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Marxism Today, November/December 1998 (one-off special issue)
The Death of Neo-Liberalism
by Eric Hobsbawm
[Extracts]
A funny thing happened on the way to the millennium: in 1998 Karl Marx came back. Ten years after it was assumed that he had been definitively interred under the rubble of the Berlin Wall, 10 years after the irreversible triumph of liberalism and the end of history had been proclaimed, here he is back in circulation on the 150th anniversary of the Communist Manifesto which, to everyone's surprise, including the ageing family of the old marxists, produced an enormous echo in the press, entirely unexpected even a few months earlier. And all except some rare old cold-war holdouts stressed one thing: what this man wrote 150 years ago about the nature and tendencies of global capitalism, rings amazingly true today! The triumphalism of 1989 has been replaced by nervous assurances that, whatever the arguments of Das Kapital, the system was, alter all, basically sound.
Still people rediscover the downside of capitalism not by reading the Manifesto but by observing what it does in practice. That there was something wrong with the way the global economy worked in the 1990s first became obvious not to economists and politicians but to thinking capitalists like George Soros. I don't just mean that Soros announced many months ago (Atlantic Magazine, February 1997), to his credit as a person rather than as a businessman, that free market capitalism is the enemy of his guru Karl Popper's 'open society', along with nationalism, fundamentalism and the no longer operational communism. I mean that for some time now he has pointed out that the uncontrolled global financial system, which he had exploited as a highly successful speculator, was an invitation to disaster, and that the idea that it is beyond control cannot be accepted. Others have also come to the conclusion that the institutions which have attempted to regulate it, and notably the IMF, have been barking up the wrong tree. It is now evident that the critics are right.
[...]
The time has therefore come to rethink the assumptions on which the policies of too many governments, including our own New Labour government, have been based since about 1980 and the opinions of most economists even longer. These are basically the assumptions of laissez-faire, namely, of the superiority of the free market economy to any other. Why this should have appealed to ideologically individualist governments committed to capitalism on principle is clear. Why governments like Tony Blair's could be described as Thatcherism in trousers needs more explanation. I suggest there are four reasons.
First, that by the end of the 1970s the classic policies of the 'Golden Age' mixed economy had ceased to work well, and those of state-planned socialism were hardly working at all. What is more, the vertiginous rise of a genuinely global transnational economy deprived social democracy of its major resource, namely the ability to control what happened to and within the borders of its national economies. This was clearly demonstrated by the failure of the Mitterrand government in France in 1980-82. Something had to be done. This is the justification of the project of modernising Labour. This is also the reason why no Labour Party which managed to get itself elected could be expected simply to reverse everything Thatcher had done: some of it, most people will now agree, needed doing.
Second, there is what might be called the consensus of the neo-classical academic economists who dream of a nirvana of an optimally efficient and frictionless economy of a self-adjusting global market, that is to say an economy with minimal interference by states or other institutions. Given the state of the world, this implied a systematic policy of privatising and deregulating the economy. Some of them, starting with Friedrich von Hayek and Milton Friedman, did so for ideological reasons, but mostly they did so, I guess, out of a taste for abstract technical elegance, combined with a total lack of sense for the real-life context of their propositions. Theirs is economics without political, social or any other non-mathematical dimension. In practice, of course, it is an economics which fitted the economy of transnational corporations and other operators in a period of boom. This consensus is now at an end.
Of course it was always unrealistic in two respects. One, pure laissez-faire, which rests on the doctrine of comparative advantage assumes the optimality of the present distribution of 'advantages'. But, as David Landes points out in his book The Wealth And Poverty Of Nations, 'today's comparative advantage may not be tomorrow's. Free market gurus told Germany in 1840 that optimality meant growing wheat and selling it to buy British manufactures. The Germans of the time listened to this advice no more than the Americans.
Two, it doesn't work. Businessmen try to avoid the economists' logic if they can, mainly by Marx's famous process of capital concentration. The ideal of British Airways or Microsoft is a monopoly or close oligopoly position in their respective world markets, and not free global competition. Politicians cannot avoid knowing that the economy must operate under irremovable as well as removable political constraints. For them there is no such thing as the laissez-faire theorists' 'natural rate of unemployment', that is to say a rate - never mind how high - at which wages will not produce inflationary pressure. There are only politically tolerable and intolerable rates. Economic theory is in favour of the free movement of all factors of production, including labour, but there is not a single government in the world - certainly no freely elected one - whatever their commitment to the free market, which permits unrestricted and uncontrolled immigration - and they know why. That is why, whatever the theory of globalisation says, there is relatively less international migration today than there was a century ago. Again, though every British government since Thatcher talks about the need f or a flexible labour market and wages capable of keeping our enterprises competitive on the globe, no European government actually believes that cutting wages and conditions can make our labour costs competitive with, say, Indian or Chinese labour costs and none are even trying to make them so. Conversely, global laissez-faire doesn't just come into being by the process of evolution. It has to be introduced by acts of political power just like protectionism.
The third reason for Blair's attachment to the free market is what might be called the neo-Iiberal ideologists' equivalent to the old marxists' belief in historical inevitability: the global economy is here. It makes any attempt at a national economy or a national policy impossible and therefore pointless. Any views to the contrary are, in the words of an earlier Paul Krugman, 'based on the failure to understand even the simplest economic facts and concepts'. It ain't so.
Fourth, because New Labour assumed that after Thatcher political majorities depended on getting the votes of the Thatcherite middle class. Hence it had to bind itself hand and foot for five years. This may or may not have been the reason why we won, but in the present turbulent state of the world economy it might be unwise to boast too much of rigid commitments till 2002, regardless of changing circumstances.
What the current economic orthodoxy gives governments today, is not a guide to policy but a marvellous bunch of excuses.
[...]
The global economy is indeed here to stay. But three things about it must be said.
1) Its operation and its further progress are not identical with the policy of extreme laissez-faire. This does not achieve the world-wide optimal growth of goods and services and it certainly does not within any finite period of time produce the most efficient allocation of resources in the real world, as distinct from the neo-classical theorists' never-never land. As is proved by what has happened to Russia since the free-marketeers got hold of it. Indeed Russia has made it impossible to overlook the problem of what the Nobel laureate Douglass North calls 'transition economies'. If the real world were not what it is, 'then institutions would not matter, and overnight the policy-maker could impose efficient rules upon an economy and overnight alter its direction to a productive economy. Such ... are the implicit assumptions that underlay neo-classical reasoning and led to the policy conclusions associated with "privatisation" as the answer to the problems of transition economies.' That applies to all economies. The real world is what it is. Even economists must take account of it.
2) The actors in the global market can no more function smoothly without non-market institutions than the national market. At the very least they require the equivalent of a system of law with sanctions to guarantee the performance of contracts and, more to the point, outside regulation very notably of financial markets. The transnational economy is indeed trying to create such institutions, but in doing so it utilises - it must utilise - the only source of effective law and outside regulation there is, namely the political power of states or supranational institutions operated by or by permission of states, singly or collectively. In short: the global economy has not replaced the world of states, political power and policies. The two coexist in mutual negotiation.
3) The power of states over what happens on their territories may have decreased since, after two centuries of growth, it reached its peak after the second world war. Nevertheless their powers of control over the economy on their territory remain substantial, at least in the 23 large states which contain 70 per cent of the human race and the 10 states which contain three-quarters of the global GDP. In the short tun the collective power of the political authorities representing the three major economic blocs - the USA, the European Union and Japan - remains decisive. This is because most of what happens in every national economy is not directly dependent on what happens in the global economy and transnational operators do not live in cyberspace, but also in the space of real states which control their material infrastructure and the places where they have their often very expensive installations of fixed capital. The attempt to give transnational corporations the unilateral right to sue governments for policies harmful to their profits (the so-called Multilateral Agreement on Investment or MAI) demonstrates how nervous the transnationals are of state power. Only in the era of free market triumphalism would an agreement which fundamentally transforms the balance between state and private enterprise have progressed with so little opposition from governments, or indeed in the virtual absence of public discussion. But for some last-minute resistance, the MAI would already have been signed by the governments of the OECD and the fight against it is very far from won. This is a dangerous issue of international politics about which one might expect a British government - and the press - to show more concern than it has done.
[...]
Like President Clinton, New Labour will be judged, both by history and by the people, by other criteria than its success in winning re-election. In any case, if there is any way of losing the next election, it is by not recognising that the age of neo-liberalism is over.
At 16:12 08.01.99 -0800, you wrote:
>Re:
>
>>The main points of neo-liberalism include:
>
>Not bad save for some tendentious and inaccurate glosses, and save for the
>claims that #2 and #5 are on the list...
>
>>
>>1) THE RULE OF THE MARKET.
>>
>>Liberating "free" enterprise or private enterprise from
>>any bonds imposed by the government...
>
>OK
>
>>
>>2) CUTTING PUBLIC EXPENDITURE FOR SOCIAL SERVICES like
>>education and health care. REDUCING THE SAFETY-NET FOR
>>THE POOR, and even maintenance of roads, bridges, water
>>supply --
>
>No. We want as strong a social safety net as can be constructed without
>risks of hyperinflation. We want higher public expenditure on
>infrastructure as long as the government actually spends the money on
>infrastructure.
>>
>>3) DEREGULATION. Reduce government regulation...
>
>OK
>
>>
>>4) PRIVATIZATION. Sell state-owned enterprises, goods
>>and services to private investors...
>
>YEP
>
>>
>>5) ELIMINATING THE CONCEPT OF "THE PUBLIC GOOD" or
>>"COMMUNITY"
>
>NOPE
>
>
>
>Brad DeLong