As the rug is being swept away from under us, uncertainness is growing rapidly. Ongoing wars, as well as huge economic and social conflicts, have resulted in the 2020’s feeling heavier and heavier. Not only have we not seen the end of history; in many ways we are actually seeing it repeat itself. But if liberal capitalism can’t seem to solve the problems of today – what can?

For long, economic growth has been believed to go hand in hand with democratic freedom and better quality of life, and even though it remains true that most free countries today are economically heavily developed, the opposite has turned out to be almost as common. Many countries have had exponential economic growth, without personal freedom following. Thus, the question arises: Are they rather not connected at all, or is the problem something else entirely? 

Money is essential for the workings of the world, but who is determining the system for which it circulates in? I sat down with Paulina Vaughn, doctoral student in political economy here at Lund University, to discuss neoliberalism, the welfare state, and to ask the biggest question of them all: Is there an alternative?

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What is neoliberalism? Paulina’s answer is, understandably, not short. She means that many view “neoliberalism” as a “conceptual trash bag” but, according to Paulina, neoliberalism does have something distinctive about it. Neoliberalism is an economic paradigm. It is an understanding of the market where the state, in contrast to previous liberal ideas, has a very specific role and is supposed to ensure that economic policies are credible, the smooth functioning of free trade in goods and services and maintain competitiveness. At the same time, neoliberalism highlights deregulation, privatization, and the reduction of the welfare state. That is the political project of neoliberalism. 

Simultaneously, part of neoliberalism is the political theories it is based upon. The idea of public choice and its implication on politics, the change from demand- to supply-side economics, and the moving of decisions to expert, non-political, bodies, are all fruits of neoliberalism. 

But can the neoliberal view of the market really be called “free” if the state plays such a critical role? What really determines “free” markets? 

According to Paulina, “free markets” is a theoretical construct and model used as a starting point. Many economists are however very aware that it is just that: a model, and not a description of reality. For us to have “free” markets, there must be very clear regulations and a very active state invoking these. For political economists, this is a bit of a standard argument. Based on Karl Polyani’s ideas, it is highlighted how, for there to be a market, there must also be strong resources that ensures that market standard and competitiveness is upheld.  

Since neoliberalism often looks to business structures as inspiration, it automatically also focuses on profits. Without profits, no business survives. Is this problematic? Is it possible to achieve maximized welfare, without letting companies maximize their profits? 

Paulina’s answer to this is clear: Profits are needed for our welfare model and economic system to work. Through profits, companies develop and create jobs. In turn, it is these jobs that make it possible for residents to have an income stream, and it is through these incomes that taxes can be paid to the government. Profit thus has nothing to do with neoliberalism specifically. In the social democratic model, classic liberal models, as well as in many Marxist models, it is higher productivity that creates higher profits, which can later be translated into higher welfare. The big difference between them is rather how to distribute these profits and the wealth that it creates, because it is regulations around redistributing that shape the cycle of how profits turn to state income. 

Continuing, Paulina highlights how Sweden today has extremely low taxes on ownership. Low taxes on real estate, the small fixed capital gains tax, and the inexistent tax on inheritance, especially stands out, while also corporate taxes are down to around 20% from about 50% in the 80s. These tax rates, and how they differ between different kinds of wealth, between work and capital, is what shapes the economy. But, she stresses, no matter how these regulations look, the strive for profits is always present.

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Neoliberalism first really started to take up space in the political arena in the 80s and 90s. But where did this uprise stem from? Could political and social elites be seen influencing the view on markets and ideology? 

Paulina says she does believe ideology to originally have played a huge role. In the 80s and 90s, there was a sense of uncertainty around what was going to happen when the old system collapsed. In that uncertainty, new ideas and new profiles had much to say about what decisions to make. However, she points out, there were and are many things that are quite difficult to reverse. Clear examples of this are the deregulation of the financial market and the Swedish federal property tax. These changes affect how and where people hold their money. Thus, changing it “back” often becomes very difficult, if not impossible. “I imagine it is easier to take something away, than to add something”.

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Although our conversation in many ways have centred around the welfare state, Paulina points out that she does believe neoliberalism to be more than only a question of welfare. If you would completely separate the two, other dimensions of neoliberalism would become even more visible, such as labour market policy – how much responsibility do we put on society to create jobs compared to how much responsibility is put on individuals to create their own income, or neoliberal views on financing – how to we weigh the risk of having individuals with huge loans, compared to an increasingly indebted state? However, although there are more dimensions to neoliberalism than welfare, Paulina believes it to be difficult to go through the major neoliberal changes without actually chipping away on the welfare state. As Paulina puts it: “the welfare state is the biggest public expenditure we can think of, and the whole idea of it is redistribution”. Separating the welfare state from neoliberalism, the thought of “safeguarding” it while implementing the remaining neoliberal ideas where the state takes a backseat role, thus might be impossible.

When I try to ask Paulina about the state’s role in minimizing externalities, her answer reminds me of the very economic perspective I have been trying to pursue during our conversation. After first asking me to clarify what I mean with externalities, she points out how the very concept goes quite well with neoliberal thinking. In neoliberalism, the market is at the core. It is central to the complete ideology. The state then has a role in reducing the market-induced problems. But, Paulina says: 

“I think this in itself is a problematic way of looking at it – because what is the point of the market, of growth, of efficiency improvements, if it doesn’t create shared welfare? Somehow it becomes almost like saying that the market has a purpose in itself. I think I disagree with that understanding of what the economy should be.” 

Paulina means that it feels like certain consequences are made invisible by being called externalities. The externalities are valued secondarily, and thus it can be argued that the market in itself does not need to change fundamentally but instead consequences can be compensated for elsewhere. But, the problems involved are enormous. Seeing them as externalities means separating the social, from the economic, aspects.

Continuing, I ask Paulina about the rise in conservatism. Could it bring us back into prioritization of welfare structures?

Paulina means that the idea that the conservative backlash would be a response to a kind of insecurity, a feeling that things were better in the past, is quite common. But, although the conservative ideas share many similarities with more fascist eras, she means that these values can actually be combined quite well with neoliberalism. Conservative parties such as Sverigedemokraterna are not pursuing any other kind of economic policy compared to more traditional liberal parties. And while many parties of the sort promise better health care, greater security for excluded groups, etc, they are not voting for these changes in the parliament. The conservative awakening instead seems to be combining very well with neoliberal economic policies. 

As our conversation is nearing its end, I ask Paulina if she can see the beginning of a shift? Is the rise in dissatisfaction resulting in political change? Is there an alternative?

Although she believes we are seeing growing dissatisfaction in Sweden, she points out how the common belief of “when something gets bad enough, change will follow” isn’t necessarily true. Capitalism has certainly gone through many crises, but it has had an incredible ability to adapt, innovate and survive the many different contexts and conditions. Paulina means we can’t just sit and wait for a change, thinking that the intensifying crisis-like atmosphere will result in self-destructive tendencies within capitalism. 

But are we seeing any realistic alternative? For Paulina, to see actual change the dissatisfaction needs to be channelled in a way that today feels distant. We are not, she continues, seeing the end of capitalism. Instead, she believes we will simply see different forms of it. Her hope? That there are better and worse versions of it.