Late liberalism and the great unwinding

Understanding the current juncture - Toby Carroll

We live in truly incredible times – a frightening juncture characterised by declining relations in international politics, fractious domestic politics and declining material conditions for many that portends the further rise of the far right and aggressive forms of nationalism. The post war order is in tatters, along with some of the more positive patterns of living and advancement that accompanied it. Pervasive precariousness and uncertainty have become the norm, and established assumptions about institutions are in many cases up for grabs or being thrown out the window as the social licence of liberal elites continues to dissolve.

Trump 2.0, with its raft of executive orders and authoritarianism, assaults on institutions and state bodies, and significant about-faces in trade, foreign and aid policy, is of course a glaring example of this uncertainty. However, across much of what used to be referred to as the developed world, deep disenchantment is apparent with general conditions – including ever-increasing inequality, precariousness and cost of living crises – and those in government that might have once done something about them. In many places the very social contract between state and citizen appears to be terminal.

In much of the developing world and those countries that previously pursued central planning, the realities of stalling development, middle-income traps, languishing growth, fleeting jobs and tenuous livelihoods are also feeding a sense that the “rise of the rest” and “convergence” were overstated, while also providing new impetus to nationalists keen on attaining or maintaining power.

For those of us interested in economic development, development policy and socio-political transformation more broadly, this geographically dispersed malaise is ripe for a unified explanation; one unfortunately often lacking in contemporary commentary and analysis. The argument I make below is that the current juncture – “late liberalism” – and its turmoil have their roots in a coherent policy agenda and the grand economic transformation that this agenda aided and abetted. Put another way, the increasingly global deployment of market-oriented economic development policy from the 1980s on, the establishment of patterns of market governance (insulated from popular influence and favouring the most powerful and connected of economic interests) and grand structural transformation associated with these have a lot to answer for in terms of understanding the tumultuous present.

Crucially, much of what has manifested is the exact opposite of what was promised by proponents of market reform. Indeed, rather than yielding some sort of utopia in which liberated individuals enjoy the promised fruits of economic freedom, the key policy components of late liberalism have provided the optimal conditions for mass anxiety and the end of hope, expensive and low-quality public goods, egregious rent seeking, and the concentration of power in the hands of the few.

And the ability to tackle all of this has only become harder, with the ending of national economies as they were once known, completely transforming both national politics and political representation, embedding a deep cynicism on the part of the public regarding politicians and the state.

Economic development policy and the emergence of depoliticised governance

Late liberalism constitutes the very latest stage of not just the US-led post war world order – involving the promotion of capitalist economies and, however unevenly, liberal political values – but, more specifically, a period of momentous change that begins with economic crisis in the 1970s and the emergence of various iterations of market-oriented public policy (“neoliberalism”) from Reagan and Thatcher on.

It is a period that is characterised by vast and rapid shifts in the form of states, societies and economies, the wholesale reorganisation of production and consumption (“economic globalisation”), and myriad crises (of both economy and legitimacy) in developed and developing contexts.

Initially, the key policy components of the early stages of this period involved a basic, though thoroughly radical, policy suite that included privatisation, deregulation, trade and capital account liberalisation, the elimination of subsidies, tax reform (reducing or flattening progressive income tax rates which had previously been key redistributional mechanisms), the redirection of public expenditures (often away from social welfare) and floating exchange rates.

It was these policies that both conditioned transformative change in the US, the United Kingdom (UK) and other Organisation for Economic Cooperation and Development (OECD) countries in the 1980s and 1990s, and which also underpinned the core of World Bank and International Monetary Fund (IMF) policy-based lending to developing countries from the 1980s on in what was known as structural adjustment and the Washington consensus.

The approach – increasingly rolled out globally, including in the countries of the former Soviet Union after the collapse of the wall – was pitched by proponents variously as a solution to stubborn crises of stagflation and underdevelopment that Keynesianism and other approaches were unable to address. Crucially, it was also an agenda that combined very nicely with the interests of powerful western economic interests desperate to unshackle themselves from organised labour and its victories in terms of rights, wages and conditions, and broader national structures of taxation and economic redistribution.

However, the results of this first round of market-oriented development policy – which variously included lacklustre outcomes in terms of growth and poverty reduction (often achieving the reverse), the enabling of vast patterns of corruption, skyrocketing inequality, intense political resistance and the fall of governments – led to a largescale makeover in the 1990s. Importantly though, this makeover was one where deep commitments to free markets, the centrality of growth and the private sector remained at the centre of development.

Anti free trade protests in Bangkok, 2007

The problem for those within mainstream economic development policy circles, given the turmoil of the first generation of market reforms, was not markets per se but rather political and capacity impediments to reform implementation, corruption, and the absence of a very particular set of institutions to “make markets work”.

Within this revised market agenda – which became known as the post-Washington consensus (PWC) – accountability and transparency of the state were deemed central, with new roles demarcated to “civil society” (congenial non-governmental organisations (NGOs)). Yet more than this, the state was to be shorn of its social and political roots and reconceived wholesale in depoliticised terms as a market complementing bundle of institutions.

At its core, the PWC involved a new focus on “good governance” as crucial in delivering the developmental benefits of markets in any context and avoiding the travails of “crony capitalism” that had attended shock therapy in the former Soviet Union and elsewhere.

It was an approach that, in a limited sense, took into consideration the political economy of reform while attempting to tackle the problems (including political problems) of “market failure” – a term that begrudgingly accepted certain exceptions and preconditions to the ostensible universal benefits of markets.

Despite all the talk about accountability and transparency, in practice the agenda demanded stripping away popular political influence in the name of tackling vested interests while advancing market dynamics that would increasingly start to bite domestic populations.

Public utilities and other state-owned enterprises were still to be privatised but this time emphasis would be on the form and operation of independent regulators ensuring adherence to contracts in various arrangements that got billed as “public-private partnerships (PPPs)”.

Within this schema, light-touch regulation was preferred, with independent institutions overseeing central bank interest rates and adherence to contracts, while other sections of the state were tasked with maintaining rule of law, and “ideally” providing some basic social services to avoid reform resistance but never too much that market incentives were “distorted.”

A renewed focus on education and social institutions was also part of the agenda, however not in some egalitarian social democratic or socialist welfare sense that tackled general economic inequality but rather in ways that sought to “empower” people within markets. This was to be achieved via “lifelong learning” and strategies targeted towards addressing different forms of prejudice relating to gender, sexuality, ethnicity and disability – never touching economic inequality as a political product of class relations or colonialism, for example – to encourage market participation and inclusion.

Education became increasingly vocational and knowledge production in universities became oriented around satisfying market prerogatives. This transformation – from arrangements built upon eradicating ignorance and advancing knowledge as social and, indeed, civilising goods – turned students into customers and institutions into corporatised profit-oriented entities chasing money and “bums on seats”, no doubt contributing towards present crises of trust in expertise and learning.

While the approach was often built around the economic logic of rationality (however bounded) and choice, at its core it was a vast attempt to transform the very relationship between state and citizen. Rather than enjoying unassailable rights and entitlements, citizens were increasingly reconceived as individuals that needed to take onboard greater levels of responsibility and risk, much of which had been previously mitigated by states via welfare systems and the provision of public goods.

This evolved pro-market policy suite had its early developed-world adherents in the form of Blair’s New Labour, the Democrats under Clinton and Obama and many other governments throughout the west. It also constituted the core of World Bank policy from James Wolfensohn’s presidency (1995) on.

Notably, and in line with the rise of financial capital emboldened after the unwinding of regulatory constraints, from the mid-2000s on this approach also elevated the importance of “access to finance” and private sector finance mobilisation, with even the climate crisis to be attended to by green finance and carbon markets, while the state was to provide an “enabling environment” for the private sector.

The transformation of politics and the reorganisation of production

Across the four and a half decades that the various pro-market public policy suites detailed above were rolled out around the world, dramatic and increasingly socially-unsettling changes became apparent in many countries, including not just the displacement of post-war policy agendas but indeed changing – however unevenly – the very form of the state, whether they were post-colonial states of various descriptions, developmental states in Asia, welfare states in the west or centrally planned states.

Put simply, the various forms of government and institutions that consolidated across the 20^th century were to be displaced by an increasingly generic set of policies and institutions favouring the interests of capital, growth, and free enterprise.

This transformation entailed fundamental – though often subtle at first – changes not just in what people should expect of states but, indeed, how representative bodies and political parties would come to view their roles. One of the biggest political shifts in many countries was the transformation of the parties of working classes – often closely tied to unions and or revolutionary parties – into parties that first and foremost promoted and maintained the policy orthodoxy above. This undoubtedly explains why so many previously left-wing political parties never evince core positions tied to economic or class justice anymore, seemingly focusing on everything but.

May Day protests, Central Jakarta, 2014

Crucially, the reform agenda above combined in a symbiotic way with novel techno-logistical possibilities that transformed both the way that things were made and consumed, the nature of national economies and, centrally, the leverage of states over markets. Importantly, the coupling of liberal economic reform with advancements in transportation, communication and production, made it possible for capital to access new pools of cheap labour, and shed its national confinement in many settings.

As a result of this shift, unions in manufacturing and industry could demand wage increases but capital held the cards, with the most powerful and nimble players now able to head offshore or outsource in a relentless drive to lower the cost of production. Making matters even more challenging were arrangements that allowed corporations to pursue low tax domiciles and transfer profits into tax havens. The very politics that had made states what they were in many places, often tied to class conflict and some sort of resolution, were being upended by a new world of economic integration that favoured the most economically powerful and which increasingly left the rest behind.

For states, all of this constituted an ever more competitive arrangement in which political elites and bureaucrats remained perennially terrified of capital flight, declining growth and chasing finite sources of investment. Forcing countries to take on liberalising, pro-capital policies became less necessary as the unavoidable realities of competition within the “end of history” became apparent.

In terms of the state and those charged with its operation, eyes were on growth, investment and competitiveness rather than full employment, managing distributional challenges, and promoting national industrialisation, hobbling any inclination of those that might want to respond to large numbers of constituents facing adverse conditions resulting from exposure to market realities.

At a global structural level all of this has fed into the creation not only of deeply connected markets but indeed a wholesale transnational reorganisation of production, where products – both basic and complex – are now conceived and manufactured across national boundaries within “global value chains (GVCs)”. This reality has become particularly apparent as various crises and attempts to interfere with the functioning of these GVCs (including Trump’s tariffs) have emerged. The recent “chip wars” and concerns over car production in North America are obvious examples. Similarly, during the pandemic we saw production chains break down, with many countries that previously had substantial industrial bases unable to attain or manufacture even the most basic of “personal protective equipment (PPE)” goods.

For the transnational reorganisation of production to work as efficiently as possible, a particular form of institutional software is required – embedded in both the international trade agreements, national laws and other institutions that were forged as central elements of the market reform agendas discussed above.

At the international level, the World Trade Organization (WTO) advances, locks in and surveils free trade, the IMF monitors commitment to orthodox monetary policy and the policies it deems important for economic stability and growth, the OECD, World Bank and regional development banks advance policy suites that complement the first two across all sectors of national societies, ranging from trade and economy to health, education, gender, and environmental policy.

Anti debt protestors outside the World Bank offices in Manila, 2007

The point here is that these international development players and lenders of last resort – despite the novel nationalist tendencies evident – have all been on message for decades, extolling a consistent agenda that has promoted markets in nearly all spheres of life, incentivising this promotion via both lending and advisory services, and forever reminding countries that to deviate from the plan invites capital flight, economic crisis and poverty.

Crucially, together with the structural binds associated with the reorganisation of production, commitment by countries to this agenda also means that domestic policy making is significantly straightjacketed and, indeed, quarantined in many areas from the influence of elected representatives and their constituents. When we talk of independent central banks, for example, what we are really talking about are central banks that are quarantined from the influence of governments responding to domestic interests, including the general public.

Further, the demands for many of these policies frequently didn’t come from the many (say in the form of popular protests or excited voters rallying around campaigns for independent central banks or the privatisation of utilities) but rather ideologically-driven policy makers, often in the context of crisis, both making and adjusting to a world where transnational capital had come to dominate.

Financial district buildings, Singapore, 2013

In other fundamental areas of economic policymaking, the orthodoxy is baked in, with parties of “the radical centre” as Tariq Ali once dubbed it having long been reticent to offend the sanctity of the market and private capital, placing important past policy levers – such as those associated with Keynesianism and national industrialisation – off the table.

This situation has only been exacerbated with the decline in the collective power of organised labour, which has been diminished over time with vast pools of labour and “reserve armies” added to the global economy, and with the mobility of capital and threats of job and capital flight always helping to bring the focus back to “competitiveness” and “growth”.

In a cruel twist, workers have regularly been at the forefront of destabilising patterns of restructuring, off-shoring and creative destruction while policies that used to prevent or ameliorate these have been unwound and or placed out of reach. And while migration policy is an increasingly controversial subject within the west, the reality that often-significant increases in migration have favoured the interests of capital – propelling stagnant growth and keeping a lid on wages, for example – is something progressive forces won’t touch.

While workers have frequently been relative initial beneficiaries in market-opening processes (China is a particularly emblematic case in point but is not alone), the reality of late liberalism is considerably more complicated. Pivotal here has been a lack of representation and responsiveness amidst grand challenges associated with inequality, precarious employment, the endless restructuring of production, the rise of service economies, and cost of living crises, not to mention new forms of creative destruction including artificial intelligence (AI), robotics and automation.

The hollowing out of middle classes in South Korea (which even the OECD pulled up for inequality), the unemployed though well-educated “lying flat” youth in China, the left behind in America’s rust belt, together with the general emergence of both precariousness and vast surplus populations, are all products to differing degrees of the structures and policies attending late liberalism and capitalist development detailed above.

Toll booths set alight during large-scale unrest in Hong Kong, 2019

Given the upending of state and society in the interests of powerful economic players over the last 40 plus years, the question perhaps shouldn’t be why it feels like we are living in such unsettling times but rather why we don’t observe even more chaos.

To be sure, the likelihood of even more tumult and conflict is very real, with ever-intensifying contradictions within national contexts ripe for the further emboldening of far-right economic nationalists who also face intense challenges up against the reorganisation of production in their efforts to make anywhere great again.

Of course, rather than identifying and tackling the deep contradictions within their own approaches, historically these protagonists have been experts at creating internal and external enemies for people to rally around. In the absence of organised progressive forces their onward march only becomes easier.

Toby Carroll is Adjunct Professor at Murdoch University in the School of Humanities and Social Sciences and at the University of Macau.