THE STRANGE NON-DEATH OF NEOLIBERALISM

An extract from a book by Professor Colin Crouch, Warwick Business School

75 years ago, George Dangerfield wrote a book entitled ‘The Strange Death of Liberal England’. The mystery today, however, is not the death, but the survival of neoliberal ideology, despite the enormous challenge posed to it by the recent financial crisis. It is this that Colin Crouch, Professor of Governance and Public Management at the University of Warwick, seeks to explain in his book ‘The Strange Non-Death of Neoliberalism’. Professor Crouch argues that the persistence of neoliberal thought rests on the fact that, despite its apparent commitment to free markets, in reality neoliberalism champions the dominance over public life of the giant corporation. He goes on to explore the power of the corporation on both the market and the state, concluding that the solution lies not in attempting to destroy the giant corporation, but rather in keeping its activities fully in check through the ‘fourth force’ of civil society. The preface of the book is now available for you to read below.

The financial collapse at the turn of the present decade seemed to mark a major crisis for the set of economic ideas that have ruled the western world and many other parts of the globe since the late 1970s. Those ideas are generally grouped under the name ‘neo-liberalism’. There are many branches and brands of neo-liberalism, but behind them stands one dominant theme: that free markets in which individuals maximize their material interests provide the best means for satisfying human aspirations, and that markets are in particular to be preferred over states and politics, which are at best inefficient and at worst threats to freedom.

How could it be that today’s financial markets, the most sophisticated form of the market probably in human history, could run into trouble of such a massive kind?

The financial collapse challenged these ideas because it involved the world’s leading banks. They are profit-maximizers, acting in the purest of markets; how can they possibly not have contributed to the sum of human welfare in all that they did? How could it be that today’s financial markets, the most sophisticated form of the market probably in human history, could run into trouble of such a massive kind, when the most advanced economic theory had demonstrated that unregulated financial markets will be self-correcting? If we have been told, even by governments themselves, that government is far less efficient than firms in the market, and that the less involved government becomes in the market, the better, why did the banks go to governments for enormous sums of money to bail them out of their difficulties? And why did governments accept their arguments? Is it really true that big banks are ‘too big to fail’, and that governments and tax payers must rush to help them if they get into trouble? But if that is so, are we not admitting that there are severe limits to what the market can achieve, and that neo-liberalism has been found wanting in its central claims?

In 1936, George Dangerfield published a book entitled The Strange Death of Liberal England ( London: Constable).

It tried to explain the sudden collapse in the early 20th century of the political ideas and political party that had dominated the late 19th century in that country. The equivalent task today is, however, not to explain why neo-liberalism will die following its crisis, but the very opposite; it is emerging from the financial collapse more politically powerful than ever; whereas the crisis concerned banks and their behaviour, resolution of the crisis has been redefined in many countries as a need to cut back once and for all the welfare state and public spending. And the issue today is not limited to a single country, as neo-liberalism is an international, even global, phenomenon. What we have to understand today is therefore the strange non-death of neo-liberalism.

At the heart of the answer is the fact that actually existing, as opposed to ideologically pure, neo-liberalism is nothing like as devoted to free markets as is claimed. It is rather devoted to the dominance of public life by the giant corporation. The confrontation between the market and the state that seems to dominate political conflict in many societies conceals the existence of this third force, which is more potent than either and transforms the workings of both. The politics of the early 21st century, continuing a trend started in the last and accentuated rather than weakened by the crisis, has become, not a confrontation at all, but a series of comfortable accommodations among all three. A central aim of this book is to show why a political debate that continues to be organized around market and state is missing the issues raised by this important phenomenon.

The political power of the corporation is seen most obviously in the extraordinary lobbying activity that takes place, primarily in the United States Congress, but also around many other legislatures and governments. It is also highly visible in the capacity to ‘regime shop’ of transnational firms when choosing in which parts of the world to locate their investments. But these phenomena are considerably reinforced by further factors. First is the increasing tendency of governments to sub-contract delivery of many of their own activities to private firms, which then become involved in shaping public policy. Second is the growth of corporate social responsibility, a process whereby firms take on tasks going beyond conduct of their actual business, in effect again making public policy. Third is the one signalled at the outset: the way in which, far from casting doubt on the role of giant corporations, especially financial ones, in contemporary society, the financial crisis of 2008-09 has served only to reinforce their power.

I discussed some of these issues briefly in my book Post-Democracy (Polity Press, 2004), in which the power of the global corporation appeared as one of a number of factors that I saw as leading our democracy towards becoming something of an empty shell. Further developments in the factors listed above make it necessary to return to the theme, exploring further what happens to democracy and politics when many corporations become, not just mighty pressures on, but major insider participants in, the political process. This is something which no economic or political theory defends or advocates in any way; but it is a central reality of our public life.

One consequence is that democracy is joined by the market as a kind of victim.

One consequence is that democracy is joined by the market as a kind of victim. This might seem surprising, as most political debate does not distinguish between the market and firms. But it is precisely in that lack of a distinction that several of our problems lie, rendering rather out-moded the confrontation between ‘state and market’ that occupies so much attention. One might talk of a triangular confrontation among state, market and the corporation, but I prefer ‘comfortable accommodation’. This is partly because corporate power makes it its business to bind them all together; but partly because the only alternative to some kind of accommodation would be a rather wretched society, in which at least one of the three was crippled into non-functioning. It needs only a little reflection to realize how difficult life would then become.

It is not therefore the purpose of this book to argue that somehow we should rid ourselves of giant corporations. The odd bed-fellows of Jeffersonian liberals and Marxists who would have sought such an outcome both belong to an unrealistic past. Instead, this book looks to a fourth force, the busy but small voices of civil society, not to abolish, but to criticize, harry, expose the misdeeds and abuses of the cosy triangle. This in no way promises a different social order from corporation-dominated capitalism, but, provided our societies remain open and vigilant, it can make life far better than states and corporations will do if left to themselves.

Badly, very badly, to misquote Andrew Marvell*:
Thus, though we cannot make the corporation
Stand still, yet we will make him run.

Professor Colin Crouch is Governance and Public Management Fellow at Warwick Business School. Previously Professor of Comparative Social Institutions at the European University Institute, Florence. Also held positions at LSE and Oxford. Chairman of The Political Quarterly, and past President of the Society for the Advancement of Socio-Economics (SASE). Fellow of the British Academy, member of the Academy of Social Sciences, and External Scientific member of the Max Planck Institute for Social Research at Cologne. Expert consultant to the Directorate for Public Governance and Territorial Development, OECD.

Many thanks to Polity Books for the permission to publish this extract from the First Edition of the text.

Crouch, C (2011) The Strange Non-Death of Neoliberalism. Polity. London.