Has Tony Blair Turned Hayekian?

Lecturer in Management and Economic History at the School, Chris Grocott, reckons so.

This year, I ran the inaugural third year BA Management Studies module ‘Organisations in Economic Context’. It analyses how the political economy over the past thirty years has had a profound effect on the state and trade unions, as well as on firms in the pension, private security and gambling industries.  In keeping with the School’s critical approach to management, the module emphasised how the story of a shift from an economy underpinned by social democratic principles to neoliberal principles cannot be narrated as one of mysterious forces having made use of the ‘best’ policies available. For an evidence-driven historian like me, neo-liberalism’s ‘success’ is the outcome of a political process through which identifiable powerful interest groups consolidated the ability to decide on social-economic matters. The module challenges students to investigate this process and recognise the people involved.

We began in 1979 with the right-wing governments of Margaret Thatcher, in the UK, and Ronald Reagan, in the USA, dismantling the post-war social democratic settlement by replacing it with neoliberal political economy. It might be thought that the use of neoliberal policy tools by the right in this period must have meant that the influence of such tools waned under the ‘third way’ of the New Labour governments of 1997-2010. This was very much not the case. Rather, the whole political spectrum has shifted rightward since 1979. Indeed, compared to the smash-and-grab privatisations of the Thatcher and Major governments, the surgical finesse with which, with increased vigour from 1997 onwards, Private Finance Initiatives (PFI) have chopped up public sector organisations in the name of market efficiency (the realities of which are debated), demands macabre admiration. Thatcher could never have dreamed of such a vision of Hayekian liberty.

New Labour went down the road of neoliberalism for two clear reasons. First, there was Peter Mandleson’s oft made and still repeated call for Labour to appeal to middle England. Second, as Tony Blair and his ministers pointed out at the time, thirteen years of government selling – rather than maintaining or upgrading – national assets left Labour in a difficult position. Put simply, a vast amount of money was required for the sake of restoring schools, hospitals and other government-owned infrastructure. PFIs were presented and understood as an effective way of raising these funds.  The need was pressing: many people, like me, who went to School in the North of England in the 1990s will remember at least one year being taught in a porter cabin cum class room or, at the very least, had friends who were. PFIs seemed to offer a solution to all of that.

Thinking about this recent history of PFI-backed privatisation, I reckon two of Tony Blair’s recent pronouncements, outlined below, are both revealing and disturbing.  They bear more than a striking resemblance to the views of Friedrich Hayek, Thatcher’s stated intellectual idol. Published in 1944, Hayek’s The Road to Serfdom argued that political intervention in the market leads to totalitarianism and the loss of individual liberty. For Hayek, ‘liberty’ had a precise meaning – it was to be found wherever an economic system used competition, markets, and prices, rather than good government intentions, as its fundamental building blocks. The state’s role, for Hayek, was simply to liberate markets and administer the rule of law. Liberal nature, as it were, would take care of the rest. So, for example, Hayek defended the dictatorship of General Pinochet, who ‘guaranteed’ liberty via a brutal regime, because it was conducive to US liberal capitalism.

The first revealing/disturbing moment of uncanniness, then: Blair’s belief that economic development in Egypt rests not solely with democracy but with ‘effective government taking effective decisions’ is hardly far from Hayek’s ambivalence on the necessity of democratic government. The second: Blair’s statement that a referendum on EU membership should be withheld because of the potential damage an exit might do to the UK economy. Such prioritisation of the economic above the democratic also has an undeniably neoliberal ring to it.

Hayek argued that we cannot know fully how economies work. We have such imperfect knowledge of markets that we cannot rely on ourselves to intervene in them for the better. It follows, for Hayek, that efficiency is to be gained by leaving markets to themselves.  It also follows that allowing actors to make decisions where they have imperfect knowledge of the economic consequences of their actions should be prevented (and this surely underpins Blair’s comments on an EU referendum).  In other words, Adam Smith’s selfish economic actor should be allowed to operate unimpeded by decisions made for reasons other than those based upon conditions that optimise the successful operation of the market. This is why neoliberalism goes one step further than classical liberalism by arguing that the role of the state is to open up and maintain markets, rather than limiting itself to the provision of the legal framework for the operation of free market capitalism.

Coming back to the shifts in the political economy of the last thirty years or so, it has now become almost impossible to tell where Hayek ends and New Labour beings. The electoral jockeying that takes place over the next few days are worth observing with such historical shifts in mind.