After a long journey through the academy and into public discourse, neoliberalism has finally been widely accepted as a description of post-1970s economic reality. But recent political developments, especially since the pandemic, have generated discussion about the possibility that something new is emerging.
Neoliberal ideas and institutions are still with us, but the political order they constituted is not. Triumphant in the 1990s and 2000s, core neoliberal ideas structured the entire U.S. political landscape, dictating that capitalism should be unshackled and spread across the globe, national economies deregulated, and markets celebrated for their efficiency and capacity to generate growth and prosperity. Governments were expected to serve as handmaidens to market forces and otherwise to stay out of the way. These views penetrated Democratic districts as well as Republican ones, the presidencies of Bill Clinton and Barack Obama as well as those of the Bushes. Those who wished to challenge these dogmas were, for most of this period, consigned to the margins of politics, where their ideas gained little traction.
The global financial crash of 2008–2009 delivered the first blow against this political order, exposing as fantasy the claim that neoliberal policies lifted all boats. Recovery policies that consistently privileged big banks and individuals with stock market assets deepened economic inequality. People noticed. Rebellion in the United States erupted on the right (the Tea Party, birtherism, and the rise of Donald Trump) and on the left (Occupy Wall Street, Black Lives Matter, and the rise of Elizabeth Warren and Bernie Sanders). In the extraordinary election year of 2016, the ethnonationalist and authoritarian Trump and the democratic socialist Sanders became the two most dynamic figures in American politics. Both rejected the mantra of “free trade” that had been central to the neoliberal project for decades.
The pandemic and the war in Ukraine further upended the neoliberal world. These twin crises compelled governments to identify goods their people could not do without—food, fuel, protective gear, computer chips, rare minerals, and so on—and intervene in markets to ensure their availability. Corporations began questioning the reliability and safety of earth-encircling supply chains, becoming more amenable to government intervention for the sake of national (and corporate) security. In this world of upheaval, a fundamental rethinking of states’ relationship to markets began to take root. This rethinking goes by the name “industrial policy,” a curiously anodyne way of signaling the need for governments to intervene in the economy, structure markets, and regulate capital in the public interest. Yet it has become the new buzz phrase in academia, corporate boardrooms, think tanks, the International Monetary Fund, Davos, the Biden Administration, the European Union, and East Asian governments. As guiding political economists, Friedrich Hayek and Milton Friedman are out; Karl Polanyi and John Maynard Keynes are back in. Radical economists such as Stephanie Kelton, Darrick Hamilton, and Saule Omarova are getting a serious hearing in the United States. Talk abounds of the need for a new Washington Consensus to replace the failed neoliberal one of the 1990s. Such discourse has reached the highest levels of the Biden administration, with National Security Advisor Jake Sullivan and Treasury Secretary Janet Yellen both giving major speeches that advance this line of thought and the policy prescriptions that flow from it.
To his credit, Joe Biden grasped early on the magnitude of the shift underway, causing him to break with neoliberal orthodoxy in ways his two Democratic predecessors never did. In the spring of 2020, Biden agreed to set up six joint task forces with the Sanders camp to bring the center and left of the Democratic Party into fruitful dialogue. The resulting plans for the economy, the climate crisis, racial justice, and the like informed the legislative proposals that Biden began unveiling soon after taking office in January 2021. There has been much dismay on the left about how these various proposals got chopped up in the sausage-making factory known as Congress. Nevertheless, the emerging policies were still significant: a $2 trillion rescue plan, a $1 trillion infrastructure bill, a massive bill to reshore the manufacturing of computer chips, and a $400 billion green energy bill. This last bill, the Inflation Reduction Act, is the largest investment in a carbon-free future that the U.S. government has ever made. Its significance is oddly underplayed within the country, but in Europe, news of the legislation exploded with the force of a bomb. It is a perceived as a game changer, and the European Union is scrambling to adjust its own climate policies in light of it.
The embrace of industrial policy—including the IRA—is due to the resurgence of the left and its alliance with the Democratic Party. Historically, progressive politics in America has made its greatest advances when the relationship between the left and the Democratic Party has been strong. This was the case in the Progressive decade of the 1910s, the New Deal of the 1930s, and the Great Society of the 1960s. Left–Democratic Party relations are rarely easy and often fraught, but this delicate alliance has yielded significant advances in the past and can do so again.
There is no guarantee, of course, that the current progressive surge will succeed. The electoral system in the United States is stacked against the urban districts where progressivism is most entrenched. Biden’s Democratic majorities in the House and Senate were razor thin even at the zenith of their power. Congressional weakness has impelled Biden to reach across the aisle to pick up Republican support where he can, as he has done with the CHIPS and Science Act and the infrastructure bill. Meanwhile, Federal Trade Commission Chair Lina Khan has had intriguing exchanges with Senator Josh Hawley about the need to rein in the power of the social media and e-commerce corporations, while Senators Elizabeth Warren and J.D. Vance are seeking common ground on ways to curb the power of the big banks.
The peril in these cross-party conversations lies, of course, in the possibility that lobbies representing wealthy interests and the military-industrial complex will hijack industrial policy, leading to politics that point sharply away not just from a neoliberal past but also from a social democratic future. Cross-party conversations about antitrust and banking reform have yet to demonstrate that they can yield meaningful bills capable of passing both houses of Congress. Neoliberal sentiments remain strong among Republicans, with some groups of Democrats, and, of course, on the Supreme Court. Still, that some Republicans are now willing to talk about excessive concentrations of corporate and financial power indicates that the Grand Old Party has become less comfortable with the neoliberal convictions that animated its ranks for decades. And the Democratic Party as a whole is able to challenge neoliberal orthodoxies in ways it could not during the Clinton-Obama era.
In this world of possibility and uncertainty, every election is crucial. Democrats and the left must both mobilize for the 2024 contest. The stakes are high; Trump and his congressional Praetorian Guard lurk.
The world is changing fast; there is a real opening for building a social democratic future. But the road there requires progressives to pass through some rough terrain. Democrats and the left both need to gird themselves for the long march.
Gary Gerstle is Paul Mellon Professor of American History Emeritus at Cambridge. The paperback (and updated) edition of his most recent book, The Rise and Fall of the Neoliberal Order: America and the World in the Free Market Era (Oxford), is out in September.