Neoliberalism: dangerous myths and/or frightening realities? Part 3

A blog in four parts by Paul Kennedy: MMU Visiting Research Fellow and formally Reader in Sociology – with Kevin Albertson

Part 3. Follow the money

In last week’s blog we considered the topic of motivations and their role in social institutions, including the market. In the following we assess who are the winners and who are the losers from financial crises of the type which began in 2007/8. It hardly needs to be said, if those who suffer most from such crises have no hand in bringing them about, and if those who do bring such crises about do not suffer the consequences, there is no incentive mechanism which can prevent such crises recurring in the future.

The advantaged and the disadvantaged

One of the most inexplicable policies peddled by Neoliberal governments, and especially by the UK Coalition government since 2010, has been to heap opprobrium on to the poorest and most vulnerable groups in our society. These are people who, even a brief moment’s consideration would show, are clearly incapable of bringing down the world financial system – they simply do not have the resources. And certainly, they do not have the motivation.

While blame is heaped on the blameless who are in no way responsible for macro financial problems or the current crisis, the “masters of the universe”, those who clearly do have the power to do much good, or cause much ill, face little more than a modicum of re-regulation and the need to attend a few committees. To be fair, the crisis might have been less severe had not the government hurried to bail out the banks and return them to business as usual. Conversely, in Iceland, as the IMF has noted, the recovery was rapid as the government and the IMF sought to “ensure that the restructuring of the banks would not require Icelandic taxpayers to shoulder excessive private sector losses”.

Conversely, in Neoliberal economies, the austerity policies ostensibly imposed to cope with the government deficits which resulted from bank bail-outs in 2008 have become a vehicle for furthering policies designed to shrink the state and punish the poor for their (supposed) entrepreneurial incompetence and need for welfare compensation. Worse, with the assistance of an often vicious tabloid press, those same disadvantaged people have been persuaded to turn on each other or on those living next door who are even more disadvantaged than themselves: the low paid worker in receipt of tax credits and housing benefits, for example, blaming the disabled person down the street or those currently without any work at all for the nation’s deficit and economic malaise.

Entrepreneurs of the self

The rationale for this apportioning of blame on those who have not succeeded arises from the Neoliberal insistence that all individuals can and must all become entrepreneurs in control of our lives and destinies through the miracles of the market. This allows those who succeed to take sole-credit for their success (in some cases at least, success has rather resulted from their parents income, social contacts and their private school education). Similarly those who are less successful must take the blame for their own predicament – their laziness, or lacklustre success at school, unhealthy living style or wrong choices concerning work opportunities are clearly to blame for their poverty and work insecurity.

Those who allowed themselves to be persuaded by the self-entrepreneurship argument not only feel that they are entirely responsible for their own situation but also that there is no reason to help the vulnerable; given the market has promoted an abundance of wealth, if some have chosen to turn away (for whatever reason – who can guess at individual motivations), well, they ought to endure deprivation to incentivise better decision making in future. Such an attitude legitimises a reduction or removal of the welfare help previously available. This is mean and uncharitable in any country, but especially so in one whose values – so we are given to understand – are solidly Christian.

Even if everyone struggled with every resource available to them to seek the golden path of self-entrepreneurship most would ‘fail’ in relative terms simply because the rewards available, top jobs and salaries, are few. In the UK two-thirds of all families require state benefits of some form, yet it is not possible for everyone to be in the top one-third.

It hardly needs saying, not everyone is capable of gaining a doctorate in advanced mathematics or running a four-minute mile. Even if they were, there would still be winners and losers given the shortage of prizes (some people can run a four-minute mile faster than others). This is the nature of competition. In business, as in sport or any arena where people are pitted against each other, the ‘success’ of some requires the ‘failure’ of the many. This might be a valid model for business, Neoliberalism asks us to accept this is a valid model for our society.

Winners and regular people

Those who do not win this incessant competition – those who are made redundant, who are only eligible for the lowest paid wages or the most insecure working conditions, whose qualifications are a fraction lower than their peers and who therefore do not gain promotion – are not to blame for their relative lack of success. The system itself guarantees the creation of a pool of those who miss out. Most of them have done no wrong, committed no crime; they are simply the casualties of a competitive system they did not create or desire and from which they cannot escape, especially in today’s world of expensive technology, ever higher skill level requirements, vast corporate monopolies and global markets. Certainly, they should not be punished or belittled for providing the minor characters and stage props – as competitors, workers, consumers and taxpayers – who make it possible for the entrepreneurial ‘winners’ to action their ‘superiority’.

In any case, the inherent arbitrariness of the competition ‘game’ and the vast unavoidable inequalities between the players – inequalities that both predate its onset and are created by it – means it is hardly surprising that many of the most deprived people in the play conclude that, since they can never win or benefit very much, there is no point in striving. If they do struggle to participate they will have to accept the likely humiliation of failure, the perception of being someone who lacks merit, who is despised and who has no choice but to pick up the scraps lying under the table.

We are fortunate that the billions across the world who find themselves in such a position do not respond with greater anger and violence and/or by channelling their insecurities and frustrations into criminal activity on a greater scale than they already do.

To be continued …

In the ultimate part of our episodic blog, we ponder the fetish for privatisation which generally is apparent in those nations which adopt Neoliberal dogma.

Please note that blog posts do not necessarily represent the views of other authors on the blog or of the Manchester Metropolitan University

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Neoliberalism: dangerous myths and/or frightening realities? Part 2

A blog in four parts by Paul Kennedy: MMU Visiting Research Fellow and formally Reader in Sociology – with Kevin Albertson

Part 2: On markets and motivations

In last week’s blog we argued that a consideration of markets, without regard to extra-market motivations is so limited as to be worthless. Here we consider the topic of motivations and their role in social institutions, including the market.

The missing motivation

Neoliberal economists suggest all rational individuals seek to maximise their own self-interest with as little cost as possible. Similarly businesses have the responsibility to make profits for their shareholders (though hopefully in line with certain wider ethical and political principles). As Klein (2014)[1] argues, along with this goes the need for capitalism to discover and exploit all kinds of resources wherever it can.

The market in which individuals and business operate is supposed to play a coordinating role, by which it is suggested the sum total of a large number of self-interested decisions will serve the common good. However, it cannot be the primary duty or purpose of individuals, a private business or of capitalism as a system to attain national economic development, overcome local or world poverty, improve social justice, save the planet from ecological destruction or lengthen the healthy lifespan of individuals. Where businesses contribute to these goals, as they often do, this is largely fortuitous and only partly intended. Indeed, businesses which concentrated solely or even mainly on social goals would be liable to fail because they would be less likely to compete successfully against their more ruthless counterparts. They would be vulnerable to falling profits and share prices and exposed to the likelihood of rival companies manoeuvring to take advantage of their shrinking asset base – rivals with less scruples concerning ethical goals.

Coordinating coordination

Suppose our nation were at war with another. No one would suggest we leave it to the individual self-interest of every soldier to do what they thought was best for them and that this would somehow coordinate together to overwhelm the enemy. Of course, military forces exist, but they require coordination to achieve a worthwhile result. Once the parameters of the military have been set, we might leave it up to individual initiative – but not before. Similarly, market forces exist, and are very necessary for a nation. However, we would be better to attempt to use them to further the purposes of our nation than to rely on the theoretical happenstance that, through neglect, the greatest good can be achieved.

The great and the good

Many of the most profoundly important actions and decisions in recent history have been, and continue to be, taken by and on behalf of societal or humanitarian needs and goals, but not because they were likely to make the actor involved rich or powerful. In fact many of humanity’s greatest gains – from the arts, science, medicine, technological advance, political leadership and democratic gains, wartime defence, national security and economic development, philosophy and law – derive from the individual and/or combined cooperative actions undertaken by people whose primary motivations were intellectual curiosity, the pleasures and challenges of overcoming obstacles, a sense of public spiritedness, the urge to creativity, religious belief and so on. Interestingly, none of the following died as super-rich or powerful individuals: Isaac Newton, Abraham Lincoln, Florence Nightingale, Ludwig Van Beethoven, Shakespeare, Charlotte Bronte, James Joyce, Louis Pasteur, Robert Watson-Watt and his team (the 1930s inventors of RADAR) &c. The list is endless (and of course also includes many leading entrepreneurs, mostly from an earlier capitalist era, who combined public benefaction with business success).

The inefficiency of unprofessionalism

Neoliberals often denigrate and even despise actions, and those who undertake them, which are not exclusively driven by profit or private economic gain but rather by a sense of obligation to some entity larger than the actor him/her self. Professionalism is a case in point. The mutual respect that professionals once felt towards others who had acquired the same technical expertise – who belonged to the same occupational culture and who had been similarly socialized into the ethos of service to clients – has also been under attack from Neoliberals; possibly because they cannot understand it. Those who have no ethics cannot understand – and therefore cannot trust – people who claim to operate at least partly according to ethical or even altruistic motives.

If we assume that all people are untrustworthy, then any person’s appeal for trust has to be an attempt to cover-up their corruption and incompetence. In this view only self-interest can be trusted because at least self-interest is “honest” (in the sense that it cannot be hypocritical). It follows only greed can produce genuinely beneficial results.

Accordingly, professionals have increasingly lost the trust of those they serve and must be incentivised through surveillance and monitoring; their skills sometimes down-graded as only simple tasks can effectively be monitored in this way. The complex and worthwhile are regulated and controlled by a tick-box and targets culture which the administrators, appointed to manage these former professionals, are capable of checking on. (It is ironic that an ideology dedicated to reducing bureaucracy and regulation has actually spawned a vast increase it its activity through private and public-sector managerialism).

To see how sterile is any attempt to get professionals to produce good work through a tick-box culture, one only needs consider the threat of unions effectively to paralyse the NHS through working to rule. If professionalism did not exist, working to rule would not be a threat, it would be the most efficient way to work.

Valuing the worthwhile

Paradoxically, the very institutions neoliberals tend either to ignore, despise or hope to replace – namely societies, governments/states and forms of collective rather than purely individual action – are indispensible both to our social existence but also to the possibility of efficient capitalist markets as well.

We live in a complex, technologically advanced, interdependent global socio-economic system which has moved far beyond a condition where most people and localities are capable of being largely self sufficient subsistence producers. Thus, where decisions are needed over questions of value preferences, ethics, social justice and the future direction or survival of entire populations and the infrastructures on which they jointly depend, neither capitalism nor the market are capable of making these alone.

Billions of tiny, separate and uninformed choices about whether to purchase product X rather than Y or to invest in this interest bearing security rather than another are hopelessly insufficient to coordinate sustainable nations, societies and, as the ongoing Global Financial Crisis has shown, markets. Of course, governments and technical experts may get the big decisions wrong but left to itself the market is unable to even register what the key questions might be and how they might be prioritized.

Individual speculations/gambles on future prices or agonizing about profit maximization prospects cannot in themselves solve issues of national or global importance on which entire generations depend. Market forces – like military forces – will not serve the nation if left to their own devices.

To be continued …

We pick up the question of the cause of the Global Financial Crisis in next week’s blog.
1  Klein, N. (2014) This Changes Everything: Capitalism V the Climate, Simon and Shuster.

Please note that blog posts do not necessarily represent the views of other authors on the blog or of the Manchester Metropolitan University

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Neoliberalism: dangerous myths and/or frightening realities? Part 1

A blog in four parts by Paul Kennedy: MMU Visiting Research Fellow and formally Reader in Sociology – with Kevin Albertson

Part 1: Neoliberalism – How’s it doing anyway?

Neoliberalism[1] draws us into a discourse which promises, even guarantees, enhanced individual freedom from state oppression (apparently, we don’t need to worry about oppression from private corporations). But nearly four decades of policy from the invisible iron hand in the velvet political glove has left many citizens, and even some serious thinkers on the Centre and Left, bewildered, hollowed out and looking for alternatives.

On one hand, it has been propounded with menaces (‘there is no alternative’) and the scapegoating of groups found guilty of creating economic woes – those who inexplicably refuse to buy in to free markets (trade unions, arrogant professionals, public sector employees, welfare scroungers and those apparently too idle to acquire the skills that would enable them to escape from underemployment: tick your favourite box(es)!).

On the other, the rewards of self-interest have been expounded by a popularist press, bevies of business leaders and a majority of politicians across Europe, North America and the world. These have worked hard to persuade citizens of the inalienable rights and superiority of the free-market, the miracles of competition and the necessity of promoting an elite of largely unregulated financial, managerial and technological geniuses from whose actions all good things will ultimately trickle down.

Surely the trickle down should have worked by now, after nearly half a century of Neoliberal policy. Certainly, we have more of everything: the coffee has improved a lot in the last forty years for example. However, we also have more inequality, private, domestic and public indebtedness, widespread economic insecurity and social distress, massive youth unemployment, the continuous risk of further financial crises, seemingly endless regimes of austerity and virtually non-existent or imbalanced economic growth. Neoliberalism has been, in the USA and the UK the only economic game in town for decades: We do not have a choice as to where to assign blame.

Is it a conspiracy or is it the market?

Neoliberalism has seen an unsustainable transfer of national wealth into the hands of the already powerful and the increasing disenfranchising of the vulnerable. This was entirely foreseeable – in fact it happens every time classical economic policies are adopted. Was there a hidden agenda in the Hayek/Friedman doctrines, still pedalled by classical economists and related disciplines and by assenting politicians since the late 1970s? Or were they and their followers simply well-meaning but misguided people with an a-historical view of capitalism, a rather too narrow view of the ideal state, and minimum social perception?

A number of critical and extremely useful analyses can be found in the writings of scholars and commentators such as Gray (1998 and 2009)[2], Harvey (2005)[3], Plant (2009)[4], Mirowski (2013)[5] and Streek (2014)[6], among many others. However, there remains room for further criticism and commentary. Sociology, in particular, has a role to play in this regard and leaning on some of its ideas, I try to flesh out some of the counter arguments below and in subsequent posts.

The logic of markets

Irrespective of what form they take or the locality where they reside (cyber space, downtown Manchester, retail parks, a stock exchange floor &c.) , markets fundamentally bring people together in order to exchange goods and services and in a minority of instances they enable some to make a living from acting as full time traders. Notwithstanding the power of advertising, the possibility of monopoly agreements and other market fixing arrangements on the part of traders and the overall play of supply and demand – the latter partly shaped by cultural and social factors – market prices mostly follow from the unplanned and unintended actions of innumerable micro-decisions made by millions of separate consumers or businesses.

When individuals decide to buy brand X toothpaste instead of Y, purchase equities rather than government bonds for their pension or prefer buying shoes this month rather than garden gnomes, they are not thinking about how to shape the national economy, contribute to overcoming world poverty, bolster an industry or business in order to protect individual freedom or help resolve complex economic dilemmas concerning such issues as securing long-term energy supplies. Rather, for the most part, they are solving entirely personal micro dilemmas concerning their domestic or business situation. And even though the cumulative market choices of the many culminate in aggregate consequences for prices, supplies, employment, earnings, the success or failure of many businesses and their employees, and so on, none of these macro consequences were intended or planned by the uncoordinated millions who made their own miniscule contributions.

Aren’t markets enough?

Neoliberals have tended to reify the ‘market’ and market activity without ever explaining exactly what they are or how and why markets differ and whether this matters. In fact, there were/are many different kinds of market both historically – prior to modernity across very different kinds of social formations, hunting and gathering, tribal, stateless, peasant, feudal and so on – and today. Moreover, and like capitalism itself, no market could or can function outside the framework, protection and guarantees of trust and law provided by a dense network of ongoing social relations and institutions that we have become accustomed to referring to as a ‘society’ – supported by some system of government.

As Durkheim (1964)[7] reminded the Utilitarian thinkers more than a hundred years ago, contracts between individuals or agents are unenforceable and therefore impossible without a prior system of rules and sanctions grounded in strong social relations. Nor can markets become substitutes or replacements for dense networks of social relationships and the solidarities, loyalties, commitments and the emotional support they engender – as Neoliberals seem to imagine. If markets require social frameworks to support them, it is clear markets cannot create those supports.

Even in today’s world, it is not markets that make possible the overlapping institutions of social reproduction – through family life, school, community associations, friendships and neighbourhood life (with a little help from the redistributive and welfare activities of governments) – but the other way round. And the maintenance of social institutions depends only slightly, if at all, on the incentive of money and economic gain per se. We do not mean that societies require no money – only that financial gain cannot be the overriding goal of society. Consider, for example, friendship might be strengthened by sufficient money to spend on shared interests – however, a relationship motivated solely by the desire for monetary gain is not a friendship.

To be continued …

We pick up the topic of motivations in next week’s blog.


1 Following the WHO, we use the definition Neoliberalism meaning “the philosophy that underpins and drives economic globalization. At its core is a belief in the free market and minimum barriers to the flow of goods, services and capital. It is an extension of the traditional liberal philosophy, which argues for a separation of politics and economics and that markets should be “free” from interference of government.”

2 Gray, J. (1998 and re-published in 2009) False Dawn: the Delusions of Global Capitalism, Granta

3 Harvey, D. (2006) A Brief History of Neoliberalism, Oxford University Press

4 Plant, R. (2009) The Neoliberal State, Oxford University Press

5 Mirowski, P. (2013) Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown, Verso

6 Streek, W. (2014) How will capitalism end?, New Left Review, 87: 35-66

7 Durkheim, E. (1964) The Division of Labour in Society, Free Press of Glencoe

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Unimaginative Economics

In 2008 Queen Elizabeth asked of a group of eminent economists at the LSE why they had not foreseen the global financial crisis. The response, to all intents and purposes, was that economists had not thought such a thing might happen. A similar response was offered to her majesty when she toured the Bank of England in 2012. Although Her Majesty and the Duke of Edinburgh were assured that, with hindsight, it has been supposed a lack of appropriate regulation had caused the crisis (or rather, that existing regulation had not prevented the crisis), perhaps we might consider whether it was rather a lack of imagination which was the underlying cause.

As Shelley wrote in A Defence of Poetry, (1821):

Whilst the mechanist abridges, and the political economist combines labour, let them beware that their speculations, for want of correspondence with those first principles which belong to the imagination, do not tend, as they have in modern England, to exasperate at once the extremes of luxury and want. … The rich have become richer, and the poor have become poorer; and the vessel of the State is driven between the Scylla and Charybdis of anarchy and despotism.

The imagination to which Shelley refers is the ability to recognise that the most important aspects of life do not exist solely in the material world.

That there is a truth which lies beyond physical reality – a truth which no amount of analysis of physical or scientific data can describe – is highlighted in the subject of philosophy; for example, by Plato and Kant. In essence, the argument is that experiences, events and objects might be divided into phenomena, which are amenable to observation – the objective, the quantifiable, the scientific –, and noumena which are of an ultimate reality. These noumenal objects, to the extent to which they can be known, can only be approached subjectively through the mind, the imagination, the qualitative and the idealistic. That the idealistic might not be entirely knowable does not make it less true.

It is the subjective which gives context to the phenomena we observe, and which allow us to begin to approach the underlying reality of the noumenal world. In other words, it is the subjective which provides us with the capability to assign meaning to the objective.

As a society, we are often tempted to suppose that the subjective is not reliable, simply because it cannot be measured; however, this is a limiting argument. Consider Shakespeare’s Romeo and Juliet, for example: Fully to engage with the ending of the play, we must, for the moment, set aside the self-satisfaction of “seeing through” the drama. Yes, they are actors: Despite this, the empathic response we enjoy may still be as real subjectively as the objective facts that “Romeo’s” cup contains only water and “Juliet’s” dagger has no blade.

Similarly consider a CD: objectively a chunk of plastic with a series of 0’s and 1’s encoded on it by a computer. By way of electronic equipment, this coding produces sound-waves of predetermined pitch and frequency capable of being detected by the human ear and subsequently of stimulating particular neurons in the human brain. All these components, if represented objectively in formulae and data, cannot replace or describe the nature of music; neither can objective facts replace or describe the listener’s subjective response to music. This does not mean that the subjective response to music is illusory.

Likewise, our subjective response to a digital picture requires we overlook the fact that, insofar as the phenomenal world is concerned, what we “see” is merely a series of electrical impulses and fluctuations in the electro-magnetic spectrum.


A subjective experience

In our modern materialistic world we tend to ignore the subjective as having no ground in scientific “reality”; similarly we suppose sympathy, idealism or morality to be self-interest, suitably disguised (though why we should consider self-interest to be any less subjective than virtue is never quite explained). However, to be solely “realistic” is to make ourselves less than fully human. As behavioural evidence shows, the human mind comprised of reasoning and intuitive aspects; for example Daniel Kahneman’s “System 1” and “System 2” or Jonathan Haidt’s “Elephant” and “Rider”. Further, insofar as the individual’s subjective needs occupy the higher levels of Maslow’s Hierarchy – social needs, esteem needs and self-actualisation – to ignore the subjective is to sell ourselves, our human potential and our society short. In a material world, whither friendship – whither love?

In their 2005 book, Freakonomics, Levitt and Dubner divide similarly the idealistic from the realistic: “Morality … represents the way that people would like the world to work – whereas economics represents how it actually does work”. It follows that economics should be utilised so as to promote morality, i.e. “the way that people would like the world to work”. This may seem unusual, in the sense that economics purports to be about efficiency – however there is no reason why we might not pursue a truly progressive society (for example) efficiently. Indeed, if we are to pursue it at all, to do so efficiently seems only reasonable.

In practice, there is neither morality nor immorality inherent in objective science. A physicist might build, for example, a nuclear reactor or a nuclear bomb. However, the discipline of physics cannot indicate which of those is better. Neither is there anything wrong with economics – as a part of the story. However, materialism cannot inform ethics – rather the reverse.

The LSE appears to be of the opinion that no economist should have predicted the global financial crisis. However, if Shelley is right – and recent history supports his analysis – the lack of moral imagination we observe in neo-classical economics inevitably leads to such crises. As Philip Wicksteed has it in The Common Sense of Political Economy:

The prophet and the poet may regenerate the world without the economist, but the economist cannot regenerate it without them.

While we are waiting for the government to pick up its poetry books, perhaps we might all want to get a bit more imaginative.


Please note that blog posts do not necessarily represent the views of other authors on the blog or of the Manchester Metropolitan University

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The ‘inefficient’ economics of Fathers’ Day

A good sign
Recently I, along with many others no doubt, received a Fathers’ Day card. I found this particularly gratifying as I had told the sender, wee Jimmy, that he didn’t have to send me a Fathers’ day card – I had hoped he would want to send a card. The fact that the gift was not required, but offered freely, makes it the more valuable.

Casual observation indicates many of us appreciate gifts more than those items we require or buy for ourselves; consider, the giving of birthday presents, flowers, and such like. This is despite the fact that, according to strict neo-classical economic theory, such giving is inefficient as Waldfogel makes clear in The Deadweight Loss of Christmas.

The extra value imbued in a gift is something with which neo-classical economists have difficulty. Certainly, Adam Smith doesn’t mention it in the Wealth of Nations:

It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self-interest.

The appeal to self-interest as a sufficient incentivising factor is often taken to mean that no other motivating factor is required. Commonly self-interest is incentivised with monetary payment. It has been suggested, for example, if we want nurses to show more compassion, pay them more if they hit that target; if we want to boost student grades, pay teachers more if that target is hit.

Yet, according to Maslow’s eponymous Hierarchy, human beings are not motivated solely by mercenary self-interest, but have higher goals, for example, self-actualisation. It may well be that neo-classical economics has it about the wrong way about: We might pay compassionate nurses more, but that is not the same as buying (the appearance of) compassion.

Limiting the debate

There are several difficulties which arise when we consider self-interest to be people’s sole motivation. Firstly, we limit the potential of human interaction. If we consider all interactions are market transactions, it follows all friends are fair-weather-friends. Such an outlook has been shown to have a detrimental impact on our mental health.

Secondly, we limit the scope of the policy debate. Many human interactions take place in a social, not a market, context. Yet, if we consider only monetary self-interest as a motivating force, it suggests government limit itself to market-based solutions, rather than considering social solutions. There is also the potential error of equating price with value: Often those things freely given are the most valuable; however, priceless items pose a problem for neo-classical economic analysis.

Thirdly, we risk undermining our economy. Economists have shown policies which favour the individual pursuit of self-interest undermine morality and the development of trust and cooperation. As well as limiting human capacities and engagement, this limits the potential for economic growth, which depends, in part, on trust.

Ultimately, we limit human expectations. Behavioural economists have shown that tolerating, even encouraging, greed is likely to lead to an increase in amoral behaviour while reminders of moral codes are likely to discourage cheating. There is also evidence that greed and bad behaviour are contagious, yet it is generous people who are more likely to be happy.

No one, of course, would deny the existence of financial self-interest, particularly in the field of business – though it is by no means clear we should encourage it even there. However, if we promote a solely mercenary focus in human interactions we risk crowding out higher and more satisfying motivations.

There is an alternative

An overemphasis on limiting consideration of human interactions to those described by self-interest operating in a market context runs the risk of alienating us from each other and from our own individual, social and economic potential. Yet Adam Smith never supposed that, just because he had to pay for his dinner, that was the sum total of his feasible human interactions. As he wrote in The Theory of Moral Sentiments:

To feel much for others and little for ourselves, that to restrain our selfish, and to indulge our benevolent affections, constitutes the perfection of human nature; and can alone produce among mankind that harmony of sentiments and passions in which consists their whole grace and propriety

Many of the best things in life are not necessarily “free”, but neither can they be bought and sold: They arise from our relationships. In short, thanks for the Fathers’ Day card, wee Jimmy.

Kevin Albertson

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Between a rock and a hard place: After the EU elections

The EU elections revealed a further surge of support for right wing ‘rejectionist, nativist, nationalist’ (Rawnsley 2014)i and sometimes racist policies. But this wasn’t only about immigrants. There was also disillusionment with the idea of European Unity per se and with the policies pursued by the European Commission. The single currency left governments with wage and public spending cuts as the only way to improve their economic competitiveness. But the additional burden of austerity policies, pushed especially by Germany, and designed to deal with government debt, deepened the chronic economic insecurity experienced by an increasing number of Europeans even before the 2008 crisis. Meanwhile Europe’s private banks have only been partly stabilized and they have so far evaded stringent austerity policies despite years of unwise national and inter-country lending (Elliott: 2014)ii – an omission that has not gone unnoticed by voters.

Arguably, the political crisis revealed by the Euro-elections, layered on top of the largely unresolved economic one, leaves European voters and member states stranded between a ‘rock’ and a ‘hard place’.

The Rock

On one side, if the policies promised by right wing leaders such as UK’s Nigel Farage and France’s Marine le Pen succeed in weakening or even dismantling the EU in its current form then we are presumably returning towards a version of pre-1939 Europe: competing nation-states with re-instated border and customs controls, national currencies and monetary/fiscal policies, much greater control over labour mobility and perhaps national military/security systems, too. Given the wish to reconfigure national sovereignty – whatever that may mean in today’s globalized world – and enhance national economic competitiveness, further strategies seem likely including: restrictions on capital movements, some protectionism (as the National Front has promised in France) while enhancing labour market flexibility and further reducing wage costs to attract more foreign investment than rival nations.

Here, the freedom to break with the EU Charter of Fundamental Rights , including the protection of labour rights spelled out in Chapter 1V, is surely one of the main strategies planned by these anti-European parties. This is also true for some British Tories whose talk of returning powers to Westminster is partly linked to the same desire to lower labour costs and conditions as a boost for growth unencumbered by Brussels’ constraints. (Strangely, retrieving a degree of national sovereignty in regard to the much greater powers exercised by global capitalism does not appear to cause the same nightmares!).

Apart from immigration and leaving the EU, UKIP’s polices are somewhat unclear. Nevertheless, what stands out is its apparent determination to lower taxes in order to cut government down to size and incentivize businesses and consumers while building on Tory privatisation policies including in respect to the NHS. But reduced tax revenues will leave governments even less able to fund welfare and public spending than now, while raising the cost of health at a time when wages are likely to fall. Moreover, there is no guarantee that this return to ‘beggar my neighbour’ national economics will transform the prospects of most Europeans apart from the super rich (Lansley 2011)iii and perhaps skilled/educated professionals who have more chance of competing with their less well paid equivalents in the Global South.

It is tragic as well as ironic that many of those who voted for UKIP – retired or relatively low-paid employed manual and service workers and small business proprietors (UKIP voters have a lower average income than supporters of other parties) – will be the same people who will likely suffer most from the polices Farage and others like him across Europe seem intent on following.


The Hard Place

Turning to the EU, the alternative ‘hard place’ it appears to offer is hardly more attractive for most citizens than a Europe of revived economic nationalism. Firstly, there are few signs that EU leaders will break substantially with neo-liberal economics: keeping interest rates relatively high, prioritizing anti-inflation policies, fussing over the extension of competition rules and market de-regulation, reducing labour costs, raising worker productivity and privatizing public enterprises (Milne 2014)iv. But Europeans and others have been exposed to such policies for nearly forty years and many have benefitted only meagrely, if at all (Elliot op. cit.)ii. Instead, real wages were falling for many of the most vulnerable in most countries even before 2008 and job insecurity has intensified along with unemployment, particularly among Europe’s young.

Secondly, in December 2013 the European Commission published Horizon 2020: Work Programme 2014-2015. This invited academics to submit research proposals designed to investigate the Commission’s ideas concerning how Europe can best compete in the future global economy. The following quote (pp.5-6) makes their ideas abundantly clear:

What is required is a change in how Europe’s economy operates – a change that will release the many strengths Europe can bring to bear in tomorrow’s economy of high innovation, knowledge and skills. This is why Europe 2020 places research, technology and innovation at the forefront of activities designed to help Europe exit the current economic crisis and build smart, sustainable and inclusive growth …(and) drive-up performance across Europe … to boost competitiveness and support the creations of jobs and new sources of growth.

It seems churlish to criticize these doubtless attainable priorities which appear to offer the only possible way forward for Europe in a world of rapidly industrializing but high-tech rival economies enjoying much lower wage levels. Space does not allow a full examination of counter arguments but here are a few concerns:

  1. Even if these policies boost economic growth, the latter is only weakly correlated with poverty reduction and reduced inequality. This is especially the case at a time when, according to Piketty (2014)v, long term future rates of growth in the West are likely to remain low making it even more likely that capital accumulation and wealth inequality will continue to accelerate. Moreover, without tough redistributive government policies and/or a major swing of political power back to working and middle class citizens – policies anathema to neo-liberals and most EU leaders – it is hard to see how the latter can be reversed.

  3. Assume that Europe continues to follow the standard formula for capitalist economic growth, tied-in to pursuing ever higher levels of science-backed technological innovation and productivity: Can this generate, not just sufficient employment for the majority of low-skilled and low-educational achievers (or even for a large proportion of youngsters with higher educational qualifications), but also jobs that provide security, higher living standards and dignity? We may not wish to admit it but, even if everyone was an educational high achiever and obtained science doctorates, only a limited number could hope to find employment and incomes commensurate with their qualifications. Millions would still need to work in lowly-skilled service and other jobs where the oversupply of labour will keep wages relatively low.

  5. Perhaps most worrying of all is the question of how the much vaunted technological change surging across the world, and eagerly championed by the European Commission, will benefit the majority of Europe’s citizens who are not part of the top two deciles of highly educated professionals and managers. According to Brynjofsson and McAfee (2014)vi
    , technological advance brings many advantages at low cost including a multiplication of ideas, insights and innovations. However, it is also linked to ‘an unprecedented reallocation of wealth and income’ (p.128) and is reducing the demand for many kinds of worker. They describe how even in China workers in some branches of manufacturing are being replaced by machines (p.183)vii.

In Sum

The EU needs to do something to justify its existence to its citizens; simply providing more of the same will not do if it permits continually rising inequality. Of course, the super-rich and the growing techno-managerial class at the forefront of innovation may spend their rising incomes in ways that create new jobs for service workers. Indeed it is at both the bottom and top ends of the occupational hierarchy that work opportunities are expanding (Manning 2004)viii. However, there will be keen competition for these service jobs and their value-added to national wealth is low compared to high-tech jobs. Most will be incapable of providing the kinds of long term security, incomes and work satisfaction that so many across Europe – and elsewhere – are desperate to retrieve for themselves and their descendants – if there are to be any: In many EU nations birth-rates (already low) have declined markedly since the onset of the crisis. To attempt to offset low birth rates through increased immigration is hardly likely to appeal to EU voters contemplating supporting right wing parties.

For the moment, it appears EU voters will have to decide whether the wrong answer to their woes is better than no answer.

Paul Kennedy


i Rawnsley, A. (2014) ‘Why David Cameron is right in his bid to junk Mr Junker’, Observer, 8 June , p.35. Available at

ii Elliott, L. (2014) ‘EU’s voters will do little to end the crisis’, The Guardian, 19 May, p.19. Available at

iii Lansley, S. (2011) The Cost of Inequality: Why Economic Equality is Essential for Recovery, London, Gibson Square

iv Milne, S. (2014) ‘Only left populism can halt the rise of Europe’s far right’, The Guardian, 15 May, p. 32. Available at

v Piketty, T. (2014) Capital in the Twenty-First Century, Cambridge, Massachusetts, Belknap Press of Harvard University

vi Brynjolfsson, E. and McAfee, A. (2014), The Second Machine Age: Work, Progress and Prosperity in a Time of Brilliant Technologies, New York: W.W.Norton

vii For an Eomic analysis of this phenomenon, see Keynes: 2030 from 1930

viii Manning, A. (2004) ‘We can work it out: the impact of technological change on the demand for low-skilled workers’, Centre for Economic Performance, Discussion Paper No 640, June. Available at

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The Inherent Vice of Capitalism

The row over Piketty’s number crunching risks obscuring some powerful conclusions about inequality and capital. Markets may need inequalities to function, but it is a deeply flawed argument which says social injustice should be ignored for markets’ sake. Please go to The Conversation to view the rest of this post.

Kevin Albertson

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Domestic Violence – False Economy

Imagine we could rescue a thousand people from domestic violence. What could be a more worthwhile use of the power of economics?

Mainstream economic analyses of household spending are known as ‘bargaining models’. There are differences of opinion between members of the same household – for example, what foods are purchased in family trips to the supermarket, or whether the couple will watch a romantic or action movie. The standard economic “bargaining” model assumes each spouse ‘invests’ love and companionship: investing less in the relationship (offering less love and support) or, in the extreme, divorce or separation, if s/he becomes convinced the relationship is not in their long-term best interest.

If there is one main earner in the partnership, we would expect him/her to have most control, because they have a more “credible threat” of leaving their spouse/partner. Perhaps the other spouse/partner might thrive after divorce, if they can build a “new” and better life. If they keep the children, they may get state benefits after divorce/separation. Or perhaps they won’t thrive: a person deserted by their long-term partner may feel their life has been destroyed. As well as emotional pain, they may lose financially – perhaps they can no longer afford to send their children to the same school, and/or need to move to a cheaper area (and worse accommodation) as their income falls compared to living in a household with two incomes, or one large income. For some separated parents, not having access to their children (except weekly visits) may seem appalling, if they are used to a conventional family life.

Imagine a partner is prepared to use violence. Rather than bargaining, a person who happens to be strong (and prepared to use violence) may get their own way. For example, if someone wants to use household money intended for children’s clothing to get drunk, it may be quicker to threaten violence than to threaten divorce. If so, a spouse/partner might abdicate responsibility for the household – and get their spouse/partner to pay. This won’t work forever, presumably: unless the heavy drinker’s spouse/partner is very rich and very forgiving, their descent into alcoholism won’t be supported for long. This is a negative-sum game: by using violence, the violent person could get a short-term gain but at the cost of the relationship, so both spouses end up less happy. Gwagwa[1]
reported evidence on this in South Africa; Jan Pahl[2] analysed UK data and came to a similar conclusion.

Researchers estimate that a billion women worldwide are victims of domestic violence: “At least 1 in 3 women, or up to one billion women, have been beaten, coerced into sex, or otherwise abused in their lifetimes. Usually, the abuser is a member of her own family or someone known to her”.[i] Many men are also victims of domestic violence[ii]. Domestic violence also costs society. In terms of criminal justice costs, physical health costs, mental health costs and increased dependency on benefits, domestic violence costs us all.

In bargaining models of household behaviour, having a credible threat is important. A victim of domestic violence needs to have a choice, so she (and her children, if she has any) can move away from her partner. Many women can afford to leave, or have family and friends to stay with; but some victims have nowhere else to live, and no credible threat. Refuges for battered women (in the UK and other countries) can reduce the incidence and impact of domestic violence; as well as providing support for service users; the very existence of refuge adds another bargaining chip to a potential victim in a couple’s power bargain.

By changing the incentive and support structure, women’s refuges have been estimated to save the taxpayer £3·54 for every £1·00 spent . While yet more funding is needed, paradoxically, funding is being cut for women and children. Similarly, recourse to legal proceedings, for example in requesting injunctions or divorce proceedings, will become more difficult for victims if planned cuts to legal aid go ahead.

Cutting access to justice is false economy; in the longer term, such cuts will degrade our society and wind up costing us even more money in future. However, there is a more fundamental issue at stake: There are some issues where the bottom line is not, and should not be, purely financial – domestic violence is not and will never be acceptable. On balance, “there’s no justice, there’s just austerity” would make a poor slogan for a civilised society.

John Simister


1 Gwagwa, N. N. (1998), “Money as a source of tension”, in Larsson A., Mapetla M. & Schlyter A. (eds.), Changing gender relations in Southern Africa: issues of urban life, Lesotho: National University of Lesotho.

2 Pahl, J. (1985) “Violent Husbands and Abusive Wives – A Longitudinal Study”, in Private Violence and Public Policy, Pahl, J. (ed.), Routledge and Kegan Paul Ltd, Boston, MA. Abstract available here.

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Free Markets for Free Men – in Theory

In 1974 the free-market economist Milton Friedman[1] was asked to speak on the subject “Free Markets for Free Men”. The topic, having been chosen for him by the chairman of the business leaders before whom he spoke, implied he might assume rather than prove that a relationship exists between the two forms of freedom. Friedman chose to interpret the title as a question “Do free markets make free men, or do free men make the free markets?”.

Friedman contended that free men do not make free markets, but rather the opposite, that free markets make free men (free people, as we would say now-a-days). For example, Friedman considered, “the freedom to decide how to spend your money, what to do with your time, where to work, what job to take, where to live. Those material aspects of freedom are all associated with free markets”. (Friedman 1974: 5)[1]

Let us, by way of a thought experiment, consider how a free market in “what job to take” might work. To keep the analysis simple, and in the spirit of economic enquiry, we will assume two job roles, and generalise from there. We begin with considering the market for street-sweepers and bankers.

In a free market, everyone is free to take whichever job they wish, so Sam, a street-sweeper, noticing that bankers are better paid than street-sweepers, decides to become a banker. The supply of street-sweepers will decline marginally, causing the wages which must be offered to street-sweepers to rise in order to attract more people into that role. Similarly, as the supply of bankers increases, the wages paid to bankers will decline marginally, causing banking to become less attractive. As Sam and his friends trade employment in the free market, this process will continue and wages will adjust until equilibrium; at which point it is no longer worthwhile for street-sweepers to become bankers (or vice versa).

This is not to say that bankers and street sweepers will necessarily be paid the same – perhaps bankers will be paid a little more as street-sweeping at least gets one out in the fresh air. Or perhaps bankers will be paid a little less, on the grounds that, at the least, they don’t have to work in all weathers. Or perhaps, Sam might chose to bank on wet days and street-sweep on dry days. This would be one of the features of a free market. Ultimately, in a free jobs market, a typical new entrant will be indifferent whether to go into sweeping, banking or a combination of the two.

It might, of course, be argued we need more street-sweepers than bankers. However, the relative numbers in each role need not stand in the way of free-markets. Suppose, Jo, a teacher, wishes to go for a job where the number of incumbents is necessarily limited; for example, Prime Minister. In this case, as there is only one person who might take the position, the free market would have to equilibrate supply and demand by, in effect, auctioning the role off to the person prepared to ask the least wage or, if the wage became negative, prepared to pay the most to work in that role.

Of course some people are more skilled at street-sweeping than banking, and some more skilled at teaching than being Prime Minister. However, the market will take care of all such differences, according to the theory of comparative advantage. Ultimately, in equilibrium, no individual will have an incentive to change roles; all would be free to do that which they chose. In such a market, all participants would be indifferent between the terms and conditions of employment of all jobs on offer. Thus the market would be efficient
(assuming away numerous market failures such as imperfect information, externalities, public goods, the tyranny of small decisions
&c.). In this case, Milton Friedman’s theory would be vindicated; the free market would have created freedom.

Now, let’s consider the real world: It seems likely that the market for Prime Ministers is not in equilibrium as there are generally at least three people who desire that role. Likewise, the market for bankers is not in equilibrium as it is clear there are many more people wishing to take such jobs than there are jobs available. This is why interns may work themselves to exhaustion (or beyond) in order even to have a chance of a job as a banker; hardly a sign of a market entrant being indifferent between being a banker or a street-sweeper.

In practice, it would appear there are few in the UK who enjoy free labour markets. We know, for example, that the majority of those living in poverty in the UK are in “working families”. Unless we assume that people have deliberately, or perversely, chosen to live in poverty when they might have lived in affluence, it seems clear that their choice of job is constrained. This is borne out by the fact that the UK has a level of social mobility which is low by international standards.

Although Milton Friedman’s suggestion that, if only we might achieve completely free markets we would all be free, is valid in theory, in practice most of us live in the real world. Naturally, we all hope the business leaders before whom Friedman spoke went away commited to creating, in their workplaces, conditions of employment such that all whom they employed would not change the job they did for any other. However, if rising inequality in the USA and the UK, and the evidence that the USA and UK have very poor social mobility are any indication, there is a way to go. Certainly, we should strive to ensure that those trapped in poverty are just as likely as anyone else to get well paid employment and that all people who are employed are able to live on what they earn.

While we are waiting market-fundamentalism to live up to its publicity, there is no reason why we might not also consider other ways of promoting freedom, for example, social welfare. If Sweden can do it[2], so can we!

Kevin Albertson


1 Friedman, M. (1974) Free Markets for Free Men, Selected Papers, No. 45, Graduate School of Business, University of Chicago. Available at

2 Sanandaji, N. (2012) The surprising ingredients of Swedish success – free markets and social cohesion, IEA Discussion Paper No. 41. Available at

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Economics: Positively Amoral?

There are few times of the year when the existence, or otherwise, of ethics and morals spring readily to mind; and this may be true of Christmas as well. However, it seems likely that the probability of hearing the phrase ‘goodwill to all’ is greater at Christmas and so, in the spirit of the festive season, it seems reasonable to ask whether ‘goodwill’ – or indeed, any other moral sentiment – is compatible with economics.

In their book, Freakonomics, Levitt and Dubner (2005)[1] suggest morality and economics are somewhat at odds as: ‘Morality … represents the way that people would like the world to work – whereas economics represents how it actually does work’. This is not the view held by the neo-liberal economist Milton Friedman, whose analysis affords economics a far more active role. Rather than treating economics as passive descriptor of what is, he sees the discipline as a means of achieving efficiently what might be.

For example, in Capitalism and Freedom[2], Friedman sought to promote freedom through appropriate political-economic policy as:

Economic arrangements play a dual role in the promotion of a free society. On the one hand, freedom in economic arrangements is itself a component of freedom broadly understood, so economic freedom is an end in itself. In the second place, economic freedom is also an indispensable means toward the achievement of political freedom.

So important is the moral imperative for freedom, even considerations of economic growth take second place in this analysis. According to Friedman (emphasis added):

we use government to provide a general legal and economic framework that will enable individuals to produce growth in the economy, if that is in accord with their values

The economic promotion of social goals without comment on their underlying validity is an example of positive economics (Friedman, 1953)[3]. A positivist, such as Friedman, would not seek to use economics to comment on the validity of ends, but rather simply to determine the most efficient means of achieving these ends. In this sense, positive economics is amoral; lacking moral commentary. This does not, of course, make economics immoral. The promotion of freedom is a moral goal.

Unfortunately, because positive economics does not comment on the ethical nature of goals set, it often may appear to suggest that any goal is equally useful to society at large. The neglect, in positive economics, of the discussion of ethics may lead people to conclude that ethics is not even necessary. However, this is not the case: Freedom itself must be subject to some limitations, as Milton Freidman has argued (in Capitalism and Freedom):

it is important to preserve freedom only for people who are willing to practice self-denial, for otherwise freedom degenerates into license and irresponsibility

This is a seeming paradox, that freedom should be reserved only for those who are prepared to limit their own freedom. The resolution is that ethical considerations must precede economic considerations. As the classical economist Marshall (1890)[4] has it:

Everyone who is worth anything carries his higher nature with him into business; and, there as elsewhere, he is influenced by his personal affections, by his conceptions of duty and his reverence for high ideals.

These high ideals have been summarised by the so-called ‘father of modern economics’, Adam Smith (Smith, 1759: I:I:V:5)[5]:

to feel much for others and little for ourselves, that to restrain our selfish, and to indulge our benevolent affections, constitutes the perfection of human nature; and can alone produce among mankind that harmony of sentiments and passions in which consists their whole grace and propriety

If Levitt and Dubner are correct and ‘Morality … represents the way that people would like the world to work’, it follows that economic analyses may be utilised so as to promote morality. This may seem unusual, in the sense that economics purports to be about efficiency – however there is no reason why we might not pursue morality efficiently. Indeed, if we are to pursue it at all, to do so efficiently seems only reasonable.

Economics is, therefore, compatible with ‘goodwill to all’, if that is the way that we would like the world to work. On the assumption that it is, may I take the liberty of wishing you the most efficient goodwill of the season.

Kevin Albertson


1 Levitt, S.D. and Dubner, S.J. (2005) Freakonomics: A rogue economist explores the hidden side of everything, William Morrow/HarperCollins

2 Friedman, M. (1962) Capitalism and Freedom, Chicago: University of Chicago Press

3 Friedman, M. (1953) The Methodology of Positive Economics, in Essays in Positive Economics, Chicago: University of Chicago Press, 3-43

4 Marshall, A. (1890) Principles of Economics, (8th ed. reprinted 1966), London: MacMillan

5 Smith A. (1759) The Theory of Moral Sentiments, (6th ed. reprinted 1790), London: A. Millar. Available at

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