There was an important word missing from most of the coverage and commentary on the Democratic presidential debates last month. The network offered viewers a pseudo-drama of sorts, crafting their questions to play up the tension between the “wishful thinking” of the candidates with big, bold, transformative proposals and the “Republican talking points” expressed by the more “moderate” candidates. I guess they thought it would make good television.
But there is a more interesting and potentially much more transformative drama going on. At last, we see some of the major candidates finally moving beyond the neoliberalism that has dominated Party thinking for the past generation.
The word neoliberalism was popularized in the mid-twentieth century by economists who proposed it as a middle ground between the “collectivism” they saw dominating contemporary policy thinking and the classical Gilded Age complete laissez faire that was blamed for the Depression and the tremendous inequality and instability that preceded it.
In a 1951 essay titled “Neo-Liberalism and its Prospects”, Chicago economist Milton Friedman objected to state power on principle, believing that “A state with power to do good by the same token is in a position to do harm.” But he called upon the state to play the limited but crucial role of guarantor of the competitive order. “The state would police the system, establish conditions favorable to competition and prevent monopoly, provide a stable monetary framework, and relieve acute misery and distress,” although this last function must involve “the minimum of interference with the market.“
Today the word itself is largely used more by critics than proponents. Market fundamentalism is another oft-used term, again largely pejorative. The Democratic Party calls their version of neoliberalism the “Third Way”, a term promoted by Bill Clinton and UK Prime Minister Tony Blair in the 1990s as they tried to stake out a stable political center in the wake of the Reagan and Thatcher revolutions.
“Markets are smart. Governments are dumb.”
Whatever you call it, it is the view that markets are the only efficient way to accomplish anything. Governments, by contrast, cannot be trusted to make good choices and must instead accomplish their ends by devising ways to harness the power and intelligence of the market. As Former Republican Majority Leader Dick Armey put it: “Markets are smart. Governments are dumb.”
Over the past half century, neoliberal policies have reshaped the world, fostering globalization by removing barriers to trade and the free movement of capital flows around the world; reducing labor market “inefficiencies” caused by both legal and normative restrictions on hiring and firing; and privatizing public enterprises, public service provision, and even public spaces. School choice, welfare “reform”, and bank deregulation are all neoliberal policies. And cutting taxes to starve the government of its capacities has become a key neoliberal strategy. Neglected infrastructure, soaring inequality, and continually declining service quality have been the results, along with a fatalistic skepticism of government’s ability to get anything right.
Although these views have become so dominant as to seem inevitable, it wasn’t always this way. When Friedman met with Friedrich Hayek, Frank Knight, and three dozen other like-minded economists and thinkers at the Swiss resort of Mont Pelerin in the spring of 1947, it was with a sense of having nearly lost the battle for their vision of liberty founded on individualism against a growing movement towards government direction of the economy.
“The central values of civilization are in danger,” they wrote in their Statement of Aims. “Over large stretches of the Earth’s surface the essential conditions of human dignity and freedom have already disappeared. In others they are under constant menace from the development of current tendencies of policy.” These tendencies, they said, “have been fostered by a decline of belief in private property and the competitive market; for without the diffused power and initiative associated with these institutions it is difficult to imagine a society in which freedom may be effectively preserved.”
At this time the Fordist-Keynesian bargain was ascendent.
At this time, what I call the Fordist-Keynesian bargain in political-economic thinking was ascendent. Industrialist Henry Ford and economist John Maynard Keynes could not have been more different in background, education, and political and cultural views, but they shared a basic insight. The stability and prosperity of the growing industrial-consumerist society depended on the proceeds of the economy being shared widely enough that (nearly) everyone enjoyed some modest prosperity. For Ford, this meant the strategy of paying his workers enough to purchase the cars they produced, creating a booming market for his product. For Keynes, a public able to consistently afford a steady rate of consumption was the way to stabilize the system as a whole against the twin threats of macroeconomic downturn and labor unrest.
During the Second World War, governments — which until then had been quite separate from the economy — engaged in unprecedented economic management, redirecting the power of the economy towards producing the massive war machinery required. Keynes’s theories were converted into tools of measurement and calculation. Early computers, the size of entire rooms, were programmed with the first economic models. The measure we now call GDP was invented, not a measure of economic progress — its creator Simon Kuznets explicitly warned against this — but strictly as a measure of the productive volume of the economy, to help guide decisions about what could be diverted into war production. When the war ended, Western powers prepared to turn this new capability towards managing a peacetime economy for shared and stable prosperity.
To combat what they perceived as near total ideological defeat, the Mont Pelerin thinkers — who never wrote a manifesto or detailed an agreed-upon program — developed a shared strategy to advance their beliefs. They courted wealthy funders to create a network of academic programs and think tanks to promote their views. The approach was slow growing at first, but what became the Mont Pelerin Society continued to meet and discuss how to promote free market ideas and policies.
Their efforts truly took off in the 1970s as a result of two developments. In the US, a generation of billionaires — most of them inheritors of family wealth and many influenced by the far-right John Birch society and its anti-communist alarmism — began plowing money into the Mont Pelerin program. The network of think tanks exploded, to include the Cato Institute, the Heritage Foundation, and the Atlas Network, which itself has created some 475 free market foundations worldwide. Academic institutes were founded and funded to promote the extension of Chicago-style economic ideas into the other social sciences, so that law, political theory, and sociology became dominated by the ideas of efficiency and individual self-interest calculation. And of course eventually hundreds of millions of dollars were poured into federal and state election campaigns.
Meanwhile the neoliberal approach got its first wholesale implementation in the 1970s when — following the violent overthrow of socialist president Salvador Allende in Chile, until then Latin America’s longest stable democracy — a cadre of Chicago-trained economists got the opportunity to overhaul the economy. Their abrupt cancelation of labor market restrictions, barriers to international investment and trade, and subsidies for basic goods led to a radical realignment of poverty and wealth. These policies were also applied within authoritarian regimes in Argentina, Uruguay, and Brazil, and then exported to the rest of the so-called developing world via the World Bank and International Monetary Fund, who made adopting neoliberal policies a condition of their financial assistance.
By 1979, UK Prime Minister Margaret Thatcher was pronouncing her famous dictum “there is no alternative”, asserting that those who wanted who wanted to preserve pre-neoliberal policies were simply and dangerously deluding themselves. We might wish for a world that would be more thoughtfully and compassionately directed than the one produced by private investment and driven by private self-interest, but that would be (most recently in Congressman John Delaney’s words) a fairy tale, one that endangered the public if indulged in.
It took an entire generation, but the market-centric approach to policy had gone from defeated to triumphant.
It took an entire generation, but the market-centric approach to policy had gone from defeated to triumphant. In the Anglo-American world, Clinton and Blair furthered the efforts begun by Thatcher and Reagan. Deregulation, privatization, free trade agreements, and cuts in social welfare led to booms in some sectors, dramatic increases in inequality, and eventually to nationalist backlashes.
To be sure, implementations of neoliberal ideas between and even within the Democratic and Republican parties have been quite varied, and recent Republican policies go far beyond neoliberalism to include repudiation of neoliberal approaches they once endorsed, such as pollution cap and trade schemes and the health insurance exchange mandate at the heart of the Affordable Care Act. But most US policymakers, even among the most “progressive” have accepted Clinton’s premise that “the era of big government is over” and that the market is where solutions must be found. In his excellent, eye-opening Winners Take All, Anand Giridharadas documents how the same principles — which he calls MarketWorld — have taken hold in the nonprofit and philanthropic sectors, so that even many passionate advocates of the poor and disadvantaged feel they have to limit themselves to “win-win” solutions that are ultimately good for business.
So it is a considerable breakthrough indeed to see major party candidates promoting policies that are ambitious in their attempts to redress inequality and reverse the decline in fortunes of the majority. But we would do well to recognize that they are seen as so radically ambitious precisely because they reject the notion that we must limit our thinking to what we can figure out how to incentivize the private sector to do. And, at this moment of possible opening, we would do well not to blindly rush to return to the opposite pole of the twentieth century’s great argument.
Two things have been deeply misleading about this narrative of individual freedom combatting encroaching state power.
Looking back, I’m sure that the importance of protecting individual freedom from marauding state power must have looked very different and quite a bit more urgent in the immediate post-War years, with the Soviet empire consolidating its brutal state Communism. However, there are (at least) two things that have been deeply misleading about this narrative of individual freedom combatting encroaching state power.
The first — the one that is beginning to be articulated in the debates within the Democratic Party, is that the notion of “freedom” advocated by neoliberals is a very limited one. The freedom for wealthy individuals to keep a greater and greater share of the profits they make, while starving their communities of the infrastructure, education, health care, and environmental quality that provide the foundation for their enterprises, and the freedom to use their considerable wealth to rewrite laws to make it harder for the non-wealthy majority to organize to better their own lives have made most Americans less and less free in practice. Indeed, around the world, the neoliberal expansion of the economic freedom of wealthy individuals has often been accomplished by suppressing the political freedom of the majority, whether through violent regime change and the brutal silencing of political opponents, or through the establishment of international economic agreements that dictated neoliberal policies and severely restricted the choices available within the domestic democratic process.
What’s more, and perhaps less well appreciated, is that the choice between individual freedom and state power has always been a false choice, or rather, a misleading dualism that leaves out a third way that has always existed, one that proponents of the individual and state-led approaches alike have often vigorously, even violently suppressed. In her Shock Doctrine, Naomi Klein reports that — while performing its bloody purge of dissenting economists, artists, and thinkers — the Argentinian junta also forbade group presentations in high schools, because even such a small team effort was considered to dangerously foster a collective spirit. But of course, the state communist regimes of the twentieth century were not any more favorably inclined towards voluntary association for mutual benefit, consistently working to exterminate any non-state-sanctioned labor unions and collectives.
Reclaiming and reinvigorating this true third way — ordinary people working together on a scale of dozens to hundreds, in the case of cooperatives and mutual aid networks, up to thousands or tens of thousands at the community and regional scale, rather than hundreds of millions at the national level — is the avenue I find most promising as we confront the failure of the neoliberal agenda.
Some of the policies we heard advanced in last month’s debates require very little increase in the machinery of government per se, although they reflect different priorities in taxing and spending and would result in a reallocation of funds. These include proposals for student loan cancelation and increased government funding for child care and education. Others, like universal single-payer health care, could indeed require a massive increase in federal management of a sector crucial to both the economy and people’s everyday lives.
Unlike the neoliberals, I don’t believe that the domination of health care by giant profit-seeking corporations is preferable to its domination by a giant government. Government-run health care at least offers the potential for democratic intervention by the public. But only the potential, and one that may just as easily not be realized. Without true bottom-up democratic input, any state-run entity on the scale of the US federal government can become just as oppressive as its corporate counterparts, or even — as in the nightmares of the Mont Pelerin crowd, informed as they were by the twin experiences of European fascism and Soviet communism — more oppressive.
The Mont Pelerin thinkers were correct that the eager technocratic government managers of the mid-twentieth century had very little faith — or even interest — in the ability of individuals, alone or in groups, to manage their own affairs. That was the kernel of insight that wealthy activists were able to blow up into today’s market fundamentalist domination of policy-making.
As we — I hope! — finally begin to think seriously about rebuilding the capacity of our governments to serve the needs of all the people, we must ensure that it is actually driven by the people themselves. We can consciously reject the false choice that neoliberalism has offered us and place our fierce belief, not in the unfettered individual or the benevolent, all-knowing state, but in true participatory economic and political democracy at scales small enough for ordinary people to be meaningfully involved in co-directing their own lives.
Our federal democracy clearly requires reforms more fundamental than a new health care plan or rearranged taxing and spending priorities. My hope is that our efforts to create a collaborative, democratic economy at the local level will ultimately build capable, knowledgeable, thoughtful, and creative people who together are able to resist the twin poles of powerful corporation and powerful state.