How Modern Neoliberals Rediscovered Neoliberalism

Tracing neoliberalism back to its roots shows an origin that differs starkly from today’s pejorative definition.

Hello everyone, it’s Colin. I learned more writing this piece than I have with perhaps any other piece for Exponents, so I hope you learn something too.

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One of the challenges modern neoliberals face is grappling with the diverse definitions of neoliberalism that its critics employ. Is neoliberalism the ideology of right-wing free-market orthodoxy? Is it the ideology of moderate liberals, the same who swept leaders such as Blair and Bill Clinton into office? Or is it the sinister cause of society’s most poignant ills, like falling birthrates across the developed world, the opioid epidemic in the United States, and the coronavirus pandemic?

The problem is that up until recently, there were very few self-identifying neoliberals to define neoliberalism in a positive fashion. So, neoliberalism became an ideology defined solely by its critics, distorting its meaning from the vision laid out by its original thinkers nearly a century ago. Tracing neoliberalism back to its roots shows an origin that differs starkly from today’s pejorative definition.

In the 1930s liberalism was under fire. The world was grappling with the fallout from WWI and the effects of the ongoing Great Depression. Both socialism and fascism were coming to prominence. Understanding that something must be done, intellectuals at the time were individually coming to the conclusion that something must be wrong with the predominant governing ideology of the time: classical liberalism.

Classical liberalism broadly espoused the view that individual rights and liberty were paramount above all else, and that left alone society would naturally organize itself into a utility-maximizing market economy. Alexander Rüstow, a German sociologist, wrote at the time that under classical liberalism, free markets were considered “as natural and divine laws, upon which the same dignity and even the same universality as those of mathematics were conferred.”  But following the Great Depression, intellectuals began to question the idea that the market economy captured the “natural order.” Instead, they suggested that the classical market economy was the product of man, particularly the legal system. If this was true, then the market economy was not simply the natural order of society. Rather, the free market was the product of an arbitrary legal system opted into by societies. This meant that the free market was unnatural.

As it became clear that the public was not satisfied with classical liberalism, particularly its laissez-faire approach to economic affairs, intellectuals surmised that unless liberalism were reformed to increase state intervention then it would collapse and give rise to totalitarianism. Rüstow was a leader of this movement. A former socialist who had become disillusioned with the ideology after the rise of the Soviet Union, Rüstow wanted to chart a “Third Way” between the laissez-faire approach and socialism.

Rüstow’s conception of a third way ideology sounds similar to the same values modern neoliberals uphold. In his speech, Free Economy, Strong State, which would later be regarded as the founding document of neoliberalism, Rüstow decried excessive government intervention in the market but simultaneously called for the state to set and enforce the rules of the economy. He argued that society should seek to maximize freedom, which neither classical liberalism nor socialism was able to do. His prescriptions mirror this attitude. He believed that the state should promote gainful employment. But minimum wages, he argued, interfered with the market too heavily. Instead, he proposed wage subsidies financed through tax revenue, which could provide the same effect as minimum wages without the market-distorting tradeoffs. He called for the government to end “protectionism”, “regulatory capture” and “corporate welfare. In later writings, he also proposed several policies that fall well away from neoliberalism’s pejorative conception: a ban on advertising because only large companies could afford it, implementing a tax on the size of business to promote competition and nationalization of all utility companies and weapons manufacturers.

Rüstow’s neoliberal project was accompanied by the American journalist Walter Lippmann who formalized the growing consensus to reform liberalism in his book The Great Society. In it, he broadly critiqued collectivism, particularly socialism and fascism, but also of laissez-faire economics and the New Deal. Effective freedom in the economic sphere, he wrote, was not possible without government involvement. He proposed the creation of public health authorities, the prohibition of monopolies, increased income taxes, public education, and more.

Lippmann’s book became a hit, and in 1938 the Walter Lippmann Colloquium was organized in Paris to discuss his ideas. Twenty-five intellectuals from around the world were in attendance, including Rüstow, August von Hayek, Ludwig von Mises, and Lippmann himself. But the meeting would not merely be a book club. Rather, the theme of the colloquium became the need to put out a positive vision to replace classical liberalism.

Free markets were considered “as natural and divine laws, upon which the same dignity and even the same universality as those of mathematics were conferred.”

By the end, the attendees had come to an agreement on the need to replace classical liberalism with a new form of liberalism. But the agreement was not felt equally by all. The left-liberals, Rüstow and Lippmann in particular, were more enthusiastic about the project than their right-liberal counterparts Hayek and Mises. Rüstow’s influence on the colloquium was evident in the name the attendees agreed to call their new project: neoliberalism.

Work on the neoliberal project was short-lived following with the outbreak of WWII a year after the colloquium. It was not until after the war that the neoliberal project reemerged at Mont Pèlerin, the Swiss mountain that would lend its namesake to the society that continues to spread neoliberal ideas to this day. The members regathered to discuss a post-war liberal vision. Unlike the Walter Lippmann Colloquium, however, there was far less unity amongst the attendees. The meeting became a debate club for individuals across the liberal spectrum to argue on behalf of their liberal vision rather than just a neoliberal intellectual group. They were hardly able to agree on anything. The group would become known as the Mont Pèlerin Society (MPS) only because none of the participants could agree on an individual or value to name the organization after.  

Further infighting arose after the German neoliberals – Rüstow included – helped initiate Germany’s post-war social market economy and its subsequent economic miracle. Critics likes Mises viewed the German social market economy as no better than socialism. So, despite the resounding success of the German neoliberals, their influence gradually eroded within MPS. The group moved to the right as the influence of Mises, Hayek and a new member named Milton Friedman grew.

With that neoliberalism’s center of gravity shifted away from the “third way” desire to chart a path between laissez-faire and socialism. Still the society still maintained some sort of a big tent in the theme of being a debate club. John Rawls, a popular moral philosopher on the Left, was briefly a member. But as support for the original vision of neoliberalism waned so did the number of self-identified neoliberals. By the ‘70s neoliberalism as a political project slipped into obscurity. It wouldn’t reemerge until the ‘80s and ‘90s. By then, the right-neoliberals such as Hayek and Mises had moved away from identifying as neoliberals, and were leading the charge to champion the same classical liberal values that they once sought to replace. That didn’t stop critics from describing the wave of free-market reforms in the ‘80s and ‘90s as neoliberalism, even if the reforms were far from the original vision laid out at the Walter Lippmann Colloquium half a century prior.

El neoliberalismo no existe

With the figures associated with neoliberalism coming to embody the same laissez-faire economic principles that they once sought to oppose, it is easy to see how and why the complicated history of neoliberalism led the label to become an object of derision. But tracing the movement back to its roots reveals that the origins of neoliberalism differ sharply from its critical usage today. Neoliberalism began with a simple desire: to chart a path between unfettered free markets and socialism. Anything between those two extremes fell more or less within neoliberalism’s tent. Today’s neoliberals are remarkably similar.

In many ways, the new wave of neoliberals that have emerged recently resemble the original founders of neoliberalism more than the thinkers of free-market reforms in the late 20th century do. Modern neoliberals seek to marry the market with a role for government, though the degree to which is up for debate across the neoliberal spectrum. Modern neoliberals, whether intentionally or not, are stumbling upon many of the same stimuli that urged on the founders of neoliberalism nearly a century ago. Authoritarianism is on the rise. On both the left and the right, economic populism is becoming mainstream. The bulwark of liberalism is crumbling under the stress of new media technology. Just like then, a movement is required to form a new neoliberal project to reform liberalism to face a new set of challenges. Luckily, a roadmap for such a project already exists.

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