View source for The Origins of Neoliberalism, Part III – Europe and the Centre-Left Fall under Hayek’s Spell

<!-- you can have any number of categories here -->
[[Category:Philip Pilkington]]
[[Category:The Origins of Neoliberalism]]
<!-- 1 URL must be followed by >= 0 Other URL and Old URL and 1 End URL.-->
{{URL | url = http://www.nakedcapitalism.com/2013/01/philip-pilkington-the-origins-of-neoliberalism-part-iii-europe-and-the-centre-left-fall-under-hayeks-spell.html}}
<!-- {{Other URL | url = }} -->
<!-- {{Old URL | url = }} -->
{{End URL}}
{{DES | des = How Europe adopted a somewhat different version of neoliberalism. | show=}}
<!-- DPL has problems with categories that have a single quote in them.  Use these explicit workarounds. -->
<!-- normally, we would use {{Links}} and {{Quotes}}  -->
{{Quotations|The Origins of Neoliberalism, Part III – Europe and the Centre-Left Fall under Hayek’s Spell|quotes=true}}

{{Text |
In the practical art of war, the best thing of all is to take the enemy’s country whole and intact; to shatter and destroy it is not so good.

– Sun Tzu

In part one and two of this series we explored how Hayek waged war on what he thought was the cause of all the political ills of the 20th century: namely, economic planning in all its forms. We also saw that Hayek’s doctrine of classical liberalism and anti-statism proved too radical for American political and business establishment and that it required diluting by Milton Friedman.

We turn now to Europe, which would come to adopt its own form of neoliberalism. Once again, while the end result was a somewhat different creature from that conceived of by Hayek, it was nevertheless his strained, absolutist thinking that lies at the heart of the system that developed.

Motivations for a European Repression of History

As we have already seen some in the American right-wing loathed the economic planning that had grown up in the US in World War II and which, due to producing good outcomes for the overwhelming majority of citizens, gained consensus in the post-war years. This gave rise to a new propagandistic discourse aimed at what Hayek and others called “socialism” but which had little to do with the collective ownership of the means of production and was in reality a mixture of pragmatism and centre-left sentiment. The reason that Hayek’s extremism found fertile soil in Europe was that the underlying conditions were altogether different from those in America but ironically, that meant the model was bent into an even more palatable-looking form.

Europeans were, quite frankly, not as gullible as their American neighbours. They were less inclined to have the words that make up their language twisted and distorted in order to become meaningless propaganda of the sort that Orwell imagined. Unlike in America there was a strong socialist tradition in Europe and people knew what socialism was – and what it was not. The reason neoliberalism ultimately developed in Europe was altogether different.

In the post-war years many right-wing liberal politicians and intellectuals were tarrying with the same problem that Hayek faced in the 1930s. Any honest look at history – and indeed for many of these people this history was lived – would lead one to conclude that totalitarianism and war had developed in Europe, as Keynes hinted that it might in his 1919 book The Economic Consequences of the Peace, due to punitive reparation policies that were deflationary in nature. The neutral observer would also conclude that these circumstances had been exacerbated in Germany by a government which dogmatically pursued austerity policies and that this ultimately led to Hitler’s election. This presented right-wing liberals with a conundrum: how could they continue to support so-called laissez faire, small government policies if these policies resulted in forces that were so destabilising that they had led in the past to the most monstrous of tyrannies?

The answer for some was to convert to Keynesianism and to acknowledge that some degree of economic planning was not inconsistent with the principles of conservatism. The answer for others was to embrace Hayek’s delusion wholeheartedly and pretend as if it were economic planning and not laissez faire policies that had led to Hitler. So, they picked up a copy of The Road to Serfdom, joined Hayek’s network which was centred on the Mont Pelerin Society and threw history down the memory-hole.

Their problems were, however, much greater than their American compatriots. While the labour unions were indeed extremely important in the American political structure, they were never integrated in the same way that they were in many European countries. Europe, after all, had a strong tradition of social democratic parties that literally grew out of the labour movement. For this reason the unions had become more institutionalised in Europe than they had in the US, which lacked a labour party proper.

While in private many of the Mont Pelerin ideologues might have called these unions “socialist” – and indeed Hayek had some very unpleasant things to say about them as we shall see – this was not a tactic that would readily win political and institutional power. A public face was needed that would accommodate the unions in a way that they would not become vehicles for the economic planning that these “thinkers” had convinced themselves would result in totalitarianism.

Folie à syndicat

Throughout his life Hayek was extremely hostile to unions – a hostility that would later be taken up directly by the Thatcher government in Britain – but many of the Europeans around him thought this ideology counterproductive to the spread of neoliberal ideas. Some of these politicians and intellectuals genuinely did seem to believe that unions had a place in a neoliberal society, while others were likely being pragmatic.

Hayek and his Austrian compatriots saw the unions as a dangerous force – a potential harbinger of their fantasy totalitarianism – and sought to have governments squash them using the legal apparatus. Somewhat ironically Hayek’s stance on unions can only really be properly compared in Europe to the positions taken by the fascist and Nazi movements in the early 20th century insofar as brute legal force was sought to crush organised labour in the most authoritarian manner imaginable. Perhaps then, it should not surprise us that many members of Hayek’s inner circle would later rally to the support of savage dictatorships in Latin America.

However, other emergent European neoliberals took a completely different view and one would probably not be far wrong in saying that this was because the Hayek position brought up some rather unsavoury memories of the fascist era and the abuse of the legal apparatus that took place in those times. The main faction who supported the thesis that unions should be integrated – unsurprisingly, mostly Germans – were the ordoliberals. They, like the neo-Austrians, had formed largely as a collective of intellectuals opposed to the emergence of totalitarianism in Europe, but they had a slightly different view of what sort of society they thought would defend against it.

The ordoliberals and their allies – who dominated the discussion in the Mont Pelerin Society on this issue – believed that unions had already been integrated into the structures of power sufficiently that their more radical elements had been neutralised. They believed, rightly it turned out, that the union leaders could be “educated” in the ways of neoliberalism and help to keep their own workers in check. Thus the unions were seen by the ordoliberals and their allies as an integral part of their ideal of a neoliberal system of governance.

This ideology would later become known in Europe as “social partnership” and would prove, in Germany especially, as a remarkably effective way to keep wages low by indoctrinating union leaders into believing that doing otherwise would necessarily result in their workers being laid off. (The perceptive reader who is aware that many of Europe’s current problems actually stem from this will see yet another important link between today’s events and our little history). Within the left and the union movement those opposed to social partnership in its neoliberal form would also be painted as “Reds” and “communists” and be criticised in line with Hayek’s totalitarian delusion in much the same perverse way as the charge of “socialism” is used in the US. Those who go against the neoliberal orthodoxy in the European labour movement, while tolerated, are generally seen as socialists of a rather old fashioned sort whose silliness stems from the fact that they failed to learn the lessons of Europe’s totalitarian past. Need we amend this to correctly read: “Hayek’s construction of Europe’s totalitarian past”?

Not only were the ordoliberals concerned with keeping unions in check in terms of their bargaining powers, but they also saw in Europe a very real threat that workers were gaining political ground within the workplace. While they did not generally agree with Hayek’s stance on unions, they certainly did see this as an obstruction of “the market” and thus, in the language of Hayek’s delusion, a possible source of totalitarianism. Once again, however, the ordoliberals saw social partnership as a means by which they could back labour leaders who were not antagonistic to managers at the expense of their more radical colleagues. As in the case of wage bargaining, the ordoliberal project was to essentially gain control over the union movement and turn it into a means by which to further the neoliberal agenda.

Hayek and the Austrians reacted to all this in a rather extreme manner, even, rather surprisingly, invoking the spectre of class war. Indeed, one might easily mistake their stance for a sort of right-wing Leninism. Fritz Machlup, for example, at a meeting of the Mont Pelerin Society in 1947 said that:

Industrial peace is something that we should be afraid of, as it can only be brought at the cost of further distortion of the wage structure. I am most afraid of Professor Iversen’s proposal for wage determination by State, and consider it the end of democratic government.

According to such a view, of course, any countries with minimum wage laws do not, by Machlup’s idiosyncratic standards, have democratic government; and labour markets should, in a functioning Machlupian society, be in a state of constant war.

But rhetoric aside the Austrians largely lost the debate on the unions in Europe, while the ordoliberals won the day. Unlike in the case of monopolies, however, there was substantial opposition from Hayek and his allies. Whereas large corporations were to be accepted as normal by all those of neoliberal persuasion in both America and Europe, the tension over unions within the movement would continue; reaching fever pitch in the administrations of Reagan and Thatcher. These politicians and their allies, in a very real and direct sense, can be seen as purist Hayekians in the context of labour policy where they were not in terms of macroeconomic policy for which they favoured the doctrines of Friedman and the monetarists.

Conclusion: Neoliberalism Today

Many of us today live under neoliberal structures of governance. Each country may have its own peculiarities, but on broad principles they follow a pattern that invokes laissez faire, balanced government budgets, control over wages, privatisation, an abstention from economic planning beyond that strictly required and deregulation. What is more, Hayek’s delusion has become widespread to the point of all discourse being completely saturated. In polite company and in public you can certainly be left-wing or right-wing, but you will always be, in some shape or form, neoliberal; otherwise you will simply not be allowed entry.

Any policy or notion that offends the neoliberal mind-set and threatens to shatter Hayek’s delusion is said to only put us on the road to serfdom. It is not difficult to win a rational argument by pushing the point home that this is utter fantasy and nonsense, is completely ignorant of history and is founded on pre-school notions of economics; but that matters little. When you leave the room people will whisper to one another that you are an odd sort with silly ideas and probably should not be trusted.

Such is characteristic of all systems of crude propaganda. Propaganda, by construction, appeals to a series of images inside peoples’ heads – snapshots of a history either half-forgotten or fabricated entirely. These images, in turn, are design to affect peoples’ emotional centres and control them through manipulating that which causes their anxieties and their fears. That the founder of this propaganda himself believed in it entirely makes no difference, for it is the foolish man who thinks that effective propaganda is based on pure and cynical lies.

The oddness of the world in which we live today is that neoliberalism as a system of governance has become entirely dysfunctional. Those ambitious souls in the present ruling generation that received the torch from the inventors of the discourse believed it to be a pragmatic doctrine. This is not surprising given that we have seen that this is precisely how it was constructed. But as we have also seen neoliberalism was built on a fundamental fantasy – a sort of primal repression. Any serious student of history in general and economic history in particular knows that such policies are bound to be deflationary in the medium to long-run and that they will likely generate economic meltdowns and result in social and political turmoil.

And so our leaders, both intellectual and political, try to get a grasp of the situation we face today. But they consistently fumble and fall over; tripped up by their own ideologies. Hayek’s delusion is potent – very potent – and just as he all those years ago preferred to retreat into a fantasy world rather than face what was going on all around him, so too today our leaders do the same. Against all odds and in an act of what can only be considered heroic ignorance Hayek went to the grave with his delusion intact, we can only wonder how long others will uphold it before they buckle under its weight.
}}