The Neoliberal Road to Serfdom

The Hayekian Moral Paradigm

The neoliberal mantra, expressed in Friedrich Hayek’s The Road to Serfdom and The Constitution of Liberty, has seen a damaging policy of deregulation which has abandoned the mechanisms of the state that had once addressed the inherent inclination towards speculative financial transactions in sensitive areas of the economy. A thorough engagement with the work of Hayek, widely considered the father of the contemporary economic framework, illustrates neoliberalism’s exclusionary framework through the normative value system that presides over it. Neoliberalism has placed humanitarian values as subordinate to what it considers to be the highest arbiter of morality; the profit motive.

Hayek’s argument for limited government intervention to create the conditions for competition rather than management, where the pursuit of liberty operates within the realm of unrestrained market forces, is grossly orientated towards the interests of capital. The government’s peripheral role in society has allowed for political power to find its expression amongst those who have accumulated the greatest economic weight; creating a system that is far from neutral. By forsaking the premise of equality in society as utopian and state direction towards it as inherently incompatible with liberty, the power which government has abandoned in the name of liberalism has merely been expropriated by those who have come to yield the greatest economic power. As Australian Prime Minister Kevin Rudd described to a Hayekian think-tank, society must not be forced to choose between two opposing extremes; between the dogmatic “ideological straitjackets…of Friedrich von Hayek and Leonid Brezhnev.”1

Avoiding dogmatic constructs would help to establish a relative framework of economic development that addresses the Hegelian dialectic principle of a thesis and antithesis; capitalism and centralised planning; and reconciling it with the logic of a synthesis which addresses both social constructs. The failure to address the limitations of the neoliberal paradigm with a more balanced approach has seen the emergence of an autocratic form of capitalism that prevails in both Russia and China, both of which yield enormous geo-political power. Francis Fukuyama describes the contemporary political order as far “more dangerous because capitalist autocrats can grow much richer and therefore more powerful than their communist counterparts…[where] growth depend[s] more on raw power and accidents of geography than on good institutions.”2

The neoliberal global structure reflects the Hayekian conception of the rule of law which underlies the global economic consensus and the contemporary international framework. The model of globalisation envisaged by global monetary institutions, such as the WTO and the IMF, has allowed for corporations to exist as supra-national entities, which exercise disproportionate power over the direction of the global economy. The only viable option that has become available to countries is to adhere to the structural framework of neoliberal capitalism. The failure to conform to this model results in capital flight which has become a tool in which democratic government policies can be challenged by multinational corporations, “[where] highly concentrated financial capital imposes its own social policies on reluctant populations, and punish[es] governments that deviate by capital flight”;3 running counter to the democratic spirit of self-determination.

Hayek makes the far-reaching argument that all forms of government-sponsored programs will inevitably lead us to an irreversible road to serfdom. He argues that “the British National Health Service has no relation to reality…[where its] introduction is the kind of politically irrevocable measure that will have to be continued, whether it proves a mistake or not.”4 This Manichean view of the world, which suggests that democratic forms of government cannot continue to exist where there is the provision of government sponsored programs, is both reactionary and out of touch with the experience of the majority of the developed world. The presence of universal health care within most functioning democracies and the pervasive failure of the free market and its ‘invisible hand’ to account for the tens of millions of Americans who lack adequate health care, serves to refute Hayek’s intransigent arguments.

Hayek evades ethical constructs in the formation of his approach to universal health care and instead offers a Darwinian explanation as to why he is unyieldingly opposed to it. Hayek argues that for those who no longer satisfy their utilitarian function in the economic field, they are no longer ‘fit’ enough to warrant the provision of health care; abandoning ethical constructs in the face of economic utilitarianism. Instead, a triage selective approach of the ‘survival of the fittest’ is taken towards those who are economically expedient. In Hayek’s eyes, the problems of a free health service lie in the tendency of medicine “to increase its efforts not on restoring working capacity but toward the alleviation of suffering and the prolongation of life. These, of course, cannot be justified on economic but on humanitarian grounds…It may seem harsh, but it is probably in the interest of all that under a free system those with full earning capacity should often be rapidly cured of a temporary and not dangerous disablement at the expense of some neglect of the aged and mentally ill.”5

The deficit of ethical considerations in his arguments are also evident in his notions of freedom of choice in which he puts forward, where he argues strongly against citizens “not having any choice in some of the most important matters of their lives, such as health.”6 This question of choice, however, presents itself in an elitist fashion because the element of choice is absent in sectors of society where people lack the financial capacity to cover both the health of the individual and that of the family, in addition to basic essentials such as housing and other necessities. Hayek’s stance towards health care stands in direct opposition to the entire edifice of international human rights law, which describes accessibility to health care as an inalienable right of all peoples through the medium of the State.7 Instead, capital mobility, in the Hayekian moral order, takes precedence over all other rights enshrined and afforded to man, even when it runs counter to them.

By arguing for a social safety net in The Road to Serfdom, which naturally involves redistribution by government, Hayek raises a fundamental flaw in his central argument by failing to indicate at which point government interference becomes a form of totalitarian governance. The premise of his argument fails to reconcile itself with his aversion towards government planning based on long-term projections, which are also inherent in his attempt to introduce a competitive order; “[where] both the creation and monitoring [of a competitive order] presuppose a fundamental political decision and reflect a deliberate institutional choice.”8

British economist John Maynard Keynes convincingly describes that although Hayek is in favour of government intervention in areas where the market cannot adjust itself, he “gives us no guidance whatever as to where to draw it…[he is] in [his] own argument done for, since he is trying persuade us that as soon as one moves an inch in the planned direction you are necessarily launched on the slippery path which will lead you in due course over the precipice.”9 Hayek’s clique would have us believe that there exists no such thing as a non-totalitarian social democracy.

Remarkably, Hayek’s approach to education in fact requires a level of planning far more sophisticated and pre-determined than that which state-sponsored education would require, as it involves a significant measure of ‘reverse distribution’ by government. Hayek suggests that government planning should adopt a socio-economic conditioning of an exclusive elite that is receptive to a level of education that would yield it economic benefits at the expense of the majority. Hayek asserts that “a society that wishes to get a maximum economic return from a limited expenditure on education should concentrate on the higher education of a completely small elite…rather than prolonging education for large numbers.”10 Limiting the educational opportunities for the vast majority of citizens and instead investing in the creation of an exclusive elite in which the majority would become totally dependent on, creates the precise social structures that permeated itself through the feudal system. Hayek’s approach would result in the total subservience of the population to this elite, on whom they would have to be dependent on due to the scarce opportunities open for them outside of the realm of knowledge in society.

Hayek justifies his argument of providing this exclusive education by alluding to the political agitation that could stem from an unemployed population that is educated enough to understand the economic condition that determines its fate. In views reminiscent of the most repressive form of government, Hayek warns that “the problem of having more intellectuals than we can profitably employ…[is that] there are few greater dangers to political stability than the existence of an intellectual proletariat who find no outlet for their learning.”11 Hayek’s argument shows he does indeed understand this correlation between an educated population and one which is politically conscious and holds government accountable. However, by using this knowledge to deny the majority their right to education because of the potential for social upheavals, Hayek demonstrates that it is not a concern for democracy that shapes his ideas, but rather an overriding and calculated obsession with the profit motive; divesting his arguments of all other moral constructs.

Contrary to Hayek’s central thesis, that “governments everywhere and at all times have been the chief cause of the depreciation of the currency,”12 it is in fact the lack of government regulation that precipitated the contemporary financial upheavals. The contemporary form of unaccountable elites in the developed world has not come, as Hayek predicts, through centralised governments, but rather through the medium of the free market that Hayek argues should have created the necessary conditions for human liberty.

The breakdown of the Bretton Woods system and the subsequent rise of neoliberalism has resulted in the erosion of the regulatory functions governing the international monetary system. Keynes, one of the chief architects of the system, had considered that its primary role lies in its capacity to reflect government action to it as a measure of its democratic function; through “establishing the right of governments to restrict capital movement…[where] limits on capital mobility substituted for limits on democracy as a source of insulation from market pressures.”13 In response to the contradictions exposed by neoliberalism, governments have been forced to respond to the demands of state intervention by failed institutions. British Prime Minister Gordon Brown, acting as one of the central figures responding to the crisis, is now calling for “a new Bretton Woods; a new financial architecture…around agreed principles”14

There also exists the fundamental issue today of climate change, which goes beyond the traditional ‘left-right’ political paradigm, where neoliberalism fails to offer any guiding principle for addressing this concern. This is reflective of the failure of the Hayekian model, where instead of creating the conditions necessary for an exponential growth in human prosperity and freedom, it has began to infringe on them by placing irreversible effects on the environment in which human beings reside.

Hayek is of the opinion that the conservation of natural resources “should be judged by precisely the same criteria as all other investment” and is justified only when “there is no other economic use for preserving any one kind of resource.”15 What we have witnessed from the Hayekian economic model is a reversion from the shift in sensibilities that the Western world experienced during, as Eric Hobsbawm describes, ‘capitalism’s golden age’,16 where environmental concerns ushered their way onto the political stage during this period of economic ascent. In the environmental paradigm, we have moved beyond what Hobsbawm describes as the ‘golden age’ and have entered an ‘age of consequences’,17 where the so-called ‘free hand’ of the market fails to provide an adequate response to this mortal issue.

The decision-making process that has presided over this issue has been undemocratically shaped by those who have exploited the Hayekian edifice of unregulated market access and its consequent effect on the direction of the political economy. The response to the changes in the environment needs to occur within a democratic framework, where governments begin to act as autonomous bodies far removed from the interests of global capital and within the paradigm of environmental and societal realities.

The legacy of the experiment in social engineering has taught the world to be cautious of dogmatic thought processes and to be wary of ‘prophets’ (or should we say ‘profits’) surrounding political and social thought. It is through this framework that the neoliberal global consensus must be reviewed, otherwise society risks marching towards a form of governance that negates democratic practices; albeit through a different road from that which Hayek envisaged.

  1. Kevin Rudd, ‘Moving Beyond Brezhnev or Hayek’, The Australian (Sydney), 04 August 2008. []
  2. Francis Fukuyama, ‘Is this the Age of the Autocrat?’, The Age (Melbourne), 28 August 2008. []
  3. Noam Chomsky, Profit Over People: Neoliberalism and Global Order, New York, Seven Stories Press, 1999, p.150. []
  4. Friedrich A. Hayek, The Constitution of Liberty, London, Routledge and Kegan Paul Ltd., 1960, p.298. []
  5. Ibid., p.299. []
  6. Ibid., p.261. []
  7. United Nations, Universal Declaration of Human Rights, New York, Department of Public Information, 1948, Article 25. []
  8. Jean-Daniel Weisz, Institutional Economics in France and Germany, New York, Springer, 2000, p.188. []
  9. Lord Robert Skidelsky, Hayek Lecture: The Road to Serfdom Revisited, New York, The Manhattan Institute for Policy Research, 2006. []
  10. Hayek, The Constitution of Liberty, p.382. []
  11. Ibid., p.383. []
  12. Hayek, The Constitution of Liberty, p.327. []
  13. Noam Chomsky, Anti-democratic Nature of U.S. Capitalism is Being Exposed, Irish Times (Dublin), 10 October 2008. []
  14. Gerri Peev, Brown Calls for New Bretton Woods, The Scotsman (Edinburgh), 14 October 2008. []
  15. Hayek, The Constitution of Liberty, p.374. []
  16. Eric Hobsbawm, The Age of Extremes: The Short Twentieth Century 1914-1991, London, Abacus, 1995, p.257. []
  17. John Podesta and Peter Ogden, ‘Global Warning: The Security Challenges of Climate Change’, in Kurt M. Campbell (ed.), The Age of Consequences: The Foreign Policy and National Security Implications of Global Climate Change, Washington, Center for American Progress, 2007, p.56. []
Basem Abdo is a student of politics and history at Melbourne's LaTrobe University, Australia. He can be reached at: basabdo@hotmail.com. Read other articles by Basem, or visit Basem's website.