The rise of neo-socialism

In recent months, we have heard the Prime Minister and others waxing lyrical about the sins of ‘neo-liberalism.’ This supposedly evil philosophy suggests that humans should be freely allowed to trade and interact with other people so long as they don’t use violence, coercion or fraud.

The first curious thing about this idea is that there is nothing ‘neo’ about it. The political philosophy of liberalism (or classical liberalism) has been around for hundreds of years. From John Locke to Adam Smith to John Stuart Mill to Milton Friedman, the idea that voluntary interaction was better than government control has played a central role in the evolution of politics throughout modern history.

There are even references to liberal ideas in the philosophies of Aristotle and Lao Tzu thousands of years ago.

A second curious thing about neo-liberalism is that the term has been popularised by people who oppose it. People who believe in the ideas of voluntary and peaceful exchange generally refer to themselves as ‘liberals,’ ‘classical liberals,’ ‘free-market advocates,’ or even ‘libertarian.’

It seems ‘neo-liberal’ is used solely as an insult.

A final curiosity in the debate about neo-liberalism is that it does not exist in practice. While some commentators complain of the supposed neo-liberal revolution of the last 20–30 years, the facts tell another story. Classical liberals want lower taxes, but the tax take is higher than ever. Classical liberals want less government spending, less welfare, fewer subsidies, and fewer government programs, but we have more than ever. Classical liberals want less regulation, but we have more than ever.

The twentieth century was the century of the State, with the government growing in size and the voluntary sector of the economy (i.e. the market) shrinking. This was dramatically true under Whitlam, but it was also true for Fraser, Hawke, Keating, and Howard.

There were a few classical liberal victories. Under the Hawke government, we saw a shift towards free trade (with significant benefits), the floating of the exchange rate (which helped us to avoid the Asian Financial Crisis), and the partial deregulation of the banking sector (which lead to lower interest rates and our current world’s-best banking sector).

But these liberal reforms must be weighed against the increase in industry licensing, maintenance of the welfare state, massive increases in health spending, steady growth in tax and middle-class welfare, and a boom in environmental regulation.

And yet the myth continues. Despite the government not shrinking, those on the left have been complaining that government has shrunk too much and ‘neo’ liberals have run amok. It is impossible to have a sensible debate when one side of the debate is making up their own neo-words and pseudo-facts.

The Prime Minister may be correct about one thing—the current economic crisis could potentially lead to a shift in the political economy of the western world.

The current era of the welfare state may be about to give way to a new era of fast-growing government, with the shrinking market subject to ever-greater regulation. Already in the last year, we have seen government spending grow by a massive 4% of GDP.

It is this super-sized government agenda that is genuinely new.

It is not quite socialism because the Prime Minister and friends continue to accept elements of a market economy. Perhaps it could better be described as ‘neo-socialism.’

It is simply a lie to say that the last 30 years have been liberal (neo or otherwise). Throughout the western world, both conservative and leftist governments have maintained the welfare state and a high level of government intervention.

If a strong shift towards even more government control is not socialist, then it is certainly socialist-like.

Already in the United Kingdom, there are areas of the country where the government controls 60–70% of the economy, and the remaining voluntary sector is heavily regulated. This is similar to the level of government that existed in some socialist East European countries.

Reference to socialism is often seen as over-the-top hyperbole, and certainly there are important differences between the current western economies and those of socialist East Europe.

But while the current trend towards big government is being managed differently to the failed old-socialist experiments of the past, there is no reason to believe that ‘neo-socialism’ is going to work much better.

John Humphries is a Research Fellow at The Centre for Independent Studies.