The Death Of Neoliberalism Is An Opportunity To Birth A New System

Today in the US, as well as globally, we find ourselves in multiple reinforcing crises. There is a crisis of legitimacy in established institutions ranging from Congress, the presidency and the Supreme Court, to the media, the criminal legal system, organized religion, Wall Street banks and corporations. Along with this, there is a loss of belief in social mobility and fairness. The neoliberal ideology that has dominated public discourse for four decades has failed, and we are set adrift with no vision to replace it. We are in a mounting crisis of neoliberal capitalism and a political system unable to steer a way out of it.

These intersecting crises place us in a period of extreme indeterminacy. Old norms and expectations no longer hold, leaving us disoriented and having to improvise. One thing that has become clear to us now is that such circumstances offer fertile soil for the rise of a demagogue who can take advantage of popular anxieties. What new order will replace the old one — or indeed, even if a new order is possible, is unknown. We are in the midst of a great interregnum, a period when the old order can no longer hold and a new one cannot be born.

Let us look at the historical sweep of the last century, starting with a familiar story. The roaring economy of the 1920s brought an immense economic inequality. The collapse of that frenzy led to the Great Depression of the 1930s. The precarious conditions of life for most working people energized social movements, especially the labor movement, which prompted the Roosevelt administration to reform capitalism in order to save it from itself.

The collapse of the economy and resulting popular pressure for relief from below necessitated and enabled a passive revolution from above. Government regulated capital markets by establishing the Securities and Exchange Commission in order to avoid another stock market crash. It also provided some protection for working people from the vicissitudes of the market with federal jobs programs, unemployment insurance, agricultural price supports and social welfare programs. Adopting Keynesian policies, it sought to stimulate consumer demand through deficit spending. But it was WWII that finally brought full employment to the US capitalist economy. The continuation and expansion of these New Deal policies in the post-war decades brought rising standards of living to most of the population. And it was this realization of an “American Dream” that brought political stability to liberal democracy. It was the age of social democracy.

This was an expansion of democracy in the sense that the interest of the people was able to make an activist state the instrument of a popular will as far as is possible within the framework of a capitalist economic system. Therein lay its triumph as well as its ultimate defeat.

The Making of Global Capitalism

While the Roosevelt administration is remembered for the New Deal, its most lasting impact was in the foundations it laid for a global capitalist order. Realizing that the US would emerge from WWII as the sole industrial power in the world, in the early 1940s, the administration began to plan to take on the responsibility to create the conditions for the expansion and reproduction of capitalism internationally. At the war’s end, the US established the Bretton Woods institutions: the World Bank, the International Monetary Fund, and what later became the World Trade Organization — all under the tutelage of the US Treasury Department. With the later addition of so-called free trade agreements, these gradually expanded the power of transnational corporations.

From their inception, the aim was to build a multilateral world order that would not fall into national rivalries of the sort that had produced two world wars. But that world order was to be an explicitly capitalist one, precluding a socialist alternative in Europe and in its former colonies. The Cold War was not just a great power contest with the Soviet Union. Above all else, it was to prevent what came to be called the “Third World” from escaping capitalism by socializing their economies. Economic aid to “develop” these newly independent countries was designed to turn them into capitalist appendages of the advanced capitalist economies. While at the time, these may have seemed marginal to the interests of capitalism, by the 1980s, they were to become essential to its survival.

Although Roosevelt had saved capitalism, capitalists were not happy with the social democracy of the New Deal, especially after its expansion in the 1960s. Under political challenge from social movements of that era, capitalists mounted a long-range counteroffensive in the class war that was outlined in the Powell Memorandum of 1971. As David Harvey has suggested in A Brief History of Neoliberalism, this was the strategic plan for the construction of neoliberal ideology as the new common sense of corporate capitalism. But what really turned the tide was the economic crisis of stagflation. As long as profits rose, capitalists had accepted an accord with labor where workers received a share of rising productivity in return for labor peace. But when profit margins grew smaller in the 1970s, they sought to reduce the share of value going to workers. An offensive against unions weakened their countervailing power, making possible the reduction of benefits and stagnation of wages. With assistance from the state, corporations increasingly moved production offshore in order to utilize low-wage labor in the Global South.

The 1980s ushered in a new era of globalization under what came to be called neoliberal policies. Free trade, privatization of government services and deregulation of the economy gave priority to the market dominated by corporate capital. It was the antithesis of social liberalism. Neoliberalism freed capital from democratic social restraints. Its policies were embraced by Democratic and Republican politicians alike, from the Bushes and the Clintons, to Obama and Trump. Neoliberalism became the hegemonic ideology, replacing social democracy.

While globalization and its attendant consequences provided a temporary fix for the crisis of capitalism, the underlying systemic crisis of overaccumulation remains. This refers to the amassing of so much capital that there are insufficient ways to profitably reinvest it. The circuit of capital is complete only when the surplus value created by labor in production can be realized in exchange of its products, and that profit is then reinvested so as to yield further profit. Capital lives by the never-ending accumulation of value. The systemic problem that has been with us for some time is that so much capital has been accumulated that there are not enough places to reinvest it profitably. The movement of capital to the Global South has opened up new opportunities for increased profit by tapping low-wage labor. But this then adds to the mass of accumulated capital, exacerbating the long-run crisis of overaccumulation. Today, banks and other corporations have so much money lying around that they just don’t know what to do with it.

And so another fix has been deployed. Rather than investing the money in production, capitalists are speculating with it by buying debt. The stream of interest on that debt is then counted as profit, even though no new value has been produced. It just moves existing value into their hands. Capital accumulated this way is “fictitious capital” that takes the form of money that does not represent any products of social labor. All this speculation drives up the price of debt until the Ponzi scheme collapses, as we saw in 2008. Then the state, acting as insurer of last resort, stepped in to save the financial system with a massive bailout that restored liquidity to the banks so they could continue to gamble without worrying about moral hazard.

It became clear that the activist state was not acting on behalf of the people as under social democracy. It was acting to protect the interests of capital even though capital no longer benefited the popular classes. And with that, its legitimacy was further undermined. This delegitimization of government had been under way at least since the state undertook promoting the flight of corporations to the Global South in the 1970s. The nation-state of earlier eras was being transformed into what I call a “globalized state,” i.e. a state no longer serving the interests of its people, but the interests of transnational corporate capital. Under social democracy, the state had broad public support in so far as it was able to manage the economy, enabling a rising standard of living. As German economic sociologist Wolfgang Streeck remarks in How Will Capitalism End? Essays on a Failing System, “More than two decades of uninterrupted growth resulted in deeply rooted popular perceptions of continuous economic progress as a right of democratic citizenship.” Neoliberal globalization undermined this “American Dream.” By betraying this “right,” the political elite had lost the support of the citizenry, as was decisively demonstrated in the 2016 national elections.

Doubling Down on the Neoliberal Agenda

Much of the electorate was “mad as hell” and, in the words of Michael Moore, just wanted to throw a human Molotov cocktail into the political system. This Molotov cocktail was, of course, Donald Trump. Large numbers of voters cast protest votes for him as president as an “anti-establishment” candidate. In the polyarchic political system of the US that passes for democracy, political elites had long been successful in engineering elections to ensure continuing rule by neoliberals in spite of the pain their policies were inflicting on the popular classes (stagnation of incomes, deindustrialization, offshoring of production, weakening of unions, curtailment of social benefits, etc.). The growing resentment of elites beholden to Wall Street fueled an anger that had lacked political expression until 2016, when Bernie Sanders and Donald Trump platformed their campaigns on this anger. In the Democratic Party, the establishment was able to maintain control of the electoral apparatus and ran an unpopular neoliberal. In the Republican Party, a masterful demagogue then became president. Elites were no longer able to manage democracy. And in spite of his wealth, Trump was seen by his voters not as elite, but as an “outsider” to the Washington establishment.