Toward a More Equal America, Part 5
In Part 3, I made the case that an economy – a system of exchange – allowed to evolve without guidelines will naturally create inequality over time. While that is true and needs to be kept in mind as we work to develop an economy of, for, and by the people, it also glosses over an important detail of history: the global economic system of the last 40 or so years has been particularly problematic in terms of increasing inequality and attempting to eliminate any and all regulations enacted in the past to maintain a baseline standard of living.
The name – not often used – for the economic framework currently in place worldwide is “neoliberalism.” Rather than attempt to explain it myself, I encourage all of my readers to read this excellent essay on neoliberalism by George Monbiot. I will offer a few important excerpts here.
Neoliberalism sees competition as the defining characteristic of human relations. It redefines citizens as consumers, whose democratic choices are best exercised by buying and selling, a process that rewards merit and punishes inefficiency. It maintains that “the market” delivers benefits that could never be achieved by planning.
Attempts to limit competition are treated as inimical to liberty. Tax and regulation should be minimised, public services should be privatised. The organisation of labour and collective bargaining by trade unions are portrayed as market distortions that impede the formation of a natural hierarchy of winners and losers. Inequality is recast as virtuous: a reward for utility and a generator of wealth, which trickles down to enrich everyone. Efforts to create a more equal society are both counterproductive and morally corrosive. The market ensures that everyone gets what they deserve.
https://www.theguardian.com/books/2016/apr/15/neoliberalism-ideology-problem-george-monbiot
In effect, neoliberalism takes the ideal of a “free market” to its logical extreme, specifying that any and all impediments to a pure interplay of supply and demand dictating prices and wages – including laws, progressive taxes, and trade unions – should be abolished. The resulting distribution of goods and income is then defined to be free, fair, and not open to question.
The idea of neoliberal economics was born in 1938, but did not really gain traction until the Reagan and Thatcher administrations of the 1980s. Monbiot writes:
At first, despite its lavish funding, neoliberalism remained at the margins. The postwar consensus was almost universal: John Maynard Keynes’s economic prescriptions were widely applied, full employment and the relief of poverty were common goals in the US and much of western Europe, top rates of tax were high and governments sought social outcomes without embarrassment, developing new public services and safety nets.
Following economic crises in the 1970’s that exposed the limitations of Keynes’ prescriptions, neoliberalism was waiting in the wings and rapidly rose to prominence. Wealth inequality has increased steadily ever since.
Freedom from trade unions and collective bargaining means the freedom to suppress wages. Freedom from regulation means the freedom to poison rivers, endanger workers, charge iniquitous rates of interest and design exotic financial instruments. Freedom from tax means freedom from the distribution of wealth that lifts people out of poverty.
Neoliberalism was not conceived as a self-serving racket, but it rapidly became one. Economic growth has been markedly slower in the neoliberal era (since 1980 in Britain and the US) than it was in the preceding decades; but not for the very rich. Inequality in the distribution of both income and wealth, after 60 years of decline, rose rapidly in this era, due to the smashing of trade unions, tax reductions, rising rents, privatisation and deregulation.
Neoliberal economics has tried very hard to pass itself off as a law of nature, even to the point of eliminating use of the word “neoliberal” so as to simply become “the way things are.”
The words used by neoliberalism often conceal more than they elucidate. “The market” sounds like a natural system that might bear upon us equally, like gravity or atmospheric pressure. But it is fraught with power relations. What “the market wants” tends to mean what corporations and their bosses want. “Investment”, as Sayer notes, means two quite different things. One is the funding of productive and socially useful activities, the other is the purchase of existing assets to milk them for rent, interest, dividends and capital gains. Using the same word for different activities “camouflages the sources of wealth”, leading us to confuse wealth extraction with wealth creation.
Monbiot discusses the ways in which neoliberalism has infected democratic politics, infiltrating both parties and dramatically limiting the political influence of anyone who does not have vast sums of money to spend.
Perhaps the most dangerous impact of neoliberalism is not the economic crises it has caused, but the political crisis. As the domain of the state is reduced, our ability to change the course of our lives through voting also contracts. Instead, neoliberal theory asserts, people can exercise choice through spending. But some have more to spend than others: in the great consumer or shareholder democracy, votes are not equally distributed. The result is a disempowerment of the poor and middle. As parties of the right and former left adopt similar neoliberal policies, disempowerment turns to disenfranchisement. Large numbers of people have been shed from politics.
He closes with a plea for developing a new economic system to replace neoliberalism, given that its failures have been clearly apparent since the crisis of 2008.
What the history of both Keynesianism and neoliberalism show is that it’s not enough to oppose a broken system. A coherent alternative has to be proposed. For Labour, the Democrats and the wider left, the central task should be to develop an economic Apollo programme, a conscious attempt to design a new system, tailored to the demands of the 21st century.
I will use the word “neoliberal” or “neoliberalism” to refer to our current economic system for the remainder of this series. “Capitalism” is frequently used as a synonym, but capitalism describes any economic system in which private business is the primary organizing principle – including the more equitable Keynesian economics of the 1940s-70s and much more social-welfare-oriented systems in place across northern Europe.
The main alternative to capitalism is socialism – in which the government owns and controls the means of production – and socialism has a poor track record of creating bloated, inefficient, and violently oppressive governments. My personal feeling is that an economy of, for, and by the people, designed to confront the needs and crises of the 21st century, could still fit loosely within the definition of capitalism.