The Case for National Developmentalism
A third way alternative to neoliberalism and neo-New Dealism.
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Neoliberalism, the economic policy doctrine of free trade, free markets, and limited government that has prevailed since the early 1980s, has run its course.
Many policymakers across the political spectrum are now skeptical of unfettered globalization, decry large corporations, and lament the plight of workers. In an echo of the New Deal era, when President Franklin D. Roosevelt’s administration and a Democratic Congress (later joined by many Republicans) executed an abrupt about-face—rejecting the perceived failings of laissez-faire economics on the dubious pretext of responding to the Great Depression—the pendulum has now swung decisively away from neoliberalism. The Biden administration and lawmakers in Congress often disagree in heated terms on the specifics, but a striking, broad-strokes consensus has nonetheless gelled around the contours of a neo-New Deal economic agenda marked by redistribution, global economic autarky, and a worker-centric animus toward corporations and markets.
This is a grave mistake. If implemented, neo-New Dealism—which bears only a partial resemblance to its namesake—would come at the longer-term cost of economic stagnation, fiscal crisis, and greatly diminished U.S. international competitiveness and global power.
Neoliberalism refers to a system of key operating principles for a society and economy: (1) deep global economic integration; (2) limited government; (3) a preference for price-mediated markets; (4) a focus on financial capital as the key to growth; (5) a focus on consumer welfare; (6) a rejection of the public interest as anything more than the sum of private interests, and; (7) the general view that state policy be judged by the economic logic of the market.
Neoliberalism began to emerge as a dominant U.S. governing doctrine in the mid-to-late 1970s as the country confronted a number of structural problems including high inflation, slow productivity growth, and declining competitiveness that the then-prevailing school of economic policy was believed to be unable to solve. This prior, more progressive approach was initiated with FDR’s New Deal, and subsequent Democratic administrations like LBJ’s built upon it. And many Republicans, including Eisenhower and Nixon, accepted most New Deal realities.
With the election of Ronald Reagan in 1980, neoliberalism became the Republican Party’s default economic doctrine. With the election of Bill Clinton in 1992, “New Democrats” largely accepted rather than fought the new neoliberal orthodoxy, but attempted to soften it in a way that would “put people first.”
A generous interpretation of neoliberalism is that it was a needed corrective to accumulated problems from a half-century of liberal New Dealism. Today, however, it is no longer a useful doctrine to guide American economic policy deliberations and solutions.
According to the left, neoliberalism played a key role in enabling increased income inequality, harmful globalization, corporate short-termism, and a string of other maladies. But a more damning indictment of neoliberalism is its failure to address the most important economic challenges facing the nation: anemic productivity growth rates and insufficient real wage growth, along with deindustrialization and the loss of America’s competitive advantage against China.
The progressives are right: It is time to overthrow neoliberalism. But not with neo-New Dealism.
Neo-New Dealism emerges as the default alternative
As the shortcomings of neoliberalism became more apparent, the progressive left found an opening to drive the equivalent of an intellectual truck through the typically narrow lanes that characterize policy debates in Washington. In a short time, it seemed everything—from climate change to racial tensions to low wage growth—became implicated in the evils of neoliberalism. The term itself became one of scorn and derision, used to browbeat centrists into submission and conservatives into a defensive crouch or a partial conversion.
Proponents of neo-New Dealism, a faction that now includes more than just Bernie Sanders and the “Squad” wing of the Democratic Party, insist that they are just providing a needed alternative to neoliberalism. But with its animus toward large companies, its deep suspicion of markets, globalization, and capitalism, its focus on short-term worker welfare, and its overriding goal of redistributing the pie, neo-New Dealism is a harmful dead end.
To be clear, just as neoliberalism was different from the economic liberalism that preceded the New Deal, so too is neo-New Dealism different than the New Deal, Square Deal, New Frontier, and Great Society visions and doctrines. It draws very selectively from this tradition, taking congenial aspects of it while ignoring those that do not fit in with contemporary progressive goals. Neo-New Dealism has emerged in many ways as a mirror image of and dialectical opposite to neoliberalism.
If neoliberalism was about growth that ignored distributional issues, then neo-New Dealism is about redistribution that ignores, and often rejects, growth.
If neoliberalism was about fiscal restraint (at least in theory) and Friedmanite monetarism, then neo-New Dealism, at least on the left, is about deficit-be-damned modern monetary theory.
If neoliberalism was about limitless globalization and economic integration, then neo-New Dealism is about economic isolationism.
If neoliberalism rejected industrial policy, then progressive neo-New Dealers want to pick winners and bail out losers, especially if doing so advances their agenda of “green equity.”
If neoliberalism focused on lower taxes, particularly on the wealthy and companies, then progressive neo-New Dealism focuses on higher taxes on both.
If neoliberalism was pro-business, then neo-New Dealism is anti-business, or at least anti-big business. “Big Everything” is bad.
If neoliberalism was pro-consumer and indifferent at best to workers, then neo-New Dealism is pro-worker and indifferent at best to consumers.
If neoliberalism viewed private capital as the fuel to grow the economy, then neo-New Dealers see government spending and entitlements to low- and middle-income households as economic fuel.
If neoliberalism focused on production, then neo-New Dealism focuses on consumption, much of which is paid for by the government.
If neoliberalism accepted automation and innovation, then neo-New Dealism rejects automation as a cruel and unusual punishment that only benefits greedy capitalists.
If neoliberalism disdained government, then neo-New Dealers disdain corporations and seek an array of alternatives, including “smaller firms, cooperatives, ethical firms organized as beneficial corporations, and publicly owned entities.”
If neoliberalism was about letting companies compete largely unfettered in the market, then left-wing neo-New Dealism is about strong economic regulation and, ideally, government or worker ownership.
Neo-New Dealers are prevailing
As the limitations of neoliberalism grew, there were two responses. Defenders went into a crouch of denial. Tax cuts for the wealthy did grow the economy. Globalization and China had nothing to do with the loss of millions of manufacturing jobs. Financialization was good for the economy. Deregulation was always good. Just keep repeating.
In contrast, neo-New Dealers, especially progressives, saw the neoliberalism’s stumble as a strategic opening to advance their agenda. In the wake of the 2008 financial crisis—caused by the failure of the neoliberal policy agenda to adequately regulate finance—they saw cracks in the façade appear. The loss of millions of manufacturing jobs in the 2000s provided further ammunition for the critique, as did slow wage growth, which they blamed on corporate greed.
Progressive anti-neoliberals rushed into the void with their agenda for change. Anything else was corporate-funded blasphemy. In the resulting intellectual vacuum, their brand of neo-New Dealism became the go-to alternative for virtually the entire left and much of the center. And like Clinton and the original New Democratic movement, which sought to come to terms with the then-dominant doctrine of neoliberalism, today, a growing and vocal group on the Right seeks to accommodate itself to neo-New Dealism, albeit with a conservative face.
It is easy to see why so many on the progressive left latched onto neo-New Dealism: they were always skeptical, if not opposed to capitalism, markets, corporations, and unrestrained growth. But why did so many Clinton-era centrists, as well as more moderate Biden administration officials transition to neo-New Dealism? National Security Advisor Jake Sullivan is emblematic, writing in the progressive journal Democracy, “It’s not the 1990s anymore. People want the government to help solve big problems.” He calls for “new old Democrats,” clearly a swipe at the New Democrat movement and a call for Democrats to revive New Deal economics.
Some of this centrist shift could be attributable to “finger to the wind” political calculus—assuming that “the Democratic Party is now firmly neo-New Dealism, so I better be too.” Some of it surely was the unifying force of Trump. Some of it might have been fatigue at being relentlessly called out by progressives as the personification of all that is wrong with the economy and society. But with no well-articulated alternative to neoliberalism, bandwagoning certainly had something to do with why so many centrists drifted toward neo-New Dealism. Since everyone else seemed to be jumping on that bandwagon, why not join?
The black hole of neo-New Dealism is so strong that it has pulled in some conservatives seeking an intellectual alternative, just as the first New Deal pulled in many Republicans, such as Wilkie and Eisenhower. Some conservative advocates have adopted a range of neo-New Deal positions, including that the entire focus of economic policy should be on American workers (rather than on the U.S. economy as a whole), that extensive redistribution is needed to help workers, and that large corporations are inherently problematic. Oren Cass, president of American Compass, a conservative reform organization, has written, “Conservatives should look beyond libertarianism and embrace workers.”
Former president Trump clearly rejects many aspects of neoliberalism, especially its embrace of free trade, yet it’s not clear which camp he fits in. The reality is that Trump and Trumpism are one and the same, reflecting his personal and wide-ranging beliefs and views. His idiosyncratic political orientation and policies straddle conservative neoliberalism, neo-New Dealism, national developmentalism, and anti-wokeism. He is neoliberal in favoring tax cuts, regulatory reduction, and smaller government. He is neo-New Dealer in opposing cuts to entitlements (at least rhetorically), supporting trade protection, attacking (some) big companies, trying to boost wages (e.g., by limiting low-skill immigration), and wanting to help consumers through redistributionist policies such as drug price controls. Some of his ideas, such as his proposed Strategic National Manufacturing Initiative, “charter new cities,” and pushing back against Chinese commercial espionage, are more in line with a national development agenda. Finally, he has embraced a cultural agenda that seeks to attack and roll back the so-called “woke” movement.
“National developmentalism” as the third way
For those who believe that innovation, productivity growth, and competitiveness are critical to the future of the American experiment, it should be clear that we need an alternative to neoliberalism and neo-New Dealism. That is national developmentalism.
If neoliberalism is past its expiration date, then neo-New Dealism should be recalled for defects. In an era of near-stagnant productivity growth and rapidly declining U.S. technology leadership, it’s time for a new doctrine. While there could be many names for this, one term for it is “national developmentalism.” It holds that the key role of the state is to foster industrial and economic development (including productivity and innovation) and that international economic policy should be crafted to maximize U.S. economic competitiveness and national strength. When these are achieved, other goals, including higher wages and greater government benefits, are much easier to achieve.
There are four basic principles of national developmentalism:
First, growth is at the center, particularly productivity, innovation, and competitiveness.
Second, strong, dynamic capabilities of companies of all sizes, especially large corporations, are key to achieving growth.
Third, carefully crafted and implemented government growth and innovation policies are essential.
Fourth, national developmentalism rejects the neoliberal and neo-New Deal Marxian capital-labor dialectic.
Embracing national developmentalism would mean a different approach to a wide array of economic policy areas. Trade policy would move away from the intellectual dead end of free trade versus protectionism and toward a trade regime focused on boosting domestic advanced technology capabilities. Tax policy would move away from the stale debate of taxing business more versus less to a more sophisticated one of how tax policy can support the dynamic capabilities of entrepreneurs and established firms. Antitrust policy would move away from the debate between weak enforcement and punitive enforcement to a focus on how antitrust can enable innovation, especially disruptive innovation. Budget debates would move away from the either/or of balancing the budget or boosting social spending to one of how targeted spending (through tax expenditures or direct spending) can boost capabilities.
Instead of allowing economic policy to swing backward like a pendulum, policymakers should look forward and embrace a new entrant into the marketplace of doctrines: national developmentalism, which holds that the key role of government is to foster industrial and economic development and that international economic policy should be crafted to maximize U.S. economic competitiveness and global power.
Robert D. Atkinson (@RobAtkinsonITIF) is founder and president of the Information Technology and Innovation Foundation. This essay is adapted from his recent report on national developmentalism.