American President Joe Biden’s tr 2 trillion infrastructure plan is likely to be a waterfall moment for the American economy, indicating that the neoliberal era is behind us in the belief that markets will work better and be better left alone. Although neo-liberalism is dead, it is not clear what its place will be.
The challenges facing the United States and other developed economies today are different from those they faced in the early decades of the 20th century. Previous challenges have led to a new agreement and welfare state. Today’s problems — climate change, disruption of labor markets due to new technology, and hyper-globalization — require new solutions. We need a new economic vision, not nostalgia for the legendary era of well-shared prosperity at home and world domination abroad.
On climate change, Biden’s plan spokesperson Alexandria Okacio-Cartes is less than the Green New Deal that progressive Democrats argue. It has significant investments in the green economy, such as markets and other programs that support electric vehicles to reduce carbon dioxide emissions, the largest federal effort ever made to curb greenhouse-gases. Focusing on jobs, expanding employment to provide better pay and benefits, along with infrastructure, manufacturing and a growing and essential care economy.
New ways of thinking about the role of government are just as important as new priorities. Many commentators have drawn up Biden’s infrastructure plan to return to big government. The package has been in place for eight years, raising government spending by just one percentage point of GDP and eventually having to pay for it. Government investment in infrastructure, green transformation and job creation are long overdue. While this plan is nothing more than a large government investment financially aided by taxes on large corporations, it does much good for the American economy.
But Biden’s plan is too much. It can fundamentally change the role of government in the economy and how that role is perceived. Traditional skepticism about the role of government finances is rooted in the belief that private markets are driven by profit motives and that governments are futile. In recent decades the excesses of private markets — the rise of monopolies, the folly of private finance, the extreme concentration of income, and the growing financial insecurity — have illuminated the private sector.
At the same time, in a complex economy with a lot of uncertainty, it is well understood today that top-down control is unlikely to work. Regardless of the specific domain — whether it promotes green technology, develops new organizational arrangements for home care workers, intensifies domestic supply chains for high-tech manufacturing, or builds successful workforce development programs — government cooperation with non-government actors is required.
In all of these areas, the government is required to work with markets and private businesses as well as other stakeholders such as unions and community groups. New models of governance are needed to pursue public goals with the full participation of actors with the knowledge and ability to achieve them. The government needs a trusted partner; And it has to trust other social actors.
In the past, every high swing in the state-market equilibrium eventually triggered a high swing in the opposite direction. The Biden plan breaks this cycle. If it is successful, it will prove that everything works well when each pulls its weight, rather than the alternatives of markets and governments — perhaps its most important and lasting legacy.
In this regard, seeing the Biden plan as a way to restore America’s competitive position in the world, especially with China. Unfortunately, Biden himself is to blame for this framing. He recently argued that the package would “put it in a position to win global competition with China in the coming years”.
Marketing infrastructure planning in this manner is politically motivating. In previous eras, the fear that America would lose its edge over the Soviet Union in ballistic missiles and space racing was the catalyst for national technological mobilization.
But there is very little reason to raise fear today. Given the current severity of the bias polarity, it is unlikely that much Republican support will be purchased for this plan. It diverts attention from real action: if this plan were to increase revenues and opportunities for ordinary Americans, regardless of its impact on America’s geopolitical position, it would be worth doing.
Moreover, economics is different from the arms race. China’s economic growth does not need to be a threat to America, a strong U.S. economy should not be a threat to China. Biden’s framing is hurting as he is turning good economics at home into a tool for aggressive, zero-sum policies abroad. Can we blame China for tightening sanctions on US companies as a defensive measure against the Biden plan?
This plan can change the US and is an important example for other developed countries to follow. But to achieve its potential, it must not mislead state-versus-market dichotomies and old Cold War troopers. Only by abandoning past patterns can it create a new vision for the future. © 2021 / Project Syndicate
Danny Roderick John F. of Harvard University. Professor of International Political Economy at the Kennedy School of Government.