The Great Democracy

by Ganesh Sitaraman

  The British Labour Party had worker power built into its DNA, but even that changed with the rise of neoliberalism. From the time of its founding in 1918, the party had advocated for common—rather than private—ownership as a way to ensure a broad distribution of wealth in society and prevent the accumulation of private power. This commitment was codified as Clause IV in the party’s manifesto. In 1995, Tony Blair took perhaps the boldest symbolic step he could in reforming the Labour Party. He pushed for Labour to drop Clause IV from its manifesto. Blair argued that the means and ends of politics were different. Economic equality as an end did not require common ownership as a means. When Blair won the fight, New Labour was born.18

  Liberalization

  Liberalization is the global counterpart to deregulation. The goal is to unleash the free flow of goods, capital, people, and services across borders. Neoliberalism thus champions globalization and mandates that foreign countries deregulate internally. But although this approach might sometimes seem inescapable today, the global economic system was not always designed with these goals in mind.

  From the end of World War II until the end of the 1970s, the international economic system was best characterized as what John Ruggie once called embedded liberalism. The foundational idea, inspired by the work of economist Karl Polanyi, was that markets are embedded in society and cannot be disentangled from broader social and political considerations. As a result, the architects of the postwar system balanced two separate concerns. First, they wanted to establish a freer international trade system than the one that immediately preceded the war. Second, they wanted to ensure that countries had the freedom to encourage full employment and establish social safety nets and welfare programs. The Bretton Woods system, adopted in a 1944 agreement, thus placed restrictions on capital controls, pegged currencies to gold, and created the IMF and World Bank. The system was neither laissez-faire nor radically protectionist. Rather, it balanced the interests of different stakeholders within and across countries.19

  In the 1970s, embedded liberalism came to an end. Richard Nixon unpegged the US dollar from gold, making it a fiat currency and effectively terminating the Bretton Woods system. Over the decade, countries began to unwind capital controls. The two aims of embedded liberalism were eventually both under assault: neoliberals pushed increasingly for international agreements that guaranteed laissez-faire trade and, starting in the 1980s, advocated for abolishing the safety net and deemphasizing government action on unemployment.

  Historically, trade policy had always focused on two goals: domestic economics and foreign policy. The domestic economic goals of trade are sometimes seen as protectionist—incubating infant industries, raising revenues, protecting workers, maintaining a middle class—and they dominated trade policy in the United States from the eighteenth century to the mid-twentieth century. Foreign policy goals are purely geopolitical—the use of trade agreements and sanctions to win friends and punish enemies—and they were central at the height of the Cold War.

  Neoliberalism abandoned both in search of global economic growth and efficiency. It brought a shift from merely dismantling the pre–World War II era restrictions on trade to a new age of hyperglobalization. The general argument was that dropping trade barriers would enlarge the economic pie, and under conventional economic theory, the benefits from liberalizing trade would be more than enough to compensate the losers. But in reality, neoliberals never compensated the losers adequately. Labor and environmental standards are touted as protections but almost never enforced. Trade Adjustment Assistance—money for workers to retrain—is minimal, ineffective, and time limited. Corporate profits and reduced costs, on the other hand, are gigantic and, like diamonds, seem to last forever.20

  In the United States, trade law and policy followed this course. From the 1930s until 1974, the trade regime gave significant power to the president to lower tariffs. Successive presidents did so, but they emphasized the geopolitical benefits of particular trade agreements, and Congress retained considerable power over nontariff barriers—basically any regulation or other government action because they all can be interpreted as a barrier to trade. Increasingly in the 1970s and 1980s, Congress gave the president even more power, including fast-track authority and power to negotiate changes in nontariff barriers. This delegation of power further unhooked trade from domestic economic goals (which Congress polices more carefully than the president does). In addition, as the president and his trade negotiators embraced neoliberalism, they began to see trade as an end in itself, always to be expanded.21

  The contemporary view that neoliberalism is coextensive with global capitalism is a function of the World Bank, IMF, and many Western countries that promoted the DLPA agenda abroad during the 1980s, 1990s, and 2000s. This approach was called the Washington Consensus, and it included a ten-point program of fiscal discipline, reduced public spending, tax reform, financial liberalization, competitive exchange rates, trade liberalization, foreign direct investment, privatization, deregulation, and property rights. The program was designed for Latin America in the 1980s, but the IMF and the World Bank became “missionary institutions” and used this framework to proselytize the world. Proselytize might be too weak of a word. In reality, the Washington Consensus was imposed at the barrel of a checkbook; if a country wanted or needed international loans, it was locked into the IMF’s draconian conditions. So strong were the IMF and World Bank’s ideological convictions that staff for the global institutions would write reports advising countries prior to visiting the country for fact-finding missions.22

  Most famously, Washington Consensus economists pushed for Russia to embrace “shock therapy” after the collapse of the Soviet Union. This meant rapid economic liberalization (especially on price controls and currency), privatization of public institutions, and trade liberalization. Neoliberalism’s DLPA agenda was thus not just a matter of domestic policy; it became an objective of foreign policy as well. With the supposed end of history after the Cold War, the theory went even a step further, as policy makers came to believe that spreading neoliberal capitalism would also lead countries to more open and pluralistic political systems. China’s admission to the World Trade Organization in 2000 represents the pinnacle of this idea. The theory was that entry into the global trade system would push the state-capitalist country to reform internally, becoming at once more liberal and more democratic.

  The project for European integration also pushed forward the cause of liberalization. In 1985 and 1986, Thatcher began to realign Great Britain toward Europe, championing the Single European Act. The act boosted European integration and promised to advance four liberties: the free movement of goods, services, capital, and people. The plan was, in the words of one commentator, “a crash programme of Euro-Thatcherism” that would involve deregulation, privatization, and liberalization across the continent. The act also created momentum for a single monetary and political union. Decades later, Tony Blair would take up Thatcher’s mantle of further European integration. So committed was Blair to European integration along these lines that he was commonly proposed as the future president of a fully integrated Europe.23

  Privatization

  Privatization is shorthand for the view that democratic governments should not, by and large, provide public services to their citizens. The private sector should instead offer these services. To the extent that government is already providing such services, those services should be turned over to the private sector. And if people want services and cannot afford them, the government should subsidize the private system through vouchers and tax credits rather than offer a public option.

  Privatization of public services had not been a major part of the Tory manifesto in 1979—they thought it would frighten off voters—but it was central to Thatcher’s governing agenda. At the end of the 1970s, the British government owned or operated a variety of public services and industries: “It ran railways, shipbuilding, car making, coal mining, ports and harbours, airlines and ai
rports, gas, electricity, nuclear energy and arms manufacture. It owned the nation’s hospitals, schools, prisons and old people’s homes, and ran a national pension scheme.” Privatization took British Telecom and British Gas out of the public realm. And Thatcher moved public housing (called council houses) into private hands, in the process creating a new generation of homeowners. But with privatization afoot, local governments stopped building new public housing, meaning the central government now had to provide subsidies to unaccountable, undemocratic nonprofits to accomplish the same goals. In effect, the first era of privatization in Britain replaced local government provision with central government subsidies.24

  Privatization moved a little more slowly during the Reagan years. During his first term, the administration made some privatization proposals: private prisons, the sale of federal lands, the use of housing vouchers instead of building public housing. But it wasn’t until 1987 that the Reagan administration thought of privatization as a “general, unified strategy for reducing the size and scope of the federal government.” In remarks announcing the creation of a Privatization Commission, Reagan tasked the group with “propos[ing] how we can return appropriate Federal activities to the private sector through the sale of government operations and assets, the use of private enterprise to provide services for government agencies, or the use of vouchers to provide services to the public through the private sector.” Selling, outsourcing, and vouchers—these were the key tools of the neoliberal era’s privatization agenda.25

  Democrats also joined the privatization bandwagon—and early on. At a 1981 dinner hosted by Esquire magazine, Congressman Richard Gephardt of Missouri declared, “I would get rid of government in health care. I would get rid of government in education to a much greater extent than we have. I would discharge those responsibilities either to the private sector or to the states.” Few conservatives could have put it better.26

  During the Clinton administration, Vice President Al Gore was tasked with reinventing government, an initiative that also included privatization. Over time, the Seafood Inspection Service was privatized; mine safety accreditation, privatized; background checks for government contractors, privatized; petroleum reserves, the United States Enrichment Corporation, electromagnetic spectrum, airport control towers, the list goes on—all privatized. Reagan’s head of privatization said that the Clinton administration had “the boldest privatization agenda put forth by any American president to date.”27

  Blair claimed that he did not support privatization on anti-government grounds. “Privatization,” Blair said in 1999, “should have a role to play not out of dogmatism but out of pragmatism.” But whether it was dogmatism or pragmatism, the consequence was the same. Blair and Chancellor of the Exchequer Gordon Brown sought to privatize air traffic control, the Royal Mint, and the Commonwealth Development Corporation. Even the Royal Mail and National Rail, which the Iron Lady had forbid as a bridge much too far, were on the list. She was right. The privatization of rail ended up costing British taxpayers five times as much as nationalized rail.28

  Austerity

  When most people think of austerity, they think of fiscal policy, but here the term is shorthand for broader macroeconomic policy—both fiscal and monetary. Neoliberals have a few policy goals when it comes to austerity. First is that monetary policy should focus primarily on inflation and not on both inflation and unemployment, as the Keynesian liberal position holds. The second is that tax cuts for the wealthy can spark economic growth. The final aim is for smaller government generally, which means less government spending—and occasionally has meant a tactical choice to focus on the rhetoric of balanced budgets. The idea is that because tax increases are off the table (because neoliberals simultaneously seek tax cuts), balanced budgets require spending cuts.

  Thatcher navigated these aims due to good luck more than political skill. When Thatcher took office, her efforts at combatting inflation, rather than unemployment, met with so much resistance that they were dubbed “sado-monetarism.” Had it not been for a rally-around-the-flag effect during and after the Falklands War, Thatcher would have faced a full-fledged civil war within the Tory Party over monetary policy. Fiscally, Thatcher’s government pursued tax cuts on high incomes and increased the value-added tax (VAT), a consumption tax that falls disproportionately on the poor and working class. Trickle-down economics was British, not just American.29

  Reagan’s first term economic recovery plan proposed to cut education, the arts, economic development, and Trade Adjustment Assistance. It would restrict food stamps, tighten welfare requirements, means-test school breakfasts and lunches, cap Medicaid payments to the states, and tighten the belt of the space program. Reagan knew it would be a political disaster to attempt to cut Social Security or Medicare right out of the gate, and he wanted to increase spending on defense. With those three categories excluded, cuts fell to social programs that disproportionately hurt the working class and poor.30

  At the same time, Reaganomics offered tax cuts, particularly for the wealthy. The theory was called supply-side economics. The idea was that large tax cuts for the wealthy and for corporations would lead to economic growth. This was directly contrary to the liberal-era Keynesian approach of demand-side economics. Under that theory, the economy works because middle-class people have money to spend. An additional dollar to the middle class is likely to get spent—not so with the additional dollar to the wealthy, who already have more than they want to spend. But the Keynesians also showed that capitalism was unstable and prone to boom and bust cycles. So in a downturn, government needed to step in and jumpstart the demand that middle-class consumers would ordinarily provide. The supply-siders disagreed. They rejected the boom-bust problem, holding that recessions and depressions were a function of government action, not capitalist speculation. And they held firm to the belief that more money in the hands of the wealthy would lead to economic growth.31

  Although supply-side economics had the patina of economic theory to it, even members of the Reagan administration thought it made little sense. Vice President Bush had called it “voodoo economics” in his primary campaign against Reagan. OMB director David Stockman told a reporter at the Atlantic that it was a “Trojan horse to bring down the top rate.” There was no science behind it. “The whole thing is premised on faith.” Because people would never support “trickle-down” economics, they simply reframed it as supply-side economics. The Reagan tax cut slashed the top marginal income tax rate from 70 to 50 percent. Capital gains rates went from 28 to 20 percent. Tax cuts came before spending cuts, throwing a balanced budget out the window. The plan was for tax cuts to force future spending cuts. The reality was ballooning federal deficits and widening inequality.32

  * * *

  So there it is: deregulation, liberalization, privatization, austerity. The basic policy agenda of neoliberalism—simple and straightforward. But neoliberalism was not just a collection of policies that came to the forefront of politics in the 1980s. Hayek, Friedman, and their fellow travelers were serious thinkers, intellectuals who had built neoliberal ideas on philosophical foundations. And whether or not it ultimately resembled what those intellectuals had first intended, neoliberalism soon took hold—not just as a set of policies but as an ideology.

  2

  THE NEOLIBERAL IDEOLOGY

  The founders of the neoliberal era wanted it to be a totalizing ideology, a worldview that would grow so dominant that the ideas of “competitiveness, self-interest, and decentralization” would rewire people’s brains to think differently about every aspect of life. In 1981, for example, Margaret Thatcher stated her ambitions in plain terms: “What’s irritated me about the whole direction of politics in the last 30 years is that it’s always been towards the collective society.… And therefore, it isn’t that I set out on economic policies; it’s that I set out really to change the approach, and changing the economics is the means of changing that approach. If you change the approach you really are after the heart and
soul of the nation. Economics are the method; the object is to change the heart and soul.”1

  Thatcher’s grand ambitions have been realized. Today, people often speak in the language of markets, not the language of politics or morality. We talk more about consumers or taxpayers than about citizens. We expect government to work like a business. We think civil servants are motivated by money or invidious ideology rather than patriotism. We expect schools to prepare children for jobs, not participation in a democracy. And because the logic of the market is our new default for how any human interaction works, why not apply it to every aspect of our society? Proposals abound to pay students to attend elementary school and replace organ donations to the needy with markets for kidneys and lungs. Maybe we should allow people to shoot and kill endangered rhinos for a fee or allow prisoners to pay to upgrade to cleaner cells. The fact that these examples don’t seem outrageous shows just how dominant neoliberalism has become. People didn’t used to think of schools as job-training grounds, government agencies as businesses, citizens as consumers, or body parts as commodities. Now we do.2

  The heart and soul of neoliberal economics is the individual, and so neoliberal ideology emphasizes individual works, efforts, and responsibility. This might seem unproblematic at first glance. But neoliberalism gives us a particularly radical form of individualism in which all successes and failures fall to the individual. During the 2012 election season, as the neoliberal era was waning, President Barack Obama clunkily suggested that successful people owed some of their success to those who helped along the way. Mitt Romney viciously attacked him afterward, celebrating the heroic industrialist who built his own business without any help from anyone. This story had no mention of the public school teacher who helped our heroic industrialist learn to read and write, no mention of the coaches and mentors who helped our heroic industrialist make it through school and get that first job, no mention of the police officers and firefighters who fostered safe neighborhoods, no mention of the city governments that brought electricity and water to the workplace, and of course no mention of the federal government that ensured the rule of law. The heroic industrialist did everything alone with no help from anyone else or from society. After all, as Margaret Thatcher once said, “There is no such thing as society.”3