As
the world bounces back from the Great Recession more quickly and after less
suffering than expected, progressives will need to adjust their strategies. The
opportunities for a paradigm shift away from neo-liberalism are still there,
but it will be a less dramatic rejection of the status quo than initially
thought. As we come together to consider our options, it is my view that we
could benefit from taking a leaf out of the neo-liberals’ book. There is a
lesson to be learned from how they challenged and ultimately displaced social
democracy.
S.M.Amadae
argues, in her fabulous book, Rationalising
Capitalist Democracy[i], that a crucial
element of the cold war battle of ideas was a struggle over the nature of
democracy. She argues that, in the 1940s, civic republican conceptions of
democracy – as the public deliberation on the common good – had collectivist
and therefore socialist undertones. At the time, socialist
ideas were in the intellectual ascendancy and ideals of
democracy had growing popular appeal. As a result a reconception
of democracy was a key battle ground for those seeking
to defend capitalist individualism. Amadae argues that the Schumpeterian
perspective was taken as a
starting point, and public choice theory accounts of democracy were built
upon it and actively developed to this end. Instead
of arguing against democracy, neo-liberals
sought to reconceive of it in a
way that rendered it consistent with market individualism.
Democratic politics was increasingly understood as the
struggle for power
and a share of public resources between narrowly self interested
actors. The strength of democracy was that this struggle for power could be
contained and channelled to the public good by
a process of political competition. Amadae
noted that it was not until the 1970s that a suggestion of a natural
relationship between free markets and democracy became a staple of the pro
capitalist argument.
These
public choice/rational choice accounts of democracy became powerful through the
1970s. By the 1980s their account of democracy as mediating between rent
seekers was widely accepted in government circles. The ideas legitimated the
winding back of the welfare state. They
ultimately undermined social democracy and cleared the way for free market
reforms.
I
think there are two very important lessons we can learn from this example. Firstly,
they did not try to win a direct confrontation with a hegemonic concept – they
resisted the desire to swim against the rip and instead swam across it. Secondly,
they looked at an existing idea that had become widely accepted and they looked
for different ways to frame and explain its strengths. They developed ways of
explaining its achievements which resonated with their social philosophy, and
then down the track began the process of stigmatizing the aspects of the
institution that they disliked.
It
is my view that progressives in our confrontation with free markets need to do
much the same thing. The global financial
crisis has not led to the type of crisis that will see the old ideas thrown
out. A belief in free markets is here to stay
and will only be moved on incrementally.
In
my view, we need to take a fresh look at markets. The framing of political debate as between
‘government’ and ‘the market’ has allowed the classical liberal account of
markets to go unchallenged. The
opportunity now, for progressives, is to look at the market afresh, to examine
different ways of understanding how markets work. Fresh understandings of
markets’ strengths and fresh understandings of the things markets have achieved
is paramount. If we can come up with new accounts of the features of markets
that work well, we will then be able to move onto the step of stigmatising,
and, more importantly, excising the exploitative features of markets.
My
starting point for a rethink of markets is Adam Smith[ii].
Smith
argued that the nub of economic growth was the division of labor. He tracked
economic development as the move from being subsistence farmers who produced
almost everything they consumed themselves to a society in which people became
more specialized. The first step away
from subsistence was when some people became dedicated blacksmiths, carpenters
or bakers. The specialization enabled people to become more skilled at what
they did and to make tools that assisted with the task, resulting in people
becoming much more productive. As industrialization took hold, manufacturing
led to greater and greater levels of specialization, creating higher and higher
levels of productivity.
The
flip side of all this specialization was that we developed longer and longer
production chains where more people were involved in creating a single product.
In the modern world these production chains flow from primary producers, who
sell to wholesale manufacturers, who
make inputs for other manufacturers, who make inputs for other manufacturers,
before it finally goes to a retailer and on to the consumer.
This
notion of efficient economies being marked by specialization and long
production chains strikes me as having considerable potential for reframing.
Firstly,
economic growth, the creation of genuinely new wealth, is a product of gains
from co-operation. Secondly, a key condition for economic growth was that you
needed social conditions that made these long production chains possible. You
needed to have a society in which people were ethically developed enough that
they could have trusting and cooperative relationships with strangers. These
two points together, it seems to me, are the basis of a progressive case for
how markets can contribute to our communities. It is a notion that productive
markets thrive on co-operative relations, trust and ethical behaviour.
This
specialisation and long production chains approach also seems to me to have
some other desirable features as a paradigm shifting framework.
Its
third quality is that markets as we currently think of them can be seen as
existing between links in the chain. As a result, it is an approach that could
incorporate existing theories of markets but build on them and expand them. It
does not require existing economists to recant, rather it asks them to build
new extensions on their existing thinking.
Fourthly,
and most importantly, this larger more encompassing framework enables us to
start doing some more sophisticated analysis of both the strengths and
weaknesses of markets. We can
distinguish between good profit making behaviour that expands the size of the pie,
and bad profit making behaviour that simply shifts wealth from one part of the
chain to the other – what I might call profit shifting.
We
can see examples of this sort of profit shifting when farmers have to negotiate
with the major supermarket chains, Coles and Woolworths. Coles and Woolworths
are able to increase their profits not by creating new wealth but simply by
redistributing it from farmers to themselves.
We
can see similar sorts of profit shifting between workers and employers. We can
distinguish between good profits that genuinely create new wealth and bad
profits where employers increase their profits by shifting costs onto
employees. Whether it is by pushing down wages, shifting income risk onto
employees by making them casuals, or by reducing work hours or conditions.
These
sorts of approaches that seek to re-imagine the market, to politically
neutralize its strengths, and to focus on excising its exploitative qualities,
strike me as having the greatest potential for a post-neo-liberal future.
[i] S.
M. Amadae (2003) Rationalizing
capitalist democracy: The cold war origins of rational choice liberalism.
Chicago: University of Chicago Press.
[ii] A.
Smith (1976) An inquiry into the nature
and causes of the wealth of nations. Oxford : Clarendon Press.
