253. Thinking Globally about Globalization: Economists, East-West Dialogue, and the Rise of Neo-Liberalism

By
Johanna Bockman

This paper seeks to provide a new understanding of globalization by examining the Cold War origins of neoliberalism. Neoliberalism includes the policies of mass privatization of state companies, the reduction of trade barriers, the lessening of state regulation, and the expanding role of the market. Among both proponents and critics of globalization, there has been a general view that Western economists brought neo-liberalism to Eastern Europe and other parts of the world. Both sides of the globalization debate have assumed that neoliberalism is a foreign import to Eastern Europe because of some incorrect assumptions. First, they see neoliberalism as the epitome of free market capitalism and, thus, assume it had to have originated in the United States or Western Europe. Second, they assume that since there was little contact between East and West during the Cold War, neo-liberal capitalist ideas could not have reached socialist Eastern Europe. These incorrect assumptions have led to a fundamentally distorted understanding of globalization.

In fact, economists from Eastern Europe, Western Europe, and the United States had been jointly discussing economic policy, theory, and methodology since the 1950s. This now- forgotten discussion took place in a wide range of East-West conferences and academic exchanges of hundreds of economists, as well as through professional correspondence and exchanges of academic work. Neo-liberalism, consequently, developed within this East-West discussion about economics. This paper examines three different East-West dialogues between economists that helped to create neo-liberalism: 1) the dialogue about mathematical economics, 2) the libertarian discussion about planning and markets, and 3) planning for the transition after 1989.

During Stalinism, it was extremely difficult for economists to talk with each other across the "Iron Curtain." After Stalin died in 1953, the American, Soviet, and East European governments began organizing academic and other cultural exchanges and academic East-West conferences. Many economists took part in these exchanges and conferences because they shared an interest in mathematical economics, mathematical modeling, and planning. As a result of these interests, economists from the East and the West shared a common language and common research programs.

East European and Russian economists studied in the United States for 10-month periods at major research universities. During this time, they went to professional conferences, wrote articles with American scholars, and brought books, articles, data, and their experiences home to their colleagues. American economists also traveled to Eastern Europe, conducting research, teaching courses, meeting colleagues, and establishing training centers for management and business education. Equally important were the East-West conferences. These conferences often lasted two to three days and included roughly equal numbers of participants from capitalist and socialist countries. These discussions on mathematical economics, mathematical modeling, and planning provided important arenas for East-West dialogue about economics in general.

In the United States in the 1950s and 1960s, Keynesianism was hegemonic in economic policy and in the economics profession. At this time, libertarians were an embattled minority within the American economics profession. American libertarians sought to mobilize the East-West conferences and exchanges in their battles against the Keynesians in the United States and other places. I focused on some important East-West conferences that took place in Italy, bringing together East Europeans, Italians, and Americans for decades of discussion. These conferences demonstrated that American libertarians and East European reform economists sought to mobilize each other for their own professional battles at home.In the United States, American libertarians used East European knowledge about planning to do battle against Keynesians and other economists. In Eastern Europe, reform economists used libertarian ideas in favor of markets to do battle against political leaders who were obstacles to reforms. Through a transnational dialogue about planning and markets, American libertarians and East European reform economists together, developed a set of theories and policies that would later be recognized as neo-liberalism. I argue that neo-liberalism emerged out of these and many other meetings, wherein two distinct traditions of reform economics on the East European side and libertarianism on the American side met and were able to create an increasingly common ground that became neo-liberalism.

However, this common ground was uneven. In relation to other economists around the globe, American economists had and still have a disproportionate amount of resources and influence. They worked within an international network of economists, in which American economists occupied a strategic position because of their resources and influence and which allowed them to mobilize many people and organizations. American economists also mobilized knowledge created in the Soviet Union, Eastern Europe, and elsewhere and called it their own. They did so by perceiving and presenting the economic knowledge presented by East Europeans as merely information or facts.

It is problematic to think that East European economists were merely providing information or facts, because in Eastern Europe, these so-called facts were not considered facts, but rather highly political and highly contentious knowledge. Reform economists in Eastern Europe called for reforms to create market socialism - the inclusion of markets within planning systems. Yet, these same economists later depicted their experiences with reform as a series of failures. Each time they would mobilize to implement a major reform, more politically conservative leaders would either put a stop to the reforms or minimize them. These waves of reform followed by backlash against the reforms clarified to East European economists over time that political leaders, and the state more generally, were the main obstacles to the real economic reform needed to create market socialism. Reform economists then developed increasingly more extreme ideas, in favor of free markets and against state intervention. The waves of reform and backlash also clarified for these reform economists that the socialist economy could not be reformed and needed to be abandoned altogether. At the same time, in order to avoid political persecution for their ideas, reform economists presented their economic theories and ideas as mere empirical facts that no one could doubt. Considering the political and professional battles involved, these supposed empirical facts can be understood as very controversial and tied directly to the professional claims of economists.

American and other professionally powerful economists coopted this knowledge created in the Soviet Union or Eastern Europe and called it "information" or "facts." As a result, neo-liberalism developed out of an international network of economists, but it was later seen as "American" because American economists could appropriate the knowledge produced in other parts of the network as information or facts and present these as American or Western knowledge. The hegemony of American economics, thus, lies not so much in its capacity to produce a single, unified, neo-liberal paradigm and to diffuse it to the rest of the world, but rather in its strategic position at the center of a transnational network of economists, which allowed it to mobilize and translate the knowledge of other participants into American or Western knowledge.

Those outside the transnational dialogue among mathematical economists and libertarian economists, however, were unaware of this dialogue. For example, many American economists and consultants who arrived in Eastern Europe and the Soviet Union in 1989 and afterwards, had no knowledge of this dialogue and were surprised to find a consensus around neo-liberalism. An example of this interaction occurred between American and Russian economists in 1989.

In 1989, Gorbachev sent his senior advisor to IIASA, the International Institute for Applied Systems Analysis in Austria, asking IIASA to organize a team of American economists to serve as consultants on the transition to a market society. Over the next three years, Russian and American economists worked together on the problems of transition. The American economists were not free market advocates. The group actually included former advisors to Democratic administrations, who supported state intervention in the economy. They were not knowledgeable about socialist economies or the Russian economy, and treated the Russians economists' papers and reports as "data" or "on the ground" information. They were surprised that they did not have any big disagreements with the Russians at their meetings. There was, nonetheless, some disagreement. As in many other East European countries in transition, the main question was whether to transform the economy swiftly through "shock therapy" or whether to opt for a more gradual approach. The American economists argued for gradualism, while most of the Russian reformers called for shock therapy.

Aside from this area of disagreement, there was much agreement on both sides. The American participants in these meetings were not aware that their agreements with the Russians were the result of economic ideas developed through the East-West dialogue between economists before 1989. The American participants were not even aware of the preexisting transnational dialogue among economists that had created the global understanding of neo-liberalism which they were experiencing at the meetings. The American participants perceived themselves as having economic knowledge and saw the Russians as providing information or facts. Through these meetings, and many others like them, neo-liberalism was recreated as a fundamental part of American or Western economic knowledge.

By recognizing the transnational dialogue between economists from East and West and the global production of knowledge, we can reevaluate and better understand several phenomena. First, we can help to explain the rapid nature of the transitions from socialism to capitalism after 1989 in Eastern Europe. By 1989, many of the major political and academic actors in Eastern Europe already agreed on neo-liberal policies and had already decided what needed to be done to implement these policies. Second, we can explain how the United States itself shifted in the 1970s from Keynesianism to neo-liberalism. At least part of this shift can be explained by examining how American libertarians mobilized knowledge created in Eastern Europe and by East European economists to "prove" to their American colleagues that planning and state intervention did not work. Third, we can better understand the complexity of globalization, especially in the area of knowledge production. By examining the pre-1989 transnational networks, we can see that neo-liberalism did not flow through these networks, but rather, it emerged from these networks. In short, both the East and the West were important to the formation of neo-liberalism.

Johanna K. Bockman spoke at an EES Discussion on February 20, 2002. The above is a summary of her presentation. Meeting Report #253.

Upcoming Events

Art Exhibit: "From War to Victory: Poland 1939-1989"

October 01, 2014 // 4:00pmOctober 10, 2014 // 5:00pm

ISIS and the End of the Middle East as We Know It

October 09, 2014 // 12:30pm2:00pm

Experts & Staff

  • Christian F. Ostermann // Director, History and Public Policy Program; Global Europe; Cold War International History Project; North Korea Documentation Project; Nuclear Proliferation International History Project
  • Emily R. Buss // Program Assistant