Since 2008 there’s been a lot of discussion of the status of neoliberalism, one of those amorphous terms that means everything and nothing depending on context but generally is short-hand for “market-oriented reforms”. It is generally agreed that neoliberalism is a predominately Anglo-American philosophy, was exemplified by Reagan and Thatcher before being incorporated by Third Way liberals like Blair and Clinton, and has been forcibly exported around the globe through the use of US-UK financial power and its control of international institutions like the IMF. From there the narrative differs. Neoliberals like to point out that the past 30 years have been the best in human history by probably any reasonable metric: success for neoliberalism! Anti-neoliberals like to remind us that income inequality has gone up in many places, environmental degradation has been a byproduct of capitalist production, and the system has produced numerous crises: neoliberalism is gonna kill us all!
What is discussed much less frequently is what the alternative to neoliberalism was, and is. In fact, the TINA principle has frequently been invoked: There Is No Alternative. Collectivism was tried and found wanting. Keynesian managementalism was tried in Bretton Woods and collapsed. What else is there? We’ve reached the end of history. The liberal market plus democratic welfare state nexus seemed like the only game in town.
As Noah Smith points out in Foreign Affairs, there has always been an alternative: Japan.
Faced with economic stagnation in the late 1970s and early 1980s, most of the world’s rich countries made a fateful choice. They lowered taxes; slashed government regulation in labor, financial, and other markets; opened their economies to global trade and finance; and privatized government functions. …
Buoyed by the last spurt of its postwar catchup growth, Japan managed to sail through the 1980s without having to face hard choices about the structure of its economy. As a result, its labor markets are still tightly regulated, with stringent protections for full-time employees, including strict regulations on firing employees. Its corporate taxes remain high, and many of its domestic markets are still shielded from imports behind a tall thicket of non-tariff trade barriers. Its financial system remains centered on large government-backed banks instead of on capital markets, and hostile takeovers are still prevented by the courts. There are no Gordon Gekkos in Japan.
As Smith recounts that hasn’t worked out all that well either:
Many features of the Japanese economy that are commonly attributed to culture are, in fact, the result of Japan trying to run a modern economy without neoliberal reform: powerful but inefficient corporations, little job mobility, low unemployment, a relatively equal income distribution, and a job market that is heavily rigged against women. Taiwan, which is probably the closest country to Japan in cultural terms, has much higher inequality, greater labor mobility, more gender equality, and a higher per capita GDP than Japan. Taiwan, of course, is a low-tax, low-regulation country that is heavily exposed to trade with China.
Smith goes on to describe the structural reform efforts that are currently underway in Japan, which are broadly neoliberal. The question is: why now? If entrenched interests blocked reforms for the past few decades how are they being overcome?
The first answer is poor performance. Japan’s “Lost Decade” — the amount of time that Japan’s economy has not grown — is about to turn twenty. Of course that simply leads to another question… why, after so long, is the poor economic performance intolerable now. I know little enough about Japanese politics that I am nervous about extending an explanation, but two primary factors stand out to me.
The first is the rise of China. While this has been happening for awhile, it was only recently that China surpassed Japan as the world’s second-largest economy. Japan’s turn to neoliberalism under the leadership of Shinzo Abe contains a sharp nationalist edge. Japan’s contemplation of the Trans-Pacific Partnership signals a desire for closer ties to the U.S. (even if it disadvantages some domestic interest groups). Abe’s push to revise the Japanese constitution in order to build up its military — which has been prohibited since 1945 — is perhaps the biggest signal that Japan is increasingly wary of China.
The second is the subprime crisis. The effects were not as pronounced in Japan as in Europe, but they were still significant. One of the major results was political: the Liberal Democratic Party lost the 2009 election, the first time in Japan’s postwar democratic history that the LDP had been defeated. They regained power in 2012 on a platform of nationalism and significant reform. Those reforms were neoliberal, of course: TINA.
The point of this discussion is not to debate the finer points of Japan’s monetary or regulatory policies, but to ask anti-neoliberals to consider what else should have been done in the early-1980s, or 1990s, or now. Neoliberalism was a response to stagnation in the late-1970s and 1980s. It is a response to stagnation in Japan today. Countries that did not enact neoliberal reforms, or enacted them haltingly, continued to stagnate. Given that, suggestions that our current situation is all the fault of Reagan and Thatcher seems to be overly-simplistic (and are probably simply wrong). Suggestions that we can fix all of our problems through tighter regulation and limitations on trade, immigration, and financial movements appear to be contradicted by Japan’s experience. Structural problems, like rising income inequality, would appear to be the result of structural developments in the world economy rather than idiosyncratic policies.