Scott Sumner  

Neoliberalism: There is no alternative

Response to a Regular Reader a... The Wall Street Journal's Innu...

Margaret Thatcher coined the phrase; "The is no alternative" back in the 1980s. Of course this is not literally true, as the unfortunate residents of Venezuela are now discovering. But the alternative is so unpleasant that Thatcher's claim contains more truth than many people suspect, especially in the long run. In other words, I have pretty good idea as to the direction the next government of Venezuela will take. And the next government of North Korea.

See if you can find the problem with this quote from the Financial Times:

This time, however, Spain's Socialist Workers' Party (PSOE) looks likely to be beaten not just by the centre-right Popular party but also by the far-left Unidos Podemos movement. According to recent surveys, the once mighty PSOE will come a distant third in this month's general election, with just 20 per cent of the vote. Not only will it not lead the next government. Barring an unlikely late surge, it will not even lead the Spanish left.

The decline of the PSOE is, of course, part of a broader story. In Germany, the Social Democrats are polling around historic lows, as are the French Socialists under their unpopular president. Pasok has turned into a splinter group in the Greek parliament. In the UK, meanwhile, the venerable Labour party has undergone something of a reverse takeover, and is currently led by a politician who spent his entire career on the party's leftist fringe. . . .

Spain offers a textbook example of the travails that have befallen the centre-left. Call it a crisis of representation. Call it a capitulation to neoliberalism. Call it horribly unfair. The fact is that in Spain and elsewhere in Europe, voters have come to associate the centre-left with many of the (unpopular) policies traditionally championed by the right: austerity, deregulation, liberalisation, free trade. . . .

Socialist leaders thought they were simply bowing to reality. But along the way they left millions of core supporters without a voice.

That was the vacuum into which Podemos was launched in January 2014, and that was filled by Syriza in Greece and by Jeremy Corbyn in the UK Labour party last year. The choice today for Europe's centre-left is stark, says Mark Leonard, the director of the European Council on Foreign Relations: "Either you are wiped out by Podemos or you become Podemos."

Perhaps you noticed that one of those "far-left" parties has actually taken power--Syriza. And what sort of policies did Syriza adopt? It now favors (or at least pays lip service to) pretty much the same "austerity, deregulation, liberalisation, free trade" that the author says are associated with the right.

At this point I'm not sure if it matters who is elected in Europe. Even Pol Pot would be forced to bow down to the realities of global capitalism. Speaking of which, Cambodia is currently ruled by former members of the Khmer Rouge, and is of course adopting neoliberal reforms.

The European far left and nationalist right can rage against the machine all they want, as can Trump and Sanders supporters. But the machine isn't going away.

I say this with mixed feelings, as there are many aspects of the machine (the war on privacy, etc.) that I don't like.

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COMMENTS (23 to date)

In your last two paragraphs, Scott, you use the word "machine" three times. The word does not appear earlier in the post, unless I am missing something. I do not know what you mean by "machine".

Matthew Moore writes:

This is a different perspective from my usual one. I normally am concerned with the progression of liberty within a single polity (I am pessimistic, and tend to think the pressures of public choice result in downward trend).

But this post puts me in mind of the countervailing force, which is that once things get sufficiently bad, there are so many examples of what needs to be done, and the effect sizes of moving from bad policy to OK policy are so large, that we can restore liberalism in a "revolution". And because there are a large number of polities, the overall global trend can still be positive.

Not sure how to model this... it seems like we have to learn the problems of socialism again every generation or so. It needs to be in living memory.

Scott Sumner writes:

Richard, I use 'machine' in the sense that opponents of the establishment use the term--an immovable power structure.

RC writes:

I actually like the controversy that Thatcher raised over 'society'.

So often Society and The Market are placed as opposites, but really they are the same thing. With close relatives you can rely on your social credit with them to do things, but with strangers you rely on credit in your bank account.

The market is simply society busy trading with itself.

Brian Donohue writes:

The world could use another Margaret Thatcher right about now.

jc writes:

Regarding living memory (e.g., @ Matthew Moore), yep, that would be nice.

Too bad we're not always rational updaters of bayesian priors based on other people's experiences, which are often either unconsidered or rebuffed w/ some variation of "this time is different" (or if considered, adopted in an emotionally diluted form, i.e., there is less of an urge/compulsion to as thoroughly update or heed this updating).

And it seems to me that humanity has evolved preferences that are somewhat misaligned with the modern world here, an Economic Savannah Principle, so to speak.

My ex-Marxist pals - some of whom actually self-identify as libertarian these days, ha - all fall back from time to time, drifting away from reliance upon empirical records and back to their emotional urge to:

(a) centrally plan rather than leave decisions to the dumb or to what they call chance (vs. complex adaptive system market-based coordination, e.g., Dan Dennett's observation that "evolution is smarter than you are")

(b) scold those with more and give to those with less, etc.

Or at the very least, they fall back towards relying upon a convergence of the two, i.e., they adopt their old lens when interpreting the new record.

The communal aspect (vs. the intellectual hubris and/or urge to plan/organize/control aspect) reminds me of those monkey studies where the source of newfound wealth doesn't matter - if another money is given something and you're not (you're a monkey here too), you immediately hate that monkey's guts.

The hate comes first, before even seeing if the rich monkey will decide to voluntarily share. Maybe the hate is what causes the rich monkey to voluntarily share (or the others to confiscate if sharing doesn't happen ASAP)?

Anyway, the point is that there's no conscious rationality, just reflex. And if that reflex is hardwired into our human brains too, with rationality a spin-doctor pretending to be commander-in-chief (ala Pinker), then I'm not sure the global path forward will be as smooth, widespread, or permanent as we might prefer.

It's interesting how - if this view of human nature is at least roughly correct - liberal capitalism has managed to spread so wide, while consistently fighting back our natural urges to thwart some of its traits.

From a modeling perspective, I wonder if the richest countries simply pass a threshold that allows them to coast along and stay rich, even when future generations move slide back to old ways of thinking and the regulatory morass simply keeps growing. And the poor countries simply have no choice but to liberalize. I wonder what final equilibrium will be. And if it will reach us before the Ems simply make us all rich. :)

Speaking of human nature - this time across countries - I wonder if we ever reach a "global" in-group circle state, where we all consider ourselves to be a part of one big tribe. The propensity to specialize and trade within tribes seems perfectly consistent w/ nature. Across tribes seems consistent too, as long as divisions are preexisting (e.g., apple tribes trading w/ orange tribes is fine, but an apple tribe losing all its apple jobs to a competing apple tribe means unforgivably favoring another tribe over your own). Anyway, it's possible that at least some natural roadblocks to liberalism may fall away to some extent.

Lorenzo from Oz writes:

A lot of the alienation is not a necessary consequence of "neoliberalism" at all. It may be a partly a consequence of a mechanical approach to such policies -- all right-thinking people agree with X so we needn't bother justifying X or adding to X to get some of the people left out included.

It would be hard to get a more "neoliberal" polity than Australia, and we have much less of a problem with political alienation. There have some minor party eruptions, but the system copes and they are hardly politically feral.

Lorenzo from Oz writes:

Another way to put this, is that there is a real tension between elite coherence and accountability. The more convergent the elite is around particular views and career structures, the narrower in scope social bargaining will be.

An emeritus professor of international relations, Angelo Cordevilla, made an observation in an essay in the August 2010 American Spectator that is apposite:

Never has there been so little diversity within America's upper crust. Always, in America as elsewhere, some people have been wealthier and more powerful than others. But until our own time America's upper crust was a mixture of people who had gained prominence in a variety of ways, who drew their money and status from different sources and were not predictably of one mind on any given matter. The Boston Brahmins, the New York financiers, the land barons of California, Texas, and Florida, the industrialists of Pittsburgh, the Southern aristocracy, and the hardscrabble politicians who made it big in Chicago or Memphis had little contact with one another. Few had much contact with government, and "bureaucrat" was a dirty word for all. So was "social engineering." Nor had the schools and universities that formed yesterday's upper crust imposed a single orthodoxy about the origins of man, about American history, and about how America should be governed.

Disparate views and interests created more need for social bargaining. (Obviously, an issue such as slavery was too big; but do we really confront any equivalent issue?, surely not.) Convergent elite views and career structures narrow social bargaining to an extent that more and more folk feel left out.

Ane the EU -- structured on the false diagnosis that the disastrous issue of European history was nationalism, when actually it was unaccountable power (Danish and Dutch nationalism didn't cause much problems, for example) -- is a great way to evade doing wider social bargaining. Indeed, that is what it is structured to do. With such success that Brexit is now a real possibility and feral politics are breaking out across Europe.

Sean Trende's January 29 2016 piece in Real Clear Politics, quoting Scott Alexander (always a good sign) discussing the cosmopolitans v traditionalist divide also raises the problems of elite coherence for political inclusion in a useful way.

Lorenzo from Oz writes:

The Sean Trende piece is here.

Lorenzo from Oz writes:

The Prof. Codevilla piece is here. (I misspelled his named in the post above.)

Prakash writes:

As I had said in an earlier thread in moneyillusion, surveillance is a necessity whenever diversity is present, if you seek security and individualism. It is only cultural and/or ethnic homogenity that is conducive to a world without surveillance. This could be in the micro as well, like the ottaman millet system. But there you would also be giving up on individualism as acts committed by individuals could result in punishment of an entire community.

Seb Nickel writes:

Scott, I'd quite like to know how you define "Neoliberalism". I usually only see the term used by people who vehemently oppose it. And it's usually very unclear what they mean by it.

ThaomasH writes:

If "neoliberalism" is whatever it is that there is no alternative to in Venezuela or North Korea post the current regime, then it's a pretty big target. Does your "neo-liberalism" include post Soviet Russia?

Thomas B writes:

This word, neoliberal...

You mean liberal, yes?

As in classical liberal.


Why not say that? There's nothing neo about it - these are the values of the enlightenment.

Vasilis Kostelidis writes:

@Lorenzo from Oz,

Ane the EU -- structured on the false diagnosis that the disastrous issue of European history was nationalism, when actually it was unaccountable power (Danish and Dutch nationalism didn't cause much problems, for example)

In my view, nationalism is a big issue, I can see it in Greece, France, Germany, Slavic countries, Albania, Switzerland and so on.

I think that without nationalism, a country would not struggle to gain more power. Obviously, a nation's power needs nationalism. I don't think one can draw clear lines between these two.

Your opinion is something I have never heard before. It seems fascinating and I would really like to read about it, can you suggest any book?

P.S. Some years ago I was naive enough to believe that EU people would let their national pride fade away. Unfortunately this is not happening.

lysseas writes:

Ah, the big question, what is neoliberalism...
To start with a reference to the google search a couple of posts ago, totally unsurprisingly, Greece is a huge "Salon" and a huge "Guardian". The merciless neoliberalism is to blame for all our problems (you know, high tax rates, abundant regulations, high priced basic consumer goods because of protected professions, the usual).
What may be a little surprising are things like:
1. The President (non executive) who comes from the main conservative party, stated recently that "we have to battle with the Minotaur of neoliberalism". (On the bright side the party's new leader is considered a libertarian sort of, so there might be hope and Scott may claim another confirmation for this post's point - however the party's establishment are so socialist at heart, that he ll have to perform a juggling act to really change it, let alone the whole country).
2. One of the country's most famous "libertarians" said that "neoliberalism does not mean anything, the term doesn't even exist"; another clearly implied that neoliberalism is much more extreme than classic liberalism repeating what most in Greece believe on the subject.

So this latter view, that neoliberalism is liberalism taken to the extreme, was my impression too, until reading Scott's posts, to find out that neoliberalism is actually "less pure" liberalism as it is combined with a limited welfare state.

As for Syriza they are currently in a state of schizophrenia, adopting less than half-heartedly any reform the troika calls for, to keep the power and the money, but going full chavista on anything under the troika radar.

ThaomasH writes:

@ Prakash

Surveillance is necessary (or unnecessary) regardless of "diversity." Upper class British men "self radicalized" to betray their country for the Soviet Union in the 30's.

Lorenzo from Oz writes:

Neoliberalism (actual) == application of economic theory to policy seeking to create a sustainable welfare state.

Neoliberalism (bogey) == malign denial that we have a science of government in order to serve corporate interests.

Lorenzo from Oz writes:

Vasilis Kostelidis

Don't know that I can recommend a specific book, I was operating from my analysis of European history.

You said

I think that without nationalism, a country would not struggle to gain more power. Obviously, a nation's power needs nationalism. I don't think one can draw clear lines between these two.
States struggled for power long before there was nationalism.

Nationalism is what you get when you have mass literacy: it is a way of dividing literate folk into language groups. It offers a sense of identity and a vector for action (and therefore a sense of control). Typically includes a projected-backwards mythic history.

The EU operates in a way which strips people of a sense of control while offering a very feeble sense of identity and without a demos, a common public. Of course it ends up promoting nationalism as soon as economic outcomes become problematic. And its lack of accountability make poor economic outcomes that much more likely as soon it becomes a major policy actor.

Scott Sumner writes:

Lorenzo, The two parties in America are pretty polarized right now, and the wealthy are fairly evenly split between the Dems and the GOP. That doesn't really suggest as much convergence as the quote seems to imply.

I see nationalism (broadly defined to include things like tribalism (as in India and Hungary)) to be a growing problem around the world.

Seb, I view neoliberalism as support for a market economy. Basically the worldview that was dominant during the 1990s---sometimes called the Washington Consensus. In this ideology, the role of government is to provide a safety net and correct externalities like pollution---otherwise leave things to the private sector. Of course no country exactly fits this definition, but that's the basic idea.

Lorenzo from Oz writes:

Scott. True, but the failure to bargain effectively may be symptomatic of a disconnect between elite convergence and voters which rhetoric seeks (ultimately unsuccessfully and destructively) to paper over.

Lorenzo from Oz writes:

As for nationalism, it can be a problem, but making folk feel powerless ain't a solution: it just inclines folk to cling to commonalities. Megan McArdle's recent piece on being in Luton and Brexit makes some good points about this.

benj writes:

Geolibertarianism seems like a better alternative than either Neoliberalism or Socialism, who both share the same fundamental(and flawed) view on property rights.

Because of this both Socialism and Neoliberalism make each others existence inevitable, as their beliefs about property rights causes inequality and economic dysfunction, which they can then blame on each other.

A horrible symbiotic relationship that makes any progress towards a just and efficient economic system very difficult indeed.

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