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May the source be with you, but remember the KISS principle ;-)
Bigger doesn't imply better. Bigger often is a sign of obesity, of lost control, of overcomplexity, of cancerous cells
It is not only by dint of lying to others, but also of lying to ourselves, that we cease to notice that we are lying.
– Marcel Proust
Friedrich Hayek was an unusual character. Although well known to be a libertarian political philosopher, he is also commonly associated with being an economist. And it’s certainly true that at one time Hayek’s focus was solely on economics. In the 1920s Hayek was still within the fold of pure economics, publishing papers and works that were taken seriously by the discipline. However, by the 1930s Hayek’s theories had started to come apart at the seams. Exchanges between Hayek and John Maynard Keynes and Piero Sraffa show Hayek as confused and even somewhat desperate. It was around this time that Hayek discontinued making any substantial contributions to economics. Not coincidentally this overlapped with the time when most economies, mired as in Great Depression, demonstrated that Hayek’s theories were at best impractical, at worst a complete perversion of facts.
So, Hayek turned instead to constructing political philosophies and honing a metaphysics rather than engaging in any substantial way with the new economics that was emerging. When pure logic and empirical reality ceased to support Hayek’s emotionally charged ideology he turned, to the more malleable sphere of meaning and metaphysics. He became concerned with watery terms like “freedom” and “liberty”, which he then set out to impregnate with a meaning that would support his dreams. The most famous result of this period of conversion, which resembled less St. Paul on the road to Damascus and more so an alcoholic who had hit rock bottom, was Hayek’s 1944 work The Road to Serfdom. In a very real way it was this book that marked the close of Hayek’s career as a serious economic thinker and set him on the path of the political propagandist, agitator and organiser.
The over-arching argument of the book is well-known and need not be repeated too extensively here. Hayek thought that all totalitarianisms had their origins in forms of economic planning. Economic planning was the cause of totalitarianism for Hayek, rather than the being just a feature of it. Underneath it all this was a rather crude argument. One may as well make the observation that totalitarianism was often accompanied by arms build-up, therefore arms build-ups “cause” totalitarianism. But Hayek pushed it and most probably believed it anyway, for reasons that we shall soon see.
The implicit argument here was that, Britain for example, which had begun to increasingly plan its economy during the war, was on a slippery slope that would end in totalitarianism. It must be understood that Hayek’s argument had no factual basis. Only a polemicist could argue that the two totalitarianisms that existed in this period – namely, Hitler’s Germany and Stalin’s Soviet Union – had formed because a naïve democratic government had engaged in some economic planning that then got out of hand and resulted in tyranny. But Hayek’s motivations probably lay somewhat deeper – probably so deep that he himself could not properly recognise them.
To understand Hayek’s “reasoning” a bit better we should consider the political situation that he refused to return to after Austria’s annexation by Hitler in 1938. The broad reasons for Hitler’s rise to power are beyond dispute among serious historians today. The sweeping picture of Germany in this era is that she was not only humiliated after the First World War but was also subject to vicious reparations payments – payments which ultimately set off a hyperinflation in the country. The average German knew that the national humiliation and the economic turmoil were intimately connected and so they became increasingly bitter about the Treaty of Versailles which they thought, quite rightly, had subjected the country to both economic and political bondage. It was into this vacuum that Hitler and his cronies stepped and began, in the early to mid-1920s, to accumulate political support.
However, after the hyperinflation came to an end and thanks to loans from the United States, the reparations troubles eased and the German economy began to return to moderate growth. Hitler’s popularity fell enormously in this period. But the 1929 stock market crash soon came and the loans from the United States promptly dried up. Unemployment soared in Germany and the government, like so many others across the world, engaged in severe austerity in order to attempt to balance the budget. They believed that this would return the country to economic prosperity.
In retrospect it is quite obvious that Hitler’s immediate rise to power was due to the economic downturn and the government’s deflationary policy response. In 1930 the Nazis had become the second largest party, obtaining 18.3% of the votes. When compared with the 2.8% of the vote they received in 1928 during an era of high employment and an economically optimistic outlook it quickly becomes obvious what the underlying forces driving Hitler’s election actually were.
That the economic policies the Weimar government had engaged in had led to the election of Hitler was and is obvious to any unbiased observer. But there were many who actively repressed this fact. The liberals that had supported the government’s austerity measures no doubt felt some burden, whether unconscious or otherwise, of guilt. This is best illustrated by an anecdote that the American economist John Kenneth Galbraith relates regarding the Chancellor who presided over the austerity, Heinrich Brüning, which he published in his book Money: Whence It Came, Where It Went:
In the 30s, Brüning joined the Harvard faculty as Professor of Government. At a welcoming seminar one evening I asked him if his Draconian measures at a time of general deflation had not advanced the cause of Adolf Hitler. He said that they had not. When, unwisely, I pressed the point, he asked me if I disputed the word of the former Chancellor of the German Reich.
This was then, rather unsurprisingly, a touchy subject for Brüning which he preferred to evade. After all, the facts were simply not on his side and there was no way he could rationally argue to the contrary. Likewise too for those liberals like Hayek who firmly believed that the austerity measures were the only road to salvation. Mark Ames at the eXiledonline sums up rather nicely the reaction this provoked in Hayek and the other Austrian school libertarians:
Von Hayek and his fellow Austrian aristocrats who were forced to flee from the fruits of their economic programs, did a complete revision of history and retold that same story as if the very opposite of reality had happened. Once they were safely in England and America, sponsored and funded by oligarch grants, hacks like von Mises and von Hayek started pushing a revisionist history of the collapse of Weimar Germany blaming not their austerity measures, but rather big-spending liberals who were allegedly in charge of Germany’s last government. Somehow, von Hayek looked at Chancellor Bruning’s policies of massive budget cuts combined with pegging the currency to the gold standard, the policies that led to Weimar Germany’s collapse, policies that became the cornerstone of Hayek’s cult—and decided that Bruning hadn’t existed.
An Existential Choice
It is not hard to discern whether Hayek was lying or simply deluded. He was not lying – at least not consciously. For the rest of his life he was driven by a genuine belief in the idea, put forward in The Road to Serfdom, that economic planning was what had led to totalitarianism in Europe. It was not hard to discern if Hayek was lying simply by looking at the zeal with which he pursued the crusade against planning. This was not the cynical enthusiasm of a charlatan, but instead the forward impetus of a man who, as if riding a bicycle, would come crashing down emotionally if lost his momentum.
Hayek’s entire ideology and career had begun to come apart in the 1930s. His theories were shown to be inconsistent in the academic journals of the time and the practical implications of those theories had shown themselves to be both discredited and dangerous. A man in such a position only has two choices: he can either completely re-evaluate his ideas which, if they were held with unshakeable conviction and constituted a core component of his emotional make-up, as seems to have been the case with Hayek, would have likely resulted in a mental collapse; or, alternatively, he can engage in a massive repression, shut out reality and construct around himself a fantasy world.
Hayek opted for the latter. So too did all of what was to become the neo-Austrian school which soon developed into a sealed hermetic cult of True Believers who reinforced each other’s unsubstantiated ideas and defended each other from the threatening world outside the circle. But this cult was largely fringe. Although it did command some respect among neoliberals in the Thatcher and Reagan administrations, it was the respect accorded to the eccentric rather than that accorded to the practical man. Lip service was paid to the doctrines of Hayek and the Austrians, but their extremist and impractical economic policy implications were sterilised and kept out of immediate contact with the levers of power. Milton Friedman’s more pragmatic doctrines of monetarism were preferred so far as economic policies went.
But we should not fool ourselves. Hayek’s delusion did indeed have profound effects on history. Indeed, as we shall see, it was even directly responsible for Friedman’s rise. For Hayek, in his crusade against what he thought the germ from which totalitarianism spread, became a tireless worker and organiser. With the ingenuity of a Leninist, Hayek formed around him a host of like-minded thinkers and politicians. Backed by the funding of right-wing millionaires, Hayek constructed a network of people who he initiated into his delusion and convinced that every manifestation of collective intervention into the free market was just one more stepping stone on the road to serfdom.
Likewise in the popular mind – for Hayek did effectively become a political propagandist rather than a respected intellectual in the 1940s – Hayek’s delusion, with all its emotional overtones, spread quite effectively. Today whenever we encounter an anxiety-ridden Tea Partier or a fearful and paranoid internet Austrian, it is Hayek’s delusion that we are hearing echoed through the chambers of history, albeit in slightly vulgarised form. It is the fear, distrust and paranoia which Hayek’s portrait of a free society descending into barbarism evokes that captures the minds of those it touches. That it is completely deluded and ignorant of history only makes it more effective, like all propaganda, in its role as propaganda. The bigger the lie, the more emotional investment it requires to believe in and so the more it captures the uncritical and the emotionally weak.
The inner sanctum from which Hayek’s delusion emanated was called the Mont Pelerin Society. In the next piece in this series we will turn to how Hayek’s delusion was diluted by those in the Mont Pelerin Society to fit with the American political system; this is what we might call the American version of neoliberalism. While in the final piece we will consider how Hayek’s delusion was gradually converted into the European form of neoliberalism when it was confronted with the problem of trade unions. As we shall see there is much overlap between these two forms of neoliberalism and each borrows from the other – this, of course, being the reason why they are not generally distinguished between – but most importantly, they share a common root in the wall that Hayek erected in his mind in the 1930s and 1940s to block out a world that he himself had played a part in creating.
Extracted from: Neoliberalism the deep story that lies beneath Donald Trump’s triumph Opinion , by George Monbiot; The Guardian, 14 November 2016
The events that led to Donald Trump’s election started in England in 1975. At a meeting a few months after Margaret Thatcher became leader of the Conservative party, one of her colleagues, or so the story goes, was explaining what he saw as the core beliefs of conservatism. She snapped open her handbag, pulled out a dog-eared book, and slammed it on the table. “This is what we believe,” she said. A political revolution that would sweep the world had begun.
The book was The Constitution of Liberty by Frederick Hayek. Its publication, in 1960, marked the transition from an honest, if extreme, philosophy to an outright racket. The philosophy was called neoliberalism. It saw competition as the defining characteristic of human relations. The market would discover a natural hierarchy of winners and losers, creating a more efficient system than could ever be devised through planning or by design. Anything that impeded this process, such as significant tax, regulation, trade union activity or state provision, was counter-productive. Unrestricted entrepreneurs would create the wealth that would trickle down to everyone.
This, at any rate, is how it was originally conceived. But by the time Hayek came to write The Constitution of Liberty, the network of lobbyists and thinkers he had founded was being lavishly funded by multimillionaires who saw the doctrine as a means of defending themselves against democracy. Not every aspect of the neoliberal programme advanced their interests. Hayek, it seems, set out to close the gap.
He begins the book by advancing the narrowest possible conception of liberty: an absence of coercion. He rejects such notions as political freedom, universal rights, human equality and the distribution of wealth, all of which, by restricting the behaviour of the wealthy and powerful, intrude on the absolute freedom from coercion he demands.
Democracy, by contrast, “is not an ultimate or absolute value”. In fact, liberty depends on preventing the majority from exercising choice over the direction that politics and society might take.
He justifies this position by creating a heroic narrative of extreme wealth. He conflates the economic elite, spending their money in new ways, with philosophical and scientific pioneers. Just as the political philosopher should be free to think the unthinkable, so the very rich should be free to do the undoable, without constraint by public interest or public opinion.
The ultra rich [in Hayek opinion] are “scouts”, “experimenting with new styles of living”, who blaze the trails that the rest of society will follow. The progress of society depends on the liberty of these “independents” to gain as much money as they want and spend it how they wish. All that is good and useful, therefore, arises from inequality. There should be no connection between merit and reward, no distinction made between earned and unearned income, and no limit to the rents they can charge.
Inherited wealth is more socially useful than earned wealth: “the idle rich”, who don’t have to work for their money, can devote themselves to influencing “fields of thought and opinion, of tastes and beliefs”. Even when they seem to be spending money on nothing but “aimless display”, they are in fact acting as society’s vanguard.
Hayek softened his opposition to monopolies and hardened his opposition to trade unions. He lambasted progressive taxation and attempts by the state to raise the general welfare of citizens. He insisted that there is “an overwhelming case against a free health service for all” and dismissed the conservation of natural resources. It should come as no surprise to those who follow such matters that he was awarded the Nobel prize for economics.
By the time Thatcher slammed his book on the table, a lively network of think tanks, lobbyists and academics promoting Hayek’s doctrines had been established on both sides of the Atlantic, abundantly financed by some of the world’s richest people and businesses, including DuPont, General Electric, the Coors brewing company, Charles Koch, Richard Mellon Scaife, Lawrence Fertig, the William Volker Fund and the Earhart Foundation. Using psychology and linguistics to brilliant effect, the thinkers these people sponsored found the words and arguments required to turn Hayek’s anthem to the elite into a plausible political programme.
Thatcherism and Reaganism were not ideologies in their own right: they were just two faces of neoliberalism. Their massive tax cuts for the rich, crushing of trade unions, reduction in public housing, deregulation, privatisation, outsourcing and competition in public services were all proposed by Hayek and his disciples. But the real triumph of this network was not its capture of the right, but its colonisation of parties that once stood for everything Hayek detested.
Bill Clinton and Tony Blair did not possess a narrative of their own. Rather than develop a new political story, they thought it was sufficient to triangulate. In other words, they extracted a few elements of what their parties had once believed, mixed them with elements of what their opponents believed, and developed from this unlikely combination a “third way”.
It was inevitable that the blazing, insurrectionary confidence of neoliberalism would exert a stronger gravitational pull than the dying star of social democracy. Hayek’s triumph could be witnessed everywhere from Blair’s expansion of the private finance initiative to Clinton’s repeal of the Glass-Steagal Act, which had regulated the financial sector. For all his grace and touch, Barack Obama, who didn’t possess a narrative either (except “hope”), was slowly reeled in by those who owned the means of persuasion.
As I warned in April, the result is first disempowerment then disenfranchisement. If the dominant ideology stops governments from changing social outcomes, they can no longer respond to the needs of the electorate. Politics becomes irrelevant to people’s lives; debate is reduced to the jabber of a remote elite. The disenfranchised turn instead to a virulent anti-politics in which facts and arguments are replaced by slogans, symbols and sensation. The man who sank Hillary Clinton’s bid for the presidency was not Donald Trump. It was her husband.
The paradoxical result is that the backlash against neoliberalism’s crushing of political choice has elevated just the kind of man that Hayek worshipped. Trump, who has no coherent politics, is not a classic neoliberal. But he is the perfect representation of Hayek’s “independent”; the beneficiary of inherited wealth, unconstrained by common morality, whose gross predilections strike a new path that others may follow. The neoliberal thinktankers are now swarming round this hollow man, this empty vessel waiting to be filled by those who know what they want. The likely result is the demolition of our remaining decencies, beginning with the agreement to limit global warming.
Those who tell the stories run the world. Politics has failed through a lack of competing narratives. The key task now is to tell a new story of what it is to be a human in the 21st century. It must be as appealing to some who have voted for Trump and Ukip as it is to the supporters of Clinton, Bernie Sanders or Jeremy Corbyn.
A few of us have been working on this, and can discern what may be the beginning of a story. It’s too early to say much yet, but at its core is the recognition that – as modern psychology and neuroscience make abundantly clear – human beings, by comparison with any other animals, are both remarkably social and remarkably unselfish. The atomisation and self-interested behaviour neoliberalism promotes run counter to much of what comprises human nature.
Hayek told us who we are, and he was wrong. Our first step is to reclaim our humanity.
Dec 23, 2018 | failedevolution.blogspot.comFrom David Harvey's A Brief History of Neoliberalism
Part 10 – How Margaret Thatcher systematically destroyed the British industry along with the trade unions
While there were many elements out of which consent for a neoliberal turn could be constructed, the Thatcher phenomenon would surely not have arisen, let alone succeeded, if it had not been for the serious crisis of capital accumulation during the 1970s. Stagflation was hurting everyone. In 1975 inflation surged to 26 per cent and unemployment topped one million. The nationalized industries were draining resources from the Treasury.
This set up a confrontation between the state and the unions. In 1972, and then again in 1974, the British miners (a nationalized industry) went on strike for the first time since 1926.
The miners had always been in the forefront of British labour struggles. Their wages were not keeping pace with accelerating inflation, and the public sympathized. The Conservative government, in the midst of power blackouts, declared a state of emergency, mandated a three-day working week, and sought public backing against the miners. In 1974 it called an election seeking public support for its stand. It lost, and the Labour government that returned to power settled the strike on terms favourable to the miners.
The victory was, however, pyrrhic. The Labour government could not afford the terms of the settlement and its fiscal difficulties mounted. A balance of payments crisis paralleled huge budget deficits. Turning for credits to the IMF in 1975–6, it faced the choice of either submitting to IMF-mandated budgetary restraint and austerity or declaring bankruptcy and sacrificing the integrity of sterling, thus mortally wounding financial interests in the City of London. It chose the former path, and draconian budgetary cutbacks in welfare state expenditures were implemented . The Labour government went against the material interests of its traditional supporters. But it still had no solution to the crises of accumulation and stagflation. It sought, unsuccessfully, to mask the difficulties by appealing to corporatist ideals, in which everyone was supposed to sacrifice something for the benefit of the polity.
Its supporters were in open revolt, and public sector workers initiated a series of crippling strikes in the ' winter of discontent ' of 1978. ' Hospital workers went out, and medical care had to be severely rationed. Striking gravediggers refused to bury the dead. The truck drivers were on strike too. Only shop stewards had the right to let trucks bearing "essential supplies" cross picket lines. British Rail put out a terse notice "There are no trains today" . . . striking unions seemed about to bring the whole nation to a halt. '
The mainstream press was in full cry against greedy and disruptive unions, and public support fell away. The Labour government fell, and in the election that followed Margaret Thatcher won a significant majority with a clear mandate from her middle-class supporters to tame public sector trade union power .
The commonality between the US and the UK cases most obviously lies in the fields of labour relations and the fight against inflation. With respect to the latter, Thatcher made monetarism and strict budgetary control the order of the day. High interest rates meant high unemployment (averaging more than 10 per cent in 1979–84, and the Trades Union Congress lost 17 per cent of its membership in five years ). The bargaining power of labour was weakened.
Alan Budd, an economic adviser to Thatcher, later suggested that ' the 1980s policies of attacking inflation by squeezing the economy and public spending were a cover to bash the workers ' . Britain created what Marx called ' an industrial reserve army ', he went on to observe, the effect of which was to undermine the power of labour and permit capitalists to make easy profits thereafter. And in an action that paralleled Reagan's provocation of PATCO in 1981, Thatcher provoked a miners' strike in 1984 by announcing a wave of redundancies and pit closures (imported coal was cheaper).
The strike lasted for almost a year, and, in spite of a great deal of public sympathy and support, the miners lost. The back of a core element of the British labour movement had been broken. Thatcher further reduced union power by opening up the UK to foreign competition and foreign investment. Foreign competition demolished much of traditional British industry in the 1980s –– the steel industry (Sheffield) and shipbuilding (Glasgow) more or less totally disappeared within a few years, and with them a good deal of trade union power.
Thatcher effectively destroyed the indigenous nationalized UK automobile industry, with its strong unions and militant labour traditions, instead offering the UK as an offshore platform for Japanese automobile companies seeking access to Europe. These built on greenfield sites and recruited non-union workers who would submit to Japanese-style labour relations.
The overall effect was to transform the UK into a country of relatively low wages and a largely compliant labour force (relative to the rest of Europe) within ten years. By the time Thatcher left office, strike activity had fallen to one-tenth of its former levels. She had eradicated inflation, curbed union power, tamed the labour force, and built middle-class consent for her policies in the process .
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Dec 30, 2018 | www.europeanfinancialreview.com
Neoliberalism, the Free Market, and the Decline of Managerial Capitalism
April 23, 2014 • EUROPE , WORLD , Economic Thoughts , Commentary , Business & Economy , Politics & Policy , Eurozone Crisis & DebateTwitter Facebook LinkedIn Google+ Pinterest Line Viber WhatsApp
By Alexander Styhre
Neoliberalism is a most troubled term, one that denotes a variety of ideologies, beliefs, policies and practices. This article outlines some of the changes concerning corporate governance, managerial control, and employee relations and points at the interrelations between the scholarly debates and theoretical contributions, macroeconomic conditions, and political agenda all being part of the century-long history of neoliberalism.
The roots of neoliberalism runs deep in Western thinking and the history of the term is more complex than is generally recognized, especially among those who associate the term with laissez-faire policies and what at times has been rejected as "market fundamentalism." Liberalism as a political and economic term is of British origin, but the neoliberal tradition of thinking derives from the continent, and from Austria and Germany in particular. 1 The Austrian School of Economics, represented by Friedrich von Hayek and Joseph Schumpeter and the so-called Ordo-liberals at Freiburg University in Germany represent two distinct branches of economic liberalism. While Hayek early on warned against an expanded role of the state as the central planner of economic activities, the German group of liberal economists was more ready to recognize the role of the state as the legitimate regulator of the economy.
Hayek was a peripheral figure in the economic profession in the interwar period, but the anti-Keynesian sentiments at London School of Economics, best represented by the economist Lionel Robbins, served to advance Hayek as an alternative to the widely endorsed Keynesian economic theory and its application in policy. In 1950, Hayek was offered a position at LSE on the basis of a private donation. A few years earlier, in 1947, Hayek had founded the Mont Pèlerin Society (MPS), a community of intellectuals including economists such as Frank Knight, Milton Friedman, and Lionel Robbins and the philosopher Karl Popper. This group was committed to advancing a liberal economic agenda and to counteracting collectivist solutions to economic problems. For more than two decades, MPS was operating out of the limelight as Keynesianism effectively enabled economic growth and handled the issue of the distribution of economic resources through the use of progressive taxation in the emerging welfare states. In both economics departments and in policy-making quarters, Keynesianism became highly influential, at times hegemonic. However, by the mid-1960s, the profit rates started to decline in American industry and during the first oil crisis in the 1970s, caused by political conflicts, industry's profit rates sharply declined as energy costs soared.
Liberalism as a political and economic term is of British origin, but the neoliberal tradition of thinking derives from the continent, and from Austria and Germany in particular
The remainder of the 1970s were characterized by the new phenomenon of stagflation , high inflation in combination with rising unemployment, and the new monetarist economic theory advocated by Milton Freidman proposed a high interest-rate policy to curb inflation and to promote economic growth. Paul Volcker, the new chairman of the Federal Reserve named by President Carter, announced a high interest rate policy that would last well into the 1980s. By the mid-1970s, the predominant Keynesianist economic policy came under attack and neoliberal intellectuals could advance their positions.
The triumph of neoliberalism in the 1980s was caused by both macroeconomic and political changes in American society. First, the combination of high overseas savings, primarily in Japan reporting significant trade surplus, an overrated dollar, and the high-interests policy of the Fed led to an inflow of capital into the American economy, creating an oversupply of capital in the 1980s. 2 In addition, Ronald Reagan was elected president in 1980 on the basis of a pro-business agenda, and the Reagan Administration recruited economic advisors and co-workers from neoliberal and neoconservative think tanks that were either formed. or significantly increased their budgets, in the 1970s, as private capital owners donated money to advance free market policies. The new administration wanted to promote economic growth by implementing new regulatory policies based on the idea of the virtues of "small governments" as prescribed by Hayek's work published during the war years and thereafter. One of the key targets in this neoliberal framework were the trade unions, which were widely regarded as representing a collectivist solution that poorly fitted with the free-market policy advocated by neoliberal intellectuals. In addition, substantial tax reforms in the 1980s were justified on the basis of what was branded "trickle-down economics" by its critics, the idea that reduced taxes would create their own economic momentum as the supply of capital would "trickle down" the economic system and generate economic growth through increased demand.
By the mid-1980s, a wave of hostile takeovers strongly contributed to the decline in managerial capitalism, the economic regime characterized by large, public corporations run by professional managers representing various functional domains of expertise, and promoted a shift to "investor capitalism.
The tax-reforms reduced the federal income but the inflow of foreign capital into the American economy enabled the Reagan Administration to eat the cake and have it too: while Reagan was fond of speaking of "rolling back the state," he had larger budget deficits than any other post-World War II president, and government bonds served to finance the sharp increase in military spending in the 1980s. In fact, the issuing of government bonds closely followed the budget deficits in the Reagan era. 3
The new economic advisors, equipped with the new finance theory, advocated a liberalization of regulatory frameworks enabling new financial operations. By the mid-1980s, a wave of so-called hostile takeovers strongly contributed to the decline in managerial capitalism, the economic regime characterized by large, public corporations run by professional managers representing various functional domains of expertise, and promoted a shift to "investor capitalism," an economic regime closely bound up with the emergence of an increasingly dominant finance industry. As the American economy overflowed with capital, there were opportunities for a new class of professional finance professionals to raise capital, to buy large conglomerate firms being underrated after 1970s bear markets, and to divest them. Permissive regulators endorsed economic theories that regarded hostile takeovers as a legitimate mechanism serving to eliminate poorly managed firms with low-growth opportunities and therefore playing a key role in renewing and invigorating the economy. Such theoretically logical arguments were, however, not supported by empirical evidence as it was primarily sound and well-functioning companies that were subject to hostile takeover bids. 4
Regardless of the legitimacy of the new forms of financial engineering, strongly dependent on the ability to issue junk bonds popular among the new generation of finance industry actors such as Michael Milken, the new threat to corporate survival made CEOs and directors aware of the need to pay close attention to the market valuation of the stock. The popularity of agency theory and its insistence on the creation of shareholder value as the sole legitimate objective of the corporation further underlined the firm's orientation towards the finance market. In the new political and regulatory environment of the 1980s, the focus shifted from long-term survival and economic stability, i.e., virtues of managerial capitalism, to short-term capital accumulation and the ability to live with the turmoil of the ups and downs of the economy. Managers had traditionally been paid to secure long-term and stable growth and to cater to a variety of constituencies, while in the new economic regime, that of investor capitalism, high returns on investment and the one-sided focus of shareholder enrichment were rewarded. Managers started to "think like shareholders."
The popularity of agency theory and its insistence on the creation of shareholder value as the sole legitimate objective of the corporation further underlined the firm's orientation towards the finance market.
The inflow of capital into the U.S. economy had also created a new form of finance industry actor, the fund manager. While fund managers controlled 20% of shares of a stock-listed company in 1970, in 2005, the comparable figure was 60%. 5 In the ideal case of market-based transactions, an investor being unsatisfied with the financial performance of the firm acts through exit rather than voice (in Albert Hirschman's terms), i.e., he or she sells the stock. In the case where one single actor holds large shares of the stock, the selling of the shares would affect the market price, and therefore fund managers started to influence how CEOs and directors were recruited to the firms in which they held stocks, that is, they increasingly turned to voice rather than exit . As a consequence, CEOs and the directors with a background in finance that shared a belief in finance market efficiency and the virtue of shareholder value creation were increasingly recruited. As both fund managers and CEOs were now compensated on the basis of their ability to report a growth in the value of the stock, the interests of CEOs, directors, and owners converged as they were now all serving the same finance market. In an agency theory view, this led to a reduction of the so-called agency costs. Unfortunately, there was evidence of new forms of behavior that were not anticipated by free-market protagonists.
If markets were efficient, why would firms invest their so-called "free cash flow" to manipulate the price of their stock rather than investing the money in productive capital, or transfer the capital to the owners as dividends?
For instance, in the period of 1987-2007, the amount of annual repurchases of stocks by individual firms increased eighteen-fold. 6 Agency theory makes the assumption that finance markets are effectively pricing assets, that is, all publically available information is reflected in a financial asset's market price. Yet, the de-regulation of the finance markets from the 1980s to promote market efficiency coincides with a strong preference of firms to repurchase their own stock. If markets were efficient, why would then firms invest their so-called "free cash flow" to manipulate the price of their stock rather than investing the money in productive capital, or transfer the capital to the owners as dividends? The literature on stock repurchases offers a number of explanations but fails to provide a unified and comprehensive view. 7 Under all conditions, stock repurchases remain a puzzling phenomenon for free-marketeers.
In the new regime of investor capitalism, dominated by neoclassic economic theory favouring market transactions and skeptical of the role of organizations altogether (as they to some extent represent a market failure in terms of offering lower transaction costs vis-à-vis comparable market transactions), managerial authority has been moved to the outside of the corporation. First of all, to repeat, the shareholder value creation policy locates the shareholders who know better than executives inside the firm where to invest the free-cash flow; if there are promising potentials within the focal firm, capital owners will buy more shares, but if there are higher expected returns elsewhere, the capital will be invested accordingly. Second, as a consequence of the suspicion that executives are at risk to act opportunistically, various forms of auditing, accreditations, and credit ratings are widely used in an attempt to move the corporate control outside of the firm. The extensive literature on auditing and the issuing of accreditations and credit ratings unfortunately reveal that it is complicated to maintain the arm's-length distance needed between the auditor and the auditee, 8 and in the case of credit-rating, the so-called "issuer pays" policy leads to a series of governance problems. 9
Third, the orientation towards finance markets and its emphasis on high returns over long–term stability -- there is ample evidence of a sharp growth of recurrent financial crises after 1980 10 -- has led to new human resources and employment practices, wherein a larger proportion of the workforce is hired on short-term contracts and receive lower pay and fewer benefits. In addition, in the U.S., and the U.K., the two epicentra of neoliberal reforms, the level of unionization has been in decline, further reducing the collective bargaining power of workers. 11 The perhaps largest explanatory factor regarding the decline in long-term stability in employment is the loss in manufacturing jobs in the U.S., and the succession of service-industry jobs offering both lower pay and lower demands for technical expertise. In addition, in the attempt to boost shareholder value, downsizing and off-shoring have been popular among finance market-oriented executives. By and large, the shift from the managerial capitalism of the Keynesian, post-World War II period to the neoliberal investor capitalism brought a new theory of the firm, novel corporate governance practices, an accentuated short-term perspective on economic value creation, and not least, a new vocabulary of how to address and speak about managerial practices and firm performance.
The triumph of free-market thinking and neoliberal policy is perhaps not so much to be treated as the ultimate evidence of the superior rationality of the market, as it is indicative of the decline of the U.S. and U.K. economies and the West more broadly speaking on the global scale.
In hindsight, after five decades of consolidation and organization, free-market protagonists managed to move from the periphery of economic policy-making and into its very centres by the end of the 1970s. Those who were initially regarded as outsiders and eccentrics started to claim the Nobel Memorial Prizes in Economic Sciences by the mid-1970s, but this is, skeptics may say, not so much about "being right" (in terms of making adequate predictions or providing policies that regulate the economy effectively) as much as it is indicative of the ability to capitalize on strong political and economic interests being mobilized when, for example, trade unions' influence and demands for economic equality were regarded to be too far advanced by certain groups. In addition to the ability to align capital owners and intellectuals in financing academic departments and think tanks in the post-World War II period and in the crisis-ridden 1970s in particular, 12 macroeconomic conditions were beneficial for the free-market cause. At the same time, it is complicated to predict the outcome from policy-making, and there are significant influences from unforeseen events and unanticipated consequences of purposeful action in the history of neoliberalism and free market reforms. Therefore, the triumph of free-market thinking and neoliberal policy is perhaps not so much to be treated as the ultimate evidence of the superior rationality of the market as economists like Friedrich von Hayek and Milton Friedman would assume, as it is indicative of the decline of the U.S. and U.K. economies and the West more broadly speaking on the global scale as suggested by economic statistics. 13
While finance theory professors are fond of speaking of finance markets as being "the brain of capitalist system," the events of 2008 rendered such statements subject to doubt, to say the least.
The enormous growth of financial markets and the finance industry is also a topic subject to much scholarly and media attention, and while finance theory professors are fond of speaking of finance markets as being "the brain of capitalist system," the events of 2008 rendered such statements subject to doubt, to say the least. In addition, the free-market capitalism being dreamed about by neoliberal intellectuals since the 1930s does by no means imply a diminished state but rather the government and state agencies becoming an ally of capital owners, serving to rearticulate the welfare state into a "neoliberal ownership society state." Whether that is a sustainable role of the state, or if it rewards certain groups at an intolerable level is subject to ongoing discussions.
This article draw on A. Styhre (2014) Management and Neoliberalism: Connecting Policies and Practices (New York & London: Routledge)Go to top
About the Author
Alexander Styhre , Ph.D (Lund University) is Chair of Organization Theory and Management, School of Business, Economics and Law, University of Gothenburg, Sweden. Styhre has published widely in the field of organization studies and is the author of several research monographs and textbooks. Alexander is the Editor-in-Chief of Scandinavian Journal of Management.
Dec 29, 2018 | failedevolution.blogspot.com
From David Harvey's A Brief History of Neoliberalism
Part 11 – The Reagan/Thatcher neoliberal legacy: a bizarre form of a sinister political doctrine from which it would be difficult one to escape
But Thatcher had to fight the battle on other fronts. A noble rearguard action against neoliberal policies was mounted in many a municipality –– Sheffield, the Greater London Council (which Thatcher had to abolish in order to achieve her broader goals in the 1980s), and Liverpool (where half the local councillors had to be gaoled) formed active centres of resistance in which the ideals of a new municipal socialism (incorporating many of the new social movements in the London case) were both pursued and acted upon until they were finally crushed in the mid-1980s.
She began by savagely cutting back central government funding to the municipalities, but several of them responded simply by raising property taxes, forcing her to legislate against their right to do so. Denigrating the progressive labour councils as 'loony lefties' (a phrase the Conservative-dominated press picked up with relish), she then sought to impose neoliberal principles through a reform of municipal finance. She proposed a 'poll tax' –– a regressive head tax rather than a property tax –– which would rein in municipal expenditures by making every resident pay. This provoked a huge political fight that played a role in Thatcher's political demise .
Thatcher also set out to privatize all those sectors of the economy that were in public ownership. The sales would boost the public treasury and rid the government of burdensome future obligations towards losing enterprises. These state-run enterprises had to be adequately prepared for privatization, and this meant paring down their debt and improving their efficiency and cost structures, often through shedding labour.
Their valuation was also structured to offer considerable incentives to private capital –– a process that was likened by opponents to 'giving away the family silver'. In several cases subsidies were hidden in the mode of valuation –– water companies, railways, and even state-run enterprises in the automobile and steel industries held high-value land in prime locations that was excluded from the valuation of the enterprise as an ongoing concern.
Privatization and speculative gains on the property released went hand in hand. But the aim here was also to change the political culture by extending the field of personal and corporate responsibility and encouraging greater efficiency, individual/corporate initiative, and innovation. British Aerospace, British Telecom, British Airways, steel, electricity and gas, oil, coal, water, bus services, railways, and a host of smaller state enterprises were sold off in a massive wave of privatizations.
Britain pioneered the way in showing how to do this in a reasonably orderly and, for capital, profitable way. Thatcher was convinced that once these changes had been made they would become irreversible: hence the haste. The legitimacy of this whole movement was successfully underpinned, however, by the extensive selling off of public housing to tenants. This vastly increased the number of homeowners within a decade. It satisfied traditional ideals of individual property ownership as a working-class dream and introduced a new, and often speculative, dynamism into the housing market that was much appreciated by the middle classes, who saw their asset values rise –– at least until the property crash of the early 1990s .
Dismantling the welfare state was, however, quite another thing. Taking on areas such as education, health care, social services, the universities, the state bureaucracy, and the judiciary proved difficult. Here she had to do battle with the entrenched and sometimes traditional upper-middle-class attitudes of her core supporters .
Thatcher desperately sought to extend the ideal of personal responsibility (for example through the privatization of health care) across the board and cut back on state obligations. She failed to make rapid headway. There were, in the view of the British public, limits to the neoliberalization of everything. Not until 2003, for example, did a Labour government, against widespread opposition, succeed in introducing a fee-paying structure into British higher education .
In all these areas it proved difficult to forge an alliance of consent for radical change. On this her Cabinet (and her supporters) were notoriously divided (between 'wets' and 'drys') and it took several years of bruising confrontations within her own party and in the media to win modest neoliberal reforms. The best she could do was to try to force a culture of entrepreneurialism and impose strict rules of surveillance, financial accountability, and productivity on to institutions, such as universities, that were ill suited to them.
Thatcher forged consent through the cultivation of a middle class that relished the joys of home ownership, private property, individualism, and the liberation of entrepreneurial opportunities. With working-class solidarities waning under pressure and job structures radically changing through deindustrialization, middle-class values spread more widely to encompass many of those who had once had a firm working-class identity .
The opening of Britain to freer trade allowed a consumer culture to flourish, and the proliferation of financial institutions brought more and more of a debt culture into the centre of a formerly staid British life. Neoliberalism entailed the transformation of the older British class structure, at both ends of the spectrum.
Moreover, by keeping the City of London as a central player in global finance it increasingly turned the heartland of Britain's economy, London and the south-east, into a dynamic centre of ever-increasing wealth and power. Class power had not so much been restored to any traditional sector but rather had gathered expansively around one of the key global centres of financial operations. Recruits from Oxbridge flooded into London as bond and currency traders, rapidly amassing wealth and power and turning London into one of the most expensive cities in the world.
While the Thatcher revolution was prepared by the organization of consent within the traditional middle classes who bore her to three electoral victories, the whole programme, particularly in her first administration, was far more ideologically driven (thanks largely to Keith Joseph) by neoliberal theory than was ever the case in the US. While from a solid middle-class background herself, she plainly relished the traditionally close contacts between the prime minister's office and the 'captains' of industry and finance. She frequently turned to them for advice and in some instances clearly delivered them favours by undervaluing state assets set for privatization . The project to restore class power –– as opposed to dismantling working-class power –– probably played a more subconscious role in her political evolution.
The success of Reagan and Thatcher can be measured in various ways. But I think it most useful to stress the way in which they took what had hitherto been minority political, ideological, and intellectual positions and made them mainstream. The alliance of forces they helped consolidate and the majorities they led became a legacy that a subsequent generation of political leaders found hard to dislodge.
Perhaps the greatest testimony to their success lies in the fact that both Clinton and Blair found themselves in a situation where their room for manoeuvre was so limited that they could not help but sustain the process of restoration of class power even against their own better instincts. And once neoliberalism became that deeply entrenched in the English-speaking world it was hard to gainsay its considerable relevance to how capitalism in general was working internationally.
This is not to say, as we shall see, that neoliberalism was merely imposed elsewhere by Anglo-American influence and power. For as these two case studies amply demonstrate, the internal circumstances and subsequent nature of the neoliberal turn were quite different in Britain and the US, and by extension we should expect that internal forces as well as external influences and impositions have played a distinctive role elsewhere.
Reagan and Thatcher seized on the clues they had (from Chile and New York City) and placed themselves at the head of a class movement that was determined to restore its power. Their genius was to create a legacy and a tradition that tangled subsequent politicians in a web of constraints from which they could not easily escape . Those who followed, like Clinton and Blair, could do little more than continue the good work of neoliberalization, whether they liked it or not.
Dec 09, 2018 | www.ineteconomics.org
- mikem2 31 Oct 2018 00:22 7 8 Meet the Economist Behind the One Percent's Stealth Takeover of America
Ask people to name the key minds that have shaped America's burst of radical right-wing attacks on working conditions, consumer rights and public services, and they will typically mention figures like free market-champion Milton Friedman, libertarian guru Ayn Rand, and laissez-faire economists Friedrich Hayek and Ludwig von Mises.
James McGill Buchanan is a name you will rarely hear unless you've taken several classes in economics. And if the Tennessee-born Nobel laureate were alive today, it would suit him just fine that most well-informed journalists, liberal politicians, and even many economics students have little understanding of his work.
The reason? Duke historian Nancy MacLean contends that his philosophy is so stark that even young libertarian acolytes are only introduced to it after they have accepted the relatively sunny perspective of Ayn Rand. (Yes, you read that correctly). If Americans really knew what Buchanan thought and promoted, and how destructively his vision is manifesting under their noses, it would dawn on them how close the country is to a transformation most would not even want to imagine, much less accept.
That is a dangerous blind spot, MacLean argues in a meticulously researched book, Democracy in Chains , a finalist for the National Book Award in Nonfiction. While Americans grapple with Donald Trump's chaotic presidency, we may be missing the key to changes that are taking place far beyond the level of mere politics. Once these changes are locked into place, there may be no going back.
The greedy right wing want it all for themselves.
- Stephen Hancock 31 Oct 2018 00:04 3 4 Neo-liberalism will never die, it might mutate in to another parasitic ideology and the Liberals might re-brand their party, but as long as there's human greed to want more power and financial gain over others, people like Abbott and Joyce will continue to surface and thrive.
- ocratato 31 Oct 2018 00:03 5 6 I think declaring neoliberalism dead is way too premature.
The rich and powerful have their greedy hands on the levers of government in many countries. They are not going to give that up without a fight.
Basically neoliberalism will eventually go down kicking and screaming. Sadly it will take a lot of us with it. It is going to get nasty.
Nov 27, 2018 | thenewkremlinstooge.wordpress.com
Northern Star November 26, 2018 at 4:23 pmAs the New deal unravels:
"The original "New Deal," which included massive public works infrastructure projects, was introduced by Democratic President Franklin Roosevelt in the 1930s amid the Great Depression. Its purpose was to stave off a socialist revolution in America. It was a response to a militant upsurge of strikes and violent class battles, led by socialists who were inspired by the 1917 Russian Revolution that had occurred less than two decades before.
American capitalism could afford to make such concessions because of its economic dominance. The past forty years have been characterized by the continued decline of American capitalism on a world stage relative to its major rivals. The ruling class has responded to this crisis with a social counterrevolution to claw back all gains won by workers. This has been carried out under both Democratic and Republican administrations and with the assistance of the trade unions.
Since the 2008 crash, first under Bush and Obama, and now Trump, the ruling elites have pursued a single-minded policy of enriching the wealthy, through free credit, corporate bailouts and tax cuts, while slashing spending on social services.
To claim as does Ocasio-Cortez that American capitalism can provide a new "New Deal," of a green or any other variety, is to pfile:///F:/Private_html/Skeptics/Political_skeptic/Neoliberalism/Historyromote an obvious political fiction."
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