WASHINGTON, DC – The era of free-market capitalism launched in the 1980’s by Margaret Thatcher and Ronald Reagan – often called “neoliberalism” by its opponents – is over. This ideological wave has crashed with the ongoing financial market crisis, but its decline was a long time coming. In the last few years, while American leaders continued to ride the neoliberal wave, much of the rest of the world was already standing on the shore.
Disenchantment with “neoliberal,” pro-market ideas began in developing countries that had once been their ardent admirers. Latin American countries that embraced free-market policies in the 1990’s rejected them in the mid-2000’s, as a new wave of left-leaning leaders came to power. Russia, which adopted market-oriented reforms in the 1990’s, moved to a managed form of state capitalism in the 2000’s with “oligarchs” forced to submit to state control.
As a result, the United States, the European Commission, and the multilateral development banks have become increasingly isolated in their efforts to advance free-market thought and policies worldwide. The deepening financial crisis weakens their position further. After all, how can the US or the Western multilateral institutions advocate bank privatization now?
The decline of free-market orthodoxy in the rest of the world was caused by two factors: its failures as an approach to economic policy and the decline of US prestige and “soft power.”