Neoliberalism: ideas, history, policies and debates

Origin

Already in the 19th century one finds isolated authors who reject both classical liberalism and socialism. In this sense, Röpke names Jean-Charles-Léonard Simonde de Sismondi, Pierre-Joseph Proudhon, Wilhelm Heinrich Riehl, Pyotr Alexeyevich Kropotkin and Pierre Guilleaume Fréderic Le Play as precursors. The actual beginning of neoliberalism is usually dated to the period between the two world wars. While Ludwig von Mises, Frank Knight, and Edwin Cannan are usually not yet listed as representatives of neoliberalism, Mises' influence on the following generation in particular was great: his critique of centrally planned economics and the monetary overinvestment theory from the 1920s were widely received in liberal circles. The first schools to emerge in the 1930s, which are usually attributed to neoliberalism, were the Freiburg School, the School of Cannan, and the Chicago School.

Neoliberalism is a neologism (from the ancient Greek νέος neos, German 'neu', and Latin liberalis 'concerning freedom'), which was used as early as 1933 by the French politician Pierre-Étienne Flandin as néo-libéralisme and was defined a few years later as a technical term in German at the Colloque Walter Lippmann in Paris at the suggestion of Alexander Rüstow.

Colloque Walter Lippmann

Capitalism lost considerable popularity after the Great Depression between 1929 and 1932, with neoclassical theory and its associated classical liberalism seen as chiefly responsible in this context. As British historian Eric Hobsbawm summed up, "The lesson that the liberal capitalism of the prewar decades was dead was almost universally grasped in the era of the two world wars and the Great Depression even by those who refused to attach a new theoretical label to it." At first there was also little contact between the various "neo-liberal" schools. In 1938, at the invitation of Louis Rougier, a first international meeting was held in Paris, the Colloque Walter Lippmann. The official purpose of the meeting was to discuss the ideas raised by Walter Lippmann in his book The Good Society. In addition to Rougier and Lippmann, 24 other intellectuals participated, including Raymond Aron, Friedrich August von Hayek, Ludwig von Mises, Michael Polanyi, Wilhelm Röpke, and Alexander Rüstow. The discussion revolved around the question of how liberalism could be renewed. Participants such as Rüstow, Lippmann, and Rougier felt that laissez-faire liberalism and classical liberalism had failed and needed to be replaced with a new liberalism. Other participants, such as Mises and Hayek, were far less convinced by the thesis, but also felt connected to the goal of giving liberal ideas new clout. The participants followed Rüstow's suggestion to call the new liberalism neoliberalism. This term referred to a liberalism that demanded economic freedom under the control and regulation of a strong state. In the Colloque it was also decided to found the think tank Centre International des Études pour la Rénovation du Libéralisme, which was to pursue these ideas. At the time, this neoliberalism was far from propagating a market radicalism; rather, it was conceived as an anti-communist and anti-capitalist Third Way.

However, the unanimity among the early neoliberals lasted only briefly. While neoliberals such as Rüstow demanded that the state should intervene to correct undesirable developments in the economy, Mises believed that the state should only intervene to remove barriers to market entry. Neoliberals such as Rüstow saw the development of monopolies as a consequence of laissez-faire liberalism, whereas neoliberals such as Mises saw it as a consequence of state intervention. There was also disagreement on the question of social policy. These differences were fundamental and touched the core of the neoliberal research project. A few years later, the differences between the neoliberals and the old liberals became intolerable. Rüstow was disappointed that Mises clung to the old ideas of liberalism, which he considered spectacularly failed and called paleoliberalism (to suggest that they were liberal "dinosaurs"). In a letter to Wilhelm Röpke, Rüstow wrote that the neoliberals had "so much to reproach the old liberals for, [we] have a different spirit from them to such an extent that it would be a completely mistaken tactic [...] to smear ourselves with the reputation for lunacy, outmodedness and playfulness which is quite rightly attached to them. No dog will eat out of the hand of these perennialists, and rightly so." Hayek and "his master Mises belong in spirit set in the museum as one of the last surviving specimens of that otherwise extinct species of liberals who brought about the present catastrophe [the Great Depression]." Mises, for his part, saw ordoliberalism as nothing more than "ordo-interventionism," no different in result from totalitarian socialism.

Mont Pèlerin Society

After the Second World War, international contacts increased with the creation of the Mont Pèlerin Society. Fifteen participants of the Colloque Walter Lippmann founded the Mont Pèlerin Society in 1947 in order to gather neoliberal thinkers and to spread the ideas of neoliberalism. In the Mont Pèlerin Society, Albert Hunold and Friedrich August von Hayek soon took the lead. In the early 1960s, a dispute arose between a group around von Hayek and a group around Hunold and Wilhelm Röpke over the future direction of the Society. As a result, Röpke resigned as president in 1962 and Hunold and Röpke resigned. In the Mont Pèlerin Society, liberals turned back to classical liberalism and for that reason alone no longer identified themselves as neoliberals. Eight members of the Mont Pèlerin Society, such as Friedrich von Hayek, Milton Friedman, George Stigler and James M. Buchanan, were awarded the Nobel Prize in Economics. The Atlas Network, founded by MPS member Antony Fisher in 1981, comprises after 35 years 451 "free-market organizations" in 95 countries.

Germany: Social market economy

In Germany, neoliberal theory (in the original sense) was applied with the social market economy. The social market economy is based on the ideas of ordoliberalism, but sets its own accents with greater pragmatism, e.g. with regard to process-political influence in economic policy, and greater emphasis on social policy.

In his work Wirtschaftslenkung und Marktwirtschaft (1946) Alfred Müller-Armack developed the concept of the "social market economy". The market and social welfare were not to be understood as opposites: On the contrary, enormous social benefits were already the result: the efficiency of the market process enabled the permanent increase of the standard of living. The efficiency of the market process allows for a permanent increase in the standard of living, which in turn increases the per capita income and the funds available for social benefits. Consumer sovereignty and competition counteract concentrations of power. Karl Georg Zinn writes: "However, there are also considerable differences between Müller-Armack and the neoliberal supporters of a free or liberal market economy. In many respects Müller-Armack, with his philosophically more overarching ideas, is closer to the two emigrants Röpke and Rüstow than to the order-theoretical purist Walter Eucken. Müller-Armack gave far greater weight than Eucken to social policy and governmental economic and structural policy." He argued that the market should be supplemented by social institutions such as a certain redistribution of income, family allowances, expansion of social insurance, social housing, and also company co-determination. Incorporating elements of Christian social ethics, the social market economy should avoid the shortcomings of unbridled capitalism as well as those of a centrally controlled planned economy and instead "combine the principle of freedom on the market with that of social balance".

For the enforcer of the social market economy, Ludwig Erhard, "the market was social in itself" and did not need to be "made social." Erhard had a much stronger commitment to the free-market component than the creators of the theoretical concept of the social market economy. His target concept was the utopia of a de-proletarianized society of property-owning citizens who would no longer need social insurance. With the concept of popular capitalism he tried to create a freer and more equal society. However, individual attempts to put the concept of people's capitalism into practice by promoting a broad accumulation of wealth among citizens remained largely ineffective. Since 1957, the social market economy has been reinterpreted from the Erhardian interpretation as people's capitalism to a market economy with an independent welfare state. Only in this way did the term social market economy become the central consensus and peace formula of the Middle Way.

In Germany, neoliberalism was initially used synonymously with ordoliberalism and social market economy. From the late 1960s, however, the term neoliberalism was largely forgotten. The German economic order was generally referred to as the social market economy, which was understood as a more positive term and also fitted better into the economic miracle mentality.

Change in meaning since about 1980

Background to the change in meaning: Chile

According to Boas/Gans-Morse, the original word meaning of neoliberalism refers to the Freiburg School (ordoliberalism), which considered itself a moderate alternative to classical liberalism. While rejecting Keynesianism and an extensive welfare state, they emphasized the importance of social policy and rejected market fundamentalism. In doing so, they distinguished themselves from other liberal thinkers whose ideas fundamentally contradicted ordoliberalism. In 1960, for example, Rüstow complained that representatives of paleoliberalism called themselves neoliberal, although the term neoliberalism was created by ordoliberals precisely to distinguish themselves from paleoliberalism. While today's scholars often consider Friedrich von Hayek and Milton Friedman to be the fathers of neoliberalism, in the 1950s and 1960s scholarly articles specifically associated the term neoliberalism with the Freiburg School and economists such as Eucken, Röpke, Rüstow, and Müller-Armack. In contrast, because of his more fundamentalist positions, Hayek was rarely associated with neoliberalism at the time and Friedman never was. The influence of neoliberalism on German economic policy waned from the mid-1960s onwards with the growing influence of Keynesianism; the term was hardly used any more. Since then, no economic school has described itself as neoliberal.

Starting from the model of neoliberalism of the Freiburg School, the German model of the social market economy and the economic miracle, which was perceived as positive, the word neoliberalismo was used in Latin America in the 1960s from both a market-friendly and a market-critical perspective, without deviating from its neutral to positive meaning. A first shift in meaning began when critics of the reforms under Pinochet began to use the term sporadically - without direct reference to the Freiburg School or any other theoretical edifice - in 1973. Augusto Pinochet's coup d'état in Chile on September 11, 1973, is seen as the central moment for this shift: Pinochet filled the central economic policy positions with Chileans who had studied with Friedman in Chicago since 1955; they became known as the Chicago Boys. The economic policies implemented under Pinochet were inspired by the more fundamentalist theories of Friedman and Hayek. There was thus a widespread withdrawal of the state from the economy within the authoritarian regime, the consequences of which are highly controversial. By 1980, a shift in meaning had thus occurred: instead of denoting the ordoliberalism of the Freiburg School, the prefix neo- was also used in academic contexts to mean radical and to devalue the edifices of thought of Friedrich von Hayek and Milton Friedman, although Hayek and Friedman themselves never described themselves as neoliberal. One possible explanation for this is that the military government used the term social market economy, which was associated with neoliberalismo, for propaganda purposes for its economic policy.

During this military dictatorship, neoliberalismo completely detached itself from its original reference and was supposed to characterize the transformation of the economy, perceived as radical, with political repression. Neoliberalism was used to describe what critics saw as a reductionist position that sacrificed social security in the name of economic primacy. From here, the new meaning of the word spread to the Anglo-Saxon world, where it could now denote almost anything, as long as it concerned - normatively negative - phenomena associated with the free market.

According to Andreas Renner, Anthony Giddens "helped shape the concept of neoliberalism in its current sense". Giddens equated neoliberalism with Thatcherism or the New Right, by which he understood economic liberal-conservative political concepts. According to Ralf Dahrendorf, neoliberalism understood in this way belongs to the "new orthodoxy of economic policy", whose most influential representative is Milton Friedman. According to Renner, however, the catchwords "minimal state" and "market fundamentalism" could be more aptly assigned to the "market-radical", "libertarian" minimal state concepts of Murray Rothbard, Israel M. Kirzner and others, who continue the tradition of the Austrian School today in the USA. Today, the word neoliberalism is used by scholars primarily to describe market fundamentalism, not infrequently in connection with the economic policies of Ronald Reagan (Reaganomics) and Margaret Thatcher (Thatcherism). Claus Leggewie speaks in this context of "authoritarian neoliberalism" and a "market idolatry that blinded people to the social explosive forces of forced denationalization."

More recent uses of the term

According to the economist Andreas Renner, neoliberalism in the modern use of the term as a political buzzword stands for economically narrowed policy concepts that do not solve social and ecological problems, but rather exacerbate them. These economically narrowed policy concepts, however, have no basis in the ordoliberal theory of Eucken, Röpke and Rüstow, who during their lifetime themselves resolutely opposed economically narrow views and in particular developed the counter-concept of "vital policy". Renner calls on German regulatory economics to dispense with the woolly term neoliberalism, since with ordoliberalism a distinctive term already exists. After the end of the controversy about market economy versus planned economy, a more differentiated view of different types of market economy is becoming increasingly important. In doing so, it is important to distinguish oneself from the libertarian "free-market liberalism" that is also advocated.

According to Boas/Gans-Morse, the term neoliberalism has become an academic buzzword whose conceptual meaning is little debated, unlike other social science terms such as 'democracy'. They point out that the previous use of the term is strongly asymmetrically distributed: Publications almost never use the term with positive normative valence. Many free market advocates stated that they avoided the term neoliberalism because of its negative connotation and switched to other terms, such as John Williamson, who opted for the term Washington Consensus.

The authors come to the conclusion that neoliberalism in its newer use of the term fulfils all the conditions of an Essentially Contested Concept. Neoliberalism refers to a variety of concepts whose unifying characteristic is the free market. Unlike other Essentially Contested Concepts such as "democracy", however, a meaningful academic debate on Free Markets is hampered by the lack of a common terminology. While opponents speak of neoliberalism, proponents of the Free Market resort to other terms. This prevents a debate that could lead to a narrowing of the definition and the underlying conflict, since each side only researches and publishes under its own terms. Thus, there is also no debate about whether one or the other negative phenomenon should actually be included under the term. However, the authors do not see a need to discard the term neoliberalism; rather, they present some scenarios on how the term neoliberalism can be used more usefully in empirical research.

Roughly, the more recent use of the term neoliberalism, in addition to economic history, can be divided into four categories:

1. Political concept: The word is most often associated with criticism of economic policy reforms. The Washington Consensus, for example, is often cited as an example of a neoliberal economic policy program; in some cases Washington Consensus is even used synonymously with neoliberalism. The economic policy reforms in the USA under Reagan (Reaganomics), in Great Britain under Thatcher (Thatcherism), and in New Zealand under Roger Douglas (Rogernomics) are also often described as neoliberal. Within the economic policy concepts, three categories can be distinguished:
1. Reduction of the state quota
2. Privatisation of former state tasks
3. Deregulation of capital movements

According to Joseph Stiglitz, the neoliberal belief is characterized by a combination of these three elements.

2. Development model: In addition, the term neoliberal is used to describe a comprehensive model of state and order with a fixed distribution of roles between trade unions, private companies and the state, which (especially in South America) replaced the state-interventionist model of structuralist economic policy.
3. Ideology: Furthermore, authors use the word in the analysis of a certain normative relationship of freedom of the individual towards collectives, especially with regard to freedom as an all-encompassing social value, which is promoted by reducing the state to a minimum. This category also includes the transfer of economic principles to areas of life beyond work and economic activity.
4. Academic paradigm: Lastly, neoliberal is used descriptively to denote a particular economic paradigm, especially neoclassical theory.

Gerhard Willke sees in the term a "fighting slogan", but also a political "project" with the pioneers Hayek and Milton Friedman.

The American political scientist Wendy Brown writes (following Michel Foucault, among others; see there) that neoliberalism is more than an economic policy, an ideology or a reordering of the relationship between state and economy. Rather, it is a reordering of the entire way of thinking, which changes all areas of life as well as people themselves according to an economic image - with fatal consequences for democracy.

Noam Chomsky

The linguist Noam Chomsky published Profit over People - Neoliberalism and Global Order in 1998. In it, he argues that neoliberalism has achieved global hegemony since Ronald Reagan and Margaret Thatcher. This has led to the privileging of a few rich people at the expense of the vast majority. Large corporations and cartels dominate the political scene in the USA. Thus, the free market does not in the least produce a competitive order. The political influence of large corporations on US political parties permanently undermines democracy. US governments have contributed to this through subsidies and import tariffs. A typical example of government support for large corporations is the World Trade Organization. Chomsky sees libertarian socialism as an alternative.

Michel Foucault

In his 1975 work Surveiller et punir (Surveillance and Punishment. The Birth of the Prison), the French philosopher Michel Foucault first analyzed the development of modern punishment systems in Europe. In it, he initially described only "surveillance and punishment" as a system of exercising power, which has been established and perfected over the course of the last four centuries. He developed "surveillance" and "disciplining" as the central terms of his theory of an overall social concept, in which surveillance becomes both a means and a tool for disciplining individuals within a society.

Using the term "governmentality" in lectures at the Collège de France from 1977 to 1978, Michel Foucault captured the subject level of "government" as responsible or governing actors within the systems of established power mechanisms or micro-powers he analyzed in his 1977 work The Will to Know (Bio-Power) and Surveillance and Punishment.

In his lecture Naissance de la biopolitique on January 24, 1979, Michel Foucault addressed the relationship of German ordoliberalism (and especially Walter Eucken's) and neoliberalism to classical liberalism, as well as the influence of Edmund Husserl's philosophy on Eucken.

Michel Foucault did not explicitly appear as a "direct" critic of neoliberalism; rather, through his analytical preparatory work or theoretical and conceptual coinages, he developed the basis of the governmentality studies popular in academic discourse today, which often deal with "neoliberal" transformations of the state or society.

Stephan Schulmeister

The Austrian economist Stephan Schulmeister sees neoliberalism as "the most successful project of counter-enlightenment and self-disenfranchisement of politics". It is "the ideology in the interest of finance capital (the "rentiers"), not real capital (the entrepreneurs)." Its "'therapies' aggravate the 'diseases' of unemployment, precarious employment, public debt, social insecurity and poverty." The neoliberal model of society is a "false whole" and "ethics and morality have no place in this worldview."

Neo-Marxist interpretation

From a neo-Marxist perspective, neoliberalism represents a class project. This view interprets neoliberalism as a reaction to the weakening of capitalist claims to rule during the Fordist phase. The goals of this countermovement are, it is argued, the repression of workers' interests, the increase of corporate profits, and the polarization of income distribution. One of the most influential critical essays from a neo-Marxist perspective is by David Harvey. In his book A Brief History of Neoliberalism, Harvey points out that neoliberalism can also be interpreted as a political project to restore the power of economic elites.

Chantal Mouffe and Ernesto Laclau see neoliberalism as an attempt to challenge the notions of freedom of classical liberalism and subsequent political ideologies. Liberalism viewed state intervention to combat inequalities as a means of gaining freedom. Soon, political freedom was added to the discourse, and eventually poverty and large social inequalities were presented as factors threatening freedom. Neoliberalism, on the other hand, sought to return to "the traditional conception of freedom understood as non-interference with the right of unrestricted appropriation and with the mechanisms of the capitalist market economy." This involves an attempt "to discredit any 'positive' conception of freedom as potentially totalitarian."

Antidemocratic and right-wing extremist tendencies

Political scientist Christoph Butterwegge sees anti-democratic tendencies in neoliberal market fundamentalism - unlike the adherents of this ideology themselves. Butterwegge argues that democratic will-forming and decision-making processes are seen by neoliberals as disruptive to the hegemony of the market. Private ownership of the means of production is made the central fixed point of society. Through privatisation of public property, this should be removed from democratic control.

Butterwegge also sees overlaps with right-wing populist and right-wing extremist ideologies. Butterwegge sees the absolutisation of top performance and the glorification of competition, "in which the strong should prevail over the weak", as having something in common with right-wing extremism. Butterwegge sees the distribution struggles between different nations caused by the location competition as favourable for right-wing populist argumentation patterns, which reinterpret these distribution struggles as conflicts of different cultures and ethnicities: "Distribution struggles become defensive battles of the natives against 'foreigners'".

"Progressive" neoliberalism

Nancy Fraser identifies an alliance of the advocates of neoliberal policies - especially finance capital, technology companies and "symbolic industries" - with the liberal-progressive movements that had committed themselves to the fight against discrimination during the Clinton era. The women's movement, as well as other movements of the underprivileged (anti-racism, multiculturalism, LGBTQ movements), had made the mistake of sacrificing the cause of social equality to a false "understanding of emancipation under the auspices of achievement, diversity, and empowerment." They had committed themselves to the "construction of a meritocratic meritocracy" and had "propagated the storming of the executive floors". Existing economic hierarchies were no longer questioned. Emancipation was equated with the advancement of the "more talented among women and minorities", while simple service work was shifted to "poor, coloured migrant women".

Hillary Clinton is a typical representative of this constellation; she represents finance capital and feminism at the same time in an alliance that Fraser calls progressive neoliberalism. In this context, the sociologist Michael Kreiter speaks of a "neoliberal multiculturalism": the academic elites have fully internalised the "colourblindness" of neoliberalism and welcome it in the sense of a meritocratic competition in which immigrants can participate, but which excludes the promotion of disadvantaged people in their own country, which leads to new lines of division.

Fraser also sees a turn to first-person politics as another cause of post-war feminism becoming the "handmaiden of a new, deregulated capitalism". To be sure, she argues, feminists were right to criticize the fact that "non-economic" injustices were often ignored. But instead of promoting economic and cultural justice equally, there has been a unilateral turn to gender identity (identity politics), while economic injustices have been neglected. This, according to Fraser, "fitted all too well with the rise of a neoliberalism that was primarily concerned with erasing the idea of social equality from public memory".

Criticism from an ecological perspective

Some environmentalists see the form of globalized economy that has emerged through deregulation of markets, privatization, and a reduction in government as a threat to the ecological balance and natural diversity of our planet. The removal of market restrictions would disregard the fact that biological resources are limited. Neoliberal concepts of the market, which put private expectations of return in the foreground, would promote overexploitation of the biosphere and harm the common good, because all the money that is apparently made out of nothing comes from some liquidation of social, human or natural capital.

Experiences from the Corona crisis

The founder of the World Economic Forum, Klaus Schwab, commented in an interview published in September 2020: "Neoliberalism is commonly understood to mean unregulated, unrestrained capitalism. And it is precisely the countries that have pushed this strategy the hardest - for example, the US and the UK - that are being hit hardest by Corona. The pandemic has thus demonstrated once again: Neoliberalism in this form has had its day."

According to economist and President of the German Institute for Economic Research Marcel Fratzscher, the Corona crisis has shown the limits of free markets and the strength of politics. If societies were to rely only on free competition, the risks would currently become abundantly clear. He told the Deutsche Presse-Agentur: "I would already say that the Corona crisis is something like the last nail in the coffin for neoliberalism." In addition to Der Spiegel, the Frankfurter Allgemeine Zeitung also picked up on Fratzscher's statement in its news service.

The neoliberal development model criticized by the population in Chile showed its problems during the pandemic, in which economic interests took precedence over social interests. Now three crises would be more visible: the health crisis, the social crisis and the democratic crisis.

The editor of the Financial Times wrote in a text published in 2020: "The virus exposes the fragility of the social contract". The text argues for a change in political direction, for a universal basic income and for higher property taxes. It says that "to demand collective sacrifice, one must offer a social contract that benefits all". In response to the crisis, the UK is investing billions in the social security system and Sweden is raising the cap on unemployment insurance.