The Strange Non-Death of Neoliberalism
By Colin Crouch
There are many branches and brands of neoliberalism, but behind them stands one dominant theme: that free markets in which individuals maximise their material interests provide the best means for satisfying human aspirations, and that markets are in particular to be preferred over states and politics, which are at best inefficient and at worse threats to freedom.
At the heart of the conundrum is the fact that actually existing, as opposed to ideologically pure, neoliberalism is nothing like as devoted to free markets as is claimed. It is, rather, devoted to the dominance of public life by the giant corporation.
Many corporations become not just mighty pressures on, but major insider participants in, the political process. This is something which no economic or political theory defends or advocates in any way; but it a central reality of our public life.
Keynesianism’s crisis let to its collapse rather than to adjustments being made to it because there was something fundamentally wrong with its ideas, but because he classes in whose interests it primarily operated, the manual workers of western industrial society, were in historical decline and losing heir social power. In contrast, the forces that gain most from neoliberalism – global corporations, particularly in the financial sector – maintain their importance more or less unchallenged.
These then were the principal ingredients of the socio-economic order that came eventually to be know as social democracy:
Keynesian demand management in which government action, far from trying to destroy markets, sought to sustain them at levels avoiding self-destructive booms and slumps alike:
Strong welfare states that enabled people to receive some services in kind rather than through the market and some forms of income not dependent on market performance or property-ownership, bringing diversity to what would otherwise be purely market-determined life chances;
In some cases, neo-corporate industrial relations, trying to balance workers’ freedom to organise with the need for labour markets to function efficiently.
What went wrong with it?
We never know that one particular set of ideas contain the right answers; even if it does today, it might not be equipped to face unexpected challenges tomorrow. Monolithic doctrines that are certain that they have a monopoly on wisdom and which crush all opposition usually end by being confronted by challenges to which they have not responses in their repertoire. This was the case with the Soviet communism. Neoliberal ideologues certainly show strong tendencies in that direction, but the practical realities of life on democracies force them to compromise.
(Concerning issues like distribution, pollution and environmental damage). We are told that these are not matters for firms, as their duty is to maximise shareholders’ profits; if we want action on them we will have to turn to politics. But when we arrive at the door of politics we find Chicago/Virginia people waiting there to warn us never
to turn to politics for anything, as governments are at best incompetent and at worst corruptly self-seeking. We are left therefore with no capacity to criticise what firms do…
The firms that benefit from a permissive approach to oligopoly are not themselves required to abide by the strict principles of the neoliberal doctrines from which they benefit. There is absolutely no evidence that the corporate giants of the USA consider that they should not lobby government in case this amounts to an undesirable mixing of polity and economy.
A former chief economist of the IMF, Simon Johnson, has claimed that the financial sector has now captured control of the US government in a manner normally associated with developing countries.
Economic and political power translate into each other. An economy dominated by giant firms makes this worse as it generates very high concentrations of wealth. Not only can firms convert this wealth into political influence, but they can use the capacity for strategy given to them by their size and organisational hierarchies to pursue political purposes and become political actors.
For example, many marketisation and privatisation strategies have as one of their goals a reduction in the power of public sector professionals. But a consequence has often been an increase in the power of private contractors.
The deregulation agenda that led to the irresponsible development of financial markets during the 90s was itself a result of impressive lobbying in the US Congress and administration by banking interests.
The move away from a state that provides services directly to one that subcontracts to private firms only serves to increase very considerably the scope for dubious interactions…
Looking towards the future, the banks now know for certain that governments will bail them out and will be willing later to make cuts in public services in order to finance the rescue operation. As a result, they will now take higher risks than before.
Shareholder maximisation is not the only approach to corporate governance to be experienced by modern capitalism: French, German and Japanese capitalism, for example, all developed with a concept of diversity of stakeholders to whom a firm owed responsibility, directly and not on route to looking after shareholder value; customers, employees, bond-holders, sometimes local communities or a national interest. These models were generally pushed aside during the 1990s, as the Anglo-American model asserted its superiority as the most perfect expression of neoliberal ideas.
In face, the Anglo-American corporation is nothing more in law than a bundle of shares – unlike, for example, a German corporation, which is seen in law as ‘belonging’ to a wider range of stakeholders.
One very perceptible example of conflict of interest between shareholders and other stakeholders, which presents us very directly with the transfer of risk away from the former, concerns occupational and private pension funds…The fund uses this money to invest in various financial markets…This by-product of pension insurance activity, rather than the provision of pensions, became the primary business of pension funds… The actual paying out of pension funds therefore became burdensome to them, especially as increasing longevity was playing havoc with their actuarial calculations.
The description…of how financial markets have developed under the shareholder maximisation model implies a parasitical system the might easily be removed to general advantage. Unfortunately, matters are more complex than that. Many millions or people, including many on relatively low incomes, particularly in the Anglo-American world, have been nourished on crumbs from the rich man’s talbe.
Whereas the tight labour markets and regulated capitalism of the Keynesian period had seen a gradual reduction in inequalities or wealth in all advanced countries, the following period was to see a reversal of these trends, with the highest rewards going to those working in financial institutions.
It is common in democratic societies for leaders to develop torturous arguments to claim that everything they do is democratic…even if these were things very different from they claimed they would do at the previous election. This democratic legislation is then used to discredit critics, even if these actually represent a majority of opinion…the political power of corporations constitutes a widely accepted but highly undemocratic feature of our de facto constitutions.
The Virginia school of public choice theory concentrates on the likelihood that politicians and other public officials will pursue their own career goals rather than any social good… This logic then arrives at market at a superior device for tackling problems.
Thinkers on the left maintain their historic reservations concerning the capacity of markets to solve problems – unless heavily regulated by regulation…where the neoliberal right points to ‘markets’ it is often indicating corporations…the state, seen so long by the left as the source of countervailing power against markets and corporations, is today likely to be the committed ally of giant corporations, whatever the ideological origins of the parties governing the state.
It is claimed by both political democracy and the market that they can harness the individual strivings of powerful and talented individuals to a collective good.
Democracy does this by requiring aspirant rulers to seek legitimisation through periodic elections and, between times, to accept continuing investigations, scrutiny and criticism. The market achieves it by producing goods and services that customers freely want to buy.
Both political and economic power existed long before attempts were made to subject them to democracy and the market; and neither of these can be said to have predominated in human history, which has mainly been the story of the domination and exploitation of the many by the powerful few.
The claims of all...components of civil society – the autonomous politicaql parties, the church, the campaigning groups, the voluntary body, the professions – are potentially dangerous. This who claim to act ethically can be pursuing personal ambitions, and even acting corruptly, just as much as any businessperson or politician.
One thinks, for example, of the way scientists studying the impact of human action on climate change are harried by climate change denial groups funded by corporations.
Neoliberalism came to prominence by triumphing over what had been…30 previous years of declining social and economic inequality and growing attention to social needs and collective goals, all primarily making use of the power of the democratic nation state.
The favoured doctrines of the contemporary political right now seem as tattered and those of the left had become by the 1980s.
Democracy’s problem that mass publics are too remote and too disaggregated to ensure politicians are under appropriate detailed constraint, certainly compared with that exercised by corporate power… parties and mass media are becoming unfit for purpose. Political parties are losing their links with movements of opinion emerging from the mass of people, leading to them seeking extensive funds to generate synthetic links between themselves and that public. The only major sources of large funds are corporations and extremely wealthy individuals.
There is no political or economic theory that can demonstrate how giant corporations, relatively free from constraints of the market, or capable of dominating them, and increasingly becoming the main sources of power over politics, can be trusted with our collective goals.
Governments are usually seen, correctly, as the only organisations powerful enough to impose any different criteria of judgement, if the creation of wealth through economic efficiency is deemed morally inadequate or to prevent the achievement of other goods.
Indeed, one of the main achievements of the neoliberal political project is to place more or less all institutes in society – universities, hospitals, and charities as well as governments – under an obligation to behave as though they were business corporations.
At every point we find that democratic market societies under the influence of neoliberal ideas throw more and more power, influence and privilege at the extremely wealthy, especially the wielders of large corporate resources…Ironically, this becomes in turn yet another means by which corporations become the dominant organisations in society.
But what do we do when the assertion of national citizenship rights becomes our only defence against the power of trans-national corporations to disrupt our lives?
Civil society will be stronger the more the state and the giant firm are challenged – by churches, voluntary organisations, professions and other participants in he fragmented world of values – and required to participate in a pluralist dialogue that escapers their control. We need strong civil societies in which a diversity of kinds of pressure is able to flourish, so that we can compare and criticise.