Book Review: The Strange Non-Death of Neoliberalism, by Colin Crouch
An Economist examines the puzzling and tenacious hold of Neo-Liberalism on the public mind
Rewriting Reality: Colin Crouch on Neo-Liberalism
Neo-Liberalism is one of those concepts about which people have strong opinions, even if (or because) they are hazy as to its exact meaning. The concept has spawned a generation of step-children – ideas and policies that often seem to contradict the fundamental notions that people definitely do associate with it: Free markets, consumer choice and above all reduction of "interference" by government in matters they feel should be left to the private sector. Or, with "rent-seeking", reduction in welfare, crony capitalism and excessive pay packets for executives – there are lots of possibilities!
Some of the confusion arises from the powerful, evocative, but less than systematic writings of the great Austrian economist and historian of ideas, Friedrich von Hayek. In 1974 Hayek, the proponent of Ordoliberalismus (competition in the economy governed and supported by law), was awarded the Nobel Prize for Economics jointly with Gunnar Myrdal, the passionate Swedish advocate of Social Democracy. This indicated that Hayek’s ideas were now of equal prestige in the public sphere as the hitherto dominant Keynesianism, with its strong component of state intervention. From then on, Neo-Liberalism’s victory was rapid and devastating: Milton Friedman received the same prize in 1976, as did subsequently nine Chicago School economists.
In his stimulating 2011 survey The Strange Non-Death of Neoliberalism, social economist Colin Crouch treats Neo-Liberalism as a mass of paradox and dogma, which, like all panaceas, requires the continual rewriting of reality to fit the script.
It is a supreme irony, for example, that Neo-Liberalism arrived on the scene armed with the "monetarism" (control of the money supply) advocated by the Chicago School and ended, if it has ended, with uncontrolled credit expansion. Likewise it began with the mantra of "consumer choice" but has segued into the paternalist notion of "consumer welfare", which involves less choice because powerful firms have been able to gobble up most of the competing smaller ones in the same market.
The dogma that the market alone allocates resources "efficiently" has turned out to mean that a social good that Crouch characterizes as lying "beyond the reach of economic argument" is treated as having no value. As Oscar Wilde might have said, a Neo-Liberal often seems to "know the price of everything and the value of nothing."
The assumption that the private sector can always do things more efficiently than the state has led to privatization on a massive scale, sometimes with disastrous consequences. For example, Britain’s Network Rail has had to be re-nationalized and now costs £4 billion in public subsidies. "Deregulation," another tenet of Neo-Liberalism, was a prime cause of the economic crash. And attempts to "regulate the deregulated" seem to bear down only on the honest citizen, not the sinners.
The most insulting example of this is that your bank is now appointed to police you for possible money-laundering, yet one of Britain’s biggest banks was revealed by The Guardian newspaper to be laundering huge sums of money round the world solely to reduce its tax liabilities.
Crouch’s account of deregulation is full of insights, and they are not attractive ones. Lobbying by the banks led to the repeal under the Clinton administration (1999) of the Glass-Steagall Act, and the same process occurred with the so-called Big Bang under the Thatcher government in the U.K. The direct and most disastrous results of this were that banks could get their hands on client deposits for gambling in high risk trading. And the direct result of that was that banks grew "too big to fail", so the notion of "moral hazard" – whereby a bank knew that it alone must bear the consequences of poor or reckless decisions – was abandoned. The clients whose savings had been misused were obliged, as taxpayers, to bail out the bankers who had misused them. In a memorable phrase, the Financial Times writer Martin Wolf pointed out that the banks had been allowed to "privatize gain and socialize loss." The obscene earnings of these wreckers (which largely continue) reflected both the transfer of risk to the taxpayer and the "rent-seeking" environment of finance, "extracting gains… from the general public without offering anything in return."
If there is a leitmotif to this stimulating and hard-hitting book, it is the analysis of how "economic and political power translate into each other." The classic example of this is the Obama health care plan in the U.S., whereby six healthcare lobbyists allotted to every congressman ensured that the resultant bill protected the interests of the industry rather than those of the electors, the poor and the sick.
This entanglement of economy and polity pervades the so-called Anglo-Saxon economies, and indeed nearly brought them down. The Nordic states, Germany’s Sozialstaat and Austria with its Sozialpartnerschaft have fared rather better, because they have generally been more cautious in the application of Neo-Liberal shibboleths in regard to competition and markets. These countries also seem more tolerant of high taxation in order to finance what Crouch calls "public and merit goods" like health and education, though even they have to some extent accepted the privatization of utilities. In the most rabid Neo-Liberal economies, utilities have ceased being state monopolies to become private ones or cartels instead. There is little discernible gain (telecoms excepted) to the customer and much discernible disadvantage.
The title of Crouch’s book alludes to George Dangerfield’s classic The Strange Death of Liberal England (1935), which charted the rapid demise of the old liberal party in the U.K. from landslide election wins to near-extinction in just a few years.
The question Crouch asks, but does not answer, is why Neo-Liberalism, despite catastrophic consequences, has not succumbed to a similar nemesis. He hints that we are moving into a "post-democratic" period where the perception that government is little more than a conspiracy with business against the defenceless Normalverbraucher – average consumer – leads to disillusion with democratic processes or support for xenophobic or populist parties.
Perhaps the abuses of monopoly state power under communism are still too fresh in people’s memories to tempt them down a radical left-wing path? Or could it be that people feel they have really gained more "choice" in their lives from Neo-Liberal policies? More likely a greater number of electors has learned to distrust all quick fixes and ideological panaceas.
The Neo-Liberal propagandists justified greed and anti-social behaviour in the name of the mystically perfect markets. This is simply religious zealotry by another name, and religious fundamentalism, as we know, leads to unwholesome outcomes. As Crouch tartly observes: "The only child pornographer who is unacceptable to the market is the one who has no money."
The Strange Non-Death of Neoliberalism
by Colin Crouch
Paperback, Polity Press 2011