Neoliberalism

The Guardian has an article by George Monbiot on “Neoliberalism – the ideology at the root of all our problems“, an excerpt from a forthcoming book.  He cites von Mises, Hayek and Friedman as the original neoliberals, which is fair enough given their roles in organizations such as the Mont Pelerin Society. What struck me is his account of the role of ideas of deservingness, or merit, in neoliberalism.

“The market ensures that everyone gets what they deserve. We internalise and reproduce its creeds. The rich persuade themselves that they acquired their wealth through merit, ignoring the advantages – such as education, inheritance and class – that may have helped to secure it. The poor begin to blame themselves for their failures, even when they can do little to change their circumstances. Never mind structural unemployment: if you don’t have a job it’s because you are unenterprising. Never mind the impossible costs of housing: if your credit card is maxed out, you’re feckless and improvident. Never mind that your children no longer have a school playing field: if they get fat, it’s your fault. In a world governed by competition, those who fall behind become defined and self-defined as losers.”

As a description of a popular belief system, this account of neoliberalism may be accurate.  But since Monbiot cites Capitalism and Freedom, let’s take a look at what Friedman says.

“The ethical principle that would directly justify the distribution of income in a free market society is, “To each according to what he and the instruments he owns produces” (161-2).

Here are the main points Friedman makes about this principle, which he refers to as “payment in accordance with product”:

1. The operation of this principle depends upon the definition of property rights, hence on state action.
2. Inequalities of reward can be a form of equal treatment, where individuals who are alike in ability and initial resources have different preferences e.g. over leisure vs. consumption of marketable goods, and therefore make different choices about how much and where to work.
3. Inequalities of reward due to attitudes towards risk are also compatible with equality of treatment.
4. However, “a large part [of the inequality of income produce by payment in accordance with product] reflects initial differences in endowment, both of human capacities and of property” (163-4).  Later: “Most differences of status or position or wealth can be regarded as the product of chance at a far enough remove.  The man who is hard working and thrifty is to be regarded as ‘deserving’; yet these qualities owe much to the genes he was fortunate (or unfortunate?) enough to inherit” (165-6).
5. Many people argue that there is an important ethical distinction between inequality in innate personal endowments and inheritance of property.  They are wrong.  “Is there any greater ethical justification for the high returns to the individual who inherits from his parents a peculiar voice for which there is great demand than for the high returns to the individual who inherits property?” (164). [Also, from Free to Choose: “Frank Sinatra’s voice was highly valued in twentieth-century United States. Would it have been highly valued in twentieth-century India, if he had happened to be born and to live there?” (22)]
6. Yet the invalidity of this argument against the capitalist ethic doesn’t show that the capitalist ethic is acceptable. “I find it difficult to justify either accepting or rejecting it, or to justify any alternative principle.  I am led to the view that it cannot in and of itself be regarded as an ethical principle; that it must be regarded as instrumental or a corollary of some other principle such as freedom” (164-5).
7. The main role of payment in accordance with product is “instrumental”; “the essential function of payment in accordance with product in a market society is to enable resources to be allocated efficiently without compulsion” (167). [Leaving aside the compulsion involved in the enforcement of property rights, of course]

Hayek made essentially the same points in Ch. 6 of The Constitution of Liberty (though not, I think, in Road to Serfdom). Hayek and Friedman took these ideas from Frank Knight, one of Friedman’s teachers, in particular his essay “The Ethics of Competition.”  (Monbiot says “Neoliberalism sees competition as the defining characteristic of human relations.” Knight’s aim, in this essay, was to provide an ethical assessment of the competitive system, as he called it.  In Knight’s view, it did poorly, in absolute terms – though he also said (in 1923) that critics of the system tended to underestimate the chances of doing vastly worse.)

Although Friedman concluded that reward by product was purely of instrumental significance, not itself an ethical standard, he recognized that popular opinion disagreed.  Market society is unlikely to be tolerated unless it is regarded as yielding distributive justice, and payment in accordance with product was one of these accepted value judgments, Friedman thought (167). He supported this claim by arguing that Marxists accepted the capitalist ethic too.

“Marx argued that labor was exploited.  Why? Because labor produced the whole of the product but got only part of it… the value judgment only follows if one accepts the capitalist ethic. Labour is ‘exploited’ only if labor is entitled to what it produces. If one accepts instead the socialist premise, “to each according to his need, from each according to his ability”… it is necessary to compare what labor produces, not with what it gets but with its “ability”, and to compare what labor gets, not with what it produces but with its “need” (167).

Marx was aware of the divergence between these two standards; in his Critique of the Gotha Program he criticized the idea that workers have a right to the full product of their labour for this very reason (see Stuart White’s Civic Minimum p.52, and Paul Warren’s 1994 Canadian Journal of Philosophy article p.46).

Regardless, the interesting thing about Friedman was that he saw popular belief in merit or desert as a potential threat to the system.

“Despite the lip service that we all pay to ‘merit’ as compared to ‘chance’, we are generally much readier to accept inequalities arising from chance that those clearly attributable to merit.  The college professor whose colleague wins a sweepstake will envy him but is unlikely to bear him any malice or to feel unjustly treated.  Let the colleague receive a trivial raise… and the professor is far more likely to feel aggrieved” (166).

Friedman is actually saying two different things, about the stability of capitalism.  On the one hand, in order to be stable, an economic system has to be perceived as fair, or not too unfair, by most people. From this point of view, popular belief in reward by individual desert would support the market system if people thought that the market system did in fact reward the meritorious. The problem is that in Friedman’s view it does not  – at least not very reliably.  The market rewards luck; it sends signals based on current scarcity, not past efforts.  (Knight would have added that it also rewards and encourages competitiveness, which neither Christian nor ancient Greek ethics thought was a virtue; the ‘losers’ in the competitive system will include not just the lazy and the irresponsible but those who are scrupulously honest, gentle, and kind).

On the other hand, inequalities based on merit are resented more than those based on chance, because they strike at self-esteem.  From this perspective, popular belief that the market system realizes reward by merit is destabilizing.

The idea that belief in merit might be destabilizing was an important part of Hayek’s thinking too. Hayek distinguished the “value” of a person’s product to her fellows from the “merit” she displayed in generating this product. Value is based on results, assessing results in terms of usefulness for other people’s personal goals, whereas merit is based on the character of action, assessed in terms of ethical standards that justify praise or blame. From the point of view of merit, looking backwards, we would want to cancel out the effects of luck. But from the perspective of efficiency, looking forward, and given limited information about the balance between luck and merit in any particular case, we must reward luck, because that sends the rights signals. We might try to make rewards correspond with merit rather than value, but in so doing we would destroy the incentives that allow the market to reconcile efficiency with individual liberty, and also make a lot of people unhappier.

“A society in which it was generally presumed that a high income was proof of merit and a low income a lack of it, in which it was universally believed that position and remuneration corresponded with merit… would probably be much more unbearable to the unsuccessful ones that one in which it was frankly recognized that there was no necessary connection between merit and success. [In a footnote, Hayek quotes from Crossland’s The Future of Socialism, and cites Michael Young’s The Rise of Meritocracy, though he said he hadn’t read Young’s book yet] It would probably contribute more to human happiness if, instead of trying to make remuneration correspond to merit, we made clearer how uncertain is the connection between value and merit. We are probably all much too ready to ascribe personal merit where there is, in fact, only superior value. The possession by an individual or a group of a superior civilization or education certainly represents an important value and constitutes an asset for the community to which they belong; but it usually constitutes little merit… There is every reason why we ought to endeavor to honor special merit where it has gone without adequate reward.  But the problem of rewarding action of outstanding merit which we wish to be widely known as an example is different from that of the incentives on which the ordinary functioning of society rests” (Constitution of Liberty, pp.98-99)

Sometimes in reading Hayek one gets the sense that he is being guided less by what he thinks is true than by what he thinks it’s necessary for people to believe in order to stabilize what he takes to be a free society; always at the back of his mind is his fear of totalitarianism.  Perhaps when he says “we are probably all much too ready to ascribe personal merit where there is, in fact, only superior value” this is one of those occasions, where he is thinking of what people need to believe to stabilize the market order. But I think that’s being too cynical.

“[T]he value that the performance or capacity a person has to his fellows has no necessary connection with its ascertainable  merit [in the sense of “the attributes of conduct that make it deserving of praise”].  The inborn as well as the acquired gifts of a person clearly have a value to his fellows which does not depend on any credit due to him for possessing them.  There is little a man can do to alter the fact that his special talents are very common or exceedingly rare. A good mind or a fince voice, a beautiful face or a skilful hand, and a ready wit or an attractive personality are in large measure as independent of a person’s efforts as the opportunities or the experiences he has had” (94).

In passing, Hayek makes the same point Friedman did against egalitarians who drew an ethical distinction between innate talents and inherited wealth.

“Egalitarians generally regard differently those differences in individual capacities which are inborn and those which are due to the influences of environment, or those which are the result of ‘nature’ and those which are the result of ‘nurture’  Neither, be it said at once, has anything to do with moral merit. [Here, Hayek cites Knight 1940: “There is no visible reason why anyone is more or less entitled to the earnings of inherited personal capacities than to those of inherited property in any other form”] Though either may greatly affect the value which an individual has for his fellows, no more credit belongs to him for having been born with desirable qualities than for having grown up under favorable conditions” (88-9)

As an example of the egalitarianism he was criticizing, Hayek cites Plamenatz’s summary of Tawney; “all inequalities that rest on birth and inherited property ought to be abolished and none remain unless it is an effect of superior talent and industry.” Perhaps Rawls had read the same summary of Tawney, and that’s why he described Tawney as a defender of “liberal equality” (= fair not just formal equality access to advantaged positions + efficiency) rather than “democratic equality” (fair equality of opportunity plus inequalities between social positions must raise lower positions); A Theory of Justice §12, p.63 Revised Edition.

So here, finally, we have a formula for Rawls’s idea of democratic equality: take Knight, Hayek and Friedman’s thesis that natural and social inheritance are morally equivalent rom the point of view of merit or desert, but then argue that it is not enough for economic inequalities that track innate ability or social position at birth to maximize aggregate prosperity or well-being, in order to be justified; instead, such arbitrary inequalities must benefit the worst off, i.e. raise the lowest social position. Here is Rawls from this 1967 article “Distributive Justice”:

“It is perfectly true, as some have said [here Rawls cites Hayek, from the passage where Hayek cites Knight], that unequal inheritance of wealth is no more inherently unjust than unequal inheritance of intelligence; as far as possible the inequalities founded on either should satisfy the difference principle” (142-3, from his Collected Papers).

Compare this statement to Daniel Bell’s 1973 take on Rawls (on which Michael Sandel relied heavily; see p.73 of his Liberalism and the Limits of Justice).  Bell cites Rawls’s statement that the difference principle represents “an agreement to regard the distribution of natural talents as a common asset” then says the following:

“We have here a fundamental rationale for a major shift in values; instead of the principle `from each according to his ability, to each according to his ability,` we have the principle `from each according to his ability, to each according to his need.` And the justification for need is fairness to those who are disadvantaged for reasons beyond their control. With Rawls, we have the most comprehensive effort in modem philosophy to justify a socialist ethic.” (Bell, “On Meritocracy and Equality,” The Public Interest, 1972, p.57, though Sandel cites the book version).

So Rawls is a socialist because he agrees with Knight, Hayek, and Friedman’s rejection of the claim that scarce innate talent is the basis of desert of superior reward!