Authoritarian Neoliberalism in Europe: The Red Herring of Ordoliberalism

Introduction: The Overstated Claims for Ordoliberalism

Ordoliberalism, Germany’s allegedly distinctive and dominant economic philosophy, has been cited by a large number of influential writers as a major, even determining, influence over German and European economic policy (Blyth, 2013). ¹ The claim is misleading. Ordoliberalism has been, and is, much less influential in the real world than is often assumed to be the case. ²

The post-war West German “economic miracle” was not solely (or even, probably, principally) attributable to the adoption of ordoliberal policies (Hien, 2013). ³ EU economic governance was influenced by ordoliberal precepts, especially the promotion of competition, but these were only applied to a limited extent prior to the 1980s (Wigger, 2017). Even when a more vigorous competition policy was adopted by the EU, it barely extended to the regulation of mergers despite the ordoliberal distrust of concentrated economic power (Buch-Hansen and Wigger, 2010). The Maastricht Treaty appeared to elevate fiscal discipline to an overarching EU policy goal, but ordoliberals were right to predict that instruments such as the Stability and Growth Pact would become subject to political bargaining and weight-throwing (Germany and France broke the rules and escaped penalties) rather than strictly rules-based governance (Joerges, 2014).

Faced with an economic crisis in the late 2000s, Germany responded with Keynesian, not ordoliberal, programmes, and pushed through “bail out” programmes that largely absolved German (and other) banks from their responsibility for reckless lending to Greece and other countries, a far cry from ordoliberals’ claimed concern with market actors accepting the consequences of their actions (Schelkle, 2012; Thompson, 2015; Vail, 2014). The new economic governance framework since adopted by the EU – which is discussed in detail below – allows, in practice, for arbitrary judgements and inconsistent applications that are at odds with the ordoliberal notion of a legally adjudicated “level playing field” for all (Watt, 2013). The European Central Bank (ECB), meanwhile, has dealt with the crisis by grossly overreaching its legal mandate (and has been supported in doing so by the German courts) (Flassbeck and Lapavitsas, 2013; Joerges, 2014), while supposed prohibitions on state aid interfering with the workings of the “free” market have not prevented an historically unprecedented public rescue of the private financial sector across Europe, subverting the ordoliberal commitment to the “proper assignment of liability to market actors” (Woodruff, 2016: 97).

Europe has certainly taken growing steps to try to insulate economic decision-making from democratic influence. For example, during the 2012 debates on the Fiscal Treaty, German chancellor Merkel proclaimed that “the debt brakes will be binding forever. Never will you be able to change them through a parliamentary majority” (cited in Storey, 2014: 39). However, this trend, while in line with the long-standing EU elite preference for technocratic/expert decision-making (Tsoukalis, 2003; Wodak, 2000), and also with the foundation charters of ordoliberalism (discussed in the next section), is by no means confined to Europe or to ordoliberalism. Significant and ongoing attempts to preclude the population from influencing economic policy are global in nature and are characteristic of all forms of neoliberalism and of capitalist governance more generally (Harvey, 2005; Kiely, 2017). ⁴

Ordoliberalism and Democracy

This is not to say that there is nothing that distinguishes ordoliberalism from other strains of neoliberalism. It is in matters such as vigilant state intervention and legal prohibition of barriers to competition that the distinctive character of ordoliberalism lies. For ordoliberals, the competitive order has to be built and maintained by an Ordnungspolitik, an active and “ordering” form of politics (Dardot and Laval, 2017: 76). By contrast, other forms of neoliberalism tend (at least in theory) to see competition as arising more or less naturally so long as the state gets out of the way (Mirowski and Plehwe, 2009). Not so for one of the principal architects of ordoliberalism, Wilhelm Röpke: “A satisfactory market economy capable of maintaining itself does not arise from our energetically doing nothing. Rather it is an artistic construction and an artifice of civilisation” (cited in Dardot and Laval, 2017: 78). ⁵

Röpke used the metaphor of a sporting contest which would degenerate into a riot without agreed and enforced rules of the game – the job of the state is to act as a referee, constantly intervening and imposing penalties for anti-competitive behaviour as appropriate, not to simply be a bystander watching and applauding (Dardot and Laval, 2017: 86). Absent this state-imposed legal ordo, market forces will not, left to their own devices, operate freely (Berghahn and Young, 2013: 775).

The centrality, for ordoliberals, of state intervention to the harmonious functioning of the market economy begs a question: what form of state did ordoliberals envisage as carrying out these tasks? The short answer is that it was to be a state as far as possible uncorrupted by mass democratic influence – a viewpoint forged in the crucible of Weimar Germany amidst claims that that regime’s overwrought democracy had paved the way for crisis by fanning the flames of, in Röpke’s words, the “menacing dissatisfaction of the workers” (cited in Bonefeld, 2017: 752).

The anti-democratic impulse arose from the fact that the mass of the population (when their dissatisfaction was so enflamed) was viewed as likely to choose unwise policies (such as welfare dependency, guaranteed employment or expropriation of entrepreneurs’ wealth) if not guided and constrained by wiser council, those Röpke arrestingly described as “aristocrats of public spirit” (cited in Bonefeld, 2012: 650). ⁶ Another of ordoliberalism’s founding fathers (alongside Röpke), Walter Eucken, creator of the Freiburg School, remarked that “the masses… love the myth, not reason” (cited in Biebricher, 2013: 342). Policy makers should, instead, be guided by the scientific precepts of designated economic experts trained in ordoliberal thought and equipped to recognise both the unvarying “rules of the game” and how they should be enforced. This would be the culmination of what Röpke called (favourably) a “revolt of the elite” (cited in Kiely, 2017: 732).

Emphasising this hostility to democracy, Wolfgang Streeck claims that the most enduring legacy of ordoliberalism is the case it made for a “new politics carving out a space for free markets sustained and guarded by state authority while protected from egalitarian democratic infringement […] the insulation of a politically instituted market economy from democratic politics” (Streeck, 2016: 155). However, as this article shows, the desire to protect markets from democracy is by no means unique to ordoliberalism. The elites in most parts of the world, not just Germany and the rest of Europe, can usually be found to be revolting along these lines.

The Global Revolt of the Elites

The UK saw the creation in 2010 of the Office for Budget Responsibility with the explicit intention of “depoliticising” fiscal policy – authoritative expert opinions were to reduce the scope for democratic debate around, and influence over, tax and spending decisions (Bruff, 2014: 122). In 2011, the US Budget Control Act sought to place legal limits on governments’ capacities to run deficits and debt, regardless of electoral preferences now or in the future (Bruff, 2014: 122). ⁷ Both these developments appear to mirror an ordoliberal preference for the insulation of economic policy-making from democratic deliberation and contestation. Yet nobody makes the claim that political culture in either the UK or the US has been seriously influenced by ordoliberalism specifically, save insofar as ordoliberalism has been one intellectual influence on broader and overarching neoliberal currents (Kiely, 2018).

During the Asian financial crisis of the late 1990s, the International Monetary Fund (IMF) sought to impose structural adjustment (neoliberal economic reform) on countries including South Korea. The intensity of the IMF’s determination to have its way is captured by Naomi Klein:

[T]he end of the IMF negotiations coincided [in South Korea] with scheduled presidential elections in which two of the candidates were running on anti-IMF platforms. In an extraordinary act of interference with a sovereign nation’s political process, the IMF refused to release the money until it had commitments from all four main candidates that they would stick to the new [IMF] rules if they won. With the country effectively held at ransom, the IMF was triumphant: each candidate pledged his support in writing… [Y]ou can vote, South Koreans were told, but your vote can have no bearing on the managing and organization of the economy. (Klein, 2007: 270)

Again, the (in this case very crude) desire to de-democratise economic decision-making is evident, but, no more than in the case of the UK or the US, there is no serious claim that the IMF has been particularly guided by ordoliberal thinking.

What these examples point to is that the determination on the part of certain actors to prevent the populace exerting significant influence over economic policy is by no means unique to ordoliberalism. Indeed, all currents of neoliberalism have tended to present a supposed excess of democracy as a serious threat to the liberty and freedom of the individual (Harvey, 2005; Mitchell and Fazi, 2017). This was probably most explicit in neoliberalism’s Chicago and Virginia Schools, which also stressed the claimed tendency for democracy to generate economically inefficient outcomes (Kiely, 2017: 736; Kiely, 2018).

James Buchanan, the founding father of Public Choice Theory associated with the Virginia School, put his ideas into practice in 1980 when he helped the Pinochet dictatorship in Chile write a new economic constitution that locked into place the neoliberal reforms introduced after the 1973 coup and sought to render them irreversible by subsequent governments, a legacy that current civilian administrations in Chile continue to grapple with (MacLean, 2017: 154–68). ⁸

More broadly, the World Bank – in its promotion of neoliberal economic reform in Africa, Asia and Latin America from the 1980s onwards – was heavily influenced by so-called New Political Economy (NPE) associated with writers such as Robert Bates (1981, 1994). ⁹ This approach pioneered “new formats of techno-managerial governance that protect[ed] their ideal market from what they perceive[d] as unwarranted political interference” (Mirowski, 2009: 436). ¹⁰ Again, however, NPE bore little if any imprint of specifically ordoliberal schools of thought (Besley, 2004; Gilpin, 2001; Wade, 1996). ¹¹

Insulating the economy from democratic influence was also an explicit concern of the economist probably most associated with structural adjustment in the Global South, Jeffrey Sachs. Sachs, US-trained and initially at least an admirer of the Chicago School (Klein, 2007: 144), was the main driver of the 1985 liberalisation of the Bolivian economy (Klein, 2007: 142–54). He claimed this was a happy “combination of democratic reform… with economic institutional change” (cited in Klein, 2007: 151) – but, in fact, the policies adopted were the opposite of those most Bolivians had voted for and could only be implemented with the help of extensive repression of oppositional forces (Klein, 2007: 142–54; Storey, 2008).

Sachs would transfer these ideas and lessons to central and eastern Europe in the 1990s, especially to Poland and Russia (Gowan, 1995). Here Sachs quite explicitly opposed allowing economic policies be determined through open societal debate and democratic argument: “I doubt that the transformation would be possible at all [on that basis], at least without costly and dangerous wrong turns” (cited in Gowan, 1995: 5). The point, again, is that while Sachs cannot be described as an ordoliberal, ¹² his approach to democracy is similarly, reflexively hostile – to attribute such hostility to ordoliberalism alone overstates both its distinctiveness and its reach.

In a similar vein, Christoph Hermann emphasises the broad continuity between neoliberal reform programmes in Latin America and Europe. While he attributes some of the differences in the respective adjustment programmes to the distinctive institutional character of European integration (such as the common currency), he emphasises that both sets of programmes followed common neoliberal prescriptions and he makes no reference to any specifically ordoliberal characteristics in the case of Europe (Hermann, 2017; Sandbeck and Schneider, 2013).

In other areas of global political economy, it is equally important not to attribute undue importance to a supposedly unique European governance model, including any claim that Europe is distinguished by a reliance on legal instruments to enforce a version of economic orthodoxy. The World Trade Organization, for example, also uses legal and quasi-legal mechanisms (especially its Dispute Settlement Procedure) to enforce market-opening and to reduce societal influence/regulation over corporate activity (Mortensen, 2012; Wade, 2003). The Investor-State Dispute Settlement mechanisms (actual or proposed) that are characteristic of bilateral trade and investment treaties perform a similar function, including for those in which the EU is not directly involved (Ravenhill, 2017). ¹³

Rules-Based, Ordoliberal Europe?

[T]he central tenets of the political philosophy of ordoliberalism, which amounts to an authoritarian, undemocratic and technocratic view of politics, are currently being put into practice with the various reforms of European economic governance. (Biebricher, 2013: 339)

Under the terms of new EU-level mechanisms such as the Fiscal Treaty, the Macroeconomic Imbalance Procedure (MIP) and the Excessive Deficit Procedure, countries that do not abide by fiscal rules can be punished accordingly – by fines and/or by the withholding of support (including liquidity support from the ECB).

Biebricher draws the following conclusion from these trends:

it [post-crisis EU economic regime] offers everything in terms of economic governance that the ordoliberals ever dreamed of. With the MIP there is an actor/institution insulated from popular/democratic pressures that is capable of pushing through reforms even against the resistance of elected governments. In all this the Commission relies on the advice of economic experts and thus switches to a [supposedly] depoliticized and technocratic mode of policymaking. (Biebricher, 2013: 347)

But is this really the fulfilment of an ordoliberal dream? Oberndorfer suggests that the powers here granted to the Commission may actually be in contravention of the EU treaties (Oberndorfer, 2015: 195–97). Those powers are, in any event, applied asymmetrically: for example, a 2013 Commission review of countries’ macroeconomic imbalances typically accused Belgium and France of having excessive wage growth on the arbitrary basis that wage-suppressing Germany constituted the appropriate benchmark for comparison (Watt, 2013). Likewise, the review criticised supposed labour market rigidities in France despite the fact that labour productivity was actually higher in France than in Germany (Watt, 2013; Wigger, 2019).

There is no doubt that a key aspect of the EU’s response to the crisis has been to seek to attack labour rights, especially in those debtor countries that have been obliged to restructure their economies in return for emergency balance of payments support. ¹⁴ But this can best be described as an opportunistic (and unevenly implemented) strategy rather than a neutral, even-handed application of economic law (Achtsioglou and Doherty, 2014; Barnard, 2012; Currie and Teague, 2017; Marginson and Welz, 2015; Theodoropoulou, 2015). ¹⁵

This scope for arbitrariness is reflected also in the deployment of the macroeconomic targets to be aimed for, especially the “structural deficit” – a concept that defies precise specification and measurement, let alone can be subject to proper judicial enforcement (Joerges, 2014: 778; Radice, 2014). And, in practice, deficit fines were not automatically imposed on Spain and Portugal in 2016 despite their breach of Fiscal Treaty rules – realpolitik can still trump the rigorous application of the supposedly set-in-stone regulations (Watkins, 2016: 27).

And this is even before one takes into account the practices of the ECB in the context of the crisis, which are clearly deeply discretionary and political rather than rules-based and (notionally) depoliticised. Streeck summarises ECB operations as follows:

Today the ECB can at its discretion withhold liquidity from the banking systems of states that refuse to follow its precepts as to their public finances, the size and composition of their public sectors, and even the structure of their wage setting systems. States and governments that do not “reform” themselves in line with capitalist rectitude, and thereby fail to earn the confidence of international haute finance, can be punished in a broad variety of ways – while states that carry out institutional reforms as promoted by the Bank can be rewarded, even by the ECB printing fresh money for them, in violation or circumvention of EMU treaties. (Streeck, 2016: 162)

What Streeck (accurately) describes here is the exercise of unrestrained executive power and the more or less complete abandonment of strict, rules-based frameworks. It is best described as authoritarian neoliberalism, not ordoliberalism (or, at least, it is very far from being exclusively or “purely” ordoliberal in nature).

During the 2013 Cypriot “bail out” negotiations, the ECB told the Cypriot government that liquidity support to banks in Cyprus would be stopped unless reform conditionalities – including many that had nothing to do with monetary policy, and therefore were well outside the legal mandate of the ECB, a matter that should have been of the utmost concern to “real” ordoliberals – were accepted (Flassbeck and Lapavitsas, 2013: 37). In 2011, ECB president Mario Draghi (again acting well outside his legal mandate) sent a secret (subsequently leaked) memorandum to the Italian government calling for: “a comprehensive, radical and credible strategy of reforms, including the full liberalisation of local public services. This should apply in particular to the supply of local services through large-scale privatisations” (cited in Zacune, 2013: 11; Sacchi, 2015). This cannot be termed ordoliberalism – its violation of legal mandates and rules runs counter to a central tenet of the ordoliberal tradition.

Some of these actions have met with opposition within Germany, including the resignation of prominent German economists from the ECB and apparent opposition from the German Bundesbank president to the ECB’s decision to, essentially, supply money to compliant member states, the follow-through on the ECB president’s promise that he would do “whatever it takes” to preserve the euro (Streeck, 2016: 161; Berghahn and Young, 2013: 776; Thompson, 2015: 855–856). A sizeable number of other German economists probably share ordoliberal fears of breaking the rules in such areas (Schmidt, 2014: 194–96), whereas Draghi’s actions won praise from economists (such as post-Keynesians) who might define themselves in opposition to ordoliberalism (Genovese et al., 2016).

But while Alternative für Deutschland, the German political party that initially most made an issue of those ordoliberal fears, registered dramatic electoral gains in September 2017, this was mainly due to its opposition to immigration, not its early commitment to ordoliberalism (Havertz, 2019). Meanwhile Merkel’s governments, in part under US pressure, have been prepared to go along with whatever flexible interpretation of, or disregard for, the rules is required to maintain their own political survival, the profitability of German (and other) banks, German hegemony within the Eurozone, or even the survival of the Eurozone itself (Jabko, 2013; Van Esch, 2014).

Conclusion

Humpty Dumpty smiled contemptuously. … “When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean – neither more nor less.” “The question is,” said Alice, “whether you can make words mean so many different things.” “The question is,” said Humpty Dumpty, “which is to be master – that’s all”. ¹⁶

When the Syriza government in Greece sought to renegotiate austerity, the German finance minister said “Elections change nothing… [t]here are rules”, while European Commission President Jean-Claude Juncker stated “there can be no democratic choice against the European treaties” (cited in Hewitt, 2015). Such unyielding rhetoric conceals a consistent willingness on the part of powerful forces in Europe to bend the rules and defy the treaties when it is in the interests of certain actors (including themselves) for them to do so.

In a reference to the evolution of global financialisation, as driven especially by Wall Street and the US state, Peter Gowan made the important point that “while the New Wall Street System was legitimated by free-market, laissez-faire or neo-liberal outlooks, these do not seem to have been operative ideologies for its practitioners, whether in Wall Street or in Washington”, who instead operated in a cartel-like manner that cut across the public–private sector divide (Gowan, 2009: 20, emphasis in original). The same contradictions (hypocrisies even) predominate in Europe – ordoliberal discipline is largely a legitimating ideology rather than an operative one.

Neoliberalism, in all its variants, has always, in reality, been more about the extension and deepening of corporate power than it has been about the liberation of markets (Bruff, n.d.; Cahill, 2014; Keaney, 2017). The fig-leaf of claimed commitment to a rules-based, pro-competition approach can be a convenient cover for the objectives of preserving systemic stability, shovelling enormous sums of money to fractions of the corporate sector and/or the copper fastening of political power.

Structural adjustment in the Global South in the 1980s and 1990s, which was in many ways the model for the capitalist transformation of central and eastern Europe (Klein, 2007), provides a more helpful model for how the crisis has played out in western and southern Europe than the often Eurocentric conceptions of (and specious claims for) ordoliberalism. And insofar as structural adjustment was a political project for the assertion of neoliberal hegemony over the “Third World” (Bracking, 1999; Klein, 2007), so also can today’s European economic governance regime, and in particular the response to Europe’s debt crisis, be reasonably interpreted as a political project to facilitate the reinforced dominance of capital (financial capital especially) over labour and popular movements (Mitchell and Fazi, 2017; Zacune, 2013).

Foucault wrote that “it’s not a matter of a battle ‘on behalf’ of the truth, but of a battle about the status of truth and the economic and political role it plays” (cited in C. Gordon, 1980: 132). ¹⁷ This might constitute a useful starting point for the study of ordoliberalism in Europe today. ¹⁸ Ordoliberalism is largely an ideology (a mythology even) that is invoked to legitimise the exercise of a particular form of capitalist power – this, in Foucault’s terms, is the economic and political role it plays. It is not, for the most part, a “truth claim” or a set of instructions that the wielders of that power are themselves prepared to live by. Rather, like Humpty Dumpty, these are merely words that mean whatever their users wish to make them mean for the purposes of achieving social mastery.