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Notes on Neoliberalism

"The neoliberal revolution was the product of an historical development, a reaction top changed circum-stances. In its course, many western states in the 1970s and 1980s reconsidered the relation of state and private power.."

By Jacob Augstein

[This blog entry uploaded 3/6/2009 is translated from the German on the World Wide Web,  http://www.freitag.de.]

In the debate on www.freitag.de, there were sharp reactions to my use of the word "neoliberalism." Some commentators quickly found the associative way to Pinochet's torture state or even to German National Socialism. That was surprising. Obviously these commentators do not understand the word "neoliberalism" as a term from the political-economic sphere describing a certain economic school of thought that can be supported or criticized with good arguments. To them, the word has become a fighting political term that one can never use soberly but only with disgust.

Looking behind the word to the subject could be very helpful.

The limits of the state are central in the debate. This theme is prominent worldwide and in Germany. In Freitag, the economist Rudolf Hickel said the German government is "completely disoriented" in its policy toward the crisis and acts in a "quasi blind flight." The problem of calculating the limits of the state is obviously difficult. Still the process is not so remarkable. The question always risers below the surface in western societies, at least the European societies: the question about the relation of public and private power. It is never uniform and never answered once and for all. States have decided for very different power balances according to temporal phases and according to economic-cultural characteristics. There are many capitalisms, not one capitalism.

Because capitalist and planned mechanisms work together in western systems, they are called "mixed economies." The mixed relation is important. The spectrum extends from the Swedish welfare state to US-American Reaganomics. The adjustment of capitalism to the respective temporal conditions and economic cultures is reflected there.

After the Second World War, Great Britain established an economic system in which a strong state influence was accepted. The term "Keynesian social democracy" was coined for strong state influence. This system began in England in 1944 when the war coalition obligated its successors to a high employment level. It ended in 1976 when former premier Callaghan said at a labor conference that all attempts to reach full employment by increasing public spending would only lead into pumping "a high dose of inflation into the system." In the same year, England needed a support credit of the international monetary system.

At this time the English debater was already marked by a strong polarization. Labor was seized by neo-socialist ideas; the Tories developed into neo-liberals. But neo-socialists and neo-liberals were agreed on one point: the idea of a third way between state and market, between capital and labor and between personal freedom and social justice was outdated. The English politician and journalist David Marquand wrote a very readable book about this development: "The Unprincipled Society" in which he describers the breaking of the English postwar model and decries Great Britain's reorganization under Margaret Thatcher. (In the 1980s Marquand was a co-founder of the Social Democratic Party and wrote many articles for The Guardian.)

The English way into neoliberalism cannot be understood without the preceding thirty years. It cannot be referred back to the sinister influence of several gloomy economics professors. A long continuing development in the English economy and politics is marked by de-industrialization, de-colonialization, a strained approach to Europe and the loss of the pound as the international currency, to name only a few of the most important factors. In a word, the subject is complex. A whole society can hardly be expected to change its economic paradigms.

What was the reason for the English change of course? Opinions of readers will probably differ greatly. An explanation could include the influence of international financial capital, US-American striving for dominance, strain of the state welfare system, and dissolution of a social consensus on just distribution and adjustment of the expectations of unions and management to the conduct of government...

In any case the neoliberal revolution was the product of an historical development, a reaction to changed circumstances. In its course many western states in the 1970s and 1980s reordered the relation of state and private power.

One obvious example is the reassessment of vital public necessities for which the state has to be concerned - the privatizations. Only opinions can be found here, not truths.

Local public transportation, water, electricity, food, streets, pensions, telecommunication, license numbers, schools, penal system... What is the state? What is the market? What should the authorities accomplish? What should firms do? These are value questions, not truth questions.

On principle there are many reasons to assume that private enterprises work more efficiently than state enterprises. Therefore one need not wait so long today for a telephone connection as in the seventies. As a matter of principle, there are many reasons to assumer that entrepreneurial efficiency is not always decisive.

There is no reason to assume that Germany was similarly seized and changed by the neoliberal revolution as Great Britain. With Agenda 2010 the German Schroeder government deformed the social market economy. There can be no talk of its abolition. In 1960, the state share in West Germany amounted to less than a third of the economic output. In 1975, it was 49 percent and since the 1990s approximately 50 percent. At the end of October 2008, finance minister Peer Steinbruck remarked at a meeting in Frankfurt that 70 cents of every euro collected in taxes wanders in the so-called "social realm." Measured in those statistics, the influence of the state in economic life has constantly increased.

When Angela Merkel set out to become the German chancellor, she pretended she wanted to change this. The Merkel of 2003 announced the state share should be lowered to 40 percent within a decade - "to give a home again to individual dynamic in Germany," as she formulated in a letter in January. She abandoned that project - to the regret of conservative commentators, as everybody knows - after she became chancellor. This was a sign either of how weak Angela Merkel is or how strong are the traditional economic-cultural characteristics in Germany.


Amartya Sen: "Adam Smith's Market Never Stood Alone"
 link to economistsview.typepad.com

Amartya Sen: "Capitalism Beyond the Crisis"

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