Introduction
YOCHAIBENKLER
Neoliberalism was an ideology and institutional transformation program that aimed to shrink the role of the state in the economy and “liberate” market actors to pursue their profits in response to market signals.
It was a reaction to the post-Great Depression ascendance of high modernism in economic policy (Keynesianism and dirigisme): the idea that expertise and scientific management by the state and managerial elites could provide a stable, growing economy liberated from the boom-bust cycles that bedeviled capitalism in the long nineteenth century.1 Neoliberal epistemology was Hayekian: markets offer better information about the complexity of human need, desire, and ability than a state administration ever could. Its political morality was libertarian: efforts by the state to get the clear signals it requires to manage the economy necessarily result in oppression. The neoliberal policy packet therefore aimed to shrink the state and expand the market through deregulation, privatization, low taxes, and free trade. It promised economic dynamism in exchange for publicly governed economic security and enhanced consumer sovereignty and entrepreneurial freedom in exchange for social solidarity. Together, these promised to increase productivity and sustain growth that would raise all boats.The reality of the past four decades has been the inverse of the promise. Instead of broadly shared wealth driven by newly dynamic markets, the United States saw less dynamic markets coupled with dramatic rent extraction by a small oligarchic elite. Productivity growth since 1973 has been slower than in the preceding century, excepting the 1995-2004 interlude.2 Business dynamism and entrepreneurship, measured by firm entry and share of employment in young firms, declined.3 Industry concentration rose4 and markups increased.5 Real median income stagnated6 while the share of income going to the 1 percent and the 0.1 percent skyrocketed.7 Economic insecurity became widespread.
Forty percent of American households report that they cannot cover a $400 emergency.8 Americans are the only population in the developed world that saw declining life expectancy in the past 30 years.9 Economic insecurity appears to be a driver of the rise of populism.10Understanding neoliberalism as reactionary—an effort to revive laissez- faire against then- dominant progressive and social- democratic alternatives— helps us focus on the critical theoretical and methodological elements that distinguished it as an intellectual and political movement. Postwar social- democratic institutions were built on both sides of the Atlantic by harnessing the solidarity and collective efficacy developed through two World Wars and the Great Depression. The core tasks of neoliberalism were to replace that solidarity with individualism and undermine the sense of collective efficacy. The “social” was reinterpreted purely as the aggregation of individuals. Social welfare was framed as simple aggregation of individual preferencesatisfaction; democracy, as simple aggregation of voter preferences. Preferences, in turn, were exogenous, interpreted as something with which individuals come into markets and elections, and so they are pre-political and reflect the individual's authentic exercise of freedom. The behavior of these individuals could be formalized by rendering them transhistorical rational, self-interested actors operating in perfect markets with perfect information and no power, except in well-defined exceptional circumstances. These same agents came to a state in which gaining and leveraging power were the primary objective, and so these rational, self-interested individuals made well-functioning government impossible. From here, the workhorses of neoliberalism flowed from the abstract to the concrete: rational actor theory; regulatory capture; efficient markets; agency theory; shareholder value; Friedman's monetarism; Lucas's microfoundationalism; Buchanan and Stigler's assaults on the possibility of public governance; Becker's rationale for increased criminal punishment—all were based on these core epistemological and methodological foundations.
The revival of “political economy” as a frame for work on the relationship between productivity and justice in market societies encourages us to reintegrate history, power, and the social and material context—institutions, ideology, and technology—into our analysis of the economy. The economy, in turn, is understood not as “markets,” which are but one crucial part of the economy, but as social relations of production: how we make and distribute what we need and want to have. The “political” in “political economy” stands for two distinct but interrelated ideas. First, power is pervasive within economic relations: production and distribution in market societies follow historically path-dependent patterns of conflict, coordination, and cooperation, rather than a single ahistorical pattern of coordination around prices among self-referential agents. Second, the deployment of the polity proper— the legitimate threat of violent coercion—is an integral part of economic relations. The political and economic structure each other and are the arena of conflict and cooperation about both. The implication of these two simple points is that there is no single, natural, and efficient equilibrium to which market societies move if regulation is minimized to remove known, neutral, and ahistorical sources of market imperfection. Instead, market societies at the same productivity frontier develop along diverse historical trajectories, resulting in large differences in the productivity andjustice of social relations of production, sustained over significant periods. Understanding why Denmark and Mississippi, small market societies integrated into larger imperfect political and economic unions at the cutting edge of global technology and productivity, have diverged in justice and human development is the core analytic task of political economy. Harnessing that understanding to pursuing justice is the core programmatic role of the new political economy.
Various chapters in this volume focus on different aspects of the rejection of the neoliberal frame.
Woodly takes aim at the ahistorical, unsituated self as a preference-bearer as the proper basis for determining society's goals, replacing it with “the individual-in-context” who “has their own perceptions, dreams, desires, and agency, but they are nevertheless born into a world that is given and that givenness includes power asymmetries rooted in and reproduced by unjust inequality.” Shelby's proposal for a public-private nonprofit prison management system is expressly anchored in the specific historical context: focusing on how for-profit systems interact with government “under the current unjust background... conditions,” rather than in individual rights or abstract principles of criminal justice. It is under these conditions, where “social conditions are grossly unjust and the state lacks legitimacy in the eyes of the most disadvantaged,” that Shelby seeks to justify specifically nonprofit private institutions, leveraging diverse human motivations and social arrangements to underwrite production by neither market nor state. Henderson's intervention leans heavily on understanding corporate leaders not as they are in agency theory—self-interested actors who must be managed by precisely calibrated compensation mechanisms—but as socialized individuals who can be persuaded to pursue prosocial goals and shift the behaviors of firms. Salter focuses on the ethical and practical value of reciprocity to argue that more cooperative enterprises will in fact do better, but must be released of the institutions and ideology embodied in shareholder value theory. Schor and Eddy examine the effectiveness, advantages, and limitations of a new approach to embedding economic production: platform cooperatives. Eaglin takes as his starting premise the observation that firms invest in building and deploying political power. Rahman takes head-on the central programmatic thrust of neoliberalism—shrinking the state—and advocates for a committed strategy to construct public capacity. Downey engages in institutional innovation aimed at making the Federal Reserve democratically accountable. Rodrik and Sabel challenge the core epistemic claim of neoliberalism—that public administration operates in the dark—designing a good jobs policy that sees the government as not only directly responsible for training and job placement opportunities, but also best able to identify these opportunities through iterative, cooperative models of information exchange, experimentation, and learning that already function across a range of mission-critical public administration fields.