Liberalism

Resilient Liberalism in Europes
Political Economy
Why have neo-liberal economic ideas been so resilient since the 1980s,
despite major intellectual challenges, crippling financial and political
crises, and failure to deliver on their promises? Why do they repeatedly
return, not only to survive but to thrive? This groundbreaking book proposes five lines of analysis to explain the dynamics of both continuity and
change in neo-liberal ideas: the flexibility of neo-liberalisms core principles; the gaps between neo-liberal rhetoric and reality; the strength of
neo-liberal discourse in debates; the power of interests in the strategic use
of ideas; and the force of institutions in the embedding of neo-liberal ideas.
The books highly distinguished group of authors shows how these possible
explanations apply across the most important domains: fiscal policy; the
role of the state; welfare and labour markets; regulation of competition and
financial markets; management of the euro; and corporate governance
in the European Union and across European countries.
vivien a. schmidt is Jean Monnet Professor of European Integration
and Professor of International Relations and Political Science at Boston
University, and Founding Director of Boston Universitys Center for the
Study of Europe.
mark thatcher is Professor in Comparative and International Politics
in the Department of Government at the London School of Economics
and Political Science.
contemporary european politics

Consulting Editor:
Andreas Fllesdal, University of Oslo
Contemporary European Politics presents the latest scholarship on the most

important subjects in European politics. The worlds leading scholars provide
accessible, state-of-the-art surveys of the major issues that face Europe now
and in the future. Examining Europe as a whole and taking a broad view of
its politics, these volumes will appeal to scholars and to undergraduate and
graduate students of politics and European studies.
Other titles in this series:

The Worlds of European Constitutionalism edited by Grainne
de Burca
and
J. H. H. Weiler
European Identity edited by Jeffrey T. Checkel and Peter J. Katzenstein
Resilient Liberalism
in Europes Political
Economy
Edited by
vivien a. schmidt
AND
mark thatcher
University Printing House, Cambridge CB2 8BS, United Kingdom

Published in the United States of America by Cambridge University Press, New York
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C Cambridge University Press 2013
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First published 2013
Printing in the United Kingdom by TJ International Ltd, Padstow Cornwall
A catalogue record for this publication is available from the British Library
Library of Congress Cataloguing in Publication data
European political economy : resilient liberalism through boom
and bust / [edited by] Vivien A. Schmidt and Mark Thatcher.
pages cm. (Contemporary European politics)
Includes bibliographical references and index.
ISBN 978-1-107-04153-0 (hardback : alk. paper)
1. Neoliberalism Europe. 2. Free enterprise Europe. 3. Europe Economic
policy 1945 4. Europe Economic conditions 1945 I. Schmidt, Vivien
Ann, 1949 II. Thatcher, Mark.
HC240.E8474 2013
330.94 dc23
2013027297
ISBN 978-1-107-04153-0 Hardback
ISBN 978-1-107-61397-3 Paperback
Cambridge University Press has no responsibility for the persistence or accuracy of
URLs for external or third-party internet websites referred to in this publication,
and does not guarantee that any content on such websites is, or will remain,
accurate or appropriate.
Contents
List of figures
List of tables
page vii
viii
List of contributors
ix
Preface
xv
1 Theorizing ideational continuity: The resilience of

neo-liberal ideas in Europe
vivien a. schmidt and mark thatcher
Part I Economy, state, and society

2 Neo-liberalism and fiscal conservatism
andrew gamble
3 Welfare-state transformations: From neo-liberalism to
liberal neo-welfarism?
maurizio ferrera
4 The state: The bete noire of neo-liberalism or its
greatest conquest?
vivien a. schmidt and cornelia woll
53
77
112
Part II Neo-liberalism in major policy domains

5 The collapse of the BrusselsFrankfurt consensus and
the future of the euro
erik jones
145
6 Supranational neo-liberalization: The EUs regulatory

model of economic markets
mark thatcher
171
Contents
vi
7 Resilient neo-liberalism in European financial

regulation
daniel m ugge
201
8 Neo-liberalism and the working-class hero: From

organized to flexible labour markets
cathie jo martin
226
9 European corporate governance: Is there an

alternative to neo-liberalism?
sigurt vitols
257
Part III Neo-liberalism in comparative perspective

10 The resilience of Anglo-liberalism in the absence of
growth: The UK and Irish cases
colin hay and nicola j. smith
289
11 Germany and Sweden in the crisis: Re-coordination or

resilient liberalism?
gerhard schnyder and gregory jackson
313
12 State transformation in Italy and France:

Technocratic versus political leadership on the road
from non-liberalism to neo-liberalism
elisabetta gualmini and vivien a. schmidt
13 Reassessing the neo-liberal development model in
Central and Eastern Europe
mitchell a. orenstein
346
374
Part IV Conclusion
14 Conclusion: Explaining the resilience of
neo-liberalism and possible pathways out
mark thatcher and vivien a. schmidt
403
Index
432
Figures
3.1. The ideological morphology of liberal neo-welfarism. page 99

9.1. European parliament political grouping relative strength,
19792009.
268
9.2. Preference moves of major party groups.
269
9.3. Number of European company law directives passed by
decade.
273
9.4. Diversity of employee board-level participation rights in
Europe.
275
9.5. EU consultation respondents attitudes to quality of
non-financial disclosure regime in their countries.
277
vii
Tables
8.1. Passive and active labour-market spending as a

percentage of GDP in selected countries
page 244
9.1. Company law directives and year of approval
266
9.2. Members of the high-level expert group on company law 271
11.1. Institutional reforms in Sweden, 19792009
326
11.2. Institutional reforms in Germany, 19792009
334
viii
Contributors
Maurizio Ferrera is Professor of Political Science and President of the

Graduate School in Social and Political Studies at the University of
Milan. He is a member of the Board of Directors of the Centro di
Ricerca e Documentazione Luigi Einaudi in Turin. He has served on
many advisory commissions at national and European Union (EU)
levels and has published in the fields of comparative welfare states
and European integration in many international journals, including
Comparative Political Studies, West European Politics, the Journal of
Common Market Studies, and the Journal of European Social Policy.
His most recent book in English is The Boundaries of Welfare (2005);
in Italian, he recently co-authored Alle Radici del Welfare allItaliana
(2012).
Andrew Gamble is Professor of Politics and a Fellow of Queens College at the University of Cambridge. He is a Fellow of the British
Academy and the UK Academy of Social Sciences. His main research
interests are in political economy, political theory, and political history.
His books include Hayek: The Iron Cage of Liberty (1996), Politics
and Fate (2000), Between Europe and America: The Future of British
Politics (2003), and The Spectre at the Feast: Capitalist Crisis and the
Politics of Recession (2009). In 2005, he received the Isaiah Berlin
Prize from the Political Studies Association for lifetime contribution to
political studies.
Elisabetta Gualmini is Professor of Political Science at the University of
Bologna. She is also the Director of the National Research Foundation
Istituto Cattaneo. Her main research interests are welfare and labour
policies in comparative perspective and comparative public administration. She has written ten books and more than thirty-five articles in
both English and Italian. Among her latest publications are Il partito
di Beppe Grillo (2013, co-edited with P. Corbetta) and Tra lincudine
ix
e il Martello: le regioni e i nuovi rischi sociali (2013, co-edited with V.

Fargion).
Colin Hay is Professor of Political Analysis and Director of the Sheffield
Political Economy Research Institute at the University of Sheffield,
United Kingdom. In late 2013, he will become Professor of Government and Comparative Public Policy at Sciences Po, Paris. He is the
author or co-author of a number of works, including, most recently,
The Legacy of Thatcherism (2014, with Stephen Farrall), The Failure
of Anglo-Liberal Capitalism (2013), and The Political Economy of
European Welfare Capitalism (with Daniel Wincott, 2012).
Gregory Jackson is Professor of Management at the Freie Universitat
Berlin. He received his PhD in Sociology from Columbia University and

works at the intersection of economic sociology and political economy. His research focuses on the comparative institutional analysis
of corporate governance, the social responsibility and irresponsibility
of corporations, and the political determinants of the corporation in
historical perspective. His work draws on both qualitative and quantitative methods, as well as utilizing qualitative comparative analysis
(QCA) to analyse organizational and institutional configurations. He
holds an appointment as International Research Fellow at the Oxford
University Centre for Corporation Reputation and acts as chief editor
for the Socio-Economic Review.
Erik Jones is Professor and Director of European Studies at The Johns
Hopkins University School of Advanced International Studies and
Senior Research Fellow at Nuffield College, Oxford. He is author of
The Politics of Economic and Monetary Union (2002) and Economic
Adjustment and Political Transformation in Small States (2008), and
he is co-author of Weary Policeman: American Power in an Age of
Austerity (2012). He is also editor or co-editor of more than twenty
volumes, including, most recently, The Oxford Handbook on the
European Union (2012).
Cathie Jo Martin is Professor of Political Science at Boston University, former chair of the Council for European Studies, and co-chair
with Jane Mansbridge of the American Political Science Association
(APSA) task force on negotiation and political stalemate. She is the
author of The Political Construction of Business Interests: Coordination, Growth and Equality (Cambridge University Press, with
Duane Swank); Stuck in Neutral: Business and the Politics of Human
xi
Capital Investment Policy (2000); Shifting the Burden: The Struggle

over Growth and Corporate Taxation (1991); and articles appearing
in the American Political Science Review, World Politics, British Journal of Political Science, Comparative Political Studies, and other major
journals.
Daniel Mugge
is a political economist in the Political Science Department at the University of Amsterdam. His research focuses on financial regulation and governance. In the EU-funded GR:EEN project on
Europes role in the world (20112015), he leads the work on finance.
In 2009, his dissertation was awarded the Jean Blondel prize for best
European political science thesis of the year. Daniel spent the first half
of 2012 at the Center for European Studies at Harvard University,
where he also wrote his chapter for this edited volume.
Mitchell A. Orenstein is Professor and Chair of the Department of
Political Science at Northeastern University in Boston. Professor Orenstein is a scholar of international politics focusing on political economy of transition in Central and Eastern Europe, pension privatization
worldwide, and the role of policy paradigms in economic reform. His
book Privatizing Pensions: The Transnational Campaign for Social
Security Reform won the 2009 Charles H. Levine Prize of the International Political Science Association for the best book in comparative public policy and administration. He is also the author of Out
of the Red: Building Capitalism and Democracy in Postcommunist
Europe.
Vivien A. Schmidt is Jean Monnet Chair of European Integration,
Professor of International Relations and Political Science at Boston
University, and founding director of BUs Center for the Study of
Europe. She has published widely on European political economy,
institutions, and democracy as well as institutional theory, with books
including Democratizing France (1990), From State to Market? (1996),
Welfare and Work in the Open Economy (co-edited with F. Scharpf,
2000), The Futures of European Capitalism (2002). Policy Change and
Discourse (co-edited with C. Radaelli 2005), Democracy in Europe
(2006), and Debating Political Identity and Legitimacy in the European Union (co-edited with S. Lucarelli and F. Cerutti 2011). In 2008
she received an honorary doctorate from the Free University of Brussels
(ULB). She is also past head of the European Union Studies Association
(EUSA).
xii
Gerhard Schnyder is Senior Lecturer at Kings College London. His

main research interests are in the comparative analysis of national
corporate governance and business systems using a historical institutionalist approach. Recent publications include Like a Phoenix from
the Ashes? Reassessing the Transformation of the Swedish Political
Economy since the 1970s, published in Journal of European Public
Policy (Vol. 19, No. 8), and Revisiting the Party Paradox of Finance
Capitalism: Evidence from Switzerland, Sweden and the Netherlands
in Comparative Political Studies (Vol. 44, No. 2).
Nicola J. Smith is Senior Lecturer in Political Science at the University of Birmingham. Her work is broadly concerned with the relationship between globalization discourse and social justice, particularly with respect to the (re-)production of uneven gendered and
sexualized power relations. Recent publications include articles in
Third World Quarterly, European Political Science Review, Review
of International Political Economy, and Sexualities. Dr Smith is currently completing a research monograph on queer sexual economies for
Palgrave.
Mark Thatcher is Professor of Comparative and International Politics
at the London School of Economics. He has also held visiting positions at the European University Institute and Sciences Po, Paris. His
research interests are in comparative political economy, public policy,
and regulation. His book Internationalisation and Economic Institutions (2007) won the 2008 Charles Levine Prize for best book in
comparative policy and administration, awarded by the International
Political Science Association. Other books include Beyond Varieties
of Capitalism (co-edited with B. Hancke and M. Rhodes, 2007), The
Politics of Delegation (co-edited with A. Stone Sweet, 2003), and The
Politics of Telecommunications (1999).
Sigurt Vitols has been Head of the Project Group Modes of Economic
Governance at the Wissenschaftszentrum Berlin fur
Sozialforschung
(WZB) since 2011 and Senior Fellow at the WZB since 2001. In 2010
2011, he was Visiting Senior Researcher at the European Trade Union
Institute (ETUI) and, in 2009, Wertheim Fellow in Residence at the
Harvard Labor and Worklife Program. Recent publications include
European Company Law and the Sustainable Company (co-edited
with ETUI, 2012) and the Sustainable Company: A New Approach to
xiii
Corporate Governance (co-edited with ETUI, 2011). He received his

MA and Ph D from the University of WisconsinMadison.
Cornelia Woll is a political scientist at Sciences Po, Paris, where she codirects the Max Planck Sciences Po Center (MaxPo) and the Interdisciplinary Center for Public Policy Evaluation (LIEPP). Her specialization
is in comparative and international political economy, in particular,
lobbying and financial regulation. She is the author of Firm Interests:
How BusinessGovernment Relations Shape Global Trade (2008) and
a comparative study of bank bailouts (Cornell University Press, forthcoming). She has edited Economic Patriotism in Open Economies with
Ben Clift (2012).
Preface
Although, when viewed from afar, Europe may appear to be a haven

of Social Democracy, strongly opposed to economic liberalism, closer
analysis reveals that the place of neo-liberal economic ideas in policy
debates has grown steadily since the 1980s. Such ideas which, most
simply stated, centre on extending market competition while limiting the state, have had a profound influence on the institutions, policies, and practices of capitalism across different European countries as
well as in the European Union (EU). Neo-liberal ideas have continued
to dominate policy debates through Europes economic and political
booms and busts.
This resilience of neo-liberal ideas is surprising. Europe offered
a relatively cold climate for economic liberalism in the 1970s,
with well-entrenched alternative ideas based on Social and Christian
Democracy to say nothing of strong Marxist traditions. Powerful
theoretical critiques have been made of neo-liberal ideas while policies inspired by neo-liberalism such as allowing greater competition in financial markets, reducing regulation, and cutting back state
spending and deficits even in economic downturns have met with
failure. The present difficulties of neo-liberalism can be contrasted
with the past successes of alternative models, notably social democratic models. However, the greatest surprise came in the 2000s, first
with the absence of any major re-evaluation of neo-liberal ideas about
governing the markets in the face of the dot-com boom and bust
and then, even more significantly, with the economic crisis beginning
in 2008. After a brief neo-Keynesian moment at the very inception
of the crisis, far from abandoning neo-liberal ideas, European policy makers responded with calls for their extension. They accepted or
even embraced ideas of reducing public expenditure, delegating greater
powers to supranational bodies, increasing liberalization, and imposing market discipline through austerity. In the meantime, Europe
struggles with high unemployment, low growth, mounting income
xv
xvi
Preface
inequality, and economic stagnation or worse. Politically, Europe

is suffering from increasing electoral volatility, a rising tide of discontent, the re-emergence of extreme programmes and parties, and
even the replacement of democratically elected governments by technocratic governments charged with administering the bitter medicine
of structural reform.
This book seeks to explain how and why neo-liberal ideas remain
resilient. Hence, our concern is with the ideas themselves, as objects
of investigation. We seek to elucidate what they are and why and
how they have persisted, thereby theorizing about the processes of
continuity as much as the dynamics of change. Indeed, what we find
extraordinary is that neo-liberalism has not merely survived but also
thrived. It has permeated our understanding of the ways in which
the political economy could and should work. It has redefined the language and framed the concepts through which we think and talk about
state and market. It has altered assumptions about the purposes of state
action. Thus, the post1945 era of embedded liberalism and Social
Democracy witnessed strong ideas about an active state governing the
liberal economy by managing markets, regulating business, fostering managementlabour coordination, building welfare, and reducing
inequalities. In contrast, the touchstones of neo-liberalism since the
1980s have been about limiting the state and freeing up markets,
reducing regulation of business and finance to provide space for the
entrepreneurial spirit, and increasing flexibility in labour markets
while reducing the burden of welfare.
Our focus in this book is on the resilience of neo-liberal ideas in
policy and political debates rather than the consequences of neoliberal prescriptions, how neo-liberal ideas may be put into practice,
or whether policy outcomes are, in fact, neo-liberal. These other issues
would demand consideration of a whole range of variables beyond the
purview of this study, although some chapters do study how and why
institutions and policies may have sustained and renewed neo-liberal
ideas. Finally, there are also many analyses of the political, economic,
and policy changes since the 1980s in terms of questions of power,
class, interests, and institutions and links among these changes and
neo-liberalism. What remains to be explained is why responses came
in the form of neo-liberal rather than any other ideas and especially
why and how these ideas have endured and, indeed, become dominant
over time.
Preface
xvii
Thus, our central question is as follows: Why have neo-liberal economic ideas been so seemingly resilient in policy debates and political discourse despite powerful intellectual challenges, major economic
crises, apparent failure, and political turmoil? By resilience, we mean
the continuity of neo-liberalism over time, its dominance over competitors, and its survival against powerful challenges and rivals. To
explain this resilience, we propose five lines of analysis: first, that
neo-liberalisms tremendous ideational diversity and adaptability have
enabled it to resist challenges; second, that neo-liberal ideas have
remained dominant in policy debates despite or even because of a lack
of implementation; third, that neo-liberal ideas have been stronger in
policy debates and political discourse than their competitors; fourth,
that powerful interests have promoted neo-liberalism for their own
purposes; and fifth, that neo-liberal ideas have become so institutionally embedded that they preclude alternatives. These analyses provide a
starting point for considering whether neo-liberalisms resilience is due
to its continuous (re)invention, its constant (re)turn to past rhetoric, its
(re)framing of ideas and discourse, its (re)conceptualization of interest,
or its (re)shaping of institutional arrangements and (re)distribution of
power.
To probe these lines of analysis, the book examines a full panoply
of neo-liberal ideas from general philosophical principles, ideologies,
and paradigms to specific legal norms, regulatory models, policy programmes, and political discourse. It explores how, why, and by whom
they came to be generated, disseminated, and maintained both within
national political economies in Europe and in the EU across a wide
range of domains.
The first chapter defines neo-liberalism, traces its intellectual roots,
and theorizes about neo-liberal ideas as objects of explanation. It then
introduces five lines of analysis that can explain its resilience, illustrated
by examples from the contributors chapters in the remainder of the
book. Contributors use whichever of the five lines of analysis they find
appropriate to assess their own particular cases.
The chapters in Part I explore transversal issues. With regard to the
recurring economic philosophies at the core of neo-liberalism, Andrew
Gamble considers the ways in which the metaphor of the household
economy has been repeatedly applied to the finances of the state to
justify sound money and balanced budgets. Regarding the welfare
state, Maurizio Ferrera explores how neo-liberalism has followed a
xviii
Preface
parabola, moving from being marginal to a central position in policy

debates before absorbing ideas from other social philosophies to produce a new synthesis of liberal neo-welfarism. On neo-liberalisms
changing approaches to the role of the state, Vivien Schmidt and Cornelia Woll discuss how commitments to reduce state intervention in
markets later metamorphosed into an increased state role to make markets more competitive, resulting not in a neo-liberal state but rather in
liberal neo-statism.
The chapters in Part II examine neo-liberal ideas in several key policy domains. In the macroeconomic governance of the euro, Erik Jones
finds that the neo-liberal BrusselsFrankfurt consensus of sound
money fragile from the very start, given that it was always more
rhetoric than reality has largely broken apart since 2012, although
neo- (or ordo-) liberal ideas remain embedded in the institutional rules
on financial stability. In the regulation of economic markets, Mark
Thatcher analyses the rise of supranational neo-liberalism with the
development of the EUs regulatory model focused on competition,
which has been resilient due to a powerful and heterogeneous coalition and processes of self-reinforcement over time. In the regulation
of financial markets, Daniel Mugge
suggests that neo-liberal ideas are
virtually the only ideas in play but that neo-liberals are themselves
divided between laissez-faire resistance to regulatory rules and promarket enhancement through strong rules even through the current
economic crisis. In the reform of the labour markets, Cathie Jo Martin
shows that although neo-liberal ideas dominate, with the conceptualization of similar active labour-market policies across European
countries, their application is differs substantially due to different
national ideational and institutional configurations, as in the cases
of the United Kingdom and Denmark. In corporate governance, Sigurt Vitols charts a similar predominance of neo-liberal ideas via the
shareholder model, which judges corporate performance according to
shareholder value alone but, in this case, despite an alternative model
focused on stakeholder value.
The chapters in Part III provide more deeply contextualized analyses
of neo-liberalism (in its many forms) through paired comparisons of
countries. They examine countries usually categorized as part of similar varieties of capitalism. For the liberal market economies of the
United Kingdom and Ireland, Colin Hay and Nicola Smith discuss how
the neo-liberal Anglo-growth model focused on financialization has
Preface
xix
persisted despite financial crises in both Ireland and the United

Kingdom, although they followed somewhat different trajectories
due to different conceptions of the role of the state. For the
coordinated market economies of Germany and Sweden, Gerhard
Schnyder and Gregory Jackson demonstrate that both countries
adopted neo-liberal ideas for reform, marrying them with longstanding national principles of labourmanagement coordination and
state action, albeit in different ways. For the state-influenced market economies of Italy and France, Elisabetta Gualmini and Vivien
Schmidt detail significant albeit differing resistances to neo-liberalism:
Italys political elites often embraced the neo-liberal discourse but
did little to put it into practice, whereas French elites generally
resisted the discourse but attempted nonetheless to implement the
ideas. In the final chapter of Part III, for the dependent market economies of Poland and Hungary, Mitchell Orenstein finds
that although neo-liberal ideas were adopted everywhere in Central and Eastern Europe following the end of communism, countries followed significantly different trajectories: Poland accepted
or, indeed, welcomed neo-liberal ideas, whereas Hungary after
initial acceptance turned instead to far-right nationalist, statist, and
protectionist ideas.
Part IV, the Conclusion, examines the actual resilience of neo-liberal
ideas using the five lines of analysis with illustrations from the previous chapters. It sets out the processes for neo-liberalisms ideational
resilience for each line of analysis. The first line of analysis suggests
that the generality, diversity, and mutability of neo-liberal ideas tend
to be ensured through processes of metamorphosis, absorption, and
hybridization. The second line shows how the gap between neo-liberal
rhetoric and the reality of lack of implementation can, paradoxically,
reinforce neo-liberalism by facilitating the regular re-use of neo-liberal
ideas, diverting attention from current problems, legitimating further
neo-liberal initiatives, and altering the terms of the debate. The third
line of analysis argues that neo-liberalism can prove stronger than its
competitors due to its seeming coherence or common sense, its ability to frame the problems of the day, and its communicative power
in debates and discussions. The fourth line underlines the ways in
which neo-liberal ideas can be promoted by self-interested actors and
coalitions of interests whose power is only further enhanced by their
dominance. In the fifth and final line of analysis, neo-liberal ideas
xx
Preface
gain in force from being institutionally embedded because this creates

incentives for their maintenance and development, further empowers
neo-liberal interests, and constrains the institutionalization of alternative ideas.
The Conclusion ends by using the five lines of analysis to suggest
possible pathways out of neo-liberalisms ideational dominance. It discusses whether neo-liberalism may break down as a result of internal
conflicts and contradictions; unsustainable gaps between rhetoric and
reality; the rise of stronger alternatives and of new, powerful interests
pressing for new ideas; or, finally, institutional breakdown and the
appearance of new institutions.

This book developed rapidly during 20112013, although it was preceded by two years worth of discussions with potential co-editors and
participants. The book has very much been a group project in other
ways as well. The books major focus on neo-liberal ideas was Marks
suggestion and taken up enthusiastically by Vivien since her own work
has long emphasized the importance of ideas and discourse in political
science. The contributors were also central to the development of key
themes in the book, as we together debated how to analyse and explain
neo-liberal resilience. Discussants at the two workshops for the book
in Boston and in Paris as well as on panels at scholarly meetings
at APSA 2010 and the Council of European Studies conferences in
2011 and 2012 also played vital roles in assisting those involved to
clarify our thoughts and arguments.
The first workshop, held at Boston Universitys Center for the Study
of Europe, benefited from a grant from Boston Universitys Humanities Foundation. The second workshop, held at Sciences Po, Paris,
was supported by a grant from the European Science Foundation. We
sincerely thank both foundations for their generous support, along
with those at both institutions who made the workshops a success.
At Boston University, Elizabeth Amrien, Administrator of the Center
for the Study of Europe, and graduate assistant Lauren Peyton were
tremendously efficient and helpful, as were Renaud Dehousse, Director of the Center for European Studies, with Linda Amrani and Samia
Saadi, at Sciences Po, Paris.
We want to thank many people for contributing through their
immensely helpful comments on drafts and participation in the workshops and conference panels. In particular, we thank Cornel Ban,
Preface
xxi
Mark Blyth, Olivier Butzbach, Martin Carstensen, Daniela Caruso,

John Cioffi, Pepper Culpepper, Richard Deeg, Ana Maria Evans,
Orfeo Fioretos, Jeffry Frieden, Peter Gourevitch, Patrick Le Galès,
Alya Guseva, Peter Hall, Charlotte Halpern, Niamh Hardiman,
Miriam Hartlapp, Tim Haughton, Silja Hausermann,
Anton Hemeri
jck, Jonathan Hopkin, Chris Howell, Daniel Kinderman, Lise Kjlsrd,
Brigid Laffan, Jonah Levy, Susanne Lutz,
Bruno Palier,
Daniel Mugge,
Pascal Petit, Alasdair Roberts, Martin Schroder,

Loukas Tsoukalis,
Yves Surel, Graham Wilson, Daniel Wincott, and Cornelia Woll. We

also thank Cornel Ban, Mark Blyth, Dorethee Bohle, Amandine Crespy, and Fritz Scharpf for kindly reading and commenting on parts
of the manuscript. Naturally, we remain responsible for the views
expressed in the book.
Neo-liberal ideas are complex, but we found them fascinating and
relevant for understanding current political debates. We treat them
academically here, but we are conscious of the fact that they are also
significant for our understanding of politics and the decisions that
policy makers take.
Theorizing ideational continuity: The

resilience of neo-liberal
ideas in Europe
vivien a. schmidt and mark thatcher
. . . the ideas of economists and political philosophers, both when they

are right and when they are wrong, are more powerful than commonly
understood. Practical men, who believe themselves to be quite exempt
from any intellectual influences, are usually the slaves of some defunct
economist. Madmen in authority, who hear voices in the air, are distilling
their frenzy from some academic scribbler of a few years back. I am sure
that the power of vested interests is vastly exaggerated compared with the
gradual encroachment of ideas.
John Maynard Keynes (1936, p. 383)
When Keynes wrote these lines, he certainly had in mind the influence
of the ideas of laissez-faire economic liberalism, which he held responsible for the great boom and bust of the 1920s that led to the Great
Depression of the 1930s. Today, another form of economic liberalism, neo-liberalism, has supplanted Keyness own ideas, which had
gained dominance in the postwar era. Our task, in this theoretical
essay, is to explain how and why the ideas of neo-liberal economists
and political philosophers obtained and retained their power in European policy debates and political discourse during the past three or
four decades.
We define neo-liberalism, at its essence, as involving a commitment
to certain core principles focused on market competition and a limited
state. Our purpose is to explain the resilience of these core neo-liberal
ideas, meaning their ability to endure, recur, or adapt over time; to
predominate against rivals; and to survive despite their own many
failures. We offer five lines of analysis as potential explanations for
such resilience: first, the generality, flexibility, and mutability of neoliberal ideas themselves; second, the gap between neo-liberal rhetoric
and a reality in which they are not implemented; third, their advantages
in policy debates and political discourse compared with alternatives;
fourth, the power of interested actors who strategically adopt and
1
Theorizing ideational continuity
promote neo-liberal ideas; and, fifth, the force of the institutions in

which neo-liberal ideas are embedded.
Our focus is primarily on neo-liberal ideas their intellectual origins, history, and current importance. We recognize that a wide range
of other elements also falls under the rubric of neo-liberalism, including institutions, practices, and policies.1 However, this book is not
about these elements or the impact of neo-liberal ideas on institutions,
policies, and practices.2 Rather, it is about neo-liberalism as a set of
ideas.
Admittedly, neo-liberal ideas are difficult to pin down because neoliberalism comes in many different forms, with differing assumptions
that often appear contradictory. They are also politically contentious,
being the subject of polemics in policy debates and political discourse.
For this reason, many scholars have chosen to leave aside the study
of neo-liberal ideas to focus on policies, politics, interests, and institutions. As a result, however, they give up without even first attempting
to explain one of the main forces in Europes political economy.
As for our own study of ideas, rather than returning in this essay
to the long-standing scholarly debates that address whether and to
what extent ideas matter, we take it as a given that they do and seek
instead to develop theories about how to explain continuity through
the concept of resilience. To do this effectively, we outline a framework
for analysing neo-liberal ideas as objects of explanation. We consider
different views of how to theorize about the role of neo-liberal ideas,
from positivist to constructivist; what forms such ideas may take
whether philosophical, programmatic, or policy ideas and how they
may change over time; and who are the neo-liberal agents of continuity
or change.
This introductory chapter begins by defining neo-liberalism (or
economic liberalism, as it is also called) within the larger conceptual
tradition of liberalism in order to explain what it is and is not for the
purposes of this book. We follow this definition with a brief overview
of the intellectual origins of the concept beginning in the 1930s and
its subsequent transformations, in particular from the 1980s onwards.
We then provide an analysis of the ideational roles, forms, and agents
1
2
See, for example, Larner 2000, Cerny 2008, Mudge 2008, and Evans and
Sewell 2013.
For excellent recent studies of neo-liberal policies and their institutional
impacts, see Crouch 2011, Streeck 2011, and Grant and Wilson 2012.
of neo-liberalism. We conclude the chapter with a discussion of how

such neo-liberal ideas can be shown to be resilient following the five
lines of analysis.
Conceptualizing neo-liberalism
There is no single definition of neo-liberalism beyond the agreement
that it contains a commitment to core principles involving market competition and a limited state. Thereafter there exist important debates
and differences in defining what neo-liberalism is and in describing its
origins and development.3
Sometimes neo-liberalism is portrayed mainly as a political and economic philosophy defining a set of free-marketoriented economic
principles and political economic practices promoted in its early years
by a loose agglomeration of true believers.4 At other times, it is
cast as an ideology through which the free-market discourse of the
converted (i.e., elites in academe, business, journalism, and politics)
seeks to persuade the public of the virtues of unfettered markets guaranteeing individual freedom along with material prosperity.5 In yet
other instances, it is presented as a particular approach to governance,
in which neo-liberal principles and practices are deployed to liberalize, privatize, deregulate, and rationalize existing markets.6 However,
neo-liberalism has also been portrayed as a political project promoted
by social forces to restore capitalist class power via ideas on how to
reorganize capital and the social order.7 The variety of treatments of
neo-liberalism also links to debates about its historical context because
it emerges from a broader liberal philosophical tradition with its own
internal divisions on how to balance state and market, individual liberty and collective endeavour, and economy and society.8
3
4
5
6
7
See Peck and Tickell 2002; Harvey 2005; Mudge 2008; Brenner, Peck, and
Theodore 2010; Cerny 2008; Peck 2010; Boas and Gans-Morse 2009; and
Evans and Sewell 2013.
See, for example, Mirowski and Plehwe 2009 and Gamble 2009.
See, for example, Anderson 2000 and Freeden 2005; see also discussion in
Ferrera in this volume.
For a discussion, see Steger and Roy 2010 and Peck 2010.
See Overbeek and Apeldoorn 2012: 45; Apeldoorn, Drahokoupil, and Horn
2008; Cafruny and Magnus 2003; and Jessop 2002. See also discussion in
Schmidt and Woll in this volume.
See, for example, Audier 2012a; Nemo and Petitot 2006; Miroswki and Plehwe
2009; Harvey 2005; and Foucault 2004.
This debate resulted in neo-liberalism appearing as a somewhat

amorphous body of thought with many different ideological strands,
normative interpretations, and policy applications in different European polities and in the EU. To provide greater clarity, we briefly
outline our own core definition of neo-liberalism and then trace its
intellectual history, seeking to take into account its many aspects while
pointing to the more specific analyses developed in subsequent chapters
of this book.
Towards a definition of neo-liberalism

Neo-liberalism here refers to a core set of ideas about markets and
the states role in (or as part of) such markets. Neo-liberals believe
that markets should be as free as possible, meaning governed by
competition and open across borders, while the state should have a
limited political economic role in creating and preserving the institutional framework that secures property rights, guarantees competition,
and promotes free trade. (We prefer the term market competition to
free markets because the latter is both normatively loaded who,
after all, would be against more freedom? and misleading because
competition depends on the state playing a role.) Just how far market
competition extends and just how limited the state should be depends
on the strand of neo-liberalism involved. Laissez-faire neo-liberals tend
to want a strong but highly limited state; anarcho-capitalists or hyper
neo-liberals want to dismantle the state as much as possible in order to
leave almost everything to the market; and social-market neo-liberals
often called ordo-liberals, following the economic philosophy developed in Germany embrace a more active state with greater social
obligations.9
Our use of the term neo-liberalism in this chapter is centred on the
strand of economic liberalism as popularized by Margaret Thatcher
and Ronald Reagan in the late 1970s and early 1980s, whose discourse promised the reduction of the state and declared their belief
in the virtues of competition and the free market. We ignore the
hyper neo-liberals, who rarely had significant political influence. We
see ordo-liberalism, largely developed in Germany, as constituting a
9
See Gamble 2009: 7084 and in this volume; see also Lehmbruch 1999.
more conservative strand of neo-liberal economic philosophy.10 We

include it and, indeed, since the Eurozone phase of the economic crisis,
we find that elements of ordo-liberalism have proved highly resilient
via the various EU pacts and treaty agreements that reinforce commitments to fiscal austerity.11
The watchwords for the new, or neo, liberalism beginning in the
late 1970s and early 1980s in Europe as in the rest of the world
have been liberalization, privatization, commodification, regulatory
reforms, and delegation to non-majoritarian institutions such as independent regulatory agencies and central banks, as well as individual
responsibility, competition, and enterprise.12 Colin Hay offers a useful seven-point list of key elements that characterize contemporary
neo-liberalism, as follows13 :
1. A confidence in the market as an efficient mechanism for the allocation of scarce resources.
2. A belief in the desirability of a global trade regime for free trade
and free capital mobility.
3. A belief in the desirability, all things being equal, of a limited and
non-interventionist role for the state and of the state as a facilitator
and custodian rather than a substitute for market mechanisms.
4. A rejection of Keynesian demand-management techniques in favour
of monetarism, neo-monetarism, and supply-side economics.14
5. A commitment to the removal of those welfare benefits that might
be seen to act as disincentives to market participation (in short, a
subordination of the principles of social justice to those of perceived
economic imperatives).
6. A defence of labour-market flexibility and the promotion and nurturing of cost competitiveness.
10
11
12
13
14
See, for example, Foucault 2004 and Ptak 2009 and the following discussion.
See Gamble, Jones, and Schmidt and Woll, all in this volume.
See Hermann 2007; Brenner, Peck, and Theodore 2010; Peck 2001; Cerny
2008; Thatcher and Stone Sweet 2002; and Coen and Thatcher 2005.
See Hay 2004.
Macroeconomic theory has been influenced by these neo-liberal approaches
which were part of the neoclassical economics offensive of the 1970s as well
as by the new Keynesians, who responded to such approaches in the 1980s.
The synthesis has come to be known as the new neo-classical synthesis or the
new consensus that defined macroeconomic orthodoxy until the economic
crisis of the late 2000s. Our thanks go to Cornel Ban for this clarification.
7. A confidence in the use of private finance in public projects and,

more generally, in the allocative efficiency of market and quasimarket mechanisms in the provision of public goods.
In summary, neo-liberalism today entails belief in competitive markets enhanced by global free trade and capital mobility, backed up
by a pro-market, limited state that promotes labour-market flexibility and seeks to reduce welfare dependence while marketizing
the provision of public goods. As such, neo-liberalism can be seen
as representing a theory that combines both cognitive and normative ideas about a specific type of capitalist organization of the
economy.
At the same time, neo-liberalism is highly varied. It has been adopted,
adapted, and applied in differing ways across domains from economic
markets to welfare. Equally, national variants have been established
across countries that range from traditionally liberal economies such
as in Britain to statist and corporatist economies, such as in France,
Italy, Germany, and the Scandinavian nations, and at both national
and EU levels. Definition of the term is made more difficult by the fact
that few of those labelled as neo-liberals today actually apply the word
to themselves.15 Indeed, the normative value attached to the terms liberal and neo-liberal vary greatly. Thus, in the United States, liberal
refers to centre-left politics, often neo-Keynesian, mildly redistributive,
and socially tolerant, and is usually applied pejoratively by the Republican right. In contrast, economic liberal in Europe often refers to
those on the Right who are opposed to state action and seek to institute
the neo-liberalism discussed previously. Moreover, calling someone a
neo-liberal in the United Kingdom or even liberal in Continental
Europe is most often used as a label for unpopular views. Finally, in
the political arena, economic liberalism can be attached to other philosophical ideas about how to steer the economy, administer the state,
build community, and promote the welfare of society. These other
ideas may encompass conservative principles, as in the case of Margaret Thatchers evocation of Victorian values16 ; or social-democratic
principles, as when Scandinavians sought to save the welfare state by
15
16
See Boas and Gans-Morse 2009: 156, and Peck 2010: 1315.
See Martin and Ferrera, both in this volume.
adding neo-liberal elements; or a third way between the two, as in the

case of the British Labour Party after the 1990s under Tony Blair.17
It is important to note in this context that neo-liberalism is not only
a philosophy of political economy, it is also a philosophy of political democracy and the role of the state. It conceives of the polity as
consisting of the individual first and the community second, with legitimate state action extremely limited with regard to community-based
demands on the individual. Because neo-liberalism places individual
freedom ahead of everything else, it perceives state intervention as
imposing collective judgements on individuals freedom to choose.18
Significantly, neo-liberal theorizing often portrays the state as more
legitimate when transformed into an arms-length arbitrator state as
compared with the traditional political or administrative state, which
it fears distorts markets by enabling certain interest groups to gain
political advantage or administrative support through capture.
The intellectual origins and development of neo-liberalism

Disentangling neo-liberalism analytically from other forms of liberalism requires careful analysis. In his chapter, Maurizio Ferrera notes
that in Italian, the language itself provides clarification that does not
exist in English. Liberalesimo refers to the centuries-old Lockean philosophical tradition focused on the constitutional protection of individual freedoms. Liberalismo covers a range of different liberalisms,
including the economic, focused on private property and free markets;
the political, concerned with rights and democracy; and the social,
encompassing welfare rights and collective responsibilities. Finally,
only liberismo concerns what we have named neo-liberalism, which
perceives the free market as primary, resulting in its focus on free
enterprise, free trade, and efficiency.
Interwar Vienna of the 1920s witnessed the beginning of such neoliberalism,19 with major development occurring during the 1930s and
17
18
19
See Schmidt 2000; see also Schmidt and Woll in this volume.
See, for example, the discussion in Harvey 2005; see also Gamble and Schmidt
and Woll, both in this volume.
In the 1920s Vienna, Ludwig von Mises held seminars with regular attendees
including Friedrich von Hayek and Fritz Machlup, along with foreign scholars
such as Lionel Robbins of the United Kingdom and Frank Knight of the United
States. Note that some date the Austrian Schools neo-liberalism to the 1880s,
with Carl Menger. See Blyth 2013b.
culminating in 1938 with the Colloque Lippmann, the Paris conference centred on Walter Lippmann that brought together a wide
range of intellectual, political, and business leaders sympathetic to his
thought.20 At this time, neo-liberalism was conceptualized mainly as a
response to the failures of classical liberalism in confronting the challenges of the Great Depression as well as to the perceived dangers from
socialist planning. It retained the classical liberal definitions of individuals as motivated by self-interest and of competition as the principle
for market functioning. However, most neo-liberals rejected classical liberalisms laissez-faire approach to market regulation,21 insisting
instead on the need for a strong state able to establish general rules for
markets. This was particularly well developed in the work of Friedrich
von Hayek (1944), who rejected both laissez-faire and state planning
for industry.22 Neo-liberalism also inverted classical liberalisms basic
tenet that political liberty ensures free markets and instead argued
that economic freedom is essential for political freedom.23 This claim
was the basis of Hayeks (1944) Road to Serfdom, as well as the
main theme of Milton Friedmans (1962) Capitalism and Freedom. By
20
21
22
23
In the 1930s, in addition to the protagonists of the 1920s (see previous

footnote), key figures included Edward Canaan and his disciples in the
Economics Department at the London School of Economics, Louis Rougier in
France, and the Geneva Institut Universitaire des Hautes Etudes
Internationales headed by Willam E. Rappard and Paul Mantoux, which
provided refuge for a wide range of intellectuals fleeing the Nazis and the war,
and the Italian Luigi
including von Mises, the German Wilhelm Ropke,
Einaudi in 1943. See Plehwe 2009 1113. Their influence was even felt in
Spain in the mid 1940s, when a prominent ordo-liberal (right-wing) economist,
Heinrich von Stackelberg, became a visiting professor at the University of
Madrid from 1943 until his death in 1946 and, as such, influenced a future
generation of economists and policy makers; see Ban 2013. The Colloque
Lippmann gathered a wide range of neo-liberal luminaries such as Rougier,
among others, along
with attendees including von Mises, Hayek, and Ropke,
with Lippmann himself. See, for example, Denord 2007: 89122, and Audier
2012.
Or, at least, their interpretation of classical liberalism as a laissez-faire
approach to the markets. In fact, liberalism had developed in many directions,
including social liberalism and new liberalism in the late nineteenth and
early twentieth centuries. See Freeden 1978.
See Gamble 1996 and in this volume; and Wapshott 2012. See also Schmidt
and Woll in this volume.
See Foucault 2004 and Tribe 2009; see also discussion in Schmidt and Woll in
this volume.
putting the economy before the polity, neo-liberals presented the markets as the neutral solution and the state as the politicized problem.24
This also enabled neo-liberalisms founding theorists to eschew traditional social ethics and instead to view competition as the moral
standard, with competitive markets serving to define merit as well as
to justify inequalities of situation, whereas notions of collective responsibility beyond a basic minimum could be perceived as interfering with
markets.25
The inception of a self-conscious intellectual (or ideological) neoliberal movement is generally traced back to the postwar period when
ideas of state intervention and centralized planning were widespread.
An especially important organization was the Mont Pèlerin Society (founded in 1947), which held regular meetings of intellectuals,
academics, business people, and political figures, particularly from
Europe.26 The Mont Pèlerin Society brought together, at one time or
another, the main figures of neo-liberalism, including not only the
expected figures: Austrian thinkers such as Friedrich Hayek, located
at the London School of Economics, and one of the initial organizers of the group; US economists such as Milton Friedman, leader of
the Chicago School of Economics, and James Buchanan, founder of
the Virginia School of public-choice theory; as well as neo-classical
economists. There were also German ordo-liberal thinkers such as
Alexander Rustow
and Wilhelm Ropke,
along with politicians such
as Ludwig Erhard, the future Chancellor of Germany, and Alfred

Armack-Muller,
architects of Germanys social-market economy; Ital
ian thinker and future President Luigi Einaudi; and other well-known
figures, such as Karl Popper and Arthur Seldon. Other think tanks
promoting neo-liberal ideas were also established, in particular in the
United Kingdom (e.g., the Institute of Economic Affairs) and the United
States (e.g., the neo-conservative Heritage Foundation).
The postwar neo-liberals opposed socialism and collectivism and
were committed to developing an agenda that differentiated itself from
classical liberalism.27 Beyond this, however, there were wide variations in the philosophy as well as in its applications. The previously
mentioned books of the (later) gurus of neo-liberalism, Hayek and
24
25
26
See discussions in Gamble and Schmidt and Woll, both in this volume.
See Amable 2011. See also Gamble and Schmidt and Woll, both in this volume.
27
See Plehwe 2009 and Harvey 2005: 2022.
See Plehwe 2009: 56.
10
Friedman, were ideological tracts, not scholarly works.28 Moreover,

after 1945, ideas of freer markets and limited states were outliers
in the embedded liberalism, dominated by the rebuilding of wartorn economies through planning, the implementation of Keynesian
demand management, and the creation of wider welfare states.29 Only
in Germany did ordo-liberalism occupy a mainstream position in economic thinking; but, even there, by the late 1950s, it had been combined with other ideas to form the German model of the social-market
economy.30
For most West European countries, neo-liberal ideas came to the fore
only after the 1970s, with the perceived failure of neo-Keynesianism to
solve the economic crises brought on by the end of the Bretton Woods
system of exchange rates fixed to the dollar and by the two oil shocks
of 1974 and 1979. Policy makers and parts of public opinion became
concerned about governments failures to return their countries to economic prosperity and their inability to overcome entrenched interests
in order to reform effectively. Although the movement started in the
1970s, a major shift in the place of neo-liberal ideas began in the
1980s and onwards. The development of those ideas is a complex
phenomenon with important differences by domain and country, as
elaborated in the chapters in this volume. Here, whilst recognizing
that there exist important variations, we outline a somewhat stylized overview of development, building on Ferreras suggestion of an
ideational parabola (in his case, welfare policy), which is also apparent in the succession of ideas about state reform presented by Schmidt
and Woll.
A first phase saw a more radical variety of neo-liberalism defined
in both its pro-free market and anti-state positions than the
ordo-liberalism in Germany in the 1950s. Its discourse centred on
28
29
30
So much so that one critic insisted when Hayeks book was first published that
it was not scholarship. It is seeing hobgoblins under every bed. Hansen 1945,
cited in Peck 2010: xii.
John Ruggie (1982) used this term to describe postwar political economies that
were liberal in their commitment to markets but embedded within the
broader values of a social community.
The concept of the social-market economy owes much to the theoretical work
on ordo-liberalism and the competitive market economy of Walter Eucken
(1950), begun in the 1930s, in addition to those mentioned previously such as
See Lehmbruch 1999 and Ptak 2009; see
and Ropke.
Erhard, Armack-Muller,
also discussions by Gamble and Schmidt and Woll, both in this volume.
11
dismantling state intervention in markets, particularly with regard to

macroeconomic management of the economy, nationalized industries,
and industrial planning. Its central assumption was that the states
main legitimate role was to enforce undistorted competition. It privileged markets over society, epitomized by Margaret Thatchers famous
statement, There is no such thing as society. There are individual men
and women, and there are families.31 This was linked to attacks on the
state that had significant implications for the neo-liberal approach to
questions of social justice and equality, as illustrated by another wellknown Thatcher line about the right to be unequal.32 These ideas
were strongest in Anglo-Saxon countries and taken up by parties of
the political right, notably in the United Kingdom and the United States
by parts of the Republican Party under President Ronald Reagan. Proponents were mainly inspired by Hayek and Friedman.
In the face of the rights frequent failures to fulfil their neo-liberal
electoral promises to roll back the state in terms of size and regulation, a second phase of neo-liberal renewal ensued, beginning in the
mid to late 1990s, that propounded ideas about the state acting to
make markets more open to competition. This, in turn, ensured that
instead of producing the limited state idealized by some neo-liberal
philosophers, a new synthesis emerged that Schmidt and Woll call
liberal neo-statism. Whereas the liberal and neo in the term suggest that the state has been transformed in a neo-liberal direction, the
statism makes clear that the states intervention in the markets has
increased. Such ideas were largely generated by centre-left parties but
then taken up by others as well, and they gained ground in Continental
European countries as well as the United Kingdom.
In the current phase, faced with critiques and perceived failures
linked to the economic crises in the 2000s and the many difficulties in
implementing policies that draw on neo-liberal ideas, neo-liberalism
has developed in a variety of ways, depending on domain and country. One route has been maintenance of the original version of neoliberalism centred on competitive markets, or the revised secondphase version in which the states main function is to promote more
competitive markets while avoiding or reducing collective provision
31
32
Interview, Womens Own Magazine, 23 September 1987, published October

1987.
See discussion in Schmidt 2002: ch. 6.
12
of other services, especially those involved in spending and redistribution. This second neo-liberal version of the role of the state is seen in
what Mark Thatcher terms supranational neo-liberalism, in which
EU regulation whether of financial or product markets is strong,
extensive, and detailed in the way it acts to ensure competition.33 It
also appears in debates on the European Central Bank (ECB) and the
euro, which are dominated by austerity, notably with regard to lowering state deficits and debt as it does across the EU member states
but in particular in Britain and Ireland, in Southern Europe, and in
Central and Eastern European countries.34
A second route has seen neo-liberal ideas being combined with rivals
to create a synthesis. In the welfare arena, Ferrera makes clear in his
chapter that (national) state reforms of the welfare state led to a new
synthesis that he characterizes as liberal neo-welfarism because neoliberal ideas are joined with principles of social justice as the basis for
welfare provision. Similarly, Gerhard Schnyder and Gregory Jackson
find that Sweden and Denmark grafted neo-liberal ideas onto their
social democratic systems, freeing up markets without giving up their
basic values of equality and universalism.
A third route is that neo-liberal labels have been avoided or omitted
even as neo-liberal ideas have been accepted. Thus, in France, the term
neo-liberalism has been widely rejected even as neo-liberal ideas and
principles remain strong.35
Given its many different interpretations over domain, time, and
place, neo-liberalism is not easily summarized. Nevertheless, it retains a
central core of ideas despite their many permutations. In what follows,
we discuss how to analyse the nature, scope, and limits of neo-liberal
ideas before offering explanations of their resilience.
The resilience of neo-liberal ideas ideas as objects

of explanation
Ideas in themselves are worthy of explanation. Indeed, after being
strongly focused on interests and institutions, political science is
33
34
35
both in this volume.

See Thatcher and Mugge,
See Jones; Hay and Smith; Gualmini and Schmidt; and Orenstein, all in this
volume.
See Gualmini and Schmidt in this volume.
13
witnessing an increasing interest in ideas.36 Similarly although

systematic analyses of European political economy have tended to
focus on economic logics, institutional-path dependencies, and material interests significant studies are emerging that incorporate ideas.37
Nevertheless, much of the debate about ideas in policy making and
in European political economy has centred on whether and how
they influence policy initiatives, policy outcomes, and institutional
development.38
In this book, our purpose is different it is to study neo-liberal ideas
as part of the policy and political process, especially why they are developed, adopted, spread, and maintained. Thus, we are concerned with
both the substantive content of ideas and their role in policy debates
and political discourse. Here, we begin by discussing and defining the
meaning of ideational resilience. Thereafter, we discuss the different
forms and levels of neo-liberal ideas. We then conclude this part with
the interactions of the actors who serve as the generators, carriers, and
communicators of such ideas, whether as individuals or as discursive
communities. Lines of explanation for the resilience of neo-liberal ideas
are developed later in the chapter.
The resilience of neo-liberal ideas

The key theme of this book is that neo-liberal ideas have proven to
be remarkably resilient. They have continued and, indeed, flourished
despite the major challenges that Europe faced in the 2000s. Even
after the crisis of 20072008, neo-liberal ideas have come back with a
vengeance within a very short period. Problems of low growth, banking crises, excessive financialization, private-sector debt, pressures
on public spending, and tax evasion have been reframed as profligate
governments needing to radically cut their deficits and debt, institute
structural reforms to radically modify the welfare state, and extend
the rigour of competitive markets. Our central question is how and
36
37
38
For recent reviews, see, for example, Beland and Cox 2011; Schmidt 2008,
2010; Campbell 2004; and Blyth 1997.
See, for example, Blyth 1997, 2002; Berman 1998; Campbell 1998; Hall 1989;
McNamara 1998; Hay 2001; Schmidt 2000, 2002, 2009; Abdelal et al. 2010;
Cafruny and Ryner 2003; Overbeek and Apeldoorn 2012; Rodrik 2011;
Rothstein 2005; Rosamond 2012; and Woll 2008.
For classic general texts, see, for example, Heclo 1974; Goldstein and Keohane
1993 and Baumgartner and Jones 1993.
14
why neo-liberal ideas have remained so strong. The puzzle, as Alex

Callinicos states, is why the illusions have survived the bonfire and
why the crisis has not ensured as Joseph Stiglitz had hoped that
the fall of Wall Street is for market fundamentalism what the fall of
the Berlin Wall was for communism.39
The ability of neo-liberal ideas to continue, if not flourish, in the
face of internal weaknesses and external challenges is well expressed
through the concept of resilience. The term has been used increasingly across many disciplines as well as in public discourse. Originally,
it was used mostly in the natural sciences, where its central meaning
concerned the ability of materials to recover their original shape after
a shock rather than breaking; thus, rubber is more resilient than marble, which is harder but is damaged by external shocks. The term is
now being applied in the social sciences, in domains such as social
and ecological systems, infrastructure networks, communities facing
health care and other difficulties, national security, and psychology.40
Policy makers are also increasingly utilizing the term, often to refer
to coping with external threats such as terrorism and climatic
disasters.
We use the concept of resilience because it conveys key features
about neo-liberalism in recent decades: its adaptation to new circumstances so that it bounces back, its capacity to respond to challenges, and its ability to change while maintaining key elements so
that the result is continuity in the set of ideas as a whole.41 At the
same time, we recognize that adopting a concept originating in the
natural sciences, in the social sciences, and especially in public policy
runs a number of risks, such as treating resilience as a fixed attribute,
39
40
41
See Callinicos 2010: x, and Stiglitz 2008.

For a good overview and critiques of use of the term in social sciences, see
MacKinnon and Driscoll Derickson 2012, Norris et al. 2008, and Walker and
Cooper 2011; for social resilience, understood as the ability of members of a
group to respond to challenges (e.g., those arising from neo-liberalism), see
Hall and Lamont 2013. Within the vast literature in psychology, see, for
example, Werner and Smith 1992, 2001; for a review, see Masten, Best, and
Garmezy 1990; or, for a more popular version, see Cyrulnik 2003. In network
regulation, resilience refers to the spare capacity that allows continuation even
if some parts of the system are weakened or stop functioning.
In addition, it is noteworthy that Hayek in his later writings uses the concept
of resilience as part of arguments about limits of knowledge regarding how
systems respond to shocks and critiques of assumptions of returns to
equilibrium; see Walker and Cooper 2011.
15
importing the hidden assumption of a previous equilibrium, a normative bias towards the preservation of pre-existing states, and treating
pressures for change as unwelcome external threats. Most important,
resilience may depoliticize processes whereby social phenomena are
maintained.
To avoid the pitfalls and hidden assumptions in its many different
disciplinary applications, we begin by defining the concept as it is
reflected in ordinary language usage, in terms of the synonyms found in
the dictionary, including flexibility, elasticity, plasticity, adaptability,
and suppleness. We also note that the central definition in social science
is a capacity for successful adaptation in the face of disturbance,
stress, or adversity.42 When applied to neo-liberalism, however, we
go beyond the identification of these qualities of resilience to place it
explicitly in time, as a process that has taken place over several decades,
with important variations in time, place, and domain. Equally, we
identify key actors involved in creating such resilience to discuss their
interests, views, and interactions, as well as the wider institutional
framework within which they operate. We also discuss both internal
and external pressures on neo-liberalism and give special attention
to the processes or mechanisms that promote resilience, as well as
the feedback effects that serve neo-liberalism through supportive and
reinforcing processes. Finally, we do not view challenges to neo-liberal
ideas as a threat to some form of equilibrium. Rather, we perceive
such ideas and their resilience as part of political processes involving
different aspects of power, such as actor interests and institutions.
Our usage of resilience refers to ideational resilience in policy
debates and political discourse. To be more specific, we use the concept
of resilience to refer to neo-liberal ideas continuing to be the preferred
or assumed ideational approach in public discussions that is, considered the usual, standard, or conventional analytic framework, the
basic set of values or guiding principles, the main policy programme, or
the overarching discourse. Building on analyses of usage in the social
sciences,43 we specify three features of ideational resilience: (1) the
continuity of neo-liberal ideas over time, including their endurance,
recurrence, and adaptability; (2) the dominance of these ideas against
alternatives and competitors; and (3) their survival not only in the face
42
43
See Norris et al. 2008: 129.

See Norris et al. 2008 and Walker and Cooper 2011.
16
of strong challenges but also despite their own failures. It is particularly

important to note that resilience incorporates the idea that neo-liberal
ideas face alternatives and are contested and that neo-liberalism
involves adaptation and extension to new spheres.
Neo-liberal resilience as continuity
Continuity can be seen in the endurance or recurrence of core neoliberal themes over decades and in their adaptability, as they meet
changing conditions and circumstances. Forms of continuity include
not just straightforward stability but also recurrence when new versions of old ideas are reintroduced in new times and places. The processes that contribute to the continuity of neo-liberal ideas (running
in parallel or inspired by work on institutions) include bricolage,44
conversion,45 diffusion, and translation.46
When applied to ideational continuity, bricolage involves new elements being grafted onto older ideas. One major instance is the equation of the states finances to those of households and the conviction
that the state should avoid long-term budget deficits and hold down
public debt, if necessary, by engaging in austerity, even in times of
low growth.47 Conversion sees old ideas being used in new ways. It
helps to describe, for example, the shift in this recurring theme from
the 1920s, when reduction of state spending was framed as protecting
money as a store of value, to when it returned as austerity to prevent
inflation and arguments about no bailouts and sustainable debt in the
Eurozone.48
Diffusion involves the spread of neo-liberal ideas, whereas translation means the adaptation of such ideas to new contexts. Both
lead to the integration into local philosophies of neo-liberal principles
developed elsewhere. One example of diffusion and translation is the
movement of neo-liberal ideas from countries that fully embraced neoliberalism to those that did so only partially. Thus, in Germany and
Sweden, even though neo-liberalism conflicted with traditional socialdemocratic and corporatist ideas, some key neo-liberal principles (e.g.,
use of markets to allocate resources or competition) were adopted
from elsewhere, translated into more nationally relevant terms, and
44
45
47
See Swidler 1986; Campbell 2004: 6974; and Carstensen 2012.

46
See Streeck and Thelen 2005.
See Campbell 2004: 7785.
48
See Gamble in this volume.
See Jones in this volume.
17
then integrated with these traditional ideas. The results were a recasting or renewal of social-democratic ideas with new neo-liberal elements, making for hybrids of corporatist-managed liberalization in
which social partners are important participants with management
in ensuring firms international competitiveness.49
Neo-liberal resilience as dominance
The second element of neo-liberal ideational resilience is dominance
in debates such that it tends to crowd out other ideas, both in existing
domains in which it predominates and in new domains. Such dominance, first and foremost, takes the form of hegemony, in which
certain core beliefs structure debates in the policy and/or the political
spheres whether we use the language of Gramsci or of paradigms
to elucidate this.50 One such hegemonic or paradigmatic belief is the
beneficial nature of competition observed in fields as diverse as regulation of commercial markets, banking, and welfare provision with
the concomitant need to reduce barriers to competition in all domains
while disregarding any damaging effects.51 Another such belief is that
the state is inherently less efficient than the private sector and that,
although necessary for markets, it is always prone to failure and unjustified expansion.52
A second form of dominance is neo-liberalisms powerful capacity to
disseminate its principles widely to new domains or places. Thus, for
instance, at the EU level, neo-liberal ideas of the value of competition
have grown from a primary focus on economic markets to areas that
were traditionally the preserve of state monopolies designed to provide public services, such as telecommunications, energy, postal services, and railways.53 Similarly, neo-liberal arguments about the dangers of state intervention that were originally focused mainly on state
planning and industrial policy have extended into areas such as regulating financial markets.54
49
50
51
52
53
54
See Schnyder and Jackson in this volume.

On hegemony, see the many works that build on Gramsci, including Laclau
and Mouffe 1985; Overbeek and Apeldoorn 2012: 45; and Apeldoorn,
Drahokoupil, and Horn 2008.
See Ferrera, Mugge,
and Thatcher, all in this volume.
See Schmidt and Woll, Vitols, and Hay and Smith, all in this volume.
See Thatcher 2007 and in this volume.
in this volume.
See Mugge
18
Ideational dominance also involves the exclusion of alternative ideas

as illegitimate, whether on normative grounds regarding their inappropriateness or on cognitive grounds because of their lack of practicability. For example, in corporate governance, ideas of shareholder value
that originally sat alongside other principles such as stakeholder value
gradually came to dominate thinking at the EU level, as the latter came
to be increasingly portrayed as impracticable.55 Exclusion of alternative ideas, even if regularly used in the past, has been even more marked
in monetary policy, from monetary financing of state budget deficits
to takeover of failing banks or providing deposit guarantees. Such
exclusions have been justified by invoking supposed legal constraints
or shared ideational frameworks, which Jones (in this volume) labels
the BrusselsFrankfurt consensus.
Neo-liberal resilience as survival
Resilience does not mean that neo-liberal ideas remain uncontested.
On the contrary, the term also signifies the capacity to fend off actual or
potential ideational competitors, even when they appear equally if not
more successful in practice. One such alternative was represented by
the postwar period of Christian and Social Democracy, which offered
the glorious thirty years of industrial development and the golden
years of the welfare state, in which European economies guided by
ideas of cooperation, corporatism, and/or statism operated successfully
within an overall international regime of embedded liberalism.56
In the battle of ideas, neo-liberalism also faced alternative
paradigms and frameworks that traditionally have been powerful in
Europe notably Marxism and Socialism as well as Christian and
Social Democracy.57 Neo-liberalism has additionally been confronted
with strong resistance in particular countries, whether those marked by
statist traditions such as France, which resisted neo-liberal rhetoric,58
or corporatist or coordinated market economies, which provided a
different view of how markets could be structured and operated.59
Although these alternatives also may have been weakened in the
55
56
57
58
59
See Vitols in this volume.

See Ruggie 1982, Shonfield 1965, and Katzenstein 1978.
Cf. Helleiner 2003 and Blyth 2002.
See Gualmini and Schmidt in this volume; see also Schmidt 2002, 2009, and
Fioretos 2011.
See Lehmbruch and Schmitter 1982 and Hall and Soskice 2001.
19
1980s and 1990s, they have remained.60 In the 2000s, moreover, policy makers, academics, and commentators sometimes drew on these
diverse approaches to attack neo-liberalism, in particular using the
example of the economic successes of countries farthest away from
neo-liberalism not only the Nordic countries with their continuing social-democratic traditions but also Germany, whose coordinated
market economy suffered less from the housing boom and subsequent
bust and which recovered much more strongly than, for instance, the
more neo-liberal United Kingdom.
Yet, despite the challenges, neo-liberalism has not simply survived,
it has also renewed its ideas on a continual basis so as to become and
remain dominant. That dominance has ensured that it has come to
define the terms of discussion and contestation. Such resilience can be
seen as all the more remarkable given the challenges resulting from
neo-liberalisms own apparent failures. European countries that since
the 1980s drew on neo-liberal ideas for policy reforms such as
public-spending constraints, privatization, liberalization of markets;
and regulatory, labour, and welfare reforms have (in diverse measure) suffered from economic problems: high unemployment, low or
at least uneven growth, increasing inequalities, and rising poverty.
They have also experienced major market booms and busts on a regular basis. The most recent crisis alone would have been expected
to call neo-liberal ideas into serious question. The experiences since
the 1980s make the period of Social and Christian Democrat, corporatist, and socialist idea(l)s of the 1950s and 1960s appear as a lost
halcyon period compared with the period since the 1980s. Even the
much-maligned 1970s are attractive for many in terms of economic
prosperity. Yet, despite a brief moment of apparent retreat in 2008
2009, neo-liberal ideas have not succumbed or been replaced with
alternatives.
Forms and levels of neo-liberal ideas
Analysis of neo-liberalisms ideational resilience can also benefit from
a consideration of the variety of forms at different levels of generality
in which neo-liberal ideas are cast. They may appear as ideologies or
as frames of reference that set an all-encompassing perspective, narratives about why new policies are necessary and appropriate, problem
60
Cf. Hancke, Rhodes, and Thatcher 2007.
20
definitions that frame issues and create shared meaning, or as strategic

weapons in the battle for control. They may also be institutionalized
through formal powers, norms, and objectives of organizations, as
the informal rules and everyday practices of ordinary people; or they
may be embedded in the political and moral vocabulary used in the
discussion of market and state problems.
The multiple forms of neo-liberalism make the concept difficult to
capture fully. This may well be an inherent part of its nature and an
explanation for its resilience, which we explore under the five lines of
analysis discussed herein. For now, we seek to create a minimum degree
of order by drawing on the literature about typologies of ideas. This
offers many categorizations, but a key common element is that ideas
arise at different levels of generality. We distinguish three: philosophical principles or worldviews, programmatic ideas, and specific policy
ideas and proposals. This may be important both for understanding
neo-liberalism and for explaining its resilience because different levels
of generality can experience diverse potential trajectories of persistence
or change.
At their most general level, neo-liberal ideas constitute philosophical
principles that may be embodied in worldviews, ideologies, normative
values, or discourses about how markets and states work and what
is therefore appropriate political economic action in the world. These
may be seen as a set of philosophical ideas or discourse united by
a core set of values focused on individualism, free markets, and a
strong but limited state; or the worldview of the followers of Friedrich
Hayek, as Gamble elaborates in his chapter; or as an ideology that
combines philosophy with a political programme, as Ferrera argues
in his chapter. These types of philosophical ideas are often at such
a deep level that they can become taken-for-granted ideas that are
not even questioned. This is how Foucaults (2004) exploration of the
overarching ordo-liberal discourse of the state can prove useful for
understanding how such a philosophy could be the unquestioned and
almost unquestionable approach to economic policy in Germany from
the 1950s onwards.61
At an intermediate level, we find programmatic ideas represented by
neo-liberal problem definitions or analytical frameworks that define
61
See Foucault 2004.
21
what types of actions states and markets can or should undertake.

Such programmatic ideas can be highly influential in limiting policy
debates and alternatives because they tend to set the definitions, goals,
objectives, and instruments for economic growth, as Hay and Smith
outlined for the Anglo-liberal growth model and as Thatcher has done
for the regulatory model of the EU Commission.
Finally, at the most immediate level, we find the policy ideas contained in the neo-liberal policy proposals, aims, and political discourse
applied to particular situations. These may be highly specific and limited, concerning individual policies or even policy instruments. They
may be grafted onto different types of policy programmes, regardless of
their underlying philosophy. One illustration of this is what happened
during the Eurozone crisis, in which new policy ideas in response to
the crisis often violated the policy programme and even the underlying
philosophy of the BrusselsFrankfurt consensus, as Jones notes in his
chapter.
Many theories suggest that philosophical ideas generally persist over
long periods. Programmatic ideas tend not to have as much staying
power but are more lasting than policy ideas which are open to
more rapid shifts because they may be compatible with many different
wider programmes and philosophies. Thereafter, the speed and nature
of ideational change are a matter for debate. One view is that change
in paradigms is rare but, when it occurs, it happens comprehensively
at moments of crisis with systemic ideational shifts, as in Kuhns view
of change from one incommensurable paradigm to another.62 Another
view is that change in paradigms or programmes is rare but, when
it occurs, it happens slowly in a dialectical process of market movement and social counter-movement,63 producing what Blyth called
a moment of Great Transformation.64 A third view is that change
is gradual and evolutionary, the result of incremental processes and
discursive struggles among elites.
Our expectation is that a close fit among rates of change across
the three levels of ideas should not be assumed given the multiple
forms and levels of neo-liberal ideas. Indeed, our chapters sometimes
indicate significant contrasts in the resilience of neo-liberalism across
the three levels. Thus, for instance, policy programmes can change even
62
See Kuhn 1970.
63
See Polanyi 1945.
64
See Blyth 2002: 3444.
22
as the underlying philosophy remains the same, as in the progression

from the conservatives 1980s neo-liberal programme of state rollback to the Social Democrats 1990s neo-liberal programme of state
roll-out, as discussed by Schmidt and Woll in their chapter. Equally,
whatever their philosophical or programmatic ideas, policy makers
have sometimes adopted rather different specific policy ideas, such
as those concerning unorthodox monetary instruments by the ECB
after the 2010 state-debt crisis. Conversely, philosophical ideas can
return again and again, albeit pursued through new instruments and
in different guises or disguises. One example is the idea of sound
finances, or the metaphor in which state finances are treated as the
same as those of private households, as Gamble discusses in his chapter.
Thus, changes at one level of neo-liberal ideas can be compatible or
even aid resilience at another.
Agents of neo-liberalism
Understanding the resilience of neo-liberal ideas also involves identifying the ideational agents the actors who not only implement
these ideas but also construct and reconstruct them. The relationship
between agents and ideas is closely linked to wider debates between
positivists and constructivists about the role of ideas.65 At the positivist
end of the continuum, neo-liberal ideas may be cast primarily as legitimating devices for interests, with analysis focused on how and why
actors are able to apply neo-liberal ideas in pursuit of their goals. At
the constructivist end of the continuum, neo-liberal ideas have central
roles in policy making, including strategic ideas that serve as guiding
frameworks, as paradigms that set the frame for understanding, or as
weapons in the battle of ideas. Whereas positivists examine actors
strategic use of ideas, constructivists perceive ideas as constitutive,
shaping agents definitions of their interests.
We do not take a stand in the positivistconstructivist debate. One
reason is that contributors offer evidence that draws on both views of
ideas and the supposed conflict between the two extremes is rarely
seen empirically. Neo-liberal ideas can serve the (perceived) interests of major actors such as the European Commission, political and
65
For different views see for example Goldstein and Keohane 1993; Jobert 1989;
Onuf 1989; Hall 1993; Wendt 1999; Blyth 2002; Schmidt 2002, 2008;
Abdelal, Blyth, and Parsons 2010.
23
economic leaders, and financial firms and regulators.66 They can

shape actors problem definitions and views of what are acceptable
solutions.67 Moreover, they can frame the understandings of political
leaders at both national and EU levels, as ideas about the virtues of
competition, reduced state spending or the lack of alternative policies
become articles of faith unquestioned even in the midst of crisis.68
Regardless of positions taken in the positivistconstructivist debate,
our contributors analyses of neo-liberalism all serve to identify the
agents of resilience, who spread, develop, and sustain neo-liberal
ideas through interactive processes of communication.69 Such agents
can be considered ideational entrepreneurs, whether the policy
entrepreneurs or mediators of the comparative policy and political economy literature70 or the norm entrepreneurs of international
relations.71 Although they are mostly depicted as elites making topdown policy, such entrepreneurs can also be cast as activists in social
movements with bottom-up policy effects.72 Among elite ideational
entrepreneurs, we can identify three general types ideological, pragmatic, and opportunistic classifiable according to how, why, and to
what extent they took up and/or stayed with neo-liberal ideas.73 Each
played a part in the rise of neo-liberalism.
Ideological entrepreneurs can be seen as prime movers for neo-liberal
reform, offering a set of overarching philosophical ideas that inform
their policy programmes and ideas. These can be political leaders but
also intellectuals, such as the economists, philosophers, and historians who developed the ideas for neo-liberalism in the 1930s and
66
67
68
69
70
71
72
73
Vitols, and Orenstein, in this volume.

See Thatcher, Mugge,
this volume.
See Jones and Mugge,
See Thatcher, Gamble, and Schmidt and Woll, in this volume; see also Bermeo
and Pontusson 2012.
See, for example, Habermas 1996; Sabatier and Jenkins-Smith 1993; Haas
1992; Schmidt 2000, 2002, 2008; and Campbell 2004.
See, for example, Fligstein and Mara-Drita 1996; Jobert 1989; and Muller
1995.
See, for example, Finnimore and Sikkink 1998.
See Keck and Sikkink 1998 and Epstein 2008. See also discussion in Schmidt
2008.
Mahoney and Thelen 2009 use a similar set of actor categories but define them
in terms of what they have accomplished, as befits historical institutionalist
explanation. This categorization differs somewhat because these actors are
defined by their beliefs in the ideas they promote and their discourse about
them, whether or not they later may compromise those ideas in action.
24
then in the 1950s. They have also been technocratic elites, such as
unelected officials in central banks or regulatory organizations such
as the ECB or the Commission.74 Pragmatic actors, in contrast, tend
to be bricoleurs, cobbling ideas together, without a doctrinaire commitment to an underlying philosophy.75 Thus, with regard to neoliberalism, examples include leaders of the centre-left in the late 1990s,
such as Blair and Schroder,
who often sought to merge neo-liberal
ideas with social-democratic ideas. Finally, opportunistic ideational

entrepreneurs such as Berlusconi or Sarkozy have used neo-liberal
ideas (often temporarily) with little commitment but solely to gain
political power.76
Neo-liberal ideas have also been developed and spread by agents
outside the direct policy sphere. Such agents may be organized in
epistemic communities77 or discourse coalitions78 of loosely connected, like-minded converts who operate in academe, think tanks,
and professional networks, disseminating their ideas without necessarily having a direct or immediate impact on the policy-making process. Certainly, this describes the intellectual leaders of the neo-liberal
movement who operated initially through the Mont Pèlerin Societys
thought collective of like-minded individuals and who even if they
disagreed on specific questions shared enough in terms of values
and principled beliefs to jointly develop and widely disseminate the
results of their neo-liberal thinking.79 However, these individuals may
also be part of advocacy coalitions80 in their own countries, as members of think tanks, as public intellectuals, and as academics they
can join with policy makers or themselves become government officials and even leaders, as in the cases of Ludwig Erhard and Luigi
Einaudi.81
Economists and other types of experts have been at the forefront
of the generation and promulgation of neo-liberal ideas, in particular
74
75
76
78
79
80
2011.
Cf. Mugge
2011. For the sociological foundations of

See Carstensen 2011; cf. also Mugge
the term bricolage, see Swidler 1986; Campbell 2004; and Fourcade and
Savelsberg 2006.
77
See Haas 1992.
See Wittrock, Wagner, and Wollman 1991; and Hajer 1993.
See Fleck 1980 and Plehwe 2009: 35; see also Plehwe, Walpen, and
Neunhoffer
2006.
81
See Sabatier and Jenkins-Smith 1993.
See Blyth 2013.
25
through knowledge regimes in different national contexts.82 They are

important not only in generating neo-liberal ideas and in advising governments as in the role of neo-liberal economists in recommending
the mass privatization programmes in Central and Eastern Europe83
but also in implementing those ideas as heads of major national
institutions (e.g., national central banks and finance ministries) or of
supranational ones (e.g., the ECB, the EU Commission, and the International Monetary Fund [IMF]). Additionally, they are instrumental in
training new generations of economists who then put their ideas into
practice once they gain positions of power and authority.84 Scholars
have also shown that economists embed neo-liberal presuppositions in
the very instruments and analytic tools that have increasingly come to
be accepted not only by the players in the markets whose financial
models reshape rather than simply reflect the markets but equally
by the administrators of the state.85 Indeed, in economic sociology,
Jens Beckerts (2011) has developed the concept of fictionality which
suggests instead of being economically rational, economists and market actors elaborate imagined futures about what might happen and
then organize their activities based on such mental representations.
Here, through their effects on actors expectations, neo-liberal ideas
contribute to the constitution of markets.
Explaining resilience: Five lines of analysis

So how do we explain this resilience of neo-liberal ideas? We offer
five possible lines of analysis, linked to wider theories about political economy and ideas. The first line of explanation is about the core
principles and values of neo-liberal ideas, which provide it with a high
degree of malleability or plasticity. As a result, when neo-liberal ideas
are faced with internal and external difficulties, they can readily adapt
and reshape themselves via processes of metamorphosis, absorption, or
hybridization. The second concerns gaps between neo-liberal rhetoric
and the realities of its policies in practice. Paradoxically, such gaps
82
83
84
85
See, for example, Fourcade-Gourinchas and Babb 2002; and Campbell and
Pedersen 2010.
See Orenstein in this volume.
See, for example, Fourcade 2009; Mandelkern and Shalev 2010; and Ban 2012.
See Mackenzie 2006 and Mackenzie et al. 2007.
26
can actually be helpful to neo-liberal ideational entrepreneurs, allowing ideologues to continue to promote it as a set of principles and
values even (or perhaps especially) if its detailed policy programme
has been subject to compromise by the pragmatists or abandoned by
opportunists because of problems with the policies. A third line of
explanation focuses on discourse. This suggests that in the communication of the ideas, neo-liberal ideas can prove stronger in policy
debates than rivals, whether as a result of the seeming coherence of the
ideas, how they are framed, or how they are communicated.
The first three lines of analysis thus concern the nature of neoliberalism itself as a set of ideas; the final two concern the wider context
within which such ideas are set. The fourth line of explanation is about
the power of interests in the sense of self-interested agents who gain
from neo-liberal ideas. The fifth line of analysis concerns the force of
institutions, examining how institutional frameworks aid and support
neo-liberalism while hindering alternative ideas in ways explicable by
reference to different neo-institutionalisms.
In this section, we discuss the nature of the explanation offered by
each line of analysis and then its possible mechanisms and processes.
The concluding chapter examines how these five explanations have
played out in practice, with examples from the different empirical
chapters.
We see the five lines as distinct but complementary lines of inquiry.
It is crucial to emphasize that we do not seek to explain whether and
why policies are neo-liberal in their impact. Rather, we confine our
task to exploring the resilience of neo-liberal political economic ideas
as ideas in their different forms and at their different levels, from general worldviews and values to paradigms, to specific policy proposals as
they change or continue over time. In so doing, we also include the conflicts or contradictions in ideational processes both internal and external to neo-liberalism because, as discussed previously, we do not see it a
single, coherent set of ideas. Indeed, we find that, apparent weaknesses
or imbalances are often turned to neo-liberalisms advantage.
Neo-liberalisms ideational generality, diversity, and mutability

Neo-liberal ideas are often highly general and amorphous. They appear
to contain conflicting or even contradictory concepts that shift over
time, policy domains, or context. Thus, neo-liberal positions over the
27
state, regulation, welfare, or active labour-market policies have evolved

from seeking state retreat to advocating new forms of state action to
aid or enhance markets. Moreover, many of neo-liberalisms central
ideas, especially at the level of specific policy proposals, have suffered drubbings when subjected to rigorous scrutiny and investigated
in detail from workfare policies to the drive for competitiveness in
healthcare systems, or from introducing competition in network industries such as rail transportation to light-touch regulation in the finance
markets.86 Few policy makers accept the appellation because it often
has negative connotations, especially in Europe. Indeed, for some, the
neo-liberal label has become part of political rhetoric, albeit as an
almost meaningless insult.87
Although such criticisms of neo-liberalism as an analytical concept
may be valid, they miss a key point: as a political attribute, generality,
diversity, and mutability are some of neo-liberalisms strongest suits.
Neo-liberalism can be viewed as a core set of first principles rather
than as a specific and falsifiable set of positive theories or doctrines or
proposals. The resilience of neo-liberalism benefits from its core principles over time as well as in their openness to diverse interpretation
and application.88 The very generality and plasticity of neo-liberalism,
which make the concept seemingly amorphous and difficult to define
precisely, are key reasons for its resilience.
This explanation suggests that the high level of generality of neoliberalisms first principles focused on competitive markets and a limited state, combined with their great malleability, enable it to undergo
many different permutations, not only to survive but also to dominate.
This includes progressing from hostility against the state to the desire
for a strong state, from highly permissive neo-liberal deregulation to
ordo-liberal restrictive re-regulation, from passive reduction of social
spending and job protections to active use of welfare to promote market efficiency via active labour-market policy. Equally, the avoidance
of the neo-liberal appellation increases the difficulty for its opponents
to identify their object of attack, while permitting the adoption (in
many diverse forms and to different extents) of its ideas by a varied range of political actors from Berlusconi to Blair, from British
86
87
For academic critiques across several economic domains, see, for example,
Crouch 2011 and Harvey 2005.
88
See Hartwich 2009.
See Brenner, Peck, and Theodore 2010.
28
Conservatives to Scandinavian Social Democrats, from campaigners

against state interference to national and European officials and regulators.
Far from being a weakness, internal theoretical contradictions and
external political conflicts may fuel the growth of neo-liberalism. They
produce a highly adaptable set of ideas, able to survive hostile climates
and external challenges. We could even say that they offer a large menu
of choices of ideas and proposals according to tastes.
Neo-liberalisms generality and breadth may contribute to its
resilience through several mechanisms and processes. One mechanism is metamorphosis. Constantly shifting policy ideas not only allow
neo-liberalism to grow, develop, and spread but also permit its relabelling so that past ideas return in new (dis)guises. Metamorphosis
permits the proponents of neo-liberal ideas to evade paying the price
of past scrutiny, as ideas that were discredited in previous periods
recur, returning in new guises. Examples abound, such as the 1920s
discourse of sound money reappearing in the 1970s as monetarism
and in the late 2000s as sustainable debt. As such, neo-liberalism can
be likened to the hydra with many heads of Greek mythology: cut off
one head and two pop back up.
Absorption is a second mechanism. As tensions and even contradictions multiply among neo-liberalisms different philosophical principles and theories or among its principles and more specific policy programmes and ideas, so its loose and flexible framework may develop
by absorbing other ideas, changing labels, and extending its scope. The
reform of the welfare system is a case in point, when different social
democratic elements were incorporated in neo-liberal initiatives, particularly beginning in the 1990s.
A third mechanism is hybridization. In this case, instead of a fight to
the finish with apparent ideational competitors, neo-liberal principles
are often married to them to produce new versions and hybrids of
neo-liberalism. This was mostly the case for countries with strong
corporatist labourmanagement relations. All three mechanisms attest
to the mutability of neo-liberal ideas as they undergo metamorphoses,
absorb other ideas, or combine with yet others.
The nature of neo-liberalism as an overall orientation suggests that
high generality, lack of internal coherence, and conceptual fuzziness may be advantageous for ideational resilience. However, the
29
explanation also requires identification of political processes and

actors, as well as the context within which they operate. Hence, it
invites consideration of other explanatory factors, such as how the
generality and breadth of neo-liberalism relates to policies, rival ideas
and discourses, interests, and institutions.
Neo-liberal rhetoric versus reality or the benefits of

non-implementation
Neo-liberalism has faced wide gaps between its rhetoric and the reality
of its policies in practice. Already in the 1980s and 1990s, the soaring
claims of rolling back the state and deregulation made by politicians
such as Thatcher and Reagan turned out to be hollow in practice. But
gaps seemed to increase with the 20072008 crisis. Thus, assertions
about allocation through efficient markets as opposed to the inefficient state faced the reality of disastrous private-market decisions and
state bailouts of large companies, including large financial institutions
who had been the beacons of private markets. Equally, the rhetoric of
cutting back the state contrasts with increases in state size and market involvement after 20072008 due to stimulus packages, increased
welfare spending, and state aids. Finally, far from being seen as most
successful, the most avowed neo-liberal countries in Europe notably
the United Kingdom and Ireland experienced sharp recessions after
20072008 and relative failure compared with countries that were
more reticent about neo-liberalism, such as Germany and Sweden.
Such gaps between the rhetoric and a different reality might have
been expected to weaken neo-liberalism; however, their continued
reappearance suggests the opposite. Hence, this second line of analysis offers what may seem to be a paradoxical explanation: instead of
undermining neo-liberalism, the gap between neo-liberal rhetoric and
the implementation of those ideas actually aids resilience.
Different mechanisms for this second explanation can be hypothesized. First, neo-liberalism may be closer to a religion or ideology than to a practical set of policies. Proponents of neo-liberalism,
in other words, may believe fervently in certain basic philosophical
ideas on which they base their programmatic ideas, regardless of the
practicability. Moreover, because these are normative philosophies and
not positive theories that might be falsified by contrary observations,
30
proponents are likely to conclude if implementation fails that compliance was insufficient rather than that the theory was wrong. The
result is pressure for more neo-liberalism, not less, as in the Eurozone
crisis, in which the demands from Northern Europeans included tightened enforcement and punishment of the sinners to the detriment of
their economies.89
Alternatively, proponents can be opportunistic leaders, who adopt
the policies only to win elections before then abandoning them when
they prove too controversial or unpopular. French Prime Minister
Chirac in the mid 1980s and Italian Prime Minister Berlusconi in
the early 2000s are examples.90 Furthermore, proponents can be pragmatic ideational entrepreneurs, willing to compromise in order to push
through at least some elements of their programme, as in the case of
Prime Ministers Tony Blair in the United Kingdom and Mario Monti
in Italy.91 In any of these four cases, lack of implementation could
be used to reinforce the argument that more neo-liberalism is needed,
based on a view that its proponents were inadequate (i.e., the ideological entrepreneurs) or betrayed the cause (i.e., the opportunistic and
pragmatic entrepreneurs).
More generally, lack of implementation allows neo-liberal supporters to claim that their policies have never actually been tested in practice and protects them from blame for specific policy failures. This is
significant because many neo-liberal policies such as cutting public spending, reforming welfare, and reducing regulatory protection
are difficult to implement and extremely unpopular politically. At
the same time, lack of implementation can preserve neo-liberalisms
apparent political virginity.
The implementation gap may even directly benefit neo-liberal supporters, notably in political arenas. It can divert attention from the
messy difficulties of policy making, pointing to the sunny uplands of
the future. It can also provide supporters with a simple (or even simplistic) poster child with which to contrast alternatives, which can be
painted as failed, corrupt, and old-fashioned. Indeed, the rhetoric of
neo-liberalism may be precisely designed not for implementation but
89
90
91
Our thanks go to Fritz Scharpf for this insight. See also Jones in this volume
and Scharpf 2012.
See discussion in Schmidt and Woll in this volume.
31
rather to alter the terms of political debate in ways that advantage

its supporters and disadvantage its opponents notably, carriers of
alternative ideas.
This line of analysis underlines the political nature of neo-liberalism
and the ways in which policy may be subordinate to politics. However, it then points to other questions: Why is neo-liberalism an attractive option for offering impracticable ideas? Why is neo-liberalism not
replaced with other ideas that are practicable? Which actors press for
neo-liberal ideas and how do they benefit from them? How are neoliberal myths sustained over time?
The strength of neo-liberal ideas and discourse in

policy and politics
A third line of explanation lies in the strength of neo-liberal ideas
in policy debates and political discourse. For academics, who view
neo-liberal ideas as highly flawed and neo-liberal discourse as mere
rhetoric, it may seem surprising (if not painful) to think them worthy
of serious consideration. However, we are concerned here with how
ideas are developed, perceived, communicated, and received in the
policy arena and the political sphere not which are academically
strong. Moreover, strength is relative. Despite the problems of neoliberal ideas, critiques may have been limited and alternatives even
weaker, at least in policy debates.92
This explanation lies in the realm of the production and development
of ideas, as well as in their dissemination through discourse.93 It thus
takes ideas and discourse as the explanatory variable for their own
resilience they are not reduced to the effects of other factors.94 It
differs from the first explanation in that neo-liberal ideas here remain
resilient by winning in the battle of ideas, in discursive struggles
against opposing alternatives, and even in the deliberative processes of
argument and persuasion.
One mechanism by which neo-liberal ideas win over alternatives may
arise from the content of the ideas themselves and the completeness
of their seeming answers to current problems in both cognitive and
92
93
Cf. Peck, Theodore, and Brenner 2009: 103.

Cf. Blyth 2002, Hay 2001, and Schmidt 2008.
94
Cf. Blyth 2002.
32
normative terms. Neo-liberal ideas may offer (or appear to offer) a

more coherent account of the usefulness and necessity of their proposed
initiatives than rivals such as Social or Christian Democracy, given
new constraints, especially international constraints including global
competition, large capital markets, and massive cross-border financial
and other flows. Similarly, the neo-liberal discourse that promises to
rein in spending, with appeals to the virtue of sound finances using
the metaphor of the household economy, may resonate better with
ordinary citizens than the Keynesian counterintuitive proposition to
spend more at a time of high deficits and debts.
A second mechanism is related to how neo-liberal ideational
entrepreneurs use their ideas to frame current problems,95 offering a referentiel, or frame of analysis, through which to interpret
events96 and developing narratives and storylines to weave together
policy prescriptions, policy programmes, and philosophical principles
into a seemingly coherent account of what happened and why. They
may additionally create metaphors, myths, and symbols to bolster their
message. Here, self-reinforcement also occurs as subsequent events are
interpreted through neo-liberal lenses. Thus, for example, even apparent failures of neo-liberal inspired policies (e.g., recession arising from
austerity) become lessons in the importance of avoiding excessive
state spending.
Framing can be linked to a third and often powerful mechanism:
political discourse that successfully communicates neo-liberal policy
ideas while crowding out or disadvantaging alternatives. Neo-liberal
ideational entrepreneurs widely disseminated their ideas. This happened first in the coordinative discourse among policy actors, as
neo-liberal ideas were generated by think tanks or thought collectives
(e.g., the Institute of Economic Affairs in Britain and the Mont Pèlerin
Society).97 They were then circulated by elite epistemic communities,
promoted by politically connected advocacy coalitions, and adopted
by powerful ideational entrepreneurs who translated and communicated them into language accessible to the public. Many neo-liberal
ideas are are highly suitable for this communicative discourse through
which ideas are conveyed to the public: they are easy to understand
95
97
96
See Jobert and Muller 1987 and Muller 1995.
See Rein and Schon
1994.
See, for example, Denham 1996 and Plewhe 2009; on welfare in Britain and
Germany, see Pautz 2012.
33
and resonate with common sense and with deep values and (interpreted) personal experience.98 This makes them easier to communicate
than many rivals and also highly attractive to political parties, commentators, and second-hand dealers and bricoleurs of ideas, who
can combine them with other concepts or philosophies, from Social
Democracy to statism.99
Neo-liberal ideas also may serve to reconceptualize the interests and
priorities of agents. For example, with regard to labour markets, neoliberal ideas challenged the postwar ideal of organization via corporatist relations between management and unions, with a new frame in
which businesses should determine wages in decentralized labour markets, whereas labour unions were presented as damaging firms and
the economy. Multinational businesses, in particular, largely reconceptualized their interests in this way, even in corporatist countries,
as they increasingly pressured unions to agree to greater flexibility in
wages and working conditions and governments to legislate structural
reform.100
The power of interests as the winners from neo-liberalism

Interest-based analyses view ideas as tools wielded by self-interested
actors. In contrast to the third line of explanation, the values and priorities of such actors are not changed by ideas instead, neo-liberalism
is utilized by actors to achieve their aims. Hence, a fourth line of
explanation is that debates about economic policy have been captured
by powerful interests (a claim made by critical political economists
in particular).101 Those interests have promoted and sustained neoliberal ideas because they gain from them. They are able to prevent
alternatives to neo-liberalism (which exist and may well be stronger
in intellectual and policy terms in contrast to the third explanation)
from being accepted in policy debates because of their power, whether
economic, institutional, or coercive. This suggests a process whereby
self-interested actors promote neo-liberal ideas that, in turn, produce
98
99
100
101
See Schmidt 2002, 2006, and 2010.

See Carstensen 2011 or, for national examples, Schnyder and Jackson, Hay
and Smith, Orenstein, and Gualmini and Schmidt, all in this volume.
See Schnyder and Jackson, and Martin, both in this volume.
See, for example, Harvey 2005 on the construction of consent. See also
Overbeek and Apeldoorn 2012.
34
policies that enable them to pursue their interests, whether in terms of

political power or material gain. The result is a self-reinforcing process
between ideas and self-interested actors.
An interest-based analysis examines the resources, strategies, and
coalitions of actors in developing and promoting neo-liberal ideas.
Unlike the third line of explanation, interests usually refer to coalitions of actors. Economic actors firms, their senior managers, and
their associations, as well as institutional investors comprise the
most obvious starting point because they are at the heart of neoliberalism.102 However, political parties and elected politicians may
also have important roles. Unelected officials are also significant not
only civil servants but also members of non-majoritarian institutions
that have spread and gained powers in Europe since the 1980s, including independent regulatory authorities, the European Commission,
courts, and independent central banks.103 Finally, powerful individuals can also contribute, for example, by forming coalitions that press
for fiscal rigour, competition, free trade, and other neo-liberal ideas.
This line of explanation suggests that these actors promote neoliberal ideas for self-interest. Such actors may benefit materially,
notably through lower taxes (especially on large firms and rich individuals) or through the new opportunities opened up by deregulation
and privatization, either through the reduction in constraints on business activity or to provide services no longer guaranteed by the state.
In the United States, Hacker and Pierson argue that business interests in particular have gained in organizational power since the 1980s,
whereas labour and voters have lost, and that they have used this power
to promote the enactment of inequality-enhancing policies as well as
to engineer institutional drift through resistance to the updating of
policy, thereby benefitting themselves and the very rich.104 Politicians
also can gain by using neo-liberal ideas to win elections and achieve or
retain political power. Neo-liberal discourse can supply political parties with valuable weapons in elections and in political debate. They
can provide justifications for policies that benefit their supporters and
disadvantage their opponents. Equally, they can provide justification
for additional powers to be transferred to non-majoritarian institutions
in the name of efficiency and competition.
102
103
Cf. Crouch 2011 and Harvey 2005.

104
Cf. Coen and Thatcher 2005.
See Hacker and Pierson 2010.
35
There are several mechanisms that link self-interested actors and

support for neo-liberal policy ideas. One mechanism is through such
actors production of ideas for both policy agendas and political programmes. In contrast with our third line of analysis, which focused on
the content, framing, and discursive presentation of ideas, this fourth
line of analysis considers the strategic construction and use of neoliberal ideas by self-interested actors, whether or not they believe in
them.
Interests can also create coalitions in support of neo-liberal ideas,
offering a second mechanism for their influence. Here, the causality suggested in the third explanation is reversed: coalitions promote
ideas rather than ideas acting as glue for coalitions. This mechanism
can be observed through evidence such as funding for think tanks or
associations that develop and disseminate neo-liberal ideas.
Finally, communicating and persuading people about (or, in the
cruder language of advertising, selling) neo-liberal ideas represent a
third mechanism. This highlights the important role not only of politicians in popularizing neo-liberal ideas but also that of the media in
propagating them. The media may have links to proneo-liberal interests, from political parties to firms and individuals, through ownership
or mutually beneficial exchange relationships as in the cases of Rupert
Murdoch and Silvio Berlusconi.
Feedback mechanisms are also important in this fourth line of analysis. One feedback process can take the form of policies inspired by
neo-liberalism that increase the power of self-interested actors to further promote their self-interest. This has certainly been the case of
deregulatory policy ideas promoted by financial-market actors, who
only became larger and more systemically powerful as those ideas
were implemented (and, in turn, could invest more in lobbying and
promoting neo-liberal ideas).105 A second mechanism builds on the
first because as actors gain in power, they are likely to broaden their
initial coalition. This may be true because others are won over to neoliberal ideas, as in the case of European competition policy, or because
if they cant beat them, they join them, as in the case of the centre-left
accepting neo-liberal ideas in the UK and elsewhere beginning in the
1990s. A third feedback loop is one in which the content of the ideas
105
See Lindblom 1977 and Block 1977.
36
(as in the third line of analysis) serves to reinforce the power and interests of the actors using those ideas for their own strategic purposes.
This may be especially relevant in cases of what Pepper Culpepper
calls quiet politics, in which business interests enjoy more room for
influence because of the high level of technicality of the policy ideas
under discussion, as in the case of corporate governance.106
However, whatever the mechanisms of support or of feedback, selfinterested actors along with the ideas they convey all take place in
given contexts. These contexts meaning the institutional framework
within which they are played out are also significant.
The force of institutions as constraints and opportunities

An institutionalist analysis emphasizes how institutions shape the
endurance, dominance, and survival in the face of challenges of neoliberal ideas rather than how neo-liberal ideas have influenced institutional formation. Multiple definitions of institutions exist; however,
here, we mainly use the term to refer to formal organizations and
formal and informal rules and regularities.107 Hence, the explanation
can point to organizations and formal structures that shape the incentives for actors or that determine the venues for political discourse
and debates, legal rules that influence the choices available, and social
norms that affect which rules are regarded as practicable or legitimate.
One basis for this line of analysis comes from a well-developed literature that claims that institutions are crucial for the spread and
implantation of ideas. Thus, for instance, Peter Hall108 and Margaret
Weir and Theda Skocpol109 argue that the adoption of ideas, whether
major new paradigms such as Keynesianism and monetarism or specific policy ideas, depends on whether they are congruent with existing institutions which means the extent to which they are practicable
within existing national institutions and, hence, compatible with the
institutionally shaped interests of key policy actors.110 This offers a
106
107
108
110
See Culpepper 2011.

Here, to avoid confusion, we start by restricting our definition to formalized
institutions and rules, as opposed to a more constructivist definition of
institutions, in terms of the meanings they hold for the agents who
constructed them and are structured by them.
109
See Hall 1984, 1986, and 1989.
See Weir and Skocpol 1985.
However, see the critique by Blyth (2002: 2027), who argues that this then
cannot explain the spread of transformative ideas.
37
powerful explanation for the differential spread and re-interpretation

of ideas across countries, helping to explain why neo-liberalism apparently was adopted more quickly and deeply in the United States and
the United Kingdom than in, for example, France and Sweden.
A separate school of thought, initiated in international relations,
argues that the dissemination of ideas also strongly depends on whether
they are institutionalized through organizational design, aiding in
their persistence.111 For neo-liberalism, this explanation would underline the creation and strengthening of organizations that promote
neo-liberal ideas.112 These may be non-majoritarian institutions such
as the European Commission, courts, or independent central banks
and regulatory agencies that spread from the 1980s onwards113 but
also new or strengthened private bodies such as credit-rating agencies
or standard-setting bodies that have acquired an important role in
economic markets.114 Certainly, the institutionalization of neo-liberal
ideas in the EUs highly independent non-majoritarian institutions
such as the ECB, with the focus of its charter on price inflation,
or the European Commissions Directorate-General for Competition,
charged to focus on competition attest to the importance of institutional design.115
Historical institutionalism, moreover, suggests that once ideas are
institutionalized, they represent powerful forces for continuity. This
may occur through the path dependence of existing ideas, the constraints on innovation, and on alternatives.116 It may also occur
through incremental change that involves keeping existing institutions,
notably via layering of new institutions onto old ones; permitting drift
of present institutions; or conversion of old institutions.117 The successive pacts for stability in the Eurozone beginning with the Stability and Growth Pact that consecrated the 1990s Maastricht criteria
111
112
113
114
115
117
See Goldstein 1993 and Goldstein and Keohane 1993; see also Blyth 2002.
This explanation may come close to the fourth one namely, interests.
However, there are two differences: a historical institutionalist approach
examines changes in organizations as the explanation, whereas an
interest-based approach based in rational-choice institutionalism takes them
as fixed; sociological or historical institutionalist analyses of organizations
treat them as following inherited or given behaviour rather than acting as
rational self-interested actors.
See, for example, Thatcher and Stone Sweet 2002.
and Mattli 2011.
See Kerwer 2005 and Sinclair 2005, 2010. Cf. Buthe
116
See Thatcher and Jones, both in this volume.
See Pierson 2004.
See Streeck and Thelen 2005 and Mahoney and Thelen 2009.
38
for monetary union and culminating with various pacts during the
Eurozone crisis ensure that neo-liberal ideas about fiscal consolidation, regardless of their failure to solve the crisis, have created path
dependence for the rules of EU monetary policy that will be difficult to
reverse.118 Moreover, the heavy investment in ideas about competition
and efficient markets, along with their institutionalization through legislation, constrains the espousal of ideational alternatives that could
be organizationally risky, as indicated by the contortions of the ECB
to justify exceptional measures to respond to the crisis.119
Sociological institutionalists go even further, viewing institutions
as also serving to constrain and empower actors.120 Mechanisms
of ideational influence and reproduction result from institutional
isomorphism, whether through mimetism, normative processes, or
coercion.121 Neo-liberal ideas as such may be seen as a form of fashion
to be copied or taken as a recipe to be applied, adopted, or adapted
by other countries in a wide range of domains. Institutional actors
such as the IMF, the EU Commission, and the ECB, as well as governments in most European countries, have promoted such mimetism
at one time or another. However, they also often at the same time
have cast neo-liberal ideas as norms for policies as the only right
or legitimate thing to do, whether to reform welfare by linking it to
work or by viewing all debt as unsustainable. They have equally used
coercion in imposing neo-liberal ideas as the only ones available
as in the case of EU and IMF conditionality for Central and Eastern
European countries.122 However, coercion also can come indirectly
from the perceived threats of non-conformity with neo-liberal ideas,
whether from the shadow of the law hanging over policy debates in
domains as varied as fiscal policy, regulation, and welfare or from the
markets.
Thus, a fifth explanation for neo-liberal resilience is that, since the
1980s, institutions have come to provide support and opportunities
for neo-liberal ideas while conversely constraining and disadvantaging alternatives. However, the many different ways in which such
institutional resilience operates is more dependent on the theoretical
analysis used than in the other four lines of analysis. Whereas rationalchoice institutionalists will point to how organizations or formal rules
118
119
121

120
See Campbell 2004.
122
See DiMaggio and Powell 1991.
39
establish the incentives that affect actors calculations, thereby constraining change and structuring opportunities, historical institutionalists may focus on either the path-dependent constraints of selfreinforcing processes or the incremental processes that add opportunities, even as they constrain the direction of change. In contrast,
sociological institutionalists will look for processes such as mimetism,
normative legitimation, and coercion to emphasize that the resilience
of neo-liberal ideas comes not from superiority in a competition for
ideas but instead because of wider legitimation and existing power
structures. Finally, discursive institutionalists will return to the role of
discourse in the embedding of neo-liberal ideas in public debates and
discussions within differing institutional contexts. They may either
underline how discourse relates to the three other institutionalisms or
take a more constructivist approach by emphasizing how institutions
are constructions of meaning, as they structure thought and action.123
Conclusion
The term neo-liberalism often evokes powerful reactions from policy
makers and the public in many European countries. Frequently, it is
associated with unpopular policies, such as accepting greater inequality, imposing market competition, fiscal austerity, and reducing the
welfare state. A (usually smaller) body of opinion disagrees strongly,
viewing neo-liberalism as liberating individuals and firms from the
deadening hand of the state or monopolists.
Academics also react strongly to neo-liberalism. Many see it as a
negative or dangerous set of ideas or even an ideology, representing
a return to the past and a rejection of scientific progress. They focus
on its internal contradictions, its adoption of theories riddled with
weaknesses, and its oversimplification of complex problems. Equally,
they underline the repercussions of policies inspired or legitimated by
neo-liberalism. Others point to the difficulties of applying a term that
is often polemical, lacks boundaries, and whose policy prescriptions
conflict with one another and are in flux.
Our approach here differs from both the normative reactions and the
academic critiques of the term. We treat the resilience of neo-liberal
ideas as a political phenomenon to be investigated. We look at the
nature of such ideas, who holds them, how they are used, and of
123
See Schmidt 2000, 2002, and 2008.
40
course why they remain resilient. Regardless of our personal views

about their content, we see their place and continued dominance in policy debates and political discourse as a matter to be analysed using the
tools of political explanation. We do so by investigating the possible
reasons for its resilience, including the flexibility of its ideational content, the promises that remain unfulfilled or broken, its predominance
in debates, the strategic support from interests, and its embeddedness in
institutions. All of these reasons help to explain why neo-liberal ideas
continue not only to survive but also to dominate by defining how the
key questions in political economy today are conceived, which solutions are proposed, which debates about policy choices are available,
and which policy proposals are viewed as legitimate.
The resilience of neo-liberal ideas is one of the major themes of
our epoch the importance of the market, the size and role of the
state, the nature of the welfare system, the extent of competition,
the purposes and basis of regulation, the shaping of labour markets,
and the rules that govern corporations. Such ideas are at the core of
politics across many different domains and polities. The strength of
reaction to the concept of neo-liberalism alone indicates its importance. Indeed, in the light of Keyness powerful insight about the
ideational sources of economic decision making, we believe that investigating neo-liberal ideas is central to understanding Europes political
economy.
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part i
Economy, state, and society
Neo-liberalism and fiscal

conservatism
andrew gamble
The present period is one of economic turbulence but ideological stability. Despite the scale of the 2008 financial crash, there has not been, so
far, much sign of the type of shift in the ideas governing economic policy that followed the economic upheaval of the 1930s and the smaller
upheaval of the 1970s. The 1930s saw the emergence of Keynesianism and Social Democracy and the 1970s saw the emergence of to
monetarism and neo-liberalism. Although challenged by recent events,
for the moment neo-liberalism appears to be retaining its ascendancy.
How should we understand this resilience? How should we understand
neo-liberalism? These are the questions with which this chapter is concerned, and it makes three main claims. First, neo-liberalism is more
than simply a contingent reaction to Keynesianism and Social Democracy. Part of its resilience as a set of ideas is that it draws on perennial
themes of classical liberal political economy, particularly concerning
the nature of commercial society and the role of the state in a market
economy. Second, neo-liberalism is not a unified doctrine but rather
has several distinct strands, which can be contradictory. Third, one of
the most striking contradictions is in regard to neo-liberal attitudes to
fiscal conservatism. In terms of the typology developed in Chapter 1,
I argue that the resilience of neo-liberalism can best be explained by
the first three explanations: (1) the ideological malleability of its core
principles, (2) the gap between rhetoric and reality, and (3) the ways
in which neo-liberal ideas achieve discourse hegemony by being translated into a form of populist economic common sense. These features
make neo-liberalism difficult to discredit and help to account for its
resilience.
An influential way of understanding neo-liberalism draws on Karl
Polanyis (1945) account of ideological development in the capitalist
era. He suggested that the liberal market economy was created through
deliberate policy and state action in the nineteenth century, which
destroyed traditional forms of economy and society and brought, as a
53
Part I: Economy, state, and society
54
reaction, the rise of collectivist and nationalist movements that aimed

to reimpose political control over the free market and reestablish community and security for citizens.1 This double movement played out
over many decades and reflected the social and political struggles that
defined the modern world. Recent analyses inspired by Polanyi suggest
that neo-liberalism can be understood as the first phase of a new double movement, with neo-liberalism emerging initially in the 1970s as a
reaction to the excesses of the welfare state and Keynesianism, creating
in the 1980s through the application of its ideas a new era of freemarket dominance. In turn, it is suggested, this will be followed by a
reaction to curb the excesses of neo-liberalism and reimpose political
controls over the market.2 On this reading, the financial crash of 2008
potentially signals the beginning of that reaction.
Another influential placing of neo-liberalism in historical context
is present in Peter Halls (1993) argument that paradigm shifts in
economic policy, involving major changes in the basic assumptions as
well as the settings and instruments of economic policy, are quite rare.3
The two clear-cut cases of transition from one dominant paradigm to
another required a long and painful period of political, economic, and
ideological conflict and restructuring, first in the 1930s and then in
the 1970s. The paradigm of classical liberalism, with its emphasis on
sound money, free trade, and laissez-faire which was ascendant in
Britain, the United States, and many European countries before 1931
broke down following the 1929 crash and the subsequent Great
Depression. Classical liberalism was eventually replaced by a new Keynesian paradigm that made possible the Keynesian welfare state and
different varieties of Social and Christian Democracy in Europe after
1945. This was the era of embedded liberalism. Different domestic
policies reflecting national preferences and values to secure domestic
legitimacy were combined with a liberal international economic order
re-created under US leadership after 1945. The Keynesian paradigm
itself was then challenged in the 1970s by monetarism one of the key
doctrines of what then became neo-liberalism at a time of renewed
trouble for the international economy.
During the 1980s and 1990s, neo-liberalism came to be seen as a
new dominant orthodoxy: a powerful discourse or set of discourses
deployed at many levels making theoretical and commonsense claims
1
See Polanyi 1945.
See Cox 1996.
See Hall 1993.
Neo-liberalism and fiscal conservatism
55
about how the economy worked and increasingly dominating debate

on public policy.4 The crash in 2008, as well as the profound nature of
the dislocation that has ensued, raised speculation that these events
might herald the end of the neo-liberal era and the transition to
a new paradigm for public policy. The credibility of neo-liberalism
appeared dented for a time after the crash, and there was speculation about a return to Keynes and the possibility of political and ideological challenges to the intellectual orthodoxies that had dominated
since the 1980s.5 However, five years after the crash, neo-liberalism
appears remarkably resilient and there are few signs of such a shift
taking place. No major alternative to neo-liberal economic policy has
emerged; familiar neo-liberal ideas still supply the everyday common
sense that dominates discourses about economic policy in the media
and the political class and provide the organizing assumptions that
shape the formulation of policy. Many neo-liberals have been content during this crisis to defend the existing order and look for ways
to return to business as usual. More radical ideas have arisen from
movements like the Tea Party in the United States, which wants to use
the opportunity of the crisis to downsize the state.
The failure thus far of neo-liberalism to make way for a new
paradigm led Colin Crouch (2011) to argue that we are living through
the strange non-death of neo-liberalism.6 There is certainly no clear
evidence as yet of a new Polanyian double movement, the emergence of
a challenger to the assumptions of neo-liberalism. Francis Fukuyama
suggested in 1989 that we should not expect a new wave because neoliberalism is the synthesis that has resolved all of the contradictions
of capitalist modernity, and it provides a framework that cannot be
transcended.7 There are no serious alternatives remaining. If one day
there is a new Polanyian double movement, it may be years or even
decades away. In the short term, the political response to the current crisis may lead to the further deepening of the present paradigm
rather than to its overthrow. On this view, which is popular among
hedge-fund managers, the wave of neo-liberalism is far from spent.
The crisis of 1929 produced a radical project to create an extended
state, one expression of which was the post1945 social-democratic
Keynesian welfare states of Western Europe. This extended state was
4
7
See Harvey 2005.

See Fukuyama 1989.
See Skidelsky 2009.
See Crouch 2011.
56
challenged ideologically and politically in the 1970s with the emergence of the neo-liberal project to contract and reorder this state.
However, the neo-liberal project met with only limited success, which
is why some of the most influential accounts of the 2008 crash are
neo-liberal accounts, which blame the crash on the persistence of
the Keynesian welfare state rather than on neo-liberal policies that
deregulated finance. On this view, neo-liberalism is resilient because
it remains the radical project with the most traction in this crisis. The
radical wing of neo-liberalism perceives this crisis as an opportunity to
push farther the project to contract the state, not to retreat. The next
swing of the pendulum, therefore, is not automatically away from neoliberalism. A more radical neo-liberalism is one possible outcome from
this crisis.
This chapter explores one aspect of this apparent resilience of neoliberalism by tracing its ideological roots in earlier forms of liberalism.
One of the difficulties in considering neo-liberalism is to define exactly
what the term covers. It is easy to exaggerate its unity and coherence
and group together a diverse set of ideas and policies, which have
many internal tensions. Rather than accept a monolithic account of
neo-liberalism as an all-embracing and all-conquering single ideological force, its diversity must be acknowledged.8 It is this diversity that
explains, in part, its resilience. In this chapter, I accept much of the
institutionally embedded thesis proposed by the editors but argue
that we also need to understand the genesis of neo-liberalism in a
much older set of discourses: about the market economy, the household economy, and the tax state. It is partly because neo-liberalism
draws on these much-older ideas that it is so difficult to dislodge; it
expresses certain perennial truths about the political economy that we
all inhabit, and it is this which often gives its ideas the edge. However,
it does not exhaust the truths about this political economy, and it is
not all-conquering (despite the overblown rhetoric that at times has
accompanied it) because, like its rivals, it does not have final or uncontested solutions to the dilemmas of our modern political economy.
The chapter begins by outlining different forms of neo-liberalism.
It then examines how neo-liberalism has imported key ideas from
nineteenth-century liberalism in its treatment of the central relationship
in political economy namely, between the market and the state.
8
See Gamble 2006.
57
In particular, it shows how the state is treated as a household that is

equivalent to the other two households namely, private households
and firms. Finally, it looks at how these inherited ideas affect the
resilience of neo-liberalism in economic crisis.
Strands of neo-liberalism
Neo-liberalism is commonly used although not often by neo-liberals
themselves as a general term that denotes the revival of free-market
doctrines in the second half of the twentieth century, particularly since
the 1970s. There are a number of strands of neo-liberalism, of which
the most important are ordo-liberalism, the Austrian School, economic
libertarianism, the Virginia School, the Chicago School, and supplyside economics. Many of these strands were already represented at
the Mont Pèlerin Society, convened by Hayek in 1947 and which
has been meeting ever since. This revival of economic doctrines celebrating the free market and seeking to limit the role of government
was regarded by some of its early critics as a misguided attempt to
revive earlier formulations of liberalism that had been superseded
and were no longer relevant to the political and economic conditions of the twentieth century. However, in the last three decades
of the twentieth century, neo-liberalism furnished a powerful set of
doctrines that became influential in many countries, particularly the
United States and Britain but also in many others, including Chile
and several other Latin American states, Australia and New Zealand,
and many countries in Eastern Europe following the opening of the
Berlin Wall and the collapse of the Soviet Union. Many international
and domestic policies were shaped by these doctrines, in particular
regarding finance and trade and the idea of what constituted good
economic practice and good governance. In this way, most economies
in the international economy were influenced by the new free-market
doctrines.
Ordo-liberalism was the first form of neo-liberalism. The German
ordo-liberals, including Alexander Rustow
and Wilhelm Ropke
in the
1930s and 1940s, were strong critics of Nazism both economically

and politically. They understood neo-liberalism as a political order
that combined a free economy with a strong state and that was subject
to the rule of law. The economy should be as free and decentralized
as possible, but the state had to be strong and legitimate to break
58
interest groups and cartels that formed to prevent markets from

working.9 The ordo-liberals were not opposed to the state, but they
wanted it to be confined to its proper sphere, which was protecting
the key institutions that made possible a decentralized market economy. These neo-liberal ideas combined with social-democratic ideas
of welfare and industrial partnership to shape the moderate and pragmatic policies of the social-market economy that characterized the
West German Bundesrepublik in the 1950s and 1960s.10
The Austrian School and its two most important twentieth-century
representatives Ludwig von Mises and Friedrich Hayek were implacable opponents of all forms of collectivism and socialism, and it
warned of the dangers of creeping state intervention.11 Like the ordoliberals, the Austrian School emphasized the need for strict fiscal rules
to keep government limited and to avoid inflation. It developed a distinctive economic theory that treated markets as inherently imperfect
because of the fragmented and dispersed character of knowledge but
also as the only possible foundation of a free society. The Austrian
School accepted that a strong state was necessary to safeguard the
market order, but it was suspicious of democracy because it allowed
temporary majorities to interfere with the principles of a liberal order.
Economic libertarianism is mainly associated with the United States.
It includes supporters of the minimal state, such as Robert Nozick,
and those who want no state at all the anarcho-capitalists, such
as Murray Rothbard.12 Economic libertarians argue that individual
rights are inherent, absolute, and pre-social. They are opposed to the
state because it involves coercion of individuals for example, through
taxation. They favour the dismantling of most or all of the programmes
associated with the modern state, including in the case of the anarchocapitalists, the military, and the police. If individuals require protection
from risks of any kind, they must pay for it. Economic libertarians are
critical of classical liberals such as Hayek for supporting spending to
provide an economic baseline below which no citizen should fall.
The Virginia School applied economic analysis to the public sector,
arguing that agents in the public sector have the same motivation as
those in the private sector but lack the discipline imposed by markets and competition. This leads to continuous pressure for expansion
9
11
12
10
See Turner 2008.
See Nicholls 1994.
See Hayek 1944 and von Mises 1944.
See Nozick 1974 and Rothbard 1973.
59
of the scale and scope of government, and it places an increasing

burden on the private sector. The public sector is held to be inherently inefficient and wealth-consuming rather than wealth-creating.
The conundrum of public-choice economics is that any policy to curb
the public sector requires altruistic behaviour on the part of policy
makers; however, the basic assumptions of public-choice economics
deny that policy makers can be expected to act altruistically. To solve
this problem, public-choice liberals advocate the adoption of constitutional rules, such as a balanced-budget rule, which prevents governments from running deficits and which make unconstitutional certain
policies (e.g., wealth taxes) even if voted for by a popular majority.13
Public-choice economics has been influential in the development of the
new public management, which has reshaped the delivery of public
services in the last two decades.
The Chicago School has been one of the most influential parts of
the mainstream of modern economics. It views the economy from the
standpoint of money and finance rather than as a system of production
or as a political economy. Milton Friedman, one of the pioneers of this
approach, developed the monetarist critique of Keynesianism.14 More
recent exponents include Robert Lucas, with his theory of rational
expectations. The economy is modelled mathematically as though it
were a set of financial markets abstracted from any political, social,
cultural, or psychological conditions, with assumptions of perfect competition, rational expectations, and no significant externalities. Policy
solutions that promote the greatest possible freedom-of-market agents
are assumed to be inherently superior. In contrast to the Austrian
School, this strand of economic theory assumes that markets are perfectible, as in the efficient-market hypothesis, which holds that markets
are rational, making use of all available information, and accurately
pricing risk. Some of these mathematical models informed the investment decisions of banks in the financial boom that ended in 2008.
Supply-side economics initially became popular in the 1980s. It
argues that growth in a capitalist economy is best promoted by cutting
taxes, particularly on upper-income groups, and freeing business activity from regulation. By boosting growth and making high earners more
willing to pay taxes, tax cuts boost tax revenues and therefore balance
the budget but at a higher level of output. Spending cuts to balance
13
See Buchanan and Wagner 1977.
14
See Friedman 1977.
60
the budget have a lower priority. These policies were adopted by the
Reagan administration and also by the administration of George W.
Bush, leading to a rapid increase in US debt because taxes were cut,
whereas spending particularly on defence greatly increased. The
same prescription was at the heart of the RomneyRyan campaign in
2012, as leading fiscal conservatives in the United States pointed out.
Supply-siders have been influential in neo-liberalism, but they have
been at odds with ordo-liberals, the Austrian School, and the Virginia
School, which tend to be fiscal conservatives and believe that the first
priority of government is to balance the books.
In the immediate postwar period, neo-liberalism, in its ordo-liberal
form, was mainly influential in Germany and other European countries. From the 1970s onwards, however, new strands of free-market
thinking began to emerge and neo-liberalism, particularly in Anglosphere countries, began to be identified with the clutch of doctrines
opposed to welfare states and mixed economies. Supporters of neoliberalism were determined to uproot social-democratic aspects of the
postwar political economy, which tolerated a wide variety of domestic policies. The growing fiscal burden of the state was highlighted,
together with the intractable dependency culture fostered by welfare
programmes. The political consensus that had endured since the 1940s
in many countries about the proper role of government in a market
economy came increasingly under intellectual and political attack. A
decisive moment was the endorsement of key neo-liberal doctrines by
Margaret Thatcher and by Ronald Reagan, who came into office in
1979 and 1980, respectively particularly monetarism and elements
of classical liberalism in Thatchers case and supply-side economics in
Reagans. The understanding that formed between these two political
leaders suggested that there was now a coherent neo-liberal doctrine
that defined the new economic policies spreading from the United
States and the United Kingdom.15
Neo-liberalism and classical liberalism

Neo-liberalism can be understood in Polanyian terms as a paradigm
shift, contrasting the Keynesian era with the monetarist era that followed: the rebellion against the social-democratic state. However, a
different way of thinking about neo-liberalism is to understand it as
15
See Cockett 1994.
61
the latest manifestation of much older discourses in political economy, the eighteenth-century idea of commercial society, and the earlytwentieth-century idea of the tax state. This perspective emphasizes the
continuities in thought among different eras rather than sharp historical breaks. The idea of commercial society, for example, which came
to preoccupy so many eighteenth-century political thinkers and which
has profoundly shaped the political thinking of the modern world, is
considered an essential part of our understanding of what makes this
world modern. Istvan Hont memorably evoked its key themes in Jealousy of Trade.16 He argues that many of the ideas that were developed
in the eighteenth century still define the nature of the problems that
confront contemporary states. Many of the circumstances and contexts
may have been altered but the paradigm of commercial society has not
been transcended; it is still the intellectual horizon of our world as far
as political economy is concerned. Hont argues, for example, that the
debate on globalization that dominated the 1990s lacks conceptual
novelty because it rehearsed themes and explored dilemmas that had
first been aired more than two hundred years before.
At the root of this conception of political economy are the peculiar
character of the modern market economy and the modern state and
the lack of congruence between them. Both have practical and imaginative foundations, but they are different.17 Markets are founded on
exchange between independent owners, the stimulation and satisfaction of wants, the calculation of costs and benefits, the division of
labour, the ownership of capital, the maximization of profit, and the
drive for accumulation. They have expanded to connect the whole
world and render it interdependent. There are always many markets
but, imaginatively, the market is not complete until it is a world market and equivalence reigns. States, by contrast, are multiple; each state
claims a particular jurisdiction and relates to a particular national community. Its practical foundations include securing internal order and
external defence, raising taxes, and promoting the prosperity and welfare of its citizens. Its imaginative foundations derive from its unitary
form as a fictitious person and its indirect representation its claim to
represent its people as a community of fate.
Markets and states become locked together because the benefits
of trade are such that no state can forego them. No state can afford
to put itself outside the international trading system; however, the
16
See Hont 2005.
17
See Thompson 2008.
62
consequence of remaining within is a ceaseless struggle to compete

with other states and to emulate the most successful. This constrains
what states can do but, if they are successful, it also opens great
opportunities to them and to their citizens. It provides states with
the capacities and resources that they need to defend their national
territory from attack and to expand it when the opportunity arises. As
states became more dependent on one another, they do not necessarily
become more peaceable. It also could mean that they became more
capable and more willing to wage war. During the nineteenth century,
Britain as the leading industrial and commercial state broke new
ground by moving to complete free trade, making itself dependent on
the international economy by abandoning self-sufficiency in food and
later many other things as well. Britain maintained its free-trade policy
up to and even into the First World War, despite its leading rivals
imposing large tariffs on British goods. For most of the nineteenth
century, Britain became the country to emulate; as Marx explained
to his German readers, English development was not something they
could ignore they would be obliged to follow and compete. Jealousy
of trade was at the foundation of modern conceptions of development,
encouraging poor and less-developed countries to catch up with rich
countries and become developed.
As the country that must be emulated, Britain was in a position
to set the rules of the international economy and duly did so, from
the gold standard and its associated monetary and fiscal rules to rules
on accounting, shipping, insurance, finance, and contracts. Britains
liberal free-trade rules were proclaimed as universal rules, but they
also had the advantage of benefitting Britains particular interests a
fact that was not lost on critics. Friedrich List accepted the intellectual
case for free trade and opposed its adoption when there was such
disparity among states in terms of their economic development. In
such circumstances, free trade served only the interests of the strongest
and most developed states.18
By the middle of the nineteenth century, liberal political economy
had been fashioned into a powerful set of arguments and policy prescriptions. Political economy and economic analysis may have since
parted company, but writing, argument, and discourse within the
paradigm established in the eighteenth century has continued until the
18
See Chang 2002.
63
present because much more than economic analysis it still captures the essential features of the political and economic context in
which economic policies are formulated and debated. Neo-liberalism
can be understood as the latest manifestation of the liberal political
economy favoured in nineteenth-century Britain. At that time, it was
distilled into a set of principles that included free trade, sound money,
and laissez-faire and which became the organizing assumptions of
British financial and economic policy and through Britains example
became the organizing assumptions of many other states as well.
Three types of households

Since its origins, political economy has always been predominantly liberal political economy, sometimes with national and socialist variants
and critiques. It has always been embedded within the institutional
matrix of household, market, and state. The distinction with which
we are most familiar is that between the market economy and the
state, but this ignores the original meaning of economy: that is, the
economy of the household. Three important meanings of household
must be distinguished: the family or individual household, the corporate household, and the public household. These forms of household
are distinct from the concept of the market economy, or catallaxy,
as Hayek preferred to call it. Hayek derived the term catallaxy from
the Greek verb katallattein, meaning to exchange.19 He preferred it
to the term economy, with its roots in Aristotles concept of oikonomia, meaning the management of the household. Such an economy
meant an enterprise with a single purpose, directed from the centre
by a single will and involving sharing, planning, allocating, and distributing. Hayek did not dispute that there were households in this
sense, but he did not accept that this was an adequate way to capture what was essential about the market order. The basic principle
was that it did not have a single purpose but rather served many
purposes and, therefore, could not have a single directing will in control of it. The point of a catallaxy was precisely that it was coordinated through a set of general rules, which did not prescribe behaviour
but instead left economic agents free to engage in whatever activities
and contracts they liked. The catallaxy might still be composed of a
19
See Hayek 1976: 108.
64
multitude of households, but it was organized on a quite different principle from them; if this principle were infringed, then the benefits that
came from trade were at risk. For Hayek and many other economic liberals, the great problem of the modern political economy that Britain
had pioneered was that the secret of its success was not fully understood and that governments would seek to intervene to manage it as
though it were a household, with a single purpose; doing so would
eliminate the sources of prosperity and enterprise.
One reason for this problem was the continuing hold of the classical
conception of the household. Managing a household meant planning,
allocating, and distributing resources. It implied a central directing
will and the direct consideration of fairness and welfare in decision
making. The traditional household was also associated with notions
of economizing and therefore being economical, two terms still in daily
use. To economize means to cut costs, to stop doing certain things,
or to do the same with less. Managing a household is associated also
with balancing expenditure against income and a particular set of
virtues: prudence, sobriety, accuracy, thrift, and frugality. Households
like these are the foundation on which sound finance and productive
enterprise are to be built in the liberal imagination. Hayek would not
deny this, but although ideas of fairness and justice may have their
place in the family household because it is a potential arena of sharing,
altruism, friendship, love, and personal relationships, it also can be
despotic and exploitative. The contrast is with the catallaxy, characterized by impersonality, decentralization, observance of general rules,
coordination through prices, and connections across vast distances.
In this way, a utilitarian sociability is established, which becomes a
positive-sum game for all of the participants.
The family household remains an important part of contemporary
political economy although not as important as it once was because
most economic production in developed economies is no longer sited in
families. However, families are still essential in nurturing and supporting family members, through unpaid domestic labour, enabling them
to participate in labour markets, and supporting those who cannot.
Families are also a key site for consumption, not the least of which is
financial services. However, two other types of household have become
increasingly significant in contemporary liberal political economy.
The first of these is the corporation. In the eighteenth century, corporations were confined to state-created bodies (e.g., the East India
Company), which were granted a particular trading monopoly. In
65
other cases of corporate enterprise, liability was unlimited, which kept

corporations small and fragile. All of the leading political economists
of the eighteenth century, including Adam Smith, strongly supported
unlimited liability as a way to keep entrepreneurs honest and accountable. During the nineteenth century, as the scale of industrial enterprise increased, this restriction increasingly hampered major investment projects (e.g., the railways). There was strong pressure to allow
limited liability; eventually, this legislation was passed in the 1860s.20
It was one of the most significant reforms of property rights in modern
capitalism, it was widely copied, and it led directly to the rise of the
corporate economy and the dominance of the international economy
by the great corporate giants of the modern era.
The modern corporation has become a key and much-neglected third
party in the relationship between states and markets.21 Companies are
not catallaxies, despite a number of interesting attempts by economists
to theorize them as such. Rather, they are run as economies, as households, subject to a single purpose and directing will and with their
own internal mechanisms of distribution, allocation, and planning.
They are strategic actors operating within the market catallaxy and
within national states, seeking to shape both to their advantage. If
they want to build up their capacity and increase their competitive
advantage, states must support their leading companies and enable
their expansion, while at the same time seeking to attract foreign companies to set up production facilities and distribution networks within
their jurisdiction. Tax, regulatory, and financial regimes all must be
adjusted to ensure that a country is open for business. In this way,
jealousy of trade has also become jealousy of investment.
The tax state

The third type of household that is important in understanding contemporary political economy is the public household. This is an old way
of thinking about the state but one that also was neglected until Daniel
Bell revived the term in an article in The Public Interest, subsequently
reprinted in his book, The Cultural Contradictions of Capitalism.22
He distinguished between (1) the economy of the domestic household,
in which production and exchange are regulated by a shared conception of the common good and resources are distributed according
20
See Hannah 1976.
21
See Crouch 2011.
22
See Bell 1976.
66
to some conception of need; and (2) the economy of the market, in

which production and exchange are regulated by price and ends are
not common but rather individual. Wants replace needs as the criteria for determining how resources are allocated, and there is rational
and precise calculation of the costs and benefits of different options
and the return on investment. These distinctions are also embedded in
the idea that needs are satiable and therefore limited, whereas wants
are insatiable and unlimited. This is one of the sources of hostility to
modern markets and to the idea of catallaxy, captured in Aristotles
notion of chrematistics that is, acquisition that is unlimited and
directed to selfish material gain, contrasted with the sober, prudent
management of household finances. Chrematistics came to be associated with finance, usury, the charging of interest, and making money
from money, inspiring a horror and distaste that recurs among all of
the cultural critics of capitalism on both the left and the right. It reappears in contemporary politics in concerns about bankers bonuses and
the reckless behaviour of the investment banks.
Bell viewed the public household as originally arising to perform
certain functions for the new commercial society. There were common needs that only a public body could discharge, including defence
against external attack, enforcement of law, protection of property
rights, and the guarantee of stable currency. Different states added
other functions at different stages. In the United States, Bell argued
that the public household was enlarged by three key developments in
the course of the twentieth century: (1) the adoption of a normative
economic policy from the 1930s onwards, which entailed the US federal governments involvement in the direction of the economy and
development of plans for allocation, redistribution, stabilization, and
growth; (2) the commitment to substantial investment in science and
technology, spurred in part by defence needs and the strategic competition with the Soviet Union but also to enable US corporations to
retain their industrial and commercial leadership and to permit new
sectors to emerge; and (3) the normative social policy that appeared in
the 1960s and is devoted to the redress of social and economic inequalities. This encouraged the development of new welfare programmes, a
focus on human capital, and the emergence of an entitlement culture
associated with human rights.
Bell argued that the modern state was always a public household, differing from the market economy and organized on different principles.
67
More recently, it has expanded far beyond the limited functions that
were expected in the past. The modern expanded state Bell observed in
the 1970s threatened to absorb both the private family household and
the corporate households through the increasing scope of its regulation
and the increasing enlargement of its capacities, including the capacity
to tax. In this way, the state becomes an arena for the satisfaction of
private wants, which because they are insatiable threatens the basis
of commercial society and its separation from the state.
Together with the idea of commercial society, it is the concept of the
tax state that has been most important in shaping neo-liberalism. One
of the earliest analyses of the tax state and its implications was made by
Joseph Schumpeter at the end of the First World War. It became a common theme in much neo-liberal, libertarian, and conservative argument
from the 1970s until the present, and it underpins arguments for lower
taxes and lower spending. As the state expands under pressure from
private households both individual and corporate to consider their
interests and needs, so it increasingly intrudes on commercial society
and thereby risks restricting the freedom of the catallaxy by making
discretionary interventions rather than relying on general rules. In his
article published in 1918, The Crisis of the Tax State, Schumpeter
addressed the problem of fiscal policy in the wake of the financial,
industrial, and economic collapse of AustriaHungary at the end of
the First World War.23 He argued that the public finances are one of
the best starting points for an investigation of society, especially though
not exclusively of its political life. He quoted the socialist economist,
Rudolph Goldscheid, stating that the budget is the skeleton of the
state stripped of all misleading ideologies.24 Schumpeter argued that
the tax state had been important in the development of commercial
society but had now acquired its own momentum.25 When the state
existed as a social institution, staffed by people who identified their
interests with the state, and when it had been recognized as essential by
citizens for the services it provided, then the state could no longer be
understood solely from a fiscal standpoint. Taxes created the modern
state but, once formed, the state begins to extend its tentacles into
the flesh of the private economy. It is this intrusion into the private
economy that Schumpeter viewed as a particularly modern problem,
23
25
24
See Schumpeter 1990.
See Schumpeter 1990: 100.
68
which must be addressed if the tax state is not to collapse, bringing

down with it commercial society and the capitalist entrepreneur. The
balance between the two had to be restored; however, in the circumstances of 1918, it appeared to be extremely difficult to do so. For
Schumpeter, the problem was the general loss of faith in capitalism
and the undermining of its legitimacy, which made its survival doubtful. He also clearly perceived that the tax state and commercial society
were irrevocably intertwined.26 The problem for the tax state was that
the people would come to demand ever-higher public expenditures and
that the tax state would lose its connection with the real economy and
the self-interest of individual economic agents. The productive base
would begin to shrink, exacerbating the problems of balancing the
budget. The difficulty of keeping the tax state anchored in economic
reality would grow.
The tax state and commercial society, Schumpeters public economy and private economy, did survive but he anticipated the later
concern that would be voiced about the capacity of the public economy
to enlarge itself continually at the expense of the private economy, to
invade its sphere, and ultimately to destroy it. The implication from
Schumpeters analysis is that the tax state can survive only if it nurtures rather than supplants the private economy, from which it draws
its strength. This has been a central concern of liberal political economy in the last hundred years: that is, how to allow the state sufficient
strength to provide the legal and institutional framework and the wider
support that commercial society needs to prosper without allowing an
unchecked expansion of state power and public programmes. It became
a preoccupation of Ludwig von Mises and his strand of the Austrian
School and particularly of Hayek.27 If both the private economy and
public economy are seen as economies, as households, then citizens
may be persuaded that the private economy is too anarchic, too wasteful, and too inefficient and that the rational bureaucratic planning of
the public economy is inherently superior. The private economy must
be understood as a catallaxy that is the foundation of the public economy and not subordinate to it. This results in one of the prime tasks of
the state: the safeguarding of the character of the private economy as
a catallaxy in the face of bureaucratic and democratic encroachments
on it.
26
27
See Hayek 1976.
69
Fiscal conservatism and economic crisis

The growth in the size of the public household in commercial societies in the last hundred years (e.g., in the United Kingdom, from
less than 10 to more than 40 per cent of Gross Domestic Product
[GDP]) fundamentally altered the politics of the crises that periodically interrupt economic progress. The response to a crisis had always
been governed by fiscal conservatism, the liberal principles of sound
money, and balanced budgets that were at the heart of British fiscal
policy in the nineteenth century and were widely regarded as the reason for the remarkable record of fiscal stability and continuity that
the British state had secured. Whereas other states had incurred huge
debts necessitating default, British credit was unmatched. Although its
national debt had been 250 per cent of GDP because of the costs
of financing victory in the Napoleonic Wars and remained above
100 per cent throughout the nineteenth century (much higher than
today at approximately 60 per cent), Britain had no trouble financing
and gradually reducing its debt through the Sinking Fund. The debt
rose again as a result of the costs of the First World War, but the British
state responded in the 1920s with severe spending cuts, known as the
Geddes Axe, which were proportionately much deeper than anything
contemplated today. The return to the gold standard in 1925 at the
prewar parity of $4.86 was denounced by Keynes because it required
a further massive deflation of British costs and a lowering of British
wages to make British goods competitive in international markets. It
was the immediate cause of the miners strike and then the General
Strike. The adjustment necessary to restore the gold standard was
loaded onto private households. Following the crash on Wall Street
in October 1929, the minority Labour Government in Britain had to
grapple with the rising tide of unemployment and financial collapse
across Europe. The Chancellor of the Exchequer, Philip Snowden, was
a socialist but a Gladstonian liberal when it came to public finance.
Socialism, he insisted, had to be paid for and the health of the private
economy came before any schemes of redistribution. His policies to
balance the budget brought down the minority Labour Government
and forced Britain off of the gold standard.
A similar denouement occurred in the United States. Following the
Great Crash, the US Treasury under Andrew Mellon followed a policy
that was the orthodox solution for dealing with a financial crisis. The
70
basic problem was perceived as the misallocation of resources that had

occurred during the boom of the 1920s. The fictitious values that it had
created needed to be destroyed, and as quickly as possible, through
a sharp deflation to ensure a rapid and soundly based recovery. If
the government intervened to prevent the market from destroying the
inflated values that had been created in the boom, it could do so only
by distorting economic activity and risking inflation, paving the way
for a further and more damaging collapse in the future. For Mellon,
the positive aspect of a recession was that assets returned to their
rightful owners. His advice to Herbert Hoover as the slump deepened
was to liquidate labour, liquidate stocks, liquidate farms, liquidate real
estate, and purge the rottenness out of the system. This liquidationist
approach later was held to be responsible by both Keynesians and
monetarists for turning the slump into a depression. This led to later
governments responding very differently to major financial collapse.
The solution to the crisis of the laissez-faire state led to the abandonment or at least relaxation of the rules of fiscal conservatism. The
extension of the state took many forms, but one of the most familiar
was the Keynesian welfare state. The important contribution of Keynesianism was not so much the specific rules for the conduct of fiscal
policy that it introduced as the political assumption that the state had
a responsibility to manage the economy to produce economic growth,
full employment, and stable prices as well as to provide for the
social and economic security and well-being of its citizens. These organizing assumptions established a presumption in favour of increasing
state powers and state funding to solve social and economic problems.
With rapid postwar economic growth, the new balance between state
and market appeared to be both manageable and superior to what had
occurred previously, and the new model was much celebrated.28 However, by the end of the 1960s, economic growth was beginning to falter
and both unemployment and inflation began rising. This situation gave
neo-liberalism its chance.
The policy message of neo-liberalism appeared to be clear: there
should be a return to the principles of fiscal conservatism in order
to curb the growth of the state and check inflation. Hayek and
Friedman could agree about the goal even if they disagreed about
the means. Neo-liberals also insisted that domestic policy should be
subordinated to the requirements of the international market. This
28
See Shonfield 1965.
71
meant focusing on adjusting and adapting domestic institutions to

improve competitiveness and efficiency. A policy package of monetary
targets and supply-side reforms including tax cuts, flexible labour
markets, privatization, and light-touch regulation became the
standard neo-liberal prescription for countries wanting to prosper
in the international economy and to receive aid and credit. The discourses around these policies became entrenched not only in national
governments but also in international agencies and organizations,
including the World Bank, the IMF, the Organisation for Economic
Co-operation and Development (OECD), and the EU. Austerity
packages to eliminate deficits and reduce debts and structural reforms
to increase productivity and growth have become standard. They have
remained the default policy options after the crash of 2008, although
they are tempered by the need to indulge in extraordinary measures
to keep banks afloat.
The 2008 crash occurred with neo-liberalism in the ascendancy and
most governments operating in some cases reluctantly within a
neo-liberal framework. It provided an opportunity for governments
to endorse the principles of fiscal conservatism and rein in the state.
Despite much rhetoric to this effect, however, governments have been
slow to move in this direction. They have been more concerned about
not making the mistakes that were made after 1929. Keynes and Hayek
had clashed at that time over the best policy to deal with a crisis in
the tax state and in the market economy. Hayek remained convinced
by the experience of the response to 1931 that the only way to preserve the catallaxy was to return again to rules that could not be set
aside by governments. In the 1970s, the era of stagflation in the world
economy the second great crisis since 1929 it was often argued
that Keynesianism had been discredited and that the rise of monetarism and the doctrines of neo-liberalism represented a repudiation
of the enlargement of the public household that had occurred since
the 1930s. However, the paradox of neo-liberalism is that although it
has restructured the state since the 1980s, nowhere has it significantly
reduced it. Many neo-liberal governments have raised rather than lowered public spending. The distribution of benefits may be different, but
the tax state is alive and well under neo-liberalism and continuing to
advance.
It was appropriate, therefore, that many of the responses in
2008 should have had a distinctly Keynesian flavour. Many American
conservatives were strongly opposed to the bailouts and the fiscal
72
stimulus announced by Hank Paulson and George W. Bush and continued by Barack Obama. Many of them, particularly in the Tea Party, are
intent on rehabilitating Andrew Mellon, arguing that his supply-side
approach to taxation in the 1920s and his balanced-budget approach
to fiscal policy were correct and that the New Deal is responsible for
Americas current difficulties and ever-expanding debt by making possible the growth of big government and the culture of entitlement and
dependency. Thus far, however, no government has been elected in a
Western democracy that is prepared to balance the budget by drastically reducing the size of the state; too many people have too many
entitlements that cannot be touched.
Although many of the principles of the old sound-money policies
have been abandoned, much of the rhetoric of the older conception of
the public household remains in the new politics of austerity, which
has established itself almost everywhere. One of the most familiar
arguments is the analogy repeatedly drawn between the finances of
the public household and those of the private household. After 1931,
this argument was discredited by Keynesianism. However, Keynesian
ideas about these differences from private households have never been
easy to communicate to citizens, compared to the simple idea that
the state should balance its budget just like the individual household
must balance its budget: cutting expenditure to match income, living
within its means, and paying down the credit cards. A recent idea that
has the same lineage is the notion that the public household should be
treated as a cost centre, with its revenues and spending ring-fenced and
made to balance. What these images want to deny is that the state is a
household very different from the private household because it has the
ability to borrow, to tax, and to print money. It is these powers that the
old liberal political economy sought to restrain, and it is these powers
that Keynesian political economy is accused of unleashing. Treating
the state as if it were a private household accounts for some of the
deep hostility to Keynesianism, treated by some of its critics as speculative public finance that substituted judgement and discretion for firm
rules.
Yet, despite this, Keynesian pragmatism and discretion are still alive
and well in Britain and the United States. George Osborne, the UK
Chancellor after 2010, did not reverse the major stimulus and the
bailouts that rescued the British financial system in 2008. Barack
Obama went further in adding to the stimulus, although not by enough
73
to satisfy Keynesian critics such as Paul Krugman.29 However, neither

government offers a serious intellectual defence of its unwillingness
to match the rhetoric of fiscal conservatism with policies that might
deliver it; in the case of the United Kingdom, the government luxuriates in the discourse of austerity and moral proprieties of fiscal
conservatism.30 The effect is that radical alternatives are disarmed
because although governments have many fiscal critics on their right
who rehearse radical economic libertarian arguments of their own
there are many fewer voices providing a positive case for the public
household. The resilience of neo-liberalism reflects a widespread appreciation among citizens that something must be done about debts and
deficits in the public household, with the understanding that entitlements are not seriously threatened.
It is rather different in the Eurozone, where a more Hayekian or
ordo-liberal policy is being followed. The fiscal compact was agreed to
among members of the Eurozone and is designed to save the monetary
union. It imposes tight fiscal rules on permitted deficits that, if implemented, imply a deeply deflationary policy of austerity, thereby forcing
all members of the Eurozone to cut spending and reduce costs to stay
abreast of the most productive economy: Germany. Although the Eurozone, like the EU, is a polity, it is not a state and has no demos, which
makes the difficulty of securing legitimacy for this austerity policy seem
insuperable to most observers. The Eurozone needs a public household
of the Keynesian type if it is to be acceptable to all members; however,
the only public household that Germany seems prepared to tolerate
is firmly ordo-liberal. Despite their desire to emulate Germany and
maintain competitiveness, the strains on many of the individual states
to live within these rules will be too great. The attempt to create this
technocratic economic government will either be given up or a more
far-reaching integration will be necessary, which will also transform
the nature of the EU, involving a much larger EU budget (currently, it
is only 1 per cent of GDP, compared to approximately 20 per cent for
the US federal government). If this does not happen, European states
will seek to protect their own private economies, including private and
corporate households, by deploying the resources and capacities within
their separate public households. This is where states remain important: if the crisis is extreme enough, they can choose to reorganize and
29
See Krugman 2012.
30
See Gamble 2012.
74
restructure all of their household economies private, corporate, and

public to remain competitive within the wider international catallaxy. The politics of crisis reveals once again the essential lineaments
of our modern political economy and the perennial dilemmas it poses
for states.
Fiscal conservatism therefore can be seen as a way of holding the line,
of trying to restore the balance between the market economy and the
public household that existed before the crisis and of loading the costs
onto the private households. Neo-liberalism appears resilient because
fiscal conservatism is the default position to which states return at
times of crisis. The congruence between markets and states must be
restored in ways that allow growth to resume. However, to ensure
that this occurs, neo-liberalism can sanction far-reaching intervention
by the state to restructure individual, corporate, and public households. For an older liberal political economy and for the Hayekian
strand of neo-liberalism, fiscal conservatism is not a tactic but rather
an unbreachable set of rules. For many contemporary neo-liberals,
however from Ben Bernanke, Chairman of the US Federal Reserve,
to Mervyn King, Governor of the Bank of England the reverse is true.
Both US Secretary of the Treasury Tim Geithner and UK Chancellor
George Osborne have been urging the Eurozone to reduce austerity
and promote quantitative easing through the issuing of Eurobonds. It
is one of the many paradoxes of this crisis that the EU in this respect,
at least should appear more Hayekian than Anglo-American in its
response to the crisis.
The resilience of neo-liberalism lies in the fact that it is more than a
doctrine of macroeconomic management that can, when circumstances
change, be discredited. Neo-liberalism is rooted in an understanding
of the twin imperatives of the commercial society and the tax state,
which continue to define our political economy. The central tension in
neo-liberalism is that although it arose as a critique of the extended
social-democratic tax state that had evolved in that era, it has not yet
found ways to reduce significantly the size of the tax state.31 One result
has been the explosion of credit and debt, which led inexorably to the
financial crash. Fiscal stimulus and fiscal austerity have been variously
employed to contain the problems created by the crash, but they do
not offer lasting solutions. Governments simply hope that growth will
return at some stage, as it always has. However, the longer it is delayed,
31
See Pierson 1994.
75
the more the resilience of neo-liberalism will be tested by political

movements on both the left and the right. This is already happening
in Europe but still only in a modest way. It is also possible that neoliberalism may take a radical turn and generate programmes that seek
through the adoption of, for example, flat taxes and major reductions
in state spending to redraw radically the lines between the market
and the state. Despite the rhetoric of the 1980s, this has not been
attempted so far in the neo-liberal era. Neo-liberals in practice extol the
extended state or, at least, certain parts of it. That is why supply-side
doctrines advocating tax cuts without spending cuts are so beguiling.
Neo-liberals think of themselves as fiscal conservatives, but many of
them in practice are far from that description. This ambivalence makes
neo-liberalism very flexible. In terms of the typology in Chapter 1,
the gulf between rhetoric and reality is particularly marked in neoliberalism. Together with its malleability and its success as a discourse
of popular economic common sense, this helps to explain its resilience.
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Turner, Rachel. 2008. Neo-Liberal Ideology: History, Concepts and Policies. Edinburgh: Edinburgh University Press.
Welfare-state transformations:
From neo-liberalism to liberal
neo-welfarism?
maurizio ferrera
Introduction
What has been the influence of the neo-liberal ideology on welfarestate transformations since the 1980s? How resilient is such ideology
and what is its influence today that is, in the early 2010s? In the
context of this books themes, we would expect to find in this policy
area a high degree of influence and resilience. After all, neo-liberalism
emerged as an attack on Big Government, with a view to rescuing
individual freedom from the torments of taxation, bureaucracy, and
regulation (including in the social realm). This chapter recognizes
the high relevance (and not only rhetorical) of neo-liberalism for
welfare-state developments since the 1980s but with two decisive
qualifications. The first has to do with meanings: gauging neo-liberal
resilience requires a prior clarification of what is connoted by the
term neo-liberalism. The second qualification has to do with timing:
I argue that the influence of neo-liberalism on the welfare state has
followed a broad parabola, which reached its peak in the early 1990s
but started to decline thereafter in the wake of ideological changes
and discursive reorientations.
I start with the meaning attributed to the term neo-liberalism and,
more precisely, to both the noun (liberal) and the prefix (neo). Unfortunately, the English language conflates in the noun three connotations
that Italian (and Italys political-theory tradition) separates by using
different nouns. The Italian language, in fact, distinguishes among
liberalesimo, liberalismo, and liberismo. The first term has the widest
I express my gratitude to the volume editors and to all of the co-authors for
their valuable comments and suggestions. Previous versions of this text were
presented at Boston, Harvard, and Oxford Universities. I am grateful for all of
the comments that I received from my audiences. Special thanks go to Bea
Cantillon, Michael Freeden, Anton Hemerijck, Bruno Palier, Georg Picot, and
Frank Vandenbroucke for their focused remarks and advice for improvement.
77
78
connotation: It refers to the entire, complex, and diverse thought

tradition that began with the philosophical contractualism of John
Locke and with the doctrines about the constitutional protection of
individual freedoms.1 Liberalesimo thus embraces the entire range of
offspring that germinated from the Lockean core: its outer perimeter
ends where authoritarianism and collectivism begin and the ideas of
negative freedom, its constitutional protection, and its lexicographic
primacy are rejected. The second term liberalismo connotes the
combination of the general foundations of liberalesimo with specific
emphases on additional components: economic (e.g., private property
and free markets), political (e.g., universal suffrage and parliamentary
democracy), cultural (e.g., neutrality relative to substantive axiologies), institutional (e.g., strict StateChurch separation), and social
(e.g., welfare rights and collective responsibilities). There is only one
liberalesimo but there are several distinct liberalismi, in the plural.2
The third term, liberismo, is essentially an economic doctrine (and
not the only liberal one) that assigns primacy to the free market, free
enterprise, and efficiency and assigns a minimal economic role to the
state, essentially that of upholding undistorted competition. Closely
linked with marginalist economics, liberismos starting theoretical and
ideological point is the sovereign rational individual, seen as homo
economicus, pursuing self-interested preferences a pursuit that must
remain free, as much as possible, from state interference.3
1
2
3
Liberalesimo, unfortunately, is becoming an obsolete word outside Italian

academia and, increasingly, also within it, replaced with liberalismo tout court.
It was coined and used during the first half of the twentieth century in the
context of the debate around Benedetto Croces idealistic liberalism. The term
gave the title to one of the most exhaustive histories of philosophical and
political liberalism in Europe: Guido De Ruggieros Storia del liberalesimo
(1977).
See Sartori 1978 and Freeden 2008.
The notion of liberismo was coined by the Italian philosopher Benedetto Croce
to connote those liberal doctrines that transform the free market from a
legitimate economic principle into an ethical theory based on hedonism and
utilitarianism (Croce 1928: 11). For Croce, freedom was essentially a spiritual
category, necessitating civil and political rights, with private property and the
free market as only ancillary (and theoretically dispensable) requisites. His
polemical target was the liberalism of Luigi Einaudi, who thought instead that
private property, free markets, and undistorted competition were necessary
conditions of the liberal order alongside civil, political, and social rights
(Einaudi 2004). Einaudi was a prominent Italian economist and politician who
became the second President of the Italian Republic (19481955) and was a
member of the Mont Pèlerin society; see also Chapter 1.
Welfare-state transformations
79
Using different terms for different meanings has at least three

advantages: it enhances ex definitione the clarity of discussion and
argument; it avoids misleading analytical overlaps; and it contains the
risk of evaluative contagion (especially of negative evaluations: e.g.,
from liberismo to liberalismo or one type of liberalismo to another).
Much of the confusion, controversy, and normative overtones of the
neo-liberalism debate in the Anglo-Saxon context is linked, I believe, to
the highly ambiguous, internally conflated connotation of the noun.
In Italian, the neo-liberal turn of the 1970s1980s is normally called
la svolta neo-liberista.4 The debate is thus encouraged, naturaliter, to
focus on the essentially economic doctrine which reformulated, radicalized, and relaunched (hence, the prefix neo) the classical tenets of
liberismo.
In this chapter, I connote neo-liberalism in the Italian sense of neoliberismo and address the issue of resilience essentially in this perspective. It thus is argued that the neo-liberal creed had a strong
influence on welfare-state transformation since the 1980s but that,
thereafter, a new ideological turn has gradually taken place, leading to
a new approach that I propose to call liberal neo-welfarism (LNW).
This turn has drawn insights from different liberalismi (of a predominantly democratic and social orientation) as well as from the reformist
and democratic-socialist traditions, and it has creatively blended these
insights into a novel blueprint for welfare-state modernization. LNW
has taken root in both the reformist left and centre spaces of the political spectrum, with incipient signs of a process of internal competitive
differentiation. My reconstruction thus nuances the resilience thesis of
this volume as far as welfare is concerned. Liberalism (i.e., liberalesimo
plus, essentially, democratic and social liberalismi) is still an essential
component of current ideological views and policy programmes on the
states role in the social realm. However, neo-liberalism (in the sense of
liberismo) has gradually lost its traction and left room for LNW even
though it still largely imbues the overall economic-policy framework
at both national and supranational levels.
The chapter is organized as follows. First is a brief review of the
developmental parabola of the neo-liberal ideology and its influence
David Harveys book, A Brief History of Neoliberalism, has been translated

into Italian as Breve storia del neoliberismo (Harvey 2007). French has the
same semantic problem as English. Bruno Joberts influential book on the
neo-liberal turn was titled Le tournant neo-liberal en Europe (Jobert 1994).
80
on the welfare-state discourse. This is followed by an analytic interlude on the concept of ideology and how to study its adaptation and
change. The remaining sections are devoted to discussing the rise,
impact, nature, and future prospects of LNW. In the conclusion, I
relate my argument to the general lines of explanation on resilience
put forward by the volumes editors.
Attacking welfare: The neo-liberal parabola

As highlighted by several authors, the neo-liberal creed has indeed
been an extremely salient stream in the discourse accompanying the
transformation of the European welfare state during the previous three
decades.5 The flow of this stream (and, thus, its visibility and impact),
however, has not been constant through time. Rather, it has followed a
large parabola, with an ascending phase in the 1980s, a flattening phase
around the mid 1990s, and a descending phase thereafter. Especially
in the latter phase, the welfare-state discourse witnessed the strengthening (we could say the striking back or return) of other ideological
traditions, which have gradually gained traction in shaping the reform
wave that has been reshaping the profile of European welfare.
The neo-liberal parabola is clearly recognizable at both the national
and supranational levels.6 Its ideological core consolidated through
the 1970s and was centred on the faith in the self-regulating capacity
of free markets and their superiority vis-a-vis
any other allocative and
`
distributive mechanism in upholding an individuals rational pursuit of
wealth. The early national debates on the crisis were largely inspired
by an economistic critique of the Keynesian welfare state,7 which was
accused of two main excesses: first, too much egalitarianism and taxation and, thus, less efficiency and entrepreneurship, less risk-taking
and innovation, as well as distorted incentives; and, second, too much
bureaucratization and social control (cf. the metaphor of the nanny
state) and, thus, less freedom and choice, less dynamism, increasing
predation by special-interest groups, and a culture of passive dependence and weakened personal responsibility on the side of the beneficiaries and the citizenry more generally.8 Combined with moral conservatism (i.e., emphasis on traditional family values, law and order, as
well as a disdain for multiculturalism and diversity), this anti-welfare
5
6
See Mudge 2008; Harvey 2005; and Roy, Denzau, and Willet 2006.
7
8
See Gowan 1999.
See Steger and Roy 2010.
See Taylor 2007.
81
ideology triumphed throughout the 1980s and early 1990s under Reagan and Thatcher (who defined themselves as neo-conservatives rather
than neo-liberals). In the first phase of their tenure, both leaders put
forward various radical proposals aimed at dismantling or, at least,
retrenching key entitlement programmes (to use Reagans jargon)
within healthcare and old-age protection. Unemployment and socialassistance benefits (e.g., Aid to Families with Dependent Children in
the United States and Income Support in the United Kingdom) were
singled out as being especially wasteful and even immoral allowing some people to live off of other peoples taxes and were thus
the object of harsh discursive attacks and, subsequently, of various
material cuts and overall institutional retrenchment. In Continental
and Nordic Europe, neo-liberal views and proposals never reached
the tsunami proportions seen in the United States or the United
Kingdom, but various countries within these areas nevertheless witnessed the spread of neo-liberal economistic orientations, as well as
the appearance of anti-tax and anti-welfare parties that were able to
attract considerable consensus (a typical example was Forza Italia,
founded by Silvio Berlusconi between 1993 and 1994).9
At the supranational level, during the 1980s and early 1990s, economic neo-liberalism (and its monetarist core as elaborated by Milton
Friedman)10 succeeded in becoming deeply rooted, especially within
the OECD and most international economic organizations, the European Commission and, later, the ECB. Price stability, fiscal discipline, undistorted competition, free trade, consumer choice, deregulation, liberalization, and privatization acquired lexicographic priority
over any other economic and social objective.11 In combination with
Treaty rules programmatically biased towards negative integration,
economic neo-liberalism became the driving force of the two biggest
European projects and achievements of the 1990s: the Single Market and the Economic and Monetary Union (EMU).12 As has been
rightly noted, in their original formulations, both projects had mixed
9
10
11
12
See Larsen and Goul Andersen 2009 and Lindbom 2008.

Although linked to the liberismo of the 1940s and 1950s, Milton Friedman
and the so-called Chicago School of Economics developed a new
comprehensive economic-policy paradigm squarely challenging the
then-hegemonic Keynesian orthodoxy hence, the appropriateness, in the
Italian language, of the term neo-liberismo.
See Steger and Roy 2010.
See Ferrera 2005, Leibfried 2005, and Scharpf 2009.
82
objectives: partly economic and partly political and not programmatically hostile to the social dimension.13 The fact remains, however, that
the welfare discourse (increasingly dominated by trained economists
within the most prominent institutional and public arenas, e.g., the
financial media) displayed a visible anti-socialstate flavour. The welfare state was seen mainly as a liability, a source of rents and distortions
hindering market competition as well as of programmatically irresponsible spending commitments that threatened the soundness of public
finances. Retrenchment, roll-back, cost containment, and cuts
were common expressions used to prescribe and describe reforms in
the social-protection sphere.14
During the ascending phase of the parabola, the neo-liberal discourse
had a tangible institutional impact. The most emblematic national case
is, of course, the United Kingdom, where several reforms were adopted
in the field of unemployment insurance, second-tier pensions, social
assistance, and healthcare all explicitly motivated and justified in neoliberal terms.15 Through the new provisions of the Single European Act
and then the Maastricht Treaty, supranational neo-liberalism was able,
in turn, to impose increasing budgetary and (de)regulative constraints
on the internal functioning and structure of national social-protection
systems, reorienting their agenda towards efficiency, sustainability, and
work incentives.16 However, despite its unquestionable significance
and attractive force, in its ascending phase, neo-liberalism did not succeed in affecting the institutional foundations of the welfare state (i.e.,
state-funded and state-centred compulsory social insurance). Even in
the United Kingdom, Thatcherism did not bring about the general
13
14
15
As Frank Vandenbroucke reminded me (personal communication), one of the

driving forces behind both the Single Market and EMU was the Delors
Commission. Delors conceived the single market as a necessity to promote
economic prosperity but tried to parallel it with initiatives to relaunch an
EU-version of corporatism, which largely failed but nevertheless inspired the
Social Protocol to the Maastricht Treaty. Delors (and Mitterrand) wanted
EMU for political reasons, not because of neo-liberal conviction. Why, then,
did they accept the monetarist foundations of EMU? It seems plausible to
think that their cognitive apparatus with regard to the requirements of
monetary union was weak: They did not think it necessary to question the
largely monetarist reading of the problem of monetary policy that
intellectually dominated in the Commission services when EMU was prepared
(see Vandenbroucke 2012).
See Ferrera 2008 and Taylor-Gooby 2001.
16
See Hay 2001 and Gamble 1994.
See Falkner 2010.
83
overhaul of British welfare that the Iron Lady repeatedly advocated

in her speeches.17 On the Continent, the few radical proposals that
were formulated by neo-liberal formations for example, Forza
Italias plan to privatize the countrys health service in the first Berlusconi government in 1994 or the demands voiced in the early 1990s
by French self-employed associations to break the state monopoles
sociaux, including public pensions were not even officialized.18 In
turn, neither the Single Market nor the Maastricht Process prompted
a race to the bottom in terms of social standards that neo-liberal
opponents had predicted in the wake of liberalizations, greater market
compatibility requirements and financialmonetary austerity.19
In the early 1990s, the ideological climate began to change: the
ascending phase gradually halted. At the EU level, after the Single European Act, the Commission (and Delors, in particular) was
able to push through and heighten the visibility of its discourse on
the social dimension of integration, which led to the adoption of the
Social Protocol to the Maastricht Treaty. Later, a full-fledged doctrine
on the appropriate role of this dimension was defined (mainly by the
Employment and Social Affairs Directorate of the Commission, in collaboration with the European Parliament), under the general rubric of
social protection modernization.20 This doctrine was not presented as
an alternative to the neo-liberal perspective but rather as an enriching
and coherent expansion: Social policy was to be promoted (while modernized) because it was an important productive factor. The Employment and Social Chapter of the Amsterdam Treaty (1997), the launch
of the European Employment Strategy (1998), and, later, the adoption
of the Charter of Fundamental Rights with the Nice Treaty (2000)
and the establishment of the Social Inclusion Open Method of Coordination (OMC) (2001) comprised a clear result of this discursive
reorientation.21
At the national level, the neo-liberal critique of the welfare state
started in turn to be opposed by increasingly articulated cognitive and
normative counterarguments. Although accepting the challenge (and
the desirability) of modernization, such counterarguments suggested
that reforms should not be about only efficiency, cost containment,
17
19
21
See Pierson 1994.

See Ferrera 2005.
See Hemerijck 2012.
18
20
See Ferrera 1994 and Palier 2002.

See European Commission 2005.
84
and market incentives but also efficacy and distributive rationalizations guided by the principles of equity (including gender), inclusion,
and cohesion. This new discourse was certainly prompted by the threat
of neo-liberal hegemony, but it cannot be seen as a mere temporary
response to it. It was, rather, the fruit of a gradual and labourious
re-elaboration (already started in the 1980s) of other classical European traditions (e.g., Social Democracy, social and democratic liberalism, and to some extent Christian solidarism), as well as the new
Anglo-American school of egalitarian liberalism, emblematically represented by Rawls. This re-elaboration was also prompted by the need
to seriously confront the new challenges posed by European integration, globalization, and the rise of the service economy. In part because
of necessity, in part because of (conditional but genuine) conviction,
the new discourse came to internalize some of the cognitive and normative elements and institutional constraints of the neo-liberal stream: for
example, financial stability, the need to regain competitiveness, organizational efficiency, individual responsibility, and work incentives.
During the 2000s, the EU was a major arena and an important actor
for the elaboration of the new welfare-state modernization discourse
and agenda. Key programmatic notions (e.g., recalibration, active
inclusion, social investment, and social quality) were developed in
(and partly by) Brussels, which provided broad inspiration and specific
insights for the Lisbon and, later, the EU 2020 agendas. A novel strand
of intellectual debate also was launched on how to rebalance economic
and social objectives within the EU supranational architecture.22
The antineo-liberal strike back has come in separate waves, with
different political colours and discursive styles in different countries.
A first wave was prompted by the return to power of centre-left par` Schroeders
ties. Blairs Third Way, Prodis Welfare delle Opportunita,
Neues Modell Deutschand, and later Zapateros Nueva Igualdad are
emblematic examples of the different symbolic packages that framed
the agenda of welfare reform under centre-left majorities in the United
Kingdom, Italy, and, later, Spain. However, ideological re-elaboration
also took place in countries where centre-left parties had to govern
jointly with Christian Democrat or liberal parties, as in the redblack
coalition in Germany during the mid 2000s and the purple coalition
in the Netherlands in the 1990s.23
22
23
See Marlier and Natali 2010 and Cantillon, Verschuren, and Ploscar 2012.
See Stjerno 2005.
85
Is there a way to capture beyond national and party-political

variations the general nature of the postneo-liberal perspective on
the welfare state in the EU? When confronted with broad constellations
of changing political institutions and normative justifications drawn
by distinct intellectual blueprints but characterized by some degree
of coherence and temporal continuity political theorists sometimes
use the notion of ideological synthesis.24 Can we possibly speak of
postneo-liberal developments in these terms? Would the expression
liberal neo-welfarism be an appropriate label for this new ideological
synthesis? The following sections in this chapter argue in favour of a
positive answer to both questions.
Ideological change: The morphological approach

Discursive neo-institutionalism (DI) provides the natural analytical
approach to frame the two questions and develop an argumentative
strategy. Under the broad rubric of ideas, DI investigates a wide range
of distinct symbolic objects, conceptualized as frames, paradigms,
narratives, public philosophies, policy programmes, and so on.25
Vivien Schmidt suggested grouping all of these concepts into three
broad categories, according to their level of generality, as follows: (1)
philosophical ideas, which offer a deep-seated (i.e., ontological and
normative) underpinning for understanding the world and the appropriate actions to be undertaken by individuals and groups; (2) programmatic ideas, which provide problem definitions, analytical frames,
contextualized norms, and principles that allow diagnosis of the practical challenges of the real world and that elaborate response strategies;
and (3) policy ideas, which are circumscribed to particular situations
and tailored to different substantive problems.26
Schmidt locates ideologies within the first, broadest category. Political theorists, however, are accustomed to drawing a distinction
between a philosophy (i.e., a specific theory such as Rawlss Justice
as Fairness or a broader school of thought, such as Luck Egalitarianism) and an ideology.27 Philosophies rest on reflexive rationality;
proceed by logical arguments; maintain a critical awareness of their
assumptions and of the essentially contestable nature of their normative constructs; tend to elaborate general, typically abstract, and a
24
26
25
See, for example, Mueller 2009.
See Beland and Cox 2011.
27
See Schmidt 2008.
See Freeden 1996 and 2012.
86
historical theories; and employ a technical, often esoteric, language

and discursive style. By contrast, ideologies rest on rationality and
emotions; mix arguments and non-argued assertions (not always logically coherent and sometimes dissimulatory); are only partly aware
of their basic assumptions and tend to de-contest their values (i.e.,
treat them as intuitively right, non-disputed or non-disputable); and
elaborate spatially and historically bounded worldviews, expressed in
an accessible language, ready for public use. In respect of Schmidts
typology, ideologies should be located between philosophical and programmatic ideas: they keep a foot in the realm of political thought
and a foot in the realm of political action.28
Each ideology is characterized by an internal structure or morphology that is, a concatenation of concepts and bridging propositions
and reasoning. Following Freeden, we can distinguish among three
basic morphological components of an ideology: (1) the core components (i.e., the set of unremovable concepts and propositions), those
that cannot be eliminated without destroying the ideology itself (e.g.,
the concept of freedom as an absence of constraints in the case of
liberalism); (2) the adjacent components (i.e., concepts and propositions that are logically and culturally implicated by the core and
offer substance, determinacy, and richness to the ideology e.g., equal
opportunity or democracy); and (3) the peripheral components, which
are more marginally related to the core (e.g., well-being or solidarity)
but that are useful for linking the first two components to the spatial
and historical context of reference.29
Ideologies can be dogmatic or plastic, confident or tentative, absolute
or relative with liberalism displaying the highest degree of plasticity as well as programmatic openness via processes of trial and error.
Ideologies are not mutually exclusive but rather can have wide areas of
overlap in all three components (i.e., ideological overlapping consensus, to paraphrase Rawls). They can have different levels of generality
(from liberalism versus socialism to neo-liberalism versus social liberalism to single-thinkers liberalisms). They can cluster in ideological
traditions or even syntheses, which recombine the core and adjacent
components of lower-level ideologies into novel forms. Finally, ideologies emerge, evolve, and decline; they strive to adapt, mainly in
response to changes in the two realms in which their feet are planted:
28
See Freeden 1996.
29
See Freeden 1996.
87
(1) the realm of philosophical debates and the practical realm of political action (including the exercise of power), and (2) policy choice in
response to social and economic transformation. Although less clearly
demarcated than philosophical theories, ideologies typically have (and
strive to maintain) a visible boundary, with a view to providing a
recognizable Gestalt to actors engaged in conflict and/or cooperation
within a given framework of institutions and processes.
The morphological approach to the study of ideologies is useful for
the analytical framing of my two questions and my argumentative line.
The rise of the neo-liberal critique of the welfare state can be seen as a
clear example of an ideological turn that (1) re-elaborated in a rather
dogmatic and overconfident style the adjacent components of classical liberismo (e.g., the importance of free markets, undistorted competition, and consumer sovereignty); (2) eliminated all of the social
peripheral components that other liberal traditions had come to include
within their perimeter during the twentieth century (e.g., cohesion and
collective responsibility versus undeserved disadvantages; opportunities for full individual development), replacing them with a mix of
libertarianism and traditionalism; and (3) adopted monetarism as an
uncontestably superior counterparadigm vis-a-vis
Keynesianism, thus
`
squarely challenging the social-democratic consensus of the Trentes
Glorieuses.
As discussed in this chapter, during the 1980s, neo-liberalism succeeded in being affirmed as a dominant ideology, reaching its peak at
the turn of the decade. In the subsequent period, its traction began
to decline and new ideological bricks began to be posed in various
national and supranational public arenas, drawing the contours of a
postneo-liberal perspective on welfare-state modernization, which
as anticipated in the Introduction to this chapter I propose to label
liberal neo-welfarism. To what extent can an ideological core be identified in this perspective and can we define it overall as liberal (i.e.,
liberale, not liberista)? Can a relatively coherent mix of adjacent components be identified and does the expression liberal neo-welfarism
capture the overall essence? Can the new perspective be considered an
ideological synthesis of different traditions (e.g., liberal, Social Democrat, and in part even Christian Democrat), drawing a perimeter of
overlapping ideological consensus that might serve as a morphological counterpart to the social-democratic consensus of the 1960s and
1970s?
88
To answer these reframed questions, I proceed in three steps. First, I

identify the main triggers of ideological change from neo-liberalism to
postneo-liberalism. Second, I discuss the actors of change and their
impact. Third, I establish whether the new ideological bricks can be
put together to form a relatively coherent new synthesis.
The rise of postneo-liberalism

As noted previously, ideological change typically proceeds from transformations that occur in the practical realm of society and/or in
the philosophical realm. At least four distinct transformations that
prompted the rise of postneo-liberalism in welfare-state discourse
can be identified.
The first transformation affected the social and economic environment of the welfare state in the wake of both endogenous and exogenous challenges. Beginning in the 1970s, population ageing, the shift
to a service- and knowledge-based economy, the change in household
patterns, and gender relations created serious upheavals in Europes
productive, occupational, demographic, and more generally social
structures.30 Increasing market opening in the EU and beyond altered,
in turn, the boundary configuration on which the Keynesian and
Fordist welfare state had rested, thereby exposing territories, social
groups, and economic sectors to a new set of risks and opportunities.31
In the wake of such structural transformations (which became increasingly visible and statistically documented during the 1990s), the neoliberal critique of the welfare state started to lose credibility. Its diagnosis of the nanny state had been elaborated with reference to the
old Keynesian state and the welfare capitalism of the Trentes Glorieuses; most of the new welfare challenges linked to postindustrialism
and globalization were falling outside of the scope of the overall analytical and prescriptive frame of neo-liberalism; and some of the most
acute new social needs could actually be seen as consequences of the
neo-liberal reforms (e.g., the rising levels of child poverty and income
polarization).32
A second transformation affected the politics of welfare. Under
the impact of postindustrialism, postmaterialism and individualization, and market opening and globalization, the political markets
30
See Hemerijck 2012.
31
See Ferrera 2005.
32
See OECD 2011.
89
of European welfare democracies were reconfigured away from the

social-democratic compromises that had characterized the Golden
Age that is, compromises built and upheld by the expansion of social
entitlements to the Fordist middle mass. The traditional class cleavage
started to lose salience in the structuring of political preferences and
alliances, raising increasing challenges to the old mass- and class-based
parties and, in particular, to traditional Social Democracy.33 The welfare state as such became an issue of contention, increasingly pitting
insiders against outsiders and generating a complex new politics.34
Except in the United Kingdom, neo-liberalism proved to be an ineffective ideological glue for building and maintaining new social and
electoral coalitions: welfare cuts were unpopular, even for the middle
classes. In its formative moment, Berlusconis Forza Italia enthusiastically espoused the neo-liberal critique against the tax-welfare state.
After its failed attempt to reform pensions in order to lower taxes,
which led to the fall of its first cabinet after only a few months,
Forza Italia hastened to reshape its ideological profile towards more
traditional conservative and social market moderatism. Being more
removed from electoral politics, the EU was politically allowed to stay
with neo-liberal orthodoxy for a longer period. However, pressed by
a growing number of national governments and eventually becoming
aware of its own legitimacy problems, even Brussels thought it better
to elaborate the new inclusion and cohesion discourse to reassure the
increasingly worried public opinion.35
The third transformation occurred in the philosophical and intellectual realms. In the early 1970s, John Rawlss Theory of Justice (1971)
inaugurated a novel era in Anglo-Saxon analytical political philosophy,
reviving Kants contractual tradition and incisively redefining the relationship between liberty and equality. Since the publication of Rawlss
major volume, philosophical liberalism has been largely engaged in
the discussion of the famous Difference Principle, according to which
social inequalities can be justified only if they turn out to promote
the greatest advantage of the worst off. Such a principle is presented
as the rational choice of individuals located in an Original Position,
debating under a Veil of Ignorance on how to design a just and basic
33
34
35
See Rhodes (In press).

See Pierson 2001, Armingeon and Bonoli 2006, Rueda 2007, and Hausermann
2010.
See Ferrera 2006.
90
structure of society. There is no doubt that Rawlss theory has been,

by far, the most influential contribution of the new Anglo-American
school of philosophical liberalism. However, other approaches have
been developed within the school during the last three decades, which
aim to combine the core liberal concept of liberty with a system of
distribution that is capable of optimizing the well-being of individuals
and groups within society. Starting-gate egalitarianism (Ackerman),
resource-based egalitarianism (Dworkin), and to a lesser extent
desert-based liberalism (Miller) are other important strands of the
Anglo-American school, which launched an attack on the individualistic and libertarian assumptions and anti-egalitarian stance of neoliberalism. From different perspectives, neo-liberalism was also a target
of attack from the Communitarian (Sandel, Walzer) and Republican
(Pettit) strands of the Anglo-American debate on social justice, solidarity, and cohesion.36
As highlighted by reception theorists, despite its esoteric language
and technical sophistication, Anglo-American liberalism and especially Rawls made rapid and deep inroads into most European
national political cultures in the 1980s and 1990s.37 The consumption
of egalitarian (and, to a lesser extent, Communitarian and Republican)
liberalism not only by academic philosophers but also by various public intellectuals, the media, and even individual politicians suggests that
the neo-liberal parabola had created a demand for alternative ideological positions that were capable of (1) framing in different terms the
classical trade-offs between liberty and equality, efficiency and equity;
and (2) redefining the notion of social justice and, thus, the normative
evaluation of welfare-state institutions.38
36
38
37
For a general review, cf. Kymlicka 2011.
See Laborde 2002.
An interesting example of consumption for ideological purposes of the
insights coming from the new Anglo-American liberal-egalitarian school is
offered by this exerpt by Frank Vandenbroucke, taken from a paper presented
at a conference on the future of the centre-left in 1998: Today, even more than
in the past, social democracy needs a moral programme . . . Some abstract
problems discussed in the framework of egalitarian philosophy over the last 20
years are highly relevant in this respect, since they provide the possibility to
develop a true social-democratic, responsibility-sensitive conception of
equality. The reconciliation of appropriate conceptions of equality with
appropriate conceptions of personal responsibiity has been a focal point of
many exchanges in the philosophical domain developed by Rawls, Sen,
Dworkin, Cohen, Arneson, Roemer, Kolm, Barry . . . The author is an
academic philosopher/social scientist who at the time was also actively
engaged in Belgian and EU politics within the Socialist Party. He became
91
The fourth development is the ideological revisionism that took

place within national political cultures, partly (but not exclusively) as
a response to the first two transformations and in the wake of the new
philosophies produced by the Anglo-American school. In the Nordic
countries, the national social-democratic traditions based on strong
egalitarianism coupled with the work-line were revisited and became
more prioritarian (i.e., a Rawlsian emphasis on the worst off; acceptance of just market inequality) and productivist (i.e., active inclusion
to sustain growth and, thus, solidarity in the long run).39 In the United
Kingdom, the Third Way drew mainly from the tradition of social
liberalism and Fabian socialism, revisiting it through the lenses of new
American egalitarian and Communitarian liberalism (i.e., emphasis
on life chances, combining options with social bonds, and individual
development, as well as duties and responsibilities) and building on
Giddens postmodern social theory, emphasizing active participation
and the enabling role of the welfare state.40 Under Zapatero, the Spanish Socialist Workers Party (PSOE) took new inspiration not only from
the liberal egalitarians but also from neo-Republicans (e.g., Pettit), with
their emphasis on the welfare state as a vehicle and guarantor of strong
citizenship based on the notion of liberty as non-domination.41
Albeit less incisive and timely than within the left camp, ideological
revisionism has indeed taken place within the moderate camp as well.
Under the pressure of secularization and individualization, Christian
Democrat parties have gradually relaxed their traditional emphasis on
familialism and come to terms with the gender-equality and newrisks agendas, drawing significant inspiration from Communitarian
thinkers.42 Partly drawing from ordo-liberalismus and classical Christian solidarism, in Germany, the idea of a social-market economy was
39
40
41
42
Minister for Social Affairs and Pensions in 1999 and promoted a number of
important debate initiatives at the EU level, especially during the Belgian
Presidency of the first semester of 2001 (cf. Vandenbroucke 2001 and 2002).
See Huo 2009; Kildal and Kuhnle 2005; and Kvist, Fritzell, Hvinden, and
Kangas 2012.
See Beech 2006.
See Martin and Pettit 2010. Under Zapatero, the PSOE elaborated on an
original doctrine of citizens, socialism, combining a strong prioritarian
egalitarianism (the consolidation of a robust fourth social protection pillar
alongside universal education, healthcare, and pension targeted towards the
worst off) with an equally strong rights-based, non-discrimination agenda in
defence of individuality, minority recognition, and gender parity (see Sevilla
2002).
See Seeleib-Kaiser, Van Dyk, and Roggenkamp 2008; see also Stjerno 2005.
92
revived on the occasion of its sixtieth anniversary and has now found a
key position in Article 3 of the Lisbon Treaty.43 Secular moderate parties have been the last to move but, in the previous decade, revisionism
has been taking place at this end of the political spectrum as well. The
goal of welfare retrenchment and tax cuts has been markedly marginalized, for example, in the ideology of the Swedish Moderaterna, which
has come to support a modernization agenda based on the growth
competitivenessinclusion triad.44 Mariano Rajoy won the 2011 election in Spain with a growth-centred platform, largely devoid of those
neo-liberal proposals in the social sphere that had been endorsed by
his predecessor, Jose Mara Aznar. British Conservatism, in turn, has
gradually distanced itself from Thatcherism in an effort to incorporate
a new social dimension through the notion of welfare society or welfare community and, more recently under Cameron, the Big Society
(on this, cf. infra).
Actors and impact

Ideologies and ideological change can be studied (1) in a pure morphological perspective (i.e., highlighting the internal logic linking core components to adjacent components and peripheries a logic that to some
extent always filters or constrains the relationship between an ideology
and its external environment); (2) in a historical-institutional perspective (i.e., looking at formative moments, ideational path dependencies,
temporal sequences, and critical junctures in which relatively independent macro-processes e.g., a social transformation, an electoral dealignment, the emergence of a novel philosophical approach intersect
with one another, opening up opportunities for ideological reconfigurations); and (3) in a discursive institutional perspective, focusing
on the practices through which ideologies are constructed, acquire
political and policy salience, structure interests and preferences, shape
institutional outcomes, and so on.
In the discursive institutionalist perspective, ideas (in the widest
sense, from philosophic to policy) circulate through communicative
and coordinative discourses.45 They are carried by individual agents
that often directly or indirectly represent social collectivities (e.g.,
43
44
See Glossner and Gregosz 2009.

See Lindbom 2008 and Bergh and Erlingsson 2009.
45
See Schmidt 2008.
93
movements; parties; civic, economic, and cultural associations; and

think tanks), which interact in a multiplicity of arenas. Given its dual
anchoring (i.e., in the philosophical and the practical realms), an ideological act can be thought of as a thought-practice (i.e., action) that
(1) attributes a specific meaning to a political concept (cluster of concepts); (2) de-contests this meaning (deliberately or unconsciously) (i.e.,
presents it as desirable, good, and right beyond dispute); and (3) makes
it politically relevant by linking it to policy challenges and/or consensus building. As a rule, ideological acts leave documentable traces in
the form of texts with some material support.46
The performers of ideological acts can be conceptualized as secondhand dealers (without a pejorative connotation) of philosophical ideas
for political purposes that is, with a view to problem solving and consensus building. Ideologues thus can range from professional philosophers (or other social scientists with philosophical competence) acting
as public intellectuals (e.g., Giddens) to policy middlemen (according
to Heclo) that is, scholars and intellectuals who operate at the crossroads between academia and policy making (e.g., Vandenbroucke) to
bureaucrats with vision (e.g., Delors), to charismatic political leaders
who are capable of speaking in the guise of statesmen-philosophers
(e.g., Blair). These actors can use ordinary discursive arenas (i.e., the
media, parliaments, electoral campaigns, and policy-making institutions) as well as dedicated arenas, established around a given collective
problem.
The rise of postneo-liberalism in the European welfare discourse
has been transmitted by a large number of second-hand dealers.
Many exponents of the new Anglo-American school have engaged in
explicit ideological campaigning in favour of their welfare-friendly theories, some establishing close and preferential personal relationships
with individual political leaders: consider the GiddensBlair, Etzioni
Clinton, Van ParijsVandenbroucke, and PetittZapatero pairs.47 In
virtually each national political culture, it is possible to identify one or
more welfare gurus with postneo-liberal orientation acting as ideologues of welfare-state change, often in competition with neo-liberal
counterparts but also with hard-line defenders of the status quo,
especially within the Old Left. At the national level, new think tanks
of postneo-liberal orientation have proliferated and facilitated the
46
According to Searle 1995.
47
See Martin and Pettit 2010.
94
communicative and discursive dissemination of the new ideas (e.g., the

Policy Network in the United Kingdom).48 Many governments have
created national commissions with outside experts and intellectuals
charged with the task of setting the route for welfare reform, and
many have become vehicles of the postneo-liberal approach in some
version (e.g., the Onofri Commission in Italy).
A sort of postneo-liberal ideological community around welfarestate recalibration (and, more recently, Social Europe) has gradually
formed since the late 1990s, linked not only by academic exchanges
(e.g., within the Forum on Recasting the European Welfare State that
took place in 19981999 at the European University Institute [EUI]
in Florence) but also by a common engagement in policy advice (i.e.,
coordinative discourse) and intellectual persuasion relative to the wider
public (i.e., communicative discourse).49 Various dedicated think tanks
have favoured and accelerated this process. The EU has also had a
primary role, as previously mentioned: the Employment and Social
Affairs Directorate of the Commission; the European Parliament; and
various EU presidencies (i.e., the most active between the 1990s and
2000s include Dutch, Portuguese, Belgian, and British) launched an
impressive series of initiatives on virtually all fronts and dimensions
of welfare-state change, giving space and visibility to postneo-liberal
public intellectuals. Through the processes based on the OMC (Open
Method of Coordination) on inclusion, pensions and health care and,
more generally, its social agenda, the EU also created unique arenas
and incentives for production and dissemination of the new ideas.50
Gauging the impact of postneo-liberalism on actual reforms is,
of course, a complex and difficult exercise, which is beyond the
scope of this chapter. Suffice it to say here that the empirical literature on welfare-state change (1) acknowledges the presence and
growing importance of the new discourse in relevant communicative and coordinative arenas; (2) confirms that such discourse has
given a recognizable contribution to the adoption of national strategies or specific reforms, especially (but not exclusively) in the United
Kingdom under New Labour and in the Nordic countries (although
with important dissimilarities); and (3) points out, however, that so
far the implementation of the new programmatic ideas (e.g., social
investment and active inclusion and, thus, the realization of their
48
50
49
See Stone and Denham 2004.
See Ferrera and Rhodes 2001.
See Sabel and Zeitlin 2010 and Vandenbroucke 2012.
95
underlying ideological principles) has been mixed. Scholars positions range between moderate pessimism and moderate optimism.
According to Hemerijck, with significant country variations, without exaggeration we can . . . infer from the empirical evidence of long
run social policy change that the translation of the social investment
paradigm into new welfare provisions has been largely successful.51
In more general terms, I concur with Hemerijck and Huo (theoretically and substantively) that the emergence of a new ideological and
programmatic paradigm should not be expected to produce congruent institutional outcomes in any deterministic or semi-deterministic
way; rather, it must be seen as something that generates policy alternatives and creates options. I also concur with both authors that
the alternatives and options opened up by postneo-liberalism may
well liberate actors from the constraints of institutional inertia and
path dependence as well as the hegemonic chains of the neo-liberal
ideology.
Liberal neo-welfarism: Towards a new ideological synthesis?

Ideologies are distinctive symbolic artefacts that must be kept separate from philosophies, on the one hand, and programmatic ideas
on the other hand. Ideologies differ not only in terms of substance
and morphology but also in terms of generality. At the lowest end
are single-thinker ideologies; at the highest, ideological syntheses. The
latter are broad combinations of components drawn from different
traditions or schools of thought: in a morphological language, they
pool the (re-adapted) cores of such traditions, as well as a number of
common adjacent components and may even create new peripheries.
An ideological synthesis leaves room for differentiation at lower levels
and may well leave outside its scope other competing ideologies (at its
own or lower levels). The social-democratic consensus that accompanied the consolidation of the postwar welfare state can be perceived as
an emblematic example of a broad synthesis, within which left and
right could still compete on (non-pooled) adjacent and peripheral
components.
To a large extent (and if viewed at a high level of generality),
what I describe as the postneo-liberal perspective on welfare-state
51
Hemerijck 2012; 380; see also Morel, Palier, and Palme 2011; Huo 2009; and
Evers and Guillemard 2012.
96
modernization can be considered as an emerging ideological synthesis, which draws together the core values of the liberal-democratic
and social-democratic traditions (i.e., liberty and equality); de-contests
each and their relationship in a new way; and re-adapts a number
of the adjacent components of each tradition. Postneo-liberal is a
label endowed with minimal connotative power (at least, it makes
clear what the perspective is not); however, can a more effective and
appealing label be proposed? Nomina sunt omina that is, naming
something largely predetermines its fate and is, thus, a delicate operation, exposed as it is to misunderstandings and misappropriations
(as well as to the paradox of performing by this very operation a
second-order ideological act). I tentatively submit here the notion of
LNW. A true child of both traditions, the welfare state (and, more
generally, the notion of good welfare) has symbolically come to
be perceived as the achievement of Scandinavian Social Democracy:
the noun welfarism is chosen in acknowledgement of this fact.52 The
new perspective innovates from the past in both its approach and
the objects and problems approached: hence, the prefix neo. The
adjective liberal is meant to underline not only the social-liberal tradition (often labelled as welfare liberalism in histories of political
thought) but also two other normative commitments: (1) the commitment to individuality, rationality, and openness (including economic
openness functioning markets); and (2) the commitment to maintain a reasonable balance between competing values and inevitably
contrasting normative pulls.53
The LNW ideology tends to de-contest the notion of liberty in at
least three ways. First, while recognizing the lexicographic priority of
negative freedom (a` la Rawls), it views it as inextricably linked to positive freedoms and opportunities that allow for self-development and
flourishing (i.e., the Millian perspective). Second, it builds (also) on
negative freedom to strengthen the principle of non-discrimination
and, thus, to generate new types of civil rights with strong social
implications (e.g., gay marriage, gender quotas, minority rights and
52
53
The elaboration of a thick notion of welfare, extended from the alleviation of

poverty to the full elimination of material need and the satisfaction of a wide
range of human needs through collective arrangements, is a distinctive
achievement of Swedish Social Democracy and its political theory (see Tilton
1990).
See Freeden 2008 and Magnette 2009.
97
recognition, and pro-choice options in ethically sensitive areas cf.

the Spanish experience). Third, the LNW ideology emphasizes the link
between liberty and fundamental rights (cf. the approval of the Charter
of Fundamental Rights at the EU level).
Likewise, the notion of equality is de-contested by soft-pedalling
outcomes in favour of opportunities, life chances, and capabilities
and functionings (a` la Sen). Although not giving up the goals of protection and solidarity, LNW equality assumes moreover (1) a dynamic
character (what matters is the life cycle, not here and now equality); (2) a multidimensional character (not only income but also other
aspects such as minority status and especially gender); and (3) a prioritarian character (Parfit 1991) while maintaining universality in access
to public services and benefits, social policy (and, more generally, the
tax-transfer system) should prioritize the worst off.
Following the insight of the Anglo-American school, the relationship between liberty and equality is essentially framed in terms of
social justice: a concept that is programmatically meant to reconcile
the inviolability of basic liberties and democratic procedures with the
necessity to accurately and convincingly justify any departure from
strict egalitarianism in the distribution of the goods of social cooperation (i.e., the fairness requirement of social distributions). The notion
of social justice also is used to frame and address two other delicate
issues: the recognition and integration of ethnic and cultural minorities and the appropriate balance between national (and supranational)
standardization and financial solidarity, on the one hand, with subnational, local, and communal identities and social bonds on the other
hand.
Pooled adjacent components of the emerging synthesis include most
prominently the three notions of productivist or flexible solidarity, active inclusion, and social promotion. Taken together, these
three notions can be largely perceived as bridge concepts with the
aim of reconciling tensions typically generated by the libertyequality
dyad: competition versus cooperation, individual versus society, personal versus collective responsibility, desert-based versus need-based,
choice versus coercion, and globalism/cosmopolitanism versus localism/communalism. Productivist solidarity (i.e., a key historical adjacent component of Scandinavian Social Democracy) refers to the idea
that the collective guarantee and provision of social benefits and services is not only a fundamental instrument of egalitarian redistribution
98
and social protection and cohesion but, indeed, also a productive factor
that can enhance economic performance provided that it is based on
reciprocity, readiness to work, and participation in society. The fight
against poverty and the promotion of inclusion should be priorities
and should be pursued not only by passive transfers but also through
quality services and training opportunities. The counterpart of inclusion is activation that is, the expectation and requisite that recipients
engage in activities that promise to re-enable them to become economically self-sufficient. The notion of social promotion emphasizes the
importance of preparing individuals to face the manifold risks of their
life cycle rather than repairing ex-post the damages of risks. Social
investments (e.g., in early education and care, training, worklife balance, long-life learning, and active employment services) are key to
empowering individuals in the realization of their life plan (i.e., Millian
liberty); in equalizing opportunities and guaranteeing fair outcomes,
especially for the most vulnerable (i.e., prioritarian egalitarianism);
and, at the same time, upholding economic performance and financial
sustainability (i.e., social-democratic productivism). A fourth component (less explicitly debated but much taken for granted) might also be
added in the adjacent area of the new synthesis: access to subjective
rights. The emphasis on rights is meant to clarify that the institutional core of the European model of welfare (i.e., social citizenship
guaranteeing protection against the main societal risks, underpinned
by robust universal civil and political rights) should continue to be
a fundamental pillar in the reconfigured and refocused mix of entitlements and duties. A second clarification is that rights should be
individualized that is, disconnected from ascriptive conditions and
family status.
Figure 3.1 summarizes the key elements and relationships of LNW.54
In the figure, the inner diamond rests on the two core notions of equality and liberty. Their novel de-contestations also serve to reframe
54
(2012) also suggested a

In a recent contribution, Silja Hausermann
two-dimensional space within which to place various party families, based on

their attitude towards expansion versus retrenchment (or adjustment) of the
old social policies and expansion versus retrenchment (or opposition to) of
new policies. Figure 3.1 is an internal articulation of the space characterized
by support for new social policies and for adjustment and recalibration of the
old policies.
99
opportunity
access to
rights
social
investment/
promotion
EQUALITY
LIBERTY
flexible/
productivist
solidarity
active
inclusion
community
Figure 3.1. The ideological morphology of liberal neo-welfarism.
other classical concepts associated with welfare-state institutions, such

as security or redistribution on the left and individual autonomy or
meritocracy on the right.55 At the upper and bottom corners of the
figure are two ancillary but still general notions that is, opportunity and community often used to bridge the link between the two
core components and to substantiate the concept of social justice. The
outer square of the figure contains the four main adjacent components
of LNW: access to rights, social promotion, productivist/flexible solidarity, and active inclusion. The position of each component loosely
reflects its degree of proximity to the core referents and their relationship. There is, of course, much more in the LNW synthesis for example, the wish for re-embedded markets and the attention to social
and political legitimacy in allocative and distributive reforms. However, the figure is sufficiently suggestive, I believe, to highlight how
the key components are indeed clearly distinct from the neo-liberal
ideology, with only limited overlaps mainly regarding the importance of a healthy economy based on functioning markets and fiscal
sustainability.
Liberal neo-welfarism: One or many?

As documented by a rich literature, above the shared floor of the
Keynesian social-democratic consensus that characterized the Trentes
Glorieuses, partisanship on the leftright dimension was significant
55
See Flora and Heidenheimer 1981.
100
in shaping spending patterns and institutional profiles of individual

countries and composite welfare regimes.56 It may be true that since the
1980s, leftright partisanship has been losing its historical relevance for
policy choices; however, we can expect that the emerging ideological
synthesis will still allow for internal differentiations, reflecting national
traditions and policy legacies, genuine axiological emphases and orientations, as well as political and electoral strategies. LNW has emerged
essentially as a reaction to neo-liberalism and neo-conservatism, as a
result of revisionist efforts within Europes main ideological families
(i.e., in primis Social Democracy but also democratic and social liberalism and, to a lesser extent, Christian Democracy) and a certain
degree of mutual hybridization. It is worth repeating that in my perspective, LNW connotes something wider and more general than the
so-called liberal or Third Way turn in Social Democracy and certainly
must not be considered as second- or third- wave neo-liberalism.57
It is, rather, a genuine ideological innovation, which recombines, redefines, and updates concepts drawn by those traditions that had most
suffered by the neo-liberalconservative attacks during the 1980s and
early 1990s. The time now seems ripe, however, for a new phase of redifferentiation within the perimeter of LNW. Shared and de-contested
symbols are not effective for electoral mobilization relative to either
issue-voters or party-identifiers. It is not surprising that LNW parties are developing an interest in elaborating distinct and competitive
framings in order to win support.
As noted by Morel, Palier, and Palme, the discourse on social investment has already begun to display, for example, two recognizable
variants: (1) a Third Way, social-liberal variant; and (2) a Nordic,
social-democratic variant.58 In the judgement of these authors, the
former although undoubtedly departing from Thatcherite neoconservatism does not represent a clear enough break from neoliberalism (p. 360). This incomplete break may well explain why
Labours current leader, Ed Miliband, is pushing the partys discourse in a leftward direction, although not reneging on the fundaments of the Third Way. The social-investment discourse is also
currently undergoing significant qualifications within the Continental centre-leftist debate. The best summary of such qualifications is
56
57
58
For a review, cf. Schmidt 2010.

As suggested, for example, by Steger and Roy 2010.
See Morel, Palier, and Palme 2011.
101
provided by Cantillon: the logic of social investment entails a tendency to underestimate the workings of labour markets and the
strong gravitational pulls of social class, and to consequently overestimate the potentiality of activation . . . and depreciate the question of redistribution, of social protection and of care for the most
vunerable.59 Insisting on the need to safeguard the traditional acquisitions of the French model, based on the securite sociale, Francois
Hollandes manifesto in the 2012 elections can also be interpreted
as an attempt at recasting LNW in more distinctively socialist terms.
A product of the fusion of the reformist wings of the old Partito
Comunista Italiano (PCI) and the old Democrazia Cristiana (DC),
and incorporating at the same time the remains of traditional progressive liberal and secular formations, the Italian Democratic Party
(PD) constitutes, in turn, another distinctive (and highly) hybrid
variant of LNW within a single party on the centre-left, markedly
skewed towards the equalitycommunity axis shown in Figure 3.1.
To distinguish the emerging variants of LNW on the centre-right,
the debate has recently coined two other labels. The first is Liberal
Communitarianism, which is an approach that stresses the role of the
family, local communities, and voluntary associations as key actors for
responding to new risks and needs in the civil-society arena, not only
through the state arena. This vision embraces many of the elements of
LNW but seems to be bending towards a distinctive route, which can
be interpreted depending on viewpoints as either a social democratization of Christian Democracy or a Christian democratization of
Social Democracy.60 In both cases, the liberal dimension remains
in the shadows, especially concerning the individualization of rights,
gender, sexual orientation, and ethically sensitive matters regarding life and death. The second label is Progressive Conservatism,
which is intended to denote all centrist and centre-right political formations (including the German Christian Democratic Union [CDU],
the Spanish Peoples Party [PP], and the Swedish Moderaterna) that
have broken with Thatcherism and have come to espouse mild forms
of LNW.61
59
60
61
See Cantillon and Vandenbroucke (In press).

See Van Kersbergen and Hemerijck 2004 and Seeleib-Kaiser, Van Dyk, and
Roggenkamp 2008.
See Diamond 2011.
102
A detailed and systematic illustration of the specific party-ideological

substreams that have begun to flow within the LNW boundaries is
beyond the scope of this chapter. A few speculative comments are suggested, however, by examining the broad families of parties that are
present within the European Parliament. Even a summary reading of
the various political groups manifestos confirms that LNW fundamentals are accepted by four groups: the Progressive Alliance of Socialists
and Democrats (S&D), the European Popular Party (EPP), the Alliance
for Liberals and Democrats for Europe (ALDE), and the Greens-Free
European Alliance (Greens-EFA). In the latter two groups, however,
a few national parties still adhere to neo-liberalism (e.g., the German
Free Democratic Party [FDP]) or espouse eco-radical ideologies with
little link to LNW. Simplifying the labels that promise to capture the
likely ideological differentiation within LNW seem to be (cf. Fig. 3.1,
from left to right) as follows: egalitarian-liberal LNW (i.e., prime
emphasis on equality and opportunity); social liberal (i.e., liberty and
opportunity); liberal communitarian (i.e., equality and community);
and progressive conservative (i.e., liberty and community).
The European Parliament is home to three other political groups,
which leads to the issue of ideological competition from without that
is, on the side of parties that do not embrace LNW. A first question
relates to the British Conservatives, by far the most important members of the European Conservatives and Reformists (ECR) group.
According to most observers of the UK situation, Camerons Conservatives are considered as still essentially neo-conservatives: that
is, they actually represent the most resilient bulwark of this camp in
contemporary Europe.62 It is recognized that the original ideological
foundations of the Big Society project were indeed innovative relative
to both traditional conservative thinking and Thatcherism. In the writings about Red Toryism that inspired the Big Society project, Philip
Blond (considered by some as Giddens counterpart in renovating rightwing ideology in Britain) embraced elements of LNW especially in its
Communitarian dimension: the distrust in self-regulating markets and
monopoly capitalism; the support for a civic vision of community
empowerment; and a full-blooded, cohesive new localism, resting
on vibrant economies and strong social bonds.63 Such views clearly
resonated in the pre- and immediate postelection campaign of 2010.
62
See Bale 2012.
63
See Blond 2010.
103
However, the Conservative platform was selective from the beginning

and its flirtation with Red Toryism has gradually given way to the more
traditional morals-plus-the-market discourse, increasingly similar to
that of US Republicans and even echoing some Tea Party ideas.64 Neoconservatism may no longer be very well, but it is certainly still alive:
LNW has not yet won its war.
Another and more powerful source of ideological competition from
without is rising neo-populist parties of the right (grouped under
Europe of Freedom and Democracy [EFD]) and from the radical
left (European Unified Left). To paraphrase Le Pen, right-wing populism is socially left, economically right, but above all nationalist.65
Its discourse is ambiguous and incoherent: on the one hand, it stresses
cohesion, defends acquired social entitlements, and calls for additional protections (and protectionism); on the other hand, it voices
objections to taxation, red tape, and state regulation and speaks in
favour of non-public and communal service provision. Its idea of solidarity is exclusive, reserved for members of the national, regional, and
local community; against all sorts of strangers; and against any process of opening, supranational integration, or globalization. In many
EU member states, right-wing populist parties have already achieved
high support and are eroding the social basis of mainstream parties of
both the centre-left and the centre-right.66 In Italy, France, the Netherlands, and increasingly the Nordic countries, the coalition and/or
blackmail potential of such parties forces electoral competition, government formation, and policy making to come to terms with them
and, thus, with their ideology.
Left-wing radicalism is also on the rise.67 Its discourse includes nostalgic appeals to the good old days of national Keynesianism-cumThird World internationalism, strong anti-globalism, a critique of consumerism, and often de-growth proposals and radical ecologism. As
right-wing populists, the radical left is also against the EU, market
opening, and free trade. The social basis of these parties is less stable
and homogeneous than the New Right, but they thrive on the growing political distrust and alienation of significant segments of national
electorates especially among younger cohorts experiencing social and
occupational precariousness. In Italy (the country with the strongest
64
67
See Bone 2012.

See March 2011.
65
See Le Pen 2011.
66
See Mudde 2007.
104
Communist Party of the West until the early 1990s), the radical-left
formations that splintered away from the Italian Communist Party
(PCI) after its conversion into a social democratic party in 1993 disturbed in various ways the emergence and consolidation of an LNW
agenda within the centre-left.
The rising political importance and size of populist and radical formations in most European party systems signal the emergence of new
lines of conflict concerning the issue of European integration and the
defence and reform of the welfare status quo. The presence of these
(new) electoral competitors from without is likely to generate additional (and possibly stronger) incentives for competitive ideological
differentiation from within the perimeter of LNW. Francois Hollandes
discursive strategy during the 2012 election campaign (an attempt, as
previously mentioned, at outlining a socialist-egalitarian variant or
supplement of the new paradigm) can be interpreted as a sign of this
dynamic. The rationale for differentiation also can be illustrated a contrario. Mario Montis government in Italy, supported in Parliament
by a strange-bedfellows coalition, including the Democratic Party
(centre-left), the Union of Christian and Centre Democrats (UDC)
(centre), and the People of Freedom (PDL) (i.e., Berlusconis party,
now led by Angelino Alfano), was formed in December 2011 with a
platform centred on stability, growth, and equity we could say a neoliberal fiscal agenda with all the neo-welfarism that was possible in an
emergency situation. Throughout 2012, the political consequence of
this centripetal convergence of mainstream parties was an increasing
electoral and ideological centrifugation to the benefit of neo-populist
and radical formations a dynamic that casts a shadow on the future
prospects of Italys politics and its still unbalanced welfare system. The
most emblematic example to date of the same syndrome is illustrated
by the Greek elections of June 2012. In the face of mounting neopopulist opposition at the extremes, the two mainstream traditional
parties Nea Democratia and the Pasok (which would certainly not
be included among the champions of LNW but would still be kept at
least minimally within the welfare modernization perimeter) have
found it difficult to form a postelection proEU coalition.
Despite its discursive predominance within the main political families of the European Parliament, LNW has not (yet?) been capable of generating an effective cross-party alliance. Vandenbroucke
recently evoked (and recommended, in his role of policy middleman) a
105
scenario of historical compromise among the Social Democrats, the

populars, and the liberals, in support of the social investment (cumsocial-protection) paradigm.68 Indeed, such a move could have a significant impact in the various supranational arenas and possibly contribute to social bending of the ongoing debate over the economic and
financial crisis. Although it is ideologically feasible, this scenario does
not seem at the time of this writing within actual political reach.
Conclusion
This chapter argues that neo-liberal ideas (in the Italian connotation of
neo-liberismo) have displayed a parabola of influence on welfare-state
transformation, which is now in its descending phase. A novel liberal
neo-welfarist ideological synthesis has gradually been affirmed, creatively combining insights from both liberalism (i.e., liberalismo) and
Social Democracy and using them to elaborate a new vision of the
nature and role of the welfare state in a globalizing and knowledgebased economy. Regarding the lines of explanation put forward by
Schmidt and Thatcher in Chapter 1 of this book, my argument can
be reframed as follows: resilience is related to liberalism rather than
neo-liberalism. As emphasized in the first chapter of this volume, liberalism has always shown a high ideational plasticity, a capacity to
adapt for example, by dropping certain peripheral aspects of its
doctrine and partly merging with other ideological traditions. Thus,
LNW maintains not only the core of liberalesimo (i.e., the protection
of negative freedom) but also key elements of various liberalismi (e.g.,
individuality, equal opportunity, non-discrimination, appreciation for
functioning markets, and a competitive, open economy). At the same
time, LNW is not only liberal because it also crucially includes various key elements of the social-democratic tradition (e.g., solidarity,
redistribution, inclusion, and universalism). Even during the heyday
of neo-liberalism, this latter tradition remains highly resilient in the
Nordic context. It has also had a prominent role in the philosophical
elaboration of the egalitarian-liberalism paradigm within Anglo-Saxon
academia.
What determined the shift from neo-liberalism to LNW? Ideologies
are symbolic artefacts that act as a bridge between the philosophical
68
See Vandenbroucke 2012.
106
sphere and the sphere of practical politics. Following this meaning of

the concept, I searched for (and found) an explanation in the inspirations that came from discussions within (Anglo-Saxon) political and
more general public philosophy; in the structural transformations
that affected European society, economy, and politics since the 1990s;
and last, but not least, in the failure of neo-liberalism itself to provide
adequate responses to peoples needs and expectations. This latter factor also may explain why the case of welfare stands out as relatively
different from other policy cases discussed in this volume. Social protection has been (and still is) a key pillar of Europes way of life. By
launching an aggressive attack (i.e., ideological, political, and material)
against this pillar (recall the dismantlement discourse), neo-liberals
have probably committed the sin of hubris that is, excessive ambition and self-pride. After all, at the peak of the parabola (i.e., the
early 1990s), according to the Eurobarometer, majorities of more than
90 per cent within the EC12 believed that social security is a major
achievement of modern society and most voters were in favour of its
maintenance and continuation.69
Today, the transformative potential of LNW is still heavily constrained by the austerity-centred stance of Economic Europe and by
the weakness of the EUs social dimension. The novel discourse on the
welfare state has not affected (and not yet squarely challenged) the
prevailing consensus on monetarism and fiscal austerity in the management of the EMU. The intellectual dominance of economic neoliberalism (in the sense of neo-liberismo) is largely due to its deep
entrenchment within the EU architecture since the Treaty of Maastricht (thus confirming the fifth hypothesis on resilience laid down by
Schmidt and Thatcher in the Introduction). There are tentative signs
of new economic thinking appearing in the wake of the crisis, but it
is too early to predict whether these seeds can germinate.70 As such,
the crisis can offer an opportunity for moving from emergence to
the full bloom of an alternative economic doctrine, but this cannot
be taken for granted either.71 During the Golden Age, Keynesianism
allowed (required, even) a high complementarity between economic
and social policies. Moreover, there was a relatively lax and virtuous
division of labour between market making at the supranational level
69
71
See Ferrera 1993.

See Hemerijck 2012.
70
See Morel, Palier, and Palme 2011.
107
and market correcting at the national level. As is well known, marketmaking pressures from Brussels have gradually overridden marketcorrecting autonomy at the national level. The chances for LNW to
take solid cultural and institutional roots are severely weakened by the
economic straitjacket and the EUs asymmetric architecture in which
it is embedded and that pose strong limitations to its delivery potential. It remains to be seen whether a solution to the euro crisis, a
new round of institutional reform at the EU level, and the elaboration
of different economic-policy paradigms will create adequate margins
of manoeuvrability to put the new social ideas into practice, thereby
defending the new synthesis from a dangerous spiral of populist and
radical centrifugation.
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The state: The bete noire of

neo-liberalism or its greatest
conquest?
vivien a. schmidt and cornelia woll
Neo-liberalism has had one central message for the state: scale back,
cut back, cut out, transform.1 This brings to mind Winston Churchills
reply to an opponent who asked, How much is enough? to Churchills
repeated push to spend increasingly more on defence in the 1930s.
Churchills rejoinder came in the form of a story about a Brazilian
banker with whom he had just had lunch. The banker had received
a cable informing him of the death of his mother-in-law and asking
for instructions. He cabled back: embalm, cremate, bury at sea; leave
nothing to chance.
This take on neo-liberalism as burying the state is certainly
exaggerated because neo-liberalism comes in many different forms
with many different policy applications. Only the recommendations of
the most radical strands come close to the Brazilian bankers response
to his mother-in-laws death. Yet the story as a metaphor for neoliberal views of the state nonetheless somehow rings true. This is largely
because neo-liberals have been more anti-state in their rhetoric than in
their actions.
The state has been neo-liberalisms bete noire, as its main focus of
attack, because neo-liberals whatever their differences have viewed
the state as consistently doing too much in the wrong ways with the
worst consequences not only for the markets but also for democracy,
by endangering individual freedom through its interventions. As a
provider of public goods, the state had to be scaled back to leave
room for the market, which would assure more efficiency. However,
the state has also been neo-liberalisms greatest conquest, as its main
locus of action, because it has been primarily through the state that
neo-liberals have been able to realize their vision(s). This highlights
1
We thank all contributors to this volume and the workshops for helpful
discussion and, in particular, Mark Thatcher, Maurizio Ferrera, Gerhard
Schnyder, and Fritz Scharpf for their close reading and insightful comments.
112
The state: The bete noire of neo-liberalism or its greatest conquest? 113
a fundamental contradiction in neo-liberalism whereas the theory

demands a highly limited state, the practice requires a strong state
capable of imposing neo-liberal reform.
This contradiction has ensured that the more the state has put
neo-liberal ideas into practice, by transforming itself as it liberalizes
the markets, the more the state has if anything grown in size
and scope, thereby violating neo-liberal principles. This contradiction,
arguably, is the basis of the continuing dissatisfaction of neo-liberals
with the state and their constant push for further neo-liberal reform.
The result, moreover, is that the neo-liberal conquest of the state has
not produced a new state neo-liberalism to go along with market neoliberalism. Rather, what has happened is that the neo-liberal onslaught
against the state has produced a new synthesis that we call liberal neostatism. The liberal in the term connotes how much neo-liberal ideas
have permeated state goals, purposes, and objectives, as well as how
these ideas have engendered changes in the states own processes and
instruments of interaction with markets all in a neo-liberal direction. However, it also suggests the maintenance of a broader mix of
liberalisms than that desired by the neo-liberals. The neo-statism in
the term, by contrast, suggests that although the nature of state action
may have changed significantly due to neo-liberal influence, the scope
of state action has expanded, not contracted, and is, therefore, largely
in direct contradiction with the neo-liberal ideals of a limited state.
The road to liberal neo-statism began with a significant retreat of
the state. With the exception of Germany, which had developed an
ordo-liberal compromise with Social Democracy in the 1950s, states
between the early 1980s and the early 1990s engaged in a first period
of highly ideological roll-back of the state, with the intention of
making the markets as free as possible from public interference. This
was often accompanied by precipitous re-regulation in response to
unanticipated problems with state roll-back, without precise liberal
guidelines on how to do it.2 Beginning in the mid to late 1990s, a
period of neo-liberal ideological renewal ensued often the brainchild of social-democratic parties that added a social-democratic overlay to neo-liberalism which now focused on the roll-out of the
state by actively using the state to make markets free.3 The EU (i.e.,
2
3
See Vogel 1996.

See Peck (2010) for the use of the terms roll-back and roll-out of the state.
114
supranatural state) level of activity also picked up at this time, rolling

back national state activity even as it rolled out more supranational
neo-liberal ideas for action. This only intensified with the economic
crisis when, after an initial burst of neo-Keynesian stimulus, the state
at both EU and national levels ramped up its activity in response
this time in accordance with ordo-liberal ideas under the influence of
Germany.
For a topic as vast as the influence of neo-liberalism on the state,
all five lines of analysis proposed in the first chapter of this book
as explanations of neo-liberal resilience apply. First, in terms of neoliberalisms ideational flexibility, a wide range of different and sometimes contradictory neo-liberal ideas about the state has developed
from the more general philosophical orientation first articulated by
neo-liberalisms founding theorists, as they were adapted to different
contexts and responded to changing circumstances. This is clear from
the history of neo-liberalism described previously, beginning with the
German ordo-liberal rules-based state as of the 1950s, followed by
the Conservatives neo-liberal state roll-back starting in the 1980s,
succeeded by the Social Democrats roll-out as of the mid-1990s, and
capped by the EU ordo-liberal state ramp-up, as in the response to the
Eurozone crisis.
Second, in regard to rhetoric versus reality, neo-liberalisms impact
on the state has certainly involved a major contradiction between neoliberals discourse of less state and their actions in practice. This
very tension, however, between what neo-liberals say they want
freer markets with less state and how they obtain it more state to
ensure freer markets may help explain why neo-liberalism has been
so resilient. There is always work to be done for neo-liberals intent on
keeping in check the expanding state that neo-liberals themselves are,
as often as not, responsible for expanding. In some European member
states, such as Italy, Greece, and partly Spain and Portugal, neo-liberal
policies were often not about changing the role of the state but rather
about constructing more stateness per se.
The third line of analysis, concerning the power of ideas and discourse, also helps to account for the resilience of neo-liberalism in some
countries and resistance to it in others. Real power has accrued from
ideational entrepreneurs use of neo-liberal ideas in their discourse
whether ideological, pragmatic, or opportunistic by convincing policy actors of the validity of their policy initiatives, persuading the
public of their legitimacy, and winning the elections that enabled them
to put their neo-liberal ideas into practice. In combination with the
work and insistence of professional economists to apply the principles
of economic theory to policy decisions, these policy entrepreneurs have
sustained a tool box for political intervention.
The fourth line of analysis, about the strategic use of neo-liberal
ideas by various interests, also holds because such ideas have served
to empower a range of economic actors. Rising inequalities in which
the rich have only gotten richer while the working classes have seen
little or no real wage growth can be directly traced to neo-liberal
policy ideas focused on limiting state regulation, lowering taxes, and
cutting welfare spending.
Moreover, whereas the power of institutions the fifth line of
analysis can be used to explain resistance to neo-liberal ideas and
the slowness of some states adoption of neo-liberal policies, it can
also explain the resilience and staying power of neo-liberalism, once
state institutions have been converted. It is important to recognize,
however, that the differences in national responses result not only
from the presence or absence of receptive formal institutions but also
institutionalized ideas about appropriate government action. As John
Zysman noted many years ago, whereas in Britain the debates allow
for only two choices state control or the free market in France,
such debates consider three choices: faire (the state does), faire faire
(the state incites others to do), and laissez-faire (the state lets private actors do which does not always mean the free market because
the state may allow for private-marketcircumventing arrangements).4
Germany and other smaller Continental and Scandinavian countries
actually offered a fourth choice in debates about government economic
policy making, which Vivien Schmidt (2009) calls, adding to the previously mentioned French terms, faire avec (state does with private
actors). This is at the heart of corporatist concertation.
The first part of this chapter is a discussion of neo-liberal philosophies of the state. The second part considers entrepreneurial political actors neo-liberal ideas that led to the actual transformation of
the state, from ordo-liberal compromise of the state in the 1950s
to conservative neo-liberal roll-back of the state in the 1990s to
social-democratic neo-liberal roll-out of the state from the late 1990s
4
See Zysman 1978: 269.
116
onwards. The third part considers neo-liberalism beyond the state in

the EU and in other supranational or international organizations as
possibly an even greater force for change than neo-liberalism at the
national level. The chapter ends with a discussion of the latest seeming
resilience of neo-liberalism that is, in the Eurozone crisis beginning
in 2010 with the ramp-up of the state through neo-liberal austerity.
Matters of theory: Neo-liberal (re)definitions of the

state and its action
Before considering the neo-liberal re-definitions of the state and its
actions, we first define the state that neo-liberal theory and practice seeks to limit in size and scope of activity. Our general definition,
separate from its portrayal in neo-liberal treatises, is that the state consists of the range of public institutions and actors that, whether alone
or in interaction with private actors and institutions, affect collective
decision making and implementation in national, transnational, and
international political economies. The state is not simply the political and economic setting that structures the institutional patterns
of public action for political economic actors. It is also the political institutional setting that shapes the interactions among political
and economic actors. However, in addition to constituting the political and political economic institutions, the state is constituted by the
public and private actors who act within its institutions, giving meaning to it through their institutional practices while giving substantive
content to its resulting policies. Finally, the state serves equally as a
political driver for change because its public and private agents can
engage as ideational entrepreneurs in constant processes of political
coordination, communication, deliberation, and contestation through
which they reconstitute the state as they reframe its strategic action
and reshape its institutional practices.5
Neo-liberal philosophy in perspective

Set into the perspective of the history of philosophy, neo-liberals can
be seen to reject premises about the primacy of the state over markets
that are central to the Republican tradition going back to Aristotle
5
For a discussion, see Schmidt 2009 and Leca 2012.
and Rousseau. However, they also take a more radical view of the
relationship between state and market than the older liberal tradition
of Thomas Hobbes and John Stuart Mill.6
In the Republican tradition, the polity comes prior to the individual,
with the common good for all the product of virtuous government
underpinned by citizen participation and debate in the public space. In
this tradition, individual economic activity is necessarily evaluated in
relation to conceptions about what is good for the polity as a whole,
as agreed to by the citizens and judged by elected political leaders. In
the liberal tradition, the order of the relationship between polity and
individual is the reverse of the Republican tradition because, here, the
individual comes prior to the polity. This naturally reduces the scope
for state action, especially given the greater emphasis in liberal thought
on the protection of individuals rights via their negative freedom
from interference (i.e., to guard against the tyranny of the majority)
than on their positive freedom to provide for public goods. The
polity, however, still comes before the economy, with political liberty a
sine qua non for economic freedom. This was the case even for classical
liberals, for whom laissez-faire economics nevertheless allowed for
almost no role for the state. Such a conceptualization of democracy
as prior to the economy made it possible for politically liberal critics
of classical liberalism to argue for an expanded role for the state (i.e.,
freedom to) as long as the citizens generally favoured it and it did not
impinge on individual rights.7
The neo-liberals reversed the traditional liberal relationship between
polity and economy by insisting that economic freedom was a prerequisite for political freedom. Moreover, most were even more radically
individualist than traditional liberals in their assumption that individuals acting in their own narrow, rational self-interest were all that was
necessary to produce the best outcomes for the polity. For the neoliberals, the state needed to be constrained as much as possible to give
free reign to individuals economic freedom and political freedom
would follow.
6
7
The following two paragraphs build on Scharpf 2012.

Liberal thinkers at the time were quite concerned about authoritarian states.
Hirschman (1977) showed that writers like Montesquieu favoured markets and
individualism as a means to reign in the whims and passions of autocratic
monarchs. We thank Gerhard Schnyder for bringing this to our attention.
118
Neo-liberals therefore view the state as inherently dangerous: they

see the public sphere as always encroaching on the private sphere,
damaging not only the freedom of market actors transactions in capitalist economies but also the freedom of citizens to choose in liberal
democracies as in the title of Milton Friedmans (1980) book, Free to
Choose. For Friedman in particular, this is why neo-liberals must seek
to limit the state as much as possible, even when this might give freer
rein to market-distorting activities, such as monopolies.8 For James
Buchanan, the risks inherent in state activity are compounded by the
fact that public officials are also narrowly self-interested, which can
lead them to act against the public interest in search of rent accruing
to themselves.9
That said, all neo-liberals also recognize the benefits of a strong
state capable of creating the institutions necessary to maintain a free
market.10 As Buchanan insisted, social order without a state is not
readily imagined [ . . . ]. Man is, and must remain, a slave to the state.
But it is critically and vitally important to recognize that ten per cent
slavery is different from fifty per cent slavery.11 Hayek also supported
a strong but limited state by insisting on a rules-based approach to
markets.12 Through a carefully thought-out legal framework, the
role for the state was not only to ensure competition but also to guide
economic activity where it is impossible to create the conditions necessary to make competition effective. However, for this, Hayek argued,
the state should confine itself to establishing rules applying to general types of situations and should allow the individuals freedom in
everything which depends on the circumstances of time and place.13
Hayek thus distinguished himself from other neo-liberals by proposing
a neo-liberal order.14
Concerning the role of the state in social protection,15 Friedman
argued for a negative income tax for all those earning below a certain
minimum, whereas Hayek maintained that preserving competition was
compatible with an extensive system of social services so long as the
8
This position had evolved over time from an initial support for state
intervention to fight private monopolies. See Siems and Schnyder 2014.
9
10
See Buchanan 1986b.
See Schmidt and Thatcher, and Gamble, both in
this volume.
11
12
See Buchanan 1986a.
See Hayek 1944/2007: 856.
13
14
See Hayek 1944/2007: 114.
See Mirowski and Plehwe 2009.
15
See Schmidt and Thatcher, Martin, and Ferrera, all in this volume.
organization of these services is not designed in such a way as to make

competition ineffective over wide fields and that a certain security of
minimum income should be guaranteed to all without endangering
general freedom.16
Individual freedom was thus paramount and depended on the states
capacity to provide efficient markets. Hayek even insisted that any type
of planning was a threat to democracy because it imposed on individuals purposes and values that they were not likely to have chosen, given
the difficulties of majority agreement.17 Moreover, once begun, planning would take on all functions because it would be seen as responsible
for everything, including inequality, which Hayek (1994/2007: 137)
insists is more readily borne if it is determined by impersonal forces
than when it is due to design. Most important, as Hayek contended,
planning leads to serfdom because, once started, it is a slippery slope
to all forms of socialist and Nazi totalitarianism.18
Critiquing the neo-liberal philosophy of the state

When Keynes first read Hayeks Road to Serfdom, he wrote to Hayek
that he found himself in deeply moved agreement with the whole of
it, with one caveat: that Hayek gave no guidance on where to draw the
line on the role of the state in the economy.19 Because it is difficult to
find majorities in favour of positive state action of any particular type,
it follows that there should not be any such action (although there
was nothing to stop voluntary associations from engaging in charitable activity). Moreover, if inequality is easier to accept if imposed
by the impersonal forces of the markets, then the state should not
impose much beyond the bare-minimum standards of subsistence that
neo-liberals agreed was necessary in a democracy. As for the states
redistributive functions, despite the fact that the market might generate
massive inequalities, it was impossible to establish objective standards
of distributional justice. As a consequence, Hayek along with radical
libertarian Robert Nozick insisted that any state attempts at redistribution to correct market outcomes would be arbitrary and, therefore,
an interference with negative liberty.20 As for planning, by linking it
16
17
19
20
See Friedman 1962 and Hayek 1944/ 2007: 87, 148.

18
See Hayek 1944/2007: 10011.
See Hayek 1944/2007: 7682.
Keynes 1944, cited in Caldwell 2007: 24; see also Skidelsky 2005: 723.
See Nozick 1974 and Scharpf 2012.
120
to socialism and Nazism, Hayek succeeded in questioning not only the

validity but also the motives of any state action in the markets.
Even more important, as Foucault has pointed out, the ordo-liberals
managed to turn the whole logic of the statemarket relationship on
its head with a discourse that blamed the state for all of the negatives of political and economic history.21 In so doing, they challenged
long-standing liberal philosophies that saw fundamental defects in the
economy by arguing that recent history had demonstrated instead that
all of the intrinsic defects were in the state, not the economy. Therefore, instead of accepting market liberalism as defined and maintained
by the state, market liberalism should become the organizing and regulating principle of the state.
For the neo-liberals, in short, the economy became, by definition,
the solution and the state the problem. Most remarkable in this is the
conscious decision by members of the Chicago School no longer to
treat the optimality of markets as an empirical question but rather
to postulate the optimality of market solutions in theory and then to
justify privatization and deregulation by looking critically at government action.22 State action is no longer justified as intervention for
market failures which is at the origins of traditional liberal thought
because, in principle, the market cannot fail; only government can.
With the economy as the ruling principle, politics and political
groupings all become the enemies of markets rather than as in previous Republican philosophy the rulers of markets. Who, then, was to
run the state? To limit the phenomenon of rent-seeking public officials,
new public management (NPM) became established as an approach
that sought to introduce efficiency into public management by splitting
large bureaucracies into small units, introducing competition among
public agencies and possibly even bringing in private firms to provide
public services. In addition, technocrats and economists were hired
to exercise their functions independently.23 However, by introducing
the personnel procedures of NPM, which assume that untrustworthy
21
22
23
See Foucault 2004: 11920. Foucault, however, shared a certain fascination

with the neo-liberal conception of a purely selfish rational decision maker, as
De Lasgasnerie (2012) argues.
In an article on welfare economics, Wagner (2012) refers to Harberger (1971)
as seminal for this turn from market failure to state failure. We thank Fritz
Scharpf for calling our attention to this insight.
See, for example, Boston et al. 1996 and Pollitt and Bouckaert 2011.
public actors need incentives to act against their self-interest, neoliberalism undermined the very altruism and trust on which public
bureaucracies have long depended. Studies show that by assuming
that the only rewards were economic, NPM produced the very rationally self-interested actors it was trying to control while undermining
many non-economic contributions of public service.24
A more fundamental critique comes from Foucault , who views the
underlying assumptions of this neo-liberal approach to governing as
involving a type of engineering of souls.25 It seeks to shape individuals as governable, self-disciplined, enterprising subjects not directly,
through state intervention, but rather indirectly, via the creation of
structures of incentives. He labelled these rationalities used to steer
societies as governmentalities.
If we were to take Karl Polanyis (1945) thesis of great transformation one step farther, as the neo-liberal Mont Pèlerin Societys own
in-house interpretation of Polanyi did,26 we could suggest that neoliberalism served as a renewed market movement in response to the
social countermovement. As such, it was undoing what Ruggie (1983)
calls the embedded liberalism of the postwar period that had served
to counter the market movement of classical laissez-faire liberalism,
by dis-embedding market actors from the institutions of the postwar
liberal consensus.27 The ensuing volatility weighing on the weakest
parts of society that Polanyi predicted can now be observed in the
context of the financial crisis. Polanyis analysis leaves little room for
optimism that a solution for the angry protest movements can be found
peacefully within the framework of the current neo-liberal paradigm.
Agents matter: Putting neo-liberal ideas about state

transformation into action
With the ideals of the founders in mind, neo-liberal ideational
entrepreneurs have sought to harness the power of the state as political
driver of change in their efforts to radically restructure the institutional
patterns of the states political economic action, such as eliminating
state industrial policy and reducing the size and orientation of the
24
26
27
25
See Pollitt and Bouckaert 2011.
See Foucault 2004.
Hartwell 1995: 195, cited in Peck 2010.
See, for example, Esping Andersen 1990 and Blyth 2002.
122
welfare state. Moreover, to influence the ways in which public and

private actors act and interact, they have also sought to alter the political institutions of the postwar period, such as the balance of power
between management and labour and economic versus political actors
more generally. Finally, neo-liberals have endeavoured to take over the
state by changing the minds of public and private actors or, more
simply, changing the actors themselves so as to be more attuned to
neo-liberal ideas. However, once neo-liberalism had conquered power,
neo-liberals theories and actions evolved in response to the resistance
they encountered as well as to the failures of their own policies. In
many cases, the resulting neo-liberal ideas have been so reshaped that
they clash with various aspects of the founders original neo-liberal
philosophies.
Living by the rules: Ordo-liberal compromise,

1950s and onwards
The first victory of neo-liberal principles came through ordo-liberalism,
which can be thought of as the neo-liberalism with rules that dominated state action beginning in the 1950s in Germany. Their economic
doctrine developed in discursive coalitions in the prewar years committed to a strong state capable of maintaining competitive markets as
opposed to intervening in or even as a substitution for the markets.28
Their ideational as well as political success had much to do with the fact
that pragmatic ordo-liberal ideational entrepreneurs who had gained
power Chancellor Ludwig Erhard, in particular managed to engineer a compromise that added a significant social component to the
market economy.
The German social-market economy, which emerged after much
discursive struggle during the 1950s, was a compromise accepted by
Conservatives and Social Democrats alike, in which the state was to
govern the economy according to ordo-liberal principles while also
enabling corporatist management and labour coordination of wages
and work conditions with a reasonably generous, status- and genderdifferentiated welfare system.29
28
See Lehmbruch 2001.
29
See Streeck 1997.
It is interesting that as Germany developed and, in particular,

as the welfare state expanded through the 1960s and 1970s neoliberals increasingly criticized Germany. Moreover, the conservative
ordo-liberal foundations of the system were forgotten, particularly as
German corporatism, Rhinish capitalism, or the coordinated market economy came to be seen as the main alternative to the British
(neo)liberal market economy and even as non-liberal capitalism.30
Ordo-liberalism has long had a quiet influence on EU policy. Its most
well-known conquest outside of Germany is its macroeconomic policy
of sound money, as Erik Jones elaborates in his chapter in this volume.
This German influence began as a mimetic effect as other countries
copied Germanys successful example in the mid 1970s, when the
Bundesbanks long-standing anti-Keynesian hard-money monetary
policy adopted in the 1950s hardened more in 1974 in response to
the first oil shock, forcing budgetary discipline on governments. This
came to be called monetarism, which Thatcher admired and emulated
in the United Kingdom as soon as she came to power, subsequently
followed by everyone else.31
Ordo-liberalism had a significant impact in other domains as well,
such as in the competition-policy arena. Quack and Djelic convincingly argued that the origins of European anti-trust policy are found in
Germany in the early postwar period.32 American occupation authorities, with their liberal ideas on anti-trust policy, opened a window
of opportunity for the marginal, pro-competition ordo-liberals by
putting them in dominant positions that gave them an advantage in
the subsequent battle for policy ideas. The resulting institutionalized
ideas were translated and embedded in the European Coal and Steel
Community and the Founding Treaties of the European Union, thereby
influencing the epistemic communities of EU and member-state actors.
Ironically, however, whereas ordo-liberal Germany influenced other
countries neo-liberal turns to monetarism and to competition policy,
it resisted those countries neo-liberal liberalizations and deregulations
much longer. Financial-market liberalization did not begin until the
1990s, and greater flexibility in labour markets and rationalization of
the welfare system began only in the early 2000s (see Schnyder and
30
31
See, for example, Albert 1990, Hall and Soskice 2001, Streeck and Yamamura
2001. See also discussion in Peck 2010: 67.
32
See Scharpf 2000.
See Quack and Djelic 2005.
124
Jackson, this volume). It is only relatively recently that neo-liberal ideas

have effectively undermined the ordo-liberal order and, as Wolfgang
Streeck argues, the institutions of the postwar social-market economy
dear to Social Democrats and ordo-liberals alike in favour of a more
neo-liberal system.33
Rolling back the state: Radical (conservative) neo-liberalism,

1980s to early 1990s
The next phase of the neo-liberal ideational conquest of the state can be
seen as more radical than the German ordo-liberal conquest, with neoliberalism as an uncompromisingly ideological programme. Although
different countries took different paths, they all adopted neo-liberal
ideas that proposed loosening labour markets, liberalizing financial
markets, and deregulating business.34 The politics and parties associated with this programme were also mostly on the right, with conservative values attached. Reforms tended to be adopted and implemented
more quickly in countries with majoritarian political institutions, given
their ability to impose reform as in the United Kingdom in the early
1980s and France in the mid 1980s although determined governments with weak civil societies in proportional systems were also able
to move rapidly, as in a number of the Central and Eastern European
countries in the early 1990s. Neo-liberal reform tended to come more
slowly in institutional contexts in which parties that were elected via
proportional representation had to negotiate with multiple coalition
partners. Within public bureaucracies, NPM spread rapidly after being
initially confined to Anglo-Saxon countries.
In the United Kingdom, it was in a moment of crisis and disillusionment with the left following the winter of discontent that Thatcher
came to power. Thatcher was an ideological entrepreneur, intent on
breaking the consensual style and paternalism of her own party while
ending, once and for all, what she saw as the Labour Partys socialism
and replacing its Keynesian policies with monetarism, competitive capitalism, and an opening to globalization. Thatcher adopted wholesale
Hayeks view that the free market would not only release the spirit
of enterprise but also that it would guarantee liberty; that the welfare
33
34
See Streeck 2010.

See Fourcade-Gourinchas and Babb 2002, Schmidt 2002a, and Blyth 2002.
state was an encroachment on individual liberty, whereas government

attempts to reduce inequalities created a dependency culture; and that
public services should, in the main, be taken into the private sector,
with what remained subject to competition.35
Other countries subsequently adopted neo-liberal ideas some
sooner, some later their elites being influenced by the UK and US
neo-liberal experiments as well as by homegrown neo-liberal propagandists and converts. Ireland was naturally greatly influenced by
the British neo-liberal experiment, although it parted from the United
Kingdom in its approach to labour beginning in the mid to late 1980s.
This is when it instituted state-led corporatist arrangements (faire
avec) in an elaborate coordinative discourse consisting of dialogues
among four chambers consisting of labour, business, agriculture, and
civil society.36
In France, in a postwar era marked by much stronger as well as
more successful state interventionism than in the United Kingdom,
neo-liberals were a mixed and largely moderate breed. However, from
the 1970s, a new generation of more radical neo-liberals came to
attack the earlier group, providing intellectual ideas for the neo-liberal
opposition to the Socialists in power in the early 1980s and then the
oppositions conquest of power in 1986.37 The Chirac government was
radically neo-liberal in its campaign discourse, promising a major shift
to privatization, extensive financial-market liberalization, and business
and labour deregulation.38 Chirac himself, however, was an opportunistic entrepreneur, as evident from the fact that when he lost the
1988 presidential election, he also lost his neo-liberal enthusiasm.39
Here, too, however, some of his ministers were committed neo-liberal
ideologues, including Alain Madelin in the Ministry of Industry, who
all but destroyed it. Subsequently, neo-liberal policy entrepreneurs on
the right as much as the left shifted their communicative discourse to
emphasizing the need to modernize the state, even as they continued
to institute moderately neo-liberal policy ideas.
Other countries also liberalized in the early to mid 1980s, but
often more gradually, one area at a time. In the case of the Netherlands, Prime Minister Ruud Lubbers was the neo-liberal ideological
35
36
38
See Tribe 2009 and Schmidt 2000 and 2002a: 26061.

37
See Hay and Smith in this volume.
See Denord 2007 and 2009.
39
See Schmidt 1996.
126
entrepreneur who managed in the early 1980s to extract agreements

to increase labour market flexibility and to give capital a greater share
of profits by threatening that the government is here to govern with
or without the social partners. He indicated that he would use the state
to impose reform if the social partners did not reach agreement. In the
early 1990s, moreover, he pushed through major cutbacks in welfare,
against strong public resistance, claiming that tough medicine was
needed for such a sick country, in which one in seven was out of
work on disability. It is important to note that Lubberss coalition
government then went down to a resounding defeat.40
In Sweden, neo-liberalism came much later but more suddenly.
With the bursting of the real-estate bubble and the ensuing crisis, the
last European government using neo-Keynesian macroeconomic policy
abandoned it. However, budgetary austerity did not mean a commitment to rising inequality, as it did in the United Kingdom. Much to the
contrary, the Social Democrats promised to defend the universalistic
values of the welfare state even as they reduced benefits which they
pledged to and did restore once the economy recovered.41 In Denmark,
where the crisis hit in the 1980s, the governments pragmatic ideational
process of reform was more incremental, with neo-liberal policy ideas
layered onto the preexisting set of social-democratic arrangements,
but without disrupting the social-democratic consensus. The communicative discourse emphasized that they had to cut the welfare state in
order to save it; however, those cuts, as in Sweden, sought to maintain
universalism and equality.42
In the countries of Central and Eastern Europe, where radical
reforms to move the economy from communist to capitalist were
undertaken everywhere beginning in the early 1990s, the degree of
radicalness must be defined in terms of timing and rapidity. Note that
the conversion process also did not introduce neo-liberal ideas as if
onto a blank slate. American economists carrying neo-liberal ideas of
market reform were indeed influential, but East European economists
had long been using the language of neo-classical economists to talk
about planning as well as markets, about efficiency as well as economic
freedom, and about socialism as well as capitalism.43
40
41
42
43
See Schmidt 2000 and 2002b.

See Hinnsfors and Pierre 1998 and Schnyder 2012.
See Schmidt 2000 and 2003.
Bockman 2011: viii; see also Orenstein in this volume.
Although the economic process of creative destruction was experienced across the CEECs as privatization, deregulation, and liberalization became the watchwords for reform, states again proceeded in
different ways at different paces.44 Some countries, such as Poland,
engendered a big bang in political economic reform by rapidly liberalizing prices and shifting macroeconomic policy, whereas other countries were slower some so slow, in fact, that they experienced an
anti-democratic backlash, as in Bulgaria.45 Here, too, much depended
on the ideational entrepreneurs who ran the reform efforts. Thus, the
architect of Polands radical shock therapy, Leszek Balcerowicz, was
an ideological entrepreneur of the purest kind. However, although
Vaclav Klaus of Czechoslovakia was similarly ideological, he did not
engineer the same type of rapid, radical liberalization.46
Across Europe, neo-liberalism took hold between the early 1980s
and the early 1990s. Despite widespread resistance to neo-liberal programmes and the patent failure of many its initiatives, neo-liberalism
remained largely resilient. This was due, in part, to the fact that its
opponents did not seem to have any new ideas; were not electable;
or, when elected, seemed to operate in the same way as previous
neo-liberal governments. With the demise of the Soviet Union, moreover, the left found itself without an alternative ideological extreme to
invoke. More important, however, is that resilience came from neoliberalisms own capacity for reinvention, often by attracting new converts to the cause on the left rather than on the right in particular,
with the renewal of neo-liberalism spearheaded by the left beginning
in the mid to late 1990s.
Rolling-out the state: Moderate (social-democratic)

neo-liberalism, late 1990s to 2000s
Although the rhetoric of all such neo-liberal governments maintained
that the state was by its very nature inefficient and would be best
replaced by the efficiency, rigor, and discipline of the free market, the
reality was that their initiatives produced all manner of inefficiencies.
In a second step, neo-liberal governments tended to respond through
re-regulation, without much neo-liberal philosophical justification or
any clear guidance on what to do next. Whereas the radical phase in the
44
See Lane and Myant 2007.
45
See Ekiert 2003.
46
See Frye 2010.
128
1980s and early 1990s that focused on state roll-back fitted well with
the ideological legacy of the 1930s, the next stage from the mid to late
1990s onwards, which was focused on state roll-out, fitted less well.
At this time, the state began to move from neo-liberalisms main
target of attack to get the state out of the markets to its primary
tool of attack in the markets. From a haphazard process of reactive
state reregulation in response to the deleterious effects of freeing up
the markets, we find a considered process of active state engagement
to create and reinforce liberalised markets.
This is when new forms of state interventionism were invented
that were certainly still neo-liberal in their underlying philosophy but
were much more proactive in their attempts at market-shaping and
market-complementing reforms. This is also when the vocabulary of
governance came to be substituted for government to indicate that
governing without government was not only possible but also desirable. For the public sector, it was when new public management was
replaced by joined up governance along with inter-service coordination and e-governance.47 For labour, it was about flexibility or even
flexicurity and active labour markets;48 for welfare, it was no longer
only about getting people off the rolls but also about getting them into
work through youth employment and welfare-to-work programmes.49
Moreover, as subsequent country chapters demonstrate, this involved
new social-democratic forms of neo-liberalism.
In the United Kingdom, Thatchers neo-liberalism set the ideational
path that the Labour Party could not and, ultimately, did not ignore in
order to regain power as New Labour in 1997.50 As New Labour,
the Party was differentiated not only from the old (Marxian) left but
also from the old (social-democratic) left in order to create a Third
Way, which adopted many of the fundamental premises of Thatcherite
neo-liberalism while insisting that this incorporated the main goals of
Social Democracy. With regard to the public sector, moreover, Blairs
government created what Moran called the steering state, which was
actively involved in developing joined up government and encouraging participation through networks even as it became increasingly
intrusive in peoples lives, particularly on issues of public order and
welfare.51
47
48
50
51
See Pollitt and Bouckaert 2011.

49
See Martin in this volume.
See Ferrera in this volume.
See Faucher and Le Galès 2010 and Schmidt 2002a.
See Moran 2004; see also Gamble 1988.
Whereas Blair in the United Kingdom clearly embraced certain

aspects of neo-liberalism, Prime Minister Jospin in France (elected in
1997) avoided any such discourse, even as he rolled out state reforms
that further freed up the markets albeit with an overlay of socialdemocratic ideas and discourse. Jospins communicative discourse was
all about providing a middle path: he argued that the reforms proposed
by the Socialists were not only economically efficient but also promoted social equity, combated social exclusion, and healed the social
fracture, whereas privatization sought to secure investment as well as
guarantee jobs while involving the unions in negotiation.52 Under the
Socialists, then, there was no rhetoric of neo-liberalism but rather the
reality of significant liberalizing reforms, suggesting that Jospin was
very much a pragmatic ideational entrepreneur.53
In Germany, finally, neo-liberal roll-out with a social-democratic
flair came later than in France or in the United Kingdom. Chancellor
Gerhard Schroder,
elected in 1998, did little with regard to reform
until the early to mid 2000s. It was only with the recommendations of
the Hartz IV Commission that Schroder
clearly acting as an oppor
tunistic entrepreneur pushed through the most significant reforms
of pensions ever. However, he did so without a legitimating discourse
that explained why it was appropriate to change a pension system
that Germans had come to see as their property rights.54 The absence
of a cohesive set of ideas or frame helps to explain the tenuousness of the reform and its subsequent partial reversal.55 However,
Schroders
persistence in the face of plummeting popularity ratings
and public discontent nevertheless allowed time for the coordinative

discourse among social partners and the government led by ministers who served as pragmatic ideational leaders to produce significant
results.56
Social-democratic parties in power beginning in the late 1990s, in
short, renewed neo-liberalism with the roll-out of reforms of the state
that completed the neo-liberal revolution begun with the more ideological roll-back of the state in the early 1980s. This cannot be
fully understood, however, without also considering the role of the
EU in promoting such liberalization in particular, in the second
period.
52
53
54
55
See Levy 1999 and Schmidt 2002a.

See Kinderman 2005 and Schmidt 2002.
56
See Bosenecker 2008.
See Stiller 2010.
130
Liberalization from above: The European Union and beyond

Domestic politics matter for the impact of neo-liberal ideas, but the
most constant pressures for liberalization have come from above. In
Europe, economic integration through the EU has created a systematic bias towards the reduction of obstacles to market integration.57
Internationally, cooperation through the World Trade Organization
(WTO) targets trade barriers, and policy recommendations of the
OECD, the World Bank, and the IMF have traditionally been marked
by a Washington consensus particularly in the 1980s which was
organized around neo-liberal ideas. After the fall of communism, the
discursive victory of neo-liberal ideas in international circles was such
that many predicted global market integration to lead to the veritable
universal transformation of nation-states into market-enabling arbiters
rather than public-goods providers.
Although international organizations did not entirely depoliticize the
state, as proponents of delegation had hoped, they were used as the
scapegoat to legitimize domestic-reform initiatives. In many European
countries, the EU was frequently used as a reference for the need to
impose economic orthodoxy, an external constraint making the traditional social compromise no longer possible.58 In the context of these
discursive battles, the result was most often a compromise between
pure neo-liberal ideas and other values pursued by the member states.
Jabko showed that domestic and supranational policy makers used the
market as a consciously ambivalent concept that would allow building an alliance among a diverse set of actors, including Federalists
and Social Democrats.59 Rosamond similarly suggests that the history
of EU economic liberalism has been a delicate balancing act as well
as a struggle among German ordo-liberalism, Anglo-American neoliberalism, and French Colbertism.60 Moreover, in the application of
even some of its seemingly more neo-liberal ideas, such as the concepts
of flexibility and employability in the open method of coordination,
countries have understood and applied the concepts very differently.61
Thus, the effect of the EU on the pathways of economic development
in Europe has to be understood as the ideational construction and
57
58
59
61
See Scharpf 1996.

See Dyson and Featherstone 1996 and Hay and Rosamond 2002.
60
See Jabko 2006.
See Rosamond 2012.
See, for example, Barbier 2008.
strategic application of policy ideas, even if some of those ideas had

lasting effects on the constraints and future possibilities of negotiation.
Member states also have used the EU to promote their own visions
of liberalism and to defend it in the global arena. Most interesting,
perhaps, is the story of the liberalization of the financial markets, first
at the EU level and then internationally through supranational institutions. Abdelal argued that it was largely French socialists such as
Pascal Lamy, first as advisor to Jacques Delors when he was Finance
Minister and then later as EU Commissioner, or Michel Camdessus
as head of the IMF who, as the ideational entrepreneurs behind
liberalization, pushed global financial market opening, making for a
Paris consensus.62 His explanation is that the French socialists, as
New Left ideational entrepreneurs, used neo-liberal ideas pragmatically. Recognizing in the early 1980s that they could not stop capital
flows out of the country, they decided that if they could not beat them,
they would join them. However, in so doing, they would seek to create
managed globalization by first convincing the EU and then the IMF
to regulate financial capital.63
This upward dynamic illustrates that neo-liberal ideals have always
been appropriated in specific ways by ideational entrepreneurs, in the
context of detailed negotiations about what is being liberalized and
how. Stated differently, extending a certain vision of liberalization
in the international realm requires a strong and capable state that is
ready to defend national preferences. For the European institutions,
the possibility to construct a particular version of economic policy,
thereby defending the interest of its citizenry, is a source of legitimacy.
Thus, the EU Commission, which is credited mainly with pushing
to liberalize markets, also contributes to constructing the European
economy as a space for political action of all types.64
At the domestic level, the responses to pressures for market integration have varied depending on political entrepreneurship and on the
historical legacies of state traditions. To be sure, as markets become
increasingly connected across borders, politicians everywhere experience the paradox of neo-liberal democracy. Their political mandate is
to pursue the political and economic interests of their citizenry with
respect to an economy that is no longer exclusively within their control.
62
64
See Abdelal 2007.

See Rosamond 2012.
63
See Meunier and Jacoby 2010.
132
Some have argued that these mismatched boundaries lead to a rolling

back of political authority, to sovereignty at bay.65 Comparing state
interventionism in open markets, Clift and Woll suggest that the state
repertoire of action has simply shifted.66 Governments still defend their
economic interests with the same fervor, but they rely less on traditional industrial policy and protectionism. Instead, they support their
industries in international competition, attempt to establish domestic
regulation as international standard, and liberalize particularly those
sectors where domestic industries have a comparative advantage on
world markets.
The degree with which neo-liberalism was accepted as the new
mantra of international cooperation and domestic reform is far from
automatic. Whereas some states adopted them quite strategically
justifying their liberalizing ideas by reference to an external constraint
in order to pass controversial reforms others adhered more thoroughly to the underlying principles. Neo-liberalisms central belief in
the advantages of delegation of economic choices to an independent
authority that would be insulated from everyday political pressures
took a strong hold in Germany, which designed its monetary policy
and subsequently the monetary policy of the ECB accordingly. Making the ECB the institution defending such core ideas created a policy
dynamic at the international level that now shapes how neo-liberal
discourse affects the countries turning to the ECB for help during the
economic crisis. As Kranke and Lutz
show, the lending conditions of
the ECB to Eastern European countries are more orthodox than those
imposed by the IMF, which had traditionally been accused of being
the vanguard of neo-liberal principles, particularly through its policies
of structural adjustment in the 1980s and 1990s.67
At the European level, the insistence on markets as major governance mechanisms is accompanied by a discourse on good governance
and the strength of so-called civil-society actors as an intermediating
sphere of social action.68 Seeking to create conditions of subsidiarity,
networked governance and civil-society participation implies again a
rather active state, even at the European level, to assure a governance
regime that can accompany liberal policy principles. To summarize,
65
67
68
66
See Vernon 1971.
See Clift and Woll 2012.
See Kranke and Lutz
2010.
See Armstrong 2002 and Greenwood 2007.
although many pointed to international constraints to explain how

neo-liberalism affected the transformation of states, the picture is in
reality much more complex.
Ramping up the state in response to the Eurozone crisis

Yet, the current Eurozone crisis appears as one of the instances in
which neo-liberal ideas are upheld by some with particular fervor
against the interests of individual states. But if we acknowledge how
much international negotiations are occasions for the definition and
revision of particular creeds, it becomes clear that the outcomes result
not from any pure application but rather from ideational and discursive
struggles. In particular, the Eurozone crisis pitted the ordo-liberalism
of Germany against even some seemingly neo-liberal governments such
as the United Kingdom pleading for more state action to promote
growth. Here, we need to speak not only about the power of ideas and
discourse but also simply about power. Germany, as the economic
powerhouse of Europe, and its paymaster, has been able to throw its
weight around. The result is a ramping up of the European state to
roll out more ordo-liberalism.
Ordo-liberal theory clearly would find the use of the ECB as a
lender of last resort anathema and Eurobonds dangerous unless all
other countries adopted similar economic practices. The German discourse, underpinned by the countrys stability culture, insists that
the only response to high debts and deficits, not to mention threats
of insolvency, is severe austerity policies that serve to reassure the
private sector, thereby triggering sustainable growth. This response
is in contrast to Keynesian measures for state-spurred growth that
would according to ordo-liberalism only produce inflation. The
German narrative of its experience from the postwar years forward is
one of ordo-liberal virtue: in the late 1940s response to inflation; in the
Bundesbanks mid 1970s move to hard money; and in the early 2000s
belt-tightening that led to a decade of no real wage growth, accompanied by a painful reform of the pension system. The fact that most of
the Eurozone governments were conservative between 2010 and 2012,
and that the Northern Europeans backed Germany, meant that these
ideas have been enshrined in the criteria set for government budgets
in one treaty after another, with the mechanisms of the Stability and
134
Growth Pact followed by the Six Pack and the most recent Fiscal
Compact.
Moreover, decision-making processes have become excessively intergovernmental as the joint decision processes of the Community
Method which would include the European Parliament as well as
the EU Commission have been sidelined. Instead, the Franco-German
couple or is it only Germany? make the major decisions. Thus, what
appears to be the resilience of neo-liberalism in European relations is
more precisely the conviction carried by one country in particular.
Furthermore, it is because of the weight and political capacity of the
German state that this vision influences the debate so fundamentally.
The Eurocrisis therefore illustrates that neo-liberal ideas continue and
prevail not because states have withdrawn from politics and delegated
authority to neutral institutions. On the contrary: powerful states are
central to assuring the survival of neo-liberalism in the international
realm.
Conclusion
However we consider the question, it becomes clear that neo-liberalism
does not imply the demise and burial of the state. To be sure, the doctrine maintains that political authority must be insulated from interestgroup pressures and that the market is a better provider of public goods
than the state. To impose reforms, to create and shape the relevant markets, and to negotiate and revise neo-liberal principles in international
cooperation all require strong states, both domestically and externally.
Moreover, the adoption of neo-liberal convictions, even in their purest
form, has never led to a complete disregard for political objectives and
the defence of economic interests: states simply reinvent the intervention they deem necessary and find new ways to protect their interests in
ways compatible with their liberal ambitions. The ways in which such
choices are made depend on the historical legacies and the institutional
and ideational entrepreneurship of the policy makers and elites in each
respective country.
More generally speaking, we can observe different types of neoliberal conquests of the state; all are indicative of the degree to which
neo-liberalism needs to build on and expand political authority and
institutions. In the United Kingdom, the most comprehensive changes
brought about by neo-liberalism are the instruments accepted as admissible in policy making: the rise of the NPM and the development
of a large controlling bureaucracy that organized the operation of
the market in numerous policy areas.69 In Germany, the imprint of
neo-liberal ideas was much stronger in organizing principles affecting policy discourse and political legitimacy, even if it appeared to
be less neo-liberal than Britain at the level of policy processes and
instruments. France, in turn, has an ambivalent relationship to neoliberalism, which never gained much ground as an ideology in public
opinion. Politicians in France use neo-liberal constraints in an opportunistic manner and apply its principles whenever it advances their
policy agenda. However, they are equally quick to push back or even
develop legitimacy claims based on the arguments of their neo-liberal
opponents throughout the party spectrum. In Scandinavia, neo-liberal
instruments have become part and parcel of the countries adaptation
to economic openness. However, the use of such instruments did not
change the nature of policy programmes or of their normative commitments to the same degree as elsewhere. Central and Eastern Europe,
finally, has an entirely different relationship with neo-liberal reforms,
which were applied with a much greater degree of ideological commitment than elsewhere. Especially in the early years after the fall of
communism, neo-liberal ideas appeared as a matter of national identity (e.g., in the Baltic countries) because it helped to clearly distinguish
their present from their own historical legacies and Russia.70 Yet, the
relationship between neo-liberalism and their communist past was a
matter of intensive debate and interpretation in Eastern and Central
Europe and, similar to other countries that experienced neo-liberalism
as an ideology, it created significant backlashes.
All of this discussion suggests that neo-liberal ideas may have
renewed the state, leading to a new synthesis of what we call liberal
neo-statism. If anything, the state has become more active in managing
the market much more so than anticipated by neo-liberal philosophies and ideologies. This is the basis of its liberal neo-statism, but the
state has also become more liberal in its approach. That liberalism,
however, is not the narrowly construed liberalism of the ideological
conservative neo-liberalism of the 1980s and early 1990s. Rather, it
is a liberalism that is more fully liberal in the widest sense of the
69
See Faucher and Gales 2010.
70
See Abdelal 2001.
136
word, as social-democratic concerns adopted by the left have infused

neo-liberalism even as the new wave of neo-liberalism beginning in the
late 1990s served to renew it.
In summary, political and economic elites constantly negotiate the
meaning and nature of neo-liberal reforms. What is resilient is the
nature of the questions, not necessarily the outcome. Yet, in all cases,
the state remained central as an arena for discursive struggle: an
authority to impose the most prevalent vision and an advocate of
domestic preferences in the international realm. As with mothers-inlaw, this testifies to the persistent ties and hidden affection between
neo-liberalism and the state.
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part ii
Neo-liberalism in major
policy domains
The collapse of the

BrusselsFrankfurt consensus
and the future of the euro
erik jones
European monetary integration rests on a convergence of views across

different countries related to the virtues of stable money and sound
finances.1 This convergence has operated under many different justifications. It was the logical response to the liberalization of international
financial markets2 ; it was the price for German participation3 ; and it
was the hegemony of neo-liberalism in the battle of ideas.4 No matter
how they explained it, most observers agreed on the existence of a
BrusselsFrankfurt consensus underpinning Europes single currency.5
Then the consensus began to falter. The first cracks appeared during
the crisis surrounding the stability and growth pact (SGP) in the early
2000s. The tensions mounted with the widening divergence in inflation
rates across Eurozone countries and the increasingly volatile euro
dollar exchange rate during the middle of the decade. The consensus
shattered completely as the ECB struggled first to manage the global
economic and financial crisis and then was found to be responsible
for the stabilization of European sovereign-debt markets. Now, the
German economics community is openly discontent with the ECB; the
ECB and the European Commission are promoting different agendas;
and the member states are clearly divided as to what should be the
solution.
This chapter explains the collapse of the BrusselsFrankfurt consensus. The argument echoes the main themes of this volume. To the extent
that it existed, the ideational consensus underpinning Europes single
currency was always more rhetoric than reality. The main economic
actors couched their policies in the language of sound money and stable
finances (or free markets and neutral states); however, they actually
1
3
See McNamara 1998.

See Katzenstein 1997.
2
4
See Padoa-Schioppa 1987.

5
See Moss 2004.
See De Grauwe 2006: 72425.
145
146
Part II: Neo-liberalism in major policy domains
behaved more pragmatically than ideologically, and they showed a

remarkable willingness to break their own rules. The point is not that
these actors were cynical or hypocritical; rather, it is that they saw no
alternative but to hold onto a formal commitment to a common policy
framework while at the same time wrestling with the anomalies they
encountered in the performance of Europes monetary union.
The lack of alternatives stemmed from an intellectual problem
and an institutional problem. Intellectually, Europes policy makers
had no other policy framework that they could use to replace the
BrusselsFrankfurt consensus. There were dissenting voices and empirical anomalies, but they did not add up to a coherent alternative; the
fact that everything appears to be an exception is not a good reason to throw away the rule.6 Institutionally, Europes policy makers
lacked the political support to alter the treaty obligations or decisionmaking arrangements that formalized norms about price stability,
central-bank independence, fiscal consolidation, and market-structural
reform. Hence, it was always easier to show how the policy fit the existing language of commitment than to initiate a comprehensive revision
of the framework itself.
This chapter has seven sections. The first section sets out the ideas
and norms that constitute the BrusselsFrankfurt consensus: stable
money, sound finances, and efficient local-factor markets. The second section puts this framework within the broader context of ideas
and ideologies examined in this volume. The third section focuses
more narrowly on the problem of monetary stability. The fourth section examines the challenge of fiscal consolidation. The fifth section
describes efforts to promote efficient local-factor markets. The sixth
section brings these three elements together in the context of intraEuropean interdependence. The seventh section explores the difficulty
of introducing alternative institutional arrangements.
The BrusselsFrankfurt consensus

Europes economic and monetary union was never very popular with
economists, and the reason is simple. Europe is not an optimum
currency area, so there is no clear economic rationale for binding
Europes national currencies together irrevocably. There are economic
arguments for and against monetary union. A single currency offers
6
See Lakatos 1970.
The collapse of the BrusselsFrankfurt consensus
147
efficiency gains on the one hand and policy constraints on the other.
However, there is no compelling economic case either way. The decision to create a common currency was at its core political. In turn,
that political decision contained a number of strong ideational commitments that together create an interlocking framework of norms and
beliefs that guide policy making.
The first commitment is to price stability. This commitment derives
its justification from the recognition among economists that inflation
has significant redistributive consequences, that it tends to accelerate
as actors revise their expectations and contractual relationships over
time, and that it has no positive net effect on the level of activity
in the long run. Beyond that intellectual rationale, the commitment
to price stability also reflects the attitudes of the German negotiators
involved in working out the initial designs for the single currency
and who sought to bring along their own central bankers as reluctant
supporters.7 As if that were not enough, soon after the Maastricht
Treaty was ratified, German constitutional lawyers argued successfully
that European price stability is an essential part of the package accepted
by the German parliament. Therefore, any failure to deliver on that
commitment would violate the sacred democratic relationship between
Germanys elected representatives and their voters.
The political commitment to price stability is bound up with the
decision to grant independence to the ECB and its corresponding
national central banks. Here again, there is an economic and a political rationale. The economic argument for central-bank independence
derives from the fact that the incentives for policy makers involved in
monetary-policy decision making are time-inconsistent and therefore
should be governed by rules rather than discretion. The political argument reflects concern that there would be many non-German voting
members on the governing council, which is the body responsible for
making monetary-policy decisions. The only way to ensure that the
governing council gives priority to price stability is to insulate it from
the political control of the member states over their national centralbank governors.
The advantage of the price-stability rule from an economic perspective is that it underscores the neutrality of money by eliminating
price inflation as a source of uncertainty. Hence, although the ECB is
charged with supporting the broader economic goals of the member
7
See Loedel 1999: 99.
148
states once price stability is assured, successive ECB presidents have

argued that assurance of price stability is the best and only real support that monetary policy makers can offer in the service of other
economic objectives. Indeed, this line of reasoning is often repeated in
the monthly press conferences of the ECB president and the occasional
speeches of other board members.
The problem is that monetary policy makers are not alone in having
an influence on prices. Fiscal policy makers can also cause inflation
by running excessive deficits. In extremis, fiscal policy makers might
even welcome inflation as a mechanism for reducing the real value of
excessive public debts. Worse, the two fiscal influences are reinforcing insofar as deficit spending fuels price increases, whereas mounting
indebtedness lowers political resistance to inflation. Hence, a second
commitment constituting the BrusselsFrankfurt consensus is that governments should pursue sound finances by avoiding excessive deficits
and debts.
The key term here is excessive. As a framing device, excessive
has obvious heresthetic qualities: no one would advocate fiscal excess.
As an economic concept, however, the implications are less straightforward. Different countries can afford to borrow different amounts
under different conditions, so there is no objective and universal benchmark for excessiveness. Hence, the measure of excess is political. The
story often told about the negotiation of the Maastricht convergence
criteria is that the Germans wanted to limit deficits to 2 per cent of
GDP, whereas the French were hoping for something closer to 4 per
cent. The value they agreed on splits the difference. Even if this story
is true, it grossly understates the complexity of the problem. The measure of excessiveness goes beyond the reference values written into
the Maastricht Treaty to include the harmonized standards for fiscal
accounting (ESA 95), the aggregation of accounts across different levels of government, the time horizons for estimation, and the list of
extenuating circumstances.8
As with the price-stability rule, the sound-finances rule entails a
specific institutional commitment: that is, not to bail out the fiscal
errors of individual member states. This prohibition extends to both
central banks (including the ECB) and other member states. It rests
on the paired notions of individual responsibility and moral hazard.
National governments must know in advance that they will be held
8
See Savage 2008 and Heipertz and Verdun 2010.
149
accountable for their own excesses; otherwise, they will face adverse
incentives to break the sound-finances commitment in the knowledge
that others will absorb the consequences.
What is telling about the sound-finances rule is that it applies to
the difference between revenues and expenditures and not the broader
relationship between states and markets. This is an example in which
the distinction between an encompassing policy paradigm and a more
partial framework of ideas is important. The BrusselsFrankfurt consensus never extended to fiscal integration and neither did it imply
constraints on the scope of national-welfare states. Instead, it focuses
much more tightly on the market distortions caused by government
borrowing. In this sense, the prescriptions it contains are embedded
in different national statemarket traditions. The parallels with the
compromise of embedded liberalism that described the early postwar
international economic system are close.9 The idea of fiscal responsibility was socially embedded in very different national contexts.
This is not to say that welfare-state structures were insulated from
the BrusselsFrankfurt consensus. Rather, the point is that any influence was indirect rather than explicit. Once member-state governments signed up for irrevocably fixed exchange rates, stable money,
and sound finances, they had few remaining instruments for macroeconomic adjustment. Some of the smaller, corporatist countries could rely
on price-incomes policies. However, the larger or less corporatist member states could only hope that domestic-market adjustments would be
macroeconomically efficient meaning that prices and wages would
be flexible and unemployment would be temporary.
The emphasis on the domestic dimension of market adjustments
was implicit. Although the European Treaties openly celebrate the
free movement of labour, Europes heads of state and government
did not aspire to create the conditions for mass migrations of unemployed workers to move from one member state to the next in search
of employment. Even labour migration within countries was open to
question. Hence, the goal was to create efficient local-factor markets so
that workers could move from one job to another without necessarily
changing their place of residence.10
This emphasis on improving the efficiency of local labour (or
factor) markets is a recurrent theme in European welfare-statereform debates. The usual rhetorical device is competitiveness. The
9
See Ruggie 1982.
10
See Jones 1998.
150
heresthetic force of this framing is as strong as with the notion of

excessive, and the economic rationale is similarly incomplete. Local
markets are competitive when prices and wages are flexible and unemployment is low, and they are uncompetitive when prices and wages
are more rigid and unemployment is high. The problem is that most
economic actors aspire to achieve conditions of full employment alongside wage and price rigidities; they want to hold onto their jobs while
at the same time protecting the real value of their remuneration from
one year (month, day) to the next. Policy makers square the circle
by focusing on productivity growth as a means of accommodating
conflicting demands. The argument is that as long as productivity
increases, workers can hold onto their jobs and benefit from stable
or rising incomes. The challenge is to encourage productivity growth.
Technological innovation is difficult to endogenize, so the argument
usually pivots on creating appropriate incentives; the source of productivity growth is more competition.11
At the same time, most economies contain unemployment that cannot be explained as a function of domestic wage and price distortions. Competitiveness addresses only part of this dilemma. Nevertheless, the political logic behind the argument for greater market
liberalization is supportive of the broader policy consensus. As long as
Europes governments remain committed to stable prices and sound
finances within the context of a single currency, they should do their
utmost to ensure that local-market institutions including welfarestate benefits do not conflict with the achievement of jobs and
growth.12
This framework was not the only possible design for Europes economic and monetary union. The architects for monetary integration
could have drawn up plans that offered more political influence in
mapping out the policy targets, more choice in setting monetary-policy
instruments, more dynamic assessments of fiscal capacity, more solidarity when problems got out of control, and more flexibility in managing macroeconomic adjustment. The problem with these alternatives,
however, is that each implies some form of discretion; by contrast, the
BrusselsFrankfurt consensus rests on a foundation of rules. In this
sense, it rests on foundations very similar to the German notion of
Ordnungspolitik.
11
See Draghi 2012.
12
See Praet 2012.
151
This rules-based framework should be interpreted as an agreement

to disagree and not as the imposition of German norms on the rest
of Europe. Europes politicians could not identify a coherent framework for discretion that is, where it should be exercised, when,
and by whom. Attempts to negotiate a European economic government failed. Hence, they fell back on a rules-based framework that
could operate beyond political discretion. This was not the optimal
choice, simply the only possibility for agreement. Even countries with
a strong state tradition found themselves reluctantly accepting the
BrusselsFrankfurt consensus. If they could not have an effective economic government, at least they could help to shape the rules of the
game.
Ideas, ideologies, and paradigms

The policy commitments included in the BrusselsFrankfurt consensus are ideas that European politicians have transformed into policy
rules. They do not add up to a coherent worldview or even a coherent
understanding of the relationship between states and markets. In that
sense, the BrusselsFrankfurt consensus is more limited in scope than
the neo-liberal ideology that is the focus of this volume. It overlaps
with neo-liberalism in some respects and it has neo-liberal supporters,
but neo-Keynesians and supporters of other more heterodox economic
perspectives can reinterpret key elements of the BrusselsFrankfurt
consensus in ways that are consistent with their preferences as well.
This places the BrusselsFrankfurt consensus somewhere in the ambit
of the first two lines of analysis for explaining ideation resilience that
are set out in Chapter 1 of this volume it is at the same time more
rhetoric than reality and it is easier to describe in broad theoretical
terms than it is to implement in practice.
The debate about the appropriate balance between austerity and
growth that emerged around the election of Francois Hollande to the
French presidency is a good example. The German position, as advocated by Chancellor Angela Merkel and her Finance Minister Wolfgang
Schauble,
is that the uncertainty surrounding government finances in
Europe is the greatest obstacle to growth. If that uncertainty could be

eliminated by engaging in aggressive fiscal consolidation, then businesses would feel more confident about making investments. Moreover, the ECB should not step in to facilitate this consolidation because
152
that would only create uncertainty regarding future inflation. Hence,

member states must take responsibility for their own actions. They
must engage in market-structural reforms as well. Only in this way
can they be sure that a change in business confidence will lead to an
efficient allocation of capital that will result in sustainable job creation. Hence, the German view includes all of the core elements of
the BrusselsFrankfurt consensus: stable money, sound finances, and
efficient local-factor markets.
The view espoused by Hollande and former Italian Prime Minister
Mario Monti rests on a different understanding of the mechanisms
that drive growth. They claim that the lack of economic activity is the
reason that businesses are reluctant to invest. As long as there is so
much excess capacity in the market, there is no reason for businesses
to expand. Furthermore, without either activity or investment, it is not
surprising that governments are struggling with their finances. Indeed,
the situation should only be expected to deteriorate as banks write
down their assets and governments must step in to shore up or rescue the banks. Hence, it is the responsibility of governments to prime
the pumps of the economy to keep matters from worsening. This
view does not deny the importance of stable prices; rather, it insists
that price stability is not under threat. It does not reject the importance of sound finances either; instead, it argues that only growth can
improve government finances. Finally, it embraces efficient local-factor
markets. Market-structural reform is the only solution to long-term
unemployment.
Arguably, the advocates of fiscal consolidation and the advocates
of fiscal stimulus both fit within the broad policy commitments that
constitute the BrusselsFrankfurt consensus. The problem is that neither side recognizes the others fit as legitimate. Hence, the German
position is that the only way to accommodate the recommendations
of the French and the Italians would be to implement a sweeping institutional reform. The French and Italians disagree. By contrast, the
French and Italians complain that the German view is ultimately selfdestructive; the single currency cannot survive much longer without
growth and investment. The Germans insist that they offer the only
solution that is consistent with the existing policy framework. These
are stark ideological differences.
The BrusselsFrankfurt consensus is not an ideology and it is not
even a complete guide to macroeconomic policy making. Indeed, it has
153
only some of the elements of a scientific paradigm in the sense described

by Thomas Kuhn.13 It works like a paradigm insofar as it sets out a
clear notion of progress with shared assumptions about what are (1)
the goals for policy making, (2) the standard problems to address,
and (3) the generally accepted measures of success. Hence, even if the
framework is somewhat less than a paradigm, many of the mechanisms
(and pathologies) at work in Kuhnian normal science operate within
the context of these interlocking ideational commitments. However,
the BrusselsFrankfurt consensus has policy lacunae that are relevant
to macroeconomic conditions.
The relationship between a monetary union and a financial union
is a good illustration. The original Maastricht agreement left open the
possibility for further financial integration but did not make it compulsory. Hence, the member states remained responsible for prudential
oversight, deposit insurance, and other forms of banking regulation.
The internal market made it easy for banks to move across borders,
but it did not elevate responsibility for the European financial system
to the European level. Moreover, this omission was accepted within
the BrusselsFrankfurt consensus. The belief was that a combination
of stable money, sound finances, and efficient local-factor markets did
not entail requirements for a strong rules-based framework to govern European banks. Moreover, this belief persisted until only very
recently.14
Now, of course, it is obvious that monetary union and financial union are somehow interconnected. The problem is to devise
an acceptable European framework. This problem falls outside the
existing BrusselsFrankfurt consensus and is more a bone of contention than an area of agreement among the member states. Again,
the shadows of competing ideological commitments are apparent,
which is important later in this analysis. For now, it is necessary only
to insist that the BrusselsFrankfurt consensus was much less than
an ideology; it was also incomplete as a policy framework. What
it had to offer was a triptych of policy commitments that European politicians transformed into general rules for macroeconomic
policy making. The only question is whether those rules would be
sufficient to govern Europes economy. As it turned out, they were
not.
13
See Kuhn 1970.
14
See Hodson 2011: 314.
154
Stable money
The problem was that Europes new single currency did not play by the
rules. Consider the case of monetary stability. The challenges emerged
almost immediately and concerned the link between monetary growth
and price movements, the divergence of inflation rates across countries, the gap between actual and expected inflation, and the value of
the euro relative to other currencies, particularly the dollar. It is worth
discussing each of these challenges in turn because each displays a different dimension of the underlying problem: monetary stability is many
things, many of which are interconnected in ways that are mutually
destabilizing.
The gap between monetary growth and price movements is a good
place to start the discussion. The basic presumption is that price movements are somehow a function of the volume of money in circulation.
Therefore, any change in the supply of money to the economy should
have an impact on prices. From the outset, the ECB built this notion
into its policy regime as one of the two pillars of its decision-making
process. When setting policy, the governing council looked at both the
expected rate of inflation over the medium term and the actual growth
in the broad money supply (i.e., M3) relative to a reference value
initially set at an annualized growth rate of 4.5 per cent. The problem was that the relationship between M3 growth and price inflation
appeared unstable: M3 growth would move far ahead of the reference
value with little impact on prices. This created confusion within the
market, in which participants were trying to use the relative growth
of M3 as a means of predicting monetary-policy changes. Eventually,
market participants began to speculate on a change in the reference
value. However, changing the reference value makes little sense if the
underlying relationship between monetary growth and price inflation
is unstable. Hence, the ECB decided first to make the reference value
permanent and then to push this aspect of monetary analysis into the
background of its decision-making process.
When the ECB put less weight on monetary analysis, it necessarily
had to put more weight on inflation-targeting. However, inflationtargeting suffered from two other problems. The first is that the
relevant measure of inflation for monetary-policy marking refers to
the aggregate price movements across the entire Eurozone. Within
that aggregate, national price movements were expected to converge
155
around a common norm; however, they did not. Instead, price inflation
accelerated in some countries and decelerated in others along diverging trajectories. This explains why the ECB revised its price-stability
target from open-ended below 2 per cent per annum to more narrowly defined below but close to 2 per cent. Given the wide variation
in national-price performance, monetary policy makers hoped that a
consistently higher target would ensure that countries did not fall into
deflation. Moreover, these divergences in inflation rates proved to be
persistent over time. As a result, countries ended up with very different price levels. This is important when the discussion returns to the
notion of competitiveness.
The second problem with inflation targeting is that actual rates of
inflation are not always expected. The ECB can set policy to ensure
that expectations about inflation remain stable, but it has little control
over energy or commodity price shocks that might distort actual performance. This problem is primarily one of perception: contemporary
observers see that actual inflation in the Eurozone exceeds its target
more often than not, even as the ECB lauds its ability to hold prices
stable. It is not surprising that this creates cognitive dissonance. The
response was for the ECB to make its assessment of expectations more
transparent, revealing both the sources of its information and the modelling assumptions it uses when anticipating future price increases. In
turn, this made the ECBs own actions more predictable and therefore
more prone to speculation in the markets. Hence, the ECB had to learn
to clearly telegraph its intentions to avoid the unnecessary volatility
that might arise when market actors make inaccurate guesses about
the banks next policy moves.
The euro as an internationally traded currency was prone to speculation as well, which was clear from the outset. The euro launched
in January 1999 at a relatively strong $1.17 exchange rate and then
fell like a stone. By September 2000, it was down to around $0.82.
Efforts by the then ECB President Wim Duisenberg to engineer a coordinated intervention with the United States Treasury failed to restore
confidence; instead, those efforts underscored the ECBs weakness in
influencing the euros external value. Subsequent movements in the
eurodollar relationship have repeatedly reinforced this lesson. Worse,
they have shown that different European countries are affected asymmetrically by sharp oscillations in the dollar value of the euro. Energy
and commodity prices are affected differently as well. In this way,
156
instability in the external value of the euro exacerbates the challenge

of stabilizing domestic European prices. This is not a fatal weakness
for the single currency, but it is an important constraint.
Europes monetary policy makers had little choice but to adapt their
policy framework to these practicalities. Even having done so, however, it was clear that many factors remained outside of their control.
This meant that the ECB had to exercise discretion in setting priorities:
over the appropriate balance between inflation-targeting relative to
monetary analysis, over the appropriate measure of price stability, over
the choice of forecasting models, over the level of transparency when
communicating decisions to the market, and over the benign neglect
of the exchange rate or much less frequently attempts to coordinate intervention in order to influence the external value of the euro.
Moreover, this exercise of discretion meant that like it or not the
ECB had to become political: it had to master its communications
strategy; it had to earn credibility with a number of different constituencies; and it had to worry about maintaining popular support.
This notion of popular support is not trivial. Despite its political
independence, the ECB has long recognized that it is not the only player
capable of influencing prices. Other actors namely, governments,
producers, employers, and trade unions can have a powerful impact
as well. Indeed, these other actors are the ones who set prices and
wages through their actions. If they do not accept the credibility of
the ECB, they will not shape their expectations or actions around
its policy preferences. Moreover, if they come into conflict with the
ECB, the overall outcome in terms of growth and employment will
suffer. This is why the ECB jealously safeguards its reputation. It is
also why the ECB goes to such lengths to sell its accomplishments.
Having chosen to emphasize its primary mandate, the ECB must show
that it can deliver price stability; otherwise, actors will ignore it. In
the worst case, they may lobby to have another arrangement set up in
its place.15 This provides a slightly skewed illustration of the fifth line
of explanation for ideational resilience that is offered by the editors
in Chapter 1 of this volume: institutional persistence. The ECB holds
onto the BrusselsFrankfurt consensus and specifically its commitment
to the virtues of price stability in order to legitimate the ECBs own
political independence.
15
See Jones 2010.
157
Sound finances
Member-state efforts to enforce fiscal moderation were no less straightforward than the struggle for monetary stability. Three dilemmas are
particularly salient: the quality of the measurements, the effectiveness
of the enforcement mechanisms, and the consequences of getting things
wrong. As with the monetary part of the framework, these are distinct
problems but they are also at least potentially reinforcing.
Of the three, the measurement issue is the most complex. The bottom line is that there is no meaningful and absolute definition of what
constitutes a fiscal deficit.16 The theoretical principle is straightforward: a deficit is the difference between revenues and expenditures. The
accounting practice is not. Here again is confirmation of the notion
that ideas persist more in rhetoric than in reality and that they are
more viable in theory than in practice. The rules for what goes onto
the governments balances and how they are recorded rest on a host
of assumptions and judgements that are not easily communicated or
transposed from one accounting system to the next. Hence, all measures are relative to the accounting practices that underpin them.
Moreover, not all accounting practices convey the same meaning
in economic terms. Different rules give priority to different models
and causal mechanisms. The cyclically adjusted structural balance is
a good example. The idea is to show the net impact that a government has across the business cycle. The practice rests on a number of
assumptions about how government accounts would perform under
counterfactual economic circumstances. There is a logic to making
this adjustment: by changing the accounting rules, what the deficit
means also changes. Nevertheless, the implication is that meaning is
always relative to the system of accounts.
This presumes, of course, that governments follow the rules when
assembling their accounts. They do not. Sometimes governments break
the rules because they want to highlight particular achievements or
avoid particular complaints. Other times, they simply do not have
the administrative capacity to ensure accounting compliance. In both
respects, the problems that Greece has had are qualitatively worse and
yet not categorically different from those experienced elsewhere.
Deciding whether a government is actually running an excessive
deficit is essentially a political choice. Deciding what to do about that
16
See Blejer and Cheasty 1991.
158
deficit is political as well, which is where the problem of enforcement

comes into play. The early history of the euro was littered with unedifying illustrations. The February 2001 Irish reprimand by the Council
of Economics and Finance Ministers (i.e., the Ecofin Council) represents one dimension of the problem; the November 2003 decision to
set aside the procedure for sanctioning excessive deficits in France and
Germany represents another. These stories are both well known. Neither should the fact that Portugal and Germany were both allowed to
run excessive deficits without comment in February 2002 be forgotten.
The long and short of the matter is that European institutions had little
power to enforce the rules for smaller states, even when it made sense
to do so, and little desire to enforce the rules for larger countries when
it arguably made more sense to exercise discretion.
Attempts to invoke ever-more solemn commitments will not eliminate the problem. Spains decision in February 2012 to defy the European Commissions recommendations and set its own fiscal target
demonstrates just how little the fiscal compact is likely to matter.
Meanwhile, Ireland threatened to undermine the fiscal compact by
holding a popular referendum, and the right-wing populist Party of
Freedom in the Netherlands brought down the Dutch government in
protest over European interference in fiscal-consolidation efforts. The
fact that the Irish referendum ultimately passed and a loose coalition of
Dutch political parties formed to support austerity measures until new
elections does not mean that these episodes were unimportant; neither were they irrational. The domestic political factors behind these
manoeuvres are easy to understand; how this all adds up to stable
finances is somewhat more difficult to imagine.
Such pessimism can be overdrawn. The fact of the matter is that
Europe did achieve significant fiscal consolidation during the process of monetary integration. That this consolidation was pursued
primarily for domestic reasons rather than out of commitment to the
BrusselsFrankfurt consensus does not negate that it happened.17 In
this sense, the reality of fiscal consolidation underpinned the broader
rhetoric of stable finances. Unfortunately, the Irish case demonstrates
that consolidation alone is not enough. By taking on the liabilities of
the domestic-banking sector, the Irish government effectively erased
two decades worth of austerity measures. The Belgian government
17
See Hallerberg 2004.
159
suffered a similar setback when it bailed out domestic-banking giants

Dexia and Fortis. Furthermore, the Italian government came very close
to suffering its own catastrophic reverse.
These three cases reveal a fiscal problem within the Eurozone at
work on a deeper, structural level. The rapid convergence of nominal interest rates during the run-up to monetary integration in the
late 1990s changed the composition of government outlays and contingent liabilities in a way that facilitated consolidation but that also
created a new source of exposure. Government finances looked more
stable because borrowing declined; yet, they became more fragile in the
face of sudden interest-rate shocks. Europes policy makers failed to
take into account the risks this implied. As nominal-yield differentials
increased again, the result was a near disaster.18
The fiscal and the monetary stories overlap at this point. When
sovereign-debt markets began to falter, the ECB came under pressure to act as lender of last resort. Doing so would have solved one
set of problems but only at the expense of creating more. The more
sovereign-debt assets the ECB purchases, the more liquidity it must
inject into the market. The fact that the relationship between monetary growth and price increases is unstable offers cold comfort. At some
point, that excess liquidity will translate into activity that could push
up prices. The securities market programme (SMP) was an awkward
attempt to circumvent this dilemma. The ECB purchased sovereigndebt instruments in secondary markets and then borrowed back the
money it spent by doing so. The official justification was that such
purchases were necessary to support the mechanisms that transmit
monetary-policy decisions to the economy. That was true, but more
was involved.
The introduction of unlimited long-term refinancing operations
pushed out the ECB even farther. In essence, the ECB gave banks
the opportunity to borrow unlimited credit at very low fixed rates
of interest for periods of up to three years with no penalty for early
repayment. Here, the justification was to provide liquidity to the banking system. However, the very low interest rates charged made it likely
that the banks would buy government bonds with the money they borrowed. French President Nicolas Sarkozy openly hinted that that was
the intent. The ECB would act as lender of last resort for the European
18
aramo
2012.
See Gonzalez-P
160
banking system and the banks would provide essentially the same service for the member states. If so, the policy succeeded beyond expectations; long-term government bonds declined across Europe during
the first quarter of 2012 as a consequence. Unfortunately, that success
came only as a consequence of tying the financing of governments ever
more tightly to the solvency of domestic banks. When losses became
apparent in the banking system, the markets turned on the governments as well, which is what happened in Spain.
Efficient local-factor markets

Europe has had difficulty in pursuing stable money and sound finances.
Nevertheless, European leaders are quick to tout their achievements on
both dimensions and to contrast them favourably with other countries
such as the United States. By contrast, Europes pursuit of efficient
local-factor markets is less easily celebrated. Even before the economic
crisis, European unemployment rates fell only sluggishly. Once the
crisis struck, that rigidity worked in Europes favour and unemployment increased much more slowly as a consequence. Now, however,
Europes unemployment situation is dramatic particularly in those
countries having the most difficulty in financing their sovereign debts.
In Greece, Ireland, Spain, and Portugal, for example, the unemployment rate is well into double figures; among youths across much of
Southern Europe, it approaches 50 per cent. This problem will not go
away soon.
Such evidence to the contrary, the emphasis on market liberalization
was arguably the most successful aspect of the BrusselsFrankfurt consensus. This judgement will surprise readers who are aware of manifest
failings of Europes Lisbon Strategy both before and after its revision
and who are bound to be sceptical about Europes Horizon 2020 initiative to carry the process of market liberalization forward. Clearly,
the Lisbon Strategy did not achieve its own headline goal of creating
the worlds most competitive and dynamic knowledge-based economy by 2010. Neither did it sufficiently transform Europes national
labour markets to manage macroeconomic adjustments without significant increases in unemployment. Yet, judging the strategy by those
benchmarks would be unrealistic.
The fact that virtually every European country has tried consistently
to improve its labour-market performance by fine-tuning institutional
161
arrangements during the past two decades is a better measure of success. This is a rare instance when the rhetoric of the BrusselsFrankfurt
consensus and the reality of underlying policy measures overlapped
precisely and with positive effect. Consider the historical contrasts.
During the 1970s, most governments used welfare-state institutions
to hide macroeconomic problems. During the 1980s and early 1990s,
they engaged in welfare-state reform despite the macroeconomic consequences. By the end of the 1990s, however, it became clear that
welfare-state reform and macroeconomic performance had to move in
tandem. It was not enough to hollow out and harden the state against
conflicting societal interests or pluralistic stagnation. Politicians had to
find ways to make welfare-state institutions work better to encourage
employment while also creating incentives for innovation. This is what
the drive to make European local-factor markets more efficient has to
offer.
The distinction between theory and practice nevertheless remains
important in explaining the persistence of the idea. Europes success
in achieving greater factor-market efficiency is limited in two important respects. The first is related to conflicting national priorities; the
second is more akin to a capabilitiesexpectations gap. The conflicting priorities have been evident at least as far back as Jacques Delors
original white paper on jobs, growth, competitiveness. In that early
document, the tension was between employment and environmental
protection. During the late 1990s, the tension manifested as a competition among different reform processes that is, Luxembourg, Cardiff,
and Cologne. Under the overarching Lisbon strategy, it metastasized
in a host of competing benchmarks and targets. The effect has been to
diffuse political energy and thereby reduce the momentum for reform.
The consequences of this shortcoming have been significant. When former Dutch Prime Minister Wim Kok published his mid-term report on
the Lisbon strategy in November 2004, he made it clear that the stakes
concerned the survival of Europes social model and not the assertion
of European economic predominance.
Koks rhetoric was dramatic but not in the context of the strategic
objectives set out by the March 2000 Lisbon European Council. On the
contrary, the Kok report helped to deflate some of the hyperbole that
shaped European expectations about the advantages of welfare-state
reform. This is where the rhetoric about competitiveness becomes
important. The basic idea is to facilitate adjustment in the context of
162
stable money and sound finances. There will always be winners and
losers from market dynamics, but a competitive national economy
should perform better overall. This is a fairly subtle argument, and
it is made even more subtle by the fact that different countries have
different traditions for statemarket relations. Competitiveness is not
a straightforward trade-off between equity and efficiency; it is a matter
of engineering combinations of both.19
Such a subtle argument is impossible to sell to the general public.
Hence, Europes politicians have made it simpler. Competitiveness is
efficiency, period. With greater market efficiency, Europeans will have
less reason to fear unemployment. This argument started in the mid
1990s and has continued to gain traction ever since. The dichotomy
it provides is simple: competitiveness or unemployment, reform or
decline.20
This dichotomy is not inaccurate, only exaggerated. Although it has
proven convincing for many, it has also resulted in mismanaged expectations. When the results of welfare-state reform turn out to be less
than expected, the potential for disappointment is high. Disappointment is also acute among those groups that bear the greatest costs
of adjustment in response to competition. The result is that popular support for European integration demonstrates a strong negative
correlation with labour-market performance. Meanwhile, right-wing
populists use welfare chauvinism to appeal to groups most at risk from
competitive adjustment, and they often combine that message with
attacks on European integration. Indeed, this programmatic combination is one of the most significant factors that groups as diverse as the
Austrian Freedom Party, the Italian Lega Nord, the French National
Front, and the Dutch Party of Freedom have in common.
Such criticism should not be taken too seriously. The push for efficient local-factor markets and welfare-state reform did not give rise to
right-wing extremism, even if the mismanagement of expectations did
give right-wing populists an open goal. Moreover, it is striking that
both welfare-state reform and the competitiveness that lies behind it
have emerged as a new European norm. This is true particularly for
those countries hardest hit by the sovereign-debt crisis. Greece has been
slow to implement many necessary measures, but it has been faster
and more resolute than ever before. The same is true for Spain and
Italy. Such efforts will never totally eliminate unemployment in these
19
See Sapir 2006.
20
See Alesina and Giavazzi 2006.
163
countries. Neither will Southern European labour markets ever be able

to easily manage such massive macroeconomic adjustments. However,
current efforts in welfare-state and labour-market reform may succeed
in helping to bring unemployment in Southern Europe down to more
manageable levels. If so, that should be counted as another measure of
success. Europes welfare states have already come far, even if many
still have a long way to go.
Interdependence
The problem with Europes new competitiveness norm is not that it
has failed to make European national labour markets more efficient.
They did become more efficient, albeit perhaps only marginally in
some cases. Rather, the problem is that the equation of competitiveness
and efficiency has created a vacuum around notions of solidarity and
interdependence that can have a powerful influence on macroeconomic
performance. Here is where we begin to see signs of this volumes
editors third line of analysis for explaining ideational persistence
that is, the lack of a compelling alternative.
This vacuum around notions of solidarity and interdependence is
obvious in the context of intra-European macroeconomic imbalances.
The BrusselsFrankfurt consensus offers only one virtuous policy combination: stable money, sound finances, and efficient local-factor markets. This combination is easiest to merge with a surplus of exports
over imports; the alternative is more challenging. Countries that import
more than they export tend to have higher rates of inflation and to borrow more than they save. Over time, and assuming that they do not
have a flexible exchange rate, they will also experience relatively rapid
increases in domestic wages relative to their competitors and perhaps
also higher levels of unemployment. This appears anything but virtuous viewed through the lens of the BrusselsFrankfurt consensus. The
reality, however, is that the two different sets of experiences are opposite sides of the same coin. Moreover, the same dualism operates within
as well as across countries. The coreperiphery divide in the euro area
parallels the northsouth divide in Italy, the southnorth divide in
the United Kingdom, the eastwest divide in Germany, and a host of
other cases. Hence, it is worth considering why the BrusselsFrankfurt
consensus did not give way to a more pliable policy framework. The
answer lies in the editors fourth line of explanation: that is, the power
of interests.
164
The rapid convergence of long-term nominal interest rates provides the starting point for this analysis. That convergence took
place because financial institutions with excess savings in northern or
core European countries sought higher returns on their investments
in southern or peripheral countries. These investments took many
forms, ranging from sovereign-debt purchases to interbank lending
and cross-border deposits. No matter what the situation, the dynamic
was the same. The borrowers on the periphery made a market in which
the lenders from the core participated. The results were the same as
well. Financial institutions on the periphery progressively found themselves holding onto surplus financial resources because they were
priced out of their domestic sovereign-debt markets, because they purchased an interbank loan, or because they accepted a cross-border
deposit.
These peripheral financial institutions faced very different incentives
from their counterparts in the European core. They did not confront
saturated domestic markets for lending and therefore did not need to
go abroad to hunt for yield. Instead, they displayed a typical home
bias in booking new assets, with the result that credit use increased
domestically on the back of financing made available from abroad.
The uses of that credit varied among countries but always involved
a mix of new assets, some productive and others purely speculative.
Over time and with continued expansion of lending, the volume of
bad assets accumulated. As long as domestic firms continued to make
profits, however, this accumulation of bad assets had little net impact.
The expansion of credit in the periphery (from the core) did affect
domestic prices. As more money flowed into the economy than could
be generated through domestic income, the price for domestic output
(including wages) was certain to increase. This explains at least part of
the divergence in inflation rates across countries. Current account balances also diverged sharply. Although the peripheral countries maintained their export-market shares until the beginning of the crisis, the
inflow of credit from the core necessarily entailed an increase in imports
over exports as well. In this way, the current account accommodated
the pattern of capital flows.
Then the crisis struck and capital flows shifted into reverse, moving
from Europes periphery back to the core. New credit suddenly ceased
to be available for the banks on the periphery and the bad assets they
had accumulated were no longer manageable. Worse, banks began
165
to shut down the supply of credit to non-financial industry, thereby

shutting down the economy as a whole. Government efforts to replace
this activity by either propping up the banks or stimulating the economy proved inadequate to the scale of the problem. These efforts also
severely weakened government accounts. Ultimately, sovereign-debt
markets also fell into crisis as a result.
The effects were not limited to the periphery and were felt across the
core. However, the market response was different because savers in the
periphery estimated that their money would be safer in the financial
institutions of the core. This flight to quality reversed the flow of
funds across Europe while at the same time further exacerbating the
weakness of economic performance on the periphery and propping up
performance in the core. This time, however, current account balances
could not accommodate capital flows. The trade in goods and services
is slow to adapt, which is why financial imbalances in the real-time
gross-settlements system for managing payments across countries (i.e.,
Target2) have become so important.
Some type of transaction must fill the gap when capital accounts
and current accounts do not balance out. Under a fixed-exchange-rate
regime, this transaction would take place through foreign-exchange
reserves on the Official Settlements Account. Within the Eurozone,
it operates through central-bank credit. Essentially, the German Bundesbank lends money to peripheral-country financial institutions so
that depositors on the periphery can withdraw the money and send
it back to Germany. In this example, the private credits to the German financial system (e.g., Italian capital flight to Germany) are offset
by the public debits at the German Bundesbank (e.g., Italian central
bank borrowing from Target2). Moreover, the potential exposure of
the Bundesbank to this type of transaction within the Eurozone is
theoretically, at least limitless.
The problem came to a head when Bundesbank President Jens
Weidmann wrote to ECB President Mario Draghi on 29 February
2012 to express his concern about the Bundesbanks exposure to Target2 imbalances. In his letter, Weidmann suggested that the loss provisions in the existing Eurozone system are inadequate. If a country
were to pull out of the monetary union and repudiate its Target2
obligations, the Bundesbank would have to absorb the lions share of
the associated losses. Weidmann suggested it would be better if the
system earmarked collateral to national exposure in a matched way.
166
This suggestion represents an existential challenge to the monetary

union because it implies that Target2 imbalances should be treated as
official settlements under a fixed-exchange-rate regime and because it
suggests that national commitments to the euro are not irrevocable. If
those implications are true, then the euro is not a monetary union at
all. If those implications are embraced by the market, then the resulting increase in the flight to quality from the periphery to core Europe
could tear down the system.
Draghi acted quickly to minimize the significance of Weidmanns
letter and to reassert the inviolability of the euro. He and his colleagues on the ECB executive board took great pains to reassert the
continuing validity of the existing policy framework as well. Nevertheless, the scale and structure of interdependence across countries
within the Eurozone does not fit easily within the BrusselsFrankfurt
consensus. Try as they might, Europes political leadership cannot
accurately define the sovereign-debt crisis in terms that derive from the
nexus of stable money, sound finances, and competitive local-factor
markets. Instead, they fall back on preconceptions of virtue and vice
that happen to coincide with the distribution of power across countries. Germany most closely approximates the virtues of stable money,
sound finances, and efficient local-factor markets, and the German
government is essential to any solution to Europes sovereign-debt crisis. Greece most closely approximates the opposite of German virtue
on all three dimensions, and Greek politicians find themselves, as a
consequence, on the receiving end of instructions from other countries
and international organizations.
The point here is not to criticize German perceptions of the crisis as
self-serving or without factual basis. Rather, it is to explain why
much of the German central-banking community and economics
profession has found it easy to promote a stark version of the
BrusselsFrankfurt consensus; they can set the agenda for the policy debate because they are in such a powerful position. Unfortunately, this does not make the BrusselsFrankfurt consensus any
more useful now as a guide to macroeconomic policy making
than it was in the past. It may even be worse insofar as it
can capture some of the elements of some of the cases; however, the descriptions it offers generate little insight on the causal
mechanisms at work and the prescriptions that derive from the analysis are implausible if not counterproductive. The ECB has little left to
offer in terms of monetary stimulus; more austerity will not stimulate
167
activity on Europes periphery; and further welfare-state reform will

require years to have a significant impact on unemployment.
In this sense, Europes sovereign-debt crisis is not a vindication of
the BrusselsFrankfurt consensus. To the contrary, it presents a huge
anomaly within the existing policy framework; it is a problem for
which the usual rules do not apply. As the scale of the crisis became
apparent and the costs of the German position became excessive, European policy makers began to adapt their approach to the crises in a
piecemeal, experimental manner. This was neither a reassertion nor a
repudiation of the BrusselsFrankfurt consensus; rather, it was a reflection of the fact that Europeans had few new ideas and little institutional
opportunity to put something new in its place.
Alternative arrangements
The elements of a new arrangement are starting to emerge, and they all
respond to the problem of interdependence with an increasing emphasis on solidarity. This emphasis goes well beyond the minimal contours
of the BrusselsFrankfurt consensus. It demands a much higher level of
cooperation across countries and a much greater trust as well. Neither
of those factors appears sufficiently abundant; as a result, there is little
prospect that these alternatives will find widespread acceptance.
The most obvious alternative is to push forward with a more
comprehensive discretionary framework, which encompasses the
debate concerning fiscal federalism and economic government. The
idea would be to either empower the ECB to act as lender of last resort
for member-state governments or endow another European institution
with sufficient resources to play that role. So far, that argument has
only attracted theoretical support often using the United States as an
example. That illustration is somewhat incongruous given the inability
of the US Congress to exercise its fiscal authority. This suggests that
the whole debate about fiscal federalism is more cynical than real.
If anything, a re-nationalization of fiscal and monetary policy seems
more likely.
A more modest prospect would build new institutions to manage interdependence such as an emergency bailout mechanism,
a common-deposit-insurance provision, and jointly issued sovereign
Eurobonds. In other words, the idea is to expand the Brussels
Frankfurt consensus to include financial union as well as monetary
union, thus eliminating an important gap in the policy framework.
168
These proposals are gaining traction. The European Council has agreed
to bring the permanent European Stability Mechanism forward, even
if it remains unwilling to provide that facility with sufficient resources
to do the job. Common-deposit insurance is not yet on the table but
the arguments are widely mooted. As for the Eurobond proposal, the
EC has issued a green paper to argue that such instruments should be
considered stability bonds. There is considerable merit to the argument: not only would such a common instrument lower incentives for
peripheral savers to seek a financial safe haven in the European core;
they would also sever the tight coupling between national banking
systems and their home-government finances.
These proposals are also driving a wedge into the BrusselsFrankfurt
consensus, with much of Europe on one side and much of Germany
on the other. French President Francois Hollande, Italian Prime Minister Mario Monti, and Luxembourg Finance Minister Jean-Claude
Juncker have emerged as the greatest supporters of the Eurobond proposal, whereas German Chancellor Angela Merkel and Finance Minister Wolfgang Schauble
appear to be the staunchest opponents. That
said, Germany is hardly alone in this argument; Finland, the Netherlands, and Slovakia are also openly reluctant.
The challenge is to reassure political actors in these countries
that these new institutions can be made compatible with preexisting
values stable money, sound finances, and efficient local-factor markets. So far, that argument is proving difficult to sell. Hollande, Monti,
and Juncker tend to argue that Europe will get there eventually, but
only Hollande seems willing to push harder now. Meanwhile, the existing institutions for European decision making provide numerous veto
points that slow the efforts to define these alternative institutions. If the
BrusselsFrankfurt consensus appears resilient as a policy framework
in this context, it is because of this institutional inertia.
Long after the BrusselsFrankfurt policy framework ceases to inspire
consensus, the institutions it brought forward will remain in place.
Politicians will continue to pay lip service to the virtues of stable
money, sound finances, and efficient local-factor markets because they
recognize that the cost of pulling a national economy out of the Eurozone would be unacceptable. Realization of that fact already seems
widespread if not exactly welcome. In that sense, muddling through
may have paid off as a strategy for managing the crisis.
Then again, the end of the current crisis may only set the stage for an
even bigger crisis to follow. As long as Europeans continue to adhere
169
to a policy framework that ignores the implications of interdependence

and the structural transformations that having a single currency entails,
they risk a repetition of the current turmoil. If anything, the next crisis
will be even bigger. The macroeconomic policy framework set out in
the BrusselsFrankfurt consensus has proven resilient, but it is a hollow
demonstration more rhetorical than real.21
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21
See Praet 2012.
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University of Chicago Press.
Lakatos, Imre. 1970. Falsification and the Methodology of Scientific
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edited by Imre Lakatos and Alan Musgrave (11632). Cambridge: Cambridge University Press.
Loedel, Peter. 1999. Deutsche Mark Politics: Germany in the European
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McNamara, Kathleen R. 1998. The Currency of Ideas: Monetary Politics in
the European Union. Ithaca, NY: Cornell University Press.
Moss, Bernard H. (ed.). 2004. The Triumph of Monetarism in the European
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Padoa-Schioppa, Tommaso. 1987. Efficiency, Stability and Equity: A Strategy for the Evolution of the Economic System of the European Community. Brussels: European Commission, II/49/87.
Praet, Peter. 2012. Sound Money, Sound Finances, a Competitive Economy:
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27 February.
Ruggie, John Gerard. 1982. International Regimes, Transactions, and
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Sapir, Andre. 2006. Globalization and the Reform of European Social Models, Journal of Common Market Studies 44 (2): 36990.
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Press.
Supranational neo-liberalization: The

EUs regulatory model of
economic markets
mark thatcher
Analysis of EU regulation of markets leads into the seventh circle (of

hell, purgatory, or paradise, depending on individual taste) of European neo-liberalism. The EUs core function is regulation and it is the
leading exponent of neo-liberal regulation in Europe. Since the 1980s,
it has developed a dominant set of ideas centred on competition to
achieve a single European market that is sufficiently integrated and
coherent to be called a model.
Although the neo-liberal content of the regulatory model is often
taken for granted in public and academic debates about the EU, this
chapter argues that it was not legally or ideationally inevitable. Indeed,
between the 1960s and 1980s, attractive alternatives were available
and neo-liberalism appeared to be an unlikely candidate for ideational
dominance. However, a powerful coalition of the European Commission, European Court of Justice (ECJ), national governments, and large
firms has formed to support the EUs neo-liberal regulatory model. The
coalition is heterogeneous, and it has widened and deepened over time
as key actors have altered their position.
Thus, the development of a powerful coalition that favours neoliberal ideas requires analysis rather than simply being presumed on the
basis of the EUs legal and institutional framework. Equally, changes
over time must be accounted for. In response, the analysis shows how
and why the key features of neo-liberalism its breadth and ambiguities, the combination of competition and a strong state, and its apparent political neutrality through reliance on rules and markets make it
attractive at the EU level. The chapter examines the ways in which these
features allow members of the supporting coalition to draw benefits
I would like thank the participants of the workshops in Boston and Paris for
comments on earlier drafts and especially the discussants, Orfeo Fioretis, Peter
Hall, and Charlotte Halpern.
171
172
from the model. Equally, it analyses self-reinforcing processes that,

over time, have strengthened neo-liberalism. Thus, it highlights the
processes of neo-liberalization that led key policy actors to embrace
or accept neo-liberal ideas as the means of pursuing their interests
rather than alternatives centred on mercantilism, industrial policy, and
public service, which were traditionally strong in Europe.
Empirically, the chapter focuses on both general-competition regulation and more sector-specific regulation; for the latter, it provides
examples from strategic industries that have seen a dramatic expansion of EU activity, such as telecommunications, energy, transport, and
finance. The chapter begins by tracing the development and resilience
of the EUs neo-liberal regulatory model for economic markets. It then
analyses the major actors in the coalition that supported the model,
showing why neo-liberal ideas were particularly suitable for EU regulation as well as the benefits that the model offered each coalition
member. EU merger policy, which offers a major empirical example of
EU regulation, is then studied to illustrate the general arguments.
This analysis therefore draws on both the fourth line of explanation
set out in Chapter 1 of this volume, in which neo-liberal ideas are
pressed by self-interested actors who gain from them, and the first line
of analysis, which points to the nature of neo-liberal ideas. The wider
argument is that key features of neo-liberal ideas make them attractive
to a wide range of actors who can therefore form a heterogeneous
coalition behind them, which is then strengthened by self-reinforcing
processes.
The limited place of neo-liberal ideas in the early

decades of the EU
Neo-liberalism is not inherently hostile to supranational regulation,
provided it is confined to certain domains. Hayek already identified the
need for an international authority that guarantees both that certain
rules are invariably enforced and that the authority which has the
power to enforce these cannot use it for any other purpose, arguing
that an international authority which effectively limits the powers
of the state over the individual will be one of the best safeguards of
peace.1 In the early years of the EU (then the European Community),2
1
2
See Hayek 1944: 236.

This chapter refers to the EU although much regulation has been made legally
under the European Community pillar of the EU.
Supranational neo-liberalization
173
neo-liberal ideas were certainly present. Thus, key principles enshrined

in the 1957 Treaty of Rome included free movement of goods and
services, labour and capital, and removal of trade barriers.
Nevertheless, until the mid 1980s, neo-liberal ideas enjoyed only a
limited place in the EU. They were strongest in general-competition
policy, for which ordo-liberal principles of regulation to control possible excessive market power of firms were important. Even here, however, their role was severely circumscribed; in particular, they were
applied to neither state-owned enterprises nor key sectors such as network industries that were regarded as closer to welfare services than
competitive markets (i.e., markets in which competition is permitted).3
Moreover, they faced powerful alternative theories of how markets
should be organized. To provide a major example, state-led models of industrial policy enjoyed considerable support from the 1960s
until the 1980s. These models envisaged close cooperation between
public and private firms for long-term investment and the creation
of large industrial national or European champion firms, capable of
reaping economies of scale and competing with international rivals,
especially from the United States.4 In France, this was known as
the grand projet model and it appeared to deliver successful outcomes in many key industries, including nuclear power, railways, and
telecommunications.5 In the 1970s and early 1980s, intergovernmental cooperation provided a European grand projet model of governing
economic markets. The Airbus consortium is an excellent example, in
which a European ideational framework (i.e., referentiel) of collaboration among national firms in a common venture provided a strong
alternative to neo-liberal competition.6 Even at the EU level, industrial policies to aid European champions through mergers, research
support, and EU standards to create larger markets were discussed.
One example was mobile telephony, in which Europe-wide standards
were developed through interoperator and intergovernmental cooperation and then enforced through EU regulation.7 These models offered
alternatives to neo-liberalism and especially its priority for highly
liberalized markets. They were favoured by major actors notably
many governments, large national firms, and significant parts of the
EC.
3
4
5
7
See Scott 1995; Pelkmans 2001a.

Cf. Hayward 1995 and Servan-Schreiber 1967.
Cf. Cohen 1992 and S. Schmidt 1996, 2002.
See Pelkmans 2001b.
Cf. Muller 1989.
174
Moreover, the EU legal framework was able to accommodate different models of regulating markets. As surprising as it may seem today,
however, when ECJ decisions and EU legislation are used to justify
the focus on competition, EU Treaties are, in fact, broadly worded.
Competition is not one of the EUs objectives under the 1957 Treaty
of Rome; instead, according to the Preamble, fair competition is a
means to achieve a common market in pursuit of the essential objective
of . . . constant improvements of the living and working conditions of
their people.8 Moreover, there are Treaty provisions that permit the
pursuit of aims other than competition. Thus, for instance, although
member states may not introduce prohibiting measures with effects
equivalent to customs duties,9 this is counterbalanced by their ability
to take measures that restrict imports from other member states on
several broad grounds (e.g., public morality, policy, security, health,
and cultural heritage).10 Equally, there is a strong doctrine of services
of general interest recognized by the European Commission (and the
ECJ).11 It involves pursuing non-economic aims and objectives such
as universal service (usually defined as ensuring essential services at
reasonable cost to all citizens) or other minimum rights, and it is linked
with well-established national legal, economic, and political doctrines
of public service.
Even Treaty provisions relating directly to competition in economic markets seemed open to non-neo-liberal interpretations. There
appeared to be wide scope for using public-sector organizations to
avoid competitive markets. The important Article 10612 states that
competition rules apply to undertakings entrusted with the operation
of services of general economic interest . . . in so far as the application
of such rules does not obstruct the performance, in law or in fact, of
the particular tasks assigned to them. Even general-competition law
includes aims other than competition. A perhaps surprising example
is state aid, which can be permitted for a series of purposes that are
not only social but also economic for example, for development or
to remedy a serious disturbance in the economy of a Member State
8
9
10
12
Preamble, Treaty of Rome, retained under the Treaty of Lisbon, which

renamed the EC Treaty the Treaty on the Functioning of the EU (TFEU). For
a discussion, see Buendia Sierra 2012.
Article 28 (ex Article 30); the Treaty of Lisbon numbering is used, but former
numbers are also cited when much of the academic literature refers to them.
11
Article 36.
See, for instance, Heritier 2002 and Sauter 2008.
This is better known as Article 90.
175
or to facilitate the development of certain economic activities or of

certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest.13
The development and resilience of the EUs neo-liberal

regulatory model for economic markets
Thus, until the 1980s, the place of neo-liberal ideas at the EU level was
circumscribed, if not marginal, and counterbalanced by other ideas.
However, thereafter, the importance of neo-liberal ideas grew. Their
rise was progressive and varied across policy domains. Neo-liberal
ideas were expressed and institutionalized over several decades through
reports, official documents, legislation, ECJ decisions, and interpretations of the Treaties.14 They were often broad and principles were
adapted and reshaped over time. Equally, implementation was frequently uneven and limited in practice. However, the argument here is
about their expansion as a set of ideas or norms for EU debates. Moreover, and importantly for the analysis, these ideas became attached to
a different set of aims namely, European integration.
Initial steps were taken in the 1970s and early 1980s in major court
cases that extended legal principles from tariff to non-tariff barriers.
As a result, national policies and decisions that impeded cross-border
trade were caught by EU law15 Equally, the ECJ began to apply competition law more widely, including to previously untouched domains
such as publicly owned telecommunications operators.16 At the policy level, the Cecchini report on the costs of non-Europe and the
1985 Single European Act both set out the goal of creating a single
European market.17 From the idea of abolishing tariff barriers for
cross-national trade, the EUs model moved to creating competition
across Europe with as few tariff and non-tariff restrictions as possible.
During the 1980s and into the early 1990s, the aim of extending competition achieved increasing prominence. It was increasingly
13
14
15
16
17
Article 107(2) and (3). For policy analyses of state aid, see Zahariadis 2010
and Smith 1998.
For a legal history, see, notably, Hancher and Larouche 2011 for regulation
and Maher 2011 for competition law.
Notably, the Cassis de Dijon case of 1979 and the Dassonville decision of
1974. For a discussion, see Stone Sweet 2004.
See, for instance, the 1985 British Telecommunications (BT) case, [1985] ECR
873.
See Smith 2005, Jabko 2006, and Armstrong and Bulmer 1998.
176
linked to being a (or, rather, the) means of achieving European integration. Moreover, the single European market was interpreted as the
removal of all barriers to trade, not only cross-border trade but increasingly domestic exchange as well. Equally, the scope of its application
was widened to include parts of previously excluded sectors, such
as telecommunications, energy, air transport, and financial services.
General-competition policy also took a more decisive turn towards
ideas of allowing market forces to operate, notably under the Irish
Commissioner Peter Sutherland (19851989) and especially the British
Commissioner Sir Leon Brittan (19891993).
Nevertheless, during this phase, rival conceptions of EU regulation
remained. One view was that the EU should seek the rapid extension
of competition across markets and remove constraints on firms. This
was often advanced by a more liberal coalition of certain member
states (led by Britain but often including Germany and other Northern member states) and parts of the European Commission (especially
Directorate General [DG] Competition, then called DGIV). The coalition was generally supported by rulings of the ECJ, which became a key
player in supporting additional EU powers to extend competition.18 In
contrast, a rival view was that the extension of competition should be
slow and limited to services purchased by large firms that had the ability to change suppliers and that faced international competitive pressures to lower their costs. Moreover, liberalization was to be counterbalanced by re-regulation to shape markets through setting standards
and rules to ensure that competition did not damage collective benefits
(e.g., universal service). This conception also favoured EU promotion
of large European champion firms that would receive active EU support (i.e., financial and regulatory) to take advantage of the new large
European market, thereby representing a form of EU industrial policy
or even grand projet. This approach received support from more statist
or Southern member states, usually led by France, many of their
national-champion firms, and parts of the European Commission
(often sectoral-industry DGs, DG for industry, and DG for regional
policy). The differences between the two conceptions should not be
overemphasized both accepted the extension of competition through
18
For instance, by applying Article 106 (ex Article 90) (3) to oblige member
states to end legal monopolies. See, for instance, European Court of Justice
1991 and 1992.
177
EU regulation to achieve the single European market but they offered

rather distinct views of the role of regulation and the nature of markets.
However, since the mid to late 1990s, neo-liberal regulatory ideas
have developed and become truly resilient. They have become increasingly accepted by many key policy actors: the European Commission
and, within it, many DGs, from competition to sectoral DGs; the ECJ;
national governments that differ not only in terms of model of capitalism but also politically between left and right; and firms, especially
transnational ones. Acceptance has spread to statist countries and
their national-champion firms. Even the French government usually
assented to the principle of extending competitive markets, including
in those sectors previously part of the grand projet strategy, such as
energy and telecommunications.
Moreover, the EUs neo-liberal ideas have increasingly formed a set
of principles that have become sufficiently related and comprehensive
to merit the appellation of constituting a normative model for the
regulation of economic markets. The model is neo-liberal in the sense
of being centred on the pursuit of competition. It aims to ensure a
single European market, which is understood to mean preventing distortions to competition. Although the model is broad and its specific
ideas vary by policy domain, four key components can be identified in
schematic form.
The first component is that EU regulation should liberalize markets
by ending legal restrictions on entry. Thus, for instance, almost all state
monopolies are regarded as counter to the single market and, therefore,
illegal under EU law, including those traditionally perceived as public
services (e.g., public utilities).19 State restrictions include policies, rules,
and standards that prevent or distort competition by restricting imports
from other member states, regardless of intention.20
Re-regulation for competition is a second element of the model, and
it can take many forms. One form is general-competition law, such as
prohibitions on state aid, abuse of a dominant position, and control
over mergers that create substantial market power. Although some
of the legal provisions may have been present in previous decades,
what has changed is the renewed emphasis on their importance and
19
20
Cf. Thatcher 2007 and Smith 2005.

Expressed in Article 28 (ex Article 30) and then numerous legal cases, of which
Cassis de Dijon are the best known.
178
application to national-champion firms and previously protected

sectors.21 Another example is the principle of mutual recognition,
which means that member states must accept products and services
meeting the standards in another member state.22 This may be combined in many markets, including financial markets, with the principle
of home-country control, whereby a firm can be licensed and regulated in one member state that thereby permits it to operate throughout
the EU. A third form of regulation consists of sector-specific principles in industries such as telecommunications, energy, and transport
to ensure that even in these domains which are characterized by
monopoly or oligopoly networks competition can occur.23
A third element is that insofar as member states pursue aims other
than ensuring competitive markets, their policies are subject to constraints, notably to make them compatible with competitive markets.
It is important to note that the regulatory model does not prevent all
provision of services of general (economic) interest. These are defined
by the Commission and in EU law as economic activities that public
authorities identify as being of particular importance to citizens and
that would not be supplied (or would be supplied under different conditions) if there were no public intervention.24 Rather, it treats them
as exceptions that require justifications and whose effects on competition must be prevented or minimized to avoid any possible distortions
to the single market. Thus, for instance, if states seek to achieve aims
in network industries such as universal service, the allocation of funding must not discriminate among firms and must be allocated in a
transparent and competitive manner.25
A fourth element is that the model does not prescribe a single institutional mode for implementation. Instead, it provides for the use of
a range of legal forms and regulatory institutions. Usually, this means
that implementation of EU legislation is the responsibility of member states. However, it also allows for other forms of EU regulation,
21
23
24
25
22
Cf. Smith 2005.
Cf. Schmidt 2007.
These may take the form of provisions about conditions for access by
competitors to infrastructure networks, unfair pricing or terms and conditions,
or provision of information.
Available at http://ec.europa.eu/competition/state aid/overview/public
services en.html, accessed 8 February 2013. For a discussion, see Hancher and
Larouche 2011.
Cf. Sauter 2008 and Hancher and Larouche 2011.
179
such as soft-law instruments and deliberation through experimentalist governance, from forums to advisory committees and codes of
practice.26 To address cross-national disparities in implementation,
EU-level bodies can be established to coordinate national regulators (e.g., the recently created European agencies in fields such as
finance and network industries) and, in a few fields, certain decisions at taken by EU bodies, including the European Commission
(notably parts of competition policy). Hence, there is considerable
institutional flexibility in pursuit of the principle of a single European
market.
The neo-liberal regulatory model exhibits all three elements of
resilience: continuity and adaptation, dominance, and survival.27 Thus,
the principle of competition has been extended across many sectors.
Equally, re-regulation has been increasingly focused on promoting
competition (as opposed to counterbalancing competition). The principle of competition has also gained a predominant place in much
of the EUs debates and discourse about its regulation of markets,
in both general-competition policy and individual economic sectors.28
It overshadows other policy objectives, whereas industrial policy has
increasingly become marginalized or excluded as illegitimate (notably
on grounds of constituting state aid and an impediment to fair competition).
The focus on competition has survived in the face of critiques and
problems that arose before and after the economic crisis of 2007
2008. Despite the ending of legal monopolies, tariffs have failed to fall
or have even risen in markets such as energy. Key industries including telecommunications, banking, and energy remain dominated by
incumbent suppliers but also face difficulties in ensuring sufficient
long-term investment. State aid to national firms remains, as seen most
clearly in banking after 2008 but also in other industries.29 Indeed,
implementation has often proved difficult and the principles of the
neo-liberal model have often not been followed in terms of national
26
27
28
29
Cf. Lodge 2007 and Sabel and Zeitlin 2010.

See Schmidt and Thatcher, in this volume.
Cf. Jabko 2006; Buch-Hansen and Wigger 2010, 2011; Gerber 2001; Wilks
2010; and Smith 2005.
See European Commission annual reports on the energy and
telecommunications markets despite these having been subject to
ever-increasingly detailed EU regulation.
180
legislative transposition, let alone practice.30 However, the claims here

relate to the model as a normative framework for debates about EU
regulation.
Equally, the resilience of the EUs regulatory model does not mean
that disagreements about EU policies have ended; however, they have
changed in scope and nature. Increasingly, the extension of competition
across economic markets has been accepted. Instead, debates have
arisen about the scope of economic markets and, notably, whether
they extend to welfare services such as health, social insurance, and
pension provision. This issue has become part of discussions about the
extent and regulation of services of general (economic) interest. Thus,
from being one instrument among several, competition has become the
central norm, with other modes of governance being exceptions that
require specific justification.
Countermovements to the predominant position of the principle of
competition have been rare. The most prominent recent example concerns the Bolkestein directive on liberalization of services, which illustrates the extent to which competition is the norm and how unusual
the conditions under which it is challenged.31 The directive received
limited attention and, indeed, was set to pass with almost no opposition until it became linked to controversy (especially in France) about
overseas workers and a new constitution, as well as questions in the
European Parliament. Thus, it seems that only when the EU policy
stream meets the politics stream do proposals attract controversy,
but the norm is quiet politics in which apparently technical principles
become established.32 Yet again, however, this illustrates the exceptional nature of resistance, which requires a high degree of political
mobilization rather than the habitual humdrum policy making of
most EU regulation.
Even after the 20072008 crisis, there have been only limited challenges to the neo-liberal regulatory model built up in the previous two
decades. Debates have begun about the limits to competition in markets and the value of state assistance in developing infrastructure,33
30
31
32
33
See, for example, Smith 2005 on state aid and Nicoladis and Schmidt 2007 on
services liberalization.
See Grossman and Woll 2011, Nicoladis and Schmidt 2007, and Crespy 2010.
Cf. Kingdon 1984 and Culpepper 2011.
See, for instance, European Commission 2012, which examines state aid being
permitted for broadband networks.
181
and state bailouts of banks have been permitted. Equally, the Lisbon
Treaty has included several articles that point to greater emphasis on
social and economic objectives.34 Yet, no serious alternative models
in the sense of coherent frameworks have been proposed. Competition continues to be the dominant norm that is progressively extended;
a recent example in 2013 was when the European Commission adopted
plans to liberalize the domestic railway services and insist that operation of the track and services be separated.35 This has occurred despite
the multiple difficulties that such changes have created in the United
Kingdom. Far from reversing direction, the EU has given considerable
attention to institutionalizing competitive markets by strengthening
EU regulatory agencies charged with ensuring greater implementation
of EU law.36 It has even given responsibility for implementation of
regulation directly to EU bodies for instance, supervision of large
banks being placed with the ECB. Despite the crisis, EU regulation
remains dominated by the objective of competition, with debates on
how to achieve it (especially the degree of integration and institutional
arrangements) rather than whether to seek other policy objectives, let
alone alternative forms of market organization.
Analysing the development of the EUs neo-liberal

regulatory model
Given the gradual development of the EUs regulatory model, the focus
of this chapter is on why, over time, neo-liberal ideas have obtained
the support of a broad and heterogeneous coalition. This leads to a
number of questions in understanding the resilience of such ideas. Why
could such a broad coalition hold together? Why was neo-liberalism
adopted at the EU level rather than attractive alternatives that have
been available? Why did neo-liberalism strengthen over time?
34
35
36
For instance, additional wording on services of general interest, as well as the

Social Protocol or Article 9 TFEU on objectives of high levels of employment,
education and public health, and adequate social protection; however, little
was changed for competition policy. See Buendia Sierra 2012.
On 30 January 2013, the European Commission adopted proposals for a
fourth railway legislative package. See http://europa.eu/rapid/press-release
IP-1365 en.htm#PR metaPressRelease bottom, accessed 20 February 2013;
Liberation 30.1.2013.
See Thatcher 2011.
182
The growth of EU economic regulation has been subject to extensive study. Many analyses have focused on the issue of European
integration37 or processes of EU policy making.38 These are useful
in pointing to the intermingling of two distinct processes: European
integration and neo-liberalization. Moreover, they specify key actors
and processes through which integration occurs. Of particular interest
is neo-functionalisms identification of key coalitions notably, the
European Commission, the ECJ, and large firms and the feedback or
spill-over processes that bind their coalitions together as cross-border
trade grows. However, studies are mostly focused on explaining the
expansion of EU powers rather than the content and resilience of neoliberal regulatory ideas at the EU level.
The most direct analysis is that of the regulatory state.39 This provides a descriptive argument of a change in the nature of regulation away from (re)distribution and towards rule-making. It sets out
explanatory factors lying in broad developments, notably the decline
of Keynesianism. Nevertheless, it says too little about the neo-liberal
content of EU regulation and about alternatives; it is not clear why a
move towards rule-making should be neo-liberal.
Thus, to respond to the questions, the present analysis begins by
examining the features of neo-liberalism that were particularly attractive to key supporters in the policy process of the neo-liberal regulatory model. Thereafter, it looks at the ways in which key actors in
EU decision making were able to benefit from those ideas as well as
self-reinforcing processes that increased the attraction and power of
neo-liberalism, drawing on other frameworks to explain EU regulation
and integration.
The EUs regulatory model is broad and marked by significant ambiguities. The first, linked to a general ambiguity in neo-liberalism, concerns the role of the state and the nature of a free market. The model
envisages that regulation should promote competition by allowing
firms freedom from state restrictions and by regulating firms to allow
others to compete fairly. The central concept of the market is highly
plastic and open to interpretation and reconfiguration40 ; indeed, it
may be appropriate to refer to neo-liberalisms. At one end of the
37
38
39
40
See, for example, Sandholtz and Stone Sweet 1998 and S. Schmidt 1996.
See Bulmer et al. 2007 and Armstrong and Bulmer 1998.
See Majone 1994, 1996; McGowan and Wallace 1996; and Moran 2002.
Cf. Jabko 2006.
183
spectrum is Chicago school free-market liberalism, which assumes

that the decisions of firms are efficient unless there is overwhelming
evidence to the contrary and which seeks minimum regulation. At the
other end of the spectrum is ordo-liberalism, which is marked by suspicion of the market power of large firms and emphasis on rules that
are strictly enforced.
The second, parallel ambiguity concerns European integration and
the relationship between EU decision making and member states. The
EU model constrains national authorities from distorting the single
European market, while also relying on them to implement most of its
regulation, including market-making and market-protecting rules.
This is particularly true of legislation in the form of directives that
member states must transpose and implement. The model seeks to
create a single European market while entrusting implementation to
member states that have incentives and capacities to protect domestic
producers.
The third ambiguity concerns the roles of law and politics. The
growth of EU regulation is overtly political because it involves transferring decision making to the EU level. Yet, the model also promises
an apparently politically neutral and technical mode of governance,
operating through the impersonal processes of the market and legal
rules (as opposed to traditional industrial policy, in which political
choices were made about supporting selected firms). At the same
time, it permits significant utilization of soft law and informal negotiations because it allows a variety of institutional mechanisms for
implementation.
These ambiguities may seem to be weaknesses, and they certainly
illustrate that neo-liberalism is open to criticism. However, they also
aid the formation of a heterogeneous coalition of the European Commission (and especially certain DGs within it), national governments,
and large firms, all of which have differing interests and aims. The
attractiveness of the breadth and ambiguity, mixture of liberalization and re-regulation, and technical appearance of neo-liberalism
is evident in analysing the major actors in the coalition. Each has
obtained benefits from neo-liberal ideas of regulation. Equally, certain
self-reinforcing processes can be found that have further strengthened
the position of neo-liberal ideas.
As a result of its power as an agenda-setter and its role in monitoring and enforcement, the European Commission is a key player in the
184
development of the EUs regulatory model.41 The Commission is usually viewed as seeking to both extend its powers and deepen European
integration. However, it suffers from major constraints: it is internally
divided, both at the level of Commissioners (who are nominated by
national governments) and organizationally among different DGs; it
faces powerful member states that have diverse policy preferences; it is
unelected and lacks wider popular legitimacy; and, contrary to popular myth, it remains a remarkably small organization, relative to both
national governments and the tasks of regulating complex markets.
Several features of neo-liberalism aid the European Commission
in circumventing these constraints and pursuing its objectives. Neoliberalisms breadth and ambiguities allow the Commission great flexibility in seeking to satisfy diverse internal and external preferences.
Thus, for instance, regulation to open up markets to competition can
satisfy countries (e.g., the United Kingdom) that are seeking freer
markets in the sense of fewer constraints on firms. Regulation to
end monopolies and re-regulation for competition to prevent the market power and privileges of incumbent firms meet the views of more
ordo-liberal actors (often led by Germany). The combination of liberalization and re-regulation also aids the Commission in reconciling the
preferences of economic liberals with more statist views (often put
forward by countries such as France and Italy). Such re-regulation can
be presented as shaping markets and especially as protecting wider
policy objectives (under the heading of services of general interest).
Finally, the apparently legal and technical nature of neo-liberal regulation avoids explicit redistribution, which could pose difficult legitimacy issues for an unelected body such as the European Commission,
as well as problems of resource constraints.42 Instead, the model allows
the Commission to focus on apparently non-distributional issues such
as entry to markets, non-discrimination among suppliers, and barriers
to competition.
The model gives rise to incremental but powerful self-reinforcing
processes that make it especially attractive to the European Commission. Although early Commission initiatives to establish regulation
in new domains were frequently limited in scope, the Commission
can set out far-reaching purposes and ambitions. Thus, for instance,
41
42
See Schmidt 2000, Pollack 2003, and Jabko 2006.

See the literature on the regulatory state, notably Majone 1996 and 2005.
185
liberalization in network industries including telecommunications,

energy, postal services, and transport began by discussing liberalization of only a few specific services.43 However, even early documents
made reference to wider aims. Thereafter, the success of initial liberalization provided strong justification for further extensions of EU
regulation and, with it, the Commissions powers and role.
Within the Commission, the focus on competition as the main means
of ensuring the single European market strengthens DG Competition, the most likely DG to favour neo-liberal ideas. It also provides
strong incentives for other DGs to adopt pro-competitive positions so
that they, too, can exercise competition powers. Hence, for instance,
although liberalization in telecommunications in the late 1980s and
early 1990s was led by DG Competition, by the mid to late 1990s, the
sectorial DG Information Society also fully supported the extension
of competition.44 Indeed, in many sectors (e.g., telecommunications,
energy, and airlines), a process of policy transfer means that ideas of
liberalization have spread across sectors.45
Finally, achieving competition often justifies re-regulation to allow
entry and prevent existing firms and governments from discriminating
against the newly permitted competitors. Fritz Scharpf (1996) has analysed the institutional bias in the EU towards negative integration or
removal of barriers.46 However, the neo-liberal regulatory model then
provides a powerful justification for re-regulatory measures viewed
as the essential counterpart to liberalization (i.e., freer markets, more
rules)47 that helps to overcome such a bias. Hence, the Commission
can also undertake re-regulatory measures addressing matters such as
access to networks, cross-subsidization, and government support for
domestic incumbent suppliers. These are (re)regulatory but neo-liberal
in the sense of being market-creating, seeking to allow and protect
competition.
The ECJ has been a significant ally for the Commission. It has
often upheld the regulatory model in terms of both substantive legislative provisions and more constitutional questions about the rights
of the European Commission to issue legislation.48 ECJ rulings such
43
45
48
44
See Thatcher 2007.
See, for instance, Goodman 2006: chaps. 7 and 8.
46
47
Cf. Bulmer et al. 2007.
See Scharpf 1996.
See Vogel 1996.
The strongest examples concern the right of the European Commission to issue
its own directives under Article 106 (ex Article 86(3) and before ex Article
186
as the Cassis de Dijon judgement in 1979, which prohibited nontariff barriers to trade, provided the impetus for Commission action
in a neo-liberal direction in at least three ways: (1) substantively, they
have strengthened the neo-liberal model centred on competition; (2)
politically, they have encouraged and aided the European Commission
in extending its regulatory model; and (3) institutionally, they have
affected the European Commissions powers.
The ECJ also has gained power and an enlarged role from the neoliberal regulatory model. The development of legal regulation has aided
the growth of Euro-legalism, in which policy is increasingly made by
adversarial legal cases.49 These combine substantive issues about competition with constitutional questions about the allocation of powers
within the EU.50 Hence, the ECJ can issue rulings that extend European integration. The breadth and ambiguities of the regulatory model
allow the ECJ considerable discretion in its rulings. Thus, it has been
able to support the extension of competition into the core networks
of telecommunications and energy from the 1980s onward and place
limits on competition in other sectors such as social insurance and
support for services of general economic interest.51 Hence, the ECJ
enjoys a central role in defining, developing, and applying the regulatory model.
Member states might seem to be unlikely allies for the Commission.
Yet, the EU regulatory model has often gained the support of, or at least
acceptance of, most national governments. The preferences of governments about the degree of neo-liberalism and its form vary. However,
the EU neo-liberal model is well equipped to accommodate such diversity as a result of its ambiguities, flexibility, and variety of elements.
It can offer the opening of markets to more neo-liberal countries (e.g.,
Britain), whereas more statist countries (e.g., France) can look to
re-regulation that organizes markets. The accommodative capacity of
the EUs model is enhanced by the separation of rule-making at the
EU level from implementation of those rules by member states, which
allows national governments considerable discretion. In addition, the
model permits frequent reliance on soft law and several modes of
49
51
90(3)) without approval from the European Council or European Parliament

to prevent member states from maintaining special and exclusive rights for
public undertakings. See, for instance, European Court of Justice 1991 and
1992.
50
See Keleman 2011.
See Stone Sweet 2004.
For a discussion of ECJ case law in health and social security, see Gallo 2011.
187
governance rather than one dominant mode, thereby enhancing its

flexibility. Thus, different varieties of capitalism can find their place
and adapt to the EUs framework, while continuing to follow distinct
paths of institutional development.52
National governments can also find the EUs regulatory model valuable in dealing with domestic obstacles to change. They can engage
in two-level games, in which EU regulation serves as a legitimating
device for reforms that they desire or believe are necessary but are
unpopular or difficult at home.53 The model has been used in many
countries not only for reforms required by EU legislation but also to
justify much wider changes. Thus, for example, although privatization
is not part of the EU model and cannot be required by EU law, EU
liberalization and competition have been important rationales used in
political debates to justify privatization.54
The fourth set of participants examined here are large firms, which
are political actors who lobby strongly in Brussels and participate in
developing the EUs regulatory model.55 The EU offers the promise
of European-wide markets, with the possibility for national champions to become European champions. Equally, the ambiguity of the
EUs neo-liberal regulatory model allows large firms to seek greater
freedom from national restrictions and also venue shop, especially
between the national and EU levels, where organizations such as the
European Commission are particularly porous and open to lobbying.56
EU regulation can be highly attractive to many large firms, which may
find it easier to influence EU than national decision making for certain types of issues and, in any case, can pursue their strategies at
different levels. Finally, the re-regulatory elements in the EU model
may offer advantages to large firms, especially in terms of operating as
effective barriers to new entrants, which must face complex regulatory
demands.
Finally, it is important to understand the actors that are often institutionally disadvantaged in the development of the EUs regulatory
model. Most important are the employees and trade unions as well as
domestic and small consumers. These groups usually lack the institutional links and lobbying capacities of large firms in Brussels, and they
are weaker in relative terms compared with the national level. Moreover, the Commission and ECJ are unelected bodies, which reduces
52
54
55
53
Cf. Fioretos 2011, S. Schmidt 2002, and Hall 2007.
Cf. Putnam 1988.
Cf. Clifton, Comn, and Daz-Fuentes 2006; Thatcher 2007.
56
See Coen 2010.
See Coen and Richardson 2009.
188
the direct influence and impact of electoral and popular pressure. The
neo-liberal nature of the EU regulatory model further limits the mobilizing capacities of both groups it is based on dry legal texts that
are often complex (especially re-regulatory texts) and that provide few
direct, politically salient consequences for consumers (e.g., redistribution and price changes). Instead, it is presented in a depoliticized
manner as arising from the legal framework of the EU and involving
achievement of a politically neutral aim, notably competition, which
will offer benefits to consumers. Moreover, because implementation of
EU regulation is generally left to member states, it is difficult for trade
unions, employees, and consumers to mobilize against the EU.
An important example of neo-liberal ideas and

regulation: EU merger control
General-competition policy occupies a central place in European regulation because of its importance for markets and firms and because
of its applicability across economic domains. The EU also has extensive legal powers, and it is a rare example of the EU directly holding
powers rather than relying on member states for implementation.57
Indeed, one scholar describes competition policy as a central element
in the economic constitution.58 Within the policy, merger control is
key for markets, affecting large firms, employment, and market competition.
Merger control is also a key element in neo-liberal discussions about
markets. It links to questions about whether and how to regulate firms
and the role of the state in both providing firms with freedom to pursue their interests and protecting competition.59 However, even within
neo-liberal analyses that place protecting competition as the foremost aim of merger control, there are several distinct approaches.60
Some are highly concerned with excessive market power of firms,
which is deemed to generally harm consumer welfare; hence, mergers that result in high market shares are usually seen as harmful. The
57
58
59
60
Cf. Cini and McGowan 2009, McGowan and Wilks 1995, and Wilks 2010.
Wilks 2010: 753.
For debates in law and economics, see, for instance, Gerber 2001; Van den
Bergh and Camesasca 2006: chap. 3; and Monti 2007.
For discussions and overviews, see, for instance, Gerber 2001 and Van den
Bergh and Camesasca 2006.
189
Harvard school of the 1950s and 1960s and German ordo-liberalism

provide examples.61 In contrast, other approaches (sometimes labelled
Chicago or Austrian schools) are more concerned about harmful
state interference. They regard mergers as frequently beneficial by
lowering costs and increasing efficiency, even if they result in high
market shares.62 Hence, the nature of a neo-liberal merger policy is
ambiguous and open to debate.
Traditionally, in Europe, merger control was neither neo-liberal nor
decided by the EU. Instead, it was in the hands of national authorities, usually governments, who frequently used their powers to pursue
mercantilist industrial policies. These included protecting domestic
firms from overseas takeovers and promoting domestic mergers (often
decided through highly political processes) to create national champions. Policy makers believed that such firms would be more efficient
due to economies of scale and also would compete internationally.
However, from the 1960s onwards, there were discussions about giving the European Community powers to regulate cross-border mergers
that met obstacles of needing to obtain approval from several national
regulators. Yet, agreement was difficult because the key actors had
differing aims and preferences.63 The Commission had integration
objectives, including reducing the powers of national policy makers
and aiding cross-border mergers as part of creating a single European market. By the 1980s, large firms, especially transnational firms,
also supported EU regulation to create a one-stop shop for crossborder mergers instead of facing multiple national authorities. However, member states were divided about the substantive nature of
merger control: some argued that it should be based on preserving
market competition (notably Germany and Britain), whereas others
sought to encourage the development of European champion firms
as part of industrial or regional policy (e.g., France, Italy, Spain, and
Portugal).
After many years of discussion, the EC Merger Regulation
(ECMR)64 was finally passed in 1989. Although EU competition policy
61
62
63
64
For a history, see Peritz 1996 and Gerber 2001.

For example, see Bork 1978.
For different analyses, see Bulmer 1994, Doleys 2009, Budinski and Andt
2005, Cini and McGowan 2009: 12840, and Kassim and Wright 2009.
Council Regulation (EEC) No. 4064/89 of 21 December 1989 on the control of
concentrations between undertakings: OJ L 395, 30.12.1989, p. 1. Corrected
190
is usually perceived as highly neo-liberal, in fact, the ECMR represented a compromise among the different actors. It is broadly worded
and contains objectives other than promoting competition, reflecting
the diverse views and interests in its passage. It represented a move
towards greater European integration. Thus, it gave sole authority to
the Commission to approve, prohibit, or impose conditions for large
mergers (i.e., concentrations).65 The Commission examines mergers
to determine whether they are compatible with the common market.66
The most formal and imperative criteria in the 1989 ECMR stated that
Commission decisions are to be based on whether a merger creates a
dominant position in the relevant market.67 This test was changed in
2004 to a significant impediment of effective competition, although
dominance was retained as the core criterion for accepting or prohibiting a merger.68
The EU merger regime established in 1989 provided considerable
scope for interpretation. The ECMR did not define the key concept
used to judge a merger namely, a dominant position. Moreover,
the criteria to be taken into account by the Commission are broad
and extend beyond the need to maintain and develop effective competition to other factors relating to both the market power of firms
and industrial policy and welfare objectives. Hence, it includes objectives about market competition but also the interests of consumers and
technical and economic progress.69
65
66
67
68
69
version in OJ L 257, 21.9.1990, p. 13; amended 2004: Council Regulation

(EC) No. 139/2004 of 20 January 2004 on the control of concentrations
between undertakings (the EC Merger Regulation): OJ L 24/1 of 29.1.2004.
Through the use of thresholds in terms of turnover. Those thresholds were
altered in 1997: aggregate worldwide turnover of more than 5 billion ECU was
lowered to 2.5B ECU, and aggregate EC turnover of at least two of the
undertakings of more than 250 million ECU was altered to combined
aggregate turnover in each of at least three member states of 100M ECU, with
the turnover of least two of the undertakings being more than 25M ECU, and
aggregate EC-wide turnover of at least two of the undertakings being 100M
ECU (Regulation 1310/97).
Article 2(1) of the ECMR.
It should allow a merger that does not create or strengthen a dominant
position as a result of which effective competition would be significantly
impeded in the common market or in a substantial part of it and, vice versa,
prevent one that runs counter to these conditions (Article 2(2) and (3)).
See Article 2(3) (MCR 2004); for an analysis, see Levy 2010.
For example, the market position of the undertakings concerned and their
economic and financial power, the alternatives available to suppliers and users,
191
Although the wording of the 1989 ECMR left ample room for
diverse ideas, a neo-liberal discourse has developed for merger control. The central focus is on greater competition, which is viewed as
the sole policy objective because it, in turn, offers other benefits, such as
maximizing consumer welfare.70 Thus, successive competition Commissioners including Sir Leon Brittan, Mario Monti, and Nellie Kroes
(usually presented as neo-liberals)71 have repeatedly emphasized their
belief in competition and rejection of national protectionism.72
A detailed and complex model for merger regulation was developed
after 1989, composed of the ECMR, legal cases, European Commission
documents, and many commentaries.73 The model is neo-liberal in the
sense of being centred on competition, which is understood to be
almost the sole criterion for decisions. The European Commission,
together with the ECJ, developed detailed norms for analysing effects
on competition, notably about crucial matters such as relevant markets
and what constitutes acceptable market shares.74 Those norms are
often favourable to mergers. Thus, for instance, relatively high market
shares are often acceptable (e.g., even more than 30 per cent), and
Sir Leon Brittan argued that as a rule markets are dynamic and selfcorrecting and only mergers resulting in unacceptable market power
should be prohibited.75
Overall, the central norm has been to accept many mergers, especially cross-border mergers, on the grounds that they do not damage
competition. Indeed, between the start of the regulation in 1990 and
the end 2009, the European Commission approved more than 94 per
70
71
72
73
74
75
their access to suppliers or markets, any legal or other barriers to entry, supply
and demand trends for the relevant goods and services, the interests of the
intermediate and ultimate consumers, and the development of technical and
economic progress provided that it is to consumers advantage and does not
form an obstacle to competition. Article 2(1) (a) and then (b).
See Buch-Hansen and Wigger 2010, 2011; cf. Wilks 2010; Cini and McGowan
2009.
See Buch-Hansen and Wigger 2011.
See, for example, Brittan 1992: 1926; and Kroes 2006.
For legal analyses, see Whish and Bailey 2012, Cook and Kerse 2009, and
Monti 2007.
Notably, the Commission Guidelines on horizontal and vertical mergers:
European Commission 2004, 2008. For detailed legal analyses, see, for
instance, Whish and Bailey 2012, Schwalbe and Zimmer 2009, and Cook and
Kerse 2009.
Brittan 1992: 2021.
192
cent of the 4,274 cases notified to it; there were only 20 prohibitions,
which represent less than 1 per cent of the total.76 In key sectors such as
energy, telecommunications, and finance, the European Commission
has allowed or even encouraged mergers, especially cross-border mergers. Therefore, between 1990 and 2009, not one of the 187 mergers
of banks was prohibited or even subjected to a detailed second-phase
investigation under the ECMR. Despite the financial crisis of 2007,
the regulatory model for mergers has continued and includes sectors
such as banking, in which mergers resulted in the creation of complex
cross-border groups that lacked one strong regulator, were overexposed across multiple national markets, and had to seek bailouts from
several governments.77 Thus, for instance, the fifty-three mergers in
banking in 2008 and 2009 were all approved. Although European
Commission prohibitions attract great attention, they remain a small
minority of cases.
The EUs merger model has obtained the support of a wide and
heterogeneous coalition: diverse member states, the Commission the
ECJ, and large firms. However, it emerged over time rather than being
established by the legislation and it was shaped by the interests of key
actors. As a result of the flexibility of neo-liberalism, the model was
able to satisfy the diverse interests of different actors and its neo-liberal
content could be linked with the process of European integration.
The model has empowered the Commission to pursue integration in
the name of creating the single European market. The Commission
and especially DG Competition obtained increased legal powers
under the ECMR and a monopoly of decision over the largest mergers,
which the member states therefore no longer regulated. Thus, legal
integration was advanced. By aiding cross-border mergers, the model
also promoted economic integration, another of the Commissions
objectives. Within the Commission, DG Competition safeguarded its
position as a result of additional powers. Moreover, the model provides
considerable discretion because the Commission exercises judgement:
it discusses mergers informally with firms before formal notification; it
76
77
European Commission, available at http://ec.europa.eu/competition/mergers/

statistics.pdf, accessed June 2010; and http://ec.europa.eu/competition/
mergers/cases, accessed September 2011.
Prominent examples include RBS, which bought the Dutch ABMN at high
cost, and the Dexia group.
193
enjoys significant discretion about whether to pursue detailed secondphase investigations and remedies; and even a vitally important matter
such as market definition is said to be more of an art than a science.78
The model also permits the ECJ to play a central role. Because it
is broad and allows for considerable interpretation, ECJ rulings can
strongly influence decision making. Moreover, Commission merger
decisions are subject to judicial review. Thus, for instance, ECJ decisions have been important in questions from market definition to
procedures.79 Not only affected parties but also third parties can turn
to the Court, allowing many opportunities to review cases.
Although the merger model is focused on competition, its permissive
stance allows approval of mergers that create international champion
firms, whether privately owned or state-owned. Indeed, it is notable
that even when a self-avowed economic liberal such as Sir Leon Brittan
declared his approach of prohibiting mergers only on competition
grounds (i.e., preventing excessive market power) did not conflict with
EU industrial policy.80 Neelie Kroes emphasized the opportunities for
cross-border mergers for European companies by stating, Im all for
champions European champions who can go out and win on global
markets.81
This combination of applying competition principles while permitting mergers enables the EU, through the neo-liberal regulatory model,
to satisfy the diverse preferences held by different member states when
passing the ECMR. On the one hand, it gives overriding importance to
competition criteria. This satisfies countries such as the United Kingdom and Germany, which seek to make depoliticized mergers through
decisions based on competition and to prevent other member states or
the Commission from deciding mergers on industrial-policy or political grounds. On the other hand, these norms favour mergers, even
for firms with high market shares, such as national-champion incumbent suppliers. This meets the preferences of other member states, such
as France, for the development of larger Euro-champion firms. Over
time, such statist countries have largely ceased their attempts to have
78
79
80
Cook and Kerse 2009: 217.

For a good overview of ECJ cases, see Whish and Bailey 2012: 89197.
Important cases in the 2000s included the Airtours, Tetra-Laval, and Schneider
cases (i.e., Cases T-342/99, T-5/02, and T-310/01, respectively, and then
subsequent cases about damages).
81
See Brittan 1992: 2021.
See Kroes 2006.
194
industrial-policy grounds decide mergers. Thus, the De Havilland case

of 1991, in which France attempted to drive through a merger on
grounds of creating a national or European champion despite opposition by DG Competition that blocked the merger,82 has not been
repeated; mergers are now debated in terms of their effects on competition. However, a permissive view of the dangers to competition also
permits most mergers to be approved. Hence, the regulatory model
manages to balance and, indeed, satisfy these different preferences.
Finally, large firms often benefit from the merger model. For crossborder mergers, they must deal with only one body the Commission
rather than several national bodies. Moreover, decisions are made
on apparently technical criteria regarding effects on competition by
the non-elected Commission, far removed from the more politicized
and public world of national politics. Firms can engage in informal
discussions with the Commission before attempting mergers, which
aids predictable outcomes. The pro-merger norms aid the approval of
mergers proposed by firms, including large national champions who
can seek to Europeanize and thereby become larger multinationals.
Moreover, since 1989, large cross-border mergers have become more
common, creating larger firms that in turn offer greater support for
the EUs merger model.
Thus, the EUs merger model has been able to satisfy a wide and
diverse coalition of supporters. A major reason is its flexibility and
breadth especially the combination of legalized control based on competition criteria but a permissive approach to market shares and therefore mergers by large firms. Moreover, in time, the model has enjoyed
a progressively strengthened position and obtained wide acceptance.
Conclusion
The EU has developed a regulatory model that is centred on the extension and promotion of competition in the name of creating a single
European market. Its rise was not legally inevitable, given that the
treaties are broadly worded. Indeed, it appeared unlikely before the
1980s: strong traditions of mercantilism, public service, and protection
of domestic firms existed within member states. There were alternative
models at the European level of intergovernmental cooperation and
82
Cf. Cini and McGowan 2009: 14059; Buch-Hansen and Wigger 2011:
98100, 11417.
195
EU industrial policy involving collaboration among firms and public

support for large companies.
Nevertheless, the neo-liberal model has become ideationally
resilient. It has extended across many markets, including those previously excluded from EU competition regulation. It has achieved
ideational dominance, becoming increasingly the main legal and normative framework for EU regulation of economic markets. It has continued despite difficulties and alternatives. Of course, the EU regulatory
model has not been implemented fully or in the same manner across all
member states, but that is part of its inherent nature: arising from its
breadth and frequent reliance on member states for implementation.
A diverse coalition has supported and gained from the model
namely, the Commission (supported by the ECJ), national governments, and large firms. Moreover, self-reinforcing processes have
strengthened the model over time as the coalition has widened and
deepened. Some of the reasons for the attractiveness of the EUs regulatory model to key actors are specific to the EU, including the institutional framework of the EU, its highly legalized nature, and the effects
of regulation occurring at both the EU and national levels.
However, other explanatory factors are linked to the nature of neoliberal ideas. In particular, their ambiguity and diversity, inclusion
of both liberalization and re-regulation, and their apparent neutrality
through use of technical modes of governance, especially law, all aid
diverse actors in drawing benefits and making it difficult for opponents
to mobilize and propose alternatives. Thus, the models resilience arises
from the combination of self-interested actors, the nature of neo-liberal
ideas, and self-reinforcing processes that have operated over time. The
crises and problems of EU regulation in the 2000s (so far, at least)
have not ended the dominance of the neo-liberal regulatory model.
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Resilient neo-liberalism in European

financial regulation
daniel m ugge
Introduction
It is difficult to find an account of the neo-liberal decades since 1980
that does not reserve a special place for unshackled financial markets.1
This is true not only for the United States but also for the European
economies that are the focus of this volume and chapter. Critics commonly portray globalized and deregulated finance as the lynchpin of the
neo-liberal economic order.2 International capital mobility has shifted
the balance of power in favour of capital at the expense of labour,
so the argument goes. Furthermore, credit institutions let loose have
eased the pain of growing income inequality by showering unsustainable credit on households across the OECD world.3 These policies have
been inspired or, at least, justified by neo-liberal ideas about financial
markets and their regulation: that markets can ensure an efficient distribution of capital and financial services and that governments should
either promote such efficiency through market-enhancing regulation
and the enforcement of competition or take a hands-off approach
altogether.
In the panoply of ideas about statemarket relations, ideas about
finance occupy a special place. Textbooks in the field emphasize individual rationality and efficiency and portray wholesale finance as
quintessential markets: liquidity is high, information asymmetries and
transaction costs are low, and equal assets have equal prices around
the world.4 Because of their virtual character, contemporary financial
markets have lent themselves to the practical application of abstract
economic ideas more than other societal domains. That makes neoliberal ideas powerful in contemporary finance but also vulnerable: in
the event of a crisis, we can expect these ideas to attract much of the
1
2
4
See Dumenil and Levy 2004 and Harvey 2005.

3
See, for example, Glyn 2006.
See Crouch 2009 and Young 2009.
For example, see the popular Mishkin 2012.
201
202
blame rather than exogenous material factors, such as adverse weather

conditions in case of a famine or demographic change causing strains
in pension systems.
It is not surprising, then, that to many observers, the financial crisis
that has been ongoing since 2007 has wrought intellectual defeat on
neo-liberal ideas in finance with their emphasis on market efficiency.5
Crisis analyses by prominent economists and leading newspaper pundits for example, Paul Krugman of the New York Times and Martin
Wolf of the Financial Times have spent more time debunking market
myths than defending them.6 Neo-liberal orthodoxy no longer dominates public discourse about financial markets and how they function.
Turn to financial regulation, however, and the picture is different.
Here, debates continue to emphasize ideas that are directly borrowed
from neo-liberal conceptions of financial markets. In key regulatory
domains, the thrust of reforms has been to increase market efficiency:
derivatives are to be standardized to allow better pricing and increase
liquidity, and credit-rating agencies (CRAs) must be more transparent
about their methods, such that users of ratings can exercise more effective market discipline. Where bank bonus rules have been adapted, the
aim has been to align bankers incentives more closely to those of
their shareholders and creditors. At the same time, regulatory reforms
have steered clear of fundamentally disrupted, putatively dysfunctional
markets. For example, there has been no ban on the types of credit
derivatives that were frequently described as toxic. European authorities have stopped short of prescribing particular rating methods for
CRAs. To be sure, pre-crisis regulation has also been subjected to fundamental criticisms, and the agenda has been expanded, for example,
by ideas about macroprudential regulation, discussed herein. Nevertheless, contemporary reform debates largely follow neo-liberal tracks
in that they see government policy as a tool to make markets work
better, not as a substitute for them. Despite their intellectual defeat in
academia, neo-liberal ideas still dominate real-world policy in finance.
It is this resilience that this chapter seeks to explain.
Of the five hypotheses that Schmidt and Thatcher set out in the
first chapter of this volume, two are particularly relevant. First, neoliberal ideas have been buttressed by their institutional entrenchment
5
6
See de Grauwe 2009 and Kotlikoff 2010.

Popular examples include Johnson and Kwak 2010, Akerlof and Shiller 2009,
Rajan 2010, Stiglitz 2010, Roubini and Mihm 2010, and Reinhart and Rogoff
2009.
Resilient neo-liberalism in European financial regulation
203
(i.e., hypothesis five) and the way European policy making has been
reformed in the past two decades. With regulatory competences clustered at the supranational level, financial regulation has effectively been
disembedded from its previous positive coordination7 with other policies; public micromanagement of financial markets to attain specific
ends is no longer a plausible alternative to hands-off market facilitation. The putatively neutral neo-liberal policy goals (e.g., market
efficiency) form a lowest common denominator of otherwise divergent policy preferences of EU member states. In this vein, the EU
has installed both nationally and supranationally a new breed of
financial supervisors and regulators as market guardians. More than
financial firms, these public actors have emerged as the true defenders
of neo-liberal regulatory ideas.
Second, their mission has been facilitated by a surprising resilience
of neo-liberal ideas and the weakness of their contenders (i.e., hypothesis three). Pro-market thought in financial regulation is a broad
church, reaching from laissez-faire and doctrinaire non-intervention
to a market-enhancing liberalism, under which public agencies seek
to fine-tune markets to raise efficiency. For this reason, actual policy
failures can rarely be pinned on neo-liberalism as a whole. Laissezfaire adherents can claim that excessive government distortions had
spawned market failure; market enhancers retort that their project of
rooting out these failures through regulation had remained unfinished.
Both positions can be framed as pro-market ideas. The vagueness of
neo-liberalism apparently a sign of weakness is ultimately a source
of strength. Whatever arguments are hurled at pro-market thinking,
there always is a strain that emerges unscathed.
Despite widespread criticism of neo-liberal ideas, no coherent contending paradigm has emerged. Critics have exposed the intellectual weaknesses of market-enhancing financial regulation. They have
failed, however, to table an alternative that could take neo-liberalisms
place. The financial crisis has shattered hopes that left to their
own devices financial markets could achieve stability and efficiency
of capital allocation. It does not follow, however, that governments can be trusted to do a better job through intrusive intervention. History is replete with examples of governments mismanaging financial markets or hijacking them for their short-term benefit.8
7
8
See Jayasuriya 2001.

See Kindleberger 1978 and Reinhart and Rogoff 2009.
204
The fact that markets are the problem does not mean that governments
are the solution.
Indeed, the specific challenges to neo-liberal ideas in finance that
have gained prominence imply that financial markets may be inherently unstable, such that their control through public policy is necessarily elusive. Instead of offering regulatory alternatives, radical critics
have excelled at exposing why those might not exist. The beliefs in
the possibility of efficient financial markets and effective public regulation are two sides of the same coin: both presuppose the existence
of rational market activity that if market structures are appropriately furnished can let markets function as desired. Critics who deny
(the possibility of) rational action in financial markets also leave little
hope that barring straightforward financial repression public policy could mend financial markets defects. Taken together, neo-liberal
ideas in financial regulation survive because they still have answers to
new regulatory challenges and because an alternative set of ideas that
could take neo-liberalisms place has failed to materialize.
The following section outlines how neo-liberalism is understood
when applied to financial regulation. The two main sections of this
chapter then describe the primary pillars of the argument: (1) the
institutional embeddedness of such ideas in European policy-making
institutions, and (2) the continued dominance of neo-liberal regulatory
ideas over potential contending paradigms.
The two faces of neo-liberal financial regulation

In line with other contributions to this book, this chapter takes Hays
definition of neo-liberalism as the starting point.9 As understood here,
the hallmark of neo-liberal thought is that markets not governments
should allocate capital. When we translate this neo-liberal idea into
policy, however, matters become more complicated. The third of the
seven criteria of neo-liberal thought listed in the first chapter of this
volume views neo-liberalism as marked by:
. . . [a] belief in the desirability, all things being equal, of a limited and noninterventionist role for the state and of the state as a facilitator and custodian
rather than a substitute for market mechanisms. (emphasis added)
9
See Hay 2004.
205
The two emphasized roles for states are in tension: What, if anything, should governments do about markets that fail to operate efficiently? Non-intervention implies leaving market participants alone;
facilitation and custody of market mechanisms implies intervention.
Both strategies can be and have been advocated in the name of a promarket worldview, one that favours capital allocation by markets,
not governments.10 We can label the two versions of neo-liberalism
the laissez-faire and its market-enhancing variants.
To understand the regulatory debates, and thereby make sense of
the resilience of neo-liberal ideas in European financial regulation, it
is useful to contrast both positions. Neo-liberals agree that the goal of
government policy is capital allocation by well-functioning markets,
but they disagree about whether that is achieved by leaving market participants alone (i.e., deregulation) or by forcing them to act such that
market failures are minimized (i.e., market-enhancing re-regulation).
Three arguments continually surface in favour of laissez-faire. The
first argument is moral in essence and holds that governments have no
business infringing the liberty of individuals more than absolutely necessary. For example, if citizens are eager to invest their savings in risky
and non-transparent enterprises, what gives a government the right to
stop them? Second, laissez-faire liberals distrust governments as impartial arbiters in economic affairs. They suspect that when governments
do intervene, they do so not to serve the public interest in efficient
markets but rather to benefit either their particular constituency or,
even worse, the officeholders and regulators themselves. Third, even if
governments had only the public interest in mind, laissez-faire liberals
doubt that they could easily improve market functioning by secondguessing the collective sentiment of myriad market participants. If the
key to efficiency is the discovery of equilibrium prices, by which means
could governments achieve what markets cannot?11
In contrast to the moral basis of laissez-faire neo-liberalism, its
market-enhancing variant has more scientific roots: it asks for an
10
11
Mirroring these schools of thought, scholars of financial governance have

debated whether liberalization should be understood as deregulation or as
re-regulation. See Vogel 1996, Cerny 1997: 17381, and Gamble 2009.
This fundamental critique of government intervention as necessarily
market-distorting has strong echoes of Hayeks economic thought, even
though he was more concerned with fiscal and monetary policy than with
financial regulation.
206
identification of market failures through meticulous analysis (commonly, quantitative research by economists) and proposes policy remedies. Market imperfections such as information asymmetries abound
in financial markets, so the scope for potential regulatory fixes to market malfunctioning is nearly endless. Market enhancement lends itself
to the application of expertise to regulation rather than the nods and
winks that have long dominated regulation (e.g., in the City of London). Market enhancement views markets as imperfect, measurable,
and amenable to improvement. Policy goals, in their focus on such
improvement, are largely one-dimensional. Arbitration between competing policy goals is not needed; hence, politicians can stay out of
regulation.
The institutionalization of neo-liberal ideas in

European finance
The puzzle that animates this chapter, simply stated, is that, whereas
most economists have given up on the idea that markets could allocate
capital efficiently, much regulatory policy continues to take inspiration from it. In this respect, the recent financial crisis has been by far
the most important challenge to neo-liberal regulatory ideas. However,
before the following section makes the case that such ideas have indeed
proven resilient in recent years, it is important to reach further back in
time and trace the roots of their institutional entrenchment in Europe.
Two dynamics stand out: (1) by uploading financial regulation to the
European level, it has been disembedded from the previous positive
coordination with other facets of national economic policy; and (2)
the creation of regulatory agencies to administer financial markets
has created a set of vocal and influential actors with a mandate largely
in line with neo-liberal precepts. Because these features of the institutional setup for EU financial regulation have actually been reinforced
rather than reversed since the crisis (following the advice of the HighLevel Group on Financial Supervision in the EU), they have limited the
space for alternative conceptions about financial regulation to become
dominant.12
To be sure, the spread of pro-market financial regulation in Europe
in the 1980s and early 1990s did not stem from a single set of
12
See High-Level Group on Financial Supervision in the EU, 2009.
207
ideas that was widely supported and consistently implemented.13 Neoliberal policies came in many guises, and their champions had divergent
motives. In the late 1980s, France, for example, was very selective in
its implementation of neo-liberal ideas when it modernized Pariss
financial markets. Germany dragged its feet even more, implementing regulation against insider trading only to earn Frankfurt international acceptance, not because of putative virtues of truly competitive
markets. Also, the EU-level reforms were largely shaped by domestic
financial-sector interests, institutional constraints, and international
competition. The European Single Market Programme, which in the
mid 1980s jump-started the development of coherent EU financialmarket policy, was justified in strongly normative terms: completion
of the single market would allow industry consolidation and thereby
boost competitiveness of European firms facing Japanese and American competition.14 In contrast to the framing of the single-market programme, the detailed negotiations that followed for financial markets
were everything but driven by neo-liberal ideas. Concerns about the
competitiveness of national financial industries prevailed.15 Appeals
to concepts such as free markets, open competition, and level playing
fields were highly selective. In the early days of EU financial-market
integration, neo-liberal ideas were not a real driving force, let alone
sufficiently deeply entrenched to explain their eventual resilience in the
face of crisis.
However, the largely interest-driven overhaul of financial regulation in Europe had two important institutional effects that did cement
neo-liberal ideas. The supranational integration of financial regulation
disembedded it from the top-down governance of national economies
at large. Previously, political agencies had to balance competing regulatory objectives in policy design because financial markets had been
governed with an eye to the linkages among finance and other facets of
national economies.16 The dawn of negative coordination in the second half of the 1990s drastically changed the perspective. From a facet
of an integrated national economy, finance became a business sector to
be regulated competently. The polyarchic character of the European
institutions has been compatible with hands-off, market-enhancing
regulation, but not with policy designed to attain specific outcomes.17
13
14
16
17
See Lutz
2010, and Thatcher 2007.
2002, Mugge
15
See Cecchini 1988.
See Underhill 1997.
See Deeg 1999, Loriaux et al. 1997, and Zysman 1983.
2013.
Cf. Holman 2004, Scharpf 2009, and Mugge
208
Financial regulation was not only partially shifted to Brussels but

also was increasingly delegated to regulators whose task it was to
administer markets not with an eye to national economic idiosyncrasies but instead in line with abstract and seemingly non-partisan
neo-liberal precepts, such as market efficiency and consumer protection. Indeed, the detachment of regulators, for example, from finance
ministries or central banks intentionally isolated regulation from the
context in which it had previously been embedded.18 Particularistic
interests continued to lobby national and EU regulators. However,
the legitimacy of policy that would attempt to steer financial markets
rather than simply improve their inherent drift was increasingly viewed
as illegitimate. Governments created a brand of market guardians
the regulators that emerged as the most dogmatic defenders of the
market-enhancing faith.
The dislocation of regulatory debates away from national capitals
towards transgovernmental networks populated with colleagues sharing a similar regulatory mandate has only reinforced the entrenchment
of neo-liberal ideas.19 The wider socioeconomic effects of financial
regulation, with an eye to which finance in principle might be managed, is simply not the business of the regulators who find their peers
less in national ministries and more in forums such as the Financial
Stability Board and the Basel Committee on Banking Supervision.
In the case of finance, the bias towards negative integration that
had been built into the EU also implied a bias against government
steering of financial markets and therefore in favour of neo-liberalism.
To make public micromanagement of financial markets a plausible
alternative to a neo-liberal approach, regulatory institutions would
have had to be overhauled significantly, including a renationalization
of regulatory powers. With no such drastic institutional overhaul on
the horizon, a fundamental reshuffle of how governments and financial
markets relate through financial regulation has remained unlikely and
therefore of little importance in public debate.20
18
19
20
See Majone 1994, 1996; and Thatcher 2005.

See Tsingou 2009 and Cerny 2010.
Note that this applies to financial regulation. The more abstract argument
that financial markets should once again be at the service of societies rather
than vice versa was and is prominent (Financial Services Authority 2009).
Rarely, if ever, is it spelled out what that would mean in practice (Lothian
2012).
209
Before the crisis, neo-liberal discourse to legitimize stakeholders

divergent regulatory preferences took strength from the fact that most
relevant positions could be framed in neo-liberal terms. Hence, stakeholders could pursue their particularistic interests without having to
question the common (i.e., neo-liberal) parameters of public debate.
Consider the clashes between the European Commission and City
banks. Espousing laissez-faire views, London firms have championed
negative integration and the abolition of cumbersome regulation. To
them, pan-European mutual recognition of home-country rules was
and is the way forward. The Commission, in contrast, has supported
rule harmonization.21 Whereas it is often portrayed as a bulwark
of neo-liberal policy, City firms frequently lambast Brussels for its
imposition of unnecessary red tape. Both arguments make sense: the
financial-markets department of the Commission is neo-liberal in orientation in that it has largely sought to aid rather than impede market
functioning. At the same time, its approach is often opposed to that of
the most competitive firms in the industry, which clearly prefer fewer
restrictions over rules that buttress competition. Neo-liberalism is a
broad church, indeed.
This breadth has also allowed commercial opponents in regulatory
battles to appeal to a neo-liberal policy agenda simultaneously. For
example, one key EU debate prior to the crisis concerned whether
large banks could act as bourses and match stock orders in-house,
without routing them through a stock exchange a process called systemic internalization.22 The banks, eager to erode stock exchanges
profits, argued that banks acting as bourses would boost competition
and, hence, market efficiency because systemic internalization would
break the damaging monopoly that traditional stock exchanges typically held. The stock exchanges countered that the real damage to
market efficiency would be done when trading of individual stocks was
fragmented across trading venues and the market efficiency resulting
from concentrated liquidity would be lost. The positions were directly
opposed, but both sailed under the market-enhancing flag. In this
way, conflicting politics could be squared with a unifying normative
agenda that, over the years, became the regulatory common sense.
21
22
See Jabko 2006. This strategy stands in contrast to an earlier EC emphasis on

mutual recognition (Egan 2001). For capital markets, this approach had been
tried in the early 1990s and failed to achieve the desired market integration.
2010.
See Mugge
210
One of the central neo-liberal assumptions in pre-crisis regulation

was that regulators could effectively rely on the self-interest of market professionals to make well-informed decisions, which cumulatively
would enhance market efficiency and, by moving prices towards equilibrium, also financial stability.23 For example, investment banks could
be trusted to calculate the risks before entering into complex derivatives deals. Indeed, so strong was the belief in market participants
rationality that derivatives transactions were assumed, by default, to
be win-win deals with benefits for both parties, even if mischief and
fraud with derivatives had already been thoroughly documented.24
Derivatives had to be good otherwise, why would professionals buy
or sell them?
Regulators displayed similar faith in the rationality and proper
judgement in other regulatory fields. CRAs had come under fire in
Europe because of their failure to anticipate trouble at the Italian company Parmalat, just as they had previously done at Enron. Therefore, in
2004, European politicians charged the Committee of European Securities Regulators (CESR) to assess the need for regulation of CRAs.
However, before CESR could even report back, it agreed in the International Organization of Securities Commissions (the international
stock-market regulators club) that only a voluntary code of conduct
would be necessary because CRAs dependence on a solid reputation
could be relied on to inspire maximum diligence. With similar arguments, the regulation of hedge funds was pushed aside. Professional
investors had no interest in losing money; hence the idea that they
could be trusted to acquire all of the information necessary for their
own rational judgement and, by implication, for efficient market functioning overall.
The aim of regulation had largely become to align it with market
operations, not to act as a barrier to them. This sentiment was clear,
for example, when in the spring of 2007, the British Financial Services Authority announced that it would move further in the direction
of principles-based regulation and de-emphasize detailed rules where
possible:
Firms will have increased flexibility in how they deliver the outcomes we
[the FSA] require. Many will find a closer fit between meeting their business
objectives and meeting regulatory requirements (Financial Services Authority
2007; emphasis added).
23
2011.
For the examples that follow, see Mugge
24
See Partnoy 2002.
211
Similar to the use of bank-internal risk-models for regulatory purposes

in Basel II, regulation in general could piggy-back on banks business
rationales.
Neo-liberal thinking not only favouring markets but also trusting
market professionals to act rationally had thus become a common
frame in regulatory debates in Brussels. The supranationalization of
financial regulation and its negative coordination with other policy
fields meant that political fine-tuning had decreased markedly and
market efficiency reigned largely unchallenged as a policy goal. The
flexibility of the pro-market worldview and the complexity of financial
markets meant that most political positions could be framed in neoliberal terms in one way or another until the financial crisis hit in
2007. Now, neo-liberal ideas were met with a challenge unlike any
they had encountered before.
The post-crisis resilience of neo-liberalism

The financial crisis has been interpreted in many ways, but one recurrent theme is an alleged bankruptcy of pre-crisis neo-liberal ideas.25
The efficiency of financial markets left to their own devices had occupied a central place in pre-crisis financial economics. Much of the theoretical work in this vein had preceded the onset of neo-liberal politics
in the late 1970s.26 This abstract scholarship showed that the market
cant be beaten if investors followed appropriate investment strategies
and relevant information was widely available (i.e., the efficient-market
hypothesis). So-called agency theory celebrated the creation of shareholder value as mirroring efficient capital allocation.27 Furthermore, if
well-functioning markets could not be improved on in their allocation
of capital among competing investments, then the only real remaining
task for governments was to provide a stable and predictable outlook
for the value of money itself and to control inflation through monetary policy. Drawing on psychology, behavioural finance questioned
the rationality of economic actors as construed in this work, and it
showed how markets could fail to attain fair prices because of, for
example, herd behaviour.28 However, although these ideas dampened
the expectation of market-generated efficiency, they remained an addition to rather than a substitute for financial-economics orthodoxy not
25
27
26
See Lo 2012.
See MacKenzie 2006.
28
See Jensen and Meckling 1976.
See Shleifer 1999.
212
least because its insights could be expected to apply much less to professional investors who used quantitative tools to guide their decisions
than to retail investors.29
Scholarship rooted in the efficient-market hypothesis was powerful
because it aimed not so much at providing an encompassing guide to
economic reality as a template for optimizing market design in search
for economic efficiency and, hence, societal welfare. However, the
depiction of unfettered financial markets as agents of allocative efficiency has suffered enormously since the onset of the subprime crisis
in 2007. The efficient-market hypothesis had too many ifs built in to
be a useful guide to real-world finance: it would hold if investors were
rational, if transaction costs were negligible, if relevant information
was widely available at little or no cost, if there was effective competition, and so on. Different strands of economic-crisis analysis showed
not only that these conditions had not been met before the crisis but
also that there was no reason to think that they would hold eventually.
Orthodox theories about financial markets efficiency thus lost their
grip in public debates.
Indeed, the criticism often attacked the fundaments of neo-liberal
ideas, and the work of Hyman Minsky (especially 2008 [1986]) experienced an unexpected renaissance.30 Critics lambasted a false sense
of trust in the market and contrasted Wild West finance, with no
rules, to public sovereignty over financial markets. With market sceptics winning new converts by the day, the time seemed ripe for a new
approach to financial regulation to replace the neo-liberal approach.
Even if neo-liberal ideas about financial regulation do not constitute
a (policy) paradigm in the narrow sense, Kuhns work on paradigm
shifts is still instructive. He identified two necessary conditions for
shifting from one paradigm to another: (1) the old paradigm must have
reached its limits in attempts to explain real-world observations;31 and
(2) an alternative paradigm must be available that can do a better job.
In financial regulation, neither condition has been fulfilled. Despite
its defects, a neo-liberal view of financial regulation has still been
able to provide plausible answers to the regulatory challenges that
the crisis exposed. For all of its merits, the fundamental criticism of
29
30
31
See Fox 2009.

See de Grauwe 2009, Kotlikoff 2010, and Soros 2008. See also Minsky 2008
(1986); and, e.g., Mirowski 2010.
Cf. Hall 1993 and Kuhn 1973 (1962).
213
neo-liberal thought that has (re)surfaced after the crisis has not proposed wholesale regulatory alternatives but rather suggested that the
hope of taming financial instability through government intervention
might be in vain.
The crisis: Neo-liberal faults, neo-liberal remedies?

Once the crisis had set it, the regulatory debate witnessed different
schools of thought locking horns. Market enhancement clashed with
laissez-faire, and critics favouring market constraint argued against
both strands of neo-liberalism, often without distinguishing clearly.
Ironically, the division in the neo-liberal camp which from the outside appeared to be a CityBrussels alliance but felt more adversarial
from the inside was a source of strength. Fundamental attacks on
pre-crisis financial governance could always be deflected. Accused of
espousing a vision that had failed, advocates of both laissez-faire and
market enhancement could retort that their vision was perfectly in
order but that it had not been implemented fully. Libertarians viewed
and view the crisis as the result of government distortions of the
economy; many regulators simply felt that they had not yet completed
the regulatory edifice by the time the crisis hit.32 It was not the ideas
that were to blame but rather their execution.
Many plausible remedies to pre-crisis regulatory failings could be
framed in market-enhancing terms.33 For example, sizable bonuses
constituted skewed incentive structures for traders and executives.34
The implication was that excessive risk-taking was not the fault of
inherent market instability or trader irrationality. Poorly designed
bonuses meant that short-term profits would boost traders incomes,
irrespective of the long-term performance of investments. In taking
high risks, traders behaved perfectly rationally, optimizing portfolios in line with their own payoffs, even if those did not match the
interests of their employers. Hence, skewed incentive structures in
the financial sector did not prove the obsolescence of agency theory
but rather showed how an updated version of it could be a powerful
tool to explain regulatory failures. Markets could function well and
32
34
33
See Allison 2012.
See Arner 2011.
See Murphy and Jensen 2011; co-authored by the Jensen whose work had
inspired bonuses as a management tool in the first place.
214
rationality could be relied on if only bonuses were fine-tuned to match

the time horizons and payoffs of banks.
Debates about derivatives, another common culprit in crisis
accounts, followed a similar trajectory. Here, a lack of information
was quickly identified as the main problem.35 If market participants
had better information about the exposures and profiles of other market participants, then derivatives markets could be much more stable.
Information asymmetries and transaction costs could be remedied by
improved disclosure requirements and central counterparties, which
centralized risk and monitoring. Also here, the main regulatory debates
on both sides of the Atlantic followed in the tracks of neo-liberal ideas.
Where such ideas were seen as reaching their limits, they could coexist happily with more drastic market intervention. Regulators increasingly identified the enormous size of systemically important banks
and the complexity of their dealings with one another as sources
of vulnerability.36 Recognizing the limits of real-time supervision of
financial markets, regulators had to resort to cruder measures in
their attempts to tame those sources of risk. For example, particularly large or connected banks would face tougher capital requirements than smaller banks, which pose a lesser risk to financial stability. EU hedge-fund rules as designed by the European Commission
were more a clamp-down on the industry than a finessing of market mechanisms, even if they were diluted in the end.37 Furthermore,
new proposals for auditing firms demanded that clients would frequently switch from one auditor to another, lest relations became too
cozy.
The measures derived from these regulatory approaches for example, crude but sizable capital buffers for large banks conflict with
the doctrinaire version of market enhancement; rather, they amount
to throwing sand into the wheels of free markets. However, they
have not invalidated the overall neo-liberal bend of regulation. Tough
rules for banks have been deemed necessary because of the practical
limits of market-enhancing regulation: present-day supervisory instruments or bank-internal risk-management systems are simply not capable of providing satisfactory (i.e., systemic) risk assessments. It is practical problems that may necessitate crude government intervention in
35
36
See, e.g., Cecchetti et al. 2009.

See Financial Stability Board 2010.
37
See Buckley and Howarth 2011.
215
markets, not the faultiness of the underlying regulatory paradigm. The

resulting maxim is: enhance markets when it is possible, rein them
in when it is not. Regulators throughout Europe have become more
pragmatic in their endorsement of market enhancement, but they have
not forsaken it because it provides several attractive tools to address
past market failures.
At the system level, the most prominent innovation has been macroprudential regulation as a focal point of discussion.38 The concept is
a direct answer to the pre-crisis emphasis on microprudential regulation, which assumed that system stability could be ensured by safeguarding the stability of individual financial institutions. Because the
crisis demonstrated how contagion effects and financial chain reactions among banks could lead to financial collapse, microprudential
regulation as the sole instrument for safeguarding financial stability
fell out of favour. A conscious concern with financial risks emerging
at the systemic level was added to the regulatory agenda.
To what degree does macroprudential regulation chime with or challenge neo-liberal ideas? The concept is used in two distinct ways that
emphasize either systemic risks that lurk between (rather than within)
financial institutions or deleterious boombust cycles over time.39
While the discussion returns to the second usage when we consider
alternative regulatory approaches, the first is fully consistent with neoliberal thought. It underlines that financial actors face practical limits
in assessing their mutual exposures and that moral hazard in the form
of expected government bailouts creates a bias in favour of excessive
risk taking.40 Thus considered, the need for macroprudential regulation can be derived directly from an orthodox approach to financial
markets and it complements, rather than challenges, a neo-liberal take
on financial governance.
The futile search for a regulatory alternative

Even if neo-liberal thought had not exhausted its potential to suggest
regulatory answers to the crisis, the attack on its intellectual fundaments was so fierce that its credibility and legitimacy were seriously
damaged. Had the crisis not demonstrated neo-liberalisms fundamental fallacies? Rather than aiding market functioning, CRAs and the
38
See Borio 2010.
39
See Lothian 2012.
40
See Tressel and Verdier 2012.
216
sophisticated risk models of banks had exacerbated pro-cyclicality.41

Moreover, just as individually rational retrenchment in a recession
leads to perverse aggregate outcomes, individually rational investment decisions led to destructive booms and busts in markets. Certainly, it was time for an alternative way of thinking about and
regulating financial markets, one that eliminated obsolete neo-liberal
premises instead of only tinkering with them. Even if neo-liberalism
could still offer plausible policy suggestions, there had to be a better
alternative.
Critics of neo-liberal finance have mostly taken inspiration from heterodox economic thinking that suggests that markets do not discover
but rather construct asset values. The absence of an anchor in the
fundamentals renders them unstable such that after long upswings,
financial markets enter periods of crisis.42 For Minsky, however, the
problem runs deeper than deficient financial regulation. An economic
upswing generates optimism among investors; increased investment
feeds economic growth and, thus, further optimism and readiness to
accumulate debt. This feedback loop continues until it reaches a breaking point and painful debt-deleveraging sets in.
Smoothing out these credit cycles over time is the second goal
of macroprudential regulation (i.e., in addition to addressing synchronous system complexity, as discussed previously). The desirability
of public tools to this end is now widely accepted in regulatory circles and, given that it departs fundamentally from dominant pre-crisis
ideas, the rise of macroprudential regulation counts as a clear and
prominent departure from neo-liberal ideas.43 At the same time, it does
not invalidate the relevance of microprudential approaches; indeed, it
still relies on individual financial institutions being as rational as possible. In all of its crudeness, macroprudential regulation enters the
picture only when complexity becomes too high for individual market
participants to manage.
Thus, alternatives to market-enhancing regulation are, in fact, not
real alternatives at the paradigmatic level but rather modifications
to established policy. If, however, Minskys argument that financial
stability inevitably breeds instability is accepted, then policy is necessarily self-defeating. We should expect macroprudential regulation to
complicate the picture further because it adds yet another layer of
41
See Hellwig 2008.
42
See Minsky 2008 (1986).
43
See Borio 2010.
217
market actors (i.e., central banks and regulators), whose assessments

of economic circumstances market actors will try to second-guess.
There are good reasons to doubt the assumptions underlying marketenhancing regulation and, both before and after the financial crisis,
there has been no shortage of commentary describing them. However,
if efficiency is not to guide financial regulation, then what is other
than outright credit allocation by governments? Beyond attempts to
smoothing out credit cycles, market constraint does not come with
policy instructions.
In contrast, market enhancement generates specific prescriptions.
Barriers to competition can easily be identified and, given political will,
removed. The same is true for information asymmetries and a lack of
transparency. In this perspective, mandatory disclosure of information, its dissemination through the Internet, or the processing and
interpretation of information by centralized agents (e.g., supervisors
or CRAs) all ameliorate the detrimental effects of information asymmetries. Market enhancement as a policy approach comes with a
users manual for regulators, suggesting straightforward formulas to
improve market functioning.
Accounting provides a good illustration of both the strength and the
weakness of criticism to orthodoxy.44 Fair value accounting (FVA) has
been ascendant in recent decades, and its rise is commonly attributed
to an increasing marketization of corporations and corporate control
as well as the rise of a transaction logic instead of a stewardship logic
in economic affairs.45 In line with the fundamental market criticisms
outlined herein, FVA sceptics deny that markets could somehow reveal
the true value of an asset or liability.
Irrespective of its merits, such an argument misconstrues what the
fair in FVA stands for: FVA proponents argue that market values are
fair not because they are correct but rather because in a functioning market, they are formed on the basis of myriad individual value
assessments. The point is not that FVA provides accurate valuations
but rather that market valuations are better, and more useful, than any
44
45
The two basic approaches to accounting practice are fair value accounting
(FVA) and historical cost accounting (HCA). FVA requires that balance sheets
of entities list their assets and liabilities at (estimated) current market prices;
HCA lists assets and liabilities at the prices paid or received for them at the
time of acquisition or sale.
2006.
See Barlev and Haddad 2003; Perry and Nolke
218
other estimates (e.g., by the firm owning an asset or by governments).

Although criticism of FVA abounds, its opponents have not offered a
coherent and principled alternative. Accounting based on market values is clearly imperfect but, for the time being, it may be the best that
accountants can do.
This pattern is repeated elsewhere in financial regulation. Rating
agencies have been widely criticized for failing to properly assess
investments that are ultimately shaky (e.g., repackaged subprime
mortgages) and to anticipate the financial crisis more broadly. Some
observers have found fault with their business model, in which the
companies whose products have been rated paid the CRAs. This
criticism still chimes with neo-liberal precepts, however, and just as
with bankers bonuses, an optimization of incentive structures has
been the obvious answer. The more fundamental criticism blames
the inherent inadequacy of financial models that use historical data
for predicting future market developments. Instead of assessing market swings, according to the accusation, rating agencies amplify
them: benign past conditions are translated into rosy predictions,
which trigger additional investment and activity until this selfreinforcing cycle reaches its limits and reverses dramatically. The
argument is sound. It also makes clear, however, that it is not a
specific type of rating methodology that is to blame for market
swings but rather the fundamental impossibility to assess future economic developments without shaping them. Despite the justified criticism of the CRAs, a proper alternative to their ratings methodology
remains elusive. Governments have (rightly) shied away from suggesting that they would have a better alternative to the established rating
methodologies.
More broadly speaking, although financial crises, scams, and meltdowns occur frequently enough to suggest that a financial system
dominated by profit-oriented private entities is prone to instability,
history also shows that governments are normally too self-interested,
too short-termist in outlook, or too incompetent to keep financial markets out of a crisis for very long.46 The recent Eurocrisis has driven
home this point. The first phase of the financial crisis which was
then labelled the subprime crisis generated much soul-searching,
46
See Kindleberger 1978; Reinhart and Rogoff 2009.
219
in both academic and policy-making circles, about where financialmarket governance had gone wrong; for many, the time was right
for governments to reclaim control.47 Once the Eurocrisis set in, the
lesson to be learned changed completely: now, the narrative was not
about economists having failed governments with their myopic advice
but rather about EU member states having failed to heed straightforward warnings from economists against the dangers of a currency
union.48 Political imperatives had trumped orthodox economic advice,
and it cost Europe dearly. Governments had not listened too much to
economists but rather too little. The idea that good government intentions were sufficient to generate a propitious financial climate took a
serious drubbing.
Considering these points together, it is clear that the ideational map
on which neo-liberalism is commonly pinned is a poor guide to financial regulation. Discussions about neo-liberalism commonly construe it
as the antithesis either to complete government control (i.e., socialism
of some type) or a much more social market democracy associated
with coordinated market economies or the trentes glorieuses. Either
way, neo-liberalism is one of two, or perhaps three, alternative models and typically not the preferred one.
This map fails to capture the evolution of ideas about financial
regulation. Recent decades have clearly witnessed the emergence of
a relatively well-codified regulatory orthodoxy, which I label market
enhancement. However, it would be wrong to conclude that before its
rise, financial regulation had been dominated by an equally coherent
but somehow more social alternative which might now provide the
model to which to return after the failures of market-enhancing regulation. The evolution of pre-crisis regulatory ideas in recent decades
is better understood as moving from a pragmatic approach to a more
dogmatic, ideas-guided approach than as a shift from one regulatory
paradigm to another.49 Since the crisis, we have returned to a more
humble approach to regulation.50 Viewed that way, the second reason for the resilience of neo-liberal ideas in financial regulation is that
there is no wholesale alternative approach. There are valid criticisms
that lower our expectations of what regulation can achieve and there
47
48
See Alexander et al. 2007, Blackburn 2008, Financial Services Authority 2009,
and Hellwig 2008.
50
49
2011.
See Borio 2010.
See, e.g., Feldstein 1997.
See Mugge
220
are pragmatic policy tweaks and additions to the tool box, but there
is no coherent alternative that can serve as the anchor for regulatory
debates. Neo-liberal thinking remains the default approach with or
against which actual policy is developed.
What future for neo-liberal EU financial regulation?

What does this analysis imply for the future of EU financial regulation
and the influence that pro-market ideas may have over it? In recent
decades, financial regulation has been disembedded from nationally
idiosyncratic socioeconomic contexts, and the supranationalization of
policy has embedded it in the Brussels approach to financial-market
governance. A more fundamental shift in regulatory ideas therefore
could be expected only if negative integration as the guiding model for
Europe and negative coordination of economic policies were displaced
either by deeper integration or a significant dissolution of common EU
governance arrangements. The current institutional setup in Europe
favours the ideational status quo.
At the same time, the Eurocrisis that continues to fester at the time
of writing may still prove the EU as a half-built house that is unsustainable. In that way, either of the likely outcomes of the current crisis
substantially more integration or substantially less may open new
regulatory possibilities and therefore the scope for the development of
new ideas. As this chapter argues, the real alternative to neo-liberal
ideas as a guide for regulatory policy is not a heterodox rule book,
based on post-crisis criticisms of financial governance. Regulation of
finance at arms-length necessarily requires abstract policy goals, such
as efficiency. In contrast, as soon as financial markets are employed to
achieve specific aims for example, in social or industrial policy
it may be more appropriate to speak of government guidance of
the financial sector rather than its regulation. In that sense, the future
of neo-liberalism depends on the outcome of the Eurocrisis: if the
EU weathers the storm roughly in its current shape, it will remain
resilient. However, if European public authorities fundamentally redefine their relationship with the European economy, we can also expect
them to open a new chapter in financial regulation and its intellectual
underpinnings.
221
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Neo-liberalism and the working-class

hero: From organized to flexible
labour markets
cathie jo martin
Introduction
Liberalism in Jane Austins day was the great path for escape from
the strictures of the British class system and for reward for individual
effort and merit. Jane Austins Persuasion is the ultimate ode to neoliberalism: the wealthy heroine and the poor but ambitious hero are
forced by her family to abort a youthful engagement. Yet, his later
bourgeois success as a sea captain and consequent wealth permit love
to triumph at last. Liberalism in this context is a revolutionary concept
that empowers bourgeois strivers to challenge aristocratic prerogatives
and to achieve by individual merit those goals denied to them by
class constraints. More recently, liberalism as a political philosophy
dubbed neo-liberalism has had very different implications for social
class: policies inspired by neo-liberal goals are frequently viewed as
mechanisms to release individuals from the constrictions imposed by
government rather than by class structure. These recent neo-liberal
reforms often advantage actors in the marketplace who by virtue of
their class position or inherent capabilities hold superior resources
in exchange transactions. Whereas liberalism was once celebrated as
a vehicle for levelling class inequities, policies of a neo-liberal hue (at
least in some countries) have now become a driver of inequality.
This chapter reflects on the flexibility and ambiguity embedded in
the neo-liberal ideal, and it comments on two questions and related
lines of explanation raised in the first chapter of this volume. First,
I ponder the utility of neo-liberalism as an independent variable and
query whether the flexible, multifaceted nature of liberal political ideology contributes to its resilience or whether this inherent flexibility
constrains its capacity for causal impact. Second, I reflect on neoliberalism as a dependent variable by probing the factors that shape
the diverse manifestations of this set of ideas across time and national
settings.
226
Neo-liberalism and the working-class hero
227
The attractions and mysteries of neo-liberal ideas are explored in the

context of active labour-market policy (ALMP), a reform that emerged
as the new ruling paradigm of industrial relations in the 1990s, recast
the focus of unemployment protection from security to employability, and epitomized the transition from organized to flexible labour
markets. ALMP shifted the policy goal from one of improving and
protecting the well-being of a class of workers to one of realizing individual potential. Working-class hero (i.e., struggling to improve the lot
of the class) was replaced by self-actualized employee, given the opportunity to achieve a labour-market dream. The once-political became
the now-personal.
First, we must grasp why the active labour-market concept (as an
independent variable) claimed such seemingly immense causal salience
across diverse welfare regimes and parties and why it persisted in its
appeal even after the global financial crisis. Particularly surprising was
the post-crisis endurance of ALMPs in the Scandinavian countries that
are, arguably, least susceptible to neo-liberal ideas.
The chapter suggests that the shifting realization of liberal ideals
across time and place reflects the essential malleability of the liberal
political philosophy: from Jane Austins time onwards, liberal ideals have had diverse political utilities (see Gambles chapter in this
volume). We cannot understand the widespread attraction of ALMP
without recalling the Janus-faced nature of liberalism and the philosophys (often unfulfilled) promise to release individuals from the
stranglehold of social class. For example, the ALMP reforms appealed
simultaneously to many interests in their central ambition of making
labour markets more flexible: some manifestations of the policies benefitted the haves, whereas others had greater utility for the have-nots.
The concept garnered ideological inspiration from both leftist interests
in social investment and rightist desires to reduce passive income supports. The implementation of these complex, ambiguous policies varied across diverse institutional settings. The programmes could either
facilitate a higher level of access to employment for labour-market outsiders or erode the power and material support of the working class,
and these multidimensional, ideological appeals helped to popularize
ALMP across a multitude of countries.
Since the crisis, a very different set of economic conditions has contributed to the enduring utility of the neo-liberal reforms as ALMPs
have become a strategic tool in national economic patriotism. ALMP
228
allows for policy makers simultaneously to combat unemployment,

provide macroeconomic stimulus, and retrain human capital. Consequently, these investments have a more targeted economic impact than
automatic stabilizers. ALMPs can advance goals of economic patriotism by promising to augment national productive activity while also
combating unemployment.
Second, we must understand the variability of neo-liberal policies
as a dependent variable and grasp why a set of fundamentally similar
policy prescriptions was implemented in such a divergent way (with
varying success rates) across countries. I suggest that the interpretation and implementation of a neo-liberal concept are heavily mediated by its institutional environment, which shapes the articulation of
preferences among the social partners and other participants in the
policy debates. Institutions governing industrial relations and interfirm relations are together with political parties the core processes
for collective political engagement by which citizens and major social
groups come together to solve new policy problems. These institutions
have an important role in channelling information, aggregating preferences, facilitating interchange with governmental policy makers, and
ultimately translating new ideas into concrete policy proposals. The
characteristic profiles of these institutions for collective political representation endure across policy areas and time, and they have a delimiting impact on both punctuated equilibria and incremental institutionalchange processes.1
Ideas also contribute to the institutional context of reforms and to
cross-national differences in the involvement of public programmes
by business and labour. The success of adjustment programmes is
greater in countries with a better fit between reforms and existing
policy legacies of the welfare state.2 Ideas mould reforms because deep
logics or patterns of discourse within welfare regimes persist even when
the essential policy forms of the regime are being altered.3
The arena of the active-labour-market case vividly illustrates the
institutional influences on the specific interpretation and operationalization of liberal ideas because country-specific industrial-relations
institutions are particularly relevant to the formulation and implementation of ALMPs and to the policies impacts on social class. The
1
3
2
See Martin and Swank 2012.
See Scharpf and Schmidt 2000.
See Cox 1997, Schmidt 2005, and Blyth 2001.
229
structure of industrial relations influences the relative dominance of

left and right ideas within the liberal concept; shapes the possibilities
for implementation and levels of support by the social partners; and
somewhat determines whether the liberal plans will be used to bolster
human-capital investment or to reduce social and labour protections
under pressure from falling productivity associated with postindustrial
economic change.
The importance of the institutional context is also apparent in the
fortunes of ALMP after the global financial crisis. ALMPs, somewhat paradoxically, exhibited greater staying power after the financial
crisis in social-democratic countries with strongly coordinated
labour-market institutions and a more left-inspired interpretation
of the reforms than in liberal countries with weak organizations
and a more rightist interpretation of the reforms. This is because
countries with strongly coordinated industrial-relations systems were
able to redefine ALMP to suit the needs of the new economic
conditions.
The persistent power of liberalism?

An initial concern is to reflect on whether neo-liberalism indeed persists in policy creation or whether the illusion of this ideological hegemony masks an essential enervation of political influence. In the latter
instance, Schmidt and Thatchers second line of explanation in the
first chapter of this volume suggests that neo-liberal ideas are resilient
only in their rhetoric: we may take refuge in tired but familiar political aphorisms, but new policy directions are quietly undermining our
comfortable truisms.
This chapter suggests a compromise between supporting and rejecting the null hypothesis of neo-liberal resilience: namely, the staying
power of the concept through shifting fortunes is embedded in its
capacity for reinvention. The multifaceted nature of liberalism, its
rather diverse inspirations, and its multi-century commitments to both
negative and positive liberties and to diverse notions of equality all
contribute to both the ambiguity and the enduring salience of the
liberal ideal. Pertinent to our purposes, the recent manifestations of
neo-liberalism echo this familiar capacity for flexible interpretation
and timely reinterpretation of the dominant themes of the political
philosophy.
230
For example, liberalism is associated with equal rights, yet equality is a many-splendored thing: this may guarantee uniform political
treatment regardless of individuals socioeconomic station or redistribution to equalize the socioeconomic base. Initial revolutionary treatises on liberalism endorsed equal political rights. Individuals (existing
in the state of nature) entered into a social contract to create governing
institutions, and the legitimacy of these institutions demanded that all
enjoy equal political rights. Laws should be universally applicable
developed as if their creators were behind a veil of ignorance about the
impact of these laws on their own specific circumstance.4 Philosophers
of liberalism extended liberal ideals to the economic sphere by promising to eliminate restrictive class constraints on economic achievement
and to reward individual effort and merit. This economic liberalism
was rooted in the opposition to state-granted economic privileges for
selective classes or groups, and this distrust of politically based selective benefits has been a feature of liberalism dating back to Adam
Smith. James Madison and the Founding Fathers sought to use the
Constitution to unleash the market from the abuses of state-granted
economic privileges.5
Moreover, liberalism is associated with individual freedom. Yet, two
freedoms comprise a more accurate description of the liberal tenet, and
the liberal notion of freedom to has an uneasy relationship with liberalism as freedom from. Freedom to entails the right of individuals
living in the state of nature to enter into the political arrangements
previously discussed that guarantee equal rights and achieve collective
goods. Freedom from allows individuals to resist political institutional arrangements that they view as illegitimate or as threatening to
their personal liberty. These conceptions of the positive and negative
liberties may well come into conflict.6
4
6
5
See Locke 1689 and Rawls 1970.
See Smith 2009 and Hardin 2002.
See Berlin 1969. It is worth noting that Social Democracy the predominant
alternative to liberalism and itself a response to more doctrinaire forms of
socialism embodies a similar elasticity in its myriad forms: the Swedish Social
Democratic Workers Party (SAP), for example, is noteworthy for its
consummate pragmatism. Yet, Social Democracy as political philosophy can be
contrasted with liberalism in bas relief in its endorsement of fundamental social
rights (thereby moving beyond the political rights of liberalism); its deep
historical connections to the working class (whereas liberalism was initially a
movement of the bourgeoisie but claimed to transcend class biases in its equal
treatment of all citizens); its commitment to the essential legitimacy of
231
Over the years, liberalism has steered an uneasy course among these
conflicting ideals. Initially, liberalism offered freedom from the rules of
behaviour set by accidents of birth but also embodied an individuals
freedom to make a significant contribution to the broader collective
good by realizing his or her fullest economic potential. This was closely
linked conceptually to the freedom to enter into a social contract to
forge political structures for achieving collective goods and governing
social interactions. Both markets and governments were institutions
to spur individual excellence and to enable people to achieve together
what they could never hope to gain alone.
Although liberalism originally was a major part of the bourgeois
revolution, the liberation from the shackles of class could pertain to
any social segment. The use of the term liberal came to be viewed in
the United States as a synonym for progressive politics in the postwar
era. Eliminating illegitimate prerogatives granted to special groups or
classes had the added effect of permitting energetic have-nots to achieve
greater labour-market successes and enabling individual economic selfactualization. Therefore, liberal social policies were those that entailed
governmental support for the betterment of the lower classes. In this
regard, labour-market policies that nurtured individual talents could
enable workers to make a non-incremental shift in employment status.7
In the past three decades, a new variant of liberal thought has developed in the form of neo-liberalism. Neo-liberalism encompasses a
smaller subset of the ideas embedded in liberalism and elevates freemarket exchange above state controls. It affirms the superior efficiency
of markets for allocating resources, seeks to greatly curb state interference in markets, and restricts state intervention to the essential provision of goods that may not be distributed through markets. Efforts
to nurture markets and dampen states include rejecting Keynesian
stabilization policies, augmenting supply over demand, scaling back
market-distorting social benefits and labour-market regulations, promoting labour-market flexibility, and introducing the outsourcing of
state functions to private-sector intermediaries.8
Neo-liberalism has given preference to negative over positive freedoms and, somewhat paradoxically, expressions of freedom from often
redistribution; and the importance attributed to the state in managing

coordination with somewhat less reverence for market competition in
sustaining the mixed economy.
8
See Galston 1982.
See Hay and Rosamund 2008.
232
entail rejecting the institutional structures that were once considered

a manifestation of individuals freedom to achieve collective social
goods. Moreover, the successful rejection of these structures has been
associated with growing inequality and the hegemony of haves over
have-nots. Neo-liberalism and its negative freedom have been used
to attack the very political structures to which an earlier version of
liberalism initially gave rise: proponents of neo-liberalism argue that
governmental programmes for promoting equality impinge on individual protections for private property. Although liberalism was initially
created to facilitate class mobility, it has increasingly been associated
with rising inequality. Moreover, an initial advantage of liberalism
was that it accommodated shifting exogenous conditions by elevating individual agency: liberalism enabled individuals to realize their
employment potential by responding to labour-market demands. Yet,
over time, proponents of neo-liberalism expected workers to make
these adjustments and blamed the victims when individuals failed to
find their rightful place in the labour market. Thus, King suggests that
liberal ideals have been hijacked for illiberal causes: to eliminate social
protections for the lower classes and to shift the responsibility for
and burden of poverty from larger systemic causes (e.g., deindustrialization) onto individuals.9 Liberal democracies have pursued illiberal
social policies or withdrawn social protections when the populations
enjoying those protections have limited standing in the public sphere.
Neo-liberalism has also provided a vehicle by which governmental
social spending may be contained in response to an economic climate
of scarce resources associated with deindustrialization.
The impact of neo-liberal ideas on employment policy

An example of the ambiguity and power of neo-liberal ideas is found
in the arena of employment policies. During the golden age of an
ever-expanding economic pie, labour relations in many European
countries (but less so in Anglo countries) were highly coordinated,
either at the national level in the Scandinavian case or the industrialsector level in many Continental European countries. Neo-liberal ideas
gained credence, however, when falling productivity growth rates and
See King 1999.
233
deindustrialization in the 1980s ushered in a new era of zero-sum conflicts and rattled the class compromise. Neo-liberal reforms sought to
deregulate labour markets, to decentralize collective bargaining, and to
scale back contractual relations between employers and workers. This
first wave of neo-liberal reforms expressed most vividly, perhaps,
in the punishing policies of Margaret Thatcher became an object
of contention: whereas the policies successfully reduced the costs of
labour by rolling back union power, they did little to expand worker
skills in preparation for the postindustrial economy. A restatement of
the liberal ideal was needed to balance the waning economic prosperity
with the waxing knowledge society.
A second wave of neo-liberal reforms, embodied in the concept of
ALMP, appealed to the compelling requisites of the age and further
transformed the policy area of social protections against unemployment. Gaining popularity in the 1990s, active-labour-market reforms
promised to address the stark institutional changes in labour markets with deindustrialization: they included shifting skills requirements, decoupling high- and low-skilled workers (who worked closely
together in manufacturing production but who largely toiled in different sectors in services), and reducing the growing gap between labourmarket insiders and outsiders (who were increasingly excluded from
employment).
The ALMP concept drew philosophically from both the right and
the left and, in this way, was not inspired only by neo-liberalism.10
Nonetheless, it offers a fine example of the multifaceted nature of
liberalism and constitutes a good arena in which to study liberalism
because it became the central policy intervention for fighting unemployment. ALMP was targeted to a number of sometimes conflicting
goals: its central mandate was to (1) reintegrate beneficiaries of public assistance or insurance back into the core economy; and (2) prevent individuals from relying excessively and over the longer term on
public assistance, unemployment, or disability insurance. To this end,
programmes shifted emphasis from income maintenance to employment promotion and from full employment to individual employability. Within this central mandate, national plans borrowed conceptually from different welfare-state regimes to achieve a broad group of
goals: to enhance incentives to work, to aid in job seeking, to keep the
10
See Pontussen 1997 and Rhodes 1997.
234
unemployed occupied, and to develop the human capital of the longterm unemployed. Policies included both sticks in the form of rules
about the duration of benefits and carrots in the form of access to
training or subsidized jobs.11
There was tension among the diverse aims of the active-labourmarket agenda. Putting people to work, for example, could be accomplished by several methods, such as simply increasing the number of
short-term, low-skilled jobs. However, the policies, at least in some
settings, also sought to improve the productivity of the labour market
by expanding skills and better utilizing the assets of the unemployed.
Deregulating labour markets served an ambition to reduce government involvement in job markets, but this action did not necessarily
increase employment or expand skills.12 Moreover, in some countries
(e.g., the United States), policies to make social-assistance recipients
enter the workforce were associated with the removal of an entitlement
to protections against unemployment and poverty. Thus, ALMP held
the potential of dramatically changing peoples perceptions of a social
right that had been in place in most countries throughout the twentieth
century.
Permutations of ALMP combined these diverse goals in a variegated manner across countries. In the Danish social-democratic welfare regime, most training historically was provided by the state;
yet, the active approach significantly increased firm-based training.
In corporatist-statist welfare regimes, the government left training to
private firms but began to micromanage supply and demand through
one-stop job centres. In the British liberal-market regime, training
choices were largely left to private-sector markets, and labour-market
strategies focused on reducing social benefits, yet ALMP sought to
shift greater responsibility for ensuring adequate training to the state.13
Thus, whereas some observers interpreted the active strategy as reducing social insurance and assistance benefits, others emphasized the
strategys deviation from the liberal belief in letting markets manage employment, and they hailed the approach as a mechanism for
recognizing a right to work among the economically and socially
excluded.14
11
13
14
12
See Layard et al. 1991 and Bonoli 2012.
See Bonoli 2012.
See Layard et al. 1991, OECD 1994, and Rhodes 2001.
See Cox 1997 and Madsen 2002, respectively.
235
ALMP also marked a new direction in employment policy by relying

on employers and other voluntary actors far more than traditional
interventions because private-sector training with a wage subsidy
was considered to have a higher likelihood of permanent employment than public-sector training or public-sector subsidized jobs.15
Even countries in which government historically provided virtually
all social benefits involved employers in implementation. For example, initiatives with a strong role for private employers marked a
profound ideological divergence from the governmental, compulsory,
and nationally uniform solutions to social problems in Denmark.16 A
competitive-corporatism model involved employers, unions, and the
state entering into social pacts to link social provision to international
competitiveness.17
The ALMPs threatened to alter power among the social classes,
albeit with somewhat contradictory impacts for labour. Some feared
that the compulsory work requirements included in this package of
neo-liberal reforms would reduce the power of organized labour and
recommodify workers by forcing them back into employment. Others
hoped that the plans would chip away at the abuses of organized
labour markets: in some countries, employment protections and negotiated wages protected core labour insiders but created labour-market
rigidities that dampened employment and harmed marginal workers.
Proponents hoped that the policies would improve both productivity and social cohesion and help countries to reach higher levels of
employment. In these countries with strong dualism between insiders
and outsiders (e.g., Germany), the policies held the promise to reintegrate those on the margins of the labour market.
The liberal ALMP reforms emerged from a distinctive set of labourmarket institutions during the era of deregulation but were found
to be embedded in a new institutional environment with the fall of
finance capitalism. Therefore, understanding the ongoing allure of
the active-labour-market reforms requires an understanding of their
place in the new institutional world. Countries had competing needs
and ambitions, anchored by severely elevated rates of unemployment,
sharp budgetary constraints, a discrediting of deregulated markets, and
15
16
17
See Madsen 2002.

See Danish National Institute of Social Research 1997: 10.
See Rhodes 1997.
236
euro-inspired constraints on monetary policy. In this context, countries pursued economic patriotism motivated by competition for scarce
international-market share.
In the immediate wake of the crisis, unemployment increased dramatically across the world, and neo-liberalism as a political philosophy
experienced a setback as countries responded with economic-stimulus
policies and expanded social protections to mitigate the treacherous
impacts of the disaster. Government intervention and Keynesian stimulus policy suddenly gained greater acceptance with the wide-ranging
view that market deregulation was to blame and that recovery required
fiscal stimulus. In a moment reminiscent of Nixons famous declaration We are all Keynesians now, Sarkozy remarked, Have I become
a socialist? . . . Perhaps.18 Virtually all countries engaged in Keynesian demand-side stimulus and expansionary fiscal policies. A European Union Commission proposed a 200 billion euro-recovery programme for 20092010 (i.e., 1.5 per cent of the GDP) and the United
States passed a $787 billion fiscal stimulus in spending and tax cuts
thereafter.19 The International Labour Office (ILO) calculated that
automatic stabilizers would create 5.2 million jobs in 2009 within the
G20 countries.20
However, despite this ideological resurgence of Keynesian macroeconomic intervention, countries pursued rather different strategies
for economic recovery and neo-liberal ideas continued to be important. Pursuant to our interests, ALMPs (together with other marketenhancing interventions) continued to be important instruments in the
tool kit of national responses to the crisis as a way to expand employment without placing undue burdens on public coffers.21
Recovery strategies were partially predicated on the budgetary
capacities of countries to sustain high levels of social investment and,
rather paradoxically, the Scandinavian countries with the largest public sectors had the lowest post-crisis budgetary problems. High support
for the tax state meant that these countries largely enjoyed budget surpluses before the crisis, and the budgetary implications of their stimulus
packages were less severe than in countries with pre-crisis fiscal deficits.
Thus, contrary to our image of a bloated state crowding out private
investment, after the crisis, the most energetic economies had a large
18
20
19
See The Economist 2008.
See Cameron 2012.
21
See International Labour Office 2009: 48.
See World Bank 2009.
237
public sector. In this vein, Cameron notes the contemporary regional

divide in growth rates between (1) those in Northern European countries with large tax bases that can run budget surpluses in times of
prosperity; and (2) those in Southern European countries that must
rely on deficit spending even in good times and that, consequently, are
unprepared for an expansive stimulus programme when needed during
an economic downturn.22
Countries also varied widely in their reliance on automatic stabilizers
versus discretionary spending (including active-labour-market spending) and on spending increases versus tax reductions.23 For example,
France had a rhetoric of aggressive intervention, yet ultimately relied
primarily on automatic stabilizers through tax transfers; Germany
endorsed a rhetoric of self-restraint but implemented a short-term
jobs programme (i.e., Kurzarbeit) that employed 1.5 million (primarily manufacturing) workers (i.e., 3.5 per cent of the labour force) at
its peak.24 Countries relying solely on automatic stabilizers to rejuvenate the economy did significantly worse than those that also utilized
ALMPs because the latter activist group was significantly more successful in controlling rising unemployment and hastening post-crisis
recovery than the former.25
In the new economic climate, ALMPs continued to be attractive to
the left as a tool for promoting social investment in marginal workers.
At the Tripartite Social Summit on employment and growth, the European Trade Union Confederation (ETUC) demanded a commitment to
ALMPs that would generate high-quality jobs and social justice rather
than policies to scale back job security and wages.26 Some of the
more neo-liberal aspects of the ALMP concept were also scaled back.
For example, Sweden initially experimented with decentralization and
private-service delivery in ALMP (inspired by the neo-liberal NPM
philosophy); however, the failures of this undertaking motivated the
Swedish bourgeois government to re-centralize labour-market board
control. Thus, whereas devolution to private-service providers was
once considered a way to improve the efficacy and efficiency of the
welfare state, centralized government control came back into fashion
after the crisis.27
22
24
25
27
23
See Cameron 2012.
See Cameron 2012.
See Schelkle 2012 and International Monetary Fund 2010.
26
See Cameron 2012.
See Tripartite Social Summit 2012.
See Niklausson 2011.
238
ALMP programmes were also motivated by incentives after the crisis

to engage in economic patriotism or campaigns to build up economic
activity within the territorial boundaries of the nation-state. ALMP
programmes allowed countries to encourage economic growth within
their territories by fostering skills development and other infrastructural development and by augmenting employment and demand in a
targeted manner.28 Resources for nurturing employment and humancapital development through these policies could be pinpointed to
advantage favoured markets, industrial sectors, and working-class segments, thereby achieving more selective intervention than was possible
with broad-based Keynesian interventions. The new climate of austerity motivated a scrambling for scarce market share, and measures for
economic patriotism would augment domestic economies and expand
the competitive positions of firms.
Finally, in a time of fiscal austerity, the ALMPs offered a way to
reconcile conflicting political interests in what appears to be a winwin alternative, particularly in less wealthy countries or those on the
periphery of Europe. For example, Spanish employers associations,
unions, and government officials were deeply divided over governmental plans for deficit reduction in 2010 (resulting in general strikes
and, ultimately, the occupying movement) and over labour-market
reforms that proposed greater flexibility and deregulation. However,
in early 2011, the Spanish state and social partners broke the logjam
with a new formula of ALMPs and targeted industrial policies, in tripartite agreements collectively referred to as the Social and Economic
Agreement for Growth, Employment and Guaranteed Pensions.29 In a
similar manner, Bulgarian social partners settled on ALMPs and flexicurity as a mechanism for expanding employment, reducing the skills
gap with the rich democracies, and curbing social conflict.30
Thus, the multifaceted nature and ambiguity of the neo-liberal
active-labour-market reforms allowed this concept to quickly conquer
a variety of political dominions, to conform to shifting economic conditions, to satisfy the needs of changing class coalitions, and to reflect
the concerns of diverse political eras. However, the reforms also took
different shapes across countries, and it is to the issue of cross-national
variation in the liberal paradigm that we now turn.
28
30

See Tomev 2009.
29
See Sanz de Miguel 2011.
239
The institutional bases of neo-liberal policies

The second purpose of this chapter is to reflect on the variation of
neo-liberal ideas across national contexts and, in approaching neoliberalism as a dependent variable, to grasp why a set of fundamentally similar conceptual prescriptions are transformed into rather
diverse policy reforms across countries. This question also speaks to
the first chapters lines of explanation, in pondering how an idea may
be resilient even while being manifested in different forms across
national terrains.
I suggest that the specific form of an idea taken in a national setting
is deeply shaped by the institutional structures in which the idea is
embedded, thereby giving support to hypothesis five in Chapter 1. The
plasticity of liberalism with its diverse goals and social impacts
allows reforms inspired by this political philosophy to be moulded
into quite different forms by the institutional context. For example, a
central tenet of liberal thought is that anonymous markets rather than
discriminatory governments allocate productive resources. Yet, markets function because a dense network of governmental rules governs
the rules of individual exchange: the invisible hand guided by the
institutional underpinnings of markets draws very different lines in
diverse institutional settings. The image of anonymous private choices
resulting in the public good vastly underestimates the importance of
these non-liberal institutional structures. The dense networks of institutions found in coordinated market economies create possibilities for
supportive labourmanagement relations, extensive vocational training, and high levels of social protection. In turn, these tend to encourage both labour and management to develop close economic cooperation, to increase long-term investment in skills, and to develop higher
rates of productivity.31 Thus, liberal institutions such as seemingly
autonomous markets are embedded in an institutional nexus of state
rules and institutions.32
Although a number of governmental and political economic structures have bearing, institutions for collective political engagement are
arguably most important to the specific realization of neo-liberal ideas
because systems of partisan interaction and labour-market coordination are the crucial arenas in which citizens and groups negotiate their
31
See Hall and Soskice 2001.
32
See Ruggie 1983.
240
general policy concerns. As discussed previously, liberalism sets a priority on both positive and negative liberties. Freedom from entails
preserving the uniform treatment of individuals, protecting them from
violations of their liberty: neo-liberalisms emphasis on an individuals
right to maximize self-interest is also associated with this negative
liberty. These types of freedoms do not necessarily entail collective
action but may be pursued through individual autonomous effort. In
contrast, freedom to entails the empowerment of a group of individuals to achieve collectively beneficial goals, which presupposes group
action. Therefore, institutional structures for political discourse clearly
have bearing on capacities of individuals and groups to achieve these
common goals.33 Institutional structures for collective political engagement should mediate the impact of liberal policies on social class, distributive outcomes, and the expression of the revolutionary potential
embedded in the liberal ideal.
Party-system characteristics are crucial to the political expression
of neo-liberal ideas because they shape the preferences of participants
in political debates and their capacities for negotiated collective outcomes. Participants in proportional-representation (PR) party systems
behave differently from those in majoritarian systems. Politicians in
PR party systems represent well-organized economic interests, do not
poach voters from other parties, and participate in coalition governments; therefore, they have a less acute need to focus solely on shortterm electoral interests and are better positioned to work towards
longer-term goals. In short, PR systems have stronger institutional
capacities than majoritarian systems to express and to implement policies oriented towards the freedom to goals of liberalism.
In like manner, characteristics of industrial-relations systems influence the articulation and implementation of neo-liberal ideas because
they shape the preferences of both business and labour. High levels of
organization (especially macro-corporatist forms) make employers and
workers more likely to support public social policies because highly
organized groups have political-economic, collective-action, and cognitive effects on members.34 The macro-corporatist forms of association have political-economic effects because centralized collective
bargaining between highly organized employer and labour associations produces wage compression and the motivation for employers
33
See Berlin 1969.
34
See Martin and Swank 2004, 2012.
241
to eliminate low-skilled jobs and to support social protections that

drive skills development.35 Participation in macro-corporatist groups
helps to overcome the limits to collective action by binding firms to
negotiated decisions and convincing members to trust that they will
not be punished for commitment to longer-term goals.36 Highly organized business associations have a cognitive impact on their members
in educating employers about the benefits of social policies and bringing managers into contact with policy experts from government and
organized labour.37 Sustained interaction among these associations
and employers and the state in national collective-bargaining and tripartite policy-making forums as well as iterative corporatist patterns
of interaction foster a long-term perspective.38
These institutional differences also affect the states capacity to
build coalitions for social solidarity. Scholars often attribute rather
immutable interests to companies, with preferences determined by
economic structural characteristics. Thus, firms exposed to international competition are expected to have different interests than those
protected through their production for domestic markets; capitalintensive companies relying on workers with highly specific skills
should hold different preferences than those labour-intensive firms
utilizing labour with lower general skills. Yet, although these differences certainly exist, companies with a given set of industrial-sector
characteristics have been shown to hold diverse preferences at both
the national and the firm levels. This means that states may potentially
incorporate employers into rather diverse political coalitions.39
As Duane Swank and I demonstrated, higher levels of coordination ease government-policy entrepreneurs efforts to fold employers into solidaristic political coalitions to address the needs of lowskilled workers. These associations convince managers to participate
in forums joining diverse sectors in discussions about the potential
labour-market contributions of low-skilled workers.40 Politicians in
macro-corporatist countries can entice employers into political coalitions to adopt policies that minimize negative impacts on marginal
35
36
37
38
39
40
See Wallerstein 1999.

See Streeck 1992, Katzenstein 1985, and Hemerijck and Visser 1997.
See Katzenstein 1985 and Rothstein 2000.
See Streeck 1992 and Crouch 1993.
See Martin and Thelen 2007 and Martin and Swank 2012.
242
groups even labour-market actors in the Danish export sector have

participated in efforts to train and employ marginal workers and this
sustains higher levels of equality, employment, and economic growth.
Countries with sectorial coordination (e.g., Germany) have less success
in rallying business to the aid of marginal workers and in maintaining
relative equality. For example, employers and workers in the German
export sector agreed to dualist political strategies that largely shunted
aging and low-skilled workers into the unemployment system. Thus,
in our quantitative analyses, it has been shown that employers organizations have (net of other forces) significant positive effects on redistribution and significant negative effects on wage inequality, long-term
unemployment, and labour-market dualism.41
Embedded ALMPs
The impact of the institutional context on the expression of neo-liberal
ideas is evidenced in the case of ALMP, as industrial-relations systems
had a major impact on the interpretation and realization of the activelabour-market concept within countries and on the political coalitions
available to the state to make the plans a success. National plans
were motivated by a rather congruent set of ideas and, on paper, were
remarkably similar. Yet, the realization, implementation, and impacts
41
As I have argued elsewhere, processes for collective political engagement also

have an essential role in helping ideas to facilitate both abrupt and gradual
institutional change. Scholars of institutional change utilizing punctuated
equilibria models suggest that actors choices of new ideas and the resolution
of political conflicts at critical junctures create enduring path dependencies and
lay down a track for future policy incarnations (Capoccia and Ziblatt 2010).
Scholars of incremental institutionalism emphasize small shifts in response to
endogenous decay: new coalitions of actors arise to seize control of institutions
with new priorities, ideas, and purposes; and institutions adjust through an
erosion of their initial functions, conversion to new purposes, and layering of
new goals on the prior goals (Streeck and Thelen 2005). Yet, the variations in
the collective processes of political engagement shape both the manner in
which policy legacies are reinterpreted at critical junctures and delimit the
range of political coalitions that contribute to incremental institutional change.
Certainly, agencies at critical junctures establish new paths and new political
coalitions capture existing institutions for their own political purposes; yet,
political structures of engagement constrain strategic action. However,
countries have characteristic ways of solving social and economic problems,
and these reflect the ways that social actors come together with government
actors to negotiate new policies. These rules of political engagement also exert
a strong influence on institutional adaptation (Martin and Swank 2012).
243
of active-labour-market reforms varied enormously across countries in

the proportion of total unemployment expenditures devoted to active
measures, in the reduction of passive benefits, and in the active participation in the plans by the social partners.42
To some extent, the programmatic details of country-specific ALMP
programmes resonated with the deep logics and legacies of welfarestate regimes. In keeping with the values of a social-democratic welfare
regime, the Danish policies sought to be empowering rather than punitive and were connected to a broader campaign to enhance the skills
of low-skilled workers and to expand the labour pool. The policies
were liberal in drawing from NPM ideas, introducing strong compunctions to participate, reducing passive unemployment supports, and
encouraging private effort. This brought scholars to question whether
Denmark continued to have a universal welfare state and could be
characterized as a coordinated market economy.43 Yet, they also maintained high levels of training (enabled by the expansive tax state) and
comprised an important element in the flexicurity strategy that combined low labour-market regulation to encourage energetic economic
activity with social protections to skills renewal. Madsen viewed the
Danish market policies as congruous with the values of a highly productive and highly protective society.44 This combination sustained
high levels of equality, security, skilled employment, investment in
new technology, and social solidarity. Unskilled jobs declined over
the course of the 1990s, whereas skills qualifications expanded due to
aggressive training interventions.45 Whereas most countries cut passive benefits over time, the Scandinavian countries invested substantial
resources in the active measures according to a social-investment philosophy; the liberal, Continental European, and Southern European
countries were all more likely to use the programmes to reduce passive
expenditures and to recommodify workers.46
In liberal Britain, Tony Blairs New Deal plans to curb long-term
and youth unemployment closely resembled Danish ALMP by setting
limits on the recipient of passive benefits, introducing compulsory participation, and seeking firm-based opportunities. Yet, the plans differed
in the language of markets to sell the programmes and the demandled strategies to tailor the programmes to private market needs. The
42
44
46
43
See Martin 2004.
See Campbell and Pedersen 2007.
45
See Madsen 2002.
See Goul Andersen 2007: 7375.
See La Porte and Jacobsson 2012.
244
Table 8.1 Passive and Active Labour-Market Spending as a

Percentage of GDP in Selected Countries
Countries
Passive
1985
Passive
2007
Active
1985
Active
2000
Active
2007
Denmark
Netherlands
Germany
Austria
United Kingdom
United States
4.8% GDP
1.6
0.5
0.4
1.2
0.7
1.9%
1.1
1.4
0.9
0.2
0.3
0.8%
1.3
0.5
0.3
0.7
0.3
1.9%
1.5
1.2
0.5
0.2
0.2
1.3%
1.1
0.7
0.7
0.3
0.1
Source: Nikolai 2012: 98101.
British welfare-state regime has historically conceptualized a weaker

ideological connection between unemployment protections and skills
development, and Blair developed a more residual programme aimed
at eradicating unemployment without doing much to enhance skills.47
In Germany, the Hartz reforms also reduced the duration of
unemployment-insurance benefits; yet, in the early years of reform,
these ALMPs did little to counteract the dualism featured in Christian
Democrat welfare states. Efforts to recruit employers to train marginal
workers were limited, perhaps due to the earlier disappointing show
of business interest in the Alliance for Jobs initiative. Despite the Hartz
reforms, budgets for public training programmes were cut significantly
in 2002, and it was only with Hartz IV when the government finally
moved on without the social partners that Germany developed a
more proactive programme for its marginal workers. However, significant dualism persisted and many of the ALMP funds were used to
create short-term jobs.48
Table 8.1 captures the differences in the directions and levels
of active-labour-market interventions in selected countries. Thus,
although Denmark and the Netherlands scaled back active-labourmarket spending after the glory days at the millennium, they reduced
passive spending significantly and retained higher rates of active spending than other countries. Germany and Austria increased both passive
47
48
See King and Wickham-Jones 1998: 44551.

245
and active labour-market spending; the United States and the United
Kingdom reduced both active and passive labour-market spending.
Employer participation in the plans was also stronger in Scandinavia,
as shown in my study of 107 randomly selected firms in Denmark and
Britain. The higher participation rates by Danish employers worked
against the logic of social-democratic welfare regimes because, historically, there was virtually no implementation of social-assistance
programmes by private employers, and efforts to expand employment were largely concentrated in the public sector. British firms, in
comparison, played an important role in social provision for some
time because state social benefits were supplemented with privateemploymentbased benefits. Yet, Danish employers participated more
in the programmes, primarily because they were attracted to the socialinvestment aspects of ALMPs. Thus, 68 per cent of Danish firms participated in some degree, whereas only 40 per cent of British firms
signed up for the New Deal programmes, and the social-democratic
aspects of the policies were the clear draw for employers.49
Diverse capacities of the industrial-relations systems had a sharp
impact on the programmatic manifestations of the active-labourmarket concepts because different institutions gave varying support
to the somewhat conflicting goals of ALMPs (e.g., greater investments
in human capital versus greater constraints on social assistance). In
particular, active social policies that uplift the economic potential and
contribution of the unemployed (or low-skilled) must be shown to
offer tangible benefits for employers as well as for the unemployed.
Therefore, and somewhat surprisingly, the policies were most successful in social-democratic countries because the institutions of collective
political engagement allowed participants to work together to achieve
their common interests in social programmes to enhance skills.
For example, Denmark created a set of ALMPs and social policies
that both improved skills and attracted widespread support from a
cross section of society: employers and unions sought an expanded
skilled-labour pool and their corporatist associations wanted to preserve their privileged status as decision makers in matters of public
policy. Municipal employers were made responsible for the social problems and were motivated to find solutions to improve the employability of their most fragile populations. Consequently, the succession of
49
See Martin 2004 and Martin and Swank 2012.
246
reforms implemented by successive (and ideologically diverse) administrations since 1982 was marked less by change than by continuity.
When the bourgeois coalition led by Anders Fogh Rasmussen (i.e., a
member of the neo-liberal-right party, Venstre, in conjunction with
the Conservative Party and smaller partisan allies) threatened to cut
back active-labour-market spending, it met with resistance from both
business and labour.50
The participation of Danish employers in the active-labour-market
campaign reveals both the social-democratic cast to ALMP and the
importance of institutions in mediating conceptions of liberalism. The
Danish plans were tailored to real economic needs, and the devices to
end long-term unemployment were linked to the up-skilling of the
general population. For example, job-rotation schemes allow firms to
hire with state subsidies the long-term unemployed while their own
employees receive skills training.51 The plans also created protected
jobs for disabled people with reduced working capacities in an effort
to bring everyone into an encompassing labour market; these positions allowed firms to fill unproductive jobs with disabled workers
(who received part of their wage from the state). This kept workers
off the welfare rolls but restrained company labour costs. Within my
firm study, Danish companies with blue-collar workers at all skills levels were significantly more likely to participate to fill real skills needs
(unlike British firms discussed herein, which participated in order to
obtain cheap labour). Of the Danish firms, 31 per cent cited labour
shortages as a reason for participating, compared with 22 per cent of
the British firms; whereas British firms participated in the programme
for political reasons, Danish firms viewed the programmes as meeting
real economic needs. One firm reported using job rotation to reduce
the barriers between production workers and the skilled mechanics
who fix the machines so that production could move more seamlessly
on the shop floor.52
The macro-corporatist institutions mediated employers perceptions
of ALMP and expanded their participation. The Danish Federation
of Employers (Dansk Arbejdgiversforening [DA]) and its major member, Danish Industry, sponsored consciousness-raising activities and
offered a vehicle for the state to build awareness of the programmes
50
51

See Arbejdsmarkedstyrelsen 2000.
52
See Martin 2004.
247
among employers. Many Danish firms identified the corporatist associations as their primary source of information, and membership in
the corporatist association was a significant determinant of company
participation in the programmes. The associations allowed the social
partners to have enormous input in the development of the ALMPs
through tripartite processes that allowed business and labour to tailor
the programmes to real employment needs. At the municipal level, the
DA chose company participants to sit on local Social Coordination
Committees, which were crucial to local firms involvement. The state
also threatened to appeal directly to firms if the associations did not
engage in the campaign to end long-term unemployment. Both the
employers associations and labour unions participated to retain their
jurisdictional control over labour relations. As one business respondent told me, DA and LO were like Siamese twins in their need to
retain their credibility as willing participants in the political dialogue.53
The DA also joined LO in resisting a proposal by the Danish government (then controlled by bourgeois parties) to liberalize part-time
work. Both unions and employers associations perceived the legislative
initiative as an attack on the social partners jurisdictional authority to
negotiate collective agreements and as a probable limit on social rights
guaranteed to part-time employees.54
In comparison, the British New Labour plans mechanisms for skills
development were considerably more limited than those of their Danish counterparts, and the residual programme to reduce unemployment
did little to enhance skills. Therefore, although British political leaders considered employers essential for supporting and implementing
their social project, efforts to bring British firms into the business of
implementing the welfare state met with less success than the parallel
campaign in Denmark. Although employers signed up in high numbers (especially for the New Deal for Youth Unemployed People), they
stopped short of actually creating jobs for this constituency.55
The constraints of the pluralist system of business organization contributed greatly to the lack of corporate action. Employers had a limited organizational base to bring them into the policy-making process,
and they lacked tripartite institutions that would help them to tailor
the programmes to real economic need. In my firm study, the British
53
55
54
See LO Aktuelt 2002a and 2002b.
See Department for Education and Employment 2000.
248
companies (unlike the Danish companies) engaged with the programmes to secure cheap labour and to appease the Blair government
rather than to derive real skills. Thus, whereas 31 per cent of British
companies credited their participation to strong pressure from government and a desire to appease the new administration, only 9 per cent
of the Danish firms reported such incentives.
The Confederation of British Industry (CBI) failed to be a source of
information or connection to the state. The CBI did little to introduce
firms to the benefits of innovation in low-skilled workers or to advertise
the Blair programmes. Whereas membership in the Danish corporatist
associations was highly determinant of participation in the ALMP
programmes, membership in the British employer associations failed
to encourage participation: 32 per cent of Danes identified an employers association as their major source of information, as opposed to 14
per cent of the British firms and British companies were more likely
to learn through the press (i.e., 34 per cent). The CBI took a somewhat
schizophrenic approach towards the New Labour government, with
Sir Clive Thompson being less enthusiastic than his predecessor, Adair
Turner.56 Because the peak employers organization lacked the collective capacity to make an imprint on the policy and to encourage its
members to participate in the outcomes, Blair appealed to individual
firms and developed market-based inducements to entice employers to
join in his campaign to expand the skills of the British people. With
much fanfare, Blair breakfasted with 3,500 business leaders across
Britain; however, efforts to mobilize individual firms did not add up
to an institutional commitment to the programmes.
Institutions for industrial relations had a similar impact on the attitudes of organized labour towards ALMPs. For example, in highly
coordinated Denmark, the peak LO fully supported the evolution of
ALMP, in large part because it was an active participant in the development of the programmes. LO has the responsibility to represent workers in tripartite committees and to set the framework for collectivebargaining rounds; therefore, even though Danish craft unions are
somewhat fragmented, the encompassing mechanisms by which these
groups engage in policy making tend to reduce the potential economic
cleavages among segments of labour.57 LO was just as involved as the
DA in the evolution of ALMPs; for example, both sat on a Labour
56
Confederation of British Industry 2001.
57
See Scheuer 2007.
249
Market Commission (i.e., the Zeuthen Udvalg), which had the task
of bringing a more active approach to the delivery of unemployment
insurance, and the bulk of its recommendations were incorporated
into the Social Democrats first labour-market reform in 1994.58 A
parallel Social Commission issued a series of recommendations for
changing the public-benefits structure, and perhaps 80 per cent of its
recommendations subsequently became regulations.59
In the wake of the global economic crisis, institutional settings have
continued to mediate the interpretations and impacts of the neo-liberal
ALMPs, and the policies have continued to have somewhat diverse
implications for social classes. Countries learned lessons from the crisis
but different regime types have taken away diverse messages. Liberalism remains embedded and, once again, the capacity of the reforms to
address new labour-market requisites and their implications for class
relations depended on the institutional context.
Northern Europe has exhibited stronger continuing commitment to
ALMPs since the crisis than the liberal countries, and the crisis has even
strengthened the social-democratic component of the programmes
in some countries. The ETUI found that in Denmark, compared to
Germany and the United Kingdom, long-term unemployment was
lower and spending on ALMP was much higher. Whereas 51 per cent
of job seekers participated in activation measures in 2010 in Denmark,
only 28.5 per cent participated in Germany and only 1.5 per cent did
so in the United Kingdom.60
In the years leading up to the crisis, the Danish and Swedish bourgeois governments flirted with the privatization, decentralization,
and scaling back of ALMP programmes; however, since the crisis,
the Swedish government has centralized the programmes again and
reduced the role for private-sector intermediaries. In Denmark, flexicurity as a labour-market concept included expectations that workers
would be laid off during downturns and reemployed during booms.
Therefore, there has been limited use of ALMP simply to keep individuals in employment but relatively more investment in retraining
workers for the new economy. Although there was some job sharing
for current workers, training continued to be an option for the unemployed. However, although employment declined, there has been less
58
60
59
See Mailand 2000.
European Trade Union Institute 2012.
250
pain than might have been predicted because the Danish model of
flexicurity was intended to work precisely as macroeconomic events
have predicted. In a flexible labour market with few labour-market
regulations, firms can hire and fire at will: this flexibility tends to
elevate employment during periods of rapid economic growth but
depresses employment more rapidly during recessions. Steen Bocian,
Chief Economist of Den Danske Bank, noted that, whereas employment in Denmark fell more rapidly than the EU average in 2009,
production levels fell in other countries at a similar rate, but labourmarket rigidities prevented layoffs.61
In Germany before the crisis, governments sought to delegate
ALMPs for the long-term unemployed to the social partners; however,
with Hartz IV, proponents recognized that the social partners were
not up to the job. Since the crisis, this more Scandinavian approach to
ALMP has continued to bolster German workers through the difficult
economic times. At the same time, many beneficiaries of the German
work programmes have been those already in the workplace because
short-term jobs have been used to keep labour in current positions.
In the Liberal countries such as the United Kingdom, active labourmarket spending has been reduced along with many other types of
social expenditure. The Labour Party recently demanded a more targeted approach to the crisis that combines economic patriotism, a
targeted industrial policy, and expanded spending on education and
training. Moreover, Ed Miliband recognized the historical institutional
limitations on British manufacturing to secure what it wanted from the
government:62
In my view, a thriving and diverse manufacturing sector is central to the challenges revealed by that crisis . . . Economic patriotism is what governments
reach for when they dont believe firms can compete. And we will never
return to those days. But too often opposition to protectionism became
an excuse for believing that the best way to help British business was to
stand aside entirely. Opposition to protectionism was right. But opposition
to industrial activism was wrong. From our government to our culture, we
need pride and patriotism if our British firms are to succeed. Patriotism is
about an active government using all the means at its disposal to give competitive British firms every chance to succeed . . . Above all, it is about having a
61
See Elmer and Hansen 2010.
62
See Miliband 2012.
251
shared, long-term vision between public and private sectors, involving every
department.
Conclusion
This chapter suggests that the essential endurance of neo-liberalism is
embedded in its capacity for reinvention. The multifaceted nature of
liberalism accounts for both its ambiguity and its enduring salience,
and this has enabled the perpetuation of neo-liberal ideas through the
most earth-shattering moment of economic upheaval since the Great
Depression. In the case of ALMP, the concept took hold in the 1990s
because of both its political utility and its revolutionary promise. In
diverse iterations, it threatened to make labour markets more flexible
and insecure for low-skilled workers and to release those workers from
the trap of underemployment. Since the global financial crisis, ALMP
has sustained its appeal as a mechanism for economic patriotism and
for targeted economic stimulus.
Policies inspired by liberal ideals can have diverse impacts on social
class, and the institutional environment alters the balance of power
among the social partners. Thus, ALMPs held the potential to both
correct some inequalities among organized labour and to erode the
power of the working class. Older forums for industrial relations
although enhancing the power of the working class could foster
sharp subclass divisions. Particularly in the Continental countries,
these structures favoured the interests of core manufacturing workers in the export sectors over those employees with marginal skills.
Therefore, ALMPs with an emphasis on increasing the employability
of the individual even while reducing worker protections could either
erode worker security with the reduction of passive welfare-state benefits or improve the skills of marginal workers and adjust the power
balance between the higher-skilled and lower-skilled members of the
working class.
The diverse consummation of neo-liberal ideas and their varied class
impacts across countries reflect the institutional context. The Nordic
countries with macro-corporatist structures for labour-market negotiations were better able to realize the revolutionary promise of this
neo-liberal idea: policy makers and their social partners focused collective attention on the skill needs of marginal workers, articulated as
a guiding principle the individuals right to work, and used ALMPs to
252
reintegrate those at the edge of the economy. In comparison, the liberal

countries lacking strong institutional capacities within employers
associations and unions adopted a much more punitive interpretation of ALMP: without an institutional platform on which to build
a dialogue about long-term skill needs, policy makers were unable to
generate much support for the broader ambitions of transforming the
skills of the truly disadvantaged, and they used the policies to roll back
social expenditures.
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European corporate governance: Is

there an alternative to
neo-liberalism?
sigurt vitols
Introduction
One of the most significant developments in economic theory in recent
decades is the emergence of a neo-liberal approach to governing the
firm, which has become commonly known as the shareholder or the
shareholder-value model. This approach, which is based on the conceptionalization of the firm as a set of contracts between principals
and agents, has achieved a dominant position in academic thinking
and policy making in the field of corporate governance at the EU level.
Most advocates of this approach do not explicitly identify themselves
as neo-liberals; nevertheless, the tenets of this approach clearly fit the
definition of neo-liberalism offered in the first chapter of this book.
The shareholder model is based on a strong faith in the efficiency of
markets because it claims that a properly functioning stock market can
best measure the value of firms and efficiently allocate capital to the
most profitable investment projects. Furthermore, the stock market
is a key element in creating a market for corporate control, which
allows ownership and management of underperforming firms to be
transferred if necessary, against the will of incumbent managers
and employees to actors that will restructure the firm to increase
efficiency. The shareholder model of governance, it is argued, has positive welfare effects for stakeholders in the firm (including employees)
and, therefore, for society as a whole.
In contrast with laissez-faire approaches to corporate governance,
the shareholder model accepts the need for a strong state role in setting
and enforcing rules to enable the stock market to function properly.
The author would like to acknowledge his indebtedness to Laura Horn and Jan
Cremers for their analyses of the shift in EU policy making on company law and
corporate governance, and to Johannes Heuschmid for his analysis of worker
participation in Europe. Special thanks to Daniel Kinderman for extensive
comments and presenting this paper on my behalf at a workshop in Paris.
257
258
In particular, so-called minority shareholders (i.e., those shareholders holding relatively small proportions of stock in a company) must
be protected from a host of actors that might exploit information or
power advantages to extract value from the firm in their own interests.
The shareholder model also contrasts with the broad class of stakeholder theories, which value worker participation, state-led industrial policy, and (more recently) environmental protection. Whereas
advocates of the shareholder model prefer to grant shareholders a
decision-making monopoly in company governance, stakeholder theories generally support the sharing of power with other actors, such
as employees, non-governmental organizations (NGOs), and the community (as represented by the state).
This chapter focuses on the emergence and persistence of a neoliberal approach to governing the firm at the European level. This
approach achieved a dominant position in the EU relatively recently.
The 1970s, 1980s, and 1990s can be characterized, for the most part,
as a standoff among different national conceptions of the firm, particularly between the United Kingdom and Continental Europe. Most
substantial proposals for company law at the European level were
blocked during this period. However, the shareholder model gained
the advantage in the new millennium. A key event was the European
Commissions appointment in 2001 of an expert group with a decidedly neo-liberal philosophy to come up with recommendations for
legislative action in the company-law and corporate-governance areas.
Most of this groups recommendations were endorsed by the Commission in the 2003 Action Plan on Company Law and Corporate
Governance. In the years leading up to the financial crisis, a surprising
number of directives proposed in the Action Plan were passed, most
of them with a clear neo-liberal thrust. Following the onset of the
financial crisis in 2008, criticism of the EUs approach has increased,
not only from the stakeholder camp which includes trade unions
and NGOs and their academic allies. Nevertheless, the resilience of
this paradigm can be seen in the neo-liberal orientation of recent proposals made by European institutions, particularly a new Action Plan
published by the Commission in December 2012, which prioritizes a
further strengthening of the rights of minority shareholders.
The persistence of the neo-liberal approach can be explained by a
combination of some of the theses advanced in the first chapter of this
book. On the one hand, at an ideational level, the shareholder model
remains stronger than its alternatives because the principalagent
European corporate governance
259
concept is still dominant within economics and law faculties, which

provide almost all of the experts on corporate governance (following
the third line of analysis in Chapter 1). Advocates of this approach are
currently making a forceful argument that the financial crisis was due
to the incomplete implementation of the shareholder model rather than
to its weaknesses (following the second line of analysis). In the policymaking world, the shareholder model has the advantage of being a relatively simple paradigm that allows for clear policy recommendations;
stakeholder theories, on the other hand, remain too heterogeneous and,
for the most part, lack detailed and comprehensive policy recommendations (arguably a combination of the first and third lines of analysis).
However, ideational strength alone cannot explain the rise and persistence of the neo-liberal approach to corporate governance at the
EU level. The shareholder model was developed in academic circles in
the 1970s and 1980s and, in fact, had achieved a dominant position
at least a decade earlier in the United Kingdom and the United States
than at the EU level. Part of the explanation is the development of a
powerful coalition of business and national interests supporting the
shareholder model (following the fourth line of analysis). A growing
number of investors and businesses have embraced this model, and also
neo-liberal ideas have become politically stronger in many EU member states. Although the confidence of the public at large in capitalism
has decreased since the crisis, this coalition has not yet been seriously
challenged by political forces in favour of a stakeholder approach.
This chapter first discusses alternative models of corporate governance in particular, it contrasts the shareholder-value model with the
broad class of stakeholder models. The chapter then discusses the factors that explain the success of the shareholder model on the European
level. Finally, the potential for an alternative stakeholder approach is
examined, as well as the barriers to this approach, which explain the
persistence of the neo-liberal approach.
A neo-liberal approach to corporate governance

A widely used definition of corporate governance is the system for
directing and controlling the firm. It involves the definition and allocation of strategic decision-making rights in the firm. It is not surprising, given the concern with power relations and the changing social
and economic context over time, that radically different conceptions
260
of corporate governance and its regulation have developed; there have

been frequent periods of contestation for dominance in policy.
The term corporate governance is relatively new, with its first
documented use in 1960.1 Embryonic elements of this approach can
be discerned as far back as the 1930s, in Berle and Meanss (1932)
identification of the problem of the separation of ownership and control in the modern corporation and Coases (1937) foundations for a
contractual view of the firm.2 However, the decisive period for laying
the intellectual foundations of a neo-liberal conceptualization of corporate governance was in the 1970s and 1980s, when the fundamental
building blocks of this approach were developed and seminal articles
were published.
In essence, the shareholder model of corporate governance has the
following five major elements:
(1) Shareholders are seen as deserving of a monopoly in decisionmaking rights in the firm. It is argued that this is justified because all
other interested parties (e.g., employees and suppliers) are able to
protect their interests through contracts. Shareholders, in contrast,
face residual risk; that is, they are entitled to profits only when
all other interests are paid off and, in the worst case, they risk a
total loss of their investment.
(2) So-called minority shareholders (i.e., those shareholders controlling only a small proportion of voting rights) are deserving of
special protection because they may be vulnerable to exploitation
by large inside shareholders who may have access to inside information, multiple voting rights, and so on. For stock markets to
function properly, it is argued that minority shareholders must be
guaranteed a series of rights including full information about the
financial situation of the company, voting rights proportional to
the capital they have invested, and the right to call and put items
on the agenda of shareholder meetings.
(3) The top management of the firm must be paid in a way that its
incentives are aligned with those of shareholders. This is because
most shareholders do not have the capacity and resources to closely
monitor the behaviour of top management. In particular, there
is a danger of moral hazard that is, the possibility that top
management will use available funds to improve its own welfare
1
See Eells 1960.
See Berle and Means 1932 and Coase 1937.
261
(i.e., through private benefits such as corporate jets or empire

building through acquisitions) rather than to maximize profits. A
solution is to award top managers stock or stock options in the
company so that they have a direct financial incentive to increase
share prices.
(4) The composition and functioning of company boards must be
structured in a way that it does not simply rubber-stamp the
decisions of top management. Independent directors must have
a majority on company boards and on key committees such as
auditing and remuneration. They also must have full rights of
information and access to impartial external expertise.
(5) There must be an open market for corporate control; that is, it
should be possible for investors to buy and sell companies like
any other asset. This is particularly important in the case of companies that are underperforming due to bad management and/or
shareholders that are not concerned with maximizing shareholder
value. Active investors who are willing to buy up the company and
install better management should be able to do so if necessary,
through hostile takeovers that are against the will of incumbent
management, employees, and so on. Management should not be
allowed to implement a set of defensive actions designed to thwart
hostile bids (e.g., poison pills).
This shareholder model of the firm contrasts strongly with previous conceptualizations of the firm. Originally, corporations had to
be authorized specifically by a charter granted by monarchs or governments, and their permissible activities were clearly stated in the
charter. Perhaps the most famous early corporation was the British
East India Company, which was granted a fifteen-year monopoly on
trade with the East Indies and Africa by the British monarch in 1600.
Corporations were regarded with suspicion and closely observed. To
the chagrin of many owners, the state retained the right to intervene in the affairs of the company, sometimes quite deeply. One of
the key demands of early supporters of the corporation was to free
business activity from dependence on the arbitrary behaviour of the
state.
Over time, however, a more liberal attitude towards the business
corporation emerged, and countries began passing legislation allowing
the registration of corporations without the specific authorization of
the state. In Britain, the key event was the passage of the Joint Stock
262
Companies Act in 1844; in the United States, this took place shortly
thereafter, starting in New Jersey, because company law is regulated
at the state level. The passage of such legislation typically ushered in
a laissez-faire era for corporations in those countries because there
was typically a lack of regulation in other areas, such as financial
reporting, competition policy, financial markets, and labour law. The
behaviour of firms during this laissez-faire period became increasingly
problematic, as many corporations abused their market power in a
variety of ways. Corporations also frequently exploited investors for
example, in the use of funds for personal purposes by managers and
in not reporting the true financial state of the company. The weak
capitalization of many corporations led to mass bankruptcies during
economic downturns, which were exacerbated by the fragility of early
financial systems.
A major discrediting of the laissez-faire model occurred during the
Great Depression of the 1930s, which led to increasing regulation
of corporations in the public interest. However, national responses
varied quite differently, driven not only by the need to recover from
the Depression but also by mobilization for World War II and, in
many countries, postwar reconstruction. Universally, major steps were
taken away from the laissez-faire approach, justified by the need for
greater regulation of corporations in the public interest and, in many
countries, steps towards a greater state role in economic planning, at
least in key sectors.
The postwar-stakeholder model is a stylized characterization of the
type of corporate-governance system that was introduced after World
War II, primarily in but not limited to the Continental European countries. Ownership was dominated by long-term patient investors with
controlling interests in the firm (i.e., with majority voting rights), such
as founders/families, the state, banks, and other companies. The market for corporate control could be characterized as closed because
various formal and informal mechanisms (e.g., multiple voting rights
for dominant shareholders) made it difficult or impossible for outside
investors to gain control of the firm. At least in large firms, workers
had a medium to strong degree of voice in running the firm through
mechanisms such as works councils, collective bargaining, and boardlevel employee representation. Top managers tended to be paid a fixed
salary, perhaps with a small bonus for good performance. Transparency to outsiders tended to be low and, for the most part, limited
to past financial performance.
263
Interests supporting the shareholder model

This approach had a major practical impact on policy making beginning in the 1980s in the United States and the United Kingdom and in
the 1990s elsewhere. The approach made particularly strong advances
in the wake of major crises and spectacular cases of governance failures
because the paradigm offered simple explanations for these failures and
clear recommendations on how to avoid them in the future.
However, in addition to offering a parsimonious intellectual
paradigm, the shareholder model of the firm also advanced due to
the strong support it received from powerful interest groups, including
the increasingly significant group of institutional investors, which constituted the bulk of the so-called minority investors identified by the
approach, investment banks, and other actors involved in the trading
and restructuring activity involved in shareholder value; and, finally,
a growing number of top managers in non-financial companies who
profited from the rising levels of remuneration (including stock-based
compensation).
Probably the most decisive change in European corporate governance came not as an explicit policy decision related to corporate governance but rather as the unintended consequence of shifts in financial
savings and regulation, as well as the growth of multinational companies. This was the massive shift in the ownership structure of companies, away from closely held long-term owners (i.e., founders/families,
the state, banks, and non-financial companies) towards fragmented
ownership structures composed of minority shareholders. Minority
shareholders, for the most part, are financial investors (i.e., investment
funds, pension funds, and insurance companies) pursuing a portfolio
strategy that is, a strategy in which risk is dispersed over small shares
in hundreds or even thousands of companies. As a consequence of
this dispersal, these investors typically do not hold more than 5 per
cent of the shares of specific companies. Many of these investors also
follow short-term strategies, buying and selling shares based on their
perception of whether the shares will outperform or underperform the
stock market as a whole in the near future. The average holding time
of shares by this type of investor has dropped to less than a year. Many
people have written about this shift.3 The main driving forces for this
shift are the following, with the relative weight of each factor varying
among countries or even among companies:
3
2011.
See Lutz
2002; Deeg 2005; Jackson 2005; and Hopner
264
r The privatization of retirement savings, away from pay-as-you-go

first-pillar (i.e., state) schemes to second and third-pillar capitalized schemes.4 This has led to a massive accumulation of wealth at
pension funds and other types of financial firms used as retirement
vehicles.
r Privatization policies by the state, whereby the state has sold off
major shareholdings accumulated in the immediate postwar period
through nationalization policies or in public utilities built up by
the state. The United Kingdom led the way here, but the extent of
privatization has been much greater in other countries (e.g., France).
r Changes in financial regulation and a shift in the strategies of banks,
which has led to a reduction in the shareholdings of banks in large
firms (Germany is a particularly prominent example of this).
r The succession problem in many family-owned firms, in which the
second or third generation has different interests than the founder.
One example is the Thyssen Steel Company, in which the third generation was more interested in cattle farming in South America than
in making steel in Essen.
r The rapid growth (and therefore the need to increase capital through
attracting outside investors) and/or the merger of many multinationals, which meant the watering down of the relative size of shareholdings by insider owners. This was caused in part by a shift from
national to international strategies by companies and the need to
achieve critical mass in international markets as opposed to a single
national market.
These minority shareholders have a different approach to investment
in companies than insider investors. In particular, they have an interest in the following:
r A high degree of transparency in the financial performance of companies, allowing both an accurate judgement on the current financial
state of the company as well as its probable performance in the
near future. This includes reporting on a quarterly (rather than an
annual) basis as well as segmental reporting (i.e., breaking down
financial reporting by division in diversified firms and by region in
geographically diverse firms).
r An increase in effective voting power so that minority shareholders can outvote insider owners. Continental European
4
For a discussion, see Ebbinghaus 2011.
265
corporate-governance systems typically allowed or did not explicity forbid a number of mechanisms that insider owners would use
to control a greater proportion of votes in the company than their
actual capital investment (e.g., multiple votes for A class shares,
pyramids, and cross-shareholdings). The motto of minority shareholders in this respect is one share, one vote; that is, voting rights
should be proportional to shareholders actual investments in the
firm.
r The creation of open markets for corporate control, which allows
activist shareholders to acquire control in underperforming companies and to oust underperforming managers.
r Liquid and fair markets that is, the ability to buy and sell shares in
companies quickly with as little impact as possible on market price.
This requires a whole set of changes in the way that financial markets
are organized and share price is set, prohibition of insider trading,
and other measures.
r A reorientation of the way top managers are paid so that they have
a strong incentive to take actions that are in the interests of shareholders. The most direct way to do this is to pay top managers with
shares and stock options, to make bonuses conditional on increasing
share price, and other ways.
These changes do not occur automatically with the shift to a minority
shareholding structure because existing practices and regulations need
to be changed or new regulations need to be created in previously
unregulated areas.
The emergence of the shareholder model at the

European level
The early 2000s ushered in major changes in the EUs approach to
corporate governance. The first was a major shift in the understanding
of the purpose of EU regulation in this area.5 The previous emphasis was on the encouragement of developing the internal market by
using directives for harmonization, which allowed for a degree of
standardization of business structure without encouraging regulatory
competition among member states. The new approach drew on a more
market-based view of the firm and the proper role of regulation. Shareholders and their quest for greater shareholder value were viewed as
5
See Horn 2011 and Cremers and Wolters 2011.
266
Table 9.1. Company-Law Directives and Year of Approval
Directives approved
Year
passed
First Council Directive

68/151/EEC
Second Council Directive
77/91/EEC
Third Council Directive
78/855/EEC
Fourth Council Directive
78/660/EEC
Sixth Council Directive
82/891/EEC
Seventh Council Directive
83/349/EEC
Eighth Council Directive
84/253/EEC
Eleventh Council Directive
89/666/EEC
Twelfth Council
Company-Law Directive
89/667/EEC
Directive 2001/86/EC
2007
2007
2009
2009
2009
Directive 2010/76/EU
2010
Directive 2011/35/EU
2011
Source: Authors research.
1968
1977
1978
Brief description
Registration/power of
organs/nullity
Formation/capital
1978
Mergers of public limited liability

cost
Accounting
1982
Division of companies
1983
Accounting
1984
Auditing
1989
Disclosure of branch operations
1989
Single-person private limiteds
2001
2003
2004
2005
2006
SE directive
Registration/disclosure
Rules for takeover bids
Rules on cross-border mergers
Formation/capital public limiteds
(amends second directive)
Shareholder rights
Independent expert report
Registration/power of
organs/nullity (replaces first
directive)
Codification of twelfth directive
(single-person private limiteds)
Reporting/documentation in
divisions and mergers
Capital requirements/remuneration
in financial institutions
Mergers of public limited liability
cost (amends third directive)
267
a key force for driving restructuring activities, including cross-border

restructuring, to achieve greater efficiency and competitiveness of the
European economy. A key goal was to open up the market for corporate control in the sense of making it easier to buy and sell shares and
the decision-making rights attached to them, thereby allowing activist
investors to drive beneficial changes in company policy and structure,
if necessary, against the opposition of incumbent management.
The second change was a partial removal of the blockade on proposals touching on decision making in the company, particularly the role
of worker participation. This was achieved through a combination of
neo-liberal substance in directives combined with the formal protection of worker-participation rights through flexible negotiation and the
allowance of a certain number of national options or opt-outs on some
directive provisions. The third change, symbolized in the transition
from company law to company law and corporate governance, was
an expansion of activity to new areas more directly affecting not only
decision-making structures but also substantive policies in the firm.
These changes in approach were driven by three main factors. The
first factor was a change in political tone with the election of a new
European Parliament (EP) and the appointment of a new set of European Commissioners in 1999. In the elections that year, parties in
the social-democratic bloc won less than 30 per cent of the seats in
the EP (Figure 9.1). Furthermore, in contrast with previous commissions in which the key position of Director of the Internal Market
Directorate was frequently held by Christian Democrats or the independent but moderate Monti the outspoken liberal Frits Bolkestein
(the Netherlands) took this office. At the same time, parties in both the
Christian Democrat and Social Democrat blocs continued a drift to the
right that started in the mid-1970s (Figure 9.2). This was associated
with a strengthening of business influence in the political system in
Europe.
A second factor was the growing popularity of the shareholdervalue model of the company, which had been guiding changes in
company law and related areas primarily, but not only in the AngloSaxon countries. In the United Kingdom, for example, the so-called
Cadbury Committee was established in 1991 in the wake of a number
of spectacular failures of governance (including a group of companies
owned by Robert Maxwell, Bank of Credit and Commerce International, and Polly Peck).
1979
1984
1989
1994
1999
2004
2009
%
10
20
30
40
50
60
70
80
90
Election results by political group, 1979 to 2009. Left to right:

Far Left
CDI or TGI
CD / EPP
National Conservatives
Socialist Group
Non-Inscrits
Forza Europa
Far Right
Regionalists (inc. Greens)
Liberal Democrats
Conservatives
Greens
Radical Alliance (Liberals)
Eurosceptics
Figure 9.1. European Parliament political grouping relative strength, 19792009.

Source: http://en.wikipedia.org/wiki/European Parliament, accessed on 16 March 2012.
100
269
Mean CMP left-right index

Right
20
Liberals
10
Christian Democrats
0
Left
10
20
30
1960
1970
1980
1990
2000
Figure 9.2. Preference moves of major party groups.

Source: Manow et al. 2004: 17.
A key element is the system by which companies are directed

and controlled. Boards of directors are responsible for the governance of their companies. The shareholders role in governance is
to appoint the directors and the auditors and to satisfy themselves
that an appropriate governance structure is in place. The responsibilities of the board include setting the companys strategic aims,
providing the leadership to put them into effect, supervising the
management of the business and reporting to shareholders on their
stewardship.6 Of particular significance in this definition is the concentration on the shareholderdirector relationship. The law-andeconomics school has developed a large literature focusing on this
as the primary problem in the governance of the firm, and it suggested
a number of measures to address this problem.7 This approach was
hostile to worker participation, even calling the movement for economic democracy an attack on freedom. This approach also found
supporters in many Continental European countries and influenced
reforms in a more market-based, Anglo-American direction.8 A third
factor was a new round of corporate failures, precipitated in part by
the collapse of the dot-com bubble and its excesses of share price
and debt financing. Although the most spectacular collapses took
6
7
See Cadbury Report 1992: 14.

See Jensen and Meckling 1976 and 1983.
See Vitols 2005.
270
place in US companies, a number of important European companies

were also affected, including the French multimedia company Vivendi
in 2002 and the Italian dairy and food company Parmalat in 2003.
Towards a shareholder-driven model of the firm

Symbolic of the change at the European level was the increasing use
of academic experts in policy making and discourse, most of whom
were inspired by the law and economics principleagent view of the
firm. At the encouragement of the EC, the European Corporate Governance Institute (ECGI) was founded in 2002, which currently has
202 academic members and 42 institutional members (including companies, banks, and associations). The ECGI often provides expert and
organizational support for the European Commission, including the
organization of conferences on European Corporate Governance and
advice on both policy and the state of research.
In September 2001, Commissioner Bolkestein appointed the High
Level Group of Company Law Experts to fulfill two tasks: (1) to
review the highly controversial issue of takeovers because the EP had
recently rejected a takeover directive proposed by the Commission;
and (2) more generally, to examine the need and make proposals for
further steps regarding regulation in the area of company law. The
composition of the High Level Group was decidedly close to the business community (Table 9.2). For example, its chairperson was a legal
advisor to Unilever and its members included the legal affairs director of the French employers federation, the former president of the
Italian stock exchange, and a consultant to the British Department of
Trade and Industry. Although a few of the members were respected
academics particularly the Director of the Max Plank Institute for
Comparative and International Private Law their academic leanings
were decidedly pro-market and inspired by the law-and-economics
approach.
In response to its first task that is, making recommendations on the
controversial topic of a European takeover directive the High Level
Group took a positive view on the desirability of takeovers, including
hostile takeovers, as follows:
In the light of available economic evidence, the Group holds the view that
the availability of a mechanism for takeover bids is basically beneficial.
Takeovers are a means to create wealth by exploiting synergies and to
271
Table 9.2. Members of the High Level Expert Group on Company Law
Name
Affiliation
Chairman Jaap Winter
Professor at the Erasmus University of Rotterdam

and legal advisor to Unilever, the Netherlands
Professor at the University of Castilla La Mancha,
Spain
Geschaftsf
Direktor
uhrender
Max-Planck-Institut, Germany
Consultant for the Department of Trade and
Industry, United Kingdom
Former President of the Italian stock exchange
supervisory body CONSOB, Italy
Professor at the University of Copenhagen,
Denmark (previously a practicing attorney)
Legal Affairs Director, Employers Federation
(MEDEF), France
Jose Maria Garrido

Garcia
Klaus J. Hopt
Jonathan Rickford
Guido Rossi
Jan Christensen
Joelle Simon
Source: Single Market News No. 29 (June 2002), DG Internal Market, Brussels.
discipline the management of listed companies with dispersed ownership,

which in the long term is in the best interests of all stakeholders, and society
at large.9
The High Level Group also criticized the highly uneven situation within
Europe, where it was much easier to execute a takeover in countries
such as the United Kingdom but virtually impossible in other countries. According to the group, this would justify a directive requiring countries to create a clear framework for takeovers and to discourage the use of takeover defences by incumbent management. For
example:
In the event of a takeover bid, the ultimate decision must be with the shareholders . . . It is sometimes argued that allowing the board to frustrate a
takeover bid can be justified as a means to help take into consideration the
interests of shareholders and other stakeholders in the company, notably the
employees. The Group rejects these views.10
Regarding its second task that is, making recommendations on the

general framework of European company law the High Level Group
also took a liberal view. It recommended that the Commission expand
9
See High Level Group 2002a: 2.
10
See High Level Group 2002a: 2.
272
its activities to a wider variety of corporate-governance matters in the

interests of strengthening shareholder rights, as follows:
In a proper system of corporate governance, shareholders should have effective means to actively exercise influence over the company . . . Shareholders
focus on wealth creation and are therefore, in the Groups view, very suited
to act as watchdog not only on their own behalf, but also, in normal
circumstances, on behalf of other stakeholders.11
On the basis of this approach, the High Level Group made a series of
specific recommendations, including the encouragement of a greater
degree of competition among different national company-law regimes
in Europe, as well as creating an alternative for smaller companies to
incorporate at the European level (specifically through the European
Private Company).
The further use of experts was institutionalized through the establishment of two advisory groups that meet on a semi-annual basis.
The first group, the European Corporate Governance Forum, was first
set up at the end of 2004 and its mandate was renewed in 2008. It
included one trade-unionnominated representative, but the remainder
were representatives of business or academics inspired by the law-andeconomics approach. Parallelling this group was the Advisory Group
on Corporate Governance and Company Law.
Although there was a certain diversity of opinion among these
experts, there nevertheless was a certain homogeneity in the view of
the appropriate shape and proper functioning of company law. This
was a major influence in political discourse and on policy making in
the EU.
Company law and corporate governance

Whereas, prior to the 2000s, European Commission proposals were
clearly defined as company-law initiatives that dealt mainly with structural issues in the firm, the term corporate governance was also taken
on board by the Commission, such that its activity field and responsible
administrative units were renamed company law and corporate governance (emphasis added). These two terms are not identical but rather
overlapping in two respects. First, corporate governance uses not only
hard-law but also soft-law instruments, such as recommendations
11
See High Level Group 2002b: 47.
273
12
11
No. of Directives
10
8
5
6
3
4
2
1
0
0
1960s
1970s
1980s
1990s
Decade
2000s
2010s
Figure 9.3. Number of European company-law directives passed, by decade.

Source: Authors research.
and codes. Second, due to its focus on strategic decision making, corporate governance overlaps more with labour law in particular, with
securities law than with company law. However, company law also
addresses structural aspects of the firm that do not fall under common
definitions of corporate governance.
In addition to public support from the High Level Group for expanding its activities to corporate governance, the Commission also experienced pressure from national governments. In September 2002, the
Competitiveness Council requested the EC to organize an in-depth
discussion on its forthcoming report and to develop in coordination
with member states an Action Plan for Company Law, Including
Corporate Governance. The Competitiveness Council is composed of
ministers from EU member states that are concerned with competition
policy, industrial policy, and research.
An example of a definition fitting this narrow view is the following,
used by the Commission in 2003 in its action plan on company-law
corporate governance:
Corporate Governance is usually understood as the system by which companies are directed and controlled.12 Corporate governance essentially focuses
12
This draws largely on the definition provided by the UKs Cadbury

Commission on corporate governance in 1992: Corporate governance is the
274
on the problems that result from the separation of ownership and control,
and addresses in particular the principalagent relationship between shareholders and directors13 (emphasis added).
This has turned out to be a very significant document because it outlined the new approach of the European Commission and its priorities
for action on new directives and other initiatives in the years ahead.
A new approach to national varieties and

worker involvement
Another change in policy was the use of greater flexibility in designing
proposed directives relative to the old harmonization approach. One
example of this flexibility was a new approach to the issue of worker
representation on company boards. Whereas the old approach (e.g., in
the proposed fifth company-law directive) was to propose a fixed alternative or menu of alternatives for worker-participation structures, the
new approach would allow employers and worker representatives to
negotiate a customized solution specific to the firm.14 This approach
was successfully used to reduce opposition to the European Company
Directive, the European Cooperative Society Directive, and the CrossBorder Mergers Directive.
Although this approach had the advantage of avoiding differences
within the trade union over the proper form of worker involvement,
it also had a number of disadvantages regarding employee representation. One disadvantage was the specific thresholds used to define
a right to negotiation for workers, generally based on number of
employees and the share of employment in different countries. In a
number of cases, these thresholds were not met by the companies being
restructured (particularly under the Cross-Border Mergers Directive)
and therefore resulted in a lower level of worker-involvement rights.
13
14
system by which companies are directed and controlled (Cadbury Committee

1992).
European Commission 2003.
This solution was borrowed from the European Works Council Directive,
which was passed in 1994. This Directive defined rights for workers in
companies meeting certain size and internationalization requirements to
negotiate with employers to form a European Works Council, composed of
representatives from different countries and embodied with specific
information and consultation rights.
275
Employees on the Board in Europe
Widespread participation rights

comprising state-owned as well as
private companies (12 countries)
IS
FI
Limited participation rights

mainly state-owned or privatized
companies (6 countries)
NO SE
EE
LV
LT
DK
IE
UK
NL
BE
LU
PT
ES
PL
DE
CZ
AT
SI
FR
No (or very limited) participation

rights (12 countries)
SK
HU
IT
RO
BG
LI
GR
MT
CY
Figure 9.4. Diversity of employee board-level participation rights in Europe.
A second problem, particularly in the case of European-company

legal forms, was the freezing of worker-involvement rights when
the restructuring was completed. There is evidence that a number of
German companies below the threshold for worker participation have
reincorporated as European companies without worker-participation
rights, and they have subsequently grown above the threshold that
would have applied had they remained as German companies. Thus,
although protection of worker rights is formally provided for in the
directives, in practice, this protection is very uneven, with companies
exploiting loopholes in the legislation to avoid worker participation.
A second example of flexibility is the offering of options to countries
in the transposition of EU directives into national legislation. Under
the old approach, company-law directives were designed under a harmonization philosophy, thereby intending to define certain common
standards and procedures across member states.15 The new approach,
15
Directives, by definition, offer more flexibility than Regulations, the other

main EU legal instrument. Regulations are self-executing; that is, they have
direct legal force. Directives, in contrast, do not exercise direct legal force but
rather instruct member states to transpose the Directives that is, implement
276
however, built explicit choices or options into the Directives, which

member states could exercise when they transposed the directive into
national legislation. In the case of the European Company legislation,
eight options were provided in the Directive and thirty-two options in
the accompanying Regulation to Member States for implementation.
Similarly, the Takeover Directive defined a set of options for member
states when transposing the directive into national legislation.16 These
options allow member states some flexibility in choosing the degree to
which company boards can implement takeover defences, as well as in
specific rules regarding the takeover procedure.
This flexibility helped to meet member states concerns that a onesize-fits-all approach was being imposed on them, while at the same
time allowing the spirit of the directives to be implemented.
An alternative approach to corporate governance: The

stakeholder firm
The shareholder-value model of the firm and the new approach
towards corporate governance in the EU has not been without criticism, and, since 2008, this criticism has increased. Key elements of
this model are widely seen to have contributed to the financial crisis. In
particular, the high levels of management remuneration and their orientation towards short-term performance of the company and/or share
price (e.g., through the use of stock options) have received widespread
negative publicity. However, other elements and assumptions of the
model have also been criticized, not only in the public debate but also
in the academic world. For example, an increasing number of academic studies show that mergers and acquisitions in most cases do not
result in improved company performance and frequently lead to significant job losses. This challenges a key assumption underlying recent
EU policy namely, that encouraging company restructuring will be
beneficial to the European economy.
One aspect of contestation of this model takes place at the level
of the conceptualization of the firm and its role in society and the
16
the substance of the Directives through national legislation (or, in some

countries and legislative areas, through alternative mechanisms such as
agreements among the social partners). Nevertheless, under the old approach,
the intent was that the substance of Directives be applied uniformly across
member states.
2009.
See Johnston 2009 and Sjafjell
277
Total
Academics/Individuals
Public Authorities/Standard Setters
Accountants and Auditors
NGOs/Other
Users
Companies/Preparers
0%
20%
40%
poor/ very poor
60%
80%
100%
at least sufficient
Figure 9.5. EU consultation respondents attitudes to quality of non-financial

disclosure regime in their countries.
Source: European Commission 2011: 6.
economy. Whereas the shareholder-value/principalagent model discussed previously defines the key problem of corporate governance as
making management work in the interests of shareholders, an alternative approach proposes a much broader definition of the term. This
approach has, for the most part, used the terms stakeholder and
stakeholder model to provide a contrast to the shareholder firm and
shareholder value. Perhaps not coincidentally, these terms apparently
originated in the Anglo-Saxon countries; the major proponents in the
United States were Freeman and Blair and, in the United Kingdom,
Hutton and the Parkinson/Gamble/Kelly group.17
The Freeman analysis focused on the contribution of a broad range
of stakeholders to the firm and the normative need for the firm to
consider the interests of these stakeholders.18 This approach, in fact,
has been adopted not only by some businesses but also by government agencies; for example, the World Bank formalized guidelines on
the identification and consultation of stakeholders affected by specific
policies.
Blair focused in particular on the role of employees in value creation
in the firm and the need for them to be assured that their investments
17
18
See Freeman 1984; Blair 1995; Hutton 1995; and Parkinson/Gamble/Kelly

2000.
See Freeman 1984.
278
in firm-specific human capital will not be exploited by the firm or lost

due to dismissal.19 On this basis, the need for mechanisms granting
employees power in the firm to protect these firm-specific investments
is justified.
This approach has had some success in influencing definitions of the
meaning of corporate governance at various levels. A broader definition of corporate governance would require a more pluralist view of
the governance of the firm, including employees as key stakeholders.
Thus, in stark contrast to the definition included in the ECs action plan
on corporate governance, the OECD explicitly included stakeholders
in its definition in Principles on Corporate Governance in 1999, as
follows:
Corporate governance involves a set of relationships between a companys
management, its board, its shareholders and other stakeholders. Corporate
governance also provides the structure through which the objectives of the
company are set, and the means of attaining those objectives and monitoring
performance are determined20 (emphasis added).
The adoption of this broader definition was reportedly due to the

intervention of the trade unions through their representation at the
OECD level through the Trade Union Advisory Committee (TUAC)
and the intervention of specific social-democratic governments.
Similarly, the German Corporate Governance Code explicitly mentions stakeholders, specifically in its definition of the responsibilities
of the management board (i.e., the board in the two-tier structure
composed of the top full-time managers), as follows:
The Management Board is responsible for independently managing the
enterprise in the interest of the enterprise, thus taking into account the
interests of the shareholders, its employees and other stakeholders, with the
objective of sustainable creation of value.21
The newest Commissioner for the Internal Market, Michel Barnier,

who took office in 2011 after the election of a new EP in 2010,
announced a number of times that he would like to take a different
approach than his predecessor, the neo-liberal McCreevy from Ireland. Barnier is a moderate conservative in the French tradition that
19
21
20
See Blair 1995.
See OECD 1999.
See German Corporate Governance Code, as amended on May 26, 2010,
p. 6.
279
is, with a touch of paternalism and not as antagonistic to state intervention and worker participation. A number of broad-ranging public
consultations on company law and corporate governance suggested
that a new approach might be taken in this area. However, the new
action plan announced by Barnier in December 2012 fell short of these
expectations because the plan can be described as incremental adjustment to the shareholder-value approach rather than a radically new
stakeholder approach.22
However, the major question faced by critics of neo-liberalism is:
What type of approach and what type of specific measures would
be needed to support an alternative to neo-liberalism in corporate
governance at the EU level?
To date, perhaps the most far-reaching effort has been made by
trade-union experts and academics closely affiliated with the tradeunion movement. Specifically, the GOODCORP network of experts
recently published a collection of essays entitled The Sustainable Company: An Alternative Approach to Corporate Governance.23 This book
coincided with the European Commission consultation on a European corporate-governance framework. This new approach draws
on both traditional postwar pluralist models of the firm and newer
concerns with sustainability. Key themes in the book include the
need for workers voice in corporate governance and for a binding legislative framework to promote sustainability. Individual chapters address the issues of worker involvement, employee shareholding,
sustainability-oriented remuneration, international framework agreements, NGOtrade-union relationships, reforming financial regulation
and carbon taxes, and emissions-trading schemes. The book has been
positively received by both the European Commission and European
trade unions.24
Given the importance of worker participation within the firm for
a new approach, the ETUC has also started working on a global
approach to this question in EU regulation. Until recently, the question has been addressed in a fragmented way, in the context of specific
22
23
24
See European Commission 2012, Vitols and Heuschmid 2012, and Vitols
2012.
See Vitols and Kluge 2011.
See, for example, the ETUC resolution, The Future of European Company
Law: Towards Sustainable Governance, adopted by the Executive Committee
on 67 March 2012.
280
directives. Thus, worker representation in company boards has been

addressed separately in the directives for a European company (i.e.,
Societas Europaea), the European Cooperative Society, and the CrossBorder Merger Directive, as well as proposals for directives for the
European Private Company and the Cross-Border Transfer of Registered Seat. Information and consultation rights are addressed separately in more than twenty directives on issues such as health and
safety, mass layoffs, and transfer of undertakings. The ETUC has
emphasized the need for a European minimum standard on information, consultation, and participation.25 A working group is being
organized to develop concrete proposals and demands for the implementation of such a standard, possibly through a directive covering all
European company legal forms and cross-border situations.
Although a similar effort has not yet been made by other actors
(e.g., NGOs), an interesting effort entitled the Sustainable Companies
Project is being carried out by academics (mainly from the field of law)
concerned primarily with the environmental (but also social) impact
of shareholder value and the current approach to company law in
Europe and elsewhere.26 A series of public events is being organized
and publications on the subject are planned in the context of this
project.
In addition to the question of which specific alternative should be
pursued, a second question is: How can the necessary political support
for an alternative be generated? The recent consultations on corporate governance (specifically on financial institutions and on a general
framework) and on disclosure of non-financial information by companies demonstrates a deep division between most of the business
community and many of the other respondents (Figure 9.5). For the
most part, businesses are satisfied with the current framework and
are opposed to mandatory measures and a binding framework in this
area. Many of the other respondents are dissatisfied with the current
framework; however, there is a lack of consensus on concrete measures
and on the specific measures necessary to move ahead. To overcome
25
26
ETUC resolution, Strengthening Worker Involvement: Minimum Standards

for Information, Consultation and Participation in Europe, adopted by the
Executive Committee on 28 April 2011.
2012. For a description of the project, its activities, and its
See Sjafjell
publications, see www.jus.uio.no/ifp/english/research/projects/

sustainable-companies.
281
the opposition of business to create a binding framework supporting

a stakeholder approach to corporate governance, the formation of a
broad coalition around a consensus on this model and specific measures are necessary.
Conclusion
The emergence of a neo-liberal EU model of corporate governance in
the past decade is a complex phenomenon. Probably the most crucial
single driving factor is the shift in the pattern of share ownership,
away from long-term insider owners towards dispersed ownership
by minority shareholders. These types of owners have very different interests than insider owners, and they have an extensive agenda
for regulatory changes that they pursue actively through lobbying and
coalition-building. In particular, coalitions with other powerful actors
(i.e., investment banks and large law firms) and with the law-andeconomics school of academics have been important in providing both
resources and the ideas supporting a sea change in the EUs approach
to corporate governance.
The Commissions emphasis on increasing the role of the market
in corporate governance, the explicit expansion of activity from company law to other areas of corporate governance (including the use
of soft-law instruments), and the shift from harmonization to encouraging competition among national regulatory regimes are the main
elements of a neo-liberal approach to corporate governance. The success of this approach is evident in a burst of legislative activity in the
2000s (i.e., eleven company-law directives were passed and a variety of
other measures, such as recommendations, were taken). This success
is attributable to not only material factors (particularly the interests
of many financial and other companies in the new model) but also
ideational factors; the shareholder-value model of the firm witnessed
great acceptance in the fields most relevant to corporate-governance
policy making (i.e., economics and law).
Nevertheless, this neo-liberal approach has not been implemented
to the same extent at the EU level that it has in some countries, particularly the Anglo-Saxon countries. Although trade unions and socialdemocratic parties have become much weaker, at the same time, they
have not totally lost influence in the EU. Furthermore, not all conservative parties have had undivided enthusiasm for the neo-liberal model.
282
Therefore, although relatively weak, protection of worker interests has

been taken into account in the new directives, and options have been
built in to directives to allow member states to protect some features
of their national political economies.
Although dissatisfaction with the neo-liberal paradigm has grown
among the population at large since the financial crisis, the business
community is, for the most part, supportive of the current EU corporate governance regime. The potential for a coalition around an alternative stakeholder model of corporate governance exists. However,
the work on formulating specific demands and a unifying conceptual
approach has only just begun, as has the political work on creating this
coalition. Given the complexity and multiple fields of institutions and
practices that corporate governance encompasses, a shift away from
neo-liberalism cannot be achieved through a single-bullet change in
regulation. As the most prominent example, changing the behaviour
of short-term minority shareholders towards long-term responsible
investment cannot be achieved simply by passing a directive. Thus, the
persistence of a neo-liberal approach to corporate governance can be
explained by multiple factors: the continuing attraction of the shareholder model of the firm, the persistent power of interests supporting
the neo-liberal model, and a lack of consensus and political coalition
around an alternative conceptualization.
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part iii
Neo-liberalism in comparative
perspective
10
The resilience of Anglo-liberalism

in the absence of growth: The UK
and Irish cases
colin hay and nicola j. smith
Introduction
This chapter examines the origins, sustenance, and puncturing of the
growth dynamic enjoyed by the United Kingdom and Ireland since
the early 1990s. Often classified as liberal market economies, these
two economies are particularly well matched for purposes of comparative analysis.1 They share not only a common legacy but also key
structural similarities, such as their high levels of trade openness, their
dependence on foreign direct investment, their membership in the EU
(both since 1973), their flexible labour-market regimes (at least by
European standards), their shared liberal welfare tradition, and of
course their common language.2 Yet, there are also notable differences between the two countries not only in terms of their economic
size and relative influence on the international stage but also their
rather different and distinctive political traditions. For example, from
1987 onwards, Irish macroeconomic policy has been guided by socialpartnership agreements between the government and key social and
economic interests, which have stood in stark contrast to the British
system of free-collective bargaining.3 Given these differences and the
path-dependent nature of political discourse, there might be strong reasons for anticipating divergent ideational and institutional responses
even to common pressures and imperatives. Yet, as discussed in this
chapter, there are striking similarities between the two countries in the
development of political discourse and public policy in response to the
crisis in recent years.
More specifically, the chapter identifies what might be termed an
Anglo-liberal growth model in both the United Kingdom and Ireland.
We use this term primarily as a heuristic device: that is, we do not mean
1
2
See, for example, Hall and Soskice 2001.

3
See Daly and Yeates 2003.
See Hay and Smith 2005.
289
290
Part III: Neo-liberalism in comparative perspective
a unified, deliberate, or even conscious vision held by policy makers

but rather the somewhat more intangible and complex product of a
series of unanticipated consequences of policy choices. Yet, the effects
of the model are no less real for this, for what it ultimately constituted was a consumer boom fuelled by growing private indebtedness
dependent on the nurturing and sustenance of a low-inflationlowinterest-rate equilibrium and this, we argue, was fatally flawed. The
chapter seeks to gauge the ideational and institutional preconditions
of Anglo-liberal growth and the character, paradigmatic significance,
and effectiveness of the interventions made in the attempt to shore
up the UK and Irish economies in crisis. We suggest that it is difficult to see, in the UK case, how sustained economic growth can be
restored in the absence of a completely new growth model and, in the
Irish case, without the cleansing of the long-standing export-oriented
growth model of the Anglo-liberal trappings it has acquired in recent
years.
In so doing, we ask: If the Anglo-liberal growth model is indeed
broken, then why is it that we continue to see the resilience of neoliberal ideas in both the United Kingdom and Ireland? Our answer
lies in the third line of explanation set out in the first chapter of this
volume: that is, in the power of ideas and discourse. Particular discursive configurations cannot be expected to neatly match the material
reality that they purport to represent precisely because policy makers do not have direct access to material reality; rather, reality is
constituted through ideas and discourse. As we discuss herein, it is
through discourses of neo-liberal globalization that British and Irish
policy makers alike have come to view both the broader political
economic context and the specific decision-making alternatives available to them. Globalization, in short, has come to be articulated and
understood as setting clear limits on what is possible in economic,
social, and political terms (e.g., the need to reduce excessive wages
and welfare expenditure). In the wake of the financial crisis, it is not
surprising although it is certainly dismaying that potential solutions have been articulated in terms of these preexisting logics (despite
mounting criticism and contestation). Indeed, as we argue, the crisis
has been understood not as a problem with growth but rather with debt
and, as such, as a problem that only more liberalism can solve. As
such, the crisis to date has proved not paradigm-threatening but rather
paradigm-reinforcing.
The resilience of Anglo-liberalism in the absence of growth
291
The Anglo-liberal growth model: The very idea of it . . .

It is and has undoubtedly proved all too tempting to attribute more
agency than is genuinely warranted to the development of the new
financial, privatized Keynesian, or more simply Anglo-liberal
growth model that has characterized the United Kingdom and albeit
to a lesser extent the Irish and other Anglophone economies since
the early 1990s. In the process, there also is a danger of assuming too
clear and conscious a conception among policy makers of the growth
model that, in effect, they were constructing. We argue that such a
growth model can be detected in each case (albeit in a rather purer
form in the United Kingdom) and that ideas are crucial to explaining
the origins and consequences of Anglo-liberal growth. However, we
do not see policy makers as animated by a vision of the growth model
that they were building. Indeed, in both the United Kingdom and
Ireland, Anglo-liberal growth was certainly stumbled upon serendipitously; in Ireland, it is an altogether more recent creation.4 As is now
widely acknowledged, in both cases it was largely consumer-led and
private-debt-financed although, once established, it was undeniably
supported by high levels of public expenditure. Yet, it was the easy
access to credit much of it secured against a rising property market that was its most basic precondition. This served to broaden
access to and improve affordability within the housing market, driving
a developing house price (and, in Ireland, a construction) bubble. Once
inflated, this was sustained and increasingly nurtured by interest rates
that remained historically low throughout the boom.
In essence, it appeared as if a virtuous cycle in which the preconditions of growth were mutually reinforcing had been established
that is, the Anglo-liberal growth model. Sustained low interest rates
and a highly competitive market for credit provided both the incentive
and the opportunity for first-time buyers to enter a rising market and
for established homeowners to extend themselves financially, by either
moving up the housing ladder or releasing the equity in their property
to fuel consumption. There was little incentive to save; instead, consumers were increasingly encouraged to think of their asset purchases
as investments that they might cash in to fuel their consumption in
retirement, as the state withdrew from pension provision, or in times
4
See Crouch 2009 and Hay 2009.
292
of economic difficulty or unemployment. Crucially, this had a direct

and immediate impact on consumption what has been termed the rise
and demise of privatized or house-price Keynesianism.5 The Keynesian analogy cannot be taken too far but it does highlight the key link
among (private) debt, aggregate demand, and consumption. Whereas
traditional Keynesianism viewed public spending as the key to raising
and generalizing demand, so privatized Keynesianism demands a similar role to be performed by private debt, typically secured against
rising property prices. As long as a low-inflationlow-interest-rate
equilibrium persisted, a virtuous and seemingly self-sustained growth
dynamic was established. The difficulty, however, is that whereas classical Keynesianism is predicated on the existence of the business cycle,
privatized Keynesianism simply assumes that there is no business cycle.
This means, in turn, that (as an implicit paradigm) it neither countenances the need for nor is capable of providing any macroeconomic
stabilizers. Arguably, this is precisely what happened in the heartlands
of Anglo-liberal growth: the United States in 2006 and the United
Kingdom and Ireland in 2007. However, before discussing the details
of that process, it is important to reflect on the implications particularly for ideational approaches to institutional analysis of the
proceeding observations and, in particular, the status of the concept
of model in our argument.
As previously suggested, there is a certain danger in the use of the
term growth model that a rather more conscious conception in the
minds of policy makers in effect, a vision is implied than was,
in fact, ever the case. This is not our argument. Indeed, although we
think that the term has considerable value in institutionalist political
economy, we think that value is largely heuristic. In effect, we are
suggesting that had, for example, UK policy makers held in their minds
a conscious conception of the sources of growth functioning within the
political economy, it may well have taken this form. We do not imply
that from the outset they held such a view; neither perhaps more
significantly do we imply that Anglo-liberal growth (for as long as it
lasted) was the product of (and may therefore be explained in terms of)
the positing by political elites and their advisers and the subsequent
5
Smith, and Watson 2009; and Watson

See Crouch 2009; Hay, Riihelainen,
2010.
293
attempt to instantiate and institutionalize a concerted programme,

plan, or vision that is, a conscious model.
Coming from ostensibly constructivist institutionalists (such as ourselves), this might be seen as something of a theoretical concession
for does it not imply a more limited explanatory role for ideas than is
typically associated with such a position? We suggest not. It does, however, suggest a rather more complex process of causation although
one in which ideas still feature prominently than is often assumed
to be posited by ideational analysts and constructivist institutionalists. Typically, constructivists point to (and are seen to point to) the
importance of paradigm shifts and other moments of ideational innovation as path-shaping phases of institutional change with a conscious and often highly politicized and contested change in ideas that
heralds, in effect, a more incremental process of institutional change.
However, this is by no means the only way in which ideas influence
institutional evolution and economic performance. No less constructivist, we would contend, is to see the emergence of Anglo-liberal
growth (and, indeed, its retrospective recognition by policy makers
as a model) as the product of a series of unanticipated consequences
of policy choices made consciously but principally for other reasons.
The constructivist part is to emphasize the ideas that actors held at
the time they made such choices and to perceive such ideas as causally
significant for the choices they made. In other words, our explanation
for the emergence of Anglo-liberal growth as a model (in our terms) in
the United Kingdom and as an element of a model in Ireland is a constructivist one but one that does not entail policy makers in Ireland
or the United Kingdom setting out to build an Anglo-liberal growth
model.
Stated in such terms, it becomes clear that the origins of Angloliberal growth in the United Kingdom and Ireland are profoundly neoliberal in character. For the ideas informing the key policy choices
that led inadvertently and unintentionally yet inexorably to a
growth dynamic sustained by escalating consumer credit were all
deeply market-conforming. Consider, for instance, the United Kingdom. As discussed previously, the key decisions were those relating
to the austere and fiscally conservative spending plans of the incoming New Labour administration in 1997, its orthodox neo-monetarist
decision to cede operational independence to the Bank of England to
294
set interest rates (as well as the remit it gave to the Banks Monetary
Policy Committee), and prior even to that the decision to liberalize
UK financial markets in the 1980s. In ideational terms, what all of these
decisions share is a profound confidence in the superiority all things
being equal of private, market, or quasi-market mechanisms over
collective, public, or state action or intervention. In other words, they
are all neo-liberal. In this respect, the Anglo-liberal growth model is
irredeemably neo-liberal although it is by no means the only growth
model that a neo-liberal disposition might countenance.
However, there is a further complexity here in effect, a form of
ideational feedback. The Anglo-liberal growth model may not ever
have been consciously designed there is no evidence in either case that
it was; indeed, there is ample evidence that it was not. However, this did
not prevent it from becoming, in time, part of the self-understanding
of political elites of the economy that they were responsible for governing. The UK case is again very interesting. From about 2000 and
particularly in the 2001 budget, there is clear evidence that UK policy
makers notably in the Treasury were consciously aware of the role
played by private debt secured against rising property (and other assetclass) prices in the growth dynamic of the economy. The conscious,
planned, and strategic turn to a programme of asset-based welfare
and the rationale offered for it demonstrate a clear understanding of the
Anglo-liberal growth model (if not, alas, its fragility) in terms similar
to those we present in this chapter. Similarly, that the Bank of England from 2006 onwards chose, in effect, to ignore its anti-inflationary
mandate in its anxiety to sustain house-price inflation (at the expense
of consumer-price inflation) is a clear indication of its awareness at
least at this stage of the centrality of the housing market to growth in
the UK economy.6 As this suggests, although the Anglo-liberal growth
model was never consciously planned, since 2000 or 2001 (at least in
the United Kingdom), it has been consciously sustained in the face
of its own inherent fragility.
Resilient liberalism in the United Kingdom and Ireland

This, of course, begs the question: How is it that liberal ideas have
remained so resilient in the wake of the crisis? An important issue
6
See Hay 2009.
295
here is what can be understood by the term crisis. Does crisis refer
only to a material fact an economic and exogenous reality that
policy makers respond to politically, or can crisis be understood as
a discursive construction through which certain political projects are
forged? Stated another way, is it that we should treat discourse (liberal ideas) and material reality (the crisis) as separable variables (such
that we may use one to explain the other?), or can we instead see discourse as constitutive of material reality? In other words, are liberal
ideas separable from the crisis (i.e., to explain or be explained by it),
or are liberal ideas internal to the crisis itself, a part of the way in
which the crisis becomes articulated and understood indeed, a language through which crisis becomes recognized as such? We argue
that liberal ideas are resilient despite the crisis because it is precisely
through liberal ideas that the crisis has been constructed politically.
This is why the crisis has proved to be not paradigm-challenging but
rather paradigm-reinforcing, for it has been constituted politically in
both Ireland and the United Kingdom as a crisis of debt rather than
as a crisis of growth. The response to a crisis of debt is, of course,
austerity and deficit reduction. From an ideational perspective, this
should not be surprising paradigm shifts are rare and, in order for
one to arise, there must be a credible alternative paradigm on offer.
There is, in effect, a problem of ideational under-supply here; the old
(neo-liberal) paradigm must be more seriously discredited before any
genuine alternative (even the reversion to an earlier Keynesianism) is
considered credible. The historical parallels suggest that when such
paradigm shifts arise, they often take at least a decade to occur. To
explore this discursive continuity further, it is useful to consider the
historical context of the current Anglo-liberal paradigm in both countries.
Constructing Anglo-liberalism
In the United Kingdom, the ascendancy of neo-liberalism in the
late 1970s and 1980s was predicated on the success of the New
Right in mobilizing widespread perceptions of a crisis of overload
and ungovernability.7 This paved the way for a neo-liberal offensive
See Hay 2004.
296
informed, to varying degrees, by monetarism and supply-side economics. With the mid to late 1970s constructed as a period of persistent
and increasingly acknowledged state and economic failure, the success
of Thatcherism lay in its ability to construct the moment of the 1970s
as a moment of crisis. This was achieved by selectively narrating the
symptoms of state and economic failure into a coherent and simple
discourse of crisis. The crisis of the 1970s as constructed, and lived,
in Thatcherisms terms was a crisis of ungovernability and overload,
a crisis of an overextended state. Yet, the Thatcherite state project
was not so much a response to the actual contradictions and failures
of the British variant of the Keynesian welfare state as a response to
the opportunistic and simplistic construction placed on such failures
by the New Right. Consecutive Thatcherite governments consistently
failed to address the enduring structural weakness of the British economy while stripping the state of the strategic capacity for economic
intervention.8
Yet, despite such contradictions in the Thatcherite project, the 1980s
and early 1990s also witnessed a profound ideological transformation
in the British Labour Party, which came to accept and, under Tony
Blairs leadership, actively to promote the terms of a postThatcher
yet nonetheless Thatcherite settlement.9 This was also forged through
a narrative of crisis the crisis of the Old Left in order to establish
the need for the modernization of the party to legitimate the content
of the ensuing process. As we argue in detail elsewhere, central to
this new paradigm was globalization as a (discursive) logic of external
economic compulsion.10 New Labours political economy, in opposition and then in government, was consistently situated with respect to
globalization as a pragmatic response to the constraints it imposes.
Globalization, then, became a (rare) unifying theme of New Labours
discourse. The non-negotiable character of this external imperative
was effectively summoned to establish the need for modernization. In
office, it was deployed to similar effect with respect to a range of British
institutions and to establish the necessity of a wholesale rejuvenation of
the European social model. Indeed, a key theme of this discourse was
the notion that globalization exposes all institutions, from the local to
the EU level, to an exacting competitive audit. Consequently, globalization was invariably presented as the context with respect to which
8
See Hay 2004.
See Hay 1999.
10
297
the success of a succession of modernization initiatives, at various levels, should be adjudicated. Thus, neo-liberal economics were, in effect,
normalized and necessitated by New Labour, for an ongoing agenda
of neo-liberal reform was articulated as a condition of sustained economic growth and competitiveness in an economically interdependent
world.
The Irish case is subtly different because stark liberalism has never
characterized Irish policy discourse, even during the 1980s.11 Indeed,
the abandonment of indicative economic planning notwithstanding,12
Irish public policy remained explicitly informed by Keynesian ideas
into the late 1970s and early 1980s. Both in government and in opposition, Fianna Fail
had explicitly rejected the monetarist agenda adopted
by the Fine Gael coalition (and, indeed, the British government) at
this time. As Charles Haughey argued to the Dail
in 1981: Monetarism takes no account of the social degradation, of the waste of
human talent and potential, of the hardship and misery that unemployment involves. On the contrary . . . monetarism uses unemployment as a weapon of economic management.13 This commitment to
Keynesian ideas which had characterized Irish public policy since
the late 1950s was not to last, however. Rather, the 1980s represented a period of ideational shift. The political climate witnessed
something of a transformation in 19811982, as worries about unemployment gave way to alarm about the rate of public borrowing.14
Yet, there was little in the way of a consensus between the two main
parties, Fianna Fail
and Fine Gael, about how to tackle this concern.15
Although both emphasized budgetary targets, little progress was made
in reducing the current budget deficit.16 Yet, some new thinking had
been occurring behind the scenes. The role of the National Economic
and Social Council (NESC) is identified as particularly significant.17 In
its 1986 report, A Strategy for Development, the NESC identified the
11
12
13
15
16
17
See Smith 2005.

Irish policy makers had experimented with economic planning since the
adoption of the Programme for Economic Expansion in 1958, which aimed to
re-define the objectives of economic policy in the light of present-day and
probable future conditions (Government of Ireland 1958: 78).
14
See Haughey 1981.
See OConner 2002: 164.
See Mac Sharry and White 2000.
See Kennedy, Giblin, and McHugh 1988.
See, for instance, Mac Sharry and White 2000, ODonnell 1999, Sweeney
1999, and Taylor 2005.
298
national debt as the central policy issue but also pointed to the need
to create a broad-based consensus in order to address it.18 This report
provided both the momentum and the theoretical foundations for a
return to macroeconomic bargaining.19 After the collapse of the Fine
Gael/Labour coalition in 1987, Fianna Fail
secured a minority government under Charles Haughey, who articulated the need for consensus
in terms of a narrative of crisis. As he told the Dail
in 1986: The
present crisis is . . . comprehensive and total. It is felt everywhere. It
permeates every sector of our national life.20 The embedding of this
discursive project into a political programme that is, the negotiation of social partnership leading to the Programme for National
Recovery marked both the beginning of the end of crisis in Ireland
and the start of a new era of Irish politics.21
It is within this context that ideas about competitiveness (and, with
them, a set of submerged neo-liberal premises about the efficiency
of deregulated labour markets and the attractiveness of tax havens)
increasingly came to the fore in Ireland.22 In A Strategy for Development, the NESC identified the fundamental problem with Irelands
economy to be the low level of national output.23 Only by achieving
economic growth, it was argued, could Ireland address its high unemployment levels. Crucially, the NESC emphasized the need to enhance
Irelands international competitiveness in order to achieve economic
growth. As the report stated: It is the internationally traded sectors,
embracing enterprises which compete on overseas markets and those
which compete with imports on the home market, which comprise
the locomotive of growth.24 This emphasis on competitiveness was
embraced in all subsequent social-partnership agreements. In a vein
similar to New Labour, this did not entail a normative commitment to
neo-liberal ideology indeed, Irish policy makers would frequently and
explicitly reject this and yet neo-liberal economics became, in effect,
normalized and necessitated in Irish public-policy discourse. Although
a need for social justice was explicitly and consistently articulated, this
was ultimately presented as contingent on and subordinate to competitiveness. Competitiveness was the more urgent priority and, indeed,
the means to the end of social justice a precondition for the pursuit of
18
20
22
23
19
See NESC 1986.
See ODonnell and Thomas 2002.
21
See Haughey 1986a: 1162.
See Taylor 2005.
On neo-liberal premises in competitiveness discourse, see Hay 2012.
24
See NESC 1986.
See NESC 1986: 147.
299
all other economic and social goals.25 As we argue elsewhere, this elevation of competitiveness as the principal objective of economic policy,
to which all else must be rendered accountable, was intimately associated with the appeal to the external economic imperatives unleashed by
globalization.26 During the height of the Celtic Tiger in the 1990s
and, indeed, once economic growth began to lessen globalization was
consistently articulated as an intransigent force that must be harnessed
to fulfill Irelands full potential. For instance, as Bertie Ahern argued
at an international conference in 2007: The profile we now enjoy in
this globalisation era is a dynamic, prosperous and high-participation
economy . . . Competition for foreign direct investment is relentless and
global . . . while we have come a long way and are proud of what we
have achieved, we have no plans for resting on our laurels any time
soon.27
The re-nationalization of Keynesianism: A paradigm shift?

And then it all went wrong. In the United Kingdom, as the crisis began
to unfold and with Gordon Brown now at the helm there appeared
to be signs of a putative paradigm shift. Indeed, it is striking how it
became credible, for a while, to pose the question of whether the public
rescue of the banking sector heralded the return to an era of Keynesian economics.28 Although this proved short-lived, the brief return
to the language of Keynesianism is nonetheless interesting.29 What it
represented was, in effect, a form of inter-paradigm borrowing. In
certain respects, it was reminiscent of UK economic policy making in
the mid to late 1970s. As the Labour Government of Jim Callaghan
sought to deploy monetarist techniques in an attempt to shore up the
prevailing Keynesian growth model in the mid 1970s, so that of Gordon Brown sought to make use of a quasi-Keynesian (as distinct from
more classically Keynesian) repertoire of techniques in the attempt to
shore up the existing growth model. However, this is the key point
both episodes of inter-paradigm borrowing were characterized by the
attempt to stabilize the existing model and its attendant paradigm. As
such, they ultimately both remained internal to the paradigm; neither,
25
27
29
26
See Government of Ireland 1997.
28
See Ahern 2007.
See, for instance, King 2009 and 2010.
Although, for instance, see Marsh 2009.
300
as is now clear, heralded an imminent paradigm shift. This was, in

effect, foul-weather Keynesianism that is, a dipping into the Keynesian repertoire of techniques in recession, only for such techniques to
be abandoned if, as, and when growth returned to the UK economy.
Indeed, the tragic irony is that in their perhaps understandable desire
to signal to the markets a clear intention to restore balance to the
public accounts, such techniques were abandoned in favour of public austerity and deficit reduction long before any recovery was firmly
established.
In Ireland, too, the initial response of the Fianna Failled
government
was to deploy Keynesian techniques, with budgetary targets for 2008

including spending increases of more than 1.7 billion (with nearly
960 million for welfare supports), and the 2009 budget similarly
entailing a special welfare package of 515 million, which contributed
to a general government deficit of just over 12 billion.30 However, as
in the United Kingdom, this experiment in foul-weather Keynesianism
was not to last. In April 2009 with the Republics budget deficit
now the worst in Europe31 the government dramatically unveiled
an emergency budget in order to raise 1.8 billion from increased
taxation and to save 1.5 billion from spending cuts.32 Subsequent
budgets continued on this path, including a four-year plan of tax hikes
and spending cuts announced in December 2010.33
Crucially, these measures saw Fianna Fail
preside over the collapse
of social partnership. In September 2008, in the wake of the crisis,
the social partners signed a Transitional Agreement as a means to
provide certainty and stability during a period of great change and
difficulty.34 However, this soon broke down, with an albeit aborted
strike called by the Irish Congress of Trade Unions (ICTU) for March
2009 on grounds that employers and the government were not adhering to the National Wage Agreement. By December 2009, the General
Secretary, David Begg, had declared social partnership to be dead and
buried35 and, although the government subsequently agreed to freeze
pay cuts, Budget 2011 was condemned by the ICTU as utterly lacking
in any sense of the common good and as an assault on the weakest.36
30
31
32
34
36
See Cowen 2007 and Lenihan 2008, respectively.

See BBC News At One, 7 April 2009.
33
See Times Online, 30 September 2008.
See Lenihan 2010.
35
See Cowen 2008.
See Irish Times, 7 December 2009.
See Irish Congress of Trade Unions 2010.
301
Such developments took place against a backdrop of mounting criticism of and opposition to the government on a variety of fronts,
including massive public outcry over the welfare and wage cuts and
serious breakdowns in party discipline.37 Although it is no surprise
that the cuts proved enormously unpopular, the government undoubtedly compounded matters by failing to offer a convincing narrative of
the crisis and a clear attribution of responsibility. For, despite Fianna
Fails
claims to have taken bold, decisive and innovative steps to man
age our way through the crisis, it sought to consolidate, rather than
challenge, the existing model and the paradigm underpinning it.38 The
Celtic Tiger had been constructed in terms of Irelands ability to compete under conditions of neo-liberal globalization, and the response
to the crisis was in and through this lens. As Taioseach Brian Cowen
argued in May 2010: The lesson we need to take from [the recession]
is that we are in a competitive global marketplace and soft option solutions are not going to provide the basis for sustainable growth and the
improvement of living standards.39 As such, the crisis and the response
to it were couched in terms of the preexisting growth model the very
growth model over which Fianna Fail
had presided. As the ICTU rather
aptly stated in its document, Shifting the Burden: Why the Government Wants to Load the Cost of the Collapse onto the Less Well Off
and Why Their Plan Will Just Make Things Worse: Like disciplines
of a dead faith, they cling grimly to the wreckage instead of starting
over with a new vision.40
Re-inflating the bubble

This brings the discussion to the political implications of the bubble
burst and ensuing recession. In the United Kingdom, the Labour Party
government had a rather better recession than might have been anticipated, but having failed to restore stable growth by the time of the
election this did not prevent it from being replaced in office by those
who claimed to be able to do better. This, too, became the fate of
the Irish government in February 2011, when Fianna Fail
suffered the
worst defeat of any incumbent in the history of the Irish state.41 As
37
39
41
38
See, for instance, Irish Times, 27 March 2010.
See Fianna Fail
2010.
40
See Cowen 2010.
See Irish Congress of Trade Unions 2009.
See Reuters, 26 February 2011.
302
discussed herein, it is no easy task for either government to deal with

the economic situation bequeathed to it but, arguably, it is not made
any easier by the ideas that animate economic thinking today in either
the Conservative Party or Fine Gael.
Camerons Conservatives and their Liberal Democrat coalition partners are neither carriers of an alternative economic policy-making
paradigm nor do they offer an alternative growth model. They do not
differ from their Labour Party counterparts in either respect; nevertheless, there are significant differences in emphasis between the parties
on economic policy. First, although they have not explicitly denied that
they would have engaged in the same public underwriting of the banking sector, the Conservatives have been consistently queasier about
the Keynesian connotations of such deficit financing: the active role
for the state as financial guarantor of last resort that was implied and
the consequent ratcheting up of public debt. Their natural inclination, it would seem, remains to invoke a moral-hazard objection to
the bailing out of private institutions. The Conservatives refer to the
recession as a crisis, but they do so in a particular way. For them, it
is a debt crisis Labours debt crisis and that, of course, implies
that the solution to the crisis is to restore balance to public finances.42
This does not place them significantly at odds with the previous government; however, it is certainly a rather different emphasis. Yet, it
is by no means the only or perhaps the most significant difference
between the parties. It is surprising, perhaps, that the Conservatives
have been far more sanguine about the degree to which the United
Kingdoms growth model is broken. The economic chapter from their
2010 manifesto opened with a stark question: Where is the growth
to come from? That was precisely the right question but, three years
on, the answer remains elusive. For Labour, it seems, any return to
growth rested on resuscitating the old growth model, whereas for the
Conservatives, it was very clear that this would not suffice. As their
manifesto went on to state:
[W]e cannot go on with the old [growth] model . . . built on debt. An irresponsible public spending boom, an overblown banking sector and unsustainable consumer borrowing on the back of a housing bubble were the
features of an age of irresponsibility that left Britain so exposed to this
42
See Cameron 2010 and Conservative Party 2010.
303
economic crisis. They cannot be the source of sustainable growth for the
future.43
At some level, this was almost certainly correct, but there was and
remains more than three years on no clear sense of what is to
be done. It is clear that the United Kingdom must make the transition to a new growth model based on saving rather than borrowing,
investment rather than consumption, a balance-of-trade surplus rather
than the existing deficit, and a reduced role for financial services. Yet,
how this is to be achieved remains unspecified. There is, in effect,
an open disavowal of Anglo-liberal capitalism in favour of something
more closely resembling Modell Deutschland.44 Restated in such terms,
the stark disparity between the extent of the transformation implied
and the policy instruments required to achieve it (i.e., almost exclusively tax incentives) is cruelly exposed. The problem, in the end, is
simple: the Conservatives and their coalition partners disavowed, then
as now, the type of intervention (and, indeed, public investment) necessary to secure any such transformation.
The same might be said for Ireland. Both in opposition and in government with the Labour Party, Fine Gael has sought to use the crisis
as a means to distance itself as much as possible from Fianna Fail
an
obvious step to take, perhaps, but it is something that Fine Gael has
struggled to achieve throughout the history of the Irish party system.45
Certainly, Fine Gael has lost few opportunities to criticize Fianna Fails
approach to the crisis: as Enda Kenny stated it in his Nomination of

Government speech: [W]e will make sure that what was done will
most certainly not be done again.46 What Fine Gael has, on the whole,
failed to do, however, is to question either Fianna Fails
approach to
growth or, indeed, the foundations of the Celtic Tiger itself. Of course,
this is perhaps unremarkable, given that Fine Gael was in power during
the early years of the economic boom (i.e., 1994 to 1997). However,
despite its claims to be the bearers of genuine change, Fine Gael continues to offer precious little in the way of an alternative economic
paradigm. To the contrary: the solution for recovery, it seems, is more
of the same: that is, further adaptation to the forces of neo-liberal
43
44
45
See Conservative Party 2010: 3.

A model whose own imminent demise, of course, was famously pronounced
more than a decade ago (see, especially, Streeck 1997).
46
See Smith 2005.
See Kenny 2011c.
304
globalization aligned to deficit reduction. Most tellingly and despite

enormous pressure from the EU to do otherwise Fine Gael remains
unequivocably committed to the 12.5 per cent rate of corporation
tax.47 An irony here is that as a number of commentators have
noted Irelands low rate of corporation tax is not, in fact, the critical
concern for foreign investors; rather, it is education.48 It need hardly
be noted that the governments continued commitment to the former
is at the direct expense of the latter.
Conclusion
In conclusion, it is important to return to the issue with which we
began the viability, sustainability, and long-term stability of the liberal market economies. Although the term is as we endeavour to
demonstrate something of a misnomer (in that the crisis we have
experienced, although it has ultimately proved globally contagious,
had more endogenously Anglo-liberal origins), the global financial
crisis invites and requires a thorough reappraisal of the institutional
durability of the liberal market economic order. The analysis developed
herein suggests that contrary to the pervasive varieties of capitalism
perspective, comparative advantages are not institutionally given.49
Rather, they are better seen as the product of the dynamic and politically contingent interaction between the specific institutional configurations that characterize a political economic regime (e.g., a variety of
capitalism), on the one hand, and the growth model or models with
which it is aligned, on the other hand.
Such interactions, as the preceding analysis demonstrates, are rather
more fluid, dynamic, and potentially volatile than was previously
assumed. Moreover, it is credible, we suggest, to think that the
same basic institutional architecture (such as would be seen conventionally to define a variety of capitalism) might be aligned with a
great variety of different and potentially incompatible growth models. Growth models, in other words, may vary among cases of
a common variety of capitalism with the stability of the case
in question relating less to the variety to which it belongs (and
the institutional complementarities that underpin it) than to the
47
48
See Kenny 2011a.

See Kirby 2010a and Smith 2005.
49
305
interaction between its institutional configuration and the growth

model to which it is aligned. If this is true, then there yet may well
be hope for Europes liberal market economies for the exhaustion
of the Anglo-liberal growth model on which they have both drawn
need not necessarily entail the demise of their liberal-market economic
order.
That said, our consideration of the Irish and UK cases generates
rather different expectations for these liberal market economies in
the years ahead. Despite superficial impressions to the contrary and
the seemingly prevailing economic orthodoxy, the prospects for the
United Kingdom, we suggest, are decidedly bleaker than they are for
Ireland. The United Kingdom developed perhaps a purer form of the
Anglo-liberal growth model than any other liberal market economy
(the United States included). Consequently, the extent of the transition required to place it on a new growth trajectory is all the more
considerable. The United Kingdom has, in effect, lost all of its growth
model as, in their different ways, all the principal parties now accept.
However, it has not found an alternative, and the transition to an
alternative if, as, and when one can be identified is unlikely to
prove to be a rapid or painless process. Although there is, then, something of a cross-party consensus on the need for a manufacturing-led
rebalancing of the economy, the impediments to this are considerable: a long-standing balance of trade deficit, persistently low levels of
investment in human and physical capital, and the punitive commercial
lending spreads that have opened up as banks sought to recapitalize
(crowding out the investment in additional capacity that might sustain
such a rebalancing).
In each of these respects, the prospects for the Irish case are more
optimistic. Crucially, the Anglo-liberal component of Irish growth
was never as high as in the United Kingdom with an ultimately
unsustainable housing, consumer, and construction bubble at least
inflated on the back of a more robust, deep-seated, and sustainable
manufacturing-led export-growth strategy. Moreover, Ireland enjoys
a sizeable balance-of-trade surplus, high levels of inward foreign direct
investment, and persistently high levels of investment in human and
physical capital. This makes the task of restoring a stable growth
dynamic to the Irish economy in the years ahead somewhat less onerous. Nevertheless, the basic challenges are, in effect, very similar: (1)
to re-secure a steady supply of credit from the banking sector, and
306
(2) to steer such credit lines away from the housing market and the
consumer economy towards those export-oriented sectors of the economy targeted to form the basis of a pared-down growth model. This
involves cleansing the existing hybrid growth dynamic of its Angloliberal elements rather than devising and managing the transition to
an entirely new growth model. What makes this a more difficult task
is that it entails a more regulatory, developmental, and coordinating
role for the Irish state. This, of course, will be no easy task particularly in light of the constraints posed by membership of the Eurozone.
However, this suggests a seemingly perverse conclusion. For Ireland, at
least, the solution to the demise of Anglo-liberal growth may well be to
supplant Anglo-liberalism in favour of a more coordinated approach
to export-led economic growth. In other words, now may very well be
a good time for Ireland to reposition itself as a coordinated market
economy. That would indeed entail a paradigm shift.
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11
Germany and Sweden in the

crisis: Re-coordination or
resilient liberalism?
gerhard schnyder and
gregory jackson
Introduction
Within the literature on comparative capitalisms, Germany and Sweden are often perceived as paradigmatic cases of coordinated market economies, in which economic success has rested on non-market
forms of organization.1 At the same time, coordination in the two
countries is achieved in different ways through the Bismarkian or
Nordic welfare-state traditions and the differential importance of sector versus national-level industrial relations. Likewise, both countries have undergone substantial liberalization in recent decades,
reflecting attempts to open markets and transform the role of the
state away from intervention and towards a neutral regulator of
markets.
Neo-liberal ideas and discourse have had a role in these transformations in both countries despite the fact that both could be considered
as least-likely cases for liberalization due to strong non-liberal institutions. In Sweden, neo-liberal ideas have obtained a surprising level
of dominance in public debates;2 similarly, German policy makers
have promoted the virtues of more liberal capital markets and emphasis on shareholder value.3 However, the recent financial crisis could
be expected to shatter the relative strength of neo-liberal ideas and
discourses, prompting a return to non-liberal forms of economic policy. This chapter argues that such a return to non-liberalism has not
taken place so far. Rather, neo-liberal ideas and discourse demonstrate
a surprising resilience in the face of real-world problems that could
be understood to seriously challenge neo-liberal theories about the
1
3

See Jackson 2003.
See Blyth 2002 and Ryner 2004.
313
314
role of the state in the economy and the superiority of markets as a

social-ordering principle.
In this chapter, we demonstrate that liberalization has worked by
simultaneously adopting market-creating reforms as well as embedding
them within wider political compromises within which key groups
seek to preserve or adapt market-taming institutions. In this way, the
specific patterns of liberalization in both Sweden and Germany reflect
the similarities and differences in their nationally specific forms of
corporatism. The resilience of liberalism can be explained, perhaps
ironically, by the political consensus around the selective nature of
liberalization itself.
More precisely, we show that three factors help to explain the
continuity of neo-liberalism after the crisis. First, the two countries
recently experienced relatively successful macroeconomic performance, increasing the legitimacy of the neo-liberal reform path.
Second, despite the salience of neo-liberal ideas and policies, recent
reforms cannot be seen as purely neo-liberal policies. Rather, German and Swedish reforms typically mix neo-liberal measures with
measures following the traditional institutional logic in each country
that is, they are characterized by corporatist arrangements and/or
state intervention. Third, most policies were formulated and/or
implemented using corporatist policy-making channels. Neo-liberal
policies were often negotiated among the social partners and reflected
compromises among them; in many cases, they were supported by
both right- and left-wing parties. This further increased the legitimacy
of neo-liberal ideas but also made it more difficult for the main
political forces in both countries to distance themselves from these
policies during the crisis. The longer-term influence of neo-liberalism
on institutional change can explain why such ideas have become
deeply embedded in both countries and therefore are difficult to
change.
We begin by examining the immediate reactions to the crisis in the
two countries in order to assess whether post-crisis policy measures
can be interpreted as a return to more traditional non-liberal ideas
or whether we observe to the contrary a continuing reliance on
neo-liberally inspired discourse, ideas, and policies. Then, before concluding, we turn to the Swedish and German cases, respectively, and
analyse the ideational foundations of support and opposition to liberalization by different actors.
Germany and Sweden in the crisis
315
The resilience of neo-liberal ideas in Germany and Sweden

The global financial crisis originated in 2007, beginning in the United
States and spreading to Europe. Many observers see this biggest
crisis since the 1930s as the culmination of a new type of financialized
capitalism emerging in recent decades.4 The liberalization of financial markets and resulting global financial crisis reflect a wider movement of intellectual, bureaucratic, and political discourses towards
neo-liberalism in recent decades.5 It therefore has been argued that
the crisis may sound the death knell for neo-liberal ideas, whereby
free markets are self-correcting forces for efficient outcomes. In fact,
neo-liberalism has experienced a surprising non-death because governments are so strongly entwined within the neo-liberal project and
support the vested interests of the financial sector within it.6 This section examines the reactions to the crisis in Germany and Sweden in
order to assess whether there was, indeed, a break with neo-liberally
inspired policies.
The global economic slowdown was quickly felt in Germany and
Sweden. Sweden reported negative GDP growth of 0.61 per cent
for 2008, whereas Germany grew slightly (+0.99 per cent). In 2009,
the two countries economies shrunk by 5.33 and 4.79 per cent
in Sweden and Germany, respectively both worse than the OECD
average of 3.41 per cent. Although only Germany had to bail out
several banks, both countries adopted stimulus packages to alleviate
the impact of the global downturn. These packages were large by
OECD standards (i.e., 2.8 per cent of GDP in Sweden and 3 per cent
of GDP in Germany, compared with a 2.5 per cent OECD average).
The composition of the packages reveals interesting differences in
the two countries economic-policy priorities. In Sweden, a larger proportion of the stimulus package involved investment in the information
and communications technology (ICT) sector through spending on science, research and development (R&D), and innovation (i.e., 0.29 per
cent of GDP compared to 0.1 per cent in Germany). Swedens stimulus package also contained measures to make venture capital available
to small- and medium-sized enterprises (SMEs) and to alleviate cashflow problems through tax breaks. No similar measures were adopted
in Germany.7 Germanys stimulus package was directed more towards
4
6
See Krippner 2011.

See Crouch 2011.
5
7
See Turner 2009 and Mudge 2008.

See OECD 2009.
316
infrastructure investment and education: 0.5 per cent of GDP in infrastructure, which compares to 0.27 per cent in Sweden, and 0.6 per cent
of GDP in education, which compares to 0.016 per cent in Sweden.
In addition to economic stimulus, different policy measures were
adopted in other areas. Sweden pursued income-tax reductions and
increased central-government grants to local governments. Also, the
Swedish government reversed some of the extensive changes made
to the unemployment insurance (UI) system in 2007. Indeed, the
2007 reform had increased UI contributions by a factor of three for
some employees, leading to large numbers exiting the UI system (i.e.,
as many as 500,000 between 2007 and 2008).8 Moreover, following a clearly neo-liberally inspired work-first principle, the centreright governments reform had strongly limited the eligibility criteria,
reduced the coverage rate to 70 per cent of the last salary after two
hundred days, and shortened the coverage period to a maximum of
three hundred days. In reaction to the crisis, some of these reforms
were attenuated in 2009 to alleviate pressure on the unemployed. For
example, certain rules were abandoned, including the length of time a
person had to work before being eligible for unemployment benefits.9
German policies, by contrast, focused more strongly on maintaining
employment. Germanys unemployment rate increased by only 0.7 per
cent (i.e., from 7.1 per cent in 2008 to 7.8 per cent in 2009), compared
to an OECD average of 3 per cent, and it fell to 5.5 per cent in 2012.10
Although the strength and rapid recovery of German exports can help
to explain this result, the positive development of the labour market
must also be explained by measures adopted to favour the retention of
labour by companies, such as subsidies for working on a short-term
contract. The number of employees in short-term arrangements was
approximately 100,000 in 2008 but increased to 1,144,000 in 2009,
before gradually shrinking to approximately 502,000 in 2010 and
147,000 in 2011.11 Company surveys from 2009 reveal that 42 per
cent of firms adjusted employment through hiring freezes, 31 per
cent reduced working time, and 24 per cent used short-term work.
Along with other measures, only 13 per cent of firms reduced their
8
10
11
9
See Anxo 2011: 462.
See Anxo 2011.
See Eurostat, available at http://epp.eurostat.ec.europa.eu/statistics explained/
index.php/Impact of the economic crisis on unemployment, accessed on
23 September 2012.
Available at http://de.statista.com/statistik/daten/studie/2603/umfrage/
entwicklung-des-bestands-an-kurzarbeitern, accessed on 23 September 2012.
317
core employment levels.12 Unlike the extensive use of early-retirement

schemes during German unification, adjustment during the crisis took
place largely by adjustment of working hours and use of labour on
atypical employment contracts.13
Sweden aimed its policies less towards maintaining employment levels through public support or subsidies, and weekly working times
remained relatively stable.14 The Swedish government supported different supply-side active labour-market policies (ALMP) (e.g., matching measures and work experience opportunities) but did not seek to
directly support greater job stability. The social partners were left to
negotiate employment adjustment at the firm level. The social partners
extensively used Job Security Councils to supplement the role of the
public employment agencies and to help redundant workers quickly
find new work.15
The two countries policy responses reflect longer-term institutional
legacies. German employers were able to cooperate with works councils to retain their highly skilled labour force and maintain productive
capacities with short-term public support, while also taking advantage of the last decade of liberalization of atypical employment to
adjust their buffer of part-time and temporary employees. Sweden
focused on negotiated external numerical flexibility combined with
corporatist negotiations and ALMPs aimed at helping people quickly
find new jobs.16 The use of Job Security Councils, for instance, indicates that elements of the traditional corporatist Swedish model, based
on bipartite negotiations rather than state intervention, are still very
much alive. Indeed, Swedens postwar model until the 1970s relied
on rather liquid labour markets in which industrial restructuring was
actively favoured by both employers and employees and facilitated
by the state through measures that provided workers who lost their
job with generous support.17 During the 1970s, relatively strong jobprotection reforms were introduced under the first Palme government,
which made layoffs more difficult. The neo-liberal orientation of policies in recent years has led to a return to rather more liquid labour
12
13
15
17
Available at http://de.statista.com/statistik/daten/studie/72808/umfrage/
massnahmen-von-unternehmen-in-der-wirtschaftskrise, accessed on 23
September 2012.
14
See also www.oecd.org/germany/44855721.pdf.
See Anxo 2011.
16
See Anxo 2011: 453.
See Anxo 2011.
See, for example, Pontusson 1992.
318
markets, although the legislation of the 1970s has not (yet) been formally amended.18
Also, tellingly, contrary to previous phases of low growth,
the Swedish government did not react to the strong increase in
unemployment by creating public-sector jobs. On the contrary,
Swedish public-sector employment further decreased during the crisis and reveals the emergence of a more liberal approach and departure from the past social-democratic model of using public-sector
job creation for achieving the goal of full employment.19 Similarly,
Germany broke with its past Christian Democrat model of labourmarket adjustment based on externalization, whereby publicly funded
early-retirement schemes were heavily used to protect core employees.
Although the state continues to have an important role in adjustment
policies through short-term work, post-crisis policies reflect a more liberal focus on pursuing higher levels of employment and flexibility for
firms on the basis of extensive deregulation of atypical employment,
wage restraint, and growing wage inequality. Whereas post-crisis commentators praised the pragmatic interventions of the government, the
dominant discourse recast the crisis as a re-normalization of market
forces, portrayed government intervention as antithetical to freedom,
and even increasingly refocused blame on rising public debt.20 Similarly, critics of the neo-liberal strands of the German economics profession became more vocal but have yet to widely influence change
within the economic discourse.21
Despite deep slumps in 2009, both countries emerged from the crisis
as relative winners. They recovered more quickly than many other
countries and did so without a major reform of economic policy,
let alone a Polanyian-like turn towards re-regulation. In 2010, Germany and Sweden had growth rates of 3.63 and 5.54 per cent, respectively, whereas the United Kingdom grew by only 1.25 per cent and
the United States by 2.85 per cent. During the decade before 2009,
Germanys growth was sluggish at, on average, 1.10 per cent annually
but increased every year between 2003 and 2009. Sweden grew, on
average, by 2.28 per cent per annum between 2000 and 2009 and
hence grew faster than the United Kingdom (i.e., 1.65 per cent), the
18
19
20
21
See Nycander 2010.

See Anxo 2011: 451; cf. Heclo and Madsen 1987 and Iversen and Wren 1998.
See Hartz 2012.
See debates in the Handelsblatt, available at www.handelsblatt.com/themen/
VWL.
319
United States (i.e., 1.91 per cent), and the average OECD country (i.e.,
1.79 per cent).22 Although there is not necessarily a causal link between
the relatively good performance during the 2000s or quick recovery
and neo-liberal policies,23 the temporal coincidence of the two may at
least lead to a positive perception of such policies.
In summary, reactions to the crisis in both countries reveal a complex
mixture of neo-liberal measures (e.g., tax cuts to stimulate domestic
consumption) and more interventionist measures (e.g., making access
to UI easier and subsidizing short-term work). The following two
sections analyse the longer-term trajectory of institutional change in
Sweden and Germany and discuss how the mixing of neo-liberal and
non-liberal policy elements has been a hallmark of reforms in both
countries.
Sweden
The politics of (neo-)liberalism in Sweden: Business power and
social-democratic volte-face
Sweden is undoubtedly the paradigmatic case of social-democratic capitalism, with a strong political continuity since the 1930s and extensive
social engineering to counterbalance the private economy and market mechanisms through a developed welfare state and strong role for
trade unions. This model is often associated with the ideas of Gosta
Rehn and Rudolf Meidner in the late 1940s and 1950s, but it goes back
to earlier attempts to reconcile a reformist branch of Social Democracy with quasi-Keynesian (but, in reality, Wicksellian) economic ideas,
notably associated with Gunnar Myrdal and Bertil Ohlin.24
Despite the strong institutionalization of non-liberal ideas of economic and social policy, liberalism has witnessed a strong resurgence since the late 1970s. Two groups of actors were crucial:
22
23
24
See OECD 2012.

Indeed, Germany and Swedens quick recovery can at least be partly attributed
to good fortune relative to the product mix of the export sector, continued
growth in main export markets (i.e., China, Brazil, and India), and favourable
macroeconomic conditions (e.g., low interest rates and a weakening exchange
rate in Germany due to the devaluation of the euro). However, the Swedish
recovery, to a greater extent, was related to increasing domestic consumption
following income-tax cuts rather than exports as in Germanys case, which
hints at a positive impact of the crisis measures adopted (see Anxo 2011).
Cf. Ryner 2004 and Hellden 1990.
320
(1) the Swedish Employers Association (Svenska Arbetsgivare
Foreningen
[SAF], now SvensktNaringsliv
[SNS]); and (2) the
reformist wing of the Social Democratic Party, notably around the
1980s Finance Minister, Kjell-Olof Feldt, and Ingmar Carlsson, who
became Prime Minister after Olof Palmes assassination in 1986. The
SAF began an extensive publicity campaign to promote neo-liberal
ideas among the Swedish population. This campaign mainly used the
SAF think tanks, SNS and Timbro, and aimed at influencing public opinion through the quality media and the academic discipline
of economics.25 Academic economists in Sweden also experienced a
neo-classical turn after the late 1970s. The influential economist
Assar Lindbeck changed his stance from a Keynesian approach to
monetarism and rational-expectations theory by the early 1980s.
The new generation of young economists followed Lindbeck and
pushed this transformation even further towards fully neo-classical
economics.26 The two developments dovetailed because the SNS also
had an important role in giving the new generation of economists an
effective platform for their ideas. In particular, SNS Chief Economist
Hans Tson Soderstr
om
was a major influence in promoting a new

monetarist understanding of monetary policy, known in Sweden as
Normpolitik.27 By the 1990s, neo-liberal ideas arguably attained a
status of absolute dominance.28 Similarly, the main newspapers in
Sweden were clearly influenced by the neo-liberal ideas offensive and
increasingly framed articles in a pro-market manner.29
The neo-liberal offensive by the Swedish employers organization had far-reaching implications for corporatist institutions. Indeed,
increasingly using publicity campaigns rather than negotiations with
the state and trade unions made consensual corporatist relations more
difficult, and this weakened tri-partite institutions considerably. This
undermining of corporatism on the employers side must be viewed in
the context of a certain radicalization of the trade-union movement
during the 1970s. Indeed, from the late 1960s onwards, an increasing
dissatisfaction with the existing system began to be felt among the
members of the main blue-collar trade-union federation (i.e., Landsorganisationen i Sverige [LO]).30 This led to a series of wildcat strikes
during the late 1960s, which ultimately led to a certain shift to the
25
27
30
26
See Blyth 2002 and Ryner 2004.
See Blyth 2002: 216.
28
29
See Blyth 2002.
See Ryner 2004.
See Boreus 1997.
Cf. Pontusson 1992 and Swenson 1989.
321
left first in the LO but then also in the governing social-democratic

party Sveriges socialdemokratiska arbetareparti (SAP). As a result,
the Labour government adopted a series of laws and proposed laws
during the early 1970s that brought into question the historical balance between employers and employees in Sweden, which relied on a
non-interventionist stance of the state in affairs pertaining to employment and working conditions. Thus, laws were adopted that increased
employee participation in firm-level decision making and job protection was increased substantially.31 More important, a proposal was
elaborated to establish wage earner funds, which constituted a form
of profit sharing with employees and would have led, in the long run,
to socialization of Swedish companies.
These legislative measures adopted in the mid 1970s by the Palme
government sparked the employer side into action.32 In 1977, one year
after adoption by the parliament of the new job-protection and codetermination laws, the SAF declared the death of the 1938 Saltsjobad
agreements that is, the foundational corporatist agreements that had

led to an extended period of industrial peace in Sweden.33 The SAF
also underwent an internal restructuring, which mainly witnessed a
replacement of people close to the Handelsbank which is one of the
two major owners in the Swedish ownership spheres with people
closer to the Wallenberg family, the second major owner group.34 The
Wallenberg approach was much less conciliatory and led to strong
opposition to the more interventionist social-democratic policies and
more antagonistic relationships with trade unions.35 Speaking in 1991,
one trade unionist from the metalworkers union commented on this
transformation in the following terms:
People [in the SAF] who supported the Swedish Model have been replaced
by spokesmen for the market . . . The SAF is emphasizing political opinion formation rather than taking responsibility for wage formation . . . Neoliberals, who have the US and the UK as their ideal . . . dont give a damn
about wage differential and inequality is increasing at a catastrophic rate.36
However, the employers offensive would not have created any real
results in terms of policy outcomes in a context of social-democratic
hegemony without some support from the governing party. Here, the
31
34
36
32
Cf. Schnyder 2012a.
Cf. Blyth 2002.
35
2005.
See Ryner 2004.
Cf. Hogfeldt
Quoted in Blyth 2002: 213, footnote 43.
33
322
role of the reformist wing of the SAP is crucial. Since the late 1960s, a
new type of thinking has evolved within the SAP. Although the ideas
remained, at first, close to the precepts of the RehnMeidner Model
(RMM), the social-democratic politicians in particular, the younger
generation within the ministry of finance began to justify their arguments in a more utilitarian way than previously.37 During the 1980s,
this emerging utilitarianism went together with a change in the content
of ideas as well and led to leading Social Democrats embracing neoliberal ideas (notably Deputy Prime Minister and then Prime Minister
Ingvar Carlsson, Finance Minister Feldt, and Undersecretary of State
in the MoF Klas Eklund).
It therefore would seem that Sweden has experienced a remarkable
and sweeping neo-liberalization, which did not even stop at the socialdemocratic party. However, despite this remarkable evolution, actual
policy changes are more ambiguous than this ideological dominance
of neo-liberal ideas would suggest. We argue that this can be explained
by the existence of certain countervailing powers within the Swedish
polity. Indeed, at least two important collective actors resisted, to some
extent, the spread of neo-liberal ideas and rhetoric. First, parts of the
trade-union movement remained opposed to much of the neo-liberal
agenda despite increasing acceptance during the 1990s. Indeed, since
the adoption by the SAP of the neo-liberally inspired so-called Third
Way policies in the 1980s, tensions between the SAP and the trade
unions (notably, the LO) have increased.38 The SAP started to adopt
quasi-monetarist policies and promoted the liberalization of financial markets as well as tax reforms in favour of business. The SAPs
pro-business turn led to an increasing divide with trade unions. Second, the Swedish electorate posed another barrier to full-fledged neoliberalization. Popular support for the tax-financed universal welfare
state has remained high and has forced both SAP and centre-right governments to maintain rhetorical support for the welfare state.39 It is
remarkable that the SAP-led Persson government lost the elections in
2006 to a centre-right alliance, mainly due to its bad record in terms of
unemployment and because the bourgeois Alliance for Sweden managed to define itself as the defenders of the welfare state.40 Indeed,
neo-liberal policies do not seem to have been rewarded by the Swedish
37
39
38
See Ryner 2004.
See, for example, Belfrage and Ryner 2009.
40
See Blyth 2002: 246; cf. Steinmo 2010.
See Agius 2007.
323
electorate, at least until the most recent election in 2010. Thus, the
Carlsson government lost the elections in 1991 with an historically
low percentage (i.e., below 40) after what arguably had been the most
clearly neo-liberal era in Swedish history.41 Certainly, the context of an
acute financial and monetary crisis between 1990 and 1994 which,
incidentally, was mainly caused by the quick liberalization of financial
markets since 1985 may explain the Carlsson governments downfall. However, even the decidedly neo-liberal policies of the centre-right
Carl Bildt government that came to power in 1991 led to an electoral
defeat in 1994. Again, the Bildt governments neo-liberal programme
was not translated into policies in any pure form. Indeed, the socialdemocratic opposition at the time put pressure on the government
by defining itself as defenders of the welfare state in opposition. This
led to tensions between centrist and more right-wing elements in the
bourgeois coalition, which had the effect of diluting the more radical
neo-liberal reform proposals.42
Therefore, Swedish governments that followed relatively radical
neo-liberal policies were rarely rewarded by the Swedish electorate.
On returning to power in 1994, the SAP continued many of the neoliberally inspired liberalization policies of its predecessors but focused
rhetorically on reassuring the population that the welfare state would
remain untouched.43 According to this interpretation, Sweden during the second half of the 1990s is an interesting case in which neoliberalism was stronger in actual policies than in public discourse. In
this respect, Sweden does not fit the second line of explanation or
neo-liberal resilience in Chapter 1 of this volume, whereby a radical neo-liberal discourse is combined with more pragmatic policies. In Sweden, due to the still relatively strong public support
for certain features of the traditional system, neo-liberal public discourse was rather more muted, but policies remained clearly neoliberal in nature. A somewhat different interpretation, however, is
that neo-liberal reforms albeit important were more limited
in certain sectors of the Swedish model than in others. Regardless, this situation appears to have changed in recent years. Steinmo
quotes survey data showing that solidaristic welfare provision through
tax-funded universal welfare services has lost support among the
41
43
42
See Ryner 2004.
See Belfrage and Ryner 2009: 270.
324
Swedish population for the first time.44 This suggests that the
neo-liberal publicity campaign that began in the 1970s and was carried by the SAF/Svenskt Naringsliv has started to reach the population, not only the elite. If so, the Swedish model may become less
stable, thereby opening the door for more radical reforms and electoral strategies focusing on neo-liberal programmes. Indeed, the era
of the centre-right coalition Alliance for Sweden governments led by
leader of the centre-right Moderate Party Fredrick Reinfeldt seems
to indicate, in different respects, a new level of neo-liberalization in
Sweden. Reinfeldt first came to power in 2006 and was re-elected in
2010. Both discourse and actual policies have become more blatantly
neo-liberal during this period than was the case, for instance, during
the late 1990s.45 The privatization of state-owned companies even
in times of depressed share prices is a case in point; other examples
include far-reaching privatization programmes in the health system.
To be sure, these are not necessarily new, but the discourse around
them seems increasingly open to focusing on the neo-liberal credos of
choice and competition than previously. Even during and after the
crisis, neo-liberal ideas seem remarkably resilient, as discussed herein.
It is also interesting that in Sweden, there is a relatively recent precedent regarding the resilience of neo-liberal ideas after a major crisis.
Thus, the crisis of 19911994, which was the result of the rapid liberalization (notably, of credit markets) during the second half of the
1980s, did not lead to any questioning of such neo-liberal ideas. On
the contrary, the power shift from the Social Democrats to the centreright Bildt government had reinforced the strength of neo-liberal ideas
and rhetoric.46
Hamilton and Rolander attributed this resilience in the 1990s to
the strong dominance of neo-liberal ideas within the community of
academic economists.47 Indeed, they argued that in Sweden by the
early 1990s, there was no alternative to neo-liberal ideas. Yet, the
following subsection shows that the resilience also must be viewed
not only in a context of hegemony of neo-liberalism. Alternatives
albeit increasingly marginalized continued to exist (e.g., among tradeunion economists). However, one of the strengths of neo-liberal ideas
is precisely how they blended with other ideas and were implemented
44
46
45
See Steinmo 2010.
Cf. Schnyder 2012a.
47
Cf. Hamilton and Rolander 1993.
See Hamilton and Rolander 1993.
325
in subtle ways, which makes them strongly engrained albeit not in

any pure form in the institutional setup of the country.48
Neo-liberalism and policy reform

The complexity of the process through which neo-liberalism progresses
is shown in Table 11.1, which schematically summarizes institutional
change in different domains of the Swedish economy. The changes in
different domains of the Swedish model vary in both extent and even
the general direction. For instance, in industrial relations and even
more so in industrial policy, state intervention has remained stable
or even increased in recent years. In other domains, however, the
shift towards a more market-based system has been extensive, notably
regarding welfare provision and the financial system. Table 11.1 also
illustrates that the timing of the reforms varied markedly among areas.
Thus, the most important legal changes in industrial relations took
place during the 1970s before the era of neo-liberalism. These changes,
however, had spillover effects on industrial relations more broadly
and led to important changes in the following years notably, the
abandoning of the centralized peak-level wage bargaining. In terms
of neo-liberalization or deregulation, the earliest significant changes
took place in the financial sphere, where deregulation began in the
early 1980s and was practically complete by the late 1980s.49
In other areas, reforms were more tentative, less extensive, and happened later. Welfare reforms certainly introduced important qualitative changes but were not unambiguously neo-liberal with regard
to most aspects of the welfare system, and retrenchment remained
limited.50 Finally, certain domains exhibit a remarkable absence of
neo-liberal reforms. In particular, changes in corporate governance
have certainly been extensive in terms of firm ownership, in which foreign ownership has increased to an important extent.51 However, at the
level of formal legal change, the Swedish insider-oriented company law
has not radically changed, much less indeed than in other countries.52
In the domain of industrial policy, Sweden was traditionally characterized by an absence of any explicit state intervention.53 The state
48
50
52
49
Cf., for example, Belfrage and Ryner 2009.
Cf. Reiter 2003.
51
See Bergh and Erlingsson 2009.
See Henrekson and Jakobsson 2012.
53
See Schnyder 2012b.
See Pontusson 1992.
Table 11.1. Institutional Reforms in Sweden, 19792009
Sphere
Typology
Financial systems
Bank-based (indirect owners) but

state-dominated (tight regulation,
public sector as most important
lender) Banks and markets
Corporate governance
Insider-dominated Some elements

of shareholder orientation
Industrial policy
Market-based Increasing state

involvement to support ICT sector
Direction of Change and Examples of

Major Reforms
Shift towards market finance
Deregulation of credit market: removal
of restrictions on bank lending
Liberalization of capital movements
Facilitation of equity issuing by
non-financial companies
Moderate legal change; increasing
diversity of models in practice
Adaptation of company law and related
laws to EU directives
Limited increase in minority
shareholder protection (MSP)
Active policy to support ICT start-up
companies
Tax bias against SMEs removed
Increased public R&D spending
Policies aimed at supporting SMEs
Timing
19831989
19932005
1990s
Industrial relations
Bipartite corporatism Increasing

state intervention (1970s) and
segmentation (1990s) but signs of
some re-coordination (1997)
Education and skill

creation
State-dominated, social partners

absent from vocational training
Some increase in company
involvement
Welfare state
State-dominated Limited
retrenchment but extensive
privatizations and abolishing of
state monopoly
Source: Adapted from Schnyder 2012a.
1970s increasing interventionist state

and employment protection and
co-determination laws
Demise of peak-level bargaining
Firm-level or sector-level collective
agreements
1997 Industrial Agreement introducing
pattern-bargaining system
More market-based education and higher
skills
Reintroduction of apprenticeships
Private initiatives by companies: more
firm-specific and higher skills
Marked increase in private welfare
provision
Some retrenchment (unemployment
benefits, sick pay)
Major pension reform Partial
privatization
Workfare measures
19741976
1990s
1990s
1990s and 2000s
328
did influence economic structure indirectly through the corporate-tax

system and through credit controls that favoured large physical capitalintensive companies over small and less capital-intensive companies.
Yet, unlike other European countries, the Swedish state did not choose
winners and construct national champions. In this respect, industrial policy has become rather more interventionist since the 1990s,
with a more active role of the state in promoting certain types of
industries notably the knowledge-intensive ICT and biochemical
industries.
Overall, then, the transformation of the Swedish model in recent
years defies simplistic descriptions of neo-liberalization. The processes of change have been complex, incomplete, and to some
extent even contradictory.54 The messy nature of the process
and outcome of neo-liberalization is, in part as previously mentioned due to the fact that neo-liberal ideas were not promoted by a
single, coherent, collective actor. Rather, different actors (e.g., SAF,
Timbro, SNS, and the reformist wing of the SAP) promoted partly different ideas using different means (e.g., publicity campaigns, newspaper articles, and scholarly articles and reports). All of these actors and
media mediated, to some extent, the content of the ideas that were disseminated. Moreover, despite an increasing dominance of neo-liberal
ideas, they were not uncontested (e.g., by parts of the union movement). In combination with persisting corporatist institutions albeit
in some cases in considerably weakened form the variety of actors
and preferences involved led to different compromises that then led
to policies that mix neo-liberal, market-based elements with more traditional policies of non-market coordination. This is illustrated, for
instance, by the far-reaching pension reform. It was elaborated on
during the 1990s in a context of crisis, and detailed legislation was
adopted under the SAP government in 1998. This legislation constituted a cross-party compromise, which contained major concessions
to the centre-right parties (notably, the increasing privatization of pension savings in the long run) without, however, directly undermining
the Social Democrats fundamental interests in maintaining a high level
of equality and universality.55 Another example is the reform of UI in
2007, which despite its radical nature did not directly attack the
principle of trade-unionmanaged UI funds (i.e., the Ghent system),
54
Cf. Belfrage and Ryner 2009.
55
See Anderson 2001 and 2004.
329
one of the trade unions main power sources. This process of mediation and compromising contributed to the legitimacy and acceptance
of such ideas and, hence, their resilience.
Germany56
The postwar German model has always been underpinned by a compromise between liberal and non-liberal elements, often captured by
the notion of a social-market economy. The early postwar understanding of liberalism was quite different from contemporary neoliberalism in emphasizing strong anti-monopoly policies, some paternalistic role of the welfare state, and even promotion of ideas such
as unlimited liability for debt.57 The highly consensual nature of
German political institutions, including its federal structure, has prevented adversarial swings across the political spectrum and brought
parties closer to blended versions of liberal and various non-liberal
elements.58 In this way, German economic policy has evolved along
a broad trajectory of liberalization but in which neo-liberal reforms
often go hand in hand with a re-embedding of these compromises
in ways that also seek to stabilize or defend a core of non-liberal
institutions.
The political basis of neo-liberalism

Returning to the conservative CDU/Christlich Soziale Union (CSU)
coalition with the economically liberal FDP of the 1980s, Helmut
Kohl presided as German Chancellor from 1982 until 1998. During
this period, the influence of neo-liberal ideas generally increased and
terms of debate shifted towards a rather different view of state activity. However, despite the long term in office of the centre-right, a
notable feature was the absence of aggressive liberalization relative to
Thatchers Britain or Reagans United States. For example, the government pursued policies supporting labour-market flexibility (e.g.,
temporary workers) but made no move to dismantle employee codetermination. Likewise, the government supported financial-market
liberalization but did not dismantle the special position of regional
56
57
This section draws on the analysis of Jackson and Sorge 2012.

58
See Oliver 1960.
See Prasad 2006.
330
and cooperative banks, which have strong relationships with SMEs.

The CDU has a socially conservative ideological commitment and historically supported the welfare state.59 The CDU initiated all of the
major pieces of postwar social legislation, including coal and steel codetermination. Policies of the CDU/FDP coalition in the 1990s were a
mixture of liberalism with strong doses of fiscal transfer from West to
East and social policies to maintain employment and social standards
in East Germany leading public budget expenditure to all-time peak
levels relative to GDP.
After German unification in 1990, the political focus was on transferring existing institutions to the East. However, this extension led to
many complex changes in the practice of institutions on the ground.
No major reforms were undertaken to the main features of the German
model as it existed in the West. However, by the mid 1990s, the costs
of unification were becoming apparent and created a variety of new
pressures on the existing German model. Many of these problems were
related to the high costs of the welfare state, including the rising levels
of unemployment. The massive transfer of money into the East had
been financed mainly on the basis of contributions levied on labour
costs, so that employment became disadvantaged through rising labour
costs and created acute pressures during the cyclical downturn after
2001. Although acceptance of the social-market economy remained
high at approximately 50 per cent of the German population East
Germans became less supportive over time as unification led to persistent unemployment.60
During the period of the SPD and Green coalition government (i.e., 19982005), liberalization was more far-reaching. The
Sozialdemokratische Partei Deutschlands (SPD) took active measures
to dismantle Germany Inc. that is, the dense network of relationships among large banks and industrial companies either by crossholdings of shares or non-bank shares held by banks. The power-of-banks
and failure-over-control-and-oversight debates have a long history;
they resurfaced amid public outcry concerning scandals at Metallgesellschaft, Klockner-Humboldt-Deutz,
and Schneider Real Estate in
the mid 1990s. These debates turned disaffection with control and
oversight failures ascribed to uncritical and cozy personal networks
into an interest in Anglo-American corporate governance through
59
See Lehmbruch 2001.
60
See Sauerland 2012.
331
stock markets, dispersed ownership, influence of network outsiders,

and concern with unambiguous profitability. The rise of the Neuer
Markt on the heels of the information and communications technology stock-market bubble was an important factor contributing to the
left coalitions support for the stock market. This party paradox witnessed the left-party SPD seeking to tame big business by encouraging
the dissolution of intercorporate linkages, as well as aligning with
players in financial markets, who stood to gain from more market
competition and garner an image of being a modern and economicsfocused party.61 However, because banks had already undergone a
strategic reorientation towards international financial markets, the
political process may have expedited institutional change rather than
causing it. Ironically, an SPD chancellor placed his faith in the capacity
of shareholder-value capitalism to generate increasing public revenue,
precisely at the moment before the first major bubble in dot-com
enterprises burst in 2002.
Meanwhile, the SPDGreen coalition aggressively cut welfare-state
support in 2002 as a way of tackling unemployment and preventing
a financial collapse of the public sector. The manner of these reforms
and parallel tax cuts for corporations and high-income earners led
to massive voter disaffection and abstention on the left, as well as a
fall from grace of the SPD, which has not yet been reversed. To some
extent, this evolution was particular to Germany, involving unification
problems and specific challenges of the national/Lander
competencies
mix. The more general international conundrum relates to placing

hopes on government revenue and employment from sources exposed
to the volatility of financial markets such as dot-com industries,
shareholder-value policies, and international financial markets. As in
some Southern European countries, major instigators of neo-liberal
reforms were social-democratic governments.
The subsequent grand coalition of CDU and SPD (i.e., 2006
2009) was characterized by more modest reforms. The advent of the
2008 financial crisis led to renewed interest in regulation and new rules
regarding executive pay, which if anything suggest a swing back
towards a more stakeholder-oriented model. The subsequent CDU and
FDP coalition (i.e., from 2009) consolidated a path of relative stability
in the core features of the German model, albeit along a path of public
61
2006.
See Cioffi and Hopner
332
austerity. No major liberalization of labour markets has occurred,

despite an initiative by the Liberals (i.e., FDP) to throw out parity representation in large companies, as something that was internationally
not state of the art.
Liberalization has therefore not been a party-political agenda limited
to either the centre-left or centre-right. Both have pursued a broad
agenda of liberalization with different accents and boundaries between
the social and the market of Germanys social-market economy.
Germany has lacked radical forms of neo-liberal policies on the right
coalition, whereas the new left has promoted market liberalization
not unlike New Labour in the United Kingdom. After enjoying broad
public support during the 1990s, support for the idea of the socialmarket economy declined to a low of approximately 30 per cent of the
population during the early 2000s and increased to only 40 per cent
after the onset of the crisis in 2008.62 Why has government not been
more radical in pursuing liberalization during this period? At least two
factors are important.
The first factor revolves around business interests and how these
are shaped historically by a given set of institutions. Business interests supported only moderate reforms. Large industrial firms experienced a period of strong economic growth based on the success of
Germanys export sector during the 1980s. The German export economy has traditional strengths in high-quality investment goods such as
machinery including input to newly industrializing countries such as
China and Brazil. Export manufacturers have long struggled with high
unit labour costs, which had been a contentious issue throughout the
1980s and 1990s, as increasing non-wage labour costs threatened the
international competitiveness of the German export industry. Business
sought to reduce costs through liberalization of the labour market
and social protection but also benefited from the protection of core
workers and the ability to externalize some adjustment costs on the
state.63 The slow exhaustion of state-supported adjustment led to a
re-politicization of social welfare in the mid-1990s. The strong sectoral basis of German business associations meant insufficient support
for encompassing redistribution represented by the failed Alliance
for Jobs effort of the Schroder
government and the fragmentation of
political power also impeded more sweeping liberalization. Rather, the

62
See Sauerland 2012.
63
See Martin and Swank 2012 and Trampusch 2009.
333
success of reducing production costs would probably not have been

possible without existing corporatist institutions. Trade-union membership and union power have certainly declined, with an increase
of wage and conditions bargaining at the company rather than the
industry level. Moreover, more German employers abandoned association membership in order not to be tied to agreements and have
maintained competitiveness by cutting labour costs. Nevertheless, the
wage restraints accepted by unions in collective agreements and cooperative relations with company works councils were important in the
strategy of increasing the export sectors competitiveness through cost
reduction.
Second, the consensus-driven nature of German electoral politics
and decentralization of power under the system of Federalism gravitate against radical reforms driven by top-down policies. The majority in one chamber of parliament has often been the opposite of the
majority in the other chamber as a result of interim elections in the
different states. This has created many veto points in German politics,
which constrain the retrenchment of existing social protection because
de facto only a quasi-all-party coalition can rule. This casts light on
the importance of institutional layering within Germany, where new
rules are created to facilitate changes in practice without directly seeking to abolish past practices. The political institutions of Federalism
and consensus-driven coalition governments have been important in
slowing reform, whereas the EU-level directives have accelerated liberalization. Similarly, large firms and banks have different preferences
regarding liberalization, leading to a pushpull of varied policy preferences.
Neo-liberalism and policy reform

The interdependent relationship between liberalization and stabilization of non-liberal or coordinated institutions is evident across many
domains or realms of public policy (see the overview in Table 11.2).
As in the Swedish case, the most far-reaching liberalization was in the
domain of financial markets, starting with the series of four Financial
Market Promotion Acts in 1990, 1994, 1998, and 2002. These Acts
eliminated various taxes on financial-market transactions, established
new investment vehicles, and created a single new financial-services
regulator. The 1998 reforms promoted the stock markets through
Table 11.2. Institutional Reforms in Germany, 19792009

Institutional
Domain
Typology
Financial systems
Bank-oriented Banks
and markets
Corporate
governance
Stakeholder-oriented Some
elements of shareholder
value
Industrial relations
Corporatism Increasing
segmentation
Education and skill

creation
Associational governance of
apprenticeship
Welfare state
Conservative Limited
introduction of market
elements, some
retrenchment
Source: Adapted from Jackson and Sorge 2012.
Direction of Change and Examples of

Major Reforms
Timing of Major
Reforms
Shift towards market finance

Deregulation of equity markets
Implementation of EU directives on transparency
Shift towards outsider, shareholder-oriented model
Liberalizing stock options
Voting-rights reform
Change in takeover rules
Some flexibilization of labour market for small firms
and lower-skill employees but some new social
protection
Minimum wage in construction industry (1996)
Works Constitution Act
Job centres introduced (2003)
Some greater role of the state
Greater public role in apprenticeship system
Policies for low-skill workers
Hartz Reforms (shortening length of
unemployment benefits)
More employment activation policies
Limited expansion of private pensions
1990s
19982002
2001, 2003
1990, 2000
Early 2000s
335
new listing requirements and by allowing companies to adopt international accounting standards. Finally, the 2002 reforms allowed the
tax-free sale of long-term equity stakes held by banks and corporations. Whereas these reforms shifted Germany away from its bankbased financial system and towards more market-oriented finance, the
large savings-bank and cooperative-banking sector maintained a more
traditional banking-relationship model, albeit in an evolving form. It
is important that the weak demand for private pensions has left capital
markets relatively underdeveloped relative to the highly financialized
economies, such as the United States or the United Kingdom. Reforms
have operated by institutional layering, whereby new practices are
facilitated through incentives and rules are placed alongside preexisting practices.
Corporate-governance reforms increased the orientation of corporations towards shareholder value. The 1998 reform (i.e., KonTrag)
limited the influence of large shareholders and banks, increased auditor independence, and removed restrictions on share buybacks and
stock options. This reform mixed different political motivations the
desire by the CDU to increase transparency of capital markets, the aim
of the SPD to limit the power of big banks in Germany, and new
USinspired debates about corporate governance.64 Other liberal
reforms streamlined the process of shareholder lawsuits (i.e., 2005),
mandated disclosure of executive pay (i.e., 2005), and streamlined the
process for exercising proxy votes (i.e., 2009). Taken together, legal
reform has increased the salience of shareholder interests, while often
remaining below the radar of public debate.65 However, Germany
did not fully liberalize the market for corporate control.66 A central
issue opposed by German industry was the requirement for board
neutrality during hostile bids, which allowed an option for defensive actions given prior shareholder approval.67 Although the scope
for defensive actions has become relatively constrained, the number of
hostile takeover bids has remained low.68 Little stakeholder-focused
legislation has been passed, other than recent regulation of executive
compensation (i.e., 2009), which demonstrates more caution towards
64
66
68
65
See Ziegler 2000.
See Klages 2012 and Culpepper 2010.
67
See Callaghan and Hopner
2005.
See Culpepper 2010.
and Jackson 2006.

See Hopner
336
stock options and reasonable levels of total remuneration. Nonetheless, unions have succeeded in stopping reforms that would directly
endanger the role of co-determination.69
As a result of German unification and long-term declines in tradeunion membership, as well as the growth of service-sector economies,
German employment and industrial-relations institutions have undergone slow erosion in recent decades. Comparing East and West
in 2009, collective-bargaining coverage is lower (i.e., 34 versus
52 per cent) and works councils represent fewer employees (i.e., 38 versus 44 per cent), so that only 18 per cent of the East German workforce
is covered by these two key institutions.70 In this context, labourlaw reform liberalized new patterns of atypical employment. Restrictions on the use of agency work were loosened in 1997 and abolished in 2003. The duration of fixed-term employment contracts was
also extended to twenty-four months in 1996. The effect of liberalization has been a growing dualism in the German labour market.71
However, despite liberalization, several reforms have sought at least
partially to counterbalance existing erosion of German industrial
relations. First, works councils were modernized in 2001 in ways
that rendered their structure less bureaucratic and more adaptable to
the diverse needs of small and medium-sized complex network forms
of organization, and different categories of outsourced or temporary
employees. Second, the state sought to support social protection by
passing a minimum wage for the construction industry as a way to
prevent social dumping given the vast increase of migrant labour
in the industry. Similarly, institutions offering training and skills have
remained largely stable and sought to protect and upgrade the dual system of training in various ways, such as moving away from specialized
and towards broader occupational profiles.72 The state also intervened
to support social partners in ensuring or increasing the supply of occupational training through new funding schemes in 2004 and 2008.
In terms of the welfare state, economic pressures facing UI, social
benefits, and the pension system have grown. Concerning pensions,
the Riester reforms in 2000 reduced state benefits from 70 to 67 per
cent of salary and created new incentives for private pension savings.
69
71
72
70
See Faust 2012 and Jackson 2005.
See Hans-Boeckler Foundation 2012.
See Palier and Thelen 2010 and Hall and Ludwig 2010.
See Busemeyer 2009a and 2009b.
337
These reforms have had little influence on the development of private

pension funds, the assets of which remain low at 5 to 7 per cent of
GDP. Consequently, pension reform had few spillover effects on the
German financial system or corporate governance. Still, the costs
of German unification became increasingly apparent throughout the
1990s and created growing pressures on non-wage labour costs in
ways that disadvantaged employment, particularly in lower-wage,
service-sector jobs. In 2003, the German state adopted a controversial
retrenchment of welfare payments and unemployment benefits, known
as the Hartz Reforms, which marked a new era of managed austerity.73 The Hartz I and II (2003) reforms and Hartz III (2004) reform
de-regulated the market for atypical employment by liberalizing temporary work via new Staff Services Agencies (PSA), creating so-called
mini-jobs characterized by lower taxes and insurance payments for
casual employees, introducing the Ich-AG (Me, Inc.) to support selfemployment, and restructuring public job centres. The more dramatic
and contested Hartz IV (2005) reform merged benefits for the longterm unemployed (Arbeitslosenhilfe) and the social-welfare scheme
(Sozialhilfe) and also shortened the duration of unemployment benefits from thirty-six to eighteen months. The payment for social welfare
was set at a low level of 359 per month (Regelsatz) plus the cost
of adequate housing. This retrenchment of benefits was also consolidated by activation policies (i.e., workfare) that supported the
expansion of approximately 300,000 so-called 1-euro jobs for longterm unemployed people. Today, two thirds of unemployed people
receive these low-level residual benefits. Spending on labour-market
policy fell from approximately 4 per cent of GDP during the unification era to just 2 per cent in 2009. Welfare-state reforms reduced
both taxes and expenditures from approximately 48 to 43 per cent
of GDP between 1999 and 2009. Meanwhile, Germany experienced a
substantial reduction in unemployment due to the expansion of poorly
paid service work or temporary forms of employment through active
labour market policies and retrenchment of benefits which resulted
in labour-market dualism.74 These reforms were successful in lowering spending and relieving the existing welfare state of mounting-cost
pressures including lowering contributions from 6.5 to only 3.3 per
73
See Vail 2010.
74
See Palier and Thelen 2010.
338
cent in 2008.75 As such, the reforms have probably helped to preserve

the system for core workers but nonetheless led to major voter discontent with the Social Democratic Party and in trade unions, together
with the eventual rise of the Left Party.76
Liberalization and re-coordination: A dialectical relationship?

Neo-liberal economic thinking has had an important role in the economic policies of Germany and Sweden, both before and after the
global financial crisis. We view the post-crisis phase of economic policy
in terms of its continuity, with a slower and longer-term trajectory of
institutional change, whereby both countries have undergone substantial liberalization. In both cases, liberalization has involved political
compromises and attempts to re-embed new market-liberalizing rules
within existing institutions.
A deeper examination reveals that neo-liberal reforms and recoordination are dialectically intertwined, leading to a paradoxical
form of politics. The contradictory nature of market and non-market
forms of economic organization (i.e., thesis and antithesis) has coexisted through political compromises, whereby the introduction of new
market mechanisms is linked to the continued protection of other
non-market mechanisms. The integration or synthesis of these elements is always temporary because the further extension of markets
eventually creates new pressures on non-market institutions. For example, German welfare-state reforms led to substantial retrenchment but
also stabilized the social-insurance institutions for core workers and
employers against the threat of unsustainable rising costs. The liberalizing effects on the labour market, in turn, place further downward
competitive pressure on wages and working conditions among core
workers.
The parallel but distinct paths of liberalization in Germany and
Sweden demonstrate how this dialectic relationship led to viable policies. Indeed, neo-liberal reform policies were successful precisely where
they were implemented in traditional corporatist ways. Rather than
inhibiting liberalization, corporatist politics gave different social partners the opportunity to influence the nature that neo-liberal reforms
75
See Palier and Thelen 2010.
76
See Hassel and Schiller 2010.
339
would take.77 Two effects result from this situation. First, the legitimacy of neo-liberal policies was increased by giving different actors
a chance to influence the content of the reforms and to prevent the
most radical neo-liberal ideas from being implemented. German political institutions create many veto points for different stakeholders and
make compromises necessary, which also explains their relative slowness (i.e., Reformstau) and incremental nature, as well as their content
(i.e., mixing market-creating measures with non-market coordination).
In Sweden, although the political structures are more majoritarian,
the strength of trade unions and the persistence of certain corporatist
structures still create incentives to engage in negotiated policy making.
Although compromises in both countries are increasingly skewed
towards employer interests, the fact remains that such compromises
constituted a form of coordination similar to traditional corporatist
arrangements. In that sense, both models still rely on institutions
of extra-market coordination. Moreover, reforms were successful in
attaining cross-class compromises that combined liberalization with
strategies of economic adjustment with a clear core of high-skilled
employment.
The inclusive nature of policy making also implied that many actors
got their hands dirty and therefore share responsibility for the neoliberal reform course. Thus, leftist parties are unable to mount virulent
attacks on neo-liberal reforms; this task is restricted to relatively minor
political movements, such as the German Links Partei or the Swedish
extreme right, Sverige Demokraterna, and the Pirate Party movement,
which originated in Sweden in 2006. The emergence of new and radical political parties may reflect dissatisfaction with the hegemonic
consensus of established centre-right and centre-left parties around
various forms of neo-liberal ideas. However, the electorate has recently
shown relatively strong support for the particular path of incremental and socially tamed forms of neo-liberal reforms, as reflected in
the election victories of Merkels governing CDU in 2009 and Reinfeldts coalition in 2010. This political continuity is partly explained
by important weaknesses of the centre-left among other reasons,
due to their own ideological reorientation towards quasi-neo-liberal
Third Way policies during the 1980s and 1990s and, hence, the
77
For the persistence of processes of social concertation despite formally

weakened corporatist institutions, see Afonso 2013.
340
absence of a political alternative in the middle of the party spectrum.

The continuity is partly due to the fact that the negative effects of the
reform policies hit not the median voter strongest but rather begin
to be felt mainly at the lower end of the socioeconomic pyramid,
notably low-skilled and immigrant workers who often do not or cannot
vote.
Taken together, the cooperative and negotiated ways of formulating
and implementing neo-liberal policies help to explain why we do not
observe any radical break following the crisis of 20082009. Indeed,
neo-liberal elements have been integrated in the existing system and
legitimized through corporatist processes. This legitimacy was further
increased by their relative success but also by a strategy of policy
makers to show considerable degrees of pragmatism in tweaking the
neo-liberal model to fit specific circumstances. One striking example is
the Swedish governments move to reverse some of the strongly neoliberal UI reform during the crisis in 2009, making the system once
again somewhat more generous. Both cases indeed support the line
of explanation in the first chapter of this volume, according to which
neo-liberalism is resilient due to its high malleability and plasticity.
The German and Swedish cases show that the process of metamorphosis of neo-liberal ideas that makes them so malleable was partly
the result of these ideas being channeled through traditional corporatist institutions and renegotiated by traditional corporatist actors.
These renegotiations have led to tweaking with the neo-liberal doxa
and made the ideas more fit for the specific national contexts. Paradoxically, then, institutions that could have constituted a stronghold
against neo-liberalization may have indeed contributed to reinforcing
such ideas, making them more viable in the long run. Regarding outcomes, it can be expected that these reforms will have effects in the
future, which may undermine the coordinated nature of the two business systems in the long run but are not as yet fully visible. Thus, the
emergence of a low-wage sector may constitute an imminent threat to
the high-quality, high-price strategies that these two countries traditionally followed. The possibility of paying low wages may decrease
employer organizations willingness to support investment in human
capital and skills, which may undermine the competitiveness of the
two countries in the long run. Therefore, the rather incremental and
creeping nature of neo-liberal reforms should not lead us to conclude
that the transformations are inconsequential. Rather, the reforms may
341
seem limited at first glance but they still have the potential to develop
unintended and unanticipated effects farther down the road.
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12
State transformation in Italy and

France: Technocratic versus
political leadership on the road
from non-liberalism to
neo-liberalism
elisabetta gualmini and
vivien a. schmidt
Although Italy and France have seemingly little in common given

differences in economic profile, state capacity, leadership effectiveness,
vulnerability to the economic crisis, and more they both nevertheless can be categorized as part of a third variety of capitalism: stateinfluenced market economies (SMEs). In such political economies, the
state intervenes more, for better or for worse, and differently than in
liberal market economies like the United Kingdom and Ireland1 or in
coordinated market economies like Germany and Sweden.2 However,
what distinguishes these SMEs from other varieties of capitalism is not
just their institutional configuration. Equally important are the underlying ideational legacies that underpin the institutions, shaping the
ways in which actors have defined and remade markets and how they
have engaged in acting out change against a background of national
traditions of economic thought, of state intervention, and of decades
of lived economic practice.3 Postwar SMEs are distinguished from the
other postwar varieties of capitalism by their very different stewardship
of the economy through non-liberal (defined as violating neo-liberal
tenets) institutions of planning, industrial policy, and/or public enterprise. These in turn constituted historical legacies that left their traces
even as the state liberalized from the 1980s onwards. In Italy, the
countrys state-assisted capitalism, or public neo-capitalism,4 continued to muddle through after the postwar years, leading at best by
indirection except at times when and/or in areas where technocratic
1
2
3

4
See Clift 2012 and OSullivan 2007.
See Barca 2010.
346
State transformation in Italy and France
347
elites took over.5 In France, political elites transformed the countrys

postwar non-liberal state-led capitalism, or dirigisme, through the
dirigiste retreat from dirigisme6 that resulted in the post-dirigisme
of the 1980s onwards.7 These countries state-centred traditions of
economic thought also ensured that even when liberalizing markets,
state leaders have been less focused on instituting the level playing field
prized by the British and the Germans; have been more at ease with
dominant market positions for their firms; and have been more open
to state intervention to promote such market dominance, including the
presence of elitist oligarchic networks spanning the public and private
sectors.8
Thus, although in both Italy and France as in other European
countries homegrown neo-liberal thinkers developed their ideas in
the interwar period, were marginalized in the postwar years, and came
into their own starting in the 1980s,9 the impact of such ideas was
heavily mediated by their differing state-influenced national ideational
traditions. Even though neo-liberalism has been resilient in both countries, it was (for the most part) taken up by governing elites in Italy
and France less as a matter of ideological conviction than of pragmatic necessity in response to international economic pressures and
European political constraints. As a result, it has been a moderate and
largely pragmatic neo-liberalism that has found little lasting ideological commitment or ideational coherence and much resistance in great
contrast not only with Britain, whether in terms of Thatchers strongly
conservative neo-liberal ideology or Blairs Third-Way neo-liberalism,
but also with Germanys continuing conservative ordo-liberal ideology.
Italys trajectory since the postwar years has gone back and forth
between normal periods of non-liberal political leadership in which
what opportunistic political leaders said had little to do with what
they did and crisis periods of neo-liberal technocratic leadership,
in which pragmatic leaders neo-liberal words matched the actions.
Whereas the normal periods made for neo-liberal rhetoric without the
reality, as in the second line of analysis in this volumes first chapter,
the crisis periods fit the third line of analysis because this is when the
5
6
9
See Schmidt 2002, ch. 1; and Schmidt and Gualmini 2013.

7
See Schmidt 1996.
See Levy 1999 and Clift 2012.
See Denord 2007 and Regonini and Giuliani 1994.
See Clift 2012.
348
discourse had persuasive power. Frances trajectory since the postwar

period, by contrast, began with non-liberal technocratic leadership in
the postwar years and then moved to neo-liberal political leadership
since the 1980s, in which pragmatic political leaders non-liberal discourse sought to mask the influence of neo-liberal ideas, effectively
providing the reality without the rhetoric or the second line of analysis reversed. That neo-liberal reality suggests that Chapter 1s first line
of analysis is most relevant here, to the extent that neo-liberalism has
been adaptable in its interpretation, thereby allowing for policies that
contain many non-liberal elements.
Notably, the EU has been an additional force behind both countries
liberalizing transformations, at the same time that the EU no doubt
has held in check some of both countries most egregious forms of
economic patriotism.10 Italys neo-liberal reform capability, in particular, came from the outside, a result of the power of the EU both
as a normative ideational construct (i.e., the EU makes us do it) and
an institutional constraint and opportunity. This helps to explain why
pragmatic technocratic elites in Italy have periodically been able to
muster not only the force of institutions (i.e., the fifth line of analysis) but also the power of ideas and discourse (i.e., the third line of
analysis) to push through neo-liberal reform. However, whereas Italy
perceived itself as rescued by Europe11 and, therefore, when pushed,
it followed the EUs prescriptions, France sought to lead Europe and, in
so doing, to make the EU a shield against (neo-liberal) globalization.12
Increasingly, however, rather than a shield, French leaders and the
public perceived the EU as a conduit for (neo-liberal) globalization
and therefore to be resisted.
This chapter examines the ideational trajectories of Italy and France
in turn, starting with a brief consideration of the sources of neoliberalism in the postwar years, followed by a more extensive examination of the rise of neo-liberalism from the 1980s to the mid 2000s, and
concluding with the two countries responses to the economic crisis
beginning in 2008. The discussion employs a discursive institutionalist approach to consider not only the ideas through which Italian
and French policy makers conceived of the market and of neo-liberal
reforms to remake the market but also how they coordinated the
10
12

See Schmidt 2002.
11
See Ferrera and Gualmini 2004.
349
construction of neo-liberal policies and then communicated about

them to national publics, seeking to legitimize them in ways that resonated within their respective institutional contexts.13
Italy between non-liberal political and neo-liberal

technocratic leadership
The state has always played a central role in Italys state-assisted capitalism, even as it moved from non-liberal to neo-liberal leadership. It
went from protagonist and leader of economic recovery in the postwar
period to coordinator and regulator of the adjustment process undertaken in the name of Europe. As Barca explains, Italys public neocapitalism is something neither statist nor hyper-liberal but rather the
result of an extraordinary compromise that assigned to autonomous
public bodies a pivotal role in economic development as an alternative
to the formulation of fair rules of the game in the market.14 Significantly, there is no post public neo-capitalism to match Frances postdirigisme because Italy never had dirigismo in the first place, plagued as
it was by the hyper-politicization of its highly fragmented, compound
polity. This meant that inertia was the order of the day, sometimes
offset by incremental policy change. This was perpetuated by opportunistic and self-interested political elites whose governing practices
tended to pervert if not preclude any reforming policy ideas as they
turned the economy into a spoils system in which party patronage
and clientelism predominated (known as partitocrazia). As a result,
the everyday direction of the economy was left to the technical ministries rather than the government in order to allow for a modicum
of pragmatic and depoliticized leadership and oversight. Only at critical junctures in the mid 1990s and again beginning in 2011, was
the government in the hands of goal-oriented, pragmatic technocratic
elites who sought to institute neo-liberal programs and policy ideas
despite the fact that even in these cases, politics was often difficult to
keep out, with perverse effects.
Although neo-liberal and pro-market ideas have always been historically present in Italy, they have mostly remained outside party politics,
with their influence and implementation delegated either to the Bank
of Italy or the EU. In domestic-party politics, neo-liberal ideas tended
13
See Schmidt 2002, 2006, and 2009.
14
See Barca 2010: 102.
350
to be more rhetoric than reality, influencing the public discourse but

lacking the strength to infuse the contents and goals of public policy.
Italy has always had a disjunction between the domestic real policy trajectory and implementation (mainly non-liberal) and the (highly
neo-liberal) hegemonic paradigm of international institutions.15
Political elites postwar construction of state-assisted

capitalism and the marginalization of neo-liberal ideas
During the economic miracle of the 1950s and 1960s that transformed Italy from a backward and mainly agricultural society into
one of the top industrialized countries of the Western world, there
were lively intellectual debates about what types of ideas should guide
the state and the market. Liberal ideas were present in these political
debates, but they had little impact on the politics. They remained
limited to a restricted circle of intellectuals and, above all, were
never represented by political parties (i.e., the liberal party always
had a minor role in the postwar period). Intellectually, however, liberal philosophers were nonetheless influential, in particular because
they had an important role in the philosophical fight against Mussolinis authoritarian fascism. Prominent among these philosophers
was Benedetto Croce, who originated the distinction between liberalismo and liberismo: the latter was limited to economic liberalism;
the former was part of the larger philosophical/ethical tradition of
liberalism.16 For Croce, liberal ideas were to be understood as philosophical meta-principles related to the global functioning of polity and
society and to the living conditions of citizens. Civil rights embedded
in a legal state were his main priority, viewed as first-order values in
contrast to economic and utilitarian goals that could divert citizens
from more important and idealistic aims. Croce, therefore, conceived
of liberalism only as an abstract and general framework; he viewed
it as completely separate from economic liberalism and mercatismo
(i.e., marketism), which became the banner of the Bank of Italy and
international organizations.
More pragmatic was the approach formulated by Luigi Einaudi,
who contested fascism during the Mussolini era on liberal grounds, fled
15
16
See Gentile 2011.

See Croce 1931; see also Modugno 2006 and the discussion in Ferrera in this
volume.
351
during the war to Genevas Institut Universitaire des Hautes Etudes

Internationales (which also welcomed other prominent neo-liberals),
and was a founding member of the Mont Pèlerin Society the thought
collective committed to promoting liberal doctrines and the open
society.17 He was a major proponent of neo-liberalism not only intellectually but also through his political positions as Governor of the
Bank of Italy in 1945, Vice President of the Council and Minister of
Finance in 1947, and President of the Republic from 1948 to 1955.
Einaudi was strongly convinced that there could not be full liberalism
without economic liberalism. He had total confidence in the market as
the most efficient instrument of resource allocation and distribution,
and he believed liberal ideas were to be implemented through pragmatic and specific public policies. That said, for Einaudi, economic
liberalism (or liberismo) was not to be unlimited; the role of the state
was to set limits and design general rules within which the market
could display its effects.
However, liberal ideas whether as a subspecies of Croces general
philosophies or in the more pragmatic version of Einaudi were to
have little influence over the contents of public policy during the postwar period of exponential growth, a time when Keynesian ideas were
predominant. Notwithstanding the fact that Einaudi was in a major
position of institutional (if not active) power as President of the Republic, he could do little to restrain the rapid expansion of the welfare state
or, as a consequence, the proliferation of public bodies in charge of
delivering the increasing number of public services. Runaway state
spending, however, became a problem beginning only in the 1960s, as
the more leftist orientation of the leading Christian Democrat party
led to the start of the rise of the deficit spending that was to grow out
of control by the 1980s. The debate is still open as to whether this
was a particularly Italian version of the Keynesian prescriptions or a
mere underestimation of long-term economic repercussions.18 What is
clear, however, is that while the government remained non-liberal in
its policies, as it ratcheted up the public deficits and debts that still
plague the country today, the Bank of Italy switched to a more neoliberal or, better, ordo-liberal approach in 1979. After Carlo Azeglio
Ciampi was appointed to head the Bank of Italy, he promoted rigorous monetarist policy in order to cut back inflation and reach currency
17
See Schmidt and Thatcher in this volume.
18
See Verzichelli 1999.
352
stability. However, this policy rather than solving the problem

at first arguably only made matters worse because the Bank of Italy
exercised neo-liberal restraint, whereas the government continued the
non-liberal spoils system.
The year 1979 was also when Italy entered the European Monetary System (EMS) and the first stage of the process of restoring the
economy to health driven from the outside, by external European
constraints. The national debate was lively, with the leader of the
Confindustria, the Minister for Foreign Trade, and the Minister for
Agriculture strongly opposing entry into the EMS and even the Bank
of Italy was at first quite reluctant. However, in the end, the German
French alliance prevailed.19 Two years later, in 1981, a neo-liberal
divorce between the Treasury and the Bank of Italy was passed, in
which the latter ceased to be the buyer of last resort of unsold government bonds and direct controls on credit and administrative obligations were dismantled in favour of a more market-oriented regulation.
In the meantime, the Italian Parliament passed a more rational reform
of the budgetary process in 1988, centred on responsible planning and
accountability. Although in the 1980s some neo-liberal policy ideas
were indeed adopted, it is important to note that the underlying program and philosophy along with the legitimating discourse were
mostly focused on using the state to reform the rules for business and
labour. Moreover, there continued to be great resistance to neo-liberal
policy ideas focused on privatization or reduction in state interventionism, which went against the trend in most other European countries
by this time, including France. It was not until the 1990s that the state
came to be viewed as the problem, not the solution.20
Technocratic elites neo-liberal reconstruction of Italys

political economy: Liberalism from above
Only in 1992, as a result of an extraordinary mix of domestic and
international factors, did Italy begin serious neo-liberal reform of the
postwar system. This occurred during the inception of the Second
Republic, so called because it came with the collapse and subsequent renewal of the Italian party system. The previously prevailing
19
20
See Dyson and Featherstone 1999 and Ferrera and Gualmini 2004.
See Regonini and Giuliani 1994.
353
opportunistic political elites were brought down by technocratic elites

in the judiciary whose virtuous circles of magistrates, beginning in the
1980s, first pursued the Mafia and then politicians and businessmen
as the Cold War drew to a close, which contributed to the demise of
the old political class. At this time, the state gained greater capacity
and a new set of political parties and politicians as a result of electoral reforms that produced more of a two-party system. The resulting
elections brought to power technical governments of pragmatic technocratic elites that in this initial period were able to push through
major neo-liberal reforms without any party vetoes or demands and
with the support of trade unions and business associations for tripartite
concerted action.
In the vacuum created by the collapse of the old political class and in
the absence of administrative elites or even of businesses with a sense
of community, networks of academics actively involved in neo-liberal
projects for political and economic reform already in the 1980s stepped
into the breach in the early 1990s to exercise policy leadership21
whether acting as advisors to the two main electoral coalitions, helping to devise the electoral and constitutional reforms, or taking on
major roles in the Bank of Italy and the Treasury. Moreover, Ciampi,
the former head of the Bank of Italy, followed the same trajectory of
Einaudi, coming onto the political stage first as Prime Minister and
later as President of the Republic. Differently from other countries,
in Italy in periods in which politics is suspended, the delegation of
political power shifts to academics. Unlike France, where the National
School of Administration (ENA) works as the main instrument of elite
selection, in Italy there are no post-graduate or specific training institutions for top civil servants recruitment. This is why university professors are considered the main depositories of knowledge and expertise
and even candidates for political position in particular those trained
in economics, due to the complexity and highly technical nature of
the policy issues or reforms to be handled. Notably, although these
academics were generally connected to one or another political party,
they retained their independence and were called to serve as individual
personalities because of their intellectual qualities and practical abilities rather than as members of any given school of thought or epistemic
community. That said, they were, indeed, part of larger academic
21
See Radaelli 2002.
354
networks that throughout the 1980s had been exchanging ideas on

what to do, and they were aware of the neo-liberal experiments being
conducted elsewhere.22
These academic networks helped craft a highly successful macroeconomic discourse about the necessity and appropriateness of sound
monetary policy that successfully pushed state and societal actors alike
to accept the austerity budgets, the one-off EU tax, and the labour and
pension reforms necessary to enable the country to accede to the EMU.
The reforms were all legitimated with a discourse that evoked the neoliberal paradigm of restraint, financial adjustment, deregulation, and
flexibility in hard times, although other values were also brought
in, such as NPM, which emphasizes the importance of efficiency and
effectiveness of state action.23
European integration, more generally, as Ferrera and Gualmini
argued, served as a set of ideas as well as policy imperatives to ensure
the rescue of the nation-state by helping to overcome state incapacity and parliamentary inefficiency with reforms that, without the
EU, could not have passed.24 This was the case not only with the
technocratic governments of the early 1990s of pragmatic ideational
entrepreneurs Amato, Ciampi, and Dini, all former professors who
brought major neo-liberal policy reform ideas. It was equally true for
the centre-left government of Romano Prodi in the mid 1990s, who
was a former academic who had also held positions in the public sector
prior to entering politics. In its communicative discourse to the public,
the Prodi government evoked the EU as the vincolo esterno that is,
the external constraint or, better, opportunity to push reform while
appealing to national solidarity and pride. National pride was evoked
in particular in the case of Spain, were it to join while Italy could not.
This eventuality served to enhance the governments efforts to convince the unions to agree to pension reforms and the public to accept
the new special tax for Europe.25 On pension reforms in particular,
success came through a mix of coordinative discourse with the unions
that went all the way down to the rank and file,26 and a communicative discourse to the general public focused on intergenerational justice
with regard to welfare reform.27
22
24
25
26
27
23
See Regonini and Giuliani 1994.
See Schmidt and Woll in this volume.
See Ferrera and Gualmini 2004.
See Radaelli 2002, Ferrera and Gualmini 2004, and Schmidt 2006.
See Locke and Baccaro 1999.
See Ferrera and Gualmini 2004 and Schmidt 2000.
355
The centre-lefts success in instituting neo-liberal reform ideas with

a discourse focused on remaining in the EU as well as on intergenerational justice was preceded by the failure in 1994 of the short-lived
right-wing coalition government of multibillionaire businessman Silvio
Berlusconi, who had had a more ideologically neo-liberal discourse and
policy proposals. The announced aim of his movement, Forza Italia,
was to introduce a liberal revolution in the state, combining elements
of Willy Brandts social-market economy with a pro-market vision for
the economy and the reorganization of public service. It is interesting
that the number two of the party was Professor Antonio Martino,
an Italian Chicago boy, PhD student of Milton Friedman, and President of the Mont Pèlerin Society (from 1998 to 2000). As Minister
for Foreign Affairs in 1993 (and later as Minister of Defense in the
second and third Berlusconi governments), Martino tried to push the
political agenda to more liberista policy positions in fields including
welfare, professions, and public bureaucracy. However, he often came
into conflict with Giulio Tremonti, the Minister of the Economy, who
was a milder conservative liberal. In any event, the predicted liberal
revolution was a dead letter because Berlusconi had to agree and
negotiate with countless veto players acting in the political arena, and
he was contested by the unions that were strongly opposed to any
liberista turnabout. In Berlusconis words, Forza Italia was a liberal
party but not an elitist one, it was liberal-democratic and popular, it
was a Catholic party but not a confessional one, a lay party but not an
intolerant one, a national party but not a centralizing one. A strong
market orientation could not fit with this hybrid and catchall party
profile.
Berlusconi was an opportunistic ideational entrepreneur who not
only largely gave up on his neo-liberal reform ideas in 1994 but also
when he came back to power from 2001 to 2006 and then again after
2008. Despite a strongly neo-liberal campaign rhetoric that promised
time and again major neo-liberal reform and a strong coalition government that had little difficulty passing legislation, Berlusconi seemed
to be mostly committed to passing laws to solve his own personal
judicial problems. In contrast, the lefts problems came more from
the weakness of its government coalitions both in the late 1990s
and between 2006 and 2008 which resulted from internal divisions on ideas about reform and resistance to the centre-lefts own
moderate neo-liberal reform ideas coming from the extreme left, in
particular.
356
From political to technocratic leadership in the economic crisis

Italys response to the economic crisis while Berlusconi was Prime Minister from 2008 to 2011 was weak. Some may attribute this to the path
dependency of an inefficient state with stalemated political structures;
however, it also can be explained in terms of the personality of the
leader (i.e., Berlusconi), the opportunistic politics of a political elite
with few innovative ideas, and a public that would have welcomed
reform of any kind but no longer believed it would ever happen. Forza
Italia had not only lost the combative spirit of its beginnings, it also
had fully adapted to the more rooted features of the partitocrazia
Italian style (i.e., immobilismo, which includes self-referential policy
making and opportunistic types of policies). The lack of commitment
to neo-liberal reform ideas in the Berlusconi years was easily apparent from the governments communicative discourse to the public, as
Berlusconi himself shifted between claiming its a dramatic crisis28 to
blustering that we will get out earlier from the crisis29 because by
putting together the public and private debt, we are the richest country in Europe, slightly above Germany . . . 30 Between 2008 and 2010,
although some neo-liberal policy ideas were implemented (e.g., reducing taxes, cutting public expenditures, and introducing more competition into the public sector), many non-liberal initiatives were also
carried out. Most notably echoing Italys past non-liberal public
neo-capitalism and a sign of its economic patriotism was the state
rescue of a bankrupt Alitalia. This was in addition to attempts to save
what the government deemed its strategic industries, including scuttling takeovers mainly by French firms of Italian energy firms, banks,
and the dairy firm involved in the early 2000s Enron-like scandal,
Parmalat.
It was only at the end of May 2010 after the first bailout of
Greece, the agreement to loan-guarantee mechanisms, and the pledge
of all member states to engage in fiscal consolidation that Berlusconi
switched his public discourse to emphasizing the harmony of ideas and
values on the need for fiscal reform with the EU, when EU Commission
President Barroso visited Italy. Berlusconi left the turn to neo-liberal
austerity, however, to his Minister of the Economy, Giulio Tremonti,
28
30
Il Corriere, 23 November 2008.

Il Corriere, May 2010.
29
La Stampa, 23 February 2009.
357
who, in a public speech in Freiburg, stated that austerity has become

the new ideology of Europe.
The reform process was authoritarian, with the government passing legislation by way of votes of confidence thereby shutting off
debates and amendments and centralizing power in the hands of
the Minister of the Economy. This was in marked contrast to the mid
1990s, when there was a strong coordinative discourse between a technical government and the social partners and the country was unified
behind the reforms, united by the idea of joining the EMU. This time,
the lack of parliamentary involvement, combined with the authoritarian style of legislating, impoverished Italian democracy and led to
increasing public disaffection accompanied by cycles of public protest
and strikes. The only positive sign was that business having lost faith
in Berlusconi because, under his leadership and in the words of the
head of Confindustria, Emma Marcegaglia, Italy has lost ten years of
growth31 began trying to engage in a coordinative discourse with
the unions to negotiate labour reforms. It did this both collectively
through bipartite national discussions and at the firm level most
notably in the case of Fiats groundbreaking firm-level agreement to
limit strikes and curtail absenteeism and work breaks in exchange for
massive investment in its Italian plants.
By mid to late 2011, Berlusconi was increasingly in trouble as a
result of public and private scandals, growing tensions and conflicts
internal to his coalition, and public disillusionment. This was clearly
evident in the massive losses for Berlusconi and his coalition members in municipal elections in May 2010 and in four referendums in
June 2010. However, with a frail Democratic Party in the opposition,
internally fragmented, with no new ideas or discourse, and unable to
project a clear political identity around which to organize, as well as
divided unions, it took the markets turning attention to Italy and pushing the price of interest on government bonds to an unsustainable level
to force Berlusconi out of office.
Mario Monti was appointed by the President of the Republic, Giorgio Napolitano, to head a new technical government of national commitment and to carry out a progam of blood and tears in order
to restore confidence in and health to the countrys economy. Monti
generated high expectations as the man who can save Europe and
31
Meeting of Confindustria, 26 May 2011.
358
national citizens accorded Super Mario growing levels of trust.32

Having served with distinction as European Commissioner for Trade,
Monti was another member of the exclusive club of Italian liberal
economists (who mostly taught at the prestigious private University
Bocconi in Milan) with a deep knowledge of European political institutions. His government of technocratic elites was composed, again,
mainly of academics and no politicians but it had the backing of major
parties in parliament on the right and the left. Its mandate was nothing
less than to reform all aspects of Italian government and administration
while putting the country back on the road to economic recovery a
tall order, given the spread in the bond markets and the lack of growth
of the economy. There also were debates about the possible democratic
deficit of the executive in this blocked or suspended democracy,33
although the government was generally considered legitimate, much
as technical governments were in the 1990s.
The reforms passed by the government had ideationally rich titles
and ambitious targets. They began with the Save-Italy decree that
the government explained was shock therapy for a terminally ill
patient and that sacrifice was necessary as Labour Minister Elsa
Fornero declared while shedding tears through a massive reduction
in the budget deficit via tax increases, pension reforms, and decreases
in the size and cost of administrative bodies.34 This was followed by
the Grow-Italy decree that sought to liberalize closed professions
and fight tax evasion as well as reorganize labour markets. The main
issue raised in parliament on the last of these initiatives, after the
brief sequence of coordinative negotiations with the social partners,
focused on the extent to which the reforms would balance laissezfaire neo-liberal ideas about labour-market deregulation (e.g., through
easy hiring and firing) with more social-democratic concerns about
recalibrating rights (e.g., revising temporary contracts to provide for
greater social protection).
Compared to Berlusconi-ism, which involved a mix of liberalism
(albeit, as noted, more rhetoric than reality) and domestic protectionism, Montis policy paradigm appeared, on the one hand, to be more
market-led liberalism because it sought to deregulate markets35 and,
32
33
34
Quoted on cover of Time Magazine, February 20, 2012.

See Fusaro 2012; Ceccarini, Diamanti, and Lazar 2012; and Schmidt 2011.
35
See Jones 2012.
See Moschella 2012.
359
on the other hand, paradoxically, more state-led liberalism, in the sense

that it engaged in a higher degree of stateness36 with greater autonomy, efficiency, and legitimacy than the Berlusconi state. Monti-ism
also contained the recognition not only that Italy cannot exist without
Europe because, as Monti emphasized, you can do without me, but
not without Europe37 but equally that Europe also cannot operate without Italys support. Montis leadership on the European stage
effectively brought Italy back as a credible European and international
player. He was largely responsible for the beginning of the shift to a
discourse about growth that Chancellor Merkel could not ignore.
The problem for Monti and Italy was that, in the end, he lost
the publics trust with policies that it perceived as increasingly harsh
in terms of austerity and not very effective as the country continued to
decelerate economically. This was clearly evident in the results of the
February 2013 elections, in which Montis supporters received barely
10 per cent of the vote, whereas the followers of Beppe Grillo a populist who had no programme other than to oppose all Italian politicians won more than 25 per cent, which effectively made it impossible
for the centre-left under Pier Luigi Bersani to form a government. After
three weeks of attempting to form a government, Bersanis statement
that only someone who was insane would want to run Italy under
these circumstances seemed prophetic.
France from non-liberal technocratic to neo-liberal

political leadership
In France, the state has always had an even more central role than in
Italy and a more positive one. Rather than the immobilismo imposed
by opportunistic political elites in the postwar years, dirigisme was the
brainchild of ideologically state-centred technocratic elites who largely
determined the non-liberal interventionist ideas for the state from the
postwar period through the 1970s. Beginning in the 1980s, however,
the transition to post-dirigisme meant that state-trained, neo-liberal
political elites replaced the state-trained, non-liberal administrative
elites and, in the process, produced the move from the administrative
state to what Yves Thiberghien called the entrepreneurial state.38 The
36
37
See Cassese 2011.

New York Times, 5 December 2011.
38
See Thiberghien 2007.
360
concept of post-dirigisme emphasizes the state as actor in and enactor

of markets while pointing to the states neo-liberal movement away
from postwar dirigisme.39 Although these neo-liberal political elites
were convinced that it was necessary to dismantle the dirigiste capabilities of the state, they nevertheless continued to find more indirect
intervention appropriate whenever they believed the interests of the
national economy and/or the polity to be at stake. Furthermore, even
the way in which they adopted and adapted neo-liberal ideas that
is, choosing to engineer state retreat from active intervention in the
economy was intended to ensure that the state remained central to
political economic activity, if only to compensate for the weaknesses
of business organization and labour coordination.40 As for the EU,
these modernizing French political elites also sought to export their
national liberalizing ideas to particular policy sectors as well as to
create, together with Germany, the Single Market and the EMU.41
Neo-liberal and pro-market ideas have been as historically present in
France as in Italy and, during the postwar years, were also marginalized. Unlike in Italy, however, neo-liberal policy ideas were actively
espoused by the right in the 1980s but then dropped, such that subsequently on both the right and the left, they were implemented in reality even as the rhetoric sought to disguise the underlying programme
and philosophy. In the meantime, the EU that had first served French
political elites as a place to export moderately neo-liberal ideas for liberalization increasingly became an institutional constraint on French
non-liberal ideas about state intervention in the markets.
Technocratic elites postwar construction of non-liberal

state-led capitalism and the fall, then rise, of neo-liberal ideas
In the early postwar years, during the Fourth Republic, Frances model
might easily have been called public neo-capitalism, as in Italy, given
the strong role of elite civil servants in the management of the economy.
The difference is that French dirigisme embodied a reasonably clear
set of non-liberal ideas, characterized by Keynesian macroeconomic
policies and interventionist industrial policy. This was carried out by
a state-trained technocratic elite, often with origins on the ideological
39
41
40
See Levy 1999 and Howell 2009.
See Howell 2009.
See Schmidt and Woll in this volume; see also Jones in this volume.
361
right or even the far right, which had the power and position to put
these ideas into action around or even against the fractious political
elites.42 It was at the inception of the Fifth Republic, however, that they
consolidated their control, which is also when the ideal-typical model
of state capitalism as such came into being.43 This type of control,
however, did not entail the same type of corruption and rent seeking
as in Italy because Frances public enterprises were led by state-trained
elite public servants who were granted a high degree of autonomy
from the state and were imbued with an ideology of the state and
their special role within it to promote the public interest not party
interests, as in Italy.44
Although neo-liberalism as an ideology remained largely marginal
during this period, there nevertheless were a number of neo-liberal
thinkers actively opposed to Frances dirigiste approach to governing.
Some of the neo-liberals of the prewar years retained influence and
access, specifically those who had been active in the resistance and part
of the technocratic elite. Jacques Rueff, in particular, who had been
part of the 1930s technocratic neo-liberal networks (and a member
of the influential group of graduates of Polytechnique, X-Crise), had
an impact, especially when he was brought in under De Gaulle to
advise on economic policy.45 Others, however, such as Louis Rougier,
who had organized the Colloque Lippman in 1938 and sought to
redynamize the movement during the war from the United States, had
little impact, particularly because he propounded nationalist ideas,
opposed the Free French, and sought reconciliation with the Vichy
government.46 The Mont Pèlerin Society, moreover, was at pains to
recruit top-level French intellectuals and officials, unlike the interwar
period when it had few such officials, with a few notable exceptions
(e.g., Rueff). It was, in fact, only as the French dirigiste approach was
beginning to demonstrate its limits in the 1970s, as the economy began
to slow, the state-owned national champions became lame ducks,
and unemployment began to increase, that neo-liberalism in France,
as elsewhere, came into its own.47
From the mid 1970s through the mid 1980s, France witnessed a
major burgeoning of neo-liberal thought through growing epistemic
42
44
45
46
43
See Nord 2010.
See Hayward 1973, 1986; and Schmidt 1996.
See Burdeau 1970 and Hayward 1986.
See Chivvis 2010 and Denord 2007: 26264.
47
See Denord 2007: 16062.
See Schmidt 1996.
362
communities of neo-liberal intellectuals, academics, policy makers, and

publicists. The new economists who adopted USstyle neo-liberal (or
at least neo-classical) economics and condemned dirigiste economics
along with the new philosophers who promoted the core principles
of neo-liberalism and criticized the dirigiste state were increasingly
influential because they portrayed the French interventionist planning
state as the problem and the market as the solution. Policy makers on
the right along with public intellectuals made the case for neo-liberal
policy ideas such as minimum income, budgetary restraint, privatization of public housing, and providing for the very poor rather than
fighting inequality.48 Even in the central administration among civil
servants in charge of planning and forecasting, the previous pluralist openness to experts with differing ideologies, methodologies, and
backgrounds gave way to a more homogenized group, largely dominated by economists more attuned to neo-liberal thinking and increasingly in agreement with the monetarists in the Treasury. Moreover,
because outside of the ministries there were no credible think tanks
tied to business or trade unions, or even independent university centres
with alternative expertise, neo-liberal policy ideas about what could
or should be done became predominant.49
Neo-liberal thought became increasingly the focus of public debate
as well, specifically once the Socialists were elected in 1981. Countless books were published by neo-liberal theorists, some of whom
sought to trace the French roots of liberalism back to the work of
the Abbe Sieyès, Jean-Baptiste Say, Alexis de Tocqueville, and Benjamin Constant; others who attempted to create a modern version
of liberalism by combining the work of French and Anglo-American
philosophers as diverse as Montesquieu, Rousseau, and Hayek; and
yet others who instead explicated and applied to France the AngloAmerican version of economic liberalism as elaborated by members of
the Chicago School of Economics and, again, Hayek or as practised
by President Reagan in the United States.50
Neo-liberalism also had a major take-up in right-wing politics, in
particular once the Socialists were elected in 1981, when the right
divided into a hard nationalist core with the National Front that
then gave up any pretence to supporting neo-liberal ideas and the
48
49
See Jobert and Theret 1994: 4346.

50
See Schmidt 1996: 13334.
363
centre-right, newly converted to neo-liberalism and calling itself

republican in contrast to the Socialists.51 The centre-right was itself
divided into ultras and moderates. The ultras, who propounded complete state disengagement from the economy and an end to most
aspects of the welfare state, were mainly academics, with one politician,
Alain Madelin. The moderates, by contrast, encouraged a reform of
the polity through limited state disengagement from the economy
including denationalization because the state is, by definition, a bad
manager and a gradual retreat from the welfare state in order to
encourage individual responsibility and la liberte dentreprendre (i.e.,
freedom of enterprise).52
Political elites neo-liberal reconstruction of Frances

political economy
When Mitterrand was elected President and the Socialists took over the
government in the midst of la crise in 1981, instead of a neo-liberal
turn to monetarism following the ideas of most other advanced industrialized countries the newly elected, ideologically left-wing Socialist
government brought back non-liberal ideas based on neo-Keynesian
reflation in monetary policy, renewed state dirigisme in industrial policy through large-scale nationalization and extensive industrial recapitalization and restructuring, and generously expanded welfare-state
entitlements. With these policy ideas, Socialist political elites claimed
in their Marxian campaign rhetoric to be breaking with the wall of
money and capitalist exploitation. Once elected, however, the Socialists largely dropped the Marxian discourse previously used to the
nationalizations for a more nationalist discourse that is, to save
French firms from foreign takeover and within nine months of their
election, they began speaking of CEOs not as exploiters but rather as
creators of riches. As one Socialist stated: We went from the idea
of a break with capitalism to the very different idea of a break with
the failures of capitalism.53 The newly appointed CEOs overwhelmingly from the state-trained technocratic elite insisted that this was
the only way forward: there was no such thing as socialist management of public enterprise, only good or bad management.54
51
53
54
52
See Zinsou 1985: 61, cited in Schmidt 2002: 274.
For interviews with author, see Schmidt 1996: 311.
364
The critical juncture of 1983 confronted the government with

double-digit inflation, runaway spending, declining business competitiveness, and the choice between staying in the European Monetary
System or pulling out of it and the Single Market. President Mitterrand
chose the great U-turn to neo-liberal monetary policy, through monetarism and budgetary austerity. For the government as one highly
placed Socialist at the time put it it was a question of either denying
the economic realities, maintaining their Socialist doctrine, and losing politically or accepting reality and plunging into ideological crisis
but having a chance to keep power.55 Mitterrand was clearly no ideological entrepreneur (he was perceived throughout his career as an
opportunist when it came to allegiances and a pragmatist when it came
to policy). However, with regard to the governments under his presidency, in the first phase, he allowed the more ideologically Socialist
members free reign and, in the second phase, the more pragmatically
neo-liberal. The problem for the Socialists from then until 1986, when
they lost power, and again from 1988 to 1993 is that although they
had cognitive arguments to justify their neo-liberal policy turn that
modernization (not neo-liberalism) was a matter of necessity to meet
the challenges of globalization and that, within this, European integration would act as a shield against globalization there was little
normative legitimization beyond appeals to French national pride in
the economic combat for national survival and revival.56 Although
the Socialists did speak of social justice Mitterrand especially the
discourse had changed from one focused on promoting equality to
one of social solidarity, which represented the tacit acceptance of the
inequalities of income and social-insurance provisions necessitated by
a more neo-liberal approach to economic management.57 It was, in
fact, not until the Jospin government of 1997 that the Socialists developed a discourse that seemed to resonate normatively at least in
the first three years by claiming to balance equity and efficiency
in privatization, labour, and social policy as well as by promising to
push for the regulation of destructive globalization.58 (Note that they
privatized more public enterprises than all the previous governments
combined.)
55
56
57
58
Henri Weber, interview with author; see Schmidt 1996: 111.

See Schmidt 2002: ch. 6.
See Jobert and Theret 1994: 728; see also Schmidt 2002: 276.
See Schmidt 1996 and 2002: 28287.
365
However, whereas the Socialists backed into implementing neoliberal policy ideas without necessarily believing in them or articulating
any discourse of legitimation, the right had not only the rhetoric but
also the reality of implementation for a short period. The Chirac
government elected in 1986 had a strong campaign discourse that
embraced a moderate version of neo-liberalism, promising to restore
liberties with a major shift to privatization, extensive financial-market
liberalization, and business deregulation.59 Chirac, however, was an
opportunistic entrepreneur, as is evident from the fact that when he
lost the 1988 presidential election he was successfully portrayed as
too radical by Mitterrand during the campaign he also lost his neoliberal enthusiasm. That said, certain of Chiracs ministers were committed neo-liberal ideologues, including Alain Madelin in the Ministry
of Industry, who all but destroyed it.
More generally, however, the countrys state-centred traditions of
economic thought prevailed even during this period. Thus, despite the
proclaimed end to dirigisme, or perhaps because of it, the privatization process was a highly dirigiste and not very neo-liberal affair: The
government hand-picked a noyau dur, or hard core, of industrial and
financial investors determined as it was to provide privatized firms
with stable leadership and protection against hostile takeovers and
foreign acquirers.60 Subsequently, moreover, whether under governments of the left or the right, although the post-dirigiste state was
engaged in implementing neo-liberal ideas focused on privatization
and deregulation, it did not entirely give up on seeking to influence
business indirectly where it saw fit. The state continued to seek strategic areas in which it could reinforce business competitiveness including by using privatization strategically, bailing out failing industries,
and providing state aid to others in need albeit under the increasingly watchful eye of the EU Commission. Frances economic patriotism was equally pronounced, such as designating yogurt a strategic sector to ward off a hostile takeover of Danone61 or interfering
with the attempted takeovers of banks. However, with regard to the
banking sector, the French state took a highly laissez-faire neo-liberal
approach to its regulation. As such, the sector has been controlled
not by the markets but rather by the bankers through their oligarchic
59
61

60
See Schmidt 1996, 2002.
366
relationships, which the state assumed to be in the best interest not

only of the firms but also of France.62 Notably, then, as Mark Vail
writes: [w]hile thus clearly liberal, the metamorphosis of the French
economy was far from neo-liberal in inspiration.63
For labour, in contrast, state intervention took the form of backand-forth efforts to liberalize the labour markets when right-wing
governments were in power as in the case of the abortive attempt
in 2006 to increase flexibility with a two-year probationary contract
for youth employment or to moralize the labour markets when the
left was in office, as with the initiative on the 35-hour work week
in the late 1990s.64 However, both efforts point to the paradox of
a state that having been the main architect in dismantling centralized labour-market regulation, nevertheless was committed to remaining a central actor in the reconstruction of the industrial-relations
system.65
From the 1980s onwards, moreover, the welfare state continued to
expand as the social-anesthesia state sought to maintain the social
peace66 as well as to meet the obligations of solidarite sociale and
to combat social exclusion. Reforms occurred periodically beginning
in the 1990s, but they were characterized not by any new paradigm
but rather by incremental shifts and layering of new policies on top
of the old, with no clear idea about where the changes would lead.67
The reforms passed generally where there was an effective coordinative discourse with the social partners, with measures that balanced
positive and negative benefits.68 This is in contrast to the failed 1995
attempt by Prime Minister Alain Juppe to reform public pensions and
to eliminate the special regime of the railroad workers. This was met
by massive strikes with public support, largely because Juppe engaged
in almost no legitimizing discourse, whether via communication to the
public or coordination with the social partners. President Sarkozys
success twelve years later in eliminating the special regimes of the
railroad workers was largely due to the fact that he had a persuasive communicative discourse to the public that reframed the issue
in terms of the French Republican tradition. He argued that equality
of treatment demanded that railroad workers retire like everyone else
62
65
68
63
See Jabko 2013.
See Vail 2010: 64.
66
See Howell 2009.
See Levy 2008.
2010.
See Palier 2006 and Hausermann
64
67
See Schmidt 2002, 2009.

See Palier 2005.
367
after forty years of employment (rather than at age fifty for railroad
conductors).69
From non-liberal to neo-liberal political leadership in

the economic crisis
It is notable that President Sarkozy had won the 2007 election on a
platform as close to market liberalism or the Anglo-Saxon model
of capitalism as imaginable for a French presidential candidate
(albeit also with elements of voluntarism) largely as a break with
the immobilism of his predecessor, Chirac. However, once the crisis
hit, he reversed his position, seemingly becoming the champion of
renewed non-liberal dirigisme through his call for greater state intervention at the national level and regulation at the global level. His
activism on the European and world stages to respond to the crisis was
impressive including calling European leaders together for coordinated action on the banking crisis and to inject non-liberal Keynesian
stimulus when the real economic engine started sputtering.
In France, however, Sarkozy ultimately accomplished much less than
he promised, and what he did do was more in keeping with the postdirigisme that had been the rule at least since the late 1980s.70 In
industrial policy, for example, Sarkozys government continued to be
committed to promoting French business by arranging mergers where it
deemed necessary; bailing out banks and firms without, however, otherwise exercising control over them;71 and doing everything it could
to facilitate the creation of French national champions, in particular
with regard to dominance in the financial-services industry.72 Economic patriotism was also enhanced, as Sarkozy continued to claim
to protect the French in globalization by railing against the unfair
advantages of the low-wage economies of Central and Eastern Europe,
threatening to prevent the sale in France of Peugeots made there, and
urging Renault to repatriate its operations with sharp rebukes from
Brussels in response. However, none of this compared to the dirigisme
of the past because it lacked the coherent planning and clear vision,
the money, and the power, given geopolitical constraints.73 Whatever
69
71
73
70
See Schmidt 2009.
See Levy 2011, Clift 2012, and Jabko 2013.
72
See Jabko 2013 and Clift 2012.
See Hardie and Howarth 2009.
See Levy 2011.
368
his populist pronouncements against the bankers, Sarkozy understood

the constraints of globalization of the financial markets and he was
unwilling to take action without global or at least European legislation to ensure that French business would not be disadvantaged by
legislation coming only in France.
However, whatever the non-liberal discourse, by mid 2010, neoliberalism was back with a vengeance, in particular as a way to address
the pledge to budgetary austerity in the negotiations of the Greek
bailout. Having led the non-liberal charge to respond to the 2008
crisis with Keynesian stimulus, Sarkozy largely gave in to Chancellor Merkels ordo-liberal ideas linked to fiscal consolidation and a
Stability Culture.74 In exchange for finally attaining Frances longcherished institutional idea of gouvernance e conomique, in which
member states would jointly govern macroeconomic policy in the Eurozone, Sarkozy accepted that such governance would follow Germanys
ordo-liberal economic philosophies and policy programme. A bonus
was that these ideas were also more in line with those of his electoral
constituency. From 2010 to 2012, Sarkozy not only accepted agreement after agreement focused on ensuring member-state compliance
with austerity (e.g., the six-pack and the fiscal compact), he also
increasingly shifted his discourse from concerns with growth and solidarity to one that parroted Merkels discourse of stability.75 It was
only in late March or early April of 2012 that Sarkozy started calling
for growth in response to his presidential-campaign opponent Francois
Hollandes call for growth and a renegotiation of the fiscal compact.
In his election campaign, Hollande proved to be mostly a pragmatic political entrepreneur who understood not only the importance
of Germany at the level of EU coordinative negotiations, and therefore
pledged to meet the goals of fiscal consolidation, but also of the French
public, which had soured on neo-liberal policies particularly because
they had not produced growth and prosperity. Significantly, although
Hollande promised in his campaign to promote growth using nonliberal policy ideas, once elected President, he charted a course much
closer to the neo-liberal, or rather ordo-liberal, orthodoxy with a discourse that insisted that in order to ensure French credibility with the
markets and the Germans, he would have to proceed to rapid deficit
74
75
See Schmidt and Thatcher, Schmidt and Woll, and Jones, all in this volume.
See Crespy and Schmidt 2012.
369
reduction and belt-tightening, as agreed in the fiscal compact. Ironically, this course of action has not only made him unpopular with
the French public, but also the contraction in the economy as a result
of these very policies is likely to make France less rather than more
credible with both the markets and with Germany.
Conclusion: Resilient liberalism through an active state

It is clear from what happened in Italy and France during the crisis
that state leadership continues to matter, and it matters arguably even
more in state-influenced market economies whether taking the form
of public neo-capitalism or post-dirigisme than in other types of
market economies because the state is ever present to make matters
better or worse. This particular intertwining between a highly active
state more typical of non-liberal ideas and highly resilient neoliberal ideas, however, has taken a different course in Italy and France.
In Italy, neo-liberal ideas have been present from Croce and
Einaudi to the present day, but they have remained in the background,
outside of domestic party politics or political institutions and with
self-interested, ideologically divided, opportunistic political elites predominating much of the time. Neo-liberal ideas appeared on the political stage only when pushed from the outside, mostly by the EU, and
imposed on the inside by pragmatic technocratic elites who have taken
over political economic leadership at critical junctures, both in the
mid 1990s and from late 2011 to early 2013. By contrast, in France,
neo-liberal ideas gained increasing predominance beginning in the
1970s albeit a generally moderate neo-liberalism that dared not
speak its name as pragmatic political elites on the left as much as
on the right beginning in the mid 1980s implemented neo-liberal policy ideas that they explained most often using a non-liberal discourse.
In short, whereas Italy had the neo-liberal rhetoric but not the reality with the exception of critical moments during which pragmatic
technocrats deployed neo-liberal ideas, discourse, and actions France
had the reality but not the rhetoric as pragmatic politicians deployed
neo-liberal ideas in action that they sought to disguise through their
discourse.
However different Italy and France may have been in the particularities of their neo-liberal ideas and discourse, both countries nevertheless
have pursued a moderate type of neo-liberalism in recent years while
370
maintaining a highly activist state. Both Italian and French elites, political as well as technocratic, remain voluntarist and committed to the
idea (if not always the practice) of a highly efficient and powerful
state, even if not as interventionist as in the non-liberal period. This
statist liberalism paradoxically violates in its aspirations as much as
in its actions not only the classical neo-liberal ideals of laissez-faire
but also the ordo-liberal ideas of rules-based state action. This further
demonstrates that there are many liberalisms, some more neo-liberal
than others, but all for the moment at least highly resilient.
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13
Reassessing the neo-liberal

development model in Central and
Eastern Europe
mitchell a. orenstein
From the point of view of many participants and observers, the breakthrough of 1989 was nothing else but the historical victory of liberalism
over socialism.
(Szacki 1995 [1994]: 34)
The standard stabilization principles apply here: fiscal deficits must be
eliminated, money creation controlled.
(Blanchard et al. 1993: xii)
Developments outside Slovakia have been exceptionally turbulent since
2008, which makes the need to provide certainty for our citizens ever
more pressing. The Government . . . will guarantee sound and sustainable
economic growth . . . which is not based predominantly on cheap labour,
uncertainty in industrial relations, impaired health and safety at work,
agency work, speculation and fraud.
(Government of the Slovak Republic 2012)
Introduction
Central and Eastern European countries were global leaders in the
adoption of neo-liberal ideas and policies during the 1990s and 2000s.
After being ruled for decades by communist political regimes that
rejected free-market economics, Central and Eastern European countries were among the least liberal societies in the world in 1989. The
following two decades witnessed a dramatic catch-up with and popularization of Western liberal norms. Estonia, for instance, which was
part of the Soviet Union for almost fifty years, transformed into one
of the most liberal economies in the world and a Eurozone member
in the twenty years between 1991 and 2011. Its economic liberalism
374
Neo-liberal development model in Central and Eastern Europe
375
now exceeds that of most Western European countries. Other countries moved at their own pace, in their own way, and with greater or
lesser trouble, but nearly all Central and Eastern European countries
adopted neo-liberal ideas and policies at a dramatic rate for the better
part of two decades.
The phase of revolutionary liberalism has now ceased.1 Whereas
neo-liberal ideas have shown resilience in some Central and Eastern
European countries, a trend towards greater statism is clearly visible
in others. Alternatives to neo-liberalism are being advanced and considered in significant parts of the region, including among the member
states of the EU.
Central and Eastern European countries are no longer breaking
world records as they sprint to adopt neo-liberal ideas. To the contrary, the dependent-market economies (DMEs) of Central and Eastern Europe are struggling with how to resuscitate growth in small, open
economies when global financial flows have dried up and promises of
increased standards of living have been disappointing for many.2 The
DMEs of Central and Eastern Europe are characterized by extreme
dependence on outside forces. Central and Eastern European countries do not fit easily into other well-known varieties of capitalism
because the locus of economic decision making does not lie within
their own borders. These economies are radically open more open
still than the small, open economies of Western Europe and thus
dependent on trade to an even greater extent. Although the DMEs
benefited greatly from a massive inflow of capital in the 2000s, they
also suffered disproportionately from the bust after the 2008 collapse
of Lehman Brothers. This experience of being buffeted by the economic
winds and the sense that the effects were increased by the extreme
openness generated by the adoption of neo-liberal policies has forced
a reassessment of neo-liberal ideas in some parts of the region.
In todays Central and Eastern Europe, an alternative set of economic ideas is on the march, specifically the more interventionist statecapitalist ideas championed by China in the past several decades and by
Russia under President Vladimir Putin. To distinguish it from Western liberalism, Prime Minister Viktor Orban
of Hungary called his
approach adopted after his 2010 election victory the Eastern winds
approach to economic policy. Some countries, such as post-Socialist
Belarus, have been so far behind in the adoption of liberal economic
1
See Ackerman 1992.
and Vliegenthart 2009.

See Nolke
376
policies that they now find themselves in the avant-garde of this new
state-capitalist trend. Yet, even in those countries that rapidly adopted
neo-liberal ideas, alternative models of economic policy are gaining
momentum. Russia, for instance, which embraced neo-liberalism in
the 1990s, reversed course in the 2000s and moved towards a stateowned and state-directed market economy, jailing or exiling a number
of uncooperative oligarchs who refused to make the shift. Hungary
has taken the lead among EU member states in Central and Eastern Europe in adopting a more statist approach to economic policy.
Yet, other countries in the broader region are following suit, especially those that never quite made neo-liberal ideas work. Ukraine (not
an EU member state but a country that has been in negotiations for
associate status) rejected IMF prescriptions and adopted a more statecontrolled capitalism. Romania and Bulgaria, which never quite fitted
into the neo-liberal mainstream, have created a crony capitalism with
party, state, or Mafia control. It seems that in Central and Eastern
Europe, neo-liberalism is resilient only in a narrow sense. It is true that
countries have not backed far away from the neo-liberal policies they
adopted in the past; however, further progress has halted, and current
trends point in many countries towards a more statist future.
This chapter focuses primarily on the EU-10 (eleven including
Croatia), which are those countries from Central and Eastern Europe
that have joined the EU in 2004 or later, with particular emphasis
on Poland and Hungary two contrasting cases that illustrate factors
that have made neo-liberal ideas more resilient or challenged. The
EU-10 countries were deeply in the thrall of socialist ideology for
more than forty years, and that experience shaped their approach to
neo-liberal ideas. Many policy makers in the region wanted to reject
socialism in its entirety and apply its purest antidote, one that would
make Karl Marx and Vladimir Lenin turn over in their Highgate grave
and Red Square mausoleum. The adoption of neo-liberal ideas was an
ideological reaction or over-reaction in a heavily ideological region
of the world. I often wonder why Central and Eastern European
policy makers seem to implement radical new ideas more completely
than their counterparts in the West would dare or desire. Do they
love ideas more? Do they adopt radical ideas out of a burning desire
to catch up with the West? Or are they more vulnerable to influence
from leading powers? Whatever the reason, it is notable that Central
and Eastern European countries exited communism and adopted
neo-liberalism with remarkable alacrity.
377
One thing that this penchant for radical economic ideas does for
Central and Eastern European countries is to make the region more
central to global theoretical debates about economic policy. Central
and Eastern Europe comprises a vast region of twenty-eight countries
with subregions including the Baltic States, the western states of the
former Soviet Union, the so-called Visegrad states of Central Europe,
and the Balkans. The battle of economic ideologies in Europe during the late twentieth century was fought out largely in Central and
Eastern Europe. What this region does, for good or for ill, seems to
presage or determine history to a remarkable extent. Because Central
and Eastern European countries have been set up as testing grounds for
neo-liberal ideas, the disillusionment with these policies in the region
could prove to be a great blow to the ideology itself, with far-reaching
consequences. As with the armies of Napoleon or Hitler, many innovations of the West have died a painful death on the Eastern steppes
before collapsing in the centre of Europe.
The rise of neo-liberalism in Central and Eastern Europe

Neo-liberal ideas took Central and Eastern European governments
by storm after 1989. Although their victory was never complete, the
speed and extent of the shift from socialism to free-market ideology
was remarkable; it was the most radical reforming region on Earth.
Other countries started from a more liberal position than Central and
Eastern European countries and remain more liberal, but few came as
far as fast. The speed of the neo-liberal revolution can be attributed to
numerous factors: their relative lateness in adopting liberal economic
ideas and a process of catching up, the weak economic position of
Central and Eastern Europe and the power of Western international
institutions after 1989, the strength of neo-liberal discourse at the time
of the breakdown of communism (i.e., the third line of analysis in the
first chapter of this volume), and of course a thorough rejection of
communism and a desire to react.
Whereas neo-liberal ideas were developed in Western countries in
the 1970s and 1980s, only faint echoes permeated the corridors of
power in Central and Eastern Europe. Bockman and Eyal documented
how an elite group of Central and Eastern European economists was
exposed to Western economics through participation in conferences
378
that sought to bring economists together across the Iron Curtain.3

Many of those economists began to wish that their country would
also embrace the market. Yet, the number of people exposed to neoliberal ideas remained small an elite group entrusted with dangerous
information. They would become important later but, under communism, their impact was marginal. Most of the rest of the population
was kept forcibly ignorant of market economics. Schools and universities trained students in an entirely different paradigm: that of socialist
economics. Students at the Karl Marx universities and higher party
schools in Central and Eastern Europe learned the superiority of techniques for planning complex systems. Because markets were mostly
banned, their operation was not deeply studied. Even basic statistics
such as GDP were measured differently, in ways that made comparisons with the West difficult. Communist and free-market economies
operated in parallel universes. In the communist countries, Western
social-science books and journals were cordoned off in special reading
rooms in leading libraries, where access was carefully controlled.
Controls began to loosen in the 1980s, particularly in Poland and
Hungary, two of the countries that went the farthest along the path
of reform communism. In these two countries, Socialist governments
experimented with liberal economic reforms, allowing managers and
workers to operate mini-cooperatives, plan their own businesses, sell
their products at market, and retain profits. These reform Socialist
experiments helped to pave the way to economic transition. Indeed,
the collapse of communism was precipitated by a measure intended by
the Hungarian government to encourage free trade with neighboring
Austria. In 1988, they cut down the barbed-wire fences that lined
the frontier with Austria and liberalized travel. This move in favour
of economic liberalism had the side effect of allowing waves of East
Germans to stream to the West via Czechoslovakia, Hungary, and
Austria. This frantic and disorganized exodus constituted a visible
rejection of the communist system that was symbolized by the Trabant
automobiles that the emigrants abandoned along the way.
Neo-liberal ideas took hold of government policy starting in late
1989 and 1990, when reformers were put in charge of finance ministries and economic policy in Poland, Czechoslovakia, and other
countries after communist regimes had suddenly collapsed. Leszek
3
See Bockman and Eyal 2002.
379
Balcerowicz a liberal economist who studied for an MBA at St John

University in New York City and returned to Poland to run a neoliberal economics discussion group as professor at the Warsaw School
of Economics in the 1970s and 1980s launched his Balcerowicz
plan as the first post-communist Minister of Finance. Vaclav
Klaus, a
market-oriented economist who worked for a Czechoslovakian state

bank yet traveled in reformist circles, became Finance Minister and
then Prime Minister of Czechoslovakia. In many countries, the small
group of economists who had been imbued with Western neo-liberal
economics were put in charge of ministries of finance and economics
and given free range in economic policy. They were often paired with
Western advisers, who poured in with extensive financing and technical assistance from the World Bank and the IMF. This so-called
Marriott brigade jetting back and forth from Washington, DC, and
Cambridge, Massachusetts contributed greatly to the thinking that
transformed economic policy in the East, developing and approving
policy agendas.4 This was truly a revolution from above, run and
operated by a small cabal of Western-trained economists with help
from their Western advisers, allies, and mentors.
There is a vigorous debate over the extent to which neo-liberal economic programmes in Central and Eastern Europe were mostly homegrown or internationally influenced.5 Whereas domestic neo-liberals
made a major impact on policy, it is also true that neo-liberal programmes of economic reform in Central and Eastern Europe took their
cues from Washington consensus policies implemented in the early
1980s in Latin America after the debt crisis.6 Ultimately, Central and
Eastern European countries had few choices if they wanted to integrate
into Western economic structures. They could choose to adopt neoliberal economic ideas and enjoy Western support or choose to adopt
another alternative and lose the support. For countries that wanted
to escape the Soviet bloc and join the EU, there was no real choice;
adoption of neo-liberal ideas was a sine qua non for membership in
the Western club. Western governments and international institutions launched an enormous assistance effort to help Central and Eastern European countries implement neo-liberal ideas. This effort was
4
5
6
See Wedel 1998.

Cf. Appel 2000, Bockman 2011, Bohle 2006, Gowan 1995, and Manzetti 2009.
See Williamson 1990.
380
coordinated at the governmental level by the G-24 and organized

through the IMF and the World Bank, as well as the EUs PHARE
programme.
For the West, the main dilemma that the Central and Eastern European transitions posed was how much the different starting point of
the communist countries would affect the implementation of the neoliberal programme. Western neo-liberal economists quickly concluded
that despite significant differences in the post-communist context, the
same basic rules applied: what the post-communist countries needed
was monetary stabilization and economic liberalization on a grand
scale plus privatization of the largely state-owned economy.7
Neo-liberal ideas exported from the West found fertile ground in
Central and Eastern Europe as the small band of economists exposed
to Western economics took positions of power in finance ministries
and other institutions of economic policy. They welcomed Western
advisers and together developed radical programmes for economic
reform. When out of power, these same reformers created neo-liberal
think tanks, often with funding from Western neo-liberal supporters
and counterparts such as Heritage and the Cato Institute. These think
tanks became important transmission mechanisms of neo-liberal ideas
into government policy.8 Central and Eastern European reformers,
including Vaclav
Klaus, Mart Laar, Ivan Miklos, Leszek Balcerow
icz, Lajos Bokros, and Yegor Gaidar, were lionized by conservative
think tanks in the West as heroes whose gutsy adoption of radical
neo-liberal ideas created a fine example for most Western politicians.
The power of these think tanks represent the fourth and fifth lines of
analysis in the first chapter of this volume on the power interests of
the winners of reform and the force of institutions supporting neoliberal policies These neo-liberal think-tank networks became closely
intertwined. One example is a book introduced by Gary Becker and
published by the conservative US National Center for Policy Analysis
that features the writings of Czech Prime Minister Vaclav
Klaus. Klaus
underscored his closeness to neo-liberal ideological heritage when he

7
See Blanchard et al. 1993. This is a key statement of the mainstream of

neo-liberal thinking on economic reform in Central and Eastern Europe.
Co-authored by leading economists, including Jeffrey Sachs, Lawrence
Summers, and Richard Dornbusch, it provided a blueprint for neo-liberal
reform programmes, a Washington consensus for post-communist countries.
See Appel and Orenstein 2013.
381
wrote: In the economic sphere, we have been consistently trying to

follow basic, well-known, conservative axioms. We have insisted on
healthy finance and on a balanced budget . . . we have insisted on continuous reductions in the state budgets share of . . . GDP, on vigorous
deregulation and liberalization and on rapid mass privatization of what
used to be the state-owned economy.9
Neo-liberalism and its discontents

Neo-liberal reform programmes in Poland and elsewhere in Central
and Eastern Europe began with liberalization of prices, trade, and government regulation.10 Neo-liberals advocated suddenly freeing most
prices that had been established by state planners for most goods
under socialism (with the exception of transportation, energy, and
public wages, where changes would be phased in), liberalizing international trade, deregulating the economy, and employing a draconian
monetary policy to control price inflation. The basic objective was to
get the price mechanism working properly through the quick establishment of free prices in a stable macroeconomic environment. Then,
neo-liberal economists expected economic actors to behave rationally,
producing what the market demanded and selling it at a market price.
The result was expected to be a short, sharp transition recession followed by sustained economic growth. Unemployment was a concern
but primarily during a short transition period. Undervalued currencies would enable Central and Eastern European countries to export
internationally, spur foreign investment, and curb consumption. Mainstream Western economists believed that a shift to democracy leads
workers to have increased and unrealistic income aspirations that can
lead to an inflationary wageprice spiral.11 These expectations would
have to be destroyed before growth could occur.
Neo-liberal reform programmes ended subsidies and price controls
on a wide variety of staple living necessities and sent prices soaring,
thereby impoverishing millions. This revolution, like Stalins, could
not begin without cracking some eggs. Neo-liberal reformers believed
that this was necessary to control inflation and to ensure that the price
mechanism worked efficiently. Continuing to enhance public welfare
9
10
See Klaus 2005: 9.

See Blanchard et al. 1993.
11
See Blanchard et al. 1993: 3.
382
through subsidies, they believed, would only delay the markets ability
to provide the goods that people needed. However, the extent of the
transitional recession was truly catastrophic and much deeper than
initially expected. Although there is an extensive debate over the depth
of the economic collapse, which differed significantly among countries
and among regions, life-expectancy figures show a frightening and
incontrovertible truth: average male life expectancy in Russia dropped
from sixty-six to fifty-seven, despite a rapid increase in the ownership
of televisions, automobiles, and washing machines.12 Populations of
most countries in the region declined in some countries by as much
as 5 to 10 per cent due to early mortality, decreased family formation,
lower fertility, and out-migration. Moreover, these damaging effects
persisted much longer than economists had predicted as long as
twenty years or more in some countries such as Ukraine. Although
other countries in Central Europe did not suffer such a catastrophic
fate, rebounding within a few years, the post-communist transition
still caused the largest collapse in life expectancy recorded in modern
history outside of wartime. Neo-liberal policies, such as the decision
to eliminate food subsidies which at least one prominent neo-liberal
economist later judged to be unnecessary certainly contributed to
this misery.13
It is often argued that this suffering could not have been avoided. Yet,
social policy was not a major preoccupation of neo-liberal economists
or reform programmes. Neo-liberal policies launched what became
an economically induced Darwinian struggle in which the young, the
strong, and the well educated won out. The old, the ill trained, and the
ethnic minorities lost, particularly the Roma (i.e., gypsy people), seven
million to nine million of whom live in Central and Eastern Europe.
The Roma had benefited from economic subsidies and affirmativeaction programmes during the communist era. After the collapse of
communism, many found that their jobs, their housing, and their benefits had been stripped away and affirmative action was replaced by
racial discrimination.14
The most innovative and controversial neo-liberal reform, that
which truly set Central Europe apart from other recipients of the
Washington consensus, was mass privatization. Because neo-liberal
12
13
See Philipov and Dorbritz 2003.

14
See Blanchard 1999.
See Ringold et al. 2005.
383
economists did not believe that enterprises would conform to price

signals if they were state-owned, they advised rapid privatization of
industry. Privatization took place in a variety of ways, depending on
the size of firms and their marketability. However, given the large
number of enterprises that had to be disposed of in a short period, freemarket advocates felt the need to move beyond traditional methods of
direct sale.15 They quickly formulated a variety of mass-privatization
programmes that gave enterprises to new owners at nominal cost,
often through the free or nearly free distribution of vouchers that
citizens could trade for shares in enterprises. At the time, mass privatization was heralded as a brilliant innovation and advocated by international financial institutions throughout Central and Eastern Europe
as an antidote to the power of red directors and a way to make all
citizens shareholders. However, in retrospect, many analysts believe
that mass privatization empowered cabals of connected individuals to
take possession overnight of the commanding heights of the economy.
The unscrupulous found ways to take control of businesses for free.
In many cases, these individuals were criminals or were connected
through corruption to the governments of the day. Mass privatization
contributed to extreme forms of political corruption and appears to be
correlated with declining living standards.16 The advice of prominent
neo-liberal economists of the time to hold off on privatization and
wait until enterprises could be sold to real owners was not heeded.17
The long-term effect of the rush to privatize through vouchers and
other means seems to have created an industrial and political structure that most people believe to be corrupt and unfair. According to
a 2006 survey conducted by the World Bank and the European Bank
for Reconstruction and Development (EBRD), at the height of the economic boom in Central and Eastern Europe that took place in the
mid 2000s, most people in the region still believed that they and their
families were economically better off before 1989.18
After the initial phase of neo-liberal shock therapy in each country, real politics set in and interest groups began to reorganize
to oppose neo-liberal ideas from a number of directions.19 First,
right-wing nationalists tended to oppose neo-liberalism because it
implied excessive dependence on the West. They perceived market
15
17
See Blanchard et al. 1993 and Sachs 1994.

18
See Kornai 1990.
See EBRD 2007.
16
19
See Stuckler et al. 2009.

See Balcerowicz 1994.
384
liberalization as a change of masters from Moscow to Brussels,

and they preferred, instead, to pursue more classically nationalistic economic policies. For instance, this was the standpoint of
Polands Kaczynski twins, who caused a furor in Europe by rejecting
Germany and hunting down former communists and secret-police collaborators who collaborated with Moscow rather than pursuing liberal reforms. A second group of opponents of liberal economic reforms
were those who profited from partial reforms and imperfect markets
to make a fortune during the transition for instance, by buying
subsidized products cheaply and selling them abroad at world prices.
People who benefited from extraordinary niche opportunities opposed
further reforms that might threaten their profitable position.20 Finally,
Social Democrats and Socialists opposed neo-liberal reforms on ideological grounds, believing that a good society would have a greater
role for state regulation, state planning, labour unions, and welfare
institutions. Social-democratic politicians were often elected to power
in Central and Eastern Europe, although they rarely delivered on their
promises.21 Neo-liberal hegemony and the pull of the West, it seems,
was too strong. Indeed, some scholars have posited that the typical
relation between left-wing parties and social spending in Central and
Eastern Europe has been reversed: the right wing registers greater social
spending on average because left-wing parties have needed more than
others to demonstrate their market-oriented credentials.22
During the mid 2000s, the transition recessions were over in most
Central and Eatern European countries except the hardest-hit countries (e.g., Moldova, Ukraine, Georgia, and Armenia countries that
stood on a geopolitical fault line between Europe and Russia), and
Central and Eastern Europe seemed to achieve the high growth rates
that they had been promised. Economic growth took off at a rate
of 5 to 7 per cent per year in most countries of the region. Nokia
opened factories in Romania; Ikea built furniture; Volkswagen manufactured trucks and SUVs; and property markets in Prague, Bratislava,
and Moscow boomed. Central and Eastern Europe, a region viewed
with great scepticism by Western investors in the 1990s, suddenly
became one of the top regions in the world for inward investment. Capital flowed in at a rate that exceeded, on a per-capita
20
21
See Hellman 1998.

See Cook and Orenstein 1999.
22
See Tavits and Letki 2009.
385
basis, the amount into similar small developing countries in Asia and
Latin America.
The boom, however, proved short-lived and ended in the global
bust of 2008. Then, it seemed that Central and Eastern Europe had
over-heated, pumped up by a wave of inward investment channelled
largely by banks into starved markets for consumer finance. There was
another anomaly: it was not only the countries that had embraced neoliberal reforms that benefited. Countries such as Belarus, which had
done the least reforming, also boomed in the 2000s. Russia, which had
rejected neo-liberal policies in favour of state capitalism including the
creation of a dominant state sector of the economy through the de facto
renationalization of major companies also grew rapidly. Therefore,
as the responsibility of neo-liberal economists for the debacle of the
1990s can be debated, so also can their responsibility for the growth
of the 2000s which appears to have had much to do with the revival
of Russia after the chaos of the 1990s.23
After the wild ride of the past two decades, Central and Eastern
Europeans are split on the results of neo-liberal economic reforms.
On the one hand, these countries have rapidly caught up in aggregate
income with the countries of Western Europe. They enjoyed rapid
economic growth in the mid 2000s as Central and Eastern Europe
became a major target for inward investment, with billions of dollars
flowing into the banking sectors of these countries to finance mortgage and credit-card debt. Yet, on the other hand, the economic bust
that followed was equally radical. Latvia lost 17 per cent of GDP in
2009. Since the crisis, Central and Eastern Europe has had the longest
recessions and the weakest recoveries of any developing region in the
world. As Asia and Latin America quickly took off, Central and Eastern Europe continued to stagnate while European investors took care
of problems at home.
Then, there are the effects of inequality. While aggregate living
standards have increased, the returns have been shared unequally.
Many people have been left behind. One particular problem is the
low employment rate in Central European countries. Whereas people working in the transformed and Western-oriented sectors have
great jobs, a large share of the workforce has no employment at
all. Employment rates in Central Europe hover at approximately
23
See Orenstein 2009.
386
55 per cent, compared to 75 per cent before the transition. Hungary,

for instance a country of ten million people has lost one million
jobs since 1989. Growth has benefited some but has never reversed
the economic devastation experienced by millions of others. This helps
to explain why Central and Eastern Europeans have a penchant for
protest voting.
Finally, corruption has left a bad taste in peoples mouths. Corruption is the primary political issue in the region and the sudden
freeing of state controls bears some of the blame. Although neo-liberal
economists believed that once the state got out of the way, orderly
markets would arise, this proved to be a textbook fantasy. In reality,
in many instances, criminal organizations, clans, and mafias of various
sorts took the reins that were dropped by the communists. That legacy
has poisoned the economics and politics of many Central and Eastern
European states. It is the most significant cause of popular discontent,
and many Central and Eastern European governments are turned out
for their corruption, to be replaced by governments that are equally
corrupt or otherwise fail to make inroads in fighting the rule of the
clan.24 In many countries, people associate the rise of corruption and
criminality with the imposition of liberal reforms.
All of this has caused a serious rethinking of the neo-liberal development strategy adopted in Central and Eastern Europe after 1989.
From autarkic communist economies, neo-liberal reform programmes
turned Central and Eastern Europe into some of the most open small
economies in the world. The process was incredibly painful, causing a massive depression that cut populations and life expectancies.
Although these economies have recovered, jobs remain scarce. Certain
sectors and people have advanced; others have not. Meanwhile, mass
privatization has contributed to high levels of corruption that poison the political systems of these countries and make public-interest
reforms difficult. Moreover, because their growth was so dependent
on massive inflows of foreign capital, Central and Eastern European
countries face a considerable dilemma in restarting growth in the midst
of a Europe in crisis. Pavol Demes, a former Slovak foreign minister
and head of the Central and Eastern European office of the German
Marshall Fund, a US think tank, stated that People are questioning
liberal democracy, the markets and the EU. They see countries like
24
See EBRD 2007 and Weiner 2013.
387
France going for national solutions when international solutions are

needed. They feel excluded. Ivan Krastev, head of the Centre for Liberal Studies in Bulgaria, perceives a shift in the pro-Western middle
class as people lose their jobs and are engulfed by their mortgages:
These people identified with the West and now feel betrayed. We did
our best, they say. We followed the best practices and now we are
told these were the worst practices. . . . There could be a loss of faith
in the West.25 International financial institutions have dismissed these
concerns since 2008, seeking to prove through academic analysis that
Western banks have contributed to greater stability and growth in the
region. However plausible this appears in economic papers, the experience of people living through a dramatic economic collapse suggested
a different interpretation to many.
The DME dilemma

Because of their extreme openness to and dependence on foreign capital a consequence of neo-liberal development policy varieties-ofcapitalism scholars have christened the Visegrad countries of Central Europe dependent-market economies, or DMEs.26 This section
focuses on two DMEs, Poland and Hungary, that struggled with a
common DME dilemma of creating growth in small, open economies
but resolved it in vastly different ways due to contrasting domestic
politics.
What differentiates the Central European DMEs from other European varieties of capitalism liberal-market economies (LMEs) and
coordinated-market economies (CMEs) is their limited sovereignty.
Much of the varieties-of-capitalism literature presumes that independent countries have the ability to create different institutional structures to govern the domestic economy. Yet, for DMEs, the main locus
of economic decision making lies outside the country. Most large companies are daughters of multinational companies based in the West.
DME banks are foreign-owned. This makes it difficult to speak of
the domestic basis of economic coordination, as in the case of other
varieties of capitalism. Hence, DMEs are defined by their extreme
openness to the international economy and the extreme dependence
on foreign investors, primarily from Western Europe. This extreme
25
See Wagstyl 2009.
26
and Vliegenthart 2009.

See Nolke
388
openness and dependence has been one of the legacies of neo-liberal

economic policies in Central and Eastern Europe since 1989.
The global financial crisis revealed a core dilemma that the DMEs
of Central Europe face with their neo-liberal development model in
coming years. The DMEs comparative advantage in the international
economy is underpinned by relatively high-skilled and low-cost labour.
As a result, it is cheaper to manufacture many goods in Central and
Eastern Europe than in Western Europe and even China, given the
proximity to markets and membership in the EU. Relatively low-cost
labour allows DME countries to attract much-needed foreign capital
and to create a niche producing cell phones, furniture, automobiles,
software, durable goods, and services for largely European markets.
Yet, citizens and consumers in these countries do not want to be lowcost labour forever; they want to increase their standards of living and
catch up with the West. These two desires must necessarily undermine one another. During the boom, they were reconciled by massive
foreign-capital inflows that financed consumer spending and mortgage
debt as well as investment. When these flows disappeared, however,
living standards and production plunged. The question is: How will
these countries manage the rising consumption expectations of voters
in highly integrated economies while maintaining cost competitiveness
in the global economy? This is the DME dilemma that Central and
Eastern European countries face as they consider new models of economic development. It is not clear that the neo-liberal development
strategy they adopted in previous decades will provide a compelling
answer.
Yet, the answer to the DME dilemma also differs among countries
based on political and economic decision makers and institutions. Each
DME is unique in some respects, with a different relation to the European and global economy, a different trajectory of neo-liberal reform,
different politics, and different reactions to the global financial crisis.
Although we could compare a wide range of cases, Poland and Hungary provide one of the most significant contrasts. These two countries
share much in common but have navigated the DME dilemma in strikingly different ways. Poland used prudent macroeconomic policies to
avoid the worst of the overheating in the 2000s and remained in relatively good condition thereafter, whereas Hungary fell prey to large,
pro-cyclical budget deficits and experienced a sharp contraction after
2008, which has been reflected in political instability. Since the crisis,
389
Hungary has led the way in adopting alternatives to neo-liberalism and

to addressing the DME dilemma that neo-liberalism has produced.
Poland has long been a stellar neo-liberal reformer and adopter of
neo-liberal ideas. The poorest and also the largest Visegrad country,
Poland adopted shock-therapy policies of economic reform in 1989
and barely looked back. Politically, Poland experienced a rough road.
The fact that the neo-liberal programme was adopted on the backs of
the Solidarity movement and its workers, who were most vulnerable
to subsequent plant shutdowns and layoffs, meant that political stability was compromised.27 Parties of the left and the right alternated in
power and changed policy approaches but without departing from the
core neo-liberal policies of stabilization, liberalization, integration, and
privatization. In large part, this was because the reformed communist
party in Poland embraced neo-liberal reforms as a way to be accepted
into the EU. Right-wing parties took a more sceptical approach to
neo-liberal ideas but ultimately proceeded with neo-liberal reforms in
exchange for moving ahead with issues like cultural policy, religious
policy, education policy, and policies for dealing with the communist past. Leszek Balcerowicz had a major impact as finance minister,
central bank governor, and think-tank leader in keeping Poland on
the path of neo-liberal reforms, and it helped that the results were
positive. Polands growth rates have been consistently higher than for
other countries in the region, although many countries caught up with
Poland during the 2000s.
Poland was not only more consistent in its application of neo-liberal
ideas; it also was more effective at suppressing citizen demands. In the
years leading up to the economic crisis, Poland used bank regulation
to avoid a high level of foreign-currency mortgages. Regulators were
rightly concerned that such mortgages were dangerous because a sudden change in foreign exchange rates could make it difficult for many
borrowers to repay. Poland adhered to strict fiscal discipline and, as
a result, had relatively low levels of government debt when the crisis
hit. In part, this is because the 1997 constitution wrote the Maastricht
criteria into the basic law of the land: total government debt cannot exceed 60 per cent of GDP. Poland was not forced to implement
severe austerity measures when the crisis hit but instead had room to
expand through automatic stabilizers. Its general government deficit
27
See Ost 2005.
390
increased from 2 per cent in 2007 to 7 per cent in 2009. As a result

of these factors, Polands economy continued to grow through domestic demand, despite the export shock. For Poland, the avoidance of
recession was celebrated as a major affirmation of its existing policies.
Former Finance Minister Leszek Balcerowicz promptly went on a lecture tour promoting Polands exceptionally good performance during
the crisis. Although the government of Donald Tusk has not pushed
further neo-liberal reforms and he backed away slightly from policies
such as pension privatization, he has not abandoned the neo-liberal
development strategy. Indeed, Poland has been a model of stability
compared to Hungary, which had an altogether different political and
economic trajectory.
Hungary perhaps typifies the DME dilemma and the difficulties that
Central and Eastern European countries have had in reining in consumption while catching up with the West. Hungary began the transition early, under reform communism in the late 1980s. Hungarian
governments, even under communism, had always been more sensitive
about imposing economic costs on the population. This was a legacy of
the fierce civil war of 1956 that left governments with a sense that they
needed to use economic rewards to prevent serious outbreaks of social
discontent. Hungarys communism was called goulash communism
for a reason: because it sought to provide the goulash and also because
it made a goulash of economic policy mixing a variety of different
ingredients and never saying no to any organized interest group. The
same practices continued into the democratic-capitalist era. The first
post-communist governments hesitated to impose the same burdens as
in Poland. Many reforms waited until the (former communist) Socialist
Party took over in 1994 and launched the Borkos package of reforms.
Subsequent governments habitually spent more than they taxed,
which culminated in government deficits that exceeded 10 per cent
of GDP per annum in the years before the crisis. At the same time,
Hungary experienced a dramatic runup in foreign-currency loans as
consumers sought to catch up with foreign standards of living. Net
foreign-currency assets as a percentage of GDP reached 47 per cent in
Hungary, one of the highest in the region.28 By 2007, 85 per cent
of mortgages were denominated in foreign currency, mostly Swiss
francs, which were attractive to consumers because of their much lower
28
See Kattel 2010.
391
interest rate compared to Hungarian-forint loans. However, when

credit expansion ceased in 2008, the forint devalued by about
10 per cent against the euro, making the foreign-denominated loans
that much more difficult to repay. As these debts accumulated, the
Hungarian government sought to lie and cover them up. After winning
re-election in 2006, Prime Minister Ferenc Gyurcsany of the Socialist
Party was recorded as stating that his party had lied morning, noon,
and night to cover up the extent of Hungarys fiscal deficit during the
election campaign. Hungarys fiscal deficit had reached 10 per cent of
GDP and the government needed to impose severe austerity measures.
This revelation caused a massive public reaction from right-wing and
extreme-right parties that mobilized often-violent public demonstrations. Total government debt reached 153 per cent of GDP in 2008,
among the highest in Central and Eastern European countries, putting
the economy in severe risk on the eve of the financial crisis that dramatically increased the cost of borrowing.
An IMF package agreed to in 2008 imposed even more severe austerity measures. Hungarys economy plunged by 6.3 per cent before
turning around in 2010. As domestic demand shrank, Hungary became
even more dependent on exports. Hungarys crisis demonstrated
the irresponsibility of high pro-cyclical borrowing and the need to
be more prudent in managing capital inflows.
More striking than the bizarre series of events leading up to the crisis
in Hungary was the aftershock. In 2010, Hungarians gave the rightwing Fidesz party a two-thirds majority in parliament, an historical
landslide as voters rejected the discredited Socialists. Yet, this Fidesz
government proved more radical than many had expected, revising the
Hungarian constitution and enacting many reforms that the EU judged
unconstitutional. Some of these changes gave power to the Fidesz party
well into the future by creating special oversight boards whose Fidesz
appointees would reign for long terms, well past the date of the next
elections. They changed numerous laws and then required that future
changes would have to be by a two-thirds majority. In economic policy,
the Fidesz government also represented a major shift, rejecting core
elements of the neo-liberal policy agenda. Hungary has charted a new
statist course that other countries in the region seem ready to follow.
Yet, why did its policies differ so much from those of Poland?
Although it is tempting to suggest that Poland and Hungary simply happened to take different approaches to managing international
392
economic integration, there is reason to believe that the differences

are structural. In particular, one major differentiating factor among
Central and Eastern European countries is the structure of political
competition: especially the extent of executive insulation and concentration of power, executivelegislative relations, the polarization of the
party system, and the extent of civil society and specifically organizedlabour representation in politics. Here, Hungary and Poland diverge
considerably.
Hungarys 1989 constitution established a mixed-ballot parliamentary election system that combined features of first-past-the-post with
proportional representation; as a result, small pluralities of the popular vote are magnified into large parliamentary majorities. In addition,
its political system has been polarized between a centre-left Socialist
Party and a centre-to-extreme-right Fidesz Party, each of which tends
to exclude the other from consideration during periods in government.
Hungary also suffers from weak civil-society organizations and trade
unions that are tied to political parties through patronage. As a result,
economic policy making in Hungary has followed patronage logic as
each successive party takes control of and loots the state at least since
1998, when Fidesz took control and ruptured the previous Hungarian
practice of power-sharing in government.29
Poland, by contrast, has a proportional-representation parliamentary system with multiple veto points. Political parties must respect
public opinion and other parties in parliament, as well as the president, who has considerable power in foreign policy. Civil society is
relatively highly mobilized and trade unions, in particular, have a significant role within each of the major parties. The result has been a
more democratic, inclusive policy process in Poland. These differences
in politicalinstitutional setup and policy-making style have translated
directly into significant differences in economic management.
In Hungarys polarized, majoritarian political system, there appears
to be a stronger impetus to spend rather than conserve resources;
economic electoral cycles are stronger; and the state budget suffers.
One of the peculiarities of Hungary may be that it has generally been
the left wing (after a while) that imposes austerity, not the populist right
wing. In Poland, by contrast, the right-wing liberal parties have been
more fiscally conservative and the left-wing socialists have been heavily
29
See Grzymala-Busse 2007: 67.
393
in favour of EU membership, which tends to make them relatively

conservative in fiscal policy. Governments have often been weak and
reliant on opposition support at times, particularly for economic-policy
decisions. A two-thirds majority that enables the Orban
government to
enact a radical shift in economic policy would not be likely in Poland.
The way forward

Central and Eastern Europeans increasingly have become disenchanted
with neo-liberal economic policies. The development model of the past
twenty years has met with successes and failures, with the balance
differing among countries.30 The dilemma of growth through low-cost
production in new democracies with rising consumer demands and
European aspirations hovers heavily over a region that experienced
a dramatic boom-and-bust cycle in the 2000s and now confronts a
Europe that is unwilling and unable to finance a new boom. This has
caused many Central and Eastern Europeans to re-evaluate the neoliberal development strategy and to consider alternatives.
The main alternative that has arisen has not been Social Democracy
which surprised many leftists given the Marxist feel of the current crisis but rather state capitalism. Given the travails of Western European welfare states and government debt induced by the crisis, Social
Democracy has been perceived as unattainable in Central and Eastern Europe. Instead, countries have experimented with a more statecoordinated form of capitalism, following the experience of leading
Asian and Eurasian countries namely, China and Russia. As awareness has grown of the weaknesses of the neo-liberal development model
in many countries, it appears that some form of coordination is the best
antidote. The only organization capable of providing that coordination
in a situation of Mafia and crony capitalism is the state. To do so, the
state must command additional resources, take a different approach
to regulation, and place itself above the many private monopolies and
Mafia organizations in the country. It must consolidate power and
create an economic policy that furthers state power and control.
Although post-socialist China has successfully run a state-capitalist
development strategy for several decades and has attained success in its
transition to capitalism that far outpaces the limited successes achieved
30
See Sachs 1994 and Szacki 1995 [1994]: 9.
394
in Central and Eastern Europe, the state-capitalist leader and innovator

in Central and Eastern Europe is quite clearly Russia. When President
Vladimir Putin came to power at the beginning of the 2000s, he initiated a radical shift in Russias policy towards economic reform and
democracy. His top priority was order. To remedy the chaotic social
situation bequeathed to him by President Boris Yeltsin, Putin decided
to impose order. He did this by asserting state control over the oligarchs the wealthiest capitalists in the country who were ordered
to stay out of politics and relinquish assets that the state demanded,
particularly in media and oil and gas. Putin developed national champions, such as Gazprom, that were closely held by the state and sought
to achieve geopolitical as well as economic goals. Indeed, Ian Bremmer
argues that the major difference between state capitalism and other
forms of capitalism is that the business organizations are placed at the
service of state power.31 Although some argue that Russia remains a
market economy and that a large percentage of business is in private
hands, the freedom of business in Russia is, in fact, limited and constrained to certain non-strategic sectors. The heavy hand of the state
is everywhere, and the rules of the game are such that the state is a
vital partner in all major businesses.
This state-capitalist model is exactly what the government of
Viktor Orban
in Hungary sought to achieve after his re-election in
2010. When Hungarians were tired of the economic mismanagement
of the Socialist governments of the previous eight years and the effects
of the economic crisis which fell heavily on Hungary due to its
considerable exposure to foreign-denominated mortgage loans and its
enormous pro-cyclical budget deficit they voted decisively for a new
approach in 2010. It remains uncertain whether this new approach is
working, but there is no doubt that it departs significantly from the neoliberal development model. Orban
has concentrated power by using
the two-thirds majority in parliament that his Fidesz party won to pack
the Hungarian Constitutional Court which has acted as an effective
check on government policy to reduce the number of ministries and
ministers, to eliminate many institutions that gave the opposition a
voice in policy, and to change the constitution in ways that make it
difficult for future governments to rule without Fidesz. For instance,
he appointed a new budget committee that under the constitution will
31
See Bremmer 2010.
395
have a veto on government budgets. In economic policy, the Orban
government publicly flouted the IMF (despite needing an IMF rescue

package in 2008), sought to resist the most stringent efforts to cut budgets, nationalized the private pension funds that were created in a 1998
privatization of the public pension system, used the money to pay off
debt, and forced banks to resolve the foreign-denominated mortgage
crisis by adopting a fixed exchange rate and swapping mortgages into
Hungarian forints. Orban
also vigorously opposed measures to make
the central bank more independent. Needless to say, the foreign banking community is outraged. It remains to be seen how these policies
will play out, but there is no doubt that the Orban
government represents the greatest departure from the neo-liberal development model
yet attempted in Central and Eastern Europe.
Orban
appears to have inspired other governments notably that of
Jozef Fico, president of neighbouring Slovakia and whose government
has promised to strengthen the governments role in the economy.
Ficos 2012 government manifesto states: Recent developments have
shown that globalization, apart from accelerating the development of
national economies, can also complicate it [sic], and he promised an
effective use and formation of the development potential of the state.32
His government reversed the flat-tax system of personal-income taxation adopted by a previous government, increased corporate income
taxes, and consolidated health insurers into a single state-run company,
among other measures. Similarly, Romanias government programme
for 20092012 states that The financial crisis that began in 2007 propagated rapidly in an increasingly globalized economy, turning in short
time into not only the most serious postwar economic crisis but also
in the first crisis that prefigures a resettlement of the world economic
order . . . it is time to start a debate at the national level, about the
long-term objectives and projects. A historic stage has come to an end
experiment
and we have to shape the road for the future.33 Orbans
with state capitalism is being closely watched in Central Europe and

lessons are being drawn, which is why Orbans
statements in favour
of statist economic policies combined with a return to authoritarian

rule have raised such concerns in Europe. In July 2012, Orban
drew a
clear connection between the pursuit of unorthodox economic reforms
32
33
See Government of the Slovak Republic 2012.

See Government of Romania 2009.
396
and state control when he stated in a speech to a business association:

and let us hope that God will help us and we will not have to invent a
new type of political system instead of democracy that would need to
be introduced for the sake of economic survival.34 He also stated: It
makes no sense to copy Western Europe but, in the spirit of freedom,
we must establish our own economic systems.
The moment when governments in Central and Eastern Europe
blindly followed neo-liberal ideas, at greater or lesser speed, has
passed. Governments are considering other options, and they do so
because of perceived failures of the neo-liberal development programme. Although the successes and failures of neo-liberalism in Central and Eastern Europe can be endlessly debated and there are good
points on both sides, the neo-liberal programme did not live up to its
promise, its successes have been uneven, and other development strategies adopted by other post-Socialist countries have performed better
in some respects.35
China is the shining example. Although its starting conditions
differed greatly, China undertook a similar post-communist transition without neo-liberal shock therapy. Instead of privatizing and
bankrupting its state sector, shedding employment and output, China
maintained a large state sector alongside a burgeoning private sector.
To this day, state enterprises compose a large percentage of total output and employ millions of Chinese. Most of the largest banks in China
remain state-owned, and they channel credit primarily to the state sector. Chinas reform model can best be described as dual-track, with
a large state sector maintained to provide full employment and direct
investment and a growing private sector given scope to develop new
sectors. Russia is another important example because its economic rise
coincided with the imposition of the authoritarian government of President Putin and his state-capitalist model of development. Whatever
the ultimate cause, Russia had a rough ride with free-market capitalism
and democracy, and the public now embraces a different approach.
How resilient is neo-liberalism?

How resilient has neo-liberalism actually been in the countries of
Central and Eastern Europe? To be sure, these countries are deeply
34
See Free Hungary 2012.
35
See Orenstein 2009.
397
imprinted with their two-decade-long experiment with neo-liberal policies and ideas. Central and Eastern European countries are among
the most liberal in the world; they are perhaps the most open small
economies on the planet. They have the highest rates of foreign-bank
ownership of any developing or developed set of countries. Many are
now members of the EU, with all that membership implies in terms of
free markets and openness to trade. In many of these countries, liberal
parties espousing neo-liberal economic platforms continue to be successful notably in Poland, where the Citizens Platform Party of Donald Tusk has proven to be a durable force, at least for the time being.
Yet, discontent with the results of the neo-liberal development model
has risen. Other alternative programmes have been launched, and the
era of neo-liberal revolution appears to have ended in Central and Eastern Europe. Some countries have rolled back important neo-liberal
reforms (e.g., the flat tax and pension privatization) and imposed
a more heavy-handed form of regulation, as in Hungary. Countries
are again promoting national champions in economic competition
and experimenting at the margins with nationalist economic
policies.
In the end, it depends on how we judge resilience. Is a set of ideas
resilient because no one can formulate, for the moment, a better
alternative? Is a set of ideas resilient because it has endured a crisis
without collapsing? I find this to be a thin notion of the concept of
resilience. Instead, from the perspective of Central and Eastern Europe
or the European Central Bank, it appears that neo-liberalism is in midcrisis. It has been seriously challenged, found wanting, but not yet
replaced. Tempers have cooled. Advocates of radical neo-liberalism
have changed over to more commonsense approaches. The future will
not be the same. As the editors of this volume have indicated, Europe
is muddling through. That is also true in Central and Eastern Europe:
lands where great new ideas are readily embraced and then angrily
rejected. Liberalism has gained a certain constituency in these countries, but this is not a majority coalition.36 At the very least, it will
have to be tempered by combination with other economic approaches
emanating first of all from the conservative right but also the statesocialist left of the political spectrum. This may allow neo-liberalism
to persist, according to the editors of this volume. However, the
36
See Jacoby 2006.
398
economies of many countries in the region will continue to serve the

interests of the non-ideological cabals and mafias that have gained
control of the commanding heights of the economies who are allied to
no set of ideas in particular but rather to the compulsions of their own
power. Powerful interests may support neo-liberalism, in line with the
fourth line of analysis discussed in this volume, or they may not.
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part iv
Conclusion
14
Conclusion: Explaining the

resilience of neo-liberalism
and possible pathways out
mark thatcher and vivien a. schmidt
This volume begins with a puzzle: Why has neo-liberalism proven

so resilient in Europe, despite multiple internal difficulties and external challenges? Chapter 1 sets out a definition of neo-liberalism and
its ideational resilience. It notes that the term is broad and can be
used in different ways and that resilience can vary. It specifies the
resilience of neo-liberal ideas as characterized by their continuity,
dominance, and survival. The first chapter offers five lines of investigation to explain such resilience in political and policy debates: (1)
neo-liberalisms generality, diversity, and mutability enables it to adapt
to and hence resist challenges; (2) neo-liberal ideas have predominated
because they have remained at the level of rhetoric; (3) neo-liberal
ideas have been stronger than competitors in policy debates and political discourse; (4) neo-liberalism remains dominant because of support
by powerful interests who gain from it; and (5) institutionalization of
neo-liberalism has given it a superior and protected position relative
to possible alternatives.
This concluding chapter draws on the preceding chapters to pursue
the five lines of analysis set out in the Chapter 1. We begin by following
through the five lines of analysis, demonstrating how they relate to
the empirical cases. Then we examine possible pathways out of the
ideational dominance of neo-liberalism. Our aim is not to provide
a simple mystery-writer whodunit response to the initial puzzle
the chapters in the book have already shown the complexity of the
answers but rather to trace the diverse forms of the resilience of
neo-liberalism and the factors responsible for it.
Resilience is a process, not a fixed state it occurs and must
be assessed over time. It is highly political, marked by struggles
to determine agendas, set goals, and select policies. Furthermore,
it varies across both domains and countries. In a few domains
notably welfare after extending their reach, neo-liberal ideas have
403
404
Part IV: Conclusion
faced social-democratic counterattacks and then evolved into a new

synthesis, such as liberal neo-welfarism. In other domains, neo-liberal
ideas may have produced the opposite of what they initially intended,
such as how the roll-back of the state to free up the markets metamorphosed into state roll-out and a new synthesis of liberal neo-statism.
Moreover, in some Eastern European countries, policies justified by
neo-liberal ideas have come to face strong opposition after years of
unquestioning acceptance, whereas neo-liberal rhetoric has long faced
rejection in France. However, be this as it may, the core principles of
neo-liberalism have continued to predominate. Competition has been
the central concept for debates about the organization of markets at
both the EU level and the national level, not only in Anglo-Saxon
polities such as the United Kingdom and Ireland but also in more
corporatist and social-democratic countries such as Germany, Sweden, and Denmark. Competitiveness has been the goal for national
economies and firms across Europe, including in statist countries such
as Italy and France. Austerity and structural reform continue to dominate Eurozone-crisis debates, with active labour market policy focused
largely on increasing labour-market flexibility. Overall, it is striking
how often neo-liberal ideas have been resilient in the past thirty years
or so in political and policy debates in Europe. So how, then, do we
explain such resilience? Moreover, given that resilience, are there any
pathways that lead beyond neo-liberalism?
Five lines of analysis of the resilience of neo-liberal ideas

The lines of analysis developed in the first chapter of this volume
provide insight into the resilience of neo-liberalism. They offer explanations not only of why it has continued over time with its ideas
enduring, recurring, and adapting but also why it has won against
competitors and survived despite its own failures. Ideational flexibility,
remaining at the level of rhetoric, robustness in debates, and support by
powerful interests and institutions all had important roles in sustaining
neo-liberalism.
Neo-liberalisms ideational generality, diversity,

and mutability
The first line of analysis focuses on the substantive content of neoliberal ideas. It explains their resilience mainly in terms of their
Conclusion
405
generality, diversity, and mutability. Although the generality of neoliberalism makes it difficult to pin down, its diversity enables it to
encompass many different and even contradictory ideas while its mutability enhances its capacity to adapt to changing and even hostile terrains. The mechanisms of this type of resilience, as discussed in Chapter
1, encompass processes of metamorphosis, absorption, and hybridization.
The resilience of neo-liberal ideas is witnessed in the continued presence or recurrence of certain very general core principles or themes
over time. These include certain holy grails, such as the centrality
of market allocation, the value of competition, and the importance
of individual responsibility. It also involves certain broad orientations,
such as the primacy of negative freedom (especially from state interference) over positive freedom, the priority accorded to sound money,
and the suspicion of collectively provided rights especially in the welfare domain. All of these orientations remain present even as policies
and programmes are revised over time to changing realities.
Neo-liberalisms adaptability is apparent in its ability to encompass
evolving and sometimes conflicting ideas. One key example concerns
ideas about the limited role of the state. Conflict and contradiction in
this core idea have led to conceptual expansion, not retreat. Initially,
reducing the role of the state went hand in hand with the idea of deregulating markets in the financial and network utilities sectors in the
1970s, which was also intended to promote the other core ideal of
market competition. However, critiques (and experience) then rapidly
showed that without re-regulation, market competition was ineffective
or corrupted. Instead of acknowledging defeat, proponents of neoliberalism subsequently theorized the state as market enhancing, as if
such activity were different from other (undesirable) state action. The
result has been a process seen in much of regulation namely, freer
markets, more rules1 as well as the move from roll-back to roll-out
of the state.2 Similar conflicts are replicated in the labour and welfare
arenas, with the move to active (meaning more state involvement in)
labour-market policies, to make workers employable, away from an
earlier assumption that deregulating the labour market would on its
own be enough to put people back to work.3 The result is not only an
extension of neo-liberal ideas into areas of labour and welfare policy
1
2
and Thatcher, both in this volume.

See Vogel 1996; see also Mugge
3
Part IV: Conclusion
406
that were previously based on principles of rights, collective provision,

and social solidarity but also as with regulation new neo-liberal
policy ideas that the state should support and enable markets.
The metamorphosis of neo-liberal ideas as old neo-liberal ideas
have reappeared in altered forms or at least with new labels has
been clearest in the treatment of ideas about fiscal and monetary
policy.4 Theories of the gold standard and sound money were discredited by Keynes and subsequent generations of economists after
the Great Depression. Yet, from the 1960s onwards although few
took seriously ideas of a return to gold sound-money theories were
reincarnated as monetarism with new labels and ideas that governments should focus on managing the monetary supply to prevent inflation and avoid fiscal policy crowding out more productive forms
of spending. Monetarism, in turn, was fiercely attacked in the 1980s
because controlling the money supply proved largely impossible, had
little connection to inflation, and was insufficient as a central policy
framework. Nevertheless, in the 2000s, especially in response to the
Eurozones sovereign-debt crisis after 2008, ideas about reducing government deficits and debt levels have reappeared with new labels and
justifications such as sustainable debt and rhetoric that smaller government will result in economic growth.5 Battles fought (and lost) over
a neo-liberal idea in one period are not condemned to failure in later
periods as a result of neo-liberalisms ever-changing labels, policies,
and instruments.
Absorption, as neo-liberalism has incorporated parts of other frameworks or even critiques, is most marked in the welfare arena. Faced
with attacks by non-neo-liberal thinkers concerned with issues of social
justice and equity, policy makers and commentators have engaged in
ideational bricolage and conversion as they melded neo-liberalism with
these other ideas to form what Maurizio Ferrera (see his chapter in
this volume) defines as the discourse of liberal neo-welfarism. This
synthesis maintains the neo-liberal emphasis on negative freedom but
assimilates or responds to critiques by extending its reach to new areas,
such as non-discrimination on grounds of gender or sexuality and balancing equality of opportunity with that of outcome. The result is a
new and much less contested version of neo-liberalism, more attuned
See also Jones in this volume.
Conclusion
407
to questions of social justice. A similar process characterizes the development of active labour market policies, in which traditional Social
or Christian Democrat ideas of state support for the unemployed have
been joined to (and perhaps thereby undermined by) neo-liberal principles of individual rather than collective responsibility for employment
and principles of enhancing competition and employability.6
The hybridization of neo-liberalism, which explains its capacity for
diffusion and translation in diverse national contexts, can be witnessed
even in countries seemingly most resistant to neo-liberal ideas. For
example, despite their traditional social-democratic and corporatist
ideals, both Germany and Sweden integrated key principles of neoliberalism (e.g., use of markets to allocate resources or competition),
thereby producing hybrids of corporatist-managed liberalization in
which social partners are important participants in ensuring internationally competitive firms.7 However, as they adopted neo-liberal
ideas, they adapted them to national specificities. In Germany, ideas
about liberalization focused on seeking competitiveness through low
wage and welfare costs without undermining key beliefs about matters such as co-determination in core parts of the labour market.
In Sweden, liberalizing ideas have centred on aiding the rise of hightechnology sectors and risk-venture capital. Even in countries with
strong statist traditions, neo-liberal ideas have experienced a degree
of integration as a result of hybridization. They have made inroads
in Italy, where their supporters (including in centre-left political parties) have presented neo-liberal ideas as part of a programme to modernize the state and reduce its inefficiency and nepotism.8 In France,
although neo-liberalism is perceived as an attack on the state and the
term has been largely rejected, both the political left and the right have
used key neo-liberal policy ideas (e.g., the promotion of international
competitiveness by reducing domestic burdens) in similar efforts to
modernize the state and its relationship with business.
The mutability of neo-liberalism via adaptive processes of metamorphosis, absorption, and hybridization offers a heady cocktail for policy makers and ideational entrepreneurs who can draw on neo-liberal
intellectual traditions and lineage dating to at least the nineteenth century in order to legitimate contemporary programmes, policies, and
6
8
7
408
Part IV: Conclusion
instruments. British policy makers (usually from the right) can refer to
thinkers such as Adam Smith, Milton Friedman, and Friedrich Hayek
or successful Victorian values, whereas German neo-liberals can refer
to ordo-liberal thinkers. They can also use those traditions, however,
to adapt policies and policy aims to contemporary circumstances. As
Cathy Martin (see her chapter in this volume) shows, whereas liberalism in the nineteenth century often meant upward social mobility for
the able but lowly born set within a context of social class, today its
application to active labour market policies involves freeing individuals
from state shackles.
Thus, the nature of neo-liberalism as an overall orientation characterized by a core set of first principles rather than a specific and falsifiable set of theories or doctrines or proposals is a key part of an analysis of its resilience. However, this is insufficient alone because explanation also requires identification of political processes and actors,
as well as the context within which they operate. Hence, the nature
of neo-liberalism invites consideration of further explanatory factors,
namely, policies, rival ideas and discourses, interests, and institutions
that are considered in the other lines of analysis.
Neo-liberal rhetoric versus reality, or the benefits of

non-implementation
The second line of analysis focuses on the apparent paradox that nonimplementation may, in fact, benefit neo-liberalism. This is linked
with many examples of neo-liberal policy ideas that are impossible
to achieve in practice and yet repeatedly return in debates and political programmes. Such impracticable ideas are espoused not only by
commentators, academics, and think tanks but also by political parties in and out of government. Although actors may sometimes behave
irrationally in terms of their own self-interest, the repeated nature of
the phenomenon suggests that proposing impossible policies has its
rationale. This may be related to political entrepreneurs ideological
commitments, regardless of the practicality of those ideas; their opportunism during elections; or their pragmatism once elected, as noted in
the first chapter of this volume. It may also be related to political
entrepreneurs seeking to change the terms of the debate, who repeatedly present true neo-liberalism as something yet to be accomplished.
Conclusion
409
Preserving the purity of neo-liberalism, which is not sullied by the

inevitable compromises of practical politics, is one rationale for the gap
between rhetoric and reality. Partial or non-implementation allows the
regular re-use of neo-liberal ideas in policy debates, especially at the
level of discourse about general principles and overall policy directions.
One example is seen in relation to the state that, as noted previously,
is both an enemy to be cut down in size and rolled back in scale
and power and yet also a central player in the enforcement of competition. Many governmental promises to reduce the state, spurred
by ideological commitments, have been made and failed. Thus, in the
United Kingdom, the inability to reduce total public spending in absolute real terms in aggregate and even as a share of GDP in the 1980s,
including under Margaret Thatcher, did not stop the Conservative
Liberal government after 2010 from promising to reduce state spending in ways not seen since the 1920s. Past non-implementation allows
current neo-liberal politicians to distance themselves from the policies
of their predecessors, whether from their own party or those of their
opponents. Although the rhetoric of spending cuts without their substance is an attractive political strategy, actual implementation may
lose the next election.
The setting of far-reaching but impossible targets also diverts attention from current problems. Thus, the promise of future spending and
tax cuts leading to economic growth in the United Kingdom and Ireland directs the publics gaze away from the grim reality of recessions,
increased deficits and debt, and even public spending rising as a share
of (falling) GDP.9 The promised land of neo-liberalism is more alluring than contemporary realities of policy inertia, incremental change,
and outright failure.
Indeed, a further rationale for impractical neo-liberal ideas is that
failures of implementation can legitimate yet further efforts towards
neo-liberalism. For example, in regulation, unachievable promises in
the rhetoric have offered good cover for accretions of power by regulators. Difficulties in achieving effective competition in network industries or the financial sector have been used by both the European
Commission and national regulators to justify new ideas about reregulation to enforce such competition.10
9
10

See Thatcher and Mugge,
410
Part IV: Conclusion
Moreover, neo-liberal ideas may be designed not for implementation but rather to alter the terms of political debate. Although much
austerity is unachievable in practice, the central questions in political
debate have become how fast to cut rather than whether to do so.
Responses to the crisis beginning in 20072008 focused on state debt
and deficits, despite the crisis being caused in large measure by private
debt in countries such as Ireland and Spain.11 Thus, the dogmas of fiscal conservatism that were subject to devastating critiques by Keynes
and others have returned.12 In welfare and labour-market policies as
well, the rhetoric of cutting back has contributed to debates in which
pensions or welfare payments are viewed as wasteful burdens more
than the earned rights of citizens.13
This second line of analysis offers a powerful response to arguments that neo-liberalism does not exist because many of its specific
policies have not been implemented. Indeed, the ideational breadth
and inclusion of contradictory elements make it particularly likely to
benefit from the gap between rhetoric and policy reality. However,
this explanation also raises a number of important questions. First,
why have policy makers not taken up alternative ideas that are more
practicable? This draws attention to the political value of neo-liberal
ideas in political debate. A second question concerns the uses made
of neo-liberal ideas for instance, by political parties or firms and
hence points to the role of interests in sustaining debates centred on
impracticable policy objectives. A third issue is why the political system
permits impossible ideas that resemble fairy tales to be told and re-told,
despite contrary experiences which again suggests that interests and
institutions are at work.
The strength of neo-liberal ideas in policy debates and

political discourse
The third explanation for the resilience of neo-liberal ideas is that they
have proven stronger than their rivals in policy debates and political
discourse. The relative strength of neo-liberalism refers here to debates,
11
12
13
See Hay and Smith and also Jones in this volume. See also Grant and Wilson
2012.
See Schmidt and Thatcher, Martin, and Ferrera, all in this volume.
Conclusion
411
not to its academic or inherent virtues. Indeed, despite myriad academic

critiques, neo-liberal discourse has offered or at least appeared to
offer clearer and more practicable ideas for solutions to current
policy problems under current international constraints than alternatives linked to Social or Christian Democracy, let alone Socialism.
This may arise from the actual content of the ideas, how political
entrepreneurs use these ideas to frame the problems of the day, and
how they communicate those ideas. Alternatively, it may be due more
to the weakness of alternative ideas than to the strength of neo-liberal
ideas per se.
One of the clearest yet most surprising examples of the strength of
neo-liberal ideas relative to rivals lies in responses to the Eurozone crisis. The debates have centred on neo-liberal policies because the crisis
has been framed as one of public profligacy and excessive state debt
requiring austerity and the reduction in public spending.14 In contrast,
the brief neo-Keynesian moment after the collapse of Lehman Brothers, when G20 governments agreed to stimulus packages, has largely
been presented as a failure despite the plausible argument that
without it, recession would have been deeper and that its main weakness was too small a stimulus.15 Neo-Keynesian policy ideas remain
marginalized and have appeared (at least in policy debates) to struggle
with problems such as administering fiscal stimuli in open economies
with massive capital flows and therefore have not represented a strong
ideational rival.
Similarly remarkable examples are provided in EU regulation of
economic markets and financial regulation. Notwithstanding evidence
that financialization was at the root of the 20072008 crisis and that
competition in many financial and other markets is harmful, debates
have focused on the failures of state regulation on ensuring fair competition and enhancing the market.16 Traditional European alternatives such as public ownership, monopoly, and industrial policy are
not only marginalized but also the target of EU action in the name of
the Single European Market and international competitiveness.17
At the national level as well, neo-liberalism has seemed better placed
in policy debates than its competitors. In Eastern Europe, it appeared
14
16
17
15
See Krugman 2012 and Stiglitz 2010.
See Mugge
in this volume.
See Thatcher in this volume; see also Jabko 2006.
412
Part IV: Conclusion
to promise eventual economic growth, whereas the alternatives were

dependence on a state that has suffered from links with past communism or present right-wing nationalism in countries such as Hungary and Poland.18 In France and Italy, Christian Democrat or statist
paradigms have been tarnished by association with past policies of
state spending and failures (e.g., corruption, misuse of funds, and
inadequate, unresponsive public administration).19 Even the disasters
of private-sector financialization in Britain and Ireland were followed
by debates about how much state austerity to pursue rather than structural reforms of the housing and financial markets or Keynesian policies to offset falls in private-sector demands.20 For all of these countries, moreover, discourse about the challenges of globalization and
the pressures of the international financial markets served to further
reinforce the neo-liberal message that there are no alternatives.21
Why do such neo-liberal ideas appear stronger than their competitors? One reason is related to the content of the actual ideas as presented in policy debates and political discourse. Key neo-liberal concepts such as the virtues of competition, the inefficiencies of the state,
and the importance of ensuring (negative) freedom for productive
firms and entrepreneurs generally form a focused and interlinked whole
in the discourse. These core principles can underpin policy programmes
that have been updated to meet current conditions, thereby offering
ideational models to guide policy makers whether in macroeconomic
policy, EU regulation, or financial regulation. In contrast, the policy
programmes of neo-liberalisms opponents on the centre-left (Social
Democrats in particular) are often underdeveloped in these areas. For
example, despite the fact that the financial markets and the operation
of the euro and EMU lie at the heart of the economic crisis, alternative
paradigms offer no clear alternative programmes to formal commitments about debt and deficit limits or to rhetoric about principles such
as sound money, competitiveness, and excessive state deficits.22 This
is equally the case for financial and EU economic regulation.23 Where
they do offer proposals, they often seem outdated and ill suited to open
economies facing fierce international competition.
18
19
20
21
22

See Gualmini and Schmidt in this volume; cf. Cassese 1998.
See Schmidt 2002: ch. 1; see also Hay and Rosamund 2002.
23
See Mugge
Conclusion
413
Another reason that neo-liberal ideas predominate is that their simplicity and apparent good sense provide cognitive power and normative resonance in policy debates and political discourse. Thus, the
neo-liberal conception of the state budget as analogous to that of a
household budget is cognitively powerful at the same time that, it resonates normatively with individual personal experiences; conveying a
neo-Keynesian argument about the differences in nature between state
and individual budgets is more difficult.24 More generally, Keynesian
policies of supporting demand through fiscal policy face commonsense claims that states cannot continue to spend more than they earn
a position taken up even in France, which has not run a budget surplus for almost forty years.25 In elections, moreover, the state always
makes an easy target, and campaigning against opponents in power
or even ones neo-liberal predecessors is aided by the argument that
the state needs to be scaled back and reformed to meet the neo-liberal
ideal. Similarly, normatively portraying welfare spending as wasteful
or pointing to unsustainable rising costs due to longevity risks is easy
to convey in political discourse. Conversely, alternative ideas that such
spending supports the competitive economy or reflects changing social
preferences about collectively provided benefits are difficult to explain
and communicate simply and quickly. Even notions of solidarity have
shifted through neo-liberal reframing as the term has become synonymous with economic loan bailouts rather than mutually advantageous
support mechanisms.26
Yet another factor responsible for the ability of neo-liberal ideas
to beat ideational competitors has been the effectiveness of communication by neo-liberal ideational entrepreneurs in policy debates
and political discourse. Such entrepreneurs include political elites
and entrepreneurs such as Reagan in the United States, Thatcher
in the United Kingdom, Balcerowicz in Poland, and Klaus in the
Czech Republic. However, the group of ideational entrepreneurs
extends to technocratic elites such as members of the European
Commission, whose authority results from their expertise, and also
to academic elites, mainly economists such as Friedman, Hayek,
and contemporary economists whose simple models embed neoliberal assumptions about rational actors in free markets and
24
25

26
See Crespy and Schmidt 2012.
414
Part IV: Conclusion
provide authoritative references for both technocratic and political

elites.
This third line of explanation has many virtues, notably in highlighting the central place of neo-liberal values, theories, and paradigms in
public-policy debates. However, it also has a number of problems.
First, it cannot explain why in some domains, specifically welfare,
clear alternative values and paradigms exist sometimes with deep
historical roots and widespread popularity whereas in others, they
are lacking. Another problem is that it cannot explain why given the
Eurozone crisis and neo-liberalisms own weaknesses alternatives
have not been seriously attempted.
These weaknesses suggest that other explanatory factors also matter,
notably the interests of key actors and the institutional framework
within which neo-liberal ideas are formed, developed, disseminated,
debated, and adopted by policy makers. If we analyse political debates
as a competition for ideas, then the nature of the markets, including
markets for ideas, is likely to be influenced by the actors engaged in
the competition as well as by the context in which it occurs.
The power of interests as the winners from neo-liberalism

This fourth line of explanation points to the power of interests behind
neo-liberal ideas. It suggests that self-interested actors strategically promote neo-liberal ideas whether or not they believe in them to gain
from their continued dominance. These self-interested actors may be
individuals acting on their own or as part of economic and political
interest groups or as institutional actors, such as unelected officials
in state administrations or non-majoritarian institutions at both the
national and supranational levels. As part of efforts to further their
own interests, these actors contribute to the production and propagation of neo-liberal ideas in policy venues and to the more general
public.
Firms are the most obvious self-interested economic actors sustaining neo-liberal ideas especially large, transnational firms and their
senior managers. Some act directly in popularizing neo-liberal ideas,
such as the mass media companies, the most flagrant examples of which
have been those controlled by politically active media moguls including Rupert Murdoch in the United Kingdom, Silvio Berlusconi in Italy,
and Martin Bouygues in France. Others contribute more indirectly
Conclusion
415
to the production or popularization of neo-liberal ideas by establishing, supporting, and financing neo-liberal societies, think tanks, and
research institutes (e.g., the Mont Pèlerin Society and the Institute of
Economic Affairs)27 or by participating in the shaping of policy agendas or the creation of specific policy ideas.
It is important to note that firms generally do not act on their own
but rather form broad coalitions to promote their interests. They have
needed vital accomplices not only elected politicians and political parties but also unelected officials. Coalitional influence is visible
in EU debates about regulation of financial markets, mergers, and
corporate governance, in which large firms and their managers have
coalesced with EU and national government officials to form advocacy coalitions behind neo-liberal ideas of expanding and protecting
competition.28 At the national level as well, alliances have formed
among large firms, unelected officials, and political parties to promote
neo-liberal ideas, not only in Britain and Ireland but also in coordinated market economies such as Germany and Sweden.29
Such coalitions also benefit from feedback mechanisms that enable
them to grow as other self-interested actors join or become more integrated in a type of band-wagon effect. This has happened in many
different areas, including EU competition policy, in which initial opponents particularly from statist countries such as France and Italy
subsequently redefined their policy preferences.30 However, it may also
be the result of rationally self-interested calculations, in which actors
may decide that they must be within the winning coalition of the
battles for ideas a dilemma faced by many parties of the centre-left
from the 1990s onwards.31
Among political actors, parties are naturally the most important
set of interests in the strategic use of ideas. Those on the political
right have used and propagated neo-liberal ideas in efforts to re-centre
political debate around themes that offer favourable terrain, such as
reducing the size and scope of the state, replacing rights to welfare
27
28
29
30
31
See Mirowki and Plehwe 2009; for Britain, see Denham 1996. See also
Schmidt and Thatcher, Schmidt and Woll, and Gamble, all in this volume.
Thatcher, and Vitols, all in this volume. Cf. Coen 1997; Coen and
See Mugge,
Richardson 2009; and Coen, Grant, and Wilson 2010.

See Schnyder and Jackson and also Martin in this volume.
See Thatcher in this volume.
See Gualmini and Schmidt and also Schnyder and Jackson in this volume.
416
Part IV: Conclusion
with duties to prepare for the labour market, and creating labourmarket flexibility.32 However, neo-liberal ideas have also been used by
centre-left Social Democrats (not only the now ill-starred Third Way
Blairites but also parts of the Italian left) and centrist parties that are
liberal socially and economically (e.g., the FDP in Germany) to gain or
retain power. Neo-liberal ideas have also served as weapons against
their opponents. Thus, for instance, ideas about obstacles to efficient
labour markets leading to higher unemployment or state spending as
wasteful have helped in such actors attacks on trade unions and
public employees or to portray social-democratic parties in France and
Italy as conservative (i.e., anti-progressive).33
Senior unelected public officials in organizations such as the European Commission, ECB, and national governments have also been both
producers and beneficiaries of neo-liberal policy ideas and agendas.
This has been most evident through their membership in the epistemic
communities and advocacy coalitions formed to promote financialmarket liberalization, competition policy, and liberalization of services
in the Single Market, as well as to push the austerity agenda for the
EMU over time. At first glance, the support of senior officials may
appear odd, given neo-liberalisms hostility to collective state benefits;
however, as noted previously, it favours a strong state for certain functions. Hence, senior public officials can use neo-liberalism to increase
their powers in certain domains and to avoid unwanted tasks and
responsibilities in others notably, the often difficult and expensive
task of updating the collective provision of services, a process suggested
by a bureau-shaping model of policy.34
An interest-based explanation is valuable because it brings to the fore
those who gain and lose from neo-liberalism. However, actor interests
do not always simply map onto ideational preferences. Thus, the chapters in this volume also suggest that institutional actors such as firms
may not always have simple interests in supporting neo-liberalism but
can support hybrids that incorporate elements of alternative paradigms
such as corporatism and Social Democracy.35 Moreover, an interestbased explanation cannot account for how and why labour and the
32
33
34
35
See Gamble 2009 and in this volume.

See Martin and also Gualmini and Schmidt in this volume.
See Dunleavy 1991.
For instance, see Schnyder and Jackson in this volume.
Conclusion
417
beneficiaries of a wide range of social policies have lost in the policy debates or reversed their views. This is especially puzzling because
these actors are more numerous than large firms and their managers.
Whereas part of the answer may rest in the difficulties of collective
action or theories about capture by interest groups that highlight
the costs of organizing numerous actors with limited stakes, as compared with a small number of large firms,36 another part relates to
the (re)construction of actors ideas, which refers to the previous three
lines of analysis about neo-liberal ideas. Attributes such as flexibility,
high levels of generality, and appeals to common sense and personal
experience also help to explain why neo-liberal ideas may be particularly suitable for rewarding powerful supporters, creating coalitions,
and selling them to the public.
The strongest objection to interest-based explanations is internal,
however. Frequently, neo-liberal policies damage their supporters.
Rarely have political parties and politicians espousing radically neoliberal ideas successfully weathered the transition into political office.
Thus, for example, the German FDP is struggling to survive, at the
same time that, in France, the economic liberals headed by Alain
Madelin have been conspicuous by their failures whereas mainstream politicians such as Sarkozy and Berlusconi soon dropped their
neo-liberal rhetoric.37 Ideas of reducing collective benefits such as
healthcare, pensions, and education are vote-losers. Even in Britain
the most favourable micro-climate for neo-liberalism in Western
Europe the evidence suggests strong popular support for collective provision of welfare services such as the National Health Service and pensions, whereas in Central and Eastern Europe, the initial popularity of neo-liberalism has given way to disillusionment
with perceived results such as increased poverty and inequality.38
Hence, the most penetrating questions may concern how and why
those interests are constructed and especially why actors find neoliberal ideas to be the best way to serve those interests. This returns
us to the other explanatory factors but also takes us forward to
the role of institutions in shaping incentives or in constraining
action.
36
37
See Olson 1965, Peltzman 1976, Stigler 1971, and Wilson 1980.
38
418
Part IV: Conclusion
The force of institutions as supports and constraints

The final line of analysis points to the force of institutions in sustaining neo-liberal ideas and in disadvantaging alternatives. Institutions
understood primarily as formal organizations or informal and formal
rules and norms at the supranational and national levels have affected
the adoption of neo-liberal ideas in a variety of ways. Their influence can be best analysed in terms of different neo-institutionalisms,
including the rationalist shaping of actors institutional incentives
to favour neo-liberal ideas; the historical institutionalization of neoliberal ideas, such that these become path-dependent constraints or
set the limits to opportunities for incremental change; the sociological
framing of agents institutional engagement, whether through mimesis, norm-following, or coercion; and the discursive interactions that
in turn structure the (re)construction and spread of ideas.
In terms of organizations, the EUs new non-majoritarian institutions from the 1980s onwards have actively promoted neo-liberal
ideas.39 Thus, the ECB and many national central banks have been
powerful institutional proponents of ideas about reducing the size of
state deficits and debts through cuts in public spending and reforming
welfare and labour markets through structural reforms.40 The European Commission and especially DG Competition have been given new
functions and powers over the Single Market since the mid 1980s, and
they have used this role to promote a model of liberalizing markets by
ending national legal monopolies.41 In financial regulation, new agencies for stock exchanges and other financial services have been established that have then also promoted neo-liberalism in terms of modeling rational actors and efficient markets in greater competition.42
New or strengthened private bodies have also had a significant role
in promoting neo-liberal ideas. Credit rating agencies provide a good
example: despite their multiple failures to accurately assess risk, their
neo-liberal criteria for ratings of public debt have weighed on private
and public decisions about acceptable state deficits and debts or the
credibility of policies and even governments.
In terms of rules, neo-liberal ideas have often been institutionalized through legal constraints. Macroeconomic policy at both EU and
national levels provides particularly clear examples. The Treaty rules
39
41
40
See Thatcher and Stone Sweet 2002.
42
in this volume.
See Mugge
Conclusion
419
on EMU set formal requirements for national debt and deficits, as

well as a single target for the ECB (i.e., control of inflation) and a
no bailout clause. Since the crisis of 20072008, many policy debates
have centred on how to meet the Treaty rules.43 There are strong rational incentives for this focus: rewriting the rules would have required
a Treaty change a difficult undertaking requiring unanimity. Moreover, institutional and political actors have become strongly invested
in the ideas behind these rules a constructivist might say defined by
them making reversal difficult.
Often, the rules prove coercive, particularly when authoritative institutions use their powers of imposition rather than persuasion. The
most visible examples are in Eastern Europe, where EU and IMF conditionality was important for countries such as Hungary,44 and then,
of course, in recent Eurozone bailouts of Greece, Ireland, and Portugal
or the threat of bailouts for other countries such as Spain and Italy.
Even without a direct quid pro quo, however, coercion is significant,
whether through the succession of pacts and compacts requiring member states to adhere to increasingly more stringent rules regarding EMU
or through less formally institutionalized means, such as when member states face pressures to adopt neo-liberal prescriptions in order to
maintain credibility with the markets or to keep credit rating agencies
from lowering their ratings.
Finally, neo-liberal ideas can inspire mimesis because they have
become fashionable or, due to norm-following, because they are
perceived as the only legitimate course of action. These ideas are
therefore copied across countries and domains irrespective of their
applicability45 and the diversity of national conditions.46 EU organizations in particular promoted policy recipes and helped to create neo-liberal norms about legitimate policy ideas. These include
promoting powerful orthodoxies such as linking unemployment benefits to aiding recipients to return to the labour market,47 the value
of competition in markets,48 and the need to reform the state by
introducing new public management mechanisms into the state.49
43
44
46
47
49

45
Cf. DiMaggio and Powell 1991.
See Schnyder and Jackson, Gualmini and Schmidt, and Orenstein, all in this
volume.
48
See Thatcher inthis volume.
420
Part IV: Conclusion
Mimetic and normative forces can also be perceived as creating strong

pressures for actors to adopt such ideas by altering payoffs from following neo-liberalism, as more rational-choice work on diffusion of
liberal economic institutions demonstrates.50
The force of institutions, whether considered as organizations or
rules, can also be illustrated by their ability to hinder alternatives to
neo-liberalism. Rival ideas generally are opposed by powerful organizations such as the European Commission and the IMF, backed by
legal powers. They may also run counter to rules, whether legal (e.g.,
EU Treaties as interpreted by European Court of Justice judgements)
or more informal norms, or they may be excluded simply because
they are branded as unorthodox, however well founded. In finance,
the proposed and rather modest Tobin tax on financial transactions
resembles long-standing national duties on trading in financial instruments, yet it was cast as unconventional until recently. The stakeholder value model continues to be shelved as an approach to corporate governance.51 Similarly, traditional ideas such as monopolies and
public ownership that were the dominant model in most countries prior
to the 1990s52 are now branded radical because they run counter to
dominant institutions, as well as both formal and informal norms.
Institutionalist analyses of neo-liberal ideational resilience have
many virtues. They underline the importance of institutionally derived
resources and positions and bring out the restrictions and constraints
within which policy makers think about policies. Thus, in contrast to
the first three explanations, an institutionalist analysis views ideational
debates as embedded in organizations and structures. It also differs
from an interest-based analysis in emphasizing that actors and their
interests are created by and operate within wider structures. Hence,
it includes the importance of the broader institutional context for the
adoption of neo-liberal ideas, which helps to explain the variation
in the embedding of neo-liberal ideas in the member states. Examples include the differential success of active labour market policies
in Britain versus Denmark53 or even between countries within one
variety of capitalism, whether Britain versus Ireland or Poland versus
Hungary.54
50
51
53
54
Cf. Simmons et al. 2006 and Simmons and Elkin 2004.

52
See Vitols in this volume.
See Thatcher 2007.
See Hay and Smith and also Orenstein in this volume.
Conclusion
421
Institutionalist analyses also face criticisms and harbour weaknesses,

however. First, there is frequently considerable room for interpretation
within a given set of rules; indeed, sometimes rules can conflict. Thus,
for instance, there is space within EU rules on competition for pursuit
of objectives other than competition, including forms of public service
and industrial policy, or within the rules on monetary union for the
ECB to take unorthodox measures to save the euro.55 Second, changes
in rules have sometimes countered neo-liberal movements. In welfare
policy, for example, neo-liberalism faced alternative ideas about rights
based on gender, sexuality, and disability that drew strength from EU
law and European Court of Justice decisions.56 Third, some of the
organizations perceived as carriers of neo-liberal ideas have acted to
promote alternative ideas, as when the European Commission initiated
discussions about the stakeholder model of corporate governance and
alternative modes of regulation of network industries.57 Even the IMF,
a core carrier of neo-liberalism, called for Keynesian measures and
slower moves towards austerity after 2008, and in 2013 criticized its
own policies with regard to the Greek bailout, along with those of
the Commission. Finally, referring to the previous lines of analysis, the
political process can offer a source of friction, new ideas, and coalitions
against neo-liberalism, particularly when events or interpretations
thereof seem to run counter to neo-liberal policy and programmatic
ideas.58
Pathways out of neo-liberal ideational dominance

Neo-liberal ideas remain resilient because they continue to define the
problems of the day and frame approaches to the solutions in most
economic-policy domains. We have yet to see any overall paradigm
change, let alone a Polanyian social countermovement to the neoliberal market movement. That said, it may be simply too soon to tell
whether new ideas, new interest coalitions, and incrementally changing
institutions are in fact already generating a shift to an alternative set of
ideas. We should remember that neo-liberalism also took a long time
to come to dominate, even after the early 1970s crisis that gave it an
opening.
55
57
58
56
See Thatcher and Jones in this volume.
See Vitols, Ferrera, and Thatcher, all in this volume.
Cf. Lieberman 2002 on sources of change of existing ideas.
422
Part IV: Conclusion
So, our final question is: How could such neo-liberal resilience end?
Stated another way, is there any hope for those who may have long
opposed neo-liberalism and long decried what they have perceived as
its ideational slipperiness, its broken (and unfulfillable) promises, its
sleights of hand in debates, the cynical support of powerful interests,
and the bias in choices due to its institutional embeddedness?
As a preliminary response to this multifaceted question, we return
to each line of analysis to discuss how it could be reversed. We draw
on the chapters that offer variations in neo-liberal resilience and on the
exceptions to the general picture of neo-liberal dominance in political
and policy debates.
Breakdown due to internal conflicts and contradictions

One pathway out of neo-liberalism would be by the concept being perceived as stretched too far and discredited by its internal conflicts and
contradictions. Although neo-liberalism is highly elastic, even rubber
bands can snap when stretched too far and too often.
The very processes that have aided the resilience of neo-liberalism
as a high-level set of principles that is, metamorphosis, absorption,
and hybridization may actually undermine it. The pathway may
well resemble Kuhns analysis of paradigm change. Over time, these
processes lead to increasing anomalies, which at some point become
unsustainable because internal contradictions cannot be contained.
The outcome would be a replacement of neo-liberalism as an overarching framework with another paradigm for understanding the relationship between politics and the economy along with the way that an
economy operates. Which other paradigm might emerge is unknown
and probably unpredictable but, for our purposes, the point is that
neo-liberalism as a set of first principles or overall framework would
be superseded.
There are certainly important signs of internal ideational strains in
neo-liberalism. Thus, for instance, the principle of the limited state
has been modified beyond recognition by the idea of a strong state
that should enforce neo-liberal principles.59 In the field of regulation, this can be seen in the idea that the state is now supposed both
59
See Schmidt and Woll in this volume; cf. Gamble 1988.
Conclusion
423
to be limited and yet enhance markets.60 Moreover, the absorption

of diverse and often rival principles has undermined neo-liberalisms
coherence. Thus, in the field of welfare and active labour market policies, ideas include ensuring rights and equality among different groups
on grounds of gender, sexuality, and racial origins, as well as assisting
workers to become fit for work.61 These principles not only prevent
a limited state but also conflict with competition as they enter the
realm of different forms of equality of outcome, access to resources,
and capabilities. In addition, hybridization has seen neo-liberal ideas
meshed with social-democratic, corporatist, and statist ideas such that
its core principles of competitive markets and a small state are sacrificed to others, such as the state playing a central role in market
outcomes.62
Unsustainable gaps between rhetoric and reality

Thus far, lack of implementation has aided the resilience of neo-liberal
ideas by performing valuable political functions, such as maintaining
ideational purity, legitimating more neo-liberalism, diverting attention,
and altering the terms of debate. However, increasing gaps between
the rhetoric of neo-liberalism and the realities of policy making may
lead to the opposite effects.63
Our chapters offer several pieces of evidence for such effects. The
impracticability of neo-liberal ideas instead of allowing continued
avoidance of the messy compromises of implementation may lead
to the abandonment of neo-liberal principles. Fiscal and monetary
policies are possible candidates for such a process: repeated failures
to introduce austerity policies of curbing public spending and the
negative results of attempts to do so are leading to the breakdown of the
BrusselsFrankfurt consensus, which targets only inflation and limits
60
61
62
63

See Mugge
See Ferrera and Martin, both in this volume; cf. King 1999.
See Schnyder and Jackson and also Gualmini and Schmidt in this volume.
For a discussion of growing governance challenges to neo-liberalism after the
crisis, see, for instance, Calhoun and Derluguian 2011; or, for a possible
breakdown due to the misguided pursuit of austerity, see Blyth 2013. For the
effect of implementation failures leading neo-liberalism to hit a wall and
thereby enabling the rise of new ideas in social policy, see Jensen 2010; and for
the possible effects of self-induced crisis, see Peck, Theodore, and Brenner
2010.
424
Part IV: Conclusion
public spending and debt regardless of the broader economic situation;

even the ECB is open to new theories as it wrestles with ideas that do
not work in practice.64 Equally, the failures of neo-liberalinspired
policies may lead to loss of legitimacy, as the Teflon protecting neoliberalism wears off and it is blamed for economic and social problems.
Here, regulation at national and EU levels offers at least some straws
in the wind.65 The often-trumpeted virtues of greater competition
are now held responsible (by some policy makers and commentators,
at least) for problems such as excessive risk, vast undeserved banker
bonuses, and repeated patterns of privatizing gains and socializing
losses.66
The capacity of distant neo-liberal goals to divert attention from
current problems also may be decreasing. These goals are generating
higher levels of unpopularity and have increasingly been viewed as
part of the problem rather than a long-term solution in countries such
as Italy and Hungary.67 Moreover, whereas the solutions proposed
by ideological neo-liberal entrepreneurs have increasingly come to be
seen as out of touch with reality, those promoted by pragmatic and
opportunist leaders may be seen as demonstrating that neo-liberalism
cannot, in fact, be implemented. Finally, the gap between rhetoric and
reality ultimately may even make neo-liberalism irrelevant to political
debates even if there is little sign of this at present!
The rise of stronger alternatives to neo-liberalism

The third line of analysis suggested that neo-liberal resilience has been
due to its greater ideational strength relative to its competitors in policy debates and political discourse. However, the advantages in the
battle of ideas with rivals may be undermined. The Polanyian double
movement may finally take place. On the one hand, the content of
neo-liberal ideas may be weakened from the inside by its increasing
internal incoherence and gaps between rhetoric and reality, as discussed previously. On the other hand, rival ideas may gain strength,
whether they are existing or new ideas that are reformed. They may
arise from novel sources such as new movements in Latin America
64
65
66
67
See Jones in this volume; see also Blyth 2013.

See Mugge
See Nouriel Roubinis Global EconoMonitor, 28 September 2008.

See Gualmini and Schmidt and also Orenstein in this volume.
Conclusion
425
(following its extensive experience of neo-liberalinspired policies) or

even the United States under leaders such as Obama.68 Such ideas
may be able to reframe the policy debates, for example, by placing
politics before, rather than after, economics. This would facilitate a
return to a more positive view of the state and its role, or to even a
more Republican view of democracy, in which what is good for the
polity determines decisions about the market rather than vice versa.69
A new policy discourse could also present very different views of how
markets can and should operate especially because even economics
is now (re)discovering the limits of agent rationality and the role of
culture, psychology, inherited institutions, and politics.
Our chapters offer evidence of the potential for the rise or return
of powerful rivals to neo-liberalism. Some of the evidence is based on
alternative liberal theories. In welfare, neo-liberal ideas have faced
strong challenges from rights-based philosophies and have been transformed if not superseded by them.70 Other evidence is based on the
return of more traditional ideas of markets subject to state action
to secure the general good that extends beyond promoting competition. Thus, in corporate governance, the stakeholder model represents a long-standing alternative to the narrower shareholder model,
whereas in regulation, ideas focused on addressing systemic risks
point to policy aims that are superior to those more narrowly focused
on competition alone.71 Similarly, in monetary and fiscal policy, alternatives to weakened neo-liberal ideas based on principles of austerity
are being discussed.72 Moreover, critics of new public management
have turned the contradictions in neo-liberalism to their advantage
by arguing that seeking to incentivize individuals to reduce corruption or rent-seeking that is, by fighting greed with greed cannot
work in theory and has not worked in practice. They argue that the
only workable solution is to increase trust by reintroducing notions of
community and collective responsibility.73
68
69
70
72
73
For new ideas in Latin America, see Grugel and Riggirozzi 2012; for diffusion
of rival ideas to neo-liberalism from Latin America in social policy, see Jenson
2010.
See Schmidt and Woll in this volume; see also Scharpf 2012.
71
See Vitols and Mugge,
See Vitols, Mugge,

Thatcher, and Jones, all in this volume.
See Schmidt and Woll in this volume; see also Pollitt and Boukaert 2011.
426
Part IV: Conclusion
Traditional alternatives to liberalism may also be renewed and reinvigorated. Thus, social-democratic ideas remain strong and appear
more successful in countries such as Germany and Scandinavia, sometimes enhanced by having added elements of neo-liberalism concerning competitiveness.74 However, powerful extremist alternatives are
also on the rise especially nationalist alternatives, whether based
in nation-states or regions, which promote xenophobic, statist, and
protectionist ideas. The extreme right-wing nationalist government in
Hungary provides a powerful example, but similar ideas promoted by
extremist right-wing parties have achieved popularity in other countries, such as France, Italy, Greece, and even the United Kingdom.75
Although Socialist ideas appear to remain marginal, they too have
achieved some return in many countries.
Powerful interests pressing for new ideas

Neo-liberal ideas have enjoyed support from powerful interests that
gain from them. Yet, these actors may withdraw their support for neoliberalism if they calculate that it is damaging their interests. Moreover,
new powerful actors and coalitions advancing alternative ideas may
emerge or existing actors may be mobilized.76
The chapters in this volume provide support for these potential developments. Powerful unelected officials have begun to be
more critical of neo-liberal tools. One surprising example is illustrated by financial organizations, such as the ECB and even the
IMF, which are raising questions about standard neo-liberal Brussels
Frankfurt consensus ideas, such as the overriding importance of stable prices, the value of attempting to rapidly curb budget deficits
in recessions, and the efficiency of factor markets.77 The European
Commission sometimes pursues alternative ideas, such as protecting services of general interest from the effects of competition.78
However, it is political parties and social movements that show
the greatest movement away from neo-liberal ideas, at least at
the level of political discourse. This is certainly the case of parties on the moderate left that have engaged in strong criticism of
74
75
76
77
See Schnyder and Jackson and also Martin in this volume.

See Orenstein, Gualmini, and Schmidt, all in this volume.
See Cahill 2011.
78
Cf. Thatcher in this volume.
Conclusion
427
neo-liberalism, such as in France,79 whereas social-democratic parties have been winning elections in the Netherlands, France, and Italy
with arguments favouring growth and questioning neo-liberal orthodoxy. At the same time, new radical actors have also emerged, from
the Grillo movement in Italy to the extreme nationalists in Eastern
Europe.80 Populists on the right have also seen the gains from abandoning neo-liberal ideas, including the embodiment of an opportunistic
politician, Silvio Berlusconi.
Even if rarely implemented by governments thus far, the new discourse suggests the potential for self-interested actors to modify their
calculations or for new actors to put forward substitutes for neoliberal ideas. If current policies continue to allow or cause increasing
unemployment, slow growth, extreme inequalities, and rising poverty,
that potential is likely to expand, and new coalitions may form that
challenge and win against the neo-liberal status quo.
Institutional breakdown or new institutions

Change in the organizations and rules, formal and informal, that sustained neo-liberalism provides a fifth pathway out of neo-liberalism.
New organizations may be established that will promote alternative
ideas, or existing organizations can be altered to achieve the same outcome (e.g., by modifying their objectives or composition). The legal
framework of policy making that has appeared so constraining to nonneo-liberal policy ideas is also open to modification. Equally, informal
institutions can change as professional norms evolve, different ideas
are copied, and actors create new meanings for existing rules. Moreover, institutions may be transformed in ways already theorized by
institutionalists, from radical alteration from one punctuated equilibrium to another in response to a major catastrophe (e.g., if the European economy were to suffer a prolonged recession or even collapse) to
incremental change or gradual processes such as conversion of existing
institutions or layering of new ones over them.81
The chapters offer several examples of actual or possible institutional
developments that could undermine neo-liberal ideas. Powerful existing organizations are witnessing alteration of their formal or informal
79
81
80
See, for instance, Streeck and Thelen 2005, Hall and Thelen 2009, Pierson
2004, Baumgartner and Jones 1993, and Krasner 1984.
428
Part IV: Conclusion
mandates, thereby promoting ideational conversion. Some modifications are surprising. Thus, the ECBs formal and informal responsibilities have been extended, from stabilizing the Eurozone economy via
injections of liquidity to rescuing euro member states and their banking systems. In turn, this has created pressures for the ECB to find new
ideas about the role of central banks and the operation of economies.82
In addition, regulatory institutions have seen significant reforms that
point to a modified environment for neo-liberal ideas, notably the new
provisions under the Treaty of Lisbon and legal rulings on the importance of services of general interest.83
Conclusion
Neo-liberal ideas have been at the centre of debates about economic
policy since the 1980s. Despite the successes of Social and Christian
Democracy after 1945, the strength of the embedded liberalism in
which state action sought to offset or limit market competition, and
the presence of powerful alternative traditions, neo-liberal ideas have
spread across countries, beginning with the United Kingdom but also
reaching across Continental Europe to the north, south, and east, as
well as to the EU. Equally, they have stretched from welfare to regulation and from fiscal and monetary policy to labour markets and
corporate governance. Moreover, neo-liberal ideas have continued to
dominate through (small) booms and (big) busts; even the crises of the
2000s have not ended their predominance.
Political scientists are notoriously poor at predicting the future.84 It
may be that It is always darkest just before the Day dawneth,85 and
just as we are writing a book about the resilience of neo-liberalism,
those ideas collapse. Yet, it is also very possible that neo-liberalism
will remain strong and central in debates for many years to come as
a result of its own ideational characteristics, combined with support
from interests and institutions.
Regardless of the future, the resilience of neo-liberalism is worthy
of analysis due to its importance and the puzzle it provides. It also
offers a major example for the study of policy ideas as phenomena in
82
84
85
83
See Blyth 2006.
See Thomas Fuller, A Pisgah-Sight of Palestine and the Confines Thereof,
1650.
Conclusion
429
themselves, just as institutions, interests, and discourse have been subjects of investigation. As Keynes argued, ideas are central to political
debates and choices; understanding when, how, and why some ideas
endure despite multiple challenges is a fascinating and essential task.
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Index
absorption
neo-liberalism, 406, 4078
paradigm change, 422
plasticity, 25
resilience, 405
welfare, 406
welfare reform, 28
accounting, fair value, 21718
accounting practices, 157
Action Plan on Company Law and
Corporate Governance, 258,
2734, 278
active inclusion, social promotion,
978
active labour-market policy, 2278
agenda, tensions, 2334
alterations in power, social classes,
235
austerity, 238
diverse goals, 234
evolving neo-liberal positions,
267
flexible labour markets, 2278
incentives, 238
institutional context, 229
institutional influences,
implementation, 2289
investment in marginal workers,
237
multidimensional, ideological
appeals, 227
new direction, 235
policy intervention, unemployment,
2336
social benefits, 235
supply-side policies, 317
Sweden, 237, 317
win-win alternative, 238
active labour-market spending, 2445,
246, 250
432
advocacy coalitions, 323

aging population, 88
Ahern, Bertie, 299
Alfano, Angelino, 104
Alliance for Jobs, 332
Alliance for Liberals and Democrats
for Europe (ALDE), 102
Alliance of Socialists and Democrats,
102
altruism, 1201
American economists, 1267
American egalitarian liberalism, 91
anarcho-capitalists, 4, 58
Anglo-American school, 8990, 97
Anglo-liberal growth model, 201,
28994, 305
constructivist institutionalists, 293
easy access to credit, 291
global financial crisis, 3045
house price Keynesianism, 2912
institutional configurations, 3045
Ireland, 306
lack of conscious design, 294
origins, 2934
private debt financed, 291
sustainability, 3045
virtuous cycle, 291
Anglo-liberalism
construction of, 295301
Ireland, 306
Aristotle, 634, 11617
Alfred, 9
Armack-Muller,
Austen, Jane, 226

austerity
active labour-market policies, 238
budgets, acceptance of, 354
Bulgaria, 238
climate of, 238
consolidation, 1589
debt versus growth, crisis of, 295
Index
European Central Bank, 1512,
1667
European Monetary Union, 106,
354
financial, monetary, 83
fiscal, 74
fiscal consolidation, 1512
France, 368
Germany, 1334, 3312, 337
Greek bailout, 368
growth versus appropriate balance,
1512
Ireland, 1589
Italy, 3567
member-state compliance, 368
the Netherlands, 158
new ideology of Europe, 3567
pension reform, 1334
Poland, automatic stabilizers,
38990
before recovery established, 300
reduced benefits, 126
reduction of, 74
severe policies, 1334
Sweden, Social Democrats, 126
UK economy, 300
universalistic welfare state, 126
austerity packages, 71
Austin, Jane, 227
Austrian School, 58, 59
inflation, 58
market order, 58
state intervention, 58
automatic stabilizers, 237
balanced budget, 59, 72, 3801
Balcerowicz, Leszek, 1267, 390
Balcerowitz plan, 3789
Bank of Italy, 350, 3512
banking-sector liabilities (bailouts)
Belgium, 1589
Ireland, 1589
banks
credit, low fixed rates, 15960
credit available to, 1645
European Central Bank (ECB),
15960
failing, 18
government bonds, purchase of,
15960
433
internal-risk models, 21011
investment decisions of, 59
liquidity, 15960
recapitalization of, 305
refinancing, 15960
regulation, Poland, 38990
strategies of, 264
takeover of, 18
Barnier, Michel, 2789
Basel II, 21011
Beckert, Jens, 25
Bell, Daniel, 657
Berlin Wall, 14, 57
Berlusconi, Silvio, 24, 30, 3557,
417
Bernanke, Ben, 74
Big Government, 77
Big Society, 92, 102
Blair, Tony, 67, 24, 30, 84, 1289,
2434, 2967
Bolkestein, Frits, 267
Bolkestein directive, 180
bourgeois revolution, 231
Bretton Woods, exchange rates, 10
bricolage, 406
British Conservatism, 92
British East India Company, 261
British Financial Services Authority,
21011
Brittan, Leon, 1757
BrusselsFrankfurt consensus, 18, 21,
145, 1512, 160, 163
alternatives, proposals, 1679
collapse, 1456
efficient local factor markets, 1603
fiscal stimulus, 152
ideas, ideologies, paradigms, 1513
ideological differences, 152
inflation rates, Eurozone, 145
interdependence, 163
intra-European macroeconomic
imbalances, 163
price inflation, 1478
price stability, 147
resilience, institutional inertia, 168
rule-based framework, 14651
sound finances, 15760
sound-finances rule, 1489
stable money, 1546
434
BrusselsFrankfurt consensus (cont.)
virtuous policy combination,
163
welfare-state structures, 1489
bubble, recession, political
implications, 3012
Buchanan, James, 9, 118
Bulgaria, austerity, flexicurity,
238
Bundesbank, 165
inflation, 1334
monetary policy, 123
Bush, George, 712
Bush, George W., 5960
business cycle, 157
Callaghan, Jim, 299
Camdessus, Michel, 131
Cameron, David, 92, 102,
3023
Cantillon, Bea, 1001
capabilitiesexpectations gap,
161
capital allocation, 2045,
21112
capitalism, state-led, 347
postwar, non-liberal, dirigisme,
dirigiste, 347, 3601
Capitalism and Freedom (Friedman),
89
capitalist era, ideological development,
534
Carlsson, Igmar, 31920
catallaxy, 634
private economy, 68
Cato Institute, 380
Central and Eastern European
countries
alternatives, 393
boom and bust, 3845
corruption, 3867
criminal organizations, 3867
dependent market economies,
3879
deregulation, 3812
development model, 393
global financial crisis, 388
mass privatization, 3823
orderly markets, 3867
Poland, shock therapy, 389
Index
popular discontent, 3867
recession, 3812
right-wing nationalists, 3834
Central and European countries
central to theoretical economic
debates, 377
dependent market economies,
3756
international influence, 37980
revolutionary liberalism, 3745
shift from socialism to free market,
377
change, rates of, 212
Charter of Fundamental Rights,
83
Chicago School, 1201, 1823
economic model, 59
mathematical model, 59
monetarist critique, Keynesianism,
59
Chicago School of Economics, 9,
59
China, style of reform, 396
Chirac, Jacques, 30, 125, 365
Chirac government, 125
chrematistics, 656
Churchill, Winston, 112
Ciampi, Carlo, 3512
civil rights, 967
class mobility, 2312
classical Christian solidarism, 912
coalitions
neo-liberal ideas, 1712
promotion of ideas, 35
coalitions, discursive, 122
Colloque Lippman conference, 78
commercial society, 601, 66
Committee on Banking Supervision,
208
communicative discourse, 323
Communism, fall of, 130, 135
Communitarian thinkers, 912
Community Method, 134
competition, 14950
criteria, mergers, 1934
domestic exchange, 1757
European integration, 1757
law, 1745
policy, excessive market power of
firms, 173
Index
competitiveness, 1612
equity and efficiency, 1612
market efficiency, 162
Competitiveness Council, 2734
conservative neo-liberalism, 1356
Conservatives, disavowed intervention,
303
Constant, Benjamin, 362
constructivism, 23
continuity, 16
historical institutionalism, 378
contructivism, 225
coordinated market economies,
313
coordinative discourse, 94
corporate governance
company law, 2724
corporate failures, 26970
employees as key stakeholders,
2778
environmental disclosure, 2789
exploitation of investors, 2612
flexibility,
2756
growth of multinational companies,
2634
harmonization philosophy, 2756
High Level Group, company law,
2712
High Level Group, takeover
directive, 2701
interest groups, support, 263
laissez-faire model, 262
management remuneration, 276
market-based view of firm,
2657
minority shareholders, 2645,
2812
postwar stakeholder model, 262
privatization, 2634
reforms, 3356
separation, ownership, control,
260
shareholderdirector relationship,
269
shifts in financial savings and
regulation, 2634
social disclosure, 2789
stakeholder model, 2767,
2812
435
state intervention, 2789
term, 260
trade unions, 2812
worker involvement, 2745
worker participation, 267, 2789
corporations
eighteenth-century, 645
fair-value accounting, 21718
history, laissez-faire, 2612
modern, strategic market actors,
65
origins of, 261
corporatist management, 122
creative destruction, 1267
credit
bad-asset accumulation, 164
banks, unlimited credit, 15960
effect on domestic prices, 164
European Central Bank, 15960
expansion of, peripheral, 164
explosion of credit, 74, 15960
income inequality, unsustainable
credit, 201
unsustainable credit, 201
credit cycles, 21617
credit-rating agencies, 202,
21011
The Crisis of the Tax State
(Schumpeter), 678
Croce, Benedetto, 349, 350,
369
cross-border deposits, 164
Cross-Border Mergers Directive,
2745
cross-border trade, 175
Crouch, Colin, 55
Czechoslovak state bank, 3789
de Tocqueville, Alexis, 362
deficits, excessive, 148
deficits, political choice, 1578
deficits, rule enforcement, 1578
dependency culture, 1245
deposit insurance, 153
deregulation, 556
derivatives, 214
desert-based liberalism, 8990
Difference Principle, 8990
Director of the Internal Market
Directorate, 267
436
Directorate General Competition,
1845
discourse
discursive coalitions, 122
economic crisis, 132
ideational entrepreneurs, 22,
11415
middle path, 129
morals plus the market, 103
New Labour, 2967
right-wing populism, 103
social investment, 1001
discourse coalitions, 24
discretionary spending, 237
discursive coalitions, 122
discursive institutionalism
ideological acts, 923
individual agents, 923
multiplicity of arenas, 923
discursive institutionalists, 39
discursive neo-institutionalism, 85
discursive struggles, 31
dissemination, 1718
dominance, hegemony, 1718
Draghi, Mario, 1656
e-governance, 128
East European economists, 1267
economic activity, individual,
11617
economic crisis
neo-Keynesian stimulus, 11314
economic efficiency, 212
Economic Europe, 1067
economic freedom, 11617
economic libertarianism, 58
anarcho-capitalists, 58
individual rights, 58
economic orthodoxy, 1301
economic patriotism, 356
economic performance, reciprocity,
978
economic policies, Keynesian, 3601
economics, capital allocation,
efficiency, 206
economists
American, 1267
East European, 1267
economists, training of, 245
efficiency, local labour, 14950
Index
efficiency, public management,
1201
efficient local factor markets, 1512,
160
efficient market hypothesis, 59
egalitarian liberalism, 834
egalitarian redistribution, 978
Einaudi, Luigi, 9, 3501, 369
electoral promises, 11
embedded liberalism, 54, 121
empirical evidence, welfare-state
change, 945
Employment and Social Affairs
Directorate, 83
The Employment and Social Chapter
of the Amsterdam Treaty, 83
entrepreneurs, ideational, 22
epistemic communities, 24, 323
equal rights, 230
equality, 97, 126
equity, principles of, 834
Erhard, Ludwig, 9, 122
euro
inviolability of, 166
speculation, 1556
Eurobarometer, 106
Eurobonds
European Commission, stability
bonds, 1678
issuing of, 74
ordo-liberal theory, 1334
quantitative easing, 74
Europe
labour-market performance, 1601
unemployment, 160
Europe, social structures, 88
Europe, unemployment, 160
Europe of Freedom and Democracy,
103
Europe Unified Left, 103
European anti-trust policy, 123
European Bank for Reconstruction and
Development (EBRD), 383
European Central Bank (ECB)
austerity, 1512
credibility, 156
credit, 15960
inflation, 1512
lender of last resort, 159, 167
Index
liquidity, 159
long-term refinancing operations,
15960
monetary stimulus, 1667
securities market program, 159
sovereign debt, purchase, 159
European champion firms, 173
European Coal and Steel Community,
123
European Commission
actors, institutionally disadvantaged,
1867
member states, allies, 1867
European Company Directive, 2745
European Cooperative Society
Directive, 2745
European Corporate Governance
Forum, 2712
European Corporate Governance
Institute, 270
European Court of Justice, 171, 174,
175, 1856
European Employment Strategy, 83
European integration, 834, 104, 175
competition, 1757
key actors, 1812
European monetary integration, 145
European Monetary Union (EMU),
812
austerity, 354
fiscal austerity, 1067
labor and pension reforms, 354
monetarism, 1067
European Popular Party, 102
European Single Market Programme,
2067
European social model, 2967
European Stability Mechanism, 1678
European Trade Union Confederation
(ETUC), 237
European Treaties, 149
European Union (EU)
competition, 177
decision making, 183
force for liberalization, France, 348
force for liberalization, Italy, 348
legal restrictions on entry, 177
member states, competitive markets,
178
437
European Union Commission, 1312
European Union regulation, 1757
focus on competition, 17980
implementation, difficulties, 17980
law and politics, roles of, 183
policy disagreements, 180
worker participation, 27980
European Union regulatory model
large firms, 1878
market making, market protection,
183
Eurozone
fiscal problems, structural level,
159
interest rates, 159
Stability and Growth Pact, 378
Eurozone crisis, 21, 114
Eurozone inflation rates, 145
evolutionary change, 20
excess capacity, 152
experimentalist governance, 1789
Fabian socialism, 91
fair-value accounting (FVA), 21718
faire avec, 115, 125
familialism, 912
feedback mechanisms, 356
Ferrera, Maurizio, 7, 406
Fianna Fail,
297, 300
foul-weather Keynesianism, 300
Fico, Joseph, 3956
fictionality, 225
Fifth Republic, 3601
financial crash, 545
explosion of credit, 74
financial crisis, 2034, 31415
neo-liberal finance ideas, defeat of,
202
stabilization attempts, 299
financial markets
economic efficiency, 212
liberalization, 131
regulation of, 41112
financial media, anti-social state, 812
financial regulation
debate, 202
delegation of, 208
socio-economic effects, 208
Financial Stability Board, 208
financial sustainability, 978
438
Fine Gael, 297
corporation tax, 3034
firms
interests, coalitions, feedback
mechanisms, 415
shareholder model, 258
First World War, 612, 678
fiscal conservatism, economic crisis,
6975
fiscal deficit, 157
fiscal moderation, 157
fiscal stimulus, 152
flexibility, 1301
flexible labour markets, 128,
2278
flexible solidarity, 978
flexicurity, 128
Bulgaria, 238
Denmark, 24950
labor markets, 128
Scandinavian countries, 243
Fordist
middle mass, 889
welfare state, 88
forecasting models, 156
foreign direct investment, 289
Forza Italia, 81, 889
Foucault, Michel, 20, 120
Founding Treaties, European Union,
123
frame of analysis, 32
framing, dissemination, 323
France
austerity, 368
central role of the state, 35962
credibility with the markets,
368
dirigisme, 3601
dirigiste approach, 361
dirigiste economics, 3612
double-digit inflation, 364
entrepreneurial state, 35962
Euro-champion firms, 1934
Fifth Republic, 3601
French national champions, 3678
gouvernance e conomique, 368
interventionism, 35962
Keynesian economic policies, 3601
Keynesian reflation, 363
Index
labor markets, 366
market liberalism, 3678
National Front, 3623
neo-capitalism, 3601
neo-liberal monetary policy, 364
non-liberal discourse, 368
ordo-liberal economic philosophy,
368
post-dirigisme, 3678
pragmatic neo-liberalism, 347
pro-market ideas, 360
selective neo-liberal implementation,
207
state-centrered traditions, economic,
3656
state-influenced market economy,
3467
state-trained technocratic elite,
3601
voluntarist, efficient state, 36970
welfare state, aspects of change,
3623
free-collective bargaining, 289
free market(s)
choices regarding, 115
doctrines, 57
inefficiency, 1278
liberty, guarantee of, 1245
regulation, ambiguity, 1823
rules-based approach, 11819
self-regulating capacity of, 801
Free to Choose (Friedman), 118
free trade, 62, 1034
Britain, 62
policy, 612
freedoms, positive, negative, 967,
2312
French Colbertism, 1301
Friedman, Milton, 9, 59, 355, 4078
Fukuyama, Francis, 55
Geithner, Tim, 74
gender equality, 912
German Corporate Governance Code,
278
German corporatism, 123
German Free Democratic Party (FDP),
417
German ordo-liberals, 9, 57, 4078
German social-market economy, 122
Index
Germany
anti-monopoly strategies, 329
austerity, 1334, 3312
corporate governance, 3301
corporate governance reforms,
3356
corporate tax cuts, 331
decentralization of power,
333
employment, 336
Federalism, 333
financial crisis, 31415
Hartz Reforms, 244, 3378
industrial relations institutions,
336
liberalization, 31314, 3301
liberalization, financial markets,
3335
managed austerity, 337
non-market forms of organization,
313
ordo-liberal theory, 1334
pension reform, 1334
policy priorities, 31617
policy response to crisis, 317
policy making, inclusive, 33940
political compromises, 3389
post-crisis policy, 31718
protection, non-market mechanisms,
3389
recovery, 31819
reform, 314
role of welfare state, 329
shareholder value model, 313
social-market economy, 329
SPDGreen coalition, welfare state
cuts, 331
unemployment, 331
unemployment insurance, 336
unification, 330
welfare state, unification costs,
3367
Giddens social theory, 91
globalization, 290, 2967
gold standard, 62
Golden Age, 889, 1067
Goldscheid, Rudolph, 678
governance
EU, politically neutral, technical
mode of, 183, 195
439
experimentalist, 1789
governing without government,
128
government policy entrepreneurs,
2412
grand projet, alternative European
model, 173
Great Transformation, 21, 121
Greece, bailout, 368
Greek elections, 104
Greens-Free European Alliance, 102
growth, price movements, 154
growth-competitiveness-inclusion
triad, 912
growth dynamic, puncturing of, 289
Hall, Peter, 367, 54
harmonization philosophy, 2756
Hartz Reforms, 244, 337
Haughey, Charles, 2989
Hay, Colin, 56, 201, 2045
Hayek, Friedrich, 9, 57, 58, 634,
11819, 1723
Hayekian strand of neo-liberalism,
74
hedge funds, 21011
hegemonic belief, 1718
Hemerijck, Anton, 945
Heritage Foundation, 9, 380
historical institutionalism, 378
Hobbes, Thomas, 11617
Hollande, Francois, 1001, 1512,
368
election campaign, 3689
Hont, Istvan, 601
Hoover, Herbert, 6970
household
classiclal conception of, 64
corporation, 645
public, 656
household economy, metaphor, 312
households, types of, 634
Hungarian Constitutional Court,
3945
Hungary
crisis, 391
currency devaluation, 391
economic mismanagement, 3945
goulash communism, 390
government spending, 3901
440
Hungary (cont.)
mixed-ballot election system,
392
reform communism, 378
hybridization, 25
resilience, 405
ideational
entrepreneurs, 22, 1312
shifts, 21
ideological
campaigning, 934
consensus, 87
synthesis, 85, 95
internal differentiations, 99100
ideologues, 93
ideology
dogmatic, 867
morphology, 86
philosophy, versus, 856
plastic, 867
revisionism, 91
implementation, lack of, 301
imports, restriction, member states,
174
income polarization, 88
individual, role of, 7
individual freedom, 11819
individualism, 20
industrial policy, state-led, 173
industrial-relation systems, 2401
inequality, policies enhancing, 34
inequality, rising, 115
inflation
European Central Bank,
1512
Eurozone, 145
rates, divergence, 154
reducing public debts, 148
unpredictable rates, 155
Institute of Economic Affairs, 9
institutional isomorphism, 38
institutional retrenchment, 81
institutional structures, 239
institutionalist analysis, 367
institutions, non-majoritarian, 37
inter-paradigm borrowing, 299
inter-service coordination, 128
interbank lending, 164
Index
interdependence, 1637
BrusselsFrankfurt consensus, 163
solidarity, 167
interest-based analysis, 334
interest-driven financial overhaul, 207
interest rates
long-term, 164
low, long-term refinancing
operations, 15960
International Monetary Fund (IMF),
71, 37980
managed globalization, 131
Paris consensus, 131
regulation of financial capital, 131
international trading system, 612
interventionism, state, 132, 352
France, 125
market-shaping reforms, 128
intra-European macroeconomic
imbalances, 163
investment banks, behaviour, 656
Ireland
Anglo-liberal growth model, 306
Anglo-liberalism, 306
austerity, 158
banking-sector liabilities (bailouts),
1589
collapse of social partnership, 300
international competitiveness,
national output, 2989
Keynesian techniques, 300
pared-down growth model., 3056
regulation, 3045
unemployment, 2989
Irish Congress of Trade Unions, 300
Italian Democratic Party, 1001
Italy
academic neo-liberals, policy
leadership, 3534
austerity, 3567
authoritarian reform, 3567
authoritarian reform process, 357
economic leadership, crisis, 356
economic miracle, liberal ideas,
350
entry, European Monetary System,
3512
European integration, 354
European Monetary System, entry,
3512
Index
Grow Italy decree, 358
Keynesian ideas, 3512
Montism, 3589
Mussolinis authoritarian fascism,
349
neo-capitalism, 349
neo-liberal ideas, politics, 34950
opportunistic politics, 356
policy paradigm, 3589
political theory tradition, 778
postwar reform, 3523
pragmatic neo-liberalism, 347
pro-market ideas, 34950
public trust in policies, 359
rescue of the nation-state, 354
Save Italy decree, 358
Second Republic, 3523
sound monetary policy, 354
state-assisted capitalism, 349
3467
voluntarist, efficient state, 36970
Jackson, Gregory, 12
Jealousy of Trade (Hont), 601
Job Securities Councils, 317
Jones, Erik, 18, 21, 123
Jospin, Lionel, 129
Juncker, Jean-Claude, 168
Juppe, Alain, 3667
Kant, Immanuel, contractual tradition,
8990
Keynes, John Maynard, 1, 545,
119
Keynesian
economic policies, 3601
macroeconomic intervention, 236
paradigm, 54
policies, 1245
pragmatism, 723
stimulus policy, market
deregulation, 236
welfare state, 556, 88
Keynesianism, 1067
in recession, 300
King, Mervyn, 74
3789
Klaus, Vaclav,
knowledge regimes, 245

Kohl, Helmut, 32930
441
Kok, Wim, 1612
Krugman, Paul, 723, 202
Kuhn, Thomas, 1523, 21113
analysis, paradigm change, 422
Kuhns view of change, 21
Kuhnian normal science, 1523
Laborde, C., 90
labour costs, 246, 330, 332
labour market flexibility, 6
ALMP reforms, 227
labour market performance, Europe,
1601
laissez-faire, 121
arguments, 2056
economics, 11617
liberalism, 121
Lamy, Pascal, 131
large firms, European-wide markets,
1878
laws, universally applicable, 230
left-wing radicalism, 1034
Liberal Communitarianism, 101
liberal market economy, 534
liberal neo-welfarism (LNW), 12, 79,
406
austerity, 1067
community, 989
emergence from revisionist efforts,
99100
equality, 97
hybridization, 99100
ideology, positive, negative
freedoms, 967
innovation, 99100
meritocracy, 989
naming, ideological act, 956
non-discrimination, 967
opportunity, 989
redistribution, 989
tax-transfer system, 97
Third Way, 99100
transformative potential, 106,
107
liberalesimo, 7, 778, 79
liberalism
embedded, 121
nineteenth-century, 4078
liberalismo, 7, 779
442
liberalization
Germany, 31314
Sweden, 31314
liberismo, 778, 79
libertarians, economic, 58
liberty, 97
fundamental rights, 967
limited liability, 645
Lindbeck, Assar, 31920
liquidity, 202
banks, 15960
Lisbon
European Council, 1612
Strategy, 160
Treaty, 912, 1801
List, Friedrich, 62
Locke, John, 778
Loedel, Peter, 147
London School of Economics, 9
Lubbers, Ruud, 1256
Lucas, Robert, 59
Ludwig Erhard, 9, 24
Maastricht agreement, 153
Maastricht criteria, 148, 38990
Maastricht Process, 83
Maastricht Treaty, 82, 83, 147,
148
macro-prudential regulation, 215
Madelin, Alain, 125, 417
majoritarian political institutions,
124
marginalist economics, 778
market-correcting autonomy,
1067
market deregulation, Keynesian
stimulus policy, 236
market economies, state-influenced,
369
market efficiency
Europe, 161
unemployment, 162
market enhancement, 217
market globalization, 889
market instability, 21819
market intervention, 214
market liberalism, state, 120
marketism, 350
Martin, Kathy, 4078
Martino, Antonio, 355
Index
Marx, Karl, 612
mass migrations, unemployed workers,
149
media, pro-neo-liberal interests, 35
Meidner, Rudolf, 319
Mellon, Andrew, 6970, 72
merger control, 18894
merger model, 1923
Merkel, Angela, 1512, 168, 368
metamorphosis, 25
resilience, 405
Miliband, Ed, 1001
Mill, John Stuart, 11617
Millian liberty, 978
the Millian perspective, flourishing,
967
Mitterrand, Francois, 363
monetarism, 60, 123, 1245
monetary analysis, 1545
monetary and financial union,
connection, 153
monetary stimulus, ECB, 1667
money supply, 154
Mont Pèlerin Society, 9, 57, 121
Monti, Mario, 30, 104, 152, 3578
moral conservatism, 801
moral vocabulary, 20
Moran, Mick, 1289
morphological approach, 87
path dependencies, 92
national debt, British
Napoleonic Wars, First World War,
69
National Economic and Social
Council, 297
National Health Service
Forza Italia, 823
privatization, 823
national priorities, conflicting, 161
Nea Democratia, 104
negative integration, 812, 208
neo-capitalism, 356, 369
France, 3601
Italy, 349
public, 3467
neo-conservatism, Thatcherite, 1001
neo-conservatives, 80, 102
neo-functionalism, 1812
Index
neo-Keynesian stimulus, 11314
neo-liberal
agents, 2
democracy, 1312
finance, critics, 216
labels, 12
think-tanks, 380
neo-liberal ideas
challenges to, 204
coalitions, 1712
constructivist, 2
crisis, 2945
criticisms of institutional analysis,
421
designed for debate, 410
dominance, 4212
economic-policy debate, central,
428
European political economy, 2
finance, 204
firms, interests, coalitions, 415
force of institutions, 418
future of, 4289
ideational entrepreneurs, 41314
individual states interests, versus,
133
institutional analysis, 420
institutional breakdown, 427
institutionalized, 175
interests, power of, 41415
interests, pressing for new ideas,
4267
internal conflicts, 4223
Iron Curtain, marginal impact,
3778
key actors, institutional frameworks,
414
merged with social-democratic ideas,
24
neo-institutionalism, 418
non-implementation, political
benefits, 2931, 408, 409
normative resonance, policy, 413
policy debates, 41112
policy ideas, study of as
phenomenon, 4289
political parties, politicians, 417
positivist, 2
re-use of, policy debates, 409
443
resilience, 1316, 41011 (see also
resilience)
rhetoric, reality, 2931, 4234
rules, coercive, 419
rules, path-dependence, 41920
strategic use of, 115
strength in political dialogue, 316,
41011
stronger alternatives, 4245
Sweden, 31920, 3245
traditional alternatives, 426
neo-liberalism
absorption, 4078
adaptability, 4056
agents of, 225
ambiguity, 226
ascending phase, 823
benefits of non-implementation,
269
burying the state, 11213
and classical liberalism, 603
continuity, 1415, 314
core principles, 3, 25, 408
corporate governance, role of the
market, 2812
critique of, 11921
definition of, 1, 2, 3
deregulation, 1201
descriptions of, 3
dissemination, 1718
dominance, 1718
early decades, European Union,
1725
economy, the solution, 1201
embedded market labour policies,
24251
employment policies, 2328
endurance, reinvention, 251
endurance of crisis, 3978
engineering of souls, 121
equal rights, 230
Eurozone crisis, 1334
failure to meet expectations, 1056
financial regulation, 2046
financial regulation, future of, 220
flexible framework, 28
forms, levels of, 1922
forms of, 11213
444
neo-liberalism (cont.)
fundamental contradiction within,
11213
generality, diversity, mutability,
269
hybridization, 4078
ideals of the founders, 1212
ideological program, 124
ideological renewal, 11314
ideological roots, 567
impact of actors, 925
impossible targets, 409
independent authority, delegation,
132
individual freedom, 11213,
2301
institutional base, 23942
institutional structures, 239
institutionalization, European
finance, 20611
institutions, force of, 369
intellectual traditions, 4078
key elements of, 56
liberal neo-statism, 113
liberal neo-welfarism, variants,
99105
liberalism, negative freedoms,
22932
liberalization pressure,
supranational, 1303
lines of analysis, 4045
malleability, 25
merger control, 18894
metamorphosis, 406, 4078
moderate, 1279
morphological approach, 858
mutability, 4078
neo-liberal order, 11819
neo-statism, discursive struggle,
1346
neo-welfarism, ideological synthesis,
959
non-implementation, benefits,
408
philosophy, historical perspective,
11619
plasticity, 25
political freedom, 117
political phenomenon, 3940
Index
poor guide to financial regulation,
21920
portrayal of, 3
positivist, constructivist views, 22,
23
post-crisis resilience, 21113
postneo-liberalism, rise of, 8892
privatization, 1201
putting ideas into action, 1214
radical conservatism, 1247
rational self-interest, 117
re-regulation for competition,
1778
reactions to term, 39
redefinition of the state, 116
regulatory alternatives, search for,
21520
regulatory debate, schools of
thought, 21315
regulatory model, analysis, 1818
regulatory model, development,
17581
renewal of the state, 1356
resilience, 12, 3967
resilience as process, 4034
rhetoric, reality, 2931, 114
shareholder model, European Union
level, 26576
shareholder model, interests
supporting, 2635
stakeholder model, corporate
governance, 27681
state, focus of attack, locus of
action, 11213
state, the problem, 1201
strength, in political discourse, 269
strong state, 118
survival of, 1819
Treaty provisions, 1745
welfare-state transformation, 1057
neo-statism, 1356, 404
neo-welfarism, liberal, 956, 4034,
406
historical compromise, 1045
supranational arenas, 1045
the Netherlands, austerity, 158
New Deal, 72
New Labour, 1289, 2967
new paradigm, 104
new public management, 1345, 354
Index
new risks agendas, 912
New York Times, 202
nineteenth century
liberal political economy, 623
liberalism, 4078
social mobility, 4078
Nixon, Richard, 236
non-discrimination, 967
non-implementation, 2931, 408,
409
Normpolitik, 31920
Nozick, Robert, 58, 11920
Obama, Barack, 713
Official Settlements Account, 165
open method of coordination, 1301
Orban,
Victor, 3945
Ordnungspolitik, 150
ordo-liberal theory
Eurobonds, 1334
Germany, 1334
inflation, 1334
ordo-liberalism
EU policy, 123
foundations, 123
German neo-liberals, 4078
liberalism, first form, 57
neo-liberalism, first form, 57
position of dominance, 123
state role, 578
Organization for Economic
Co-operation and Development,
71, 81, 201, 278
organizational design, 37
organizational power, 34
Original Position, 8990
Osborne, George, 723, 74
parabola, neo-liberal
alternative ideological positions,
8990
ascending phase, 823
centre-left parties, 84
counter-arguments, 834
crisis rhetoric, 801
critique of welfare state, 834
ideological re-elaboration, 84
individuals rational pursuit of
wealth, 801
of influence, 105
445
institutional retrenchment, 81
moral conservatism, 801
neo-conservatives, 801
phases of, 80
principles of equity, 834
redefining social justice, 8990
social-assistance benefits, 81
paradigm shifts, 54
paradigmatic belief, 1718
Paris consensus, 131
Party of Freedom, 158
Pasok, 104
passive transfer, 978
paternalism, 1245
path dependence, 378
Paulson, Hank, 712
pension
reform, 129
systems, 2012
persuasion, 31
Persuasion (Austen), 226
philosophical contractualism, 778
philosophical principles, 20
philosophy, ideology versus, 856
phlilosophical liberalism, 8990
Poland
avoidance of recession, 38990
bank regulation, 38990
Maastricht criteria, 38990
proportional representation, 392
reform communism, 378
shock therapy, 1267, 389
Polanyi, Karl, 534, 121
policy entrepreneurs, 22, 11415
political economies, international,
116
political economy, liberal, 634
political expression, party systems,
240
political ideas, influences of, 1213
political liberty, 11617
polity, prior to individual, 11617
Popper, Karl, 9
population, aging, 88
positivism, 22
post-dirigisme, 347, 349, 369
postneo-liberalism
impact on reforms, 945
label, liberal neo-welfarism, 956
poverty, 978
446
pre-crisis regulation, 20910
price stability, importance of, 152
principalagent concept, 2589
Principles of Corporate Governance,
278
prioritarian egalitarianism, 978
private economy
catallaxy, 68
foundation of public economy,
68
privatized Keynesian model, 291
pro-market regulation, 2067
Prodi, Romano, 84
productivist solidarity, 978
programmatic ideas, 20
ideologies, 856
Progressive Alliance of Socialists and
Democrats, 102
Progressive Conservatism, 101
property rights, reform of, 645
protectionism, 132
public debt
deficit financing, 3023
deficit financing, excessive, 148
excessive deficits, inflation, 148
public household, US, key
developments, 66
public management, 1201
public officials, narrow self-interest,
118
public philosophy, 1056
public service, non-economic
contributions, 1201
Putin, Vladimir, 3934
quantitative easing, Eurobonds, 74
radical neo-liberals, 125
Rajoy, Mariano, 912
rating agencies, criticisms of, 218
rational self-interest, 117
Rawls, John, 834
re-regulation
for competition, 177
competitors, newly-permitted,
discrimination, 185
Reagan, Ronald, 45, 5960, 801,
362
reception theorists, 8990
recovery strategies, 2367
Index
Red Toryism, 103
referentiel, frame of analysis, 32
reform
active labour-market policies,
2356
budgetary, 352
Central and Eastern Europe, 3856
Denmark, 126
entrenched interests, 10
equality, 126
EU regulation, 187
Germany, 314
incremental, 33941, 366
institutional context, 228
Lisbon strategy, 160
majoritarian political institutions,
124
market-complementing, 128
market-creating, 31314
market-structural, 152
new labour market, 249
pension, 129
radical, communist to capitalist,
1267
strong states, 134
supply-side, 71
Sweden, 314
tax cuts, 71
Thatcher, 233
universalism, 126
unpopular, 187
welfare, 28
regulation
Ireland, 3045
market-enhancing, 21415
pre-crisis failings, 21314
stakeholders, 209
regulatory model
legal institutions, range of, 1789
neo-liberal, challenges to, 1801
promotion of competition, 1945
Rehn, Gosta,
319
RehnMeidner Model (RMM), 322

resilience, 195
absorption, 405
core principles, discourse, 256
hidden assumptions, 15
hybridization, 405
liberalism, 105
Index
lines of analysis, 256
metamorphosis, 405
origins of term, 323
survival, 1819
understanding of, 53
usage in social sciences, 1516
resource-based egalitarianism, 8990
resource complaints, 1834
Rhinish capitalism, 123
right-wing populism, 103
Road to Serfdom (Hayek), 89, 119
Romney, Mitt, 5960
Wilhelm, 9, 57
Ropke,
Rothbard, Murray, 58
Rougier, Louis, 361
Rousseau, Jean-Jacques, 11617
Rueff, Jacques, 361
Ruggie, John, 121
Russia
national champions, 3934
oligarchs, 3934
state control, 3934
Alexander, 9, 57
Rustow,
Sarkozy, Nicolas, 24, 236, 3678,

417
Say, Jean-Baptiste, 362
Wolfgang, 1512
Schauble,
Schmidt, Vivien, 856, 115, 2023

Schnyder, Gerhard, 12
Gerhard, 24, 84, 129, 332
Schroder,
Schumpeter, Joseph, 678

securities market program (SMP),
159
security, social, 70, 106
Seldon, Arthur, 9
self-interested actors, 1201
separation, ownership, control, 260
service-based economy, 88
services of general interest, 174
shareholder model, 2578
coalition of interests, 259
efficiency of markets, 257
laissez-faire, contrast, 2578
major elements, 2601
principalagent concept, 2589
single currency, Europe, 145
Single European Act, 823, 175
Single European Market, 1945
Single Market, 812, 83
447
Smith, Adam, 645, 4078
social-democratic consensus, 95
social-democratic productivism, 978
social-democratic tradition, key
elements, 105
Social Inclusion OMC, 83
social investment, 945
social justice, 97
social-partnership agreements, 289
social protection, Europe, 1056
Social Protocol, Maastricht Treaty,
83
socialism, opposition to, 910
sociological institutionalists, 38
solidarity, interdependence, 167
sound finances rule, 1489
sound monetary policy, 354
Spain, austerity, 238
Stability and Growth Pact, 1334
stakeholder approach, 259
stakeholders, regulation, 209
starting-gate egalitarianism, 8990
state
capacity to build coalitions, 241
conservative roll-back, 114
definition of, 116
deregulation, 1201
distributional justice, 11920
economic activity, 11819
efficient markets, 11819
expanded, 667
extended, 556, 74
freedoms, negative, positive,
11617
German ordo-liberal, 114
individual freedom, 11819
industrial policy, state-led, 173
inequality, 11920
influence of neo-liberalism, 114
interests of individual states, 133
intervention, dismantling, 1011
interventionism, 125, 128
intrinsic defects, 120
laissez-faire economics, 11617
market-enabling arbiter, 130
market liberalism, 120
market relations, 2012
nanny, 88
national preferences, 1312
negative income tax, 11819
448
state (cont.)
neo-liberalism with rules, 122
planning, serfdom, 11819
political driver for change, 116
privatization, 1201
regulatory function, 182
roll-back, unanticipated problems,
11314
scope of action, 11617
social anesthesia, 366
Social Democrats, roll-out, 114
social protection, 11819
social solidarity, 241
steering state, 1289
strong, neo-liberalism, 118
tax state, 658, 74
3467
state-led capitalism. 347. See also
dirigisme
statemarket relationship, 120
state-trained technocratic elite, France,
3601
statism, 11
stock exchanges, 20910
Streeck, Wolfgang, 1234
strong egalitarianism, 91
structural reform
market, 152
productivity, growth, 71
reconceptualized business interests,
33
supply-side economics, 5960
cutting taxes, 5960
increase in debt, 5960
supra-national
neo-liberalism, 1112, 823
policy, 1301
Sustainable Companies Project,
27980
Sutherland, Peter, 1757
Swank, Duane, 2412
Sweden
active labour-market policies, 237,
317
austerity, 126
institutional change, 3258
legislative measures, 321
Index
liberalization, 31314
liberalization policies, 3204
non-market forms of organization,
313
Palme government, 321
policy priorities, 31516
policy reform, 3258
policy response to crisis, 317
political discourse, 3223
promotion of neo-liberal ideas,
31920
recovery, 31819
reform, 314
reform, limitations, 3223
resilience of neo-liberal ideas, 3245
Swedish model, transformation, 3289
systemic internalization, 20910
Takeover Directive, 2756
tax state, 601
earliest analysis, 678
Tea Party, 545, 72, 103
technocratic elites, state-trained,
3601
technocrats, 1201
Thatcher, Margaret, 67, 1011,
801, 123, 1245
Thatcher, Mark, 1112, 2023
Thatcherism, 92, 102
Thatcherite state project, 2956
Theory of Justice (Rawls), 8990
think-tanks, 24, 934
Third Way, 91, 1001
Third World internationalism, 1034
trade
cross-border, 1757, 1812
openness, 289
traditional corporatist Swedish model,
317
transgovernmental networks, 208
Treaty of Rome, 174
Treaty provisions, 1745
Tripartite Social Summit, 237
Tusk, Donald, 390
unemployed workers, mass migrations,
149
unemployment
Europe, 160
Ireland, 2989
Index
Sweden, 31718
wage and price distortions, 150
universal service, 174
universalism, 126
US Congress, 167
Vandenbroucke, Frank, 1001
Veil of Ignorance, 8990
Victorian values, 4078
Virginia School, 9, 589
balanced-budget rule, 59
policy makers, altruism, 589
public sector, inefficiency, 589
virtue, appeal to, 312
von Mises, Ludwig, 58
Walter Lippmann, 78
Warsaw School of Economics, 3789
Washington consensus, 130
Weidmann, Jens, 1656
Weir, Margaret, 367
welfare
absorption, 406
European model, 978
gurus, 934
449
reform, absorption, 28
reform, centre-left parties, 84
reform, unemployment, 1667
system, rationalization, 1234
welfare regimes
composite, 99100
spending patterns, 99100
welfare state
encroachment on liberty, 1245
modernization, 87
neo-liberal criticism, Germany,
123
opposition to, 60
recalibration, 94
transformation, 105
Wicksellian economic ideas, 319
Wolf, Martin, 202
World Bank, 71, 130, 277,
37980
world market, equivalence, 61
World Trade Organization, 130
Yeltsin, Boris, 3934
Zapatero, Jose, 84
Zysman, John, 115

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Resilient Liberalism in Europes

contemporary european politics

Contemporary European Politics presents the latest scholarship on the most

Other titles in this series:

University Printing House, Cambridge CB2 8BS, United Kingdom

This publication is in copyright. Subject to statutory exception

1 Theorizing ideational continuity: The resilience of

Part I Economy, state, and society

Part II Neo-liberalism in major policy domains

6 Supranational neo-liberalization: The EUs regulatory

7 Resilient neo-liberalism in European financial

8 Neo-liberalism and the working-class hero: From

9 European corporate governance: Is there an

Part III Neo-liberalism in comparative perspective

11 Germany and Sweden in the crisis: Re-coordination or

12 State transformation in Italy and France:

3.1. The ideological morphology of liberal neo-welfarism. page 99

8.1. Passive and active labour-market spending as a

Maurizio Ferrera is Professor of Political Science and President of the

e il Martello: le regioni e i nuovi rischi sociali (2013, co-edited with V.

Berlin. He received his PhD in Sociology from Columbia University and

Capital Investment Policy (2000); Shifting the Burden: The Struggle

Gerhard Schnyder is Senior Lecturer at Kings College London. His

Corporate Governance (co-edited with ETUI, 2011). He received his

Although, when viewed from afar, Europe may appear to be a haven

inequality, and economic stagnation or worse. Politically, Europe

parabola, moving from being marginal to a central position in policy

persisted despite financial crises in both Ireland and the United

gain in force from being institutionally embedded because this creates

Mark Blyth, Olivier Butzbach, Martin Carstensen, Daniela Caruso,

Pascal Petit, Alasdair Roberts, Martin Schroder,

Yves Surel, Graham Wilson, Daniel Wincott, and Cornelia Woll. We

Theorizing ideational continuity: The

. . . the ideas of economists and political philosophers, both when they

Theorizing ideational continuity

promote neo-liberal ideas; and, fifth, the force of the institutions in

Theorizing ideational continuity

of neo-liberalism. We conclude the chapter with a discussion of how

Theorizing ideational continuity

This debate resulted in neo-liberalism appearing as a somewhat

Towards a definition of neo-liberalism

Theorizing ideational continuity

more conservative strand of neo-liberal economic philosophy.10 We

Theorizing ideational continuity

7. A confidence in the use of private finance in public projects and,

Theorizing ideational continuity

adding neo-liberal elements; or a third way between the two, as in the

The intellectual origins and development of neo-liberalism

Theorizing ideational continuity

In the 1930s, in addition to the protagonists of the 1920s (see previous

Theorizing ideational continuity

as Ludwig Erhard, the future Chancellor of Germany, and Alfred

Theorizing ideational continuity

Friedman, were ideological tracts, not scholarly works.28 Moreover,

Theorizing ideational continuity

dismantling state intervention in markets, particularly with regard to

Interview, Womens Own Magazine, 23 September 1987, published October

Theorizing ideational continuity

The resilience of neo-liberal ideas ideas as objects

both in this volume.

Theorizing ideational continuity

witnessing an increasing interest in ideas.36 Similarly although

The resilience of neo-liberal ideas

Theorizing ideational continuity