Clio the cat, ? July 1997 - 1 May 2016
Political economists Radhika Desai and Michael Hudson discuss neoliberalism, and the premature predictions about the demise of the free-market fundamentalist ideology.
19 Dec 2023
Political economists Radhika Desai and Michael Hudson discuss neoliberalism, and the premature predictions about the demise of the free-market fundamentalist ideology.
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RADHIKA DESAI: Hello and welcome to the 20th Geopolitical Economy Hour, the show that examines the fast-changing political and geopolitical economy of our time. I’m Radhika Desai.
MICHAEL HUDSON: And I’m Michael Hudson.
RADHIKA DESAI: Well, it’s happening again. Reports of the death of neoliberalism are once again proliferating. Just take a look at the UK Guardian. In the UK Guardian website, there’s a whole series of stories, whether neoliberalism is dying, the rise and fall of neoliberalism. Biden just declared the death of neoliberalism. Is neoliberalism finally over? Is neoliberalism finally dead? Is the neoliberal era over yet? And of course, there are also contrary views. The National Institutes of Health say neoliberalism is not dead. And there is also a very interesting story in Jacobin, which says the rumors are false; neoliberalism is alive and well.
Well, this is not the first time that the death of neoliberalism has been announced. I remember back at the end of the 1980s, the IMF and World Bank structural adjustment programs were inflicted upon third world country after third world country, each followed in short order by IMF riots against critical food and fuel subsidies being reversed, social spending being cut, joblessness rising, thanks to the recessions induced by these very programs.
And a World Bank report at the end of this period, essentially admitted that the neoliberal recipe was certainly not working in restoring productive dynamism to any economy upon which it had been inflicted. I also remember the death of neoliberalism being announced after the 1997-98 East Asian financial crisis, when the so-called "Committee to Save the World", as Time Magazine called it, a committee allegedly consisting of Alan Greenspan, Larry Summers, and Rahm Emanuel, who were allegedly saving the world economy from a neoliberalism induced meltdown.
After the 2008 financial crisis, practically everyone was talking about the return of Keynes, the end of neoliberalism, the return of the state, while Alan Greenspan was admitting before a congressional committee that he had been partially wrong about his free market approach to banking, that the crisis had left him in a state of shocked disbelief. He said, I have found a flaw. I don’t know how significant or permanent it is, but I have been very distressed by this fact. And he said further, I made a mistake in presuming that the self interests of organizations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the funds.
However, even after this massive sort of watershed event, the real story that emerged from it was, as the title of one book about the subject had it, the strange non-death of neoliberalism. And today we have Bidenomics being hailed as the final slayer of the dragon of neoliberalism. Clinton’s Labor Secretary Robert Wright, for instance, thinks that Biden is about to alter the structure of the U.S. economy in ways that help the vast majority and that voters will give Biden another term and reward Democrats with both houses of Congress because it will have transformed the economy in favor of the 90 percent and of workers and unions.
And yet other columnists are praising the same actions of the Biden administration and the same legislative actions as the best business opportunity ever. So even after all these crises, neoliberalism seems to be, if not alive and kicking, at least leading a zombie existence and refuses to die. So today we want to talk about neoliberalism, what it is, where it came from, and why it seems not to die. And what will happen if it dies, and other such questions. So Michael, I’m sure you want to get in here and say something. Please go ahead.
MICHAEL HUDSON: Well, you’ve just made the point that neoliberalism wants to make itself invisible. It’s like the devil. If there a devil, the devil wants to say he doesn’t exist. Neoliberalism says inequality doesn’t exist, exploitation doesn’t exist, and everything is quite fair.
And what it really wants to make invisible or actually disappear in reality is the government. Neoliberalism advocates an economy without government regulation, with no social protection against fraud or exploitation or predatory impoverishment, no usury laws. They’re against consumer protection. They’re against the ability of debtors to use bankruptcy, which is why Biden made sure that students could not wipe out their student loans through bankruptcy, to free themselves from debt.
So neoliberalism, basically, it’s a dynamic of economic polarization. Neoliberalism is a way in which they can justify why the economy is getting more and more unequal, as if this is a perfectly natural thing, a survival of the fittest, and is really a road to efficiency. And in that sense, neoliberalism is a point—this requires a point of view. It’s an ideology. You could almost say it’s the new religion because it’s a new moral value.
Instead of religion saying we’re for mutual aid and we want to uplift the population as a whole, neoliberalism is saying greed is good, Ayn Rand is good, we want to be free from government, free from government regulation, so the rich can do whatever they want to get rich. And if they do get rich, it’s because they’re productive, not because there’s any exploitation. So neoliberalism is really a cloak of invisibility for all of the problems that we’re seeing today.
RADHIKA DESAI: Well, I mean, this is really interesting, isn’t it? Because there’s just so much smoke and mirrors about it, and there’s even smoke and mirrors about the whole question of invisibility, etc. So on the one hand, of course, we know that in the neoliberal era, markets are imposed on, essentially, the ordinary people, on workers, therefore are forced to compete with one another, especially with the attack on unions and so on and so forth.
But meanwhile, as we have seen, after four decades of neoliberalism, it has often entailed socialism for the rich and competition and neoliberalism for the poor, so the rich get bailed out. So in that sense, I think it’s really worth unpacking this a little bit more. Because on the one hand, you’re right, of course, that they kind of, you know, the other part of smoke and mirrors is that neoliberalism claims that it’s about having no government intervention whatsoever. But in reality, the neoliberal period has seen an enormous amount of government intervention.
If you look at practically any country, including the United States, the onset of the neoliberal era has seen only a slight reduction in the role of the state in the economy, and in many cases, hardly anything, any at all. So in that sense, it hasn’t been about markets. Secondly, you know, on the one hand, they want to say, oh, well, you know, we are doing nothing, the state is doing nothing, this is just the outcome of the market.
On the other hand, neoliberalism has also announced itself. So for example, you know, Mrs. Thatcher is very famous for having said, I think sometime in the 70s, before she became a prime minister, she was very aware, she said the other side have an ideology, we need to have one too. So in that sense, neoliberalism was very much a sort of a counter to the sort of center left ideology, whether you call it Keynesianism or welfarism or what have you. So it was very conscious of being an alternative point of view, which was coming to the fore.
But I think, really, to me, one of the key issues about neoliberalism is that it advertises itself as being all about free markets and competition. But in reality, when you look at it, it’s historically been about preserving the power of big monopoly capital. That’s what it’s been about above all else.
MICHAEL HUDSON: Well, the key trick word there is market, and especially free market. And what neoliberalism claims is a market or a free market is exactly the opposite of everything that the classical economists, Adam Smith, John Stuart Mill, even Marx, talked about what a free market is. Any market is shaped by the social institutions. A market is shaped by the tax laws, by the criminal laws, by all sorts of government regulations. There’s no such thing as a market without government. And if you do get rid of a government shaping the market, then what you have is the wealthy people shaping the market.
Well, what did Adam Smith mean by a free market in the whole 19th century? It was a market free from the legacy of feudalism. We’ve talked about this before. A market without a landlord class that was taking money in their sleep to make money without working. A market free of monopolies. That’s what Adam Smith criticized. He wanted to get rid of landlords and monopolies. And that’s what the entire 19th century was about in describing value and price theory.
Classical economics of free markets looked at any market in terms of value and price theory. Value was the socially necessary cost of production. Value was the cost of producing something. But market prices could be way above this cost, such as, and that was economic rent. Rent was the excess of price over and above the actual value. For instance, if you’re charging someone for the use of land for housing, the land doesn’t have a cost. That’s just there. There’s a legal privilege to privatize and appropriate the land and add the costs. The same thing for monopolies. A monopoly is just the legal right to charge whatever you want and have prices far in excess of the cost of production. So that was a free market.
What neoliberalism has done is erased the whole history of economic language and economic terminology and replaced it with saying a free market is a market free for the rent seekers, a market free for landlords to charge whatever they want for rent without any regulation, free for monopolists to be able to charge whatever the market would bear. And if people are willing to pay $10,000 a year, $20,000 for health care, that’s what the market would bear, your money or your life. That basically is the neoliberal slogan.
And in order to do this concept of their kind of a market, a rentier market, they have to erase the whole history of economic thought and even economic history to say, what happens when there’s a market like this? Well, you look at the Roman Empire and when it collapsed, that’s what happened when you had an oligarchy like this. So neoliberalism in that sense, it’s a market, but it’s an oligarchic market, not a democratic market.
RADHIKA DESAI: And you know, you make a very good point, Michael. So I just want to say two things. First of all, you make a very good point. What are prices? Prices are really based on the value of things, which is based on the cost of production of that thing. But in reality, of course, market prices can be, as you put it, way above that. But I would say something else. I would say that in addition to that, market prices for the vast majority of producers are often below their cost. That is to say, they suffer. So workers get market prices for their labor below their cost. Peasants and small producers and mom and pop store owners and business owners get prices that are often way below their production costs and so on. So really, as you rightly say, it’s an oligarchic, it encourages an oligarchic form of production. But I also, so that’s my first point.
But I wanted to take the conversation further also on another point you made. And that is that, you know, you said that neoliberalism is really about erasing the entire tradition of solid economic discourse that was carried on up until the late 19th century. So what happened in the late 19th century? This is very important.
In the late 19th century, on the one hand, Marx and Engels brought the tradition of classical political economy of which Adam Smith or Ricardo were such a big part. They brought it to its culmination by resolving so many of its unresolved problems. What exactly was value? What was surplus value? Where did it come from? How was it that the same amount of capital deployed in different proportions between capital and labor, you know, was it supposed to yield equal rates of profit? Et cetera. All of these were really interesting questions.
Marx and Engels, with their ability to think through all these questions in a dialectical manner, they resolved these problems. And the result was a huge indictment of capitalism. And in fact, even under Ricardo, sorry, please go ahead, Michael, I’ll continue.
MICHAEL HUDSON: Before you go on to that, your point about labor at less than its cost of production, that’s very important because if labor is paid less than its cost of living, it’s forced into debt. And that’s the important thing. Not only is what the rentier class, the landlords and monopolists charge over the cost of production to get a free lunch, but if labor is less than the cost of production, it’s driven into debt, and it’s driven into debt to the creditor class, and this debt becomes a wedge that polarizes the economy. So the market there polarizes.
RADHIKA DESAI: Absolutely. And I would say that even more, I mean, labor, yes, of course, if there is anybody who is going to give them any credit in the first place, because that’s not always been the case. But I would also say that this has historically applied to peasants and small producers of every variety. And that’s why peasants have this constant cycle of debt that they are in, because their products never bring in the kind of return that is necessary.
But to return to the point about what happened in the late 19th century. So, you know, if Marx and Engels brought neoclassical economics to a culmination, Ricardo, even before Marx and Engels, Ricardo’s insistence that all value originated in labor was itself the basis of the various currents of Ricardian socialism. So this type of thinking, economic thinking, which was very good and solid, was already giving rise to anti-capitalist currents, even before Marx. Once Marx comes around, things are going downhill very rapidly. And that’s when you get a completely different way of thinking, making its appearance in the form of neoclassical economics.
And it’s important to remember that neoclassical economics, which emerged in the 1870s, of course, there were some sort of socialistic elements of neoclassical economics. We’ll leave those aside. But on the whole, it was a complete commitment to free market thinking, particularly in its Austrian version. And that free market economics has been developed, and it survived throughout the Keynesian period. And almost 100 years after it was first born, it finally achieved the influence that it did with the election of governments like Thatcher and Reagan and so on, and has been afflicting our world for the last 40 years.
So neoliberalism, it’s very important to remember, is essentially this extreme free market version of neoclassical economics. And it essentially erases all these questions. For example, neoclassical economics does not recognize anything like value. It does not talk about production, but about markets and exchange. It doesn’t talk about values, but it talks about prices. It does not think of capitalism as a historically specific way of organizing society. It thinks that it’s been around since Lucy, it’s been around since the earliest days of humankind. So in all of these ways, neoclassical economics represents a deterioration in economic thinking.
MICHAEL HUDSON: Well, that means that neoliberalism really should be called anti-liberalism. Because if liberalism was the classical idea of free markets, free of rent and interest and monopoly rent, then the justification of all these is that the market should include rent as being productive. Then this is the opposite.
And so neoliberalism, it’s an anti-social philosophy. That’s what the Austrians were. They said, we have a definition of markets that doesn’t have society at all. As you mentioned, Margaret Thatcher said, there’s no such thing as society. So you have a neoliberal view of society as well as markets without government, without anything that is subsidized, without any social feeling. It’s all individualism. As if you can make the whole society with individualism, there is no public infrastructure because any infrastructure is privatized. There is no public credit and money creation because all money creation, instead of being a public utility, it’s all privatized. And that lets the bankers create the money. The bankers receive the interest on loans of this money. The bankers lend to the landlord class to buy real estate and oil wells and mines and extract economic rent.
So the Austrian economics is really a rationale of fighting back, saying we’re against any reform that is going to make the government the recipient of natural resource rent and land rent and income. It should all go to the wealthy class. That was sort of the last attempt to sort of fight against the whole of free market liberalism that was occurring.
And it was not only Austria, it was in the United States by John Bates Clark saying there is no such thing as unearned income. Everybody earns whatever they want. The landlord earns the rent and the crook earns what he can take.
RADHIKA DESAI: Well, this is exactly, you know, and you know, this is another way in which neoclassical economics, which is the basis of neoliberalism, is different from the tradition of classical political economy, because you see, there was a sense in which in classical political economy, whether they although they didn’t use the term or Karl Polanyi used the term, apparently he got it from from (unclear), the term I’m talking about is fictitious commodities, but they knew that land. labor and money were not commodities, although they were treated in capitalism as if they were commodities. And this led to a whole range of difficulties and problems that Polanyi talked about in great detail.
What’s really interesting, and many people think that what Polanyi said has nothing to do with Marx or with the traditional classical political economy, but it does for the very simple reason that the awareness that land, labor and money were not commodities was reflected in classical political economy by the simple point that all the entire tradition of classical political economy from Smith to Ricardo to Marx, they are all concerned about finding the special laws through which the rent of land, the wages of labor and the interest of money are set. They knew that they are not commodities, so their prices are not set like all the other commodities. There are special laws that determine the wages of labor, the rent of land and the interest of money. So in that sense, they were very aware of this. So this is a very, very different thing.
And so in classical political economy, as you say, all incomes are earned incomes because there is really no question. They don’t really understand the difference between earned income and unearned income. This is the key point. And of course, they even sort of laugh at Polanyi for even using a term like classical political economy. But fundamentally, I also want to say that neoliberal economics, neoclassical free market economics is essentially bad faith economics because it emerges in the 1870s and develops over the next many decades, precisely during the decades when capitalism in its homelands was becoming monopoly capitalism. Precisely at that time, they are celebrating free markets and competition, precisely that which is being erased, in fact.
MICHAEL HUDSON: Well, that’s what de-industrialized the United States, not recognizing the difference between earned and unearned income. You have exactly what’s happened really since the 1980s, since Ronald Reagan here and Thatcher’s there. So you could say that this view of the world leads to not curing the problems, not freeing society from the rentier and creditor interests, but it ends up by you de-industrialize.
The neoliberals agree with Marx that the profits are all made out of employing labor and charging more for what labor produces than what it costs to employ it. But instead of what Marx said, well, let’s raise the price of labor so that labor gets to buy and receive what it produces, the neoliberals say we have to lower the price of labor. It’s an anti-labor strategy.
And this is why under the Clinton administration in the 1990s, America said, how do we lower the price of American labor to increase profits here? Well, we’ll shift labor to China, to Asia, to where labor has paid lower wages and therefore we’ll put American labor in competition with Asian labor and we’ve de-industrialized. All that was the result of following the neoliberal game plan of how to get rich and meaning how to get rich if you’re one of the 1%, not the 99%.
RADHIKA DESAI: No, exactly. And there’s another way in which, so the first point like I’m saying is that just when capitalism is shifting to becoming monopoly capitalism, that’s when they suddenly start talking about competition because the fact is the competition and is the only way in which capitalism can be justified because the idea is that competition imposes upon the capitalists themselves a certain type of discipline that forces them to be more productive. So, and therefore it develops the forces of production, however, brutally and chaotically it may do so, at least it does that.
But once capitalism arrives at the monopoly phase, Marx was very clear at this point, it was ripe for transition to socialism. So think about it. Neoliberalism emerges as an ideology to defend capitalism at that point in historical time when the bell was already tolling for it. In that sense, neoliberalism has been fighting a rear guard battle for all these decades.
MICHAEL HUDSON: Well, it’s an attack on industrial capitalism. A neoliberalism isn’t the result of industrial capitalism. Industrial capitalism wanted to lower the price of labor by having the government provide most of the living costs of labor. The government would provide healthcare, not the workers that corporations would have to pay high enough salaries to afford healthcare, education, and basic needs. So Marx had believed that neoliberalism would fade away because neoliberalism was a defense of the landlord interests and the feudal interests.
You talked about monopoly capitalism. There were always monopolies in the sense of natural monopolies, such as transportation, communications, and neoliberalism wants to privatize these monopolies to take them out of state hands where the government would provide natural monopoly services, transportation, water supply, healthcare, at cost or at a subsidized price. By monopolizing them, you create an enormous source of revenue. Basically it’s rent revenue, and most neoliberal wealth is not made by industrial production. Neoliberal wealth is made by taking assets from the public domain, especially monopolies, especially the transportation system, especially the electrical system, especially the communication system. They privatize healthcare. They privatize education. All of this is taken away from the government.
So you had two competing philosophies leading up to the years just before World War I. You have industrial capitalism evolving into socialism saying we want to have the government provide basic needs of labor so that we don’t have to pay the costs and we can compete with countries that privatize all these services. And then you had the Austrian-American, the privatizers wanting to fight back and saying we want to get rid of government and prevent them from doing this. We want the economy to be free for the privatizers to grab Margaret Thatcher and Ronald Reagan style.
RADHIKA DESAI: But if I may, Michael, you’re absolutely right, of course, that there are natural monopolies, but I think that there are two different types of monopolies and I’m talking about them both, of course, but I think it’s important to distinguish between the two.
The first is, of course, the natural monopolies. Land is a natural monopoly. Moneymaking is a natural monopoly, et cetera. That is to say the creation of money is a natural monopoly of the state and so on. I mean, there are many, as you say, transportation, blah, blah, and so on. All of these things are true.
What Marx, however, is talking about when he talks about the capitalism arriving at the monopoly phase is that the unfolding of the process of competition itself will lead, the natural result of it is the creation of monopolies because after the process of competition has eliminated all the inefficient producers, there is only one or a handful left standing and that creates a context in which essentially society moves from competitive capitalism, even in the non-natural monopoly sectors, to monopoly capitalism where a small number of really big producers tend to monopolize everything.
Marx felt that once this stage was reached and there was nothing necessarily wrong with it, this is what capitalism was doing and it was leading to more efficient production, but it was more efficient production based on a massive socialization of labor involving the cooperation of thousands and hundreds of thousands of people in a single industrial enterprise.
Ctd....
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