Neoliberal economic theory emerged after World War II, led by Austrian economists Ludwig von Mises and Friedrich Hayek, and later by American Milton Friedman.
Hayek was adamantly opposed to state intervention, whether it was a Soviet-style command economy or the social-democratic welfare states of post-war Western Europe. For him, the foundation of knowledge, whether scientific, economic or otherwise, is the individual; the actions of the self-managed entrepreneurs could not and should not be questioned by the state. State intervention at the beginning of the 20th century (nationalized industries, social welfare, powerful trade unions and planning as the central task of government) had led Western nations to deviate from the founding principles of liberal philosophy: individual freedoms, right to private property and a free market governed by the “natural laws” of classical economics.
As a remedy, these economists proposed political restructuring, centered on reforms that would disentangle the state from the market, finding the natural balance in every exchange without heavy government interventions. In post-Soviet Eastern Europe, this ideology exerted an indisputable attraction on young and economically precarious dissidents, as well as on kleptocratic oligarchs anxious to impose a “Western-style” free market.
In practice, this involved many now familiar measures: privatization of national utilities, including water, gas and railways; aggressive attempts to dismantle unions and subject labor (and by extension, their wages) to the “natural forces” of supply and demand; and the removal of barriers to trade between countries and the creation of international trading blocs such as the North American Free Trade Agreement (NAFTA) to facilitate the movement of capital, goods, commodities and services.
The goal was to create a truly free, global and limitless market – for capital, if not for human beings. The principles of individual freedom, the right to private property and the free market have been radically reaffirmed, and it is this aspect that underlines the “neo” [new] in neoliberalism.
The translation of neoliberalism from theory to practice is associated with three figures. First, in 1973, the democratically elected leader of Chile, Salvador Allende, was overthrown in a CIA-backed coup and replaced by Augusto Pinochet, a military dictator who allowed a group of trained economists by Friedman known as the “Chicago Boys” to turn Chile into a laboratory of neoliberal politics.
Later, Ronald Reagan and Margaret Thatcher translated neoliberalism’s hostility to the state into a rallying cry against the interference of “big government” in people’s lives. Thatcher railed against the “nanny state” as it dismantled welfare and housing, weakened unions and privatized national industries. Reagan reinforced the assault with rhetorical attacks: “The nine most terrifying words in the English language are, ‘I’m from the government, and I’m here to help.
The “neoliberal turn” has profoundly affected the ability of national governments to govern well. By accepting his principle of laissez-faire (‘laisser faire’) and allowing more and more aspects of state and society to be subjected to the laws of the market, governments have gradually given up their ability to intervene meaningfully in matters policies. If the laws of the market demand lower wages; if they call for a bank bailout and a decade of austerity after a crash; if waiving patent protections on vaccines in the event of a global pandemic interferes with the profits of pharmaceutical companies, who can say otherwise?
This, in a nutshell, is neoliberal economics: the ruthless submission of political and social life to the free market.
- Arguments for a New Left: Responding to the free market rightHilary Wainwright, 1994
- Undoing the Demos: The Stealth of Neoliberalism RevolutionWendy Brown, 2005
- A brief history of neoliberalism, David Harvey, 2005
- Globalists: the end of the empire and the birth neoliberalismQuinn Slobodian, 2018
Red bell pepperThe new regular “Keywords” feature, inspired by the work and legacy of Raymond Williams, explores the meaning of today’s political terms, as well as the history and politics behind their use.
Teaser photo credit: By Alan Santos/PR – https://www.flickr.com/photos/palaciodoplanalto/48149860167/in/album-72157709308281487/, CC BY 2.0, https://commons.wikimedia.org/w/index .php?curid=80143809