The Strange Non-death of Neo-liberalism

Colin Crouch

• Publisher: Polity
• Year: 2013
• ISBN:
  9780745637594
• Edition: 1
• Topic: History
• Subtopic: Historiography
• Index: History

The financial crisis seemed to present a fundamental challenge to neo liberalism, the body of ideas that have constituted the political orthodoxy of most advanced economies in recent decades. Colin Crouch argues in this book that it will shrug off this challenge. The reason is that while neo liberalism seems to be about free markets, in practice it is concerned with the dominance over public life of the giant corporation. This has been intensified, not checked, by the recent financial crisis and acceptance that certain financial corporations are 'too big to fail'. Although much political debate remains preoccupied with conflicts between the market and the state, the impact of the corporation on both these is today far more important.

Several factors have brought us to this situation:

• The lobbying power of firms whose donations are of growing importance to cash-hungry politicians and parties
• The weakening of competitive forces by firms large enough to shape and dominate their markets
• The moral initiative that is grasped by enterprises that devise their own agendas of corporate social responsibility

Both democratic politics and the free market are weakened by these processes, but they are largely inevitable and not always malign. Hope for the future, therefore, cannot lie in suppressing them in order to attain either an economy of pure markets or a socialist society. Rather it lies in dragging the giant corporation fully into political controversy.

1

The Previous Career of Neoliberalism

As we shall consider in more detail below, neoliberalism began its dominance when its opposed predecessor, generally known as Keynesian demand management, entered its own massive crisis in the inflation of the 1970s. If this crisis proved more or less terminal, should we not now expect the end of neoliberal dominance and the emergence of something new following its crisis? No. Keynesianism’s crisis led to its collapse rather than to adjustments being made to it, not because there was something fundamentally wrong with its ideas, but because the classes in whose interests it primarily operated, the manual workers of western industrial society, were in historical decline and losing their 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. Although it was the behaviour of the banks that caused the 2008–9 crisis, they emerged from it more powerful than before. They were considered so important to the early twenty-first-century economy that they had to be protected from the consequences of their own folly. Most other sectors, hurt by the effects of the crisis, were not protected. The public services fared even worse, being required to take massive cuts in resources. While the very large bonuses paid to some banking staff became a central issue in the controversy following the crisis, continued payment of bonuses was then justified as being necessary to return the financial sector – and therefore whole nations – to solvency, even though those bonuses depended in part on the contributions of taxpayers to the rescue operation. The financial sector has demonstrated the dependence of the rest of society on its operations – at least in the Anglo-American world which has nurtured this particular form of banking activities. And as it has been protected while other sectors in general and public services are being cut, it will loom larger than ever in the economic structure of those countries.

Before we consider the implications of this situation for neoliberalism’s claims to be about free markets, we must first take a closer look at neoliberalism itself: what is it and where did it come from? Then, in Chapters 2–4 we shall examine the standard debate of ‘state versus market’, and how the corporation emerges as of primary importance from that confrontation, changing its nature in the process. In Chapter 5 we return to study in more detail the shift from Keynesianism to neoliberalism mentioned above and its wider implications; this ends by demonstrating why the corporation emerges as the key institution following the recent crisis. Chapter 6 examines the political contours of societies in which corporations have acquired political centrality, including consideration of the idea of corporate social responsibility. Chapter 7 shifts the discourse and moves to a theme that darts in and out of the preceding chapters: where do values, and in particular those concerning public and collective issues, stand in the relation between market, state and corporation? The final chapter tries to provide some answers to the question: how do we cope with all this?

Neoliberalism: Its Origins and False Start

Many of the words that we today use to describe public life contain the prefixes neo-, new or post-: neoliberal, neoconservative, New Labour, postindustrial, postmodern, post-democratic. We seem determined to show that we are people busily involved in momentous systemic change, but we are not sure what new state we have entered, so we name ourselves in terms of what we are leaving behind (post- concepts) or hint vaguely at renewal and innovation (neo- concepts). Neoliberalism is one of these. To gain an initial understanding of it, we need to know what liberalism is (or was), and what is meant by the prefix.

‘Liberalism’ is about as slippery as a political term can be. Today it tends to move to the political left as one heads westwards. In Europe, and especially in the former state-socialist countries of central and eastern Europe, it is associated with political parties that stand for the strict application of market principles to economic life, as well as for extensive civil liberties. The former is normally associated with the political right, the latter with the left. In the USA it tends to refer to the political left in general; this shares the European commitment to civil liberties and criticism of any political power exercised by organized religion, but is diametrically opposite to this tradition when it comes to the market. American liberals are likely to believe in government intervention in the economy, the opposite of the usual and historical meaning of the term.

To understand this complexity we have to go back to the seventeenth and eighteenth centuries, when criticism of the combined powers of monarchs, aristocrats, popes and bishops was gathering pace across Europe and, later, North America. These powers did not accept that people in general had rights; only privileges and specified liberties (plural) granted and revocable by the powers themselves. While the struggle was at the level of ideas and for freedom of thought, an alternative power base to those of church and the monarchical state was available in the commercial and, eventually, industrial wealth of the bourgeois classes. The demand by merchants for markets to be freed from the control of secular and religious authorities, who enjoyed the revenues they received for granting trading monopolies, joined the general cry for liberty as a singular, indivisible quality, a human right that it was in no one’s power to grant. In practice, in a world in which existing powers in church, state and land-ownership could not be simply wished out of existence, the pursuit of liberty took the form of seeking various separations: of state from economy; of church from polity; of all of these, and even of family, from moral judgements over how individuals conducted their lives. Through the compartmentalization of life that could be achieved by these separations, the reach of power could be limited and individual liberty achieved.

From the perspective of conservatives, this same process left individuals alone, anomic and without a shared morality, and society fragmented and rudderless. By the end of the nineteenth century bourgeois property-ownership and the associated liberal right to own factories and other bases of economic activity, including that to employ labour, had themselves become sources of domination and power. Workers and others, whose lives could not achieve much separation from the control of employers, now sought liberty from them too. They looked to the gradually democratizing state for counterbalancing power. Social critics also turned their opposition to the increasing dominance of commercial values and money over all areas of social life. The liberal tradition was broken in two.

On the one hand, there was a social part, which concentrated on the search for rights, including the right of the working masses to raise themselves above poverty, and which increasingly and paradoxically looked to liberals’ old enemy, the state, for help in that search. These liberals often found themselves in the uncomfortable company of socialists, who wanted to use state power to suppress capitalist property-ownership. But there was also an economic part, which stressed the liberties of property-ownership and market transactions. Liberals of this kind now increasingly found themselves uniting with their old conservative enemies, protectors of the old regime, defending authority and property-ownership of all kinds from attack, particularly from democracy. A democratic state dominated by a propertyless working class threatened to oppose the separation between economy and polity that was central to both the concept of liberty and the efficient functioning of the market. In a further complication, social liberals, socialists and conservatives would sometimes come together to denounce the triumph of materialist values and absence of moral judgements that capitalism and economic liberalism had brought about. Different strands of liberalism, whether in the form of systems of thought or of political parties, went their separate ways, with different emphases in different parts of the world.

By the time of the Second World War, the whole context of liberalism’s original confrontation with the state had changed. During the 1920s the liberal capitalist economy with minimal state intervention seemed to have failed and brought the world to major depression. By the 1930s three alternative approaches to the organization of economic life seemed to offer far more efficiency and capacity to thrive: the communism being practised in the USSR; the fascism of Germany and Italy; and various combinations of government demand management and welfare state initiatives being practised in the USA and the Scandinavian countries, briefly also in France. Different though they were from each other, all made use of the power of the state in a way not envisaged in classical liberalism. After the war, one of these, fascism, was (with some exceptions) crushed. The Soviet state ruled half of Europe with dictatorial powers but, as it seemed at the time, with some economic competence; it was soon to be joined, though in only uneasy and temporary political alliance, by a similar system in the world’s most populous country, China. In western Europe, North America, Japan, India and Australasia highly diverse forms of the US-Franco-Scandinavian approach of varied economic and social interventions by a democratic state into a definitely capitalist economy attracted support from virtually all shades of political and intellectual opinion. It seemed that the original liberal vision of an economy governed by the market with minimal state involvement was dead. Liberalism could live on in its social form as a demand for rights and freedoms – but without that once fundamental component of the demand for the right to own and control property without state interference.

We shall return in a moment to a more detailed account of these state interventions, but first we must see what happened next to ideas of economic liberalism. They never disappeared. Belief in unchallenged property rights, low levels of regulation and low taxes remained extremely attractive to very wealthy people, who were always available to fund economic liberalism’s intellectual projects and keep its protagonists going during the lean years. Further, as the truth about the conditions of life and absence of freedom in the state-socialist countries of the east became widely known, there was a constant reminder for all of the dangers of state power. This was particularly strong in the USA, where past legacies of English rule and then rampant political corruption after independence had created general suspicion of the state. This produced a wing of political opinion that identified virtually all government action in economy and society with communism, and sought tough action to root out from public life all people who might be associated with such tendencies. In the 1950s this produced the highly intolerant campaigns on behalf of the US state, led by Senator Eugene McCarthy. The defence of economic liberalism had become highly illiberal. This contributed to the way in which the word liberal in the USA stood on its head, coming to signify support for the welfare state and other government interventions in the economy.

The fight-back on behalf of economic liberalism began earlier than this. Before the Second World War had ended, a group of German and Austrian liberals had pondered how to produce an economic order for Germany after the eventual disappearance of Adolf Hitler, an order that would recreate the entrepreneurial bourgeoisie that they saw as being crushed equally by communism, fascism and the interventionist policies of the democratic state. They did not share the belief that all state action was suspect, but saw a role for government in safeguarding the market economy in which they believed. They saw competition among many firms as central to the efficient functioning of the market, consumer choice, and the maintenance of a bourgeois class that would neither lose its place and be pushed down into an anti-capitalist proletariat, nor acquire the powers of ‘big business’, the giant corporations that were supporting Hitler. They were concerned that the outcome of the competitive process was usually the elimination of competition itself, as the winners took all and absorbed their rivals, resulting in the triumph of big business. These German liberals were attracted by antitrust law in the USA, which used law (and therefore the power of the state) to limit the share that individual corporations could acquire in a particular market, and thus to protect competition from its own consequences. The system they advocated was not one of unrestrained markets, but of Ordoliberalismus – an economic liberalism, whose competitive order would be guaranteed by law. To give the approach the name eventually acquired by its practical embodiment in much of the policy-making of the postwar western Federal Republic of Germany, it sought a ‘social market’. In another of the head-standing twists of fate for political terms, this concept, originally part of economic liberalism’s fight-back against the interventionist social state, had by the 1980s come to be used to denote the interventionist social state itself.

But these new economic liberals sought a role for the state, more specifically for law, solely in guaranteeing the effectiveness of market forces, not in pursuing other goals. Their ideas spread easily to the USA, where they became known as ‘neoliberal’, because liberalism as such had acquired such a totally different meaning there. There are now many varieties and nuances of neoliberalism, but if we stay with that fundamental preference for the market over the state as a means of resolving problems and achieving human ends, we shall have grasped the essence.

We must now consider how this return became possible at the level of practical politics rather than just as ideas. This requires some exploration of the other approaches to social and economic policy that grew up in the decades following the Second World War.

The Social Democratic Moment

Communism or state socialism, fascism and economic liberalism all denote very clear systems of policy direction. The approaches that emerged as their main rivals in the western world slightly before, during or just after the Second World War were more varied, as befits the role they played in finding social compromises among major antagonists, who in turn accepted the impossibility of either ultimate victory over each other or of knowing for certain what policies would be the most successful. It has recently become popular to associate the terms ‘social market’ and ‘social democracy’ with these alternatives. That the former is a case of head-standing has already been noted; but it is also partly true of the latter. ‘Social democracy’ was originally one of the names chosen by anti-capitalist working-class movements in the late nineteenth century. Others were ‘socialist’, ‘communist’, ‘labour’. All were terms used, more or less interchangeably, by movements which had at some early point adopted policies for the suppression of capitalism and its replacement, at first by state ownership, but eventually, it was hoped, by an amorphous dream of popular ownership that would exclude even the state.

Following the Russian Revolution in 1917 the parties throughout the world that allied themselves to the new leadership of that country more or less all took the name ‘communist’. The other terms did not acquire any differentiated connotations until the 1950s, when both the Swedish and German workers’ parties, which happened to be called ‘social democratic’, abandoned the formal goal of superseding capitalism and proclaimed instead that their object was to work within an economy predominantly in private ownership. In 1959 German Social Democrats even adopted the slogan: ‘So viel Markt wie möglich; so viel Staat wie nötig’ (‘As much market as possible; as much state as necessary’). Other parties, such as the British Labour Party, had de facto reached that position, but were not willing to accept it openly until much later, the 1990s in the British case. From that time on ‘social democratic’ came to signify that kind of moderate centre-left politics. It still designated a particular type of political party, but by the 1990s it had, like its former antagonist ‘social market’ come to be used more generally to indicate a policy approach occupying some of the large compromise ground between a pure market and a primarily state-owned economy. During the third quarter of the twentieth century one could contain most of the political spectrum, at least of west European countries, within the terrain now so loosely called social democratic. However, outside the Nordic countries, Social Democratic parties as such only occasionally dominated governments anywhere in the world.

‘Social democratic’ has therefore now joined ‘conservative’ and ‘liberal’ as existing in an upper-case and lower-case form: Social Democratic, Conservative and Liberal indicate political parties or other formal organizations; social democratic, conservative and liberal indicate far broader sets of ideas, policy approaches and mind sets.

Seen in this sense, social democracy covers all strategies for combining government power with the market to try to produce an economy that maximizes efficiency in a manner consistent with the avoidance of major manmade shocks, with the pursuit of certain social goals that seem difficult to achieve through the market alone, and with limitation of the inequalities that result from market processes. Sometimes, though perhaps not as often as many assume, the goals of efficiency and reducing inequalities are in tension with each other. They are also, however, interdependent. Countries with extreme inequalities lack a large base of prosperous consumers who can sustain demand in the economy, as well as large numbers of people with sufficient economic security to develop the critical and innovative attitudes on which dynamism and ultimately efficiency belong. It is because of that interdependence that social democracy was able to define a wide range of social compromises; it is because of the underlying tension among them that the respective bounds of the market and of state adjustments to it became the principal bones of political contention throughout the twentieth century and on into the twenty-first.

One of the reasons why nineteenth- and early twentieth-century elites had taken a fearful and pessimistic view of democracy was that they could not see how mass prosperity could be achieved quickly enough to satisfy the demands of a literally hungry populace before the anger of that populace would have dismantled property rights. The more optimistic elites, such as the British, saw hope in a gradual, simultaneous expansion of both property-ownership and citizenship, the former being aided by the growing wages and stability of skilled manual workers, the increasing ranks of office workers and phenomena like the building society movement that slowly spread residential property-ownership.

But the problem was not only that workers were poor and lacked property. Their lives were also deeply insecure, as the growing market economy was subject to wide fluctuations. Late nineteenth-century social policy, starting in Germany and gradually spreading to France, the Austrian empire, Britain and elsewhere, tried to put a basic floor under this insecurity, providing insurance-based protection against loss of income through unemployment, sickness and old age. The ambitions, scope and therefore achievements of such policies were limited, but they were among the building blocks of what became social democracy.

These were the trends that eventually undermined faith in economic liberalism. First, however, it is necessary to take note of a more substantive answer to the poverty problem, and one more compatible with economic liberalism, which emerged in the early twentieth century from the mass production system of manufacture. This was associated initially with the Ford Motor Company in the USA. Technology and work organization could enhance the productivity of low-skilled workers, enabling goods to be produced more cheaply and workers’ wages to rise, so that they could afford more goods. The mass consumer and mass producer arrived together. It is significant that the breakthrough occurred in the large country that came closest to a basic idea of democracy (albeit on a racial basis) during that period. Democracy as well as technology contributed to construction of the model. However, as the Wall Street crash of 1929, coming just a few years after the launch of the Fordist model, showed, the issue of macroeconomic insecurity (i.e., at the level of the whole economy) remained just as great. The problem of reconciling the instability of the market with consumer-voters’ need for stability remained unresolved. In much of Europe tendencies towards both communism and fascism were strengthened. More moderately and consistently with democracy, beliefs in a need for governments to intervene to save markets from their apparent vulnerability to self-destruction were also reinforced.

By the end of the Second World War it was clear to elites throughout the then industrializing societies that the attempt to defend property from democracy through fascism had been a disaster. Capitalism and democracy would have to be interdependent, at least in those parts of the world where popular movements could not be easily crushed. The virtuous spiral of the Fordist model of mass production technology linked to rising wages and therefore to rising mass consumption and more demand for mass-produced goods was part of the answer. The more extensive approach to social policy of the kind then emerging in the Scandinavian and British welfare states addressed the problem of insecurity. Confident, secure, working-class consumers, far from being a threat to capitalism, could enable an expansion of markets and profits on an unprecedented scale. Capitalism and democracy became interdependent.

A further element played a major role in sustaining this emergent model: what became generally known as Keynesian demand management, after the British economist John Maynard Keynes, though the ideas developed more generally from groups of British and Swedish economists. They were mainly pursued in the Scandinavian countries, the UK, Austria and, to a lesser extent, the USA, but were also taken up by international agencies like the World Bank, and for three decades constituted a kind of orthodoxy across the western capitalist world. In...

Table of contents

• Cover
• Dedication
• Title page
• Copyright page
• Acknowledgements
• Preface
• About this Book
• 1 The Previous Career of Neoliberalism
• 2 The Market and Its Limitations
• 3 The Corporate Takeover of the Market
• 4 Private Firms and Public Business
• 5 Privatized Keynesianism: Debt in Place of Discipline
• 6 From Corporate Political Entanglement to Corporate Social Responsibility
• 7 Values and Civil Society
• 8 What’s Left of What’s Right?
• References
• Further Reading
• Index