Escaping the Keynes Versus Neoliberalism Trap

17 March 2022, 1400 EDT

This piece is the third of a three-part series grappling with the role of political economy in making a just, sustainable international order.

Neoliberalism — the ideology of the primacy of capital — has been bad for American statecraft. It’s a major reason why we have no economic strategy. And I’m totally a get-out-of-neoliberalism stan. But where we go from here matters. 

The new post-liberal right, for example, also hates neoliberalism, but of course it wants to take us into a future that looks something like the Handmaids Tale. Democrats, on the other hand, see neo-Keynesianism as the horizon of our economic imagination. That’s better than what the right offers, but there are pitfalls in it.  

Don’t get me wrong, Keynesianism can be great. Government is an important source of demand growth in hard times. There really is “no shit you can’t pull” if you have an activist central bank. And if you’re going to actually do things — like build national infrastructure, invest in higher education, spend on future generations’ well-being, or beat back climate change — you’re going to have to do the kind of public spending that crosses swords with neoliberal economic prescriptions.

So what’s wrong with that? A few things. For one, Keynesianism is good for keeping a lid on unemployment and staving off economic catastrophe, but it’s not a model designed to combat oligarchy, puncture kleptocracy, or reduce wealth inequality — all of which are real problems. And to the extent worker precarity, alienation, and eventually radicalization are why we care about forms of economic inequality, Keynesianism is at best a circuitous response. It helps only on the margins, as government stimulus/public investment creates a tighter labor market.  

Another problem is that it shades into economic nationalism. The dysfunctions of neoliberal globalization will not be remedied — and may actually be made worse — by an economic policy optimized for the American middle class (which is not necessarily the same as the working class). 

Adam Tooze, whom I would’ve taken for a Keynesian, commented recently that he was “skeptical of left-Keynesian-MMT (modern monetary theory) style reading of central bank autonomy as promising…its condition of existence, I think, is actually the disempowerment of class forces.” There are ways for the interests of the American working class to converge with those of workers abroad (more on that below), but not if the orientation is nationalist.

There’s also a more dangerous issue, of particularizing Keynesianism in the American political context of today, which only permits government spending in relation to “worthy adversaries” abroad. That is, because “national security” is the only thing Democrats and Republicans agree on, there can be no national project of renewal unless it’s legitimized through external rivalry.  

This whole “Let’s do great-power competition so we can get public goods” deserves its own analysis because I think it underweights risks and costs. But suffice it to say for now that Senator Joe Manchin seems intent on proving it won’t actually deliver benefits either. What it will do, ironically, is empower reactionary forces in America that are keen to red-bait on China so that they don’t have to do the economic renewal stuff.  

So nowadays it’s suddenly cool to do industrial policy, re-shore supply chains, and slap tariffs on foreign goods. Sounds very post-neoliberal. Only, the logic driving these things isn’t uplifting the working class; it’s kneecapping China. I’m not sure whom that benefits but it’s not workers. 

Having said all that, I’m not anti-Keynes. I just question saying and doing whatever we must in order to get money for infrastructure. 

This probably doesn’t sound very constructive, so for those who can’t stand a main course of criticism without a side of policy advice, here are five ways the United States can use its position in the global economy to reduce forms of inequality, precarity, and dependency. They’re all way more Keynesian than neoliberal, but they correct for my concerns with Keynesianism too.

Free Trade for the People

The United States should use its immense economic influence as leverage in trade negotiations to secure collective bargaining rights in the Global South and better conditions for labor organizing abroad. This is not crazy; it’s been done before. US trade representatives just need concrete objectives and White House license to negotiate with quotas and other determinants of access for goods destined for the US market.   

As Joseph StiglitzDani Rodrik, and others have explained, free-trade deals are not primarily about lowering tariff barriers; the term has become a misnomer. Instead, free-trade deals involve idiosyncratic intergovernmental negotiations on behalf of particular corporate interests. The Trans-Pacific Partnership (TPP) that the Obama administration spent so much political capital on was presented to the public as “you’re either for free trade and support TPP, or you’re protectionist and opposed to it.”  

No. The TPP was mostly about securing intellectual property rights for American pharmaceutical companies and securing market access for American financial firms — both huge threats to a more progressive political economy. The United States was right to be all-in on TPP, but was wrong to use it as a vehicle for Big Pharma and financial services.  

The United States should be negotiating trade deals all over the place! But on terms that strengthen labor. Why? Not just because it’s right; because it raises foreign wages and costs of production so that American firms have less incentive to offshore US jobs. It helps reverse the race to the bottom in global worker wages.

Normalize “Social Dumping” Tariffs

Just as the United States can impose anti-dumping tariffs on imports that undercut fair market value, so it should normalize tariffs on products that rely on exploitative working conditions. The United States had been reluctant to do this in the past because any tariff in any form looked too much like “protectionism,” which is a neoliberal bugaboo. If anything good came out of the Trump years though, it is the normalization of tariffs as a tool of public policy.  

But the social dumping form of tariff is not just a reaction against market distortions or the arbitrary pursuit of geopolitical rivalries. Social dumping tariffs would incentivize better working conditions in export-dependent economies. They would also help level the terms of labor competition so that American workers aren’t pitted against foreign workers as intensely as now.  

And ultimately, in a world where national economies are indirectly pressured to ensure better conditions for workers in order to gain access to the US market, those economies will want to work with the United States on new labor-centered trade deals. Social dumping tariffs increase US leverage; relief or protection from social dumping tariffs can be made contingent on labor-friendly terms in the kind of free-trade agreements discussed above.

A Global Green New Deal (GGND)

The Green New Deal needs to be global. The GGND is a mega-project whose climate goal is to cut global carbon emissions by somewhere between 45% and 100% by 2030, which becomes less and less plausible every year it’s not implemented.  

It achieves this, or something short of it, by transitioning the world away from fossil fuels and toward renewable energy, by making climate adaptation investments, and by improving mass standards of living in the process. Most proposals for a GGND are especially sensitive to helping workers in the fossil fuel industry because the GGND is also a way of “driving the transformation of capitalism away from its current interregnum between neoliberalism and neofascism.”

A GGND will cost a lot of money. Trillions. But between issuing climate bond funds, quantitative easing to capitalize public banks, and carbon taxes, it’s a manageable bill.  

More importantly, it bolsters the security of the Global South, preventing mass climate refugees, structural violence, and ultimately conflict by helping it both get green and get more resilient to climate change’s effects. That might make the dystopian futures involving world police patrolling global favellas on behalf of plutocratic stability less likely. And the faster the world transitions to renewable energy, the sooner petro-dictators will lose their revanchist machismo.

A Campaign for Debt Relief

It’s hard to imagine that anything would pay off more directly, or more quickly, for Global South development than relief from sovereign debt. “Odious debt” — unrepaid loans accumulated by authoritarian or kleptocratic regimes no longer in power — should not be passed on to future regimes. It’s an illegitimate form of debt whose existence involves siding with bankers at the expense of societies.  

Cambodia, for example, owes upwards of $700 million to the US government for loans in the 1970s made to a different (and highly corrupt) regime. The Cambodian people never saw most of that money. The current government in Cambodia, which considers the loans “a dirty debt,” has asked the United States for some form of relief. Given Cambodia’s de facto reliance on Chinese investment — which Washington deems so toxic — the just thing to do here (debt forgiveness) is also the strategic thing to do.  

This concept is the most effective way to support the liberation of the Global South. That’s why Alexandria Ocasio-Cortez co-sponsored H.R. 6549, which would direct the State Department to explore ways of helping furnish debt relief for developing nations faced with unsustainable debt burdens that impede growth and force governments to commit structural violence against their people in favor of repaying interest to creditors.  

And if any of this sounds crazy, remember that the United States did precisely this for Iraq after its 2003 invasion, convening creditors to negotiate the forgiveness of most of the country’s sovereign debt. Imagine mobilizing the US government for global debt relief the way it’s mobilized for nuclear non-proliferation the past 30 years. 

Democratizing the World Bank and IMF

International financial institutions have been the key agents of neoliberal globalization. Rebalancing power within them is a way of escaping the neoliberal order without a return to crude nationalisms.  

The United States exercises a veto at the IMF and World Bank that it shouldn’t have. Voting power at the IMF is allocated based on the size of a government’s economy, which is a rigged rule set that not only disproportionately empowers the Global North at the direct expense of the South, but the United States in particular. There is a reasonable debate to be had about the merits of US power, but anytime that power is contingent on depriving innocent others of that power, it is an injustice that should not stand.

There are multiple ways to go about reforming the World Bank and IMF. Ending the latter’s practice of imposing “structural adjustment” conditions on its loans — conditionalities that violated the economic sovereignty of recipients in the name of neoliberal policy prescriptions — is one way.  

Another is reallocating the IMF’s “Special Drawing Rights” (SDRs) quotas — dollarized coupons that national financial institutions can exchange for real money to pay for public goods. The richest countries receive the largest SDR quotas, but rarely use them while the poorest are most in need of them.  

Alternatively, reforming voting rules with the World Bank and IMF to deliberately favor the Global South — or at least not tilt the global economy in favor of the North — would be both democratic and would potentially resolve many of these political imbalances before they happen.  

These five proposals are not new, nor are they without precedent. Neither are they stroke-of-a-pen decisions (for the most part). They are campaigns; the ways and means of a new approach to statecraft via political economy rather than the point of a gun. Over time, they just might deliver the kind of durable security that no military ever could.