Ever since the Austrian aristocrat Friedrich August von Hayek wrote an ideological catechism called The Road to Serfdom in the 1940s, we are doomed to be serfs on the road to neoliberalism. Eighty years after Hayek’s book was published, his perceptions remain the political master ideology for what followed. Today, une idée fixe of neoliberalism features seven key aspects:
- an increasingly unleashed free market;
- the annihilation of trade unions;
- the reduction of the state and deregulation (read: pro-business regulation);
- taxation for the middle-class and poor rather than the rich and their businesses;
- unconstrained free trade;
- rampant privatization of everything;
- the elimination of the public good and the concept of civil society.
These seven points have defined politics in many countries ever since Hayek’s semi-religious playbook was first put into political action by the evil trinity of – Augusto Pinochet, Margaret Thatcher and Ronald Reagan – during the 1980s. Yet the shining success story of neoliberalism hides a bundle of secrets that the apostles of neoliberalism do not want you to know.
One of these secrets is the essential link between neoliberalism and the global financial crisis of 2008. Another is the fact that wages have remained stubbornly stagnant, while work time for the many has increased since the 1970s. The subsequent decade was a time when neoliberalism started to make an impact through rising inequalities. Worse, living standards in Sub-Saharan Africa have deteriorated for the last three decades. In Latin America, the per capita growth rate has fallen by two-thirds during the period. No wonder the neoliberals don’t want you to know such things.
Perhaps one of the most serious problems for neoliberalism has been the fact that the free market simply does not exist. In fact, it never existed and, in all likelihood, it never will exist. Why? Perhaps three reasons come to mind:
- Because all markets have boundaries and all markets restrict freedom. The marketplace operates with money and all currencies are state-issued and state-regulated. Otherwise we would all have to walk around carrying sacks of gold and silver.
- Secondly, all markets depend on a dependable legal framework that regulates participants in such a market. Governments formulate and enforce such laws.
- Thirdly, all markets regulate the use of labour in what is called the labour market – that is, a marketplace where no goods change ownership.
After more than one hundred years of virtually unregulated child labour, in 1819 the United Kingdom finally started to legislate against child labour but only, at first, for those under nine years of age. Thus ended the pure free market ideology in favour of children’s rights. The sanctity of the neoliberal freedom of contract also ended at that moment. The very foundations of the free market as an economic concept were annihilated. Up until that moment, the argument went that children wanted to work down in the mines and needed to work for the industrial revolution to proceed. Similarly factory owners wanted to employ young children to crawl under the cotton weaving machines because it would be too expensive to build more efficient machines, and young boys and girls enjoyed the thrill and excitement of losing limbs, going blind and getting killed.
In this legal fiction, both sides agree to a manifest injustice and therefore the free market should have worked. Looking back now, we see that this concept is outrageous. Today we protect children as a matter of course from such social pathologies. Despite this bursting of the balloon of neoliberalism, its proponents do not want you to know the implications of their free market ideology. Profit before people.
Despite the neoliberal ideology of a free market, advanced societies regulate child labour or eliminate it altogether. Societies also regulate narcotic drugs, just as they regulate medical drugs. They regulate the use of human organs as hearts and lungs are not sold to the highest bidder. Societies also regulate access to universities which cannot be purchased on a free market. The same goes for firearms, alcohol, human beings (no more slavery) and rafts of other products and services. Following neoliberalism and deregulating these would bring unimaginable harm to society, a fact the apostles of the neoliberal free market don’t want us to think about when broadcasting their free market ideology.
Yet even their beloved stock exchange is regulated. There are trading hours with a bell indicating the start of trading. Worse for the apparatchiks of neoliberalism, trading is not at all free at the share market. Trading is only allowed for licensed brokers and traders. You cannot just pitch up at the stock exchange with a bag full of money to buy shares. At the very heart of capitalism, the much trumpeted free market is not free – it is highly regulated.
When the champions of neoliberalism say that a regulation should not be introduced because it would restrict the free market they are merely expressing an opinion– an ideology that is commonly rejected. The neoliberal champions run into still more problems when it comes to shareholding of corporations. Even in companies and corporations, the free market is rather limited. What we see behind many company names is a little abbreviation, “Ltd.” meaning that investors will only lose what they have invested should the company go down. Personal property – unlimited liability – is excluded.
Since limited liability fosters unlimited risk-taking by shareholders, one of the godfathers of neoliberalism or at least someone who the advocates of neoliberalism claim to be their godfather – Adam Smith – the founding-father of modern economics and the supposed sponsoring saint of market freedom was actually opposed to limited liability, the trademark sign of almost every company. Again, this is something the apologists of neoliberalism do not want to you know.
For the very same reason, the chief enemy of neoliberalism, Karl Marx, was also against it. Marx remains the adversary of neoliberalism because he ruthlessly tracked down and exposed the falsehoods told by free market economists. Like Smith, Marx was aware of the tendency of companies with unlimited liability to promote excessive risk-taking. Perhaps Enron, Bernie Madoff and the Global Financial Crisis (GFC) have proven both Smith and Marx to be right.
Corporate setups in favor of business, deregulation and the undying belief in the free market are claimed to encourage investment. Yet investment as a share of output has in many countries fallen rather than risen. Running companies and corporations for the benefit of shareholders and shareholder value – the code word for profit neither benefits long-term thinking nor the economy as a whole.
GM or General Motors, briefly known as Government Motors during the GFC (Great Financial Crisis) when the US government rescued it from bankruptcy, squandered its absolute dominance of the world car industry. As a GM boss once notoriously said, “The point is that General Motors is not in business to make cars, but to make money.” Even worse for the trumpeters of neoliberalism, GE (General Electrics) CEO, Jack Welch, often seen as the inventor of the expression shareholder value in 1981, later acknowledged that shareholder value is probably the dumbest idea in the world.
Much of the false belief in the neoliberal free market is linked to yet another myth, une idée fixe in self-interest. This is even framed as the basis of business ethics, another empty ideology. Well, the neoliberalism ideology of self-interest may not be completely without merit. But when it is placed on an all-defining pedestal, it is bound to topple. Meanwhile, there are plenty of other human motives, such as for example, honesty, self-respect, altruism, love, sympathy, faith, sense of duty, solidarity, loyalty, public-spiritedness, patriotism, and so on. They have a much stronger historical and psychological grounding in reality. We wouldn’t be here now if it weren’t for these values.
Unlike the accolades of the neoliberals, for example, good managers know that people do not have tunnel-vision like robots. Despite such neoliberal hallucinations, non-selfish behaviour is displayed through a sense of a social attachment to a job with its workspace and colleagues, pride in workmanship, self-respect, even trust in top managers and loyalty to the company. In short, not only the corporate world but the world as such appears to be full of human behaviours that go against the ideology of neoliberalism.
Nevertheless, Neoliberalism relentlessly pushes the selfishness ideology just as it pushes deregulation – pro-business re-regulation – that is presented as freeing up the economy, especially in the financial industry. However, the much defamed and over-regulated world of the post-World War II era delivered –until the mid-1970s – a world without a banking crisis. The rise of neoliberalism during the 1980s was set to change this.
With the help of neoliberalism, one financial crisis after another returned with a vengeance starting with the Finnish, Swedish and Norwegian banking crises of the 1990s. These were followed by a South American banking crisis (Peru, 1992 and Venezuelan, 1994) only to be followed up by the 1997 Asian financial crisis. Then, in 1998, Long-Term Capital Management collapsed. In the same year, the Russian financial crisis hit. Still another year later, the Argentine crisis broke out, along with the Ecuador and Uruguayan banking crises. This whole shlamozzle was overshadowed by Subprime Mortgage Crisis in the USA (2007) that infected the world a year later. Neoliberal deregulation delivered a whole series of monetary catastrophes. Undeterred, neoliberalism stumbles along relentlessly.
Sadly, even history works against the neoliberals. In sharp contrast to the ideology of neoliberalism, the performance of developing countries in the period of much hated state-led development was superior to what they have achieved during the subsequent period of market-oriented reform. This has historical reasons. The economic super heroes of the late 19th century (USA) and of today (China) have both followed policy recipes that go completely against the neo-liberal free-market ideology when developing their industries.
Don’t tell this the propagators of neoliberalism but even the man featuring on the US$1 dollar bill, George Washington (“I cannot tell a lie”) is wearing clothes woven in Connecticut in total violation of neoliberal WTO rules. Far worse, the jolly man featuring on the US$100 dollar bill which acts as “the” signifier of corporate capitalism is none other than Benjamin Franklin (writers of Poor Richard’s Almanack) who thought (rightly) that American manufacturing could not survive unless it was protected from low-wage competition.
Yet the more we look, the more things get worse for neoliberalism. Every day, hundreds if not thousands of American believers in “the party line” go through their day by paying for their Uber rides, giving tips and buying their sandwiches, with Washington, Hamilton and Lincoln (Honest Abe) on their greenbacks. They get their small change with coins proclaiming “In God We Trust”. All the while they fail to realize that these revered Founding Fathers were protectionists, not neoliberal free-marketeers. These are the hidden secrets of neoliberalism.
Thankfully for neoliberal true believers those honourable old people and dead presidents can’t talk. If they could, they would tell the apostles of selfishness and greed how the policies that the followers of Hayek and gang promoted today are the exact opposite of what George Washington, Alexander Hamilton and Benjamin Franklin, used in order to transform a minor agrarian US economy using slave labour into the world’s greatest industrial power. And Abraham Lincoln fought a Civil War to get rid of slavery and hold the Union together. Another set of secrets, neoliberalism does not want you to know.
In sharp contrast to what we have been told by the proponents of neoliberalism, the USA was the most protectionist country in the world during most of its phase of ascendancy – from the 1830s to the 1940s. Similarly, the second poster-boy of neoliberalism, Great Britain, was also one of the world’s most protectionist countries during much of its own economic rise – roughly 1720s to 1850. Virtually all of today’s rich and powerful nations used protectionism and subsidies to promote their infant industries. The idea was of the economy as a commonwealth.
The broadcasters of neoliberalism not only do not want you to know that, those countries and even whole continents which have adhered to the ideology of neoliberalism have done badly. Between the non-neoliberal years of 1960s and 70s, for example, Latin America grew at steady 3.1% in per capita terms. In the subsequent neoliberal years (1980 until today), it grew at a rate barely above one-third that, 1.1%. In other words, the ideology of neoliberalism not only camouflages what really happened during the time when rich countries developed, but it is used to keep non-OECD countries down in a subordinate opposition.
These are some of the hidden secrets of neoliberalism that the apostles of neoliberalism do not want you to know. It is not the neoliberal free market that protects us from wage- and chattel-slavery and our children from child labour but the much hated state regulation – and this is something utterly abhorrent to the promoters of neoliberalism. What neoliberals also do not want you to know is that there is no free market. All markets by definition are regulated. Take, for example, patent laws, international intellectual property rights, copyrights, etc. and allow all companies the products of other companies and capitalism would collapse within two weeks. The much trumpeted protection of civil and human rights depends on legal regulation.
Without it, neoliberal capitalism is finished. Kaput! But before neoliberalism is pulled off the stage of history, it would not even operate its beloved not-so-really free market without state-issued and state-regulated money – the ultimate exchange element. So much for the neoliberal hallucination of a free market, even the New York Stock Exchange is regulated where the ringing of a bell opens and closes the trading day.
The rise of capitalism was made possible during a time when the two flagship economies of neoliberalism – the UK and the USA – ran on protectionism and not on free trade. Once these great nations became rich, they fell prey to the insidious ideology of neoliberalism. Meanwhile, other countries that follow the protectionist model when developing, such as China, continue to do well. Other nations and even entire continents – South America – also did well until neoliberalism started undermining their success.
The truth will out: deregulation, free market and free trade not only hindered developing economies from developing, they also ended decades of unprecedented progress, a time during which the world was virtually free from financial crisis. Once financial markets began to deregulate, one banking crisis followed another, culminating in the GFC of 2008. The demagogues of neoliberalism do not want you to know about that.