The End of Neoliberalism? Where Is the World Heading?

For nearly four decades, especially after the end of the Cold War, neoliberalism served as the primary foundation of the global economic order. Principles such as deregulation, privatisation, trade liberalisation, and the belief that markets are more efficient than the state became a formula accepted almost without resistance. From the West to the East, the recipe was the same: open markets, reduce state intervention, and let global competition determine the winners and the losers.

But the story is now different, and many are saying this is the end of neoliberalism. The 2008 financial crisis, the Covid-19 pandemic, the US-China trade war, and disruptions to global supply chains have shaken the core assumptions of neoliberalism. Even so, neoliberalism is not truly dead; rather, its form is undergoing a transformation. The state is becoming increasingly active in the economy, not to abandon capitalism, but to sustain it under new conditions aligned with national security.

If in the 1980s to 2000s the state was pushed to retreat from the market, now the state is re-entering the market with full force. For example, the United States government is providing massive subsidies for the semiconductor industry through the CHIPS Act. The European Union has launched various industrial policy programmes. Japan, South Korea, and India are also strengthening state support for strategic sectors. One could say the world is moving towards state-guided capitalism. In this system, the market remains important, but the state is no longer a neutral referee. The state chooses which industries are deemed vital for national security and economic competitiveness.

This means globalisation is not disappearing, but its logic is changing. If neoliberalism was based on global economic efficiency, this new era is based on national economic security. Companies are no longer seeking the cheapest production locations, but rather locations considered the most geopolitically secure. At the very least, developing countries or the Global South are gaining opportunities, because in the neoliberal era they were often positioned as suppliers of raw materials and cheap labour in the global value chain. The world economic structure tended to reinforce the dependence of developing countries on economic centres in North America, Western Europe, and Japan.

The fragmentation of the global economy due to US-China rivalry is pushing multinational companies to diversify production through a “China Plus One” strategy. Countries such as Vietnam, Indonesia, India, Mexico, and Brazil are becoming new investment destinations. In this context, the Global South has greater room for manoeuvre compared to the Cold War or neoliberal eras. They no longer have to choose between the capitalist and communist blocs. Instead, they can play a hedging strategy by building economic relations with both major powers simultaneously.

For instance, Indonesia is receiving downstreaming and electric vehicle investment from China, while at the same time strengthening economic and security ties with the United States and Western nations. This phenomenon signals the birth of a multipolar world that provides broader space for developing countries to pursue their own national interests. However, these opportunities can only be seized if Global South nations are able to enhance their domestic industrial capacity. If not, they will merely become factory relocation sites without gaining significant technology transfer.

The abandonment of neoliberalism also means a weakening of US influence, reminiscent of the 1990s when international institutions like the International Monetary Fund and the World Bank pushed economic liberalisation as a condition for financial assistance. Now that approach is being left behind. Developing countries are witnessing the success of more interventionist development models, such as China’s, and even South Korea’s during its early industrialisation. Markets are indeed important, but national development cannot be handed over entirely to market mechanisms. The state must have the capacity to direct investment, protect strategic industries, and build a national technology base.

This also has implications for the US-China rivalry. In the neoliberal era, the dominant assumption in Washington was that economic integration would change China’s political behaviour. The logic was simple: the richer China became, the more liberal its political system would be. That assumption turned out to be wrong. Instead of becoming a liberal democratic state, China used global economic integration to strengthen state capacity and accelerate its technological modernisation. As a result, Washington began abandoning the old paradigm; now the US is actually imposing technology export restrictions, trade tariffs, and domestic industry subsidies.

We are now witnessing a competition between two models of capitalism: America with its increasingly protectionist liberal capitalism, and China which combines market mechanisms with strong state control, known as state capitalism. Both Washington and Beijing now believe the state must be directly involved in building national technological advantage. Because of this, the world that is being born is not a free-market world, but a world of competition between industrial states.

Thus, the world appears to be entering a post-neoliberal phase with key characteristics: the state returning as a central economic actor, national security increasingly influencing economic policy, and technology becoming a source of geopolitical power. Capitalism remains the dominant economic system; what has changed is the way the state manages it.