According to the internet, neoliberalism is dead, or at least gravely ill. A quick Google search reveals multiple eulogies for the political and economic doctrine. But what was (or is) neoliberalism and why is it no longer with us? More importantly, why haven’t Australia’s leaders got the message?
Like any term with negative connotations, “neoliberalism” is widely applied, and misapplied, and can refer to any aspect of modern capitalism that the speaker wants to criticise, from architecture to Zumba. Even Donald Trump, who has repudiated the core doctrines of neoliberalism in favour of an extreme version of crony capitalism, has been described as embodying the “ultimate triumph of neoliberalism”.
The core meaning refers to a set of economic policies that emerged in the 1970s as a response to the economic crises of the time, seen as representing the failure of the Keynesian and social democratic welfare state. The central element of these policies was the elevation of markets, and particularly financial markets, as superior to democratic governments.
The most important exponent of neoliberalism was Margaret Thatcher. Her government pioneered the main elements of the doctrine: privatisation of government enterprises, financial deregulation, the contracting out of the public sector and removing progressivity in the tax system. Above all, neoliberalism celebrated a globalised economy built on free movement of goods, capital and (in the most logically consistent versions) people.
As the name implies, neoliberalism was a descendant of classical liberalism, defined by the fact that it is a reaction against social democracy, which also draws heavily on the liberal tradition. However, neoliberalism placed more weight on economic freedom than on personal freedom or civil liberties, reversing the emphasis of classical liberals like John Stuart Mill. On matters of personal freedom, neoliberalism was basically agnostic, encompassing a range of views from repressive traditionalism to libertarianism.
In terms of economic policy, neoliberalism was constrained by the need to compete with the achievements of social democracy. Hence, it is inconsistent with the kind of dogmatic libertarianism that would leave the poor to starvation or private charity, and would leave education to parents. Neoliberalism sought to cut back the role of the state as much as possible while maintaining a basic safety net and access to health and education services.
Much of the political left, including the Hawke and Keating governments in Australia, responded by adopting a “soft” form of neoliberalism, referred to at the time as the Third Way. Soft neoliberals accepted the supremacy of financial markets and the need to roll back state intervention, but sought to protect as much as possible of the welfare state built up in the era of social democracy.
From the late 1970s to the end of the 20th century, neoliberalism appeared both successful and unstoppable. The collapse of the Soviet Union in 1991 not only removed the only serious competitor to capitalism, but appeared to discredit the social democrat alternative to unrestrained reliance on markets. Booming stock markets seemed to validate Thatcher’s idea of a “shareholder democracy”. Bond markets pronounced infallible judgments on governments that deviated from the neoliberal orthodoxy encapsulated in what was called the “Washington Consensus”, reflecting the views of the International Monetary Fund, World Bank and US Treasury. With his characteristic gift for glib metaphor, New York Times columnist Thomas Friedman referred to the “golden straitjacket”, that is, the proposition that strict adherence to neoliberal rules would be rewarded with endless prosperity.
But the 21st century began with the spectacular implosion of the “dotcom” tech stock bubble, which required a massive bailout from the US Federal Reserve. Much worse was to come with the global financial crisis and the decade of austerity that followed in the US and Europe. The only people who prospered through the years of austerity were the bankers and financiers who had caused the crisis in the first place.
The GFC destroyed the neoliberal faith in markets, and particularly in financial markets. But, as is common with financial crises, the immediate response was not a shift to the political left. Rather, an older version of rightwing politics re-emerged, epitomised by the election of Donald Trump as US president. Trumpism rejects the idea of markets built on mutual beneficial transactions, and sees trade as a zero-sum game.
Throughout the ascendancy of neoliberalism, rightwing parties relied on more or less coded appeals to racism and nativism to secure the votes of their base, while assuring their corporate backers that the business of globalisation would carry on as usual. With Trump’s rise to power, the tables have been turned. Trump has upended world trade with tariffs, and intervened in the domestic economy to reward loyalists and punish enemies. Corporate oligarchs now have to beg and bribe their way into his favour.
The same is true, in a less dramatic way, in Australia. The Coalition no longer speaks the language of free-market reform. Peter Dutton is promising to introduce divestiture powers to our competition laws to break up the monopolies and near-monopolies that dominate the Australian economy. Less admirably, but even more in conflict with the dictates of neoliberalsim, we have a commitment to a government-owned nuclear power industry, tax breaks for business lunches and restrictions on migration.
Trumpism, whether full-strength or in the watered-down form seen in Australia, is not an answer to the failure of neoliberalism. But until centre-left parties can escape the mental prison built by decades of soft neoliberalism, it is what we are likely to get.
John Quiggin is a professor at the University of Queensland’s school of economics
