The rise and fall of the neoliberal order

| April 18, 2023

In his recent book, The Rise and Fall of the Neoliberal Order: America and the World in the Free Market Era, Gary Gerstle defines a domestic political order as a policy paradigm that finds common ground and is broadly accepted by both sides of politics and the general public. Gerstle’s political order is not to be confused with notions of the rules-based world order, even though there have been European analogues of American political orders.

The first American political order identified by Gerstle, a professor of American history at the University of Cambridge, is the New Deal Order, which was developed by the Democratic President Franklin Delano Roosevelt in the 1930s and 40s. Gerstle argues that this was essentially a response to the Great Depression which discredited capitalism. Thus the Democrats declared that unregulated capitalism was disastrous and must be regulated by a powerful government. Roosevelt and his Democratic successor Harry Truman were in power for twenty years and transformed American life.

According to Gerstle, the New Deal only became a “political order” from 1953 with the presidency of Dwight Eisenhower, who accepted its the basic principles, even though it did not accord with his Republican Party’s philosophy. Capitalist elites were willing to compromise with the labour movement against the background of the Cold War and the threat of communism. The case of the New Deal highlights that new political orders tend to arise in moments of economic crisis, when existing forms of governance are no longer working.

But political orders do not last forever. The stagflation (coexistence of inflation and unemployment) of the 1970s, and the ineffectiveness of Keynesian policies, undermined the New Deal Order. They created the space for neoliberal ideas – free movement of people, goods, information, and capital – to move mainstream. The architects for neoliberalism were President Ronald Reagan and the Republican Party.

Neoliberalism only became a political order twelve years later when President Bill Clinton led the Democratic Party to a broad acquiescence of neoliberal policies. With the end of the Cold War and the spectacular failure of the Soviet Union, neoliberalism no longer had any competition. Indeed, Clinton became “America’s neoliberal president par excellence.” Clinton had, of course, among his advisors Bob Rubin, a former co-chairman of Goldman Sachs, who served the Clinton administration as secretary of the Treasury.

While the Neoliberal Order was driven by business and political elites, it was also effectively sold to the general population. A political order must carry a vision of the good life and how to achieve it. Reagan’s salesmanship was very effective – neoliberalism is about freedom and the government not telling you what you can and cannot do. It was a powerful vision, evoking the American Revolution, freeing people from the tyranny of King George III. And while neoliberalism fostered inequality, it offered economic opportunity to everyone. Gerstle argues that the fantasy that a rising tide would lift all boats persisted for a long time through the 1990s and the 2000s.

The breaking point for the Neoliberal Order was the global financial crisis of 2008/09. The bursting of the bubble was compounded by government responses which offered more generous treatment to banks and other financial institutions than to average citizens. Dealing with the financial crisis fell to the Obama administration, which was staffed by a coterie of Clinton-era advisers who believed that neoliberalism could right itself. The Obama administration was also very much in bed with both Wall Street and Silicon Valley. According to the author, Obama became the last president of the Neoliberal Order, an honour he may not find pleasing.

The financial crisis left many social and political scars, and gave two old protectionists, Donald Trump and Bernie Sanders, the opportunity to push their anti-neoliberal agendas, an opportunity they did not previously have. Curiously, although they came from different sides of politics, they were both selling the same message in challenging the core freedoms of neoliberalism.

Although the US currently no longer has a political order, many things are stirring, and there are signs that a new order may be taking shape, even if it may not fully establish itself until the 2030s. Gerstle argues that there has been a rebirth of the American left, which is a very significant development in American politics. President Joe Biden has been implementing policies that hark back to the New Deal. Through Biden’s industrial policy, we see the state playing a bigger role in the economy. There is also many discussions of antitrust, with strong movements to break up the social media companies or put them under some regulation.

The Republican Party has also been rethinking its views on the relationship of state to markets. Democratic legislation like the CHIPS and Science Act, and the massive infrastructure legislation, drew significant support from the Republican Party. However, this is not the only order-building taking place on the right wing. There are also authoritarianism, ethno-nationalism, and impatience with democratic politics which are fostering an attraction to strong figures who “can get things done.”  And then there is the national security wing which wants to hit China hard and to empower the military industrial complex for the sake of confronting China.

In all likelihood, the pendulum will swing back and a new political order will emerge out of these various strands over time. Gerstle argues that periods like the present, between two political orders, are periods of great freedom and new ideas. These are moments when ideas that have been dominant across the political spectrum are more readily questioned.

Despite his speculations over a new political order, Gerstle says that there is no guarantee that the Neoliberal Order will be replaced by another order. We could always face a period without a new order, where the two parties compete with each other, and are unable to establish their authority with a consistent medium-term paradigm beyond an election cycle or two.

Gerstle’s excellent book highlights an important trend in political and economic history – the existence of long periods where there is a broad political and societal policy consensus, but which are ultimately punctured as political orders outlive their relevance.

Today, the US, and indeed much of the world, is struggling to find a new order or paradigm to guide its political and economic future following the demise of the neoliberal order. In this context, Gerstle offers readers a much detailed history and analysis to understand how we arrived at the present juncture, and to contemplate possible future political orders. Although it would be another project, this reader was frustrated that this text is basically focussed on the US, and does not cover the West and emerging economies.

This is a review of Gary Gerstle’s The Rise and Fall of the Neoliberal Order: America and the World in the Free Market Era, (Oxford University Press, 2022).  John Westt’s latest book is Asian Century … on a Knife-Edge. This review was published by the Australian Institute for International Affairs.