It’s the end of the world as we know it – again
The policymaking elites of the industrialised West are panicking – and with good reason. The seismic shock of Britons voting to leave the European Union has sharpened awareness of the possibility that in November Donald Trump could ride a wave of xenophobia all the way to the White House. Voters in the advanced capitalist democracies appear more willing than ever to register a potentially catastrophic protest against a post-Cold War global economic order that has deified markets just as the fallen communist ideology deified the state.
A quarter century of market-driven globalisation and neoliberal orthodoxy has systematically deregulated finance, and led to tax cuts and trade deals that favour wealthy elites and leave most of the others to fend for themselves. Its response to economic crises is to adjust interest rates, bailing out capital markets (and the fortunes of the elites) while forcing endless austerity on the most economically vulnerable. The prevailing economic consensus among western governments has steadily increased inequality and diminished hopes, but such are the rules of capitalist democracies that the economically marginalised still get to vote.
“The real story of this election is that after several decades, American democracy is finally responding to the rise of inequality and the economic stagnation experienced by most of the population,” observed Francis Fukuyama recently. Fukuyama is the political scientist best known for declaring in 1989 that the collapse of the Soviet bloc heralded “the end of history”, with free-market capitalism now the undisputed ideological wisdom for the rest of time.
But the neoliberal order he proclaimed as eternal looks increasingly vulnerable, thanks to the very logic of the market economics he championed. “The gap between the fortunes of elites and those of the rest of the public has been growing for two generations, but only now is it coming to dominate national politics,” Fukuyama wrote in Foreign Affairs last month. “Now that the elites have been shocked out of their smug complacency, the time has come for them to devise more workable solutions to the problems they can no longer deny or ignore.”
The Brexit result – a vote of no-confidence in the elites of London and Brussels by an English working class that has been steadily marginalised over three decades – underscores the peril that the system that has aggrandised those elites now faces through its failure to deliver economic security and dignity to millions of citizens.
In the month before the British referendum, two bastions of free-market orthodoxy, the International Monetary Fund and the Organisation for Economic Cooperation and Development (OECD), sounded warnings over the policy consensus they had long championed.
Three top IMF economists declared that the neoliberal economic model that has been the fund’s hallmark had been “oversold”, resulting in deepening inequality that restricts growth and in austerity polices that now do more harm than good.
The OECD added a warning that without fiscal responses deemed taboo under neoliberal orthodoxy – the government spending large amounts of money, raised through taxes or borrowing, to stimulate the domestic demand needed to spur economic growth – stagnation will deepen, and with it the political crisis.
“Comprehensive policy action is urgently needed to ensure that we get off this disappointing growth path and propel our economies to levels that will safeguard living standards for all,” it warned. It was making clear that the looming global recession can’t be avoided through traditional monetary policy remedies such as cutting interest rates or pumping money into capital markets.
“Reliance on monetary policy alone cannot deliver satisfactory growth and inflation,” the OECD wrote. “Additional monetary policy easing could now prove to be less effective than in the past, and even counterproductive in some circumstances.”
Then there was the admission by Larry Summers, former deputy treasury secretary under Bill Clinton, that the systemic stagnation facing the global economy negates the market orthodoxy he has championed.
“Much of what economists thought they knew about macroeconomic policy needs to be reassessed in light of recent events,” he wrote, calling for “major changes in thinking about fiscal and monetary policy”.
Those are three examples of a renewed focus on public spending as a way out of the economic doldrums, as John Maynard Keynes advocated in what became the governing consensus in the West between the Great Depression and the mid-1970s. In the United States, moreover, the win-win is painfully obvious: the American Society of Civil Engineers estimates that $3.6 trillion (Dh13.2tn) needs to be spent to restore and modernise crumbling infrastructure by 2020. Managing the traumatic effects of climate change will also require a massive fiscal spend that could provide vital stimulus to the global economy.
But if the economists have begun to realise the failure of market orthodoxy, the politicians in its thrall – which include the establishment leadership of both the major US political parties – have been slow to catch up. Democratic Party candidate Hillary Clinton proposes an infrastructure spend less than 10 per cent of what the Civil Engineers recommend; Mr Trump has offered no plan.
Fukuyama’s “end of history” mantra prompted not only fellow conservatives but also centrist-technocrats such as Bill Clinton and Tony Blair to simply leave the economy to technocratic managers intuiting the markets’ mandate.
Economic governance was stripped of political choices, assuming that there was simply no alternative to the market logic that has steadily reallocated resources to the rich at the expense of the majority. Thus the essential ruse of neoliberalism: like communism, it masks its ideological choices as science.
Fukuyama is now warning his erstwhile acolytes that neoliberalism could ruin them – as Brexit illustrates. But judging by the limited appetite for renewed fiscal largesse among the leadership of many of the liberal democracies, the political scientist may struggle to vacate his 1989 end-of-history verdict.
Tony Karon teaches at the New School in New York
Updated: June 26, 2016 04:00 AM