The problem is not neo-liberalism, it is neo-feudalism


Former RBA boss and blood-sucking banker, Bernie Fraser, is having a whinge today:

Neoliberalism has caused “misery and social polarisation” yet remains in vogue with the Coalition government, according to the economist Bernie Fraser.

The former Treasury secretary and Reserve Bank governor has made the comments in a presentation circulated to participants of the Australia Institute’s revenue summit to be held in Canberra on Wednesday.

In the background notes for Fraser’s speech, seen by Guardian Australia, he says that Australia’s 27 consecutive years of economic growth is a “standout”, “Winx-like” performance.

But the record deserves only “qualified applause” because “too many Australians remain unemployed, under-employed, underskilled, underpaid and lack job security”.

Fraser warns that society has become “less fair, less compassionate and more divided” and “more devoid of trust in almost every field of human activity” in the past 20 years.

“As a disinterested player in climate change negotiations and a miserable foreign aid donor, we have slipped well down the list of good global citizens.”

Political ideologies appear to have contributed to inequality and disadvantage in Australia in that time, he argues.

Fraser in large part blames neoliberalism and its influence on policymaking for the “disconnect between Australia’s impressive economic growth story and its failure on so many markers to show progress towards a better, fairer society”.

“Favouring the market system ahead of the state system, and individual interests ahead of community interests, can lead to profoundly unfair social outcomes.

This is true in some respects. Privatisation has gone too far. Individual interests are overly favoured as well in some circles. Taxes are too low for some corporations.

But the problem is not so simple as a swing back to the state. We have already seen a lot of that. Australia’s economy today is basically a centrally-planned housing bubble, supported by policy at every turn.


That is not the fault of neo-liberalism. It is the fault of ad hoc government interventions that have turned the neo-liberal system into a neo-feudal one. We have gotten horribly confused about where the boundaries between government and markets should be and in that confusion oligarchy is thriving.

There are examples everywhere:

  • the GFC bank bailout has delivered the staggering hubris of the royal commission findings;
  • the RSPT debacle has prevented the appropriate taxation of resource rents;
  • the power of the gas cartel has rorted the entire east coast economy and shattered decarbonisation;
  • every sector is over-concentrated and rife with rent-seekers;
  • mass immigration serves a corporate elite while killing living standards for the 99%;
  • public servants now serve with the only goal being to get a fat private sector sinecure.

These are, in part, failures of neo-liberalism. But they are equally the failures of intellectually and morally weak government. Most of all, these failures represent the rise of something new that is neither. Read the AFR day-to-day and you will know what I am talking about. I have variously called it oligarchy, the business “identity state”, it could be called libertarianism or, in reality today, neo-feudalism. It is the rise of a self-sustaining business elite that consciously perverts all policy in its favour, systematically disenchfranshises working classes and youth, sees its own profits as a virtue in of themselves and, most importantly, has no idea what markets are supposed to look like nor how competition should operate.


Perhaps it can be argued that neo-liberalsim inevitably gives rise to such a class as consolidation is the logical end point of unfettered capitalism. But I’m not so sure. These issues have long been discussed within neo-liberalism itself. From The Great Crash of 2008:

An economist with the International Monetary Fund, Fred Hirsch, introduced a subtle treatment of these issues into modern economic literature in the 1970s. In Social Limits to Growth, Hirsch argued that the modern market economy is successful only to the extent that it stands on the shoulders of a pre-capitalist ideology. He was concerned that the growth and maturation of the market economy undermined the moral and ideological foundations upon which it depended. The market economy depends on respect for rules that cannot be enforced by law alone. It depends on the owners of business being permitted to maximise their own wealth and incomes in certain defined ways, and on others in society foregoing the opportunity to take advantage of their own positions to do likewise. Hirsch presented a pessimistic prognosis for capitalism and the market economy that resonated through the Great Crash of 2008. ‘As the foundations weaken’, he concluded, ‘the structure rises ever higher’.

There is a ‘libertarian’ rather than a ‘liberal’ or ‘neoliberal’ view of society that says that individuals can be left to pursue their own interests independently of social constraints. This view is associated with the writings of Ayn Rand, among others. The major figure in public policy who acknowledged the strong influence of such views was Alan Greenspan.

Greenspan said that he believed that the owners of capital—the shareholders of firms—could be relied upon to avoid taking decisions that placed the firms at risk. This view freed regulators from concern about rules or regulations. They needed only to wind themselves back and the market would allocate available capital in the most productive manner possible.

After the Great Crash, in October 2008, Greenspan repudiated this approach in a mea culpa before Congress. ‘Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included,’ he said, ‘are in a state of shocked disbelief’.

Greenspan’s apostasy is the end for the time being of explicit libertarianism close to the levers of power in major countries. It also needs to be the beginning of a new search for a sustainable, productive balance between constraints on and freedom for private maximising behaviour in a modern market economy. The new balance will include tighter and more effective regulation of the financial sector. It will include rigorous regulation or corrective fiscal measures whenever there are large external costs resulting from decisions by private entities that can be corrected at a lower cost than is imposed by the market imperfection itself.

But it will eschew government intervention in markets where this is not justified by clearly identified failures, and by rigorous analysis of the costs of correcting the market distortions. Otherwise there is a risk that the undisciplined expansion of government interventions will increase the use of government power to support private rather than national interests.

We got the response horribly, monstrously wrong.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.