Yves here. Remember Lambert’s succinct summary of neoliberal principles:
#1 Because markets
#2 Go die!
Increasingly, citizens are waking up to this reality and pushing back against the dominance of Mr. Market and his official representatives.
In a comprehensive critique of the media, Richard Murphy highlights the possibility of resisting the overwhelming influence of capital. While this may seem like a long shot, it echoes the central theme of Karl Polyani’s seminal work, The Great Transformation, which argues that the operation of commerce and markets can be detrimental to the social fabric, often prompting resistance that disrupts the status quo.
By Richard Murphy, Emeritus Professor of Accounting Practice at Sheffield University Management School and director of Tax Research LLP. Originally published at Funding the Future
As noted by the FT in a recent editorial, the French government faces significant challenges in addressing the escalating protests among high school students, warning that these may evolve into larger unrest:
One reason the [French] government has struggled to defuse the high school protests, which now threaten to swell into something more generalized, is they have no money to throw at the problem — the traditional response to social grievances.
Macron found some €11bn in giveaways to defuse the Yellow Vests protests of 2018-19. This time the coffers are truly empty. Bond markets are piling pressure on Paris as investors fret about the lack of an agreed path to debt stabilization. The government intends to make €43bn in spending cuts and tax rises in next year’s budget. Any attempt to spend its way out of trouble could rebound with a renewed debt sell-off and higher borrowing costs.
The prevailing narrative surrounding the crisis in France suggests that the populace desires government services and intervention that conflict with the demands of financial markets. As a result, these markets are withdrawing their support, forcing the government into the austerity measures that finance demands.
This conflict, as articulated by many analysts, is straightforward: it pits the interests of financial capital against those of the general populace. It can be simply termed class warfare, despite the reluctance of outlets like the FT to frame it as such, aiming to avoid the label of oppressor while clearly embodying that role.
This raises the question: what is the timeline and narrative behind the unfolding conflict we are witnessing? I propose, and may refine this view later, that the story is as follows:
In 1947, Friedrich Hayek and Milton Friedman were alarmed by the ascendancy of social democracy and the threat it posed to capital returns and the social order they wished to preserve from the pre-war years. To counter this, they established the Mont Pelerin Society to promote neoliberalism.
From the 1950s onward, the society garnered significant backing, leading to the establishment of the Atlas Network of interconnected think tanks dedicated to its mission. In the UK, the Institute of Economic Affairs has been at the forefront of this push and continues to be influential.
Notable figures like Milton Friedman and James Buchanan even received Nobel Prizes, lending legitimacy to this agenda.
Margaret Thatcher and Ronald Reagan became the leading political figures championing neoliberalism, securing their respective positions in 1979 and 1980. Their objective was transparent: they aimed to dismantle working-class power, as manifested through the trade union movement, even if it meant sacrificing the manufacturing capabilities of their nations. Their priority was to boost capital returns, achieved through deregulation that empowered financial capital to flourish without restrictions, often at the expense of others’ labor.
This unchecked emphasis on market supremacy fostered the belief that markets always reflect true value, conveniently ignoring externalities like pollution that contribute to climate change and the fundamental inequality that exists in market participation, contrary to the assumptions of neoliberal theory. This theory inherently ignored issues of mispricing and inequality.
The mantra urging governments to step back from economic intervention became entrenched, significantly promoted by the Washington Consensus advanced by institutions like the World Bank and the International Monetary Fund, which propagated this philosophy globally.
This insistence typically led to calls for privatization, reduced regulations, lower taxes—particularly for the wealthy—and a smaller state overall, achieved through cuts to the social safety nets established in the post-war era aimed at reducing inequality, protecting the vulnerable, and mitigating market instabilities.
The focus on short-term financial returns diminished incentives for long-term investments. Priorities shifted to immediate speculative gains, overshadowing the production of essential goods and services that fulfill societal needs.
This trend resulted in a decline in tangible investment across numerous nations.
Simultaneously, a growing disconnect emerged between savings and investments, where funds were increasingly allocated to speculative ventures, barely related to generating real economic value that meets the needs of the populace. As a result, the wealth generated by the finance sector rarely translated into the creation of economic activity that benefits the broader society.
This has culminated in a situation where vast amounts of so-called financial wealth are concentrated in the hands of a diminishing number of aging individuals, with access to such wealth often limited to heirs, while the properties underpinning these claims—including housing—have skyrocketed in price due to speculation, leaving many working individuals unable to afford them.
We have now reached a critical juncture where the social divide exacerbated by neoliberal policies is becoming too stark to ignore, and the resulting rifts are too deep to conceal.
At the same time, ongoing demands from seemingly rational financial markets for returns from economies they do not support but aim to control have made these inequalities glaringly evident, prompting many to reject the current system.
This is the moment we find ourselves in today. The tensions we are experiencing are a direct result of the divisions intentionally cultivated by neoliberal economic and political policies that have aimed to separate those with access to capital from those without, leading to a simultaneous division between those with economic security and those vulnerable to precarity, as described by Guy Standing.
The precariat are now at their breaking point. Signs of unrest are apparent in France, Italy, Spain, Albania, and beyond, and this unrest is poised to spread.
What is the necessary response?
One path involves courageous governments standing firm against market demands. In the UK, this test is imminent, particularly concerning Thames Water and whether the government or financiers will dictate access to water for millions, including London’s population. Globally, the challenge persists: the conflict is between financial markets and the actual needs of people. Ultimately, these needs must prevail, and the public will reject any alternative.
Concurrently, there is an urgent need to redirect capital towards creating sustainable wealth. As the foundations of neoliberalism begin to falter—inevitably exacerbated by an impending AI crisis—concerns will arise over the ramifications for secondary financial markets, including hedge funds and private equity, which could lead to yet another banking crisis due to reckless lending practices and the inevitable requirement for government bailouts. At this juncture, the critical question will center around what new framework can replace this deeply flawed political ideology.
The answer lies in two key areas. First, awakening to the state’s potential to create money to meet societal needs will reshape its role. This recognition can liberate governance from financial market constraints.
Additionally, establishing innovative forms of socially backed capital for societal infrastructure projects could create fulfilling work and lay the groundwork for a prosperous future. Redirecting savings from financial speculation to infrastructure investment will foster sustainable living and fulfill the needs of all individuals, enabling them to thrive. Simple adjustments to tax relief on savings can facilitate this necessary shift.
We are at a decisive moment. Neoliberalism is unraveling, but an alternative exists. By gaining a genuine understanding of money, the government’s role, the actual management of inflation, and how to effectively reconcile savings with investments to generate positive social and economic outcomes, we can reconstruct society from the ruins of neoliberalism into a framework that prioritizes well-being.
This timeline encapsulates my belief in a potential future, emphasizing the possibilities that lie ahead.
