10 Constructing Economic Policy Advice in an Age of Austerity
BRYAN M. EVANS
This chapter is concerned with the construction and relay of policy ideas within the neoliberal state. In this respect, it takes its cue from the well-worn adage to never let a crisis go to waste and the political conundrum presented by the Great Financial Crisis of 2007. That is to say, the crisis presented the most serious crack in the edifice of capitalism since the Great Depression of the 1930s. Unlike that earlier crisis, through which capitalism was reconstructed both in policy and political terms into a different variety of capitalism, the crisis of 2007 left neoliberalism essentially intact in policy terms, though much more seriously contested politically, albeit unevenly, as events in Greece, Spain, Portugal, Scotland, and the Jeremy Corbyn and Bernie Sanders phenomena suggest. While policy instruments and strategies have been subject to innovation, these have not reset the policy echo chamber within the state.
As the Great Financial Crisis (GFC) deepened and spread through 2007–8, alarmed governments and central banks mobilized an unprecedented intervention. The rapid and unexpected reanimation of the surviving “institutional legacy of Keynesianism” (Strange 2012, 121) caused one social democratic intellectual to state the “2008 crisis marks the end of the Reagan-Thatcher counter-revolution. Neoliberalism and monetarism are dead” (Collignon 2008, 8). Recent history has proven otherwise. Indeed, what was initially a crisis within the banking sector, a product of decades of financial deregulation, was reframed as a problem of public spending to be remedied through a program of “expansionary austerity.” The result was a gattopardoesque1 manoeuvre where preserving the essence of the status quo requires some semblance of change (Tomasi di Lampedusa 1958), causing one observer to ask, “What remains of neoliberalism after the financial crisis? The answer must be virtually everything” (Crouch 2011, 179). Power is immanent in all relationships, and ideas serve to link structures to actors (Peters 1999, 71–2). This is particularly salient for the relationship of ideas to public policy and the state. Constitutionalizing austerity, as addressed by McBride in his chapter, is an outcome as well as a means for the reproduction of neoliberal policies within the state apparatus and further serves as a barrier to alternatives. This chapter is concerned with how constitutionalization of austerity is manufactured within the state.
The power of economics as a body of knowledge is its ability to structure a problem, in addition to its privileged position within the hierarchy of power more broadly. In this respect, a central consideration must be the political foundations of economic epistemology and how this intersects with the role of a specific policy community centred upon and through state institutions. The intersectionality of the economics profession, the structure of the policy advisory system within the state, the bureaucratic politics within the state apparatus, and the embedded role of neoliberal intellectual agents within the state are the subjects of this contribution. The resilience of “dead ideas” (Quiggin 2010) can thus be understood, in part, through the lens of epistemic power relationships and the institutional structures through which they are relayed. Specific features of policymaking praxis insulate the state policy function from non-neoliberal policy alternatives. These include an array of means by which alternatives are “crowded out” through a dense network of ideational relays including think tanks, advocacy coalitions, and policy entrepreneurs within or well-linked to the state.
It is key that the production and transfer of policy ideas take place within what are effectively “gated” policy communities and are increasingly privatized through the outsourcing of policy advice. What underpins the foregoing are the power resources of the dominant classes, and specifically the “pre-eminence” of the “class owning financial (and real estate) assets” (Serfati 2013, 154), and the success of their political project – neoliberalism – in restructuring class relations and the consequent redistribution of power. Woodward’s discussion of tax havens in this volume is a blunt but direct reflection of the central political concern for this class with “protecting the gains made by capital in the last thirty years,” and a central strategy in achieving this goal is through effective control of the state apparatus (Radice 2010, 38). Embedded neoliberalism, “constituted by historically specific institutions and social relations which structure people’s everyday lives” (Cahill 2014, ix), is the result. Neoliberalism is embedded through three mechanisms: class relations, institutions, and ideology. All three inform the policy process in important ways. The privileged position of capital is further strengthened as other political actors, notably labour, are marginalized; state institutions are “integral to the implementation, reproduction and extension of neoliberalism”; and, ideologically, neoliberalism is the common sense of policy elites serving to frame collective problems and define solutions (81).
Of course, this is not to say there is totalizing policy coherence. Indeed, contradictions abound. A key illustration is provided by the United States. There the Federal Reserve embarked upon the most expansive (and expansionary) program of quantitative easing in history while the subnational state governments slashed away at public expenditures, eliminating public sector jobs and reducing entitlements and public services. In part this is a function of the paradoxes of multi-level governance where constitutional allocation of powers to different levels of government establish distinct areas of policy responsibility. Overlapping and corresponding to such divisions of authority are also variable political dynamics where localized elites and more reactionary political forces mobilize and win government power. In short, the Federal Reserve acts on behalf of the national, if not global, economy, while the more conservative state legislatures and governors serve more local interests. Consequently, the choices before each venue will be shaped by different objectives and political-economic calculations. An additional explanation, equally or more compelling, points to the limitations of the Obama administration’s stimulus program. State and local governments were under extraordinary fiscal pressure after 2008 due to the housing foreclosures, which hit local property tax revenue particularly hard, and the recession took its toll on state finances (income taxes, sales taxes). Nearly all states are prohibited by their constitutions from running deficits for operating budgets and so, facing this legal block, they argued there were no alternatives to deep austerity. The American Recovery and Reinvestment Act (ARRA), signed into law by President Obama in 2009, provided for only approximately one-third the budget gap experienced by states. Thus states were left with filling in the remaining two-thirds, and funding for the ARRA ended in 2012, thus leaving states and municipalities to find their own solutions (Pollin and Thompson 2011). The result is “fiscal purging,” which deepens the “cumulative incapacitation of the state” (Peck 2015, 4). In this way we can see how the limitations of the fiscal stabilization intervention of 2009 were not only rather inadequate and feeble, in comparison to the monetary interventions of the Federal Reserve, but further eroded subnational state capacity in a process of normalization. The effect of embedded neoliberalism is observed in this instance where the demand to resuscitate finance was allocated greater priority than the need to sustain subnational public services and programs. Moreover, reactionary state governments seized the opportunity to attack public sector workers and unions specifically.
Explaining Neoliberal Resilience: The Ideational Foundations of Policy Advice
The financial crash of the 1930s created a crisis in economic orthodoxy and led to a revolution in economics. Yet the Great Financial Crisis of 2007–8 did not give rise to a similar rethink of the new orthodoxy in economics (Mirowski 2013, 2). For Keynes, the challenge to having his expansionary counter-cyclical ideas accepted in place of the prevailing orthodoxy of fiscal prudence and sound money was not the complexity of his ideas but rather “escaping from the old ones,” which had the status of common sense (Keynes 1936, 4). And now, historically situated in the aftermath of the Great Financial Crisis of 2008, or at least its first phase, a similar challenge confounds us. Economists and their journalistic allies overwhelmingly frame the problem as too much public expenditure, too much public debt, greedy, self-interested unions, and unmotivated, overcompensated public sector workers. And despite the “no one saw it coming” crisis of 2008, the state elite, both elected and bureaucratic everywhere and across mainstream partisan identities, “regard economic theory as the sole source of wisdom about the manner in which a modern society should be governed” (Keen 2011, xv). This enduring intellectual legitimacy is a rather peculiar state of affairs.
Zombie ideas are those that, although “the evidence seems to have killed them, they keep on coming back” (Quiggin 2010, 1) and guide economic policy. Failure to recognize that expansionary austerity and the assortment of allied economic axioms of the past thirty or more years are not working is puzzling, given that other periods of economic crisis led to paradigm-shifting reconsiderations. The Great Depression of the 1930s set the stage for the ascent of Keynesianism to orthodoxy, and the 1970s crisis gave rise to neoliberalism. Paradoxically, the crisis and its aftermath are marked by economic volatility, an uneven though expanding resistance to neoliberalism, and, among policy elites, broad ideological stability. Neoliberalism is not questioned, but policy specificities respecting how to sustain the model have begun to differ. For example, European political leaders embarked upon massive public sector cuts while the American federal state, notwithstanding subnational state actions, withheld from an all-out assault upon its core workforce and programs (Karger 2014, 34). More pointed has been the International Monetary Fund’s critique of destabilizing austerity policies, including a public acknowledgment that the policy prescription handed to Greece was “wrong” (Andreou 2014), but the core point of contention is not austerity in and of itself but rather the “pace” by which it is implemented (Beams 2012). And more recently, as the post-crisis global economy falters again, the IMF’s call for “bold and ambitious” intervention, meaning for governments to ramp up spending, was criticized by Germany’s finance minister as “economic alarmism” (Deutsche Welle 2014). But none of this questions the austerity program itself or seriously considers non-austerian alternatives. Consequently, notwithstanding the enormity of the 2007 crisis, there has not been a rethink of economic orthodoxy as there was in the wake of the Great Depression of the 1930s (Gamble 2013, 53).
Three specific features of neoliberal ideational resilience are: (1) the continuity of neoliberal ideas over time; (2) the hegemonic dominance of these ideas; and (3) their survival even in the face of their own failures (Schmidt and Thatcher 2013, 15). The ideational foundation for this continuity, dominance, and survival has been the “construction of political consent” constituting nothing less than “common sense” (Harvey 2005, 39). Through processes of bricolage (grafting of new ideas onto older ones), diffusion (relaying neoliberal ideas), and translation (adaptation of neoliberal ideas to new contexts), ideational continuity and hegemony are achieved (16).
Importantly, this context establishes the basis for policy agenda-setting within the state. That is, how and whether the state will intervene. In this process, certain concepts and narratives are formulated and used, while others are not. These then “frame” “what and who is taken into consideration in and excluded from policy deliberation” (Brock, Cornwall, and Gaventa 2001, 5). This “framing” is a significant source of neoliberal resiliency: “Neo-liberal ideational entrepreneurs use their ideas to ‘frame’ current problems” and “weave together policy prescriptions, policy programmes, and philosophical principles into a seemingly coherent account of what happened and why” (Schmidt and Thatcher 2013, 32). Policy framing thus requires policy actors to design an understanding or “story” that makes the issue/problem understandable and solvable. Moreover, framing will determine which policy actors are included in and will benefit from the process (Zito 2011). Such “programmatic ideas,” which establish a course of action, are very effective in placing parameters around which alternative policy frameworks are acceptable as they “set the definitions, goals, objectives, and instruments” (Schmidt and Thatcher 2013, 20–1). In this respect, certain policy actors and ideas are privileged, while others are ignored to some greater or lesser extent. Policy framing thus places constraints on what is possible by establishing the normative boundaries determining which problems are identified and then the range of possible solutions limited to those that are within the range of acceptability. This may be understood as a form of culturally broad ideological insulation from alternative ideas. In this way policy becomes “rules bounded” as a consequence of the “internalization of the guiding assumptions of the prevailing economic paradigm” (Hay 2004, 503). Consequently, the prevailing orthodoxy is that economic growth and competitiveness are dependent upon a program of ongoing neoliberal reform.
Moreover, the crowding-out of alternatives has been achieved rather systematically in the “battle of ideas” though a dense network of ideational relays composed of think tanks, advocacy coalitions, and policy entrepreneurs who work to popularize their work to the mass public in the process of constructing a new common sense, as well as political elites (Schmidt and Thatcher 2013, 32). Policy entrepreneurs are key to understanding how policy ideas are disseminated and gain favour. Policy entrepreneurs mobilize ideas to “define problems in ways that both attract the attention of decision makers and indicate appropriate policy responses” (Mintrom and Vergari 1996, 422). Successful policy entrepreneurs are typically those able to network in and around government and who present the most uncontentious arguments (Mintrom 1997). To accomplish this they first must have access to decision makers.
The role of think tanks is specifically addressed in this volume by Plehwe. The Eurobonds case he presents illustrates how think tanks seek ideational influence through norms creation and the diffusion of policy ideas (Pautz 2012; Béland and Orenstein 2013). Influential think tanks are those that have money and resources. Less-resourced think tanks tend not to be as successful in the battle to shape policy (Béland 2009).
Advocacy coalitions composed of activists, experts, and elected officials share a particular belief or value system and demonstrate coordinated activity over time (Sabatier 1988). These coalitions shape their beliefs to fit with the dominant policymaking group possessing the greatest influence in the policy process (Sabatier and Weible 2002, 194–6). Implicit in the idea of advocacy coalitions is that, in order for ideas to have an impact, they must be part of a subsystem. Moreover, the advocacy coalition must be able to dominate its subsystem in order to influence policy, which means that ideas not shared by the dominant coalition are very unlikely to have any impact on policy.
Each of these ideational relays serves as a gatekeeper to the policy process. Policy ideas are powerful within the policy process; however, there are real limits to which ideas enter the process.
Framing is thus linked to argumentation, with its focus on discourse, and popularization as a powerful tool in the construction of a widely held neoliberal common sense. The ideas thus conveyed “are easy to understand and resonate with ‘common sense’ and with deep values and personal experience” (Schmidt and Thatcher 2013, 32). This characteristic makes such ideas easily communicated. But common sense can “be profoundly misleading, obfuscating or disguising [of] real problems under cultural prejudice” (Harvey 2005, 39). That is precisely the source of its power to structure popular understanding of social and political reality in such a way as to buttress resilience and inform a populist anti-politics.
The “argumentative turn” identified in critical policy studies acknowledges that policy work entails much more than a rational analysis of data and evidence but rather involves an active, strategic selection of ideas. State-employed policy analysts are not policy eunuchs but instead are central actors in the construction of meaning through discursive framing: “They scan a political environment as much as they locate facts, and they are involved with constructing senses of value even as they identify costs and benefits” (Fischer and Forester 1993, 2). This understanding is a powerful counterpoint to the orthodoxy of state policy analysts working as neutral rational technocrats in an open and accessible policy process where influence is seemingly disconnected from power (Noveck 2011).
This was not simply misfortune. The construction and provision of policy advice for government consumption by “ideological entrepreneurs,” working both in and outside the state, is of central importance. These are the “prime movers for neo-liberal reform, offering a set of overarching philosophical ideas that inform their policy programmes and ideas” (Schmidt and Thatcher 2013, 23). This construction of meaning is the foundation of neoliberal resilience, as “policy makers customarily work within a framework of ideas and standards that specifies not only the goals of policy and the kind of instruments that can be used to attain them, but also the very nature of the problems they are meant to be addressing” (Hall 1993, 279). And so the neoliberal policy paradigm becomes normalized through internalization by “politicians, state managers and policy experts alike and may become institutionally embedded in norms, conventions and standard operating procedures” (Hay 2004, 504). Thus the cognitive framework used by policymakers that determines what is possible is constructed as thoroughly neoliberal.
Economic policy ideas do not necessarily become translated into public policy simply because they are grounded in solid research and evidence. For policy transfer and utilization to happen, policy ideas require a political vehicle, whether that is a party, a broad-based social movement, or links to powerful socio-economic interests (Gourevitch 1989, 87). The ascent of neoclassical ideas to a position where they became hegemonic in policy terms was made possible largely because economists, acting as ideational agents, mobilized these ideas and presented an alternative to the wobbling Keynesianism of the 1970s. Their adoption by electorally successful political parties searching for a theoretical model to replace the failing model provided that vehicle into the state.
As a strategic epistemic community, economists and the economics profession are accorded substantial legitimacy in the policy advisory process and thus play a critical role in the production of advice. They have “been at the forefront of the generation and promulgation of neo-liberal ideas” as well as occupying a central role and function in the provision of policy advice (Schmidt and Thatcher 2013, 23–4). Their contribution requires some greater unpacking.
Economists and Economics: The Contestability of “Expert” Knowledge
Economics, more than any other social science, has been tremendously influential, through its policy prescriptions for the direction of economic development (Schneider and Kirchgässner 2009, 324). The role of economists in policy is that of “gatekeepers” influencing resource allocation (Markoff and Montecinos 1993, 52). In this role they serve as ideational agents, purveyors of a powerful tool to frame policy problems, as well as being responsible for the transfer of economic ideas into and within the “mind” of the state. It has been said that senior ranking state elites, “along with elected politicians and some types of intellectuals are the ‘switchmen’ of history; when they change their minds the destiny of nations takes a different course” (Pusey 1991, 2). The intellectuals referred to here are often economists serving as policy advisors to state elites who govern the direction of policy. In short, they are the conceptual framers of problems and designers of policy interventions.
Through the years of the Great Depression, and into the post-war era, a “generation of Keynesian trained economists and policy analysts came to the fore and populated a growing state apparatus and institutionalised a ‘state ideology’” (Evans 2005, 25). However, even as that paradigm faded, economists remained in demand as policy actors in possession of “newer ideas of economic management” armed “with an impressive variety of complex and esoteric models” (Markoff and Montecinos 1993, 43). Economists, in this sense, are strategically located within the state policy advisory system, whether as external advisors or directly employed by the state. Their role in ushering in the “Silent Revolution” that made the Neoliberal Era is identical to that of a previous generation of Keynesian economists whose “extensive networks” served to transmit their economic ideas. Just as governments turned to fiscal policy as a key tool of macroeconomic management when Keynesian ideas dominated the economics profession, so did monetary policy became the new orthodoxy when those ideas came to prevail over the “profession” (Lindvall 2009, 710).
The widespread adoption of Keynesian approaches required significantly more robust policy capacity within the state to plan, design, and manage expanding public expenditures and the instruments and institutions of fiscal stabilization. Consequently, “technical economic advisors” were recruited to conduct analyses and translate them into applied policy. As this model faltered through the 1970s and 1980s, the demand for economists as policy advisors did not diminish as monetarist/supply-side methods came with “an impressive variety of complex and esoteric models of their own and require equally elaborate technical staffing” (Markoff and Montecinos 1993, 43). The number of economists working in government directly, and in the role of providing strategic advice in all policy domains, has contributed to a transformation in how state policy elites come to see and understand public problems and identify solutions. In other words, the “mind of the state” perceives the world through the filter of neoclassical economics.
The substantial influence of economists on policy is founded upon the claim that their domain of knowledge is genuinely scientific and presents an objective account of economic behaviour and dynamics. In short, it stakes out an intellectual TINA (there is no alternative). This claim is in turn based upon the scientization of economics, which refers to the application of empirical testing of theory, typically by mathematical methods. The technical expertise of economists is the foundation for their role in designing economic policy. Very often, economists understand their role as above sectional politics and see themselves rather in the service of “rationality,” as theirs is a discipline “whose intellectual achievements are held to be in the refinement of beautifully abstract and highly mathematized models” (Markoff and Montecinos 1993, 51). Economists regard themselves as scientists whose interest is in producing knowledge. Whether that knowledge is of policy relevance is immaterial to them (Coats and Colander 1989, 2). Thus, scientization has served to depoliticize economic policy (Dyson and Marcussen 2009) and so contributes to insulating the prevailing orthodoxy from alternative models. More than this, scientized economics reduces the debate to one based on purely technical, and therefore apolitical, solutions that share the same assumption respecting macroeconomics. This depoliticization through scientization is not unique to the neoliberal state. Indeed, policy problems were framed by Keynesian economics as “technical questions to be solved by economic experts. Because the problems are understood as merely technical ones, they appear to be beyond the political sphere” (Wisman 1991, 118). What has changed, however, is that through the transition to neoliberalism, the architecture of power within the state, and the consequent effect on the policy process, has shifted significantly.
The assumption within economics is that it is not possible for scientized ideas to comingle with normative ones. As long ago as 1828, Jean-Baptiste Say argued that such issues as the distribution of wealth in society were political issues and not ones with which economics ought to be concerned. The focus of economics was on “production, distribution, and consumption” and marked by little interest in the role of political and economic power (Fontaine 1996, 387 and 388). Blyth dispels this claim with the observation that “all positive statements about the causal order of the economy necessarily imply value trade-offs and hence different patterns of distribution” (Blyth 2002, 11).
By way of illustration, six guiding ideas dominate contemporary neoclassical/liberal economics: (1) the Great Moderation: the belief that we have experienced unparalleled macroeconomic stability since 1985; (2) the Efficient Market Hypothesis: prices created in financial markets reflect the actual value of an investment; (3) Dynamic Stochastic General Equilibrium: the focus of economics should be on individual behaviour rather than on aggregates such as trade balances and debt; (4) Trickle-Down Economics: policies that benefit the wealthy will serve to everyone’s benefit; (5) Privatization: private firms will be more effective than the public sector in providing any service/function; and (6) Austerity: the best response to the Great Financial Crisis, or any similar crisis, is for government to pursue a balanced budget policy and thereby desist from crowding out the private sector (Quiggin 2010, 2). These are hardly technocratic, apolitical nostrums. They establish a particular framing of the workings of the economy based on normative assumptions of cause and effect. In turn they limit the range of possible policy options available to decision-makers. And despite decades of economic policy based upon these ideas, the projected benefits have not materialized (Schneider and Kirchgässner 2009, 325). So ultimately, the policy preferences of the economist are less about science and evidence and more about deeply held values and beliefs respecting how the economic world works. The chief economic advisor to the British government during the period of post-war reconstruction noted that government economists are seriously challenged in their efforts to base their work on scientific evidence, as conflicting views about the interpretation of the same facts was a reality of policy advising. Ultimately, interpretation cannot be anything but normative, given the lack of agreement even over facts (Hall 1955, 126, 130, and 134). Fast forward to the years following the Great Financial Crisis, and mainstream economics is “dismissive“ of any criticism, and the intellectual stubbornness of its adherents’ work is akin to that of “zealots“ rather than objective scientists (Keen 2011, 4). To this point Stiglitz wrote that “neo-liberal market fundamentalism was always a political doctrine serving certain interests” (Stiglitz 2008).
The exogenization of politics from economics is analogous to the public administrative theory of the politics-administrative dichotomy. The dichotomy posits a sharp division of labour within the policy process. The elected political leadership have a mandate to decide on policy while the public service, as a neutral but technically competent instrument, would implement those directions. Applying this doctrine to economists whose function is to provide policy advice to government ministers would mean, in practice, that their role would be limited to preparing the analyses, while the political leadership would then formulate their policy response based on that analysis. The reality is that policy work is much more blurred than this mechanical division of labour imagines (Marris 1954, 759). The economist advisors frame the problem on the basis of their understanding of the economy, and this in turn establishes the range of acceptable policy interventions. But in addition, economic policy is rarely, if ever, determined by purely technical analysis. Economic policy is, by definition, laden with political factors, and who is going to get what, when, and how is not determined by mathematical formulations.
There is another dimension to the role of economic policy advisors, which speaks to a particular inability to understand themselves as “captured” by their own self-interest. A key theoretical perspective underlying orthodox economics is public choice. Here, all human behaviour is understood by the drive for utility maximization. But somehow economists fail to apply this motivation to their own role. Public sector workers are characterized as “rent seekers” by economists who adopt the analytical approach of public choice theory. But is this a case of the pot calling the kettle black (Peacock 1994, 191)? This notion of capture applies equally to economists who produce work for the consumption of government and business. Economists who cater to the knowledge needs of government and business will find that they are in demand for well-compensated consulting and other career-enhancing opportunities if they produce research conforming to what is deemed acceptable (Zingales 2014, 125). In short, the economists who work to produce policy and business advice have a serious disincentive not to challenge established centres of power. The privatization of policy advice has led to an expanding “consultocracy” (Hood and Jackson 1991), which is one aspect of what Wilks in this volume refers to as the “public services industry” – the commodification of public service functions through outsourcing. The policy “products” are seen to be of questionable quality and are designed expressly to reinforce government objectives rather than fully canvass the range of alternatives (Howlett and Migone 2014).
Contemporary neoclassical economic theory functions “mainly as a surrogate ideology for the market economy” (Keen 2011, 4) and economists are the principal carriers for this ideology. State elite and their advisors “play an important part in the process of governmental decision-making, and therefore constitute a considerable force in the configuration of political power” (Miliband 1969, 107). The roles are hardly narrowly technocratic, and importantly they are not apolitical. Gramscian theory, particularly the concept of organic intellectuals, is useful in understanding the explicitly political role of ideational agents – in this case, economists but also state elites – as a transmission belt of neoliberal ideas. Gramsci’s insights contribute to understanding neoliberal resiliency within the key institutions of the state. First, it refocuses the traditional preoccupation of public policy and administration with institutions and “techniques” (“technocratism”) by introducing the transformative potential of ideology to “reprogram” the state apparatus; and second, a Gramscian framework provides a means of understanding “how” the state “changes its mind” and becomes an instrument in driving a new political project. Ideational agents and state elites work in tandem in “consolidating specific accumulation regimes” (Blyth 2002, 6). Organic intellectuals provide leadership through their work as organizers of “social hegemony and state domination” (Gramsci 1971, 12–13). As with state elites, economists are not neutral actors but are instead an influential force in restructuring the state. And since 2008, despite their failures, neoliberal economists have only “consolidated their occupation of the glittering heights” (Mirowski 2013, 158).
The Political and Policy Architecture of the Neoliberal State
It is the most remarkable example of ideological sleight of hand that neoliberalism is presented as a force hostile to the state. The historical record demonstrates the opposite. The objective of neoliberalism has been to command the state in order to employ its capacities to drive neoliberal policies into all domains of economy and society (Lapavitsas 2014, 7). Policy innovation begins with the transfer of new ideas into the state’s policy advisory system. To gain traction, these ideas “must first be held to be ‘legitimate’ to be taken seriously. And to gain that status, these ideas must align with the ‘structural-economic relations rooted in the dynamics of capitalism and its power relations can be seen to set boundaries’ on what is understood as legitimate” (Bradford 1999, 18). In addition, the institutional arrangements of the state work to process and filter policy ideas coming forward. Those that cross the threshold of legitimacy, move forward; those that do not are abandoned. Rather than diminish the state and its institutions, neoliberalism reconfigures the distribution of power within and between the state’s component parts and its relationship to forces outside of the state such as capital, labour, and other civil society movements (Harvey 2005, 78). To enable this process, there is a specific architecture of power within the state. The neoliberal state has reordered the location of authoritative power within the state from where it had existed in the Keynesian welfare state, and this has been consequential in insulating the state policy advisory system from alternative ideas that challenge neoliberal orthodoxy.
Centralization of Power and Politicization of the State
The authoritarian tendency within neoliberalism derives from an understanding of democratic politics as problematic. The 1975 Report of the Trilateral Commission contended that the Western democracies were “overloaded with participants and demands” and as such were overwhelmed with an “excess of democracy” (Crozier, Huntington, and Watanuki 1975, 12). The post-war welfare state came to be equated with ungovernability, with the conclusion that mass democracy and welfare state policies, a politics where subordinate social actors had some influence over policy, was diagnosed as the root of the problem. This speaks to an apparent paradox at the heart of neoliberalism and, with respect to Thatcherism in Britain, that Gamble characterized as a contradiction where “a free economy was also understood by some to mean a state strong enough to intervene actively in all institutions of civil society to impose, nurture and stimulate the business values, attitudes and practices necessary to relaunch Britain as a successful capitalist economy” (Gamble 1988, 232). To formulate and implement such interventions requires a concentration of decision-making authority and policy capacity at the centre of the state. The “strong state” Gamble refers to is in practical terms a strategy to centralize greater power in the political executive (Savoie 1994, 187). This centralization of power is well documented and is a general phenomenon in the initiation of the neoliberal project. In New Zealand, a Cabinet Policy Committee was established in 1985 to review and coordinate all policy initiatives from across the government. In the United Kingdom, Thatcher disbanded the Central Policy Review Staff unit in 1983, which served all of Cabinet, and expanded the role of the Prime Minister’s Policy Unit to better support the strategic goals of the government (Willetts 1987). Thatcher found this unit, in comparison to the CPRS, much more responsive to her policy needs as a “conviction” politician. She found that “a policy unit reporting directly to the prime minister, on the other hand, had her political agenda at the top of its priority” (Savoie 1994, 203). The paradox is that rather than depoliticization, we observe a movement to repoliticize the state by concentrating policymaking authority in specific strategic centres. Moreover, the political arm of government is strengthened, which is to say the policy capacity of the executive is increased dramatically, a phenomenon that has been termed the New Political Governance (Aucoin 2010). Given the political challenges inherent in the restructuring and marketization project, this is a necessary tactic in marshalling the political/managerial resources to overcome political and sectional opposition. In the 1980s, neoliberal governments seized “power over strategic decisions, especially expenditure budgets, [and they] became inexorably concentrated at the centre, that is, in the offices of the prime ministers and presidents, and in treasury or finance departments” (Aucoin 1996, 647). Resurrecting the politics-administrative dichotomy where state managers are concerned with implementation and where the governors are concerned with setting policy and priorities, became an important dimension of neoliberal governance (Rhodes 1994, 139). Such reforms communicate a clear and negative signal to the public service that their political masters possess little faith in the neutrality of the bureaucracy. The public policy expertise upon which governments rely is increasingly centred outside of the civil service. Public policy work becomes politicized as work that had been the purview of the public service is “turned over to … partisan policy advisors, to think tanks and to lobby firms for advice” (Savoie 1993, 21–2).
Politicization is not to be conflated with partisanship, as party association is much less important than a sharing of values and an overall orientation of being “one of us,” as Margaret Thatcher would query of senior public servants. That is, a key job qualification is the possession of a shared ideological conviction respecting the necessity for public sector restructuring (Peters and Pierre 2004, 2). With the centralization of decision-making at the apex of the administrative state, that is where the politics over policy choices is contested; public service advisors are either shunted aside or are recruited for their “political” fit. For Whitehall scholar Peter Hennessey, the expanding role of external policy advice has produced “an era when the Armani-clad minds in the penumbra of fad-and-fashion prone private think tanks can be preferred (especially if their advice comes gift-wrapped and suitably politically tinted) to that more sober, sometimes inconvenient fare served up by the tweed-clad minds in the career bureaucracy” (1997, 4–5).
These conjoined tendencies to the centralization of power and the politicization of the state are not intended to diminish the power of the state but rather reshape it. Leading transformation necessitates an enabled centre of government. As noted, a “strong state” is the necessary midwife to a different kind of state.
In Canada, as with most countries and especially those in the Westminster model, through the golden age of the Keynesian welfare state, so-called government line departments – departments responsible for program delivery and/or regulatory enforcement – provided key roles in conducting policy research and development. Policy proposals generally move “upward” through the line departments/ministries to cabinet committees for political consideration and decision. The sources informing policy proposals were varied: stakeholders, issues identified by front-line field offices, collaboratively developed with other departments or agencies, and politically directed by the executive. Policy advocacy for redistribution was robust and supported by influential cabinet ministers and knowledgeable senior state managers who were supported with public service–led policy analysis (Good 2013, 213). Given the policy activism of the public service, and the inherently political nature of all policy work, this role contradicts the doctrine of the politics-administrative dichotomy and was an area of significant concern for neoliberals.
The political arm of government has become more robust through centralization of power in the executive. Expanding numbers of political staff provide an alternative source of analysis and advice to ministers and thus contribute to shifting power and influence away from the line departments and towards the political arm of government (White 2001, 21). This expansion of capacity and the consequent shifting of power towards ministers’ offices, together with the expansion of the role of the centre of government (finance ministry, executive leadership such as the Prime Minister’s Office), are said to constitute the emergence of a “new political governance” (Aucoin 2010, 64). Finance departments in particular have taken on a commanding role in “gatekeeping,” blocking policy innovation deemed out of step with economic policy objectives. Moreover, they have become the overarching policy designer for the entire government. The result is a significant shift in power within the state where the “most critical issues of policy direction, resources, and program design are being handled directly and exclusively by the central players … the policy advice of deputy ministers is becoming guarded, provided in a complaint fashion to address predetermined priorities” (Good 2013, 215–16).
Depoliticizing Monetary Policy: The Case of Central Bank Independence
The scientization of economics provides one means to depoliticize economic policy. A second tactic, emerging in the 1980s, where governments began to release their direct control over monetary policy by providing their central banks with either substantially more autonomy within certain constraints or complete independence. The primary rationales put forward in support for central bank independence were: (1) the prevailing theoretical perspective in ascendant monetarist economics was that manipulation of monetary policy would not reduce unemployment and would contribute to inflationary pressures; and (2) globalization, as manifested by the deregulation of trade and investment barriers, with resulting free movement of capital, render expansionary monetary policies – which lead to currency devaluation within a single state – ineffective and instead contribute to inflation and declining productivity (Carruthers, Babb, and Halliday 2001, 98–9). The case of central bank independence presents an innovation that provides an institutional expression of the notion that monetary policy is of such a purely technical nature that its formulation must be kept beyond the reach of self-serving politicians and their captured state managers. In this sense, central bank independence is a technocratic patina that assumes that “politics is restricted to the realm of government and politicians … a central bank which is independent of that realm is therefore regarded as apolitical” (Bowles and White 1994, 240). This important institutional innovation is further an expression of the process of constructing a specifically neoliberal state designed to provide a structured foundation for ruling class interests in the era of financialized capitalism (Lapavitsas 2014, 3).
Of course, to say that economic policy is apolitical is absurd. And that central banks, as paramount policymaking institution in their own right, are better able to manage the economy by being free of political interference challenges the very idea of democracy. The political nature of these institutions has been bluntly stated, and with respect to the Federal Reserve, the central bank of the United States: “The political agenda of Wall Street dominates Federal Reserve policy, and the Federal Reserve is the predominant force in formulating and implementing national economic policy” (Pollin and Luce 1998, 6). Indeed, the sector that has benefited most from the actions of the neoliberal state is that of finance (Lapavitsas 2014, 7). Notwithstanding, the argument that counter-cyclical expansionary fiscal and monetary policy is politically driven while the central bank’s preoccupation with low inflation is not, the argument that it is necessary to insulate monetary policy from electoral and other political pressures speaks directly to the objective of privileging certain interests over others. Central bank independence is ultimately concerned with placing constraints on which social and economic interests economic policymakers serve. And banking and financial sector interests are the uncontested beneficiaries of monetary stability (Carruthers, Babb, and Halliday 2001, 102).
In the wake of the Great Financial Crisis, the decisions by central banks, supported by their allied institutions in the form of the International Monetary Fund and World Bank, gave priority, and necessarily so, to private banks and other financial institutions. This motivation of the action, covering the well-trodden terrain of “too big to fail” and saving global capitalism from itself, was more than just the revival on Keynesian-like market intervention. Its objective in political economy terms was nothing less than the restoration of a particular form of class power that had been consolidated through the previous three decades. The crisis of 2007–8 was exceptional only in its magnitude, but crises of this nature were not unknown. Drawing lessons from the experiences of the 1987–8 savings and loans crisis, and the 1997 collapse of hedge fund Long Term Capital Management, Harvey wrote, “Neoliberal states typically facilitate the diffusion of influence of financial institutions through deregulation, but then they also too often guarantee the integrity and solvency of financial institutions at no matter what cost. This commitment in part derives from reliance upon monetarism as the basis of state policy – the integrity and soundness of money is a central pinion of that policy” (Harvey 2005, 73). In these cases, the state intervened to inject billions of dollars to ensure state money remained stable.
While neoliberalism looks formally askance at the prospect of any form of state intervention in the economy, financialization was enabled by state intervention, and most significantly so by central banks, by “providing liquidity and their ability to influence interest rates” in support of private banks. In addition, the state has drawn on public resources, including tax revenue, to subsidize the sector and shift the cost of financial market failure onto the public sector (Lapavitsas 2014, 3 and 13). Given such an audacious and explicit defence of the finance capitalist class, with the resultant shifting of the cost for failures onto the state, public sector workers, and public services, the movement towards central bank autonomy is a rational political strategy of insulation. Central bank independence, in this context, is sufficiently insulated from political interference so it can pursue “unpopular monetary policies” such as increasing interest rates, which affect not only consumers but also governments, who then are forced to reduce public expenditures (Carruthers, Babb, and Halliday 2001, 118).
Conclusion
The resilience of neoliberal economic ideas in informing policy is at least in part a function of the structure of the state and its policy advisory system. The manifest depth of centralization of power in tandem with significant politicization (or should we say re-politicization) establishes a barrier that excludes competing ideas from entering the policy process within the state. The process is highly exclusionary, and this in turn reflects the class nature of the state. The organization of the state, that is its division into different institutions, structures each policy sector. This is turn reflects the uneven distribution in society at large. The financialization of the economy has given unprecedented power to finance ministries and central banks, which have emerged as preeminent policy designers. Bluntly, this is a structure of domination from which the state cannot escape (Ham and Hill 1984, 179). The neoliberal state is immensely more instrumental in class terms than was the Keynesian welfare state. But none of this would matter a great deal if not for the ideational agents. To link ideas to political institutions and processes requires agents, and to this end, the intellectuals, economists, and state managers provide ideational leadership as organizers of “social hegemony and state domination” (Gramsci 1971, 187). Their role is nothing less than pivotal in their unrelenting framing of policy problems through the lens of neoliberalism.
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Footnote
1 Gattopardoesque is a reference to Giuseppe Tomasi di Lampedusa’s novel Il Gattopardo (The Leopard) set in mid-nineteenth-century Italy when Garibaldi’s forces have landed in Sicily and threaten to overthrow the island’s feudal nobility. The central protagonist, the prince of Salina, must confront the political change that threatens old class privileges. The strategy chosen to preserve privilege is to break with tradition in symbolic ways in order to preserve the fundamental order of things. Thus, for “things to stay as they are, things will have to change.”