What are the consequences of neoliberalism

History of neoliberalism : Economic shock therapies with consequences

When the International Monetary Fund published a self-critical paper on neoliberalism in the spring of 2016, it sparked wide media coverage all over the world. The real value of the message lay not in the cautious distancing from the austerity policy and excessive deregulation and liberalization, but in the use of the term, which until then had been rejected as pure polemic by the most important international financial organization. In this respect, the article can be viewed as a discourse-historical turning point, which at the same time signals an economic change.

In contrast to Marxism, classical liberalism or Christian social doctrine, there is no party or group that openly professes the concept of neoliberalism and would refer to a certain canon of writings or to historically grown basic values. In addition, even those economists and politicians who can be clearly located in the “field” of neoliberalism have rejected this designation since the 1980s.

One of the main strengths of this ideology is its adaptability. Neoliberalism was also able to achieve global hegemony because it proved to be flexibly applicable in different contexts. It thus resembles modern nationalism, the most powerful ideology of the 19th century. This also remained ideologically variable and unfolded in extremely different contexts, from “small” nations to imperial nation-building projects.

The "unleashed" market is the best

The ideological core of neoliberalism lies in “market fundamentalism” (Joseph Stiglitz). The image of the market created by Milton Friedman and Margaret Thatcher, the most important intellectual and political masterminds of neoliberalism, is based on the historical ideal of a small-town marketplace on which basic goods are traded "face to face". In principle, the assumption was made that the market could best develop its productive powers when it was freed from state interference and "unleashed". Basically, it is enough if the state is reduced to its constitutional functions and protects and strengthens private property and entrepreneurial activities.

Neoliberalism, the roots of which can be traced back to the 1930s, initially remained marginalized in the specialist public and politically in the post-war period. But in this incubation phase a network of economic thinkers and think tanks emerged, who implemented an economic paradigm shift from the mid-1970s in response to the “stagflation” after the second oil crisis and determined government policy in Great Britain and the USA in the 1980s.

Chile played an important role in neoliberalism

What is less well known: In addition to the USA and Great Britain, the emerging country Chile played a major role in the expansion. In 1973, Augusto Pinochet's military coup ended Salvador Allende's socialist experiments. Under Pinochet the pendulum swung the other way. He pursued a neoliberal economic policy with extensive privatizations (including the post office, the railroad and even the waterworks), general deregulation and an opening of Chile to imports and foreign investment.

The assessment of economic policy under Pinochet is still controversial today. On the one hand, after the Latin American debt crisis had been overcome, a phase of high growth that lasted until the Asian crisis at the end of the 1990s began in 1982/83. On the other hand, a deep social divide emerged - inequality would almost be a euphemism - which had the effect of stifling growth. Nevertheless, this neoliberal “success story” is still circulating around the world today. This also proves that neoliberalism can also be understood as a communicative phenomenon.

The basic idea is similar to socialism

The decline of the Eastern Bloc sparked a strong reaction in the West. As early as the beginning of 1989 the “New Yorker” wrote: “The struggle between capitalism and socialism is over: Capitalism has triumphed.” In the further course of the year the international financial institutions and representatives of the American government agreed on the “Washington Consensus”. This “consensus” was actually aimed at the over-indebted, high-inflation-plagued countries of South America. However, it then served as a blueprint for economic policy in various post-communist countries, especially Poland.

However, it would be wrong to attribute neoliberalism solely to the dominance of the US and international financial organizations. Rather, the local reform elites willingly embraced the neoliberal ideology. The formulations of the “Washington Consensus” were a promise for the future, albeit under the premise that a “valley of tears” had to be traversed first. This basic idea was also so well received because the state socialist modernization was based on similar guidelines: “Without alternative” victims in the present in favor of a better future.

Shock therapies for Poland

The model country of neoliberal reforms in Europe was initially Poland. In the fall of 1989, the government formed in June passed the ten-part Balcerowicz Plan. Its basic idea was a big bang: if the subsidies for food, energy, rents and many everyday items were abolished, the prices for all products were released, the unprofitable large companies were privatized and the borders opened to foreign investors, then the Polish economy would follow suit A short, painful period of adjustment to reach an "equilibrium" and begin to grow again - that is the idea. Finance Minister Leszek Balcerowicz assumed that his reforms would result in a drop in GDP of around five percent and a slight increase in unemployment. In fact, gross domestic product fell by 18 percent in 1990 and 1991 and industrial production by almost a third. In 1992, 2.3 million Poles were unemployed.

The example of Poland shows that the frequently made claim that shock therapy is the basis of subsequent economic successes cannot be upheld, at least not in the sense of a causal explanation of cause and effect. In Poland in particular, one would then have to take into account the policy of the post-communists, who came to power in 1993 and although the reforms did not revoke them, they modified them, especially in the privatization of large-scale industry, which was often continued for several years under state control. Obviously, this pragmatism did no harm.

A new twist on neoliberalism

In the “reform states”, however, neoliberalism got a new twist at the end of the 1990s. Since then, privatization has been about core state competencies such as old-age provision and the health system. The Hartz reforms were also inspired by social reforms in other countries, especially Great Britain, the low-wage sector goes back directly to Milton Friedman's Chicago School. Another characteristic of the second wave of neoliberalism was the discourse about greatly simplified and reduced tax rates, the so-called flat tax. Above all, higher earners benefited from these, who should then invest more, while the lower income brackets lost purchasing power. The deregulation of the international financial markets, which led to the real estate bubble in the USA and similar bubbles in Eastern Europe, was particularly explosive.

The crisis of 2008/09 brought about a deep turning point. Nevertheless, it did not lead to a clear break with neoliberalism, as is evident in southern Europe. In accordance with the logic of the neoliberal order and out of acute pressure to act, the southern EU states reacted with a strict austerity policy, the first building block of the “Washington Consensus”. Not least, this had consequences for the political order. If a certain policy is repeatedly justified with the term “no alternative”, i.e. ultimately apolitical and technocratic, then this provokes populist counter-reactions that can also be understood as re-politicization.

The basics for populist currents

The connection between neoliberalism and populism is shown by a number of election campaigns and results in various European countries. When the second wave of reforms was implemented in Poland from 1998 to 2002 and unemployment rose again, more than thirty percent of voters voted for right-wing and left-wing populist parties in the subsequent elections. The Italian Cinque Stelle party was not far from this result in the 2013 elections. In Greece, the left-wing populists from Syriza were able to take over the government. The victory of the national-conservative party PiS Poland is also based on the dissatisfaction of the losers in transformation.

Donald Trump's rise in the US presidential campaign can be explained in a similar way, as his main voter reservoir consists of male, white Americans with middle or low school education. This is the population that has suffered most from market opening, industrial relocation and competition in the labor market since the 1980s. These social and political consequences of liberalization and deregulation should find their way into a critical neoliberal research as well as the structural connection between neoliberalism and populism.

- The author is professor for the history of East Central Europe at the University of Vienna. The article is based on a contribution to the Internet encyclopedia Docupedia. An updated edition of his book “The new order on the old continent. A history of neoliberal Europe ”(Suhrkamp).

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