The revolution will not be theorized: Neoliberal thought and the problem of transition

Abstract

Neoliberalism is a notoriously contested term, and even among those who principally subscribe to it, which is mostly its critics, fierce debates persist over its nature, how to study it properly—and whether it is still the appropriate conceptual armament to understand the contemporary world and an arguably emerging “post-neoliberalism” (Davies & Gane, 2021). Not only is it controversial how neoliberalism should be defined—a governing rationality in the spirit of Foucault's governmentality lectures (Foucault, 2008), a portfolio of certain policies, or a strategy of transnational capital to restore and safeguard profit rates (Harvey, 2005)—but also on what level to study it, either that of “actually existing neoliberalism” (Brenner & Theodore, 2002; Cahill, 2014), a set of theories and arguments, or both. My starting point and focus for most of this paper is neoliberal thought as it is represented by the writings of Friedrich Hayek, Milton Friedman, the German ordoliberals, and, importantly, James Buchanan. My aim is to develop a critical account of neoliberal thought that will abstain from explicitly normative criticisms and rather opt for a more indirect but effective and somewhat novel critique that holds neoliberalism to its own standards and shows how it fails to meet them or is pushed into adopting highly questionable positions in the attempt to do so. The argument proceeds as follows: As already suggested, the meaning of neoliberalism is heavily contested, so I will provide the basis of my argument by laying out a brief account of neoliberalism, which relies on a theoretical-historical reconstruction of its context of emergence around the middle of the 20th century. What I conclude from this reconstruction is that we are well-advised not to narrow down neoliberalism too much and not to downplay its internal heterogeneities. Therefore, rather than trying to isolate a number of doctrines or positions as quintessentially neoliberal or even considering them to be the “essence” of neoliberalism, I argue that what unites neoliberal discourse is not a set of positive convictions—although there is some significant overlap in certain areas—but rather a shared problematic that pertains to the preconditions of functioning markets. Within that overall problematic, democracy is one of the most pressing problems according to neoliberal thinkers, because virtually all of them agree that it complicates the task of setting up and securing the workings of functioning markets significantly. Still, this basic agreement notwithstanding, neoliberal accounts of democracy display a considerable range of specific diagnoses as to the nature and source of its dysfunctionalities or even pathologies. Accordingly, the second step of the argument is a survey of some selected lines of critique of democracy as they are formulated by leading neoliberals. Among other things, this survey helps us appreciate the heterogeneities of neoliberal thought, but, more importantly for my purposes, it also gives us a sense of the deep reservations neoliberals have with regard to democracy and the trenchant nature of their critique. As the specific critiques of democracy vary among neoliberals, so do the suggested remedies and reforms put forward. Accordingly, in the next step, several selected reform proposals are scrutinized that range from the vague call for a “strong state” to Hayek's “model constitution” and the much more specific argument for the introduction of a constitutional balanced-budget amendment, which is a signature demand of Buchanan. What this survey shows us, among other things, is the radical nature of the neoliberal reform proposals, which is important to my overall argument. Despite the highly controversial implications of all of these reform proposals, I will deliberately forego engaging them directly based on normative arguments. Instead, my critique focuses on the missing analytical link between neoliberal diagnostics and respective remedies. In order to show this, the fourth and final part of the argument shifts attention to the politics of neoliberal transformation, that is, whether and how this kind of politics is theorized in neoliberal accounts. Again, there is a certain degree of variance between Hayek, Eucken and Buchanan, but the common denominator here is the inability to theorize such a politics without violating the respective assumptions underlying the critical diagnostics or moving beyond the confines of liberal democracy as a condition of implementing such reforms. Thus, the key thesis I wish to defend in the following contends that neoliberal thought lacks any plausible solution to the so-called problem of transition—if they care to reflect on it at all.1 These findings lead to several different interpretations with more or less far-reaching implications that are discussed in the concluding section. It is commonplace nowadays to note the contested nature and potential vacuity of the term neoliberalism. Faced with these allegations, scholars of neoliberalism often hasten to offer some kind of working definition of neoliberalism, lest they lend credence to suspicions that they are operating with an empty signifier carrying political rather than analytical meaning. Accordingly, a set of policies—typically centered around the agenda of the Washington Consensus—is identified as quintessentially neoliberal, certain ideas or principles are considered to make up its core or essence or, neoliberal is simply that, which members of the Mont Pèlerin Society promulgate, which is an elegant but, upon closer inspection, not entirely convincing way to circumvent the problem (Chomsky, 1999; Crouch, 2011; Mirowski & Plehwe, 2009). On the other hand, there are regular interventions by scholars who emphasize the enormous variability/transformability of neoliberalism and its characteristic ability to form more or less tension-laden amalgamations with other political-intellectual projects, which makes it seemingly impossible, or at least intellectually imprudent, to aim for some hard and fast definition that “fixes” neoliberalism and its meaning(s): “Crisply unambiguous, essentialist definitions of neoliberalism have proved to be incredibly elusive” (Peck, 2010, p. 8). My own account of neoliberalism will try to strike a balance between overly parsimonious definitional attempts that do not hold up under closer scrutiny and the analytically defeatist solution to dissolve neoliberalism into various neoliberalisms that allegedly share nothing but Wittgensteinian family resemblances. The starting point of my conceptual approach is the observation that neoliberalism has become a truly toxic label these days, and it might therefore be useful to begin with a look at those who did describe themselves, albeit fleetingly and reluctantly, as neoliberals at the time and clarify the intellectual and political agenda that they attached the label “neoliberal” to. In other words, it is necessary to reconstruct the intellectual and political context of neoliberalism's emergence. Processes of emergence do not have a single origin but are dispersed, and the same goes for neoliberalism. Nevertheless, it is possible to identify the Colloque Walter Lippmann as the “birth” of neoliberalism in the sense of the first culmination point of these processes and the event at which, for the first time, the term was officially adopted, denoting a shared agenda of the participants, which included not just Hayek, Wilhelm Röpke, and Alexander Rüstow but also Jacques Rueff, Louis Rougier (the convener of the meeting) and, of course, Walter Lippmann himself. At this point, an impressive scholarship on the Colloque exists, so there is no need to go into the details of the proceedings (see instead Burgin, 2012; Dardot & Laval, 2013; Innset, 2020; Reinhoudt & Audier, 2018). The overall picture that emerges from them is a liberalism on the defensive that seeks to regain the status of a real contender against its main antagonists, collectivism and—to a lesser degree back then—Keynesianism. In the eyes of practically all of the participants except for Ludwig von Mises, this endeavor presupposed a critical revision of the classical liberal agenda, and, most notably, abandoning simplistic formulas such as “laissez-faire,” or, what some referred to as “Manchesterism.”2 The neoliberal discourse in formation here was, thus, a far cry from the creed of “self-regulating markets.” Instead, the entire point of the neoliberal approach is to affirm the value of markets against collectivists and Keynesians while insisting that they are not nearly as robust and self-sustaining as large parts of the liberal tradition were inclined to believe up to that point. To put it more pointedly, the market per se was not the solution to all problems; rather, the market itself turned into a problem for neoliberal thought as it was seen as an entity in need of constant care and premised upon a number of preconditions. Therefore, what I call the neoliberal problematic pertains to the preconditions of functioning markets, that is, markets on which the price mechanism reigns as unperturbed as possible.3 The irreducible heterogeneities that characterize neoliberal discourse are not the least due to the manifold and at times contradictory ways in which this problematic can be, and has been, spelled out and addressed. Still, what becomes clear is that neoliberal thought might be centered around the notion of markets, but the intellectual energies of those whose work is animated by this problematic, such as Buchanan, Hayek, or the German ordoliberals, inevitably gravitate toward the infrastructure that needs to be put in place and defended against changing adversaries for these markets to function. This is the realm of the social and the political, and therefore it is only stringent for the neoliberals to invest so much time into conceptualizing the state—and democracy. When neoliberals talk about democracy, they typically refer to democracy in its existing form, that is, their discourse rarely ventures into philosophical inquiries into the nature and theory of democracy. The predominant form their discourse takes is that of a critique of the respective contemporary forms of representative democracy. These respective contexts leave an imprint on the various accounts of democracy, but rather than probing the details of each, in this survey, I will highlight what I consider to be three types of arguments or varieties of the neoliberal critique of democracy that can be analytically distinguished.4 The first set of arguments against democracy considered here is particularly prominent in ordoliberal discourse but not exclusive to it:5 For Wilhelm Röpke and Walter Eucken, the main threat associated with democracy is due to the influence of a new phenomenon on the political scene, namely, the masses. With the rise of mass democracy, the latter have acquired a heretofore unknown leverage over political decisions, or at least this is the assumption under which the ordoliberals in particular are operating. Hence, the problem is not the existence of masses per se but rather their integration into the political process through mass democratic institutions as it unfolds unevenly but steadily over the course of the first half of the 20th century. While the aversion against the masses may seem no more than a variant on the venerable liberal-conservative topos of the tyranny of the majority, there is more to it. The masses are more than a majority. In a discourse crucially shaped by Gustave Le Bon's Crowds, Sigmund Freud's Group Psychology and the Analysis of the Ego, and Jose Ortega Y. Gasset's Revolt of the Masses (who was invited to the Colloque but did not participate), the concept of the masses is psychologically (and at times racially) charged. Masses are attributed with infantilism and general irrationality, which makes them the perfect molding material for demagogues who exploit their uncritical receptiveness and malleability to mobilize them for political projects—typically ones that involve state planning and collectivization from the perspective of the ordoliberals. There is ample textual evidence for this stance, so a few examples may suffice here as the basis of this interpretation. Eucken notes: “But while people can only live in certain orders, the mass tends towards destroying these exact orders” (Eucken, 1960, p. 14), and in one of the classic texts inaugurating the ordoliberal tradition from 1932, he laments “that the simultaneous process of democratisation lent the parties, and the masses and interest groups that they organised, much greater influence over the management of the state, and so upon economic policy” (Eucken, 2017, [1932], p. 59). Röpke complements these views: “In all countries, in some less, in others more, society has been ground into a mass of individuals, who have never been so closely herded together and so dependent on each other and yet at the same time they are more rootless, more isolated and more like grains of sand than ever before … All the misery, all the problems of our time have their ultimate roots here…” (Röpke, 1950, [1942], p. 92). Elsewhere, he draws on the above-mentioned social psychological framing of the masses: “As a part of ‘mass’, we are different from what we normally are and should be in healthy circumstances; we are subhuman, herdlike, and the state of society dangerously corresponds to our own” (Röpke, 1960, p. 53). And while the most extreme manifestations of what might be called the mass syndrome only occur in what Röpke terms mass in the “acute state,” massification as a permanent condition is hardly less alarming, since it heralds the reign of mediocre brutes at the expense of the “unalterable aristocracy of nature” Röpke hopes to defend (Röpke, 1960, p. 55). To sum up this line of criticism, economic policy is simply too important and much too intricate to leave it to the wayward masses, who may not sit in parliaments and run governments in representative democracies, but are still too influential under the conditions of mass democracy, even if only as the object of demagogic agitation and mobilization. If the alliance of these forces had their way, democracy is bound to transform into collectivism, that is, the prime adversary of neoliberal thought: “There is no denying it: the collectivist state is rooted in the masses” (Röpke, 1950, p. 86). The second line of criticism also owes its classic formulation to another ordoliberal, namely, Alexander Rüstow. The target of this criticism, in addition to the mass dimension of contemporary democracy, is its alleged excessive “pluralism.” Rüstow succinctly sums up the respective core concern: “The democratic, parliamentary structure of some of the economically leading states caused the economic corruption to spread to the internal policy of the state, to the political parties, and to the [sic!] parliamentarism itself. The political parties were slowly transformed into parliamentary agencies of economic pressure groups and were financed by them. … The pathological form of government which developed this way was that of pluralism…” (Rüstow, 2017a, [1942], p. 159). Under conditions of mass democracy, (economic) pressure groups will gain such extraordinary influence that they can almost dictate their will to political parties; the result is marginalization of a vaguely defined common good, which is dissolved into what Eucken calls in no uncertain terms “group anarchy” (Eucken, 1960, p. 171). The state, as the presumptive guardian of this common good, is undermined in this process of economic-political clientelism, and Rüstow echoes the scathing criticism of pluralism by Carl Schmitt in his conclusion: “What takes place here accords with the motto: ‘The state as prey’” (Rüstow, 2017b, [1932], p. 147). Under conditions of unchecked pluralism, the state is weakened continuously and the resulting centrifugal dynamics ultimately become unmanageable as the political community falls apart at the hands of particularistic actors emerging from every corner of society. Thirdly, there is a strictly contemporary line of criticism that still exhibits some correspondence to the critique of pluralism just sketched. The central theorem underlying this critique is that of rent-seeking, which describes a behavior that seeks to gain some kind of advantage over others not through productive action and competition but rather by lobbying for some kind of special treatment, typically an exemption from certain rules. This idea builds on the insights of game theory and rational choice approaches, according to which individual utility is often maximized when (generally beneficial) rules apply to all but the individual in question, and much of the public choice critique of democracy is built around this basal notion: Under conditions of democracy, the constant demand for special treatment of societal/economic actors is met by an eager supplier in the form of political actors hoping thus to increase their chances of reelection. As one of the cofounders of the public choice tradition, it is a matter of course, that Buchanan puts the rent-seeking theorem at the center of his critique of representative democracy and he is not the only neoliberal who does so: Milton Friedman as well as the later Hayek would occasionally, albeit not systematically, draw on the basic logic of rent-seeking (see Friedman & Friedman, 1984). The fundamental problem that allegedly ensues from rent-seeking can be summed up in the following way: Assuming that everybody else engages in rent-seeking, individual rationality dictates that one does so as well because, otherwise, one would be indirectly disadvantaged to the degree that others gain exemptions from rules that still apply to oneself. This means that rent-seeking has an inherently expansive dynamic, and as a general practice, it backfires against the intent of its subjects because even if individual rent-seeking may be successful and provides an advantage, this is vastly outweighed by the multiple disadvantages one has to suffer due to all other rent-seeking activities, assuming they are successful as well. Thus, in pursuit of their individual utility, the actors in a society end up putting themselves at a disadvantage. Just as in the pluralist scenario, it is particularism that prevails here, albeit with a tragic twist. But not only does the “rent-seeking society” (Buchanan et al., 1980) harm its current members: Exemptions and other special treatments typically come with some kind of price tag, and since financing through raising taxes is not a realistic option under public choice assumptions, and lawmakers, as well as government, have less and less control over inflation, the prime strategy to pay for rents is through deficits and debt—burdening the almost proverbial “future generations” with financial obligations that they had no say in—arguably a clear violation of the democratic principle of autonomy. Finally, there is a line of critique that focuses on the decline of the rule of law in relation to democracy and problematizes the alleged unlimited nature of the latter. The prime exemplar of this line of argument is Friedrich August Hayek, who laid out the various aspects in numerous writings. To be sure, Hayek conceded that democracy, in principle, had its merits: “[I]t is the only convention we have yet discovered to make peaceful change possible” (Hayek, 2003, III, p. 137) However, the ideal of democracy and its basic thrust of limiting power became disfigured over time. The Constitution of Liberty already contains the central point of Hayek's critique in a nutshell: “The crucial conception of the doctrinaire democrat is that of popular sovereignty. This means to him that Majority rule is unlimited and unlimitable. The ideal of democracy, originally intended to prevent all arbitrary power, thus becomes the justification for a new arbitrary power” (Hayek, 2006, p. 93) The deeper reason for this, according to Hayek, is the erosion of the principle of the rule of law, which he chronicles in the Constitution of Liberty and that involves, prominently, the shedding of any formal prerequisites of what constitutes a genuine law. While in the heyday of liberalism, only those legal rules that were abstract, general, and directed at future behavior were considered to be law in the proper sense of the term, nowadays, Hayek claims, whatever emerges from a legislature is deemed to have the power of law, thus empowering parliaments to engage in the kind of discretionary planning activities that he considers to be harmful on any number of levels. And since there are no longer any formal restrictions on this unrestrained democracy, politicians have no instruments at their disposal to fend off the demands from societal interest groups. “The root of the trouble is, of course, to sum up, that in an unlimited democracy the holders of discretionary powers are forced to use them, whether they wish it or not, to favour particular groups on whose swing vote their powers depend” (Hayek, 2003, III, p. 139), concludes Hayek, thus echoing in this regard the second and third lines of critique sketched out above. The main thrust of Hayek's argument, though, is a combination of the critique of democracy as majority rule—spelled out most prominently in The Constitution of Liberty (see Hayek, 2006, pp. 90–102)—and the contention that this majority rule is no longer restrained in any meaningful way, thus giving rise to an almost dystopian “unlimited democracy,” which, Hayek thought, would ultimately lead toward totalitarianism: “[T]he whole work [Law, Legislation and Liberty] has been inspired by a growing apprehension about the direction in which the political order of what used to be regarded as the most advanced countries is tending. The growing conviction … that this threatening development towards a totalitarian state is made inevitable by certain deeply entrenched defects of construction of the generally accepted type of ‘democratic’ government has forced me to think through various alternative arrangements” (Hayek, 2003, I, p. xx). It is to these alternative arrangements in the works of the various neoliberals accounts discussed here that we now turn to. It would exceed the scope of this paper to survey every reform proposal submitted by leading neoliberals, so I will merely focus on three more or less specific reform visions being put forward by Buchanan, Hayek as well as the ordoliberals Rüstow and Eucken, respectively, which are to deal with the various shortcomings or pathologies of democracy as they are pinpointed in the diagnoses sketched out in the preceding section. Let us begin with what arguably is the most specific proposal to be found in the neoliberal reform portfolio and which came to be a signature demand raised by James Buchanan, although a slightly different version has also been promoted by Milton Friedman. The proposal seeks to address the proclivity to engage in rent-seeking behavior or rather to grant rents to interest groups on behalf of elected officials in order to improve chances at reelection. Buchanan became ever more pessimistic in his assessment of (American) democracy over the years, eventually claiming that “the appeal to the experience of history, and not least to recent events in the United States, does suggest that government, in its current institutional setting, is close to being out of the control of the electorate” (Brennan & Buchanan, 1980, p. 25). In order to come to terms with this deteriorating situation, one of Buchanan's prime suggestions is to pursue the strategy of reining in democratic excesses through tighter controls of the way public expenditures are financed. What democracy requires is a rule that precludes the debt/deficit financing of these outlays, and it should preferably be instituted on the highest possible legal level: a constitutional balanced-budget amendment (Buchanan, 1997). The amendment would stipulate rather that all current state expenditures must be financed through actual revenue, be it taxation or otherwise; it would be simply unconstitutional to accrue deficits and debt to finance state expenditures. Given such restrictions, politicians are expected to restrain runaway spending and curtail public expenditure, instead of attempting to rely on a low tax strategy to succeed at the polls. Whether this is a realistic scenario for the impact of such a proposal could be discussed in much greater detail as could be the normative questions related to it, but following the strategy of my critique laid out initially, I will confine myself to this quick exposition and move on to the second and much more elaborate reform proposal, which is Hayek's “model constitution” (Hayek, 2003, pp. 105–127). The major thrust of Hayek's proposal is a restoration of a strict separation of powers between government and legislature. His diagnosis problematizes the conflation of both, and therefore real bicameralism has to be reinstituted where legislatures only pass laws in the proper sense of the term that circumscribe the room for discretionary action the government enjoys. Of the many noteworthy aspects of this exercise in institutional design, I will only highlight one particularly intriguing aspect that has also drawn considerable criticism: In many respects, the governing assembly hardly differs in its main characteristics from empirically existing governments, although Hayek is seriously entertaining the disenfranchisement of anybody who receives transfers or salaries from the state in governmental elections (Hayek, 2003, p. 120). Still, the major target of criticism is the election rules for the legislature, which is arguably the real locus of power in this new institutional set-up as the governmental assembly is to be strictly “bound by the rules of just conduct laid down by the Legislative Assembly” (Hayek, 2003, p. 119). Members of the legislature are to be elected in the following way: Each year all citizens of the age of 45 choose their representatives out of the midst of their demographic cohort to replace the contingent of outgoing legislators at the end of their 15-year term. What Hayek has in mind is “an assembly of men and women elected at a relatively mature age for fairly long periods, such as fifteen years, so they would not be re-eligible nor forced to return to earning a living in the market but be assured of continued public employment in such honorific but neutral positions as lay judges, so that during their tenure as legislators they would be neither dependent on party support nor concerned about their personal future” (Hayek, 2003, p. 113). The rationale behind this design is clear enough. The long tenure, ineligibility to be reelected, and guaranteed future employment seek to minimize the incentive to engage in rent-seeking behavior on behalf of legislators and, furthermore, the structuring principle of age groups allegedly would preclude the formation of political party affiliations within the legislatures. And even if they were to form, “those leaning towards different parties would be induced to discuss the issues together, and would become conscious that they had the common task of representing the outlook of their generation…” (Hayek, 2003, p. 118). Obviously, this radical proposal is open to many criticisms from the perspective of democratic theory, but let us leave this aside and instead turn to the final proposal to be considered here, which is also the least specific, calling for the transformation of statehood into a “strong state” as its main proponents Alexander Rüstow and Walter Eucken refer to it. This remedy manifests the stringent conclusion from the critical diagnosis of excessive pluralism, which is prevalent among most ordoliberals; even Röpke, who is less vocal on this theme, reminds his readers that “the immense danger of this unhealthy pluralism is that pressure groups covetously beset the state” and that “any responsible government must examine carefully all the possible means of resisting this pluralistic disintegration of the state” (Röpke, 1960, pp. 144, 143). Still, the most vehement calls for a strong state come from his ordoliberal compatriots Rüstow and Eucken. The former concludes his lecture State Policy and the Necessary Conditions for Economic Liberalism from 1932 with the following remarks: “The new liberalism, which I and my friends promote, demands a strong state, a state that is positioned above the economy, above the interested parties, in the place where it belongs. And with this confession of faith in a strong state that promotes liberal economic policies and—because the two mutually condition each other—in liberal economic policies that promote a strong state, with this confession I should like to end” (Rüstow, 2017b, p. 149). The state is thus to remove itself from the pluralistic rancor of political parties and interest groups and take up a position that enables it to fend off the demands coming from these actors. In the same year, Eucken published what will come to be considered a founding text of the ordoliberal tradition, entitled Structural Transformation of the State and the Crisis of Capitalism. In this far-ranging article, Eucken lays out his own version of the narrative of liberal decline, which, in his view, happens to coincide with that of Carl Schmitt in this respect and comes to the fore in “the transformation of the liberal state into an economic state” (Eucken, 2017, p. 59). For Eucken, the merging of state, society, and economy encapsulated in the economic state is of the most serious consequence as it “has undermined independent decision-making on the part of the state, something upon which its very existence depends. … All recent economic policy clearly demonstrates this corrosive process: it amounts to a plethora of me