A Post Neoliberal Consensus

 

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Dani Rodrik recently wrote an article entitled “The Post-Neoliberal Consensus is here”. He argues that it comprises three elements:

1. the concentration of economic power has become excessive

2. restoring dignity to people and regions that neoliberalism left behind, which in particular involves providing good jobs

3. The government has an active role to play in intervening in the market economy

Such a ‘consensus’ is clearly not neoliberal. While some forms of neoliberal theory do worry about excessive market power, neoliberalism in practice does not. Equally neoliberalism celebrates rather than worries about the growing wealth at the very top. While neoliberalism may require a strong state, it is to protect an ‘unshackled’ and deregulated market economy, rather than directly intervene in that economy. Of course Trump’s MAGA economy, if it has any coherent logic at all, is also not neoliberal, because there the state does intervene in the market economy (tariffs, immigration controls, and even in some cases state holdings in major companies in return for favours).

In October last year the LSE published a book (see above) edited by Tim Besley & Andrés Velasco (B&V) that attempts to define this new economic consensus. In their introduction these authors outlined five core principles.

1. The idea that the market does production and the government does any required redistribution, while still often useful, no longer works as a core principle.

2. The need for an active innovation policy, both to increase growth overall but also to make sure it is evenly spread geographically.

3. Government is the insurer of last resort. This includes “There is strong justification for an activist fiscal policy that goes far beyond the Keynesian role.”

4. Economics cannot be separated from politics.

5. States need to be capable.

It is easy to relate these to Rodrik’s three points. Are both just a reiteration of well known social democratic ideas? In some sense clearly yes, but this is different from the social democracy typically practiced in the UK in the 1960s or 70s, for example. In particular, trade unions do not play a major role, and there is no suggestion that state intervention should involve trying to shift the Phillips curve. Nor is nationalisation seen as desirable for its own sake.

Rodrik’s (1) can be seen as a specific example of B&V’s (4), but I like the emphasis that Rodrik gives on this point. For example A&V, like many economists, tend to discuss wealth taxes in terms of revenue raised (uncertain because of international mobility etc) rather than both fairness and, in particular, political power. The US is the clearest example of the dangers that excessive wealth can bring to politics, as the work of Martin Gilens (Affluence andInfluence: Economic Inequality and Political Power in America) and others make clear. It is impossible to ignore this when you live under a plutocratic dictatorship, but the UK is not immune to exactly the same fate, and it would be foolish to think it is. [1]

This raises another question, which is whether discussions of a new economic consensus is relevant at a time when liberal democracy is fighting an existential battle with right wing populism at best, and resurgent fascism at worst. Surely the best way of fighting this battle is through economics that is popular, and whether it works well has to be a secondary consideration.

The obvious response to this is that for liberal democratic governments in power what works matters, because in part they will be judged on how far what they have improved the welfare of the electorate. Trying to assess what works matters. To put this point most bluntly, in many ways pursuing a neoliberal conception of what economic policy should be has got us into the position where the threat from right wing populism is so grave, so it would be foolhardy indeed to carry on pursuing policies based on that old consensus.

This new consensus is very relevant to the current UK government, for example. I suspect it would sign up to points (2) and (3) on Rodrik’s list, but in my view their implementation on both fronts has been tentative in the extreme. Rodrick’s (1) is also the area where I am most pessimistic, both in the UK and elsewhere. In the UK the power of the populist press has gone unchallenged, as has GB news, as has the BBC preferring to both sides events where the evidence is clear. The government continues to use X rather than BlueSky, and appears to have conceded that social media should be a propaganda weapon for the populist right in the same way they have conceded it for the press. Little has been done to curb the influence of money on politics, even though this money (often from the US) clearly encourages and favours the populist right, often in its most extreme form.

Can you reasonably argue that, in the battle to defeat right wing populism, it is better to keep potentially sympathetic elements of the wealthy elite onside by not pursuing Rodrik’s point (1)? Elements within Labour in the UK and the Democrats in the US often act as if they believe there is a strong argument along these lines, but I would like to see it clearly spelt out. The counterargument is very strong. As long as concentrations of extreme wealth exist, and its influence on politics is unchecked, then the battle between liberal democracy and right wing populism is in danger of being never ending.

While it is important to lay out what the successor to neoliberalism within liberal democracies should look like, there remains a tension between these ideals of best practice and the battle between liberal democracy and right wing populism, particularly when right wing populism is in power. Whether all the the proposals put forward by Zohran Mamdani in his victory in the New York City mayoral election, or the platform of any other social liberal successfully fighting right wing populists for that matter, would find favour with the London Consensus may seem beside the point as long as they win.

As Martin Sandbu notes, the London Consensus is more of a handbook than a left wing version of the Washington Consensus, and it would take many more blog posts to cover its contents. That is something I hope to do in future posts. But I think it and Rodrik’s article are correct in identifying two ways in which neoliberalism is no longer the intellectual force it once was. The first is a recognition that, on political grounds alone, it is no longer politically feasible to ignore issues of distribution on a regional or personal level in the pursuit of aggregate growth or prosperity. The second is that markets fail in many ways, and a capable state is vital in managing markets when this happens. This was something most economists always knew, of course, and it is also something that economists know rather a lot about.

[1] Like the US, the populist right in the UK has a core base that brings it close to a majority. A mistake that is consistently made is to equate the populist base in the UK with the Reform vote, but the Conservative party under its current and likely future leader are much the same. It was Boris Johnson who greatly increased the influence of private wealth on government decisions.