speri.comment: the political economy blog

Has neoliberalism gone too far? And if so, where do we go from here?

To replace neoliberalism we need a renewal of liberal capitalism combined with a renewal of democracy

Vivien Schmidt, Chair of SPERI’s International Advisory Board and Jean Monnet Professor of European Integration at Boston University

Neoliberalism has gone too far: it has undermined democratic capitalism – by which I mean both liberal capitalism and liberal democracy. We are experiencing the backlash today in the rise of populism, reflective of citizen discontent. The question is: what will replace neoliberalism? Where do we go from here?

To answer, we must begin by recognizing where we are coming from: the neoliberal sources of current discontents.

The political economic sources come from the continuing resilience of neoliberal ideas about how to govern the economy. Neoliberalism has pushed deregulation too far (we see this in the Grenfell Tower tragedy), and still lacks adequate international regulation (as Apple’s sweetheart tax deals in Ireland, or last year’s revelations about the wealth of the very rich in Panama tax havens demonstrate). Financial market liberalization was responsible for the financial crisis of 2008 – and will be for the next one, coming soon? It is also to blame for the sovereign debt crisis, where the Eurozone’s ‘ordo-liberal’ response only made things worse.

The socio-economic sources of discontent follow from the political-economic, and include the massive rise in poverty and inequality – at levels we have not seen since the early twentieth century – combined with the increasing numbers of people left behind with lower incomes, stagnant wages, worse jobs. This has been happening ever since the 1970s…and with no end in sight.

The socio-cultural sources of discontent, following from the socio and politico-economic, are apparent in the growth of a politics of identity uncomfortable with the changing ‘faces’ of the nation, which targets immigration in particular. This includes a nostalgia for a lost past together with fear of the ‘other,’ and anger that ‘others’ – immigrants, non-whites, women – are ‘cutting in the line.’

There are also purely political sources of discontent – this is clear in a populist upsurge not seen since the 1930s. As neoliberal globalization (and Europeanization) has moved decision-making up to the supranational level, citizens feel a sense of loss of control, along with growing distrust of governing elites and a loss of faith in their national democracies as well as in supranational governance. This helps explain the increasing turnover of incumbent governments, the high rates of abstention in elections, and the turn to populists.

It is no wonder, therefore, that in the UK, the Leave campaign slogan ‘Take back control’ resonated so much, or that Trump’s ‘America First’ did the same in the US.

But populism is not the answer. In the UK, Brexit is a self-inflicted wound that used the EU as a scapegoat for very national problems linked to neoliberalism having gone too far. And let’s not forget to talk about Trump and his curious mix of anti-neoliberalism on trade and ultra neoliberalism in his anti-regulation agenda, tax reductions for the rich, and benefits reductions for the poor.

So how to move forward? We need to tackle the sources of discontent. We need more equality, less poverty, more social justice, fair wages, a reining in of the financial markets, and did I forget to mention doing something about climate change? Plus, we need more decentralization, giving more power and responsibility back to national, regional, and local levels, even as we intensify coordination at supranational regional and global governance levels.

How do we get there? We need new ideas that challenge neoliberalism and a globalization gone too far. In 2009, everyone waited for the paradigm shift that never came.

The only way forward now is the hard work of incremental change in ideas. Ideas take time to come together and show the way forward. We often don’t know what the new is until we have been living it for a while. Only years later, looking back, was FDR’s bricolage in the US 1930s labelled the neo-Keynesian paradigm.

The way forward requires new rhetorical leaders to win elections with a new set of ideas. Not a Trump – there are no new ideas in his agenda, just bad, very bad old ones (to use his language) – but possibly a Macron whose bricolage of ideas from the left and the right, to make something new, might be just the ticket.

But where does Macron get his political economic ideas? Or any new political leader? For the specifics, they need technical entrepreneurs in expert networks and state administrations working out the intricacies of new policies. Here too, incremental change is key. And we can already see the beginning signs of such new incrementally developed ideas, as central banks develop and circulate ideas about macroprudential regulation; or as sustainable, inclusive growth has become the buzzword everywhere (except in Trumpland).

And in the Eurozone, the EU Commission went from ‘governing by rules and numbers’ in 2010 to 2012 to reinterpreting the rules ‘by stealth’ to allow for more flexibility from 2012-2015, and since then to the politics of flexibility and investment. In the future, looking back, the Eurozone could be seen to have gone from its original ‘paradigm’ of ‘expansionary fiscal contractionism’ – the failed ideas behind austerity and structural reforms – to a new paradigm of ‘expansionary stability,’ or ‘stable expansionism,’ in which the stability rules have been made truly compatible with growth-enhancing policies. As for the governance processes, why not flip the European Semester, from hierarchical top-down instrument of deficit and debt control to a bottom up member-state instrument of industrial policy for national growth and prosperity?

New political ideas are of course also necessary – with bottom up political movements, and social movements the source, as new ideas bubble up from the bottom. It is tremendously important for liberal democracy, and not just liberal capitalism, to give back control to national governments to figure out what works best in their particular variety of capitalism, and to allow much more regional and local autonomy since cities and sub-national regions are often where experimentation and innovation begins.

This is the last chance for western industrialized democracies that have pushed capitalism too far. We need a renewal of liberal capitalism combined with a renewal of democracy. And for these, we need to ensure incremental change through good new ideas and fast. Otherwise, things will be, to paraphrase Trump, A DISASTER!

 

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