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The Post-Neoliberal World Is Already Here

One way or another, we will come out the other side of the COVID-19 pandemic into a new world. The question is which one.

By Felicia Wong

Tagged coronavirusDemocratsDonald TrumpEconomicsInequalityneoliberalismTrump Administration

Across the globe, the economic and social systems we thought we understood have collapsed. Our expectations for normal life—going to school, taking public transportation to work, eating in restaurants, going to a movie or sporting event, walking down the streets of our cities and towns—have evaporated. We have no clear timeline on when normal will resume, or where normal will eventually settle.

The COVID-19 pandemic is an exogenous shock unlike any in our lifetimes, and the crumbling we see all around us is taking place because the virus found a brittle host. It is tempting for many Americans to blame Donald Trump for our lack of preparedness, for the grim fact that despite what ought to have been months of lead time, the number of U.S. infections and deaths from COVID-19 are far higher than those in any other country. Certainly, President Trump has encouraged America’s dissolution, banking on it politically, even reveling in the shock and chaos. But in the long trail of explanations and causes for our extreme vulnerability to the pandemic, Trump is a mere waystation.

Faced with this lack of public leadership, both embarrassing and deadly, Americans are responding by moving inward. We are hoarding basic goods, accusing one another and especially foreigners of spreading the virus. Yes, some of us are sewing masks for essential workers and making sure that we look after elderly neighbors. But this is a far cry from solidarity. There is no collective call to action, no clear national response. The United States remains a country of abundant resources, intelligence, and resolve, but we are using none of that to common purpose or higher ends.

This reaction—states pitted against one another, a war of all against all—is not inevitable. It is not an accident. Our response is rooted in a powerful set of political beliefs that have dominated American thinking over the last half century, each of which has made our economy more vulnerable to the COVID-19 blow, as we will see:

  • The economy works best, and provides both growth and liberty, when it is driven by the free interactions of individuals in free markets. Too much market cushioning, in the form of social insurance, inhibits innovation.
  • Private businesses are more effective, more efficient, and more innovative than the public sector. Public policy’s job is to get out of the market’s way.
  • Those whom the market rewards, deserve to be rewarded. Those whom the market punishes, deserve to be punished.

This essay describes some of the specific harms driven by these beliefs. But the deepest problem with these ideas is that they are fundamentally anti-political.  They substitute market decision-making for democratic decision-making, justifying that swap with the fantasy—a falsehood—that the market is fair and meritocratic. For a generation, Republicans and Democrats alike have built a politics around this worldview, sometimes dubbed “neoliberalism.” True, Republicans are more likely to celebrate, and exalt in, market fundamentalism; Democrats are more critical of neoliberalism’s extremes, willing to soften the market’s blow. But since the 1980s, neoliberalism has clearly drawn the boundaries of acceptable politics for both parties.

In recent years, many more mainstream critics have begun to question neoliberalism’s basic tenets. Yet it took the shock of COVID-19 to shine a bright spotlight on the full extent of neoliberalism’s damage. To discuss a failed worldview is no longer an intellectual parlor game. The harms are right there, in plain sight, at the very center of our national life.

The American public health response has been confusing and slow, with inadequate and unequal access to testing and no national agreement on medical basics, from proper social distancing to the distribution of sufficient protective gear. Our economic response has been similarly byzantine, anchored by a CARES Act that turned profit-seeking, private-sector banks into public relief intermediaries, and focused on large industry bailouts (again, too big to fail) with public oversight designed as an afterthought. And essential workers, primarily in the care, grocery and food, and delivery businesses, are mostly people of color and women. They are risking their lives to keep our society functioning and earning scandalously low wages.

The American approach to the pandemic has relied, once again, on markets—competitive mechanisms, and private businesses and institutions. It has not worked. U.S. infection rates and death toll are horrific. Projected American unemployment rates are double those of most other OECD countries (on average). With competing roadmaps for when to reopen, and on what terms, the basics of what Americans should do next are entirely unclear.

Markets are important. But they are not the sum total of our economic or social institutions. As crisis conditions make obvious, markets alone cannot sufficiently reward, distribute, or innovate. Farmers plow crops under while hunger soars and food banks fail to meet demand. If markets worked properly, essential workers, whose labor is scarce and valuable, would be earning good wages with real benefits.

But the crisis exposes a broader truth about markets. Even under normal conditions, markets do not provide the necessities of a decent human life— access to health care, access to housing, for example  —in a manner that we could reasonably consider universal, decent, or even fair. Government must, at minimum, soften market failure, and when markets fail badly enough, government must step in to provide directly.

The COVID-19 crisis and all that it has laid bare could lead to the end of the neoliberal worldview. We could return to some common-sense understandings: Government is necessary; government is required to structure and support healthy markets; only government, by definition, can provide true social insurance and economic security; and government will be required to lead the transformation of our society in new and critical ways—most obviously, to a decarbonized economy that is not reliant on fossil fuels.

Of course, the end of neoliberalism is not inevitable. The COVID-19 crisis might very well lead to a mutant neoliberalism wherein market power is re-enshrined in more powerful financial institutions, more concentrated firms. Without real oversight of the public monies currently being directed toward big businesses in this crisis, and more importantly without a commitment to public-minded public leadership in shaping a post-COVID America, public power—meaning the power of democracy and the demos— will be further extinguished.

Today the eye of the storm is ideologically empty. It won’t be for long. Where we head next will be determined in part by the ideas we decide are right and sensible. But what is required first is a clear understanding of how we got here.

AMERICAN NEOLIBERALISM FAILED THE COVID-19 TEST

Consider just a few of the facts about the pandemic in the United States:

  • Sick employees knowingly continued to report to work because they felt they had no other choice.
  • The virus is killing black Americans at almost double the rate of whites. Black and Latinx Americans are simultaneously more likely to be “essential” workers and more likely to have lost jobs or work hours.
  • Of the 30 million small businesses in America, only 1.6 million were approved in the initial round. Only 17 percentof the first round of small-business focused rescue funds were truly small (under $150,000).
  • The “paycheck protection” program for small businesses has been roundly condemned as confusing, frustrating, and riddled with bias. Over 90 percent of small businesses owned by people of color—which in total count for almost one third of all businesses in the United States—are unlikely to receive federal aid, mostly because they don’t have the right banking relationships.
  • U.S. unemployment is as bad now as it was in 1929, at the height of the Great Depression and twice the rate of our peer nations. Through April, almost one million Americans a day lost their jobs.

These are disparate problems. But they have a common root: the worldview that supercharged businesses; put blue-chip executives in positions of power; made labor just another cost to lower; held that the market rewards and punishes justly.

In theory, privileging private markets would lead to efficiency and growth. In reality, this has led to a fast but unequal and fragile system, anchored by three foundational beliefs about how the world works best. The first is a fear of moral hazard—helping the poor too much. The second is an automatic preference for private-sector solutions. And the third is the idea that individual investment in human capital will lead to a more productive, better-compensated workforce. These have guided us to disastrous outcomes.

These three elements of the neoliberal mindset have formed much of American policy over decades. They are the reasons that the United States faced COVID-19 with a range of pre-existing conditions, both health and economic. Ideas and policies limited by neoliberalism’s straitjacket made the United States more vulnerable to begin with. Our neoliberal mindset is also the reason that, once the crisis hit, we automatically reached for market-focused solutions, rendering our responses both expensive and anemic.

1. American Health Care and Social Insurance Are Unequal By Design

The belief that the economy works best through free, unfettered market interactions has led to the ubiquitous neoliberal concern that government not do too much for poor people lest they become dependent. This is why the United States has no universal coverage in times of need: inadequate health care, paid leave, unemployment insurance, even basic food provision.

This patchwork and unequal safety net is mostly the result of deliberate design. Part of this is the commodification of health care; at its extremes, the argument is that health care cannot be universal, because in a world of rational actors, some people will always want to, and should be able to, purchase greater health than others can. And another part is the focus, in poverty alleviation and the provision of life’s basics, not on universality of coverage or ensuring equitable outcomes, but instead on making sure that a generous system doesn’t encourage “bad behavior.”

Whether paid leave, unemployment insurance, or food stamps, the most recent program to be accused of causing moral hazard: All are structured with termination in mind, or to “encourage work.” The programs are highly racialized and gendered in their often unspoken, but nonetheless powerful, definitions of deservingness and dependency. Less state aid will encourage virtue in the form of personal responsibility and work (as the 1996 welfare reform law was titled).

These are the arguments that justify our threadbare system. In contrast to other OECD countries, which provide 100 percent public or private health insurance to all, today close to 30 million Americans do not have health insurance coverage. The United States is at the bottom of the pile in terms of paid leave provision, measured by coverage and benefits. Fewer than one-third of private sector low-wage workers have any paid sick leave at all. And the American unemployment insurance system is highly fragmented, paying less than most other peer nations, and for a shorter duration.

Without robust health care and social insurance, the U.S. system was clearly ill-equipped to deal with the massive economic shock of COVID-19. The Families First Act extended paid leave for two weeks, but only for those working for employers of a certain size, and only for workers who already were quarantined or diagnosed with COVID-19. These limitations on paid leave make little sense when staying home was the top public health priority, and asymptomatic spread of the virus was a clear danger.

The CARES Act’s augmented unemployment insurance was a significant victory, but time limited and hard-won. The brief conservative objection to increasing unemployment insurance in late March, before the ultimate passage of the CARES Act, shows the strength of the old worldview. In the midst of the labor market’s meltdown, as unemployment numbers skyrocketed, Republican Senators Lindsey Graham, Ben Sasse, and Tim Scott worried that increased unemployment insurance would incentivize workers to prefer layoffs to working a steady job. Even in global pandemic, neoliberal fears color our responses: Too much help rewards the lazy. Graham, Sasse, and Scott did not prevail, but their objections were telling. In the end, at a time when tens of millions of Americans were being laid off, with no clear path to re-employment in sight, legislation extended increased benefits for only 13 weeks.

2. Avoiding Public Solutions to Public Problems Is Neither Efficient nor Effective

A second hallmark of neoliberal thinking is the preference for private solutions, and a reflexive distrust of public institutions and direct government provision. During the pandemic, we’ve run rescue services through banks and erred on the side of giving money to large, often perfectly solvent businesses first and empowering government oversight later. The result is slow, ineffective, pretzel-shaped rescue packages.

Even in emergencies, when it is clear that government must play a bigger role, neoliberalism, American-style, has long encouraged privatized, “submerged state” problem solving. The United States responded to the 2008 financial crisis with the ARRA (the Obama stimulus bill), which was, critics charge, too little, at $787 billion. It was also indirect. Almost 40 percent of the legislation was circuitous, and came in the form of scores of tax creditsthat provided unclear benefits to everyday people who were losing homes and jobs. The $700 billion TARP program, another financial crisis-era program, has been criticized for lending in ways that allowed banks to flourish, but failed to keep working people in their homes—prolonging the economic pain of the Great Recession.

American policymakers have long tried to downplay government’s role in shaping the economy. Even during national emergencies, politicians automatically reach for private-leaning answers under the guise of presumed “efficiency.” They run relief or development programs through “public-private partnerships” designed to leverage private funding and make private-sector decision-making paramount.

We certainly suffer from this private sector bias today. It was clear in early March that the social distancing required to stop COVID-19’s spread was going to slow the economy, cause harm to ordinary workers and families, and start to drive up unemployment rates. By the second week in March, Denmark had announced a deal to directly guarantee paychecks for workers for three months. Within a few days, the UK followed suit.

The United States could have done something similar. Emmanuel Saez and Gabriel Zucman put forward a proposal for the government to act directly as “payer of last resort.” Arin Dube argued for a comparable program, using the unemployment insurance system. But instead, the plan adopted by CARES Act in late March followed most closely Glenn Hubbard and Michael Strain’s proposal, which made banks the intermediaries.

This single policy design choice, combined with an initial funding tranche of $350 billion (Hubbard and Strain estimated the total cost of covering small business employees at $1.2 trillion), has had terrible consequences. Small businesses rushed to find banks approved by the Small Business Administration that would lend to them. At best, the loan guarantees were random: Whomever heard about the program and got in line first had a better shot. But at worst, that randomness was combined with bias: The data clearly shows, and now a lawsuit also charges, that larger customers and larger loans were moved to the head of the queue. More than 200 publicly traded companies received $750 billion in loans intended for small businesses. Many smaller businesses, including, vastly disproportionately, those owned by people of color, did not receive funding.

The $350 billion in CARES Act “Payroll Protection Plan” funding has now been supplemented with an additional $310 billion. To date, the PPP program has done almost nothing to stop layoffs, as more than 25 million Americans are now unemployed.

3. The Employment Paradox: “Essential” Work Is Underpaid, and Unemployment is Worse for People of Color

The pandemic has revealed as fictitious a third pillar of neoliberal thinking: a belief that the market rewards and punishes fairly. Left to its own devices, the free labor market will compensate workers fairly, without bias, for their time and skills.

But this is not the reality we live in. Instead, we see  COVID-19’s reprehensible employment paradox. On the one hand, low-wage workers, often people of color, are required to work in life-threatening conditions. Workers deemed essential are disproportionately women, clustered in sectors like health care, social work, and critical retail. Almost 6 million poverty-wage health-care jobs, paying less than $30,000 a year, are held overwhelmingly by women (83 percent) and people of color (more than half). In New York, the epicenter of the pandemic, 60 percent of frontline workers are women, 75 percent are people of color, and 50 percent are immigrants.

On the other hand, workers of color as a whole are more likely than white workers to face unemployment or loss of job hours. Bureau of Labor Statistics (BLS) survey data from mid-March suggests that, nationwide, people of color comprise 20 percent of the labor force but 25 percent of the newly unemployed. A McKinsey Global Institute analysis shows that the newly unemployed are disproportionately likely to be young (49 percent of newly unemployed but only 36 percent of the labor force) and non-white (58 percent of the newly unemployed but only 37 percent of the labor force).

The neoliberal weakening of unions and worker voice on the job is perhaps the central reason that workers are so ill paid and so precarious. Whether recent essential worker strikes change the power dynamic remains to be seen. In his 1960 classic Capitalism and Freedom, Milton Friedman argued that a free market would prevent workers “from being discriminated against in their economic activities for reasons that are irrelevant to their productivity, whether these reasons are associated with their views or with their color.” The COVID-19 pandemic has revealed just how wrong this is, and how little genuinely free choice workers, especially workers of color, really have.

WHAT NEXT? THE WORK AHEAD

The COVID-19 pandemic has shown just how ill-suited our current policy framework is to the world in which we now live.  COVID-19 has both revealed and worsened the inequities baked into our society. The virus has sharpened all of our disparities—economic, racial, regional, and political. We can see these injustices clearly, in the people who care for the sick and deliver our packages, in those who are unemployed or whose businesses are shuttered but who have yet to see any federal relief.

Our market-focused worldview has denigrated the very idea that human beings can act on behalf of the greater good, not motivated by private profit. At a moment when public leadership is paramount, too many Americans distrust and disdain government.

Perhaps, given current circumstances, this distrust is justified—and so it is these beliefs, and these disbeliefs, that must change. In the coming weeks and months, as we fight for more collective action against the threats of COVID, we also must fight to create a clear intellectual and political understanding of the path forward. All of us have work to do:

  • We must establish a baseline understanding of the origins and outcomes of the present crisis. Why are some nations doing better than others with respect to health and economics? Why will some communities within these countries do better than others?
  • We must reclaim various elements of the public sector to do public work: rethinking social insurance, and improving the ways in which government structures markets. To do this, public institutions must reflect democratic inputs, and include people whose voice and preferences have been systematically and wrongly left out of meaningful decision-making.
  • We must also reclaim the public sector as a key driver of innovation, growth, and investment. Why, in a health crisis, are we letting the market alone determine who gets medical supplies? This means establishing new models for how the public, the private, and the nonprofit sectors interact. The question before us is not whether to leverage public-driven economic growth, but how best to do so.
  • We must redefine our understanding of public strength and public power in multi-faceted ways, through many channels: law, academia, political movements, electoral politics, and culture/narrative.

We must think and act not just nationally but internationally. It is imperative that, at a time of toxic nationalism, we build a stronger global order for greater cooperation in the face of disease and climate change, given decreased international trust, crumbling global supply chains, and increased international migration borne of desperation. COVID-19 has wiped away our understanding of normal life. We should, therefore, take advantage and fully imagine a better normal.

We would invest—through public and private dollars, public and private institutions—to create an economy that is humane and focused on human thriving, and not on the abstract notion of growth. We’d see plenty of innovation, and new markets. At its core, the new economy would take, head-on, the design challenges of resilience: how to create systems that keep us safer in the next pandemic, and slow the warming of the planet to prevent the disaster of climate change that is, like the coronavirus, wreaking havoc on our lives.

COVID-19 has shown us that our old ideas for how to solve problems just don’t work anymore. Our old ideas have made those problems worse. Whether we move to a new set of ideas is, in the end, a political problem, and at root a question of how we structure our economy. The pandemic could inspire us to embrace a new, strikingly simple, vision for our economy—how we manage it, and who it works for. We could view government, the private sector, and other social groups, like labor and other civil institutions—as equal contributors and equal decision-makers.

Democratic equality, meaning the full participation of people as equally free in society, regardless of their differences, is a prerequisite to a better economy. We will need to work together to rebuild our cities; to reimagine and restructure entire sectors of our economy, from restaurants to research universities; to rebuild the basic human trust on which economic exchange and human society have always relied. The pandemic could shock us into building a new, more humane, and more resilient society. But we will only do this if we are clear-eyed, and if we discard the last of our outmoded beliefs about how the world really works.

Read more about coronavirusDemocratsDonald TrumpEconomicsInequalityneoliberalismTrump Administration

Felicia Wong is President and CEO of the Roosevelt Institute and co-author of The Hidden Rules of Race: Barriers to an Inclusive Economy. Her work focuses on the demise of the mid-century liberal consensus for the politics of race and economics in the United States.

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