The later decades of the 20th century (late 1960s onward) are cited as the period in U.S. history in which neoliberalism rose to dominate the policy-making process. Previous literature on this period has largely failed to offer sufficient attention to the forces which drove the rise of neoliberalism in American politics; in effect, there exists a gap in our overall understanding of the “wave of neoliberalism.” The conventional trajectory of neoliberalism’s emergence in the U.S. cites the Republican party as its driving force and financialization as its byproduct. My research, however, suggests that this trajectory is flawed in two main respects, with my findings indicating that: (1) both the Republican and Democratic party alike promoted the rise of neoliberalism and (2) the rise of financialization and corporate power is not a byproduct of neoliberalism but rather was a driving force behind the rise of neoliberalism.
“Reagan laid the neoliberal order’s foundations.” This quote comes from a New York Times article, written this year, where it serves to paraphrase a section from historian Gary Gerstle’s recent book on the rise of neoliberalism in America. Purporting that republican political leaders–especially President Ronald Reagan–paved the way for the rise of neoliberalism is the norm in scholarly and general narratives on the wave of neoliberalism. A review of policy memos from this period, however, indicates that major neoliberal policy reform was carried out nearly 5 years before President Reagan even took office. In fact, the presidential administration to carry out the first major neoliberal policy reform was not even a Republican administration but was rather Democratic President Jimmy Carter’s administration.
The defining characteristics of neoliberal ideology include the promotion of free-market capitalism, market-competition, and a culture of individualism. As policy, neoliberal ideology most-commonly manifests as market-deregulation, free-trade, and privatization policies. For the purposes of my research, I focused exclusively on analyzing market-deregulation policy archives. Through a comprehensive review of archival data–policy memos, political statements, journalistic accounts, and secondary case studies–from this period, I found that the political rhetoric and policy initiatives of democratic political leaders aligned as closely with neoliberalism as that of Republican political leaders. Democratic Presidents Carter, Clinton, and Obama adopted neoliberal rhetoric throughout their presidencies as they made promises for market-deregulation and the liberalization of capital. President Carter, for instance, used his 1978 State of the Union address to promote neoliberal principles, stating:
“Bit by bit we are chopping down the thicket of unnecessary federal regulations by which the government too often interferes in our personal lives and our personal business.”
Using data from the Fraser Institute, I performed a simple time-series analysis to visually represent how the fluctuation of neoliberalism in the U.S. has intersected with the fluctuation of the party identification of policy-makers throughout time. The Fraser Institute’s Economic Freedom Index is an aggregate measure of neoliberalism based on 42 different variables that target the 5 aspects of neoliberal economic policy (market-regulation, government size, pro-trade policies, property rights, and monetary policy).
Through this time-series analysis, I found that the rise of neoliberal economic policy-making prevailed through both Republican and Democratic presidential administrations with Democratic presidential administrations actually leading 4 out of the 8 largest increases. Similarly, the relationship between the Congressional majority and the rise of neoliberal economic policy reveals little to no correlation.
Having found that the Republican party can not reasonably be considered the driving force behind the rise of neoliberalism, I endeavored to consider other historically relevant factors as possible explanatory variables. While financialization is commonly regarded as a byproduct of neoliberalism, my research found that the rise of financialization actually predated the rise of neoliberalism. Financialization can be understood as the process by which financial markets/institutions gain greater political influence and priority.
In the 1960s, the United States economy was facing a lethal cocktail of poor economic conditions and international economic upheaval (i.e., the collapse of the Bretton Woods System). By the late 1960s, U.S. corporate and financial institutions began conjuring strategies to evade market-regulations in order to increase their profitability and survive poor economic conditions. In essence, U.S. corporate and financial institutions began deregulating themselves years before neoliberal policy-making arose.
Through further analysis of the rise of financialization in the United States, I found that the political influence of corporate/financial institutions increased dramatically years before the rise of neoliberal policy-making. The most prominent evidence of increases in corporate/financial political power (all occurring before 1974) includes:
- Registered corporate lobbyists doubled from 8,000 to 15,000
- CEOs of Fortune 1000 companies reported doubling time dedicated to political lobbying
- Corporate Sponsored PACs increased from 89 to 784
The political rhetoric of corporate/financial lobbyists in the years leading up to the rise of neoliberalism strongly indicates that the rise of financialization was a driving force behind the rise of neoliberal policy-making. I found that corporate lobbyists shaped their argument for deregulation of the marketplace around the neoliberal principles of embracing greater market-competition and freer markets.
The findings of my research ultimately suggest that financialization (corporate/financial political power), rather than the Republican party, was a driving force behind the “wave of neoliberalism” in the American political economy. Contemporary scholarship commonly condemns neoliberal policy for contributing to soaring inequality rates, reduced market-competition, and even, the 2008 financial crisis. While corporate/financial elites were evidently responsible for driving the adoption of neoliberal policy, they are not held accountable for the negative consequences such policy had on average Americans.
Elizabeth Algeri is a senior at Indiana University’s O’Neill School of Public and Environmental Affairs majoring in Policy Analysis with a minor in Spanish.
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