16 June 2021

Is the neoliberal era finally over?

As free-market globalisation recedes, countries from the US to the UK to China are embracing national capitalism.

(Photo By boris semaniako / ikon images)

In 2007 Alan Greenspan, the former chair of the US Federal Reserve, was asked which candidate he was supporting in the forthcoming presidential election. “We are fortunate that, thanks to globalisation, policy decisions in the US have been largely replaced by global market forces,” he replied of the contest between Barack Obama and John McCain. “National security aside, it hardly makes any difference who will be the next president. The world is governed by market forces.”

The complacency of Greenspan represented the apex of neoliberalism, a term often misunderstood and overused, but which remains the best shorthand for the policies that have shaped the global economy as we know it: privatisation, tax cuts, inflation targeting and anti-trade union laws. Rather than being subject to democratic pressures – such as elections – these measures were portrayed as irreversible. “I hear people say we have to stop and debate globalisation,” Tony Blair declared in his speech to the 2005 Labour Party conference. “You might as well debate whether autumn should follow summer.”

But this proved a false dawn. “I’ve found a flaw [in my ideology],” Greenspan told a Congressional hearing during the 2008 financial crisis. “I don’t know how significant or permanent it is. But I’ve been very distressed by that fact.”

In the years that followed numerous obituaries were written for neoliberalism but the coffin remained empty. Like a reanimated corpse, the neoliberal order staggered on with the aid of ultra-low interest rates and trillions of dollars of quantitative easing (new money created by central banks). Meanwhile, centre-left parties, misreading the 2008 financial crisis and its aftermath as a “social democratic moment”, were routed as anti-immigration populist movements rose. French president François Hollande – the only socialist to be elected in a G7 country after the crash – supplied the farce to match François Mitterand’s tragedy.

Now, as we emerge from the Covid recession, obituaries for neoliberalism are once again being written – but this time they are more plausible. In the US, Joe Biden’s administration has passed a $1.9trn economic relief bill, a stimulus more than twice as large as that enacted by Obama in 2009. The bill included payments of $1,400 for Americans earning up to $75,000, the extension of federal unemployment support ($300 a week), $350bn of financial aid to state and local governments, and a more generous child tax credit for some families.

[See also: Trapped in the Cold Web]

Combined with Donald Trump’s emergency coronavirus relief packages last year, this amounts to a stimulus of $5trn, or around 25 per cent of annual US GDP – the largest-ever fiscal expansion in peacetime. The decades-old presumption in favour of inflation control has given way to one in favour of growth and employment (even the traditionally austere European Union has agreed a recovery fund of €750bn or 4.7 per cent of annual EU GDP).

Government fiscal stimulus and budget deficits are hardly incompatible with neoliberalism (as Ronald Reagan could testify). But the Biden administration represents a more significant challenge to the established order. “Trickle-down economics has never worked,” Biden declared in his first address to Congress in April. For decades, the labour share of GDP has been in decline, falling from 63.3 per cent in 2000 to 56.7 per cent in 2016. Biden’s explicit aim is to reverse the falling wage share by redistributing wealth from business owners to workers through a more progressive tax system and re-empowered trade unions. His administration was the chief architect of the minimum global corporation tax rate of 15 per cent agreed by the G7’s finance ministers on 5 June – a policy that until recently was deemed utopian. Crucially, the move was framed by the US Treasury secretary Janet Yellen as a repudiation of neoliberalism and an end to the “30-year race to the bottom”.

The ascendant superpower, meanwhile, is China, a state once regarded as an obedient neoliberal pupil, but which has since proved far more recalcitrant. Rather than becoming ever more Westernised, or succumbing to internal contradictions as the Soviet Union ultimately did, Xi Jinping’s China is pursuing an alternative model of growth: authoritarian state capitalism. (China’s state-owned enterprises are estimated to account for a larger share of global GDP than Japan.) As the Economist observed in a leader last August: “One thing is clear: the hope for confrontation followed by capitulation is misguided… The strength of China’s $14trn state-capitalist economy cannot be wished away. Time to shed that illusion.”

In 2000, in a different economic age, New Labour privatised UK air-traffic control, territory where even Margaret Thatcher’s government feared to tread. Today, the Conservative mayor of Tees Valley, Ben Houchen, boasts of having nationalised Teesside International Airport. Whatever we call this strange new political era, “neoliberal” is no longer adequate.

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In the 1982 preface to Capitalism and Freedom, Milton Friedman observed: “Only a crisis – actual or perceived – produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around.” One can imagine what an orthodox neoliberal response to the Covid-19 recession would have looked like: tax cuts and radical labour market deregulation designed to stimulate job creation. These ideas are still lying around, but they now resemble embarrassing outfits from a different era. Others have moved to the front of the store: state investment, industrial strategy, progressive tax rises, higher wages. The zeitgeist has changed. As the Atlantic magazine recently reported, Boris Johnson has “ordered civil servants to reject conservative orthodoxies about government intervention being bad and to be ‘more creative and more confident around who we [the UK] choose to back’”.

“As a sort of ebullient, aggressive ideology, as a doctrine that felt cocky and confident and all-conquering, neoliberalism is clearly dead, right?” Adam Tooze, the author of Crashed, the definitive book on the 2008 financial crisis, said when we spoke. “There’s just not any juice in there, it’s a bad brand at this point.”

He cited the fate of David Cameron’s government – so wedded to neoliberalism that it contemplated the privatisation of England’s forests – as an exemplar. “There was a Cameroon project and it consisted of resolving the Brexit problem by holding a referendum and then buddying up with China. And that was the plan: to insert a Conservative hegemonised Britain as the link between Europe and China – and every single piece of that plan blew up.”

Dani Rodrik, the influential Harvard University economist, agrees that neoliberalism is effectively dead. “The intellectual dissolution of the concept goes back to the 2008 crisis, where the damage that financial liberalisation can do became better understood… Even the IMF reversed its earlier stand in favour of free capital flows.”

Earlier this year, the Financial Times reported that the UK government was planning a bonfire of workers’ rights, including the abolition of the 48-hour maximum working week and changes to rules over breaks at work. The policies could have been drawn from Britannia Unchained, a book of essays published in 2012 featuring five recently elected Conservative MPs, which derided British workers as “among the worst idlers in the world”. But though four of its co-authors now sit in Johnson’s cabinet, they are gradually disowning ideas they once championed.

In January one of the gang, Business Secretary Kwasi Kwarteng, announced the abandonment of the promised review into workers’ rights. “I made it very, very clear to officials in the department that we’re not interested in watering down workers’ rights… I’ve said repeatedly that Brexit gives us the opportunity to have higher standards,” he said.

Rather than the 15 per cent rate of corporation tax that the former British chancellor George Osborne once aspired to introduce, the Conservatives have pledged to increase the UK rate from 19 per cent to 25 per cent (which would take the overall tax burden to its highest level since 1968-69, when Harold Wilson’s Labour government were in power). Infrastructure investment, meanwhile, has risen to its highest level as a share of GDP since the 1970s.

In his speech to the 1976 Labour Party conference, James Callaghan, the then prime minister, prefigured the ascent of the new Hayekian right by telling delegates: “We used to think that you could spend your way out of a recession, and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists.” Today, Conservative MPs are being forced to accept that the era of severe public spending cuts, tax cuts and deregulation is coming to an end.

If there was a hinge year it might not be 2008, as often suggested, but 2016: the year of Donald Trump’s election and of the Brexit vote. Though neither project was radically anti-neoliberal, both prioritised national control over market forces and shattered economic taboos in areas such as trade.

“I don’t think that Trump set out to destroy the neoliberal order, but he opened up a space that others have now walked into,” Quinn Slobodian, the author of Globalists: The End of Empire and the Birth of Neoliberalism, told me. “It was Bernie Sanders who first broke these taboos around free-trade globalisation in his presidential campaign… the savvy political talent of someone like [Trump’s ex-chief strategist] Steve Bannon was simply to realise what was working in the Sanders message, which had now been abandoned by the Democrats.”

Trumpism opened the way for Biden’s radicalism in at least three senses. First, his $1.9trn tax cuts exposed the illusion of limits on US borrowing. Second, his trade war with China established a new pretext for state intervention, a cause that can unite liberals and conservatives. On 8 June, 19 Republican Senators joined the Democrats in voting for a $250bn bill to boost government investment in American technology and manufacturing (though this is hardly a sum to make Beijing, which has pledged to invest $1.4trn in tech, tremble). Third, Trump’s presidency persuaded Biden that the defence of liberal democracy depends upon a less unequal economic order and the restoration of “shared prosperity”.

In 1981, in one of the iconic acts of the neoliberal counter-revolution, Reagan fired more than 11,000 air-traffic controllers who maintained a strike in defiance of his order to return to work. Forty years later, Biden is championing a bill – Protecting the Right to Organise – that could enact the biggest expansion of workers’ rights since Franklin D Roosevelt’s presidency. The act would ban employers from permanently replacing strikers, legalise secondary strikes (currently banned in the UK) and end employer interference in union elections.

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If neoliberalism has stalled it is partly because, like Alexander the Great, it had no worlds left to conquer. By the 1990s the Soviet Union and its satellite states had been defeated and social-democratic parties had been forced to pay homage (Thatcher described the creation of New Labour as her greatest achievement).

The legacy of the neoliberal era remains. On an economic level, the life-support machine of the state helped prevent more radical ruptures after the 2008 financial crisis and, many years later, the Covid recession. On a political level, Sanders and Labour’s Jeremy Corbyn – who could have embarked upon Mitterrand-style socialist confrontations with capital – were comfortably defeated.

Biden’s programme appears negligible when set against Sanders’ original ambitions, which were: a Green New Deal (to achieve 100 per cent renewable energy and create 20 million jobs); a rise in US public spending of up to $60trn across the next decade; universal healthcare; worker ownership funds (allowing employees to acquire up to 20 per cent of public corporations); the abolition of university tuition fees; and the cancellation of $1.6trn of student debt.

“As a practice of government, neoliberalism is a far harder beast to kill,” Tooze said, noting how pivotal private finance remains to Biden’s infrastructure and climate ambitions. “And then if you think about neoliberalism as a structure of social interests, as a class project, it marches on unambiguously.”

The austerity of the past decade in the UK and the EU has led commentators to present the size of the state as the defining ideological question. But the partial return of big government – which is compatible with German Christian democracy and French Gaullism – hardly amounts to a full-scale confrontation with neoliberalism.

It is nevertheless a profound shift. In different ways, Joe Biden’s US, Xi Jinping’s China, Vladimir Putin’s Russia and even Boris Johnson’s UK have all embraced forms of nationalist Keynesianism: public spending in the service of great national causes. A comparable project has been embraced by the French president, Emmanuel Macron, who increasingly speaks of Europe as a civilisation-state and who championed the EU’s €750bn economic stimulus.

“Policy decisions in the US have been largely replaced by global market forces,” Alan Greenspan said in 2007. In the Covid era, however, global market forces are being subverted by domestic policy decisions. The age of neoliberalism is giving way to a new one: the age of national capitalism.