Left-wing activist George Monbiot recently published a diatribe against “neoliberalism” in the Guardian, which went massively viral. Its title alone — “Neoliberalism – the ideology at the root of all our problems” — suggests that he is trying to blame the “neoliberal” political and economic system for practically all of humanity’s ills.
The initial problem with Monbiot’s article is the author fails to define the term “neoliberalism.” He merely tries to equate it with other schools of political thought that are well-defined and more visible, such as classical liberalism and libertarian liberalism.
So what is neoliberalism? Having revised 148 academic essays, political scientists Taylor Boas and Jordan Gans-Morse conclude that the term “neoliberalism” is employed much more often by academics opposed to free markets than by proponents of economic liberalism.
Nevertheless, neoliberalism’s meaning “is not debated, and it is often not defined at all. As a result, we are faced not with too many definitions but with too few.”
Also, since Boas and Gans-Morse maintain that the use of the term “neoliberal” is far more often negative than positive in academic essays, they conclude that, in its current use, “neoliberalism” is no more than a vacuous slogan against economic liberty.
In his article, Monbiot follows a similar strategy: he doesn’t define neoliberalism, but rather describes it in terms of certain characteristics that he attributes to it. And he tries to assign those “neoliberal” characteristics to classical liberalism or libertarian liberalism.
In fact, many of the authors whom he describes as neoliberals — Ludwig von Mises or Friedrich von Hayek, for instance — are merely classical liberals.
Let me cite some of Monbiot’s phrases in order to explain why the main features of his “neoliberalism” don’t define classical or libertarian liberalism in any way whatsoever.
Liberals Also Believe in Cooperation
Neoliberalism sees competition as the defining characteristic of human relations.
Few would deny that a tendency toward competition is one of the basic traits not only of certain people, but of the human species. We even see competition in electoral politics: parties compete against other parties in order to gain voters’ support. Does Monbiot mean to suggest that we should suppress electoral competition among diverse political groupings?
Society, however, is evidently much more than a mere gathering of people looking to compete. Society is a means of coordinating the peaceful and voluntary interaction between individuals. This is not an alien concept to liberalism.
Mises, for instance, whom Monbiot qualifies as a “neoliberal,” opens the first chapter of his text Liberalism in the Classical Tradition with the following phrase:
Human society is an association of persons for cooperative action.
Doesn’t this rather contradict Monbiot’s theory, according to which neoliberals believe that competition is the basis of social relations? Or has he rather failed to read those liberals whom he accuses of being neoliberals?
Liberals Don’t Reject Planning
Neoliberalism “maintains that ‘the market’ delivers benefits that could never be achieved by planning.”
The fundamental problem of economics is to decide what to produce and how to produce it. We simply don’t know what is the best answer to those questions at each particular moment. Finding the right answer, however, is fundamental. If human beings cooperate to produce useless things, we are wasting our efforts. Our cooperation itself, then, becomes useless.
In a free market, anyone can form a cooperative association with anyone else to create businesses, within which decisions are taken in terms of what to produce and how to produce it. This is a form of planning. In the end, however, it is the consumer who decides which of all the products on offer he prefers. This is why businesses compete to offer those products which consumers prefer.
Liberalism, therefore, does not consider that planning is inefficient. Liberalism considers that the absolute centralization of planning, in which the consumer is denied the liberty to choose and other producers have no freedom to challenge the determined economic plan, is inefficient. On the other hand, liberalism supports the type of decentralized and competitive planning that takes place spontaneously in a free market.
Monbiot himself, in fact, admits in his article that socialism, the economic system characterized by the centralized planning of all production, has failed. Does that make him a neoliberal?
Not All Inequality Is Unjust
[In neoliberalism,] inequality is recast as virtuous: a reward for utility and a generator of wealth, which trickles down to enrich everyone.
Liberalism does not consider that equality is virtuous or defective in itself. On the one hand, liberalism recognizes that human beings are unequal because we are diverse. On the other hand, liberalism does not maintain that the inequality that arises from the voluntary cooperation between individuals is unjust. And since this type of inequality is not unjust, it should be neither combatted nor repaired.
In other words, liberals do not see inequality as intrinsically unjust. The important thing is to determine how a certain type of inequality comes about: if inequality results from voluntary cooperation, it is just. If inequality results from theft or plunder, it is unjust.
If liberals viewed inequality as virtuous, they would try to promote it by means of the state, but they don’t. On the contrary, they try to combat much of the inequality that results from state privilege, for instance the enrichment of those industries that flourish due to regulation, subsidies or tariffs.
Liberals, in fact, consider that equality before the law is the foundation of their political system. They defend that equality so that all persons can have the same rights and the same liberties.
Liberalism Is Not Consumerism
[Neoliberalism] redefines citizens as consumers, whose democratic choices are best exercised by buying and selling, a process that rewards merit and punishes inefficiency.
Liberalism is, in essence, a political philosophy, not an economic philosophy. So it is senseless to state that liberalism reduces citizens’ options for buying and selling. It rather broadens citizens’ options when they choose with whom they want to associate. They can even choose whether or not they want to associate with the state. Liberalism is therefore the freedom to associate or disassociate (in the economic sphere as well as in others).
Liberalism defends citizens’ choice to buy and sell what they choose — although this is not the only stance it defends — because it considers that all social relations should be based on choice, but also because it respects every individual’s choice to buy or sell as long as this doesn’t threaten other people’s freedom.
What seems to bother Monbiot, however, is that liberalism defends the individual’s liberty against the democratic will of the majority. It is Monbiot, in other words, who wants to reduce people’s choices, limiting them to take the decision to vote or not to vote. But what happens when the majority decides to repress the liberty of a minority?
Monbiot seems to imply the minority should stoically accept this kind of democratic repression (or try to convince the majority they are wrong). Liberals, on the other hand, argue that minorities’ freedom should be respected unconditionally.
Liberals Are against Privileges
[In neoliberalism,] the organization of labour and collective bargaining by trade unions are portrayed as market distortions that impede the formation of a natural hierarchy of winners and losers.
Liberalism doesn’t aim to eradicate trade unions or collective action. It does aim to end the state privilege which trade unions often enjoy. According to liberalism, workers who have the liberty to associate or disassociate as they please are free to form unions. Frédéric Bastiat, a prominent liberal, argued in favor of the legalization of trade unions in the French parliament, where congressmen sought to penalize their activities. And Bastiat’s argument was that labor unions are a legitimate form of free association.
Liberalism’s opposition to regulatory privileges for labor unions does not mean that liberalism is opposed to labor unions per se. Liberals also oppose privileges for particular businesses without being opposed to business in itself.
The IMF Is Not A Liberal Organization
Through the IMF, the World Bank, the Maastricht treaty and the World Trade Organisation, neoliberal policies were imposed – often without democratic consent – on much of the world.
In truth, each of these organizations is formed by states and is staffed by their bureaucrats. Their main functions are to rescue bankrupt governments and to impose centralized regulation upon citizens. Therefore, they are not classical liberal or libertarian liberal organizations.
The Inventor of “Neoliberalism” Was A Social-Democrat
The term neoliberalism was coined at a meeting in Paris in 1938. Among the delegates were two men who came to define the ideology, Ludwig von Mises and Friedrich Hayek.
The term neoliberalism did emerge from the Colloque Walter Lippmann in Paris, held in 1938. But Hayek and Mises neither coined nor accepted the term. Rather, it was the German sociologist and economist Alexander Rüstow, who opposed classical liberalism and used the word “neoliberalism” to describe a “third way” between capitalism and socialism.
In his book The Failure of Market Liberalism (Das Versagen des Wirstschaftsliberalismus), Rüstow writes:
We neoliberals agree with the Marxists and socialists in that capitalism is impossible to achieve and has to be overcome. We also believe that they have demonstrated that an excess of capitalism leads to collectivism.
And what did Rüstow recommend as his “neoliberal” policies? The state’s creation of schools and research centers, free state education at every level, temporary subsidies to salaried workers, mandatory unemployment insurance, public employment service, state direction of industrial activity, regulation to check the unbounded growth of business, and the fight against inequality by means of high inheritance taxes.
Undoubtedly, the traits which Monbiot assigns to neoliberalism have absolutely no relation to liberalism. In fact, the application of “neoliberal” thought corresponds most closely to what Rüstow himself named “the social market economy.” This term refers to a political program which is based on regulating competition, fighting against inequality, interfering in industrial production, forcing citizens to buy insurance, and financing state education.
Paradoxically, this is the same system that European social democrats describe in their platforms and manifestoes. So it shouldn’t surprise Monbiot that the British Labour Party and the Democratic Party in the United States decided to adopt this political program.
Monbiot himself promotes this brand of neoliberalism even if he is unaware of it.
Market Liberalism and the World’s Ills
Although it is clear that Monbiot’s neoliberalism has nothing to do with liberalism, we can continue to analyze the ills which he denounces in order to determine whether the solutions to these problems involve greater state intervention or rather more political and economic freedom.
Given Rüstow’s theories, let’s define neoliberalism as “a technocratic political system in which the state’s elites have a monopoly that allows them to define and bring about the common good. For neoliberalism, the common economic good involves respecting the market as an institution (albeit imposing numerous regulations to supposedly correct its defects) in order to maximize production. Socially, neoliberalism defends the state’s control of public services in order to partially redistribute the market’s production”.
If we adopt this definition, we would agree with Monbiot’s thesis that the entire western world is immersed in a neoliberal system. How then are the social ills which Monbiot denounces a consequence of the reigning doctrine of neoliberalism?
Liberalism Did Not Create the 2008 Financial Crisis
The financial meltdown of 2007?8:
The current economic crisis is not a consequence of the free market. Rather, it is a consequence of the privileges which different states granted to private banks. The root of the problem is, on the one hand, the way in which central banks monopolize the money supply and manipulate interest rates. There was also the government’s wholesale guarantee to rescue the financial system.
If we want to refer to this type of interventionism in favor of large banks as “neoliberal,” then neoliberalism is in fact to blame for the financial crisis. But note that, in this case, neoliberalism is directly opposed to liberalism and that, at any rate, we need more liberalism, not less, in order to avoid future crises.
In other words, we need to end state privileges for private banks. We need to end the central banks’ practice of feeding commercial banks with artificially cheap credit. And we need states to stop rescuing irresponsible banks when they are bankrupt.
Economic Intervention Is to Blame for Panama Papers
The offshoring of wealth and power, of which the Panama Papers offer us merely a glimpse:
It is true that, in many spheres of society, wealth and power are subjugating citizens, confiscating their property and eroding their liberties. To a certain degree, the case of thePanama Papers which Monbiot mentions proves that, across the world, political elites stole from their citizens and laundered the funds by means of complicated regulatory laws which they had set up themselves.
The origin of this evil, however, is the excessive power of today’s politicians, who can extract wealth from citizens and undermine their freedoms unchecked. This power derives from the state’s excessive authority to decree whatever its leaders deem necessary in order to promote the “common good,” a euphemism used to refer to the networks of parasites that live off the state while only promoting their self interest.
In order to avoid the flight of politicians’ ill-gained wealth such as that seen in the Panama Papers, it is necessary to limit the state’s regulatory power drastically. When an economy is heavily regulated and when the regulations are incomprehensible to average citizens, it is easier for politicians to steal and for parasites to thrive.
Public Services Fall of Their Own Weight
The slow collapse of public health and education:
The quality of state-run public services has been in decline for decades. In Spain, for instance, the failure of state schools is evident. We liberals have maintained that this progressive decay is a natural cause of centralized, quasi-monopolistic state control over schools.
Monbiot, on the other hand, finds another explanation: budget cuts and the semi-privatization of state schools have benefitted the few and hurt the many. Both theories, however, are not incompatible.
We can always find some states that administer their public services better than others. However, the essential point is that, in a free market, citizens have the ability to reject the providers who don’t deliver a satisfactory good or service. When the state monopolizes public services, we lose that ability completely.
During the last several years, this basic problem has been magnified by new problems, the first of which is the state’s constant fiscal deficits which have grown since the financial crisis. This has forced different governments to carry out budget cuts which, presumably, worsen the quality of public services to a greater degree.
This, however, merely reveals that the state is disastrous at managing scarce resources, and that it is only able to maintain a basic standard of quality in public services by throwing enormous and ever increasing amounts of money at them.
The second problem arises from what statists wrongly deem “privatization.” Faced with a budgetary crisis and their own administrative incompetence, states have outsourced the management of public services to private entities. The idea might seem good in theory, but in practice it presents enormous operative problems. Corrupt politicians, for instance, might hand over an entire industry to the highest bidder as seen from their own pockets.
In a free market, on the other hand, each citizen chooses a private operator, so that politicians cannot impose their own choice upon citizens. So neither classical nor libertarian liberals are to blame for the bad quality of public services. Rather, it is the combination between a deficient statism and a corrupt neoliberalism that takes advantage of the basic defects of the state’s administration of resources.
We Need a Freer Labor Market to End Child Poverty
Resurgent child poverty:
Child poverty is closely linked to unemployment. In Spain, for instance, poverty itself is a result of unemployment. What is the cause of unemployment? To begin with, there is a financial crisis which, as explained above, is not a consequence of market liberalism, but was rather caused by the privileges which the state gave to private banks.
But there is another type of unemployment: that caused by state regulation. States design labor regulations that are supposed to protect the worker, but the real effect of those regulations is to increase the costs of hiring to such a degree that the worker can only join the growing army of the unemployed. This leaves the worker without any real hope of advancing professionally. And this is the hotbed of child poverty.
The way to get rid of child poverty is to create employment, and creating jobs requires a free labor market, not a hyper-regulated labor market. Contrary to what Monbiot argues, granting more privileges to labor unions will not end the problem. It will rather make things worse because it will make hiring more expensive. Measures such as an increase in salaries without taking productivity into account, an arbitrary reduction in working hours, or a prohibition on firing workers can only increase unemployment.
One merely has to look at Spain. Between 1980 and 2010, the average unemployment rate was 17 percent. The type of labor regulation to which many opponents of market liberalism wish to return, undoing the last generation of labor reform, was responsible for one of the highest unemployment rates in the world.
Liberals Also Want to Smash Inequality
Inequality in the distribution of both income and wealth:
The increase in inequality during the last decades has varied and complex causes. Monbiot simply blames “the smashing of trade unions, tax reductions, rising rents, privatization and deregulation.” The truth, however, is that inequality began to rise in the 1970’s, when none of what Monbiot describes was taking place.
Inequality is not a result of an increase of business profits at the expense of salaries. Rather, it is a consequence of broader gap in salaries between qualified and unqualified workers. This type of inequality, moreover, would increase with tax hikes or greater privileges for labor unions.
Market liberalism, however, favors tackling the inequality that results not from free trade, but rather from state privilege and intervention. Today, many rent seekers profit extraordinarily from the political process. Powerful lobbying groups gain favors from the state in the form of public contracts or regulations that benefit them.
On the other hand, if inequality results from a widening gap between skilled and unskilled workers, it is evident that a deficient state education system must share a large part of the blame. This is the case since state education tends to focus on making students university graduates, but a university education does not always prepare a person to adapt to the modern world’s constant changes. We should be trying to prepare professionals, whether university-educated or not, who are able to join our changing and dynamic labor markets.
This means that a failed statism will not reduce inequality. A greater amount of liberty, however, will. We should not fall into the trap of assuming that market liberalism necessarily creates inequality and that this implies poverty for an important part of society. The liberalization of global commerce, in fact, is reducing global inequality and poverty at a rate never seen previously in human history.
If inequality is increasing in the west, this is due to bad policies and an increasing amount of state intervention among other reasons, not to an excess of market liberalism.
Liberals Advance Another Way to Save the Environment
The collapse of ecosystems:
The world does face many environmental problems. The main reason for this is that polluting the environment in many cases has no cost for the polluter. And pollution has no cost because those who suffer from pollution cannot directly sanction the polluters. It is politicians who decide when pollution is illegal and which penalties apply, and they do so through regulations. This approach, however, is totally at odds with classical liberalism.
Classical liberalism argues that private property must be respected. The respect for private property involves not polluting other people’s property. Any victim of pollution caused by another person should be able to sue the polluter, demanding a full stop to the illegal activity and a compensation for the damage caused. This is what Ronald Coase, a classical liberal economist, proposed in his famous Coase theorem.
Communal private property —fields, lakes, rivers, woods, fishing reserves, etc. — should also be protected from pollution. This type of private property has been traditionally successful in terms of protecting ecosystems from exploitations, as Nobel Prize-winning economist Elinor Ostrom has demonstrated.
States, however, have left private property unprotected from pollution by granting polluters privileges over the rights of property owners. In many cases, states have expropriated communal private property, either nationalizing it or handing it over to private companies, so that the former commons are exposed to the whims of mercantilist means of exploitation.
The blame, however, lies solely with the state, which has decided to implement a centralized “environmental policy” through its own monopoly. The inevitable result is pollution with impunity.
We might very well call this policy “neoliberal.” But this has nothing to do with classical or market liberalism, whose answer to the fundamental problem would solve most of our environmental ills.
Liberalism Is Not against the Family or Church
The epidemic of loneliness:
It’s true that social fragmentation and loneliness are traits of our modern society. Classical liberalism defends the individual’s freedom from the masses so that majorities cannot exert a tyranny over minorities. At the same time, however, classical liberalism defends individuals’ freedom to associate with other individuals.
Classical liberalism, therefore, cannot be the root of the decay of gregarious social institutions such as the family, local associations, churches, or charities. Classical liberalism has merely defended the individual’s rights vis-à-vis any of those groups; it has not maintained that such groups must disappear.
The state, on the other hand, has historically tried to exert a monopoly of force which all citizens must obey. Its aim is to become sovereign, exerting authority over all else. When individuals form a part of other social groups or have other links and loyalties which they value above their political ties, the obedience to the state is no longer absolute.
The state, therefore, has always been suspicious of the family, of municipal authority, of churches, and voluntary associations. In certain cases, the state has absorbed some of these groups, transforming municipalities into yet another one of its administrative branches, or, in many countries, making the state itself the official religion. In other cases, the state, by means of welfare programs, has sought to replace groupings such as the family or “friendly societies,” mutual associations that take care of minors and the elderly while providing education, insurance against risk, and social services.
It’s surprising that once the state fragments and weakens society’s cooperative ties except in strictly mercantile spheres, where the market still operates, the statists complain because society itself and the old networks of cooperation are disappearing. The truth is that the state has annihilated associations in order to strengthen its monopoly of power.
The best way to revive voluntary associations is not with more statism, but rather with greater freedom for civil society. This is precisely what classical liberalism advocates.
If neoliberalism is a political system that aims to eradicate all forms of interaction except economic interaction, which it leaves to a market heavily regulated by the state, then neoliberalism is in fact guilty of causing the epidemic of loneliness, But this is completely different from classical liberalism, which has always defended a vigorous society made up of individuals who associate freely with others.
Collectivism Is Responsible for Donald Trump’s Success
The rise of Donald Trump:
Populist political movements have arisen in recent years in both Europe and the United States. We have witnessed the rise of both right-wing populism (Trump in the United States and Marine Le Pen in France), and of left-wing populists (Podemos in Spain, Syriza in Greece, and Jeremy Corbyn in the United Kingdom).
Populism is certainly a problem, but it is not due to an excess of liberty as Monbiot maintains. Rather, the fundamental problem is that many people still have faith in politics as a means to impose their own preferences and interests upon all other citizens, even if this requires violating their basic liberties.
Monbiot tries to explain the rise of Trump by suggesting that politics has been incapable of seducing citizens:
When political debate no longer speaks to us, people become responsive instead to slogans, symbols and sensation. To the admirers of Trump, for example, facts and arguments appear irrelevant.
The case, however, is precisely the opposite: Trump is extremely successful because he has aggressively politicized or re-politicized a large part of society. The same applies to Podemos in Spain. Those who had never participated in politics, or who did so half-heartedly, have recovered their faith in politics as a means of “change.” But what kind of change are they expecting?
Certainly, the followers of populist movements or parties, whether they belong to the left or the right, can only expect change that leads to greater state intervention. And it will necessarily be aggressive, exclusive, and parasitic intervention.
Trump has already declared that he will use the state as a means to expel foreigners, both immigrants and those who export goods to the United States. Podemos has already declared that they will use the state as a weapon against the rich. Neither of the two have paused to consider whether or not they should respect their victims’ freedom. For them, using the state’s coercive apparatus is justified if they are defending the interests of a majority of voters.
The problem, therefore, is not that society has become excessively liberal. The problem is that many people are not sufficiently tolerant to understand that it is illegitimate to use state coercion to impose one’s will over others.
Contrary to Monbiot’s argument, the type of populism that destroys liberty does not arise when governments lose “the moral authority that arises from the delivery of public services.” Populism and totalitarianism arise when the state has an excessive amount of power to do as it pleases. It is only a matter of time before large groups of voters realize that they only have to seize the state’s coercive apparatus in order to impose their own interests on everyone else.
Perhaps neoliberalism, a political, technocratic ideology in which elites plan people’s lives regardless of their preferences, is responsible for the rise of populism. Classical liberalism is certainly not.
Neoliberalism Is Not Liberalism
It should be clear that neoliberalism, in Rüstow’s sense of the term, is not liberalism.
To the extent that neoliberalism is responsible for the rise of the social ills which Monbiot describes, it is guilty because it opposes the basic precepts of classical liberalism or libertarian liberalism.
Paradoxically, what Monbiot advocates — a “mixed economy” which is neither socialism nor capitalism — is not an alternative to neoliberalism as a reigning ideology. Monbiot’s theses reaffirm neoliberalism.
Instead of recognizing the failure of his own ideas, Monbiot opts to erect a straw man which in turn becomes a scapegoat for that failure. He tries to flee without recognizing that neoliberalism, or “the social market economy,” is merely the face of a failed European social democracy.
Today, the true revolutionary alternative to neoliberalism is not a more aggressive brand of statism than the one we have now, but rather a return to the foundational principles of liberalism.