Economic Theory

This is not a ‘neoliberal’ age. This is an age of hyper-statism

The law of diminishing marginal utility is one of the most basic concepts in economics. What it means is that the more you have of something, the less you enjoy getting more of it. Among other things, it explains why even in booming markets, many sellers struggle: no matter how popular the product, there comes a saturation point. There are only so many Vatican-conspiracy-themed mystery thrillers that we can read, and only so many pints of craft beer we can quaff.

And yet, there is one market which seems to consistently defy the law of diminishing marginal utility: the market for books moaning about the evils of neoliberalism and free markets. We are flooded with titles like How Politics Makes Us Sick: Neoliberal EpidemicsUndoing the Demos: Neoliberalism’s Stealth Revolution,PostcapitalismAusterityBreadline BritainWhy We Can’t Afford the Rich, and Captive State: The Corporate Takeover of Britain.

Blaming neoliberalism for all of society’s ills might shift copies and provide a neat straw man for left-wingers, but the line of thinking these books are capitalising on is pure nonsense. Here’s why:

1. The state is larger than ever

It has often been pointed out that resistance to immigration is inversely related to the number of actual immigrants, and strongest in places where there are hardly any of them. Something similar is true for resistance to neoliberalism. It is strongest in France, where, with government spending approaching 60 per cent of GDP, there is actually not much of a market economy left. It is also ludicrously strong in Britain, where the state has never been larger in size, never been more encompassing in scope, and never been more intrusive.

Forget the waffle about “austerity”: The long-term trend has been one of almost continuous government expansionism. When A.J.P. Taylor said that “Until August 1914 a sensible, law-abiding Englishman could pass through life and hardly notice the existence of the state”, he was exaggerating, but not grotesquely so. Up until the First World War, government spending used to account for less than 15 per cent of GDP. It then rose to around 30 per cent in the interwar period, and still did not cross the 40 per cent mark until the mid-1960s. Today, despite five years of so-called “cuts”, it still stands above that level. At the outbreak of WWI, only about one in twenty people worked for the public sector, today, the figure is closer to one in five.

2. The state is more centralised than ever

There was once a time when “government” usually meant “local government”. Today, it is almost synonymous with “Whitehall”. Ninety-five per cent of all tax revenue accrues to the national level, which makes the UK one the most centralised countries in the world. The tradition of local autonomy, of voting with one’s feet, and of tax competition between local authorities, has been almost completely wiped out. Local governments are now so devoid of any real autonomy that we might as well abolish them, and replace them with Whitehall branch offices.

3. The state is more active than ever

Yes, there have been a few privatisations in the 1980s and 1990s, but let’s not forget that private provision was once the norm, and government involvement the exception – including in areas like infrastructure, education and healthcare.

The state has not just grown hugely in size and scope, it also interferes more heavily in areas which are still nominally “private” matters. Up until World War II, the annual volume of new legislation was small enough to be printed on fewer than 2,000 pages. By the allegedly “neoliberal” 1980s, this figure had already risen to more than 8,000 pages per year, and it now stands at about 15,000. Whether it is in the name of public health, of health and safety, of “diversity and equality”, of “sustainability” – the state always finds new areas of activity for its legions of meddlesome busybodies.

4. The state crowds out everything else

Government largesse comes at a cost, over and above the financial one. It crowds out private initiative and enterprise, as well as civic engagement, self-organisation, private philanthropy and voluntary solidarity. The labour movement once had a proud tradition of grassroots mutualism, enabling people of modest means to provide for ill-health, old age and unemployment. Today, it has been reduced to a cheerleader of ever-larger government. Britain once had a thriving charitable sector, but today, most large charities are just campaign groups for more public spending.

This is not a neoliberal age. This is an age of hyper-statism, where the state has far more control over our lives than it should do. Think that by buying yet another anti-capitalist tome means you’re somehow “thinking outside the box”? You’re wrong. Anti-capitalism is the box.

Dr Kristian Niemietz is the IEA’s Head of Health and Welfare. This article was first published by the Independent. For further reading, see Ryan Bourne’s The Paragon Initiative Opening Paper.

Head of Political Economy

Dr Kristian Niemietz is the IEA's Head of Political Economy. Kristian studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). He also studied Political Economy at King's College London, graduating in 2013 with a PhD. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and taught Economics at King's College London. He is the author of the books "Socialism: The Failed Idea That Never Dies" (2019), "Universal Healthcare Without The NHS" (2016), "Redefining The Poverty Debate" (2012) and "A New Understanding of Poverty" (2011).