Episode Summary

Concerns about globalization and the rise of politicized religion have led to dramatic increases in political extremism in the United States and many other countries in recent years. But another huge factor has been the shrinking of what people feel like they can expect from their government.

For about the last 30 years or so, most countries with mature industrial economies have been ruled by left and right parties that espouse neoliberal views that governments can’t and shouldn’t do much to boost the economy, and that deregulation and privatization are preferred.

It was already apparent to many people, but the Covid 19 pandemic made it very clear that the invisible hand is a terrible manager for a national economy. The global supply chains that worked so well for many years broke down entirely, and that there have been shortages of everything from toilet paper to automobiles. The many problems that China has had in particular have also made it obvious that locating almost the entirety of the world’s electronics production to China and Taiwan was a disastrous idea no matter how cheap it may have been.

The rapid development in multiple countries of many different vaccines against the SARS-CoV2 virus has also demonstrated that governments can successfully drive rapid scientific and commercial innovation that would’ve taken the private sector alone many years to accomplish.

After ruling our politics for decades, neoliberalism appears to be on the way out. But what’s coming next? Joining in this episode to discuss is Nils Gilman. He is a senior vice president at the Berggruen Institute, and he’s the deputy editor of Noema, an online magazine about philosophy, governance, and technology. And just recently, he co-wrote an essay entitled “The Designer Economy,” which is a multifaceted look at what’s displacing neoliberalism and who’s doing it.

The lightly edited video of our conversation is below. The transcript of the edited audio follows. Please note that you must be an active Flux subscriber to access the entirety of this discussion. Thank you so much for your support. Please subscribe today for as little as $3 per month.



MATTHEW SHEFFIELD: Welcome to Theory of Change, Nils.

NILS GILMAN: Thank you so much for having me on Matthew.

SHEFFIELD: This is going to be a pretty broad ranging discussion, so I did want to structure it a little bit here, just give us a brief overview of what do you mean by the designer economy in this essay?

GILMAN: So briefly, the argument that my co-author and I make in this article is that, as you laid out in the introduction to the segment, for the last 40 years or so, 30 or 40 years, we have had a doctrine governing our economy in the United States and really throughout much of the West, the western developed economies that governments are best maybe staying out of the way of the private sector. If you want to drive innovation, if you want to drive economic growth, if you want to drive productivity, basically let the entrepreneurs do their thing and that the state basically is at best, a neutral party.

You should try to keep prices stable through management of the Federal Reserve and interest rates. But that basically the government doesn’t have much of a role to play in innovation and in productivity growth. And that any forms of government intervention are typically counterproductive. They’re either subject to regulatory capture they may be sources of corruption. And just in general, even if you assume that everybody’s acting in good faith, government bureaucrats are worse at picking winners than venture capitalists are.

And so the government should not be involved in allocating capital to– certainly not individual companies– but not even necessarily individual sectors. The idea was that the growth of the economy is primarily natural and that the government should stay out of the way. Because anything it does is bad. It’s likely to just derail the natural causes of growth in the economy.

And there’s all sorts of reasons and important theories that underpin that basic view of neoliberalism. A lot of it goes back to the work of Friedrich Hayek, the Austrian economist and philosopher who basically said there’s too much stuff going on in the economy for any central planners to ever have any hope of understanding everything that’s going on.

We need to use the market as an information brokerage system so we can get the price signals right. And those price signals will communicate the preferences of people for various goods and services. And those will be communicated through the market and pricing system and allow entrepreneurs to figure out where the best products are and where they should be delivered, where they should be built, where they should be distributed, determined by markets which are the most efficient form of information communication systems about highly distributed and highly variable preferences.

So that’s been kind of the dominant theory. Friedrich von Hayek started promoting these ideas all the way back in the 1920s and 30s, but they really started to become dominant in the late 70s and early 1980s. And they’ve been the kind of dominant idea for defining what the role of government should be in the economy, which is basically trying to stay out of it to the extent possible.

But as you laid out in your introduction, Matthew, there’s a bunch of things that have happened in the last 15 years that have called a lot of that into question. One of the things that happened, of course, was that the government’s been making all sorts of interventions, and they’ve generally been making interventions to prop up large corporations when faced with economic downturns. And the anger that many Americans, many people throughout the West, felt about the way in which the global financial crisis was handled, was that it wasn’t that the government stayed out of the way, is that when the chips were down, the government bailed out corporations and financial services firms and left individuals holding mortgages to the forces of the market.

So the whole system ended up feeling rigged to many people, which caused a crisis of legitimacy. In addition to that, of course, we’ve seen stagnation, this theory about the way in which economic growth is supposed to be spontaneously generated by the market hasn’t really been born out. We’ve been in a period of very low growth for a very long time.

And policy makers across the political spectrum kind of accepted that 4% unemployment and 2% growth was about as good as a mature quote unquote, mature economy could do. And I think a lot of that would’ve been stumbling along pretty much conventionally except for the fact that several things happened over the last five years.

The first thing that happened that really I think started to shift the consensus was Donald Trump’s presidency. Donald Trump ran of course, on a platform that said that globalization and free trade had merely empowered one of our chief adversaries. He sometimes called them an enemy, China. And said that empowerment and improvement of the Chinese economy had come at the expense of workers in the industrial heartland who had experienced de-industrialization as factories moved from relatively expensive production conditions in the United States to relatively cheap production conditions in China and other places overseas.

That of course was the theory of neoliberalism. The reason why it was going to cause productivity is it would locate the production of goods and services wherever it was the cheapest place to do those things, right? And so that was always the dominant theory of the way this would work. And that, yes, it might cost some jobs in the heartland, but everybody would get cheap, flat screen TVs. And overall, the net utility for a society would be improved by participating in a free trade, highly globalized economy in some theoretical way.

Of course that might be true, but the economy’s not made up of just theoretical actors, it’s made up of people who live in specific places and have specific jobs. And if your job goes overseas to China, then the fact that other people somewhere else in the country are getting sheep flat screen TVs is hardly a compensating virtue. So I think Donald Trump really called this and made a lot of people– it was the first time there’d been a candidate in 30 years who was willing to run against the orthodoxies on free trade. And then he won. So I think that made a big difference.

The second thing that happened, actually, the first thing that happened was the delegitimization of the laissez fair economy around the post, the way in which the global financial crisis was handled. Second thing was Donald Trump, and the third thing was the pandemic.

And the pandemic was important, as you also laid out in your in your intro, Matthew, for a couple of different reasons. One is it showed that the government could actually stoke innovation around again, Donald Trump, the administration deserves some credit for that Operation Warp Speed, said, we are going to get vaccines from the lab, from the Petri dish to market in a year.

And they did, right? I mean, it was pretty incredible. The genome of the Covid virus was sequenced in January of 2020. And by the end of 2020, there were vaccines that were coming online. And it showed that the government, by basically guaranteeing markets for purchasing, could mobilize a whole bunch of private capital. So Pfizer, Moderna, and so on, they all knew that they were going to be able to get a market if they brought these drugs through the very streamlined drug approval process by the FDA.

That’s in fact what happened. And by within a year, we had this incredible innovation of a new vaccine. No vaccine had ever come to market in less than five or six years. And this was done in just under a year. It was pretty incredible, and the government was essential for making that happen.

The other thing of course that happened was that, when, for public health reasons, we decided to do a shutdown, the government decided we should do shutdowns of the economy, economists realized that there were going to be tens of millions of people that were going to lose their jobs, which would’ve caused an economic calamity.

And again, the government made a massive intervention on a bipartisan basis. People often forget that in the spring of 2020, in the middle of one of the most heated political presidential campaigns in the history of the country, Republicans and Democrats in Congress and in the Trump administration with Nancy Pelosi, got together and passed a bipartisan bill to do a massive amount of stimulus to provide people with support, and small businesses with support as the shutdowns were happening.

And as bad as it was for the economy to see the shutdowns, without those interventions, tens of millions of people might have been in the streets, might have been evicted from their homes, might have lost all of their savings and so on.

I’m not saying that the interventions were perfect, they may well have contributed to the inflation we ended up experiencing a couple years later, but a couple of years of 7 or 8% inflation is nothing compared to the consequences of seeing 50 million Americans out of work with no support from the government. So overall, a bunch of things happened over the last several years that have made people realize that the government, contrary to the ideology of neoliberalism, that says that the government can only ever be a bad effect on the economy insofar as it’s interventionistic, can in fact have positive effects on the economy, from the point of view of, everyday people in the United States.

SHEFFIELD: So those were sort of the motivations to get people to think anew, right? But when you’re saying the designer economy, what do you mean? You guys in your essay do kind of make the point that this is not the same thing as the old 20th century industrial policy, we are trying to go for something different. Explain what you mean with that in the contrast, if you will, please.

GILMAN: Sure. So during the 20th century, many forms of– and it went by many different names– industrial policy, development policy is usually what it was called in the Third World, it could be called industrial strategy. Often this was about saying, we’re going to pick a specific company and we’re going to bet on it, right? Or we’re going to say that the government is going to provide incentives to specific manufacturers to produce specific kinds of goods and services over time. The most extreme examples of this, of course, were the fully planned economies of under communism where whole huge cybernetic systems were built to manage the inputs and output flows of all sorts of things in the industrial economy.

And the experience of, and the inefficiencies that were experienced by particularly Eastern European communist regimes, really put that in a very bad view. It looked like the government was very bad at picking out different sectors of the economy and managing companies directly.

So you go to England or France in the 1970s, all the major companies that control the most important industrial streams, whether that is electricity production, or railroads, and transportation systems. Often the car manufacturers, the airframe manufacturers, almost all the major industrial players were either completely owned by the government, or largely controlled by the government.

In terms of the direct operations of these businesses, that is not what we’re talking about with the designer economy. What we’re talking about with the designer economy is something that’s much more subtle than that. It’s about setting general goals and providing incentives and markets, guaranteed markets to critical sectors that we understand are critical.

Not because we have a theory that government managers are necessarily better, I don’t believe that, than any other managers at managing businesses. But because government managers are better than profit maximizing individuals at understanding the larger strategic needs of the U.S. in terms of the economy.

And the economy, of course doesn’t just exist to give people jobs and to make people make individual entrepreneurs rich. It also exists to provide a basis of security for everybody in the country. And that security ranges from personal security with your need for an income stream and a job to national security where you want to make sure that your national security needs can be met domestically, or at least, if not domestically, at least domestically plus in the countries of allies, right?

So you don’t want to be completely dependent, for example, on Chinese batteries to run all of your cars. If we want to make a green energy transition, and we think China might not be, reliably on our side, we probably don’t want to have all of our green energy production rely on batteries being produced in a potential adversary state.

So, for many different reasons now, there are people who realize that we need, we have a strategic interest in having a particular sector be either onshore or what economists sometimes call “friend-shored.” So we can be sure that the production of everything from vaccines, to green energy transition tools, to new kinds of medicines, to artificial intelligence, to all the inputs into these things like chips, is really important that those things be located in places where we can rely on having access to that.

So that’s a sense in which it’s very different. It’s a designed economy rather than a planned economy.

SHEFFIELD: And the other thing about it also is that, and you guys talk about it in the essay, is that this is a bipartisan or beyond left and right, sort of a consensus that is emerging. And you identify four separate groups of people that you say are sort of advocating for a designer economy.

Let’s maybe just go through them, if we could please.

GILMAN: We identify several different groups that we believe are for various reasons converging on supporting different visions, but common ideas about what a designer economy ought to look like.

So one category is what we call “jobs creators.” These are people who want to bring good jobs to the United States. It’s also sometimes called place-based industrial policy. The idea is that, we talk about the Rust Belt, and there are particular parts of the country that have suffered economically more from the impacts of globalization and laissez faire economic policies. So you get large stretches of the Midwest in particular that have really suffered.

Communities have really suffered because there’s not enough good jobs, and young people with ambition are leaving, which makes these communities, there’s a brain drain that’s happening in many cases. This drives all sorts of unpleasant politics in many cases. And so there’s a lot of people who want to bring jobs back to specific places in the country, where there’s been a dearth of good jobs over time.

And that’s people on both the left and the right. I mean, when Donald Trump wanted to bring chips manufacturing back to Wisconsin, I mean, he definitely knew that was a swing state, but it’s also true that Wisconsin needs good kinds of high tech, high value-add manufacturing jobs. And so that was a good idea. So that’s one category. People want to create good jobs in America, particularly in places that haven’t had a lot of good high-end jobs for a while.

SHEFFIELD: Yeah. And Sherrod Brown of Ohio would be an example on the Democratic side of somebody with that perspective perhaps.

GILMAN: Right. So yeah, absolutely. Sherrod Brown would be a good example. Joe Manchin would be a good example of that, also from the Democratic side of the aisle. But there’s lots of people in the heartland, senators from red states, Republican senators, red states, who also support this idea of place-based industrial policy. So jobs creators is one.

There’s a second category, which I think is also kind of interesting. We call them “green technology accelerationists,” as people who believe, for a variety of reasons, that we want to accelerate the transition towards green technology. That’s electric vehicles, renewable energy production, new kinds of transmission systems, solar panels on everybody’s roofs and so on.

And some people think that’s really important for environmental reasons that we want to slow down global warming. Obviously, but some people also think it’s important because these are– if we think this is the infrastructure of the future, the US better get good at it, manufacturing that stuff, and building that stuff, because otherwise those really high value-added industries and really important industries will exist elsewhere rather than at home.

-So the green technology accelerationists often can make common cause with the jobs creators about wanting to actually accelerate this. And I should note that this is primarily Democrats and people on the left who are often more aggressive about wanting to make a green energy transition.

But it also includes a lot of former Reaganite type economists and policymakers on the right, people who call themselves things like state capacity libertarians. I’m thinking of people like at the Niskanen Center and people like that, who really believe that we want to be building up state capacity to do these kinds of big, important projects. So that’s the second category, green technology accelerationists.

The third category is what we might call “social democrats.” And these are people who believe the government should be involved in the economy because we want to create an economy that has certain kinds of social features to it. So this is often among Democratic activists and policy makers.

They refer to this as creating a care economy, right? We want to create industrial jobs, particularly for example, around renewable energies, if they’re partnering with green technology accelerationist. But they also want the government more involved in organizing and providing social services. For example, like we should have universal childcare in order to enable women to enter the labor market more effectively.

So there’s a whole raft of people in the United States. Again, these people are mostly on the left and on the liberal side of the aisle, who sort of look at Scandinavian types of social welfare policies and realize that in order to get to Scandinavian style social welfare policies, the government needs to be much more involved and active in labor markets. And that inevitably means getting more involved in thinking about how to manage the economy more broadly, how to design the economy more broadly. So that’s the third category, social democrats.

And then the last category we talk about is what we refer to as “national developmentalists.” And this is a very old tradition in the United States. It goes all the way back to Alexander Hamilton, the National Association of Manufacturers.

And this includes mainly kinds of people on the right, actually these days I’m thinking of people like Oren Cass, or people like on the elected side, Marco Rubio, who really believe that we should be doing things to make sure that the the national economy is strong, and that America has independence and is not overly interdependent with people in other parts of the world who we can’t rely on for one reason or another, often for reasons of politics and national aspirations.

So these folks are generally people who would normally have been identified with the right, but who have gotten much more on board with the idea that we need to friend-shore or onshore critical infrastructure and supply chains in order to maintain our national greatness. So some of these, as I say, are pretty bipartisan, like jobs creators.

The green technology accelerationists tend to be a combination of high tech entrepreneurs and believers in the green economy and environmentalists. The social democrats are obviously mostly on the left, and the national developmentalists are mostly on the right.

But what they’re all doing is they’re all converging on the idea that the government needs to take a much more activist role in shaping the economy, actually driving change into the economy, picking out sectors where it’s important for national security reasons, or for environmental reasons that we have some degree of control and some degree of democratic control over those things. And that inevitably means that there has to be more government involvement in the process.

SHEFFIELD: And one of the other sort of commonality points between the social democrats and the national developmentalists is that they both try to advocate for single income households. So in the case of a social democrats, they may be thinking more of a single parent, whereas national developmentalists may have religious motivations to try to preserve a patriarchal family with only the father working.

But the net effect is that whether you’re a single parent with kids or just living by yourself, it gets expensive. And whether you’re a family with five or six kids, and only one parent working, that’s expensive. And leaving it at only to the invisible hand is– a lot of people are getting tired of that, at least these two groups are saying.

GILMAN: Yeah, I mean, I think one way in which we improved growth in GDP starting in the 1970s was by massively increasing women’s participation in the workforce over their lifespans. And that moved them from doing– I mean, women had always worked really hard, obviously, as mothers and caretakers for households, but that was not part of the financial economy, and therefore did not get counted as part of GDP.

You move women out of the household and into formal employment, that just will increase the size of the formally measured economy. Now, it doesn’t necessarily mean that people are better off, right? Because if you’re working at home all day, taking care of your kids, and not having an income, that doesn’t necessarily mean you’re worse off than if you go to work all day and make a minimum wage job and somebody else has to take care of your kids, right?

That might not be a good outcome for the kids. It might not be an outcome, good outcome for the single parent who’s working the minimum wage job. It might not be a good outcome for society, but it would indicate that the economy was growing on a formal basis, right? So that kind of intuition has made many people, particularly I have to say on the right, recognize that we need to rethink our labor policies.

But as you say, Matthew, it’s also true that it doesn’t really matter whether you believe that there should be a single patriarchal, heteronormative family at the center of this, you think it should just be anybody can be able to set up a single income household and be able to live a decent life that way.

Either one of those models involves creating jobs, and lots of them, that allow a whole household to be supported on a single income, right? So that part of a social vision for the economy is shared.

I think one big difference between the social vision for the economy of the right and the social vision for the economy of the left, has to do with whether there should be governmental interventions to support things like universal preschool or even crèches, right?

You can, in Europe for example, as soon as I think there’s some age limits, six months or something like that, but then there’s basically free daycare starting at six months for babies. And so that obviously enables somebody in the household who would otherwise have to take care of the baby to be able to reenter the workforce with a relative rapidity.

I think that’s basically the vision that a lot of people on the left have of whether they would like the us to end up, is they would like it to have similar levels of government funded, if not provided, not necessarily government provided, it might be private sector provided, but government funded and therefore that’s the kind of thing that would be designed. It’s not that the government’s going to own the daycare sector, the government doesn’t have to run the daycare centers, but the government will provide funding for universal daycare.

And so that, that would be an example of a designer economy from the point of view of social democrats not running the economy, but funding a mission part of the economy.

For the right, I think that they’re less interested in that particular social vision, but they have other reasons to support the creation of high-end jobs that a single male breadwinner can use to fund an entire family and to support an entire family.

So there are ways in which there are commonalities in the designer economy, but there are still going to be really important debates and ideological debates about what kind of ultimate social vision do we have for the economy.

Politics is not going away as a result of the designer economy. It’s just that now we’re going to have debate about how the government should intervene, not assuming that the government shouldn’t intervene, and that we’re just going to have a debate about distributional outcomes after the fact.

So one thing I want to be really clear about is that the reason I bring up this distinction between the social vision that national greatness conservatives or national developmentalist proponents of the designer economy have versus the social democratic proponents of the designer economy, is just to underscore that I don’t believe that we’re moving towards an era where there’s not going to be partisan battles and ideological battles about what kind economy we’re going to have, or what what kind of economy the government should be trying to build.

What’s changing is the horizon of expectation within which debates are going to take place. So the horizon of expectation from the 1990s through the Obama era, basically from the Clinton era, from the Clinton administration through the Obama administration, kind of assumed that the government should stay out of actually directing the economy very much at all.

I mean, there were some examples that were exceptions and they were massively fought back against by the right. I think the right has more or less accepted that the government does have a role to play. They just think it has a different role to play, in terms of shaping the economy than people like social democrats do.

So I think we’re going to have fierce fierce debates just as we did during the 90s and oughts about the economy, it’s just that the assumptions that are shared on a bipartisan basis are going to look quite quite different, and that the shared assumptions include the fact that the government should take a much more directive approach at building out certain sectors of the economy for reasons that are essentially political in nature or social in nature, not purely focused on efficiency.

SHEFFIELD: One of the thoughts that I had reading your piece is that, and I kind of mentioned in the introduction, is that the scope of politics has shrunk from what people expect from governments and as it has shrunk, I believe that has increased and exacerbated the divisions of what was left.

Because if government’s not supposed to be involved in the economy, or helping you with your life in whatever fashion you believe, if that’s off the table, then the only thing that’s left is well, is religion true? And well, should lesbian or gay people be allowed to be out of the closet?

The stakes are much more driven toward social division, where you may have people that have a minority viewpoint but they hold it very ardently, and so they become much more alienated from a society because they don’t think that anything else matters in the politics that exists for them and for everyone else.

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