Knowledge at Work: Some Neoliberal Anachronisms

Hodgson, Geoffrey M., Review of Social Economy

Abstract With a predilection for market solutions, neoliberalism upholds that the individual is generally the best judge of his or her interests. Yet markets are never universally applied as a mechanism of allocation and there are reasons, in principle, why capitalism will always have "missing markets." Concentrating on the application and appropriateness of neoliberal theory to the workplace, this article argues that firms are not markets, despite some tendencies in modern theory to conflate the two. The employment contract is a key characteristic of modern firms, but neoliberal theory is often silent on the distinction between an employment contract and a contract for services, and largely ignores the asymmetrical rights of authority within contracts of employment. Furthermore, the social nature of knowledge represents a challenge to neoliberal theory and policy, because it sometimes makes it more difficult to define individual property rights. Accordingly, with the growth of the knowledge economy, neoliberalism to some extent is an anachronism.

Keywords: neoliberalism, firms, markets, employment contracts, knowledge, Veblen, Hobson

INTRODUCTION

Neoliberalism upholds that the individual is generally the best judge of his or her interests, and that economic ends are generally best pursued through a market system involving private ownership and contractual exchange. It revives aspects of the classical liberalism of Adam Smith and others of two centuries ago. (1)

In the second half of the twentieth century, the two most important proponents of this market individualist vision were Milton Friedman and Friedrich Hayek. These authors argued that a market system, based on individual property rights and contracting, provided the best guarantee of individual liberty. Such a system, as Hayek (1948: 18) put it, requires clear "rules which, above all, enable man to distinguish between mine and thine." These rights and rules provide the basis for a mutually advantageous system of contract where, as Friedman (1962:13) argues, both parties in a transaction "benefit from it, provided the transaction is bilaterally voluntary and informed." Under such conditions, markets are alleged to provide the best available means of maximizing both individual liberty and economic welfare. (2)

I shall pass over the important observation that a thorough-going market individualism would be incompatible with prominent conservative, authoritarian and anti-libertarian values, such as the prohibition of drugs, restrictions on the trading of sex, capital punishment, a preference for the incarceration rather than rehabilitation of criminals, and patriarchal family values. In practice, individual rights are diminished in the case of children, criminals and the insane. Furthermore, militarism and armed invasion can only be justified within such a philosophy by treating it as an exceptional and peculiar case, where the authoritarian means of war are somehow warranted by the end of establishing or restoring a market individualist regime, despite the fact that the population will resist or be deprived of the means of expressing its individual views on the matter, even though military force is a lethal, coercive, authoritarian and state-run enterprise. Notwithstanding these contradictions, the political triumph of market individualism in several countries since the 1970s, including in Britain and the United States, has entailed a coalition with prominent conservative and authoritarian values. But the focus here is on the rationale of modern neoliberalism, not its implementation in practice.

I shall also decline to elaborate the well-established but insufficiently acknowledged fact that the classical liberalism of earlier thinkers, including Smith and John Stuart Mill, was much more qualified in its individualism and advocacy of markets than many neoliberal propagandists acknowledge. Smith, for example, proposed a significant regulatory role for the state (Pack 1991), whereas Mill advocated worker cooperatives and argued that individual satisfaction was not the universal metric of human welfare.

Although I wish to deal mainly with matters of analysis rather than policy, I first make some aspects of my political standpoint clear. Contrary to much traditional socialist thought, I think it neither possible nor desirable to marginalize markets within a modern complex economy. No feasible, developed and complex economic system has been proposed in which markets play less than a major role. On the other hand, markets differ hugely in their internal mechanisms and ramifications. In different cultural settings--compare the United States with Japan--market negotiations and mechanisms differ substantially. The outcomes of markets depend very much on the cultural and institutional contexts in which they operate, so we should avoid giving "the market" universally either an unqualified positive or an unqualified negative moral sign. Nevertheless, markets are essential in wide sectors of industry and finance, particularly to accommodate and deal with innovation and change. No viable and dynamic alternative has ever been proposed.

On the other hand, there remain many important areas of economic activity, including within the family unit, where markets are unviable or undesirable. While some markets are essential in a modern complex society, no system makes them a universal form of allocation. No developed country has legally tolerated child prostitution or the selling of votes, for example. Absolute individual liberty and freedom of trade must admit the possibility of prostitution, the selling of babies, and even of voluntary enslavement. Assaulting our "individual liberty" and "freedom of contract," the central legislatures of most countries typically place bounds or prohibitions upon such activities.

Indeed, there are logical limits to the extent of markets in a capitalist society, because in such a system there can be no futures markets for labour or skills. The existence of such markets would tie the worker to an employer in a future period. Such bonding or indenture is generally made illegal because, if extended, it would turn into a form of voluntary slavery. The absence of futures markets for labour is an important safeguard of the freedom of the employee.

However, the result of this "missing market" is that the system may under-invest in human learning and education. As Alfred Marshall (1949: 470) wrote in his Principles (first published in 1890): "we meet the difficulty that whoever may incur the expense of investing capital in developing the abilities of the workman, these abilities will be the property of the workman himself: and thus the virtue of those who have aided him must remain for the greater part its own reward." If skills are to be adequate, then their development under capitalism must unrealistically depend, as Marshall puts it, "in great measure on the unselfishness of the employer." If markets are a cure for this problem, as the market individualist might suggest, then these futures markets for labour can only be established at the cost of human liberty. As far as I am aware, the neoliberal literature is silent on this dilemma.

The argument in this paper centres on two important features of modern economies--namely firms and employment contracts--and shows in further detail how these defining structures of capitalism sit uneasily with neoliberal principles of individual property and free trade. Unknowledge and uncertainty are essential to explain the existence of these structures. (3) At the same time, unknowledge and uncertainty undermine the neoliberal conditions of free and fair contract. Neoliberals are forced either to denounce firms and employment contracts or to dilute the …

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Publication information: Article title: Knowledge at Work: Some Neoliberal Anachronisms. Contributors: Hodgson, Geoffrey M. - Author. Journal title: Review of Social Economy. Volume: 63. Issue: 4 Publication date: December 2005. Page number: 547+. © 1989 Routledge. COPYRIGHT 2005 Gale Group.

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