I happened to mention on Twitter that I now use the word “reform” without scare quotes, even when I think the reform in question is a bad one. In fact, that’s my default assumption when I see the word, at least in the context of economic policy. That led me to think about how much fof the 1980s and 1990s microeconomic reform program still stands up. Here’s the result from Threadreader (via @ScooterBodgie)
Having privatised telecomms and (most electricity), government is now building/commissioning broadband network and electricity generation and storage. Competition and choice in human services comprehensively disastrous with for-profit providers (aged care, VET)
PPP model broken ever since GFC (based on UK PFI, which Conservative government tweaked, then dumped altogether)
Outsourcing has been disastrous in many cases, most recently quarantine and contract tracing (again, UK further down this road, moving to insourcing). Outsourcing policy advice a particular problem
Financial deregulation produced GFC, hugely costly financial sector, promised benefits never delivered
Labour market reform has made workers worse off (OK, this probably counts as a success for those who introduced it).
John Quiggin 
Publicly-owned electricity generation is surely rare and not being reversed on a significant scale. Snowy II is a big storage project, but it’s an outlier. Most countries that have adopted the Littlewood split of generation and distribution are reasonably happy with it – the screwups in California and Australia are not typical. Renewables thrive in a competitive generation market. Even Britain’s pointless privatisation of the national grid has not been a disaster, the important thing is the split.
Outsourcing contact tracing. Wow. That one did not come to my mind. Albeit the public sector is not doing it particular intelligent either here – contact tracing is the lowest salary group in the public sector pay scale for a stressful temporary job with very irregular hours, for some teams including irregular cross-country travel it seems. Now they are surprised they don’t get many applications :-). If you ever wanted to side with safety, rather getting overqualified people, that one would have been it.
I was about to say that stripping rights and pay from workers doesn’t seem to have an end. It’s not even ‘when all else fails screw over the workers”, it often seems more like “first, personal enrichment, next screw the workers, then think of something else”.
I found “Why Free Market Ideology is a Double Lie” pretty persuasive – a variant on “the system is what it does” idea, pointing out that ideologies necessarily lie, so the trick is working out what their actual goals are. And with neoliberalism, the goal is concentrating power. Hence people calling it neo-feudalism.
https://evonomics.com/why-free-market-ideology-is-a-double-lie/
More generally, corporations are first class citizens and hominids are very much second class. Kerry Packer was in some ways a clear example: as a person he had a taxable income of $1/year, but as a corporation he employed a pilot for his personal helicopter (and as spare parts).
Quite right, J.Q. You progressively predicted these failures from at least 30 years ago or possibly longer. You are fully vindicated. A further question is “What is left of neoliberal microeconomics and neoliberal macroeconomics?” A big fat zero I would say, in terms of theory. In terms of real costs, neoliberalism has had enormous costs which we now will have to pay steep real prices to rectify all the the extensive damages to our socio-economy. I think we should charge billionaires and multi-millionaires, plus implicated retired politicians and economists, extensive damages and “dilapidations” (an old term from Jane Austen’s time).
What is left of micro-economic reform?
IMHO, what is left is what was forgotten when the reform started. The underlying theoretical model of the program is that of a ‘private ownership economy’ – as much as possible. That is, reducing the role of the government to a minimum. In general, this minimum would be ‘law and order’. I am setting aside for the moment the Australian notion of minimum.
Privatisation, freedom of choice, competition and the profit motive featured in the micro-economic reform program.
As I have pointed out on numerous occasions, the theoretical models of private ownership economies (from Arrow-Debreu onwards), contain a strong assumption on the wealth distribution (to make the promised freedom of choice more than an empty phrase).
All resources and producers (firms) are owned by individuals in the said theoretical models. Competition is defined as price taking behaviour (excludes rent seeking). Profits are distributed to individuals according to their ownership shares (no CEO bonuses and no free share or option issues to the managers).
As has been shown in the recently referenced paper by G&Quiggin (Sept 2020) a small change to the Arrow-Debreu model, namely limited and differential knowledge of the state space (an example of bounded rationality) among market participants (agents) can lead to some agents ‘disappearing’ in the long run (modelled as time approaches infinity), meaning they not only have no choice left but they don’t meet even the survival constraint.
The model of a partially segmented economy with multinational producers (Gross, 1988, PhD awarded in 1989) is also an Arrow-Debreu model with another example of bounded rationality (locational) and one agent type, multinational producers, with a technological advantage in the sense of being able (knowing how to) to produce in more than one local economy and using the local profits to acquire inputs from at least 2 local economies and making available at least one commodity in a third location which the local producers cannot produce (they also carry out all ‘international trade’). The outcome: There are wealth transfers among agents (shareholders) in the various local economies and a technological advantage can persist (I called it ‘unintended exploitation’).
So, the results by G&Quiggin and Gross show that neither price taking nor profit maximisation nor private ownership are sufficient to rely on ‘micro-economic reform’.
The results by Radner in the mid-1970s pointed clearly to competition in the issuing of financial securities in a sequential economy does not result in the same outcome as in the Arrow-Debreu model.
Finally, the late 1980s and early 1990s theoretical results of models with incomplete markets, applied to environmental issues, raises fundamental issues about the reliance on competition and the profit motif for the welfare of humans. The pandemic and the growing evidence of the devastating effects of global warming are surely clear signs that ‘nature trumps’ (no pun intended).
The many empirical observations, supported by studies, by JQ on this blog-site alone are consistent with the insights that can be obtained exactly from the strand of economic theory which does not exclude ‘competitive private ownership economies’ in line one but which introduces, step by step, features of the observable economies.
So, what is left for micro-economic reform is to at least take note of the insights that can be gained from exactly that part of economic theory, which is presumably the theoretical foundation of the program in chronological time. This leads to the formulation of policies which reduce at least one of the following contemporary ‘big’ problems without making any of the others worse [1]:
1. Excessive income and wealth inequality
2. Environmental degradation
3. Financial instability (due to the unconstrained issuing of various types of securities).
[1] Inspired by the notion of a Pareto improvement.
Ernestine,
Excellent and well written post. I agree and I hope you will note that I carefully wrote above that (essentially) : What is left of neoliberal microeconomics and neoliberal macroeconomics = 0.
That is to say, I did not write that there was nothing left of mainstream academic economics. Your previous posts have made me more careful on that score.
The political and power triumph of neoliberal (market fundamentalist) politics stands in stark contrast to the failures of its economics. I’ve posted this link before but it bears posting again.
https://prospect.org/economy/neoliberalism-political-success-economic-failure/
I am time pressed at the moment but will post again on this thread when possible. One can note neoliberalism’s triumph as a triumph of machtpolitik (conceived in both international and inter-class terms). In turn the macht or might applied is of a specific kind, albeit it always backed the state monopoly on violence constructed to defend elite wealth rights over broader human rights. The machtpolitik is driven by and in turn drives Gestaltungsvermögen.
I will unpack this term when I have time. At least I don’t have to translate it for you. 🙂
To continue on my previous post.
Ernestine Gross states:-
“As I have pointed out on numerous occasions, the theoretical models of private ownership economies (from Arrow-Debreu onwards), contain a strong assumption on the wealth distribution (to make the promised freedom of choice more than an empty phrase).”
Ernestine has previously used the phrase “minimum wealth condition” in the context of “theoretical models of private ownership economies (from Arrow-Debreu onwards)”. If I recall and comprehend correctly, Ernestine is essentially saying that a minimum wealth condition “inferring a strong assumption on the wealth distribution” is necessary “to make the promised freedom of choice more than an empty phrase”. That is, there is no freedom of choice in a market economy for a person with no wealth and no income.
Ernestine concludes “… the results by G&Quiggin and Gross show that neither price taking nor profit maximisation nor private ownership are sufficient to rely on (for) ‘micro-economic reform’.”
I agree. I can’t follow the theory mathematically. I can follow some of it in English language explanations. I’ve also been a keen observer of the outcomes of neoliberal reform overseas and In Australia since at least the commencement of the first Howard government. The empirical outcomes bear out the theoretical conclusions of G&Quiggin and Gross, so far as I can see.
I would suggest that the need for a minimum wealth condition does not exhaust the wealth “pre-conditions” necessary to make the market economics model work in a passable equilibrium and equality fashion. There is also a need for a maximum wealth condition. The “capital as power” theorist Ulf Martin writes:
[QUOTE]
1. Power, Gestaltungsvermögen
1.1 From Wealth to Vermögen
In English, of persons who own a variety of assets that have a certain monetary value, one says that they have a certain wealth. In English, it is not clear how wealth as such should relate to power. The situation is different in German: the direct translation of ‘wealth’ is Vermögen, sometimes even Kapitalvermögen. You say, Mr. Gates has a Vermögen of $100 billion. Now, the word Vermögen is also used more generally to denote the ability to do something, the “power to”. Indeed, etymologically Vermögen belongs to the same group as the German Macht, which is the direct translation of ‘power’, especially in political contexts. These words trace their etymology to the Indo-European root magh, which means ‘ability’ or ‘power’, and from which all kinds of related English words, like ‘might’, ‘mechanics’, ‘machine’ and many others, including ‘magician’, derive; there is also the closely related root maĝh, which means ‘fight’ or ‘struggle’ (Köbler 2014).
So in German, the identity of capital and power is already built into the language—and the etymologically English equivalent to Kapitalvermögen would be ‘capital might’. The reader can get a feeling for the meaning of Vermögen by taking an arbitrary report about goings-on in business and replace words like ‘asset’, ‘wealth’ and ‘equity’ with ‘might’. The use of the word Vermögen for financial wealth apparently seems to have started around 1500 (Grimm and Grimm 2019). This was the age of German protocapitalists, most notably Jacob Fugger of Augsburg (b. 1459–d. 1525), whose byname was ‘the Rich’ and who, at the end of his life, controlled much of European silver and copper production, silver being the foundation of the hard money of the age and copper a raw material necessary for making then new weapons of mass destruction, cannons and guns. Fugger and other rich men were able to turn their business success into political influence. For example, Fugger was responsible, i.e. paid for, Charles V to become emperor of the Holy Roman Empire in 1519 (Häberlein 2012; Steinmetz 2016). In an age that was otherwise still feudalist, this new kind of monetized power, Geldvermögen, was reflected in chapbooks, early popular printed story books, notably in the well-known Dr.Faustus, about a magician who seeks power through a pact with the devil, but also in the much less known Fortunatus, which plays out the possibilities its main character has with a purse that contains money each time he opens it (Suchsland 1968).
1.2 Gestaltungsvermögen
So now we have Vermögen, financial wealth or might as well as the “ability to”…. But “to” what? Very generally, we can say that the world changes (over time). Say that at some initial time the world is in some initial state. Without action of a certain person, at some later time the world would be in some later state. Person here denotes an acting entity such as a human being, a group of people or an institution such as a corporation or a state. The trajectory of world states from the initial state to the later state may be called the “course of events”. Assume the person wants the world to be in a different or alternative later state instead. If the person can act in such a way so as to actually achieve that alternative state, we can say that the person has the ability, or Vermögen, or might, or power to do so. We may call the action to alter the course of events Gestaltungstätigkeit, roughly ‘action to create formations’. Gestalt, or “formation” denotes an identifiable state of affairs. In this context, to “form/formation/Gestalten” is to be understood very generally as a genuine act of creation, not just a change of something already existing—this extended meaning may be more natural for the German word ‘Gestaltung’ than for the English ‘formation’.
At this point, I avoid the term ‘creorder’ (creatively reorder) coined by Nitzan and Bichler (2009), partly because I have been unable to find a good translation into German, but also to underline that Gestalten or formations need not be fully ordered; they can also be messy or chaotic—Gestaltungstätigkeit may create disorder as well as order. Since the course of events left on its own tends to a different state than what the acting person wants, that person will normally act against resistance. Gestaltungsvermögen, or power, is the ability to create formations against resistance. This is a very general definition and, when applied to formations in the physical realm, can be translated one-to-one into the physical term power = worker time, work (or energy) being, so to say, the quantification of the amount of what there is to do divided by the time over which the action is necessary.
[END QUOTE]
Martin goes on to talk about the relatively greater power of a person in our system who has greater Kapitalvermögenor or ‘capital might’ to affect (and even effect) a new condition of the world. or of a part thereof, at a future time compared to a person with less (usually much less) Kapitalvermögenor or ‘capital might’.
Colloquially we say this often enough in English as “Money is power”. Since money is power it can be used to create a new order at time t2 such that the ability of money “to make more money” is enhanced. The standard method in a democracy (so-called) is to donate to politicians’ campaigns to get desired legislation passed (legislative capture). Gilens and Page in ” Testing Theories of American Politics:Elites, Interest Groups, and Average Citizens” found that:
“Each of four theoretical traditions in the study of American politics—which can be characterized as theories of Majoritarian Electoral Democracy, Economic-Elite Domination, and two types of interest-group pluralism, Majoritarian Pluralism and Biased Pluralism—offers different predictions about which sets of actors have how much influence over public policy: average citizens;economic elites; and organized interest groups, mass-based or business-oriented.A great deal of empirical research speaks to the policy influence of one or another set of actors, but until recently it has not been possible to test these contrasting theoretical predictions against each other within a single statistical model. We report on an effortto do so, using a unique data set that includes measures of the key variables for 1,779 policy issues.Multivariate analysis indicates that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while average citizens and mass-based interest groups have little or no independent influence. The results provide substantial support for theories of Economic-Elite Domination and for theories of Biased Pluralism, but not for theories of Majoritarian Electoral Democracy or Majoritarian Pluralism.”
Given the power of the elites to push through neoliberalism politically from 1980 to 2020, and the consequent economic, social and environmental problems, we have to conclude that already excessive initial concentrations of wealth were the proximal initiating reason for the further and continued shift to the greater monopolization of wealth and power in a reinforced feed-back loop. This suggests a need also for a maximum wealth condition in the model.
I miss a shout-out to Akerlof, Stiglitz, Shapiro etc and the whole literature on efficiency wages and asymmetric information. The conclusion that since the informational conditions required for a competitive market to reach a Pareto optimum are impossible, real markets all fail to some extent, is not exactly a blinding insight but in the Sybil Fawlty “bleeding obvious” category. Still, Nobel Prizes get economists like Stiglitz an audience. JQ is in good company.
The political mechanisms for correcting market failures are also going to fail too in predictable ways, so real-life political economy is an art of the second best not a science of perfection – again not news to readers of JQ’s books. My modest contribution on democratic failure is an argument that Condorcet circular majorities are not only unavoidable in theory as per Arrow but very likely significant in practice, in collectives that (a) act under a means-ends constraint (b) decide on means and ends separately. http://www.jameswimberley.es/Articles/Arrow%20democracy.html Parties are essential devices for building internally coherent platforms. Debate and policy haggling are not dispensable.