TheSyllabus

For the longest time, I tried to avoid using the term neoliberalism. This is partly because everybody has a different definition, and partly because if you ask for the neoliberals to identify themselves, nobody seems to want to own up. For some, the term refers to the outgrowth of ideas about the market put forward by people like Milton Friedman and Friedrich Hayek. For others, it's a distinct post-1980s development, which leads to the economy being organized around these market ideas.

I prefer the term market fundamentalism, because it gets to the heart of the matter. This is the idea that the main problem facing our societies is that we haven't given markets enough of a free rein. Therefore, the role of the state should be to allow markets to expand and work on their own, with only minimal regulatory oversight. It holds up markets as the best solution to all the problems we face, not just in terms of enhancing the size of the pie, but also in terms of how it is distributed. It's an excessive emphasis on how markets can solve our economic and social problems.

Paradigms tend to cyclically exhaust themselves. By the time any set of ideas become conventional wisdom, they have become caricatures of the kernel of truth with which they captured the public's mind. I think that's what happened with neoliberalism. 

It pushed for a model of economic policy, both domestically and globally, which produced a lot of blind spots – regarding domestic equity and social cohesion, regarding the possibilities of global justice and fairness, and regarding sustainability and the climate. The importance of national self-determination was an old idea, but it became passé under neoliberalism. Markets and economic interdependence were believed to supersede the nation state and national sovereignty, a belief that now appears as an extreme caricature.

But the original ideas did carry a certain amount of validity. Neoliberalism recognized that states can become overextended; that the welfare state of the 1970s did create important economic distortions; that not all macroeconomic problems can be solved through Keynesian stabilization policies; that global markets can be leveraged for economic development and growth in developing countries. Those were all valuable ideas that still retain, I think, a certain element of truth. But if you take them to the extreme – if you turn them into a paradigm – they come to embody generalizations, which don't remain true over time.

I think there are two reinforcing factors to consider. One is the economic, social, and environmental agenda – which has existed all along, its roots creeping into more of society through protest movements. Two is a more immediate change in how China is perceived. It was expected to become just like the West, but now has apparently transformed itself into the most serious threat facing the West and specifically the United States. The rise of geopolitics is the more visible end of this change in perception. But we shouldn't underemphasize the role of the economic, social, and environmental agenda, because the way it became politically salient – at least on the economic and social side – is with the rise of right-wing populism.

When people were out protesting, whether it was in Seattle or at Occupy Wall Street, it was an important undercurrent, but it didn't drive our politics. That changed when Trump was elected by a protest vote. Of course, the Trump vote had a number of different elements, but studies show that the people who switched from voting Democrat to voting for Trump in the 2016 election were often driven by economic concerns. They feared being left behind by the forces of economics and globalization. A similar pattern led to Brexit – people felt excluded and wanted to take back control – and is now propelling the far-right all across Europe, from France to Sweden to Germany. That political momentum has been greater than the episodic protests.

Then, when Biden comes into office, it's not purely on an agenda driven by China. His platform included an important, pro-worker, domestic jobs agenda, and a significant domestic climate agenda. This suggests that, in the future, there are two different directions that policy configurations can take. If you follow the logic of the Biden administration today, there is a certain amount of overlap between the geopolitical and the domestic – which is driven by those economic, social, and environmental threats – but they're not the same agendas. If the geopolitical agenda becomes the main one, it will take the US in a different direction than the domestic. So, the big question about post-neoliberalism is whether it's going to be driven by our domestic concerns or by geopolitical competition with China.

Indeed, a lot of what the US, along with some parts of Europe, is doing today looks like pure unilateralism to the rest of the world. It does look like they're throwing the interests of developing countries under the bus, after they listened to their siren song: integrating into the world market, opening up their economies to foreign capital. Now, all of a sudden, they're facing protectionism and the weaponization of international financial links; they're being asked to choose sides between the West versus China; they're being penalized for industrialization, given all these new environmental rules. I'm very sympathetic to these concerns.

Then again, I believe that what you do at home is 90 percent of the story. That's my reading of the evidence on which countries do well and which do poorly. Assuming that the world economy won't regress to how it was in the 1930s, advanced countries can exercise a fair amount of national unilateralism – they can be fairly indiscrete in their use of trade policies – without harming the growth and development of poor countries. 

Examples abound in the postwar growth miracles. The biggest one, of course, is China. China's development took place during this neoliberal era; it really benefited from the pursuit of neoliberal policies in Europe and the US while it itself operated by a different set of rules, in terms of how it diversified and industrialized. But besides China, there is Japan in the 1950s and ’60s, South Korea and Taiwan in the ’60s and ’70s, and a number of other East and Southeast Asian countries afterwards. Japan, South Korea, and Taiwan did very well in an era when there was significantly more protection in the advanced countries than there is today.

In fact, the rule in the post-1945 era was that, if the world economy clashed with what you were trying to do at home, your domestic needs would take priority. When there was a big increase in exports of textiles and garments from developing countries in the 1970s, developed countries immediately put up protection and bought off developing countries through other means. Despite it being an era that was in many ways more protectionist than what we had after the 1990s, it was completely possible for small developing countries – starting from very disadvantageous conditions – to grow and prosper. It all depended on what they did at home. 

So, as long as we're not totally closing up the world economy – and, realistically, I don't think we're facing that – I don't think we can see a live-and-let-live world that works for everyone. Countries can and should pay attention, first and foremost, to their domestic economic problems. This doesn't necessarily add up to a world that's inhospitable for the economic prospects of the lower-income countries.

However, I do believe that unilateralism on the part of the rich countries can drive us to certain undesirable situations. The climate challenge is an example of a truly global problem. Ideally, it would be addressed by some global convocation, but the fact is we're making more progress on climate by countries doing things on their own – following their own domestic political priorities, which may have to do with economic competitiveness or social concerns. The Europeans are going with themselves at the cost of tariffs on dirty steel and aluminum exported from low income countries; the US is going with itself by subsidizing renewables and new technologies at the cost of these Buy America provisions, which violate global trade rules. If we're going to get any action on climate change, these are the domestic political bargains that countries have to strike. We'll make more progress that way than by expecting some global solutions miraculously worked out through cooperation. At the same time, I wish there was more attention to the challenges that developing countries are facing in the climate transition, and significantly greater flow of financial resources to them from the rich countries.

Was the Cold War, and the status of the United States during the postwar period, a fundamental enabler of the growth of those countries? I would say it was of second-order importance. A national security prerogative, whether real or imagined, does not determine the direction of the response. It can end up being developmentalist – producing all the desirable outcomes associated with growth and development – or it can lead to a national security state built on authoritarianism and a military–industrial complex that is not at all developmental, and instead entrenches an elite. An era of geopolitical competition – now it's China, before it was the Soviet Union – does not determine the nature of the response.

Let's look at South Korea as an example. In the years following the Korean War, the overarching prerogative for South Korea and its economic policies was national security. It needed to prevent an attack from the North, and remain independent. But different South Korean governments interpreted that national security threat very differently. South Korea under Syngman Rhee was basically a failed state, despite receiving tons of assistance from the US so it would stand up to North Korea – much more aid than Korea would receive when it was actually developing rapidly in the ’60s and ’70s. Despite that aid, there was a small authoritarian elite and a very thin dictatorship, which wasn't developmental at all.

Then Park Chung-hee assumes the presidency in 1963. He's operating under the exact same overarching national security challenge. But the way he approaches the task of withstanding a potential North Korean threat is by turning South Korea into a major exporter and growing economy. The whole set of economic policies change. And South Korea, after the early ’60s, comes to epitomize the developmental state. Egypt has similarly faced a perceived external security threat from Israel for a very long time, but it has never been able to cultivate developmentalism in response.

So, I think pursuing the appropriate growth and development-oriented policies requires a concentration of the mind. How do you build a developmental coalition around a set of policies? Sometimes, a national security threat might actually help; other times, such threats can also produce policies that are far more cronyistic, if not authoritarian. The climate transition challenge, in a similar way, might be able to produce this concentration of the mind, and lead many developing countries to embark on a green transition path and conduct policies that might not have otherwise been possible.

When I look at the postwar experience, I see so much heterogeneity across developing countries that I have difficulty linking those diverse outcomes, either to US strategic interests during the Cold War or to a predetermined set of elite interests in developing countries. ISI produced very heterogeneous effects. It failed in Chile and Argentina, but it succeeded in Mexico and Brazil for quite a long time. 

Productivism, though, is different from ISI in a number of ways. One important difference is that productivism doesn't actually focus on manufacturing and industrialization. I don't think that’s the future: manufacturing is not the way to build inclusive societies for developing countries, nor is it a path to social cohesion in the developed one.

The interests of elites are also not a given. In part, these interests are defined through the reigning intellectual paradigm. When that paradigm is neoliberalism, the elites are much more likely to become neoliberal; when developmentalism is in the air, they're much more likely to become developmental. So, I don't interpret the postwar period as deterministically as that. I believe we always have some room to maneuver.

Today we’re seeing the significance of a changing ideological paradigm. The same firms that were once keen to expand their global supply chains, and take advantage of tiny cost differentials to locate their suppliers all around the world, are now overwhelmingly trying to bring their suppliers closer to home. Their fundamental interests haven’t changed, but their understanding of how the world works – and how you get ahead in that world – is changing rapidly. There is a new narrative about the kind of a global economy we're going to have, which now emphasizes resilience over cost minimization. That’s why the same elites are behaving differently.

I agree to an extent. Finance is the one area where policy has most fallen short, including under Biden. How much of that is because financial interests are very strong even within the Democratic Party, or because we have not been able to formulate alternative frameworks for finance? I think it's a combination of both.

To be clear, I don't think these changes will happen without a significant move on the part of the government to set priorities and incentives. We've talked about why firms are bringing their supply chains closer to home – it’s because the government made it clear that there are risks to not doing so. So, it's not simply about the government setting tariffs or offering subsidies; it's also about how it is talking and behaving. It's about changing perceptions of how the world operates. We have to take into account the public sector's expectations about how innovators and investors ought to behave.

Yes, these expectations will have to be shored up by changes in the tax subsidy regime and the legal code, but it's not purely twisting arms. Firms and innovators can make money under very diverse policy paradigms. Capitalists would benefit by investing in more labor-friendly technologies because they would have a more productive and more cooperative workforce, who would live in safer communities that receive support from local civil society organizations. We don't have to romanticize the 1950s – a period when firms found it natural to invest in their local communities, and even took pride in it – to see why it would be beneficial for the business world to take a similar perspective today. It wouldn't necessarily make them any less wealthy. 

I don’t see productivism as going against their class interests, but it does redefine what their class interests are and how they are achieved. Maybe that's the one area where we disagree the most. I believe the interests of the elites, including the class interests of the capitalists, are amorphous and endogenous – and can be redefined in a variety of ways. That's where I see the importance of the ideas and the paradigms in the air, especially those receiving significant support from a government explicitly pushing in a certain direction.

I'm not a national security expert, so I speak with humility here. But, I do think that when we talk about national security, we need to be very clear about its boundaries. If people define US national security in terms of the US regaining primacy and continuing to write the rules for the economy, technology, finance – which is how many in Washington define US national security – I don't think it is consistent with productivism. That just gives geopolitics the leading role. And, down the line, this would conflict with the domestic economic, social, and environmental agendas I discussed earlier.

In my view, the US does not have to remain the world’s predominant power to remain secure. But even in my narrower view of US national security, the US has a legitimate right to keep Chinese firms out of the US market if they pose certain security risks. So, if Huawei or TikTok is connected to the Chinese defense establishment, and there are concerns about data privacy or spying, it's the prerogative of the US to not want them to operate in the country. That's where a national security motive that might look protectionist from a narrow economic perspective is actually justifiable.

But that's very different from the US engaging in economically aggressive measures – as it has done through its export controls on advanced semiconductors – to prevent China's technological rise and undermine its economy, just because it perceives China as its greatest threat. It has moved from a legitimate national security concern, to waging economic war on another country in order to indefinitely maintain US technological supremacy. I think the second case is dangerous: it takes us to a less prosperous and less safe world.

It also conflicts with the productivist agenda as I imagine it, which would have very different priorities. So, the big question to ask is where this concern with national security will lead us. Does it lead us towards an understanding that the world could be multipolar? All countries have legitimate national security concerns. There will be areas where they behave autonomously, but when they do so, it should be through well-calibrated measures – not through aggressive, zero-sum geopolitics. One country's gain does not have to mean the other country's loss. Yet this is the strand we see in much of US policy, which worries me.

Europe has a lot on its plate. The EU needs to deepen its institutional integration and the democratization of its decision-making at the union level. Its domestic agenda is huge. And the way it's moving on the climate front – which I do support – obviously has some adverse implications for its trading partners. The EU's Carbon Border Adjustment Mechanism poses similar problems as the IRA, with its Buy America provisions. But I expect that the US and Europe will find ways to reach agreement on these contentious issues.

On the other hand, I don't want Europe and the US to form some sort of unified club of democracies against China. I don't think an Us versus Them attitude is going to be very productive. I want Europe to maintain its own identity, which means that yes, European strategic autonomy would be a good thing. It would be dangerous for the world if it gets pushed into one camp or another.

But just like the US, the best way for Europe to push its weight around globally is by being a good role model for third countries – by ensuring that its member states are cohesive democracies that protect human rights and produce inclusive prosperity for their own citizens. Even if you care about their global status, it's going to be 90-percent dependent on what these countries do domestically. What they do internally will ultimately affect their autonomy.

If you look at some of the best examples of cross-sectoral collaborations that have sparked local developmentalism, they often involve actors who are not strictly part of either the private sector or the government. The best training programs in the United States – so-called sectoral workforce development programs – are actually organized by NGOs, community groups, and local faith groups. Two examples are Project QUEST in San Antonio and JVS in Boston. These are very successful models of sectoral training, which bring in immigrants and low-income people, and provide wraparound services that culminate in finding relatively good jobs for the participants.

But it goes beyond jobs. It's also about proof of concept for a particular model of how you achieve development. What stands out in the success of these groups is that they work intensively with all the other sectors. They work with private employers to understand their needs. This helps them develop trust, so that private employers actually pay attention when these groups speak on behalf of workers. At the same time, they work closely with local economic development agencies, in order to unblock obstacles to local investment and entrepreneurialism. So, it’s really about developing a vision that goes beyond simply state versus market, or government versus business. It's about these groups all working together.