A Very Short History Of Neoliberalism

PowersThatWere (The World’s First Museum of Neoliberalism) Presents:
A Very Short History Of Neoliberalism (Part 1 of a Series)

Now that neoliberalism is dead, we should remember before it was alive. August 1938. An international group of 26 intellectuals gather in Paris to discuss American journalist Walter Lippmann’s book ‘The Good Society’. Among them are Friedrich Hayek, Ludwig von Mises, Wilhelm Röpke and Alexander Rüstow. Lippmann happens to be in Paris for his honeymoon so participates in an event that became called the Colloque Walt Lippmann. The topic of discussion: the need to recreate market liberalism for the present conditions. For this group such a project was of the upmost importance – the belief in free markets was, after all, in a bad way. Soviet socialism was a world player, while the whole of the West moved towards some idea of socialism, central planning and the welfare state. Capitalism was shortly to become Keynesian in shape. The 1929 stock market crash still loomed large in the public psyches of the Great Powers and beyond. Classical liberalism had everywhere failed or been usurped by differing variants of state capitalism. Alexander Rüstow coined the phrase ‘neo-liberalism’ to give a name to what the attendees were attempting to create some shape. However, the war interrupted.

Nearly all the members at this meeting regrouped in 1947, at the behest of Hayek to the first meeting of the Mont Pèlerin Society, the private debating society established by him at the Hotel du Parc in Mont Pèlerin, Switzerland. The first real discussion of neoliberalism began on 1st April 1947. After fascism’s defeat in Germany and with a post-war consensus of Keynesianism in the ‘West’ and aggrandising state socialism in the ‘East’ the situation had become rather more acute for the group. It was no longer enough to presume that laissez faire would achieve capitalism, rather that a group of active advocates for it would be required. A vanguard so to so speak. For this group the state would be recast, not as the provider of welfare services, but as the final arbiter in favour of creating and enforcing markets. Politics itself and the traditional action of the state within the economy were hopelessly inefficient at allocating resources, with politicians threatened by democratic means looking for short term populism rather than long term and efficient economic cycles. Indeed, only a strong state, with democracy as a secondary interest to economic growth (for an increasingly few to enjoy) was necessary in order to rise above the competing groups of politics and decide for the stability of market rule.

Knowing the unpopularity of their ideas, the neoliberals had to understand how best to influence politics. Hayek thought the best model was to rely on tricks stolen from left-wing groups like the Fabian Society, who for him had managed to install socialism (as he saw it) as the only viable option politically and economically. The need was to operate at the level of ideas, influencing elites, creating a climate of opinion through what he termed neoliberal ‘secondhand dealers in ideas’ – opinion formers, knowledgeable people with influence on elite circles. The Fabians had effectively used the model of a think tank, so this is what the neoliberals would do. The example was the Institute for Economic Affairs, setup at Hayek’s bequest in London by Antony Fisher, largely with the profits from his invention of battery farming – the neoliberal advocacy think tank. This model was copied globally. The neoliberals were there to play the long game. But as Naomi Klein’s book ‘The Shock Doctrine’ memorably recognised, the neoliberal were also opportunistic – any crisis, real or percieved, would provide a moment for them to offer their own solution.

Almost by chance, the neoliberals in Germany had their opportunity in the immediate aftermath of the Second World War, in the phase of reconstruction, simply by being placed in the right place at the right time. Ludwig Erhard who would help oversee economic reconstruction and was later to be seen as one of the principle architects of the German ‘social market’ had read the wartime books of Mont Pèlerin member Wilhelm Röpke and found them to be like ‘water in the desert’. The neoliberal economists had largely been untainted by Nazism and in some cases had been in the resistance. They therefore were a safe pair of hands. Reconstructing Germany along the lines of a free market system was viewed as problematic by the occupying allies, who favoured Keynesianism. However, Erhard was capable of forcing elements of the neoliberal agenda into government policy even at this early stage, a tendency only reversed by considerable pressure from social democrats.

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