Neoliberalism’s Dirty Little Secrets Backfire

Nick Hanauer, a self-professed capitalist billionaire, spoke at a TED conference only recently. He exposed neoliberalism’s brand of capitalism getting away with murder in plain sight.

Mr. Hanauer described himself:

After a 30-year career in capitalism spanning three dozen companies, generating tens of billions of dollars in market value, I’m not in the top one percent (1.0%), I’m in the top zero-point-one percent (0.1%) of all earners… rich capitalists like me have never been richer… how do we manage to grab an ever-increasing share of the economic pie every year?

According to Hanauer:

It all comes down to just one thing: Economics.

There was a time, for example in the 1950s, when economics worked on behalf of everybody in the country. At the time CEO pay was 20xs the average worker. In stark contrast, today’s neoliberal brand of capitalism works only for big corporations and billionaires, nobody else, and CEO pay has skyrocketed to 360xs rank-and-file worker pay.

Neoliberalism is a made-to-order-get-rich-scheme but reserved for the already rich. No outsiders allowed, other than the few that suddenly appear out of nowhere, like apparitions coming to life out of Silicon Valley.

As a consequence of neoliberal ideology over the past 30-40 years, in the USA alone, according to Hanauer: “The top 1% has grown 21 trillion dollars richer while the bottom 50% have grown 900 billion dollars poorer.”  That pattern of widening inequality has largely repeated across the world. It is the Grand Slam of Neoliberalism, and it just keeps on going and growing.

Politically, the neoliberal agenda is a kissing cousin to Republican talking points, arguing (1) raising taxes always kills growth. And, (2) any form of government regulation is inefficient. And, (3) raising wages always kills jobs, as businesses cannot afford to pay higher wages. These timeworn myths have hung in there like some kind of universal stamp of Good-Housekeeping approval ever since the Reagan administration. But, all three are stale myths, meaningless, false, make-believe storylines.

Not only that, neoliberalism’s knee-jerk fix for middle class struggles to cope with stagnate wage growth for 40 years is: (1) globalization (code word for moving jobs to shores of the lowest common wage denominator) and (2) more austerity (code word for cutting social programs to help finance tax cuts for the rich). According to Hanauer, the twin forces of globalization and austerity were the problem in the first instance, undermining the U.S. middle class.

Therefore, with neoliberalism ingrained into the world economic fabric, as it beats down labor while celebrating corporate over-lordship’s legal status as a “person”, what is a society to do?

Hanauer argues that America needs new economics. Toss out neoliberalism. For starters, he claims a growing number of academics and practitioners have concluded that neoliberal economic theory is “dangerously wrong.” Thus, for decades “bad economic theory” has resulted in massive inequality throughout the world accompanied by disruptive political instability. As such, neoliberalism is inherently self-destructive and, by default, it morphs into a replica of 18th century absolutism with power vested in one or more rulers or despotism as a final remaining beachhead for its survival.

Further to the point, neoliberalism is a “backwards approach to economics because it isn’t capital that creates economic growth.” It’s people that create economic growth. And, “it isn’t self-interest that promotes the public good.” It’s reciprocity. And, “it isn’t competition that creates prosperity.” It’s cooperation. Yet, neoliberalism is tethered to capital creation as the engine for growth, self-interest as the fuel for growth, and competition as the determinate of success.

Hanauer’s list of mistaken neoliberal assumptions:

  1. The market is an efficient equilibrium system, which means if one thing like wages goes up, then something else in the same economy like jobs must go down. Not true. In 2015 in Seattle when they passed the first $15/hr. minimum wage, the neoliberals “freaked out.” But, thereafter the unemployment rate fell dramatically. Restaurant businesses in Seattle, which neoliberal advocates said would collapse, boomed (restaurant employment increased by 24,000, post 2015). More people with more money to spend increased businesses across the board. Seattle’s $15/hr. minimum wage lifted all boats.
  2. The price of something is always equal to its value. Which means if one person earns fifty thousand per year and another person earns fifty million per year; person number two produces 1,000 more value. However, people are not paid what they are truly worth. In point of fact, they are paid based upon “the power they have to negotiate.” Workers shrinkage of a share of GDP is not because workers have become less productive. It’s because employers have become more powerful politically amidst a tornado of behind the scenes manipulations cutting labor off at the knees, as well as disgraceful examples of union busting by the nation’s highest court, e.g., Janus v. AFSCME taking aim at the heart of public-sector unions in America, by a 5-4 decision the C0urt ruled against union fees in the public sector as a violation of the First Amendment right to free speech, overturning 40 years of established law.
  3. Humans are homo economicus, meaning they are (1) perfectly selfish, (2) perfectly rational, and (3) relentlessly self-maximizing. This goes to the heart of a crude, cruel neoliberal economics. But, homo economicus fails, as it is both “morally corrosive and scientifically wrong.” In contrast, the latest empirical science describes humans as (1) highly cooperative, (2) reciprocal, and (3) intuitively moral creatures.

A new economics brings innovation as the process by which we solve human problems, and it involves five rules:

  1. Successful economies are not jungles where survival of the fittest rules. Rather, they’re gardens. Thus, markets, like gardens, must be tended. The market is a vehicle to realize innovation and prosperity, but markets left untended, unconstrained by social norms or without regulations, create more problems than they solve.
  2. Inclusion creates economic growth. So, including more people in more ways brings growth.
  3. The purpose of the corporation is not solely to enrich shareholders. The purpose of the corporation should be to improve all stakeholders, including customers, workers, communities, and shareholders.
  4. Greed is not good. “Being rapacious does not make you a capitalist; it makes you a sociopath.”
  5. The laws of economics involve the principals of “choice.” Neoliberal economics has sold the public on the idea that neoliberalism is immutable, natural law and unchangeable. In fact, economics are social norms and constructive narratives based upon those norms that offer alternative choices. People have a choice but don’t realize it.

The credibility of neoliberalism’s faith in unfettered markets as the surest road to shared prosperity is on life-support these days. And well it should be. The simultaneous waning of confidence in neoliberalism and in democracy is no coincidence or mere correlation. Neoliberalism has undermined democracy for 40 years.1

According to Stiglitz, the only way forward to “save our planet and our civilization” is a rebirth of history by revitalizing the Enlightenment and recommitting to its essential value propositions of freedom, respect for knowledge, and democracy. After all, the Enlightenment provided the philosophical basis of the American Revolution as a blueprint for a democratic society. It’s the rebirth of history that Stiglitz prescribes to fix the failures of neoliberalism.

Otherwise, very powerful political consequences of the neoliberal world will continue on a path of self-destructive absolutism with people ultimately pushing back by hitting the streets, like today in Chile, Hong Kong, France, Iraq, Haiti, Lebanon, Spain, Bolivia, and Ecuador.

What do these global protests have in common?

In all cases, price increases for key basic services have proven to be the final straw for people who have long felt shut out of opportunity. For example, in Ecuador protestors stormed parliament over discontinuation of decades-old fuel subsidies as part of an austerity program to cut public spending, insisted by the IMF. A hike in transport prices also sparked massive protests in Chile. In Lebanon a plan to tax WhatsApp prompted wider protests about general economic issues of inequality and corruption, an interesting feature found in all street protests these days as single issues blossom into full-blown universal demands for a fair share.

As it happens, the world has become a tinderbox as seemingly minor changes in policies like transport taxes prompt massive demonstrations. Ordinary citizens hit the streets in outpourings of years of pent-up economic oppression, tired of “just getting by” or “not getting by at all.” It’s a universal threat that neoliberal self-immolation follows continual adherence to a stale emphasis on globalization and austerity.

  1. Joseph E. Stiglitz, “The End of Neoliberalism and the Rebirth of History,” November 4, 2019. []
Robert Hunziker (MA, economic history, DePaul University) is a freelance writer and environmental journalist whose articles have been translated into foreign languages and appeared in over 50 journals, magazines, and sites worldwide. He can be contacted at: rlhunziker@gmail.com. Read other articles by Robert.