Is There An Alternative To the Neoliberal Strategy?
Dr. Piet Keizer, Associate Professor of Economic Methodology, Utrecht University School of Economics, November, 2017
There may be a time when we are powerless to prevent injustice, but there must never be a time when we fail to protest – Elie Wiesel
The world is a dangerous place to live; not because of the people, who are evil, but because of the people, who don’t do anything about it – Albert Einstein
In the Western World TINA is popular: there is no alternative. ‘The goals of neoliberalism are the best, and so are its instruments. It offers us the best mix of freedom, equality and order by giving technological progress a clear path, complemented with a little redistribution of resources, so as to keep the people quiet’. Socialism seemed to offer a better strategy. Because of the assumed intrinsic instability of capitalism a central plan should keep the economy stable, especially by planning the necessary investments. After 1989 many believers in socialist strategy left the political scene. Many countries, that did not reach the stage of industrialisation, were ruled by conservatieve leadership. The problem of order dominated politics and richness of the mass of the people was or still is considered unnatural.
At the moment there are three powers, which dominate global politics: the Western, the Chinese and the Russian world. Japan and India might become global powers in the future, and Eastern Europe is at the edge of becoming more Russian or more Western. It makes sense to first define the ideal-typical substance of the three political philosophies, which are conservatism, liberalism and socialism. Then we will see how we can typify the three worlds just mentioned in terms of the ideal-types. We will continue with a concise history of the Western world, and see what are the major threats and chances for the future. We end up with a few conclusions.
Pre-modern societies were based on tradition. Religion determined culture, and the institutions of society, derived from it were taught to the new generation. Gods should be beseeched, and rituals were meant to celebrate life. Priests were responsible for the maintenance of culture, medicine men for the health of the people, and the older people were supposed to lead the tribe, and to keep order. Even methods of production were institutionalized, although circumstances required permanent small adjustments. So, religion established culture, and tradition maintained a strictly hierarchical order. Later, cooperation between tribes of the same ethnicity led to the formation of larger social units. Technological progress was given more room, and led to more sophisticated production techniques, including techniques of warfare. Modern conservatism stresses the importance of technological progress, but only as long as it is culturally embedded. Hierarchy must maintain order, and inequality is natural. Corporatist institutions must prevent individuals from becoming contracted out. A conservative economy is characterized by a strict hierarchy in families, firms and government agencies. The natural ranking should be maintained, whatever the changes in circumstances. Especially the labour market should be institutionalized in such a way, that the macro-wage rate functions as a stabilizer. Employers and employees should be well-organized; their organizations are responsible for the discipline among the rank-and-file. Unemployment must be optimized; not too large so as to fuel class struggle; not too low, to prevent the unions to become too powerful. Today Austrian, German, Dutch and Belgian welfare regimes are still quite conservative.
Modern societies are based on the idea that we can influence our destiny. Modern culture gives us a justification for an endless flow of progressive ideas, especially about β-technology. Higher, bigger, smaller and faster – it all is supposed to give more control over natural forces. Liberalism refers to the liberation of individuals from the restrictions of a pre-modern society: no cultural and legal restrictions anymore. Every person knows best what is in his interest. Free persons meet each other voluntarily on markets, and their trades are beneficial for all parties involved. Competition forces market participants to do their utmost best, to earn a decent living. It leads to optimal allocation of scarce resources. Liberally orientated persons are rational, and therefore conclude a contract with all other people, to respect each other’s properties. Otherwise trade makes no sense. From the very first beginning of history there were markets. But they were institutionally embedded. Liberals have always tried to de-institutionalize markets as much as possible. They have also recognized that, as long as many people are not liberal, and not able to operate on markets successfully, it is necessary to give the government also a social role to play. In Europe liberals try to organize economic unions, where markets are liberated from government intervention. The European Union is a good example in this respect. Unfortunately, North-western European members of the EU have built welfare regimes, which are too generous. This has hampered free labour markets. Another problem might arise. Some markets tend to become monopolistic and monopsonistic. In these cases the government should try to forbid particular mergers and acquisitions.
This ideology emerged in capitalist environments. In the beginning free markets are competitive, but not accessible for a large part of the population. Only people owning enough wealth and productive human capital could find a place. Later the scale of production steadily increased, making bigger companies cheaper than smaller ones. It led to a concentration of capital, which created even more inequality in the free-market system. Critics developed the idea of capitalist systems being intrinsically conflict-prone, and as soon as the system has reached a high level of production technology, it should be replaced by a central plan economy. Capital should be owned by the people as a whole, and planned in such a way that all persons could find a place in the system – according to their abilities and to their needs. The people owns their capital, and need a political system, in which this ownership is guaranteed, and where all the important decisions are made so as to specify the inputs and the outputs. Since many people felt outsider, while many insiders appear corrupt because of their political monopoly positions, there severe problems emerged as soon as a political elite established a socialist society.
The Western versus the Russian versus the Chinese world
The history of the Western world is characterized by a permanently changing mix of conservative, liberal, and socialist elements. The 19th century shows an increase in liberalism, at the cost of conservatism. During the first half of the 20th century we see an increase in socialist influences. After WW II we see a mix between the three political philosophies. The ongoing battle between conservative and socialist groups, has led to clientelism, in the South more than in the North. From the 1980s onwards we see a growing impact of liberal ideas – triggered by Reagan in the USA and Thatcher in the UK. This development went hand in hand with increasing fraud and corruption, also in Northern Europe. The USA is the homeland of neoliberal ideas. But the last decades this country faces a strong increase in income and wealth inequality. The economic crisis 2008 had its origin the US-economy. Banks were saved by the government. Mainstreet is helping Wallstreet: that’s the world upside down, and Trump as president is the consequence. Now he is making a turn towards more conservatism and nationalism.
The history of the Russian world is characterized by a mix of conservative and socialist influences. Liberalism is weak; it does not fit the culture of the Russian people, as it has grown out of a very long history. Until 1917 Russia was ‘owned’ by the Tzars. After that it was property of a socialist political elite. After the fall of the Soviet Union, there was a period of chaos. A small economic elite became owner of many state properties, making them filthy rich. Now Putin rules the country, and he shows to be a nationalist, who wants to restore the Soviet Union. He regularly talks about the Russian world. For him this is a world, where people are proud of their nation and maculinism rules. This world should be surrounded by a few other worlds, which all have much respect for ‘the Russians’. Tradition shows that hierarchy is natural, and leads to great performances. Heroes are worshipped, especially people who died when defending the country. Everything is allowed what supports the re-unification of this Russian world.
The history of the Chinese world is also characterized by a mix of conservative and socialist ideas. Liberalism as a view of life is barely present. In ancient times China was ruled by emperors, who were tough dictators. Confucian virtues were taught, which led to disciplined people. Children were taught that their father and mother must be honoured and treated with full respect. And so with the political leaders: they also should be considered as Fathers. In 1949 the socialist Mao took over political power. He organized the economy in a socialist way. His policies were extremely violent, but the Chinese had never learned to think in terms of individual rights. So, liberal opposition has always been very weak. Deng decided to led parts of the economy to the free market. The combination between socialist dictatorship, public ownership of a series of strategic sectors of industry and a growing market sector, led to dizziying figures of economic growth. More than the Russian world, the Chinese world has become a true global power.
We can summarize this concise historical description by means of the following sequence:
CONSERVATIVE – LIBERAL – SOCIALIST – LIBERAL- CONSERVATIVE.
For the Russian and the Chinese world the liberal periods were short and not really liberal, but chaotic. For the Western world holds that the socialist periods were not really socialist, but a very moderate variant of it. We can summarize the histories as follows.
A long period of conservatism leads to a desire among the middle class to be free, and take economic initiative. In liberal periods only part of the population profits from the increase in wealth. This creates social strife among the lower class, followed by more socialist practices. But then the business sector faces structural profit squeeze, and threatens to leave the country. This roars nationalist emotions, leading to a turn into more conservative direction.
At the moment two global trends promote a more liberal order. Most countries have become relatively small economies, operating on a very large global system of markets. China and Russia have tried to develop their economies behind walls of protection. At the moment China thinks to be strong enough to operate successfully on freer markets. Why? Their strategic industries remain in the hands of the government, and smaller businesses can profit from minor regulations in the social and environmental field. Russia continues to be conservative, and tries out various sorts of cooperation with countries which are supposed to belong to the Russian world. The angry white men in the USA have become increasingly the victim of international free trade, and they don’t want to compete with countries like Japan, China and Mexico. Trump is trying to steer the country into more conservative direction.
Now we are in a stage of a global liberal order being challenged by conservative ideas and practices. Socialist ideas and practices are on their retreat. We must be aware that the dynamics just described, takes place in an unstable environment. Regime shifts are the result of severe social tensions. Conservative, liberal and socialist practises are always disappointing for the idealists. In daily life we never observe ideal-types, only combinations of them. Moreover, humans are, to a certain degree at least, irrational and immoral. The ideal-types of societal structures all assume that their regime disciplines persons and groups. This is an unrealistic assumption. Structures cannot create reasonable persons. People must do it themselves.
Persons and groups must reduce their irrationality and immorality
Irrationality refers to a lack of self-control. To a certain extent persons know it. When they eat peanuts, and know that this is unhealthy for them, many lack the willpower to resist the short-term advantage of eating something very tasty (Romer, 2000). But a more dangerous phenomenon is the lack of self-knowledge. Many people do not reflect upon themselves regularly. Familiar knowledge reaches consciousness quite automatic and without much energy. Information that seems to challenge the information, which is accepted and stored, is rejected. Often it does not even reach consciousness (Kahneman, 2011). It looks like it might undermine self-respect of the threatened person. In this way important knowledge is ignored, which makes decision-making less effective (Keizer, 2015).
Persons are inclined to group together, thereby forming homogeneous groups. In this way they feel comfortable and recognized. If some members of the group appear quite critical towards the own views, values and norms, they should be blamed for eventual bad performances. Excorcision must clean the group, and discrimination must keep the group clean. This practice is the heart of immorality – maintaining the difference between insiders and outsiders, which is the source of the ongoing human rivalry (Girard, 1978, Bauman, 1990).
If we combine the notions ‘irrationality’ and ‘immorality’, we get the notion of ‘unreasonability’. Unreasonable behaviour distorts every mechanism of coordination, be it the market, be it different types of governance. Systems that are dominated by conservative elements are distorted, because the elite is not committed to practice its social duties. The behaviour of landed gentry is more exploitative than caring for ‘their’ peasants. Kings were regularly organizing wars, so as to extend their authority rather than serving the interests of the people. If the mass of the workers does not accept this exploitation, they revolt and try to establish a socialist regime, in which capital is owned by the socialist representatives of the people. Again an elite, who starts exploiting the people rather than taking care of their interests. If rich and well-educated people emigrate, a socialist country faces a hard time. If potential emigrants are able to overthrow the socialist regime, a combination of liberalism and conservatism is the result. In practice, the economic elite starts the exploitation of the people. In postwar North-Western Europe we see a combination of all three ideal-types of societal structures. During a couple of decades the combination functioned well. Under the influence of globalization and digitalisation, the welfare systems were increasingly undermined. Even labour has become more mobile – and North-western Europe appears an attractive region. Moreover, the indigenous people have become increasingly abused their welfare systems.
Unreasonable behaviour is of all times, and the richer the people, the more opportunities to be fraudulous and corrupt. But at one point this time is unique. The combination of globalization and technological progress is a dangerous one. It is making global systems very vulnerable for actions by bad persons and groups. This makes it necessary to consider the unreasonability of many of the people, as a variable – WE MUST BECOME MORE REASONABLE AND ALERT.
Examples of unreasonable behaviour
A number of practical examples will illustrate the meaning of unreasonability.
In the eighties of the 20th century the global financial elite became over-optimistic about future economic development: “this is a new era”. Globalization, together with digitalisation gives the global economy an ever continuing boost. So, liquidity is a waste, and external capital to be preferred to own capital. Banks started lending subprime mortgages – if a certain percent of the borrowers will appear unable to pay the necessary financial obligations, it does not matter. It’s all peanuts; it will, neither distort the growth of the economy as a whole nor of the extremely large banks. What it means for bankrupt borrowers, is not of our business. They must blame theirselves, of course. In 2008 it became clear that their optimism was not realistic. Non-mainstream economists had warned time and again. Some of them had spelled out exactly how and why the global economy would clash. The financial elite had the power to ignore these critiques. And until today they ignore these critiques – nothing learned, nothing unlearned.
At the Western universities Economic Faculties were and are still dominated by one perspective, the so-called neoclassical economics. In the Netherlands about 90% of the obligatory courses are filled with liberal views: ‘the free market economy is a stable system. If our real-life economies appear unstable, apparently government influence is too large. The crisis 2008 had to be attacked by deregulation of the labour markets, and by cutting government expenditures’. Again, critiques, such as radical, post-Keynesian and social economists, were ignored. What is more – if not fired in the past, they had, and still have a hard time.
Large and multinational firms are constantly lobbying for deregulation and lower taxes. Governments are increasingly inclined to give in, leading to a race to the bottom. Tax paying is for the locals, not for the globals. The agreements are secret! This is an outright undermining of the idea of a welfare state. What if highly educated with years of relevant experience claim tax reduction, and show the tax agency their mobility, North-western Europe would go back to a very liberal regime, including all the social problems this regime is creating. The lobbyists can know that their behaviour is immoral and counter-productive. Heir grandchildren will not be glad with the behaviour of their grandparents.
In all organizations many persons are irrational and immoral. They shirk, they steal, and they are constantly discriminating some other (groups of) persons. Northern people like to blame Southern people for being corrupt and fraudulous. But Northern people appear quick learners. The media reports are the tip of the iceberg, and very decent-looking people are participating in unreasonable practices. Different departments of a firm are rivalling with each other. Different departments of a government organization are constantly fighting against each other, and are withholding their bosses from important information – sometimes on the request of the boss himself. Members of a Board are favouring the own group or network, and large PR-departments are constantly creating images of the organization, that must hide the dark sides of the organization. The problem is not only those who are regularly committing frauds and corruption. Even bigger is the problem that so many people are more or less passively ‘partners in crime’. They see it, they hear about it, they know, who is the initiator. But they tell each other justifying stories, so as to play it down. And again, critics are threatened to be excorsised. In the last section we draw a number of conclusions.
During the last decade we see growing global disorder. This is a threat according to all people who underscore the golden rule of the United Nations: “do unto others as you would want them do unto you”. At the moment there are a number of power centres, not just one or two. The top three are the USA, China and Russia. The EU is a rising star, but it suffers from growing internal tensions. Moreover, we see that Turkey, Iran, and Saudi-Arabia are playing a major role in the chaotic Arabic world. Political philosophy offers three primary idealtypical constructions: conservatism, liberalism and socialism. Real life can only be understood, when constructing mixes of the three primary idealtypes (Keizer, 2015). What they have in common, is the idea that societal structure determines culture, and the behaviour of persons. This is an unrealistic assumption. Persons are inclined to be irrational and immoral, and the position in the economic, social and political structure only determines the opportunities for people to be unreasonable. In some positions people steal from their boss. In other positions people are fraudulous and corrupt. Bosses can shirk in very specific ways, serving their own interests rather than the interests of the organization and of society as a whole.
Sober welfare states are only sustainable, if the mobile part of the population commit theirselves, to a certain extent at least, to the community, in which they live –rather than just live with people of the same network, whereever they live. Commitment means that interests of other people, and of the next generation, are adopted by rich and famous people. Why should they do that? They might discover that this type of goal transformation leads to lasting satisfaction rather than just short term excitement.
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