While I disagree with probably most of what this piece argues (less on the specific facts then on the generalizable conclusions that can be drawn from them), this is a pretty decent take on neoliberalism and its history.
There are a few weak areas. One of the biggest is China. You are undoubtedly right about the immense progress China has made since Deng's reforms, but your comparison of China to its smaller East Asian neighbors is rather faulty. Singapore, Hong Kong, and Macau are essentially city-states, with different political/economic constraints than large continental empires (like mainland China). My personal opinion is that communism was the only political movement at the time that could have united the mainland after the disastrous warlord years and consolidated a central state that could eventually liberalize economically. Neoliberal policies were simply off the table in 1949. In any case, neoliberalism doesn't really provide answers to thorny questions like land reform in a semi-feudal country (since the most efficient policy is usually to divide up the unproductive estates among the peasants, a rather anti-market approach), especially given how land reform helped spark the growth of East Asian countries (as well as their integration into the world market).
Your qualifications about Eastern Europe are also somewhat lacking. It's worth pointing out that in most Eastern Bloc nations, there was some level of continuity in government during the transition from communism to capitalism. This continuity in government, as well as popular support for decommunization and the subsequent integration of Eastern Europe into the world market, partly explains why neoliberal policies worked so well there. Yugoslavia collapsed, but it's at the very least unclear whether neoliberal economic policies had any impact: neoliberalism would have probably worked had the government stayed intact, but neoliberal reforms have a destabilizing element that can quickly get out of hand in left unchecked. The collapse of the USSR was largely the product of failed policymaking: Gorbachev put political reforms before economic reforms (when he should have pulled a Deng and done the reverse), and the economic reforms under Yeltsin were downright backward: privatization has its uses, but privatizing profit-making enterprises starved the government of revenue (contributing to hyperinflation) and fuelled corruption. You sorta elide the point by talking about how Russia should have used spending cuts rather than printing money, without accounting for the chaotic nature of state collapse and how those spending cuts were supposed to pan out (remember that several million Russians died during the crash of the 1990s). Neoliberalism (to the extent that it worked) worked when coupled with a strong and authoritative state (think Thatcher's Britain or Singapore); neoliberal reforms with a weak state just don't pan out because investor confidence remains too low to stimulate investment.
I have other critiques, but instead of airing out dirty laundry, I want to commend you for taking a historical approach to neoliberalism and recognizing how it emerged from the policy failures of the 1970s, something that many critics of neoliberalism tend to downplay. Whether or not neoliberalism was the only solution to that is debatable, but at least you took the effort to address the issue in its historical context.
The collapse of the Soviet Union was built into the Communist economic system, not just micro-policies in how they implemented it.
I have no idea what “ there was some level of continuity in government during the transition from communism to capitalism” means. There was a revolution overthrowing communist regimes. A revolution is not continuity. Yes, geographical proximity to Western Europe really helps, but I am not sure why this goes against neoliberalism.
Russia pursued far less neoliberal policies than Eastern Europe, so I am not sure why you think this disproves neoliberalism. Economic reform might have failed anyway, but it is also quite possible that if they had followed the more aggressive economic reforms of Poland and the Baltic states, it would have succeeded.
I am also not sure why you think land reform in any way disproves neoliberalism. Neoliberals can go either way on the issue.
Correct: they united the country in 1928 by grouping up all the warlords. Unfortunately, the Japanese invaded in 1931, and the KMT lost popular support because it lacked the political power to enact economic reforms (mainly land reform). Things might have worked differently if the Japanese hadn't invaded, since the KMT was inching towards liberalization and reform.
<I have no idea what “ there was some level of continuity in government during the transition from communism to capitalism” means>
Simple: Poland didn't stop being Poland after it threw out the Communist elites. Same with Hungary, Romania, Bulgaria, and the former Czechoslovakia. The nation-state remained intact while governing elites transitioned to market economies. In most cases cases the transfer was relatively peaceful, except in Romania. East Germany is an exception, but even then, East German elites collaborated with West Germany to reunify the country (under popular pressure).
The USSR didn't just abandon communism; it ceased to exist, period. The USSR republics all became independent nations, leading to economic and political chaos. Think of the conflicts between Armenia and Azerbaijan, or Russia and Ukraine: the dissolution of the USSR is a main motivator for these conflicts. Imagine if the US split into fifty different states, each with its own government, bureaucracy, and regulatory system: that's approximately what happened with the USSR (and to a lesser extent, Yugoslavia). Inter-republic trade basically ground to a halt, just as interstate commerce would if the USA suddenly imploded.
<Russia pursued far less neoliberal policies than Eastern Europe>
I'm gonna need some proof on that count.
<I am also not sure why you think land reform in any way disproves neoliberalism. Neoliberals can go either way on the issue.>
Land reform quite literally requires the expropriation of existing property and distributing it (in a populist fashion) amongst the population. This involves a revolutionary transformation of property relations, usually requiring a strong interventionist state to steward the process. While neoliberalism itself isn't anti-state, and while formalizing property relations is ultimately a pro-market move in the long run (ex: Hernando de Soto), it is highly irregular when compared to neoliberalism and its incremental approach. People rightly note that Donald Trump's expropriations of random companies are anti-neoliberal, not merely because they involve state ownership but also because they are erratic (thereby hurting the rule of law) and generate uncertainty (undermining investor confidence). I also personally think the war in Afghanistan was lost in part because the US-backed regime didn't engage in land reform, although this is tangential and highly speculative.
Funny enough, Stalin kept telling Mao to compromise with the KMT and form a coalition with them, but Mao kept gunning for the top seat and eventually won out.
Yes, the Japanese invasion was the great pivot. Without it, I think that we would have a dynamic Nationalist regime in China today. And the Cold War in East Asia would have been dramatically different and likely more peaceful.
I think the stagflation point is weak, given the exogenous shock of OPEC and exploding gasoline prices. But the larger point still stands.
As a liberal who believes in strong markets + strong safety net, it’s frustrating that progressives have successfully turned “neoliberal” into a slur. Any idea that isn’t “kill the billionaires” is called “warmed over neoliberalism” and that’s the end of the argument.
This is great. First Prez my dad voted for as an Indian-American immigrant was Reagan. But i think part of the reason neoliberalism was discredited was the Reaganism-on-steroids tried by George W. bush. His tax cuts and deregulatory agenda led to massive, unsustainable deficits and the Global Financial Crisis
I'm curious on why 1980 is listed as the starting point when Carter is the one that put monetarist Volcker in charge of the Fed, deregulated many transportation industries and interest controls. He might not have called it supply side economics but his policies show us that he believed in them.
Well Volcker became chairman of the fed in the second half of 1979, and the Airline Deregulation Act was signed in 1978. So I said approximately 1980, which is about right.
The political problem with deregulation is that it makes targets out of people who are not capable of long-term abstract reasoning past a certain threshold. If you have an IQ below 90 in current America, you are going to have a bad time. Countries with more regulation provide a buffer for these people. The sports betting industry is a great example of this: in theory one could bet on sports to have a good time, but in practice a big portion of the sports betting industry's revenue in America comes from poor, low IQ people, who actually think that their twelve-way parlay will pay their rent for the next year.
I think that the root issue is ethics, but there's a lot to it. In short, our culture is deeply rooted in altruism, the belief that morality consists in the individual being sacrificed for a greater good. This makes authoritarianism in general, and especially ideas like socialism, seem moral despite being completely impractical. Since people are motivated by morality, they keep trying to implement socialism, no matter how many lives are sacrificed. This is all viewed as good.
At the same time, this morality views capitalism, at best, as a "necessary evil." Practical but immoral.
But capitalism is the economic system that you have in a rights-protecting government (liberal), and that requires an *egoist* ethics. This holds that every individual human life is an end in itself, and should pursue self-interest, rejecting the morality of human sacrifice. With this morality of self-interest in ethics, we can logically support rights-protecting government in politics, and therefore capitalism in economics. Free markets would be viewed as *both* practical *and* moral, resolving the previous contradiction.
Until we change the mainstream view of morality from sacrificial to self-interested, we will continue to have people try and impose socialism, and authoritarianism in general. The human sacrifices will continue until morale improves (and we're back in pre-industrial poverty)!
I also think that we're kinda running out of time, and there's certainly no expertise in the mainstream political discourse that has any idea about how any of this works...
I read the entire article and enjoyed it, especially the concluding paragraphs which do not show up in this condensed version about learning to separate economic policies from cultural issues and not blame the former for dissatisfaction with the latter. Your analysis confirms Luhmann's analysis of modern society as a complex, functionally differentiated society, which means that no one social sphere is directing societal evolution. This makes for complexity, but it also makes for irony, paradox, and much of the literary and existential richness of life that current politics would torpedo. I know you don't think much of Trump, but the very fact that his opponent was even worse speaks to the idiotic cultural and political norms that frame contemporary discourse and lead to disastrous policy. I am much less sanguine about the future. The miseducation of western youth and the participation of elites in this disastrous discourse, especially manifest with respect to Israel - a situation I follow in particular - leads me to despair of the world I shall soon inevitably leave. But good for you that you keep on plugging and seem to enjoy it. I also like that you laugh a lot and try to use it to make me laugh too.
“Developing nations, primarily China and India, brought hundreds of millions out of poverty by accepting the kinds of reforms recommended by Western elites”
Just came here to make a quick distinction about the intellectual origins of reform in China. A massive influence on the Chinese economists and “engineers” designing the reforms in the 1980s was the Hungarian economist Janos Kornai.
When his 1980 book, Economics of Shortage, was translated it became a sensation. It gave people a non-Marxist (but also not exactly “Western”) vocabulary to diagnose the systemic failures of the planned economy. His concept of the 'soft budget constraint' was major point & helped elites in China understand why state-owned enterprises were so inefficient.
Kornai was invited to China multiple times in the 1980s to lecture and advise the very officials tasked with reforming the economy. Presumably, a part of what gave Kornai his immense credibility was that he was an economist from a socialist country who had analyzed the systemic flaws of centrally planned economies…
(In the 1970s I don’t think it was fashionable to study planned economies in econ departments in the US; the hot topics were rational expectations, general equilibrium theory theory refinements, econometrics, etc.)
Creating markets in central planning economies is low-hanging fruit, but was all deregulation in the West successful? I think the financial sector in particular need stronger guardrails, and a lot of the "wealth" created by it is not real, and ultimately banked by the government through socializing losses - and the alternative is even worst. Isn't QE and similar policies just keynesianism for the rich?
While I disagree with probably most of what this piece argues (less on the specific facts then on the generalizable conclusions that can be drawn from them), this is a pretty decent take on neoliberalism and its history.
There are a few weak areas. One of the biggest is China. You are undoubtedly right about the immense progress China has made since Deng's reforms, but your comparison of China to its smaller East Asian neighbors is rather faulty. Singapore, Hong Kong, and Macau are essentially city-states, with different political/economic constraints than large continental empires (like mainland China). My personal opinion is that communism was the only political movement at the time that could have united the mainland after the disastrous warlord years and consolidated a central state that could eventually liberalize economically. Neoliberal policies were simply off the table in 1949. In any case, neoliberalism doesn't really provide answers to thorny questions like land reform in a semi-feudal country (since the most efficient policy is usually to divide up the unproductive estates among the peasants, a rather anti-market approach), especially given how land reform helped spark the growth of East Asian countries (as well as their integration into the world market).
Your qualifications about Eastern Europe are also somewhat lacking. It's worth pointing out that in most Eastern Bloc nations, there was some level of continuity in government during the transition from communism to capitalism. This continuity in government, as well as popular support for decommunization and the subsequent integration of Eastern Europe into the world market, partly explains why neoliberal policies worked so well there. Yugoslavia collapsed, but it's at the very least unclear whether neoliberal economic policies had any impact: neoliberalism would have probably worked had the government stayed intact, but neoliberal reforms have a destabilizing element that can quickly get out of hand in left unchecked. The collapse of the USSR was largely the product of failed policymaking: Gorbachev put political reforms before economic reforms (when he should have pulled a Deng and done the reverse), and the economic reforms under Yeltsin were downright backward: privatization has its uses, but privatizing profit-making enterprises starved the government of revenue (contributing to hyperinflation) and fuelled corruption. You sorta elide the point by talking about how Russia should have used spending cuts rather than printing money, without accounting for the chaotic nature of state collapse and how those spending cuts were supposed to pan out (remember that several million Russians died during the crash of the 1990s). Neoliberalism (to the extent that it worked) worked when coupled with a strong and authoritative state (think Thatcher's Britain or Singapore); neoliberal reforms with a weak state just don't pan out because investor confidence remains too low to stimulate investment.
I have other critiques, but instead of airing out dirty laundry, I want to commend you for taking a historical approach to neoliberalism and recognizing how it emerged from the policy failures of the 1970s, something that many critics of neoliberalism tend to downplay. Whether or not neoliberalism was the only solution to that is debatable, but at least you took the effort to address the issue in its historical context.
Fact check: The Kuomintang united China long before 1949.
And their economic policies were and still are far better than the CCP
https://en.wikipedia.org/wiki/Nationalist_government
The collapse of the Soviet Union was built into the Communist economic system, not just micro-policies in how they implemented it.
I have no idea what “ there was some level of continuity in government during the transition from communism to capitalism” means. There was a revolution overthrowing communist regimes. A revolution is not continuity. Yes, geographical proximity to Western Europe really helps, but I am not sure why this goes against neoliberalism.
Russia pursued far less neoliberal policies than Eastern Europe, so I am not sure why you think this disproves neoliberalism. Economic reform might have failed anyway, but it is also quite possible that if they had followed the more aggressive economic reforms of Poland and the Baltic states, it would have succeeded.
I am also not sure why you think land reform in any way disproves neoliberalism. Neoliberals can go either way on the issue.
Correct: they united the country in 1928 by grouping up all the warlords. Unfortunately, the Japanese invaded in 1931, and the KMT lost popular support because it lacked the political power to enact economic reforms (mainly land reform). Things might have worked differently if the Japanese hadn't invaded, since the KMT was inching towards liberalization and reform.
<I have no idea what “ there was some level of continuity in government during the transition from communism to capitalism” means>
Simple: Poland didn't stop being Poland after it threw out the Communist elites. Same with Hungary, Romania, Bulgaria, and the former Czechoslovakia. The nation-state remained intact while governing elites transitioned to market economies. In most cases cases the transfer was relatively peaceful, except in Romania. East Germany is an exception, but even then, East German elites collaborated with West Germany to reunify the country (under popular pressure).
The USSR didn't just abandon communism; it ceased to exist, period. The USSR republics all became independent nations, leading to economic and political chaos. Think of the conflicts between Armenia and Azerbaijan, or Russia and Ukraine: the dissolution of the USSR is a main motivator for these conflicts. Imagine if the US split into fifty different states, each with its own government, bureaucracy, and regulatory system: that's approximately what happened with the USSR (and to a lesser extent, Yugoslavia). Inter-republic trade basically ground to a halt, just as interstate commerce would if the USA suddenly imploded.
<Russia pursued far less neoliberal policies than Eastern Europe>
I'm gonna need some proof on that count.
<I am also not sure why you think land reform in any way disproves neoliberalism. Neoliberals can go either way on the issue.>
Land reform quite literally requires the expropriation of existing property and distributing it (in a populist fashion) amongst the population. This involves a revolutionary transformation of property relations, usually requiring a strong interventionist state to steward the process. While neoliberalism itself isn't anti-state, and while formalizing property relations is ultimately a pro-market move in the long run (ex: Hernando de Soto), it is highly irregular when compared to neoliberalism and its incremental approach. People rightly note that Donald Trump's expropriations of random companies are anti-neoliberal, not merely because they involve state ownership but also because they are erratic (thereby hurting the rule of law) and generate uncertainty (undermining investor confidence). I also personally think the war in Afghanistan was lost in part because the US-backed regime didn't engage in land reform, although this is tangential and highly speculative.
Funny enough, Stalin kept telling Mao to compromise with the KMT and form a coalition with them, but Mao kept gunning for the top seat and eventually won out.
Yes, the Japanese invasion was the great pivot. Without it, I think that we would have a dynamic Nationalist regime in China today. And the Cold War in East Asia would have been dramatically different and likely more peaceful.
What if?
I think the stagflation point is weak, given the exogenous shock of OPEC and exploding gasoline prices. But the larger point still stands.
As a liberal who believes in strong markets + strong safety net, it’s frustrating that progressives have successfully turned “neoliberal” into a slur. Any idea that isn’t “kill the billionaires” is called “warmed over neoliberalism” and that’s the end of the argument.
This is great. First Prez my dad voted for as an Indian-American immigrant was Reagan. But i think part of the reason neoliberalism was discredited was the Reaganism-on-steroids tried by George W. bush. His tax cuts and deregulatory agenda led to massive, unsustainable deficits and the Global Financial Crisis
I'm curious on why 1980 is listed as the starting point when Carter is the one that put monetarist Volcker in charge of the Fed, deregulated many transportation industries and interest controls. He might not have called it supply side economics but his policies show us that he believed in them.
Well Volcker became chairman of the fed in the second half of 1979, and the Airline Deregulation Act was signed in 1978. So I said approximately 1980, which is about right.
The political problem with deregulation is that it makes targets out of people who are not capable of long-term abstract reasoning past a certain threshold. If you have an IQ below 90 in current America, you are going to have a bad time. Countries with more regulation provide a buffer for these people. The sports betting industry is a great example of this: in theory one could bet on sports to have a good time, but in practice a big portion of the sports betting industry's revenue in America comes from poor, low IQ people, who actually think that their twelve-way parlay will pay their rent for the next year.
I think that the root issue is ethics, but there's a lot to it. In short, our culture is deeply rooted in altruism, the belief that morality consists in the individual being sacrificed for a greater good. This makes authoritarianism in general, and especially ideas like socialism, seem moral despite being completely impractical. Since people are motivated by morality, they keep trying to implement socialism, no matter how many lives are sacrificed. This is all viewed as good.
At the same time, this morality views capitalism, at best, as a "necessary evil." Practical but immoral.
But capitalism is the economic system that you have in a rights-protecting government (liberal), and that requires an *egoist* ethics. This holds that every individual human life is an end in itself, and should pursue self-interest, rejecting the morality of human sacrifice. With this morality of self-interest in ethics, we can logically support rights-protecting government in politics, and therefore capitalism in economics. Free markets would be viewed as *both* practical *and* moral, resolving the previous contradiction.
Until we change the mainstream view of morality from sacrificial to self-interested, we will continue to have people try and impose socialism, and authoritarianism in general. The human sacrifices will continue until morale improves (and we're back in pre-industrial poverty)!
I also think that we're kinda running out of time, and there's certainly no expertise in the mainstream political discourse that has any idea about how any of this works...
I mean, maybe the get rich book told the guy to grind really hard and it ruined his marriage, they are not necessarily unconnected.
I think capitalism suffers from narrative failure, it's just not an inspiring vision for organizing society, even if it brings material prosperity.
I read the entire article and enjoyed it, especially the concluding paragraphs which do not show up in this condensed version about learning to separate economic policies from cultural issues and not blame the former for dissatisfaction with the latter. Your analysis confirms Luhmann's analysis of modern society as a complex, functionally differentiated society, which means that no one social sphere is directing societal evolution. This makes for complexity, but it also makes for irony, paradox, and much of the literary and existential richness of life that current politics would torpedo. I know you don't think much of Trump, but the very fact that his opponent was even worse speaks to the idiotic cultural and political norms that frame contemporary discourse and lead to disastrous policy. I am much less sanguine about the future. The miseducation of western youth and the participation of elites in this disastrous discourse, especially manifest with respect to Israel - a situation I follow in particular - leads me to despair of the world I shall soon inevitably leave. But good for you that you keep on plugging and seem to enjoy it. I also like that you laugh a lot and try to use it to make me laugh too.
“Developing nations, primarily China and India, brought hundreds of millions out of poverty by accepting the kinds of reforms recommended by Western elites”
Just came here to make a quick distinction about the intellectual origins of reform in China. A massive influence on the Chinese economists and “engineers” designing the reforms in the 1980s was the Hungarian economist Janos Kornai.
When his 1980 book, Economics of Shortage, was translated it became a sensation. It gave people a non-Marxist (but also not exactly “Western”) vocabulary to diagnose the systemic failures of the planned economy. His concept of the 'soft budget constraint' was major point & helped elites in China understand why state-owned enterprises were so inefficient.
Kornai was invited to China multiple times in the 1980s to lecture and advise the very officials tasked with reforming the economy. Presumably, a part of what gave Kornai his immense credibility was that he was an economist from a socialist country who had analyzed the systemic flaws of centrally planned economies…
(In the 1970s I don’t think it was fashionable to study planned economies in econ departments in the US; the hot topics were rational expectations, general equilibrium theory theory refinements, econometrics, etc.)
Creating markets in central planning economies is low-hanging fruit, but was all deregulation in the West successful? I think the financial sector in particular need stronger guardrails, and a lot of the "wealth" created by it is not real, and ultimately banked by the government through socializing losses - and the alternative is even worst. Isn't QE and similar policies just keynesianism for the rich?
great piece & great comments!