Pragmatic Utopia #33: “Regulating Society by the Market”

A few weeks ago I shared a helpful definition of neoliberalism, from Greta Krippner. Now I’ve finally gotten around to reading the the current authority on the topic: Undoing the Demos: Neoliberalism’s Stealth Revolution, by the Berkeley political theorist Wendy Brown. While reading this book, I couldn’t help noticing that the word remains a vague catch-all in public discourse (and, to be fair, in much academic discourse too). In Noah Smith’s recent essay in praise of neoliberalism, for example, the term stands for some combination of centrism, technocratic expertise, “pro-growth” policy, and a friendliness to markets. Brown would surely agree that these ideas are related to neoliberalism. But she’d rather give a more precise definition: not because the dictionary says so, but because it helps clarify what neoliberalism is different from, and therefore the stakes in supporting or opposing it.

Brown builds her conception of neoliberalism on top of the picture Foucault sketched in his ‘biopolitics’ lectures. If I can leave you with one idea from Brown and Foucault, it would be that neoliberalism is not the same thing as “free market economics” (contrary to much usage). The principle of laissez faire–that the state should leave the economy alone–was the prime tenet of liberalism. Neoliberalism is almost the reverse. It is a strategy of governing via the market, or “regulating society by the market.” For a concrete example, take this essay by my Berkeley colleague Robbie Nelson about how the Obama administration outsourced its mortgage forgiveness program to private companies, letting the market decide which underwater homeowners (all eligible under the program) should actually be granted relief. A second way to state this definition is that neoliberalism substitutes markets for laws as principles for determining what is right, or what actions must be upheld.

A third way to define neoliberalism is in terms of what kind of subject or citizen it assumes. Foucault argues that whereas once sovereigns conceived of their citizens as homo juridicus–a subject with certain rights which must be respected–neoliberal governments conceive of their citizens as homo economicus, a subject who pursues his self-interest. Here Brown makes her most important update to Foucault. She wryly observes that it is as if Foucault considered all of Western political history and somehow forgot to chop off the king’s head. There was an important stage after homo juridicus: homo politicus, the citizen who wrote constitutions and learned to conduct self-government with his neighbors. For Brown, this is the whole problem with neoliberalism: that in abandoning homo politicus, it abandons the hope of individual or collective mastery of existence. The logic here is that political debate is a better (or at least more transparent) mechanism than markets for expressing normative values and especially for raising and responding to disagreements.

Brown uses much of the book to highlight some of the concepts she considers most emblematic of neoliberalism. First, there’s governance: a form of governing that is networked, integrated, cooperative. You’ve probably taught yourself to stop reading whenever you see these buzzwords, but Brown dwells on them and notices a mode of governing where process rules and agents are absent. The upshot, she thinks, is to decenter state sovereignty and make corporations co-responsible for managing public affairs (see the ubiquitous “public-private partnership”). The problem with cooperation is that robs political life of normative debate. So does her next target: “best practices.” The problem with best practices or “benchmarking” is that they replace properly political debates about what is right for a particular community with one-size-fits-all technical engineering.

It’s worth considering how much “evidence” is necessary in a book like Brown’s. There are two main ways to do theory, both on display here. The first way is to offer a close reading of other theorists, reconstructing and then improving upon their arguments. That’s what Brown does vis-a-vis Foucault. The second way is to generalize about the real world, inductively generating a theory based on one’s analysis of events, headlines, and case studies. This kind of empirical inspiration seems especially important for Brown’s argument, given that her topic, neoliberalism, is a recent, bounded phenomenon. Brown’s deepest engagement with contemporary texts comes in a chapter on the neoliberal takeover of law, which she finds in Justice Kennedy’s opinion in Citizens United.  This analysis was a great start and I’d love to read more like it. I suspect we will one day get a full book parsing the rise of neoliberal reasoning in jurisprudence. In her discussion of governance/benchmarking/etc, Brown offered less evidence that these concepts really operate the way she says.

I appreciate Brown’s definition of neoliberalism because it helps us think more clearly about when markets are the right mechanism for addressing public problems. The mistake of neoliberal thinking, in Brown’s view and mine, is that it assumes markets are desirable ends in themselves. You can see this reasoning at work in the HAMP loan modification program, in the Obamacare exchanges, in funneling retirement savings into private 401(k) plans, and in the most utopian rhetoric about charter schools. With Brown’s definition, you can reject this thinking without abandoning the usefulness of markets entirely. The key question remains: can people govern markets democratically? Is there political–that is to say, deliberative–recourse when markets continually fail to produce satisfying outcomes? Brown’s deepest worry is that in a society populated only by homo economicus, there would not even be a language in which to ask these questions.

1. Piketty, critics, and friends
After the Piketty, there’s the After Piketty. Subtitled The Agenda for Economics and Inequality, this is an edited volume with contributions from over twenty social scientists evaluating the lessons and implications of Piketty’s Capital in the 21st Century. The first thing to say is there should be more books like this! After a piece of work as obviously important as Capital, researchers should take time to digest and reflect on it before moving on to the next thing. I can’t summarize all of the contributions, so I’ll focus on one thread.

Recall that Piketty argues that capital’s share of income is rising and will continue to rise. When I last wrote about Piketty, I mentioned Matt Rognlie’s influential critique. His critique was an updated version of the theory John Maynard Keynes described as the “euthanasia of the rentier:” namely, that as wealth grows more concentrated, the relative rate of profit should decline even faster (and thus capital’s share of income should sink back toward labor’s). You can think of it as diminishing returns to investment, or see Brad DeLong for abetter discussion. But Piketty argues that we should move past Keynes’ and Rognlie’s neoclassical, supply-and-demand framework and instead look at the historical data, where he observes that the rate of profit has been more or less constant at 4-5% for centuries, even across varied levels of capital concentration.

How can this be? Piketty doesn’t really say. In his formal model, the operative assumption that leads to this conclusion is an elasticity of substitution between labor and capital greater than one. But in a useful contribution to After Piketty, Devesh Raval shows (as did Rognlie) that the elasticity is almost certainly much lower than one. So perhaps the answer lies outside a neoclassical model. This is where Suresh Naidu takes us in “A Political Economy Take on W/Y,” which I thought was the best essay in the volume. Naidu senses a “wild Piketty” struggling to break free from the chains of neoclassical economics. This is his attempt to liberate him. In Naidu’s view, capital “is a set of property rights entitling bearers to politically protected rights of control, exclusion, transfer, and derived cash flow.”  To understand the wealth/income ratio, you need to examine the details of labor bargaining power, corporate concentration, and the rate at which financial markets capitalize expected future income as present wealth. By manipulating these parameters, capitalists might be able to maintain a fixed rate of profit even as capital grows more concentrated.

Naidu’s view of capital is also very helpful for making sense of the distinction between capitalists and “supermanagers,” the high-paid executives who are responsible for the rise in income inequality (rather than wealth inequality) in Piketty’s data. Some of the contributors to After Piketty say: if inequality is driven by supermanagers, the story is reallyabout differences in human capital, and the solution is just (what else!) a better education system. To the contrary, Naidu points out that executive bonuses aren’t really labor income. They vary with corporate profits, and are thus an indirect product of the firm’s noncompetitive position. He suggests we should think of a continuum of capital-like contracts, from fixed wages up to full ownership, with executive pay somewhere in the middle.  

I was pleased to see, in the book’s concluding essay, Piketty himself agreeing with my perception of the best chapters. He enthusiastically claimed the “wild Piketty” title Naidu had suggested. He also praised David Grewal’s contribution, on the historical legal foundations of capital’s consistent rate of profit. Grewal describes capital as a social relation: “What [Piketty] has estimated is not a physical stock of stuff so much as the market valuation of the extent of capitalist privilege,” instantiated in a range of assets from houses to machines to software. Piketty agreed with Naidu and Grewal’s effort to reframe the elasticity debate to a debate over the institutional (that is, political) climate for capital. I am eager to see what kind of research this framing can accommodate.

2. Why should we care about education?
Freddie deBoer has mostly stopped blogging about politics and started (resumed?) blogging about education, and it is excellent. I could link to several very good posts in the last month, but this one is probably the most important, as it states his general worldview on public education, to which I am very sympathetic. It starts with an anecdote that concludes: “I laughed and told her that if teachers only did things that we knew had a meaningful impact on grades and test scores, they wouldn’t have anything to do.” This sometimes gets Freddie accused of being an edu-nihilist:

“It’s true: I believe that the degree of assumed plasticity of outcomes for both individual students and groups of students at particular performance bands has been broadly exaggerated in our educational debates. That is, I think what’s plausible in terms of improving quantitative outcomes through education-specific policy interventions is far more limited than the “no excuses” rhetoric lets on.”

But we also need to remember that “schools perform a set of vastly important social functions that have nothing to do with standardized tests or even with learning as traditionally defined – including housing, and often feeding, children in a safe environment for half their waking day, providing them with socialization and the ability to form meaningful peer-group relationships, and providing the only support for those with developmental and cognitive disabilities that many families will ever be able to take advantage of. ”

In this view, education is good because it’s one of the most direct redistributive programs we have and because it plays a crucial function in socializing citizens. How would we spend our time and money if most education reformers believed this??

3. This week in John Dewey
Over the next few months I’m taking something of a deep dive into pragmatist philosophy and social theory. One starting point was a biography of America’s most important pragmatist philosopher: John Dewey and American Democracy by Robert Westbrook. Suffice it to say I’m a big fan of Dewey. Because I found so many aspects of his thought deep and relevant, I’m going to share snippets in each of the next few weeks. Some extremely basic background: John Dewey was a philosophy professor and social reformer active from the 1880s to 1950s. He grew up in a progressive Christian family but ultimately replaced his religiosity with a devotion to democracy as a kind of civic religion. Other major interests were education, the relationship between psychology and philosophy, dismantling dualist metaphysics, art, and socialism.

Dewey is often introduced as a theorist of democracy. This is of course true, but somewhat misleading. Dewey’s strength was not in the analysis of political institutions. During his career, he sparred continually with “democratic realists,” including Walter Lippmann, who doubted that the people could govern effectively or even deliberately, and tended to favor expert management. Such realism is very much alive today: see Democracy for Realists, one of the hottest political science books in recent years. Dewey did not have a persuasive rebuttal on the realists’ terms.

Instead, he urged us to think about democracy not as a system of government but as “a form of moral and spiritual association.”  He was primarily interested in what kind of person you become by participating (or not) in self-determination. “Democracy means that personality is the first and final reality. It admits that the full significance of personality can be learned [only] by the individual…personality cannot be procured for anyone, however degraded and feeble, by anyone else, however wise and strong.” This seems to me a useful foundation for Wendy Brown’s attention to homo politicus. And while this focus on personality may suggest an individualistic purpose of democracy, Dewey’s definition of individuality was deeply social. Everyone has a function–a relationship of mutual adjustment between our own capacities and the environment, which includes other people. Both must adapt to accommodate each other (this synthesis of an apparent dichotomy is a hallmark of Dewey’s philosophy). Thus “It is through association that man has acquired his individuality, and it is through association that he exercises it.”

4. Permanent transformation
Jeremy Adelman has a good, critical reflection on Karl Polanyi and his book The Great Transformation, which I’ve written about before.  The Great Transformation is a favorite text for sociologists who want to be critical about markets, but it’s sort of unsatisfying to that end. First, there are theoretical ambiguities: “On the one hand, Polanyi argues that the liberal age had disembedded the economy from wider social systems. On the other, Polanyi implies that the market always rests on legal, intellectual, and political conditions—that supply and demand never operate freely. Polanyi wants it both ways. Close readers will find themselves chasing the tail of his argument.”

Second, as Michaeljit Sandhu has pointed out to me, Polanyi’s historical account of the causes of the World Wars yields confusing lessons about why, exactly, market societies are bad. Polanyi seems to blame the “double movement” of state protectionism (e.g. going off the gold standard) in response to market societies rather than the consequences of markets themselves. In contrast, he attributes the relatively peaceful “long 19th century ” to rising middle class consumerism. And this is everyone’s favorite anti-market book? Moreover, as Adelman points out, it’s quite strange that Polanyi, a once-Jewish emigré from Vienna, had no sharp words for reactionary nationalism in the run-up to either war.

Polanyi, writing shortly after WWII, thought that the experiment in market fundamentalism was over. He was clearly wrong.
In this essay, Michael Burawoy argues that Polanyi’s blindness to the future should make us question his account of the past, and concludes that mistakes on both ends stem from his failing to take capitalism seriously.Rather than one “great transformation,” Burawoy says there have been three successive waves of marketization. Burawoy thinks that each wave has called for a successively updated version of Marxism, but that is a discussion for another day.



5. Social entrepreneurship for libertarians
I’m not a libertarian, but I can respect this essay from Jason Kuznicki arguing that libertarians should spend less time on theoretical suasion and more time building the kind of voluntary institutions a society would need to be less dependent on government. The main example he talks about is Dominant Assurance Contracts, an idea where a wealthy philanthropist provides the seed money for a Kickstarter-style project. The difference between this and Kickstarter is that if the funding goal is not met, the subsequent contributors would still get to take home a share of the philanthropist’s money, so it’s a win-win for them. It seems like this would create perverse incentives for people to contribute to projects they thought would fail to reach the target and thereby grab the philanthropist’s money for free. Whatever, I don’t really want a world where schools are funded by Kickstarter anyway. But I appreciate people who are trying to build good institutions, libertarians included. 

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