One can fully understand the negative part of this book, namely, its critique of neo-liberalism. The author offers a painstaking analysis of the neo-liberal ideology, its promises and outcomes. Especially, the British developments during the recent three decades âre covered in depth, but this book also has numerous comparative enquiries, covering nations as the USA, Latin America, Scandinavia and Russia. Compared with the promises made by the neo-liberal scholars – more economic efficiency, higher output, lower prices – one has to face the question: what went wrong with the ideas of privatisation, rational expectations and comprehensive market efficiency? Cumbers focuses in particular upon the dismal consequences of the privatisation of infrastructure and the public services. He does a very good job. The demystification of the myths of Chicago School Economics is done with theoretical insights and lots of empirical evidence.
What neo-liberalism meant for the advanced capitalist democracies was the unleashing of greed to an extent that was unimaginable during the classical welfare state period. The most conspicuous expression has been the phenomenal increase in the remuneration for managers, both in the big private enterprises and in the new organisations entering after the privatisation of public services. If this was not enough, greed in combination with opaque rules triggered the buying and selling of more or less worthless paper assets in the financial system, resulting in huge commissions and bonuses. We are far, indeed, from the Milton Freedman promise of increased output with income trickling down to Main Street.
Cumbers emphasises the role of property, especially the positive consequences of various forms of public property – national, local or mutual forms like cooperatives. To him, the extensive privatisation of assets in the public domain has been the worst policy in the economic reforms of the last decades, together with the contracting out of many public services. He is highly critical of New Labour, but finds some positive developments in Norway (oil industry), Denmark (wind power), Venezuela (Chavez) and Bolivia (Morales).
He also mentions the deregulation of the financial markets and institutions, especially the allowance of trading with mortgages on a gigantic scale, including the credit default swaps. When one reads in John Cassidy's (2010) excellent that the economist L. Summers, together with minister of treasure G. Rubin, were behind this catastrophic deregulation, one wonders whether we will be told the true story behind the enormous so-called bailouts that in turn contributed to the present state debt crises. What is in reality a so-called bailout – a loan to be repaid or a mere cadeau?
The most striking outcome of neo-liberalist practices has been the phenomenal augmentation of the salaries and perks of the chief managers – a problematic that Chicago School Economics had no theory about. This is the principal-agent problem that surfaces in both private sector and state economic management: How can a principal contract with a set of agents so that the latter work for the former, given a reasonable remuneration to be paid out of the output of the agents and their employees? There is no determinate solution to this problem, as the agents may increase their remuneration up until the entire profit or gain is captured – the strategy of looting. Asymmetric information leads the principal to accept almost any salary against the promise of future profits, especially when the principal is made up of an ocean of shareholders or a set of politicians, focusing myopically upon short-run good publicity. There is, as yet, no resolution of the principal-agent problematic in game theory, meaning that the remuneration of chief managers just keeps on going up, no matter recession or austerity.
Cumbers outlines a comprehensive program for a socialist transformation of the economy – I must say that I am less happy with his argument in this smaller section. Let me put forwards a few objections shortly towards some of his proposals: first, land should be held in common – Cui bono? and second, only small private enterprises are to be allowed, requiring massive regulation of markets – Sed quis custodiet ipsos custos? How can a socialist economy solve the principal-agent problematic, a contradictio in adiecto – why trust socialist leaders? Given so much interference in economic freedom, what is the Quid pro quo? Merely justice, but not higher affluence? A socialist transformation is only feasible if it can handle the transaction cost difficulties on the basis of incentive compatible mechanisms.
