11.2.0. The Neoliberal Turn: Intro Video: Econ 115 F 2020
mmhmm Interactive Video: https://share.mmhmm.app/22a2ade496c94828a170a2910550751f
.#berkeley #highlighted #neoliberalturn #politicaleconomy #slouchingtowardsutopia #tceh #2020-11-23
I have been averaging a little under an hour for these weekly powerpoint slides-with-audio, these files that substitute for the Tuesday lectures that I would be giving live if this class were live. I have been thinking that this allows me to go into greater depth and exceed that hour well it seems reasonable. And I have done so this time. Rather than coming in 30 minutes below the length of a standard hour and a half lecture, this weeks power points with audio come in 10 minutes above that standard length.
I think the reason for this is that I am uncertain about this week’s topic: the neoliberal turn in global north political economy after the mid-1970s and the development of a very strong feeling in the global north that globalization was no longer a friend but an enemy—a source of disruption, uncertainty, and poverty; rather than a source of prosperity, growth, and peace.
And yet the sources of this neoliberal turn and this development of a fear of globalization are largely cloudy to me.
So here let me add another 15 minutes or so of introduction and summary—carrying the total up to two hours—to set out what I see, uncertainly, as the big picture of the global north’s circa-1980 neoliberal turn.
Yes: I see what happened, and how people reacted, but the reaction seems disproportionate – the effect seems massively outsized relative to the cause. Yes, there was inflation in the 1970s, about 7% per year for a decade that doubled the price level. But if prices were rising because of inflation, your incomes were rising because of inflation as well. And, yes, inflation was another source of uncertainty and disruption in a confusing world. But it was not as though there was a great depression on, or people were dying by the tens of millions in wars in genocides, or incomes had stopped growing. At least, it was not as if incomes had stopped growing until the consequences of the neoliberal turn made themselves felt, as the neoliberal term created the massive explosion in income inequality that has led to our second gilded age.
In the end, I take refuge in the position that the inflation of the 1970s destabilized the social democratic order of the mixed economy on the grounds that a system that cannot produce stable prices appears to be a system that cannot be working. It needed to be replaced. The only replacement put forward was a rollback of social democracy: a shift back toward classical semi liberalism. But that shift backward did not perform its stated goal of restoring order and growth. And yet the neoliberal turn persisted, as though its failure to accomplish its goals made it only more attractive to public intellectuals and electorates.
And there was a productivity slowdown in the global north. Since 1973 output per worker as measured by standard statistics in the global north has average not the 3% per year of 1938 to 1973 but rather 1.5% per year. This is still very impressive. But the 30 glorious years had raised the bar. And so, in addition to the inflation of the 1970s, the coming of the productivity slowdown destabilized the social democratic order. Yet somehow the failure of the neoliberal turn to restore rapid overall growth did not rebound to its discredit in the global north. It was after 15 years of Reagan-Bush policies that—save in the absence of annoying inflation—produced less growth and more economic disruption than the Ford-Carter years of the inflationary 70s that Democratic president Bill Clinton was to announce: "the era of big government is over.”
And so we have the straws in the wind. Reagan, and his denunciation of "welfare queens" with the subtext that even those beneficiaries who were playing by the rules were undeserving. The confidence of Trump voters that he was a bastard but that he was their bastard, and that he would make sure that the right unworthy people suffered. And the puzzlement of Ezekiel Mareno who cannot believe that he is, in Donald Trump's eyes, one of the unworthy recipients of government welfare, and an alien and untrustworthy Mexican as well.
The refuge is that the boss does not know what his bureaucratic underlings are doing, and would fix it if he knew. The echo comes from the story of czarist Russia, where as the cossacks rape, burn, and loot; and the villagers fleet for their lives; the villagers say: “Oh! If only the czar, if only our Little Father the czar, if only he knew what the cossacks were doing—he would stop this!”
Well, the cossacks work for the czar. The cossacks have always worked for the czar. The czar hired the contacts, and the czar hired these cossacks.
But "neoliberalism" is not one thing. There is "hard" neoliberalism: restore order and make sure that economic incentives are properly aligned by making the rich richer so they will become job creating agents of creative destruction and economic growth, and make the poor poorer so they can no longer afford to be idle slackers. There is "soft" neoliberalism, which at least tells itself that it is aiming at achieving social democratic egalitarian ends through market friendly and incentive compatible means that actually work. It contrast itself with a social democracy that had acquired too many special interest and bureaucratic barnacles. And there is “outside" neoliberalism: technocrats and others from the global north fighting kleptocratic and incompetent bureaucratic governments in the global south that are strangling development. In some cents, this goes back to Keynes, and his claim that the left-wing elements of his system would be more effective at securing the prosperity of the bosses in the saviors than the right wing policies they wanted; and also that the right wing elements of the system would give the left wing not only greater prosperity but also freedom, autonomy and choice that they really wanted although they did not quite know it.
The balance sheet on neoliberalism in the global north it was absolutely horrible for income in equality. How could it have been otherwise? And it was completely unsuccessful at restoring economic growth. In fact, the absence of public investments almost slowed it was already much slower growth than the 30 glorious years. Under neoliberalism in the global north, the top 0.01% became masters of the universe. The rest of the top 1% saw faster growth of their prosperity, but felt uneasy comparing themselves to their plutocratic overlords. The rest of those who called themselves the upper middle class — the rest of the top 10% — saw their incomes grow as rapidly as during the 30 glorious years. And everyone else was or at least perceive themselves to be treading water. Plus neoliberalism created huge vulnerabilities that would wreak catastrophe after 2007. And yet it persisted.
For most of the countries in the global south, the idea that you would borrow market discipline and governance from the global north and the international institutions was not a conspicuous success. But China’s and India's turns away from central planning and the bureaucratic license raj were extraordinary successes. Isn't that enough to justify the neoliberal turn in the global south?
Plus there were others that did well. And to China and India the east Asian 5: Japan, Singapore, Hong Kong, Korea, Taiwan. Add to those the other three of the successfully industrializing 6: Indonesia, Thailand, and Poland; and Malaysia and Bangladesh should certainly be added as well to this list that I got from Richard Baldwin. And faster growth especially in China produced resource booms, from which Australia, Brazil, Mexico, and turkey benefited massively. Nigeria ought to have benefited massively, but its political economy once again got in the way. And in Venezuela it was not neoliberalism but rather movements that claimed to be devoted to its overthrow that produced political economic catastrophe.
One position that I do not endorse but that I do want you to think about is one taken by economist Thomas Piketty in his capital in the 21st-century. In his view, Social democracy is an anomaly: A plutocrat Gilded Age is the rule, even with political democracy
In a capitalist economy, you see, itt is normal for a large proportion of the wealth to be inherited; it is normal for wealth distribution to be highly unequal; it is normal for a plutocratic elite to shape the economy and the polity; and it is normal for this to put a drag on economic growth—that is Piketty’s argument.
To grasp the underlying logic, consider that rapid growth like 1945-1973 requires creative destruction. But one thing destroyed in such creative destruction is the wealth of th elast generation’s plutocrats. So they are unlikely to encourage it.
Thus Piketty’s conclusion: We are likely to see oscillations between periods like 1870-1914, 1914-1945, and 1980-2020. The 1945-1980 social democratic era was a freak anomaly of rapid and equitable growth, one that we are unlikely to see again.