Friday, December 2, 2005

Neoliberalism: origins, theory, definition

The following information from Paul Treanor provides some insight into neoliberalism:

Neoliberalism: origins, theory, definition

Since the 1990s activists use the word 'neoliberalism' for global market-liberalism ('capitalism') and for free-trade policies. In this sense, it is widely used in South America. 'Neoliberalism' is often used interchangeably with 'globalisation'. But free markets and global free trade are not new, and this use of the word ignores developments in the advanced economies. The analysis here compares neoliberalism with its historical predecessors. Neoliberalism is not just economics: it is a social and moral philosophy, in some aspects qualitatively different from liberalism. Last changes 02 December 2005.

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Neoliberalism inadequately defined?

The definition of neoliberalism presented here is more abstract than usual - but it also suggests that neoliberalism has been underestimated. A widely quoted example of those 'usual definitions' is What is "Neo-Liberalism"? by Elizabeth Martinez and Arnoldo García:
Neo-liberalism is a set of economic policies that have become widespread during the last 25 years or so. Although the word is rarely heard in the United States, you can clearly see the effects of neo-liberalism here as the rich grow richer and the poor grow poorer....Around the world, neo-liberalism has been imposed by powerful financial institutions like the International Monetary Fund (IMF), the World Bank and the Inter- American Development Bank....the capitalist crisis over the last 25 years, with its shrinking profit rates, inspired the corporate elite to revive economic liberalism. That's what makes it 'neo' or new.

This sense of the word 'neoliberalism' is widely used in Latin America. However, neoliberalism is more a phenomenon of the rich western market democracies, than of poor regions. That is why I emphasise the historical development of liberalism, in those western market democracies. The IMF and the World Bank are not the right places to look, to see the essence of neoliberalism. And the WTO ideology - free trade and 'competitive advantage' - is 200 years old. There is nothing 'neo' in their liberalism.

Seattle and Genoa?

The image of 'neoliberalism' has been heavily influenced by the protests against it: people think of the violent protests at Seattle and Genoa, and the associated social movements. If you only thought about that, then neoliberalism would be an ideology of the riot police, and that's not accurate.

It's true that the Genoa G8 summit was intended as a show of force. The organisers knew that violent demonstrations were probable in an Italian city, but chose to confront them. Democratically elected leaders "should not run from demonstrators", said Tony Blair. (However, when it was Britain's turn to organise the G8 summit, the hypocrite choose the isolated Gleneagles hotel in Scotland). 20 000 police and soldiers were deployed at the Genoa G8 summit - NATO used 42 500 troops to occupy Kosovo. This show of force was out of all proportion to the political strength of anti-market forces, but it emphasised the legitimacy of the market-democratic states.

It is possible for 'the state' to suppress 'the market', but also to promote it. In fact, the free market emerged in Europe under the protection of the state, and the market needs the state, more than the other way around. The market needs internal regulation, in order to function: the state, in the form of the legal system, ensures contracts are enforced. In the form of the police, it prevents theft and fraud. It establishes uniform systems of weights and measures, and a uniform currency. Without these things there would be no free market, no market forces, and no resulting market society. Bill Gates disputes the US Government's authority over his business - but if there was no government at all, the poor would soon steal his wealth. The attack on the World Trade Center provided some images of this dependency - the reopening of the New York Stock Exchange by police and firefighters, for instance. (In turn, at least in the United States, the market is integrated in the national identity: the NYSE reopening was seen as an act of national defiance).

The free market is itself a form of social organisation: it is neither spontaneous nor endemic to humans. If no-one ever promoted or enforced it, there would be no free market on this planet. For thousands of years, there was none. The modern free market came into existence primarily because liberalism demanded its existence. This demand was a a political demand, and it was enforced through the state.

The general functionalist starting premise is only modified to the extent that the "system" is comprehended as capitalist, in a specific way "form-determined". The state and the political system function as a form of an 'ideal all-around capitalist', who must uphold not just the society as such, but the 'capitalist element'. The different forms of state interventionism are explained both as an expression of functional needs of the accumulation and reproduction process of capital. The general requirements of capital accumulation such as basic infrastructure, functioning law systems and legitimization mechanisms are tasks that cannot be carried out by individual capitalists due to the competition relations, but instead systemically require a "fictive all-around-capitalist". This "capitalist referee" must guarantee the fulfilment of these tasks in the interest of maintaining the system of capitalist society..
Business and the State: Mapping the Theoretical Landscape
Volker Schneider and Marc Tenbuecken, 2002.

If everyone on this planet was a liberal, an enthusiastic supporter of the free market, then that would be the end of the matter. But of course some people oppose the market, and its effects - especially the resulting inequality. The market is a political and social regime, and like any other regime, it must be enforced against opposition. That is true even of democracies: democrats overthrow dictators, and dictators overthrow democracies. If either side wants to avoid their own overthrow, they must use force. Democrats do use democratic force, and do fight democratic wars, as they know in Iraq.

The relationship between supporters and opponents of the free market, is similar to that between democrats and anti-democrats. They are enemies, inherently. On the very existence of the market, no compromise is possible. The free market either exists, or it does not exist. It can disappear by consent - which is absurdly unlikely - or without consent. Any attempt to end the free market is, by definition, an attempt to overthrow a fundamental social structure. Certainly, in the long-established western market democracies, it would mean a collapse of the existing social structures. The effect would be dramatic - comparable to occupation by a foreign power.

So it is not surprising that force is used in the face of a threat, and it is not surprising that it is the force of the state. That is after all, a typical task of the state - the preservation of the regime itself, the preservation of the nature of the state. Anarchist propaganda speaks of "the State", as if all states were interchangeable, but they are not. A market democracy is not interchangeable with a Bolshevik regime, simply because they both have a government, an army, and a police force. A market democracy will use force, state force, against an attempt to overthrow either democracy or the market. That is what the riot police did: defend the state, and defend the market - without contradiction between them.

In historical perspective 'Genoa' was an absurd over-reaction. The western market democracies are the most stable and successful societies in history. The principle of the free market is accepted by well over 90% of their population, probably closer to 99% in western Europe. The tensions can be explained by the underlying sense of threat, but they are not specifically related to neoliberalism, and they certainly do not explain it. For that, a long-term and ideological perspective is necessary.

Liberalism

Liberalism as a coherent social philosophy dates from the late 18th century. At first there was no distinction between political and economic liberalism (economics was not considered a separate discipline until about 1850). Classic liberal political philosophy has continued to develop - after 1900 as a purely conservative philosophy. The basic principles of all liberal philosophy are:
  • Liberals believe that the form of society should be the outcome of processes. These processes should be interactive and involve all members of society. The market is an example, probably the best example, of what liberals mean by process. Liberals are generally hostile to any 'interference with process'. Specifically, liberals claim that the distribution of wealth as a result of the market is, in itself, just. Liberals reject the idea of redistribution of wealth as a goal in itself.

  • Liberals therefore reject any design or plan for society - religious, utopian, or ethical. Liberals feel that society and state should not have fixed goals, but that 'process should determine outcome'. This anti-utopianism became increasingly important in liberal philosophy, in reaction to the Communist centrally-planned economies: it anticipated the extreme deregulation-ism of later neoliberalism.

  • Liberalism is therefore inherently hostile to competing non-liberal societies - which it sees not simply as different, but as wrong. In the last 10 years, Islamic society has replaced the Communist state, as the perceived 'opposite' to a liberal society.

  • Nevertheless liberalism has compromised with one specific form of non-liberal ideology: nationalism, in the ethno-national form which underlies most present nation states. A political community based on common origin, history and language is not liberal, but liberals never tried to form the voluntarist, contractual, non-historical state - which liberalism would logically imply. The nation state was simply taken for granted, as the political and economic arena for liberal process.

  • Liberals define liberalism itself as 'freedom', so they rarely think consent is required for the imposition of a liberal society. In fact, most would say it can not be imposed, inherently. After the Cold War this belief has acquired a geostrategic significance: many western liberal-democrats now believe, that a war to impose a liberal-democratic society is inherently just. This belief influences interventionist policy, but as yet no war for the sole purpose of liberalisation has been fought.

  • Classic political liberals reject the idea that there are any external moral values: they say that there are only opinions. They feel that these opinions should be 'expressed' in public, and that in some way this 'market of opinions' will favour the truth. (The idea that truth can be revealed by discourse is much older than liberalism).

  • The liberal rejection of external moral values is formally expressed in the liberal idea of human rights: both good and evil humans have equal rights, which apply equally when they facilitate good or evil actions. Classic liberal philosophy advocated 'liberty' as a value, even if they did not call it a value. In effect it places liberty as a value above good (and evil).

  • Liberals believe in formal equality among participants in a liberal society, but almost all liberals also believe in inequality of talent. Many liberals were therefore sympathetic to biological theories of inequality. (Theories of hereditary racial differences in intelligence are now popular among US neoliberals).

Liberalism is a universal ideology, and in principle liberals seek to apply it to the entire planet, and the entire human population. Most liberals have supported the expansion of liberal society, although in the 19th century that meant among the 'civilised nations'. For a long time the free market was considered the only cross-cultural and 'exportable' element of liberalism. Only recently have liberals advocated, that African and Asian societies should become 100% liberal-democratic societies. 'Liberal missionaries', such as George Soros, were unknown or marginal in the 19th century.

Market liberalism

The free market is not simply 'exchange' or 'trade'. Two people who exchange products can not form a free market in the liberal sense, even if their transactions are monetarised. The element of competition is missing in this two-person society.

A minimal liberal free market needs at least three parties, with two of them in competition - for instance, two competing sellers and one buyer. The resultant pressure on the two sellers to lower prices, is the simplest type of 'market force'. Such a force comes into existence without any conscious action on the part of the three parties. In modern markets there are millions of parties, and complex market forces. Market-liberals value this characteristic of the market. Their belief in the moral necessity of market forces in the economy, is probably the first defining feature of market liberalism. The second is the belief in entrepreneurs themselves, as a good and necessary social group. To summarise:

  • For all liberals, interactive process legitimises outcome: in market liberalism, the market is the primary process, and market transactions are the interaction.

  • Market liberals believe that economic transactions should take place in a framework which maximises the effect of each transaction on every other transaction. (That is an abstract definition of the free market, but it makes the later transition from liberalism to neoliberalism easier to understand).

  • Liberals see the market as good, and often as semi-sacred. They want the market to be as large as possible, involving all of society. In modern liberal-democratic states almost all adults participate in the market. A private club in a Communist state, where members can hold a closed free market, would satisfy no liberal.

  • Liberals are hostile to economic self-sufficiency - so strongly, that they believed in war to 'open up markets'. The most famous example is the Opium War, when Britain forced the Chinese Empire to allow the import of opium. This liberal belief in market expansionism has revived after the end of the Cold War.

  • Market liberals are hostile to trade barriers: "free trade" is a classic slogan of market liberalism. That meant traditionally, the free flow of goods and capital: neoliberalism later developed a more diffuse version, where 'flow' and 'interaction' are treated as quasi-ethical values.

  • Market liberals believe that important aspects of society should be determined by the market, certainly the distribution of income and wealth. Neoliberalism later extended this belief, claiming that all social life should be determined by the market.

  • All market liberals are hostile to interference in the market, by church, state or others - although since the 19th century only the state has sufficient power to interfere. Market liberals are clearly anti-utopian, in the sense of opposing economic planning, especially centralised state control of the entire economy. They believe that the market produces the best 'design for society', and that is is wrong to substitute any other design.

  • However, market liberalism is itself a utopia, despite its anti-utopianism. In the 'ideal world' of market liberalism, no goods or services exist which are not the product of market forces, but all goods or services which are market-responsive do exist. This is in itself a utopian project, implying a total structuring of society. Neoliberalism goes even further - extending the market principle beyond the production of goods and services.

  • The social institution of the entrepreneur is central to market liberalism. An entrepreneur is a person whose profession is, to respond to market forces. In the 19th century most entrepreneurs were still private individuals, later the business firm took over this function. The enterprise/firm is a permanent organisation, structured to respond to market forces. An entrepreneur is not a farmer, or a manufacturer, or a consultant: in theory an entrepreneur changes activities in accordance with the market. In reality most entrepreneurs retained a specialisation for some specific products or services: but neoliberalism now demands, that the theoretical flexibility should become standard practice.

  • Without the entrepreneur there is no free market, therefore market liberals demand a privileged social status for the entrepreneur. The early liberal theorists were hostile to the urban guild economy of mediaeval Europe: they saw it, in effect, as a conspiracy not to compete. In their historical vision, the entrepreneur rescued Europe from the poverty of the Middle Ages. (This vision was shared by Karl Marx, who admired the cultural dynamism of the free market). Not just mediaeval Europe, but all societies without an entrepreneurial caste, were seen as failures.

A central but rarely explicit political demand of market liberals is therefore, that entrepreneurs should have control of the economy. This has not only been accepted, but has become so incorporated into the culture of western liberal-democratic societies, that few people ever think about it. But it would not be any less logical, to hand the economy to engineers, or priests - or not to privilege any one group. The choice depends on underlying values, and liberals value the entrepreneur. This value preference of liberals, and its widespread acceptance, has created what in the US is called 'the business community'. That is a real and identifiable social elite - with specific cultural preferences, specific clothing, and often a specific form of language (sociolect). It does in fact control the economy, in liberal-democratic states. Although this was probably not foreseen by early liberals, market liberalism has become an ideology in support of this elite. Their culture, attitudes, and ethics have greatly influenced neoliberalism.

Neoliberalism

If Adam Smith returned and saw the more extreme aspects of neoliberalism, he would probably find them bizarre. Nevertheless, they derive from the ideas of early liberalism. The belief in the market, in market forces, has separated from the factual production of goods and services. It has become an end in itself, and this is one reason to speak of neoliberalism and not of liberalism.

A general characteristic of neoliberalism is the desire to intensify and expand the market, by increasing the number, frequency, repeatability, and formalisation of transactions. The ultimate (unreachable) goal of neoliberalism is a universe where every action of every being is a market transaction, conducted in competition with every other being and influencing every other transaction, with transactions occurring in an infinitely short time, and repeated at an infinitely fast rate. It is no surprise that extreme forms of neoliberalism, and especially cyberliberalism, overlap with semi-religious beliefs in the interconnectedness of the cosmos.

Some specific aspects of neoliberalism are:

  • A new expansion in time and space of the market: although there has been a global-scale market economy for centuries, neoliberals find new areas of marketisation. This illustrates how neoliberalism differs from classic market liberalism. Adam Smith would not have believed that a free market was less of a free market, because the shops are closed in the middle of the night: expansion of trading hours is a typically neoliberal policy. For neoliberals a 23-hours economy is already unjustifiable: nothing less than 24-hours economy will satisfy them. They constantly expand the market at its margins.

  • The emphasis on property, in classic and market liberalism, has been replaced by an emphasis on contract. In the time of Adam Smith, property conferred status in itself: he would find it strange that entrepreneurs sometimes own no fixed assets, and lease the means of production.

  • Contract maximalisation is typically neoliberal: the privatisation of the British railway network, formerly run by one state-owned company, led to 30 000 new contracts. Most of these were probably generated by splitting services, which could have been included in block contracts. (A fanatic neoliberal would prefer not to buy a cup of coffee, but negotiate separately for each microlitre).

  • The contract period is reduced, especially on the labour market, and so the frequency of contract is increased. A service contract, for instance for office cleaning, might be reduced from a one-year to a three-month contract, then to a one-month contract. Contracts of employment are shorter and shorter, in effect forcing the employee to re-apply for the job. This flexibilisation means a qualitatively different working life: many more job applications, spread throughout the working life. This was historically the norm in agriculture - day labour - but long-term labour contracts became standard after industrialisation.

  • Market forces are also intensified by intensifying assessment, a development especially visible on the labour market. Even within a contract period, an employee will be subject to continuous assessment. The use of specialised software in call centres has provided some extreme examples: the time employees spend at the toilet is measured in seconds: this information is used to pressure the employee to spend less time away from the terminal. Firms with contracts are also increasingly subject to continuous assessment procedures, made possible by information technology. For instance, courier services use tracking software and GPS technology, to allow customers to locate their packages in transit. This is a typical example of the new hyper-provision of business information, in neoliberal economies.

  • New transaction-intensive markets are created on the model of the stock exchanges - electricity exchanges, telephone-minute exchanges. Typical for neoliberalism: there is no relationship between the growth in the number of transactions, and the underlying production.

  • New forms of auction are another method of creating transaction-intensive markets. Radio frequency auctions, such as those for UMTS frequencies, are an example. They replaced previous methods of allocation, especially licensing - a traditional method of allocating access to scarce goods with no clear private owner. The complex forms of frequency spectrum auctions have only been developed in the last few years. Neoliberals now see them as the only valid method of making such allocations: they dismiss all other methods as 'beauty contests'.

  • Artificial transactions are created, to increase the number and intensity of transactions. Large-scale derivative trading is a typically neoliberal phenomenon, although financial derivatives have existed for centuries. It is possible to trade options on shares: but it is also possible to create options on these options. This accumulation of transaction on transaction, is characteristic of neoliberalism. New derivatives are created, to be traded on the new exchanges - such as 'electricity futures'. There is no limit to this expansion, except computer power, which grows rapidly anyway.

  • Automated trading, and the creation of virtual market-like structures, are neoliberal in the sense that they are an intensification of "transaction for transaction's sake". However, a world in which all entrepreneurial activity was automated would not be neoliberal, or liberal.

  • This expansion of interactivity means that neoliberal societies are network societies, rather than the 'open societies', of classic liberals. Formal equality and 'access' are not enough for neoliberals: they must be used to create links to other members of the society. This attitude has been accurately labelled 'connectionist'.

  • Because of contract expansionism, transaction costs play an increasing role in the neoliberal economy. All those 30 000 contracts at British Rail had to be drafted by lawyers, all the assessments have to be done by assessors. There is always some cost of competition, which increases as the intensity of transactions increases. Neoliberalism has reached the point where these costs threaten to overwhelm the existing economy, destroying any economic gains from technological change.

  • The growth of the financial services sector is related to these neoliberal characteristics, rather than to any inherent shift to service economies. The entire sector is itself a transaction cost: it was almost non-existent in the centrally planned economies. In turn, it has created a huge demand for office space in the world's financial centres. The expansion of the sector and its office employment are in direct contradiction of propaganda about 'more efficiency and less bureaucracy' in the free market.

  • The speed of trading is increased. Online market data is expensive, yet it is now available free with a 15-minute delay. The markets move so fast, that the data is worthless after 15 minutes: the companies can then give it away, as a form of advertising. Day-traders buy and sell shares in minutes. Automated trading programmes, where the computer is linked direct to the stock exchange system, do it in seconds, or less. It is this increased speed which has led to the huge nominal trading volumeson the international currency markets, many times the Gross World Product on a yearly basis.

  • Certain functions arise which only exist inside a neoliberal free market - 'derivative professions'. A good example is the profession of psychological-test coach. The intensity of assessment has increased, and firms now regularly use psychological tests to select candidates, even for intermediate level jobs. So ambitious candidates pay for training, in how to pass these psychological tests. Competition in the neoliberal labour market itself creates the market for this service.

  • The creation of sub-markets, typically within an enterprise. Sub-contracting is itself an old market practice, but was usually outside the firm. It is now standard practice for large companies to create competition among their constituent units. This practice is also capable of quasi-infinite extension, and its promotion is characteristic of neoliberalism. A few companies even required each individual employee to register as a business, and to compete with each other at the place of work. A large company can form literally millions of holdings, alliances and joint ventures, using such one-person firms as building blocks.

  • Supplier maximalisation: this extends the range of enterprises that compete for each contract. The ideal would be that every enterprise competes for every contract offered, maximising competition and market forces. In the case of the labour market, the neoliberal ideal is the absolutely flexible and employable employee, who can (and does apply) for every vacancy. In reality, an individual can not perform every kind of work - but there is a real development towards non-specialised enterprises, especially in the producer services sector. In neoliberalism, instead of the traditional 'steel tycoon' or 'newspaper baron' there are enterprises which "globally link people and knowledge, and cultures" or "advise and implement solutions to management issues". (In fact these are quotes from the accountants Price Waterhouse, but you can not guess this from the descriptions).

Neoliberalism is not simply an economic structure, it is a philosophy. This is most visible in attitudes to society, the individual and employment. Neo-liberals tend to see the world in term of market metaphors. Referring to nations as companies is typically neoliberal, rather than liberal. In such a view Deutschland GmbH competes with Great Britain Ltd, BV Nederland, and USA Inc. However, when this is a view of nation states, it is as much a form of neo-nationalism as neoliberalism. It also looks back to the pre-liberal economic theory - mercantilism - which saw the countries of Europe as competing units. The mercantilists treated those kingdoms as large-scale versions of a private household, rather than as firms. Nevertheless, their view of world trade as a competition between nation-sized units, would be acceptable to modern neoliberals.

Competition for inward investment, on the other hand, was generally unknown until the late 19th century. This competition is often seen by activists as the core doctrine of neoliberalism, especially since the neo-mercantilist policies are easy to understand and very unpopular: wage cuts, less money for public services, less tax on the rich. The neo-mercantilist nation, in other words, behaves like a caricaturally mean and nasty capitalist. It is not relevant either for these policies, or for opposition to them, whether they have any effect at all. Perhaps investment decisions are not made on this basis, perhaps there is no real mobility of capital, perhaps no investor is interested in Argentina, for instance. But so long as the Argentine government believes that it should pursue certain polices to attract investors, then it will do so. So long as it believes that the 'SA Argentina' is a business firm, then it will run Argentina accordingly.

The market metaphor is not only applied among nations, but among cities and regions as well. In neoliberal regional policy, cities are selling themselves in a national and global marketplace of cities. They are considered equivalent to an entrepreneur selling a product, but the product is the city (or region) as a location for entrepreneurs. The successful 'sale' of the product is the decision of an entrepreneur to locate there, not simply the sale of land or factories. This view of cities as sub-firms within the fictive 'national firm' parallels the creation of sub-markets within real firms. The difference is, that those sub-markets really exist - neoliberal city governments, on the other hand, act primarily on a belief in a metaphor. Again, there is no hard evidence that the global marketplace of cities exists: for most economic sectors complete mobility of plant and labour is an illusion. Most firms can not simply move from city to city, across continents and ignoring language and cultural barriers, in pursuit of locational advantage. Here too, the neoliberalism is a philosophy, an attitude - rather than an economic reality. It has influenced European politics - the fear of this neoliberalism dominated the French campaign against the European Constitution. There is certainly a neoliberal lobby within the EU, represented by the Lisbon Council, although it sees the world in terms of competing trade blocks rather than competing cities or regions. However, it is not clear how a continent could be run as a business firm - even its inhabitants wanted that. (More on neoliberal economic geography below).

A good example of the underlying attitudes is the basic policy document of the city of Düsseldorf - the Leitbild, equivalent to a 'mission statement' in English. It was adopted in 1997, and is no longer online at the city website, but parts are quoted at St@ttbuch Düsseldorf...

Düsseldorf bekennt sich zum Prinzip des Wettbewerbs. Der Erfolg von Städten entscheidet sich im Wettbewerb nach innen und aussen. Düsseldorf will besser sein.
Wettbewerb ist treibende Kraft unseres gesellschaftlichen Systems. Im zusammenwachsenden Europa gilt dies in hohem Masse auch für die Beziehungen zwischen den Regionen, die als Wirtschaftsstandort, als Lebensraum für die Bürgerinnen und Bürger und als Kulturstandort miteinander konkurrieren. Sich hierzu bekennen heisst, den Wettbewerb aufnehmen und aktiv gestalten zu wollen.
Im Wettbewerb besteht nur, wer gut ist. Düsseldorf will Wettbewerb. Im Interesse der vielen Millionen Menschen des Lebens- und Wirtschaftsraums: Düsseldorf will besser sein.
...
Düsseldorf is committed to the principle of competition. The success of cities is decided by competition, internal and external. Düsseldorf wants to be better. Competition is the driving force of our social system. In a Europe which is becoming more integrated, this applies increasingly to the relations between regions. They compete with each other as investment location, as residential choice for the citizens, and in cultural activity. Our commitment means that we will actively and structurally enter into this competition. In a competitive world, only the good can survive. Düsseldorf wants to compete! In the name of the millions of people in our economic and residential region: Düsseldorf wants to be the best!

The neoliberal urban vision was adopted, without debate, by many city governments in the 1990's. At some point, a belief in 'competition by population structure' was incorporated - the idea that a successful city is inhabited only by successful people. This belief, nonsensical or not, has had an effect in a negative sense: some cities now pursue active policies aimed at relocating low-income households outside the city. In the Netherlands, a new law allows large cities to legally ban poor people, from certain areas, or from the entire city..

As you would expect from a complete philosophy, neoliberalism has answers to stereotypical philosophical questions such as "Why are we here" and "What should I do?". We are here for the market, and you should compete. Neo-liberals tend to believe that humans exist for the market, and not the other way around: certainly in the sense that it is good to participate in the market, and that those who do not participate have failed in some way. In personal ethics, the general neoliberal vision is that every human being is an entrepreneur managing their own life, and should act as such. Moral philosophers call this is a virtue ethic, where human beings compare their actions to the way an ideal type would act - in this case the ideal entrepreneur. Individuals who choose their friends, hobbies, sports, and partners, to maximise their status with future employers, are ethically neoliberal. This attitude - not unusual among ambitious students - is unknown in any pre-existing moral philosophy, and is absent from early liberalism. Such social actions are not necessarily monetarised, but they represent an extension of the market principle into non-economic area of life - again typical for neoliberalism.

The idea of employability is characteristically neoliberal. It means that neoliberals see it as a moral duty of human beings, to arrange their lives to maximise their advantage on the labour market. Paying for plastic surgery to improve employability (almost entirely by women) is a typical neoliberal phenomenon - one of those which would surprise Adam Smith.

Eileen Bradbury, a psychologist who advises surgeons at the Alexandra Hospital in Cheadle, Cheshire, said she was particularly worried that Jenna wanted the operation so that she could be successful. "That is a very disturbing belief for a 15-year-old girl to have, and also a false one," she said. "I have seen women coming for surgery who work in television and they say they have to have it done or they won't get the work. I usually go along with that because it is probably true".
Guardian: Parents defend breast implants for girl, 15.

In practice many 'workfare neoliberals' also believe that there is a separate category of people, who can not participate fully in the market. Workfare ideologies condemn this underclass to a service function for those who are fully market-compatible. Note however, that by recognising a non-market underclass, neoliberals undermine their own claims about the universal applicability of market principles.

The general ethical precept of neoliberalism can be summarised approximately as:

  • "act in conformity with market forces"
  • "within this limit, act also to maximise the opportunity for others to conform to the market forces generated by your action"
  • "hold no other goals"

If everyone lives by such entrepreneurial precepts, then a world will come into existence in which not just goods and services, but all human and social life, is the product of conformity to market forces. More than traditional market liberals, neoliberals therefore have a quasi-heroic attitude to the entrepreneur, and to engagement in the market. A 1998 speech by German entrepreneur Jost Stollmann is typical: his neoliberal ideas played a prominent role in the national elections in Germany in that year. Stollmann includes his personal moral philosophy, such as it is...

Ich möchte die Lust und Bewunderung unternehmerischen Erfolgs in den Augen der jungen Menschen sehen. Ich möchte den Stolz und den Zuspruch der Eltern spüren, wenn sich Sohn oder Tochter tatenvoll in das Abenteuer Selbständigkeit stürzen.
....so gut sein, wie wir nur können - getreu der bewährten Formel, die ich während meiner Zeit in Amerika verstehen gelernt habe: 'BE THE BEST YOU CAN BE'
Jost Stollmann

The idea that everyone should be an entrepreneur is distinctly neoliberal. Early liberals never expected the majority of the population to own property, let alone run a business. (The participation of the poor in the market was limited to accepting any work they were offered). The practices on the flexibilised labour market would seem strange to the early liberals. For instance, individuals set up a one-person employment agency with one person on the books, themselves - partly for tax reasons, but also to meet the ideal of the entrepreneur. Policy to increase the number of entrepreneurs is typically neoliberal, although ironically it must be implemented by the State. A classic market-liberal would not say that a free market is less of a free market, because only 10% of the population are entrepreneurs. For neoliberals it is not sufficient that there is a market: there must be nothing which is not market.

the neoliberalism joke
Marxist: "The workers have nothing to sell but their labour power"
Neoliberal: "I offer courses on How to Sell Your Labour Power Like A Shark"

There is therefore no distinction between a market economy and a market society in neoliberalism. With the attitudes and ethics set out above, there is only market: market society, market culture, market values, market persons marketing themselves to other market persons. In a sense neoliberalism has returned to the position of early liberalism - which also combined culture, values and ethics with economics. But neoliberalism brings a far more intensive 'market' - replacing not only traditional social forms, but also the concept of private life. At the same time this 'market' is increasingly remote from the necessity of production, which was so real for the early liberals - when there were still regular famines in Europe. In fact it is so remote from the existing cultural perception of a 'market', that it would perhaps be better to use some other word.

Finally, neoliberalism has become associated with specific cultures (especially US culture) and a specific language (English). This is not surprising: Anglo-American liberalism had the most influence on neoliberalism. Neoliberalism as ideology is not tied to any culture or language. It is true that a single global language would facilitate free trade - but that could be Esperanto, as well as English. In practice, the promotion of the English language, neoliberal policies, and pro-American foreign policy, usually go together: this was especially true in Central and Eastern Europe.

Globalisation and neoliberalism

Often the terms 'globalisation' and 'neoliberalism' are used as if they were interchangeable. That is only correct in a limited sense, for the neo-mercantilist aspects of the neoliberal ideology. I will try to clarify the perceived and actual relationship between the two - especially for the South American use of the term 'neoliberalism'.

The neoliberal ideology sees the nation primarily as a business firm, as explained above. The nation-firm is selling itself as an investment location, rather than simply selling export goods. If no-one in government believes in this ideology, it will have no consequences. If however, a neoliberal government is in power, it will pursue policies designed to make the nation more attractive as an investment location. These policies are generally pro-business, and are perceived as such by the opponents of the policies.

But remember that the ideology is neo-mercantilist: the policies are national policies, directed ultimately at the welfare of the nation and not of the market. Paradoxically, they are a form of protectionism: if there is a global market of investment locations, then it is 'unfair competition' for governments to artificially increase the attractiveness of their own country. Such governments are, strictly speaking, not good market liberals. Hard-line classic market liberals would shrug their shoulders at the election of an anti-business government. "Business will go elsewhere, the country will become poor, that's the way the global market works, leave the market alone", they would say. They would not waste their time trying to get a pro-business government elected there. In reality few liberals are so consistent, neoliberals certainly are not. But their rhetoric of 'national competitiveness' is a form of economic nationalism: it is a modern version of the old nationalist insistence, that the whole nation should work together. It revitalises jingoism, chauvinism, flag-waving and foreigner-bashing: Tony Blair is probably the best example.

Don't tell me that a country with our history and heritage, that today boasts six of the top ten businesses in the whole of Europe, with London the top business city in Europe, that is a world leader in technology and communication and the businesses of the future, that under us has overtaken France and Italy to become the fourth largest economy in the world, that has the language of the new economy, more brilliant artists, actors and directors than any comparable country in the world, some of the best scientists and inventors in the world, the best armed forces in the world, the best teachers and doctors and nurses, the best people any nation could wish for. Don't tell me with all that going for us that we do not have the spirit to meet all the challenges before us.
Blair conference speech, 26 September 2000

Now, a neoliberal government will almost certainly appeal to 'globalisation' as a justification and legitimisation of its policies - Tony Blair certainly does. By globalisation they mean, more or less, that the global market of investment locations now exists, and that it is an inevitable historical development. The opponents of the neoliberal government will, in turn, oppose this 'globalisation'. However, that does not mean that the global market of nations actually exists. The existence of neoliberal governments, pursuing neoliberal policies justified by an appeal to globalisation, does not mean that a new global order has superseded the order of nation states. The very fact, that it is still primarily the nation state which is being 'marketed' in this way, shows that the nation has not disappeared.

Before considering the reality of the global order, it is also necessary to consider the beliefs of the opponents of such a neoliberal government. Again paradoxically, many of them accept without question the neoliberal claim that there is a long-term historical process of 'globalisation', transforming the nation into a business firm on a global market of nation-firms. Worse, if the nation is a business then it is often clearly weak - everyone can see that Argentina is economically worse off than the United States. A neoliberal government will therefore try to convert a nation such as Argentina into a 'strong player', which means worsening the living conditions of much of the population. Now here is the next paradox: the response of the opponents is also an economic nationalism, this time with the emphasis on protectionism. The opposition perception of globalisation differs in one respect: for them it is a historical but not spontaneous development. For them it is a policy imposed by a non-national global elite, directed against the individual nations.

In their view, the international financial institutions are equivalent to an imperial power, which has de facto colonised countries such as Argentina. In caricatural form: they believe that a new and powerful empire has come into existence, the Empire of IMF-ia, at an indeterminate location. The neoliberal government, in this view, is a traitorous elite acting as a colonial Viceroy for the IMF-ian Empire. The opposition wants to replace it with a government which will 'liberate' the nation from the global market, from its colonial status. That 'liberation' is generally understood as: withdrawal of the nation-firm from the global market of nation-firms, protectionism, economic nationalism, and self-sufficiency instead of trade. Here too there is a paradox: the oppositional movements are not anti-business: they generally see national business as a victim of global business. (Local business in South America is in the comfortable position, that both neoliberals and anti-neoliberals want to help it, for different reasons).

The 'IMF-ia model' is partly correct: the global financial institutions are indeed a bastion of neoliberal ideology, and they can bully some poor countries into adopting neoliberal policies. But they can't do that to the rich western powers, in fact they would not exist without the support of these powers. They are not a force outside nations, they are not an imperial power. The global financial institutions are, in the simplest terms, an instrument of US policy - and if there is a quasi-imperial power, it is the United States.

The point is, once again, that the truth of beliefs about globalisation is itself irrelevant. If the government and people all believe that a country is being attacked by fire-breathing dragons, then the government might distribute asbestos suits to the population, and the opposition might complain that there were not enough of them. Ideologies and politics can operate on a completely fictive basis. Millions of Europeans died to 'resolve' theological issues such as the Virgin Birth of Mary, Mother of God.

So the perceptions have themselves generated a political reality: on the basis of a belief in 'globalisation' some governments pursue neoliberal policies, which are neo-mercantilist in their logic and aims. In such circumstances opposition to globalisation and neoliberalism coincides, rather than neoliberalism being identical or synonymous with globalisation. Both sides share a common fallacy: that trade and sovereignty are opposites, a zero-sum pair. The neoliberals believe that national success - "in today's global market" - requires the abandonment of national economic autonomy and sovereignty. Their opponents believe that national welfare requires minimisation of trade and external links: they believe that trade and invasion are equivalent, although no-one will say that outright. Once again, the equivalences and perceptions on both sides are false. Most of the Gross Global Product is tied to individual nation states for technical, climatic, logistical, and cultural reasons. For most investment decisions, there is no global market of locations. And sovereignty is not necessarily inverse to trade volume and trade regime. A powerful country such as the United States can have a high trade volume relative to GNP. Many colonies - by definition not sovereign - had a low trade volume relative to GNP, because the bulk of 'GNP' consisted of peasant agriculture. But even a fallacious belief can apparently support not just one, but two competing forms of economic nationalism.

So what is the reality behind the perceived globalisation? One reality is that nation states still dominate global social and economic structures. However these nation states themselves form a specific arrangement of a specific type of state. Globalisation claims appear logical if you see nation states as isolated islands, but that is not the historical reality. The very existence of a world of nation states, indicates some form of global order of nation states. What these nation states do - trade or no trade, capital flows or no capital flows - is irrelevant to that issue. What is already global can not logically be globalised: therefore there is no globalisation, in the widely used sense. There is no transition underway, or recently completed, to a fundamentally different global structure. Because the existing order of nation states is already global, intensification of global flows, or global trade, or global communication does not undermine it, or fundamentally alter it. If some part of the world were to break with this global order - for instance a future autarkic caliphate - that would be a radical change. When nations trade with each other, that simply indicates that the global order of nations is functioning as expected.

The false premise in the globalisation thesis is in fact the standard nationalist claim, that each nation is a separate and particular entity. In reality nations collectively are a global and universalist structure: the functional equivalent of a nationalist world state. The world functions as if a nationalist world government had seized power in the 19th century, led by Mazzini and Garibaldi and friends. Most existing states were indeed established by nationalist groups. Nationalists co-operate to maintain one (nationalist) world order and exclude others. The nation state is not a particularity, existing by itself in isolation, but part of a global design. Supporters of the globalisation thesis claim, that a world of isolated nation states existed in the recent past - before 1989, or more approximately before 1950. They claim that these isolated nation states are now being eroded in a global process: it includes the formation of the neoliberals claimed 'market of nations'.

Economic globalization represents a major transformation in the territorial organization of economic activity and politico-economic power....The sovereignty of the modern state was concentrated in mutually exclusive territories and the concentration of sovereignty in nations...economic globalization has contributed to a denationalizing of national territory...
Saskia Sassen. Losing Control: Sovereignty in an Age of globalization (1996).

But is the global order of nation states disappearing, anywhere? In reality, there is no collapse of the nation state to be seen. Nation states have not suffered anything comparable to the dissolution of the Austro-Hungarian or Ottoman empires. All that remains of those empires are oversized palaces in Vienna and Istanbul. The rest of their institutions have completely disappeared: there is not a square metre of Habsburg or Ottoman territory left in Europe. There is no longer an Austro-Hungarian imperial army, or police, or courts, or parliament. The nation states succeeded the multi-ethnic empires, seized all their territory, and remodelled all society on that territory. The replacement was total. Where is the equivalent 'collapse' of the nation state? There are few places on earth without the institutions of a nation state - perhaps Somalia, but that is not the result of globalisation. If the world was truly 'globalised' then it would be full of disused national parliament buildings - and not a national army in sight. The world is not like that, and will not be like that in the immediate future.

In other words, 'globalisation' remains a belief rather than a reality. It is an instrumental belief with great political influence and effect. It is appealed to by both neo-mercantilist neoliberals and their economic-nationalist opponents. Nationalists have a tradition of appealing to external threats to enforce national unity. The nation must unite and work together, they said - to defeat the Hun, or the Bolshevik threat, or the Yellow Peril, or the enemy within the gates, or Osama bin Ladin. The instrumental use of 'globalisation' is in the same dishonourable category.

Summarising neoliberalism

To conclude, here are summaries of neoliberalism in two forms. First a list of key points in neoliberalism:
  • transaction maximalisation
  • maximalisation of volume of transactions ('global flows')
  • contract maximalisation
  • supplier/contractor maximalisation
  • conversion of most social acts into market transactions
  • artificial maximalisation of competition and stress
  • creation of quasi-markets
  • reduction of inter-transaction interval
  • maximalisation of parties to each transaction
  • maximalisation of reach and effect of each transaction
  • maximalisation of hire/fire transactions in the labour market (nominal turnover)
  • maximalisation of assessment factors, by which compliance with a contract is measured
  • reduction of the inter-assessment interval
  • creation of exaggerated or artificial assessment norms ('audit society')

A final summary definition of neoliberalism as a philosophy is this:

Neoliberalism is a philosophy in which the existence and operation of a market are valued in themselves, separately from any previous relationship with the production of goods and services, and without any attempt to justify them in terms of their effect on the production of goods and services; and where the operation of a market or market-like structure is seen as an ethic in itself, capable of acting as a guide for all human action, and substituting for all previously existing ethical beliefs.

Wednesday, March 30, 2005

The Well-Founded Structure of the Republican Political Machine

In the March 30, 2005 New York Times editorial "A Party Inverted," former New Jersey Democratic senator Bill Bradley praises the well-founded structure of Republican politics and chastises Democrats for not emulating it:
Five months after the presidential election Democrats are still pointing fingers at one another and trying to figure out why Republicans won. Was the problem the party's position on social issues or taxes or defense or what? Were there tactical errors made in the conduct of the campaign? Were the right advisers heard? Was the candidate flawed?

Before deciding what Democrats should do now, it's important to see what Republicans have done right over many years. When the Goldwater Republicans lost in 1964, they didn't try to become Democrats. They tried to figure out how to make their own ideas more appealing to the voters. As part of this effort, they turned to Lewis Powell, then a corporate lawyer and soon to become a member of the United States Supreme Court. In 1971 he wrote a landmark memo for the United States Chamber of Commerce in which he advocated a sweeping, coordinated and long-term effort to spread conservative ideas on college campuses, in academic journals and in the news media.

To further the party's ideological and political goals, Republicans in the 1970's and 1980's built a comprehensive structure based on Powell's blueprint. Visualize that structure as a pyramid.

You've probably heard some of this before, but let me run through it again. Big individual donors and large foundations - the Scaife family and Olin foundations, for instance - form the base of the pyramid. They finance conservative research centers like the Heritage Foundation, the Cato Institute and the Intercollegiate Studies Institute, entities that make up the second level of the pyramid.

The ideas these organizations develop are then pushed up to the third level of the pyramid - the political level. There, strategists like Karl Rove or Ralph Reed or Ken Mehlman take these new ideas and, through polling, focus groups and careful attention to Democratic attacks, convert them into language that will appeal to the broadest electorate. That language is sometimes in the form of an assault on Democrats and at other times in the form of advocacy for a new policy position. The development process can take years. And then there's the fourth level of the pyramid: the partisan news media. Conservative commentators and networks spread these finely honed ideas.

At the very top of the pyramid you'll find the president. Because the pyramid is stable, all you have to do is put a different top on it and it works fine.

It is not quite the "right wing conspiracy" that Hillary Clinton described, but it is an impressive organization built consciously, carefully and single-mindedly. The Ann Coulters and Grover Norquists don't want to be candidates for anything or cabinet officers for anyone. They know their roles and execute them because they're paid well and believe, I think, in what they're saying. True, there's lots of money involved, but the money makes a difference because it goes toward reinforcing a structure that is already stable.

To understand how the Democratic Party works, invert the pyramid. Imagine a pyramid balancing precariously on its point, which is the presidential candidate.

Democrats who run for president have to build their own pyramids all by themselves. There is no coherent, larger structure that they can rely on. Unlike Republicans, they don't simply have to assemble a campaign apparatus - they have to formulate ideas and a vision, too. Many Democratic fundraisers join a campaign only after assessing how well it has done in assembling its pyramid of political, media and idea people.

There is no clearly identifiable funding base for Democratic policy organizations, and in the frantic campaign rush there is no time for patient, long-term development of new ideas or of new ways to sell old ideas. Campaigns don't start thinking about a Democratic brand until halfway through the election year, by which time winning the daily news cycle takes precedence over building a consistent message. The closest that Democrats get to a brand is a catchy slogan.

Democrats choose this approach, I believe, because we are still hypnotized by Jack Kennedy, and the promise of a charismatic leader who can change America by the strength and style of his personality. The trouble is that every four years the party splits and rallies around several different individuals at once. Opponents in the primaries then exaggerate their differences and leave the public confused about what Democrats believe.

In such a system tactics trump strategy. Candidates don't risk talking about big ideas because the ideas have never been sufficiently tested. Instead they usually wind up arguing about minor issues and express few deep convictions. In the worst case, they embrace "Republican lite" platforms - never realizing that in doing so they're allowing the Republicans to define the terms of the debate.

A party based on charisma has no long-term impact. Think of our last charismatic leader, Bill Clinton. He was president for eight years. He was the first Democrat to be re-elected since Franklin Roosevelt. He was smart, skilled and possessed great energy. But what happened? At the end of his tenure in the most powerful office in the world, there were fewer Democratic governors, fewer Democratic senators, members of Congress and state legislators and a national party that was deep in debt. The president did well. The party did not. Charisma didn't translate into structure.

If Democrats are serious about preparing for the next election or the next election after that, some influential Democrats will have to resist entrusting their dreams to individual candidates and instead make a commitment to build a stable pyramid from the base up. It will take at least a decade's commitment, and it won't come cheap. But there really is no other choice.

Tuesday, February 15, 2005

Do Deficits Matter?

In the February 15, 2005 Weekly Standard article "Do Deficits Matter? ," Irwin M. Stelzer answers "It depends on where you sit--and on which type of deficit you're talking about."
WHEN DICK CHENEY SAID, "Deficits don't matter," economists took that as proof of the economic illiteracy of the Bush administration. But it turns out there is a case to be made that Cheney was onto something.

On the deepest level, the vice president was echoing, in slightly exaggerated form, an idea put forward a few years ago by Irving Kristol, the Godfather of the neoconservatives who have had such a wide-ranging effect on Bush administration policy. Kristol wrote then, and still believes, that "We should figure out what we want before we calculate what we can afford, not the reverse."

On the political level, treating deficits as a non-issue also proved a successful strategy. After all, despite the torrent of red ink that splashed across the national budgets during his first term, George W. Bush was reelected by a substantial margin. Among John Kerry's other failures was his attempt to saddle the president with the label "profligate."

Which brings us to the economic level. The deficits that Bush ran up in the years in which the country was teetering on the verge of a serious recession had the beneficial effect of righting the economy. In that sense, deficits not only didn't matter, but were a force for economic good.

But that was then, and this is now. The economy, growing at an annual rate of 3.5 percent to 4.0 percent, is hardly in need of further fiscal stimulus. Yet the budget that the president sent to Congress last week promises deficits as far ahead as the eye can see--if the eye is practiced in reading these massive documents.

The president claims that his $2.57 trillion budget is the first step on the road to fulfilling his campaign promise to halve the deficit by 2009, even if Congress agrees to make his tax cuts permanent and enacts still more reductions. That claim is completely unfounded. Indeed, if the White House team that drafted this budget were subject to Sarbanes-Oxley, criminal indictments would be flying.

Start with the fact that most of the spending reductions the president proposes will be rejected by Congress. The budget calls for the elimination or curtailment of some 150 programs. But last year the president proposed eliminating 65 programs for a savings of $4.8 billion--and Congress agreed to eliminate only four programs for a savings of less than $200 million. Although Congress is under some pressure to keep spending down, it is under even more pressure from the farm lobby, the business lobby, the veterans' lobby, the poverty lobby, and the oldies' lobby, to mention only a few groups that will fight Bush's cuts.

But even if the budget is adopted, it will not begin to cut into the federal deficit, for several reasons. First, spending on the largest items--Medicare, Social Security and the military--is scheduled to increase. Second, the budget does not include any money beyond this year's outlays for the wars in Iraq and Afghanistan. Third, it does not include the trillions that will be required if the president succeeds in persuading Congress to allow some participants to divert to private accounts a portion of the money they are now paying into the Social Security system.

On the other hand--and in all fairness--we can't ignore the fact that previous Bush budgets were also pronounced DOA--and then adopted within the spending limits the president had proposed. Moreover, the projected budget deficit is not threateningly large, relative to GDP. Larry Lindsey, Bush's former chief economist, points out in his latest client advisory that "The projected 2006 budget deficit of 3.0 percent of GDP is reasonable if the economy continues to grow."

And grow it seems likely to do. The Institute for Supply Management reports that the manufacturing sector expanded in January for the twentieth consecutive month, due in part to renewed international competitiveness flowing from the lower dollar, and in part to a scramble to restock depleted inventories. My own tour of shopping malls from Phoenix to Chicago to Washington revealed that retailers had been caught by surprise by the strength of Christmas and post-Christmas sales. While not bare, the shelves have large empty spots.

The housing market remains strong; the unemployment rate is a low 5.2 percent; over two million new jobs have been created in the past year; the service sector is growing; inflation is low, as are long-term interest rates; and U.S. companies are increasingly optimistic, "bolstered by unprecedented cash flows," according to Goldman Sachs. The budget deficit may be larger than we would like, and Dick Cheney may have been overstating things a bit, but so far it hard to say that his view of budget deficits is clearly wrong.

The trade deficit is another matter. Alan Greenspan stopped in London last week to speak at Chancellor of the Exchequer Gordon Brown's latest entrepreneurship bash, and to assure one and all that the market is gradually taking care of that problem. The dollar has fallen, giving American manufacturers an edge over their European competitors and making some imports more expensive. Short-term interest rates in the United States are now above those in euroland and Japan. Added to the more rapid growth being experienced in America, this rate differential will make investment in America even more attractive than it has been. I am less certain than the Fed chairman that we have seen the end of the dollar decline, but it would be foolish to bet against a man who has got things right through years of international and domestic turmoil.

In short, all may not be for the best in a best of all possible worlds, but almost everything seems to be--unless you are a euroland exporter, caught between a falling dollar, China's refusal to allow the renminbi to rise, and the appalling regulatory and tax environment in much of Europe.

Irwin M. Stelzer is director of economic policy studies at the Hudson Institute, a columnist for the Sunday Times (London), a contributing editor to The Weekly Standard, and a contributing writer to The Daily Standard.

Monday, December 27, 2004

What Killed Off The GOP Deficit Hawks?

In his December 27, 2004 Business Week editorial "What Killed Off The GOP Deficit Hawks?," Robert Kuttner says "the Republicans are now the ones making excuses for big deficits."
Last month, I posed a rhetorical question: Whatever happened to fiscally prudent Republicans? The question deserves a proper answer. In the early 1990s the bipartisan, business-led Concord Coalition made the accumulated Reagan-Bush deficits a major public issue. George H.W. Bush had to break a pledge and raise taxes because of mounting concerns in financial markets. H. Ross Perot put the deficit center stage in the 1992 election, helping to defeat Bush I and elect Bill Clinton. He made fiscal responsibility his signature issue.

A decade later, Republican deficit hawks have all but vanished. "It's pretty astonishing," I was told by Robert L. Bixby, executive director of the Concord Coalition. "We used to get a lot of Democrats saying: 'You're just a Republican front group.' Now it's almost the reverse. The change in the Republican Party has been astounding." Are we on the record? I asked. "Absolutely," he replied. "The Republicans are now the ones making excuses for big deficits."

The indefatigable Peter G. Peterson, a coalition mainstay, has become the remnant of an endangered species -- the fiscally responsible Republican. He has just a few allies in Congress, such as Senators John McCain (R-Ariz.), Olympia J. Snowe (R-Me.), and, on a good day, Finance Committee Chairman Charles E. Grassley (R-Iowa).

HOW DID THIS SHIFT HAPPEN? Conversations with more than a dozen senior business leaders, including board members of the Concord Coalition, point to this progression: Since Ronald Reagan, a majority of Republican politicians have gradually come to conclude, as Vice-President Dick Cheney famously told former Treasury Secretary Paul H. O'Neill, that "deficits don't matter." What's interesting and alarming, however, is that different Republican factions believe deficits don't matter for opposite and incompatible reasons.

Supply-siders believe deficits don't matter because tax cuts so boost investment and productivity that the economy grows its way out of debt. The opposite, "starve the beast" faction, epitomized by tax tactician Grover Norquist, hope tax cuts will indeed create deep deficits that will then force spending cuts. But both things can't be true.

Under George W. Bush, the merry ideology calls for tax cuts in all seasons for all reasons. Spending has increased faster than under Clinton, and deficits have ballooned, yet tax cutting marches on. This privately scares many Republican business leaders. But very few are speaking out, either because they don't want to burn bridges to the White House or because they are too pleased with their tax cuts.

There is one other group worth noting. A decade ago fiscally conservative Democrats, mostly Southern, often worked with Republicans to serve as a brake on fiscal excess. The near-extinction of Democrats in the mold of former senators Sam Nunn, Paul Tsongas, Fritz Hollings, and Representative Charles Stenholm, who was gerrymandered out of a job, has removed a crucial legislative counterweight to Republican recklessness. The days of bipartisan budget caps and pay-as-you-go rules are over. "Moments like the balanced-budget provision of Newt Gingrich's Contract with America were aberrational," says Steven Rattner, an influential Wall Street Democrat on the Concord Coalition board.

Inside the Administration, former deficit hawks have trimmed their views. Three senior economic officials are all men once well-known in private life as deficit critics. Stephen Friedman, who is stepping down as head of the President's economic council, was a Concord Coalition leader. Chief economist N. Gregory Mankiw, whose textbook correlates big deficits with higher interest rates, is leaving. Treasury Secretary John W. Snow, who once spoke out against fiscal imbalances, is keeping his job, barely.

Two factors could provoke Republican opposition to fiscal irresponsibility. The first is the risk of a dollar crash, directly related to big deficits. The second is the White House plan to borrow an additional $2 trillion to finance Social Security privatization. The Administration story is that borrowing $2 trillion in the short run will save the system up to $11 trillion in unfunded liabilities over the next 75 years. The problem is that the supposed shortfall is hypothetical, while $2 trillion of additional borrowing will affect real money markets now.

"I remain a Republican," Pete Peterson said, "but the Republicans have become a far more theological, faith-directed party, not troubling with evidence."


Robert Kuttner is co-editor of The American Prospect (rkuttner@prospect.org).

Tuesday, May 11, 2004

In Defense of Deficits

In the May 11, 2004 National Review article "In Defense of Deficits," contributing editor Thomas E. Nugent says "They’re not so bad, and at times they’re necessary."
Doug Bandow, a senior fellow at the Cato Institute, recently criticized President Bush’s fiscal policy in an article called, “A Conservative Case for Voting Democratic.” Wrote Bandow, “So how do we put Uncle Sam on a sounder fiscal basis? Vote Democratic.”

We’re in a tight presidential election race — in a year when the liberal press portrays Americans as the bad guys in the Iraq war, and at a time when the Democratic contender for the White House resembles Neville Chamberlain. The last thing the Republican party needs is the reckless suggestion that conservatives vote Democratic.

In his article, Bandow echoed several free-market economists who today belong to the “almost all non-defense spending is bad” school. “Given the generally woeful record (on deficits) of Republican presidents,” Bandow wrote, “the best combination may be a Democratic chief executive and a Republican legislature. Thus, the only way we can realistically keep Congress and the President in separate political hands is to vote for John Kerry in November.”

The problem with advocating a vote for Kerry on the implied basis that a split-party government will mitigate any wayward deficit spending is that such advocacy reflects a misunderstanding of the role of fiscal policy — i.e., budget deficits — in maintaining a viable economy during times of crisis. (This is likely one of those times.)

The current federal budget deficit is about 5 percent of gross domestic product. The reason for this deficit is twofold. First, deficit spending supported economic activity as the U.S. transitioned from a “bubble” economy back to a normal economy. The “bubble” was inflated beyond capacity as companies of all sizes updated computers to handle the Y2K event. Once the threat of this electronic dislocation passed, demand for computers and related equipment dropped dramatically. This decline rippled through the economy.

The government’s first response to falling economic activity was to lower interest rates. The Federal Reserve reduced its policy rate to near record lows, expecting a quick pick-up in business borrowing. Yet the expectation of a recovery in business spending was not forthcoming — businesses didn’t want the money so it didn’t really matter what the interest rates were. Subsequently, after the expected nine-month waiting period, a sustainable rally in the stock market and the economy failed to materialize.

However, the real boost to economic recovery was the fiscal-policy stimulus of tax-rate cuts and increased spending, part of President Bush’s second fiscal-stimulus package in 2003.

Few economists recognize that the budget surplus inherited by President Bush was an albatross around his political neck. In fact, the faster he got rid of it, the better off he and the economy would be. Unfortunately, politicians were gleeful that budget surpluses could be used to eliminate the national debt. However, the problem with budget surpluses is that they collapse private-sector savings. Budget surpluses are a sign of excess taxation, and when the government sector saves, the private sector saves less.

This relationship is taught in basic economics. For example, when the government buys back debt, the macro effect can be described as follows: The government buys back bonds from the public by effectively raising taxes to pay for the bonds. At the end of the day, the individual has no savings in the form of the bonds, but has a higher tax bill. The public response is probably to spend less.

Budget surpluses are contractionary. They shrink the economy. Yet many conservative economists demand a return to budget surpluses even though deficits provide the stimulus to avoid deep recessions.

Not until the implementation of the president’s second stimulus package in the second quarter of 2003 did the stock market surge and the economy get back on a sustainable growth path. If the expected growth of 4 to 5 percent in real GDP is maintained, the budget deficit may not get any bigger. However, it may not get any smaller.

The second reason for a record budget deficit is higher defense spending. During the 1990s, President Clinton contracted defense spending and avoided confronting terrorism. Now that the U.S. is fighting a global terrorist threat, the government must increase spending on defense and on waging a new type of war. During World War II, the U.S. budget deficit as a percent of GDP jumped to 45 percent. Compare that with our 5 percent level today. Few economists would have advocated reducing the deficit in those days — when the very fabric of American life was threatened. We should be spending more, not less on defense.

Given that there are viable economic and political reasons for a large budget deficit, arguing that there is a need to reduce the deficit makes little sense in today’s economy. Rising economic growth and booming corporate profits should mitigate the growth in the deficit — not a tax increase for the rich as proposed by Sen. Kerry and the Democrats in general.

While anyone can correctly make the argument that there is much government spending that is wasteful, it is unlikely that a Democratic president and a Republican Congress would dramatically reduce pork-barrel spending, as Cato’s Bandow has proposed. Instead, this twosome might be less inclined to make the right choices that are necessary to keep the economy on a sustainable growth path.

Republicans should think twice about voting Democratic to reduce government spending. And both parties should simply think a little harder about budget deficits: Had we hung onto the surpluses of the late 1990s, we’d be in a world of economic hurt today. If that prognosis seems counterintuitive, take a look at what happened to the economy right after the big budget surpluses of the 1920s.

— Thomas E. Nugent is executive vice president and chief investment officer of PlanMember Advisors, Inc. and chief investment officer for Victoria Capital Management, Inc.

Tuesday, April 20, 2004

The Conservative Case for Voting Democratic

In the April 20, 2004 article "The Conservative Case for Voting Democratic," the Cato Institute's Doug Bandow argues against the fiscal irresponsibility of George W. Bush and the modern Republican Party.
Doug Bandow is a senior fellow at the Cato Institute and a former visiting fellow at the Heritage Foundation. He served as a special assistant to President Ronald Reagan.

Republicans have long claimed to be fiscal tightwads and railed against deficit spending. But this year big-spending George W. Bush and the GOP Congress turned a budget surplus into a $477 billion deficit. There are few programs at which they have not thrown money: massive farm subsidies, an expensive new Medicare drug benefit, thousands of pork-barrel projects, dubious homeland-security grants, expansion of Bill Clinton's AmeriCorps, even new foreign-aid programs. Brian Riedl of the Heritage Foundation reports that in 2003 "government spending exceeded $20,000 per household for the first time since World War II."

Complaints about Republican profligacy have led the White House to promise to mend its ways. But Bush's latest budget combines accounting flim-flam with unenforceable promises. So how do we put Uncle Sam on a sounder fiscal basis?

Vote Democratic.

Democrats obviously are no pikers when it comes to spending. But the biggest impetus for higher spending is partisan uniformity, not partisan identity. Give either party complete control of government, and the Treasury vaults are quickly emptied. Neither Congress nor the President wants to tell the other no. Both are desperate to prove they can "govern"—which means creating new programs and spending more money. But share power between parties, and out of principle or malice they check each other. Even if a President Kerry proposed more spending than would a President Bush, a GOP Congress would appropriate less. That's one reason the Founders believed in the separation of powers.

Consider the record. William Niskanen, former acting chairman of the Council of Economic Advisors, has put together a fascinating analysis of government spending since 1953. Real federal outlays grew fastest, 4.8% annually, in the Kennedy-Johnson years, with Congress under Democratic control. The second-fastest rise, 4.4%, occurred with George W. Bush during Republican rule. The third-biggest spending explosion, 3.7%, was during the Carter administration, a time of Democratic control. In contrast, the greatest fiscal stringency, 0.4%, occurred during the Eisenhower years. The second-best period of fiscal restraint, 0.9%, was in the Clinton era. Next came the Nixon-Ford years, at 2.5%, and Ronald Reagan's presidency, at 3.3%. All were years of shared partisan control.

Bush officials argue that it is unfair to count military spending, but Dwight Eisenhower, Lyndon Johnson, and Ronald Reagan also faced international challenges that impeded their domestic plans. Moreover, if you do strip out military spending and consider only the domestic record, GOP chief executives emerge in an even worse light. In terms of real domestic discretionary outlays, which are most easily controlled, the biggest spender in the past 40 years is George W. Bush, with expenditure racing ahead 8.2% annually, according to Stephen Moore of the Club for Growth. No. 2 on the list is Gerald Ford, at 8%. No. 3 is Richard Nixon. At least the latter two, in contrast to Bush, faced hostile Congresses.

Given the generally woeful record of Republican Presidents, the best combination may be a Democratic chief executive and Republican legislature. It may also be the only combination that's feasible, since in 2004 at least, it will be difficult to overturn Republican congressional control: Redistricting has encouraged electoral stasis in the House, while far more Democrats face reelection in the Senate. Thus, the only way we can realistically keep Congress and the President in separate political hands is to vote for John Kerry in November.

Returning to divided government would yield another benefit as well: Greater opportunity for reform, whether of the budget process, tort liability, Medicare, Social Security, taxes, or almost anything else. Niskanen has observed that the prospects for change "will be dependent on more bipartisan support than now seems likely in a united Republican government." He points out that tax reform occurred in 1986, and agriculture, telecommunications, and welfare reform a decade later, all under divided government.

The deficit can be cut in half if Congress "is willing to make tough choices," says President Bush. But GOP legislators are likely to make tough choices only if he is replaced by a Democrat. History teaches us that divided government equals fiscal probity, so vote Democratic for President if you want responsible budgeting in Washington.

This article originally appeared in Fortune on April 20, 2004.

Sunday, January 12, 2003

Explaining Why People Oppose Policies That Would Benefit Them

In the January 12, 2003 New York Times editorial "The Triumph of Hope Over Self-Interest," David Brooks explains why the public supports so many policies that overwhelmingly benefit the rich.
NASHVILLE - Why don't people vote their own self-interest? Every few years the Republicans propose a tax cut, and every few years the Democrats pull out their income distribution charts to show that much of the benefits of the Republican plan go to the richest 1 percent of Americans or thereabouts. And yet every few years a Republican plan wends its way through the legislative process and, with some trims and amendments, passes.

The Democrats couldn't even persuade people to oppose the repeal of the estate tax, which is explicitly for the mega-upper class. Al Gore, who ran a populist campaign, couldn't even win the votes of white males who didn't go to college, whose incomes have stagnated over the past decades and who were the explicit targets of his campaign. Why don't more Americans want to distribute more wealth down to people like themselves?

Well, as the academics would say, it's overdetermined. There are several reasons.

People vote their aspirations.

The most telling polling result from the 2000 election was from a Time magazine survey that asked people if they are in the top 1 percent of earners. Nineteen percent of Americans say they are in the richest 1 percent and a further 20 percent expect to be someday. So right away you have 39 percent of Americans who thought that when Mr. Gore savaged a plan that favored the top 1 percent, he was taking a direct shot at them.

It's not hard to see why they think this way. Americans live in a culture of abundance. They have always had a sense that great opportunities lie just over the horizon, in the next valley, with the next job or the next big thing. None of us is really poor; we're just pre-rich.

Americans read magazines for people more affluent than they are (W, Cigar Aficionado, The New Yorker, Robb Report, Town and Country) because they think that someday they could be that guy with the tastefully appointed horse farm. Democratic politicians proposing to take from the rich are just bashing the dreams of our imminent selves.

Income resentment is not a strong emotion in much of America.

If you earn $125,000 a year and live in Manhattan, certainly, you are surrounded by things you cannot afford. You have to walk by those buildings on Central Park West with the 2,500-square-foot apartments that are empty three-quarters of the year because their evil owners are mostly living at their other houses in L.A.

But if you are a middle-class person in most of America, you are not brought into incessant contact with things you can't afford. There aren't Lexus dealerships on every corner. There are no snooty restaurants with water sommeliers to help you sort though the bottled eau selections. You can afford most of the things at Wal-Mart or Kohl's and the occasional meal at the Macaroni Grill. Moreover, it would be socially unacceptable for you to pull up to church in a Jaguar or to hire a caterer for your dinner party anyway. So you are not plagued by a nagging feeling of doing without.

Many Americans admire the rich.

They don't see society as a conflict zone between the rich and poor. It's taboo to say in a democratic culture, but do you think a nation that watches Katie Couric in the morning, Tom Hanks in the evening and Michael Jordan on weekends harbors deep animosity toward the affluent?

On the contrary. I'm writing this from Nashville, where one of the richest families, the Frists, is hugely admired for its entrepreneurial skill and community service. People don't want to tax the Frists - they want to elect them to the Senate. And they did.

Nor are Americans suffering from false consciousness. You go to a town where the factories have closed and people who once earned $14 an hour now work for $8 an hour. They've taken their hits. But odds are you will find their faith in hard work and self-reliance undiminished, and their suspicion of Washington unchanged.

Americans resent social inequality more than income inequality.

As the sociologist Jennifer Lopez has observed: "Don't be fooled by the rocks that I got, I'm just, I'm just Jenny from the block." As long as rich people "stay real," in Ms. Lopez's formulation, they are admired. Meanwhile, middle-class journalists and academics who seem to look down on megachurches, suburbia and hunters are resented. If Americans see the tax debate as being waged between the economic elite, led by President Bush, and the cultural elite, led by Barbra Streisand, they are going to side with Mr. Bush, who could come to any suburban barbershop and fit right in.

Most Americans do not have Marxian categories in their heads.

This is the most important reason Americans resist wealth redistribution, the reason that subsumes all others. Americans do not see society as a layer cake, with the rich on top, the middle class beneath them and the working class and underclass at the bottom. They see society as a high school cafeteria, with their community at one table and other communities at other tables. They are pretty sure that their community is the nicest, and filled with the best people, and they have a vague pity for all those poor souls who live in New York City or California and have a lot of money but no true neighbors and no free time.

All of this adds up to a terrain incredibly inhospitable to class-based politics. Every few years a group of millionaire Democratic presidential aspirants pretends to be the people's warriors against the overclass. They look inauthentic, combative rather than unifying. Worst of all, their basic message is not optimistic.

They haven't learned what Franklin and Teddy Roosevelt and even Bill Clinton knew: that you can run against rich people, but only those who have betrayed the ideal of fair competition. You have to be more hopeful and growth-oriented than your opponent, and you cannot imply that we are a nation tragically and permanently divided by income. In the gospel of America, there are no permanent conflicts.

David Brooks, a senior editor at The Weekly Standard, is author of "Bobos in Paradise: The New Upper Class and How They Got There.''

Monday, July 15, 2002

Philanthropy and Movements

In the July 15, 2002 American Prospect editorial "Philanthropy and Movements," Robert Kuttner outlines the relationships between "organized business, ideological conservatism, advocacy research, and the Republican Party."
Recently I was invited to be the token liberal at a major national conference of conservative foundations. The invitation was to debate Bill Kristol, The Weekly Standard editor, TV pundit, and conservative grand strategist, as the after-dinner entertainment. Presumably, conservative donors wished to view the face of the enemy, close up. The better I did, the deeper they would dig into their ample pockets.

The dinner was held at one of New York's most elegant hotels, the Pierre. The sponsors put me up at the nearby Hotel Roosevelt, a spartan midtown hostelry one cut above fleabag. I gamely accepted this lesser billeting not as demeaning confirmation of the right's two-class vision for society, but as recognition of my esteem for FDR. But I digress.

The debate itself was good fun, but the real treat was the before-dinner event: a panel discussion of four presidents of major right-wing research factories, titled, "Philanthropy, Think Tanks, and the Importance of Ideas." The heads of the Heritage Foundation and the Cato, Manhattan, and American Enterprise institutes were there to tell their patrons what political gains a billion dollars had bought. This session I would have paid to attend.

The panel was chaired by none other than Roger Hertog, a mega-rich center-right philanthropist and new part-owner of The New Republic recently profiled in these pages as exemplar of a new kind of "velvet conservatism." But there was nothing velvet about the discussion that followed. Most foundations, Hertog began, spend their money on brick-and-mortar institutions -- museums, hospitals, symphonies, universities. These are all fine, Hertog continued, but the four panelists have achieved something far more consequential. They have changed the course of American politics, and they "only" cost, collectively, $70 million dollars a year. "You get huge leverage for your dollars," Hertog affirmed. The panelists smiled.

The first to present was Ed Crane, head of the Cato Institute. Crane complimented his patrons in the audience for recognizing that these battles of ideas take two or three decades. Cato has been pushing Social Security privatization since 1979, Crane noted. Cato allies such as the Federalist Society labored long years in the wilderness before they became powerful enough to literally pick the Bush's administration's federal judges.

Edwin Feulner of the Heritage Foundation emphasized his institution's strategic planning in building a conservative movement. He emphasized "the four M's": mission, money, management, and marketing. Heritage places hundreds of op-eds, all devoted to reinforcing the conservative message. On the money front, Feulner raises millions not just from conservative foundations, but from corporations and individuals. Like the Republican Party, the conservative think tanks use big money to raise small money. Heritage, for instance, gets contributions from 200,000 small donors.

Christopher DeMuth, president of the American Enterprise Institute, spoke of how the right-wing think tanks had reframed national debate by investing in and then promoting idea-mongers for the long term. The right has been investing in Robert Bork's challenge to antitrust since the 1970s. By the 1990s, his contention that antitrust enforcement often backfires had become conventional wisdom. Charles Murray's claim that welfare actually caused poverty was widely viewed as an outrage when Murray's 1985 book, Losing Ground, was first published. Though Murray's arithmetic was dubious and his timing backward (poverty came first), the message had a willing audience. The right-wing publicity machine turned the obscure Murray into a policy celebrity. Soon, said DeMuth, Democrats as well as Republicans were saying that Murray was right. Investment in ideas and ideological marketing changed the course of politics.

"There are three lessons," DeMuth told the conservative benefactors in the audience. "First, things take time. It takes at least 10 years for a radical new idea to emerge from obscurity." DeMuth pointed to school vouchers and Social Security privatization as still incomplete revolutions. But his funders got it, and were with him for the long haul.

"Second," DeMuth added. "Unintended consequences are not enough." For years, a staple of conservative ideology has been the claim that liberal social engineering backfires: Welfare makes people poorer, antitrust enforcement retards competition, safety regulations make people behave more carelessly, etc. "But nobody claims EPA makes the environment worse," DeMuth cautioned. So the conservative movement also needs affirmative ideas. It needs better ways, conservative ways, to achieve popular social goals.

"Third, all fundamental changes are bipartisan when they happen," DeMuth concluded. So the right makes great efforts to co-opt New Democrats. Right-wing think tanks such as the Center for Strategic and International Studies make sure their ventures include (safely conservative) Democrats. The bipartisan CSIS National Commission on Social Security Reform had no official standing, but with high-profile Democrats as well as Republicans it successfully masqueraded as a bona fide national commission, and received extensive press coverage.

The final panelist, Larry Mone of the Manhattan Institute, spoke of the importance of targeting opinion-elites. The Manhattan Institute underwrote Charles Murray's work, but the institute focuses mainly on New York City, as a lab to advance policies such as school vouchers and getting tough on crime. Mone claims credit for Mayor Rudy Giuliani's embrace of the George Kelling-James Q. Wilson "Broken Windows" thesis -- that a crackdown on minor lifestyle crimes would also reduce major crimes.

The Manhattan Institute is especially nimble at co-opting liberals, who are regularly invited to its events both as foils and potential converts. How much money, Mone pressed me, would conservatives need to put into city schools for liberals to support vouchers?

The Philanthropy Roundtable, which sponsored the conference, also likes to include a few token liberals. One observed that liberal funders would never speak a language of movement building. "We promote policies piecemeal," he said, "but we don't think of it as building a progressive movement."

What was impressively revealed here was precisely the right's movement consciousness. When I was young, the people who spoke of "the movement" and who used "radical" as an affirmative word were progressive. The movement, at first, referred to the civil-rights movement; by the mid-1960s, it referred to a generalized movement for social justice. "Movement people" boycotted nonunion grapes, worked on voter registration, opposed the war in Vietnam.

Today, one hears the phrase "movement conservatism." The right's think tanks and philanthropists alike understand that the enterprise is -- above all -- political. IRS rules for foundations and research institutes don't allow them to be partisan or primarily legislative, but don't mind if they are ideological or politically strategic. Heritage, which pushed the envelope about as far as one prudently can, got an extensive IRS audit in the 1990s, which Heritage claimed was politically motivated. Eventually, the IRS relented. The nonprofit right is also perfectly willing to use the Republican party as its vehicle, and let the lawyers worry about how to do it legally.

By contrast, mainstream foundations have a tradition of emphasizing research and reform. Often, the social-change goals are impeccably liberal -- empower the poor, clean up the environment, improve the welfare of children -- but the political dimension leaves many senior foundation executives uneasy. My tablemate was right: You would never hear senior officers of big mainstream foundations talking about building a movement. The enterprise is rather understood as philanthropic. If you research and model good policy, social change will somehow occur. This tradition harkens back to the Progressive Era conceit that social problems have technical solutions. By some alchemy, the research findings will lead to policy reforms through a messy political process whose ignition is somebody else's affair.

This propensity is also reinforced by the composition of mainstream foundation boards, which tend to be patrician and corporate. Activist grantees need to shade their purpose to reassure even liberal program officers, who find themselves looking over their shoulders at their presidents, who in turn must answer to their boards. It is anomalous, after all, that large private fortunes should be looked upon to underwrite progressive politics. On the right, by contrast, the advocates, strategists, and funders march to the same tune.

Lately, liberal funders have been more willing to acknowledge that their enterprise is necessarily political, and to underwrite core progressive infrastructure for the long term. The progressive counterparts of the big right-wing strategy groups -- such as the Economic Policy Institute, the Center for Law and Social Policy, or the Center on Budget and Policy Priorities -- no longer have to justify their existence de novo each time they apply for a grant. But the gold standard of grants -- long-term general-operating support -- is still hard to find on the liberal side, and the institutions that the big foundations support are far smaller and less numerous than their conservative counterparts to begin with.

Of course, intellectual energy and political energy feed on each other. And it has been a while since a progressive idea, per se, transformed politics. A generation ago, activists in the streets were energized by books such as Betty Friedan's The Feminist Mystique, Rachel Carson's Silent Spring, Ralph Nader's Unsafe at Any Speed, and Mike Harrington's The Other America. These in turn transformed national policy. Earlier in the century, progressive foundation-sponsored reports, from the Flexner Report on medical education to Gunnar Myrdal's groundbreaking work on racial relations, An American Dilemma, led to changes in the national discussion and, eventually, policy.

Still, it was breathtaking to see the policy strategists of the other side preen for the edification of their steadfast funders -- the culmination of a 25-year strategic alliance between organized business, ideological conservatism, advocacy research, and the Republican Party. Hertog was right: $70 million a year is chump change to the American elite, but invested strategically in the battle of ideas, it yields a bountiful political harvest. On our side, though strategic foundation support would be most welcome, it may be that we need to rekindle the politics first.