How Liberals Gave Up on Progress

Liberals constantly urge citizens to accept difficult decisions to protect the capitalist economy. This wasn’t always the case.

The International Monetary Fund headquarters in Washington, DC. (Al Drago / Bloomberg via Getty Images)

Following the series of rate hikes by central banks on both sides of the Atlantic, the financial press was littered with articles insisting that, though it may be a tough decision to make, it was the job of any responsible central bank to remove the punch bowl from the party and cool down the Wests’ overheated economies. The language of restraint and of making tough sacrifices has become so integral to contemporary politics that it is hard to imagine an alternative.

For much of the last century this was not the case. Governments, both capitalist and communist, drew their legitimacy from their ability to fulfill promises of ever-increasing living standards and security to their citizens. This world now seems firmly behind us, in its place a social order run by sensible technocrats offering an endless course of bitter pills. This state of affairs is the result of long-term trends that have shaped the United States and the rest of the world, as Fritz Bartel brilliantly argues in The Triumph of Broken Promises: The End of the Cold War and the Rise of Neoliberalism.

Ending the Economic Miracle

A study of the final decades of the Cold War, Bartel’s book details how energy politics and private capital dismantled both the welfare democracies of the postwar West and the socialist autocracies of the East. In the process he provides the best structural account yet of the end of the Cold War, the rise of neoliberalism, and the emergence of the current world order. An elegant work of critical historical analysis, the book is essential reading for those invested in building a better, more equitable future — though Bartel largely leaves it to the reader to draw their own political conclusions.

His thesis is deceptively simple: the end of the Cold War can be explained by a shift from the “politics of making promises” to the “politics of breaking promises.” Perhaps best exemplified by the infamous 1959 “Kitchen Debate” between then vice president Richard Nixon and Soviet leader Nikita Khrushchev, the early Cold War was a contest of “making promises.” Both the communist and capitalist worlds promised to deliver the benefits of industrial modernity to more and more of their citizens — the West through the managed capitalism of the US New Deal and European Christian democracy, the East via a socialist command economy. Despite the differences in method, each promised much the same thing: better kitchens, better appliances, cars, food, etc.; in short, increasingly higher standards of living.

Both, too, placed themselves in opposition to the laissez-faire models of capitalism seen as causing the Great Depression. Most critically, both the East and West also benefited from a period of explosive economic growth triggered by the recovery from World War II and the broad dissemination of second-wave industrialization across the Global North.

Known by many names — the “wirtschaftswunder” in West Germany, the “trente gloriesuses” in France, the “economic miracle” in Japan — these years of spectacular growth sustained the social contracts of both sides of the Cold War. As Bartel puts it, governments East and West, “were able to promise at least their white men a better life and deliver on that promise almost as fast as those men could imagine what a better life was.” Though the West was certainly richer, the East saw faster rates of growth at times and, on the whole, the era of making promises was comparable across the Cold War divide. For all their flaws, each model had shown real success in delivering rising incomes, full employment, and job security to large constituencies.

Each also saw the sources of that success dry up at much the same time. In the late 1960s and early 1970s, economic growth in the industrialized world began to stall — the exhilarating rates of the postwar era never to be recovered — only to be staggered by the meteoric rise in oil prices following the 1973 Arab-Israeli War. The emergence of Organization of the Petroleum Exporting Countries (OPEC) marked the end of the age of cheap energy and, for Bartel, the beginning of a new era, that of “breaking promises.”

Encumbered with stagnant, energy intensive, industrial economies and social compacts based on growth, both East and West were confronted with the need for a painful economic transition to some alternative socioeconomic structure. It was clear that promises would have to be broken — the question of which ones, and to whom, remained.

Key to determining the answer, Bartel argues, were the two markets transformed and empowered by the 1970s energy crisis: oil and capital. In the case of the latter, Middle Eastern oil revenues swelled the lightly regulated offshore capital exchanges — known as “Euromarkets” — that drew increasingly large amounts of the world’s excess private wealth (growing from just under two hundred billion dollars in 1973 to over nine hundred billion by 1984) by offering higher rates of return than more regulated domestic holdings.

In order to access this wealth, however, one had to show its managers that they could expect a regular rate of return on their investment, that is, that they could expect capital exports from debtor countries. This required imposing what Bartel calls “economic discipline,” or as it’s more commonly known today: austerity. Capital spent on bolstering wages, public investment, and maintaining jobs is capital not available for regular export at a fixed rate.

A Race to Break the Social Contract

At first, it seemed that the East was doing a much better job at handling these challenges. The Soviet Union was able to benefit from decades of investment in its oil industry to provide Eastern European allies with subsidized fuel deliveries, all while earning hard currency through oil sales on the global market. Meanwhile the Communist bloc appeared quite attractive to Western bankers: authoritarian governments looked better positioned to impose economic discipline than their democratic opponents.

What democratic government, the argument went, would willingly impose economic pain on its own constituents? “Our situation,” Soviet prime minister Alexei Kosygin smugly told his East German counterpart in 1976, “is a thousand times better.” Initially unwilling to impose austerity on either labor or capital, Western governments watched as “stagflation” tore at the foundation of their societies and capital flowed into Eastern European coffers — “financing real existing socialism,” Bartel writes, “on credit.”

In the long run, however, democratic regimes were better suited to imposing the economic discipline capital markets required. While the postwar West had made many of the same promises as in the Soviet bloc, fulfilling these promises was not the basis of the legitimacy of noncommunist governments. On the contrary, Western politicians — beginning with Margaret Thatcher — were able to employ a supercharged version of preexisting liberal ideology, to market austerity as a renewal of “freedom,” and thus maintain the legitimacy of their system.

While Thatcher opened the door to a return of economic orthodoxy, US Federal Reserve chairman Paul Volcker kicked it open. By raising interest rates to astronomical levels, he settled the battle between labor and capital over who would bear the brunt of the economic transition. “Capital,” as Bartel describes, “fully regained the upper hand over labor, wages permanently fell behind productivity growth, and inequality dramatically returned.” Economic growth returned to Western Europe and the United States, but at the expense of the middle and working classes.

And, as it turned out, at the expense of the Soviet bloc. As high interest rates and President Ronald Reagan’s massive, defense driven, budget deficits drew stunning amounts of capital toward the United States, it left little money available for other borrowers. Unable to impose austerity without undermining the ideological foundations of the Communist project, increasingly denied access to Western capital markets, and facing declining Soviet oil deliveries, the Eastern bloc confronted the prospect of default and a precipitous decline in their citizens already meager (when compared to the West) standards of living.

Some turned to Western European governments for help, others to the US-dominated International Monetary Fund, each step increasing the leverage of the capitalist side of the Cold War. The Eastern bloc eventually unraveled under the pressure. The wealthier, but hardly better positioned USSR soon followed.

It’s impossible to convey here the compelling depth and comprehensiveness of Bartel’s model of the last two decades of the Cold War — it not only provides a powerful explanation for the end of the conflict and the arrival of neoliberalism but also offers many enlightening interventions in historiographical debates about the era. This is not to say The Triumph of Broken Promises is exhaustive; as with many structural accounts of the past, it’s easy to lose track of contingency and where alternative paths to the present may have emerged.

Bartel acknowledges this, and even points to alternatives in passing — like how the Falklands War weakened the opposition in Thatcherite Britain — but counterfactuals are not his focus. American audiences, for example, would do well to pair the book with one of the excellent and more narrative driven, recent histories of the neoliberal era, like Gary Gerstle’s The Rise and Fall of the Neoliberal Order or Rick Perlstein’s Reaganland, to build a more comprehensive picture of these critical decades.

Historicizing Austerity

Along those lines, while the book ably describes the processes that transformed the world and the global economy from 1973 to 1991, little time is spent explaining how the initial structural conditions that drove the end of the Cold War emerged. This background is dispensed with in a few sentences. It also does not engage with how neoliberal hegemony was secured in the 1990s.

Generally, the book’s politics are more implicit than explicit — the analysis is critical in every sense of the word, but it’s focused on highlighting processes, not proposing alternatives. This is not a flaw, The Triumph of Broken Promises is unequivocally stronger for its tight focus. Yet, it does force the reader to place the book into a larger framework than it does itself.

One such framework is the longer economic history of an increasingly integrated capitalist world economy, one which, by the 1970s, set the global terms in which economic decisions were made, even in socialist countries. From this vantage point, Bartel’s book tells the story of another chapter in the long battle between capital and labor, as financial interests wrenched back the gains that working people had made following the Great Depression.

It was, decidedly, workers and organized labor that carried the weight of the changes Bartel describes, fueling the explosive inequality of the early twenty-first century. In order to construct a fairer world, this process needs to be reversed, and it cannot be overstated how important restoring organized labor is for doing so (Gerstle’s book, for example, does a great job emphasizing how the most egalitarian moments of the New Deal were driven by specific, dramatic, actions by US labor unions).

Moreover, in an era where high inflation has returned, and Bank of America executives are caught in print wishing for a decline in labor’s bargaining power, anti-inflation policies emanating from Washington should be treated with, if nothing else, deep skepticism.

Another larger narrative in which one could place Bartel’s book is the environmental and social history of the last three hundred years. This involves the problems raised by industrial humanity reaching the limits of what it can wrench from the planet in order to ensure the continuation of Western, capitalist patterns of consumption — a problem made more acute by decolonization and its welcome destruction of the logics of imperial rule.

These had unjustly denied the Global South the right or ability to reach capitalist modernity, but their removal has not opened any true path for a globalized homo consumptor. It’s instead increasingly clear that the planet simply cannot provide enough for everyone to use resources at this level, fairly distributed or otherwise. The oil crisis in the 1970s was just the first warning that humanity’s accounts were starting to be overdrawn — battles for other essential, yet diminishing, nonrenewable commodities will follow.

Placing Bartel’s book in this broader context tells us that, even with greater fairness and equality, a better future requires a fundamental shift in how the “good life” has been conceptualized in modernity.