What comes after Neoliberalism? Part One: The Establishment View.
Project Syndicate asked the question of six top thinkers. Their answers tell us a great deal about the challenges ahead.
Economists, politicians and commentators argue endlessly about what neoliberalism actually is, whether it really exists, and how and why it emerged. Much of this debate is designed to distract attention from the motivations of those who conspired to impose a specific set of economic arrangements on society, with barely any democratic consultation, from the mid-1970s onwards.
They would do well to pay a visit to the Museum of Neoliberalism, which is just around the corner from where I live in south-east London. When it opened, back in 2019, it got a fair amount of generally positive press coverage. It’s curators define neoliberalism thus:
Neoliberalism was an economic ideology that proposed ‘the market’ as an ethic in itself. Its proponents argued that the best outcome for everybody will be produced by business being given maximum freedom to control every aspect of life.
A visit to the museum certainly helps to focus the mind, but you’d better get your skates on as it’s likely soon to fall prey to the last hurrah of this dying ideology: The Leegate Centre, where it is based, is scheduled for demolition to make way for a new development which will probably contain shops that local people don’t want, and housing they can’t afford.
Another sign that the coffin of neoliberalism is very nearly nailed shut came last week, when Project Syndicate asked six leading thinkers to write on the subject of ‘What comes after Neoliberalism?’ Reading their answers, I was again struck by the different interpretations of what Neoliberalism actually means, and what it has or hasn’t achieved.
Nonetheless, it made for a stimulating series of responses, all of which had something interesting to say. Below, I assess each of them in the order they were presented by Project Syndicate.
Mehrsa Baradaran is a fascinating woman: since moving to the USA with her Iranian parents as an eight-year-old in 1986 she has epitomised the American Dream in a way few immigrants are able. After practising for several years, she is now Professor of Law at the University of California, Irvine. In her recent book, The Quiet Coup: Neoliberalism and the Looting of America, she argues convincingly that, far from being an exclusively economic project, neoliberalism intentionally infected many American institutions, including the judicial system, to further its goals. While it clearly failed as an economic idea (assuming economic success means creating more wealth and distributing it equitably so that more people enjoy greater freedom) she argues that neoliberalism has delivered exactly what its architects intended: by manipulating markets and other institutions of power, it has created an economy that serves the interests of a small minority, leaving everyone else to scrap for whatever crumbs remain.
She builds on this in her answer to Project Syndicate’s question. Neo-liberalism is a Trojan horse, she says, dishonestly unleashed by the powerful to sustain the status quo:
‘But what neoliberalism actually accomplished was a reorientation of lawmaking away from the public that government was meant to represent, toward the industries it was supposed to oversee.’
I was a little taken aback, then, to read that in her view, what should follow neoliberalism is ‘a true free market’.
From a left-liberal perspective this is challenging. The success of free market economics in lifting certain people out of poverty at specific times in history has indeed been remarkable, but it has also been shown to have clear limits. It has, for example, transformed the social and economic landscape of India, now the world’s most populous country, by creating a large middle class and transforming conventional indicators of economic success. Yet to visit India is to discover a country where hundreds of millions of people still struggle to scrape together a living, and many still live short, brutish lives.
A brief look through Mehrsa’s CV convinces me that she cares passionately for the plight of the economically excluded, especially where that exclusion is based on race. So I’m giving her the benefit of the doubt and translating her vision of ‘a true free market’ as the solution for society’s ills to mean ‘a genuine economic democracy’. The historic, racial and cultural inequalities that have been embedded into political, economic and judicial institutions over centuries, during which most people were not free and inequality was the norm, will take more than ‘a true free market’ to overcome.
Social and economic change on the scale that she and I would both like to see requires a massive uprating of our collective moral ambition, and this requires millions of people to start believing in the possibility of a better world and see a role for themselves in helping to create it. That will not be achieved solely through changes to the way we arrange the economy. Of course, it’s much easier to modify economic institutions to reinforce and exploit the baser human instincts than to do the opposite: the architects of neoliberalism had it easy in their pursuit of a profit-focussed, people-disregarding economy.
As Merhsa says, neoliberalism has achieved its goals by infiltrating the various institutions of power. Movement towards a just and inclusive society will have to do the same; but, appealing as it must to the nobler human sentiments, this will be far harder to achieve.
Anne O. Krueger has held senior roles at both the World Bank and the International Monetary Fund (IMF). She was one of the first economists to use the term rent-seeking to describe the way in which a growing share of economic activity is directed not at creating new wealth, but instead finding ways of diverting wealth out of the hands of those who create it, and into the bank accounts of people whose only skill is to develop mechanisms to achieve that end. If that sounds like theft, well ….
In her answer, Anne chose to conflate ‘neoliberalism’ - which I understand as a process that began in the 1970s in reaction to political events that looked likely to overturn the status quo and allow the creation of a more equal society - with the entire post-industrial revolution development of the modern economy. Indeed she writes:
‘This transformation began in the 1800s, when the United Kingdom adopted “neoliberal” policies, such as providing incentives for the private sector, first, to produce goods and services in a competitive setting, and, second, to open up to trade. Other countries – today’s advanced economies – soon followed suit.’
She goes on to point out that between 1990 and 2020 ‘the share of the world’s population living in extreme poverty plummeted from over 58% to just 9.3%.’ As she says this is ‘an astonishing achievement’. But as ever, such statistics are heavily dependent on definitions. I’m pretty sure that most of the shoeless people I saw pedalling their wares around the markets of Delhi last year no longer count as living in ‘extreme poverty’. I also know that in most cases their children and grandchildren will spend their lives doing exactly the same.
Anne fails to acknowledge the ruptures of the 1970s, when the Bretton Woods settlement was dismantled, bringing floating exchange rates, the end of restrictions on capital transfers between countries, and the removal of regulations to prevent the kind of financial meltdown that brought the global economy to its knees in 2008. Throughout the period from the 1800s to which she traces the origin of ‘neoliberal’ policies, capitalism has been implemented in various flavours by governments responding to the necessities of the time.
Neoliberalism won the day when those whose primary motivation is to set themselves apart through exceptional wealth, saw their position threatened at the end of the 1960s and seized the opportunity to redesign the economic system to their own ends.
In concluding that neoliberalism as an economic doctrine ‘remains the best one that humanity has so far devised’ Anne seems to be ignoring great swathes of economic history. But I suppose it might also be a polite way of saying: if you don’t like it, then come up with something better.
Mariana Mazzucato is one of my favourite economists: it’s been fabulous over the last few years to see her ideas begin to penetrate mainstream thinking.
She is unafraid to make the point - an obvious one, but one that many economists remain silent on - that an inclusive economy requires markets and the state to work in tandem: the market given responsibility for doing what it does best, the state administering the incentives necessary to ensure the equitable outcomes without which the social contract comes under strain.
Absent such an alliance between market and state, she argues, we have no hope of tackling the greatest threat we face: climate change and its consequences for people’s lives. To this end she has coined the phrase (heavily trailed at the UK Labour Party’s election manifesto launch last week): mission-driven government. Another favourite phrase of hers, indeed the title for one of her books, is The Entrepreneurial State, a phrase that neatly sums up how governments must have a roll in both facilitating the creation of wealth, and ensuring its equitable distribution, not through re-distributive taxation exclusively, but by acting as enabler to private enterprise in creating jobs that pay a decent wage.
Mariana talks compellingly about stakeholder value being more important than simple shareholder value, acknowledging the fact that revenue paid to shareholders generally involves a transfer of wealth into the pockets of the better off and away from the less well-off who are responsible for its creation.
And she talks of the state not just as a market-fixer, but a market-shaper. After all, nobody elects economists, nor the people who control the financial markets that currently dictate economic policy. Politicians are elected to run countries and represent the interests of citizens. Post-neoliberalism, those we elect need a model that enables them to deliver on their promises to improve living standards, especially for those for whom life is a constant struggle.
The various elements of Mariana’s thinking provide such a model, and I desperately hope they have found a committed torch-bearer in Keir Starmer and his Labour Party, which now seems almost certain to form the next UK government after the election on 4th July.
Dani Rodrik, Professor of International Political Economy at Harvard Kennedy School, is another economist who recognises that the discipline of economics is not a value-free science, and that the way we configure the economy has huge consequences for ordinary people.
In his answer to the question posed by Project Syndicate, he reminds us of the possibility of two kinds of reaction to the demise of neoliberalism. First, a reactive response driven by external developments: he cites the protectionist measures against China implemented by Donald Trump and consolidated by Joe Biden as ultimately counterproductive, arguing instead for a constructive response, which:
‘by contrast, tackles genuine social, economic, and environmental problems, aiming to repair the fissures created by neoliberal policies, without concerning itself with what other countries are doing. It encompasses policies that create good jobs and restore the middle class, mitigate climate change through industrial policies and by phasing out fossil fuels, and rebalance the economy toward the needs of ordinary people, rather than large corporations or financial interests.’
In these two sentences Dani ticks pretty much all the boxes. He envisions a quite different set of economic goals, much in the same way that Mariana does, though I’m not sure I share his confidence when he says,
We should not fret about each country or region doing its own thing, as long as the response is primarily of the constructive type. A world in which each country is looking after the health of its own economy and society, and taking care of the environment, is one that also produces a better global economy.
He clearly recognises the need to rein in financial interests, but doesn’t have much to say about how the stranglehold those interests hold over economic policy might be broken. The only way this can happen is for like-minded governments to get together and draw up plans to introduce effective regulation back into the financial system so that it returns to doing what it originally emerged to do: provide finance to the real economy, and not simply focus on generating more wealth for the already wealthy.
Nobel Laureate Joseph E. Stiglitz is perhaps the highest profile thinker to tackle the question ‘What comes after Neoliberalism?’ He has been a thorn in the side of its proponents almost as long as neoliberalism has existed.
He agrees with Mehrsa Baradaran that:
‘The neoliberal agenda was always partly a charade, a fig leaf for power politics’
and pulls no punches as he illustrates it's hypocrisy. He blames World Trade Organisation (WTO) rules for the death of ‘an estimated 1.3 million’ people from Covid because intellectual property rights prevented full vaccine sharing. Neoliberalism has a long history of favouring the financial interests of the wealthy minority while showing total disregard for people’s lives.
He cites his recent paper, Rethinking Global Governance: Cooperation in a World of Power, co-authored with Dani Rodrik, in which they suggest that calls for full-scale institutions of global governance are unrealistic at a time when co-operation between nations is reversing at a worrying rate. Instead they argue for the establishment of a ‘framework for minimal global governance’ to support all nations as they mediate the transition from neoliberalism to a more inclusive and sustainable world order, a framework that might reduce the compunction to react aggressively to perceived threats from competitors.
He concludes that the end of neoliberalism provides a ‘critical opportunity to rethink globalization and the rules that have underpinned it’. I agree with him, but I think we really need to get a move on.
Michael R. Strain is the only one of the six contributors here whom I’d not previously come across. He is Director of Economic Policy Studies at the centre-right American Enterprise Institute. The central thesis of his 2020 book: The American Dream Is Not Dead (But Populism Could Kill It) is hard to disagree with.
Michael suggests that populists from either side of the political divide pose a far greater threat to ‘current and future’ prosperity than the extant neoliberal order.
In his answer for Project Syndicate he argues that the post-neoliberal polices of Trump and Biden are unwarranted, and likely only to stall the considerable gains made by the United States under neoliberalism.
I look forward to reading his book, but I hope he doesn’t make selective use of data, which the blurb describes as ‘overwhelming and underreported’ to ‘prove’ his point. As we all know, the United States is not a happy place at the moment, and I will struggle to accept any argument that this is not due, at least in part, to the huge increase in inequality under neoliberalism. I’m also encouraged that Rutgers University Press have seen fit, presumably with Michael’s approval, to include dissenting points of view from E.J.Dionne and Henry Olsen. This is the kind of dialogue we need if, as a civilization, we are going to emerge intact from these difficult times.
I must take issue, however, with Michael’s claim that Joe Biden’s $2 trillion stimulus package was responsible for the recent period of high inflation in the United States. The real reasons for the inflation that ravaged economies worldwide last year have been well documented: the war in Ukraine, rising energy prices, and the supply chain hangover from Covid. Here in the UK, we had even higher inflation, and we have enjoyed no government-led stimulus of any kind. Indeed, the UK economy has had no virtually no support in terms of infrastructure investment for nearly 15 years now. Which is why we’re still dipping in and out of recession, and remain a basket case when it come to productivity.
As you can probably tell from these critiques, my own answer to the question would draw most heavily from Mariana Mazzucato and Mehrsa Baradaran and take something from the contributions of Dani Rodrik and Joe Stiglitz. I don’t think Anne O. Krueger really answered the question, but I accept her claim that free markets have played a role in the remarkable social advances since the industrial revolution. I also want to share Michael R. Strain’s faith in the American dream, though I’m with Mehrsa when she suggests that under neoliberalism, that dream has become a nightmare for too many Americans.
So what do I think should come after Neoliberalism? That’s for the second part of this two-part essay. But I do think the transition will be long and very difficult. If we don’t get a handle on climate change, and quickly, as I have written here previously, then civilization itself could come under threat. If Donald Trump wins a second term in the White House, all hope of a minimal framework for global governance will go out the window, further adding to that threat.
And with Angela Merkel being replaced as German chancellor by someone who shows no capacity for leadership; with Putin clearly having designs on eastern Europe well beyond Ukraine; with China suffering inevitable struggles after a period of unprecedented expansion, which its government has no idea how to manage; and with France possibly about to elect a government of the far-right, the multiple crises bearing down on us could make such speculations about the future form of the global economy seem irrelevant.
But they are not. Unless we get the economy right; unless reasonable, decent and truthful politicians find a way to convince voters that, not only do they have majority interests at heart, but also have the tools to deliver on their promises, then despite the best efforts of Project Syndicate and its interlocutors, and despite the determination of the Museum of Neoliberalism to consign this dehumanising ideology to history, our future is fragile indeed.