Colin Crouch – The Strange Non-Death of Neo-Liberalism

by Henry on September 26, 2011

Cover note – over the next several months, I hope to review as many new books on the political economy of advanced industrialized societies post-2008 as I can. There is a lot of interesting work out being done which isn’t getting covered as well as it should in US public debate. Next up: Lane Kenworthy.

Conflict of interest warning: Although I’ve I’ve tried to review the book as though it were written by a complete stranger, Colin was effectively the co-supervisor of my dissertation and is a friend (albeit one whom I don’t see nearly enough of).

Colin Crouch – The Strange Non-Death of Neo-Liberalism (available from Powells, Amazon (deprecated)).

The Strange Non-Death of Neo-Liberalism looks at the prospects of neo-liberalism (which Crouch sees as claiming that “optimal outcomes will be achieved if the demand and supply for goods and services are allowed to adjust to each other through the price mechanism, without interference by government or other forces”) post-2008, and argues that they are pretty good. Even if neoliberalism should have been discredited, it is emerging more powerfully than ever, as states cut back welfare and public spending in the wake of the crisis. Crouch argues that neoliberalism, despite its claims, is effectively “devoted to the dominance of public life by the giant corporation.” What neo-liberals, and some leftists, see as a conflict between the market and the state is in fact an argument over how the two should relate to each other. Neoliberals are not pushing for free markets so much as a certain style of politics, which masquerades as a commitment to free markets, independent of politics, but in fact is an unhealthy hybridization of the two. To the extent that politics pervades markets, and markets pervades politics, both suffer.

Parts of this book didn’t convince me. In particular, its short history of the intellectual development of neoliberalism (which Crouch sees as bound up with the development of public choice economics and of Chicago style antitrust thinking) seemed to me to be sometimes off-key, and wrong on detail. For example, contra Crouch, the “University of Virginia” has never been a powerhouse of public choice thinking (at different moments in time, Virginia Tech, and George Mason University, located in Virginia have been central to the movement, but never UVa, to its detriment in the eyes of Republican governors. The major point (in Ronald Coase’s eyes) of his article on the problem of social cost, is not the demonstration that actors can solve their own problems without centralized authority in the absence of transaction costs – it is the fact that transaction costs are important.

But what are important are its key claims, which seem to me to be on much stronger ground. Crouch depicts classical liberalism and social democracy as mirror images of each other. Both are intensely suspicious of the intermediate zone where politics and markets influence each other, classical liberals because they fear that politics will distort markets, social democrats because they fear that markets will distort politics. But neoliberals have settled for solutions which greatly widen the zone of interaction. As neoliberals have been unable to convince the public that government should simply stop providing key collective goods, and instead leave them to the market, they have instead opted for intermediate arrangements, such as privatization (but with regulators) and the contracting out of government work.

This argument leads directly into a damning (and to me entirely convincing) indictment of the UK government’s privatization and ‘marketization’ of public services from Margaret Thatcher on. These have not created true markets. Instead, they have resulted in a kind of horrid chimera of government and private actor, with no obvious lines of accountability. The UK government turns to the private sector for project financing – but the private sector firm which leases the relevant facility back to the government has control for 20 or 30 years, under a fixed contract. “Long PFI contracts bring in private firms while limiting the role of the market, again demonstrating how the neoliberal policy shift is more about firms than about markets.” Lengthy chains of contracting and subcontracting relations mean that no-one is really accountable. The businesses who win these contracts win because they have a comparative advantage – in winning government contracts.

One consequence of this has been the emergence of a group of firms that have expanded their businesses to cover a wide range of public services. For example, firms that started as road-building contractors (where customers are almost entirely public authorities) have become providers of administrative support services to local government. The core business of these enterprises is winning government contracts, almost irrespective of the substantive activities involved.

Public bodies are made to act as though they were firms in the market, but without any real markets to provide discipline. Hence, one gets the worst of both worlds – a corrosion of professional norms and public accountability going hand in hand with weak, or non-existent market incentives to do things better.

The point here is not that these outcomes are logically entailed by market-friendly arguments. As Crouch implicitly suggests (he refers frequently to Williamson and others), one could use e.g. transaction cost economics to vigorously criticize this process of creating pseudo-markets. It is that, despite the rhetoric, practical neo-liberalism ends up being more about the advantage of firms than the extension of markets. This is not entirely surprising – while public choice economists may have changed the political debate about the role of government and regulation, they have done so in alliance with businesses which have their own agendas, which turn more on control of markets and profits than on any principled attachment to free markets. Inside every lean, hungry entrepreneur there is a bloated monopolist struggling to get out.

The second novel contribution is Crouch’s idea of privatized Keynesianism. This takes a reasonably well accepted observation – that consumer credit helped fuel growth in the last decade of the boom – and gives it a particular macro-economic policy twist. Crouch argues that “Keynesianism” (in the Peter Hall sense of the term) had advantages for business as well as workers – it provided both with economic stability. But when the turmoil of globalization began to roil advanced industrialized economies, the institutions of traditional Keynesianism had collapsed or been deliberately undermined. The reason that we saw less instability than we might have expected, was that consumer debt provided an accidental substitute.

Instead of governments taking on debt to stimulate the economy, individuals and families did so, including some rather poor ones.

Crouch argues that this explains why workers in the Anglo-American world were willing to maintain consumer confidence when their equivalents in many continental European countries were highly unwilling to spend. Rising house prices allowed the former to borrow money. At first this was accidental – it soon became a necessary condition for governments to do what they wanted to do. In a key paragraph, he argues:

The dependence of the democratic capitalist system on rising wages, a welfare state and government demand management that had seemed essential for mass consumer confidence has been withering away. The bases of prosperity shifted from the social democratic formula of working classes supported by government intervention to the neoliberal conservative one of banks, stock exchanges and financial markets. Ordinary people played their part, not as workers seeking to improve their situation through trade unions, legislation protecting employment rights and publicly funded social insurance schemes, but as debt-holders, participants in credit markets. This fundamental political shift was more profound than anything that could be produced by alternations between nominally social democratic and neoliberal conservative parties in government as the result of elections. It has imparted a fundamental rightward shift to the whole political spectrum, as the collective and individual interests of everyone are tied to the financial markets, which in their own operations act highly unequally, producing extreme concentrations of wealth.

More succinctly financial “irresponsibility became a collective good,” albeit a perverse one – no-one wanted the party to stop or the bezzle to be revealed.

As with most such books, the diagnosis is better spelled out than the prescription. Crouch argues that a return to the centralized state will not work – “it is impossible to envisage an economy that is not dominated by giant firms and in which they are unable to translate economic power into political influence … all use of the state as a check on or regulator of corporate power will be, at best, a matter of ‘two steps forward, one step back.’” Furthermore, the state itself is “an area within which individuals seek personal advantage and aggrandisement,” and democratic control, while important, is a blunt instrument. Crouch ends up calling for solutions drawing on civil society, “not because its organizations can in themselves be trusted any more than any other institutions managed by human beings, but because of its capacity to generate a genuine pluralism.” This seems to me to be on the right track (which is to say that I myself heartily agree with it), but also somewhat amorphous (which is to say that I, like Crouch, would like to have better and more specific recommendations). I understand from personal communications that he will be spelling out his arguments in greater detail in forthcoming work. Even without this answer, it’s a rich and powerful book. It pushes towards an analysis of neoliberalism not as the set of liberalizing forces that it depicts itself as being, but rather as a grouping of impulses that have both hampered government and weakened market competition.

{ 48 comments }

1

Rich Puchalsky 09.26.11 at 4:11 pm

“But what are important are its key claims, which seem to me to be on much stronger ground. Crouch depicts classical liberalism and social democracy as mirror images of each other. Both are intensely suspicious of the intermediate zone where politics and markets influence each other, classical liberals because they fear that politics will distort markets, social democrats because they fear that markets will distort politics. But neoliberals have settled for solutions which greatly widen the zone of interaction.”

I haven’t read the book, but is “widening the zone of interaction” really a distinguishing characteristic of neoliberalism? My impression was that the neoliberals (if you want to call them that) had so thoroughly won this ground that even social democrats now basically accede to it. For instance, the exchange with John Quiggin here. (Actually, I don’t know whether he thinks of himself as a social democrat, but I don’t think of him as a neoliberal).

2

Henry 09.26.11 at 4:40 pm

John certainly thinks of himself as a social democrat. I think that this is a very useful way of thinking about neoliberalism. To put it a slightly different way, Crouch’s argument is that neoliberalism has been trading for a long time on the benefits of standard free market liberalism, some of which are real (markets can do good things), some of which purported. Crouch’s move here is to say – well let’s put these abstract claims about free market awesomeness to one side, and see what we actually get from neoliberalism. In fact, it is not free markets with vigorous competition among producers, but instead, a mixture of big firm oligopoly and cosy and frequently corrupt relationships between state officials, who have been told to subcontract out parts of government, and the businesses which supply these new services, in what is at best a murky approximation to a real marketplace. You can read this as a statement that classical liberalism has some good points as well as some bad ones. You can equally well read it as saying (and this is the more fundamental point), that regardless of whether or not classical realism had some good arguments, these don’t have anything much to do with actually-existing-neoliberalism which is a crony capitalist fantasy.

3

Sebastian 09.26.11 at 5:33 pm

It is interestingly close to the libertarian critique, though I probably shouldn’t say that as people might stop listening. Ideally, the government is well positioned to police things like safety standards, true monopolies, false advertising, etc without getting too cozy. That is market enabling. Much of what passes for neo-liberal is really crony protection–where the competition isn’t for consumers, but for which firm gets to have the government dictate the winner.

4

Bruce Wilder 09.26.11 at 5:43 pm

I tend to think neo-liberalism derives a good deal of its intellectual legitimacy from the deficiencies of mainstream Economics, in general, and not Chicago, in particular, but it derives its intellectual energy from adopting the Chicago-style libertarians as interlocuters. Macroeconomics is in a particularly advanced state of decay, because of the three-way truce among RBC, New Classicals and New Keynesians, in which the last have been castrated, by their acceptance of the methods and agenda of the former two. This is not really anything new, conservatives have been winning the battle for Economics, on the field of methodology, at least since the Marginal Revolution of the 19th century. From Pareto efficiency down to the Lucas Critique, conservatives win because of their militancy over defining “rigor”, and their consequent ability to exclude a broad range of viewpoints and results from the circle of orthodox legitimacy, and with it, grants of status and institutional funding.

The success of the conservatives in the marketplace of ideas, so-called, within academia and institutions of public policy support, is almost certainly due more to institutional sources of funding, than other factors. Neo-liberalism has made itself useful as an interlocuter, and as an alternative “party” for the same sources of funding. It is that institutional funding base, which accounts for the resilience of both libertarians and neo-liberals in the community of public policy advocates, critics and entrepreneurs. Neither derives from, nor finds a broadbase of mass identification with the political ideas. An “history of ideas” should follow the money, if it wants to find the thread.

The very fact that we are discussing “markets and politics” here, in the 21st friggin’ century, is a certain mark of the perverse triumph of the “economics of the market” in an economy, which is anything but. Over half of the American labor force works for organizations employing over 100 people. Actual markets in the American economy are extremely rare and unusual beasts. An economics of markets ought to be regarded as generally useful as a biology of cephalopods, amid the living world of bones and shells. But, somehow the idealized, metaphoric market is substituted as an analytic mask, laid across a vast variety of economic relations and relationships, obscuring every important feature of what actually is. And, then we wonder why the “thinking” and policy debates that result are stupid and corrupt.

What’s remarkable is not that neo-liberalism, as well-watered (and shall we also say, well-fertilized?) as it is, lives; what is remarkable, intellectually, is how difficult it has been to resuscitate institutionalism, post-Samuelson. Oliver Williamson and Public Choice theory are like some withered, crabbed pines at the edge of a vast, empty desert. Economics clings to mathematical idealism and what was referred to, in another recent post, as the two-step of ““two-step of terrific triviality”, aggressively venturing “rational-behavior” explanations of an epistemologically very weak kind for all kinds of observed behavior (see Freakonomics), and then retreating into the hard-shell of only minor tweaks to the high-rationality of perfect and complete information, to do foundational theory.

The Left, particularly the social democratic left, might ask itself why it has no institutionalism, ready for popular consumption and public policy analyses. What are the intellectual foundations of that failure? Attributing the rightward drive of American politics to the decline of trade unions is attributing the success of the conservative movement to the success of the conservative movement. Recognizing the importance of institutions only in the successes of your opponents in alternately building, destroying or taking over and subverting institutions, seems, at the very least, belated.

5

P O'Neill 09.26.11 at 6:59 pm

This point repeats one I made on CB’s contradictory beliefs thread, but the financialization of market-state interactions — both a borrower and a lender be — as the story for Anglophone countries needs a companion for other European countries. Specifically, are Italy and Greece mirror images of the Anglophone syndrome, where the consumer base was maintained in the face of productivity decline not though house flipping and paper profits, but public debt? If so, then we are putting too much weight on neoliberalism as the manifestation of market encroachment, as opposed to understanding a number of different phenomena including neoliberalism but also public debt burden as reflecting absence of broad-based growth drivers, margins that have been exhausted (e.g. labor force participation) and pressures of international trade — to which different countries have responded in different ways.

6

Henri Vieuxtemps 09.26.11 at 7:14 pm

It’s awfully hard to build/modify institutions in this manner. It takes a deliberate effort and it happens infrequently, all the while the economic system keeps eroding these changes constantly and relentlessly. You’re probably better off making, as they say, a clean slate of the past, changing the foundation.

7

John Quiggin 09.26.11 at 7:16 pm

I had some thoughts on neoliberalism which seem fairly similar to Crouch’s starting point
http://johnquiggin.com/2008/09/27/neoliberalism-defined/

It’s obvious that, relative to C19 socialism and classical liberalism, both social democracy and neoliberalism have given a lot of ground. The neoliberals have, at least outside the US, accepted the need to either preserve the welfare state or match its achievements, while social democrats have
(a) deferred into an indefinite future any prospect of ending capitalism, accepting instead a mixed economy
(b) accepted that even in areas of the economy where capitalism has been displaced, markets and prices will still often have a role to play.

Speaking only for myself, I have abandoned any general belief in the efficacy of central planning, and that’s reflected in my support for carbon prices. On the other hand, I agree entirely with Bruce Wilder that this doesn’t mean that markets necessarily outperform large organizations, whether these are private corporations or government agencies, merely that the advantages these organizations possess are essentially unrelated to the content of their strategic plans and mission statements.

8

Paul Gottlieb 09.26.11 at 7:26 pm

Forgive an ignorant American who can’t tell one Brit from another, but are Colin Crouch the economist and Colin Crouch the chess writer the same person?

9

Barry 09.26.11 at 8:04 pm

IMHO, a simpler theory is that neoliberalism was always primarily about redistribution of wealth upwards. The harsh side of the free market was directed at the non-elites, while the elites got crony capitalism.

And I feel that this has been confirmed of the past decade or so, as neoliberalism has repeatedly failed at its stated goals, with neoliberals seeming to have no problem with the actual results.

10

Joan crouch 09.26.11 at 8:13 pm

The Colin Crouch,to whom I am married, is neither an economist nor a chess player. He is a sociologist and he did write The strange non death…………

11

SamChevre 09.26.11 at 8:48 pm

are Italy and Greece mirror images of the Anglophone syndrome, where the consumer base was maintained in the face of productivity decline not though house flipping and paper profits, but public debt? If so, then we are putting too much weight on neoliberalism as the manifestation of market encroachment, as opposed to understanding a number of different phenomena including neoliberalism but also public debt burden as reflecting absence of broad-based growth drivers, margins that have been exhausted (e.g. labor force participation) and pressures of international trade—to which different countries have responded in different ways.

Entirely off-topic, but this is the question I have. (I’m also inclined to see the US’ falling wages,a nd France/Germany’s increasing unemployment, int he 1980-200 timeframe as part fo the same phenomenon.)

12

temp 09.26.11 at 8:53 pm

When the banks oppose regulation they make market-liberal arguments. When the banks want to get bailed out by the state they abandon these arguments and talk about stability instead. What matters is that the banks always win. If neoliberals always succeed precisely to the extent that their success advances the interests of powerful corporations, what causative role are they supposed to play?

In other words, isn’t what is called “practical neoliberalism” just the natural result of the increased influence of money on the political system? What additional explanatory power do you get by talking about ideology?

13

michael e sullivan 09.26.11 at 9:31 pm

“As neoliberals have been unable to convince the public that government should simply stop providing key collective goods, and instead leave them to the market, they have instead opted for intermediate arrangements, such as privatization (but with regulators) and the contracting out of government work.”

This is a revealing statement that explains a lot of why I have often been very confused about the debate between you and Matt Yglesias. I’m pretty sure when Matt Y (and pretty much anybody else who can reasonably consider themselves a part of the progressive coalition) refers to himself as a “neoliberal” he doesn’t mean anything like this.

I definitely believe there is a line to draw between those of us who tend to prefer market solutions where feasible, and those who are largely suspicious of the market from the get go. But, I always thought that we were all pretty much in agreement about the ability and wisdom of government provided social insurance (SS, Medicare, *some* brand of universal health coverage, unemployment, disability, etc.), even if we had a few differences on the details. There’s no desire from anyone I would count as any sort of liberal, neo, classical or otherwise to eliminate these functions.

Even for services I don’t think government should be involved in, it’s obvious to me that many of the current methods of “privatization” are much worse than half-measures, instead sharing the problems of both government and market, while reaping the benefits of neither. Privatize the profits and socialize the losses seems to be the standard way of doing business. I can’t imagine that there are still honest brokers encouraging this kind of arrangement from anything other than a corporatist world-view.

Now maybe you mean to use “neoliberal” for a kind of centrist corporatist view, and not what I see as a free market liberal[1] one such as what I read from say, MY, PK or Dean Baker. In which case, perhaps Matt Y should stop taking the bait and offering himself up as a neoliberal for you to debate.

It would seem to me that the people who best fit your description are not involved in the progressive blogosphere or movement at all but instead are mostly republican voters, DINOs, journalists, and other fans of the Pete Peterson foundation for scr3wing the poor and aged while keeping rich guys’ taxes low.

[fn1] for values of “free market” that include actually wanting freer markets, as opposed to using the words as an applause light to support pretty much any random resource grabbing scheme.

14

Rich Puchalsky 09.26.11 at 9:35 pm

“Speaking only for myself, I have abandoned any general belief in the efficacy of central planning, and that’s reflected in my support for carbon prices. “

Well, it worked for the Montreal Protocol.. There’s a big difference between saying that you’re going to run a whole economy on central planning, complete with forecasting demand for all sorts of products, and between saying “We are now going to eliminate product X and replace it with something else.” Especially when there are only a few large-scale users of the product — there are many cars, houses, and so on but very few coal-burning electric power plants, gasoline refineries, and so on that serve as intermediaries for all of the small-scale users of electricity and fuel, and they are essentially government controlled already. I think that social democrats have given up too much ground in that area.

15

Bruce Wilder 09.26.11 at 9:37 pm

@7: “I agree entirely with Bruce Wilder that this doesn’t mean that markets necessarily outperform large organizations, whether these are private corporations or government agencies, merely that the advantages these organizations possess are essentially unrelated to the content of their strategic plans and mission statements.”

There’s a syntax I think of as peculiar to Crooked Timber, exemplified in the above sentence, which I find nearly impenetrable. I suppose I should be flattered to find Quiggin agreeing with me as I respect his work and opinions, but, for the life of me, I cannot pin down what he means, by “advantages . . . unrelated to the content of their strategic plans”. It makes my head spin.

I do sometimes argue that the static allocative efficiency of markets, which economists traditionally focus their attention on, is less important in practice than the dynamic technical efficiency of adminstrative organization and technology-embedding capital. And, I am wont to point out, for example, that the recent breakdowns in mortgage origination and mortgage-backed securitization were, at their cores, breakdowns in administrative processes and procedures; as such, trying to force these square pegs into the roundholes of the canonical catalog of “market failures” risks misunderstanding the problems and mis-prescribing remedies.

In the comment above, though, I was using a much broader form of this complaint. (I really only have the one opinion; it’s just a very elaborate opinion.) I wasn’t saying that adminstrative organizations have advantages over markets. I was saying that the implicit neoliberal claim that markets exist, is, itself, objectively false in many cases, where neoliberals advocate “market-friendly” or “market-oriented” policy. There’s no actual market there. We are so used to the market as metaphor, we cease to recognize that it is a metaphor (and not a very good one, in many cases).

Markets — actual markets — exist, but they are rare. There are financial markets, commodity markets and auction markets, but most of us don’t have much contact with these. We go to the supermarket, and that is a definitely a metaphoric use of “market”. In most of our economic interactions, price is not a variable optimally digesting information and resolving conflict, it is a strategic instrument, held fixed as part of a scheme of administrative control and information discovery.

I am not making a claim about the efficacy of central planning. I am making a claim about the Hayekian vision of an economy radically decentralized by markets — I claim that it is a lie. Hayek lied about the feasible set of responses about to the problems of limited knowledge and information. He asserts that markets can overcome these problems, optimally. It is the origin of “the two-step of terrific triviality”, in which claims of weak rationality by individual actors in constrained optimization alternates with claims of super-rationality for “market” players engaged, supposedly, in global optimization.

It is not possible to deductively model the optimal response to incomplete information. The inability to arrive at an optimal solution by deductive means is what defines incomplete information. The insistence on exclusive reliance on deductive methods is what leads back, again and again, to super-rationality. The real world of practical attempts is imperfect, but it will be the real world of imperfect attempts. In that world — the real world — global maximization of profit cannot be defined. All rational maximization is constrained maximization, which is to say, constrained by rules.

The actual, decentralized “market” economy is not coordinated primarily by market prices — it is coordinated by rules. The dominant relationships among actors is not one of market exchange at price, but of contract: implicit or explicit, incomplete and contingent. (Yeah I know incomplete and contingent is contradictory in the abstract, but all actual contracts are both; welcome to the messiness of the real world.) The contingencies are the important incentive feature, not the marginal rate of income. You take a job, and the risk of being fired (or promoted) is what shapes your behavior.

Rules rule, you might say, even in the absence of central planning. The rules of game, whether in actual markets or metaphoric markets, are what constitute the game as a game, and those rules are a public good, whether the state does an adequate job of making and enforcing good rules or not.

The political process has to produce the public good of rules for economic interaction. There’s no option or alternative, where rules are not instituted. The only questions are whether the rules will be fair and the process they institute, dynamically efficient, in resolving conflict and organizing cooperation.

Neoliberalism, it seems to me, uses the myth of the market, to rationalize rule-making, which serves the rentiers (is dynamically inefficient) and which promotes authoritarian, and therefore unfair, resolution of conflict.

16

William Timberman 09.26.11 at 10:27 pm

Bruce Wilder @ 15

As elaborate opinions go, that has got to be the one of the most succinct statements of the fundamental neo-liberal self-deception that I’ve ever read. Few of us here are deceived, of course, but even fewer of us could say why with such eloquence.

17

hopkin 09.26.11 at 10:29 pm

I agree with SamChevre that the argument doesn’t seem to apply to Italy and Greece, or indeed much of the Eurozone. It’s a very Anglo-Saxon take on neoliberalism. What has happened in all advanced countries is some kind of defeat of the workers’ movement, broadly understood, in favour of conservative interests. In the UK and US this takes the form Crouch describes, in Italy it took the form of following retrenchment policies paid for exclusively by the lower orders, in Germany wage stagnation and dualization of the labour market.

The story is the end of easy growth, and the inability of the left to develop any coherent response to it. Whether or not the right expresses its triumph through neoliberalism or protectionist patrimonialism depends on local conditions.

18

William Timberman 09.26.11 at 10:38 pm

Unintentional ambiguities department: For statements in my previous comment (@ 16), please read exposés.

19

Sandwichman 09.27.11 at 12:40 am

On the University of Virginia “never being a power house” on public choice, while that might be technically correct I would refer readers to Steven Medema’s account in The Hesitant Hand: Taming Self Interest in the History of Economic Ideas of how “Public choice emerged out of the Virginia Political Economy tradition that began to crystallize in the late 1950s through the founding by Buchanan and G. Warren Nutter, of the Thomas Jefferson Center for Studies in Political Economy at the University of Virginia. So the difference might be between being a power house and beginning to crystallize?

At any rate, Medema’s book is great. I don’t know if it will do any good to drive a stake through the Coasian “microfoundations” of the neoliberal pastiche, but I’ll try. As Medema makes clear Coase’s analysis is not such a radical departure from Pigou’s own perspective (at least on so-called externalities). What he challenged was the “Pigouvian tradition,” which took Pigou’s prima facie case for government intervention to mean “open and shut” rather than at first appearance.

What I find significant is that both Coase and that Pigouvian tradition in neoclassical welfare economics only dealt with the issues Pigou raised in Part II of Economics of Welfare. They ignored the more important issues of working conditions and labor quality in Part III. That is a big, big oversight, especially when it comes to incorporating a “production function” into a macroeconomic model.

Donald Stabile wrote in the 1990s about another legacy of Pigou welfare economics, in John Maurice Clark’s Institutionalist economics of social overhead costs of labor but somehow his rectification hasn’t taken hold (except with the Sandwichman). Maybe Stabile buried his lede? Or maybe it’s just too much for economists to handle all at once that there was a Part III as well as a Part II to Economics of Welfare. Whatever, Sandwichman is having another kick at the Pigouvian/Coasian can in a multi-part post titled “The Problem with the Problem of Social Cost.”

20

John Quiggin 09.27.11 at 12:59 am

@Bruce, I have to admit I have the exact same feeling responding to you. It’s obvious that we agree down to fairly marginal details, but I feel as if I’m translating everything from a second language. Since you say you find my writing to be something peculiar to CT, I guess you must feel the same, and also that your own way of writing is natural in the community you normally inhabit.

I don’t mean this in any critical way – I have gained quite a bit from reading your comments, even as I find our frequent mutual incomprehension to be frustrating. I guess we should both keep trying.

21

The Heretik 09.27.11 at 1:52 am

Just a comment on the UVa powerhouse. Having attended what locals would call The University, I resisted a draft into the Poltical and Social Thought Program headed by Dante Germino. He liked me, I liked him. I liked his program for what it was. But it was not me. It was, however, in many ways a forerunner (in those hedonistic Seventies) to what is running around now.

You can google Germino. He was a great mind. And a great guy. With all kinds of insights on all kinds of philosophical personas. Who else would name one of his five kids Ruskin?

In all of the sound and fury, still I remember a quote from his course which has stayed with me still (and which I think I plugged into a final essay exam), “The owl of Minerva only flies when dusk is falling.”

I think that is Hegel, he of the dialectic, the union of what is and is not. Which is more than enough for me.

22

john c. halasz 09.27.11 at 2:00 am

Umm…I don’t think there is actually anything new here. For any one who has been observing the rise of what now, perhaps thankfully, we can agree on calling “neo-liberalism”, lo!, these past 30 years or so, it was clear that a) it was a basic, if successive, response to the crisis in capitalist production and profits, and b) that the appeal to “free markets”, with the accompanying ideological motifs of individual freedom and opportunity, entrepreneurship, and competitive dynamics, was actually a stalking horse for oligopolistic corporate and financial rent-seeking, aligned both with the arbitrage opportunities of financialized, global “free trade” and with the fomenting of social reactionary support for the effects thereof. That then governmental/political processes became successively captured by such rent-seeking, financialized corporate interests is hardly surprising. Follow the money into the conversions between economic and political power, which itself is hardly new, and the formation of schemes to fund both political parties and corporate objectives is obvious, though “crony capitalism” is hardly sufficient to describe the conversion of public functions into private means, (which is especially nefarious in privatizing the functions of sovereign violence, via mercenaries and prison systems). I’m not sure why we need academics then to mind the p’s and q’s, except as glorified street-sweepers.

23

Tim Worstall 09.27.11 at 9:13 am

“these don’t have anything much to do with actually-existing-neoliberalism which is a crony capitalist fantasy.”

Just to report in from the wilder shores of neo-liberalism: well, quite. The problem with neo-liberalism is that it just isn’t classically liberal enough. Smith’s bit about “businessmen seldom gather together except” seems to get lost.

Thus endeth the report from the lunatic fringe.

24

Cahal 09.27.11 at 11:47 am

Yes I think many ‘classical liberals’ have fallen off a cliff by knee-jerkily denying a positive role for government whenever a policy proposal is mentioned. Antitrust laws, for example, have undoubtedly stopped a fair amount of monopolistic behaviour since their introduction at the turn of the 19th century. Similarly, tight banking regulations are clearly needed now (if only as a short term solution), but many classical liberals deny this.

25

Sebastian 09.27.11 at 3:47 pm

A big part of the problem is that many of the streams of pro-government thought just do not want to deeply deal with the intense problems of regulatory capture. You don’t have to be a full fledged libertarian to appreciate that the libertarian insight (that government very very often gets used as a club by existing businessmen to try to destroy their competition) really needs to be taken into account a lot more than it is. Neo-liberalism (as described) just ignores a vast swath of regulatory capture/public choice problems.

26

Sebastian 09.27.11 at 3:49 pm

To be clearer–neo-liberalism (as described) assumes that a public-private partnership automatically has the virtues of the free market spurring innovation and driving down costs. But because of various capture mechanisms and public choices problems, that rarely happens in reality.

27

Frank in midtown 09.27.11 at 4:09 pm

I would direct your attention back to the market place of ideas and the “failure” of communism as a competitor. The last 30 years have seen a rolling back of the competitive features of the capitalist’s offering. Neo-liberalism is merely the cover our left wing created for itself in the face of the inevitability of the changed offering. It’s like the U.S.’s current budget “crisis.” It is inevitable that the deficit is going to come down, so the politicians are all fighting to “own” the result.

28

elm 09.27.11 at 4:46 pm

“pro-government thought”

Thanks, that well was insufficiently poisoned.

29

E.D. Kain 09.27.11 at 6:15 pm

This is excellent, Henry. I may have to read the book. I am a bit unclear on what you or Crouch mean by “turn to civil society” – what parts of civil society? Are we talking about rebuilding failing institutions? Unions? What?

30

R.Mutt 09.27.11 at 6:57 pm

Is this the same Colin Crouch who wrote How to Defend in Chess? That was very good, I thought.

31

Pithlord 09.27.11 at 10:50 pm

Talk about wars with straw. Crony capitalism is an old story, and it is hardly what self-identified neo-liberals defend.

The problem is that “neo-liberalism” is just a leftist swear word. It means whatever is pissing you off right now.

32

Cahal 09.27.11 at 11:45 pm

Pithlord,

We have been following neoliberal policy prescriptions for a fair few decades and the result has been unprecedented crony capitalism. You may not think you advocate it, but your inability to consider power structures and insistance on think in abstract theory (e.g. framing everything as ‘governments versus markets’) is what brought us here, in the real world.

Neoliberalism isn’t a leftist swear word. It doesn’t mean whatever is pissing you off right now. It means privatisation, deregulation, tax and spending cuts, union busting and free trade.

33

reason 09.28.11 at 8:15 am

@32
Very good.

I might add that the argument shouldn’t have been whether to regulate or not (the market IS regulation), it should have been what does good regulation look like, and what is bad regulation. Making whole categories of necessary things, (government, regulation, redistribution, taxes) have negative connotation per se, is how we got in this mess. We need to be less ideological and more pragmatic.

34

reason 09.28.11 at 8:18 am

Making whole categories of necessary things, (government, regulation, redistribution, taxes) have negative connotation per se….
P.S. Some on the left play the same game (replace government with markets, companies, banks etc). We need to start thinking again about how to IMPROVE things, not just destroy them.

35

Barry 09.28.11 at 12:01 pm

Pithlord:

“The problem is that “neo-liberalism” is just a leftist swear word. It means whatever is pissing you off right now.”

For one example, Brad DeLong proudly claimed that title (and also had at least one post a couple of years back on the failed assumptions of neoliberal economics).

36

c.l. ball 09.28.11 at 3:04 pm

Like @22 & @23 I wonder how much of the second thesis is new. The real question is whether politicians and policy entrepeneurs realized they were creating a basterdized system, which honest neo-lib analysis should have revealed, or whether there is a genuine unintended effect – pluralist democratic politics generated a compromise between neo-lib & SD that mixed both badly.

If the latter, civil society-based solutions may have a chance. If the former, SD needs an electoral solution.

As far as Coase goes, anyone who has read the “Nature of the Firm” has to wonder how claims of market superiority can explain large corporations existing.

37

Bruce Wilder 09.28.11 at 5:20 pm

As to the economics, it seems to me that the abstract ideal of the perfectly competitive market — and the related “market failures” framework — drive much of what neoliberals do. It is actually how they “think”, plus it is a frame of legitimacy, within which they rationalize their proposals — a frame into which enormous pedagogical and propaganda resources have been invested. It is also utter crap, and a Big Lie, to boot.

The political debate has devolved from Liberal (conservative) v. Social Democrat (American “liberal” or “progressive”) into Libertarian (conservative) v. Neo-Liberal (conservative), because there are few resources and fewer convictions in the “Social Democrat” camp.

In the American historical political context, civil society-based solutions to the problem of rising corporate and plutocratic power formed much of the history of the late 19th and the first half of the 20th century. The Progressives built an elaborate superstructure of regulatory institutions in government as a counter-vailing power. The professions, with their technical standards and professional ethics, were another check. Business enterprise organized on a mutual basis — the Savings and Loans, mutual insurance — were still another check.

Basic principles of taxation — confiscatory inheritance taxes and high rates of marginal income tax — were designed to undermine the accumulation of resources by an elite with aristocratic pretensions.

It seems to me that in the moment of their triumph, circa 1970 or so in the U.S., that the Social Democratic spirit forgot entirely what they were about. All conviction, all sense of institutional foundation, was lost. It just ran out, like sand from a broken hour glass. Revolution had given way to reform, and all the good sense, imagination and just anger in that revolutionary spirit was spent. Class warfare went on, after 1970, but with only one class fighting.

Social Democracy needs to find its bloodlust.

38

reason 09.29.11 at 7:41 am

Bruce,
I disagree, unusually, completely here. The New Deal saved capitalism, it wasn’t revolution, it was reform pre-empting revolution. What happened was the 70s stagflation. There were a number of approximate causes (Vietnam, The Shah, unions). But this gave the other side (in the form of Volker, Reagan) their first tangable success in living memory.

That the mountain of progressive attainments fade into memory and this minor success is all that remains is an stain of the character of the US population. I always find it hard to understand that so many people think the 70s (hey, I lived through them – with hardly a scratch) are worse than what we have today. Nuts.

39

Henri Vieuxtemps 09.29.11 at 10:15 am

It seems to me that in the moment of their triumph, circa 1970 or so in the U.S., that the Social Democratic spirit forgot entirely what they were about.

What do you mean ‘forgot’? It was squashed. 1968 democratic convention, cointelpro, and so on.

40

roger 09.29.11 at 12:01 pm

I have some problem with the forgetting narrative myself. And also with the idea that reform was crushed by the cops. The latter applies to the McCarthyite 50s, but not, I think, the 70s. Instead, I’d nominate the unexpected consequences of success thesis, in which the classes that benefited from the New Deal/Great society structure turned to aggrandize their success by such mechanisms as would guarantee their own social and economic positions while turning back the threats to those positions that any new program, any new form of state supported upward social mobility, would bring. Although that broad story encompasses many mini-narratives – for instance, the creation of a secure and insulated academia that allowed many people to both adopt radical beliefs and never have to enact them or even pay too high a price for them – which turned radicalism into a hobby, where it once posed a danger. There’s the mini-narrative too, of the inability of unions to perceive their interest in actually coopting young people in the sixties and seventies, rather than becoming the tool of reactionary element that was waiting to stab the unions in the back. Or even to this day, where a 33 percent unemployment rate among the 20-29 year old set seems to have gone by the unions totally unremarked. Thus, instead of forgetting, I am thinking the story is about insulating mechanisms generated within an enormously prosperous economy that slowly isolate, trivialize, and demoralize oppositional politics, in the face of highly motivated position keepers. This is sort of the next act after Polanyi’s double movement.

41

chris 09.29.11 at 12:49 pm

“pro-government thought”

Thanks, that well was insufficiently poisoned.

Actually, I think there’s an important point here, just not the one Sebastian thought he was making. People who are categorically anti-government tend to assume that their opponents are categorically pro-government, but in fact, this is a strawman. Their *actual* opposition has already (indeed, long since) arrived at the Hegelian synthesis of the simplistic pro and simplistic anti positions: evaluating specific government programs/actions on their individual merits and accepting, rejecting, or proposing modifications to them accordingly.

People whose minds are not comfortable with complexity also tend not to attribute complex positions to their opponents, even when their opponents actually hold complex positions. So of course “they” must just be “pro-government”, even if they’re not.

P.S. on unions: they seem to be vulnerable to slipping into a sort of crabs-in-a-bucket behavior where they try to take care of their own individual members at the expense of other workers or potential workers. Anti-immigrant sentiment, for example, is disturbingly common.

42

Henri Vieuxtemps 09.29.11 at 1:30 pm

OK, so there was also a carrot, fair enough. Still, just looking at a graph of incarceration rates, it’s pretty clear that in 1973-74 they made a decision to turn the screws.

43

Sandwichman 09.29.11 at 1:33 pm

“People whose minds are not comfortable with complexity also tend not to attribute complex positions to their opponents, even when their opponents actually hold complex positions.”

Yes! I’m stealing that. Or, maybe as amended: “people with simplistic positions tend to attribute simplistic positions to their opponents.”

44

Sandwichman 09.29.11 at 1:38 pm

Or “people who habitually attribute simplistic ideas to their opponents do so because they can’t handle complexity.”

45

Rich Puchalsky 09.29.11 at 1:54 pm

“P.S. on unions: they seem to be vulnerable to slipping into a sort of crabs-in-a-bucket behavior where they try to take care of their own individual members at the expense of other workers or potential workers. Anti-immigrant sentiment, for example, is disturbingly common.”

That’s kind of ahistorical when it comes to U.S. unions. In many cases, the racism came first, and the “disturbingly common” anti-immigrant sentiment is a remnant of it. I remember as a naive young environmentalist working with black people who were organizing against air pollution in their neighborhoods in East St. Louis. I asked why they didn’t work with the unions at the local plants producing the pollution. And it turned out that the major historical function of the unions, from their point of view, was to keep black people away from the good jobs, even while housing discrimination kept black people in the polluted neighborhoods.

46

reason 09.30.11 at 7:29 am

Sandwichman,
The formulation in #44 is definitely worse than that in #43. It should be obvious why if you use formal logic. #44 implies that the accusation of (excessive?) simplicity is always false whereas #43 is conditional (on having simplictic ideas themselves). Hypocritical criticism is often projection, criticism isn’t always projection.

47

Sandwichman 09.30.11 at 3:43 pm

Reason,
But the adverb ‘habitually’ makes #44 conditional too.

48

chris 10.03.11 at 3:52 am

@Sandwichman:

ISTM that there’s great cosmic humor in your simplification of my idea about how people simplify other people’s ideas, but I can’t quite tell whether you’re making the joke or whether the joke is on you.

Anyway, I think your first simplification is already missing something important: people don’t just happen to have simplistic positions. Simplistic positions, almost by definition, fit the facts poorly, so people are most likely to arrive at them when they have a strong a priori bias toward simplicity, strong enough that it prevails over accuracy. To refer to them simply (ha) as “people with simplistic positions” conceals that fact, as if positions were assigned to people without regard to those people’s preexisting personality traits, perspectives, etc. That only happens in debate class, not in real world opinion formation.

Which actually leads rather nicely into the real (IMO) reason for neoliberalism’s undeserved nondeath: a substantial number of people are paid rather well to keep it alive. The merits of a position are one factor, but only one factor, in its fortunes in a society’s opinions. It is for this reason that “zombie ideas”, while catchy, is a bit of a misnomer; refutation isn’t a fatal blow in the metaphorical arena of opinions.

Ideally, science is supposed to value factual proof or disproof more, and other reasons to believe less, than other fields of opinion formation, and if that ideal were perfectly observed, refutation really would be a deathblow and the defeated idea would just collapse.

But that ideal is not always lived up to even in science; in politics it’s often not even paid lip service (while in other fields like religion, rejecting attempts to disprove your beliefs no matter how well supported by evidence they appear is actually regarded as a virtue). And if that ideal is considered the defining characteristic of science, then the evidence appears to show that economics as it is actually practiced in current human civilization is not a science, and likely never will be.

Discredited economic theories do not go the way of the luminiferous ether because too many people have too many other reasons to favor particular economic theories, whereas nobody really cared much about the luminiferous ether once it turned out to no longer be useful for explaining natural phenomena. ISTM that this may apply to the social sciences generally. (At this point I am obliged to rain on my own parade and observe that this suggests nothing good about the longterm prospects of delivering public discourse from the scourge of simplistic strawmen, either. The project of instilling respect for the complexity of discourse opponents’ opinions is likely to appeal only to those who value, or at least don’t fear, complexity a priori.)

In other words, in any field where many people care more about reaching the result they like than reaching the result that is true, a scientific approach is the precise opposite of their preferences and, therefore, will be unpopular.

Also, for the record: my previous comment was supposed to show two levels of quoting, but I didn’t format it correctly to produce that effect. The first two lines displayed belong to Sebastian and elm respectively and my text starts (rather immodestly, I see in hindsight) with “Actually”.

P.S. If you notice some words oddly run together, I removed some hyphens at the last minute to ward off the dread inadvertent automatic strikethrough. I hope it works.

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