Thursday, September 29, 2011

On Neoliberalism

. Thursday, September 29, 2011

Henry Farrell reviews what sounds like a very interesting book, Colin Crouch's The Strange Non-Death of Neoliberalism. Farrell's discussion of the book prompted me to add it to my Amazon wish list. I do, however, have a conceptual quibble. According to Farrell, Crouch defines neoliberalism as the belief that "optimal outcomes will be achieved if the demand and supply for goods and services are allowed to adjust to each other through the price mechanism, without interference by government or other forces". In other words, it's a technical argument that markets allocate resources more efficiently when not interfered with by governments, in general. But then Crouch claims that neoliberalism is really "devoted to the dominance of public life by the giant corporation."

These two are obviously mutually exclusive. The first definition is apolitical, or perhaps anti-political, and is ultimately dedicated to using the tools of technocracy for utilitarian ends. The second is a statement of politics that prefers a statist-corporatist organization of power in society, and there's nothing utilitarian about it. And what I can't get from Farrell's review is whether Crouch is arguing that this is cognitive dissonance -- that neoliberals don't really understand what they're advocating -- or whether the anti-political neoliberal rhetoric is an intentional deceit. Or whether Crouch is confused about this himself.

So here's my quibble: I don't think either of those is the best explanation of the actual intellectual disposition of actual neoliberals. "Neoliberalism" is itself a pretty nebulous concept, which may be part of what Crouch is driving at here. The neoliberals that I have in mind exist on a continuum roughly from Brad DeLong to Greg Mankiw, or essentially the entire discipline of American economics and wonkery, who may disagree on some particulars of which technocratic policy may bring the best outcome but more or less agree on what the best outcome is (within fairly narrow bounds) and the fact that technocratic means are the best way of achieving it. Put another way, I see neoliberals as believing that politics messes up socially optimal policymaking rather than those who believe there is no such thing. As one example, see this recent piece by Peter Orszag.

So I see neoliberals as generally in agreement that markets are good, and therefore that market actors (including corporations) are good, but that under certain conditions markets can generate outcomes that are suboptimal relative to some social ideal. It is in these areas that government is useful. Neoliberals tend to agree that there should be a social safety net (even Hayek and Friedman admitted that much), and that externalities exist and can be quite powerful. They tend to think that in a first-best world markets and governments are two complementary tools that together can enhance utilitarian social outcomes.

In other words, I don't think that neoliberals are actually "devoted to the dominance of public life by the giant corporation". I do think that neoliberals generally believe that corporations produce important social goods so long as they operate in competitive markets, and when they do not -- or when structural factors tend to lead them to generate negative externalities -- they should be regulated. So neoliberals often advocate things like cap-and-trade auctions, oppose industrial policy (which is pro-corporation), and favor laxer restrictions on trade and immigration. To the extent that these policies negatively impact some groups in society, neoliberals generally advocate some sort of social insurance paid for by some sort of progressive taxation scheme.

This is completely distinct from a preference for distributive politics that favors protecting large corporations, or capital in general. In fact, corporatists are often mercantilist and pro-regulation (at least those that provide rents by creating barriers to entry). The only overlap I see is that corporatists and neoliberals both make use of, and attempt to legitimize, markets. But they do so in very different ways, because they think of the "market" differently. Both groups tend to think that markets are often distorted by political processes, but they vary in the normative value they place on that: it's exactly what corporatists want, and it's exactly what neoliberals decry. Corporatists love market failure; neoliberals hate it. In short, corporatists view politics in the same way as socialists, not neoliberals. Corporatists and socialists are on the opposite sides of the distributional battleground, while neoliberals are trying to avoid the combat entirely.

There are times when the neoliberals and corporatists can overlap politically well enough to be on the same side, and this is I think where the confusion sets in. Farrell recounts Crouch's discussion of Thatcher's reforms, with which I'm not familiar enough to discuss. But during the same period in the US we heard a lot about "trickle down" economics, where policies that benefited corporations would in turn benefit the rest of us. Neoliberals and corporatists were generally on the same side in that debate, but for different reasons: neoliberals believed it was true, while corporatists did not (or at least hoped not). And the experience of the US from 1980-2000 provided ammunition for both sides: the American economic experience was pretty good during that period, although it was much, much better for the wealthy than for the rest.

But neoliberals can just as easily oppose corporatists, and quite often do. I think a lot of this gets at what Farrell and Matt Yglesias were arguing about recently, so I was kind of surprised that Farrell didn't link his review to that discussion. Yglesias was arguing for a certain kind of neoliberalism that emphasizes growth plus greater redistribution (relative to the status quo) as being the utilitarian ideal, while Farrell was arguing that that doesn't accurately describe the political landscape so it should be discarded in favor of a more radical politics. Neither was adapting a corporatist line, but they nevertheless disagreed.


3 comments:

Andrew said...

Good post. I think perhaps the connection between certain forms of neoliberalism and support for large corporations comes from those espousing the Austrian view that monopolies will collapse under their own weight and therefore don't require state intervention. If they're inefficient or even socially 'bad,' the market will take care of it. If large corporations fail to adjust, a thousand innovators will bloom. Of course, this totally ignores politics and so fails miserably in reality.

I wish neoliberal critics would better specify what they're attacking. It's the Austrians and those with an excessive faith in DSGE who need correcting.

Keep up the good work.

Bentley said...

Any recommendations for further reading? Especially to support your definition:

"the entire discipline of American economics and wonkery, who may disagree on some particulars of which technocratic policy may bring the best outcome but more or less agree on what the best outcome is (within fairly narrow bounds) and the fact that technocratic means are the best way of achieving it. Put another way, I see neoliberals as believing that politics messes up socially optimal policymaking rather than those who believe there is no such thing."

I have been thinking about definitions of neoliberalism for a paper. I agree with you in broad outline, but am hoping to back this intuition up with some good cites.

Kindred Winecoff said...

It gets defined a lot of different ways, as I'm sure you're aware. In general I'm okay with Crouch's definition -- "optimal outcomes will be achieved if the demand and supply for goods and services are allowed to adjust to each other through the price mechanism, without interference by government or other forces". I'd probably add something about John Williamson's 10 points comprising the Washington Consensus.

Obviously we have our own version of "neoliberalism" in IR, which is mostly not what I'm talking about here.

I'm sorry but I haven't got a great cite at my fingertips.

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