Introduction: Neoliberalism

Here I will chart the shift in the dominant form of political economy from neo-Keynesianism to neoliberalism before moving onto neoliberal tribulations as the century ended. Chapter 11 will follow up by analyzing what I call the Great Neoliberal Recession of 2008. I already introduced neo-Keynesianism in Chapters 2 and 5, so I only need to recapitulate it briefly here The postwar political economy was not actually Keynesian but a synthesis between it and classical market economics, labeled variously as neo-Keynesianism (the term I will use), commercial Keynesianism, or embedded liberalism. The synthesis resulted from introducing Keynesian mechanisms into neoclassical general equilibrium models. This aimed at full employment through mildly inflationary stimulation though within budgets that were near balance.

Neo-Keynesianism was not merely economic policy. It was also the product of a broader ideology of reformism that embodied some pragmatic compromise of the class struggle that swept across the Western world as a result of World War II. This war, like the Great War, had a radicalizing effect on the world. The explosion of labor unrest after the war resembled that after World War I though it was less in the advanced countries and a lot higher in the colonies (Silver, 2003: 125–30). And whereas unrest in the colonial world led on to political revolutions, the outcome in the advanced world was consistently reformist, essentially because the victors were by now themselves reformist – even the United States – and because they occupied and reconstructed the vanquished powers. Across almost the whole West and in Japan this intensified social citizenship in the sense of the pursuit of full employment, state redistribution through the tax system, full recognition of the rights of labor unions and of free collective bargaining, and the welfare state. This was the golden age of capitalism.