Why neoliberalism failed

By contrast, the third camp advocates what I call progressive capitalism , which prescribes a radically different economic agenda, based on four priorities. The first is to restore the balance between markets, the state, and civil society. Slow economic growth, rising inequality, financial instability, and environmental degradation are problems born of the market, and thus cannot and will not be overcome by the market on its own. Governments have a duty to limit and shape markets through environmental, health, occupational-safety, and other types of regulation.

Markets still have a crucial role to play in facilitating social cooperation, but they serve this purpose only if they are governed by the rule of law and subject to democratic checks. Otherwise, individuals can get rich by exploiting others, extracting wealth through rent-seeking rather than creating wealth through genuine ingenuity. Progressive capitalism seeks to do precisely the opposite.

This brings us to the third priority: addressing the growing problem of concentrated market power. By exploiting information advantages, buying up potential competitors, and creating entry barriers, dominant firms are able to engage in large-scale rent-seeking to the detriment of everyone else.

Unless government takes a more active role than neoliberalism prescribes, these problems will likely become much worse, owing to advances in robotization and artificial intelligence.

The fourth key item on the progressive agenda is to sever the link between economic power and political influence. Economic power and political influence are mutually reinforcing and self-perpetuating, especially where, as in the US, wealthy individuals and corporations may spend without limit in elections.

This is not just a moral and political problem: economies with less inequality actually perform better. Progressive-capitalist reforms thus have to begin by curtailing the influence of money in politics and reducing wealth inequality. There is no magic bullet that can reverse the damage done by decades of neoliberalism. But a comprehensive agenda along the lines sketched above absolutely can.

Much will depend on whether reformers are as resolute in combating problems like excessive market power and inequality as the private sector is in creating them. A comprehensive agenda must focus on education, research, and the other true sources of wealth. And it must provide public programs to ensure that no citizen is denied the basic requisites of a decent life.

This agenda is eminently affordable; in fact, we cannot afford not to enact it. The result was a growing barter economy, low exports, and asset-stripping, as burgeoning oligarchs bought up state enterprises and then moved their money out of the country.

Despite its alleged commitment to market competition, the neoliberal economic agenda instead brought the decline of competition and the rise of close to monopoly power in vast swaths of the economy: pharmaceuticals, telecom, airlines, agriculture, banking, industrials, retail, utilities, and even beer. A study by The Economist found that between and , two-thirds of industries became more concentrated.

Even centrist think tanks like the Brookings Institution have recognized the dangerous rise of monopolies and argued that the concentration of economic power brings with it higher prices for consumers, increased economic inequality, and a less dynamic economy. Rising economic inequality and the creation of monopolistic megacorporations also threaten democracy.

In study after study, political scientists have shown that the U. The wealthiest people, corporations, and their interest groups participate more in politics, spend more on politics, and lobby governments more.

Leading political scientists have declared that the U. Humans are social animals. But neoliberalism rejects both the medieval approach of having fixed social classes based on wealth and power and the modern approach of having a single, shared civic identity based on participation in a democratic community. And so there has been a retreat to tribalism and identity groups, with civic associations replaced by religious, ethnic, or other cultural affiliations.

To be sure, race, gender, culture, and other aspects of social life have always been important to politics. First, when taken to an extreme, social fracturing into identity groups can be used to divide people and prevent the creation of a shared civic identity.

Self-government requires uniting through our commonalities and aspiring to achieve a shared future. When individuals fall back onto clans, tribes, and us-versus-them identities, the political community gets fragmented. It becomes harder for people to see each other as part of that same shared future. Demagogues rely on this fracturing to inflame racial, nationalist, and religious antagonism, which only further fuels the divisions within society.

The second problem is that neoliberals on right and left sometimes use identity as a shield to protect neoliberal policies. Of course, the result is to leave in place political and economic structures that harm the very groups that inclusionary neoliberals claim to support.

The U. Neither Afghanistan nor Iraq is a liberal democracy, nor did the attempt to establish democracy in Iraq lead to a domino effect that swept the Middle East and reformed its governments for the better. Instead, power in Iraq has shifted from American occupiers to sectarian militias, to the Iraqi government, to Islamic State terrorists, and back to the Iraqi government—and more than , Iraqis are dead. Or take the liberal internationalist intervention in Libya.

The result was not a peaceful transition to stable democracy but instead civil war and instability, with thousands dead as the country splintered and portions were overrun by terrorist groups. On the grounds of democracy promotion, it is hard to say these interventions were a success. And for those motivated to expand human rights around the world, it is hard to justify these wars as humanitarian victories—on the civilian death count alone. Indeed, the central anchoring assumptions of the American foreign policy establishment have been proven wrong.

Foreign policymakers largely assumed that all good things would go together—democracy, markets, and human rights—and so they thought opening China to trade would inexorably lead to it becoming a liberal democracy. They were wrong. They thought Russia would become liberal through swift democratization and privatization.

And to be clear, Donald Trump had nothing to do with them. All of these failures were evident prior to the election. In spite of these failures, most policymakers did not have a new ideology or different worldview through which to comprehend the problems of this time. So, by and large, the collective response was not to abandon neoliberalism. After the Great Crash of , neoliberals chafed at attempts to push forward aggressive Keynesian spending programs to spark demand.

About one-third of the stimulus ended up being tax cuts, which have a less stimulative effect than direct spending. After Republicans took back the Congress in , the U. When it came to affirmative, forward-looking policy, the neoliberal framework also remained dominant. Take the Obamacare health care legislation. Obamacare was built on a market-based model that the conservative Heritage Foundation helped develop and that Mitt Romney, the Republican governor of Massachusetts, had adopted.

There was no single-payer system, and centrists like Senator Joe Lieberman blocked the creation of a public option that might coexist and compete with private options on the marketplaces. Fearful of losing their seats, centrists extracted these concessions from progressives.

Little good it did them. For their caution, centrists both lost their seats and gave Americans fewer and worse health care choices. On the right, the response to the crash went beyond ostrichlike blindness in the face of the shattering of the assumptions undergirding their public policy views. Indeed, most conservatives seized the moment to double down on the failed approaches of the past.

Mostly, they called themselves free-market conservatives. The use became widespread in the era of Margaret Thatcher and Ronald Reagan. To add to the confusion, a different and partly overlapping usage was advanced in the s by the group around the Washington Monthly magazine. Around the same time, the term neoconservative was used as a self-description by former liberals who embraced conservatism, on cultural, racial, economic, and foreign-policy grounds.

Neoconservatives were neoliberals in economics. Beginning in the s, resurrected free-market theory was interwoven with both conservative politics and significant investments in the production of theorists and policy intellectuals. This occurred not just in well-known conservative think tanks such as the American Enterprise Institute, Heritage, Cato, and the Manhattan Institute, but through more insidious investments in academia.

Lavishly funded centers and tenured chairs were underwritten by the Olin, Scaife, Bradley, and other far-right foundations to promote such variants of free-market theory as law and economics, public choice, rational choice, cost-benefit analysis, maximize-shareholder-value, and kindred schools of thought.

These theories colonized several academic disciplines. All were variations on the claim that markets worked and that government should get out of the way. Each of these bodies of sub-theory relied upon its own variant of neoliberal ideology. An intensified version of the theory of comparative advantage was used not just to cut tariffs but to use globalization as all-purpose deregulation.

The theory of maximizing shareholder value was deployed to undermine the entire range of financial regulation and workers' rights. Cost-benefit analysis, emphasizing costs and discounting benefits, was used to discredit a good deal of health, safety, and environmental regulation. Click here to read how Robert Kuttner has been unmasking the fallacies of neoliberalism for decades. Market failure was dismissed as a rare special case; government failure was said to be ubiquitous.

Theorists worked hand in glove with lobbyists and with public officials. But in every major case where neoliberal theory generated policy, the result was political success and economic failure. For example, supply-side economics became the justification for tax cuts, on the premise that taxes punished enterprise. There have been six rounds of this experiment, from the tax cuts sponsored by Jimmy Carter in to the immense Tax Cuts and Jobs Act signed by Donald Trump. In every case some economic stimulus did result, mainly from the Keynesian jolt to demand, but in every case deficits increased significantly.

Conservatives simply stopped caring about deficits. The tax cuts were often inefficient as well as inequitable, since the loopholes steered investment to tax-favored uses rather than the most economically logical ones. Dozens of America's most profitable corporations paid no taxes. Supposedly, if government just got out of the way, market forces would remain more competitive because monopoly pricing would invite innovation and new entrants to the market. In practice, industry after industry became more heavily concentrated.

Incumbents got in the habit of buying out innovators or using their market power to crush them. This pattern is especially insidious in the tech economy of platform monopolies, where giants that provide platforms, such as Google and Amazon, use their market power and superior access to customer data to out-compete rivals who use their platforms.

Markets, once again, require rules beyond the benign competence of the market actors themselves. Only democratic government can set equitable rules. And when democracy falters, undemocratic governments in cahoots with corrupt private plutocrats will make the rules. Human capital theory, another variant of neoliberal application of markets to partly social questions, justified deregulating labor markets and crushing labor unions. Unions supposedly used their power to get workers paid more than their market worth.

Likewise minimum wage laws. But the era of depressed wages has actually seen a decline in rates of productivity growth. Conversely, does any serious person think that the inflated pay of the financial moguls who crashed the economy accurately reflects their contribution to economic activity? In the case of hedge funds and private equity, the high incomes of fund sponsors are the result of transfers of wealth and income from employees, other stakeholders, and operating companies to the fund managers, not the fruits of more efficient management.

There is a broad literature discrediting this body of pseudo-scholarly work in great detail. Much of neoliberalism represents the ever-reliable victory of assumption over evidence. Yet neoliberal theory lived on because it was so convenient for elites, and because of the inertial power of the intellectual capital that had been created.

The well-funded neoliberal habitat has provided comfortable careers for two generations of scholars and pseudo-scholars who migrate between academia, think tanks, K Street, op-ed pages, government, Wall Street, and back again.

So even if the theory has been demolished both by scholarly rebuttal and by events, it thrives in powerful institutions and among their political allies.

Financial deregulation is neoliberalism's most palpable deregulatory failure, but far from the only one. We have gone from regulated monopolies with predictable earnings, costs, wages, and consumer protections to deregulated monopolies or oligopolies with substantial pricing power. Since the Bell breakup, the telephone system tells a similar story of re-concentration, dwindling competition, price-gouging, and union-bashing.

Air travel has been a poster child for advocates of deregulation, but the actual record is mixed at best. Airline deregulation produced serial bankruptcies of every major U. Ticket prices have declined on average over the past two decades, but the traveling public suffers from a crazy quilt of fares, declining service, shrinking seats and legroom, and exorbitant penalties for the perfectly normal sin of having to change plans.

Studies have shown that fares actually declined at a faster rate in the 20 years before deregulation in than in the 20 years afterward, because the prime source of greater efficiency in airline travel is the introduction of more fuel-efficient planes. The roller-coaster experience of airline profits and losses has reduced the capacity of airlines to purchase more fuel-efficient aircraft, and the average age of the fleet keeps increasing.

Robert Bork's spurious arguments that antitrust enforcement hurt competition became the basis for dismantling antitrust. Massive concentration resulted. In every case, government revenues are involved, so this is far from a free market to begin with.

But the premise is that market disciplines can achieve public purposes more efficiently than direct public provision. The evidence provides small comfort for these claims. One core problem is that the programs invariably give too much to the for-profit middlemen at the expense of the intended beneficiaries.

A related problem is that the process of using vouchers and contracts invites corruption. Often, direct public provision is far more transparent and accountable than a web of contractors.

A further problem is that in practice there is often far less competition than imagined, because of oligopoly power, vendor lock-in, and vendor political influence. These experiments in marketization to serve social goals do not operate in some Platonic policy laboratory, where the only objective is true market efficiency yoked to the public good.

They operate in the grubby world of practical politics, where the vendors are closely allied with conservative politicians whose purposes may be to discredit social transfers entirely, or to reward corporate allies, or to benefit from kickbacks either directly or as campaign contributions.

Privatized prisons are a case in point. A few large, scandal-ridden companies have gotten most of the contracts, often through political influence. Far from bringing better quality and management efficiency, they have profited by diverting operating funds and worsening conditions that were already deplorable, and finding new ways to charge inmates higher fees for necessary services such as phone calls. To the extent that money was actually saved, most of the savings came from reducing the pay and professionalism of guards, increasing overcrowding, and decreasing already inadequate budgets for food and medical care.

A similar example is the privatization of transportation services such as highways and even parking meters. In several Midwestern states, toll roads have been sold to private vendors. The governor who makes the deal gains a temporary fiscal windfall, while drivers end up paying higher tolls often for decades. Investment bankers who broker the deal also take their cut.

Some of the money does go into highway improvements, but that could have been done more efficiently in the traditional way via direct public ownership and competitive bidding. Housing vouchers substantially reward landlords who use the vouchers to fill empty houses with poor people until the neighborhood gentrifies, at which point the owner is free to quit the program and charge market rentals. Thus public funds are used to underwrite a privately owned, quasi-social housing sector—whose social character is only temporary.

No permanent social housing is produced despite the extensive public outlay. The companion use of tax incentives to attract passive investment in affordable housing promotes economically inefficient tax shelters, and shunts public funds into the pockets of the investors—money that might otherwise have gone directly to the housing. The Affordable Care Act is a form of voucher. But the regulated private insurance markets in the ACA have not fully lived up to their promise, in part because of the extensive market power retained by private insurers and in part because the right has relentlessly sought to sabotage the program—another political feedback loop.

The sponsors assumed that competition would lower costs and increase consumer choice. But in too many counties, there are three or fewer competing plans, and in some cases just one. Our mixed-market system of health care requires massive regulation to work with tolerable efficiency.

Straight-ahead public insurance such as Medicare is generally far more efficient. An extensive literature has demonstrated that for-profit voucher schools do no better and often do worse than comparable public schools, and are vulnerable to multiple forms of gaming and corruption. Proprietors of voucher schools are superb at finding ways of excluding costly special-needs students, so that those costs are imposed on what remains of public schools; they excel at gaming test results.

While some voucher and charter schools, especially nonprofit ones, sometimes improve on average school performance, so do many public schools. The record is also muddied by the fact that many ostensibly nonprofit schools contract out management to for-profit companies.

Tax preferences have long been used ostensibly to serve social goals. The Earned Income Tax Credit is considered one of the more successful cases of using market-like measures—in this case a refundable tax credit—to achieve the social goal of increasing worker take-home pay.