Ideological shifts before and after the financial crisis

Does the financial crisis portend some sort of ideological shift – not in political philosophies adopted by the commentariat, public and political class, but in the practical operation of government and policymaking? I think Foucault’s term ‘governmentality’ – models by which governments relate to individuals, independent of the over-worked philosophical cleavages – is more useful than many on the right are predisposed to admit. Are we seeing a new shift in governmentality as a result of the financial crisis – are governments looking at the relationship between economy and society in a different way?

Frankly, I don’t see it, although many others do. My friend Michael Cooney asks in the Weekend Australian: “is the era of economic conservatism over? It is: what comes next?” And John Quiggin has been talking about the end of the neo-liberal consensus, and, I think rightly – although I suspect for different reasons – is placing the political reaction to the crisis in the framework of risk society government.

Nevertheless, I don’t mean here to whinge about the continued applicability of libertarian policy and ethics. Anyway, I’m with Mark Bahnisch when he says that ‘dichotomies about states v. markets are nonsense’, at least when talking about the contemporary public policy world.

But to return to Michael’s piece in the Oz, that he describes his new governmentality as that of ‘designing markets’ only goes to show just how little ideological change this financial crisis will actually bring about directly.

Obviously the three examples of designed markets that he cites – carbon, water and training – have their origins well before the crisis began. More indicatively, those great ‘neoliberal’ reforms and ‘deregulations’ of the 1980s and 1990s were themselves, more often than not, exercises in market design. The Hilmer Reforms imposed market frameworks on top of monopoly assets – while the markets they designed for gas, telecommunications, electricity and others were less theoretically complex than the governments grand new emissions trading scheme will be, I would argue that third party access requirements nonetheless share the same regulatory ideology. (For more on this, read my book.)

And while the financial crisis will no doubt bring about regulatory expansion in the financial sector, it is hard to see how it would be the catalyst for regulatory expansion outside that sector. What quasi-nationalisations have occurred have occurred reluctantly – there aren’t many mainstream politicians seriously rethinking the possibilities of widespread public ownership.

Nevertheless, there are shifts in liberal democratic governmentality occuring, although not because of the crisis.

The phrase ‘Nanny State’ may sound like a tedious ad hominem, but, as far as it indicates public policy justifications leaning more and more on the concept of ‘risk’ rather than rights, it is a useful shorthand for how the relationship between government and individual is changing. And since the collapse of mid-century liberal socialism, what has replaced it has not been libertarianism, obviously, but a more complex and interesting model which places regulation – and, crucially, independent regulatory institutions – at the centre of government practice.

These are long term trends which I do not see being diverted by the crisis. The debates that occupied our time before September 2008 will be the same debates that occupy our time in 2009. The financial crisis is a big deal, but it is not that big a deal.

Crossposted at chrisberg.org

33 thoughts on “Ideological shifts before and after the financial crisis

  1. I think a helpful development that may come out of the financial crises is a shift from philosophical ideals to a more practical view of economics and policy. One can be an advocate for a free market economy whilst not viewing such a system as perfection without possibility for error. If this is the kind of “market fundamentalism” that is soon to end, then great bring it on! However I think modern “showy” politics is shifting away from the pragmatic. Everyone needs to bring a “dream” and a Utopian plan for the future to get elected. This is what worries me, although I’m sure pure socialism won’t come into vogue I can see certain big government philosophies gaining some populist stride.

  2. No one advocating free enterprise has ever said that a free enterprise system is perfect, except that it is best available economic system possible. Only opponents of free enterprise have made such an assertion. On the other hand, they will purport that their version of socialism is perfect.

  3. The free market is the most efficient system for allocating resources, and that is the only claim you can make for it. But that is a pretty good claim. Jarryd’s pragmatism is simply the trade-off between degrees of inefficiency and the achievement of political ends, mainly getting reelected.

  4. Jarryd, Pragmatism is the prevailing philosophy of the day. The utilitarian belief that ends justify means, compromise with all pressure groups and lobbies, and a move away from ideological principles.

    Hardly like historical examples of ideological driven revolutions.

  5. Selling the notion that capitalism is a stable system that treats people fairly and rewards hard work is an exceedingly tough call whilst ever currencies float. Perhaps nothing has really changed in the last few months but the prospect of stable capitalism in my lifetime looks more bleak to me than it has in a long time. The ranks of those that really believe in lassiez fair are even fewer than I had imagined. It is tragic in the greek sense of the word. I don’t advocate utopia, merely the hard currency and low taxes that have brought real prosperity to the masses in every epoch of history. And the real tradgedy is that these things are so technically simple and painless to achieve. It is like watching a man die of thirst in a dry riverbed ignorant of the fact that in the sand two feet below him the water is still flowing strong.

  6. I agree with Chris that the financial crisis does not “change everything”. I also agree that we are in a stage of “regulated compromise”… or what I call “social democracy”.

    Capitalism is not stable. That’s why it is good. The only way to get stability is by preventing change. While that is appealing to the conservative mentality, it is ultimately a path towards stagnation.

    Change involves trial & error, creative destruction, mistakes, innovation, shifting trends and continual uncertainty. Not always easy, but always necessary.

  7. It’s interesting to speculate if this golden era is gone for a while.

    I think it has. The level of leverage was what kept it going and the de-leveraging is going to make the world a far less interesting place in terms of it dynamism and change.

    The leverage has totally gone as a great deal of it seems to be going into government hands.

    When the banks are dynamic which means there are less deals going on in terms of IPO’s the world will be quite dull and boring.

  8. Arthur Laffer wrote last week that the ‘era of prosperity’ is now over. Quite possibly true, but it was a good run: 26 years, from August 1982 until last month.

    As for a new pragmatic paradigm in “governmentality,” I’m not too sure that what is being described isn’t merely modern ‘mandarinism,’ where professional elites run the government and set policy, because the practice of government is becoming too complex for elected officials. In a word, rule by ‘bureaucracy.’

    Arendt and others have written about rule by bureaucracy; the unintended consequences of government by highly educated experts is intellectual stagnation for the populace and eventual political repression.

    If the ideology of conservatism is likely to take a big hit in the new paradigm during the next decade or two, it presents an opportunity for the philosophy of libertarianism to re-examine and re-assess its own strengths and weaknesses. Libertarian philosophy has always been far more influential when conservatives are out of office; something about being in the political woodshed seems to spur immense creative thinking.

    If there is a paradigm shift occuring in ‘governmentality,’ the shift likely will follow demographics, not ideology: We are urbanizing as a species, and our politics–and governance–will shift too.

  9. I don’t think we’re going to see too fundamental a shift. Last year’s election was campaign was already about “economic management” rather than “who can let the economy be”.

    Governments like to manage the economy. It allows them to claim the market’s successes as their own. But the market has to be free enough that any failures can be attributed to the market, rather than government.

    I honestly think that we need revolution to really be free again. Otherwise government is just going to creep in the big direction. Even as liberal policies are passed (eg. gay marriage) more pages of legislation are usually added rather than just abolishing existing laws.

  10. The only question is how do we get back to a sound market economy in a world populated largely by fools. Having this site linking to crap like Michael Cooney’s article certainly isn’t the right strategy either unless the purpose is to tear it to shreds. He, like most progressives, refuses to mention the prime cause of the financial crisis which is of course the Fed, an organisation which derives its powers from the state. How can anyone claim with a straight face that the US, Australia and Britain have been pursuing libertarian economic policies over the last twenty years when the sizes of each government have grown significantly? There are so many other mistakes in his article I don’t even know where to begin.

    BTW, what the hell is the ‘training’ market?

  11. what the hell is ‘governmentality’?

    and why does everyone keep referring to Bush as an economic conservative? did he not spend more tax dollars than any other President in history? is that what an economic conservative does?

  12. Pommygranate, “Governmentality” refers basically to the way that a state (or other institutions such as hospitals, schools ect) can provide “knowledge” which steer the free independent choices of individuals in a free society. It is seen by Foucault as a more affective form of governing then the use of coercive practices such as laws.

  13. Do you have any choice in using a non Government hospital, school etc?

    Focault sounds like he’s tried to reinvent merit goods. Even though they are often better than the alternatives, they often are not worth the cost of pursuing.

    What’s missing from Focault’s idea (or at least what I perceive is missing) is competition. The Smith Family, for example, exercise their own Governmentality, do they not?

  14. Yes pommy — spending tax money on stupid policies is exactly what conservatives do these days. That’s why us economic liberals should be absolutely opposed to conservatives.

  15. spending tax money on stupid policies is exactly what conservatives do these days. That’s why us economic liberals should be absolutely opposed to conservatives

    Unless that means embracing socialists. In which case you should support conservatives. 🙂

  16. This is the kind of conservatism I can support:

    Reagan’s 1964 Republican National Convention speech.

    Particularly around 18.05 onwards. It should make conservatives pull their heads in.

  17. It’s fun having you back around.

    You know my deal, I think the transition from some forms of right-wing government, like conservatism, to something real close to true liberal democracy is possible. In fact, I think that’s what happened in the forging of the US. You can’t overlook the references to the Christian god in a document demanding a secular republic and freedom of religion. Conservatives, for the most part, advocate individual responsibility, private property, reward for hard work, the idea that equality simply means equality before the law, and a fair bit of individualism in general (so long as you’re not gay, sexually promiscuous or indulger of chemical enhancement 🙂 – for some reason these seem to be the big evils).

    I think we can move from this to liberal democracy. What it probably means is that gay people and drug users will have to keep parts of their lives really private until the later stages. Which shouldn’t be too hard because it’s pretty much what conservative gay people and conservative drug users have been doing, and are doing, since the dawn of time.

    I personally feel the transition from socialism to freedom is insurmountable. The two are diametrically opposed in the vast majority of aspects. Can anyone point me to a place in history where this has happened in some form?

    Conservatism is like a religion. Not all that rational, but if you pick the right version you’ll go OK and eventually you might realise it’s not the god but the value system that matters. Socialism is a disease that will eat you from the inside until you’re too weak to do anything about it.

  18. Mick – Bob Hawke who was something of a small government socialist. Or smaller government socialist perhaps.

  19. John – capitalism is not good “because it is unstable” and you would at this point in time have a hard time selling instability as a virtue. Capitalism is good because when done right it creates prosperity and progress. Instability is not the same as progress. It may be true that some people lament the instability that some progress brings but more people lament the instability of regress. And unfortunately currency instability creates regress and gives capitalism a bad name even though it has nothing to do with capitalism. It creates a bad name for capitalism because people who say they are capitalists continue to tell us that floating currencies are part of the free market package. Which is dumb.

  20. Terje

    If we had been linked to the dollar in he current climate domestic interest rates could have easily gone to 30% or even higher sending us in the worst depression for a generation.

    Careful what you wish for.

  21. JC – if we were fixed to gold then our interest rates (if floated) would gravitated towards the interest rate paid on gold at the moment. ie around 3%. There would be a slight premium over 3% to account for the risk of currency devaluation.

    http://www.kitco.com/charts/g_leaserates.html

    If we had fixed to gold then our manufacturing sector would be probably be in peril at the moment. However most critics of tariffs on this blog would agree that we shouldn’t formulate economic policy to protect special interests even when they face “unfair” competition from abroad.

  22. Terje

    We could not unilaterally fix to gold as our currency would be jumping around with the gold price. We are too small to fix to gold. I’ve had this discussion with bird before.

    Let’s assume we fixed to gold when the Aussie was around 50 cents and gold was $US270. Let’s see where that would have taken us earlier this year? With gold at $1032 (and the Aussie at 94 cents approx) our exchange rate would have been $US1.41 under a gold fix.

    It would have put us in an impossible situation.

  23. I thought you were talking about ” fixing” it to the dollar and hadn’t read the other comments. Sorry.

    No, interest rates rise wouldn’t in the situation. But we would experience the other problem I mentioned.

  24. i think mr tsvangirai(with all due respect to him as an individual)is a sellout.how else can you explain his rejection of the sadc ,decision that the two parties share the home affairs ministry.just after that we see mr tsvangirai not coming back home to consult from the peaple but heading straight for europe.thius clearly shows whose intrests he is serving.no wonder our wise leader is refusing to give him sole control of tyhe home affairs ministry.DOWN WITH TRAITORS.

  25. Its like you read my mind! You seem to know so much about this, like you wrote the book in it or something. I think that you could do with some pics to drive the message home a bit, but other than that, this is great blog. An excellent read. I’ll certainly be back.

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