Neoliberalism on the Rise

The origins of neoliberalism lie in the late interwar and early postwar period. In 1947, the liberal economist Friedrich von Hayek gathered together a group of like-minded acquaintances near Mont Pèlerin at Lake Geneva in Switzerland to devise an alternative economic model to Soviet planned economy and the Keynesian welfare state. The enigmatic international circle of thinkers that became the Mont Pèlerin Society agreed on the central goals of promoting free market economy, free competition (it applied the concept of freedom primarily to the economy), and limiting government to its basic functions. It developed its standpoint in reaction to the nascent Cold War—the influential public intellectual Walter Lippmann, who had coined this term, was among the founding members—and the long-term dominance of the Roosevelt New Deal and state interventionism in Western economic policy.13 Initially, the Mont Pèlerin Society was widely viewed as renegade.

Until the 1970s, economics were shaped by Paul Samuelson’s “neoclassical synthesis”—his writings still count among the standard reference works on economics today—which followed on from Keynesian theory.14 But “stagflation” (low economic growth rates in combination with high inflation) after the oil crisis and rising national budget deficits put the Keynesians in the United States and the United Kingdom, and, a little later, in continental Europe, on the defensive. An increasing number of economists challenged the idea of state interventionism and advocated a supply-oriented economic policy and monetarism. Under this system, independent central banks were supposed to steer the economy and combat inflation by controlling the supply of money.

This paradigm shift was largely propelled by the Chicago School following Milton Friedman, a supporter of Hayek and longtime member of the Mont Pèlerin Society. The Chicago School’s theories hinge on belief in the efficiency of the markets and the rationality of market participants. These tenets were inscribed in the Washington Consensus, devised in 1989 as a form of crisis intervention to stabilize the economies of debt-ridden countries by means of strict austerity policies. The architects included the World Bank, the IMF, the US Treasury Department, and senior members of the US Congress. Originally tailored for the economically ailing countries of Latin America, it was later applied dogmatically to the postcommunist countries. It would go beyond the scope of this book to reproduce all ten economic commandments contained in the Washington Consensus (in a Decalogue written by economist John Williamson). In summation, the central goal was the triad of liberalization, deregulation, and privatization. Foreign direct investments and financial capitalism were also important ingredients in its global economic recipe.15 Of course, even in the nineties there were critics of the Washington Consensus and the Chicago School. But they were firmly in the minority—until the New York stock market crash of 2008 and the outbreak of the world economic crisis. Joseph E. Stiglitz has attacked what he branded “market fundamentalism” (the belief in self-regulating and balancing markets) and the overemphasis on private property and faith in the rationality of market participants.16

Yet neoliberalism is a hard concept to define. Having coined the term by means of the prefix “neo,” to indicate a departure from the failed laissez-faire liberalism of the interwar period and the world economic crisis of 1929, its proponents did not identify with it beyond the early postwar period. Even Milton Friedman distanced himself from the term; John Williamson, too, dismissed it as nothing more than a political battle cry.17 Critics of neoliberalism are, then, attacking a slippery fish that contemporary economists and politicians do not like to be associated with. However, neoliberal theory and policies have been advocated by a range of different actors, from professors at small colleges and renowned universities to major think tanks such as the conservative Heritage Foundation in the United States, and powerful politicians. Dieter Plehwe has asserted, “hegemonial neoliberalism must be conceived of in plural terms as a political philosophy and a political practice.”18 It is a moving target that is constantly being changed and adapted, which is precisely why it is so effective.

It would be wrong, then, to portray neoliberalism in a historical perspective as a homogenous, coherent concept. Its chief proponents frequently disagreed on issues such as the role of central banks (which is central to monetarism but hard to reconcile with minimal state intervention) and the implementation of shock therapies. As well as disagreements on theory, deviations in practice had perhaps an even greater impact. Even Thatcherism and Reaganomics showed unintended effects, as did the radical reforms in postcommunist Europe, which had to be followed by a number of corrections and adjustments. Neoliberal theory and rhetoric is one thing, neoliberal practice quite another. Many soapbox speeches were held in postcommunist Europe in order to entice—or pacify—international creditors and investors. But in practice, economies were driven largely by compromise and pragmatism. Nevertheless, all postcommunist countries eventually jumped on the neoliberal bandwagon and introduced radical economic reforms, some earlier, some (such as unified Germany) later.

This neoliberal hegemony can be compared on an abstract level with nationalism, the most successful ideology of the nineteenth century. Nationalism was also ideologically nebulous, advocated by a wide range of actors, and adaptable to completely different setups: to the requirements of stateless national movements as well as to those of large empires; to rural and industrial societies. Yet two ideological goals always remained central: the creation of statehood (or reinforcing the power of the extant state) and the greatest possible congruence between the state and the nation. Neoliberalism’s ideological benchmarks were the primacy of the economy, minimal government intervention in business (one of the motives behind extensive privatization), and a concept of humans as homo oeconomicus. In another parallel, few advocates of these ideologies called themselves nationalists or neoliberals, respectively. These attributes were considered pejorative. But nationalism research, which uses the term in a neutral sense, has made an important contribution to our understanding of the ideology that shaped an epoch of history (the “long” nineteenth century). Like research into neoliberalism, it began contemporaneously, with the first scholarly studies on nationalism appearing in the 1930s. Those early publications are of course now outdated, as one day this book will be. But regardless of what the future brings, historical inquiries and surveys are useful tools for orientation. Without them, it would be difficult to understand contemporary Europe and its most recent history.

Today, the term “neoliberalism” is often used as a catchall for aggressive, right-wing economic policy. Sometimes neoliberalism is confused with neoconservatism, which George W. Bush advocated during his controversial presidency. He stood for the postwar, Anglo-Saxon Protestant ideal of traditional family values and small-town life—a worldview that would have been quite alien to European neoliberals such as Friedrich von Hayek. But neoliberals and neoconservatives such as Francis Fukuyama have one thing in common: the teleological conviction that a democratic order based on Western-style market economy marks the “end of history.”

This book is not a fashionably fundamental critique of neoliberalism but a study of its application and social consequences. The postcommunist countries served as experimentation sites for neoliberal policy. This is not to say that they faithfully swallowed all neoliberal prescriptions.19 The governments of Eastern Europe developed their own neoliberal methods and put them into practice. The history of “transformation” can therefore provide insight into how neoliberalism was implemented and how it eventually changed the actions, values, and everyday lives of the people affected.

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