Double Movement: the resurgence of neoliberalism and inequality

Posted by himelfarb on January 19, 2011 · 19 Comments 

This is the month for taking stock of the year that passed and imagining what the year before us may hold.  For me, two broad and contradictory trends have emerged which just might shape politics and policy in 2011: the extraordinary resilience of neoliberal ideology and the reemergence of inequality as a defining public issue.

Recall the days and weeks after the financial crisis of 2008 when just about everybody was wondering out loud about the limits of unfettered greed, unregulated markets, the separation between the financial economy and the “real economy”.  The leaders of France and Italy talked about restoring morality to capitalism and bringing the financial system under collective control.  Books were written on the fall of neoliberalism.  Blogs of the left saw new opportunity for “progressive” alternatives.  The G20 focused on issues of regulation and old style Keynesian stimulus.  Governments got involved in banking and the auto industry in ways that couldn’t have been imagined just months before.  Cowboy capitalism was over.   The invisible hand of the market had shown us the finger.  But by the time those books on “the rise and fall of neoliberalism” were published they already seemed naïve or at least dated.  The pronouncements of neoliberalism’s death were, it seems, premature.   So what happened?

Neoliberalism, simply put, is an approach that trusts in the market and is scornful of government intervention, favours private over public, market over state.   If its poet was Friedrich Hayek, its most influential proponent was academic and advisor to Ronald Reagan, Milton Friedman.  I don’t want to caricature free market economics; the writings of Friedman and particularly Hayek are more nuanced than the utterings of their apostles, but the message is clear – less tax, less spending, less regulation.  So, in Friedman’s own words, ” there is no alternative way, so far discovered, of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system.”   On tax and spend:

I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible. The reason I am is because I believe the big problem is not taxes, the big problem is spending. The question is, ‘How do you hold down government spending?’ … The only effective way I think to hold it down, is to hold down the amount of income the government has. The way to do that is to cut taxes.

On government intervention, “The government solution to a problem is usually as bad as the problem.”

In practice, however, free market government takes many shapes and never looks much like the models described by its architects.   For example, it seems the norm for self-described free-market governments is to run up soaring deficits and debt.  Nor do they necessarily deliver “small government” as we saw with say Reagan and Thatcher and their “offspring”  who built up the security and penal components of government at great cost and with questionable result.  And of course, we recently saw massive intervention to shore up banks and major corporations.  What these governments do have in common is a decline in active social policy, a reluctance to intervene in private decisions, and, above all else, a commitment to reducing taxes which is, after all, much easier to sell politically than reducing public services – though the latter must inevitably follow.

For quite a while these arguments were in disfavour while governments in Europe and, later, in North America were actively building social safety nets and systems of progressive taxation.  But neoliberalism made an impressive comeback.    The economic stagnation of the seventies opened the door to free market advocates and the collapse of the Soviet Union and the fall of the Wall lent their policies the aura of truth.  Its heyday was the eighties and the nineties and it shows little sign of fading.

The brief post-crisis period when everybody, including some of its architects, was raising questions about this approach seems all but over.  Blame for the crisis shifted.  Suddenly the culprits became the people who wanted homes they couldn’t afford or the governments that sought to help them or unaffordable social spending more generally.  How quickly things changed.  No longer was neoliberalism the problem.  Indeed what we need, the argument goes, is more of it.  Because there exist no purely unfettered markets, neoliberal advocates are always free to argue that the problem is not enough neoliberalism.  Some argue, in the safety of retrospect, that stimulus and bailouts were wrong or overdone.  Others argue that they were necessary but it is now time to get back to the track we were traveling – starting with tax cuts and eliminating the newly created or increased deficits.

And so the case is being made.  In the U.S., temporary tax cuts for the rich and others are being extended as government debt hits science fiction numbers.  Even modest attempts at government intervention are decried as socialism.  And a bi-partisan deficit cutting commission has recommended a balanced approach towards a balanced budget primarily through cuts to programs and services, though it did not receive the votes necessary for referral to Congress.  Here in Canada, we keep celebrating that we did less badly than many others through the recession, reinforcing the approach of business as usual  — a focus on balanced budgets and cuts to taxes.

At the same time, however, an old issue is emerging anew in the U.S., in the U.K. and here in Canada – levels of inequality, the likes of which we haven’t seen since the twenties and thirties before the Great Depression.  The evidence is so striking that the issue is actually getting some play.  Both the Prime Minister of England and the leader of their official opposition have picked up the theme, even if only rhetorically at this point.  Newspaper headlines have captured its various manifestations, the concentration of money in the top 1%, the threats to the quality of life in our cities because of deepening class divisions, the struggle of increasing numbers of Canadian families to pay their monthly bills, and the extraordinarily high CEO salaries and bonuses and stock options which seem to be recession proof.  The data are simply too extensive, from too many sources, too consistent to be ignored.

Few commentators seem to be refuting the data.  Of course, there are always a few who dismiss the messenger  or simply pretend the data away.  Margaret Wente, for example, suggested in a recent article that Wilkinson and Pickett’s book on inequality has a hole so big she could fire a cannon ball though it, though, at least on first reading of her piece, I have  seen neither hole nor cannonball.  Others acknowledge the inequality but dismiss it as exaggerated or irrelevant, an unavoidable consequence of economic growth.   A few dismiss the concerns as driven by nothing more than envy though an emerging group of super rich arguing for more taxes seems to give the lie to that.   In any case, envy is quite different from anger and resentment at a situation that seems unjust or damaging to Canada and Canadians.

But “inequality denial” is not the norm.  More and more researchers and analysts are asking not only whether the levels of inequality we are now seeing are just but whether they are sustainable.  Wilkinson and Pickett document the social pathologies that flow from inequality.  Others emphasize the threats to democracy and the social fabric.  The data show that the neoliberal promise of upward mobility based on hard work and ability is far less likely in highly unequal societies.  And voices as diverse as Moyers and Fukuyama wonder aloud about the risks of plutocracy, the merging of money and politics that in the end serves no one’s interests. It seems that when the rungs of the ladder are too far apart it becomes harder to climb and those at the top breathe different air from the rest and that is a dangerous mix.

So how do these two trends — resurgent neoliberalism and growing inequality — manage to coexist?  How do we explain the rebound of neoliberalism in the face of its stark consequences?  Keynes noted the enduring power of economic and philosophical ideas, whether right or wrong, to influence the practitioners of public policy, particularly “those who believe themselves quite exempt from any intellectual influence”.  Jones and Williams have devoted an entire book to the “great tax cut delusion?” and The Politics of Bad Ideas. They, like others, point to weakened public institutions, the devaluing of research and evidence-based decision-making, and the disproportionate capacity of the wealthy to influence public policy not just through party contributions  but through investments in think tanks and ownership of media.  Canada has taken commendable and important steps to limit the ability of big money to donate to political parties but, of course, that is only part of the challenge. Thomas Frank in the U.S. and W.S. Stanbury here have recently documented the myriad ways in which the wealthy currently influence the political and public discourse. It is no surprise that the rich, particularly the very rich, are more effective at influencing public opinion than others – especially when science and evidence are held in low regard.

But perhaps most compelling is the work of economist, Karl Polanyi, writing decades back, on how neoliberalism has built broad support through appeals to one of the highest human values –  individual freedom, with its implicit promise of opportunity for personal success.  Freedom in this frame is defined as economic freedom – to be unfettered in pursuit of ones interests in the market – and with this comes the entitlement to keep what one earns. Not surprisingly, the Cato Institute, an effective American proponent of free market liberalism, calls Milton Friedman, “the hero of freedom”.  The language and arguments are compelling and well suited to this age of the individual.  But there are other ways of thinking about these issues. Polanyi warned some sixty years ago against a narrow economic definition of freedom that could too easily mean freedom from our obligations to others and, at worst, the freedom to abuse and exploit.  For Polanyi, such an approach meant real freedom for the few, not the many, and was built on delusion, the pretense that earnings reflect only individual effort and merit, rather than the contributions of many and the investments of previous generations more willing than we to pay their taxes – not to mention the role of luck and inheritance.  Polanyi rejected the notion that the economy, the market, was the basis for all human organization and freedom.  Instead, he viewed the economy – and freedom as well – as embedded in society.

Why raise Polanyi who wrote his seminal work in the forties? Because no one today seems willing or able to offer a compelling contemporary alternative. Nobody seems ready to talk about taxes.  Everybody is afraid of the accusation of being a “tax and spender”.  Confidence in collective solutions seems to be at an all-time low.  So, will the issue of inequality just disappear into the background along with climate change and democratic reform?  What will it take to get some traction? Even greater polarization?  Social unrest?  Another crisis?  Given the dangers of free market approaches to humans and their environment,  Polanyi predicted the emergence of what he called “double movements” – of those protecting their privilege and of those protecting themselves from the privileged. The outcome of these tension?   Nobody knows.

I found quite moving President Obama’s post-Tucson plea for civility, civic virtue, enlightened citizenship.  But is it simply too naïve to imagine that we might find the will and wisdom to act before a crisis, or to hope that the solution lies in some notion of revitalised democracy and evidence-based decision-making?   Polanyi was a realist – he did not assume that progress was assured.  He understood that the movements of self-protection have no inevitable direction; they may be vulnerable to anger, scapegoating and negativity, especially absent a credible progressive option. It seems fitting that his The Great Transformation has been reissued in these days (with an important preface by Joseph Stiglitz). But that’s no way to end the first post of a new year

Perhaps a more hopeful sign is a very thoughtful review of the McQuaig/Brooks book by conservative National Post columnist Jonathan Kay.  He raises good questions and has his doubts but in the end he concludes that extreme inequality is indeed a problem and he argues that conservatives too must look at how they might deal with the issue, that the risks of inattention are just too high.  It is well to remember that Milton Friedman too wrote about inequality and how it might be mitigated.  It is time to bring equality back into how we do policy and politics in Canada.

Many of those writing now about the dangers of inequality understand that we cannot simply look to the past for solutions, that ever bigger government is not in the cards, that there are legitimate and important arguments to be had about how to move forward.  None is arguing for some egalitarian utopia and all understand that some inequality is inevitable and contributes to innovation and pursuit of excellence.  But they do not accept that the emerging consequences of the free market myth are either tolerable or sustainable.  Some are outraged at the injustice.  All are worried about the consequences for Canadians.

Canada has been very successful in previous generations in mitigating inequality and its impact and Canadians rightly take great pride in the relative safety of our communities, the universality of our health system, and  the broad access to education and opportunity.  In the face of all our diversity of views and experience, Canadians have always found ways to realize our responsibilities to one another,  ways that fit the times.   Today, there are plenty of models and ideas about what might be done, about how we spend, how we regulate, and how we tax.  If  that’s where we are going – – or might go – –  right and left arguing about how much inequality we can tolerate and how best to avoid the extremes and mitigate its worst consequences, well, that’s not a bad place to start.

Filed under Adapting health and social architecture, Harnessing the global economy, Post featured on front page · Tagged with Armine Yalnizyan, financial crisis, inequality, Jonathan Kaye, Jones and Williams, Karl Polanyi, Linda McQuaig, Margaret Wente, Milton Friedman. Friedrich Hayek, Neil Brooks, neoliberalism, Richard Wilkinson, W.S. Stanbury