After neoliberalism: dynamics of transformation

As this will be the last blog until 2025, I thought I’d make it a bit more substantive than usual. Normal service will be resumed in 2025.

I started writing about how the UK and US under right wing leadership had become a kind of plutocracy in 2017, after the Brexit vote and the election of Trump. [1] That was relatively unusual at the time, because most of the discussion of Brexit and Trump focused on their populist aspects. However in the last few years talking about US and UK plutocracy has become more common: see in particular Martin Wolf’s latest book “The Crisis of Democratic Capitalism” (interesting review here).

Though I didn’t at first, I’m now inclined to view this development as an almost inevitable consequence of neoliberalism. Perhaps my most coherent presentation of this point of view can be found here, where I set out why neoliberalism is different from plutocracy, why neoliberalism encourages plutocracy, and how the political right that championed neoliberalism has become plutocratic. In this post I want to examine some of these dynamic links more closely, including why a plutocratic right can so easily turn populist and why it can also be easily subverted by charismatic leaders who are hopeless at governing.

Before and after

If you tend to describe everything that came from Thatcher and Reagan as neoliberal, it may seem hasty to say that the political right in both countries are no longer neoliberal. You would be right, because neoliberal ideology remains a core part of how many right wing politicians think, and it remains a pervasive influence on society more generally. Yet while it is obvious to describe the Thatcher and Reagan governments as neoliberal, it is much harder to use that label for politicians that erect rather than lower barriers to trade, and politicians who attempt to stop firms hiring workers from overseas.

This problem applies to a wide range of ways of describing neoliberalism. If you like to think of neoliberalism as an ideology that favours free markets, then erecting trade barriers or telling firms what labour they can hire is not promoting free markets. [2] I tend to think about neoliberalism as a collection of ideas that helps existing capital in general (e.g. reducing union power), or at least some parts of capital without harming others (privatisation). In technical terms they represent ideas or policies that are Pareto improvements for capital. [3] More colourfully, under neoliberalism the executive is at least in part “a committee for managing the common affairs of the whole bourgeoisie”. Yet immigration controls or trade barriers harm large sections of capital, so how can politicians that enact them be categorised as neoliberal?

As with neoliberalism, aspects of plutocracy, like lobbying or political donations, exist in varying degrees in all periods. For example large parts of the media have always been controlled by very wealthy individuals who used that media to further their political views or agenda as well as their own personal interests. The key point is that under Thatcher and Reagan those plutocratic elements largely promoted a neoliberal agenda, while subsequently that is no longer the case.

Dynamic 1: the growing unpopularity of neoliberalism, the weaponisation of culture wars and unintended consequences.

The (essential? - see below) background to the politicisation of culture wars is growing social liberalisation. In the US that included greater racial equality, and following Nixon’s ‘southern strategy’ the Republican party became the natural home for social conservatives reacting against social liberalisation. In the UK culture wars were not a significant part of Thatcher’s appeal, because reducing union power and the number of strikes, privatisation and tax cuts were initially popular policies. But after a time the popularity of continuing to reduce the size of the state fell away, and in opposition after 1997 the Conservatives began focusing on immigration as a political weapon.

The unpopularity of neoliberal efforts to reduce public services and cut taxes has only increased in recent years. (This tension might have shown itself more quickly had it not been for North Sea Oil in the UK and growing deficits in the US.) In the UK with lax regulation, privatisation at least in some areas began to become a means to extract wealth from the public. In the last UK election 52% of those who voted Conservative in 2019 wanted lower NHS waiting lists to be a government priority, compared to 19% for tax cuts.

Rather than abandoning the goal of a smaller state enabling tax cuts, Republicans and Conservatives increasingly used culture war type issues to win elections by attracting socially conservative voters. However this strategy contained two problems. First, because the use of these culture war issues was largely instrumental, it created a danger that social conservatives who had given their vote on this basis would quickly become disappointed.

Second and perhaps more importantly, when pursuing culture war issues clashed with neoliberal goals, neoliberal politicians were very reluctant to sacrifice these goals when in power. Immigration benefits capital, and perhaps as a result antagonism towards immigration was initially not part of the culture wars in the US. The economic costs of reducing immigration was why Cameron never seriously tried to hit his immigration targets. As long as the mainstream parties just ‘talked the talk’ on culture war issues but when it came to policy deferred to the collective interests of capital they remained neoliberal.

This led to the crucial outcome of this dynamic, which was growing discontent from the socially conservative element of the right wing coalition.

The emergence of populism

Populism is used in many different senses. The sense I prefer is due to Jan-Werner Müller, and involves an attack on the key institutions of liberal, pluralist democracies: parliaments, the civil service, the courts, the media and so on. Populists argue that these institutions have been captured by ‘the elite’, and to return power to ‘the people’ (as represented by the populist party or its leader) requires overhauling these institutions.

It would not be surprising for a left wing party that believed that these institutions were designed or had been co-opted to work in the interest of capital to be populist in this sense. But why would a party that wanted to achieve socially conservative goals be populist? I can think of two reasons for this. First as I noted above, most western societies have been becoming more socially liberal quite rapidly over the last few decades, so it is easy for anyone with socially conservative views to feel like an outsider, and be made to believe that while they represent a ‘silent majority’ they feel like an outsider because the elite has captured the institutions of a pluralistic democracy. Indeed the success of social liberalism provided a fertile ground for those who wanted to exploit social conservatism for political ends.

Second, social scientists often refer to the social conservative/liberal axis as the authoritarian/liberal axis, because authoritarian and socially conservative views often go together. This will not only lead to an impatience with independent sources of power or authority (or indeed democracy itself), but it will also mean that socially conservative voters may be more attracted to ‘strong’ (charismatic) leaders than those who are more socially liberal. Leaders who are elected not because of their policies or past history of competence, but who appear to conservative voters to be most likely to turn the tide against social liberalism.

Grass roots factionalism and competitors on the right

In the UK, divisions over UK membership of the EU had been a constant feature of dissent within the Conservative party for decades before that party emerged from opposition to lead the Coalition government in 2010. A new right wing party, UKIP, challenged it on this issue in particular, but its impact was small given the UK’s voting system for General Elections.

That changed after David Cameron insisted in 2010 on establishing targets for overall immigration numbers. These targets never came close to being met. Talking the talk but not delivering when in government greatly increased UKIP’s popularity (helped by the impact of his austerity and the government's use of migrants as scapegoats), leading to defections from Tory MPs to the new party. To attempt to stem this insurgency Cameron agreed to hold a referendum on EU membership if he won power outright at the next election.

The insurgency within the Republican party at around the same time came from the Tea Party. However this appeared not to be a reaction by disillusioned social conservatives, but rather by Republicans angry about the bailing out of banks after the financial crisis, and Obama’s healthcare reform. It quickly became an activist revolt against the party establishment, and backed particular candidates in primary elections. There is good evidence that the Tea Party played an important role in the 2016 election of Trump as Republican presidential candidate.

In the US, immigration policy under Republican presidents since Reagan had been fairly benign. It was Democrats rather than Republicans who tended to push for trade barriers. In retrospect this can be seen as repressing the instincts of the Republican’s socially conservative base. While the Tea Party deliberately avoided campaigning on social issues, there is little doubt that its membership was largely socially conservative. Trump was so successful in part because he mobilised that activist base.

Dynamic 2: a growing dependence on wealth and the media

When there is only one right wing party likely to gain power, and that party is fairly united, right wing individuals or groups with money they want to use to influence the political process have little choice about where to send their money to. Equally, most newspaper owners who have considerable power (as well as money) will generally have little choice about which party their newspaper supports. Even if occasionally they end up switching formal support to a centre left party, the filters they put on what news they report and how they report it will be designed to promote a right wing agenda and a neoliberal ideology.

When the mainstream right wing party becomes factionalised, or when it is challenged from the right, this is no longer the case. Politicians recognise that this gives monied interests far greater power and influence. It is this that has fuelled the change from neoliberalism to plutocracy. Supporting causes that are no longer Pareto improvements for capital, or indeed harm large sections of capital, can no longer be dismissed because if they are, the right wing competitor may take the money and the mainstream right wing party may suffer as a result.

Choice also gives newspaper owners much greater power, for much the same reason. This became particularly evident during the Brexit referendum in the UK. Of course newspaper owners and some wealthy political activists understood this, and encouraged these divisions. In this sense they were not just beneficiaries of a process, but helped make it happen.

There are various ways in which neoliberalism made the emergence of plutocracy easier. By cutting the top rates of tax, and by facilitating excessive pay awards for senior management with its emphasis on maximising shareholder value, it not only increased the wealth of the wealthy but it also gave the wealthy more to fear (from a government prepared to reverse this) and therefore more reason for political involvement. In addition by weakening the power of the trade union movement, neoliberalism reduced a natural check on the power of wealth and also helped reduce union influence on centre/left parties. Wolf in his book is good on how financialisation directed resources away from productive capital to rent seeking (making money by taking it off others), helping create a crisis where almost everyone suffered except those who should have been held accountable.

But with only a single, largely united right wing party, there is little that the wealthy could do to further their individual interests other than lobbying politicians. When that unity on the right disappeared, it gave wealthy individuals much more power. Thus dynamic 2, the arrival of plutocracy, emerges from the break up of a unified right described in dynamic 1.

Electoral takeover

By encouraging and mobilising concern about culture war issues, but then largely ignoring those concerns when in power, the mainstream parties of the right encouraged voters to look to parties from the further right, or factions within the mainstream party, that appeared more committed to their views. Through the Tea party movement in the US and UKIP in the UK, the right wing establishment found itself fighting insurgency from the right, a problem that was mirrored in many other countries.

These parties or factions tended to be far more nationalistic than their mainstream rivals, and were happy to attack another key feature of neoliberalism: free trade and the globalisation it had helped create. Erecting trade barriers is not a Pareto improvement for domestic capital, but there will always be some businesses or wealthy individuals who either benefit from such restrictions or see them as a means to an end. With only one right wing party the Pareto principle generally held, however much the particular monied interest was willing to throw the party’s way. With more than one right wing party (or clear factions within it), the monied interest not only had a choice, but they had the power that went with that choice.

Within PR type voting structures, these further right parties could be excluded from power as long as the mainstream right party was able to join with parties further to the left to exclude them. In a two party system with open primaries it was ironically much easier for a populist faction to become dominant. In essence you just needed a quarter rather than half of all voters to take over the mainstream right wing party, and then hope that party loyalty, political polarisation or populism (with a good bit of help from media and gerrymandering) would be enough to win general elections.

In the US open primaries allowed a gradual takeover of the party by more conservative elements who now tend to follow Donald Trump. In the UK they achieved a takeover through the Brexit referendum, the subsequent turmoil, and Conservative MPs finally choosing to elect Johnson in an attempt to counter the growing popularity of Nigel Farage..

Dynamic 3: The centre left begins to (slowly) move away from neoliberalism

The evident failure of neoliberal ideas means that the centre/left when in power in the UK and US are also more likely to move away from neoliberalism than they had been immediately after Reagan and Thatcher. These failures included the externality of climate change, and in the UK the failure of at least some privatisations. The centre/left also began to increase its support for trade unions.

Needless to say this move away from neoliberalism was much more gradual than those further left desired, and you can reasonably argue that the governments of Biden and Starmer are closer to neoliberalism than 1970s social democracy, but right now at least the direction of travel for both Labour and the Democrats is away from neoliberalism rather than towards it.

While immediately after Thatcher and Reagan the centre/left felt it had to follow large aspects of neoliberalism, today the immediate threat is from right wing populism. To counter this more rather than less state intervention will be necessary, either by following socially conservative themes (e.g. over immigration) or more traditional social democratic measures that are designed to tackle economic inequalities that many believe intensify the concerns of some socially conservative voters.

Unlike dynamic 2, this dynamic is a result of the clear economic rather than political failure of neoliberalism.

A new landscape

In the UK we have a centre/left government and a right wing opposition seemingly divided (a mainstream Conservative party and the populist Reform) but where in reality there is little to divide the two right wing parties in terms of policy. In the US we have centre/left Democrats replaced by a new Trump administration. In these two countries and in some others, the big divide is no longer between traditional mainstream parties of the right and centre/left, but between the centre/left and a populist plutocratic right focusing on socially conservative issues. Whether that plutocratic populism comes from a mainstream right party or an insurgent party seems second order, and both may be run in an autocratic manner by charismatic figures ill-suited to government.

Needless to say, this last aspect of plutocratic populism is a disaster for those countries unlucky enough to suffer under one of these autocratic populists. Tens of thousands of people probably suffered a painful and early death in both the UK and US because the pandemic hit while Johnson and Trump were in power, and it could be even worse if Trump succeeds in appointing anti-vaxxer Kennedy as his health secretary and a new flu pandemic hits us soon.

In this new landscape, the central political fight is between right wing socially conservative populists serving the interests of a select plutocracy, and more traditional centre or centre/left parties generally triangulating on culture wars but pursuing an economic policy that is a blend between neoliberalism and more traditional social democracy. Divisions reflect age and education rather than class. This suits the plutocrats in power, but why centre/left parties don’t do more to expose the plutocracy of the right is an interesting question.

Wither neoliberalism? From centre/left governments the move away from neoliberalism (dynamic 3) may be slow but it is clear. On the right, a focus on controlling migration and trade means neoliberalism is over as a unified ideology of government. Exactly what replaces it on the right is unclear. As Justin Vassallo notes here, in many cases it is hard to predict the general direction of economic policy in Trump’s second administration, as it will depend on who in Trump’s cabinet gets the upper hand. Some things are for sure, of course: there will be more tax cuts for the wealthy and the poor will suffer. It is a plutocracy after all. But, to quote Vassallo:

“It would be different from the neoliberal model insofar that the economy would, on one level, be much more regulated than before, but also radically deregulated, depending on which bankers, tech barons, and energy firms maintain Trump’s favour.”

This makes things much more difficult for businesses and corporations. Under neoliberalism corporations could be pretty sure that the government would not enact policies that did them serious harm. In a plutocracy that is no longer the case, and it becomes much more important for CEOs to ingratiate themselves with the populist leader. The incentives for rent seeking rather than innovation increase yet further, and of course corruption becomes routine. On the other hand business leaders get tax cuts!

Critique

This story is very much a top-down narrative of political developments over the last few decades. Politicians realising that extending neoliberal goals were no longer enough to win elections turned to culture war issues, but this created a dynamic that would eventually lead to socially conservative populism and governments run for the benefit of a select group of the very wealthy. In this account, it is no surprise to see plutocratic populism emerging among the major economies first in the US and UK, because that is where neoliberalism first became dominant.

In this account political actors seeking to extend neoliberal goals, who saw the financial crisis not as a neoliberal failure but an excuse for austerity, became the authors of their own demise. A critique might suggest that this is incidental, because a rise in socially conservative populism was inevitable anyway. This alternative story is more bottom-up. It would have a combination of growing social liberalism and wide-spread immigration radicalised social conservative voters, which helped by an ageing population became a dominant political force. For reasons described above, these voters would always look to the political right rather than left, and also for reasons noted above many were attracted by charismatic populist leaders. Plutocracy, rather than playing the causal role in my top-down narrative, simply benefited from the breakdown/transformation of the mainstream party of the right caused by this bottom-up movement. The fact that it happened in the UK and US before France, Germany or Japan may simply reflect different voting systems.

A third narrative stresses the economic conditions created by neoliberalism (or the absence of the redistribution that went with social democracy), and how this made a group of voters (the ‘left behind’) disenchanted with mainstream parties and suseptible to populists. Because this story, like my own, puts neoliberalism at centre stage it fits with populist first taking power in the UK and US. This narrative can downplay the importance of social conservatism and culture wars, and simply note that attacks on minorities including immigrants has always been how populists deflect economic concerns that might otherwise be directed towards the wealthy.

These three alternative accounts can be competing or complementary. Maybe in 2025 I will think about how to judge whether any one is more persuasive than the others. Have a great Christmas and New Year!

[1] I prefer plutocracy to oligarchy because it stresses the key point that political leaders are either very wealthy themselves, or answer to those who are. However the term plutocracy leaves unclear whether it is government by all the rich or just some of the rich, and I use the term in the second sense.

[2] John Elledge suggested an ingenious way in which Brexit could still be described as favouring free markets, if you view free as meaning free from government involvement. However I don’t think this is neoliberal because neoliberalism is quite happy for the state to take action that helps markets function better for capital, and that includes international standardisation of regulations.

[3] Sometimes policy has to decide between competing capital interests. Climate change is an interesting example. Neoliberals who are economically literate do not deny the existence of externalities, and so a natural neoliberal position would be to support green technology rather than fossil fuel companies. For some time in the US but more recently in the UK the position of the right has moved from this position to become more critical of measures to moderate climate change (see here or here).