The first post in this blog series noted that the ILO, USAID, and Word Bank began implementing programs that targeted the poor directly a half-century ago as part of a broader effort to redistribute wealth downward in order to overcome the monopoly on economic gains from market transactions by the politically powerful. The second blog post in this series pointed out that the economist who first described the “Washington Consensus” policies on structural adjustment, John Williams of the Institute for International Economics, also wrote that “it is important for governments to target an improved distribution of income in the same way that they target a higher rate of growth”.
Yet just like the earlier recommendations for redistribution, Williams’s recommendations would go unheeded. By the time Williams wrote his coda to the Washington Consensus, the Cold War had ended in a way that seemed to validate a form of capitalism that envisioned a limited role for government in regulating the economy and in promoting equity and social democracy.
The intellectual underpinnings of this economic model date from the end of the first World War. The Austro-Hungarian Empire had collapsed, and in the name of nationalism, socialism, or communism, governments were interfering in the activities of private businesses. Innovations necessary for total mobilisation during the Second World War gave governments even more power to intervene in their economies, which they started to use in peacetime under the economic model promoted by British economist John Maynard Keynes, known as ‘Keynesian economics’.
The members of the Vienna Chamber of Commerce felt threatened. In response, two of their economists, Friedrich Hayek and Ludwig von Mises, formed the Mont Pèlerin Society in 1947 with a group that included the University of Chicago economist Milton Friedman. The group’s Statement of Aims was alarmist: due to both communism and Keynesianism, “Over large stretches of the Earth’s surface the essential conditions of human dignity and freedom have already disappeared.” This was just two years after the defeat of Hitler and the Axis powers.
According to them, due to the widening of suffrage, even democracies could not be counted on to protect private enterprise from the demands of regular people. The Mont Pèlerin Society dedicated itself to promoting “private property and the competitive market” in order to “diffuse power and initiative” as a way of fending off what they considered encroaching totalitarianism. And since any effort to reallocate resources was defined as totalitarian, what they recommended was not an accommodation to those demands but complete resistance. The true goal of the Mont Pèlerin Society was to turn the realm of economic transactions into a sacred space free from interference by the masses through politics.
This made their views different from the laissez-faire concept of classical liberalism, which assigned the government to be the guardian of unregulated markets. The central theme in classical liberalism was that robust economic rights are as critical to a just, prosperous, and stable social order as civil and political liberties. In this case, “economic rights” mainly meant property rights, based on the theories of the 17th-century English philosopher John Locke, who listed a person’s “natural rights” as life, liberty, and property (which Thomas Jefferson transformed into “life, liberty and the pursuit of happiness” in the United States Declaration of Independence).
Crucially, classical liberals acknowledged that civil and political rights were equally important as economic rights, and still allowed a role for government in providing public goods such as education and infrastructure. In other words, they accepted the existence of a public personality that decides on public issues under public common law: i.e., politics.
Perhaps classical liberals were comfortable with politics because democracy was still limited, as was the power of the state. By the end of the second World War, however, the ability of the state to intervene in the economy had increased dramatically. The view from Mont Pèlerin was that a free market will not emerge if the government simply gets out of the way. “Free” markets still require extensive rules defining property itself, the terms of credit and debt, contracts, corporations, bankruptcy, rights and obligations of labor, and so on. Since these rules can be affected by the political process, strong safeguards were needed to protect the market from the state itself.
Although they did not use the term, these ideas eventually came to be called “neo-liberalism”. The key difference with classical liberalism is that right-leaning neo-liberals put primacy on property rights as THE most important guarantor of freedom, and enlisted the government to protect those rights over civil and political rights.
Right-leaning neo-liberalism’s primacy of property rights doesn’t just morally criminalize redistribution; it attacks almost all but the most basic of government activities. For example, neo-liberalism does not see taxes as a citizen’s contribution to society but as involuntary “institutionalized theft”. Since taxes are illegitimate, the implication is that most government programs are, too. Reducing taxes is the shortcut to ending politics: if governments cannot raise resources, it is hard to have a government at all, and democratic bodies will be left without much to make decisions about.
In this sense, right-leaning neo-liberalism is deeply anti-democratic. This “democraphobia” was vividly expressed by one of the patron saints of right-leaning neo-liberalism, Ayn Rand. Democracy, she wrote, is “a social system in which one’s work, one’s property, one’s mind, and one’s life are at the mercy of any gang that may muster the vote of a majority at any moment for any purpose”.
The irony is that, in seeking an antidote to fascism, socialism, and communism––utopia-or-bust ideologies whose impossible dream of ending politics eventually led them into dictatorship––right-leaning neo-liberals proposed an equally radical utopian ideology that refuses to accept the legitimacy of a democratic political system that facilitates compromises between competing interests. For them, any system that doesn’t move ever closer to the utopian goal of complete protection of property is corrupt and doesn’t merit allegiance. And this gives them permission to undermine it, heighten its contradictions, or plot to replace it, whether by slow coup or sudden revolution.