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Coronavirus Has Killed Neoliberalism. Even Trump Knows That

Some conclusions about the coronavirus pandemic in order to outline ways of managing the crisis as well as allow for a recovery later

Shlomo Avineri
Shlomo Avineri
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Steven Mnuchin, U.S. Treasury secretary, views an uncut sheet of $1 dollar notes.
Steven Mnuchin, U.S. Treasury secretary, views an uncut sheet of $1 dollar notes.Credit: Andrew Harrer / Bloomberg
Shlomo Avineri
Shlomo Avineri

It’s obvious that at this point there is no way of assessing the implications of the coronavirus on politics, the economy and society, not globally or domestically. But we can already draw some conclusions while the pandemic is still raging in order to outline ways of managing the crisis as well as allow for a recovery later.

Haaretz Weekly Ep. 72

The major implication is the collapse of the neoliberal conservative model as conceived by Margaret Thatcher and Ronald Reagan. This model strove to limit the role of the state as much as possible while expanding the power of the free market. The state, went the claim, impedes the potential for creative growth of market forces, so its authority should be curtailed, letting market forces operate unhindered.

Reagan expressed this radically by saying that the state is not the solution, it’s the problem. Benjamin Netanyahu joined him using a cruder metaphor, describing the public sector as a fat man riding on the back of a thin one, namely, the private sector.

Against the backdrop of this neoconservative ideology, a radical policy was implemented, dismantling the welfare state that had been established in the democratic West.

This included the extensive privatization of public services including in health and education, a shrinking of the safety net for the disadvantaged, and a lifting of regulations on banks and stock exchanges, all for the sake of letting market forces operate freely. This was based on the ideological assumption that free competition, though it causes the occasional crisis, is ultimately capable of providing balance and stability for the benefit of everyone.

This neoconservative ideology ignored the historical context that led to the establishment of the welfare state after World War II. The welfare state, in the way it developed mainly in Britain and the United States and was later embraced by all democratic countries, was a merging of the rising power of organized labor, which followed the expansion of the franchise, with the well-reasoned understanding that the unbridled market economy of the ‘20s and ‘30s led to the 1929 Depression with its political ramifications: growth of the communist parties in the West and the embracing of fascism and Nazism by vast parts of the public. This understanding found its expression, for example, in the theories of British economist John Maynard Keynes and in the New Deal of President Franklin Roosevelt.

John Maynard Keynes.Credit: Planet News Archive / SSPL via G

The welfare state – the “third way” lying between unfettered capitalism and state-controlled socialism – emerged from a unique blending of responsible social thinking and realpolitik considerations, which tried to prevent a backslide toward conditions that destroyed democracy in countries like Italy and Germany while threatening to destroy it elsewhere

Welfare-state policies succeeded in most of the Western world. However, neoconservative critics were right in noting some flaws in this model: an overreliance on ever-expanding state bureaucracies and the nationalization of institutions that might have been more effective amid competition and private initiative. All this was true, but the baby was thrown out with the bathwater in an attempt to return to the unbridled capitalism of the 19th century, the one criticized by Karl Marx and other socialist thinkers.

Globalization, which was a corollary of the neoconservative model, did have positive results that contributed to the welfare of many social strata, but it also hurt many groups of industrial workers and the middle class, allowing for the rise of populist movements in many countries.

Donald Trump and Boris Johnson at the NATO leaders summit in Watford, Britain, December 4, 2019. Credit: Peter Nicholls / AP

Another Depression?

The coronavirus crisis proves that when things go sour, market forces are the first to collapse, unable to offer solutions. Ultimately, in times of crisis, everyone looks to the state.

Even a radical president such as Donald Trump, who has done everything he can to weaken the state, realized that without massive government intervention the market – with the stock exchange as its indicator – will continue to collapse. He too has concluded that the power of the state, the federal government, must be mobilized to save the economy and prevent mass unemployment. A collapsing economy and widespread unemployment might not only destroy his chances of being reelected, they may push the United States into a crisis on the scale of the Great Depression.

British Prime Minister Boris Johnson, who thought the coronavirus would play out like shares on the stock market, was forced to impose draconian restrictions on the U.K. population while guaranteeing a minimum income for everyone. Even Netanyahu realized that the government is the only safety net for preventing an unprecedented crisis. Even he, for the first time, has used the term “mutual responsibility,” though he didn’t say “solidarity,” which carries a whiff of socialism, heaven forbid.

It’s welcome that he has returned to reality – in which unity and solidarity are possibly even more important than boasting about high-tech “exits” that enrich only a few. The next government, whatever its composition, will have to understand that without strong state support the economy won’t be able to rehabilitate itself. It will have to realize that massive government support will be needed to cater to masses of the unemployed, and that the health system can’t be left to the vagaries of the free market after being criminally neglected in the years when there was no full-time health minister.

Government support for local producers, especially in agriculture, must be a top priority to ensure a steady supply of food, releasing Israel from its dependence on imports that could be hit by a halt in air transport, as is happening now. A comprehensive and functional public sector, with authority and clout, is an existential need, much more than a prosperous stock exchange and tycoons.

People queuing outside a supermarket in London during the coronavirus crisis, March 21, 2020. Credit: Dominic Lipinski / AP

But the need to empower the state contains risks. Authoritarian and totalitarian regimes on the left and right always arose in times of crisis and emergency when a need for strong leadership was used as a pretext for destroying democracy. Lenin and his associates exploited the terrible crisis in Russia at the end of World War I to dissolve the first elected Constituent Assembly in Russian history. The Bolsheviks failed to achieve a majority in the elections but took control of a fractious and riven country.

Mussolini came to power after Italy’s economy foundered following the takeover of industry and the streets by revolutionary groups. Hitler came to power when millions of unemployed shattered what was left of social and economic stability in Germany, with parliament bogged down in its attempts to form a government after repeated elections.

We ourselves have seen how Vladimir Putin used the chaos that followed the collapse of the communist regime to form a neo-czarist regime in Russia. A time of emergency is always an opportunity for authoritarian elements that exist on the margins of every society to portray themselves as the saviors of the nation and the entire world.

In light of these dangers, two things are vital regarding the critical role of the state: not only its blocking of a concentration of power by ensuring the independence of the legislature and judiciary, but also the preservation of a strong civil society.

A balance of power between the state and a strong civil society is needed for the existence of a democracy. This was already noted by Alexis de Tocqueville nearly 200 years ago in “Democracy in America.” He stated that liberty is maintained in the United States not just because of the Constitution but also because of the strength of civil society – that diverse mosaic of voluntary organizations, autonomous social and economic groups based on the willingness of the citizenry to form and maintain them.

Kibbutzim and more

Israel was mostly successful, under difficult circumstances that derived from security problems and mass immigration, in maintaining this balance. This is partly because before the state was established the Jewish community under the British Mandate (the Yishuv) was a society of voluntary organizations, just as in the United States the tradition of self-rule by British colonists preceded independence and the establishment of a federal government. In Israel, the multiplicity of parties, trade unions, kibbutzim, moshavim, elected municipal institutions – all these pluralistic elements – have been the basis of Israel’s democracy even without a written constitution.

A recruiter in the shale gas industry speaking with an attendee at a job fair in Cheswick, Pennsylvania, November 2, 2017.Credit: Keith Srakocic / AP

In fact, there was only one attempt in Israel to promote the supremacy of the state over society’s voluntary institutions. After the complications following the Lavon Affair – a failed false-flag operation in Egypt – David Ben-Gurion promoted the value of the state as a supreme value.

The role of the state has always been part of the Zionist ethos, albeit not always as the highest value. Ben-Gurion’s move led to attempts to curtail the power of the Histadrut labor federation and prevent internal criticism within his own party; also, aspersions were cast on the freedom of the press and the academic world.

As a young lecturer in the early ‘60s, I joined the pro-Lavon Min Hayesod group, which consisted of members and supporters of Ben-Gurion’s Mapai party who opposed Ben-Gurion’s move. It wasn’t easy for many Mapai members to come out against the nation’s revered leader and their own party’s leader. Ben-Gurion’s attempt failed and the complicated balance between the state and society was maintained on the whole in Israel, despite the preponderance of security and defense issues that in other countries would have upset the balance.

These days there is a temptation – partly genuine and partly cynical – to exploit the current difficulties and call for strong leadership and a national emergency government. The paradox is that, along with the need for a strong and stable government, there exists a need for strengthening civil society and its institutions – voluntary organizations, parties, an independent media. Also required is a functional and responsible parliamentary opposition. Obviously, the opposition must not be left to extreme elements on the right or left, and this is a tough challenge.

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