Two major domestic challenges face the United States—one in public policy, the other in partisan politics. In public policy, the challenge is to replace the bipartisan neoliberal economic consensus, shared by both parties from the 1990s to the 2020s, with a new and equally bipartisan version of the older American tradition of national developmentalism. In partisan politics, the challenge is to restore the political—and extra-political—power of working-class voters in both parties, people who tend to be moderately conservative in their social views and social democratic in economics. These are two distinct, but related, objectives. Neither will be achieved without careful strategic thought by reformers on both the right and the left.
Neoliberalism from its origins has been a bipartisan policy consensus. It succeeded and replaced the similarly bipartisan New Deal consensus that lasted from the presidency of Franklin D. Roosevelt to that of Richard Nixon. Both “modern Republicans” like Eisenhower and Nixon and “New Deal liberals” like FDR, Truman, Kennedy, and Johnson took it for granted that the modern US economy was and should be a mixed economy, with private ownership and markets predominating in production, but with a role for state capitalism in providing infrastructure (highways, rural electrification) and also for cooperatives (rural electric co-ops like the Tennessee Valley Authority and the Lower Colorado River Authority in central Texas). Retirees, the unemployed, the disabled, and the sick would be saved from poverty by a mix of public benefits (Social Security, unemployment insurance, Medicaid, and Medicare) and tax-favored private benefits (employer-provided health care).
The New Deal system wasn’t planned in advance; it was a pragmatic mishmash of different programs with different constituencies, all of which sought to address problems caused by unregulated capitalism. Like social democracy and Christian democracy in Europe, the bipartisan New Deal recognized a need for the state to promote bargaining over prices between buyers and sellers, especially in markets where under “natural” conditions a small group of sellers utterly dominated buyers (or vice versa). Institutionalized bargaining, it was believed, was necessary in setting both utility prices and wages. Privately owned public utilities bargained with rate-setting public-utility commissions, which sought to reconcile the goal of universal electric, water, and sewage service with minimal profitability for private providers (there were also municipal utilities that embodied the principle of “sewer socialism”). In imperfectly competitive industries dominated by one or a few firms, collective bargaining between unions and employers, brokered by the government, was seen as a better way to set living wages adequate to support a mass middle class than a free-market race to the bottom or excessive government wage regulation.
The New Deal order, and its “social-corporatist” equivalents in Western Europe, created the first mass middle class in history in the three decades after World War II. But the same arrangements came to be blamed for the “stagflation” (combined economic stagnation and inflation) of the 1970s.
“The neoliberal diagnosis was wrong.”
In hindsight, it is clear that the neoliberal diagnosis was wrong. The economic malaise of the 1970s had both immediate causes (oil price shocks, similar to the inflationary supply-chain shocks that followed the Covid lockdowns) and a long-term, underlying cause: the gradual exhaustion of the possibilities of the internal combustion engine and electricity, which had powered decades of high growth as they were applied to revolutionize transportation, manufacturing, and agriculture. The neoliberal cure of radical deregulation of regulated industries and weakening the ability of workers to raise wages was gross malpractice in public policy, like prescribing the amputation of arms or legs to treat high blood pressure. Nevertheless, this is what occurred.
In one area after another, neoliberal policies have produced the opposite of what was promised in the 1990s and 2000s. The adoption of permanent normal trade relations with China was supposed to expand US manufactured exports from American factories to Chinese consumers. Instead, US corporations transferred production to China or were forced out of whole industries by Chinese producers, as China acquired a near-monopoly in global markets ranging from civilian drones to chemical precursors for drugs to rare earth processing, essential to batteries and other electronic devices.
Neoliberal policymakers and pundits promised that factory workers laid-off because of corporate offshoring or unfair foreign competition could “learn to code” and reinvent themselves as software writers in “the knowledge economy” with its “industries of the future.” Software jobs are indeed growing. But according to the Bureau of Labor Statistics, most of the 10 occupational categories with the most new openings from 2021 to 2031 are low-skill service jobs that pay around $30,000 year or less, including restaurant cooks, fast-food workers, waiters and waitresses, movers, and stockers.
Combined with globalization and deregulation and deunionization, computer technology was supposed to send US productivity skyrocketing. Instead, after a blip in the late 1990s and early 2000s, US productivity growth has been well below the average of 1947-2018 and much worse than in the supposed bad old days of “old labor” and the New Deal. Meanwhile, as a share of American GDP, federal spending on R&D has plummeted by 65 percent since 1964.
To be sure, neoliberalism did produce lower prices for goods and services in many areas—but mainly by lowering wages, rather than increasing productivity. As unionization has collapsed in the private economy to 6 percent, lower than it was under Herbert Hoover, the domestic pool of cheap labor that American employers can draw on has been constantly expanded—by the transfer of workers from high-wage manufacturing to low-wage service jobs, by economic pressures forcing reluctant former housewives into the labor market, and by a constant flow of unskilled immigrant workers, legal and illegal, many of them desperate for a job at any wages and on any terms.
Tiny Mile, a robot-delivery service, made headlines when it was revealed that many of its seemingly autonomous vehicles are actually piloted remotely by workers in the Philippines paid only $320 to 400 a month. Similarly, the tech industry has always been parasitic on low-wage manual labor—at first low-wage workers in California, later poor Chinese factory workers. The shiny, futuristic Silicon Valley headquarters is often a façade for a global sweatshop.
It was clear to many in the 1990s and 2000s that the American establishment’s hype about tech and globalization was, to use a Silicon Valley term, “vaporware.” Why, then, did neoliberal economic ideology prevail among Democrats and Republicans alike? Several factors contributed to the triumph of neoliberalism.
From the 1930s to the ’70s, libertarians had stridently denounced the post-Depression order in the democratic West as fascist or communist and won little public support. Widespread economic stagnation in the 1970s, however, allowed libertarians to rebrand themselves as wise economic technocrats, instead of lunatics shouting “FDR was no different than Mussolini and Hitler!” Bankrolled by deep-pocketed donors, libertarians put on suits and ties, created think tanks and journals, and cranked out pseudo-scholarly policy briefs.
In the 1970s and ’80s the newly respectable libertarians were joined by a much more influential group: Democratic neoliberals. Writing for the magazine Washington Monthly, edited by Charles Peters, and Martin Peretz’s New Republic, journalists spread the neoliberal gospel of privatization, deregulation, and union-bashing to a growing constituency, the managers and professionals credentialled by the vastly expanded postwar university system. This new university-educated overclass tended to be liberal on matters of sex and reproduction. In economics, its members were often pro-market and center-right, often jettisoning dorm-room socialism once they got jobs and started paying taxes.
“Democratic economists led the assault on the New-Deal consensus.”
Influential Democratic economists led the assault on the New Deal consensus and organized labor from the 1970s to the 2000s. In the Carter years, Charles Schultze, the then-chairman of the Council of Economic Advisers, denounced the very idea of industrial policy. Another Democratic economist, Alfred Kahn, pushed successfully for deregulating airlines and trucking in the hope of slashing inflation—by reducing the power of organized labor to win high wages. To combat high inflation, Paul Volcker, Carter’s appointee as chairman of the Federal Reserve who also served under Reagan, artificially engineered the worst recession in the United States since the Great Depression by raising interest rates. Volcker’s goal was to destroy the ability of industrial unions to bargain for higher wages by creating mass unemployment and making workers desperate for jobs at any wage. Volcker succeeded, at the cost of shrinking the American middle class and turning much of America’s former industrial heartland into a ruined Rust Belt.
Meanwhile, the information-technology revolution was taking place. Entrepreneurs like Steve Jobs and Bill Gates commercialized technologies that for the most part had been developed by giant corporations like IBM under contract with the Department of Defense during the Cold War—the transistor, the desktop computer, the mouse. The US government privatized and opened up ARPANET, which had originally been created to allow Pentagon grantees at universities to communicate with each other and the defense establishment. The government-created internet became the global infrastructure of the computer age.
The coincidental timing of the computer revolution and the rise of the managerial-professional overclass provided neoliberals with a convenient alibi. Democratic neoliberals and Republican libertarians wanted to destroy private-economy trade unions and deregulate public utilities. The information revolution gave them an excuse to do what they wanted to do anyway. Technological determinism was invoked to support the claim that the institutions that regulated the economy and protected workers and consumers had somehow been rendered obsolete, merely because laptop computers had replaced typewriters and cell phones had replaced rotary phones. To some of us skeptics who lived through the Reagan-Clinton neoliberal revolution, the misapplication of technological metaphors to public policy always seemed as ridiculous as it was dishonest. “Collective bargaining is as obsolete as the steam engine, in the new computer era!” “Those who oppose offshoring US manufacturing to China are just like the 19th-century Luddites who tried to stop progress by wrecking the machines!”
Despite bipartisan elite support, the neoliberal movement in both parties might have failed, if not for the end of the Cold War. During the Cold War, business-labor peace had been seen as essential to national unity by mainstream American leaders. After the end of the Cold War, however, businesses with no concern for the social consequences could crush American worker power, by means including battling unionization, outsourcing work to nominally independent contractors, proliferating noncompete agreements, and offshoring jobs from the United States to low-wage, nonunion workforces abroad.
Large-scale offshoring, in turn, was possible only because of the post-Cold War strategy of many low-wage nations. During the Cold War, Communist nations like China had sought autarky, while many developing countries in Latin America, Asia, and Africa had pursued classic protectionist import-substitution policies to indigenize industries they lacked. Following the Cold War, many poor countries abandoned developmental strategies to compete with each other to be low-wage worksites for First World multinationals. Adopting the mercantilist model of other East Asian countries like Japan and South Korea, China liberalized only selectively, using foreign direct investment to become the world’s dominant manufacturing power while discriminating against foreign corporations in its home market.
During the Great Recession of the 2010s, the failure of neoliberal globalism to live up to its promises provoked political rebellions in the North American and Western European heartlands of liberal capitalism. Support for Brexit in Britain and anti-system politicians like Donald Trump and Bernie Sanders in the United States and anti-establishment and anti-immigrant parties of the populist right in Continental Europe closely tracked regions that had been deindustrialized by corporate offshoring or subsidized Chinese imports, leaving local working classes unrepresented and hopeless in decaying urban landscapes.
“The neoliberal establishment revived the playbook of McCarthyism.”
To explain these populist revolts in a way that exonerated neoliberal globalist offshoring and cheap-labor immigration and anti-union policies, the neoliberal establishment revived the playbook of McCarthyism from the 1950s: The Russians were to blame! The election of Trump in 2016 and various populists in Western Europe, along with Brexit, were defined by the West’s neoliberal national establishments as fascist plots against “liberal democracy,” symbolized by Jeb Bush and Hillary Clinton. Opposition to Bush Republicans and Clinton Democrats was attributed by the neoliberal media to the diabolical machinations of Russian strongman Vladimir Putin, an evil genius who, it was claimed, had the power to subliminally brainwash ignorant Western voters by way of “disinformation” and internet memes, in the same way that the Joker in a Batman comic book might seize control of TV networks in Gotham City and hypnotize the citizens.
This brings us to the present, and the two related challenges of replacing the neoliberal consensus and restoring the political power of socially moderate, economically interventionist voters in the United States. There is a right way to pursue these goals and a wrong way.
The wrong way is the approach that influences much discussion of “the realignment” and the “New Right.” In a sort of revenge of the repressed, in this telling, a “New Right” will mobilize the kind of Trump voters who are center-right on social issues and center-left on economic issues. The New Right will take over the Republican Party and purge the libertarian globalist RINOs (Republicans in Name Only). In step two of the master plan, the Republican Party—now equivalent to the New Right—will gain the kind of lasting electoral majorities that will allow it to roll back neoliberal trade and immigration policies and impose a new system on the defeated Democrats.
The problem with this plan is that the replacement of one multi-decade policy consensus by another in American history has never followed this partisan playbook. The neoliberal consensus, like the New Deal consensus before it, had both Democratic and Republican supporters in its origins as well as at its zenith. As president, Eisenhower ratified the basic elements of Roosevelt’s New Deal, telling his brother Edgar in a private letter in 1954: “Should any political party attempt to abolish Social Security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear of that party again in our political history.” The triumph of Reagan-Thatcher neoliberalism as a nonpartisan consensus was assured by its adoption in the 1990s by Bill Clinton and Tony Blair. Margaret Thatcher said that Tony Blair was her greatest accomplishment. If neoliberalism is to be replaced, it must be replaced by a new public-policy consensus shared by mainstream Democrats, Republicans, and independents alike.
The “realignment” approach to policy consensus change is also wrong about the constituency of a post-neoliberal politics. All too often, that constituency is identified solely with the white working class, the former base of the New Deal Democrats, which is now the base of the Republican party. But there are plenty of socially moderate, economically social-democratic voters in the big cities controlled by the Democratic Party. These voters are disproportionately found not among “woke” white neoliberal elite Democrats, but among working-class black, Hispanic, and Asian-American Democrats, including many immigrants and first-generation Americans.
All right, the realigners of the New Right might reply, let’s convert them to the Republican Party! But while there is a trickle of black and Hispanic and Asian voters from the Democrats into the GOP, mass conversion of these constituencies seems unlikely, in any relevant time frame.
What is the alternative? The alternative is to build up the political power of anti-neoliberal voters in both parties at the same time, while changing congressional rules to maximize the ability of them to engage in cross-party collaboration.
Let’s start with the first priority: building up the political power in both parties of the mostly non-elite voters who have been the greatest victims of neoliberal policies in the last half-century.
The use of party primaries, beginning in the 1970s, to select party nominees in the general election resulted in a massive increase of political power by the numerical minority of college-educated Americans. They are more likely to vote in primaries than working-class voters of all races, and they are also more likely to benefit from present economic arrangements and to be drawn to politics by ideological zeal. We can’t go back to the old system in which party machines selected nominees, because the parties as mass-membership organizations no longer exist. But we do need to replace the present primary system with some method of choosing party nominees that is less skewed toward the affluent, credentialled overclass.
There is no point in nominating and electing post-neoliberal representatives and senators, if neoliberal Democrats and Republicans, beholden to big corporate and individual donors, can use the centralization of power in the House and Senate to block serious challenges to neoliberal trade, immigration, and labor policies. Under Newt Gingrich and Nancy Pelosi, both the Republican and Democratic parties have adopted a degree of centralization and party discipline more common in parliamentary systems.
A logical strategy for the populists or communitarians in both parties follows from this. The strategy would have two parts: strengthening anti-neoliberal factions in both parties, and increasing opportunities for cross-party collaboration.
Many of the powers acquired by the House speaker and the Senate majority leader since the 1990s should be stripped from them, in a re-enactment of the diffusion of power a century ago from autocratic speakers like Thomas “Czar” Reed to powerful committee chairs. This time, instead of weak leaders and powerful committees, we need weak leaders and powerful caucuses. For example, the Hastert rule, named after former Republican House Speaker Dennis Hastert, mandates that a GOP speaker won’t allow a House vote on a bill that isn’t supported by a majority of the Republican party in the House, even if there is a cross-party majority in the House for the bill. Abolishing rules and practices like Hastert’s will permit more cross-party collaboration among opponents of neoliberalism in both the Democratic and Republican parties.
In 2020, Sen. Bernie Sanders, a Democratic-aligned independent from Vermont, and Republican Sen. Josh Hawley of Missouri teamed up to promote additional $1200 checks to families. In March 2023, Democratic Sen. Sherrod Brown and Republican Sen. J.D. Vance, both of Ohio, along with other senators of both parties including Marco Rubio (R-Fla.) and John Fetterman (D-Penn.), introduced a bill promoting more railway-safety regulation in the aftermath of the disastrous derailment in East Palestine, Ohio. Rules that allow partisan House and Senate leaders to discourage or block this kind of cross-partisan collaboration must be eliminated.
Neoliberal globalism won’t be replaced by a new national developmentalism at one fell swoop after populists on the right or social democrats on the left first seize control of one party and then obtain a lasting “trifecta” (a party majority in Congress, the White House, and the Supreme Court). That isn’t how it works. Having been assembled piecemeal over time by Reagan Republicans and Clinton Democrats, neoliberal globalist policies must be dismantled piecemeal over time by cross-party coalitions of post-Trump Republicans and the Sanders wing of the Democratic party, who may disagree on everything except the need to jettison neoliberalism.
“The genuine fanatics are the neoliberals.”
Preventing the embattled neoliberal establishment from defining itself as “moderate” and its critics as “extremists” is essential. For example, Sanders and Trump, who call for defending Social Security and Medicare against cuts, are the real “centrists” and the actual “moderates” and “pragmatists.” The genuine fanatics are the neoliberals who want to force Americans with stagnant wages to work longer for lower retirement benefits so that taxes can be kept low on the rich or cut further.
Transforming the right wing of the Republican party and the left wing of the Democratic party may be the first step in the process of building a new bipartisan consensus. But success will come only when a former horseshoe alliance of “extremes” becomes the new center, while “centrist neoliberalism” is recognized as what has been all along—destructive extremism.