I’m not a neoliberal. Maybe you aren’t either.
The Adam Smith Institute’s Sam Bowman has written an interesting article on what it means to be a neoliberal. He thinks it’s time for fans of the free market to reclaim the term from the sphere of leftist slander and wear the badge with pride, especially those who don’t feel at home in the more purist libertarian camp
Sam’s piece is definitely worth reading in full, but for those with limited time, here is a quick overview of what he thinks defines the modern neoliberal:
1. They like markets and think that markets and market-like systems are desirable in many places where they are not present at the moment.
2. They are liberal consequentialists.
3. They care about the poor.
4. They care about the welfare of everyone in the world, not just those in the UK.
5. They base their beliefs on empirics, not principles.
6. They try not to be dogmatic and are prepared to throw out beliefs that are proven wrong.
7. They think the world is getting better under neoliberalism.
8. They believe that property rights are very important — not because they are morally significant in and of themselves, but because they are useful.
9. They are comfortable with redistribution, in principle, if it’s done without depressing economic growth too much.
10. They believe that the role of the state should be limited to keeping the peace, redistributing from rich to poor and (sometimes) pricing in externalities. The state should not concern itself with the regulation of markets and monopolies, the provision of infrastructure and public goods or the maintenance of macroeconomic stability.*
Sam thinks a version of most, if not all, the above statements are true of many people who consider themselves centrists, and that a very weak version of this might be the basic ideology that underpins the modern world.
As Sam notes, many of these beliefs are not exclusive to neoliberals. In fact, I would go further and argue that some of these relate to a method of inquiry rather than any economic doctrine (2, 5 and 6, for example). Instead, I’m more interested in in the beliefs which relate to how the economy should function under Sam’s version of neoliberalism. Here I want to outline some thoughts on why these may not be quite as universally popular as he makes out, why they lack logical coherence, and why as an economic agenda, neoliberalism is wholly inadequate for meeting the challenges of the twenty-first century.
1. Markets are government interventions
Sam likes markets, and doesn’t like governments intervening in them. If only the government would get out of the way, stop intervening everywhere and let markets run their natural course, then the world would be a much better place. Sam is comfortable with some degree of redistribution because people can’t help the circumstances which they are born into, but aside from this element of luck, he thinks markets do a pretty good job of rewarding people in line with their true contribution to society. The best thing is therefore for the government to sit back, let the invisible hand work its magic, and then even things up a bit after with redistributive measures.
The problem with this is that markets are government interventions. Despite their pervasiveness, markets are not innate laws of nature; they are human constructions. Historically, the private property rights upon which markets depend only came into existence because of mass, often violent, state intervention. In modern societies market activity is shaped by property law, contract law, corporate law, labour law, intellectual property law, employment law and so on — and is administered through the use of courts, regulators and various other public bodies. Empirical evidence tells us that in order for complex market economies to be successful, at least some of this apparatus is essential. Markets don’t exist in a vacuum — the rules of the game matter, and the choices around these rules are inherently political. The type of market activity that occurs, and the economic outcomes that result from it, are a direct function — a residual — of how this government apparatus is constructed.
Changes to this apparatus can have huge distributional implications without anyone changing their working patterns. To illustrate, imagine the government abolished intellectual property rights overnight, denying patent holders of the monopoly rents they generate, or eradicated all labour market regulation, leaving workers vulnerable to exploitation.
This view doesn’t sit comfortably with those who like markets because they allow the economy to function without government meddling in the natural order. In reality, there is nothing natural about markets — the form they take is just one form of government intervention. In seeking to further economic progress, the question is therefore which type of interventions are most appropriate to solve the many different economic problems we face. Things brings me on to my next point.
2. The world is a complex place
Sam is confident that most problems can be solved with markets. He thinks that markets and market-like systems should be introduced in many places where they are not present at the moment, including healthcare, education, environmental policy and land-use planning.
Markets can unquestionably be a good way of organising human affairs that involve scarce resources. This is particularly the case where the resources are both excludable and rival. But Sam’s belief that markets can solve all problems, and that there is no need for government to regulate markets and monopolies or to be involved in the provision of infrastructure and public goods, is a gross oversimplification of the world we live in.
To illustrate this, I tried using the example of water supply and pricing. Water supply is a classic case of market failure: it’s perhaps the most concrete case of natural monopoly, it’s riddled with externalities, and is the essential ingredient of life. Although the water industry in England and Wales was privatised in 1989, it remains an industry of private regional monopolies**. These companies are subject to extensive regulation that is tailored to the water industry, including licensing arrangements, economic price regulation, environmental regulation and health and safety regulation. So I was looking forward to hearing Sam explain why private, unregulated monopolies would be a better way to run our water and sewage systems. Then the reply came: ‘Sorry, I don’t know anything about water.’
The water industry is just one example, but this illustrates a wider point: the world is a very complex place, and complex problems often require complex solutions. Markets are effective in many circumstances, but rarely can they work in absence of law and regulation, and in many parts of the economy they simply do not or cannot work.
Ironically, this is something that Adam Smith recognised when he said that one of the main duties of government is that of “erecting and maintaining those public institutions and those public works” that the market can never efficiently deliver. Moreover, often where private enterprise appears to work best, whether in the case of smartphones or aviation, much of this success can be traced to active government policy, often in the form of early public funding in new technologies.
Sam’s unbridling faith in markets and opposition to government involvement in the economy is at best naïve and, at worst, dogmatic — something that, according to Sam, neoliberals aren’t supposed to be.
3. Capitalism isn’t stable
Sam says that the state shouldn’t concern itself with maintaining macroeconomic stability. Presumably this is because in his ideal world, minimal government would mean that the economy would be driven by people pursuing their own rational self interest in self-equilibrating markets, delivering macroeconomic stability and maximal welfare for all.
The problem here is that this world doesn’t exist. People don’t behave rationally or pursue their own self interest. Markets aren’t efficient. Many of the dynamics that underpin modern capitalist economies are inherently pro-cyclical. We have three hundred years of evidence that tells us that capitalism is prone to periods of boom and bust. The most stable periods of capitalism’s history have been when government has been most active in maintaining macroeconomic stability. Empirical evidence tells us that if the government didn’t play a role in maintaining macroeconomic stability, we would live in a world of greater volatility, instability and crises.
4. The environment is not an externality
Sam says that it is sometimes justifiable for government to intervene in the economy to price externalities. This could be, for example, to ensure that the costs of pollution are borne by those who pollute the environment.
Again, the problem here is that it sees the economy through the lens of the market. Viewed like this, environmental factors are seen as ‘external’ to the main reference point of human affairs, which in Sam’s case are markets. In reality, the economy is a subsystem of a wider natural ecosystem of mostly finite resources, and our survival as a species depends on our economic activity taking place within sustainable environmental limits.
If we are to deal with climate change and reverse the degradation and depletion of our natural environment, we need to stop seeing the environment as somehow peripheral or “external” to the economy. Instead, living within sustainable environmental limits should be our main reference point in thinking about how we organise human affairs — not promoting markets. There may be a role for markets to play, of course, but they should not be the primary lens through which we view the economy.
5. There is such a thing as society
Although Sam doesn’t mention this explicitly, there is a consistent theme underpinning the set of beliefs which is perhaps best embodied by Margaret Thatcher’s infamous quote: “There’s no such thing as society.” It is a world where human affairs are reduced to a system of individuals engaging in markets. Even thought Sam says he cares about wellbeing and the poor, he does so within the confines of this framework. Although less tangible than the above points, I think it is an important part of the neoliberal outlook and thus worth touching on here.
Throughout human history, often the biggest breakthroughs have come when societies have mobilised to achieve big things collectively, whether it has been going to the moon or achieving universal healthcare. These things would not have happened in an atomised world where all economic activity was conducted through markets. If we are going to address the big challenges of the twenty first century then we need a new and ambitious set of collective goals: transitioning to an environmentally sustainable economy, eradicating poverty, allowing people more free time to do the things the most enjoy in life.
Fundamentally, this is perhaps the main thing that separates me from neoliberalism: a belief that we can often achieve more collectively by cooperating, than we can individually by competing.
My name is Laurie Macfarlane, and I’m a not a neoliberal.
* This last point wasn’t included in Sam’s original post. However, in a subsequent Twitter exchange, I asked Sam to elaborate on what he thought the role of the state should be in his version of neoliberalism. This was his response — the full exchange can be viewed here.
** The water industry was never privatised in Scotland, and today water and wastewater services are provided by a single publically owned company — Scottish Water.