THE ORIGIN STORY of the 2008 financial crisis is now well known: An American real estate bubble inflated by a risky mortgage business burst. Wall Street got clobbered, spooking lenders, constricting credit, and pushing even low-risk money market funds to register losses. Banks failed; insurers ran out of cash; people—especially minorities and the poor—lost their homes, their jobs, and their money, while the architects of the system suffered few consequences.
At first, the crisis was presumed by world leaders to be an American affliction, the product of an adventurism particular to Wall Street financiers. But the rot spread fast. Foreign banks owned roughly a quarter of the toxic American mortgages; as their returns evaporated, they, too, were pushed into crisis. Eastern European companies, privatized in the 1990s and dependent on Western-owned banks since, saw their funding dry up. Oil prices fell by more than 76 percent, hitting the Gulf monarchies hard. Making things even more difficult was the fact that so much of this global business was denominated in US dollars no longer in ready supply.
There was no road map for this new economic reality. As the historian Adam Tooze writes in his new book, Crashed, “One day the investment banks, dealers and those they borrowed from and lent securities to all functioned as a gigantic trillion-dollar machine based on confidence and widely acceptable collateral. The next day even a very large player in the system could be shut down.” Tooze’s expansive, essential account of the crisis and the years that followed narrates the past decade of bankruptcies, bailouts, and stimulus packages. Highlighting the economic interconnectedness the world’s national economies had achieved by 2008, he shows how the crisis turned the abstract idea of a “global” economy into something unhappily concrete: Within weeks, it became clear that the fates of individual nations, companies, and people around the world would be harder to untangle than chewing gum from a child’s hair.
The economic system Tooze describes—the system whose workings were exposed in the crisis and that continues to shape our world today—is one in which actors are interdependent but far from equal. A corporate oligarchy made up of two dozen private banks and a handful of central bankers controls the production of money. Supply chains synchronized across continents and commercial competition between countries lead lenders to chase higher returns to the end of the earth. Widespread deregulation allows banks to create credit unsupervised, out of thin air. Nation-states are secondary to capital, and supranational trade agreements work together to globalize inequalities rather than benefits. It’s a system, in Tooze’s words, of “American financial hegemony” built on near-universal use of the dollar. Since the balance of power skews westward, the consequences of a boom or a bust are unevenly distributed.
As he does with the crisis itself, Tooze gives the “technical and contentious business” of international finance a weight, a form, and a texture—not easy, given how wedded it is to its own abstraction. At its core he finds a set of unresolved contradictions: between national sovereignty and supranational governance, between local laws and global regulations, between running a country and planning the world. “Which system was it that needed to be saved in the autumn of 2008? Who was being hurt? Who was included in the circle of those who needed to be protected? And who was not?” Tooze asks. Because being “in this together,” as it turns out, is very different from deciding how to get out.
TO ANSWER THESE questions, it’s helpful to look back at the people who first dreamed of an overarching planetary capitalism. In Globalists, Quinn Slobodian does exactly that. His history—the first of its kind—of early neoliberalism tells the story of how a group of obscure Austrian economists nostalgic for the Hapsburg empire moved to Geneva to pursue “an ideological goal and a childhood idyll” of world economic integration. Neoliberalism was a system of thought that aimed above all else to keep capital safe by protecting it from expropriation, encasing it above and beyond the reach of the voting public, and ensuring its right to move about freely, even granting it immunities abroad. The early neoliberal vision was a product of its time, rooted in European history and anxious about socialism, nationalism, and the decline of empire. It was much more radical in scope than what we think of today as economic liberalism or “market fundamentalism.”But it was nimble, and eventually able to accommodate and influence the post–World War II economic order. Its relevance today is unmistakable.
Examining debates, letters, conferences, and institutions of the time, Slobodian shows that years before the Chicago School and Ayn Rand popularized free-market ideologies in the 1950s and ’60s, and even before the Mont Pèlerin Society put neoliberalism on the map in 1947, members of a group he calls the Geneva School were dreaming up a new economic order. His narrative begins after World War I, in Vienna, where ideas about the “world economy” and the “international community” flourished in tandem. Influenced in part by the nascent League of Nations, a group of economists including Ludwig von Mises, Friedrich August von Hayek, Gottfried Haberler, and Wilhelm Röpke began to advocate for their own version of a universal society. Unlike that of the internationalists of the 1920s, theirs would be built not on democratic cooperation but on the sanctity of competition. The aim was to ensure the inviolability of global capital. Shaken by the emergence of socialism and skeptical of workers’ rights and the welfare state, the neoliberals sought to ensure that whatever happened within the world’s nations—political change, popular uprisings, even incremental changes like a minimum wage—would not threaten transnational commerce and trade.
Globalists is organized into thematic chapters on subjects as wide-ranging as race, big data, and human rights. The book’s most vital points, however, have to do with the same basic tensions Tooze describes in Crashed. The neoliberals, Slobodian explains, argued that global money should take precedence over national politics—a philosophy that continues to hold sway, with far-reaching and often dire consequences today. This approach first took shape in the 1920s, when, with institutional support from the Paris-based organization called the International Chamber of Commerce, they aimed to reestablish international trade after World War I. The first goal was removing tariffs: In 1926, the neoliberal fellow traveler and conservative British MP Clive Morrison-Bell commissioned a 3-D map of Europe marred by political borders, with tariffs visually represented as “metaphorical barriers with height to be climbed over.” Other economists borrowed images from the natural world to make their point about the interdependence of nations, explaining that “channels of commerce” would follow gravitational forces to create a “networked world economy.”
These models could just as easily have been a visual argument for free migration. But, in his book’s most important turn, Slobodian insists that though the two are often conflated, neoliberalism does not resemble the universal borderless capitalism espoused by anarcho-capitalists or libertarians. The Geneva School was uneasy about freedom of movement, preferring people to be “firmly rooted in their countries.” If prices were flexible and mobile, they believed, humans didn’t need to be. In other words, they wanted freedom for money, but not for people.
Globalists exposes a similar contradiction in the neoliberals’ arguments about capitalism itself. In the aftermath of the Great Depression, Mises and Röpke began to understand that there was no such thing as a self-regulating market. Turning away from the study of economics, they argued that the unknowable, invisible world economy had to be governed by a “framework of tradition and the rule of law.” This framework was not a world government—at least not a political one. What they imagined instead was a muscular supranational federation, a global constitution, which would limit socialism, populism, and other forces that might threaten capital. But though they wanted to insulate global trade from local politics, they weren’t against the state itself. Rather, they believed the state’s primary function was not to represent citizens, but to “make peace” and “avoid violent revolutions.” In 1927, when riots sparked by an unpopular court decision in “Red” Vienna (then under socialist rule) ended with eighty-nine deaths and more than one thousand casualties at the hands of the police, Mises was untroubled: “The right to kill with impunity under emergency powers,” Slobodian writes, “met Mises’s approval.”
Though Tooze and Slobodian cover very different time periods, both show how neoliberal ideas influenced the status quo in the second half of the twentieth century. The Geneva School would influence key negotiators at the General Agreement on Tariffs and Trade after World War II. Twenty-three nations signed the GATT in 1947 and, in doing so, eliminated many tariffs and quotas governing trade between them. It would grow to include more than one hundred nations by the time its successor agency, the World Trade Organization, took over in 1995. By 2007, Alan Greenspan, former chair of the Federal Reserve, could say that how he voted in the US presidential election did not matter, as “thanks to globalization, policy decisions in the US have been largely replaced by global market forces.” A year later, he was forced to recant. “I’ve found a flaw,” he told Congress of his ideological convictions. “I don’t know how significant or permanent it is. But I’ve been very distressed by that fact.”
IN THE YEARS since the crisis, the previously obscure word neoliberalism has taken on new relevance. It is often used vaguely to describe an all-around inhumane state of affairs in which human actions answer to the market and the market alone. The biggest mistake made by journalists and academics attempting to explain what, exactly, happened in 2008 is imagining that neoliberalism stands for a belief in self-regulated markets without borders—and further, that we live in some version of that world. Tooze’s and Slobodian’s books bring this hazy picture into sharper focus. Globalists rectifies the theory, demonstrating that contrary to popular assumption, Mises, Hayek, and many of their heirs did not actually trust capital to manage itself unimpeded: The economic “freedom” they desired, in practice, required extreme, top-down measures to curtail democracy.
Crashed illuminates what these measures looked like in a twenty-first-century crisis. Profiling the “crisis fighters” in the US, notably the former treasury secretary Timothy Geithner, Tooze makes clear that their primary goal was to uphold the stability of the financial system by any means necessary. “Perhaps most important, there was strong language about the need to maintain open global trade,” Tooze explains. “There would be no protectionist free-for-all, as in the 1930s. There was also an agreement to abandon a narrow view of fiscal propriety and not to discourage deficits, but no agreement on a coordinated worldwide stimulus.” It would nonetheless be inaccurate to give credit to supranational structures alone, because as Tooze explains, the role of the US far outweighed that of any other country. Although the US was plainly acting in the interest of capital—if only because it had the most money in the system, and therefore the most to lose—this kind of bullying was not part of the Geneva School’s vision of a world of rules and laws.
In an unprecedented and underappreciated move that Crashed sheds important light on, in the months after the 2008 crisis the Federal Reserve essentially turned itself into the lender of last resort not just to American banks, but to almost the entire global banking system. This lending spree meant virtually every European country was reliant on the fire hose of American-issued money. “The foundation of the global dollar was the private banking and financial market network, materialized in the Wall Street–City of London nexus,” Tooze writes. If the US was the one making these new rules, it found plenty of desperate adherents in the private sector who did not think to complain. “This was a cocreation of American and European finance, deliberately erected beyond state control.”
Despite the perception that neoliberal ideologies are about restraint and austerity, when the system was under siege “we lived in an age not of limited but of big government . . . of interventionism that had more in common with military operations or emergency medicine than with law-bound governance.” What the financial industry demanded “was the mobilization of all of the resources of the state to save society’s financial infrastructure from a threat of systemic implosion.” The result of this mobilization was bailing out banks and letting ordinary people suffer. Freedom was never free. It came explicitly at the expense of justice. Just as Slobodian’s neoliberal economists had imagined, there was no friction between the state and the global financial order—only complicity from the top down and the bottom up.
ONE PROBLEM Slobodian describes the Geneva School running into time after time was the concept of national sovereignty. The idea was too sticky, too emotionally loaded, and too politically expedient for countries to do away with for good. In the 1990s, at what Slobodian calls “the high point of neoliberal globalism,” “ ‘the world economy’ was granted a power beyond any single nation.” Politicians at the time “grew accustomed to deferring to the world economy to justify cuts to welfare benefits and restructuring,” and invocations of national competitiveness became an all-purpose tool to advance the interests of the global elite. As Slobodian writes, “It was convenient to have an extranational disciplinarian to which they could gesture apologetically and shrug.”
In the wake of the financial crisis, Tooze shows, this defense backfired spectacularly. Given the gaping inequalities American society faced, the idea of a “national” economy could no longer plausibly be presented as a “project common to all Americans.” Examining the Fed, Treasury, and FDIC’s decision to forcefully recapitalize the country’s nine major banks, Tooze asks, “If this was an act of sovereignty, whose sovereignty was it? The American state’s, or that of the ‘new Wall Street’—the network personified by figures like [Henry] Paulson and Geithner who tied the Treasury and the Fed to America’s globalized financial sector?”
The abyss between the interests of American citizens and the American-backed globalized financial sector accounts in part for nationalism’s dramatic comeback. When the nation-state’s sovereignty is threatened, when power is in the hands of the few, and when democracy is manifestly toothless, it only makes sense for reactionary forces (and some reasonable ones) to start speaking of a “deep state” and a “world order” over which they have no control. “The elections came thick and fast,” Tooze writes, listing significant gains for the far-right in Italy, Austria, England, France, Greece, and the US, as well as persistent nationalist governments in Hungary, Poland, Turkey, Russia, China, India, and beyond. All of this amounts to a giant rebuke of neoliberalism. But it’s too soon to spread rumors of its demise; even if it went under, it is unclear what would replace it. To borrow an expression, it remains harder to imagine the end of neoliberalism than the end of the world. The system worked for a while. Its surviving supporters would very much like it to keep working.
Atossa Araxia Abrahamian is a senior editor at The Nation and the author of The Cosmopolites: The Coming of the Global Citizen (Columbia Global Reports, 2015).
