100 Years of Statism, 100 Years of Neoliberalism

I’d like to argue that to understand what’s going on in the world, one needs to understand the megatrends.  Yes, I know that ‘megatrend’ is a rather disreputable term, associated with crackpots.  But I’m going to use it anyway.  Here’s my basic hypothesis:

1.  For nearly 100 years statism was on the advance in the US, and indeed in almost every country.

2.  In the US the period of growth of government started at least as far back as 1887 (the ICC) and continued until 1977, after which deregulation, free trade agreements, and MTR cuts kicked in.  In other countries one saw MTR cuts, deregulation and privatization.

3.  During the statism megatrend, the term ‘reform’ implicitly meant bigger government.  That’s how governments reacted to crises.  During the current (neoliberalism) megatrend, the tern ‘reform’ implicitly means less government.

4.  In the US this pattern has recently been hidden by health care, which is one aspect of the welfare state that was never completed in the statist era (although it was completed in all other developed countries.)

5.  During the megatrends, there are periods of consolidation, which are falsely viewed as countertrends.  They are not countertrends.  The trend is still intact.  In the US the 1920s and 1950s were falsely viewed as countertrends.  Don’t be fooled, we are only 1/3 of the way through the neoliberalism megatrend.

The following three examples come from a single issue of The Economist.  First, how Greece spells “reform”:

WITH a target of €50 billion ($72 billion) by 2015, Greece’s privatisation plan aims to raise more cash as a share of GDP than any OECD government has managed before. If the goal for listed companies is met, the market capitalisation of the Athens stock exchange would double. The economic benefits of privatisation are widely accepted: a 2003 OECD study found “overwhelming support” for the idea that “privatisation brings about a significant increase in the profitability, real output and efficiency of privatised companies.”

Of course one could find many such examples in Europe.  Even where progress is slow, such as Spanish labor reforms, the long terms direction of change is very clear, and exactly the opposite of what FDR did in the Great Depression.

Reform is even more in evidence in developing countries, despite a drumbeat of press reports that reform has stalled in places like India and China.  Here’s a report on China:

China leads the way to freedom




And here’s what going on in the most dynamic region of India:


.  .  .


Don’t just look at national governments.  The states that reform race ahead of those that don’t.  Eventually the voters of the lagging states get disgusted and throw out the bums (or communists in the case of West Bengal.)  But also don’t be too influenced by ‘left/right’ terminology.  There is little difference between the rate of liberalization in governments of the left and the right.  They both respond to the political pressures of the day.

In America, progressives are scratching their heads trying to figure out how the Bush-produced Great Recession failed to deliver FDR II:

Liberals are furious that President Obama agreed to massive spending cuts, and the promise of more, without any increase in revenues. They should be: Given how much the Bush tax cuts have contributed to the deficit (and how little they’ve spurred economic growth), it’s mind-boggling that they’ve apparently escaped this deficit-reduction deal unscathed.

But there’s a reason for that: since the economy collapsed in 2008, only one grassroots movement has emerged in response, and it’s been a movement of the right. Compare that with what happened during the Depression. In 1933, Franklin Roosevelt assumed the presidency and launched the hodgepodge of domestic programs that historians call the first New Deal. By 1935, however, he was looking warily over his left shoulder at Huey Long, whose “Share our Wealth” movement demanded that incomes be capped at $1 million and every family be guaranteed an income no less than one-third the national average.

At the same time, the Townsend plan to guarantee generous pensions to every elderly American had organizers in every state in the union. To be sure, FDR had vehement opponents on his right, but he was at least as concerned about the populist left, which helps explain why he enacted the more ambitious “second new deal,” which included Social Security, the massive public jobs program called the Works Progress Administration and the Wagner Act, which for the first time in American history put Washington on the side of labor unions.

Obama, like FDR, had a reasonably successful first two years: a stimulus package that while too small for the circumstances was still large by historical standards and a health care bill that while subpar in myriad ways still far exceeded the efforts of other recent Democratic presidents.

And then, unlike FDR, he ran into a grassroots movement of the right. Historians will long debate why the financial collapse of 2008 produced a right-wing populist movement and not a left-wing one.

Of course historians are confused.  They don’t like the idea of megatrends, especially right wing megatrends.  But we know better.

Update: Note to equity investors.  Ultra-low real interest rates as far as the eye can see and persistent neoliberal reforms—the trend is your friend.

About Scott Sumner 492 Articles

Affiliation: Bentley University





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