Neoliberalism – the ideology at the root of all our problems

Financial meltdown, environmental disaster and even the rise of Donald Trump – neoliberalism has played its part in them all. Why has the left failed to come up with an alternative?

Ronald Reagan and Margaret Thatcher at the White House.
‘No alternative’ … Ronald Reagan and Margaret Thatcher at the White House. Photograph: Rex Features

Imagine if the people of the Soviet Union had never heard of communism. The ideology that dominates our lives has, for most of us, no name. Mention it in conversation and you’ll be rewarded with a shrug. Even if your listeners have heard the term before, they will struggle to define it. Neoliberalism: do you know what it is?

Its anonymity is both a symptom and cause of its power. It has played a major role in a remarkable variety of crises: the financial meltdown of 2007‑8, the offshoring of wealth and power, of which the Panama Papers offer us merely a glimpse, the slow collapse of public health and education, resurgent child poverty, the epidemic of loneliness, the collapse of ecosystems, the rise of Donald Trump. But we respond to these crises as if they emerge in isolation, apparently unaware that they have all been either catalysed or exacerbated by the same coherent philosophy; a philosophy that has – or had – a name. What greater power can there be than to operate namelessly?

So pervasive has neoliberalism become that we seldom even recognise it as an ideology. We appear to accept the proposition that this utopian, millenarian faith describes a neutral force; a kind of biological law, like Darwin’s theory of evolution. But the philosophy arose as a conscious attempt to reshape human life and shift the locus of power.

Neoliberalism sees competition as the defining characteristic of human relations. It redefines citizens as consumers, whose democratic choices are best exercised by buying and selling, a process that rewards merit and punishes inefficiency. It maintains that “the market” delivers benefits that could never be achieved by planning.

Attempts to limit competition are treated as inimical to liberty. Tax and regulation should be minimised, public services should be privatised. The organisation of labour and collective bargaining by trade unions are portrayed as market distortions that impede the formation of a natural hierarchy of winners and losers. Inequality is recast as virtuous: a reward for utility and a generator of wealth, which trickles down to enrich everyone. Efforts to create a more equal society are both counterproductive and morally corrosive. The market ensures that everyone gets what they deserve.

We internalise and reproduce its creeds. The rich persuade themselves that they acquired their wealth through merit, ignoring the advantages – such as education, inheritance and class – that may have helped to secure it. The poor begin to blame themselves for their failures, even when they can do little to change their circumstances.

Never mind structural unemployment: if you don’t have a job it’s because you are unenterprising. Never mind the impossible costs of housing: if your credit card is maxed out, you’re feckless and improvident. Never mind that your children no longer have a school playing field: if they get fat, it’s your fault. In a world governed by competition, those who fall behind become defined and self-defined as losers.

Among the results, as Paul Verhaeghe documents in his book What About Me? are epidemics of self-harm, eating disorders, depression, loneliness, performance anxiety and social phobia. Perhaps it’s unsurprising that Britain, in which neoliberal ideology has been most rigorously applied, is the loneliness capital of Europe. We are all neoliberals now.

***

The term neoliberalism was coined at a meeting in Paris in 1938. Among the delegates were two men who came to define the ideology, Ludwig von Mises and Friedrich Hayek. Both exiles from Austria, they saw social democracy, exemplified by Franklin Roosevelt’s New Deal and the gradual development of Britain’s welfare state, as manifestations of a collectivism that occupied the same spectrum as nazism and communism.

In The Road to Serfdom, published in 1944, Hayek argued that government planning, by crushing individualism, would lead inexorably to totalitarian control. Like Mises’s book Bureaucracy, The Road to Serfdom was widely read. It came to the attention of some very wealthy people, who saw in the philosophy an opportunity to free themselves from regulation and tax. When, in 1947, Hayek founded the first organisation that would spread the doctrine of neoliberalism – the Mont Pelerin Society – it was supported financially by millionaires and their foundations.

With their help, he began to create what Daniel Stedman Jones describes in Masters of the Universe as “a kind of neoliberal international”: a transatlantic network of academics, businessmen, journalists and activists. The movement’s rich backers funded a series of thinktanks which would refine and promote the ideology. Among them were the American Enterprise Institute, the Heritage Foundation, the Cato Institute, the Institute of Economic Affairs, the Centre for Policy Studies and the Adam Smith Institute. They also financed academic positions and departments, particularly at the universities of Chicago and Virginia.

As it evolved, neoliberalism became more strident. Hayek’s view that governments should regulate competition to prevent monopolies from forming gave way – among American apostles such as Milton Friedman– to the belief that monopoly power could be seen as a reward for efficiency.

Something else happened during this transition: the movement lost its name. In 1951, Friedman was happy to describe himself as a neoliberal. But soon after that, the term began to disappear. Stranger still, even as the ideology became crisper and the movement more coherent, the lost name was not replaced by any common alternative.

At first, despite its lavish funding, neoliberalism remained at the margins. The postwar consensus was almost universal: John Maynard Keynes’s economic prescriptions were widely applied, full employment and the relief of poverty were common goals in the US and much of western Europe, top rates of tax were high and governments sought social outcomes without embarrassment, developing new public services and safety nets.

But in the 1970s, when Keynesian policies began to fall apart and economic crises struck on both sides of the Atlantic, neoliberal ideas began to enter the mainstream. As Friedman remarked, “when the time came that you had to change … there was an alternative ready there to be picked up”. With the help of sympathetic journalists and political advisers, elements of neoliberalism, especially its prescriptions for monetary policy, were adopted by Jimmy Carter’s administration in the US and Jim Callaghan’s government in Britain.

After Margaret Thatcher and Ronald Reagan took power, the rest of the package soon followed: massive tax cuts for the rich, the crushing of trade unions, deregulation, privatisation, outsourcing and competition in public services. Through the IMF, the World Bank, the Maastricht treaty and the World Trade Organisation, neoliberal policies were imposed – often without democratic consent – on much of the world. Most remarkable was its adoption among parties that once belonged to the left: Labour and the Democrats, for example. As Stedman Jones notes, “it is hard to think of another utopia to have been as fully realised.”

***

It may seem strange that a doctrine promising choice and freedom should have been promoted with the slogan “there is no alternative”. But, as Hayek remarkedon a visit to Pinochet’s Chile – one of the first nations in which the programme was comprehensively applied – “my personal preference leans toward a liberal dictatorship rather than toward a democratic government devoid of liberalism”. The freedom that neoliberalism offers, which sounds so beguiling when expressed in general terms, turns out to mean freedom for the pike, not for the minnows.

Freedom from trade unions and collective bargaining means the freedom to suppress wages. Freedom from regulation means the freedom to poison rivers, endanger workers, charge iniquitous rates of interest and design exotic financial instruments. Freedom from tax means freedom from the distribution of wealth that lifts people out of poverty.

Naomi Klein documented that neoliberals advocated the use of crises to impose unpopular policies while people were distracted. 

As Naomi Klein documents in The Shock Doctrine, neoliberal theorists advocated the use of crises to impose unpopular policies while people were distracted: for example, in the aftermath of Pinochet’s coup, the Iraq war and Hurricane Katrina, which Friedman described as “an opportunity to radically reform the educational system” in New Orleans.

Where neoliberal policies cannot be imposed domestically, they are imposed internationally, through trade treaties incorporating “investor-state dispute settlement”: offshore tribunals in which corporations can press for the removal of social and environmental protections. When parliaments have voted to restrict sales of cigarettes, protect water supplies from mining companies, freeze energy bills or prevent pharmaceutical firms from ripping off the state, corporations have sued, often successfully. Democracy is reduced to theatre.

Another paradox of neoliberalism is that universal competition relies upon universal quantification and comparison. The result is that workers, job-seekers and public services of every kind are subject to a pettifogging, stifling regime of assessment and monitoring, designed to identify the winners and punish the losers. The doctrine that Von Mises proposed would free us from the bureaucratic nightmare of central planning has instead created one.

Neoliberalism was not conceived as a self-serving racket, but it rapidly became one. Economic growth has been markedly slower in the neoliberal era (since 1980 in Britain and the US) than it was in the preceding decades; but not for the very rich. Inequality in the distribution of both income and wealth, after 60 years of decline, rose rapidly in this era, due to the smashing of trade unions, tax reductions, rising rents, privatisation and deregulation.

The privatisation or marketisation of public services such as energy, water, trains, health, education, roads and prisons has enabled corporations to set up tollbooths in front of essential assets and charge rent, either to citizens or to government, for their use. Rent is another term for unearned income. When you pay an inflated price for a train ticket, only part of the fare compensates the operators for the money they spend on fuel, wages, rolling stock and other outlays. The rest reflects the fact that they have you over a barrel.

In Mexico, Carlos Slim was granted control of almost all phone services and soon became the world’s richest man. 

Those who own and run the UK’s privatised or semi-privatised services make stupendous fortunes by investing little and charging much. In Russia and India, oligarchs acquired state assets through firesales. In Mexico, Carlos Slim was granted control of almost all landline and mobile phone services and soon became the world’s richest man.

Financialisation, as Andrew Sayer notes in Why We Can’t Afford the Rich, has had a similar impact. “Like rent,” he argues, “interest is … unearned income that accrues without any effort”. As the poor become poorer and the rich become richer, the rich acquire increasing control over another crucial asset: money. Interest payments, overwhelmingly, are a transfer of money from the poor to the rich. As property prices and the withdrawal of state funding load people with debt (think of the switch from student grants to student loans), the banks and their executives clean up.

Sayer argues that the past four decades have been characterised by a transfer of wealth not only from the poor to the rich, but within the ranks of the wealthy: from those who make their money by producing new goods or services to those who make their money by controlling existing assets and harvesting rent, interest or capital gains. Earned income has been supplanted by unearned income.

Neoliberal policies are everywhere beset by market failures. Not only are the banks too big to fail, but so are the corporations now charged with delivering public services. As Tony Judt pointed out in Ill Fares the Land, Hayek forgot that vital national services cannot be allowed to collapse, which means that competition cannot run its course. Business takes the profits, the state keeps the risk.

The greater the failure, the more extreme the ideology becomes. Governments use neoliberal crises as both excuse and opportunity to cut taxes, privatise remaining public services, rip holes in the social safety net, deregulate corporations and re-regulate citizens. The self-hating state now sinks its teeth into every organ of the public sector.

Perhaps the most dangerous impact of neoliberalism is not the economic crises it has caused, but the political crisis. As the domain of the state is reduced, our ability to change the course of our lives through voting also contracts. Instead, neoliberal theory asserts, people can exercise choice through spending. But some have more to spend than others: in the great consumer or shareholder democracy, votes are not equally distributed. The result is a disempowerment of the poor and middle. As parties of the right and former left adopt similar neoliberal policies, disempowerment turns to disenfranchisement. Large numbers of people have been shed from politics.

Chris Hedges remarks that “fascist movements build their base not from the politically active but the politically inactive, the ‘losers’ who feel, often correctly, they have no voice or role to play in the political establishment”. When political debate no longer speaks to us, people become responsive instead to slogans, symbols and sensation. To the admirers of Trump, for example, facts and arguments appear irrelevant.

Judt explained that when the thick mesh of interactions between people and the state has been reduced to nothing but authority and obedience, the only remaining force that binds us is state power. The totalitarianism Hayek feared is more likely to emerge when governments, having lost the moral authority that arises from the delivery of public services, are reduced to “cajoling, threatening and ultimately coercing people to obey them”.

***

Like communism, neoliberalism is the God that failed. But the zombie doctrine staggers on, and one of the reasons is its anonymity. Or rather, a cluster of anonymities.

The invisible doctrine of the invisible hand is promoted by invisible backers. Slowly, very slowly, we have begun to discover the names of a few of them. We find that the Institute of Economic Affairs, which has argued forcefully in the media against the further regulation of the tobacco industry, has been secretly funded by British American Tobacco since 1963. We discover that Charles and David Koch, two of the richest men in the world, founded the institute that set up the Tea Party movement. We find that Charles Koch, in establishing one of his thinktanks, noted that “in order to avoid undesirable criticism, how the organisation is controlled and directed should not be widely advertised”.

The words used by neoliberalism often conceal more than they elucidate. “The market” sounds like a natural system that might bear upon us equally, like gravity or atmospheric pressure. But it is fraught with power relations. What “the market wants” tends to mean what corporations and their bosses want. “Investment”, as Sayer notes, means two quite different things. One is the funding of productive and socially useful activities, the other is the purchase of existing assets to milk them for rent, interest, dividends and capital gains. Using the same word for different activities “camouflages the sources of wealth”, leading us to confuse wealth extraction with wealth creation.

A century ago, the nouveau riche were disparaged by those who had inherited their money. Entrepreneurs sought social acceptance by passing themselves off as rentiers. Today, the relationship has been reversed: the rentiers and inheritors style themselves entre preneurs. They claim to have earned their unearned income.

These anonymities and confusions mesh with the namelessness and placelessness of modern capitalism: the franchise model which ensures that workers do not know for whom they toil; the companies registered through a network of offshore secrecy regimes so complex that even the police cannot discover the beneficial owners; the tax arrangements that bamboozle governments; the financial products no one understands.

The anonymity of neoliberalism is fiercely guarded. Those who are influenced by Hayek, Mises and Friedman tend to reject the term, maintaining – with some justice – that it is used today only pejoratively. But they offer us no substitute. Some describe themselves as classical liberals or libertarians, but these descriptions are both misleading and curiously self-effacing, as they suggest that there is nothing novel about The Road to Serfdom, Bureaucracy or Friedman’s classic work, Capitalism and Freedom.

***

For all that, there is something admirable about the neoliberal project, at least in its early stages. It was a distinctive, innovative philosophy promoted by a coherent network of thinkers and activists with a clear plan of action. It was patient and persistent. The Road to Serfdom became the path to power.

Neoliberalism’s triumph also reflects the failure of the left. When laissez-faire economics led to catastrophe in 1929, Keynes devised a comprehensive economic theory to replace it. When Keynesian demand management hit the buffers in the 70s, there was an alternative ready. But when neoliberalism fell apart in 2008 there was … nothing. This is why the zombie walks. The left and centre have produced no new general framework of economic thought for 80 years.

Every invocation of Lord Keynes is an admission of failure. To propose Keynesian solutions to the crises of the 21st century is to ignore three obvious problems. It is hard to mobilise people around old ideas; the flaws exposed in the 70s have not gone away; and, most importantly, they have nothing to say about our gravest predicament: the environmental crisis. Keynesianism works by stimulating consumer demand to promote economic growth. Consumer demand and economic growth are the motors of environmental destruction.

What the history of both Keynesianism and neoliberalism show is that it’s not enough to oppose a broken system. A coherent alternative has to be proposed. For Labour, the Democrats and the wider left, the central task should be to develop an economic Apollo programme, a conscious attempt to design a new system, tailored to the demands of the 21st century.

https://www.theguardian.com/books/2016/apr/15/neoliberalism-ideology-problem-george-monbiot

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Democratic Primaries in the Shadow of Neoliberalism

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(Photo: Mike Segar/Reuters)

There is an understandable tendency, when in the thick of a long set of presidential primaries, to treat all of them simply as exercises in the choice between individual candidates, and to make them as much about character as about policy. There is also an understandable tendency to assume that what is at stake in these primaries is purely an American matter with entirely domestic roots.

It is much more difficult to place the competing candidates and their differing policy packages on a bigger and a longer map that takes in previous candidates and previous policies. It is also very hard to break out of a purely American focus, and to see what is happening in the United States as part of a more general story.

But it is worth the effort: because by going out to the bigger picture, and then back to the detail of the campaigns, the issues that are actually at stake in those campaigns becomes just a little bit clearer.

I

One way of generating that greater clarity is to place the Democratic Party primary battle between Hillary Clinton and Bernie Sanders in the shadow of something normally labeled “neoliberalism“ — place it in the shadow, that is, of the economic policies and general economic philosophy successfully espoused by Ronald Reagan in the United States and by Margaret Thatcher in the United Kingdom. Neoliberalism is that economic philosophy that prefers markets to governments as allocators of resources, and prefers individual and private — rather than collective and public — solutions to social problems. For the last three decades, it has been the ruling orthodoxy on both sides of the Atlantic, but when neoliberalism was first advocated — in the second half of the 1970s — it was not. It marked then a revolutionary break with an earlier orthodoxy: one linked to the writings of John Maynard Keynes and to the politics of the New Deal; one that had markets managed by governments, and had social problems solved by public spending and policy.

The Reagan/Thatcher neoliberal revolution kept Democrats out of the White House, and kept the Labour Party out of power in London, for three whole electoral cycles; and by the end of the third of those, leading politicians in both parties had come to the same view. They had decided that their only way back to power was to meet Reagan- and Thatcher-shaped electorates on neoliberal terms. Under Bill Clinton’s leadership in the United States, and that of Tony Blair in the United Kingdom, each center-left party abandoned their earlier and more progressive sets of policies in favor of an explicit acceptance of, and accommodation with, the major tenets of the new conservative orthodox. They gave up their role as “tax and spend” progressives in favor of “new” positions. They pulled back from active industrial policies that regulated business. They “ended welfare as we know it;” and they even began to call themselves “New/Centrist Democrats” and “New Labour” to make that accommodation to neoliberal principles clear to those who would vote for them.

For Bill Clinton and Tony Blair, being a progressive in the 1990s meant being a more civilized and kind-hearted Reaganite/Thatcherite. It meant taking for granted, and never challenging, very central neoliberal principles and practices that included:

LIST A

• Lower corporate and personal taxation to encourage innovation, enterprise and job creation
• A thinning of the welfare net to avoid welfare dependency and increase the incentive to work
• The deregulation of labor markets by the weakening of trade unions
• The parallel deregulation of the business community, and the celebration of income inequality
• The privatization of publicly-owned industries and companies, and the exposure of public bodies to market forces.

That ‘third way’ acceptance of Reaganite/Thatcherite policies worked for a while. There was great job growth in the United States in the 1990s, and New Labour actually grew the UK economy without a recession from 1997-2007. But then the wheels really came off the neoliberal bus. Lightly regulated financial institutions triggered first a major credit crisis, and then the deepest recession either economy had known since the 1930s. In late 2008 and early 2009, no one was a passionate neoliberal anymore. Keynesian demand management, big injections of public spending, and the tight direction of the banking system — all three were briefly back in vogue. But only briefly. For quite quickly, conservatives in both countries found other explanations for the crisis, and told their electorates that it was the government spending that caused the crisis (and not, as in reality was the case, the other way round). Even moderate Democrats like Barack Obama then found themselves unable to govern across the aisle, because the Republican wing of the political class was in full retreat to even more extreme neoliberal positions again.

II

Two things then happened that frame the choices before us now. On the Democratic side of the aisle here in the United States, both a moderate and a more radical challenge to the earlier neoliberal orthodoxy began to crystalize. Hillary Clinton and Bernie Sanders may now personify those different challenges, but they are not their sole architects. On the contrary, across the Democratic coalition as a whole, the last seven years have witnessed the increasing presence in the progressive policy debate of two linked but competing lists of policy preferences. The moderate list includes

LIST B

• The maintenance of demand through public spending and the toleration of public debt
• The avoidance of further financial crisis by tighter financial oversight
• The infrastructure route to growth (public spending to modernize roads, bridges, rail & internet)
• Progressive taxation to reduce excessive inequality and to spread the cost of welfare provision to those best able to bear it
• Greater rights for women and minorities at work, more childcare & paid parental leave
• Moves towards a carbon-free energy policy

The more radical list includes the moderate agenda, but adds some/all of the following

LIST C

• Greater rights for trade unions, and a major hike in both the minimum wage & Social Security
• Systemic attack on the sources of poverty, with affirmative action while poverty persists
• The deconstruction of the system of mass incarceration and the ending of the war on drugs
• New trade policy to reverse the outsourcing of well-paying jobs
• The breaking up of banks that are too big to fail
• Less spending on the military & on foreign wars: more nation-building at home, less abroad

Those lists contain very specific American dimensions (not least the ending of mass incarceration and the winding down of foreign wars). But they are not, in all their essentials, American lists alone. Parallel changes in understanding and policy are in debate and dispute in many western European center-left parties right now. They certainly are in the British Labour Party, where leadership has recently switched to Jeremy Corbyn, in many ways the UK’s Bernie Sanders equivalent. For the post-2008 struggle, in all advanced capitalist economies, to return to generalized prosperity and job security is obliging the center-left everywhere to re-examine the wisdom of its earlier enthusiastic accommodation to neoliberalism. It is that re-examination that lies at the heart of the current clash, in the on-going series of Democratic Party presidential primaries, between Hillary Clinton and Bernie Sanders.

III

The three policy lists now in play are not the same. Their centers of gravity are different because the analyses underpinning them also differ. And because they are different, and because of the history in which they sit, Hillary Clinton in particular has a double problem with her potential electoral base.

Her first problem is this. When she was the politically active first lady to her husband’s presidency, economic policy under that presidency operated on List A. So one question that Hillary Clinton has to answer now is whether economic policy under a second Clinton presidency (namely hers) will be similar, or will it be different? Her Republican opponents will attempt to tar her with the Bill Clinton brush, pointing to sexual infidelity and possibly financial corruption or worse. Her progressive critics should worry more about the extent to which the current global activities of the Clinton Foundation point to her husband’s on-going commitment to neoliberal principles. Because if he hasn’t made the break, and he remains among her counsellors, how much of a break has she really made, or how much of a break will she be able to sustain?

Then there is the second problem, the really big one: if the answer to the first question is that yes, next time policy will be very different, will it be different by operating on List B (which is basically the blocked economic policy of the Obama presidency), or will it stretch out to encompass some dimensions (or the totality, indeed) of List C, as so many radical supporters of Bernie Sanders now believe to be essential? Just how radicalized has Hillary Clinton become? How much is show, and how much is real?

The great fear, on the left of the Democratic coalition, is that the rupture with the original Clinton list (List A) is still paper thin: and that Hillary Clinton will say radical things (from the other two lists, including List C) simply to win office. Then, when in office, she will go back to List A, triangulating with neoliberal Republicans in the manner of the first Clinton presidency. Reassuring her progressive supporters that she will not do any of this is therefore a vital task for her between now and November, because only if that reassurance is forthcoming — only if the depth of her rupture with her own past is unambiguously clear — will the vast majority of those mobilized by Bernie Sanders act as willing foot-soldiers in the electoral battle to save America from a Trump presidency. And she will need those foot-soldiers.

David Coates holds the Worrell Chair in Anglo-American Studies at Wake Forest University. He is the author of Answering Back: Liberal Responses to Conservative Arguments, New York: Continuum Books, 2010. 

 

The fall of Europe: Why the European Union is teetering on the brink

Growth is anemic at best and socio-economic inequality is on the rise. How did the European project go so wrong?

The fall of Europe: Why the European Union is teetering on the brink
This piece originally appeared on TomDispatch.

Europe won the Cold War.

Not long after the Berlin Wall fell a quarter of a century ago, the Soviet Union collapsed, the United States squandered its peace dividend in an attempt to maintain global dominance, and Europe quietly became more prosperous, more integrated, and more of a player in international affairs. Between 1989 and 2014, the European Union (EU) practically doubled its membership and catapulted into third place in population behind China and India. It currently boasts the world’s largest economy and also heads the list of global trading powers. In 2012, the EU won the Nobel Peace Prize for transforming Europe “from a continent of war to a continent of peace.”

In the competition for “world’s true superpower,” China loses points for still having so many impoverished peasants in its rural hinterlands and a corrupt, illiberal bureaucracy in its cities; the United States, for its crumbling infrastructure and a hypertrophied military-industrial complex that threatens to bankrupt the economy. As the only equitably prosperous, politically sound, and rule-of-law-respecting superpower, Europe comes out on top, even if — or perhaps because — it doesn’t have the military muscle to play global policeman.

And yet, for all this success, the European project is currently teetering on the edge of failure. Growth is anemic at best and socio-economic inequality is on the rise. The countries of Eastern and Central Europe, even relatively successful Poland, have failed to bridge the income gap with the richer half of the continent. And the highly indebted periphery is in revolt.

Politically, the center may not hold and things seem to be falling apart. From the left, parties like Syriza in Greece are challenging the EU’s prescriptions of austerity. From the right, Euroskeptic parties are taking aim at the entire quasi-federal model. Racism and xenophobia are gaining ever more adherents, even in previously placid regions like Scandinavia.



Perhaps the primary social challenge facing Europe at the moment, however, is the surging popularity of Islamophobia, the latest “socialism of fools.” From the killings at the Munich Olympics in 1972 to the recent attacks atCharlie Hebdo and a kosher supermarket in Paris, wars in the Middle East have long inspired proxy battles in Europe. Today, however, the continent finds itself ever more divided between a handful of would-be combatants who claim the mantle of true Islam and an ever-growing contingent who believe Islam — all of Islam — has no place in Europe.

The fracturing European Union of 2015 is not the Europe that political scientist Frances Fukuyama imagined when, in 1989, he so famouslypredicted “the end of history,” as well as the ultimate triumph of liberal democracy and the bureaucracy in Brussels, the EU’s headquarters, that now oversees continental affairs. Nor is it the Europe that British Prime Minister Margaret Thatcher imagined when, in the 1980s, she spoke of the global triumph of TINA (“there is no alternative”) and of her brand of market liberalism. Instead, today’s Europe increasingly harkens back to the period between the two world wars when politicians of the far right and left polarized public debate, economies went into a financial tailspin, anti-Semitism surged out of the sewer, and storm clouds gathered on the horizon.

Another continent-wide war may not be in the offing, but Europe does face the potential for regime collapse: that is, the end of the Eurozone and the unraveling of regional integration. Its possible dystopian future can be glimpsed in what has happened in its eastern borderlands. There, federal structures binding together culturally diverse people have had a lousy track record over the last quarter-century. After all, the Soviet Union imploded in 1991; Czechoslovakia divorced in 1993; and Yugoslavia was torn asunder in a series of wars later in the 1990s.

If its economic, political, and social structures succumb to fractiousness, the European Union could well follow the Soviet Union and Yugoslavia into the waste bin of failed federalisms. Europe as a continent will remain, its nation-states will continue to enjoy varying degrees of prosperity, but Europe as an idea will be over. Worse yet, if, in the end, the EU snatches defeat from the jaws of its Cold War victory, it will have no one to blame but itself.

The Rise and Fall of TINA

The Cold War was an era of alternatives. The United States offered its version of freewheeling capitalism, while the Soviet Union peddled its brand of centralized planning. In the middle, continental Europe offered the compromise of a social market: capitalism with a touch of planning and a deepening concern for the welfare of all members of society.

Cooperation, not competition, was the byword of the European alternative. Americans could have their dog-eat-dog, frontier capitalism. Europeans would instead stress greater coordination between labor and management, and the European Community (the precursor to the EU) would put genuine effort into bringing its new members up to the economic and political level of its core countries.

Then, at a point in the 1980s when the Soviet model had ceased to exert any influence at all globally, along came TINA.

At the time, British Prime Minister Margaret Thatcher and American President Ronald Reagan were ramping up their campaigns to shrink government, while what later became known as globalization — knocking down trade walls and opening up new opportunities for the financial sector — began to be felt everywhere. Thatcher summed up this brave new world with her TINA acronym: the planet no longer had any alternative to globalized market democracy.

Not surprisingly, then, in the post-Cold War era, European integration shifted its focus toward removing barriers to the flow of capital. As a result, the expansion of Europe no longer came with an implied guarantee of eventual equality. The deals that Ireland (1973) and Portugal (1986) had received on accession were now, like the post-World War II Marshall Plan, artifacts of another era. The sheer number of potential new members knocking on Europe’s door put a strain on the EU’s coffers, particularly since the economic performance of countries like Romania and Bulgaria was so far below the European average. But even if the EU had been overflowing with funds, it might not have mattered, since the new “neoliberal” spirit of capitalism now animated its headquarters in Brussels where the order of the day had become: cut government, unleash the market.

At the heart of Europe, as well as of this new orthodoxy, lies Germany, the exemplar of continental fiscal rectitude. Yet in the 1990s, that newly reunified nation engaged in enormous deficit spending, even if packaged under a different name, to bring the former East Germany up to the level of the rest of the country. It did not, however, care to apply this “reunification exception” to other former members of the Soviet bloc. Acting as the effective central bank for the European Union, Germany instead demanded balanced budgets and austerity from all newcomers (and some old timers as well) as the only effective answer to debt and fears of a future depression.

The rest of the old Warsaw Pact has had access to some EU funds for infrastructure development, but nothing on the order of the East German deal. As such, they remain in a kind of economic halfway house. The standard of living in Hungary, 25 years after the fall of Communism, remainsapproximately half that of neighboring Austria. Similarly, it took Romania 14 years just to regain the gross national product (GDP) it had in 1989 and it remains stuck at the bottom of the European Union. People who visit only the capital cities of Eastern and Central Europe come away with a distorted view of the economic situation there, since Warsaw and Bratislava are wealthier than Vienna, and Budapest nearly on a par with it, even though Poland, Slovakia, and Hungary all remain economically far behind Austria.

What those countries experienced after 1989 — one course of “shock therapy” after another — became the medicine of choice for all EU members at risk of default following the financial crisis of 2007 and then the sovereign debt crisis of 2009. Forget deficit spending to enable countries to grow their way out of economic crisis. Forget debt renegotiation. The unemployment rate in Greece and Spain now hovers around 25%, with youth unemployment over 50%, and all the EU members subjected to heavy doses of austerity have witnessed a steep rise in the number of people living below the poverty line. The recent European Central Bank announcement of “quantitative easing” — a monetary sleight-of-hand to pump money into the Eurozone — is too little, too late.

The major principle of European integration has been reversed. Instead of Eastern and Central Europe catching up to the rest of the EU, pockets of the “west” have begun to fall behind the “east.” The GDP per capita of Greece, for example, has slipped below that of Slovenia and, when measured in terms of purchasing power, even Slovakia, both former Communist countries.

The Axis of Illiberalism

Europeans are beginning to realize that Margaret Thatcher was wrong and there are alternatives — to liberalism and European integration. The most notorious example of this new illiberalism is Hungary.

On July 26, 2014, in a speech to his party faithful, Prime Minister Viktor Orban confided that he intended a thorough reorganization of the country. The reform model Orban had in mind, however, had nothing to do with the United States, Britain, or France. Rather, he aspired to create what he bluntly called an “illiberal state” in the very heart of Europe, one strong on Christian values and light on the libertine ways of the West. More precisely, what he wanted was to turn Hungary into a mini-Russia or mini-China.

“Societies founded upon the principle of the liberal way,” Orban intoned,“will not be able to sustain their world-competitiveness in the following years, and more likely they will suffer a setback, unless they will be able to substantially reform themselves.” He was also eager to reorient to the east, relying ever less on Brussels and ever more on potentially lucrative markets in and investments from Russia, China, and the Middle East.

That July speech represented a truly Oedipal moment, for Orban was eager to drive a stake right through the heart of the ideology that had fathered him. As a young man more than 25 years earlier, he had led the Alliance of Young Democrats — Fidesz — one of the region’s most promising liberal parties. In the intervening years, sensing political opportunity elsewhere on the political spectrum, he had guided Fidesz out of the Liberal International and into the European People’s Party, alongside German Chancellor Angela Merkel’s Christian Democrats.

Now, however, he was on the move again and his new role model wasn’t Merkel, but Russian President Vladimir Putin and his iron-fisted style of politics. Given the disappointing performance of liberal economic reforms and the stinginess of the EU, it was hardly surprising that Orban had decided to hedge his bets by looking east.

The European Union has responded by harshly criticizing Orban’s government for pushing through a raft of constitutional changes that restrict the media and compromise the independence of the judiciary. Racism and xenophobia are on the uptick in Hungary, particularly anti-Roma sentiment and anti-Semitism. And the state has taken steps to reassert control over the economy and impose controls on foreign investment.

For some, the relationship between Hungary and the rest of Europe is reminiscent of the moment in the 1960s when Albania fled the Soviet bloc and, in an act of transcontinental audacity, aligned itself with Communist China. But Albania was then a marginal player and China still a poor peasant country. Hungary is an important EU member and China’s illiberal development model, which has vaulted it to the top of the global economy, now has increasing international influence. This, in other words, is no Albanian mouse that roared. A new illiberal axis connecting Budapest to Beijing and Moscow would have far-reaching implications.

The Hungarian prime minister, after all, has many European allies in his Euroskeptical project. Far right parties are climbing in the polls across the continent. With 25% of the votes, Marine Le Pen’s National Front, for instance, topped the French elections for the European parliament last May. In local elections in 2014, it also seized 12 mayoralties, and polls show that Le Pen would win the 2017 presidential race if it were held today. In the wake of the Charlie Hebdo shootings, the National Front has been pushing a range of policies from reinstating the death penalty to closing borders that would deliberately challenge the whole European project.

In Denmark, the far-right People’s Party also won the most votes in the European parliamentary elections. In November, it topped opinion polls for the first time. The People’s Party has called for Denmark to slam shut its open-door policy toward refugees and re-introduce border controls. Much as the Green Party did in Germany in the 1970s, groupings like Great Britain’s Independence Party, the Finns Party, and even Sweden’s Democrats are shattering the comfortable conservative-social democratic duopoly that has rotated in power throughout Europe during the Cold War and in its aftermath.

The Islamophobia that has surged in the wake of the murders in France provides an even more potent arrow in the quiver of these parties as they take on the mainstream. The sentiment currently expressed against Islam — at rallies, in the media, and in the occasional criminal act — recalls a Europe of long ago, when armed pilgrims set out on a multiple crusades against Muslim powers, when early nation-states mobilized against the Ottoman Empire, and when European unity was forged not out of economic interest or political agreement but as a “civilizational” response to the infidel.

The Europe of today is, of course, a far more multicultural place and regional integration depends on “unity in diversity,” as the EU’s motto puts it. As a result, rising anti-Islamic sentiment challenges the inclusive nature of the European project. If the EU cannot accommodate Islam, the complex balancing act among all its different ethnic, religious, and cultural groups will be thrown into question.

Euroskepticism doesn’t only come from the right side of the political spectrum. In Greece, the Syriza party has challenged liberalism from the left, as it leads protests against EU and International Monetary Fund austerity programs that have plunged the population into recession and revolt. As elsewhere in Europe, the far right might have taken advantage of this economic crisis, too, had the government not arrested the Golden Dawn leadership on murder and other charges. In parliamentary elections on Sunday, Syriza won an overwhelming victory, coming only a couple seats short of an absolute majority. In a sign of the ongoing realignment of European politics, that party then formed a new government not with the center-left, but with the right-wing Independent Greeks, which is similarly anti-austerity but also skeptical of the EU and in favor of a crackdown on illegal immigration.

European integration continues to be a bipartisan project for the parties that straddle the middle of the political spectrum, but the Euroskeptics are now winning votes with their anti-federalist rhetoric. Though they tend to moderate their more apocalyptic rhetoric about “despotic Brussels” as they get closer to power, by pulling on a loose thread here and another there, they could very well unravel the European tapestry.

When the Virtuous Turn Vicious

For decades, European integration created a virtuous circle — prosperity generating political support for further integration that, in turn, grew the European economy. It was a winning formula in a competitive world. However, as the European model has become associated with austerity, not prosperity, that virtuous circle has turned vicious. A challenge to the Eurozone in one country, a repeal of open borders in another, the reinstitution of the death penalty in a third — it, too, is a process that could feed on itself, potentially sending the EU into a death spiral, even if, at first, no member states take the fateful step of withdrawing.

In Eastern and Central Europe, the growing crew who distrust the EU complain that Brussels has simply taken the place of Moscow in the post-Soviet era. (The Euroskeptics in the former Yugoslavia prefer to cite Belgrade.) Brussels, they insist, establishes the parameters of economic policy that its member states ignore at their peril, while Eurozone members find themselves with ever less control over their finances. Even if the edicts coming from Brussels are construed as economically sensible and possessed of a modicum of democratic legitimacy, to the Euroskeptics they still represent a devastating loss of sovereignty.

In this way, the same resentments that ate away at the Soviet and Yugoslav federations have begun to erode popular support for the European Union. Aside from Poland and Germany, where enthusiasm remains strong, sentiment toward the EU remains lukewarm at best across much of the rest of the continent, despite a post-euro crisis rebound. Its popularity now hovers ataround 50% in many member states and below that in places like Italy and Greece.

The European Union has without question been a remarkable achievement of modern statecraft. It turned a continent that seemed destined to wallow in “ancestral hatreds” into one of the most harmonious regions on the planet. But as with the portmanteau states of the Soviet Union, Yugoslavia, and Czechoslovakia, the complex federal project of the EU has proven fragile in the absence of a strong external threat like the one that the Cold War provided. Another economic shock or a coordinated political challenge could tip it over the edge.

Unity in diversity may be an appealing concept, but the EU needs more than pretty rhetoric and good intentions to stay glued together. If it doesn’t come up with a better recipe for dealing with economic inequality, political extremism, and social intolerance, its opponents will soon have the power to hit the rewind button on European integration. The ensuing regime collapse would not only be a tragedy for Europe, but for all those who hope to overcome the dangerous rivalries of the past and provide shelter from the murderous conflicts of the present.

John Feffer‘s most recent book is “North Korea, South Korea: U.S. Policy at a Time of Crisis.”

http://www.salon.com/2015/01/30/the_fall_of_europe_why_the_european_union_is_teetering_on_the_brink_partner/?source=newsletter