← Radical Candor: Communication at Work
Radical Candor: Communication at Work
Gary Gerstle on The Rise and Fall of the Neoliberal Order - S8 | E16
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America and the World in the Free Market Era
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Foreign.
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Hello, everybody, and welcome to the Radical Sabbatical. I'm Kim Scott, and with me today is the author of a book that really kind of changed my life. Welcome Gary Garcl, the author of the Rise and Fall of the Neoliberal Order.
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Thank you. It's good to be with you, Kim.
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Thank you so much for being here. I want to tell you how much your book meant to me because there's, and I'm going to give you kind of a weird set of metaphors, but there's a metaphor throughout literature that when characters realize, or people realize they've been doing something bad all along, when they thought they were doing something good, they go blind before they can come to grips with it. So when Oedipus learned that he had murdered his father and married his mother, he gouged his eyes out. When Paul was on the road to Damascus to persecute a minority, he was thinking he was doing a good law and order thing, but in fact, he was not. And he was surrounded by a blinding light. And then he realized. Oh, he realized the error of his ways. So at the risk of being dramatic, reading your book was a moment for me like that. My whole career, I thought I was working towards these progressive goals, but it turned out I'm more like the Forrest Gump of neoliberalism. I learned from you. I got my first job in Moscow in 1990, and we'll talk about what was happening there then. I worked at the FCC in the era of the Telecommunications act of 1996, and then I joined Google in 2004. So thank you for helping me realize. I got some feedback from your book.
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Well, on the one hand, I'm gratified that someone like yourself, who spent a career in it and the digital revolution, that my book resonates with you. On the other hand, I'm not really comforted by the fact that you're thinking about gouging your eyes out.
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So I'm not going to guide it now. I didn't. I didn't. I didn't do anything as terrible as
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murdering my father, marrying my mother, delay any drastic actions. But it actually means a lot to me that someone who's been in this industry has read my book and thinks, well, it accords with the history that you've lived through. So thank you for that.
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Well, thank you. And I suspect a bunch of our listeners will read your book and feel similarly, although they'll have some feedback for you as. As people. As people do. When you write a book, it's a Labor of love, and you get nothing but grief for having done it.
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Well, you have to be prepared for that. And if you want to enter controversial terrain and you want to make bold statements, you have to expect vigorous feedback. And part of what I'm grateful for, for the book is it's generated a lot of interest and a lot of discussion, and as all good books do, criticism.
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Yeah, yeah. It means you wrote a good book if you're getting criticism. If you don't get any criticism, you didn't write a good book. So I thought we would start just with some basic definitions, like what is liberalism? It's so confusing right now. All these terms are confusing. So what is liberalism and when did it start? A small question to get us.
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A small question, but an important question. And let me at the outset distinguish liberalism from neoliberalism, even though I think the two are quite close. But I apologize to listeners for introducing into this discussion a term that they may be less rather than more familiar with, which is neoliberalism.
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Yeah.
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Liberalism goes back to the late 18th century. And the key figure there is probably Adam Smith, the Scottish economist who wrote a very significant book in 250 years ago, actually, it's the 250th anniversary, called the wealth of nations, same year as a Declaration of Independence. And he sensed that economic energies and societies were ready to burst, but they were being held back by all kinds of barriers. Monarchs, aristocrats, all kinds of people who wanted to control trade for their private and personal interests. And he said, listen, monopolies, kind of monopolies. And there was a philosophy called mercantilism, where nations really tried to accumulate as much gold as they could. Rather than focus on economic development, they were focusing on how. On. On how much gold they could amass in. In their. In their. In their fortresses. And he said, this is ridiculous.
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Yeah.
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And his key point was actually quite simple. He said, people have a natural propensity to truck, barter and exchange. And if you just let people follow their natural propensity, they will be free and they will push forward a kind of economic development of the sort of. That the world has. Has never seen. So this is what is called classical liberalism, and it sought to remove all the artificial barriers to economic development and let people be free to truck, barter, and exchange as they saw fit. And he became a prophet of sort for the emergence of capitalism in the 19th century and unprecedented rates of economic growth and economic development and the. Creating the possibility for prosperity, although the results of that were distributed deeply unequally yes. It was also a message of freedom, however, because you wanted people to be free. And so liberalism became associated with political freedom and political rights. And thus it's appropriate that this book was published the same year as the Declaration of Independence and the Declaration that all men are created equal and are endowed with by their creator with unalienable rights. So liberalism was associated with the project of political freedom. Getting rid of monarchs, having governments instituted by the people, for the people.
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Really some of the people.
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At least some of the people. But it was a.
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For the people.
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It was an aspiration pregnant with possibilities.
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Yes, yes.
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And. And so the rise of liberalism is the. Is associated with the rise of capitalism on the one hand, and the rise of political democracy on the other. And the United States becomes one of the critical engines of that development over the 19th and early 20th century. But the inequalities of capitalism pile up so seriously in the 19th century that many liberals begin to have second thoughts about what they're doing because they understand that a lot of people are not free. And even though US got rid of slavery in the middle of the 19th century, the inequalities between rich and poor by the late 19th century, the gilded Age, the robber barons became so severe. And so people began to rethink whether you could really let capitalism be unencumbered.
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Yeah.
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And unregulated. And. And increasing calls by liberals to call for a strong state to intervene in the economy for fairer distributions of the fruits of. Yeah, capitalist.
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Yeah, To a certain extent. Big business. There was. There had to be a check on the power of these monopoly businesses. And. And the only check that people could imagine was the state. I mean, what other a big government had to put a check on? Big business.
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Yes. And there were groups calling themselves new Liberals or progressives, and there were also socialists, and then there were communists. All varieties of groups calling for more or less regulation by the state of. Of the economy.
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Yeah.
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And then you have this man named Franklin Delano roosevelt in the 1930s who executes one of the great terminological heists in all of history because liberalism had been associated with little regulation. Laissez faire. Let capitalism be capitalism. And he says, actually, liberalism is something else. People can't enjoy their freedom unless the state guarantees them certain levels of security and certain rights to a job, to a pension, to an education, to welfare in times of distress. Industrial accident or a father dying the breadwinner there so that there would be Social Security. So he takes liberalism and makes it what Americans recognize liberalism as being Today, part of the Democratic Party, part of a strong calling for a strong state to regulate capitalism in the public interest. And during the years when the Democratic Party is strong, and I'm sure we'll get to that in our discussion later.
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Yeah.
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Liberalism becomes associated with a big state constraining capitalism in the public interest.
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Yes.
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This drives those who remain classical liberals in the Adam Smith sense crazy.
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Yeah.
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People like Herbert Hoover, people like Milton Friedman, who believes in free markets. People like Friedrich Hayek, the Austrian economist who's critical in terms of critiquing the state, regulation of the economy. So the question becomes, what are they going to call themselves? They want to. Ronald Reagan fits into this category as well. They want to call themselves liberals in the classical sense. But because Roosevelt has stolen that term, stolen the term from its rightful owners, they have to figure out to a way to call themselves something else. Some of them call themselves conservatives. Reagan calls himself a conservative. I've never been comfortable with that label. There are real conservatives in American society. By conservatism, I mean an affection for order, tradition, hierarchy, a sense that if change is going to come, it has to come slowly, it has to come organically, with a proper respect for tradition. But capitalism doesn't spawn change that is slow and respectful of tradition.
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Shamtarian change. It changes everything.
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Changes everything. It's by nature disruptive. It's by nature generates upheavals.
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Yeah.
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And so on and so forth. So people like Milton Friedman and Hayek are not comfortable with the term conservative. So. But they can't call themselves liberal because that would identify them with the party trying to regulate capitalism in the public interest. So that is where the term neoliberal originates. We are new liberals. And the. It's an awkward term. Neo just means new new liberals. They are really old liberals. They're old Liberals in the 18th century Sense of the term. And that is what neoliberals are, and that's what they become. And I chose that term rather than conservative as a term to describe it. Describe them because I think neoliberal gets at the transformation of capitalism, the release of its energies that is at the heart of the economic project in the United States in the late 20th and early 21st century.
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Amazing. Okay, so now we understand what liberalism is. We understand a little bit about what the New Deal, the third path. The New Deal was trying to identify some third path between communism and capitalism and neoliberalism. I think before we jump into what an order is, which is what I want to ask you next, I want you to tell it Was like one anecdote that you had about the company in Chicago that had more weapons than the police force. I think one of the things that is easy to forget about the end of the liberal, the first liberal order is how violent it became as a result of this massive wealth inequality.
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Well, there was a steel company in Chicago called Republic Steel that had an arsenal that was greater than the entire Chicago Police Department. This was in the 1930s. They were arming themselves to defend themselves against their own workers. And it speaks precisely to a sense of deadly conflict, anger at the division between the classes and the rich and the poor in American society. American capitalism, left to its own devices because it's gone through periods of such little regulation, has been the most powerful capitalism in the world that has. And there have been long stretches of time where workers felt they had no mechanism for reduction address. And so increasingly they felt they were driven to take up arms. And one of the little known and but critical facts of industrial relation history in America, it's usually simply said that American workers weren't interested in socialism. And they weren't, they didn't have a consciousness of themselves as a class because there was an opportunity for everybody here to become rich. But it's also the case that of all the industrial societies, America has had the most violent history of labor management relations. Gun battles really beginning in the 1870s.
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The Lowell massacre.
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Yes. The Ludlow massacre of 1912. In, in Colorado, a miners camp is, is, is set upon by a private police force by a mining company owned by the Rockefeller family at the time. And so, and the, the mining areas of, of of West Virginia, Pittsburgh. There's a confrontation in the homestead strike of 1892 where Carnegie is having a bunch of private police Pinkertons come down the one of the rivers in Pittsburgh to oust the striking workers. And the striking workers are there with their guns and a major gun battle ensues. And this period of violence really goes from the 1870s through the 1930s. And one of the achievements of the New Deal is to put in industrial relations machinery of a peaceful sort so that the resort to violence from the 30s really until the present pretty much disappears from American life. But that's after half a century in which violence was the coin of the realm in terms of industrial relations in the US and it's a little known story, but absolutely central to the history of industrial relations in this country.
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Yeah, I just read the book the Infernal Machine by Stephen, so good on this. Okay, so the thing that ended the sort of classical liberal era was the violence that emerged from this massive wealth inequality that it spawned. Is that more or less fair to say?
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Yes. And the wreckage of capitalism itself, I think yeah.
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And it ended, it was hoisted by
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its own the great, Great Depression. Capitalism, unregulated, has capacity to generate great wealth, great inequality
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and great crashes.
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Great crashes. It occurs in circumstances of chaos, volatility, big booms, big busts. The Federal Reserve at this, in the, in the 1930s was only 20 years old. The governors of the Federal Reserve don't really use, know how to use the instruments put at their disposal. The crash of 1929 hits instead of flooding the market with credit of the sort that Ben Bernanke did in the aftermath of 2008, 2009, they constrict, conscript credit, which plunges the economy into a much deeper depression. And it's simply capitalism. The economic system of the United states simply stops working. 25 unemployment. Farmers are finding it more expensive to haul their hogs to market than to simply slaughter them.
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So people are starving and the farmers
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are slaughtering their, are slaughtering their pigs, their livestock. And so, and everybody understands that this is what's going on. And hunger, hunger stalks the land in ways that it rarely had in the United States. The whole system is breaking down and it's in a situation of calamitous worlds conditions because the crash in the United States sets off a global depression and revolution is on the march. The Soviet Union is going strong. It's very popular during the 1930s because they have an alternative to capitalism, which is a plant society which is allegedly got to avoid all the booms and busts and casualties of an unregulated capitalist system. So it's a situation rife with turmoil and anger and revolution. And these are the circumstances that prompt a very significant reform movement in the United States that we have come to call the New Deal after Franklin Roosevelt.
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And so the other, the other word in your title that I didn't fully understand was order. So what do you mean by an order? The Rise and Fall of the neo. So now we understand liberalism, neoliberalism, a little bit about the New Deal though. We'll talk more about that. But what is an order?
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Well, the full term is, is political order. And it's a term that people have used that in a variety of contexts. But myself and a co author of a book that we wrote in 1989, a long time ago, the Rise and Fall of the New Deal order, we were seeking a way to understand political developments in America that could not be understood within the electoral cycle. So much energy in America is focused on the two, four and six year electoral cycles. Presidents, House of Representative, the Senate. And we understood why there is this focus. Elections are critical in American history for who has power and who doesn't, for which policies are going to succeed and which are not. And it's also theater, it's performance, it's a way in which Americans enact their democracy. So these are incredibly important moments. But we had the feeling that there are trends, political trends and economic trends that cannot be understood within these very,
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very short cycles, within these contests between Democrats and Republicans and Republicans.
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And we were looking for ways of understanding longer term political developments that transcended the ordinary electoral cycle. And that's where the concept of political order comes in. A order emerges from a political movement usually led by one party or another. In the case of the New deal in the 1930s, the Democratic Party that becomes.
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Roots were probably in the Republican Party under Teddy Roosevelt and the Progressives.
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Well, they were, they were roots in both parties. And Franklin Roosevelt embodies both parties because his cousin Teddy was a Republican. Yeah, but Roosevelt had also served as Assistant Secretary of the Navy under Woodrow Wilson. Yes, the Democrat. So he's a perfect embodiment of this reform impulse in both parties. But by the 1930s, the Republican Party has pretty much abandoned Teddy Roosevelt progressivism. So it's entirely encased in the Democratic Party. And this party becomes so powerful over the course of the 30s and 40s that it compels the opposition party to play on its terms. Which means the Republicans come to feel by the late 1940s that if they are to have a chance of regaining power, they must become like the New Deal. They acquiesce to the core economic principles of.
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Or maybe they agree, maybe they've come, they just don't acquiesce. Acquiesce.
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Some of them, some of them agree, but some of them feel compelled. They don't really have a choice. So Eisenhower in 1952, Dwight D. Eisenhower, wins the presidency. He's the first Republican elected in America since 1928. That is what, 22 years, 24 years. That is an eternity. That's more than an eternity in American politics.
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Yeah.
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And if you have been out of office that long, the question is, what are you going to do when you come back into power? You might think that a Republican Party is so angry and furious at what the New Deal has done because the Republican Party does not share many of the beliefs of the Democratic Party. You think they're Going to roll back with the Democratic Party has done well. What does Dwight D. Eisenhower do when he comes into office? He says, I like big labor unions. They had emerged under Roosevelt.
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Yeah.
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I'm going to continue with Social Security, the big welfare scheme put in place by the New Deal. And then it comes time to. To review the tax code. And the mass taxation came to America in the 1940s for the war means, meaning first time most Americans were paying a hefty income tax. The rate on the highest marginal earner group was 91% during the war in the 1940.
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So Eisenhower. Eisenhower is now the most progressive president as measured by a progressive taxation rate. Anyway. The most progressive American president ever.
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Yeah, but first we have to say, you think he's going to roll that back now? But he does not roll that back. He says, yeah, he doubles down. I said, he says, I have no choice as a Republican but to endorse that. Imagine a Republican saying that today. Right. They would be out of the Republican Party in 35.
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Or a Democrat.
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Or a Democrat, frankly. Or a Democrat.
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Yeah, yeah.
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And. And he also understood, undertakes a massive public works program that we know as the Interstate highway program. He's talking about urban re. He's talking about the positive uses of government. He is fully in and supportive of the program of managing capitalism that the Democrats had put into place. And this is the moment when the New Deal moves from being a political movement to becoming a political order.
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An order.
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And anyone who wants to participate meaningfully in politics has to abide by the core economic principles of that order. And that remains the case really until the late 60s and early 70s. So it allows the ideas of one party to dominate American political life for 30, 35 years before it breaks apart. And that is a phenomenon that can't under. It can't be understood if you're assuming that the Republicans automatically come into power with different ideas than what the Democrats.
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Yeah, yeah, they didn't. And similarly, and we'll talk more about this as we go into more detail, but sort of similarly, as I read the book and you know, you explained that the neoliberal order, Reagan was maybe its architect, but Clinton was its general contractor. Like there wasn't a lot of air from an economic point of view, probably starting with Nixon, the rich were getting richer and they were getting equally richer under Democrats as under Republicans. Like, like, I mean, I'm, I'm really now oversimplifying, but to me, the liberal or the neoliberal order is all about the rich getting richer. And both Parties are equally supportive of policies that allow that to happen.
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Well, one of the surprise. I, I call Clinton the Democratic Eisenhower. That has. Yeah, it's a claim that's not been received well in certain. I agree with you Clintonian circles and what I mean by Reagan's keep. If the, if the Democratic principle under the New Deal was regulating capitalism in the public interest, the neoliberal principle was release capitalism regulating from its. From its Democratic Party constraints, deregulate it, and Clinton becomes even more of a deregulator than Reagan himself was. And you see this. The, when the, When Critical Telecommunications act is passed in 1995, it allows complete freedom to the IT industry without any public regulation whatsoever. And people may feel that's a natural development in American society where freedom is touchstone, but actually America had had a vigorous tradition of public regulation, of media deemed critical to the national interest.
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Yeah.
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For, you know, for a long time. For a long time. For generations. He repeals the Glass Steagall act, which had been a critical element of the New Deal, which separated investment from commercial banking and didn't let those two sectors merge with each other. And that constrained some of the raw energies of capitalism and limited their access to the pools of savings that ordinary people in America have. And so that limited what they can do. And the repeal of that opened up the wild west of derivatives and all kinds of financial chicanery, systemic market risks that are going to produce the 2008. 2009 global financial crash. And Clinton is the first Democrat to come into office to win an election since Jimmy Carter in 1976. So it's not quite as long as Eisenhower had been out that had the Republicans out of office, but it had been a while, but almost as long. And also something for your listeners to know just because we, we don't have elections like this anymore.
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Yeah.
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1936, Roosevelt is running for re election. He wins 60% of the popular vote and about 95% of the electoral votes. So let me repeat those figures. 60% of the popular.
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Not a close election.
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It was not a close election. Those figures are unimaginable today. People don't even aspire to them any anymore because they seem unachievable. Reagan does the same thing in 1984. 60% of the popular vote and over 90% of the electoral College. Those kinds of victories get the opposition party's attention and they see a juggernaut of such power and momentum that it can't be stopped unless you sort of get on board.
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Yeah, yeah, yeah. So in your description of. Of A political order. I drew a conclusion that is perhaps debatable. That is definitely. But as I was reading this, I was like, oh, my gosh, in the United States, we do not have a two party system. We really have a one party system. So what do you think about that conclusion?
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Well, I think I. I think you can say that in, in economic terms, one party becomes dominant for 30 or 40 years.
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Yeah.
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And so for that period of time, you could say economically there's a one party system. I have a hesitancy about that conclusion. Because in other areas there is conflict. If you think about civil rights in the 1960s.
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Yeah. There are different. There are different.
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There are different elements. But it's, it is an argument saying that not every election matters that much in terms of the core political. Yeah, sports.
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More like a sports team. Somebody puts on somebody's jersey. But it doesn't mean that they are really a San Francisco giant, you know?
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Right, right. Or to continue the sports analogy, since I've been thinking a lot about my football team since the draft, if a, if a team is perceived as being exceptional, I'm thinking of football right now. If a team is perceived as being exceptionally successful, the other teams in the league seek to copy their patterns. Patterns of success.
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We are copycats, we human beings. All right, so you tell so many amazing stories in this book. So I want you to tell the story of the Gorky automobile factory because we're going back to the New Deal now, but I think it's easy to forget today how much credibility communism had and how much fear it engendered in the United States.
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Well, I'm glad you brought up that question. The Gorky automobile plant figures into my telling the story of the 1930s and the rise of the communist threat.
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Yeah.
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And there are a couple brothers who are going to become very, very important labor organizers in the United States. In the United Automobile workers. They were the Reuther brothers, Walter and his, his brother Victor. And they are left wingers in the 1930s. And like a lot of young people, radically minded young people who see the collapse not only of the American economy, but what they perceive to be the collapse of American civilization. They are looking for alternatives.
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Yeah.
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And here's what appears to be this North Star, this other society on the other side of the world which has pledged itself to the utter destruction of capitalism and the appropriation of all what they call private property. They don't mean so much the personal property that you and I may have in our homes and savings accounts. They really mean the appropriation of all corporate property.
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Yeah.
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And its inclusion within the state. And the state was going to represent the workers, and it was going to be a worker state operating in their interests, not according to the profit motives, but. But according to need. And the Soviet Union seemed to be doing quite well in the 1930s.
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Yeah, it was growing faster.
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It was growing faster. It was, it was industrializing.
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Yeah.
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And they set up this automobile plant in the middle of nowhere. And they first set up the automobile plant, then they build a city around it to accommodate Gorky, named Gorky, to accommodate the workers they're going to need. And in this moment in which free enterprise system seems to be collapsing, you have this bold state on the other side of the world taking these extraordinary risks and seemingly being successful at planting enterprise in the middle of nowhere and making a success of it and delivering goods to their people in a way in which the private enterprise of America seemed unable to do. And in this short period of time, the Reuther brothers become convinced. They later become disillusioned because they come. Come across the tyrannical core of Soviet communism and they. They're going to turn their backs on it in a rather ferocious way. But in this moment, the, this has become a worthy adversary of the US and they are not only sworn to capitalism's destruction, but they seem to be showing the capacity to build a radically different kind of society that provides both for people's needs and for the need for social justice. And this becomes the greatest challenge to capitalism of the 20th century. And it strikes fear in the hearts of capitalists the world over, because it becomes apparent that wherever the Soviet Union is in control, capitalism as you know it, capitalism as I know it, ceases to exist.
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B
Yeah. Yeah. And that, you know, obviously that totally changed our, Our ideas about communism. Totally changed when communism revealed itself to be more violent and worse for everybody than, Than even the most extreme forms of capitalism. But, but people, we didn't know that then. We didn't know that in the early, early. I mean, it hadn't happened. Stalinism hadn't happened when the Gorky automobile factory was getting built. This was before Stalin came. So I think it's important to remember that when we think about the New Deal. And it's also important to remember that both capitalism and communism were dependent on a small elite controlling everything. And it turned out communism was a smaller elite with more control even than capitalism. But anyway. And it's interesting also to note that neither the New Dealers nor communists or even really socialists really sought the ideas of the workers it took Toyota's TPM to start doing that. Right. To combat Taylorism. So you know, you sort of touch on that. But that was another sort of revelation from your book that I, that I drew.
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Well, I think there is a period in the 30s where workers are gaining a voice and they talk about industrial democracy in the US and they talk about industrial democracy. And that means bringing democracy to the shop floor and bringing, bringing workers voice into deliberations with capital. And Walter Reuther, you know, in his early days as the UAW leader actually wants workers to have a say in the planning and in the production decisions of General Motors and the Ford Motor Company and, and Chrysler. But this is also where management in the US draws its line.
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Yeah.
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And it be beyond a certain point.
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It refuses pay workers more, but we won't listen to them.
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A
Yes. And this becomes what is known as the Treaty of Detroit, a very famous contract adopted by United Auto Workers and the big three automakers in 1950 which ratifies that compromise. We will not allow you to penetrate our realm of managerial decision making. But in return for you giving up your claims on that, we are going to promise you good wages, we are going to promise you good pensions, we are going to promise you a good health care plan. This is the origins, by the way, of one of the nuttiest policies ever implemented in the United States. The idea that employers should be responsible for people's health care. Not a good idea if you sit back and think about it. It's really not a good idea because there are plenty of people who either are not employed or don't have employment in big firms that can afford decent healthcare. But it's birthed out of this moment of compromise between the needs of capital and the needs of labor and capital. The employers are willing to grant that in return for the United Auto Workers sacrificing their claims on managerial decision making. Now I would say that American society and the regulatory capitalism that comes out of the New Deal is more participatory. Participatory way more than Soviet communism. So it's a serious, serious, serious alternative to the, to that. But it is also true that the aspirations for workers control and workers participation and critical decisions of the firm. What later gained traction in the, in the late 20th century as a, as a way to go. These are there in the 1930s and 40s, but coming out of the Great Depression, people are desperate for jobs or desperate for security. And the Treaty of Detroit at the time seems like a good deal.
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B
And the net result of this more participatory economy was tremendous, unprecedented economic growth. Right. So describe that a little bit. And then let's talk briefly about what ended the New Deal and then what happened in the neoliberal era.
- [36:36]
A
Well, most of the history of capitalism in the United States is a history of inequality, inequality widening between the rich and the poor, with the great exception being what is known as the Great compression. Yes, and the Great Compression refers to the great compression of inequality between the 1930s and the 1960s. It's the one moment in the last 150 years where inequality is decreasing, economic inequality is decreasing rather than increasing. And it has everything to do with the New Deal and the determination to regulate capitalism in the public interest. So there are limits in terms of profit margins. There is this heavily progressive taxation system which is redistributing money from the rich to the poor. And it is a moment where not everybody is doing well because the US has a huge race problem and discrimination against blacks in rural areas are not getting the.
- [37:38]
B
Maybe I would reframe that as a racism problem, but a racism.
- [37:42]
A
I'll go along with that. A racism problem. So not everybody is, is doing well in these circumstances, but it's, it's a moment where the gap between rich and poor narrows significantly and where America genuinely becomes a middle class society. Just to illustrate how much that moment differs from our own moment, this will be my trivia. I think this is in the book. So you know, you may know the answer, but your listeners, no listeners live, so they can't answer this question. But if you, if I were to ask what multiples of the average manufacturing salary was a chief executive in industry making in 1960?
- [38:23]
B
It was something like 30 and it's now something like 400. Right?
- [38:27]
A
Yeah, yeah, it's. Yeah, it's between, yeah, between 50 and so in 1960 a chief executive would be of an automobile company would be making 15 to 30 times what someone working on the assembly line was making. The equivalent figure in 2000 is 300 times to 350 times.
- [38:48]
B
Yeah. And if you include equity, which is really inequity, it's, it's infinite, it's even
- [38:53]
A
greater and it's, it would that gap would be even greater now. And so yeah, we can hard just as we can't imagine a 91% progressive tax rate, we can't imagine a chief executive of a company make making only 30 times with the line work but reveals how much more egalitarian that society was than the one in which we're living today.
- [39:15]
B
And I think also the Other thing that you really point out in your book, which I didn't understand previously, is that the real, you know, neoliberalism claims we're going to help economic growth. But it was the New Deal capitalism that fostered the best growth in addition to a more egalitarian, more participatory economy. It grew much faster than what was growth rate then. It was much like two or three times as high as it is.
- [39:44]
A
Well, it was in many years it was achieving 3 or 4% pretty consistently per year. Yeah. Yeah. Now that also one has to take into into account the global sit. That the US is the.
- [39:56]
B
Yeah.
- [39:57]
A
Only industrial economy still standing coming out of World War II.
- [40:01]
B
Yeah.
- [40:01]
A
And so the, the whole world is America's workshop. And ultimately American manufacturers are going to get fat on that knowledge and they're going to be in the 1970s, be bested by German and Japanese and then South Korean and others competitors. But these current circumstances in which the US is rebuilding the world and the, and the only industrial infrastructure and plant that can rebuild the world is what America has. So it's an extraordinary opportunity and it was a good time for a lot of Americans to, to be alive. And part of the anger and resentment in sectors of American society today then parents had a lot of confidence that their children were going to do better than they were doing. And today many, many parents in America don't have the confidence that their kids are going to do better or even match the achievement that the parents.
- [40:55]
B
Yeah. And children, I mean, my kids are like, I could never afford to live where I grew up, you know, and that makes me sad, to put it mildly. I'll move. But to be with them wherever they
- [41:08]
A
go, well, it'll be the great asset transfer from the old. You know, when the kids show up the door and say, mom, it's time for you to leave. You've had these assets long enough. We've been, we've been deprived of them. Turn. Turn them over.
- [41:20]
B
I will.
- [41:20]
A
Actually. There needs to be a negotiation between the old and the young.
- [41:24]
B
Yeah, yeah.
- [41:24]
A
Not just privately in families, but politically in America.
- [41:27]
B
Politically, yes. And that's getting talked about, actually. That may be part of the new order after the neoliberal era. So let's talk for a minute about the neoliberal. So, so the, the New Deal era ended. The economy slowed down. There's a lot of military spending. By the way, to return to my theme of being the Forrest Gump of neoliberalism, when I was working In Moscow in 1992, Ted Sorensen was The lawyer of the company that I was working for. And so he was over visiting and we went to Domodedova Airport, which was just a shithole, excuse my French. And I remember Ted looking around and saying, if we had known this is what it was like, we never would have been so afraid of. Was a funny moment. Anyway, so, so there's, there's. The economic economy is slowing down. We're spending a lot on these wars. And, and there's, you know, the night. Everything that happened in the 1960s. And then there's this Powell memo. So, like the move to the neoliberal era. And I had never heard of the Powell memo until you described. It was very much a plan. I mean, it, it may or may not have been executed on. But how. What was the plan?
- [42:44]
A
Lewis Powell was then an attorney, a corporate attorney in the state of Virginia. He's in a few more years going to become a justice of the Supreme Court. And if your listeners know of him, they'll know of him in that way. But when he's still a corporate attorney, he writes this memo that basically saying that the New Deal with its new allies and the New left of the 1960s has gone way too far. Capitalism has become a dirty word. Regulation has gone too far. We're, we're suffocating the growth out of this system. We've got to release it from constraints. And even more than just release from constraints, we have to go on the ideological offensive because the enemies of capitalism have gotten the upper hand.
- [43:27]
B
Yeah.
- [43:27]
A
And he calls for something like a crusade to reassert the values of capitalism, their, their virtues, the critical nature of resuscitating America's now ailing capitalist machine. And that means getting the government out of the business of regulating the economy.
- [43:48]
B
Yeah.
- [43:49]
A
Rewarding entrepreneurs, venture capitalists, investment, and don't worry about workers. If enough wealth is created, they'll automatically be taken care of. I think what stands out about that memo and the test of time is the systematic nature of the ideological campaign that he was imagining. And he was saying to his friends, and I think initially the memo went to all the chambers of commerce in the United States, to business.
- [44:20]
B
What year was this?
- [44:21]
A
1978 and 78.
- [44:23]
B
Okay.
- [44:24]
A
And he's, he's, he's saying to them, the. Let's get out and let's go to ideological war over this issue. And I don't know how much he knew at that point about Milton Friedman and Friedrich Hayek and the people who were calling themselves neoliberals, but they had been building their Networks waiting patiently for their chance, getting what were thought of as renegade capitalists who were not exceeding to the New Deal order to invest in new kinds of things. Think tanks. They were busy build. And this may have been known to Lewis, Pal may not have been known to Lewis.
- [45:06]
B
Yeah, we don't know.
- [45:08]
A
They were building the infrastructure for sustaining an all out assault on the critics of capitalism. Yeah, the Heritage foundation era.
- [45:16]
B
Yeah.
- [45:16]
A
The Cato Institute, American Enterprise Institute, they were involved and they thought universities had been taken over by the left. So they wanted to build a counter establishment which they were building through these think tanks and they were hiring people, they were issuing policies, they were getting ready for the moment if it presented itself to them. And what's impressive about this group is that they have been doing this patiently and methodically since the late 1940s. They have been meeting every year in a mountaintop in Switzerland called Mount Pelerin. No one in the world cared for 20, 25 years about Mount Pellerin and the discussions they were having. It was like going to, you can imagine Google 20 years before you went to work for them, meeting on Big Sur every year and talking about what they were going to do someday. Well, no one cared for 20 of those years. Right. And then suddenly the opportunity presents themselves.
- [46:08]
B
Boom.
- [46:09]
A
And so they were ready. And then Powell issues the call to arms. And then there is this Great recession that has enveloped the United States where the Keynesian toolkit, which had been the instruments of regulation on the part of New Dealers, was no longer working. And these are the circumstances that produces Ronald Reagan's rise to the top of American politics in the 1970s.
- [46:34]
B
It's interesting, I mean, I think Nixon kind of opened the door to the first neoliberals allowed in the White House. Right. And he also encouraged the price of oil to be high. Like we think of him as fighting it, but he was actually all for the price of oil being. And that led to deindustrialization and financialization. Those were the first. And then there was Carter, like you ex, you explain Carter and the Democrat neoliberals, you know, and the Nader, Ralph Nader, that was eye opening.
- [47:10]
A
Yeah, Ralph Nader. I got a lot of pushback on that too. When I used to teach at Vanderbilt, I would always have students from Georgia and I wasn't very kind to Jimmy Carter and I either would pass over him or say not very nice things about them and they would get upset with me. I think the best way to view Jimmy Carter is someone who understands there's a big transition going on. And one side of him, and the engineer side of him wants to push the neoliberal deregulatory formula forward, but he's got, he's still beholden to all these Democratic Party interest groups like the Democrat, like the labor union. So he's going back and forth. But what's interesting is, is his connection to Ralph Nader and the numbers of Nader rights he brought into his administration. And, and this is where the new left begins to contribute unwittingly to the triumph of the neoliberal order. Because Ralph Nader is a ferocious critic of capitalism, but he's also a ferocious critic of government because he sees government as being captured by industrial interests that they were meant to regulate. Yeah. So a lot of his attacks are on ossified bureaucracies that are favoring industrial economic, capitalistic interests. And so he unwittingly, and this is part of Carter's attraction to him, facilitates an attack on government that is actually going to forward the deregulatory impulse tremendously in American life. So the late 70s is a real, it's a, it's just a moment, but it's a really interesting moment.
- [48:45]
B
And Carter say the one party system. Nixon and Carter start it and then Reagan and Clinton finish it.
- [48:51]
A
Right, right, right.
- [48:54]
B
So let's talk for a moment about the Telecom act of 1996, because once again, I played a bit. I was Forrest Gump here. I was a policy analyst at the fcc. Then talk about why. One of the puzzling things is why deregulating telecommunications led to the rise of Rush Limbaugh and, and consolidation among conservative or neoliberal thinkers. But, and not the left. Like, why didn't the left participate in this? Like, what happened?
- [49:31]
A
Well, the, the, the technology is such that. Where. Whereas I grew up with three television stations and 15 radio stations. The cable revolution.
- [49:44]
B
Yeah.
- [49:44]
A
Made possible thousands of stations. And so some people thought there's no need for regulation.
- [49:50]
B
Yes.
- [49:51]
A
Anymore.
- [49:52]
B
Yours truly. Me too. I mean, like, I believed. So, you know.
- [49:56]
A
Well, it was a profoundly democratic moment of the 1990s for those, for those of us who lived through it. There's euphoria surrounding the victory of the Soviet Union, the vanquishing of the great enemy of capitalism. And it was a great victory for capitalism as the whole edifice comes, comes, tumble, comes tumbling down. And then the, the it revolution seems to promise something that had been missing beforehand. And, and this is what brought a lot of Democrats on board, or at least they could tell themselves a reason to get on board. This is the thinking that was going on in the 90s, 1990s Democrats would say at one time there was a need for states to regulate markets because market knowledge was imperfect, it was limited, it was delayed. If you were shipping goods to China, there might be a two or three week period where you didn't know where those goods were or when they would arrive. Yeah, well, the IT revolution provides instantaneous communication. Instantaneous.
- [50:59]
B
Dead.
- [50:59]
A
Remember, distance is dead. And. But what that yields is perfect market knowledge. Yeah, that's what the. Well, that's what the IT revolution.
- [51:10]
B
Yes.
- [51:11]
A
Promised. And with perfect market knowledge, there's no longer a need for a state.
- [51:16]
B
Yeah.
- [51:16]
A
To regulate it. And so the, the, the jubilation over the defeat of the great regulatory demon of the 20th century, which is the Soviet Union. And this new technology, which promised perfect knowledge and the perfection of markets, allows all kinds of Democrats to get on board. And then this is an example too of how ideologies become dominant. So dominant that even people who you think would be critics of it get on board. And for me, the outstanding example is Joe Stiglitz, Nobel winning economist, really a socialist at heart on the left. He himself gets caught up in this deregulatory fervor. And when he writes his book on the 1990s called the Roaring 90s, he doesn't understand what happened to him. He's really honest and confessional about this. So you're not the only one who in a sense, was bewildered by what was going on at the time or
- [52:08]
B
what I was contributing to, or.
- [52:09]
A
It shows us the degree to which we are vulnerable to the passions of the day. And when an ideology becomes dominant, it become really dominant. It becomes very hard to escape it. And if you want to be part of the conversation, you have to, in a sense, abide by the ideological terrain that you're being allowed to play on. And if you're off that terrain, you're completely irrelevant. Take Bernie Sanders. Bernie Sanders saying the same thing today. He said in 1992, 93, 94, 95, 96. And he was just a pest, a fly, he'd be swatted away by Clinton and then Bush in the early 21st century. No one had to take him seriously. That was the punishment. Yeah, if you didn't play by certain ideological rules, and it's not like you had to present a ticket, but people feel compelled. And so this led to a situation where the, the telecom reform act allows for no meaningful regulation of the IT system. People have a sense that something really incredible is being born.
- [53:19]
B
Yeah. And they said Newt Gingrich and Clinton together. Like, what an odd.
- [53:23]
A
Well, this is another example of a single party. Two men who spent the whole 1990s hating each other, dissing each other, pointing at each other's. Pointing at each other, pointing at each other's marital infidelities. Behind the scenes, they are cooperating fully on this telecom reform. And that's my. An example of how underneath polarization, cultural divisions, there is often this unanimity on political principles and political economy that defines the neoliberal order.
- [53:52]
B
People believe they're thinking different, but they are not. They're all thinking the same. Whether it's memetic ideology, it's alarming.
- [53:59]
A
Right.
- [54:00]
B
So let's talk for a moment. We don't have much more time. But what in, like, the end of the neoliberal order was. It was so interesting. You drew this sort of thread between the war in Iraq and the housing bubble that led to the 2008 market crash in New Orleans. And I think the, the thread was this belief, this neoliberal belief that if you just remove government, you know, peace, peace and, and light, and, And a thriving economy will spring like Venus from the half shell. But needless to say, that is not what happened in Iraq. That is not what happened in. When we deregulated, you know, so much of, so, so much of the regulations around finance, of, of housing. And it is not what happened when you appointed somebody who was unqualified to be the head of fema. The head of fema. Like, so, so what? What? Like that's kind of. I, I would say New Orleans is kind of. When the neoliberal order, when people realize this ain't working. Is that fair or unfair? Well, I think maybe it was a bit later.
- [55:19]
A
It's wrong to call New Orleans the canary in the coal mine because a flood of that magnitude, you can't call it. It's not the death of a canary, it's the death of a whole species of birds. Right?
- [55:30]
B
Yes.
- [55:31]
A
Yeah, but I think that was. The contempt for government regulation had become so extreme under Bush that they didn't take the job of governing seriously. And they wanted to release market forces in all dimensions of life. And they didn't take appointments of regulators seriously, and they wanted to expose more and more areas of life to, To. To deregulation. And the fantasy was that if you let market rules reign and you had good markets with perfect information, there was an acknowledgment that inequality would increase, but that all boats would rise. But already there are danger signals that people don't have Enough money to buy what this global marketplace is producing. That's why these derivatives become so important. That's why people are being encouraged to borrow against their homes. And so you need ways of sustaining demand that is not really sufficient. And so there's an imbalance between supply and demand. And as soon as the housing bubble collapses, the financial system of the world comes within a whisker of completely freezing up. One economic analyst of the time called it a near financial armageddon. There's an 18 day stretch in September, October 2008 which is the most dangerous time in the history of the world since the 13 day Cuban Missile Crisis of 1962. That was the nuclear Armageddon. But there's financial Armageddon. The worst is averted in the sense that enough bailout is put through to save the financial system. But the effects of, I would say more than New Orleans, it was the, the, the global financial crash of 2008, 2009 and then the recovery from the crash which favors the bankers and the financiers over ordinary people. And there was a wife.
- [57:21]
B
Recovery is super neoliberal. Despite having a, I don't, you know, maybe more of a New Deal kind of president.
- [57:30]
A
Yes, yes. And if Obama had sent some bankers to jail, if he had make them, made some of them walk the gauntlet in Congress, if more of the recovery,
- [57:41]
B
if he had just taken their money, I mean, let them be, yeah, yeah, let him try to buy a house on a hundred thousand dollar a year salary.
- [57:50]
A
We may have had a different outcome and, but it's, it's the collapse and then the anger and resentment over the who's being favored in the recovery. So if you had assets in the stock market. Well, the stock market lost basically half its value between 2, half its value 2008 to spring 2009. If you had assets in the stock market, you had recovered fully in a couple years. If you didn't have assets in the stock market, which was still a majority of Americans, you did not get back to pre 2008 until 2018, 2019. And people feel that inequality intensely. So that breaks the power, the orthodoxy of the neoliberal order and opens up politics to other voices who had been confined to the sidelines. And on the one hand you've got this pesky, irrelevant socialist from Vermont named Bernie Sanders and on the other side, and I spent a lot of time growing up around New York, this, I wouldn't call him pesky, but you know, this unstable headline, headline grabbing, obnoxious and inconsequential real estate developer from New York City. And suddenly they become the two most important voices in American politics in 2016. And when I. That's when I made the decision to write this book.
- [59:14]
B
Yeah.
- [59:15]
A
Because I saw. I thought, wow,
- [59:18]
B
something new is coming. And we better articulate a better vision than an authoritarian, an unstable authoritarian leader, which is what we've got now.
- [59:27]
A
Yes, yes. But in that moment of 2016, I said, I'm not prepared to understand what's going on here. But something major, major, major is happening, and I'm going to dedicate a few years of my life to try and make sense of it. And that's the origins of the book that we've been discussing.
- [59:43]
B
Well, thank you for doing that, because you helped me make sense of it in just a few hours instead of a few years. That's the great thing about a great book.
- [59:51]
A
Thank you. Thank you.
- [59:53]
B
All right. Well, I'm not going to ask you, although I'm tempted to, to predict who's going to articulate a better, a new order. But I think that's the task ahead of all of us, is we've got to spend some time really articulating what's going to come next, because if we don't, we're going to get an authoritarian regime that really sets us back decades.
- [60:17]
A
Well, I think the outlines of an authoritarian regime are pretty clear now. We can see what that will look like. And the 2026 and 2028 elections may be decisive in that regard. So it's important for all those who care about America to get out and vote and also to protect the integrity of the elections themselves.
- [60:36]
B
Yeah.
- [60:36]
A
What's less clear to me is what the progressive alternative to that is, and I think it's the Biden administration has been unfairly swept into the dustbin of history. Part of this is bound up with being trying to govern the nation during COVID which any party that was in power during COVID has, in the world, except for China and Denmark, has been ousted from power and. And Putin. Yeah. Rough couple years. But I think there are. There are green shoots that came up during the Biden administration that are worth paying attention to. We don't have time to discuss them now. So the only thing I'll say is that the initiatives that began then had the seeds of a progressive political order, and we may see elements of that begin to return. So it's not as well developed as the authority authoritarian order, but it's important if we're going to recover those ideas, to not simply do what everybody is inclined to do right now. And this doesn't matter where you are on the political spectrum, right, center or left, to just write off the Biden years as a complete failure. There was interesting things going on there and they need to be discussed and understood and the valuable parts of that adopted for plans going forward.
- [61:53]
B
Totally agree. A great note to end on. Thank you so much Gary for writing a fantastic book. I'll hold up my my Libro FM the Rise and Fall of the Neoliberal Order. Everyone should go out and buy this book immediately. Thank you so much.
- [62:09]
A
Thank you so much, Kim.
- [62:10]
B
The Radical Candor Podcast is based on the book Radical Candor the A Kick Ass Boss without losing your Humanity by Ken Scott. The Radical Candor Podcast theme music was composed by Cliff Goldmacher. Follow us us on LinkedIn Radical Candor the company and visit us at radicalcandor. Com.