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Unmaking socio-economic cohesion Part 2

Evan Jones

Political advocates of neoliberal ideology: Margaret Thatcher and Ronald Reagan “Margaret Thatcher, Ronald Reagan” by seatonsnet is licensed under CC BY-NC-SA 2.0

The neoliberalist ethos has been a long time in gestation and cultivation. Society, social order and the role of the state in such are alien to it. Economists are a large part of the story – indeed the centrepiece? At the turn of the 19th Century, economics emerged as a self- styled distinct ‘discipline’ by its narrowing to facilitate analysis. Homo œconomicus is born with the erection of the school of Classical Economics. ‘Economic man’ gradually lost its fictional character and became fully humanised. Economists, now ensconced within the ‘Queen of the social sciences’, had little desire to explore what outsiders were saying about homo sapiens.

Classical economics was desirably system-wide in orientation. However, economic man was breathed into life by fashionable philosophical liberalism, giving the character agency – the capacity and the right to pursue self-interested ends.

What was to prevent economic man from turning into a version of another contemporary fiction – the anti-social creature of Frankenstein? The conundrum was resolved by introducing the prospect of social order as a truism.

The French Physiocrats started the ball rolling. Their agriculture-based system was blessed by Dupont de Nemours as “the science of the natural order”. The Physiocrats also elevated what had been an obscure throwaway line – laissez-faire – offering a complementary guide to action, or rather inaction.

Contemporaneously, the Scotsman Adam Smith devised the cute phrase ‘the invisible hand’. Backstage, Newton- ian classical mechanics offered authoritative metaphorical support with the conservation principle. Variations on a theme of natural order have flourished ever since. The context of such visions is obliterated, and their character simplified and universalised. Behind Adam Smith’s invisible hand and the Physiocrats’ natural order was the beneficent work of Providence.

Dupont again: “Its laws are irrevocable … They are just the expression of the will of God”. That source of inspiration had to be quietly killed off in the 19th Century, whereas the good news of what was originally God’s handiwork remained. Whether invisible hand or laissez-faire, it was quite unnecessary to inquire into their original context – whether criticising government oppress- ion or pressing a vested interest. One now had a simple formula for universal application.

The simple stories have been readily appropriated as weapons in battles for political influence. The first such appropriation was that by the Thermidorian Reaction in 1794, leveraging the Physiocrats’ mantra. Class conflict generating violence was passé. Order was to be restored (after the Thermidorians had despatched Robespierre to the guillotine!) via the free development of commerce, facilitating the enrichment of each and the happiness of all. The year after, universal (male) suffrage was suppressed – highlighting that the ascendant bourgeoisie’s vision of the general interest had a resolutely class character. Divergence between ideology and practice is a constant feature in this domain. The invisible hand and its natural order have produced offspring into the 19th and 20th Centuries, albeit of a more pedestrian character.

From the 1870s onwards there is built the Neoclassical economics edifice, which has effectively defined the economics ‘discipline’ for the last 150 years.

The macroeconomic orientation of Classical Economics then disappeared (resurrected after Keynes, but consistently sanitised and sidelined). Economic man is now centre stage (quaintly labelled ‘methodological individualism’). Aided by classical mechanics’ extremum principle and the calculus, this autonomous maximising individual is the embodiment of rationality. Systemic order is now achieved by competition between such automatons, leading to – aha – a state of equilibrium. The nirvana of ‘general equilibrium’ has been the subject of much idolatry.

Austrian economics, less often taught in academia but much favoured by libertarians, transcends its troubled acknowledgment of information dearth and uncertainty by ushering in the concept of ‘spontaneous order’. These fairy stories, variations on a common theme, have been replicated for well over 250 years. It appears that there is a subconscious mystical element that sustains the economics priesthood. God has merely been replaced by ‘the market’; economists have become the shamans of modernity.

To top it off, the heroes of the economist’s terrain – the market and competition – predominantly remain abstract- ions. How ‘the market’ and ‘competition’ work in practice are curiously of little concern. My 2011 article ‘The Market Mechanism in Reality and Myth’ elaborates on the issue.

One sub-branch has taken the dogma into the political sphere, hatching ‘the economic theory of politics’ or ‘public choice theory’. In my extended polemic against this school’s leading light – Economic Charlatan: James Buchanan in the Spotlight – I note that “This invention [economic man], perceived as such by its early proponents, has now been re-made as a fact twice over”. The impact of this school on the dismantling of functional public sector provision has been spectacular, not least in its laboratory experiment in Pinochet’s Chile.

Mystical symbol of a rising financial market: “Charging Bull – New York City” by Sam valadi is licenced under CC BY 2.0

Academic economists do a lot of things  – engage in empirics, even economic history, toy with unorthodox marginalia (game theory, behavioural economics) – but the status hierarchy radiates outward from the mystical to the real.

The representative academic economist would hotly deny that they are the standard bearers for neoliberalism in the political sphere – and rightly so. How- ever, the abstractions that are privileged in academic orthodoxy leave the field open for decidedly unacademic neoliberalism to flourish.

Economists’ ‘rigorous’ training generally leaves them with an impoverished understanding of how the world works. And yet they are employed at the forefront of economic policy advice – in key bureaucratic posts and, via contracting out, in private consultancies. In Australia the Treasury Department started life as a bean counter but, post-World War II, morphed into the dominant economic bureaucracy. The Department of Finance soon became of like mind.

Orthodoxy is constantly reinforced. The Coombs’ 1976 Public Administration Commission report recommended a new central department for broad economic policy advice – ignored. Labor’s poor man Economic Planning & Advisory Council, product of the Accord, was kept on a tight leash. The 1987 report of the union-led mission to Western Eur- ope was met with closed ranks by the bureaucratic establishment and by hysteria from the financial media and a myopic business sector (see my 1997 The Background to Australia Reconstructed). This was not a mission to the Soviet Union and North Korea. Rather, it was to Sweden, Norway, Austria, West Germany and the United Kingdom – where evidently nothing of any value could be learned!

The one-trick pony Industries Assistance Commission, subject to the Uhrig Review in 1983 after pressure from unions etc., was subsequently reinforced without behaviour modification. It was then transformed into the Industry Commission in 1990 (the Productivity Commission after 1998) and unleashed on the public sector in general – this with its status as the sole official economic policy think tank. No other country has so willingly constrained its policy options to a coven of intellectually limit- ed boffins. In the meantime, Central Agency personnel were placed in Line Departments to keep the latter ‘in line’.

The country was then subjected to the National Competition Policy tidal wave, which had nothing to do with competition. Rather, NCP was a vehicle to legitimise corporate sector access to spheres of public sector provision as well as corporate sector predation of petty bourgeois business spheres.

NCP was given oomph by the ludicrous imported concept of ‘contestabiity’, by which the absence of any competition against corporate heavyweights was turned into its opposite. This given that the corporation per se has always been disgracefully absent from economists’ tool kit (too hard basket, conceptually and ideologically), save for a recent contribution (‘New Institutional Economics’) of the utmost banality.

In this long dialectic of ideology and ‘theory’, there has been reified an economy without social and political grounding. This idealist construction has been implicitly accorded both autonomy and superior status over society and state that in practice underpins it. The financial media reinforces the mindset. The operatives of ‘free market’ think tanks, Tom Switzer as representative, are privileged with perennial newspaper columns to preach such nonsense.

Causation and order have been invert- ed. Social needs are implicitly subordinated to profit imperatives.

Thus we have the ideologues’ long whinging about government borrowing ‘crowding out’ private sector borrowing. More recently, we have the imperious concept of ‘competitive neutrality’. This when the private sector will deliver public goods only if profitable (many times not at all or on the cheap) and in key areas necessarily drawing lavishly on the public teat. In short, it’s all back to front.

The prospects of recovery of an appropriate role for public sector provision requires a total revamping of the balance of forces in Australian politics, including a much-needed recovery of courage by the Australian Labor Party (improbable). It requires a complete overhaul of tertiary economics education (impossible) or the marginalisation of economists from policy influence (improbable). Grim prognosis?

The malaise of public sector provision is the result of a system produced by much zealotry and self-congratulation, of a network, material and ideational, interwoven and entrenched. Covid-19, in particular, has exposed not purported robustness but its fragility. Will this opportunity born of profound crisis be leveraged to re-examine and redress the neoliberalist drift of forty years?

John Menadue blog, 21 Aug 2020

Dr Evan Jones is an ERA patron. See the previous issue for further information.

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