The Politics of Privatization: How Neoliberalism Took Over US Politics

Many of us have come across the term "neoliberal," or "neoliberalism" before, but for all its use, few have ever taken the chance to actually explain what it is. An inadequate popular definition has allowed the term to be abused and misrepresented in a variety of ways. Despite these misrepresentations, however, "neoliberalism" is a concept that is very useful for understanding the world we live in today.

In simple terms, neoliberalism is a broad ideology that became popular in political, economic, and governmental circles in the 1970’s and reached its peak in global popularity in the 1980’s. Neoliberalism describes the political paradigm we are in right now, the political conditions of modern society. As the name suggests, it calls for a revitalization of the classical liberal view of economic policy. It's important to understand that "classical liberal" here refers to an older understanding of the word liberal than the one it has in modern America- it is referencing the liberalism of the Enlightenment era, represented by thinkers like Adam Smith and John Locke, not modern social liberalism as embodied by Barack Obama and much of the rest of the Democratic Party. In concrete policy terms, neoliberalism means free trade, low taxes, deregulation, privatization, and balanced budgets.

Neoliberalism represents a shift in the way we look at the world: it entails seeing every aspect of society, even those typically considered civic or community affairs, in the terms of the market economy.

 

"Stagflation" & Schools of Economic Thought

Neoliberalism emerged as a reaction to welfare state politics and Keynesian economics that had become popular in the West following the end of World War II.

What is Keynesian Economics? Two major schools of economic thought are Classical Economics and Keynesian Economics. Adam Smith’s (1723-1790) theory of Classical Economics asserts that the market is a rapidly-adjusting, self-correcting entity. John Maynard Keynes (1883-1946) believed that Classical Economics was flawed. If classical economics were true, Keyes asserted, waves of massive unemployment wouldn’t exist, as the market would quickly self-adjust for the downturn. Keynes theorized that during an economic downturn, consumer demand tended to drop, causing employers to lay off employees, which would then decrease overall consumer demand, and the cycle would continue. Keynes concluded that in periods of economic downturn, government could manipulate demand by hiring, directly or through policy, unemployed workers and break the cycle.

 

Following a long period of significant prosperity, the 1970’s brought with it a phenomenon known as “stagflation”- simultaneous stagnation (where worker wages are kept flat) and inflation (where the cost of living rises). Keynesians, who had been the dominant group in American economics at the time, believed it was impossible for stagflation to exist for any extended period of time.

As the Keynesians tried to make sense of economic realities of the day, a new wave of economists began to create other schools of thought. Milton Friedman (known as "the Chicago School" or "monetarists") made the case not only for a different approach to monetary policy in order to solve stagflation, but also for the idea that many forms of governmental involvement in the economy are in fact harmful. Others, like James Buchanan pioneered a field known as "public choice theory," which made the case to the economics profession that government bureaucrats acted in personal self-interest, not in the public interest, and thus that policy prescriptions should be much more cautious in calling for governmental solutions to economic issues.

 

Activist Business

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At the same time as the intellectual environment began to shift toward the political right in economics, the business community also began to be more aggressive in asserting their interests in politics. This development was prompted in part by soon-to-be Supreme Court Justice Lewis F. Powell, Jr. writing a memo to the U.S. Chamber of Commerce in 1971, arguing that “the American economic system is under attack” from progressive critics of big business and that the business community should fight back. A number of conservative and libertarian think tanks and advocacy organizations were created and expanded during this period in order to make the intellectual case for “freer” capitalism, including the Heritage Foundation (1973), the Cato Institute (1974), and the American Enterprise Institute (founded in 1938 but becoming influential during the 1970′s).

 

A Radical Message

Combine a turn against government in the field of economics and a growing assertion of political power by businesses, and throw in increased public skepticism of government after Vietnam and Watergate, and you have a recipe for fundamental political change. Between the economic disarray, the public distrust, and both intellectual and financial support for an alternative to post-war welfare statism, a new ideology became dominant in the political sphere. This  ideology was encapsulated by the presidency of Ronald Reagan, who summed it up perfectly with his famous quote: “in this current crisis, government is not the solution to the problem; government is the problem.”

Ronald Reagan and Margaret Thatcher (photo courtesy Reagan Presidential Library)
President Ronald Reagan and UK Prime Minister Margaret Thatcher.
Photo courtesy of Ronald Reagan Presidential Library.

Such a claim may sound like standard conservative fare today, but both Reagan and his message were quite radical at the time, even among Republicans. At the time of his election, Reagan was seen by some (including Gerald Ford) as simply too far right to win. The last (elected) Republican president before him, Nixon, created the Environmental Protection Agency (EPA), the Occupational Health and Safety Administration (OSHA), and a number of other progressive programs. He also called for healthcare reform that could arguably be called stronger than Obamacare, and an expansion of welfare, the latter of which was the inspiration for the Earned Income Tax Credit, passed shortly after he left office. Pieces of Nixon’s economic agenda were noticeably left-wing, so much so that one journalist at the time noted that he left the Democrats having to resort to “me-tooism.”

Nixon took such positions because he needed to respond to political pressures from the left, the same pressures that had pushed LBJ on civil rights legislation and the war on poverty. In the late 1970’s, as the activism and radicalism of the 1960's began to die out, those pressures began to be outweighed by increasing pressure from businesses in the direction of neoliberalism. This started under Jimmy Carter, who oversaw the cautious deregulation of airlines in 1978 and the trucking industry in 1980. However, it was Reagan who truly delivered the neoliberal agenda in America and institutionalized it into government.

Importantly, this era also saw the start of the growth in the importance of campaign donations. Republicans had not only a strong base of think tanks to provide them with a network of intellectual support, they also had far more money from the corporate interests they were serving. Congressional Republicans beat their Democratic counterparts in campaign expenditures in every election year from 1976 to 1992.

Traditionally, Democrats had relied on unions as a critical source of both campaign donations and organizational support. With union strength declining (a trend the Reagan administration encouraged through policy), the Democrats were being totally outgunned. According to Jacob S. Hacker and Paul Pierson's book "Winner-Take-All Politics":

"From the late 1970s to the late 1980s, corporate PACS [political action committees] increased their expenditures in congressional races nearly five fold. Labor spending only rose about half as fast... By 1980, unions accounted for less than a quarter of all PAC donations—down from half six years earlier."

 

The Third Way

Even with the emergence of conservative "Reagan Democrats" during the 1980's, the game had changed for the Democratic Party. Recognizing this, a number of Democrats (including Bill Clinton) joined together in a group called the Democratic Leadership Council with the goal of dragging the party to the right and boosting campaign contributions. They succeeded. When Clinton eventually won the presidency, he cemented neoliberalism as the law of the land by making it clear that the Democrats would not challenge the new fundamental doctrine of limited government involvement in many parts of the economy, and as a result made the Democrats politically competitive again. (Both the previously mentioned “Winner-Take-All Politics" and Thomas Ferguson and Joel Roger’s “Right Turn” go more into detail on this issue, and on neoliberalism more generally).

Instead of challenging the entirety of Reagan’s assertion of government-as-problem, Clinton espoused a “third way” ideology: in his second inauguration, he said that “Government is not the problem, and Government is not the solution. We—the American people—we are the solution.” Though the Clinton White House at times backed left-liberal policies like mild tax hikes on the wealthy, the Children’s Health Insurance Program, and the Family Medical Leave Act, it also continued the neoliberal march of rolling back progressive achievements through the deregulation of Wall Street (the Gramm-Leach-Bliley Act of 1999, the Commodity Futures Modernization Act of 2000, etc.), conservative welfare reform in 1996, NAFTA, and the gutting of public housing.

 

A One-Party System

Clinton himself was aware of the way that American politics was moving to the right, and he was sometimes frustrated with it. Allegedly, he once entered a meeting in the Oval Office complaining: "Where are all the Democrats? I hope you’re all aware we’re all Eisenhower Republicans. We’re Eisenhower Republicans here, and we are fighting the Reagan Republicans. We stand for lower deficits and free trade and the bond market. Isn’t that great?"

Despite this, however, Clinton and most of the rest of the Democratic Party accepted their role doing nothing more than, to borrow a phrase from political philosopher Roberto Unger, "to put a softer face on the agenda of their conservative opponents." They seek to make marginal improvements for poor, working class, and middle class voters here and there, but never seek to fundamentally shake up the political-economic system in any way. As one critic put it in 1990, even before Clinton's election, the Democratic Party is "...history's second-most enthusiastic capitalist party. They do not interfere with capitalist momentum, but wait for excesses and the inevitable popular reaction." This is why many left-wing critics will refer to some Democrats as neoliberals even when they don’t literally advocate for free market capitalism.

Neoliberalism within the Democratic Party looks less like a proposal to privatize or abolish Social Security as much as it does a commitment to benefit-cutting "entitlement reform.” It can be seen both in language (the constant discussion of education as an "investment" in "skills" necessary for "improving the workforce," instead of a guaranteed right for all citizens) and in policy (proposing tax cuts for the middle class instead of social spending even when taxes are at some of their lowest rates in decades; compromis[ing] in advance on major policy proposals like the 2009 stimulus; advocating piecemeal technocratic reforms to healthcare and finance instead of deeper, fundamental reform; etc.).

Newt Gingrich
Newt and Callista Gingrich at the 2012 Republican Convention.
Photo courtesy of PBS Newshour.

With their opponents on the defensive and partially compliant with their agenda, the Republicans continued to push further right under the leadership of Newt Gingrich and his "Contract with America." The Democrats started to dig their heels in and push back a little for the first time during the later part of the George W. Bush administration as his (and the wars’) approval ratings sank, and they now seem to have more or less stabilized. An increasingly loud progressive coalition of activists and advocates continues to push for ideas like single-payer healthcare, often dismissed as radical despite both being an international norm and the explicit goal of many mainstream Democratic politicians before neoliberalism's rise. The Democratic party establishment, on the contrary, is largely fine holding on to ideological territory that is, in certain areas, to the right of where it was several decades ago.

With the establishment of both major political parties accepting neoliberal ideology, it became default wisdom among economic, political, and media elites. Because the most powerful class of America accepted it as fact, it was instilled into the American consciousness as “common sense” that can’t be seriously challenged. Ideas in direct opposition to neoliberalism were largely marginalized, and as a result, much of our modern debate now takes place within its bounds. Today, though, this marginalization is rapidly disappearing.

Today, we are witnessing the collapse of neoliberalism’s "common sense" status. Republican elites took neoliberalism being one of their root organizing principles for granted while running campaigns using dog-whistle racism, never realizing that they were attracting a base of voters who hated immigrants a lot more than they hated regulation. The Republicans have drifted so far to the right that unabashed nationalists like Trump can now take the lead of the party, even as he espouses racist xenophobia-inspired protectionism that are in conflict with the neoliberal ideals of the party's business wing.

Even during their neoliberalization, the Democrats always had a left-wing occupied by social democrats. Today they largely occupy the Congressional Progressive Caucus. They were empowered by both opposition to the Iraq War late in the Bush era and the subsequent economic crash that occurred as a result of neoliberal deregulation of the finance sector. Obama ran as a semi-progressive but governed as a standard Democrat, leaving progressive disappointment and frustration to rise to the surface again once a primary was held to determine who would be the Democratic candidate after Obama: thus, the Bernie phenomenon.

 

Globalism & Neoliberalism

It seems as though the extinction of neoliberalism is embedded in the formula of neoliberalism itself. Neoliberalism and accompanying globalization have resulted in inequality and poverty for significant portions of the population, leaving many people economically impoverished and politically alienated. This prompts an inevitable political reaction, angry and populist in nature. The center-left (ex. Hillary Clinton) and center-right (ex. Jeb Bush) sing the praises of neoliberal globalization, while the left (ex. Bernie Sanders) vigorously attacks the “neoliberal” part of it, and the far-right (ex. Donald Trump) vigorously attack the “globalization” part of it. Today, progressives dislike neoliberalism, but also believe that the far-right’s disdain for all forms of globalization is a distraction and misidentification of the root issue, using foreigners and people of color as scapegoats. The problem is not globalization, but globalization implemented in such a way so as to benefit the wealthy and powerful.

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Pablo Iglesias, General Secretary and MEP of Podemos. Spain
Photo courtesy of Ministerio de cultura dela España

Neoliberalism is a powerful ideology and way of looking at the world. The neoliberal views most government involvement in the economy as harmful, and seeks to leave social problems to be solved by private enterprise and markets whenever possible. This is an idea that, over the last several decades, has become widely accepted to varying degrees by people across the political spectrum, and as such has been embedded into modern government and public policy.

When discussing modern politics, a recognition of the role neoliberalism has played in fueling massive increases in inequality and corrupting our democracy is vital. 

A number of other industrialized countries have undergone neoliberalization on roughly the same time frame as the US, and are now experiencing similar backlashes: the U.K., neoliberalized under Margaret Thatcher and others, now has UKIP on its right and Jeremy Corbyn and social democratic Scottish nationalists on its left. France has witnessed the rise of not only the National Front on its far-right, but also the rise of populist socialists like Jean-Luc Mélenchon. Germany has the AfD and Pegida on its right and Die Linke on its left. New Zealand has New Zealand First. Sweden has the Sweden Democrats. Spain has Podemos. Additionally, backlash against “Washington Consensus” neoliberalism in Latin America contributed to a revitalization of left-populism in many countries. Though there are some nations that have experienced some form of neoliberalism without such political effects, a definite connection between neoliberalism and the emergence of anti-neoliberal populism certainly seems to exist.

 


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