The Unraveling of the Golden Age

The post-World War II economic boom—often called the “Golden Age” of capitalism—had created an unprecedented era of prosperity, full employment, and social stability across the industrialized world. Yet by the early 1970s, the foundations of this system began to crack. The collapse of the Bretton Woods monetary system in 1971, followed by the oil shocks of 1973 and 1979, exposed vulnerabilities that had been masked by decades of growth.

Economists initially dismissed these disruptions as temporary “recessions,” avoiding the politically charged term “depression,” which evoked memories of the 1930s catastrophe. However, by the 1980s, it became undeniable that the global economy had entered a prolonged period of instability. Unlike the cyclical downturns of the past, this crisis was structural. The mechanisms that had once stabilized capitalism—Keynesian demand management, industrial coordination, and welfare states—were losing their effectiveness in an increasingly globalized economy.

The Rise of Neoliberalism and the Retreat of the State

As traditional policies faltered, a radical alternative emerged: neoliberalism. Champions like Friedrich Hayek and Milton Friedman, long marginalized during the Keynesian consensus, gained influence by arguing that state intervention itself was the problem. Their solution? Unleash market forces through deregulation, privatization, and austerity.

The political turning point came with the elections of Margaret Thatcher in Britain (1979) and Ronald Reagan in the U.S. (1980). Their administrations aggressively rolled back labor protections, cut taxes for the wealthy, and dismantled public industries. While these measures revived corporate profits, they also accelerated deindustrialization. Manufacturing jobs vanished, not just to cheaper labor markets abroad but also to automation. The “rust belts” of America and Europe became symbols of this upheaval.

Yet neoliberalism’s promise of renewed growth proved uneven. The 1980s saw speculative booms—particularly in finance and real estate—but also widening inequality. By 1990, the top 10% in the U.S. and UK captured a larger share of national income than at any point since the 1920s. Meanwhile, social spending cuts eroded safety nets, leaving vulnerable populations exposed. Homelessness, rare in the Golden Age, re-emerged as a visible crisis in major cities.

The Human Cost: Unemployment and Social Fragmentation

The most devastating consequence was unemployment. In Western Europe, joblessness soared from 1.5% in the 1960s to 11% by 1993. Unlike past downturns, these losses were permanent. Advanced economies no longer generated enough jobs to absorb displaced workers, especially the young. OECD reports warned of a “dangerous divide” between secure older workers and a marginalized younger generation.

This economic dislocation had profound cultural effects. Traditional working-class communities, once the backbone of social democratic parties, fractured. Labor unions declined, and political loyalties shifted. Some turned to identity politics or environmental movements; others embraced xenophobic nationalism. The rise of far-right parties in Europe and the populist backlash in the U.S. (epitomized by Ross Perot’s 1992 campaign) reflected this disillusionment.

The Collapse of the Socialist Alternative

While the capitalist world struggled, the socialist bloc faced its own reckoning. By the 1980s, centrally planned economies were stagnating under inefficiency and debt. The Soviet Union’s invasion of Afghanistan (1979) and Poland’s Solidarity movement (1980) exposed systemic weaknesses. When Mikhail Gorbachev’s reforms (1985–1991) inadvertently triggered the USSR’s dissolution, the Eastern Bloc’s economies imploded. Between 1989 and 1993, GDP plummeted by 20–30% across the region.

Paradoxically, China charted a different course. Deng Xiaoping’s market reforms after 1978 unleashed explosive growth, proving that state-directed capitalism could thrive even as Marxist-Leninist ideology faded. By the 1990s, China’s rise contrasted sharply with Russia’s chaos, complicating Western narratives of neoliberal triumph.

Globalization’s Winners and Losers

The crisis decades accelerated globalization’s uneven spread. East Asia—led by Japan, South Korea, and later China—emerged as a manufacturing powerhouse. Meanwhile, Latin America and Africa suffered “lost decades.” Debt crises forced austerity on nations like Mexico and Brazil, reversing earlier gains. By 1990, sub-Saharan Africa’s per capita GDP was just 8% of industrialized nations’, down from 14% in 1960.

Transnational corporations and financial markets gained unprecedented power, often eclipsing national governments. The 1987 stock market crash and 1992 currency crises revealed how little control states had over global capital flows. Even the IMF and World Bank, originally designed to stabilize economies, became enforcers of neoliberal orthodoxy, imposing harsh conditions on debtor nations.

The Crisis of Democracy

The erosion of economic sovereignty undermined faith in democratic institutions. Voters punished incumbents but found little solace in opposition parties. Social democratic governments, unable to deliver jobs or growth, lost support to single-issue movements and anti-establishment figures. Italy’s political system collapsed in 1993 under corruption scandals; Canada’s ruling Conservatives were decimated that same year.

Nationalist and separatist movements gained ground, from Quebec to Catalonia. These often masked deeper anxieties: the fear of cultural homogenization, resentment toward immigrants, and a longing for stability in a fragmenting world.

Legacy: A World Transformed

The crisis decades reshaped the 21st century’s economic and political landscape. They dismantled the postwar social contract, replacing it with a more volatile, winner-takes-all capitalism. Inequality became entrenched, not just between nations but within them. The rise of China and the decline of labor’s power redrew global hierarchies.

Yet the era also sowed the seeds of today’s discontent. The 2008 financial crisis and recent populist upheavals trace their roots to the unresolved tensions of the 1970s–1990s. As the OECD warned in 1983, a society divided between “us” and “them”—between the secure and the precarious—carries dangers that still loom large. The crisis decades were not an aberration but a prelude to our present uncertainties.