Has neo-liberalism reached use-by date? Ayn Rand and the failure of philosophy

A good deal of what I’ve been seeing of late on social media – but also in mainstream journalism – revolves around the notion that the Covid-19 pandemic will be the trigger for a shift away from the neo-liberalism that has characterised leading western economic policies since the early 1980s.

That might be right. Back then this ideology was trumpeted as a ‘more sophisticated’ approach than the liberal democratic western policy mixes of the mid-twentieth century. When the eastern bloc fell over in the early 1990s its triumph seemed complete. History, Francis Fukuyama declared, had ended as a result. From then on, The Future would consist of a changeless neo-liberal nirvana.

Well, quite. It was an absurd statement, curiously built on the same faulty assumption that Karl Marx had applied to his thinking in the 1840s: that societies, by nature, move towards an ideal end-point – a meaning summed up by the term ‘progress’. But this was an intellectual illusion. Societies don’t ‘progress’ directionally; they simply change. Sometimes that is, indeed, for ‘the better’ (however that might be defined), but sometimes – equally – it isn’t.

Karl Marx, via Wikipedia.

What emerged in the 1990s, then, was a simplistic reversal of communist doctrine in which end-point nirvana became a capitalist triumph where the world prospered thanks to the one-percenters. This vision was, in short, a realisation of a Randian wet-dream; and to understand its place we have to remember that Alyssa Rosenbaum (Ayn Rand) was actually Russian, brought up in her formative years during the Russian revolution. Her exaltation of lassiez-faire capitalism and demonisation of governments was, in many respects, merely a disingenuous reversal of the statist totalitarianism she saw around her while growing up.

To cut a long story short (but I’ll expound on it ‘long’ if asked), what appeared to be ideological ‘opposites’, in short – totalitarian communism versus liberal capitalism – were both framed and defined by the broad ideological framework that had originated with the industrial revolution in the late eighteenth century, which historically remains one of the definitions of ‘modernism’. All that was happening was a succession of flip-flops from one ideological extreme to another within that broad picture.

The other problem with Fukuyama’s idea was that, as historians well know, any ‘permanent future’ usually disappears after a couple of generations, because society keeps changing organically and the ideals held by one generation won’t be held by their grandchildren. This doesn’t mean history moves in specific cycles. However, the pressures that lead to social change over time within a broader cultural framework do seem to be generational. There are, at times, discontinuities where governmental framework apparently ruptures; but those in turn still come down to contiguous life-ways held by those within the broader culture, with which government has become disconnected. (I’ll post later on mechanistic ‘historical cycles’, an idea as interesting as it is wrong; and yes, I once wrote a post-grad paper on Oswald Spengler).

The Market in panic, 1837.

Nonetheless, pop-social perspectives are often trapped by the recency effect – where whatever has just happened dominates. The early-1990s fantasy that neo-liberalism marked the end of ideological and economic change was typical of this fallacy. It was picked up by plenty of people whose ignorance of history and of human nature was as profound as their sense of entitlement. There would be no further change. The future was a permanent neo-liberal paradise in which governments were almost irrelevant, taxes low, and profits high: a global economic playing field where ever-larger corporates could compete to produce ever-larger profits for the benefit of stock-holders; and where the poor would reap any benefits that ‘trickled down’ on their heads from above. And, as the editors of Random House told Rand in 1957 when she offered them Atlas Shrugged, some 3,000 years of Judeo-Christian tradition would go out the window.

Why was all this welcomed from the 1980s? The ideological oppositions of the Cold War played a large part. Neo-liberalism was the diametric opposite of what its exponents imagined communism to be (this doesn’t validate what communism actually was, of course: that system was disastrous in its own way, economically, politically and socially).

To a large extent neo-liberalism was also appealing because the social-democratic mix of the mid-twentieth century, adopted in various ways from the 1930s and 1940s by many western governments, had itself reached use-by date in the 1970s. Two generations of these policies had led to an increasing raft of regulation-on-regulation, an increasing sense that the welfare ‘safety net’ was actually a lifestyle choice. And economic prosperity was faltering. Neo-liberalism, which removed what were then seen as stultifying regulations and offered prospects for creating wealth by new enterprise, seemed appealing. And at first it was. The older system had, indeed, reached an unworkable extreme; and the new generation did not identify with the structures it was built on.

The question few asked was whether the answer to the problems of the 1970s was to simply reverse older assumptions, which is basically how neo-liberalism was applied in the United States, Britain and – curiously – New Zealand during the 1980s. In New Zealand, particularly, there was a sharp crusade to get rid of regulation and attack the welfare state – an explosion of polemic sold on the basis that to propose any path other than what was being imposed was to advocate the discredited old. This stifled debate. Again, for a while, the change was welcomed. But when the brief burst of saved money ran out and the stock market collapsed in the late 1980s, the down-side emerged. Rising unemployment, poverty and collapsing infrastructure became the norm in early 1990s New Zealand. Yet even when a Labour government was elected in 1999 and declared a failed socio-economic experiment ‘over’, the fundamental frameworks of policy didn’t change.

New Zealand was not the only country to undergo this transformation, although the Kiwi experience was one of the most extreme. Two generations on, and the costs of under-funding government services, particularly those relating to key infrastructure such as hospitals, has become evident worldwide as a result of the pandemic. Add to this the application to public services of business practises such as ‘just-in-time’ global delivery, creating dependency chains of both goods and cash-flow with no resilience, and the whole edifice begins to look fragile. There has also been the adjustment of capacity to suit only average normal demands.  In an emergency, or if supply chains are disrupted for any period, there’s nothing to stop the whole lot falling over.

But it’s worse than that. This same issue of paper-thin reserves and conceptual frameworks on which trade is based also affects the financial sector – something that remains very much a child of neo-liberalism. Much of the money being made in ‘the markets’ comes not from production, but from speculation on the imagined future value of that production – further abstracted through buying and selling stocks, shares and debt. When such products of humanity’s apparently unique ability to conceptualise the intangible are treated as ‘real’, and traded on that basis; or when the same thing is done in terms of buying and selling debts – which is what caused the General Financial Crisis, but which hasn’t stopped since – it’s clear that much of the ‘prosperity’ generated by neo-liberal deregulation is tangible for those who benefit from the cash-flows, but in any real economic sense no more than a house of cards.

I mean, what do you think something that is built not just on imagining what something invisible and untouchable is worth, but on competitively trading that assigned value? And then take the ‘products’ of that conceptual trade, and trade that? This is how the financial system actually operates. It has nothing behind it, although those involved profit in a real sense from the flows of money. Eventually, somebody sees a fleeting shadow that spooks them, everybody else follows, ‘confidence’ falls, and then real value and people are slammed. I am not kidding. Why do you think the GFC happened?

Yah. When the conceptual vision falters, the neo-liberal system of global financial markets, ‘futures trading’ and all the rest is fucked. There is no other word for it. And it doesn’t take much to do that. Just saying. It has little to do with what actually fuels the human effort – intellectual or otherwise – that supports complex societies, yet a few from those societies can always benefit from the practise before it bursts. The problem is that the ‘stimulus’ packages of 2008-10 kicked the can into the future but didn’t fix the cause. And today – well, this is that future.

A beautiful picture of Earth from 1.6 million km sunwards. NASA, public domain.

There is also evidence that ‘trickle down’ hasn’t worked. In a sense it did: the third industrial revolution combined with de-regulation and market freedoms to enable a wide distribution of cheap consumer goods that gave the illusion of wealth. The fact that many of these were of historically low quality, ultimately reflecting a devaluation of production input, did not reduce the impression that the wealthy corporates were, indeed, showering gold upon us all. But in fact, wealth continued to flow through these mechanisms from the poor to the rich – aided by tax structures flowing from the neo-liberal revolution – leading to the present situation where much of the world’s wealth is locked up by less than one percent of the population.

The more insidious problem has been the way the conceptual reduction of all interactions to monetary value, coupled with corporate-style cost-benefit analysis – has framed thinking. After two generations of it, everything, it seems, including intangible human values, can be ‘rationally priced’ in purely monetary terms. To me, this sits poorly with the reality of humanity as a primarily emotional species. But such assumption has become so embedded it has even found its way into governmental systems. The emotional value of gaining a new friend in New Zealand, in September 2019, has been priced by The Treasury at $616, since you ask – and yes, that is from their spreadsheet. I have friends who are economists there, who I know for a fact don’t think so cynically; but what I am critical of is the underlying bureaucratic driver for such calculations, which is shaped by the longer-term ideological outcome of neo-liberal frameworks on government systems.

Such disconnect between intellectual constructs and the realities of human emotion, I suspect, has been why the social impact of neo-liberalism has taken the specific direction it has globally. The poor have been hurting, and in recent years the middle classes have run into trouble. In recent years terms such as ’employed poor’ – people who can’t make ends meet, despite every efficiency, and despite full-time salaries – have begun to circulate.

There is an end-game to this system. My home town of Napier, for instance, has areas whose people have become feral; suburbs where default behaviour is to be aggressive to strangers on sight – verbally and physically – and where vandalism, violence and theft are part of ordinary life. This city is not, of course, alone in such experience. Rand’s editorial critics in 1957 were, it seems, quite right. I suspect the cause is a shift of mind-set that leads the dispossessed to extend human values only to their immediate groups and to de-humanise all else, including government authority. It is difficult to see this as anything other than a return to the urban social problems of the early industrial period, caused by much the same forces. Back in the nineteenth century, it led to governments being knocked over by pitchfork-wielding workers. And it has re-emerged now only as the neo-liberal ‘reforms’ have entered their second generation – which, from a historical perspective, is pretty much standard when looking for social outcomes of major shifts.

So yes, it seems clear enough from these factors that neo-liberalism has reached its use-by date. And simply reversing its excesses won’t offer longer-term answers. What will work? I have some general ideas based on my own qualifications, publications, and experience in anthropology, history and philosophy: and otherwise in the experience I had of professionally communicating economics as a ‘day job’ over many years, all of which contribute to the discussion points I intend to outline in subsequent posts. But maybe the answer, in detail, can only be ‘nobody knows’. Which, of itself, is actually an answer in a philosophical sense. Just not the one anybody wants. We’ll see. Watch this space.

Either way, the apparent global social response to the current Covid-19 crisis suggests that there is a definite mood for a paradigm change in western socio-economic philosophy, and I hope that whatever happens will be done carefully, with consideration, and with a better understanding of human nature than accepting, as faith, simplistic Randian wish-gratification. Put another way, as the world plunges into an economic depression that will make the Great Depression of the 1930s look like a kiddie game – a depression that has been ripe and ready to happen for years, and isn’t fundamentally caused by anti-virus lock-downs – I hope understanding of human nature and society can flow from something more than the default intellectual frameworks of the immediate moment, and the polemic flowing from that perspective.

Meanwhile – any opinions?

Copyright © Matthew Wright 2020