Neoliberalism and its Discontents

F.A. Hayek.

Not unexpectedly, my comments on neoliberalism and Nafta have drawn rebukes. Both A.M. Lamey  and John Haffner have concluded that I’m an enemy of market economies and free trade, when I simply wanted to make clear that I was opposed to “neoliberalism and the policies that are often described as ‘free trade’ (but which are in fact managed trade agreements designed to bolster corporate power).”

So let me try to clear up the confusion:

1) Neoliberalism is type of market economics but not the only type. As I use the term neoliberalism I’m referring to a set of policies developed by American and Europe economists (notably Milton Friedman and F.A. Hayek) and adopted (with many modifications) by politicians like Ronald Reagan, Margaret Thatcher and Bill Clinton. This understanding of neoliberalism comes from David Harvey’s book A Brief History of Neoliberalism. The confusion comes from believing that the neoliberal policies are synonymous with market economics, and anyone opposed to neoliberalism must de facto be opposed to the free market. But the fact is there are a wide variety of market economies, including the social democratic states of Northern Europe. You can believe in a market economy and also oppose neoliberalism. My objection to neoliberalism is that it has led to a massive increase in economic inequality, which has terrible consequences socially and politically. For a discussion of the limits of neoliberalism, see the Harvey book or this essay by Brad DeLong (a neoliberal aware of the limits of his preferred policies).

2) Free trade is not the same as trade agreements like Nafta. I thought I was fairly explicit on this point since I wrote I was skeptical of “the policies that are often described as ‘free trade’ (but which are in fact managed trade agreements designed to bolster corporate power).” I don’t know what else to say. In theory free trade looks good and I’m all in favour of it. But trade agreements like Nafta have all sorts of problems in the way they limit labour rights and environmental regulations. So I don’t see them as free trade at all. And I note that many neoliberals agree with me on this point: see the quote from Goolsbee in John Haffner’s post on this subject: “If you look at these 900-page agreements, there are two pages of what every economist would say: Yeah, that’s great, they’re lowering tariff barriers. And it’s 898 pages of loopholes. It looks just like the tax code: ‘Protect this company, and make sure that they’re getting their money, and these investor protections.'” So you have trade agreements that give you 2 pages of tariff reduction and 898 pages of bolstering corporate power. Is that a good trade-off?

3) Opposition to Nafta is not the same thing as protectionism. I think that’s a logical outgrowth to point #2. Since trade agreements aren’t really about free trade, you can oppose them without being a protectionist.

4) Trade agreements aren’t necessarily a good way to help the global poor. If, as A.M. Lamey seems to think, Nafta was good for Mexico and trade agreements in general are good for the global poor, then that would be a very strong argument in the their favour. But the empirical evidence  to support this argument is far from clear cut. Kevin Gallagher, author of The Enclave Economy, argues that Nafta has failed to significantly increase foreign investment in Mexico and has caused a host of problems. (See this interview  Gallagher did with Doug Henwood on the myriad of economic problems facing post-Nafta Mexico). Or consider the reflections of Brad DeLong, who worked for the Clinton administrations and was a strong supporter of Nafta. In this talk DeLong basically says he started off as strong supporter of NAFTA. Then he lists the many ways that the many economic problems Mexico has suffered since Nafta including anemic economic growth. (DeLong could have added that Mexico’s economic growth was much higher in the 1960s and 1970s — i.e., when it was not following neo-liberal economic policies). DeLong ends by saying: “I’m still a believer in Nafta, yes, but my belief is relatively shaky now.” Outside the neoliberal consensus, there are economists who are even more critical of free trade agreements, notably Ha-Joon Chang of Cambridge University, author of Bad Samaritans: Rich Nations, Poor Policies and the Threat to the Developing World (a summary can be found here). So I think the jury is still out as to whether trade agreements are good for the global poor.

5) Social Democrats are not contrarians. I agree with A.M. Lamey that reflexive contrarianism is a silly stance (it’s one reason I don’t enjoy The New Republic magazine). Still, my objections to neoliberalism don’t derive from a knee-jerk rejection of common sense, of the type you see in creationists and global warming “skeptics”. I do have a positive economic policy: social democracy. And in fact, to tie everything together, I think that social democracies are better equiped to implement genuine free trade than more neoliberal countries (this parallels an argument Matt Yglesias has made that social democratic nations are better equiped to deregulate their economies).

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