Neoliberalism, Free Markets, and the Rise of Governmental Corruption

By Andrew Klein  

Proposition that neoliberalism and free market theory as embraced by Thatcher and Reagan has led to an increase of governmental corruption and malfeasance in western liberal democracies.

Neoliberalism, Free Markets, and the Rise of Governmental Corruption…

An Analysis

The neoliberal revolution spearheaded by Margaret Thatcher in the UK and Ronald Reagan in the US during the 1980s fundamentally reshaped the relationship between markets and states in Western liberal democracies. While promising enhanced efficiency, economic freedom, and reduced government overreach, this ideological shift has paradoxically fostered systemic governmental corruption and malfeasance. This analysis examines the mechanisms, evidence, and theoretical underpinnings of this proposition.

1. Core Tenets of Thatcher/Reagan Neoliberalism

Neoliberalism, as implemented by Thatcher and Reagan, centred on three pillars:

• Privatisation: Transferring state-owned assets (utilities, transportation, infrastructure) to private ownership, ostensibly for efficiency gains. Examples include British Telecom, British Gas, and U.S. deregulation of airlines and energy.
• Deregulation: Reducing government oversight in finance, labour, and environmental standards to unleash market forces. Reagan’s financial deregulation and Thatcher’s weakening of trade unions epitomised this.
• Tax and Spending Reductions: Sharp cuts to corporate and high-income taxes (Reagan slashed top marginal rates from 70% to 28%) coupled with reductions in social spending and public services.

2. Mechanisms Linking Neoliberalism to Corruption

Neoliberalism structurally enabled corruption through several pathways:

Rent-Seeking and Privatisation: State sell-offs created lucrative monopolies for private firms. Corporations acquired essential services (water, energy, prisons) and extracted “rent” through inflated pricing, enabled by state-granted monopolies. This transferred public wealth to private elites while creating dependencies between politicians and corporations. As one analysis notes: “Privatisation… has enabled corporations to set up tollbooths in front of essential assets and charge rent.”

Deregulatory Capture – Reducing oversight allowed corporations to influence regulatory bodies. Financial deregulation directly enabled the 2007-2008 crisis, where banks engaged in predatory lending while regulators looked away. The Grenfell Tower fire in London (2017) was linked to deregulated safety standards.

State Fragmentation and Outsourcing – Contracting public services to private firms created opaque “tendering systems” where officials with “no skin in the game” allocated contracts to cronies. South Africa’s corruption scandals exemplify this, but similar patterns emerged in UK NHS outsourcing and U.S. military contracting.

Globalisation and Offshore Corruption – Free trade agreements incorporated – Investor-State Dispute Settlement (ISDS) tribunals, allowing corporations to sue governments for policies reducing profits (e.g., environmental or health regulations). The Panama Papers revealed how elites used offshore havens – a system enabled by capital mobility – to hide wealth and evade taxes.

3. Empirical Evidence of Increased Corruption

Wealth Inequality – Post-1980, wealth concentrated dramatically. The top 1% in the U.S. now controls ~40% of wealth, while the bottom 80% holds 7%. This asymmetry amplifies corporate political influence through lobbying and campaign financing.

Crisis Exploitation – Naomi Klein’s “Shock Doctrine” documents how crises (e.g., Pinochet’s coup, Hurricane Katrina) were used to rush through unpopular neoliberal policies, bypassing democratic scrutiny.

Corporate Welfare – While social spending fell, corporate subsidies rose. Banks received bailouts after 2008, and corporations benefited from tax loopholes – exemplifying privatised gains and socialised losses.

Revolving Door Dynamics: Officials like Alan Greenspan (Reagan administration) later joined financial firms they deregulated, institutionalising conflicts of interest .

4. Theoretical and Philosophical Shifts Enabling Malfeasance

Neoliberalism reconceptualised corruption itself:

Redefining Citizenship – Citizens became “consumers,” and democracy became a market exercise. Social obligations were replaced by transactional logic, eroding public trust.

Moral Justification of Inequality: Inequality was reframed as “virtuous” – a reward for merit. This normalised wealth extraction and stigmatised victims of corruption as “failures”.

Erosion of Public Good: Classical liberalism’s separation of economy and state (to prevent coercion) was distorted. Neoliberalism required a strong state to impose market logic on society, creating fertile ground for cronyism.

Ethical Reversal – Bribing officials could be rationalised as bypassing “corrupt” state interference in markets – a perversion of Adam Smith’s ideals.

5. Counterarguments and Nuances

Some contend that corruption stems from state intervention, not markets:

Separation Thesis – True free markets require “separation of economy and state” to prevent coercive monopolies. Corruption arises when states overextend into markets.

Skin in the Game – Problems emerge when officials spend public money without accountability, not from privatisation itself.

However, these arguments overlook how neoliberal policies expanded state roles:

Increased Coercion: Implementing privatisation/deregulation required authoritarian measures (e.g., Thatcher crushing miners’ strikes).

Corporate-State Fusion: “Contracting out” created hybrid entities where corporate and state power merged, exemplified by U.S. private prisons and UK PFI hospitals.

6. Conclusion: The Paradox of Freedom

Thatcher and Reagan’s free-market revolution promised liberation from bureaucratic statism but instead forged new architectures of corruption. By weakening democratic oversight, valorising profit-driven governance, and concentrating economic power, neoliberalism:

• Transformed the state into a market actor rather than a public guardian.
• Replaced social contracts with financialised transactions.
• Systematically advantaged corporate interests over civic ones.

The evidence – from rising inequality and financial crises to the Panama Papers and corporate capture of policymaking – reveals a stark reality, neoliberalism did not shrink the state; it repurposed it for elite interests.

As philosopher Philip Mirowski notes, neoliberalism views the market as the “arbiter of truth,” but in practice, it has become the arbiter of corruption. Reversing this requires rebuilding institutions that prioritise public accountability over market efficiency – a task demanding both policy change and a philosophical reckoning with neoliberalism’s corrosive legacy.

 

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