How 'Neoliberalism' came to refer to Everything I reject

Neoliberalism is in the first instance a theory of political economic practices that proposes that human well-being can best be advanced by liberating individual entrepreneurial freedoms and skills within an institutional framework characterized by strong private property rights, free markets and free trade. The role of the state is to create and preserve an institutional framework appropriate to such practices. The state has to guarantee, for example, the quality and integrity of money. It must also set up those military, defence, police and legal structures and functions required to secure private property rights and to guarantee, by force if need be, the proper functioning of markets. Furthermore, if markets do not exist (in areas such as land, water, education, health care, social security, or environmental pollution) then they must be created, by state action if necessary. But beyond these tasks the state should not venture. State interventions in markets (once created) must be kept to a bare minimum because, according to the theory, the state cannot possibly possess enough information to second-guess market signals (prices) and because powerful interest groups will inevitably distort and bias state interventions (particularly in democracies) for their own benefit” David Harvey (2005) A brief History of Neoliberalism, p. 2

It is generally thought that the "neo-liberalism" was coined at the 1938 Lippmann colloquium in Paris. And in what follows when I speak of 'true' or 'authentic neoliberalism,' I mean the cluster of ideas that became prominent within liberalism since that colloquium. They jointly constitute an important stream within what I call (here and here) the second-wave of liberalism (in brief: first long wave: 1776-1914; second wave: 1945-2009).*

Of course, scholarship by Stefan Kolev (see especially section 2) and Karen Horn (in this newspaper article) plausibly argue it was a term of art already in the 1890s. This suggests that throughout its history strands of liberal thought understood itself as open to renewal.  It was an actor's category used by liberals and critics alike.  Even so, unlike 'liberalism,' the term neoliberalism was not used very often, and only started to gain wider currency after 1990, that is, the end of the Cold War. (See the graph at the bottom of this page before the fold.)

Last month I quoted Milton Friedman (ca 1951) on his understanding of Neoliberalism which, in its American flavor, he took to be a associated with the views of his mentor Henry Simons. Friedman treats neoliberalism as a cluster of commitments and doctrines. It has commitment to (quoting from Friedman)

• (i) the fundamental importance of the individual (which it shares with the older liberalism);
• (ii) it embraces  a competitive economic order as the means to promote individualism (where the nineteenth century had laissez-faire).
• (iii) "It would seek to use competition among producers to protect consumers from exploitation, competition among employers to protect workers and owners of property, and competition among consumers to protect the enterprises themselves."
• (iv) "The state would police the system, establish conditions favorable to competition and prevent monopoly, provide a stable monetary framework, and relieve acute misery and distress."
• (v) "The citizens would be protected against the state by the existence of a free private market; and against one another by the preservation of competition."
• (vi) The state maintains "law and order" and of engages in “public works;"
• (vii) The state "would have the function of providing a framework within which free competition could flourish and the price system operate effectively."
• (viii) "The freedom to establish enterprises in any field, to enter any profession or occupation."
• (ix) "the provision of monetary stability.'

These nine features are not all on the same conceptual level, but let's leave that aside. One thing missing here (although it may be implied in (vi)) that, say, Ordos or natural-law libertarians would emphasize is (x) the system of individual (natural/human) rights. Alerted to this, we can notice that unlike Simons, Friedman does not emphasize here the set of institutions associated with political freedom (competitive elections, a free press, representative democracy, federalism, etc.) Of course, Friedman did embrace these elsewhere (Capitalism and Freedom); although because of the Pinochet affair his commitment to these are subject of controversy (see my paper for this material).

One additional point to make, which Foucault emphasizes, is that in the embrace of competition (and the rejection of laissez faire), there is also (xi) another non-trivial shift from a focus on exchange (in the analysis of classical political economy) to competition. But other than that Friedman's list is fairly representative of the broad sweep of neoliberalism. And while there are tensions within the list, it represents a broadly coherent program. It is also vague enough to allow for plenty of differences on matters of substance and tactics within neoliberalism. One thing I wish to emphasize is that in an important sense all of neoliberalism accepts the importance state capacity and state aims independent from market actors.

Let me turn to Harvey's Brief History. It is extraordinarily widely cited (see here). This was undoubtedly aided by the Great Financial Crisis, but it should be noted that it made a nearly instantaneous impact on scholarship and discussion. It clearly contributed in non-trivial fashion to the vastly broader uptake of 'neoliberalism' or it became (one of the central) the vehicle(s) of it.

At the start of the book Harvey gives what looks like a definition or description of a "doctrine" and a set of arguments he associates with "neoliberalism" quoted above. There are three key features of it that I wish to emphasize here. First, what is immediately notable is that he gives neoliberalism a Schumpeterian twist. (See also the focus on 'technological change' on p. 64.) The main mechanism to promote individual well-being is (xii) a process of liberating individual entrepreneurial freedoms and skills.

 Schumpeter is not a neoliberal. But as such this is not silly because the significance of entrepreneurs to the economy was emphasized by Israel Kirzner in his widely cited (1973) Competition and Entrepreneurship. (This built on earlier papers prominent in the 1960s.) Kirzner is an important representative of the American branch of the Austrian School of economics, which is a central to the development of true neoliberalism. And while there are interesting questions about how to fit entrepeneurs into standard economic models, at least since Knight entrepreneurs help explain the nature of profit in it.  

As an aside, as Tyler Cowen has shown (in a philosophically subtle article with a lovely treatment of Kant's aesthetic and Vico) that in many ways Kirzner stands far removed from Schumpeter, and we should see  G.L.S. Shackle's account of the creative entrepreneur (in his account of economic choice) as more authentic Schumpetarian. (Shackle died in 1992. Regular readers know I have a soft spot for Shackle, who ably defended the significance of Knightian uncertainty within economics.) 

Be that as it may, it is notable that Harvey emphasizes the significance of entrepeneurship so much that on his view of neoliberalism, that it becomes the main "role of the state" to "create and preserve" its possibility and practice. There is good reason to think this decision distorts Harvey's analysis of neoliberalism. But before I get to that let me note a second characteristic feature of Harvey's description.

Second, Harvey argues that neoliberalism is committed to the thought (xiii) that when "markets do not exist (in areas such as land, water, education, health care, social security, or environmental pollution) then they must be created, by state action if necessary." There can be no doubt that in the last few decades this (xiii), and (xiv) the process of privatization of state enterprises, have become associated in the public mind with neoliberalism. To be sure, not all privatization involves the development of new markets where the previously were none both because (a) there were already markets in this area or (b) privatization involves the development of a (de facto) private monopoly. I mention this because (b) is de facto incompatible with a core commitment of neoliberalism (namely the embrace of genuine competition). 

It is notable that while (xiii) can be compatible with neoliberalism it is not required by it. Note also (vi) above, for example, where Milton Friedman without hesitation recognizes the states role in providing public works (in the sense classical liberalism entailed). 

Third, Harvey completely dissociates neoliberalism from an interest in individual right and political freedoms. In the book, this allows him to strongly associate neoliberalism with the reforms of (prominently) Deng Xaioping and (less prominently) general Pinochet. And this is signaled in his description of neoliberalism by his insertion of "by force if need be." As regular readers know I think Hayek quite clearly flirted with a model of Enlightenment despotism to bring about neoliberal outcomes (at least as a second best option). So, Harvey is not all wrong about this. But it is quite noticeable that in Harvey's hands neoliberalism becomes, frankly, essentially, illiberal. Obviously, from a certain vantage point, all talk of consent within liberalism is intrinsically ideology to cover over the violence at the heart of it. In the book Harvey treats talk of individual freedom as a trojan horse on the way to 'incorporation into the neoliberal fold.' (41; so he is unable to take emancipatory projects connected to gender, sexuality, ethnicity/race, seriously in their own terms.)** 

That is to say, in Harvey's hands neoliberalism does not merely serve the class interests of capital, it is fundamentally reduced to it. And this means that where a sincere neoliberal might see evidence for her claim that the democratic political process is vulnerable to massive and deplorable rent-seeking and the protection of well connected special interests, Harvey treats this as a feature not a bug of neoliberalism which is just a new way to fight class warfare. By contrast, for, from the vantage point of the neoliberal, the interests of entrepreneurs are just one of many and often at odds with those of consumers and even the state itself. Again, while it is not silly to point to political coalitions between business interests (not all of them entrepreneurial at all) and neoliberalism, Harvey's conflation between the ends up treating 'neoliberal' as a way to describe the wrong party in class warfare.

Now, Harvey is not very interested in or especially careful in connecting his claims to neoliberal theorists. He is much more focused on governance, and practice. Even Harvey recognizes that there is a "significant departure" from "neoliberal" theory to neoliberal "practice" as he understands it (see, e.g. 64). But because he does not really take theory distinct from practice seriously, he does not stop to consider the meaning of this. And so one can safely predict that in years to come those influenced by Harvey will point to many practices and treat them as instances of neoliberalism that those of us who wish to renew liberalism (in an utopian-seeming third wave) will deny have anything to do with liberalism in any sense at all. 

 

 

 

 

*Why just an important stream? Quick answer: I want to leave space for other streams centered on Rawls, Shklar, Keohane, etc.. 

**Melinda Cooper's Family Values is very good on this kind of move indebted to Karl Polanyi.