The Road to Serfdom

In the dystopic vision of a world enthralled by neoliberal ideology, you can imagine Lawrence Fishburne in the Matrix, his dark eyes shielded behind shades, commenting on our current, everyday reality: “What if I told you the world as we know it today, Neo, with its raging inequality, its wildly expensive, and yet poorly delivered health care, its school to prison pipelines, its rabid fear of immigrants and minorities, it selfish and insufficient minimum wage, its careless gun laws, its grossly overpriced colleges and universities, its pockets of hopeless poverty, its tent cities and homeless beggars, its devastating opioid crisis was all by design; that every feature which we might call a bug, is really not an oversight or a miscalculation, but exactly what a group of men thought would be the ideal outcome for us, some four decades ago? What if I told you that they were not so much concerned with building a society as its opposite–ensuring that no work towards a common sense of society would hold together, and that every effort toward a collective good would fall away as hopeless and irrelevant? What if I told you that all of their efforts were bent toward ensuring the ultimate failure of the public government as a force for collective good, and the success of the private individual, not for public good, but for private gain and ascendancy was the only thing they valued? And what if I told you that they have largely succeeded?”

From the mid-1980s through the end of 2016, the Democratic elite has consistently held onto a set of economic beliefs that we may broadly term neoliberal. But the economy created by this economic ideology — and the ensuing crises — is a major reason why Hillary Clinton lost to Trump. Now the Democratic party is completely out of power in all three branches of government. At the state level, its minority position is even worse. The Democratic party is ‘in the wilderness’ as they say; and it’s precisely because of their refusal to reject neoliberal orthodoxy. This failure cannot be overstated. It has been a catastrophe.

So for those who care about such things, two questions immediately arise: What is neoliberalism? And what are the alternatives?

First, what is neoliberalism?

The term we are looking for—neoliberalism — dates decades before Reagan quipped about government being the problem. It’s an ideology that embraces laissez-faire capitalism where ever possible, and naturally it is also opposed to anything government-wise that would hinder the exercise of the free market (hence ‘liberal’). It was coined at a meeting in Paris in 1938. Among the delegates were two men who came to define the ideology, Ludwig von Mises and Friedrich Hayek. Both exiles from Austria, they saw social democracy, exemplified by Franklin Roosevelt’s New Deal and the gradual development of Britain’s welfare state, as manifestations of a collectivism that occupied the same spectrum to them as nazism and communism. They hated it.
Hayek who was an economist who saw himself in the model of Adam Smith, part number cruncher, part moralist, outlined his thoughts in a now infamous tome, The Road to Serfdom, published in 1944. He argued that government planning, by crushing individualism, would lead inexorably to totalitarian control. Like Mises’s book Bureaucracy, The Road to Serfdom was widely read and influenced many thinkers on the right. Among them, a Virginia economist named James Buchanan, a University of Chicago School economist named Milton Friedman, and a billionaire named Charles Koch.

In 1947, Hayek founded an organization, the first of many, that would spread the doctrine of neoliberalism – the Mont Pelerin Society – it was supported financially by millionaires and their foundations. Buchanan, Friedman and Koch all belonged to the Mont Pelerin Society. According to George Monbiot, “The movement’s rich backers funded a series of think tanks which would refine and promote the ideology.” Many are familiar names today: The American Enterprise Institute, the Heritage Foundation, the Cato Institute, the Institute of Economic Affairs, the Centre for Policy Studies and the Adam Smith Institute. They also financed academic positions and departments, particularly at the universities of Chicago and Virginia where neoliberalism found fertile ground.
In Democracy in Chains, Nancy MacLean writes of James Buchanan’s time at the University of Virginia and the formation of his thought with regard to neoliberalism. He didn’t just tout the benefits of competition and laissez-faire capitalism, which was Hayek’s riff. Buchanan’s distinctive mission was to make a case against government, against the very concept of a ‘public sector’ or ‘public good.’ Like Hayek he feared what he called collectivism, and saw it along a spectrum starting with elements of Democracy, like student organizations and trade unions, federal regulatory agencies and ending with communism. His basic idea was that people had been wrong to think of political actors in a Democracy as concerned with the common good or the public interest. According to Buchanan’s way of looking at things, everyone was a self-interested actor seeking their own advantage. Politicians merely went through the motions of supporting the public good in order to get elected. He said we should think of politicians, elected officials, as seeking their own self-interest in re-election. That’s why they’ll make multiple costly promises to multiple constituencies, because they won’t have to pay for it, themselves. After all, the high-priced programs they devised were paid for by taxes wrested from “defenseless” citizens, who were given little or no effective choice in the matter. Buchanan thought of it as licensed theft, reinforced by the steep gradations in income-tax rates.

Initially, Buchanan thought that people of good will could come to something close to unanimity on the basic rules of how to govern our society, on things like taxation and government spending and so forth. But, according to MacLean, speaking in a 2017 Slate interview, “by the mid-1970s, he [Buchanan] concluded that that was impossible, and that there was no way that poor people would ever agree … there was no way that people who were not wealthy, who were not large property owners, would agree to the kind of rules he was proposing. Out of this meditation, he produced a very dark work called The Limits of Liberty. According to MacLean, “He actually said [in that work] that the only hope for true market freedom might be through despotism.”

Buchanan was honest, at any rate. He knew that given sufficient information, poor people would not vote to reduce minimum wage, or pass tax cuts for the wealthiest while they themselves went without healthcare.

As it happens, this ‘freedom’ that neoliberalism offers, which sounds beguiling when expressed in general terms, turns out to mean freedom for those who already have funds, but not for those who do not. It is the freedom to demand the cheapest labor, and the most open markets, regardless of the livability of the wages paid or the expense of eking out a minimal existence. It is freedom with absolutely zero recognition for what is referred to as the commons: our public airwaves, water ways, roads and parks; or more broadly the common good: a recognition that everyone needs to be able to survive with a roof over their head, with decent food, healthcare and an education. Yet, the ideology has taken hold; and not just a little bit, with a vengeance.

During the 1970s, rightwing academics and economists were not the only people interested in dismantling the notion of a ‘public good.’ During the 1960s and 1970s, when there was so much activism occurring on the streets and on the college campuses, there was deep concern among the elites and power brokers. Large parts of the population—which had been passive, apathetic, obedient—tried to enter the political arena in one or another way to press their interests and concerns. They were called “special interests” by the elite who had always considered their own interests the norm. What was meant by the term ‘special interest’ was essentially a euphemism for the remainder of the national population who had heretofore been unrepresented or under-represented.

Two influential documents came out during that period, right in the middle of the turbulent ’70s from opposite ends of the political spectrum, but both concerned with the same phenomena. One of them, at the left end, was The Crisis of Democracy, a Trilateral Commission report. In it, Samuel Huntington of Harvard worried that too many parties were pulling Democracy asunder. ‘Special interest’ were overtaxing the system, he argued. The report concluded that in the United States the problems of governance “stem from an excess of democracy”…What a marvelous phrase: “an excess of democracy”! The report advocates “restor[ing] the prestige and authority of central government institutions.” Presumably by limiting the influence of the ‘special interests’, which is to say the rest of the national population who did not happen to be the elite. The report also concluded “the institutions responsible for the indoctrination of the young” the schools, the universities, churches, were not doing their job properly. There was insufficient obedience. That was the U.S. liberal’s take on the effort of youth to expand their own voting rights, minority’s civil rights, feminist rights, etc., and to limit the ability of the prevailing military establishment from sending them to die in a dubious war.

On the right side of the political spectrum, you have folks like Lewis Powell Jr., who wrote the influential document, the Powell Memorandum, which wasn’t as well-known, but came out at the same time. Powell produced a confidential memorandum for the U.S. Chamber of Commerce, which was based in part on his reaction to the work of activist Ralph Nader, whose 1965 exposé on General Motors, Unsafe at Any Speed, put a focus on the auto industry putting profit ahead of safety, which triggered the American consumer movement. Powell saw it as an undermining of Americans’ faith in enterprise and another step in the slippery slope toward dreaded socialism. That’s right, once again, the idea that the ‘population’ was looking out for itself was a problem. Democracy, itself, was a problem. It had become ‘excessive’! His memo called for corporate America to become more aggressive in molding society’s thinking about business, government, politics and law in the U.S.

This worrying about excessive democracy, fear of a new kind of collectivism that would slow the march of business formed the ideological back drop for the economic implosion of the late 1970s. War spending, the baby boom coming of age, and the oil shocks created serious inflation. Profits declined and big business mobilized against labor. The first wave of de-industrialization hit manufacturing.

One of the countries feeling the effects was Chile. In the early 1970s, it experienced chronic inflation, reaching highs of 140 percent per annum, in part forced by the US government’s antipathy to socialist President Salvador Allende. The CIA-director at the time, Richard Helms met with President Richard Nixon and discussed the situation in Chile and Helms was told to “Make the economy scream.” Helms did, indeed, make the economy “scream.” He also used the CIA to help over throw Allende and install Augusto Pinochet in 1973. At that point, Chile became the proverbial tabla rasa for neoliberal economic policy. It was the opportunity Milton Friedman and James Buchanan had been waiting for—a chance to implement a rigorous neoliberal economic system.

What did the economics of neoliberalism entail? Reduction of top marginal tax rates, the ‘liberalization’ of trade, privatization of government services, and deregulation. They made the central bank independent, cut tariffs, privatized the state-controlled pension system, state industries, and banks, and slashed taxes. Labor unions were banned, and social security and health care were both privatized. Pinochet’s stated aim was to “make Chile not a nation of proletarians, but a nation of entrepreneurs.” On a week-long visit in 1980, Buchanan gave formal lectures to “top representatives of a governing elite that melded the military and the corporate world.” His books were translated, and helped restructure Chile’s economy.

Soon the holy mantra of “deregulation, free trade and privatization” became the so-called ‘Washington Consensus.’ For power seeking folks these were sensible policies to carry out and other global headquarters to embrace and promote, and the policies were pushed on other countries via global institutions like the International Monetary Fund. The upshot of such policies, as the historical sociologist Greta Krippner notes, was to shift many aspects of managing the economy from government to Wall Street, and to financiers, generally.

Politically, neoliberalism was associated with a weakened regulatory state, the dismantling of the welfare state and a strong disapproval of any collective activity that sought to define meaning or goals outside of a market orientation. But, as was the case in Chile, to effect this change against the working poor, you needed a strong authoritarian government—you couldn’t really do it with an ‘excess of democracy.’ In short, you needed to ensure that there was no ‘excess of democracy.’ Hayek remarked on a visit to Chile, which had become a virtual laboratory for neoliberalism– “my personal preference leans toward a liberal dictatorship rather than toward a democratic government devoid of liberalism.”

James Buchanan went further. He advised the Pinochet junta in Chile on how to craft their constitution. This document was later called a “constitution of locks and bolts,” and was designed in part as a neoliberal blue print for economic reform and a political document of rigid control. Economically, it required a balanced budget and a pay as you go clause, emulating Harry Byrd’s method of balancing the budget in Virginia. Social security was privatized and retirement accounts were effectively handed over to two banks, BHC Group and Cruzat-Larrain; both of whom had close ties to the Pinochet regime. Politically, Chile was essentially gerrymandered into districts to ensure right wing upper class control. They also disallowed changes to any of their provisions so that the majority couldn’t make its will felt in the political system, unless it was a huge supermajority. Union leaders were not allowed to belong to political parties. It barred advocating ‘class conflict’ and anyone deemed ‘antifamily’ or ‘Marxist’ could be sent into exile, without access to an appeal. It institutionalized the power of the military over the civilian government for decades, with Pinochet at the helm.

The rigid constitution was duly enforced by a vicious military engagement. Politically, in Chile, the rise of neoliberalism was accompanied by a reign of terror against unions, leftists and anything or anyone smacking of a ‘collectivists’ mentality. The Pinochet regime left over 3,000 dead or missing, tortured tens of thousands of prisoners, and drove an estimated 200,000 Chileans into exile. Buchanan appeared proud of his Chilean constitution, nevertheless. According to MacLean, his allies in the Mont Pelerin society adulated him and they set up their next regional meetings in the Chilean city of Vina del Mar. Breakout sessions included such intoxicating titles as “Social Security: A Road to Socialism?”, “Education: Government or Personal Responsibility” and finally, a session presented by Buchanan himself: “Democracy: Limited or Unlimited?”

Of course, the limitations on Democracy that Buchanan had built into the Chilean constitution were no impediment to Pinochet enriching himself. Quite the opposite, the rigged rules allowed the dictator to establish over 125 separate accounts under false names in seven different countries “to stash what became an illicit fortune of at least 15 million…Two years later, after these exposures, James Buchanan ended his memoirs with the words, “Literally, I have no regrets.”

What happened in Chile was not synonymous with the U.S. experience at that time, much as Buchanan or Hayek might have desired it. The beginnings of neoliberal economics here did not lead to a dictatorship in the U.S., both parties still operated within the orbit of a nominal Democracy. But the recession of the late 70s shifted the Overton window considerably. Keynesian economics were soundly rejected and Nixon’s old saw, ‘we are all Keynesians now,’ no longer obtained. That enabled neoliberal political operatives, who were organizing within the Democratic Party to push out the old New Dealers. The Democratic “Watergate Babies” elected after Nixon’s downfall were largely neoliberals, and proved amenable to deregulation and abandoning anti-trust efforts.

Additionally, hard-line conservatives had been hazed out of power since 1932, but had been carefully organizing and building their strength ever since with academics like Friedman and Buchanan working in the background. The stagflation of the late 70s allowed them to seize the moment, finally electing one of their own to the presidency: Ronald Reagan. The three succeeding Republican terms finally cemented the idea among the Democratic elite that the party would simply have to submit to neoliberalism to be able to compete.

Thus, effectively, both parties conspired to break the New Deal. When a Democrat was finally elected in 1992, it was Bill Clinton who led by introducing his infamous neoliberal third way, harping on the value of ‘free’ markets, trade at any costs (NAFTA), and dismantling the welfare system (TRAPP), and, in general, mouthing all the platitudes of the neoliberal orthodoxy, especially gutting Federal banking regulation (repealing Glass-Steagall). Much of the old Democratic base like labor unions were ignored or taken for granted. Instead, the financiers of Goldman Sachs and Wall Street held sway. Think Robert Rubin and Larry Summers.

But financial deregulation dramatically increased financial sector size and instability. Contrary to prophets of the self-regulating market, an unregulated Wall Street quickly created an escalating series of financial crises, requiring expensive government bailouts. Less than a decade after Clinton repealed Glass-Steagall, the worst financial panic since 1929 struck, leading to the calamitous recession of 2008.

Yet, the Democratic elite operated as if nothing had changed. Even when they took back the White House, there was no broad effort to hold anyone accountable for the billions of lost funds. Not one person has gone to jail, yet millions lost their life’s savings. What meager efforts there were to reinvigorate the wall between saving institutions and investment banks recently folded thanks to an effort by both parties.

As noted earlier, from the late 1980s to 2016, the Democratic elite has consistently held onto their neoliberal concepts and it has been a catastrophe.

So what are the alternatives to neoliberalism? What’s the remedy?

In a nutshell, more Democracy, not less. We already have the tools necessary to provide for a reasonable compromise between a centrally managed economy and a capitalist free for all—and people overwhelmingly want it. Margaret Thatcher, the famous British iron lady of the right, once declared there were no alternatives to neoliberalism. Frankly, it’s ironic that an ‘ideology’ of ‘free choice’ would suggest there are no other choices. In truth, there are lots of other choices and alternatives, almost all of them better than raw neoliberal orthodoxy, and, an ancillary benefit: they actually work in the real world. See most of Western Europe with their social safety nets, and the Scandinavian countries, all of whom offer greater social cohesion and security than that provided by the United States.

In order to get there, certain neoliberal orthodoxies need to be rejected. Markets and market like logic cannot continue to be the only precept by which to rule our government. This is a kind of fever dream of the right. Markets are man-made, man-controlled phenomena. They don’t occur naturally. They are constructed through law and practices, and thus can be changed, or marginalized, or simply ignored. Governments precede markets, just as labor is prior to, and independent of capital, as Lincoln noted over a hundred years ago. Markets are the outcome of governmental rules, just as capital is only the fruit of labor, and could never have existed if labor had not first existed.

Democrats need to keep that wisdom in mind. Their rejection of Bernie Sanders and the undemocratic method by which they choose to maintain their power suggests that some of them might sympathize with the market oriented authoritarian academics of the right, like Buchanan or Hayek. Now that is a sad spectacle for the casual political observer which will only serve to further alienate young voters who are seeking an economics of the left that would actually fight for a sane healthcare system, decent minimum wage, and affordable education. In short, it’s a politically stupid move. Oh, and it is also, incidentally, petty and unethical.

There should be some agreement that Democratic policies are not just technical adjustments or tweaked enhancements to a market based approach. Politically, they should declare that healthcare is a right. Education is a right. Being able to shelter and feed yourself is a right. It’s the government’s responsibility—our responsibility— to enshrine those rights. It is what we fundamentally mean by a common public good. The business of government is not business, but rather, it is in protecting our rights; toward that end, providing public services that are broadly beneficial without regard to religion, race, gender or class. The business of government is not to provide market efficiencies, or business opportunities, or to ensure that Wall Street gets a decent cut. We can debate the necessary level of government engagement, but the Democrats should reject any idea that only a market context will determine who gets educated, fed and sheltered, and who does not; who gets to live with decent healthcare and who must accept death because market efficiencies have determined that their continued survival did not properly balance a ledger sheet. Furthermore, the austerity that neoliberalism enforces is largely unneeded; the problem isn’t scarcity, per se. It’s distribution—and to do that fairly requires more Democracy, not less.

A recent study showed that it would cost $175 billion to alleviate poverty across the world. That’s about 1/6th of the current Pentagon budget. The Trump administration will propose a military budget of $716 billion alone for 2019, yet we can’t adequately fund healthcare for our citizens, we can’t house all our citizens or feed them? We are one of the richest countries on Earth, yet our Democracy cannot manage to adequately pay teachers, cannot manage to mandate a minimum wage that doesn’t consign vast swaths of our population to a class designated as the ‘working poor’? Can’t provide clean water to Flint? Wouldn’t it be more accurate to refer to ourselves as serfs, our condition as serfdom? Hayek’s foundational work sounded an alarm against collectivism and warned of Western individuals becoming ‘serfs’ to a centrally planned economy, yet without some plan, some social safety net or notion of a public good, individuals become unwilling servants of faceless corporate entities more closely resembling Dicken’s England than a modern Western state. Hayek’s future is here; we are no longer on the road to serfdom, we have already arrived.

By Jack Johnson



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