by John Gray
Thatcher’s career illustrates this development. She never shared the belief that the fall of communism heralded an era of peace, and she ridiculed Francis Fukuyama’s declaration that history had ended. Yet by 1989 she accepted Fukuyama’s view that one type of government was the model for all the rest. Believing that contemporary America embodied the virtues of Britain in the past, she convinced herself that the United States could become at the end of the twentieth century what she believed Britain had been in the late nineteenth century –the final guarantor of progress throughout the world. For Thatcher as for Fukuyama this meant that a version of American ‘democratic capitalism’ could be replicated everywhere. From being a reformer she had become an ideologue. This was partly hubris – the inordinate confidence in their own rectitude that is the occupational vice of leaders who have achieved success against the odds – but it also reflected her beliefs. Thatcher was always a firm believer in human progress, and if she had anything like a personal philosophy it was not Tory but Whig. The eighteenth-century Whigs viewed the emergence of English liberty as the result of providential design. It was a belief the Tory David Hume mocked in his History of England, where he showed the crucial role of chance events. This sceptical cast of mind was alien to Thatcher, and she came to view the mix of policies she had implemented as a cure for a specifically British disease as an all-purpose panacea. By the time she was ejected from Downing Street the loose set of attitudes and beliefs with which she had begun her career had hardened into a closed system.
The neo-liberal world-view that Thatcher accepted by the end of the 1980s was a successor-ideology to Marxism. Ideological thinking tends to adopt a one-size-fits-all approach to society, and so it was at the end of the eighties, when the close of the Cold War gave neo-liberal ideas a catastrophic boost. Led by Thatcher, western governments told the countries of the former Soviet bloc that if they wanted prosperity they had to import the free market. The notion that one set of policies could have the same beneficent results in the widely different countries of the former Soviet bloc was absurd, but it was of a piece with the mind-set in the International Monetary Fund that had imposed similar policies on highly dissimilar countries such as Indonesia, Nigeria and Peru. Along with the bureaucrats of the IMF, emissaries were dispatched to post-communist lands carrying the same draft constitution in their briefcases. No matter how discrepant the countries they descended upon these neo-liberal ideologues tried to impose the same model on them all.
While the fall of the Soviet Union was an advance for human freedom, its impact on peace was always going to be mixed. War and ethnic cleansing have gone with the transition from dictatorship in many countries. Though the communist collapse itself occurred with remarkably little violence, there was never any reason to think the post-communist world would depart from this pattern. More sober western policies might have mitigated the dangers, but in the triumphal climate of the time there was no taste for realism. Instead a utopian outlook came to be accepted by mainstream political parties.
Utopian thinking is most dangerous when it is least recognized. The emergence in the 1990s of a centrist version of utopianism illustrates this fact. First with neo-liberal economic policies in Russia and then with humanitarian military intervention in the Balkans, western governments embarked on courses of action that had no prospect of success. They were unprepared when the spread of democracy triggered ethnic nationalism in former Yugoslavia, separatism in Chechnya and Islamism in former Soviet Central Asia. Democracy and free markets were supposed to bring peace in their wake, not crime and violence.
Without realizing the fact, western governments had absorbed a utopian outlook. Governments of Left and Right believed that resurgent nationalism and ethnic and religious conflicts were passing local difficulties in the universal advance towards a new world order. Realistic thought was disabled by the return to power of an ideology that had been discarded over a century before.
THE RISE AND FALL OF NEO–LIBERALISM
Modern professors of economics and of ethics operate in disciplines which have been secularized to the point where the religious elements and implications which were once an integral part of themhave been painstakingly eliminated.
Jacob Viner7
By the end of the 1980s a doctrinaire form of liberalism had conquered the Conservative party. In the nineties it extended its influence to Labour. Blair accepted not only the new framework of policy that Thatcher had imposed in place of the post-war settlement but also the neo-liberal style of thinking that had grown up around it.
New Labour’s embrace of neo-liberalism was first of all a response to Thatcher’s political success. When Blair became Labour leader in 1994 his party had been out of power for a decade and a half. He swallowed Thatcher’s faith in the market as an elixir that would revivify the party and bring it back to power. The infusion seemed to have the desired effect, and Blair – along with Gordon Brown, Labour Chancellor and his rival for the leadership – accepted neo-liberal economics. Yet Blair was always closer to neo-conservative thinking, and after the 9/11 attacks he shifted decisively to neo-conservatism.
Versions of neo-liberal ideas have shaped policy in Britain and many other countries from the late eighties to the present day. Neo-liberalism encompasses several schools of thinking, but they have some key beliefs in common. Neo-liberals believe that the most important condition of individual liberty is the free market. The scope of government must be strictly limited. Democracy may be desirable but it must be limited to protect market freedoms. The free market is the most productive economic system and therefore tends to be emulated throughout the world. Free markets are not only the most efficient way of organizing the economy but also the most peaceful. As they expand, the sources of human conflict are reduced. In a global free market war and tyranny will disappear. Humanity will advance to unprecedented heights.
With minor variations F. A. Hayek, Milton Friedman and a host of lesser lights all subscribed to these beliefs. All were exponents of a late twentieth-century Enlightenment ideology whose basic tenets –despite being advanced as the results of scientific inquiry – are rooted in religious faith. Neo-liberals aimed to recover the lost purity of liberalism before its pollution by collectivist thinking, and like all fundamentalists they ended up with a caricature of the tradition they seek to revive. Neo-liberalism was a late twentieth-century parody of classical political economy. The classical economists of the eighteenth century believed all societies pass through definite stages of development leading to a single destination – a commercial civilization based on market exchange – but they had a clear understanding of the flaws of market societies. Lacking this insight, neo-liberals turned classical economics into a utopian ideology.
The classical economists themselves had serious doubts about the commercial society they saw coming into being around them. For Adam Smith commercial society was the best kind of human association, but it was highly imperfect. At times he refers to the market –or the ‘system of natural liberty’, as he often calls it – as being a Utopia; but he means that it is the best achievable system, not that it is without serious flaws. While he was impressed by the productivity of free markets, Adam Smith feared their moral hazards. Workers did not need to be well educated to perform the simple repetitive tasks required of them in the factories that were being set up in the north of England, while the anonymous cities that were springing up around the factories did not encourage virtue. In the long run this posed a risk to commercial civilization. Smith’s anxieties echoed those of earlier thinkers in a civic republican tradition and influenced later critics of capitalism. Marx’s theory of the alienating effects of wage-labour owes a good deal to Smith’s insights into the flaws of commercial societies. Caricatured by twentieth-century ideologues as a market missionary, Smith was in fact an early theorist of the cultural contradictions of capitalism.8 Smith’s Utopia is ‘…an imperfect utopia, or, differently put, a utopia suited for imperfect creatures’.9 Imperfect as
it may be, the system of natural liberty is not easily achieved. Unlike neo-liberals in the late twentieth century, Smith was sceptical of schemes of market reform. Such hopes as he had for his Utopia being realized rested on his religious beliefs.
Smith had little in common with secular evangelists for the free market like Hayek and Friedman. He viewed the emergence of commercial society as the work of divine providence. His conception of the ‘invisible hand’ – a system of hidden adjustments whereby the miscellaneous exchanges of the market promote the common good –was spelt out in unequivocally theistic terms. The invisible hand was God working through the medium of human sentiments, and human reason played a small role in this process. The market did not develop because human beings understood its advantages. It emerged as a by-product of instincts God had implanted in them. Like other thinkers of the Scottish Enlightenment, Smith understood that human behaviour is governed by emotion and convention far more than by reason, and like them he was suspicious of the intellect when it operated without regard for sentiment. The American economic historian Jacob Viner has summarized Smith’s standpoint:
The sentiments are innate to man; that is, man is endowed with them by providence. Under normal circumstances, the sentiments are infallible. It is reason which is fallible. Greatest of all in degree of fallibility is the speculative reason of the moral philosopher, unless the legislator is on a still lower level. Man, however, tends to attribute to the human reason what is really the wisdom of the Author of Nature as reflected in the sentiments.10
A conception of providence underpins the idea of a natural system of liberty advanced by Smith, and liberal thought as a whole is shaped by Christian beliefs. It was only in the mid-nineteenth century that liberalism came to be linked with secular thought. Since that time many attempts have been made to detach it from its origins, but liberalism remains an offshoot of Christianity.
In the early nineteenth century the chief argument for free trade was that tariffs thwart the divine design. In the most common formula, God scattered resources throughout the world so that widely separated peoples might come into close relations through trade and in this way recognize one another as brothers. Free trade was a means to brotherhood under the law of God. In the 1840s Richard Cobden waged a successful campaign against the protectionist Corn Laws in Britain with the slogan ‘Free Trade is the International Law of God’. For him this was not metaphor but literal truth. Later economists tried to reformulate the case for universal free trade in secular terms of comparative advantage, but they have never been very successful. A great deal of economic theory consists of attempts to deduce free markets from dubious axioms of rational choice. The resulting body of thought is markedly more dogmatic than Smith’s faith-based political economy. The free market became a religion only when its basis in religion was denied.11
The idea that the free market is grounded in science is central in the thought of Herbert Spencer (1820–1903). Born into a dissenting Methodist family that was strongly anticlerical (with some Quaker connections) but firmly Christian in its beliefs, Spencer became an agnostic and spent his life trying to reformulate a version of Smith’s system of natural liberty in scientific terms. An eccentric personality who produced part of his vast corpus of writings while travelling back and forwards on the Channel ferry wearing earmuffs as a protection against noise pollution, Spencer became one of the most influential thinkers of the late nineteenth century, with a large following in the United States. It was chiefly his idea of social evolution that brought him this renown. In seeking a scientific basis for ethics, Spencer was much influenced by Comte, but while Comte invoked science to attack liberal values Spencer used science to defend them. In each case the science was bogus.
Spencer was the most influential exponent of Social Darwinism, a system of ideas that owes little to Charles Darwin – it was Spencer not Darwin who coined the phrase ‘survival of the fittest’. For Spencer society evolves and its evolution can have only one end, the free market, or – as he called it following Comte – industrialism. ‘Industrial’ societies faced competition from ‘militant’ societies – socialist and nationalist regimes – which attempted to organize the economy on a basis of command. Spencer had no doubt the free market would prevail, but he never specified any mechanism that would ensure this result. Spencer’s silence was not surprising. Market-based societies may be more productive than others. That does not mean they will be adopted everywhere. Even where they exist they may be abandoned – as Spencer himself observed with dismay, a type of dirigisme had replaced laissez-faire in Britain by the end of the nineteenth century. His theory of social evolution struggled to explain this fact, which planted a large question mark over his whole system of ideas.12
For most of his life Spencer was able to persuade himself that history was going his way. Faced with the rise of imperialism and protectionism towards the end of the nineteenth century he fell into despair. Some of his disciples were not so tender-minded. Sidney and Beatrice Webb shared Spencer’s view that more productive economic systems win out over less productive ones. Like him they could not help noticing that laissez-faire was in retreat, and they concluded that Soviet collectivism was more productive than western capitalism. The Webbs’ embrace of Stalinism illustrates a flaw in all evolutionary theories of society. Social evolution is nearly always believed to lead to a single type of society, but history – like natural selection – has no overall direction or predetermined end-state. In practice, theorists of social evolution end up backing current trends. That is not far from equating might with right and often turns out to be a bad bet.
Towards the end of the twentieth century collectivism was in retreat. Neo-liberals believed a global free market was on the horizon; when it triumphed, peace and prosperity would be universal. This was the message of religious campaigners for free trade such as Cobden and John Bright. However, neo-liberals presented it as a fact established by social science – in this case the putative science of economics. Several different schools of economic theory were represented in the neo-liberal movement. Heavily influenced by Positivism, the Chicago School maintained that economics was a science containing universal laws just like the natural sciences, while the Austrian School maintained that the methods of natural science could not be applied to society. This was a fundamental disagreement, but it in no way dampened their enthusiasm for the free market; that was a tenet of their creed that could not be questioned. How it was justified did not matter.
The most ambitious and influential neo-liberal ideologue was F. A. Hayek (1899–1992). He grew up in the last years of the Habsburg Empire, viewing it correctly as in some ways a model liberal regime. He hated nationalism, rightly seeing in it a force of great destructive power, but he saw it as a reversion to tribalism. He failed to see that – like Nazism, communism and Jacobinism – nationalism is a modern phenomenon. He was a trenchant opponent of scientism – the mistaken application of the methods of the natural sciences to human affairs. Yet his defence of the free market was itself a type of scientism. In the 1930s he engaged in an extended debate on the origins of the Great Depression with J. M. Keynes, which Keynes – a more penetrating thinker as well as being more skilful in orchestrating opinion – won without difficulty. In the 1940s he gave up economics for social philosophy, but not before developing a powerful critique of central planning. Mainstream economists believed that under suitable conditions central planning could be highly productive. Against this consensus Hayek argued that it was inherently unworkable.
The core of Hayek’s argument was that the planners could never possess the knowledge they need to organize economic life efficiently. Like the philosopher of science Michael Polanyi – who visited the University of Chicago at the start of the 1950s when Hayek was a professor there – Hayek argued that knowledge of society is mostly embodied in practices. The price mechanism is a response to this problem – it enables us to use widely dispersed knowledge that is completely available to no one. Hayek ove
rlooked the distortions to which free markets are prone, and exaggerated when he suggested that centralized economic planning was impossible – the British command economy worked pretty well during the Second World War, for example. But he identified an insuperable obstacle to economic planning of the sort that was advocated by Marx and attempted in the Soviet bloc, Maoist China, Cuba and other communist countries. Even where some of the planners’ objectives were achieved – as in sections of the Soviet military-industrial complex – it was against the background of colossal waste. At a time when the majority of economists had no doubt that central economic planning could produce a level of prosperity comparable with that of market-based systems, Hayek showed it was bound to be far less productive. His position was vindicated by the record of the planned economies that emerged fully only after their collapse, and it is as a prescient critic of state socialism that he will be remembered.
Unfortunately it was as a theorist of the free market that Hayek achieved influence.13 His impact on leading politicians was slight, but he contributed to a harmful type of thinking: while illuminating the irrationality of central planning he overlooked that of market processes. Markets are prone to cycles of boom and bust and recurrent collapse. Keynes and others argued the Great Depression was a result of the mistaken belief that the free market is self-stabilizing. As Michael Polanyi’s brother, the economist Karl Polanyi, put it, ‘The origins of the catastrophe lay in the utopian endeavour of economic liberalism to set up a self-regulating market system.’14 Even if government policies aggravated economic collapse in the thirties (as Hayek argued), it does not follow that markets can be relied on. There is nothing in market processes that makes them self-adjusting. Hayek’s achievement was to show that a successfully planned economy is a Utopia. He failed to notice that the same is true of the self-regulating market.
