NEOLIBERALISM

What will it be like after the pandemic?

Neoliberal hegemony has often been buried just to return – even in 2008 after the financial crisis. What will it be like after the pandemic? The WOZ (Austrian journal) spoke with historian Quinn Slobodian and economist Michael Roberts.

By Thomas Schwendener

[This article published on 5/27/2021 is translated from the German on the Internet, Was it now? Or is it? | WOZ The Weekly Newspaper.]

Regulation of financial markets? Not true. The answer to the 2008 financial crisis in the US was tent cities and long lines of food distribution.

The US government has surprised all those who could only see the neoliberal continuity in the election of Joe Biden: The three rescue packages that Biden envisages for social and ecological projects are worth a gigantic six trillion dollars. AT THE SAME TIME, US Treasury Secretary Janet Yellen is calling for a global minimum tax on corporations in chorus with the International Monetary Fund (IMF), which has long been regarded as the garrison of neoliberalism. Old dogmas have also been scratched in the EU. Even Germany has agreed to common euro bonds that make it easier for the poorer countries of the European South to finance their spending. At the same time, the strict debt rules of the EU countries were suspended until 2023 and put up for discussion.

It seems that with the shock of the pandemic, which made the prophets of the pure market a little more petty, the economic policy coordinates have shifted significantly. Conservative economists urgently warn against a dam break, which must lead to monstrous public debt and a spiral of inflation. Meanwhile, there is a spirit of optimism on the left. Philipp Löpfe, business journalist at the online medium "Watson", headlined at the beginning of April: "Joe Biden buries neoliberalism".

Soup for the impoverished

Quinn Slobodian, historian at Wellesley College in the USA and co-editor of the book "Nine Lives of Neoliberalism", is much more cautious. In an interview, he explains: "Neoliberalism has often been buried. His funeral was particularly solemn after the financial crisis of 2008. At the time, it was believed that the out-of-control financial world would now be regulated and a kind of Keynesianism would return." However, this did not happen, instead soup kitchens and tent cities sprang up in the USA, while the banks were rescued with monstrous billions of dollars. In Europe, with a delay of a few years, the sovereign debt crisis was declared, and distressed countries were prescribed strict austerity measures: politics like from the textbook of neoliberalism, flanked by the flood of money from the central banks.

In his book "Crashed", the British economic historian Adam Tooze meticulously traced how this political administration of the crisis after 2008 was not only responsible for the blatant impoverishment in the European south, but also fueled the UK's exit from the EU and the election of Donald Trump. Slobodian agrees: "In 2016, with the approval of Brexit and the election of Trump, the end of neoliberalism was seen again. But the most profitable area of the capitalist economy in the US and Britain, the financial sector, has not had its wings trimmed at all. The only real change in the neoliberal status quo was in terms of free trade: the break with China, which led to a trade war."

The US government is now continuing this policy under new rhetoric, the historian explains. It does not deviate much from the old paradigm in its vision of national competition and the conquest of markets, although this now appears in the prism of national security. Nevertheless, the political rupture pushed back a central assumption of the neoliberal free trade doctrine: the idea of a natural globalization in which politics can only react to economic developments.

Biden and the Paradigm Shift

This mirage of economic violence, to which the world is helplessly at the mercy, has also faded elsewhere: after the financial crash of 2008, the major central banks intervened with gigantic amounts of money. Neoliberal economists warned of inflation like a prayer wheel. Nothing of the sort happened. "This results in the actual paradigm shift that has taken place in the last twelve years," says Slobodian. "In Europe and the US, and increasingly in other countries, it seems as if you can spend more and more money without an economic earthquake." This seemed to be confirmed once again in the pandemic, when central banks intervened with unprecedented sums.

This, in turn, according to Slobodian, has completely confused the neoliberal explanatory models: "They simply have no answers to the current situation. Their mantra is simple: inflation is coming! With this argument, they want to prevent unpleasant economic policy measures." After more than a decade of ultra-loose monetary policy, however, this is becoming less and less convincing. What the Obama administration still shied away from, the prudent politician Biden now dares. He rejects nothing less than Ronald Reagan's forty-year dogma that the state is the problem. Slobodian emphasizes: "The government now says that it must control the economy."

Progressive economists are now trying to fill the theoretical vacuum left by the old orthodoxy with different approaches. "What has really changed are the discussions at the highest level of politics," says Slobodian. At the same time, he warns against giving neoliberalism another premature funeral: "As a political economic project, it is not dying, but is in constant competition with other approaches to economic policy. It has lost the battle, but it is far from certain that it will lose the war." So far, there has been no major counterattack by the neoliberal guard; their theoretical weapons have become blunt. But it doesn't have to stay that way.

The question remains what prompted Joe Biden - dubbed a "lifelong centrist" by the "New York Times" - to change course, in addition to the theoretical and political victories of the left. To do so, one must consider the devastation the pandemic has wrought in the United States: From the March outbreak to the end of May 2020 alone, over forty million people filed initial claims for unemployment benefits. Images of endless lines in front of soup kitchens went around the world. In the meantime, the USA threatened to sink into chaos.

Biden staged himself as the nation's great reconciler. To be able to implement his policies, his administration is dependent on majorities in the Senate elections due in November 2022. "Traditionally, the governing party loses them if people don't already feel improvements in their living conditions. This should spur them on," Slobodian explains. And indeed, already the measures are meeting with approval: in polls, overwhelming majorities of U.S. citizens were in favor of the rescue packages.

The political interventions in the US, if successful, are likely to put pressure on the EU as well. And for the time being, they seem to be doing so: according to IMF figures, the economy on the old continent has slumped more and will grow less in 2021, leaving the EU below its 2019 level, unlike the US. At the same time, social dislocation in many European countries has been mitigated by unemployment schemes and short-time work regimes. Still, even stingy Germany has weighed in. The country is eager to maintain the EU from Slovakia to Portugal as an integrated supply chain for its own sophisticated export products, Slobodian says. That doesn't come for free.

Nothing more than a "sugar rush"?

But how sustainable the change will be, how much it will change workers' lives, will be determined by its success. Neoliberalism became politically effective because it had a brutal answer at hand to the weak economic growth accompanied by high inflation in the 1970s. Michael Roberts doubts that the recent turnaround can solve current economic problems. He worked in London for over forty years as an economist in the financial sector and published several books on the crisis after the financial crash of 2008.

In an interview, Roberts explains, "If the IMF is now forecasting strong growth, that's due to a short-term stimulus. If part of the economy is closed and then can reopen, of course there will be a strong expansion. But that's probably not going to be sustainable." We'll see a "sugar rush" in the economy over the next few months, he warns.

In that frenzy, inflation may rise at first, but it won't be a problem in the long run, he says. Instead, Roberts points to the weak growth figures before the pandemic, as well as the high level of corporate debt and the enormous number of "zombie companies" - unprofitable businesses that rely on constant new debt. This constellation prevents sustained good economic growth, the economist says, with the data pointing to sluggish growth in the longer term.

The solution to this problem would be brutal, according to Roberts: "If some of the productivity-inhibiting capital were destroyed, we might see an increase in profitability and thus a recovery. But this would mean another hard slump after two years of economic stagnation." Governments would shy away from this, and the political consequences would be impossible to foresee. Thus, he said, policymakers are forced to keep the monetary floodgates open to keep advanced economies running, at least at low levels.

That, in turn, keeps the weight of international competition high. "Low growth rates will persist, and work will remain poorly paid and precarious for a large share of wage earners," Roberts predicts. Quinn Slobodian, meanwhile, paints a possible future for the U.S. under Biden: "Citizens will receive a universal basic income that mitigates the most dire social devastation, while the government pursues a program of economic competitiveness based on flexible labor markets and low wages."

Quinn Slobodian et al. (eds.), "Globalists. The End of Empires and the Birth of Neoliberalism." Translated from the English by Stephan Gebauer. Suhrkamp. Berlin 2019. 522 pp. 35 francs.

Quinn Slobodian et al. (eds.), Nine Lives of Neoliberalism. Verso. London 2020. 368 pp. 19 francs. Free download: www.econstor.eu/handle/10419/215796/(link is external).

Michael Roberts: "The Long Depression: Marxism and the Global Crisis of Capitalism." Haymarket Books. Chicago 2016. 360 pages. 12 francs.

Michael Roberts et al. (eds.), "World in Crisis. A Global Analysis of Marx's Law of Profitability." Haymarket Books. Chicago 2018. 350 pages. 14 francs. Free download: digamoo.free.fr/robcarchedi.pdf(link is external) (PDF file).

Adam Tooze, "Crashed. How ten years of financial crisis changed the world". Translated from English by Norbert Juraschitz, Karsten Petersen and Thorsten Schmidt. Siedler Verlag. Munich 2018. 800 pages. 40 francs.