What Francis Fukuyama Gets Wrong About Neoliberalism


The first chapter of Francis Fukuyama’s new book, Liberalism and its Dissatisfaction, entitled “What is Classical Liberalism?” Although he never explicitly answers the question, he lists some liberal principles: respect for individual and individual autonomy, protection of property rights and the right to do business with others, and the right to vote. Involving individuals in the political process through the medium.

Fukuyama, director of the Ford Dorsey Masters in International Policy at Stanford University, also lists and elaborates on the “three essential justifications” of classical liberalism:

  1. “Liberalism is a way of controlling violence and allowing diverse populations to live in peace with one another.”
  2. “Liberalism protects basic human dignity, and particularly human autonomy – the ability of each individual to make choices.”
  3. “Liberalism promotes economic growth and all the good things that come from development by protecting property rights and freedom of transaction.”

However, Fukuyama believes that liberal values ​​become problematic when pushed to the extreme. Taken as license to disregard individual autonomy and even eliminate social norms, it can destroy a culture or a nation. Similarly, the thirst for equality must be virtuous by going beyond legal equality.

In his second chapter, Fukuyama identifies “neoliberalism” as the book’s bogeyman, filling the eleven pages of the chapter with a wealth of misinformation. According to the author, “neoliberalism was closely related to American libertarianism, the sole underlying theme of which is hostility to a superior state and a belief in the sanctity of individual liberty.” very regulatory welfare state, beginning with his assertion:

The 19th century was the rise of unregulated market capitalism, in which state intervention played little role in protecting individuals from the sophisticated form of capitalism or in mitigating the effects of recessions, depressions, and banking crises that occurred with great regularity. .

Here, for example, Fukuyama ignores state laws that restricted branch banking from the country’s founding until the 1990s. The result was thousands of small banks with diversified loan portfolios, left at the mercy of the local economy. Banks regularly collapsed when crops failed, product prices fell, or large companies went bankrupt. In the early years of the Great Depression, more than 9,100 US banks went out of business. Canada, which in contrast did not ban branch banks, had no such defaults during the recession. All this is well documented in the book, Fragile by design: the banking crisis and the political origins of tight creditby Calomiris and Haber.

The author also tells us that “the severe banking crisis of 1908 led to the creation of the Federal Reserve System.” It is believed that he was referring to the 1907 terror, which ended before 1908.

Fukuyama then modeled 1970 inflation as “quadruple” OPEC oil prices (between 1973 and 1980, average oil prices actually increased eightfold). But currency expansion, not an increase in specific prices or wages, causes inflation. Without an increase in the amount of money in circulation, price increases in some sectors of the economy will drive prices down in other sectors as consumers and businesses redistribute spending, so there is none General, macroeconomic price increases. The “inflation” of the 1970s was not caused by “cuttle capitalism” or “neoliberalism” but by government deficit spending in the Vietnam War and wage and price controls introduced by Nixon to combat that inflation.

Fukuyama was right to criticize free-market economists for being overly optimistic about privatization in the former Eastern bloc after the collapse of the Soviet Union. Foster a healthy free market or liberal democracy by simply distributing state wealth to political cronies and ex-KGB officials, devoid of fundamental institutions such as a corrupt judicial system, well-established contract law, entrepreneurial traditions, and respect for property rights. Not found.

On the other hand, the author has an inadequate explanation for the 2007-2008 financial crisis: “a poorly regulated US mortgage market” and the excessive risk posed by the investment bank Lehman Brothers. This “explanation” ignores a cast of thousands, including:

  • The Federal Deposit Insurance Corporation, which later became a “moral hazard” for Continental Illinois and other companies in 1984, assured financial firms that they could make risky investments, knowing that if the investment failed, they would get out;
  • the Federal Reserve, which pumped money into the economy by raising the currency;
  • Congress, which lowered lending standards and caused Freddie Mac and Fannie Mae to buy hundreds of billions of dollars worth of subprime mortgages;
  • Jimmy Carter, who signed the Community Reinvestment Act (CRA);
  • Bill Clinton, who dented the CRA that fueled the housing bubble;
  • George W. Bush, who signed the American Dream Downpayment Assistance Act, which further fueled the housing bubble;
  • The SEC, which required companies to adhere to mark-to-market accounting, compounded the impact of the boom and bust. As house prices soared, mortgage-backed securities lost valuations as panic mounted and financial institutions saw their assets rendered worthless almost overnight.
  • Basel Accords – an international banking agreement that encourages banks to use bundled subprime mortgages as a “reserve”;
  • States whose laws allowed people to walk away from their hostages without punishment.

Fukuyama also falters when he accuses “neoliberal free trade advocates” of unemployment in the USA. While studies have linked trade with China to the loss of almost four million jobs between 2001 and 2018, more than half a million jobs are typically lost (and more are created). every month America’s dynamic economy. Far more jobs than global companies have fallen victim to automation and changing consumer tastes.

On page 40, Fukuyama invokes the authority of behavioral economics and questions whether people act rationally, apparently unaware of the field’s scandalous replication crisis that has seen it as a respectable school of thought. Has given.

The author denounces economists whose “private interests” and “intellectual property” lead them to support neoliberal notions of “regulation, strict defense of property rights, and privatization.” He seems unaware that there is much more wealth and prestige available to those who support regulation, money transfer and nationalization. The media, universities and government can go far beyond the “rich corporations and think tanks” that so intimidate Fukuyama.

Fukuyama starts from a more concrete premise in Chapters 4–6, in which he traces liberal thought back to neoliberalism and then to awakened progressivism, which is the polar opposite of liberalism—that is, a belief in individual freedom and responsibility; free market; personal property; Equality before the law; existence of objective truth; the possibility of a rational discourse; and freedom of speech, religion and thought. The author also does an excellent job of defending classic liberalism against the various allegations of the left.

Fukuyama’s solutions include restoring our national identity and renewing our commitment to federalism, individualism, voluntary association, mutual respect, tolerance and moderation. The question of how all this can be achieved remained largely unanswered.

Francis Fukuyama is a distinguished political scientist and widely regarded as one of America’s foremost thinkers. His writings have made valuable contributions to the national conversation and are deservedly influential.

However, his understanding of economics and economic history leaves room for dissatisfaction.



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