Neoliberalism – The Attempt to Subsume Society into “the Market”

The term ‘neoliberalism’ refers to an economic program of deregulation, privatization, trade liberalization, corporatization and small government – a project to subject more and more economic activity to the whims of “the market”. At its core, neoliberalism is an attempt to make profitability the governing principle in all economic calculation. For this neoliberal aspiration to be approximated in reality, government must behave as if it is just another market participant. It must pretend to be subject to the same financial constraints as private corporations and to share their need for revenue. It requires maintaining the pretense that government has no capacity to act independently of markets; that there is no capacity for autonomous social action independent of markets; in fact, that there is no such thing as society. In short, obey the market, because there is no alternative. We are powerless to stand in its way. Or so the superstition goes.

There are Orwellian aspects to the language of neoliberalism. “Deregulation” is really code for what is often heavy-handed and class-interested regulation designed to serve the interests of capitalists over workers. “Trade liberalization” means constraining national economic policies that might otherwise encroach on multinational corporate interests. “The market” is spoken of as if it is a phenomenon of nature rather than a set of social institutions and social relations structured and shaped by government policy.

To be convinced of the farfetched notion that there is no alternative, it is necessary above all to believe that government must depend upon private markets for its finance. For governments that create their own currency, this is untrue. A currency-issuing government is not subject to the same financial constraints as a household or private corporation. Nor is it subject to the profit imperative. In particular, private market participants have no say in the rate of interest that government pays on its “borrowings”. Instead, the government gets to choose what it will pay – indeed, if it will pay anything (it can set an interest rate of zero if it wishes) – and private market participants can like it or lump it. To believe that there is no alternative is to be blind to the fiscal capacity of currency sovereigns.

This consideration is largely what appears to have motivated the imposition of the draconian European common currency arrangement. The purpose of the euro is to subject national governments to the demands of the market. If a government in deficit attempts to pursue any policy at odds with corporate interests, market participants can demand a higher rate of interest on its debt. To the extent the decision to shackle European populations to the euro was not made out of blind stupidity, it was an attempt to reduce governments to the status of all other market participants. It means that if the market disapproves of worker-friendly policies, welfare-state measures or much needed expansionary fiscal policy, the government can, by design, cry poor.

For member nations of the Eurozone, there is no sustainable way forward until either they free themselves of the euro or, which seems unlikely, they erect a democratically accountable fiscal authority at the head of the Eurozone, forming in the process something akin to a United States of Europe. For those of us in the rest of the world, however, any sense of powerlessness that we project to the level of society as a whole is largely due to a misconception. We have fallen for the lie that our governments are revenue constrained even though they have, for now at least, retained their currency sovereignty. Neoliberal politicians tell this lie either out of ignorance or because they want to deceive us into believing that responsible and equitable economic policymaking is “unaffordable”. But the lie is just that: a lie.

Once the fiscal capacity of a currency-issuing government is recognized, the feasibility of not-for-profit activity becomes clear. It becomes equally clear that government can implement appropriate regulation of for-profit activity, to the extent we want such activity to occur, irrespective of how such regulation might be perceived in the corporate sector. And it becomes obvious that unemployment is a government policy choice; one that is costly in terms of forgone output and, more importantly, unjust.

Needless to say, the neoliberal position is that government involvement in the economy of this kind is undesirable. The whole rationale for pretending that governments are financially constrained like households and firms – or, in the case of the Eurozone, actually making it so – is because neoliberals believe the government should be so constrained. Well, there is by now a clear accumulation of evidence, if it was ever needed, of the absurdity of this proposition. It is the truly appalling economic performance of the Eurozone, where some countries still have 25 percent unemployment and 50 percent youth unemployment nearly a decade after the outbreak of the global financial crisis.

So much for the wisdom of having government behave like a household.

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7 thoughts on “Neoliberalism – The Attempt to Subsume Society into “the Market”

  1. This is an excellent well thought-out article. It does, however, I believe need to be modified to defend against the Neo-Liberal argument that government as the agent for delivering goods and services directly is subject to the agency problem of inefficiency due to lack of competition. This needs to be incorporated into any updated version of this article you see fit to publish.

  2. True, Schofield. Good observation. Neoliberals do commonly make this claim.

    In lieu of revising the post, I’ll make a few loosely related observations here.

    In the monopoly case, a private service provider is no more subject to competition than a public provider. At the same time, democratic pressure can be brought more directly to bear on a public service provider than a private service provider.

    Note, if the monopoly is privatized and broken up into multiple competitors, this introduces inefficiencies of its own in the case of natural monopolies. If, instead, only parts of production are broken up with the main infrastructure being kept public, this will constitute just another instance of privatizing profits and socializing (what would have been) losses (if produced privately).

    More generally, the economic rents associated with natural resources are captured by the state, as they should be, when these resources are managed publicly. There is no good reason for economic rents to go to private interests.

    In terms of service provision itself, evidence seems to suggest that privatization has resulted not only in higher prices and charges for key services but also a decline in the quality of services. (Bill Mitchell discusses this and some related points in this post.) It is not really surprising that privatization typically results in poorer service provision considering that the motive of private corporations is to make profit, not to provide quality service at low prices for the sake of it. Needless to say, private provision requires a profit margin, whereas public provision does not. This in itself is a cause of higher service prices upon privatization.

    It should be kept in mind, as well, that these price hikes and quality reductions will not necessarily be evaluated as instances of inefficiency in the neoliberal framework. Following the logic of neoclassical welfare economics, efficiency to the neoliberals usually means ‘allocative efficiency’. On this criterion, any allocation that deviates from the hypothetical, unfettered private market outcome is inefficient. What is allocatively efficient, though, depends on the prevailing distribution of wealth and income, which is simply taken as given in neoclassical analysis and left unquestioned. The provision of low-cost electricity to regional areas, for example, will be inefficient from this standpoint. Similarly, it would be deemed inefficient for the poor to receive medical attention that they could not otherwise afford out of their own income and wealth supplemented only by private charity.

    I think this view of efficiency is very different from what the general public has in mind when it hears the word efficiency. Most people will think of efficiency in terms of ‘technical efficiency’ (production of a given output at lowest cost).

  3. Further to the points made about monopolistic tendencies, it occurs to me that the wildly disproportionate rates of remuneration that now apply in the higher levels of publicly listed companies demonstrate the fallacy that the market is an effective regulator. Competition appears to drive down wages for the poorest, but increase them for the wealthiest.

  4. Hello Peter, it has been a while…

    This is a good summary of the current dynamic but I don’t think “neoliberalism” is a good term as it implies our central problem is new. Liberalism has been with us for a few centuries and its basic worldview concerning the ‘natural’ right to property and the limited role of government has been constant throughout. “Neoliberalism” implies there was a sharp break in the 15 or so years between say 1960 and the mid 70s but that is grossly overdone. It was a period of war, stronger unions, and a more active left, but it was still firmly liberal. Far better to say the problem is “liberalism” but we end up in the exact same spot. Liberalism was a time specific justification for a concentrated minority power that had existed for thousands of years before that. I think it’s important we clearly name the central problem and to point to “neoliberalism” or “liberalism” is misleading. The root problem is minority power – inequality – and when we make that crucial simplification, the logic of the system becomes far easier to understand and to communicate to others.

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