Since the foundering of the Keynesian consensus in the mid-1970s, the subsequent ‘neoliberal turn’ has seen governments worldwide make repeated attempts to deregulate markets, seemingly with little success. Indeed, strictly quantitatively speaking, there is far greater regulation worldwide now than at the beginning of the project. There are, of course, myriad forces behind this, and it is beyond the scope of this blog post to address them all. After first providing a brief explanation of how and why the neoliberal turn came about, this post’s primary focus is on the ramifications of the factor from which its title is derived; that is, the law of the tendency of the rate of profit to fall. More specifically, it focuses on the regulatory responses generated in reaction to this inexorable tendency of capitalism to undermine itself.
Those living in Western countries in the decades immediately following the Second World War could be forgiven for thinking that the countercyclical quasi-socialist prescriptions of John Maynard Keynes (1964) had put an end to economic crises once and for all. Certainly, until the mid-1970s, better working conditions and ever-higher wages likely appeared to workers to be nothing more than the natural outcome of their collective bargaining; or, when that proved ineffective, strikes. To employers, however, the full-employment regime that had at first seemed like an ingenious way to shore up demand during a downturn had by the late 1960s revealed itself to be ruinous (Streeck 2014, pp. 25–6). As predicted by Michał Kalecki (1943), the maintenance of such a full-employment program ultimately eliminated workers’ fear of ‘the sack’, thereby removing employers’ only disciplinary measure to prevent rising wages from eating away their profits (p. 326). In 1971, unable to generate profits domestically, the United States abandoned the gold standard to enable it to recycle the world’s surpluses (Varoufakis 2015, ch.4). Needless to say, this demanded an enormous amount of new monetary regulation and administration. The rest of the decade saw prices and interest rates rise, profits fall, and workers laid off faster than jobs could be created; that is, stagflation.
Meanwhile, a new consensus had been emerging among austerity-minded economists to challenge the Keynesian paradigm. With growing hostility toward the perceived failures of Keynesianism having been aggravated by two major oil-price shocks in 1973 and 1979, the ‘golden age’ of Keynesian social democracy came to an end. As Farrell and Quiggin (2011) have argued, the problem with Keynesianism was not the economics, it was that it could never be separated from the politics. Unlike employees, politicians still feared retrenchment. Therefore, increasingly, policymakers ignored Keynes’ explicit advice about accumulating surpluses during boom years, and instead carried on with voter-pleasing spending, irrespective of economic performance (p. 100). Faced with the possibility of electoral defeat by any opposition party promising to continue spending, governments’ ability to regulate their own expenditure had effectively been undermined by the democratic process.
The new British Prime Minister Margaret Thatcher, inspired by the ‘neoliberal’ thought collective of the Mont Pèlerin Society—most notably, the Austrian School’s F. A. Hayek and Ludwig von Mises, and the Chicago School’s Milton Friedman—launched a project of privatisation, tax cuts, reduced welfare spending, union-busting and market deregulation. Ronald Reagan, upon his election to the US Presidency the following year, followed suit (Harvey 2005, pp. 58–62; Van Horn & Mirowski 2009, p. 140). Despite the label—which most of its proponents had anyway rejected early on—there was little that was ‘neo-’ about this economic philosophy. Like David Hume and Adam Smith before them, these neoliberals saw personal frugality and parsimony as the engine of capitalist growth, and all government debt as bad (Blyth 2013, ch. 4). All economics, in other words, was microeconomics. What was new, however, was the idea that, contra classical economists like Smith and John Stuart Mill, there was ‘no such thing as a free lunch’; which is to say, all income is earned, even that which is inherited or derived from rents (Hudson 2015, p. xiv).
This ‘supply-side’ approach sees wealth not as something to be redistributed to guarantee demand for goods and services, but as something created by private enterprise and entrepreneurial initiative, which inevitably ‘trickles down’ to workers via jobs created by the ‘self-made’ titans of industry. Employee and consumer protections are to be provided by the state only insofar as it guarantees ‘the competitive order’ between firms. In this view, the government must only be permitted to facilitate the ‘invisible hand’ of the market, never to guide it. Indeed, any attempt to do so would invariably lead to totalitarianism (Hayek 1944; Friedman 1951).
The total deregulation of the market envisioned by these neoliberal idealists was, however, always a utopian fiction. As Karl Polanyi ( 2001) emphasised, the notion of ‘the economy’ as an independent and equilibrating system of integrated markets, ‘disembedded’ from society and nature, is something that cannot exist (pp. 60, 70). Even the laissez-faire system of the nineteenth century ‘was planned’; although, the necessary subsequent ‘planning was not’ (p. 141). The ‘embeddedness’ of the economy means that it can never be autonomous; rather, it is always subordinated to politics and social relations (Block 2001, pp. xxiii–iv). Any enthusiasm for the ‘freedom’ of deregulation in the good times is invariably countered by a call for regulatory protection against the excesses of capitalism in the bad. This ‘double movement’, according to Polanyi, is the motor of institutional change (Blyth 2002, ch. 1). Further, capitalism’s inclination toward monopoly and the tendency of the rate of profit to fall means that regulation is required if capitalism is to be prevented from undermining its sine qua non: the endless accumulation of capital (Ortleib 2008, p. 107).
Even before the elections of Thatcher and Reagan, the early neoliberal experiments conducted by Friedman’s ‘Chicago boys’ in Latin America had seen one-off spikes in gross domestic product figures caused by privatisation fire-sales, immediately followed by reregulation of the newly deregulated markets as soon as growth started to go backwards. But, as with any paradigm, ‘conceptual stretching’ meant that neoliberalism simply adapted to such disconfirming evidence (Kuhn  2012, p. 44). Arguably, the chief reason the International Monetary Fund (IMF) was ever allowed to implement these ‘structural adjustment’ programs in the first place was that, with the collapse of Bretton Woods and the end of gold convertibility in 1971, the IMF no longer had a function: there was literally no reason for this massive regulatory body to continue existing (Blyth 2013, ch. 5). Rather than disband, however, the IMF began engaging in ‘mission creep’ and the neoliberal program was zealously exported to less-developed countries around the world under the banner of the ‘Washington Consensus’ (Braithwaite 2008, p. 6; Babb 2012, pp. 269–74). Naturally, these huge restructuring programs, which made loans conditional on privatisation and deregulation, required their own regulation, and debtor countries soon required reregulation after the initial deregulation inevitably failed, thus creating the IMF’s new raison d’être. Aided by an ever-expanding policy checklist for ‘good governance’ produced by its sister organisation the World Bank—by 2002, the list contained 116 items—the Fund had essentially created its own perpetual-regulation machine (World Bank 2002; Sundaram & Chowdhury 2016).
The trend was hardly unique to the IMF. As Vogel observed in 1996 (p. 3):
… what we have witnessed has been reregulation, not deregulation. That is, the governments of the advanced industrial countries have reorganised their control of private sector behaviour, but not substantially reduced the level of regulation.
But, as should already be clear, the tendency of the quantity of regulation to rise, does not necessarily mean that the quality of regulation increases, nor even that it is qualitatively the same thing. To speak of ‘regulation’ in the abstract obscures the fact that there are many incommensurable types of regulation. As Caffagi and Renda (2012) point out, the continued faith in market-generated outcomes among policymakers means that the majority of guidance documents ‘award priority to self- or co-regulatory solutions before starting to consider more intrusive policy approaches’ (p.1). Only when a crisis or scandal occurs is a more restrictive form of regulation usually employed, after the fact; and even then, is typically relaxed over time (Braithwaite 2008, p. 32). The very nature of much of the regulatory policy that has emerged since the neoliberal turn is fundamentally different to that which existed during the Keynesian era. Whereas the latter was chiefly aimed at tempering the brutality of markets—a compromise solution governments proposed and businesses reluctantly accepted following the Great Depression, to appease an angry public and stem the tide of communism—much of the former has been aimed at expediting the movement of capital from those who have the least to those who already have the most (Wolff 2012, p. 23).
In the ‘idealist view of neoliberalism’, this should be of no concern, because the diminishing marginal utility of that surplus value means that the capitalist will inevitably reinvest it to create more jobs and boost productivity. In ‘actually existing neoliberalism’, wealth inequality is back at levels not seen since the 1920s, the trend is accelerating, and governments are too scared to regulate lest ‘regime shopping’ transnational corporations decide to take their business elsewhere (Crouch 2013, p. 221). The idealist view of neoliberalism, which vehemently opposes all regulation for its distortionary effects on the infallible market, today bears virtually no relationship to actually existing neoliberalism, which in practice has come to wholly embrace any and all regulation that can save it from itself. Still, the libertarian rhetoric and junk mathematical models of the former continue to be used by politicians, economists, advocacy groups, think tanks, educational institutions, the corporate media, and so on, to justify the latter (Parsons 1989). Four decades on, it has truly become ‘socially embedded neoliberalism’ (Cahill 2014, pp. 1–30). Indeed, Lady Thatcher’s claim that ‘there is no alternative’ seems somehow truer now—and in a more sinister way—than it was in the 1970s. And all the while, the quantity of regulation continues to rise apace.
 The reader should note that, despite the wording here, no strictly Marxian interpretation of the tendency of the rate of profit to fall is implied.
Babb, S 2012, ‘The Washington Consensus as Transnational Policy Paradigm: Its Origins, Trajectory and Likely Successor’, Review of International Political Economy, Vol. 20, No. 2, pp. 268–97.
Blyth, M 2002, Great Transformations: Economic Ideas and Institutional Change in the Twentieth Century, e-book, Cambridge University Press, New York.
———2013, Austerity: The History of a Dangerous Idea, e-book, Oxford University Press,
Block, F 2001, Introduction, in K Polanyi, The Great Transformation, Beacon Press, Boston, MA.
Braithwaite, J 2008, Regulatory Capitalism: How It Works, Ideas for Making It Work Better, Edward Elgar, Cheltenham, UK.
Cafaggi, F & Renda, A 2012, Public and Private Regulation: Mapping the Labyrinth, Working Paper No. 370, October 2012, Centre for European Policy Studies.
Cahill, D 2014, The End of Laissez-Faire? On the Durability of Embedded Neoliberalism, Edward Elgar, Cheltenham, UK.
Chester, L 2013, ‘The Failure of Market Fundamentalism: How Electricity Sector Restructuring is Threatening the Economic and Social Fabric’, Review of Radical Political Economics, Vol. 45, No. 3, pp. 315–22.
Crouch, C 2013, ‘From Markets vs States to Corporations vs Civil Society’, in A Schäfer & W Streeck (eds.), Politics in the Age of Austerity, Polity Press, Cambridge, UK, pp. 219–38.
Farrell, H & Quiggin, J 2011, ‘How to Save the Euro—and the EU: Reading Keynes in Brussels’, Foreign Affairs, Vol. 90, No. 3, pp. 96–103.
Friedman, M 1951, ‘Neo-Liberalism and its Prospects’, Farmand, 17 February, pp. 89–93.
Harvey, D 2005, A Brief History of Neoliberalism, Oxford University Press, Oxford, UK.
Hayek, FA 1944, The Road to Serfdom, Dymocks Book Arcade, Sydney.
Kalecki, M 1943, ‘Political Aspects of Full Employment’, Political Quarterly, 14 April, pp. 322–31.
Keynes, JM 1964, The General Theory of Employment, Interest and Money, Macmillan, London.
Kuhn, TS 2012, The Structure of Scientific Revolutions, 4th Edition, University of Chicago Press, Chicago, IL.
Ortleib, CP 2008, ‘A Contradiction Between Matter and Form: On the Significance of the Production of Surplus Value in the Dynamic of Terminal Crisis’, in N Larsen, M Nilges, J Robinson & N Brown (eds.), Marxism and the Critique of Value, MCM’ Publishing, Chicago, IL, pp. 77–121.
Parsons, DW 1989, The Power of the Financial Press, Edward Elgar, London.
Polanyi, K 2001, The Great Transformation: The Political and Economic Origins of Our Time, Beacon Press, Boston, MA.
Streeck, W 2014, Buying Time: The Delayed Crisis of Democratic Capitalism, trans. P Camiller, Verso, London.
Sundaram, JK & Chowdhury, A 2016, ‘Ignore Standard Good Governance Prescriptions to Accelerate Development’, Global Issues, 31 March, viewed 8 May 2017, http://www.globalissues.org/news/2016/03/31/21968
Van Horn, R & Mirowski, P 2009, ‘The Rise of the Chicago School of Economics and the Birth of Neoliberalism’, in P Mirowski & D Plehwe (eds.), The Road from Mont Pèlerin: The Making of the Neoliberal Thought Collective, Harvard University Press, Cambridge, MA, pp. 139–79.
Varoufakis, Y 2015, The Global Minotaur: America, Europe and the Future of the Global Economy, e-book, Zed Books, London.
Vogel, D 1996, Freer Markets, More Rules: Regulatory Reform in Advanced Industrial Countries, Cornell University Press, Ithaca, NY.
Wolff, R 2012, Democracy at Work: A Cure for Capitalism, Haymarket Books, Chicago, IL.
World Bank 2002, World Development Report 2002: Building Institutions for Markets, Oxford University Press, New York.