Why neoliberalism can end in autocratic, populist and incompetent plutocracy

 Tuesday, 22 September 2020

Why neoliberalism can end in autocratic, populist and incompetent plutocracy

By Mainly Macro, Simon Wren-Lewis 

Is it a coincidence that the two countries that first championed neoliberalism (under Thatcher and Reagan), should end up with autocratic, populist and incompetent leaders (Johnson and Trump) in what is best described as a plutocracy? The thoughts below are, to use a phrase that Philip Mirowski once used about something I wrote, untutored, so comments via twitter (or DMs, or emails) will be gratefully received.

Before addressing that question, there will be some who will think I am exaggerating. Both countries are still democracies after all. But being a democracy did not stop both Johnson and Trump being elected. Both leaders are undoubtedly autocratic, in the sense that they or a tiny group around them wield far more power than their predecessors did, and they spend considerable resources trying to destroy the obstacles a pluralistic democracy puts in their way. Both leaders are populist in the sense that they either describe their own policy agenda as the ‘will of the people’, or suggest their opponents should be locked up. Both employ crude nationalism at any opportunity.

I suspect in most cases populism generates incompetence. Take Brexit for example. Brexit makes no sense on many grounds. Besides the economic hit, it reduces sovereignty to autarky by ignoring the gains to cooperation. One illustration of this is how it has reduced the UK’s influence on world events. Such policies repel intelligence and the open minded, and promote the mediocre and yes men (or women). Just look at the UK cabinet today, or the type of people that advise Trump.

What about plutocracy? The US has always had elements of plutocracy built in because money plays a huge role in all forms of election. That has got worse in recent years. The result is that the Republican party is now the party of wealthy donors, and it is noticeable that the first major legislation that Trump passed was to give large tax breaks to the very wealthy.

In the past money has been less influential on UK elections, largely because of strict election laws. However these laws have not kept pace with social media. The group that provides 80% of Conservative party funds is called the Leaders group, and they meet regularly with senior politicians. Recently some large coronavirus related contracts have been given to companies that donate to the Conservative party, or who have close connections to Conservative politicians. When the recent ‘rule of six’ for coronavirus mitigation came into effect, ministers called a special meeting just to ensure grouse shooting parties were exempt. Little attempt has been made to close UK tax havens. Like the US, what we are seeing today in the UK is not completely new, but it’s scale has intensified and the government’s embarrassment about it has decreased.

It is important to say that being a plutocracy does not, in these cases, imply that the government is really run by some kind of committee of all those with wealth. The impossibility of such a thing illustrates that plutocracies can be quite selective in the forms of wealth they favour.. To talk about the power of ‘capital’ or even 'financial capital' is misleading for this reason. In the UK those who run large hedge funds are particularly influential, and under Johnson and Trump most of those businesses involved in international trade are ignored and policies are directed against them.

There is a more basic reason for describing the UK and US as plutocracies, and that is by analysing how we got here. The place to start is neoliberalism. Neoliberalism eulogizes the market. In the past I’ve characterised the ideology as what you might believe if you did Econ 101 (a first year course) and skipped some of the lectures on market imperfections. However an ideal market for any economist involves competition, and as any student doing Econ 101 would know, any form of imperfect competition takes you away from that ideal. However neoliberalism in practice has become increasingly relaxed about monopoly power. Colin Crouch distinguishes between what he calls market-neoliberals and monopoly-neoliberals.

Why neoliberals use social conservatism as a vote winner

Neoliberalism's success owes a great deal to it being a very attractive ideology for the wealthy, and that in turn helps explain why it has been increasingly relaxed about monopoly. Wealthy funders of think tanks that promote neoliberalism, like the IEA in the UK, will not look kindly on the think tank suggesting their monopoly should be broken up. This is an illustration of how neoliberalism has increasingly adapted as an ideology to serve the interests of wealthy individuals. It is no accident that under neoliberalism the relative incomes of the 1% and 0.1% have taken off, which greatly increases both the ability and incentive for the wealthly to meddle in politics.

The obvious problem with an ideology championed and reinterpreted by the wealthy is that it won’t be very popular with a majority of the 99%. Neoliberal ideology pretends that the huge salaries of CEOs reflect what they add to their firms and the economy, but in reality high CEO pay means that everyone else gets less of the cake. Wars on red tape are fine for businesses, but they come unstuck when a building goes up in flames or a financial system collapses. While initially Reagan and Thatcher were able to win elections (with Thatcher, in part by giving bits of the state away at bargain prices), being at the right of the economic spectrum will eventually have a cost.

The way round that problem that the political right has adopted in both the US and UK is to appeal to social conservatives. In the US the obvious way to do that was through race, while in the UK the main route has been immigration. In an important sense this appeal to social conservatives is quite false: many right wing politicians are liberal in some of their social views, and they depend on immigrants to wait on them in restaurants or clean their houses. It is an electoral tactic to win over left wing social conservatives for a right wing party, but not one most neoliberal governments would want to carry through to the extent of damaging the economy. . .

Sometimes the interaction between social conservatism and right wing goals can be positively helpful. A clear case is austerity in the UK. Whatever its initial motivation, austerity became a means of shrinking the state and thereby releasing more resources for the private sector, and in particular the wealthy. Austerity has strong negative effects on the 99%, but these can be (falsely) blamed on immigrants taking away resources from the indigenous population.

However the major party of the right in both countries knows that taken too far this social conservatism can have negative effects. Before Trump, immigration was not politicized in the US to the same extent as the UK, because immigrants are useful for sectors of US business. In the UK the Conservatives set targets for immigrants, but were never prepared to suffer major economic damage to achieve those targets. In that sense the shift to social conservatism was a partial deceit, which was in danger of being found out.

The transition to populism

How do we get from here to populism? The key I think is that modest and insincere appeals to social conservatism can be undercut by those who are more socially conservative, and these insurgencies can be backed by extremely wealthy individuals who think they can get something out of it by promoting it or aligning with it. These individuals can include media barons. In the UK this took the form of UKIP, and in the US by the tea party (financed and promoted by the Koch brothers) pushing more right wing/socially conservative candidates in primaries. For example the tea party’s anti-regulation/anti-tax stance fitted nicely with the interests of big tobacco. The tea party could take over the Republicans through primaries where their candidates could appeal to core voters, spend a lot on advertising, and even get right-wing media support. 

Trump in the US was the final step in such an insurgency. He was very much an outsider in terms of the traditional Republican party, but he had his own resources to launch his campaign. He appealed to social conservative left wing voters because of his position on immigration and trade, and mobilised apathetic voters through his populist rhetoric, enhanced by his racist views. Weakened by the tea party, the Republican party was not able to stop him becoming the Republican candidate.

In the UK a populist take over of the Conservative party worked through opposition to the EU. UKIP gained popularity because the Conservatives talk on immigration did not match their rhetoric for reasons already discussed. UKIPs leader, Nigel Farage was, like Trump, a populist who had no qualms supporting the right wing fridge parties of Europe. But the absence of primaries in the UK meant he had no way to beat the FPTP system. Why did some wealthy individuals back Farage? UKIP was founded not as an anti-immigration party, but an anti-EU party, and some wealthy individuals were anti-EU. David Cameron agreed to a referendum on UK membership because of UKIP’s threat to steal Conservative votes and MPs. EU membership was hardly a major issue among voters before the referendum, but as the referendum approached voters had to make up their minds.

Probably the most crucial wealthy individuals that had an interest in Brexit were media barons. The Tory press, who had much of the daily English newspaper readership, had for some time attacked the EU. It was Johnson who first started writing largely made-up or wildly exaggerated stories about decisions made in the EU that might impact on the UK. These powerful newspaper owners essentially groomed their readers to have unfavourable opinions about the EU.

This press had a strong influence on Conservative party members, who became more Eurosceptic, and some younger neoliberal Conservative MPs began championing the Brexit cause. The motive force was similar I suspect to those who controlled newspapers: a belief the EU was preventing the UK becoming a low regulation neoliberal exemplar. When the press successfully suggested that Freedom of Movement was the reason immigration targets had not been hit a referendum victory became a possibility. (The suggestion was of course false, and after Brexit EU migrants were essentially replaced with non-EU migrants.)

The Leave campaign and Trump were similar in many ways, and one was that both lied without shame, and the media in both countries failed to attack those lies sufficiently. Once the Brexiters had their narrow referendum victory, they started talking about the ‘will of the people’ in true populist fashion. Because the Brexiters hadn’t put forward a coherent route map of how to leave, chaos followed the referendum vote and UKIP continued to attract voters. Eventually the leaders of the Leave campaign were invited to take over the Conservative party. Equally Trump gets very little opposition from Republicans in Congress.

How can those at the extreme of the social values and economic policy spectrum win an election? One pedantic answer is they didn’t: Clinton got more votes than Trump, and a much better campaign filled with lies gave Leave a one-off boost that they haven’t enjoyed since. A more substantive answer for the UK is that Labour find it difficult to occupy the centre ground on social issues, as their members tend to be at the other extreme, and the media tries to ensure social issues are dominant in the campaign. (I also have the feeling that in elections many better off socially liberal voters are unlikely ever to vote Labour.) In the US there is an ongoing debate about whether Trump won because of race or because his economic populism appealed to the working class, but when the racially prejudiced and the religious vote get you at least a third of the electorate it is not too surprising that outlandish (populist) promises promoted in the media can get someone elected for the first time.

The lessons of the 1930s were forgotten

Is this symmetrical? Could politicians who are strongly left wing and socially liberal take over the party of the left and win? Recent events suggest it is more difficult, but it is important to understand why. The overtly biased right wing media is an important factor here for the obvious reasons. However I think among the well paid political commentators in the less partisan media, and among the Democrat or Labour machine, there is a deep aversion to the left. It is often justified with ‘middle ground’ logic (used extensively for example when it looked like Sanders could win the Democrat primary), but post-war US history and events more than a generation ago in the UK may play a role.

There once was a similar aversion to the extreme right, for obvious historical reasons. In 1968 Enoch Powell gave a speech where he talked about the rivers of blood that would result from what we now call the Windrush generation. The Conservative Prime Minister Edward Heath sacked him from the cabinet after the speech. I cannot help but think that if he had been active in politics ten years ago and had given s similar speech about Muslim immigration, he would not have suffered the same fate. Indeed I suspect he would be appearing frequently on Question Time and would be a leading Brexiter, and perhaps even Prime Minister. History also shows us the danger of using racial or religious minorities as scapegoats for economic misfortune and declining national influence.

Did things have to go this way? Is neoliberalism doomed to degenerate into the populism we see today. Of course both Trump and the Leave campaign could easily have lost. Yet neoliberalism not only increases inequality, but it enables and even encourages wealthy individuals to influence politics. Once the main neoliberal right wing party starts using social conservatism as a way of distracting from their right wing policies, wealthy individuals (including those that own parts of the media) can use more hardline populist views to promote their goals, and have a strong chance of becoming successful insurgents. FPTP and the two party system is a necessary condition for the extreme right to take over a more moderate right wing party and still win an election.

Once this has happened, it is difficult to see how either right wing party returns to its former self. In both countries a radicalised party membership, well funded by wealthy individuals and maintained in part by sections of the media, can continue to outvote more moderate conservatives. I argue here that what could change things is successive electoral defeats, but only where centre-left governments change some of the conditions that allowed populist governments to win.

On the other hand populist autocrats hate media criticism, or opposition coming from the legal system. The longer these populists remain in power, the greater is the danger to the independent media and judiciary. Right now in the US we are on a knife edge: if Trump decides to declare victory before postal votes are counted, will loyal Republican judges override democracy? In the UK the Conservative party is already putting strong pressure on the BBC, and has suggested abolishing the electoral commission. They have four more years to go further.