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MITCHELL A. ORENSTEIN Follow @m_orenstein
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Mitchell A. Orenstein is Professor and Chair of the Political Science Department at Northeastern
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DEC 3, 2008 0 English

From Neoliberalism to No
Liberalism?
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WASHINGTON, DC The era of free-market capitalism launched in the 1980s by Margaret

Thatcher and Ronald Reagan oen called neoliberalism by its opponents is over.
This ideological wave has crashed with the ongoing nancial market crisis, but its decline
was a long time coming. In the last few years, while American leaders continued to ride
the neoliberal wave, much of the rest of the world was already standing on the shore.

Disenchantment with neoliberal, pro-market ideas began in developing countries that

had once been their ardent admirers. Latin American countries that embraced free-
market policies in the 1990s rejected them in the mid-2000s, as a new wave of le-
leaning leaders came to power. Russia, which adopted market-oriented reforms in the
1990s, moved to a managed form of state capitalism in the 2000s with oligarchs forced
to submit to state control.

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7/31/2017 From Neoliberalism to No Liberalism? by Mitchell A. Orenstein - Project Syndicate

As a result, the United States, the European

Commission, and the multilateral development
banks have become increasingly isolated in their
eorts to advance free-market thought and policies
worldwide. The deepening nancial crisis weakens
their position further. Aer all, how can the US or
the Western multilateral institutions advocate bank
privatization now?

The decline of free-market orthodoxy in the rest of

the world was caused by two factors: its failures as an approach to economic policy and
the decline of US prestige and so power.

Neoliberalism grew in popularity as a result of its successes in jump-starting economic

growth in the US, the United Kingdom, and some developing countries in the 1980s and
1990s. However, its weaknesses also became apparent during the mid- to late-1990s. The
attempt to implant free-market philosophy in Russia, for instance, proved catastrophic.
Whereas the Russian experience clearly demonstrated the importance of strong state
institutions in regulating a market economy, the free-market models erce ideological
opposition to a large state role in the economy oered a poor guide to building them.

Aer some successes, most notably in Chile, neoliberal advice in Latin America also
failed, most dramatically in the case of Argentinas currency board, but most damagingly
by increasing inequality, which worsened the continents central political-economic
problem. In Brazil, President Luiz Incio Lula da Silva showed that signicant departures
from free-market prescriptions worked better. Worldwide, most of the high-growth
countries of the 1990s and 2000s broke with free-market orthodoxy by maintaining a
stronger state hand in the economy.

Belief in neoliberalism also was based on the success of the US economy, which for
much of the 1990s seemed to demonstrate the superiority of free markets. But the rapid
decline of US prestige and so power during the 2000s sowed doubt outside the US. As
the global agenda shied to concerns about global warming, inequality, and the stability
of the international system, the US no longer seemed to be a shining example, but rather
an immovable obstacle on many of these issues.

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7/31/2017 From Neoliberalism to No Liberalism? by Mitchell A. Orenstein - Project Syndicate

Americas elites turned a blind eye to these developments, rejecting all criticism, together
with the crude anti-Americanism with which it was oen expressed. Today, the story is
dierent. A massive reassessment is nally in progress, with US elites now recognizing
that market capitalism is in crisis, and that the world will not blindly follow their lead.

But that leaves some large questions unresolved. If neoliberalism has failed, what comes
next? And what must the US do to regain its stature and inuence in the international
economy?

As New York and London lose their undisputed claim to being the worlds nancial
capitals, the rising centers of the global economy will gain an increasing say in
international economic policy. Most, if not all, are located in countries that have a
stronger tradition of state involvement in the economy. Jerey Garten, the dean of Yales
School of Management, got it right when he labeled this the era of state capitalism. The
state is on its way back as an economic player not least in the US.

But is that a good thing? While many critics will be tempted to celebrate the end of
neoliberalism, it remains to be seen whether or not what succeeds it represents an
improvement. Various forms of statism have been tried before; all have been found
lacking. Aer all, while neoliberalism was criticized as technocratic and elitist, it was
nonetheless a form of liberalism, and it was also consistent with the spread of democratic
governance worldwide.

The new era may not be so propitious for political

liberties. As rising authoritarian powers, China or
Russia, for example, have no reason to use their
growing international inuence to promote
democracy; on the contrary, they increasingly
counterbalance the eorts of Western countries to
DONATE NOW promote political liberty. As statist models of
economic development become more appealing,
democratic governance will become less so. Nor is it
clear that state capitalism can generate the same degree of innovation and
entrepreneurship as the liberal models did in their prime.

In order to redeem the liberal project, American and European leaders will need to
reformulate it in such a way that it can provide convincing solutions to problems such as

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environmental degradation and economic inequality. This will be no easy task, and one
that may be far from policymakers minds as they grapple with the current crisis. But,
unless they do, the emphasis on economic and political freedom that lies at the heart of
liberalism may not survive.

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