Late Soviet Britain: Rethinking Neoliberal Economics and Democracy

The irony there is that we've nevertheless been using what is effectively a a totalizing economic

science and we've done it to ourselves. British capitalism at this point bears absolutely no resemblance to any of the

promises that were made for it by the Thatcher revolution. So the real risk is that we give up on democracy before we

give up on a paradigm that was misconceived from the beginning. [Music]

Hello Abby. Welcome to how the light gets in. Thank you very much. I'm very happy to

be here. So your work covers this curious connection between the Soviet Union and the modern British government

which is quite counterintuitive. So could you give a little brief summary of how you've come to this conclusion? I

can. So the title late Soviet Britain is very bizarre. Uh and it's not what I thought I was going to be arguing when I

started the book. So when I started the book after Brexit, I thought I was going to be writing about state failure.

because it's the intuition I had was that Brexit was the wrong diagnosis of a real crisis and the real crisis was a

crisis of the British state. So when I first started working on it, I was looking at failures in things like

public sector outsourcing uh quasy markets in the welfare state and at the new public management. And the thing

that would became really strange was that the more I looked at it, the more I thought these failures are really

familiar and they were familiar to me as someone with a background in the old Soviet

system and in the postsviet transition to neoliberalism. And so my next thought was, well, that's insane. They can't be

the same. Neoliberalism is the opposite to the Soviet system. How on earth can I be seeing these pathologies that seem so

familiar? And then I realized that the book was going to be much longer than I thought than I was expecting when I

started it because I realized that to make sense of that, I was going to have to drill all the way down into the

metaphysics behind Soviet and neoliberal economics. And the more I did that, the more I understood that they were

effectively mirror images. That Stalinist economics specifically and the mathematical formal neocclassical

economics which is the basis of neoliberal policies since 1979. Uh they're effectively both machine

models of the economy. They both operate with sort of closed system reasoning about the possibility of a completely

efficient system. whether that's a completely efficient social plan or a completely efficient market. And then

the dark historical joke is that they necessarily converge on the same state craft. Because if you believe you live

in a computable world, then the methodology of organizing the state uh is a methodology of

quantification and output planning and forecasting and the assumption that if you design

regulations in the appropriate way, enterprises will only ever work in a way that is socially productive. And so this

took me down a philosophy of science route eventually backwards induction uh that uh I needed to use to explain

why closed system deterministic machine models of the economy can't work in a

human society that is an open-ended system that cannot escape the uncertainty that we live with because

the world is always becoming something else. So there's a philosophy of science argument at the beginning of the book

which is pointing out that you would need godlike omniscience to be able to

solve the riddle of history and say we have a governing science that is good for all times and places that can govern

an economy in a fully efficient way. And what the canian tradition in the philosophy of science would say is

you can't do that. You can't escape the history of your own curiosity. Every theory we have is built on the back of

the theories that came before. You can't suddenly transcend that. So there's some kind of Archimedian point where you can

read the world clearly. And even if by some miracle you could bump into a perfect explanation of how we got here,

the human social world is always becoming something else because we're imaginative.

And you get emerging novelty and complex systems. We have technological changes. So the future is always going to be

different from the past anyway. And actually our freedoms live in that openness. So we should be very wary

of embracing an economic science that says we have the correct science now. You can all conform to it. And that's

what the book is about is that we not only do we fail to conform to it, it would be impossible that we could

conform to it. So this notion of philosophy of science being so important here. It makes me wonder why do you

think the field of economics has been led so astray it's in the wake of the Soviet Union

it feels diametrically opposed and yet why is there such this appeal to utopianism that can motivate economics

that has led to the same pitfalls that we have all live in today and they they are diametrically opposed.

I mean, in the sense that it would be outrageous on the political level to compare the kind of totalitarian,

politically violent system of the Soviet Union with the free and fair elections and the liberal democracy of the British

system. Um, and the irony there is that we've nevertheless been using what is effectively a a totalizing economic

science. And we've done it to ourselves. We've done it without physical coercion. We've done it without revolution. It's

not that there's been no political violence. Anyone who remembers the minor strike or the pole tax riots will say,

"Well, the state has been willing to repress in particular those riots or those political demonstrations that have

been very economic." Um, but still in regime terms, they couldn't they really couldn't be further apart. What they

hold in common is that they're both misadventures in high modernism. So they're both coming out of the end of

the 19th century and the beginning of the 20th century and looking for methodologies that will effectively

allow us to transcend the vicissitudes and uncertainties of the social world. And it's part of the scientific

revolutions in a way to say well the idea that there could be an absolute science that we could have mastery over

nature that we could find the correct answer so that we go away from the haphazard endlessly

sort of controversial political philosophy and emerging political science and ethical debates that we've

had from you know the dawn of civilization to today and we'll just have the answers. And and an early name,

a kind of early label for neocclassical economics, mathematical economics was social physics because the idea was that

and this is effectively what they do. They effectively cut and paste Newtonian mechanics

uh and exchange the idea of energy in Newtonian mechanics and swap it out for utility

in order to have this sort of scientific mathematical approach. And and the aspiration is a really human one. And I

think the aspiration is to say look there's all this you know conflict and poverty and

endless metaphysical horror if you like. Imagine if we had a science that could solve it. And actually a lot of the neo

early neocclassicists were socialists uh which is something that gets lost actually in a lot of leftwing

critiques of neocclassical economics slightly caricatures the fact the idea that it's that it's all rightwing. It's

better understood as a methodology and the most optimistic dogmatic users of that methodology say no no no comp

perfectly competitive markets possible free markets possible people are rational they're fully informed but what

became adopted as the Blairite tradition actually the kind of mainstream economic tradition is more critical and says no

that's utopian but it's a scientific heruristic which will allow us to talk about how markets

fail. So then we'll have this whole methodology that allows us to solve the riddle of history. We can mend market

failures. We can sort out monopoly asymmetric contracting. We can solve the climate crisis by pricing nature. We can

do all these progressive things by using the methodology given to us by

formal neocclassical economics. My argument is that's not nearly as metaphysically neutral or as a-political

or as politically expansive as that implies because the idea that you can mend market

failures is a fallacy. It's assuming that by mending the broken connections in a

system, you're getting closer to the horizon where everything is complete and competitive, perfectly competitive

markets. A market failure implies it can be fixed. Exactly. And and that is a a

category error. It's a confusion of something that is logically valid with something that you can reproduce in the

social world. And we've spent the last 45 years trying the first best version, finding that

none of it works private in the terms by which it was justified. Privatization, deregulation, all of these things had

effects, but they weren't the effects we were told they were going to be. And then the next generation as it were

Cameron's generation the Blairite generation the new democrats in the US the European Commission I mean you know

pick your institution pick your party has basically spent the last sort of 25 years

trying to mend the market failures and being increasingly baffled that all those institutions continued to

evolve with dynamics and pathologies. that neocclassical economics can't even describe, let alone solve. And what

they're ignoring is the fact that the later decades of the Soviet Union were spent with

talented, brilliant economists, Russian economists and Polish economists and Hungarian economists trying to figure

out how to mend the broken connections in a planning system that you could never make complete. So the later

generations of neocclassical economists like their cousins in the Soviet block spend their lives trying to solve

information failures on the misunderstanding that this is something that you can do in a world

that is evolving and always becoming something else. So I thought something interesting that

happened today on one of the panels was Will Hutton the former editor of the observer labor grande so to speak

criticized you for straw manning. Yes. um the old position on the efficient market hypothesis that it's

doesn't apply to reality but that is the lead of our current you really are setting up a straw man or

straw woman you really are setting up a straw man why do you think the left has this blind

spot for the methodological problem when they because I they must well believe that they are doing something

distinctly different to the libertarian right yeah and they are

but there is this underlying methodology and utopian ideals that still in captures the way they think.

So I think there are several aspects of that and I think almost the most damaging aspect of

these kind of high modernist philosophies but neocclassical neoliberal economics is it has got us

entirely used to the idea that there are technical solutions for social problems that so the idea that you can

depoliticize economics it's such a lovely idea I mean it's it's back to the origins of neocclassical e economics

imagine if we could have a methodology that would take us to a world of perpetual peace or that would in the

Blerite terms, the third way terms, get the best of markets and states, right? where you could use the state to

regulate markets so effectively and efficiently that the state would only have the function of making a

presumptively mendable system mended and and efficient and effective. I mean it's a it's a

great dream but it's a utopian dream but it is so ingrained. I mean, if you're an economics graduate, this is what you

learn in your economics degree. The Treasury Green Book that defines the decision-making processes across all

government departments is a neocclassical second best world green book. That is that methodology.

International financial institutions use neocclassical reasoning. Central banks use dynamic stoastic general equilibrium

models that are effectively general equilibrium models that use the idea of um the representative agent. Uh you have

rational expectations models that are also used by central banks. The irony being that rational expectations model

started life as a technical idea that everyone in the model shares the same knowledge about the system as the

modeler and it allows the modeler to come up with kind of probabilistic arguments out of this model. They often

use the an idealized social planner as the model and the originators people like Thomas Sergeant in rational

expectations models talks about the communism of models literally because they they are the idea that everyone in

the system understands the system and it's a perfect system of coordination no information gets lost.

So these models, these way of reasoning way through things, these way of building forecasts, integrated

assessment models for climate change also have these methodology methodologies.

It's a very windy answer to your question which is basically why do social democratic parties cling on to

this methodology because without it we'd be starting again. I mean we would really be stripping out the governing

science that we have institutionalized in almost every single economic agent in the country whether that's government or

banks or financial entities or credit rating agencies or uh you know corporations or consultancies

and I don't want to argue that neocclassical economics is useless it's around asymmetries in contracting it can

be very insight ful if you're looking at simple markets where you can reasonably coherently

say that there are repeated phenomena that you can isolate the generative mechanisms in that story then

neocclassical reasoning can be very insightful after the fact. It can let you rationalize what may have happened

or what may happen repeatedly in certain circumstances in a way that is is insightful. But the idea that it is a

sufficient governing science is unsustainable in the philosophy of science. And if you look at the state of

Britain today, I think it's also un unsustainable socially and politically. I think it is taking us very deep down a

rabbit hole that we should escape. Do you see this ending in a Soviet Union

tear down this wall situation or is this is there a way we can navigate past it? Because of course we've been teaching

reams of economists for years and years and years and this theoretical approach and it's in every government every

institution as you say. Yeah. And it makes government easier

like if you have that model and you just plug in the figures and you plug in your problem and it comes out with a little

solution and the solution may be wrong. Yes. But it's a handy little way of doing it.

Yes. So what is the alternative and how can we change it without tearing down this

wall? Yeah. It's a great question. I mean because neocclassical arguments are

arguments from assumption. They're axiomatic deductive arguments. They're arguments from logic. They can't be

wrong in the sense that they're they're as impossible to refute as they are to implement because they are forms of

logical reasoning from assumption rather than what we think of as the scientific method which is theorization from

observation and continuous review. Right? We live in a system where without being too facitious, you could

think of thatism was like Leninism, right? It's the point of revolutionary idealism. And then it didn't work the

way it was supposed to. And so there were attempts to be more socially inclusive and to have so we get into the

mending market failures idea. So sort of Blairism puts us into a world of sort of Chrisite that's the they're the

crystites in this system. but as in the Soviet system because that too doesn't work the way it's supposed to.

Blair and to a lesser extent Gordon Brown but the Blairite government spent you know

a decade mending market failures only to find that by continuing to decant to

authority and revenues into the private sector and the financial sector that then proceeded to not behave in the

virtuous ways that we would have assumed. Although certain things did improve that

I mean shore start things like that that are outside of that paradigm were brilliant and and genuinely improved

things and mending market failures was better than not mending market failures but we still got into deeper and deeper

structural problems. What the conservative governments of the last 14 years have been like is

neoliberalism the braith years right where you basically give up the attempt at really reforming it and you end up

with a kind of neotraditionalist attempt to just sing the old songs and hope they're going to work.

I have a deep hope that Labour sooner rather than later will recognize that they are pulling levers and mending

market failures and getting none of the responses that they think are going to happen. So my fear is that at the

beginning Labor might have because I think it still is in this technocratic mindset. My fear is a kind of good chaps

version of government that says but we understand the market failures and so we're going to apply that

methodology and then things will improve. But like the late Soviet system, British capitalism at this point

bears absolutely no resemblance to any of the promises that were made for it by the Thatcher revolution.

And if between excessive financial extraction out of the economy and the excessive power of

the financial industry which by the way closed system reasoning can't even integrate into most of the models the

models we use to calculate tax breaks under Osborne um are exchange models actually originating with a Soviet

economist called Vaseline Leontev but those were the computational general equilibrium models that the Treasury

used anyway. You can't even bring the financial markets into those models because it's just too too complicated.

So, they're not even in the picture. So, we're in a world where the cost of living crisis, the fact that we have 4

million children in abject poverty, the fact that we have financialization, the fact that we have corporate state

capture, none of these things you can diagnose with neocclassical economics, but they are what is driving both

poverty and alienation from democracy. they are what is encouraging the rise of anti-sistent parties. So

it's an extraordinary situation because all this has happened in an open society with open debate and I think we don't

understand the extent to which we are operating in an analytical monoculture in economic

terms and there's a lot of brilliant experimentation and very different ways of doing things happening

really as a coping mechanism in a lot of cities and communities

which don't follow any of this rubric and they are discovering rediscovering a way of doing economics which is much

more empiricist. It's much more about social purpose. Uh it's much more inventive. It understands that the

economy is much more like an ecosystem than a watch.

And so the question for me then becomes how do you mainstream those attitudes and encourage those with

authority to say oh we can't make the machine work the way theory is telling it's going to

work and that it will look outward and it will look for those new ideas because at the moment it does that it will find

that the country and this would be true in Europe it would be true in the US it find that those ideas are there. It's a

matter of of bringing them into the conversation and and I think those people are there in

the Labor government. I would put Ed Milliband in that category uh in terms of being more kind of analytically

open-minded. But the risk is that that there is this available toolkit and

it is very seductive because it tells you that there are answers to questions that are really

complex. So the very worst thing we could do would be to say the old science is dead long live the new science

because what the philosophy of science would tell you is h there ain't no such thing for the social world. So what you

need is to go which is actually a relatively easy thing to do. You need to embrace analytical pluralism. You need

different perspectives in the room. And I think as soon as you started to make policy on the basis of a bigger

plurality of perspectives, ideas, solutions, things would start to improve pretty much instantly because I think

we've scraped the barrel to the miserable stones underneath of this paradigm. And

if we shift away from it in incremental, experimental, creative ways,

everything will improve. And and I'm I say that because it's hard to imag imagine how they would get worse. And

the way they would get worse is if people decided that what doesn't work is not the economy, it's democracy. So the

real risk is that we give up on democracy before we give up on a paradigm that was misconceived from the

beginning. Kharma, is he a brush? He's not an economist.

Uh Rachel Reeves then and what worries me is that it's going to take some courage uh at the top to

admit that we are at the end of a particular road in terms of the way we think about the economy. And Rachel

Reeves, who is a profoundly smart woman, uh was brought up through the Bank of England. And the Bank of England is an

essentially neocclassical uh economic institution. And so it would take and I think she's more than capable

of it. But the question is at what point will she say my training and the treasury in front of me and all the

advice I'm getting from the mainstream economists that I'm using is not fit for purpose and that's a political decision.

Well, let's hope she's a Gorbachev instead. The trouble is look what happened to

Gorbachov. Right. Of course. Well, um thank you Abby and um thank you for coming to How the Light

Gets in. You're welcome. Thank you. That was fun. [Music]