The U.S. economy has undergone a profound restructuring during the past two decades. This process, known as neoliberal restructuring, has affected practically every dimension of social life, including the gap between rich and poor, the nature of work, the role of big money in politics, the quantity and quality of public services, and the character of family life.
Neoliberal restructuring centers on transforming the role of the state in the economy. It has entailed renouncing the use of government spending and taxing to moderate the ups and downs of the business cycle; loosening or eliminating government regulation of corporate behavior in both the domestic and international spheres; privatization of government enterprises and public responsibilities; and large cutbacks in social programs. This restructuring has come to be called "neoliberal" because it is an updated, and more extreme, version of the "classical liberal" economic theory developed in the eighteenth and nineteenth centuries by Adam Smith and David Ricardo, who argued that a capitalist economy is largely self-regulating through the action of market forces.
The revival of a version of classical liberal thought came as a surprise, since it had been discredited and lost its dominant position following the Great Depression and the Second World War. Fearing a return of the depression, and facing large and growing socialist and communist movements in many parts of the world after the Second World War, the ruling classes in the United States, Britain, and other leading capitalist countries reluctantly accepted a raft of social welfare programs and a more activist role for the state in regulating the capitalist economy. For reasons that we cannot go into here, starting in the late 1970s this Keynesian regulationist approach, which had been dominant for some twenty-five years following the Second World War, was gradually abandoned, and replaced by a new version of classical liberalism, with Britain and the United States leading the way.
Contemporary neoliberalism has become fully dominant among mainstream thinkers in the United States and Britain. This new conventional wisdom holds that the many economic and social problems of the decades following the Second World War resulted from government meddling in the economy. The rediscovered "free market economy" is, we are told, the route to optimum efficiency, rapid economic growth and innovation, and rising prosperity for all who are willing to work hard and take advantage of available opportunities.
The United States has sought to redesign the institutions of the international capitalist economy to conform to neoliberal prescriptions, while also demanding neoliberal restructuring within countries in Western and Eastern Europe, Asia, Africa, and Latin America. In many countries the elites have welcomed such changes. However, change has been slow in some countries due to popular support for social welfare programs and state regulations that are intended to provide some protection against the enormous inequalities and instabilities generated by a capitalist economy.
One hindrance to the U.S. ruling class agenda of creating a neoliberal world system has been the glaring absence of convincing evidence that neoliberal restructuring produces the benefits claimed by its promoters. There were many social and economic problems in the regulated capitalism that predominated in the quarter-century immediately following the Second World War, as is always the case in a capitalist system. However, economic historians agree that the overall economic performance of the leading capitalist countries during those twenty-five years was the best ever achieved by them. For that reason, the period from roughly 1950 to 1973 is often called the "Golden Age" of capitalism. Table 1 shows growth rates in real gross domestic product (GDP) per capita, which measures the output of goods and services in the economy, per person in the population, since the early nineteenth century. …