In his much discussed, though little praised, essay in The Monthly Kevin Rudd attributes the global financial crisis to what he calls ‘neo-liberalism’, aka ‘free-market fundamentalism’, ‘extreme capitalism’, ‘economic liberalism’, ‘economic fundamentalism’, ‘Thatcherism’, and the ‘Washington Consensus’ (the PM’s political thesaurus was getting a good workout).
But how useful are ideologies in anlaysing politics? There are certainly rival explanatory theories. In journalism, as commenter Alan C complains, the focus tends to be on personalities and personal ambitions, downplaying other forces that are not so easily reduced to an easy-to-understand story. Yet if the media overplays personality as a force, it surely cannot be discounted entirely. Particular individuals do make things turn out differently, holding all other factors constant.
On both right and left, we see theories that put interests at the core of politics. Public choice theory on the right models political actors as self-interested; on this account (for example) public school teachers are not defenders of better education, but are instead just an interest group seeking higher salaries and easier working conditions.
On the left, the the substance of and differences between right-wing beliefs are deemed entirely or largely irrelevant, because these groups are seen just as defenders of corporate or other private interests. This is why Naomi Klein, for instance, can blur together neoliberalism, neoconservatism and corporatism. Norman Abjorensen is aware that liberals and conservatives differ, but on his account only on the means to their common end of the ‘protection of property interests’. Ideology is just empty rhetoric designed to make interest politics respectable.
Like personalities, interests should not be discounted as a force in politics. But there is too much in politics that cannot easily be explained by interests – or at least not without stretching that concept way beyond its material/financial meaning in Klein/Abjorensen type analysis. I have argued before that self-interest under-explains public opinion. And the ‘neoliberal’ think-tanks that are accused of being fronts for corporate interests do a lot of work that has no obvious relationship to corporate interests. While left-wing conspiracy theorists could argue that the motive for this work is to create a cover for the real task of defending privilege, this can’t account for the impact of whatever influence this work has on other people.
In analysing politics, we need to take into account people’s beliefs and stated views as well as their interests. But beliefs are not the same as ideologies; while almost everyone has beliefs that relate to politics, relatively few have beliefs that cohere in ways that neatly match the major ideologies. In the case of ‘neoliberalism’, almost nobody holds some of the the views commonly attributed to it. Advocates of neoliberalism have not sought to ‘dismantle all aspects of the social-democratic state’, for example. Hayek, one of only three actual people cited by Rudd as ‘neoliberals’, accepted the need for a social security system. The one significant figure who did call for the welfare state’s abolition, Charles Murray, eventually gave up and proposed a minimum income instead. Yet people that Rudd would describe as ‘neoliberals’ (nobody calls themselves by this term) do support market steering of investment, the major subject of his essay.
This means that even if we accept some theory of broad ideological trends, these trends have much more impact in some areas than others. Market ideas have had significant influence in industries which were largely commercially traded in any case, through removing barriers to competition and product innovation and through privatisation. But market ideas have had at best modest influence in service industries that are heavily subsidised by government. Government as a whole has continued to grow steadily, both in expenditure and regulatory reach.
In using ideology to analyse policy, there is also the problem that some policies only look like they come from a particular ideology. For example, while school choice is consistent with views attributed to ‘neoliberalism’, school choice ideas and policies in fact long predate ‘neoliberalism’. And while the central controls in higher education look like they come from a central planning ideology, I have never seen more than fragmentary and under-developed arguments for aspects of the current system, never a defence of the whole. It is just the cumulation of ad hoc decisions over many years.
Ideology is only ever likely to be part of any policy story, so an ideological blow will not necessarily change the policy dynamic in the way that some might expect. The final discrediting of socialism in the late 1980s did not wipe out socialist-looking central planning in many Western countries. And while in financial services we will see more regulation in the future than in the recent past, Rudd’s Monthly essay is itself stressing the need not to ‘throw the baby out with the bathwater’. Far from calling into question ‘neoliberal economic orthodoxy’ like reducing protection, Rudd wants to ensure protectionism does not come back (apart from ideology, it is not in Australia’s interests). He expects governments to pull back from direct involvement in owning or operating banks; so a return to the recent ‘neoliberal’ past rather than the further past interventionist era when governments owned commercial banks.
In the end, Rudd’s statement of the social democratic direction in which we are heading – ‘robust’ support for the market in a mixed economy with a role for the state as a regulator and provider of public goods – sounds exactly like the actually dominant view of the last 20 years.
Andrew Norton 
Andrew:
Good analysis of tactics used in Rudd’s essay, the catchphrases for headlines so the desired impression is maintained.
It’s not that much different from the lefty critique of Howard’s speeches when JWH talked of the “fair go”.
Mind you, because of the difference between policy analysis and political analysis, I’d change your post title, throwing out “political” and replacing it with “policy”, because the politics has changed, but the policies remain pretty much the same – as you said
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“liberals and conservatives differ”. Ya with true liberals being pretty much politically homeless, with Keating being the best liberal prime minister the country has seen for a long while.
And as to Rudd’s essay, not a bad effort or a political leader, he is bright enough to rub two words together, a very good beginning, no matter if you agree with him or not.
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Charles:
With due respect but you’re over the shop.
What a complete cop out. Keating did a few good things as treasurer however he was turfed out by the electorate when people realized that other than abuse dished out he was a empty suit as a PM.
How on earth can you give Keating browney points (by your own standards) calling him a good liberal PM and then praise Rudd’s appalling essay- an essay that is so incoherent that would cause people to Roll of the floor laughing.
Rudd referred to himself as an economic conservative 15 months ago. Now he trashed that and become a social democrat. He is probably the least anchored PM in our history.
This is what i think is happening to you Charles. for some reason you have become disaffected with the right and now seem upset that the Libs aren’t in your new ideological camp. I’m not being critical of your beliefs by the way.
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In the end, Rudd’s statement of the social democratic direction in which we are heading – ‘robust’ support for the market in a mixed economy with a role for the state as a regulator and provider of public goods – sounds exactly like the actually dominant view of the last 20 years.
I would argue that market based solutions ended with the end of the Reagan and Thatcher era almost to the date. From that point on market ideas have been pretty much in retreat around the world despite the rhetoric. Every conservative leader since that time has been a big government type and we’ve allowed a sort of creeping Keynesianism in policy direction.
The failure we have seen in the markets has not been a failure of free markets. Australian and New Zealand banks operated in an environment with far less regulatory overhang and didn’t really require a bailout in the same ISUS banks did that despite the rhetoric operated in the most regulated market in the world. Same with UK banks to a certain degree.
Hedge funds haven’t required bailouts despite more than a few failing.
The over zealousness we’re seeing now is an attempt to prevent a recession at all costs and yet recessions are the regular pattern of a business cycle. This is deeper in certain regions, which of course is a consequence of lax monetary policy. Unless I’m mistaken monetary policy is a function through the central banks.
The idea that the free market failed us in this instance is absolutely ludicrous.
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Nice post, Andrew. Trying to understanding the last twenty years of policy-making through the prism of neoliberalism does not get one far. Politicians often cloak their policies in ideological rhetoric to appeal to the true believers, but at the coal face policy is made by weighing up pros and cons, even if some parties or analysts have a greater predisposition to intervention over markets, or vice versa, than others.
Alas, however, even Australia’s top economist has jumped on this bandwagon, or at least been less than cautious in discussing recent economic history, preferring the Puseyesque grand narrative over the more careful analysis of how policy is actually formulated. Straw economic men are being slayed left, right and centre – though mainly by the left – over at Quiggin’s blog at present.
As for social democracy (whatever that is) displacing neoliberalism (whatever that is), as you rightly point out – and as both Keating and Costello correctly pointed out on Lateline last week – there is no push by Rudd as a result of the global financial crisis to abandon trade liberalisation or a host of other market-based reforms undertaken over recent decades. So, is trade liberalisation a part of neoliberalism, or a part of social democracy? The question, of course, points to the emptiness of the labels.
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jc the world is gray, not black and white.
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Rudd sets up his straw man and skewers it.
Tony Abbott has a good piece in the Australian about the article.
The premise of the post is right. Idealogy is not very useful in political analysis except perhaps when looking at rigid, extremist
governments like Communist ones.
Calling Howard a neo-liberal is silly. Howard was very much into hand outs to buy votes. Indeed, an interesting question is the hypothetical of what a re-elected Liberal government would have done in Rudd’s situation. They too would be petrified of the electorate blaming them for the recession. It’s easy to criticise vote buying from the other side, much harder when it’s your own.
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JC entirely wrong again.
Let us see Keating deregulated thew labour market, introduced competition policy as PM ( something Howard actually campaigned against in the Regions and did very little on for some time as PM.)
WE really haven’t had a Keynesian PM. Rudd should have done a lot more in his first budget to create a structural surplus if he was. He merely reduced it to manageable levels.
HE is a economic conservative now. Note how his stimulus is finite and not binding on future budgets. This is in complete contrast to Howard to continually boosted the structural deficit and left it at 1% of GDP.
Rudd’s rubbish on Hayek is merely trying to tie up Turnbull with the same highly successful but false strategy he did on Howard.
Fancy Howard the ultimate do anything it takes to stay in power, a big government man and the most centralist PM we have seen been portrayed as a Hayekian.
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Homer I wouldn’t know where to begin with dissecting what you said.
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When events went against the left from the 1980s onwards there was a common tendency on the left to downplay the significance of events: public opinion was still interventionist, govt expenditure remained high etc. But ‘neo-liberalism’ did change politics. Now we see the contemporary right following in the footsteps of the 1980s left: the argument is that nothing has changed.
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Geoff – I have argued for years that the small-government push, on the most optimistic interpretation, slowed the growth of government. My big government conservatism piece 2 years ago suggested that this had an ideological element on the right, as well as the other factors that explain this.
Chris Berg from the IPA among others has pointed to the rapid growth of regulation through supposedly ‘neoliberal’ times.
This crisis will affect regulation in financial services, though at least in the medium term it is likely that the industry’s own self correction will exceed any regulatory obligation that is likely to occur.
But given little policy is purely due to ideology, and the fact that discrediting beliefs that nobody holds anyway matters little, the real-world effects may not be that great.
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Neoliberal is perhaps the most unfortunate label foisted on political or policy analysis. That it was originally coined by people hostile to economic liberalisation, and used to emphasize their disagreement with the same, was not a good start. Much of the motive seems to have been a sort of sympathetic magic–if we label as if it is a passing fad, it will be.
If one looks at policies as solutions to problems, the patterns become clearer. (One of the problems with public choice theory is concern for the general utility of policy is rarely zero.)
The retreat from the high point of socialist confidence has a series of steps
(1) accept political liberalism (i.e. parliamentarianism and electoral politics)
(2) abandon further nationalisation
(3) wind back nationalisation (privatisation)
(4) pay attention to the efficiency effects of regulation (de-regulation)
(5) pay affects to the incentive effects of welfare (retreat from “passive” welfare).
At no point has anyone serious abandoned the welfare state: it has been all about fine-tuning and ensuring it is sustainable.
The neoliberal label is particularly unfortunate because it cuts off events from longer-term history. Indeed, part of the purpose was to imply it had no “real” history.
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