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Neo-Liberalism and the Retreat of Democracy

Photo by Ronald Reagan Library | CC BY 2.0

Democracy across the world is under siege. This according to the latest Freedom House report documenting that for 2017, “democracy faced its most serous crisis in decades” as  seventy-one countries experienced declines in freedom or fair government, including the United States,  and only thirty-five an improvement.  This was the twelfth consecutive year of decline in democracy world-wide.

The question is why? Why has confidence in democracy retreated? Freedom House does not provide an answer, but there is a reason.   It is democracy’s marriage to neo-liberal capitalism has fostered the conditions leading to its own undoing, similar to the way Karl Marx once described in the Communist Manifesto the “gravedigger thesis” (What the Bourgeoisie therefore produces, above all,  are its own grave diggers”) where capitalism would produce the conditions that would undermine its own existence.

From the 1960s until the early 1990s democracy was in the upswing internationally.  African de-colonization produced initially popularly elected governments.  In South America the demise of strongmen led to a wave of democratic regimes.  And the fall of the Berlin Wall in 1989 and the break up of the USSR in 1991 produced the dismantling of communist authoritarian or totalitarian governments that made it possible for Francis Fukuyama to proclaim that democracy had won and emerged as the last grand global political meta-narrative.

Yet several problems upset this rosy picture. Most prominently, it was  the marriage of these new emerging democracies with free market capitalism and the victory of neo-liberalism.  Internationally as post-colonial and post-communist countries emerged, international organizations such as the World Bank and the IMF forced them to adopt market reforms, often pushing them into what was then called “shock therapy.”  Shock therapy involved rapid privatization of state owned enterprises and rapid dismantling of welfare states.  This shock therapy was often accompanied by significant  corruption as a few rich oligarchs emerged who came to own these newly  privatized state enterprises.

Simultaneously, emerging democracies were rapidly pushed into what sociologist  Immanuel Wallerstein would call the world-capitalist system. This system turned politically to right in the 1970s and 1980s as  Margaret Thatcher in the United Kingdom and Ronald  Reagan in the United States  pushed neo-liberalism  or market fundamentalism as an alternative to the Keynesian welfare state that had dominated the west since the 1930s.  It was adopted both for ideological reasons and because of what political economist James O’Connor would call the fiscal crisis of the state tht affect economics across the world in the 1970s.  This was a crisis of declining profit among private businesses and therefore declining revenue for states to fund welfare programs.  Something had to give, and it was the welfare state.

Neo-liberalism is a political economic theory of the state  committed to the laissez-faire market fundamentalism ideology that traces back to Adam Smith and David Ricardo.  It includes a belief in comparative advantage, a minimalist state, and market freedom, and is, as articulated in the 1990s and 2000s, driven by finance capital.  At the state level, neo-liberalism defines a theory of public administration.  If neo-liberalism includes a commitment to market fundamentalism, then that also means that it is dedicated to a politics of limited government.  This includes privatization, deregulation, and a scaling back of many traditional functions that capitalist and communist states had performed since at least World War II. But neo-liberalism as a theory transcends the state, providing also an international economic theory committed to free trade and globalism.

This emergence of neo-liberalism in the 1970s and its linkage to democracy is central to the crisis affecting the latter.  As  neo-liberalism retrenched the welfare state and pushed globalism it was accompanied by a dramatic increase in economic in equality in the world, as Thomas Piketty has pointed out.  This occurred in the US and much of the western world.  But it also impacted newly emerging democracies in Africa, Eastern Europe, and South America.  Pressures for shock therapy market reforms, austerity, and open borders meant export of jobs to other countries, dismantling of social safety nets, and other economic pressures placed on governments and ruling parties.

Politically voters turned on globalism and free trade.  This happened here with Trump voters in 2016, but also in Brexit in the UK. But many voters also blamed immigrants for the loss of jobs or social unrest in places ranging from France, to Italy, to Hungary.   The increasing economic gap between rich and poor and, more importantly, the erosion of the economic conditions of the working class soured them on democracy.  This paved the way for the emergence of strongmen as political leaders, the rise of far-right nationalist parties, and disenchantment with democracy and democratic structures to deliver the economic goods.

What we see today then in terms of the decline in support for democracy across the world is a product of its marriage to neo-liberalism.  Capitalism and democracy always had an uneasy co-existence, but the  neo-liberal democracy variant  demonstrates the powerful contradictions in them.  Either their linkage is producing outright rejection of democracy or a populist, rightist version that is merely democracy in form but not in substance.

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David Schultz is a professor of political science at Hamline University. He is the author of Presidential Swing States:  Why Only Ten Matter.

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