The deep and lasting cuts of neoliberalism

Since the mid-2000s, the hegemonic neoliberal order has itself entered crisis, driven above all as a political reaction.

Book cover of 'The Rise and Fall of the Neoliberal Order: America and the World in the Free Market Era' by Gary Gerstle (2022).

The borders of history as an academic discipline have broadened to include the very recent past. Drawing upon the insights of political economy and critical theory, contemporary historians such as Gary Gerstle are well equipped to provide us with a narrative and analytical framework that helps make sense of the current crisis of neoliberalism in the United States.

The broad themes in Gerstle’s book are quite familiar. He draws on the concept of a political order in which a particular set of ideas, institutions and partisan alignments become hegemonic until supplanted by an alternative.

The quasi-social democratic, “embedded liberalism” of the New Deal era was built on a mass labour movement, regulation of corporate power and finance, full employment policies, the welfare state and, at the global level, managed national capitalisms. 

Built by FDR and the Democrats in the 1930s,  the fundamentals of this order mapping a third way between socialism and classical small government, pro-market liberalism were watered-down but largely accepted by post-war Republicans including Presidents Eisenhower and Nixon.

The New Deal order gradually gave way from the 1970s to a new liberal or neoliberal order. This was built on an assault on unions and labour standards, deregulation, privatization, “free trade,” “globalization”, fiscal austerity and much enhanced corporate power. 

Since the mid-2000s, the hegemonic neoliberal order has itself entered crisis, driven above all as a political reaction to soaring income and wealth inequality, economic instability, the stagnation or decline of working-class living standards, the marginalization of the poor and racialized minorities, and growing insecurity. 

Politics in both political orders has also been driven by the culture wars pitting nativism, racism, religion and social conservatism on the one hand, against cosmopolitan social liberalism championing individual human rights and a pluralist society on the other. Indeed, identity politics and sharp partisan divisions over issues such as immigration, racial segregation and crime have become even more salient in the neoliberal order due to the convergence of the two major parties on political economic issues. 

Gerstle does, however, note that New Deal liberalism failed to confront racism and segregation until at least the 1960s through LBJ’s Great Society program, and that the loyalty of Black people to the Democratic Party has not been reciprocated. Clinton was complicit in the war on crime which led to the mass incarceration of Black men in the 1990s and the attack on welfare which destroyed Black families.

The result of the crisis of the neoliberal political economy has been a major challenge to neoliberalism amidst the rise of authoritarian populism and the ascendancy of Trump as the first post neoliberal President. Trump has put “America First” in rejecting liberal globalization, and has attacked liberal democratic norms and institutions once largely accepted by the Republican Party.

Gerstle argues that the well-worn narrative of neoliberalism being the product of a resurgence of right-wing think tanks and ideology, the take-over of the Republican Party by the radical right and the insidious political influence of the top 1% is somewhat misleading. He also questions the idea that US politics are characterized by deep partisan polarization.

He argues that there was, in fact, a near-consensus from the 1980s between the two major parties when it came to neoliberalism as a political economy framework and policy agenda. Indeed, he judges that Clinton was at least as much the architect of American neoliberalism as Reagan, just as Tony Blair in the UK embraced the agenda of Margaret Thatcher, emphasizing that there was no alternative.

The Democratic Leadership Council and the self-styled Atari Democrats avidly embraced the emerging high tech so-called knowledge-based economy, building close links to Silicon Valley, Wall Street and thriving metropolitan centres. They called for “expanding opportunity” rather than “big government” which, they argued, should play only a modest supporting role to the “wealth creators.”

 “The Democrats were more interested in building America’s high-tech prowess than in saving declining industries. They talked about the importance of innovation and international trade and were impatient with labour unions insisting on protectionism and job security.” Defence of union and labour rights fell by the wayside as far back as the Carter Presidency which also championed deregulation and smaller government before the election of Ronald Reagan.

Clinton’s economic team included leading Wall Street figures such as Robert Rubin and neoliberal economists such as Larry Summers who espoused fiscal austerity and, most fatefully, financial deregulation. The Clinton government set the stage for the rise and collapse of a housing bubble which almost sank global finance and pushed millions of Americans out of their homes. 

Similarly beholden to Wall Street, the Obama Administration, led by the former Clinton team, stepped in to save the banks but failed to secure a real recovery for ordinary working families, once the key constituency of the  Democratic Party.

Clinton also embraced deregulated global capitalism through trade and investment deals like NAFTA; pulled the plug on welfare mainly at the expanse of Black families; supported the mass incarceration of Black men; and promoted mere band-aids such as charter schools and school vouchers to deal with the exclusion of many working Americans from prosperity while stigmatizing the underclass. 

In doing so, the neoliberal Democrats paved the way for the rise of Trump who cracked open the New Deal electoral coalition, denounced corporate elites (while still serving up rich tax cuts); blamed America’s woes on globalization and immigrants, frontally attacked the liberal-democratic consensus, and managed to retain the support of mainstream Republican social conservatives. 

Gerstle also argues that the stage was set for neoliberal dominance by the collapse of Communism. This view is probably exaggerated. Communism had long ceased to be a political force in American life by the 1980s, and the New Left of the 1960s and 1970s was not much of an influence in the labour movement or in working class communities. It lacked a coherent economic program and bears some blame for the focus of the neoliberal Democrats on the culture wars, individualism and identity politics.  

Thus there was a “decline in the very ability to imagine organizing a world on something other than capitalist principles.” 

Gerstle does note the return of democratic socialism to American political life in the Sanders campaign, and the limited influence the left has on the Biden administration. But he seems to fear that Trumpism may become entrenched as we are condemned to live amidst the ruins of neoliberalism.

This book should certainly be read by those interested in American politics. Canadians might also well reflect on to what extent our dominant centre party, the Liberals, has embraced the neoliberal creed and set itself up for a major challenge from the authoritarian right.

The Rise and Fall of the Neoliberal Order: America and the World in the Free Market Era by Gary Gerstle (2022) is available from Oxford University Press.

Andrew Jackson is senior policy adviser at the Broadbent Institute.

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