Neoliberalism and the Left
I don’t know about you guys, but I’d like to talk about something other than the Norway incident (aside from a little spleen-venting earlier, all I can say about that is killing innocent people is wrong, and people who do it should be condemned, and there’s no way even someone as verbose as I am can make a blog post out of that). So instead, I thought I’d reply to Erik and Elias’s thoughtful posts on the issue of neoliberalism and the left. As a foreigner I don’t map easily onto the American left-right spectrum so I’m coming at this from a different perspective to most people who discuss the issue. Though my soft-libertarian leanings make me naturally sympathetic to the principles of neoliberalism.
Before I dig in, I think it would be helpful to define our terms . Neoliberalism is something of a chimera, the phrase is used more as an epithet than a term of self-description (though there are certainly some who use it as such). I’m going to use it to mean a combination of (largely) free markets, and a large welfare state (with the taxes to match). By largely free market, I mean no attempts to enact wide-scale control over the economy. Market regulations exist, but are tailored to specific problems (ideally markets failures under the standard economics definition), and try to fix the problem with as little intervention as possible. So Neoliberalism is a blend of moderate free-market economics and “pity-charity” liberalism. The closest real-world ideal of neoliberalism under this definition is perhaps Sweden, and Sweden is, by all accounts, a pretty good place to live.
I think that to a large extent neoliberalism (in the Anglosphere at least) was a reaction to the failures of socialism, both the extreme (communism) and more moderate (industrial policy, price controls) forms. It turns out that Hayek (and the other Mont Perelain economists) were right about the calculation problem – it’s just too hard to plan an economy, there are too many variables and you can’t assemble or analyse the information necessary to do the job even tolerably well. But that leaves a problem for those who want to preserve the very poor – there’s no guarantee markets will produce a living wage (if your Marginal Product of Labour is below your subsistence requirements, no amount of market competition will save you), so how do you help those the market will forsake? Welfare is effectively the last option standing, it lifts incomes for the poor, but does far less violence to the market’s functioning than any of the alternatives (provided marginal taxes don’t get too high, the distortionary effects of tax-and-welfare are slight).
The major point of discussion on the old liberal vs. neoliberal issue is the role of unions. The unions were a major plank of the left’s power base in the US since the New Deal (at least), and many on the left fear their loss. I’m afraid I can offer no comfort. I’ve written in previous posts of my lack of interest in unions, it’s not that I hate them so much as doubt their ability to do a lot of good any more. I see the primary benefit of unions being allocating monopoly rents from owners to workers, and as markets have grown more competitive over time that power is becoming less useful. Furthermore it would appear the patterns of comparative advantage in the US are moving away from labour-intensive manufacturing to very capital-intensive manufacturing, a natural process but one that is decimating the industries that were the heart of the union movement. Ultimately I believe the death of unions over the past few decades to be an organic phenomenon, and one that can’t be stopped without doing substantial damage to the American economy. Whatever the merits of unions, I don’t think they will be a major political force in the future, or at least a much weaker force than they were for most of the 20 Century. And if you don’t believe this story, if you think unions have been killed by anti-worker legislation consider this – if unions couldn’t save themselves from political attack, they can’t have been very powerful anyway. After all if they couldn’t protect themselves, how can they protect anyone else?
So how will the left cope without unions? In the short run, I don’t see a problem. It would appear the Republican party is spiralling into insanity, and while much of the base might love it, it will be poison to the independent voters who ultimately decide elections. The Republicans still have policies that alienate black and Latino voters, which are a large and increasing fraction of the voting pool. I don’t think the political left will have an unusually large trouble winning elections without major union support for a decade or so.
After that, it gets hard to say. A fiscal crisis is looming for the US (assuming the Republicans acquire some sense and don’t precipitate the crisis by holding fast on the debt limit), and those have serious consequences for politics and economics. When New Zealand had its crisis in the 1980s we expereinced not one, but two major realignments of the left-right spectrum. I can’t imagine what the American left might look like after a major crisis, and I doubt anyone else can either.
So what does this mean for neoliberalism? Fundamentally, I think it’s what you have left to you. The unions are fading, the bold economic management of the 1930s – 1970s is dead, and welfare is the best flexible tool for helping the poor (apart from a few structural reforms I’ve mentioned previously). The old ways are gone and they’re not coming back.