TheSyllabus

The short version is that I think that neoliberalism is one of those empty labels like financialization and globalization, which conceal much more than they reveal. Financialization, yeah, it's about money, but what specifically? Globalization, it's about the integration of what had been somewhat insulated parts of the global economy, but so what? And neoliberalism, similarly, only tells us that we're no longer living in what Bob Jessop and others have called the Keynesian welfare state model. As President Nixon once said, “Even though we're all Keynesians, we're not in Kansas anymore."

More than a five- or ten-year perspective, you really need to go back 30, 40, 50 years to understand what's going on. Much as we – and here I use “we" very expansively – were living in welfare states that were constructed in the '30s, '40s, but especially the '50s and '60s, today we are living in an economy and a set of social structures that were already emerging at the end of the '70s, '80s, and '90s.

One of the reasons I strongly dislike the neoliberal label is that it seems to indicate that we're shifting to a system which is liberal in the British use of the term – that is to say, one of free markets – and there are many reasons to think that's not true. My first brush with this was in the early '90s, when I was writing about welfare state reorganization. What struck me about welfare state reorganization back then – and I mean reorganization, not reform – was that the combination of privatization, commercialization of state services, and the introduction of user fees was not so much about creating free markets, but rather about disrupting collective action on the part of client groups and bureaucrats, and also about creating opportunities for firms to exploit state revenue streams. Quite the opposite of freeing up markets, and in some ways quite the opposite of creating competitive markets.

That's the longer version. If I were forced to put one label on the post-1980s era, I would be tempted to say we live in an era of increased political capitalism, in Max Weber's sense of the term. Political capitalism is accumulation on the basis of special privileges granted by the state.

I'm never going to get invited to dinner after I answer this question. The thing about academia is it is a business like any other. And in any business, there are certain shibboleths or mantras that have to be used. And in academia, as with most social activities, there are tribes.

Using neoliberal as a label for what's going on is both a time-saving device – you don't have to excavate the actual social processes, meaning you can save on research time – and it also identifies you as a member of a specific tribe, meaning people might cite you more. So, in both ways, it helps with your career. It saves time and it gets you cited. But it really does block understanding.

Case in point, there is a lot of writing about the so-called neoliberal destruction of the welfare state. When you look at what actually happens, what you see is there has been a redistribution of the kind of social protection the welfare state generates, as well as its money flows, in favor of more politically powerful groups. That's not exactly a surprise.

A more concrete example is household debt. A lot of people also talk about neoliberalism, along with financialization, as the cause of rising household debt. This is an interesting take because the US is usually the paradigmatic case of both neoliberalism and financialization. But when you look at US household debt, 75 percent of it is housing-related debt, and roughly three-quarters of that 75 percent are mortgages that ultimately end up in the hands of Fannie Mae and Freddie Mac. When you look at the way the US mortgage system works, these are the most debtor-friendly mortgages in the world. You have an unlimited right to refinance that mortgage when interest rates go down, and you're totally protected against increases in interest rates because you have a 30-year fixed-rate mortgage.

I can tell you from conversations with my Canadian and Norwegian coauthors, and from my experiences living in Australia and New Zealand, that it's a whole different world for debtors in those countries in terms of household debt. Again, mortgages are the big elephant in the room. But they're totally exposed to interest rate increases, and they are completely unable to take advantage of declines in a timely way. So, I just don't understand why we would want to talk about this in terms of these big labels, neoliberalism or financialization. You really need to look at winners and losers. You really need to look at the structure of specific markets. And while it's sometimes useful to say, “Here's a big pattern," neoliberalism is empty in that sense.

People also talk about post-Fordism. We all understand what Fordism is, because it signals something that is materially real, right? Fordism denotes continuous-flow assembly line production with sophisticated logistics making consumer durables, with class compromise and unions. We can argue about it, but the label captures a certain take on reality. The word itself directly links to an iconic firm which clearly possessed all those things.

Now, neoliberalism. Okay, “neo," it's new – but the question would be, how new? To what extent was there really a big change from the post-World War II era? And liberalism, as I said, is completely misleading. Likewise, post-Fordism doesn't tell us anything. Okay, we're not in Kansas anymore – so what are we in? These labels matter. And that's why I resist the neoliberal label, too. I would rather have something more precise.

Well, this is exactly the point, right? I completely agree with you that the label has political implications and has served as a rallying point, as Quinn Slobodian showed in Globalists, his excellent analysis of the Mont Pèlerin folks at the global level. And, like most political slogans, it conceals as much as it reveals. I have no disagreement with its utility and reality in that respect. 

But our job as academics is not to uncritically take up these labels; it's to try to understand what's actually going on. So, from an academic's point of view, I don't like the label of neoliberalism and I don't use it. In a way, I think it helps the Mont Pèlerinists, if you will, because it buys into their framework. They say they are creating freer markets, but they're not. It's political capitalism. They're creating opportunities for rent-seeking and they're increasing the barriers to collective action on the part of the population. 

This is precisely Slobodian's point about the Mont Pèlerin people: their goal was to protect rich people from democracy. It wasn't about more markets. To the extent that they actually created markets, it was as a tool to disincentivize collective action by reducing people to consumers rather than members of an identifiable group with a common interest.

That's a big question. I usually approach this by asking, what does the modal Trump voter look like? I mean that both in the sense of who's at the mode of the distribution of Trump voters, and then also as a mispronunciation of “model.” 

The modal Trump voter in 2016 was white; male; more rural than the American population on average; sicker than the American population on average; older than the American population on average; more likely to label themselves as an evangelical Christian, whether or not they actually went to church; and, critically, had a household income of around $70,000–$75,000. Now, if we think about this person and ask what's going on with them, a few things stand out as really important – and they all relate to status hierarchies.

Number one is that, while a household income of $70,000–$75,000 put you above the average American household income in 2016, it did not put you above the average for white households, which was closer to $100,000. So, you're 55 years old and you're not an idiot; you know that wages typically fall from age 55 forward (unless you're an academic or a doctor, which evidently you're not, given your household income). In other words, you've hit your peak and it's not going to get any better from there on.

Number two is that much, but not the majority, of that $70,000 is earned by your working wife. As a consequence of having her own income, she doesn't necessarily tug her metaphoric forelock to you as head of household. You possibly have a female or non-white boss at work. You certainly see many, many more powerful women and non-whites in the media than you used to. So, there's a huge loss of status that runs parallel to your failure to hit the promised land of a $100,000 income for white households.

And number three is that your son is living in your basement, because the best job he can get is part-time at the auto parts store and he can't make rent. You could imagine that this is not exactly a happy situation. In this situation, you might start thinking about voting for disruptive politicians who are promising to restore all the status markers you used to possess by virtue of being the male head of household, in the right racial category, with the right sexuality, making the right level of income.

People are human. Most of them are not going to find fault within themselves. They haven't read Shakespeare. They're thinking that the fault is in the stars, meaning those very rich black basketball players with white wives.

To share a little anecdote, one of my coauthors grew up in rural southeast Michigan, which was Trump territory in the 2016 election. She asked her father one day, “What percentage of the American population do you think is black or African-American?" Her father looked at her and said, “This is probably some kind of trick question, right? You're expecting me to guess high, so I'm going to guess a little low. I think that 30 or 40 percent of the American population is African-American." 

Okay. In reality, depending on how you want to slice and dice it – because who knows how multiracial and biracial people categorize themselves – roughly 14 to 15 percent of the American population is black. He was off by a factor of two to three. Why would he be off that much? He's sitting at the edge of the Detroit media market. Watching TV every day, he always sees bad news. The sad thing is there's plenty of bad news about black people in the US. He sees crime and poverty. 

And when he doesn't see crime and poverty, he's watching TV stations that are putting faces in front of an audience that is disproportionately African-American. So, it's usually a black newscaster. Or he's watching sports, particularly football and basketball, which are disproportionately black. So, it's not surprising he thinks it's 40 percent. In that situation, you might well feel that you are outnumbered.

What's more, when you look at the demographics, the people who talk about white evangelical Christians rapidly becoming a minority are not wrong. The number of people who identify as evangelical Christians is falling in the US and the non-white population is rising – although that category is not absolute, and we may see many people moving themselves from categories like “Hispanic" into the white category. But you can see why these people might be anxious about status hierarchies and their position in society.

I'm going to be a contrarian about that. There was a lot of erratic policy under Trump. There was a lot of noise on Twitter. But when you look at what was going on, it was a lot of business as usual. Mitch McConnell stuffed the courts, including the Supreme Court, full of judges who are incredibly pro-business.

Trump made a lot of noise about China, and he did levy tariffs, but the American foreign policy Blob had been getting steadily more distressed about China's rising power – certainly from the time of Obama and his so-called pivot to Asia, and arguably as early as 2000. It is largely forgotten that before 9/11, the George W. Bush administration commissioned a red team/blue team analysis around China, with the intent of ginning up fear and reversing the decline in defense spending that happened under the Clinton administration. All the people on those commissions had ties to the defense establishment and defense industries. 

There had also been a collision between an American aircraft and a Chinese aircraft in 2001, which led to really hard feelings. So, around this time, you could see the beginnings of the search for a new external enemy that would enable the defense industry – a traditional supporter of the Republicans – to expand their share of the profit pool generated in the American economy. 

Then 9/11 intervened. Whatever you want to say about 9/11, and whatever you want to say about the Iraq and Afghanistan wars, these were distractions from larger American geopolitical interests in the eyes of defense professionals.

Then, by the time of Obama, there was undoubtedly a growing fear. In 2000, China's economy was about 10 percent the size of the US economy; in 2010, it was about 35 percent. And of course it only continued growing and is now approaching parity, depending on how you want to measure it. 

So, the Trump administration's effort to confront China is not a post-2016 aberration. It is consistent with the desires of the defense industry as early as 2000. It is consistent with a more measured understanding of the geopolitical situation under the Obama administration. When you look at Obama, what you see is someone who had three or four huge issues to deal with, and opted to put China – which over the eight years of his presidency was beginning to fortify islands in the South China Sea – on the back burner in favor of dealing with the financial crisis and expanding health insurance to the uninsured. 

The tariffs, the racial rhetoric – that's down to Trump. But there is no shift. And this is further proven by the continuity between the Trump and Biden administrations on China. If anything, we’re actually seeing it ramp up, with sanctions on chips and other defense-relevant things. The whole point of Biden getting out of Afghanistan is to focus on what mainstream American foreign policy elites think is the problem.

The last continuity of the Trump years is the Republican Party itself. The GOP, arguably from the time of Reagan and certainly from the time of Gingrich, has been looking for ways to cut the cost of the welfare state in order to lower taxes for rich people. This is what Paul Ryan was all about under Trump. 

Although Trump campaigned on preserving Social Security, preserving Medicare – which, by the way, are important to that mythical, modal Southeast Michigan voter – as soon as he was in office, the Republican Party began proposing to cut them. They, of course, made several attempts to undo the Affordable Care Act.

So, Trump did not represent a particular deviation from either the usual Republican policy preferences or the foreign policy establishment's policy preferences. He was crazy. He's not smart. He was a wild man. But there was a lot of continuity.

No, but I'll say that even now under Biden, we still have these companies talking about the opportunities in China. In particular, companies like BlackRock and State Street and Fidelity, who want access to the pool of pension money in China. Finance has its own interests that are occasionally blind to the geopolitical interests the state might have. But again, that's nothing new. Lenin famously said capitalists would sell the rope that was used to hang them if the price was right.

The reason that we're seeing the kinds of sanctions we see today is precisely because, left to their own devices, these firms in pursuit of profit would continue to build up the Chinese economy, transfer technology, and undermine the geopolitical dominance of the US. Weber's not wrong about states having their own interests. States do have their own interests, and the defense establishment, understood broadly, is a pretty coherent group that articulates a stateside interest.

Absolutely. A long time ago, when I was a mere child of 20-something, I spent a lot of time in college and grad school reading people like Poulantzas, when the Marxist state debate was taking off in the late '70s and early '80s. I do not think that there is some kind of unified capitalist class. 

In fact, to the extent that I would like to attach myself to a point of view these days, it would be to Weber, who talked about the Preiskampf – the struggle among firms to maintain their prices at profitable levels. And he talked about the use of capital as a source of power in the economy, and the drive to monopoly. There is constant conflict in the economy among capitalists.

What I've been trying to say is that, when we think about these political conflicts, we of course have to recognize the distributional conflict between capital and labor, but it's also crucial to talk about the distributional conflict among capitalists themselves. There's a lot of variation, but in ideal-typical terms, I see three kinds of firms in the contemporary global economy. These firms are linked through their supply chains or value chains or commodity chains, whatever you want to call them.

The first type are human capital-intensive firms, which possess very robust intellectual property rights – patents, trademarks, brands, copyright – and are small in terms of headcount and light in terms of physical assets. The second type are firms that are heavy in physical capital, and typically have both a semi-skilled and skilled labor force. The third type are firms that are labor-intensive producers of commoditized goods and services.

It’s helpful to think about the structure of the economy this way because the distribution of profit across these firms is very unequal. Not profit rate, but volumes of profit. The intellectual property-based firms capture the bulk of profit, particularly in the value chains that they organize. Then, the physical capital firms can capture somewhat more moderate profits if they are able to create a barrier to entry – whether by virtue of tacit production knowledge or by virtue of it being difficult to create the factory. Finally, at the bottom, the profit volume is pretty small.

To figure out what these firms map onto, think of something like Apple, Taiwan Semiconductor Manufacturing Corporation (TSMC), and Hon Hai. Apple is largely doing the design of its products, writing software, and these days designing the processor chips. All that stuff is protected by copyright or patent. Apple famously sued Samsung over the shape of its phones, rectangular with rounded edges. 

TSMC stands behind huge barriers to entry, huge tacit production knowledge. A cutting-edge chip fabrication facility these days costs $20 billion. In general, it's pretty hard to come up with that kind of money. 

At the bottom is Hon Hai. It mostly does labor-intensive assembly at workstations and some assembly lines, with a much smaller capital footprint and a largely substitutable production process. If you didn't want to do business with Hon Hai, you could go to Pegatron or Flex or Jabil; all these companies will assemble electronics for you.

Now, critically, these are all distinct firms in legal terms. De jure, in this three-level commodity chain, we have three distinct firms. But practically, the companies at the top exercise enormous control over what happens with these firms that are lower down in the supply chain. It's not well known, but Apple actually owns many of the machine tools that Hon Hai uses to fabricate Apple's products. Apple engineers supervise the use of that production machinery. So, while Apple is de jure separate from Hon Hai, it is de facto deeply involved in organizing production.

The one I just gave is a global story, a tech story, but you can also see the same pattern domestically and in very non-tech sectors. Take the hotel industry, for example, where I could tell a story that is nearly identical. Look at Hilton and Marriott. They own a lot of brands, but they don't actually own very many buildings. Back in the day, just like Apple used to own factories, Hilton used to own buildings. But Hilton owns fewer than 20 buildings these days. 

Most of the hotels you walk into with a Hilton or Marriott label are owned by somebody else – typically in America, a real estate investment trust (REIT). That's a big, expensive capital good. The hotel owners take the brand name, which is intellectual property, and put it on the hotel to attract a certain kind of customer. Then, they staff the hotel with a few key employees of their own, and hire the rest of the other workers from subcontractors. The cleaners, the building maintenance people, much of the kitchen staff – they're probably all subcontracted employees. That's that third level.

Again, what you have here is a de jure separation. Hilton and Marriott are legally separate from what I call the other Apple – Apple Hospitality REIT – which operates both Hilton and Marriott hotels (even though theoretically these are in competition). And Apple Hospitality REIT hires in workers from Hospitality Services Inc. and Adecco. De jure, they are separate firms; de facto, everything that happens in that hotel is scripted by Hilton or Marriott, the same way that everything that happens in the fast food franchise is scripted by the brand owner.

David Weil, who is a hugely important analyst of this de facto control and was part of the Obama National Labor Relations Board, tells a story in one of his books about an American fast food franchise, which will remain unnamed. This franchise had written an instruction manual for its franchisees – meaning the people who have contracted to use the label McWendy's, or whatever – whose first page starts with instructions to put the key in the door, unlock the door, and turn on the lights. This gives you a sense of the micro degree of control. So, we have this de jure three-level economy, which is de facto coordinated from the top – the level where profits largely accrue.

There are two important ones. The first is horizontal concentration. Say you're in that second level. The level above you has a monopoly by definition – intellectual property rights give you a monopoly. If you're in that second level, the only way to sustain profitability is to do some kind of horizontal concentration, so that the IP-rich firms have to come to you. This is the secret of TSMC's success: they control 60 percent of the production of chips for fabless chip companies. Where else are you going to go? So, we’ve seen a lot of horizontal mergers in the last 20 years as a defensive response to the upward shift of profits, towards the owners of intellectual property.

The second consequence we see – and this actually does relate directly to Trump – is the decapitation of the small business owner class. What used to be a pathway to success in smaller towns and rural areas, and to a certain extent in urban areas, no longer exists. Franchising has reduced the risk of starting a business for a small business owner, but it has also massively reduced the upside. To take the restaurant example, you basically can't start your own restaurant now, because you're in competition with franchises. Most of the restaurant space is occupied by franchises, and I'm not just talking about the McWendy’s of the world. It's also the TGIFs and the Cheesecake Factories. So, the upside for this potential set of entrepreneurs is now very limited. 

Again, think about this in terms of status: am I a big man in a small town because I own the restaurant? No, now I'm a glorified manager of a McDonald’s. You can see why they, too, might be a little aggrieved.

Exactly.

There is a fragility to this form of hegemony because, to the extent that the intellectual property is not tacit, it's easy to copy. If you buy the DVD for the Disney movie, you can make multiple copies and you can stream it. If Disney can't sue you and prevent you from doing that, there's no way for Disney to be profitable. If somebody wants to violate this IP, they can. 

Similarly, if the Chinese government wants Huawei to make telephone switching systems, and encourages it to steal Cisco's code, they can do that. So, there is fragility there. But I would say this is not the key to understanding what the Biden administration is about, because there is a lot of global support for enforcing the legal rules around intellectual property.

It's not just a slice of American firms that are winners from this. If you're a European pharmaceutical firm – Ciba-Geigy, GSK – you win from the patents around pharmaceutical goods. If you're the Danish firm Novo Nordisk, which gets 80 percent of its revenue from diabetes care, you win from the ability to price insulin very high, because you have a patent around the latest delivery device. I'm so sorry for them that the price has now been capped at $35 in the US. But, they're winners from these legal protections, and so have every reason in the world to support this.

It's the same thing all the way down the line, for the tech firms, for the hotel chains that also have brands, whether they are European or Japanese or Korean or Taiwanese. There's a broad international coalition around enforcing these property rights. And because they're the most profitable firms, they have a lot of influence. 

I would not go as far as Karl Kautsky and say this is ultra-imperialism, but this is definitely not an instance where people are going to wake up one day and say, “Well, this is a mistake, the Americans are wrong. We're just going to copy these Disney movies and we're going to decompile Apple's software and we're going to make our own Covid vaccines."

The issue that the Biden administration is dealing with is at this second level. The capital-intensive production firms don't really exist in the US anymore. This is because, as William Lazonick says, firms have been anorexic in terms of investment: they have distributed much of their profits in the form of share buybacks and dividends, rather than expanding production capacity. There's all kinds of reasonable reasons why they might not want to create new capacity, but the net effect is that they haven't. This means that the parts of the supply chain that are most critical for national defense don't exist in the US.

The Biden administration is trying to make sure that those two problems are remediated – to increase US production capacity, and to control the supply chain on which national security depends. The CHIPS Act is about making sure that there's an onshore capacity for the most advanced chips. All you have to do is look at the Russia–Ukraine war to see why that might matter. 

But the same cocktail party statistic is relevant: TSMC, plus the other Taiwanese semiconductor firms, are collectively making 60 percent of chips for all fabless semiconductor firms. And TSMC comprises almost 100 percent of the known capacity for making the most cutting-edge chips. Those things matter for the electronics that go into weaponry. 

So, by trying to induce Intel to get its act together, and by essentially forcing TSMC to build an advanced fab in the US, the CHIPS Act is all about making sure there's an onshore capacity. Even though it's red team/blue team exercises, we know who the red team is in the current environment; it's not Denmark, despite their flag.

Electrifying the economy is indeed the other part of it. Electrification is a dual-use strategy. It will lead to less reliance on imported oil, which reduces the importance of the Middle East, and also potentially starve hostile regimes – again, we don't need much imagination to know we're talking about Iran here, but it’s actually also the Saudis. It will deprive hostile regimes of revenue flows.

At the same time, it will also reindustrialize the Midwest, and therefore have domestic electoral consequences. The electrification of transportation means new factories to make batteries and to make electric vehicles, which will mostly be in the Upper Midwest. That's the home of those critical Trump voters we were talking about, the ones who put him over the top in 2016. Michigan, Wisconsin, and Pennsylvania are all either car economies or very closely tied to the car economy. So, if it were a purely economic thing and not so much a status thing about gender and race, you can see it as a strategy to get people to connect the Democratic Party with a better economic outcome. 

So, this is mostly geopolitical, but it's also domestic-political. Geopolitical: what happens if there's a war with China? Domestic-political: can we peel away just enough votes in the Midwest to keep the Republicans from winning a presidential election, and maybe knock off a few senators?

I think three things here: one is structural, one is contingent, and one is political. The structural thing is that, over the last decade, we’ve seen the erosion of at least two of the three cheaps. The boom that lasted from the middle of the '90s into the 2000s was built on cheap Chinese labor, cheap oil, and cheap consumer credit. 

China is certainly no longer cheap. If you're an American company, it's now cheaper to build things in Mexico, despite the total chaos of the state there. If you're a French company, I suspect it's cheaper to build in Morocco. And that's because Chinese wages have gone up so much. Cheap oil is also over, which means transportation costs matter. So, the proximity of Mexico or Morocco to the car market matters doubly. Cheap consumer credit is a little harder, but consumers are certainly borrowing less. The ratios of household debt to disposable income have fallen for almost all OPEC countries since the 2008–2010 crash. 

With two, and maybe all, of the three cheaps gone, it's not surprising – structurally speaking – that we see some production move geographically closer, and maybe even back into the core economy, where labor costs are higher, but where automation means you don't need a lot of bodies. That's the structural thing.

The contingent factors are Covid and geopolitical conflict with China. What Covid showed companies, and also states, was the need for more sources and more resilience in the supply chains. All of the just-in-time inventory strategies were proven totally inadequate when there were disruptions. Just-in-time is the opposite of having just-in-case buffers. Many firms are now thinking about putting some fat back onto the supply chain to protect themselves. There are some arguments that the inflation we see in the US is actually this increased buying pressure, caused by companies trying to vacuum up supply, just in case. 

Likewise, increasing conflict with China is a contingent factor whose trigger is the Russia–Ukraine war. It has reminded people that governments do make mistakes. Maybe the Chinese really will invade Taiwan, or if not invade, try to blockade it. So, you can't rely on China either. That's also inducing reshoring. The CHIPS Act is about reshoring, and the Inflation Reduction Act is about making sure that the automobile chain in the North American market is complete. 

Even if you don't reshore, you might want to nearshore, or have a second source in a place like India or Vietnam. You see this with Apple, which is expanding production in India. Apple used to make the simplest, cheapest products in India, and now they're moving some iPhone production there. Other firms are doing the same thing. That's the contingent factor.

Finally, the political factor is the fear of war with China – and, in Europe, the reality of war in Ukraine. It's clear that if you're relying on Russian gas, or even wire harnesses from Ukraine, you're vulnerable to massive disruptions. I think we see reshoring start before Covid; then it's accelerated by Covid; and then it's accelerated even more by the recognition that you could actually have a war.

One background factor to all of this, which matters, is the resolution of the distributional conflict between capital and labor, largely in favor of capital. Reshoring makes sense in the context of the US because you can hire a factory worker for an all-in cost of $20/hour. If you had to pay the old historical union rate, which was closer to $40 or $45/hour, it wouldn't make sense to bring that production back. But with the unions largely out of the way, it's a lot easier to contemplate moving production to places like Alabama or South Carolina – which, if they were disconnected from the American federal system and American federal transfers, in many respects would resemble middle-income developing countries.

In Europe, there are multiple countries and different issues. But when you look at Scandinavia, putting aside Norway and oil, what you see are intellectual property-based economies that have outsourced all actual production. The modal firm is IKEA: design by Sweden, metal work by China, and chipboard from 160 kilometers southwest of where I'm standing. So, I don't see much opportunity for reshoring there because the unions still exist and social conditions are good. The kind of factory work that would be involved in reshoring lower-level goods is just not going to be acceptable in those societies. 

In the rest of Europe, it may be a different story because unemployment is higher, the welfare state is weaker, wages are lower. But again, I expect nearshoring more than reshoring.

I'm like a naive English empiricist. I find it very difficult to sort out what's profit and what's rent when looking at these different firms. Certainly, the databases don't do that. So, in this respect, I just say, okay, profit is profit, we're not going to worry about rent. It's not novel that these firms are predatory. High profit volume firms are almost always predatory, with regulated utilities as the exception. If we actually lived in a competitive economy, as Schumpeter says, profit rates would fall to depreciation, plus a managerial salary for the entrepreneur.

When we think about what's going on with investment, there's a dynamic here. The vertical disintegration that we've seen – into these de jure separated but de facto integrated firms – changes the incentive for investment, and shapes the type of investment we get. Overall, we have less investment as compared to the '50s through the '80s, with the critical thing here being net capital formation. Gross capital formation is important because we want to replace depreciation – depreciating equipment, depreciating houses – but growth is coming from net. And net new capital formation in the G-7 economies, between 2004 and 2020, is at half the level that it was in the 20 years prior. So, we have less investment, and the question is why?

The answer is that even though these IP firms at the top do a lot of investment, their investment has little in the way of multiplier effects. Investment for an Apple, for a Microsoft, for a Google, or for a pharmaceutical firm means hiring people to think about things. Investment for a Nike, or an Adidas, or a branded food company means hiring people to create emotions and do marketing. All this investment has much less in the way of multiplier effects than investment in industrial goods for actual production. 

Part of this is about the shift to an economy based on services and digitalization. But part of it is the loss of those multiplier effects. You hire a software engineer, you pay them a lot of money, that's R&D, right? They're developing some new app for you. They're making Microsoft Word even more dysfunctional. Whatever it is they're doing, they get that big salary, but then they go out and they spend it on rent, expensive brunches, and helicopter skiing – which has some multiplier effects, but they're smaller than the ones when people are building factories, buying machinery.

But you might say, well, what about that second level, why don't they invest? The answer there is partly what I said before. They've gotten themselves a horizontal monopoly, so they're not facing competitive pressure to invest. And when they look at the world – very rationally – many of them see their market is not growing much at all. Imagine you're a car company in Europe. The market is growing, at best, at the rate of population growth, which is very small; call it less than 1 percent a year. And you know that you can get a 2 to 3 percent increase in productivity per year just by continuing to Toyotaize your production facility. Why would you build a new factory? You would just be creating excess capacity. 

So, you get less investment by these firms because the market's not growing, and you also get less investment because the profit volume is lower thanks to the IP firms sucking up the profit. Car companies are producing an object where 30 to 40 percent of the value is the software and electronics, most of which they have to buy from one of these firms at the top of the value chain. So, they invest less, which reduces the kind of investment that generates big multiplier effects.

Then, at the bottom, are these labor-intensive firms. Their whole point is profitability through labor exploitation. They're not going to invest in any significant way. If you're a franchised janitorial service, your investment is buying a mop for these people. Even then you might not do that. If the workers are considered subcontractors, they might have to buy their own mops. The result is you get less investment and – unsurprisingly, from the point of view of gains – relatively slower growth.

What you're seeing there is two things. One is the recognition that the value is in the software. They realize they don't do it, but that they need to. They're not idiots. And the other is the maturing of that sector because of electrification. It's either make the investment or go out of business.

We don't disagree here. The point is not that net investment is negative and that everything these companies spend is going into catered lunches. If that were true, we would see something like 1932. We don't see massive unemployment. We don't see negative GDP growth. What we see is secular stagnation. It's relatively slower growth. 

Of course, many of these firms invest in physical capital. But when you look at the relationship between the volume of profit they capture on the one hand, and the trend and the volume of their investment on the other, you see that they underinvest relative to their profit share. That's a reversal of what used to happen in the '50s or '60s. Back then, the high profit volume firms all invested or overinvested relative to their profit share. So, we're not in a world of the Great Depression with firms disinvesting, but we are in a world where Google or Microsoft will build server farms to run the cloud – and the point is that it's less than you would expect relative to their profit share. Because it's less, growth is slower.

It's also worth repeating that I'm talking about ideal types. Most of these firms are hybrids. There are few pure plays. Qualcomm is an example of a pure play: all they do is create IP. But most of the rest have some hybrid aspects. Intel, for example, looks like it's a capital-intensive firm, but they also do microprocessor design. They're a hybrid.

In the current American conjuncture, I've been saying there are no enemies to the left of Trump or the core Republican Party. I take that seriously. I do some public intellectual work, and I write for what is clearly a left-wing outlet as well as for an outlet that is clearly associated with the very small remaining part of the Republican Party that is rational. So, when I say no enemies to the left of Trump or Paul Ryan, I'm serious about that.

But the problem is that there's no simple, magic solution to our problems here. And the reason is, quite apart from political realities – as Karl Marx said, money talks, bullshit walks – there is no unified working class anymore that might serve as the basis for a broad-based political movement. That's because the division of labor has gotten very complex, which is in turn due to that de jure vertical disintegration. It was “easy" in the 1930s for all those second-generation immigrants in the car factories of America to say “We're all in this together," because they were all second-generation immigrants; because they were living on top of each other. Even if they were in their own neighborhood, one block away was some other ethnic group riding the same trolleys to the factory, doing the same kind of work. 

We don't have that today. We have a highly fragmented system. The political issues that matter for the younger people, Generation Z up through Millennials, are not all work-related. We have to remember that even among those groups, there's a high degree of fragmentation. If you're a 30-year-old software engineer, things look a lot different for you than if you're a 30-year-old clerk at the auto parts store, or a 30-year-old factory worker assembling cars in South Carolina. It's not obvious to me what could unify all these folks as a social movement.

I tend to say housing is the big thing, because I work on it. But the real-world reason for talking about housing is, A) it's people's single biggest expense; and B) it has enormous multiplier effects, which helps push up wages across the whole economy. So, if I were running the Democratic Party, what I would be campaigning on – in addition to the obvious suspects like getting the old people to vote for you by protecting Social Security and Medicare, like getting pieces of industry to support you by throwing tons of money at them through subsidies – would be getting the young people to vote for you by aggressively promoting housing construction.

Then, the other thing I would probably do is attack the monopolies that we all confront. At least in America, they make life crazy. I'm not quite sure how it looks in Europe, because I've only lived there for very short periods of time and I've been insulated from some of the worst things. But over here, it's just a horror to get your cable internet fixed with customer service. There's basically no competition in the cell phone market. You can go down the list of all these consumer-facing monopolies that are just total ripoffs. 

I said once to a Democratic Party operative that they should campaign on “Make it easy to be an American again," as opposed to “Make America great again." Make it easy to be an American again by forcing companies to be more responsive. That's the way I would go about it, but there's a reason I'm a professor and not a politician, so you shouldn't ask me this kind of question.

I'm going to approach this a little obliquely. I think we're currently entering Cold War 2.0. This matters because in Cold War 1.0, and also in the 1930s with the anticipation of war, there was an opening for countries that were in what Wallerstein would have called the semi-periphery – though we can be more nuanced and say semi-industrialized, semi-competent countries in terms of knowledge production – to take advantage of technology transfers. We're not talking about a Somalia, but maybe a Vietnam, certainly India, Brazil, Mexico. Countries where, if there's enough state capacity, it's possible for them to bargain for technology transfer.

What happened in the '30s? There was industrialization from above. The British knew it was only a matter of time before they were fighting a war, possibly against both the Japanese and the Germans. On this logic they built additional steel mills in India, so that India could be self-sufficient while they were busy fighting later. By the early 1930s, the Americans also knew war was coming; we know this from Roosevelt administration documents. They knew that war was coming, and they were planning for it. They knew they were going to need Mexican oil; they knew they were going to want Brazilian coffee. Those things move on rails, but these countries didn't have the steel mills to build those rails. The US transferred the technology to build fully integrated steel mills in those countries. They upgraded them to modern standards, and also helped them build central banks in the late '20s and early '30s. Around the same time, Japan industrialized the Korean Peninsula and Manchuria.

It was the same thing in the Cold War. The US transferred technology – and also helped do a lot of repression. So, if it's Cold War 2.0, there is an opening for some countries to negotiate their way up in terms of where they are in the global commodity chain; to make their industry more sophisticated; and to do it in a way that doesn't involve the outright technology theft that China has engaged in over the last 25 years.

So, I do think there's an opportunity for weakening some of these things. In this sense, Covid is an important wedge, because it's very obvious that – short of closing the borders completely, which is not going to happen – you're going to have recurrent pandemics or endemic diseases. In the IP space around pharmaceuticals, there's room for upgrading in some countries. There is also room for biopolitical interventions. There were policies during the Cold War meant to show people that life in the US was secure, that the Soviets were wrong. In Cold War 2.0, the Biden administration is looking for ways to expand and enhance the Affordable Care Act, although they haven't passed anything. 

I do think that there's a possibility for redistributing global wealth, the same way that the Cold War saw a redistribution of national wealth in order to secure compliance with the United States' desire to fight and win the cold conflict. We can see by analogy that the US state may help select countries in the semi-industrial space to move up. Vietnam and India are obvious examples. That's what could drive a kind of redistribution.

I don't think we're going to see something like the 1970s, with the New International Economic Order (NIEO) emerging. This is because of the conflicts of interest across the countries that might plausibly be involved in something like that, and because of the very disparate levels of state capacity and industrialization. These discrepancies make a coherent project difficult. The NIEO was easier to do, mostly because these countries' elites could all look at each other and say, “We all led the independence movements. We have similar interests against the former colonizers." That doesn't exist today. You have very heterogeneous interests.

To give a specific example, if you're Dr. Reddy's or some pharmaceutical company in India, what's your pathway to higher profitability? It's getting patented medicine; it's generating novel production processes you can patent. It's not necessarily weakening those intellectual property rights.

That's because, at the moment, that helps Dr. Reddy's and Sun because they have virtually no patented products. But they, with their annual reports, talk about wanting to do this. I'm not saying that these countries are also passive recipients. They obviously would want to do this. But I'm saying there's an opening, where the desire to upgrade could meet permission from the more powerful countries – in the case of the US, because of its need to line up allies against China.

Well, because unleashing the genius of Wall Street and Silicon Valley would probably be value destroying. We can look at the geniuses at Silicon Valley Bank, for example, who made unhedged bets in an environment in which interest rates were clearly going to go up.

Look at the 1950s and '60s. It wasn't just the US being nice. I mentioned the massive repression of socialist and communist movements in countries around the world; that was the stick. But the carrot was integration and upgrading. 

To focus on Latin America, between the 1930s and the 1960s the US extended these offers of upgrading not just to Brazil and Mexico, but also to Argentina. And the Argentine state, for various reasons, said “No, thank you." As a result, they ended up losing ground relative to Brazil and Mexico. But even in the latter two countries, they weren't exactly going, “Rah rah, we love the Americans." The Brazilian state was bargaining very hard over this aid, and in the context of these negotiations, threatening the US. “Maybe we'll make a special deal with the Germans. The Germans also want our coffee and sugar." And Mexico has historically not entirely been on the best terms with the US, for all the obvious reasons.

If these countries are going to be pressing for something, if these countries are going to try to get something out of the American desire to line everyone up against China, it's going to take the form of upgrading. I'm not sure what “unleashing the collective genius of Silicon Valley and Wall Street" would look like, because you need institutional capacity to absorb these things. Once the steel mill was finished, Brazil during World War II could keep the railroads running, but it could not make the vehicles and weapons sufficient to equip the one division it sent to fight in Italy during the war – sent, by the way, as a down payment on future American aid.

So, if you look at Vietnam and ask, is this country capable of designing semiconductors? Probably not. Is it capable of financing semiconductor fabs? Probably not. Is it potentially a site for electronics assembly – where output could triple or quadruple as Hon Hai, under pressure from the Apples of the world, moves production out of China? Yes, certainly. And from Vietnam's point of view, that's the pathway to industrialization, because you learn how to run a factory, which they may not know how to do right now. Similarly, the Mexican state has clearly been a beneficiary of nearshoring. I'm not saying this is American benevolence and kumbaya against the background of hostility with China.

Yeah, I think we're at an inflection point.

Well, I wouldn't be in the box with the people who say that it's only the ideas that matter. But I also wouldn't be in the box with the people who say it's all about materiality. For example, I wouldn't say that assembly lines automatically give you unions and the Keynesian welfare state. The ideas matter, and the ideas will continue to matter. In all of history, there has always been ideological contestation.

I date “neoliberalism" from Carter and the deregulation of airlines. We can look at the years from 1978 forward to, let's say, 2019, and call this an era during which neoliberalism prevailed. But in this neoliberal era, what do we see? We see the World Bank having a debate over the East Asian model versus the Washington Consensus – so, it's not as if Washington Consensus neoliberalism was dominant in the 1990s. We see renewed calls and a lot of pressure to expand welfare states – again, this is biopolitics – to accommodate the realities of dual-working households. And we see countries like Germany, which historically have a Kinder, Küche, Kirche and Rabenmutter orientation around women's proper role in society, vastly expanding family benefits and childcare.

My point is there are always fights over this. So, I would say we are at an inflection point in which, if we use the label, neoliberal ideas are in retreat, and in which the likes of the IMF and World Bank will be under pressure to rethink the kind of advice they give. Don't forget that the people at the IMF who actually have the power are all political appointees. The American representative is always an assistant secretary of the Treasury who is on secondment. 

And you have organizations like the Bank for International Settlements that – very quietly, because they can't do this too openly – are pushing against the idea that freely flowing capital and unregulated offshore banking are okay. And you still have the old elements of the UN system, like UNCTAD, putting out documents that are very critical of unregulated flows of capital and production chains.

UNCTAD's most recent Trade and Development Report and World Investment Report are both very critical of the fact that so much foreign direct investment is just a shell game, meant to arbitrage differences in tax, environmental, and labor regulations. They argue that this is detrimental for growth and detrimental to developing countries. Maybe these points will resonate more loudly in an environment in which states are under fiscal pressure because of wartime concerns, and would be more open to something like the minimum 15 percent tax on multinationals that the OECD agreed to just last year.