Neoliberalism revisited

Introduction Chapter 5 discussed the ‘institutional’ evolution of neoliberal models for transition that centres on the promotion of market supporting institutions and the rule of law. As Chapter 4 had suggested earlier, the experience of Russian reforms between 1991 and 1998 led to arguments suggesting a revision of ‘instant capitalism’, but not an outright rejection of its methodology and aims. Chapter 5 reinforced this finding by concluding that institutional reforms as defined and pursued by institutional economists and international institutions do not represent a rejection of shock therapy but are still routed in a neoliberal mindset that motivated the original Russian reforms. This chapter draws on the radical critique of neoliberalism (rejection of instant capitalism) identified in Chapter 4 and assesses second stage reforms in that light. It shows that institutional additions to the instant capitalism model make neoliberalism lose its theoretical coherence. Neoliberalism on its modern ‘institutional’ incarnation therefore is neither a doctrine sufficient for transition, nor a good guide for international development. This chapter consequently concludes this work by deconstructing the justification, methodology and practice of neoliberalism. Discussion focuses especially on the relationship of the state to the market in the second stage of reform and examines the extent to which institutional and rule of law additions to the model of ‘instant capitalism’ have undermined the theoretical bases of neoliberalism as a development doctrine. By revisiting the neoliberal thesis on the autonomy of the economic sphere, the rationality of the market, the role of the state in the economy and the role depoliticisation has to play in promoting legitimacy for institutions, this chapter reinforces the finding that legal reform projects in Russia still retain the core ideology of instant capitalism. This chapter suggests that the emergence of a ‘Post Washington Consensus’ in the last ten years that shares the essential methodology and theoretical basis of the original Washington Consensus is likely to ensure the continuation of the ‘instant capitalism’ reform project and to offer no escape from the serious legitimacy problems that it created. This has very serious consequences for the future of reforms in Russia, not least because the role of law envisaged by the Post Washington Consensus and the abandonment of the

regulatory role of the state in favour of allegedly independent apolitical institutions threatens the creation of a liberal democracy in Russia and beyond. The preservation of a neoliberal mindset in second generation reforms leads to a mistaken assumption that development will flow from market reforms implemented during transition. This book, however, demonstrates, similarly to the work of economist Ha-Joon Chang, that ‘transition type’ reforms are not enough for development (Glinavos 2007). The realisation that instant capitalism is not enough to guide post communist states through transition to liberal democracy has created a theoretical vacuum. How is it possible to argue for significant law making activity assumed by institutional reforms and for extensive regulation required by efforts to promote the rule of law without abandoning the idea of minimal state intervention? Further, how is it possible to empower the state in this way without risking a return to the era of governments controlling the economy? The solution presented by the neoliberal consensus on development – presented as a Post Washington Consensus – is to entrust the regulatory functions of government and the promotion of the rule of law to independent institutions, free from political influence and control. This means that the explosion of law and regulation that has underpinned the expansion of the role of the judiciary, new police functions, antitrust regulation, stock market supervision, monetary policy, business coordination and efforts to promote good corporate governance, is promulgated and administered not by the state but by independent judicial institutions, independent enforcement mechanisms, autonomous central banks, competition authorities appointed outside ministerial structures, self-regulatory mechanisms, corporate bodies and international institutions. In this way the theory born of the Washington Consensus of a free market safe from political interference is maintained while all the necessary detail is filled in without upsetting neoliberalism’s theoretical structure. In other words, the neoliberal mindset survives the reintroduction of regulation in the economy because more and more non-state institutions are being employed in regulatory roles. This work sees regulation as the product of legislative action focused on enforcement, as binding sets of rules that constrict behaviour backed by sanction of enforcement by courts. This type of regulation is in many respects the opposite of what the business community wants, which usually takes the form of guidelines and legislation facilitating standard creation by the market itself (Glinavos 2009). Only ‘state’ regulation it is argued is inconsistent with the thrust of the neoliberal transition project. This argument is reinforced by the responses of governments worldwide to the ‘credit crunch’ and recessions of 2007-2009. While on the level of rhetoric, a greater acceptance of regulation has emerged; in practice the state is still not considered the optimum originator of such regulation. The practices of ‘applied’ neoliberalism described previously raise some grave questions regarding the role of law in modern capitalism, the nature of international development and the future of democratic political processes. An ‘enhanced’ role for the state and greater regulation raise the need for an investigation into the very nature of the state. One of the difficulties associated with

transition in Eastern Europe and elsewhere that has been highlighted, is the sheer extent of regulation (whether conducted by the state by quasi-state or private agencies) required by markets. If in the new century a free market is in need of extensive regulatory support and this support is provided either directly by the state, or is organised by the state even though carried out by other (quasi-state or private) agencies, the nature of the state and its democratic credentials need to be reassessed. In other words, as the post communist transition experience and this study of the transition debate in Russia highlight: if the market is not the result of a natural process based on a minimal legal framework but the result of a combination of state sponsored or state created institutions, we need to enquire into the character of the state that creates those institutions. It is argued here that a democratic state with a popular mandate can be trusted to legislate to the benefit of its people and assist in the creation of a market that benefits all. However, a state with institutions constructed on the basis of the advice of external advisers and foreign agencies is quite likely to be perceived as lacking legitimacy – it needs somehow to be legitimated. Additionally, the enhanced role given to regulation – regulation that often bypasses the state – and the resulting explosion of legal (and quasi-legal) rule making coming from independent institutions has further exacerbated legitimacy problems being experienced by the Russian state. The result of the distrust of politics and democratic processes that lies at the heart of the Washington Consensus (and its slightly modified successor) has led to the functions of the state being subcontracted out to various allegedly ‘independent’, ‘apolitical’ institutions. It cannot be automatically assumed, however, that self-regulation and independence ensure accountability and serve the public interest; and there is a great need for explaining the distancing of economic management from the democratic process. If the running of the economy is a scientific matter best done by technocrats, independent central banks and independent judiciaries, in what ways (if any) can the public participate in the process? Indeed, why is there a need for a democratic state at all, if governing the economy does not need to be consonant with the popular will? This chapter suggests that there is a danger that the neoliberal mindset of ‘instant capitalism’, even when institutional/rule of law revisions are added, is a recipe for creating free markets but not for creating democracies.1 Chapter 6 begins by revisiting the main characteristics of neoliberal ideas that formed the core of Russian reforms. It traces the neoliberal mindset by revisiting the need for depoliticisation, critiquing neoliberal perceptions as to the legitimacy of market institutions and assessing the aims of second generation reforms. On the basis of this presentation, the chapter proceeds to deconstruct the thesis for institutional and rule of law reforms by showing how a continued insistence on limited state competence undermines efforts at erecting effective market supporting institutions. This is achieved through highlighting the differences between the neoliberal project for transition and requirements for the promotion of development (economic and political) beyond transition in Russia. A discussion takes place therefore on the limitations of an ‘economic’ interpretation of

historical development, on the difference between transition and development, and on the role of the state in these processes. The chapter concludes by evaluating the future of Russian reforms under a ‘Post Washington Consensus’ in a post ‘credit crunch’ world and examines the extent to which the current promotion of ‘independent’ institutions – of market regulation without the state – is likely to block political and institutional progress.