Category: Karl Marx

August 14th, 2017 by geoffhodgson1946

 

Geoffrey M. Hodgson

 

The world is full of injustice and poverty, while the rich protect their wealth by manipulating the system of power. Consequently, many of the informed and intelligent are lured like moths to the lights of socialist revolution, promising social justice for the many not the few.

Vladimir Ilyich Lenin was a blazing light in Russia a century ago. Many intellectuals were attracted to his Soviet regime. Lenin is said to have coined the term “useful idiot” to describe the naïve among them (but no evidence has been found to support that attribution).

But in 1913 Lenin definitely did quote the old adage that “the road to hell is paved with good intentions”. This was unwittingly self-referential and rather prophetic. Lenin’s post-1917 Bolshevik regime became a hell, in part of his own making. The good-intentioned (with sufficient means or influence) were invited from abroad to visit the young Soviet Republic.

Venezuela – “another world is possible”

But first let us consider the current case of Venezuela. Its experiment in radical socialism began in 1998 when Marxist Hugo Chávez was elected as President. Using the plentiful oil revenues during 1999-2007, his government expanded access to food, housing, healthcare, and education, especially for the poor and the indigenous minorities.

Hugo Chávez

Chávez nationalized key industries and created participatory Communal Councils. He whipped up popular support against the rich elite and their perceived allies in the United States. But constitutional checks and balances slowed down his radical reforms. Criticism from the private press and political opposition countered the populist movement.

So in 1999, the new Constitutional Assembly, filled with elected supporters of Chávez, drafted a new constitution that made censorship easier and granted the executive branch of government more power.

The Constitutional Assembly extended the presidential term. It abolished the two houses of Congress. It also granted Chávez the power to legislate on citizen rights, to promote military officers and to oversee economic and financial matters.

In 2002 Chávez was briefly deposed in a coup, which probably had support from the CIA. But Chávez was restored to power by the army and popular mobilisations.

Chávez then seized control of the courts and the electoral authority, and suppressed much of the opposition media. He removed political checks and balances, seeing them as obstacles to his socialist revolution.

Accordingly, the device of populist democracy was used to push the country in the direction of dictatorship. His supporters were persuaded to approve increases in presidential powers, to protect the “socialist revolution” against its enemies. Since 2004, “defamation” of the government, including “disrespect for the authorities”, has been a criminal offence.

Chávez failed to diversify the economy and reduce its reliance on oil. He antagonised private investors. The state-centred economy was not robust enough to withstand the post-2008 oil price collapse.

Venezuela’s descent into hell

In a state-run economy, business corruption is encouraged by bureaucratic failure. Political corruption is facilitated by the gathering of powers in the hands of the ruling party and the state machine. The Venezuelan government became one of the most corrupt in the world. Serious shortages of food and medicine emerged.

“There’s no food”

Chávez died of cancer in 2013 and was replaced as President by Nicolás Maduro.

In 2015 and 2016, blaming internal “fascists” and US intervention for the severe shortages, President Maduro declared two states of emergency. These gave him powers to intervene in the economy. Arbitrary detentions of dissidents became more common.

The regimes of Chávez and Maduro wasted and misspent much of the money made in the oil boom, while over-extending the powers of their corrupt governments. The private sector was hobbled. The ultimate outcome of Venezuela’s experiment with populist socialism has been authoritarianism, destitution and starvation.

Because of a populist mistrust of liberal, pluralist institutions, Venezuela is lurching toward dictatorship. Press freedom is limited and critical journalists and opposition leaders are jailed.

In Decemb2017 Venezuela took a major step toward a one-party state. Maduro announced that candidates from opposition parties would be banned from the next presidential election.

Supporters of Chávez and Maduro blame the hostility of the US for Venezuela’s distress, just as it was blamed for economic problems in Cuba after its 1959 revolution. US belligerence made things worse, and will probably continue to do so.

But the major cause of economic stagnation in Cuba and Venezuela is the unchecked concentration of excessive political, legal and economic power in the hands of the overbearing state.

Los idiotas útiles

Back in the UK, Jeremy Corbyn attended a 2013 vigil following the death of Chávez, hailing him as an “inspiration to all of us fighting back against austerity and neo-liberal economics in Europe”. As late as 2015, when Venezuela was in ever-deepening crisis, Corbyn’s enthusiasm for the regime was undiminished. He remarked:

“we celebrate, and it is a cause for celebration, the achievements of Venezuela, in jobs, in housing, in health, in education, but above all its role in the whole world … we recognise what they have achieved.”

Corbyn has since been challenged to come out against the hellish Maduro regime. Maduro’s government has been accused of arbitrary arrest, extra-judicial killings and torture.

Jeremy Corbyn and Hugo Chávez

Having managed to dupe many people with the mantra that he was a “peacemaker” in Northern Ireland (rather than a supporter of the IRA), Corbyn tried the same trick with Venezuela.

First he removed all mention of “Venezuela” from his website. Then, in an August 2017 interview, he condemned the “violence done by all sides”.

The Venezuelan opposition includes both rightist agitators and defenders of human rights. By simply condemning violence, Corbyn appeared as morally neutral between the regime and its diverse opponents. He ignored the politico-economic conditions that had given rise to the violence, and the previous actions of the Chavistas in creating them.

I wonder if Corbyn could be taken back in a time machine to the 1793-94 Terror of the French Revolution, or the Soviet Great Terror of the 1930s, or the occasion of Hitler’s invasion of the Sudetenland in 1938, and be asked to condemn with detached neutrality the “violence done by all sides”.

In the same interview Corbyn called for respect for “the independence of the judiciary and … the human rights of all”. He failed to note that Chávez and Maduro were primarily responsible for undermining both.

Questioned about his support for Maduro, Corbyn fudged:

“I gave the support of many people around the world for the principle of a government that was dedicated towards reducing inequality and improving the life chances of the poorest people.”

He omitted to mention that that same socialist Venezuelan government was now responsible for widespread starvation, rampant corruption and mass emigration.

But Jeremy of Islington is in search of socialist sainthood. He does not want the blood of any regime on his hands. He wants to go down as a peacemaker. He left it to his Corbynista Praetorian Guard to make a more forceful case for the Chávez-Maduro regime.

Over to the Corbynistas

Labour MP Chris Williamson tweeted on 11 August 2017 that the violence in Venezuela is “for the purpose of overthrowing democracy, not saving it”. Unlike Corbyn, this blamed all the violence on the opposition. It also overlooked the fact that Chávez and Maduro had been more effective in undermining democracy in Venezuela than anyone else.

Chris Williamson MP & Jeremy Corbyn MP

On the following day, Williamson Tweeted: “The US and global corporations are indulging in economic sabotage in Venezuela to bring down the government”. To a degree this may be true. But the statement ignores the greater part played by Chavista populism and its power-grabbing statist socialism in bringing about the economic and political catastrophe.

Other pro-Chavista idiotas útiles include Alexis Tsipras the Greek Prime Minister, Pablo Iglesias of Podemos in Spain, Jean-Luc Mélenchon the leftist French presidential candidate, Pope Francis and the Five-Star Movement in Italy.

By diverting attention onto the role of the USA and large corporations, the supporters of the Chávez-Maduro regime have their excuses at the ready. This conveniently helps them avoid recognition of their own moral culpability in the Venezuelan disaster.

The erosion of civil liberties and human rights has its roots in the concentration of economic and political powers in the hands of the state, whatever the “good intentions” that originally motivated the leaders and their supporters.

Stalin the Fabian and the Stalinist Fabians

Sadly, this is an old pattern. The Fabian socialist George Bernard Shaw visited the Soviet Union in 1931 and met Joseph Stalin. Shaw declared that Russia was becoming “a Fabian society”. This was at a time of mass famine and forced collectivisation.

George Bernard Shaw

In the preface to his 1933 play On the Rocks, Shaw defended the Russian secret police’s “liquidation” of detainees who could not give satisfactory answers to queries about “pulling your weight in the social boat” or “giving more trouble than you are worth” or had not “earned the privilege of living in a civilized community”.

In a letter published in the Manchester Guardian in 1933, Shaw and others dismissed reports of famine in the Soviet Union as “slander” resulting from a “lie campaign” against the “Workers Republic of Russia”. In fact, from 1932 to 1933, about six to eight million people died there from hunger.

Shaw subsequently attempted to justify the extermination of the Russian peasantry: “For a Communist Utopia we need a population of Utopians. Peasants will not do.” In 1936 Shaw defended Stalin’s purges and mass executions. In 1948 he declared that Stalin was “a first rate Fabian”.

Beatrice & Sidney Webb

Leading Fabians Sidney and Beatrice Webb were highly influential intellectuals in the British Labour Party. In 1932 they made a three-week visit to the Soviet Union. Their generally favourable impressions were reported in 1935 in their massive two-volume study, Soviet Communism: A New Civilisation? In the 1937 edition the question mark was removed from the title.

Their assessments of the Soviet Union were more cautious than those of Shaw, but they also denied the existence of a famine in the Ukraine in 1932-1933 and they opined that the liquidation of rich peasants (kulaks) may have been necessary to collectivize agriculture and increase its productivity. Their book received favourable reviews from left writers and it played a role in nurturing sympathy in the Labour Party for the Soviet Union, at least until the onset of the Cold War in 1948.

“Humane” Mao and the “Korean miracle”

Communism achieved another victory when Mao Zedong came to power in China in 1949. Professor Joan Robinson was a leading Cambridge economist, influenced by both Karl Marx and John Maynard Keynes. An enthusiastic supporter of Mao, she visited China several times.

Despite this first-hand experience, she failed to acknowledge that Mao’s Great Leap Forward in 1958-1961 had been an economic disaster: it had led to catastrophic famine and about 40 million deaths. In defiance she wrote: “the Great Leap [Forward] was not a failure after all, but the Rightists were reluctant to admit it.”

Joan Robinson

In the 1960s Robinson lauded the Cultural Revolution, approving of attempts by Mao and the Red Guards to root out “capitalist roaders” within Chinese society. She praised Mao’s “moderate and humane” intentions. In fact, the Cultural Revolution led to at least half a million and perhaps as many as two million deaths.

Violent struggles ensued across the country and paralyzed the economy for years. Many more millions of people were persecuted at whim by the Red Guards: they suffered public humiliation, arbitrary imprisonment, torture or execution. Countless more died when the army tried to re-establish order. In China’s totalitarian system they had no refuge or legal protection.

As late as 1973 Robinson opposed “market socialism” and advocated a centrally-planned economy. She wrote of the “success of the Chinese economy in reducing the appeal of the money motive”. After extolling the virtues of Mao’s system, she reported that “Chinese patriotism and socialist ideology are pulling together”.

But a few years later, shortly after Mao’s death in 1976, the country overturned the anti-market policies that Robinson had celebrated in her writings. After accepting markets, Chinese growth took off.

In 1964 Robinson visited Communist North Korea and extolled the “Korean miracle” in its economy. She attributed its claimed success to public ownership and central planning.

But, within fifteen years, capitalist South Korea was surging ahead of its Northern neighbour. By the 1990s North Korea was experiencing mass famines. By 2010, GDP per capita in the South was about 17 times greater than in the North.

The “human face” of Soviet Communism

E P Thompson

The historian Edward P. Thompson left the British Communist Party after the 1956 Hungarian Uprising and subsequently played a major part in the formation of the New Left Review. But as late as 1973 he had sufficient residual sentimentalism for the Soviet Union to write of the

“times when [Soviet] communism has shown a most human face, between 1917 and the early 1920s, and again from the battle of Stalingrad to 1946.”

Leszek Kolakowski

Leszek Kolakowski’s response to these rose-tinted words was devastating. He asked what Thompson might have meant by the “human face” of the Soviet Union during these years. Did it mean the “attempt to rule the entire economy by police and army, resulting in mass hunger with uncountable victims, in several hundred peasants” revolts, all drowned in blood”?

“Or do you mean the armed invasion of seven non-Russian countries which had formed their independent governments …? Or do you mean the dispersion by soldiers of the only democratically elected Parliament in Russian history …? The suppression by violence of all political parties, including socialist ones, the abolition of the non-Bolshevik press and, above all, the replacement of law with the absolute power of the party and its police in killing, torturing and imprisoning anybody they wanted? … And what is the most human face in 1942-46? Do you mean the deportation of eight entire nationalities of the Soviet Union with hundreds of thousands of victims … ? Do you mean sending to concentration camps hundreds of thousands of Soviet prisoners of war handed over by the Allies?”

Kolakowski searched for an explanation of Thompson’s incredible description of these events as “a most human face” of Communism. Perhaps this phrase is being used “in a very Thompsonian sense which I do not grasp”? A commentator on Kolakowski’s response wrote: “no one who reads it will ever take E. P. Thompson seriously again.”

Another “distortion”: the killing fields of Cambodia

Robinson and Thompson were not the only top-rank academics to be deluded by ideology. Consider the most important linguist of the twentieth century. Noam Chomsky loathed the American war in Vietnam. For him, to hide its own acts of oppression and mass murder, the West had duped the masses with its slick corporate propaganda. The West was fascism, with a fake mask of democracy.

Noam Chomsky

But when reports emerged that the Communists were also capable of mass atrocities, he suspected an American conspiracy to exaggerate and to draw attention away from their own crimes. Then the evidence emerged of the killing fields of the Khmer Rouge in 1975-1979. Chomsky accused the publishers of the evidence of “extreme anti-Khmer Rouge distortions”.

Khmer Rouge Killing Fields

We now know that the Khmer Rouge obliterated about two million people – a quarter of the Cambodian population – in the pursuit of their Communist utopia. Chomsky’s reputation as a political thinker has never recovered.

Conclusion: what can we learn?

The first lesson is that thousands of highly intelligent people can be political idiots. We know that unintelligent people can be idiots (and even become presidents) but the task at hand is to explain intelligent idiocy. All it takes is a good dose of utopian idealism, combined with the view that the existing system is beyond reform.

Then when the likes of Lenin, or Mao, or Kim Il-sung, or Castro, or Pol Pot, or Chávez raise the red flag, the utopian intellectual flies to the light. A dose of reality may burn the wings. But the light of intellectual hope is so important that it must remained undimmed. Consequently, events as big as famines are based on the dark capitalist forces outside, or their devious agents within.

Many intellectuals are not practical people. They have lingered in their ivory towers. They know little of running organizations or state bureaucracies. Because of their well-motivated discontent and their search for hope, they can be attracted to Corbynism and other versions of leftist populism. But those lights are dangerous. They are ignited by opposition: without practical experience or feasible solutions.

There is now ample evidence to confirm that classical socialism – by definition involving widespread public ownership and control of the economy – is a dangerous formula. It cannot work effectively in a large-scale, complex economy and it concentrates too much power in the hands of the state machine.

Given such centralized powers, even well-motivated leaders will be tempted to curtail dissent and bully minority interests, in the name of the many against the few. Once on this slippery slope, human rights are eroded and the politico-economic system slides toward totalitarianism.

A lesson of the twentieth century is that classical socialism is a dead end. Viable democracies survive because there are countervailing, political and economic powers, which themselves depend upon mixed economies with large private sectors. Classical socialism unavoidably undermines the politico-economic foundations of democracy.

Instead we need to look to ways to making capitalism more egalitarian and inclusive, rather than chasing the dangerous dream of its abolition. Intelligent dreamers need to use their intelligence more wisely.

 

14 August 2017

Minor edits – 16, 20 August 2017, 27 September, 13 December 2017

 

 
This book elaborates on some of the political issues raised in this blog:
Published by University of Chicago Press in January 2018

 

Bibliography

Barsky, Robert F. (1997) Noam Chomsky: A Life of Dissent (Cambridge, MA: MIT Press).

Borger, Julian (2016) ‘Venezuela’s worsening economic crisis’, The Guardian, 22 June. https://www.theguardian.com/world/2016/jun/22/venezuela-economic-crisis-guardian-briefing

Canning, Paul (2016) ‘Venezuela: The Left’s Giant Forgetting’. http://paulocanning.blogspot.co.uk/2016/09/venezuela-lefts-giant-forgetting.html

Cohen, Nick (2007) What’s Left? How the Left Lost its Way (London and New York: Harper). See pp. 157-68.

Cunliffe, Rachel (2016) ‘Corbyn looks the Other Way as Venezuela Self-Destructs’, 18 January, http://capx.co/corbyn-looks-the-other-way-as-venezuela-self-destructs/.

Hodgson, Geoffrey M. (2015) Conceptualizing Capitalism: Institutions, Evolution, Future (Chicago: University of Chicago Press).

Hodgson, Geoffrey M. (2017) Wrong Turnings: How the Left Got Lost (Chicago: University of Chicago Press, forthcoming).

Hollander, Paul (1998) Bernard Shaw: A Brief Biography (Philadelphia: University of Pennsylvania Press).

Jones, Bill (1977) The Russia Complex: The British Labour Party and the Soviet Union (Manchester: University of Manchester Press).

Judt, Tony (2006) ‘Goodbye to All That?’ New York Review of Books, 21 September 2006.

Kolakowski, Leszek (1974) ‘My Correct Views on Everything: A Rejoinder to Edward Thompson’s “Open Letter to Leszek Kolakowski”’, Socialist Register 11. See pp. 4-5. Available at http://socialistregister.com/index.php/srv/article/view/5323/2224#.VXBUKrFwYy8.

Minney, Rubeigh J. (1969) The Bogus Image of Bernard Shaw (London: Frewin).

Robinson, Joan (1969) The Cultural Revolution in China (Harmondsworth: Penguin). See pp. 19, 35-36.

Robinson, Joan (1973) Economic Management in China 1972 (London: Anglo-Chinese Educational Institute). See pp. 4, 13, 37.

Shaw, George Bernard (1934) Prefaces by Bernard Shaw (London: Odhams Press). See p. 341.

Staples-Butler, Jack (2017) “Starvation and Silence: The British Left and Moral Accountability for Venezuela”, 7 July. https://historyjack.com/2017/07/07/starvation-and-silence-british-left-and-venezuela/

Telesur (2015) ‘British MP Jeremy Corbyn speaks out for Venezuela’, 6 June. http://www.telesurtv.net/english/news/British-MP-Jeremy-Corbyn-Speaks-Out-For-Venezuela-20150605-0033.html.

Thompson, Edward P. (1973) ‘An Open Letter to Leszek Kolakowski’, Socialist Register 10. See p. 77, emphasis added. Accessible on http://socialistregister.com/index.php/srv/article/view/5351#.VXBrZLFwYy8.

Turner, Marjorie S. (1989) Joan Robinson and the Americans (Armonk NY: M. E. Sharpe). See p. 90.

Webb, Sidney J. and Webb, Beatrice (1935) Soviet Communism: A New Civilisation? (London: Longmans Green).

 

Posted in Common ownership, Democracy, E P Thompson, George Bernard Shaw, Jeremy Corbyn, Joan Robinson, Karl Marx, Khmer Rouge, Labour Party, Left politics, Lenin, Leszek Kolakowski, Mao Zedong, Markets, Nationalization, Noam Chomsky, Populism, Private enterprise, Socialism, Soviet Union, Venezuela

May 8th, 2017 by geoffhodgson1946

  

 

Geoffrey M. Hodgson

 

This is in part a personal memoir – concerning my role in a minor episode in political history. More importantly, it has lessons concerning Labour’s ideological inertia – the difficulty of modernising the party and bringing it from the nineteenth to the twenty-first century.

Socialism and Labour’s Clause Four

Both Robert Owen and Karl Marx defined socialism as “the abolition of private property”. This kind of collectivist thinking was encapsulated in Clause Four, Part Four of the Labour Party Constitution when it was adopted in 1918:

“To secure for the workers by hand or by brain the full fruits of their industry and the most equitable distribution thereof that may be possible upon the basis of the common ownership of the means of production, distribution and exchange, and the best obtainable system of popular administration and control of each industry or service.”

This provided for no exception: all production would be in common ownership and there would be no private sector. Although some Labour Party thinkers began to entertain the possibility of some private enterprise, many party members remained resolutely in support of widespread common ownership.

Clement Attlee

In 1937, eight years before he became Prime Minister, Clement Attlee approvingly quoted the words of Bertrand Russell: “Socialism means the common ownership of land and capital together with a democratic form of government. … It involves the abolition of all unearned wealth and of all private control over the means of livelihood of the workers.”

After 1945, the position of many leading Labour Party members began to shift. First the realities of gaining and holding on to power – as a majority party for the first time – dramatized the political and practical unfeasibility of abolishing all private enterprise. Some nationalization was achieved, but a large private sector remained.

In 1956 C. Anthony Crosland published The Future of Socialism. This sought a reconciliation with markets, private enterprise and a mixed economy. In 1959 the (West) German Social Democratic Party abandoned the goal of widespread common ownership. In the same year, Hugh Gaitskell tried to get the British Labour Party to follow this lead, but met stiff resistance. Clause Four remained intact.

Richard Toye noted that the Labour Party assumed widespread public ownership and failed to develop adequate policies concerning the private sector:

“Labour, until at least the 1950s, showed little interest in developing policies for the private sector. During the 1960s, the party demonstrated continuing ambiguity about whether or not competition was a good thing. This ambiguity continued at least until the 1980s.”

The Thatcher Revolution

There were Labour governments from 1964 to 1970 and from 1974 to 1979. But then Margaret Thatcher came to power.

After this defeat, Labour’s instinct was to turn to the left, in the belief that it could have held onto power if it had held to classical socialist principles. Michael Foot was elected as leader, and Dennis Healey narrowly defeated Tony Benn for the position of deputy leader.

Neil Kinnock

Despite a severe recession with millions unemployed, following the implementation of monetarist austerity policies, Labour suffered a massive defeat in the 1983 general election. Labour’s share of the vote fell below 28 per cent – the party’s lowest figure since 1918. Michael Foot resigned as leader and Neil Kinnock took his place.

Thatcher had boosted her popularity due the Falklands War. One of Thatcher’s most popular domestic policies was to promote the sale of council-owned housing to the tenants. Labour had opposed this policy. The 1983 defeat prompted a rethink, on this and other issues.

Tony Benn

For some of us, this rethink amounted to more than expedient doctrinal trimming. Encouraging home ownership was really a good idea: why should all property be owned by the rich? But while supporting home ownership, we argued that the government should also build more social housing and enlarge the stock available for rent by low-income families.

But these ideas met stiff resistance in the Labour Party ranks, and not simply from Trotskyist entryists such as Militant. The resistance from Tony Benn and his supporters was substantial and even more enduring. It was clear that old-fashioned socialist ideas still had a tenacious appeal for Labour’s membership.

The Labour Coordinating Committee

The Labour Coordinating Committee (LCC) became one of the primary modernising forces within Labour. Its leadership included Hilary Benn, Cherie Blair, Mike Gapes, Peter Hain, Harriet Harman and others of enduring fame. I was elected to its executive committee. We worked closely with Kinnock and members of his shadow cabinet, including Robin Cook.

I had written a book entitled The Democratic Economy where I argued that socialists should support a permanent private sector in the economy. The book was published by Penguin in 1984. Another influential work at the time was Alec Nove’s Economics of Feasible Socialism, which also argued for a substantial role for markets.

On 26 November 1983, at the Labour Coordinating Committee AGM in Birmingham, I proposed that Clause Four of the Labour Party constitution should be rewritten to include an acceptance of a private sector and a role for markets. But I was defeated over the idea that Clause Four should be rewritten. This was out of fear of antagonising the Benn wing. Instead, the LCC resolved that Clause Four should be “clarified”.

But a resolution on long-term aims, which I had helped to draft, was passed by a large majority. The resolution called for the Labour Party to draft a new statement of aims, upholding “that socialism involves extended democracy and real equality. Democracy under socialism is extended to industry and the community … and must involve a substantial decentralisation of power.”

Equality meant the “absence of discrimination on the basis of gender and race, universal freedom from poverty, and a widespread distribution of wealth and power, as well as formal equality under the law and universal suffrage.”

There was a commitment to “political pluralism” and to “economic pluralism” involving “a variety of forms of common ownership … and the toleration of a small private sector including self-employed workers and other private firms.” The economy must be dominated by mechanisms of “democratic planning … but also accommodating a market mechanism in some areas.”

There was also a “commitment to internationalism, disarmament and peace” and “a disengagement from the power blocs” of the West and East.

I think that today Jeremy Corbyn and his followers would accept much or all of this, at least as a temporary stopping-point on the road to full socialism. But in the 1980s there was strong hostility to these revisionist ideas from within Labour’s ranks at the time, including from Corbyn and Tony Benn.

Since then my own views have adjusted. See my Wrong Turnings book. But this blog is not primarily about me. It is about what has happened to the Labour Party and how difficult it is to change its DNA.

For a while, the LCC tried to keep the conversation going on the need to revise Labour’s aims. The Guardian newspaper reported the LCC conference with the headline: “Labour breaks taboo on ownership”.

The LCC held a conference in Liverpool in June 1984 on “The Socialist Vision”. But enthusiasm for this discussion fizzled out. Many leaders of the LCC wanted a political career, and they wished to widen their support on constituency selection committees.

By 1985 the LCC’s revisionist initiative had been kicked into the long grass. My efforts to change Clause Four had failed.

From Kinnock to Blair

But to their credit, Neil Kinnock and his deputy Roy Hattersley saw the need for Labour to modernise its aims. I advised them both for a while. Another election defeat in 1987 spurred a rethink. But by then I had become inactive in the Labour Party.

As Richard Toye has recorded, in 1988 Kinnock and Hattersley presented a new document on “Aims and Values” to Labour’s National Executive Committee. But “it was criticised by John Smith, Bryan Gould and Robin Cook as being too enthusiastic about the benefits of the market, and was watered down accordingly”.

Tony Blair

Clearly, even after a third election defeat there was still strong resistance, from both the “soft” and the “hard left”, to the idea of embracing markets and private property.

After the next election defeat in 1992, Kinnock stood down. He was replaced by John Smith, who died tragically from a heart attack. Then Tony Blair became leader, with a firm resolve to modernize the party. Four election defeats had made the majority of members more receptive to his ideas.

Blair’s Revision of Clause Four

In 1995, after 77 years, Clause Four was changed. Tony Blair successfully ended the Labour Party’s longstanding constitutional commitment to far-reaching common ownership. Tony Benn protested: “Labour’s heart is being cut out”. The new wording of “Clause IV: Aims and Values” began as follows:

“The Labour Party is a democratic socialist party. It believes that by the strength of our common endeavour we achieve more than we achieve alone, so as to create for each of us the means to realise our true potential and for all of us a community in which power, wealth and opportunity are in the hands of the many not the few; where the rights we enjoy reflect the duties we owe and where we live together freely, in a spirit of solidarity, tolerance and respect.”

The 1918 formulation did not use the word socialism – it had common ownership instead. Ironically, Blair introduced the term in 1995. But he attempted to change its meaning. He promoted “social-ism”, which now meant recognizing individuals as socially interdependent. It also signalled social justice, cohesion and equality of opportunity.

The new Clause Four continued, to make a significant statement in support of competiive markets and a private sector. Labour now stood for:

“A DYNAMIC ECONOMY, serving the public interest, in which the enterprise of the market and the rigour of competition are joined with the forces of partnership and co-operation to produce the wealth the nation needs and the opportunity for all to work and prosper with a thriving private sector and high-quality public services …”

The text went on to cover “a just society”, “an open democracy”, “a healthy environment” and “defence and security”.

John A Hobson

Labour’s new aims and values were indistinguishable from the earlier views of radical social liberals, such as T. H. Green, J. A. Hobson and David Lloyd George. And with its endorsement of “the rigour of competition” and “a thriving private sector” it was a hundred miles away from the collectivism of Robert Owen and other original socialists.

Instead of tackling the problem of its old collectivist DNA more directly, Blair tried to change the meaning of socialism and even rewrote parts of its own history. It is unsurprising that the old socialist DNA survived. It remained viable, partly because Labour still declared itself as socialist. Blair made radical changes but also gave succour to the traditional socialist wing of the party.

Blair’s popularity within the party had waned even before his decision in 2003 to support George W. Bush’s Iraq War. Much of this disenchantment was due to his abandonment of wholesale common ownership.

Blair had failed to develop a fully-fledged alternative vision within Labour to replace old-fashioned common ownership. He had made Labour implicitly embrace liberalism in doctrine. But this was unspoken, and masked by the explicit insertion of socialism in its aims. This inadvertently played into the hands of the party’s enduring, backward-looking left.

Labour’s Love Lost

Just as Labour had shifted to the left after losing power in 1979, after its 2010 defeat it shifted slightly leftwards under Ed Miliband. But the new leader had no clear alternative to the economics of austerity. So after another defeat in 2015. the party membership took a massive lunge to the left. It elected the Bennite, retro-Marxist, perennial protestor, Jeremy Corbyn.

But while old ideas within Labour had survived, the structure of the party and its electoral base had changed enormously in the period from 1983 to 2015. Kinnock had relied on the moderating force of the trade unions, to fight the hard left and move the party toward electability. But by 2015 the unions had been gravely weakened and several had moved toward the hard left.

In 1983, both the affiliated unions and the Labour MPs had a major role in the election of any new Labour leader. But by 2015 the power was almost entirely in the hands of the Labour Party membership, and the other moderating forces were much diminished.

Labour’s history shows how difficult it has been to change Labour’s old-fashioned socialist DNA. Those that put their faith in a revival of moderation within must take into account the near-collapse of those internal forces that brought the party back to sanity in 1951-1964 and in 1979-1997.

In 1983 there was still a strong, traditional, tribal, Labour vote, part of it based on surviving industries such as coal and steel. By 2015 the working class was much more fragmented, with skilled, aspirational cohorts at one extreme, and uneducated, demoralized, welfare dependents at the other.

The old tribalism was challenged by UKIP and by a revived working class Conservatism, playing the nationalist card. Labour’s potential electoral base has been transformed beyond recognition. The division of labour has become profoundly political, as well as enduringly economic.

Today, there seems little hope for a party that calls itself “Labour”, just as there is no future for a party that retains the word “socialism” or the goal of widespread public ownership. The socialist experiments of the twentieth century testify to their failure. Labour, in short, is an anachronism.

 

8 May 2017

This book elaborates on some of the political issues raised in this blog:

Wrong Turnings: How the Left Got Lost

Published by University of Chicago Press in January 2018

References

Attlee, Clement R. (1937) The Labour Party in Perspective (London: Gollancz).

Blair, Tony (1994) Socialism, Fabian Pamphlet 565 (London: Fabian Society).

Clarke, Peter (1978) Liberals and Social Democrats (Cambridge: Cambridge University Press).

Hodgson, Geoffrey M. (1984) The Democratic Economy: A New Look at Planning, Markets and Power (Harmondsworth: Penguin).

Hodgson, Geoffrey M. (2017) Wrong Turnings: How the Left Got Lost (Chicago: University of Chicago Press, forthcoming).

Nove, Alexander (1983) The Economics of Feasible Socialism (London: George Allen and Unwin).

Toye, Richard (2004) ‘The Smallest Party in History’? New Labour in Historical Perspective’, Labour History Review, 69(1), April, pp. 83-104.

 

Posted in Common ownership, Democracy, Jeremy Corbyn, Karl Marx, Labour Party, Left politics, Liberalism, Markets, Nationalization, Politics, Private enterprise, Property, Robert Owen, Socialism, Tony Benn, Tony Blair, Tony Blair

April 28th, 2017 by geoffhodgson1946

 

Geoffrey M. Hodgson

 

In the May 2017 run-off between Emmanuel Macron and Marine Le Pen, the defeated first-round candidate Jean-Luc Mélenchon refused to endorse the liberal Macron over the neo-fascist Le Pen. Many of Mélenchon’s leftist supporters did the same, arguing positively for abstention.

Jean-Luc Mélenchon

The abstainers argued widely that Macron is a “neoliberal” and the voters faced a choice between the dictatorship of the market or a fascist president.

Some went further: Marron was a “neoliberal fascist” and there was no reason to favour one “fascist” over the other.

This failure to perceive any advantage of a pro-market liberal over the racist and neo-fascist authoritarian nationalism of Le Pen’s National Front, is a symptom of a deep ideological sickness that has endured for decades on the French Left.

The political degeneration of the French Left, which even exceeds that of its Corbynista counterpart in Britain, would be the subject of another blog. My purpose here is to focus on the abuse of the term “neoliberalism” and how this corrupted and overly-widened word has poisoned political discourse.

I also wish to show how some “neoliberals”, who do not include Macron, and whom I shall attempt to characterise more precisely than the n-word will allow, do indeed have connections with genuine fascism.

After the erosion of credibility in classical socialism, particularly after its failed experiments in the twentieth century, it must be understood that our sole alternative to the rising nationalisms of Le Pen, Trump, Putin, Xi, Erdoğan and others is a modern and democratic version of liberalism. Whatever his flaws, Macron fits into the latter category.

The degeneration of the “neoliberalism” label

The widespread use of the word “neoliberal” to describe anyone accepting a significant role for private property or markets has made the word so imprecise that it has become useless and beyond reform.

Even the foremost historians of “the neoliberal project” have acknowledged the problem. Philip Mirowski and Dieter Plehwe wrote:

“We can sympathize with the impatience for those who use the term ‘neoliberalism’ as a blanket swearword for everything they despise, or a brainless synonym for modern capitalism.”

Colin Talbot pointed out that “neoliberalism” has become “a term of abuse” to be used against “any type of pro-market reform or political position that recognizes markets may – in the right circumstances – be a good thing”. Consequently, everyone “from moderate social democrats to the most lurid free-marketeers gets lumped together under a convenient ‘neoliberal’ label.”

In a superb survey of its usage since the 1980s, Rajesh Venugopal concluded that “neoliberalism has become a deeply problematic and incoherent term that has multiple and contradictory meanings, and thus has diminished analytical value.”

Some may wish to retain the “neoliberal” label, to apply it to those free marketeers who attempt to shrink radically the size of the state, to privatise anything that walks, advocate economic austerity and deregulate the financial sector. This would certainly separate neoliberalism from the genuine liberalism of John A. Hobson, William Beveridge or John Maynard Keynes.

But I think that things are too far gone to allow any useful redefinition of the “neoliberal” label to succeed. It is perhaps best abandoned. Instead I wish to focus on a particular strain of so-called “neoliberalism”. This allows us to concentrate on some key issues.

Ludwig von Mises and fascism

Ludwig von Mises (1881-1973) and Friedrich Hayek (1899-1992) were key figures in the so-called Austrian school of economics. Among their major achievements were their contributions to the “socialist calculation debate” where they showed the practical and epistemic limitations of any system of national planning based on comprehensive public ownership.

Ludwig von Mises

While sharing with liberals the support for a market economy based on private ownership, von Mises and Hayek departed from both classical liberalism (of John Stuart Mill, for example) and from twentieth-century liberalism (of John A. Hobson, John Dewey and John Maynard Keynes, for example), in some important respects.

In a book originally published in 1927, Ludwig von Mises praised fascism as “an emergency makeshift” that “has, for the moment, saved European civilization”. This statement cannot be excused, despite the facts that it was in a book that was otherwise devoted to the promotion of classical liberal values, and that von Mises was a Jew who eventually had to flee the Nazis.

From 1932 to 1934 von Mises continued as an economic adviser in Austria, even to the “Austro-fascist” or “clerical fascist” government of Chancellor Engelbert Dollfuss, who assumed dictatorial powers, closed down parliament, smashed the trade unions, and banned several political parties. This does not mean that von Mises was a fascist, but other economists would have drawn the line at advising them.

Friedrich Hayek and the dictatorship of Augusto Pinochet

Friedrich Hayek

The idea that temporary dictatorships, even if murderous, might sometimes be necessary rubbed off onto von Mises’ student, Friedrich Hayek. Hayek argued that democracy, while desirable, can be temporarily dispensable, particularly in defence of private property.

Augusto Pinochet may have saved private property rights in Chile. But he imposed a vicious dictatorship that tortured an estimated thirty thousand civilians and murdered over three thousand.

The right to life, and freedom from torture, are existentially more basic, and hence even more important, than the right to property. Hayek visited Pinochet’s Chile and he failed to condemn these atrocious abuses of human rights. Hayek’s silence over abuses of basic human rights cannot be excused by his age: he was still publishing major books in the 1970s.

The twentieth century teaches us that Marxist socialism crushes human rights and leads to dictatorship. While opposing Communism, von Mises and Hayek (temporarily) tolerated some dictatorships and their removal of some basic human rights, including the rights of habeas corpus and to live without torture.

While earlier liberals had emphasized human rights, private property rights and democracy, in their reaction against socialism, von Mises and Hayek seemed to elevate private property rights over everything else. But private property rights require the protection of all actual or potential owners from torture or extermination. Basic human rights and democracy are vital, as well as the right to private property.

The Mont Pèlerin Society

The ideas of Mises and Hayek were prominent in the Mont Pèlerin Society, founded in Switzerland in 1947. The society accommodated a variety of views, including mainstream liberals plus some members who had collaborated with Nazism in the 1933-1945 period.

The Mont Pèlerin Society was dominated by economists. No less than eight winners of the Nobel Prize in economics have been its members.

The influence of economists is evident in the draft statement of aims of the Society. It opened with these words:

“Individual freedom can be preserved only in a society in which an effective competitive market is the main agency for the direction of economic activity. Only the decentralization of control through private property in the means of production can prevent those concentrations of power which threaten individual freedom.”

Agoraphobics (i.e. fearers of markets) such as George Monbiot and Naomi Klein will probably disagree, but there is a vital truth in this quotation.

The trouble is that it is also a half-truth. Private property and markets are necessary but insufficient to guarantee liberty, as countless market-based totalitarian regimes, from Putin’s Russia to Pinochet’s Chile, will testify. The Mont Pèlerin statement should have made this clear. Instead it gave licence to a view that only private property and markets matter.

Margaret Thatcher and Augusto Pinochet

Hence Mont Pèlerin fans, including UK Prime Minister Margaret Thatcher and US President Ronald Reagan, supported dictatorships and opposed sanctions against South African Apartheid.

In 1999, Thatcher even thanked the former dictator Pinochet for “bringing democracy to Chile”. Clearly, while addressing someone who in 1973 overthrew a democratically-elected government, she invested the term “democracy” with an esoteric, Thatcherite meaning. In truth, Pinochet was a torturer and an assassin.

Vital differences between liberalism and Mont Pèlerin neoliberalism

Even with this brief account we can see some wide, clear water between mainstream liberals such as Macron and Mont Pèlerin “neoliberals” such as Hayek. Unlike those “neoliberals”, modern liberals uphold the following five points:

  1. While markets and private property are essential, they are not sufficient to guarantee human rights and liberty. Vigilance and debate, within a democratic system with a free press, are necessary as well.

  2. Dictatorships, would-be dictators and all abuses of human rights must all be condemned, in market-based as well as in centrally-planned societies.

  3. The capitalist system contains forces that, if unchecked, will lead to greater inequalities of wealth and income. This problem cannot be remedied by simply making markets more competitive. The solution must involve some redistributive taxation and some economic intervention by the state.

  4. Because the owners of capital and labour do not, and cannot, meet on a level playing field, some legally-limited trade-union activity is warranted, along with reasonable employment rights and other protections.1

  5. While early liberalism was born in an era of small-scale producers, modern industrial capitalism bestows an economic (alongside a moral) need for organized mass education, social security and healthcare, along with regulations and bureaucracies to ensure that markets worked effectively and consumers are protected.

If these liberal principles were understood, along with Macron’s support for them, abstention in the May 2017 French presidential elections would be impossible.

 

28 April 2017

Minor edits 1, 4 May – thanks to Pedra Pereira Hors.

 

My forthcoming book elaborates on some of the political issues raised in this blog:

Wrong Turnings: How the Left Got Lost

To be published by University of Chicago Press in December 2017

 

 

Endnote

  1. Note that Macron (like his Socialist Party predecessor François Hollande) wants to reform the blundering and counter-productive French system of employment law, rather than to abolish all employment rights, which must at least conform to standards within the European Union.

 

References

Caldwell, Bruce J. and Montes, Leonidas (2015) ‘Friedrich Hayek and his Visits to Chile’, Review of Austrian Economics, 28(3), pp. 261-309.

Hodgson, Geoffrey M. (2015) Conceptualizing Capitalism: Institutions, Evolution, Future (Chicago: University of Chicago Press).

Hodgson, Geoffrey M. (2016) ‘Some Limitations of the Socialist Calculation Debate’, Schmollers Jarhbuch, 136, pp. 1-26.

Hodgson, Geoffrey M. (2017) Wrong Turnings: How the Left Got Lost (Chicago: University of Chicago Press, forthcoming).

Mirowski, Philip and Plehwe, Dieter (eds) (2015) The Road from Mont Pèlerin: The Making of the Neoliberal Thought Collective, paperback edition (Cambridge MA: Harvard University Press). (Quote from p. xvii.)

Mises, Ludwig von (1985) Liberalism in the Classic Tradition. Translated by Ralph Raico from the German edition of 1927 (Irvington, NY: Foundation for Economic Education). (See pages 47 and 51.)

Venugopal, Rajesh (2015) ‘Neoliberalism as a Concept’, Economy and Society, 44(2), pp. 165-87. http://www.tandfonline.com/doi/abs/10.1080/03085147.2015.1013356.

Posted in Democracy, George Monbiot, Karl Marx, Left politics, Liberalism, Ludwig von Mises, Markets, Naomi Klein, Politics, Private enterprise, Property, Right politics, Socialism

January 28th, 2017 by geoffhodgson1946

 

 

Geoffrey M. Hodgson

 

The political earthquakes of 2016 are probably the beginning of a series of major ruptures in world politics. Donald Trump was elected in the USA, Britons voted for Brexit, Turkey lurched toward dictatorship, Brazil ejected a democratically-elected president, Russia extended its global influence, and China tightened internal security while building military bases in the South China Sea.

From America to Asia, authoritarian nationalism is on the march. The future of old alliances is cast in doubt, raising a renewed spectre of global war.

These seismic changes should prompt us to reconsider our priorities. Is ‘neoliberalism’ – whatever that means – our main enemy? Or is it rising authoritarianism and nationalism instead?

We have been here before, albeit with much less dangerous military weapons. The rival imperialisms of the nineteenth century led to the First World War. Collapsing imperial dynasties triggered revolution in Central and Eastern Europe. Communists successfully seized power in Russia in 1917. Post-war political and economic turbulence led to the triumph of fascism in Italy, Germany and Spain. Imperial Japan invaded nationalist China.

I am not suggesting that history will repeat itself in the same way. But it is important to understand how the tectonic plates of political change affected the way we understand and map political positions, and the way in which we prioritise political issues.

The thirty-year squeeze (1918-1948)

Europe suffered economic depression for much of the interwar period. The financial crash of 1929 exacerbated the crisis and led to a collapse of world trade. Liberal defenders of the market economy were put on the defensive: capitalism seemed at the end of its tether.

Beatrice & Sidney Webb

Meanwhile, some intellectuals from the USA and Britain – including Labour stalwarts George Bernard Shaw and Sidney and Beatrice Webb – visited the Soviet Union brought back glowing accounts of an expanding economy and a joyful population. (The Soviet propagandists explained away disasters such as the Ukranian Famine as resulting from sabotage by rich peasants or foreign agents.)

With the crisis of capitalism, the rise of fascism and the apparent success of Soviet Russia, many British and American radicals became Communists or fellow travellers. For them, liberalism and the defence of the market economy seemed a weak or unviable option.

The choice seemed to be between two forms of authoritarian government: much better the one that proclaimed equality and opposed racism. (But in reality, the Stalin regime promoted antisemitism, genocide against several other ethnic minorities, and dramatic internal inequalities of power.)

Stalin, Roosevelt and Churchill in 1941

The alliance between Russia and the West in the Second World War smothered criticism of what was really going on within Stalin’s regime. But, with the beginning of the Cold War in 1948, socialists were forced to make a choice between either supporting an antagonistic and undemocratic foreign power, or aligning with the USA and its allied democracies.

Labour under Clement Attlee aligned with the West. But rose-tinted visions of Soviet Russia or (from 1949) Mao’s China lived on among he Left.

In major European democracies, the thirty years between the end of the First World War and the start of the Cold War had seen liberalism squeezed, between socialism on the one hand, and reactionary authoritarianism on the other.

‘American imperialism’ and the rise of neoliberalism

Things were different in the USA, which polarised between forms of Republican conservatism and Democratic liberalism. But rising tensions in the Cold War, and the eruption of the Vietnam War in the 1960s, made American-style liberalism less attractive for the global Left.

Marxist-led national liberation movements in Cuba, Indochina and elsewhere kept the collectivist vision alive for the Left around the world. Liberalism was see as the fake ideology of American imperialism and the global bourgeoisie.

Some have argued that neoliberalism was reborn in the 1970s, when conservatives such as Ronald Reagan and Margaret Thatcher adopted a vision of expanding markets and a contracting state. Although the Left could never agree on what ‘neoliberalism’ meant, they mostly agreed that it was the main enemy.

Much of the Left, throughout the world, had never got rid of its agoraphobia – its fear of markets. Private enterprise and market forces were always and everywhere seen as the problem. Liberals, who defended private property and markets as well as human rights, were mocked as the bourgeois enemy.

Our brave new world

But the global tectonic plates are now shifting abruptly, in an erupting national and international crisis, as big as anything since 1948.

Nationalist leaders strut around the world stage. They stock up their nuclear and conventional arsenals and jostle for geopolitical advantage.

Torture is endorsed. Journalists are threatened or imprisoned. Scientific findings on climate change are denied. Intellectuals and experts are ridiculed. Ignorance and dogma are celebrated. Truth is swamped by lies. Legislation protecting workers and the poor is undone. Minorities are attacked and made scapegoats. Racism is given licence. People suffer discrimination on the basis of their religious or other beliefs. Democratic systems are damaged. Judges and lawyers are treated as traitors. The rule of law is undermined.

In this dangerous new world, it matters less whether that railway is nationalised or whether water distribution is in public ownership. Forms of ownership are always secondary to the actual provision and distribution of vital goods and services. But when our rights and liberties can no longer be taken for granted, questions over forms of ownership move even further down the ranking of priorities.

The ubiquitous, trivialising idea that the Left is defined in terms of public provision, and Right as private provision, is historically recent and a gross reversal of their original meanings. It is also a polarisation of lesser relevance in this world of rising authoritarian nationalism.

Our fundamental rights, our liberty, and the rule of law are now increasingly threatened. Their defence becomes the great struggle of our time.

This lesson is hardest for Americans and Britons, who were spared domestically from the jackboots of twentieth-century despotism. Struggles for British and American national liberty are beyond living memory. We have grown fat and lazy on the fruits of the liberal order. We have taken for granted its institutions and underestimated their fragility. We must repair our vigilance.

The liberal opportunity

For 100 years, for the reasons given above, liberalism has been marginalised. Now is its opportunity – indeed its urgent necessity.

Unlike our grandparents in the crisis-ridden 1930s, we have seen the socialist experiments of the twentieth century and counted their cost at 90 million lives. History and social science have more to teach us. If we wish to learn, we can know more about how markets work. We can understand the informational, organisational and other impediments to comprehensive national planning. We can appreciate why countervailing politico-economic power, based on a strong private sector, are necessary to buttress democracy and resist authoritarianism. The twentieth century has taught us these lessons.

Except in the closed minds of Marxists, classical socialism and national collectivism are no longer serious options. They are impossible fantasies, especially irresponsible in the face of rising authoritarian nationalism.

The old Marxist mantra of bourgeoisie versus proletariat is also ungrounded in reality. Instead we have a highly fragmented working class, much of it enduringly aligned with authoritarianism and nationalism. Marxism relies on a quasi-religious and nonsensical belief that the working class – whatever it actually believes or strives for – carries our human destiny.

Class struggle has mattered, but it has never been the main motor of history. What have mattered more have been struggles for power, by individuals, dynasties, nations, religions or ideological movements.

The Storming of the Bastille in 1789

Liberalism was one of those movements. Based on the imperatives of equality and liberty, it matured in the Enlightenment.

Liberalism rose up in the English Civil War of the 1640s, in the American Revolution of the 1770s, and in the French Revolution of 1789, in titanic struggles against despotism and oppression.

Now, once again, liberalism is centre stage, as the enemy of authoritarian nationalism.

The liberal rainbow

Its allies are not those who pander to authoritarianism by eroding civil liberties, or do the spadework of the nationalist Right by making immigration (rather than assimilation) a foremost problem. The prime allies of liberalism are all those who defend liberty and human rights. But therein lies a concern, which must be discussed.

From the beginning, liberalism has harboured different views on the role of the state and of the degree of state intervention required in the economy and society. On the one hand there are liberals – sometimes called libertarians – who wish to minimise the role of the state.

Thomas Paine

On the other hand, alongside this, is a different strain of liberalism – involving Thomas Paine, John A. Hobson and others – that places greater stress on social solidarity, economic redistribution and welfare provision. Paine in particular saw the need for a major redistribution of wealth. Involving key figures such as David Lloyd George and William Beveridge, this strain of liberalism was central to the development of the British welfare state.

John Maynard Keynes – another great liberal – argued that state regulation of financial markets and counter-cyclical expenditures are necessary to stabilise the capitalist system. Keynes showed that economic austerity is a flawed doctrine. Government deficits are best reduced by growth: budget cuts can contract the entire economy and make the problem worse.

There is a spectrum of views between individualist and social-democratic liberalism, but all liberals are united in their defence of individual liberty, human rights and political democracy. The diverse colouring of this rainbow does not diminish its united opposition to the dark intolerance and division that is exacerbated by authoritarian nationalism.

The struggle for liberty and equality has always been vital. But many twentieth-century radicals were diverted by the delusions of socialism. The renewed rise of authoritarianism has shown us again that liberalism is the vital political movement of the modern age.

 

28 January 2017

Minor edits: 29 January, 1, 16 May 2017

 

This book by G. M. Hodgson elaborates on some of the political issues raised in this blog:

Wrong Turnings: How the Left Got Lost

Published by University of Chicago Press in January 2018

 

Bibliography

Allett, John (1981) New Liberalism: The Political Economy of J. A. Hobson (Toronto: University of Toronto Press).

Beveridge, William (1944) Full Employment in a Free Society (London: Constable).

Clarke, Peter (1978) Liberals and Social Democrats (Cambridge: Cambridge University Press).

Claeys, Gregory (1989) Thomas Paine: Social and Political Thought (London and New York: Routledge).

Courtois, Stéphane, Werth, Nicolas, Panné, Jean-Louis, Packowski, Andrzej, Bartošek, and Margolin, Jean-Louis (1999) The Black Book of Communism: Crimes, Terror, Repression (Cambridge MA: Harvard University Press).

Hodgson, Geoffrey M. (2015) Conceptualizing Capitalism: Institutions, Evolution, Future (Chicago: University of Chicago Press).

Hodgson, Geoffrey M. (2017) Wrong Turnings: How the Left Got Lost (Chicago: University of Chicago Press, forthcoming).

Keane, John (1995) Tom Paine: A Political Life (London: Bloomsbury).

Keynes, John Maynard (1936) The General Theory of Employment, Interest and Money (London: Macmillan).

McCloskey, Deirdre Nansen (2017) ‘Nationalism and Socialism Are Very Bad Ideas: But liberalism is a good one’, Reason.Com, February. http://reason.com/archives/2017/01/26/three-big-ideas

Monbiot, George (2016) ‘Neoliberalism – the ideology at the root of all our problems’, The Guardian, 15 April. https://www.theguardian.com/books/2016/apr/15/neoliberalism-ideology-problem-george-monbiot.

Townshend, Jules (1990) J. A. Hobson (Manchester: Manchester University Press).

Venugopal, Rajesh (2015) ‘Neoliberalism as a Concept’, Economy and Society, 44(2), pp. 165-87. http://www.tandfonline.com/doi/abs/10.1080/03085147.2015.1013356.

Posted in Brexit, Common ownership, Democracy, Donald Trump, Immigration, Karl Marx, Labour Party, Left politics, Liberalism, Markets, Nationalization, Politics, Populism, Private enterprise, Right politics, Socialism

November 18th, 2016 by geoffhodgson1946

trump1

 

Geoffrey M. Hodgson

 

“One of the most important essays you will read in 2016” @Rokewood

 

What caused the election of Donald Trump? I am deeply dissatisfied by some of the quick answers to this question.

The leader of Her Majesty’s Opposition had an instant answer. Jeremy Corbyn blamed the left’s association “with the forces of globalisation during the Obama administration”. Instead, he insisted, we need to reject “that free market, economic thinking, which processed deindustrialisation in Britain”.

Naomi Klein

Naomi Klein

Others used different words on the same “free market” theme. Naomi Klein put it bluntly: “the force most responsible” for Trump’s success was “neoliberalism”. This worldview, “fully embodied by Hillary Clinton and her machine”, was “no match for Trump-style extremism.”

Trump won over US voters because: “Under neoliberal policies of deregulation, privatisation, austerity and corporate trade, their living standards have declined precipitously.”

The Guardian columnist George Monbiot followed with a historical piece, claiming that “the events that led to Donald Trump’s election started in England in 1975”, when Margaret Thatcher embraced the free-market “neoliberal” philosophy of Friedrich Hayek. This was a harbinger of the global rise of free-market thinking that allegedly wrought havoc in recent years.

Both Klein and Monbiot argue that Trump capitalised on the failure of other politicians to deal with the adverse effects of neoliberalism.

There is no doubt that the global expansion of capitalism in recent decades has been hugely disruptive, shifting millions of manufacturing jobs to East Asia. In the absence of adequate retraining and investment, it has led to declining opportunities for large swathes of the working population in North America and Europe.

In particular, while there have been big increases in global prosperity, the real standard of living of most US workers has not increased much since the 1970s.

Trump tapped into working class discontent. In important respects his policies are not neoliberal, by any reasonable definition of that term. In his campaign, Trump used anti-neoliberal, protectionist slogans such as high import tariffs and closed borders.

George Monbiot

George Monbiot

But why did it take so long for people to react to “neoliberalism” and vote in this way? As Monbiot argued, the current so-called “neoliberalism” got under way in the 1970s. It accelerated after the beginning of economic reform in China in 1978 and after the fall of the Berlin Wall in1989. The whole world was then opened up for trade.

But while right-populist movements had emerged, they were then far from power. Tony Blair won a landslide election in 1997 and increased public spending on welfare, education and health. Three years after Blair had won a third election, the United States elected its first black President.

If neoliberalism and stagnant living standards had been around since the 1970s, then why did it take 40 years for a Trump-like demagogue to be elected? The political wind swung decisively to the right more recently, after the Great Crash of 2008.

But it is also difficult to explain Trump’s populist success as a targeted reaction to the financial crash. The removal of some banking regulations, by Bill Clinton in the US and Gordon Brown in the UK, did exacerbate the lending boom that led to the crash of 2008.

Yet, despite his protectionism, Trump offers still more deregulation. He is not targeting the bankers as part of the “elite”. On the contrary, he has pledged to repeal the Dodd-Frank Act, which was designed to curb some of the excesses of the financial sector. As Larry Elliott put it: “This looks curious for someone trying to surf a tidal wave of populist anger against the bankers.”

Trump-Farage2016Putting the blame on “neoliberalism” underestimates the way in which outsiders such as Trump and Farage have created populist movements that blame “the elite” and offer simplistic solutions, such as to “curb immigration”. Blaming “neoliberalism” underestimates the pernicious influences of racism and anti-Muslim prejudice. Simplistic economic explanations of Trump’s victory ignore much stronger evidence of other factors at work.

The Pavlovian leftist response of blaming markets or “neoliberalism” for “all our problems” is far off the mark.

What is neoliberalism?

Monbiot is keen to identify “neoliberals” such as Hayek as the villains. According to Monbiot:

“Neoliberalism sees competition as the defining characteristic of human relations. … Tax and regulation should be minimised, public services should be privatised. The organisation of labour and collective bargaining by trade unions are portrayed as market distortions that impede the formation of a natural hierarchy of winners and losers. Inequality is recast as virtuous: a reward for utility and a generator of wealth, which trickles down to enrich everyone.”

I shall pass over the many flaws in the essay from which the above passage is quoted. Monbiot conflates the different views of Ludwig von Mises, Friedrich Hayek and Milton Friedman, and he is inaccurate on several details. Note also that Monbiot does not highlight deregulation of the financial sector in this passage.

But let’s take this passage as a working definition of neoliberalism – an otherwise loose and slippery word that has enjoyed multiple, contradictory meanings.

After taking on board Monbiot’s definition of neoliberalism, let us consider the extent to which it has been achieved in the real world.

Has neoliberalism been achieved in practice?

Monbiot described how in the 1970s “elements of neoliberalism, especially its prescriptions for monetary policy, were adopted by Jimmy Carter’s administration in the US and Jim Callaghan’s government in Britain.” He is unclear on the details, but presumably in part he refers to Callaghan’s embrace of monetarist ideas from 1976 to 1979.

Milton Friedman

Milton Friedman

Monetarism, incidentally, is not obviously the same as neoliberalism. While monetarists such as Friedman were free-marketeers, monetarism’s central claim is that the main cause of inflation is the rise in the money supply – a thesis that (as Friedman himself recognised) could also apply to a planned economy. Indeed, this central monetarist tenet was adopted by some Marxist economists.

Monbiot then continued:

“After Margaret Thatcher and Ronald Reagan took power, the rest of the [neoliberal] package soon followed: massive tax cuts for the rich, the crushing of trade unions, deregulation, privatisation, outsourcing and competition in public services.”

He is right. Albeit to different degrees in different countries, these things happened.

But go back to Monbiot’s checklist definition of neoliberalism, as quoted above. He saw neoliberalism as minimising “tax” not simply “tax cuts for the rich”. Has this happened?

Ronald Reagan & Margaret Thatcher

Ronald Reagan & Margaret Thatcher

Margaret Thatcher reduced taxation for the rich. But the overall tax burden (all taxes as a percentage of GDP) rose during her period of office. This figure fell in the 1990s and has fluctuated from 1997 in a range between 35 per cent and 38 per cent of GDP. The UK austerity governments since 2010 have not reduced the overall tax take significantly.

Similarly, Ronald Reagan began by cutting income taxes for the rich, but ended his eight-year term of office with a Federal percentage tax take almost identical to that of his predecessor Jimmy Carter, and slightly above the average for the entire 1970-2009 period.

The “neoliberal” mission of massive overall tax cuts was not achieved under Thatcher or Reagan, or under subsequent administrations. Put in a longer historical perspective, taxation and public spending in the UK and USA today are much higher than they were before the Second World War.

 public-revenue-as-percent-gdp-uk-usa-1900-2016

 

The above figure shows the tax revenues, from national, state and local government combined, for the UK and the USA from 1900 to 2016. The alleged era of “neoliberalism” from the 1970s has not been associated with declining tax revenues. If anything, the “neoliberal” era of a minimal state was pre 1914, not post-1975.

What is characteristic of fiscal policy in the UK and USA is not the alleged “neoliberal” overall reduction of taxation but a lightening of taxation on the rich, and a failure to redistribute sufficiently, in the face of widening inequality.

Klein is probably right to suggest: “A good chunk of Trump’s support could be peeled away if there were a genuine redistributive agenda on the table.” But she, with Corbyn and Monbiot, are wrong to chime in with the crude anti-market mantras that have disabled the Left for 180 years. In building a redistributive agenda we must look to Thomas Paine, rather than Robert Owen or Karl Marx.

Privatisation: against dogma

By contrast, Monbiot’s other point, about growing privatisation since the 1970s, has been borne out by the evidence. In the UK, USA and much of the world there has been massive privatisation and outsourcing of public services.

privatization1Unlike any false claim that “neoliberalism” has reduced overall taxes, the increase of privatisation is manifest. In addition, it has sometimes led to deleterious consequences including lower pay for workers and a reduced quality of services.

But Corbyn and Monbiot speak and write as if privatisation is necessarily bad – always and everywhere it is seen as a negative policy. This doctrinaire stance simply inverts the claim of the crudest free marketeers, who claim that state provision is always bad and that private provision is always good. The Corbyn-Monbiot stance simply turns this upside-down. It is equally dogmatic. It is based on ideology, not evidence.

Regarding markets as always bad, amounts to agoraphobia or fear of markets (from the Greek words agora for market, and phobia for fear). This is an inversion of the kratophobia of the free-marketeers – a fear of government or of the state.

Instead of these ideologically-driven, simplistic positions, it is necessary to be more pragmatic. Some privatisations work. Others do not. Some state provision is effective. Some is wasteful and inefficient. We need to look at individual cases to understand why.

There are many case studies to look at and they are too wide-ranging to be reviewed here. A good start would be to look at an important early article on privatisation by John Goodman and Gary Loveman in the Harvard Business Review. They wrote:

“the issue is not simply whether ownership is private or public. Rather, the key question is under what conditions will managers be more likely to act in the public’s interest … managerial accountability to the public’s interest is what counts most, not the form of ownership.”

Goodman and Loveman argued that profits and the public interest overlap best when the privatised organisation is in a competitive market. Competition from other companies can discipline managerial behaviour. Consequently, there is little point in privatisation if competition is lacking.

Subsequent research has shown that other factors are involved as well. Instead of being driven by dogma, we need to be pragmatic and experimental, taking account of research.

Jeremy Corbyn

Jeremy Corbyn

You may respond that Corbyn is pragmatic, because he has declared that he is in favour of a mixed economy: he accepts a private as well as a public sector. But notice the imbalance in his presentations. He treats public provision as ideal, and the private sector as an expedient to be tolerated, at least for a while.

Corbyn has defended public provision, but nowhere has he recognised that in some cases there are good arguments for private enterprise. Competition and private enterprise are vital for technological innovation, while acknowledging that private initiative often receives major stimulation and funding by the state.

Corbyn says he accepts a mixed economy, but he has offered has no defence of private sector. His “mixed economy” could be a stopping point on the road to a fully-socialist planned economy, where private enterprise is pushed to the side-lines.

Declining public provision?

i-daniel-blake-1Ken Loach’s moving film, I, Daniel Blake, portrays the heart-breaking human consequences of the UK Conservative government’s shredding of the welfare safety net for the poor. Attempts to reduce public spending in many countries have led to millions of human tragedies like this.

Doctrinaire austerity policies – which fail in their own terms because they depress economic demand for goods and services and create more unemployment – have been adopted by many governments and imposed by the European Union.

PrintAll this is real, and tragic. Millions have suffered because of such misguided policies. But we should not jump to the conclusion that “neoliberalism” has been successful in moving toward a minimal economic role for the state.

In my book Conceptualizing Capitalism I examined differences and changes in public social spending in different developed countries from 1980 to 2005, using OECD data. The principal components of public social spending include health services, old age benefits, unemployment benefits, incapacity-related benefits, family support, active labour market public programs, and housing benefits.

Amounts of public spending as percentages of GDP (in 1980 and 2005) are shown below.

 

1980 2005 change
Australia 10.3 16.5 +6.2
Austria 22.4 27.1 +4.7
Belgium 23.5 26.5 +3.0
Canada 13.7 16.9 +3.2
Denmark 24.8 27.7 +2.9
Finland 18.1 26.2 +8.1
France 20.8 30.1 +9.3
Germany 22.1 27.3 +5.2
Italy 18.0 24.9 +6.9
Japan 10.2 18.5 +8.3
Netherlands 24.8 20.7 –4.1
Norway 16.9 21.6 +4.7
Portugal 9.9 23.0 +13.1
Spain 15.5 21.1 +5.6
Sweden 27.1 29.1 +2.0
Switzerland 13.8 20.2 +6.4
UK 16.5 20.5 +4.0
US 13.2 16.0 +2.8

 

Public Social Spending as Percentage of GDP in Selected Countries

Most countries increased their public social spending, during a period when the ideology of privatization was resurgent. The Netherlands is an exception. Note that the increases in public social spending are not explained by rises in unemployment benefit, because generally this comprises a small proportion of public social spending.

Of course, it needs to be emphasised that there is an ideologically-driven agenda that has led to deep cuts in some welfare and has been gravely damaging for the poor. But we are far from re-entering the era of the minimal state.

Pursuing unicorns

Much of the hysteria against “neoliberalism” draws from the Left’s deep rooted antipathy to markets. Let’s briefly address this.

First, they may be alternatives to markets in modern, large-scale economic systems but they would greatly out-do the miseries inflicted on the fictional Daniel Blake and his millions of real-world counterparts.

Karl Marx

Karl Marx

Every attempt to get rid of markets, since Robert Owen and Karl Marx proclaimed their redundancy in the nineteenth century, has led to famine, repression and the termination of democracy. Look to Stalin’s Russia, Mao’s China, Cambodia, Cuba and Venezuela. Twentieth-century Communism resulted in over 90 million deaths.

In the light of twentieth-century experience it would be worse than foolhardy to make yet another attempt to minimise markets, or as Klein oddly put it, “corporate trade”.

A better way is possible, but it involves taming and supplementing markets, not repressing them. It means regulating corporations, not casting them as sorcerers of evil. But sadly, agoraphobia still afflicts many on the left.

Monbiot wrote in 2003:

“It seems to me that the questions we urgently need to ask ourselves are these: is totalitarianism the only means of eliminating capitalism? If so, and if … we abhor totalitarianism, can we continue to call ourselves anti-capitalists? If there is no humane and democratic answer to the question of what a world without capitalism would look like, then should we not abandon the pursuit of unicorns, and concentrate on capturing and taming the beast whose den we already inhabit?”

Excellent. But since then he has gone down the rocky road of blaming “neoliberalism” for “all our problems”. Without defending some role for private property or markets, he thereby allies himself with the many leftists who now describe anyone defending private property or markets as “neoliberal”.

Has Monbiot now abandoned the idea of taming the capitalist beast? Does he wish to kill it instead?

In April 2016 he wrote: “Every invocation of Lord Keynes is an admission of failure.” So he junked the best macroeconomic theory we have for limiting some of the excesses of capitalism. His grounds for doing so were these:

“Keynesianism works by stimulating consumer demand to promote economic growth. Consumer demand and economic growth are the motors of environmental destruction.”

John Maynard Keynes

John Maynard Keynes

Wrong. “Consumer demand and economic growth” can destroy the planet, but only if that demand and growth relate to non-renewable material resources. Much demand and growth in modern economies is for services. Intangible assets now make up much of corporate wealth. For example, there are demands for information and education, and such services are added to GDP. There is no necessary reason why economic growth in a modern information-rich economy should ruin the planet. Keynes is still relevant.

Those that have pursued unicorns have imagined that it is possible to design a better system than capitalism. Monbiot says the same, declaring that for the Left

“the central task should be to develop an economic Apollo programme, a conscious attempt to design a new system, tailored to the demands of the 21st century.”

This puts him in full, unicorn-chasing mode. One of the biggest mistakes by early socialists was to ignore the massive complexity of modern economic systems and attempt to “design a new system” at the behest of some utopian dreamer.

Instead, what is required is careful, incremental, experimental change, retaining the flexibility and devolved autonomy afforded by widespread private property. This autonomy allows for multiple experiments and deeper learning from mistakes.

While state intervention is necessary, no complete or adequate overall “design” is possible, because of the way much knowledge is irretrievably dispersed throughout the economy. The economies of the twenty-first century are more knowledge-intensive than those before. Hence the possibilities of comprehensive central planning or “design” are even more limited.

Neoliberalism and economic man

In one passage in his November 2016 article, Monbiot turned to motivational fundamentals:

“as modern psychology and neuroscience make abundantly clear – human beings, by comparison with any other animals, are both remarkably social and remarkably unselfish. The atomisation and self-interested behaviour neoliberalism promotes run counter to much of what comprises human nature.”

pleasure-machinesThe first sentence is valid and important. The second is simplistic. As I elaborate in my book From Pleasure Machines to Moral Communities, strong evidence from psychology, evolutionary biology and primatology shows that the picture of self-seeking “economic man”, which dominated mainstream economics until recently, is deeply flawed.

But that does not mean that we can or should get rid of markets. Our capacities for cooperation evolved culturally and genetically because our ancestors hunted and foraged in groups, rarely numbering more than 200 individuals, for millions of years. Relying on emotions and facial expressions, we developed sophisticated social mechanisms to engender trust and cooperation, and to enforce social rules.

As larger-scale cities emerged about 14,000 years ago, these face-to-face mechanisms could no longer be relied upon exclusively to regulate social interactions. Institutions such as law, property and contract were developed to deal with these more impersonal, non-familial, transactions.

Every human civilisation that has developed has relied on property, trade and contracts. These require different enforcement mechanisms, but they too require measures of trust and moral obligation, as Adam Smith made clear in his Theory of Moral Sentiments. The idea that markets inevitably corrode away all social ties is mistaken.

Even the Soviet-style economies of the twentieth century relied on some private property and trade. They failed because state bureaucracy stifled autonomy and innovation. China grew rapidly when it expanded the private sector after 1978.

Of course, the spread of the market would be detrimental if it invaded all our social relations, attempting to put prices on love and friendship and reducing everything else to money transactions. But a system of private property provides a degree of autonomy that is required to maintain non-market interactions at home and at work. Successful corporations create islands of cooperation and teamwork within their organisational boundaries.

lives-of-othersImpersonal relations occur in bureaucracies as well as in markets. Large-scale systems of national planning also make much interaction impersonal. People become atomised; they become numbers, to be processed by bureaucrats and computers.

The experience of centrally-planned economies in Russia, China and Eastern Europe shows that systems of state planning can be cesspits of human alienation and corruption, governed impersonally by disillusioned bureaucrats and corrupt state officials. I recommend the film The Lives of Others for a glimpse into that dark world.

Abandoning neoliberalism

I have written at further length elsewhere on the limits to markets. I accept Hayek’s explanation that comprehensive overall planning is dysfunctional. But I do not accept that everything should or can become a monetary transaction in its place.

Indeed, the growing use of information in a capitalist economy puts limits on the role of information as property. Furthermore, the very freedom of waged employees means that there are constraints on entering into contracts for future work. There are limited futures markets for labour. For such reasons, capitalism can never be a 100 per cent market system.

Hayek failed to acknowledge fully the limits to markets. Such free marketeers are the mirror-image of socialists who fail to acknowledge adequately that there are limits to common ownership. We have to transcend both agoraphobia and kratophobia.

Agoraphobics react adversely to any tolerance of markets. Hence economic interventionists such as Tony Blair, and supporters of public healthcare such as Hillary Clinton, have recently and frequently been accused of being neoliberals. This is misleading and absurd.

As Colin Talbot has pointed out, “neoliberalism” has become “a term of abuse” to be used against “any type of pro-market reform or political position that recognizes markets may – in the right circumstances – be a good thing”. Consequently, everyone “from moderate social democrats to the most lurid free-marketeers gets lumped together under a convenient ‘neoliberal’ label.”

In a brilliant survey of its usage since the 1980s, Rajesh Venugopal concluded that “neoliberalism has become a deeply problematic and incoherent term that has multiple and contradictory meanings, and thus has diminished analytical value.”

Some may wish to retain the “neoliberal” label, to apply it to those free marketeers who attempt to shrink radically the size of the state, and to privatise anything that walks. The definition could be further sharpened by adding advocacy of economic austerity. It could also could be sharpened by including deregulation of the financial sector.

clintons-obama1But such nuances have been lost in a global storm of “neoliberal” accusations. Klein and Monbiot have added some force and authority to this widening tempest.

They do not confine their accusations to the likes of Hayek. Most seriously, they pointed the “neoliberal” finger at Hillary and Bill Clinton, as Corbyn made the “forces of globalisation” jibe at Barack Obama.

If it means anything, neoliberalism is an ideology and only partly a reality. Austerity and welfare cuts have wreaked havoc, but markets and private enterprise have lifted millions out of poverty. Agoraphobic accusations of “neoliberalism” miss the latter point.

The picture is much more complex than the accusers of neoliberalism would have it. To say that Trump won because of neoliberalism is make a fragment of the answer the whole. It puts insufficient weight on the way in which Trump mobilised and exacerbated racism and prejudice.

“Neoliberalism” gave us Trump

We may ask: what part did the accusers of “neoliberalism” have to play in Trump’s victory? The constant tainting of Hillary Clinton as a “neoliberal” may have helped to persuade many Democratic supporters to stay at home. We know from the data that the below-par turnout by Democrats – especially by the young – was decisive in losing those swing states.

Tainting Hillary Clinton as a “neoliberal” could have played a part in clinching Trump’s success. If so, “neoliberalism” gave us Trump, but not in the way that Klein and Monbiot suggest.

 

18 November 2016

Minor edits – 19, 25, 30 November, 15, 28 December 2016

 

My forthcoming book elaborates on some of the political issues raised in this blog:

Wrong Turnings: How the Left Got Lost

To be published by University of Chicago Press in November 2017

Bibliography

BBC News (2016) ‘Jeremy Corbyn outlines Labour’s vision of a “new economics”’, 21 May. http://www.bbc.com/news/uk-politics-36351149.

Chantrill, Chrisopher (2016a) ‘UK Public Revenue’. http://www.ukpublicrevenue.co.uk/uk_national_revenue_analysis

Chantrill, Chrisopher (2016b) ‘US Government Revenue’. http://www.usgovernmentrevenue.com/revenue_history

Elgot, Jessica (2016) ‘Corbyn backs reduction of NATO presence along Russia’s borders’, The Guardian, 13 November. https://www.theguardian.com/politics/2016/nov/13/jeremy-corbyn-hints-at-reducing-nato-presence-russia-putin?CMP=share_btn_tw.

Elliott, Larry (2016) ‘Trump’s economic view is far from neoliberal, but it rides a populist wave’, The Guardian, 31 July. https://www.theguardian.com/business/2016/jul/31/trumps-economic-view-is-far-from-neoliberal-but-it-rides-a-populist-wave.

Goodman, John B. and Loveman, Gary W. (1991) ‘Does privatization serve the public interest?’ Harvard Business Review, November-December. https://hbr.org/1991/11/does-privatization-serve-the-public-interest.

Hodgson, Geoffrey M. (2013) From Pleasure Machines to Moral Communities: An Evolutionary Economics without Homo Economicus (Chicago: University of Chicago Press).

Hodgson, Geoffrey M. (2015) Conceptualizing Capitalism: Institutions, Evolution, Future (Chicago: University of Chicago Press).

Hodgson, Geoffrey M. (2017) Wrong Turnings: How the Left Got Lost (Chicago: University of Chicago Press, forthcoming).

Johnson, Christopher (1991) The Economy under Mrs Thatcher (Harmondsworth: Penguin).

Klein, Naomi (2016) ‘It was the Democrat’s embrace of neoliberalism that won it for Trump’, The Guardian, 9 November. https://www.theguardian.com/commentisfree/2016/nov/09/rise-of-the-davos-class-sealed-americas-fate.

Monbiot, George (2003) ‘Rattling the Bars’, The Guardian, 18 November. See http://www.monbiot.com/2003/11/18/rattling-the-bars/.

Monbiot, George (2016a) ‘Neoliberalism – the ideology at the root of all our problems’, The Guardian, 15 April. https://www.theguardian.com/books/2016/apr/15/neoliberalism-ideology-problem-george-monbiot.

Monbiot, George (2016b) ‘Neoliberalism: the deep story that lies beneath Donald Trump’s triumph’, The Guardian, 14 November. https://www.theguardian.com/commentisfree/2016/nov/14/neoliberalsim-donald-trump-george-monbiot.

O’Hara, Glen (2016) ‘Stop saying that Trumpism is about economics’, 15 November. http://publicpolicypast.blogspot.co.za/2016/11/stop-saying-that-trumpism-is-about.html.

Pagano, Ugo (2014) ‘The Crisis of Intellectual Monopoly Capitalism’, Cambridge Journal of Economics, 38(6), November, pp. 1409-29. http://cje.oxfordjournals.org/content/early/2014/08/04/cje.beu025.

Sahadi, Jeanne (2010) ‘Taxes: What people forget about Reagan’, CNN Money, 12 September. http://money.cnn.com/2010/09/08/news/economy/reagan_years_taxes/.

Talbot, Colin (2016) ‘The myth of neoliberalism’, 31 August. https://colinrtalbot.wordpress.com/2016/08/31/the-myth-of-neoliberalism/.

Velasco, Andrès (2016) ‘The Real Roots of Populism’, Project Syndicate, 28 July. https://www.project-syndicate.org/commentary/real-roots-of-populism-by-andres-velasco-2016-07?backaction=

Venugopal, Rajesh (2015) ‘Neoliberalism as a Concept’, Economy and Society, 44(2), pp. 165-87. http://www.tandfonline.com/doi/abs/10.1080/03085147.2015.1013356.

 

Posted in Common ownership, Donald Trump, George Monbiot, Jeremy Corbyn, Karl Marx, Left politics, Liberalism, Markets, Naomi Klein, Nationalization, Populism, Private enterprise, Right politics, Tony Blair, Uncategorized

November 4th, 2016 by geoffhodgson1946

marx-mises

 

Geoffrey M. Hodgson

 

Property is a key concept. It is central to major ideological debates in politics and to much analysis in the social sciences.

Libertarians such as Nobel Laureate Milton Friedman, Nobel Laureate Friedrich Hayek and the leading Austrian economist Ludwig von Mises argued that the protection of private property is a vital condition for economic prosperity and individual liberty.

By contrast, socialists such as Robert Owen and Karl Marx called for the abolition of private property. They favoured the common ownership of the means of production, distribution and exchange.

But, despite their diametrically-opposed political views, key protagonists such as von Mises and Marx shared a similar, but deeply-flawed, understanding of the nature of property. Later economists have compounded this error, even in the so-called “economics of property rights”, as developed by Armen Alchian, Yoram Barzel and others.

This misunderstanding of the nature of property has major adverse consequences. Historical debates about the role of property rights in the development of capitalism have been impaired. Defective advice continues to be given to governments in developing countries, neglecting the way that property enmeshes with financial and state institutions.

Property as natural versus property as a historically-specific institution

Writers defending private property often argue that ownership is ubiquitous, not simply among early humans but also in other species. Animals compete, as either individuals or groups, over territory. Psychologists provide evidence of deeply rooted feelings concerning possession among human infants. So it is claimed that notions of property are enduring and hard-wired into the neuro-systems of humans and other animals.

children-fightingBut feelings of possession are not the same thing as rights to property. The psychologist Lawrence Kohlberg pioneered the study of how individual humans develop an understanding of justice and morality from birth to adulthood.

He and his colleagues demonstrated that it takes young humans a long time to distinguish between “I want X” or “X is mine”, on the one hand, and “I have a moral right to X”, on the other.

Similarly, the leading legal theorist Antony Honoré wrote in a classic article on ownership:

Antony Honoré

Antony Honoré

“To have worked out the notion of ‘having a right to’ as distinct from merely ‘having’ … was a major intellectual achievement. Without it society would have been impossible.”

Brute possession differs from moral or legitimate rights. But as Kohlberg lamented, some people grow up and never understand the difference.

If Marx or von Mises did grow up to learn the difference, then they made very little use of it in their writings.

Take von Mises first. He wanted to develop a theory of human action that would apply to the entire lifetime of our species. So, for example, von Mises’s concept of “exchange” is not limited to trade or contract over property, but applies to any form of human interaction, including the activities of Robinson Crusoe alone on his island.

Similarly, von Mises turned property into a concept that applies to all human history. When he considered property in his critical book on Socialism he put the brute fact of de facto control first:

“ownership is the having of the goods … This having may be called the natural or original ownership, as it is purely a physical relationship of man to the goods, independent of social relations between men or of a legal order.”

So does law have any place in our understanding of property? Von Mises continued:

“Economically … the natural having alone is relevant, and the economic significance of the legal should have lies only in the support it lends to the acquisition, the maintenance, and the regaining of the natural having.”

Hence, for von Mises, ownership was natural, asocial and ahistorical rather than legal or institutional. It was about “having” or possession. He downgraded the institutions required for the legitimation, protection and enforcement of the capacity to have, and neglected social aspects of ownership that may signal power or status.

Marx’s concept of property

Marx differed from von Mises, and not simply because he wanted to abolish private property. Marx also insisted that capitalist phenomena, including commodity exchange and markets, were historically specific and had not existed for all time.

But Marx’s concept of property was almost as broad as that of von Mises. Both concentrated on raw physical power over objects, rather than legal rights. Marx’s numerous discussions of “property” had little to say about legal rights, and he too conflated property with possession.

Karl Marx as a Young Man

Karl Marx as a Young Man

Hence Marx in 1844 addressed “private property” and argued that “an object is only ours when we have it – … when we directly possess, eat, drink, wear, inhabit it, etc., – in short, when we use it.”

The distinction between property and possession was central to Pierre Joseph Proudhon’s famous 1840 book What is Property? Marx stridently criticized Proudhon’s work. But he paid little heed to its central distinction between possession and property.

With both Marx and von Mises, effective power over something, took priority over any legal or moral right. Legal and moral aspects of property were overshadowed.

While von Mises emphasized ownership by individuals, Marx defined social classes in terms of “property relations”, referring to what class controlled, and what class did not control, the means of production. Where von Mises stressed individuals, Marx stressed social classes. But for both of them it was a matter of control or possession.

Marx also claimed that tribal and hunter-gatherer societies owned “property” in common. This was “primitive communism”.

Thorstein Veblen

Thorstein Veblen

In response, the American institutional economist Thorstein Veblen argued convincingly in an 1898 essay that ownership and property were later institutional developments: “no concept of ownership, either communal or individual, applies in the primitive community. The idea of communal ownership is of a relatively later growth.”

This rightly implies that property means more than mere possession. Property requires historically specific institutions that did not exist in tribal societies. Property requires law and a state.

While the distinction between possession and property is ignored by Marxists and most modern economists, it is of supreme analytical and practical significance. It is impossible to understand capitalism in terms of mere possession, without an adequate conception of property.

Property: taking the law into account

Both Marx and von Mises put law on the surface of a more fundamental reality beneath: law was part of the “superstructure”, as Marx put it. More fundamental for both of them were brute powers of possession or control. For Marx, law simply “mirrored” those basic powers. For von Mises, law was relevant only insofar as it strengthened that physical control. For both of them, everything concerning property boiled down to control.

But property is much more complex. In his classic article on ownership, Honoré identified several different aspects of property, derived principally from Roman law.

Different types of property right include the right to use a tangible or intangible asset (usus), the right to appropriate the returns from the asset (usus fructus), the right to change a good in substance or location (abusus), the right to the capital derived from the use of the good as collateral, the right to sell a good (alienation), and several other rights or limitations.

Note first that the legal right to control or use (usus) is only one of several legal types of right relating to property. By focusing on control, Marx and von Mises missed other important aspects of property.

Why is this important? Crucially for the functioning of capitalism, durable and alienable property can be used by its owner as collateral. Everyone who has a mortgage uses their property to obtain a loan. Entrepreneurs use their property to raise money to invest in their business.

Hernando de Soto

Hernando de Soto

Consequently, as Hernando De Soto has argued, the registration of much property – particularly land and buildings – with recorded means to identify both property and owners, are crucial institutional mechanisms for economic development: they enable the use of such property as collateral for loans.

But this is not straightforward, precisely because property requires a satisfactory legal system and an effective state administration.

Another problem with the views of Marx and von Mises on property is their implicit understanding of human motivation. Both neglect our propensities to obey the law – as long as we regard it as legitimate – even if it does no otherwise align with our other goals.

As Tom Tyler established in his important study of legal compliance, many people do simply obey the law because they fear the costs or dis-benefits of breaking it. Many people follow laws because they believe that they are legitimate: obeying them is the morally right and socially responsible thing to do.

Adam Smith

Adam Smith

Consequently, as Adam Smith pointed out long ago, the administration and perception of justice is vital for a properly-functioning market economy. Without a perception of legitimacy in the legal arrangements, the institutional order of commercial life would break down. This theme is present in both his Theory of Moral Sentiments and his Wealth of Nations.

In modern, complex societies, law helps to constitute many social structures and to configure relations of power. Law is not simply super-structural or reflective. Along with others, I have described this approach as legal institutionalism. It builds on the works of earlier writers, including the American institutional economist John R. Commons.

Property rights and Chinese economic development

Arguments emphasising the perceived legitimacy of the legal system have implications for establishing the rule of (state) law, and particularly for installing just and secure property rights to help promote economic development.

China is an important test case for these arguments. China began its market reforms in 1978 and grew rapidly thereafter. But its systems of property, commercial and corporate law are still relatively underdeveloped compared to Europe or North America.

This fact, alongside its highly impressive economic growth since 1978, has led some prominent economists – including Nobel Laureate Joseph Stiglitz – to conclude that legally-enforced property rights are of lesser significance.

20130331TigerLeapingGorge2But, despite superficial appearances to the contrary, there is evidence that legal systems and legal property rights matter. China’s explosive growth started when land-use (usus fructus) rights were widely conceded to the peasants after 1978. Local power from below tentatively established de facto powers, which spread widely and became de jure when they were legally ratified by the state.

But this does not mean that the legal ratification of land-use rights was unimportant. This endorsement, along with the institutional arrangements established from below, was vital to safeguard these rights. In addition, it was part of the development of a legal system which was necessary for any modern private enterprise economy.

Legalities matter, and evidence suggests that they matter still more as capitalism develops. There is strong evidence that economic growth is correlated with the rule of law, among other factors. As Francis Fukuyama put it: “The absence of the rule of law is indeed one of the principal reasons why poor countries can’t achieve high rates of growth.”

If China is to grow still further – into the ranks of middle-income countries – then it must pay attention to the reform and development of its legal system.

The exclusive focus on control overlooks the use of property as collateral for loans. The possibility of collateralization – which relies on legal and financial institutions – cannot be derived from possession alone. Further property rights involve institutions – relations between individuals as well as relations between individuals and things. They involve the state and law – not simply relations of control between social classes.

1688 and all that

These points are significant for an important ongoing debate on the causes of the rise of capitalism in Britain in the eighteenth century.

William of Orange 1688

William of Orange 1688

In a famous 1989 paper, Nobel Laureate Douglass North and Barry Weingast argued that the key event was the Glorious Revolution of 1688, when William of Orange invaded and became king in the place of James II.

North and Weingast argued that the consequent settlement between king and parliament made property more secure and prompted the development of commerce, leading to the start of the Industrial Revolution in roughly about 1760.

The first major problem with this argument is that property rights in land in England were relatively secure from the thirteenth century. There was no major change in these circumstances in the years immediately following 1688. The foremost problem was not the security of this property but the feudal nature of property rights in land, which severely restricted its possible sale and use as collateral.

Douglass C. North

Douglass C. North

A second major problem is that over seventy years elapsed from 1688 to the beginning of the Industrial Revolution. If institutional changes relating to property after 1688 were so important, then why did they take so long to take effect? Economic growth in the 25 years after 1688 was no greater than in the preceding 25 years. Why was the take-off delayed for so long?

In my paper “1688 and all that” I offer a solution to this problem, based on a richer concept of property. The immediate effect of 1688 was to change England’s European alliances and to plunge the country into a series of wide-ranging wars, particularly against France and Spain.

The 1689 accord between King and Parliament made possible major changes in state administration and financial institutions, so that money could be raised to fund these wars. Guided by a more powerful Parliament, this new financial system stimulated reforms to landed property rights, the growth of collateralizable property and saleable debt, and thus enabled the Industrial Revolution.

Data on reforms of property rights show that key changes accelerated in the 1750s, making more land usable as collateral, which could be used to finance industrial ventures. Institutional changes immediately following 1688 were less to do with property: instead there is clear evidence of an immediate growth in state administration and increasing tax revenues to finance wars. This process included the formation of the Bank of England in 1694 and the growth of financial markets. Statutory legislation in 1704 helped the development of markets for debt.

Conclusion: a different perspective

This analysis suggests that the building of a state administration, which can sustain a modern monetary system and secure the use of private property as collateral, is an important precondition of rapid economic growth. Hence a stress on the “security of property rights” would be insufficient in developing countries. For more effective policies for economic development, the nature of property, and its connection with finance and politics, have to be better understood.

Neither Marx nor von Mises were particularly helpful in this regard.

Why did von Mises downplay the role of the state in his conception of property? He did so because he believed that markets and contractual exchange could function with little or no help from the state.

Why did Marx downplay the role of the state in his conception of property? He did so because he understood the state as the means by which one dominant social class exercises power over another. Marx, like von Mises, did not appreciate that under capitalism state law is necessary to constitute basic institutions such as property and contract.

Von Mises wanted a market economy with a minimal state. Marx thought that after the proletariat gained power and socialism was established, then the state would eventually “wither away”. Despite their other big differences, in theory and practice, they both thought that a large-scale complex economy could function with a minimal state. To understand property as a core institution of capitalism we need to transcend both of them.

PrintThe alternative perspective outlined here opens up new vistas for research, which are empirical as well as theoretical.

With an improved understanding of the nature of property, we need to analyse data on its functioning in the developing world. In economic history we need more empirical studies of the role of lending, collateral and finance, in the growth of business and innovation.

Researchers should arise from slumbering in the Marx-Mises bed and set to work.

Political debates are still stuck in the familiar grooves of individualistic libertarianism versus a socialist rhetoric of collective control. They both share a flawed understanding of property.

Against individualistic libertarianism it must be stressed that property is partly constituted by law and the state. Against classical socialism it must be stressed that collective democratic control of everything is not viable in a modern, complex, large-scale economy.

That is why we need to understand and protect individual rights, including the right to property. These rights allow genuine devolution and autonomy in a mixed economy.

 

4 November 2016

Minor edits – 5-7 November, 7 December 2016

 

This book by G. M. Hodgson elaborates on some of the political issues raised in this blog:

Wrong Turnings: How the Left Got Lost

Published by University of Chicago Press in January 2018

 

Bibliography

Commons, John R. (1924) Legal Foundations of Capitalism (New York: Macmillan).

De Soto, Hernando (2000) The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else (New York: Basic Books).

Deakin, Simon, Gindis, David, Hodgson, Geoffrey M., Huang, Kainan and Pistor, Katharina (forthcoming) ‘Legal Institutionalism: Capitalism and the Constitutive Role of Law’, Journal of Comparative Economics, print forthcoming, published online.

Fukuyama, Francis (2011) The Origins of Political Order: From Prehuman Times to the French Revolution (London and New York: Profile Books and Farrar, Straus and Giroux).

Heinsohn, Gunnar and Steiger, Otto (2013) Ownership Economics: On the Foundations of Interest, Money, Markets, Business Cycles and Economic Development (London and New York: Routledge).

Hodgson, Geoffrey M. (2015) Conceptualizing Capitalism: Institutions, Evolution, Future (Chicago: University of Chicago Press).

Hodgson, Geoffrey M. (2015) ‘Much of the “Economics of Property Rights” Devalues Property and Legal Rights’, Journal of Institutional Economics, 11(4), December, pp. 683-709.

Hodgson, Geoffrey M. (2017) ‘1688 and All That: Property Rights, the Glorious Revoution and the Rise of British Capitalism’, Journal of Institutional Economics, 13(1), March, print forthcoming, available free (open access) online.

Hodgson, Geoffrey M. (2017) Wrong Turnings: How the Left Got Lost (Chicago: University of Chicago Press).

Honoré, Antony M. (1961) ‘Ownership’, in Guest, Anthony G. (ed.) (1961) Oxford Essays in Jurisprudence (Oxford: Oxford University Press), pp. 107-47. Reprinted in the Journal of Institutional Economics, 9(2), June 2013, pp. 227-55.

Kohlberg, Lawrence (1969) ‘Stage and Sequence – the Cognitive-Developmental Approach to Socialization’, in D. A. Goslin (ed.) (1969) Handbook of Socialization Theory and Research (Chicago: Rand McNally).

Marx, Karl (1975) Early Writings (Harmondsworth: Penguin).

Mises, Ludwig von (1981) Socialism: An Economic and Sociological Analysis, translated from the second (1932) German edition of von Mises’s Die Gemeinwirtschaft (Indianapolis: Liberty Classics).

Mises, Ludwig von (1949) Human Action: A Treatise on Economics (London and New Haven: William Hodge and Yale University Press).

North, Douglass C. and Weingast, Barry R. (1989) ‘Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England’, Journal of Economic History, 49(4), December, pp. 803-32.

Proudhon, Pierre Joseph. (1890) What is Property? An Inquiry into the Principle of Right and Government, translated from the French edition of 1840 (New York: Humbold).

Smith, Adam (1759) The Theory of Moral Sentiments; or, An Essay Towards an Analysis of the Principles by which Men Naturally Judge Concerning the Conduct and Character, First of their Neighbours, and Afterwards of Themselves (London and Edinburgh: Millar, and Kincaid and Bell).

Smith, Adam (1776) An Inquiry into the Nature and Causes of the Wealth of Nations, 2 vols, (London: Strahan and Cadell).

Stiglitz, Joseph E. (1994) Whither Socialism? (Cambridge, MA: MIT Press).

Tyler, Tom R. (1990) Why People Obey the Law (New Haven: Yale University Press).

Veblen, Thorstein B. (1898) ‘The Beginnings of Ownership’, American Journal of Sociology, 4(3), November, pp. 352-65.

 

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