The writer is president of the William and Flora Hewlett Foundation.
The failings of the political and economic paradigm known as “neoliberalism” are now familiar. As well suited as it was for tackling stagflation in the 1970s, neoliberal policy since then has fostered grotesque inequality, fueled the rise of populist demagogues, exacerbated racial disparities, and hampered our ability to deal with crises like climate change. climate. The 2008 financial crisis exposed these failings and inspired a reassessment of how government and markets relate to society, an effort re-energized by the pandemic and prompted by a series of (successful) public actions at odds with neoliberal bromides. .
But powerful interests remain attached to neoliberalism, which has served them well. Sadly, the resurgence of inflation has given them a hook not only to criticize US President Joe Biden’s spending, but to condemn prevailing paradigm shift efforts as “socialist” movements to destroy capitalism. Although the causes of current inflation are complex, we have the tools to deal with it and we have begun to apply them. Managing the economic fallout of COVID-19 and the war in Ukraine must not be allowed to derail a long overdue process of adapting governance to the 21st century economy and society.
Neoliberals have accomplished many things in the 50 years that their ideology has been dominant, but none is more impressive than their success in equating a very particular and very narrow conception of capitalism with capitalism itself, as if any deviation from their approach to government and the markets were forced No capitalism or against capitalism.
But capitalism, properly understood, requires only that trade and industry be left primarily in the hands of private actors, something no one today is seeking to overthrow. This makes room for myriad different relationships between private business, government and civil society, possibilities limited only by imagination and choice. Mercantilism, laissez-faire, and Keynesianism were all forms of capitalism, as was FDR’s New Deal. As, in fact, are the social democracies of northern Europe.
In all these systems, production remains in private hands and market exchanges are the dominant form of economic activity. Since markets are created and bounded by law, there is no free government market. Neoliberalism limits government regulation to ensuring markets that operate efficiently in terms of prices. Which a conception of capitalism, but certainly not the only one.
The genius of capitalism has, in fact, been in finding new ways to capture the energy, innovation, and opportunity that private enterprise can offer, while adapting to changing circumstances. Mercantilism gave way to laissez-faire, which gave way to Keynesianism, which gave way to neoliberalism, each capitalist system which served for a while before giving in to material and ideological changes to something more suited to a new context.
We are clearly in the midst of such a transformation today, driven by ever-increasing wealth inequality, global warming, calls for addressing growing racial disparities, the rise of populism, and new technologies. These developments have been accompanied by alarming political and social disturbances. As faith in neoliberalism crumbles, we see leaders from Donald Trump to Jair Bolsonaro, Viktor Orbán and Vladimir Putin embracing toxic forms of ethnonationalism, with China’s vision of state capitalism as an alternative. These are terrible choices, but we’re not going to prevent them by exhorting people to stay with a neoliberal system they’ve already lost faith in. Change is happening; the question is whether it will be a change for the better.
If capitalism wants to survive, it will have to adapt, as it has in the past. We need to acknowledge how neoliberalism has failed and address the legitimate demands of those it has failed. Alternative possibilities abound: What capitalism must change is something we must discuss. The only pointless position is to protest that any change is “anti-capitalism,” as if Milton Friedman and his friends achieved perfect, timeless wisdom in the 1970s.
In the end, markets and governments are just devices to provide citizens with the physical environment and opportunities for material success necessary to prosper and live in dignity. Neoliberals lost sight of this and began to treat the market as an end in itself. They didn’t see how their version of the markets didn’t work for most people. We are now living with the consequences of his blindness, and we need to rebuild and reimagine, before it is too late.