The third strand of the Third Way was fundamentally transformative. Starting in the early 1980s, center-left neoliberals recognized that technology and globalization were fundamentally reshaping the American economy. Instead of fearing these changes, the “Atari Democrats” welcomed them and wanted to design policy to adapt to them. The best-known thinker in this vein was economist Robert Reich. In a series of books, Reich embraced a vision of modernizing the United States to adapt to a global society in which the nature of education and work had to be dynamic to keep up with the rapid changes in society, technology, and industry. This intuition led Reich to argue for investment in human capital, such as education and retraining, to embrace industrial policy so the economy would lever up into the high-tech sector, and, more generally, to shift the conversation to address the consequences of globalization and rapid innovation in technology, transportation, communication, and other sectors.16
But the ambitious vision of a transformative third way was never realized. As secretary of labor during the Clinton administration, Reich clashed with other economic policy makers who were more concerned with lowering the interest rate (to coax capital out of the bond market) and with balanced budgets and deficits. As James Carville famously remarked, “I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody.” Reich advocated for an investment budget that would place America on the cutting edge—but without success. When he shifted gears and pushed for the administration to emphasize corporate responsibility and to confront corporate welfare, he was told these ideas were “inflammatory.”17
The fundamental problem was that the transformative third way conflicted with the tactics of triangulation and the straitjacket of minimalism. A far-reaching agenda to reform the economy and equip workers and employees with new skills and opportunities would require government action and money—and both were disfavored, at least on the scale necessary to meet the enormity of the challenge. The true-believer neoliberals and the financiers disagreed with the Reich faction. And tacticians suggested bold ideas weren’t possible within the political constraints of the time. The transformative third way was accordingly subordinated to the deregulation and consolidation of industry, tax cuts and shrinking budgets, privatization’s anti-government agenda, and the liberalization of trade. It was the neoliberal era’s biggest missed opportunity, the path not taken.
As those in the center-left also adopted neoliberal policies, the interests that benefited had greater and greater power to capture government and push for further neoliberal reforms. Political scientists have shown that the more time staffers in Congress spend with corporate interest groups, the less accurate they are at identifying what policies their constituents want. Members of Congress, executive branch officials, and junior staff may also pursue policies with one eye to a lucrative exit option in the private sector, and they might not want to regulate their friends from industry. The consequence is to further entrench neoliberal policies.18
There is also a longer-term problem that emerges when political constraints lead to policy choices. Over time, people develop habits. They start to believe the policies they embraced for tactical reasons are actually desirable on their own terms. But people are also susceptible to believing they are politically constrained even when the underlying political context changes. They fail to update their views fast enough and thus end up fighting wars that have already ended. Years after the Clinton administration, when Democrats once again wielded power, the hangover of Third Way neoliberalism continued to suggest that ambitious solutions were impossible and ill-advised.
Whether it was from conviction, capture, or custom, when neoliberalism took hold on the left as well as the right, it became the ideology that defined the era. This shared worldview engulfed virtually every area—and not just in domestic policy. International economic policy, as we have seen, pursued an aggressive liberalization agenda under both Republicans and Democrats. But the 1970s also brought a transformation in foreign policy and national security thinking. Since the end of World War II, the Soviet Union and the West had achieved an uneasy equilibrium best defined by the grand strategy of containment. The United States would not seek to roll back Soviet authority but simply contain it from spreading. As John Lewis Gaddis has written, “What was required was not to remake the world in the image of the United States, but rather to preserve its diversity against attempts to remake it in the image of others.” There were proxy wars and major moments of crisis, but even when it went wrong (as in Vietnam), American foreign policy was premised on maintaining the status quo—not on global transformation. Over time, containment migrated to détente, an attempt to ease the tensions of the Cold War even further.19
By the late 1970s, the status quo was no longer acceptable. Foreign policy advocates on the right and left moved against Henry Kissinger’s realism and toward incorporating moral values into foreign policy. Democratic senator Henry “Scoop” Jackson attacked détente, as did Ronald Reagan and a new generation of foreign policy neoconservatives. The neoconservatives were also scarred by Vietnam, but unlike liberals who sought refuge in disarmament and peace, they came to believe “that America should not suffer any similar defeats in the future, that it should more vigorously promote American values overseas and that it should not be so willing to compromise with Communist regimes.” The Iranian revolution confirmed these intuitions. The United States could not rely on other countries to guarantee the safety of core US interests—in that case, oil—so it had to be able to police the world itself. The result was a more hawkish, unilateral, and aggressive foreign policy. It championed rolling back the power of the Soviet Union, as when Reagan demanded that Gorbachev “tear down this wall.” It promoted new armaments and technologies—like the Star Wars missile defense program. And it was grounded rhetorically and practically in the moral values of expanding democracy, free markets, and human rights.20
As Yale professor Samuel Moyn has shown, human rights did not become a major topic of international concern or activism until the 1970s, after decolonization. Like neoliberalism, the human rights movement is fiercely individualistic, and it is skeptical of nationalism, majoritarian democracy, and other group-oriented political movements. And although human rights was a companion to social democracy in the middle of the twentieth century—the United Nations’ Universal Declaration of Human Rights was meant to be achieved within countries and through their welfare states—by the 1980s, the human rights movement had come to an accommodation with neoliberalism. Activist groups emphasized naming and shaming dictators. To the extent that they engaged economic issues (largely after the Cold War), they focused on alleviating poverty rather than creating equitable societies. Human rights was thus perfectly compatible with the aggressive foreign policy approach of the neoconservatives, and after the Cold War, it was largely unthreatening to the economic neoliberalism of the Washington Consensus.21
When the Cold War ended, the neoconservatives were again critical in shaping the future of American foreign policy. The then chairman of the Joint Chiefs, Colin Powell, said in 1991, “What we plan for is that we’re a superpower.” Zalmay Khalilzad, then a Defense Department aide and later ambassador to Afghanistan, Iraq, and the United Nations under George W. Bush, penned a famous memo suggesting that in the post–Cold War era, the United States’ goal should be to ensure that no other power can challenge US leadership.22
Many people think of the end of the Cold War as the major break in American foreign policy, but as James Mann astutely points out in his book Rise of the Vulcans, this perspective misses an important continuity. Think about the cohort of foreign policy professionals that ran American foreign policy in the neoliberal era. Many of the neoconservatives—Rumsfeld, Cheney, Wolfowitz, Powell, Armitage—were significant figures both before and after the Cold War. They were the key players in shifting the United States away from dé
tente to a more aggressive foreign policy in the 1970s, crafting its role as the post–Cold War superpower, and executing the Iraq War during the George W. Bush presidency.23
At the same time that neocons wanted to maintain defense budgets after the Cold War, many liberals at the time hoped instead for a peace dividend—one that would reduce defense budgets and allow for greater focus on domestic economic priorities. They also hoped that the future would bring a reemphasis on the UN Security Council as a forum and vehicle for global cooperation. But what is striking is how little Democrats diverged from the neoconservative vision. The usual categorization of foreign policy camps during this era is that there were neoconservatives on the right and liberal internationalists on the left. Although both would certainly chafe at the suggestion, the two sides were actually far more alike than they would want to admit. Both had a similar view on expanding neoliberal free market capitalism, with liberal internationalists emphasizing it perhaps even more aggressively than the neoconservatives. Both emphasized the importance of spreading democracy and human rights around the world, in addition to rooting this activist foreign policy in American values. And both were willing to use force in support of those goals. The central difference was that neoconservatives stressed their willingness to take unilateral action, while liberal internationalists emphasized the need for UN involvement. Secretary of State Madeleine Albright frequently celebrated that the United States was the indispensable nation, without whom nothing in the world could be accomplished. The Clinton administration fought wars to prevent atrocities, spread human rights, and promote democracy. And in 1999, the Clinton administration even engaged NATO in a war in Kosovo without authorization from the UN Security Council. Defenders said that conflict was “illegal but legitimate.” A few years later, Kosovo would serve as a precedent for “going it alone” in Iraq.24
The Iraq War is still a festering wound in Democratic politics. But we shouldn’t move past it so quickly because it shows how much consensus there was during this era, even on the most significant question of the day. Future presidential candidates John Kerry, Hillary Clinton, and Joe Biden all voted for the Iraq War. Liberal commentators Peter Beinart and Michael Ignatieff championed it. Indeed, even some of the skeptics of the Bush administration appeared at times uncomfortably optimistic. For example, although human rights advocate Samantha Power (and later ambassador to the United Nations) refused to call the Iraq War a just war and worried openly about the lawlessness of unilateralism, she also said that “an intervention in Iraq, even a unilateral one, is undoubtedly going to make Iraq a more humane place.”25
The neocons and liberal internationalists blur together even further when we compare them with what came before. American foreign policy from the 1930s to the 1970s wasn’t aggressively promoting democracy or human rights, using force to spread those values, or exporting laissez-faire capitalism. The foreign policy establishment first allied with Stalin to defeat Hitler in the 1930s, then decided to accept the existence of the Soviet Union and its sphere of influence through containment. Ultimately, in the throes of Kissingerian realism, they even established relations with communist China and facilitated détente with the Soviets. This is a far cry from the morally infused policies on the right and left that would define the following generation.
President Obama was, in some ways, the exception that proves the rule. Obama famously opposed the war in Iraq, saying it was a “dumb” war. And as president, his personal views appeared to have diverged from many of his advisors’. He advocated leading from behind, thought revolutions had to bubble up from below, worried about getting further bogged down in Afghanistan, and was hesitant about airstrikes in Libya (but ordered them) and Syria (and didn’t order them). Critics on the right and left assailed him for inaction, taking a back seat on global leadership, and not having an organizing principle (as his former secretary of state Hillary Clinton said). On foreign and security policy, Obama’s advisors largely pushed for the conventional liberal internationalist approach—Susan Rice, Hillary Clinton, and Samantha Power especially—but Barack Obama himself was the outlier.26
The fact that the president was the exception is indicative of the degree to which there was a shared worldview in the foreign policy community. Some commentators and participants decried groupthink among foreign policy makers, referring to them as “the Blob.” This moniker showed just how similar both sides in foreign policy had become as the neoliberal era progressed. In both foreign and domestic affairs, the neoliberal ideology was not just prevalent—it defined the era.
3
THE LAST DAYS OF NEOLIBERALISM
With the 2008 financial crash and the Great Recession, the neoliberal ideology lost its force. The approach that defined an era led not to never-ending prosperity but utter disaster. “Laissez-faire is finished,” declared French president Nicolas Sarkozy. Federal Reserve chairman Alan Greenspan admitted in testimony before Congress that his ideology was flawed. In an extraordinary statement, Australian prime minister Kevin Rudd declared that the crash “called into question the prevailing neoliberal economic orthodoxy of the past 30 years—the orthodoxy that has underpinned the national and global regulatory frameworks that have so spectacularly failed to prevent the economic mayhem which has been visited upon us.”1
For some, and especially for those in the millennial generation, the Great Recession and the wars in Iraq and Afghanistan started a process of reflection on what the neoliberal era had delivered. Disappointment would be an understatement. The complete wreckage of economic, social, and political life would be more accurate. In each of these arenas, looking at the outcomes that neoliberalism delivered increasingly called into question the worldview itself.
Start with the economy. Over the course of the neoliberal era, economies around the world have become more and more unequal. In the United States, the wealthiest 1 percent took home about 8.5 percent of the national income in 1976. After a generation of neoliberal policies, in 2014, they captured more than 20 percent of national income. In Britain, the top 1 percent captured more than 14 percent of national income—more than double the amount they took home in the late 1970s. The story is the same in Australia. The top 1 percent took about 5 percent of national income in the 1970s and doubled that to 10 percent by the late 2000s. As the rich get richer, wages have been stagnant for workers since the late 1970s. Between 1979 and 2008, 100 percent of the United States’ income growth went to the top 10 percent of Americans. The bottom 90 percent actually saw a decline in their income.2
Over the course of the neoliberal era, the racial wealth gap did not fare much better. In 1979, the average hourly wage for a black man in the United States was 22 percent lower than for a white man. By 2015, the wage gap had grown to 31 percent. For black women, the wage gap in 1979 was only 6 percent; by 2015, it had jumped to 19 percent. Homeownership is one of the central ways that families build wealth over time, yet homeownership rates among African Americans in 2017 were as low as they were before the civil rights revolution, when racial discrimination was legal.3
It is also worth putting the 2008 economic crash into perspective—both historical and global. Between 1943 and the middle of the 1970s, the number of bank failures in the country was minimal—never getting above single digits in any given year. Deregulation of the S&Ls brought widespread failures and bailouts in less than a decade. Deregulation of Wall Street brought the epic crash of 2008 in less than a decade.4
This shouldn’t have been too much of a surprise, as neoliberal policies had already wreaked havoc around the world. Looking back at the 1997 Asian financial crisis, Joseph Stiglitz comments that “excessively rapid financial and capital market liberalization was probably the single most important cause of the crisis,” and after the crisis, the IMF’s policies “exacerbated the downturns.” Neoliberals pushed swift privatization in Russia after the Cold War, alongside a restrictive monetary policy. The result was a growing barter economy, low exports, and asset stripping as burgeoning ol
igarchs bought up state enterprises and then moved their money out of the country.5
Despite its alleged commitment to market competition, the neoliberal economic agenda instead brought the decline of competition and the rise of close to monopoly power in vast swaths of the economy: pharmaceuticals, telecom, airlines, agriculture, banking, industrials, retail, utilities, and even breweries. A study by the Economist found that between 1997 and 2012, two-thirds of industries became more concentrated. Even centrist think tanks like the Brookings Institution have recognized the dangerous rise of monopolies and argued that the concentration of economic power brings with it higher prices for consumers, increased economic inequality, and a less dynamic economy.6
Rising economic inequality and the creation of monopolistic megacorporations also threaten democracy. In study after study, political scientists have shown that the US government is highly responsive to the policy preferences of the wealthiest people, corporations, and trade associations—and that it is largely unresponsive to the views of ordinary people. The wealthiest people, corporations, and their interest groups participate more in politics, spend more on politics, and lobby governments more. Leading political scientists have declared that the United States is no longer best characterized as a democracy or a republic but as an oligarchy—a government of the rich, by the rich, and for the rich.7
The Great Democracy Page 5