We messed up. Really badly.
Market liberalism was once believed to be the trojan horse that would bring democracy to China. Now it's how China and Russia are bringing authoritarianism to America.
The late 1980s and early 1990s were a time of great liberal triumphs. The market economies of the West had proven themselves to be far superior to the failing socialist system of the Soviet Union. The world had spent the better part of the 20th century performing a set of experiments on how best to organize economies in order to deliver prosperity to their citizens. It turned out that in the end, the arguments of the likes of Friedrich Hayek and Milton Friedman would carry the day. By the early 1980s, the West had seen its own domestic examples of overwrought regulation and taxation. By the year 2000, it seemed the argument was completely over.
The term neoliberalism came to describe the dominant political philosophy of the era. In layman’s terms, neoliberalism is generally associated with a set of core pillars. That, markets should be as unrestrained as is reasonable, because government interference tends to increase inefficiency in the market, making people less wealthy overall. That, we should expand our markets globally with free trade and free movement of people. That, government ought to even consider exporting its core functions and provisioning of public goods to private sector contractors.
The neoliberal era was ushered in by the arrival of political figures such as Ronald Reagan and Margaret Thatcher. In the case of the UK, Thatcher’s aggressive deregulation and privatization programs, in the face of great public unrest from organized labor, had proven themselves successful at reinvigorating the UK economy. These reforms were so successful in fact, that it led to a massive re-alignment away from Fabian socialism within the UK’s Labour Party and toward what came to be known as Third-Way Socialism, embodied by the rise of figures like Tony Blair and Gordon Brown. Similar ideological shifts occurred throughout the Western world within left-leaning parties. Socialist parties more or less conceded the point on capitalism, and embraced the Third-Way approach: basically, let the corporations get rich, and then tax and redistribute. More or less. It’s not actually socialism, in the sense that Karl Marx would understand it. In fact, Marx would have just seen Third-Way Socialists as capitalists and political centrists, using the term socialist in a cynical and dishonest way. Indeed, if you have spent any time on university campuses in the past 30 years, and talk to real radical Marxists — which is one of the only places in society to find them — they pretty much do see it this way.
Indeed, the mainstream left throughout the Western world did adopt the core pillars of neoliberalism in the 1990s and early 2000s. Both left-wing and right-wing governments across the Western world pursued market deregulation reforms, free trade agreements, and immigration reforms to attract economic talent. In terms of how these governments looked upon the world within this core framework, this widespread agreement came to be known as the Washington consensus. The populist anger you would sometimes hear in this era, such as “left, right, they’re all the same" wasn’t particularly far off. The Overton Window had really narrowed on economic policy. Outside of cultural issues, the left and the right were mostly just arguing over the size of the welfare state.
In the People’s Republic of China, it turned out that the leader of the Chinese Communist Party and the country, Deng Xiaoping had been reading Milton Friedman too. Because concurrent with the rise of neoliberalism in the West, Deng had begun the programs of what came to be known as reform and opening-up. It involved the creation of special economic zones which most notably included Shenzhen, which would go on to become the world’s largest manufacturing supercluster, and is today the beating heart of China’s export-oriented economy. Similar to the UK Labour Party’s rebranding of socialism with their Third-Way term, the Chinese Communist Party would come to describe the remaking of their economy with private property rights and a capitalist mode of production as socialism, with Chinese characteristics. Unlike the British Labour Party, it didn’t actually include much of a welfare state. It may surprise many in the West to know, but despite China being ruled by a single party that operates under the banner of communism, the Chinese government provides very spartan social services to its citizens, if at all. There is no universal healthcare in China.
The West, and in particular, neoliberals were very excited about China’s embrace of capitalism. It was viewed by them, not just as proof that markets are better than centrally-planned economies at producing wealth, but a victory for liberalism itself. In fact, it was believed that capitalism would beget liberalism in China. That, it was only a matter of time, until capitalism brought democracy to Beijing. It was one of the great hopes of bringing China into the World Trade Organization. A move which is now known in political science and economics as the China shock, which describes the massive global realignment in trade, manufacturing and employment brought about by China’s rapid integration into the global economy.
The United States and the Western world, began moving their manufacturing bases to China at an accelerating rate. The American Mid-West was particularly hard hit. Manufacturing jobs had already been in a long-term secular decline in the United States due to the march of automation, leading to a declining number of laborers in factories, even as production yields rose. But the allure of cheap Chinese labor for the jobs that were beyond automation, was too strong. With China receiving most favored nation status from the United States, customs and import red tape was streamlined, making the move for America’s manufactures a no-brainer.
A similar political moderation happened near the end of the 1990s from the right, with the rise of political innovations such as compassionate conservatism. Which, in a similar fashion to what happened on the left, saw some of the neoliberal hardliner positions give way to the political and moral acceptance of an efficient, but limited welfare state. Indeed, George W. Bush’s administration, added a new welfare program with the creation of Medicare Part D, adding government-funded prescription medication coverage for retired Americans.
Despite flare-ups from some corners of the political left, such as the 1999 WTO protests in Seattle. For the most part, these battlecries from the dying vestiges of actual real socialism on the left, went unanswered. Except of course, by the riot police on the street.
There was a very brief and strange moment when mainstream leftist and rightist politics throughout much of the Western world, and right here in America, seemed to be moving towards the center at the same time. Then, at 8:46 a.m., Eastern time, American Airlines Flight 11 flew directly into the North Tower of the World Trade Center in New York City.
The terrorist attacks on the United States by al-Qaeda on September 11th, 2001 was the most geopolitically significant moment in the world since the fall of the Soviet Union just ten years earlier. Although, in the shadow of the attacks, the response among most people in the United States and the Western world, was almost universally aligned. George W. Bush, despite the bitter taste that Democrats still had about what they believed was a stolen election by a bad Supreme Court ruling over a precariously close election in Florida, evaporated as the 43rd president saw his approval rating skyrocket above 90% in the weeks and months that followed. Support for the United States around the world was nearly universal. With even some of not-so-friendly-to-America countries offering unequivocal condolences and support to the United States. Even Castro’s communist government in Cuba, ordered its officials and propagandists to stop their hostile rhetoric towards America for a time. As we know, the comity would not last.
The United States would see a historic whiplash in global public opinion towards America fall from record heights to historic lows in just a few short years, as the Bush Administration’s War on Terror would see the United States ultimately invade Iraq in 2003 on premises that were not just proven to be false, but worse: suspected to be false by many of American friends and allies. In particular, Canada, whose then Liberal government under the captaincy of Prime Minister Jean Chretien, doubted the intelligence they had been shown by the Americans that Saddam Hussein had secret stockpiles of chemical and biological weapons, in contravention of UN Security Counsel resolutions. Canada would, for only the second time in over a century, decline to send its soldiers to fight alongside Americans. The first time having been Vietnam.
France too, had similar apprehensions about the quality of the intelligence, and declined to join the US coalition of the willing. This led to outrage among supporters of the US war in Iraq, who made it a sport to attack and denigrate France. Congress went so far as to rename “French fries” to “Freedom fries” in the Congressional cafeteria.
In spite of this rising polarization on foreign policy views, the neoliberal consensus remained mostly intact. The trend known as globalization proceeded unabated through this period. The decade saw the strife brought about by American foreign policy adventurism in the brief neoconservative era of the Bush Administration, but the argument about economics and markets was still over. That was of course, until September of 2008, when in the course of two weeks, the entire US economy was thrown into the worst economic crisis since the Great Depression.
The neoliberal consensus broke very quickly on the issue of financial regulation in that moment. Political centrists very quickly were able to trace some of the market behaviors that led to the calamity back to the repeal of the Glass-Steagall Act in 1999, signed into law by President Bill Clinton, which removed the legal separation between investment banks and depository banks, creating incredibly perverse incentives around bank leverage. These restrictions were reintroduced in the 2010 Dodd-Frank Act, signed into law by President Barack Obama. The hole was patched, but the damage was done. Skepticism of neoliberalism began to climb. Both in terms of approach to regulatory policy, trade policy, and immigration policy. Both the left and the right came for neoliberalism as a failed project, they saw it to be. For different reasons, and on different issues, but the different critiques aside, the consensus was fractured.
Obama, for his part, largely governed as a neoliberal centrist for his entire eight years, even as the ground had shifted under the feet of this consensus view in an increasing number of American voters. Indeed, Obama forged forward with the negotiation of the Trans Pacific Partnership — an agreement among Pacific Rim countries sans China, that was meant to create a free trade area in the Pacific in order to check China’s rising influence. It was a particularly smart idea in retrospect, and was an example of neoliberals trying to adapt to changing circumstances. While many still held out hope that China’s liberalization would eventually come, there were worrying signs that it was going to take a while longer than they thought, and that moves needed to be made to hedge against China.
Hillary Clinton’s abortive campaign for the presidency in 2016, was the last gasp of the neoliberal political consensus going down in flames to the anger against its mistakes, as Donald Trump successfully ignited a popular revolt against trade and globalization, particularly in the Mid-West where its scars were the deepest.
The neoliberals didn’t think they were defeated. They mostly thought they had to wait the populist wave out. They continued to advance their high-minded arguments from their perch in publications like The Atlantic. If you go back and read my Twitter posts from the time, you can fairly count me is one of those neoliberals sneering at the populist revolt. I assume I would still hold fast to most of those positions today, as my views on economics has not really changed much. What has changed, and I would argue that I missed, as did neoliberals, was that markets were never a liberalizing force at all. Neither at home nor abroad.
The rise of authoritarian capitalist states shows no signs of slowing down. Autocratic regimes have figured out that letting some of their citizens get rich can be quite useful to their power. In fact, as China’s example shows, with the disappearing of Chinese billionaires from public life, after the mild utterance of a criticism towards the ruling party, that the state has firm control over the country.
In the United States, a strange corollary is taking place with the billionaires becoming seemingly political islands unto themselves, beyond the reach of the law. In fact, much of the political program of the Republican Party from within the neoliberal era and still stretching into today, is the explicit project of trying to reduce state capacity and to limit the government’s ability to enforce laws that limit economic freedom.
This dynamic has opened the door for a challenger oligarch class, that are currently circling what they see as the inevitable collapse of the current political order. They see Donald Trump as their lynchpin to carry out this coup.
Elon Musk has become the most powerful and dramatic example of this. He is, by all accounts, out to try and take control of the executive branch of this country through the backdoor. An immigrant from South Africa — who apparently was working in the country illegally when he started his company — Musk is not eligible to serve in the office of the presidency under Article II, Section 1, Clause 5 of the US Constitution, which says that only natural born citizens (people born in the US or in its jurisdiction) can become president. This has not assuaged Musk from apparently believing the he can control and manipulate both Donald Trump and perhaps more favorably to him, JD Vance, should he become president.
Musk is particularly desperate for this to happen, as he is apparently flagrantly violated US campaign finance laws to attempt to buy the election for Donald Trump. And he might just succeed.
Musk represents the most flagrant example of a serious neoliberal error: thinking that markets and capitalism tend towards a liberal order, not raw power games. But Musk, the most successful contemporary capitalist is very much playing political power games. Even more perniciously, he is doing them in ways that seem dangerously aligned with foreign authoritarian capitalists. The deconstruction of the state’s power to contain economic forces in the name of market efficiency and dynamism has now exposed to us that it’s not just China we got wrong. But we got it wrong here, too.
JD Vance for his part, who has been heavily influenced by the Dark Enlightenment thinker, Curtis Yarvin, has expressed outright support for the creation of an authoritarian capitalist state. Peter Thiel, who Musk is also close to, has said that capitalism and democracy are not compatible.
Yarvin, Vance and Thiel believe that America would be better served by an absolute monarch. A dictator. Where America functioned more like the United Arab Emirates than a liberal democracy. While I’ve never been able to find evidence that Elon Musk directly aligns with these views — it’s not hard to find that Vance and Thiel do — it’s worth mentioning that all of these people are part of Elon Musk’s inner circle.
Layer on the fact that Musk has apparently been in regular communication with another authoritarian capitalist, and enemy of the United States, Vladimir Putin. The fact that his chosen standard bearer is Trump, who heaps regular praise on authoritarians, who holds Victor Orban, the Hungarian authoritarian, up as his favorite international leader, and you have the confluence of something that looks like a very dangerous alignment of economic power, looking to become political power and break free of the confines of a rule of law that is responsive to liberal ethical commitments on how to legitimize that power: through elections, through impartial courts, and a non-political professional government bureaucracy. We venerated Silicon Valley, once seen as a pinnacle of neoliberal achievement and solution to many of world's problems, with technological marvels they brought us. The problem we now face, is these figures really believe they are the solution to all the world's problems. It has made them some of the most dangerous people in the world.
There are no solutions, only trade-offs, as Thomas Sowell reminded us. The trade-offs we made in pursuit of market efficiency and technological progress have left democracy more vulnerable than we imagined possible at what we thought was, as Francis Fukuyama put it, the end of history.