1980, and their correlation with anaemic growth, boom-and-bust cycles and inequality.

Neoliberalism is an old term, dating back to the 1930s, but it has been revived as a way of describing our current politics – or more precisely, the range of thought allowed by our politics. In the aftermath of the 2008 financial crisis, it was a way of assigning responsibility for the debacle, not to a political party per se, but to an establishment that had conceded its authority to the market. For the Democrats in the US and Labour in the UK, this concession was depicted as a grotesque betrayal of principle. Bill Clinton and Tony Blair, it was said, had abandoned the left’s traditional commitments, especially to workers, in favour of a global financial elite and the self-serving policies that enriched them; and in doing so, had enabled a sickening rise in inequality.

Over the past few years, as debates have turned uglier, the word has become a rhetorical weapon, a way for anyone left of centre to incriminate those even an inch to their right. (No wonder centrists say it’s a meaningless insult: they’re the ones most meaningfully insulted by it.) But “neoliberalism” is more than a gratifyingly righteous jibe. It is also, in its way, a pair of eyeglasses.

Peer through the lens of neoliberalism and you see more clearly how the political thinkers most admired by Thatcher and Reagan helped shape the ideal of society as a kind of universal market (and not, for example, a polis, a civil sphere or a kind of family) and of human beings as profit-and-loss calculators (and not bearers of grace, or of inalienable rights and duties). Of course the goal was to weaken the welfare state and any commitment to full employment, and – always – to cut taxes and deregulate. But “neoliberalism” indicates something more than a standard rightwing wish list. It was a way of reordering social reality, and of rethinking our status as individuals.

In short, “neoliberalism” is not simply a name for pro-market policies, or for the compromises with finance capitalism made by failing social democratic parties. It 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.

What any person acquainted with history sees as the necessary bulwarks against tyranny and exploitation – a thriving middle class and civil sphere; free institutions; universal suffrage; freedom of conscience, congregation, religion and press; a basic recognition that the individual is a bearer of dignity – held no special place in Hayek’s thought. Hayek built into neoliberalism the assumption that the market provides all necessary protection against the one real political danger: totalitarianism. To prevent this, the state need only keep the market free.

This last is what makes neoliberalism “neo”. It is a crucial modification of the older belief in a free market and a minimal state, known as “classical liberalism”. In classical liberalism, merchants simply asked the state to “leave us alone” – to laissez-nous faire. Neoliberalism recognised that the state must be active in the organisation of a market economy. The conditions allowing for a free market must be won politically, and the state must be re-engineered to support the free market on an ongoing basis.

That isn’t all: every aspect of democratic politics, from the choices of voters to the decisions of politicians, must be submitted to a purely economic analysis. The lawmaker is obliged to leave well enough alone – to not distort the natural actions of the marketplace – and so, ideally, the state provides a fixed, neutral, universal legal framework within which market forces operate spontaneously. The conscious direction of government is never preferable to the “automatic mechanism of adjustment” – ie the price system, which is not only efficient but maximises liberty, or the opportunity for men and women to make free choices about their own lives.

Metcalfe says that Hayek’s neoliberal ideology remained unknown and on the fringes for a long time, eclipsed by those of John Maynard Keynes, but that Margaret Thatcher was one of the key people who adopted it and made it mainstream, with Ronald Reagan following suit.

There had, however, been hopeful signs: Hayek was Barry Goldwater’s favourite political philosopher and was said to be Ronald Reagan’s, too. Then there was Margaret Thatcher. To anyone who would listen, Thatcher lionised Hayek, promising to bring together his free-market philosophy with a revival of Victorian values: family, community, hard work.

Thirty years on, and it can fairly be said that Hayek’s victory is unrivalled. We live in a paradise built by his Big Idea. The more closely the world can be made to resemble an ideal market governed only by perfect competition, the more law-like and “scientific” human behaviour, in the aggregate, becomes. Every day we ourselves – no one has to tell us to anymore! – strive to become more perfectly like scattered, discrete, anonymous buyers and sellers; and every day we treat the residual desire to be something more than a consumer as nostalgia, or elitism.

Milton Friedman and later Lawrence Summers were fans of Hayek. The Clintons were ardent neoliberals as are many in the Democratic party leadership.

It is a very interesting article, well worth reading in full.


  1. says

    I still think it’s a label that doesn’t add much information, especially because some “neoliberals” may point at some parts of the claimed belief-set of “neoliberals” and say “that’s not me” (short form: #notallneoliberals) That’s the basic flaw in arguing against someone’s position by slapping a label on it.

    When you start trying to dig into what the label means, in order to have a real argument about it, you wind up having to introduce a set of political recommendations or beliefs that argue for certain actions. E.g.: “Nazis want to eradicate jews” or “Neoliberals favor ‘smash and grab’ market-opening” or whatever. Those are also easy to mischaracterize, but not as easy as just the label. We can begin to come to grips with the meaning behind the label by deconstructing those beliefs or (supposed) recommended behaviors that come with the labels. It is much easier, more honest, more accurate, and harder to escape if you just argue directly against those beliefs. Even saying “Hayek says…” is a form of labelling, because it’s easy for your opponent to argue about specific interpretations of Hayek in particular circumstances.

    See, now, if you encounter someone who says this:
    “the state provides a fixed, neutral, universal legal framework within which market forces operate spontaneously”
    you can ask them to defend that dumb idea, i.e.: why don’t market forces behave as predicted with regard to costs of medical care, or explain to me again how having competing capitalist organizations duplicate effort and market against each other yet still collude to fix prices is going to produce a more efficient market?

    I agree with many of Hess’ points, but where he really draws blood in his argument is when he specifically targets articulated pieces of ideology (i.e: he goes behind the label) There’s enough work to do, right there, and it doesn’t allow its target an easy escape.

  2. Dunc says

    That’s the basic flaw in arguing against someone’s position by slapping a label on it.

    I don’t think that’s what’s being done here. It’s useful to slap labels on things simply so that we can refer to them without having to endlessly restate their definitions. The labelling is not the argument, it’s merely a pointer that we can use to refer to the thing we’re arguing about.

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