This is the title of a recent book published by the political economist, Colin Crouch at Warwick University. It is a powerful book that traces the historical emergence of an economic doctrine that has been strengthened not weakened in the aftermath of the financial crisis. It tackles an issue that regularly occupies my thinking; the vast contradiction between the economic idea and political practice of neoliberalism.
For a long time I have been reluctant to use the term neoliberalism because it does not actually exist. You will be hard pressed to find any market that is ‘free’. In practice, a ‘free market’ is the dominance of large powerful multinational firms. The closest thing to a neoliberal free market before the ‘great recession’ was the financial sector.
The financial sector was held up by national governments across Europe, on the left and the right, as an example of the public good that can emerge from free market forces. In this case, it was governments creating a free market in money. Ireland and the UK, in particular, made a virtue out of their unregulated financial sectors. A booming economy was proof that the system worked.
But despite the fact that the financial sector was the closest thing to a neoliberal free market doctrine – and the fact that the system has collapsed – neoliberalism has emerged more powerful than ever before. How can this be?
The politics of neoliberalism manifested itself in many different ways, depending on country specific national institutions and historically evolved cultural traditions. This adaptability is what made neoliberalism so successful. But neoliberalism is not about free markets. It is about the dominance of large corporations (financial and otherwise) that can gobble up the market.
To quote Colin Crouch:
“There are many branches and brands of neo-liberalism, but behind them stands one dominant theme: that free markets in which individuals maximize their material interests provide the best means for satisfying human aspirations, and that markets in particular are to be preferred over states and politics, which are at best inefficient and at worst threats to freedom…. But actually existing, as opposed to ideological, neo-liberalism is nothing like as devoted to free markets as is claimed. It is rather devoted to the dominance of public life by the giant corporation”
This is the crucial point. Political support for free markets, in reality, is political support for large corporations. Therefore, neoliberalism is not about free markets but the dominance of large multinational firms on public policy.
The dominance of the MNC corporation not only usurps democracy (as we can see in the current global tug of war taking place between national sovereign democratic states and global money factories) but free markets themselves. Neoliberalism totally contradicts the assumption of a competitive free market. This is what economists totally miss when they encourage governments to de-regulate finance, product and labour markets. They are blinded by dogma.
But it is also the reason why many people on the left and right share a common diagnosis of the current financial crisis. They agree that the crisis was caused by the reckless behaviour of private banking firms in private finance markets. Finance firms have not only escaped unscathed from the crisis but are in a position to demand that taxpayers suffer through permanent austerity for their mistakes.
This annoys those on the right because it goes against the principles and logic of free market economics. But maybe it is time to recognise that ‘actually existing capitalism’ is really about the dominance of large and unaccountable private corporations not efficiently designed competitive free markets.
The policy response across Europe has been to cut back public spending and the welfare state. It is to encourage more free and flexible labour markets in the assumption that this will increase competitiveness and the overall public good. But the actual effect will be to give more power to private corporations. The end result is a decrease in democracy, a weakening of competition and an increase in the bargaining power of private corporations over public policy.
For example, in Ireland, the policy response in the aftermath of the crisis has been to explicitly support, by all means necessary, the interests of the multinational sector. The financial service sector is central to this. A coalition of Christian Democrats and the Labour party have introduced a series of tax increases and public spending cuts for citizens but simultaneously introduced tax breaks for multinational executives in the financial service sector – to entice them out of London and into Dublin.
Wealth begets political power. If there is a concentration of wealth then there is a concentration of political power. But unlike 19th century liberalism this no longer resides in the house of lords, it resides in the executive boardrooms of unaccountable multinational firms, particularly those in global money factories. It is time for civil society to drag them into the public sphere and demand that they be held to account for the crisis.
The referendum on the European fiscal treaty is a historic opportunity to set the terms of reference and ask serious questions about who should pay for the Eurozone debt crisis: the taxpayer or the private financial sector.