The time appears to have come for full-throated defenses of the neoliberal center. While this is an improvement over idiotic denials that neoliberalism even exists, it is at best intellectually dishonest and ahistorical in its understanding of the economic and political history of the world between 1945 and the present. A recent version of this “actually neoliberalism is good” genre has been brought to us by Noah Smith (though my personal favorite remains this oxymoronic call for a “radical center”). Smith’s argument is weakened by the fact that he apparently doesn’t know anything about the history of neoliberalism and only the vaguest sense of what people who criticize it are talking about (“Many will disagree, but to me FDR seems like the original neoliberal”). I have been working on putting together a set of posts on the emergence of neoliberalism and this one will serve to introduce the concept and give some very brief context.
Before we can go any further, the first step required is to define neoliberalism. According to Smith it is a vague and slippery term. Of course, neoliberalism isn’t actually any less well-defined than most terms. For example, try defining capitalism. Nonetheless, Smith suggests this definition: “It loosely refers to free-market economic ideas, combined with a technocratic, incrementalist approach to fixing market failures and redistributing wealth.” It’s not a great definition and misses a lot of the key underlying ideology that has resulted in the left’s opposition to neoliberalism and also shows why Smith thinks that FDR was a neoliberal. In his essential book on the history of neoliberalism, David Harvey defines neoliberalism as:
A theory of political economic practices that proposes that human well-being can best be advanced by liberating individual entrepreneurial freedoms and skills within an institutional framework characterized by strong private property rights, free markets, and free trade. The role of the state is to create and preserve an institutional framework appropriate to such practices.
The snide retort is that it’s basically just a definition of capitalism and thus is meaningless as a critique. That is actually kind of the point, since neoliberalism is a conscious reference to nineteenth-century liberalism. Unlike how liberal tends to be used today, liberalism in the nineteenth century (especially Victorian Britain) meant free markets, global trade, colonialism and industrialization combined with a general sense of egalitarianism (thus opposition to slavery, child labor, etc.). Neoliberalism is a form of capitalism in which the primary role of the government is to protect and expand the rights of global capital. This is why recent “free trade agreements” are more concerned with intellectual property law than reducing tariffs.
As Smith demonstrates, you can easily frame the basic principles of neoliberalism in a way that makes it sound ridiculous to oppose it, but Smith’s defense exists entirely removed from any historical context. There are two key elements missing from Smith’s article. First, what preceded neoliberalism? Why did it become the dominant ideology and why did it come to power when it did? Second, what has been the result of neoliberalism? Essentially, what have the neoliberals done?
Calling FDR the first neoliberal is absurd and ahistorical because FDR was, in fact, the leading representative of the political economic consensus that came before neoliberalism: social democracy. Social democracy came to power as a result of the Great Depression and the Second World War. The catastrophic failure of the banks that resulted in the Great Depression demonstrated to center-leftists like FDR the imperative that banks be regulated and the citizen protected against the worst excesses of capitalism. The deprivation that occurred as a result of the Depression led to the creation of state welfare as governments began to see protecting the welfare of their citizens as their primary duty. The Second World War that immediately followed the Depression created conditions of total warfare in which the government rapidly expanded into every aspect of life. This meant that a level of government involvement in the economy that was previously unimaginable became accepted as necessary to the circumstances.
After the war, social democracy established itself as the prevailing worldview and social democratic ideas took hold in much of the so-called developed world. These ideas included universal healthcare, public ownership of key utilities, the massive expansion of access to secondary education, social security, the forty hour work week, widespread unionization, and so on. The social democratic victory seemed so complete that in the 1960 presidential election Richard Nixon campaigned on a social democratic platform. It turned out, however, to have been at its peak and would soon be faced with sustained pressure that would ultimately lead to its collapse. The Nixon who became president in 1968 did so in part because he was able to successfully reinvent himself and moved significantly to the right.
At its core conservatism is a reactionary worldview and the reactionaries responded immediately to the new social democratic consensus. As they regarded social democracy as an incipient socialism, a number of notable individuals such as Ayn Rand, Friedrich Hayek, Ludwig von Mises and Milton Friedman set about to establish a coherent critique of social democracy and to articulate an alternative. At the same time a group of conservative reactionaries within the Republican Party (led by the likes of William Buckley and the John Birch Society) sought to reconstruct the party along explicitly racist lines. As I will show in a future post, racism was a crucial element to the collapse of social democracy and the rise of neoliberalism and remains a core feature of neoliberalism to this day.
Despite what its defenders claim, neoliberalism has had devastating consequences. It has resulted in the significant decline in wages at the same time productivity and corporate profits have skyrocketed. It has ensured governments protect corporate interests and not the environment, which has meant that we’ve completely failed to meaningfully address climate change. Governments have handed over their regulatory power to corporations, leaving banks free to engage in ever more destructive and criminal behavior at the same time that individual freedom has become increasingly circumscribed and normal people subjected to constant surveillance in what have become privatized police states. Yet, the first neoliberal politicians were embraced with enthusiasm. Margaret Thatcher and Ronald Reagan were elected with historic majorities and remain popular even now when the disasters created by their policies are clear to be seen by anyone willing to look. It is important to recognize that the prescriptions advocated by neoliberalism were appealing to many in the context of the 1970s. Neoliberalism was a conservative reaction to social democracy, but when it arrived on the national stages in the 1970s, it was responding to real failures. Its solutions turned out to be far worse for most than the problems it claimed to solve, but this was not obvious to most voters at the time. Indeed, it is not obvious to most voters even now with the benefit of hindsight.
While social democracy was vigorously opposed by conservatives from the outset, it was not until the 1970s brought economic crises sufficient for it to be overthrown. When such crises arrived, it was the conservatives who were ready with a coherently expressed alternative that. The upshot of the groundwork laid in the 1940s and ‘50s eventually came to fruition in the 1970s. Social democracy operated in parallel with the rapid growth of Western economies following the Second World War and resulted in nearly thirty years of steady wage growth. By the 1970s, however, the social democratic economy was beginning to show significant signs of strain. Infrastructure that had largely been built during the depression was increasingly outdated and in need of repairs. Governments (especially municipal) were struggling with debt. After twenty-five years of growth, the economy was hit with recession. Finally, after the tumult of 1960s politics and the major changes it had wrought (Civil Rights, anti-war protests, decolonization, the 1968 protests), the middle classes were ready for some conservatism.
My goal is to provide some historical context in order to demonstrate both why neoliberalism was popular and why social democracy failed. In doing so, I hope to offer a detailed refutation of ahistorical centrism so that we can move forward with a clear-eyed understanding of where we have come from and what a truly leftist alternative can be. The first of these posts will be on the 1975 New York City bankruptcy crisis.