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The Politics of Free Markets (book)

The Politics of Free Markets: The Rise of Neoliberal Economic Policies in Britain, France, Germany, and the United States is a book by sociologist Monica Prasad, published by the University of Chicago Press in 2006. It was awarded the Barrington Moore Book Award from the Comparative and Historical Sociology Section of the American Sociological Association in 2007, and the ASA had organized a Symposium on this book in the same year.

In the book, Prasad seeks to explain why Britain and the United States had implemented neoliberal policies extensively during the 1980s while France and West Germany comparatively had not, especially when all four countries were facing pressures for policy change in light of the economic crises of the 1970s. She argues that the presence of adversarial (policy) structures in Britain and the United States during the postwar era created opportunities for state actors of the Right to propose and mobilize support for neoliberal policies, whereas the pro-growth policies in France and West Germany did not create such opportunities.

Synopsis

Prasad focuses on three policy areas of the state: taxation, industrial policy, and welfare spending. By neoliberal policies, she means “taxation structures that favor capital accumulation over income redistribution, industrial policies that minimize the presence of the state in private industry, and retrenchment of welfare spending.” Compared to France and Germany which had little neoliberal policy changes in the 1980s, the United States and Britain implemented neoliberal policies across all three policy areas.

According to Prasad, it is in the countries that had adversarial policy and state structures - rather than pro-growth policies - where neoliberal policies developed. Adversarial policies are characterized by progressive taxation, industrial policies that are punitive to business, and redistributive welfare programs; pro-growth policies have regressive taxation, business-friendly industrial policies, and less redistributive welfare programs. In the postwar era, the US and Britain had adversarial policies, whereas France and West Germany had pro-growth policies. Adversarial policies in the US and Britain created the potential for dissatisfaction among the population with the status quo, and political entrepreneurs exploited this dissatisfaction to pursue neoliberal policies; in particular, majority middle class interests were set in opposition to that of the minority poor class. Pro-growth policies in France and West Germany generated consensus with the status quo among classes and the population, so it was difficult to pursue neoliberal policies. State structure also matters for Prasad. Adversarial policies defined the Left and Right against each other, and when the Right came to power it tried to implement neoliberal policies based on popular dissatisfaction toward the Left’s policies. Pro-growth policies made the Left and Right partners pursuing national economic growth, so political conflicts were dampened. So, paradoxically, it is in the countries where the Left had been rather strong in the postwar era that neoliberalism developed most.

For the United States, the most notable neoliberal policies implemented under the Reagan administration were the Economic Recovery Tax Act of 1981, deregulation through cutting back funding for the Environmental Protection Agency, and the 1981 Omnibus Budget Reconciliation Act. Politicians of the Right mobilized support for these through political entrepreneurship. When taxpayers of one state expressed dissatisfaction with property taxes, political entrepreneurs proposed income tax cuts – they tried to mobilize broad middle class support by exploiting the visible and progressive aspect of taxes. The Right had also exploited the term “deregulation” to turn the Left’s agenda of “reduce businesses’ control of government” into merely “reduce government.” Because the EPA was part of the executive branch, it was structurally easy for Reagan to implement this deregulation. And finally, the rhetorical invention of the welfare queen was successful in arousing hatred toward means-tested targeted welfare programs; such programs were cut, whereas universal programs like Social Security were not – politicians were unwilling to risk losing middle class support by attacking universal programs, but it was easy to attack means-tested programs because it was the middle class taxpayers who we paying for them. In all of these policies, the Right attacked elements of taxation, regulation, and welfare that were adversarial in structure.

Thatcher and the Conservative party came to power after militant labor unions brought down several Left governments. This experience radicalized the Conservative party further to the Right. The neoliberal policies under Thatcher were the 1981 Budget tax cut, privatization of national industries (especially of British Telecom), and cutbacks in public housing through the sale of Council Houses. Tax cuts were justified under the guise of monetarism (although there was not much coherence among policy-makers and intellectuals about the validity of this idea); privatization was justified ad hoc as a way to increase efficiency and achieve public ownership of shares (a property-owning democracy); means-tested welfare programs were cut, whereas middle class universal programs were left untouched for the same reasons as the US case.

Neoliberal policies were proposed in West Germany under Kohl’s regime, but they were unsuccessful. The reason behind this failure is the structure of the state and the Christian Democratic Union. Within the CDU party was the Left-oriented Workers’ Wing that represented labor; this structure was possible because the CDU developed in the postwar era through horizontal coalitions among many political groups. Whenever the Kohl regime proposed neoliberal policies – tax cuts, deregulation, or health care reform – the Workers’ Wing intervened at critical veto points to block those policies. The structure of the state is also relevant for understanding the French case. The French state was characterized by its technocracy, where academic expertise played a role in policy formation. This structure prevented the political entrepreneurship that took place in the US. Only a minor tax cut and some privatization took place, through imitation of other countries and technocratic interests that were detached from the popular will. In both the German and French cases, the non-adversarial structures made it difficult to anchor neoliberal policy proposals in majority electoral interests, as there was cross-class loyalty to the welfare system and nothing visible or progressive about the tax system politicians could exploit.

Alternative Explanations

There are other explanations for the rise of neoliberal policies, such as globalization, class-based explanations, and national culture. Another explanation is the role of neoliberal ideas. Some argue that the rise of neoliberal free market principles among academics, think tanks, policy institutes, and international political organizations and the popularity of these ideas among politicians led to the implementation of neoliberal policies. One problem with this argument is that in some cases, neoliberal policies developed where the ideas did not exist, or the ideas were arbitrarily invented. Another critique is that it is unreasonable to separate ideas from institutional practice, and so it is difficult to attribute causal significance to the role of ideas alone.

See also

• Neoliberalism
• Political entrepreneur
• Reaganomics
• Thatcherism

Further reading

• Fourcade-Gourinchas, Marion and Sarah Babb. "The Rebirth of the Liberal Creed: Paths to Neoliberalism in Four Countries", American Journal of Sociology, vol. 108, no. 3, November 2002.
• Harvey, David (2005) A Brief History of Neoliberalism, Oxford: Oxford University Press.
• Kus, Basak. "Neoliberalism, Institutional Change and the Welfare State: The Case of Britain and France", International Journal of Comparative Sociology, vol. 47, no. 6, 2006.
• Morgan, Kimberly and Monica Prasad. "The Origins of Tax Systems: A French-American Comparison", American Journal of Sociology, vol. 114, no. 5, March 2009.
• Mudge, Stephanie Lee. "What's Left of Leftism? Neoliberal Politics in Western Party Systems, 1945-2004", Social Science History, vol. 35, no. 3, Fall 2011.
• O'Connor, John. "Marxism and the Three Movements of Neoliberalism", Critical Sociology, vol. 36, no. 5, 2010.

References

• Mudge, Stephanie Lee. "What is neo-liberalism?", Socio-Economic Review, vol. 6, 2008.
• Prasad, Monica (2006). The Politics of Free Markets: The Rise of Neoliberal Economic Policies in Britain, France, Germany, and the United States, Chicago: University of Chicago Press.
• Symposium on The Politics of Free Markets, American Sociological Association, 2007. Available at: [1]