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Neoliberalism:

origins, theory,
definition
Since the late 1990's activists have used the
word 'neoliberalism' for global market-
liberalism ('capitalism') and for free-trade
policies. In this sense it is now widely used in
South America. Some people use the word
interchangeably with 'globalisation'. But free
markets and free trade are not new, and this
use of the term ignores developments in the
advanced economies. More confusion comes
from the use of the word, in the United States,
to describe traditional foreign policy - as
opposed to the neoconservative version
favoured by the Bush administration. The
definition here compares neoliberalism with its
historical predecessors. Neoliberalism is not
just economics: it is a social and moral
philosophy, in some aspects qualitatively
different from liberalism. Last changes 18
March 2004.

The definition of neoliberalism presented here is more abstract than usual - but it also
suggests that neoliberalism has been underestimated. A widely quoted example of those
'usual definitions' is What is "Neo-Liberalism"? by Elizabeth Martinez and Arnoldo
García:

Neo-liberalism is a set of economic policies that have become


widespread during the last 25 years or so. Although the word is rarely
heard in the United States, you can clearly see the effects of neo-
liberalism here as the rich grow richer and the poor grow
poorer....Around the world, neo-liberalism has been imposed by
powerful financial institutions like the International Monetary Fund
(IMF), the World Bank and the Inter- American Development
Bank....the capitalist crisis over the last 25 years, with its shrinking
profit rates, inspired the corporate elite to revive economic liberalism.
That's what makes it 'neo' or new.
This sense of the word 'neoliberalism' is widely used in Latin America. However,
neoliberalism is more a phenomenon of the rich western market democracies, than of
poor regions. That is why I emphasise the historical development of liberalism, in those
western market democracies. The IMF and the World Bank are not the right places to
look, to see the essence of neoliberalism. And the WTO ideology - free trade and
'competitive advantage' - is 200 years old. There is nothing 'neo' in their liberalism.

So what happened at Seattle and Genoa?


When people hear the word 'neoliberalism, they think of the protests at Seattle and
Genoa, and the associated social movements. The underlying causes of these events are
related to the historical expansion of liberalism. Remember the photograph of riot police
advancing over the body of Carlo Giuliani - the demonstrator shot by police at the G8
summit in Genova (Genoa). It is a classic image of state power - force used in repression.
But it is also an image of the advance of the free market.

There is not necessarily a contradiction between The State and The Market. It is possible
for the state to suppress the market, but also to promote it. In fact, the free market
emerged in Europe under the protection of the state.

There are two reasons why the market needs the state. The first is that the market itself
needs internal regulation, in order to function. The state, in the form of the legal system,
ensures contracts are enforced. In the form of the police, it prevents theft and fraud. It
establishes uniform systems of weights and measures, and a uniform currency. Without
these things there would be no free market, no market forces, and no resulting market
society. Bill Gates disputes the US Government's authority over his business - but if there
was no government at all, the poor would soon steal his wealth. The attack on the World
Trade Center provided some images of this dependency - the reopening of the New York
Stock Exchange by police and firefighters, for instance. (In turn, at least in the United
States, the market is integrated in the national identity: the NYSE reopening was seen as
an act of national defiance).

The second reason is even more simple. The free market is itself a form of social
organisation: it is neither spontaneous nor endemic to humans. If no-one ever promoted
or enforced it, there would be no free market on this planet. For thousands of years, there
was none. The modern free market came into existence primarily because liberalism
demanded its existence. This demand was a a political demand, and it was enforced
through the state.

The general functionalist starting premise is only modified to the


extent that the "system" is comprehended as capitalist, in a specific
way "form-determined". The state and the political system function as
a form of an 'ideal all-around capitalist', who must uphold not just the
society as such, but the 'capitalist element'. The different forms of
state interventionism are explained both as an expression of functional
needs of the accumulation and reproduction process of capital. The
general requirements of capital accumulation such as basic
infrastructure, functioning law systems and legitimization mechanisms
are tasks that cannot be carried out by individual capitalists due to the
competition relations, but instead systemically require a "fictive all-
around-capitalist". This "capitalist referee" must guarantee the
fulfilment of these tasks in the interest of maintaining the system of
capitalist society..
Business and the State: Mapping the Theoretical Landscape
Volker Schneider and Marc Tenbuecken, 2002.

If everyone on this planet was a liberal, an enthusiastic supporter of the free market, then
that would be the end of the matter. But of course some people oppose the market, and its
effects - especially the resulting inequality. The market is a political and social regime,
and like any other regime, it must be enforced against opposition. That is true even of
democracies: democrats overthrow dictators, and dictators overthrow democracies. If
either side wants to avoid their own overthrow, they must use force. Democrats do use
force to defend democracy - ultimately in the form of civil war, or military intervention in
support of a democratic ally.

The relationship between supporters and opponents of the free market, is similar to that
between democrats and anti-democrats. They are enemies, inherently. On the very
existence of the market, no compromise is possible. The free market either exists, or it
does not exist. It can disappear by consent - which is absurdly unlikely - or without
consent. Any attempt to end the free market is, by definition, an attempt to overthrow a
fundamental social structure. Certainly, in the long-established western market
democracies, it would mean a collapse of the existing social structures. The effect would
be dramatic - comparable to occupation by a foreign power.

So it is not surprising that force is used, and it is not surprising that it is the force of the
state. That is after all, a typical task of the state - the preservation of the regime itself, the
preservation of the nature of the state. A market-democratic state is not simply
interchangeable with a Bolshevik regime. (Anarchist propaganda often speaks of "the
State", as if all states were interchangeable, but they are not). A market democracy will
use force, state force, against an attempt to overthrow either democracy or the market.
This is what the riot police did in Seattle and subsequent 'summit protests'. They are
indeed defending the state, and advancing its power. They are also defending the market,
and advancing its power. Both versions are equally true: there is no contradiction
between them.

In historical perspective the force used was an absurd over-reaction. The western market
democracies are the most stable and successful societies in history. The principle of the
free market is accepted by well over 90% of their population, probably closer to 99% in
western Europe. Yet 20 000 police and soldiers were deployed at the Genoa G8 summit:
for comparison, KFOR troop strength in Kosovo was 42 500. This is out of all proportion
to the political strength of anti-market forces, meaning those who reject the market
entirely. But given the underlying issues described here, any anti-market protest is a
potential civil war.
The leaders of the western market democracies clearly felt the need, to make some sort of
political point at Genoa. They could have met, for instance, on Diego Garcia - a military
base in the middle of the Indian Ocean. They choose to come to Genoa, knowing that
protests awaited them. As usual, Tony Blair was the most explicit about the motives. He
emphasised that the G8 Summit was a meeting of democratically elected leaders, and
refused to make concessions on the location of the meeting. This is probably the reason
for the disproportional show of force: to emphasise the legitimacy of the market
democracies, in a period of their expansion.

However, that attitude is not specifically related to neoliberalism. It is not the product of
any new ideology, but of western market-democratic expansionism, which existed before
the First World War. Liberalism is an integral part of the expansionist ideology, and
liberalism has evolved into neoliberalism. But it is wrong to simply throw all this history
and ideology into one heap, and call it 'neoliberalism'.

Liberalism
Liberalism as a coherent social philosophy dates from the late 18th century. At first there
was no distinction between political and economic liberalism (economics was not
considered a separate discipline until about 1850). Classic liberal political philosophy has
continued to develop - after 1900 as a purely conservative philosophy. The basic
principles of all liberal philosophy are:

• Liberals believe that the form of society should be the outcome of processes.
These processes should be interactive and involve all members of society. The
market is an example, probably the best example, of what liberals mean by
process. Liberals are generally hostile to any 'interference with process'.
Specifically, liberals claim that the distribution of wealth as a result of the market
is, in itself, just. Liberals reject the idea of redistribution of wealth as a goal in
itself.
• Liberals therefore reject any design or plan for society - religious, utopian, or
ethical. Liberals feel that society and state should not have fixed goals, but that
'process should determine outcome'. This anti-utopianism became increasingly
important in liberal philosophy, in reaction to the Communist centrally-planned
economies: it anticipated the extreme deregulation-ism of later neoliberalism.
• Liberalism is therefore inherently hostile to competing non-liberal societies -
which it sees not simply as different, but as wrong. In the last 10 years, Islamic
society has replaced the Communist state, as the perceived 'opposite' to a liberal
society.
• Nevertheless liberalism has compromised with one specific form of non-liberal
ideology: nationalism, in the ethno-national form which underlies most present
nation states. A political community based on common origin, history and
language is not liberal, but liberals never tried to form the voluntarist, contractual,
non-historical state - which liberalism would logically imply. The nation state was
simply taken for granted, as the political and economic arena for liberal process.
• Liberals define liberalism itself as 'freedom', so they rarely think consent is
required for the imposition of a liberal society. In fact, most would say it can not
be imposed, inherently. After the Cold War this belief has acquired a geostrategic
significance: many western liberal-democrats now believe, that a war to impose a
liberal-democratic society is inherently just. This belief influences interventionist
policy, but as yet no war for the sole purpose of liberalisation has been fought.
• Classic political liberals reject the idea that there are any external moral values:
they say that there are only opinions. They feel that these opinions should be
'expressed' in public, and that in some way this 'market of opinions' will favour
the truth. (The idea that truth can be revealed by discourse is much older than
liberalism).
• The liberal rejection of external moral values is formally expressed in the liberal
idea of human rights: both good and evil humans have equal rights, which apply
equally when they facilitate good or evil actions. Classic liberal philosophy
advocated 'liberty' as a value, even if they did not call it a value. In effect it places
liberty as a value above good (and evil).
• Liberals believe in formal equality among participants in a liberal society, but
almost all liberals also believe in inequality of talent. Many liberals were
therefore sympathetic to biological theories of inequality. (Theories of hereditary
racial differences in intelligence are now popular among US neoliberals).

Liberalism is a universal ideology, and in principle liberals seek to apply it to the entire
planet, and the entire human population. Most liberals have supported the expansion of
liberal society, although in the 19th century that meant among the 'civilised nations'. For
a long time the free market was considered the only cross-cultural and 'exportable'
element of liberalism. Only recently have liberals advocated, that African and Asian
societies should become 100% liberal-democratic societies. 'Liberal missionaries' such as
George Soros were unknown or marginal in the 19th-century.

Market liberalism
The free market is not simply 'exchange' or 'trade'. Two people who exchange products
can not form a free market in the liberal sense, even if their transactions are monetarised.
The element of competition is missing in this two-person society.

A minimal liberal free market needs at least three parties, with two of them in
competition - for instance, two competing sellers and one buyer. The resultant pressure
on the two sellers to lower prices, is the simplest type of 'market force'. Such a force
comes into existence without any conscious action on the part of the three parties. In
modern markets there are millions of parties, and complex market forces. Market-liberals
value this characteristic of the market. Their belief in the moral necessity of market
forces in the economy, is probably the first defining feature of market liberalism. The
second is the belief in entrepreneurs themselves, as a good and necessary social group. To
summarise:
• For all liberals, interactive process legitimises outcome: in market liberalism, the
market is the primary process, and market transactions are the interaction.
• Market liberals believe that economic transactions should take place in a
framework which maximises the effect of each transaction on every other
transaction. (That is an abstract definition of the free market, but it makes the later
transition from liberalism to neoliberalism easier to understand).
• Liberals see the market as good, and often as semi-sacred. They want the market
to be as large as possible, involving all of society. In modern liberal-democratic
states almost all adults participate in the market. A private club in a Communist
state, where members can hold a closed free market, would satisfy no liberal.
• Liberals are hostile to economic self-sufficiency - so strongly, that they believed
in war to 'open up markets'. The most famous example is the Opium War, when
Britain forced the Chinese Empire to allow the import of opium. This liberal
belief in market expansionism has revived after the end of the Cold War.
• Market liberals are hostile to trade barriers: "free trade" is a classic slogan of
market liberalism. That meant traditionally, the free flow of goods and capital:
neoliberalism later developed a more diffuse version, where 'flow' and
'interaction' are treated as quasi-ethical values.
• Market liberals believe that important aspects of society should be determined by
the market, certainly the distribution of income and wealth. Neoliberalism later
extended this belief, claiming that all social life should be determined by the
market.
• All market liberals are hostile to interference in the market, by church, state or
others - although since the 19th century only the state has sufficient power to
interfere. Market liberals are clearly anti-utopian, in the sense of opposing
economic planning, especially centralised state control of the entire economy.
They believe that the market produces the best 'design for society', and that is is
wrong to substitute any other design.
• However, market liberalism is itself a utopia, despite its anti-utopianism. In the
'ideal world' of market liberalism, no goods or services exist which are not the
product of market forces, but all goods or services which are market-responsive
do exist. This is in itself a utopian project, implying a total structuring of society.
Neoliberalism goes even further - extending the market principle beyond the
production of goods and services.
• The social institution of the entrepreneur is central to market liberalism. An
entrepreneur is a person whose profession is, to respond to market forces. In
the 19th century most entrepreneurs were still private individuals, later the
business firm took over this function. The enterprise/firm is a permanent
organisation, structured to respond to market forces. An entrepreneur is not a
farmer, or a manufacturer, or a consultant: in theory an entrepreneur changes
activities in accordance with the market. In reality most entrepreneurs retained a
specialisation for some specific products or services: but neoliberalism now
demands, that the theoretical flexibility should become standard practice.
• Without the entrepreneur there is no free market, therefore market liberals
demand a privileged social status for the entrepreneur. The early liberal
theorists were hostile to the urban guild economy of mediaeval Europe: they saw
it, in effect, as a conspiracy not to compete. In their historical vision, the
entrepreneur rescued Europe from the poverty of the Middle Ages. (This vision
was shared by Karl Marx, who admired the cultural dynamism of the free
market). Not just mediaeval Europe, but all societies without an entrepreneurial
caste, were seen as failures.

A central but rarely explicit political demand of market liberals is therefore, that
entrepreneurs should have control of the economy. This has not only been accepted, but
has become so incorporated into the culture of western liberal-democratic societies, that
few people ever think about it. But it would not be any less logical, to hand the economy
to engineers, or priests - or not to privilege any one group. The choice depends on
underlying values, and liberals value the entrepreneur. This value preference of liberals,
and its widespread acceptance, has created what in the US is called 'the business
community'. That is a real and identifiable social elite - with specific cultural preferences,
specific clothing, and often a specific form of language (sociolect). It does in fact control
the economy, in liberal-democratic states. Although this was probably not foreseen by
early liberals, market liberalism has become an ideology in support of this elite. Their
culture, attitudes, and ethics have greatly influenced neoliberalism.

Neoliberalism
If Adam Smith returned and saw the more extreme aspects of neoliberalism, he would
probably find them bizarre. Nevertheless, they derive from the ideas of early liberalism.
The belief in the market, in market forces, has separated from the factual production of
goods and services. It has become an end in itself, and this is one reason to speak of
neoliberalism and not of liberalism.

A general characteristic of neoliberalism is the desire to intensify and expand the


market, by increasing the number, frequency, repeatability, and formalisation of
transactions. The ultimate (unreachable) goal of neoliberalism is a universe where every
action of every being is a market transaction, conducted in competition with every other
being and influencing every other transaction, with transactions occurring in an infinitely
short time, and repeated at an infinitely fast rate. It is no surprise that extreme forms of
neoliberalism, and especially cyberliberalism, overlap with semi-religious beliefs in the
interconnectedness of the cosmos.

Some specific aspects of neoliberalism are:

• A new expansion in time and space of the market: although there has been a
global-scale market economy for centuries, neoliberals find new areas of
marketisation. This illustrates how neoliberalism differs from classic market
liberalism. Adam Smith would not have believed that a free market was less of a
free market, because the shops are closed in the middle of the night: expansion of
trading hours is a typically neoliberal policy. For neoliberals a 23-hours economy
is already unjustifiable: nothing less than 24-hours economy will satisfy them.
They constantly expand the market at its margins.
• The emphasis on property, in classic and market liberalism, has been replaced by
an emphasis on contract. In the time of Adam Smith, property conferred status in
itself: he would find it strange that entrepreneurs sometimes own no fixed assets,
and lease the means of production.
• Contract maximalisation is typically neoliberal: the privatisation of the British
railway network, formerly run by one state-owned company, led to 30 000 new
contracts. Most of these were probably generated by splitting services, which
could have been included in block contracts. (A fanatic neoliberal would prefer
not to buy a cup of coffee, but negotiate separately for each microlitre).
• The contract period is reduced, especially on the labour market, and so the
frequency of contract is increased. A service contract, for instance for office
cleaning, might be reduced from a one-year to a three-month contract, then to a
one-month contract. Contracts of employment are shorter and shorter, in effect
forcing the employee to re-apply for the job. This flexibilisation means a
qualitatively different working life: many more job applications, spread
throughout the working life. This was historically the norm in agriculture - day
labour - but long-term labour contracts became standard after industrialisation.
• Market forces are also intensified by intensifying assessment, a development
especially visible on the labour market. Even within a contract period, an
employee will be subject to continuous assessment. The use of specialised
software in callcentres has provided some extreme examples: the time employees
spend at the toilet is measured in seconds: this information is used to pressure the
employee to spend less time away from the terminal. Firms with contracts are also
increasingly subject to continuous assessment procedures, made possible by
information technology. For instance, courier services use tracking software and
GPS technology, to allow customers to locate their packages in transit. This is a
typical example of the new hyper-provision of business information, in neoliberal
economies.
• New transaction-intensive markets are created on the model of the stock
exchanges - electricity exchanges, telephone-minute exchanges. Typical for
neoliberalism: there is no relationship between the growth in the number of
transactions, and the underlying production.
• New forms of auction are another method of creating transaction-intensive
markets. Radio frequency auctions, such as those for UMTS frequencies, are an
example. They replaced previous methods of allocation, especially licensing - a
traditional method of allocating access to scarce goods with no clear private
owner. The complex forms of frequency spectrum auctions have only been
developed in the last few years. Neoliberals now see them as the only valid
method of making such allocations: they dismiss all other methods as 'beauty
contests'.
• Artificial transactions are created, to increase the number and intensity of
transactions. Large-scale derivative trading is a typically neoliberal phenomenon,
although financial derivatives have existed for centuries. It is possible to trade
options on shares: but it is also possible to create options on these options. This
accumulation of transaction on transaction, is characteristic of neoliberalism. New
derivatives are created, to be traded on the new exchanges - such as 'electricity
futures'. There is no limit to this expansion, except computer power, which grows
rapidly anyway.
• Automated trading, and the creation of virtual market-like structures, are
neoliberal in the sense that they are an intensification of "transaction for
transaction's sake". However, a world in which all entrepreneurial activity was
automated would not be neoliberal, or liberal.
• This expansion of interactivity means that neoliberal societies are network
societies, rather than the 'open societies', of classic liberals. Formal equality and
'access' are not enough for neoliberals: they must be used to create links to other
members of the society. This attitude has been accurately labelled 'connectionist'.
• Because of contract expansionism, transaction costs play an increasing role in
the neoliberal economy. All those 30 000 contracts at British Rail had to be
drafted by lawyers, all the assessments have to be done by assessors. There is
always some cost of competition, which increases as the intensity of transactions
increases. Neoliberalism has reached the point where these costs threaten to
overwhelm the existing economy, destroying any economic gains from
technological change.
• The growth of the financial services sector is related to these neoliberal
characteristics, rather than to any inherent shift to service economies. The entire
sector is itself a transaction cost: it was almost non-existent in the centrally
planned economies. In turn, it has created a huge demand for office space in the
world's financial centres. The expansion of the sector and its office employment
are in direct contradiction of propaganda about 'more efficiency and less
bureaucracy' in the free market.
• The speed of trading is increased. Online market data is expensive, yet it is now
available free with a 15-minute delay. The markets move so fast, that the data is
worthless after 15 minutes: the companies can then give it away, as a form of
advertising. Day-traders buy and sell shares in minutes. Automated trading
programmes, where the computer is linked direct to the stock exchange system,
do it in seconds, or less. It is this increased speed which has led to the huge
nominal trading volumes on the international currency markets, many times the
Gross World Product on a yearly basis.
• Certain functions arise which only exist inside a neoliberal free market -
'derivative professions'. A good example is the profession of psychological-test
coach. The intensity of assessment has increased, and firms now regularly use
psychological tests to select candidates, even for intermediate level jobs. So
ambitious candidates pay for training, in how to pass these psychological tests.
Competition in the neoliberal labour market itself creates the market for this
service.
• The creation of sub-markets, typically within an enterprise. Sub-contracting is
itself an old market practice, but was usually outside the firm. It is now standard
practice for large companies to create competition among their constituent units.
This practice is also capable of quasi-infinite extension, and its promotion is
characteristic of neoliberalism. A few companies even required each individual
employee to register as a business, and to compete with each other at the place of
work. A large company can form literally millions of holdings, alliances and joint
ventures, using such one-person firms as building blocks.
• Supplier maximalisation: this extends the range of enterprises that compete for
each contract. The ideal would be that every enterprise competes for every
contract offered, maximising competition and market forces. In the case of the
labour market, the neoliberal ideal is the absolutely flexible and employable
employee, who can (and does apply) for every vacancy. In reality, an individual
can not perform every kind of work - but there is a real development towards non-
specialised enterprises, especially in the producer services sector. In
neoliberalism, instead of the traditional 'steel tycoon' or 'newspaper baron' there
are enterprises which "globally link people and knowledge, and cultures" or
"advise and implement solutions to management issues". (In fact these are quotes
from the accountants Price Waterhouse, but you can not guess this from the
descriptions).

Neoliberalism is not simply an economic structure, it is a philosophy. This is most visible


in attitudes to society, the individual and employment. Neo-liberals tend to see the world
in term of market metaphors. Referring to nations as companies is typically neoliberal,
rather than liberal. In such a view Deutschland GmbH competes with Great Britain Ltd,
BV Nederland, and USA Inc. However, when this is a view of nation states, it is as much
a form of neo-nationalism as neoliberalism. It also looks back to the pre-liberal economic
theory - mercantilism - which saw the countries of Europe as competing units. The
mercantilists treated those kingdoms as large-scale versions of a private household, rather
than as firms. Nevertheless, their view of world trade as a competition between nation-
sized units, would be acceptable to modern neoliberals.

Competition for inward investment, on the other hand, was generally unknown until the
late 19th century. This competition is often seen by activists as the core doctrine of
neoliberalism, especially since the neo-mercantilist policies are easy to understand and
very unpopular: wage cuts, less money for public services, less tax on the rich. The neo-
mercantilist nation, in other words, behaves like a caricaturally mean and nasty capitalist.
It is not relevant either for these policies, or for opposition to them, whether they have
any effect at all. Perhaps investment decisions are not made on this basis, perhaps there is
no real mobility of capital, perhaps no investor is interested in Argentina, for instance.
But so long as the Argentine government believes that it should pursue certain polices to
attract investors, then it will do so. So long as it believes that the 'SA Argentina' is a
business firm, then it will run Argentina accordingly.

The market metaphor is not only applied among nations, but among cities and regions as
well. In neoliberal regional policy, cities are selling themselves in a national and global
marketplace of cities. They are considered equivalent to an entrepreneur selling a
product, but the product is the city (or region) as a location for entrepreneurs. The
successful 'sale' of the product is the decision of an entrepreneur to locate there, not
simply the sale of land or factories. This view of cities as sub-firms within the fictive
'national firm' parallels the creation of sub-markets within real firms. The difference is,
that those sub-markets really exist - neoliberal city governments, on the other hand, act
primarily on a belief in a metaphor. Again, there is no hard evidence that the global
marketplace of cities exists: for most economic sectors complete mobility of plant and
labour is an illusion. Most firms can not simply move from city to city, across continents
and ignoring language and cultural barriers, in pursuit of locational advantage. Here too,
the neoliberalism is a philosophy, an attitude, rather than an economic reality. A good
example is the basic policy document of the city of Düsseldorf - the Leitbild, equivalent
to a 'mission statement' in English. It was adopted in 1997, and is no longer online at the
city website, but parts are quoted at St@ttbuch Düsseldorf...

Düsseldorf bekennt sich zum Prinzip des Wettbewerbs. Der Erfolg von
Städten entscheidet sich im Wettbewerb nach innen und aussen.
Düsseldorf will besser sein.
Wettbewerb ist treibende Kraft unseres gesellschaftlichen Systems. Im
zusammenwachsenden Europa gilt dies in hohem Masse auch für die
Beziehungen zwischen den Regionen, die als Wirtschaftsstandort, als
Lebensraum für die Bürgerinnen und Bürger und als Kulturstandort
miteinander konkurrieren. Sich hierzu bekennen heisst, den
Wettbewerb aufnehmen und aktiv gestalten zu wollen.
Im Wettbewerb besteht nur, wer gut ist. Düsseldorf will Wettbewerb.
Im Interesse der vielen Millionen Menschen des Lebens- und
Wirtschaftsraums: Düsseldorf will besser sein.

Düsseldorf is committed to the principle of competition. The success of


cities is decided by competition, internal and external. Düsseldorf
wants to be better. Competition is the driving force of our social
system. In a Europe which is becoming more integrated, this applies
increasingly to the relations between regions. They compete with each
other as investment location, as residential choice for the citizens, and
in cultural activity. Our commitment means that we will actively and
structurally enter into this competition. In a competitive world, only
the good can survive. Düsseldorf wants to compete! In the name of
the millions of people in our economic and residential region:
Düsseldorf wants to be the best!

The neoliberal urban vision was adopted, without debate, by many city governments in
the 1990's. At some point, a belief in 'competition by population structure' was
incorporated - the idea that a successful city is inhabited only by successful people. This
belief, nonsensical or not, has had an effect in a negative sense: some cities now pursue
active policies aimed at relocating low-income households outside the city. In March
2004, the Amsterdam Chamber of Commerce proposed removal of all low-income
households from the city, primarily by demolition of all social housing, and their
replacement by high-income households.

As you would expect from a complete philosophy, neoliberalism has answers to


stereotypical philosophical questions such as "Why are we here" and "What should I
do?". We are here for the market, and you should compete. Neo-liberals tend to believe
that humans exist for the market, and not the other way around: certainly in the sense that
it is good to participate in the market, and that those who do not participate have failed in
some way. In personal ethics, the general neoliberal vision is that every human being is
an entrepreneur managing their own life, and should act as such. Moral philosophers
call this is a virtue ethic, where human beings compare their actions to the way an ideal
type would act - in this case the ideal entrepreneur. Individuals who choose their friends,
hobbies, sports, and partners, to maximise their status with future employers, are ethically
neoliberal. This attitude - not unusual among ambitious students - is unknown in any pre-
existing moral philosophy, and is absent from early liberalism. Such social actions are not
necessarily monetarised, but they represent an extension of the market principle into non-
economic area of life - again typical for neoliberalism.

The idea of employability is characteristically neoliberal. It means that neoliberals see it


as a moral duty of human beings, to arrange their lives to maximise their advantage on
the labour market. Paying for plastic surgery to improve employability (almost entirely
by women) is a typical neoliberal phenomenon - one of those which would surprise
Adam Smith.

Eileen Bradbury, a psychologist who advises surgeons at the Alexandra


Hospital in Cheadle, Cheshire, said she was particularly worried that
Jenna wanted the operation so that she could be successful. "That is a
very disturbing belief for a 15-year-old girl to have, and also a false
one," she said. "I have seen women coming for surgery who work in
television and they say they have to have it done or they won't get the
work. I usually go along with that because it is probably true".
Guardian: Parents defend breast implants for girl, 15.

In practice many 'workfare neoliberals' also believe that there is a separate category of
people, who can not participate fully in the market. Workfare ideologies condemn this
underclass to a service function for those who are fully market-compatible. Note
however, that by recognising a non-market underclass, neoliberals undermine their own
claims about the universal applicability of market principles.

The general ethical precept of neoliberalism can be summarised approximately as:

• "act in conformity with market forces"


• "within this limit, act also to maximise the opportunity for others to conform to
the market forces generated by your action"
• "hold no other goals"

If everyone lives by such entrepreneurial precepts, then a world will come into existence
in which not just goods and services, but all human and social life, is the product of
conformity to market forces. More than traditional market liberals, neoliberals therefore
have a quasi-heroic attitude to the entrepreneur, and to engagement in the market. A 1998
speech by German entrepreneur Jost Stollmann is typical: his neoliberal ideas played a
prominent role in the national elections in Germany in that year. Stollmann includes his
personal moral philosophy, such as it is...

Ich möchte die Lust und Bewunderung unternehmerischen Erfolgs in


den Augen der jungen Menschen sehen. Ich möchte den Stolz und den
Zuspruch der Eltern spüren, wenn sich Sohn oder Tochter tatenvoll in
das Abenteuer Selbständigkeit stürzen.
....so gut sein, wie wir nur können - getreu der bewährten Formel, die
ich während meiner Zeit in Amerika verstehen gelernt habe: 'BE THE
BEST YOU CAN BE'
Jost Stollmann

The idea that everyone should be an entrepreneur is distinctly neoliberal. Early liberals
never expected the majority of the population to own property, let alone run a business.
(The participation of the poor in the market was limited to accepting any work they were
offered). The practices on the flexibilised labour market would seem strange to the early
liberals. For instance, individuals set up a one-person employment agency with one
person on the books, themselves - partly for tax reasons, but also to meet the ideal of the
entrepreneur. Policy to increase the number of entrepreneurs is typically neoliberal,
although ironically it must be implemented by the State. A classic market-liberal would
not say that a free market is less of a free market, because only 10% of the population are
entrepreneurs. For neoliberals it is not sufficient that there is a market: there must be
nothing which is not market.

the neoliberalism joke


Marxist "The workers have nothing to sell but their labour power"
Neoliberal "I offer courses on How to Sell Your Labour Power Like A Shark"

There is therefore no distinction between a market economy and a market society in


neoliberalism. With the attitudes and ethics set out above, there is only market: market
society, market culture, market values, market persons marketing themselves to other
market persons. In a sense neoliberalism has returned to the position of early liberalism -
which also combined culture, values and ethics with economics. But neoliberalism brings
a far more intensive 'market' - replacing not only traditional social forms, but also the
concept of private life. At the same time this 'market' is increasingly remote from the
necessity of production, which was so real for the early liberals - when there were still
regular famines in Europe. In fact it is so remote from the existing cultural perception of
a 'market', that it would perhaps be better to use some other word.

Finally, neoliberalism has become associated with specific cultures (especially US


culture) and a specific language (English). This is not surprising: Anglo-American
liberalism had the most influence on neoliberalism. Neoliberalism as ideology is not tied
to any culture or language. It is true that a single global language would facilitate free
trade - but that could be Esperanto, as well as English. In practice, the promotion of the
English language, neoliberal policies, and pro-American foreign policy, usually go
together: this was especially true in Central and Eastern Europe.

Globalisation and neoliberalism


Often the terms 'globalisation' and 'neoliberalism' are used as if they were
interchangeable. That is only correct in a limited sense, for the neo-mercantilist aspects of
the neoliberal ideology. I will try to clarify the perceived and actual relationship between
the two - especially for the South American use of the term 'neoliberalism'.

The neoliberal ideology sees the nation primarily as a business firm, as explained above.
The nation-firm is selling itself as an investment location, rather than simply selling
export goods. If no-one in government believes in this ideology, it will have no
consequences. If however, a neoliberal government is in power, it will pursue policies
designed to make the nation more attractive as an investment location. These policies are
generally pro-business, and are perceived as such by the opponents of the policies.

But remember that the ideology is neo-mercantilist: the policies are national policies,
directed ultimately at the welfare of the nation and not of the market. Paradoxically, they
are a form of protectionism: if there is a global market of investment locations, then it is
'unfair competition' for governments to artificially increase the attractiveness of their own
country. Such governments are, strictly speaking, not good market liberals. Hard-line
classic market liberals would shrug their shoulders at the election of an anti-business
government. "Business will go elsewhere, the country will become poor, that's the way
the global market works, leave the market alone", they would say. They would not waste
their time trying to get a pro-business government elected there. In reality few liberals are
so consistent, neoliberals certainly are not. But their rhetoric of 'national competitiveness'
is a form of economic nationalism: it is a modern version of the old nationalist insistence,
that the whole nation should work together. It revitalises jingoism, chauvinism, flag-
waving and foreigner-bashing: Tony Blair is probably the best example.

Don't tell me that a country with our history and heritage, that today
boasts six of the top ten businesses in the whole of Europe, with
London the top business city in Europe, that is a world leader in
technology and communication and the businesses of the future, that
under us has overtaken France and Italy to become the fourth largest
economy in the world, that has the language of the new economy,
more brilliant artists, actors and directors than any comparable
country in the world, some of the best scientists and inventors in the
world, the best armed forces in the world, the best teachers and
doctors and nurses, the best people any nation could wish for. Don't
tell me with all that going for us that we do not have the spirit to meet
all the challenges before us.
Blair conference speech, 26 September 2000

Now, a neoliberal government will almost certainly appeal to 'globalisation' as a


justification and legitimisation of its policies - Tony Blair certainly does. By globalisation
they mean, more or less, that the global market of investment locations now exists, and
that it is an inevitable historical development. The opponents of the neoliberal
government will, in turn, oppose this 'globalisation'. However, that does not mean that the
global market of nations actually exists. The existence of neoliberal governments,
pursuing neoliberal policies justified by an appeal to globalisation, does not mean that a
new global order has superseded the order of nation states. The very fact, that it is still
primarily the nation state which is being 'marketed' in this way, shows that the nation has
not disappeared.
Before considering the reality of the global order, it is also necessary to consider the
beliefs of the opponents of such a neoliberal government. Again paradoxically, many of
them accept without question the neoliberal claim that there is a long-term historical
process of 'globalisation', transforming the nation into a business firm on a global market
of nation-firms. Worse, if the nation is a business then it is often clearly weak - everyone
can see that Argentina is economically worse off than the United States. A neoliberal
government will therefore try to convert a nation such as Argentina into a 'strong player',
which means worsening the living conditions of much of the population. Now here is the
next paradox: the response of the opponents is also an economic nationalism, this time
with the emphasis on protectionism. The opposition perception of globalisation differs in
one respect: for them it is a historical but not spontaneous development. For them it is a
policy imposed by a non-national global elite, directed against the individual nations.

In their view, the international financial institutions are equivalent to an imperial power,
which has de facto colonised countries such as Argentina. In caricatural form: they
believe that a new and powerful empire has come into existence, the Empire of IMF-ia, at
an indeterminate location. The neoliberal government, in this view, is a traitorous elite
acting as a colonial Viceroy for the IMF-ian Empire. The opposition wants to replace it
with a government which will 'liberate' the nation from the global market, from its
colonial status. That 'liberation' is generally understood as: withdrawal of the nation-firm
from the global market of nation-firms, protectionism, economic nationalism, and self-
sufficiency instead of trade. Here too there is a paradox: the oppositional movements are
not anti-business: they generally see national business as a victim of global business.
(Local business in South America is in the comfortable position, that both neoliberals and
anti-neoliberals want to help it, for different reasons).

The 'IMF-ia model' is partly correct: the global financial institutions are indeed a bastion
of neoliberal ideology, and they can bully some poor countries into adopting neoliberal
policies. But they can't do that to the rich western powers, in fact they would not exist
without the support of these powers. They are not a force outside nations, they are not an
imperial power. The global financial institutions are, in the simplest terms, an instrument
of US policy - and if there is a quasi-imperial power, it is the United States.

The point is, once again, that the truth of beliefs about globalisation is itself irrelevant. If
the government and people all believe that a country is being attacked by fire-breathing
dragons, then the government might distribute asbestos suits to the population, and the
opposition might complain that there were not enough of them. Ideologies and politics
can operate on a completely fictive basis. Millions of Europeans died to 'resolve'
theological issues such as the Virgin Birth of Mary, Mother of God.

So the perceptions have themselves generated a political reality: on the basis of a belief in
'globalisation' some governments pursue neoliberal policies, which are neo-mercantilist
in their logic and aims. In such circumstances opposition to globalisation and
neoliberalism coincides, rather than neoliberalism being identical or synonymous with
globalisation. Both sides share a common fallacy: that trade and sovereignty are
opposites, a zero-sum pair. The neoliberals believe that national success - "in today's
global market" - requires the abandonment of national economic autonomy and
sovereignty. Their opponents believe that national welfare requires minimisation of trade
and external links: they believe that trade and invasion are equivalent, although no-one
will say that outright. Once again, the equivalences and perceptions on both sides are
false. Most of the Gross Global Product is tied to individual nation states for technical,
climatic, logistical, and cultural reasons. For most investment decisions, there is no global
market of locations. And sovereignty is not necessarily inverse to trade volume and trade
regime. A powerful country such as the United States can have a high trade volume
relative to GNP. Many colonies - by definition not sovereign - had a low trade volume
relative to GNP, because the bulk of 'GNP' consisted of peasant agriculture. But even a
fallacious belief can apparently support not just one, but two competing forms of
economic nationalism.

So what is the reality behind the perceived globalisation? One reality is that nation states
still dominate global social and economic structures. However these nation states
themselves form a specific arrangement of a specific type of state. Globalisation claims
appear logical if you see nation states as isolated islands, but that is not the historical
reality. The very existence of a world of nation states, indicates some form of global
order of nation states. What these nation states do - trade or no trade, capital flows or no
capital flows - is irrelevant to that issue. What is already global can not logically be
globalised: therefore there is no globalisation, in the widely used sense. There is no
transition underway, or recently completed, to a fundamentally different global structure.
Because the existing order of nation states is already global, intensification of global
flows, or global trade, or global communication does not undermine it, or fundamentally
alter it. If some part of the world were to break with this global order - for instance a
future autarkic caliphate - that would be a radical change. When nations trade with each
other, that simply indicates that the global order of nations is functioning as expected.

The false premise in the globalisation thesis is in fact the standard nationalist claim, that
each nation is a separate and particular entity. In reality nations collectively are a global
and universalist structure: the functional equivalent of a nationalist world state. The
world functions as if a nationalist world government had seized power in the 19th
century, led by Mazzini and Garibaldi and friends. Most existing states were indeed
established by nationalist groups. Nationalists co-operate to maintain one (nationalist)
world order and exclude others. The nation state is not a particularity, existing by itself in
isolation, but part of a global design. Supporters of the globalisation thesis claim, that a
world of isolated nation states existed in the recent past - before 1989, or more
approximately before 1950. They claim that these isolated nation states are now being
eroded in a global process: it includes the formation of the neoliberals claimed 'market of
nations'.

Economic globalization represents a major transformation in the


territorial organization of economic activity and politico-economic
power....The sovereignty of the modern state was concentrated in
mutually exclusive territories and the concentration of sovereignty in
nations...economic globalization has contributed to a denationalizing of
national territory...
Saskia Sassen. Losing Control: Sovereignty in an Age of globalization
(1996).

But is the global order of nation states disappearing, anywhere? In reality, there is no
collapse of the nation state to be seen. Nation states have not suffered anything
comparable to the dissolution of the Austro-Hungarian or Ottoman empires. All that
remains of those empires are oversized palaces in Vienna and Istanbul. The rest of their
institutions have completely disappeared: there is not a square metre of Habsburg or
Ottoman territory left in Europe. There is no longer an Austro-Hungarian imperial army,
or police, or courts, or parliament. The nation states succeeded the multi-ethnic empires,
seized all their territory, and remodelled all society on that territory. The replacement was
total. Where is the equivalent 'collapse' of the nation state? There are few places on earth
without the institutions of a nation state - perhaps Somalia, but that is not the result of
globalisation. If the world was truly 'globalised' then it would be full of disused national
parliament buildings - and not a national army in sight. The world is not like that, and
will not be like that in the immediate future.

In other words, 'globalisation' remains a belief rather than a reality. It is an instrumental


belief with great political influence and effect. It is appealed to by both neo-mercantilist
neoliberals and their economic-nationalist opponents. Nationalists have a tradition of
appealing to external threats to enforce national unity. The nation must unite and work
together, they said - to defeat the Hun, or the Bolshevik threat, or the Yellow Peril, or the
enemy within the gates, or Osama bin Ladin. The instrumental use of 'globalisation' is in
the same dishonourable category.

Summarising neoliberalism
To conclude, here are summaries of neoliberalism in two forms. First a list of key points
in neoliberalism:

• transaction maximalisation
• maximalisation of volume of transactions ('global flows')
• contract maximalisation
• supplier/contractor maximalisation
• conversion of most social acts into market transactions
• artificial maximalisation of competition and stress
• creation of quasi-markets
• reduction of inter-transaction interval
• maximalisation of parties to each transaction
• maximalisation of reach and effect of each transaction
• maximalisation of hire/fire transactions in the labour market (nominal turnover)
• maximalisation of assessment factors, by which compliance with a contract is
measured
• reduction of the inter-assessment interval
• creation of exaggerated or artificial assessment norms ('audit society')
A final summary definition of neoliberalism as a philosophy is this:

Neoliberalism is a philosophy in which the existence and operation of a market are


valued in themselves, separately from any previous relationship with the production of
goods and services, and without any attempt to justify them in terms of their effect on the
production of goods and services; and where the operation of a market or market-like
structure is seen as an ethic in itself, capable of acting as a guide for all human action,
and substituting for all previously existing ethical beliefs.

Liberalism: interacting to conserve

An alternative view of liberalism as the ideology of interaction,


rejecting the standard liberal-communitarian divide.

Liberalism should be defined in terms of its promotion of (social)


interaction. It is not to be seen as the opposite of
communitarianism, as current usage implies, nor is it individualist.
In practice it strengthens the nation state. It has a purpose, too, for
given an innate but not perfect human conservatism, maximising
interaction will minimise change. This conservatism does seem to
exist, but liberalism is "ideological" in concealing it as a goal. With
success, for no change-directed and specifically anti-interactive
normative theory has emerged. Partly, perhaps, because it would
lie outside the concept of the political entirely.

Published in Politics, 16(2), 1996, pp. 121-126. See also


Neoliberalism and Internet as Hyper-liberalism

Interaction

Why are there liberals? Did liberalism arise by chance? Or would any planet with human-
like inhabitants eventually have liberals, at least the kind of post-war liberal the word
now designates? I think it would: liberalism can be derived from innate human qualities.
Some of liberalism's founding fathers sought to do that as well, but the derivation here is
different. It starts from what liberalism does, or seeks to do.

Liberalism aims at maximising interaction. For some liberals that is a stated goal, with a
virtual sacralisation of interaction by Popper and Hayek. Post-war liberal theory, and all
market liberalism, refer to processes of interaction, not of withdrawal, evasion, escape or
concealment. If this attracts little attention (excepting Hirschman, 1970), it is because
interaction is taken for granted. Nevertheless, by imagining a counter-liberality it can be
asked whether liberalism is there to stop it existing, and if so, why? And while the idea of
a pre-liberal state suggests lack of interaction, there is no political theory of structured
non-interaction as a contrast to liberalism.

Individualism and rights

Instead the accepted divide is "liberal vs. communitarian". This pair of opposites is itself
recent, for in the past liberalism was contrasted with, among other things; planning,
centralism, socialism, Marxism, totalitarianism, and clericalism. Current English-
language academic practice contrasting it to communitarianism does so on the basis of
differing conceptions of the self. Liberalism is then labelled individualist or atomist by its
critics: "The metaphysical and ontological core of liberalism is individualism" (Arblaster,
1984, p.15). There is certainly a defensive liberal tradition, anti-autocratic and anti-
absolutist, the liberalism of privacy and secrecy of correspondence. However the defence
was against the state, not primarily against others. Liberalism more or less requires the
individual to submit to interaction, usually with the proviso that rights are not infringed.
That is to say, for liberals every action not infringing rights is permissible, even if
subjectively undesired: hardly protective in the long run. Nor are rights self-enforceable,
but in effect reserved to the state, however minimal. Liberal justice theories also prefer
rights within interaction to prohibition of interaction itself. What is more the rights are
invariably limited: for each declared inviolable by liberals, there are others they reject as
invalid. Among those excluded are veto rights which freeze interaction (with historic
precedents in the liberum veto). For example, introducing the right to sue for competition
(even fair competition) would increase the rights of individuals and companies. On the
other hand it would shut down the free market, and so most liberals would oppose it.
Conversely, the rights you do have, in real liberal democracies, can be checkmated by
other rights. Residents action against airports, for instance, although based on classic
property rights, led to the proclamation of mobility rights, the right to tourism, and the
right to fly.

Liberalism's concern with rights, and its anti-statism, do not prove individualism. And
while liberalism uses no rhetoric of individual sacrifice to community, as nationalism
does, the constant effects of interaction may be similarly unpleasant for the unwilling. So
too with the aggressive achievers considered typical of liberal individualism. They
measure achievement against the norms of others. Such persons seek to excel, but to
excel in conformity: they have an ideal type in the student who gets full marks by writing
exactly what the examiner wants to read. In the market, too, successful participants are by
definition other-oriented. Psycho-socially, then, liberalism promotes interrelationship
among humans, and willingness to place "network" above "self".

In theory and practice interaction has priority: liberalism sees it as good. Conversely, the
social withdrawal encouraged by some religious is antagonistic to liberalism. (If few
conflicts result, that is because withdrawal is now impossible anyway). The primacy of
interaction is visible in liberalism's inapplicability to a Crusoe. Nozick (1974, p.185) says
so explicitly, and Rawls¹ circumstances of justice are "plural" (Rawls 1974, ch.22).
Recent liberalism is not a philosophy for solitary individuals, and in that sense not an
individualist philosophy: it is interaction-centred.
The net of interaction which liberalism proposes is best known in the forms of the free
market economy, and liberal democracy. In a wider sense it includes debate, exchange of
ideas, and compromise. Political liberalism is thus pro-politics in itself, even if
sometimes elitist. (Remember that interaction in a bounded community, a polis, is still
underlies the concept of politics). All this interaction in fact tends to reinforce
community, in the sense in which communitarians use the word: national, ethnic or
regional groups, or based on gender and sexual orientation. (An interesting example is the
way the market reinforced the "gay community" in the U.S. in the 70's and 80's). This
might not apply to a community based on unliberal concepts, such as class antagonism,
but in general liberals are communitarians. If community among humans disappeared,
liberal mechanisms could reconstruct it - by processes of coagulation and clustering in
interaction. Liberals seem to realise better than communitarians that interaction is
necessary for continued existence of a community and its values: mere sense of identity is
not enough. If communitarians know what to preserve, liberals know how to preserve it.

Liberal states

That is abstract, and there is nowhere an abstract liberal "Society". There are real liberal-
democratic nation states, first national and then liberal. However this is not the conflict it
is sometimes made out to be. Just as liberalism cannot be opposed to community in the
abstract, it is wrong to contrast it with nationalism, as commentators increasingly do
since 1989. (Eastern Europe is often seen as a liberal-nationalist battleground). Not only
did liberalism and the modern European nation state historically "grow up together", but
ever increasing interaction in such states can, and often does, reinforce the nation. So
although nation states rely ultimately on nationalism, the liberal component is real
enough. In particular the market acts to preserve national values. (A company offering a
national-flag-burning service would not last long in a solidly patriotic nation state).

There are two provisos here. The first is that liberalism is in real conflict with some
universalisms, notably theocratic Islamic radicalism. The second is that liberal interaction
does not resolve ethnic conflicts: reinforcement of national identity is strongest in already
stable, homogenous nations. This is why Slovenia can go down the road foreseen by
liberal triumphalists in 1989, but not Bosnia. Nor will interaction guarantee the existence
of any particular state, when there are alternative identities. Market forces in publishing,
advertising and the media helped the reassertion of Catalan language and identity after
Franco's death, at the expense of a centralist Spanish nationalism. (Had Franco however
succeeded in establishing that identity, the market would have produced no Catalan
books, ads, or television).

Some liberals hope, and many nationalists fear, that liberal policies (especially global free
trade neo-liberalism) will erode national identities. Smaller peoples may indeed lose out
as the minimum size for a nation increases. But for most, both hope and fear seem false.
No two liberal democracies have ever fused, let alone that a world liberal state is
emerging. (In any case the number of states is irrelevant to the internal functioning of
liberalism: if there was an overriding sense of global community, interaction would
reinforce that too). The market is more likely to filter out goods and services which do
not correspond to each community's values. In the long run, then, not just culture, but
production, technology and infrastructure, will all reflect the pre-existing pattern of
community. In Europe, of nations. Other things being equal, interaction stabilises the
world order by internally stabilising its components, nation states. Liberalism did not
create that world order, but with liberals it is less likely to disappear.

The trend is to a world which is nationalist and liberal at once. There is nothing illogical
in this. (And in such a world individuals could no longer leave liberalism behind by
emigrating). Given this trend, it is not surprising to see attempts at synthesis, revision or
transcendence of the alleged liberal-communitarian divide on the self (Crittenden, 1992;
Taylor, 1989), or to see liberals make concessions to values outside "the political"
(Dworkin, 1993; Rawls 1993).

Workings and effects

So, seen from the abstract, or from real political trends, the standard picture of liberalism
is false. It is not individualist, nor in opposition to the collective, the social, or
community. On the contrary, the question "why liberalism?" is really the question "why
interaction?" To return to interaction's effects: firstly, a liberal democratic society is in
effect a reverse panopticon The entire population influences the life of each individual
continually, especially through the market. Secondly, the influence of any individual at a
larger scale is diluted when market and democracy mix their decisions with others to
arrive at an outcome. Clearly both are effective methods of control: they tend to
extinguish deviation from shared norms. (Again, in an ideal homogenous nation state, the
national values).

Innovation is always a deviation from the norm, and the avoidance of change is what
liberalism is ultimately about. In the aggregate and in the long term, interaction damps
change - through the market, or comparable nets of interaction that Hayek labelled
catallaxies, or the interactive morality of Popper's Open Society (Hayek, 1976, p.107-
132; Popper, 1962, p.169-175). Transmission of preferences through such systems means
that the entire system must be dragged along before change takes effect. Liberals are
reluctant to see the market as a brake, claiming instead that its results are unforeseen or
unintended. This is expressed in biological analogies (e.g. Nozick, 1974, p.20; 314-7), in
metaphors of "invisible hand", "filter" or "balance", and in the concept of spontaneous
order derived from Thomistic scholasticism (Böhr, 1985, p.5-8; 51-7). (If liberals did
admit their proposed structures block change intentionally, they would admit to
conservatism as a prior and overriding value, an unliberal concept).

So the net metaphor is appropriate: change gets entangled, in markets and debate. The
fact is that ideas, especially new ones, are better off on their own. Innovation is best off
when protected against counter-arguments. So too are its supporters, often a small
minority, with no choice but the "fanaticism" abhorred by liberals. It might be good for
the community that they seek by reasoned debate to convince others, or try to "sell"
innovation on the market. It is better for change itself that they quit the community,
isolate themselves from the market, disentangle themselves from the net.
Territorially this is no longer possible: nation states have divided the world among
themselves. Geopolitically, in preserving nations, interaction also blocks alternative
territorial divisions as a way to facilitate change. So within the states that do exist,
liberals opposition to "interference with the market" combines with nationalist
commitment to a unitary state/ law/ administration, to block the creation of islands of
change - legal, economic, administrative, or territorial. A relevant example from urban
politics: some European cities have organised referenda on car-free centres, though none
yet on car-free cities. Now there are probably enough people in Europe willing to
populate one large high-density city with an advanced transit system, but they are
dispersed as minorities in existing cities. Intense majority preference, working through
the market, has instead given Western Europe an urban pattern of low density, dispersal,
and car commuting. Nor will any democracy elect an anti-car, anti-garden, government.
Nor will any nation give part of its sacred soil to this minority to build their own city:
after all, they are not a "people". In this example, nation, market and democracy combine
to block urban innovation.

Derivation

In abstract "Society", and many real nations, liberalism has a general conservative effect.
(A liberal revolution is possible, but the society it establishes will tend to stability). So
why not derive both liberal and nationalist/ communitarian thought from a basic human
conservative drive? Formally, only comparison with non-humans could directly prove
this drive exists, but it can be inferred from the historic resistance that met most proposed
change or reform. Change usually induces reactions of fear, disgust, and aggression in
humans. If liberalism is about freedom, that means partly: human freedom from change.

I suggest, then, that social interaction among humans is functional and instrumental with
respect to this inherent conservatism. It reduces the chance that any human (self or other)
will act as an agent of change. Liberalism, then, is:

• a self-reflective recognition of this situation


• a valuing of it as desired
• a formalisation of the processes involved
• a philosophical justification of their intensification, and
• political movement to achieve this.

Social interaction itself predates liberalism, but it is these factors which are new. Liberal
thought also coincided historically with increased potential interaction through better
transport and communication, and it promoted their use. Some liberals make other
political demands with a conservative effect - rationality, plurality of moral values, anti-
teleology, anti-utopianism, priority of the right over the good, moral exclusion of non-
human factors - but it is liberalism's intensification of community which makes it a
conservative force in the world.

All this is consistent with the day-to-day reality of European liberalism, which is that
liberals often align with traditionalists, or indeed form part of the Conservative Party. As
persons, today's liberals are conservative in inclination, conformist in dress and taste, and
tend to come from groups in society which profit from the status quo. They are likely to
define social instability as crime or terrorism, to support "law and order" and expanded
policing. In fact the most vigorous defenders of liberal democracy in north-west Europe
are found among the army, security services, the political police, and public order civil
servants. These same groups were the backbone of traditionalist authoritarian regimes in
southern Europe: they once shared a feeling of being under siege globally (see, for
instance, Wilkinson, 1977). Perhaps such groups regard both regime types as functionally
equivalent: if so they are right.

Change outside liberalism

That said, what can be done, politically, to rescue innovation from liberal democracy? An
anti-interactive normative theory would be concerned with processes of withdrawal,
ultimately to zones of accelerated change. (It follows that the current model of unitary
nation states, and the principle that a nation is the only entity with a valid claim to
sovereignty, would be eroded). In economics, with barriers to isolate change from market
forces. In politics, with avoiding inclusion, participation, or emancipation inside liberal-
democratic nations. Not, however, with forming new communities, since that would
reconstitute the initial problem. (As this qualification of two main left strategies indicates,
"left" is not equivalent to "pro-change").

In the final analysis, however, little can be done "politically" for change, because politics
itself is interaction. Politics - in the sense of civic life, debate, negotiation, parties,
argument, lobbying, demonstrations, elections, even political violence - is best avoided
by those seeking change. Liberals seem to realise this, and would presumably oppose
politics¹ end, or its replacement by geopolitics. However I suggest that no liberal can
show how change can occur in a liberal system against the will of all participants, or not
be slowed by conservative resistance. That raises the moral issue of consent, in a world
with largely conservative inhabitants. Most humans want no change, or at least not much,
and not too fast. If change must depend on maximising consent, there will no be much
change. Fortunately, facilitating change does not imply tyranny, but rather segregation.
So: change may need illiberality, but it is of a kind outside most concepts of politics.

References

Arblaster, A. (1984), The Rise and Decline of Western Liberalism. Oxford: Basil
Blackwell.

Böhr, C. (1985), Liberalismus und Minimalismus. Heidelberg: v. Decker.

Crittenden, J. (1992), Beyond Individualism: Reconstituting the Liberal Self. Oxford:


Oxford University Press.
Dworkin, R. (1993), Life's Dominion: an Argument about Abortion, Euthanasia, and
Individual Freedom. New York: Knopf.

Hayek, J. (1976), Law, Legislation, and Liberty, Vol. II. London: Routledge.

Hirschman, A. (1970), Exit, Voice, and Loyalty. Cambridge, MA: Harvard University
Press.

Nozick, R. (1974), Anarchy, State, and Utopia. Oxford: Basil Blackwell.

Popper, K. (1962), The Open Society and its Enemies, Vol. I. London: Routledge.

Rawls, J. (1973), A Theory of Justice. Oxford: Oxford University Press.

Rawls, J. (1993), Political Liberalism. New York: Columbia University Press.

Taylor, C. (1989), "Cross-purposes: the Liberal-Communitarian Debate" in Rosenblum,


N. (ed.) Liberalism and the Moral Life. Cambridge, MA: Harvard University Press.

Wilkinson, P. (1977), Terrorism and the Liberal State. London: Macmillan.

The ethics of the free market: The goals of market


liberalism

The imposition of the


why market liberalism is market

wrong The entrepreneur

The entreprise culture and


Moral, political and social objections to market liberalism
the firm
and the market itself. The market is not a neutral 'process',
it is a structure deliberately imposed, to implement the
The effects of the market
goals of a liberal ideology. It can be ethically assessed, and
rejected, on that basis: criticism of the market overlaps
The morality of the effects
with general critique of liberalism.

The goals of market liberalism

Market liberals see the free market as an instrument to achieve certain goals. Very few
attempt to justify the market on quasi-esthetic lines, as something of intrinsic value but
without direct application. When liberals speak of the free market, they mean a
functioning market with real participants.
___Balance and stability

Metaphors of balance and equilibrium are often used by liberal


philosophers, to justify liberal political systems. The market is sometimes
justified in these terms. In the early days of capitalism, the market was
praised as a moderating influence on a turbulent society. The early-
capitalist ideology is described by Albert Hirschman in The passions and
the interests: political arguments for capitalism before its triumph (1977).
The expression 'la douce commerce' dates from that time: commerce was
contrasted with war. The underlying value system is rarely explicit, but
logically it implies that balance and equilibrium are inherently good -
otherwise, why arrange society to maximise them?

___Hidden order

Another philosophical justification for liberal structures is that they reveal,


or bring into existence, a more perfect order. This line of argument derives
from mediaeval theology (although it might be much older). The idea is
that God's plan is revealed, by the combined result of human actions. In
market liberalism, explicit claims that the market produces the best
'ordering of society' are common. Liberal societies, and the market, are
also justified by their ordering of individual preferences. Neoliberals
appeal to the superiority of 'emergent' or 'self-organising' orders, as
opposed to 'patterned' or 'designed' orders. Again these are value
preferences in themselves - 'emergent' is not a synonym for 'good' and an
emergent order does not inherently justify itself.

___Prosperity and welfare of the community

Despite their claimed individualism, market liberals often appeal to the


general success of market societies, to justify the market's existence. The
fact that some individuals do not benefit, or are dissatisfied, is ignored.
The usual comparison is with the planned economy of the Soviet Union,
which is considered a total failure. Compared to historical examples of
planned economies, market economies have higher average incomes - but
unequally distributed. Again, it is a value preference in itself, to choose
the 'common good' over any other moral defects of the market - especially
with such a crude measure of the 'common good'.

The imposition of the market

Competition is a characteristic of the free market, but its supporters do not tolerate any
competitor for the free market itself. Almost always, they support a comprehensive global
free market, a planetary monopoly. The market has definite goals, as explained above - it
is not neutral and there are alternatives. A global free market implies their suppression. A
voluntary global free market does not exist, at least not on this planet. The market was
imposed, and maintains itself, by deliberate action.

___Expansionism

Expansionism is one of the clearest characteristics of market liberalism.


Especially in the post-Soviet 'transition economies' there are identifiable
national lobbies and groups which have no other purpose, than to impose
the free market on that country. There are also individuals and
organisations demanding a global free market, although usually within the
context of global liberalism. At present, market liberalism is probably the
most aggressive global ideology - more so than for instance Islamism.
Very few Islamists have serious plans for the Islamisation of the United
States, but in contrast many Americans demand (and expect) a
transformation of Islamic societies into liberal market democracies.

___Internal filters

The internal ideological strength of the market is less visible than its
expansionism, but no less real. The market, to use a biological analogy,
has an immune response. The structures of a market society obstruct
criticism and opposition to the market, it neutralises attacks from within.
The filter working of the job market is the best example: it is much harder
for opponents of the market to get a job, than for its supporters. This filter
effect is in action every time a vacancy is filled, and is often
institutionalised in the form of permanent assessment. Employees at an
investment bank, who can lose their job if their tie is the wrong colour, are
unlikely to suddenly criticise neoliberalism. Over time, the probable effect
is a lessening of all criticism, and a general acceptance of the market as
inevitable and 'normal'. The social conformity, which was seen by
dissidents as a typical characteristic of 'Soviet-bloc' societies, is just as
evident in market societies.

___Military imposition of liberalism

It should not be forgotten that the free market is also imposed by military
conquest - not in isolation, but as part of an imposed liberal-democratic
political regime. The present liberal market democracies in Austria,
Belgium, France, Germany, Italy, Luxembourg and the Netherlands, are
the direct result of invasion by US and allied forces in 1944 and 1945. In
recent years, interim administrations with liberal-democratic orientation
have been imposed by military force, on Bosnia, Kosovo, East Timor, and
parts of Macedonia. A free market economy existed already in these areas.
Nevertheless, the market is part of the 'packet' of values and social
structures, imposed by the troops. In addition, the NATO as a military
alliance appears to include the free market among its core values. All its
actions are, at least partly, directed at the imposition of these values. It is
certainly unthinkable, that a US or NATO force would supervise the
introduction of a Soviet-type economy.

The entrepreneur

The free market, certainly the modern version, cannot exist without the entrepreneur. A
liberal market society stands in opposition to an ethical society, and the entrepreneur
stands in opposition to the ethical individual or organisation.

___Definition of an entrepreneur

A familiar example of a pre-capitalist ethical organisation is the mediaeval


monastery, where the monks worked for the glory of God. At least in
theory - in reality the monasteries were often proto-firms, active in the
commercialised sectors of the mediaeval economy. Nevertheless, it is
clear that an ethical organisation can exist, and that individuals can act
ethically (in accordance with some ethical goal). In contrast, the
entrepreneur acts in accordance with market forces. This is so central to
the activities of the entrepreneur, that it can be used as a definition. An
entrepreneur is a person who, as a profession, acts in accordance with
market forces. In modern economies, 'the entrepreneur' is usually an
organisation rather than an individual. There are still many individual
entrepreneurs, but their share of the Gross National Product is small,
compared to that of firms. An 'entrepreneurial organisation' or entreprise,
normally meaning a business firm, exists for the purpose of acting in
conformity with market forces.

___Characteristics of an 'entreprise'

In practice, all enterprises have certain characteristics which clearly


distinguish them from an ethical organisation, even when both operate in a
market society:

1. the entreprise competes for market share with other similar


organisations
2. it is prepared to damage the interests of its competitors, for
instance by reducing their market share
3. it sells products at more than cost price
4. it seeks to ensure its own continued existence, even when
that contradicts ethical goals, and it makes no provision for its own
dissolution on moral grounds
5. it excludes from decision-making persons of good will,
who might seek its dissolution on moral grounds
6. it does not distinguish on moral criteria, among its
customers, or suppliers, or clients, or in the selection of its
personnel
7. it internalises the principle of competition, by for instance
competitive selection among job applicants - so creating a new
market within the market, the 'labour market'.

The entreprise culture and the firm

The entrepreneur seeks primarily to act in accordance with market forces within a free
market economy: nevertheless certain sub-goals logically follow from that. In addition,
an entreprise culture has emerged, which can not always be logically derived from the
original ideology of market liberalism.

___Entrepreneurs are liberals

There must be a market, or the existence of the entreprise makes no sense:


therefore the entreprise is pro-market. This may seem a trivial point, but it
is important to realise that every entreprise is at the same time a political
organisation. Every entrepreneur is a market liberal, in the general sense.
In mid-19th century Europe, this was a political reality: the 'industrialists'
supported the dominant liberal parties, as a matter of course. The rise of
the mass parties - nationalist, Christian, socialist - eroded the political role
of these liberal parties, but their model of economy and society remains
triumphant.

___Businesses are pro-business

Again it may seem trivial, but by definition an entreprise must support its
own existence, and therefore the existence of enterprises as a class of
organisations. Entrepreneurs act collectively as a lobby, to demand
facilities for entrepreneurs: this demand is primarily addressed to the state.
That may seem inconsistent - but only the state can structure itself as a
facility for entrepreneurs, it would be pointless to demand this from the
clergy or the art world. Without the support of government - as mere
private individuals in a non-market society - entrepreneurs could not
achieve much. Logically, they must control the state, or at least influence
it in favour of themselves.

___'Business' as such exists


The 'business community', as it is called in the United States, does exist as
a community, and it is a pro-business community. It exists as a social
factor, beyond the economic activities of its individual members. It
influences society, by the way it spends its money, again beyond its direct
business interests. Business, for instance, will not sponsor left-wing
parties: business supports the right in politics, including the nationalist and
racist right. The personal preferences of the businessman and
businesswoman are generally conformist and conservative, as is visible at
any business conference. In contrast to their own mythology, they are
unadventurous. There is even a collective style in clothing: the business
suit - one of the few voluntary uniforms in modern societies. The business
world has its own language and social style, it is a complete subculture.
The question is: why should this particular minority have total control of
the economy?

___Glorification of the entrepreneur

In a typical market society, the entrepreneur is assigned a heroic role, and


is glorified as the source of wealth and innovation. Non-entrepreneurial
activity, for instance idealistic activity, is seen as secondary or even
parasitical. This vision is not only promoted by entrepreneurs themselves:
ideological praise of the entrepreneur is as old as market liberalism itself.
Modern neoliberals, such as Tony Blair, are especially active in glorifying
the entrepreneur, and explicitly demanding an entreprise culture. The
heroic entrepreneur is also a central theme of libertarian propaganda.

___Market demand and the customer

Market societies tend to view the market as norm, a view which is itself
propagated by market liberals. In a market society, market forces are
treated as if they were an ethical goal in themselves: indices such as the
Dow Jones or the FTSE are idolised. The staff of the business firm are told
that "the customer is always right" or more recently, that the shareholder is
always right. Assuming, of course, that neither threatens the firm itself.
Again this is a deliberate substitution of the aggregate customer and
shareholder, for ethical judgment and moral principles.

The effects of the market

The free market has effects on the course of history, and on society. The Dutch word
'marktconform' is useful in describing these effects - it means 'in conformity with the
market' or 'determined by market forces'. A 'marktconform' housing policy, for instance,
means that houses are built by entrepreneurs, where and when they want, in whatever size
or form they think they can sell, and without regard to planning or environmental
considerations. The result - generally suburban sprawl - is also 'marktconform'. The
market is not neutral, and can not neutrally order preferences: its own preference is for a
'marktconform' world.

___The market limits positive and negative possibilities

Despite the propaganda, the free market limits choice - it produces only
goods and services which are marketable. Try to find a supermarket
stocked entirely with un-marketable goods, or an entreprise which
produces them for years on end. The logic of the market is, by definition,
that the unmarketable is competed out of existence. So the market prevents
the existence of the unmarketable: a limit on possibility. The propaganda
of market liberals presents the market as innovative, or at least as a
facilitator of innovation. Nevertheless, a free market will inherently
suppress any innovation which is unmarketable. A market society is by
definition permanently in a 'marktconform' state, and contra-market
innovation can not exist there. Once a market society has become a perfect
outcome of market forces, then it will remain stable, unless an external
shock disrupts its 'marktconform' stability. In a negative sense that is also
true - it is impossible in a free market to abolish anything which is
'marktconform'. If I want to forbid Disney products, for instance, I can not
trust the market to achieve this goal: so long as they are so successful and
marketable, they will be available. Only the state can effectively prohibit,
what the market allows.

___Adaptive, non-innovative, conformity

A market society creates and encourages a mentality of adaptation to the


existing world. This is most evident in the labour market, in the behaviour
of job-seekers, especially students. Many students choose their courses,
not for personal or idealistic reasons, but simply for 'good career
prospects'. The career-seeker does what the employer requires, and
refrains from what the employer dislikes. The resulting attitude is a
strangely aggressive form of conformity. The 'aggressive adapter', the
successful career-maker, equates personal success with meeting the
demands of the employer. In a shrinking labour market, this can
sometimes translate into a radical conservatism, in which business culture
is idolised. An excessive admiration for small product changes, to the
exclusion of larger radical innovation, is often part of this radical
conservatism. Approximately this line of thought: The free market
brought us striped toothpaste, this is the greatest innovation in human
history, we must all dress conservatively and try to become an
entrepreneur, that is the true global revolution!

___Harm by competition
Harm is an integral part of any free market, and this harm is not limited to
the entrepreneurs. Market liberals say that the entrepreneur should seek to
advance his own interests. In a free market, that must consist of damaging
the position of others. Each entrepreneur competes with other
entrepreneurs for a limited resource - market share. Whatever happens to
the Gross National Product, the combined market shares are always equal
to 100%. To increase share (advance his own interests), an entrepreneur
must, by definition, reduce the market shares of others. In any case, by the
market-liberal definition of success, a successful business competes its
rivals out of existence. At first, the rival firms suffer financial loss.
Ultimately, they can not meet their financial obligations: they collapse,
usually via a bankruptcy procedure. Their employees lose their jobs. This
is how a free market works: as its supporters rightly indicate, job security
undermines the free market. The threat of job loss through competition is
always present, even if only in the background: constant pressure on
labour is a characteristic of a free market. If the market functions as it is
intended, then employees will work harder, for less pay, in order to secure
their jobs. They too, are forced to be competitors of each other, in order to
get a job and keep it.

___Harm to others as a social value

It seems dangerous to ground a society on the value of trying to


disadvantage others. That is exactly what market liberalism proposes, and
the results are predictable. Since the entrepreneur has no other interest
other than his own, he will not seek to protect others. When he benefits, he
will seek to actively harm others - if he thinks he can get away with that.
An endless series of scandals show that entrepreneurs are indeed prepared
to injure and kill others for their gain. The sale of contaminated food is
probably the most typical example of entrepreneurial behaviour.
Governments find it necessary to restrain entrepreneurs in the food
industry, by regulation, to prevent them from poisoning the population.
That in itself ought to say enough about the entrepreneurial mentality.
Nevertheless, entrepreneurs continue to evade these regulations. Recent
epidemics of animal diseases in Europe illustrate that. Although everyone
in the sector is familiar with the risks, there are always some who use
contaminated feed, or transport animals illegally, and so spread the
disease. The entrepreneur seems incapable of self-regulation - and that is
not surprising, since liberal market culture abhors regulation.

___Selection by competition

The free market generates a form of Darwinian selection: the survival of


the competitive. Non-competition, or incomplete competition, is failure.
The market produces a hierarchy of failure, with the most competitive
firms and individuals at the top. Not necessarily those with the best
products, or the most honest advertising, or the best treatment of their
employees - but those who can best compete in a free market. The least
competitive are at the bottom of the hierarchy, or simply dead - in many
parts of the world, no job means no food. The market is not the only social
structure which generates inequality in this way: modern educational
systems, for instance, are structured as a competition of intellectual
talents. They also produce hierarchy, inequality and failure, although they
are not a market. They are part of a general category of liberal structures,
where the aggregate outcome of competition determines the final
structure. The formal equality of such liberal structures (everyone can
participate) does not reflect the real inequality of the 'talents' required. Not
everyone can compete like Bill Gates - and not everyone should.

___The triangular form of selection

In market liberal propaganda, the market is represented as a fair two-party


transaction, typically buyer and seller in free contract. In reality the free
market can never function with two parties - it has a 'triangular' character.
At least three parties are required - one buyer and two competing sellers,
for instance. Only in such a triangle can competition and market forces
exist: the two sellers compete, and market forces drive their prices down.
As a result, one party can be disadvantaged, even by a free and fair
contract between the other two. The buyer may like the price, and the
seller may like the price, but the third party (who failed to sell) might
starve. In the real free market there are billions of parties, and repeated
transactions: the effect of disadvantage is cumulative.

___Centering

The free market extends the power of selection to many, although their
individual effect on the outcome is small. That is not necessarily a good
thing: the evidence is that the market selects against innovation.
Conformity, conservatism, and middle-of-the-road taste are typical of
consumer behaviour, in the western market democracies. The selective
effects of the market are themselves cumulative. Whatever is marginalised
by the operation of market forces, becomes less attractive and more
marginal - as a result of that status. What already sells well, becomes more
marketable. This is a general characteristic of all liberal social structures,
not just the market. Repeated transactions and interactions, on the basis of
the outcome of previous transactions and interactions, have a centering
effect. Deviations from the norm are 'punished' by such regimes, and
innovation is by definition a deviation from the existing norm. In western
societies, it is easier to sell a Disney DVD than innovative music, it is
easier for a person with Disney-DVD tastes to get a job, it is easier to start
a business selling Disney DVD's than to overthrow the WTO. The market
society brings the 'general consensus' to bear on the individual - more
effectively than any other society in history. As a result, it strengthens that
consensus, and tends to produces a stable conformist society, with little
deviation from the core culture.

The morality of the effects

The free market is grounded in a value system: its morality can be questioned simply by
stating alternative values.

___Universality

The free market has no end, its duration is indefinite: in principle it is


forever. So far as I know, no theorist of the market has ever fixed a time
limit, or named a structure which will replace it. The duration of the
market is a universality in time: the market is also intended to be universal
in space. When market liberals advocate the market, they advocate a
permanent global market - an implicit claim that it represents the highest
possible form of society. However, the market should not have a planetary
monopoly, nor should it last for ever, nor should it intensify itself, by
centering society on a core culture which is itself a market culture.

___Interactivity

Like other liberal structures, the market promotes interaction and


transaction: it is grounded on the premise that these things are inherently
good. They are not. Market liberals implicitly claim, that all humans
should be linked by transactions, to the greatest possible extent. There is
no basis for such a claim: transaction-maximisation is not inherently right.
A collective decision-making process, with a great number of transactions,
destroys the moral autonomy of the subject. In such a process, there is no
causal relationship between the decision of an individual, and the
aggregate outcome of global market forces. Ethical action is impossible in
such a society. The grounding of the market in interactivity and exchange
as values also derives from a fallacy. Neither goods nor ideas exist solely
to be exchanged, not should their exchange be maximised.

___Conservatism

The market blocks the innovative transition to a non-market world. It


structures the world in a particular way, as the outcome of market forces,
and it keeps it that way. Stability, balance, and harmony are not inherently
good, and it is wrong to order the world in accordance with these values.
Order is not inherently good, and the creation of order can form no
justification for the market. The ordering of preferences is not inherently
good, and it is wrong to order human society merely as a preference order.
Whenever the market inhibits or obstructs innovation, then innovation
should take precedence over the market. Innovation as a value overrides
order, stability, balance, harmony, and any non-innovative preference
order.