Neoliberalism is a political ideology that, in its most “kindly” interpretation, places economic freedom at the center, as both the key and foundation for all other freedoms. Since the 1970s, it has taken shape through a set of principles, especially in economic policy, applied with varying degrees of intensity and consistency by nearly every country in the world.
Whether neoliberal policies have actually fostered economic growth is, in my view, doubtful, not only since the 2008 crisis shattered the illusion of a self-regulating market, but also when we compare per capita GDP growth rates among Western countries over the past few decades while accounting for differences in purchasing power. (In this case, according to World Bank data, continental Europe has outperformed the United States and the United Kingdom, and all have grown less than during the thirty years of Keynesian policies following World War II.)
Or, if we look objectively at the methods and reasons behind China’s extraordinary performance since the 1980s, we see that liberalization, albeit useful, was accompanied by planning and public intervention. Not to mention that in some major regions, neoliberal policies were simply disastrous (above all, in the former Soviet Union during the 1990s).
In any case, the debate on this subject remains intense, and it is likely that there is no single answer: the same policy can promote or hinder GDP growth depending on starting conditions, contextual variables (education levels, social capital, institutional efficiency), and the speed and intensity of implementation.
There is, however, far less debate about three historical failures that the neoliberal political ideology (and its associated economic vision) has bequeathed to the world we live in. These three failures, now supported by evidence, are: the ecological crisis, the rise of inequality within countries, and the crisis of democracies, along with the liberal ideals themselves. The first is perhaps the most serious, at least in the long term, but it is not the focus of this essay. Here, we will instead concentrate on the second and third failures, which are closely linked.
According to World Bank data, in 1980—the year Ronald Reagan took office in the White House—the Gini index (which measures inequality, in this case, income inequality) in the United States stood at 34.7 and had been slowly declining for decades. This indicator typically varies only slightly, yet from 1980 it began a rapid rise, reaching 41.3 in 2022, the highest level of inequality in the Western world, one many consider incompatible with democracy (which is based on ideals and rules of formal equality that clash with deep substantive inequality).
But during this period, the Gini index also rose in almost all Western countries, including European ones, though with less intensity (just as neoliberal policies were applied less aggressively there). In the United Kingdom, the index went from 27.2 in 1978, on the eve of Margaret Thatcher’s victory, to 38.8 in 2000, before later declining. In the three main European Union countries—Germany, France, and Italy—as in continental Europe more broadly, the increase was more moderate, and the Gini index generally remained between 30 and 35. The rise did occur, however, and can be directly traced to the implementation of neoliberal prescriptions: lower tax rates on capital income and top labor income brackets, wage compression and labor precarization, cuts in public spending, and reductions in welfare provision. As could indeed be expected.
Today we know that this increase in inequality has not led to greater growth and therefore to any reduction in poverty—at least as far as the consequences of fiscal policies are concerned. The “trickle-down” theory, one of the cornerstones of neoliberal ideology and championed by Reagan in the 1980s, holds that tax cuts for the rich encourage growth and, through the “trickling down” of wealth, also reduce poverty (though not necessarily inequality). In recent years, however, the International Monetary Fund (IMF) has shown that this has not occurred in the Western world. On the contrary, the fiscal policies that promote growth are those that benefit middle- and lower-income earners, who have a higher propensity to spend. More generally, according to the IMF, a 20 percent increase in the income share of the richest actually leads to lower economic growth. The wealthiest have a much higher propensity to save and, moreover, because of the capital liberalization that took place in the 1980s and 1990s (without corresponding transparency or regulation), their savings are more likely to flow into speculative rent-seeking rather than productive investment.
Connected to the rise in inequality has been the crisis of liberal democracy. This crisis, first of all, has an electoral dimension, expressed on one hand by growing voter abstention and, more broadly, by alienation and disinterest toward political parties (though not necessarily disengagement from ethical, social, or geopolitical issues); and on the other hand, by rising support for populist and nationalist political movements—sometimes of the radical Left, but mostly of the far Right—that challenge both the traditional parties and the very structures of liberal democracy.
Although not the only cause, a fundamental reason for these dynamics has been the inability of Western elites to address the rise in inequality and the impoverishment of the middle class. This failure stems largely from the fact that the political class in today’s democracies is subordinate to the power of multimillionaires and techno-financial capitalism, partly as a result of “reforms” beginning in the 1980s that progressively stripped traditional parties and public institutions of power and resources (both financial and intellectual).
The victories of Donald Trump in the United States, first in 2016 and an even larger one in 2024, are in part the result of these dynamics. Polls indicate that citizens voted for Trump primarily because they were dissatisfied with the Democrats’ management of the economy. This happened despite the fact that 82 Nobel laureates in economics had issued an appeal on the eve of the election in support of Democratic candidate Kamala Harris, arguing that her proposals were the best for the economy, a striking example of the average citizen’s disaffection toward the intellectual elite (often educated at the top American universities that the average citizen finds increasingly inaccessible).
Biden’s policies had, in fact, represented a significant break from the neoliberal decades, at least in one respect: public borrowing to promote ecological transition and support lower incomes. Yet Biden lacked either the strength or the courage to implement the second crucial leg of this strategy: tax reform, making the system more progressive and targeting unearned income, thus redistributing resources from those who have more to those who have less. Borrowing injects new money into the economy; fiscal policy redistributes the money that already exists. Relying solely on the former leads to inflation, and that is exactly what happened. Rising prices became the main source of voter dissatisfaction with Biden.
In the European Union, inequality is lower, life expectancy is four years higher (in 1980 it was one year lower), and democracy, albeit under attack, is in less critical condition. Compared to the United States, however, Europe faces a structural disadvantage: an inadequate institutional framework that, among other things, encourages fiscal dumping, a race to the bottom in tax rates for millionaires and large corporations. And this framework is almost impossible to reform (since unanimity is required on fiscal matters). This means that even if some European governments are genuinely willing to adopt more progressive taxation, such as Sánchez’s government in Spain, or possibly France (where the debate on a wealth tax is well advanced), they would be forced to act only at the national level and under strong constraints (since ambitious measures can easily backfire given the high mobility of people and capital).
Moreover, for the same reasons, fiscal policy is almost the only lever available at the national level: on the one hand, significant deficit spending is constrained by the Stability Pact (recently made more flexible but still rooted in the ordo-liberal framework); on the other hand, the European Union seems unwilling to replicate joint debt-financed investment programs like the 2020 Recovery Plan (which appears destined to remain an exception, not the start of a new direction).
Can this situation be remedied? It is clear that a way must be found to overcome the unanimity rule, either for all (by reforming the treaties) or at least among those willing to move toward deeper integration (through enhanced cooperation). In both cases, however, citizen consent is necessary: they must be willing to transfer sovereignty from their nations to common institutions. In other words, citizens must trust the European Union.
At present, the only realistic way to build that trust is to implement expansive, EU-wide policies supported by common debt, on the supply side, through investments in new technologies (as advocated, for example, in the Draghi Report), and on the demand side, through measures that support the incomes of the middle and lower classes, thereby reducing inequality. Demand-side policies are even more necessary today, given that foreign markets have been weakened by Trump’s tariffs, and domestic demand must be strengthened to sustain GDP.
This is roughly what happened during COVID, largely thanks to the Recovery Plan, when trust in the European Union indeed increased. Progressive forces—and, more broadly, all those who care about European democracy—should therefore aim for this: common expansionary policies to support incomes and innovation and to reduce inequalities, combined with a push for deeper integration among willing countries and a reform of the treaties toward a federal Europe. For any real hope of success, all these elements need to go hand in hand.
Cover photo by Thibaut Durand / Hans Lucas (AFP).
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