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The True Face of Neoliberalism

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The True Face of Neoliberalism The true face of neoliberalism Mark van de Velde is a political scientist at the Telders Foundation, the Dutch liberal think tank n the run-up to the elections for the European Parliament to interwar Europe, where a group of mostly German speaking left-wing parties in many member states of the European economists in Austria, Germany and Switzerland feared that the Union blamed ‘neoliberalism’ for the dismal state of the rise of left-wing and right-wing collectivism would destroy the European economy. The leading German social democrat, last vestiges of the liberal political order in Europe. Socialism IMartin Schulz, who currently acts as the EP’s president and and fascism regarded each other as the enemy, but from a is running as a candidate for the presidency of the European liberal perspective both represented a totalitarian attack on Commission, posted an article on his LinkedIn page in which individual freedom and human dignity. he drew some ‘lessons’ from the economic crisis.1 The first lesson he offered is that “the invisible hand of the market does To preserve, or rather restore economic and political freedom, not work and needs a robust regulatory framework... For the last these men wanted a new, positive liberal agenda. In the three decades neo-liberalism has set the agenda. Deregulation, popular mind liberalism had become more and more equated privatisation and tax-cutting became the dogma.” with laissez faire, the idea that the less a government does the better it is. According to the neoliberals, however, laissez faire in The neoliberal blame game practice led to random and distortive government intervention If a lot of red tape, high taxes and state-run companies could in the economy. One of them, Alexander Rüstow (1885-1963), have prevented the economic crisis, one wonders why precisely who worked at the impotent German antitrust office, witnessed Portugal, Spain and Greece ran into economic trouble. None firsthand how a weak state falls victim to organised economic of these countries was known as a neoliberal paradise. But the interests. He said in 1932: “The new liberalism... calls for a strong point I want to make here is that Schulz, like so many other state, a state above the economy, above interest groups”.4 Rüstow’s critics of free market economics, indiscriminately uses the friend and colleague Wilhem Röpke (1899-1966) blamed the word ‘neoliberalism’ without bothering to define the ‘neo’ in proliferation of cartels on the feudal and absolutist history of neoliberalism. And if neoliberalism is a full-fledged ideology, Germany, where a cartel “was next in rank to Court and Church” who and where are its adherents, the neoliberals? The European and speaking disrespectfully of monopolies was “as plebeian as Parliament, which is chaired by Schulz, has been dominated for the public use of a tooth pick”.5 decades by Christian-democrats and social-democrats, and so have the parliaments of most EU member states. There is a It is a grave mistake, said Röpke, to assume that the market is liberal group in the EP too, though rather small, but none of its an autonomous system that can maintain itself without a legal, members has ever used the label ‘neoliberal’ self-descriptively. ethical and institutional framework. Without that framework capitalism will degenerate into corporate capitalism. The lines Others have argued before that neoliberalism is often used between economics and politics will blur: rather than trying to as swearword or catch-all phrase for an enormous variety please consumers, entrepreneurs will try to win the favours of of politico-economic phenomena, some of which are politicians and civil servants. The neoliberals often compared contradictory.2 For example, the breakdown of Bretton Woods the required framework to speed limits and traffic signs, which and the introduction of floating exchange rates is often touted regulate the behaviour of road users but leave them free to as a neoliberal victory, engineered by Chicago economist drive where it pleases them; whereas under collectivism each Milton Friedman (1912-2006), who is regarded as the pontiff of driver would be told which route to take. neoliberalism by the European left. At the same time, however, the introduction of the common European currency and, The revival of liberalism consequently, the austerity forced upon debtor countries, is Across the Atlantic president Roosevelt had just announced blamed on neoliberalism too. These conflicting claims are ironic, his interventionist New Deal for the American people, which for Friedman warned explicitly that a common currency for a inspired famous journalist Walter Lippmann to write The Good continent as diverse as Europe was bound to wreak economic Society. On the occasion of Lippmann’s visit to Europe, a group havoc and would deepen instead of erase political divisions of like minded intellectuals gathered in Paris in 1938 to discuss within Europe.3 the revival of liberalism, the topic of Lippmann’s book. Among the members of this group were Rüstow and Röpke, as well as The end of laissez faire Ludwig von Mises and Friedrich Hayek; the latter of the two Despite the fuzziness surrounding neoliberalism today, there is had acquired some fame in Great Britain as a vocal opponent a historic form of neoliberalism. One of its main contributions to of John Maynard Keynes. They are often dubbed neoliberals, economics was precisely its insistence on the need of a regulatory retrospectively, although quite a few of them were actually framework. The origins of this neoliberalism can be traced back trying to resuscitate classical liberalism – in the tradition 64 World Commerce Review ■ June 2014 stretching from Adam Smith (1723-1790) to John Stuart Mill A free market is social because it serves (1806-1873) – rather than seeking a new liberalism. Their efforts were aborted by the outbreak of World War II, but they met customers best and because it is the again in 1947 to form the Mont Pelerin Society. Friedrich Hayek only economic system compatible with (1899-1992), who had taken the initiative for the society, spoke in his opening speech of “a great intellectual task” that was democracy required to revive shared ideals for which “there is still no better name than liberal”.6 During the war Hayek had done his bit with the publication of The Road to Serfdom. The reputation of this book lives on as a plea for minimal government, but when reading the book co-founded the Centre for Policy Studies in 1974. One of its first one is struck by the firm rejection of laissez faire. “Probably publications was a pamphlet titled Why Britain needs a social nothing has done so much harm to the liberal cause as the wooden market economy.9 insistence of some liberals on certain rough rules of thumb, above all the principle of laissez faire,” Hayek argued.7 The key difference A second example of neoliberalism’s lasting influence is between liberals and others was that the first are committed to European competition policy. Contrary to popular belief, the “planning for competition” and the second to “planning against neoliberals did not think that the market should be left to itself. competition”, as Hayek called it. Key elements of the positive The essence of a free market is competition, and competition neoliberal programme were a social safety net, free trade, law is required to protect the market – ie. ordinary citizens – monetary stability, a free price system and antitrust politics. from monopolistic tendencies and cozy cartels. It is because of Half a century on, these are tested and proven conditions for the insistence of the Germans that these ideas found their way prosperity and, at least in theory, cornerstones of the single to European competition law.10 It is no coincidence that a close European market. ally of Erhard, Hans von der Groeben, became the first European Commissioner for Competition Policy in the late 1950s. The lasting legacy of German neoliberalism Were the likes of Martin Schulz pushed to clarify what they A final example of how German neoliberalism – the real existing mean when talking about neoliberalism, they would probably neoliberalism, not the bogus version that social democrats refer to Margaret Thatcher, Ronald Reagan, Milton Friedman made of it – continues to shape the European economy is that and – perhaps – Friedrich Hayek, but certainly not to a bunch price stability is the primary objective of the European Central of interwar German economists. It is easy, therefore, to dismiss Bank. Since the outbreak of the economic crisis this objective historical neoliberalism as an intellectual tour de force without is frequently attacked. According to critics, the ECB should, for consequences for the real world. example, aim for full employment or kick-start the economy by creating inflation. Yet this would be a mistake. First, Wilhelm Röpke acted as economic advisor to Ludwig Erhard, Germany’s post-war This may sound social, but the neoliberals argued convincingly minister of Economics and later Chancellor. Erhard, himself that it is the ordinary man who suffers most from inflation. The a member of the Mont Pelerin Society, is regarded as the new money that is being pumped into the economy does not architect of the Wirtschaftwunder, the ‘economic miracle’ in reach each and every citizen at the same time, but it ripples West Germany. He did away with the price and wage controls, gradually through the economy. Civil servants might benefit if broke cartels and monopolies, reformed the currency and they are the first to get a wage increase and spend the extra popularised the concept of the ‘social market economy’. money buying products for ‘old’ prices. But people further According to Erhard, the adjective ‘social’ meant that “the down the line will be confronted with higher prices, while their market as such is social not that it needs to be made social”.8 A free wages or pensions are not (yet) adjusted for inflation.
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