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Neoliberalism

The term 'neoliberalism' refers to a world view backed by political and economic theory building on the liberal tradition, which emphasizes individualism, economic freedom, property rights and the rule of law. Neoliberalism at the same time displays a notable ambiguity with regard to the liberal traditions of democracy and basic political rights. If traditional liberalism promoted both economic and political freedom in opposition to the social institutions of feudalism, post-WW II neoliberalism emphasized economic freedom vis-à-vis challenges from political regimes including parliamentary democracy and the welfare state. Social democracy and trade union power in representative parliamentarian systems was regarded to potentially undermine economic freedom (“dictatorship” of the masses or by way of majority rule), which explains the ambiguity of neoliberals with regard to basic political rights like freedom of coalition.

Neoliberalism has been frequently reduced to and is consequently misunderstood as a radical economic market doctrine (benefits of the “invisible hand”) due to the neoliberal propaganda levelled against public property, social regulation or trade restrictions. Neoliberalism differs from traditional or classicl liberal economic doctrines, however, because naturalist notions of self regulation and the dualism of economic and political systems have been left behind after the Great Depression by way of recognizing the need to protect and proactively stabilize capitalism. The role of the state has been and continues to be redefined by neoliberal doctrine to this end, and the appropriate means are subject to permanent exploration and re-assessment. An expanded role of the state to safeguard market relations has come to be considered a quintessential precondition for the viability of capitalism and therefore constitutes the key to understanding the neoliberal word view in competition with social liberal and other perspectives.

History of the Concept

The term neoliberalism was “officially” coined in France in 1938. A group of liberal intellectuals gathered at the Colloque Walter Lippmann in Paris that year to discuss Lippmann’s book “The Good Society” (Denord 2009). Liberals across Europe and the Americas had long been concerned with the rise of socialism in Russia and additionally had to face the increasing emphasis on protectionism and economic planning in Western and Southern societies after the Great Depression. But liberal scholars, businessmen and politicians also addressed the perceived failure of traditional liberal doctrines to meet the social, political and economic challenges of the inter-war years in an effort to bringing the liberal tradition up to the changing circumstances and the needs of the time. Neoliberalism has been conceived in this dual opposition to collectivism and traditional liberalism even if the latter break with the liberal past has since been frequently downplayed and even denied in order present a continuous history of classical liberalism (e.g. Sally 1998). In order to conduct the international program to renovate liberalism, a number of think tanks were planned in different countries. The title of the research program referred to in the minutes of the meeting selected the term 'neoliberalism' over competing terms like 'individualism', 'positive liberalism' and even 'left-wing liberalism'. “To be ‘neoliberal’ was supposed to imply the recognition that ‘laissez-faire’ economics was not enough and that, in the name of liberalism, a modern economic policy was needed” (Denord 2009, 48). While the inter-war efforts were stalled due to the outbreak of World War II, the transnational network design anticipated the structural dimensions and the transdisciplinary and transprofessional (think tank) mode of operation prevalent in the post-war evolution of neoliberalism (Walpen 2004, Plehwe 2009a).

After WW II the project was resurrected under the umbrella of the Mont Pèlerin Society founded by Friedrich-August von Hayek and the Swiss businessman Albert Hunold in 1947 (for different perspectives cf. Walpen 2004, Plickert 2008). The early Mont Pèlerin intellectuals observed greatly increased dangers of collectivism due to the expansion of the Socialist empire around the Soviet Union, the anti-colonial liberation struggles, and due to the rise of Keynesianism and the welfare state in the Western world. Only a few countries like Germany or Switzerland featured economic and social policies that were broadly in line with the neoliberal ideas developed by members of the Mont Pèlerin Society. Economists like Wilhelm Röpke, Walter Rüstow and Alfred Müller-Armack in particular were key advisors to Germany’s economic minister and later chancellor Ludwig Erhard and helped creating the original social market economy (Ptak 2009).

Neoliberalism travelled across borders easily as a result of a transnational discussion among intellectuals with different backgrounds and experiences. The resulting world view combined different schools of (economic) thought and involved the collaboration of scholars from many different academic disciplines. Apart from the German ordoliberal tradition, which had mainly been developed in Freiburg (Eucken, Brandt etc.) and Geneva (Röpke) during the period of National Socialism, Austrian economists in exile in the UK (von Hayek) and in the United States (von Mises) as well as local traditions in these and other countries were among the key pillars of the ongoing debate. Apart from the LSE department of Lionel Robbins (Treib 2009), and the second Chicago School (van Horn and Mirowski 2009), the French group around organizers of the Colloque Walter Lippman like the philosopher Louis Rougier contributed to the vibrant intellectual exchange that was reinforced by political leaders such as Italy’s president Luigi Einaudi and journalists like Henry Hazlitt publishing in leading media like the Fortune Magazine, the Wall Street Journal, Neue Zürcher Zeitung, Frankfurter Allgemeine and Readers Digest, for example. Due to the range of different formations and perspectives involved in the Mont Pèlerin circles, the evolution of the neoliberal world view is best characterized as pluralism confined by neoliberal norms and principled beliefs such as individualism, economic freedom and the rejection of historical and moral relativism (Walpen 2004). Popular political representations of neoliberalism as a “pensée unique” (Pierre Bordieux) do not adequately capture the complexity of neoliberal thought.

Evolutions of Neoliberalism

Although many observers regard neoliberalism as an Anglo-Saxon child of the late 1970s and early 1980s (Thatcher and Reagan “revolutions”, respectively) or point to the “Washington Consensus” of 1989, the rise of Anglo-Saxon neoliberalism to prominence was preceded by the earlier instantiation of Germany’s Social Market economy of the 1950s and 1960s and Latin American authoritarian 1970s varieties of neoliberalism in Chile and Argentina, for example (Fischer 2009 and Plehwe 2011, respectively). Typically, American scholars tend to forgo the early continental European history of neoliberalism in particular when distinguishing different phases of neoliberal development. Robinson and Harris (2000) suggest a first “radical” laissez faire phase linked to Milton Friedman followed by a structuralist phase (featuring Social Democratic third way politics) and most recently a new type of neoliberal regulationism (a la Stieglitz). Such a perspective overlooks a rich reservoir of regulatory alternatives developed by neoliberals since the time of WWII in response to concrete economic, political and social demands in time and space. Plehwe, Walpen and Neunhöffer (2006) alternatively suggest distinguishing between a defensive period of neoliberalism lasting until the 1960s, a movement phase during the 1960s and 1970s period of social liberal hegemonic constellations leading up to the contemporary epoch of neoliberal (or right wing liberal) hegemonic constellations. Some authors suggest a new post-neoliberal era has started as a result of the global financial crisis in 2007-8 and observe promising initiatives in Latin America in particular (Brand and Sekler 2010). Given the latest shift of the crisis discussion towards public debts and austerity measures, however, it is more likely that neoliberalism has not quite run its course. Because many of the agenda items of neoliberal movements and governments were accomplished from 1980 – 2010 (erosion of planned economies, deregulation and liberalization resulting in intensified globalization, privatization, limiting tax progression, reduction of social redistribution schemes etc., cf. Harvey 2005), the present task of neoliberals can be best described as defending the status quo ante crisis (of 2008, cf. Plehwe 2010).

Neoliberalism in Latin America

Even if the origins of neoliberalism are strongest in Europe and despite the growing weight of Anglo-Saxon elements of neoliberalism during the age of American hegemony, important networks of neoliberal intellectuals in other world regions both deserve more recognition and need greater scrutiny. Latin American scholars, administration officials and business people, for example, played an important role in the global evolution of neoliberalism from early on. Intellectuals from Mexico, Guatemala, Argentina and Brazil, for example, already contributed to the formative stage of neoliberal development. Mexico’s Gustavo R. Velasco was among the editors of a volume in honor of Ludwig von Mises (Harper et al. 1971), which also included contributions from Argentina, Guatemala, and Peru. Many think tanks had already been founded by Latin American scholars during the 1950s and 1960s, contributing to the critique of modernization theory and dominant left-wing theories of underdevelopment in the emerging field of development economics (Goodman and Marotz-Baden 1990, Plehwe 2009b).

Neoliberals in Chile played a key role in the transnational battle over development economics and politics. The presence of the United Nations Economic Commission for Latin America (ECLA) under the leadership of Raúl Prebisch in Santiago attracted a lot of attention. The headquarters of the new school of economic thinkers promoting import substitution to industrialize southern countries was opposed by local conservatives. Domestic and international advocates of free trade and critiques of the new theories of development were reinforced in 1956 by an alliance struck between the Catholic University of Santiago and the University of Chicago. Strong links between local and foreign neoliberals and the military subsequently developed in Chile, although similar links between local business conservatives, neoliberals and the military had already existed in Argentina, for example (Plehwe 2011). Military neoliberalism rose to prominence in Chile during the 1970s. Two years after the Allende government was toppled neoliberal technocrats were placed in key advisory positions. Fischer (2009) distinguishes different phases of neoliberal restructuring in Chile. Initially the reforms of Allende’s socialist government were reversed followed by what has become known as the “shock therapy”. Later on the privatization of social security and labor laws designed to undermine trade unions and collective bargaining moved to the top of the agenda. Neoliberal reforms in Chile have finally been consolidated with a new constitution inspired in parts by the work of Friedrich August von Hayek.

Argentina is better known for radical neoliberal reforms under president Menem and his finance minister Cavallo during the Washington Consensus years, in spite of radical neoliberal policies adopted during the dictatorship of the 1970s - 80s. Contrary to the flexible exchange rate regime recommended by Washington Consensus, Argentina introduced a currency board to fix the Peso to the U.S. Dollar. After a short-lived boom during the early 1990s, Argentina’s economy crashed due to the resulting overvaluation of the local currency and the resulting loss of competitiveness of local businesses. Although most of the Washington Consensus priorities have been correctly identified as key items on the neoliberal agenda, the currency board and monetary rigidity clearly went beyond the pragmatic neoliberalism of the Washington Consensus era. The short-lived regime presented a more radical effort to privilege domestic and foreign capital ownership against exchange rate fluctuation and manipulation by the government or central bank (Plehwe 2011).

Neoliberalism in Latin America by now has a rich history combining projects promoted by some of the most ruthless authoritarian regimes and by democratically elected governments. The record of neoliberal economic policies is at any rate mixed with pragmatic varieties of neoliberalism clearly yielding better results than radical projects. Most of the declared goals have not been reached. Neoliberalism in Latin America consolidated the traditional position of the commodity-exporting countries in the world market. State-led industrialization strategies instead seem to support development in the case of Brazil.

Conclusion

Due to the strong interest in Latin America from the Northern superpower and the strong financial support for local neoliberals from U.S. (and German) sources, neoliberal think tanks and networks of intellectuals developed faster and more strongly in Latin America than in other parts of the global South. Under the umbrella of the Atlas Economic Research Foundation, presently headed by the Argentinean national Alejandro Chafuen, the work of neoliberals has been coordinated across borders. Local neoliberals and business people have helped to build think tanks and in even universities in the case of Guatemala (Marroquin University) and Argentina (ESEADE Business School), both at home and in neighboring countries, to spread their ideas of economic freedom and free trade in Latin America. Neoliberalism is strongly entrenched in Latin American civil society as a result of 50 years of steadfast organizing. The region's neoliberal networks can be counted and relied on in present and future political battles over the future direction of Latin American regionalism and development.

If the enhanced role of the state is more easily visible during times of protracted crisis, neoliberals do attempt to hide the state behind the image of the rule of the law.

Dieter Plehwe

Please cite as:
Plehwe, Dieter. 2012. “Neoliberalism.” InterAmerican Wiki: Terms - Concepts - Critical Perspectives. https://uni-bielefeld.de/einrichtungen/cias/wiki/n/neoliberalism.xml.

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