Have "neoliberal" policies, institutions prompted preference for greater inequality?

May 22, 2022

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Have "neoliberal" policies, institutions prompted preference for greater inequality?

Neoliberalism, which calls for free-market capitalism, regressive taxation (less tax on the rich), and the elimination of social services, has resulted in both preference and support for greater income inequality over the past 25 years, according to a new study by an international team of psychology researchers.

The findings, which appear in the journal Perspectives on Psychological Science, stem from an analysis of attitudes in more than 160 countries.

What the researchers say: “Our institutions, policies, and laws not only structure our social life, but also have a great influence on the kind of people and society we become,” said the lead author. “Institutions can promote well-being and solidarity, or they can encourage competition, individualism, and hierarchy. In our work, we find that neoliberalism has fostered preference for greater income inequality not just in industrialized nations, but throughout the world.”

Neoliberalism, which also calls for greater privatization and deregulation, has become the predominant global socioeconomic framework since the late 1970s.

In her push to transform the British economy into a model of neoliberalism, Prime Minister Margaret Thatcher famously remarked, in a 1981 interview with the Times of London, that “(e)conomics are the method, the goal is to change the heart and soul.”

“Thatcher believed that free markets were a tool, not only for molding economies, but also for fundamentally shaping human values,” the lead author observed.

The study’s researchers sought to test whether Thatcher was right that neoliberal institutions have the power to create market-friendly psychological tendencies—or, more specifically, whether free-market reforms instill in people a high level of tolerance for income inequality.

To do so, they analyzed the relationship between economic institutions and human values across more than 160 countries over 25 years (1995-2019) through an examination of multiple data sets.

A country’s neoliberalism was measured using selected items from the “Economic Freedom Index,” which is issued yearly by the Fraser Institute, a conservative Canadian think tank. The index served as a tool for capturing to what extent different economies around the world are aligned with neoliberalism.

To determine if neoliberalism had an impact on attitudes towards inequality, the researchers analyzed data from the World Values Survey (WVS)—commonly used in tracking global attitudes. Here, respondents are asked to choose a number on a scale to indicate their level of agreement or disagreement with a series of statements—e.g., “We need larger income differences as incentives for individual effort” and “Incomes should be made more equal.”

The WVS is a time-series survey, capturing attitudes of individuals over time and in increments of three to five years.

By using both the Fraser Institute’s “Economic Freedom Index” and the WVS, the researchers could ascertain whether or not a nation’s economic system preceded a change in its peoples’ attitudes over three-to-five-year periods.

Overall, the analysis showed that in countries in which there was a higher-than-average level of neoliberalism, as measured by the “Economic Freedom Index,” there were also subsequent higher-than-average levels of preference for income inequality.

“Our results suggest that a few years is sufficient for—as Thatcher put it—systems to change ‘souls,’” the researchers concluded.

“While it is perhaps intuitive that human beings shape the nature of the economies in which they live, our work shows the reverse—that economic systems mold human psychology to fit them,” the lead author added. “Neoliberal, free-market reforms appear to increase people’s preference for high levels of income inequality.”

So, what? Ever since the days of President Regan, neoliberalism has been the dominant economic/social philosophy. The result has been an enormous increase in the level of inequality within nations worldwide.

Most researchers now say that we have reached a dangerous point where inequality has made some societies very unstable.

The Gini Coefficient is a measure of inequality which is widely used by social scientists and economists. A reading of zero equals perfect equality—and is only found in hunter-gatherer societies without any concept of private ownership or hierarchy—and a reading of one meant that one person or family owns almost everything.

When Marx wrote his Das Kapital in 1848 the Gini scale in Europe was about .48. In Australia today the reading is around .67 and in the US, China, Brazil and South Africa the number is .8.

Researchers have discovered that when societies reach .8 they are in danger of collapse. The process of increasing inequality is unstoppable. Polarization increases as those with wealth seek to divide and rule, the rich become richer even when there are recessions, social violence escalates. Eventually the society collapses. That is what’s happening now in the US.

Dr Bob Murray

Bob Murray, MBA, PhD (Clinical Psychology), is an internationally recognised expert in strategy, leadership, influencing, human motivation and behavioural change.

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