Gary Gerstle on the Neoliberal Political Order: An Elite Promise of a World of Freedom and Emancipation (Part I)

In this extended conversation with RevDem editor Ferenc Laczó published in two parts, Gary Gerstle discusses key questions tackled in his new book, The Rise and Fall of the Neoliberal Order: America and the World in the Free Market Era (Oxford University Press, 2022). Part I covers Gerstle’s interpretation of the longue durée history of liberalism; his encompassing approach to the study of political orders; how the neoliberal order became hegemonic in the US; and why the Soviet Union is crucial to the history of the US.

Gary Gerstle is Paul Mellon Professor of American History Emeritus and Paul Mellon Director of Research in American History at Cambridge University and a Fellow of Sidney Sussex College. He is also a fellow of the British Academy and of the Royal Historical Society. He has written extensively about immigration, race, and nationality, with a particular focus on how Americans have constituted and reconstituted themselves as a nation and the ways in which immigration and race have disrupted and reinforced that process. He has also studied the history of American political thought, institutions, and conflicts, and maintains a longstanding interest in questions of class and class formation.

Gary Gerstle’s best-known books include the co-edited The Rise and Fall of the New Deal Order, 1930-1980 (1989), which he has followed up with the co-edited volume Beyond the New Deal Order (2019), Liberty and Coercion: The Paradox of American Government from the Founding to the Present (2015), American Crucible: Race and Nation in the Twentieth Century (2017, updated edition) and the co-edited volume A Cultural History of Democracy in the Modern Age (2021). The Rise and Fall of the Neoliberal Order: America and the World in the Free Market Era published in April 2022.

Part II shall be released next week.

Ferenc Laczó: Your new book The Rise and Fall of the Neoliberal Order focuses primarily on the rise and fall of the neoliberal order in the US. You separate neoliberalism from modern liberalism, underlining that its promise of emancipation and individuality in fact makes neoliberalism more akin to classical liberalism. Could you elaborate on this point?

Gary Gerstle: Liberalism is a quite complex project to talk about because it has a long history and it has also been protean in that it has meant different things to different groups, in different periods of time, and has acquired different meanings in different parts of the world. The focus of my book is indeed neoliberalism in the US, but the starting point for understanding modern liberalism and neoliberalism is what I and others call classical liberalism, which arose in the late 18th century and flourished across the 19th century as well as into the early 20th century.

Classical liberalism had several dimensions to it: political, economic, moral. Here I want to focus on the economic dimension because I think it is quite crucial. The economic dimension of classical liberalism promised a world of abundance and freedom if the possibilities of a market economy could be freed from all the artificial constraints that were burdening economies in Europe in the 18th and 19th century. Monarchs were restricting what economic actors could do because they wanted individuals to enrich the Crown rather than necessarily the market. Aristocracies performed a similar role. The doctrine of mercantilism, popular at the time, sought to organize world trade to enrich monarchs without making considerations of comparative advantage, costs, and profits.

Those who fashioned themselves economic liberals wanted to get rid of all these constraints – monarchs, aristocracies, and mercantilism – to allow individuals “to truck, barter and exchange” as they saw fit, in the words of the famous political economist Adam Smith – the goal being a world of economic freedom, which would come with all kinds of opportunity, schemes of production, development in the economy and growth, and ultimately a rising standard of living for just about everybody. Where liberalism advanced furthest in the 19th century, and one of the places where it did so was in the United States of America, enormous economic powers were released. There was a tremendous amount of new economic dynamism as well as a new elite class of capitalists: the bourgeoisie, a class that privileged the accumulation of wealth above all else and wanted to free the energies of what they regarded as a tremendously dynamic and powerful new economic system. Thus, all kinds of new materials and new kinds of markets appeared, and enormous wealth was generated.

But it also generated extreme crises, because economic development was very uneven between the rich and the poor. Also, capitalist economies under liberal aegis seemed to be developing through booms and busts. There seemed to be no order, no planning, no cushion for those who were the casualties of this new industrial system. Therefore, by the late 19th and early 20th centuries, there was a sense that liberalism was no longer adequate as a philosophy to govern the economy. And there was a search for alternatives – the most familiar ones being, of course, socialism and later communism. One of the primary purposes of those philosophies was to inject more economic rationality, on the one hand, and more economic justice, on the other. Somewhat later, but with equal power, were the collectivisms of the right, culminating in Fascism and Nazism in the 1920s and 1930s.

In other words, many people who had been once willing to participate in a liberal world order began to abandon liberalism, for these newer ideologies promised greater rationality, greater planning, greater brotherhood, and greater social justice. Thus, if liberalism was going to survive, it was going to have to reform itself. Indeed, it began to reform itself first in Britain and the United States, and later elsewhere.

This new liberalism began by recognizing inequality between rich and poor as a big problem. Capitalism was great at generating wealth, but not at distributing it. Liberalism therefore needed to take on the social question as well as the labor question.  It had to find some mechanism for managing this rambunctious economic system – including distributing its fruits somewhat more fairly. That is why, in the 1930s, there was a movement in the United States called the New Deal under the leadership of Franklin Roosevelt. It advanced a new kind liberalism as the key to America’s future.  

It presented itself as a middle way between classical liberalism and the collectivism of communism, socialism and fascism. It would bring regulation to the capitalist system, distribute its goods and abundance under more egalitarian circumstances yet preserve the values that liberals prize: individuality, the rule of law, democracy.

This new liberalism in the United States—what Roosevelt called the New Deal—was in fact a form of social democracy.

This liberalism acknowledged the importance of having a big state that managed capitalism in the public interest, that allowed capitalists to accumulate wealth, but taxed it to redistribute it to the lower ranks of the social spectrum. This state was called on to manage the business cycle and to balance the private interests of capitalists with the public good. This is what liberalism in America became, and what it still is today, which is different than liberalism in Europe.

It would take another hour to explain why it was not possible to label this New Deal liberalism “social democracy.” That subject is best left for another podcast.

New Deal liberalism was the first new liberalism. Neoliberalism was the second. The latter arose in Europe, mostly Austria, under the leadership of the economist Friedrich Hayek, who also wanted to forge a middle way between collectivism and what he regarded as the failed promise of classical liberalism. These neoliberals recognized that classical liberalism from the 19th century put itself into crisis, and that neoliberalism could offer a solution by calling on governments to strengthen markets and individual liberties, but without venturing into what Franklin Roosevelt and the New Deal were doing with social democracy. Indeed, Hayek thought social democracy was a stalking horse for socialism and communism. Supporters of Hayek in the United States saw the New Deal, and Roosevelt in these terms.

Thus, what this other new liberalism that called itself neoliberalism tried to do was to re-create the original promise of classical liberalism of the 19th century. However, neoliberals believed that they had to construct a stronger state than what had been needed during the era of classical liberalism in order to make a market economy successful. They believed that the promise of the original liberalism—freedom, individuality, economic growth, and affluence—could be delivered as long as governments were able and willing to use their tools to both create and sustain what markets required in order to flourish.

For a time, neoliberals had difficulty defining their creed because the first new liberalism on the block—that of FDR and the New Deal—also presented itself as charting a middle way between laissez faire and collectivism. But as New Deal liberalism began to falter in the 1960s and 1970s, failing to demonstrate that a heavily government-managed economy could still deliver the goods, neoliberalism got its opening, its supporters arguing that a market economy, characteristic of the nineteenth century, was the road to economic recovery and growth.  If the state had to act to build   and support this market economy, so be it. Thus did neoliberals in 1970s America begin to bid for power.  

Your book focuses on how ideas moved from the periphery to the mainstream in the 1930s, the 1970s, and then also in the 2010s. Now how does this happen and how are new political orders made? And do you see any logic behind the fact that every fourth decade brought such changes to the US?

You are correct in perceiving that there are two forty-year cycles that dominate the narrative arc of the book: the New Deal order that prevailed from the 1930s to the 1970s and the neoliberal order that prevailed from the 1970s through the 2010s. However, I would not want to tie myself to a 40-year cycle as always being characteristic of American history, nor do I want to imply that a new political order is going to come soon which is going to last 40 years. I believe it is more helpful to ask what is it that causes one political order to dissolve and another one to be given an opportunity to arise.

A political order usually breaks up as a result of an economic crisis big and severe enough to cause a governing crisis, during which existing formulas for managing the economy and the polity no longer work. Chaos and failure to enact successful policies, and the popular protest that results from such failures, create an opportunity for political ideas long consigned to the margins to move to the mainstream.

Political orders are complex networks of institutions, constituencies, big-pocketed donors, and interest groups. If they are successful in establishing themselves, they can have enormous staying power and can enforce a kind of ideological hegemony on politics, not just on members of their own party but on members of the opposition.

A critical passage in the book examines a moment in the 1950s when the first Republican president in twenty years was elected. This was Dwight Eisenhower. Was he going to roll back FDR’s New Deal or sustain it?  He and the Republican Party made the critical decision to sustain it, making the New Deal into something more than a temporary gain, a political order.

When the Democrats took possession of the White House in the 1990s after the Reagan revolution of the 1980s, President Bill Clinton faced a similar question to the one that Eisenhower had faced in the 1950s: would he (Clinton) seek to roll back the neoliberal revolution that Reagan had begun or endorse it? He ended up endorsing it, much as Eisenhower had endorsed the New Deal order of the 1930s.

I treat these moments of the 1950s and 1990s as crucial moments of legitimation where a political order succeeds not just by getting support from its own partisans but by convincing the opposition party that its core ideas are the dominant ones in American life; by convincing them that if they want to be elected and get the fruits of victory, they have to submit to these dominant ideas.

I wished to ask you a bit more about your approach. You write at one point in the book that you study both the elite and the popular level, moral and economic issues as well as domestic and international contexts. Could you tell me more about your specific foci and how you combine them in your analysis?

The idea of the political order understood as a complex configuration is one to which I had long subscribed—since publishing another book, The Rise and Fall of the New Deal Order, in 1989. My co-author at the time, Steve Fraser, and I were trying to move the study of American politics beyond an obsession in American politics with 2-, 4- and 6-year cycles.

Writing about political orders required us to focus on donors, intellectuals, think tanks, electoral constituencies, moral conceptions of the good life, the jurisprudence of the Supreme Court, media platforms for spreading political messages. Writing in this way demands that one range broadly.

There is high intellectual history in my new book and serious policy analysis. But there is also an attempt to understand why figures like Roosevelt, Reagan and Trump were so popular, which requires me to study voters and the attitudes of ordinary men and women. What was it that enabled Reagan to peel off constituencies that had been so dedicated to the Democrats for many years? What gave Trump the ability to command the attention of the media like no other political figure? To study popularity is to engage in social as well as political history, to examine social movements as much as political thought and public policy.

This is particularly important to do in regard to a history of neoliberalism.

Many who study neoliberalism regard it as elite project to advance capitalist interests and constrain democracy.  Many neoliberals wanted to do just that! But neoliberalism would not have had the staying power it had, in the United States and elsewhere, if it had not succeeded in persuading a lot of ordinary people that a neoliberal world would be a world of freedom and emancipation for them, and that it would give them something important.

Reagan had a lot of rich donors who wanted to free the economy from public management and taxation.  But he also had a message that resonated with a lot of ordinary Americans: he was going to free the economy from its shackles and from excessive regulation. He was going to stimulate economic growth. He was also going to free the spirit of liberty in America, to give individuals the kind of freedom that was their birthright, promised to them by the American Revolution. If Americans stayed with him on this political journey, he and his supporters would create a better and richer America for everybody, not just for elites.

Thus we cannot understand the Reagan phenomenon (or the Trump phenomenon), simply in terms of a conspiracy from on high. I continue to believe in the agency of ordinary working people, which means I have to think seriously about why they would give themselves over to an elite project of this sort. This demands a comprehensive methodology that can do justice to the thought and politics of elites and the masses. 

You underline the role of international politics in shaping the US’s trajectory, arguing that the threat of communism dissuaded Republicans from dismantling the New Deal order during the Cold War and that the collapse of Soviet communism played a central part in neoliberalism’s triumph. How exactly did the competition with and then the collapse of Soviet communism impact the political order in the US?

That issue is indeed central to my book. The Russian Revolution of 1917 is arguably the most important event of the 20th century – Theodore H. Draper, a one-time communist and then a fierce anticommunist in the United States, rightly called the 20th century the communist century. We have to excavate that history, and the epic conflict that resulted from the antagonism between the capitalist and communist worlds.

America and the Soviet Union were founded on radically dissimilar bases. We might call both polities revolutionary. America, in its essence, was a liberal country wanting to free the energies of capitalism and to sacralize the individual, putting all kinds of individuals in a position to pursue fortunes, talents, and opportunities. There was understanding that this might generate, in addition to tremendous growth, inequality and rough financial crashes and economic depressions, but that price would be worth it. The Soviet Union’s message was that the price would not be worth it, that capitalism only led to exploitation, to misery for the working class and the dominance of an elite with an obscene level of wealth and power. Communists wanted to put public good over private interest and nationalize all industry. They swore that they would end capitalism—and expropriate capitalists—wherever they established themselves.  By the 1940s, America and the Soviet Union had become the world’s two superpowers, and they had committed themselves to radically different belief systems.

By this time as well, many western critics of communism saw this ideology as totalitarian: a new kind of dictatorship that gave those in power a degree of control of the economy and society that was unprecedented. Communist control of media gave them the ability to manipulate popular opinion to the point where almost all dissent could be eliminated.  Those who subscribed to this theory of totalitarianism thus believed that totalitarian regimes, once established, could never be overthrown.  They would be there forever. The ruling political elites in the United States believed this, capitalist elites believed it too. And that made communism, and the Soviet Union, seem especially dangerous.

It impelled the United States, both Democrats and Republicans, into their worldwide containment of communism. This is what compelled the United States to wage war against Vietnam, a country whose market and resources were inconsequential to the welfare of the American economy. But if Vietnam was ‘lost’ to communism, it would never be regained; and the communist contagion might then spread throughout Southeast Asian, to Japan, and then to South Asia.  If China could fall to the communists, was any nation safe?

The theory of totalitarianism turned out to be wrong: communism has been rolled back. And even those societies that are nominally still communist are not really. Is Vietnam communist today? No, not really. Is China communist? No, not really. But the theory of totalitarianism was believed, and believed deeply, from the 1940s through the 1980s. If you bought into the theory, your obligation was to fight communism both internationally and domestically – wherever it reared its head.

Were there communists in the United States? Not as many as there were in Europe, but there were significant numbers of them in the 1930s and ‘40s. And they were very strong in the labor movement, which was a very important element of American life by that time, not least as part of the New Deal. Capitalists in the US understood that they could not put workers in a position to think that communism was their only alternative. The threat of communism caused them to compromise with workers to a degree which they otherwise would not have done. All in the name of avoiding the worst: the triumph of communism, which would have meant the expropriation of private corporate wealth and its transfer to a state acting on behalf of the working class.

This grand class compromise between capitalist elites and the working class in America is at the heart of the early parts of my book.

It is a compromise made possible by the threat that communism instilled in capitalist and political elites in the United States. It was not coincidental that the greatest power of the labor movement in the United States occurred when the Cold War was at its height. This is when the social welfare state in America was at its most generous. This is when inequality between rich and poor shrank to its smallest point in the last 150 years.

These were the 1950s and ‘60s.

By the same token, what enabled capitalists to jettison that grand class compromise in the 1990s was the collapse of the Soviet Union and the end to the threat it represented. Indeed, the fall of the Soviet Union in 1991 opened the world to capitalist penetration in a way that had not been possible since the early decades of the 20th century when the Russian Revolution began removing very substantial lands from the capitalist world. Capitalism became global once again in the 1990s; the US labor movement declined precipitously, the welfare state declined too and inequality between rich and poor increased dramatically. 

That is why the story of the Soviet Union, its rise and fall, is quite central to the story about the rise of neoliberalism in the United States. Neoliberalism could only triumph once communism had fallen.

Now I should be clear: I regard communism as a tyrannical system, and one that corrupted and then undermined the dream of socialist emancipation. Nevertheless, we still have to reckon with its historical role in persuading capitalists to contemplate, for the sake of capitalism’s survival, a greater degree of compromise with their class antagonists than they otherwise would have been willing to entertain. Now that communism is gone, finding another ideology and movement that can check capitalist excesses is one of the great challenges that the world faces.  

[End of Part I]

The has also been edited for length and clarity.

In collaboration with Giancarlo Grignaschi.

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