The right to capital flight: ‘Globalists’ by Quinn Slobodian

“Against Roosevelt’s Four Freedoms — of speech, of worship, from fear, from want — neoliberals posed the four freedoms of capital, goods, services, and labor.”

Obverse & Reverse: Laureate head of Francis Joseph; Rotunde at the Vienna World’s Fair. © The Trustees of the British Museum
WTO protesters, Courtesy of the Seattle Municipal Archives. Identifier number: 175645

The empire in Quinn Slobodian’s ‘Globalists: The End of Empire and the Birth of Neoliberalism’ is the almost forgotten but tremendously consequential Austro-Hungarian Empire. Ruled over by the House of Habsburg, the ‘Dual Monarchy’ was the great power in Central Europe between 1867 and 1918. Geographically it was the second-largest territory, and ethnically and religiously it was extremely diverse. The Empire’s official languages were German, Hungarian, and Croatian-Slavonian, but it also ruled over Bosnian, Czech, Romani, Romanian, Rusyn, Ruthenian, Serbian, Slovak, Slovene, and Yiddish speakers.

For many years before its defeat and dissolution, the Austro-Hungarian Empire was a declining anachronism in an era of rising nationalism and democratic political demands. The empire’s ethnicities and religions were notionally united by their loyalty to a Royal House rather than a nation — a House represented in its latter days by the Emperor Franz Joseph I. The inner weaknesses of the Empire were amply demonstrated by its defeats and subordination to German War Plans during the First World War. It collapsed in 1918 after the Western allies, particularly US President Woodrow Wilson, declared that Austria-Hungary would not survive in the new era of national self-determination in Europe.

Slobodian argues that one of Austria-Hungary’s surprising legacies has been neoliberalism. While many associate that term with a set of economic beliefs about virtues of free-market capitalism, Slobodian argues that it is better seen as a ‘project of politics and law’ emerging from Central Europe in the wake of the empire’s collapse. He proposes that

“the neoliberal project focused on designing institutions — not to liberate markets but to encase them, to inoculate capitalism against the threat of democracy, to create a framework to contain often-irrational human behavior, and to reorder the world after empire as a space of competing states in which borders fulfill a necessary function.”

The end of the Austro-Hungarian Empire was a formative experience for neoliberal thinkers such as Ludwig von Mises, Friedrich Hayek, and Wilhelm Röpke. Contrary to what you might expect from the Empire’s pre Great War ambivalent liberal reputation, the neoliberals looked back with nostalgia at the structure of the Hapsburg state. The idea of a cosmopolitan hodgepodge of different peoples, politically governed by a central authority, which maintained a single large-scale economic market for all, was for them an ideal situation that should be recreated at a global level. Hence Slobodian’s title ‘Globalists’, because for the neoliberals ‘[t]he search was on for models of governance, at scales from the local to the global, that would best encase and protect the space of the world economy.’

The term ‘neoliberalism’ was coined in 1938 to convey a sense of ‘renovating liberalism’, by learning the lessons of the collapse of Empire into nationalisms at the end of the War, and to resist the threat of Bolshevism after 1917. These twin dangers had been unleashed by the older liberalism’s opening the door to democratic demands that destabilised the order of capitalism. The economist and professional business advocate Ludwig von Mises was pleased when an anti-fascist uprising in Vienna was violently suppressed, and notoriously praised fascism in 1927 for having ‘for the moment, saved European civilization.’ Slobodian also retells the forgotten story of the active advocacy for apartheid South Africa and Rhodesia carried out by the members of the neoliberalist Mont Pèlerin Society. Throughout the 1960s Wilhelm Röpke defended them as the last bastions of white civilization in the developing world. And even those neoliberals who were critical of apartheid, such as William H Hutt, argued that majority rule in South Africa should still be resisted by adopting a voting system weighted by the proportion of taxes paid. In the 1970s Friedrich Hayek visited Chile under the right wing military dictator Augusto Pinochet, and remarked that he would ‘prefer a liberal dictator to a democratic government lacking liberalism’ (though he hoped the dictatorship would be ‘temporary’). Von Mises had summed up this view of history in 1922 when he wrote that ‘Our whole civilisation rests on the fact that men have always succeeded in beating off the attack of the re-distributors’.

Neoliberal nostalgia for the Austria-Hungarian Empire should not be confused with a support for the ‘imperial form’ generally. The other great issue that renovated liberalism set out to confront was the Great Depression, to which many European powers responded by turning their own Empires across Africa and Asia into preferential trade zones. From the neoliberal point of view such steps made the contraction in global trade — starting from the conflict of the Great War, and now accelerated by the Great Depression — even worse. Some of these ‘Imperial Preference’ plans persisted into the post World War II interregnum period during which European powers understood that their old Empires were unsustainable, but they were not quite prepared to give them up yet. The Commonwealth of Nations centred on the UK is an echo of this period, and the French for a while promoted an idea of ‘Eurafrica’ as a common trading zone. The neoliberals were horrified, believing that such multinational trading blocs would simply replicate the fatal protectionism of the 1920s and 1930s on a far greater scale. One of Slobodian’s great contributions to scholarship in ‘Globalists’ is to set out the hidden history of neoliberalism’s desire to set up global constitutions to create rules based trading orders for the entire world — one of those legacies being the current World Trade Organisation (WTO). In the 1930s their concerns often overlapped with visions such as those of the socialist HG Wells for a ‘World-State’, or the liberal Keynesians who influenced the post war ‘Bretton Woods’ system of global monetary arrangements. However from the neoliberal’s perspective what the global economy needed was a constitution — one that would protect rights to trade, investment, and property from the arbitrary expropriation by states, particularly the new states of the Global South. Slobodian observes that this rights based approach to economic activity arose at the same time as ‘human rights’ emerged as a distinct political discourse. At a very basic level, the neoliberals wanted to safeguard a human right to ‘capital flight’ whenever people felt their wealth was threatened by a government. In keeping with his general approach in ‘Globalists’ of trying to present the neoliberal’s own point of view fairly, Slobodian points out that the right to capital flight should not be seen as simply a capitalist’s right to move money internationally. For example, in the 1930s Jewish people’s ability to flee Hitler could be seriously hampered by rules preventing the easy transfer of savings across state borders — condemning people to penury when they became refugees. So a rules based system of financial flows was by no means just about protecting investments and profits, it was also about personal freedom.

Hayek and von Mises blamed the Great Depression on a combination of loose monetary policy, over-investment in production, and the refusal of organised labour to allow wages and other costs to fall in response to the massive contractions in global trade. Prior to joining the neoliberal project on governance, Hayek and von Mises were part of the ‘Austrian School’ of economics. They specifically focussed on researching business cycles — the pattern by which economic crises regularly occur. At first business cycle research was what we would now call ‘data-driven’. Researchers pioneered ways to represent declines in global trade flows by way of circular graphs that eventually became the famous ‘Kindelburger spiral’. This chart depicted the dramatic world trade contraction between 1929 and 1933 — with its implication of capitalism approaching a vanishing point.

Reproduced from J Bradford DeLong and Barry J. Eichengreen: New preface to Charles Kindleberger, The World in Depression 1929–1939

However, having done the research, the Austrians came to the unexpected conclusion that what they were researching was fundamentally unknowable. The idea that with a sufficient amount of information that you could manage economic outcomes was, they concluded, an illusion. ‘Knowledge’ in that sense, was misleading, particularly for economic planners. It gave them an erroneous and potentially disastrous belief that they might control economic outcomes.

Slobodian doesn’t spend a lot of time on the famous socialist calculation debate of the 1920s, however some of its themes are instructive for understanding how Austrian views of the economy subsequently developed. It was conducted partially between Hayek and von Mises, and socialist economists such as Oskar R. Lange, and concerned the feasibility of economic planning in the absence of market prices and private property. To crudely summarise one aspect of these debates, earlier ‘classical’ economists (e.g. Adam Smith, and David Ricardo) made assumptions about human economic behaviour that assumed rational self interest and utility (satisfaction) maximising behaviours in production, consumption, and investment. The ‘rationality principle’ is useful when you need to make broad assumptions about economic activity (e.g. how prices respond to demand). Even Marx made use of it for analysing questions such as the falling rate of profit.

It is often a (mistaken) criticism of neoliberals that they make these same assumptions about rational self interest: that we are all Homo economicus (economic man — who would be a sociopath in real life). However Hayek especially noted that advocates of economic planning could easily use the rationality principle to make the case for a planned, socialist economy. Because if the planners know that everybody is going to be a rational, self interest maximiser, then they just have to plan on that basis. Thus a planned economy, based on classical economic principles, would be entirely possible.

Hayek and other Austrians decided that the fundamental flaw in the worldview of both socialist and anti-socialist economists was the belief that you could ‘know’ the millions of decisions individuals made across the economy, and society, which produce the world we live in everyday. People might make decisions on self interested grounds, but also on altruistic grounds, family grounds, religious grounds, etc. You just don’t know, and as a policy maker, you would be wrong to believe you ever could know. This is a rejection of the Homo Economicus idea. So having pioneered much economic research on business cycles, the Austrians — Hayek especially — subsequently decided that the key to a well functioning economy was not research, but rules. They became pre-occupied with laws and constitutions that would allow markets and trade to operate on a global scale. The aim was not to prevent economic crises, they were inevitable given the unknowability of the sum of economic decisions. The key to recovery from crises however, was adherence to the rules of the global economy. So the fight was against tariff protection, socialist interventions by nation states, and attempts by trade unions to maintain wages and conditions during slumps. These were all violations of the global constitution of capitalism.

Slobodian sets up his argument as a counter to that of Karl Polanyi, whose influential 1944 book ‘The Great Transformation’ posits an opposition between a utopian idea of self-regulating markets, and the self protection measures taken against markets by states. Polanyi’s ideas are often adopted by 21st century critics of neoliberalism — however Slobodian reminds us that Polanyi himself was actually writing about the 19th century, and he was a contemporary of Hayek and von Mises, not a subsequent critic. Polanyi believed that free markets become ‘disembedded’ from social institutions, and the challenge after the Great Depression was to find ways to re-embed the economy in society. Slobodian argues that the neoliberals actually had the same criticism — and in some ways the same solution. Hayek’s institutional turn was also about embedding the free market economy in society. However while Polanyi advocated democratic, co-operative socialism, the neoliberals wanted institutions that protected capitalism from the predations of democracy — von Mises’s ‘re-distributors’.

Slobodian makes a powerful case against a simplistic use of Polanyi’s ideas — particularly the idea of a disembedded free market. However I don’t think he fundamentally disproves the notion that the neoliberals have a utopian view of how the capitalist economy works once the correct global institutions are in place. Responses to ‘Globalists’ from the Ludwig von Mises Institute, and other ‘Austrians’ have oscillated between praise for Slobodian for taking neoliberal ideas seriously (he knows who Röpke is!) and criticism for not engaging with their fundamental ideas (e.g. ‘take seriously’ arguments for the free market). Slobodian is a critic of neoliberalism and the type of ‘globalisation’ it advocates. In his acknowledgements he expresses regret for not having made the trip to Seattle in 1999 to protest the WTO. However it is fair to say that ‘Globalists’ is mostly a history of the neoliberals, rather than a detailed critique of their ideas.

The basic criticism of neoliberalism that can be drawn from the book lies ironically in Slobodian’s acceptance of the notion that ‘freedom’ for capital must trump ‘democracy’ in order for capitalism to work properly. Slobodian and the Austrians also agree that capitalism cannot achieve an equilibrium state outside its theoretical models (supply and demand meet, all resources are fully employed, etc). Therefore capitalism must be able to adjust to ‘disequilibrium’ crisis situations (real life) in its own way. However capitalism can only do this on the backs of the poor and the working classes — as demonstrated by the neoliberal’s critique of organised labour: unions not allowing the price of labour to fall sufficiently for capital markets. The neoliberals also recognise that free markets are not ‘natural’, which is why they must be protected by institutions which establish a global order insulated from democratic demands. This outlook is reflected in the alternative names Slobodian provides for the neoliberalism: Ordoliberalism (one they favoured themselves), and ultimately Ordoglobalism. Adjustments to protect and maintain the global capitalist order from inevitable crises of the business cycle must be paid for by workers — this is a feature not a bug. So capitalism can ‘work’, but it cannot work for the benefit of everybody. Therefore it must tame and contain democracy (or where necessary do without it altogether). The implications of this conclusion were highlighted by another neoliberal whom Slobodian rescues from obscurity: Ernst-Joachim Mestmäcker. A supporter of the 1957 Treaty of Rome, which began European integration into a single market, Mestmäcker criticised his fellow neoliberals for not recognising the political nature of their own project. Neoliberals believed they were insulating ‘undistorted competition’ from political decisions through setting up institutions, however politics was institution-building itself. The more they tried to prevent democratic accountability for economic decisions, the stronger the counter reaction would be (as Polanyi’s ‘double movement’ implies). Slobodian concludes with the ‘Battle of Seattle’ antiglobalisation protests which derailed the subsequent Doha Development Round of world trade talks. ‘Doha’ remains uncompleted, and seems rather anachronistic today as the US and others have adopted a Bilateral Trade Agreement approach — recreating the trade blocs that the early neoliberals feared.

A possible alternative to neoliberalism half posited by Slobodian is to revisit the ideas of the New International Economic Order (NIEO), a vision of the global political economy articulated by nations of the Global South in the 1970s. It included a version of international free trade — albeit allowing poorer nations to form associations among themselves for greater bargaining power. It also required that newly independent nations should be allowed to create their own institutions, which could include regulating or indeed nationalising, global corporations and foreign investments. NIEO was arguably defeated by the ‘Washington Consensus’ on free trade and free markets, however its principles are worth reviving during an era of global crises such as Climate Change, and COVID-19. We need global economic institutions that are democratic, and — rather than by design push the costs of economic growth onto the poorest peoples — ensure those benefits are broadly shared.

Dr Tim Dymond has PhD in History from the University of WA, where he was also sessional tutor and lecturer.

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