Neo-liberalism Is Dead!....and It’s NOT Good News.

There has recently been a great deal of debate around the question whether the Global Financial Crisis of 2008 was caused by neo-liberal policies and – if yes – whether neo-liberalism would survive the crisis (two books who deal with this topic are by Colin Crouch  and Vivien Schmidt and Mark Thatcher) .

A book by Serge Audier entitled Néoliberalisme(s). Une archéologie intellectuelle[Neoliberalism(s). An intellectual archeology] (unfortunately not translated into English yet), suggests a surprising answer to this debate: namely, neo-liberalism has been dead for a very long time….and I would add: that’s not a good thing!

Audier’s book sets out to challenge four critical perspectives on neo-liberalism, which are widely adopted, but rarely questioned by critical academics:

1.     The first critical perspective sees neo-liberalism as a bellicose and militant ultra-liberalism that the bourgeoisie used to fight the rise of socialism and the labour movement, which threatened their dominance. This very popular neo-Marxist perspective is notably associated with David Harvey and Naomi Klein. For these authors, the quintessence of neo-liberalism is not so much the ‘shrinking of the state’, but rather the fusion of ‘big government’ with ‘big business’ and the use of the state apparatus to promote large corporations’ interests.

2.     The second perspective is the Foucauldian perspective. Michel Foucault and his disciples start from the analysis of Gary Becker’s theory of Human Capital and investigate the ‘anthropology’ underlying neo-liberalism. Foucault’s main argument is that neo-liberalism is distinct from classical liberalism by substituting a view of the homo oeconomicus as the ‘entrepreneurial man’ for the classical view of homo oeconomicus as the ‘man of exchange’. Therefore, neo-liberalism is based on the foundational regulatory principle of competition, not economic exchange or consumption.
Neo-Foucauldians such as Wendy Brown and Thomas Lemke draw –according to Audier uncritically – on this ‘entrepreneurial paradigm’ to criticise modern capitalism for its tendency to make the ‘competition’ the governing principle for all areas of life.

3.     The neo-Bourdieusian perspective is different from the Foucauldian one, because it focuses – on the one hand – more on the economic consequences of neo-liberalism (i.e. inequalities, precariousness of employment relations etc.) and - on the other hand – on the role that economics as an academic discipline plays in the transformation of capitalism. Pierre Bourdieu’s work – and the work of his disciples such as Frédéric Lebaron – sees neo-liberal (or neo-classical) economics as a key instrument allowing certain ‘class interests’ to become dominant. On this account, economists become the bearers and apostles of a certain ideology, which has been devised to maintain in place certain power structures in the capitalist society. This leads Bourdieusian sociologists to purport a hyper-rationalistic view of human history, where every event is part of a ‘plan’ (or indeed a conspiracy) orchestrated by a small, powerful elite to reproduce itself and maintain its grip on power. Neoliberalism is just one element of that plan.

4.     The fourth perspective criticises an alleged coalition between the radical left-wing movements of Mai 1968 and economically liberals. On this account, it is this coalition of left-wing anti-authority, individualist libertarians and right-wing economic liberals that is responsible for the unleashing of an amoral and immoral brand of capitalism since the 1970s. This perspective is linked to a conservative – some might say reactionary – interpretation of neo-liberalism and has notably been adopted by Nicholas Sarkozy in his election campaign in 2007. But even left-wing intellectuals, such as Eric Hobsbawm voiced similar criticisms of the individualist, anti-authority movement of 1968. On this account, the common factor uniting left-wing students with right-wing ‘speculators’ is hence the rejection of any authority (including the state), the extreme individualism and hedonism of these movements.

Based on a meticulous analysis of public speeches, minutes of meetings, personal correspondence, and the main writings of leading neo-liberals, Audier convincingly shows that all four critical perspectives are of very limited use to understand what neo-liberalism is and what role it played in the transformation of modern capitalism. All four interpretations tend towards post hoc rationalisation of a complex historical process and some of them frankly border on intellectual dishonesty, in that they apply a very selective reading to the history of neo-liberal thought. The evidence presented in the book, strongly suggests that neo-liberalism cannot be seen as a coherent anti-Keynesian conspiracy supported by big business. Rather, from its inception, neo-liberalism was a loose collection of ideas and theories, which were often instrumentalised for economic and political purposes, but which never formed a homogeneous set of ideas that was undisputed among its main proponents, as the more conspiratorial interpretations would make us believe.

More interestingly, however, for me, two key points emerge from Audier’s account: Firstly, neo-liberalism was a great idea; Secondly, it was dead by the early 1960s.

Why was it a great idea? What Audier’s analysis shows, is that the intention of most participants in the meeting that first established the neo-liberal project – the Colloque Lippmann held in Paris in 1938 – was not only – in fact, not even primarily – a staunch reaction against anything socialist, collectivist, or even Keynesian. Rather, neo-liberalism was born out of an acknowledgement that classical laissez faire liberalism and Manchester capitalism of the 19th century had failed. The neo-liberals of the first hour explicitly blamed classical liberalism’s indifference towards the social costs of liberal capitalism for the rise of socialism, communism, and fascism. Both Lippman’s famous book ‘The Good Society’ – which was the inspiration for the meeting in Paris – and the interventions during that meeting were as much concerned with averting the communist threat, as with discussing ways in which the classical liberalism’s blindness for the social costs of free markets could be overcome without compromising the fundamental principals of liberalism. It is telling that one of the names for the new liberalism that was discussed at the meeting alongside ‘neo-liberalism’ was ‘social liberalism’. So, the goal of the neo-liberals was to ‘renovate’ liberalism, take into account the social component more, and making it thus fit for the 20th century. All in all, a great idea!

Unfortunately, that is not how things turned out in the end. The history of the next forty years of the neo-liberal project is one of fierce personal, ideological, and theoretical battles among different schools of liberalism. Increasingly, neo-liberalism turned away from the aim of reforming liberalism, to adopting a much more apologetic view of 19th century liberalism and Manchester capitalism. As the memory of the failures of 19th century liberalism waned, the self-critical view of the early 20th-century neo-liberals evolved into an increasingly confident defence of capitalism and free markets against collectivism and the state.

One key element in this transformation of neo-liberalism was the role that Friedrich Hayek played within the Mont Pelerin Society (MPS) – the principal international organisation promoting neo-liberalism from 1947 onward. Hayek had always been reluctant to call himself a neo-liberal and preferred the terms ‘paleo-liberal’ or even ‘old Whig’ instead. For him, liberalism did not need to be reinvented, but rather should be rid of any pernicious collectivist influence that had corrupted it since the 18th century or so.

A second key element that ultimately made possible the victor of this apologetic view of liberalism over the ‘renovation project’ was the rise of the Chicago School of Economics since the late 1940s around the figures of Aaron Director, Milton Friedman, Edward Levi and others (with the support of Hayek who Director brought to Chicago in 1950).

The distinctiveness of the Chicago School and the break with the ‘renovation project’ can best be illustrated regarding its stance on the question of monopolies, which emerged during the mid 1950s: Both classical and neo-liberals considered monopolies – public and private – as a major threat to a free society and free markets. They held that ultimately monopolies would eliminate competition. The state needed hence to intervene to protect markets from monopolistic tendencies.
The Chicago School turned this view on its head by considering instead that competition would ultimately erode any monopoly. The result of this new analysis was a very benign – I am tempted to write ‘naive’ – view of monopolies, as they were seen as merely temporary phenomena that would naturally be eliminated by market forces. Anti-trust policy on the other hand was now seen as just another unnecessary and pernicious state intervention. From this moment on, the main focus of the Chicago School shifted from protecting the capitalist economy from itself (i.e. from its monopolistic tendencies) towards fighting any form of state intervention.

Robert van Horn describes this crucial episode in more detail than Audier. For van Horn this radical departure from earlier views on monopolies, constitutes the ‘birth hour of neo-liberalism’. However, I would argue that it actually constitutes the beginning of the end of neo-liberalism. The changed attitude towards monopolies certainly was a marked departure from classical liberal analysis of monopolies. However, somewhat paradoxically, it did move the Chicago School closer to classical liberalism in that a key insight of neo-liberalism was thrown overboard, i.e. that a functioning free enterprise system required the state to play a positive role in the economy. For Chicago, the solution to the problem of monopolies was not to guarantee a positive role for the state, but to limit the state. In other words, once again laissez faire had become the solution not the problem. In this sense, the rise of the Chicago School sounded the death knell of neo-liberalism in its original form.

Audier’s book shows in much lively detail how the MPS was the battleground on which the war of neo-liberal ideas was fought. From the beginning, Hayek was opposed to members of the MPS who adhered to an ordoliberal variety of neo-liberalism. With the growing size and influence of the American contingent, Hayek increasingly gained the upper hand in these – at times vicious and personal – struggles over the control of the MPS and its definition of liberalism. The key moment came in January 1962 when the former president of the society Willhelm Röpke decided to leave the MPS. Twenty or so German and Swiss ordoliberals, including Alexandre Rüstow followed him.
Audier calls this schism in the MPS the ‘dawn of the old neo-liberalism’. I would go further and argue that there was not much ‘neo’ left in the type of liberalism that became dominant from then onward, in the sense that the key goal of neo-liberalism as defined in 1938 – namely reforming liberalism to remedy some of its worst shortcomings – had disappeared from the agenda. Rather than seeking a ‘third way’ between socialism and classical liberalism that would combine the best of both worlds, the movement increasingly drifted into extremist ‘all-or-nothing’ arguments like the one most famously exposed by Hayek in the Road to Serfdom. On this view, the tiniest concession on questions of social justice and redistribution was seen as an inevitable slippery slope that could only have one outcome: the creation of a socialist regime akin to Stalin’s Soviet Russia.

In comparison to such uncompromising views that are now considered the base line of economic liberalism, the neo-liberalism of the Colloque Lippman seems like a very benign theory. Indeed, maybe the death of neo-liberalism in the early 1960s was a root cause of the current economic turmoil and more neo-liberalism may be a step into the right direction.
By that, I do not mean to support the view that the global financial crisis was the result of too much regulation and the solution would hence be to deregulate financial markets even further (see here for such an argument). I fundamentally disagree with that argument. What I mean instead is that it might be time for those who have been blindly trusting in markets, to put the ‘neo’ back into liberalism and acknowledge that markets are not self-healing, but require a strong state to protect markets from themselves and society from markets. While this would not constitute a radical change of the economic orthodoxy that many commentators hoped for after the Crisis of 2008, compared to the now dominant views, it would be a step in the right direction and may indeed be the best we can hope for…[1]


[1] With my colleague Mathias Siems, we made a quite similar argument about German ordoliberalism in a piece published in governance