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).
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.