The new rules of business in a post-neoliberal world

Over 40 years ago, the Reagan-Thatcher revolution was born. Taxes have been reduced. The union was busted. Markets have been deregulated and global capital has been unleashed. But the economic pendulum swings. And in the last few weeks, it’s become clear that anything unrelated to trickle-down theory is political kryptonite.

The most obvious example, of course, is the backlash against UK Prime Minister Liz Truss’ fanciful plans to cut taxes for the wealthy after she announced massive spending on energy subsidies. Trasonomics is now off the agenda, and the Prime Minister’s own leadership is in jeopardy.

But the UK is not the only country facing the downhill of neoliberalism. I recently met senior officials in the Biden administration and many chief executives came to Washington and said, ‘Signals from the government — where should we invest? Should we be in Vietnam or Mexico? do you want us?”

The government is not yet in the business of picking winners and losers, but the White House has already completed the transition to the post-neoliberal era, and much of the business world is gearing up as well. You may not like the idea of ​​a de-globalized world with more civilization, more state control, and a larger workforce. However, they can usually find ways to make money as long as they understand the rules of the market.

So what are the new rules? The Biden administration recently A clear blueprint for the economy you wantcontained five key elements. One is to empower workers, and it has worked hard by using the federal budget to support unionized labor. The other is to use as much fiscal policy as possible in a polarized Congress to strengthen working families in areas such as health care and childcare that are increasingly out of reach for many Americans. .

But as Secretary of Commerce Gina Raimond put it on me a few months ago, the government should be more than just tax cuts and wealth redistribution. This administration wants to play a bigger role in directing the supply side of the private sector. In particular, we want to encourage manufacturing not only by promoting “Buy American” but also by radically shifting the policy focus from distribution to production.

i.e. industrial policyWhile Washington does not yet have a fully articulated strategy, there are clear signs that the laissez-faire economy is over.

One of them is the fact that many companies will soon have to choose between the US and China. A formal division between the two countries is gaining momentum. A record number of US jobs are being recalled from China, calling for stricter rules on technology transfer.

Second, the resilience and redundancy of critical supply chains is more important than ever. Just a few days ago, Micron became the second largest company (after Intel), announcing a major semiconductor investment in the US, with a new foundry in upstate New York where he put $100 billion.

Federal investments in electric vehicles are also bringing new jobs to impoverished areas of the South and Midwest. A strong dollar may be a headwind to the administration’s hopes of growing larger manufacturing and exports. Economy, At the moment, lower energy input costs in the US compared to Europe are a tailwind.

Support for economic “patriotism” is now the operating principle on both sides of Washington’s political divide. Robert Lighthizer, who served as U.S. Trade Representative under Donald Trump, famously advocated closing the U.S. trade deficit. But recently, Democratic California Congressman Law Khanna — a rising figure in progressive circles — called for the same thing, saying that the United States will achieve her trade surplus with the rest of the world by 2035. advocated to do

As Khanna put it, “One year’s trade deficit is fine as long as it’s balanced with another year’s trade surplus. But the country has had a constant trade deficit since 1975.” He believes the government needs to help remedy this by offering interest-free loans to factories and increasing federal purchases to take over the market.

Last week, I heard Khanna speak at the launch of Reimagining the Economy, an initiative at the Harvard Kennedy School led by economists Dani Rodrick and Gordon Hanson. It aims to replace the neoliberal policy paradigm with something new and is one of several such programs at leading universities across the United States. Many of these institutions are vying to be the epicenter of fresh economic thought, much as the University of Chicago was the epicenter of neoliberalism.

Khanna summarizes the current challenges as follows: The phrase itself represents something new. Historically, the conversation between racial equity and class inequality has been segregated in the United States. But as Democrats grapple with finding the contours of post-neoliberal economics, more and more he wants to connect the two.

This was the topic of another large syndig last week, sponsored by the Roosevelt Institute, where progressive politicians (many from within the administration) gathered to discuss the details of American industrial policy. One thing I can say, though it’s not fully figured out yet, is that all of this is the opposite of trickle down.

rana.foroohar@ft.com