Neoliberalism

Since the 1990's activists use the word 'neoliberalism' for global market-liberalism ('capitalism') and for free-trade policies. In this sense, it is widely used in South America. 'Neoliberalism' is often used interchangeably with 'globalization'. But free markets and global free trade are not new, and this use of the word ignores developments in the advanced economies. The analysis here compares neoliberalism with its historical predecessors. Neoliberalism is not just economics: it is a social and moral philosophy, in some aspects qualitatively different from liberalism.

If Adam Smith returned and saw the more extreme aspects of neoliberalism, he would probably find them bizarre. Nevertheless, they derive from the ideas of early liberalism. The belief in the market, in market forces, has separated from the factual production of goods and services. It has become an end in itself, and this is one reason to speak of neoliberalism and not of liberalism.

A general characteristic of neoliberalism is the desire to intensify and expand the market, by increasing the number, frequency, repeatability, and formalization of transactions. The ultimate goal of neoliberalism is a universe where every action of every being is a market transaction, conducted in competition with every other being and influencing every other transaction, with transactions occurring in an infinitely short time, and repeated at an infinitely fast rate. It is no surprise that extreme forms of neoliberalism, and especially cyber-liberalism, overlap with semi-religious beliefs in the interconnectedness of the cosmos.

Neo Liberals believe in a new expansion in time and space of the market: although there has been a global-scale market economy for centuries, neoliberals find new areas of mercerization. This illustrates how neoliberalism differs from classic market liberalism. Adam Smith would not have believed that a free market was less of a free market, because the shops are closed in the middle of the night: expansion of trading hours is a typically neoliberal policy. For neoliberals a 23-hours economy is already unjustifiable: nothing less than 24-hours economy will satisfy them. They constantly expand the market at its margins. The emphasis on property, in classic and market liberalism, has been replaced by an emphasis on contract. In the time of Adam Smith, property conferred status in itself: he would find it strange that entrepreneurs sometimes own no fixed assets, and lease the means of production.

Contract maximization is typically neoliberal: the privatization of the British railway network, formerly run by one state-owned company, led to 30 000 new contracts. Most of these were probably generated by splitting services, which could have been included in block contracts. The contract period is reduced, especially on the labor market, and so the frequency of contract is increased. A service contract, for instance for office cleaning, might be reduced from a one-year to a three-month contract, then to a one-month contract. Contracts of employment are shorter and shorter, in effect forcing the employee to re-apply for the job. This flexibility means a qualitatively different working life: many more job applications spread throughout the working life. This was historically the norm in agriculture - day labor - but long-term labor contracts became standard after industrialization.

Market forces are also intensified by intensifying assessment, a development especially visible on the labor market. Even within a contract period, an employee will be subject to continuous assessment. The use of specialized software in call centers has provided some extreme examples: the time employees spend at the toilet is measured in seconds: this information is used to pressure the employee to spend less time away from the terminal. Firms with contracts are also increasingly subject to continuous assessment procedures, made possible by information technology. For instance, courier services use tracking software and GPS technology, to allow customers to locate their packages in transit. This is a typical example of the new hyper-provision of business information, in neoliberal economies.

Neoliberalism encourages new transaction-intensive markets, which are created on the model of the stock exchanges - electricity exchanges, telephone-minute exchanges. Typical for neoliberalism: there is no relationship between the growth in the number of transactions, and the underlying production. New forms of auction are another method of creating transaction-intensive markets. Radio frequency auctions, such as those for UMTS frequencies, are an example. They replaced previous methods of allocation, especially licensing - a traditional method of allocating access to scarce goods with no clear private owner. The complex forms of frequency spectrum auctions have only been developed in the last few years. Neoliberals now see them as the only valid method of making such allocations: they dismiss all other methods as 'beauty contests'.

In the Neoliberal society, artificial transactions are created, to increase the number and intensity of transactions. Large-scale derivative trading is a typically neoliberal phenomenon, although financial derivatives have existed for centuries. It is possible to trade options on shares: but it is also possible to create options on these options. This accumulation of transaction on transaction is characteristic of neoliberalism. New derivatives are created, to be traded on the new exchanges - such as 'electricity futures'. There is no limit to this expansion, except computer power, which grows rapidly anyway. Automated trading, and the creation of virtual market-like structures, is neoliberal in the sense that they are an intensification of "transaction for transaction's sake". However, a world in which all entrepreneurial activity was automated would not be neoliberal, or liberal. This expansion of interactivity means that neoliberal societies are network societies, rather than the 'open societies', of classic liberals. Formal equality and 'access' are not enough for neoliberals: they must be used to create links to other members of the society. This attitude has been accurately labeled 'connectionist'.

Because of contract expansionism, transaction costs play an increasing role in the neoliberal economy. All those 30 000 contracts at British Rail had to be drafted by lawyers, all the assessments have to be done by assessors. There is always some cost of competition, which increases as the intensity of transactions increases. Neoliberalism has reached the point where these costs threaten to overwhelm the existing economy, destroying any economic gains from technological change.

The growth of the financial services sector is related