What’s Wrong with the Neoliberal Order?

I recently read a review of a new book critical of capitalism – The Rise and Fall of the Neoliberal Order: America and the World in the Free Market Era.

Naturally, any book with the title of “rise and fall” with reference to an “order” reminds me of William Shirer’s The Rise and Fall of the Third Reich, a study of evil institutionalized.

I found the concept of the rise and fall of an order used to denigrate free markets annoying.

First is my skepticism of the intellectual process of fashioning critical hypotheses in order to expose abuses of power.  I find the methodology trite and a diversion from understanding reality. “Critical” frameworks, depending on the assumptions and presumptions of the critic, easily degenerate into mere narrations, hard to clearly separate from fictions and fables.

To be sure, myths, fairytales, stories, parables even, can enlighten, give us metaphors, teach ethics and inculcate moral lessons.  But understanding systems, especially human systems, which amalgamate culture, psychology, politics, economics, self-interest, faith, ambition and lassitude, demands a different order of thought than emotionally provocative storytelling.

I am particularly put off by contemporary critics of capitalism who concoct an ideal type of order given the name of “neoliberalism.”  To be sure, neoliberalism, as described, is a perfect foil for socialism.  Neoliberalism is perverse when socialist ideals are more directed to equality of comforting outcomes for individuals, entitlements to better living systemically provided by the reigning power structure of one’s society.

The project to disparage “neoliberalism” strives to marginalize, through defamation, non-state sources of authority, power and opportunity – free markets, private property, religions and individualism.

What most annoys me about the term “neoliberalism” is how it covers up a correct understanding of the intellectual origins of what is being rejected as unhealthy for human civilization.  What is now called “neoliberalism” or microeconomics, with its use of price and marginal utility theory to control supply and demand and its acceptance of profit as rationalizing correct decision-making, began with Herbert Spencer in his 1851 book, Social Statics.

Spencer’s thinking, now largely forgotten, was, until recent decades, most known as social Darwinism, an extreme form of individualism, where survival through competition was the goal of every person born alive.

In the late 19th century, Spencer’s thinking was adopted by people like Andrew Carnegie and William Graham Sumner in the U.S. as a moral and intellectual foundation for the industrial revolution and the modern economy based thereon.

Spencer and those who followed his thinking, though, broke with Adam Smith in a very important way: they rejected the moral sense as a powerful braking mechanism restraining human self-assertion.  In the tradition of Aristotle and Cicero in the West (and of Mencius in China), Smith had written a psychological/sociological study of the moral sense with the title of The Theory of Moral Sentiments.  Smith’s guidance could be named as “enlightened self-interest” or “self-interest considered upon the whole.”

Any economic system which provides scope for individuals using their moral sense cannot fairly be called “neoliberalism.”

Now, to me, the crux of the argument between those who want “neoliberalism” and those who want more outcome determinate actions from government is who gets to extract rents from the economy?

Neoliberals want to minimize rent extraction by government and so tolerate the risk of sub-optimal rent extraction by owners of private property in private, free market transactions.

In particular, neoliberals tolerate lower wages for workers and anti-neoliberals want government to check such preference in using the proceeds of firm earnings by setting wage standards and empowering unions to bargain with firm owners over wages and working conditions.

Anti-neoliberals tolerate lower economic growth and innovation so that government may extract rents to provide entitlements to citizens – retirement stipends; healthcare; education; subsidies of various sorts; salaries for administrators; and expenditures on public good infrastructures, such as roads and bridges and a transition to clean energy generation.

Both sides argue over where, along a continuum of totally free and capricious private power at one end and totalizing monopolies of government power at the other, a society should seek to optimize its well-being.

Neoliberalism is also faulted for encouraging globalization of markets, the better to hamstring and weaken national governments, the principal source of effective power to reign in the galloping herds of neoliberal wealth creators.

The reviewer, Robert Kuttner, faults Presidents Clinton and Obama for seeking that point of optimization too close to the individualist end of the continuum.  Kuttner welcomes President Biden’s turn away from neoliberalism, but with Biden’s low standing in popular opinion and with a large majority of Americans reporting that they fear the nation is on the wrong course, it might be premature to declare the progressive left (socialist) the victor.  Nonetheless, Kuttner asserts that “Neoliberalism has indeed been discredited as both theory and practice.”  Yet, in believing that the cause of neoliberalism is a cabal of self-serving plutocrats, Kuttner also affirms that “… because of the residual power of financial elites and their intellectual allies, the appeal of market fundamentalism is far from dead.”

This, he says, leads to a time of confusion and conflict, quoting Antonio Gramsci: “The crisis consists precisely in the fact that the old is dying and the new cannot be born: in this interregnum, a great variety of morbid symptoms appear.”