Actually Existing Neoliberalism
The Knowledge Corrupters: Hidden Consequences of the Financial Takeover of Public Life
By Colin Crouch
Cambridge: Polity, 2016
If losing one parent is unfortunate and losing two is careless, losing 5,000 school children is outright disturbing. This is what happened amongst 1,730 secondary schools in England in 2014. The pupils, it turned out, had been removed from school rolls because they would otherwise drag down the schools’ average exam performance.
What is the wider significance of hundreds of schools gaming numbers like this? To answer that question requires thorough, historical and sociological knowledge of government policy, political economy, business and the public sector. It would be extremely useful if a respected academic, with years of research and training in just these areas would write accessible, informative books for lay people about the current state of their politics. Enter, stage left, Colin Crouch.
Crouch is one of the UK’s, if not Europe’s, leading sociologists. He held posts in Oxford, Germany and Italy, and is now professor Emeritus of Governance and Public Management at Warwick Business School, one of the best in the UK. His latest book argues that “corporate neoliberalism gives incentives to firms, governments and professionals in private and public sectors alike that threaten the integrity of important knowledge.” It is genuinely urgent reading because it reveals neoliberalism to be pathological, and it does so in a way most lay people will be able to follow.
“There are now many varieties and nuances of neoliberalism,” Crouch said in his 2013 Making Capitalism Fit for Society, “but if we stay with that fundamental preference for the market over the state as a means of resolving problems and achieving human ends, we shall have grasped the essence.” The first chapter of that book shows how neoliberalism got its chance at the reigns of power in the late seventies. Keynesianism was the dominant macroeconomic doctrine of the first three postwar decades, delivering simultaneously the greatest rise in living standards, improved rights for workers, and increased democratic representation of ordinary citizens. In the seventies, however, it struggled to deal with inflation and the steep rises in oil prices made it appear vulnerable. Following election victories for Thatcher in the UK and Reagan in the US, neoliberalism became government ideology in two of the leading world economies. Numerous think tanks were set up to spread its message, and the World Trade Organization was created in 1995 to implement neoliberalism globally. Neoliberalism has, as a result of this contingent historical process, become common sense. Most people born after the 1980s have never experienced any other form of political economy.
Another reason Crouch is such an important read is his ability to assess the debate with exactly the right amount of detachment: not so much that it seems unimportant and we forget the real harms neoliberalism has done and continues to do, not so little that he denies the significant overlaps between neoliberalism and its main opponent social democracy. He recalls, for example, the German Social Democrat slogan, “‘So viel Markt wie möglich; so viel Staat wie nötig” (as much market as possible, as much state as necessary). Crouch’s even-handedness, makes his conclusions about the massive failures of neoliberalism all the more powerful. Just as actually existing communism was so much worse in practice than in theory, so it is for neoliberalism.
The Knowledge Corrupters explores ways in which the extreme form of neoliberalism now holding global sway, damages knowledge. To wit:
The attempt to make public services behave as though they exist in markets…both brings to those services an over-simplification of the knowledge involved in them and undermines the professions that are the carriers of that knowledge.…Although the market is itself a highly elaborate form of knowledge, heavy reliance on it undermines other forms, including the scientific knowledge that underpins much of modern life….While early theories of the free market saw it as nested among actors who would act with moral integrity, the contemporary form of market theory as rational choice exalts and rewards dishonest behaviour that connives at the corruption of knowledge….While pure market theory requires an economy with large numbers of produces and consumers, actual existing neoliberalism accepts high levels of concentration of monopoly power…this leads to powerful economic elites controlling access to and distorting knowledge to serve their own interests….To act fully effectively in the market involves being a self-centred, amoral calculating machine…As the market and analogues of it spread into ever further areas of life…we have incentives to…know ourselves primarily as these machines.
Crouch examines several significant cases of such loss of and damage to knowledge. Single-minded faith in markets to solve problems oversimplifies the knowledge required in certain fields, and of the professions that sustain and develop that knowledge. Education is a difficult and complex art. The old way of ensuring standards in British schools was through visits and observations by a highly regarded inspection team. The new, neoliberal reliance on a few numerical indicators published in league tables simply cannot provide a proper sense of how good or bad a school is. Crouch shows how the ramped up inspection timetable requires far more inspectors, with the result that less qualified inspectors are taken on, which puts into question the quality of judgments being made.
Sometimes knowledge is outright suppressed rather than merely skewed. Crouch reminds us that British Petroleum and Halliburton ignored the pleas of its own engineers for safer infrastructure on its Gulf of Mexico rig, Deepwater Horizon, leading to one of the worst oil spills in recent history. Three quarters of the tests on the concrete for Deepwater Horizon failed but a short-term focus on profit and expenses won out over scientific and engineering expertise.
Astonishingly, one of BP’s rigs in Azerbaijan had already had a similar disaster a year and half earlier.
BP and Halliburton cannot be written off as eccentric outliers. They are huge, successful firms of national economic importance. Their repeated suppression of knowledge suggests the problem is structural, not a case of a couple of bad eggs, and that suggestion is confirmed when Crouch looks at the pharmaceutical industry. Vioxx, a drug for arthritis produced by Merck is estimated to have caused 90,000 to 140,000 deaths before it was withdrawn. Merck knew Vioxx increased the risk of heart attacks, but did not tell anyone. Examples could be multiplied because the Anglo-American model of valuing firms based on short-term shareholder return puts intense pressure on managers to exclude essential information.
Another problem is undermining knowledge as a public good and placing it under corporate control. RiceTec applied for a US patent on the name ‘basmati rice,’ even though it has been used in India and Pakistan for thousands of years. In 1997 a US court awarded the patent. After much protest RiceTec removed its patent except for three varieties of Pakistani origin. The Pakistani government had objected less strenuously to the US government than India’s.
Part of the importance of The Knowledge Corrupters is its laying bare of the market’s tendency to encourage dishonest behavior. The LIBOR, Euribor and Forex scandals – banks cheating the stock market and their own customers – are a prime case in point: knowledge was deliberately hidden from customers. Whereas Adam Smith designed his theories about markets by assuming they were populated by moral actors who could trust one another, the current economy punishes honesty and trust but rewards their opposite. Honesty and trust are, in economic speak, ‘positive externalities’: something markets use but cannot produce on their own. Left to their own devices, markets chip away at the everyday trust and honesty on which they rely. Markets are in that sense parasitic. More subtly, as the market expands to ever-new areas of life, people are encouraged to think of themselves more and more as selfish, utility calculating machines. Nuanced self-perception is eroded.
None of Crouch’s insights here are new but that does not lessen their importance. They are standard fare in Marxist critiques of capitalism and there is an unassailable mass of evidence in their favour. What is useful about Crouch’s handling of this line of thinking is his ability to present the basic criticisms in plain language, with fairness and realism, and from within the heart of mainstream scholarship. Much Marxist scholarship is prohibitively stacked with jargon and assumes too much specialist knowledge for the general reader. It is also easy to write off as hyperbolic, biased and eccentric. Crouch’s work is blessedly free of such hurdles. He willingly grant the achievements of neoliberalism, uses widely accepted theories and scholarship to argue his case, and still concludes that neoliberalism’s disadvantages heavily tip the scale.
The examples given above – and there are dozens more in the book – contradict, Crouch says, an essential tenet of neoliberal theory: “that the knowledge necessary for satisfactory choice lies in the market process itself, not in any human participant, whether provider, customer or government.” Yet in all these cases, the market did not self-correct through its own processes. Rather, Crouch notes, “human agency has been involved at every major point where the misuse of knowledge has been brought to public attention.” To understand why actually existing neoliberalism contradicts so thoroughly its own theory, and to see why we should not in fact be surprised by the corruption and loss of knowledge stemming from “the exaggerated respect being paid to a rather contorted form of market economy,” we need to put these examples in a wider context.
In 2000 Crouch created the concept of ‘post-democracy’. In Post-Democracy (2004) he explained it as the situation of ostensibly democratic countries, such as the UK, USA and Italy, where,
while elections certainly exist and can change governments, public electoral debate is a tightly controlled spectacle, managed by rival teams of professionals expert in the techniques of persuasion, and considering a small range of issues selected by those teams. The mass of citizens plays a passive, quiescent, even apathetic part, responding only to the signals given them. Behind this spectacle of the electoral game, politics is really shaped in private by interaction between elected governments and elites that overwhelmingly represent business interests.
Post-democracy is, he makes clear, an exaggeration, but recognizable enough to be worth using to assess where our politics lies on a scale between it and some ideal form of democracy. Crouch wrote several analyses of post-democratic political economy over the last decade and a half for ordinary people who have to ‘cope’ with neoliberalism without any chance of exercising major political influence. The Knowledge Corrupters falls into this group of works.
In Post-Democracy, Crouch showed how familiar debates about “state vs. market” fail to acknowledge the importance of giant global firms in contemporary geopolitics. These firms, or transnational corporations (TNCs) as they are often called, are for Crouch the key institution of the post-democratic, globalized world. They are so important that the standard debate of ‘state versus market’ is now out-dated and should be replaced with debates and the triangulation between states, firms and the market. They have fundamentally changed global politics because they are more mobile than nation states. TNCs use their mobility to pressure governments into offering them favorable conditions at the expense of ordinary taxpayers. The recent Amazon and Starbucks tax scandals in the US and UK are two of hundreds of cases. These giant, extremely profitable firms, have paid pitiful amounts of tax to governments who have refused to chase them for tax evasion.
Within a post-democratic context, political parties have become revolving doors between lobbyists for TNCs, TNC employees themselves, and government ministers. To take a couple of examples from The Knowledge Corrupters, “Ian Dalton was the deputy chief executive of NHS[National Health Service] England until he left in 2013 to head the global health division of BT, the telecommunications firm. During the following year BT won £18 million of NHS contracts.” Simon Stevens was “a top-level advisor on health policy to the Labour government from 1997 to 2004. He then left to occupy a series of senior posts with a US health-care firm, UnitedHealth, which is eager to win outsourcing contracts in the UK and other European countries.” Many readers may become enraged as they plough through repeated cases like these, but Crouch manages to remain remarkably even-handed, although without pulling punches:
Whether or not actual corruption is involved in granting contracts within this world of revolving doors, awarding of public contracts to political friends and interpersonal connections is probably beside the point; corruption is unnecessary when interlocking interests of this kind can operate brazenly.
The UK does not like to think of itself as corrupt but other’s have reached the same conclusion as Crouch. In May this year the Italian anti-mafia journalist Roberto Saviano called the UK the most corrupt country in the world because the financiers in the City of London effectively launder money for criminal oligarchs, drug cartels and tax-dodgers.
Outsourcing contracts for public services to private companies is not only a question of corruption and conflicts of interest. It contributes to the transformation of citizenship into consumerism, although the promised benefits of “customer choice” seldom materialize and service quality often worsens. One of Crouch’s central arguments in The Strange Non-Death of Neoliberalism (2011) was that privatization is not the same as marketization. Marketization creates competition, which usually brings benefits to consumers; privatization usually creates monopolies, which only help big firms. In The Knowledge Corrupters Crouch informs us that public services in England have been contracted out mainly to three large companies: Serco, G4S and Capita. Three companies are too few to act as a true market, so the benefits of markets trumpeted by neoliberals do not appear. G4S was paid £284 million by the government to provide security for the 2012 London Olympics but made so little preparation the army and police had to step in, paid for by taxpayers. According to market theory, G4S should have suffered such reputational damage it lost customers as a result. Instead, the same UK government awarded it £3.5 million to work in the NHS and £4 million to managed Her Majesty’s Revenue and Customs sites. Privatization, in direct contradiction to markets, has meant companies who singularly fail to fulfil their contracts still attract more contracts. Could other companies do the job better? The government does not seem interested enough to find out.
Privatization is not true marketization for a further reason: when public services are privatized, the government becomes the customer, not the citizens who need to use the service. The service remains the only option, so its users cannot exercise choice as customers in a market, but nor can they hold the company directly to account, as they can an elected government. Chains of sub-contracting make finding those responsible for actual service failures extremely difficult and time consuming. The companies running the services may well not have any expertise or experience in them but have simply become good at winning government contracts. Hedge funds took over care hospitals in England. When one was criticized by the regulator for inadequate standards of care, it simply walked away, leaving taxpayers to fund a hospital in need of turning around.
Dreadful as corporate-skewed neoliberalism is for citizens and workers, those with no voting rights have been treated with the degradations and arbitrariness of medieval power.
Since 2007 another of Serco’s contracts has been to run a women’s immigration detention centre at Yarl’s Wood in Bedfordshire. There were a series of allegations of sexual abuse of inmates by Serco staff, and of pregnant women being held without justification. The women held at Yarl’s Wood had not been charged with criminal offences, but were awaiting deportation as illegal immigrants; some had been held for four years…A request by the United Nations to investigate the site was refused by the UK government. In November 2014 Serco was given a new contract, worth £70 million, to continue running the detention centre for another eight years.
The Knowledge Corrupters overflows with examples like these. Most of them are taken from the UK, whereas Crouch’s previous books used studies from the US and dozens of European countries. A tighter focus does not entail parochialism, however. As the most neoliberal of countries outside the US, the UK is an important bellwether.
A recurrent theme in Crouch’s works is the difference between what neoliberalism says in theory and how it works in practice. We have already seen how neoliberals have dispensed with a central plank of the old, liberal version of capitalism: safeguarding against corruption by separating government and business. We have seen how under the rhetoric of market choice and improving efficiency, a small number of private firms take over so many public services they become too big to fail, and are allowed to drive down service quality and outright fail to deliver on contracts, without any market consequences accruing to them. All of this would make pure neoliberals, who value the competition of pure markets, shudder; but actually existing neoliberalism is not really about economic theory, it is about power. It is, more precisely, about maintaining the interests of business and political elites.
Consider again the LIBOR inter-bank lending and other rate fixing cases. This cheating occurred in the US, UK and Europe, not in an impoverished backwater. This was ‘outright corruption and criminal dishonesty on a vast scale on behalf of some of the world’s leading banks.’ Precisely because it involved so many major banks they have been allowed to get away with it. Fines imposed by regulators are passed on to individual customers who have nowhere else to go. Far from the market responding to fraud and malpractice by forcing bad eggs out of business, it simply institutionalized the rot.
Giant corporations are not the only guilty parties. Government agencies and even courts of law are in hock to the same ideology. US courts’ support for US firms is not the only outcome. The US National Oceanic and Atmospheric Administration had its warnings about BP/Halliburton’s Deepwater Horizon oil extraction overruled by the US Minerals Mining Service. “On some occasions,” Crouch reports, “the scientists had even been required by senior management to change their reports.” The European Court forced the Dutch government to open its public services to competition from private firms whilst simultaneously protecting large corporations from competition, “even to the extent of allowing corporations to acquire monopoly rights over natural phenomena.”
A particularly ironic example of actually existing neoliberalism’s inversion of its own aims is the “concentration of decision-making in very few hands, mainly the hands of politicians.” Rather than disseminating freedom, decades of neoliberalism have pushed governments to ape the dictatorship of the CEO. In the past if the UK government wanted to look into a major policy change, a commission would be set up. The commission would comprise a politically neutral chairperson and various members representing different interests and possessing the relevant expertise. It would have, say, a couple of years to carry out its research and write a several hundred-page report of solid evidence, nuanced argument and considered recommendations. According to co-called New Public Management, a neoliberal approach to government policy and the civil service that took off in the early nineties, the “debate and participation by a wide range of interests lead to unbusinesslike compromises,” Crouch notes with restrained irony. Accordingly, in 1992, the Conservative government, which wanted to expand the number of universities, simply published a White Paper announcing all polytechnics would become universities. “There was no prior commission, no research or debate.”
The final kick in neoliberalism’s theoretical teeth comes from the way corporate-captured neoliberalism undermines the market as a source and form of knowledge. This is what makes The Knowledge Corrupters such urgent reading. For neoliberalism’s father, Hayek, recoiling from both Nazism and Soviet Communism, price signals in markets were far more reliable forms of producing and disseminating information, and of organizing society, than legal regulation or public-service ethics. Since markets are never pure, they never perform this function entirely; but they are a good way of achieving various goals, and certainly better than a planned economy. Crouch’s objection is not to capitalism per se, although the 2008 crash showed just how disastrously bad knowledge based on stock markets can be. The problem is an over-reliance on the market to the neglect of other important forms of knowledge, from self-knowledge to scientific knowledge, from publicly owned knowledge to non-quantifiable knowledge.
Crouch believes capitalism is the best and most dynamic form of wealth creation we have yet invented. Its marriage to corporate neoliberalism and post-democracy are tragic but not utterly irreversible. Sally Yates, US Deputy Attorney General, announced recently the Justice Department will stop using private prisons, because they are significantly worse and no cheaper than federal prisons. This is in equal measure encouraging and astounding, a crack in neoliberal ideological hegemony and a victory for sanity.
In Making Capitalism Fit for Society (2013), Crouch offered an alternative to the version of neoliberalism now dominant across Washington, London and Berlin, called assertive social democracy. It is assertive because it embraces change rather than trying only to defend past gains in workers’ rights. Inequality, the environment and the losses to consumers, citizens and workers imposed by large corporations are the three biggest failures of neoliberalism and the areas in which assertive social democracy has much to contribute. It can do so with policies avoiding the zero-sum trade off between markets and democracy, using a “social investment welfare state” to aid both. A major example is the Nordic flexicurity system: workers and trade unions accept higher levels of flexibility (which means a higher chance of being made unemployed) because they will be paid a decent level of unemployment benefit and be re-trained in order to enter a changing marketplace. This helps the innovation and dynamism of the market, reduces the overall burden on public finance of long-term unemployment, reduces the stress and anxiety of unemployment itself and the fear of unemployment, and helps firms be flexible and employ a well-trained workforce. It’s a win-win-win for firms, workers and the state, “part of a reasonable social compromise between state, capital and labour, from which all gain.” His suggestions in The Knowledge Corrupters concentrate on returning to an inspections model rather than relying on simplifying quantification, and communication between professionals and the public.
Crouch’s proposals, like his books, are illuminating, lucid and critically alert. They ought to be required reading for everyone.
Andrew Brower Latz‘s articles have appeared in various journals such as Telos, Thesis Eleven, and Political Theology, and magazines such as 3:AM and Philosophy Now. His book, The Social Philosophy of Gillian Rose, is forthcoming.