Neoliberal Capitalism

Neoliberalism or neo-liberalism is the 20th-century resurgence of 19th-century ideas associated with economic liberalism and free-market capitalism. It is generally associated with policies of economic liberalization, including privatization, deregulation, globalization, free trade, austerity, and reductions in government spending in order to increase the role of the private sector in the economy and society; however, the defining features of neoliberalism in both thought and practice have been the subject of substantial scholarly debate.

Neoliberalism, ideology and policy model that emphasizes the value of free market competition. Although there is considerable debate as to the defining features of neoliberal thought and practice, it is most commonly associated with laissez-faire economics. In particular, neoliberalism is often characterized in terms of its belief in sustained economic growth as the means to achieve human progress, its confidence in free markets as the most-efficient allocation of resources, its emphasis on minimal state intervention in economic and social affairs, and its commitment to the freedom of trade and capital. Although the terms are similar, neoliberalism is distinct from modern liberalism. Both have their ideological roots in the classical liberalism of the 19th century, which championed economic laissez-faire and the freedom (or liberty) of individuals against the excessive power of government. That variant of liberalism is often associated with the economist Adam Smith, who argued in The Wealth of Nations (1776) that markets are governed by an “invisible hand” and thus should be subject to minimal government interference. But liberalism evolved over time into a number of different (and often competing) traditions. Modern liberalism developed from the social-liberal tradition, which focused on impediments to individual freedom—including poverty and inequality, disease, discrimination, and ignorance—that had been created or exacerbated by unfettered capitalism and could be ameliorated only through direct state intervention. Such measures began in the late 19th century with workers’ compensation schemes, the public funding of schools and hospitals, and regulations on working hours and conditions and eventually, by the mid-20th century, encompassed the broad range of social services and benefits characteristic of the so-called welfare state. By the 1970s, however, economic stagnation and increasing public debt prompted some economists to advocate a return to classical liberalism, which in its revived form came to be known as neoliberalism. The intellectual foundations of that revival were primarily the work of the Austrian-born British economist Friedrich von Hayek, who argued that interventionist measures aimed at the redistribution of wealth lead inevitably to totalitarianism, and of the American economist Milton Friedman, who rejected government fiscal policy as a means of influencing the business cycle (see also monetarism). Their views were enthusiastically embraced by the major conservative political parties in Britain and the United States, which achieved power with the lengthy administrations of British Prime Minister Margaret Thatcher (1979–90) and U.S. Pres. Ronald Reagan (1981–89).

... Neoliberalism is a crucial theme in the fourth edition precisely because the context in which the edition has been compiled reflects deepening public concern with the seemingly unrelenting trends of an economic philosophy or ideology that currently defines and dominates a form of globalization that, especially since the end of the Cold War and according to increasingly many, has had and continues to have profoundly negative impacts upon the lives and human rights of individuals and groups everywhere, producing empirically verifiable and destabilizing levels of human vulnerability on multiple scales. It is important, therefore, briefly to define "neoliberalism" at this introductory stage.

Once of the most useful and extensive explorations of the term is that offered by Dag Elinar Thorsen and Amund Lie. Drawing on the definition, neoliberalism emerges as a set of political commitments in which the primary (possibly even the sole) legitimate reponsibility of the state is to protect individual market-based freedoms, at the national level and the international level where a global system of free trade guarantees commercial freedom and densely protected property rights. Thorsen and Lie emphasize that neoliberalism is not - despite the name - merely a revival of liberalism, but is

best perceived .... as a radical descendant of liberalism "proper" in which traditional liberal demands for "equality of liberty" have been bent out of shape into a demand for total liberty for the talented [Comment: Or for the 'lucky' (a word that, unlike 'talented,' emphasizes the aribitrary and meritless way by which some come to acquire disproportionately large resources)] and their enterprises. In this, neoliberalism resembles the parallel phenomenon of "neoconservatism," which is not, either, a new form or recent revival of traditional conservatism, but rather a new and unique, and decidedly more uncompromising, set of political ideas.

Accordingly, neoliberalism can be seen as an ideological commitment to total economic freedom, a demand for the state to stay out of the market and for an order of rights fundamentally committed to the prioritization of commercial freedom and interests and the sanctity of property right above all else- especially for powerful corporations. The phenomenon is accompanied by widespread enclosure (privatization) of formerly public spaces, functions, and utilities and by the general "rolling back of the state" such that the state's core contemporary role is as facilitator of market imperatives.

On the one hand, we might think that this overuse occurs because people are inherently greedy and short-sighted. This would support the thesis that if people are able to pursue their egotistical interests, they will then seek profits and exploit the resources that sustain their own existence. If this were the case, we could justify a power “from without” that protects people from their own destructive drives. As we will see, however, this is not the case that Elinor is defending. On the other hand, it could just as easily be assumed that people manage privately owned resources sustainably in their own long-term self-interests. This could occur when people are relatively informed about the effects of their actions. Why, then, would people nevertheless overuse their privately-owned resources? The reason becomes more apparent when we perceive individuals in their broader social context. In her article Toward a Behavioral Theory Linking Trust, Reciprocity, and Reputation (2003), Elinor explains that when privatization is coupled with open and competitive markets, tragedy is simply repeated at a higher level. She explains: “In highly structured and competitive environments such as an open market [...] entrepreneurs have no alternative other than to seek profits. Those who do not pick maximization strategies [...] are eliminated by the selective forces of the market” (E. Ostrom 2003, 25: emphasis added). Similarly to Hardin’s portrayal of the tragedy of unregulated commons, she argues that the open-market arrangement transforms individuals into “determinate, calculating machine[s]” (ibid.) that are caught up in a single-exit or straitjacket situation (ibid.). In order to survive, private property in open competitive markets thus force people to increasingly extract and accumulate resources – irrespective whether these resources are owned privately or collectively. Aside from these and other fleeting references to the problems of “rent seeking” (E. Ostrom and Hess 2007, 5), “roving bandits” (E. Ostrom 2007, 12) or even “robber barons” (V. Ostrom 2008c, 244), I am not aware of any other critical reflections on privatization and markets in the work of Elinor or Vincent Ostrom.

Before continuing, I think it is important to pause for a moment and reflect on this insight of Elinor’s in order to develop my own more elaborate critique of markets here. As we see, competitive and maximizing arrangements as described by Elinor are very similar to those described by Adam Smith in which markets discipline people to increase the “wealth of nations”. Firstly, it must be noted that unregulated commons enables the unlimited appropriation and accumulation of resources. Yet, in contrast to Adam Smith’s positive portrayal of wealth generation, we are reminded again that the discipline of open and competitive markets greatly limits and undermines the individual and collective freedom to alter one’s social arrangements. Furthermore, in discussing the tragedy of unregulated commons, we have ironically discovered that open and competitive markets function according to the same paradoxical logic as unregulated, open-access commons: One’s existence is secured through the necessity to appropriate more and more resource units from a specific resource system, irrespective whether the resource system is held in common or treated as individual private property. Both arrangements function according to the logic of “survival through accumulation”. While Adam Smith positively describes this process as an increase in economic growth and individual monetary wealth, the perspective of commons conceptualizes the same social arrangement as a tragedy that depletes and overuses people’s common resources.

Yet, in contrast to Elinor, I would argue that privatization does not replace the “game against another player” with a “game against nature” (E. Ostrom 2008a, 12). Instead, antagonistic and competitive relationships exist in both social arrangements. The reason for this is that both the unregulated commons and the open market are structured according to the prisoner’s dilemma or what is also known in economic terminology as the isolation paradox (Sen 1984, 123-4, Elson 1988, 13-20). In both, there exists an institutional setting in which individuals must act ex post without prior communication and knowledge of the intentions and actions of the other person. This is what Frank Night and other economists call “uncertainty” in market situations (Knight 1921). The problem, however, goes beyond the difficulty of merely dealing with unforeseen events such as rainfall or strong wind. As we know, the uncertainty of the prisoner’s dilemma leads to maximization strategies and the depletion of resources – irrespective whether these are held in common or owned privately. Hence, the privatization of all goods and resources will not be able to overcome ecological problems, because competitive markets also force one to extract more and more resources from one’s own individual private property, ultimately depleting these resources too. A pertinent example of this is burnout, which can be interpreted as a type of depletion of one’s resources in oneself in order to keep up with the other market participants (Rosa 2010). As we see, survival through perpetual accumulation in a world of finite resources is not only logically impossible, but also socio-ecologically self-destructive.

Interestingly, this dynamic not only undermines the resources that are privatized and transformed into profit but also destabilizes the market itself. Due to the diversity of people’s capabilities and their unequal starting positions, accumulation processes are also highly unequal. Simply put, people with better starting positions can, in turn, accumulate even more at a greater rate. This cumulative advantage is often understood as the Matthew principle (As Streeck quotes in his book Buying Time: “For to all those who have, more will be given, and they will have in abundance; but from those who have nothing, even what they have will be taken away” (Matt. 25,29 in Streeck 2013, 94; transl. by P. Camiller).). This implies that the ensuing race to the bottom – or to the top, depending on one’s perspective – increases scarcity even more for those who have less. Obviously, this dynamic accentuates the divergence between the haves and have- nots. Then, those without purchasing power become limited in their possibilities to buy products that are being sold on the market. This is, however, not only problematic for their own access to resources, but also for those producing the goods, for if the products are not bought, wages cannot be paid and people loose jobs. The socio-economic inequality that results from such a divergence thus leads to what is generally known as an economic crisis due to a demand deficit (Keynes) and overaccumulation (Marx). According to this rather simple logic, open and competitive markets lead to economic instability and the devastation of livelihoods. Put somewhat differently, we could even say that the dynamic of the open and competitive market undermines the commons of the market economy.

Both the ecological devastation and the economic instability would not necessarily be a problem, if people could solve these problems that result from the open and competitive market. But as we already know, the open and competitive market creates “structural constraints” (Cohen 1989, 28) or a “straitjacket situation” (E. Ostrom 2003, 25), which impedes people from altering their social institutions. We already have discussed this in relation to the tension between the Staatsvolk and the Marktvolk. This problem is, however, augmented with the maximization dynamic of the competitive market. If one producer increases its rate of production, all must follow suit in order to maintain their competitive edge. Thus, in order to survive on the market, agents must not only increase the amount of appropriation and output, but also the rate thereof. This is normally understood as efficiency gains through rationalization processes and is one of the main justifications of a competitive market economy. The sociologist Hartmut Rosa describes this process as one of perpetual social acceleration, that might increase economic output, yet does not necessarily increase one’s freedom and wellbeing (Rosa 2013). Importantly, this increased socio-economic acceleration also conflicts with the processes of democratic deliberation and governance. As he explains,

“[T]he central specifically temporal difficulty of democratic politics proves to be the fact that a participatory and deliberative will formation that includes a broad democratic public is capable of being accelerated only to a very limited extent and under specific social conditions. The aggregation and articulation of collective interests and their implementation in democratic decision making has been and remains time intensive. For this reason democratic politics is very much exposed to the danger of desynchronization in the face of more acceleratable social and economic developments” (Rosa 2013, 254).

We can thus understand this desynchronization as a falling apart of the high speed of socio-economic processes and the time necessary for democratic practices. This incongruence leads to a time lag of political action behind economic developments. Importantly, this implies that “politics loses its role as an influential actor that shapes the playing field itself and takes on the status of a predominantly reactive fellow player of the game” (ibid., 264; emphasis i.o.). Here, democratic politics is again dethroned, yet not by economist kings or a Marktvolk, but rather by the maximization dynamics of the market itself. Similar to the previously discussed structural constraints, this necessity to perpetually accelerate can thus also be understood as “objective forces” (ibid., 269) that limit political deliberation and action. Again we are confronted with a mechanism of the open and competitive market that thwarts people from collectively solving the problems that the market institutions themselves bring about.

As we see, the isolation paradox that underlies open and competitive markets brings about diverse problems and mechanisms that limit democratic change and institutional problem solving. As Amartya Sen explains: “The market mechanism on its own confines its attention only to issues of congruence, leaving the interest conflicts [and problems; LP] unaddressed” (Sen 1984, 95). 25 Along those lines, I would argue that by neglecting or suppressing conflicts through individual private property, market exchange, competition and the belief in perpetual accumulation and economic growth, conflicts and tragedies will inevitably erupt elsewhere. As we have just discussed, these tragedies can be economic degradation, pollution and climate change, local and global social inequalities and economic crises. Here, I would agree with James Tully who understands these injustices with what he calls the Medea Hypothesis, “that is, like Medea killing her own children, humanity’s current way of life is bringing about the destruction of the life conditions of future generations” (Tully 2013a, 3). On top of this, the democratic deficit resulting from a state-market dichotomy hinders people from instituionally dealing with these antagonistic interests and grave socio-ecological problems. In turn, this is what Tully coins “the tragedy of privatization” and what I would also understand as the tragedy of open and competitive markets (Tully 2013b, 227, 2014, 86). The underlying prisoner’s dilemma of both the unregulated commons and the open and competitive market underlines Charles Lindbloms’ notion of the market as a prison, in which in which each person is “locked into” (Hardin 1968, 1244, Lindblom 1982). Paraphrasing Hardin, we may conclude that in an open and competitive market, each man is locked into a system that compels him to increase his wealth without limit – in a world that is limited. Ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the self-regulating market. Unhindered individual freedom in an open and competitive market brings ruin to all. Returning to Elinor Ostrom, we therefore might conclude that although she recognized the underlying straitjacket maximization logic of the open and competitive market, it appears that she did not follow through with a reflection on the consequences thereof.