During the neoliberal globalisation, most politicians would argue that economic policy is just a question of how a country can adapt to the requirements of the international markets and the international investors moving capital around the world (as Margaret Thatcher famously stated: ‘There is No Alternative’). Want to increase wages? We move the production elsewhere. Want to increase the tax on capital? We move it to another country. The beauty of neoliberalism is that economic conflicts are relegated to the market, the economy was, so to say, depoliticised.
This is gradually changing lately. Tariffs, targeted tax exemptions and subsidies are back everywhere, both in the US, the EU, China, India, Russia and many developing countries. And in many places state-owned companies now again play an important role in economic development. We are back in a situation where political choices have to be made on what people want the future of their country to look like. This includes how the economy shall be structured.
So economic policy is back.
A debate has started, mostly in academic circles, about how this new space can be utilised by what could broadly be called the non-neoliberal political forces (let us for the moment call them the ‘left’, even if that is quite problematic). It is obvious that there is an opportunity for economic planning and industrial policy, which can be used for creating better paid quality jobs and hence diminish inequality, reindustrialising (even if it doesn’t mean a lot of direct new jobs, it creates many indirect jobs), pushing for a faster green transition, improving labour and environmental legislation (as the weakening power of the international markets means that there is an opportunity to stop the race to the bottom, inherent in the neoliberal globalisation), and so on.
There exists even a common declaration on this from the ‘soft left’, called the Berlin Summit Declaration. The Declaration states that ‘we need to reorient our policies and institutions from targeting economic efficiency above all to focusing on the creation of shared prosperity and secure quality jobs’, and among the measures are mentioned the need to ‘design a healthier form of globalization that balances the advantages of free trade against the need to protect the vulnerable and coordinate climate policies while allowing for national control over crucial strategic interests’ and ‘establish a new balance between markets and collective action’.
An optimistic meeting on the new industrial policy was held in Berlin with the title: 'Winning Back the People'. Professor James Galbraith was not impressed. Photo from Facebook.
In a recent upbeat discussion on the room for a new industrial policy, the US economist James K. Galbraith, Professor at the University of Austin, Texas, is the fly in the ointment. ‘Industrial Policy is a nostalgic pipe dream’ he states. ‘To address the public’s anger after four decades of neoliberalism, progressive and center-left economists are calling for innovation to create wealth “for the many” and to deal with climate change, while also reducing market concentration and power. Unfortunately, they are mistaken about where the real problem lies.’ His point is that ‘after 40 years of neoliberal neglect and predation’ governments don’t have the institutions and people to carry out a new industrial policy, and innovation has mainly served to enrich people like Jeff Bezoz, Bill Gates, Elon Musk and so on. The tools that are left are tariffs and corporate subsidies, and ‘to dole out the subsidies, the Biden administration hired consultants from Wall Street, the very same people responsible’ for the present mess. The ‘soft left’ now arguing for a new industrial policy are ‘the same people who 40 years ago tried to rescue the Democrats in the face of Reaganomics’. He concludes: ‘Back then, at least, it was plausible. Yet now, as in the past, they seem unwilling to confront the banks, the military contractors, or the tech tycoons who now run the West. They do not call for definancialization, disarmament, or the socialization of new investment. They seek to rebuild state capacity while leaving in place all the forces that destroyed it. Meanwhile, vast new political forces are filling the vacuum left by neoliberal policies in America and Europe. Given the damage done, there may be no way to assuage the anger driving those “dangerous populists” toward power. Alas, the kumbayas of an outdated idea are not likely to help very much.’ So what he says is basically that facing the recent wave of right-wing ‘populist’ parties, what they are proposing is too little and too late.
According to Professor James Galbraith, the US Democratic Party failed to stand up to Reaganomics, which implied that power was transferred to the Financial Capital and Industrial Tycoons. Now it will be very difficult to take that power back. Photo from Wikipedia.
Professor Galbraith has a point: economics is about politics and power. If you ignore the need to confront the powers that created the present neoliberal societies, it will just be talking.
There has obviously been a lack of understanding on the ‘left’ of the importance of how these policies affect different parts of the population. This is clearly the case for the ‘green transition’. The push for more expensive energy (CO2 charges and so on), shift to renewables and costly electrification of transport may be easy to understand and accept for the urban better-off middle class, but it is not that clear for people who are struggling to make ends meet, or who live in the country side where the need for a car is obvious. What they can see is that these policies are hurting them. This has led to a popular backlash. Take the French yellow vests as an example. The same will be the case for many other forms for industrial policy. They can be designed in one way or the other, and how they will affect different groups of people will differ a lot.
This brings us to the trouble with the traditional left-right division in politics. This is not because the division between rich and poor has disappeared, it is very much alive. But, according to the French economist Thomas Piketty, because both the traditional left and the traditional right have been taken over by the same well-educated urban elite. Piketty, who I think politically is best categorized as a social democrat (but a somewhat unusual one, as he is well versed in both Marxism and mainstream economics) claims that unfortunately the political divide is now between the “Brahmin Left” (the Brahmins are at the top of the Hindu caste system) and the “Merchant Right”. In the French context, this creates a vacuum which is filled out by Jean-Luc Mélenchon’s ‘France Insoumise’ and similar left parties in the bigger towns, and Marine Le Pen’s ‘Rassemblement National’ in the smaller rural towns. There are also sociologists who claim that in reality the ‘Brahmin Left’ and the ‘Merchant Right’ have now formed a ‘Bloc Bourgois’.
According to Thomas Piketty, the submission of the traditional parties to the neoliberal globalisation has created a vacuum to the left and to the right. In France it has been filled out to the left by Jean-Luc Mélenchon (France Insoumise) and to the right by Marine Le Pen (Rassemblement National).
It is not just the non-neoliberals who are wondering how to handle this new world which appears before us. There is clearly confusion too in the high temples of neo-liberalism as the World Bank, IMF and OECD. I had some fun reading a recent article by Branko Milanovic who was Lead Economist in the World Bank’s research department from 1991 to 2013. His point is that it is wrong to link the downfall of the neoliberal order to the recent election of Trump, as ‘the main principles of neoliberal globalization have been abandoned by the mainstream economists much prior’ to that. ‘It has been argued however (and I think that it is obvious) that the seeds of his (Trump’s) ascent were actually sowed by neoliberal policies which have gradually lost popular support. It is not by accident that 77 million people voted for Trump nor is it accidental that similar movements are currently taking place and politically destabilizing large Western countries like Germany and France. This internal aspect and the role of neoliberalism in increasing inequality, reducing social mobility, increasing morbidity and mortality among the middle classes in the US, dissociating interests of the rich from the rest of the society, have been extensively documented in both economic and political science literature.’ His point is that ‘the neoliberal establishment has actually abandoned the principles of globalization which the very same people have been defending before, for some 20 or more years’.
He argues that this is the case for three reasons: (i) the dread of China’s success (it should be hailed, not abhorred), (ii) the claims that China has been ‘stealing’ technology (all developing countries should be imitating superior foreign technology, that is the whole point of development assistance), and (iii) that the ‘international aspects of neoliberal globalization have been abandoned by the people who used to defend it’ (he refers to free trade, the creation of trade blocs, the use of sanctions against developing countries and the stop for immigration). As he says, ‘One cannot imagine how a World Bank mission to Egypt could argue for reduced tariff rates or lower subsidies while at the same time the most important country, not only economically but in terms of suggested or enforced economic ideology, the United States, is raising its tariffs and subsidies’. And, ‘if the industrial policy is good for the United States or for Europe the question is why should such policy be advised against in Egypt or Nigeria?’
A really good question. It has historically always been the economically and technologically leading countries (first England, then US) that have been promoting free trade and thundering against subsidies, while countries catching up haven’t done that (as the US and Germany in the nineteenth century). Perhaps the advice Branko is referring to, and which has been the standard advice from IMF, the World Bank and OECD for decades, was bad advice in the first place?
China and other countries as Japan and South Korea have been successful because they didn’t follow this advice. That ought to give the neoliberal high priests something to think about.
