"Neoliberalism" is it?

What are we talking about exactly, and why is this causing so much discussion?

Jeremy Fox
14 January 2016


, CC BY-SA 2.0

Samuel Beckett once remarked that he switched to writing in French rather than English because he considered it impossible to express anything in English that was not ambiguous. Linguistic reform under the auspices of the Académie Française in 17th century France resulted in a literary language stripped of foreign borrowings and regional accretions, and about which a century later Rivarol famously claimed that “If it isn’t clear, it isn’t French”.[1] English, by contrast, has always been accumulative, happily borrowing from everywhere, unruffled by neologisms, grammatical innovations and ambivalence.

It thus came as a surprise to read in William Davies recent piece that the term neoliberalism has been savagely dismissed as ‘vacuous’ and that so ‘distinguished’ a pressure group as Progress as well as various other soothsayers have described it as a mindless insult employed by intellectually lazy people who have no sense of what it might mean.

In rejecting these complaints, Davies tells us that ‘neoliberalism’ is both complex and ambiguous because, like other watchwords of political discourse, it is an abstraction capable of multiple interpretations and shades of meaning, just like capitalism, communism, democracy, and liberty. What concepts like these have in common is that they resist one-line interpretation; and the more we try to pin them down, the more complex and contentious they seem to become. Inability to elucidate a notion, however, is not the same as lacking a general grasp of its sense. Called upon to define our daily use of words of more than one syllable, many of us would probably flunk the test. However, that doesn’t make what we say unintelligible. 

Compared with some other candidates, ‘neoliberalism’ does not seem to be an especially elusive abstraction. I take it to mean marketisation of the public realm as a political project. Its current popularity among political leaders of a certain hue is that it has the appearance of offering value-free decision-making because it allows market competition rather than ideological bias to determine value. They are thereby absolved, at least in theory, from responsibility for the provision of important public services. In their place, the private sector runs the services on a competitive basis, or alternatively individuals and self-organised collectives take charge of their own needs. A recent example of the latter is the flood defence initiative in the North Yorkshire town of Pickering.

A core principle of neoliberalism is that citizens are to be defined first and foremost as consumers. Hence why ‘neoliberal’ governments insist on ‘consumer choice’ in sectors like health and education, a proposition that derives its force from a now widely discredited but still vital element of classical economic theory which posits that consumers act rationally in their own interests. “Rational” is another word capable of multiple interpretations, but for economists it means optimising the benefit or utility of a transaction; and it is supposed to be what we do, even though three hundred and fifty years ago Pascal had already worked out that we don’t – not always at any rate.[2] Here, therefore, we must wave goodbye to Freud, Jung and the subconscious.

Critical to the idea  of ‘consumer choice’ is that, in exercising their decisions, consumers have clear awareness of the options available. Misleading advertising doesn’t exist in such an ideal world, patients can easily work out which hospital is safest for having their appendix removed, parents can select the best school for their progeny from a range of alternatives and, if they are sufficiently market savvy, can bag a place there before the “full up” sign appears on the gate.

Friedrich von Hayek (1899-1992) is often touted as the titular deity of neoliberal thought. [3]. He believed that free markets lead to spontaneous order (i.e. without the need for significant human intervention); and much of his work in this area can be considered as prolonged libertarian footnotes to Adam Smith’s ‘Wealth of Nations’. Where Hayek would have seriously parted from Adam Smith is that in Hayek ‘s ideal universe, altruism is an aberration and either non-existent in fact or, as Ayn Rand would have it, irrational: “The principal of trade is the only rational ethical principle for all human relationships, personal and social, private and public, spiritual and material.” [4] If we want to do good, Hayek contended, then we should look to our own interests because: “The morals of the market do lead us to benefit others, not by our intending to do so, but by making us act in a manner which, nonetheless, will have just that effect.” [5] This is, of course, a precise if less elegant rendering of Smith’s celebrated image of the “invisible hand’, the difference being that Smith didn’t believe commerce to be the sole pathway to benevolence.[6]

Not entirely careless of human deprivation, Hayek conceded: “... that some minimum of food, shelter, and clothing, sufficient to preserve health and the capacity to work, can be assured to everybody… there is no incompatibility in principle between the state providing greater security in this way and the preservation of individual freedom…” [7]

On the other hand, he disapproved of welfare, and of the progressive taxation it requires:   “…the principle of distributive justice, once introduced, would not be fulfilled until the whole of society was organised in accordance with it. This would produce a kind of society which in all essential respects would be the opposite of a free society.” [8]

His answer to this rather muddy distinction came in a phrase that the UK electorate will readily recognise: the Great Society. Unsurprisingly, it involves, as far as possible, the withdrawal of the state from the provision of welfare, in the expectation that charities and individual volunteers will take up the reins. David Cameron’s slightly modified version – the Big Society – about which we hear less and less, has been savaged by The Independent as  a sham because local charities that are supposed to carry part of the welfare burden have effectively become sub-contractors to powerful corporations which have taken over services formerly run by the state. Yet this is exactly what Hayek had in mind, as the UK’s current prime minister and chancellor are doubtless aware.

When, under neoliberalism, an absence of state involvement produces negative results, such as the 2008 banking crisis, or when the private sector fails to meet minimum standards of service expected by the public, the state intervenes generally by imposing regulatory frameworks and inspection regimes, but not by restoring state provision. This exposes a fundamental weakness in the theoretical foundation of neoliberalism because it rubs up against the demands of democracy. If the electorate votes for a set of policies aimed at renationalisation, for example, it cannot then be argued on neoliberal grounds that the public is failing to exercise ‘consumer choice’, and it would be simply perverse to contend that the government knows better.

Such an obvious contradiction may be one of the reasons why Hayek, among others, had an equivocal attitude towards democracy. While he was all for democratically-elected governments, he called for a system in which they would be free of any obligation to do what the electors had voted for. According to Yale history professor Greg Grandin, Hayek told an interviewer during a visit to Augusto Pinochet’s Chile: “My personal preference leans toward a liberal dictatorship rather than toward a democratic government devoid of liberalism.”  Milton Friedman, a card-carrying neoliberal and Hayek fellow-traveller, thought fit to act as an adviser to Pinochet while the latter was engaged in the torture and murder of political opponents; and Margaret Thatcher, a Hayek acolyte, apparently saw no problem in befriending Pinochet, nor in cosying up to other dictatorial regimes – especially if there were lucrative arms sales in the offing. Let us not forget that, in the stark neoliberal world, commerce is altruistic. Nor should we complain if neoliberal governments ignore their electoral promises. That is what Hayek would have them do.

William Davies writes that neoliberalism is “…about extending (markets or competition) to address fundamental problems of modernity…” ,   but except for the word itself, there is nothing especially modern about either the practice or the political programme that it implies. Rather it seems more like a reversal to a nineteenth century idea of social Darwinism whereby competition is supposed to ensure that the strongest rise to the top for the benefit of society as a whole. Apart, possibly, from some misguided followers of Herbert Spencer, social Darwinism caught on solely in the disturbed minds of racial supremacists and disappeared with the defeat of Nazism. That is until neoliberalism unearthed it in modified form  a little later in the  century.

Readers of Dickens will be all too aware of what life held out for the poor in nineteenth century England under governments relatively unconcerned with the general welfare. Go back a little further to the eighteenth century and we can entertain ourselves with delightful descriptions of the lamentable condition of national infrastructure and policing, courtesy in this case of historian Christopher Hibbert:

“Coaches became stuck in the mud or overturned, their axles broke, their horses were lamed, their occupants thrown out with the  luggage into the ditch... Horace Walpole described the roads in Sussex as ‘bad beyond all badness'... Even the road between the court suburb of Kensington and Piccadilly was so ‘infamously bad’ in 1736 that Lord Hervey complained of living ‘in the same solitude as if cast upon a rock in the middle of the ocean'.”[9]

Nor was travel safe from predation by highwaymen. Hibbert writes that in 1774 even Lord North, the prime minister, was robbed in London’s Gunnersbury Lane; and that foreigners were astonished at the extent to which highway robbery seemed to be entirely normal. The Abbé le Blanc, on a visit to the capital, “recorded that in the 1720s highwaymen... 'fixed up papers at the doors of the rich people about London, expressly forbidding all persons of what condition or quality soever, to go out of town without ten guineas and a watch about them, upon pain of death’.”[10]

Government involvement in social welfare, services and infrastructure thus came about not as the enactment of an ideology but for purely pragmatic reasons, namely that the private sector couldn’t or wouldn’t undertake the tasks nor make the necessary investments.

Long-term investment in public infrastructure is not, of course, an attractive proposition to the private sector, which is why successive UK governments have struggled to find investors for major projects. Distant returns are no return at all. It has taken years for a UK government to be brought kicking and screaming to the realisation that power stations will not be constructed without government involvement. The UK’s infamous Private Finance Initiative, initiated by John Major and enthusiastically adopted by the Blair/Brown government, has worked by dint of expensive income guarantees to the private sector. What these and many other examples have highlighted, emphatically so since the 2008 economic crisis, is that free markets are not free, that when they are poorly regulated they can and do lead to ruin, and that neoliberalism is sustained paradoxically by government intervention – though on a discretionary basis. The element of discretion is important because it tends to operate in favour of vested interests. Quantitative Easing didn’t go to the public but to banks and insurance companies.

Neoliberalism is not difficult to understand. It is a simplistic ideology worked out, one suspects, on the back of a payslip in the cafeteria of an ivory tower by professors who had little faith in human intelligence except, perhaps, their own. The overt objective is to make people subservient to the market because it is supposed to operate more intelligently than humans. Isaiah Berlin would have recognised the neoliberal project as a tributary of “positive liberty” in which self realisation depends on the obedience of citizens to paradigmatic rules established “for their own good”. Free trade deals offer a contemporary example in that, once they are signed and sealed, they are difficult to undo; and parties that try to backtrack face the prospect at the very least of uncomfortable reverses in their terms of trade. The fetters of freedom.

Proponents of neoliberalism must necessarily ignore the history of economic development not only in the West but also in countries like present-day China and Korea where government responsibility for progress has been pivotal. To understand the potential dangers of neoliberal policies, especially to countries long-since run on social democratic principles (the UK still qualifies, just), we could do worse than look back to the extremes of inequality that prevailed in centuries gone by and to which we now risk returning. And we might recall the dispiriting features of unregulated capitalism that fired Marx’s outrage, and Dickens’ indignation.

The world is too much with us; late and soon,

Getting and spending, we lay waste our powers.”

So wrote Wordsworth. Before anyone had ever heard of ‘neoliberalism’, the poet knew well enough that defining us simply as consumers impoverishes us all.


[1] “Ce qui n’est pas clair n’est pas français."

[2] “Le coeur a ses raisons que la raison ne connaît point.” (The heart has its reasons that reason knows nothing of.) Pensées, 477, ed. Pléiade.

[3] Along with Ludwig von Mises (1881 - 1973) as the supposed ‘eminence grise’

[4] Quoted in The Journal of Ayn Rand Studies 6, No. 2, Spring 2005, p.378

[5] Hayek: The Fatal Conceit, 1989

[6] “However selfish man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though they derive nothing from it except the pleasure of seeing it.”  Adam Smith: The Theory of Moral Sentiments, I.i.1.1 (1759 - 1770)

[7] Hayek: The Road to Serfdom, 1944

[8] Hayek: Law, Legislation and Liberty, the mirage of social justice, Ch.12, 1973

[9] Christopher Hibbert, The English, A Social History, p 348, 1987

[10] ibid, p. 349

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