Will Davies is a Senior Lecturer in Politics at Goldsmiths, University of London and blogs at www.potlatch.org.uk. His book, The Limits of Neoliberalism: Authority, Sovereignty and the Logic of Competition, published this year, explores how economic measurements and expertise have been used to re-model society and the state along competitive lines, and argues that the neoliberal conflation of economics and politics has ultimately undermined the legitimacy of sovereign power. In the second of a two part interview, he discusses the innovations of the Chicago School and how we might begin to move beyond neoliberalism.
Your central argument in the book is that neoliberalism has brought about a disenchantment with politics by economics. The Chicago School was responsible for a key innovation in this regard. Could you describe the important transition that takes place from Ordoliberalism to the Chicago School?
Sure. There was a body of scholars during the 1930s, mainly lawyers and philosophers and some economists, but not many, who were based in Freiburg and were called the Ordoliberals. They were led by a man called Walter Eucken and they had some sympathetic associates dotted around the world, including Hayek in London and Henry Simons in Chicago. And their view was that the way to rescue the free market system from the threat of socialism and Keynesianism, and things like the New Deal in the United States, was to use the law to enshrine the free market as a constitutional and legal principle. And that meant that effectively the price system became almost a matter of moral and legal philosophy. What they believed in was the ideal of a competitive free market system, much as you read in economics text books; that fantastical view of free markets where prices and competition determine everything. And they believed it was the job of law to convert that abstract idea of a free market into a reality. For the Ordoliberals competition was absolutely key and that meant that their view of what a free society would look like meant that nobody, neither states nor any private economic actors, could shape economic outcomes. Everybody could have their plans for the future, their policies, their investment strategies, and so on. But ultimately the future was marred in uncertainty – and this was a good thing. And they believed that law should be used to keep everybody in this state of constant competitive uncertainty so nobody could have any ultimate control over how economic activities developed. And this was a view which was incredibly persuasive amongst the first generation of the Chicago School, people like Jacob Viner and Henry Simons, and it also had a hold over Milton Friedman, who would later become the most famous member of the Chicago School and believed something like this up to the 1960s.
Then you get a shift in the Chicago School’s understanding of competition which begins in the 1950s with another member of the Chicago School, Aaron Director. And it goes on mostly in the law school, not in the economics department. What changes is that they start to doubt the capacity of the state, or of lawyers working for the state, to be able to specify what appropriate competition should look like. They recognise that what the Ordoliberals are arguing for is ultimately a normative claim about how markets ought to look, and what the Chicago School start to argue is that there is no way which markets ought to look. Rather if you believe in competition you should stand back and let competitive actors pursue their various strategies, and provided what they are doing is efficient – that is they seem to be increasing output, or reducing prices, or meeting some other measure of efficiency – then it should be treated as legitimate. The rationale is: who is the state to say a company shouldn’t be doing something? The state doesn’t have the authority. The state can’t just say to Apple, ‘I’m sorry, all these consumers and shareholders might absolutely love you, but we think you’re too big because you’ve got too profitable from selling too many iPads and iPhones.’ The Chicago School’s argument is: if Apple is so big then surely it is a good thing; it is a sign that the market is working correctly.
So there is a shift from a normative, constitutional vision of competition, held by the Ordoliberals, where everyone is in competition all the time and no one is allowed to get too big, to a Chicago view of the world, which is more of a kind of Benthamite utilitarian view. Their view is whatever seems to produce the best measurable outcomes is best, regardless of how it comes about, or who does it. Ultimately what this amounts to is a justification for monopoly capital. I don’t particularly talk about it like this in the book, but ultimately that is what it comes down to. Whereas regulators in the 1950s in the United States and Europe saw it as their job to keep a limit on the amount of power held by any particular player in the market by breaking up monopolies and so on, by the 1980s they see it as their job, not to help people be big and prosperous, but to monitor what’s going on and to make sure that if anyone is behaving in a domineering fashion they are doing it in a way which is efficient and is producing some kind of measurable economic benefit for someone. And it’s often unclear who that someone is. One of the things that Colin Crouch argues in his book, The Strange Non-Death of Neoliberalism, is that often these regulators claim to be acting on behalf of consumers, but that often magically aligns with the interests of shareholders. So the definition of efficiency becomes very, very murky. But once the state’s job is measuring outcomes and measuring efficiency, the legitimacy of the state looks very different from if its job is seen in a much more normative, legal-constitutional way of imposing a particular market order.
And one of the key things you describe in the book is the spread of this economic rationality into law. Presumably this makes it very difficult for people who want to challenge neoliberalism because it is not just the market but the whole social system that has been infused with this logic, making it very difficult to develop alternative institutions and ways of organising.
Yes. The key Chicago tradition which I look at in the book is the law and economics tradition, which I was alluding to just now. Ronald Coase is a key figure and Richard Posner is the most famous exponent. What the law and economics tradition does is to apply neoclassical economic analysis to institutions such as contracts, law, regulation, and almost any form of state power really. They evaluate sovereign instruments and bodies from a utilitarian perspective. Posner says that Bentham is the great hero in all of this because it was Bentham who first argues that the state’s purpose is to maximise some measurable empirical entity, which for him was utility.
What the Chicago School did that was so clever was they disseminated this sort of thinking not amongst economists so much, but amongst lawyers and judges in the United States. And by the 1990s it began to permeate the European Commission and the European courts. This was a dismantling of alternative, normative, understandings of what law is. They argued that the only way that law makes any sense is if it is applied in ways which has resort to evidence; and the kind of evidence that matters as far as they are concerned is that produced by neoclassical economics. Gary Backer famously argues, for example, that there is an optimal amount of crime in a society and whilst you could reduce all muggings to zero, it would cost so much in policing and so on that it probably wouldn’t be worth it, and it would be better for people to take out possessions insurance, for example. So he doesn’t make any argument about the rights of the criminal or the victim, or the limits of a liberal state. He doesn’t make any normative arguments about what kind of society we would like to live in. All he’s arguing is that we want to live in a society that is run efficiently, and that society probably has a little bit of crime.
So to get back to your question, yes, there is an emptying out of the capacity of judges, lawyers and regulators to mobilise arguments on the grounds of principle. And this is deeply problematic because right now we live in a situation where most people would like to reduce the powers of banks and the main way in which that could be done is through regulation. But the problem is that the banks are now involved in activities which are so complex and require such expertise, that they can always turn around to the regulator and say: you don’t know or understand what we are doing as well as we do and if you were to intervene that would have a drastic impact on certain economic indicators – growth or whatever. And the regulator has no counter-argument to that. What’s interesting about neoliberalism, I think, which has brought us to a state of crisis which we seem unable to get out of, is that it has gutted the very bodies which might traditionally have had the authority to restore certain areas of our economy to a state of legitimacy. It has made it impossible for anyone to come along and claim that certain practices are simply illegitimate, because the only argument about legitimacy with any force is one based on economic evidence. Neoliberalism has gutted the capacity for any higher legitimacy; ironically the very kind of legitimacy that might have got neoliberalism back on the road again.
The question then is: what do people who are looking to build an alternative future in the wake of the crisis do? Because what you’ve described creates a legitimacy crisis for neoliberalism, but it also creates a legitimacy crisis for political challenges to neoliberalism.
I think there are two different types of strategy here, and I think they are both necessary. One is that we try and disentangle our political language from our economic language. By saying ‘language’ I don’t mean to sound post-structuralist, as if everything’s about language. But I think what we need to do is to be able to make claims about society, about the public and about justice in ways that aren’t reducible to economic measures – which is how policy elites think of the world. I think it’s crucially important that we get back to arguments about the notion of justice; that’s absolutely fundamental. You can see that in the Occupy Movement, in things like UK Uncut, and to some extent amongst politicians too. The language of fairness, which is really a Rawlsian language of justice, has shot right up the political lexicon since 2008, although obviously with a lot of bogus usage. So there’s disentangling to be done and a question of how we articulate certain principles about the rights of people and the nature of human needs, and so on – that’s about rediscovering a normative language.
In the book, though, I’m more interested in a second strategy, which is about not necessarily going with the grain of neoliberalism, but learning from aspects of its success. I think one way of advancing normative arguments today is to take certain categories which are very important to neoliberalism, like entrepreneurship and property, and to start to explore ways of broadening their political and normative possibilities in the way that some of the liberal republican traditions have done in the past. Rather than seeing morality and economy as separate, which is what a lot of normative critique does, we might instead view the two as entangled, but try and experiment with new types of contract, new types of property, new types of cooperation. Look at someone like Lawrence Lessig and the Creative Commons movement, this is a case of a politically minded lawyer attempting to rewrite the a priori form that copyright law takes. In a way that’s not that dissimilar to what the Ordoliberals were doing in the 1930s. We need more of that kind of thing.
I also think that entrepreneurship is potentially a very disruptive force and in the book I argue that the reason neoliberalism celebrates entrepreneurialism as much as it does is to neutralise its political possibilities. Entrepreneurialism is disruptive, it brings something new into being. But one of the things which neoliberalism has always done is to divert its energies. Although this notion of social entrepreneurship seems quite tame in a way – things like the sharing economy and so on don’t seem to ever challenge power. But I think if you can push the notion of social entrepreneurship just a little bit further you might start to take it into some quite interesting areas. If social entrepreneurs weren’t just changing consumption and distribution patterns, but were changing what it meant to own or build a firm, or to own or build houses, or to hold contracts with each other, then suddenly the latent political potential of social entrepreneurship would become a lot more visible. So to end on an arguably pessimistic note, I think we have to accept that some of our sources of hope are not going to be untouched by neoliberalism. We have to accept that some are already entangled in those areas of capitalism that we also want to criticise.
This is the second part of a two part interview. You can read the first part here. To purchase The Limits of Neoliberalism for the reduced price of £29.75, visit Sage and use discount code UK14SM08.
Tom Mills is a researcher and PhD candidate at the University of Bath and a co-editor of New Left Project.