What follows neoliberalism? A true free market. In my latest book, The Quiet Coup: Neoliberalism and the Looting of America, I argue that, contrary to the standard historical narrative, neoliberal ideology has always been a red herring. Neoliberalism was not a backlash against Keynesian economics or rising Marxism. Rather, neoliberal dogmas were adopted in the 1960s to cover the empire with new clothes. While the world’s people demanded freedom from exploitation after centuries of colonial subjugation, Western neoliberal policymakers latched on to “market freedom,” which essentially meant “freedom for capital.”
The core ideas of neoliberalism – often described as capitalism without state intervention – have repeatedly been debunked by volumes of research and simple reality: rising tides did not lift all boats, free trade did not usher in world peace, and markets were not necessarily more efficient than governments. In any case, debates about the virtues of markets over state power miss the mark, because they confuse what the ideology purports to do with what actually it does. Our economy resembles capitalism as much as our political system resembles democracy – hardly at all.
From the beginning, neoliberalism was a Trojan horse. It promised market freedom but delivered the opposite: more laws, lawyers, subsidies, and, in the United States, the largest federal bureaucracy in the country’s history, which has ballooned since neoliberalism became state policy, now comprising more than 11 million employees with a total government budget of $6 trillion. In practice, neoliberalism invaded and reshaped the regulatory state, making the bureaucracy unintentionally complicit in its own delegitimization.
Neoliberal economists and politicians convinced the public that government intervention in markets was harmful and inefficient, and neoliberal administrations promised to repeal laws constraining the market. 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. Once industry became a key participant in the lawmaking process, laws became more specific, technical, and complex, making public participation more difficult and lobbyist expertise more necessary. Under the guise of economic liberalism, a worm of corruption entered our institutions, resulting in widespread distrust. What is less predictable is how this shared sense of distrust will affect our society.
What must come after corruption is justice. And justice is a prerequisite for freedom, which itself must be achieved in reality, before the world can truly enjoy a free market and shared prosperity.
ANNE O. KRUEGER
Over the last 250 years, a spectacular transformation has occurred, with living standards, health, education, and the quality of life rising sharply around the world. As the Nobel laureate economic historian Robert Fogel pointed out in 2007, the poverty line in 2000 was at a real-income level that, in 1900, was attained by only the richest 6-7% of Americans!
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. In the 1990s, many developing countries (including China) also undertook policy reforms that reflected neoliberal ideas. The impact was immense: from 1990 to 2020, the share of the world’s population living in extreme poverty plummeted from over 58% to just 9.3%. It is an astonishing achievement.
Of course, uneven progress in advanced and developing economies left some groups behind. When shortcomings became evident, measures were taken to address them. Child labor was prohibited, and education became mandatory. Antitrust laws were passed. Private firms were forced to adhere to more stringent safety codes. Banking regulations were adopted. Social safety nets were put in place to help the unemployed, the elderly, and other disadvantaged groups.
Rising productivity and incomes were central to progress. As people grew richer, spending on both private-consumption and public goods increased. The private sector had plenty of incentive to keep improving productivity, develop new products, and otherwise fuel economic dynamism. The public sector also did its part, providing infrastructure (from water to transportation), strengthening education and training, enforcing safety standards, establishing realistic commercial codes, and more.
Despite all that success, governments are increasingly forsaking reliance on markets and attempting to identify promising industries and private firms for special treatment. In the US, this is taking the form of both protectionist measures and targeted incentives and support, especially for semiconductors, batteries, electric vehicles, solar panels, and even steel and aluminum. Many other countries are doing the same: semiconductor subsidies are now in place in Europe, Japan, India, and of course China.
These policies may well induce additional investments and production, but they have important disadvantages. For starters, they shift competition from reducing costs to qualifying for government incentives, which are more readily earned by larger companies. Moreover, the government officials responsible for ascertaining the technical validity of investment plans are often underqualified or represent a reallocation of resources from private industries. In fact, evidence suggests that, historically, a large share of public-sector efforts to “pick winners” or take the lead in producing goods and services have fared poorly. Subsidization is a negative-sum game.
To improve the well-being of all and generate resources for further government activities, the neoliberal formula – rely on incentives and competition in the private sector for most activities, within the framework of competition policy, commercial codes, and sensible standards – remains the best one that humanity has so far devised.
MARIANA MAZZUCATO
Yes, the state is making a comeback. But for neoliberalism truly to become a thing of the past, that comeback must take a different form.
The COVID-19 pandemic, the recent bout of high inflation, and rising geopolitical tensions have highlighted for governments what it takes to tackle massive crises. But addressing the challenges that lie ahead – most notably, the climate crisis – will require more sustained efforts to achieve “mission-driven government,” which recognizes that the economy will not grow in a socially and environmentally desirable direction on its own.
This will require a new social contract between the state and business, and between capital and labor. For example, governments can condition firms’ access to public funding – such as that included in the industrial strategies that a growing number of governments are embracing – on their behaving in ways that maximize public value. With share buybacks in the US alone set to surpass $1 trillion for the first time ever, this might mean requiring firms receiving public funding to share a portion of their profits and reinvest them in productive activities, such as worker training and research and development.
This is not about providing corporate welfare, but about shaping markets, so that they are centered on stakeholder – rather than only shareholder – value. It’s also an opportunity to give previously excluded voices a seat at the table.
Despite this clear potential of green initiatives to boost incomes, productivity, and economic growth, the false dichotomy between economic prosperity and environmental sustainability persists. If the progressive left continues to struggle to articulate a compelling counternarrative, the green transition will lack the political support it needs to succeed, and we will be unable to overcome the limiting neoliberal conception of the state as a market-fixer, rather than a market-shaper.
DANI RODRIK
The neoliberal consensus has been overtaken by new concerns about geopolitics, national security, supply-chain resilience, climate change, and the erosion of the middle class. We should not mourn its passing, as it was unsustainable and had many blind spots. Whether something good comes out of it will depend on the nature of the response, which could be either reactive or constructive.
The reactive response is driven by external developments – mainly fears of the economic and geopolitical impact of China’s rise. Its main focus is reversing, or at least delaying, the consequences, and it tends to take a zero-sum approach: your win is my loss. Versions of this approach can be seen in both the US and Europe. In the US, it takes the form mainly of weaponizing trade for geopolitical ends: while the Biden administration characterizes its export controls on China as “carefully tailored,” others see them as tantamount to a “full-blown economic war.” In Europe, the key concern is loss of market share, with leading voices fretting about global competitiveness – a misguided concern which economists thought they had buried.
The constructive response, 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. The requisite industrial policies can produce adverse effects on trade, but that is not their main goal.
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.
JOSEPH E. STIGLITZ
The neoliberal agenda was always partly a charade, a fig leaf for power politics. There was financial deregulation, but also massive government bailouts. There was “free trade,” but also massive subsidies to big agriculture and the fossil-fuel industry. Globally, this led to the creation of rules that preserved colonial trade patterns, with developing countries producing commodities and the advanced economies dominating high-value-added industries.
That it was a charade has now been made apparent by the US, which is providing huge subsidies to certain industries – essentially disregarding World Trade Organization rules – after decades of scolding developing countries that even considered doing the same. Admittedly, the US is acting partly in the service of a good cause: the green transition. Nonetheless, its actions demonstrate that the powerful not only play a disproportionate role in making the rules, but also flout them when they become inconvenient, knowing that there is nothing that others can do it about it.
Meanwhile, poor countries have no choice but to follow the rules, no matter the consequences. During the COVID-19 pandemic, an estimated 1.3 million died unnecessarily because WTO rules on intellectual-property rights prevented full vaccine sharing. Those rules were enforced, rather than suspended, because some rich countries chose to put pharmaceutical profits above all else.
The worry is that a world with no rules – governed by the “law of the jungle” – could be worse than a world with rules based on flawed economic principles that perpetuate unfair power dynamics and are unevenly enforced. That is why, as Dani Rodrik and I have argued, we need a new governance architecture, based on the minimal set of rules necessary to make our global system work. We need narrow agreements to advance shared goals and to ensure some semblance of a level playing field. Advanced economies should be allowed to provide subsidies only for narrowly defined objectives, like the green transition, and only if they commit to transfer technology and provide a commensurate amount of funding to developing countries.
The rule of law is as important globally as it is within countries, but the type of law matters. The US and other advanced economies need developing countries and emerging markets to cooperate with them on a host of issues. Whether we want to admit it or not, we are also competing with authoritarian governments to win their hearts and minds. With our current playbook, we’ve been losing.
The end of neoliberalism, the recognition that some of the institutions created under its aegis are failing, and the new geopolitical realities provide us with a critical opportunity to rethink globalization and the rules that have underpinned it. We must seize it.
MICHAEL R. STRAIN
The neoliberal era is not ending in the US, because over the long term, political success rests on a foundation of policy success, and the “post-neoliberal” policies embraced by Presidents Donald Trump and Joe Biden are not succeeding.
Trump broke with the bipartisan free-trade consensus to which his recent predecessors subscribed when he launched a trade war with China. The result was higher prices for consumers and fewer jobs for manufacturing workers. Lose-lose.
Biden has maintained and extended the Trump tariffs, and has embraced industrial policy to jumpstart domestic clean-energy innovation and semiconductor manufacturing. But substituting the judgment of politicians for the judgment of markets is meeting with predictable results: the US lacks the workforceneeded to use these funds effectively. Moreover, other countries are retaliating, blunting the impact of the subsidies. The White House is tripping over itself, pursuing contradictory goals.
Biden’s $2 trillion economic stimulus, signed in March 2021, cast aside even a rhetorical commitment to fiscal responsibility. The inflation to which it contributed is a major headwind in his quest for re-election. Finally, Biden’s regulatory agenda rejects the consumer-welfare standard in competition policy in favor of a “big is bad” standard. This approach is chillingdeal-making and persistently losing in courts.
The US is set to continue on this unproductive path, regardless of who wins the November election. Trump and Biden are trying to out-do each other on how high they can raise tariff rates, and one of Trump’s potential vice presidential picks argues that Federal Trade Commission Chair Lina Khan, responsible for antitrust enforcement, is the “best person” in the Biden administration. Meanwhile, Trump’s immigration proposals would cause severe economic damage.
These policy failures will have political consequences – not in 2024 apparently, but certainly in the coming years. Ironically, they will end up solidifying the consensus around the importance of free people and free markets.