By Suzanne Berger
Globalization’s friends are fast defecting. Some economists who once extolled the virtues of free trade and the free flow of capital now point out that globalization has brought smaller gains than were once claimed, while destroying working-class jobs and communities. The American public’s views of foreign trade have grown more positive as the U.S. economy has recovered from the Great Recession, but in 2014, according to a poll by the Pew Research Center, only 20 percent of Americans thought that trade created new jobs, and just 17 percent believed that it raised wages. A populist anti-trade backlash is in full swing.
As globalization’s defenders retreat from the field, a different vision has emerged of how to achieve prosperity. On both the left and the right, economic nationalism has returned. Both camps hark back to a supposed U.S. golden age, when well-guarded borders kept out foreign goods, services, money, and people that would otherwise have disrupted national well-being. For U.S. President Donald Trump and his advisers, the slogan “Make America Great Again” captures the sentiment, even if the precise moment in history to which they want to return is left unspecified. For thinkers on the left, the golden age started with the New Deal reforms of the 1930s and lasted until the 1960s. Over this period, the economy and society of the United States were structured by the policies and institutions of the New Deal.
Robert Kuttner’s Can Democracy Survive Global Capitalism? is the latest in a stream of works that see the New Deal as proof that government can tame the kind of unregulated capitalism that today has led to vast inequality in wealth and income, a collapse of social mobility, and a climate of insecurity. The history of the Roosevelt administration’s response to the Great Depression, in Kuttner’s account, shows that societies can strike a better balance between capitalism, equality, and democracy.
Kuttner’s criticism of modern inequality hits its mark, but the solutions he proposes rely on an incomplete account of the history of the New Deal, which was built on a coalition of disparate interests. When that alliance broke down, the economic compact forged by the New Deal died with it. Today’s progressives will have to build new coalitions to ensure that globalization and social advances once again go hand in hand.
HOW THE NEW DEAL HAPPENED
In his account of the New Deal, Kuttner focuses particularly on the Glass-Steagall Act of 1933, which separated commercial banking from investment banking and sharply reduced the economic risks that arise from unregulated financial markets. He also emphasizes the importance of federal support for labor through legislation on collective bargaining and job creation. He argues that these policies were abandoned in the 1970s because of the growing political influence of economic elites—not because the policies themselves were unworkable. At the time, the U.S. economy was plagued by stagflation, that is, high levels of inflation combined with slow economic growth. But Kuttner claims that dealing with it need not have spelled the end of egalitarian capitalism. He writes,
The shift back to radical laissez-faire—neoliberalism—was not required by the economic circumstances. Neither was the full deregulation of finance, nor the enforcement of austerity, nor the use of trade rules to further undermine domestic managed capitalism, nor the indulgence of globalized and systematic tax evasion.
Since the demise of the New Deal was not inevitable, Kuttner argues, the United States should bring it back. The same policies that combined growth with equality back then are desirable today, he suggests, albeit with some updating.
Kuttner’s powerful indictment of today’s inequality and the dangers it poses to democracy is on target, but his proposed solutions rely on too simple an account of the politics that made the New Deal possible. He sees politics as a contest between “the people” and a unitary “elite,” a characterization common to populists on the left and the right. To account for the success of the New Deal, he points to “inspired leadership backed by the power of mass movements.” He recognizes that contingent events turned out in the New Deal’s favor, but what mattered most, he writes, was the mobilization of labor, which empowered the state to regulate finance and to push back against the interests of capital. Yet the coalitions that underpinned the New Deal reforms were far more complicated and morally fraught than Kuttner acknowledges.
Roosevelt in 1935.
The New Deal was built on compromise. Although Kuttner does not pay much attention to these bargains, they were critical in getting New Deal legislation through Congress. Analyzing the coalitions behind them is essential for understanding both how the New Deal was possible and how it fell apart. As the political scientist Ira Katznelson argues in his 2013 study of the politics of the New Deal, Fear Itself, the key legislation could never have passed without the votes of segregationist southern Democrats, who controlled crucial committees in Congress. To win those votes, northern and western Democrats had to accept the South’s white supremacist racial system: they agreed that new federal programs would maintain and reinforce segregation. Yet the coalition that supported New Deal reforms fell apart once southern Democrats came to believe that the New Deal had yielded too much power to organized labor and had done too much to promote federal power. Ultimately, it was a backlash against the civil rights movement and civil rights legislation, not globalization or neoliberalism, that dealt the final blows to New Deal politics.
Most democratic compromises are not as morally troubling as the one between southern Democrats and northern and western Democrats in the 1930s. But Kuttner misses the diversity of interests that have to be accommodated within any democratic strategy for political and economic reform. His view of political reform as a struggle between “the people” and “the elite” has much in common with the views of right-wing populists. Kuttner is at great pains to distinguish his “progressive” populism from what he calls “neofascist” or “reactionary” populism, and his understanding of Americans and their interests and ideals differs in some radical ways from the former Trump strategist Steve Bannon’s conception of “true” Americans as exclusively Judeo-Christian whites. But by giving the compromises behind the New Deal such minimal treatment, Kuttner downplays the extent to which the politics behind the New Deal required coalitions of partners with different, even contradictory, interests.
UNLIKELY ALLIANCES
The kind of alliance between progressive reformers and white supremacists that made the New Deal possible is no longer an acceptable one. But tackling inequality, lack of opportunity, and the risks posed by unrestrained financial markets will once again require those on the left to make uncomfortable partnerships. Leaders will have to form coalitions that bring together both those who benefit from globalization and technological change and those who have lost out and now demand greater equality within the United States.
The case for globalization rests not only on its economic benefits, which may have been overstated, but also on its political upside, which has been largely overlooked.
The first period of sustained globalization, from 1871 to 1914, offers several strong precedents for such coalitions. In the United Kingdom, free trade enjoyed strong support both from businesses and from working-class associations, who saw it as lowering the cost of food in workers’ budgets. In Belgium, socialists and trade unionists agreed to support lower tariffs in exchange for business commitments on social policy and limits on imports from low-wage countries. And in the United States, as the political scientist Adam Dean has shown in his 2016 book, From Conflict to Coalition, when employers accepted wage agreements that shared a proportion of the company’s profits with workers, the unions allied with the employers on trade.
Kuttner rejects the idea that such deals could open up a path to reform. His vision is a different one: to restore public power and constrain capitalism with a strategy of “progressive populism,” which he defines as a “public that is in a high state of democratic mobilization.” He discounts even those compromises that might be made between progressives and moderate Democrats who try to appeal to crossover Republicans: “Pro-corporate Democrats can and do get elected with such views—but why bother?”
To Kuttner, the ultimate sin of globalization is that it undermines democracy by limiting national regulation of the economy. But like both left-wing economic nationalists and their right-wing counterparts, he fails to articulate a vision of an international economic order that would serve U.S. interests and win the support it would need from other countries in order to succeed. Left-wing economic nationalists such as Kuttner often point to the 1944 Bretton Woods agreement on trade, monetary relations, and capital mobility as a model for a reimagined international economic system.
Under the Bretton Woods system, national governments retained control over the movement of capital across their borders. The agreement provided for both a reserve currency, the U.S. dollar, to which other currencies within the system were pegged, and an international mechanism to extend loans to countries running deficits in their balances of payments. As a result, the system allowed governments that were rebuilding their economies after World War II to support domestic industries without worrying that the spending would cause the kinds of debt crises that had plagued the world under the gold standard, which linked each currency’s value to that of gold. Democratic accountability is effective only within national borders, so populists prize the latitude that the Bretton Woods system gave governments to regulate the flow of goods and capital. They argue that the neoliberal “Washington consensus” of the 1980s and 1990s, which replaced the Bretton Woods system and which supported the unrestricted movement of capital and far freer trade, has degraded democratic governance.
Yet many populists miss that the Bretton Woods system worked as well as it did and for as long as it did thanks only to the United States’ exceptional dominance of the global economy. As other industrial powers recovered from World War II, the United States’ oversize economic influence was bound to diminish. During the Cold War, moreover, U.S. policies contributed to the rise of the United States’ future trade rivals. Preventing the spread of communism meant stimulating economic recovery in the countries of Western Europe and East Asia. If Washington allowed these countries to export to the United States without fully opening their own borders to U.S. goods, services, and capital, it reflected a determination to prevent the growth of pro-communist forces there, rather than a naive devotion to free trade. Political economists still debate whether it was these market-based policies that accounted for the transformations of Hong Kong, Japan, South Korea, and Taiwan into advanced economies or whether state backing for industry was more important. But it’s difficult to deny that exporting goods to rich countries has so far proved the only strategy for transforming some of the poorest countries on earth into some of the richest.
The case for globalization rests not only on its economic benefits, which may have been overstated, but also on its political upside, which has been largely overlooked. Economic nationalism means a politics focused on borders. As the current escalating trade war between the United States and both China and the EU shows, trade hostilities risk spilling over into many other areas, such as military cooperation and scientific collaboration.
The political benefits of relatively open borders were key to the support that socialist and trade-union movements provided for the first wave of globalization. Back then, those on the left saw that their conservative and nationalist foes on domestic issues were also profiting from economic protectionism. They recognized that protectionism tends to suppress competition at home without providing any new ways for the public or government to hold big businesses accountable.
The concerns that today’s populists express about a race to the bottom in an open global economy are valid, but history shows that all the gains need not go to the very top. During the late nineteenth and early twentieth centuries, countries across the advanced industrial world expanded social welfare programs and citizens’ rights. Pressure from left-wing parties and unions forced governments to link, however partially, the lowering of border controls to social and economic advances for broad swaths of society. Yet during the current wave of globalization, left-wing groups have failed to build new coalitions to ensure that the gains are broadly shared. The left needs to rediscover the art of coalition building that once allowed it to combine globalization with social progress.
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