US Treasury Secretary Janet Yellen testifies before a House Ways and Means Committee hearing on the proposed 2023 US budget, on Capitol Hill in Washington on June 8. Yellen has spoken favourably about “friend-shoring” in place of expanded free trade, suggesting a sea change in sentiment towards globalsiation. Photo: Reuters
Opinion
Macroscope
by Dani Rodrik
Macroscope
by Dani Rodrik
Could ‘productivism’ fill the gap in a polarised era of waning globalisation?
There are signs of a major reorientation towards a new economic policy framework as global sentiment turns away from globalisation
Productivism, which emphasises production and investment over finance and aiding local communities over globalisation, is garnering bipartisan support
A new economic paradigm becomes truly established when even its purported opponents start to see the world through its lens. At its height, the Keynesian welfare state received as much support from conservative politicians as it did from those on the left.
In the United States, Republican presidents Dwight Eisenhower and Richard Nixon bought fully into the paradigm’s essential tenets – regulated markets, redistribution, social insurance and countercyclical macroeconomic policies. They worked to expand social welfare programmes and strengthen workplace and environmental regulation.
It was similar with neoliberalism. The impetus for it came from economists and politicians – such as Milton Friedman, Ronald Reagan and Margaret Thatcher – who were market enthusiasts.
But the paradigm’s eventual dominance was in no small part because of centre-left leaders such as Bill Clinton and Tony Blair, who internalised much of its pro-market agenda. These leaders pushed for deregulation, financialisation and hyper-globalisation while paying lip service to ameliorating the consequent rise in inequality and economic insecurity.
Today, we are in the midst of a transition away from neoliberalism, but what will replace it is uncertain. The absence of a solidified new paradigm is not necessarily bad. We do not need another orthodoxy offering cookie-cutter solutions and ready-made blueprints for countries and regions with different circumstances and needs.
But economic policy must be guided by an animating vision. History suggests that the vacuum left as neoliberalism wanes will soon be filled by a new paradigm that will eventually need support across the political spectrum. Such an outcome might seem impossible given the current political polarisation, but there are already signs of convergence.
In particular, a new bipartisan consensus might be emerging around “productivism”, which emphasises the dissemination of productive economic opportunities throughout all segments of the labour force. Unlike neoliberalism, productivism gives governments and civil society a significant role in achieving that goal.
It puts less faith in markets and is suspicious of large corporations. It emphasises production and investment over finance and revitalising local communities over globalisation.
Productivism also departs from the Keynesian welfare state by focusing less on redistribution, social transfers and macroeconomic management and more on supply-side measures to create good jobs for everyone. It diverges from its antecedents by reflecting greater scepticism towards technocrats and expressing less knee-jerk hostility to economic populism.
The rhetoric and policies of US President Joe Biden’s administration feature many of these elements. Examples include the embrace of industrial policies to facilitate the green transition, rebuild domestic supply chains and stimulate good jobs, blaming large corporate profits as a culprit behind inflation and thus far refusing to revoke former president Donald Trump’s tariffs against China.
When the administration’s most senior economist, Treasury Secretary Janet Yellen, extols the virtues of “ friend-shoring” – sourcing supplies from US allies – over the World Trade Organization, we know that times are changing.
But many strands of this thinking exist on the political right as well. Alarmed by China’s rise, some Republicans are pushing for investment and innovation policies to bolster US manufacturing. Senator Marco Rubio has made pleas for industrial policy, promoting financial, marketing and technological assistance to small businesses as well as manufacturing and hi-tech sectors.
“In those instances in which the market’s most efficient outcome is one that’s bad for our people,” Rubio said, “what we need is targeted industrial policy to further the common good.”
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The Niskanen Centre, named after the libertarian economist and Reagan adviser William Niskanen, has made “state capacity” one of its main planks, emphasising that governments’ ability to provide public goods is important for a healthy economy. Oren Cass, an adviser to Republican Senator Mitt Romney during his 2008 and 2012 presidential campaigns, is a critic of financialised capitalism and supports reshoring supply chains and investing in local communities.
As James and Deborah Fallows found when they travelled across the US to study local economic development, pragmatism can override political partisanship when it comes to fostering businesses, job creation and public-private partnerships. Local politicians confronted by the challenges of economic decline and joblessness engaged with community groups, entrepreneurs and other stakeholders in extensive policy experimentation.
Whether this kind of cross-party collaboration and fertilisation of ideas will amount to a new paradigm remains to be seen. There are deep divides between Republicans and Democrats on social and cultural issues such as abortion rights, race and gender.
Senator Marco Rubio speaks during a Senate hearing on Capitol Hill in Washington on May 17. Photo: AFP
Many Republicans, including Rubio, have yet to renounce their allegiance to Trump, who remains a threat to US democracy. There is also the danger that the “new” industrial policies favoured by both conservatives and progressives will fizzle out or turn into the old measures of the past.
Nonetheless, there are signs of a major reorientation towards an economic-policy framework that is rooted in production, work and localism instead of finance, consumerism and globalism. Productivism might just develop into a new policy model that captures the imaginations of even the most polarised of political opponents.
Dani Rodrik, Professor of International Political Economy at Harvard University’s John F. Kennedy School of Government, is president of the International Economic Association and the author of Straight Talk on Trade: Ideas for a Sane World Economy. Copyright:Project Syndicate
