Globalization, neoliberalism, and the end of an era
Looking back on our conversation with Joseph Stiglitz on how market fundamentalism failed us, and the big idea he believes can fill the void
We talked to the economist Dani Rodrik yesterday about how the rise of Donald Trump and other ethnonationalist authoritarian leaders worldwide is a backlash to a period of “hyperglobalization” that began in the 1990s. Over the last three decades, Rodrik told us, leaders have “put democracy to work for globalization,” rather than the other way around, ushering in a period of dramatic economic growth, but with destabilizing consequences for working people worldwide that set the stage for the populist revival.
And that talk of the end of an economic era got us thinking about a conversation we had last year with Joseph Stiglitz, the Nobel laureate, former chief economist of the World Bank, and former chair of the White House Council of Economic Advisors. We discussed his most recent book, The Road to Freedom, which is also about the end of that era, in which he sees the collapse of the neoliberal consensus: the misguided fetish for market fundamentalism and the uncritical celebration of globalization that has guided both parties in the United States (and most governing parties across the world) for the last 40 years, with dire consequences for freedom, democracy, and climate.
And also on that note, we’re looking forward to our conversation this afternoon with Robert Reich, the professor, writer, lawyer, and former Secretary of Labor. During his tenure in Bill Clinton’s administration, Reich was part of the team that ushered in the age of globalization, but he has since emerged as one of the keenest critics of neoliberalism, globalization, and the failed management of the aftershocks of the free trade era.
Even in this period of political crisis, it’s essential to start formulating what kind of economic order could come next: for Rodrik, that’s a rethinking of industrial policy that puts domestic policy before trade; for Reich, a serious commitment to fixing inequality and rebuilding labor power; and for Stiglitz, a progressive capitalism that can reclaim the idea of freedom from the right-wing forces currently exploiting widespread discontent to build an authoritarian future.
We urge you to read our full interview with Joseph Stiglitz:
And to revisit our conversation with Dani Rodrik:
And to listen to our previous discussion with Robert Reich, from the beginning of the Biden administration:
In certain circles, the word “neoliberalism” is very well understood, but a lot of people out there have no idea what it means. Could you just start by explaining what neoliberalism is as an idea, but, more importantly, can you explain how people may be living neoliberalism in the day-to-day of their lives without realizing it? The cars they drive, the workplaces they go to, the food they eat, taxes they pay, the help they do or do not get.
The term comes from “neo,” or new, and “liberalism,” or freeing. Liberalism was about freeing the economy — and society. Neoliberalism was intended as an update of 19th century liberalism: ideas that prevailed 150 years ago about making a good economy by just letting the markets rip. Those ideas led to the Panic of 1907, the Great Depression, the suppression of labor throughout the period.
And that's why people thought, “Well, we need an update.” It all sounded good, except when you looked beneath the surface, what it meant was stripping away regulations, lowering taxes, and letting the market do whatever it wanted to do. The belief was — in spite of the evidence to the contrary — that in the absence of government intervention, markets would by themselves be competitive. And that the force of what you might call “buyer beware” would make sure that firms didn't exploit because if they did, they would lose their customers.
But this was all based on some ideas that had, really, no economic foundation, particularly after I did my work (which analyzed how economies in which there were imperfections of information functioned), and showed that in that kind of a world you could have exploitation, firms could take advantage of others.
More broadly, in the 21st century we live in, a world where we're urban, we interact, we are reaching our planetary boundaries, and one firm's pollution may have life-threatening effects on other people. And that's really one of the main themes of the book, how unfettered freedom for some has real costs, and in fact reduces the freedom of others — even the most basic freedom, the freedom to live.
So the freedom of a company to pollute means the loss of freedom to live for somebody with asthma. And the freedom of firms to pollute is causing global warming and climate change, which is reducing freedom for all of us, particularly those in the tropics. To live a normal life, people there have to spend enormous amounts of money to protect themselves against the effects of climate change. These are all basic ideas that ought to be brought to the fore once you start thinking about what freedom means.
What you're saying is so simple and so important at the same time. I'm 42 years old; I've lived entirely within the era that you're describing and critiquing. And I think of simple phrases that I grew up with that were just unconsidered: “Don't divide the pie more, just expand the pie.” “A rising tide lifts all boats.” “You don't have to take away from some for others to have more.”
And what you're describing is a more old-school idea, which is that often what's going wrong for some people is caused by other people. Anyone in the ancient world would've understood that. Can you talk about how that notion, that basic idea that sometimes people hurt other people, and that sometimes your pain is caused by other people, was cast aside in the neoliberal era?
That's right. There was a slight recognition that this might occur, but it was always assumed that it was relatively unimportant. And when it occurred, we would find ways of dealing with it. These problems, which economists refer to as “externalities,” were usually left to the end of the course of economics, if there was time. So the basic economic model was one that I just described: you strip away regulations, lower taxes, and the size of the pie would grow.
And there was one more idea: that trickle-down economics would work such that everybody would benefit from that larger pie. Well, we've had 40 years of experience with this — as you said, almost your entire life — and that experiment didn't work out as hoped. Growth slowed by some two-thirds. Trickle-down economics didn't work. Those at the bottom were actually absolutely worse off in many cases. So we are at a point where we ought to do a rethink. Those premises were wrong.
The interesting thing is that we often date the beginning of this grand, failed experiment to the 1980s, or just a little earlier: Thatcher in the U.K.; Reagan in the United States. But economic theory that was being done in the late 1960s and 1970s had already shown that there was no intellectual foundation for the idea that letting markets work by themselves, without government regulation, would lead to economic efficiency.
I want to ask you about globalization. It's central to the neoliberal era. You’ve written about trade agreements that were called free and fair, but were neither. There's also the notion of the cultural promotion of globalization, whether it's Tom Friedman's The World is Flat or this whole ideological project framing a certain kind of unfettering of markets that really swept the world. It was in India, it was in China, it was everywhere, it was Davos in those years. And it all just feels like such a colossal failure now. We're back in an era of nationalism and industrial policy. Can you talk about the rise and fall of the ideology of globalization as we practiced it?
As you know, while these ideas were ascendant, I was very much a critic. And I was a critic partly because I thought it had no intellectual foundations.
But I also had my eyes open. And as chief economist of the World Bank, I was going around the world, and I saw some real successes, like in China, where they didn't follow the neoliberal ideology. And I saw a lot of failures, like in Africa and some places in Latin America where that ideology had been actually put into practice, and things didn't work out very well.
So to me, it was not a surprise that over time it would fail. And the failures were almost inevitable outcomes: too many people were being left behind by that ideology. By the time I came to write The Price of Inequality in 2012, I was already pointing out that the inequality neoliberalism had generated and the people who were left behind were creating a fertile field for populism, for nationalism, for demagogues to emerge.
Politics always responds to where society is, and society came more and more to realize that the promises of neoliberalism weren't being delivered. And then, of course, as the politics changed, they had to come up with new ideas. Unfortunately, at this juncture, I don't think that there is really a coherent set of alternatives that is in the popular air. And I'm trying in my book to create part of that alternative narrative and explain, in a positive way, where we can go after neoliberalism.
I want to ask you about the connection between pluralism and economics. You know the research better than I do that redistribution is often an easier sale in countries that are more homogeneous. In other words, people are more willing to share with people who sort of look like their third cousin. And, often, when there's growing diversity, where you have people who you perceive as unlike you, the willingness to share goes down.
When you look at the last 40 years in this country, there's been one very positive story of growing diversity, pluralism, growing power and status for women, growing power and status for Black people, other people of color. But there’s a second big story, and that’s the economic capture you talk about.
I wonder how you see the relationship between those two narratives? One story is that the elites have divided people in terms of identity to distract them and grab wealth and power. But I wonder if there's also truth in the idea that the American commitment to pluralism and diversity has made it harder to sell the kind of redistribution and the kind of freedom you want.
That's an interesting idea. The aspect I've emphasized is the fact that we've not done well in curbing inequality, and that means that we’ve wound up with a society that's more divided, more polarized, where different groups are living in different silos. The life experience of somebody earning $20,000 a year is so different from that of somebody earning $500,000 a year. And that division has been reinforcing what's gone on.
So if we’d had — even within our pluralistic society — much more equality of income and wealth, we would've been living more together, having more shared life experiences, and therefore we’d be more willing to engage in the redistribution, social protections, and public investments that would've sustained that more equal society.
To put it another way, there are multiple equilibria that a society can wind up with. There’s one where you have a very, very divided society with lots of inequality. And that economic inequality translates to political inequality and sustains rules that maintain that economic and political inequality. Or you can settle on a society with much less inequality, much more shared experience. And that, too, can be self-sustaining.
Unfortunately, the United States has wound up in the high inequality trap.
You've written about climate change for a long time. It's, in a way, the ultimate example of everything you're talking about in this book. We might literally end our time in the world because of this ideology. Do you think of climate change as, in a way, the reductio ad absurdum of this ideology you're critiquing? Or do you actually think about it as something that may be finally awakening people out of neoliberalism?
I think it's really one of the factors that is waking people up out of neoliberalism. It’s like the pandemic, which made it so clear that what one group was doing could affect others. If we didn't get the vaccine, the disease would spread. If you didn't have masks, the disease would spread. Both the pandemic and climate change are first-order experiences of externalities, of huge societal consequences. And in the case of both, government action, collective action, is at the center of any solution. They can’t be solved by markets on their own.
One we went through (and we will go through again, if predictions are correct); the other we are experiencing, and it's going to get worse. And in both cases you just can't work within the neoliberal model. And I want to emphasize that, even putting aside the economic theory, you can see in the imperfections of information which are pervasive in our society that the neoliberal model has broken down.
You spent so many years teaching at Columbia, and I am curious for your thoughts on what we're seeing there this week. I think of you as someone who's often been a translator of what young people are trying to tell older people that older people are not hearing. And you've been able to say some of those things in books and in public to establishment folks in a way that they can understand. So I wonder, when you look at what's happening at your university, what do you see?
Well, what's going on really illustrates some of the theses of my book — that one freedom may come in conflict with another freedom.
And I argue that you have to balance the freedom of one group versus the freedom of other groups. I give a framework for thinking about that. The problem is that kind of freedom is based on careful reasoning, and moments of passion are not moments of careful reasoning. But there exist those trade-offs, and society has to address them. That’s really important.
And obviously what's going on, on the Republican side, is that they don't want to think about that. They're just trying to do what they can to hurt universities because universities have been centers of people thinking deeply about these issues, which Republicans, the Freedom Caucus, really don’t want people to do.
But what a large number of young people are expressing is normal human empathy. They don't want to see people die unnecessarily. And I think the pictures, the fact that tens of thousands of people have died, including lots of children and women, innocent bystanders, in the attack on Gaza, in a very short span of time, has had a horrific impact. And they're saying this is unjust. And it has brought back to the fore that much of the architecture of the world was shaped in a colonial era. And many of these people are from countries that themselves were shaped in a colonial era.
So what I hear, and what's going on, is a real sense of empathy for so many people dying unnecessarily, and outrage at collective punishment, which is unacceptable. And it brings back to the fore reflections on colonialism and its consequences, that remind us that history doesn't just disappear, even if one would like it to.
There was a famous speech that former President Barack Obama gave, his first speech when he went to Africa, in Ghana. I was down in South Africa at the time. And the essence of the speech, at least to Africans, was, Colonialism, get over it, get over the consequences, it's been a long time. And it didn't get a very good reaction down in South Africa or in the rest of the continent because you can't get over it that easily. It has a legacy that many countries are continuing to live with.
You talked about the absence of an alternative narrative to neoliberalism right now, at least a coherent one. Although it doesn't feel like a very hopeful time right now in a lot of ways, one thing that actually does feel hopeful to me is that there is a kind of vacuum. Neoliberalism clearly has bankrupted itself, and many people see that.
In the Biden administration, people will tell you they're trying to end neoliberalism, however seriously they mean it. Young people have clearly fallen out of love with it. You have these alternatives on the far right, whether it's fascism, whether it's this populist neo-whatever, where they're trying to question trade and other elements of Republican orthodoxy.
It feels like there's an open territory right now for a new set of ideas. Give us your best sense of what a new narrative of freedom, an alternative that could fill that vacuum, might be.
You hit the nail on the head. This book I have written is trying to fill the gap, the vacuum that's been created by the death of neoliberalism. And what I try to say is, you ought to begin by thinking about what kind of society you want, and then think about what kind of economy will deliver that. And, clearly, it has to be human-centric. How can we let the most individuals have the greatest freedom? Freedom defined as their opportunities, what they can do. How can we have most people live up to their potential?
That obviously requires that we have a shared prosperity of inclusive growth. And that in turn requires an understanding of what kind of an economic system works: one that deals with the externalities, provides the material goods that people need, and also provides a broader sense of well-being and security, and the opportunity for people to get the education that can let them live up to their potential.
But the other dimension, which I think economists have shied away from, is that the economic system helps shape who people are. And neoliberal capitalism has helped shape people who are more selfish, more greedy, more short-sighted. I talk about Donald Trump as being emblematic of what neoliberalism produced, and how that doesn't even work for a good economy, let alone a good society.
The alternative is trying to build a system that shapes people more in concert with our values, people who are more other-regarding, more honest, more cooperative. And I think we can at least move in that direction. And I try to give some guidelines on how we can do that.
A programming note: More Live conversations this week!
This afternoon, Wednesday, April 23, at 1:00 p.m. Eastern, when we’ll be speaking with the writer, lawyer, and former Secretary of Labor Robert Reich. Then tomorrow, Thursday, April 24, at 12:30 p.m. Eastern, we’ll be joined by labor leader Sara Nelson, president of the Association of Flight Attendants-CWA, AFL–CIO.
To join and watch, download the Substack app (click on the button below) and turn on notifications — you’ll get an alert that we’re live, and you can watch from your iOS or Android mobile device. And if you haven’t already, subscribe to The Ink to access full videos of past conversations and to join the chat during our live events.
When the academics separated the socio-political-economic realm of our lives into 3 distinct institutions of study they lost their awareness of what goes on in the real world.
Talk of colonialism in Gaza and its legacy leads to an assumption that Palestinians represent colonialism. People who have entered Palestine for centuries have always met other people living there. People who moved about, but people lived there, even if they roamed somewhat. It is hard for me to think of present day people as colonial.