Saturday, April 13, 2013

Neoliberalism and Communism

One of the most annoying aspects of running a popular Facebook page about politics and economic is the sheer number of politically and economically illiterate comments that people leave. I believe that the standard of debate on my page is often quite high bearing in mind the usual standard of debate on Facebook, however many comments bear the hallmarks of lazy political tribalism and brazen economic illiteracy.

Wading through the rubbish to find the more thoughtful, intelligent and inspirational comments is a mind-numbing chore, made all the more difficult by my unwillingness to simply let lies and misrepresentations pass without rebuttal. I waste far too much of my time replying to idiotic comments; time that could obviously be better spent writing articles, designing images, spending time with my family or just watering the plants. Every so often though, a comment appears that is so utterly wrong-headed that it it is genuinely enlightening. A comment that serves to illustrate exactly how completely wrong it is possible to be: An exemplar of idiocy.

Here's one such comment about Margaret Thatcher from a post on the Another Angry Voice Facebook Page:
"Her economic policy [was] based on the evil ideas of Freedman economics by the Jewish communist Milton Freedman of Chicago."
Now, a normal person, with the slightest clue about who Milton Friedman actually was, and a reasonably accurate definition of communism would probably have a laugh about the sheer scale of ignorance and perhaps leave a short comment to point out how exactly how utterly wrong it is. However, I'm not a normal person by any stretch of the imagination and I find myself almost duty bound to conduct further analysis in order to marvel at the exceptional stupidity of such a comment.

Firstly I'll consider how it was even possible that such a remarkably stupid comment could have been devised in the first place before going on to examine what makes it so remarkably wrong.

The author was clearly using the word "communist" as an insult, without any consideration for the actual meaning, the way that Teabaggers in the United States describe Obama as a communist, demonstrating both the fact that they don't even know the definition of the word (see this video) and their shocking ignorance of who Obama actually is. That Obama is the most right-wing leader of the Democrats in living memory, with a steadfast commitment to capitalism is unquestionable. To people that have actually paid attention to Obama's political appointments it is remarkably clear that Obama should actually be known to all as "The Wall Street President". You only need to look at the source of his political donations to realise that anything but a Presidency with an absolute dedication towards serving the interests of Wall Street and of American corporate power is actually an impossibility.

But I digress. It is clear that our contributor is using "communist" as a derogatory term in the same way that he is using "Jew" as an insult. The two are often seen in combination in far right politics. The extreme right recognise communism as the enemy economic philosophy, so it is natural for them to work it into "the Jewish conspiracy" that they are always so fanatically preoccupied with. It doesn't matter that the Jewish state of Israel has been part of the anti-communist alliance since the foundation of the state, nor that there are countless examples of Jewish anti-communists..

The idea that the concept of communism is Jewish is as simple minded and wrong headed as the idea that the concept of Television is Scottish. Yes some Jews have engaged with and promoted the communist ideology, however there are countless examples of other Jews that haven't. Probably the most famous example of a non-communist Jewish person is the aforementioned Milton Friedman. In fact Milton Friedman is almost synonymous with the ideology he spent his lifetime promoting, the ideology of neoliberalism. Friedman was the ideologue at the heart of the University of Chicago school of economics that was at the very epicentre of American neoliberalism. Just as Vienna is the Mecca of Austrian school of economics, Chicago is the spiritual capital of neoliberalism.

Now onto analysis of just how wrong the conflation of Milton Friedman's ideology of neoliberalism and the communist philosophy actually is. Apologies if you are familiar with the definitions of these two socio-economic theories, but for clarification I'm going to describe these ideologies in terms of economic power, property rights and freedoms. I'll try to keep it as brief and informative as possible, since I'm sure a hefty proportion of my audience are already familiar with meaning of both communism and neoliberalism.

Communism
Under communism, all economic power is in theory, supposed to be controlled by the state, which in turn is controlled by the people. Ownership of property and the means of productivity are transferred to the state, which means individual property rights must be curtailed. The state then exploits the means of productivity to provide for the populace, which means that the populace loses the freedom to economically exploit one another in return for the freedom from exploitation.

The problem with communist theory is that it's never really been tried in practice because the power of the communist state is simply usurped by totalitarians like Stalin, Mao or the Kim dynasty in order to erect absurd totalitarian personality cults.

Not only is the model of absolute state power over the economy prone to usurpation it is also often prone to inefficiency (because individuals are often capable of making more efficient decisions that the secondary party of "the state" making those decisions on their behalf). Purely applied communist theory is an impossibility, because like all economic systems it is prone to subversion (all economic regimes are subject to black markets, corruption and fraud). "Pure communism" has never existed, and will never exist.

The main practical problem with the communism based economies that have existed hasn't actually arisen out of the huge potential for inefficiency within vast state bureaucracies, it has arisen out from the revocation of individual freedoms.

Take the Soviet space programme for example. Even the most hard line critic of communism would struggle to take the stance that the Soviet Space programme never produced monumental achievements. Just think of the launch of the first communications satellite in 1957 (only 12 years after the concept of the communications satellite was actually devised by the Englishman Arthur C. Clarke) and then only a few years later the first manned space flights.

Another undeniable example of impressive communist efficiency is the Cuban health system. Not only do they have a health system with outcomes to rival any capitalist country, they've achieved it despite the continuous exodus of thousands of medical professionals a year in search of better pay and greater economic freedoms in capitalist countries. This exodus is illustrative of both the potential efficiency of communist economies (because the Cuban health system continues to function incredibly well despite this constant loss of skilled labour) but also the practical problem of the individual desire for economic freedom.

It is my view that the Soviet Union fell not because of economic inefficiency, but because of the social demand for greater social and economic freedoms. The denial of freedoms to the citizens of the Soviet Block caused the massive uprisings against the Soviet regime. The people of the Soviet block wanted the freedom to read what they choose, to associate with whomever they like, to buy luxury items, to watch MTV and to eat at Pizza Hut. In my view it was the denial of these social and economic freedoms that led to the eventual fall of Soviet style communism.

Neoliberalism
Neoliberalism is a form of militant capitalist anarchism where the state is to have no function but to dismantle itself and assume the minimal executive power of protecting property rights. The two core principles of neoliberal economic theory are deregulation and privatisation.

Under neoliberalism theory, in order to improve economic efficiency to the maximum level possible, virtually all economic power must be removed from the state and distributed to the populace. Essentially a government that embraces the concept of neoliberalism must strive to reduce the interventions of the state. A hard line neoliberal government is duty bound to dismantle itself from within.

Once this process of privatisation and market deregulation sets in, the theory tells us that a mystical force which is often referred to as the "invisible hand of the market" or as "market forces" supposedly guides the economy towards maximum efficiency. This existence of this self-regulatory effect is believed with such fervour that the idea that "the invisible hand" creates economic efficiency seems self evident to neoliberal adherents. It is believed so strongly that "market forces" lead to "economic efficiency" that the two concepts actually become inextricably merged to create the fallacy of capitalist efficiency.

One of the most fundamental problems with neoliberalism of course is that God-like phenomena of the "invisible hand" doesn't exist. It is clear from analysis of any complex system (human society being perhaps the most complex system known to mankind himself), that the arbitrary removal of rules (deregulation) invariably leads to chaos.

The reason that market chaos is inevitable if ideologically driven neoliberals are given free rein to tear up the economic rule book, is that many of the rules exist to prevent economic inefficiency by outlawing anti-competitive practices. If market competition creates efficiency, then the ideological destruction of rules that have been designed to prevent anti-competitive practices will inevitably result in an increase in anti-competitive practices.

It is undeniable that activities (such as monopoly formation, oligopoly formation, corruption, insider trading, taxation asymmetry, fraud, price-fixing, dumping, frontrunning, refusal to trade, tying, punitive intellectual property laws, cartel formation, information asymmetry, bribery and political patronage) reduce genuine competition and create market inefficiency. If the rules that prevent such anti-competitive practices are scrapped, it is inevitable that self-interested individuals will take advantage of their new found freedoms to engage in anti-competitive practices and in so doing, undermine market efficiency.

Privatisation, the other ideological foundation of neoliberalism, is no less prone to poor outcomes than deregulation. The great problem with privatisation of state assets and infrastructure is that those with the most capital to invest get the lion's share of the assets being disbursed by the self-dismantling state. In effect this means that economic power to exploit productivity of the populace is distributed to the capital rich (corporations and the super-rich) rather than to the population as a whole.

What makes this process so much worse is that like all economic processes, privatisation is open to corruption. Those with closest links to the neoliberalising government end up with huge swathes of formerly state owned infrastructure at bargain basement prices.

Another major problem with privatisation is that many services simply don't generate profit, necessitating vast subsidies and lucrative outsourcing contracts in order to entice private interests into providing these economically necessary services. These enticements often become a bigger burden on the taxpayer than the entire cost of running the services as a state monopoly! The privatisation of British Rail is one of the classic examples of runaway subsidisation, where the cost of current subsidies is significantly more than twice the cost of running the entire network back in 1994 (adjusted for inflation). Not only has the burden on the taxpayer risen, the burden on the passenger has too, with inflation busting price rises every single year in return for usage of an ever more overcrowded network.

Privatisation allows private interests to exploit infrastructure and services that are simply too-important-to-fail. This puts them in the position where they can demand ever greater taxpayer funded subsidies and charge ever increasing prices, safe in the knowledge that the state or the individual consumer will tolerate this rent seeking behavior and cough up incrementally greater amounts, rather than suffer the much greater economic shock of having their rail network or health service declare bankruptcy and shut itself down, or the greater personal shock of having their water or electricity supply shut off due to non payment of bills.

One of the indicators of capitalist inefficiency is the phenomena of market bubbles. Bubbles represent phases of economic inefficiency, of wasted productivity. Instead of capital being put to the most efficient use possible, vast amounts flow into the inflation of asset values until a loss in market confidence is triggered, causing massive asset depreciation and capital losses.

The more deregulated markets have become, the larger the bubbles of inefficient investment. At the time the 1987-88 Savings and Loans crisis in the United States caused by the Reagan deregulations was seemingly enormous, but in hindsight it dwindles in comparison with the devastating consequences of subsequent neoliberal crises such as the Asian contagion, the Argentine neoliberal meltdown and default, the dotcom bubble, and the 2007-08 global neoliberal meltdown.

The ongoing financial crisis is a result of market deregulation. (anyone that denies this fact in favour of facile tribalist "blame Labour" narratives is such a fact averse revisionist that the cognitive dissonance will probably have prevented them from even managing to read this far). Wave after wave of neoliberal  financial sector deregulations led to reckless speculation on all kinds of junk. Unimaginable flows of capital was invested in hopeless stuff like AAA rated Collateralised Debt Obligations, Credit Default Swaps, Greek government bonds, Irish bank bonds, Spanish property investments and all kinds of tangible but massively overvalued assets, worthless paper and mindbogglingly stupid derivative contracts.

What happened after the market lost confidence in so many of these hopeless investments at once was the absolute refutation of neoliberal economic theory. Financial institutions and investors ran to the governments of the world demanding the largest state interventions in history in order to stave off bankruptcy.

Countless institutions have exploited their "too-big-to-fail" status to demand unprecedented taxpayer funded bailouts in order to stave off systemic collapse. In essence, the players in the neoliberal market gambled themselves into such a predicament that their only salvation was recourse to the state, which under their own beloved theories, should never, ever intervene in the market.

Without these vast state interventions, the neoliberal market would have collapsed into insolvency and chaos. To put the scale of the bailouts into perspective. The UK financial sector interventions and Quantitative Easing injections (new money invention schemes) amount to more than an entire year worth of national output.

Imagine the productive potential of dividing up this massive investment and injecting that much capital directly into several areas of the economy. Imagine the increases in employment, skills, personal wealth, disposable income, aggregate demand and national productivity had such sums been found to invest tranches of £250 billion into five areas of the economy:
  • National infrastructure improvements
  • Schools, universities and technical training schemes
  • Scientific and technological research
  • Health research and service provision
  • Business development loans.
Instead of this kind of targeted investment, what the UK public witnessed was more than £1 trillion worth of state investment simply poured into the black holes of financial sector debt in order to stave off the systemic collapse of the failed neoliberal ideology.

The principal selling point of the neoliberal ideology is that it legitimises, and in fact glorifies self-interest, the pursuit of profit and personal greed. I'm not original in saying this, the French philosopher and economist Frédéric Bastiat wrote in 1848 that:
"When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it"
It is absolutely clear that neoliberal economists have managed to find support for their ideology amongst the wealthy and powerful precisely because neoliberalism tells these people exactly what they want to hear. It tells them that greed and self-interest are not actually socially and economically destructive vices that must be counteracted, but actually virtues to be promoted and lauded!

Given the fact that neoliberalism provides a wonderful pseuco-economic justification for rapacious greed and self-interest, is is absolutely no surprise that neoliberal economists have found no problem in attracting financial support from the wealthy and powerful for their university departments and pseudo-economic research projects.

The problem with neoliberalism is of course that it doesn't matter how many billionaires pour funding into the promotion of the neoliberal ideology, it is, and will always remain economically illiterate stuff that relies on the deliberate ignorance of the inefficiencies created by anti-competitive practices. If the rules that prevent anti-competitive practices are deregulated out of existence, the whole narrative of capitalist market efficiency is destroyed. Efficiency can't be achieved by the complete abandonment of the rule book just as it can't be enforced by a billion rules and regulations enforced by a vast totalitarian state bureaucracy.

Real market efficiency is achieved through optimisation of market regualtions, rather than through ideologically driven attacks on the whole concept of market regulation. It seems stunningly obvious to me that the idea of maximised efficiency through free market capitalism is dependent on effective regulation to prevent anti-competitive practices and outright fraud. Essentially, in order to create a competitive "free market", it is first necessary to create a "fair market". What neoliberalism achieves through ideological attacks on the concept of market regulation is the entrenchment of crony capitalism. The establishment of a corrupt and inefficient system where the capital rich minority are free to put their vast wealth to hopelessly inefficient uses, whilst the majority suffer ever greater encroachments on their economic freedoms through impoverishment, debt, unemployment and low wages. Neoliberalism is a recipe for economic inefficiency and systemic collapse.

Comparison
If we consider the three main themes I've covered (the economic power of the state, property rights and individual freedoms) it turns out that communism and neoliberalism are exact opposites. The communist believes that the state must command total power over the economy, the neoliberal believes in the complete revocation of state control over the economy. The communist believes that it is the role of the state to revoke property rights in order to communalise property, the neoliberal believes that the only role of the state should be to protect property rights. The communist believes in the revocation of freedoms in order to protect the populace from exploitation, whilst the neoliberal believes in protection of the freedom of the wealthy to to exploit others in the pursuit of profit.

In my view communism is a militant ideology of practical impossibility. The state cannot possibly regulate every aspect of the economy, and attempts to establish communism to date have descended into totalitarian regimes and often into the development of absurd personality cultism.

In my view neoliberalism is even worse. It seems to be built on the absurd foundation that because communism is, lets say, undesirable or anti-American, the exact opposite must therefore be desirable. Noeliberalism is in fact a reactionary position born of the anti-communist mindset. It is based on the ridiculous assumption that the opposite of what is undesirable, must therefore be desirable.


Conclusion
I've demonstrated that communism and neoliberalism are not just completely different ideologies, but that neoliberalism actually seems to be a reactionary reworking of free-market capitalist theory, born of the post-war anti-communist fervour in the United States, to make it the intentional opposite of communism. Where communists believe in the power of the state, neoliberals believe in the abolition of the state. Where communists believe in the abolition of private property rights, neoliberals place the protection of property rights at the pinnacle of their ideology: And where communists believe that rights must be revoked in order to provide freedom from exploitation, neoliberals believe in protection of the right to exploit.

Anyone that could conclude that communism and neoliberalism are the same thing must be so fanatical in their hatred of Jews and Judaism that they'd willingly conflate two opposite economic ideologies on the basis that the most famous proponents of both ideologies (Karl Marx and Milton Friedman) both happened to come from Jewish families.

Whatever the motivation behind such a ridiculous conflation, the fact is that it led me to write this comparison between these two ideologies, serves as a demonstration of the fact that, given the right kind of circumstances, the consequence of even the most grotesquely ignorant statement can be the exploration of interesting themes: That even the most idiotic statement can lead to something interesting.

Given that I've subjected both ideologies to severe criticism, I believe that you'd be entitled to ask what my favoured economic ideology actually is.

My view is that neither of these extreme ideologies are capable of maximising efficiency. Efficiency can't be enforced through the creation of millions of ruthlessly enforced rules and regulations, just as it can't be stimulated through complete abandonment of the rule book either. As I mentioned in my critique of ideological neoliberalism, the neoliberal dream of a "free market" becomes impossible once the rules preventing the development of anti-competitive practices come under ideological attack.

My view is that the rules of the market should be designed and rigorously applied with the principal aim of promoting economic efficiency, through the exclusion of anti-competitive and economically inefficient practices. Communists would criticise me because I believe in individual property rights and the efficiency of capitalist production, but neoliberals would criticise me because I believe in a strong democratic state with the power to intervene in the market to prevent anti-competitive practices, which means seizing the control of natural monopolies and economically vital infrastructure.

A truly productive economic system must not allow a minority of individuals and institutions to gamble vast amounts of capital on a shadow derivatives casino that is more than 15 times the size of the real productive economy of the entire world or into the inflation of vast bubbles of economically inefficient investment. A truly productive economy must ensure that the greatest number of individuals have the ability to improve their productive capabilities, through education, training, innovation, access to healthcare and finance.

I believe that the toxic effects of capitalistic parasitism (rent seeking behavior, capital hoarding, taxation, anti-competitive practices...) can be mitigated through the development of  robust legislation to promote competition and economic efficiency, and through democratic control over natural monopolies and vital infrastructure. I don't like to label myself as an adherent of one formal ideology or another, but for the sake of clarity I'll say that the two of commonly recognised ideologies that most closely match my own views are Social Democracy and Left-Libertarianism.



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