The rise and spread of neo-liberalism since the 1980s has been a remarkable phenomenon. At its heart, it is based on a simple, utterly amoral idea ” that of the cost-benefit calculating individual. Life is understood as a competitive struggle among individuals. Each seeks to minimise their costs and maximise their benefits.
I have a more generous view of the neoliberal project: as something that genuinely must have seemed like a good idea at the time. By the 1980s the failure of socialist, centrally planned economies – both in the Soviet bloc, and in places like the UK and New Zealand – seemed very evident. Free market economies obviously generated more wealth and more prosperity than socialist ones and there seemed, as Keynes put it, to be a fundamental link between free markets and individual freedom. So why not do the opposite of the Soviet bloc: minimise the state and maximise the free market? Won’t that give you just heaps of prosperity and freedom?
I find Robert Reich’s answer to the failure of neoliberalism the most compelling. He points out that the state creates the free market. It creates money and regulates its supply, it creates the legal system through which contracts are enforced. It guarantees the solvency of the financial sector, it protects property rights and guards against catastrophic market failure (or, at least, is supposed to). You can’t take the state out of the free market because it creates the free market and regulates almost every aspect of its existence. So what you get under the deregulated, neoliberal model are the wealthy using the political system to set the parameters of the market to privilege the already privileged. Labour is taxed but capital is not; benefit fraud is investigated and punished but financial crimes (mostly) are not, profits are privitised but costs are socialised, and so on. And all of these things are defended as ‘what the market wants’.
The result is less growth and less prosperity because capital can maximise profits through gaming the political system rather than creating new products and businesses and jobs. The economy is based on rent-seeking rather than wealth creation; the hypertrophied, wildly profitable, politically powerful but completely unproductive finance sectors characteristic of neoliberal economies functioning as exhibit A. Neoliberalism hasn’t failed as awfully as no-holds-barred socialism, but it has failed, not because it was amoral, or evil or ruthless – the intentions were good – but just because it simply didn’t work.