Resilient Liberalism

Spring 2012 to Fall 2013 In:


Although from the standpoint of the United States, Europe appears as a haven of social democracy, strongly opposed to economic liberalism, in truth since at least the 1980s the influence of neoliberal ideas, institutions, and policies has grown steadily. These have profoundly changed the ways in which capitalism works across Europe’s different national economies and they have had major impacts on its welfare states. The central question for this book and conference project concerns why neoliberal ideas have proven so resilient even in a “cold climate” such as Europe, and despite apparently large-scale failures, theoretical critiques, and the existence of powerful alternatives. To answer the question, the project will examine the inroads of economic liberalism on the European Union and its member-states as well as its spillover effects on political liberalism and democracy from historical, philosophical, and political economic vantage points. This interdisciplinary project’s focus on the role of ideas in political economic change makes it highly relevant to the humanities. We plan to hold two conferences on this topic, the first in Boston during the spring of 2012, the second in Europe during the summer of 2012, with the final product a book with Cambridge University to appear in 2013.

Scope and Content

Liberalism as an economic doctrine—or neoliberalism as it is called on the North American side of the Atlantic—has a very long history. But it has never been so dominant—or so resilient—as in the past 40 years, since the mid-1970s. Just before its rise, during the postwar period of the “glorious thirty” years of industrial development and the “golden years” of the welfare state, European economies developed under the international regime of “embedded liberalism” (Ruggie 1982). This benign regime allowed European countries to develop very different kinds of capitalist arrangements and welfare systems under the protective barriers of capital exchange controls, fixed but adjustable exchange rates, and optional barriers to trade. But with the end of the Bretton Woods system of fixed exchange rates, followed by the two oil crises and the rise of globalization, with increasing international competition in the capital and product market, the “disembedding” of liberalism began (Blyth 2002). “Neoliberalism is a much contested and debated term” (cf. Peck and Tickell 2002, Harvey 2007) and comprised different elements—overarching assumptions and principles, specific ideas, institutions and policies (cf Larner 2000)—but in terms of political economy, the watchwords for this new, or “neo”, liberalism, in Europe as in the rest of the world, were liberalization, privatization, and deregulation, plus individual responsibility, competition, and enterprise.

Over a relatively short period of time, capital controls were lifted and exchanges rates were no longer adjustable but instead were first fixed to the deutsche mark, then to the euro, to finally disappear along with national currencies with the establishment of the single currency for most EU member-states. Moreover, all tariff barriers to trade were eliminated within Europe while outside they dropped significantly through the GATT (General Agreement on Tariffs and Trade) even as non-tariff barriers were massively reduced via the single market. All of this subjected European countries not only to increasing competitive pressures from European as well as global markets with regard to goods, capital, and services, but also to the institutional pressures of the EU for common rules and regulations. These combined pressures then spurred major reforms of European countries’ capitalist arrangements and welfare systems. And all such reforms were devised and legitimated in the name of “liberalism.”

The neoliberal policies began with the turn to monetarism in the late 1970s and early 1980s, which demanded fiscal discipline through budgetary austerity, and which was reinforced by the push toward monetary integration and a single European currency by the early 2000s. In the interim, monetary policies were followed in the mid-1980s by the liberalization of the financial markets and the deregulation of the rules governing business along with waves of privatization of state-owned enterprises. By the 1990s came the push for the decentralization of labor markets and the rationalization of the welfare state (Hemerjick 2000). Regulatory reforms involved ending legal monopolies, privatizing state-owned firms (including network industries that had been publicly owned for decades and even centuries) and creating independent regulatory agencies (Thatcher 2007). All of these neoliberal reforms focused on altering, if not undoing, the postwar settlement, which was seen as no longer adapted to the more competitive global and European environments. Neo-liberalism promised to rid national political economies of the rigid and hidebound rules governing uncompetitive and overly regulated business, unproductive and overly protected labor, and unsustainable social welfare with overly high taxes. In their place, minimal business regulation, flexible labor markets, greater individual responsibility for welfare, and low taxes were to unleash the competitive spirit of business and the productive capacity of labor, thereby producing virtually unlimited growth.

For a long time, neoliberalism did seem to have gotten it right, as prosperity slowly returned following the dark days of the 1970s, as country after country adopted neoliberal reforms. Even major crises were seen to demand not an end to liberalism but even more of it. These were generally cast as mere blips in the continuing rise of neoliberal capitalism, whether Black Monday in 1987 and the subsequent economic downturn, the run on the euro and the recessions of the early 1990s, the dot-com boom and bust leading to the economic slowdown of the early 2000s, and even the continuing crises of the late 2000s, including the financial market crisis of 2007–2008, the crisis of the real economy in 2008–2009, and the sovereign debt crisis of 2010, in which the EU finds itself today. Each time a crisis hit, the media put a new face on it and governments a jail-term—for the 2008 financial market crisis, Bernie Madoff in the US and Jérome Kerviel in France; for the 2000–2001 dot-com bubble, Martha Stewart in the US and some top executives in Germany; for the 1995 debacle of the British bank, Barings, the “rogue trader” Nick Leeson (Hudson and Martin 2010). New regulations were sometimes put into place, but were carefully calibrated not to affect the basic premises of economic liberalism, including the “light touch” financial market regulation of the late 1990s. But note the resistance to any re-regulation following the dot-com crash, which has lately been blamed for allowing the credit default swaps to flourish unchecked in the US. It was almost as if, as the crashes got worse, thereby seeming to give the lie to neoliberal optimism, neoliberal conviction only got stronger.

As we consider the response to the current crisis as well, we can clearly see that liberalism has been remarkably resilient. In 2008, as central banks intervened in the global currency markets and as governments bailed out (or even nationalized) banks and then put together massive stimulus packages to shore up the real economy, liberalism seemed to be on the retreat, with neo-Keynesianism replacing monetarism as the preferred macroeconomic doctrine. But today, as the euro and Southern Europe are battered by markets fearful of sovereign debt default, “fiscal consolidation” is the catchphrase throughout Europe as well as in the G20, leaving the Obama administration the only holdout as of fall 2010.

What is of note here is that rather than questioning neoliberal wisdom, or seeking alternative models of development and growth, most government leaders in Europe have gone back to assuming that only more of the same kinds of policies will do. As a result, all European countries are planning to extend the date of full retirement beyond age 65, if they have not already done so, as well as to cut welfare benefits and programs, to reduce government spending more generally, and to reduce the deficit dramatically—in the case of some Southern European countries, by upward of 6 percentage points in a single year—as well as to pay down government debt. The fact that they are all doing this is worrisome, given that if everyone cuts at the same time, thereby dampening consumption everywhere, how will growth be generated? The jury is still out as to whether this focus on fiscal stabilization will produce growth or, rather, as many economists predict, recession.

Our discussion of the continuing resilience of neoliberalism, however, should not obscure the fact that in Europe as well as beyond there are very different ways of interpreting it. These run the gamut from a hard ideology to much softer versions that in some cases would allow for elements of neo-Keynesianism (Gamble 2009). And this is true not only in terms of economic theory and political philosophy but also in terms of public policy and economic practice. A panoply of differing economically liberal philosophies, policies, and practices can be seen in European countries from the 1970s on. These take on identifiably different forms depending upon which of the four main varieties of European capitalism is in question, as they have been applied and adapted to different business models, production systems, labor markets, and welfare states, with very different models of growth. This is why the Germans, with their “ordo-liberal” philosophy and their “coordinated market economies” (CMEs) focused on business coordination, labor cooperation, and export-led, manufacturing-based growth, have pushed for more regulation than that desired by the more ultra-liberal “liberal market economies” (LMEs) of Britain or the US, with their financial-market driven, credit-fueled growth (on LMEs and CMEs, see Hall and Soskice 2001; Hancké, Rhodes, and Thatcher 2007). But it also helps explain why both sets of countries resisted the push for even greater state intervention by “state-influenced market economies” (SMEs) like France or Italy, in which the state intervenes in business and labor where it deems necessary, whether for better (generally France) or for worse (lately Italy) (on SMEs, see Schmidt 2002, 2009). As for the “dependent market economies” (DMEs) of Central and Eastern Europe, they remain enclaves of liberalism, despite in many cases having been the hardest hit in the 2008 financial market crisis by the loss of the foreign capital upon which they are most dependent (Nolke and Vliegenthart 2009).

In the European Union, moreover, there are also some unprecedented innovations that don’t fit with the very general notion of neoliberalism we have elaborated on so far. These include the breaching of the “no-bailout” clause in the treaties by providing for the €110 billion Greek loan in May 2010 to save it from sovereign default, and the creation of a €440 billion European Financial Stability Fund (which, with IMF additions, came to a massive €750 billion) designed to stop the contagion from Greece’s sovereign debt crisis infecting other weaker Southern European economies, by signaling to the markets that the EU would cover its member-states’ debts. These moves, together with the agreement of the member-states, urged by Germany and supported by France, to set up a more permanent mechanism that would constitute a European Monetary Fund in almost everything but in name, suggest that EU member-states have, however reluctantly, moved toward greater economic solidarity (Schmidt 2011). But they do this with decreasing social solidarity, not just across European countries but also within them.

Resilient liberalism in Europe has not only produced growth by freeing up markets, it has also led to rising inequalities within and between European countries. The trickle-down effects of liberalization have, from the mid-1990s on, mainly trickled up, leading to large and still-growing differentials between the poorest and the richest. While financial market traders and top corporate managers have seen their salaries and bonuses grow exponentially, real wages for the average worker have largely been flat, with poverty rising in all European countries. The gaps between rich and poor countries across Europe have also grown, despite European integration, which has had as one of its objectives the reduction of such inequalities. The 2008 economic crisis only increased such gaps for the Central and Eastern European countries, between countries like the Czech Republic and Poland, which didn’t even suffer a recession, and those like Latvia, Romania, and Hungary. These are the countries that had to go to the IMF for bailouts, and suffered precipitous drops in GDP (in Latvia, by upwards of 18 percent in one year) while instituting austerity budgets that in many cases reversed very recent gains in health and welfare programs and produced high rates of unemployment. The 2010 sovereign debt crisis is likely to do the same for the Southern European countries, which have had to institute draconian budget cuts to meet the demands of the EU, led by Germany. And in these countries of the South of Europe, unlike those of the East, the populations may not accept the reforms quietly, with public unrest and labor protests already a problem in some countries, notably Greece (Schmidt 2011).

There is a more general problem in Europe as well as in other advanced industrialized countries that is only tangentially connected to these side effects of neoliberalism, but it is certainly made worse by them: the rise of political extremes. On the extreme right, anti-immigrant and racist sentiments are the norm; on the extreme left, we are back to class analyses and anticapitalist rhetoric. In both cases, populist parties have been the beneficiaries of increasing electoral volatility, pulling center right parties in particular farther to the right, whether they are in coalition governments with the extreme right or in minority governments that depend on their votes. And the electorate itself is more and more divided not only along left/right lines but also along pro and anti-EU lines, with new cross-cutting cleavages between citizens whose ideas on Europe are more open, liberal, and cosmopolitan in orientation, and those whose ideas are more closed, xenophobic, and nationalist (Kriesi et al. 2008). This has in turn led to increasing mobilization in terms of identity politics, accompanied by a growing anti-European feeling and a massive loss of trust in government more generally. What we find today, then, is that economic liberalism has been resilient, but possibly at the expense of political liberalism, and even of the legitimacy of the democratic governments that have brought this about. Thus, although how economic liberalism has flourished as a set of ideas that has altered institutions along with policies and practices is the central focus on this book project, how this may be linked to the problems of political liberalism and liberal democracy will also be considered.


The book has been contracted by Cambridge University Press to be a state-of-the-art edited volume on the state of European political economy, as part of a major series on Europe. The book is to be in three parts. The first part examines issues that are the domain of international political economy, including globalization and Europe, currency and the financial markets, and regulation. The second part focuses on comparative political economy, such as firms and corporate governance, the state, labor, welfare, and society. The third part explores paired comparisons of countries as exemplars of each of the four main European varieties of capitalism that also map onto different geographic areas of Europe. These include the liberal market economies of Anglophone Europe, namely Britain and Ireland; the coordinated market economies of Continental and Northern Europe, using the cases of Germany and Sweden; the state-influenced market economies of Continental and Southern Europe, with a focus on France and Italy; and the dependent market economies of Central and East European countries, using Poland and Hungary in illustration.

All the chapters will consider the turn to economic liberalism across time, roughly from the early 1980s forward, up to and through the current economic crisis, as well as how that crisis may have changed our views of how good, or bad, neoliberalism has been for the European political economy. The more general chapters of Parts I and II will also consider the ways in which the forces of transnationalization, and in particular those involving the European Union but also globalization, have played a role in neoliberal transformations. The country chapters in Part III will briefly detail national neoliberal transformations over time as well as current responses to the economic crisis while concentrating on the impact of liberalism on that aspect of the political economy which has served as a defining characteristic of the particular variety of capitalism. This means that for LMEs the focus will be how neoliberal reform has led to the central importance of the financial markets and credit-fueled growth; for CMEs, on how it has affected business networks and labor-management cooperation; for SMEs, on how it has altered the state in its actions as well as in its interactions with business and labor; and for DMEs, on how it has increased the dependence of governments, business, and labor alike on foreign capital, and therefore their vulnerability to the crisis. A conclusion will try to draw out some more general thoughts on the resilience of neoliberalism, and speculate about possible future scenarios. In addition, all contributors will address not only the substantive issues, involving such questions as: What kinds of policies have been most significant? To what extent does the “polity” or political institutional setting affect the decisions taken? And how does politics matter—not just in terms of interests but also ideas and discourse? They will also be self-reflective methodologically on which neo-institutional approaches can best account endogenously for which kinds of changes, whether historical institutionalist critical junctures, layering and conversion, rational choice institutionalist logics of political coalition-building, and/or discursive institutionalist ideas and legitimating discourse.


In order to ensure that all the contributors have a clear sense of the project, and to make the project itself a coherent whole, we plan to hold two workshops, one in the United States at Boston University, and one in Europe at Sciences Po in Paris.