By CEDRIC DURAND*

There are many signs that the set of neoliberal policy tools is proving to be less and less effective for the day-to-day management of capital accumulation.

In 1979, when Jimmy Carter named Paul Volcker president of the Federal Reserve, the mandate was clear. Fight inflation, whatever the cost. That's what he did. In the late 1980s, interest rates reached a record high of 20%; inflation dropped from a peak of 11,6% to 3,7% in 1983. For the capitalist class, this proved to be an economic and political bonanza. Rate hikes triggered a severe recession, precipitating a wave of restructuring and layoffs that helped to crush unions, demoralize the left and discipline the global south. The result was a “revenge of the rentiers” from which a well-documented increase in inequalities emerged.

Volcker’s “1979 coup”, – as it was called by Gérard Duménil and Dominique Lévy in Capital Resurgent (2004) (Resurgent Capital), took place at a time when systemic dynamism was in decline in the advanced capitalist world. This was caused by the intensification of competition from the successful recoveries of Japanese and Germans. In any case, the situation was faced by growing labor militancy and mass social movements, which produced a general crisis of governability. Meanwhile, radical forces in ex-colonial countries were calling for a New International Economic Order, based on economic sovereignty and the regulation of multinationals.

The 1979 coup was undoubtedly the most important factor in changing the situation with these insurgent forces. The hegemony of the dollar was strengthened. Countries in the global south were brought to their knees by the rising cost of debt service; they were then forced to adopt structural adjustment programs, designed by the IMF and the World Bank, in coordination with the US Treasury. In the global north, pro-US governments liberalized capital flows, subordinating industrial relations and welfare systems to the growing power of finance.

Stabilize prices, crush labor, discipline the south. That was the basic logic of the 1979 coup. For four decades, financial returns were systematically prioritized over work patterns, employment, ecological conditions and development prospects. Now, in 2021, there are signs that this era is finally coming to an end. However, to what extent and by what means? The logical unfolding of the change in course that took place more than forty years ago can help shed light on the present moment. Are the Biden Plans just a departure from neoliberal norms, or do they represent a sharp break with the post-79 regime?

The most exaggerated expression of “left optimism” to date has come from Wall Street Journal. America's leading conservative newspaper said that "Joe Biden may be the most anti-business president since Franklin Delano Roosevelt." His administration is implementing "a Bernie Sanders-Elizabeth Warren agenda that will greatly expand government control over business and the economy." The WSJ isn't particularly disturbed by Biden's spending spree; however, he is outraged by the planned increase in corporate and estate taxes, as well as the attempt to strengthen union organizing with the Pro Act, that is, “the most far-reaching labor legislation since the 1930s”.

O Pro Act it could indeed have major consequences, both economically and politically, but only if the growing associative power of labor made room for expanded organization, better social conditions, and rejuvenation of working-class politics. Its effect will be undermined, however, as long as there is a large reserve army of unemployed and underemployed workers, putting downward pressure on wages and working conditions. US employment remains severely depressed and Biden famously took the $15 minimum wage out of the Covid relief package. However, reducing unemployment and underemployment appears to be an objective.

Biden's $1,9 trillion stimulus, combined with Trump's packages, injected a total of $5 trillion – nearly 25% of GDP – into the US economy. It was the biggest fiscal expansion ever in an era of peace; more than enough, in fact, to revive the economy after the slump produced by Covid-19. This economic voluntarism is an unequivocal departure from the fiscal moderation of the Obama administration and the dogmatic austerity of the European Union. Its ideological significance should not be underestimated.

First, as Serge Halimi noted in the April issue of Le Monde diplomatique Edited in France, one of the most promising features of the US rescue plan is its universality. At the end of April, more than 160 million Americans received a check from the Treasury for $1.400. This is indeed a break with the punitive ideology of neoliberal social policies; if they provided subsidies, they were typically distributed under rigorous and humiliating conditions. The new package paves the way for broader measures, with a view to the 2022 midterm elections.

Second, the scale of government public spending is deliberately designed to generate a high-pressure economy, which necessarily involves an element of inflationary risk. It is at this point that it can be said that, in 2021, there was also a coup, which, however, is a reversal in relation to what happened in 1979.

As Adam Tooze has emphasized – hailing the dawn of a new economic era – “the bias of the technocratic orientation” has been in favor of price stability and against labor for decades. Now that is changing – explicitly. Since at least 2019, Treasury Secretary Janet Yellen has been referring to the arguments developed by Arthur Okun in the Brookings Institution, in the 1970s, about the social advantages of a high-pressure economy.

Okun, chairman of Lindon B. Johnson's Council of Economic Advisers, even for a brief period, argued in 1973 that accepting a lower GDP - with underutilization of resources, especially labor - as an insurance policy against inflation implied " a sacrifice of upward mobility” of Americans; while, on the other hand, “higher labor market pressure” would create a step-by-step process whereby “men formerly in less skilled jobs could move into more skilled ones, thus opening the way for women and young people. in less well-paid occupations. Wage differentials would decrease, as “the same forces that generate more jobs also generate better jobs, as well as more output per worker”.

That appears to be Biden's strategy: increase employment, reduce inequality, and spur productivity growth, all through high-pressure economic policy. As his speechwriters wrote, "the trickle economy never worked"; the objective now must be “to make the economy grow from the bottom up and in between”.

Those words need to be appreciated for a moment: this is simply a reversal of the kind of policies that Democrats like Biden have been implementing for decades. For the left, this is seen as a result of years of ideological and political mobilization. The campaigns of Bernie Sanders and the rise of Alexandra Ocasio-Cortez can be seen as two tips of an iceberg formed by massive activist efforts.

Moreover, this reversal also responds to a situation in which the financial markets, seen as the central nervous system of the economy, have remained in the last decade based on the support of the system as a whole, thus losing touch with the underlying yields. In other words, we need to ask: if the 1979 coup led to the rise of finance to the detriment of workers, could the 2021 pro-labor turn succeed in dethroning finance?

Brian Deese, head of Biden's National Economic Council, previously stationed at investment giant Black Rock, does not represent a break with the usual model of Wall Street and Washington technocrats. Still, in an interview with the NYT last month, he explained the reason for the US government's statist turn. There are challenges on the horizon: (1) climate change, (2) growing inequality, and (3) China. As none of these could be adequately addressed by market forces, the state had to intervene. It is therefore necessary to look at all three.

Droughts, fires and hurricanes have made climate change a concrete reality in the United States and, therefore, failing to mitigate it is no longer an option. According to Deese, every economic policy now, in order to be politically sustainable, must also be a climate policy and an employment policy. The government then implemented its ecological policies under the banner of an “employment plan”, aiming to neutralize any conflict between environmentalism and unionism.

In contrast to this stimulus perspective, the main problem with the American Jobs Map – just like your partner American Families Plan, intended for kindergartens and education – is that its scale is drastically undersized. The announced US$ 4,05 trillion together form a large number. But this should be spread out over a decade so that, in total, it accounts for just 1,7% of GDP per year. It is laughably small compared to the claim and purpose of “rebuilding a new economy”. This is a fraction of the US$16,3 trillion (or 7,6% of annual GDP) proposed by the Green New Deal by Bernie Sanders.

The American Society of Civil Engineers estimates that an additional $2,59 trillion of investment is needed simply to keep existing infrastructure in good repair during the 2020-29 decade. Biden's plan will help maintain the existing rail sector but not expand it to replace boxcars and locomotives. Biden's so-called "green transition" aims to "clean up" existing production processes, but does not intend to transform life and consumption patterns. An unfounded optimism about technological advancement complements the imperative goal of preserving capitalist social relations.

Interestingly, the plan in its current form does not rely on private funding. Financial investors are begging for long-term assets, especially public-private partnership infrastructure projects. They're worried, explains Larry Fink, about Brian Deese. Behold, “there are huge reserves of private capital waiting for investment projects”, that is, with a lack of safe and profitable projects to invest.

The Biden team is resisting those sirens for now; however, it continues to promote this type of privatization scheme in the global south. Here's an obvious reason: as the Financial Times noted, federal government debt always comes out cheaper than the business costs needed to attract private sector infrastructure-producing companies. And this cost “ends up falling on users of essential services”. But it was precisely this kind of evidence that neoliberal thought has stubbornly tried to hide or obfuscate.

Instead, the Biden administration plans a modest increase in the corporate tax rate, from 21% to 28% – shy of the pre-Trump 35% rate. At the same time, it provides for a minimum global rate of 15%. The top income tax rate will increase from 37% to 39,6%, and common income tax rates may apply to capital gains and dividends for Americans earning more than $1 million a year. In some states, the combined state and federal capital gains tax can be above 50% – if the legislation passes Congress.

On the ideological level, however, the very articulation of Biden's plans consists of a refutation of the neo-Schumpeterian claim that incentives for capital owners (profit and effective demand) are the main drivers of innovation and employment. It is even more problematic at a time when capital is plentiful and extremely cheap, when private investment is depressed and when there is a widely recognized need for public and social infrastructure.

The third element is the rise of China. It would be difficult to overestimate here the strength of American national-imperial thought, as well as the challenges it poses for the internationalist left. However, an unintended consequence is treating financial markets as a macroeconomic coordination apparatus. Deese puts it bluntly: “There is no market-based solution to some of the obvious big weaknesses in our economy; We are dealing with competitors like China who are not operating according to the rules of the market. Now this is no minor concession.

As Isabella Weber documents referring to the 1980s in How China Escaped Shock Therapy (2021) (How China Escaped Shock Therapy), the CCP's chosen path to capitalism was based on a debate over the strategy of market reforms. On several occasions, the option of total liberalization was considered, but it was always discarded. Instead, China engaged in capitalist globalization by keeping what Lenin called “the top command post of the economy” under state control.

Once Washington recognized that China was not just catching up with, but in some areas outpacing the US, US officials began to consider what Deese described as “targeted efforts to try to rebuild domestic industrial strength”, i.e. exactly the measures once ridiculed as “industrial policy”.

When it comes to China, as it is when it comes to inequality and climate policy, the Biden administration is ostensibly counting on popular legitimization of state intervention. As the WSJ lamented, the White House appears to be moving away from the assumption held by America's two major parties for decades. According to him, “the public sector appears to be inherently less efficient than the private sector and, therefore, bureaucrats are urged to always submerge themselves in the markets”.

With tax increases on capital gains, which is always the main interest of the financial class, this new policy by the Biden administration may suggest that a reversal of the hegemony of finance is underway. Even if the size of the intervention is limited, its logic seems distinct from any kind of neoliberal policy.

Since 2008, the financial sector has depended on State support to sustain its returns, which have lost dynamism in recent years. For more than a decade, financial assets have been persistently inflated by pro-corporate fiscal and monetary policies. Under this regime of increasing plunder, finance became disconnected from market-based processes. It began to be fed by hidden subsidies and central bank interventions aimed at sustaining the structure of liabilities generated by financial leverage and speculation. Financial stability has become a matter of policy decisions – not a product of market dynamics.

As this situation persists, a logical reversal occurs. While States used to fear in the past the end of market liquidity – a typical threat of crises from the 1990s onwards – the configuration of the problem changed after 2008: the financial community now demands a permanent public lifeline to guarantee liquidity, smooth balancing of markets and sustaining assets.

This socialization of fictitious capital, which is becoming the new normal, alters the balance of power between the state and markets, and within the capitalist class this is at the expense of financial rentiers. Biden's economy is one of the first symptoms of this reconfiguration. Movements are moving towards strengthening the relative position of labor and overthrowing the tax privileges of the rentier class. This rejects the neoliberal wisdom that market coordination is always preferable to state intervention: these signs signify more than just a rhetorical shift. They point to a structural rupture in the regulation of capitalism, whose shock waves will reverberate in the global political economy in the coming years.

Is this change enough to face the social and ecological crises of the century? I do not think so. Does it alter the essential relationships between social classes? On the contrary, it does nothing more than seek to legitimize the social order. Is it something unambiguous? No: while private finance has been kept out of new domestic infrastructure projects, the US is still pushing privatization and deregulation in the global south and intensifying its new Cold War in China.

Will it drive a new phase of economic expansion? I doubt! Witness the absolutely disproportionate scale of global overaccumulation and the tendency for the industrialization bonanza to disappear. Even so, the year 2021 will be remembered as the moment when global capitalism was reorganized beyond neoliberalism, a tectonic shift that will irrevocably alter the terrain of political struggle.

The fact that we have arrived at this point should come as no surprise. There are many signs that the set of neoliberal policy tools is proving to be less and less effective for the day-to-day management of capital accumulation. The Eurozone crisis, the global waves of “populist” protest, the new assertiveness of digital monopolies, etc. are indications of a growing systemic instability.

Furthermore, the pandemic has accelerated the pressure for change. At this stage, one of the few things that can be said with certainty is that the possibility of savoring new popular victories is slightly greater than it was five months ago. That's not much. But for people like me born in the 1970s or later, it's a first.

*Cedric Durand is a professor at the University of Sorbonne Paris-North. Author, among other books, of Techno-Féodalisme: Critique de l'économie numérique (La Découverte).

Translation: Eleutério FS Prado.

Originally published on the blog of New Left Review.