Hayek organised a conference for the like-minded in 1947; it was held at the Swiss resort of Mont Pèlerin. Three dozen people attended; the costs were almost completely covered by the Credit Suisse Bank. Milton Friedman came from Chicago, and later developed his monetarist ideas on these foundations. The Mont Pelerin Society still exists, with aims based on the founders’s ideas.
Antony Fisher, having read The Road to Serfdom, met Hayek in 1945. Rather than his becoming a politician, Hayek advised the formation of a ‘think tank’ to promote ‘free market’ ideas. After Fisher had made a fortune from battery hens, he established the Institute of Economic Affairs in 1955. It was later described as:
The arguably most influential think tank in British history… benefited from the close alignment of IEA’s neoliberal agenda with corporate interests and the priorities of the Thatcher government.
Margaret Thatcher was one of the cofounders of the Centre for Policy Studies in 1974. Though nominally non-partisan it has had strong connections with the Conservative party. Policies are based on free market economics of a monetarist type, that is ‘neoliberal’; individual choice and responsibility; and on concepts of duty, family, liberty and the rule of law.
Mrs Thatcher used Friedman’s and her think tank’s monetarist ideas in what became known as ‘Thatcherism’; Ronald Reagan used ‘supply side economics’ in what became Reaganomics, though there was much similarity between the two doctrines. Thatcher and Reagan also advocated neoconservative ideas, those dogmas of neoliberalism in economic policy, that is non-interference with industry, combined with coercive effects on the population in terms of ‘public security’ and ‘traditional’ morality. This was despite the GOP’s traditional dislike of ‘big government’. Such ‘traditional’ morality was based on Victorian fantasies, repackaged and sold on as how things had always been.
Mrs Thatcher began a programme of privatisation, the selling off of state assets to private enterprise, another important part of neoliberal economics. Such enterprise would enhance ‘competition’ and thus give greater and better choice. Now the idea of competition is fine if you are selling ‘white goods’ or cars, when competition clearly improves the breed. It’s less clear that selling off council (social) housing actually improves the housing stock. In the UK, the National Health Service was established in 1948, taking over almost all hospitals. Since then the training of junior doctors to become either general practitioners or hospital consultants has been entirely within the NHS. There are certainly a number of ‘private’ hospitals; these compete with the NHS at the higher end of the ‘market’ for health services; they do not provide a parallel, comprehensive service. (In parts of continental Europe, private and public hospitals both train doctors and provide complete services.) Despite this, successive governments have attempted to bring ‘competition’ into the NHS, with various artificial splits between purchasers and providers, and commissioning groups. (Note, most of these ‘reforms’ refer to England; Scotland and N Ireland have rather different systems.) The present health secretary, Mr J Hunt, co-authored a book about a decade ago on why the NHS should be privatised; today’s funding problems are seen by many as a ‘death by a thousand cuts’, designed to make the NHS unviable, and pave the way for proper, full privatisation. The previous health secretary, Mr A Lansley, now Lord Lansley, is an advisor to such privatising health service organisations.
Mrs Thatcher took on and defeated the ‘coercive’ trades unions. While many of these had certainly become very powerful—too powerful, perhaps, their original aims of protecting their members from rapacious capitalists have been severely reduced. Her monetarist policies, designed to curb inflation, resulted in around 3 million unemployed people. Business was ‘deregulated’ in a bonfire of red-tape; capital controls were scrapped, and the free movements of goods encouraged. With this went the free movement of people which was unproblematic in the UK until the accession of eastern European countries to the European Union, when free movement into the UK became a ‘bad thing’.
A further noticeable achievement of Thatcherism was the marked decline in the UK as an engineering and manufacturing country, with these activities outsourced abroad; and the marked rise in service industries. The deregulation of banking was particularly prominent in this, with London becoming a world financial centre; there was an influx of brash and abrasive American banks and financial institutions into the gentlemanly world of the City of London. The government didn’t attempt any replacement of the manufacturing industries in the north of England. (Similarly in the US, heavy engineering was outsourced, with those areas becoming known as the ‘rust belt’ or ‘fly over’ states.)
Mrs Thatcher also lowered rates of income tax on higher earnings. At one time previously, taxation of earned and unearned income rose to 98%, a level which is surely confiscatory. The threshold for income tax has also been gradually raised over the years. However, the poor pay relatively more of their income in tax than the rich because of tax and excise duty on so many goods, even if the rich contribute more in absolute terms to the total of income tax take. Hayek believed in ‘proportional’ rather than ‘progressive’ taxation, and tax rates have moved in the direction he would approve of.
New Labour continued many of Mrs Thatcher’s economic policies; New Labour’s ‘third way’ is a mixture of some socialist ideas with bits of neoliberalism. Labour also increased private finance initiatives (PFIs) whereby private investment was sought for, say capital projects, with the state then paying for this over decades. Clearly, any lessons from the Glasgow Trams had been forgotten; and of course, experienced capitalists could easily tie civil servants in knots when it came to the details of the contracts. Hinchingbrooke Hospital was run for a time by a private company; it seems to have been thought that this would increase ‘efficiency’ and give greater patient satisfaction. However, the company could not run it at a satisfactory profit, and therefore withdrew, leaving the state ‘holding the baby’, as always. Private companies can prosper at times; if things don’t go so well they just ‘cut their losses’. This is something ignored in neoliberal theory; that public services are not easily amenable to ‘privatisation’.
Despite such defects, neoliberal economic theories seemed to be working in the decades after their introduction. Wealth was indeed increasing; but looking behind the outline figures, it is apparent that such wealth did not ‘trickle down’ as it was supposed to. Rather the less well off stayed less well off, and the rich got richer. Rates of pay, in real terms, barely increased during the decades. Meanwhile, executive pay increased enormously; the differentials between the lowest and highest paid in a company vastly increased. In part this was because executives simply could raise them, and in part because companies were now expected to report three or six-monthly. And the expectation was for ever increasing growth, and thus shareholder dividends. (See also here.)Also, ‘corporate raiders’ and ‘asset strippers’ could buy unloved companies, and then sell off the various bits for profit. Short-termism replaced the idea of steady, unspectacular growth of the first 30 years after WW2.
The increasing wealth disparity or inequality had unexpected results, effects that the theorists had either not thought of, or if they had thought of them, felt that they could be ignored. Remember, Hayek was ‘not an egalitarian’. The effects were mostly in terms of health and social problems, and it’s very clear that the greater the inequality, the greater the magnitude of the problems.
I cannot imagine, for all his ivory-tower theorising, that even non-egalitarian Hayek would have been happy with this outcome.
Financial organisations such as banks were ‘de-regulated’ and allowed greater freedom as actors in the market. One such area was the ‘sub-prime’ mortgage market in America. Here, the idea was that although the individuals had a poor credit rating, it didn’t matter for the continuing rise in the value of their property would make such mortgages safe. Clearly, the idea of ‘asset bubbles’ had been forgotten or mislaid. The mortgages were combined in many and complex ways, some so complex that many people, including those selling them, didn’t really know what they were. Asset bubbles always burst; and we know what happened. Lehman Brothers, a previously well respected bank, went bust. Many other banks had to be rescued by the state, though of course it is the taxpayer who pays, and the taxpayer on a modest income who pays most; such banks were ‘too big to fail’. And following them, several European countries were going the same way. Greece was, and is, the worst affected; Spain isn’t far behind. Now, if you or I go bust, we are declared bankrupt, and our creditors get what little we have. But, it was different for the lenders to such countries; The lenders expected to be repaid, and the bail-outs that such countries received went into the banks’ pockets, and not to the countries. Meanwhile, the countries were expected to introduce ‘austerity’, to cut public wages, public services and pensions. Even medical services, which the International Monetary Fund had declared to be a ‘luxury’ item weren’t spared. Thus, malaria returned to Greece. Nor was it anyway explained how reducing the size of the economy, and impoverishing so many of the population, which is what austerity does, could actually pay off a debt. When the banks went bankrupt in Iceland, the population soon realised the magnitude of the debt they were expected, as individuals, to take on. They simply refused. Look what happened:
In Britain, when a coalition government was formed after the 2010 election, the then Chancellor and Prime Minister implemented a policy of austerity. This they said, was because the previous Labour government had overspent and squandered. In reality, it was an application of Hayekian philosophy and neoconservatism. That is, economic austerity and working towards a ‘small state’ government; and working on purely ideological grounds. Disgracefully, their Liberal Democrat partners went along with this.
Keynesianism had no answer to the problems produced by the oil price increases in the 1970s and the ‘stagflation’ in that decade. Keynes was cast aside, to be replaced by Hayek. Neoliberalism gave us increased wealth, but only for the wealthy; not just the top 10% or the top 1% but particularly the top 1% of the 1%; and created the ‘masters of the universe’. And gave us privatisation, globalism, deregulation, the idea that ‘the market knows best’; and all that gave us the Great Crash of 2007/08. I think it very unlikely that the paternalistic Professor Hayek could have envisaged a world where gentlemanly rules of conduct in business no longer applied, and I’m equally sure that he would have been aghast at the thought that his theories could have cause such destruction. Hayek did have an answer, though: austerity, and that has given us greater poverty, specially for the already poor, with preservation and increase in the wealth of the already wealthy. Hayek has no answer to the rust-belts of the American mid-west or the north of England beyond ‘the market knows best’ though the market wasn’t interested. As in the 1930s after the Crash and the Great Depression, it looks as if Britain will again be in a ‘lost decade’, or possibly two.
In Britain, a very vociferous group of Thatcherite ‘drys’ and others opposed in principle to the European Union blamed the EU for all the ills of the country; the EU was portrayed as being responsible for the ‘swarms’ of migrants over-running the country. In the US, ‘Wall Street’ was widely seen as the root of the financial problems, the ‘greed is good’ culture of Gordon Gecko; and the migrants came illegally from Mexico and were mostly ‘baddies’. And that gave us—it should not be a surprise—both #Brexit and #Trump.