A Delusion of Grandeur: Kevin Rudd in Politics

If Graham Freudenberg was able to write of Gough Whitlam’s political career that it exhibited “a certain grandeur”, then for Kevin Rudd we might speak of “a delusion of grandeur.”

Many of his most vocal supporters shared in this delusion. For instance his lead cheerleader amongst the Australian intelligentsia, Robert Manne, even went so far as state that Rudd’s critics did not seem to understand that the colossus from Griffith was “an intellectual in politics,” who was “struggling” to simultaneously both “understand and change” the world. No self respecting philosopher king can take seriously Marx’s clarion call in the Theses on Feuerbach.

For Rudd ,and Manne, such an injunction is too modest by half.

Rudd seems to have seen himself as some sort of philosopher king with a Hawkian “special relationship” with the Australian people to boot. His political legitimacy and authority resided in his own personality and talent.

This delusion of grandeur proved to be his undoing.

How else to explain his claim that he did not owe his leadership to the ALP? How else to explain the sheer contempt that he showed the party during the course of his leadership? For example, by coming and going as he pleased at the last ALP national conference? By announcing on radio, well away from the conference, that its resolutions, especially on tax reform, are irrelevant? Not even Paul Keating would have displayed such brazen contempt.

By sidelining cabinet, even to the extent of exiting cabinet meetings to attend to petty media interviews? How else to explain the extraordinary level of centralisation that he vested in the leader’s office, against more than a century’s worth of Labor tradition that places primacy upon the parliamentary party?

He treated both the Labor Party and the Labour movement with contempt. He did so because of his grandiloquent view of himself, but his leadership was based on nothing else other than high standing in the polls. When those polls turned against him so did the party he viewed as an irrelevant appendage.

He was not able to see this until the end. Such are the delusions of grandeur.

A good deal of commentary has focused on the manner in which Rudd was replaced as leader.

Attention has been especially drawn to the role of factional and union power brokers in his ousting and the efficient manner in which they organised his “assassination.” This aspect of the Rudd downfall has been best encapsulated by Mark Latham and Paul Kelly. Writing in the The Australian Financial Review Latham observed that (AFR, 25 June 2010, p24), “the leadership of Australia’s oldest political party has become a transit lounge, controlled by poll and media obsessed appartchiks.”

Latham surely has a point.

The ascension of Gillard did not follow on from policy or ideological differences. This is not a political party that is struggling with its soul, with its policy direction, with its goals and visions, and so has changed its leader. “Our princess” Julia Gillard was seen as a better prospect at the next election. So the powers that be helped to elevate her to the leadership.

Commenting upon the Latham thesis Kelly states in The Australian today that the Rudd ouster, “reveals a party governed not by ideas but powerful interests that span networks of factional, trade union, family and special interest group connections that thrive on the patronage, finances and appointments that only incumbency can deliver.”

That is also true. However, it is possible to overcook this view.

What Latham and Kelly state is surely correct. But there were more issues and, crucially, more players involved. There is a widespread view amongst the Left side of Australian politics that Tony Abbott, and those around him, are rabid right wing extremists. It would be a disaster for progressive politics in Australia should the Liberal Party win the next election. This has played an important element in the change of leader.

The focus on factions and so on is important, but it should not obscure this part of the equation.

Perhaps the most important institutional factor in the demise of Kevin Rudd was big business. It is big business that, ultimately, determines the leadership of the Labor Party. One reason why the corporate media turned viciously against Mark Latham is because big business did not trust him.

To be sure, as Robert Manne pointed out, up until then Latham was the most right wing Labor leader in history. However, Latham always had the dangerous class warrior lurking within him. I saw it. I perceived it. I liked it. But, the rich saw it, they perceived it, they did not like it.

At times his use of the idiom of class sounded almost Marxian. He would not give big business a trusted place in his office. He would, in short, not “consult.” The big end of town did not trust him and so it was easy for the corporate media to portray him as an unhinged nut.

This has happened many times to Labor in the neoliberal era. Recall, for example, the role of the corporate media and the big mining interests in the ouster of Gough Whitlam and Rex Connor. It is not ideological orthodoxy that big business seeks from the ALP. It is important that Labor tends to its interests. Because of the party’s roots in the Australian working class the ALP always represents a risk for corporate Australia.

The main function that the faction system in the ALP serves is to take away the risk of democracy that the rich at all times face.

Consider the case of Bob Hawke. The so called “Hawke ascendancy” and his own “special relationship” with the Australian people was a corporate media fiction. Throughout the 1970s the corporate media pushed the Hawke bandwagon, which was resisted by the Labor caucus almost until the 1983 election.

In office Bob Hawke did not disappoint his corporate patrons. For the rich the Hawke era was a veritable bonanza. But Hawke was ousted precisely because of his adherence to neoliberal orthodoxy. He was successfully challenged by Paul Keating during the depths of the 1990-1991 recession, the one “we had to have.”

Throughout this deep recession Hawke was maintaining neoliberal orthodoxy. Keating, by contrast, was brazenly abandoning neoliberal austerity in favour of fiscal stimulus and loose monetary policy. Keating understood that when the rich get in trouble they want the nanny state to bail them out.

Hawke didn’t and so the corporate media, reflecting the consensus of big business, turned on Hawke and the rest is history.

They made Hawke and then they broke him.

Rudd seemed to understand that “the Latham debacle” represented big business disciplining the Labor Party into proper behaviour. Under Rudd’s leadership the door for big business was widely opened. Commentary at the time reflected how much better the relationship between the Labor leader’s office and big business was when Rudd took over the leadership. Prior to the 2007 election meetings with business leaders were frequent, even formalised on a weekly basis.

Compare that with the relationship that Rudd has had with big business in recent times.

Though his tax reform policies were designed to assist corporate Australia as a whole, though he has extended a helping hand to the financial services industry, though he ditched the ETS to mollify big business, none of that was enough. When the mining industry turned on him because of his minor infringement after announcing the resource super profits tax, which is what the tax is, big business was loathe to come to his defence. Laurie Oakes has spoken of a “disastrous” meeting with the Business Council of Australia days prior to his ouster.

Comments and analyses on Rudd and the Rudd style in the corporate media thereby recently became frequent. The Rudd “brand” was rendered toxic by precisely those who helped to craft it in the first place. The mining industry decided that it would destroy Rudd and destroy him they did. The change over has been fulsomely praised by all of Australia’s peak business bodies. The ascent of Julia Gillard comes with the promise that they will be “consulted” better, as if they have not hitherto been consulted enough already.

In other words, Gillard knows her place unlike the grandiloquent Rudd.

Mark Latham and Kevin Rudd lost the leadership of the Labor Party because they lost the confidence of corporate Australia. How is that Rudd was able to forget the lessons that corporate Australia dished out to the Labor Party during “the Latham debacle?”

This owed to his delusion of grandeur. He saw himself as striding the Australian political stage on the back of his own unique vision, drive and capability. However, a minor infringement against those who really run the country, the big moneyed interests, was very much the big nail that was driven into his political coffin.

Corporate Australia has brought Kevin Rudd back down to Earth with a thud. It is indeed ironic that this is just as it was with Mark Latham. The element of the delusion of grandeur in Rudd’s case immediately brings to mind Marx’s refrain in The 18th Brumaire of Louis Napoleon, “Hegel remarks somewhere that all great world-historic facts and personages appear, so to speak, twice. He forgot to add: the first time as tragedy, the second time as farce.”


The emphasis on the factions and patronage is thereby only half the story. The Labor Party’s power brokers do seek office in order to dispense patronage and thereby secure institutional prerogatives. But they understand that this can only be achieved by looking after the needs of big business. If they lose touch with corporate Australia they lose elections.

One interesting aspect to the latest developments in Canberra is the announced departure of the socialist minister for deregulation, Lindsay Tanner. He was widely praised in the corporate media following his announcement. In fact, he earned high praise too from financial market economists for his commitment to economic rationalist orthodoxy.

Tanner was a person who, in his maiden speech to parliament, declared himself to be a socialist. His departure from parliament is now mourned by financial market economists, who shall miss his economic rationalist zeal. This has been taken as praise, but such valedictories by financial market economists are a fitting end to Lindsay Tanner’s career.

Good riddance, Comrade Tanner. Don’t ever come back.

Categories: ALP

Despite Julia Gillard’s Support for Neoliberalism, Now is the Time for Progressives to Back Her

Australia has a new Prime Minister after the bursting of the Rudd asset price bubble. As I stated long ago, when the Rudd bubble was in full flight, his leadership of the ALP was based on little else but his high poll numbers. These numbers were a bubble, I had argued, for Rudd was a leader distinctly lacking in substance.

Mark Latham summed him up very well in his diaries.

I had stated that the Rudd bubble might prove to be a dilemma for the ALP in the future. I had not expected that the bubble would burst so suddenly and with such force. If the property bubble, that the former PM has helped to sustain, bursts like the Rudd bubble then heaven help us.

Julia Gillard has achieved the highest political office in the land by betraying her socialist beliefs and her core working class constituency. If she had not done either of these things during the course of her political career, rather than being PM, she would be organising the next Altona ALP chook raffle. Lindsay Tanner, who has done the same, was right to have characterised her as a “careerist”.

In the Tanner lexicon no pejorative ranks higher.

Although in media commentary much as been made of Gillard’s working class roots, this all should not be taken too seriously. Gillard has announced, loudly and clearly, her whole hearted support for neoliberalism and her dedication towards the further pursuit of neoliberal reforms.

The Age reports newly minted PM Gillard as stating today that

“I give credit to the Labor giants Bob Hawke and Paul Keating as the architects of today’s modern prosperity,” she said.

“I give credit to John Howard and Peter Costello for continuing these reforms,” she said

These remarks are truly amazing. The former socialist Gillard even has gone so far as to praise Howard and Costello for continuing and extending neoliberal reforms!! This is how low the ALP has sunk since Gough Whitlam took away the power of the organisational wing.

If Gillard stays true to these comments then this change over will amount to what Keating would have called “embroidery.” Gillard might change the style and packaging of neoliberal Labor, but the essential commitment to neoliberalism, one of the defining features of the Rudd leadership, will continue to obtain.

The ALP power hierarchy will remain committed to neoliberal policies and programs so long as the current structure of the party endures. The ALP requires root and branch reform if it is to return to being a genuine working class party.

Changing leaders could be a start. However, if so the new leader would need to be dedicated toward the dismantling of the Hawke-Keating legacy. That, Gillard has stated, she won’t do. Quite the opposite. She will continue the neoliberal programs that Hawke and Keating, but also Howard and Costello, did so much to bring into being.

There can be little doubt ,however, that a Gillard government would be better than an Abbott government. It would truly be a disaster for progressive politics in Australia if Abbott should win the next election. He is a rabid right wing extremist. So are the people pushing his cart.

I don’t expect much from Gillard, but in saying this I nonetheless maintain that she should be supported by progressives. Those of a left wing persuasion should not allow their justified scepticism of Gillard to obscure the huge stakes involved in the next election.

I sincerely hope that both she and the ALP win the next election. When she does, we should continue the struggle against neoliberalism. That, judging by these remarks, will mean that the Australian left will end up opposing her.

I submit that now is definitely not the time for all that. I submit that it is possible for progressives to support Gillard but also at the same time to continue to work against neoliberal policy and ideology.

Surely Gillard still has some place inside her that remains true to her old fiery and passionate commitment to social justice. I don’t think there was anything of that in Rudd. If there was, he kept it very well hidden.

Hopefully, some of that old passion will emerge during her leadership. I personally doubt that it will, but we always have “the audacity of hope.”

Categories: ALP

The Resources Super Profits Tax and Decoupling: Is Australia Still Coupled to America?

The proposed Resources Super Profits Tax has consumed the nation. Most of the focus has been directed toward the affects, real or imagined, that the proposed tax would have on resource corporations.

Less critical attention has been devoted to the government’s proposals for how the proceeds of the tax are to be spent, critical to any moral arguments that invoke “mutual obligation,” and the underlying economic idea behind the whole thing. That idea is that we are about to have another commodity price driven resources boom, Boom Mark II, to match or even surpass the boom that we experienced in the noughties.

It’s assumed that Australia will benefit from a sustained boost to the terms of trade on the back of industrial production in China and India out to 2050, according to Ken Henry. The deputy head of the Reserve Bank, Phillip Lowe, argues that Australia is now “decoupled” from the United States. The old saying, when Wall Street sneezes Australia catches a cold, no longer applies. If America experiences a Japan style “lost decade” this won’t matter much. We’ll have China and India to save us. Lowe even is of the view that the Chinese and Indian booms have “decades to run.”

Decoupling is the critical idea underpinning the government’s economic strategy.

The RSPT is needed because we need to avoid all the problems associated with the “two speed” economy that we had during Resources Boom Mark I. For example, our resources were being exported to industry in China that was crowding out Australian manufactures in global markets.

Geelong and Elizabeth were losing because Tom Price and Broken Hill were winning.

Canberra, sensibly enough, wants to avoid such distorting effects during Resources Boom Mark II. The RSPT is a part of the government’s strategy to ease our way through the inevitable big boom.

Australia, however, has not decoupled from the United States. Despite the growing economies of China and India, what happens in America is still far more important for Australia. China and India are just transmission belts. The real game is still played in America.

I myself have been guilty of falling for the decoupling argument, but I see now that the case for decoupling was always pretty weak. Let me explain why.

Industrial production in Asia has depended upon exports to the United States and Europe, but especially to America. What has allowed this to happen is globalisation. Because of the globalisation of production industrial corporations have increasingly shifted factories, and even call centres, to low wage countries such as China and India. But, crucially, this is done with the objective of selling goods and services back to the US.

The strategy of export led industrialisation that the Asian based economies have pursued has thereby relied on demand from the US consumer.

The first resources boom, so the party line goes, happened because of the booming Chinese economy. On the face of it that’s true. But China was going gang busters because of the asset price bubble fuelled economic growth in the United States. Australia’s terms of trade was boosted, during Boom Mark I, by the US consumer purchasing cheap Chinese products. To export goods to the US market Chinese factories needed our raw materials. Even the construction boom in China, ultimately, owed its origins to America.

Our mining boom was therefore based in the United States, not China. But, one might well say, look at what has happened since. China has stayed up while the US went down. Commodity prices had picked up following big falls in 2008-2009. Australia has been riding on Red China’s back and thereby avoided recession.

It is true that China has been growing at an impressive click while the US has been stuck in the doldrums following the bust up on Wall Street and the collapse of the property bubble. However, when the crisis erupted on Wall Street in 2008 growth in China declined sharply. Since then the Chinese economy has picked up on the back of a massive fiscal stimulus, the ability of Chinese authorities to stimulate the economy by command rather than through indirect incentives and an asset price bubble, especially in the property sector, fuelled by cheap money.

In many respects this is similar to what has happened in Australia. We have avoided a recession because of the Rudd government’s stimulus spending and a deliberate strategy to prop up our own property market bubble.

However, the Chinese cannot stimulate their economy forever. In Australia we hope to keep the economy going by government stimulus until private demand picks up again. If it doesn’t then we are in trouble.

The same applies in China, except in this case Beijing is hoping that private demand from the US kick starts export led industrialisation again. If it doesn’t then China is in trouble. Likewise the property bubble in China has been stoking inflation. Beijing has moved to dampen the economy and global commodity prices have fallen in recent months as a result. Many analysts even go so far as to say that Resources Boom Mark II has now come to a close, well before 2050 it might be added.

The measures that Beijing has put in place since 2008 are temporary band aids. So long as China, and the rest of Asia, rely upon export led industrialisation then a stagnating US economy will prevent a long run resources boom in Australia. The debt crisis in the Euro zone does not help matters.

Should the US consumer continue to rely upon debt to fuel consumption, and the US financial system is not reformed to prevent further financial crises, then continued global economic instability will be difficult to avoid. This would prevent something akin to a multi decade long resources boom of the type commonly forecast to come about. We might add that US consumers now have little option but to deleverage. Cheap labour in China will dampen wages growth in America. There is something fundamentally amiss in the current makeup of the global economic order.

Australia would be truly decoupled from the US only if Asia proceeds to engage in regional integration, which is occurring to a limited extent, of the type gradually being implemented in Latin America and Beijing rejigs its economy towards domestic consumption. In the absence of these two changes Australia’s prospects will continue to be ultimately coupled to the economy of the United States.

The Rudd government’s economic strategy seems to be based on a complete misreading of the global economy and Australia’s role within it. Of course, this has no bearing on moral arguments for the resources tax which appear sound. When it comes to the poor “moral obligation” is accepted without demur. The rich insist, naturally enough given Adam Smith’s “vile maxim”, that they be exempt from mutual obligation.

Categories: Aus Economy, Globalisation

Why We Have to Save Kevin Rudd from Oblivion

I can’t stand Kevin Rudd. I have always believed that Rudd is exactly as Mark Latham described him in his diaries. Recent events have borne this out, and the Latham view is now widely shared in Australia although its provenance continues to be denied. When Rudd was flying sky high in the polls I had called him a “flaky” and so on. I had also characterised his standing in the polls as Labor’s “asset price bubble.”

The bubble, never based on substance or “the fundamentals”, has now well and truly burst just as the country prepares for a federal election. This is a disaster for the progressive side of Australian politics. Rudd needs to be saved from oblivion. Now is not the time for progressives and progressive commentators to sink the boot into Rudd. I say this as someone who, accurately, had characterised Robert Manne as an intellectual with a proclivity to kiss Rudd’s arse. So, at least I have some credibility on this issue.

Now is the time for progressives to call time out on putting the boot into Rudd.

This is because the only realistic alternative would be very bad for progressive politics in this country. Tony Abbott, and all those pushing his cart, are rabid extremists probably on the same wavelength as the right wing of the Republican Party in the US. If Rudd sinks into oblivion then it is clear that an Abbott led Liberal Party will come into office. The Abbottites promise to turn the clock back to rabid neoliberal labour market reforms, to cut public spending more than Labor, to dither on climate change, to pander to the mining lobby, to take the lead in Oruzgan province in Afghanistan and so on.

People of a progressive bent need to think of such matters as the federal election approaches. Despite Rudd’s cynical essay criticising neoliberalism his government has operated well within the dominant neoliberal consensus. But the level of commitment to neoliberal programs exhibited by Labor and the Liberal Party is not the same. The different levels of commitment largely flow on from institutional imperatives. The debate on the Resource Super Profits Tax is a case in point.

The debate on the RSPT largely focuses on the impost, real or imagined, that the tax will have on cashed up resource corporations. The Rudd Government largely structures the argument for the tax on, what are largely uncontroversial in other contexts, mutual obligation grounds. The resources of Australia belong to the people of Australia and the people ought to get a fairer share of the gains that those resources accrue. The debate simply assumes that the second, crucial part of the argument, is accurate.

However, the proceeds of the RSPT are meant to finance a cut in the corporate tax rate, to support changes to superannuation that are effusively welcomed by the financial services industry, still making “super profits” despite the GFC, and to fund infrastructure developments to aid corporate activities (including resource corporations).

The RSPT is not to be used to fund active labour market programmes to skill up the unskilled and the long term unemployed for what Ken Henry believes will be a coming skills shortage. That’s avoided because a tight labour market, absent skills migration, will lead to better wages for the Australian population. Ken Henry doesn’t want that, big business doesn’t want that and neither does Rudd Labor.

The Rudd policy is largely beneficial for the corporate sector in Australia as a whole. That is why opposition in the corporate media to the RSPT is not uniform. The Government’s backflip on the ETS might need to be seen, partly, in this context too. Backing up on the ETS probably was a preemptive sweetener for the resources sector. We should notice that resource corporations do not complain about the investment uncertainty that this decision on the ETS, that tends to their interests poses, poses for energy companies.

At the same time Rudd Labor has announced a tightening of the state’s “mutual obligation” provisions directed towards the long term unemployed. Unlike Clive Palmer and Twiggie Forrest whose rejection of mutual obligation is given wide coverage in the corporate media; this has been ignored in the orgy of commentary that focuses on the tender needs of the super rich. There will be no Rudd backflip on mutual obligation for social welfare recipients nor any high level consultations with their representatives, unlike for the billion dollar resource corporations.

In a previous essay, written after Labor’s decision on the parallel importing of books, I had argued that the rich will not tolerate the slightest deviation from Labor. The rich are greedy and thereby fickle. Despite their many, many millions those two fat shits, Palmer and Forrest, just want more and more. Labor is being disciplined into proper behaviour by the rich.

Although all this remains true, and more could be said about such matters, nonetheless Abbott would be much worse. With Abott all the distorting affects of the 2000s resource boom will repeat. This would follow if a similar boom should repeat, which is by no means a certainty as many commentators suppose. Under Abbott the vile maxim will continue. Under Adam Smith’s “vile maxim of the masters of mankind” the proceeds of any commodity prices boom are to be distributed inequitably, as it was when the Liberal Party was in office. Under Abbott resource corporations will win, but Australia will lose just like under Howard.

If progressive commentators are serious about taking into account the moral consequences of their actions then it follows that a unilateral ceasefire with Rudd and the ALP is now very much in order.

The issue here is not Rudd. I couldn’t care less about Rudd. The issue is the real people all around Australia who will suffer should Rudd lose office. Besides if Rudd were to be turfed now no group in Australia would be happier than the Murdoch press. The ALP should not allow the leadership of the party to be determined in the offices of Rupert Murdoch’s minions.

Categories: ALP

Neoliberalism and Critical Theory: Dissent Disarmed

My attention was directed to an article in the Higher Education Supplement of The Australian newspaper. The article focused on the prominence that postmodernism and the like have achieved at Australia’s universities. I only skimmed through the article but finding the following part attracted my attention, so I decided to read the whole thing.

The neo-liberal ascendancy had to undermine the structures of intellectual authority that resided within the established disciplines. To prevail it had to disarm the capacity for effective intellectual critique they threatened to offer.

The post-disciplinary, postmodernist insurgency from below was unleashed and empowered from above by the managerialists. It was directed against what was strangely constructed on both sides as a common enemy

I had submitted a comment on the topic. Now getting such comments published on the ‘net are mere formalities, so long as one maintains common courtesy. But such is not the case at Rupert Murdoch’s ideologically flagships. The comment that I made went someone like this.

It is entirely appropriate that the author should find a link between neoliberalism and the dominance of various assorted “critical theories” in the social sciences and humanities. In the normal course of events one would expect that the neoliberal project would have attracted great opposition on Australian campuses, especially concentrated in the social sciences and humanities. Instead the rise of “critical theory” acted as a monumental diversion. Instead of concentrating on the big issues of the day attention was increasingly attracted to junk, such as “the deconstruction of the text,” as the neoliberal project proceeded. It is commonly argued that “critical theory” and the like were and are subversive of such projects. However, if critical theorists truly subverted the neoliberal project then they wouldn’t be holding down 100,000 dollar jobs at Australia’s universities. Rather they would be out teaching at Sunshine TAFE or something.

We wouldn’t have faculty seminars with titles such as “sustainability post sustainability.” We wouldn’t be told that the world is moving towards a system of global governance “based on human reflexivity in its plural and singular form.” Self indulgent gibberish such as this would be verboten. That the ideas of critical theory thrived throughout the key years of neoliberal transformation demonstrates the service that critical theorists provided to power and privilege.

Perhaps someone should write a book or paper with the title; “Neoliberalism and Critical Theory: Dissent Disarmed.”

See there isn’t much wrong with that comment. But if I instead put up some quote from Derrida et al and talked a tad “of grammatology” then I bet I would have got a gig. You see the ideological censorship at The Australian proves my point does it not? Talk of pomo, good or bad, is OK. But neoliberalism is sacred.

Categories: Philosophy

Reading Neoliberalism and the Global Financial Crisis Politically

Although it has become more common to hear criticism of neoclassical economics, and neoliberal ideology more broadly, the anti corporate social movements need to guard themselves against the coming reaffirmation, perhaps even reconstruction, of these ideas. This will require first dispensing with a few illusions.

It would be false to suppose that the great recession, precipitated by a global financial crisis, has now rendered neoliberal ideology and its underlying justification in free market economics illegitimate. It never had any intellectual legitimacy to start off with. The Savings and Loans collapses of the 1980s, the global debt crisis, the Asian financial crisis, the collapse of Long Term Capital Management and so on demonstrated that neoliberalism had no real intellectual justification. Despite this the reigning free market orthodoxies continued to carry the day both in academia, the media and government.

This is not even to go into what should be seen as the first chapter of the unipolar era; the disaster that neoliberalism occasioned in Eastern Europe, especially Russia.

There are important institutional reasons why this was so. The past 30 odd years has seen a quite conscious one sided class war being waged by the rich, the purpose, not the affect, of which was to skew wealth and power towards the few at the top. In 2006 the top 1% of the US population had 22.6% of national wealth, the same level as in 1929. To get that level back to the level on the eve of the Great Depression took some work. During the neoliberal era there has been a marked shift in the wages-profit share towards corporate profits. This was enabled by stagnating real wages for non-supervisory workers, partly obtained through what Alan Greenspan called “increasing worker insecurity.” This was developed through the threat of job transfer following the globalisation of production.

It should be stressed that this shift towards profits occurred in the context of increasing labour productivity in the United States. Though workers were working harder and smarter nonetheless wages, for the most part, stagnated. The proceeds of greater productivity went to big business and, thereby, the rich. Living standards and wealth were increasingly maintained by way of high household debt levels and rising real estate prices. During the boom in asset prices this gave Americans a feeling of prosperity, but as the Nazi’s infamously exclaimed during the Weimar Republic that was very much a type of “sham prosperity.” Prosperity built on the back of stagnating wages and highly leveraged exposure to asset prices in a speculative bubble is illusory.

It has been pointed out that in the United States during the neoliberal era policy really was not wholly dominated by free market ideology at all. A better description would be “socialism for the rich and free markets for the poor.” The US has always relied on a dynamic state sector, like all advanced industrial economies, to socialise cost and risk. For example much of the development of high technology industry has come by way of the Pentagon. Military Keynesianism has also typically been the preferred method of demand management in the United States. This is because with this type of economic pump priming various assorted nasties, such as spending on the needy and the somewhat greater equitable distribution of national income, occasioned by orthodox Keynesianism are avoided.

Even in the financial sector where doctrines such as rational expectations and the efficient markets hypothesis were dominant free market dogma does not fully account for policy. To be sure such free market dogma was used to justify deregulation, which enabled financial corporations to act with greater degrees of freedom in the pursuit of profit, nonetheless risk has always been socialised. The bail out of Wall Street in the wake of the current crisis has brought this to relief. However as stated risk has been socialised throughout the neoliberal era as the Saving and Loans and LTCM bailouts demonstrate. The affect of neoliberalism is to socialise risk without financial institutions at the same time being required to be mindful of the wider social affects of their activities. The latter, of course, follows on from deregulation.

A good description of the mechanics of neoliberalism can be found in the writings of Adam Smith. In his “The Wealth of Nations”, the supposed sacred text for neoliberals, Smith speaks of what he calls the vile maxim; “ All for ourselves, and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind.” That is what neoliberalism is; it is the vile maxim as currently adopted by the masters of mankind. Given the shift against wages in the wages-profit share it is also worth taking on board another quote from the supposed master of neoliberal thought; “The liberal reward of labour, therefore, as it is the affect of increasing wealth, so it is the cause of increasing population. To complain of it, is to lament over the necessary effect and cause of the greatest public prosperity.” When you put the two quotes together, when it comes to neoliberalism, all is revealed.

Socialising the risk of financial institutions by exposing the rest of society to risk externalities, whilst privatising profits, is an example of the vile maxim par excellence.

Neoliberalism should not be confused with classical liberalism, after all for Smith the argument for liberty was based on the supposition that it would lead to equality. The “neo” in neoliberalism comes from the economic thought of the mid-to-late 19th century, which represents a bastardisation of Smith.

So what is neoliberalism really all about then? The past 30 years has seen relatively stagnant economic growth and a greater transfer of wealth and power to the few, even though workers were more productive. A large scale social, economic and political process such as this cannot simply happen. It is not possible that the broader population would consent to such robbery in the absence of some compelling set of justifications manufactured for this very purpose, especially in a democracy. Large scale social processes, including thievery on a grand scale, requires some type of ideological justification. This is the main purpose of neoliberal ideology. The ideology serves to justify the application of the vile maxim. That the ideology had no intellectual justification and was framed in a misplaced pseudo-scientific framework does not really matter. The ideology was highly functional for the corporate institutions that dominate society.

The libertarian Marxist thinker Harry Cleaver has argued that the way to read Marx is “politically.” Cleaver argues that “Das Kapital” was meant to serve as a “weapon” for the working class in order to facilitate the self-emancipation of the working classes. We should read neoliberalism “politically” also. Hayek et al have furnished a weapon for the rich to use against the poor and the working class. Neoliberalism, as such, is a form of Marxism for the rich.

So long as corporations continue to dominate society then the reigning ideology will be reaffirmed or reconstructed in one form or another. The current focus on neoliberalism by the the anti-corporate global justice movements is both appropriate and corrosive. It is appropriate because this is how the great social robbery of the past 30 years has been justified. It is corrosive because policy never really has been motivated by free market dogma and undue focus on neoliberalism tends to obscure the institutional framework that underlies the current crisis. This is especially the case for behavioural critiques of neoclassical economics.

In a real sense the great recession is really a political, rather than an economic, crisis. Corporations have acquired far too much power and because they are motivated by profit it is to be expected that they would like to maintain their privileged position in society. To the extent that neoliberal dogma is increasingly challenged in the mainstream it is because of the consequences that financialisation has had on the broader real economy; it has hurt the rich too, especially of the manufacturing sector.

What this means is that free markets for the poor and socialism for the rich will continue to dominant policy. This will be so irrespective of the fate of neoliberal ideology. So long as corporations are able to ensure that their preferences are attended to by the state and society this must be so. It might be that the next phase of the current crisis is a reconstruction of neoliberal ideology in one guise or another. The proper response to any such reconstruction is to bring to relief the underlying institutional causes of the crisis in order for us to achieve the social constraint of the corporation. Such constraint would be achieved in hope of the eventual supplanting of this particularly crass form of economic and social organisation all together.

One way in which this neoliberal counteroffensive will proceed is through concern over budget deficits. This is how the first neoliberal offensive kicked off. At the time of stagflation neoclassical economists argued that budget deficits would, and did, lead to all sorts of bad effects, especially a so-called “crowding out” of private investment and hence economic growth. Crowding out was justified by an application of rational expectations, the same underlying idea behind the efficient markets hypothesis. In fact, however, the largest economic expansion in US history followed on after the massive World War Two era deficit. Fiscal deficits lead to economic expansion and they pay for themselves as a result.

Society will come under further attack using budget deficits as a pretext. This will happen all over the western world and will be a classic play coming right out of the neoliberal play book. This play will be enacted by both conservative and social democratic and labour based governments.

Social democratic and labour parties everywhere have fallen into line with neoliberal dogma, for reasons first articulated by libertarian socialist and Marxist thinkers during the height of the revisionist controversy of yesteryear. The industrial labour movement everywhere must now reconsider what are the appropriate forms of political action for it to adopt, given that their preferred political parties have everywhere facilitated the 30 year long assault on the working class.

Social democracy has been a grand failure. Slowly trade unionists are recognising this. Now is the time for the industrial labour movement to show courage and rethink the political sphere. One way this can be achieved is by unions and social movements working together from the grass roots up to attack the immense power of the corporation. Neoliberalism represents a fundamental assault on democracy. A powerful affirmation and extension of democracy is the most useful antidote to corporate power. There is nothing the corporation fears more than an aroused citizenry fighting for its rights.

Where to Now for Behavioural Economics?

New Scientist has an article that features Ernst Fehr and experimental behavioural economics. It’s a good article that covers a good idea. However, we need to be aware of a few points. The first is the context in which the behavioural paradigm has risen to prominence.

One explanation, perhaps now the dominant one, for the global financial crisis relies on the irrationality of economic agents in the market place, a notion contrary to the standard conceptions of economic theory, such as “animal spirits” and the “madness of crowds” etc.

I don’t like these behavioural explanations.

Systemic risk should be seen as an externality. The players on Wall Street were quite rational; it was their task, an institutionally mandated task, to pursue short term profit maximisation. This they did on a grand scale. Shifting the explanation towards such matters as “animal spirits”, in my opinion, is a way of hiding these underlying institutional imperatives and thereby the underlying rational basis for the crisis.

That’s why we see a lot of discussion in the mainstream about behavioural economics. The constitution of humanity itself becomes in a sense responsible for the crisis, for the irrational behaviour exhibited by Wall Street is an intrinsic part of human nature.

That’s too cute by half.

It’s also very important because it leads to reform measures that largely leave the financial power structure in place. Whatever we might think of Simon Johnson’s too overt focus on “too big to fail”, leaving in place this power structure matters if we seek to prevent future crises. The behavioural explanation helps, because it tends to obscure the power structure.

That is not a reflection on behavioural economics itself. It is a reflection on how it is being used in the current context. Behavioural economics boasts good experimental results that do tell us something quite profound about human economic behaviour. There seems to be a link between notions of fairness and justice and economic behaviour. That result is important, not least because it undermines the crass conception of man that underlies standard economic theory.

But this then brings in a second qualm we might have about behavioural economics. Consider the article linked above

Such responses, Fehr suspects, arise from a deep-seated resistance in many people to the idea that something as apparently complex and unique to humans as our social instincts could find a relatively simple basis in chemical changes in brain activity….

…Fehr’s most recent work focuses on so-called neuroeconomics, which explores the roots of our social instincts and emotions. That our precious moral values may ultimately be biologically based upsets some people, Fehr admits, but science is science. “I’m quite happy with whatever I find,” he says. “You have to accept what the data tell you”

As a committed card carrying naturalist I cannot but agree with Fehr’s sentiments. However, a few issues need to be raised. I speak of the increasing shift to neuroeconomics. The idea here is to look at neuronal and brain activity as experimental subjects perform the economic games that Fehr constructs. That’s OK, but very, very limited when what we are after are rich naturalisitic explanations that account for human behaviour.

I think what Fehr and others are doing is spot on, but they should be channelling this at the cognitive not neuronal level. We should be speaking of a “cognitive economics” rather more than we do of a “neuronal economics.”

A good way of looking at this is with reference to the computer. We have software and we have hardware. What Fehr is doing is like looking at what lights up and how electrons move in the Central Processing Unit and other hardware components of the computer as it is running various types of software.

His emphasis however should be on the software. That means focusing on the cognitive level.

Economic theory, like social and moral theory more broadly, should be a part of cognitive science. A settled, experimentally well supported, theory of economic cognition will be the theory of economics. A theory of economics will not be a theory of the economy. We must be “inward bound.”

So Fehr is on the right track, but the emphasis on the hardware could be better redirected to the software i.e. cognitive level.

In a way we would be going back to the way the great David Hume conceived of what in his day was called “moral philosophy.”

I think Hume was right. Since his day we have been riding on the wrong side of the track, and not just in economics.

Categories: Economic Theory