What is neoliberalism?

14 March, 2016 at 09:50 | Posted in Economics | 9 Comments

Recently Brad DeLong has been flying his “neoliberal freak flag high” on his blog. And not that long ago Simon Wren-Lewis had a post up commenting on traction gaining “attacks on mainstream economics”:

One frequent accusation … often repeated by heterodox economists, is that mainstream economics and neoliberal ideas are inextricably linked. Of course economics is used to support neoliberalism. Yet I find mainstream economics full of ideas and analysis that permits a wide ranging and deep critique of these same positions. The idea that the two live and die together is just silly.

Hmm …

Silly? Maybe. But maybe Wren-Lewis and other economists who want to enlighten themselves on the subject also should take a look at this video:

Or maybe read this essay, where yours truly tries to further analyze — much inspired by the works of Amartya Sen — what kind of philosophical-ideological-political-economic doctrine neoliberalism is, and why it so often comes natural for mainstream economists to embrace neoliberal ideals.

den-dystra-vetenskapenOr maybe, if you know some Swedish — and aren’t offended by shameless self-promotion — you could take a look in this book — The dismal science (Atlas 2001)where I give a deeper analysis of different strands of neoliberalism and how they relate to economics.


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  1. An important discussion. However the link between neo-liberalism and neo-classical economics needs to be very clearly spelled out.

    Both for example are built on the following foundations

    (1) Rational choice
    (2) Society is the aggregation of individual utilities
    (3) Positivist approaches
    (4) Absolute rather than relative gains (ie the important thing is that everyone is made better off, not whether someone else is made better off than you)
    (5) Universal values (rather than cultural relativism) – a problem for them because they simultaneously advocate cosmopolitanism)

    There are others.

    Things have become confused recently because mainstream economists have associated neo-liberalism with being right wing. That is not strictly speaking correct. In basic political science courses neo-liberalism is defined as being socially liberal, even if they believe in the efficiency of markets and advocate deregulation, free trade and independent central banks. For example they advocate advocate women’s rights, welfare states etc.

  2. It is important to preempt their responses. For example they respond to the criticism that neo-classical economics postulates an efficiency-equity trade-off by drawing on the Second Welfare Theorem and diminishing utility which they are argue calls for redistributive policy.

  3. Neoliberal ideas like monetarism, deregulation and market-based reforms have been posited as leading to the collapse of industrial relations, a euphemism for class warfare. Neoliberalism is a reaction to the rise of trade unions, universal suffrage, and war economies which expanded government bureaucracies. The word became a byword for market liberalization and globalization, as well as implying a renewal of individual freedom while still maintaining marker order.

    From Hayek’s elite-driven opinion formation to Friedman’s superiority of free markets, the message of privatization took hold worldwide. From the Chicago School to the Virginia School, from Rational Choice Theory to Public Theory to Communitarianism macro-economic management required deep spending cuts to shrink inflation and stagflation.

    Carter deregulated transportation and banking sectors, Thatcher privatized England’s energy and heavy industries. Neoliberalism is the belief in deregulation and free markets that eventually led to the Great Recession.

    Its agenda of fiscal discipline was supported by the IMF, WTO, the World Bank, US Treasury Dept, and several International Trade Agreements, altogether called, the ‘Washington Consensus.’

    Neoliberalism is a reaction to permissiveness ala the 60’s!? (Think illegitimate births and the Civil Rights Movement.) It creeps in under the radar as rugged individualism, libertarianism, cultural conservatism, religious conservatism, and social-economic inequality.

    Think Tanks like IEA and AEI, Cato, Heritage, FEE, and CPS, and those who manned them, argued that inequality is necessary for social progress. The superiority of markets and corporations entailed the distrust of state authority, intervention and bureaucracy.

    Neoliberalism involves the critique of Neo-Keynesianism and the promotion of free markets; the persecution of soviet communism, and the criticism of large-scale social spending, trade unions and inflation. It opposes socialism, social democracy, paternal conservatism, the New Deal, the Great Society, and totalitarianism of the Left or Right. It is basically free market laissez-faire unbridled capitalism – of faith in the individual and away from a belief in the efficacy of government.

    From Stedman-Jones, G. 2014 Hayek, Friedman and Neoliberalism

    • Thanks for that Fredrick. There is clearly some disagreement about what it actually means – and I think Stedman Jones probably reflects the current use of the term. Neo-liberalism at its peak is often seen as the era of the Washington Consensus and the Stan Fischer/IMF prescription to the Asian Financial Crisis which was very monetarist. However it has also also associated with Clinton/Blair – the so-called ‘third way’. Basically they believed in win-win classical/neo-classical outcomes, but they argue for universal health care and a welfare-safety net – as in neo-classical theory “the winners should compensate the losers”. Transfers are the preferred mechanism rather than market regulation or say import protection or capital controls. Pro-market, but in some ways socially liberal. They were generally against organised labour.

      • Neoliberalism comes in for strong condemnation over social welfare programs. From Piven and Fox’s 1971, “Regulating the Poor,” to Lois Wacquant’s 2009, “Punishing the Poor,” to Joe Soss’s et al 2014, “Disciplining the Poor,” and countless texts in between, the neoliberal state has been extremely prejudiced against the poor.

        As Reagun put it: the jobs are there, they just don’t want to work!

        Neoliberalism can be traced back to Walter Lippmann’s 1937, “The Good Society,” and to Hayek’s ‘Mount Pelerin Society,’ 1947, and to Friedman’s 1951, “Neoliberalism and its Prospects.”

        My intuition says that the belief in free markets is a motive to push for privatization, e.g. ACA. I am also interested in understanding how private and national capital gets turned into international and foreign capital under the transformations of the welfare state. The main contradiction being that the state offers welfare benefits while being obviously on the side of business but presenting itself as a neutral cohesive force. I think that Ralph Miliband would argue that unless the bureaucratic administration itself can be reformed, social policies that adversely affect the poor, like incarceration and penalties for not complying with Medicaid or TANF regulations, will intensify.

        Neoliberalism does not, I think, help with the problem of poverty and the bureaucratic administration of social welfare is solidly on the side of the neoliberals. A good example of this is the top administrators ‘out of sight out of mind’ position about the infrastructure, roads/bridges/water-sewage pipes, and global warming.

  4. If you want a fairly careful attempt at a characterisation, you could do a lot worse than Phil Mirowski’s 2nd chapter of Never Let a Serious Crisis Go to Waste or his “Defining Neoliberalism” postscript to the edited volume, The Road from Mont Pèlerin. One point he emphasises is that neoliberalism has never been about a minimalist state.

  5. Frederick, the state/private sector distinction is important in neo-classical Anglo-Saxon economics. In many ways dividing, for example, production between the state and private sectors is very artificial. Mainstream economists like to argue that the size of the state in Germany and Japan is small. But they don’t realise there is a close relationship between corporations, the state and organised labour. In many cases there is cross holding or government officials on corporate boards. Neo-classical economics seems to implicitly assume something like Say’s Law where there is a fixed amount of funds available – assumedly the total value of savings, for which government and the private sector compete for.

    Although neo-liberal governments argue for privatisation because they say the private sector is better at managing them (although of course replacing a public monopoly with a private one makes little sense – and can lead to rent-seeking, so governments have to have all sorts of regulation to counter this). They also argue that it reduces borrowing costs for government as this capital investment is now done by the privatised company. In the UK we have seen the results – under investment as these companies pursue short term profits. On the other hand there are dangers with corporatist systems such as Japan and Germany – government can get captured by firms and banks to which it has close long term consensual arrangements which can be harmful for long term growth, especially if funds continually get channelled to stagnant industry and industry with close government connection. Also notable in Japan has been a dependence by banks and corporations on Bank of Japan credit.

    • Neoclassical economics involves a psychological element, people can be shortsighted and fail to understand the banking system even if they think they understand ‘solvency.’ When ever a loan is approved the money supply MUST increase. Central banks issue the funds to the banks cashing the checks. If the loans increase employment and the rate of circulation and other multipliers, like interest rate on investments, then the economy grows and the tide rises for all.

      Approval of loans is therefore a critical factor in banking and requires careful supervision. Likewise for contracts – if a government becomes dependent on particular corporations and therefore lax with regard to the bidding process, inflation may increase beyond a normative moderation. The price system can be distorted by mere exchange relations without quality assessments.

      But, the issue of the so-called “close” relationship between the state, the corporation network and labor is not correct. Coordination of labor and management is necessary but the state is always biased towards the corporations and against labor. Labor always complains about the lack of impartial state judicial decisions. Labor’s power is the general strike which is expressed by slowdowns, shoddy work, absenteeism, fear and anger at work, dangerous work conditions, and by encouraging a climate of complaint, etc. Today, corporate management has imposed on the workers that they provide their own retirement savings and healthcare, as example of decreasing wages and benefits. This is trend recognizable in EU’s austerity policies, the US individual mandate for healthcare, the reaction to labor union funding processes, e.g. the Friedrich case under consideration now by SCOTUS, and the right-to-work legislation in several states.

      The claim that privatization is about corporations making a better product/service is just not true. Privatization under the neoliberal viewpoint is the reduction of the state to a night watchman function. By removing the large state bureaucracies, especially the regulatory agencies, the tax rate will dramatically decrease. It is profit maximization which drives the denunciation of the public sphere and increases the poverty rate!

      The real relation between the corporate complex and the state is the transformation of the state to better regulate the workers.

  6. The public-private dispute today is about corruption – the cause of all crises. What is corruption? Corruption is the payment for goods and services which are supposed to be free, like good roads, good schools, and an ethical judiciary: ethical police, legislators, executives, etc. No abuse of power! A pared down public sector means that people have to pay for protection, pay for schooling, and pay for common facilities, like the roads, and infrastructure! MF asserts that the corporate logic is to maximize profits and therefore to eliminate taxes and to reduce wages/benefits to the minimum. Regulatory capture or capture by dependency relations to corporations are forms of corruption.

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