Neoliberalism: The Rise and Fall

During the 2020 primaries and presidential race, President-elect Joe Biden faced endless questions about divisions between the centrist and progressive wings of the Democratic Party. How would he traverse the differences between the Bernie Sanders “democratic socialists,” who espouse fiery class politics, and the technocratic Clintonian policymakers with roots in the policy-private sector nexus?

At the end of the 20^th century, the big ideological battles between democracy and authoritarianism and between capitalism and communism seemed settled. Over the past fifty years, though, the relationship between democracy and capitalism has decayed considerably. Income inequality has risen in the Western democracies. Economic mobility has declined. The “precariat”—workers exposed to relatively high risk in the labor market—has grown. Trust in government has, unsurprisingly, declined as a result. Voters disdain political parties and find party leaders unresponsive. Support for extremist parties and leaders has risen.

Three new books examine this crisis of democratic capitalism by training a political lens on the relationship between neoliberalism, broadly construed, and political parties. These authors define neoliberalism with respect to policies and policy paradigms—those that emphasize less of a role for the state (particularly regarding regulation or welfare) and instead emphasize more of a role for the market. Across many of the industrial democracies, neoliberal politics led to an emphasis on economic growth, international trade, and policies benefitting white-collar and financial constituencies.

One critical aspect of neoliberalism has been its effect on mainstream political parties in Western Europe and North America, especially parties on the left. By the end of the 20^th century, contestation over crucial areas of public policy had been largely eliminated. Debates persisted over austerity, redistribution, and privatization, but governments were more concerned with positioning their domestic sectors for global competition than with protecting citizens from losses that globalization produced.

We think of ourselves as living in an era of partisan polarization, but one paradoxical trend in the past forty years has been the parties’ convergence with respect to economic policies on which there used to be clear alternatives. “Left” and “right” are still used to distinguish between parties historically rooted in social democracy and those founded on principles of limited government, but the left-right spectrum has become muddled by 21^st-century realignments. Parties of the left have largely become the parties of cities and educated professionals who benefit from the knowledge economy. Far-right parties tend to be anti-globalization and to mobilize the disaffected working class.

Moreover, the doctrine of neoliberalism did not just exercise its influence directly on national governments. Parties on the left needed policies that could be distinguished from the welfare capitalism and Keynesian approaches associated with the stagflation and economic crises of the 1970s. These policies needed to appeal to the Left’s traditional bases, like the working classes, while speaking to traditional goals like poverty reduction. The solution lay in combining neoliberal ideas with social democratic commitments, a political “third way” that would empower private entrepreneurship rather than relying on the public sector. In this way, neoliberalism in the 1990s created a new political center that avoided various traditional disputes between left and right.

Stephanie Mudge’s Leftism Reinvented (2018) describes the shift toward neoliberalism in social democratic parties—the British Labour Party, the Swedish Social Democrats, the German Social Democratic Party, and the American Democratic Party—over the 20^th century. Parties on the left became more neoliberal in the areas of redistribution, global trade, and law and order. As for why and how neoliberalism assumed this central role, Mudge describes the trade-offs that party leaders faced as they moved from a traditional politics of representing interests toward approaches that increasingly valued technocratic decision-making.

Mudge focuses in particular on the role of party experts. Labor parties once relied for expertise on their strong ties to unions, which were not only part of their electoral base but provided training grounds for working class political candidates and venues in which citizens and representatives talked politics. Economists also played a role in shaping the Keynesian ideas behind policy proposals. But in the 1980s and 1990s, social democratic parties turned to new kinds of economic experts, whom Mudge dubs “transnational finance-oriented economists.” These individuals, with backgrounds in economics, finance, or business, were not just economists of the Chicago school or acolytes of Milton Friedman; they imbued their preferred policies with a neoliberal ethos. They worked with party leaders to develop a new centrism based explicitly on the adaptation of neoliberal ideas to meet social democratic goals.

They did so by eschewing traditional types of mediation, like reliance on strong unions, in favor of technocratic approaches to policy. Mudge shows that this neoliberal turn succeeded in helping social democratic parties to gain electoral majorities; and how there were costs, in the form of creating a centrism without clear traditional bases of support and parties with fewer ways to address voters’ actual concerns. Conservative governments elected in the 1980s were quick to repudiate the resulting welfare and regulatory state, using austerity, corporate tax cuts, and deregulation.

In the 1990s, Western democracies put center-left parties in power. The reasons were at least partly economic, which meant that these parties, once in office, needed to address the growing gap between rich and poor and do something about the erosion of social protections and labor opportunities. In response, according to Julia Lynch’s Regimes of Inequality: The Political Economy of Health and Wealth (2020), parties “reframed” inequality. In doing so, they made inequality—not just income inequality but broader phenomena like health inequality—an even more intractable problem.

Like Mudge, Lynch traces the consequences of the new economic policy consensus between center-right and center-left parties in the final decades of the 20^th century. She begins by laying out the international community’s approach to the “social determinants of health” in the 1980s, with reference to new guidelines from the World Health Organization, before comparing the different health policy approaches in Britain, France, and Finland. Because parties had largely signed on to neoliberal critiques of the welfare state, they tried to address inequality through neoliberal approaches that reframed inequalities as problems of “social investment,” “human capital development,” or “flexicurity.” For the same reason, center-left parties rejected the idea of reducing inequality with traditional tools like redistribution through taxes and transfers or welfare policies like social services that could be provided at little or no cost to individuals.

Mudge and Lynch trace the role of ideas in shaping party decisions, particularly ideas about policy formulation. Mudge notes that party leaders, rather than reflecting the interests and demands of party members, could now choose instead to incubate policy expertise in-house. Lynch points out, however, that politicians’ eagerness to adopt neoliberal ideas was constrained by the existing welfare policy regimes within their governments; this constraint, too, had consequences for the way parties conceived of the problem of inequality and tried to solve it.

The adoption of neoliberal ideas and policies spilled over to other aspects of democracy. In Anti-System Politics (2020), Jonathan Hopkin describes the way mainstream party convergence affected broader party systems in Western democracies. In studying both extremist factions within mainstream parties and newer parties of the left and right, often grouped under the broad umbrella of “populist parties,” Hopkin finds that they share the feature of being “anti-system.” These parties take aim at the establishment parties as a whole since, in their view, right and left parties have been similarly unresponsive to popular demands.

While Mudge and Lynch describe the process of the parties’ convergence, Hopkin focuses on the relationship between mainstream parties and “anti-system” parties in the aftermath of the 2008 global financial crisis. For the decades preceding the crisis, mainstream parties had become more elite, technocratic, and beholden to a market-based liberal orthodoxy. These trends left citizens worse off. As voters, they weren’t able to choose between parties that presented true alternatives. As workers, they were less secure than they had been.

Anti-system parties, which began gaining vote share soon after the crisis, staked out positions on both the left and the right of the political spectrum. Hopkin’s book examines these parties in the eurozone, the United Kingdom, and the United States. He argues that debtor countries like Spain, Portugal, Greece, and Italy saw the rise of anti-system left parties, while the anti-system right gained vote share in creditor countries. In the United States and the United Kingdom, the parties experienced far-left and far-right backlash. Both rejected the politics of centrism and neoliberalism, albeit with different political appeals and alternatives.

Since the financial crisis, there has been growing uncertainty about the ability of democratic governments to respond to citizens’ demands. There is compelling evidence, especially in the United States, that elected officials are more responsive to the preferences of the wealthy, lobbyists, or special interests than they are to the needs of the general public.

These three books from Mudge, Lynch, and Hopkin ground today’s crisis of democratic responsiveness in the political economy of the post-Cold-War era. Parties, particularly on the left, shifted not only their specific policy prescriptions but their general approaches to policymaking and governing. Parties on the left, with their increasing reliance on technocracy, eroded their relationships with their traditional working-class bases and entrenched their reliance on neoliberal thinking, which made elected officials reluctant to consider regulatory or redistributive policy tools—which, in turn, increased the prominence of debates over culture and values.

The persistence of the doctrinal and organizational influence of neoliberalism within the parties also generated a backlash from citizens who became “fed up” with the system as a whole, seeing it as one that protects parties and economic elites while doing little to improve the material circumstances of average citizens. Unless parties can once again stake out competing programmatic agendas or prioritize intermediation organizationally, centrist politics is unlikely to succeed in addressing the pressing challenges that face liberal democracies today.

Didi Kuo, an American Purpose contributing editor, is the associate director for research and a senior research scholar at the Center on Democracy, Development and the Rule of Law at Stanford University. Twitter: @didikuo1.