W(h)ither Neoliberalism?

Thomas Biebricher, Goethe Universitt Frankfurt am Main

Introduction

It was none other than Jrgen Habermas who declared in the Fall of 2008 when the financial crisis reached its first peak in the immediate aftermath of the collapse of Lehmann Brothers that this would signify the end of neoliberalism. Arguably, what Habermas had in mind was not the breakdown of a factual neoliberal regime but rather the exhaustion of an underlying intellectual framework provided by thinkers ranging from Friedrich August von Hayek to Gary Becker (Habermas 2008). Two years and a global economic and a European currency crisis later, it is far from clear whether this string of crises will have had any significant impact on either the fundamental intellectual foundations of neoliberalism or neoliberalism as a factual order. While some commentators were quick to agree with Habermas at the time (Stiglitz 2008) many have changed their assessment over the course of the last two years and decry what they consider the remarkable if not scandalous resilience of policies and doctrines of self-regulating markets and their efficiency in the face of their alleged bankruptcy (See also Stiglitz 2010). The question this paper wants to address in a rather exploratory fashion is derived from these debates and can be formulated in the following way: what are links between the various crises and neoliberalism and how can we conceptualize the impact if any of the former with regard to the latter. Are there any signs that we might be witnessing the decline of neoliberalism in the foreseeable future, the assumptions of which are already no longer part of an ideological project that has a confident forward momentum, but inertial, undead defaults (Fisher 2009, 78)? This is a broad question that presupposes a number of

clarifications and differentiations in order to yield any meaningful results, preliminary and exploratory as they may be. I will start out with an inquiry into the heatedly contested nature of neoliberalism. Importantly, I will make use of a distinction between neoliberal thought and actually existing neoliberalism, both of which are of crucial relevance for my conclusions. In my reading neoliberal thought revolves around market competition and its various presuppositions from personal responsibility to the privatization of state function and the appropriate forms of regulation (the latter being a bone of contention between the various currents of neoliberalism). Actually existing neoliberalism, while widely varying in its specific contours from society to society, exhibits a general tendency of growing social inequality, a restructuring of work processes with them aim of ever more flexibilization that tends to result in a growing precarization of the workforce as well as a massive trend towards financialization. In the following section the task will be to assess the impact of the financial crisis as well as the crisis management of states with respect to the medium and long-term fate of neoliberalism. The twofold conclusion I arrive at in this regard can be summed up in the following way. There are no signs of a substantive departure from the basic tenets of neoliberalism. What can be discerned at the level of discoursei that I investigate through a reading of some of the most influential analyses of the crisis is not a break with generically neoliberal tenets, rather it is a reorientation away from Chicago School neoliberalism back to its almost forgotten intellectual sibling of Freiburg School ordoliberalism that was influential in the post-war era but ever since had lost ground to the Chicago Boys. The call for increased regulation of financial markets with the aim of making them more competitive that dominates the discourse of policymakers as well as economists who have written on the crisis, its origins and remedies, is well in line with ordoliberal ideas and should be considered an internal shift within the neoliberal universe of ideas rather than a departure from it. The other conclusion I arrive at concerns neoliberalism more generally, i.e. beyond the realm of financial markets. Here a number of characteristics of actually existing neoliberalism are in fact reinforced through the crisis and its aftermath and in my assessment the socioeconomic environment has changed in ways that are for the most part strongly favorable to a neoliberal agenda. While this is not to suggest that neoliberalism remains an unchallenged
2

monolith that absorbs any conceivable crisis it should serve as a word of caution against premature obituaries.

What is Neoliberalism?

Neoliberalism is a strange phenomenon indeed. In the United States, which is often considered its stronghold in the eyes of the critics of neoliberalism, the term and concept never gained much traction despite its introduction into academic debates by a number of authors (See Brown 2003; Dean 2009). In less academic political discourse reference to neoliberalism can hardly be found, not the least because of the idiosyncratic connotations of the term liberal in the American context that has come to mean the very opposite (i.e. what Europeans call social democracy) of what neoliberalism is associated with in general. However, even in the continental European context where liberalism more unequivocally refers to classical liberalism, neoliberalism has a phantom existence reminiscent of Marxs specter of communism. While there is a steady chorus of commentators that perceive the world to be under the triumphant yoke of a neoliberalism (See Harvey 2005) that is supposedly responsible for everything from consumerism, commodification, rampant inequality, exclusion and the expansion of market mechanisms to just about every sphere of life including the psychic economy (!) of individuals - , if one were to search for selfproclaimed neoliberals or even just plain supporters of neoliberalism, this would prove to be a difficult task. If there is a neoliberalism, it is one without neoliberals. Furthermore, if one were to find someone willing to identify as a neoliberal they would in all likelihood claim that contemporary societies are a far cry from neoliberal ideals: too much money is being channeled through the state, deficits are sky-rocketing, the labor markets in many countries still exhibit downward rigidities etc. Moreover, they would add that it is exactly the lack of neoliberal reforms that is responsible for many of the ills that plague contemporary society, at least in the socio-economic dimension: If states had less discretionary spending power there would be less rent-seeking, the latter benefiting those that are already powerful the most thus only strengthening their market power. Public debt would be reduced and

individuals and market actors in general would find themselves on a level playing field thus creating more justice. So what is this somewhat enigmatic neoliberalism that dominates the world according to some and does not even exist according to others? I suggest introducing a differentiation between neoliberal thought and actually existing neoliberalism in order to grapple with this question. Both dimensions are of importance because they are not entirely congruent as if the one was only the implementation of the other. Rather, there are significant divergences between neoliberalism in theory and neoliberalism in practice and we have to keep both dimensions in mind in order to arrive at a comprehensive assessment of the future of neoliberalism. So in order to find what might be considered a number of core tenets of neoliberal thought, let us look at those who actually considered themselves neoliberals although, admittedly, most of them abandoned the label, mostly for political reasons. When Hayek brought together the crme de la crme of the first generation of neoliberal thinkers at the inaugural meeting of the Mont Pelerin Society in Switzerland in 1947 in order to pick up things where they had been left after the Walter Lippmann Colloquium that preceded the outbreak of World War II, their definition of neoliberalism was born out of a twofold antagonism. Neoliberalism was most certainly coined in opposition to fascism and bolshevist communism, or as most of the participants assumed, totalitarianism under which both ideologies could be subsumed. If totalitarianism is the intellectual foe of neoliberalism, 19th Century liberalism is the other body of thought against which neoliberalism defined itself originally. For the German ordoliberals including Hayek the 19th Century was dominated by a laissez-faire liberalism that led to ever more economic concentration of market power as well as political power and the result were cartels and oligopolistic market structures. Empirically, this analysis has a lot of merit but whether classical liberalism can be summed up in the maxim laissez-faire, laissez aller is a question to which I will return momentarily. In intriguing proximity to Marx analysis of capitalist crisis tendencies, neoliberals concluded that this concentration had not only contributed to major economic crises throughout the 19th and early 20th Century culminating in the Great Depression but had also made it easy for the fascists to socialize the already concentrated and centralized means of production. If

one wanted to put it formulaically, laissez-faire liberalism was considered to be one of the major factors paving the way towards various forms of totalitarianism. Still, can the self-image of self-proclaimed neoliberals be taken at face value and does it provide any firm criteria for highlighting what is distinctive about neoliberalism? Not entirely. As mentioned above, it is plausible to describe the latter half of the 19th Century and the beginning of the 20th as a time that characterized by considerable economic concentration processes; a development that was furthered passively or even actively through political and legal means. However, the question is, whether this laissez-faire regime was ever really backed theoretically by liberal thought. True, in the 19 th Century there were thinkers like Leon Walras who developed the theory of general equilibrium that was a perfect justification for laissez-faire policies and earlier thinkers like Jean-Baptiste Say could also be considered to contribute to the intellectual foundations of such a policyregime. However, the classical liberalism of the Scottish Enlightenment during the 18th Century despite the clich reference to the invisible hand in Smith was hardly the direct intellectual precursor of the contemporary anarcho-libertarianism of Murray Rothbard or Robert Nozick. It almost goes without saying that Smith and Ferguson assumed that certain function had to be performed by the state so market economies could flourish. So when post-war neoliberals simply claimed that they wanted the state to play a crucial role in the organization of markets and this would mark the decisive contrast to the tenets of classical liberalism, they were short-circuiting the argument they actually had to make maybe not against Walras but certainly against Smith. The difference does not lie in the sheer activity of the state as a prerequisite of a capitalist economy. Of course, Smith knew that the state had to enforce property rights and laws concerning economic transactions. Rather the difference has to be located in the mode and purpose of state activity that also hinges on a few fundamental ontological assumptions about markets and the human condition. Ferguson and Smith famously assumed that men found it natural to barter and truck. If left alone and freed from the yoke of mercantilist police states, the members of civil society would spontaneously come together in protomarkets and exchange goods. Of course, these markets still needed an enforcing agency for property rights and an authoritative court of appeal in case of conflicts but in principle, these markets were considered naturally stable and beneficial for the general public. Here lies the
5

real point of divergence between Scottish Enlightenment liberalism and neoliberalism. For the latter, markets were still considered to be in tune with human nature, but the foundation of markets had become far more precarious. As Foucault has pointed out in his lectures on governmentality (Foucault 2008), while Smith and Ferguson saw markets as a location for the exchange of equivalents, neoliberals became far more interested in if not obsessed with the notion of competition and market competition in particular. In their view only competitive markets were proper markets and that was far from a trivial condition for this new generation of thinkers. They assumed that any market actor had a strong interest of evading the whip of competition and rather gain profits through what the public-choice literature would later call rent-seeking, i.e. a profit that does not stem from increased efficiency in satisfying demand. As a generalized maxim of action this would inevitably transform proper markets into oligopolistic markets if not even outright monopolies that are no longer subject to consumer sovereignty which was supposed to be a normative guidepost for competitive markets. So it could be argued that the difference between liberalism and neoliberalism is a matter of degree (more intervention) but more importantly of the purpose of intervention in the market. Smith had assumed that states provide preconditions for the possibility of mutually beneficial market exchanges. Neoliberals agreed at least initially, that states had to be more vigilant and proactive in order to attain the elusive ideal of perfect competition where profits through rents become entirely impossible. This could be achieved through the removal of barriers to competition, which means that there should be market access for all potential competitors. It also includes reservations when it comes to patent laws and intellectual property rights in general, that ordoliberals in particular were willing to limit to a minimum, because of their effect of keeping potential competitors off markets (Eucken 1952, 272). And obviously, this included anti-trust legislation to prevent cartels and monopolies from forming or to provide legal authority for measures against existing ones. Importantly, this also implied anti-union legislation since they are considered a cartel, too (Ibid., 336). In short, competitive markets were nothing natural to neoliberals and these markets provided the institutional space not so much for mutually beneficial exchanges that the Scottish thinkers had in mind but rather competition between market actors that left some of them with a profit and others with losses that could even lead to a forced exit from the market. Markets, thus, were a highly artificial cultural achievement as Hayek thought, and had to be watched over incessantly by
6

political authorities. Note that this was by no means to be interpreted along the lines of a Keynesian fine-tuning of ad-hoc discretionary intervention into economic processes. Neoliberals thought that this already meant standing with one foot on the slippery slope towards totalitarianism. Rather, it was to be achieved through a legal framework of general norms that were to apply in the same way to everybody an obvious heritage of the liberal tradition. The main policy recommendations derived from these theoretical positions are the following and will come as no surprise to scholars of neoliberalism. If competitive markets provide the most efficient results then any monopoly is a problem per se. One of the most important monopolists in the provision of certain services is the state. Hence, privatization of state functions ranges particularly high on the agenda of neoliberal thinkers of all persuasions assuming that even imperfect markets provide better results than can be expected from a state monopoly. A diagnosis that was only reinforced by an ascending public-choice tradition that factored in the allegedly self-interested behavior of policymakers and bureaucrats. The neoliberal state is supposed to be a strong state that derives its strength from its disengagement from a number of highly politicized social responsibilities and its exclusive focus on a strictly impartial monitoring and enforcement of the rules of the game unperturbed by the clamor of both citizenry and special interest groups. An early commentator on Thatcherism had already summed up the formula of neoliberalism as a free economy and a strong state (Gamble 1979). Market competition can only function if there are proper incentives and disincentives. Therefore, individualization of risk and responsibility is espoused by all thinkers that can be considered neoliberal and, of course, plenty of others. Competition has to entail the real possibility of bankruptcy or market exit otherwise it will not produce the creative destruction Schumpeter praised with regard to capitalist markets (See Hayek 1960, ch.4). This applies to welfare state issues as well. Insurance schemes based on a pooling of risks that introduces a certain measure of solidarity create moral hazard problems that can only be countered by a shift towards strictly individualized responsibility that enables a proper functioning of insurance markets. Easily the most ambiguous among the usual suspects of neoliberal policy recommendations is the call for deregulation. It can also be considered to signify the fault line between
7

different strands of neoliberalism, namely the erstwhile influential ordoliberalism of the Freiburg School that was of crucial importance for the formative years of the neoliberal tradition on the one hand, and the American neoliberalism of the Chicago School on the other, which is at odds with many of the core Freiburg tenets regarding market regulation and rose to dominance within and beyond the neoliberal camp from the early 1970s onwards. While the German ordoliberals were hardliners in this regard and demanded strict and proactive regulation through an independent state agency, the Chicago School as well as the later Hayek increasingly relaxed the need of strict regulation assuming that even powerful market actors would be held in check by real or virtual competitors as long as market access was open. More importantly, they became increasingly concerned that overly strict regulations could not only lead to barriers to market entry but also stifle innovation in markets. If this line of arguing is pursued far enough the consequence is a de facto return to what early neoliberals attributed to 19th Century laissez-faire liberalism because it comes very close to the idea of a self-regulating market. True, there is still more emphasis on competition rather than exchange, and regulation is never entirely abandoned but with regard to the policy implications the result is almost indistinguishable. It is this gradual shift that is particularly pronounced in the Chicago School and the later Hayek that makes for a lot of the ambiguity of neoliberalism and its use in political discourse. While it is an impermissible stretch to refer to German ordoliberals and even the early neoliberals of the Chicago School as market fundamentalists, this claim gains plausibility with regard to the later works of Friedman and Hayek. Still, even they remain committed to a positive function of the state that sets them apart from anarcho-libertarians like Rothbard, Kirzner and Nozick although at this point the camps come very close to each other given their shared commitments in other regards like issues of social justice, freedom and the basic merits of markets. I will return to these questions regarding the regulation of markets at greater length in succeeding sections. Now that we have a basic grasp of some of the core tenets of neoliberal thought, let us look at actually existing neoliberalism. It has to be noted at once that it is too easy to assume that the latter is nothing more than a 1:1 implementation of the former; rather it is important to keep these two levels analytically separate.ii Even in cases where policymakers are obviously influenced by certain ideas and/or thinkers, e.g. Margaret Thatchters admiration of Hayek, policymaking involves a plethora of actors engaging with each other in specific institutional
8

contexts and at particular conjunctures. Consequently, actually existing neoliberalism to the extent that it can be said to exist is always a complex phenomenon in which many different elements are welded together in a more or less stable way (Peck and Tickell 2002). With regard to governance, for example, we often see specific combinations of neoliberal, statist, communitarian or corporatist elements developed in specific contexts (Jessop 2002). What this implies is that we might still be able to speak of actually existing neoliberalism in the singular at a high level of abstraction, but once we descend to the level of neoliberalism as it manifests itself in various societies, it becomes more useful to refer to varieties of neoliberalism. While there is a considerable level of international diffusion of ideas and policies that make for significant similarities in certain regards,iii there can be no doubt that (cultural) history, institutional path-dependencies, differing party systems and idiosyncratic convictions of key policy makers, to name but a few factors, make neoliberalism look quite different in Germany, the United States and Great Britain. While most elements that characterize actually existing neoliberalism are present in all of these societies, their mutual articulation varies considerably which makes for significant differences between them that ought to be kept in mind. Hence, in the remainder of the paper I will mostly refer to the American version of neoliberalism. But what are those elements that characterize actually existing neoliberalism and that are not explicitly covered by the various aspects of neoliberal thought already discussed. I will focus on three elements, two of which are internally linked. If competitive markets are supposed to allocate resources and rewards then the likely outcome in the absence of corrective ex-post state redistribution is an exacerbation of relative income inequality which will eventually translate into a further exacerbation of inequality of wealth. Irrespective of whether actually existing neoliberalism is in fact always characterized by competitive markets there are good reasons to doubt this - the relative decline of the redistributive function of welfare states combined with reward structures in many spheres that tend towards so-called winner-take-all-markets have led to a more or less dramatic rise in social inequality (income and wealth) across the board in the neoliberal OECD world not to mention the non-OECD world. The empirical evidence of these developments corroborated by a plethora of statistics is overwhelming (See U.S. Census Bureau 2010a).
9

Closely connected to this is the restructuring of the workplace and labor processes. Realizing certain profit margins under increased competition is often translated into a rationalization of work processes aimed at reducing costs and increasing flexibility of production. This has led to what has been called a precarization of the workforce that increasingly consists of temp workers (direct hires or agency-based), dependent self-employed workers that are tied to one company exclusively, part-timers who are often de facto underemployed and other atypical forms of employment that leave many with no or too few benefits, flat wages, job insecurity and gloomy career prospects. Again, the statistics speak a fairly clear language in this regard (See Ogura 2005; Hevenstone 2010). Finally, financialization has come to be one of the hallmarks of actually existing neoliberalism although this is not necessarily something that can be found in the writings of neoliberal thinkers. Ever since the mid-1980s we see an increasing number of investment banks, private equity companies and hedge funds operate on financial markets and, equally as important, non-financial companies become more and more involved in financial market transactions to recover profit rates that had been shrinking since the late 1960s (Dumnil and Lvy 2004). Not to mention the role stocks came to play for average citizens in the 1990s leading up to the dot.com bubble (See Reich2007). In the first decade of the 21 st Century innovations in the development of financial instruments such as Collateralized Debt Obligations and Credit Default Swaps turned certain assets (credit card or mortgage loans) into tradable commodities through securitization and thus fanned the flames of financialization that seem to have reached every corner of the economy: we are in a historical period in which the finances are cosubstantial to the very production of goods and services (Marazzi 2010). It is important to note, though, that financialization is not coincidental to neoliberalism even if one does not want to go as far as Dumnil and Lvy who interpret neoliberalism in general as the ideological expression of the return to hegemony of the financial fraction of ruling classes (Dumnil and Lvy 2001, 578).The deregulatory agenda of neoliberalism regarding international capital flows, rules about capital reserves of financial intermediaries and regulations applying to the trade of certain financial instruments was one key factor contributing to the rise of financial capital up to the very recent past. While I cannot flesh out the details here two important examples from the not so distant past may suffice: the repeal of the Glass-Steagall Act in 1999 that did away with the distinction between commercial and investment banks and the exemption of the
10

trade with derivatives like the infamous Credit Default Swaps (CDS) from regulation by the Commodity Futures Trading Commission through a provision in the Commodity Futures Modernization Act of the same year. As Roubini and Mihm point out, the CDS market hardly existed until the introduction of the exemption. It had grown to a nominal volume of 60 Trillion USD on the eve of the crisis in 2008 (Roubini / Mihm 2010, 199). Even Richard Posner, an ardent defender of a free-market economy acknowledges the deleterious effects of deregulation and the role it played in the crisis: A profound failure of the market was abetted by governmental inaction *+ The governments inaction was also the product of a free-market ideology shared to a considerable extent by the Clinton Administration, and for that matter predecessor administrations going back to the 1970s, when the movement to deregulate the financial industry began. This ideological commitment was carried to new heights by the Bush Administration (Posner 2009, 243). But financialization was not only a result of deregulation. It was also related to a growing predominance of a certain variety of capitalism in the OECD world, namely the Anglo-Saxon one populated by corporations that emphasized short-term shareholder value and relied increasingly on capital markets and the dissemination of stocks for the financing of investments (See Hall and Soskice 2001; Coates 2005). Financializiation involved a process of banking de-mediation regarding the financialization of economic growth *] but also involved a process of the multiplication of financial intermediaries resulting from the deregulation and liberation of economy (Marazzi 2010, 30). Finally, it is important to note the significance of financialization with regard to consumer spending particularly in the United States over the last decade. With real wages remaining largely flat (not the least due to the restructuring of work processes discussed above) domestic demand was increasingly financed through debt and loans from the three and a half credit cards the average American credit card holder possesses to the second mortgage many homeowners took out. Securitization played a key role in the vast expansion of consumer credit from credit cards to auto loans and mortgages accompanying and supporting this debt-fueled growth model of the American economy because it seemingly enabled a widespread diffusion of risk through the pooling of thousands of loans into a socalled CDO (Collateralized Debt Obligation) that could be traded. As long as there was enough demand from Wall Street (and from plenty of European) investors for CDOs and CLOs (Collateralized Loan Obligations) loan originators could pass on the risk and had every
11

incentive to create ever more lines of credit that could be packaged and sold lucratively. So despite rising inequality and stagnating incomes in the lower socio-economic quintiles both of which are effects of neoliberal transformations to a certain degree aggregate demand remained strong through debt-financed consumption made possible through securitization and other innovations in the financial industries. So, in sum, the neoliberal syndrome is made up of a body of thought that emphasizes the merits of competitive markets that are achieved through more (Freiburg) or less (Chicago) regulation and that unequivocally advocates privatization and individualization in the service of its central value, individual freedom (to choose). It manifests itself in actually existing varieties of neoliberalism that exhibit varying combinations of neoliberal elements with others. Despite these specificities there are general characteristics that can be found across the spectrum of neoliberal societies in the OECD world. These are a growing social inequality closely related to restructurings of work processes that emphasize cost cutting and/or flexibility as well as financial markets that are exceedingly important to finance company investments, consumer spending and, first and foremost, realize profits from the trade of currencies, derivatives, stocks and bonds.

Neoliberalism and the Financial Crisis

Let me begin my assessment of the impact of the financial crisis with some preliminary considerations and an important differentiation. As mentioned in the introduction the string of crises starting in 2008 has been considered to constitute a crisis of neoliberalism if not capitalism in general (See Stiglitz 2008; Posner 2009; Dumnil and Lvy 2009; Fraser forthcoming). This is a highly questionable way to conceptualize the link between neoliberalism and financial capitalism where the latter is essentially used as a metonym of the former. After all, it is far from clear why a credit crunch and the collapse of a few investment banks would have any impact whatsoever on neoliberalism as a more general phenomenon that espouses competition, flexibility and privatization to name some of its imperatives at random. Treating a financial crisis as if it were ipso facto a crisis of neoliberalism thus seems hardly plausible. Of course, as was discussed in the preceding
12

section, financialization is an element of actually existing neoliberalism; one might even go as far as to suggest that it could be considered one of its core elements. However, it is still only one of them and neoliberalism is still a far more encompassing phenomenon than financial capitalism and it would be highly problematic for analytical as well as political reasons to reduce the former to the latter. By the same token it is important to note that reforms of financial markets along the lines of the bill just passed by the United States Congress do not constitute a reform of neoliberalism; and, it should incidentally be noted that few of the many analysts of the crisis from Posner to Roubini and Krugman ever have anything to say about economic reforms the impact of which would go beyond the narrow realm of financial markets.iv In order not to conflate financial capitalism and its crisis with neoliberalism I will offer a twofold analysis in this section. First I will highlight a number of ways in which the impact of the crisis contributes to an overall environment that I consider to be rather favorable to a neoliberal agenda. In a second step I will concentrate on the financial markets more specifically and analyze the reforms urged by the most influential commentators on the crisis.v My thesis will be that even these suggested reforms cannot be considered a principled departure from neoliberal tenets. At the most they mark a departure from one particular current of neoliberalism, namely a somewhat vulgarized version of Chicago School neoliberalism, and a reorientation towards the roots of neoliberal thought provided by Freiburg School ordoliberalism.

Starving the Beast with a Vengeance

It is no secret that the crisis management that has avoided an immediate depression but may not save the United States from what economists call a double-dip or W-shaped recession has cost a mind-boggling amount of money. Starting with the tax rebates of 2008 governments have spent money on vast stimulus packages and, more importantly, exorbitant bailouts that involved guarantees and loans some of which, to be sure, are paid back or are not used at all. Through these measures public debt that was already significant in many OECD countries (not to mention the more dramatic cases of Iceland, Hungary, Greece or Estonia) has risen rapidly; a process that has been greatly exacerbated
13

by a dramatic drop in tax revenue due to the economic crisis triggered by the financial one. And as the austerity policies that are already in place in Great Britain, Germany, Greece, Iceland or Portugal show, at the very least this means that governments, including the Obama administration, will find it exceedingly difficult to take on new public responsibilities that include additional expenditures. The declaration at the end of the G 20 summit in Toronto earlier this year emphasizing the importance of budget consolidation is another telling indicator in this regard (See G20, 2010). Through the costly bailouts and stimulus programs coupled with shrinking revenue governments have de facto defunded themselves on a massive scale and this has be considered one of the most efficacious ways of curtailing public spending. Making no secret of his allegiances Posner consequently lists among the silver linings of the crisis that also, incidentally, include the long-term decline of the adversarial unions the fact that it will accelerate the desirable trend toward privatization of government services *+ so our government will remain pretty small by international standards (Posner 2009, 224). In his analysis of the new politics of the welfare state under Thatcher and Reagan Paul Pierson used the term systemic retrenchment to describe the effect of defunding (Pierson 1995) which also took place under Reagan and was even embraced as an explicit strategy of starving the beast at the time. In a way, the high burden of debt depoliticizes debates over whether or not there should be additional money appropriated for job training or other programs in the realm of social policy because it conveys the sense that there is simply no alternative to austerity lest future generations be burdened with ever more debt and interest payments. And, of course, burdening our children with crippling financial obligations cannot be espoused by anyone who hopes to run for public office or any decent person for that matter. Thus, this trope may actually provide the moral and political leverage to do whats necessary, i.e. cut nondefense domestic discretionary spending, which happens to be found predominantly in the realm of social policy broadly speaking, or outsource certain functions entirely. So in a roundabout way the liabilities on public books make it far easier to make the case for a lot of what neoliberal thought demands with regard to the state, namely a strictly residual role in social policy and the privatization of state functions. Aside from incurring more public debt, the only alternative in order to refund the state would be tax increases that are
14

extremely difficult to pass especially in the current environment as the debates over extending the Bush tax cuts show. So in a somewhat paradoxical way, the short but intense interlude of extremely activist and interventionist economic policies has left states financially exhausted and incapable of adopting such a paradigm on a long-term basis. Of course, a closer look at the future generations argument would show that it might be overstated and highly problematic as Paul Krugman argues tirelessly (2009, 196) and does not apply to all contexts equally. Consider for a moment the German case where a lot of the states obligations are in fact held by German citizens. In other words, the future generations of Germans do not just inherit debt they also inherit almost the equivalent in assets. Put that way the situation appears far less dramatic. Consider even the United States, their far more precarious financial situation notwithstanding. One concern related to rapidly rising deficits is that creditors may pull the plug on states. The example of Greece is the new specter haunting European countries in that respect, particularly the PIGS-countries (Portugal, Italy, Greece and Spain). However, this concern is far-fetched in the case of the United States, to say the least. Of course, a lot of the debt is held by Saudi Arabia and particularly China, but it would be a self-defeating move on their behalf to stop buying American debt given that their export to the United States would collapse subsequently. Moreover, the United States being the biggest economy in the world there is hardly any reason for creditors to assume that it may possibly default on its debt, which makes US bonds still one of the most secure investments. But be that as it may, as Posner, Stiglitz and Roubini/Mihm agree across the ideological spectrum, the rescue missions of 2008 to 2010 have created an adverse (discursively constructed) environment for increased government action that would require sustained expenditures.vi Halting the seemingly hypertrophying logic of state action has always been one of the core demands of neoliberals from Hayek to Buchanan and the crisis has contributed significantly to achieving this aim over the next couple of years. This does not mean that government and the state are exactly what they should be according to neoliberals. Recall that the role of the state was described as an umpire (Friedman 1962, 15), independently setting and enforcing general rules insulated from interest groups and lobbying firms (Eucken 1952, 337).

15

It seems that the crisis management of governments has proven the very opposite to be true with all of its repercussions for the future, which is criticized in unison by Roubini, Stiglitz and Posner.vii In a way, states have disregarded all the neoliberal precepts imaginable in their response. By bailing out indiscriminately all kinds of financial institutions and in a more limited way other companies like GM, they have signaled that they will do absolutely anything necessary to keep too big to fail actors from going insolvent (Lehmann Brothers aside). The disciplining power of the market that neoliberals espouse, i.e. the possibility of going bankrupt, is thereby effectively suspended and there is very little of that creative destruction that Schumpeter extolled in his account of capitalism when it comes to the financial giants of Goldman Sachs or Morgan Stanley. Even worse, contrary to what Hayeks defense of markets for evolutionary reasons would suggest, the actors that performed worse were rewarded the most through the bailouts. Thus, the current position of the state is a precarious one because it has created a massive moral hazard problem with strong incentives for everyone to become too big to fail, which apparently acts as an effective state insurance against overly risky investments (See Roubini / Mihm 2010): The bailouts do exactly the opposite of what should be done: enforcing appropriate discipline on the banks, rewarding those that had been prudent, and letting fail those that had taken extraordinary risk. The banks that did the worst in risk management got the biggest gifts from the government (Stiglitz 2010, 135). The state neoliberals envisioned was one that enforced laws uniformly and stoically even if it meant that companies had to go out of business; after all, individualized responsibility for success as well as failure has always been a core demand of neoliberals. The neoliberal state was supposed to affirm its sovereignty as a strong state over other societal actors. The state of the 2008-10 crisis management, on the contrary, is one that has to do the bidding of certain societal actors with apparently no available alternative. A far cry from the ideal neoliberal state its empirical counterparts come much closer to what Marxist state theorists of the 1970s like Claus Offe or James OConnor had to say with regard to the structural dependence of states in a capitalist economy that had to respect private gains and socialize losses if need be. So, while neoliberals cannot wholeheartedly endorse either the Keynesian stimulus packages or the largely indiscriminate bailouts that have created a deeply problematic precedent for the future thoroughly undermining the notion of competitive financial markets in a number of ways,viii they have every reason to be content with the broader repercussions of crisis
16

symptoms (drop in tax revenue) and crisis management (bailouts and stimuli) because they are likely to amount to the unrivaled dominance of austerity politics with all of its ramifications for the foreseeable future.

The Recommodification of Labor Power

My second point concerns the socio-economic impact of the financial and economic crises. Let me begin with a number of statistical findings. By the Fall of 2009 one in seven home loans in the US was past due or in foreclosure. This was the highest rate since the Mortgage Bankers Association started measuring it in 1972 (Reckard 2009). There are estimates that by the end of 2010 about one million homes will have been repossessed by banks over the course of the year (Veiga 2010). And as RealtyTrac, an online real estate service site, reports, in August 2010 one in every 381 U.S. housing units received a foreclosure notice (RealtyTrac 2010). Historically, U.S. unemployment rates that have been historically low relative to other OECD countries with a fifty-year average of a little less than six per cent have risen sharply in the wake of the crisis crossing the nine per cent threshold in May 2009 and hovering a little below ten per cent ever since (the latest rate of August 2010 is 9.6 per cent) (Bureau of Labor Statistics 2010). In 2009 the poverty rate in the U.S. rose from 13.2 in 2008 to 14.3., which is the highest rate since 1994. The absolute number of those living below the official poverty line has been growing for three consecutive years to 43.6 million. It is the largest number in the 51 years that it has been recorded (U.S. Census Bureau 2010b). The financial and economic crises have left a large number of Americans without job (hence, often without benefits like health insurance as well), without a home and without retirement savings that have been wiped out to a considerable degree by the financial crisis. Their net worth thus shrinking Americans have increasingly found themselves in financially dire straits. This assessment is confirmed by a 34 per cent increase of bankruptcy filings between September 2008 and 2009 (U.S. Courts 2009); and note that this is a period when the economic crisis had not yet impacted on the labor market. Over the twelve months between March 2009 and 2010 the number increased by another 27 per cent (Ibid.) with non17

business, i.e. personal bankruptcy filings making up the overwhelming majority of these (American Bankruptcy Institute 2010). Finally, while the savings rate has predictably risen in the wake of the crisis, consumer debt is still higher than it was in 2006 with currently about 2420 billion dollars in outstanding consumer credit (Federal Reserve 2010). What does all of this mean for the fate of neoliberalism? First of all it means if not an intensification than at the very least an entrenchment of one of the elements characterizing actually existing neoliberalism, namely social inequality. According to the U.S. Census Bureau the Gini Index has risen slightly between 2007 and 2008 to 45.6 (there is no data for 2009 as of yet), but is still below the historical peak of 46 in 2006 (U.S. Census Bureau 2010c). Note that the Gini Index in 1980 was as low as 40.3. The Gini Index only measures income inequality, factoring in the loss of housing and retirement savings would probably produce even more dramatic results with regard to the actual net worth of people/households. Of course, in principle states can resort to redistributive policy measures to counter growing trends of inequality, however, taking into consideration the likely prevalence of austerity politics for the foreseeable future there is not a lot to be expected from that side. Conversely, the state on every level from municipalities to the state and federal level is adversely affected by the loss of income, corporate and property taxes due to the various dimensions of the crisis which will only make it more difficult to pursue any alternative to austerity politics. All of these developments point in one direction. They create an environment that could not be any more perfectly suited for a recommodification of labor power to adopt a concept made popular by Esping-Andersen (1990). Of course, the latter was particularly interested in the decommodifying effects of various worlds of welfare capitalism, i.e. the extent to which the pressure to sell ones labor power as a commodity on the respective markets was reduced through welfare state provisions. The overall effect of the financial and economic crises will be the complete opposite. Consider older citizens who have lost their private retirement savings and now have to stay on the labor market longer than they thought they would; consider families who have lost their homes and face increased pressure to work / earn more; consider those who are struggling with crippling amounts of individual consumer debt and have to work / earn more to avoid personal bankruptcy; consider the millions who have lost jobs and are desperate to find paid employment while experiencing decreased mobility because of a housing slump that often makes it difficult to sell a house and move to find a job somewhere else; and consider those
18

who still have a job but whose anxiety levels are rising over job insecurity and increasing competition from those who have to find work under all circumstances. The bargaining power of all of these groups when it comes to wage/salary levels, benefits and working conditions in general has taken a considerable blow because of the crises (in conjunction with other factors) thus creating a window of opportunity for managements to initiate new rounds of reforms that aim at flexibilization and cost-cutting to increase the competitiveness and the profit margin of a given company. And while this is far from a sustainable accumulation strategy because of the deleterious effects on aggregate domestic demand, the crises have not really strengthened the confidence in the inherent rationality of capitalist market economies. If intensified commodification of labor power is one of the presuppositions that fuel the flexibilization of work processes often resulting in a precarisation of the workforce and thus contributing to an exacerbation of already high levels of inequality that are all hallmarks of actually existing neoliberalism then, far from spelling doom for the latter, the crises may well usher in a golden era for neoliberalism in this regard. So at the risk at being too one-sided in my assessment that might be complemented by a look at potentially existing countervailing trends in other areas the likely impact of the crises on the neoliberal project broadly understood could hardly be more positive: (Seemingly) financially exhausted states are bound to embrace severe austerity measures that are likely to comprise everything from a termination of programs or their slow death through continual underfunding to outsourcing state functions to public-private partnerships or entirely private organizations and companies. While this is still not the state that neoliberals aspire to create because of the lack of autonomy/independence on display in the crisis management that has set a powerful precedent for the future, it is still a state that is far less likely to correct market outcomes through redistributive social policies and it is one that will have to cede many more socio-economically relevant activities to private actors. Furthermore, the crises have weakened the bargaining position of actual and potential employees to a significant degree which provides a perfect opening for attempts to introduce new cost-cutting and flexibilization measures in order to increase the competitiveness and the profitability of firms.

19

Financial Market Reform The Return of Ordoliberalism?

Finally, let us take a look at financial markets and the respective reforms that are being discussed with the question in mind, whether they might be considered to mark a departure from neoliberal tenets even if the more general environment turns out to be rather favorable to a neoliberal agenda as I have argued so far. As hinted at above, I will focus on the level of discourse that I explore with reference to the analyses of some of the most renowned economists and jurists today ranging from a fairly neoliberal writer such as Richard Posner to authors that are located a little more to the left of the political spectrum such as Nouriel Roubini (who was one of the few economists having predicted the crisis), Joe Stiglitz and Paul Krugman. The focus on the level of discourse is mostly due to pragmatic reasons. Although concrete policy reforms on the national level like the Dodd-Frank Bill are finally being passed by legislatures and the negotiations leading up to international accords such Basel III have just been concluded in mid September, at the time of writing it is still premature to assess the actual effect of these reforms. One of the reasons being, for example with regard to the Dodd-Frank Bill, that the impact of many legal provisions entailed in the bill will hinge on the way they are interpreted and implemented by regulators. And there are good reasons to assume that lobbyists of the financial industries will do what they can to soften the blow of new regulatory measures a phenomenon that neoliberal writers among many others have long decried as regulatory capture. So it is far from clear whether this bill that turned out to be more comprehensive than most commentators expected (consider, for example, the far-reaching Volcker measure that made it into the bill against vehement resistance) will not eventually be watered down significantly in the process of its implementation and a thorough assessment of financial market reforms will have to wait until this process is fully under way. However, keep in mind that discursive shifts often foreshadow reorientations in actual policy regimes; e.g. the intellectual ascent of Monetarism in the early 1970s paved the way towards the actual policy shift that began in the mid 70s and reached its climax in the early 1980s (See Hall 1989). After all, two realms are far from entirely independent from each other. More specifically, it is worth noting that the Dodd-Frank Bill includes a surprising number of suggestions made by Roubini and Stiglitz who offer the most detailed account of
20

what they consider necessary reforms. Thus, there is a significant overlap between certain strands of academic discourse on financial market reform and the actual reform efforts, despite the fact that this overlap might end up being reduced to a certain degree in the process of implementation. Finally, for the purposes of the paper the level of discourse might be considered to be the crucial one anyway, because at least in this section I am not so much interested in an empirical policy analysis (including implementation and actual outcomes) but rather in the logic of the reforms urged on by experts and whether this logic can be said to diverge from neoliberal thought in important ways. I contend that this is not the case, rather the bulk of reforms advocated in the treatises of Roubini/Mihm (who I will focus on in the following), Stiglitz and even Posner, can be easily subsumed under the label of Freiburg School ordoliberalism. In order to redeem this claim I will show that most of the demands formulated in the wake of the crisis can already be found in texts written by Walter Eucken and Franz Bhm, the two-headed nucleus of the Freiburg School as well as the young Hayek whose ideas strongly overlapped with the Freiburg thinkers before his thought took a more evolutionary turn in the late 60s and early 70s. In the wake of the crisis there is one demand that seems consensual among the great majority of commentators: deregulation has gone too far for various reasons and more rigid regulation of financial markets / actors has to be established. Again, Stiglitz, Posner and Roubini are in broad agreement that it is indispensable to regulate the financial sector if a future crisis of the same or bigger magnitude is to be avoided. Is this a retreat from neoliberal positions? It certainly is a retreat from the idea that markets regulate themselves. But as we have seen in the first section this is a position that can only be attributed if at all to a certain branch of neoliberalism, namely the parts of the Chicago School that embraced the theories of dynamic equilibriums. However, the idea that markets have to be regulated is far from uncharted territory for other branches of neoliberalism as the survey in the first section has shown. The neoliberal intellectual movement started out arguing against laissezfaire market fundamentalism. So calling for increased regulation in order to avoid market failures is in line with what ordoliberals of the Freiburg School and even Hayek in his younger years would have demanded: (See particularly Eucken 1951; 1952).ix What Roubini/Mihm as well as most other commentators suggest is, of course, increased regulation with regard to reserves that banks must hold to avoid overleveraging, corporate
21

governance and compensation for employees (Roubini/Mihm 2010, 189), a ban of certain derivatives (Ibid., 194) or at least the establishment of a central clearing house and what they call a reintroduction of the Glass-Steagall-Act on Steroids to address the problem of the interconnectedness and sheer size of financial institutions. But who exactly is supposed to do the regulating and how: first of all, it should be done through general rules that apply in the same way across the board, not just to the institutions that pose systemic risks but to all in order to avoid regulatory arbitrage, i.e. the shift of certain operations into less regulated smaller sub-companies (Ibid., 213). This is, of course, one of the mantras of the Freiburg School including Hayek: rules have to be simple, universal and stable. This makes rent-seeking more difficult and enforcement/adjudication much easier: Hayek is adamant that not any kind of interference into the economy is an intervention to be rejected. In principle acceptable are all those general regulations of economic activity which can be laid down in the form of general rules specifying conditions which everybody who engages in a certain activity must satisfy (Hayek 1960, 224). Who is supposed to be in charge of regulation? It should be a single regulator, because one of the problems revealed by the current crisis is the fragmentation of the regulatory landscape where regulatory agencies on the state level as well as various federal agencies provide a patchwork of regulatory regimes, in the interstices of which regulation can often be fended off successfully (Ibid., 273). But who can watch over the markets? Roubini / Mihm have reservations about the Fed being able to do the job, but they are equally skeptical if not even more with regard to elected politicians. Echoing to a large extent the concerns of neoand particularly the early ordoliberals they point out the extent to which lawmakers are beleaguered by lobbyists and pressure groups, the result of which is likely to be a plethora of loopholes, exemptions etc. Thus, Roubini and Mihm return to a model where regulators have to have more political independence and have to be more insulated from societal pressures. This is the same argument that can be found in ordoliberal thought albeit in an even more anti-pluralist version that is highly skeptical of pluralist democracy. Eucken assigned the state in general the task of the guardian of the competitive order (Eucken 1952, 327). The presupposition of this assignment was a strong state along the lines already mentioned in the first section, i.e. decision-making processes that are largely independent from popular will formation, so the state would not be a plaything in the hands of interest groups (Ibid., 326) and only heed to the advice of economic experts that are endowed with
22

overwhelming authority by Eucken (See Eucken 1951, 90). Note that Roubini and Mihm are also not entirely unsympathetic to this line of reasoning when they consider moving decision-making powers regarding crucial issues away from democratically legitimated bodies to technocratic agencies in which the rationale of actions is supposedly based on expertise only. The resurrection of ordoliberalism is complete with one of the more radical suggestions of Roubini and Mihm. If it is so difficult to avoid regulatory capture even in technocratic and depoliticized regulatory agencies, alternatives have to be pursued: Given these flaws, it is probably better to approach the corrupt nexus of finance and politics from another direction. There is a very simple way to curtail the power of the big firms that helped cause the crisis: break them up (Roubini / Mihm 2010, 223). Although it sounds radical and fairly anti-capitalist, breaking up big corporations is not without precedent, the case of AT&T being one recent example. Without going into the details of this proposal I just want to highlight how much it owes to the ordo-liberal notion of perfect competition (Eucken 1951) that was supposed to be achieved through a rigid regulatory regime that would prevent market actors from concentrating too much power or breaking them up in case they had already achieved that concentration. Bhm even spoke of competition as the most magnificent and most ingenious instrument of deprivation of power in history (Bhm 1960, 22). The suggested policies amounted to more than an anti-monopoly measurement because it aimed at an equal distribution of market power across all the actors in a market. Roubini and Mihm paint a very similar picture when they criticize the concentration of financial power *that+ has created a system that is too interconnected to fail (Ibid., 210). Unlike antitrust actions, this approach [theirs, T.B.] would make a breakup contingent on whether the bank in question is too big to fail, as opposed to monopolistic (Ibid., 230). And just to make sure that there are not some actors who are still capable of fending off regulators, Roubini and Mihm conclude: That is why the approaches we have discussed may work best when combined with another equally radical strategy: breaking up all the big banks (Ibid.). One of the key themes in the works of Eucken and Bhm is economic power and how to diffuse it: We economists too must pull back the curtain with which partisan ideologies have veiled the concentrations of, and struggles for, economic power (Eucken 1951, 264). Note again, however, what kind of state is presupposed or rather imagined in the demand to break up banks and companies if need be. It is a state endowed with
23

undiffused sovereignty and one that can make and enforce decisions against what some consider the most powerful economic actors of our time, the financial behemoths of Goldman Sachs and others. Thus, the concern that the nature of this kind of state verges on the authoritarian if nothing worse is not too far-fetched. As will be remembered, the ultimate purpose of regulation for ordoliberal thinkers was not so much the protection of market actors from its pressures. Quite to the contrary, regulation was supposed to force everybody into full exposure to the imperatives of markets, making it impossible to make any profit without satisfying the needs and demands of market exchange partners in ever more efficient ways; i.e. what Eucken called Leistungswettbewerb (performance competition) and what led Bhm to refer to competition as the moral backbone of a free profit-based economy (Bhm 1960, 22). And sure enough this theme is also prominently present in the account of Roubini / Mihm. They call for more competition between rating agencies through the removal of entry barriers to this market: To address this problem, the SEC needs to lower the barriers to entry, so that more competition free market competition, if you will enters into this vitally important industry (Roubini/Mihm 2010, 197). Furthermore, they also chide the oligopoly of (investment) banks for being able to extract rents from customers through overpriced services (Ibid., 190). The same points are, incidentally, raised by Stiglitz (2010, 135; 176). There are a number of things to be noted with regard to the call for more competition. First of all, with regard to increased competition between more rating agencies one should keep in mind that the likely outcome of this will not necessarily be more adequate ratings of various financial instruments. Ratings agencies would compete over the piece of an even smaller pie and as long as they are paid by the very banks whose products they rate they have every incentive to sugarcoat their assessments as far as possible in order to not lose valuable customers. Note also that the competitive markets that are advocated and demanded here are not simply established by removing entry barriers, which would be a strategy that could also be espoused from Chicago School neoliberals to anarcho-libertarians like Rothbard or Nozick. Roubini and Rihm are aware that competition can have detrimental effects and therefore rules have to be found that make sure the competition actually benefits customers / consumers. There are two important examples in this regard. Both can be squarely fitted under the rubric of problematic races to the bottom; a form of competition that brings
24

about undesirable effects to the extent that it is ruinous for producers and possibly even contrary to the interests of consumers/customers. To be sure, race to the bottom arguments often have to be qualified significantly, however, in the case that Roubini and Mihm discuss, it is quite plausible. Their concern is jurisdictional arbitrage within the United States but also between the United States and other countries (Ibid., 218), in the case of the regulation of financial markets this kind of arbitrage can easily lead to a race to the bottom because of the very mobility of financial capital that is also due to the fact that it does not matter to a hedge fund if it is registered or invests money in a jurisdiction where workers have no skills, infrastructure is bad, social tensions are high and consumer demand is low. As Roubini and Mihm put it: Unfortunately, financial firms are not looking for the best regulation; they are looking for the least regulation, or regulation that does not restrict the activities that are at the core of the banks business (Roubini / Mihm 2010, 216). This race to the bottom concerning regulation might prove disastrous for the various jurisdictions in the long run because they may have to pick up the tab in case banks fail (see Iceland); but it might also prove disastrous if not for the financial institutions themselves but for those who invested their 401 (k) in a fund that turned out not to be that strictly regulated and lost the money. The solution to this lies in the introduction of certain regulations that avoid such races to the bottom and ensure Leistungswettbewerb (Eucken) on a level playing field. After all, providing a certain good in a more timely and efficient way could very well be achieved by having more children from destitute backgrounds work in factories for wages that are extremely low doing work that is suited to small hands. And of course this is far from a fictional example. Competition per se, therefore, might not be what conforms to a lot of peoples moral intuitions even if it drives down product prices. Consequently Eucken demanded regulations concerning certain practices, including child labor and excessive waste of natural resources like clean air and water etc. that were not priced into the production costs adequately (Eucken 1952, 303). Similarly, a harmonization of regulatory regimes of financial markets along the lines of the suggestions of Roubini and Mihm would outlaw certain ways of competing that involve excessive risk through overleveraging etc. The other case discussed by Roubini and Nihm but also by Posner can also be subsumed under the rubric of a race to the bottom but it is slightly different from the jurisdictional arbitrage just discussed. It also happens to be a crucial factor contributing to the financial crisis. Posner sums up the problem succinctly: The deregulatory strategy of allowing
25

nonbank financial intermediaries to provide services virtually indistinguishable from those of banks, such as the interest-bearing checkable accounts offered by money market funds, led inexorably to a complementary deregulatory strategy of freeing banks from the restrictions that handicapped them in competing with unregulated (or very lightly regulated) financial intermediaries nonbank banks, in effect (Posner 2009, 23; see also 130). In the face of non-commercial banks and other financial intermediaries cutting into their consumer segment banks also adopted riskier and possibly more profitable business practices that would have turned out to be financially fatal for both them and many of their customers had it not been for the various bailouts. In this case Roubini and Mihm suggest a different strategy. They are advocating a beefed-up version of Glass-Steagall (Roubini / Mihm 2010, 233) through a strict compartmentalization of internally homogeneous markets. In other words, commercial banks and investment banks would not be able to merge and existing mergers would have to split up. Insurance companies and private equity firms would also be treated as distinct categories where none of these various actors would be allowed to venture onto the turf of others. Banks would simply not be allowed to act like hedge funds or private equity firms and vice versa. This would contribute to the solution of the problem of too big to fail and it would keep banks business boring by making it unnecessary for them to compete with non-banks. That is to say that there would be tough competition on the hedge fund, private equity, insurance or bank market respectively, but not between them and let alone through giant corporations like Citigroup that cater to all of them. It is the regulatory equivalent of divide and conquer (Roubini and Mihm 2010, 233). If the imperative of neoliberalism is to compete by being more efficient and thus contribute to the common good then the former is still present in many of the suggestions of Roubini and Mihm as well as others regarding the reform of regulatory regimes. While their specific solutions may be or may be not already inherent in ordoliberal thought, it is clear that they share the fundamental belief of ordoliberalism regarding the importance of rules and regulations for the proper functioning of markets and the presupposed belief that markets are a highly artificial phenomenon and by the same token something that is subject to careful manipulation.

26

Conclusion

On August 1st the Financial Times published a piece by Ralph Atkins in its opinion section that ended with the words if ever there was a moment for Ordnungspolitik [the political agenda of the Freiburg School, T.B.] to prove its merits it is now (Atkins 2010). I think Atkins is onto something with his somewhat surprising praise of what is now a rather obscure strand of early neoliberalism mostly unknown outside of Germany; and, somewhat ironically, often best known to a contemporary social science audience through Foucaults extensive treatment of it as the original neoliberal governmentality in The Birth of Biopolitics (Foucault 2008). Let me retrace the steps of the argument in this paper before I come back to what might turn out to be the unlikely return of ordoliberalism. In the first section I have tried to show that neoliberalism was originally invented as a paradigm, the polemical thrust of which was directed against collectivism as much as laissez-faire liberalism. It was a paradigm that extolled the merits of market competition that had to be constantly safeguarded through rules that were to be enforced by independent state agencies. The accompanying policy imperatives can be summed up as privatization, individualization and deregulation. The ambiguity of the latter captures the fault line between the erstwhile dominant Freiburg School and its uncompromising stance on the necessity of regulations that would enforce competition on the one hand, and the softer approach of Chicago School thinkers who were far more concerned about the dangers of overregulation and thus content as long as entry barriers to markets were removed assuming that this would keep market actors in check even in the absence of explicit regulations regarding market behavior. Ever since the late 1960s the intellectual center of gravity within and beyond the neoliberal tradition has moved from Freiburg to Chicago in this regard. I have further argued that actually existing neoliberalisms are complex phenomena that are never just the implementation of neoliberal thought and have to be analyzed in their specificity. Nevertheless, there are certain characteristics that can be found across the board of neoliberal societies in the OECD world, albeit differing in severity and relative importance. I have focused on three elements that are crucial for the purposes of this paper: Increasing
27

social inequality, a restructuring of the work sphere aimed at flexibilization which often entails a precarization of the work force, and the financialization of economies over the last two decades. Based on this outline of the neoliberal syndrome I have argued against the assessment of other commentators that the financial crisis should not be considered a crisis of neoliberalism ipso facto. Neoliberalism is a broader phenomenon and despite the importance of financial markets for actually existing neoliberalisms treating financial capitalism (and its crisis) as a metonym for neoliberalism is highly problematic for analytical as well as political reasons. The alternative twofold thesis regarding the impact of the financial crisis on neoliberalism that I have tried to defend in the remainder of the paper can be summed up in the following way. First of all, the financial and economic crises have produced an overall environment that is highly favorable to a neoliberal agenda. The crisis management of states has left them seemingly overburdened with debt and for the foreseeable future the dominant imperative in social and fiscal policy will be budget consolidation, which is likely to amount to a politics of austerity including retrenchment of redistributive social programs and/or outsourcing of state functions. This has always been a crucial demand of neoliberals. Furthermore, the fallout from the crises has exacerbated inequality and led to rising unemployment and poverty rates; it has also led to people losing homes and retirement savings while often still being overburdened with consumer debt possibly even facing personal bankruptcy. In my view this has created an environment that invites efforts at a further recommodification of labor power, i.e. rationalization / flexibilization of work processes aimed at increased competitiveness and profitability premised upon a significant weakening of the bargaining position of labor that is in part the result of the financial and economic crises. Therefore, my conclusion in this regard is that there are no signs of a crisis of neoliberalism broadly understood. If anything we might actually witness the resurgence of a neoliberal agenda based upon a politics of austerity and a recommodification of labor power. The second part of my thesis concerns the more specific impact regarding financial markets and the banking sector. While it is too early to assess actual policy reforms I have argued
28

that the crisis narratives, diagnoses and suggested remedies point in a particular direction, namely that of ordoliberalism. Judging from the accounts of Roubini/Mihm, Posner and Stiglitz, the crisis has certainly driven home the point that deregulation has to be carefully balanced with its opposite and all of these authors and most others advocate a reregulation of the financial sector. However, this is coupled at least in the case of Roubini and Mihm on whom I have focused with a general commitment to markets and market competition; the point being that a carefully crafted regulatory regime can and should enhance the competitiveness and thus the efficiency of financial markets. In my view, therefore, these recommendations have a strongly ordoliberal thrust and my conclusion is that even in the discourse on financial market reforms arguably the most realm most vulnerable to a massive backlash against neoliberal tenets in general we are not encountering a wholesale departure from neoliberalism but rather an internal shift back towards an ordoliberal framework long thought of as quaint and obsolescent. In a way, the current debate over financial market regulation and alleged market fundamentalism thus repeats the discussions that originally led to the formation of neoliberal thought in the first place (See Amable 2010, 25); instead of marking the end of neoliberalism, the financial crisis thus might turn out to have been the trigger for its reinvention.

Notes

At the time of writing it is still too early to assess the actual policy reforms like the reform of the banking sector in the United States or the Basel III accords. Their impact will strongly depend on the implementation process that cannot be analyzed properly as of yet. ii One could problematize this relation even more by arguing that the very attempt to introduce neoliberal policies informed by neoliberal thought is bound to produce outcomes that are strongly at odds with neoliberal tenets. See for example Galbraith and Reich whose analyses point in this direction (Galbraith 2008; Reich 2007). They would argue that neoliberalism in practice always ends up as an undesirable form of bad corporatism. Interestingly, this is exactly what thinkers like Friedman or German ordo-liberals wanted to overcome through neoliberalism. iii Consider the similarities between welfare reform in the United States 1996, the New Deal in Great Britain 1998 and the Hartz-Reforms in Germany 2003, all of which share a commitment to an activating welfare state. iv Stiglitz is a noteworthy exception in this respect with a chapter on a new capitalist order. See Stiglitz 2010, pp. 184-209. v At the time of writing it is still too early to assess the factual reforms such as the bill just passed by the US Congress. vi Health Care Reform has to be considered the exception to the norm in this respect that was pushed through right before the political window of opportunity closed for the foreseeable future.

29

vii

See for example Stiglitz: The measures we have taken to save us from the abyss may, at the same time, inhibit our return to robust growth. Just as the banks were shortsighted in their lending, we have been shortsighted in our rescue with consequences that may be felt long into the future (Stiglitz 2010, 76). viii Not only is the number of competing banks much smaller due to crisis-induced mergers and takeovers. There is also a strong incentive for even more of these operations in order to reach the point where a corporation or financial institution is too big to fail. Not only are these highly oligopolistic markets, there is not even the risk of bankruptcy. For neoliberals concerned with competitive markets this is the worst of all worlds. ix For a concise summary of the core tenets of the Freiburg School and Walter Eucken in particular see Vanberg 2004.

References

Amable, Bruno. Morals and Politics in the Ideology of Neo-Liberalism, Socio-Economic Review 8 (2010): 1-28. American Bankruptcy Institute. Bankruptcy Statistics, accessed September 26 th, 2010, http://www.abiworld.org/Content/NavigationMenu/NewsRoom/BankruptcyStatistics/Bankr uptcy_Filings_1.htm Aktkins, Ralph. Germans can be proud of playing by the rules, Financial Times, August 1, 2010. Bhm, Franz. Reden und Schriften. Karlsruhe: C.F. Mller, 1960. Brown, Wendy. Neoliberalism and the End of Liberal Democracy, Theory and Event 7 (2003). Bureau of Labor Statistics. Labor Force Statistics from the Current Population Survey, access September 26th, 2010, http://www.bls.gov/cps/ Coates, David, ed. Varieties of Capitalism, Varieties of Approaches. New York: Palgrave, 2005. Dean, Jodi. Democracy and other Neoliberal Fantasies. Communicative Capitalism and Left Politics. Durham/London: Duke University Press, 2009. Dumnil, Gerard / Lvy, Dominique. Costs and Benefits of Neoliberalism: A class analysis, The Review of International Economy 8 (2001): 578-607.
30

Dumnil, Gerard / Lvy, Dominique. The Real and Financial Components of Profitability (USA 1948-2000), Review of Radical Political Economy 36 (2004): 82-110. Dumnil, Gerard / Lvy, Dominique. The Crisis of Neoliberalism and U.S. Hegemony, Kurswechel 10 (2009): 6-13. Esping-Andersen, Gosta. The Three Worlds of Welfare Capitalism. Princeton: Princeton University Press, 1990. Eucken, Walter. The Foundations of Economics - History and Theory in the Analysis of Economic Reality. Berlin/New York: William Hodge, 1951. Eucken, Walter. Grundstze der Wirtschaftspolitik. Bern/Tbingen: Mohr, 1952. Federal Reserve. Federal Reserve Statistical Release. G19 Consumer Credit, accessed September 26th, 2010, http://www.federalreserve.gov/releases/g19/current/default.htm Fisher, Mark. Capitalist Realism. Is there no Alternative?. Winchester/Washington: O Books, 2009. Foucault, Michel. The Birth of Biopolitics. Lectures at the Collge de France 1978-79. New York: Palgrave, 2008. Fraser, Nancy. The Crises of Capitalism. The Frankfurt Lectures. Frankfurt/M.: Suhrkamp, forthcoming. Friedman, Milton. Capitalism and Freedom. Chicago: University of Chicago Press, 1962. Galbraith, James. The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too. New York: Free Press, 2008. Gamble, Andrew. The Free Economy and the Strong State: The Rise of the Social Market Economy, The Socialist Register 1979 (1979): 1-25. Group of 20. The G20 Toronto Summit Declaration, accessed September 26 th, 2010, http://www.g20.utoronto.ca/2010/to-communique.html Habermas, Jrgen. Nach dem Bankrott, DIE ZEIT, November 6, 2008.
31

Hall, Peter et al., eds. The Political Power of Economic Ideas. Keynesianism across Nations. Princeton: Princeton University Press, 1989. Hall, Peter, and David Soskice, eds. Varieties of Capitalism. The Institutional Foundations of Comparative Advantage. Oxford: Oxford University Press, 2001. Harvey, David. A Brief History of Neoliberalism. Oxford: Oxford University Press, 2005. Hayek, Friedrich August von. The Constitution of Liberty. Chicago: University of Chicago Press, 1960. Hevenstone, Debra. National Context and Atypical Employment, International Sociology 25 (2010): 315-347. Jessop, Bob. Liberalism, Neoliberalism and Urban Governance: A State Theoretical Perspective, Antipode 34 (2002): 452-472. Krugman, Paul. The Return of Depression Economics and the Crisis of 2008. New York: Norton, 2009. Marazzi, Christian. The Violence of Financial Capitalism. New York: Semiotext(e), 2010. Ogura, Kazuya. International Comparison of Atyptical Employment: Differing Concepts and Realities in Industrialized Countries, *2005+, accessed September 26th, 2010, http://www.jil.go.jp/english/JLR/documents/2005/JLR06.pdf#page=6 Peck, Jamie / Tickell, Adam. Neoliberalizing Space, Antipode 34 (2002): 380-404. Picketty, Thomas / Saez, Emmanuel. Income Inequality in the United States 1913-1998, The Quarterly Journal of Economics CXVIII (2003): 1-39. Pierson, Paul. Dismantling the Welfare State. Reagan, Thatcher and the Politics of Retrechnment. Cambridge: Cambridge University Press, 1995. Posner, Richard A. A Failure of Capitalism. The Crisis of 08 and the Descent into Depression. Cambridge: Cambridge University Press, 2009. RealtyTrac. Foreclosure Activity Increases 4 Percent in August, accessed September 26 th, 2010, http://www.realtytrac.com/content/press-releases/
32

Reckard, E. Scott. Foreclosures will keep rising through 2010, Report says, LA Times, November 20, 2009. Reich, Robert. Supercapitalism. The Transformation of Business, Democracy, and Everyday Life. New York: Vintage, 2007. Roubini, Nouriel, and Stephen Mihm. Crisis Economics. A Crash Course in the Future of Finance. New York: Penguin, 2010. Stiglitz, Joseph. The End of Neo-Liberalism, [2008], accessed September 26th, 2010, http://www.project-syndicate.org/commentary/stiglitz101/English Stiglitz, Joseph. Freefall. Free Markets and the Sinking of the Global Economy. New York: Norton, 2010. U.S. Census Bureau *2010a+. Income, accessed September 26th, 2010, http://www.census.gov/hhes/www/income/data/inequality/index.html U.S. Census Bureau *2010b+. Income, Poverty and Health Insurance in the United States 2009 Highlights, accessed September 26th, 2010, http://www.census.gov/hhes/www/poverty/data/incpovhlth/2009/highlights.html U.S. Census Bureau [2010c]. Selected Measures of Household Income Dispersion: 19672009, accessed September 26th, 2010, www.census.gov/hhes/www/income/data/historical/inequality/taba2.pdf U.S. Courts. Bankruptcy Statistics, accessed September 26th, 2010, http://www.uscourts.gov/Statistics/BankruptcyStatistics.aspx Vanberg, Viktor. The Freiburg School. Walter Eucken and Ordoliberalism, Freiburg Discussion Papers on Constitutional Economics [2004], accessed September 26th, 2010, http://www.walter-eucken-institut.de/publikationen/diskussionspapiere.html Veiga, Alex. Foreclosure Rates Surge, Biggest Jump in 5 Years, *2010+, accessed September 26th, 2010, http://www.msnbc.msn.com/id/36547572/

33