Sky Views: What is neoliberalism and why is it an insult?

Sky Views: What is neoliberalism and why is it an insult?

Ed Conway, Economics Editor

Everyone has a word they love to hate. Mine is "neoliberalism".

You've probably heard the term before - especially if you read the Guardian or listen to speeches by Jeremy Corbyn.

Here he is, for instance, railing against it a couple of months ago:

"Neo-liberalism is an ideology that ruins communities and ruins lives. It's an ideology that this Government is still absolutely wedded to as they continue to wreak havoc with their incessant cuts."


Actually, you could pick any one of his speeches over the past few years for alternative examples. The Grenfell Tower was a tragedy of neoliberalism, he said. Austerity was a product of neoliberalism. The City is neoliberal, the government is neoliberal, the press is neoliberal.

He is not alone. Many commentators see neoliberalism as the defining ideology of our age; they reckon it's the root cause of all sorts of challenges, such as populism, inequality and boom and bust economics. It is, in short, a Very Important Thing.

All the more reason why it's probably worth pausing at this stage and asking the question: what is neoliberalism?

Unfortunately, here we start to run into some problems.

Many commentators see neoliberalism as the defining ideology of our age; they reckon it's the root cause of all sorts of challenges, such as populism, inequality and boom and bust economics.

Let's start with Jeremy Corbyn's description of it as an ideology.

Ideologies are systems of ideas and beliefs which can be turned into politics. They are big abstract nouns with pretty clear definitions. Most people understand what Marxism, democracy or fascism are. Advocates and detractors of Marxism might have vastly different opinions about the wisdom of communism but they can usually agree, at least in broad terms, what they're arguing about. They are playing on the same football pitch.

But, despite the fact that neoliberalism is frequently referred to as an ideology, it is oddly difficult to pin down. For one thing, it is a word that tends to be used almost exclusively by those who are criticising it - not by its advocates, such as they are (in stark contrast to almost every other ideology, nearly no-one self-describes as a neoliberal). In other words, it is not an ideology but an insult.

Moreover, even those who bandy the term around have trouble agreeing on what it means.

My own personal impression of what people mean by neoliberalism was where the market is preferred over government when it comes to running your economy, where economic norms trump social preferences - that countries should be deregulated, tariffs reduced, their key companies privatised, state spending kept to an absolute minimum. But it turns out what it means is often in the eye of the beholder.

A few years ago a study analysed 148 articles published in top journals which used the word.

It found that three quarters of them didn't even bother to define what the word actually meant. Those who did came up with a ragbag of varying definitions.

Some writers went back to the definitions laid down by the German Freiberg School (which first coined it), meaning a way of running your economy which encouraged competition but also fostered an active role for the state. For others, it meant removing the state entirely and consigning the entire economy to market forces.

Image: Neoliberalism is oddly difficult to pin down

For all that these people say they are playing the same sport, they are running around on entirely different pitches with differently shaped balls.

Since there is no root ideology, neoliberalism can mean whatever you want it to mean. Last week, former journalist Paul Mason stretched the definition to breaking point, saying European social democrats, who are far fonder of a big state than anyone in the Anglosphere, were neoliberals.

The Independent's Ben Chu wrote a fine article pointing out how much the EU version of capitalism differs from its Anglo-American counterparts but he is fighting a losing battle. Since there is no definitive definition of neoliberalism, both he and Mr Mason are dancing on the head of an imaginary pin.

Of course, it would be disingenuous to say there are no guiding forces behind what people like to call neoliberalism. Conventional economic models - the ones established by Adam Smith all those centuries ago - tell you that all else equal governments should keep their finances under control, that property rights should be protected and businesses should have space to make decisions without too much grit being thrown into the wheels.

As the left-leaning economist Dani Rodrik has eloquently pointed out, there is no inherent problem with these principles - but they are not a one-size-fits-all solution. Undoubtedly following the fall of the Berlin Wall they were overzealously implemented and sometimes misapplied, with the encouragement of the IMF and World Bank (in what became known as the Washington Consensus). This is unfortunate, but hardly equals an ideology.

The real problem with explanations like this, and with Prof Rodrik's lengthy article, is that they are complex, nuanced and thoughtful. In other words, they don't make for very good slogans at political rallies. What do we want? Appropriate application of the fundamental economic rules! When do we want them? When we've reached a certain stage of our development!

Far easier to deploy a catch-all insult like "neoliberal" to rouse the masses. Far easier to give the impression that your enemies are following a mysterious multi-syllabic ideology than to admit that the problems we're facing are far more complex and intractable than that.

Image: Manila's Labour Day protest with a banner reading: Workers unite against the imperialist attack of the neoliberal

And we are indeed facing some major problems. Since the 1960s we have shifted from a world where many of the economic institutions were far simpler, far more regulated and, frankly, more comprehensible, to one which is inherently more complex, chaotic and disconnected. We moved from a world where currencies were pegged to one where they float against each other; from a world where flows of capital across borders were mostly regulated to one where they mostly flow freely; from a world where banks were strictly controlled to one where they have fewer checks; from a world where most utilities were state-controlled to one where they are often in private hands.

However, anyone who has studied economic history will point out that these shifts are hardly the result of a guiding ideology, but were mostly a series of unfortunate events. America de-pegged the dollar from the rest of the world's currencies not because of some grand economic plan but because the US had overspent in Vietnam and on the Great Society and could no longer keep its currency pegged to gold.

Capital controls were dismantled for more or less the same reason - it's nigh-on impossible to maintain independent monetary policy and floating exchange rates without allowing free movement of capital. Utilities and some other nationalised companies were privatised over the decades as governments realised they were mostly a bit rubbish at running them. Banks were deregulated because, well, banks are very good at shaking their way out of regulations over a period of decades.

The majority of these events took place by happenstance; they were not co-ordinated; they were mostly reactions to an overarching problem: the system of economic regulations constructed in the wake of the Second World War fell apart and policymakers had to construct something in the vacuum.

The international monetary and financial system has been ruptured from its moorings. I, for one, find this distinctly worrying. I believe it is at least part of the explanation for many of the problems we face today, from inequality to economic instability. But do I think neoliberalism has anything to do with it?

Do I heck.

Sky Views is a series of comment pieces by Sky News editors and correspondents, published every morning.

Previously on Sky Views: Paul Kelso - Not everyone loves a royal wedding