The lessons of neo-liberalism.

Author:Jones, Daniel Stedman
Position:Features - Essay

Bill Clinton and Tony Blair made accommodations with neo-liberalism that have bequeathed a troubled and unresolved legacy to today's left. In my forthcoming book, Masters of the Universe (Stedman Jones, 2012), I argue that a particularly virulent form of neo-liberal ideas came to dominate politics in Britain and the United States after the 1980s which encouraged an acceptance of social and economic inequality. Almost as much as the reality of the growing gap between rich and poor itself, this acceptance allowed the liberal left in both the United States and Britain to become detached from what had usually been its central purpose, a more equal and more just society.

A belief in the moral and economic necessity of inequality was found explicitly in the work of neo-liberals like Friedrich Hayek, Milton Friedman and George Stigler. The idea embedded itself in the party programmes of the left as they responded to the right's electoral success during the 1980s and early 1990s. The influence of this neo-liberal idea on Labour and Democratic Party agendas in the 1990s and 2000s led to an identity crisis when the neo-liberal settlement teetered on the brink of collapse in 2008. Instead of champions of an alternative or balanced economic vision, they found themselves the rampant market's sustainers.

The reasons for this were complex. Dependence on tax income from the City of London to fund the government's programme, and the deregulation which accompanied it, made New Labour's leaders supplicants to the financial sector. Redistribution from the rich to the most vulnerable in society was done, as the old Tory charge suggested, by stealth through tax credits. Neil Kinnock's 1992 election defeat cast a long shadow. Despite significant domestic policy successes in terms of democratic reform, healthcare, education and child poverty, no positive alternative argument was made about the shape of society or its economy.

The Party was thus emasculated in the face of a financial crisis which Gordon Brown's finance-friendly policies had helped create. Subsequent efforts to push policy in a more social democratic direction such as the introduction of the fifty pence tax rate were met with cynicism not enthusiasm. President Obama's response to the crisis was even worse. He appointed Timothy Geithner and Larry Summers, key architects of financial deregulation in the 1990s, to the most senior economic positions in his administration.

A debate has been joined recently about the status and significance of neo-liberalism. Two contributions, one of which underpinned Ed Miliband's party conference speech about capitalist predators and producers, present starkly different assessments. The first, by Miliband's chief strategy adviser Stewart Wood, pronounced the neo-liberal settlement dead (Wood, 2011). The second, by New Labour critic and cultural theorist Stuart Hall, reached a much more pessimistic conclusion (Hall, 2011). For Hall, the coalition's radical market experimentation spells the enduring strength of a revolution which began in the 1970s. These divergent positions provoke questions. What is neo-liberalism and what is its historical importance? What have the consequences of its recent electoral success been for the Labour Party? Most importantly, how should Labour reckon with neo-liberalism, dead or alive?

This article begins with the history of neo-liberalism - the creed of free markets, deregulation and limited government. It examines its nuances, political breakthrough and the impact it has had on the left in order to understand how the current political settlement arose and the shape it has taken. It argues that Ed Miliband should reposition the Labour Party around the historic aim of a more just and equal society. As New Labour well understood, the Party must represent aspiration and hope for a better future. Any such principles, unlike those put forward by 'Blue Labour' advocates for example, must be built upon a clear grasp of the global, as well as the local, nature of today's policy challenges. Clinton and Blair understood the reality of globalisation but they never intended to be radical about political economy. The deep disillusionment that followed their time in office was therefore a misreading of their aims. They helped to entrench the neo-liberal settlement. Now Labour must combine aspiration with a critique of the unbridled markets and celebration of financial and corporate power that have ruled since 1979.

Two liberalisms

The liberal philosopher Isaiah Berlin famously distinguished between two concepts of liberty, negative and positive. His division between a negative freedom from the interference of the state, on the one hand, and a positive freedom that enables self-actualisation, on the other, found concrete expression in the political history of liberalism in Britain and the United States after 1900 (1). In the first years of the twentieth century a new activist liberalism challenged the sparser laissez-faire philosophy which had dominated Britain in the nineteenth century.

Gladstonian liberalism, which built upon the free trade mantra of the 'Manchester School' leaders, Richard Cobden and John Bright, was increasingly criticised for its inability to address the surging poverty and searing inequalities of late-Victorian and Edwardian society. A 'new liberalism' was promoted in the ideas of T. H. Green, John A. Hobson and Leonard T. Hobhouse, which emphasised the importance of social justice and responsibility as an essential accompaniment to the commerce and trade of free markets. The central plank of 'new liberalism' was the need for state intervention in economic and social life to alleviate the worst effects of capitalist growth and development. Such ideas were embodied in the policies of the Liberal Governments of 1906-16, led by Herbert Henry Asquith and David Lloyd George, which, in a series of reforms, introduced pensions and unemployment insurance, labour exchanges and limited health and sickness benefits for workers.

This nascent welfare state was expanded by Clement Attlee's post-war Labour governments who also built upon the efforts of liberals. A new policy framework to manage the worst excesses of capitalism revealed by the Great Depression was expounded by the economist John Maynard Keynes in his General Theory of Employment, Interest, and Money (1936). A universalist, cradle-to-grave, social insurance model for the British welfare state was designed by the former head of the LSE and senior civil servant William Beveridge in his seminal Report on Social Insurance and Allied Services (1942). These liberal foundation stones were buttressed by the Labour Health Minister Nye Bevan's National Health Service (founded in 1948) and his ambitious programme of council house construction - built to basic but high-quality specifications.

In the United States too, a progressive and interventionist liberalism had been championed by President Franklin Delano Roosevelt in his 'New Deal' of the 1930s. The American welfare state constructed in these years was limited in several important ways when compared to its British counterpart. Most women and African-Americans were initially excluded, for example, and healthcare was never a comprehensive component. But the reaction to the catastrophes of capitalism visible in Britain was similarly felt in the United States. The Social Security Act (1935) delivered a social insurance safety net. Keynesian deficit investment was put into action through a sweeping programme of public works carried out by the Public Works Administration, the Civil Works Administration and the Works Progress Administration. The Wagner Act (1935) established the rights of trade unions. A system of regulation of the stock exchange and the financial sector was created through the Glass-Steagall Act (1933) which separated the commercial and speculative operations of the banks and established the Securities and Exchange Commission and the Federal Deposits Insurance Corporation. (The Act was later repealed in 1996 by Robert Rubin and Larry Summers). These developments amounted to a revolution in government.

But such a revolution, both in Britain and the United States, also brought with it a slow-burning reaction. The reaction arrived in the ideas of the neo-liberals. A group of activist academics during the 1930s and 1940s criticised the trends of large-scale government growth, increased state intervention and planning of the economy, and the development of the welfare state (2). They viewed the new activist social liberalism as of a piece with totalitarianism, fascism and communism, merely another form of a 'collectivism' which was beginning to erode the (negative) liberties enjoyed by individual citizens.

This disparate group included the 'Freiburg...

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