by Michael Lind
Paradoxical as it might seem, the assimilation and integration of first- and second-generation European Catholic immigrants into the American mainstream was undoubtedly hastened by the low levels of immigration in the US between World War I and the 1960s. Low levels of immigration and limited opportunities for offshoring were necessary, but not sufficient, conditions for the growth of working-class bargaining power and prosperity in the generation after 1945. This is not to defend the racist national origins quotas of the US in the 1920s, which built on earlier proscriptions of Asian immigration and privileged Northern European over other European nationalities. It is merely to point out that it would have been practically impossible to organize and maintain labor unions or mobilize public support for New Deal–style social programs in the middle of the twentieth century, if immigration had continued at the levels that existed in the early 1900s and again today.
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IN THE DEMOCRATIC pluralist era after World War II, working-class majorities managed to increase their bargaining power in the economy, government, and the culture alike. What John Kenneth Galbraith called the “countervailing power” of groups that pooled their resources to strengthen their bargaining positions was at the core of the New Deal in America and similar social settlements in postwar Europe.22 The legal scholar William Forbath has written:
Recalling the Jacksonians’ core anti-oligarchy insight, that the laboring “many” needed mass organizations with the clout to counter the wealthy “few,” New Dealers declared that their labor law reforms would come to the republic’s rescue by finally “incorporat[ing] the industrial workers in the polity of the United States” as a “check upon the power of ‘Big Business.’” Just as Jacksonians defended the invention of the mass party as a structural constitutional necessity, so New Dealers defended the invention of the industrial union.23
In 1940 in his book The American Stakes, the journalist John Chamberlain, a supporter of the New Deal who later became a conservative, criticized traditional progressive and populist ideas of a unitary public or national interest: “The individual, under idealist theory, must bow when the Committee of the Whole speaks.” Chamberlain contrasted this kind of centralization with the democratic pluralism of the New Deal:
The labor union, the consumers’ or producers’ co-operative, the “institute,” the syndicate—these are the important things in a democracy. If their power is evenly spread, if there are economic checks and balances to parallel the political checks and balances, then society will be democratic. For democracy is what results when you have a state of tension in society that permits no one group to dare bid for the total power.
Noting that “Communists will call this a reactionary position,” Chamberlain argued that on the contrary the New Deal sought to balance corporate power: “For the labor union and the co-operative still lag far behind the business institute and syndicate in power; they must be built up.”24 In addition, according to Chamberlain, the New Deal “was designed primarily to even things up between the plutocratic city and the impoverished country, between metropolitan East and plundered West and South.”
In this vision of democratic pluralism as an alternative to both dictatorship and plutocracy, leadership was exerted by those whom Chamberlain called “broker-politicians” like FDR who presided over compromises among “bosses” representing various important economic and social groups: “Indeed, the pressure group, far from being the loathsome thing that it is commonly accounted by the philosophical idealist, is absolutely necessary to the functioning of an industrial democracy. . . . Unlovely as the boss is in some of his tactics, you can’t have a world of freedom without him: the right of a group to political broker-service is the only practicable alternative to the Gestapo and the concentration camp.”25
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FOLLOWING WORLD WAR II, free market liberals of the kind called “neoliberals” or “libertarians,” like Ludwig von Mises and Friedrich Hayek, insisted that the West could no longer be considered economically liberal. They were right. Even the most business-friendly postwar democracies like the US and Britain and West Germany had mixed economies characterized by forms of labor-business bargaining and economic regulation and public spending that would have been politically impossible before the Great Depression and World War II. Under the postwar Bretton Woods system, exchange rates were controlled and capital controls in Western Europe were not relaxed until the late 1950s.
The first class war in the industrial West between the managerial overclass and the working class ended after 1945 with national class compromises like the New Deal in the US, designed to buy social peace first during wartime mobilization and then in postwar economic recovery by incorporating formerly marginalized workers and family farmers into the national power structure. Democratic pluralism in North America and Europe, an alternative to the extremes of free market liberalism, socialism, and state corporatism, compelled the representatives of national overclasses to share power and bargain with lesser elites who acted as power brokers for working-class communities in the three realms of the economy, government, and culture.
By the 1950s, a new democratic pluralist dispensation, built to a large degree on wartime institutions and reforms, existed in the US and Western Europe. The details differed in Eisenhower’s America, de Gaulle’s France, and Adenauer’s Germany. But everywhere in the democratic West, class conflict between managerial elites in the economy, government, and the media and education was limited and channeled into institutionalized negotiations.
In the US and elsewhere, campaigns for the legal and political equality of racial and ethnic minorities took a generation longer to succeed. But democratic government in the Western nations had been stabilized by the integration of two groups—urban labor and family farmers—that had been marginalized and exploited in the early stages of managerial capitalism. In one Western country after another, the need to mobilize conscripts and workers for war and the fear of a return to Depression-spawned radicalism had compelled the managerial overclass reluctantly to cut “new deals” with national working classes. The results were unprecedented levels of working-class prosperity and economic growth during what in France was called les Trente Glorieuses, the “thirty glorious years” that followed 1945.
But the war-inspired class peace treaties within Western democracies would not last. For many members of the managerial overclass, the need to share power, wealth, and cultural authority with petty tribunes of the working class like trade union officials and small-town politicians and religious leaders was an indignity to be endured only under duress, until they could liberate themselves from constraint.
CHAPTER FOUR
The Neoliberal Revolution from Above
THE CLASS PEACE BETWEEN Western overclasses and Western working classes was never more than a temporary armistice. Economic neoliberals like Friedrich Hayek and Milton Friedman gathered in annual retreats in Mont-Pèlerin in Switzerland to dream of the overthrow of the new regime and the establishment of a global free market utopia. Marginalized by postwar “middlebrow” culture, with its deference to traditional and religious working-class sensibilities, cultural liberals found their own redoubts—the bohemias of the Left Bank of the Seine and San Francisco and Greenwich Village and countless college campuses with enrollments swelled by veterans and their children.
By the turn of the twenty-first century, thanks to what the social critic Christopher Lasch called “the revolt of the elites,” democratic pluralism in the Atlantic democracies had been overthrown and replaced by the current regime of technocratic neoliberalism—the new orthodoxy of the credentialed managerial overclass whose members simultaneously dominate the governments, corporate suites, universities, foundations, and media of the Western world. Neoliberalism is a synthesis of the free market economic liberalism of the libertarian right and the cultural liberalism of the bohemian/academic left. Its economic
model, based on global tax, regulatory, and labor arbitrage, weakens both democratic nation-states and national working-class majorities. Its preferred model of government is apolitical, anti-majoritarian, elitist, and technocratic.
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IN THE ECONOMIC REALM, the revolution from above began in the 1970s. An intellectual and political insurgency treated institutions like tripartite business-labor-government wage setting, trade unions, and the regulation of industries as public utilities as obstacles to both economic progress and individual liberty. On the overclass right, such institutions were denounced by libertarian economists as “crony capitalism” and by conservative constitutional lawyers in the United States as infringements on the supposed quasi-royalist “unitary power” of the president. On the overclass left, many of the same structures were demonized by public interest progressives like Ralph Nader whose constituency consisted of affluent and educated reformers.1 The political scientist Theodore Lowi coined the term “interest group liberalism” for New Deal arrangements as an insult.2
By 1986, a bipartisan consensus among American intellectuals and policy makers held that inherited democratic pluralist institutions were both corrupt and inefficient. The journalist Nicholas Lemann felt obliged to explain why New Dealers had supported interest group liberalism in the first place:
To understand this as a heartfelt position, you have to imagine how the world looked to liberals in the 1940s. . . . [Franklin Roosevelt] had consistently ignored the systematic advice of the left, and instead adopted an inconsistent patchwork of programs designed to fix specific problems—and it saved the country. . . . Arguments made on behalf of the general interest of all citizens seemed much more suspicious then than now, because they had been the province of Stalinists and ideologists of pure capitalism at home and of Hitler and Mussolini abroad. . . . There was also, again almost unimaginably more than in these times of populist politics, a great mistrust of “mass man” on the part of the American establishment a generation ago. Demagogues might use mass communications to stir up fascism in the general public, but the wise leaders of interest groups, who would ignore “the cosmic enthusiasms of individual men” (Boorstin again), could operate a consensus state that would be good for everyone.3
By the time Lemann wrote that, the emerging orthodoxy shared from center-left to center-right held that Western countries would be more just and efficient if only enlightened technocratic policy makers and dynamic corporate executives could be liberated from the power of elected politicians and organized labor. In 1975 Michel Crozier, Samuel P. Huntington, and Joji Watanuki wrote a report for the elite Trilateral Commission, The Crisis of Democracy: On the Governability of Democracies, which was published as a book. In Europe, the US, and Japan, the authors concluded, major problems “stem from an excess of democracy.” In 1997 former Federal Reserve vice chairman Alan Blinder, a neoliberal Democrat, asked: “Do we want to take more policy decisions out of the realm of politics and put them in the realm of technocracy?” Blinder suggested that tax policy, trade policy, and environmental policy might be delegated to independent technocratic agencies, with only minimal congressional control.4 In 2019, Cass Sunstein, who had been the head of the Office of Information and Regulatory Affairs from 2009 to 2012, during the Obama administration, suggested that the US was afflicted by excessive “partyism,” for which the cure “lies in delegation, and in particular in strengthening the hand of technocratic forces in government.”5
Economic activities that could not be insulated from democratic meddling by transferring them to technocratic government agencies could be transferred wholly to private sector elites by privatization and marketization. In the United States, Jimmy Carter, not Ronald Reagan, was the first president of the post–New Deal neoliberal era. Beginning with Carter’s presidency, a number of industries that had been regulated during the New Deal were deregulated by Congress: airlines (1978), rail (1980), trucking (1980), busing (1982), telecommunications (1996, 1999).
While deregulation improved performance in some industries, in others, like home mortgage lending and finance, deregulation led to widespread abuses that helped to inflate the asset bubbles that burst in the Great Recession. Moreover, deregulation in many sectors led to the collapse of many private sector unions, which had been bulwarks of the prosperous working class, called “the middle class” in the United States. Similar deregulatory reforms and anti-union measures were adopted by many European governments, including those of center-left leaders like Tony Blair and Gerhard Schröder, following the example of free market conservatives like British prime minister Margaret Thatcher.
Neoliberal economic reforms initially were justified as a response to the “stagflation” (combined stagnation and inflation) that afflicted Europe and North America in the 1970s. While the oil shocks of the 1970s contributed to the problem, in hindsight there were several structural causes: slower productivity growth as a result of the exhaustion of the technological possibilities of the earlier electromechanical revolution, before the benefits of the information technology (IT) revolution had become important; pressure on corporate profits from overproduction in manufacturing, caused by the postwar recovery of Germany and Japan and their export-oriented manufacturing strategies; and pressure on profits as well from trade unions enabled by tight, low-immigration labor markets to demand wage increases outstripping productivity growth, which fueled wage-push inflation.
At the time, a number of Western thinkers and policy makers, mostly on the center-left, favored encouraging wage restraint on the part of unions by means of tripartite business-labor-government social compacts, combined with national industrial strategies to boost technology-driven productivity growth. This strategic response to stagflation would have modernized the postwar social contract. If successful, it would have boosted productivity growth, profits, and wages at the same time.
Instead, neoliberal policy makers in the US and Europe chose to dismantle the basic structures of the post-1945 system, weakening organized labor in the private sector and boosting corporate profits by means of short-term global arbitrage instead of government-assisted technological innovation and investment at home. Enriching the few and enraging the many, the neoliberal cure for the stagflation of the 1970s was worse than the disease.
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THE MOVE AWAY from regulation and the weakening of organized labor at home helped to boost corporate profit margins. So did global arbitrage—the strategy of taking advantage of differences in wages, regulations, or taxes among different political jurisdictions in the world or among states or provinces in a federal nation-state.
Tax arbitrage is the practice by which firms take advantage of differences in tax rates and subsidies in different countries in order to similarly boost profits without boosting productivity. The former chief economist of McKinsey & Company, James S. Henry, has estimated that roughly one-fourth of all the world’s wealth is held in tax havens.6 According to the Congressional Research Service, in 2015 US-based multinationals recorded 43 percent of their foreign earnings as taking place in five tax havens—Bermuda, Ireland, Luxembourg, the Netherlands, and Switzerland—which accounted for only 4 percent of their workforces.7 A single office building in Grand Cayman, named Ugland House, is the registered legal address of 18,557 companies.8
Even as they have exploited opportunities for international tax arbitrage, firms and lobbies in the post–Cold War era of globalization have also promoted regulatory arbitrage, the selective harmonization of laws and rules, when it has been in their interest to do so.
In the second half of the twentieth century, successive rounds of negotiation under the auspices of the General Agreement on Tariffs and Trade (GATT) and, more recently, the World Trade Organization (WTO) effectively reduced most traditional tariff barriers. By 2016, when the WTO effectively terminated the failed Doha Development Round of global trade talks, the United States and other
leading industrial nations had shifted the emphasis from removing barriers restricting the cross-border flow of goods to harmonizing laws and regulations through “multiregional trade pacts,” like the North American Free Trade Agreement (NAFTA), the Trans-Pacific Partnership (TPP), and the Transatlantic Trade and Investment Partnership (TTIP), in the interests of transnational investors and corporations reliant on transnational supply chains.
The economic sectors chosen by Western governments for arbitrage and harmonization reflect the interests not of national working-class majorities but of national managerial elites. Harmonizing labor standards or wages would undercut the corporate search for the cheapest labor, while transnational crackdowns on tax avoidance would thwart the strategy of tax arbitrage by transnational firms. Instead, the emphasis in harmonization policy has been on common industrial standards, the liberalization of financial systems, and intellectual property rights, including pharmaceutical patents. These kinds of harmonization benefit transnational firms, investors on Wall Street or in the City of London, and the holders of intellectual property rights in Silicon Valley and the pharmaceutical industry.
In many cases, this kind of regulatory harmonization makes sense—standardizing product safety measures or supply chain specifications, for example. But the new regulatory harmonization agreements produce a democratic deficit by removing whole areas of regulation from the realm of ordinary legislation. Laws and regulations that corporate lobbyists are unable to persuade national democratic legislatures to enact can be repackaged and hidden in harmonization agreements masked as lengthy trade treaties, which are then ratified by legislatures without adequate scrutiny. Whatever its minor benefits, legislation by treaty represents a massive transfer of power from democratic legislatures to corporate managers and bankers. Jean-Claude Juncker, the prime minister of the tax haven Luxembourg who became the president of the European Commission from 2014 to 2019, described how the European Council systematically expanded its authority by stealth: “We decree something, then float it and wait some time to see what happens. If no clamor occurs . . . because most people do not grasp what had been decided, we continue—step by step, until the point of no return is reached.”9