Whenever neoliberalism is defined it is invariably equated
with the osmosis of the ‘untrammelled free market’ into ever more areas of
life.
One of neoliberalism’s intellectual originators – Friedrich
Hayek – made the hugely influential claim that people (and by extension their
political representatives) could never know
enough to plan or intervene in the economy. A person’s knowledge was limited
to “their own small circle” and the things which were important to them, which
only they knew. Because knowledge was never available to people “in its
totality”, attempting to direct the economy in certain ways or favour some
economic entities over others was dangerous and inimical to the limited sphere
of freedom people truly possessed.
The consequence of these assumptions was that only the free
market could guarantee liberty. The only genuine choices people could make were
to do with buying and selling because they concerned matters and desires that
only they knew about. If markets were left alone and the price mechanism
remained unregulated, the economy would achieve ‘equilibrium’ and people would
receive what they wanted and were due.
These ideas have played a massive role in constructing the
world in which we now live, in areas as diverse as electricity provision,
financial services, corporate mergers and takeovers and the housing rental
market (to name a few). The job of government was restricted to setting markets
up and getting them running. Beyond that the state should get out of the way.
It cannot, according to Hayek, know more than markets do. And while individuals
within markets can make mistakes, markets as a whole – because they are an
agglomeration of individually optimal choices – cannot be wrong.
Thus democracy – which is, in essence, about the ability of
people to understand the world and act on their desires – should be heavily
constricted. Indeed, we can be sure that had representative government and a
universal franchise not already existed, neoliberals would not have invented
them and would have opposed any attempts to create them – as their 19th
century forebears in fact did.
This ‘market fundamentalism, as many have noticed, requires a
stronger state than the ‘night-watchman’ state of neoliberal yore. The state
must not only enforce private property rights but also banish outside
interference with markets. In practice, in the US, Britain and elsewhere, this
meant destroying the power of the trade unions. Although voluntary, not
statutory, organisations, trade unions distorted markets by intruding on their
natural operations – by, for instance, insisting people were paid more than
they were worth in ‘market terms’. The Conservative party in Britain, which
under Thatcher became a truly Hayekian organisation, dutifully destroyed the
power of trade unions.
However, the state as an entity never went away, and as the
Covid-19 crisis has shown it has proved more important to neoliberalism than few
can have imagined.
How low can you go?
The 2008 financial crisis was a major turning point. Not
only did governments use their power to bail out banks and corporations – which
under the law of the free market should have vanished – they instituted a regime
of ultra-low interest rates. At these historically unprecedented levels – never
going above 1% – they have two important effects. Firstly, they
preserve insolvent, hugely indebted companies by reducing the amount of
interest they have to pay on their debts. This is the polar opposite of the
approach of the Hayekian Thatcher to manufacturing industry in the Britain in
the early 1980s. She hiked interest rates – up to 15-17% – as a way of driving
trade union-heavy manufacturing industry to the wall.
Secondly, they make any recovery of the private sector
extremely difficult. Just as they make debts more affordable, ultra-low
interest rates discourage investment by ensuring the financial return on advanced
money is negligible (the tiny official bank rate was reflected in nominal
interest rates in the economy as a whole and Quantitative Easing programmes made
sure they stayed low). But in these circumstances, private companies naturally
eager to make profits had somewhere to turn – the government.
The two phases of
privatisation
In this they took advantage of the historic process of
privatisation, which aside from the onslaught on trade unions and deregulating
the economy, was the main way neoliberalism was implemented. In Britain, the
“great divestiture” of privatisation had two distinct phases. In its early
years privatisation was about simply transferring ownership of industries from
the state to the private sector. In this way, companies like Jaguar, BP, Cable
& Wireless, Rolls Royce, British Steel and even Thomas Cook were
denationalised and had to sink or swim in the private sector. While some
survived, others were taken over, heavily denuded (British Steel) or went bust
– as was the fate of Thomas Cook last year.
But privatisation soon became much more ambitious. From the
mid-1980s until now, it has been primarily about contracting out monopoly
services from the state to the private sector. The (very long) list includes
utilities (water, electricity etc.), railways, academy schools, NHS contracts,
air traffic control, the Royal Mail, local authority outsourcing and care
homes. Very often these services were funded – and continued to be funded – by
the government and, most importantly, could
not be allowed to cease to exist.
This very conditional privatisation was actually very
welcome to the large companies that won the contracts to provide these
services. They were anything but free markets zealots and were very glad for a
guaranteed profit stream in the context of private sector torpor. As noted by
health campaigner Allyson
Pollock some years ago in terms of NHS privatisation, “the private
health care industry is not interested in a purely private market. Its
interests lie in becoming for-profit providers in a basic health system funded
out of taxation.” An insight that could be applied across the board of modern
privatisation.
Hence, Britain has seen the grown of private companies – such
as Serco or Capita – that specialise in delivering public services. Potentially
everything in the public sector – GP services, benefit assessments, prisons, school
inspections, speed cameras, nuclear laboratories, early warning systems and
even the operation of spy
planes – was open to being run by the private sector on a contract
basis.
The hollowing out of the state in the name of putative private sector efficiency and ‘sound management’ (ho, ho) has occurred across the world. A 2004 profile of Lockheed Martin in the New York Times noted:
Lockheed Martin doesn’t run the
United States. But it does help run a breathtakingly big part of it. Over the
last decade, Lockheed, the nation's largest military contractor, has built a
formidable information-technology empire that now stretches from the Pentagon
to the post office. It sorts your mail and totals your taxes. It cuts Social
Security checks and counts the United States census. It runs space flights and
monitors air traffic.
In one sense, this was – from the point of view of
neoliberals – a welcome development that flowed naturally from the thinking of
pioneers like Hayek: the state was creating and protecting markets. But in
other ways, it had unforeseen consequences. Large oligopolies hoovered up
contracts – far from competition letting a thousand flowers bloom, three or
four companies – at most – reigned supreme. Competition, in the idealised
vision of Hayek, meant “decentralised planning by separate persons”, but in no
sense can the actually existing privatised state be described as decentralised
or involving people, as opposed to large corporate entities. Only big companies
had the resources to bid for government contracts and public sector monopolies
– the object of neoliberals’ enduring enmity – became private sector
oligopolies.
Secondly, democracy or government – the very thing
neoliberals wanted to restrict and limit in its ambitions – was essential to
the whole process of privatisation. Closeness to government was essential to
winning contracts and a revolving door between the private sector and elected
institutions and the civil service span permanently. This was an open door for
corruption and a distortion of democracy but it was of no interest to
neoliberals who were unconcerned about the distortion of something they didn’t
like in the first place.
They were however concerned about the private sector and
this became, thanks for the ultra-low interest rate regime, equally distorted.
It is not a widely known fact the Austrian school of free market economics (of
which Hayek and fellow neoliberal, Ludwig Mises, were the most prestigious
members) was intensely distrustful of low interests rates because it holds them
responsible for causing economic slumps (see the musings of former Tory and
UKIP MP Douglas
Carswell for a 21st century version).
But although low interest rates potentially increase the
amount of money circulating in the economy and make life easier for insolvent
companies by reducing the interest of their debt, they make it difficult to
make a profit on investments because the returns on offer are so low. The
alternative is either to go for riskier private sector investments or to seek
the security of government contracts which often offer double digit returns.
Since the financial crisis interest rates in Britain have
never gone above a half of one per cent and, since the coronavirus lockdown,
have been cut further – to 0.1%. This situation – in conjunction with the
Hayekian ideology of successive Conservative governments – goes a long way to
explaining the incompetence of the public response to the virus.
Useless and lethal
What was demanded was a smooth and joined up public health
response, involving local councils, that prioritised above all else the needs of
health workers and patients. What actually happened was a
labyrinthine mess of competitive tendering and outsourcing which
awarded contracts to large companies, like Deloitte and Serco that had no
expertise in what they were supposed to do. The result, apart from “cementing
the position of the private sector in the NHS supply chain”, has been a test
and trace system that won’t be “fully
operational” until September and a “useless”
system of delivering PPE to NHS staff. The deaths of hundreds of NHS and care
workers from the virus, many of them avoidable with proper PPE, as well as the highest
excess death rate in Europe – in part the consequence of inadequate
or non-existent PPE allowing the
virus to spread in hospitals – cannot be divorced from this farrago.
But this is likely to merely be a trial run for what is in
store. Against the backdrop of a huge fall in GDP of over 20%, the worst
projected economic downturn of all major economies and mounting unemployment,
the government will almost certainly proclaim a jettisoning of ‘ideological
presumptions’ and commit to an interventionist, state-driven economic policy. A
‘green industrial revolution’ will be announced, aiming to create jobs and
reskill millions of people.
Such a policy might even appear ‘socialist’ – a green
industrial revolution was obviously the centrepiece of Labour’s offer at the
last election – but the Conservative version will be careful to offer private
companies profit-making opportunities at every stage of the process. It will be
a like a souped-up version of the Work Programme. This can already be seen in
the free school meal voucher scheme – the one extended over the summer holidays
after the campaign by Marcus Rashford. A corporation – Edenred – is in charge
of the scheme, not local councils. Astonishingly, the same company has been
accused of “woeful”
preparation and failing
to send out vouchers to hundreds of thousands of parents who need them.
Facile comparison
This is why equating the current actions of the
Conservatives in Britain with the policies of Corbyn’s Labour at the 2019
election is facile. The superficial
resemblances – increased public spending, train nationalisation, a
green industrial revolution – betray fundamentally antagonistic philosophies.
This is not a question of one being enthusiastically statist
and other reluctantly so. It is matter of the Conservatives being committed to
constructing a statist shell underneath which a privatised bevy of
oligopolistic corporations running contracted out services are permitted to
make a level of profits which the fêted free market can no longer provide. Some
‘Corbynite’
policies, such as a ‘national care service’ and ensuring 100% high
speed broadband, would, it is true, have supplied a statist stimulus to the
private sector. But others such as renationalising the NHS and utilities like
water and electricity would have repealed the decades-long neoliberal hollowing
out of the state.
But this, as we know, will not happen. Instead state
neoliberalism, its intellectual roots now long forgotten, will continue its
long march.
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