The Roots of Neoliberalism

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The Roots of Neoliberalism THE ROOTS OF NEOLIBERALISM ELMAR ALTVATER he modern version of liberalism began under Thatcher and Reagan, Twho provided the political basis for Milton Friedman’s triumphant de- claration of the ‘neoliberal counter-revolution’ following the crisis of the Keynesian state in the West, the dismantling of the ‘planning state’ in the South, and the collapse of the planned economies of the East. However, the roots of neoliberalism go back much further than the past thirty-five years. Some of the most striking ingredients of neoliberal theoretical approaches can be traced back to the origins of liberal thinking in the early 18th century, to Adam Smith, David Hume, Bernard de Mandeville, etc. In the ‘fable of the bees’ Mandeville even tried to show that private vices turn into public virtues, and that competition in free markets also produces social equilibrium (later formulated mathematically by Leon Walras, Vilfredo Pareto and in the vast literature on their ‘optima’). Long before Fukuyama’s famous statement about ‘the end of history’, after the demise of ‘actually existing’ socialism, An- toine-Augustin Cournot was saying much the same thing when he argued that since such ‘optima’ are the outcome of economic processes there is no need to change the political order and its ruling principles. Some trace twentieth century neoliberalism back to a conference which took place in 1938 in Paris, where Friedrich August Freiherr von Hayek and Walter Eucken, among others, presented the free market (‘freie Verkehrs- wirtschaft’) as the only real alternative to the centrally managed markets (‘Zentralverwaltungs-wirtschaften’) of Soviet Russia and Nazi Germany. All planning systems follow the ‘road to serfdom’ – the title of Hayek’s very in- fluential book published at the end of the Second World War. Their assault on socialist and capitalist planning presaged in this respect Hannah Arendt’s theory of totalitarianism, published a few years later in 1951. Thirty years later still, a new twist was famously given to this by Reagan’s ambassador to the United Nations, Jeane Kirkpatrick, who in trying to for- mulate the fundamental principles of US foreign policy drew a distinction NEOLIBERALISM AND THE LEFT 347 between totalitarian and authoritarian regimes. A totalitarian regime was any one with a planned economy and widespread public or state property, even if it was manifestly less dictatorial and oppressive in political terms than what she called merely ‘authoritarian regimes’, which sustained and protected pri- vate property in a capitalist market economy. Fidel Castro’s Cuba was ‘totali- tarian’; Chile under Pinochet was merely ‘authoritarian’. In fact, however, the central idea behind this distinction had already been developed by the Freiburg School of ‘Ordo-Liberalism’, particularly by Wal- ter Eucken, in the 1930s. In his view the fundamental principles of a social order are: private property rights; the unregulated formation of prices on free markets; free decision-making by the autonomous (vis-à-vis the state and trade unions) managers of enterprises; sovereign consumers; the absence of monopolies; and monetary stability. Only when these fundamental economic principles (‘Grundprinzipien’) are realized will the political order be a ‘free’ one. Since modern societies are characterized by a so-called ‘interdepen- dence of orders’, no free and democratic political order can be said to exist, according to Euken, unless it sustains a free market economy and an efficient private property regime. After the Second World War such ideas still were influential, not least with Germany’s first minister of economic affairs, Ludwig Erhard and his secre- tary, Alfred Müller-Armack. But as was clear from the fact that Erhard was also a disciple of the early ‘third way’ theorist Franz Oppenheimer, and the fact that Müller-Armnack coined the term ‘Soziale Marktwirschaft’ (social market economy), a consistent economic policy based on neoliberal ideo- logy could not then be as extreme as it was to become after the neoliberal counter-revolution in the 1970s. It is indeed worth recalling that even this decade began with Richard Nixon declaring that ‘we all are Keynesians’ now. Keynesianism had indeed become the hegemonic concept in both economic theory and policy under the post-war umbrella of an international monetary system of fixed exchange rates and restrictions on the convertibility of cur- rencies. Relatively small international capital flows allowed considerable au- tonomy for national governments and central banks which influenced fiscal and interest rate policy with an eye to balancing the priorities of economic growth, full employment, price stability and balance of payment equilibrium. The first quarter century after the Second World War was thus a period in which it made sense for Andrew Shonfield to translate the title of his famous 1965 book Modern Capitalism (on the highly developed market economies of the USA, Great Britain, France, Germany and Italy) as Geplanter Kapitalismus (planned capitalism) for the 1968 German edition. 348 SOCIALIST REGISTER 2008 Yet neoliberal ideas had actually been spreading across the Western world even during the Keynesian ‘golden age’ of capitalism, during which there was a modernization of simple-minded earlier liberal (what might now be seen as ‘paleoliberal’) ideas. ‘Establish a free order of competition and its outcome will be the best for the people’ was the simple expression of the promise that market competition was the means of transforming the self-interest of individuals into a social welfare optimum for the collective good. Such ideas were spread with the aid of highly sophisticated methods, heavily funded by businesses and wealthy individuals. The foundation of the Mont Pélerin Society as an international venue for neoliberals, and of national organizati- ons such as the ‘Aktionsgemeinschaft Soziale Marktwirtschaft’ in Germany, preceded by decades the setting up in 1983 of the European Round Table of industrialists to coordinate neoliberal lobbying in the EU. This was ac- complished by intensifying the cooperation between well-endowed national policy foundations sponsored and financed by big business in the US and in Europe in order to produce harmonized manifestos for the propagation of free market policies against the welfare- and interventionist-state. But in terms of its influence over political decision-makers more globally, it was of utmost importance that neoliberalism also became hegemonic in internatio- nal institutions such as the IMF, the World Bank, the GATT (later the WTO), staffed by the students of neoliberal economists at American elite universities, who also showed up as government-consultants (and even as NGO activists) in third world countries to help apply dose after dose of structural adjust- ment, following the rules of the Washington consensus. The strategy of establishing a world-wide ideological hegemony for ne- oliberalism, however, could not have succeeded without the deep changes that occurred in the world economy in the 1970s. First of all, the Keynesian carapace of economic policy literally broke into pieces with the end of the Bretton Woods system of fixed exchange rates, followed by the flotation of exchange rates in globalized financial markets. After that the formation of the crucial prices of the world economy – the exchange rate and the interest rate – was no longer left up to state agencies and officials but was rather in the hands of international banks, speculative investment funds and transnational corporations. This was one of the first acts of privatization which swept over the entire world in the following years. The new private actors immediately used their new freedom to invent new financial instruments to increase their profits and to force countries lagging behind in financial market deregulation to give up their ‘financial repression’. Thus it happened that financial markets came to exert their own repression on one society after another. Not to wor- ry – in the words of Margaret Thatcher: ‘There is no such thing as society’. NEOLIBERALISM AND THE LEFT 349 But neoliberalism’s spread was also enhanced by another dramatic change, and this time by no means left to private bodies, in how another crucial price in the world economy was determined. Only a few months after the final breakdown of the Bretton Woods system in October 1973, the dramatic change in the way oil prices were formed – i.e. by the formation of OPEC – triggered radical repercussions in the relationship between the industriali- zed world and the ‘Third World’. Liberalized financial markets helped recycle the so-called ‘petrodollars’ accumulated by the OPEC countries into oil-im- porting Third World countries. The enormous debts they now accumulated soon landed them in the debt crisis of the 1980s. The priority of servicing their debts, imposed by the IMF and World Bank, was an early expression of what Stephen Gill would later appropriately call ‘disciplinary neoliberalism’. Paradoxically, therefore, just as the Bretton Woods system broke down, the Bretton Woods institutions became more powerful than ever. They moved from protecting a system of fixed exchange rates to protecting the flow of capital in the interests of rich private lenders, multinational corporations and financial institutions. The ‘crisis of governability’ proclaimed by Samuel Huntington and the Trilateral Commission amidst the inflationary pressures and fiscal crises that attended the crisis of Keynesianism led, moreover, to the formation at Ram- bouillet in 1975 of the G6 (later the G7 and today the G8). The annual summits of the leading capitalist leaders were a very visible sign of what Carl Schmitt would have called the changing ‘pluriverse’ of nation states, characterized by the emergence of new informal modes of global political regulation – what by the 1990s would come to be called ‘global governance’ – which stressed their collective responsiveness to ‘market signals’ rather than coordinated Keynesian-style policy-making. The internationalization of the state changed the form of the nation state as well as the system of internati- onal relations.
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