Every search for alternatives must questions these neoliberal foundations by demythologizing the "great narratives" of the free market, efficiency, competition and entrepreneurship. Economic laws and practical necessities could be analyzed as social constructions.
WHAT IS NEOLIBERALISM?
By Gabriele Michalitsch
[This 2004 study published on the Attac-Austria website is translated from the German on the World Wide Web,
http://www.attac.at/663.html.]
INTRODUCTION
1. THE FORMATION OF THE NEOLIBERAL PROJECT
2. THE MANUFACTURING OF CONSENT
3. ECONOMY AND STATE: THEORETICAL ECONOMIC STARTING POINTS
4. GLOBAL NEW ORDER: POLITICAL-ECONOMIC TRANSFORMATIONS
5. DEMOCRATIZATION OF THE ECONOMY
INTRODUCTION
“Belief in economic reason” defines the new “world religion” (Senf 2001), the neoliberal doctrine of salvation proclaimed with missionary zeal. Its high priests preach its credo incessantly: the market as an institution is superior to the state, competition as a method of organization and development is superior to politics and conscious cooperation is superior to expression of collective interest.
Neoliberalism emphasizes subordination of social spheres under the dominance of the market and limitation of state spending. The state has to submit to market forces and merely ensure its framing conditions. Protection of private property and contractual rights has priority. In addition, neoliberalism implies a comprehensive design of social order and development based on economic self-regulation by the market and restructured relations of the economy, politics and society. The relations of state and the economy, national and international, private and public are redefined. These categories are all reinterpreted.
In this study, the process of the formation of neoliberal thinking and roots of neoliberal ideology – particularly economic theory – will be outlined. Connections of the genesis of neoliberalism and the development of economic theories will be shown. Central elements of these theories will be explained to clarify the diffuse term neoliberalism. Neoliberal assumptions and hidden dimensions of neoliberal ideology will be revealed. Then those politico-economic transformation processes that helped realize neoliberal thinking since the seventies will be analyzed. Probing the politico-economic changes and the ideological shifts should make understandable the hegemonic development of neoliberalism and unmask the political character of its theory. The study ends with a plea for a new political economy.
1. THE FORMATION OF THE NEOLIBERAL PROJECT
The reformulation of liberal social designs and the formation of the politico-economic project neoliberalism – after the crisis and decline of classical liberalism at the end of the 19th century and the first third of the 20th century – refer back to the thirties when the “international avant-garde of militant economic liberalism” motivated by Walter Lippmann’s The Good Society met in Paris in 1938. This was before the “crusade against Marxist and Keynesianism totalitarianism” was institutionalized in 1947 with the founding of the Mont-Pelerin Society “to exploit the market” (Kreisky 2001).
An international network of foundations, institutes, research centers, publications, scholars, authors and public relations agents was established that promoted neoliberal thinking. After the “successful” neoliberal experiment of “libertad economica” in Chile following Allende’s overthrow in 1973, the Adam-Smith Institute provided scholarly justification for the Thatcher policy while the Heritage foundation gained acceptance as a US think tank of the Reagan era.
The political-economic breakthrough occurred with a series of Nobel Prizes for economics, bestowed for the first time in 1969. A large number of neoliberal economists were prizewinners. As the most prominent examples, Samuelson (1970), Hicks and Arrow (1972), Hayek (1974), Friedman (1976) and Becker (1992) received the prestigious award… The Mont-Pelerin Society acted as a supportive network. Seven of its members were honored between 1974 and 1992. The representative of the Swedish national bank Erik Lundberg who also belonged to the Mont-Pelerin Society officiated for years as president of the Nobel Prize committee for economics. Since the Nobel Prize was usually only awarded for the natural sciences physics, chemistry and medicine, the “natural science” character of economics was acknowledged. Economics was spared the normativity question and chosen as the leading social science.
2. THE MANUFACTURING OF CONSENT
The realization of the neoliberal project – encouraged by economic and technological changes since the seventies – was ultimately due to the successful “manufacturing of consent” (Chomsky). The prevailing neoliberal “consensus without consent” was supported by the power of the media, an economic empire itself. The principle “consensus without consent” means that the plans of the governing can be enforced against the will of the governed without violating the democratic principle of consent since the governed would agree later.
“Forceful formation of consciousness” moves into the foreground. Neoliberalism implies an intense reconfiguration of social assumptions and ideas. “Mental poisons” (Gerlach 2001) of austerity debates, social misuse and location imperatives slowly seep in and penetrate the individual consciousness and become generalized.
The ideological formation of individuals in neoliberalism increasingly replaces the welfare state assurance of mass loyalty with social benefits and higher wages. Negative social phenomena are represented as unavoidable or desirable and no longer contested. Thatcher’s famous doctrine “There is no alternative” describes the inevitability of neoliberal restructuring and – with the collapse of command socialism – of the illusionary character of system alternatives.
Despite deficient material concessions, neoliberal discourse aims ultimately at “voluntary” subordination under dominant conditions stylized as without alternative. The individual is influenced on cognitive, emotional and social planes. On the cognitive plane, neoliberalism produces standardized or one-dimensional thinking. Supported on euphemistic language and tabooed terms like class struggle, profit, power relations and capital, thinking becomes increasingly undifferentiated. Real contradictions and social conflicts are faded out. Competition becomes legitimated and renunciation on action and conflict strengthened. Acceptance of social polarization and acknowledgment of the “normative power of the concrete” and of the “naturalness” and “unchangeableness” of social conditions reinforce that renunciation and produce social incompetence. The global standardization of the social world is also manifest as standardization of thinking: “The same factories, the same goods, the same discourse worldwide” (Gerlach 2001).
In an emotional regard, connections of negative states of mind and social conditions cannot be made. Alarm, fear of the future, indifference and resignation are the consequences and lead to withdrawal of emotions or stronger aggressiveness on the social plane and exclusion, competition and de-solidarity.
Self-estranged identifications, de-politization and privatization of individual existence, resignation, indifference – particularly toward democracy – de-naturalization of reality seen as beyond influence and de-historization of social and individual consciousness are the results. Future fears, desires for change and prohibitions of conflict and action are pivots of fear-obsessed conservative mass consciousness and lead to resignation and emotional indifference. Excluded from planning and decision-making processes, life projects are reduced to the private life. Possibilities of active creation are confined to the reproductive area. The consumptive side of human existence overshadows the productive side.
The myth of the “free market” and rational, efficient and fair competition is popularized without resistance and without regard for its social consequences. This myth relied on economic developments – contrary to economic reality – and was marked by oligopolist market structures and the rule of corporations.
3. THE ECONOMY AND THE STATE: THEORETICAL ECONOMIC STARTING-POINTS
As central theoretical foundations, neoliberalism relies on the theory of neo-classicism, Schumpeter’s entrepreneur model and the monetarist Chicago school. The synthesis of essential elements of these approaches forms the economic program of neoliberal policy and the supply economy. The characteristics of the supply economy and its neo-classical, Schumpeterian and monetarist assumptions should be analyzed.
In the German language area, law- and order liberalism is often – wrongly – seen as the theoretical source of neoliberalism. The liberal design of the “social market economy” titled law- and order liberalism by the economists and jurists of the “Freiburg school” marked the post-war years of Germany. Order through competition is central in the liberal model. Although law- and order liberalism rejects state interventions entangling the state in economic conflicts of interest, a strong and impartial state that insures competition is necessary according to the liberal conception. Competition guarantees private entrepreneurial initiative and economic efficiency. Private property, the prerequisite of the competitive order, is only justified when competing entrepreneurs “offer their services to the general public.”
Despite some similarity in economic demands, law- and order liberalism is distinguished from present neoliberalism in its understanding of the state. The state remains a powerful factor to which the economy is subordinate. The market is constituted and maintained through state intervention. Perfect correspondence is an ideal possible through continuous intervention. The state and the market are mutually conditioned; their strict separation is impossible. The history of capitalism is interpreted in law- and order liberalism as economic-institutional reciprocity. Changes of the economic-institutional ensemble determine capitalist development, not capital logic. As an (economic) order, law- and order liberalism implies the possibility of creation through social and political intervention. Thus the state in law- and order liberalism – unlike in neoliberalism – remains a preeminent authority that regulates social relations. The European Commission adopts only individual elements of the heterogeneous law- and order liberal idea - like the emphasis on the competitive order. US developments in economic thinking are essential for the global hegemony of neoliberalism.
3. THE SUPPLY ECONOMY
The supply economy “tested” first in the Chilean experiment after 1973, practiced from 1979 in Great Britain under Thatcher and promoted as an economic program during Reagan’s presidency under the title “Reaganomics” embodies the features of neoliberal (economic) policy. The supply economy was first received in economics on account of its political importance.
The supply economy assumes that every supply creates its demand. Expansion of production is prompted by additional income spent for goods. More production, more employment and more growth should be achieved by increasing individual output or efficiency. Besides lowering inflation through restrictive monetary policy in the sense of monetarism, limiting the public sector in favor of private initiative has programmatic priority. Reduction of taxes and fees (especially for corporations) and of social benefits viewed as inhibiting performance and the general reduction of state spending (except for the Defense Department) serve this goal. Financing the state deficit is considered a burden of the capital markets. Corresponding savings can be attained on the spending side.
According to the supply economy, increasing entrepreneurial possibilities by minimizing obstructions through employee associations and state interventions is vital for promoting investment activity. Weakening unions – furthering price stability – also makes possible “moderation” of wage policy and encourages reducing state investment obstructions in regulations on labor protection, job security and environmental incompatibility in the supply economy. The importance of entrepreneurial activity and the promotion of the “entrepreneurial spirit” are in the foreground.
In Europe economists first received the supply economy. From 1977/78 the German council of experts in its annual expert opinion identified the supply side as one cause of the employment crisis. Concentration on the supply side is necessary “when investment risks, hindrances to adjustment in structural change and high production costs burden the profit calculus so that many refuse to expand their production sites and create additional sites. New goods are not offered on the market. New businesses are not established. For all these reasons, the structural change cannot be mastered” (Council of experts 1978). Abolishing obstacles for economic activities, especially for investments, opening new options for process- and product innovations, rewarding readiness for risks on the market and promoting performance are propagated in Europe to solve economic problems. Europe now follows an economic program synthesized out of neo-classical, Schumpeterian and monetarist elements.
3.2 THE NEO-CLASSICAL CALCULUS
The “marginalist revolution” of the seventies of the 19th century changed the economic perspective. Unlike the classical period, production costs no longer determined the value of a good but the household’s ideas of subjective value. Thus neo-classicism shifted the economic priorities from the supply- to the demand side and from the macro- to the micro-plane. Economic analysis is confined “to the surface of economic events” (Senf 2001), above all price formation on individual markets under different conditions. If the classical political economy of the 18th to the second half of the 19th century focused on the interconnections of the economy, state and society that were not separate areas of knowledge, the neo-classical period now separated the economy from the state and removed it from its social context. Questions about state interventions, long-term economic developments and economic cycles and crises of capitalism were largely ignored like the distribution of factors of production. Macro-economic connections of employment, unemployment, distribution and price development or pay were now discussed in microanalysis. Economic “laws” were derived from the individual economic units – household, businesses and individuals. Individual cost-benefit analysis became the measure or standard of all economics. The economy was robbed of its political-social context.
The individual economic actor and his decisions aiming at rationally maximizing his advantages, calculating costs and benefits and optimizing his situation are central in neo-classical theory. Decisions of individuals in perfect competition are coordinated by the market mechanism so that the greatest possible advantages are reached for every individual – and thus for society. State intervention is interpreted here as disturbance of market-guided adjustment processes impairing optimal allocation.
A series of further assumptions underlie the neo-classical model of perfect markets. An atomistic market structure is assumed with a vast number of suppliers and consumers who respect market prices. Individual market actors cannot influence market prices. Market adjustments occur through the quantity of supply and demand. This also implies that no advantages can be gained from mass production. Like homogeneity of goods, the absence of market barriers, unlimited market transparency and unrestricted reaction speed of market actors are also prerequisites of ideal markets.
With flexible prices, there are no unused factors of production. Unemployment is always interpreted as voluntary or a consequence of high wages. Since each of the factors of production labor, capital and land is paid corresponding to its (marginal-) productivity, the neo-classical model equates the production factors and legitimates the distribution of income. The rationality of the distribution of product to the production factors veils the arbitrary distribution of the production factors.
The concept of allocative efficiency in perfect competition excludes redistribution. The efficiency criterion going back to Vilfredo Pareto implies that no market actor can be better off without another being worse-off. Improvement of welfare through re-allocation of resources is excluded along with discussion of distribution questions since interpersonal comparisons of advantages are unreliable.
Neo-classicism as a model of an “ideal world” is a reference system without empirical authority. However it claims to describe a universal logic of economic conduct not limited to the capitalist market economy. In addition, neo-classicism led to a formalization of economics that reinforced its immunization tendencies in public discourse.
Neo-classicism develops the theoretical foundation for a neoliberal conception of the “night-watchman state” reviving the antagonism between the economy and state interventionism threatening individual freedom and revitalizing the laissez-faire liberalism of the 19th century. If neo-classicism was first a counter-model to Marxist theory, Keynesian theory in the train of the 2nd World War was integrated with the “neo-classical synthesis” in “special cases.” The neo-classical analysis of the economy developed into the dominant paradigm that fortified itself with the hegemony of neoliberalism and currently dominates the everyday understanding of the economy, not only scholarly discourse. Neo-classicism is the foundation of university economics.
3.3 THE ENTREPRENEUR MODEL
Schumpeter’s 1911 idea of the innovative pioneer entrepreneur in his theory of economic development assigns an active role in the economic process to the entrepreneur who creates new products and conquers new markets and does not only satisfy demand. In Schumpeter’s conception, the implementation of inventions is decisive in competition. An innovation can consist in producing and selling a new good or a new quality, in introducing new production processes, opening new markets, reorganizing one or several branches of industry (as through monopolization) and a new supply in production factors. Entrepreneurs with innovations speed up economic development, not “static proprietors” who produce well-known things with well-known methods. These entrepreneurs are motivated by the prospect for pioneering profits since innovators gain a temporary monopoly position. Monopoly profits come to them until rivals imitate the innovations and the monopoly is lost. The dynamic entrepreneur begins a new search for innovation. The essential characteristic of capitalism lies in this process of “creative destruction” according to Schumpeter.
Schumpeter characterizes the entrepreneur as a “revolutionary of the economy.” One without tradition and relations, a stranger in the class from which he originates and an outsider in the milieu in which he rises, often uncertain, conformist and anxious as a typical social climber – “everything other than a leader outside his office” (Schumpeter). Nevertheless innovations for Schumpeter “always involve the rise to leadership of new men.” Their leadership is limited to the economic sphere. One who realizes an innovation is an entrepreneur. Entrepreneurship is not a calling or permanent state as a rule. According to Schumpeter, capital is not a prerequisite of entrepreneurial activity. Assumption of risk falls to the capitalist and is not an element of the entrepreneurial function. Thus entrepreneurship is not coupled to class membership.
Schumpeter separates capitalism and entrepreneurship with this differentiation of entrepreneurial risk and entrepreneurial function. Therefore “no Marxist guilt feeling” afflicts the entrepreneur (Galbraith 1987). This differentiation was Schumpeter’s real merit and “gave him that special place he still has today” (Galbraith 1987). Schumpeter admits that successful entrepreneurship normally leads to a capitalist position. However dividing capitalists and entrepreneurs makes possible an a-historical universality of the entrepreneur model. For Schumpeter the entrepreneur function is found in all societies, even in socialist society and is not limited to the capitalist society.
Schumpeter is not categorized in an economic school. The history of economic theory gives him a special status. His distance to neo-classicism appears in his emphasis on macro-economic questions and social development. Unlike the static analysis of neo-classicism, he emphasizes the dynamic of the market. The connection of the social, psychological and economic is important to him.
3.4 THE CHICAGO SCHOOL
The Chicago school that redefined the social as a form of the economic and thus universalized the economy started from the University of Chicago and Friedrich August von Hayek, Milton Friedman and Gary S. Becker. Although monetarism is the core of its economic and political theoretical program, the Chicago school – especially with Becker – goes far beyond monetarism.
For the Chicago school, the economic includes the totality of human action and conduct characterized by the allocation of scarce resources amid competing goals. The calculus assigning means to a certain goal is stressed. The Chicago school generalizes the economic form. The non-economic is analyzed with economic categories. Individual conduct and social relations are subjected to the economic perspective. In addition the economic becomes a program allowing government practices to be judged with market terms.
Following neo-classicism, society for the Chicago school is merely a sum of individuals. Hayek understood society as a “spontaneous order” arising out of human action without following any design. Society forms “unintentionally” (Hayek) out of the activity of individuals. This is how language, law and the market developed according to Hayek. This spontaneous order results from the separate reactions of individual elements. It rests on a multitude of unconscious information. As a result, the social order lacks rational comprehensibility and cannot be planned. “Rules enabling individuals to find their place in a spontaneous order must be general and may not assign a place to certain individuals. Creating their own positions must be left to individuals” (Hayek 1969).
According to Hayek, rules of conduct enforced through imitation guide people on account of their social success. Respect for property and the obligation of contracts are primary rules. The function of the state consists in securing this “natural order.” An unrestricted power of the majority represents a “constructivist error” (Hayek). As a quasi-natural order, the market cannot ultimately produce any unjust results. Correspondingly justice is not grasped as a social category but as fairness referring only to individual conduct. For Hayek, the functions of the state include preventing violence and deceit, protecting property, assuring observance of contracts and recognizing equal rights for all individuals to produce and sell in any quantity. A monopoly in exercising force is ascribed to the state. State services can only be supported when they create favorable conditions for individual decisions. On the other hand, influencing income distribution is unreliable since this destroys personal freedom. In addition, no general consensus exists on the importance of individual goals of state policy, particularly on distribution questions.
In Hayek’s school, monetarism with its own macro-economic theory on a neo-classical foundation as a counter-design to Keynesianism implies the self-control of the market economy. State influence on the private sector is considered harmful. Uncertainties in the economic process are referred back to governmental incursions, in particular to tax- and spending programs. Measures of monetary-, credit- and fiscal policy represent exogenous shocks causing the instability of the economy. On account of delays in effect, attempts of anti-cyclical monetary- and fiscal policy like the Keynesian program lead to de-stabilizing effects. To avoid this, monetarism urges reducing economic policy to a constant fortified money supply policy. Friedman’s rule on money supply assumes constant annual growth of the money supply around two to five percent that must be fixed legally and no longer depends on decisions of the Federal Reserve. The basic stability of the private enterprise sector makes unnecessary state intervention. Friedman grants the right of incursion to the state in only three cases: external effects, “paternalist concern” and technical monopoly.
External effects occur when the economic situation of an economic subject is positively or negatively influenced by the activity of another without an equivalent return favor. For example, the sewage of a factory damaging the fish stock of a river represents a negative external effect for the river fishery. In this case of negative externality, the social costs of production are shifted to a third and do not enter the business calculation. On the other hand, the total social benefits of an act exceed the individual benefits to its author.
In the case of negative external effects, the state should intervene when the affected have no possibility for equalization and state incursions have advantages for society with positive externalities – as in the realm of education. In addition, there is the task of paternalist concern for all those not regarded as responsible - like children and the mentally disabled. Finally, technical monopolies in water-, gas or electricity supply need state regulation. Here Friedman recommends a “moderate private monopoly” as the “lesser evil.” Becker also prefers the disadvantages of monopolies to those of political monopolies. Becker’s understanding of monopoly is paradigmatic for neoliberalism on account of his strict rejection of state regulation and his universalization of the economic.
Becker does not limit the economic to the market but defines economy by the kind of problem that it has to solve. The questions of scarcity and choice are raised in private households, political institutions and unions. Consequently Becker subjects all areas of life to the logic of economic optimizing and maximizing individual advantages. The rational cost-benefit calculus becomes the universal foundation of human conduct. However decisions need not necessarily be consciously calculated; strong emotions are not excluded. Individual maximizing of advantages based on self-interest is not opposed to altruist conduct. Altruism refers back to individual rationality since this rationality ultimately makes possible individual benefits.
Family, marriage, the number of children, criminality and politics are subjects of economic analysis. Ideal democracy according to Becker’s model would be like an efficient system of free enterprises where political decisions are determined by the desires of voters. Becker defines marriage as a two-person firm for the production of children. Thus men and women compete on the marriage-market for partners to raise their individual benefit level through marriage. The quantity and quality of the children is also economically negotiable through their price.
Following Becker, the economic calculus is in effect in relations to others, within the human capital theory and also for the subject’s relation to himself. Alongside school education and on-the-job training, human capital is developed through improvements of “emotional and physical health.” Thus human capital includes healthy lifestyle. As with every investment, the extent of investment in human capital depends mainly on its expected profitability, on the monetary and psychic return on investment. People are seen as businesses that produce an income power. People with better abilities – and consequently better market chances – also invest more in their human capital. According to Becker, at least three-fifths of personal income arises through human capital and individual abilities.
The formation of human capital cannot be separated from the process of self-construction. Thus the economic subject as a consumer or worker complies with economic unity and human existence takes its cue from the economy. Becker views the organization of the economy under the aspect of self-development. “Economic orders that rely on private initiative and competitive markets are more efficient than those relying on extensive governmental control. The effects of a free enterprise order on personal responsibility, initiative and other virtues may be even more important from a long-term perspective (Becker 1998).
The difference between the economy and the social is eliminated because no social area can be excluded from economic analysis. In addition, human capital theory identifies the individual and the economic by coupling self-development to valorization on the market. The individual becomes the entrepreneur of himself; the market logic is inscribed in the individual.
4. GLOBAL NEW ORDER: POLITICO-ECONOMIC TRANSFORMATIONS
Since the middle of the seventies, the dominant politico-economic system of the post-war time has undergone a process of fundamental change. The transformation of technologies, markets, institutions and social hierarchies of power accelerated after the implosion of Eastern European command socialist planned economies. A powerful barrier of the world market fell with the Iron Curtain. Extended traffic routes, low transportation costs and the new communication technologies make spatial distances shrivel. For a long time, the financial markets have been interwoven in a world financial market. The knowledge- and capital-intensity of computer technology, telecommunications, micro-electronics and genetic- and bio-engineering, the new key technologies, encourage the cooperation of economic, political and scientific interest-groups and accelerate business mergers. Worldwide liberalization of the markets, transnational business strategies and regional economic integration (EU or European Union, NAFTA, MERCOSUR) characterize the increasing internationalization of the economy that results in a “world economy.”
The transition from Fordism to post-Fordism accompanied this process. In the seventies, tariffs and quotas protected national markets. The mode of production followed the Fordist model. Directed to mass consumption, supply-side mass production of standardized goods with great stock on hand, vertically integrated production structures and cost advantages from combining different lines of production occurred. On the other hand, in the long dawning time of post-Fordism, demand is determining production. Differentiated, short-lived consumer models lead to flexible and changing trends of reactive production with minimal stock on hand and just-in-time manufacture favoring the horizontal integration of production.
The global new order joined with the hegemony of the neoliberal paradigm implies deregulation of national economies. This deregulation undermines the national state; inter-national economic interconnections form a new integral structure of politics and the economy. The economic functions of the state change in the course of the politico-economic transformation. The state’s task now consists in promoting innovative capacities, technical competence and technology transfer. The state loses autonomy through the increasing opening of national economies. The macro-economic political instruments favored by the Keynesian welfare state lose effectiveness. The nation state increasingly loses sovereignty; possibilities of national economic action dwindle. Flexibility, promotion of research and innovation, subsidies and tax cuts for businesses replace Keynesian political instruments for steering demand. The Schumpeter performance state – the state form corresponding to post-Fordism that should overcome the crisis tendencies of the Keynesian welfare state through supply-oriented intervention for supporting innovation and subordinating social benefits under market forces – falls back on supply-side intervention to raise the structural competitiveness of the national economy in the international competition.
The market takes over the distribution of income more and more with the withdrawal of the state and reduction of the public sector while social policy, urging “entrepreneurial spirit”, aims at “individual responsibility.” Growing marginalization and social exclusion of ever-larger sectors of the population are consequences. The Keynesian welfare state that prunes the rank growth of the market through regulation and redistribution increasingly gives way to the Schumpeterian performance-state subordinate to market forces that insures a minimum of social cohesion and management of political conflicts.
The neoliberal order is a development stage of capitalism in which transnational conglomerates replace national monopolies as the representative power of the economy. Interest in protection against other nation states fades. Open borders become the prerequisite of “freedom of trade” across state borders. The weakening of the nation state in the course of the shift of power to the global players is the presupposition and result. Freedom means “freedom of this new concentration of economic power…”
Simultaneously the emphasis on the erosion of the nation state undermines this state and hides the political praxis of this erosion. After the end of the system competition in 1989, de-democratization was more and more an integral element of the neoliberal state project. Economic space and state territoriality diverge increasingly. Access channels to democratic decision-making centers are narrowed. The executive becomes more important to the burden of parliamentary institutions. Essential parts of the state machinery, particularly central banks, are relieved of democratic control mechanisms.
The political-institutional regulatory structure is transformed in a process of far-reaching restructuring. Weights within the state machinery shift. World-market-oriented departments like the departments for finance, economy, research and technology have priority while domestic agencies like those for labor, education and culture lose autonomy and creative power. In addition, the significance of barely legitimated structures like the European Bank and the media grows. Social-integrative organizations like parliaments and unions are weakened.
Changed access possibilities to political decision-making centers foster the dismantling of the social state. The European integration project proves to be a project de-politicizing the economy and reorganizing the social state into the competition state. Economic and social functions and authorities are handed over to the market and international institutions protected from political pressure. Supra-national coordination or generalization of political fields and inclusion of private enterprise actors goes along with new forms of regulation. Monetary policy hardly allows for the employment- and income interests of suppliers for workers in the national economic output. The market-friendly adjustment of state intervention is flanked and assured by authoritarian-repressive modes of regulation and de-solidarian ideologies.
As a consequence of these shifts, authorities increasingly decide existential questions for the whole society without responsibility toward the population. National legislatures are weakened. Creative possibilities and the influence of unions, welfare associations and the population are reduced. Neoliberalism advanced “anti-political versions of politics.”
De-regulation and de-politicization are strategies of privatization withdrawing tasks and problems from public responsibility and competence. Thus state regulation is reduced in favor of market forces. Public enterprises and services are privatized and areas of public responsibility ceded to private authorities. Public responsibility is also increasingly denied so social problems are interpreted as individual problems and no longer discussed politically.
The border of private and public shifts with de-regulation and de-politicization. The substance of private and public also changes. Under the ideal peak of personal freedom and autonomy, the private is culturally upgraded to the primary place of individual decisions while partial areas of the private are increasingly commodified and thus de-privatized. On the other hand, the public experiences a de-politicized erosion undermining its collective dimension. The public becomes more and more the projection surface of personal longings and fears and accordingly privatized. Social individualization is expressed in the publication of intimate facts. This also testifies to a fundamental change of the political culture in which subjects are isolated and discourse, negotiations, communication and political options are privatized.
5. DEMOCRATIZATION OF THE ECONOMY
Theoretical-historical analyses show that neoliberal ideology laid its economic foundations long before the breakthrough of neoliberal ideology. Its successful establishment was owed to networks built over decades that advanced the spread and popularization of neoliberal ideas and goals on scientific, political and media planes. Neoliberal thinking gained acceptance in the course of fundamental politico-economic changes and the crisis of Keynesianism and was promoted as a far-reaching social consensus.
Neoliberalism is an economic change of paradigms ending the era of Keynesianism and can be interpreted as an answer to a crisis of accumulation and Fordist regulation that began in the seventies. The neoliberal project is a fundamental redevelopment of classical liberalism and not a return or mere resuscitation. The state no longer supervises market freedom. This is the liberal conception. The market itself becomes the organizing and regulating principle of the state. A limiting outward principle is replaced by a regulatory inner principle. The market becomes the organization model of the state and society. Market logic is inscribed in the individual transformed into human capital.
Every search for alternatives must question these neoliberal foundations by demythologizing the “great narratives” of the free market, efficiency, competition and entrepreneurship. Economic laws and derived practical necessities could be analyzed as social constructions and economic models as social models to underscore the political substance of the dominant economy. A new political economy could analytically reintegrate politics and the economy and exceed the prevailing limits. A broad economic literacy must aim at breaking through the far-reaching immunization of economic decisions and making accessible a broader public discourse. “The ideas of economists and philosophers, whether right or wrong, are more powerful than people generally think. In truth, nothing else rules the world” (Keynes).
By Gabriele Michalitsch
[This 2004 study published on the Attac-Austria website is translated from the German on the World Wide Web,
http://www.attac.at/663.html.] INTRODUCTION
1. THE FORMATION OF THE NEOLIBERAL PROJECT
2. THE MANUFACTURING OF CONSENT
3. ECONOMY AND STATE: THEORETICAL ECONOMIC STARTING POINTS
4. GLOBAL NEW ORDER: POLITICAL-ECONOMIC TRANSFORMATIONS
5. DEMOCRATIZATION OF THE ECONOMY
INTRODUCTION
“Belief in economic reason” defines the new “world religion” (Senf 2001), the neoliberal doctrine of salvation proclaimed with missionary zeal. Its high priests preach its credo incessantly: the market as an institution is superior to the state, competition as a method of organization and development is superior to politics and conscious cooperation is superior to expression of collective interest.
Neoliberalism emphasizes subordination of social spheres under the dominance of the market and limitation of state spending. The state has to submit to market forces and merely ensure its framing conditions. Protection of private property and contractual rights has priority. In addition, neoliberalism implies a comprehensive design of social order and development based on economic self-regulation by the market and restructured relations of the economy, politics and society. The relations of state and the economy, national and international, private and public are redefined. These categories are all reinterpreted.
In this study, the process of the formation of neoliberal thinking and roots of neoliberal ideology – particularly economic theory – will be outlined. Connections of the genesis of neoliberalism and the development of economic theories will be shown. Central elements of these theories will be explained to clarify the diffuse term neoliberalism. Neoliberal assumptions and hidden dimensions of neoliberal ideology will be revealed. Then those politico-economic transformation processes that helped realize neoliberal thinking since the seventies will be analyzed. Probing the politico-economic changes and the ideological shifts should make understandable the hegemonic development of neoliberalism and unmask the political character of its theory. The study ends with a plea for a new political economy.
1. THE FORMATION OF THE NEOLIBERAL PROJECT
The reformulation of liberal social designs and the formation of the politico-economic project neoliberalism – after the crisis and decline of classical liberalism at the end of the 19th century and the first third of the 20th century – refer back to the thirties when the “international avant-garde of militant economic liberalism” motivated by Walter Lippmann’s The Good Society met in Paris in 1938. This was before the “crusade against Marxist and Keynesianism totalitarianism” was institutionalized in 1947 with the founding of the Mont-Pelerin Society “to exploit the market” (Kreisky 2001).
An international network of foundations, institutes, research centers, publications, scholars, authors and public relations agents was established that promoted neoliberal thinking. After the “successful” neoliberal experiment of “libertad economica” in Chile following Allende’s overthrow in 1973, the Adam-Smith Institute provided scholarly justification for the Thatcher policy while the Heritage foundation gained acceptance as a US think tank of the Reagan era.
The political-economic breakthrough occurred with a series of Nobel Prizes for economics, bestowed for the first time in 1969. A large number of neoliberal economists were prizewinners. As the most prominent examples, Samuelson (1970), Hicks and Arrow (1972), Hayek (1974), Friedman (1976) and Becker (1992) received the prestigious award… The Mont-Pelerin Society acted as a supportive network. Seven of its members were honored between 1974 and 1992. The representative of the Swedish national bank Erik Lundberg who also belonged to the Mont-Pelerin Society officiated for years as president of the Nobel Prize committee for economics. Since the Nobel Prize was usually only awarded for the natural sciences physics, chemistry and medicine, the “natural science” character of economics was acknowledged. Economics was spared the normativity question and chosen as the leading social science.
2. THE MANUFACTURING OF CONSENT
The realization of the neoliberal project – encouraged by economic and technological changes since the seventies – was ultimately due to the successful “manufacturing of consent” (Chomsky). The prevailing neoliberal “consensus without consent” was supported by the power of the media, an economic empire itself. The principle “consensus without consent” means that the plans of the governing can be enforced against the will of the governed without violating the democratic principle of consent since the governed would agree later.
“Forceful formation of consciousness” moves into the foreground. Neoliberalism implies an intense reconfiguration of social assumptions and ideas. “Mental poisons” (Gerlach 2001) of austerity debates, social misuse and location imperatives slowly seep in and penetrate the individual consciousness and become generalized.
The ideological formation of individuals in neoliberalism increasingly replaces the welfare state assurance of mass loyalty with social benefits and higher wages. Negative social phenomena are represented as unavoidable or desirable and no longer contested. Thatcher’s famous doctrine “There is no alternative” describes the inevitability of neoliberal restructuring and – with the collapse of command socialism – of the illusionary character of system alternatives.
Despite deficient material concessions, neoliberal discourse aims ultimately at “voluntary” subordination under dominant conditions stylized as without alternative. The individual is influenced on cognitive, emotional and social planes. On the cognitive plane, neoliberalism produces standardized or one-dimensional thinking. Supported on euphemistic language and tabooed terms like class struggle, profit, power relations and capital, thinking becomes increasingly undifferentiated. Real contradictions and social conflicts are faded out. Competition becomes legitimated and renunciation on action and conflict strengthened. Acceptance of social polarization and acknowledgment of the “normative power of the concrete” and of the “naturalness” and “unchangeableness” of social conditions reinforce that renunciation and produce social incompetence. The global standardization of the social world is also manifest as standardization of thinking: “The same factories, the same goods, the same discourse worldwide” (Gerlach 2001).
In an emotional regard, connections of negative states of mind and social conditions cannot be made. Alarm, fear of the future, indifference and resignation are the consequences and lead to withdrawal of emotions or stronger aggressiveness on the social plane and exclusion, competition and de-solidarity.
Self-estranged identifications, de-politization and privatization of individual existence, resignation, indifference – particularly toward democracy – de-naturalization of reality seen as beyond influence and de-historization of social and individual consciousness are the results. Future fears, desires for change and prohibitions of conflict and action are pivots of fear-obsessed conservative mass consciousness and lead to resignation and emotional indifference. Excluded from planning and decision-making processes, life projects are reduced to the private life. Possibilities of active creation are confined to the reproductive area. The consumptive side of human existence overshadows the productive side.
The myth of the “free market” and rational, efficient and fair competition is popularized without resistance and without regard for its social consequences. This myth relied on economic developments – contrary to economic reality – and was marked by oligopolist market structures and the rule of corporations.
3. THE ECONOMY AND THE STATE: THEORETICAL ECONOMIC STARTING-POINTS
As central theoretical foundations, neoliberalism relies on the theory of neo-classicism, Schumpeter’s entrepreneur model and the monetarist Chicago school. The synthesis of essential elements of these approaches forms the economic program of neoliberal policy and the supply economy. The characteristics of the supply economy and its neo-classical, Schumpeterian and monetarist assumptions should be analyzed.
In the German language area, law- and order liberalism is often – wrongly – seen as the theoretical source of neoliberalism. The liberal design of the “social market economy” titled law- and order liberalism by the economists and jurists of the “Freiburg school” marked the post-war years of Germany. Order through competition is central in the liberal model. Although law- and order liberalism rejects state interventions entangling the state in economic conflicts of interest, a strong and impartial state that insures competition is necessary according to the liberal conception. Competition guarantees private entrepreneurial initiative and economic efficiency. Private property, the prerequisite of the competitive order, is only justified when competing entrepreneurs “offer their services to the general public.”
Despite some similarity in economic demands, law- and order liberalism is distinguished from present neoliberalism in its understanding of the state. The state remains a powerful factor to which the economy is subordinate. The market is constituted and maintained through state intervention. Perfect correspondence is an ideal possible through continuous intervention. The state and the market are mutually conditioned; their strict separation is impossible. The history of capitalism is interpreted in law- and order liberalism as economic-institutional reciprocity. Changes of the economic-institutional ensemble determine capitalist development, not capital logic. As an (economic) order, law- and order liberalism implies the possibility of creation through social and political intervention. Thus the state in law- and order liberalism – unlike in neoliberalism – remains a preeminent authority that regulates social relations. The European Commission adopts only individual elements of the heterogeneous law- and order liberal idea - like the emphasis on the competitive order. US developments in economic thinking are essential for the global hegemony of neoliberalism.
3. THE SUPPLY ECONOMY
The supply economy “tested” first in the Chilean experiment after 1973, practiced from 1979 in Great Britain under Thatcher and promoted as an economic program during Reagan’s presidency under the title “Reaganomics” embodies the features of neoliberal (economic) policy. The supply economy was first received in economics on account of its political importance.
The supply economy assumes that every supply creates its demand. Expansion of production is prompted by additional income spent for goods. More production, more employment and more growth should be achieved by increasing individual output or efficiency. Besides lowering inflation through restrictive monetary policy in the sense of monetarism, limiting the public sector in favor of private initiative has programmatic priority. Reduction of taxes and fees (especially for corporations) and of social benefits viewed as inhibiting performance and the general reduction of state spending (except for the Defense Department) serve this goal. Financing the state deficit is considered a burden of the capital markets. Corresponding savings can be attained on the spending side.
According to the supply economy, increasing entrepreneurial possibilities by minimizing obstructions through employee associations and state interventions is vital for promoting investment activity. Weakening unions – furthering price stability – also makes possible “moderation” of wage policy and encourages reducing state investment obstructions in regulations on labor protection, job security and environmental incompatibility in the supply economy. The importance of entrepreneurial activity and the promotion of the “entrepreneurial spirit” are in the foreground.
In Europe economists first received the supply economy. From 1977/78 the German council of experts in its annual expert opinion identified the supply side as one cause of the employment crisis. Concentration on the supply side is necessary “when investment risks, hindrances to adjustment in structural change and high production costs burden the profit calculus so that many refuse to expand their production sites and create additional sites. New goods are not offered on the market. New businesses are not established. For all these reasons, the structural change cannot be mastered” (Council of experts 1978). Abolishing obstacles for economic activities, especially for investments, opening new options for process- and product innovations, rewarding readiness for risks on the market and promoting performance are propagated in Europe to solve economic problems. Europe now follows an economic program synthesized out of neo-classical, Schumpeterian and monetarist elements.
3.2 THE NEO-CLASSICAL CALCULUS
The “marginalist revolution” of the seventies of the 19th century changed the economic perspective. Unlike the classical period, production costs no longer determined the value of a good but the household’s ideas of subjective value. Thus neo-classicism shifted the economic priorities from the supply- to the demand side and from the macro- to the micro-plane. Economic analysis is confined “to the surface of economic events” (Senf 2001), above all price formation on individual markets under different conditions. If the classical political economy of the 18th to the second half of the 19th century focused on the interconnections of the economy, state and society that were not separate areas of knowledge, the neo-classical period now separated the economy from the state and removed it from its social context. Questions about state interventions, long-term economic developments and economic cycles and crises of capitalism were largely ignored like the distribution of factors of production. Macro-economic connections of employment, unemployment, distribution and price development or pay were now discussed in microanalysis. Economic “laws” were derived from the individual economic units – household, businesses and individuals. Individual cost-benefit analysis became the measure or standard of all economics. The economy was robbed of its political-social context.
The individual economic actor and his decisions aiming at rationally maximizing his advantages, calculating costs and benefits and optimizing his situation are central in neo-classical theory. Decisions of individuals in perfect competition are coordinated by the market mechanism so that the greatest possible advantages are reached for every individual – and thus for society. State intervention is interpreted here as disturbance of market-guided adjustment processes impairing optimal allocation.
A series of further assumptions underlie the neo-classical model of perfect markets. An atomistic market structure is assumed with a vast number of suppliers and consumers who respect market prices. Individual market actors cannot influence market prices. Market adjustments occur through the quantity of supply and demand. This also implies that no advantages can be gained from mass production. Like homogeneity of goods, the absence of market barriers, unlimited market transparency and unrestricted reaction speed of market actors are also prerequisites of ideal markets.
With flexible prices, there are no unused factors of production. Unemployment is always interpreted as voluntary or a consequence of high wages. Since each of the factors of production labor, capital and land is paid corresponding to its (marginal-) productivity, the neo-classical model equates the production factors and legitimates the distribution of income. The rationality of the distribution of product to the production factors veils the arbitrary distribution of the production factors.
The concept of allocative efficiency in perfect competition excludes redistribution. The efficiency criterion going back to Vilfredo Pareto implies that no market actor can be better off without another being worse-off. Improvement of welfare through re-allocation of resources is excluded along with discussion of distribution questions since interpersonal comparisons of advantages are unreliable.
Neo-classicism as a model of an “ideal world” is a reference system without empirical authority. However it claims to describe a universal logic of economic conduct not limited to the capitalist market economy. In addition, neo-classicism led to a formalization of economics that reinforced its immunization tendencies in public discourse.
Neo-classicism develops the theoretical foundation for a neoliberal conception of the “night-watchman state” reviving the antagonism between the economy and state interventionism threatening individual freedom and revitalizing the laissez-faire liberalism of the 19th century. If neo-classicism was first a counter-model to Marxist theory, Keynesian theory in the train of the 2nd World War was integrated with the “neo-classical synthesis” in “special cases.” The neo-classical analysis of the economy developed into the dominant paradigm that fortified itself with the hegemony of neoliberalism and currently dominates the everyday understanding of the economy, not only scholarly discourse. Neo-classicism is the foundation of university economics.
3.3 THE ENTREPRENEUR MODEL
Schumpeter’s 1911 idea of the innovative pioneer entrepreneur in his theory of economic development assigns an active role in the economic process to the entrepreneur who creates new products and conquers new markets and does not only satisfy demand. In Schumpeter’s conception, the implementation of inventions is decisive in competition. An innovation can consist in producing and selling a new good or a new quality, in introducing new production processes, opening new markets, reorganizing one or several branches of industry (as through monopolization) and a new supply in production factors. Entrepreneurs with innovations speed up economic development, not “static proprietors” who produce well-known things with well-known methods. These entrepreneurs are motivated by the prospect for pioneering profits since innovators gain a temporary monopoly position. Monopoly profits come to them until rivals imitate the innovations and the monopoly is lost. The dynamic entrepreneur begins a new search for innovation. The essential characteristic of capitalism lies in this process of “creative destruction” according to Schumpeter.
Schumpeter characterizes the entrepreneur as a “revolutionary of the economy.” One without tradition and relations, a stranger in the class from which he originates and an outsider in the milieu in which he rises, often uncertain, conformist and anxious as a typical social climber – “everything other than a leader outside his office” (Schumpeter). Nevertheless innovations for Schumpeter “always involve the rise to leadership of new men.” Their leadership is limited to the economic sphere. One who realizes an innovation is an entrepreneur. Entrepreneurship is not a calling or permanent state as a rule. According to Schumpeter, capital is not a prerequisite of entrepreneurial activity. Assumption of risk falls to the capitalist and is not an element of the entrepreneurial function. Thus entrepreneurship is not coupled to class membership.
Schumpeter separates capitalism and entrepreneurship with this differentiation of entrepreneurial risk and entrepreneurial function. Therefore “no Marxist guilt feeling” afflicts the entrepreneur (Galbraith 1987). This differentiation was Schumpeter’s real merit and “gave him that special place he still has today” (Galbraith 1987). Schumpeter admits that successful entrepreneurship normally leads to a capitalist position. However dividing capitalists and entrepreneurs makes possible an a-historical universality of the entrepreneur model. For Schumpeter the entrepreneur function is found in all societies, even in socialist society and is not limited to the capitalist society.
Schumpeter is not categorized in an economic school. The history of economic theory gives him a special status. His distance to neo-classicism appears in his emphasis on macro-economic questions and social development. Unlike the static analysis of neo-classicism, he emphasizes the dynamic of the market. The connection of the social, psychological and economic is important to him.
3.4 THE CHICAGO SCHOOL
The Chicago school that redefined the social as a form of the economic and thus universalized the economy started from the University of Chicago and Friedrich August von Hayek, Milton Friedman and Gary S. Becker. Although monetarism is the core of its economic and political theoretical program, the Chicago school – especially with Becker – goes far beyond monetarism.
For the Chicago school, the economic includes the totality of human action and conduct characterized by the allocation of scarce resources amid competing goals. The calculus assigning means to a certain goal is stressed. The Chicago school generalizes the economic form. The non-economic is analyzed with economic categories. Individual conduct and social relations are subjected to the economic perspective. In addition the economic becomes a program allowing government practices to be judged with market terms.
Following neo-classicism, society for the Chicago school is merely a sum of individuals. Hayek understood society as a “spontaneous order” arising out of human action without following any design. Society forms “unintentionally” (Hayek) out of the activity of individuals. This is how language, law and the market developed according to Hayek. This spontaneous order results from the separate reactions of individual elements. It rests on a multitude of unconscious information. As a result, the social order lacks rational comprehensibility and cannot be planned. “Rules enabling individuals to find their place in a spontaneous order must be general and may not assign a place to certain individuals. Creating their own positions must be left to individuals” (Hayek 1969).
According to Hayek, rules of conduct enforced through imitation guide people on account of their social success. Respect for property and the obligation of contracts are primary rules. The function of the state consists in securing this “natural order.” An unrestricted power of the majority represents a “constructivist error” (Hayek). As a quasi-natural order, the market cannot ultimately produce any unjust results. Correspondingly justice is not grasped as a social category but as fairness referring only to individual conduct. For Hayek, the functions of the state include preventing violence and deceit, protecting property, assuring observance of contracts and recognizing equal rights for all individuals to produce and sell in any quantity. A monopoly in exercising force is ascribed to the state. State services can only be supported when they create favorable conditions for individual decisions. On the other hand, influencing income distribution is unreliable since this destroys personal freedom. In addition, no general consensus exists on the importance of individual goals of state policy, particularly on distribution questions.
In Hayek’s school, monetarism with its own macro-economic theory on a neo-classical foundation as a counter-design to Keynesianism implies the self-control of the market economy. State influence on the private sector is considered harmful. Uncertainties in the economic process are referred back to governmental incursions, in particular to tax- and spending programs. Measures of monetary-, credit- and fiscal policy represent exogenous shocks causing the instability of the economy. On account of delays in effect, attempts of anti-cyclical monetary- and fiscal policy like the Keynesian program lead to de-stabilizing effects. To avoid this, monetarism urges reducing economic policy to a constant fortified money supply policy. Friedman’s rule on money supply assumes constant annual growth of the money supply around two to five percent that must be fixed legally and no longer depends on decisions of the Federal Reserve. The basic stability of the private enterprise sector makes unnecessary state intervention. Friedman grants the right of incursion to the state in only three cases: external effects, “paternalist concern” and technical monopoly.
External effects occur when the economic situation of an economic subject is positively or negatively influenced by the activity of another without an equivalent return favor. For example, the sewage of a factory damaging the fish stock of a river represents a negative external effect for the river fishery. In this case of negative externality, the social costs of production are shifted to a third and do not enter the business calculation. On the other hand, the total social benefits of an act exceed the individual benefits to its author.
In the case of negative external effects, the state should intervene when the affected have no possibility for equalization and state incursions have advantages for society with positive externalities – as in the realm of education. In addition, there is the task of paternalist concern for all those not regarded as responsible - like children and the mentally disabled. Finally, technical monopolies in water-, gas or electricity supply need state regulation. Here Friedman recommends a “moderate private monopoly” as the “lesser evil.” Becker also prefers the disadvantages of monopolies to those of political monopolies. Becker’s understanding of monopoly is paradigmatic for neoliberalism on account of his strict rejection of state regulation and his universalization of the economic.
Becker does not limit the economic to the market but defines economy by the kind of problem that it has to solve. The questions of scarcity and choice are raised in private households, political institutions and unions. Consequently Becker subjects all areas of life to the logic of economic optimizing and maximizing individual advantages. The rational cost-benefit calculus becomes the universal foundation of human conduct. However decisions need not necessarily be consciously calculated; strong emotions are not excluded. Individual maximizing of advantages based on self-interest is not opposed to altruist conduct. Altruism refers back to individual rationality since this rationality ultimately makes possible individual benefits.
Family, marriage, the number of children, criminality and politics are subjects of economic analysis. Ideal democracy according to Becker’s model would be like an efficient system of free enterprises where political decisions are determined by the desires of voters. Becker defines marriage as a two-person firm for the production of children. Thus men and women compete on the marriage-market for partners to raise their individual benefit level through marriage. The quantity and quality of the children is also economically negotiable through their price.
Following Becker, the economic calculus is in effect in relations to others, within the human capital theory and also for the subject’s relation to himself. Alongside school education and on-the-job training, human capital is developed through improvements of “emotional and physical health.” Thus human capital includes healthy lifestyle. As with every investment, the extent of investment in human capital depends mainly on its expected profitability, on the monetary and psychic return on investment. People are seen as businesses that produce an income power. People with better abilities – and consequently better market chances – also invest more in their human capital. According to Becker, at least three-fifths of personal income arises through human capital and individual abilities.
The formation of human capital cannot be separated from the process of self-construction. Thus the economic subject as a consumer or worker complies with economic unity and human existence takes its cue from the economy. Becker views the organization of the economy under the aspect of self-development. “Economic orders that rely on private initiative and competitive markets are more efficient than those relying on extensive governmental control. The effects of a free enterprise order on personal responsibility, initiative and other virtues may be even more important from a long-term perspective (Becker 1998).
The difference between the economy and the social is eliminated because no social area can be excluded from economic analysis. In addition, human capital theory identifies the individual and the economic by coupling self-development to valorization on the market. The individual becomes the entrepreneur of himself; the market logic is inscribed in the individual.
4. GLOBAL NEW ORDER: POLITICO-ECONOMIC TRANSFORMATIONS
Since the middle of the seventies, the dominant politico-economic system of the post-war time has undergone a process of fundamental change. The transformation of technologies, markets, institutions and social hierarchies of power accelerated after the implosion of Eastern European command socialist planned economies. A powerful barrier of the world market fell with the Iron Curtain. Extended traffic routes, low transportation costs and the new communication technologies make spatial distances shrivel. For a long time, the financial markets have been interwoven in a world financial market. The knowledge- and capital-intensity of computer technology, telecommunications, micro-electronics and genetic- and bio-engineering, the new key technologies, encourage the cooperation of economic, political and scientific interest-groups and accelerate business mergers. Worldwide liberalization of the markets, transnational business strategies and regional economic integration (EU or European Union, NAFTA, MERCOSUR) characterize the increasing internationalization of the economy that results in a “world economy.”
The transition from Fordism to post-Fordism accompanied this process. In the seventies, tariffs and quotas protected national markets. The mode of production followed the Fordist model. Directed to mass consumption, supply-side mass production of standardized goods with great stock on hand, vertically integrated production structures and cost advantages from combining different lines of production occurred. On the other hand, in the long dawning time of post-Fordism, demand is determining production. Differentiated, short-lived consumer models lead to flexible and changing trends of reactive production with minimal stock on hand and just-in-time manufacture favoring the horizontal integration of production.
The global new order joined with the hegemony of the neoliberal paradigm implies deregulation of national economies. This deregulation undermines the national state; inter-national economic interconnections form a new integral structure of politics and the economy. The economic functions of the state change in the course of the politico-economic transformation. The state’s task now consists in promoting innovative capacities, technical competence and technology transfer. The state loses autonomy through the increasing opening of national economies. The macro-economic political instruments favored by the Keynesian welfare state lose effectiveness. The nation state increasingly loses sovereignty; possibilities of national economic action dwindle. Flexibility, promotion of research and innovation, subsidies and tax cuts for businesses replace Keynesian political instruments for steering demand. The Schumpeter performance state – the state form corresponding to post-Fordism that should overcome the crisis tendencies of the Keynesian welfare state through supply-oriented intervention for supporting innovation and subordinating social benefits under market forces – falls back on supply-side intervention to raise the structural competitiveness of the national economy in the international competition.
The market takes over the distribution of income more and more with the withdrawal of the state and reduction of the public sector while social policy, urging “entrepreneurial spirit”, aims at “individual responsibility.” Growing marginalization and social exclusion of ever-larger sectors of the population are consequences. The Keynesian welfare state that prunes the rank growth of the market through regulation and redistribution increasingly gives way to the Schumpeterian performance-state subordinate to market forces that insures a minimum of social cohesion and management of political conflicts.
The neoliberal order is a development stage of capitalism in which transnational conglomerates replace national monopolies as the representative power of the economy. Interest in protection against other nation states fades. Open borders become the prerequisite of “freedom of trade” across state borders. The weakening of the nation state in the course of the shift of power to the global players is the presupposition and result. Freedom means “freedom of this new concentration of economic power…”
Simultaneously the emphasis on the erosion of the nation state undermines this state and hides the political praxis of this erosion. After the end of the system competition in 1989, de-democratization was more and more an integral element of the neoliberal state project. Economic space and state territoriality diverge increasingly. Access channels to democratic decision-making centers are narrowed. The executive becomes more important to the burden of parliamentary institutions. Essential parts of the state machinery, particularly central banks, are relieved of democratic control mechanisms.
The political-institutional regulatory structure is transformed in a process of far-reaching restructuring. Weights within the state machinery shift. World-market-oriented departments like the departments for finance, economy, research and technology have priority while domestic agencies like those for labor, education and culture lose autonomy and creative power. In addition, the significance of barely legitimated structures like the European Bank and the media grows. Social-integrative organizations like parliaments and unions are weakened.
Changed access possibilities to political decision-making centers foster the dismantling of the social state. The European integration project proves to be a project de-politicizing the economy and reorganizing the social state into the competition state. Economic and social functions and authorities are handed over to the market and international institutions protected from political pressure. Supra-national coordination or generalization of political fields and inclusion of private enterprise actors goes along with new forms of regulation. Monetary policy hardly allows for the employment- and income interests of suppliers for workers in the national economic output. The market-friendly adjustment of state intervention is flanked and assured by authoritarian-repressive modes of regulation and de-solidarian ideologies.
As a consequence of these shifts, authorities increasingly decide existential questions for the whole society without responsibility toward the population. National legislatures are weakened. Creative possibilities and the influence of unions, welfare associations and the population are reduced. Neoliberalism advanced “anti-political versions of politics.”
De-regulation and de-politicization are strategies of privatization withdrawing tasks and problems from public responsibility and competence. Thus state regulation is reduced in favor of market forces. Public enterprises and services are privatized and areas of public responsibility ceded to private authorities. Public responsibility is also increasingly denied so social problems are interpreted as individual problems and no longer discussed politically.
The border of private and public shifts with de-regulation and de-politicization. The substance of private and public also changes. Under the ideal peak of personal freedom and autonomy, the private is culturally upgraded to the primary place of individual decisions while partial areas of the private are increasingly commodified and thus de-privatized. On the other hand, the public experiences a de-politicized erosion undermining its collective dimension. The public becomes more and more the projection surface of personal longings and fears and accordingly privatized. Social individualization is expressed in the publication of intimate facts. This also testifies to a fundamental change of the political culture in which subjects are isolated and discourse, negotiations, communication and political options are privatized.
5. DEMOCRATIZATION OF THE ECONOMY
Theoretical-historical analyses show that neoliberal ideology laid its economic foundations long before the breakthrough of neoliberal ideology. Its successful establishment was owed to networks built over decades that advanced the spread and popularization of neoliberal ideas and goals on scientific, political and media planes. Neoliberal thinking gained acceptance in the course of fundamental politico-economic changes and the crisis of Keynesianism and was promoted as a far-reaching social consensus.
Neoliberalism is an economic change of paradigms ending the era of Keynesianism and can be interpreted as an answer to a crisis of accumulation and Fordist regulation that began in the seventies. The neoliberal project is a fundamental redevelopment of classical liberalism and not a return or mere resuscitation. The state no longer supervises market freedom. This is the liberal conception. The market itself becomes the organizing and regulating principle of the state. A limiting outward principle is replaced by a regulatory inner principle. The market becomes the organization model of the state and society. Market logic is inscribed in the individual transformed into human capital.
Every search for alternatives must question these neoliberal foundations by demythologizing the “great narratives” of the free market, efficiency, competition and entrepreneurship. Economic laws and derived practical necessities could be analyzed as social constructions and economic models as social models to underscore the political substance of the dominant economy. A new political economy could analytically reintegrate politics and the economy and exceed the prevailing limits. A broad economic literacy must aim at breaking through the far-reaching immunization of economic decisions and making accessible a broader public discourse. “The ideas of economists and philosophers, whether right or wrong, are more powerful than people generally think. In truth, nothing else rules the world” (Keynes).
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