How Neoliberalism Reinvented Democracy

Daniel Zamora Vargas
4 February 2021

The latest issue of The Tocqueville Review/La Revue Tocqueville is out, featuring a special series on “How Neoliberalism Reinvented Democracy.” Below is series guest editor Daniel Zamora Vargas’s introduction, which outlines the aims of the project and introduces some of the participants’ key insights.


“The word ‘democracy’,” the Republican Senator Mike Lee recently noted, “appears nowhere in the Constitution.” The reason, he thought, was “because our form of government is not a democracy.” “If what you wanted was a fascist form of government” the senator added, “you could get there far more efficiently, far more completely, using a pure form of democracy.” “Democracy,” he concluded over his Twitter feed, “isn’t the objective,” “liberty, peace, and prosperity are.” This view, while rarely stated publicly by elected officials, is nevertheless common among avid readers of the work of neoliberal founding fathers such as Friedrich von Hayek. In his 1944 best seller The Road to Serfdom, the Nobel Prize winner had explicitly argued that “democracy” was probably the easiest way towards “complete despotism” unless legally limited. Hayek’s aim was nothing less than the “dethronement of politics.” 


Traumatized by the achievement of universal suffrage and the experience of mass democracy in Red Vienna, first generation neoliberals such as Hayek and Ludwig von Mises were convinced that market mechanisms and property rights had to be protected from any kind of political interference and popular involvement. In the end, totalitarianism, was in this perspective nothing more than “illimited democracy,” a system where “everything is political.” This concern would explain the support, by Mises, of the Austrian Chancellor Engelbert Dollfuss’ dictatorship in the 1930s or, more famously, of the General Pinochet military coup in Chile by Hayek. “A dictatorship that deliberately sets limits on itself,” he famously told a journalist of El Mercurio during his second visit to Chile in 1981, “can be more liberal in its policies than a democratic assembly without limits.” Of course, in most cases, the encasement of the demos didn’t require an authoritarian takeover. In fact, what neoliberals had in mind was instead meant to narrow the endless inflation of democratic demands—that somehow were engendered by monetary inflation—that would inevitably threaten freedom and lead to self-destruction. For those who would become the “Geneva School” of neoliberalism, spearheaded by Mises, Hayek and the German ordoliberals, Capital, as Quinn Slobodian pointed out, had to be able to “move through the world” while “commitments to national sovereignty” or “self-determination” had to constrained. 


Scholars such as Wendy Brown, Colin Crouch, Wolfgang Streeck, and William Davies have shown how this neoliberal “dethronement” of politics has severely restricted the arena of civic life and collective participation. Relying on Foucault’s lessons on The Birth of Biopolitics, Brown’s famous argument illustrates that, with the expansion of economic reason, democracy was slowly “undone, hollowed out from within, not only overthrown or stymied by antidemocrats.” The main characters shaped by the “Chicago School” such as the “entrepreneur of the self,” the investor in “human capital,” or the “free rider,” displaced the homo politicus in favor of the homo economicus. The substitution of politics by economics, or to take William Davies’s formula, “the pursuit of the disenchantment of politics by economics,” lead to the progressive replacement of “political judgement with economic evaluation.” While political participation, as Streeck noted, traditionally implied an active citizenry obliged to take part in the production of political goods, the marketization of politics transformed it into narrow “acts of consumption, or hedonistic individual utility maximization.” 


One of the most stunning examples of this “economization” of public goods and democracy, is perhaps James Buchanan and Gordon Tullock’s Public Choice theory. Prompted by Arrow’s 1950 impossibility theorem, The Calculus of Consent renovated contractual theory by reinventing constitutional legitimacy through the lens of market-friendly foundations relying exclusively on self-interested rational actors. Under that view, as noted by Sonja Amadae, the very idea of “the public” or “collective good” was “obliterated” as “a meaningful category for analysis.” Constitutional design would imply a state constrained by a strong constitutional framework, limiting the scope of majority rule and of the supposed tendency of state bureaucracies to be “captured” by special interests. Buchanan’s perspective would go as far as advocating a “fiscal constitution” (including fiscal restraints, tax ceilings or balance budgets) to limit the Leviathan’s growth. This program wasn’t however limited to national spaces, but became paradigmatic in how to think about the international institutions shaping international economic exchanges such as the World Trade Organization or supranational entities like the European Union.


Neoliberal democracy


Beyond this essentially negative understanding of the relation between democracy and neoliberalism, it’s important however to investigate how neoliberalism invested the marketplace with a democratic legitimacy. Indeed, while it certainly rejected a specific understanding of democracy, the contemporary literature tends to overlook the fact that as Jacob Jensen argues in his contribution to this issue, “neoliberalism does not so much undo or oppose democracy as invest it with new meaning.” “If we want to understand” neoliberalism, as Niklas Olsen argues in his contribution, “we also need to grasp [it] as a positive program that to a great extent has rallied popular support through appeals to democratic legitimacy.” In other words, neoliberalism is not so much a program aimed at “undoing” but rather at “redoing the demos.” And it’s this reinvestment of democracy that guides the contributions of this special issue of The Tocqueville Review. The four contributing authors explore how neoliberals reshaped our understanding of democracy, of the role of the state and of public deliberation, in the making of contemporary societies. 


Freedom from Coercion


Achieving this “positive” program required first and foremost, as Daniel Luban argues in his contribution, to define market mechanisms as “non-coercive” in nature as opposed to traditional democratic institutions. This view wasn’t exactly without precedent as, traditionally, the “Lockean” account of coercion was limited to exceptional physical threats that didn’t include market exchanges in the economic sphere. This perspective was however strongly challenged by socialists inspired by Marxism, who insisted on the “impersonal but nonetheless coercive nature of the capitalist labor market” and, later, by American legal scholars such as Robert Hale who argued that coercion was a constitutive part of economic life under capitalism. Hale, who was part of what Barbara Fried calls the “progressive assault on laissez-faire,” argued that market exchanges were as coercive as government. Under that view, state regulations on minimum wages or collective bargaining did not mean increasing coercion, but rather changing the “relative distribution of coercive power.” In other words, in Hale’s conceptualization, the expropriation of private property “would neither add to nor subtract from the constraint which is exercised,” but “merely transfer the constraining power to a different set of persons.” 


In reaction to this open threat to the philosophical defense of the market, Hayek, Mises and later Nozick, argued strongly against Hale’s conceptualization. Hayek’s response in particular implied at the same time the need to broaden the Lockean definition while keeping it narrow enough so that, following Luban, “the vast majority of everyday economic transactions would emerge as non-coercive.” “Even if the threat of starvation to me and perhaps to my family impels me to accept a distasteful job at a very low wage,” Hayek argued, “even if I am ‘at the mercy’ of the only man willing to employ me, I am not coerced by him or anybody else.” Coercion, according to him, needed to be intentional and could not then apply to the decentralized and impersonal workings of the price system or the general and abstract legal framework sustaining it. Economic relations, resulting from human action but not by human design, were then by nature “non-coercive” and could then be seen potentially more democratic than governmental actions. 


The sovereign consumer


To argue that the marketplace was less coercive than the public sphere itself, however, required the invention of what would perhaps be the most enduring figure of the neoliberal project; the sovereign consumer. Focused on the work of Ludwig von Mises, Niklas Olsen shows in his contribution how, in response to the socialist project, the Austrian economist recast the idea of democracy “as a method of choosing and sought to re-invent the market as the democratic forum par excellence.” “Every shilling spent,” argued Lionel Robbins his 1934 book The Great Depression, “is a vote for a particular commodity. The system of prices as a whole is the register of such an election.” This equivalence between voting and buying became extremely influential and was rapidly adopted by most of the neoliberals, displacing democracy from public deliberation and majority rule to the decentralized aggregation of individual consumer choices. It was, as the German ordoliberal Wilhelm Röpke wrote, a “democracy of consumers” and capitalism “a continuing plebiscite.” Along the same lines the French philosopher and organizer of the Walter Lippmann conference in 1938 Louis Rougier, did not hesitate to argue that:

The liberal economy or market economy can also be called economic democracy, because it is the needs and tastes of consumers, manifested by the plebiscite of prices, which direct capital investments and production in order to satisfy them. Profit is the consequence and the sign of the ability of producers to serve the needs and tastes of consumers well. It can be proved, moreover, that such an economy corresponds to the maximum social return, that is to say to the optimal management for the greatest satisfaction of the mass of consumers.


This ingenious and influential argument would not only invest consumer choices with economic power but also offer a democratic legitimation to the liberal economic order. If all production and investments bend towards the will of the consumer, then the division of labor—national and international—is itself the democratic outcome of sovereign consumer choices. In a sense, contra Brown, neoliberalism according to Olsen, had its own “notion of popular sovereignty.” The citizen, “unbound by the will of the majority,” exerts its democratic rights as a consumer, outside unions, social movements or any kind of collective action aiming at expanding “social rights.” As Milton and his wife Rose Friedman would famously write in their popular bestseller Free to Choose, economic freedom meant that “when you vote daily in the supermarket, you get precisely what you voted for, and so does everyone else. The ballot box produces conformity without unanimity; the marketplace, unanimity without conformity.”


Neoliberalism without Neoliberals


However, more than just a symbolic legitimation, this re-enchantment of the marketplace and of the “consumer-citizen,” was part of a wider transformation within economics, involving not only self-identified neoliberals but also self-described Keynesians. In a sense, these shifts compel us to call into question a narrow account of the “market turn” exclusively focused on the “neoliberal thought collective.” In fact, as Jacob Jensen and Jenny Andersson show us in their contributions, the decline of social democracy and of a certain notion of the public good were an integral part of the wider debates that shaped modern economics. In that regard, the “socialist calculation debate” and the rise of the “economics of information” transformed how a whole generation of economists evaluated the benefits of the price mechanism in opposition to state planning. The Keynesian James Meade for example, in his 1948 book Planning and the Price Mechanism, didn’t hesitate to write that the price system was probably “among the greatest social inventions of mankind.” It was, the British economist added, “an efficient and secure election machinery with freedom ensured by secret ballot,” “combining” then “freedom, efficiency and equity in social affairs.”


More famously perhaps is Anthony Down and Joseph Monsen’s argument in their seminal 1971 piece “Public Goods and Private Status,” according to which “government goods” were designed with “an eye to uniformity” and could not properly satisfy a society emulated by “differentiation” with a wide set of individual preferences. Challenging the idea that governments could collectively define social needs, they saw the market as a preferable tool for each one to decide how to sustain one’s life and fulfill one’s wants. The downfall of the state as a collective decision-maker and social planner cannot then be understood as the sole outcome of neoliberalism. In their contributions, Jensen and Andersson, show us how these transformations were part of a broader discussion within neoclassical economics during the post-war years. Understanding the intellectual origins of this economization of politics requires then, as Jensen points out in his contribution, “to broaden our cast of characters” and not only look from outside Keynesianism but also from within it.


Minimal Public Goods


From this perspective, as Jensen convincingly shows in his contribution that economists such as Paul Samuelson, Charles Tiebout, and Vincent Ostrom were as instrumental as Buchanan and Tullock “in developing a new variety of liberal democracy on the model of the market.” Samuelson’s 1954 article “The Pure Theory of Public Expenditure” in particular would radically limit the purpose and functions of the state to the provision of “non-excludable goods,” meaning goods we cannot prevent consumers from getting access to and whose availability are not affected by one’s individual consumption of them. That would include natural resources such as the air or what Friedman called “indivisible” goods that couldn’t be provided otherwise than through a political process like defense. In other words, goods that can’t be subjected to market exchange. Any other kind of service would then, according to Samuelson’s model, be better served by a price mechanism able to obtain the necessary information about individual preferences. 


The main problem for these “public goods” was then that if preferences are not even knowable unless revealed as choices on a market, then those goods could only be provided through the coercion of the state. Solutions to this problem would soon be given by economists such as Tiebout and Ostrom through what they called “the application of economic reasoning to problems of public choice or non-market decision making.” In his response to Samuelson’s piece, Tiebout argued that, as Jensen notes, the “best way to reach equilibrium was to introduce competition between public service suppliers.” In his model, different local public organizations could compete for consumer-voters who would reveal their preferences by voting with their feet and moving from one public supplier to another. In the same spirit, a few years later Tiebout and Ostrom along with the economist Robert Warren, articulated the concept of “polycentricity” defined as “many centers of decision-making which are formally independent of each other.” If Tiebout’s first idea implied competing territorial public entities, the concept of polycentricity went further, requiring, as Jensen notes, “that both collective decision-making and the supply of public goods and services should be decentralized in market-like fashion.” 


Keynesianism, old and new


Finally, Jenny Andersson’s contribution on of the demise of social democracy in Sweden gives us another indication of how it was as much the consequence of debates within the left as an assault of neoliberal scholars themselves. In her account, Andersson writes: “neoliberalism is a story of dissident social democrats who actively sought out transnational spaces in order to move domestic ground.” “Milton Friedman,” she adds, “is not here an entrepreneur of a neoliberal underground movement, but rather, a virtual projection surface onto which growing doubts about the tenability of the so-called Swedish model could be bounced.” The influential Swedish economist Assar Lindbeck for example, didn’t just use Hayek, Andersson notes, but also the polish and socialist economist Oscar Lange and Joseph Schumpeter. Lindbeck had found his own way through neoliberalism, not only relying on Mont Pèlerin Society thinkers, but on the neoclassical emphasis on efficient markets and competition. Far from being specific to neoliberals, debates about the “distortions” of the price mechanism resulting from the welfare state, inefficiencies of public housing, rent control, public ownership, or the negative effects of minimum wage legislation, were quite common among Keynesians during the mid-fifties. It was, Andersson argues, the “dissidents” of social democracy that slowly articulated a view where “markets, competition and price mechanisms” could become “forces for the collective social good.” Paul Samuelson’s neoclassical synthesis is here of particular interest. The view inspired by his modernized Keynesianism would be less about understanding economics as “moral science” than transforming economic policy into a matter of experts rather than democratic debate. 




Over the last decades, along with the global expansion of neoliberalism, expectations about what politics could achieve were, as Streeck noted, slowly “eroded,” “organizational structures needed to develop effective public demand” were “atrophied beyond redemption,” and “political personnel themselves” became specialists in “the management of appearances rather than the representation [of] public interest.” This “commercialization of citizenship” implied the demise of public authority as privatizations, subcontracting and deregulation reduced the capacity of citizens to control the public sphere democratically. As Colin Crouch observed, political power became increasingly concentrated in a small and dense core who became more insulated from the general population and enabled paradoxically a “Jacobin model of centralized democracy” along with “a citizenship that dispenses with intermediate levels of political action.” In what Crouch called “post-democracy,” parties, unions and political participation gave place to frustration, political apathy and an anemic conception of what T.H. Marshall once called “social citizenship.” However, after Trump, Brexit or the rise of “populist” forces, this neoliberal “end of history,” filled with apathic citizens more focused on their private life than public affairs, seems to be nearing its end, for the better or the worse. 


Photo Credit: Micheile Henderson, via Unsplash.


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