Freedom for the Wolves

Neoliberal orthodoxy holds that economic freedom is the basis of every other kind. That orthodoxy, a Nobel economist says, is not only false; it is devouring itself.

Any discussion of freedom must begin with a discussion of whose freedom we’re talking about. The freedom of some to harm others, or the freedom of others not to be harmed? Too often, we have not balanced the equation well: gun owners versus victims of gun violence; chemical companies versus the millions who suffer from toxic pollution; monopolistic drug companies versus patients who die or whose health worsens because they can’t afford to buy medicine.

Understanding the meaning of freedom is central to creating an economic and political system that delivers not only on efficiency, equity, and sustainability but also on moral values. Freedom—understood as having inherent ties to notions of equity, justice, and well-being—is itself a central value. And it is this broad notion of freedom that has been given short shrift by powerful strands in modern economic thinking—notably the one that goes by the shorthand term neoliberalism, the belief that the freedom that matters most, and from which other freedoms indeed flow, is the freedom of unregulated, unfettered markets.

F. A. Hayek and Milton Friedman were the most notable 20th-century defenders of unrestrained capitalism. The idea of “unfettered markets”—markets without rules and regulations—is an oxymoron because without rules and regulations enforced by government, there could and would be little trade. Cheating would be rampant, trust low. A world without restraints would be a jungle in which only power mattered, determining who got what and who did what. It wouldn’t be a market at all.

Nonetheless, Hayek and Friedman argued that capitalism as they interpreted it, with free and unfettered markets, was the best system in terms of efficiency, and that without free markets and free enterprise, we could not and would not have individual freedom. They believed that markets on their own would somehow remain competitive. Remarkably, they had already forgotten—or ignored—the experiences of monopolization and concentration of economic power that had led to the Sherman Antitrust Act (1890) and the Clayton Antitrust Act (1914). As government intervention grew in response to the Great Depression, Hayek worried that we were on “the road to serfdom,” as he put it in his 1944 book of that title; that is, on the road to a society in which individuals would become subservient to the state.

My own conclusions have been radically different. It was because of democratic demands that democratic governments, such as that of the U.S., responded to the Great Depression through collective action. The failure of governments to respond adequately to soaring unemployment in Germany led to the rise of Hitler. Today, it is neoliberalism that has brought massive inequalities and provided fertile ground for dangerous populists. Neoliberalism’s grim record includes freeing financial markets to precipitate the largest financial crisis in three-quarters of a century, freeing international trade to accelerate deindustrialization, and freeing corporations to exploit consumers, workers, and the environment alike. Contrary to what Friedman suggested in his 1962 book, Capitalism and Freedom, this form of capitalism does not enhance freedom in our society. Instead, it has led to the freedom of a few at the expense of the many. As Isaiah Berlin would have it: Freedom for the wolves; death for the sheep.

It is remarkable that, in spite of all the failures and inequities of the current system, so many people still champion the idea of an unfettered free-market economy. This despite the daily frustrations of dealing with health-care companies, insurance companies, credit-card companies, telephone companies, landlords, airlines, and every other manifestation of modern society. When there’s a problem, ordinary citizens are told by prominent voices to “leave it to the market.” They’ve even been told that the market can solve problems that one might have thought would require society-wide action and coordination, some larger sense of the public good, and some measure of compulsion. It’s purely wishful thinking. And it’s only one side of the fairy tale. The other side is that the market is efficient and wise, and that government is inefficient and rapacious.

Mindsets, once created, are hard to change. Many Americans still think of the United States as a land of opportunity. They still believe in something called the American dream, even though for decades the statistics have painted a darker picture. The rate of absolute income mobility—that is, the percentage of children who earn more than their parents—has been declining steadily since the Second World War. Of course, America should aspire to be a land of opportunity, but clinging to beliefs that are not supported by today’s realities—and that hold that markets by themselves are a solution to today’s problems—is not helpful. Economic conditions bear this out, as more Americans are coming to understand. Unfettered markets have created, or helped create, many of the central problems we face, including manifold inequalities, the climate crisis, and the opioid crisis. And markets by themselves cannot solve any of our large, collective problems. They cannot manage the massive structural changes that we are going through—including global warming, artificial intelligence, and the realignment of geopolitics.

All of these issues present inconvenient truths to the free-market mindset. If externalities such as these are important, then collective action is important. But how to come to collective agreement about the regulations that govern society? Small communities can sometimes achieve a broad consensus, though typically far from unanimity. Larger societies have a harder go of it. Many of the crucial values and presumptions at play are what economists, philosophers, and mathematicians refer to as “primitives”—underlying assumptions that, although they can be debated, cannot be resolved. In America today we are divided over such assumptions, and the divisions have widened.

The consequences of neoliberalism point to part of the reason: specifically, growing income and wealth disparities and the polarization caused by the media. In theory, economic freedom was supposed to be the bedrock basis for political freedom and democratic health. The opposite has proved to be true. The rich and the elites have a disproportionate voice in shaping both government policies and societal narratives. All of which leads to an enhanced sense by those who are not wealthy that the system is rigged and unfair, which makes healing divisions all the more difficult.

As income inequalities grow, people wind up living in different worlds. They don’t interact. A large body of evidence shows that economic segregation is widening and has consequences, for instance, with regard to how each side thinks and feels about the other. The poorest members of society see the world as stacked against them and give up on their aspirations; the wealthiest develop a sense of entitlement, and their wealth helps ensure that the system stays as it is.

The media, including social media, provide another source of division. More and more in the hands of a very few, the media have immense power to shape societal narratives and have played an obvious role in polarization. The business model of much of the media entails stoking divides. Fox News, for instance, discovered that it was better to have a devoted right-wing audience that watched only Fox than to have a broader audience attracted to more balanced reporting. Social-media companies have discovered that it’s profitable to get engagement through enragement. Social-media sites can develop their algorithms to effectively refine whom to target even if that means providing different information to different users.

Neoliberal theorists and their beneficiaries may be happy to live with all this. They are doing very well by it. They forget that, for all the rhetoric, free markets can’t function without strong democracies beneath them—the kind of democracies that neoliberalism puts under threat. In a very direct way, neoliberal capitalism is devouring itself.

Not only are neoliberal economies inefficient at dealing with collective issues, but neoliberalism as an economic system is not sustainable on its own. To take one fundamental element: A market economy runs on trust. Adam Smith himself emphasized the importance of trust, recognizing that society couldn’t survive if people brazenly followed their own self-interest rather than good codes of conduct:

The regard to those general rules of conduct, is what is properly called a sense of duty, a principle of the greatest consequence in human life, and the only principle by which the bulk of mankind are capable of directing their actions … Upon the tolerable observance of these duties, depends the very existence of human society, which would crumble into nothing if mankind were not generally impressed with a reverence for those important rules of conduct.

For instance, contracts have to be honored. The cost of enforcing every single contract through the courts would be unbearable. And with no trust in the future, why would anybody save or invest? The incentives of neoliberal capitalism focus on self-interest and material well-being, and have done much to weaken trust. Without adequate regulation, too many people, in the pursuit of their own self-interest, will conduct themselves in an untrustworthy way, sliding to the edge of what is legal, overstepping the bounds of what is moral. Neoliberalism helps create selfish and untrustworthy people. A “businessman” like Donald Trump can flourish for years, even decades, taking advantage of others. If Trump were the norm rather than the exception, commerce and industry would grind to a halt.

We also need regulations and laws to make sure that there are no concentrations of economic power. Business seeks to collude and would do so even more in the absence of antitrust laws. But even playing within current guardrails, there’s a strong tendency for the agglomeration of power. The neoliberal ideal of free, competitive markets would, without government intervention, be evanescent.

We’ve also seen that those with power too often do whatever they can to maintain it. They write the rules to sustain and enhance power, not to curb or diminish it. Competition laws are eviscerated. Enforcement of banking and environmental laws is weakened. In this world of neoliberal capitalism, wealth and power are ever ascendant.

Neoliberalism undermines the sustainability of democracy—the opposite of what Hayek and Friedman intended or claimed. We have created a vicious circle of economic and political inequality, one that locks in more freedom for the rich and leaves less for the poor, at least in the United States, where money plays such a large role in politics.

There are many ways in which economic power gets translated into political power and undermines the fundamental democratic value of one person casting one vote. The reality is that some people’s voices are much louder than others. In some countries, accruing power is as crude as literally buying votes, with the wealthy having more money to buy more votes. In advanced countries, the wealthy use their influence in the media and elsewhere to create self-serving narratives that in turn become the conventional wisdom. For instance, certain rules and regulations and government interventions—tax cuts for the wealthiest Americans, deregulation of key industries—that are purely in the interest of the rich and powerful are also, it is said, in the national interest. Too often that viewpoint is swallowed wholesale. If persuasion doesn’t work, there is always fear: If the banks are not bailed out, the economic system will collapse, and everyone will be worse off. If the corporate tax rate is not cut, firms will leave and go to other jurisdictions that are more business-friendly.

Is a free society one in which a few dictate the terms of engagement? In which a few control the major media and use that control to decide what the populace sees and hears? We now inhabit a polarized world in which different groups live in different universes, disagreeing not only on values but on facts.