best practice governance government policy

How Neoliberalism Mutated into Crony Capitalism

TfM has become increasingly concerned about the declining standards of governance at the political and institutional level within all levels of government.

Let’s be clear. Whatever system of economic governance dominates the world today, it is not pure neoliberalism. It is better described as crony capitalism, which is opposed to the agenda of those like Friedrich Hayek who started the neoliberal ball rolling. Neoliberalism has mutated into crony capitalism with devastating results for economic growth and social justice, endangering the health and welfare of entire societies.

Crony capitalism has been around in some form or another since the beginning of capitalism itself. I can’t do better than cite the definition in Wikipedia: ‘an economic system in which businesses thrive not as a result of risk, but rather as a return on money amassed through a nexus between a business class and the political class’.

The evidence of crony capitalism is abundant over the globe, from Trump’s America to Xi Jinping’s China and Bolsonaro’s Brazil. In Australia its resurgence is recorded in a book called Game of Mates, How Favours Bleed the Nation by economists Cameron Murray and Paul Frijters, in Dead Right: How neoliberalism ate itself and what comes next (‘Quarterly Essay’ by Richard Denniss), and in On Fairness by Sally McManus. I provide a few examples in Being a Planner in Society.

Hayek in his book Law, Legislation and Liberty conceived of an economic governance system in which ‘law precedes legislation’. ‘Law’, governing the behaviour of the market economy, would be determined by a legislative assembly consisting of wise elders (over 45 years old) serving electoral terms of fifteen years. Their election would not be subject to universal suffrage, and anyone receiving any benefits from the state (pensions, unemployment benefits, government salaries) would be automatically excluded from voting. Hayek’s plan was to set up a governing authority beyond political control to prevent elected politicians interfering with the market.

This position was later reinforced by the work of Milton Friedman, and the public choice theorists. As I observe in my book, politics, so it is argued by the public choice theorists, is nothing more than a game in which political actors (inside and outside government) maximise their short term advantage through ‘log-rolling’ bargains’. That cynical view became self-fulfilling.

The problem for the neoliberals is that electoral politics refused to go away, for the simple reason that people value universal suffrage that holds governments to account. The political class therefore continued to hold power even while they paid lip service to neoliberalism. The political class, even in manipulated democracies like Russia today, enjoy their power and legitimacy and work hard to maintain it. So the governance system we have today is a hybrid between corporate economic power supported by antidemocratic neoliberal ideology and political power supported by universal suffrage: that is crony capitalism. This result was what Hayek regarded as ‘the worst of both worlds’: political intervention with private corporate production.

Then came a theoretical spawn of neoliberalism called New Public Management. The ideology of NPM can be interpreted in different ways. It provided a salutary critique of sclerotic bureaucracies that had become distanced from the publics they served, hence ‘customer service’ became a byword for NPM but that admirable goal covered something more sinister. The scope and ambition of NPM is breathtaking;

New Public Management (NPM) is part of the managerial revolution that has gone around the world, affecting all countries, though to considerably different degrees. The theory of new public management contains insights from game theory and from the disciplines of law and economics. … The theoretical background of NPM is to be found in the strong criticism of a large public sector, to be found in the public choice school as well as Chicago School Economics, both attacking since the mid-1960s prevailing notions about public sector governance (Lane, 2000: 3).

There is not space here to undertake a critique of NPM (which is, incidentally, a major lacuna in my book). But the introduction by Lane makes clear the link with neoliberal ideology which I do address in the book. The essentials of NPM are these: the use of quasi-market structures for delivery of services, contracting out of government functions to private firms, setting performance targets and continual monitoring of performance, handing over power to senior management executives, replacing trained personnel in professions relevant to the government function (e.g. public health, environmental conservation, city planning, building regulation) with generalists trained in ‘management’. What this management training in fact amounts to is in-depth indoctrination in neoliberal ideology. Some of the Australian environment and planning failures to which I refer in the on-line Appendix can arguably be traced to the replacement of professionals in senior management by generalist managers. Of course the issue is far from simple, but this is a hypothesis that at least deserves to be thoroughly researched.

Hayek’s proposal to suspend universal suffrage, with society run by a largely unaccountable State, which is at the heart of neoliberal doctrine, was dangerous nonsense from the start. But its design to suspend the struggle for equality was adopted by Regan, Thatcher and a multitude of think tanks funded by corporate wealth. Neoliberalism quickly mutated into class warfare with suppression of the trades unions, vilification and abuse of the unemployed, massive cuts to the public service, and transfer of wealth from the poorest to the richest in society. The end result, as we now know, was not long term economic growth but miserly hoarding of wealth piled into tax havens and stock markets: the misereconomy. Crony capitalism is only one short step away from fascism, with populist politicians seizing the moment to limit democratic restraints in order to stay in power. We know where that ends.

The Canadian philosopher John Rawlston Saul saw what was happening twenty years ago. What he called ‘anti-government government’ created a ‘false populist model’. Think of Thatcher’s talk of ‘rolling back the state’, Trump’s talk of ‘draining the swamp’ and, even today’s ‘deep state’ conspiracy theories. Citing Mussolini’s rise to power, Saul remarks, ‘No matter how big and structured the Fascist Party became, it always declared itself to be the voice of anti-party, anti-government politics’.

The examples of crony capitalism in action today come thick and fast in that sector of the daily press that is not devoted to class warfare on behalf of corporate power. Commentators of the independent press in Australia are almost unanimous in ascribing the cause of the second surge in Covid 19 to the impoverishment of the casual workforce, lack of sick leave and poverty-level unemployment relief forcing workers to go on working when they are ill, the privatised system of aged care, and the lack of depth of government response. That is what has now caused 810 deaths and counting, in Victoria, destroyed the health of many survivors, and ruined the economy.

The crony-capitalist governance model as exhibited in Australia, has resulted in corruption of urban and regional planning in which deals are done between developers and governments to enrich the latter at the stroke of a pen. A huge area of Melbourne was converted from industrial to residential zoning without any provision for open space or educational and health services. Companies linked to the government of the day made millions from the increase in land value. Vast road building projects are signed off with private companies to enrich the latter at the expense of the public interest.

Failures of building regulation, outsourced to private firms, have resulted in hundreds of tower blocks being covered in flammable cladding. The weakly regulated private recycling industry has resulted in flammable material stored in huge warehouses, catching fire and belching toxic smoke over residential areas. After much of Beirut was destroyed by an explosion of ammonium nitrate, Australian journalists started nervously looking for stores of this chemical, and found a stockpile in Newcastle, New South Wales, four times the size of the stock in Beirut. Where? Just three kilometres from Newcastle’s CBD.

Hayek wanted to take power away from politicians. Crony capitalism shares power between the political class and the corporate sector. The Australian governance failures that have occurred since the 1990s have many sources: incompetence of a poorly organised and depleted public service, continued class warfare on working people and the unemployed, shameful environmental policy, mental cruelty to refugees, institutional paternalism, sexism and racism. No governance model is mono-causal and ‘pure’. But the current governance model has strayed far from liberalism, whether old or new.

Share on facebook
Share on twitter
Share on linkedin

Leave a Reply

Your email address will not be published. Required fields are marked *