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The evolution of neoliberalism

Most recently published in 2022 as Quiggin, John. ‘The Evolution of Neoliberalism’. In Sustainability and the New Economics, edited by Stephen Williams and Rod Taylor. Cham, Switzerland: Springer. doi.org/10.1007/978-3-030-78795-0_6.

An earlier version was published as Quiggin, John. 2018. ‘Neoliberalism: Rise, Decline and Future Prospects’. In The SAGE Handbook of Neoliberalism, edited by Damien Cahill, Chapter 11.

Introduction

The term ‘neoliberalism’ is widely used, and it is often misused and misunderstood. Properly understood, it is the ideological underpinning of the era of financialised capitalism that emerged from the economic crises of the early 1970s and remained dominant for the rest of the 20th century. Its central idea was that markets, particularly financial markets, generally outperform governments in the allocation of resources and investments. Neoliberalism came in a variety of forms, reflecting the variety of liberalism itself, but it was different from preceding forms of liberalism because of the need to respond to the successes and failures of social democracy in the second half of the 20th century. In one form or another, neoliberalism became the unquestioned basis for the thinking of both centre-right and centre-left parties around the world.¹

The era of unquestioned neoliberal dominance came to a sudden end on 15 September 2008, when the bank and financial services firm Lehmann Brothers filed for bankruptcy. This collapse signalled the failure of attempts by the US authorities to manage the crisis that had originated in markets for housing loans to ‘subprime’ (that is, low-income or high-risk) borrowers. Within a week, the global financial system was in crisis, and governments were forced to engage in massive bailouts.

The years since the Global Financial Crisis (GFC) have been characterised by chronic upheaval. The bailouts needed to prevent the collapse of the financial system in turn produced fiscal crises, most notably the sovereign debt crisis in the European Union (EU). These crises were resolved by austerity policies that produced drastic cuts in public services and living standards while leaving the financial sector essentially unscathed. As a result of the crises, the neoliberal consensus that had prevailed up to the GFC broke down. On the political left, radical critics of capitalism such as Jeremy Corbyn and Bernie Sanders challenged the ‘Third Way’ doctrines of Tony Blair and Bill Clinton. On the political right, the loss of faith in neoliberalism was reflected in the British withdrawal from the EU, known as Brexit, and the election of Donald Trump to the presidency of the USA.

The final shock came with the COVID-19 pandemic. Faced with a drastic economic upheaval, governments around the world responded with intervention on a massive scale. Dogmas about balanced budgets and the perils of public debt, already honoured more in the breach than the observance, were discarded overnight. The pandemic required massive intervention in labour markets, housing, financial markets, the health system and international trade. Some of these interventions will be unwound when the pandemic recedes, but not all. The system that emerges from the pandemic will undoubtedly be capitalist and more or less inequitable, but it will not, in any meaningful sense, be neoliberal.

The aim of this chapter is to describe the evolution of neoliberalism, beginning as an oppositional movement in the era of Keynesian social democracy and the Bretton Woods system, attaining dominance from the early 1970s onwards and collapsing in the face of the crises of the 21st century. Prospects for the future will be considered briefly.

The chapter is organised as follows. Section 1 presents neoliberalism in relation to liberalism, the intellectual tradition from which social liberalism and social democracy are also primarily derived. A distinction is drawn between ‘hard’ and ‘soft’ versions of neoliberalism. Section 2 describes the rise of social democracy, focussing particularly on the period following the Great Depression, which largely discredited the classical liberal model on which neoliberalism is based. The crisis of the 1970s, and the failure of social democracy to present an adequate response, are the focus of Section 3. Section 4 is devoted to the rise of neoliberalism, both as an ideology, and as a political and economic force gaining its strength from the massive expansion of the financial sector. After that, in Section 5, we focus specifically on soft neoliberalism, the modified version of neoliberalism adopted by social democratic parties in the 1980s and 1990s. Section 6 deals with the decline of neoliberalism, from the crises of the late 1990s to the GFC of 2008. In Section 7 we examine the political implications of the failure of neoliberalism. A three-party model is presented, in which the main movements driving contemporary politics are categorised as neoliberal (soft or hard), tribalist and leftist. In conclusion, we discuss the requirements for a successful left response to the crisis and offer some suggestions for a way forward.

What is neoliberalism?

The evolution of neoliberalism has been a complex process, exacerbated by disputes over the meaning, and even the legitimacy, of the term. It is widely seen as a meaningless, all-purpose pejorative.

The need for a definition of an ideological movement is felt much more by its critics than by its supporters. Ideology always looks like common sense from the inside, and a dominant ideology just seems like ‘what everyone knows’. For this reason, followers of a dominant ideology resist the use of any specific name or label to describe their position.

One result is that labels of this kind, including ‘neoliberalism’, are almost always used negatively and, as a result, overused to refer to anything the speaker dislikes. In a discussion of broader historical and political trends, however, ‘neoliberalism’ is too useful a term to forego, despite the confusion that surrounds it. Instead, we need to address some of the sources of this confusion.

As the name implies, neoliberalism is a descendant of liberalism, a tradition that, in various forms, underlies most contemporary streams of political thought. An obvious starting point is the greatest of 19th-century liberals, John Stuart Mill. Mill is best known today for his strong defence of free speech, his advocacy for equality for women and his steadfast opposition to slavery. Over the course of his lifetime, his views on economic issues shifted from the free-market orthodoxy of classical economics to an abstract form of socialism.

All these aspects of Mill’s thought are reflected in different streams of liberal thought. From Mill onwards in North America and most of the English-speaking world, the dominant version of liberalism was social liberalism, combining support for civil liberties with advocacy for a range of government policies to limit income inequality and alleviate poverty.

In Europe, from the early 20th century onwards, social liberalism was largely subsumed by social democratic and labour movements. The term ‘liberal’ was more closely associated with the political right, and with free-market economic analysis, in which Millian concerns about free speech were less prominent. This tendency is sometimes referred to as ‘classical liberalism’.

The term neoliberalism embodies these ambiguities and has been coined at least twice to apply to different, but closely related, developments within liberalism. I will distinguish these as soft and hard neoliberalism.

In the USA, the term neoliberalism was used from the 1990s onwards to describe a shift to the right by social liberals, particularly those termed ‘New Democrats’.² Here, the key ideas were a focus on ‘sound’ economic management, acceptance of financial deregulation and market-based policies more generally, and avoidance of class rhetoric.

In one form or another, soft versions of neoliberalism came to dominate social liberal and social democratic parties throughout the English-speaking world. The term ‘Third Way’ was often applied to this development (Giddens 1998; Giddens 2000), with the suggestion that this approach represented a new development in social democracy rather than a capitulation to its opponents.

In the European context, the term neoliberalism (and the closely related idea of ‘ordoliberalism’) was first used as early as 1938 to describe attempts to develop an updated version of classical liberalism capable of responding to the crisis created by the Great Depression and, after 1945, of competing with the social democratic welfare state (Hartwich 2009). The result was a ‘hard’ form of neoliberalism in which concessions to social democratic ideas were limited as far as possible. In the US context, where the term neoliberalism referred to the soft variety, hard neoliberalism was most commonly described as ‘free market conservatism’ (Nell 1984).

Because it was based primarily on a critique of social democracy, hard neoliberalism placed more weight on economic freedom than personal freedom or civil liberties, reversing the emphasis of classical liberalism. On matters of personal freedom, hard neoliberalism is basically agnostic, encompassing a range of views from repressive traditionalism to libertarianism.

In terms of economic policy, neoliberalism is constrained by the need to compete with the achievements of social democracy. Hence, it was inconsistent with the kind of dogmatic libertarianism that would leave the poor to starvation or private charity and education to parents.

The need to compete with the appeal of social democracy has continued in the period of neoliberal dominance. As a result, the importance of the public sector—as measured, for example, by the revenue share of national income—has remained largely unchanged despite extensive efforts towards privatisation and deregulation.

The rise of neoliberalism in the 1970s

In the decades after 1945, social democratic ideas were dominant throughout the developed world. Whether or not social democratic parties held office, they drove the policy debate, to the extent that terms like ‘progressive’ inherently incorporated the notion of ‘progress in the direction of more social democracy’ (Quiggin 2003).

The starting point of 20th-century social democracy was the combination of the welfare state, macro-economic stabilisation and the mixed economy. Their combined effect was to transform the lived experience of capitalist society.

The risks of falling into destitution as a result of unemployment, illness or old age, previously an ever-present reality for the great majority of workers, were eliminated almost completely by social security systems and, except in the USA, publicly provided health care. However, the trends that would produce the neoliberal counterrevolution were already evident.

The last years of the social democratic era saw a struggle over income distribution that virtually guaranteed an inflationary outburst. Union militancy, fuelled in many countries by Marxist rhetoric, came into sharp conflict with an emerging speculative capitalism, driven by revived global financial markets. Firms raised prices to meet wage demands, spurring yet further wage demands to compensate for higher prices and maintain living standards (Brenner et al. 2010).

Previous episodes of inflation had been brought under control quite rapidly through Keynesian contractionary policies. Unfortunately, these policies were becoming less effective as inflationary expectations became embedded and as the social restraint generated by memories of the Depression broke down.

The critical event was the breakdown, in the opening years of the 1970s, of the Bretton Woods system of fixed exchange rates that had been the basis of the international financial system within which Keynesian macro-economics operated. The coup de grace came with the oil shock of 1973, which was both a reflection of the inflationary outburst that was already under way and the cause of a further upsurge.

Within a couple of years, the entire edifice of postwar prosperity had collapsed, and the Keynesian ‘Golden Age’ came to a painful and chaotic end. Meanwhile, the collapse of the Bretton Woods system led to a self-perpetuating cycle in which the rapid growth of international financial flows led to the breakdown of both domestic and international financial regulations, allowing yet further expansion of the financial sector.

In the decades following the breakdown of the Bretton Woods system, financial sector activity exploded and was almost completely decoupled from any connection to real economic activity. By 2014, global financial market transactions totalled $US4 trillion each day, or more than 20 times real economic activity. Trade in derivatives was even larger, with notional outstanding volumes of at least US$500 trillion (Bank for International Settlements 2015).

With this growth in activity came hugely increased power and profitability. As early as 1987, financial firms were being described as the ‘Masters of the Universe’, a phrase coined in Tom Wolfe’s (1987) novel, The Bonfire of the Vanities. The rise of the financial sector, and the concomitant decline of the trade union movement, tipped the balance of political power in favour of neoliberalism.

Hard neoliberalism

Although the rising political power of the financial markets facilitated the general shift towards neoliberalism, this development also depended on a resurgence of neoliberal policy ideas. In sharp contrast with social democrats, the advocates of neoliberalism were ready with answers to the crisis of the 1970s.

In macro-economics, the monetarist critique of Keynesianism developed by Friedman (1968) was rapidly accepted, eventually evolving into the inflation-targeting regime that remained in effect until the GFC.

In fiscal policy, the ‘tax revolts’ of the 1970s led to a consensus on the need to restrain the growth of government. The perceived success of airline deregulation in the USA led to a broader movement in favour of deregulation and privatisation. To emphasise the distinction from macro-economic policy, these policies were frequently referred to as ‘micro-economic reform’ (Quiggin 1996). This phrase captured the positive connotations of ‘reform’, a term long used to describe liberal and social democratic policy innovations while reversing the substantive content.

The advocacy of Friedman (1962), and Friedman and Friedman (1980), played a crucial role in promoting free market conservatism in the USA. Many of these ideas had been developed by economists associated with the University of Chicago, where Friedman worked for most of his long career.

In the UK, a crucial role was played by ‘think tanks’ such as the Institute of Economic Affairs (Cockett 1995).³ The ideas developed by these think tanks formed the basis for the first systematic implementation of a neoliberal policy program, undertaken by the government of Margaret Thatcher in the UK from 1979 onwards.

The core goals of the program were to:

1. abandon Keynesian macro-economic stabilisation, based on active fiscal policy, in favour of an independent central bank with a directive to control inflation at all costs
2. remove the state altogether from ‘non-core’ functions through privatisation of government business enterprises and the sale of public housing
3. reject redistribution of income except for a basic ‘safety net’
4. minimise the role of the state in core functions such as health, education and income security through contracting out, voucher schemes and so on.

Thatcher attained the first and second of these goals very successfully. Although policies of monetary contraction implemented in 1979 produced a deep recession, with millions left unemployed, the government persisted and succeeded in bringing an end to the inflationary upsurge of the 1970s. Most of the publicly owned infrastructure sector (electricity, water, telecommunications, airports and railways) was privatised.

The UK government made considerably less progress on the third and fourth objectives. There were also substantial reductions in the progressivity of the tax system, but Thatcher’s most ambitious move in this direction, the replacement of council rates with a poll tax, was a disaster, leading, eventually, to her downfall. The attempt to wind back public involvement in health and education was similarly limited, meeting particular resistance in the case of the National Health Service. The result was that, although the scope of public sector activity was wound back through privatisation, the size of government was not. The century-old trend of growth in the share of national income going to the government was halted in the 1970s but not reversed.

Thatcher’s ideas formed the core of a hard neoliberalism that rapidly became dominant throughout the English-speaking world. It was embodied in such documents as the Fightback! plan put forward by the Liberal and National parties in Australia in 1993 and the Contract with America proposed by the US Republican Party led by Newt Gingrich in 1994. Although neither of these programs produced immediate electoral success, most of the policies they proposed were eventually implemented.

Beyond the English-speaking world, the global spread of neoliberalism was driven less by political advocacy and more by international institutions. The debt crises of the 1990s produced what Williamson (1990) described as the Washington Consensus, a term that reflected the shared views of the US Treasury, the International Monetary Fund (IMF) and the World Bank, all based in Washington DC.

Less remarked upon, but equally significant, was the Europe-based consensus of the OECD, the European Commission and the European Central Bank (ECB). The ECB, created in the 1990s as part of the political project of unifying Europe around a common currency, represents a particularly pure institutional embodiment of hard neoliberalism (Palley 2013).

The rise of neoliberal ideas reinforced, and was reinforced by, the resurgence of faith in the financial sector. During the ascendancy of social democracy, banking had been boring, safe and tightly regulated. The emblems of capitalism in the mixed economy were industrial firms like General Motors and General Electric.⁴ By contrast, the breakdown of social democracy in the 1970s saw the rise of financialised capitalism, dominated by global banks like Citibank, and Wall Street investment banks such as Goldman Sachs.

The key idea here was the efficient (financial) markets hypothesis. In its strong form, put forward by Fama (1970), the hypothesis states that financial markets provide the best possible estimate of the value of any investment. Although there was never any good supporting evidence for this claim, it became part of the ‘common sense’ of the neoliberal era. One result was the trepidation with which governments awaited the verdict of ‘the markets’ on budgets and other policy decisions.

Soft neoliberalism

The resurgence of a financialised form of global capitalism from the 1970s onwards came as a shock to the left. There were some attempts at resistance, notably by the Mitterand government, which came to office in France in 1980, but all such attempts failed in the face of the power of global capital markets. By the 1990s, the triumphalist decade that followed the collapse of the Soviet Union, the dominance of neoliberalism was clearly re-established. Over the course of the 1980s and 1990s, most social democratic parties accommodated to the new realities.

As noted above, this accommodation was often presented as a new Third Way, allegedly transcending the dispute between social democrats and hard neoliberals. In reality, however, the Third Way amounted to little more than a soft version of neoliberalism (Callinicos 2001). Soft neoliberalism involved acceptance of most of the core elements of the neoliberal program, including privatisation, attacks on trade unions, uncritical acceptance of the dominant role of the financial sector, and attempts to halt or reverse the growth of the public sector.

Over the course of the 1980s and 1990s, most social democratic and liberal parties in the English-speaking world adopted soft neoliberalism in one form or another. Some examples, significant in themselves, but also symbolic of the shift in economic thinking include:

• the decision by the Hawke–Keating government in 1983 and 1985 to float the Australian dollar and deregulate the financial system
• the Clinton Administration’s support for ‘the end of welfare as we know it’, demanded by the Gingrich-led Republican party in 1994. This measure was initially seen as successful because its adverse effects were masked by the strong growth of the 1990s. After growth slowed in the 2000s, however, the absence of welfare support contributed substantially to the growth of poverty. Even more striking were increasing mortality rates among significant groups, such as middle-aged white Americans
• Tony Blair’s creation of a ‘New Labour’ party, in which the socialist objective formerly stated in Clause IV of its Constitution was abandoned (Labourcounts 2023). Before the change, the objective was stated as:

  [t]o secure for the workers by hand or by brain the full fruits of their industry and the most equitable distribution thereof that may be possible upon the basis of the common ownership of the means of production, distribution, and exchange, and the best obtainable system of popular administration and control of each industry or service.

• This changed to:

  a dynamic economy, serving the public interest, in which the enterprise of the market and the rigour of competition are joined with the forces of partnership and co-operation to produce the wealth the nation needs and the opportunity for all to work and prosper, with a thriving public sector and high quality services, where those undertakings essential to the common good are either owned by the public or accountable to them.

The rejection of public ownership embodied in the New Labour platform was reflected in policies of privatisation and private ownership of public infrastructure. Along with faith in the efficiency of financial markets, and acquiescence in, or support of, anti-union policies, support for privatisation represented one of the most consistent areas of agreement between soft and hard neoliberals. This support persisted, despite outcomes that ranged from mediocre to disastrous. The Private Finance Initiative, pursued with vigour by the Blair government in the UK, was one of the most notable examples of failure.

Despite accepting the core elements of hard neoliberalism, soft neoliberals attempted, in various ways, to mitigate the growing inequality that inevitably resulted from the implementation of the neoliberal program. In particular, soft neoliberal governments attempted to improve the functioning of the social welfare system rather than eliminating it or stripping it down to a minimal safety net. Nevertheless, the egalitarianism of traditional social democracy was abandoned, with arguments about the distribution of income and access to community services being replaced by discussion of safety nets or the efficient provision of services to ‘customers’.

This shift was frequently expressed in terms of older debates about equality of opportunity as opposed to equality of outcomes. However, although the advocates of soft neoliberalism are particularly friendly to the upwardly mobile, the hostility to inherited privilege that characterised earlier advocates of equality of opportunity largely disappeared. Some supporters of soft neoliberalism took the argument to its logical conclusion, rejecting even the idea of equality of opportunity (Cavanagh 2003). This is at least consistent. In the presence of serious inequality of outcomes, it is impossible to prevent parents from passing their advantages on to their children. Under these circumstances, it is therefore impossible to achieve equality of opportunity.

More marked divisions arose in relation to social issues, particularly those related to multiculturalism, feminism and environmentalism. In the USA and Australia, the sharpness of these divisions, commonly referred to as ‘culture wars’, masked a substantial convergence on economic policy (Frank 2007).

The most successful implementation of soft neoliberalism was probably that of the Hawke–Keating Labor government in Australia between 1983 and 1996. The platform on which Labor was elected was an interventionist one, centred on the idea of an ‘accord’ on prices and wages. The Accord was negotiated between the Labor Party and the Australian Council of Trade Unions, of which Hawke had been a successful president, although it was hoped that a bargained consensus incorporating business groups could be achieved (Gruen and Grattan 1993).

The combination of financial market pressure and the spread of neoliberal ideas ensured that the government took a different direction, beginning with the decisions, in 1983 and 1984, to float the dollar and undertake substantial deregulation of the financial system. However, the success of the Accord in constraining wage growth and allowing a non-inflationary recovery from the recession of the early 1980s was an important countervailing force. Another example was the failure of the hard neoliberal reform of the tax system favoured by the then treasurer Paul Keating, based on the idea of using a goods and services tax (GST) to finance cuts in the top marginal rate of income tax. In the face of resistance from the union movement, and a lack of support from business, Prime Minister Bob Hawke rejected Keating’s preferred option. Instead, the government implemented a reform program with substantial progressive elements such as a capital gains tax. The Hawke–Keating government also redesigned the social welfare system, integrating it with the tax system and maintaining or improving its progressive redistributive effects (Gruen and Grattan 1993).

The relative success of soft neoliberalism under Hawke and Keating was not sufficient to prevent growth in inequality over time, or the development of a bloated and dangerously unstable financial system. Nevertheless, a measure of their success can be gained by looking at the disastrous performance of New Zealand, where both the Labour government elected in 1983 and the National Party government that succeeded it from 1990 to 1999 embraced hard neoliberalism in a particularly doctrinaire form and with substantially worse economic outcomes (Hazledine and Quiggin 2006).

Thus, the differences between hard and soft neoliberalism, while not as significant as claimed by advocates of the Third Way, were more than cosmetic and cultural.

Neoliberalism reached its peak of political and economic success in the 1990s. Neoliberal globalisation was seen as an unstoppable force, by both enthusiasts (Friedman 1999) and critics (Martin and Schumann 1997). Social democratic parties were in retreat throughout the world. Financial markets were booming in developed and developing countries alike. The collapse of the Soviet bloc had finally discredited the alternative offered by communism.

The crises of the 21st century

Amid the triumphalism of the 1990s, many predicted that the 21st century would be one of hypercapitalist prosperity. The results have turned out very differently.

The century began with a spectacular crash: the bursting of the US stock market bubble, focussed on ‘dotcom’ internet stocks, in 2000. The ‘dotcom’ bubble-and-bust was notable because it occurred at the centre of global capitalism, rather than in peripheral countries where financial capitalism was a recent arrival, as had been the case with the Asian financial crisis of 1997 and earlier emerging market crises.

The expansionary monetary policy allowed a reasonably rapid recovery from the dotcom bust but fuelled a speculative boom, focussed on real estate, that culminated in the GFC of 2008. Far from being the omniscient Masters of the Universe, the financial sector was shown up as corrupt and incompetent. As well as bringing an end to the widely shared prosperity of the 1990s, the stock market collapse undermined the central tenet of neoliberalism, namely, the efficient (financial) markets hypothesis (Quiggin 2011).

The GFC was followed by years of austerity, in which the costs of bailing out the financial sector were borne by the overall population in the form of wage stagnation and reduced public services. Bankers and the financial system were bailed out, while ordinary people were made to pay the price. The situation was worst in the Eurozone, where the design of the ECB made it virtually impossible to adopt any policy except austerity, a counterproductive focus on cutting budget deficits and controlling the non-existent threat of inflation. The result has been a decade of recession in most of the developed world. Even in the USA and the UK, which have, on some measures, recovered, living standards have never returned to the previous growth path, and the inequality of income has been more evident.

Despite its death as a credible theory of economics and politics, however, neoliberalism has stumbled on in zombie form for nearly a decade, maintaining its hold over major political parties and organisations such as the OECD, the IMF and the European Commission. In general, the economics profession has learned almost nothing from the GFC (Quiggin 2013). Ideas like austerity that should have been decently buried long ago continue to wreak havoc throughout the world and, most notably, in Europe (Blyth 2012).

Finally, in 2020, just as the long and grinding recovery from the GFC seemed to be nearing completion, the COVID-19 pandemic smashed the global economy. The management of the pandemic varied from competent to disastrous, but it depended almost entirely on governments. The financial sector played virtually no role on the management of the pandemic but came off unscathed, as usual.

Political implications

Just as the economic ideology of neoliberalism lumbers on in zombie form, so, until recently, has the political system it supported. Insurgents of various kinds have gained support nearly everywhere, but the alternation between different versions of neoliberalism continued for nearly a decade after the crisis, only coming to an end in 2016.

During the decades of neoliberalism that began in the 1970s, the political system, nearly everywhere, was based on electoral competition between the hard and soft versions of neoliberalism, typically represented by (nominally) conservative and social democratic parties, respectively. Within the political class, and among business leaders and policymakers, there was a near-universal consensus in support of neoliberal ideas. To take any position outside the spectrum defined by the soft and hard variants of neoliberalism guaranteed marginalisation and exclusion from serious political debate.

Yet, despite its dominance, neoliberalism hardly ever achieved broad support among the public at large. Rather, the seeming success of neoliberalism concealed the continued strength of currents that remained submerged for decades, becoming politically significant only in occasional eruptions.

The most important of these submerged currents was what may now be called Trumpism, after its most successful exponent (so far). The core of Trumpism is a form of negative or default identity politics best understood using the idea of the ‘unmarked category’, from linguistics and sociology. Campos (2019) illustrates this:

An unmarked category is present when the category is considered so normal or ordinary in a particular context that it goes unnoticed. The category is the default setting in regard to social expectations, and it in a sense remains invisible precisely because it is so dominant … For example, if you had asked a lawyer in 1960 to name three characteristics that every current Supreme Court justice shared, it is very likely the lawyer would not have mentioned either race or gender.

As Campos further observes:

What ‘identity politics’, so-called, has done is to slowly and painfully and partially transform being a white man in America into a marked category. And makes a lot of the people who have become white men rather than members of society’s invisible default category very uncomfortable.

We may usefully add the unmarked categories ‘Christian’, where ‘Christian’ is interpreted in a sense of cultural identification rather than any specific religious belief, and heterosexual, among others.

The most politically potent form of default identity politics, and the relevant one here, is that of a formerly unchallenged dominant group facing the real or perceived prospect of becoming a politically weak and economically declining minority.

Trumpist default identity politics is closely linked to support for ‘strongman’ rule, exemplified by current practitioners such as Erdogan, Orban, Putin and, of course, Trump himself. This may be because the one universal feature of default identity politics is a worship of masculinity. Theatrical displays of masculinity are a standard feature of Trumpist politics (Trump himself is absurd enough, but Putin’s bare-chested horseback rides take these displays to the point of parody and beyond).

During the period of neoliberal dominance, hard neoliberals pandered to Trumpists in rhetorical terms but ignored them wherever their views conflicted with the neoliberal policy agenda, most obviously in relation to trade and migration. Now, the balance has been restored. The Trumpists are in charge but use tax cuts and handouts to favoured cronies to maintain business support.

Opposed to the Trumpists in critical ways, but similar in others, is a disparate group that may be called, for want of a better term ‘the left’. As well as a small group who adhere to Marxist or other radical critiques of capitalism, the ‘left’ in this sense includes environmentalists, feminists, unionists, old-style liberals and social democrats, and a wide variety of groups whose personal or cultural identity is threatened by Trumpism.

Although the left has not been as successful as the Trumpists in political terms, the issues raised by the left, including inequality, racial injustice, gender roles and global heating, have now replaced the concerns of neoliberalism, such as markets and competition, at the centre of the policy agenda for centre-left parties. Rather than advancing a positive agenda of their own, as they did in 1980s and 1990s, the opponents of the left have relied primarily on electoral pragmatism, arguing that a small-target strategy is the best way to election wins.

The way forward

The failure of neoliberalism poses both challenges and opportunities for the left. The greatest challenge is the need to confront Trumpist populism as a powerful political force in itself, rather than as a source of political support for hard neoliberalism. Given the dangers posed by Trumpism, this is an urgent task. One part of this task is that of articulating an explanation of the failure of neoliberalism and explaining why the simplistic policy responses of Trumpist politicians will do nothing to resolve the problems.

The other is to appeal to the positive elements of the appeal of populism, such as solidarity and affection for longstanding institutions, and to counterpose them to the self-seeking individualism central to neoliberalism, particularly in the hard version with which rightwing populism has long been aligned.

The great opportunity is to present a progressive alternative to the accommodations of soft neoliberalism. The core of such an alternative must be a revival of the egalitarian and activist politics of the postwar social democratic moment, updated to take account of the radically different technological and social structures of the 21st century. In technological terms, the most important development is undoubtedly the rise of the internet. Thinking about the relationship between the internet economy and public policy remains embryonic at best. However, the internet, as a massive public good created, in very large measure, by the public sector, ought to present opportunities for a radically remodelled progressive policy agenda.

In political terms, the breakdown of neoliberalism implies the need for a political realignment. This has now taken place on the right, as Trumpists assert their dominance over hard neoliberals. The most promising strategy for the left is to achieve a similar shift in power within the centre-left coalition of leftists and soft neoliberals.

The era of unchallenged neoliberal dominance is clearly over. Hopefully, it will prove to have been a relatively brief interruption in a long-term trend towards a more humane and egalitarian society. Whether that is true depends on the success of the left in putting forward a positive alternative.

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1. 1 Ideology always looks like common sense from the inside. That is why supporters of neoliberalism hardly ever use this term (or any ideological term) to describe themselves, and why they are so hostile to being labelled in this way.

2. 2  ‘New Labour’ in the UK was part of the same ‘Third Way’ movement. A cynic might observe, with reference to products like ‘New Coke’, that the attachment of the term ‘New’ to an existing movement is rarely a good sign.

3. 3 The same was true in Australia (Cahill and Beder 2005).

4. 4 By the early 2000s, General Motors was a shadow of its former self, while General Electric had become, in essence, a finance company, dominated by its GE Capital business.