Preface

The Network Project is dedicated to constructing a critique of the neo-classical world-view, which is commonly called neo-liberalism, and in assessing alternative ideas and developments. The nature of the corporation, the market and free trade are being questioned in the West as elsewhere, and alternatives such as fair trade and global justice are being suggested. However, the nature of neo-liberalism, as the dominant political ideology, is poorly understood, and the necessary challenges to neo-liberal ideas cannot be made successfully without gaining such an understanding. This essay is concerned with demonstrating the basic facts about the neo-liberal worldview, its values and political strategy. This will start with the following definition of neo-liberalism and its political strategy:

The neo-liberal worldview can be defined as the belief that the unfettered pursuit by individuals of private and selfish good creates a spontaneous order that benefits all of the members of society. The political strategy of neo-liberalism is to ensure that an international competitive order is created in which every state is governed according to the values implied by this worldview.

Introduction

Neo-liberal values are increasingly being presented as Western values. The whole world is being ‘modernised’; every world state is to be run according to neo-liberal values, often projected as ‘democracy’, ‘liberty under law’ or ‘justice under law’. Neo-liberal ideas have become so mainstream that politicians act on neo-liberal advice as a matter of course. Neo-liberals have apparently made their intellectual case so well that there appears to be no alternative: alternative intellectual ideas are ignored or ridiculed as unrealistic or as speculation; alternative values and political movements are marginalized and excluded from decision-making processes.

In fact, there seems little evidence that any meaningful percentage of Westerners do in fact share neo-liberal values. Many leading Western cultural spokesmen, such as John Ruskin, Thomas Carlyle and Mathew Arnold, as well as scientists such as Charles Darwin and Albert Einstein, have attacked the morality and scientific credibility of the ideas that make up the neo-liberal worldview. Historically, this view was criticised from the beginning, particularly after 1720, when the collapse of the South Sea Bubble revealed what really happens when corporations are managed according to the selfish whims and the corruption of their directors. Ideologically, neo-liberalism specifically does not coincide with the British libertarian heritage that flows through John Locke, John Stuart Mill and T.H. Green to Harold Laski. The West does have cultural and ideological values that we can be proud of, but these by no means always undermine other cultural values. Indeed, the very idea that Westerners have values that conflict with those of Islam or any other cultural group is not one that should be accepted without scrutiny to say the least.

The exclusion of alternative voices and political groups from political representation, the continuation of poverty and exploitation across the world, and the position of the law in condoning these things, are not helping to convince thinking activists that we live in a world of democracy, liberty or justice as they would be generally understood in a Western context. If neo-liberals believe in their ideas and values, then that is as it is; but to proclaim their values as the values of the entire West is provocative, and needs to be answered. Neo-liberals do not speak in the name of the whole West.

This essay will deal with neo-liberalism in three sections. First, the basic ideas of the competitive, spontaneous order will be sketched. Second, the meaning of law, democracy, liberty, justice, and welfare in the neo-liberal worldview will be explained, as well as the way in which neo-liberals control democratic decision-making. Third, the history and form of neo-liberal political strategy will be described.
This is a very brief essay, with little attempt to reference any but crucial ideas. The intention is to put this right in a later, longer essay.

Section One: The Spontaneous Order

Modern neo-liberals present their ideas as being developed mainly in the Scottish Enlightenment of the Eighteenth Century. The fundamental idea, that the unfettered pursuit by individuals of private, selfish good creates a spontaneous order that benefits all of the members of society, is traced to Bernard Mandeville’s notion in The Fable of the Bees (1715), that
The worst of all the multitude
Did something for the common good.

This is the basis of the classical worldview, stated famously in 1776 by Adam Smith as the invisible hand theory:
“ … every individual necessarily labours to render the annual revenue of the society as great as he can … he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which is no part of his intention”
This is the dominant idea in the classical worldview and in neo-liberalism. There are five strands to this that are important from a critical point of view. The first is that each individual is after his or her own gain. The second is that this process results in a spontaneous order. The third is that this spontaneous order is created unintentionally. The fourth is that the spontaneous order benefits the welfare of the whole society, through an increase in the wealth of the nation. This leads to the fifth implication of the classical idea: that of cultural or societal competition for scarce resources. Although the idea of spontaneous order might seem to be an argument for individual liberty alone, it must be noted that Mandeville and Smith were arguing that purely self-seeking behaviour creates a nation that is more productive than other societies, and as such is able to dominate world trade. The message of Mandeville that must be grasped in order to understand the reverence that neo-liberals feel for him is that the selfish individual, in seeking his or her private interest, contributes to the spontaneously created selfish national interest, and allows the society to engage successfully in cultural competition for world resources.

It must be stressed that selfishness, in the neo-liberal worldview, is not only necessary to cultural competitive success, but is also the main facet of human nature. Neo-liberal theory looks to David Hume’s Treatise on Human Nature, published in 1739 as a further source for ideological justification of their ideas in the British intellectual tradition. Hume had three principle views that coincide with neo-liberal concepts. These are, first, that human beings have only a limited concern for other people; second, that resources are irretrievably scarce: and third, that the state must protect private property. This fits well with the ideas of Mandeville and Smith.
The implications of this are that, for neo-liberals, ownership is irretrievably linked with competition for scarce resources, for the individual, the cultural national unit, and the corporation that is protected in law as an artificial individual; and this all without effective legally defined regard for the social and environmental consequences. Furthermore, the state is the protector of this individual, corporate and cultural competitive struggle; and this is justified by a belief in a spontaneously created beneficent order. Taking all this into account, it can be readily seen that (for neo-liberals), the market, if allowed perfect freedom, must necessarily distribute resources in the most efficient way possible.

Section Two: The Law of Liberty and Western Values

To restate the matter, neo-liberals believe in the idea that selfish individual behaviour, if allowed to act freely, results in the emergence of a spontaneous, highly productive society. As Frederick Hayek pointed out, this amounts to a Law of Liberty, upon which all neo-liberal theory and political action is based. In a general sense, neo-liberals can be defined by this belief, and neo-liberal policy can be defined by the actual creation of a world market underpinned by the Mandeville-Smithian view of emergent human behaviour.

Neo-liberal thinkers, however, develop the idea of the Law of Liberty much further, to underpin the notion that they are the true protectors of Western values. Neo-liberals talk of liberty under law, justice under law, and the Western mission to spread democracy and liberty around the world. If this belief-system is to be questioned, the form of the neo-liberal argument must be grasped.

Within the neo-liberal belief-system, the privatisation of property and the free competition for profit of individual property owners (and the corporations that are regarded in neo-liberal law as individuals) are conditions that, by virtue of the natural law of selfish competition that leads to the spontaneous order, must necessarily maximise human welfare. Maximal human welfare follows from the Law of Liberty.

The distribution of wealth that emerges from the competitive order is the best that can be achieved. Any interference with the market is by definition self-defeating. The market is seen as self-regulating, and for this reason, recession is the result of production and distribution becoming unbalanced. The only thing that can be done in recessions is to leave the market to sort itself out. This follows from the Law of Liberty.

The reality of distribution through free trade is defined as justice in neo-liberalism; and it is therefore moral, also by definition. Market distribution is just: market distribution is moral; and these too follow from the Law of Liberty.

The Law of Liberty, then, defines neo-liberal ideas of freedom, welfare, justice and morality. In neo-liberalism, these values are realised by ensuring that the law protects private property and free trade. Neo-liberals, however, are painfully aware that they represent a minority opinion, even in the West. Democracy, if allowed to develop naturally, will tend to act against neo-liberal principles, to form social democratic and welfare states in which market intervention is the norm. Furthermore, pressure groups, such as religions or trade unions, will interfere, through democratic channels, with the free working of the market. The problem for neo-liberals is to ensure that the Law of Liberty is maintained, and that it supersedes any democratic rights of the majority. As can be seen, this is why all alternatives to neo-liberalism must be excluded from political influence. This leads to the neo-liberal concept of democracy.

David Held, in his Models of Democracy, calls this model legal democracy, asserting that the over-riding principle of justification is that individual freedom and initiative must be protected by law in both the political and economic sphere: majority rule must therefore be circumscribed by the rule of law. The justification of majority rule is simply in maintaining liberty through protecting individuals from arbitrary government, by maintaining the possibility that leaders can be removed from office.

Held notes that general conditions are that political leaders should be guided by neo-liberal principles; the minimisation of bureaucratic regulation; restriction of the role of interest groups, particularly trade unions; an international free-trade order, and the eradication of the threat of collectivism of all types. This agrees with the analysis stated here; but it raises the question of neo-liberal strategy. As Held says, neo-liberals fulfil their aims by ensuring the existence of a political leadership guided by neo-liberal principles. The question is: how is this guidance done? This will be dealt with next; and it involves going back to the Scottish Enlightenment.

Section Three: The Politics of Neo-liberalism.

The point about the Scottish Enlightenment is that it represents a school of thought concerning the appropriate way in which human beings should live. The end result of such ideas is not academic but practical and political. The proponents of the ideas sought to ensure that the government of the nation followed their advice, and allowed selfish behaviour full scope. Furthermore, the school had its enemies, who had to be argued against. For instance, Bernard Mandeville criticised the third Earl of Shaftesbury, who believed that, as man was made for society, he might be expected to intentionally work for the welfare of it: and Mandeville was well aware that his own system could not be more opposite to that of Shaftesbury. The two schools of thought were, and are, antithetical; they underlie two completely different systems of political thought and action. The winning school is the one that manages to influence the actual government of the state. The politics of neo-liberalism continues this tradition.

As it happens, this tradition lost influence during the nineteenth century, and by the mid twentieth century, there was a general commitment to the post-war consensus, to welfare states, and to pluralism in decision-making. However, the ideas of the Scottish Enlightenment did not wither and die: rather, they gained new champions. The particular champion of neo-liberalism is Frederick Hayek, whose 1944 book The Road to Serfdom can be taken to represent the beginning of the neo-liberalism that we see before us. Hayek was appalled at the domination of Left-wing ideas in academic life, and decided to create a movement to connect those few liberals who still held positions in academic institutions: a network of intellectuals. This came to fruition in April 1947, when perhaps the most significant event of the twentieth century took place: “a group of liberals met in the Hotel du Parc on Mont Pelerin, Switzerland, to discuss liberalism and its decline, the possibility of a liberal revival, and the desirability of forming an association of people who share ‘certain common convictions’ about the nature of a free society”.

This association of people called themselves the Mont Pelerin Society, and the quote above is from their historian, Max Hartwell. The ‘certain common convictions’ about the nature of society were the conviction that Bernard Mandeville and Adam Smith were right in their ideas that selfish behaviour created a spontaneous order of public welfare. Members of this society were Ludwig von Mises, Michael Polanyi, Karl Popper, and Milton Friedman, and Frederick Hayek was the first president. This association has remained small; in 1986, it still had only 500 members.

The neo-liberal position was not to enter into politics until the root ideas of neo-liberalism (that is, classical economics based on the Law of Liberty) had recovered their strength. As Hayek put it, neo-liberals first had to “make an intellectual case amongst intellectuals for what you believe in”.

The Mont Pelerin Society provided a setting in which neo-liberal intellectuals could present and discuss papers that contributed to making an argument for the recreation of free market economics. The Mont Pelerin Society also set up think tanks to continue the work of the popularisation of the neo-liberal message; this tactic had been used by Mises and Hayek in Austria previously to work out and spread arguments that trade cycles should not be interfered with. The first of the Mont Pelerin generated think tanks was the Institute of Economic Affairs, set up in 1953. Many more followed, controlled strategically by placing Mont Pelerin Society members on the advisory boards. By 1986, there were thirty neo-liberal institutes in seventeen countries.

By the 1960s, the Mont Pelerin Society was making links with politicians. They have a policy of avoiding direct links with any particular party; and this follows from their belief that all parties must rule according to neo-liberal ideas. Nevertheless, when opportunities arise, the Mont Pelerin think tanks are keen to give advice. Such an opportunity occurred in Britain from 1963 onwards, with the Conservative Party being increasingly influenced by neo-liberal ideas through Mont Pelerin think tanks. Enoch Powell, Sir Keith Joseph and Geoffrey Howe in particular helped to promote neo-liberal ideas in the Conservative Party. A significant step forward came when Sir Keith Joseph convinced Mrs Thatcher to take up neo-liberal ideas and to put them into practice; but there is no evidence that Mrs Thatcher was aware of the existence of the Mont Pelerin Society.

At the same time, Ronald Reagan was heading towards presidency in the USA. Reagan’s link to the Mont Pelerin Society is not recorded; but he followed the same pattern in being influenced ideologically by neo-liberal ideas of free enterprise and minimal state intervention, and of being guided into the leadership of a minority group of intellectuals who were seeking to undermine the dominant ideas of the post-war consensus.

From these beginnings, neo-liberalism has spread, and it has in fact successfully undermined the post-war consensus. Liberal think tanks have captured the intellectual high ground, and produce papers and advisors to facilitate governments in dismantling regulations and in privatising public services. Neo-liberals fill academic chairs and editorial roles. In short, the neo-liberal strategy has two significant elements; the intellectual and academic development of ideas based on neo-liberal values; and the systems that feed those ideas into the circles of political power; and all of this with the express intention of ensuring that political leadership is guided by neo-liberal values.

Conclusion.

In conclusion, then, I have described the basis of neo-liberal values in their belief that the selfish behaviour of individuals inevitably creates a spontaneous order that maximises social prosperity. I have shown how neo-liberals present this belief in terms of Western values, not just of liberty, but also of law, justice, morality, and welfare. I have also shown that neo-liberals, despite being only a small proportion of the population, have nevertheless assumed a position of intellectual and political supremacy through the guidance of political decision-making.

This, hopefully, will help those who do not hold neo-liberal values to understand and counter neo-liberalism, to rediscover the Western traditions that renounce neo-liberal values, and to create, in partnership with non-western thinkers and activists, a set of values that are neither Western nor Eastern, Southern nor Northern: a set of values that are simply human.

Paper presented by Ian Brown
on 19th November 2005
at the inaugural conference
of the Network Project at
London School of Economics