A Century of Disappointment: Reappraising Neoliberalism

The collapse of neoliberalism has been widely discussed long before the outbreak of COVID-19. The pandemic has even further exposed deep shortcomings in the dominant mode of global economic and political organization. But what exactly does it mean to diagnose the crisis of the neoliberal project?

It depends on how you define the term. Neoliberalism is often associated with free trade, globalization and a laissez-faire approach to the economic process—the minimal intervention of the government into the economic affairs of individuals and society. Defenders of neoliberalism believe that continued economic growth will lead to technological innovation, expansion of the free market, and eventually more jobs and prosperity for all. They argue that “a rising tide lifts all boats” despite the inequalities that may result. Critics, on the other hand, assert that neoliberalism increases financial instability, encourages the presence of monopolies, and deprives sovereign nations of the right to self-determination.

Quinn Slobodian, a historian and Associate Professor at Wellesley College, is taking another approach. In his book Globalists: The End of Empire and the Birth of Neoliberalism, he defines neoliberalism less as a project of economics, and more of law, statecraft, and institution building. Slobodian debunks the common belief that neoliberal globalists aimed to unite free market capitalism with democracy and envisioned a single world market without borders. He argues that neoliberals did not actually believe in self-regulating markets as autonomous entities. Neither did they see democracy and capitalism as synonymous. In fact, he writes “the neoliberal project was focused on designing institutions—not to liberate markets but to encase them, to inoculate capitalism against the threat of democracy.”

Understanding the inner logic of neoliberal doctrine is impossible without considering the whole history of the twentieth century. In his book, Slobodian traces the history of the Vienna school of neoliberalism from the 1930s onwards. He tells a story of its core ideologists—Friedrich Hayek, Ludwig von Mises, and others—and their century-long endeavor to introduce “a system of multilevel governance, as a solution to a fundamental quandary of political economy in the modern era—the conflict between private capital rights and democratic public rights.”

Yulia Gromova spoke to Quinn Slobodian about the history of the neoliberal movement and the role of China in neoliberal globalization.

Yulia Gromova: The founding fathers of neoliberalism—Friedrich Hayek, Ludwig von Mises, and others, as you describe in your book, have created the basis for today’s global world order. They laid the foundation for institutions including the European Union and the World Trade Organization (WTO). What was particular about the Geneva School of neoliberalism?

Quinn Slobodian: What occurred to me was that capitalism hadn’t really had to deal with democracy until the twentieth century. It could reproduce itself and all of its inequalities by simply keeping some people out of the political picture, and denying them a voice in the political process.

At the beginning of the twentieth century, most of the world was in colonial status. The parts of the world that were in the metropole—the center of the empire, or had independence like the United States or Latin American countries—did not have anything close to universal suffrage. Women in every case were still denied the right to vote—allowing women to vote happened experimentally within the Paris Commune in the 1870s, but was quickly withdrawn and was only rolled out in exceptional cases more after the First World War. And in places like France, not until the Second World War.

So, the core question for Vienna school neoliberals in the 1920s and 1930s was first of all how to expand the voice within rich Western populations to include people without property and women. And then how to expand it beyond Europe to the former colonial countries of Asia, Africa, and parts of Latin America. And how to do that while preserving a system which has been proven to produce jaw-dropping inequalities between populations and parts of the world.

The first problem that they saw was decolonization. The dissolution of the Habsburg Empire after the First World War accompanied the end of the Russian and Ottoman Empires. It was the triumph of the nationality principle for the first time. That also came along with a certain idea of self-determination and popular sovereignty at the national level, which was more asserted than practiced until after the First World War.

The neoliberals in Vienna–Friedrich Hayek, Ludwig von Mises and others, were watching the Habsburg Empire—which was the largest free trade zone in Europe—fragment into small, self-determining nation-states including Czechoslovakia, Hungary, the Yugoslavian Federation, and so on. And they were asking the questions “How do we make sure that this doesn’t turn into a series of autarkic, self-contained economic capsules that end up economically failing, and breaking up the productive division of labor, based on a misapprehension of what sovereignty means? These new nations have the wrong idea—they think that sovereignty is ownership. They think that to govern a country means to have the right of access to everything within its borders.”

The neoliberals and liberals before them thought that was a fundamental illusion. And, in fact, property was global—it was a principle that applied anywhere in the world. And sovereignty, as a political principle, was something that applied within borders, but should not be allowed to trump property. So, the challenge for the neoliberals was—how do you design institutions that safeguard the rights of property over borders, in an era when everyone is talking about national sovereignty, self-determination, and democracy in ways that might invalidate or cross out universal property rights?

The story of the Geneva School, as I talk about in my book, is the search for institutions that will safeguard property rights over borders and safeguard the right of trade, goods, and money to move over borders in an era of democracy and national self-determination.

The neoliberals had candidates in the twentieth century who they thought might be potential guardians for the world economy. First—the League of Nations, which was founded after World War I and was very interested in reproducing an interdependent free trade order. Unfortunately for the neoliberals, the United States did not participate. It was kind of a problem, because the US was the world’s biggest economy after the Great War. After 1945, the United Nations seemed like it might be a possible space for reconstructing an interdependent open liberal world economy. But, it turned out that at the UN, the nationality principle did not trump the sovereignty principle and new countries from Latin America or Asia were actually interested in being able to appropriate foreign property and assert permanent sovereignty over national natural resources.

The story that I tell in my book is about people who are trying to understand a governance structure that might work globally to ensure capital rights as global. And they found themselves disappointed decade after decade, as the tide seemed to be moving in a different direction, as different forms of socialism were popular in the 50s, 60s, and 70s, and the Soviet Union became the center for a radically different form of political economy and became the nesting place of global communism.

It was a century of disappointment for the Geneva School. They only saw light at the end of the tunnel in the 1990s, with the end of communism in Eastern Europe, and the consensus around the need for strong institutions that would not just advocate for free trade, but would protect and enforce it. And this is where the gemstone of the World Trade Organization comes in. This is the culmination of a century-long search for an institutional fix for the problem of national sovereignty and national democracy in the minds of neoliberals. They ended up being wrong, but in their minds this was a way that national sovereignty could be overruled and nations could effectively be compelled once they had signed on to the WTO, to participate in a free trade world order.

YG: In what ways do you think colonial history still shapes our economic relations?

QS: This is a good question. The word “empire” has an implicitly negative connotation. It is often the worst insult that you can use to describe a power in the late twentieth and early twenty-first century, to say that a country is “acting like an empire.” But, this implies too much consistency to what “empire” is and what it has meant historically.

When we talk about this vision of a single global regime, the only nation in modern times to have come close to this is the United States, which, at least formally speaking, is not an empire. But it has been able to use its power to exercise something close to global universal control at different times in history through proxy institutions that effectively act as an extension of its own agency.

This is stark in the transformation of the Bretton Woods institutions, like the IMF and the World Bank, into overseas operating arms of the American financial system. The Third World debt crisis in the 1980s really transformed the IMF from what it originally was designed to be. It was designed as a coordinating office to provide for a level of self-control amongst different nation-states—it was not designed to enable hyper globalization or to guarantee investor rights. But, in the 1980s, the US Government’s Treasury Department in consultation with the leading financial institutions decided that it would look better if they went debt collecting, not as the US government, Citibank, or Chase Manhattan, but if they did it through something that was more neutral appearing, like the IMF.

There are ways in which the universal extension of American control through the proxy institutions of the IMF and World Bank did reproduce the same level of subordination that post-colonial nations had once had under the empire by different means.

This combination of American geopolitical power, and the tremendous influence of international financial institutions, has indeed put much of the world into a state effectively recolonized. That is, interestingly enough, not really the way that the neoliberals in my book would have liked to see it happen. One of the most insightful things to me, that Hayek has to say, is that market power works best when it’s anonymous. “Works best” in the sense that it produces the outcomes that it wants—not literally “works best,” in my opinion. But this is the real riddle of neoliberal power—how can you have power without actually appearing to be asserting it?

YG: Hayek viewed the economy as a complex information system. What does this understanding imply? How did widespread computation and cybernetics affect neoliberal thought?

QS: One of the ways that historians have been very helpful recently is by showing how many of the things that we think are new—questions of artificial intelligence, for example, have been debated heavily for a very long time, at least since the 1950s and 1960s in public. And, in fact, going back to the Socialist Calculation Debate of the 1920s—even earlier.

This question of to what extent can human behavior be predicted and automated and substituted by machines is not a twenty-first-century problem. It is actually a twentieth-century problem. And in that sense, we should put it alongside the questions of democracy and global capitalism. It is a problem of the modern world.

The attraction of thinking of humans as information processors, which is what Hayek’s thought is, first of all lends itself well to what economists would call parsimonious modeling. Where you can ignore a lot of complicated things and just focus on a formally elegant model of human behavior, for the sake of gaining insight about how collectives work.

When Hayek thinks about humans as information processors, he is creating analogies between humans, and then the animal kingdom, but also cosmology. He is drawing attention to the similar ways in which humans operate as complex self-organizing systems, to the way that galaxies do. But then, also, on a micro-level—the way that neurons operate within the tissue of the human body. And it is not a coincidence that Hayek was interested in, first of all, becoming a neurologist. He spent a summer in Zurich in his late teen years helping to dissect animals and look at the way their neurons functioned. So, it is a decentering of the human, and a way of saying, actually, “humans are just like other complex systems in the world, and they should not be treated with such reverence.”

When you think about it that way, your first insight should be—this is a recipe for absolute laissez-faire because humans will self-organize. Bears don’t have governments, neurons don’t have governments. Why do humans need governments if we are just another complex system? But, Hayek’s second caveat there is that we think we are different from galaxies, neurons, and bears, and that makes all the difference. Because we think that we are different, it means we undergo and undertake disruptive processes for organizations that end up tampering with the kind of magic self-organizing quality of our societies.

We start to think and we start to exercise what he calls “the pretense of knowledge,” which is like the hubris or the pride of knowledge—we think that we know too much. And we think that we can organize societies, from the center, from the top down, using rational planning processes, using computers to tell everyone where their labor will be most effectively used and that the price of bread should be this and the price of machinery should be that.

And this is what he sees as the biggest problem of all humanity—the belief that we can program the system ourselves, rather than being humble in the face of rules over which we only have limited power. If humans seek to maximize their own power and wealth, and to do so they engage with other humans and solve problems, then we need to come up with institutions and laws that simply step back and create the institutional framework within which those natural processes can unfold and nothing more.

In his mind, that means protection of the sanctity of property, the suppression of collective efforts towards redistribution, and the necessity of inequality. Hayek doesn’t see inequality as evil. He sees it as a utility—the positive feedback effect of disappointment in economic life. If your business fails—it will force you to work better next time. He sees the profit of the model of success and failure in the business world, as being the feedback mechanism that actually produces a better outcome for the entire system.

It is a social Darwinist way of looking at the world in the sense that the more economically efficient populations will simply reproduce themselves more productively, and less economically efficient populations with forms of morality and tradition that are not as conducive to capitalism will shrink and die out. Hayek sees that as good. The quote he has in his final book The Fatal Conceit is that “the calculus of costs is the calculus of lives.”

Hayek is challenging our ideas of ethics and morality in ways that we don’t often recognize. People think that the sin of neoliberalism is that it is overly individualistic, and an overly selfish ideology. But, in fact, the way that Hayek talks about things, neoliberalism is very much focused on the collective and the totality. And that is, actually, no better because it is saying: “Because of the collective and the totality, we must live with all kinds of forms of injustice and punishment within a capitalist system, not because individuals are the king, but because the collective is the king.”

YG: China is often seen as neoliberal and, at the same time, as seeking to provide an alternative to neoliberal development. In your view, is China neoliberal or not?

QS: That is a big question. I have been studying this long enough to see several rounds of people asking the question “Is neoliberalism dead?” And each time the answer is “No,” because neoliberalism tends to change and adapt quite effectively to whatever new crisis has arisen. The kind of neoliberalism that was practiced in Britain in the 1980s is not the same as the neoliberalism of the IMF. It is not the same as the very much financially driven, Central Bank dependent recovery style of neoliberalism that followed 2008, which is not the same as the kind of neoliberalism through the government of the Troika, and the European Union in 2010.

The grip of neoliberalism in the sense of placing a certain vision of free markets at the center of the rationality of government is so ingrained in the major political parties in Europe and the United States, that there is no way to think outside of it. We are basically in this kind of iron cage of neoliberal rationality.

China, on the other hand, has been part of a totally different lineage of canon building, problem-solving, and rationality creation. That has moments of overlap with what we would call the neoliberal intellectual tradition, but it has been much more autonomous in its development.

China has been engaged in the largest experiment in economic history in the last forty years. Never in history has any country so rapidly gobbled up market share worldwide and increased its capacity for manufacturing and consumption and service production. That is the first thing to realize—we are bearing witness to the most extraordinary phenomenon in economic history. What the governing rationality of that is, is the single biggest question facing the international political economy today. I’m very unsatisfied with calling it neoliberalism.

I follow here people who know China much better than I do, someone whose work I respect very much, such as Isabella Weber. She is a German economic historian, and this is precisely her whole project right now—to get beyond the neoliberal or not neoliberal question when it comes to China.

We need to understand the size of China, and the way that Maoism worked. It was a very peculiar combination of decentralization and central control. The Cultural Revolution itself—the high point of Maoism—was the time when central control was devolving power down to the local level in a very extreme way, giving power to schoolchildren against their teachers, workers against the factory owners, peasants against the local party leaders. It was both a highly centralized act dictated from the center, and one that sanctioned an absolute level of decentralization. That turned China into this chaotic field of experimentation in the 1960s and early 1970s.

There are people who credit that in some ways with releasing a creative and even entrepreneurial energy, a capacity for self-experimentation at the local level, which then was carried over into the Deng Xiaoping liberalization. Anyone looking at it from the outside would take this as a 180-degree shift from radical Mao’s communism to something very different, which begins to resemble capitalism. People who know the era don’t see it that way at all—they see much more of a continuity of a surprising kind.

The way that mobilization happened and continues to happen in China is through a careful devolution of power down to the galaxy of special economic zones, combined with a certain degree of state control, which produces huge umbrella limited liability companies to make sure that parts of the country compete with each other. It is a combination of local initiative and Central Party loyalty-building, which has now expanded outwards, beyond China’s borders, through the Belt and Road Initiative.

Even this rudimentary understanding of how Chinese capitalism is working now doesn’t fit at all with the neoliberal canon. Andrew Neil, for example, a famous journalist in the UK, a former editor of the Spectator, is describing it as Hayekian. He says that China’s been more Hayekian than Europe or the US because they are allowing for this very experimentation, information deployment, and so on. I think it’s a stretch. I don’t know why we would have to use Hayek to understand China. The challenge now is to understand China, using Chinese sources.

This is something that the United States and Europe are not coming to terms with yet—the fact that whether neoliberalism lives or dies, the state of the world economy in the next two decades is out of their hands. They don’t have the sovereignty of interpretation that they once did. China is, in many ways, the dominant world superpower in economic production. And what China decides to do is arguably more important than what Brussels decides to do.

Washington and Brussels are going to be evermore in a reactive mode vis-à-vis Beijing. And we should try to understand better exactly what’s happening in China. It’s amazing to me, how few people in the United States and Europe actually feel any pressure to do so. It is much more common to just simply try to project onto China something that has already happened in the West, rather than to try to understand it as something that has its own internal autonomous dynamics.

YG: The Belt and Road Initiative is focused on the construction of material networks rather than dismantling state barriers for the flow of capital and goods. Do you think that this can be regarded as a fundamentally different form of globalism?

QS: Ironically, it does recall the way that China was treated in the nineteenth century by the Western imperial powers. The BRI is focused on infrastructure, but then specifically focuses on relationships of credit and debt. It makes it possible, if not likely, that ownership of that infrastructure returned to China given default. Or it gives frivolous access to fishing waters and things like that for Chinese interests. In Iran, for example, to take the BRI money also means to use the Chinese payment systems, and Chinese technology, Huawei, 5G infrastructure, and so on.

It is a neo-mercantilist version of overseas expansion, in the sense that it does not seek a global solution off the top, but it is working through piecemeal material expansion and winning clients, locking them into dependency in an incremental way.

And that for sure has its predecessors in world economic history. The history of the expansion of things like telegraph networks, for example, or extractive industries across Latin America in the nineteenth century. British investors would come in, they would build a mine or a refinery, and then you’d be living under the security umbrella of the British. If you defaulted, you’d have to pay back the British.

It looks to me more like this nineteenth century-style neo-mercantilist imperialism, which isn’t interested in the universal claim of jurisdiction. What makes it interesting is a break with 90s-style rhetoric and political initiatives, which the World Trade Organization gives away there—the belief that what you are doing is indeed for the globe, which is obviously what makes it globalist.

The model that China is using, I would hesitate to call globalist, in the sense that it is not claiming to be intervening at the scale of the planetary—it is a more modest and arguably more effective way of exerting Chinese economic power beyond its borders. It is not operating through multilateralism, the way that the WTO is, which despite its grand claims, is ultimately only as powerful as its nations let it be.

The Chinese model to me is much more effective because it doesn’t use this pretense of legal principles and high-minded, universal uplift. It makes agent-client relationships work at its border and then expands that a little further and a little further. It is never spoken of in terms other than mutual self-interest, and not the abstract betterment of civilization, which is what Western-style liberalism has been doing, arguably, since the Spanish got the right to convert the natives in the 1500s. The claim of building a universal civilization is what the Western version of global history has been all about—from Cortez to Napoleon to Truman, it has been about “we are bringing the world to a more elevated place.” And the Chinese have simply no history of that. And for good reason, now, they’re not embracing that, what has ultimately been a totally destructive, misguided attempt at transforming the world.

YG: How, in your view, will COVID-19 affect the course of globalization?

QS: Since 2016, with the victory of Brexit and Trump, there has already been a deep challenge to the model of institutional free-trade neoliberalism. It came in the form of a very bellicose attack, especially on the rise of China by Trump’s administration. And an attack on what was seen as European overregulation on the one hand, and excessive migration on the other hand, in the case of the UK. We already had this fracture in the assumptions of how a neoliberal world order should operate.

The COVID-19 crisis exacerbated this in the sense that it has split into two blocs—the constituencies that want, on the one hand, a deeper return to a multilateral, neoliberal, elite-driven order. And on the other hand—ever more anger and energy at the grassroots on the national level for autonomy or self-sufficiency, and a break from an interdependent world order.

This pandemic is also accelerating movements towards addressing climate change, and the real energy that’s going to come out of the response to COVID is around the move to energy transition, and the post-carbon-based global economy. And unfortunately, that project right now is being driven more at the elite level than at a grassroots level.

The US reconstruction of their own position in the world order, which will come under the Biden administration, is going to come hand-in-hand with international cooperation—at least on paper—attached to roll-back carbon emissions and transition from carbon-based economies to green economies.

The danger is that if globalism is rebuilt as a “green globalism,” and that is perceived as something that is primarily driven by Washington and Brussels, then that is going to be perceived the same way that a more market-driven globalism from the 1990s to 2016 was perceived, which is something that is being pushed from the top down on people, and is not something that is being driven by energy in the streets or at the grassroots.

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Quinn Slobodian

Quinn Slobodian is a historian of modern international history who writes for The Guardian, New York Times, The Nation, New Statesman, and Foreign Policy. He is Associate Professor of History at Wellesley College and a recent Weatherhead Initiative on Global History Fellow at Harvard University.

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