Introduction

What has been the influence of the neo-liberal ideology on welfare-state 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 book's 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 Italy's 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 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. 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.

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. 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. 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. 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 state–market 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. 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 neo-liberal ideas powerful in contemporary finance but also vulnerable: in the event of a crisis, we can expect these ideas to attract much of the blame rather than exogenous material factors, such as adverse weather conditions in case of a famine or demographic change causing strains in pension systems.

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 Europe's 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.

Introduction

Liberalism in Jane Austin's day was the great path for escape from the strictures of the British class system and for reward for individual effort and merit. Jane Austin's Persuasion is the ultimate ode to neo-liberalism: 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 neo-liberalism as a dependent variable by probing the factors that shape the diverse manifestations of this set of ideas across time and national settings.

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: state-influenced 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 Ireland or in coordinated market economies like Germany and Sweden. 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. 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 country's ‘state-assisted’ capitalism, or ‘public neo-capitalism’, continued to ‘muddle through’ after the postwar years, leading at best ‘by indirection’ except at times when and/or in areas where technocratic elites took over. In France, political elites transformed the country's postwar non-liberal ‘state-led’ capitalism, or dirigisme, through the dirigiste retreat from dirigisme that resulted in the ‘post-dirigisme’ of the 1980s onwards.

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. 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; similarly, German policy makers have promoted the virtues of more liberal capital markets and emphasis on shareholder value. 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 role of the state in the economy and the superiority of markets as a social-ordering principle.

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. 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. 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 ‘social-partnership’ agreements between the government and key social and economic interests, which have stood in stark contrast to the British system of free-collective bargaining. 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.

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 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.

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-liberalism's 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.

Neo-liberalism has had one central message for the state: scale back, cut back, cut out, transform. This brings to mind Winston Churchill's reply to an opponent who asked, ‘How much is enough?’ to Churchill's repeated push to spend increasingly more on defence in the 1930s. Churchill's 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 banker's response to his mother-in-law's death. Yet the story as a metaphor for neo-liberal 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-liberalism’s bête 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-liberalism’s 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).

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.

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 EU's 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 EU's 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 neo-liberal ideas requires analysis rather than simply being presumed on the basis of the EU’s 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.