Few concepts have been declared dead and buried more often than neoliberalism. However, it continues to survive. Neoliberal Resilience, Aldo Madariaga’s award-winning book, shows how.
Few concepts have been declared dead and buried more often than neoliberalism. However, it continues to survive. Neoliberal Resilience, Aldo Madariaga’s award-winning book, shows how.
The strange non-death of neoliberalism
Joe Biden’s presidency has begun with a historically unprecedented stimulus package, followed by efforts to tax the rich and transnational corporations. It appears that neoliberalism is about to die once more. Yet, fiscal hawks are out again, capitalizing on inflation fears to bring back austerity. Corporations and countries specialized in beggar-thy-neighbor taxation have allied to stop G8 efforts to institutionalize a global minimum corporate tax. As Colin Crouch has famously argued, the “strange non-death of neoliberalism” depends on the power of corporations over public life. It is simply too early to tell whether this time non-neoliberal actors have enough power to challenge neoliberalism.
Madariaga’s book also starts from the insight that neoliberalism has always sought to alter society’s balance of power in favor of bosses, giving us analytical tools to understand the dynamics of contemporary power struggles around neoliberalism.
With empirical nuance, Neoliberal Resilience shows how three mechanisms — opposition blockade, support creation, and constitutionalized lock-in — have been instrumental in safeguarding neoliberalism in Estonia and Chile and how the weakness of these mechanisms allowed for a divergence from neoliberalism in Argentina and Poland.
The book is divided into eight chapters. The first introductory chapter sets out the puzzling resilience of neoliberalism. The central thesis is straightforward and provocative: “Neoliberalism survived in its purest form in those countries where it was protected from democracy” (p. 3). Shifting the focus from ideas-centered approaches, Madariaga explains neoliberal resilience by focusing on power, social coalitions, and institutions. This is an important analytical move as it allows the author to analyze real-world struggles instead of abstract ideological constructs. Ideas are, of course, central and constitutive of economic processes. However, Madariaga is right to argue that the fate of actually existing neoliberalism is decided at the intersection between economic and political power.
Specifically, Madariaga challenges three ideational approaches to neoliberal resilience. First, he argues that accounts that try to explain the resilience of neoliberalism through the malleability and popularity of key neoliberal ideas are self-referential. Other ideologies are equally flexible but have died and been resurrected less frequently. Secondly, proponents of neoliberalism often claim that neoliberalism has not been implemented enough. This argument is based on a misunderstanding that mixes the sphere of abstract ideas about free markets with the messy world of neoliberal institution-building, which has always been about empowering businesses and not necessarily about free competition. No ideology has ever been implemented in its pure form, and neoliberalism has also come in various hybrid forms, always taking on flavors of the domestic polity, flexibly adapting to particular circumstances without changing the core of the neoliberal agenda. The third alternative approach emphasizes neoliberal pressures from international institutions. Notwithstanding their importance, shared global pressures can only go so far in explaining locally varying outcomes. Thus, Madariaga focuses on domestic power struggles without neglecting the context of international economic dependencies.
Market-conforming neoliberal democracies
The book focuses on four cases: Chile and Estonia, representing neoliberal resilience, and Argentina and Poland, representing divergence from neoliberalism. As he also points out in the book, it is rare to see this kind of cross-regional comparison. Most analysts focus on neoliberalism in core, advanced capitalist countries — yet, most of the world lives in the semi-peripheries of global capitalism. Madariaga is particularly well-equipped to pull off this comparison. He lived in Eastern Europe for a while before finishing his Ph.D. in Germany (Max Planck Institute) and moving back to his home country, Chile. This semi-peripheral focus is a much-needed extension of the contemporary comparative political economy of neoliberalism.
Chapter 2 begins by separating the two parts of neoliberalism. The ‘Chicago’ part covers policies aimed at unlocking the potential of private entrepreneurs. The ‘Virginia’ part consists of rules that protect the property-owning minority against the propertyless majority, determining which policies can and cannot be implemented. The Chicago part refers to the economics department of the University of Chicago, the professional home of Milton Friedman, among others. The Virginia part refers to the Department of Economics at the University of Virginia, where another great theorist of neoliberalism, James Buchanan, worked. These two economists played a leading role in making the writings of the early thinkers of neoliberalism (e.g., Hayek, Von Mises) more politically acceptable in the context of the second half of the 20th century. While the Chicago school developed guidelines for neoliberal economic policy, the Virginia school was concerned with regulating majoritarian democracies in a way that was consistent with neoliberal principles. For Madariaga, the second Virginia component of neoliberalism is particularly important because these solutions transform democracy into a “market neoliberal democracy,” a term Madariaga borrows from Wolfgang Streeck.
The chapter then introduces three mechanisms that contribute to neoliberal resilience. Support creation “consists of using privatization as a way to alienate state assets and empower specific firms, economic groups, or sectors expected to support the continuation of market reforms” (p. 39). Opposition blockade comprises solutions to “exclude the losers of economic reforms from constituting powerful majorities and influencing the policy process” (p. 42). Thirdly, constitutionalized lock-in “acts on the arena of policymaking influence by reducing the possibility of governments and political parties representing alternative policy preferences from altering existing neoliberal policies” (p. 47).
Chapter 3 reviews the actors supporting neoliberalism. Using quantitative data and a simple but convincing regression design, the chapter shows that it was the financial and internationally competitive business sectors, together with right-wing governments, that were the actors most clearly associated with neoliberalism in the field of monetary and industrial policy. The domestically-oriented non-competitive sector might support neoliberalism, but also might catalyze the divergence from neoliberalism, depending on the domestic institutional configuration and the power of specific business groups and their political allies. My book on the retreat of liberal democracy in Hungary has also shown that finance and competitive business sectors, allied with technocratic managers and liberal politicians, played a central role in the emergence and stability of market-conforming, simulated neoliberal democracy in Hungary. The rest of Madariaga’s book, Chapters 4-7, shows how this causal narrative plays out in different polities.
Neoliberalism and its challengers
Neoliberal resilience in Chile depended mostly on the power of the internationally-oriented competitive business sector and the financial sector. Rapid trade liberalization boosted firms’ growth in these sectors, forging a compromise with the domestically-oriented non-competitive sector, co-opting it into the neoliberal social bloc. In Argentina, on the contrary, firms in the competitive sector weakened over time, while firms in the non-competitive sector retained their momentum, using their links to the corporatist military to maintain access to policymaking. As a result, neoliberals were unable to dismantle industrial policy despite their efforts. Neoliberal policies increased the vulnerability of Argentina’s economy, and this neoliberal economic debacle made the business community seek a new compromise under democracy with anti-neoliberal, Peronist forces, leading to the election of Néstor Kirchner in 2003. Kirchner’s national-developmentalist strategy relied on a renewed alliance with labor unions and non-competitive business sectors.
Poland resembles Argentina in many ways. Although Poland started as a neoliberal lead reformer in the early 1990s, continued social protests led to policy concessions that eroded the initial program’s radicalism. The left-leaning SLD/PSL, influenced by Kolodko’s heterodox economic strategy, the national-populist PiS governments, and the centrist-conservative PO government of Donald Tusk all invested massive resources into building up a domestic bourgeoisie, counterbalancing the dominance of foreign investors. As Marek Naczyk has also demonstrated recently, domestic businesses have played a central role in the divergence from neoliberal industrial policy in Poland. Unlike in Poland, the Estonian umbrella shielding against reforms did not fold. Estonia’s remarkable neoliberal experiment relies on the power of exclusionary nationalism. The desire to protect the fledgling Estonian state from potential Russian interference prevented the emergence of protest groups, not only in industry but also in rural areas. The new constitution and citizenship law heavily curtailed the political rights of the Russian-speaking minority, which was harder hit by economic reforms due to its concentration in declining economic sectors. This exclusionary solution also meant that there was no business support for an alternative development project, unlike in Poland or Argentina.
Support creation contributed to the resilience of neoliberalism in Chile and Estonia. Privatization in these two countries empowered business actors in the financial and competitive sectors, which supported neoliberalism. By contrast, in Argentina and Poland, the neoliberal project support-creation mechanisms failed. Poland followed a gradual privatization process, leading to a strong state-owned segment in the economy, and an even stronger domestic bourgeoisie, demanding protection and divergence from hard neoliberalism. Privatization and liberalization were also crucial in the Argentinian case. They contributed to forming an alternative social bloc centered around domestically-oriented non-competitive sector businesses demanding more progressive policies.
Opposition blockade also played a central role in neoliberal resilience in Chile and Estonia. The Chilean military was capable of binding the democratization process through restrictive political institutions. These authoritarian fixes curtailing democracy and shielding neoliberalism in Chile included gerrymandered electoral districts and an electoral law favoring the political right, with nine unelected senators nominated by the military, Pinochet remaining the head of the military after democratization, a Constitutional Tribunal blocking alternative reforms, and a Council of National Security giving enhanced powers to the military. In contrast, the neoliberal military dictatorship in Argentina led to an economic debacle and a humiliating defeat in the Falklands War. Therefore, the outgoing military was not able to bind future democratic governments significantly. The few instruments to block the opponents of neoliberalism relied on the personalized power of a neoliberal presidency (Carlos Menem), which could be easily reversed once a new president was elected.
Support for neoliberalism in Poland relied on strengthening the president, but this again allowed opponents of neoliberalism to alter policies once electoral fortunes changed. Finally, opposition blockade in Estonia was also crucial and particularly powerful. As Bohle and Greskovits have also shown, the remarkable resilience of painful neoliberalism in Estonia relied on a strategy that superimposed the ethnic cleavage between national Estonians and the Russian minority on the socioeconomic cleavage dividing winners and losers of reform. By blocking the Russian minority, the neoliberal leaders of the new Estonian republic also blocked the most important opponents of neoliberalism.
Finally, Madariaga shows that constitutional lock-in is less effective than efforts to change power resources through support creation and opposition blockade. All four countries enacted reforms ensuring the independence of their central banks, attempting to lock in anti-inflationary neoliberal monetary policy. However, Argentina and Poland both managed later to diverge partially from this blueprint, even without significantly altering the rules of central bank independence. In addition, Chilean and Estonian authorities agreed to a balanced budget fiscal rule early on. Chile was the only country in Latin America in the 1990s to produce a constant fiscal surplus. Estonia adopted a currency board, which bound domestic monetary policy and forced fiscal policy to follow a domestic deflationary strategy (real wage repression, labor market flexibilization) in times of economic distress.
In contrast, in Argentina, although Kirchner did not dismantle central bank independence, in practice he managed to control monetary policy, leading to a divergence from neoliberalism. Similarly, in Poland, although governments did not alter central bank independence legally, they did so in practice, allowing for more room to maneuver in the sphere of exchange rate and fiscal policy. As Madariaga notes, “the binding character of neoliberal institutions appears to be strongly related to the underlying power equilibrium and the support for alternative development projects” (pp. 245-246).
Lessons
The concluding chapter draws out the broader theoretical insights.
First, Madariaga reiterates the centrality of power resources: if there are powerful actors, they can undo even the best-designed institutions. This insight resonates with the recent disillusionment in political science with the institutionalist approach to democracy. Many proponents of the institutionalist approach have recognized how easily liberal institutions can be undone if powerful actors have the resources and willingness to do so.
The connection between institutional design, power structures, and economic policy is crucial for analysts of contemporary democratic backsliding. From North Macedonia (Gruevski) to Hungary (Orbán), from India (Modi) to Brazil (Bolsonaro), illiberal leaders curtail democratic representation not simply to stay in power but to implement a particular set of economic policies that favor upper-class social coalitions behind illiberalism. Viktor Orbán’s efforts to curtail democracy and divert economic conflicts towards cultural cleavages and political identity clashes serve to entrench the new privileges of the national bourgeoisie. Orbán does not simply want to stay in power. He builds resources for the illiberal social coalition and reduces the opportunities for anti-illiberal forces in the long term.
Democratic backsliding under Orbán did not lead to a divergence from the core of the neoliberal agenda, despite Orbán’s nationalist chest-beating. Researchers have indeed shown that finance, retail, and energy have seen a selective economic nationalist turn. However, taxation, fiscal policy, macro-economic prudence, labor market (de)regulation, and social policy have not only remained neoliberal but have become increasingly so under Orbán’s authoritarian capitalism. Hungary’s case fits neatly into the global rise of national-populist neoliberalism or neo-illiberalism. The fate of democracy and neoliberalism are tightly interwoven. Neoliberal resilience depends on the successful curtailment of democratic challenges against neoliberal orthodoxy.
Neoliberalism and democracy are not necessarily enemies, but neither are they friends. They are “frenemies,” as Madariaga concludes. It depends on the power of social coalitions.
Thus, the relationship between neoliberalism and democracy is more complicated than a simplistic reading would suggest: “the resilience of neoliberalism appears to have shielded the accompanying democracies from the lure of populist movements” (p. 258). Estonia and Chile experienced neoliberal resilience and avoided democratic backsliding. At the same time, neoliberalism was challenged in Poland on multiple occasions, which appears to go together recently with democratic backsliding under the PiS government. Thus, however, curtailed, a limited top-down liberal democracy survived in more neoliberal countries.
Should we be content with market-conforming curtailed top-down liberal democracies in order to avoid populist chaos? Not at all. Reflecting on the Argentinian case and the most recent Chilean uprising, Madariaga also highlights non-neoliberal avenues for democracy to survive. In Argentina, neoliberalism was challenged without democratic backsliding. In Chile, the 2019 protest movements have shown that neoliberalism had generated deep fractures in the society, which came to light after several decades of repressed neoliberal democracy. Chile will have a new popular-democratic constitution instead of the curtailed liberal-democratic constitution drafted by the neoliberal military regime. It is too early to tell to where Chiles’ awakening will lead, but it certainly shows alternatives to the curtailed top-down neoliberal democracies.
Thus, populism is not necessarily opposed to democracy, concludes Madariaga in agreement with Mudde and Kaltwasser. It has challenged neoliberalism in Argentina and Chile without leading to democratic collapse. Argentina is not an exemplary liberal democracy, but neither is it a competitive authoritarian country. Again, it all boils down to the underlying power of social coalitions: if the neoliberal social coalition prevails, neoliberalism will survive. However, if democratic anti-neoliberal social coalitions manage to assemble enough resources for a counterhegemonic project, uniting popular masses, trade unions, and segments of the economic elite, the future becomes open to democratic non-neoliberal alternatives.
Madariaga’s Neoliberal Resilience is a deeply insightful, amazingly detailed, theoretically innovative, meticulously researched book. It is no wonder that it was not overlooked by the major book award selection committees. It is a must-read for everyone interested in the past, present, and future of neoliberalism.
Neoliberal Resilience: Lessons in Democracy and Development from Latin America and Eastern Europe, Princeton University Press, 2020
Originally published on July 20, 2021, in Review of Democracy.