Nailing Neoliberalism to the Wall

The old global order is dying. Gary Gerstle, professor of American history at the University of Cambridge, adds yet another terminal diagnosis to sit at the bedside of the set of political norms we call “neoliberalism” in his new book, The Rise and Fall of the Neoliberal Order: America and the World in the Free Market Era.

Among the diagnostics of what Gerstle calls “the neoliberal order” are the 2020 presidential campaigns of Donald Trump, Bernie Sanders, and Elizabeth Warren; media voices as diverse as Jacobin Magazine and Fox News’ Tucker Carlson, and even the comments pages of The Financial Times. The Rise and Fall of the Neoliberal Order draws on Gerstle’s breadth of specific historical knowledge to narrate the story of American neoliberalism’s rise and fall in compelling empirical detail. Gerstle’s main narrative arch focuses on the replacement of a “New Deal” order with a “neoliberal order” in America.
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Neoliberalism at its most essential, Gerstle argues, is a loose political-economic doctrine that attempts to reform states and economies to ensure the perfect functioning of artificial and rational markets. It was a “neo” or new liberalism because it was not, at the time, like the “old” liberalism of Franklin Delano Roosevelt and the New Deal. While New Deal liberalism sought to use the state to achieve full employment, Gerstle asserts that in the minds of neoliberals the state was there to support the market. “Markets need[ed] structure in order to operate freely. This principle was as intrinsic to classical liberalism as it has been to neoliberalism.” For Gerstle, what separates neoliberalism from economic liberalism or libertarianism is the idea that the state should be reformed into a powerful guarantor of the structures that allow markets to function.

Gerstle understands that neoliberalism can be used to describe what, at first glance, seem like contradictory political tendencies. The book’s presentation of neoliberalism is capacious enough to include both tax-cutting socially conservative Reaganites and socially liberal former New Lefters working in Silicon Valley. Gerstle seems to imagine modern American neoliberalism as a working synthesis born in the 1960s from a partnership between the economic forces of Barry Goldwater’s New Right and the social pressures unleashed by activists like Tom Hayden and Abbie Hoffman on the New Left.

It is this characteristic broadness that allows critics on both the contemporary Left and Right to level the term “neoliberal” to attack their enemies. Indeed, neoliberalism has transformed itself from a strictly political-economic label to a catch-all term. The political Left and Right use “neoliberalism” to label everything from powerful tech companies to identity politics. Meanwhile, new institutions like Compact Magazine have capitalized on this shared syncretic critique.

Gerstle’s ability to historicize and particularize neoliberalism provides a corrective refocusing of a term that has become unmoored from its history. Many early neoliberals such as Friedrich Hayek and Ludwig von Mises hailed from the ​​Mitteleuropean Austro-Hungarian Empire. Their commitment to free markets was a reaction against the European social-democratic and revolutionary socialist parties that had started to find electoral success after World War I. They took their economic theories, famously, to institutions such as the University of Chicago. Hayek and von Mises then helped to influence the next generation of neoliberals including Milton Friedman, Murray Rothbard, and Ayn Rand.

During the interwar years many of these figures were operating outside the “threat” of European parliamentary socialism. Thus they built their theories both against a domestic foe, “the New Deal Order” (a rival version of liberalism), and also an external enemy in the Soviet Union. Such free-market thinkers, however, were marginal across the mainstream political spectrum from the 1930s to the 1970s—as a result of their traditional party home, the Republican Party, having caved to New Deal liberalism:

A key attribute of a political order is the ability of its ideologically dominant party to bend the opposition party to its will.… Thus, the Republican Party of Dwight D. Eisenhower acquiesced to the principles of the New Deal order in the 1950s, and the Democratic Party of Bill Clinton accepted the principles of the neoliberal order in the 1990s.

The Rise and Fall of the Neoliberal Order understands the idea of “order” as an ontological backdrop from which to engage in politics—it explains why politicians as different as LBJ and Nixon expanded the welfare state and environmental protections at the end of the New Deal era. As Gerstle writes, “The phrase ‘political order’ is meant to connote a constellation of ideologies that shape American politics in ways that endure beyond the two-, four-, and six-year election cycles.”

But this neoliberal political-economic cooperation between rival parties in America is now unraveling just as the old New Deal order did before it, according to Gerstle. The Rise and Fall of the Neoliberal Order places a heavy emphasis on how the presence and then absence of an alternative model in the Soviet Union constrained and then unleashed free-market capitalism in America: “The fear of communism made possible the class compromise between capital and labor that underwrote the New Deal order,” writes Gerstle. He argues that the destruction of the Soviet Union in 1991 left a newly neoliberalized America as the sole superpower and resulted in the end of a compact between workers and employers that had been built to fend off communism. In practical terms, for the majority of people, fending off communism meant high wages, low housing prices, strong welfare programs, and unions. Gerstle argues that once the threat of communism was vanquished, capitalist employers were less willing to ensure these things.

The book reminds us that the 1991 collapse of the Soviet Union allowed for a global capitalism that had not been possible since the October Revolution of 1917. Gerstle makes the point that, during the Cold War, neoliberalism was a powerful but regionally particular system rather than a global norm: From the end of the Chinese Revolution in 1949 to 1991, a large portion of the world was closed off to direct investment. Many parts of the world, including social-democratic Western Europe and India, were hostile to neoliberal efforts. During the 1990s, the absence of a rival allowed neoliberalism to take on a universalistic character. However, in this century, America’s next political order will have to contend with a powerful Chinese state and the return of a bipolar world. Consequently, those in power will not be able to make uncontested claims to universality.

For Gerstle, the fall of a particular, historical American order is normally crystalized by financial crises that prompt popular discontent: “Stagflation precipitated the fall of the New Deal order in the 1970s; the Great Recession of 2008–2009 triggered the fracturing of the neoliberal order in the 2010s.” Gerstle is right that the 2008 recession has led to the slow unraveling of neoliberal assumptions and the popularity of figures like Sanders and Trump. However, unlike the inflation, energy crises, and labor conflicts that led directly to the inauguration of a new political order under Reagan, America has yet to fully break from neoliberalism post-2008. Trump, despite his rhetoric, maintained a commitment to tax cuts and a small state; the Sanders campaign failed; and bottom-up protest movements like Occupy Wall Street have had minimal long-term effect.

Gerstle’s work will certainly help us make an educated assessment of what comes next on the political-economic doctrinal horizon. As his book charts it, America’s successive political orders have each been a manifestation of liberalism. But for liberalism to be preserved during the next political order, Gerstle suggests, it will have to move past the long legacy of neoliberal thought.

Samuel McIlhagga is a journalist based in the United Kingdom. He writes on political thought and theory, UK politics, and foreign affairs.