The Infosphere: Something's Gotta Give...

A Plea for Some Sympathy for Repentant Left Neoliberals...


As always, when the extremely sharp Dani Rodrick stuffs a book-length argument into an 800-word op-ed column, phrases acti as gestures toward what are properly chapter-long arguments. So there is lots to talk about.

Must-Read: Dani Rodrik: The Abdication of the Left: "This backlash was predictable...

...Hyper-globalization in trade and finance, intended to create seamlessly integrated world markets, tore domestic societies apart. The bigger surprise is the decidedly right-wing tilt the political reaction has taken. In Europe, it is predominantly nationalists and nativist populists that have risen to prominence, with the left advancing only in a few places such as Greece and Spain.... As an emerging new establishment consensus grudgingly concedes, globalization accentuates class divisions between those who have the skills and resources to take advantage of global markets and those who don’t. Income and class cleavages, in contrast to identity cleavages based on race, ethnicity, or religion, have traditionally strengthened the political left. So why has the left been unable to mount a significant political challenge to globalization?

I think that this paragraph above is largely wrong.

As the very sharp Patrick Iber tweeted somewhere, the usual response to economic distress in democracies with broad franchises is: “Throw the bastards out!” Consider the Great Depression: Labour collapses in Britain in 1931. The Republicans collapse in the U.S. in 1932. And in Germany… shudder. And it is now 1 2/3 centuries since Alexis de Tocqueville wrote:

Alexis de Tocqueville: Recollections: "I woke very early in the morning...

...I heard a sharp, metallic sound, which shook the window-panes and immediately died out amid the silence of Paris. 'What is that?' I asked. My wife replied, 'It is the cannon; I have heard it for over an hour, but would not wake you, for I knew you would want your strength during the day.' I dressed hurriedly….

Thousands of men were hastening to our aid from every part of France, and entering the city by all the roads not commanded by the insurgents. Thanks to the railroads, some had already come from fifty leagues' distance, although the fighting had only begun the night before. On the next and the subsequent days, they came from distances of a hundred and two hundred leagues. These men belonged indiscriminately to every class of society; among them were many peasants, many shopkeepers, many landlords and nobles, all mingled together in the same ranks. They were armed in an irregular and insufficient manner, but they rushed into Paris with unequalled ardour: a spectacle as strange and unprecedented in our revolutionary annals as that offered by the insurrection itself. It was evident from that moment that we should end by gaining the day, for the insurgents received no reinforcements, whereas we had all France for reserves.

On the Place Louis XV, I met, surrounded by the armed inhabitants of his canton, my kinsman Lepelletier d'Aunay, who was Vice-President of the Chamber of Deputies during the last days of the Monarchy. He wore neither uniform nor musket, but only a little silver-hilted sword which he had slung at his side over his coat by a narrow white linen bandolier. I was touched to tears on seeing this venerable white-haired man thus accoutred. 'Won't you come and dine with us this evening?' 'No, no,' he replied; 'what would these good folk who are with me, and who know that I have more to lose than they by the victory of the insurrection—what would they say if they saw me leaving them to take it easy? No, I will share their repast and sleep here at their bivouac. The only thing I would beg you is, if possible, to hurry the despatch of the provision of bread promised us, for we have had no food since morning'...

It was in June 1849 that the depression-driven insurrection of the urban craftworker proletariat of Paris was suppressed—bloodily suppressed—by a largely spontaneous mass mobilization of those of the Ile de France who thought that they had something to lose from further revolution. They might see what little property they had confiscated and redistributed to the unemployed slackers of the city—to the urban “dangerous classes”. They might be taxed to pay for the reopening of the National Workshops that were to provide a guarantee of employment for those who could not find other jobs. They might see worse—their friends arrested for insufficient enthusiasm for revolution, or their priests and their hope of heaven taken away. For all these reasons they shifted rightward, voted for a firm nationalist authoritarian hand on the government, and voted for Louis Bonaparte first as President of the Second French Republic and then as Emperor Napoleon III of the Second French Empire.

The belief that economic distress leads democratic politics to shift left is, I think, in general wrong. It leads democratic politics to shift away from the establishment, whatever the establishment is. It can move left—as in FDR’s America and in France with Leon Blum and the Front Populaire. It can move right—as in France in 1849 and in the early stages of the Great Depression, as in Britain in 1931 and 2010, as in the U.S. in 2010, and as in, ahem, Germany…

Dani continues:

One answer is that immigration has overshadowed other globalization ‘shocks.’... Latin American democracies provide a telling contrast. These countries experienced globalization mostly as a trade and foreign-investment shock, rather than as an immigration shock. Globalization became synonymous with so-called Washington Consensus policies and financial opening. Immigration from the Middle East or Africa remained limited and had little political salience. So the populist backlash in Latin America—in Brazil, Bolivia, Ecuador, and, most disastrously, Venezuela – took a left-wing form…

Well, no: as I said, a form that was primarily antiestablishment. In Latin America, the establishment had bought into the relatively center-right Washington Consensus. In Europe, the establishment had bought into the relatively center-left continent-wide social market. Only where, as Dani says, the European establishment comes to be perceived as centered around Berlin’s ordoliberalism rather than around Brussel’s social market is their space for distress to push politics left.

Then, I think, Dani firmly grasps the correct thread:

A greater weakness of the left [is] the absence of a clear program to refashion capitalism and globalization for the twenty-first century…. The left has failed to come up with ideas that are economically sound and politically popular, beyond ameliorative policies such as income transfers. Economists and technocrats on the left bear a large part of the blame. Instead of contributing to such a program, they abdicated too easily to market fundamentalism and bought in to its central tenets.

In retrospect, who can disagree? We misjudged the proper balance between state and market, between command-and-control and market-incentive roads to social democratic ends.

But then I must, again, dissent in part. Dani:

Worse still, [Economists and technocrats on the left] led the hyper-globalization movement at crucial junctures. The enthroning of free capital mobility—especially of the short-term kind—as a policy norm by the European Union, the Organization for Economic Cooperation and Development, and the IMF was arguably the most fateful decision for the global economy in recent decades. As Harvard Business School professor Rawi Abdelal has shown, this effort was spearheaded in the late 1980s and early 1990s not by free-market ideologues, but by French technocrats such as Jacques Delors (at the European Commission) and Henri Chavranski (at the OECD), who were closely associated with the Socialist Party in France. Similarly, in the US, it was technocrats associated with the more Keynesian Democratic Party, such as Lawrence Summers, who led the charge for financial deregulation. France’s Socialist technocrats appear to have concluded from the failed Mitterrand experiment with Keynesianism in the early 1980s that domestic economic management was no longer possible, and that there was no real alternative to financial globalization. The best that could be done was to enact Europe-wide and global rules, instead of allowing powerful countries like Germany or the US to impose their own.

And here I whimper.

Financial globalization was intended to take down barriers to capital inflows erected by rent-seekers in developing countries, and so speed growth in economies that had been starved of capital while also equalizing incomes. Financial deregulation was supposed to break up the cozy investment banking and other oligarchies of Wall Street and diminish their private-sector tax on the American economy. Financial deregulation was supposed to provide the poorer half of America with the access to fairly priced credit that it lacked and with the opportunity to invest in assets that would yield equity-class returns, which it also lacked. And, in a world in which central banks had the powers and the will to successfully stabilize aggregate demand, there seemed little downside to letting people who could not put together a 20% down payment buy a house, to forcing Morgan Stanley and Goldman Sachs to deal with competition from Citigroup and Bank of America, and to allow entrepreneurs in Mexico to raise funds not just from a cozy oligarchy of Mexico City banks but on the global capital market.

And France’s socialist technocrats were right: in highly-open economies the task of managing aggregate demand has to be a global, or at least a North Atlantic-wide, or at least a continent-wide exercise. In a good world, large exchange rate changes should only take place in response to persistent fundamental disequilibria rather than being used as first-line tools for demand management.

It all did go horribly wrong. But the restriction of the ECB to an inflation-control mandate alone was never a policy plank of the left—and all on the left assumed that the technocrats of the ECB were not stupid enough to take the single mandate as more than cheap talk to reassure bond markets in good times. And the decision by money-center banks to use derivative markets not to diversify but to concentrate housing-price risk on their own balance sheets did not happen on our watch.

And then I must dissent again. Dani’s penultimate paragraph is, I think, much too optimistic:

The good news is that the intellectual vacuum on the left is being filled, and there is no longer any reason to believe in the tyranny of ‘no alternatives.’ Politicians on the left have less and less reason not to draw on ‘respectable’ academic firepower in economics…. Anat Admati and Simon Johnson have advocated radical banking reforms; Thomas Piketty and Tony Atkinson have proposed a rich menu of policies to deal with inequality at the national level; Mariana Mazzucato and Ha-Joon Chang have written insightfully on how to deploy the public sector to foster inclusive innovation; Joseph Stiglitz and José Antonio Ocampo have proposed global reforms; Brad DeLong, Jeffrey Sachs, and Lawrence Summers (the very same!) have argued for long-term public investment in infrastructure and the green economy. There are enough elements here for building a programmatic economic response from the left.

Here I agree, rather, with something Keynes wrote in 1933:

John Maynard Keynes (1933): On Trotsky: "We lack more than usual a coherent scheme of progress, a tangible ideal...

...All the political parties alike have their origins in past ideas and not in new ideas and none more conspicuously so than the Marxists.... No one has a gospel. The next move is with the head...

The problem is that our current policy agenda is too much “do it again!”, where “it” is “Keynesianism, social democracy, the welfare state.” And I believe we need more I think Dani gets it right when he notes:

The right thrives on deepening divisions in society—‘us’ versus ‘them’—while the left, when successful, overcomes these cleavages through reforms that bridge them…

But when he says:

Earlier waves of reforms from the left—Keynesianism, social democracy, the welfare state—both saved capitalism from itself and effectively rendered themselves superfluous…

he is both right and wrong: the earlier waves did save capitalism from itself, but they only rendered themselves apparently superfluous during the Years of Global Convergence and the Years of the Great Moderation. They are not superfluous. We need them. And we need more. For Dani is right to close:

Absent such a response again, the field will be left wide open for populists and far-right groups, who will lead the world—as they always have—to deeper division and more frequent conflict.