Howard vs Rudd
Neo-liberalism became the ruling orthodoxy in many countries in the 1980s, reshaping policy agendas, and transforming all parties, social democratic, conservative and liberal alike. Neo-liberalism was not just the product of ideas but was a practical response to a new set of circumstances in the global economy, just as Keynesianism had been a response to the experience of the depression in the 1930s and war in the 1940s. Friedrich Hayek became one of the most important intellectual figures in the rise of neo-liberalism, a strange twist of fate for him, since after disputing with Keynes in the 1930s about the best remedies for the Great Depression, Hayek had become an isolated figure in the economics profession after the tidal wave of Keynesianism swept all before it and helped justify the great expansion of the state which the war economy bequeathed. In 1947 he helped found the Mont Pelerin society, a small band of true believers in classical liberalism, which included many liberal economists, but Hayek himself soon after abandoned economics and devoted himself to political, legal and philosophical studies. In the 1970s and 1980s the collapse of the international monetary system established at Bretton Woods, the acceleration of inflation and a major downturn in the global economy discredited Keynesianism and paved the way for a new set of doctrines to justify the new policies for managing the global economy and domestic economies. These gradually coalesced into the neo-liberal mantras with which we are familiar.
Hayek was jubilant. 'Let us shout from the rooftops' he once declared, 'that the intellectual foundations of socialism have all collapsed.' But as Kevin Rudd has pointed out, it was not only the intellectual foundations of much of twentieth century social democracy that were undermined by the new phase in the history of the global economy which opened in 1971, but also much of twentieth century conservatism as well. Neo-liberal doctrine was 'market fundamentalist' because it was absolutist and universalist in its claims, attacking all forms of government intervention, subsidy and protection, unleashing a process of change which has affected many groups important to the electoral support of parties of the centre-right, as well as those of the centre-left. In seeking to sweep away the obstacles to free markets which had been erected as the result of democratic pressures from both left and right in the course of the twentieth century, neo-liberalism was often uncompromising. It promoted major reshaping of both private and public sectors, wholesale deregulation, privatisation and marketisation, and a drastic redrawing of the boundaries between the public and private sectors whose consequences have been reverberating ever since.
Hayek was an acute social theorist, but also an ideologue. He developed one of the most sophisticated theories of markets in social science, but he was also a market fundamentalist with a deep-rooted distrust of all forms of state regulation and state intervention, which tended to become more pronounced as he grew older. In the 1970s this former supporter of the gold standard advocated the abolition of all national currencies and central banks, the complete deregulation of one of the state's main functions. The paradox of Hayek's work however is that he stopped short of advocating either the kind of anarcho capitalism sought by some libertarians, or even the strict minimal state proposed by Robert Nozick. On the contrary he thought that the state needed to retain very strong powers to police the market order and prevent powerful interest groups such as trade unions from subverting it. But he fretted constantly about how this might be achieved, and how democratic governments could be persuaded to cease interfering with markets. His case would have been stronger had he not, in his most important book The Constitution of Liberty, proposed a raft of measures where government spending and intervention were desirable. Keynes had already spotted this inconsistency in Hayek, as Kevin Rudd has pointed out, and as many libertarian critics of Hayek have also done. Hayek was reluctant to propose an absolute limit for state action, which makes his policy prescriptions curiously imprecise. He even agreed that a welfare safety net was desirable, in order to limit the disaffection of those who gained least from the market order. The market fundamentalism which he often rhetorically proclaimed was not always reflected in the specific policies he advocated.
Greg Lindsay has commented that many positions are attributed to Hayek which he did not hold, and it is certainly true that neo-liberalism is made up of many strands, Hayek being only one. Lindsay also suggests that Hayek would have been dismayed by both Kevin Rudd and John Howard, since both are proponents of 'big government', in the sense that both approve of large-scale public spending to underpin interventionist social and regulatory programmes. They differ on what those should be, and Rudd would go much further than would Howard in promoting a positive role for the state. In his rejoinder to Rudd, Howard makes no mention at all of Hayek, and simply seeks to defend his record as one of concern for the welfare and living standards of all Australians. But although Howard may not have gone as far or as fast as Greg Lindsay would like, there is little doubt about the direction of travel of his government. In specific areas it has pursued, not resisted, the logic of neo-liberalism.
A pure Hayekian society is a utopia, nowhere realised. Welfare states and democratic electorates have proved huge obstacles to its realisation, still less of a Hayekian polity, informed by Hayek's rather bizarre ideas for curbing the powers of elected governments. But there remains a neo-liberal trend towards opening up more and more areas of social life to market forces and to deregulation, and this the Howard government clearly supports, and in specific areas has tried to accelerate, even though it may deplore some of the results and seek to deny responsibility for them. What is characteristic about the current phase of public policy around the world is how strong and persistent the neo-liberal impulse remains. It is still the dominant commonsense almost everywhere, and the challenge for those on right or left who want to argue for a different social vision is to develop a new intellectual critique that might underpin an alternative way of governing.
Hayek was notoriously unsentimental about the market order, arguing that its outcomes owed so much to chance that no moral significance should be attached to them. We should simply accept the way markets distribute resources, and abandon any attempt to interfere with that process. As Greg Lindsay observes, that does not prevent individuals being altruistic in their private capacity, redistributing their wealth to the poor and disadvantaged, but it does rule out any attempt by government to limit inequalities arising in the first place, or to intervene to redistribute income and opportunities in more equal ways. This stance of non-interference is the best way, according to Hayek, to ensure that the wealth of society grows fastest, making possible not only an ever-increasing world population, but also the richness and variety of modern civilisation.
Government interference in the unfettered operation of markets is so damaging because the knowledge needed to make them work is always local, fragmented and partial. A market is a much better institution for utilising this dispersed knowledge than a bureaucracy. Hayek devotes many polemics against what he calls 'scientism' or 'constructivism', the belief that there can be a science of society which can replace spontaneous orders like markets, allowing governments to intervene in the social environment in whatever way they wish and plan rationally. But he offers no similar critique of the consequences of the science of nature which has been informed by the same belief that human beings can be rational masters of their fate and can intervene in the natural environment in whatever ways they choose, with impunity. As Kevin Rudd points out, Hayek was always extremely dismissive of environmentalist concerns, seeing them as just another excuse for justifying state intervention in the market economy, and believing that the utilisation by a free market of whatever technologies science makes available carries no dangers or risks or hidden costs that the market itself cannot solve.
Hayek's theory of knowledge is his greatest achievement, and offers insights that should be utilised by both right and left, but he failed to apply them to one of the central aspects of the modern era - the way science and technology are utilised in increasingly perverse ways by a deregulated neo-liberal market economy, which if not checked will have devastating consequences for the biosphere and the survival of the human species. It is an example of how his market fundamentalism blinds him to conclusions to which his own analysis of markets should have led him. If he had followed the logic of his own argument, he might have arrived at a rather different view of the appropriate balance between the state and the market, and provided a more searching account of the nature and limits of government action, or as Keynes would have put it, between the agenda and the non-agenda of government. The resources for doing so are there within Hayek's thought, which remains a seminal contribution to modern social theory, but he chose not to develop his ideas in this direction because of his ideological commitment to market fundamentalism. That should not prevent others from doing so. It is increasingly urgent that we should.
Andrew Gamble is Professor of Politics at the University of Cambridge, and author of Hayek: The Iron Cage of Liberty (Polity Press, 1996).