John Buell

Neoliberalism and the ‘Free Markets’

What is neoliberalism? The term has moved from the academy into contemporary political discourse. A brief discussion of the domains it covers and the means that it embraces may be useful.

At its center neoliberalism is the profession of a faith in the free market. As with the capitalism of an earlier age, so ably described in Karl Polanyii’s The Great Transformation, modern neoliberalism emphasizes financial deregulation, labor market deregulation, and the privatization of those natural resources upon which our survival depends.

Classical liberals like Adam Smith and John Stuart Mill regarded markets as spontaneously evolving, from local markets to international commerce. Neoliberals share a faith in the beneficence of markets but regard them as institutional structures that must be imposed on a periodically recalcitrant citizenry.

In addition to imposing its wisdom upon us, modern neoliberalism is selective in those whom it chooses as its greatest beneficiaries. When the free market fails, as it inevitably does, neoliberals unhesitatingly turn to government — and our tax dollars — to right the wrongs inflicted on the rest of us and preserve the fortunes of the powerful.

Let us count the ways markets are imposed. None of these policies and procedures are characterized as imposing markets, but all serve this function and also limit the range of democratic intervention in economic life.

At the center of neoliberal thought is a commitment of an independent central bank. No modern economy can operate without a bank of last resort able to stem runs on the nation’s banks. Even well run banks can suffer runs and must have sources of short-term credit to which they can turn as well as depository insurance institutions. Central banks serve this role by making short-term loans to member banks facing temporary liquidity problems.

When the US Federal Reserve serves this function, it also acts as a throttle controlling the pace of economic growth and the inflation rate via the interest rate it sets for these loans. The Fed currently has chosen 2% as its inflation target, but in fact it acts as though 2% is a ceiling rather than a target.

These seemingly technical questions are really the essence of politics. Keep growth, employment, and inflation rates low and workers lose lots of collective negotiating power. If they lose a job they are in deep trouble. Bosses benefit from an insecure workforce.

In this scenario the political leanings of the central bank become crucial. Neoliberals celebrate the bank’s independence and its ability to brush aside any populist push for genuine full employment. Yet, as Dean Baker and others have repeatedly pointed out, the Fed is not politically independent. It is a banker’s bank, with several of its voting members presidents of regional banks. Even presidentially appointed members are awarded such long terms as to be effectively independent of any democratic input. And bankers are notorious for bias on behalf of creditors over debtors.

If central bank policy tends to foster just enough unemployment to disempower any collective worker movement, neoliberal trade treaties play an equally significant role. Economic elites negotiate these in secret and allow only one up or down vote. These treaties protect via financial sanctions corporate rights to compensation for acts of expropriation. In addition they strengthen sanctions for copyright and patent infringement even as labor rights aren’t enforceable. Working class citizens here and abroad are subject to the vagaries of the market while corporate monopoly is sustained by government intervention. The dispute resolution panels crafted by modern trade agreements supersede domestic health, safety, and environmental regulations, further disabling democracy. That agreements so inimical to working-class citizens have been imposed upon them has been a source of political as well as economic instability.

Neoliberalism has even been able to use crises in the domestic and international financial system to enhance its own agenda. Financial deregulation played a major role in the near default of Greece, Ireland, Spain, and Portugal. These were the result of basic flaws in the architecture of the EU, including leveraging by private banks that would make US bankers jealous. When these banks and the entire banking system faced near implosion, governments absorbed the debts. The Neoliberal ECB then blamed profligate governments for high levels of debt caused by the private sector. It extended loans on conditionality terms that included labor givebacks and requirements of more privatization of state assets.

Privatization also illustrates the skewed priorities of neoliberalism. These privatization schemes reveal one of the darkest aspects of the neoliberal agenda. If neoliberals were genuinely interested in extending Adam Smith-style markets, privatization would be carried out with strict requirements imposed on all classes. These would include ample time for governments to market key assets, numerous firms competing for those assets, monitoring the bidding process to prevent collusion, and strict criteria and enforcement as to level of service provide by the private firms. None of these metrics are met in the case of the most notorious instances of privatization. Privatization has reflected and helped intensify the degree of economic concentration. It has been imposed by economic elites and has further strengthened their position.

Just as with trade policy, domestic labor and anti-trust law represents an attempt to impose market discipline on labor even as anti-trust action against most mergers becomes a thing of the past. So called right to work laws allow individual workers to gain the benefits unions have won without having to join these unions.

Neoliberals fear unions and the public sector not merely as endangering their profits but as threats to their power and to their whole agenda. Democracy is to be tolerated only as long as it does not stand in the way of the market agenda. Neoliberals skew the structures of government to serve the wealthy. Voter restrictions make it harder for poor and minorities to vote while money as speech increases the influence of the wealthy. Elections continue but they become increasingly a façade for oligarchy.

Neoliberalism is not a monolithic persuasion. Paul Krugman represents the left wing of neoliberalism. Though a fierce and welcome critic of austerity in both Europe and the US, he has generally supported an independent central banks and so-called free trade treaties. He is confident that such mechanisms as carbon taxes would represent satisfactory responses to climate crisis. Most importantly he remains a defender of those simple economic models that failed even to recognize the possibility of an economic breakdown. Activists and academics need to challenge neoliberalism with more fundamental critiques than Krugman has provided. I will turn to a discussion of alternatives in subsequent columns.

John Buell lives in Southwest Harbor, Maine and writes on labor and environmental issues.

From The Progressive Populist, April 15, 2016

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