Neoliberalism’s Rise and Peak: 1980–2008

Stagflation in the 1970s ushered in a new political order, neoliberalism, which first emphasized sound monetary policy to stabilize prices. Success in getting inflation under control provided initial credibility for the new order; the subsequent collapse of the communist bloc reinforced neoliberal capitalism as the dominant system worldwide. With communism defeated, the liberal capitalist world emerged triumphant and many imagined that every country in the world would eventually become capitalist. The developing world grew, but in fits and starts with high degrees of financial volatility. Crises in Latin America in the 80s and East Asia in the 90s led to severe recessions, in part due to the strict conditions of IMF bailouts. China, aiming to avoid needing a bailout, undervalued its currency, ran a large trade surplus, accumulated trillions of dollar reserves, and grew rapidly. The U.S. was content to bring China into the capitalist global economy and accept both cheap goods and low-interest loans in the process. But the influx of financial capital led to financial crisis in the U.S. in 2008, marking the peak of neoliberalism. On the whole China and India did best in the neoliberal era, although the entire world economy grew.