30 April 2019

John McDonnell’s coercive alternative to neoliberalism

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There is no bigger bogeyman for the left than “the neoliberal”. They must imagine some kind of mangled beast, which can be blamed as the bogeyman for all of society’s ills.  Well. The Adam Smith Institute is proud to challenge this stereotype. You see, we are neoliberals. And we unashamedly support neoliberal policies.

Once upon a time, “neoliberal” was just an insult without a real target. Anyone that disagreed with the left was a “neoliberal”. It was a catch-all term designed to dismiss any free market idea because no-one would dare call themselves by the dirty neoliberal name.

Shadow Chancellor John McDonnell knows this. That’s why he said yesterday that no one is calling for the kind of neoliberal policies that they were nine years ago at the height of the Financial Crisis.

In many ways I’m grateful to the Shadow Chancellor for providing an almost perfect preview for an Adam Smith Institute paper out tomorrow. We’re not just being neoliberals, we’re actively calling for a neoliberal revolution in banking. In the paper, we’ll tackle the regulatory overreach at the heart of our banking system that decides who can lend, how, and on what terms. We’ll call for banks to issue more capital to end the socialism that we currently have for banks. And we’ll call for taxpayers to never again be called on to bail out failing lenders.

In fact, when you add it all up, the bailouts, the barriers to entry of competitors and the requirement to risk manage in the certain way all stems from hefty UK government and even intergovernmental regulation. What we need is to free up the market to deliver for more people. Banks should not only benefit from the profits of banking but also suffer the consequences of losses, not expect taxpayer bailouts. We want nothing less than the end of socialism for banks.

The reason is neoliberal. As my erstwhile boss Sam Bowman wrote, neoliberals have a number of distinguishing beliefs: we think that markets remain the most efficient and most moral way to organise most human affairs involving scarce resources, we care about consequences over intentions, we care about the poorest wherever they are, property rights matter but we understand that redistribution can be necessary if it doesn’t depress growth.

Banks that issue debt and capital should do so in a competitive environment because competition drives lending of scarce resources efficiently. They should know that their lending is risky and that they stand to lose should their risks not pay off. If things do go south, they should have the necessary capital assets on the other side of the ledger to fund their liabilities  This means taxpayers money can be focused on helping the poorest in our society, not on bailing out banks. This is realistic policy stemming from neoliberal principles.

There are a lot of policies out there that match this way of thinking. In fact, we have a nice easy list of 100 of them should Mr McDonnell care to take a look.

Of course, it isn’t just banking that the Shadow Chancellor sees as the neoliberal bogeyman. His analysis of modern economics sees us on the cusp of a revolution — with him firmly in the  driving seat. While nationalisation and central Whitehall diktat ran the postwar consensus, and private ownership has dominated since Thatcher, he wants us to move to “pluralistic and democratic models of ownership.”

Sounds lovely. But of course, privatisation has led to pluralistic and democratic forms of ownership. The Tories’ auto-enrolment into pensions means that millions of Britons now own shares, not just in the firms in which they work but right across the economy.

What does pluralistic and democratic ownership of the kind McDonnell advocates look like? Well, it’s ownership by committee. For an American audience, imagine the busybodies that run your Parent Teacher Association, the curtain-twitchers of your neighbourhood watch, and the apparatchiks at your housing association that block you moving into your dream flat. If you’re British just walk down to your local hours-long Momentum meeting.

There’s a benefit to the kind of ownership that Mr McDonnell espouses: you know the people running it, it can be locally responsive, interested people can do interesting things. But there are pitfalls too: nepotism and backhanders, companies that won’t be so easily held to account by a free press, managers that don’t manage to deliver services but act according to their political beliefs. In a free market there is nothing to stop small, local companies developing to deliver services and winning market share. In fact, if we make it easier for them to set up and compete, profit, and deliver a service that people are willing to pay at the level they charge then they’ll win out.

Ultimately what those pushing “pluralistic and democratic forms of ownership” are saying is that they don’t trust a pluralistic market, they don’t trust you to choose their preferred producer, and that you have to bow to their whims. In a word: coercion. Foregoing profit to penalise the individual. It’s the worst of all worlds.

The Shadow Chancellor is right, as he said in 2017, that neoliberalism has lost its grip on intellectual thought in the country — if it ever really had it.

Left-wing dominance at academic institutions (publicly funded of course) is now overwhelming. Academics that demand the government crowd out private investment by taking equity stakes in startups, or those that argue that the idea of “people making choices as individuals” and the “the private sector being dominant is a…less valid an assumption” have always found a voice in our universities. But what’s lacking is the counterbalance. Where is the new outspoken Hayek at our most prestigious centres of learning?

There is finally some push-back from free-market Tories vying for the leadership of a party that has abandoned too many of its principles lately.

The likes of Chief Secretary to the Treasury Liz Truss speaking out against the Blair and Cameron years of managerial politics, arguing rightly that higher taxes will “just choke economic growth” and that economic growth and productivity is at the heart of all of us in the future being better off — living freer, happier, and more prosperous lives.

But there are too many just going through the motions, saying they like the free market but pushing anti-competitive and poorly thought through policies like energy price caps, Help to Buy, cod stats on gender pay, and attempts to curb social media.

McDonnell and Corbyn, and the long winter of discontent that their policies would produce, is becoming more and more likely — particularly thanks to the Tories’ inability to deliver Brexit and the failure to pursue and communicate the free market message. If the Tories are to do so they will need policies that put power back to the people in a clear, consistent and honest way. The market does that, it does it democratically — without care to your colour or creed. The free market has a track record of lifting billions of people out of poverty and giving them the dignity of choice of their own lives.

No other system, not even those dreamed by the likes of Mr Donnell and certainly not those beloved by the ex-communists in the Labour leader’s office, have ever achieved as much.

It will be neoliberalism that defeats socialism once and for all, or nothing will. It will need us all to stand behind it and deliver it. We at the Adam Smith Institute are making the case.

Will you join us?

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Matt Kilcoyne is Head of Communications at the Adam Smith Institute.