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May 04, 2007
Neo-Liberal Economics
Martin Jacques:
It is no surprise that neoliberal economic thinking still predominates.
New Labour enthusiastically embraced the central tenets of Thatcherism
and has presided over an extremely long boom.
Glad we've got that sorted out then. "Neo-liberal economic thinking" prevails simply because it works. Excellent.
Just an odd place to hear that statement from, that's all.
May 4, 2007 in Economics | Permalink
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Comments
I really don't know what any one means by 'neoliberal' econommics. what is it?
Tim adds: It's usually used as an insult. Meant to mean all that nasty mucky "market" and "free trade" stuff. Thatcherism in short.
Posted by: Luis Enrique | May 4, 2007 10:14:53 AM
I absolutely detest the term "neo-liberalism", it's not 'new' thinking in any way, shape or form. To me it's little more than a scary label.
Posted by: Andrew Paterson | May 4, 2007 10:15:41 AM
It's all rubbish really, these names and labels. Globalisation and capitalism have been around in their present form for centuries, long before the terms were ever invented.
Even things like "free trade" are not really a belief system or a set of any particular moral values, they are merely the realisation that as soon as politicians meddle in things that they don't understand (i.e. just about anything), things usually get worse. So why do politicians do it? Ego reasons? Stupidity? What? Why?
Posted by: Mark Wadsworth | May 4, 2007 11:10:08 AM
Probably just to appear to be doing something, Mark. You might as well ask what politicians are for. Buggered if I know.
Posted by: YellowDuck | May 4, 2007 11:38:18 AM
"Neoliberalism" is often used as an alternative or synonymous label for the analysis of the "Austrian School" of economics, of which (Nobel laureate) Frederich von Hayek (1899-1992) is usually regarded as the most celebrated exponent although several other notable economists are also commonly taken to be subscribers - such as Bohm-Bawerk, Von Mises and Schumpeter:
http://www.vusst.hr/ENCYCLOPAEDIA/neoliberalism.htm
A central tenet of the school is that (socialist) command economies with centralised planning to direct resource allocation will inevitably prove dysfunctional because planners can never be placed to know enough to take account of all the factors which continuously influence the outcomes of market forces. Curiously, Trotsky after his exile from the Soviet Union, espoused this same analysis - as he puts it eloquently here:
"If a universal mind existed, of the kind that projected itself into the scientific fancy of Laplace—a mind that could register simultaneously all the processes of nature and society, that could measure the dynamics of their motion, that could forecast the results of their inter-reactions—such a mind, of course, could a priori draw up a faultless and exhaustive economic plan, beginning with the number of acres of wheat down to the last button for a vest. The bureaucracy often imagines that just such a mind is at its disposal; that is why it so easily frees itself from the control of the market and of Soviet democracy."
http://www.marxists.org/archive/trotsky/1932/10/sovecon.htm
The Austrian School was generally sceptical, in fact, of the social benefits of virtually any state intervention in markets whether motivated by supposedly benign (collectivist) intentions to render income distribution "more equitable" or even to ensure "more efficient" resource allocation through activist competition policy or with Pigovian tax-subsidy regimes to correct for externalities (spill-over effects).
The term "unintended consequences" was coined by the school to refer to the likely outcome of state interventions in markets. Hayek and others of the school also argued that such intervention almost invariably resulted in adversely infringing upon personal freedoms. Hayek's book: The Road to Serfdom (1944) argued at length that the economic interventionist policies of European socialist parties were basically similar in form to the policies of the Nazis and European fascist movements. For all that, immediately following WW2 many European governments applied similar interventist policies with extensive regulatory controls over prices, production, consumption, investment and imports. The new West German federal republic was something of a conspicuous exception as Chancellor Adenauer and Erhard, the finance minister in the 1950s, espoused essentially neo-liberal thinking. By the late 1950s, GDP per capita in West Germany had overtaken Britain's - hence the "German economic miracle".
Posted by: Bob B | May 4, 2007 12:32:09 PM
The basic schisms in this are still evident in European politics - eg Sarkozy v Royal in the coming presidential election in France and an influential paper on: Globalisation and the reform of the European social models, prepared by André Sapir for the think-tank Bruegel, presented at the ECOFIN Informal Meeting in Manchester in September 2005. It argued that there is not one European social model, but rather four - the Nordic, Anglo-Saxon, Mediterranean and the Continental:
• The Nordic model (welfare state, high level of social protection, high level of taxation, extensive intervention in the labour market, mostly in the form of job-seeking incentives)
• The Anglo-Saxon system (more limited collective provision of social protection merely to cushion the impact of events that would lead to poverty)
• The continental model (provision of social assistance through public insurance-based systems; limited role of the market in the provision of social assistance)
• The Mediterranean social welfare system (high legal employment protection; lower levels of unemployment benefits; spending concentrated on pensions)
http://www.euractiv.com/Article?tcmuri=tcm:29-146338-16&type=News
Andre Sapir's paper on: Globalisation and the Reform of European Social Models (November 2005), is here:
http://www.bruegel.org/Public/fileDownload.php?target=/Files/media/PDF/Publications/Policy%20Briefs/PB200501_SocialModels.pdf
Posted by: Bob B | May 4, 2007 12:34:18 PM
"Globalisation and capitalism have been around in their present form for centuries"
No they haven't.
Prove it.
"Even things like "free trade" are not really a belief system or a set of any particular moral values, they are merely the realisation that as soon as politicians meddle in things that they don't understand (i.e. just about anything), things usually get worse"
Again, not true.
Prove it.
Posted by: Martin | May 4, 2007 3:19:42 PM
What is it you want proved, Martin? That politicians do not make things worse as soon as they meddle in them? Have you looked at the public sector in Britain recently?
Posted by: Helen | May 4, 2007 4:46:05 PM
Thanks Helen.
Martin re your first point, in no particular order, what about stuff like the Silk Road, coffee from Java (or the Middle East), gunpowder, china and printing from China, tea and cotton from India, tobacco and potatoes from South America, wool from Australia, the Roman Empire, the British Empire, the Hanseatic League, the Spanish conquistadors, the Atlantic telegraph cable ca. 1858 (a forerunner of the Internet), Britain's exports of coal and steam engines, gold as a global common currency since Biblical times, the early spread of Islam and Christianity around the world and so on?
Posted by: Mark Wadsworth | May 4, 2007 5:00:08 PM
"coffee from Java (or the Middle East)"
Brought to Europe by Dutch ships, carrying Dutch guns - and then Java became - WHOA! - a Dutch colony!
"tobacco and potatoes from South America"
The consequence of an Imperial policy
"wool from Australia"
The consequence of an Imperial policy
"the Roman Empire"
Ditto
"the British Empire"
Ditto
"the Hanseatic League"
Not sure, but I bet some of them had guns and thus also the authorisation to fire them
"the Spanish conquistadors"
The product of an Imperial policy - I'd love to what know Atahualpa would make of your definition of free trade...hmmm...mind you, the ceiling of Santa Maria Maggiore is magnificent...
"the Atlantic telegraph cable ca. 1858 (a forerunner of the Internet)"
Don't know, but would imagine it would have needed an Act of Parliament to permit its construction
"Britain's exports of coal and steam engines"
Industries totally ruined by Cobdenite free trade from the 1830's onwards; in 1914 we were still importing German machinery - read Correlli Barnett's 'The Collapse of British Power'. Page 85 -
"The shortcomings of the British iron and steel industry alone were proof enough that the Motherland, no less than the empire, was not the great independent power it seemed, for as The History of the Ministry of Munitions states: 'It was only the ability of the Allies to import shell and sheel steel from neutral
America...that averted the decisive victory of the enemy"
The facts don't chime the theory, I know, but that does not denude them of their validity.
"gold as a global common currency since Biblical times"
And the price of a troy ounce has been quite high over the last few years, indicating the smart money thinks (with some justification) that inflation's in the works - and all in the greatest and fastest expansion of 'free trade' the world's over seen.
"the early spread of Islam and Christianity around the world and so on?"
At its infancy Islam expanded itself by the sword - not very free. Christianity expanded through the example of its practitioners - nothing to do with money.
All seems either political or spiritual to me. Anything else?
Posted by: Martin | May 4, 2007 8:19:50 PM
The funny thing is that as much of Europe is moving towards free market thinking, it seems that Britain may be going the other way.
The next leader of the Labour party is going to be someone to the left of Blair, and Cameron is desperate to distance himself from Thatcher.
Posted by: Tim Almond | May 4, 2007 8:20:10 PM
Martin, those were examples of what is now referred to as "globalisation" rather than examples of "capitalism". Perhaps you'd like to give me your definition of "capitalism" and then I'll give you some examples going back a few centuries.
Posted by: Mark Wadsworth | May 4, 2007 9:32:55 PM
Mark,
Globalisation? By whose definition?
The word 'globalisation' is often thrown about quite unthinkingly. There are two working definitions of 'globalisation' - the integration of the world's financial and labour markets as defined by Niall Ferguson in 'Colossus', or the theory of it being a 'global labour arbitrage' as described by Stephen Roach, Bill Bonner and others.
My own belief is that its gone beyond that and that the world's labour market has already integrated as far as it can reasonably go for the time being, but that's really here nor there.
The plutonomists believe that the era of British overseas investment in the late 19th and early 20th century was 'Globalisation I'. This is in fact quite wrong - if we had gone truly global at that time, India's resources and markets would have been developed far more heavily than they actually were but in 1913 trade with India was just about half of that with the United States and on a rough par with trade with Argentina. Although we were good little free trading nonconformists, playing up, playing up and playing the game, the Germans had absolutely no qualms about protecting their own national interests through the use of tariffs- again according to Barnett, for years before the first war we had been importing so many German toys and clocks that in 1913 we did not have the industrial capacity to make bomb timers; so we had to buy the capacity from the Swiss.
This is a lesson that all those who say free trade makes us rich - it doesn't; in the long run it kills you - and that trade is the route to peace would do well to remember.
After the first war we repeated the same mistake, so much so that in 1940 the Spitfires that won the Battle of Britain were carrying largely foreign made instruments.
'Globalisation II' on the other hand, the state of shreholder Nirvana we've been in since Bill Clinton, the Gladstone for a new generation, came to office, is really nothing more than a cup and ball game effected against the developed world's wage earners, dressed up in moralistic pish about helping the Third World develop. The arguments and rhetoric used in its favour are straight out of the 19th Century; British history between 1914 and 1945 proves them quite conclusively wrong; but still the true believers believe.
Go figure.
Capitalism? Any enterprise on any scale conducted for the purposes of profit; bit like Capita and the congestion charge.
Posted by: Martin | May 5, 2007 8:44:30 AM
