Originally published in Second Best.
If the “neoliberal era” saw consistent increases in regulation and social spending, what made it neoliberal in the first place? And what distinguishes neoliberalism from liberalism per se? This is my attempt at an answer.
To start with, plain old liberalism is a tradition in political philosophy based on tolerance, individual freedom and the rule of law. Classical liberalism is relatively laissez-faire and focused on “freedom from” the government, while modern liberalism has a “positive” conception of freedom that includes distributive justice.
Neoliberalism, on the other hand, is as much a sociological category as a philosophical one. In the U.S. context, the term is associated with Charles Peters’ 1983 essay, A Neoliberal’s Manifesto, which presents neoliberalism as the center-left mirror to neoconservatism; a corrective for liberals mugged by the realities of stagflation and excess unionism who nevertheless wished to retain their liberal ideals. Where a neoconservative embraced Reaganite tax cuts to spur growth, for example, a “neoliberal” like Gary Hart proposed issuing a special class of stock “for the explicit purpose of investment in new plants and equipment.” Rather than reject markets, Peters’ neoliberalism was emphatically pro-business, globalization and entrepreneurship, just within the context of technocratic policies for aligning markets to liberal ends. This went on to become the dominant force within the Democratic Party in the 1990s and beyond, from Bill Clinton’s “Empowerment Zones” to Cory Booker’s “Opportunity Zones, and as parodied by the Oddly Specific Kamala Harris Policy Generator.
The original meaning of neoliberalism is related to Peters’ but goes back to Walter Lippmann’s 1937 book, The Good Society. Lippmann was a modern liberal who was similarly “mugged” by the failures of New Deal-era central planning, leaving him indebted to the arguments against socialism popularized by Ludwig von Mises and F.A. Hayek. Yet Lippmann was far from a libertarian. In parallel with the Ordoliberal thinkers of post-war Germany, Lippmann believed in the need for a “new liberalism” that struck a balance between the excesses of both governments and markets.
The Walter Lippmann Colloquium was held in Paris in 1938 to work out what that could mean in practice, with Mises and Hayek in attendance alongside a slate of French and German economists. The term “neoliberalism” was coined at the meeting by German sociologist Alexander Rüstow to disambiguate their project from the laissez-faire liberalism of the 1800s. The Colloque Lippmann was a precursor to the Mont Pelerin Society meetings that kicked off a decade later, providing a transnational forum for neoliberal thinkers, historians and business leaders to discuss strategies for preserving open markets and societies amid the reconstruction of Europe and rise of international communism.
Neoliberalism as Third Way globalism
Most popular histories of neoliberalism draw a straight line from the Mont Pelerin Society to Reagan and Thatcher. But as seen in its origins, neoliberalism has always had a left and right flank, and if anything began as a form of Third Way-ism most closely associated with center-left internationalists. Neoliberalism’s association with the small government right merely conflates the 1980s Anglo-American experience with a much broader phenomenon. Thus right-neoliberals have Mises and Hayek while left-neoliberals have Popper and Polanyi, explaining why Charles Koch and George Soros have such strikingly parallel interest in dead Viennese philosophers.
Far from being neoliberalism’s opposite, market-oriented social democracy is simply how neoliberalism manifested on the continent. The Ordoliberal influence on Germany’s model of a “social market economy” is a case in point. Progressive critiques of shareholder primacy and the like are thus often best understood in terms of an internecine dispute between the left and right flanks of a common neoliberal ideology, not as a rejection of neoliberalism per se. Klaus Schwab’s “stakeholder capitalism,” Elizabeth Warren's support for codetermination, and the EU’s tough antitrust stance all channel the early Ordoliberals, for example.
What unites left and right neoliberals is less a blind faith in “free market fundamentalism” than support for multilateral economic integration managed by transnational institutions and a professional class of technocrats. Think the World Economic Forum, IMF, WTO and OECD; Hillary Clinton’s backroom call for a “hemispheric global common market with open trade and open borders,” or Judy Shelton’s vision for a North American currency called the Amero.
Neoliberal institutions and ideas embody a project of global integration and governance that’s distinctly inimical to popular sovereignty. This contrasts with classical liberalism, which arose in parallel with the consolidation of the first modern nation-states and thus rooted political authority in the consent of a national political community. Nevertheless, in the aftermath of World War II, the fear that nationalism and popular democracy would invariably slide back into reaction or revolution was fairly understandable. With Europe in the process of rebuilding, an opportunity for greater transnational integration presented itself, supported by a series of domestic social compromises aimed at keeping liberal reformers in charge and the fringes at bay.
The Golden Straitjacket
Nancy MacLean’s description of the neoliberal project as putting “Democracy in Chains” is thus on some basic descriptive level right. But given the internecine nature of these debates, her narrative focus on anti-majoritarian American thinkers like James M. Buchanan and John Calhoun ranges from one-sided to conspiratorial. A less parochial history of neoliberalism’s suspicion of democracy would start, not with American Southerners or 1970s libertarian academics, but with the framers of the European common market. As the socialist historian Jonas Elvander explains in his book, Disciplined Democracy: The neoliberal history of the EU,
The story of the EU’s neoliberalism is usually told as a “turn” that happened in the mid-1980s and early 90s, culminating in the Maastricht Treaty. This is only partly true. The foundations for the EU were laid at the same time as neoliberalism emerged, in the 1940s and 50s, and some key elements in the Rome Treaty were formulated by “ordoliberals” (the German variant of neoliberalism which put more emphasis on antitrust policies), such as the “four freedoms” of the Common Market. The reason the EC is never described as neoliberal in this period is that the free movement of people, capital, goods, and services was not fully realised until the 80s and 90s, when the wider neoliberal shift in the world made it politically possible. What Jacques Delors and his colleagues did in the 80s was actually little more than to implement the Rome Treaty, 30 years after its adoption, which some neoliberals also acknowledged. The neoliberal principles that had been there since the 50s thus became “operational” only in the 80s.
The Rome Treaty and European Economic Community formed out of the Treaty of Paris, which established shared steel and coal production between France and Germany to bind them against returning to war. Alongside the Europe Declaration, the Paris Treaty laid the foundations for supranational institution-building as the first formal agreement to emphasize a common European identity. Economic integration and harmonization eventually gave way to political integration with the creation of the European Union, binding the sovereignty of member countries through a version of Thomas Friedman’s “golden straitjacket.”
For Britain and the United States, supranational institution building took the form of the Bretton Woods system. As the new de facto global hegemon, the U.S. pushed for the creation of a new international monetary regime to consolidate financial power and facilitate Europe’s reconstruction through open markets. Under Bretton Woods, countries maintained a currency peg to the gold-backed U.S. dollar to prevent competitive devaluations, while supranational institutions like the IMF and World Bank managed global payment imbalances to enable member nations to rebuild their economies through Keynesian social and industrial policies. Political scientists thus refer to the Bretton Woods-era as representing a form of “embedded liberalism” that enabled cross-border trade in goods and services while preserving nations’ sovereignty over the capital structure of their internal economies.
Managing the balance of payments between multiple countries was a delicate task that, like the three body problem in physics, ultimately proved unstable. Currency pegs began unravelling in the late-1960s, and by 1976 virtually every member country had converted to a free-floating exchange rate. Per the “impossible trilemma” in international economics, the end of Bretton Woods restored members’ sovereignty over monetary policy in exchange for the free flow of capital across borders. Soon after, the IMF pivoted away from supporting capital controls to being a strong proponent of international capital mobility and market-based structural reforms. The era of disembedded liberalism was thus born, typified by financial globalization, the rise of multinational corporations, and soaring levels of foreign direct investment.
Disembedded Liberalism at home
In the U.S., the transition to disembedded liberalism manifested domestically through the decline of large, membership-driven stakeholder organizations, from unions and churches to thick political parties. Such associations had served to aggregate diffuse interests into coherent negotiation blocks during the New Deal-era, giving rise to the cross-cutting and regionally-embedded political coalitions. Ironically, however, the New Deal also greatly expanded the administrative state’s role in the national economy by drawing on a broad interpretation of the Commerce Clause. This paralleled the European project of economic and political integration by helping make the U.S. even more of a continent-wide common market. So as with the rise of Brussels, the post-New Deal era cemented the need for a distinct technocratic class in Washington to run the federal apparatus.
Most parliamentary democracies went through a similar transition and located their policy elites within professionalized civil services or political party organizations. The separations of power in the U.S. presidential system made sustaining a similar degree of technocratic “in-sourcing” considerably more difficult. U.S. state capacity thus reached its high watermark in the 1950s, when trust in government was high and the civil service still contained many talented and ambitious New Dealers. Overtime, however, the technocratic class came to be predominantly supplied by think tanks, law firms, universities and large foundations — what Theda Skocpol has called “associations without members.” As the political scientist Steven Teles explains,
Before the 1960s, if you were an idealistic person who wanted to drive social change in some way, you really didn’t have much choice to either build a mass membership organization or work within one. But things really did change in the 1960s. Foundations like Ford and Rockefeller began to fund a huge network of organizations in law, civil rights, feminism, consumerism and the environment, a process I examined as the backdrop to my book “The Rise of the Conservative Legal Movement.” Suddenly, if you were that idealistic person, you could skip over the step of building a mass movement and put out your shingle and start suing, lobbying and publishing. That model — a professionally staffed organization based in D.C., no members, funded primarily by foundations — came to be the dominant one on the center-left.
This included the legal aid and consumer rights movements, which pulled functions that might have otherwise been supplied by an administrative agency into the courts, empowering an autonomous class of legal elites. The “rights revolution” fit neatly into a neoliberal framework given its emphasis on procedural justice, paralleling the Ordoliberals’ juridical obsession with rules over discretion. Ralph Nader was a friend and admirer of the economist Alfred E. Kahn, for instance, seeing the price deregulations he advanced while in the Carter administration as a great win for consumers. As I discuss in Non-profits Are Under-theorized,
In this light, the conflation of “the neoliberal turn” with Reaganomics is about two decades too late. Instead, the regime change that displaced member-led parties and the countervailing power of robust labor unions first started, as Teles notes above, in the mid-1960s, when large foundations swelled on post-war growth and tax avoidance to fill the void. Collective bargaining and machine politics were summarily replaced with a technocratic “policy state.”
The neoliberal project benefited from this new, “disembedded” political economy in several ways. Most obviously, locating policy elites in an independent third sector helped shield the transnationalist consensus from the vagaries of electoral politics, as seen in the ideological continuity of D.C.’s “foreign policy blob.” Additionally, offloading policy development and service delivery onto grant-funded nonprofits enabled a subterranean form of privatization. The phenomena of “interest group liberalism” followed suit, as liberal reformers began coupling their social policies to intermediary interest groups to give them a permanent constituency.
With the Great Society-era in particular, the orientation of social programs transitioned from the New Deal logic of brokering between large stakeholders to a technocratic logic of applied social science, as though poverty, inequality and family breakdown were problems for experts to solve. The early neoconservatives thus devised interventions to forestall rising crime and illegitimacy rates, while the Charles Peters-style neoliberals sought to ameliorate inequality of opportunity through bespoke tax preferences, jobs programs and educational interventions. In either case, following the tumult of 1968, the de facto role of the new social policy elite was to diagnose the root causes of civil unrest and make the American-led world order safe from populist backlash.
By the mid-70s, the old labor left was well on its way to being replaced by the New Left, which saw unionism and class-based analysis as passé. The New Left focused instead on the supposedly "deep" forces of Marcusian social repression, gravitating towards a praxis of cultural subversion that both reinforced consumer capitalism and secured the left’s political irrelevancy. The neoliberal co-optation of the left was reflected in the prevailing wisdom of progressive reformers. As the American critical theorist, Rick Roderick, put it in a 1987 lecture, “the fact that the major unions are losing membership is in a sense a positive thing, because American workers no longer see their interests as represented in purely economic terms.” Thus, contra the William Julius Wilsons of the world, the New Left tended to treat deindustrialization as an inevitability, preferring to support displaced workers with make-work community organizing and palliatives like a guaranteed income.
In this light, center-left organizations like the Urban Institute and Center on Budget and Policy Priorities are as much a product of the neoliberal-era as, say, the American Enterprise Institute or the Peterson Institute for International Economics. They form an ecosystem of elite policymakers supported by opaque patronage networks, one degree removed from government agencies and political party organizations, and with boards of directors predominately drawn from the transnational corporate sector. Policy debates between center-left and center-right technocrats are then staged to simulate as-if tripartite negotiations between different social groups, requiring the interests of the disintermediated masses to be intuited vicariously through opinion polling and census data.
The neoliberal project reached its apotheosis with the Washington Consensus of the late 1990s, after the fall of the Soviet Union made the trend toward global market integration seem unstoppable. Neoliberal ideas were spread far and wide through foreign aid programs and networks of free market think tanks. With the EuroZone off the ground, policymakers even seriously debated the merits of a North American Union, while entire journals dedicated themselves to the study of “regulatory harmonization.”
What comes next
In his 1997 book, Has globalization gone too far?, the economist Dani Rodrik issued a rare dissent. As economic integration moved beyond tariff reductions and into the “hyper-globalization” phase of political integration, Rodrik warned that social disintegration and legitimacy crises would follow. And follow they did, from the fallout of the China Shock and global financial crisis, to the EuroZone crisis, Brexit, and rise of populism across the West.
Defenders of the neoliberal era will argue that there are discrete policy solutions for each of these crises — a bigger EITC, new job training programs, more funding for public health and education, looser monetary policy, etc. — but this misses the point. By decoupling patronage networks from a broad social base, the public has become increasingly disenfranchised, while politicians have lost the output legitimacy that comes from brokering deals on behalf of their constituents. The dominant “theory of change” within large think tanks, foundations and media organizations has thus shifted toward “narrative change” and Potemkin forms of grass-roots organizing, fulfilling Walter Lippmann’s vision of a democracy made safe from the demos. Elections now matter less for the orientation of public policy than the conventional wisdom of unelected policy wonks, suggesting that the crises common to our post-national constellation, even if fixable by enlightened reformers, will tend to reoccur.
Between the internet-enabled revolt of the public, the rise of the BRICs, and our increasingly “weaponized interdependence,” the neoliberal model is clearly hitting a wall. The question is what comes next.
But against the left-wing narrative, the main problem with the neoliberal era was not the market, the joint stock corporation, or even free trade. On the contrary, the original neoliberals favored a managerial, stakeholder-driven model of capitalism from the beginning. Likewise, neoliberalism’s primary legacy was not uniform deregulation and austerity but rather a shift toward supranational, elite-driven forms of technocracy and proceduralism.
As I’ll discuss in my next post, transcending the neoliberal era will thus in many ways require a restoration of the older, embedded form of liberalism; a return to what Michael Lind calls democratic pluralism. That means dismantling unaccountable bureaucracies, reinvesting authority in executive institutions and mass-membership organizations, and embracing a developmentalist, bottom-up mode of capitalism that takes the bonds of nationality far more seriously.
