Why Are Neo-liberal Ideas So Resilient?
30/10/2013 by Leave a Comment
Vivien A. Schmidt
Given the abject failure of the
Neo-liberal policy offer, why has it persisted as the dominant approach
to European policymaking and is there any way out?
Despite the economic crisis that hit the
US and Europe full force in 2008, political leaders have made little
attempt to rethink the neo-liberal ideas that are in large part
responsible for the boom and bust, let alone to come to terms with how
immoderate the ‘Great Moderation’ really was. Much the contrary,
neo-liberal ideas continue to be the only ideas available. In the
financial markets, where the crisis began, reregulation remains woefully
inadequate, while the only ideas in play are neo-liberal, either for
more ‘market-enhancing’ regulation or in favor of greater laissez-faire.
The biggest puzzle, however, is the response to the crisis by Eurozone
countries that have embraced ‘market discipline’ through austerity and,
in so doing, have condemned themselves to slow or no growth. This is
in contrast to the US, which has posted better economic results, despite
being torn between Republican fundamentalists advocating austerity and a
more pragmatic leadership focused on growth.
Mark Thatcher
Our question, then, is: How do we
explain the resilience of neo-liberal economic ideas? Since the 1980s,
why have such ideas not just survived but continued to be dominant?
Neo-liberalism entails belief in competitive markets enhanced by global
free trade and capital mobility, backed up by a pro-market, limited
state that promotes labor market flexibility and seeks to reduce welfare
dependence while marketizing the provision of public goods. The
watchwords for such neo-liberalism are liberalization, privatization,
deregulation, and delegation to non-majoritarian institutions such as
‘independent’ regulatory agencies and central banks. The touchstones
highlight the importance of individual responsibility, the value of
competition, and the centrality of market allocation. The neo-liberal
mantra presents the state as the perennial problem, the market as the
solution – even today, despite the fact that the crisis was caused by
the markets, not the state.
So why, in light of the crisis, has
there been no major shift in ideas, either back to the neo-Keynesianism
that brought the postwar ‘Golden Era’ or forward to something new? How
do we explain the fact that neo-liberalism continues to permeate how
people think and talk about state and market? We propose five lines of
analysis to explain such resilience: the flexibility of
neo-liberalism’s core principles; the gaps between neo-liberal rhetoric
and reality; the strength of neo-liberal discourse in debates; the power
of interests in the strategic use of ideas; and the force of
institutions in the embedding of neo-liberal ideas.
First, the generality of
neo-liberalism’s core principles, focused on competitive markets and a
limited state, make it highly adaptable to changing circumstances and
needs. Thus, neo-liberalism has been able to move from ideas focused on
the ‘rollback’ of the state to free up the markets in the 1980s under
conservative leaders to the ‘rollout’ of the state to make markets work
more freely under progressives in the 1990s. It has also been able to
absorb seemingly contradictory ideas, as in the case of the welfare
state, where after an initial clash with social democratic ideas,
through attempts at passive reduction of social spending and job
protections, it incorporated such ideas in programs that sought to make
active use of the welfare state to promote market efficiency via ‘active
labor market policies.’ Finally, it has equally been able to undergo
metamorphoses such that ideas discredited in previous periods recur,
returning in new guises, such as the 1920s discourse of ‘sound money’
reappearing in the 1970s as monetarism and in the late 2000s as
‘sustainable debt.’
Second, neo-liberalism often works only
in the rhetoric, not in the reality of implementation. Notably, many
neo-liberal policies – such as cutting public spending, reforming
welfare, and reducing regulatory protection – are difficult to implement
and extremely unpopular politically. This helps explain why promises
to cut back the state for the most part turned out to be hollow, in
particular as state restructuring did not lead to a decrease in its
size, nor did it necessarily reduce public spending.
Deregulation, rather than getting rid of the state, simply led to
reregulation of a different kind. But rather than a weakness, this can
be seen as a strength, since lack of implementation can serve
neo-liberal politicians also as a rallying cry, to call for more
neo-liberalism.
Third, neo-liberal ideas have generally been more successful in policy debates and political discourse, winning in the ‘battle of ideas’
against weaker alternatives. In some cases, that strength may come
from the seemingly common sense nature of neo-liberal arguments. For
example, appeals to the ‘virtue’ of sound finances using the metaphor of
the household economy—extrapolating from the need to balance one’s
household budget to the need to do the same for the state budget—may
resonate better with ordinary citizens than the Keynesian
counterintuitive proposition to spend more at a time of high deficits
and debts. In other cases, neo-liberal success can be attributed to the
reframing of current problems—say, as a crisis of public debt rather
than of the banks; to the narratives—about public profligacy being the
problem, belt-tightening the solution; and to the myths—for the Germans,
that belt-tightening is the only way to avoid the risks of
hyperinflation of the early 1920s, thereby ignoring the risks of
deflation and unemployment of the early 1930s that led to the rise of
Hitler. Equally importantly, it may be that neo-liberals are not so
strong but their opponents are weak. Where, after all, have the
center-left parties been in all of this, in particular in Europe
throughout the Eurozone crisis? Notably, only very recently have
European social democratic leaders called for growth, even as they
continue to dole out austerity.
Fourth, powerful coalitions of interests
often take up neo-liberal ideas for their own strategic purposes,
whether they believe in them or not. Economic actors may benefit
materially, notably through lower taxes or the new opportunities opened
up by ‘deregulation’ and privatization. Bankers have been laughing all
the way to the bank. Politicians also can benefit by using neo-liberal
ideas to gain or retain political power while institutional
actors—regulators, central bankers, and the like—gain autonomy and
increasing power. All of this, moreover, tends to be self-reinforcing,
since the more neo-liberalism takes hold, the more it is likely to
consolidate such actors’ commitment to neo-liberal ideas, as well as to
create an attitude of ‘if you can’t beat them, join them,’ as in the
center-left’s adoption of neo-liberal ideas beginning in the 1990s.
Fifth, the neo-liberal ideas gain force
from their institutionalization in rules and regulations, as well as in
the organisations, including the ‘non-majoritarian’ independent
regulatory bodies such as the independent central banks, the
international credit-rating agencies, and the standard-setting bodies
that are out of the reach of national state control. Moreover, in the
EU, the successive pacts for stability in the Eurozone – beginning with
the Stability and Growth Pact that consecrated the 1990s Maastricht
criteria for monetary union and culminating with various pacts during
the Eurozone crisis – ensure that neo-liberal ideas about fiscal
consolidation will be difficult to reverse, regardless of their failure
to solve the crisis.
These five lines of analysis leave us
with one final question: given all this resilience, is there any way out
of neo-liberalism? One pathway could be collapse from within, as the
contradictions inherent in neo-liberalism become increasingly clear—such
as between the ideal of a limited state and the practice of the state
playing a strong role to enhance markets. Another could be rejection
from without, as the broken promises, indeed the failures, of
neo-liberalism become ever more apparent to citizens. Yet another is
that strong ideational alternatives to neo-liberalism gain strength,
say, with new approaches to economic governance that put the polity
before, rather than after, the economy. It is also possible that
neo-liberalism loses the support of powerful interests, or that new
coalitions emerge. Perhaps the social democrats will begin to coalesce
behind a new set of ideas. Finally, it may very well be that the
institutions of neo-liberalism break down, are replaced, or evolve as a
result of new coalitions of interests with new ideas about how to solve
the problems. But for any of these eventualities, things are likely to
become much worse, before we see any new light at the end of the tunnel.
No comments:
Post a Comment