User:Aphenine/neoliberalism-draft

This is a page for helping me come up with a suitable draft for sections of the Neoliberalism article.

Expanded Definition

The meaning of neoliberalism has changed over time and come to mean different things to different groups. As a result, it is very hard to define. This is seen by the fact that authoritative sources on neoliberalism, such as Fredrich Hayek, Milton Friedman, David Harvey and Noam Chomsky do not agree about the meaning of neoliberalism. This lack of agreement creates major problems in creating an unbiased and unambiguous definition of neoliberalism. This section aims to define neoliberalism more accurately and show how it's evolution has influenced the different uses of the word.

One of the first problems with the meaning of neoliberalism is that liberalism, on which it is based, is also very hard to describe. The uncertainty over the meaning of liberalism is commonly reflected in neoliberalism itself, and is the first serious point of confusion.

The second major problem with the meaning of neoliberalism is that neoliberalism went from being a purely theoretical ideology to become a practical and applied one. The 1970s onwards saw a surge in the acceptability of neoliberalism, and neoliberal governments swept in across the world, promising neoliberal reforms. However, governments did not always carry out their promised reforms, either through design or circumstances. This leads to the second serious point of confusion, that most neoliberalism after this point isn't always ideologically neoliberal.

Classical Neoliberalism

The first form of neoliberalism, classical neoliberalism, stems from classical liberalism and was chiefly created in inter-War Austria by economists, including Friedrich Hayek and Ludwig von Mises. They were concerned about the erosion of liberty by both socialist and fascist governments in Europe at that time and tried to restate the case for liberty which became the basis for neoliberalism. Hayek's 1970s book, The Constitution of Liberty sums up this argument. In the introduction he states: If old truths are to retain their hold on men's minds, they must be restated in the language and concepts of successive generations.

Hayek's belief in liberty stemmed from an argument about information. He believed that no individual (or group, including the government) could ever understand everything about an economy or a society in order to rationally design the best system of governance. He argued this only got worse as scientific progress increased and the scope of human knowledge grew, leaving individuals increasingly more and more ignorant in their lifetimes. As a result, he believed it was impossible for any person or government to design the perfect systems under which people could be governed. The only solution to this, he believed, was to allow all possible systems to be tried in the real world and to allow the best systems to beat the worse systems through competition. In a liberal society, he believed, the few who used liberty to try out new things would come up with successful adaptations of existing systems or new ways of doing things. These discoveries, once shared and become mainstream, would benefit the whole of society, even those who did not directly partake of liberty.

Due to the ignorance of the individual, Hayek argued that an individual could not understand which of the various political, economic and social rules they had followed had made them successful. In his mind, this made the superstitions and traditions of a society in which an individual operated vitally important, since in probability they had, in some way, aided the success of the individual. This would be especially true in a successful society, where these superstitions and traditions would, in all probability be successful ones that had evolved over time to exploit new circumstances. However, this did not excuse any superstition or tradition being followed if it had outlived it usefulness: respect of tradition and superstition for the sake of tradition and superstition were not acceptable values to him. Therefore classical neoliberalism combined a respect for the old, drawn from conservatism, with the progressive striving towards the future, of liberalism.

In emphasising evolution and competition of ideas, Hayek highlighted the divide between practical liberalism that evolved in a haphazard way in England, championed by such people as David Hume and Adam Smith, versus the more theoretical approach of the French, in such people as Descartes and Rousseau. Hayek christened these the pragmatic and rationalist schools, the former evolving institutions with an eye towards liberty and the later creating a brave new world by sweeping all the old and therefore useless ideas away. Hayeks's ideas on information and the necessity of evolving evolutions placed neoliberalism firmly on the pragmatic side against both rationalist socialists (such as communists, fascism and social liberals) and rationalist capitalists (such as economic libertarians, laissez-faire capitalists) alike.

The Rule of Law

At the centre of neoliberalism was the rule of law. Hayek believed that liberty was maximised when coercion was minimised. Hayek did not believe that a complete lack of coercion was possible, or even desirable, for a liberal society, and he argued that a set of traditions was absolutely necessary which allowed individuals to judge whether they would or would not be coerced. This body of tradition he notes as law and the use of this tradition and the Rule of Law. In designing a liberal system of law, Hayek believed that two things were vitally important: the protection and delineation of the personal sphere and the prevention of fraud and deception, which could be maintained only by threat of coercion from the state. In delineating a personal sphere, an individual could know under what circumstances they would or would not be coerced under, and could make plans for the use of their resources in achieving their aims.

In designing such a system, Hayek believed that it could maintain a protected sphere by protecting against abuses by the ruling power, be it a monarch (e.g. Bill of Rights 1689), the will of the majority in a democracy (e.g. the US Constitution) or the administration (e.g. the Rechtsstaat). He believed that the most important features of such protections were equality before the law, and generality of the law. Equality meant that all should be equal before the law and therefore subject to it, even those decisions of a legislature or government administration. Generality meant that the law should be general and abstract, focusing not on ends or means, as a command would, but on general rules which, by their lack of specificity, could not be said to grant privileges, discriminate or compel any specific individual to an end. General laws could also be used to transmit knowledge and encourage spontaneous order in human societies (much like the use of Adam Smith's invisible hand in economics). He also stressed the importance of individuals being responsible for their actions in order to encourage others to respect the law.

Policy

Important practical tools for making these things work included separation of powers, the idea that those enforcing the law and those making it should be separate, to prevent the lawmakers from pursuing short-term ends and constitutionalism, the idea that lawmakers should be legally bound about the laws they could pass, thereby preventing absolute rule by the majority.

In the 1980s, a practical statement of neoliberal aims was codified in the Washington Consensus.

Conservatism

Classical neoliberalism's respect for tradition, combined with it's pragmatic approach to progress, endeared it to conservative movements around the world looking for a way to adapt to the changing nature of the modern world. This saw it adopted by conservative movements, most famously in Chile under Pinochet, the United kingdom under Margaret Thatcher and in the United States of America under Ronald Reagan.

Economic Neoliberalism

The next important form of neoliberalism is economic neoliberalism. Economic neoliberalism stems out of the historical rift between classical liberalism and economic liberalism, and developed when the economically liberal minded co-opted the language and ideas of classical neoliberalism to place economic freedom at its heart, making it a right-wing ideology. Essentially, economic neoliberalism can be derived by taking the classical neoliberal definition above and taking the protected personal sphere to solely refer to property rights and contract. The liberal opposite of economic neoliberalism is modern liberalism, the corresponding left-wing ideology. The best known proponent of economic neoliberalism is Milton Friedman.

Economic neoliberalism is the most common form of neoliberalism, and is what is usually meant when a system is described as neoliberal.

Economic neoliberalism is distinct from classical neoliberalism for many reasons. Hayek believed that certain elements that now make up modern economic neoliberal thought are too rationalist, relying on preconceived notions of human behaviour, such as the idea of homo economicus. Paul Treanor points out that it is too utopian, and therefore illiberal. David Harvey points out that economic neoliberalism is "theory of economic political practises", rather than a complete ideology, and therefore, no correlation or connection needs to exist between a favourable assessment of neoliberal economic practises and a commitment to liberalism proper. Likewise Anna-Maria Blomgren views neoliberalism as a continuum ranging from classical to economic liberalism. A broad (and hopefully clearer) restatement of the above is to point out that classic liberals must be economic liberals, but economic liberals do not have to be classically liberal, and it is the latter group that makes up the "new liberalism" of economic neoliberalism.

Neoliberal Economics

Friedman's chief argument about neoliberalism can be described as a consequentialist libertarian one: that the reason for adopting minimal government interference in the economy is for it's beneficial consequences, and not any ideological reason. At the heart of economic neoliberalism are various theories that prove the economic neoliberal ideology.

Neoliberal economics in the 1920s took the ideas of the great liberal economists, such as Adam Smith, and updated them for the modern world. Friedrich Hayek's ideas on information flow, present in classical neoliberalism, were codified in economic form under the Austrian School as the economic calculation problem. This problem of information flow implied that a decentralised system, in which information travelled freely and was freely determined at each localised point (Hayek called this catallaxy), would be much better than a central authority trying to do the same, even if it was completely efficient and was motivated to act in the public good. In this view, the free market is a perfect example of such a system in which the market determined prices act as the information signals flowing through the economy. Actors in the economy could make decent decisions for their own businesses factoring in all the complex factors that led to market prices without having to understand or be completely aware of all of those complex factors.

In accepting the ideas of the Austrian School regarding information flow, economic neoliberals were forced to accept that free markets were artificial, and therefore would not arise spontaneously, but would have to be enforced, usually through the state and the rule of law. In this way, economic neoliberalism enshrines the role of the state and becomes distinct from libertarian thought. However, in accepting the ideas of self-regulating markets, neoliberals drastically restrict the role of the government to managing those forms of market failure that the neoliberal economics allowed: property rights and information asymmetry. This restricted the government to maintaining property rights by providing law and order through the police, maintaining an independent judiciary and maintaining the national defence, and basic regulation to guard against fraud. This made neoliberal economics distinct from Keynesian economics of the preceding decades.

These ideas were then developed further. Milton Friedman introduced the idea of adaptive expectations during the stagflation of the 1970s, which described why government interference (in the form of printing money) resulted in increasing inflation, as shop owners started to predict the rate of increase in the money supply, rendering the government action useless. This developed into the idea of rational expectations, which showed that all government interference useless and disruptive because the free market would predict and undermine the government's proposed action. At the same time, the efficient market hypothesis assumed that, because of catallaxy, the market could not be informationally wrong. Or, to paraphrase the famous quote of Warren Buffet, "the market is there to inform you, not serve you". Combined with rational expectations, this showed that markets would be self-regulating, and that regulation was unnecessary and disruptive.

Additionally, many theories were developed which showed that the free market would produce the socially optimum equilibrium with regard to production of goods and services, such as the fundamental theorems of welfare economics and general equilibrium theory, which helped prove further that government intervention could only result in making society worse off (see Pareto efficient).

Philosophical Neoliberalism

The definition of economic neoliberalism which has been presented focuses heavily on economic policies and has little to say about non-economic policy (other than that they should not be allowed to interfere with the running of the free market). A more extreme form of economic neoliberalism advocates the use of free market techniques outside of commerce and business, by the creation of new markets in health, education, energy and so on. David Harvey sums up this definition in a very clear and concise way:

Neoliberalism is in the first instance a theory of political economic practices that proposes that human well-being can best be advanced by liberating individual entrepreneurial freedoms and skills within an institutional framework characterized by strong private property rights, free markets and free trade. The role of the state is to create and preserve an institutional framework appropriate to such practices. The state has to guarantee, for example, the quality and integrity of money. It must also set up those military, defence, police and legal structures and functions required to secure private property rights and to guarantee, by force if need be, the proper functioning of markets. Furthermore, if markets do not exist (in areas such as land, water, education, health care, social security, or environmental pollution) then they must be created, by state action if necessary. But beyond these tasks the state should not venture. State interventions in markets (once created) must be kept to a bare minimum because, according to the theory, the state cannot possibly possess enough information to second-guess market signals (prices) and because powerful interest groups will inevitably distort and bias state interventions (particularly in democracies) for their own benefit.

This point of view takes the belief, that the only important freedoms are market freedoms, to its logical conclusion. In doing so, however, this took neoliberalism into a more philosophical direction where it came to resemble more of a religion or culture than an economic theory. As Paul Treanor explains:

"As you would expect from a complete philosophy, neoliberalism has answers to stereotypical philosophical questions such as "Why are we here" and "What should I do?". We are here for the market, and you should compete. Neo-liberals tend to believe that humans exist for the market, and not the other way around: certainly in the sense that it is good to participate in the market, and that those who do not participate have failed in some way. In personal ethics, the general neoliberal vision is that every human being is an entrepreneur managing their own life, and should act as such. Moral philosophers call this is a virtue ethic, where human beings compare their actions to the way an ideal type would act - in this case the ideal entrepreneur. Individuals who choose their friends, hobbies, sports, and partners, to maximise their status with future employers, are ethically neoliberal. This attitude - not unusual among ambitious students - is unknown in any pre-existing moral philosophy, and is absent from early liberalism. Such social actions are not necessarily monetarised, but they represent an extension of the market principle into non-economic area of life - again typical for neoliberalism"

Hybrid Economic Neoliberalism

Economic neoliberalism's heavy focus on economic policies has meant that economic neoliberalism has been ripe for combining with other forms of governments. As a result, the 1970s onwards saw many hybrid ideologies in which the economic policies of economic neoliberalism were combined with other forms of government, and many forms of government that were neither classically liberal or free market orientated became labelled as neoliberal.

Third Way/Socialism

Third way refers to various political positions which try to reconcile right-wing and left-wing politics by advocating a varying synthesis of right-wing economic and left-wing social policies. Any government that uses neoliberal economic thought for it's right-wing policies can be effectively labelled neoliberal.

Famous examples of neoliberal third way governments include the New Labour movement in the United Kingdom under prime minister Tony Blair and the presidency of Bill Clinton in the United States of America.

Communism

Perhaps the most bizarre hybrid form of neoliberalism is neoliberal communism, as practised in China and introduced in 1978 under the Chinese Economic Reforms of Deng Xiaoping. The reforms instituted a free market system along neoliberal lines in addition to the centrally planned economy, with any production in excess of government quotas allowed to be traded on the free market, all under the one party rule of the Communist Party. The system has allowed for a stable and orderly transition from a centrally planned economy to a free market one and for the gradual evolution of free market institutions.

Conservatism

Many conservative movements began to explicitly formulate their policies in terms of economic neoliberalism, backed by socially conservative policies. A good example of this kind of movement are the Christian Right in the United States of America.

Corrupted Neoliberalism

The rise of neoliberalism in the 1970s as a practical system of government saw it implemented in various forms across the world. In some cases, the result was not anything that could be identified as neoliberalism, often with catastrophic results for the poor. This has resulted in many on the left claiming that this is a deliberate goal of neoliberalism, while those on the right defend the original goals of neoliberalism and insist otherwise, an argument that rages to this day, rendering this section highly controversial. This section attempts to provide an unbiased overview of this discussion, focusing on all the forms of neoliberalism that are not in any way neoliberal, but which have come to be associated with it, as well as the reasons for why this has happened.

One of the best and least controversial examples of "neoliberal" reform is Russia, whose reforms in 1989 were justified under neoliberal economic policy but which lacked any of the basic features of a neoliberal state (e.g. the rule of law, free press) which could could have justified the reforms.

General Liberal Failure

The least controversial aspect of neoliberalism has often been presented by modern economists critical of neoliberalism's role in the world economic system. Among these economists, the chief voices of dissent are Joseph Stiglitz and Paul Krugman, who base their ideas chiefly on actual economic theory. Their ideas also handily correlate with Friedrich Hayek's assumptions behind classical neoliberalism outlined earlier. This makes this an excellent place to start the discussion.

Both use arguments about market failure to justify their views on neoliberalism. They argue that when markets are imperfect (which is to say all markets everywhere to some degree), then they can fail and may not work as neoliberals predict, resulting in some form of crony capitalism. The two chief modes of failure are usually due to imperfect property rights and due to imperfect information and correspond directly to Friedrich Hayek's assertion that classical liberalism will not work without protection of the private sphere and the prevention of fraud and deception.

The failure of property rights means that individuals can't protect ownership of their resources and control what happens to them, or prevent other taking them away. This usually stifles free enterprise and results in preferential treatment for those who can. The failure of information is very important since free information flow is responsible for the self-regulating nature of neoliberal markets and justifies putting them beyond government regulation. Control of information also, as Hayek notes, allows control of the actions of an individual, rendering any liberal system illiberal.

Crony Capitalism

The most blatant form of crony capitalism is the creation of a liberal economic system in which only some people ("cronies") are permitted property rights by the government in return for support for the regime, allowing supporters of the regime to expropriate any capital held by opponents. This is a very useful and powerful method of control which is usually seen in its purest form in countries with dictatorships, where the regime can create a liberal system of markets and government without ceding any control of either. Such reforms can also be used to add a sprinkling of liberal legitimacy for the regime and open the country to external capital.

This form is useful to explain neoliberal reforms in countries where either the will nor ability to enforce property rights is lacking, such as the problems of post Soviet Russia, in which reformist politicians colluded with politically connected business people. In return for backing democratic free market reforms, these business figures could expropriate resources in a country where ownership was not clear and sporadically enforced, leading to the rise of the Russian Oligarchs.

Class Project

Not all members of a society may have equal access to the law or to information, even when everyone is theoretically equal under the law, as in a liberal democracy. This is because access to the law and information is not free as liberals (such as Hayek) assume, but have associated costs. Therefore, it usually true to say that the wealthy have greater rights than the poor.

In some cases, the poor may have practically no rights at all if their income falls below he levels necessary to access the law and unbiased sources of information, while the very wealthy may have the ability to choose which rights and responsibilities they bear if they can move themselves and their property internationally, resulting in social stratification, also known as class. This tendency to create and strengthen class has resulted in some (most famously David Harvey) claiming that neoliberalism is a class project, designed to impose class on society through liberalism.

Globalisation

In practise, less developing nations have less developed rights and institutions, resulting in greater risk for international lenders and businesses. This means that developing countries usually have less privileged access to international markets than developed countries. Because of this effect, international lenders are also more likely to invest in foreign companies (i.e. multinational corporations) inside a country, rather than in local businesses, giving international firms an unfair competitive advantage. Also, speculative flows of capital may enter the country during a boom and leave during a recession, deepening economic crises and destabilising the economy.

Both of these problems imply that developing countries should have greater protections against international markets than developed ones and greater barriers to trade. Despite such problems, IMF policy in response to crises, which is supposed to be guided by neoliberal ideas such as the Washington Consensus, is to increase liberalisation of the economy and decrease barriers, allowing bigger capital flight and the chance for foreign firms to shore up their monopolies. Additionally, the IMF acts to increase moral hazard, since international involvement will usually result in an international bailout with foreign creditors being treated preferentially, leading international firms to discount the risks of doing business in less developed countries and forcing the government to pay for them instead.

The fact that international involvement and the imposition of "neoliberal" policies usually serves to make things worse and acts against the interests of the country being "saved", has led some to argue that the policies have nothing to do with any form of liberalism, but hide some other purpose. The most common assertion given by opponents is that are a form of neocolonialism, where the more developed countries can exploit the less developed countries. However, even opponents do not agree. For example, Stiglitz assumes that there is no neoimperial plot, but that the system is driven by a mixture of ideology and special interests, in which neoliberal fundamentalists, who do not believe that neoliberalism can fail, work with financial and other multinational corporations, who have the most to benefit from opening up foreign markets. David Harvey, on the other hand, argues that local elites exploit neoliberal reforms in order to impose reforms that benefit them at the cost of the poor, while transferring the blame onto the "evil imperialist" developed countries, citing the example of Argentina in 2001.

Corporatocracy

Some claim that neoliberalism is a form of corporatocracy, the rule of a country by and for the benefit of large corporations. Since large corporations tend to fulfil all the conditions of a wealthy entity, they accrue many of the same benefits over smaller businesses that the rich do over the poor. In addition, multinational corporations enjoy the benefits of neoimperialism on the international stage and can also move their base of operations from a country if that country pursues policies that it deems to be unfriendly to business, a threat which they can use to make governments behave.

Although classical neoliberalism rests on the free flow of information, the neoliberal era has been marked by an unprecedented expansion of intellectual property and copyright, an expansion of libel laws to silence criticism (e.g. libel tourism) and expanding corporate secrecy (e.g. in the UK corporations used contract law to forbid discussion of salaries, thereby controlling labour costs), all of which came to be seen as a normal part of neoliberalism, but are wholly against its spirit.

Finally, the fact that many media outlets are themselves part of large corporations leads to a conflict of interest between those corporations and the public good.