The
death of neoliberalism and the crisis in western politics
Martin Jacques
In
the early 1980s the author was one of the first to herald the
emerging dominance of neoliberalism in the west. Here he argues that
this doctrine is now faltering. But what happens next?
Sunday
21 August 2016 05.25 BST
The western
financial crisis of 2007-8 was the worst since 1931, yet its
immediate repercussions were surprisingly modest. The crisis
challenged the foundation stones of the long-dominant neoliberal
ideology but it seemed to emerge largely unscathed. The banks were
bailed out; hardly any bankers on either side of the Atlantic were
prosecuted for their crimes; and the price of their behaviour was
duly paid by the taxpayer. Subsequent economic policy, especially in
the Anglo-Saxon world, has relied overwhelmingly on monetary policy,
especially quantitative easing. It has failed. The western economy
has stagnated and is now approaching its lost decade, with no end in
sight.
After almost nine
years, we are finally beginning to reap the political whirlwind of
the financial crisis. But how did neoliberalism manage to survive
virtually unscathed for so long? Although it failed the test of the
real world, bequeathing the worst economic disaster for seven
decades, politically and intellectually it remained the only show in
town. Parties of the right, centre and left had all bought into its
philosophy, New Labour a classic in point. They knew no other way of
thinking or doing: it had become the common sense. It was, as Antonio
Gramsci put it, hegemonic. But that hegemony cannot and will not
survive the test of the real world.
The first inkling of
the wider political consequences was evident in the turn in public
opinion against the banks, bankers and business leaders. For decades,
they could do no wrong: they were feted as the role models of our
age, the default troubleshooters of choice in education, health and
seemingly everything else. Now, though, their star was in steep
descent, along with that of the political class. The effect of the
financial crisis was to undermine faith and trust in the competence
of the governing elites. It marked the beginnings of a wider
political crisis.
But the causes of
this political crisis, glaringly evident on both sides of the
Atlantic, are much deeper than simply the financial crisis and the
virtually stillborn recovery of the last decade. They go to the heart
of the neoliberal project that dates from the late 70s and the
political rise of Reagan and Thatcher, and embraced at its core the
idea of a global free market in goods, services and capital. The
depression-era system of bank regulation was dismantled, in the US in
the 1990s and in Britain in 1986, thereby creating the conditions for
the 2008 crisis. Equality was scorned, the idea of trickle-down
economics lauded, government condemned as a fetter on the market and
duly downsized, immigration encouraged, regulation cut to a minimum,
taxes reduced and a blind eye turned to corporate evasion.
It should be noted
that, by historical standards, the neoliberal era has not had a
particularly good track record. The most dynamic period of postwar
western growth was that between the end of the war and the early 70s,
the era of welfare capitalism and Keynesianism, when the growth rate
was double that of the neoliberal period from 1980 to the present.
But by far the most
disastrous feature of the neoliberal period has been the huge growth
in inequality. Until very recently, this had been virtually ignored.
With extraordinary speed, however, it has emerged as one of, if not
the most important political issue on both sides of the Atlantic,
most dramatically in the US. It is, bar none, the issue that is
driving the political discontent that is now engulfing the west.
Given the statistical evidence, it is puzzling, shocking even, that
it has been disregarded for so long; the explanation can only lie in
the sheer extent of the hegemony of neoliberalism and its values.
But now reality has
upset the doctrinal apple cart. In the period 1948-1972, every
section of the American population experienced very similar and
sizable increases in their standard of living; between 1972-2013, the
bottom 10% experienced falling real income while the top 10% did far
better than everyone else. In the US, the median real income for
full-time male workers is now lower than it was four decades ago: the
income of the bottom 90% of the population has stagnated for over 30
years.
A not so dissimilar
picture is true of the UK. And the problem has grown more serious
since the financial crisis. On average, between 65-70% of households
in 25 high-income economies experienced stagnant or falling real
incomes between 2005 and 2014.
Large sections of
the population in both the US and the UK are now in revolt against
their lot
The reasons are not
difficult to explain. The hyper-globalisation era has been
systematically stacked in favour of capital against labour:
international trading agreements, drawn up in great secrecy, with
business on the inside and the unions and citizens excluded, the
Trans-Pacific Partnership (TPP) and the Transatlantic Trade and
Investment Partnership (TTIP) being but the latest examples; the
politico-legal attack on the unions; the encouragement of large-scale
immigration in both the US and Europe that helped to undermine the
bargaining power of the domestic workforce; and the failure to
retrain displaced workers in any meaningful way.
As Thomas Piketty
has shown, in the absence of countervailing pressures, capitalism
naturally gravitates towards increasing inequality. In the period
between 1945 and the late 70s, Cold War competition was arguably the
biggest such constraint. Since the collapse of the Soviet Union,
there have been none. As the popular backlash grows increasingly
irresistible, however, such a winner-takes-all regime becomes
politically unsustainable.
Large sections of
the population in both the US and the UK are now in revolt against
their lot, as graphically illustrated by the support for Trump and
Sanders in the US and the Brexit vote in the UK. This popular revolt
is often described, in a somewhat denigratory and dismissive fashion,
as populism. Or, as Francis Fukuyama writes in a recent excellent
essay in Foreign Affairs: “‘Populism’ is the label that
political elites attach to policies supported by ordinary citizens
that they don’t like.” Populism is a movement against the status
quo. It represents the beginnings of something new, though it is
generally much clearer about what it is against than what it is for.
It can be progressive or reactionary, but more usually both.
Brexit is a classic
example of such populism. It has overturned a fundamental cornerstone
of UK policy since the early 1970s. Though ostensibly about Europe,
it was in fact about much more: a cri de coeur from those who feel
they have lost out and been left behind, whose living standards have
stagnated or worse since the 1980s, who feel dislocated by
large-scale immigration over which they have no control and who face
an increasingly insecure and casualised labour market. Their revolt
has paralysed the governing elite, already claimed one prime
minister, and left the latest one fumbling around in the dark looking
for divine inspiration.
Brexit was the
marker of a working-class revolt. Photograph: Mark Thomas/Alamy
The wave of populism
marks the return of class as a central agency in politics, both in
the UK and the US. This is particularly remarkable in the US. For
many decades, the idea of the “working class” was marginal to
American political discourse. Most Americans described themselves as
middle class, a reflection of the aspirational pulse at the heart of
American society. According to a Gallup poll, in 2000 only 33% of
Americans called themselves working class; by 2015 the figure was
48%, almost half the population.
Brexit, too, was
primarily a working-class revolt. Hitherto, on both sides of the
Atlantic, the agency of class has been in retreat in the face of the
emergence of a new range of identities and issues from gender and
race to sexual orientation and the environment. The return of class,
because of its sheer reach, has the potential, like no other issue,
to redefine the political landscape.
The working class
belongs to no one: its orientation, far from predetermined, is a
function of politics
The re-emergence of
class should not be confused with the labour movement. They are not
synonymous: this is obvious in the US and increasingly the case in
the UK. Indeed, over the last half-century, there has been a growing
separation between the two in Britain. The re-emergence of the
working class as a political voice in Britain, most notably in the
Brexit vote, can best be described as an inchoate expression of
resentment and protest, with only a very weak sense of belonging to
the labour movement.
Indeed, Ukip has
been as important – in the form of immigration and Europe – in
shaping its current attitudes as the Labour party. In the United
States, both Trump and Sanders have given expression to the
working-class revolt, the latter almost as much as the former. The
working class belongs to no one: its orientation, far from
predetermined, as the left liked to think, is a function of politics.
The neoliberal era
is being undermined from two directions. First, if its record of
economic growth has never been particularly strong, it is now dismal.
Europe is barely larger than it was on the eve of the financial
crisis in 2007; the United States has done better but even its growth
has been anaemic. Economists such as Larry Summers believe that the
prospect for the future is most likely one of secular stagnation.
Worse, because the
recovery has been so weak and fragile, there is a widespread belief
that another financial crisis may well beckon. In other words, the
neoliberal era has delivered the west back into the kind of
crisis-ridden world that we last experienced in the 1930s. With this
background, it is hardly surprising that a majority in the west now
believe their children will be worse off than they were. Second,
those who have lost out in the neoliberal era are no longer prepared
to acquiesce in their fate – they are increasingly in open revolt.
We are witnessing the end of the neoliberal era. It is not dead, but
it is in its early death throes, just as the social-democratic era
was during the 1970s.
A sure sign of the
declining influence of neoliberalism is the rising chorus of
intellectual voices raised against it. From the mid-70s through the
80s, the economic debate was increasingly dominated by monetarists
and free marketeers. But since the western financial crisis, the
centre of gravity of the intellectual debate has shifted profoundly.
This is most obvious in the United States, with economists such as
Joseph Stiglitz, Paul Krugman, Dani Rodrik and Jeffrey Sachs becoming
increasingly influential. Thomas Piketty’s Capital in the
Twenty-First Century has been a massive seller. His work and that of
Tony Atkinson and Angus Deaton have pushed the question of the
inequality to the top of the political agenda. In the UK, Ha-Joon
Chang, for long isolated within the economics profession, has gained
a following far greater than those who think economics is a branch of
mathematics.
‘Virtually no one
foresaw the triumph of Jeremy Corbyn’, pictured at rally in north
London last week. Photograph: Daniel Leal-Olivas/AFP/Getty Images
Meanwhile, some of
those who were previously strong advocates of a neoliberal approach,
such as Larry Summers and the Financial Times’s Martin Wolf, have
become extremely critical. The wind is in the sails of the critics of
neoliberalism; the neoliberals and monetarists are in retreat. In the
UK, the media and political worlds are well behind the curve. Few
recognise that we are at the end of an era. Old attitudes and
assumptions still predominate, whether on the BBC’s Today
programme, in the rightwing press or the parliamentary Labour party.
Following Ed
Miliband’s resignation as Labour leader, virtually no one foresaw
the triumph of Jeremy Corbyn in the subsequent leadership election.
The assumption had been more of the same, a Blairite or a halfway
house like Miliband, certainly not anyone like Corbyn. But the
zeitgeist had changed. The membership, especially the young who had
joined the party on an unprecedented scale, wanted a complete break
with New Labour. One of the reasons why the left has failed to emerge
as the leader of the new mood of working-class disillusionment is
that most social democratic parties became, in varying degrees,
disciples of neoliberalism and uber-globalisation. The most extreme
forms of this phenomenon were New Labour and the Democrats, who in
the late 90s and 00s became its advance guard, personified by Tony
Blair and Bill Clinton, triangulation and the third way.
But as David
Marquand observed in a review for the New Statesman, what is the
point of a social democratic party if it doesn’t represent the less
fortunate, the underprivileged and the losers? New Labour deserted
those who needed them, who historically they were supposed to
represent. Is it surprising that large sections have now deserted the
party who deserted them? Blair, in his reincarnation as a
money-obsessed consultant to a shady bunch of presidents and
dictators, is a fitting testament to the demise of New Labour.
The rival contenders
– Burnham, Cooper and Kendall – represented continuity. They were
swept away by Corbyn, who won nearly 60% of the votes. New Labour was
over, as dead as Monty Python’s parrot. Few grasped the meaning of
what had happened. A Guardian leader welcomed the surge in membership
and then, lo and behold, urged support for Yvette Cooper, the very
antithesis of the reason for the enthusiasm. The PLP refused to
accept the result and ever since has tried with might and main to
remove Corbyn.
Just as the Labour
party took far too long to come to terms with the rise of Thatcherism
and the birth of a new era at the end of the 70s, now it could not
grasp that the Thatcherite paradigm, which they eventually came to
embrace in the form of New Labour, had finally run its course.
Labour, like everyone else, is obliged to think anew. The membership
in their antipathy to New Labour turned to someone who had never
accepted the latter, who was the polar opposite in almost every
respect of Blair, and embodying an authenticity and decency which
Blair patently did not.
Labour may be in
intensive care, but the condition of the Conservatives is not a great
deal better
Corbyn is not a
product of the new times, he is a throwback to the late 70s and early
80s. That is both his strength and also his weakness. He is
uncontaminated by the New Labour legacy because he has never accepted
it. But nor, it would seem, does he understand the nature of the new
era. The danger is that he is possessed of feet of clay in what is a
highly fluid and unpredictable political environment, devoid of any
certainties of almost any kind, in which Labour finds itself
dangerously divided and weakened.
Labour may be in
intensive care, but the condition of the Conservatives is not a great
deal better. David Cameron was guilty of a huge and irresponsible
miscalculation over Brexit. He was forced to resign in the most
ignominious of circumstances. The party is hopelessly divided. It has
no idea in which direction to move after Brexit. The Brexiters
painted an optimistic picture of turning away from the declining
European market and embracing the expanding markets of the world,
albeit barely mentioning by name which countries it had in mind. It
looks as if the new prime minister may have an anachronistic
hostility towards China and a willingness to undo the good work of
George Osborne. If the government turns its back on China, by far the
fastest growing market in the world, where are they going to turn?
Brexit has left the
country fragmented and deeply divided, with the very real prospect
that Scotland might choose independence. Meanwhile, the Conservatives
seem to have little understanding that the neoliberal era is in its
death throes.
‘Put America
first’: Donald Trump in Cleveland last month. Photograph: Joe
Raedle/Getty Images
Dramatic as events
have been in the UK, they cannot compare with those in the United
States. Almost from nowhere, Donald Trump rose to capture the
Republican nomination and confound virtually all the pundits and not
least his own party. His message was straightforwardly
anti-globalisation. He believes that the interests of the working
class have been sacrificed in favour of the big corporations that
have been encouraged to invest around the world and thereby deprive
American workers of their jobs. Further, he argues that large-scale
immigration has weakened the bargaining power of American workers and
served to lower their wages.
He proposes that US
corporations should be required to invest their cash reserves in the
US. He believes that the North American Free Trade Agreement (Nafta)
has had the effect of exporting American jobs to Mexico. On similar
grounds, he is opposed to the TPP and the TTIP. And he also accuses
China of stealing American jobs, threatening to impose a 45% tariff
on Chinese imports.
To globalisation
Trump counterposes economic nationalism: “Put America first”. His
appeal, above all, is to the white working class who, until Trump’s
(and Bernie Sander’s) arrival on the political scene, had been
ignored and largely unrepresented since the 1980s. Given that their
wages have been falling for most of the last 40 years, it is
extraordinary how their interests have been neglected by the
political class. Increasingly, they have voted Republican, but the
Republicans have long been captured by the super-rich and Wall
Street, whose interests, as hyper-globalisers, have run directly
counter to those of the white working class. With the arrival of
Trump they finally found a representative: they won Trump the
Republican nomination.
Trump believes that
America’s pursuit of great power status has squandered the nation’s
resources
The economic
nationalist argument has also been vigorously pursued by Bernie
Sanders, who ran Hillary Clinton extremely close for the Democratic
nomination and would probably have won but for more than 700
so-called super-delegates, who were effectively chosen by the
Democratic machine and overwhelmingly supported Clinton. As in the
case of the Republicans, the Democrats have long supported a
neoliberal, pro-globalisation strategy, notwithstanding the concerns
of its trade union base. Both the Republicans and the Democrats now
find themselves deeply polarised between the pro- and
anti-globalisers, an entirely new development not witnessed since the
shift towards neoliberalism under Reagan almost 40 years ago.
Another plank of
Trump’s nationalist appeal – “Make America great again” –
is his position on foreign policy. He believes that America’s
pursuit of great power status has squandered the nation’s
resources. He argues that the country’s alliance system is unfair,
with America bearing most of the cost and its allies contributing far
too little. He points to Japan and South Korea, and Nato’s European
members as prime examples.He seeks to rebalance these relationships
and, failing that, to exit from them.
As a country in
decline, he argues that America can no longer afford to carry this
kind of financial burden. Rather than putting the world to rights, he
believes the money should be invested at home, pointing to the
dilapidated state of America’s infrastructure. Trump’s position
represents a major critique of America as the world’s hegemon. His
arguments mark a radical break with the neoliberal,
hyper-globalisation ideology that has reigned since the early 1980s
and with the foreign policy orthodoxy of most of the postwar period.
These arguments must be taken seriously. They should not be lightly
dismissed just because of their authorship. But Trump is no man of
the left. He is a populist of the right. He has launched a racist and
xenophobic attack on Muslims and on Mexicans. Trump’s appeal is to
a white working class that feels it has been cheated by the big
corporations, undermined by Hispanic immigration, and often resentful
towards African-Americans who for long too many have viewed as their
inferior.
A Trump America
would mark a descent into authoritarianism characterised by abuse,
scapegoating, discrimination, racism, arbitrariness and violence;
America would become a deeply polarised and divided society. His
threat to impose 45% tariffs on China, if implemented, would
certainly provoke retaliation by the Chinese and herald the
beginnings of a new era of protectionism.
Trump may well lose
the presidential election just as Sanders failed in his bid for the
Democrat nomination. But this does not mean that the forces opposed
to hyper-globalisation – unrestricted immigration, TPP and TTIP,
the free movement of capital and much else – will have lost the
argument and are set to decline. In little more than 12 months, Trump
and Sanders have transformed the nature and terms of the argument.
Far from being on the wane, the arguments of the critics of
hyper-globalisation are steadily gaining ground. Roughly two-thirds
of Americans agree that “we should not think so much in
international terms but concentrate more on our own national
problems”. And, above all else, what will continue to drive
opposition to the hyper-globalisers is inequality.
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