How Neoliberalism Failed, and What a Better Society Could Look Like

The following is adapted from a speech given at a New School conference, “Beyond Neoliberalism and Neo-Illiberalism: Economic Policies and Performance for Sustainable Democracy,” on March 27, 2023.

Introduction 

Before we can see what a post-neoliberal economy and society might look like, we need to identify neoliberalism’s failures. We already know many of neoliberalism’s economic failures—most notably slower growth, greater inequality, and increased monopolization. We also know that many people living in deindustrialized parts of the United States feel a deep sense of despair and an alienation from the current economic system, underscored by reports from sociologists who explain that these communities feel they are left behind economically and that their concerns are ignored by the people in power. But many of neoliberalism’s failures go beyond the economic: a polarized society with a media controlled by the superrich, shorter lifespans, greater insecurity, and a degraded environment. These failures interact with politics in obvious ways. As just one example, the growth of inequality provides a fertile field for authoritarianism and illiberal ideas.

For almost half a century, economic theory has provided a critique of neoliberalism. Most of neoliberalism’s underlying doctrines (especially those associated with perfect competition and perfect markets) were shown to be wrong even before it became fashionable in the latter part of the last century. Even the idea that free trade enhanced welfare was demonstrated to be questionable. Forty years ago, I wrote a paper showing that free trade in the absence of risk markets could make everybody, in all societies, worse off.²³ Similarly, when technology is endogenous, trade restrictions can help developing countries grow.⁴ 

Neoliberalism is not really a program based on economic theory; it is a political agenda. 

In recognizing this, it’s useful to begin with the word neoliberalism itself: “neo” (new) and “liberalism” (free). Everybody loves freedom, and therefore “freeing up the economy” sounds good. But of course, what we really should have understood was that this “liberalism” or “freedom” agenda entailed freedom for some but not for others. As philosopher Isaiah Berlin pointed out, “Freedom for the wolves has often meant death to the sheep.”⁵

Power 

Under neoliberalism, what was really going on was not a liberalization agenda, it was a “rewriting-of-the-rules” agenda⁶—rewriting the rules in ways that advantaged some groups and disadvantaged others. Rewriting the rules is political. It’s about power. The economic model that underlaid neoliberalism was one with perfect markets, with competitive equilibrium in which no one had power, meaning that neoliberalism began with a view that power doesn’t exist. It began with that idea as a presumption, and with that belief allowed concentrated centers of power to flourish. Financial liberalization led to the unfettered growth of the financial sector, which became a major center of power in the American economy.

Details in the rules matter, partly because even small changes to rules—sometimes no more than an increase in transaction costs—redistribute power from one group to another. A number of small, subtle changes have made a big difference. 

Footnotes and Suggested Citation

Related Resources