Focusing on the rise of monetarism and neoliberalism, the first two
sections consider the shift of advanced democracies from an ethos
dominated by the search for equality through macro-economic man-
agement, collective bargaining, and the welfare state, to a new vision
defined by a preference for competitiveness, budgetary austerity, and
market mechanisms. The following sections then examine how this
neoliberal vision was extended to development politics, and how
forces of the right were able to transform the dynamics of North–
South relations.
Monetarism
To understand the change of direction of the 1980s, it is useful to go
back a few years, to see how new policy ideas were emerging on the
right, in the heyday of the postwar “consensus.” In the 1960s, con-
servative politicians rarely attacked head-on the Keynesian perspective
or the welfare state project. Even Republican president Richard Nixon
called himself a Keynesian in January 1971, as he looked toward his
1972 re-election bid.^9 Critiques of the approach mounted, however,
among economists in particular. The attacks came from three sides.
First, Keynesianism was criticized for failing to explain and solve
creeping inflation and stagflation. Second, it was dismissed for its
inadequate micro-foundations or, in other words, for its difficulty in
accounting for the behavior of individual economic agents. Third, on
more political grounds, Keynesianism and state intervention were
challenged in the name of freedom, individual choice, efficiency, and
morality.
Consider, first, the question of inflation. Milton Friedman, a Uni-
versity of Chicago economist who believed in free markets and dis-
trusted state intervention, pioneered the offensive on this question. He
started by reviving the old quantity theory of money, which suggested
that a rise in the money supply necessarily increased prices, thus
creating inflation. For Keynes, the connection was not so straight-
forward. Without denying the relevance of monetary factors, Keynes
argued that in some cases, in a severe recession for instance, individuals
(^9) Daniel Yergin and Joseph Stanislaw,The Commanding Heights: The Battle
Between Government and the Marketplace that Is Remaking the Modern
World, New York, Simon & Schuster, 1998, pp. 60–61.
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