Neoliberalism, a policy model that advocates the control of economic factors to the private sector from the public sector, has been a dominant ideology since the 1980s. Economic growth is the main purpose of the neoliberal agenda; it is becoming more and more clear that advocates of that agenda need to pay attention to the distributional effects. There is a paradox – these polices of minimal regulation and austerity are associated with inequality and this distributional effect now impacts economic growth – the very thing the neoliberal agenda is intent to booster. In order to deal with this economic damage, it is becoming obvious that policymakers should be more open to redistribution than they already are. Friedrich Nietzsche is one thinker who sought in the early modern era to expose proponents of the Enlightenment’s ideals of rationality and progress as “sly defenders of their prejudices which they christen[ed] ‘truths’.”
The RAND Corporation, the Cold War think-tank established by the US government, was a main actor on the theoretical battlefield between the US and the Soviet Union. Their rational choice framework provided the theoretical empowerment of Western liberal democracy with a limited state. This was part of governmental efforts in the US after World War II to create new ideas, proving the validity and superiority of liberal democracy in a world where socialist planning was admired also by Western intellectuals and societies. They developed the efficient market hypothesis – the market should be left to itself, allowing company managers to maximize shareholder value for the sake of the whole economy. It’s not surprising that Francis Fukuyama, who was also a member of RAND Corporation, made the political statement in 1989 that the liberal democracy with its neoliberal economic system is the best and final one in our history.
Friedrich Hayek (1899-1992) explained to his enthusiastic supporter Antony Fisher: “Society’s course will be changed only by a change of ideas. First you must reach the intellectuals, the teachers and the writers, with reasoned arguments. It will be their influence on society that will prevail and the politicians will follow.” To empower these ideas corporate money supported think-tanks along with scholarship and intensive use of media. This think-tank network wasn’t for creating new ideas, but for being a gate keeper and disseminating the existing set of ideas around “the philosophy of freedom.” The conscious strategy of this global think-tank network was to take the idea of individual freedom and minimal government mainstream. Now commentators of seeming independent think-tanks represented very similar ideas without informing the general public that in terms of ideologies, it is not free to choose. The freedom promoted was never social and political freedom, rather freedom of capital owners from the state.
Laissez-faire promoted the notion of market and state operating according to different logics – the heart of the liberal version of freedom. On the other hand, neoliberalism abandons the vision of market and state as independent and ontologically distinct entities. Neoliberalism is an economic system that needs a strong state, even at the expense of constraining democracy – rebuffing challenges to austerity and minimal government – to maintain a system of thought and applied political strategy. The state is a central instrument for the advancement of the neoliberal agenda. However, the communication of the 1970s is that society is a theoretical descendant of the classical school, which was clearly false. This paradox didn’t prevent the Hayekian thought collective to become an ideology. They declared that the main objective was to change the way people think: the main goal of society wasn’t to develop scientific theories – many schools of thought were represented in society – but to save and promote the values they believe in.1
The neoliberal strategy was soon achieving successful upward redistribution. The 1980s marked the start of the declining wage shares in developed countries. There occurred a paradox: real-wage productivity gap resulting in a previously unseen phenomena, the stagnating of the incomes of the middle class. At the same time, as a result of tax decreases inspired by the neoliberal project, the income of the top 10% started to increase dramatically in the UK and the US – the homeland of the neoliberal counter-revolution. Max Weber (1864-1920) saw class as an important aspect of the distribution of power in society. He observed, “the probability that one actor within a social relationship will be able to carry out his own will despite resistance, regardless of the basis on which this probability rests.” In the second decade of the 20th century Weber identified that the focus is on the market as the source of inequalities in life chances.
It is mainly the extraordinary power of corporations that is to blame for bringing about the post-democratic position. The maxim TINA – there is no alternative – creates a situation that borders on extortion because the hand of the legislature as the representative of the community is in effect forced by the economic elite. The need to operate swiftly in rescue operations during times of emergency means that legislative oversight in such processes is practically non-existent. Neoliberalism is not exclusively concerned with economic but rather with political economy – replete with views on the state and democracy as well. This is reflected by the restriction on democracy through various forms of non-majority institutions and decision-making procedures – while replacing democratic procedures with market coordination citing normative as well as functional reasons for this preference. The more we know about how neoliberalism operates, the better we will be able to resist it.
Hayek argued that government control of our economic lives amounted to totalitarianism: “The economic freedom which is the prerequisite of any other freedom cannot be the freedom from economic care which the socialist promise us and which can be obtained only by relieving the individual at the same time the necessity and the power of choice, it must be the freedom of our economic activity which, with the right choice, inevitably carries the risk and responsibility of that right.” Freedom has nothing to do with democracy or speech or individual rights: for the neoliberal it is about the freedom of the market and the elites who control those markets. When asking searching questions of yourself, realize that freedom resides not in the brain, but in the traditions of critical thought and skeptical reason. Today we realize that true freedom is a means to an end, not an end in and of itself.
By the late 1990s, the rational pursuit of self-interest by top managers led them to do whatever it took to keep stock prices rising even in the shortest of runs, an objective that required ever-rising reported earnings. Financial asset prices in the late 1990s were driven by fraudulent information interpreted irrationally in a kind of mirror image of a neoclassical “efficient” financial markets model. Severe conflicts of interest deeply embedded in the financial system allowed wide-spread fraud to take place. There is a sense that we are now living through events that mark a turning point between one epoch and the next, when one orthodoxy is overthrown and another takes its place: barely two decades into the new millennium, barely 40 years since the end of the Cold War and barely 50 years since the triumph of neoliberalism – that particular brand of free-market fundamentalism, extreme capitalism and excessive greed which became the economic orthodoxy of our time.2
In his writings Max Weber made multiple references to unintended and paradoxical results that occur in history that have an important role in explaining what is occurring, that can be applied to the regimes of austerity and minimal government that drive economic decisions in play today. In Economy and Society, Weber notes that, “by a peculiar paradox asceticism resulted in the contradictory situation – namely it was its rationally ascetic character that led to accumulation of wealth (that it had previously rejected).” In Politics as a Vocation, Weber observes that the end product of political action “regularly stands in completely inadequate and often in paradoxical relation to its original meaning.” He goes on to point out that anyone who wants to be involved in politics has to understand ‘ethical paradoxes’, and the person who fails to realize that good may come from evil, and evil may come from good, is a ‘political infant’.
The basic paradox is that capitalism creates enormous wealth, but it concentrates into oligopolies and monopolies, to the extent that it undermines that very wealth production it relied on. A second paradox is in how neoliberal capitalism creates and normalizes a culture of lying to itself leading to its inherent instability. Free market fundamentalists and neoliberals are in total denial of the paradox. Weber described the essential paradox of social action analysis of the unexpected, which flags the need to establish inquiries into unanticipated and unintended consequences of social action, and only then move to social intervention. Knowledge about social paradoxes needs to be part of all curricula. The key to resolving paradox is collaboration, and that means letting go of control and letting a purpose and not a plan guide your way. Failure to acknowledge these social paradoxes in some way will result in reproducing errors and fictions that keep the political discourse gridlocked.
1 Dániel Oláh. If You Look Behind Neoliberal Economists, You’ll Discover the Rich: How Economic Theories Serve Big Business. http://evonomics.com/look-behind-neoliberal-economist-youll-discover-rich-economic-theories-serve-big-business/
2 James R. Crotty. February, 2005. The Neoliberal Paradox: The Impact of Destructive Product Market Competition and Impatient Finance on Nonfinancial Corporations in the Neoliberal Era. https://www.researchgate.net/publication/23693624_The_Neoliberal_Paradox_ The_Impact_of_Destructive_Product_Market_Competition_and_Impatient_Finance_on_ Nonfinancial_Corporations_in_the_Neoliberal_Era