About 40 years ago, one of Maggie Thatcher’s chief advisors remarked that he wouldn’t be satisfied when the Conservative Party was in government: he would only be happy when there were two conservative parties vying for office.
He got his wish of course. The UK Labour Party of the 1950s that espoused socialism gave way to Tony Blair’s New Labour, and the same shift occurred worldwide, as justified disillusionment about socialism as it was actually practiced—as opposed to the fantasies about socialism dreamed up by 19th century revolutionaries—set in. Parties to the left of the political centre—the Democrats in the USA, Labour in the UK, even the Socialist Party that currently governs France—followed essentially the same economic theories and policies as their conservative rivals. Differences in economic policy, which were once sharp Left-anti-market/Right-pro-market divides, became shades of grey on the pro-market side.
Both sides of politics accepted the empirical fact that market systems worked better than state-run systems. The differences came down to assertions over who was better at conducting a pro-market economic agenda, plus disputes over the extent of the government’s role in the cases where a market failure could be identified.
So how do we interpret the success of Syriza in the Greek elections on Sunday, when this avowedly anti-austerity, left-wing party toppled the left-Neoliberal Pasok and right-Neoliberal New Democracy parties that, between them, had ruled Greece for the previous 4 decades? Is it a return to the pro-market/anti-market divides of the 1950s?
No—or rather, it doesn’t have to be. It can instead be a realisation that, though an actual market economy is indeed superior to an actual centrally planned one, the model of the market that both sides of politics accepted was wrong.
That model—known as Neoliberalism in political circles, and Neoclassical Economics in the economic ones in which I move—exalts capitalism for a range of characteristics it doesn’t actually have, while ignoring characteristics that it does have which are the real sources of both capitalism’s vitality and its problems.
Capitalism’s paramount virtues, as espoused by the Neoliberal model of capitalism, are stability and efficiency. But ironically, the real virtue of capitalism is its creative instability—and that necessarily involves waste rather than efficiency. This creative instability is the real reason it defeated socialism, while simultaneously one of the key reasons socialism failed was because of its emphasis upon stability and efficiency.
I could get theoretical here—and I will in future columns—but a personal experience is rather more telling. About 40 years ago, a then-girlfriend’s brother wanted to buy a 650cc motorbike, but he couldn’t afford the roughly $3000 it took to buy a Yamaha or a Kawasaki (let alone what a Harley or a BMW would have cost then in Australia). But he discovered that he could buy a 650cc Russian motorbike—the evocatively named “Cossack”—for a mere $650. So he ordered one. And I helped him unpack it.
It arrived in a wooden crate. Once that was removed, we were confronted by layer after layer of oil-soaked canvas. Once that was removed, standing on a wooden base and held down by rope was … a 1942 BMW, just like the one that Steve McQueen rode in the 1959 World War II movie The Great Escape. Whereas in the movie, Steve McQueen stole a bike from the Germans, in the real world the Russians simply stole the design from them, and continued making it 30 years after the War came to an end.
Why? Because it was the cheapest—most efficient—way to produce as many motorbikes as possible. And with no competition, there was no other firm producing a better motorbike that could compete for the Russian consumer’s rouble. The Russian motorcycle market was therefore admirably stable: Cossack had a 100% market share.
Nor was there any waste in demand: every Cossack produced was sold—in fact there was a waiting list years long to get one. The Russians had only started exporting them because, after the OPEC oil price hike in 1973-74, the shortage of foreign currency had become more important than the shortage of motorbikes.
So a focus on stability and efficiency gives you a motorcycle frozen in time. Meanwhile, in the West, the instability and waste of competition gave rise to the modern motorbike that—even in 1974—made a laughing stock of my friend’s Cossack. So real-world capitalism trounced real-world socialism because of its real-world strength—the creative instability of the market that means to survive, firms must innovate—and not because of the Neoliberal model that politicians of both the Left and the Right fell for after the collapse of socialism.
Neoliberalism prospered in politics for the next 40 years, not because of what it got right about the economy (which is very little), but because of what it ignored—the capacity of the finance sector to blow a bubble that expanded for almost 40 years, until it burst in 2007. The Neoliberal model’s emphasis on making the government sector as small as possible could work while an expanding finance sector generated the money needed to fuel economic prosperity. When that bubble burst, leaving a huge overhang of private debt in its wake, Neoliberalism led not to prosperity but to a second Great Depression. The Greeks rejected that false model of capitalism on Sunday—not capitalism itself.
The new Syriza-led Government will have to contend with countries where politicians are still beholden to that false model, which will make their task more difficult than it is already. But Syriza’s victory may show that the days of Neoliberalism are numbered. Until Sunday, any party espousing anything other than Neoliberalism as its core economic policy could be slaughtered in campaigning by pointing out that its policies were rejected by economic authorities like the IMF and the OECD. Syriza’s opponents did precisely that in Greece—and Syriza’s lead over them increased.
This is the real takeaway from the Greek elections: a new politics that supports capitalism but rejects Neoliberalism is possible.
