Markets over Morals: Neoliberal Thought Has Always Struggled to Condemn Authoritarianism

In this blog post Dr Chris Grocott, Lecturer in Management and Economic History in ULSB, discusses his research analysing the relationship between neoliberal economic thought and morality.

The recent election of far-right candidate Jair Bolsonaro to the presidency of Brazil provoked a Canadian Broadcasting Corporation journalist to speculate that the new regime’s positive stance on free trade, underpinned by neoliberal economic thinking, could benefit Canadian business.  Commentators on social media reacted with fury at this assessment.  Many felt that it was unacceptable to privilege Bolsonaro’s economic views over his problematic views on race, gender and sexuality as well as his support for the Brazilian dictatorship of 1964-1985.  Yet, in the final piece in a set of three publications I show that we should not be surprised.  Neoliberal ideas have always been underpinned by a problematic relationship with human rights, preferring markets over morals.

The political economy of Friedrich Hayek is central to neoliberal thinking, with his bestselling book The Road to Serfdom being a standard text for those studying the origins of neoliberalism.  Yet in the same year that Hayek wrote The Road to Serfdom, 1944, he undertook some consultancy work for the Government of Gibraltar and the British colonial office, the outcome of which was to recommend displacing Gibraltar’s population into neighbouring Spain, then a dictatorship under General Francisco Franco.

How did a champion of liberty come to the conclusion that such liberty could be best guaranteed under a dictatorship and what was the outcome of his suggestion? It is this question that my work has been exploring.  And there are three broad parts to answering it.  First, I compared Hayek’s work in Gibraltar with The Road to Serfdom, concluding that Hayek privileges markets over political or human rights concerns.  Second, I demonstrated how Hayek’s ideas were rejected because during the war years Keynesian inspired ideas of economic planning became popular in the Colonial Office.  And most recently, in volume thirteen of Robert Leeson’s monumental Hayek: A Collaborative Biography, I explored the unintended consequences of Hayek’s work in Gibraltar.  Let’s have a look at these in order.

Hayek’s central message in The Road to Serfdom was that economic planning leads to totalitarian government.  In Gibraltar, it was the former, rather than the latter, which Hayek worried about.  Many of the conditions which Hayek identified as contributing to the rise of totalitarian government in Germany could also be thought to exist in Gibraltar during the Second World War.  The Colonial Government and the armed services employed roughly fifty per cent of the colony’s population, similar to public sector employment levels under the 1920s Weimar Republic.  And since the beginning of the war, the local economy was heavily planned with wages being effectively set by government and with rents restricted by legislation to one third their 1940 price level.  Whereas the local government saw the answer to the high cost of living as being to force down rents and force up wages, Hayek argued that this encouraged people to remain in Gibraltar, distorting the market and resulting in people staying in more expensive but poorer quality housing rather than relocating across the frontier to cheaper housing in Spain.

Hayek argued that the government should supress wage levels and allow unrestricted growth in rents in Gibraltar to force the working class population into Spain. All of this was consistent with many of the ideas in The Road to Serfdom, yet curiously Gibraltarians would not have been offered the ‘benefits’ of the free market once in Spain.  From 1939-1959, the Spanish economy was highly planned and run by the Spanish state as an autarky.  Hayek curiously failed to come up with a plan for Gibraltar’s economy that was acceptable even by his own standards because by concocting a free market mechanism to deliver people into autarky and dictatorship he privileged free markets too highly on one side of the frontier with Spain, forgetting about conditions on the other.

Despite Hayek’s prestige at the time he worked on his Gibraltar report (he boasted to his wife around this time that he was the most famous economist in the world, eclipsing even Lord Keynes) his ideas were rejected by both the Government of Gibraltar and the Colonial Office in London. In part this was precisely because of the pre-eminence of Keynes, whose ideas on economic planning had been readily accepted by the Colonial Office.  Indeed, the Colonial Office had adopted and taken to heart the principles of planning and welfare that would underpin the post-war British welfare state.  Towards the end of the war, the Colonial Office wrote to colonies outlining the provisions of the Beveridge Report on welfare reform and suggested that governments examine how best they might be implemented in the context of their particular colonies.  Hayek’s small state, free market proposals for Gibraltar were, then, totally out with the ideas that dominated the thinking of the Colonial Office officials who received his report.

In Gibraltar, the controversial nature of a proposal to move the colony’s population into Spain somewhat panicked the colonial government. The Governor, reflecting an imperial world view, felt that it was the duty of the colony’s government to provide for its citizens and that if this meant facilitating emigration then this should be to other British territories.  Gibraltar’s civilian population had largely been evacuated during the war and Gibraltarian political organisations were pressing for the return of evacuees, fearing a riotous reaction to the proposal to move Gibraltarians into Spain, Gibraltar’s Governor supressed Hayek’s report.

It is the suppression of Hayek’s report that features in my latest piece in Leeson’s collaborative biography. A local political group, the Association for the Advancement of Civil Rights (AACR) had met with Hayek who had cryptically promised the AACR that his report would benefit the living conditions of Gibraltarians – without saying what his proposals were.  As a result, the AACR’s leadership leapt to the incorrect conclusion that Hayek had proposed continued relief on rents, perhaps alongside the provision of public housing, and that he had proposed increases in wages to combat the rising cost of living caused by the war.  Protests and demonstrations outside the Governor’s residence underscored their desire to see these supposed policies enacted.  Gibraltar’s colonial authorities were in a bind.  They could not publish Hayek’s proposals to disprove the assumptions which the AACR had come to for fear of an even worse reaction.  In the end, they simply had to acquiesce, beginning a rapid move from Gibraltar being a small state free port to a full system of welfare and economic planning funded through a system similar to PAYE in Britain.

It would be decades before Hayek’s ideas were accepted by government in the United States and in Britain. But in Gibraltar, Hayek’s work had actually unpicked the possibility of his ideas being applied there.  Hayek’s focus on free markets blinded him to the contradictions of his arguments and the moral problems of relocating Gibraltarians into Franco’s Spain.  So, when contemporary neoliberal commentators focus on Bolsonaro’s free trade credentials rather than his stand on dictatorship and human rights, it is worth remembering that this is a position with a long back-story that has its roots in the origins of neoliberal economic thought.