Neoliberalism, Globalization and the ‘Trumpist’ Fallout

In light of recent events south of the border it may seem academic or superfluous at least to say more on this!  However, Trunp’s election can – and should – be regarded as a wakeup call to politicians and thinkers who reject the  reactionary populism that characterized his winning campaign. Bernie Sanders aside, politicians of the left have largely ignored developments in American society and economy that have led to the election of Mr. Trump.

These developments include:

  • the large shift in the distribution of income away from labour and towards corporation and, more broadly, the owners of capital that has taken place over the last 20 years;
  • the hollowing out of a labour intensive manufacturing industry in the US – and other industrial countries – which resulted from increasing automation within industrial countries and a shift of labour intensive production to low wage countries in the far east;
  • the vastly increased financialization of the economies of industrial countries following the deregulation of the financial industry in the US and Europe that accompanied the move to globalization in the 1990’s.

These developments and their impact on American society were brilliantly described by George Packer, a New Yorker staff writer, in his book The Unwinding: An Inner History of the New America, published in 2013.  The unwinding of which Packer writes is the decline of manufacturing, the rise of Silicon Valley and the extreme growth of the financial sector, and the consequential dramatic increase in inequality in income and wealth among the American people over the past two or more decades.  The political counterpart of this is the growth of the lobbying industry in DC and State capitals and of winner take all politics. The notion of winner take all politics is, of course, not new; it’s the title of Hacker and Pierson’s 2010 book referred to in a previous post  (Jacob S. Hacker and Paul Pierson; Winner-Take-All Politics: How Washington Made the Rich Richer – and Turned its Back on the Middle Class. Simon and Schuster, 2010).

But of course it’s not just a story of increasing concentration of wealth and income among the rich.  It’s also a story of the decline of labour unions, partly resulting from the hollowing out referred to above and partly also to reduced legislative protection associated with the passage of right to work laws and other measures taken to reduce union power by state governments.  The countervailing power exerted by strong unions against unfettered use of corporate power, that J.K. Galbraith discussed in the 1960’s, no longer exists.

The Democratic Party in the US failed to adapt its platform to this New America.  Bernie Sanders and Elizabeth Warren apart, there are few democratic politicians willing to  recognize and adapt policy to the alienated working class.

Indeed  Hacker and Pierson noted this failure among mainstream politicians in Winner Take All Politics.  They argue that “the ideological polarization of the electorate as a whole – the degree of disagreement on left-right issues overall – is modest and has changed little over time.  Polarization primarily reflects not the growing polarization of voters, but the declining responsiveness of American politicians to the electoral middle” (page 159)

President Obama tried to be responsive and had some notable successes such as the Affordable Care Act.  But for the most part he was stymied by the Republican dominated Congress. And, arguably, Obama was an outlier in the Democratic Party.  Beginning with Bill Clinton the Democrats had bought into the flavour of the day: reduced regulation, promotion of globalization and all that.  It was President Clinton, after all who, on the advice of people in his administration – including some well known economists such as Larry Summers –  promoted and signed off on repeal of the Glass-Steagall Act, legislation passed in the 1930’s to regulate banks (see–Steagall_legislation).  Repeal of Glass-Steagall was instrumental in fomenting developments in finance that led to the crash and accompanying great recession of 2008.

It’s also the case that, as  George Packer states in a recent New Yorker piece: “A generation ago, a Presidential contender like Trump wasn’t conceivable. Jimmy Carter brought smiling populism to the White House, and Ronald Reagan was derided as a Hollywood cowboy, but both of them had governing experience and substantive ideas that they’d worked out during lengthy public careers.  But, as public trust in institutions eroded, celebrities took their place, and the line between politics and entertainment began to disappear.  It shouldn’t be surprising that the most famous person in politics is the former star of a reality TV show”. (The Unconnected: The Democrats lost the white working class. The Republicans exploited them. Can Hilary Clinton win them back?  Packer’s article was published in the issue of October 31; we now know the answer to the question in the title!)

More generally, historian Daniel T. Rodgers writes (in the Age of Fracture, The Bellknap Press, 2011) that, beginning in the 1970’s “most striking was the range across which intellectual assumptions that had defined the common sense of public intellectual life since the second World War were challenged, dismantled and formulated anew… Viewed by its acts of mind, the last quarter of the century was an era of disaggregation, a great age of fracture.”

Rodgers sets out a number of hypotheses as to the key causal factors:

  • A “shift in the core psyche and character” of society to the ‘me decade’.  But he doesn’t put much stock in this, stating that “to imagine a mood across a society as diverse as the US is to fall into the language of partisans of the time rather than to explain it”.
  • A “more powerful explanation”  lies in  “the changes in the institutions of intellectual life”.  A key development consisted of “the conscious efforts of conservative intellectuals and their institutional sponsors to reshape the terms of political debate…” But, he says, “the key intellectual shifts of the time cannot be pinned to any single part of the political spectrum” noting that “ideas slipped across the conventional divisions of politics”, and that the concepts of deregulation of industry and  school vouchers were being promoted by both liberals and conservatives.
  • A third hypothesis “stresses the deep structures of the late capitalist economy: the collapse of the high wage, high benefits, ‘Fordist’ economy that had dominated post World War II American society”.  Rodgers puts a lot of stock in this but “the notion that economic structures moved first, carrying ideas in their wake, does not adequately explain the age”.  He notes that the “victory of the new models of market action that reconstituted economic theory for the age was already an accomplished fact by the end of the 1970’s, well before anyone clearly discerned the new shape of the global economy”.

Clearly there was a lot going on between the ’70’s and the early years of the 21st century and Rodgers book is a fascinating account of  “the debates across a half dozen fronts through which Americans tried to reimagine themselves and their society:  the economic crisis of the 1970’s, the new shape of finance capitalism and global markets, the struggle to hold identities stable where race and gender proved unnervingly divisive, the linguistic turn in culture in an age of commercial and malleable signifiers, the nature of freedom and obligation in a multicultural and increasingly unequal society, and the collapse of Communism.”

A less philosophical, more narrative, account of developments which led to the current political environment is contained in a recently published book by Hacker and Pierson, the authors of Winner Take All Politics mentioned above.  Their American Amnesia: How the War on Government Led Us to forget What Made America Prosper (Simon & Schuster, 2016) is a narrative of changing views of the role of government in the US since the beginning of the Republic, emphasizing developments in the post WW II period. I won’t try and summarize their discussion here.  Suffice it to note that, in the post World War II period of the 1950’s and ’60’s, it was accepted across the political spectrum that government and business were partners (for want of a better word) and that there was a role for government in the mixed economy following the Great Depression of the 1930’s and the War. Beginning  in the 1970’s there was a shift in views from governments and the private sector as complements to the two sectors as rivals.  Hacker and Pierson note that this shift was reflected in political rhetoric: “presidential rhetoric about the political system has headed in a single direction: toward more and more government bashing. ….. In every river of public discourse, the mixed economy  was on the rocks”.

I think the point made by Hacker and Pierson some six years ago, noted above, that the political polarization is a reflection of the “declining responsiveness of American politicians to the electoral middle” is key as is the dramatic shift in the distribution of income in favour of the 1% that has taken place in the U.S. over the past couple of decades.  The irony is that the election of Mr. Trump is likely only to make both the income distribution and the polarization worse!

But, back to ‘neoliberalism’.  I argued in a previous post that elements of a policy framework existed to deal with the fallout from the recession of 2008, namely the use of fiscal policy to support aggregate demand and employment – the ‘Keynesianism’ that Monbiot had argued was dated – and that such elements constituted a response from the political left to neoliberalism.

Having continued to read and reflect on these issues, it seems clear that, though Keynesianism is necessary, it is not sufficient.  In particular it does not directly address the significant  increase in  income inequality that has occurred in the industrialized world – especially in the U.S. – in recent years.

In this respect there was an interesting exchange in the blogosphere a few weeks ago between  a couple of economists – Dani Rodrik, a professor at Harvard’s Kennedy School – and Brad Delong – a professor at University of California, Berkeley and former senior Treasury official in the Clinton administration.

Rodrik argues that the “left has failed to come up with ideas that are economically sound and politically popular, beyond ameliorative policies such as income transfers. …. Economists on the left… abdicated too easily to market fundamentalism and bought into its central tenets.  Worse still, they led the hyper-globalization movement at crucial junctures.”

Delong says: “In retrospect, who can disagree? We misjudged the proper balance between state and market, between command-and-control and market-incentive roads to social democratic ends”.  However, he mounts a defence of US policy, noting inter alia that:

  • financial globalization was intended to take down barriers to capital inflows erected by rent-seekers in developing countries and so speed growth in those economies;
  • financial deregulation was intended to break up the cozy investment banking of Wall Street and provide “the poorer half of America with the access to fairly priced credit that it lacked…”.

I’ll let Delong have the last word from his post commenting on Rodrik:

“The problem is that our current policy agenda is too much ‘do it again’!, where ‘it’ is Keynesianism, social democracy, the welfare state.  And I believe we need more.  I think Dani gets it right when he notes:  The right thrives on deepening divisions in society – ‘us’ versus ‘them’ – while the left, when successful, overcomes these    cleavages through reforms that bridge them….  But when he says: Earlier waves of reforms from the left – Keynesianism, social democracy, the welfare state – both saved capitalism from itself and effectively rendered themselves superfluous…’ he is both right and wrong: the earlier waves did save capitalism from itself, but they only rendered themselves apparently superfluous during the years of Global Convergence and the Years of the Great Moderation;  they are not superfluous.  We need them,  And we need more.  For Dani is right to close: Absent such a response again, the field will be left wide open for populists and far-right groups, who will lead the world – as they always have – to deeper division and more frequent conflict.”















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