Varieties Of Neoliberalism

Brad DeLong has triggered some loud huffing and puffing with a new post in which he argues with Paul Krugman about the benefits of free trade (he thinks the gains from trade are greater than PK does), and labels what he is doing "flying my neoliberal freak flag high!"

I have linked to Mark Thoma's link to  Brad's initial post so that people can go into the comments where Mark's most faithful commentator, anne, links to the Wikipedia definition of "neoliberalism," from which she finds Brad to be in cahoots with Margaret Thatcher and Ronald Reagan, not to mention General Pinochet, Friedrich Hayek, and Milton Friedman.  Lots of other commentators have piled on to  denounce Brad for his "return to his elitist roots" and so on, which may be true, but I think also involves some misunderstanding stemming from outright ignorance of how and why Brad identifies himself with this term.  After all, he has never been a fan of Ronald Reagan, and I am quite certain that Reagan himself never used the term to describe himself.  What is up here?

The main reason anne is misguided is that the Wikipedia entry simply ignores a particular strand of use of the term that began in Washington in1983 and that viewed itself as a movement for at least two decades, even as this use of the term and this movement has faded substantially, even if arguably it is still kicking around, arguably in the current US presidential race, even as those most associated with it (see Hillary Clinton) seem now to be running from some of its most famous tenets, such as support for free trade (or at least of bills claiming to be such, notably the troubled TPPP, which has been noted by many as mostly involving strengthening monopoly rights of Big Pharma and such than expanding trade opportunities for such places as Vietnam). 

This Washington use of the term was coined in a May, 1983 article in the Washington Monthly by Charles Peters called "A Neoliberal's Manifesto."  Reading this one finds him clearly unaware that the term had an earlier existence as he describes himself as the "sole culprit at the christening," and his immediate followers, most of  them coming out of the Democratic Party, seem to have been equally ignorant.  Among those he identified as fellow travelers were journalists Nicholas Lemann, Joseph Nocera, Jonathan Alter, political economists Robert Reich and Lester  Thurow, and eventual presidential candidates Bill Bradley, Paul Tsongas, and Gary Hart.   It was a reaction to the fairly recently formed neoconservative movement of that day (which supported Reagan), and he said, "If  neoconservagtives were liberals who took a critical look at liberalism and decided to become conservatives, we are liberals who took the same look and decided to retain our goals but to abandon some of our prejudices."  They would be noted for being unsympathetic with unions and pro-hi tech, with their supporting free trade against the increasing protectionism of the unions a flashpoint and relevant to the current flap involving Brad DeLong.

A group associated with this brand of neoliberals would be the "radically centrist" DLC, which Bill Clinton would become associated strongly with and many of these neoliberals would support him, with Brad himself serving in Clinton's administration in the Treasury Department.  These people did not support Reagan, and Reagan did not support them (nor did most neoconservatives).  Nevertheless, because the term would also become associated with the "Washington Consensus" at the IMF, this provided a link between the two strands of the use of the term out there, with the other one that which is recognized and explained in the Wikipedia entry about the term.

So, what about the older history of the term that Peters was so unaware of?  It turns out that there was a conflict earlier on between two  branches of the neoliberal movement,  and that Peters's view may well be seen as in synch with one of  those.

So the term was initially coined in the 1930s by Walter Lippman, who saw it as a "Third Way" between classical  liberalism and socialist central economic planning, arguably not too far from Peters's view.  This sort of burbled underground during WW II, only to reemerge most forcefully in Germany after the war with the Ordo-Liberals based in such places as Freiburg and Cologne, most importantly with such figures as Walter Eucken, Wilhelm Roepke, and Alfred Muller-Armack.  In 1946, Muller-Armack coined the term "sozialmarktwirtschaft," or "social market economy," which would be picked up by Ludwig Erhard and would be adopted as the defining ideology of West Germany, a mostly free market economy without state ownership or planning, but a strong social safety net, arguably a milder version of the social democracy of the Nordic economies.  Eucken and Roepke both took up this idea, with Eucken linking it with his Ordo-Liberalism.

The link with the Anglo-American classical  liberals came with the founding of the Mont Pelerin Society in 1947, where the A-A view was led by Hayek and Friedman.  At the time they adopted and accepted the descriptor, "neoliberal," and many have since commented on the role of the MPS in the history of neoliberlism.  During the 1950s, these two branches would diverge (perhaps triggered by a 1953 speech to it by Erhard), with the classical liberal branch gaining control.  So it was that the dominant branch of neoliberalism essentially became an updated classical liberalism without all that social safety net baggage.  And, in fact, in most of the English speaking world, the term "neoliberal" basically disappeared from usage during the 1960s and 1970s, preparing the ground for Peters to revive it in 1983 without realizing that it had already been around for some time, with his version probably not too far from the social market economy version of Muller-Armack and Eucken.

The term survived in the Spanish language literature, especially that dealing with Latin America, and it was associated with Hayek and Friedman and their views of the world.  That both of them gave some support to the economic policies of the Pinochet regime cemented this link in this Spanish language literature.  The Wikipedia entry notes that it was from this literature that the more modern use of it migrated back into the English language academic literature especially from the 1990s on.  This literature generally either ignored or was unaware of this Washington-based Peters version of it, even as he was unaware of this other history of the term's usage.

What is curious is indeed the partial convergence of uses of the term with respect to the Washington Consensus, which indeed has mostly focused on increasing marketization and privatization, in short, fully in synch with the classical liberal version of it associated with Hayek and Friedman.  The WC mostly ignored the issue of social  safety nets, and indeed often supported cutting them back in such places as Latin America and then later in the transition economies of Eastern Europe in the 1990s, although the backlash against such cutbacks in some of the more  successful such nations such as Poland eventually led to some rethinking about that aspect of it at the IMF and other such places.

So we have these two strands of what the term means.  Wiki says that Thatcher and Reagan were neoliberals, although neither ever associated themselves with the term.  Those following the Peters line such as Brad DeLong would say they were not neoliberals, at least of their type.  The problem or issue for Brad is whether or not his current freak flag flying is really a continuation of this Lippman-Eucken-Peters version of the idea, or whether in the current situation such flying is not just pushing himself into the Hayek-Friedman-Pinochet version of it.  I do not have the answer to that.

Barkley Rosser