The following is a version of Andrew Coyne’s May 14, 2012 “The LRC Presents…” talk, presented in partnership with TVO’s Big Ideas.
I. The crisis, and after
At the height of the financial crisis, in October of 2008, the finance ministers and central bank governors of the G7 countries gathered in Washington for an emergency session. It was by all accounts an emotional meeting. Banks were collapsing, or on the verge of it, across most of the western world; governments had intervened, but in a haphazard, uncoordinated fashion that only seemed to make things worse; panic was rising. They were staring into the abyss, and they knew it. At one point, the German finance minister, Peer Steinbrück, told a story of an encounter he had had with a woman in East Germany. She had survived the fall of communism, she said, only to have to live through the fall of capitalism. I imagine he thought this would lighten the mood.
At the time, as you’ll recall, this was a common sentiment. Perhaps it was not the fall of capitalism we were witnessing, but at the very least the humbling of it. Things would never be the same after this, it was widely agreed. A Toronto Star columnist wondered in print whether it was not now time to adopt “the Chinese model,” whatever that meant. (I assume he did not mean we should start shooting student demonstrators.) The Financial Times of London seemed especially eager to get started on something called “Capitalism 2.0”. One thing was certain: it was the end of the free market as we knew it. Some new economic model would have to be found.
Three and a half years later, it doesn’t seem to have worked out that way. Though much of the world economy continues to reel from the aftershocks of the crisis, with the United States out of recession but still struggling to regain lost ground and Europe in the throes of a seemingly never-ending fiscal and currency crunch, there has not been the predicted swing to a more activist state, still less any attempt at a reinvention of the market economy. If anything, the reverse seems to have been the case. Elections since then in Europe have shown no clear trend except a determination to get rid of incumbents, whether of the left, as in Portugal, Spain and Ireland, or of the right, as in the recent elections in France. In America, the Republicans handily won the 2010 midterm elections, with the libertarian Tea Party wing in firm control of the party. And in Canada, of course, we have since re-elected the Conservative Party, this time with a majority.
The sudden revival of interest in Keynesian fiscal stimulus, post-crisis, seems to have subsided just as suddenly, as fantasies of a return to pre-crisis growth rates are replaced by the dreary realities of deleveraging and bills coming due. Nor has there been the kind of sweeping across-the-board clampdown on speculative activity that many desired, and others feared: no tax on international capital flows, for example, and no raft of special bank taxes, or supranational regulatory regime. Rather, there has been what one might call a modest rejigging. The most radical of the reforms in the U.S. Dodd-Frank Act is named for Paul Volcker, the Federal Reserve governor who broke the back of inflation under Ronald Reagan. This is not quite the revolution we were told about.
Mind you, it easily might have been. It is hard to overstate how narrowly we escaped a total collapse of world finance. That it did not collapse, I have no hesitation in saying, was entirely due to massive government intervention. Had the G7 not come to an agreement that grim October day, had they not pledged, unequivocally, to stand behind any large bank, no matter the cost to their treasuries, and had central banks not followed up by injecting literally trillions in liquidity into their financial systems, we could well have descended into something every bit as fearsome as the Great Depression of the 1930s. Thankfully, policy makers had indeed learned the first lesson of the Depression: do not let your banking system implode. Flood it with money if you have to. Oh, and do not attempt to prop up your own economy by walling it off from others’. But this was hardly a departure from free market orthodoxy. It was straight out of Milton Friedman.
Of course, if government got us out of the crisis, government also had plenty to do with getting us into it. While it is satisfying to focus on a few corporate predators as the villains of the piece, it is truer to say the U.S. housing bubble was a collective folly, in which all manner of people took part. People bought houses they couldn’t afford, sold mortgages to people who couldn’t pay them back, bought mortgage-backed assets they didn’t understand and bet the firm on risky hedging strategies—all in the belief that housing prices could never go down.
While manias, and panics, have been around for as long as fools and their money have been parted, any time you see so many smart people making the same dumb decisions, chances are there is some deeper underlying cause at work. Greed, stupidity, dishonesty, none of these can explain it on their own, because all are constants of human existence, as present when markets are flat or falling as when they are rising.
Nor, it seems to me, is it sensible to talk about “unregulated markets” as the cause. Anyone who thinks the U.S. financial system is “unregulated” is simply not familiar with it: theirs is far more tightly regulated than, say, ours. Granted, the crisis exposed some critical gaps in the U.S. regulatory regime, particularly with respect to the shadow-banking sector: hedge funds, private equity and investment banks. But not all of these were sins of omission. Look closer at the crisis, and you find the state’s fingerprints all over the place.
Why did the bigger banks load up on these assets, even as prices climbed? Again, because the regulations encouraged it. The capital that banks were required to set aside against such loans was itself increasing in value as the economy grew and equity prices rose: meaning banks had more room to make new loans, adding still further to the boom. Regulation, in short, was “pro-cyclical,” exaggerating both the boom and—as we saw when prices started falling—the bust. And, underlying the whole thing, the worst regulatory failure of all: the unstated, never officially confirmed, but nonetheless universally accepted doctrine that some banks—no one knew which—were “too big to fail.” This led to a systemic underpricing of risk, arising from the belief of financial market players that, if it all went south, if their bets soured, Uncle Sugar would be there to catch them when they fell: heads they win, tails the taxpayer loses. It isn’t just that this tempted managers at financial institutions to adopt riskier strategies than were prudent, it is how that affected the willingness of others to lend to them, and of still others to lend to them, and so on throughout the system.
So while some see the crisis as debunking the myth of “rational economic man,” it is just as plausible to see it as the perfectly rational response to a set of peculiarly perverse incentives. If you subsidize risk-taking, too much risk you will get.
Why did housing prices become so inflated? Pride of place must be given to the Federal Reserve, which kept interest rates too low for too long in the wake of the 2001 recession. Another important contributor: the government-sponsored enterprises known as Fannie Mae and Freddie Mac, armed with a mandate from Congress to spread the benefits of home ownership to all and backed by the full faith and credit of the United States. Before they were through, the two owned more than half the mortgages in the country.
Why were U.S. regional banks so eager to convert mortgages into mortgage-backed securities? One reason: because the regulations encouraged it. Under the “Basel II” international banking guideline, banks were required to set aside less than half as much capital against mortgage-backed assets as they were against the mortgages themselves.
If the financial crisis did not result in a widespread turning away from the free market, then it may have been because the “free” market, as such, had little to do with it. Those who never much cared for the market in the first place were quick to claim vindication. But they have found relatively few converts among those not previously disposed to think the same way.
If any confirmation is needed of how comprehensively the anti-capitalist left has failed to capitalize on the crisis, it is surely the Occupy movement, which briefly fascinated the media last year. It wasn’t a movement, really. It was a flash mob: bedraggled, unrepresentative, confused, as unclear in what it was protesting against as it was utterly incapable of articulating an alternative. This is not the sign of a confident, intellectually coherent political movement. It is a testament to the left’s weakness, not its strength.
Indeed, so heterodox were Occupy’s many, many causes that it was hard not to agree with some of them. I was struck, in particular, by the signs protesting the bank bailouts. One read: “This is not how capitalism is supposed to work.” Another: “Privatization of gains, socialization of losses.” These were not people protesting capitalism. It was state capitalism, crony capitalism they were opposed to.
There was at least a germ of substance to Occupy’s signature issue, the growing disparities of wealth and opportunity in recent decades—in the United States. Even there, the mere fact that some people are richer than others is not sufficient in itself to condemn them. At a minimum, we should surely ask how they got the money: by fraud? By subsidy? By stacking boards of directors with their buddies? Or just by making a product people wanted to buy? Likewise, it is surely of interest to know, before we get too outraged, what they did with the money: spend it all on themselves? Invest it usefully? Give it away to charity?
But attempts to import the movement into Canada run afoul of the very different circumstances that obtain here. There was no subprime bubble here, nor any ensuing collapse, nor any resulting bank bailout. Both unemployment and poverty, while higher than they were immediately before the recession, remain near 40-year lows. The middle class is not disappearing—the distribution of income between the various quintiles has barely budged in decades. As for the 1 percent, while they have indeed taken home an increasing share of income in Canada, as they have in most advanced economies, it is nothing like on the same scale as in the United States. After rising from 8 percent in 1980, to 14 percent in 2007, it has since dropped back to 11 percent: about where it was in 1945, and about the average since then.
So whatever the troubles elsewhere, whether the debt crisis in Europe, or the social divisions in the United States, they do not exist to anything like the same degree here. Even in those countries, it has not been enough to cause a serious rethink of the “neoliberal” (as the left now calls it) orthodoxy. It is even less likely to do so here.
This is extraordinary: if the most serious financial crisis in 75 years has not been enough to stir serious interest in alternatives to the current economic model, perhaps we should conclude it is here to stay. Perhaps the most enduring effect of the crisis, rather than breaking up the consensus, will be to confirm it.
II. Consensus and convergence
For all the talk of increased polarization in Canadian politics, the evidence in fact points to a growing convergence—at least when it comes to the economy. Differences remain between the parties, but not of the fundamental kind, whatever their rhetoric to the contrary.
The Conservatives, while broadly liberalizing in instinct, are no longer the committed downsizers and deregulators of the Reagan-Thatcher or Harris-Klein era, contenting themselves with incremental gains. Though the advent of majority government has lent them a measure of greater ideological consistency, the odds of a revolution would still seem slim. Only on the trade file have they shown any radical, free market zeal, opening free trade talks with a half a dozen major partners at once.
But if the Conservatives have moved toward the centre, the opposition parties have moved even further. The Liberal Party long ago discarded its penchant for expensive new government programs. Gone are the days when the party fought tooth and nail against the free trade agreement. Like the Conservatives, the party today is generally for balanced budgets, low inflation, and competitive tax rates: the most it could do to differentiate itself from the Tories in the last election was to delay the process of cutting corporate tax rates it itself had begun.
Not so long ago, the party owned the middle of the spectrum. Increasingly, however, it finds that space occupied, not only by the Conservatives, but by the NDP. The latter’s transformation was already well advanced under the late Jack Layton, who stripped the party of much of its radical, New Jerusalem rhetoric. It is certain to continue under its new leader, the former Quebec Liberal cabinet minister, Thomas Mulcair.
It is conceivable we could see the NDP propose a new national social program under his watch, such as pharmacare or daycare. It might even want to raise corporate tax rates. But I rather doubt the party will propose pulling out of free trade agreements, and it will positively boast of its commitment to balanced budgets. And as for anything that smacks of socialism—nationalizing a major industry, say—not a chance.
If indeed the NDP has displaced the Liberals as the main alternative to the Conservatives, if we have replaced three-party politics, as we have known it, with two-party politics, that should not be taken as a sign that our politics is about to become more polarized. Two-party systems tend, rather, to converge on the middle. Historically, the NDP used to pull the Liberal Party to the left, as for a time the Reform Party used to pull first the Conservatives and then the Liberals to the right. There is no party of the left or right to do that now.
Of course, in large part this convergence on the status quo is simply a reflection of the left’s success. The institutions of the modern welfare state for which they campaigned in decades past—medicare, unemployment insurance, public pensions, and so on—are all immovable parts of the landscape. For all of the accommodations the left has made of late with the market, we should not forget their earlier victories on the role of the state.
Still, it is undeniable that the right has been doing most of the running in recent years. On issue after issue, from free trade to balancing the budget to conquering inflation to cutting taxes, it has been the right that has taken the initiative, while the left opposed. Rarely has it been the other way around.
Yet the fundamentals of the welfare state remain unchallenged: for example, the principle of universally accessible, publicly funded health care. Only the particulars of their design are: for example, whether private clinics might be permitted to deliver health care within a publicly funded system.
And they are winning the argument. To stay with the same example, the notion that publicly funded health care might be privately delivered, once heresy—absurdly: what did people think doctors were?—is now somewhere near the centre of gravity of public opinion.
It is surely not impossible to think that we could preserve all of the benefits of the welfare state, without accepting all of its defects: as if the system’s designers got it perfect on the first attempt, such that it could never be improved upon. The 20th-century welfare state was constructed, after all, at a particular time in history: in the wake of not only the Depression, but two world wars, it came at the very highwater mark of belief in the possibilities of state action. Is it so hard to believe that policy makers might, in that first flush of enthusiasm, have been a wee bit overconfident: placed too much faith in central planning, been too heedless of costs, and so on? And even if a program were well designed for its time, it might not be so today.
In particular, our welfare state was designed at a time when labour was in relatively plentiful supply, as the baby boomers entered the workforce. On the one hand, society had vast pools of labour, and the wealth it created, to fund these programs. On the other, it faced the problem of how to employ all this labour. As the economist Brian Crowley explains in his book, Fearful Symmetry, both helped to cement a consensus in favour of an expansionist, activist state.
But we are in a very different world now, which is one of the forces that is going to cement a very different consensus in coming years.
Just as the entry of the Baby Boom into the labour force shaped Canadian politics in the 1960s and ’70s, so its retirement is going to shape our politics for much of this century. Within the next two decades, the proportion of the population over the age of 65 will double, from 12 percent to 25 percent. The ratio of people of working age to retirees, nearly 5 to 1 not so long ago, is headed for something closer to 2.5 to 1.
So we face a double whammy: not only having to bear the costs of looking after all those old people (I speak as a future member of that cohort), but with fewer people of working age to do so.
The second is, if anything, more critical. Over the last 50 years, Canada enjoyed the fastest growth in labour supply of any advanced economy–a nearly 200 percent increase. That is how we have been able to keep on raising living standards: not by our anemic productivity growth, but simply by putting more people to work. Over the next 50 years, however, growth in the labour force is expected to slow to a crawl: just an 11 percent increase.
So we are in for some interesting times. Without a substantial, sustained increase in productivity growth, we will have great difficulty generating the wealth needed to pay the relatively greater cost of social programs, especially for the elderly. Worse, there is the very real prospect of labour shortages arising: if the problem in recent decades was finding jobs for all those young workers, the dilemma in future will be finding workers to fill the jobs.
I think Crowley is right: this is going to define our politics. We are going to need to scrounge up every spare person-hour of labour we can find. There will be very little tolerance for wasting labour on make-work projects or public-sector featherbedding. More broadly, improving productivity is going to become an urgent national priority. And however well we do on that front, public expenditures will remain under permanent pressure, as more and more scarce public dollars are absorbed by the elderly, particularly for health care.
Put all these together and the chances that we will be deviating much from the consensus model—into some expensive new adventures in state enterprise, say, or closing our borders to competition—would seem slight. Sometimes consensus is forged out of prosperity: times are so good, why would anyone want to do anything differently? At other times it arises from necessity. We just aren’t going to have a lot of options.
The aging population, moreover, is not the only constraint we will be under. Another is globalization, and the commitments we have made to our trading partners, via the web of trading agreements we have either signed already, or are in the process of negotiating. There is no denying that these undertakings rule out certain policy choices, even if virtually all of these are bad ideas we should be glad to be rid of for our own sake. We could always renounce these deals, of course. But no one wants to.
Just the fact of open borders, through which trade and capital flow freely, carries with it certain constraints. Governments that run large deficits or high inflation, or even seem like they might, face the instant and unpitying judgement of the markets, whether in the interest rates they pay on their bonds or in the value of their currency. Governments in a closed economy are freer to do as they like. But again, nobody wants to go there.
That, indeed, is the most powerful of all the forces tending to enforce the current consensus: inertia. Balancing the budget was controversial when the deficit was 6 percent of GDP. Cutting inflation down to size was likewise a huge fight when inflation was in double digits. The fight over the Canada-U.S. free trade deal was one of the epic political battles of the last century. But now that all of these are in place, almost no one wants to go back to the way we were before. The “tyranny of the status quo,” once the enemy of market reformers, is now their friend.
III. The social market
All of this makes it sound like politics is caught in a trap: as if the market consensus were purely dictated, a matter of yielding to the inevitable. That understates the degree to which left and right have genuinely converged. One of the most salutary developments of recent times has been the growing realization that things that were once considered implacable opposites—efficiency and equity, growth and greenery, market and state—need not be.
A generation of environmentalists, for example, has grown up with a keen awareness of the power of markets, and in particular of prices, to signal the environmental costs of different economic activities, and thus to encourage less harmful choices. “Full-cost pricing” has become as much a mantra of environmentalists as economists: for when people pay the full cost of things, they tend to use them more carefully. The economic problem and the environmental problem, we can now see, are the same. Both are about minimizing waste.
This is new. In the past, environmentalists would have been more inclined to see state regulation as the answer. Markets, in this view, were simply arenas for private enrichment. The public interest could only be safeguarded through government.
But this new view recognizes markets for what they are: social institutions. Governments are one way of organizing human activity. Markets are another. State and market are not opposites, the one simply the absence of the other. They are complements, each powerful, each flawed, each with its own role to play.
Properly understood, the markets’ role is not to liberate self-gain, but to contain it; not to reward private interests, but to subject them to the needs of society at large. The difference with more statist approaches is in the instrument by which the collective interest is enforced: by competition, rather than coercion; prices, rather than police. Greed is a constant in human affairs, but the discipline of competition tempers its reach and channels it to other-directed ends. Prices, likewise, are ruthless enforcers of the common good, forcing each, in his consumption of the scarce resources available to us, to take account of the claims of others—whether he wishes to or not. It is a profoundly collectivist idea.
We call it private property, but it’s really just a system of markers. The resources we use, though privately owned, are still ultimately society’s, in the sense that society must ultimately decide how they are used. It’s just that we have observed that people tend to take better care of things—cars, houses, companies, forests—when they own them directly, than when nobody owns them—or what is the same thing, when the state owns them.
But they do so under licence. If they do not make something that is of greater value to society, measured by the price consumers are willing to pay for it, than the cost to society, in terms of the resources it took to make it, they must cease to produce it. Profit is in this sense not so much a private reward as a social obligation. The company in a market economy that cannot meet that obligation is driven out of business just as surely and as ruthlessly as if the matter were decided by state diktat. Or rather, much more surely and ruthlessly.
This is the paradox at the heart of a market economy. It is the point that eludes a lot of people: the notion that the common good could be enforced without coercion. An economy is the intersection of millions of individual wants, all competing for those same scarce resources. The challenge is not to subordinate these to a single purpose, as in wartime, but to coordinate them, such that each is in harmony with the rest.
It is the reliance on cooperation—voluntary, mutually satisfactory exchange—that distinguishes the market approach. Competition is only the means by which this cooperative regime is enforced. It is the availability of competitive options that ensures relationships between buyers and sellers are indeed non-coercive and non-exploitative.
But the market system is all the stricter in its enforcement of the collective interest for being constructed out of individual choices. One way of putting this is: there can be no black market in a free market. A regulated price, set without regard to supply and demand, is a standing invitation to sharp operators to find a way around it. But how do you get around the market price? Try to buy for less than the market price, and no one will sell it to you. Try to sell for more, and no one will buy. The market price is inescapable, precisely because it is the only price that buyers and sellers can agree on.
Markets, then, are not about liberating individual wills: they are about integrating individual wills into a socially beneficial order. Of course, markets sometimes fail in this task, and where they do, the state becomes the social institution of choice. But the burden of proof is on the state, as it should be in a liberal society. Its role is to correct for market failure, on the economist’s strict definition—to provide for public goods, to correct for externalities, and so forth—not to substitute the planner’s judgement for those of the market. And of course, the possibility of state failure must always be taken into account.
So: the old “mixed economy,” right? A little bit market and a little bit government, in half-measures of each. Er, no. That’s how governments did it in the old days, sometimes intervening, sometimes not, in a mush of pragmatic confusion. Nor is the answer to reserve whole sectors, such as health care, for government, while leaving others, those less “essential,” to the market. Rather, it is to sort out which instrument is appropriate for which tasks, and let them get on with it: an approach that is sometimes called the social market.
That is, it leaves questions of allocation—what gets produced, in what quantities, for whom, at what price—for the most part to markets, while leaving questions of distribution—who gets to keep how much of what they produce—to the state.
In a liberal society, individuals are held to be the best judges of their own personal welfare, which is why we trust the choices of consumers in the marketplace to decide what goods and services should be produced. But what is a just distribution of income is the kind of question that can only be decided collectively. It engages the interests and values, not of one person, but of society.
If the two institutions have different purposes, they also have different means appropriate to each. The means by which markets allocate resources is prices. The means by which governments distribute them is the tax-and-transfer system. It is critical that these be kept separate. When you cross them up—wherever you try to use prices to fix a distributional problem, or use tax preferences or subsidies to influence how resources are allocated—trouble follows.
This is particularly true on the distribution side. We are forever trying to shuffle income from one part of society to another—not openly and directly through the tax-and-transfer system, where it is very clear who pays and who benefits but stealthily, indirectly, by fixing prices or legislating wages or setting quotas or otherwise messing with market processes. The result is not only inefficient. It’s usually terribly inequitable.
The moral basis for redistributing income, after all, is from rich to poor: not from young to old, or west to east, or city to country, or consumers to producers. When, for example, we encourage farmers to organize themselves into cartels to drive up the prices of essential foods, as under the supply management regime, what is the result? True, we benefit a handful of wealthy farmers. But who pays? Consumers. And who pays the most, proportionately? Those on low income. You want to know why kids in poor families are rotting their teeth on soda pop? Because we’re charging them twice the market price for milk.
Anyone concerned with social justice ought to be revolted by this, especially because it is so unnecessary. If the government wishes, for whatever reason, to prop up the incomes of dairy farmers, let it do so directly. And let it apply the same principle more generally: fix distributional problems using distributional means. But leave prices, and markets, to get on with the job of allocating resources efficiently.
You can have as big or as small a state as you like (or can afford). You can redistribute as much or as little as you like. The only limitation is in how you go about it. You can, likewise, regulate for safety all you like. Just steer clear of regulating prices and quantities. Because when you do, you create shortages and surpluses. And whenever this happens, it isn’t the rich who bear the costs.
One principle of a social market, therefore, is that you should redistribute market results, rather than distort market processes. A second, following from our discussion of health care: public finance need not mean public provision. Just because the government pays for the schools or the hospitals does not mean the government has to run all of them. And a third, following from that: benefits in cash, not in kind. Rather than steer public money to producers of social goods, give it straight to consumers, and let them purchase them from their choice of providers.
IV. The end of economics
I should add that you would find very little disagreement with most of what I have just said from most economists. Contrary to a beloved popular myth, economists are not constantly at war with one another. Indeed, most economists agree with one another most of the time.
That people think they don’t is a sign of the profound disconnect that exists between the profession and the public. What are commonplaces to economists are often radical, even bizarre notions to the public—and when I say “the public,” I include the media and the politicians. On most issues, the debate is not so much between rival camps of economists, as between economists and non-economists.
For example, you could count the number of honest-to-God economists who would disagree with the proposition that “free trade lifts national income” on one hand. Yet free trade remained a controversial, even taboo subject in Canada for the better part of a hundred years. When it was first proposed by the Macdonald Commission, the idea appeared to strike many people as bizarre. Countries couldn’t live without trade barriers! It was like asking a fish to live out of water.
Yet today, not only has the North American Free Trade Agreement ceased to be a point of controversy, but the government can pursue free trade agreements with the rest of the world, and no one bats an eye. The consensus that has long existed in the profession has seeped into the public consciousness.
As it has across a number of fronts. It would be too strong to say the economists have won the argument. But it is true to say about the economy that intellectual opinion, overwhelmingly, is on the side of the market—with all of the caveats, exceptions and add-ons I’ve mentioned.
So I think we have to consider the possibility that the consensus is permanent—that in the coming decades, politics will no longer be defined by economics in the way that we have known it. Nobody, left or right, wants to nationalize major industries anymore, and nobody, right or left, would deprive the poor of schooling, or health care, or any of the major undertakings of the modern welfare state.
I don’t mean to say that the economy will not come up as an issue now and again, or that we won’t have any debates about economic policy. But they will be debates, essentially, about details. Both sides will be working off a common model. The argument will be about how it should be tweaked. The days when broad ideological forces grouped around fundamentally different visions of the economy and of the state’s role in it, and broad political forces grouped around them, are finished.
In part, that’s a reflection of the declining importance of the economy in defining people’s political identities: that is, the disappearance of economic class as a signifier. Once, when capital ownership was reserved to a small number of people, while the rest relied exclusively on their hands or brains to get by, it was possible to organize politics on capital versus labour lines, with economic policies to match. In today’s world, when nearly half the population owns shares, either directly or through mutual funds, and when the biggest players in the market are employee pension funds, it is rather more difficult.
That does not mean there is no such thing as class any more. But class today is defined very differently, as a function of education and culture, with issues to match. The Tories, for example, have explicitly targeted the skilled worker, the lower-middle class tradesperson, the suburban striver, while the Liberals and NDP appeal far more to the university educated, the downtown artistes, and so on. This has less to do with the economy—a lot of those suburban strivers will be a fair bit richer than the professors who look down their noses at them—than with “last book read.”
Many people will find this suggestion—that we’ve reached a consensus on the economy—deeply upsetting, even offensive: an underhanded attempt to marginalize dissent. Is it? Isn’t it possible that, as a society, we might have simply come to … agree? At the very least, is it conceivable in principle? Or is politics about the economy by definition?
To anyone who grew up in the 20th century, it might seem that way, because for the past 100 years or so, politics has been almost exclusively defined by broad ideological clashes over the economy—between communism and capitalism, between state and market, between Keynesianism and monetarism. And so it seemed like the natural and inevitable state of affairs.
But it was not always so. Politics before then was largely concerned with other things: with foreign policy, or the rights of religious dissenters, or how far to extend the franchise.
If politics was not always about the economy in the past, perhaps it will not be in the future. Nowhere is it written that there must be disagreement about the fundamentals of economics, any more than there must be disagreement on the fundamentals of political science.
Having debated the matter for centuries, we eventually settled on a consensus political model: liberal democracy. There remains debate about the fine points of the model—for example, on the merits of proportional representation versus first-past-the-post—but in the broad strokes there is general agreement. Nobody objects that this is “marginalizing” anti-democratic beliefs.
Perhaps we can come to the same consensus on the basic economic model, as earlier we did on the political model. We’ll allocate productive resources using markets; we’ll redistribute incomes using the state. We’ll still argue about the particulars: how much to redistribute, whether to raise taxes or lower them, etc. But we may have outgrown the stirring ideological battles most of us grew up on.
V Post-economic politics
What might replace them? The short answer is: who knows? Politics might not be about much for a while, in Canada at least. Political realignments generally follow some sort of crisis, where it is not universally evident what is to be done, where interests diverge, where consensus is impossible. Until such time, things tend to trundle along as they are.
We are blessed to live in a relatively stable country, in conditions of relative peace and prosperity. For as long as that persists, there will be relatively little to fight about: issues of competence and governing style, rather than fundamental beliefs, will tend to dominate. That is a dilemma for an opposition party, like the Liberals, looking for a raison d’être. But there you are.
Crises are by their nature unpredictable, though one can imagine some. A major outbreak of war, perhaps in the Middle East, with Canada involved in some way? It could happen, I suppose. A separatist crisis seems more likely, and is precisely the kind of thing that could prove realigning.
And beyond? Climate change is an obvious candidate. So far all of the major parties have preferred to pay lip service to it in various ways, after the Liberals’ failed attempt to run on the issue in 2008. But if the scientists are right, and the Earth’s climate continues to warm, inexorably, to the point that it becomes a political and not just an environmental crisis, then the issue may return.
I think my friend John Duffy, in his own contribution to this series, made a good argument that the constellation of issues surrounding technology, particularly technology as it challenges our notions of what it is to be human—reproductive technologies, life extension, artificial intelligence—may well come to dominate the next century, drawing previously arcane philosophical disputes into the political arena.
So, too, issues of global governance, and how far national sovereignty must yield to supranational oversight, seem inescapable. So many of the issues that arise in today’s interconnected, interdependent world, from trade to the environment, from the spread of flu viruses to those that infect the global computer network—to say nothing of financial contagions—require a coordinated global response. Yet we have not evolved the international political architecture to produce it—or to the extent that we have, only at the cost of a severe and growing democratic deficit. Increasingly, citizens are rebelling at seeing more and more of the decisions that affect their lives being made by faceless international bureaucrats they had no hand in choosing, and I can’t say they’re entirely wrong to do so.
Religion versus secularism; urban versus rural; multiculturalism versus monoculturalism: these may all be the axes on which our politics turn in future, and in some ways already are. My only point is to suggest that the economy need not be one of them, and probably won’t be. If we are not quite arrived at the the End of History, we may yet be at the end of economics.