Neoliberalism in the dock

Two articles appeared this week, one critiquing neoliberalism, and one defending it

Neoliberalism has become a dirty word in some circles. Those in the ascendancy of the UK Labour Party blame the economic system of free markets, freedom of choice and low government for creating a highly imbalanced society, where wealth and income inequality reign supreme. For example the country’s most powerful union leader, Len McCluskey, said Brexit was a chance An opportunity to break with neo-liberal economics. Within the UK Labour Party, those wanting to uphold neoliberalism are called “Blairites”, after former Prime Minister Tony Blair’s continuation of policies first brought in by Margaret Thatcher, a neoliberal probably before the term was invented.

In other circles, neoliberalism has been credited with creating wealth and bringing freedom of choice to people. In 1970s UK we had one domestic telephone company, which was a constituent business of the Post Office. It even owned the telephones in our homes. Imagine how the country might look if it had sole responsibility for developing the mobile (cell) phone network. The innovation brought in through allowing competing companies in the mobile phone sector has brought us even today a wide choice of networks and a vast choice of phones. We might not think of the evolving cellular networks as being driven by neoliberalism, but that’s really what it’s about. People only get wary when goods and services they need most are provided by the private sector. Neoliberals would like to go further and privatise the National Health Service and, to some extent, the road network. But are the people ready for this?

Arguing for and against neoliberalism are two UK-based think tanks.

Against neoliberalism – the NEF’s Danny Boyle

The New Economics Foundation is no fan of neoliberalism. They state on their site:

“NEF is the UK’s leading think tank promoting social, economic and environmental justice. Our aim is to transform the economy so that it works for people and the planet.”

In an article published in The Guardian, Danny Boyle roots liberalism (neoliberalism’s foundation) on the freedom of slavery and how slaves went from being owned to being poor. Running through Hayek and Friedman, up to the secretive Transatlantic Trade and Investment Partnership (TTIP), he explains that neoliberalism has become a vehicle for protecting (usually) corporations’ brands and intellectual property. TTIP would mean that national governments couldn’t stand in the way of corporations if, for example, they wanted to pass legislation that affects their markets adversely, such as banning smoking or nationalising services. He explains how monopolies are ultimately created, de facto forcing us to use their services.

Boyle hopes for a government that breaks up monopolies, effectively helping people fight back.

For neoliberalism – the Adam Smith Institute’s Tim Worstall

The Adam Smith Institute is a think tank that lives and breathes neoliberalism.

“…we work to promote free market, classical liberal ideas through research, publishing, media outreach, and education”

Tim Worstall writes an article challenging, and indeed trivialising, Danny Boyle’s critique. His first complaint is that Boyle is basically wrong in asserting that it doesn’t matter that neoliberalism, as Friedman imagined it, creates monopolies and that these are likely to be the consequence of government regulation. Further, the corporations which Boyle so despises are the result of a legal system that allows corporations to exist as if they are a person like a human is a person, which can be held accountable for its actions. They are not the result of neoliberalism.

Worstall upholds the ASI’s view that 40 years of neoliberalism has raised living standards for millions of people, who would otherwise be in poverty (such as in places like North Korea, Cuba or Venezuela I presume). He doesn’t dwell on this, because pretty well every article on the ASI’s blog promotes neoliberalism in some manner or another.

The rest of the article concerns the nature of corporations. If we didn’t have corporations then how would a grouping of people be responsible and accountable for their actions (let alone taxed, but that’s another issue)? We, as a society, have chosen to enshrine the corporation as a legal entity that can be taxed, represented in court and able to enter into contracts.

So it’s not neoliberalism that creates corporations, it’s us. And Boyle is wrong.

Who is right?

In the extreme, a totally free market economy would be chaos. We would pay for emergency services, each road we drove or walked down, and perhaps even for swimming in the sea. Clearly no government is going to be elected with that agenda, so the consequences are hypothetical. However it’s hard to see that as a society where everyone’s standard of living increases. At the other extreme, where there is no free market at all, and the state controls everything, what incentive is there to do anything? Wealth creation would be zero and we would be stuck in poverty as the nation’s wealth is slowly drained to buy essentials from elsewhere. Needless to say, the truth is in the middle somewhere.

As ever, I advocate a kind of democratic neoliberalism. This has many of the benefits of a market economy, but also has a redistributive aspect to it. Free market fundamentalists would say that tax is theft. But I say that the nation only exists because there is a ruler to defend it, and that ruler is the democratic nation state. So why should it – us – tax people to occupy a part of it. Further, the more we let them occupy, the more they should pay in tax, which is why I advocate a Land Value Tax.

A Land Value Tax therefore kills two birds with one stone. It is redistributive, moving wealth from those who have a lot of it to the state, which provides infrastructure and welfare spending. And it is based on wealth rather than income. That’s how to make sure inequality doesn’t triumph over the benefits of a free market.