The new rules for business in a post-neoliberal world

More than 40 years ago, the Reagan-Thatcher revolution was born. Taxes were reduced. Unions were crushed. Markets were deregulated and global capital was unleashed. But the economic pendulums are swinging. And it’s become abundantly clear over the past few weeks that anything remotely related to the percolation theory is now political kryptonite.

The most obvious example is, of course, the backlash against UK Prime Minister Liz Truss’s strange plan to cut taxes on the rich after announcing a big spending spree on energy subsidies. Trusonomics is now ruled out and the leadership of the Prime Minister himself is in jeopardy.

But it is not just the UK that is facing the tide of neoliberalism. I recently met with a senior Biden administration official who told me that many CEOs come to Washington and want a “signal from the government — where should we invest? Should we be in Vietnam or Mexico? In which sectors do you want us?’

Although the government is not yet in the business of picking winners and losers, the White House has already made the transition to a post-neoliberal era — and many in the business community are preparing for it as well. CEOs may not like the idea of ​​a deglobalizing world with more regulation, more government control, and a growing workforce. But they can usually find a way to make money as long as they understand the rules of the market.

So what are the new rules? The Biden administration recently laid out a clear blueprint of the economy it wants, which includes five key elements. One is worker empowerment, which it has tried to do by using federal budgets to support unionized labor. Another is to use as much fiscal policy as possible in a polarized Congress to support working families in areas like health care and child care that are increasingly unaffordable for many Americans.

But as Commerce Secretary Gina Raimondo told me a few months ago, government must be about more than cutting taxes and redistributing wealth. This administration wants to play a bigger role in directing private sector supply. In particular, he wants to encourage making things, not just through a push for “Buy American,” but also through a more fundamental shift in policy focus from distribution to manufacturing.

It means industrial policy. And while there is still no fully formulated strategy in Washington, there are clear signs that laissez faire economics is over.

One of them is the fact that many companies will soon have to choose between the US and China. The official decoupling between the two countries is gaining momentum, with a record number of American jobs being transferred from China and calls for stricter technology transfer rules.

Another is that resilience and redundancy in key supply chains are becoming increasingly important. Just a few days ago, Micron became the second major company (after Intel) to announce a major semiconductor investment in the US, putting $100 billion into a new foundry in upstate New York.

Federal investments in electric vehicles are also bringing new jobs to beleaguered parts of the South and Midwest. While a strong dollar could become a tailwind for the administration’s hopes of growing a larger manufacturing and export economy, the lower cost of U.S. energy inputs compared to Europe is currently a headwind.

Support for economic “patriotism” is now a running principle on both sides of the political divide in Washington. Robert Lighthizer, former US trade representative under Donald Trump, was a known fan of eliminating America’s trade deficit. But recently California Democratic Congressman Ro Hanna — a rising figure in progressive circles — called for the same, advocating for the U.S. to achieve a trade surplus with the rest of the world by 2035.

As Khanna said, “Trade deficits in some years are good when balanced by trade surpluses in other years. But the country has been in a permanent trade deficit since 1975″. He believes the government should help fix this by offering zero-interest loans to factories and increased use of federal purchases to underwrite markets.

I heard Khanna speak last week at the launch of Rethinking Economics, a Harvard Kennedy School initiative led by economists Dani Rodrik and Gordon Hanson. It aims to replace neoliberal policy paradigms with something new and is one of several such programs at major US universities. Many of these institutions are struggling to become the epicenter of fresh economic thinking, just as the University of Chicago was the epicenter of neoliberalism.

Hanna summed up the challenge of the moment: “If we can’t fix the economy, we’re not going to have a multiracial democracy.” That phrase itself represents something new—in the past, conversations between racial equality and class inequality in the U.S. have been divided. But Democrats are increasingly trying to tie the two together as they work to find the contours of a post-neoliberal economy.

That was the theme of another major event last week, sponsored by the Roosevelt Institute, where progressive politicians (many from the administration) gathered to discuss the details of America’s industrial policy. Although they are still not completely clear, one thing is – it is all the opposite of seepage.

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