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Since the 1970s, market-based economic policies have been institutionalized as a nearly global policy paradigm. Using four national case studies, this article shows that economic and financial globalization played a critical role in fostering the transition to neoliberal policies, but that local institutional conditions were decisive in shaping the nature and meaning of the shift. While the analysis finds that developing countries appear more dependent upon direct external pressures than developed ones, it also shows that institutionalized patterns of state-society relations determined the way in which neoliberal transitions were carried out, somewhat irrespectively of the level of economic development. In Chile and Britain, poorly mediated distributional conflict created the ideological conditions for a "monetarist" revolution. In Mexico and France, on the other hand, neoliberalism was understood mainly as a necessary step to adapt the country to the international economy.
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The Rebirth of the Liberal Creed: Paths to Neoliberalism in Four Countries
Author(s): Marion Fourcade‐Gourinchas and SarahL. Babb
American Journal of Sociology
, Vol. 108, No. 3 (November 2002), pp. 533-579
Published by: The University of Chicago Press
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AJS Volume 108 Number 3 (November 2002): 533–79 533
2002 by The University of Chicago. All rights reserved.
The Rebirth of the Liberal Creed: Paths to
Neoliberalism in Four Countries
Marion Fourcade-Gourinchas
Princeton University
Sarah L. Babb
University of Massachusetts at Amherst
Since the 1970s, market-based economic policies have been insti-
tutionalized as a nearly global policy paradigm. Using four national
case studies, this article shows that economic and financial global-
ization played a critical role in fostering the transition to neoliberal
policies, but that local institutional conditions were decisive in shap-
ing the nature and meaning of the shift. While the analysis finds
that developing countries appear more dependent upon direct ex-
ternal pressures than developed ones, it also shows that institution-
alized patterns of state-society relations determined the way in which
neoliberal transitions were carried out, somewhat irrespectively of
the level of economic development. In Chile and Britain, poorly
mediated distributional conflict created the ideological conditions
for a “monetarist” revolution. In Mexico and France, on the other
hand, neoliberalism was understood mainly as a necessary step to
adapt the country to the international economy.
During the final decades of the 20th century, markets came progressively
to be seen as the most desirable mechanism for regulating both domestic
and world economies. A set of economic principles often identified as
“neoliberalism” became part of the accepted framework for thinking
about, and acting upon, the economy. One after another, national gov-
ernments of both left and right implemented a wave of re-
forms—privatizations, dismantling of social welfare apparatuses, retreat
We thank Pierre-Olivier Gourinchas, Alex Hicks, Frank Lechner, John Meyer, Fran-
cisco Ramirez, Arthur Stinchcombe, and the AJS reviewers for their many helpful
comments. Direct all correspondance to Marion Fourcade-Gourinchas, Department of
Sociology, Princeton University, Wallace Hall, Princeton, New Jersey 08544. E-mail:
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American Journal of Sociology
of the state from economic regulation, tax cuts, opening of national bound-
aries—that profoundly transformed the relationship between their citizens
and the economy (Campbell and Peterson 2001; Rodgers 2001). For the
most part, these changes proceeded apace for over two decades without
encountering much opposition.
This article is concerned with the general shift in “policy paradigm”
that such policies indicate (Hall 1993)—in other words, it seeks to un-
derstand why the market has become such a taken-for-granted way to
represent, and act upon, the economic world. Our interpretation is that
the reshaping of established social and ideological arrangements along
market lines reflects a deep transformation of both the way in which
modern economies are understood and the way they function. Polanyi
(1944) already suggested that classical economics (or, in his words, the
“liberal creed”) was as much a discourse on, or about, 19th-century British
“market society,” as the ideological force shaping it. Similarly, we em-
phasize how deep transformations in the structure of domestic and in-
ternational economies contributed to change the cognitive categories with
which economic and political actors come to apprehend the world.
We develop this perspective through an analysis of the historical tra-
jectory of four national economies (Chile, Mexico, Britain, and France)
during the 1970s and 1980s. We suggest, first, that the economic and
financial globalization of the 1970s created a profoundly new environment
for policy actors in both developing and developed nations. We show that
countries’ heightened vulnerability to international capital movements
represented an especially critical change, which worked in favor of a
general realignment of policies and economic representations along free
market lines. Second, we argue that the transition to neoliberalism itself
was highly uneven in its timing, scope and nature. Local institutional
conditions and dynamics shaped perceptions of the necessity and purposes
of economic liberalization, and the channels through which neoliberal
ideas could diffuse and influence policy.
Where does this hardly challenged legitimacy of the rule of the market
in the modern economy come from? Often, views of the seemingly uni-
versal transition to “neoliberalism” from a more interventionist era tend
to fall into one of two camps. On the one hand, critics of neoliberalism
understand the transformation as a manifestation of the increasing control
of capital (both domestic and international) over labor (see Epstein and
Gintis 1992; Strange 1988), or the imposition, by a set of international
agencies and financial institutions, of disciplinary policies (e.g., conditional
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Neoliberalism in Four Countries
loans, retaliation measures) that ultimately serve the interest of the world
hegemonic power, the United States (Krasner 1968; Stallings 1992; Stiglitz
2002). In this “coercive” perspective, the shape of the economy is mainly
viewed as a by-product of the state of power relations among social groups
or nations.
On the other hand, proponents of free markets argue that neoliberal
transitions simply reflect the growing recognition around the world that
the policies they are associated with “work” better than statist ones. This
“economic” view has been distinctly associated with a vast international
community of economic experts, many of who also participated directly
in the implementation of neoliberal reforms (see Williamson 1994; Ed-
wards 1995; Radelet and Sachs 1997).
These two views, however, are not necessarily incommensurable. A
growing body of scholarship suggests that postwar economic globalization
was the driving force behind the worldwide spread of market-friendly
policies after the 1970s (Frieden 1995; Maxfield 1997b; McNamara 1998;
Kitschelt et al. 1999). In a context where production and finance have
become “flexible” and globalized (Piore and Sabel 1984; Helleiner 1994;
Boyer and Hollingsworth 1997; Castells 2000), the economy is increasingly
perceived as exogeneous—and therefore relatively uncontrollable. Fol-
lowing the disciplining logic dictated by international market forces thus
comes to be understood as the only way to achieve growth—whether such
course of action is rationalized in negative terms (e.g., “If we don’t adapt
to the global economy by making labor more flexible and opening our
capital markets, we will fall behind”) or more positive ones (e.g., “If we
want to reap the benefits of economic and financial globalization, then
we have to be more free trade and market oriented”).
Some sociologists have also pointed toward the importance of inter-
national normative pressures in constructing the liberalization process as
“inevitable” (Centeno 2001). According to this analysis, international
norms (e.g., the belief in the “market logic”) should be regarded as social
constructions whose systematic institutionalization worldwide is effec-
tively organized by “rationalized others”—mainly, international organi-
zations (e.g., the United Nations, the Organization for Economic Coop-
eration and Development [OECD], the International Monetary Fund
[IMF]) and associations, science, and the professions (DiMaggio and Pow-
ell 1983; Haas 1992; Finnemore 1993; Meyer 1994; Meyer et. al. 1997).
As has been widely shown, these institutions routinely produce, teach,
Recent critiques of this liberal and open international economic order have been
voiced, however, including some by the economics profession mainstream, which have
denounced its potentially harmful effects on developing nations (Rodrik 1997; Stiglitz
2002; Krugman 2002).
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American Journal of Sociology
and thereby contribute to the worldwide diffusion of a set of “norms,”
including economic ones—from standards for the collection of economic
data to analytical categories for thinking about economic questions and
courses of action regarding economic policy.
While this “normative” analytical framework correctly identifies some
important vehicles for the dissemination of an economic consensus, it does
not account for the latter’s substantive nature, nor does it explain why
the consensus changes over time. In particular, it cannot explain where
the norms come from—including why and how certain countries (in our
case Chile, which accomplished the transition the earliest, and, albeit to
a lesser extent, Britain) emerge as the “makers” of such norms. Finally,
it leaves little room for the idea that there might be some important
variation within the boundaries of the consensus itself—in other words,
that countries and policy actors may still exert “agency,” both in their
actions and in their own justifications for the neoliberal turn.
This article represents an attempt to deal with these issues by comparing
the social and economic sources of the neoliberal transition across several
nations (Chile, Mexico, Britain, and France) from the mid-1970s to the
mid-1980s. By focusing on the individual countries’ paths toward the
market paradigm, we want to account for the specific processes whereby
new policy norms get institutionalized. While we show the importance of
the international (financial, institutional) environment in the emergence
of neoliberal policy strategies in all four countries, we also argue that
important differences remain in the way each of these four nations came
to liberalize its economy, and to understand its own reasons for doing so.
Below, we suggest that the shifting international economic order of the
1970s created new forms of economic instability in the form of currency
crises. These contributed to foster a global realignment of cognitive frame-
works along freer market lines by dramatically strenghtening the influence
of global finance as a key constituency of national economic policy. None-
theless, national governments had very different reasons for turning to-
ward neoliberal frames, some of which (as in Chile and Britain) were in
fact largely determined domestically. If all four countries came to converge
toward policies that emphasized tight money and market mechanisms,
their rationale for adopting these policies relied on different perceptions
and assessments of their own economic problems and what the shift to
the market (e.g., away from the state) was meant to accomplish. In in-
stitutionalist terms, the emergence and path of the neoliberal policy regime
was socially constructed through the mediation of national institutions
and culture (Hall 1989; Dobbin 1994; Guille´n 1994).
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Neoliberalism in Four Countries
The immediate postwar economic regime throughout much of the world
could be characterized as a unique compromise between national eco-
nomic objectives (e.g., industrialization/development, full employment,
and social welfare) on the one hand, and an international system of co-
operative and liberal multilateralism, on the other—a combination often
described as “national capitalism” (Block 1977) or “embedded liberalism”
(Ruggie 1983; Ikenberry 1992).
In practice the implementation of Keynesianism in each national con-
text was quite specific and had to do with the mediating effect of local
institutions or “governance regimes” (Weir and Skocpol 1985; Hall 1989;
Campbell and Lindberg 1990). In industrialized nations, states regulated
economies mainly through fiscal policy. Meanwhile, developing countries
experimented with more extreme forms of state intervention, from various
versions of “mixed” economies to outright socialism. In Latin America,
the guiding postwar paradigm was import-substituting industrialization
(ISI), through which governments fostered economic development by pro-
tecting domestic industries from foreign competition.
This variety of postwar social contracts was made possible by a strong
system of international monetary regulations, which were bound together
by the political hegemony of the United States. In order to prevent global
capital movements (whether outflows from the United States or inflows
to Europe) from upsetting the system of pegged exchange rates, a con-
sensus emerged for the establishment of capital controls. In limiting the
pressures that could be brought to bear on the exchange rate, these re-
straints to capital mobility allowed governments to pursue domestic ob-
jectives other than currency stability (like full employment and a welfare
state in Europe and industrialization in the developing world), and thereby
satisfy the social demands formulated by their democratic electorates (Ei-
chengreen 1998).
Over the course of the postwar period, however, this system was put
under considerable stress that culminated during the 1970s. On the do-
mestic front, expansionary policies were beginning to exhaust their po-
tential and were becoming increasingly inflationary (Boyer and Mistral
1978; Boyer and Drache 1996). On the international front, the rapid pro-
gress of financial innovation and the multinationalization of firms had
engendered a movement in favor of the liberalization of capital move-
ments, supported by Britain (initially) and the United States (later). Both
Although ISI was not Keynesian per se, Hirschman (1981) has argued that, by
emphasizing the role of state investment in economic development, it drew its inspi-
ration from Keynesian thinking.
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emerging and European economies were flooded with foreign capital,
which made it even harder to sustain noninflationary courses of action
and increased the vulnerability of currencies to speculation (Goodman
and Pauly 1993; Helleiner 1994; Loriaux 1997a; Simmons 1999, pp. 38–51;
Devlin 1989). In 1971, the U.S. commitment to such a liberal financial
order was ratified by the country’s decision to let the dollar float, which
in effect brought the Bretton Woods system to an end.
The new, post–Bretton Woods economic environment not only ap-
peared difficult to control with established economic strategies (Hall1993),
but it also changed the political opportunity structure that governments
faced. Previously, national policies had been determined chiefly by the
interplay of domestic parties, local interest groups, and national institu-
tions. In contrast, now international finance constituted an increasingly
powerful constituency, which could be presumed to have its own set of
policy preferences—such as low inflation, balanced budgets, and strict
monetary policy managed by an independent central bank (Garrett 1998;
Podillo and Guille´n 2003; McNamara 2002). Characteristically, the adop-
tion of neoliberal measures in all four countries was precipitated by a
crisis of the balance of payments, itself spurred by a combination of
macroeconomic difficulties and international speculation. Figure 1 illus-
trates that the move to neoliberal policies in Chile, Britain, Mexico, and
France quickly followed currency crises. These were particularly dramatic
in the two poorer countries: the national currency depreciated by 270%
in Chile in 1973 and by 130% in Mexico in 1982 and continued to slide
in subsequent years. In all four cases, neoliberal turning points lag balance
of payment crises by three to five years, a period that corresponds to a
time of intense national debate on the proper economic strategy and some-
times experimentation with alternative policy courses.
In the next four sections we examine how the interplay between these
international and national dynamics helps account for the emergence of
market-friendly policies in these four countries. We suggest that this var-
iation in timing and nature is rooted in postwar institutional differences
and state-society relations. In comparative analysis, there are three related
political-economic variables that distinguish Chile and Britain from Mex-
ico and France. First, “embedded liberalism” was clearly more successful
in producing economic growth in the latter two nations. Whereas annual
GDP growth averaged 6.7% in Mexico and 5% in France between 1961
and 1974, in Chile and Britain during the same period it averaged only
2.3% and 2.7%, respectively (World Bank 2002).
Second, Mexico and France were more effective at containing social
unrest during the period under investigation—partly a result of the weak-
ness and fragmentation of the labor movement itself. In France, the state
was able to impose wage restraint (even temporary wage freezes) through
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Neoliberalism in Four Countries
centralized bargaining, and placed limitations on firm-level bargaining
(Chapman, Kesselman, and Schain 1998); in Mexico, demands for higher
wages were quashed by more a more repressive form of corporatism. In
both Britain and Chile, however, the postwar compromise between the
unions, the firms and the state broke down in the face of poor economic
performance (Durcan, McCarthy, and Redman 1983). After the 1960s,
production was far more likely to be interrupted by labor unrest than in
the other two countries (see figs. 2 and 4 below); wage demands, in par-
ticular, escalated.
Third, rampant social conflict in the context of relatively poor economic
performance fueled a rapid acceleration of prices. As table 1 illustrates,
postwar inflation in Chile and Britain was comparatively high relative to
relevant “peer” nations (the OECD countries on the one hand and other
Latin American countries on the other). Throughout the 1970s, prices in
Britain increased by more than 12% annually on average, against 9% in
France and 5.4% in Germany. In Chile, price increases were an ongoing
problem since the 1960s and reached the spectacular level of over 600%
in 1973—by definition, Chile was then undergoing a bout of hyperinfla-
tion. Rising prices also decreased the competitiveness of exports with
respect to imports, thereby putting pressure on the national currencies.
Differences in the ability to mediate distributional conflicts and control
inflation affected not only the timing of neoliberal transitions, but also
their qualitative nature. In Chile and Britain, failed economic policies,
ongoing social conflict, and inflation turned large fractions of capital and
labor against the state and strengthened political groups that proposed
alternative economic ideas. As these fractions gained control over the
executive, whether through military (Pinochet) or democratic (Thatcher)
means, they opened the channels of state administration to a new set of
experts who identified themselves with a militant stance against infla-
tion—the monetarists.
In contrast, the Mexican and French moves to freer markets occurred
later and in a much less revolutionary manner. They were initiated by a
combination of macroeconomic difficulties and deliberate political com-
mitments in favor of transnational economic integration (with the United
In the strictest sense, monetarism is the theory according to which the central bank
should commit to a simple and stable monetary rule (Friedman 1968). In practice, it
promotes a course of action, which (1) delegitimizes the discretionary use of monetary
policy for macroeconomic steering and (2) places important constraints on other policy
levers (such as fiscal policy), thereby further curbing the margin of maneuver of gov-
ernments. Intellectually, the commitment to a monetarist monetary policy is thus part
of a general laissez faire philosophy, which explains why it has often been connected
to broader “structural reforms” intended to liberalize the economy (e.g., privatization,
cutbacks on public spending, liberalization of labor and financial markets, etc.).
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Fig. 1.—Balance of payment (currency crises); continuously compounded devaluations; data are from DRI/IMF. The continuously compounded
devaluation rate at year tis calculated as the difference of the logarithms of the exchange rate between and year t. This method treatsyear t1
exchange rate depreciations and appreciations symmetrically.
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American Journal of Sociology
Cumulative Inflation,
Country CPI (%)
Chile ........ 294,534.7
Mexico ...... 129.6
Argentina . . . 8,105.7
Britain ...... 170.5
France ...... 127.0
Germany .... 72.9
Note:—Data for calculation of per-
centage change in Consumer Price In-
dex (% CPI) are from the International
Monetary Fund.
States and the European Community, respectively), whereby each national
state sought to pursue its historic mission of modernization. In both cases,
the full-fledged neoliberal transition resulted from deliberate choices by
technocrats, rather than from the capture of key state institutions by
previously marginal groups of monetarist true believers.
Chile was the first nation in the world to break with the dominant postwar
policy paradigm by implementing a radical package of free-market re-
forms. It is well known that Chile’s free-market revolution followed the
military coup of 1973, which replaced the democratically elected Marxist
president, Salvador Allende, with a military dictatorship under General
Augusto Pinochet. We wish to emphasize the following points about this
period. First, although American Cold War policies were an important
catalyst for the events in Chile, this neoliberal experiment must also be
understood as the outcome of a process of unresolved domestic social
conflict. Second—and in sharp contrast to Mexico—Chile’s neoliberal
revolution started as a social movement outside of the state, rather than
an internal project of state elites. These two facts help explain why Chile’s
early neoliberal policies were so exceptionally doctrinaire—and why they
were ultimately abandoned for a more pragmatic neoliberal stance.
ECLA Developmentalism and Postwar Democracy
As elsewhere in Latin America, postwar economic policy in Chile was
based on the notion that government intervention was the way to promote
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Neoliberalism in Four Countries
the country’s industrialization and development. Headquartered in the
Chilean capital of Santiago, the United Nations Economic Commission
for Latin America (ECLA) argued that peripheral countries needed to
end their reliance on exports of primary materials and foodstuffs through
active government policies aimed at protecting “infant industries” from
foreign competition, and protecting salaries to maintain demand for do-
mestically-produced industrial products (Villarreal 1984, p. 165). In Chile,
postwar developmentalist policies included a mixed economy, protection
for domestic industries from foreign imports, and an array of social welfare
policies (Stallings 1978, pp. 30–32, 46–48).
Its conformity to the Latin American pattern notwithstanding, postwar
Chilean economic development was unusual in two important respects.
First, it was unusually unsuccessful at producing economic growth, which
averaged only about 2% per capita from 1950 through 1971; unemploy-
ment during these years was also a chronic problem (Stallings 1978, p.
49). While the small size of Chile’s internal market made import-substi-
tuting industrialization more difficult to achieve than in larger countries,
the state’s notable inability to mediate social conflict effectively seems to
provide the most convincing explanation for the failure of Chilean de-
velopmentalism. Simmering conflict over how to divide the economic pie
was reflected in extremely high and persistent inflation (see table 1), which
Hirschman (1963, p. 222) observed was a sort of substitute for civil war.
Such conflict ultimately exploded into more overt class warfare, exem-
plified by the Allende government’s nationalization of private assets and
the subsequent military coup backed by large business groups.
In Chile, inflation averaged almost 30% per year between 1940 and
1970 (Stallings 1978, pp. 46–50). The annual government wage readjust-
ment (readjuste) was a recurring focal point for political conflict over who
should “pay for” inflation (Stallings 1978, pp. 76–124). In theory, the state
set minimum wages, salaries, and prices on consumer goods; in practice,
it had little control over the trade unions, which were prone to strike in
opposition to government policies. The result was high levels of disruption
of economic activity (see fig. 2). Meanwhile, the private sector was gen-
erally allowed to pass on (or even to exceed) wage increases in the form
of higher prices.
Persistent inflation and low economic growth contributed to escalating
political polarization. By 1970, Chilean politics was characterized by a
“hyperideologization” that made class compromise impossible (Silva 1991,
p. 388; Moulian 1997). It was in this context of political polarization that
the Marxist Salvador Allende was elected president in 1971, with a scant
plurality of 36.6% of the vote in a three-way contest. Although many of
his economic arguments were borrowed from ECLA developmentalism,
in his first congressional address in 1971, Allende characterized hispolicies
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Fig. 2.—Number of industrial disputes, Chile (circles) and Mexico (squares), 1960–80.
The traditional and more correct measure is the number of days lost to strikes per thousand
workers; however, in the absence of satisfying data, we use the absolute number ofindustrial
disputes (in the cases of Chile and Mexico) instead. Because Chile is a much smaller economy
than Mexico, we believe that our argument regarding the discrepancy in industrial conflict
between the two countries during the period under consideration is vindicated. Data are
from the International Labor Organization (data for Chile, 1973–79 are missing).
as “the true beginning of socialism” (Allende quoted in Stallings [1978, p.
66]). His administration’s policies included the nationalization of the cop-
per mines, extensive expropriations in land and industry, major increases
in industrial wages, fixed consumer goods prices, and worker participation
in running of state-controlled industries (Stallings 1978, pp. 125–30;
Schamis 2002).
By 1973, Chileans had to live with massive inflation, persistent short-
ages of consumer goods, and a major balance of payment crisis (see fig.
1 and table 1), yet high electoral turnouts for Popular Unity in 1973
showed that Allende’s economic program was more popular than ever
among the masses (Oppenheim 1993, p. 97). Allende’s policies, however,
antagonized large segments of the landed upper classes and the Chilean
business elite, as well as the U.S. government, which strongly objected
to the nationalization of the copper mines. Initial attempts by business
groups to reach a compromised solution were rebuffed by the Popular
Unity government. Under the auspices of the “Monday Club” (which met
over Monday lunches), Chile’s wealthiest business elites began to organize
opposition to the Allende government. After the CIA-backed military coup
of 1973, Monday Club participants were given prominent cabinet posi-
tions under the dictatorship of General Augusto Pinochet (Silva 1996, pp.
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Neoliberalism in Four Countries
Pinochet’s Revolution
The military government was renowned both for its brutality and for its
free-market economic policies, overseen by a group of U.S.-trained techn-
ocrats known as the “Chicago Boys.” Under their guidance, the Chilean
economy was subjected to a severe structural adjustment package. By
1979, this orthodox approach toward fiscal deficits and inflation had
evolved to become a full-fledged, radical neoliberal set of policies. Tariffs
were reduced moderately beginning in 1975 and more drastically there-
after (see the dramatic opening of the Chilean economy illustrated in fig.
3). Public industries were privatized, and expropriated lands returned to
their former owners. Labor legislation was revised to favor industrialists
over workers, and social security was transformed into a system of private
pensions. Monetary policy was redesigned according to the Chicago
model: by pegging the Chilean peso to the dollar, rising and falling interest
rates were supposed to allow Chile’s balance of payments to automatically
adjust to fluctuations in the world economy (Foxley 1983, pp. 62–71; Silva
1996, pp. 110–17).
Chilean economic policy under Pinochet was uniquely radical for its
day. Although the military dictatorship in Argentina emulated some Chi-
lean policies, they were much less consistent: the Argentinian junta main-
tained sectoral policies that supported particular business interests (such
as protectionism), as well as a large fiscal deficit (Frieden 1991, p. 207).
Moreover, Chile’s post-coup economic policies went against the reigning
policy orthodoxy of the time, which was still Keynesian and develop-
mentalist. During the 1970s, most Latin American nations were using
access to cheap international credit to spend beyond their means, the
exact opposite of what the Chicago Boys prescribed.
Chile’s exceptional policy path has generated a proliferation of scholarly
interpretations, all emphasizing different structural or ideological factors.
In the interest of reconciling these views, Kurtz (1999) points out that
Chile’s structural reform was fundamentally an incremental process, with
different variables more or less important at different times. It was not
until 1975 that the Chicago Boys rose to power, and not until several
years later that Chilean economic policy had become identifiably “neo-
liberal.” The Chicago influence was a critical factor in shaping the overall
direction of policies between 1975 and 1978—the years that the Chilean
neoliberal experiment was consolidated (Valdes 1995; Montecinos 1988).
A recent comparative study of the dictatorships in Chile, Argentina, and
Uruguay in the 1970s similarly suggests that Chile’s unique policy path
According to Frieden (1991), this monetary approach to the balance of payments
was sometimes known as “global monetarism” (p. 158).
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Fig. 3.—Openness of the economy . Data are from the([exports imports]/nominal GDP)
Penn World Tables (see Heston and Summers 1999).
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Neoliberalism in Four Countries
can largely be attributed to a uniquely powerful and ideologically coherent
team of free-market technocrats, with a long-term vision for the Chilean
economy: in neither of the other national cases did economists have such
an overwhelming presence in top policy positions (Biglaiser 1999).
The Rise of the Chicago Boys
How did a group of Chicago-trained economists come to have so much
influence in Chilean economic policy in the 1970s? Three factors coincided
to make Chile’s technocratic experiment possible. First, a U.S. program
for training Chilean economists at the University of Chicago became the
ideological inspiration for a domestic social movement of economic elites.
Second, an economic crisis in 1975 created the ideal conditions for the
Chicago Boys to come to power at a time when negotiations with the
IMF were vital to the regime’s survival. And third, the enormous con-
centration of power in the hands of a single military
leader—Pinochet—gave the Chicago Boys the autonomy to run economic
policy as they saw fit.
During the 1950s, a U.S. government program designed to combat a
perceived leftist bias in Chilean economics established an exchange pro-
gram between the private Catholic University and the economics de-
partment at the University of Chicago. Between 1955 and 1964, 30 Chi-
lean economists from the Catholic University were trained at the
University of Chicago; most were converted to monetarism and free-
market ideas. Similar Cold War programs were launched in Argentina
and Colombia but were nowhere near as influential in the realm of policy
as the Chilean Chicago Boys were to become (Biglaiser 2002; Valde´s 1995,
pp. 112–127, 181–83).
At the time, Chicago was viewed as an eccentric outpost of free-market
ideas that was on the margins of the reigning Keynesian consensus. But
in the highly polarized political environment of Chile during the 1960s
and early 1970s, the Chicago program found support within an important
segment of Chilean big business. Some Chicago-trained economists re-
turned to work as professors at the Catholic University; others found
lucrative jobs within Chilean firms (Silva 1996, p. 74). A business organ-
ization, known as the Inter-American Committee on Trade and Production
(CICYP), helped finance a new campus for the School of Economics at
the Catholic University and helped found the CESEC (Center for Social
and Economic Studies), which served as a forum in which the Chicago
Boys could disseminate their ideas to a broader public. After 1968, the
news daily El Mercurio and the weekly Que´ Pasa (both owned by a
prominent business group active within the Monday Club) published ar-
ticles on economic analysis that educated businessmen on the Chicago
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point of view. Some of the Chicago Boys were also important participants
in the Monday Club meetings, for which they prepared a postcoup re-
covery plan.
By the early 1970s, the Chicago project was not just an obscure U.S.
Cold War program: it was an integral part of an indigenous social move-
ment of dissatisfied economic elites. At first, the Chicago Boys had trouble
finding political backing for their proposals. The political parties initially
supporting the military regime included the Christian Democrats and the
right-wing National Party, neither of which was “neoliberal” (Kurtz 1999;
p. 406, Silva 1991, pp. 390–92). Pinochet’s principal rival for control of
the military junta, air force commander General Gustavo Leigh, was a
Keynesian (Biglaiser 1999, p. 12). As a result, during the first two years
of the dictatorship, the influence of the Chicago Boys on economic policy
was quite modest.
Subsequently, however, the political fortunes of the Chicago Boys began
to rise. In 1975, Pinochet appointed Chicago graduate Sergio de Castro
as minister of the economy. The following year, de Castro rose to the even
more important position of minister of finance, and fellow Chicago grad-
uate Pablo Baraona took over at the head of the Economy Ministry. From
1975 through 1982, a series of Chicago graduates headed the Chilean
central bank.
The circumstances that favored the Chicago-trained economists’ rise
to positions of influence were both domestic and international. By 1975,
inflation was getting worse, imported petroleum costs were rising, and
the price of copper—Chile’s major export—was falling, which would cost
Chile an estimated $1 billion a year in lost export earnings. Multilateral
organizations and even the Paris Club were reluctant to lend to Chile
because of the dictatorship’s human rights abuses. The IMF was, quite
literally, Chile’s lender of last resort. Chile had entered into a standby
arrangement with the IMF in 1974, but in part because of the unfavorable
international environment, few of the Fund’s conditions had been met.
Disappointed with Chile’s performance, in 1975 the Fund required a much
harsher set of measures to restore price stability and external balance.
For a combination of economic and political reasons, it made sense for
Pinochet to place the Chicago Boys at the helm, where they could conduct
their unique experiment in neoconservative economics. The Chicago Boys
were the self-proclaimed experts on inflation—they were the “money doc-
tors” who would cure Chile’s monetary ills. Their Chicago training fa-
cilitated mutual understanding with IMF staff, which was notorious for
its strong antiinflationary stance. They had a postcoup economic recovery
plan ready for deployment (Silva 1996, p. 47). Finally, their policies were
anathema to Pinochet’s main rival for power within the Chilean military,
General Gustavo Leigh.
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At the same time, the Chicago-inspired experiment was possiblebecause
Pinochet was a uniquely powerful and autonomous dictator. With the
private sector and the old oligarchic regime devastated by Allende’s na-
tionalizations, and struggles for power among different branches of the
military quashed, the Pinochet regime was able to delegate tremendous
responsibility to the Chicago Boys, who could carry out their programs
with little political resistance (Portes 1997; Kurtz 1999, p. 409). This was
not the case in either of the other Southern Cone dictatorships (Argentina
and Uruguay), where nothing so extreme as the Allende presidency had
occurred, and military power was either factionalized or divided among
different branches of the armed forces (Biglaiser 1999).
But even more important, no other Latin American country had ex-
perienced the equivalent of the Chicago experiment—a long-term in-
vestment in foreign economic ideas that became the core of a social move-
ment of disgruntled economic elites. Had the Chicago Boys not been
standing in the wings, ready to implement their ideas in the realm of
policy, things in Chile might have turned out very differently. As it was,
however, Chile found its place in history as a neoliberal pioneer. Only a
few years later, it was joined by a nation on the other side of the world
with which it apparently had little in common: Britain, where a similarly
orthodox set of policy reforms was implemented under the administration
of Prime Minister Margaret Thatcher.
Not unlike the Chilean case, the rise of the neoliberal agenda in Britain
came to be located in a powerful political platform, which was built on
a complete repudiation of the entire postwar British social contract (Kal-
dor 1983, p. 1), and drew strength from a number of powerful institutional
bases in society and politics.
Accounts of the British transition generally focus on the penetration of
the state by “monetarist” ideas and their carriers in the wake of the con-
servative electoral victory in 1979 (Hall 1992). However, any explanation
focused purely on Thatcherism misses the fact that the seeds for “paradigm
change” were planted in British society well before Margaret Thatcher
came to power. As will be demonstrated below, institutional features of
the British economic and social environment made British Keynesianism
particularly vulnerable to the rhetoric of market discipline. In particular,
England’s early dedication in promoting an open international financial
order—firmly rooted in the political desire to maintain the international
stature of the pound—created the conditions for a particularly low level
of tolerance for inflation among the British financial world and the tech-
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nocracy. Thus when the social consensus started breaking down in the
late 1960s, with increasingly confrontational labor activism and spiraling
inflation, monetarist arguments had some reason to resonate within British
National Keynesianism and the Bretton Woods System
From the 1940s until the mid-1970s, British economic policy was predi-
cated upon the goal of full employment, which was to be achieved through
fiscal policy, or via the manipulation of taxation and public spending. In
this scheme, monetary policy played a supportive role, but, consistent
with Keynes’s own beliefs, it was not expected to have much influence
on the economy.
In practice, Keynesian macroeconomic policies took the
form of the famous “stop-go” cycles. Typically, the government would
initiate a “go” process by cutting taxes, increasing public spending, and
moderately loosening interest rates, thereby stimulating demand. When
the expansion of activity ran into a trade deficit, and consequent balance-
of-payment problems, the government would reverse its strategy and im-
plement a bout of “stop.”
Throughout the 1950s and 1960s, these domestic goals tended to conflict
with Britain’s historical commitment to a strong pound. With Britain’s
heritage as a first-rank colonial power, and consequently the pound’s role
as the second international reserve currency, both prevailing policy frame-
works and economic interests (at home and abroad) had a long history
of bias in favor of an overvalued sterling. The imperative of currency
defense bore an almost “moral” character for the political and adminis-
trative class. The Labour Party, for instance, lived its implementation of
a long-delayed devaluation of the sterling in 1967 as a political trauma
(Harmon quoting Prime Minister Harold Wilson [1997, p. 51]; see also
Hall 1986, pp. 48–68).
The British turn to monetarism, then, must be understood in relation
to this particular macroeconomic history, articulated within a changing
international context. First, the performance of the British economy after
the 1973 oil shock was much worse than that of its main OECD coun-
terparts. Reflationary efforts after 1973 generated massive budget deficits
(over 7% of GDP in 1975). Combined with the government’s inability to
control union demands for continuing increases in wages, the policy trig-
The consensus among postwar experts, as exemplified in the policy investigations
of the Radcliffe committee where three prominent academic Keynesians testified (Har-
rod, Kahn, and Kaldor; see H. M. Treasury 1959) and later by the theoretical work
of Fleming (1962) and Mundell (1963), was that within a fixed exchange rate system,
monetary policy was ineffective (Oliver 1997, p. 25–27).
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gered a rapid acceleration of inflation. In 1975, unemployment broke the
politically sensitive one million mark, and the consumer price index rose
26% above its 1974 level, making inflation a major political issue (Hall
1986, p. 120; Middleton 1996). Second, this dramatic macroeconomic de-
terioration, coupled with the breakdown of the international financial
system (which became official in 1972) drastically increased the specu-
lation against the pound, thereby weakening the government’s margin of
maneuver on domestic matters.
Monetarist Discourse in British Civil Society and Politics
The impotence of the administrative establishment in the face of growing
economic difficulties, the relative disengagement of academics lost in in-
ternal theoretical quarrels, and the increased visibility and influence of
actors and institutions associated with the financial markets, also created
the conditions of an important movement of intellectual reconstruction.
While there existed a significant tradition of intellectual anti-Keynesi-
anism in Britain (recall Hayek’s controversies with Keynes during the
1930s), for much of the postwar period it did not possess effectivechannels
of diffusion. By the 1970s, however, the situation had changed and the
discourse of market evangelism could rely on three particularly important
institutional vehicles: the think tanks, the economic and financial press,
and Britain’s financial sector, the City of London.
The rise of the think tanks and conservative research institutes is an
especially important development to consider in any explanation of the
ascent of neoliberal ideas (Hall 1993; Cockett 1995; Dixon 1998). Postwar
think tanks in Britain originally emerged as a reaction to the progovern-
ment, antimarket, left-wing Keynesianism of (especially) Oxford and Cam-
bridge, and against the economic commitments and policies of the postwar
Labour governments. This movement for a revival of classical liberalism
crystallized in 1955 when members of the Conservative Party, together
with a few captains of industry, created the Institute for Economic Affairs
(IEA), a “libertarian” think tank devoted to the promotion of free-market
views. During the 1960s and 1970s, the IEA published a series of pam-
phlets and monographs applying free-market principles to a large variety
of microeconomic problems, and helped spread neoliberal views toward
a broad public in business, administration, and politics. Two later organ-
Indeed, in an open economy with a floating exchange rate system, an important
depreciation of the currency was now likely to trigger even more inflation, due to the
rapid rise in the price of imported goods. This type of mechanism would prove es-
pecially important in the case of Britain, which, partly as a result of a deep cultural
commitment in favor of free trade, had maintained an exceptionally high level of
economic openness throughout the postwar period (see fig. 3).
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izations, the Center for Policy Studies (CPS) and the Adam Smith Institute
(founded in 1974 and 1976, respectively) were conceived with a more
directly political purpose in mind. The CPS, in particular, was essentially
a lobbying organization, which lent critical support to the efforts of the
right wing at reconstructing the Tory mainstream (Cockett 1995).
There was no inevitability in the success of these ideas, however. The
British research institutes, unlike their American counterparts, did not
have access to institutionalized channels of entry into the British legis-
lative process. Moreover, they tended to be relatively small organizations.
Much of their political influence, then, was exerted informally, through
the mediation of interpersonal networks.
In many ways, the emergence of the think tanks on the public scene
would not have been possible without a broader transformation in the
organization of the British public sphere. Between the 1950s and the
1970s, the locus of production of economic discourse slowly moved away
from elite academics (who had controlled the journalistic field until then)
toward a new generation of economic writers and columnists. Following
the lead of the Financial Times, which catered to new audiences in the
financial markets, the main newspapers started recruiting specialized ec-
onomic commentators, many of whom also entertained close links with
the think tanks and the conservative party (Parsons 1989). In contrast to
the American mavericks, who were spreading the supply-side gospel
across the Atlantic, the journalists who launched the “monetarist” crusade
in Britain were a quite distinguished crowd, with widely respected cre-
dentials. For instance, the two most prominent disseminators of anti-
Keynesian ideas were indisputably well-connected members of the “es-
tablishment”: Samuel Brittan, at the Financial Times, had been trained
at Oxford University and at the Treasury and was also the brother of a
high government official; Peter Jay, at the Times of London, was the son
of a famous Keynesian mandarin and Oxford don, and the son-in-law of
a future Labour prime minister (James Callaghan). Furthermore, both of
these personalities had started their careers as staunch defenders of the
“old” paradigm and had come to embrace the new doctrine only gradually,
out of disillusionment.
Perhaps the most important vehicle for the monetarist views, however,
was the network of financial institutions that comprise the City of Lon-
don—Britain’s equivalent of Wall Street. In 1971, the government freed
the financial sector from previously imposed restrictions on lending and
interest rates and switched to a floating exchange rate system, which made
capital movements much more volatile. This policy, combined with the
rapid pace of financial innovation, stimulated the resurgence of the City
as an international financial marketplace, and strengthened its political
influence. Indeed, much of the crusade against the Keynesian establish-
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ment was launched from the “bank reviews” and stockbroker offices,
notably the monthly financial bulletins edited by the monetarist guru
Gordon Pepper at Greenwell (Keegan 1984; Middleton 1998).
This movement was also channeled into the state via the traditional
networks between the City and the administrative sphere—the Treasury
and the Bank of England in particular. Since the mid-1960s, these insti-
tutions had started to evolve from a body of generalist administrators
into a staff of specialist economic professionals more sensitive to economic
arguments (Coats 1981; Middleton 1998). Sympathy for monetarist
ideas—that is, the tendency to regard inflation as a monetary phenome-
non, which warrants a tight control of the money supply—was first ev-
ident in the traditional “ally” of the financial sector, the Bank of England:
in an attempt to appease the markets, the institution adopted internal
monetary targets in 1973 and public ones in 1976 (Hall 1986, p. 97).
The changing internal make-up of the Treasury provided another ve-
hicle. While the 1960s had seen a rapid expansion of those branches of
government that dealt with the domestic economy (with the creation of
a short-lived Department of Economic Affairs in 1964), administrative
developments during the 1970s were much more concerned with building
up expertise in the area of international finance, which enhanced the access
of financial interests to the core of the state. In this process of institutional
transformation, which continued through the 1980s as financial liberali-
zation proceeded apace and alternative sources of influence (such as the
unions) were ruthlessly crushed, the concerns and preferences of inter-
national investors were more effectively and directly channeled toward
the economic policy machinery (Baker 1999, pp. 87–88).
The growing influence of the City on national economic policy is ex-
emplified by the ill-fated Alternative Economic Strategy (AES), an ap-
proach defended by a group of Cambridge University professors and
Labour politicians from the early 1970s on, which had recommended the
imposition of capital controls as a way to counter the destabilizing effects
of capital mobility on the British economy. Failure of the AES to gain
influence, however, is a testimony to the fact that no British government
was ready to alter one of the world’s most liberal financial regulations
and depart from their “historic commitment to maintain London’s position
as an international financial center” (Helleiner 1994, p. 99).
In 1977, e.g., the London magazine the Economist characterized Gordon Pepper as
the “chief prophet of the new monetarist orthodoxy” (“A Dose of Pepper for the London
Market,” November 26).
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The Speculation against the Pound and the End of Keynesian Politics
By the mid-1970s, then, economic liberalism possessed an influential con-
stituency in British society and economy, and was increasingly seen as an
acceptable element of political discourse. Moreover, mistrust against the
state did not only come from business and finance. It was further but-
tressed, on the popular side, by successive governments’ poor management
of industrial relations through income policies, which gradually “turned
labor unions into public antagonists with the state,” and created a situation
of permanent social conflict bound to infuriate the electorate (Hall 1986,
p. 84; Durcan et al. 1983; Gourevitch et al. 1984; Overbeek 1990). The
deadlock led to the wage-push of the late 1960s and the wave of strikes
of the next decade, which culminated in the widely unpopular “winter of
discontent” of 1979. As figure 4 shows, the number of days lost to strikes
and workouts increased dramatically during the period, and remained
very high even compared to France.
In this context, ideological polarization between the parties reached an
all-time high (Beer 1982). While Labour fell momentarily under the spell
of the “New Left,” the Conservative Party formally embraced a free-
market program in 1970 (Thompson 1996). The Heath government, which
Hall (1986) considers to be the “starting point of the British journey toward
monetarism,” was elected on a nascent neoliberal platform in 1970. The
two subsequent Labour administrations (1974–79) also accomplished some
important steps in a conservative direction. Acknowledging implicitly its
inability to stimulate growth through the manipulation of public spending,
Labour after 1976 presided over the gradual desacralization of fiscal policy
as the main tool of economic policy, the abandonment of the full em-
ployment objective, and the introduction of money supply targets (Cairn-
cross 1996; Thain and Wright 1995). Thus one of the most respected
commentators on the British economy, and a loud participant in the mo-
netarist campaign, Financial Times journalist Samuel Brittan (1983, p.
100), wrote: “However much they were denounced by Labour in oppo-
sition, the most characteristic features of financial Thatcherism were also
pursued by the last Labour government from 1976 to 1979, with only
modest backsliding in the period approaching the 1979 election.”
It is particularly noteworthy that the turn toward austerity in 1976 was
also determined by the intervention of international constituencies. As
pointed out earlier, Britain had inherited an overvalued currency from
the fixed exchange rate system, which made it extremely vulnerable to
speculative attacks. In the midst of the 1976 macroeconomic crisis, pres-
sures against the pound mounted to such a point that the Callaghan
government had to seek external financing from the IMF and foreign
central banks (the Bundesbank in particular). Suspicious of Labour’s will-
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Fig. 4.—Number of working days lost to strikes, France (solid diamonds) and Britain
(open squares), 1970–85. The traditional and more correct measure is the number of days
lost to strikes per thousand workers; however, in the absence of coherent employment
measures, we use the absolute number of lost working days. Because Britain was a smaller
economy than France, we believe that our argument regarding the discrepancy in industrial
conflict between the two countries during the period under consideration is vindicated. Data
are from the International Labor Organization and Walsh (1982).
ingness to adopt a tough domestic stance, however, those institutionsmade
their intervention dependent upon Britain’s commitment to a stabilization
package including strict monetary targets and spending cuts (Schamis
2002, p. 92; Helleiner 1994, p. 125).
Labour’s “conversion” to monetarism stemmed more from the necessity
to appease the financial markets and secure U.S. support and IMF as-
sistance than from sincere conviction (Keegan 1984; Smith 1987; Hall
1992; Thain and Wright 1995). Yet neoliberal ideas also received key
support from some important segments of the economic technocracy, es-
pecially those that were closely networked with the foreign financing
institutions behind the package (i.e., IMF, U.S. Department of the Trea-
sury, Bundesbank). Taking advantage of the perceived threat posed by
the “uncontrollable” forces of the financial markets, on the one hand, and
the “irresponsibility” of the trade unions, on the other, some senior officials
also saw in the externally imposed austerity plan a means to replace the
failing domestic solutions of wages policy and industrial strategy and to
regain initiative in the economic policy debate (Helleiner 1994, p. 130).
Thatcherism and the Politics of Articulation
If Britain’s “monetarist turn” somewhat predated the Conservative elec-
toral victory of 1979, Thatcherism’s critical innovation was to bring self-
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confidence to a pragmatic and still experimental shift—that is, to articulate
“retrenchment” with a full-blown ideology for a national revival, under-
pinned by a strong conviction in the Hayekian and Friedmanite doctrines,
an almost visceral distaste for inflation, and a ferocious desire to break
the power of the labor unions (which was confirmed in successive pieces
of repressive labor legislation during the 1980s). The uncompromising
character of her economic program, which Thatcher authoritatively main-
tained in the midst of the worst economic recession in decades, cannot
be understood without reference to these ideological elements. Ruling
together with a small number of enthusiastic monetarists as economic
ministers and personal advisers, she organized the systematic implemen-
tation of an agenda of deflation, privatization, deregulation, and down-
sizing of the public sector.
Although Thatcher’s monetarism eventually softened into a more prag-
matic stance, the ideology produced some very lasting effects. Perhaps
the most significant change brought about by Thatcher’s articulation of
the neoliberal creed was a shift in the avowed objectives of economic
policy, with the money supply (believed to be the main feeder of inflation),
and public-sector borrowing replacing output and unemployment as the
main goals of governmental action. By signaling publicly the unwilling-
ness of the Treasury to use public expenditures to reflate the economy
and turning, instead, toward massive privatizations as a means to raise
public revenues, the government turned away from the economic rationale
that had supported the British social contract since World War II.
The Social and Political Roots of Monetarism
In a famous paper, Albert Hirschman argued that “inflation is a highly
technical and at the same time a highly political problem” (1963, p. 163)
whose roots have to be found in patterns of social conflict. The cases just
discussed suggest that where such conflict exists, the political solution is
likely to be radical. Neoliberalism entered Chile and Britain through the
monetarist path, as an enterprise to rid those countries of inflation and
to crush the perceived causes of price increases—union demands in
In Mexico and France, on the other hand, the main economic problem
was perceived to lie in the insufficient adaptation of the economy to
international challenges. The turn to neoliberal economic policies was
largely pragmatic and motivated in great part by international integration.
As we argue below, part of the similarity in these two countries’ transition
processes can be traced back to similar features of their governance re-
gimes after the Second World War, most notably the role of the state in
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organizing economic growth via the use of credit, the autonomy and power
of the technocracy, and a relatively weak labor sector (Loriaux 1997a).
As in many other developing countries, the Third World debt crisis of
the 1980s generated the conditions leading to Mexico’s adoption of free-
market reforms. The debt crisis both created material incentives for
market-oriented reforms, and also helped propel a new team of U.S.-
trained economists in charge of Mexican economic policy—economists
who believed in the correctness of liberalizing policies (Centeno 1994;
Babb 2001). In contrast to Chile, however, these technocrats were neither
political outsiders nor the organic intellectuals of the bourgeoisie. Rather,
they were insiders who saw international financial pressures as an op-
portunity to advance both their political careers and their particular
ideological program.
Mexican Economy and Society, 1940–82
As in Chile, postwar economic policy in Mexico was founded on the ideal
of industrial development promoted by a strong state. Mexican devel-
opmentalism included a system of tariffs for protecting domestic indus-
tries, an array of government-run monopolies (including petroleum, tele-
communications, and electricity), and government intermediation for the
financing of Mexican firms. These policies were apparently successful.
During Mexico’s famous “stabilizing development” period (1952–70), ec-
onomic growth averaged over 6% per year, while inflation was maintained
at impressively low levels (see table 1).
In stark contrast to Chile, Mexican developmentalism was founded on
a harsh but effective system for controlling social and political conflict.
From 1929 onward, the country was ruled by a single party with a series
of different names (most recently, the oxymoronic “Institutional Revolu-
tionary Party”). In the 1920s and 1930s, workers, peasants, and “popular”
sectors were incorporated within the party, which was supposed to me-
diate among the interests of different social sectors. After 1940, however,
this corporatist infrastructure was increasingly used as a means of con-
trolling organized dissent from below as the private sector, foreign in-
vestors, government elites, and burgeoning middle classes benefited from
strong and sustained economic growth (Middlebrook 1995; Hansen 1971).
As a result, social and labor unrest in Mexico was remarkably low
throughout the period following World War II (see fig. 2). Formal political
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pluralism was a mask for a de facto one-party system that fended off
electoral challenge through a skillful combination of pork-barrel politics,
electoral fraud, and outright repression (Middlebrook 1995; Hansen 1971).
Unlike the dictaduras (dictatorships) seen elsewhere in Latin America,
Mexico was jokingly referred to as a “dictablanda,” or “soft dictatorship.”
The political stability upon which the “Mexican Miracle” was built
began to falter in the late 1960s. The famous 1968 massacre of demon-
strating students in Tlatelolco Plaza reinforced the impression that the
ruling party was rapidly losing legitimacy. At the same time, observers
of the Mexican economy began to speak of the “exhaustion” of the import
substitution model—although the signs of exhaustion were neither as clear
nor as early as they were in Chile (Solı´s 1973, p. 8; Reynolds 1977). A
new model had to be found, and at a time when statist economic policies
were still in vogue around the world, Mexico began to pursue a “populist”
form of capitalism under the presidencies of Echeverrı´a (1970–76) and
Lo´ pez Portillo (1976–82) (Bazdresch and Levy 1991). Although Echeverrı´a
focused more on social programs and education, and Lo´ pez Portillo more
on investing in Mexico’s increasingly lucrative state-owned petroleum
industry, both presidents enormously increased government spending.
The vast government expenditures of the 1970s were made possible by
developments in the international economy that gave the Mexican gov-
ernment unprecedented access to international financing. The “reglobal-
ization” of financial markets facilitated financing through loans from First
World banks (and, later, portfolio investors; see Frieden 1991). In general,
the 1970s were a decade of immoderate lending by international banks
and foreign investors and imprudent levels of external borrowing in Latin
America and other parts of the developing world, and Mexico was no
exception: by 1982, the debt stood at over 36% of Mexico’s GDP, or 92.4
billion U.S. dollars (Gil Dı´az 1984; Bazdresch and Levy 1991, pp.
By the early 1980s, Mexico and other developing countries were in-
extricably dependent on international financial markets—a dependence
for which they would pay dearly. Skyrocketing international interest rates
after 1979 made debt burdens increasingly unmanageable (Loriaux 1997a
p. 13; Maxfield 1997a). In August, 1982, the Mexican finance minister
informed the U.S. government, the IMF, and the world financial com-
munity that Mexico would be unable to meet its debt payments. Thus,
Mexico had the honor of inaugurating the beginning of the Third World
debt crisis. After 1982, the country underwent a nearly complete reversal
of its postwar tradition of interventionist policymaking.
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Mexico’s Move to Free Markets
In contrast to Chile, no military coup preceded Mexico’s neoliberal tran-
sition. Although business in Mexico was mobilized in support of the gov-
ernment’s liberalizing program (Thacker 2000), the original impetus for
neoliberal reforms did not come from the private sector, but from within
a single-party state under increasingly strong international pressures. Mex-
ican neoliberalism was bureaucratic rather than political in origin.
Mexican liberalization proceeded in stages. The first was a period of
structural adjustment measures, conducted under the auspices of an IMF
program, beginning in 1982. This period was characterized by the im-
position of fiscal and monetary austerity, and the beginnings of a gradual
and selective opening to free trade and other market mechanisms. The
second period, which began around 1985, was one of “structural re-
forms”—in other words, of recognizably “neoliberal” policies. This phase
was marked by a much more radical opening to free trade (see fig. 3),
and the imposition of a host of other liberalizing reforms associated with
the administration of Carlos Salinas (1988–94). The financial system was
liberalized, and policy toward foreign investors was modified such that
foreign firms could acquire up to 100% ownership in publicly traded
Mexican firms (Moffett 1989, p. A11). Amendments to Article 27 of the
Mexican Constitution effectively ended Mexico’s revolutionary history of
land reform and opened Mexican lands to purchase by private investors,
both domestic and foreign (Co´ rdoba 1994, pp. 256–57). And in 1994, the
North American Free Trade Agreement (NAFTA) was put into effect,
obligating Mexico to lower tariffs and eliminate nontariff barrierson goods
imported from the United States and Canada.
How did Mexico undergo this radical turnaround from the free-spend-
ing “populism” of the 1970s to the free-market capitalism of the 1990s?
There is no doubt that international factors played a critical role. In
particular, the globalization of finance in the 1970s, and the consequent
Third World debt crisis, created a new set of constraints and opportunities
for Mexican policy makers. This had two outstanding consequences for
Mexican policy: first, the internationalization and professionalization of
Mexican economic policy makers; second, the creation of significant ma-
terial incentives to pursue neoliberal policies.
For most of Mexico’s postrevolutionary history, economic policy was
made by amateurs—self-taught lawyers (or occasionally engineers) with
little or no formal training in economics. Beginning in the late 1950s,
however, professional economists began to move into higher-level policy
positions. This process of professionalization was accelerated during the
1970s, as foreign loans flowed with ever-greater rapidity into the coffers
of the Mexican government. It was increasingly a particular kind of econ-
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omist that was most favored: namely, the kind with a graduate degree
from a foreign university. These young technocrats were fluent in English
and had important old-school ties with foreign banks and multilateral
institutions (Babb 2001).
In 1981, rising international interest rates and falling international pe-
troleum prices were leading to speculation about the impending deval-
uation of the peso and widespread capital flight. Different factions of
foreign-trained economists within the Mexican policy bureaucracy favored
distinct approaches to Mexico’s blossoming debt crisis: a group of “radical
developmentalists” associated with the Lo´ pez Portillo government (many
trained at Cambridge University) and an opposing group of fiscal and
monetary conservatives (mostly trained in the United States).
A critical event in determining which group of technocrats prevailed
was President Lo´ pez Portillo’s selection of Miguel de la Madrid as the
ruling party’s official candidate for the presidency—essentially anointing
him as Mexico’s future president. At a time when multilateral agencies,
foreign lenders, and government officials all needed to be mobilized to
help bail Mexico out, de la Madrid was an ideal candidate: he had a
master’s degree in public administration from Harvard University.
Even before assuming the presidency in November 1982, de la Madrid
was allowed to appoint two Yale-trained economists to head the Finance
Ministry and Mexico’s Central Bank. The newly appointed finance min-
ister, Jesu´s Silva Herzog, immediately began to steer the Mexican gov-
ernment toward a negotiated settlement with the IMF, the U.S. Treasury,
and the banks. This course was vehemently opposed by the “radical”
Cambridge graduates, who favored imposing capital controls and were
even rumored to be discussing forming a debtor nations’ cartel and de-
faulting. With the IMF and U.S. Treasury on their side, the Yale-trained
fiscal conservatives prevailed. In return for the financial support of these
external organizations, Mexico pledged to implement a package of harsh
IMF structural adjustment measures (Kraft 1984, p. 46).
Toward the middle of the 1980s, Mexico’s commitment to fiscal and
monetary austerity was expanded to become a full-fledged neoliberal pro-
gram, complete with widespread privatization and the lifting of tariff
barriers. Once again, international circumstances favored the policy pro-
gram of those supporting a more market-oriented course. On the issue of
free trade, there were deep disagreements regarding the speed and depth
of the trade opening: on one side were the fiscally conservative devel-
opmentalists within the Ministry of Commerce and on the other the “free
traders” in the Mexican Central Bank (Heredia 1996). Aligned on the side
of free trade was central banker and University of Chicago graduate,
Francisco Gil Dı´az, who mobilized numerous allies in other branches of
public administration—almost all of them with graduate training in ec-
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Neoliberalism in Four Countries
onomics from the United States. In 1984, the Central Bank began to
disseminate policy proposals in favor of accelerated trade opening. Later
that year, the World Bank granted Mexico the first Trade Policy Loan in
the bank’s history; under its terms, Mexico was provided a series of loans
in return for comprehensive trade liberalization. In 1986, the Reagan
administration further strengthened the hand of international financial
institutions and free traders within the Mexican government by announc-
ing that it would not negotiate on Mexico’s behalf with international
banks unless Mexico “implemented substantive structural reforms” and
arrived at a new agreement with the IMF (Economist 1986, p. 81).
With such powerful international allies to help them argue their case,
the free-trade technocrats within the Mexican government prevailed. In
1987 the Mexican government implemented a program of trade liberal-
ization that was essentially a prelude to NAFTA. That this program went
even beyond the requirements of the General Agreement on Tariffs and
Trade (GATT) showed that the technocrats who implemented these pol-
icies were not being forced against their will: they believed in them. As
one Financial Times correspondent observed, “Mexico went much further
in reducing its trade barriers than the [World Bank] required. . . . The
two sides agree on almost everything....WorldBank economists and
Mexican officials often spend weekends together brainstorming on policy
issues. Many are graduates of the same U.S. universities, and friends”
(Fraser 1992, p. 7).
The U.S.-trained economists whose views emerged during the De la
Madrid administration were promoted to top policy positions during the
subsequent administrations of Carlos Salinas (1988–94) and Ernesto Ze-
dillo (1994–2000). Thus, in the ensuing years, Mexico’s free-market policy
path was consolidated.
Neoliberal Transitions in Developing Countries: Some Lessons from
When compared to other nations, Mexico’s neoliberal transition had some
unusual features. For one thing, the Mexican single-party system, coupled
with weak democratic institutions, strong corporatism, and a powerful
centralized presidency, insulated technocratic policy makers from political
pressures and enabled them to carry through reforms more quickly than
would be tolerated in most full-fledged democracies (Centeno 1994; Shad-
len 2000). Developing nations with stronger democratic traditions are
likely to have neoliberal transitions that are neither as rapid, nor as com-
plete, nor as technocratic as they were in Mexico.
But despite these particularly “Mexican” features of the Mexican case,
it is also typical of developing countries in an important respect: namely,
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in that neoliberal reforms were initiated during the Third World debt
crisis, when governments became more vulnerable to external pressures.
The debt crisis, in turn, must be conceived as part of the larger historical
process of financial globalization, which has changed the structure of
constraints and opportunities within which governments must operate.
The move to freer markets was less “dramatic” in France than in the
other three cases. It was neither associated with a strong political move-
ment, as in Britain, nor sustained by authoritarian political will, as in
Chile, nor imposed in the wake of debt relief, as in Mexico. Conducted
with little rhetorical fanfare, France’s liberalization was nevertheless very
real. After 1983, successive governments dismantled remaining price con-
trols, removed restrictions on labor and financial markets, brought down
trade barriers through further integration with Europe, privatized public
enterprises, and pursued a policy of “Franc fort” which, by keeping interest
rates high, condemned the country to a slow—but noninflation-
ary—growth well into the mid-1990s.
The other notable feature about France is that the departure from the
country’s tradition of “social colbertism” was effected by left-wing coa-
litions, in power for much of the period under scrutiny here (1981–86;
1988–93; 1997–2002). Elected in 1981 on the promise to restore growth
through the active use of state intervention, the Socialist Party soon aban-
doned the euphoria of its first year in power and came to preside over a
long decade of austerity in macroeconomic affairs and a gradual dis-
tancing from the national tradition of central industrial planning (Hall
1986). In 1991 one of France’s foremost high functionaries gave a disil-
lusioned verdict: the glorious days of France’s model of economic gov-
ernance, whereby “the state commands to the economy in the name of
political ambition and social progress,” were gone (Albert 1991, p. 266).
The French Political Economy in Transition
The development of the French political economy in the post–World War
II period is familiar enough. Partly out of an effort to appease the highly
confrontational political context that had emerged from War World II,
as well as out of a fervent modernizing drive, whereby public authorities
sought to overcome the perceived economic backwardness of the country,
postwar governments committed to a policy of economic volontarisme
identified with mercantilist policies of industrial development (Kuisel
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Neoliberalism in Four Countries
1981; Hayward 1986). In a country with a long tradition of defiance
against free competition, this program of rattrapage was administered
from above by centrally administered institutions of economic manage-
ment, such as the Central Planning Agency, the Ministry of Finance, and
nationalized enterprises (Fourquet 1980; Hall 1986).
The entire French economic management system in the postwar period
was thus geared toward the objective of rapid and sustained growth. The
technical implementation of expansion, however, was very un-Keynesian.
In fact, France until 1975 was one of the most “virtuous” of all OECD
countries regarding public deficit and had one the lowest ratios of gov-
ernment debt to GDP of all major industrialized countries (Hayward 1986,
pp. 220–21). The French practice was characterized by a credit-based
economy, whereby the state, via the constellation of public and semipublic
institutions around the Treasury (including three large state-owneddeposit
banks), provided investment subsidies in the form of cheap loans to the
economy (Zysman 1983; Loriaux 1991).
The institutional “bias for growth” in French economic policy was also
rooted in the political elites’ deep concern about the social and electoral
consequences of high unemployment. In a country where the Communist
Party represented more than 20% of the electorate through the late 1960s,
the uncontrolled explosion of worker militancy—as experienced during
the strikes of 1947, and later 1968—served as a forceful reminder of the
power of the working class. The political emphasis on mitigating social
conflict by “delivering” expansion and channeling energies toward na-
tional modernization help explain why deflation did not seem, at least at
first, like a viable option when the economic situation started to go sour
at the beginning of the 1970s (Goodman 1992; Loriaux 1991).
The other reason is that notwithstanding the now commonplace caution
about the downside of excessive state involvement in the economy, the
course upon which the country had embarked in 1946 had produced quite
remarkable results. The performance of the French economy during the
first three decades of the postwar period was one of the best among all
OECD countries. For a time, France even seemed immune to the inter-
national crisis associated with the first oil shock in 1973, continuing to
grow at nearly 3% in 1974, while the rest of the OECD remained stuck
at 0.3%.
It is now well known that the impact of Keynesian ideas in France was greatly
delayed. First, the general prescription for an active role of the state (through industrial
policy, e.g.) was old news in the land of Colbert and was thus not perceived as rev-
olutionary (Rosanvallon 1989; Dobbin 1993). Second, the use of budget deficits ran
against the traditional fiscal conservatism of elite administrators at the Ministry of
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Early Responses to the Slump
The passage to a floating exchange rate system in 1972 triggered a fun-
damental reevaluation of the French political economy regime. Indeed,
and in contrast to Britain, domestic adjustment under Bretton Woods
had been traditionally born by the exchange rate, which successive French
governments had selectively manipulated in order to favor export-led
growth. As the British case showed, however, under floating rates un-
controlled currency depreciation stood a greater risk of becoming infla-
tionary (Loriaux 1991, pp. 24–31).
This new international logic came to be experienced firsthand in the
middle of the 1970s. The right-wing government’s initial reaction to the
worldwide slump had been to stimulate the economy with a reflation
package. Helped by a healthier macroeconomic record than many of its
neighbors, unhampered by an independent central bank imposing restric-
tive monetary policies (as in the United States and Germany), or by IMF
conditionality (as in Britain), and under strong political pressure to reflate,
France in 1975 embarked on a much more expansionary policy than its
major trading partners. However, in the absence of a comparable strategy
elsewhere, this course of action rapidly ran into trouble, with the franc
being forced to pull out of what was then the European monetary snake
and threatening to start a new spiral of inflation and depreciation.
1976, President Vale´ry Giscard d’Estaing drew the consequences of the
debacle and replaced Prime Minister Jacques Chirac with the “best econ-
omist in France”—conservative economics professor Raymond Barre.
In many ways, the appointment of Barre signaled the end of the “French
model” (with the exception, of course, of the years between 1981 and 1983,
when France tried to revive its “third way”—and failed miserably). The
policies implemented after 1976 (and, even more, 1978) were decisively
shaped by the constraint of European economic integration (with the
humiliation of the franc’s pullout of the snake serving as an example not
to be repeated), as well as by the desire to emulate Germany’s policy
successes (McNamara 1998, pp. 69–70). This critical emphasis on an-
choring France more firmly in the international (and, in particular, Eu-
ropean) economy after the mid-1970s appears quite clearly in the lower
portion of figure 3. In essence, European integration pegged France to
the country in Europe with the most restrictive monetary pol-
icy—Germany—despite the incurring social costs in terms of high levels
of unemployment. Monetarism in the French context was thus imposed
largely as a by-product of European integration—much less (as in Britain)
as a way to solve distributional conflict.
The “snake” is the Common European currency float.
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The other area in which the French model came under attack was
microeconomics. With the deepening of the economic crisis, the volontarist
impulse of modernization started losing its imperious character. After the
1978 legislative election, Barre unveiled a set of policies that dismantled
price controls, brought down restraints on the business sector, and reduced
state subsidies to nationalized industries and ailing firms. All these changes
signaled a decisive radicalization in favor of a restoration of the mech-
anisms of the market economy. In a context highly charged with the
consciousness of international competition (with Japanese and American
consumer goods flooding the market), the perception was that only a
market economy could force French business to make the necessary ad-
justment to restore its competitiveness abroad.
The Failure of Keynesianism in One Country
Although the conservative government had initiated the breakdown of
the French model of macro- and microeconomic regulation, the victory
of the United Left at the 1981 presidential and legislative elections sug-
gested that a complete reversal of course was very likely. Implementing
its program of “redistributive Keynesianism” in macroeconomics (to be
achieved via public sector hires, reduction of the workweek, longer va-
cation time, increases in social transfers) and restoring the state’s role in
microeconomics (via a nationalization program and a return to active
industrial policy), the first socialist-communist government initially turned
toward demand stimulation as a solution for pulling the economy out of
the crisis.
Although the policy experienced some (limited) domestic success, par-
ticularly on the unemployment front (Hall 1986, p. 195), it was also met
by considerable levels of capital flight and a huge trade deficit, both of
which fed a massive movement of speculation against the franc (see fig.
1). Between 1981 and 1983, the French currency had to be devalued three
times, and was almost forced out of the European Monetary System
(EMS). In the face of such massive external turmoil, in March 1983 the
government announced an austerity plan of tax increases and spending
cuts aimed at curbing inflation and restoring the balance of payments
Like the British decision to accept the IMF package in 1976, the So-
cialists’ turn toward “rigorous” (the program was called the rigueur) ec-
onomic policies in 1983 was not inevitable. France, in fact, could have
gone another way. For one thing, the move to austerity would have dra-
matic political consequences, ultimately splitting the governing majority
and throwing the Communists in the opposition. Second, alternatives to
the rigueur seemed possible still. In fact, an economic plan designed to
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insulate the national economy from international pressures through in-
creases in tariffs and capital controls was hotly debated.
Given prior experiences and the political imperative of European in-
tegration, however, this other, more autarkic, policy appeared very risky.
Austerity was pressed forcefully not only by segments of the government
and the high administration (such as the then-director of the French
Treasury, Michel Camdessus), who feared the country’s depleted reserves
would be insufficient to resist another speculative attack,
but also by
foreign institutions, most prominently France’s European part-
ners—worried at the perspective of a collapse of the EMS—and the U.S.
government, which from the very beginning had regarded the French
experiment with considerable skepticism (Helleiner 1994, pp. 140–41).
In that respect, the broader significance of the French government’s
about-face, beyond its character of urgent response to a very pressing
crisis, lies not so much in the implementation of austerity itself, as in the
exclusion of alternatives. In 1983, the establishment of a new policy regime
was understood as a vital discipline for a successful insertion of France
into the European and international economies in a highly volatile en-
vironment, and from then on it took precedence over other commitments
(e.g., democratic equality or full employment). Nothing is a better testi-
mony to this abandonment of political vision in the name of economic
efficiency than the narrowing of the ideological gap between the left and
the right, whose economic stance became barely distinguishable during
the 1980s (The´ ret 1991).
In spite of a dominant political discourse that remains highly defiant
of market liberalism, and considerable intellectual and popular turmoil
around the pense´e unique (single doctrine) of the governing elite and the
Bank of France (itself recently prolonged by a powerful social movement
against “globalization”; see Meunier 2000), France has thus proceeded
apace in reforming its institutions to meet the discipline of the global
markets (Schmidt 1996; Gordon and Meunier 2001). The program of “pri-
vatization” of publicly owned companies, started by right-wing govern-
ments in 1986–88 and 1993–97 but later extended by the returning So-
cialists, the liberalization of the financial sector (completed in 1986), the
establishment of central bank independence (1993), and the commitment
to the Maastricht target limiting budget deficits to 3% of GDP—but also
Between 1982 and the spring of 1983, a number of government members and pres-
idential advisers —nicknamed the “evening visitors” because of their tendency to meet
with the president at night—actively promoted a strategy of protectionism, tight
exchange controls, and exit from the EMS (Helleiner 1994, p. 143; Attali 1983).
See Helleiner (1994, p. 194). Camdessus was subsequently director of the IMF from
1986 to 2000.
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Neoliberalism in Four Countries
a number of microeconomic initiatives destined to “flexibilize” an economy
and labor market perceived as too “rigid” (Schmidt 1997, p. 40)—must
thus be seen in light of this pragmatic conviction of the governing elite
that only market-based policy instruments can allow the French economy
to survive in a neoliberal international economic order.
The Vehicles of the Neoliberal Transformation in France
Still, there remains something puzzling about the transformation, which
took place in the homeland of state-led development. However dramatic,
real-world “encounters” with the new environment of the post–Bretton
Woods era (such as the 1976 and 1983 crises) are only part of the expla-
nation of the French commitment to neoliberalism. Indeed, neoliberal
ideas did not possess strong organizational bases in French society (in
contrast with Britain or the United States). There is no French equivalent
to the influence of the British newspapers and financial sector or to the
role of U.S. think tanks. Neither has the French right wing been really
comparable to the ideological movements, which brought Margaret
Thatcher and Ronald Reagan to power.
The French revolution, indeed, was much more silent. It took place
without much fanfare, behind the scenes, within the technocracy and the
political elite. Nor did it encounter much social opposition: with the left
in power during much of the period, the unions were essentially pacified
(Chapman et al. 1998). To be sure, neoliberalism had its preachers, iden-
tified as the Nouveaux e´conomistes. For the most part, however, they
remained isolated and were never able to generate a true social movement
behind their ideas nor to motivate the business world to lend them fi-
nancial support (Fourcade-Gourinchas 2000). Instead, neoliberalism in
France emerged as a process of pragmatic normalization that was carried
in the name of modernity and progress. In particular, the higher admin-
istration (both in the generalist and technical grades) came to see in the
internationalization of the French economy (via integration with Europe
in particular) the means to pursue its historic mission of modernization
and free the “stalled society” (Crozier 1973) from its rigidities. From the
1970s on, this shift in orientation was perceivable, for instance, in the
transformations of economics teaching at the prestigious National School
of Administration (ENA), which started to follow a neoliberal orientation
(Kesler 1985, pp. 393–94; also see Lebaron [2000] on the evolution of the
National School of Statistics and Economic Administration, or ENSAE).
As a matter of fact, the only minister of finance who tried to claim his personal
affiliation with free market ideas, Alain Madelin, was promptly fired in August 1995
after only three months in office.
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Compounded with the politicians’ tendency to defer to the high admin-
istration in matters of policy making and with the fact that a great pro-
portion of the governmental elite (esp. ministers, secretaries of state, and
members of ministerial cabinets) is also composed of high functionaries,
these facts suggest that a fairly large sector of the state had been exposed
to the new economic ideas by the time the socialists assumed power
(The´ ret 1991, pp. 363–66).
This article has been a study in global trends and national peculiarities.
The four countries we examined diverge on a number of critical char-
acteristics, such as political regime, level of economic development, and
cultural tradition regarding the role of the state versus the market. These
differences notwithstanding, in many respects Chile, Mexico, Britain, and
France converged toward a set of economic policies that emphasized the
role of markets in economic regulation, promoted the free trade of goods
and capital, and prioritized the fight against inflation, increasingly by
means of an independent central banking institution.
Social Learning in the Global Village
Our case studies suggest that this set of policy choices, often identified as
a “neoliberal” policy consensus because of its affinity with classical eco-
nomic liberalism, was rooted in the constraints imposed by the rise of a
global—and increasingly volatile—financial order, which limited the
range of policy options available to governments around the world (Boyer
and Drache 1996; Loriaux 1997b). This altered transnational economic
order changed not only the way policies were made, but also the way
politicians, technocrats, academic experts, and even democratic electorates
thought about policy. A form of what Hall (1993) calls “social learning,”
we argue, took place in this global village, not only as a result of the
direct imposition of ideological frames devised elsewhere (although that
aspect played a nonnegligible part, as the Mexican and Chilean examples
demonstrate), but as an outcome of practical encounters with elusive and
powerful real-world events (e.g., currency crises, oil shocks), combined
with clear political choices in a global and open era (e.g., the maintenance
“Les e´narques omnipresents,” Le Monde, June 6, 1997.
The Central Bank of Chile was made legally independent in 1989; the Bank of
France, 1993; the Bank of Mexico, 1994; the Bank of England, 1997.
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Neoliberalism in Four Countries
of the sterling’s international position, the construction of a European
economy, or the integration into the global division of labor). In all cases,
acute balance-of-payments crises demonstrated to local actors the im-
possibility of pursuing a nationalist economic policy in isolation from the
broader international environment. The Chilean hyperinflation and bal-
ance-of-payment crisis of 1973, the pound crisis of 1976, the Mexican debt
crisis of 1982, the failure of the reflation under the first French Socialist
government, are all examples of such encounters.
Our purpose is not to deny the importance of ideological factors in the
diffusion of the “market paradigm,” but to underline the latter’s inter-
action with real-world events. Market-based policies were constructed as
providing a ready-made “solution” for combining the constraints imposed
by the global economic and financial order with a “workable” national
strategy. As an ideological force, the neoliberal creed was self-reinforcing,
in the sense that there “were no alternatives” simply because everybody
believed this, and acted upon this belief. Thus, when faced with the choice
between yielding to the neoliberal discipline supported by international
financial markets and constituencies, and attempting a more protectionist,
domestically centered, economic strategy, political decision-makers in all
four countries resolved in favor of the former, legitimating market reforms
as an inevitable course imposed upon them by an increasingly globalized
economy. In keeping with Polanyi’s (1944) observations, we find a strong
affinity between the shape of the world economy (here, global), and the
ideology sustaining it (the free market).
Neoliberalism and the Rise of Economists
In this article, we have also emphasized the varied national paths leading
to the adoption of a neoliberal strategy, and the variant conceptions of
why such changes were deemed necessary. One persistent difference, nat-
urally, is that between developing and developed nations. Thus while we
hope to have convincingly shown that all countries—not simply devel-
oping nations—are subject to the discipline of international financial con-
stituencies, we still believe that countries’ margin of maneuver in the face
of a balance of payment crisis can be highly unequal. For instance, the
IMF package to salvage the pound in 1976 caused some turmoil among
developing nations, which found the “conditions” imposed upon Britain
From this point of view, the end of the 19th century bears a certain resemblance
with our current era. Indeed, the glorious days of “laissez faire” and classical liberal
theory were associated with a very open international trade regime (dominated by
Britain) and large and erratic international capital movements (Bairoch 1996; Helleiner
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to be much softer than those they themselves had to abide by in order
to secure similar assistance (Harmon 1997).
In sum, position in the world system has important consequences for
the mechanisms through which neoliberal paradigm shifts occur. There
is little question that poor nations are particularly prone to having their
economic policies imposed from without, rather than developed from
within. More acute external pressures in medium-income developing
countries such as Mexico and Chile tend to make the state more porous
by allowing actors with external forms of legitimation (e.g., doctoral de-
grees in economics from American universities) to turn their linkages with
foreign constituencies into valuable assets for entry into the higher tech-
nocracy at the expense of the traditional professions of law and engi-
neering (Centeno 1994; Montecinos 1998; Schneider 1998; Markoff and
Montecinos 1993; Babb 2001; Dezalay and Garth 2002). In the cases of
Chile and Mexico, this “technocratization” of economic policy making was
facilitated by nondemocratic regimes. However, neoliberal transitions in
less developed democracies (such as that of Brazil and Argentina after
1990) were also accompanied by the rise of U.S.-trained economists in
government (Domı´nguez 1997). By contrast, neoliberal reforms in wealthy
nations were not accompanied by such a profound transformation of the
professional structure of the higher technocracy.
Two Routes to Neoliberalism?
At the same time, our study suggests a very different dimension of cross-
national variation—one, interestingly, that cuts across the dividing line
between developed and developing countries, as well as regime type. Chile
and Britain exemplify two cases of what we may call the “ideological
road” to neoliberalism, in which neoliberal commitments were at once
early, radical, and highly politicized. In many ways, Mexico and France
represent two instances of a much more “pragmatic” transition.
First, the intellectual force that inspired the Chilean and British mo-
netarist “revolutions” during the 1970s was very radical—and was sup-
ported by actors and theories who, at the time, held a minority position
within the field of economics. In contrast, neoliberal transitions in both
Mexico and France were more tame and reflected an emerging consensus
among the economics profession worldwide. Second, the free-market pro-
jects in Britain and Chile both had strong moral overtones, which com-
bined with a fiercely repressive attitude in social and political affairs.
This “prophetic” dimension was largely absent in Mexico and France:
Some authors, e.g., Wacquant (1999), have suggested that this repressive attitude
is an essential part of the neoliberal mode of economic regulation.
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Neoliberalism in Four Countries
neither were Mexican nor French technocrats appealing to the idea of
creating a better society built on the ethics of the market. Third, in contrast
to Britain and Chile, where neoliberal intellectuals burst on the public
scene from a previously marginal status and market reforms were im-
plemented by a new party (or even regime) in power, both Mexico and
France had “revolutions from within.” Thus economic liberalization was
carried out by the same governing parties that had earlier advocated state-
led expansion as a response to the economic crisis.
Fourth, and finally, the extreme versions of neoliberalism that were
implemented in Britain and Chile were subsequently viewed as imprac-
tical and eventually considerably toned down. In Chile, this occurred after
1981, when the fixed peso-to-dollar exchange rate contributed to a massive
balance-of-payments crisis, ruinous domestic interest rates, and a drastic
economic downturn: official statistics reported a GDP collapse of 14.1%
in 1982 (Kurtz 1999, p. 419). This caused the most orthodox version of
monetarism to become discredited and a more moderate version of neo-
liberalism to be followed thereafter. The British turn toward pragmatic
neoliberalism is usually dated from 1983, when the Thatcher government
openly abandoned strict monetary growth targets as the means to conduct
policy (Oliver 1997). Thus, although the neoliberal policies subsequently
adopted in France, Mexico, and in many other nations around the world
bore a general resemblance to the Chilean and British experiments, the
ideological “edge” was gone. Monetarism, as a political project, was dead;
what remained was neoliberalism, a much broader set of common un-
derstandings concerning the best way to run an economy.
What accounts for these different types of neoliberal transition, we
believe, are two very different kinds of historical institutional legacies
and, consequently, different politicoeconomic dynamics in the periods
leading up to the neoliberal transition. We summarize these differences
and their outcomes in table 2. In both Mexico and France, highly tech-
nocratic, directly interventionist states successfully mitigated social con-
flict during the postwar period and created the conditions for strong ec-
onomic growth. For the purpose of this article, the most important result
was a relative social consensus on wages, which limited inflationary pres-
sures, as well as a political consensus on the ultimate authority of the
technocracy in economic matters. Altogether, business (especially large
businesses) generally accepted (and benefited from) the type of economic
modernization that was promoted by the state, which was for a long time
also vindicated by high levels of economic growth.
This is related to an institutional feature Peter Evans (1996) famously described as
the “embedded autonomy” of the state in the social structure, and which refers to the
close interpenetration between the business sector and the administration. See Schmidt
(1996) on France, Thacker (2000) on Mexico.
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A Comparison of Neoliberal Transitions
Chile Britain Mexico France
ment crisis ..... Yes Yes Yes Yes
Inflation .......... Hyperinflation High rela-
tive to
Low Medium relative to
Social conflict
(strikes) ......... Very high High Low Medium
Business support
for neoliberal
ideas ............ High High Mixed Low
Origin of neo-
liberal ideas . . . Political Political Technocratic Technocratic
opening ........
Very rapid af-
before and
after neoli-
Progressive before
and after neo-
liberal transition
(common market)
Outcome .......... Ideological
Pragmatic transition,
1978 and 1983–
The predominance of technocratic leadership on economic issues also
explains why the transition to neoliberalism took place relatively late, and
in a pragmatic manner in Mexico and France. In both cases, the experience
of crisis convinced the higher administration that the modernization goal
could only be salvaged through further integration with the global econ-
omy, which, by ruling out alternatives, promoted the gradual acceptance
of the neoliberal creed. But this transformation came largely from within:
in sum, the rhetoric of the market provided the technocracy with the tools
to rearticulate its historical political project within a new global context.
By contrast, the same event in Chile and Britain involved a more complete
political redefinition.
Part of the reason for this is that neither Chile nor Britain experienced
a similar level of consensus during the postwar period. On the contrary,
both countries exhibited a combination of mediocre economicperformance
(at least in relative terms), higher levels of inflation, and deep political
and social conflict. In the British case, this situation fueled a growing
defiance of economic sectors (both labor and private) against the state,
which grew dramatically after the failure of the corporatist experiment
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Neoliberalism in Four Countries
in the 1960s.
In Chile it led to a political crisis of even more intense
proportions. In both countries, segments of the business and financial
communities came to lend their support to political projects that sought
to promote a more advantageous (for them) economic strategy. One of the
critical aspects of the “monetarist revolution,” which gave it much of its
political appeal, was its willingness to redefine inflation as the central
economic issue faced by the country, and its promise to break the power
of the working class and labor unions that was largely seen as one of the
main causes of escalating prices.
This article has demonstrated that the challenges of globalization are
met differently by different nations (Biggart and Guille´n 1999; Guille´n,
2000). While four very different countries all underwent a neoliberal tran-
sition as global conditions changed and they faced a series of sometimes
dramatic balance of payments crises, they came into the new environment
with strikingly different institutional and cognitive legacies. The legiti-
macy of the market was constructed through the interplay between na-
tional and international dynamics, between distinctive national histories
and experiences, on the one hand, and different modes of interaction with
the international economy, on the other. The rebirth of the liberal creed
certainly was a normative process, but it was not “normal” in any way.
If policy elites in Chile, Britain, Mexico, and France, all acted out of a
common belief that they had to make their economies more market and
free-trade oriented, their understanding of why abiding by this “norm”
was warranted and how the norm should be implemented varied consid-
erably across nations.
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... Following the rise to power of Margaret Thatcher's Conservative government in 1979, there was a broad transition from the post-war interventionist political paradigm to a new neoliberal climate based on a monetarist economic paradigm, which is characterised by the retreat of the state from regulating markets, the dismantling of social welfare systems, privatisation, and tax cuts (Fourcade-Gourinchas & Babb, 2002). ...
In London, housing affordability has been rapidly declining over the past few decades. Furthermore, London, and the UK in general, has experienced persistent volatility in house prices, new housing supply, and housing finance. These features characterise the main aspects of London’s housing crisis which is the topic of this PhD. Our existing understanding of this crisis remains largely fragmented and mostly qualitative. In this thesis, I build a novel quantitative system dynamics model based on existing literature and statistical data to explain developments in London’s housing system since 1980, with a particular focus on the feedback loops between house prices and housing credit. The model is shown to be capable of endogenously reproducing the salient features of the system’s past behaviour, such as the excessive growth in prices and housing credit as well as the characteristic boom-bust cycles. Extending the simulation into the future under business-as-usual continues to generate exponential growth and increasingly larger amplitude oscillations. Furthermore, I simulate a number of policies aimed at mitigating the unchecked growth and volatility. Supply side policies considered include a steep increase in affordable housing construction, a relaxation of planning restrictions, and a combination of the two. These policies show promise in slowing the growth in house prices (and housing debt) but do little to curb market volatility. Demand side policies considered include introducing a capital gains tax on all residential property, lowering average loan-tovalue ratios, enforcing historically anchored property valuations for mortgage lending, and a combination of all three. These policies, particularly when combined, appear to be highly effective in eliminating periodic oscillations. They also serve to slow down the worsening of affordability to some extent, but demand-side policies alone do not appear capable of stopping the trend in deteriorating affordability. In order to eliminate largescale market volatility and simultaneously stop the continual worsening of affordability, it is shown to be necessary to intervene on both sides of the problem with a portfolio of targeted policies. In conclusion, I argue that the unit of analysis in housing policy and discourse must become feedback loops rather than individual factors. Integrated, feedback-centred, dynamic simulation tools are needed in long-term planning for the affordability and stability of the housing market in London and in the UK. The system dynamics model introduced in this thesis serves as a proof of concept for a promising approach to policymaking in the area of the UK’s housing policy.
... In a sense the UK Government adapted and developed its approach to governance based on the changing world. The eventual rise in UK Gross Domestic Product would seem to justify the choice (Fourcade-Gourinchas & Babb, 2002). Though the previous paragraphs have made a simplistic and very brief explanation of policy development, this adheres to the evolutionary model of resilience with the health of the wider system not necessarily meaning that the subordinate systems are healthy. ...
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The tales of places searching for pathways to economic renewal is as old as civilisation itself. History shows that places decline due to political, environmental, social and technological reasons as much as they find ways of renewing themselves owing to a favourable combination of the aforementioned factors. Writing in the social sciences continues the pursuit of factors which make great places. For example (Jacobs, 1962, p.14) states that: “One principle emerges so ubiquitously, and in so many and such complex different form... This ubiquitous principle is the need of cities for a most intricate and close-grained diversity of uses that give each mutual support, both economically and socially. The components of this diversify can differ enormously, but they must supplement each other in certain concrete ways.” Jacobs’ fundamental principle of respecting diversity and providing mutually beneficial links seems to be repeated in the emerging concept of resilience, especially when related to the places - as did Jacobs as a planner. This research aims to build on the rapidly developing body of existing writing to help to understand the future adaptive capacity of places.
... Critical probing of neoliberalism has identified some of the disciplinary mechanisms at work in these processes, mechanisms associated with the generalization of pro-market regulation into an overarching neoliberal societal project (Hibou 2012). Other approaches have highlighted instead how neoliberal reforms vary widely by local institutions (Fourcade-Gourinchas and Babb 2002). Our approach here is in line with French and European sociology of public administration and policy studies that reject univocal, exogenous interpretations of public reforms and seek instead to apprehend their incremental trajectories and the many different dynamics that come into play (Bezès 2015;Billows and Viallet-Thévenin 2016;Le Galès and Vézinat 2014). ...
Market-based arrangements—i.e., economic incentives, market mechanisms, market-based —are now commonly used as policy instruments. This special issue examines the market-based practices at the center of public policy, focusing in particular on how the actors anticipate, instrumentalize, and steer market-related behaviors. The design of market-based instruments is apprehended through study of the collective spaces in which they are defined and negotiated, spaces that encompass a wide array of actors—scientists, industry representatives, consultants, experts, interest groups—using different types of knowledge and anticipation. The many, various institutional arrangements implicated in engineering markets to serve public purposes are all characterized by recurring tension between strategic orientations and adjustment of economic behaviors.
... A pesar de los rasgos comunes de las APP en los dos países, la adopción de las reformas pro-mercado siguió procesos políticos muy diferentes. En el caso de Chile, las reformas educativas se desarrollaron en la década de los años ochenta durante la dictadura militar del general Augusto Pinochet, en un contexto de reformas estructurales orientadas a cambiar el papel del Estado en los ámbitos económico y social, y en el que la oposición a dichas reformas era duramente reprimida (Fourcade-Gourinchas & Babb, 2002). En cambio, el esquema de cheques escolares sueco fue adoptado por un gobierno liderado por el partido conservador en los años noventa, en el contexto de una democracia avanzada, y como continuación de un proceso de descentralización en el sector público iniciado por el anterior gobierno socialdemócrata (Lundahl, 2002). ...
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Pese a la creciente popularidad de las Alianzas Público-Privadas (APP) en el sector educativo, existe un amplio consenso académico sobre su impacto negativo sobre las desigualdades educativas. En los últimos años, organismos internacionales como la OCDE, la UNESCO o el Banco Mundial han mostrado una creciente preocupación por dicho impacto. Sin embargo, la mayoría de estos organismos internacionales no cuestiona directamente la política de APP sino que apuesta por procesos de regulación pública que permitan compatibilizar los supuestos efectos positivos de las APP con mayores niveles de equidad. El presente artículo contribuye al debate internacional sobre la regulación pública de la educación privada subvencionada. Para ello, analizamos las diferentes configuraciones regulativas de las APP que prevalecen en los países de la OCDE, y exploramos los procesos de problematización y de reforma que han acontecido en ellos. El artículo concluye con una reflexión sobre las implicaciones políticas y los límites y desafíos de dichas reformas.
... One is that economics during this period was seen as a highly technical subject, not dissimilar to how mainstream representations of the profession operate today. While there were important debates and dividing lines within economics from the postwar period to the 1970s, there was also a strong general confidence, related to the Keynesian-Neoclassical synthesis prevailing at the time, that technical fixes to economic problems were both possible and technocratic in nature (Fourcade-Gourinchas and Babb, 2002;Helgadó ttir, 2021). ...
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Neoliberal economics has reshaped societies. How did this doctrine ascend? While existing explanations emphasize a variety of factors, one neglected aspect is intellectual rivalry within the US economics profession. Neoliberalism had to attain prestige against the grain of the intelligentsia prior to becoming a force to organize political power. Using qualitative and quantitative evidence, we examine key rivals in US economics from 1960 to 1985: the Chicago School of Economics, neoliberal pioneers and the ‘Charles River Group’ (Harvard University and the Massachusetts Institute of Technology), the mainstream Keynesian stronghold. We identify socialization mechanisms from historical accounts, which suggest forms of social cohesion between elite professors and their students. We measure social cohesion and network structure from salient relations within and between generations, using a new a dataset focused on elite economics professors and their graduate students. What differentiated the Chicago School from Charles River was its fostering of social cohesion and its effective transmission of value orientations across generations.
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The United States (US) and Jordan Free Trade Agreement (FTA) has significantly affected the Jordanian economy and society in both positive and negative ways. It has been a new player in the Jordanian economic order against the backdrop of Jordan’s economic crisis and high unemployment, but it has failed to yield the promised economic benefits. Indeed, the legality of unfair and ambiguous clauses of the FTA has raised significant debate, and many critics view the FTA as a tool to advance foreign policy and promote the geostrategic interests of the US in the Middle East. This thesis analyses the effects of the US–Jordan FTA to identify economic changes in Jordan’s economy. It examines the economic rationales of the parties for free trade, the economic effects of the FTA on Jordan and the extra-economic considerations that led the parties to sign the FTA. Further, this study identifies clauses of the US–Jordan FTA for possible amendments with the aim of minimising adverse effects and maximising economy-wide benefits for Jordan. The proposed reforms will considerably improve economic gains and benefit Jordanian trade policy-makers, strategists and negotiators by enhancing their understanding of the pitfalls, challenges and opportunities presented by the FTA. For example, the reforms will reduce poverty, increase health services, improve education and create an overall positive effect on the economy. In a wider context, this research will provide insights to government and non-government agencies of other countries that want to pursue preferential bilateral FTAs as a vehicle for their economic development.
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The thesis critically examines the international trading regime of Jordan and its economic and political integration with the Arab world through trade liberalisation. In so doing, it analyses: (i) Jordan's involvement in the World Trade Organization (WTO) multilateral trading system, (ii) Jordan's bilateral free trading relationships with both non-Arab and Arab trading partners and (iii) the implications of these liberalised trading activities for Jordan's national economic development and political stability. The thesis concludes by offering some useful recommendations that may serve Jordan's best interests in its bid to minimise present challenges and maximise trade-induced development. The thesis criticises the mainstream understanding of free trade agreements (FTAs) as primarily trade agreements that are backed by the arguments of economic efficiency. The analysis demonstrates that FTAs are as much political arrangements as they are trade arrangements. However, because the mainstream literature justifies them as efficient economic tools, they are used to compel developing countries to provide trade conditions that are not always to their advantage. Developing countries are particularly disadvantaged by the imposition of trade conditions in the name of economic efficiencies, which neglect the political aspects of FTAs. This thesis argues that it is time to revise the overly economic analyses of FTAs and integrate the political and economic aspects into the scholarship. This is demonstrated in this thesis by analysing the role of Jordan in entering regional and global FTAs. This thesis concludes that an understanding of FTAs as both economic and political arrangements can benefit developing economies by mitigating the harshness of purely economic analysis and acknowledging the political give and take that already occurs, yet is not explicitly considered and analysed. The thesis argues that a more nuanced analysis of FTAs can serve the purpose of better integrating trading countries, such as Jordan, in peaceful coexistence. iii DECLARATION OF ORIGINALITY This is to certify that I, Khaled Mohammad Khwaileh, have not submitted this thesis for a higher degree to any university or institution other than Macquarie University. This thesis, to the best of my knowledge and belief, does not contain any material previously published or written by another person except where due reference is made in the text. Khaled Mohammad Khwaileh iv ACKNOWLEDGEMENTS
This article relates the history of economists' influence in shaping the content of theHumphrey-Hawkins Act (1978) and its immediate consequences. The act committed the federal government to reduce as soon as 1983 unemployment to 4 percent and inflation to 3 percent. Initially, the Humphrey-Hawkins bill was conceived as a project to favor the economic integration of African Americans and economic planning and targeted only the unemployment rate. Republican senators successfully pushed for adding a numerical inflation target during the debates in Congress. The act eventually put on equal footing inflation and unemployment. I argue that the economists in the Carter administration, and notably the Council of Economic Advisers, were instrumental, even if unintentionally, in favoring the integration of an inflation target and such an interpretation of the bill. In the negotiations that opposed them to the supporters of the bill, as well as in the analysis of the bill they produced, they insisted on the existence of a trade-off between inflation and unemployment and referred frequently to the famous Phillips curve. They endeavored to anchor their expertise on academic publications, which strengthened the role of the Phillips curve in shaping the debates. Business organizations and senators used references to the trade-off to undermine the bill and favor the integration of an inflation target.
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A Planetary Tragedy addresses the question why, some 50 years after ‘the environment’ became a topic of public concern, efforts to address environmental problems have by and large failed and the world appears to be headed for a disastrous future. Although over these years, governments have adopted a raft of national and international measures to combat environmental issues, most of these have proven to be inadequate and the rate of environmental degradation has continued unabated. The book critically surveys and analyses the environmental performance of countries, in particular some that have been regarded as ‘environmental leaders’ and identifies and discusses three broad reasons for this failure. First, the way environmental problems have been predominantly interpreted, which largely ignores the deep and interconnected nature of the environmental challenge; second, the failure to recognise, let alone address, the systemic sources and causes of environmental problems; third, the power structures in the prevailing political-economic systems, which make it virtually impossible to fundamentally change those systems and to put societies onto a path towards sustainability. Covering an extensive literature, the book draws on research, theories, findings, and ideas from the fields of environmental politics and policy, including comparative, international, and global analyses and perspectives, environmental sociology and history, economics and the environment, political and social theory, and environmental management. It puts forward a framework that can assist in taking a comprehensive and integrated approach to the environmental challenge, discusses the strengths and weaknesses of a range of theoretical perspectives, clarifies key concepts and factors central to better understanding the systemic issues and obstacles lying at the heart of the environmental challenge, and puts forward ideas on how to strategically address the enormous imbalance of power that stands in the way of transformative change. The main suggestion is the creation of national-level Sovereign People’s Authorities based on the principle of popular sovereignty that will enable societies to democratically steer themselves towards a sustainable and desirable future. The book is essential reading for students and academics in the areas of environmental politics and policy, including comparative, international and global environmental politics, and all those who wish to gain a deeper understanding of why societies have been unable to address the environmental challenge more effectively. While not offering a basis for facile optimism, it puts the finger on what will be needed to prevent the world from sliding further towards the abyss.