Is Neoliberalism History?

Article excerpt

In a recent essay published in The Monthly, Australian Prime Minister, Kevin Rudd, pronounces the death of neoliberalism. Rudd argues that the current global financial crisis exposes the failings of neoliberalism and that the world is now witnessing the re-emergence of social democracy. This article takes issue with these claims. It is argued that, by characterizing neoliberalism as solely an ideology, Rudd misses the crucial role played by the state under neoliberalism. Thus the mere 'return to regulation' is not, in and of itself, evidence of the abandonment of neoliberalism by policy makers. It is further argued that the policy agenda of Rudd's own government provides little evidence of a retreat from neoliberalism - indeed key aspects of the neoliberal agenda are clearly evident in the actions and rhetoric of the current Australian government.

In a recent essay published in The Monthly, Australian Labor Prime Minister, Kevin Rudd, pronounces the death of neoliberalism. Rudd argues that the current global financial crisis exposes the failings of neoliberalism, which he also refers to as 'free-market fundamentalism, extreme capitalism and excessive greed' (2009, 20). 'In the past year', writes Rudd, 'we have seen how unchecked market forces have brought capitalism to the precipice' (Rudd 2009, 22). As a consequence, the 'ideological legitimacy' of neoliberalism is now destroyed (Rudd 2009, 29). In rejecting neoliberalism, Rudd argues that social democratic governments such as his own, and in the USA under the leadership of the Obama administration, are uniquely placed to guide the global economy through the current period of crisis. Only social democracy, Rudd states, can marry 'properly regulated', but competitive, markets, with 'a commitment to fairness for all' (Rudd 2009, 21).

Rudd's essay is worth taking seriously not merely because it is a rare example of a national leader engaging directly with philosophical and political economic debates, nor simply because it has also been condensed and republished in the French newspaper, Le Monde. The primary significance of Rudd's argument lies in the fact that it reflects the tenor of many interpretations of the current economic crisis: that the crisis demonstrates the failure of neoliberal capitalism, and state bail outs of financial markets signal its death. For example, French President, Nicholas Sarkozy, proclaimed 'Laissez-faire is finished'. British commentator, Will Hutton (2008), argues that policy responses to the financial crisis mark a return to Keynesian-style 'managed capitalism'.

It is therefore useful to put these claims to the test and to ask: is neoliberalism history?

Neoliberalism in Theory and Practice

The conclusions reached by Rudd, Sarkozy, Hutton, and many others, that neoliberalism is history, are based upon an understanding of neoliberalism as constituted by a retreat of the state. According to this logic, the return of regulation, such as the nationalisation of major financial institutions, necessarily marks the end of neoliberalism. As Rudd argues, 'With the demise of neoliberalism, the role of the state has once more been recognized as fundamental' (2009, 25).

Arguments such as these treat neoliberal theory, and the policy practices of neoliberal governments, as synonymous. Yet there are significant differences between neoliberal theory and practice. Most importantly, the state has been central to the neoliberal project. To identify the implications of the current crisis for neoliberalism, it is necessary to distinguish between neoliberal theory and practice and then reflect upon how the balance of political economic forces might shape future policy outcomes.

A useful starting point is the relationship between the theoretical prescriptions of neoliberalism's proselytisers, and the implementation of neoliberalism as policy. Neoliberal theory draws upon the writings of economists such as Milton Friedman and Friedrich von Hayek, who advocated a radical winding back of the size and scope of government. According to Friedman and Hayek, markets are self-regulating mechanisms which, when freed from government 'interference', are the most efficient and the most moral form of social and economic organisation. The welfare state and other forms of 'collectivism' stifle efficiency and stymie individual liberty. Hayek (1944) went so far as to argue that all forms of collectivism, whether socialism or social democracy, inevitably lead to totalitarianism. With these arguments, neoliberals justify their calls for cuts to the size of government and the transfer of responsibility for the provision of services from the public to the private sector.

While neoliberal ideas had been promoted by the likes of Hayek and Friedman since the 1940s through forums such as the Mont Pelerin Society, it wasn't until the 1970s that they began to gain currency among policy makers (Cockett 1995). This was when global capitalism faced an economic and political crisis. Profit rates were in decline and the power and prerogatives of capital were threatened by a number of social movements. The environment movement for example called for restrictions upon the freedom of businesses to exploit the natural environment. Meanwhile, a growing militancy among workers was manifested in a wave of official and wildcat strikes throughout the major capitalist nations.

This crisis provided the context in which previously marginal neoliberal ideas enjoyed new legitimacy. Since the 1970s the influence of neoliberal ideas has grown such that it is evident in the broad policy agendas of most capitalist governments. Despite its 'uneven geographical developments' (Harvey 2005, 87), neoliberalism has become the dominant logic of policy making globally. Across the capitalist world, restrictions have been removed upon the ability of firms to operate within and across national economies through processes of deregulation. Assets have been transferred from the state to the private sector through a wave of privatisations, and markets have been created for social services formerly monopolised by the state, such as in the arenas of health, education and welfare. The neoliberal assault upon organised labour, the opening up of the state to private capital and the removal of restrictions upon firms was the response by state elites to the economic and social crisis of the 1970s.

However, while a broad correspondence exists between the prescriptions of neoliberal polemicists and the policy agendas of neoliberal governments, a closer examination reveals that there is a significant disparity between neoliberal theory and practice. This is particularly so with respect to the role of the state. Rather than withering away, as neoliberal theory would have it, the state has played an active, indeed activist, role in the introduction, implementation and reproduction of neoliberalism.

This activist role of the state was evident from the very first instance of neoliberalism in practice: Chile under the Pinochet dictatorship. As Naomi Klein (2007, 7597) demonstrates so powerfully in The Shock Doctrine, after deposing the elected President Salvador Allende through a coup in 1973, the new military government led by General Augusto Pinochet engaged in a process of privatisation, the dismantling of protectionist barriers, and cuts to social expenditure. Concurrently, the coercive powers of the state were employed to suppress organised labour and other dissenters through the imprisonment, torture and murder of leftwing activists. Neoliberalism was enabled by state coercion.

While the case of Chile is an extreme one, it highlights the centrality of the state to the project of neoliberalism and the contrast between neoliberal theory and practice. Other path breaking neoliberal governments also used authoritarian political strategies to enforce market prerogatives. When federal air traffic controllers in the USA took strike action in 1981, the Reagan government confronted their union, PATCO, sacking striking workers, jailing its activists and fining the union itself. In the mid 1980s the Thatcher government in Britain used the coercive powers of the state, including the police and secret services, to undermine the powerful National Union of Miners (NUM). Not only did this pave the way for the privatisation of coal mines, but by defeating the NUM Thatcher also weakened the broader labour movement, paving the way for further neoliberal measures. These trends were continued by later neoliberal governments. In Australia, for example, the Howard Coalition government enacted its Workchoices legislation in 2006 - a radical package of changes to industrial relations that placed severe restrictions upon the ability of unions to organise, increased the discretionary powers of government to intervene in industrial disputes and increased the range of industrial actions for which fines and goal terms apply.

Nor has the size of the state been reduced. Indeed, quite the opposite has occurred. Between 1980 and 1996, government expenditure as a proportion of GDP in the 17 major industrial capitalist economies grew from 43.1% to 45.6% (Tanzi and Schuknecht 2000, 6-7). While some of this growth is due to a rising tax share of national product (even though marginal income tax rates have generally fallen) some of the growth is also a result of the costs of implementing neoliberalism. The engagement of private sector agents to deliver social services, for example, has often entailed the socialisation of risk - whereby the state underwrites the profitability of firms through some form of subsidy or accepts liability for corporate failure or loss of revenue. Extra cost responsibilities for the state also arise due to the new layers of bureaucracy that have been created to facilitate 'deregulated' markets.

Although paradoxical, these features of neoliberalism should not be surprising. Throughout its history, the capitalist mode of production has been nurtured, reproduced and its reach expanded by the active involvement of the state in the economy and society. For example, the state was instrumental in the creation of property-owning and property-less classes in England during the 18th and 19th centuries through the enclosure of common land. As Karl Polanyi demonstrated even 'laissez faire capitalism' in England in the mid to late 19th century, during which time the market is presumed to have been free of the regulatory involvement of the state, entailed 'an enormous increase in continuous, centrally organised and controlled interventionism' (2001, 146). Viewed in this context, while contravening the central tenets of neoliberal theory, state economic and social regulation in the neoliberal era can be understood as but the latest example of the pervasive and coercive role of the state under capitalism.

Some scholars use the term "actually existing neoliberalism' to encapsulate these differences between neoliberalism in practice and the fetishistic abstractions of its advocates (Brenner and Theodore 2002). Neoliberalism has not led to a withering away of the state, but to the creation of new social and economic regulations. It has reconfigured the state's role, rather than diminished it. And it is this reconfiguration of the state's role that is crucial to an understanding of neoliberalism. The economic freedoms advocated so stridently by neoliberal theorists have been established, for the most part, only for a small minority of the population, and only by an activist state that restrains and suppresses the rights and freedoms of labour as a class. Over a period of three decades, actions by the state facilitated greater freedoms for capital, the expansion of the sphere of commodification and a weakening of the power of organised labour. All of this granted greater political and economic power to the capitalist class. This, rather than the 'free market", is the hallmark of the neoliberal era.

The Demise of Neoliberalism?

Given that a strong and activist state has been central to the implementation and expanded reproduction of neoliberalism, the regulation of markets is not, in and of itself, sufficient to constitute a wholesale retreat from the neoliberal agenda. Predictions that policy responses to the current crisis mark the demise of neoliberalism are typically ignorant of such arguments. A more cautious prognosis for neoliberalism's future is warranted.

No doubt, recent bank nationalisations in the USA and UK, and moves to restrict some of the activities of financial intermediaries, signal a retreat from neoliberalism on one front. However, many other aspects of the neoliberal order remain intact. This is true even in the financial sector of the economy. Nationalisations aside, the dominant regulatory solution to the current crisis has been the injection of liquidity into financial markets. Bail outs have been preferred to significant restrictions to the freedoms gained by financial capital during the neoliberal era. In most cases, states have acted to protect the viability of the system of capital accumulation rather than to shield ordinary citizens directly from the sometimes violent fluctuations of the market. While such actions certainly contravene the letter of neoliberal theory, similar activities have been a persistent feature of 'actually existing neoliberalism'. Throughout the history of neoliberalism, there are numerous instances of the state acting to underwrite the profitability of corporations and the viability of markets. As David Harvey argues:

Neoliberal states typically facilitate the diffusion of influence of financial institutions through deregulation, but then they also too often guarantee the integrity and solvency of financial institutions at no matter what cost (2005, 73).

Harvey cites the US Savings and Loans crisis and Long Term Capital Management hedge fund collapse as two examples in which the US state stepped in to either 'bail out companies or avert financial failures' in the neoliberal era (Harvey 2005, 73).

In this context, Kevin Rudd's argument that neoliberalism is now consigned to the dustbin of history looks rather shaky. Despite the current crisis, there is as yet no sign of a broad based commitment by policy makers to dismantling the political and economic power gained for capital through neoliberalisation. Indeed, in many areas of the economy, neoliberalism is alive and well. Australia under the Rudd government offers a case in point. Take industrial relations as an example. While some aspects of the Howard Government's WorkChoices legislation have been revoked, others remain in place, most notably restrictions on trade union activities and industrial action. On environmental policy too the Rudd Government has shown its predilection for neoliberal solutions, preferring to use market mechanisms, in the form of an emissions trading scheme, rather than mandate restrictions upon polluters, to address the issue of climate change. Consistent with actually existing neoliberalism, large private interests have received special and favourable treatment in this process. In perhaps the clearest signal of its commitment to extending the neoliberal agenda of previous Australian federal governments, the Rudd Government even created a new government department, 'The Department of Finance and Deregulation", the relevant Ministers for which 'have been given the task of driving reductions in the levels of business regulation' (Australian Government 2009).

All this seems a far cry from Kevin Rudd's polemic against 'unchecked market forces' (Rudd 2009, 22). Indeed, a close reading of Rudd's Monthly essay suggests an ongoing commitment to neoliberalism, even as he rails against it. Rudd's essay makes it clear that markets are at the centre of his social democratic vision. He writes:

social democrats maintain robust support for the market economy but posit that markets can only work in a mixed economy, with a role for the state as regulator and provider of public goods. Transparency and competitive neutrality, ensured by a regime of competition and consumer protection law, are essential (Rudd 2009, 25).

There is little to differentiate this ideal from the reality of actually existing neoliberalism as it has been implemented in Australia over the last three decades, during which time the state continued to have a role in providing public goods. Indeed, taking a narrow definition of public goods as those that are nonrivalrous and non-excludable, there may be little to distinguish Rudd's vision from that of Milton Friedman (1982, 22-36), who also saw a role for the state in providing public goods and a framework of rules within which markets could operate. This is particularly the case when the significance of Rudd's commitment to 'competitive neutrality* is considered. Competitive neutrality is one of the principles underpinning National Competition Policy in Australia. It holds that the public sector should not enjoy a competitive advantage over the private sector in the provision of services simply by virtue of public sector services being operated by the state. The implication is that restrictions upon the private sector competitors to public services should be removed. This can be achieved through a range of measures including corporatisation, deregulation and the contracting out of government services: hallmarks of the neoliberal shift in policy making. While Rudd's statement that government should offset 'the inevitable inequalities of the market with a commitment to fairness for all' clearly repudiates some of the more extreme pronouncements of neoliberal fundamentalists, there is some evidence that, under the Howard government - probably the most ideologically neoliberal federal government Australia has experienced - the state did play a role in offsetting market-based inequalities (Mendes 2008).

The Rudd Labor government's commitment to neoliberalism should not come as a surprise to anyone familiar with Australian political history since the 1970s. In many ways, Rudd is simply following the tradition, established by Labor in government since the end of the post-war boom, of neo-liberal and social democratic commitments coexisting, albeit sometimes uneasily, among the Party's leadership. Arguably, it was the Whitlam Labor government that first set Australia on the neoliberal course, with its 25% tariff reduction in 1973 (Lavelle 2005, 760-1). Certainly, the successive Labor Governments under the prime ministerships of Bob Hawke and Paul Keating from 1983-96 marked the neoliberal transformation of the Australian state. This is noted by Robert Manne in his response to Rudd's essay in the following issue of the same magazine: 'In Australia, a considerable part of the neoliberal program was implemented by the Hawke and Keating governments' (Manne 2009, 24) and he chides Rudd for conveniently ignoring this legacy.

None of this is to argue that the forward march of neoliberalism will necessarily continue. Rudd is surely right to point out that its legitimacy has been severely weakened. Yet, governments continue to adhere to the logic of neoliberal policy. An assessment of whether neoliberalism is history is not a matter of simply looking for the absence or presence of financial, or other types of, economic regulation. Rather, it entails first recognizing the pervasive nature of the state's involvement in economic processes, and then asking a series of questions. Who benefits from this involvement? Whose interests are prioritized? Who carries the burden? Who bears the risk? A real repudiation of neoliberalism would require a subordination of corporate interests to collective priorities and a shielding of workers from the fluctuations of markets in areas such as work, superannuation, health care, child care and housing. So far there is little evidence to suggest that such programs are on the political agenda. Rather, market mechanisms are still preferred, alongside the socialization of private sector risk. Because it seems unlikely that the repudiation of neoliberalism called for by Rudd and others will come from within the state, it would have to be forces outside of the state, such as social movements, that impose this agenda on policy makers and turn a rhetorical commitment to social democracy into a new political reality.

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[Author Affiliation]

Author

Damien Cahill is a Lecturer in Political Economy at the University of Sydney.