All aboard or maybe not.

Photographer: Patrik Stollarz/Getty Images

Europe's Ride on the Neoliberalism Express

Philipp Ther is a professor of Central European history at the University of Vienna. He is the author of "Europe Since 1989" (September 2016, Princeton University Press) and "The Dark Side of Nation States" (2014).
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Europe's movement to make neoliberalism its guiding economic doctrine was like a shiny express train. Starting in the 1980s, it promised to take passengers to an enticing destination -- of growth and prosperity.

The track was built on the idealization of unrestrained free markets, an irrational faith in the rationality of market agents and a libertarian antipathy toward the state. It also included some elements of traditional laissez-faire capitalism such as the concept of the “hidden hand,” adding a metaphysical dimension whereby the market is regarded as a last judgment over all commodities.

At one point, all the countries of Europe wanted to get on board; none could resist its allure. Moreover, it seemed to be the only train to the future after the end of the rivalry between East and West in 1989.

The first passengers to board were Poland, Czechoslovakia, Hungary and one formerly known as the German Democratic Republic. Sometimes the passengers felt nauseated because of the high speeds at which they were traveling and the reform remedies they were forced to take. But by the mid-1990s, they were starting to feel a little better. The conductor and the waiters in the dining car (the international financial organizations) proudly announced that the shock therapy was working.

Whether this was actually true is disputable, but the signs were right: Growth curves, foreign direct investment and other co-efficients -- the neoliberal order was distinctly statistic-fixated -- pointed upward.

For this reason, the countries that had previously missed the train -- due to later-occurring revolution, independence, post-communists who remained in power or other factors -- now wanted to get on board, too. Some of these passengers -- namely the Baltic states, Slovakia and, a little later, Romania and Bulgaria -- tried to catch up with the front-runners by carrying out even more radical reforms.

This, too, caused pain and sickness, but turned the post-Communist countries into “emerging markets” and some of them even into “tiger economies.” Germany, which was still clinging to the running board, did not want to remain the “sick man of Europe,” so it entered the neoliberal train as well.

The passengers met several times a day in the dining car. There was no choice on the menu; the one, standard meal was served by Western waiters (the IMF, the World Bank, the OECD and a number of private think tanks). The appetizer was a dish called “austerity.”

The travelers did not always want to eat the meal and certainly not to swallow all of it, but they sensed the power of the waiters, who could collect old debts at any time and who seemed to have a monopoly on economic wisdom. The waiter from Brussels was rather popular, as he served hors d’oeuvres (such as the aid program Phare) and promised many passengers that he would always serve them if they fulfilled the right requirements.

The dining car was a great place to give speeches about reforms. The representatives of the “small nations” like the Czechs liked to be seen as model passengers, and spoke of a market economy “without attributes.” Meanwhile, the waiters repeated their mantra of “privatization, liberalization, deregulation” like a mealtime prayer.

Other guests in the dining car were gentlemen in business suits (fund managers, bankers and CEOs of various companies). They were looking for opportunities to lighten their heavy wallets, but not by making gifts -- they tended to hide the fact that they sought high returns and profits. The men in suits were especially inclined toward passengers who demanded freedom for the economy, and rewarded them for their boldness.

Even the poorest fellow travelers benefited from their generosity. They were given FDI -- foreign direct investment -- a kind of magic potion that, unfortunately, can be addictive. The businessmen said the train had to go faster.

At their behest, it accelerated so much that the railway switches and alternative tracks became a blur. Due to the extreme speed, the train overheated. Passengers started removing their outer clothing (the rather flimsy welfare state), encouraged by the waiters, who said they would travel even faster if lightly dressed. This prompted the passengers to remove ever more clothes.

One of them, a former KGB spy named Vladimir Vladimirovich, protested against the waiters’ opinions and left the train. Since then, he has tried to get another train, named state capitalism, on track. At first, the others did not take him very seriously. But that changed when he started trying to drag his neighbors by force onto his train, which now bears the insignia “Eurasian Economic Union.”

Despite these disruptions and intermittent crises, the neoliberal train sped so fast that one could no longer see the people driving it. Looking very closely, it was just possible to discern that they were also wearing business suits.

They thought they were acting very rationally, but suddenly, in 2008, panic broke out, first in the locomotive and then in the passenger cars. The train almost came off the rails but, screeching loudly, came to a standstill just in time. Yet despite having narrowly avoided a disaster, it did not change tracks.

On the contrary, new passengers now boarded (the Southern European states) because nobody would lend them any more money for the station restaurant where they liked to dine, unfortunately on credit. The men in business suits started to act quite differently. For a while, they refused to hand out FDI, but persistently inquired about ratings and told the Southern European passengers that they should tighten their belts.

The constant diet of lean meals and bitter pills soured the mood in the train. Prior to 2008, all the passengers had believed they were heading for a rosy future. But now most of the travelers were becoming anxious or even furious. Some suddenly felt very cold, especially those who had ostentatiously stripped down to almost nothing. The German and Polish passengers and a few others noticed this and decided to take the Keynesian menu, which they found warming and wholesome.

But the German passenger, a very powerful woman who some thought was the new engine driver, refused to pay or even jointly manage the debts of other passengers (for instance, with the help of euro bonds). On the contrary, she told the Southern European passengers to follow the example of the Eastern Europeans, who had swallowed the most pills and become quite thin.

For the time being, all the passengers of Europe are still on board the same train. But whether this remains so is anybody’s guess. One passenger has already left, also because the Union has lost a lot of prestige due to the long-lasting crisis. Perhaps the remaining passengers are only sticking together because they know that similar trains in other parts of the world, like China, are traveling even faster, paradoxically driven by men who still call themselves communists.

Are there any signs that the train might change tracks in the future?

To try to answer this question, the global context must be taken into account, which I will do tomorrow in the second part of this article. 

This is the first of two excerpts from "Europe Since 1989," to be published in English on Oct. 5 by Princeton University Press. The book, by Philipp Ther, won the Leipzig Book Fair Prize for nonfiction. It was translated from the German by Charlotte Hughes-Kreutzmüller.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Philipp Ther at philipp.ther@univie.ac.at

To contact the editor responsible for this story:
Katy Roberts at kroberts29@bloomberg.net