10. Welcome to Europe

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Neoliberal Europe

In response to neoliberalism’s internationalism, European workers have turned to the nation state. It is time for the left to reclaim the narrative.

Workers of Europe: Compete!

Illustration by
Zoran Svilar

Some neoliberal think tanks appear to have taken a turn towards the nation state in recent years. In the UK, think tanks like the Institute for Economic Affairs were instrumental in bringing about Brexit and the general anti-EU fervor that has accompanied it. On their website, the IEA even argues that “Brexit provides a once-in-a-generation opportunity to create a more flexible, open and vibrant economy and set a shining example for other countries.”

This British, anti-EU neoliberalism has its roots in Margaret Thatcher’s famous 1988 Bruges-speech in which she identified the European Union as a sort of European super-state that served to undermine her neoliberal reforms in the UK. For a long time, this type of nationalist neoliberalism, which instrumentalizes patriotic sentiments to advocate favorable conditions for capital, was a mainly British phenomenon, at least in Europe. In recent years, however, Germany has seen the rise of the far-right populist Alternative für Deutschland (AfD), which has strong ties to the Berlin-based neoliberal think tank Hayek Gesselschaft, whereas the right-wing populist and national-conservative Austrian Freedom Party has similar ties to the Vienna-based Hayek Institut.

Outside Europe, both Donald Trump and Jair Bolsonaro can also be described as nationalist neoliberals — firmly on the side of business and capital, yet with a nationalist approach to both ongoing culture wars and trade negotiations.

The much-discussed rise of a new nationalism is clearly a continuation of, rather than a break with the neoliberal era. It might thus be tempting to say that neoliberal ideology is finally showing its true colors, and to write it off as nationalist and tribalistic. A certain type of neoliberalism that is based on a racist idea of market societies needing certain cultural norms that only exist in the West falls in this category.

Historically, however, most strands of neoliberal thought have been profoundly internationalist — rooted in a Utopian vision of an interconnected world society, based on market mechanisms and relentless competition. Today’s EU bears some of its hallmarks and while truly internationalist, this vision is everything but solidaric. Neoliberal internationalism has undermined historical gains made by workers’ movement organizing at the level of the nation state, and so for many European workers today, the only kind of “internationalism” they are familiar with — the neoliberal kind —  has a negative effect on their lives.

This poses a serious challenge to the internationalist left that advocates cross-border organizing. Building an internationalist solidarity between the workers of different countries requires an understanding of neoliberalism’s origins and evolution in order to be able to regain internationalism as a progressive project for the left.

Against popular democracy

Ever since its inception in the interwar years, neoliberalism as a political movement has been mainly internationalist. In his much celebrated book Globalists, the Canadian historian Quinn Slobodian tells the story of early neoliberalism as first and foremost a response to the fall of Empire and the rise of independent nation states. Founders of the neoliberal movement, like the Austrian economists Ludwig von Mises and Friedrich von Hayek, saw the breakup of the Habsburg Empire as a potential threat to cross-border capital flows and the empire’s transnational system of property rights.

Early neoliberal thinkers viewed the rise of nation states, parliamentary democracies and universal suffrage as disruptive for the world economy. In this new world order, the German economist Wilhelm Röpke, another early neoliberal thinker, advocated for a supra-national legal system designed to protect the transnational system of property rights from politics.

These early neoliberals never agreed on exactly how to promote markets as the foundational mechanisms of modern society. The thinker who most straddled the boundaries between the different strands of neoliberal thought — like German ordoliberalism, Austrian economics, British liberalism and the Chicago school — was Friedrich Hayek. With the foundation of the Mont Pelerin Society in 1947, he hoped to encourage the cooperation between these different groups of right-leaning liberals who had adopted the moniker “neoliberalism” and were equally appalled by socialism and social liberalism.

Recent research has shown that the group was never very interested in the economic policies of individual countries. Instead, they focused their attention on the entire global economy, modern and intertwined. Back in 1939, Hayek had written the essay “The Economic Conditions for Inter-State Federalism,” in which he proposed a federative system as a suitable constitutional design for a modern, post-imperial world order. The point of federation, he argued, was that questions of economic policy would be removed from democratic decision making. Through a system of “double government,” national governments would deal with questions of minor importance for the economic order, whereas questions concerning property and the economy would be the domain of an invisible, supra-national government, preferably just a set of predetermined rules.

Hayek’s argument against economic planning was based on the philosophical notion that modern society was so complex, and human beings so heterogeneous, that some sort of democratic agreement as to what to plan for, would basically be impossible to achieve. Thankfully, by acting as rational actors in spontaneously developed market mechanisms, peoples’ diverse wants and needs could be aligned and coordinated almost automatically.

Faced with the breakdown of the capitalist world economy in the interwar period and the very real possibility of socialist upheaval in countries other than Russia, the neoliberals had to create a new, positive vision for a modern world, one that would make sure that capitalism and property rights could prevail. This became the dream of “a world of signals,” in which market mechanisms would transmit information through prices, thus ensuring rational coordination and economic efficiency. Modern states were certainly needed in this project, and the neoliberals were attuned to the fact that the scope of the state in such a world would have to be drastically expanded from the laissez-faire notion of a nightwatchman state.

Popular democracy and political interference with the market economy were specifically excluded from this vision. Neoliberals saw the development of parliamentary democracy with universal suffrage as intimately tied to the development of the modern nation state. They were not opposed to state power; on the contrary, they realized that strong states were a necessary element in the future market order they wanted to create.

What worried them was the development of modern states as vehicles for popular democracy and the disruptive effects on property relations and capital flows this might bring along. National governments were seen as the main threat to the smooth functioning of a global market. Indeed, one of the founding sessions of the Mont Pelerin Society was dedicated to the question of setting up a European federation. In this session, Hayek approvingly quoted the nineteenth century British historian Lord Acton, who had written that “of all the checks on democracy, federation is by far the most efficient.” Through a federative system, the disruptive power of democracy, currently in the process of being institutionalized at the national level, could be countered.

Neoliberalism and the EU

The theoretically elegant neoliberal argument regarding the impossibility of economic planning conflicted with the practical realities of postwar nation states, which national bodies could agree on at least enough to elect governments with programs for economic planning and social redistribution based on Keynesian economics. The British economist John Maynard Keynes sought to save capitalism, not unlike the neoliberals, but economic policies developed on the basis of his interventions tended to entail a certain degree of democratization, social equalization and state planning — all anathema to the neoliberals.

These types of policies were exactly why Hayek favored federations. His suggestion to form a supra-national level of governance to curb the “dangers” of democratic interference were taken up by later generations of neoliberals, who despaired at the level of market interference by nation governments, and sought to undermine it from their strongholds in various international institutions like the International Chamber of Commerce and the General Agreement on Trade and Services.

The burgeoning European Economic Community (EEC), founded in 1957, was no immediate hit among neoliberal thinkers, shaped as it was by Keynesian-inspired economic policies. The German ordoliberal Wilhelm Röpke, for instance, saw the EEC as a dangerous example of supranational economic planning, which had to be fought by those who favored free markets. The Geneva school neoliberals were of a somewhat different mind, however, and some of them recognized the EEC’s potential to become a vehicle for the neoliberal internationalist vision. Some of them were employed at newly-established European institutions, like Hayek’s pupil Ernst-Joachim Mestmäcker, who was among those who worked out the system that granted rulings of the European Court of Justice priority over the national laws of member states, even within the courts of the member states themselves.

Because of links such as these, leftist thinkers like Wolfgang Streeck and Perry Anderson have decried the EU as almost a neoliberal invention. The idea being that Hayek’s interwar blueprint for a democracy-curbing federation had come to full fruition in the current EU, and especially in the architecture of the Eurozone. Neoliberals, however, have always remained divided on this question, ever since the foundation of the EEC. One could argue that it was the ordoliberal Röpke’s opposition to the ECC that Margaret Thatcher would expound some thirty years later in her Bruges speech, opposing the idea of a “social Europe.”

Both in the 1950s, the 1980s and in our present moment, there seems to have been disagreement — both among neoliberals and among socialists — on the question whether the EU is a vehicle for either socialism or neoliberalism. It is neither, in fact, but it would be fair to say that neoliberal ideas have come to play an increasingly important role in the EU since at least the 1990s. Especially under an increasing German influence, neoliberalism has become a central tenet of the European integration project by way of the dominance of ordoliberal thought in German policymaking.

Keynesianism was never an influential doctrine in Germany. In addition to the enormous political importance of the European Central Bank, set up in tandem with the creation of the Euro in 1999 and modelled on German Bundesbank, the ordoliberal influence is most visible in the fundamental importance of competition law. Instrumentalizing legislation to make markets more competitive is the very hallmark of ordoliberalism, and the idea of basing an entire social order on state-enforced competitive markets is very specifically neoliberal. A considerable part of the infamous “EU bureaucracy” is devoted to enforcing principles of “free and fair” competition.

Just like Margaret Thatcher before, the Institute of Economic Affairs conceives this apparatus as obstructionist regulation, and claims it is inherently less efficient than “free” markets, but it is certainly a form of neoliberalism. Furthermore, some aspects of EU regulations, notably the common agricultural policy, bear little semblance to what anyone would call a competitive market. Nonetheless, “regulating for competition,” — what the EU is really all about — has always been a more central part of neoliberal thought than the lofty libertarian rhetoric of certain think tanks might suggest.

The nation and the workers’ movement

The establishment of the European Single Market in 1993 was grounded in the principle of “four freedoms”: the free movement of goods, services, capital and labor. The latter freedom is sometimes referred to as the “freedom of movement,” and is seen by many as a progressive, internationalist principle. The freedom to cross borders without documents and set up a life in any European country is certainly a beautiful thing worth defending. That being said, the left can scarcely afford to be naïve as to what sort of freedom an individual actually gets when classified as “labor”: the freedom to compete with other workers.

In the inter-, and postwar period when the neoliberal doctrine was first conceived, the victories of growing workers’ movements across different countries tied their fate to individual nation states. In Scandinavia and the UK especially, but also in the rest of Europe, welfare states became the crowning glory of the left. Where the workers’ movement had mainly been internationalist in the early 20th century, its successes at the national level led to notable turns towards social democracy and compromises between labor and capital. In my native Norway, for instance, the Labor party went from being staunch members of the Comintern — and supporters of free trade — to producing slogans of national unity and campaigning for Norwegians to only buy Norwegian products in the 1930’s.

After the war, capital was very much on the defensive all over Western Europe, and the gains made by labor in various national contexts were significant. They gave birth to rising living standards, social equalization and democratization. The vast majority of neoliberals at the time were fierce critics of the workers’ movement, precisely because the collective bargaining power of organized workers was deployed to shield workers from the competition process that neoliberals saw as the very engine of social coordination. In the neoliberal view, these welfare states and strong labor unions distorted market mechanisms, leading to inefficiencies and a crumbling social order.

Since the 1970s, however, these class compromises have been slowly undone, and neoliberal policies have ensured that workers of Europe get a smaller share of profits, work longer hours and can be said to have less power over their own lives than before. In short, European workers are increasingly subject to the pressures of international competition, which neoliberal ideology holds up as the key organizing principle of a modern, intertwined world.

Internationalism is an obvious part of leftist ideology, the ideal that all human beings are born equal and deserve the same opportunities in life, regardless of where they were born. But internationalism is also central to neoliberalism, albeit often for completely different reasons. It is an internationalism of competition and markets as opposed to the left’s internationalism of solidarity and democracy — but it is an internationalism nonetheless.

The complicating factor is that the very real gains made by the workers’ movement in the previous century are tied up to institutions of the nation state, and are often undermined by the neoliberal internationalism of the EU. One obvious example is companies in rich countries using EU regulations to bring in casual workers from lower-cost countries with higher unemployment rates, thereby effectively undermining national, collective agreements or even just the ability of local workers to make a decent living. Put simply, the kind of internationalism many people are familiar with, often impacts them negatively, leaving them to perceive it as a threat against which the nation state can provide protection. It is obvious, then, why nationalism is on the rise across Europe and why it has such a strong working class component.

Abandon internationalism?

The solution for some leftist today, it seems, is to abandon the principle of internationalism altogether, and conclude that democracy and workers’ rights can only truly be realized within the framework of the nation state. Wolfgang Streeck would be the prime example of this position, and his writings on the EU animated, for instance, the so-called Lexit-movement — which advocates a left-exit from the EU in various nation states — and the short-lived Aufstehen-movement in Germany — which sought to combine leftist economic policies with more conservative positions on migration. As far as this line of reasoning goes, there is no other way forward for the left than to abandon lofty ideals of a borderless world and attempt to fight neoliberalism in the arena of the nation state.

As should be clear, however, this is hardly a way forward but rather an attempted return to a past, 1960’s-style national social democracy. This period in history has been the subject of some unwarranted glorification, but regardless of how good or bad we might have had it then, it is an obvious fact that we cannot turn back time. Any attempted reestablishment of the postwar system at the national level in our own time, will have to take into account why that order failed. In addition to a slowing down of growth, falling rates of profit and the growing importance of developing economies in the global economy, the most important factor has been the breakdown of an international system of capital and currency controls.

A big part of the reason why social democracy and Keynesian economic policies could work in the first place, was international coordination through the Bretton Woods-system, which allowed for capital controls and a system of fixed exchange rates that did not reward austerity policies. It was when this international system broke down in the early 1970s, that European states started having trouble.

The reason nation states lost power is in many ways due to a loss of international cooperation in controlling capitalism. National economies in today’s world will always be subject to the entire global economy, and so class compromises within individual nation states are severely skewed in favor of capital. If companies are competing in the global economy, it follows that their employees are indirectly also competing at the same, global level. So, in the interest of their own material well-being, they are more closely tied to their “own” capitalists, rather than to “foreign competitors.”

Any attempts towards democratization and social progress that do not operate at the level of the entire global economy therefore faces serious constraints. The terrain of modernity is the whole world, which is precisely what the early neoliberals realized in the interwar years. This realization contributed to their success in countering the postwar process of democratization that relied heavily on national institutions.

It would be convenient if the recent wave of nationalist neoliberalism “gave internationalism back to the left,” but things are seldom that simple and straightforward. In truth, borders have always been useful to neoliberal internationalism insofar as the institutions of nation states have been put to use for the purpose of protecting capital flows rather than controlling or subverting them. Self-proclaimed “cosmopolitan liberals,” like former Mont Pelerin Society president Peter Boettke, preach the gospel of openness and tolerance, yet they are happy to share their organization with members of authoritarian regimes, and the Brexit-pushing Institute of Economic Affairs.

Neoliberals have always had disagreements, and the question of nationalism is currently one of the thorniest ones confronting their alliance. Nonetheless, they tend to stick together in the pursuit of capital freedom and a world order built on market competition.

A lesson about unity might be gleaned from the history of the neoliberal movement, as well as the importance to plan for the long term and develop both ideas and organizational forms that are able to seize the moment when an opportunity presents itself. Moral condemnation of leftists who try to win back disillusioned working class voters by appealing to national sentiment is beside the point, but for the left, there really is no way around the question of internationalism. This is both for reasons of solidarity and moral principles but also for reasons of political strategy and realism in an interconnected world.

Ola Innset

Ola Innset is a writer and historian. His latest book is Reinventing Liberalism (Springer, 2020), and he is about to publish a new book on the history of neoliberalism in Norway.

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Magazine — Issue 11