The Myth of Neoliberalism

Neoliberalism is a myth. It’s a pervasive myth on one side of politics – the left. But it is nevertheless a myth.

Let’s start with one simple and obvious fact – no-one claims to be a neoliberal.

This is rather odd.

Of course, in politics, people often accuse other people or parties of holding views they think are repugnant. Nazi, socialist, racist, liberal, Stalinist, are all terms of abuse hurled at opponents.

They are often wrong, but oddly there is almost always someone who is happy to claim the label. There are parties and groups happy to adopt each of the labels mentioned.

But oddly, no-one calls themselves a neoliberal. Only critics of this supposed doctrine use this label. Why?

Let’s start with what is most often described as neoliberal doctrine.

According to one of the most prolific chroniclers of “neoliberalism”:

“Neoliberalism is in the first instance a theory of political economic practices that proposes that human well-being can best be advanced by liberating individual entrepreneurial freedoms and skills within an institutional framework characterized by strong private property rights, free markets, and free trade.

The role of the state is to create and preserve an institutional framework appropriate to such practices. The state has to guarantee, for example, the quality and integrity of money. It must also set up those military, defence, police, and legal structures and function required to secure private property rights and to guarantee, by force if need be, the proper functioning of markets. Furthermore, if markets do not exist (in areas such as land, water, education, health care, social security, or environmental pollution) then they must be created, by state action if necessary. But beyond these tasks the state should not venture. State interventions in markets (once created) must be kept to a bare minimum because, according to the theory, the state cannot possibly possess enough information to second-guess market signals (prices) and because powerful interest groups will inevitably distort and bias state interventions (particularly in democracies) for their own benefit.”

David Harvey (2005) A Brief History of Neoliberalism, Oxford.

Let us be clear what this means in concrete terms. It would be a reversion to roughly what the state did in the middle to late part of the 19th century in what is now the “OECD” countries. It would be what has often been called the “Night Watchman” state. Providing for property rights, contracts, markets and personal and national security and not much else.

This meant, in the latter part of the 19th century, the state collected through taxes and spent on public activities less than 10% of national wealth creation (GDP). Even less was spent on what might be called ‘social protection’ or ‘welfare’, public employment (except for the military) was minimal and regulation scant.

The Strange Inversion of Neo-Liberalism

The idea that this is what is meant by ‘neoliberalism’ is odd in several ways.

The first concerns the origins of the term ‘neoliberal’ itself. It originated in the 1930s in Germany as a counterpoint to classical ‘Night Watchman’ liberalism that espoused only free markets, free trade and (sometimes but not always) more democratic rights.

Neoliberalism was precisely ‘new’ in that it embraced social as well as political and economic rights. It recognized that social protection, workers rights, public health, education, and other ‘welfare’ provisions were both progressive and would actually be helpful to the development of capitalist society.

In a somewhat bizarre twist of fate the term ‘neoliberalism’ was inverted in Latin America in the post-Chile coup (1972) era to mean almost the opposite of its origins in the 1930s. Instead of enhanced social protection and placing boundaries on markets, it came to mean exactly the opposite – a reversion (in theory at least) to 19th century free market liberalism and it even removed the 19th century commitment to political liberalism.

From Liberalism to Liberal Social Democracy?

Before the end of the 18th century no state devoted more than 3% of national product to ‘redistributive social programs’ or ‘welfare’ (Lindert).

Even by the late 19th century government and the state in ‘advanced’ countries were still small. One estimate is that around 1870 the average advanced countries public spending amounted to about one-tenth of GDP. The UK (9.4), USA (7.3) Sweden (5.7), Norway (5.9) were at the lower end of the spectrum. Australia (18.3), France (12.6), Italy (13.7) and Switzerland (16.5) were at the upper end. Germany (10.0) sat more or less in the middle (Tanzi & Schuknecht).

Between 1870 and the start of the First World War the state grew slightly more – to around 13% of GDP – but was still quite small by present standards. WWI produced a step change – by 1920 the average size grew to almost 20% and thereafter grew slowly until by the end of the inter-war period it had reached 23% of GDP.

Given the Industrial Revolution is usually dated between roughly mid-18th and mid-19th centuries, the expansion of the state and welfare didn’t start until after capitalist industrialism was well established. There were clearly other forces at play including democratization, mass political movements, the exigencies of war and economic crisis. Coupled with the need of capitalist industrial societies for educated and healthy workers the state had, by the outbreak of WWII, already expanded far beyond the ‘night watchman’ state of the early 19thC and was more than double the size it had been in the late 19thC.

The next big expansion took place in the aftermath of WWII and by 1960 the average size had risen to nearly 30% of GDP. The next two decades saw a further leap to over 40% in 1980 – usually given as the start of the supposed ‘neoliberal era’.

So at the start of ‘neoliberalism’ – usually marked by the elections of Margaret Thatcher (1979) and Ronald Reagan (1980) – the state was more than four times the size it had been in 1870. Even in supposedly ‘liberal market democracies’ like the USA public spending was around a third of GDP.

(There is a good case for calling all OECD states at this time “liberal social democratic” but that is for another debate).

Neo-Liberalism as Talk, but not Decisions or Actions

Certainly in rhetoric the 1980s saw a dramatic shift in tone from conservative politicians, fed by ideas from right-wing free-market think-tanks. Thatcher famously declared her intention to ‘roll back the frontiers of the state’ and Reagan that ‘government wasn’t the answer, it was the problem’.

(Initially this phenomenon was simply called the ‘New Right’ to distinguish it from the conservatives of the post WWII period who had largely accepted and even in many cases promoted the grow of the state and social welfare).

But re-read the David Harvey quote above – it clearly suggests that ‘neoliberalism’ was supposedly committed to a really radical ‘rolling back of the state’ to something more like the pre WWI ‘small government’. Indeed Harvey goes on to say:

“There has everywhere been an emphatic turn towards neoliberalism in political-economic practices and thinking since the 1970s. Deregulation, privatization, and withdrawal of the state from many areas of social provision have been all too common.”

Now it is true some of these things began to happen, but on a far smaller scale than a real ‘neoliberal’ agenda would suggest. In most OECD countries public spending at most stabilized and in some cases continued to grow as a proportion of GDP from 1980 onwards. The OECD itself says that public spending averaged 40.5% of GDP in 1986. A decade of ‘neoliberalism’ later and it was 42.1% of GDP. By 2005 it was 40.1%.

Public spending (and raising taxes to pay for it) is of course not the only way to measure the ‘size of government’. Governments also employ people – but public employment as a proportion of all employment also hardly shifted at all. This is true despite the widespread privatizations and ‘outsourcing’ over the period since 1980.

There is only one area where there has been a dramatic change – and that was regulation. Here the state in most OECD countries did withdraw substantially from regulating many areas but especially and crucially financial services. And we all know where that led.

So where is ‘neoliberalism’ in all this? The answer is whilst it exists in ‘talk’ it is rarely translated into decisions and actions that would come even remotely close to vision of a neoliberal state that its critics claim is being created. We are no nearer the ‘neoliberal state’ now than we were in 1980. Nor have most political parties – especially social democratic ones – been taken over ‘neoliberalism’.

(See Nils Brunsson discussion of the frequent lack of congruity between talk, decisions and actions within organisations – although it also applies very well to politics and policies).

Neoliberalism exists but mainly as a bogeyman created on the left to oppose various conservative attempts to ‘rebalance’ government-market relations. These attempts on the right were far less dramatic than both their proponents and opponents suggested (but it often suited both sides to exaggerate).

There have been changes to be sure – both at country-level and in specific policy areas. A couple of countries did significantly reduce the size of public spending – both New Zealand and Ireland (for different reasons) went from over half of GDP to around a third over two decades. But other, larger, countries like Germany, France, the UK and USA remained more or less stable or grew slightly. Spending on some types of social programs reduced (especially housing) but in others (health, education) it often grew.

‘Neoliberalism’ has become a term of abuse and an obstacle to serious thinking about what is, and is not, happening in politics and public policy.

Perhaps this is best illustrated by some counter-examples using the idea of ‘socialism’? Does any reform that replaces ‘free market’ solutions amount to ‘socialism’? Of course not.

When the UKs telephone system was nationalized by the Asquith Liberal Government in 1912 was this ‘socialism’? When the Macmillan Conservative government of the 1950s committed to and achieved building 300,000 council houses was this ‘socialism’? Most reasonable observers would say ‘no, of course it isn’t socialism’. But when equivalent reforms in the opposite direction occur, they are immediately branded as ‘neoliberalism’.

Neoliberalism is a convenient myth invented by opponents of any type of pro-market reform or political position that recognizes markets may – in the right circumstances – be a good thing. Everyone from moderate social democrats to the most lurid free-marketeers gets lumped together under a convenient ‘neoliberal’ label. I suppose it saves the bother of actually thinking, but otherwise it is not helpful.

 

Sources

 

Taylor Boas and Jordan Gans-Morse (2009) Neoliberalism: From New Liberal Philosophy to Anti-Liberal Slogan, Studies in Comparative International Development, 44(2).

Nils Brunsson (1991) The Organization of Hypocrisy: Talk, Decisions and Actions in Organizations, Wiley.

David Harvey (2007) A Brief History of Neoliberalism, Oxford.

Peter Lindert (2004) Growing Public – Social Spending and Economic Growth Since the Eighteenth Century, Cambridge.

Vito Tanzi and Ludger Schuknecht (2000) Public Spending in the 20th Century, Cambridge

OECD (2005) Modernising Government: The Way Forward, OECD, Paris

32 thoughts on “The Myth of Neoliberalism

  1. When you say that “no-one claims to be a neoliberal” that’s not actually true since Sam Bowman, executive director at the ASI, did precisely that only this month.

    View story at Medium.com

    You may be correct that the term is overused but you surely cannot deny examples of private sector involvement in the running of the state – private sector prisons, prisoner transfer, outsourcing of the probation system, outsourcing of court translation service – to take one area as an example.

    The very fact that a private sector company G4S has a division called Care and Justice Services delivering services that were previously thought of as roles in the public sector implies that at least one part of neo-liberalism is very much a reality.

    http://www.g4s.uk.com/en-GB/What%20we%20do/Services/Care%20and%20justice%20services/

    • Thanks – useful corrective. However it is still the case very, very, few people self-identify as neoliberals. That however isn’t the main point, which is that ‘neoliberalism’ has been strecthed well beyond any usefulness as a concmpt and even more so as practice.

      • People–politicians and business executives–self-identity as “neoliberals” all the time but they don’t call it “neoliberalism” because people don’t understand the term or concept. They hear “liberal” alone and then don’t understand the real issues at hand.

  2. I fail to see any overall objective reduction in regulation in the US. I have seen studies of regulation in the Financial industry and it shows increasing of net regulation every year for the decade leading up to the crisis. Other objective measures, such as the Heritage or other measures of governmental regulatory interference show that the US has deteriorated substantially.

    I am not trying to be argumentative, but I know of no objective measure of net regulatory burden which shows a reduction in the US. It just grows. I am familiar with multiple objective measures which substantiate this increase.

    I agree with the rest of the article. My take on neoliberal is that it is an after the fact catch all name applied to anyone who opposes the increased control of the state for any reason. It is the new boogey man for anyone opposing the utopian state.

    • Thanks. Interesting point. I agree regulation is very difficult to measure. I also agree that it probably has grown overall (across the OECD) even if it is difficult to quantify. However there have also been obvious areas of deregulation or weakening of regulation, with in some cases devastating consequences. Thanks again for engaging.

      • May I offer another framing of the issue?

        Classical liberals don’t argue for no rules or regulation. Even anarchist libertarians argue for rules, just that they can be decentralized rather than imposed top down. The argument of classical liberals is for consistent, impartial and dare I say parsimonious rules which provide a level playing field for economic competitors and cooperators.

        In areas such as health care, housing and finance (I am a subject matter expert in insurance), we have strayed 180 degrees from the above standard. The regulatory field resembles a Rube Goldberg contraption of detailed, partial, subjective, inconsistent rules which attempt to determine who, what, how, and the price of almost every facet of economic interaction. In this realm, success or failure is determined by regulation, not competition.

        When a classical liberal argues for deregulation it is essential we not argue for taking away isolated pieces of the Rube Goldberg device. Such a device with fewer pieces is indeed as likely to work less well as more well. Proper deregulation is moving away from a Rube Goldberg regulatory system to a parsimonious and impartial system. We have never seen anything close to true deregulation in finance.

  3. “no-one calls themselves a racist. Only critics of this supposed doctrine use this label. Why?”

    “no-one calls themselves a misogynist. Only critics of this supposed doctrine use this label. Why?”

    this part of your argument is completely unpersuasive, and has been addressed repeatedly in the literature. the fact that a category is analytical rather than a self-applied label has nothing to do with whether or not it is analytically useful.

  4. Surely there’s Neo-Liberal regulation? Rights of corporations to get a refund from governments changing energy policy or tobacco addiction?

  5. I don’t agree. you’re just quibbling about the word – the term itself – suggesting that the state has not been ‘rolled back’ significantly enough to justify the approbrium from writers like George Monbiot (in his article about Neoliberalism in the Guardian a few months ago).

    You say “Neoliberalism exists but mainly as a bogeyman created on the left to oppose various conservative attempts to ‘rebalance’ government-market relations.”
    I don’t agree – sure, there are some on the left who exaggerate for rhetorical effect –
    But there are also people on the right who describe any kind of state intervention as ‘socialism’ ‘- “Does any reform that replaces ‘free market’ solutions amount to ‘socialism’? Of course not.”
    Well some do – particularly in America. Even in the UK ‘Socialism’ is increasingly used as a ‘bogeyman word for even mild mannered ‘austerity lite’ social democracy – remember the way the newspapers presented ‘Red Ed’?

    I do agree with this though, “Everyone from moderate social democrats to the most lurid free-marketeers gets lumped together under a convenient ‘neoliberal’ label.”
    This is something that enthusiastic Corbynistas are frequently guilty of when they attack centre-left social democrats in the Labour Party..

    The term neoliberal in practice is being used to describe the dismembering of the post war consensus because of globalisation AND right wing ideology – as Jonathan Freedland explores with regard to the BBC in the article this Saturday. There ARE people that want to take us back to pre-19th C size government – as James Meek shows in ‘Private Island’ – just because Thatcher and Reagan didn’t do it all in one go that doesn’t mean it’s a ‘myth’. Cameron and now May are doing a good job of smiling and pretending to be socially liberal (gay marriage and non-whites on the platform at conference are window dressing) – while pressing ahead with stuff that Thatcher’s crew only dreamed of. I don’t believe that all of this is just lazy left wing scare-mongering.

  6. Superb blog. I have been waiting for someone to write this for a long time. So much of the academic left just shouts neoliberal at everyone they disagree with. My Cambridge dons were in love with Harvey and Giddens (neoneoliberal??). They failed to distinguish between social democratic, liberal democratic, liberal conservative philosophies. Each has their nuance but all share a core belief in markets and a string active state fighting for social justice. But to the hard left they are all Neo liberals. I now constantly talk of myself as a Neo liberal to wind this brigade up and occasionally even call myself a free market social democrat. The great triangulation challenge of the next two decades will be to work out how to resurrect this consistent set of beliefs and package them into a party that can win elections, fighting for the radical centre – which is where the majority of the voters are. Hang on though, someone did work that out and is now hated for the compromises. Blair. Lost in the wilderness. One other observation. I constantly re read Marx and Engels not as a believer (I do the same for Scruton and Hayek on the right) but for their insights and analysis. I have an odd feeling that if the pantheons of the Marxist/anarchist left were alive today they would be Neo liberals. But they would be thinking about how technology and markets are evolving at light speed to generate new false consciousness around nationalism.. Anyway carry in the good work Colin and maybe examine why so many ex Marxists have turned into libertarians….fascinating sub culture…

    • please read my post below! i think one should ask i why there is no such thing as society guru has a society in his name? to why so many who follow him feel that they should deny him not thrice but in entirely maybe because they understand the damage he & his ilk have done!

  7. Since Hayek(who termed the name neoliberal for himself) and Friedman of the same group are/ have been at the centre of the economic mess created by there profiteering (banned by witch dunkers) with no interference from the state that should represent all citizens & therefore protect citizens from profiteering & the taxation to rectify this abhorrent profiteering which is a tax on those that have to pay the false pricing/valuations needed for profiteering to occur & the discourse between the victims becoming more & more unable to pay this tax(falling demand) & the idle money creating greater & greater asset bubbles until they’re so inflated that between these corner stones of good economics leaves only stagnation left even though their has never been so much money in the system. deserve the title there master & guru placed upon himself . Sorry if there master classed himself has a neoliberal am quite entitled to call those who follow him as neoliberal,after all i wouldn’t call Christians anything other than Christians would i?

  8. Let’s start with one simple and obvious fact – no adult claims to believe in Santa.

    This is rather odd.

    Of course, in social life, people often accuse other peoples or parties of holding views they think are irrational repugnant. Believers in the UFOs, Lizard men, ESP are hurled at opponents.

    Oddly there is almost always someone who is happy to claim these beliefs.

    But oddly, no-one calls themselves an actual believer in Santa. Only silly adults would believe in Santa. Why?

    According to the experts “Santa”:

    Is a myth of a chubby merry man who lives at the North Pole with a white beard and who brings presents on Christmas Eve.

    Santa is just a myth – in part invented by the Coca Cola company – it is a false belief. So now realising this we can assume he does not influence the actual economy.

    ‘Santa as Talk, but not Decisions or Actions’ – I now reveal that Santa does not objectively put the presents under the Christmas Tree.

    Hold on a minute – the ‘belief and myth of Santa does’ have an objective result – it results in the greatest consumer event on the Globe – that is rather odd if it just a myth?

    Well I don’t think because I have outed this myth millions of children are not going to get any presents this year. I don’t think toy companies are going to cease manufacturing because this Xmas thing is now shown to be based a myth.

    Maybe it is time to grow up a see myths and beliefs for what they are – this Santa talk does shape decisions and actions in a rather profound way. Maybe we could apply this to some other abstract ideas!

    • Good points here. I was somewhat surprised by this article’s use of “myth” given that myth–in terms of academic discourses–does not refer to things that are “false.” As Richard T. Hughes says in Myths Americans Live By, “Contrary to colloquial usage, a myth is not a story that is patently untrue. Rather, a myth is a story that speaks of meaning and purpose, and for that reason it speaks truth to those who take it seriously.” The evidence for what has been termed “neoliberalism” is all around us — fish can’t tell they’re in water, say, just as most people can’t tell their every thought is shaped or seen through the ideologies of neoliberalism being “natural.”

      • Yep, neoliberalism seems to be a particular naturalised conception of what freedom is – it has of course mutated from its original form and there is a question about the degree of its influence – this is complex issue because it interacts with other discourses.

        Maybe prof Talbot is correct but on my reading he needs to show that their are flaws in the genealogical work that has been done to date – a good start would be to be to demonstrate that he has been read such work – Davies for example. If Talbot or anyone else do a good critique of Davies then I will be swayed.

        Talbot comments that most people who are critics of the market system don’t understand the term is most likely correct – on my reading many scholars who deploy the term do not have a thorough understanding, myself included. Unfotunely this criticism cuts both ways – the critics of the critics are stuck in their own ideologies and this bias shows up in faulty arguments.

        Lets hope these issues can be solved through good scholarship as well as and some humility. Perhaps some scholars might actually know what they are doing?

  9. ‘So where is ‘neoliberalism’ in all this? The answer is whilst it exists in ‘talk’ it is rarely translated into decisions and actions that would come even remotely close to vision of a neoliberal state that its critics claim is being created. We are no nearer the ‘neoliberal state’ now than we were in 1980. Nor have most political parties – especially social democratic ones – been taken over ‘neoliberalism’.

    ‘no nearer to the neoliberal state’ I remember the 1980’s take Australia or Britian as examples – the public utilities, education services, employment services, many parts of health care, prisons, public transport systems have now been privatised. They are now more expensive, service is largely worse, and in many cases public funds are being misused. You appear to base your arguement on public funding of these services still remaining strong – well public funding for crappy services does not count for much.

    i

    • ‘Neoliberalism is a convenient myth invented by opponents of any type of pro-market reform’

      Colin you need to clarify this statement. You make the assumption that there is a movement for pro-market reform. If these reformers are not inspired by neoliberal arguments what is the source of their ‘pro-market’ position and indeed what would this reform actually look like?

  10. […] Colin Talbot pointed out that “neoliberalism” has become “a term of abuse” to be used against “any type of pro-market reform or political position that recognizes markets may – in the right circumstances – be a good thing”. Consequently, everyone “from moderate social democrats to the most lurid free-marketeers gets lumped together under a convenient ‘neoliberal’ label.” […]

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