global financial (and other) institutions on the part of early neoliberals such as Friedman and some denizens of the Cato Institute were subsequently tempered by others—such as Anne Krueger, Stanley Fischer, and Kenneth Rogoff—and as these neoliberals came to occupy these institutions, they used them primarily to influence staffing and policy decisions, and thus to displace other internationalist agendas. The role of such transnational organizations was recast to exert “lock-in” of prior neoliberal policies, and therefore to restrict the range of political options of national governments. Sometimes they were also used to displace indigenous “crony capitalists” with a more cosmopolitan breed of cronyism. Thus it is correct to observe an organic connection between such phenomena as the Washington Consensus and the spread of neoliberal hegemony, as Dieter Plehwe argues.99 This also helps address the neoliberal conundrum of how to both hem in and at the same time obscure the strong state identified in point 4, above.
The relevance of the rise of the neoliberal globalized financial regime to the crisis is a matter of great concern to the thought collective and to others (such as Ben Bernanke) who seek to offload responsibility for the crash onto someone else. Because there was no obvious watershed linking policy to theory comparable to Bretton Woods, and the post-1980 infrastructure of international finance grew up piecemeal, the relationship between neoliberalism and the growth of shadow and offshore banking is only beginning to be a subject of interest. Evidence, by construction, is often inaccessible. However, the drive to offshore outsource manufacturing in the advanced economies, which was mutually symbiotic with the frustration of capital controls, was clearly a function of neoliberal doctrines concerning the unbounded benefits of freedom of international trade, combined with neoliberal projects to reengineer the corporation as an arbitrary nexus of contractual obligations, rather than as a repository of production expertise. The MPS member Anne Krueger was brought into dialogue with her fellow member Ronald Coase, and the offspring was the flight of capital to countries such as China, India, and the Cayman Islands. The role of China as beneficiary, but simultaneously as part-time repudiator of the neoliberal globalized financial system, is a question that bedevils all concerned.
While freedom of capital flows have not generally been stressed by neoliberals as salient causes of the crisis, they do manage to unite in opposition to capital controls as one reaction to the crisis.
[9] Neoliberals regard inequality of economic resources and political rights not as an unfortunate by-product of capitalism, but a necessary functional characteristic of their ideal market system. Inequality is not only the natural state of market economies from a neoliberal perspective, but it is actually one of its strongest motor forces for progress. Hence the rich are not parasites, but a boon to mankind. People should be encouraged to envy and emulate the rich. Demands for equality are merely the sour grapes of the losers, or if they are more generous, the atavistic holdovers of old images of justice that must be extirpated from the modern mind-set. As Hayek wrote, “The market order does not bring about any close correspondence between subjective merit or individual needs and rewards.”100 Indeed, this lack of correlation between reward and effort is one of the major inciters of (misguided) demands for justice on the part of the hoi polloi, and the failure of democratic systems to embrace the neoliberal state, as discussed in tenet 5, above. “Social justice” is blind, because it remains forever cut off from the Wisdom of the Market. Thus, the vast worldwide trend toward concentration of income and wealth since the 1990s is the playing out of a neoliberal script to produce a more efficient and vibrant capitalism.
Here again we touch upon the recent crisis. This particular neoliberal precept dictates that the widely noted exacerbation of income inequality in the United States since 1980 cannot possibly have played a role in precipitating the crisis in any way.101 Indeed, attempts by the state to offset or ameliorate the trend toward inequality of wealth—especially through attempts to expand home ownership and consumer credit—become themselves, for neoliberals, major root causes of the crisis.102 This then gets translated into the preferred neoliberal story of the crisis, which attributes culpability to the Democrats by lodging blame for the housing bubble via securitization with Fannie Mae and Freddie Mac (see chapter 5).
[10] Corporations can do no wrong, or at least they are not to be blamed if they do. This is one of the stronger areas of divergence from classical liberalism, with its ingrained suspicion of power concentrated in joint stock companies and monopoly stretching from Adam Smith to Henry Simons. The MPS set out in the 1950s entertaining suspicions of corporate power, with the ordoliberals especially concerned with the promotion of strong antitrust capacity on the part of the state. But starting with the Chicago law and economics movement, and then progressively spreading to treatments of entrepreneurs and the “markets for innovation,” neoliberals began to argue consistently that not only was monopoly not harmful to the operation of the market, but an epiphenomenon attributable to the misguided activities of the state and powerful interest groups.103 The twentieth-century socialist contention that capitalism bore within itself the seeds of its own arteriosclerosis (if not self-destruction) was baldly denied. By the 1970s, antitrust policies were generally repudiated in the United States, as neoliberals took the curious anomaly in American case law treating corporations as legal individuals and tended to inflate it into a philosophical axiom.104 Indeed, if anything negative was ever said about the large corporation, it was that separation of ownership from control might conceivably pose a problem, but this was easily rectified by giving CEOs appropriate “incentives” (massive stock options, golden handshakes, latitude beyond any oversight) and instituting marketlike evaluation systems within the corporate bureaucracy, rectifying “agency problems.”105 Thus the modern “reengineering of the corporation” (reduced vertical integration, outsourcing supply chains, outrageous recompense for top officers) is itself an artifact of the neoliberal reconceptualization of the corporation.
This literature had a bearing on the crisis, since it was used to argue against aspersions cast that many financial firms were “Too Big to Bail,” and that the upper echelons in those firms were garnishing dangerously high compensation packages. Nothing succeeds like market success, and any recourse to countervailing power must be squelched.
[11] The market (suitably reengineered and promoted) can always provide solutions to problems seemingly caused by the market in the first place. This is the ultimate destination of the constructivist orientation within neoliberalism. Any problem, economic or otherwise, has a market solution, given sufficient ingenuity: pollution is abated by the trading of “emissions permits”; inadequate public education is rectified by “vouchers”; auctions can adequately structure exclusionary communication channels;106 poverty-stricken sick people lacking access to health care can be incentivized to serve as guinea pigs for privatized clinical drug trials; poverty in underdeveloped nations can be ameliorated by “microloans”; terrorism by disgruntled disenfranchised foreigners can be offset by a “futures market in terrorist acts.”107 Suitably engineered boutique markets were touted as a superior method to solve all sorts of problems previously thought to be better organized by governments: everything from scheduling space shots to regulating the flow through airports and national parks. Economists made money by selling their nominal expertise in setting up these new markets, rarely admitting up front that they were simply acting as middlemen introducing intermediate steps toward future full privatization of the entity in question. Economists also proposed to fix the crisis by instituting new markets, as we shall discover in chapter 5.
The fascinating aspect of all this is how this precept was deployed in what seemed its most unpropitious circumstance, the erstwhile general failure of financial markets in the global economic crisis. One perspective on the issue is to recall that, in the popular Hayekian account, the marketplace is deemed to be a superior information processor, so therefore all human knowledge can be used to its fullest only if it is comprehensively owned and priced. This was deployed in a myriad of ways to suggest what might seem a string of strident non sequiturs: for instance, some neoliberals actually maintained that the solution to perceived problems in derivatives and securitization was redoubled “innovation” in derivatives and securitization, and not their curtailment.108 Another variant on the Hayekian credo was to insist
