Models of Capitalism: Neoliberalism

The capitalist model currently prevailing in the USA and in Europe has been described in various ways. Robert J. Schiller describes it as “financial capitalism,” or “system in which finance, once the handmaiden of industry, has taken the lead as the engine driving capitalism.”² Branko Milanović prefers the term “liberal meritocratic capitalism” and bases his term on a series of empirical qualities such as growing profit margins and its increasing concentration, or even matrimonial customs (the rich marry the rich).³ The adjective “meritocratic” means that the contemporary elite generally hold great competencies—apart from their possessions, they are generally highly educated, which is meant to make them distinct from the nineteenth-century elite, with their model of the dilettante gentleman managing an inherited property.

Thomas Pikkety, in turn, prefers the term “hypercapitalism,” while Spanish economist Carlos Sebastián offers the simplest, though perhaps most apt concept: “deregulated capitalism.”⁴ The journalists and academics most frequently use “neoliberalism,” however.⁵ Interestingly enough, behind these diverse definitions we often find the same thing. They speak of an at least partial departure from the welfare state, growing inequalities in property, the decreasing participation of labor unions in negotiating working conditions, the reduction of tax progression, the privatization of resources in the hands of the state, and a greater ease in the transfer of capital, goods, and people across borders.

It is also relatively easy to point to the period when neoliberalism began to dominate—the turn of the 1970s and 80s, with the governments of Ronald Reagan and Margaret Thatcher, and François Mitterand’s abandonment of leftist economic principles. The early 1990s bolstered this model of capitalism, as a result of the fall of communism and Bill Clinton and Tony Blair’s concept of the “third way” that was increasingly in favor of a free market.

A much greater riddle is how this change of paradigm in thinking about the economy and society transpired in the first place. The left wing, largely considering the postwar years to be the model execution of their ideas, tends toward a certain conspiracy theory of history. The wealthy, who more resemble the ghoulish Skeksis from The Dark Crystal than human beings in this narrative, promoted the theories of Milton Friedman and Friedrich August von Hayek and brainwashed people through the media. The result: the collapse of the marvelous social democracy.

A much more probable, though less tidy interpretation must take into account a range of factors. Here are a few:

1. A change in generation—people forgot what the Great Depression meant, so even the relatively minor economic slowdown of the 1960s and 70s was seen as a symptom of the crisis of the whole economic model.
2. The collapse of communism—the narrative of the infallibility of the free market began to seem probable in the context of an increasingly visible crisis of “real socialist” states. The Soviet Union was no longer perceived as the superpower that sent Sputnik into outer space, it was a sinister empire struggling to cope with the problems it brought down upon itself (the war in Afghanistan, the Chernobyl disaster).
3. Inflation—the Vietnam War and the subsequent oil crisis (1973) led to inflation, which, combined with unemployment, created “stagflation.” The Keynes model (or its simplified version in the form of the Phillips curve), which was the basis of the welfare state, anticipated struggling against deflation. In other words, it addressed a totally different problem.
4. The collapse of the Bretton Woods system—as a result of these financial problems, the USA moved away from its basis on gold. This was a symbolic break with the period when the currency exchange was relatively predictable and states could control the transfer of capital.
5. Technological changes—the “creative destruction” of limitless freedom seems more conducive to developing computer technology than the state control system. IT and other precision technologies began to contribute more to the GDP.

Of course, the significance of the various factors and their chronology remains open to debate, just as whether we may speak of the collapse of the neoliberal model, as some scholars believe. We should remain cautious when it comes to far-reaching conclusions, as it rarely happens that a shift in a model of capitalism occurs in the course of just a few years. Usually, the process lasts decades, and what seems a sudden revolution is in fact the accumulation of incremental changes.