As Neoliberalism Crashes, What Comes Next?

“We should not let the follies of Trump’s tariffs overshadow the follies of the gung-ho globalization that preceded them.” So said the award-winning economist James K. Boyce in a recent interview for Truthout. In 2022, the most recent year that data is available, the US trade deficit totaled $971 billion or 3.77 percent of the GDP. The last US trade surplus was in 1975.

Over time, sustained trade deficits have led to the loss of millions of manufacturing jobs. Between 2001 and 2011, workers of color were 35 percent of those affected. On the positive side, the United States enjoyed lower consumer prices as a result.

But, Boyce added, it is hard to imagine that these trade deficits “can persist forever.” If the US weren’t a “safe haven” for investors, he noted, these deficits would have forced a “structural adjustment” of the US economy long before. Writing before the election, Ryan Mulholland, senior fellow at the Center for American Politics’ International Economic Policy program, concurred: “It is now evident that the era of neoliberal trade that defined the last several decades is over.”

What follows neoliberalism…remains up for grabs.

Neoliberalism, in short, is ending, but we don’t know what will replace it. As the actions of President Donald Trump illustrate, worse is still possible. Former Greek Finance Minister Yanis Varoufakis warned last year, in an interview with Jacobin, that we’re facing the threat of a highly authoritarian techno-feudalism.

Fortunately, that is not the only option. What follows neoliberalism remains up for grabs.

Early Signs of Strain

But what is neoliberalism anyway? Neoliberalism, I wrote in one recent NPQ article, is a policy framework that includes “privatization, reduced social services, a tax shift from the wealthy to ordinary people, and corporate-friendly regulation.”

Over the past 40-plus years, these policies have fed into a dramatic concentration of wealth, income, and opportunity—undermining racial and economic justice in the process. Already before COVID-19, neoliberalism was under strain. Early signs of mass dissatisfaction included the 2016 Brexit vote in the United Kingdom and the first Trump election in the United States that same year.

The crisis created by the onset of the pandemic in 2020 offered a narrow window to reset the social contact and recalibrate the relationship between the state and the people in the direction toward greater social justice. But that opportunity was squandered, and the results are evident today in a rising tide of authoritarianism under Trump and in much of the world.

A Shrinking Worker Share of the Economic Pie

If you want to understand the impact of neoliberalism on economic justice, there is a wonky economics term that can help, which is the “labor share of income.” What does this phrase mean? Conceptually, it refers to the percentage of the value that workers generate allocated to what they receive, in the form of wages and benefits.

A typical family of four would have earned $26,000 more in 2024 if growth were unchanged, but labor’s share of income had held steady at its 2001 level.

What the data tell us is pretty simple—and disturbing. In the twenty-first century, the percentage of income that ends up in workers’ pockets has declined rapidly. Here’s what the US Bureau of Labor Statistics numbers tell us: In the first quarter of 2001, labor received 64.1 percent of the US national income; by the first quarter of 2024—23 years later—that share had fallen to 55.8 percent.

US national income in 2024 exceeded $27 trillion. That is, the 8.3 percentage point decline since 2001 is equivalent to roughly $2.25 trillion or over $6,500 per person. Put differently, a typical family of four would have earned $26,000 more in 2024 if growth were unchanged and the labor’s share of income had held steady, rather than decline precipitously.

Here is another way to understand those numbers: Between 1979 and 2019, wages for the bottom 90 percent of wage earners in the United States, adjusted for inflation, increased by a modest 26 percent. By contrast, $100 invested in the Standard & Poor’s stock index of 500 leading corporations would have increased an inflation-adjusted 2,662 percent, or more than 27-fold, during the very same period.

Most people do not know these numbers, but many do intuitively feel the juxtaposition of just barely getting by, while witnessing a small wealthy stratum that live luxuriously. (It is perhaps not surprising that entertainment programs that showcase the foibles of the rich-and-famous like The White Lotus have never been more popular.) Ending this flood of income and wealth from working people to owners of capital is a central challenge of our time. The future of democratic institutions may even depend on it.

Trade, Globalization, and Neoliberalism

But why has neoliberalism been dominant? Do we credit right-wing political leaders like Margaret Thatcher and Ronald Reagan? Or, should we give more credence to folks like Milton Friedman and the corporate political strategy of funding think tanks and corporate friendly media outlined in 1971 by attorney (and, later on, US Supreme Court Justice) Lewis Powell? Or should we assign pride of place to automation and technological change, such as rapidly evolving artificial intelligence and information technology?

Without a doubt, all of the above have played a role in reducing the power of labor in the economy. But one major driver is the corporate power to move assets—money, factories, and productive capacity—from one community to another. This ability has a name and that name is globalization.

Globalization can be measured in many ways. One way is the degree of dependency on trade. In 1970, according to the World Bank, 11 percent of the US GDP depended on exports and imports. By 2011, that had increased to 31 percent.

Trade as a percentage of the US economy has since fallen somewhat in the past decade—the most recent figures in 2023 place that number at 25 percent. Just as neoliberalism has gone hand in hand with the rise of globalization, so too is the peaking of globalization a sign of neoliberalism’s fragility today.

But here’s an important reminder about trade: with some exceptions—such as state-owned businesses or state-to-state weapons contracts—countries themselves don’t typically trade goods and services. People, small business, and corporations do.

And when it comes to globalization and economic justice, the obvious point is that not all people equally benefit from trade. In particular, a central feature of globalization was to facilitate the movement of capital, while retaining many restrictions on the movement of labor (migration). The combination allowed for corporations to obtain massive profits, while paying lower wages to workers.

In short, ordinary people continue to face government oversight; large corporations and the wealthy, in an age where tax evasion costs the national treasury $1 trillion a year, according to a recent Internal Revenue Service commissioner, not so much.

As Erica Smiley and Daniel Schlademan wrote in NPQ earlier this year, “As the global economy has reorganized itself over the past 30 years, we have witnessed a massive amount of growth in the power and scale of today’s corporations.” Workers, they optimistically add, are finding effective ways to respond and pursue their interests in the increasing corporate-governed environment, but there is an adjustment process.

Of course, as author and historian Marc-Wiliam Palen observes, globalization simply refers to international scale. It does not necessarily have to be a corporate-driven and governed trading system, even if that is what globalization has primarily been in recent decades.

Palen highlights the fair trade movement as one possible form of a democratic globalization. Fair trade—in which international procurement occurs at above-market prices in exchange for assurances that workers are being paid above-market wages and are otherwise treated well—is neither anti-trade nor anti-globalization, but it definitely has a very different politics to its governance. As Palen put it in an interview for n+1 magazine, the “Fair Trade movement [has] argued that the West should be willing to pay a bit more for products from the Global South, as a kind of subsidy, but also as a guarantee that labor was not being exploited in these parts of the world.”

However, despite exceptions like fair trade in a small number of sectors, the global trading system today remains overwhelmingly dominated by corporations, which has allowed for the transfer of jobs to countries that pay lower wages and have less worker protections.

In the United States, a 2022 report from the Economic Policy Institute estimated that the effects over the previous two decades include the loss of 5 million manufacturing jobs and the closure of an estimated 70,000 factories. The threat of having more jobs shifted to follow has also put downward wage pressure on the jobs that remain.

Society at a Crossroads

We are at a critical juncture. The choices made in the coming years may set a pattern for decades to follow.

As has escaped few, an authoritarian right is on the rise in many countries, not just the United States. Hungary is a well-known example in Europe, but the “hard-right” in another five countries—Italy, Finland, Slovakia, Croatia, and the Czech Republic—has also had gains as of May 2024. There are parallels, too, between our current period and the 1930s, when society also faced a crossroads. At that time, fascism was rising throughout Europe and even threatened the United States.

Part of what held back fascism in the United States then was the New Deal, which built on policy ideas that had emerged throughout the country at the state level. The New Deal, of course, was an imperfect project, leading, among other things, to a system of redlining that reinforced the racial wealth gap and introduced environmental harms. Still, one lasting benefit of the New Deal was the creation of many public institutions, such as Social Security, that persist to this day.

Today, too, there are plenty of policy ideas, many of which ended up on the cutting room floor during Joe Biden’s administration, but could be revived to build a stronger safety net. More broadly, a solidarity economy that centers values of solidarity, equity, sustainability, participatory democracy, and pluralism provides an overarching framework for building a more just world.

We need to be as bold in our ambition as people were during the New Deal era but informed by this democratic solidarity economy vision.

Discussions of the solidarity economy tend to focus on local communities, for the obvious reason that, in the short run, while local action is possible, building national and international institutions is not. But in the longer term, the “fair trade” principles that Palen extols must become elevated to a generalized level. In short, the international space that is presently dominated by corporate entities must itself become democratized.

There is another, perhaps less appreciated, aspect of the New Deal—and that is policy that empowers people to act as independent agents. Establishing an affirmative right to unionization helped increase the union workforce from 3 million in 1933 to 15 million by 1945. Establishing the ability of farmer co-ops to use federal loans to finance construction and build electrical lines increased rural electrification from 10 percent to 90 percent of homes in a period of about 15 years.

Certainly, the Biden administration tried out many good industrial policies to restore manufacturing, creating over 700,000 jobs in that sector. Still, it is hard to deny, as a recent article in Jacobin put it, that the Biden approach was “professional-managerial.” Supporting agency at the grassroots level was an essential missing ingredient.

So, how to proceed now? In 2020, US civil society rose up and defeated the first Trump administration. Yet the effort to institutionalize movements’ gains in a just social contract fell short—in large measure because people were demobilized after the electoral victory and relied on policy experts. If, as we may hope, Trump is stopped a second time, civil society must proceed very differently.