Dani Rodrik trips over language

Odd really, for like many non-native speakers he often sees the little bits that others don’t.

As even its harshest critics concede, neoliberalism is hard to pin down. In broad terms, it denotes a preference for markets over government, economic incentives over cultural norms, and private entrepreneurship over collective action. It has been used to describe a wide range of phenomena – from Augusto Pinochet to Margaret Thatcher and Ronald Reagan, from the Clinton Democrats and the UK’s New Labour to the economic opening in China and the reform of the welfare state in Sweden.

The term is used as a catchall for anything that smacks of deregulation, liberalisation, privatisation or fiscal austerity. Today it is routinely reviled as a shorthand for the ideas and practices that have produced growing economic insecurity and inequality, led to the loss of our political values and ideals, and even precipitated our current populist backlash.

We live in the age of neoliberalism, apparently. But who are neoliberalism’s adherents and disseminators – the neoliberals themselves? Oddly, you have to go back a long time to find anyone explicitly embracing neoliberalism. In 1982, Charles Peters, the longtime editor of the political magazine Washington Monthly, published an essay titled A Neo-Liberal’s Manifesto. It makes for interesting reading 35 years later, since the neoliberalism it describes bears little resemblance to today’s target of derision. The politicians Peters names as exemplifying the movement are not the likes of Thatcher and Reagan, but rather liberals – in the US sense of the word – who have become disillusioned with unions and big government and dropped their prejudices against markets and the military.

“Neoliberal” has an English meaning and an American one. Thus much of the confusion here.

An American neoliberal is indeed that American liberal who thinks that markets are perhaps better than unions and regulation at achieving the standard American liberal goals. Brad Delong would be a good example. Hmm, perhaps we should revise that to sometimes markets are the better method of achieving those goals.

In English the meaning is much closer to something like a classical liberal with libertarian tones or influences. Not full on Randite but definitely different from that American meaning. I might be an example of a neoliberal in this English sense.

At which point Rodrik is correct all the same:

But the looseness of the term neoliberalism also means that criticism of it often misses the mark. There is nothing wrong with markets, private entrepreneurship or incentives – when deployed appropriately. Their creative use lies behind the most significant economic achievements of our time. As we heap scorn on neoliberalism, we risk throwing out some of neoliberalism’s useful ideas.

The argument is about “appropriate” nothing more. Very few indeed are going to argue that we should organise the military on private entrepreneur lines. We tried that with the Wars of the Roses and didn’t like it. There are actually those who argue that all housing should be state, not market, provided. Something, in my view at least, equally inappropriate.

Good economists know that the correct answer to any question in economics is: it depends.


By the time the economist stops, it appears as if he has laid out a fully fledged neoliberal agenda. A critic in the audience will have heard all the code words: efficiency, incentives, property rights, sound money, fiscal prudence. And yet the universal principles that the economist describes are in fact quite open-ended. They presume a capitalist economy – one in which investment decisions are made by private individuals and firms – but not much beyond that. They allow for – indeed, they require – a surprising variety of institutional arrangements.

So has the economist just delivered a neoliberal screed? We would be mistaken to think so, and our mistake would consist of associating each abstract term – incentives, property rights, sound money – with a particular institutional counterpart. And therein lies the central conceit, and the fatal flaw, of neoliberalism: the belief that first-order economic principles map on to a unique set of policies, approximated by a Thatcher/Reagan-style agenda.

Entirely true. It’s the results there we want, not the particular method of getting there.

Still, these principles are not entirely content-free. China, and indeed all countries that managed to develop rapidly, demonstrate the utility of those principles once they are properly adapted to local context. Conversely, too many economies have been driven to ruin courtesy of political leaders who chose to violate them. We need look no further than Latin American populists or eastern European communist regimes to appreciate the practical significance of sound money, fiscal sustainability and private incentives.

Quite so.

And there’s an explanation for this:

This, too, can be illustrated with a parable. A journalist calls an economics professor for his view on whether free trade is a good idea. The professor responds enthusiastically in the affirmative. The journalist then goes undercover as a student in the professor’s advanced graduate seminar on international trade. He poses the same question: is free trade good? This time the professor is stymied. “What do you mean by ‘good’?” he responds. “And good for whom?” The professor then launches into an extensive exegesis that will ultimately culminate in a heavily hedged statement: “So if the long list of conditions I have just described are satisfied, and assuming we can tax the beneficiaries to compensate the losers, freer trade has the potential to increase everyone’s wellbeing.” If he is in an expansive mood, the professor might add that the effect of free trade on an economy’s longterm growth rate is not clear either, and would depend on an altogether different set of requirements.

This professor is rather different from the one the journalist encountered previously. On the record, he exudes self-confidence, not reticence, about the appropriate policy. There is one and only one model, at least as far as the public conversation is concerned, and there is a single correct answer, regardless of context. Strangely, the professor deems the knowledge that he imparts to his advanced students to be inappropriate (or dangerous) for the general public. Why?

Terry Pratchett called this “lies to children.” Feed people the information appropriate to their understanding of the matter at hand. For the 99% of people who don’t really think very much about economic policy a general assumption that free trade is good is a very decent starting point. There are indeed caveats – not quite as many as Rodrik says but some – but they’re not what needs to be generally known. It isn’t necessary for everyone to know Einstein’s equations, that the apple falls downwards from the tree is enough.

The nuance is only important when it matters.

12 thoughts on “Dani Rodrik trips over language”

  1. Newton & apples, surely?

    …otherwise nice post. More arguments to use against the capitalism = bad morons the world is full of.

  2. I’m impressed by the way he wrote a conclusion to a totally different article. How the hell he ends up with “so neoliberalism is bad economics” from that escapes me.

  3. I recall Evan Davies interviewing Art Laffer on the Today programme a few years ago. Asked what he thought about neoliberal economics, Laffer said there was no such thing, just economics. Which threw Davies, made him stammer and then shut up. Made my day.

  4. @Raffles.

    To start with I thought it should be Newton too, but maybe our gracious host picked a very good example of lies to children.

    The apple falls – common knowledge.
    Why? It’s pulled down by a force – explained by Newton’s 2nd law.
    What force? – explained by Newton’s law of universal gravitation.
    But what’s gravity? – here we get on to Einstein.

  5. Mattew L yes that’s odd.

    Dani’s saying that chanters of “neoliberalism bad four legs good” are correct, and even joins their chorus, because the way they mean neolberalism is too simplistic to be called good. Classic reverse ferret.

    And Dani reassures anyone not satisfied with that who wants to go the level down, the “it depends” level can relax too. There’s plenty of policy wiggle room around those neoliberal truths.

  6. @Widdershins

    I remember that clearly. I was driving on the Bagshot Road to work.

    I laughed so hard, I nearly binned it.

  7. I’d like to see an intelligent analysis for the layman on the interaction between tariffs/free trade on the one hand, and the welfare state on the other. If only because the original free trade arguments come from an era long before the welfare state.

  8. “Neoliberal” is SJW shorthand for: “someone whose views do not accord 100% with my own … and probably an admirer of the evil Fatcha, to boot”.

  9. Brad Delong would be a good example.

    Sorry, Tom, but I’m going to call bullshit on that one.

    Brad Delong may talk that game, but when it comes to down to it, he is always against the politicians who are ‘Merican Neoliberal and for the politicians who distrust and despise free markets.

    I had the pleasure of interacting with Delong a number of years ago… Based on that experience I’ll simply state that he’s nothing more than a intellectually dishonest shill for the left wing of the Democratic Party. Feigning political moderation in economic matters is simply part of his schtick.

  10. Dennis: There are, to a first approximation, no American politicians in favour of free trade and free markets. There’s the protectionist union-run party and the protectionist populist party.

  11. In any given set of circumstances, there is only one ideal economy. Politics is deciding which precepts of that ideal economy can and must be sacrificed in order to pursue other goals, such as social justice or nationalism.

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