Andrew Norton wonders how the term ‘neoliberalism’ came to Australia. After searching the literature, he thinks it "probably started in Latin America, and came to Australia via US academia".
Andrew’s probably right. There’s some evidence that, during the 1960s, free market supporters in Latin America used the term to describe themselves. Initially influenced by the German neoliberalism of the Freiburg School, some of them came to embrace the ideas of Milton Friedman and the Chicago School. But when Pinochet regime turned to the free market ideas of Friedman and the Chicago Boys, neoliberalism became associated with political repression, authoritarianism and US imperialism. After that, free market supporters probably decided it was a good idea to choose a different label.
As Reason’s Brian Doherty puts it: "Pinochet and Friedman have been assumed by many to be two sides of some evil right-wing coin in which torture, despotism, and unrestricted free markets are all inextricably linked." Friedman’s 1975 meeting with Pinochet reinforced this impression.
Neoliberalism didn’t start out as a pejorative label and there is some evidence that some free market supporters in Latin America referred to themselves as neoliberals. In his 1965 paper ‘Organization and operation of neoliberalism in Latin America’, Norman A Bailey writes:
Within the last four or five years there has been in Latin America a substantial development of organizations dedicated to the maintenance of political and economic liberty and backed by the relatively new business-professional sector of society.
Bailey called these organizations ‘neoliberal’:
The term "neoliberal" has been used because some members of these organizations refer to themselves as such, and also because the groups under discussion bear many similarities to the neoliberal movement in Europe.
The neoliberal movement in Europe is sometimes called ‘ordoliberalism‘. Associated with the Freiburg School thinkers in Germany, these neoliberals strongly supported free markets. As Henry Oliver writes, they were opposed to government ownership of industry, central planning, rent ceilings, food subsidies, housing subsidies and any other measures that interfered with market allocation. But at the same time, they argued that governments sometimes need to take action to foster competition. According to Carl Friedrich, "the movement not only is opposed to cartels and other manipulations, but vigorously supports fair trade practices legislation as well."
Bailey’s account is supported by US graduate studentsTaylor Boas and Jordan Gans-Morse. As they write in their 2006 paper ‘From Rallying Cry to Whipping Boy: The Concept of Neoliberalism in the Study of Development‘:
In the 1960s, groups of Latin American (particularly Chilean) right-wing intellectuals began to take notice of both the ideas of the Freiberg School and their implementation in postwar Germany under Ludwig Erhard. These intellectuals used the Spanish term neoliberalismo—a direct translation of the German neoliberalismus—to refer to this school of thought, along with other phrases such as neocapitalist and social market economy. Right-wing intellectuals in Latin America were particularly impressed by Erhard’s “German miracle” and speculated about the possibility of accomplishing similarly rapid growth and development in their own countries. Given this close connection between the term as used in Latin America and its original formulation by the Freiberg school, neoliberalism in 1960s Latin America meant essentially the same thing as it had in postwar Germany—a philosophy that was moderate with respect to classical liberalism and sought to use state policy to temper the social inequality and tendency toward monopoly that were seen as threatening the survival of capitalism and facilitating the rise of communism in Europe.
Boas and Gans-Morse argue that after the overthrow of the Allende regime in Chile, left wing academics attached the term ‘neoliberalism’ to Pinochet’s market-oriented reforms while free market supporters abandoned the term.
According to Boas and Gans-Morse, free market supporters "may have been reluctant to attach this label to their own project in Chile, particularly if they saw the Chilean reforms as being more radical than those in Germany." And once adopted by left wing writers who were largely unaware of Freiburg School neoliberalism, "it is clear that the term diffused into the English-language study of development directly from the Spanish-language scholarship of the 1980s, carrying with it the negative and radical connotation that the concept had acquired among Chilean and other Latin American academics."
It’s likely that the Latin American neoliberals were not all as moderate as Boas and Gans-Morse suggest. Norman Bailey, in a paper titled, ‘In another paper, ‘The Colombian "Black Hand": A case study of neoliberalism in Latin America ‘, he explains that while all Latin American neoliberals supported free markets and opposed collectivism, there had a variety of views:
… specific idea-systems espoused range from the philosophy of Ayn Rand through the strict market economics of a Ludwig von Mises or a Friedrich Hayek to the "social market economy" of Wilhelm Ropke and Jacques Rueff. These differences lead to fissures and controversies within Neoliberalism, but heavy concentration of power and membership in the "social" wing permits a fair degree of united action.
According to Bailey, the neoliberals did not limit their activities to hosting lectures and disseminating information. In his ‘Organization and operation of neoliberalism’ paper he discusses "direct action activities" which included blacklisting employees, infiltrating trade unions and forming anti-guerilla militias. Bailey also credits a neoliberal group — the Instituto de Pesquisas e Estudos Sociais (IPES) — with a role in the Brazilian military coup of 1964.
The Latin American experience has come to define neoliberalism — Chile under Pinochet is the paradigm case. And the fact that leading figures in the free market movement have expressed sympathy for the Pinochet regime has reinforced this view. For example, when asked about totalitarian regimes in Latin America in 1981, Friedrich Hayek replied, "Don’t confuse totalitarianism with authoritarianism. I don’t know of any totalitarian governments in Latin America. The only one was Chile under Allende. Chile is now a great success".
John Quiggin argues that Hayek’s support for Pinochet’s authoritarian dictatorship "was a natural consequence of his system of thought and not an aberration." And there are aspects of Hayek’s work that invite this interpretation. In The Constitution of Liberty he argues that the antithesis of the democratic ideal is authoritarianism while the antithesis of the liberal ideal is totalitarianism. He writes:
Neither of the two systems necessarily excludes the opposite of the other: a democracy may well wield totalitarian powers, and it is conceivable that an authoritarian government may act on liberal principles (p 103).
Hayek made it clear that he would prefer an authoritarian government that upheld the rule of law to a totalitarian but democratic government that acted arbitrarily. But it’s a mystery why anyone would think that the Pinochet regime had any respect for liberal principles (except, in some narrow economic sense).
By linking thinkers like Hayek and Friedman to Latin American dictatorships, the ‘neoliberal’ label forces the free market movement to confront ideas and events some would rather pass over in silence.
Note: Taylor Boas points to a more recent version of his paper on neoliberalism — ‘Neoliberalism: From New Liberal Philosophy to Anti-Liberal Slogan‘ (with Jordan Gans-Morse). Studies in Comparative International Development 44, no. 2 (Summer 2009, forthcoming).