Emerging Trends in The Social and Behavioral Sciences

Neoliberalism

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Neoliberalism

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Neoliberalism
MIGUEL ANGEL CENTENO and JOSEPH N. COHEN

Abstract
What is neoliberalism and how do we account for its policy dominance over three
decades? We analyze the rise and power of neoliberalism from three different perspectives: economic, political, and cultural. We argue that cultural analysis of policy
preferences and success is critical to understanding the appeal and staying power of
neoliberalism.

For over three decades, neoliberalism reshaped the global political economy
(Centeno & Cohen, 2012). Neoliberalism is an economic policy ideology or
movement that stresses the necessity or desirability of transferring economic
power and control from governments to private markets. Beginning in the
1970s, this perspective dominated policymaking in the West, and spread
globally after the Cold War. While the 2008 crisis and ensuing Great Recession
may have shaken neoliberalism’s supremacy, it remains unchalleneged by
serious alternatives and continues to shape post-crisis policy (Crouch, 2011).
Neoliberalism sought to dismantle or suppress extra-market forms of
economic coordination (Amable, 2011). Its policies sought to reverse the
economic power and influence assumed by states after the Great Depression
and World War II (Ruggie, 1982). Concretely, neoliberal reformers sought
to deinstitutionalize (either partly or fully) commonplace mid-twentieth
century policy strategies such as redistributive taxation and deficit spending,
controls on international exchange, economic regulation, public goods and
service provision, and active fiscal and monetary policies (Centeno & Cohen,
2010; Gwartney, Hall & Lawson, 2010; Miller & Holmes, 2011).
Understanding neoliberalism’s history and practical dilemmas involves
paying attention to the underlying structural economic developments, the
(re)distribution of political power, the ideational and discursive shifts that
framed how these changing conditions were perceived and acted upon, and
the balance between coercion, exchange, and conversion in explaining its
global diffusion (Henisz, Zelner, & Guillén, 2005).
Emerging Trends in the Social and Behavioral Sciences. Edited by Robert Scott and Stephen Kosslyn.
© 2015 John Wiley & Sons, Inc. ISBN 978-1-118-90077-2.

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THE ECONOMICS OF NEOLIBERALISM
After the Great Depression and World War II, governments grew to be
substantially larger and more economically influential, as states increased
social spending, public investment and enterprise ownership, and market regulation, while maintaining large peacetime militaries (Bruton, 1998;
Cameron, 1978; Tanzi & Schuknecht, 2000). But the state-managed capitalism
system began to face strains by the late-1960s. In 1973, the OPEC oil embargo
sparked a sustained economic crisis across the Western world. What was
unique about this crisis was that prices rose in tandem with an economic
slowdown and a rise in unemployment. Over the 1970s, the major Western
economies saw growth rates roughly halve, and unemployment rates rise by
40% to 500%, (Helliwell, 1988, p. 2). Scholars still disagree about the crisis’
ultimate causes; explanations often involve some mixture of commodity
prices, monetary expansion, declining returns on investment, and labor
conflict (e.g., Barksky & Killian, 2001; Olson, 1982; Smith, 1992). At the time,
however, policymakers increasingly adopted the view that government
interference was the main culprit, and that the solution involved reforming
the economy in ways that privileged markets’ economic influence over that
of the state. Their various views were ultimately crystallized as a set of
liberalization policies called the “Washington Consensus”: fiscal austerity,
market-determined interest and exchange rates, free trade, inward investment deregulation, privatization, market deregulation, and a commitment
to protecting private property (Williamson, 1990).
Perhaps the most significant changes occurred in finance. Over the
1980s through 2000s, the financial sector operated within a progressively
deregulated environment, and grew markedly larger, more complex, more
economically and politically powerful, and an increasing source of instability (Carruthers, 2011; Davis, 2009; Epstein, 2005; Foster, 2007; Krippner, 2005,
2011). During the 1980s, neoliberalism’s free-wheeling international financial
markets gave some indication that they could be economically destabilizing.
Much as would happen two decades later, OECD governments ultimately
saved financial institutions in the late-1980s with bailouts made conditional
on reforms that shifted the adjustment costs of the crisis to the borrowers.
In the case of developing countries, the price of being bailed out involved
politically and economically difficult reforms, but no serious containment
on Western lending or leverage. Any concerns about the negative side of
neoliberal reforms were soon erased with the emergence of the information
technology and international investment booms that started in the early
1990s. Foreign direct investment into developing and ex-socialist countries
began to accelerate (Cohen & Centeno, 2006), with Western businesses anxious to gain footholds in these new economic frontiers. Trade was liberalized

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substantially (Chorev, 2007), and businesses aggressively sought to internationalize their operations. US (and ultimately many Western) companies
sought to offshore (via direct investment or outsourcing) the production of
tangible goods, assuming a role in the international division of labor that
concentrated on product design, market, consulting and intellectual property, while physical production moved to low-wage developing countries
(Centeno & Cohen, 2010). Despite the boom, some observers questioned the
centrality of liberal markets to the Asian “miracles” that originally justified
reforms, while noting that Latin America—the world’s most fervent adopter
of neoliberalism—was doing poorly economically (Gore, 2000; Rodrik, 1996).
Others began to argue that market liberalization was not a complete solution
in and of itself, and calls to focus on the importance of how states govern
markets grew louder (Burki & Perry, 1998; Evans, 1995; Evans & Rauch,
1998). There were several clear indications that these policies promoted
inequality and hurt the poor, and that these problems hindered the larger
development process (Williamson, 2003). Inequality became worse in the
United States (Piketty & Saez, 2003) and elsewhere, although the rapid
development of China and India made the world economy more equal on a
population-weighted basis (Firebaugh, 1999).
In 2000, the West’s technology market bubble burst. This downturn
revealed serious manipulations of financial reporting—most notably with
cases such as Enron, Worldcom, Adelphi, and Tyco—where auditors were
complicit in the theft of billions of dollars. The United States began an odd
and short-lived recovery around 2003. Growth was slow and median wages
barely moved, while the financial sector enjoyed large profits. As with most
bubbles, prevailing theory, market perception, and bond rating agencies
assumed that these kinds of securities offered low risk, while the presumably
“well-informed” market determined that they merited solid returns. The
rush to buy these types of assets made huge amounts of capital available
for home buyers, while exposing financial institutions to imperceptible, and
very large, risks. Furthermore, the Federal Reserve became complicit in this
bubble by pursuing a monetary policy that stimulated financial markets
when downturns threatened. This “Greenspan put” (Goodhart, 2008) was
taken as an implicit guarantee that governments would not let financial
markets deflate.
By late 2008, panic over the solvency of financial institutions emerged,
leading to a string of defaults and government-engineered bailouts. Several
months after the collapse, world financial assets declined by approximately
$50 trillion (Adam, 2009). Financial institutions’ capital bases, which were
heavily invested in derivatives, effectively evaporated and lending stopped.
Governments responded with massive capital injections into banks, but
spending, real investment, and lending have not surged back as of late 2012.

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The US economy shed millions of jobs, and experienced a spate of bankruptcies, a slowed economy, and tight credit markets. For weaker government
debtors who could not print money or devaluate their currencies—such
as American states or southern EU states—avoiding default has become a
problem. The Western countries have largely stagnated, and much of the
world economy has suffered as a result.
The economics of neoliberalism became clearer over three decades: Increasingly deregulated and volatile debt was used to promote demand and fuel
apparent prosperity. In many ways, it was a form of disguised Keynesianism with a drastically different distribution of costs and benefits: Instead of
being taxed to pay for public goods, the wealthy lent governments money to
finance deficits. When the nature and complexities of the underlying financial reality threatened to overwhelm the system, governments would come
to the rescue and begin the cycle all over again. In the summer of 2011, negotiations over the American debt ceiling and the Euro crisis and the proposed
solutions sounded remarkably similar to earlier episodes. Despite talk of the
“end of capitalism as we know it” around 2008, the economic rules of the
game remained essentially the same.
THE POLITICS OF NEOLIBERALISM
The birth of the neoliberal paradigm begins with a system-wide crisis of
state legitimacy in the 1960s and 1970s (Drazen & Grilli, 1993; Hall, 1992).
Throughout much of the developed world, political, economic, and social
crises strained the social compacts that kept mid-century “mixed capitalism” politically influential. At the beginning of the crisis, most countries
responded with social spending and regulatory tinkering. As Richard
Nixon famously suggested, everyone was still a Keynesian. Yet, as the
crisis continued, traditional mid-century policy instruments seemed unable
to restore economic order (Appelby, 2010; Brenner, 2006; Eichengreen,
1996; Fourcade-Gourinchas & Babb, 2002; Frieden, 2006; Habermas, 1975;
Maddison, 1991).
Neoliberalism was a way for the system to survive its own contradictions.
First, it sought to restore state solvency and financial-systemic stability by
bolstering and attracting the money of a burgeoning world financial market
(through privatization, new inward investment, and investment market
growth) and attracting hard currency by pursuing exports and assuring
monetary stability (Hall, 1992). Second, the notion of “market exigencies”
provided political cover for contentious policy changes. In developing countries, for example, the Washington Consensus’ loan conditionalities created
an occasion for countries to cut politically well-defended entitlements and

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thus theoretically escape the fiscal and budgetary pressures they were facing
(Blyth, 2002; Olson, 1996; Prasad, 2006).
A key element in this was the radical realignment of large parts of the
voting population in the developed economies (Cowie, 2010; Jacobs &
Zelizer, 2008; Sandbrook, 2011; Stein, 2010). The late 1960s through the
early 1980s marked the rightward recentering of political discourse. Ronald
Reagan and Margaret Thatcher’s elections proved critical moments in the
rise of neoliberalism (Gamble, 1988; Yergin & Stanislaw, 1998). Those who
resisted neoliberalism could face capital flight and short-to-medium term
economic pressures (Fourcade-Gourinchas & Babb, 2002; Sachs, 1989). With
the leadership of pro-market leaders such as Mikhail Gorbachev and Deng
Xiaoping eliminating any global alternative, opponents of neoliberalism
found themselves with fewer geopolitical poles to which they could cling.
The disintegration of the domestic political compacts that had dominated
in the post-war period presented a situation in which new policies could be
advocated and new alliances forged (Hay, 2005; Katz, 2010; Pierson, 1994;
Pierson & Skocpol, 2007; Quinn & Toyoda, 2007). The rise of what we might
call the “charismatic right” (Berlinski, 2008; Hayward, 2010) was accompanied by the wholesale retreat of the traditional electoral left. In part a pragmatic response to a string of defeats, in part a reaction to structural changes
in the global economy, and in part as a generational transfer of power, the
elaboration of “third-way” Clintonism and New Labour removed any political challenge to the domination by the market centric rhetoric of the right
(Driver & Martell, 2006; Giddens, 1998; Hale, 1995; Ryner, 2010).
The centrality of politics belies the contention that neoliberalism was
anti-statist (Harvey, 2005; Hay, 2005; King & Sznajder, 2006; Kurtz & Brooks,
2008; Mann, 2000; Mudge, 2008; Murillo, 2002; Ohmae, 1996; Polillo & Guillén, 2005; Rudra, 2002; Wolf, 2001). Although globalization was predicted
to transform government completely, it did not lead to several theorized or
intuitive changes. For all of the talk about “small government,” states rarely
shrunk in any substantial absolute sense. Neoliberals’ attack on the welfare
state was vociferous. Neoliberalism sacrificed some public sector projects
(public employment, aid to the poor or well-funded upper education), but
still managed to maintain broad-based government guarantees of economic
security, such as unemployment insurance, pensions, or medical insurance.
Its costs were socialized in ways to make organized opposition difficult
(Dreher, Jan-Egbert & Ursprung, 2007; Hanson, 2009; Storey, 2008). One
clear political trend was the shifting of institutional power within the state
toward the agencies managing relations with capital (central banks, finance
ministries) as their policy perspectives and preferences came to dominate
those of more welfare-oriented organizations. In the end, neoliberalism was

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very much a state-directed project, but the interests represented by these
same states changed as did the central actors defining policy.
There was a radical change in the post-war balance of power between
domestic voters and global interests as well (Shefner & Férnandez-Kelly,
2011). In the United States and globally, the financial sector itself became
more concentrated, with national banking markets coalescing around a
smaller number of internationally competitive firms, and the focus of capital
investment internationalized (Verdier, 2002). The internationalization of
capital increasingly separated economic power from direct political control
(Eichengreen, 2008; Hacker & Pierson, 2011; Helleiner, 1994; Shaxson, 2011;
Simmons, 1999). Neoliberalism also marked a profound change in the
government’s understanding of how states’ geopolitical interests were
best pursued. In the shadow of World War II and the Cold War, global
politics trumped economic orthodoxy in determining policy preferences
and financial support. This strategic perspective was transformed by the
end of the Cold War. The collapse of the Soviet Union in 1989 served as
the capstone to a decade-long apparent victory of market mechanisms
and the disappearance of feasible alternatives. Concerns about military
dominance, geopolitical alliance, industrialization, national self-sufficiency,
and the pacification of domestic discontent gave way to the pursuit of
aggregate growth, inflation control, and public debt management (Abdelal,
2007; Baldwin, 1993; Hasenclever, Mayer & Rittberger, 1997; Keohane, Nye
& Hoffmann, 1993; Waltz, 1979). As the state sought the approval of a
global financial market able to inject desperately needed funds, measures
of investor confidence would replace political polls as bellwethers of a
government’s success (Deeg & O’Sullivan, 2009). In this way, neoliberalism
did not so much mean the end of the state, but rather a significant change in
the meaning of citizenship within states (Mitchell, 2003; Ong, 2006).
The political world of neoliberalism may be best understood as based on
increasingly asymmetrical power. The central question within the political
analysis of neoliberalism is the extent to which it occurred as a response
to asymmetries and economic changes or due to the direct exercise of class
and global power. Margaret Thatcher defended her policies with her famous
TINA: “there is no alternative.” Was this true or was it simply convenient for
some that none arose?
Some explanations of the rise of neoliberalism focus on the structural shifts
in the global economy and treated resulting policies as an inevitable and
sensible response to these (Boix, 2010). Yet, increasingly, the argument has
been made that the financial turn in global political economy was not the
inevitable response to nameless forces beyond political control, but very
much a product of direct political influence, not just by the amorphous
capital markets but by the direct collusion and influence of a narrow group

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of individuals whose personal or institutional control of vast amounts of
money allowed them to buy their respective polities (Duménil & Lévy,
2011; Hacker & Pierson, 2011; Johnson & Kwak, 2011; Morgenson & Rosner,
2011). The diffusion of neoliberalism in the developing and ex-socialist
worlds was tied to the imposition of policy preferences in exchange for
foreign aid or emergency financing from the United States or international
financial institutions (such as the IMF or World Bank) (Bromley & Bush,
1994; Edwards, 1995).
THE CULTURE OF NEOLIBERALISM
The assumptions underlying our understanding of the political economy
are as fundamental a force behind the rise of neoliberalism as political or
economic factors (Berman, 1998, 2002; Campbell, 1998; Mandelbaum, 2002;
Murillo, 2002; Rodgers, 2011; Simmons et al., 2008). Thus, for example,
interstatal competition for capital may not have been as important as the
perception that such competitive strategies were expected and necessary of
“responsible” global players (Hay, 2006; Hay & Rosamond, 2002). No matter
one’s views on its costs and benefits, we need to understand neoliberalism
as the triumph of an ideology (Mirowski & Plehwe, 2009) or in Bourdieu’s
less felicitous terms (1999), “the tyranny of the market.”
The market’s first great victory was in the academy. The principles underlying neoliberalism first established their monopoly in the economics profession and from there engaged in an imperial conquest of other fields (or
their delegitimation) (McNamara, 2009; Oatley, 2011). What is particularly
fascinating about the relationship between academic economics and the rise
of neoliberalism is that even as the level of abstraction and formalism of the
former increased, so did its influence in shaping policy (Reay, 2007).
What linked this epistemic community (Haas, 1992) was the normalization
of markets, or their portrayal of them as inescapable natural laws of social
life—immutable and inescapable market forces—that would ultimately
undo any effort to subvert them. The equilibrium outcomes that would
inhere in pure markets were understood as analogous to gravitational
laws in physics, in the sense that they could be violated temporarily with
the expenditure of great resources, but never permanently. This led to the
nominal depoliticization of political economy. Despite considerable evidence to the contrary, economic policy saw itself as divorced from interests
or power and merely responding to the demands of the unconscious yet
omniscient market (Hirschman, 1991; Palma, 2009). The impact of these
academic musings was considerable (MacKenzie & Millo, 2003; Peck, 2010).
By the mid-1980s, discursive processes led to the practically political, or at
least policy, monopoly by what would have been called the conservative

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right only a decade before, but was now seen in much softer light as the
reasonable, pragmatic center.
In retrospect and given the crisis of 2008, the most important legacy of this
policy orientation was a broad and deep deregulation and privatization of
economic life (Megginson & Netter, 2001). Neoliberal pundits consistently
and effectively used what Albert Hirschman (1991) identified as the “rhetoric
of reaction”: any policy shift away from market logic could only resort in
futility, perverse outcomes, and systemic jeopardy.1
The skepticism about public regulation and the increasing faith in market
mechanisms had significant political effects over and above specific policy
preferences. Basic precepts and assumptions of human behavior empowered
elite political and economic actors to the detriment of middling and poorer
classes’ propensity to act collectively. For example, recasting labor relations
as market transactions between two types of individual entrepreneurs—the
proprietor-entrepreneur and the laborer-entrepreneur—expunged a range
of basic notions that guided mid-century labor relations from our collective
consciousness: the exigencies of fairness in bargaining and compensation, the possibility that workers have inalienable protections from their
employers, or the potential benefit of collective action. Similarly, the cult
of individualism undermined efforts to organize through the creation of
identity communities, with the significant exception of the newly energized
nationalism.
At the household level, the triumph of the market was heralded by an
explosion of consumption perhaps unique in human history (Jacobs, 2011).
A veritable culture of spending (supported by debt) developed in practically
every region of the world and the ubiquity of goods and services became
arguably the most powerful argument for the sanctity of the market. This
came with a significant increase in the amount of leisure time available and
(in many jobs) a decline in the dangers and exhaustion associated with them
(Schor, 1999). Simply put, people felt they were living much better thanks
to the market (Baker, 2005; Emmott, 2003; Inglehart, Foa, Peterson & Welzel,
2008) and many actually were (and not just in terms of electronics per capita
but also as measured by indicators such as Human Development Index). The
issue is not to question the 1990s boom, but to challenge the assumption that
market fundamentalism was responsible for it.
CONCLUSIONS
Over and above substantive historical lessons, we believe this review
suggests two more general insights. First, it is imperative to recognize the
1. With thanks to Mark Blyth and his blog http://triplecrisis.com/the-problem-of-intellectualcapture/.

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cultural or ideational element to economic governance. Second, it is equally
important to recognize that economic policies do not involve exclusively
the search for universal principles, but political choices about who wins
and who loses. The combination of apparent inevitability with the notion of
non-zero-sum outcomes was extremely powerful. For decades we lived in a
world where the dictates of global finance appeared to enjoy the immutability of gravitational laws and where the sacrifice of social interests on the
altar of “investor confidence” appeared inevitable. But, we should learn
that such an approach involved a set of political choices and the relative
appraisal of a set of interests and principles. Any new policy paradigm must
not make the same mistakes.

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MIGUEL ANGEL CENTENO SHORT BIOGRAPHY
Miguel Angel Centeno is Musgrave Professor of Sociology and International
Affairs and Chair of the Sociology department at Princeton University. He
has written widely on Latin America, state capacity, war, and globalization.
JOSEPH N. COHEN SHORT BIOGRAPHY
Joseph N. Cohen is Assistant Professor at Queens-CUNY and works on
global political economy.
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Neoliberalism
MIGUEL ANGEL CENTENO and JOSEPH N. COHEN

Abstract
What is neoliberalism and how do we account for its policy dominance over three
decades? We analyze the rise and power of neoliberalism from three different perspectives: economic, political, and cultural. We argue that cultural analysis of policy
preferences and success is critical to understanding the appeal and staying power of
neoliberalism.

For over three decades, neoliberalism reshaped the global political economy
(Centeno & Cohen, 2012). Neoliberalism is an economic policy ideology or
movement that stresses the necessity or desirability of transferring economic
power and control from governments to private markets. Beginning in the
1970s, this perspective dominated policymaking in the West, and spread
globally after the Cold War. While the 2008 crisis and ensuing Great Recession
may have shaken neoliberalism’s supremacy, it remains unchalleneged by
serious alternatives and continues to shape post-crisis policy (Crouch, 2011).
Neoliberalism sought to dismantle or suppress extra-market forms of
economic coordination (Amable, 2011). Its policies sought to reverse the
economic power and influence assumed by states after the Great Depression
and World War II (Ruggie, 1982). Concretely, neoliberal reformers sought
to deinstitutionalize (either partly or fully) commonplace mid-twentieth
century policy strategies such as redistributive taxation and deficit spending,
controls on international exchange, economic regulation, public goods and
service provision, and active fiscal and monetary policies (Centeno & Cohen,
2010; Gwartney, Hall & Lawson, 2010; Miller & Holmes, 2011).
Understanding neoliberalism’s history and practical dilemmas involves
paying attention to the underlying structural economic developments, the
(re)distribution of political power, the ideational and discursive shifts that
framed how these changing conditions were perceived and acted upon, and
the balance between coercion, exchange, and conversion in explaining its
global diffusion (Henisz, Zelner, & Guillén, 2005).
Emerging Trends in the Social and Behavioral Sciences. Edited by Robert Scott and Stephen Kosslyn.
© 2015 John Wiley & Sons, Inc. ISBN 978-1-118-90077-2.

1

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

THE ECONOMICS OF NEOLIBERALISM
After the Great Depression and World War II, governments grew to be
substantially larger and more economically influential, as states increased
social spending, public investment and enterprise ownership, and market regulation, while maintaining large peacetime militaries (Bruton, 1998;
Cameron, 1978; Tanzi & Schuknecht, 2000). But the state-managed capitalism
system began to face strains by the late-1960s. In 1973, the OPEC oil embargo
sparked a sustained economic crisis across the Western world. What was
unique about this crisis was that prices rose in tandem with an economic
slowdown and a rise in unemployment. Over the 1970s, the major Western
economies saw growth rates roughly halve, and unemployment rates rise by
40% to 500%, (Helliwell, 1988, p. 2). Scholars still disagree about the crisis’
ultimate causes; explanations often involve some mixture of commodity
prices, monetary expansion, declining returns on investment, and labor
conflict (e.g., Barksky & Killian, 2001; Olson, 1982; Smith, 1992). At the time,
however, policymakers increasingly adopted the view that government
interference was the main culprit, and that the solution involved reforming
the economy in ways that privileged markets’ economic influence over that
of the state. Their various views were ultimately crystallized as a set of
liberalization policies called the “Washington Consensus”: fiscal austerity,
market-determined interest and exchange rates, free trade, inward investment deregulation, privatization, market deregulation, and a commitment
to protecting private property (Williamson, 1990).
Perhaps the most significant changes occurred in finance. Over the
1980s through 2000s, the financial sector operated within a progressively
deregulated environment, and grew markedly larger, more complex, more
economically and politically powerful, and an increasing source of instability (Carruthers, 2011; Davis, 2009; Epstein, 2005; Foster, 2007; Krippner, 2005,
2011). During the 1980s, neoliberalism’s free-wheeling international financial
markets gave some indication that they could be economically destabilizing.
Much as would happen two decades later, OECD governments ultimately
saved financial institutions in the late-1980s with bailouts made conditional
on reforms that shifted the adjustment costs of the crisis to the borrowers.
In the case of developing countries, the price of being bailed out involved
politically and economically difficult reforms, but no serious containment
on Western lending or leverage. Any concerns about the negative side of
neoliberal reforms were soon erased with the emergence of the information
technology and international investment booms that started in the early
1990s. Foreign direct investment into developing and ex-socialist countries
began to accelerate (Cohen & Centeno, 2006), with Western businesses anxious to gain footholds in these new economic frontiers. Trade was liberalized

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substantially (Chorev, 2007), and businesses aggressively sought to internationalize their operations. US (and ultimately many Western) companies
sought to offshore (via direct investment or outsourcing) the production of
tangible goods, assuming a role in the international division of labor that
concentrated on product design, market, consulting and intellectual property, while physical production moved to low-wage developing countries
(Centeno & Cohen, 2010). Despite the boom, some observers questioned the
centrality of liberal markets to the Asian “miracles” that originally justified
reforms, while noting that Latin America—the world’s most fervent adopter
of neoliberalism—was doing poorly economically (Gore, 2000; Rodrik, 1996).
Others began to argue that market liberalization was not a complete solution
in and of itself, and calls to focus on the importance of how states govern
markets grew louder (Burki & Perry, 1998; Evans, 1995; Evans & Rauch,
1998). There were several clear indications that these policies promoted
inequality and hurt the poor, and that these problems hindered the larger
development process (Williamson, 2003). Inequality became worse in the
United States (Piketty & Saez, 2003) and elsewhere, although the rapid
development of China and India made the world economy more equal on a
population-weighted basis (Firebaugh, 1999).
In 2000, the West’s technology market bubble burst. This downturn
revealed serious manipulations of financial reporting—most notably with
cases such as Enron, Worldcom, Adelphi, and Tyco—where auditors were
complicit in the theft of billions of dollars. The United States began an odd
and short-lived recovery around 2003. Growth was slow and median wages
barely moved, while the financial sector enjoyed large profits. As with most
bubbles, prevailing theory, market perception, and bond rating agencies
assumed that these kinds of securities offered low risk, while the presumably
“well-informed” market determined that they merited solid returns. The
rush to buy these types of assets made huge amounts of capital available
for home buyers, while exposing financial institutions to imperceptible, and
very large, risks. Furthermore, the Federal Reserve became complicit in this
bubble by pursuing a monetary policy that stimulated financial markets
when downturns threatened. This “Greenspan put” (Goodhart, 2008) was
taken as an implicit guarantee that governments would not let financial
markets deflate.
By late 2008, panic over the solvency of financial institutions emerged,
leading to a string of defaults and government-engineered bailouts. Several
months after the collapse, world financial assets declined by approximately
$50 trillion (Adam, 2009). Financial institutions’ capital bases, which were
heavily invested in derivatives, effectively evaporated and lending stopped.
Governments responded with massive capital injections into banks, but
spending, real investment, and lending have not surged back as of late 2012.

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

The US economy shed millions of jobs, and experienced a spate of bankruptcies, a slowed economy, and tight credit markets. For weaker government
debtors who could not print money or devaluate their currencies—such
as American states or southern EU states—avoiding default has become a
problem. The Western countries have largely stagnated, and much of the
world economy has suffered as a result.
The economics of neoliberalism became clearer over three decades: Increasingly deregulated and volatile debt was used to promote demand and fuel
apparent prosperity. In many ways, it was a form of disguised Keynesianism with a drastically different distribution of costs and benefits: Instead of
being taxed to pay for public goods, the wealthy lent governments money to
finance deficits. When the nature and complexities of the underlying financial reality threatened to overwhelm the system, governments would come
to the rescue and begin the cycle all over again. In the summer of 2011, negotiations over the American debt ceiling and the Euro crisis and the proposed
solutions sounded remarkably similar to earlier episodes. Despite talk of the
“end of capitalism as we know it” around 2008, the economic rules of the
game remained essentially the same.
THE POLITICS OF NEOLIBERALISM
The birth of the neoliberal paradigm begins with a system-wide crisis of
state legitimacy in the 1960s and 1970s (Drazen & Grilli, 1993; Hall, 1992).
Throughout much of the developed world, political, economic, and social
crises strained the social compacts that kept mid-century “mixed capitalism” politically influential. At the beginning of the crisis, most countries
responded with social spending and regulatory tinkering. As Richard
Nixon famously suggested, everyone was still a Keynesian. Yet, as the
crisis continued, traditional mid-century policy instruments seemed unable
to restore economic order (Appelby, 2010; Brenner, 2006; Eichengreen,
1996; Fourcade-Gourinchas & Babb, 2002; Frieden, 2006; Habermas, 1975;
Maddison, 1991).
Neoliberalism was a way for the system to survive its own contradictions.
First, it sought to restore state solvency and financial-systemic stability by
bolstering and attracting the money of a burgeoning world financial market
(through privatization, new inward investment, and investment market
growth) and attracting hard currency by pursuing exports and assuring
monetary stability (Hall, 1992). Second, the notion of “market exigencies”
provided political cover for contentious policy changes. In developing countries, for example, the Washington Consensus’ loan conditionalities created
an occasion for countries to cut politically well-defended entitlements and

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thus theoretically escape the fiscal and budgetary pressures they were facing
(Blyth, 2002; Olson, 1996; Prasad, 2006).
A key element in this was the radical realignment of large parts of the
voting population in the developed economies (Cowie, 2010; Jacobs &
Zelizer, 2008; Sandbrook, 2011; Stein, 2010). The late 1960s through the
early 1980s marked the rightward recentering of political discourse. Ronald
Reagan and Margaret Thatcher’s elections proved critical moments in the
rise of neoliberalism (Gamble, 1988; Yergin & Stanislaw, 1998). Those who
resisted neoliberalism could face capital flight and short-to-medium term
economic pressures (Fourcade-Gourinchas & Babb, 2002; Sachs, 1989). With
the leadership of pro-market leaders such as Mikhail Gorbachev and Deng
Xiaoping eliminating any global alternative, opponents of neoliberalism
found themselves with fewer geopolitical poles to which they could cling.
The disintegration of the domestic political compacts that had dominated
in the post-war period presented a situation in which new policies could be
advocated and new alliances forged (Hay, 2005; Katz, 2010; Pierson, 1994;
Pierson & Skocpol, 2007; Quinn & Toyoda, 2007). The rise of what we might
call the “charismatic right” (Berlinski, 2008; Hayward, 2010) was accompanied by the wholesale retreat of the traditional electoral left. In part a pragmatic response to a string of defeats, in part a reaction to structural changes
in the global economy, and in part as a generational transfer of power, the
elaboration of “third-way” Clintonism and New Labour removed any political challenge to the domination by the market centric rhetoric of the right
(Driver & Martell, 2006; Giddens, 1998; Hale, 1995; Ryner, 2010).
The centrality of politics belies the contention that neoliberalism was
anti-statist (Harvey, 2005; Hay, 2005; King & Sznajder, 2006; Kurtz & Brooks,
2008; Mann, 2000; Mudge, 2008; Murillo, 2002; Ohmae, 1996; Polillo & Guillén, 2005; Rudra, 2002; Wolf, 2001). Although globalization was predicted
to transform government completely, it did not lead to several theorized or
intuitive changes. For all of the talk about “small government,” states rarely
shrunk in any substantial absolute sense. Neoliberals’ attack on the welfare
state was vociferous. Neoliberalism sacrificed some public sector projects
(public employment, aid to the poor or well-funded upper education), but
still managed to maintain broad-based government guarantees of economic
security, such as unemployment insurance, pensions, or medical insurance.
Its costs were socialized in ways to make organized opposition difficult
(Dreher, Jan-Egbert & Ursprung, 2007; Hanson, 2009; Storey, 2008). One
clear political trend was the shifting of institutional power within the state
toward the agencies managing relations with capital (central banks, finance
ministries) as their policy perspectives and preferences came to dominate
those of more welfare-oriented organizations. In the end, neoliberalism was

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very much a state-directed project, but the interests represented by these
same states changed as did the central actors defining policy.
There was a radical change in the post-war balance of power between
domestic voters and global interests as well (Shefner & Férnandez-Kelly,
2011). In the United States and globally, the financial sector itself became
more concentrated, with national banking markets coalescing around a
smaller number of internationally competitive firms, and the focus of capital
investment internationalized (Verdier, 2002). The internationalization of
capital increasingly separated economic power from direct political control
(Eichengreen, 2008; Hacker & Pierson, 2011; Helleiner, 1994; Shaxson, 2011;
Simmons, 1999). Neoliberalism also marked a profound change in the
government’s understanding of how states’ geopolitical interests were
best pursued. In the shadow of World War II and the Cold War, global
politics trumped economic orthodoxy in determining policy preferences
and financial support. This strategic perspective was transformed by the
end of the Cold War. The collapse of the Soviet Union in 1989 served as
the capstone to a decade-long apparent victory of market mechanisms
and the disappearance of feasible alternatives. Concerns about military
dominance, geopolitical alliance, industrialization, national self-sufficiency,
and the pacification of domestic discontent gave way to the pursuit of
aggregate growth, inflation control, and public debt management (Abdelal,
2007; Baldwin, 1993; Hasenclever, Mayer & Rittberger, 1997; Keohane, Nye
& Hoffmann, 1993; Waltz, 1979). As the state sought the approval of a
global financial market able to inject desperately needed funds, measures
of investor confidence would replace political polls as bellwethers of a
government’s success (Deeg & O’Sullivan, 2009). In this way, neoliberalism
did not so much mean the end of the state, but rather a significant change in
the meaning of citizenship within states (Mitchell, 2003; Ong, 2006).
The political world of neoliberalism may be best understood as based on
increasingly asymmetrical power. The central question within the political
analysis of neoliberalism is the extent to which it occurred as a response
to asymmetries and economic changes or due to the direct exercise of class
and global power. Margaret Thatcher defended her policies with her famous
TINA: “there is no alternative.” Was this true or was it simply convenient for
some that none arose?
Some explanations of the rise of neoliberalism focus on the structural shifts
in the global economy and treated resulting policies as an inevitable and
sensible response to these (Boix, 2010). Yet, increasingly, the argument has
been made that the financial turn in global political economy was not the
inevitable response to nameless forces beyond political control, but very
much a product of direct political influence, not just by the amorphous
capital markets but by the direct collusion and influence of a narrow group

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of individuals whose personal or institutional control of vast amounts of
money allowed them to buy their respective polities (Duménil & Lévy,
2011; Hacker & Pierson, 2011; Johnson & Kwak, 2011; Morgenson & Rosner,
2011). The diffusion of neoliberalism in the developing and ex-socialist
worlds was tied to the imposition of policy preferences in exchange for
foreign aid or emergency financing from the United States or international
financial institutions (such as the IMF or World Bank) (Bromley & Bush,
1994; Edwards, 1995).
THE CULTURE OF NEOLIBERALISM
The assumptions underlying our understanding of the political economy
are as fundamental a force behind the rise of neoliberalism as political or
economic factors (Berman, 1998, 2002; Campbell, 1998; Mandelbaum, 2002;
Murillo, 2002; Rodgers, 2011; Simmons et al., 2008). Thus, for example,
interstatal competition for capital may not have been as important as the
perception that such competitive strategies were expected and necessary of
“responsible” global players (Hay, 2006; Hay & Rosamond, 2002). No matter
one’s views on its costs and benefits, we need to understand neoliberalism
as the triumph of an ideology (Mirowski & Plehwe, 2009) or in Bourdieu’s
less felicitous terms (1999), “the tyranny of the market.”
The market’s first great victory was in the academy. The principles underlying neoliberalism first established their monopoly in the economics profession and from there engaged in an imperial conquest of other fields (or
their delegitimation) (McNamara, 2009; Oatley, 2011). What is particularly
fascinating about the relationship between academic economics and the rise
of neoliberalism is that even as the level of abstraction and formalism of the
former increased, so did its influence in shaping policy (Reay, 2007).
What linked this epistemic community (Haas, 1992) was the normalization
of markets, or their portrayal of them as inescapable natural laws of social
life—immutable and inescapable market forces—that would ultimately
undo any effort to subvert them. The equilibrium outcomes that would
inhere in pure markets were understood as analogous to gravitational
laws in physics, in the sense that they could be violated temporarily with
the expenditure of great resources, but never permanently. This led to the
nominal depoliticization of political economy. Despite considerable evidence to the contrary, economic policy saw itself as divorced from interests
or power and merely responding to the demands of the unconscious yet
omniscient market (Hirschman, 1991; Palma, 2009). The impact of these
academic musings was considerable (MacKenzie & Millo, 2003; Peck, 2010).
By the mid-1980s, discursive processes led to the practically political, or at
least policy, monopoly by what would have been called the conservative

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right only a decade before, but was now seen in much softer light as the
reasonable, pragmatic center.
In retrospect and given the crisis of 2008, the most important legacy of this
policy orientation was a broad and deep deregulation and privatization of
economic life (Megginson & Netter, 2001). Neoliberal pundits consistently
and effectively used what Albert Hirschman (1991) identified as the “rhetoric
of reaction”: any policy shift away from market logic could only resort in
futility, perverse outcomes, and systemic jeopardy.1
The skepticism about public regulation and the increasing faith in market
mechanisms had significant political effects over and above specific policy
preferences. Basic precepts and assumptions of human behavior empowered
elite political and economic actors to the detriment of middling and poorer
classes’ propensity to act collectively. For example, recasting labor relations
as market transactions between two types of individual entrepreneurs—the
proprietor-entrepreneur and the laborer-entrepreneur—expunged a range
of basic notions that guided mid-century labor relations from our collective
consciousness: the exigencies of fairness in bargaining and compensation, the possibility that workers have inalienable protections from their
employers, or the potential benefit of collective action. Similarly, the cult
of individualism undermined efforts to organize through the creation of
identity communities, with the significant exception of the newly energized
nationalism.
At the household level, the triumph of the market was heralded by an
explosion of consumption perhaps unique in human history (Jacobs, 2011).
A veritable culture of spending (supported by debt) developed in practically
every region of the world and the ubiquity of goods and services became
arguably the most powerful argument for the sanctity of the market. This
came with a significant increase in the amount of leisure time available and
(in many jobs) a decline in the dangers and exhaustion associated with them
(Schor, 1999). Simply put, people felt they were living much better thanks
to the market (Baker, 2005; Emmott, 2003; Inglehart, Foa, Peterson & Welzel,
2008) and many actually were (and not just in terms of electronics per capita
but also as measured by indicators such as Human Development Index). The
issue is not to question the 1990s boom, but to challenge the assumption that
market fundamentalism was responsible for it.
CONCLUSIONS
Over and above substantive historical lessons, we believe this review
suggests two more general insights. First, it is imperative to recognize the
1. With thanks to Mark Blyth and his blog http://triplecrisis.com/the-problem-of-intellectualcapture/.

Neoliberalism

9

cultural or ideational element to economic governance. Second, it is equally
important to recognize that economic policies do not involve exclusively
the search for universal principles, but political choices about who wins
and who loses. The combination of apparent inevitability with the notion of
non-zero-sum outcomes was extremely powerful. For decades we lived in a
world where the dictates of global finance appeared to enjoy the immutability of gravitational laws and where the sacrifice of social interests on the
altar of “investor confidence” appeared inevitable. But, we should learn
that such an approach involved a set of political choices and the relative
appraisal of a set of interests and principles. Any new policy paradigm must
not make the same mistakes.

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MIGUEL ANGEL CENTENO SHORT BIOGRAPHY
Miguel Angel Centeno is Musgrave Professor of Sociology and International
Affairs and Chair of the Sociology department at Princeton University. He
has written widely on Latin America, state capacity, war, and globalization.
JOSEPH N. COHEN SHORT BIOGRAPHY
Joseph N. Cohen is Assistant Professor at Queens-CUNY and works on
global political economy.
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