he Left’s chief bête noire: Classical liberal Friedrich Hayek
History doesn’t repeat itself — but climates of opinion do. Some 80 years ago, the Great Depression triggered a deep suspicion of laissez-faire and initiated the era of big government. The crisis was interpreted as a failure of the market and so government was called upon to fix the mess. This view prevailed despite the publication in 1963 of a groundbreaking monetary history of the Depression by the economists Milton Friedman and Anna Schwartz. They demonstrated convincingly that the Federal Reserve’s monetary policy was largely responsible for the severity of the crisis. But their insight remained outside the mainstream and the welfare state expanded rapidly. It was only in the Seventies that the tide began to turn when Keynesian deficit-finance measures failed to cure the stagflation that followed the 1973 oil price shock.
At that point public opinion opened up to supply-side economics; notions such as privatisation, liberalisation and deregulation entered the mainstream. But since the financial crisis that overwhelmed the developed world in 2007-08 the tide has turned again. Like the Great Depression, it is being interpreted largely as a failure of the market, and governments feel entitled to reclaim their prerogative. As before, the view that government played its part in paving the way to disaster remains difficult to sell despite the evidence in its favour. The climate of opinion has turned against free markets; paternalistic interventionism is fashionable again. Neoliberalism, a Continental academic term of art once meant to describe a rule-based political philosophy valuing liberty, individualism and the rule of law, seems to have become a dirty word.
The anti-liberal discourse is strikingly similar around the world. It begins by stating that neoliberalism used to be the reigning ideology, its sweeping success not even stopping at the front door of the British Labour Party or the German Social Democrats. According to this view neoliberal thought still predominates despite the crises since 2008. It is odd how different perceptions can be. Have we really been living in a world of unregulated free markets? That heterogeneous group of people who don’t mind being called neoliberals nowadays doesn’t quite see the world that way. Every year some of them gather for the conference of the Mont Pelerin Society (MPS), set up by the great defender of classical liberalism, Friedrich Hayek, in 1947. I attended its general meeting in Prague last month.
“We live in a far more socialist and statist society than we had imagined,” Vaclav Klaus, the Czech President, declared. Even if privatisation, liberalisation and deregulation had once made it to the top of the political agenda, other issues have been equally successful: the collectivist project of the welfare state has never slowed down substantially. The threats to liberty linger almost everywhere, said Klaus, listing socialism, “greenism”, the growing influence of NGOs, the apotheosis of science, the “demagogical element of democracy”, manipulation by the press and “dangerous supranationalism”.
The critics of neoliberalism have found common ground in the assumption that neoliberal politics is the result of one great global conspiracy. They seem to think that neoclassical economics, monetarism and public choice theory provided the tools to form a selfish money-oriented, efficiency-centred, government-mistrusting mentality. The key culprits are Hayek, Friedman and James M. Buchanan, and a network of trans-atlantic think-tanks — led by the Heritage Foundation and the Institute of Economic Affairs — which allegedly ensured that their body of thought was put into practice by politicians. Again, the usual suspects surface, three in particular: Ronald Reagan, Margaret Thatcher, and the unspeakable Augusto Pinochet. One detractor from this view, however, is Daniel Stedman Jones, a British historian. In his new book, Masters of the Universe: Hayek, Friedman and the Birth of Neoliberal Politics (Princeton University Press, £24.95), he convincingly shows that neoliberal reforms were launched almost everywhere by left-wing governments.
The influence of neoliberalism on public opinion must have been so strong that politicians, whatever their colour, could only follow suit. Stedman Jones, while hostile philosophically, describes the scene with remarkable accuracy, including its financial underpinning and its ties with conservatism. The only surprise lies in the power that he and others attribute to the neoliberal network, which they erroneously view as a homogenous group of like-minded people conspiring to change the world. Unfortunately, though, as I can report with an insider’s perspective, the neoliberals, ranging from continental “Ordoliberals” to the anarcho-capitalist lunatic fringe, rarely agree on policy recommendations. And we aren’t aware of any sweeping success. We could relax and enjoy the compliment, if only the social democratic collectivist think-tanks and NGOs, traditionally bigger both in number and financial resources than their neoliberal equivalents, didn’t have such a tight grip on modern societies.
The enemies of neoliberalism now don more distinctly academic clothes than before — but interestingly they come from every discipline except economics. In Austria, for example, the University of Linz set up Die Institut für die Gesamtanalyse der Wirtschaft in 2009, sponsored mainly by Arbeiterkammer Oberösterreich (the regional workers’ chamber) and some left-wing banks. (In somewhat broken English, it is translated as the “Institute for Comprehensive Analysis of Economy”.) Its website declares that its members “consciously challenge the mainstream of economical theory of the past three decades, which was marked by the neoliberal departure from a genuinely macroeconomic view . . .”
One of its staff members, Jürgen Nordmann, who has a background in politics, history, mathematics and philosophy, is the author of a book called Der lange Marsch zum Neoliberalismus (“The Long March to Neoliberalism”). At its core are visceral critiques of Hayek and Karl Popper. In Germany, Joseph Vogl, a professor of literature, culture and media studies, caused a stir in 2010 with his critique of capitalism, Das Gespenst des Kapitals (“The Spectre of Capital”).
Neoliberal economists appear to have conceded the field to other disciplines. That’s a terrible mistake. Experience shows that sociologists and political scientists are not the most ardent defenders of liberty and free markets. The reason for the economists’ diffidence, however, is easy to see. Their critics have few qualms about what Hayek called the “pretence of knowledge”. Their world is enviably simple: they agree that the market is the problem and government the solution. In the public debate, that gives them a huge advantage over the advocates of free markets who feel challenged by the current crisis to go a lot farther than that, even though they don’t agree among themselves and know how little one can know. The subject matter is perplexingly complicated; the arguments need to be differentiated. But since when does subtlety sell?
Another open question among neoliberal economists is whether crisis is a moment for grand new designs or a more prudent piecemeal approach. On the debt crisis within the eurozone, for example, the more radical members of MPS aired their vision of competing currencies: let the eurozone break apart, abolish the European Central Bank and denationalise money. Some claimed that “no monetary policy is the best monetary policy”. Others flirted with the idea floated by the former head of the Federation of German Industries, Hans-Olaf Henkel, of splitting the eurozone into two separate currency areas. Vaclav Klaus just shook his head at this naivety: “The denationalisation of money is not a relevant idea,” he declared.
On the other hand, Jesus Huerta de Soto, a Spanish economist of the Austrian school, argued eloquently in favour of maintaining the common currency. According to him, only the discipline of a fixed standard — the gold standard, a fixed exchange rate or the euro — can force the Mediterranean countries to implement reforms. He didn’t seem to mind that this is a costly way to enforce discipline, and not all that strict since the European Central Bank is ready to back the system. According to Otmar Issing, the former ECB chief economist, the euro is indeed here to stay-but possibly at great cost. Either the eurozone returns to fiscal stability with a stable currency, or the currency will be severely weakened, bringing inflation and rising public debt.
The critics’ language has become more inflammatory. Vogl, for example, mentions the “disinhibition” that the market allegedly demands of “its subjects”. In a newspaper article on the Mont Pelerin meeting, Nordmann called the society the “ideological North Korea of global capitalism”. Stedman Jones uses terms such as “mantra”, “fantasy world”, “colonisation” and “overwhelming fact of market failure”. Such language is clearly not an invitation for an exchange of views, and it shouldn’t be emulated. But these bad linguistic manners are not confined to one side. At the MPS meeting one could hear talk about “battles”, “wars” and “troops” that are needed to “combat the enemy”, and some not-so-radical members were sneered at as “socialists”. After the meeting, a German professor of business and banking could even be seen wearing a T-shirt decorated with the distasteful slogan Euro verrecke (“Death to the euro”).
The Mont Pelerin Society continues to be perceived as a dangerous secret society; a dark conspiracy; a sort of sect; the secluded locus where all the evil thinking is coming from; “the address of neoliberalism”, as Nordmann puts it. Vogl not only goes to great pains to “demonstrate” that the “invisible hand” doesn’t exist, that markets can’t work and that neoliberals have embarked on an impossible defence of a market that can only fail. In elaborate literary language, he also accuses the advocates of the free market of succumbing to an occult faith to which they cling by habit and against their better judgment.
Stedman Jones chimes in: “Neoliberalism was a particularly powerful theory, almost a faith, for true believers in the free market and its possibilities.” (He later switches to the present tense.) Faith is, of course, equated with lack of reason and blind ideology.
It would be easy to dismiss this sort of diatribe as intellectually unfair. The MPS is not secret, but private — like many other societies. And there are good philosophical reasons why market exchange is considered the economic realisation of liberty. But the neoliberals themselves should mind their language, too. My own small private survey in Prague on the frequency with which quasi-religious language is used produced alarming results. Phrases such as “we believe in markets”, “our creed”, “the original sin” were commonplace. But belief is not appropriate here; deeper arguments are needed. Language influences our thinking. Quasi-religious expressions may serve to generate a feeling of parochial togetherness, but at the same time, they promote intellectual laziness, an ever present danger.
When the MPS was founded it consisted mainly of academics. Today however, with 700 members, it is dominated by think-tankers. Many young academics who are attracted by neoliberalism and would enjoy the discussions at MPS keep their distance. They fear that membership would impair their academic careers — not because universities might dislike their political views, but because debates at MPS are viewed as ideological and lacking rigour. Is this only a prejudice? Vaclav Klaus did not think so: “We have to concede that we are not producing serious empirical, descriptive, positive socioeconomic analyses. What prevails are pieces of partial analysis and shallow normative ideological papers. What is missing are non-declaratory texts, a deep ‘anatomy’ of the current situation.”
The climate of opinion changes like the tides. But maybe the waves needn’t be so high. Is it really impossible to raise the discussion to a more productive level, where new ideas instead of ancient prejudices would be exchanged? Where honest arguments would replace axioms, where a willingness to question one’s own standpoint would be rewarded by respect from the other side? Where the stale state-or-market dualism would be abandoned? Where utopian visions won’t get in the way of realism?
It is high time for everybody to take seriously the questions that have arisen since 2008, in sober intellectual analysis and language. Ideas, not ideologies, are what matter.