In Conversation: William Davies and Nicholas Gane on Neoliberalism and the Ethos of Competition
In this interview for the TCS Website, William Davies and Nicholas Gane discuss competition, monopoly, markets, neoliberalism and Foucault.
Nicholas Gane: You have a forthcoming book called The Limits of Neoliberalism. Could you tell us what this book is about?
Image: William Davies
William Davies: Initially my interest which led to the book came from when I was working in a policy think-tank – the Institute for Public Policy Research – about nine years ago now. I became very interested in the notion of competitiveness as a concept within public policy discourse because it struck me that nearly any policy could be justified on the basis that it was good for national or urban competitiveness or the competitiveness of communities or regions. One of the things that interested me about that was that clearly it wasn’t simply about opening up the market. It wasn’t simply just about saying that we must have more free trade or deregulation, but that there was a positive aspect of competitiveness. This is what Jamie Peck calls the ‘roll-out’ aspect of neoliberalism, for instance that we should invest in things like broadband infrastructure and other facilities and public spaces which are pro-competitiveness. Clearly this has big implications for universities as well in terms of the knowledge economy and so on. So, in quite a naive, untheorized way, it struck me that something was going on that only much later did I refer to as neoliberalism: that an ethos of competition and competitiveness was an organizing principle and driver for a lot of public policy decision making in ways that weren’t simply about the market in a simpler liberal, classical, Adam Smith sense of the market. That is what led me to do a PhD, which initially looked at discourses of competitiveness. I was particularly interested in notions of competitiveness as developed by the Harvard Business School guru Michael Porter. I then became more interested in how other traditions of economics conceived of competition and competitiveness, such as in the Chicago School, and then how these different concepts fed into policy making apparatuses, regulators and state agencies. This research, much of which has gone into this book, involved me going and meeting experts and economists who advised governments on competition and competitiveness, and then also trying to do more of a genealogical study of where these ideas came from. A crucial moment for me, and many of us who are interested in neoliberalism, was the English publication in 2008 of the Foucault lectures on neoliberalism. This happened just as I was completing my PhD but I had enough time to think hard about the implication of these lectures, particularly what Foucault said about the connection between economics and sovereignty. This really helped to shape my thinking and the focus the book.
NG: For me, this is one of the most interesting aspects of the book. Most people go to Foucault’s biopolitics lectures because they are interested in the ordoliberals or Foucault’s reading of Becker and the Chicago School or more generally in notions of governmentality. But you picked out something slightly different: the question of the sovereignty of markets. Notions of sovereignty have, of course, a long history but haven’t tended to have been thought in relation to neoliberalism. Do you have any thoughts on this question of sovereignty, and how you put this notion to work in the book?
WD: For a long time ideas of governmentality were limited to the ideas of Foucault’s previous year’s lectures from 1977-8, which have been published as Territory, Security, Population. This is what shaped the whole governmentality literature of the 1990s and onwards, which was all about sovereignty dropping out of politics and the rise of techniques of statistical measurement of populations and a very immanentist view of the state as mainly involved in very empiricist, technical interventions. It was almost as if sovereignty in the Hobbesian sense of the state as an immeasurable power had disappeared from the picture altogether. Some of most exaggerated Foucault literature of the time almost implied that the state is just a technical apparatus of power and doesn’t have any sovereign component to it. One of the things in The Birth of Biopolitics and Foucault’s writings on neoliberalism is that they make great play of the fact that this is an attempt to wed the sovereign force of the state to the market. In my book, I look at this in two particular respects empirically that are very inspired by Foucault. I look at the American law and economics traditions, which Foucault doesn’t look at, which is a tradition which really begins with Aaron Director’s arrival at the Chicago Law School in 1946 and then accelerates in the 1960s with Ronald Coase’s arrival. Richard Posner from the 1970s onward becomes the key figure in that movement. This totally transforms how regulation and anti-trust is enacted in both Europe and the United States from the late-1970s onwards. That is very much about an attempt to re-conceive law, in the sovereign sense of law. It is not about classical Foucauldian problems such as madness and discipline. This is very much focussed upon the sovereign state and law and ways of trying to rethink that in economic and rational terms. The second one goes back to what I was saying about competitiveness. It looks at Michael Porter’s notion of national competitiveness. This is very much a case of business strategy, which arises in Harvard Business School in the 1940s, develops through various consultancies and theories of the competitive process from the 1950s to 1970s. But in the 1970s, Michael Porter makes a leap where instead of applying this notion of business strategy to firms in competitive situations, he applies it to national governments in the global economic game. In a sense, what he doing is to try to get political leaders – and he is someone who advises directly politicians, presidents, prime ministers – to think about their leadership in entrepreneurial, strategic terms of how they are going to manage their nation as if it were a corporation in a competitive global environment. It’s a kind of neo-mercantilist vision of the nation with the global economic game, but unlike a mercantilism it is still adamantly free-market and open borders. It’s an idea of how can a state accumulate advantageous forms of cultural, human, social capital such that they will attract various forms of foreign direct investment and enterprising individuals and so on. What interests me about Porter and business strategy, and this also flows through the work of the World Economic Forum and other think-tanks like that, is that they are trying to re-imagine the state, the executive branch of government, and the nation, in ways that are business-like and entrepreneurial. So there is a sense in which sovereignty is being economically re-imagined.
NG: One of the key figures you mention here is Ronald Coase, not just for thinking about questions of law but for thinking also about property and social costs. Coase had never featured very prominently in most accounts of neoliberalism. Could you say a bit more about Coase in terms of his position both in the Chicago School and in neoliberal thought more generally?
WD: I think Coase is absolutely crucial. In his article that you mention – ‘The Problem of Social Cost’, published in 1960 – he completely transforms the way in which the Chicago School and arguably neoliberalism more generally thinks about the competitive process and the problems of regulation and the relationship between the state and private economic actors. There was a key moment, which I mention in the book, where they debated that article at the home of Aaron Director. At the time, everyone in the Chicago School, including Milton Friedman and George Stigler, still believed that governments have some role in trying to create a competitive, liberal market environment, and that governments have some quasi-normative responsibility to intervene to make sure that competitive process occurs vaguely occurs vaguely according to certain liberal precepts such as reducing the excessive dominance of certain powers. The key thing that Coase argues in his paper is when you are doing a cost benefit analysis of a regulatory intervention, it is not just enough to take into account the costs to an injured party, that is the small guy who has been trodden on by a bigger competitor. You also have to take into account the costs to the big guy who is also suffering certain costs when they are regulated. When a monopolist is constrained from manipulating the competitive process you have to take into account the fact that that larger player also has interests and costs and benefits in the game. And you also have to take into account the costs of the regulator making mistakes and the costs involved in the overall legal process of coming to some kind of decision. Once you take into account all those costs it becomes far harder to justify anything at all and you get a more radical form of laissez-faire – a corporate monopolist form of laissez-faire where it becomes viable to argue that for monopolists to expand their power and reach and to marginalise smaller players may actually be an efficient state of affairs once you take into account all the different types of costs involved. In a previous article published in 2010 in Economy and Society, called ‘Economics and the Nonsense of Law’, I argue this in another way. Coase from the 1930s onwards with his papers on the nature of the firm divorces price theory from the price mechanism. What he is doing is applying neoclassical economics to the study of non-market behaviour. This has always been feasible as neoclassical economics has had the capacity to expand its reach beyond the market. But what Coase begins to do is to analyse all forms of behaviour in terms of cost benefit analysis as if people are constantly acting in a price oriented way. Of course, Gary Becker then becomes the famous protagonist for this kind of thinking as well. I think Foucault makes the remark somewhere that what the Chicago School does is to shift attention from the logic of institutions and historical social processes towards the logic of psychology and the logic of calculation: the cost benefit analysis going on in the mind rather than the cost benefit analysis carried out by institutions.
NG: You mention the term monopoly. The question of monopoly has been quite difficult for the neoliberals. If you go back to the early libertarian thinkers of the 20th Century such as von Mises they are quite explicit that the problem of monopoly lies with the problem of state intervention – in other words it is created by the state. Coase raises a different question in his writing on broadcasting: why should we be accepting of public or state monopolies such as the BBC but not private monopolies in a particular market? Do you have any thoughts on the question of monopoly and the problems it potentially poses to neoliberalism?
WD: By and large until the 1950s, neoliberals both in America and in Europe believed that monopoly was a major problem and, especially for the ordoliberals, it disrupted the order of free competitive market society. It was a preoccupation and anti-trust became a key technical weapon for the state. That’s there when you look at how the Treaty of Rome was drafted because if it was important that if Europe was to be a single sovereign space then it also had to have a single anti-trust authority. This demonstrates the influence of the German ordoliberals over the formation of the European community. But what’s interesting about American neoliberalism, which has become far more influential over the last 30 years particularly in competition regulation, is that it argues that the problem of monopoly is exaggerated – that we are paranoid about monopoly but unnecessarily so. What the American neoliberals stress is that the key question is: are there barriers to entry? This argument would be: if you don’t like the fact that Apple dominates the mobile phone and digital music market then don’t go and complain to the government but go and set up another Apple yourself. Who is stopping you? You are in a free society, you’ve got your own human capital, you’ve got the capacity to strike up relationships with technologists, with creditors and so on. That’s the nature of the American neoliberal argument and Foucault talks about how, for the American neoliberals, homo economicus is an entrepreneur of himself. And that really is the key way of thinking that shapes American anti-trust policy – that these barriers to entry are invented, they are illusory as there is nothing to stop someone coming along and challenging these monopolies in the future.
NG: I think the problem with Foucault’s reading of some of these questions is that he sticks with this idea of a homo economicus but Hayek attempts to move away from this notion and in so doing breaks from some of the key principles of neoclassical economics. Mises is more complex as he also critical of the homo economicus but he replaces it with a rationalist theory of catallactics and to some extent he stills see the market as a natural order – this is the overhang of classical liberalism that you can detect in his writings from the 1920s through to the 1940s. But in the work of the ordoliberals, and in Hayek as well, the state takes on a different role as the market and competition are no longer seen to be natural but as things that have to be made. The other interesting thing here, as James Meek has observed in his writings on the power industry, is that while neoliberal discourse constantly states that competition is a good thing it is not always something favoured by big corporations, which often benefit from conditions of monopoly capitalism. Again, if there is to be competition in such a situation, it is to be the product of a form of government that is to work in the interests of the ‘free’ market.
WD: There is, I think, a huge hole in neoliberal thought that concerns the nature of the firm. There are theories of ownership, power and authority, but ultimately it strikes me that, certainly in American neoliberalism and in the neoliberalism that emerged in the 1970s and 80s, there is no understanding of how management might go wrong. Everything is seen in terms of webs of contracts and social exchange. But while there is a tremendous analysis of how states can be misguided or epistemologically limited, there doesn’t seem to be any close engagement of what goes on inside firms other than that firms are there to maximise profits - a key neoliberal claim that can be found in Milton Friedman’s famous article from about 1970. There is agency theory, which is basically the expansion of neoclassical economics into theories of corporate governance such that everything has to be converted into systems of incentives. That is work about the higher echelons of the firm, but what about the vast bulk of the corporation which is doing stuff such as employing tens of thousands of people. Neoliberals seem to have nothing to say about that, and yet when you look at how the financial crisis played out, people say that it was a failure of markets in certain ways but a huge amount of it, and particularly the scandals, wasn’t going on in moments of exchange in markets but was going on in terms of intimate relations between people who were telling lies and pulling scams. The LIBOR scandal was going on among people who were close acquaintances of each other who weren’t actually in relations of exchange at all but were in relations of dialogue. They were saying that I know the number should be this but I’m going to tell you something else and you pass it on to that person. And that’s not really a market. You can treat it like a market because neoliberals treat anything like a market, but it’s not a market in terms of a product or a service being exchanged for money. It’s actually much more dialogic and social than that and that’s were a lot of the financial crisis emanated from. It seems that neoliberals, other than some theory of social capital from people like Gary Becker and James Coleman, don’t have very much to say about what goes on in organizations except at the very top of them in the ways they are accountable to the market.
NG: We have talked a bit about Foucault and his lectures from 1978/9 and how they have been important for you and many others. The timing of these lectures is interesting. It was either incredibly fortuitous or else Foucault saw something that was happening which was about to unfold under the governments of Thatcher and Reagan. A question that was once posed to me Jamie Peck, and which I have been puzzling about ever since, is that Foucault’s lectures were delivered right on the cusp of the roll-out of so-called ‘really existing neoliberalism’, but what do these lectures offer us as a critical set of histories that enable us to understand the neoliberal project in a different way before it unfolded in party politics in the UK and US? In what ways does the timing of these lectures matter?
WD: These lectures clearly offer us the ability to read neoliberalism without the voices in our heads that came from both the Left and the Right during the 1980s and 90s. During this time, as far as the Right were concerned, neoliberalism was all about issues such as responsibility, the family, and being pro-enterprise. In the United States, this ideological conservative rhetoric was about getting back to some Jeffersonian ideal of people not being reliant on the state. The rhetoric had nothing to do with what was in the work of Hayek and others. Meanwhile, the Left, as Philip Mirowski in particular has argued, got a lot of it wrong because they thought it was all about either extreme capitalism or that it was about laissez-faire, free markets and Adam Smith. But the fact that the Right claimed Adam Smith as their icon at this moment in a sensed duped both sides. In this sense, Foucault’s lectures enable us to go back to neoliberalism and wash away all of those voices which confused us both in terms of the Left and the Right. I think that’s what’s really interesting about these lectures: imagine neoliberalism was still a plan rather than a set of policies and histories.
There is also an argument, however, that Mirowski and others have made: that maybe Foucault was quite sympathetic to the neoliberals. This has attracted some controversy. I re-read these lectures recently and I thought about whether there is any evidence for this. Maybe once or twice maybe there is. If you think of where Foucault was in the 1960s and 70s, surrounded in universities by Marxists and a growing league of Bourdieusians and others and in a society that had always placed the state at the absolute centre of its concept of community, society and nationhood, then maybe this vision of these state-phobic exiles may have had some appeal to him. These people who were so committed to liberty that they were going to channel the whole state apparatus behind a particular notion of liberty, and also to go back to what I was saying about sovereignty earlier, the thing about the ordoliberals is that they are not that interested in governmentality in the liberal sense of meddling in micro-behaviours. What they are interested in is in creating a formal sovereign framework within which a process can spontaneously occur. It’s possible that did have a certain normative appeal to Foucault that a liberal, welfarist, socialist vision of governmentality didn’t. But what I think no one got, including Foucault and figures such as Stuart Hall on the Left, was the extent to which neoliberalism meant financialisation. If you go and read Marxism Today from the 1980s, you don’t see the word finance in there anywhere. No one understood that what this what this actually meant was a huge increase in private debt and a massive increase in the power of leverage as a social and political phenomenon in society with all the unequalising effects that had. I think that is the blindspot for the neoliberals themselves, for Foucault, for the Left and the Right.
Note: This interview was conducted at the ‘Neoliberalism, Crisis and the World System’ conference held at the University of York, UK on July 2-3, 2013. We would like to thank Sam Burgum for his help with recording this dialogue.
For those interested in reading more:
William Davies’ ‘When is a market not a market?: 'Exemption', 'Externality' and 'Exception' in the case of European State Aid rules’. Watch the video-abstract below.
Nicholas Gane’s ‘The Emergence of Neoliberalism: Thinking Through and Beyond Michel Foucault’s Lectures on Biopolitics’. Watch the video-abstract below.
Nicholas Gane’s ‘Review Article: Trajectories of Liberalism and Neoliberalism’.
William Davies is Assistant Professor, Centre for Interdisciplinary Methodologies, University of Warwick. His forthcoming book The Limits of Neoliberalism: Authority, Sovereignty and the Logic of Competition will be available in 2014.
Nicholas Gane is Professor of Sociology at the University of Warwick and a member of the TCS Editorial Board. His research interests lie in the fields of social theory and political economy. His publications include Max Weber and Contemporary Capitalism (Palgrave, 2012), New Media: The Key Concepts (with David Beer, Berg, 2008), The Future of Social Theory (Continuum, 2004), and Max Weber and Postmodern Theory (Palgrave, 2002).
