Monday, 2 May 2016

Neoliberalism

The term ‘neoliberalism’ has become so ubiquitous that some might think that it has lost all meaning, beyond a useful catch-all for everything some people on the left dislike about current social and economic trends, or more specifically for those on the left to be rude about those on the centre-left. That is in my view far too dismissive, but the reasons for both the use of the term and confusion over its meaning have real historic and cultural roots.

I know what I mean when I (occasionally) use the term neoliberal. Neoliberalism is a political movement or ideology that hates ‘big’ government, dislikes any form of market interference by the state, favours business interests and opposes organised labour. The obvious response to this is why ‘neo’. In the European tradition we could perhaps define that collection as being the beliefs of a (market) liberal (although that would be misleading for reasons I give below). The main problem here is that in US discourse in particular the word ‘liberal’ has a very different meaning. As Corey Robin writes, neoliberals

would recoil in horror at the policies and programs of mid-century liberals like Walter Reuther or John Kenneth Galbraith or even Arthur Schlesinger, who claimed that “class conflict is essential if freedom is to be preserved, because it is the only barrier against class domination.”

So in this US line of thought, neoliberalism is an adaptation of a position on the left towards the ideas of the right.

Contrary to some perceptions, the term neoliberal was not a US invention, but was first used by Rüstow, as this excellent account by Hartwich and Sally sets out. It was designed to be a ‘third way’ between socialism and a German version of capitalism. It was adopted by a group that later became the Mont Pèlerin Society, which included Mises and Hayek and Milton Friedman, but it would be a great error to view that group as some kind of united intellectual conspiracy. As Hartwich and Sally remark, it is “named after the location as the participants could not agree on anything else”. The group was sufficiently diverse that the idea of what we now call a social market economy can also trace some of its roots to this group.

One of the disagreements in the group was over the problem of what we might call ‘corporatism’: the domination of markets by a small number of large firms or cartels that is a long way from the ideal of a perfectly competitive market. Rüstow saw that as a problem that was inherent to capitalism and required a strong state to prevent it (an idea that is central of what we now call ordoliberalism), whereas Mises thought corporatism is the result of state intervention. (Economists would just say that both are potentially true and it all depends, which is one reason why many economists find it hard to talk about ideologies that involve their own discipline.)

From this group we have the term neoliberal being adopted as a modification of European liberalism and (for some at least) it involved a move from the right to the left. I think the clearest way of thinking about the Mont Pèlerin group is that it was a group that had in common a dislike of communism, but out of which different ideologies emerged, including ordoliberalism and neoliberalism as we understand these terms today. I am tempted to argue that what we now call the neoliberal element of the Mont Pèlerin discussions placed such an emphasis on their dislike of the state that they were prepared to ignore the market imperfections that a state could correct.

I think this alone would be a good reason for the use of the term neoliberal rather than, say, market liberal. Neoliberalism as most people use the term seems quite relaxed about departures from the ideal of a market as seen by economists. A clear example, as Chris Dillow points out, is CEO pay. When people argue that CEO pay ‘should be left to the market’ they mean something very different from ‘be determined by the market’. The role of any market in determining CEO pay is marginal compared to most ordinary workers: pay is set by remuneration committees who reference to the pay of other CEOs.[1] What ‘left to the market’ actually means here is ‘no state or union interference’.

Yet this example also tells us that dismissing neoliberalism as a non-existent ideology is wrong. How often have you heard people arguing that CEO pay should be left to the market, and this assertion has gone unchallenged? This common acceptance of ‘left to the market’ really meaning ‘no state or union interference’ suggests something like an ideology at work. Other commonly used language, like taxpayers money (by which is normally meant income taxpayers) rather than public money, or wealth creators for the 1%, does the same.

Attitudes to the state, both on the right and centre of politics, are very different to those I (distantly!) remember from the 1960s. The ability of the state to achieve economic goals is today routinely denigrated. Part of the reason for the success of Mazzucato’s The Entrepreneurial State (apart from it being a very good book) is that it points out how creative and wealth creating the state can be. What would have seemed obvious in the days when we put a man on the moon today needs to be argued case by case.

This is why I do not think it is a problem that few today would describe themselves as neoliberal. Indeed that may be part of the greater problem as perceived on the left: neoliberal ideas have become so commonplace, not just on the right but also the centre of politics, that no self-identification by label is required. But there may be another reason why few call themselves neoliberal, and that is because if we try and regard it as a coherent and consistent set of beliefs it can very quickly be shown to be inadequate and confused. Commonly held beliefs do not have to be coherent and consistent.

This is where many accounts on the left go wrong. Rather than seeing ‘left to the market’ as a deliberately misleading shorthand for no state or union interference, they think neoliberalism involves a devotion to free markets, or worse still (see this piece by George Monbiot for example) they equate neoliberalism with unbridled competition. While that might have been true for some of those at Mont Pèlerin, it is no longer true of neoliberalism today.

The reason is obvious enough. Neoliberalism has been adopted and promoted by monied interests on the right, and that money often resulted from what we might call today crony capitalism. So, for example, there is a big difference between promoting competition within the NHS (which some research suggests works if done in the right context, such as fixed prices), and the privatisation of health contracts. Privatisation is neither necessary nor sufficient for competition. To describe the promotion of competition within the NHS as neoliberalism is confusing and alienating.

More generally, it is a huge error to think that because neoliberalism invokes a highly selective and distorted view of basic economics, the left must therefore oppose mainstream economics. It is a huge error because using mainstream economics is an excellent way of challenging neoliberal ideas. Take the example of banking. At first sight the financial crisis was simply a failure to regulate a free market. But it was a market which included what is to all intents and purposes a huge state subsidy, which is that if the market goes wrong the state (either directly or through its central bank) will come to the rescue. Here state interference in the market encourages lack of competition: only those too big to fail could be sure of support.

For this and other reasons (natural monopolies and other forms of rent seeking), the financial sector embodies many of the things that those who first used the term neoliberalism were opposed to. It is important that those who use the term neoliberalism today recognise this contradiction. It does not mean that using the term neoliberalism to describe the dominant ideology is wrong, but it is a mistake to assume the ideology has not be moulded/adapted/distorted by those in whose interest it works. These changes have made it intellectually weak at the same time as making it politically strong.


[1] This is very similar to how pay was determined under UK ‘incomes policies’ in the 1960s and 1970s. Here the state would set up a committee that would fix the pay of some group of workers with reference to the pay of comparable occupations. At least in that case, however, some of the reference occupations may have had pay that was actually market determined!



Friday, 29 April 2016

The hypocrisy of British politics

The Labour party has a problem with antisemitism almost by definition. This is because many Labour party members are highly critical of the current democratically elected government of Israel, and Israel often identifies itself as a Jewish state. So difficult questions naturally arise, like are attacks on the existence of the state of Israel also antisemitic? But these problems can, and should, be addressed and dealt with. (For what it is worth, I personally would answer yes to my previous question.)

Does that mean that anyone who has made antisemitic remarks in the past must be excluded from the Labour party, even if they apologise and fully retract those remarks today? Here I would agree with John Rentoul that the answer has to be no. In particular, because this kind of antisemitism can be frequently found in Muslim communities, it is important to encourage those from these communities who now acknowledge their past mistakes the chance to atone for them by pointing out similar mistakes to others, rather than branding them for life.

Now for the hypocrisy. A week ago, our Prime Minister accused the Labour candidate for mayor of London, Sadiq Khan, with knowingly sharing a platform 9 times with Suliman Gani, a former imam in Tooting (Khan’s constituency) who the Prime Minister said was a supporter of IS. Now if Mr. Gani was a known supporter of IS, this would have been a serious charge against Khan. The only problem is that he is not.

It is not just that Mr. Gani denies being a supporter of IS, and those that know him or have met him think the accusation is obviously false. It is not just that he is a member of many interfaith groups. It is not just that the Prime Minister has produced no evidence that he is an IS supporter.  It is also that he has had many meetings with Conservative MPs including the Conservative candidate for London mayor. He has visited No.10 Downing Street and the Houses of Parliament.

Try to imagine how you would feel if the Prime Minister had announced in Parliament that you were an IS supporter. If you are thinking to yourself that would never happen, because you are not a Muslim imam, then I think you should now realise why what the Prime Minister did is so serious and damaging. It is also why any claim by the Prime Minister that his remarks had nothing to do with either Khan’s or Gani’s religion would be at best naive, and more likely a straight lie.

The Conservative candidate for mayor of London, Zac Goldsmith, has run a dog whistle campaign, where he has tried to associate Sadiq Khan with Muslim extremism. He is reported to has described Gani as “one of the most repellent figures in this country”. Does it worry him that Gani has been associated with a number of prominent Conservatives, including himself?! Probably not, because Goldsmith is not a Muslim, so any guilt by association charge would be ridiculous. His opponent and Labour candidate Sadiq Khan is a Muslim. That is the key difference.

Khan is a Muslim, but is clearly not an extremist in any shape or form. The Conservative attacks are based not on Khan’s political views or actions but his religion. How else can Goldsmith justify painting Khan as an extremist for sharing platforms with Gani, when Goldsmith and his colleagues have asked Gani to help recruit other Muslims to the Conservative party. 

If nothing is done about this, similar tactics could (and presumably would in any future election [1]) be applied to any Muslim standing in an election. It also means that if you are a Muslim who happens to know a Muslim candidate, then you may be called an IS supporter by the Prime Minister in the Houses of Parliament (where libel laws do not apply). Basically the Prime Minister and his party are playing to Islamophobia, and treating individuals with the same disregard as tabloid newspapers in order to do so.

It may be fair to criticise the Labour leadership for not being tough enough on antisemitism within Labour, although it is also perfectly fair to allow people time to get the facts and quite unreasonable to have trial by media. But no one could accuse the current Labour leadership of completely ignoring the problem. In contrast, the Prime Minister has made no apology to Mr. Gani over his accusation in parliament, and the Conservative candidate for London mayor continues to use his opponents religion as a weapon against him.

[1] The man who is currently the favourite to be our next Prime Minister is quite happy to link the views of the President of the United States on Brexit to his Kenyan ancestry. The defence minister Michael Fallon has even gone so far to suggest Khan is a security risk.



Thursday, 28 April 2016

Politicians and statistics

We should all know never to take a statistic quoted by a politician on trust. But there is a huge difference between the ways in which politicians can (mis)use statistics.

Take, for example, when Labour before the 2015 election kept saying people were £1,600 worse off than they were 5 years earlier. As Tim Harford notes, there are a lot of issues in making any general claim based on earnings data. But as Geoff Tily points out, the £1,600 is hardly a wild exaggeration or gross distortion. It pointed to a key fact, which was an unprecedented decline in real earnings which no one seriously disputes. It would have been incredible if Labour had not kept talking about this.

Tim writes that it represents “a political use of statistics conducted with little interest in understanding or describing reality.” Of course it does not describe the complexity of reality, the differences between the median wage and the experience of the median worker, etc etc. Those complexities need to be set out and Tim does so brilliantly. But politicians in speeches will never do that, and it would be unrealistic to expect them to do so. There is also no evidence presented which justifies the claim that this statistic was used with little interest in understanding or describing reality.

Take another example from a recent post of mine. George Osborne had derived the cost of Brexit by taking the GDP loss and dividing it by the number of UK households. Fraser Nelson, and subsequently Anthony Reuben at the BBC, objected that this was dishonesty (Nelson) or confusion (Reuben) because only about two thirds of GDP was household income. Typical you might think for this Chancellor to misuse statistics to exaggerate. Yet as I explained in the post, what the Chancellor had done was standard practice by economists, because less government spending or investment are also in an important sense costs to households. In that case too, a politician was using a summary statistic in a reasonable way.

You might say that it is best for politicians to avoid quoting numbers, but numbers are often crucial. Take the claim, often made by opponents of immigration, that it reduces wages of low earning workers. There are studies that find that, but as this neat chart from the CER shows the magnitude is small relative to other influences on earnings. (See Jonathan Portes for more discussion on this.)


Magnitudes are often crucial. It is true, for example, that fiscal policy before the financial crisis was a little on the lax side. But the magnitudes involved could have been corrected by any new Chancellor in one budget with hardly anyone noticing. They are a world away from the magnitudes required to claim Labour were profligate before the crisis, and that austerity was required to clear up the mess that Labour had created. Given the importance (to the result) of that claim before the 2015 general election, it is odd indeed to focus instead on Labour’s claims about real earnings losses.  

The other examples Tim discusses in his article - Trump’s crime statistics and Jeremy Hunt’s figures for excess weekend deaths - are indeed totally or highly dubious, for reasons Tim makes very clear. Or an example that is close to my heart: the Prime Minister claiming that they had not cut spending on flood defences, which could be made to be true but hardly describes reality. These are all examples where the politician wants to mislead people. It is this misuse of statistics that we should focus on.



Tuesday, 26 April 2016

Junior doctors: asking the right question

A government source (anonymous of course) has told the BBC that junior doctors, in their long running dispute, are really trying to topple the government. It appears some in this government really think that this dispute is their version of the 1984 miners’ strike. A compromise to trial the new contract, which would have almost certainly led to the strike being called off, was rejected by Jeremy Hunt as ‘political opportunism’.

It is natural when this kind of standoff happens to choose sides. The government is trying to introduce a 7 day week culture into the NHS: are they trying to do this ‘on the cheap’ by suppressing pay (and safeguards against excessive hours), or are the doctors being unreasonable and putting lives at risk?

I think that is the wrong question. A much better question is to ask how this dispute came about in the first place. The mine workers had a long history of strike action, but this strike by doctors is unprecedented. Unlike coal miners, doctors are not in a declining industry, and they are not led by the likes of Arthur Scargill. Instead they are a key part of a sector where demand continues to rise, and technology (for the moment at least) tends to add rather than reduce costs.

In this context, this government and its predecessor have tried to do something pretty radical, which is to reduce the share of NHS spending in GDP (for a chart from the Kings Fund, see here, and for details of the NHS squeeze see here). It is part of their attempts to reduce public spending, initially under the pretext of deficit reduction but in reality to allow tax cuts. In their typically Orwellian way, they call this ‘protecting the NHS’. Their hope is that this squeeze on resources will reveal and end inefficiencies which until now vested interests, lethargy and bad management have maintained.

An alternative way of achieving the same goal is to embark on a top down reorganisation that you believe will make the system more efficient.

The 2010 coalition government tried to do both at the same time. You do not need to be an expert on the health service to guess that trying both at once would be a disaster. Any kind of successful wholesale reorganisation of a large organisation costs resources in the short term, even if it brings benefits in the longer term. Predictably, according to the experts, this reorganisation was “distracting and damaging”.

Did the new (2015) government learn the lesson? Silly question. Introducing a 7 day week culture into the NHS may well be a good idea in principle, although the evidence is not nearly as clear as Hunt suggests (which is why trials are a good idea). Using dodgy statistics to suggest to the public that going into hospital at weekends rather than a weekday was dangerous was an extremely irresponsible thing to do. To the extent that there is a problem it is unclear whether doctors are critical to it. But even if the reform itself is justified, it is another reorganisation that requires resources in the short term.

Aneurin Bevan, who set up the NHS, said that to persuade reluctant doctors to accept the idea he had “stuffed their mouths with gold”. Reorganising doctors’ contracts was bound to create winners and losers, and in a profession with considerable solidarity that would not be agreed to without extra money to compensate the losers. To try and do it while starving the system of resources was just crazy, and allows doctors to tell themselves that they are striking to save the NHS rather than to protect their pay.

The only similarity with the miners strike is that the doctors also cannot force the government’s hand. The more they escalate the dispute, the more their solidarity and public support will fragment. Jeremy Hunt has already got away with putting party interest above public probity once in a previous job, with Cameron’s active assistance, and he may profit this time as well. If he does demoralised UK doctors will leave in increasing numbers for more congenial working conditions overseas, and gaps will be filled by doctors trained overseas (if the home secretary lets them in).

The question to ask is not which side is right, or whether the strike is justified. The critical question is how did we get to this situation, and what that tells you about this government’s competence. The NHS works on relatively meagre resources because of the goodwill of those that work within it. Do we really think that facing down UK doctors is the way to get a better NHS? If the government does not compromise, the only losers in this dispute will be you and me.

Postscript (29/4/16) This by Ben Dean in the Telegraph makes similar points, and even questions whether the new contracts are better than the old in achieving a true 7 day week goal.