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How the Welfare State Became the Neoliberal Order (Review)

Within his famous “first hundred days” in office, President Roosevelt signed into law the Tennessee Valley Authority (TVA), an infrastructure-development project. The TVA organization was intended to build infrastructure so as to deliver hydroelectric energy to the very rural, very poor countryside. To do so, the TVA had the prerogative to acquire land and relocate occupants in order to build new dams. And although the organization’s main aim was to push forward economic development, the TVA also included a broader modernization program. The TVA didn’t just focus on rural electrification; it also fostered educational programs, directed toward farmers, to improve agricultural practices by introducing new technology. Indeed, the TVA is now considered a crown jewel among FDR’s New Deal development programs: a prime example of how government, at a federal level, can bypass local business and local politicians to make sweeping economic change.

But if such large development programs worked for the federal government, then, perhaps, they could also work for big corporations. Indeed, the coming decades would feature government planners—many having trained under the New Deal—seeking their fortunes as commercial and financial developers. These were men like David Lilienthal, who, after running the TVA, were hired away to develop similar projects around the world. But this time, rather than building these projects in the public interest, Lilienthal built new TVA-style projects that created the conditions (especially in partnership with local businessmen) for private gain.

In telling the story of Lilienthal and other ex–New Deal officials, Amy C. Offner’s Sorting Out the Mixed Economy remakes a popular understanding of how today’s neoliberalism was built. Offner shows that neoliberalism, rather than having been imposed by the Washington Consensus, was in fact first developed at a local level. The book shows American entrepreneurs, trained in big government as Lilienthal was, working together with Latin American businesses, banks, and landlords. It was when these new kinds of partnerships returned to the US—when private companies, treated as public concerns and sustained by government funds, began to take shape in the “developed” world—that neoliberalism truly began.

In focusing on this exchange between New Deal developers and Latin American businessmen, Offner corrects many misunderstandings. Neoliberalism, she shows, was more than a set of ideas and a political agenda forged in the core to be applied in the periphery. Instead, the movement that we now know as neoliberalism emerged from the entangled histories of the US and Latin America. And while Offner is right to focus on the history of ideas and public policy, neoliberalism also presented different ways to solve social conflict.

Typically, Latin America has been portrayed as home to the first neoliberal experiments: where those from the global North came to impose their will, top down, on the global South. Before Margaret Thatcher and Ronald Reagan deregulated core Northern economies, it was understood that Latin America was the North’s playground. Here, the “Chicago Boys” (Latin American economists trained in the US under the new monetarist orthodox dogma), in conjunction with military juntas, tried out the first radical free-market liberalization projects in the 1970s. Chile loomed large, for it was there, after the coup against the socialist government of Salvador Allende, that Augusto Pinochet hired the Chicago Boys to accomplish free-market reforms.

Generals and economists together imposed the neoliberal ideas coming from the global North, as they coalesced in the minds of Friedrich Hayek and Milton Friedman. To impose these ideas, the generals and economists used “shock therapy”: first, they aroused terror among the population, then they introduced unpopular economic reforms. Along the way, these generals and economists dismantled the developmental dreams of the 1950s and 1960s, dreams of upward social mobility and welfarism granted by state interventions to regulate the market. At least, that’s the story we have been told.

Read entire article at Public Books