The end of the great order under the Heaven

The very well-written and easy to read book by Gary Gerstle (The Rise and Fall of the Neoliberal Order) makes two key points. First, and continuing from Gerstle’s previous book (The Rise and Fall of the New Deal Order, coauthored with Steve Fraser) it insists on the idea of a political and economic “order”. An “order” is the ruling ideology at a given point in time, synthesized and propagated by the most important parts of the political establishment. There were, according to Gerstle two such political orders in the United States during the past century: the New Deal order that began with Franklin Delano Roosevelt, and the neoliberal order that began with Ronald Reagan.

 

Second, these two political orders are related, in an almost ideally synchronized manner, with the rise and fall of communism. This is not an accident. The external (international) context played an important role in the design of the US political orders.

 

How does an ideology become a “political order”? There is a “silent phase” of order’s construction that involves intellectuals and their theories. For neoliberalism, we have to go back to the Walter Lippmann’s Paris Colloquia, and Hayek’s and Mises’ Vienna and then more recently to Milton Friedman, Thomas Sowell, Charles Murray, Rush Limbaugh…Consider the years: Heritage Institution founded in 1974, Cato Institute 1974, Manhattan Institute 1976, Moral Majority defined in 1979.  Ideology is then propagated throughout the public and gets adopted by one or several political movements and parties. It does not become an “order” however until it gets accepted, or, as Gerstle likes to write, until it is “acquiesced to” by other parts of the political spectrum that at first rejected it. (Margaret Thatcher is cited as saying that her greatest success was that her policies were continued by Tony Blair.)

 

In the case of the United States, the crucial moments of transition from  ideology and political movement to order happened under Dwight Eisenhower who (as opposed to, say, William Taft) was ready to continue with the New Deal policies despite the fact that Republicans were originally opposed to all FDR stood for. And likewise, it is thanks to Bill Clinton that neoliberalism became a political and economic “order”.  A given political order when it is at its peak appears like common sense. It is hardly questioned. Large majorities of the public opinion support it even if they might disagree on peripheral (from the point of view of economic order) issues.

 

For Gerstle, the neoliberal order in the US went from Reagan in 1980 until at least the Great Recession when its decomposition began, and it ended in the first and second decades of the 21^st century. Trump, and more importantly, the silent ideological preparation for something new (J.D. Vance and Steve Bannon?; the latter, by the way, unmentioned), and the glaring defects of the neoliberal order prepared its ending. What that new order will be is left unclear though.

 

The argument regarding the importance of Communism for the definition of the two orders is strongly made, and makes lots of sense. As Gerstle writes, too much attention in the 1950s was paid to Democrats trying not to appear soft on communism, and too little attention to Republicans accepting most of the acquis of the New Deal in return for safety of private property. (“The threat of international communism made possible the transition of the New Deal  from political movement to political order and ensured its dominance in American life for 30 years”, p. 46).

 

With the declining appeal of communism and then its eventual fall, there was much less need to acquiesce to labor’s demands. Labor had nowhere to go, or dream that it could go, or threaten to go. Reagan’s firing of thousands of air-controllers was the opening salvo of the war on labor. (Globalization and outsourcing to China might have been the second.) This argument is worth making, but is not new. Krishnan Nayar has forcefully argued the same point in his excellent but neglected book Liberal Capitalist Democracy, and not only with regard to the United States but the entire political West (I reviewed Nayar’s book here.) Piketty, although less openly, has expressed the same idea by showing that capitalism’s “tame period” coincided with the crest of power of communist and socialist parties and trade unions in Western Europe. Recently, André Albuquerque Sant’Anna has, in an important paper, tested the proposition empirically and confirmed the hypothesis.

 

Gerstle’s book however is limited in showing only the effect of the rest of the world on the United States, not the converse. In fact, the US was a key actor in making the neoliberal order go global. There too Reagan and the Volcker shock (Volcker, by the way, was appointed by Carter) exerted crucial influence. They brought to order, metaphorically and often physically,  Latin America, Africa and Eastern Europe.  When Clinton made neoliberalism the American political and economic order, he also made its rule global. That aspect is entirely absent from Gerstle’s  book. Even when the rest of the world appears, as very briefly with Gorbachev and more extensively with the Iraq war fiasco, it is seen through the US prism only. This is not a shortcoming of the book because the book tells the story of US ideology and politics over the past century, but might have been pointed out more clearly in the title. The subtitle “America and the World in the Free Market Era” is a bit misleading simply because there is no “world” in the book. “America in the Free Market Era” would have been a more accurate description of the book’s content.

 

The Clinton presidency takes almost 50 pages of a 300-page book. It shows Clinton cleverly concluding that a return to New Deal policies is impossible, espousing and deepening neoliberalism. Gerstle discusses Clinton’s extremely important decisions regarding deregulation of information and communication industry and banking, both related to Clinton’s famous “triangulation” strategy:  the realization that he (and Democrats) cannot rule without the support of Silicon Valley and Wall Street. Clinton got both on his side by giving them what they wanted, and (as Gerstle writes) by deregulating much more than Reagan. In addition, he reduced the US welfare state and balanced the budget. Inequality continued to go up but less than under Reagan.

 

Clinton’s role is absolutely central. The rest is the “details”.  W. Bush is excoriated for his cavalier treatment of the housing bubble and looming financial crisis, and even more so for his decision to invade Iraq and then do nothing. Both, Gerstle argues, were based in W.  Bush’s quasi-religious belief in markets: one need not do anything: markets will fix all. No need to worry about the bad loans; if banks divide them into small enough portions and find buyers for them, the risk will magically disappear. It was “voodoo economics” as his father, in a different context, rightly called it. The approach to the war on Iraq was the same: no need to prepare anything past the military campaign: just leave it to the market forces, and the happy Iraqis, free from Saddam, will transform the country into a new Hong Kong. I think however that W. Bush simplistic beliefs were grounded in his unbelievable intellectual laziness: a privileged, spoiled and not too smart boy never grew up and never showed the slightest interest to learn anything about anybody but PLU (“people like us”).

 

Obama’s presidency is shown as inconsequential. One has hard time believing, when reading the book, that it lasted the full eight years. Obama, as is well known, picked up all the economic Clintonites whose neoliberalism was by now a pale copy of the past. While under Clinton they all appear (allegorically) wearing beautiful new blazers, under Obama,  the same people are dressed in the second-hand threadbare jackets of late neoliberalism.

 

And what to say about Trump? As little as possible. Gerstle’s book there suddenly runs out of steam. This is understandable because he argues that neoliberalism has come to a dead-end, but neither he nor anyone else can divine  what the next “order” will be. The last chapter (that includes both Trump and Biden presidencies) is the weakest. It simply retells the main events, and rehashes the cliches about Trump. Perhaps it was written too early…

Living through another great transformation…

 

Karl Polanyi’s Great Transformation is one of these famous books whose ideas have been so absorbed into social sciences that the books themselves are no longer read. This would be, in this case like in many others, a mistake because there is much more in the book than the kernel that we all know.

For those who may be new to the area, let me just summarize the main insights of Polanyi’s. Market economy, defined as an economy that entirely depends on prices of commodities including market-determined prices factors of production (what Polanyi called “fictitious commodities”) of labor, land and money is an impossibility. It is impossible in practice because such an economy would annihilate society. This, Polanyi writes, was only imperfectly understood when the first time in history such an attempt was made during the British Industrial Revolution. “The Industrial Revolution was merely the beginning of a revolution so extreme and radical as ever inflamed the minds of sectarians, but the new creed was utterly materialistic and believed that all human problems could be resolved given unlimited amount of material commodities. (p. 40). Self-regulating market society would result (and in Britain it did initially result) in pauperism, vagrancy, alcoholism, insalubrious living conditions, “satanic mills”, much longer hours of work, shorter lives, lack of education, all the elements well known from economic history and from the works of literature.

Thus, the “society” (a rather capacious term that Polanyi overuses) had to defend itself against a fully marketed economy At first, it defended itself through income guarantees included in parish Poor Laws, but that did not prevent the catastrophe. Subsidized cost of labor, i.e. what would be called today the Universal Basic Income, made people lazy, unwilling to work, or accepting to work for a derisory wage knowing that the rest will be covered from the public coffers. That defense was unsustainable. The real defense against the market came with de facto exemption from market-price determination of labor (wages), land and money.  Wages are regulated (at the time of Polanyi’s  writing, the early 1940s in Britain) by the bargaining between trade unions and employers; land use is  subjected to increasing public control and oversight; price of money is regulated by the central bank. Thus, Polanyi maintains, market economy must be  “embedded” (a famous term) in society and incomes (prices of factors of production) must be exempt from full market determination.

Putting it more succinctly, only a social democratic state is compatible with market economy. All other market economies will lead to the destruction of society. For human societies never in history were organized on economic principles only.

The parts of the book describing the devastation wrought by the Industrial Revolutions and market are probably the best. Moreover, the experience accumulated in the past eighty years in many ways (not all, as I will argue below) supports Polanyi. When he uses the social destruction of colonized societies (India and Africa), suffering under the onslaught of the new ways of producing things, foreign competition, introduction of wage labor, commercialization of land (none of which of course existed before) as an analog to the similar destruction unleashed by the Industrial Revolution on the British population, one cannot but note that exactly the same effects were observed during the transition from communism to market economy, or more recently in the blighted cities in North America or Western Europe.

            But on the other hand, Polanyi’s views were not fully corroborated by recent history: the overall importance of markets is today, worldwide, much greater than it was eighty years ago. While the historical description of societies’ “defenses” against the forces of the market is true, the world has not settled to an equilibrium that Polanyi thought was the only compatible with enduring social stability, namely on social-democracy. On the contrary,  one could easily argue that the present has gone much more towards the original 19^th century laissez-faire than seemed likely or even feasible to Polanyi  in the 1940s. So while his predictions were not borne out, his  main message of difficulty, or almost impossibility, of entirely commodified societies, still resonates. Milei and Silicon valley tycoons might learn that lesson too.

            There are two methodological points where I do not agree with Polanyi. First is his unrelenting critique of classical political economy from Smith to Ricardo and Malthus. Ricardo is criticized for his market-determined view of the world, including his opposition to the Poor Laws. But Polanyi dedicates two chapters to the description of the demoralizing effect of Speenhamland income maintenance laws. So, if there were so detrimental, as he writes, to the morale of the working class and the nation (as both Polanyi and Ricardo agree), why is Ricardo criticized for arguing for their repeal?

Polanyi also believes that Smith’s alleged human propensity to “truck and barter”, which is at the origin of the division of labor and free trade, is a pure invention; it is on the level of Rousseau’s “noble savage”: a phantasy without any basis in reality. Only Robert Owen saw the truth:  “market economy if left to evolve according to its own laws would create great and permanent evils” (p. 130).

            The second issue is even stranger. Polanyi opens Chapter 13 by a long disquisition on how economic history should not be studied or understood using the concept of class, nor by focusing only on classes’ material interests, but rather on social recognition. Without citing it, Polanyi disagrees with Marx’s historical materialism, as well as by the methodological approach contained (again) in Smith, Ricardo and innumerable economists since. What is strange however is that after rejecting it, Polanyi couches his entire analysis, going over hundreds of examples, precisely in those same class terms and using material incentives. Political developments are throughout the book discussed by highlighting which class benefited from a certain policy and which lost. For sure, the class structure used by Polanyi is broader, i.e. not limited to the three principal classes as in Ricardo, but this is true for any historically class-based analysis, including Marx’s. When he wrote about the 1848 and 1871 revolutions, he did not just use two or three classes. The real world is always much more complex but that does not detract from the importance of class analysis. Even when classes play the role which is seemingly contradictory to their “historical mission” they are Polanyi’s key—or rathe only--units of analysis and their motivations are always material self-interest. Thus, to me, his critique of class analysis, and even an oblique attack on Smith for having believed that economic decisions are based on self-interest, are spectacularly negated by the methods used by Polanyi himself. In is, in fact, a puzzle why he opted for that methodological discourse (made in only one place in the book), so  much at odds with his own methodological stance.

            Finally, let me say a few words about the writing. This is not a well-written book. Some parts are difficult to read, and I could not exactly pinpoint what is the problem: the sentences are not too complicated nor are the ideas difficult to convey. There are many extraordinary powerful and brilliant statements buried into paragraphs of at times impenetrable historical prose. Compared, for example, to Eric Hobsbawm, who covers many of the same historical episodes, Polanyi is unnecessarily unclear. This may be answered by saying that Polanyi’s book is not strictly speaking a book of economic history and thus the narrative cannot be the same as in a history book. This is true but it still does explain why the writing is plagued by complex and hard to understand historical allusions or perhaps an exaggerated passion for paradoxes that are only hinted to, or left unexplained.

            It is an excellent decision by Penguin to republish the book with a new introduction by Gareth Dale. Our time is indeed one of malaise, provoked precisely by the same forces that readers of Polanyi would easily recognize: expanding commercialization of many areas that were never subject to market, and thus social dislocation, and ultimately political discontent. Polanyi should be read again, today with the background of precarious labor, commercialization of land, climate change (which is directly related to the latter), and monetary manipulations by the banks and bourses, the three fictitious commodities that determine people’s income and livelihood and that, according to Polanyi, cannot be left unregulated.

 

NB. I think one could have two Polanyisms: a weak one which accepts market economy for all commodities except the fictitious three, so that incomes are not determined by market; and a strong one that represents an attack on the very foundations of political economy and that holds  that boundless search for profit, income or gain is not “natural to man”.