Making Way for the Neoliberal State: Theoretical and Practical Origins

The emergence of the neoliberal state has been attributed to numerous causes, prominent among them are economists in the academy and the tension between strong centralized governance and business interests.  David Harvey argues that key politicians and corporations led to the rise of the neoliberal state. Harvey’s account of the events and intents of the times is not always organized well and occasionally contradicts itself. His main contentions are that the neoliberal state is a product of class war, in which businesses learned how to represent themselves as a class, and that neoliberalism itself was not planned in the same way, for example, The New Deal was – it was ‘stumbled upon.’ Countering Harvey is Daniel Stedman Jones, who argues nearly the opposite, that the neoliberal state exists in large part due to economists in the academy who wrote the political economic theory and then personally advised the policy makers, including Reagan and Thatcher. For Stedman Jones, there was nothing accidental or coincidental about neoliberalism and least of all, the neoliberal state. What Harvey and Stedman Jones have in common is the belief that the origins of the neoliberal state can be traced back to a small group of key people and events. There is a third argument, asserted by Johanna Bockman, that is provocative and unusual but most importantly, methodologically different. Bockman argues that neoliberalism as a governing rationale has roots in socialism and contains certain socialist ideologies within it, still. Her discussion of the origins of the neoliberal state are premised on the idea that neoliberalism did not emerge out of a vacuum due to the need to oppose socialist constructs, but rather that socialist ideas transformed into neoliberal ideas in response to heavy criticism of socialism after World War II. The method here is not one that focuses on particular events or people, but rather examines the conditions of the time as agents themselves, and sees the individual actors and events as necessarily following the conditions.          

While all three historians have narratives that converge at many points, where they absolutely diverge is in their analyses of the relationship between theory and praxis in the development of the neoliberal state. This paper will compare the different historians’ accounts of the origins of neoliberalism, and will argue that a method which premises itself on the notion that there is a causal relationship between ideas and practices will always lead to stronger conclusions.

I. David Harvey’s Neoliberalisms

In A Brief History of Neoliberalism, Harvey gives us a densely populated account of the persons and events that figured prominently in the rise of the neoliberal state in the West. Neither chronological, nor thematically driven, this small volume requires a surprising amount of mapping by the reader. For this reason, certain contradictions within his work were perhaps more immediately apparent. The gravest contradiction might be between definitions of neoliberalism. At the outset, Harvey defines it as promoting the welfare of citizens through individual freedom specifically as it relates to the search for profit, within a state that guarantees the free market, strong private property rights and free trade.  For Harvey, this is a strong state in a certain sense – it uses force to defend the rights of the individual, as opposed to defending a concept of ‘society.’ It also is obligated to create markets where none exist – this is the particular and strange strength to institute and enforce inequality. But for Harvey, this is also a restrained government. It has no power to work towards a public good, or even to conceive a public good, outside of the individual’s right to promote his own interests.[1]
Eighteen pages later, Harvey uses the word “neoliberalization” to describe the political project of class war. He argues that businesses learned how to act as a class, and that the “elites” went from being what we commonly refer to as old money, or aristocrats in Britain, to being capitalists. But in so doing, he is thrusting upon us a new definition of neoliberalism in which the individual is not the greatest benefactor of the free market, but in fact one economic class is, the business class. The key difference between Harvey’s first definition and his second is that the first is a theory, and the second describes actions taken by various real parties.  It is possible to present a theoretical definition followed by a definition in practical terms that are consistent with each other. But what Harvey is actually arguing here is that neoliberalism as it is practiced has no relationship to neoliberal theory. The political project of neoliberalism is carried out by actors who are mainly interested in the accumulation of capital. The accumulation of capital is one of Harvey’s definitions of Capitalism; the other is economic inequality. There is more trouble though, as Harvey also contends that neoliberalism was not foreseen, arguing that even as business interests became dominant, due to a stagnant economy and the failure of Keynesian policies, “no one really knew or understood with any certainty what kind of answer would work and how.”[2] It is thus not that the business class is co-opting neoliberal theory for its own interests, it is that in fact there are two different neoliberalisms emerging, the one in the literature, and the political project, and they remain largely disconnected in Harvey’s work.
The second contradiction in Harvey appears in his discussion of when neoliberalism finally emerges as doctrine in an explicit way. This is a stark contradiction in the book, where he argues first that, “The capitalist world stumbled towards neoliberalization as the answer through a series of gyrations and chaotic experiments that really converged as a new orthodoxy with the articulation of what became known as the ‘Washington Consensus’ in the 1990s,”[3] and nine pages later that, “the dramatic consolidation of neoliberalism as a new economic orthodoxy regulating public policy at the state level in the advanced capitalist world occurred in the United States and Britain in 1979.”[4] This poses a problem for the reader who tries to map out Harvey’s narrative because in the 1990s, Bill Clinton is deregulating Wall Street, and in 1979, Paul Volcker is dramatically changing monetary policy in the U.S., and Harvey is mainly arguing that it is the events that gave rise to the neoliberal state, and not any kind of intellectual or theoretical framework. There is yet a third point where Harvey suggests that neoliberalism becomes the dominant political economic ideology during George W. Bush’s administration, when Paul Bremer restructures the economy in Iraq under neoliberal policy, privatizing all the public business and foreign or global ownership of Iraq’s private sector. This the reader can safely rule out as the pivotal moment, however, because it is in 2003, which is far too late for such a moment.
This is the great problem for Harvey’s work-- in a narrative devoid of any theoretical or intellectual basis, indeed a narrative in which the think tanks and theorists are merely tools of the political interests, Harvey must rely on pivotal moments to move his narrative forward, which requires a chronological recounting that does not contradict itself.  A narrative about a neoliberal state that emerges on the basis of a cooperation between some kind of intellectual platform and some kind of political platform could have contradicted itself without necessarily being wrong. While it is not entirely clear how neoliberalism becomes the dominant governing rationale in Harvey’s account, there are several events he highlights that are worth mentioning here. One strength of A Brief History of Neoliberalism is that it gathered much of the events in the United States and England in the seventies and eighties into a single volume, allowing the reader to see the political constellations, if not the causal conditions, of the neoliberal state. Due to the remarkably dedicated focus on the events themselves by Harvey, his work – after a chronological remapping – provides an excellent frame of reference for reading Stedman Jones and Bockman. What follows is a rough timeline of events leading to the emergence of the neoliberal state in the West, as originally aggregated by Harvey, and paraphrased and organized chronologically by this author. In the late sixties and early seventies, Keynesian policies came under scrutiny as the U.S. economy experienced “stagflation,” the condition in which unemployment rises along with inflation, and demand stagnates. During this time, in the U.S., capitalist interests gain power. Certain economists, including the “Chicago Boys,” who belong to the University of Chicago’s school of thought under Milton Friedman, form a group called the “Monday club” which seeks neoliberal economic reform in Chile. In 1973, in Chile, under Pinochet, the first neoliberal state is instantiated. The coup is supported by both public agencies and private corporations in the U.S. After Pinochet rises to power, labor movements are eliminated with force, and collectivism itself comes under attack in numerous places. This experiment in deregulating the labor market and dismantling collectivist efforts is ultimately a massive failure, which for Harvey exists as an example of U.S. imperialism – using Chile as a laboratory for high ideals while regarding its citizens as less-than. In part because of this failure, and in part because of the Democratic Congress under Nixon, many Keynesian reforms were signed into law in the early seventies. In 1979, Margaret Thatcher takes office in England. She had campaigned on fixing the economy. Under the influence of Keith Joseph, who was essentially a vocal polemicist with connections to the British neoliberal think tank called the Institute of Economic Affairs, she campaigned against collectivism, and supported individualism and family values. This manifested in policy as “confronting trade union power, attacking all forms of social solidarity that hindered competitive flexibility (such as those expressed through municipal governance, and including the power of many professionals and their associations), dismantling or rolling back the commitments of the welfare state, the privatization of public enterprises (including social housing), reducing taxes, encouraging entrepreneurial, initiative, and creating a favourable business climate to induce a strong inflow of foreign investment (particularly from Japan).”  Thatcher went as far as to say that there was no society, only the individual and his or her family.[5] Also in 1979, Paul Volcker, serving as the head of the Federal Reserve Bank, significantly changed U.S. monetary policy, in order to stop inflation. This created an economic recession that was required, in Volcker’s view, to get out of the current economic crisis – the stagflation. The change in policy would become known as “the Volcker shock.” As a direct result of the Volcker shock, in the early eighties, Mexico went into default with the U.S., and the Reagan administration rolled over the debt in return for the neoliberal restructuring of the International Monetary Fund (IMF) that Volcker had advocated for.[6] The neoliberal policies instantiated by the Reagan administration during the eighties mirrored the response to the fiscal crisis in New York in the seventies, featuring the criminalization of the poor, the privatization of public spaces and services, and the reshaping of civic duty into economic productivity. Bill Clinton deregulated Wall Street in the nineties, and finally, in the early 2000s, the Bush administration turned to Iraq and instantiated its neoliberal reforms on the international level.[7]

II. Daniel Stedman Jones and the Theoretical Foundations of the Neoliberal State

Harvey provided a comprehensive, if not chronological, account of the events leading to the neoliberal state that emerges in the seventies and eighties in the U.S. and Britain. But the theoretical underpinnings are not present in Harvey’s work. In Masters of the Universe, Daniel Stedman Jones uncovers the primary thinkers and writings that as Hayek noted, created the alternatives to be seized by the politicians when Keynesian policy failed. This theory first begins to be articulated in the forties by three people in particular: Karl Popper, Ludwig Von Mises, and Friedrich Hayek. These scholars are mainly interested in redefining liberalism after WWII, with a focus on moving away from centralized governance and socialism.[8]

They sought to define a new market liberalism that opposed both the New Deal on the one hand and laissez-faire economics on the other. Hayek wrote an essay titled “The Intellectual and Socialism,” in which he successfully argued that a network of thinkers, writers, and media had to be developed to advocate for this new market liberalism, and to oppose the present and powerful network that socialist interests had long since developed. This led to the formation of the “Mont Pelerin Society,” named after the place of their first meeting. In the statement of the group’s principles, Lionel Robbins, an economist at the London School of Economics wrote, “The central values of civilization are in danger. Over large stretches of the earth’s surface the essential conditions of human dignity and freedom have already disappeared. In others they are under constant menace from the development of current tendencies of policy. The position of the individual and the voluntary group are progressively undermined by extensions of arbitrary power.”[9] Many of these scholars were Eastern European, and had either fled Europe during WWII or stayed under duress. Stedman Jones argues that this was foundational in these thinkers’ dislike of the New Deal, and collective solutions to social problems generally. Stedman Jones sees plurality as being fundamental to freedom for the Mont Pelerin Society, and one-size-fits-all solutions to social problems oppose the very fact of plurality. This should not be confused with traditionally Democratic notions of political equality. Indeed, Hayek suggested that the West should be wary of Jewish immigrants because they were kicked out of Europe on the basis of their Jewishness, not because of any particular dislike for totalitarianism.[10]

In 1963, Milton Friedman publishes a book called Monetary History of the United States with Anna Jacobson Schwartz. In this book, Friedman’s main intellectual argument is that the variable the government can reasonably predict and control in the economy is interest. Where, under Keynesianism, it was concerned with the full employment of its citizenry, it should instead be concerned with unnecessary inflation, which acts as an invisible tax. Friedman would go on to advise both Reagan and Thatcher. [11]

This makes up the theoretical basis for neoliberalism, but there are a number of factors inside the economic crises that arise that are not merely theoretical which are not addressed directly by Stedman Jones. The seventies and eighties in the U.S. and Britain are characterized by Friedman’s monetarism, and the right wing interest in neoliberal policy. While thinkers in the forties and fifties had articulated an interest in the free market and a definite move away from collective solutions to social problems, they had not gone so far as argue that the free market itself was a solution to social problems. Some were even sympathetic with national solutions to issues such as healthcare and education, essentially advocating for collective solutions only to collective problems, insofar as the uneducated and the unwell were a burden on productivity for everyone. But they offered no political systems or programs at all, theirs was merely theory. In the seventies and eighties, the right needed more than new fiscal policy to get elected. Democracy demanded the construction of consent, and in order to get this is the United States, the Republican party turned to the Christian, moral right. The right had the advantage of not being afraid to represent the strong majority of its constituents, whereas the left had the problem by the very fact of its ideology that it owed equal representation to each of its demographics of constituents. Moreover, these democratic values were coming under fire in places like New York City, where daily life was affected negatively by what was perceived as the same populations who composed these demographics. As a result of criminalizing poverty, drugs, and then later AIDS, large populations of people were ravaged, and this in combination with the rising violence and the defacing of public spaces (the ‘graffiti crisis’) informed a growing resentment by the middle class of the Democratic values and the welfare state, which made them financially responsible for these problems. Privatization became a way for Democrats to reclaim space. There were, thus, a number of political and strategic actors that, when Keynesian policies finally failed in the mid-seventies, put in significant work into the creation of the neoliberal state.

Stedman-Jones argues that none of that work would have been possible without the foundational theory that was developed by the network Hayek had advocated for, after WWII and before the end of the cold war.  For Stedman Jones, neoliberalism and the neoliberal state are largely products of intellectual discourse, and not of tensions between statesmen and businessmen. He sees financial crises as instigating change, but the theory written by Hayek, Popper, Von Mises, and Friedman, among others, as having shaped that change, and some of those intellectuals themselves dictating it as advisors to politicians. Stedman-Jones’s argument, unlike Harvey’s, is much less interested in how a democracy becomes neoliberal, and is a lot more concerned with which ideas from which small group of thinkers heralded comprehensive change. While the intellectual grounding of neoliberal theory is absolutely essential to understanding its rise in politics in the seventies and eighties, it is also undoubtedly true that in addition to the theory, there was needed some charisma, some charm, some good rhetorical arguments and all the other props of popular politics.

III. Johanna Bockman and The Road Between

Johanna Bockman argues that economists in the East and the West consciously attempted not only to explicate a theory of neoliberalism but also to design systems that could be instantiated based upon this theory. She argues that in 1989, capitalist interests essentially caused a reneging of commitments to socialist agendas which might otherwise have seen the rise of socialist democratic markets, as opposed to representative democratic markets. Among the ways in which neoliberalism has socialist seeds within it are its opposition to work – its turn to finance, its monetarism and its prospecting via investment, have together transformed even traditionally production focused areas of the economy into ones that look to find profit via other means than labor. Rather than guaranteeing this as a right for everyone though, as communism does, capitalism – which can only subsist on economic inequality -- only promises this to the ‘elites,’ or the upper most economic classes, and what it promises everyone else is the possibility that one day, they might be elites themselves. Bockman also argues that like certain strains of socialism, neoliberalism is actually interested in an authoritarian state, but a smaller one. The authoritarian state in neoliberalism is one that ensures the free market, no matter what, even when Main Street and large swaths of the globe suffer. It has the appearance of authoritarianism that we are familiar with, through the cutting of welfare services and the reduction of public space, but disguises this by asserting that it is protecting plurality, the freedom of the individual.  Most important to Bockman’s argument in socialism’s role in shaping neoliberalism are the socialists themselves. She argues that even Hayek’s neoliberal theory is based in the Austrian school, and that the economists of Eastern Europe when they were finally able to communicate with the left wing economists in the West, towards the end of the cold war, were working together towards socially democratic markets. It wasn’t until 1989, for Bockman, that these left-wing ideas were co-opted by the right to form the neoliberalism we know today.  That the ideas these economists generated were reconfigured for the right wing agenda means that the true origins of neoliberalism are, for Bockman, left wing and transnational.[12]
This argument would face strong critique from Harvey, who sees neoliberalism as largely a political project of the United States and England. If neoliberalism is exported to, or experimented on other countries, this is simply imperialism, and any relationship to foreign economists is necessarily one in which the Western powers are dominant. Stedman Jones, however, agrees with Bockman, in terms of the contribution of socialist economists to neoliberal theory. He sees both the United States and England as being heavily influenced by Germany’s successful experiments with the social market after World War II.  Stedman Jones uses Smith to point out that the fiscal views of neoliberalism do not inherently oppose the notion of a centralized government. Only when the same principles which are applied to the economy in neoliberalism are also applied to the citizen can centralized governance be ruled out.[13]
Where Bockman’s argument is strongest is in method; we need not resort to showing that German economists and American economists were on the verge of saving the world together to suggest that what socialism was doing influenced what neoliberalism set out to do, and moreover, that any theory which follows any other theory in its own field will necessarily carry with it something from whence came, like DNA. There is a method here for thinking about how change occurs that is often overlooked because of the narrowness of discipline or the desire for depth that precludes a broader discussion of transformation. Of the authors here, Bockman is the only one who suggests that there had to be a path, intellectually, from centralized government and the welfare state to small government and the free market, and that this path, by definition, connects socialism and socialist democracy to neoliberalism and representative democracy. While her discussion of specific events, and her focus on 1989 as the moment when the present neoliberal state emerged are interesting, her assertions about the socialist ideas inside neoliberalism are far more compelling, because of the immediate sense they bring to the transition from Keynesianism to neoliberalism. The explication of the ideological transformation justifies the events and theorists’ ideas in both Harvey and Stedman Jones.

IV. Conclusion

Harvey, Stedman Jones, and Bockman each present a narrative that details the emergence of the neoliberal state. For Harvey, it was the mad stumbling of capitalist interests and the politicians who came to support them when Keynesianism failed. Stedman Jones argued that it was a particular set of individuals in the academy in Britain and the U.S. from the forties through the sixties that brought neoliberal policy to the fore.  Finally, Bockman asserted that the conditions in which economists found themselves after WWII forced them to transform socialist conceptions of economy. For Bockman, neoliberalism has socialist ideas within it, and its roots were socialist as well. Each of these authors explicates an important aspect of the emergence of the neoliberal state. In each case, the historians’ conclusions are strongest when they present a complex relationship between theory and praxis. It is neither enough to say that business interests dominated politics in the mid-seventies, nor to say that the Austrian or Chicago schools of economics guided the political economic policy of the seventies and eighties by themselves. Nor is it sufficient to argue that a transnational market socialism developed by economists in Eastern Europe and the United States bears sole responsibility for the rise of the neoliberal state. Rather the difficulty comes exactly in analyzing the relationship between the theory and the events, the conditions and the choices, the academics and the politicians. There is a causal relationship between published theory, the conditions of the time, and the actions of the people. The emergence of the neoliberal state must thus be put down to this relationship, and any narrative must make its central focus an analysis of this relationship in order to succeed.

[1] Harvey, David. A Brief History of Neoliberalism. Pg. 2. OUP Oxford, 2005.

[2] Ibid, Pg. 13

[3] Ibid, Pg. 13

[4] Ibid, Pg. 22

[5] Ibid, Pg. 23

[6] Ibid, Pg. 23-24

[7] Ibid, Pg. 29

[8] Jones, Daniel Stedman. Masters of the Universe: Hayek, Friedman, and the Birth of Neoliberal Politics. Pg. 31. Princeton University Press, 2014.

[9] Robbins, Lionel. "Statement of Aims." MPS. April 8, 1947. Accessed May 14, 2016. https://www.montpelerin.org/statement-of-aims/.

[10] Stedman Jones, Pg. 36.

[11] Ibid, Pg. 202

[12] Bockman, Johanna. Markets in the Name of Socialism: The Left-Wing Origins of Neoliberalism. Pg. 218-221 Stanford University Press, 2011.

[13] Stedman Jones, Pg. 103