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The Rise and Fall of the Neoliberal Order

The Rise and Fall of the Neoliberal Order PDF

Author: Gary Gerstle

Publisher: Oxford University Press


Publish Date: April 5, 2022

ISBN-10: 0197519644

Pages: 432

File Type: Epub, PDF

Language: English

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Book Preface

Across the second decade of the twentieth-first century, the tectonic plates structuring American politics and life began to shift. Even before the pandemic struck, developments that ten years earlier would have seemed inconceivable now dominated politics and popular consciousness: the election of Donald Trump and the launch of a presidency like no other; the rise of Bernie Sanders and the resurrection of a socialist left; the sudden and deep questioning of open borders and free trade; the surge of populism and ethnonationalism and the castigation of once-celebrated globalizing elites; the decline of Barack Obama’s stature and the transformational promise that his presidency once embodied for so many; and the widening conviction that the American political system was no longer working, and that American democracy was in crisis—a crisis that the January 6, 2021, assault by a mob on the Capitol so shockingly dramatized.

In this dizzying array of political developments, I discern the fall—or at least the fracturing—of a political order that took shape in the 1970s and 1980s and achieved dominance in the 1990s and first decade of the twenty-first century. I call this political formation a neoliberal order. Ronald Reagan was its ideological architect; Bill Clinton was its key facilitator. This book is a history of this political order’s rise and fall. It offers a history of our times.

The phrase “political order” is meant to connote a constellation of ideologies, policies, and constituencies that shape American politics in ways that endure beyond the two-, four-, and six-year election cycles. In the last hundred years, America has had two political orders: the New Deal order that arose in the 1930s and 1940s, crested in the 1950s and 1960s, and fell in the 1970s; and the neoliberal order that arose in the 1970s and 1980s, crested in the 1990s and 2000s, and fell in the 2010s.

At the heart of each of these two political orders stood a distinctive program of political economy. The New Deal order was founded on the conviction that capitalism left to its own devices spelled economic disaster. It had to be managed by a strong central state able to govern the economic system in the public interest. The neoliberal order, by contrast, was grounded in the belief that market forces had to be liberated from government regulatory controls that were stymieing growth, innovation, and freedom. The architects of the neoliberal order set out in the 1980s and 1990s to dismantle everything that the New Deal order had built across its forty-year span. Now it, too, is being dismantled.

Establishing a political order demands far more than winning an election or two. It requires deep-pocketed donors (and political action committees) to invest in promising candidates over the long term; the establishment of think tanks and policy networks to turn political ideas into actionable programs; a rising political party able to consistently win over multiple electoral constituencies; a capacity to shape political opinion both at the highest levels (the Supreme Court) and across popular print and broadcast media; and a moral perspective able to inspire voters with visions of the good life. Political orders, in other words, are complex projects that require advances across a broad front. New ones do not arise very often; usually they appear when an older order founders amid an economic crisis that then precipitates a governing crisis. “Stagflation” precipitated the fall of the New Deal order in the 1970s; the Great Recession of 2008–2009 triggered the fracturing of the neoliberal order in the 2010s.

A key attribute of a political order is the ability of its ideologically dominant party to bend the opposition party to its will. Bending of this sort comes to be perceived as necessary within the ranks of politicians competing for the top prizes in American politics—the presidency and control of Congress. Thus, the Republican Party of Dwight D. Eisenhower acquiesced to the core principles of the New Deal order in the 1950s, and the Democratic Party of Bill Clinton accepted the central principles of the neoliberal order in the 1990s. Acceptance is never complete; there are always points of tension and vulnerability in a polity as fissiparous as the American one. And yet, the success of a political order depends on its proficiency in shaping what broad majorities of elected officials and voters on both sides of the partisan divide regard as politically possible and desirable. By the same token, losing the capacity to exercise ideological hegemony signals a political order’s decline. In these moments of decline, political ideas and programs formerly regarded as radical, heterodox, or unworkable, or dismissed as the product of the overheated imaginations of fringe groups on the right and left, are able to move from the margins into the mainstream. This happened in the 1970s, when the breakup of the New Deal order allowed long-scorned neoliberal ideas for reorganizing the economy to take root; it happened again in the 2010s, when the coming apart of the neoliberal order opened up space for Trump-style authoritarianism and Sanders-style socialism to flourish.

Steve Fraser and I introduced the concept of political order in a 1989 book that we coedited, The Rise and Fall of the New Deal Order, 1930–1980. Since that time, the phrase “New Deal order” has become a popular one for underscoring the dominance that the New Deal and the Democratic Party exercised in American politics from the 1930s through the 1960s. I begin this book with an account of how that earlier political order rose to prominence in the 1930s and 1940s, and how it fell apart in the 1960s and 1970s. This is no simple retelling of the history contained in the Fraser-Gerstle collection; rather, this narrative incorporates my own rethinking of key elements of that story. Reaching back to the New Deal order at the beginning of this book also serves the useful purpose of throwing into sharp relief how much the neoliberal order of recent times has differed from what preceded it.1

I then turn to the main event itself—the construction of the neoliberal order. This story unfolds in three acts: The first is the rise in the 1970s and 1980s of Ronald Reagan and the free market Republican Party he forced into being; the second is the emergence in the 1990s of Bill Clinton as the Democratic Eisenhower, the man who arranged his party’s acquiescence to the neoliberal order; and the third explores George W. Bush’s determination to apply neoliberal principles everywhere, in projects as radically dissimilar as building a post–Saddam Hussein Iraq and making America a more racially egalitarian nation. Bush’s attempt to universalize the implementation of neoliberal principles was born more of hubris than of a serious reckoning with the problems at hand and eventually pushed the US economy into its worst crisis since the Great Depression. But Bush’s hubris reveals not just the flaws of a man but, also, the unassailable prestige of neoliberal principles, an influence that Barack Obama’s election in 2008 initially did little to change. Two final chapters consider the political explosions that issued from the Great Recession of 2008–2009 (the Tea Party, Occupy Wall Street, Black Lives Matter, and the rise of Donald Trump and Bernie Sanders) and that pushed the neoliberal order to its breaking point. The neoliberal order was already fragmenting when the 2020 pandemic delivered the coup de grace. This book tells the whole of the neoliberal order’s story from its origins in the 1970s and 1980s, through its dominance in the 1990s and 2000s, and ending with its fragmentation and decline across the 2010s.

Reckoning with Neoliberalism

In the United States, conservatism has long been the preferred term to frame the political developments that are at the heart of this book. Why, then, label the political order that dominated America in the late twentieth and early twenty-first centuries a neoliberal one rather than a conservative one? That choice deserves some explanation.

Conservatism, in the classical sense, signifies respect for tradition, deference to existing institutions and the hierarchies that structure them, and suspicion of change. One can find manifestations of these ideas in American politics across the second half of the twentieth century, most importantly in a widespread determination among white southerners to maintain racial privilege in the era of civil rights and among Americans throughout the country who, in the name of tradition, were pushing back against liberation movements calling for equal rights for women and gays, and for sexual freedom.2

Other beliefs commonly associated with conservatism in America, however, do not fit comfortably under this political label. A celebration of free market capitalism, entrepreneurialism, and economic risk-taking was central to Republican Party politics of the late twentieth century. Yet this politics was not about maintaining tradition or the institutions that buttressed it; rather, it was about disrupting traditions and upending institutions that stood in the way. Neoliberalism is a creed that calls explicitly for unleashing capitalism’s power. Invoking this term allows us to shift the focus of political history in the last third of America’s twentieth century somewhat away from white southerners and family patriarchs resisting change to venture capitalists, Wall Street “modernizers,” and information technology pioneers seeking to push change forward. That shift in emphasis, this book suggests, is long overdue. Central to the politics of the Clinton years were major legislative packages that fundamentally restructured America’s information/communication and financial systems and whose influence on twenty-first-century political economy has been decisive. And yet those restructurings have attracted less attention than they deserve, their significance hidden by the smoke generated by the decade’s fiery culture wars. Those culture wars cannot be ignored any more than the racial backlash against the civil rights movement can be slighted. But it is time to bring the project of economic transformation more into focus, to give it the kind of careful examination it deserves, and to adjust our views of late twentieth-century America accordingly. A focus on neoliberalism can help us do that.3

Neoliberalism is a creed that prizes free trade and the free movement of capital, goods, and people. It celebrates deregulation as an economic good that results when governments can no longer interfere with the operation of markets. It valorizes cosmopolitanism as a cultural achievement, the product of open borders and the consequent voluntary mixing of large numbers of diverse peoples. It hails globalization as a win-win position that both enriches the West (the cockpit of neoliberalism) while also bringing an unprecedented level of prosperity to the rest of the world. These creedal principles deeply shaped American politics during the heyday of the neoliberal order.

Neoliberalism, I argue, sought to infuse political economy with the principles of classical liberalism. Classical liberalism (born in the eighteenth century) discerned in markets extraordinary dynamism and possibilities for generating trade, wealth, and a rising standard of living. It sought to liberate markets from encumbrances: monarchy, mercantilism, bureaucracy, artificial borders, and tariffs. It sought, in other words, to release the economy from the heavy hand of the state in its various guises. It wanted to allow people to move around in pursuit of self-interest and fortune—to truck, barter, and trade as they saw fit. Classical liberalism wanted to let individual talent rise (or fall) to its natural level. It carried within it emancipatory, even utopian, hopes of people freed and a world transformed.

My argument for treating neoliberalism as a descendant of classical liberalism puts me somewhat at odds with those scholars who have emphasized differences between the two. The most common argument for distinction is that neoliberalism, in order to reinvigorate markets, requires far more state intervention than classical liberalism ever did.4 I agree with the claim that strong states are necessary to organize (vibrant) markets, but I dispute the contention that the turn to strong states was a development that only began with the advent of neoliberalism. The excellent work done these last fifteen years by historians of nineteenth-century US state-building has revealed how the presence of a strong government, with the ability to set down and enforce rules for making contracts and with the capacity to expand and protect markets through law, military force, and tariffs, was critical to the success of classical liberalism in nineteenth-century America. Flourishing markets, then and now, require strong governments that can enforce rules of economic exchange. Markets need structure in order to operate freely. This principle was as intrinsic to classical liberalism as it has been to neoliberalism.5

Affixing “neo” to “liberalism,” I suggest in the pages that follow, was less about distinguishing this liberalism from classical liberalism than about separating it from what modern liberalism, in the hands of Franklin D. Roosevelt, had become: a version of social democracy that called for a far greater intervention by the government into market mechanisms than what liberals in the classical mode, such as Roosevelt’s predecessor as president, Herbert Hoover, could tolerate. Those politicians who supported Hoover would eventually call themselves conservatives. But many intellectuals in their ranks understood that conservatism, with its emphasis on order, hierarchy, and embeddedness of individuals in institutions, was contrary to the liberal spirit of disruption, invention, and innovation that they so admired.6 Somehow the term liberal had to be re-possessed. Invoking the term “neoliberal” was one way to do it.7

Recognizing the close kinship between classical liberalism and neoliberalism allows us to see how some who embraced neoliberal principles sought to resuscitate the promise of emancipation and individuality that was so central to classical liberalism itself. The notion that neoliberalism embodies this promise will arouse skepticism among some. Many regard neoliberalism as the work of elites and their allies aspiring to economic and political power. Those who figure centrally in their imaginations are often influential intellectuals, or deep-pocketed billionaires and the think tanks they support, or financial institutions, domestic (the Federal Reserve) and international (the International Monetary Fund and the World Bank), operating largely free of democratic oversight. Neoliberalism, from this point of view, is configured as the enemy of “the people” and framed as a tool used by elites to subvert democracy and to undercut emancipatory movements. Interpretively, these works are driven by the conviction that elites have been the creators and disseminators of neoliberal thought and practice.8

In the pages that follow, I pay careful attention to the harsh elements of neoliberalism, including mechanisms of coercion it advocated in order to impose market discipline on a society; support, sometimes ruthless, for pursuing capitalist accumulation; and an indifference to questions of economic equality and redistribution. But I also insist that an elite-driven model for understanding neoliberalism cannot suffice to account for the popularity that its views achieved in the United States. Ronald Reagan convinced many Americans that joining his political crusade would unshackle the economy from regulation and make them free. He framed that freedom as every American’s birthright; the pursuit of that freedom, he told his followers, was the reason the American Revolution had been fought, the reason the American nation had come into existence. Reagan resuscitated the emancipatory language of classical liberalism for a late twentieth-century audience, an act of recovery that helped to make him one of America’s most popular political figures. Seeking the sources of his popularity requires moving beyond elite-based understandings of neoliberalism and inquiring into the reasons that individuals up and down the social scale were drawn to Reagan-style neoliberal rhetoric and policies.

If Reagan was a popular figure, he was also a divisive one. He deliberately stoked racial tensions as a way of securing his political base. As his presidency became associated with market freedom on the one hand, it encouraged a revolt against civil rights advances on the other. A disturbing discourse arose in the 1980s depicting poor blacks as part of an “underclass” that was neither capable nor deserving of participation in the market economy that Reagan was so intent on creating. These were the years in which a program of mass incarceration took shape, one intent on removing hundreds of thousands and then millions of individuals, disproportionately minority, from ordinary economic activity and regular processes of market exchange. Successful experiments in freedom, the apostles of Reaganism seemed to be suggesting, depended on the denial of liberty to those unable (allegedly) to handle its privileges and responsibilities. Several chapters in this book explore the spread of unfreedom amid the advance of market freedom. This paradoxical feature of the neoliberal age, like others, turns out to have been rooted in the practices of nineteenth-century liberalism.

If the appeal of neoliberal policies had been confined to Reagan and his supporters, the problem of mass incarceration likely would have been addressed sooner than it was. But, it turns out, support for neoliberalism spilled beyond Reagan and his political precincts and into the districts of the New Left, a constellation of radical liberation movements that emerged in the 1960s.

The New Left’s engagement with neoliberal principles can be discerned in the vehemence of its revolt against what it regarded as the over-organization and bureaucratization of American society resulting from New Deal reform and in the desire to multiply the possibilities for personal freedom. This New Left revolt against excessive regulation is apparent in Paul Goodman’s cri de coeur, Growing Up Absurd; in the 1962 Port Huron Statement that defined the early goals of the New Left; in the rhetoric that Mario Savio used to frame the ambitions of Berkeley’s 1964 Free Speech movement, an early moment of New Left mass protest; in the early cybernetics movement that inspired the likes of Stewart Brand and Steve Jobs to associate the creation of the personal computer with the quest for individual freedom; and in the determination of Ralph Nader and his political allies to “free” the consumer from repressive corporate and government elites. Freeing the individual and his or her consciousness from the grip of large, stultifying institutions; privileging disruption over order; celebrating cosmopolitanism—and multiculturalism—and the unexpected sorts of mixing and hybridities that emerge under these regimes: All of these beliefs, each of which marinated for years in the political and culture milieux inspired by the New Left, furthered neoliberal aspirations and helped to make it into a hegemonic ideological force.9

Emphasizing the influence of classical liberalism on neoliberalism (and showing how the emancipatory elements of the former resurfaced in the latter) is one way in which this book’s account of neoliberalism is distinctive. Broadening our understanding of neoliberalism’s rise beyond an elite-centered model of politics to include the way in which popular and left forces spread its appeal is a second way. And then there is a third way: the importance this book ascribes to international politics in creating the circumstances in which neoliberalism moved from political movement to political order.

The international origins and reach of neoliberalism have been well documented by a variety of scholars. The European roots of neoliberalism in post–World War I Vienna, the home of neoliberal economists Friedrich Hayek and Ludwig von Mises, have been ably explored by Angus Burgin and others. Interwar Geneva has emerged as a critical incubator for neoliberal ideas, and Mont Pèlerin (Switzerland) is generally recognized as the place where Hayek and others attempted to turn neoliberalism into a disciplined thought collective. Quinn Slobodian has expertly examined the role of neoliberal policies in shaping relations between the Global North and the Global South in the post–World War II era, especially through organizations such as the International Monetary Fund and the World Bank. Amy Offner has dissected the impact of these policies on Latin America. And David Harvey was way ahead of everyone else in understanding the contributions of neoliberalism to the so-called Washington Consensus that structured US involvement with the world during neoliberalism’s 1990s heyday. Their work forms a critical backdrop to this study of the neoliberal order in America.10

Generally missing from studies of the international roots and reach of neoliberalism, however, is a reckoning with the Soviet Union and of communism more generally. And yet, this book argues, the Soviet Union and international communism cannot be ignored. Few international events in the twentieth century matched the Russian Revolution of 1917 in importance. In the fifty years after their rise to power in Russia, communists walled off large parts of the world—the vast Soviet Union itself, then half of Europe, and then China—from capitalist economics. For the first third of the Cold War era, communism was a serious threat in western Europe; for the first two thirds of the Cold War it posed a similar threat across innumerable nations emerging in Africa and Asia, and across Latin America. Fascism and Nazism can be understood as radical right responses to communism’s rise. Meanwhile, in the United States, from the 1920s forward, communism was regarded as a mortal threat to the American way of life. The Great Depression and the Second World War moderated America’s anticommunism, but only temporarily. No other single political force had a comparable influence on the world or American politics across the twentieth century.11

The power of—and the fear unleashed by—the communist threat is now largely forgotten. Few accounts of neoliberalism treat the fall of the Soviet Union between 1989 and 1991 or the collapse of communism as capitalism’s chief global antagonist as seminal events. But the consequences of that empire’s fall and the simultaneous defeat of its legitimating ideology were immense. Together they made possible neoliberalism’s American and global triumph.

One consequence of communism’s fall is obvious: It opened a large part of the world—Russia and Eastern Europe—to capitalist penetration. It also dramatically widened the willingness of China (still nominally a communist state) to experiment with capitalist economics. Capitalism thus became global in the 1990s in a way it had not been since prior to the First World War. The globalized world that dominated international affairs in the 1990s and 2000s is unimaginable apart from communism’s collapse.

Another consequence of communism’s fall may be less obvious but is of equal importance: It removed what had been an imperative in America (and in Europe and elsewhere) for class compromise between capitalist elites and the working classes. From the 1930s through the 1960s, communism was understood through the lens of totalitarianism, meaning it was regarded as a totalizing system of rule that once established could never be overthrown. A nation once lost to communism would never be regained for the capitalist world (or so the influential theory of totalitarianism taught).12 Thus the specter of communist advance required from the United States a policy of military containment unprecedented in its history. It also impelled capitalist elites in advanced industrial countries, including the United States, to compromise with their class antagonists in ways they would not otherwise have done. The fear of communism made possible the class compromise between capital and labor that underwrote the New Deal order. It made possible similar class compromises in many social democracies in Europe after the Second World War.

The collapse of communism, then, cleared the world of capitalism’s most ardent opponent. Vast new territories and peoples could now be brought into a single capitalist marketplace. The possibilities for growth and profits seemed boundless. The United States would benefit from this growth, of course. And perhaps the class compromise that had formed the basis of the New Deal order could now be jettisoned. There was no longer a hard left to fear.

The precise timing of the fall of the Soviet Union and of communism more generally—1989–1991—explains why the 1990s was a more decisive decade in neoliberalism’s triumph than the 1980s had been, and why Bill Clinton’s role in securing neoliberalism’s triumph was in some ways more important than that of Reagan himself. After 1991, the pressure on capitalist elites and their supporters to compromise with the working class vanished. The room for political maneuver by class-based progressive forces narrowed dramatically. This was the moment when neoliberalism transitioned from a political movement to a political order. The fall of communism, in short, forms a central part of the story of neoliberalism’s triumph.

Putting the fall of communism at the center of the story of neoliberalism’s rise requires an understanding of the role of communism in shaping the politics of the United States in the sixty years prior to the 1990s that is different from what is offered in many histories. In these accounts, fear of communism is treated as a limiting force on progressive politics. Countless progressive movements, it has been argued, trimmed their political sails rather than risk being tagged with the kiss-of-death label, “soft on communism.”13 But the threat of communism, I argue, actually worked in a quite different direction: It inclined capitalist elites to compromise so as to avert the worst. American labor was strongest when the threat of communism was greatest. The apogee of America’s welfare state, with all its limitations, was coterminous with the height of the Cold War.14 The dismantling of the welfare state and the labor movement, meanwhile, marched in tandem with communism’s collapse.

To argue for communism’s importance is not meant to rehabilitate it as a political movement. Communism was an indefensible system of tyranny. Rather, it is meant to help us to understand the role that communism played in the century when it was a feared force, and then to call on us to reckon with the effects of its sudden and complete disappearance from international and national affairs. The very real communist threat in the period from the 1930s to the 1960s facilitated the class compromise between capital and labor that sustained the New Deal order. The disappearance of that threat between 1989 and 1991 facilitated the scuttling of that compromise and the triumph of the neoliberal order. This perspective underscores the importance of situating the history of neoliberalism, and the political order it sustained, in the broader context of the epic seventy-five-year global struggle between capitalism and communism.15

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