End of Neoliberalism

On January 1, I predicted that the 2016 election cycle would be an electoral realignment.  I was largely accurate; however I missed one main point: the changes to political discourse would threaten to fundamentally transform American politics in a way that has not been seen since the 1930s.  Donald Trump presents the contemporary structure of the American government the largest challenge that it has ever seen.

The decision this November is not simply Trump vs Clinton.  It is a fight for our way of life.

The First Republic and Congressional Dominance

In 1979, the leading scholar in American political science published the second edition of his masterwork.  Throughout The End of Liberalism Ted Lowi argues that the original classically liberal republic had transformed from a republic into a democracy.  While Lowi termed the new type of politics “interest group pluralism,” he inadvertently traced the impacts of the new type of liberal governance, now often dubbed neoliberalism.

Without chasing a rabbit hole into the depths of political theory, the original draft of the Constitution was a series of compromises that echoed both classical conservatism and classical liberalism.  From the 1700s vein of conservative logic, the founders assumed that man is inherently a self-interested, “bad” political actor.  Therefore, the government should focus on the rule of law and procedure rather than leave discretion to individuals’ whim; further, the government is necessary to prevent tyranny – either from the minority or the majority.  On the flip side, 1700s liberal ideas include the rights talk of life, liberty, and property – and generally a preference for the free market.  The Constitution cleverly implements these ideas into a unified form with separation of powers to prevent any faction from hijacking the government.  A quick refresher can be found in the Federalist Papers (especially 10 and 51), which highlight these tactics.

Alexander Hamilton, alleged author of several Federalist Papers

In general, the federal government was relatively weak.  Most of federal power lied in the hands of the Congress, while the President functioned as a clerk.  With rare exceptions (e.g. the Louisiana Purchase), the President was simply there to implement the policies produced by the legislature.  The Supreme Court was even weaker, with only the power to not do something (cooperate or not cooperate with the executive branch in enforcing laws).

Even extremely powerful Presidential figures struggled to impose their political will.  Jackson faced stiff opposition from Congress and the states, and only won the parts of his agenda that were ripe for corruption among his partisans.  Lincoln faced a rebellion, and his goals for reconstruction fell prey to a more powerful Congress – a legislature who imposed a regime so corrupt that Grant is often considered one of the most corrupt Presidents in history.

The period between Lincoln and FDRoosevelt is generally seen as a Congressional heyday, until reformers began to chip away at how government functioned.  There are remarkably few notable presidents in this era.  Woodrow Wilson – the President that led the States through the First World War was unable to deliver votes on treaties thanks to the power of legislative opponents.  Theodore Roosevelt was remarkably charismatic, but the reforms passed under his tenure were often promoted from legislative reforms rather than echoed from the Oval Office.

This structure of American politics placed immense power in the hands of legislative leaders.  Speakers from yestercentury called shots more often than their Presidential counterparts.  Yet the strength of this system (the mechanisms that produced party loyalty) eventually sparked the systematic demise of the political system: progressive reform.

How Reformers Killed Corruption and Congressional Power

This first structure was remarkably strong.  For the first century, corruption led the way for Congressional politicians, with backroom deals dominating political culture.  Major logrolls and compromises litter textbooks, from the Missouri Compromise to the Compromise of 1850.  Graft was a political tool that enabled these backroom political deals.  Plunkitt of Tammany Hall (America’s happier version of Machiavelli) lauded this type of government.  Plunkitt’s willingness to bend a few rules to help out the little guy was the American philosophy – from the political machines that dominated cities up to the hallowed halls on Capitol Hill.

Parties were the strongest organizing force in American politics for the decades between Lincoln and FDRoosevelt, according to consensus among political historians.  Those aspiring for political power would pay their dues to their party, exchanging loyalty and votes for favors from political bosses.  Loyalty to party was the most important currency for partisans, which allowed for remarkable cohesion across ideological and geographic lines.  Graft and favors were critical components of this game, but both are highly offensive to those not on the take.

By the late nineteenth century, politicians found that a running against those politically effective machines in cities and Congress would win votes.  Reform campaigns often proposed a bundle of laws lumped together generally as “Progressivism” – from civil service laws that prevented hiring unqualified friends and family to private ballot voting procedures.  These rules slowly matriculated into how Congress did business.  In 1910, after a coup for the Speakership, new Congressional leaders imposed rules that severely limited party leaders’ ability to pressure their partisans into votes.  By undermining this loyalty to party leaders, these rules sent political parties and Congress down a long, slow descent.

Interest groups filled the power vacuum left behind by declining political parties.  Political parties are coalitions who work together in order to win political power; interest groups are coalitions who work together in order to lobby government to implement certain powers.  During the heyday of political parties, bosses controlled access to favorable press, an army of campaign footsoldiers, and the expertise to manage increasingly complex political campaigns.  As party strength diminished, interest groups emerged as an alternative political resources critical to successful campaigns.  Rather than loyalty to a party boss, interest groups demand that their policy agenda move forward.  This exchange had a similar cost, but there is one critical distinction: loyalty to a legislative agenda is fundamentally different than loyalty to a specific cause.

As reforms slowly stripped power away from party leaders, Congress began to abdicate power to the executive branch.  This abdication was not directly to the President, instead it was to insulated parts of the government.  The process was somewhat simple.  First, an interest group would lure Congressmen into their flock, through rewards and threats.  Second, the interest group would demand that their Congressmen create favorable legislation.  Third, this new legislation nearly invariably required the creation of a new bureau in the executive branch.  Instead of risking political actors filling the office, the interest group would demand some semblance of expertise to hold that office – usually a series of credentials that qualifies only those sympathetic to the interest group’s cause.

A patchwork quilt of interest group iron triangles replaced the partisan system.  Iron triangles are a self-reinforcing, three-party relationship among interest groups, a Congressional committee, and executive departments.  Interest groups and Congressional committees exchange political resources for laws favorable to the interest group.  Congressional committees and executive departments exchange government resources (funding) in exchange for the autonomy needed to enforce laws favorably.  Executive departments and interest groups exchange favorable enforcement of policy for help securing funding from Congress and potentially huge payoffs once an administrator leaves the public sector for the private sector.  These relationships are extremely durable, and they are usually only hindered if an extremely powerful interest group provides an alternative to political resources to Congressmen.  The resulting policy system places this miniature network on an island of power, kings over their own slice of government.

An island. Of power.

Both the liberal and conservative views that underpin the Constitution suffered in this new system.  Newfound autonomy and intentionally ambiguous legislation shifted power into the hands of administrators littered across the executive branch.  The rule of law slowly transformed into a leviathan of increasingly complex rules, navigable only by those with expert literacy in a policy area.  By demanding overcomplicated rules of governance, policy networks were able to shift decisionmaking power into the hands of expertise.  In short, the islands of power captured by special interests fortified themselves by projecting presumed expertise and insulated themselves from challenges with red tape.  This new format short-circuited the republic’s safeguards against tyranny of factions by consolidating power into a coalition that reinforced itself across branches.

Lowi’s interest group pluralism is dominated by this network of interest groups.  When applied across the board, the emerging archipelago of islands of power shifted Congressional power to a gaggle of miniature policy oligarchies.  A once strong Congress effectively abdicated authority by creating fiefdom governments for their supporters.

Death of the American Republic and Capitalism

The implication of interest group pluralism on the marketplace drove a stake through the heart of capitalism.  Just as unique interest groups attempted to capture parts of the rapidly growing executive branch, industry groups fought for their piece of the regulatory pie during the abdication of Congressional power.

Government interference in the marketplace fundamentally changed in the postwar period.  In the past, the federal government has used subsidies as a blunt force to steer private capital in certain ways.  (The most lucrative is likely the massive land grants to railroads to develop a transcontinental transportation system.)  However, as the nation fell into the Great Depression, the seeds to end capitalism had already been sown.  When FDRoosevelt looked for advisors to get the economy moving again, he found a litany of industry groups ready to help write legislation.  The banking legislation during the New Deal is a classic example.  FDRoosevelt proposed legislation drafted by bankers to regulate banks – including a massive subsidy system that permanently intertwined the private banking system and the public political system.  The resulting iron triangle remains today, to the extent that when erratic decisions in the banking industry led to the largest financial crisis since the Great Depression remain unpunished.  In fact, those who steered the economy into danger were those who helped Congress write the new legislation.

The residue of capitalism remained, where the marketplace still provides largely private ownership of the means of production, private property, wage labor, and voluntary exchange.  However, claims that the market today resembles the microeconomic assumptions of perfect is extremely dubious, at best.  The ten largest firms the Forbes 500 have over $2,000,000,000,000 in total revenue – a total larger than the world’s eighth largest gross domestic product.  The top fifty firms on that list account for roughly one third of the United States’ purchasing power parity.  Market share points towards a system of oligopolies in nearly every national industry, regardless of the type of goods produced.  One does not have to travel far to find an industry pressure group that holds Congress and the executive branch’s hand through legislation.  Instead of a competitive marketplace, a few large firms compete over relative market share protected by public policy.  Firms in key industries remain too big to fail, yet too politically connected to divide into smaller competitive units.

The executive branch has often sought public private partnerships, agreements which are predicated on the turn-of-the-century reformer’s promise that businesses are run more efficiently than the public sector.  These agreements exchange public resources with private firms in order to provide services on the state’s behalf.  Responsibilities range from managing a redundant charter education system to managing turnpikes and other travel services to managing a growing prison system.  The efficacy of these programs remain hotly contested, with mixed evidence.

The resulting neoliberal political economy is an inseparable, tightly wound double helix of the public and private sectors.  Lowi notably predicted a similar outcome decades ago, although he focused more on the state’s inevitable financial debt to the private sector.  The private sector is overleveraged with this debt, which creates a mutual reliance between public and private.  The contemporary, interest group pluralist state relies on the private sector for the provision of public services, while private firms rely on the state for friendly legislation and the occasional bailout.  This economic structure can be roughly equated with neoliberalism.

Rise of Global Neoliberalism

The end of the Cold War allowed this neoliberal political economy to spread around the world.  Broadly defined, neoliberalism is a political economic philosophy that highlights the use of public policy to enhance the private sector – particularly privatization, fiscal austerity, and free trade.  However, the integration of politics into the market and the market into politics is a critical factor.  Neoliberalism has been the prevailing political economy philosophy in the global space since the end of the Cold War.

In most American history courses, the United States engaged a protracted ideological battle against the Soviet Union’s brand of communism.  This narrative often confuses neoliberal policy as democracy or capitalism.  Instead of democracy, the American political system is officially a republic and realistically a series of miniature policy oligarchies.  Instead of capitalism, the American economic system is more realistically a manipulated capitalism – where the state takes responsibility of organizing investment.  Today, government routinely manipulates tax rates, public subsidy, money supply, interest rates, and exchange rates to guide private dollars towards investment.  If government does invest directly into the marketplace, then it routinely partners with private actors.  The neoliberal policy menu is so pervasive that nearly all viable policy proposals in the United States are interpreted into monetary incentives – usually tax cuts or fees.

Once the Cold War ended, the United States’ neoliberal philosophy filled the ideological vacuum left behind by the Soviet bloc.  Neoliberalism dominated the global political economy.  The resulting quasi-free trade has aggregated most of the world’s economic production into a single, global marketplace.  With very rare exceptions (North Korea), the world has integrated into this larger space, with multinational corporations coordinating unprecedented amounts of economic power across the globe.

The Rise of Global Neoliberalism and the Impact on the United States’ Marketplace

Ross Perot was one of the last paleo-protectionists, a stalwart against neoliberal trade policies like the North American Free Trade Agreement.  Perot argued that if the United States opened up free trade with Canada and Mexico, massive manufacturing job loss would create “a giant sucking sound” that would drain the American economy.  Perot’s prophecies appear half true – especially in the Rust Belt.  If anything, the neoliberal policies sped up an already changing marketplace.  If businesses can produce the same good abroad for less than they can domestically, then they (as self-interested actors) will produce for lower costs.  Neoliberal trade policies removed some procedural costs of importing goods – and shifted that cost-benefit analysis towards moving manufacturing jobs elsewhere.

The United States had already started a long transition away from manufacturing.  In the late nineteenth century commentators lamented the rise of the manufacturing economy and relative demise of the agricultural economy, the main cause of this change was the transition of agricultural goods into commodities, while manufacturing goods provided uniqueness to allow entrepreneurs to claim monopoly power and profits.  Over time, manufacturing goods became increasingly commoditized – where all durable goods are roughly standardized.  As a result, manufacturing profit margins have dropped, leading to a new economic transition away from manufacturing.  The resultant postindustrial economy inspired a wide swath of critics at the turn of the millennium.  As the most prosperous multinational corporations exported manufacturing to poorer markets, a new marketplace formed in its wake.  Instead of making money by producing things locally, entrepreneurs prosper by commanding and controlling investments across the globe.

Creative capital is the most important resource in the postindustrial, neoliberal marketplace.  Unlike previous decades, where the accumulation of physical capital or volumes of laborers led to growth, the contemporary marketplace rewards places that can capture creative workers.  Just as unskilled labor fell in importance with the rise of manufacturing, skilled labor has also fallen to creative labor.  Creative workers are those who are able imagine and express new possibilities and are invaluable in high value-added industries like technology, engineering, business, and healthcare.  Creative workers are able to coordinate unskilled and skilled labor around the world, managing and improving global supply chains to gain the largest profit margin.  The cognitive ability to leverage resources in an increasingly complex marketplace places extreme demand on labor.

Immigration naturally rises to importance in the postindustrial, neoliberal marketplace.  Neoliberal policy prioritizes open markets, where both workers and resources can easily travel.  Communities of creative capital can attract the most prosperous corporations, as they present the highest likelihood of improving profitability.  As a result, cities engage in an amenities arms race to attract creative workers who are free to come and go.  This process usually results in gentrification – where poorer, less skilled workers are displaced by public private partnerships aimed at attracting creative workers.

In the postindustrial world, brain drains are the most significant threat to the local economy while brain gains are potential boons.   Unfortunately for most regions, creative capital is extremely demanding.  Sociologists note that creative workers flock to markets awash with amenities – from little Bohemias packed with hipsters to public and private art to professional sports to high quality schools.  A local politics of bread and circuses has emerged in many places, with local governments taxing locals to attract and keep creative workers.  In many cases, these amenities are somewhat public and benefit both the wealthy creative class along with their less wealthy counterparts.

Brain drain can devastate communities.

Underneath the glitzy creative spaces and the newfound economic winners, neoliberal trade policy has negatively impacted a remarkably large number of workers.  Once proud manufacturers find themselves without work.  Businesses that supported those local manufacturers also suffer – after all, the restaurant across the street from the factory will have less patrons if the plant shuts down.  Many communities could probably absorb this loss with new growth; however, when combined with a potential brain drain of creative nomads seeking amenities, neoliberal policy changes have been devastating to many of those who prospered with the twentieth century economy.  Manufacturing moving away has proven harmed Midwestern communities unable to keep their creative workers (e.g., not Pittsburgh and Chicago); workers in supporting industries continue to flounder.

Overall the neoliberal political economy has led to the most remarkable period of growth in history.  Production is at an all-time high, and the amount of wealth created is difficult to fathom.  Quick calculations suggest 125% growth in the global economy from 1990 to 2010 – in the midst of the Great Recession.

Populism and the Radicalization against Neoliberalism

One recurring theme in American politics is the series of populist political revolts during economic recoveries.  These revolts often combine the promised attacks on economic winners with xenophobia to mobilize less sophisticated voters.  The political message is roughly a mad lib: “It is not your fault that you are poor; it is (insert group here)’s fault.”  Generally speaking, if the populists have a conservative slant, then it is a minority group.  Generally speaking, if the populists have a liberal slant, then it is big businesses that fill in the blank.

In the past, populists have been largely ineffective at enacting policy at the federal level – much less getting elected.  The government structure and anti-democratic institutions in the republic have served as a bulwark against these movements.  The basic model has been relatively straightforward: charismatic leader emerges, applies economic and social messaging, fails, and the movement diminishes.  In 1896, William Jennings Bryan hijacked the Democratic Party with anti-Darwinism and economic discontent with the 1893 Panic.  (Perhaps this was an improvement from the Jim Crow Democratic Party, but it planted a seed that has linked populist messages to racist undertones.)  In 1948, Strom Thurman split from the Democratic Party with a Jim Crow revival and regional economic discontent with the postwar recession in the South.  George Wallace repeated this message in 1968, although his attacks blamed both African Americans and business elites for workers’ plight.  In each case, the populist message has shifted further towards xenophobic beliefs.

Recently, populists have been more successful at the local level.  State governments routinely pass bills that discriminate against racial and social minority groups, in the name of attacking the group of people who harm the populist’s interpretation of middle America.  Local governments routinely pass bills that place municipalities into fiscal straitjackets – limiting their ability to provide services to the least advantaged.  In recent decades, coordinated efforts among conservative populists have installed a legislative agenda across the country.  More importantly, this movement has groomed a new generation of partisans – from elected officials to media outlets – that reinforce the messaging.

Recently, the TEA Party has been the central point of this extremely successful populist wave.  Unlike previous waves that focused on a one-shot federal campaign, the TEA Party has built an army of foot soldiers around a message.  According to their website, they prioritize domestic employment, less government, and several pro-white policies (English as an official language, removing illegal immigrants, etc).  The political infrastructure established by this movement has created an immense amount of copy that backs up these beliefs, to the extent that people can potentially exist in a bubble where all information is filtered through and biased by these political actors.

The resulting populist movement has radicalized against neoliberalism.

Trump and the Imminent Threat to Neoliberalism

Trump is a charismatic candidate that is attempting to reassemble the tried-and-true populist machine.  Except this time, the stakes are higher and the infrastructure is already in place.  The republic’s institutions that would normally dilute power from democratic whims (separation of power) have been frittered away by Congress.  The social infrastructure to develop, enhance, and deploy a populist message is readily available – and a loyal army of for-free foot-soldiers is in place to help Trump get elected.

At the start of Trump’s campaign, candidate Trump began releasing a series of position on his website.  The messages are consistently anti-neoliberal – to the extent that it appears that Trump is focused on disassembling the neoliberal state.

Trump launched his campaign platform on an illiberal, anti-immigration plank.  This policy paper roughly blames (illegal) immigrants for economic stagnation, calls for a border wall to inhibit future movement of laborers, and demands a mass deportation.  Context is often lost in political campaigns, but this policy would forcibly move twice the number of families as displaced by apartheid.  This policy flies immediately in the face of neoliberal policy, as it undermines the free flow of economic resources that allows markets to thrive.

Trump’s early economic platform had two major planks: changing the tax code and “renegotiate” trade treaties.  Proposed changes to the tax code include a fee for domestic corporations transacting business (and moving capital) overseas.  Trump is particularly critical of the US-China trade deals, and blames “unfair” foreign trade for economic stagnation.  Context is often lost in political campaigns, but dropping trade to China would remove 7% of the United States’ exports – literally hundreds of billions of dollars.  This policy flies immediately in the face of neoliberal policy, as it undermines the free flow of economic resources that allows markets to thrive.

Trump’s early social platform had two major planks: guns and veterans.  Trump’s gun policy moves beyond the typical genuflection towards the National Rifle Association.  Instead, the policy paper goes one step short of vigilante justice, calling to “empower… gun owners to defend themselves.”  This policy flies immediately in the face of neoliberal, classically liberal, and classically conservative policy, as it undermines the rule of law by shifting power from procedure into the hands of people.  Trump’s veterans policy would compel private physicians to treat veterans and wait for the state to pay.  This policy flies immediately in the face of neoliberal, classically liberal, classically conservative, and capitalist policy, as it undermines the choice of medical providers to provide services and negotiate prices.

Donald Trump, the largest threat to neoliberalism since the Cold War.

Overall, Trump’s campaign can be summed up as anti-neoliberal.  Forced movement of families, cracking down on the free movement of economic resources, the call for vigilante justice, and compulsory service are authoritarian at best, and tyrannical at worst.  If anything, the policies outlined by Trump are the realization of the exact fears expressed in the Federalist Papers.  Unfortunately, the neoliberal regime that has fostered the environment to create Trump is the exact regime that undermined the republic’s ability to limit a charismatic autocrat’s reach.

The Choice This November

The 2016 election cycle presents the American people with a unique choice: the status quo or real change.  Ballots for Hillary Clinton represent voting for the status quo.  The special interest politics that corrupts the public will?  Clinton.  The neoliberal trade policy that accelerates the erosion of American manufacturing?  Clinton.  The most remarkable period of economic growth in world history?  Clinton.

Ballots for Donald Trump represent voting for an overhaul to this system; but the changes as promised appear to be in direct contradiction to the United States today and the United States as intended by the Founding Fathers.  To be frank, it is unclear if Congress is strong enough to check a charismatic populist arguing for authoritarian policies.  Trump represents change, but that change is likely not what historians will regard as a change toward “American” values.

The decision this November is not Trump vs Clinton.  The 2016 election is a referendum on neoliberalism and decades of American political economic theory.

Assuming that he intends to do what he says, a Trump victory means the end of neoliberalism.

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