And the motives of neoliberal reforms are much purer than one would imagine after reading left-wing criticisms of free-market reforms. Views shifted over the course of the 19th century, as capitalism was increasingly associated, whether accurately or not, with overly-powerful corporations and increasing inequality. After the Great Depression, many liberals saw laissez-faire not just as unfair, but also as dysfunctional.
Modern liberalism or social democracy outside the United States reached its peak between the s and s. The policy mix included a great deal of statism barriers to trade, price controls, high marginal tax rates MTRs and government ownership of industry , as well as greatly increased government spending, especially in government transfer programs. Then, beginning in the late s, there was a sudden and dramatic shift away from one aspect of socialism—statist policies were discarded and free markets came back into vogue.
The neoliberal revolution combines the free markets of classical liberalism with the income transfers of modern liberalism. Although this somewhat oversimplifies a complex reality, it broadly describes the policy changes that have transformed the world economy since Markets in almost every country are much freer than in ; the government owns a smaller share of industry; and the top MTRs on personal and corporate income are sharply lower. The United States, starting from a less-socialist position, has been affected less than some other countries.
But even in the United States there have been neoliberal reforms in four major areas: deregulation of prices and market access, sharply lower MTRs on high-income people, freer trade, and welfare reform. Many other countries saw even greater neoliberal policy reforms, as once-numerous state-owned enterprises were mostly privatized. In fact, the quite liberal social democracies of northern Europe have been among the most aggressive neoliberal reformers. These include passenger rail, airports, air-traffic control, highways, postal services, fire departments, water systems, and public schools, among many others.
These countries do have much larger and more comprehensive income-transfer programs than the United States has, but are not otherwise particularly socialist. So why is the left so skeptical of the neoliberal revolution? And why does the right tend to overlook it, except for the obvious cases, such as the collapse of communism?
Many on the left are skeptical about how much freer markets have actually achieved.
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Part of this skepticism reflects the slowdown in worldwide growth since Because almost all countries instituted at least some reforms, and yet growth slowed in most countries, there is a tendency to assume that the reforms failed. Others point to well-publicized fiascos in electricity and banking deregulation and assume that these represent the broader reality. Paul Krugman , one of the most forceful advocates of the view that neoliberal reforms in the United States caused economic growth to slow, wrote:. Basically, US postwar economic history falls into two parts: an era of high taxes on the rich and extensive regulation, during which living standards experienced extraordinary growth; and an era of low taxes on the rich and deregulation, during which living standards for most Americans rose fitfully at best.
Because economic growth slowed almost everywhere after , however, we need to look at relative economic performance in order to identify the effect of neoliberal policy reforms. The following data show per capita income in terms of purchasing power parity [PPP]. Note that four countries gained significantly on the United States, two were roughly stable Australia and Japan and the rest regressed. As we will see, the relative performance of each of these economies is consistent with the view that neoliberal policies promote economic growth.
Britain: At the time Margaret Thatcher became Prime Minister in , decades of statist policies had turned Britain into the sick man of Europe. The government owned the big manufacturing firms in industries such as autos and steel. Frequent labor strikes paralyzed transportation and led to garbage piling up in the streets of London. Much of the housing stock was government-owned. Britain had lagged other European economies for decades, growing far more slowly than most economies on the continent. By , it had a higher per capita income than Germany, France, and Italy.
We had also been growing much more slowly than Europe and Japan. Unlike Britain, we were still richer than most other developed countries, and so many people viewed this convergence as partly inevitable the catch-up from World War II and partly reflective of the superior economic model of the Germans and Japanese. GDP as soon as Australia: A traditionally rich country whose commodity export model started to sputter in the s, Australia began free-market reforms in the s under a left-wing government and accelerated the reforms after the conservatives took power in Japan: Japan is just the opposite of Australia.
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Both are in the process of becoming much richer than the United States. Some of that is due to their status as city-states. Canada: Canada is similar to Australia, except that it was not as statist as Australia in the earlier period, and its reforms occurred in the s, when Canada began shrinking the size of government as a share of GDP, after having, in , adopted free trade with the United States. These reforms were successful, as its decline relative to the United States was reversed, and Canada started catching up after France and Germany: Both passed some reforms, but much less than Britain.
They suffered a decline relative to both Britain and the United States. Note that the German data for the whole time period include the East, so their relative decline cannot be explained by the absorption of that less-productive region.
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Italy: Italy instituted a few reforms, but has a significantly more statist model than most of Western Europe. Italy fell far behind Britain.
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Sweden: Sweden had a bad recession in the early s after having suffered decades of relative decline. It made major cuts in MTRs, privatized, and deregulated during the s, and its relative performance improved after those reforms.
Switzerland: Switzerland has always been regarded as one of the most capitalist countries in Western Europe, but has also been among the least aggressive countries in terms of neoliberal reforms. What about in the developing world? But there is controversy about the impact of neoliberalism in middle-income regions such as Latin America. Latin Americans are the most disillusioned. Instead, growth remained sluggish, inequality increased, and the region was struck by a series of economic crises.
But a major part of the reason is that despite reforms such as trade liberalization, most economies in that region remain strikingly statist. Among Latin American nations, Chile has by far the best record of neoliberal reforms. Lucia, to make the top In contrast, Argentina ranks th. Jonathan Chait has expressed a common point of view when he has argued that neoliberalism is little more than a slur used by writers on the left to label varieties of liberalism they dislike.
For the left, neoliberalism often connotes a form of liberal politics that has embraced market-based solutions to social problems: the exchanges of the Affordable Care Act, for instance, rather than a single-payer, universal program like Medicare. But the term has its critics on the left, too: Political economist Bill Dunn finds it too insular , rarely adopted by the people it is said to describe. The historian Daniel Rodgers, meanwhile, argues that neoliberal means too many different things, and therefore not enough. And yet, the world today works in a distinctive and relatively new way, and those workings need a name.
Its critics are right that neoliberalism has multiple meanings and can be used in a way that is more pejorative than precise. But it also has an intellectual genealogy with real bearing on our time, making a careful reconstruction of its history essential to understanding our global economy. Neoliberal ideas emerged from the ruins of the Austro-Hungarian Empire in the early twentieth century.
While the empire had been growing quickly into an industrial power, it lagged behind Germany, France, and Britain. Then World War I disrupted the economy and broke the imperial system. With the end of the war, Austria became a democratic republic, and socialist candidates won repeated victories in its cosmopolitan capital, Vienna. The city inspired one resident, Karl Polanyi, to a lifelong defense of social democracy.
But not everyone saw it the same way. The war had reduced international trade and led to widespread interference by states in private property regimes, when governments had confiscated foreign-owned property and commandeered resources. Ludwig von Mises, an economist in the Vienna Chamber of Commerce, wanted to restore free trade and the sanctity of property.
The prewar version of the Austro-Hungarian empire became a point of reference for Mises and those who joined the study circle he organized: It had been a multi-ethnic empire that lowered barriers to trade while not insisting on cultural homogeneity. A relatively small, landlocked place like Austria, they reasoned, could never be economically self-sufficient in the industrial age.
It had to be open to the world market, and to succeed there it would have to be competitive. The same forces that inspired Polanyi, Mises found oppressive. Labor unions marched in the streets, demanding higher-than-market wages and lower-than-market housing. The city kept budgets balanced with high and progressive taxes, and businesses fared about as well as elsewhere in Austria. But social housing undermined the position of landlords, and the bourgeoisie felt targeted by taxes on conspicuous consumption.
For a time, there was even a dog tax that scaled upward with the breed and pedigree of the dog.
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Mises saw Red Vienna as a standoff between the power of labor and the power of capital. He was pleased when an anti-fascist uprising was violently suppressed in —leaving dozens dead and more than a thousand injured—since it broke the power of the social democratic masses to mobilize. Democracy, for Mises, was not an absolute value to be respected at all times. It was a good system insofar as it made peaceful, gradual change possible. Although it is frequently said that neoliberals want a weak state, in which the market can be left to do most of the work, that is not quite correct.
Against the enemies of the market—economic nationalism and democratic demands—the state has to play a role, mostly by creating a system of laws that protects property and by representing enough force to deter challenges. Their project was not anarchy: It was a global system that sufficiently ordered the world so that capitalism would be safe from certain forms of political interference. Friedrich Hayek, who had worked under Mises, imagined an organization independent of any one country that would set the rules of the market.
Hayek envisioned separate cultural and economic governments: The former would satisfy the demand for mass participation, while the latter would make sure that democratic enthusiasms did not interfere with the functioning of markets across the world. For most of the middle of the twentieth century, neoliberals thought they were losing, even as their organizing got more sophisticated.
In , Hayek established the Mont Pelerin Society in Switzerland, making it the institutional home for neoliberal thought and debate. But the world seemed to be going in a social democratic direction. Demands for social justice found new forums for expression in the world after World War II. United Nations agencies, at least formally, granted nations equal sovereignty, and there were ever more of them in a decolonizing world. European countries built up welfare states, and the countries of the global South demanded consideration of their economic needs.
The neoliberals were indignant. They asserted, in fact, that capitalism was anti-imperialist. Their objection was that the language of rights and the consequences of decolonization threatened the market. General Assembly, Uruguay and Bolivia, too, proposed that peoples should be free to exploit their natural resources.
Neoliberals wanted rules in place to prevent exactly this sort of scenario, establishing rights instead for the owners of capital. Time and again, Slobodian sees popular demands for justice undercut by neoliberal ideas about how the world should be organized. In a fascinating chapter, Slobodian examines the various conflicts within the Mont Pelerin Society over the subject of apartheid South Africa.
Yet granting black South Africans suffrage rights would inevitably lead to a reordering of property relations, since the black majority would favor reclaiming land that had been taken by white settlers.