How Liberals Gave Up Progress

Liberals constantly urge citizens to accept difficult decisions to protect the capitalist economy. This was not always the case. Following the series of rate hikes by central banks on both sides of the Atlantic, the financial press was littered with articles insisting that, though it may be a tough decision to make, it was the job of any responsible central bank to remove the punch bowl from the party and cool down the Wests' overheated economies. The language of restraint and of making tough sacrifices has become so integral to contemporary politics that it is hard to imagine an alternative.

For much of the last century this was not the case. Governments, both capitalist and communist, drew their legitimacy from their ability to fulfill promises of ever-increasing living standards and security to their citizens. This world now seems firmly behind us, in its place a social order run by sensible technocrats offering an endless course of bitter pills. This state of affairs is the result of long-term trends that have shaped the United States and the rest of the world.

Studying the final decades of the Cold War, I observe how energy politics and private capital dismantled both the welfare democracies of the postwar West and the socialist autocracies of the East. In the process, we had the rise of neoliberalism, and the emergence of the current world order. My thesis is deceptively simple: the end of the Cold War can be explained by a shift from the politics of making promises to the politics of breaking promises. Perhaps the best exemplified has been the infamous 1959 Kitchen Debate between then vice president Richard Nixon and Soviet leader Nikita Khrushchev, the early Cold War was a contest of making promises. Both the communist and capitalist worlds promised to deliver the benefits of industrial modernity to more and more of their citizens. The West through the managed capitalism of the US New Deal and European Christian democracy, the East via a socialist command economy. Despite the differences in method, each promised much the same thing: better kitchens, better appliances, cars, food, etc.; in short, increasingly higher standards of living. Both, too, placed themselves in opposition to the? laissez - faire models of capitalism seen as causing the Great Depression. Most critically, both the East and West also benefited from a period of explosive economic growth triggered by the recovery from World War II and the broad dissemination of second-wave industrialisation across the Global North. Known by many names — the "Wirtschaftswunder" in West Germany, the "Trente Gloriesuses in France, the "Miracolo Italiano" in Italy — these years of spectacular growth sustained the social contracts of both sides of the Cold War. Governments East and West, were able to promise at least their white men a better life and deliver on that promise almost as fast as those men could imagine what a better life was.Though the West was certainly richer, the East saw faster rates of growth at times and, on the whole, the era of making promises was comparable across the Cold War divide. For all their flaws, each model had shown real success in delivering rising incomes, full employment, and job security to large constituencies. Each also saw the sources of that success dry up at much the same time. In the late 1960s and early 1970s, economic growth in the industrialised world began to stall, the exhilarating rates of the postwar era never to be recovered, only to be staggered by the meteoric rise in oil prices following the 1973 Arab-Israeli War. The emergence of Organization of the Petroleum Exporting Countries (OPEC) marked the end of the age of cheap energy and, for Bartel, the beginning of a new era, that of breaking promises. Encumbered with stagnant, energy intensive, industrial economies and social compacts based on growth, both East and West were confronted with the need for a painful economic transition to some alternative socioeconomic structure. It was clear that promises would have to be broken, the question of which ones, and to whom, remained. Key to determining the answer, were the two markets transformed and empowered by the 1970s energy crisis: oil and capital. In the case of the latter, Middle Eastern oil revenues swelled the lightly regulated offshore capital exchanges, known as Euromarkets, that drew increasingly large amounts of the world’s excess private wealth (growing from just under two hundred billion dollars in 1973 to over nine hundred billion by 1984) by offering higher rates of return than more regulated domestic holdings. In order to access this wealth, however, one had to show its managers that they could expect a regular rate of return on their investment, that is, that they could expect capital exports from debtor countries. This required imposing was the economic discipline, or as it is more commonly known today: austerity. At first, it seemed that the East was doing a much better job at handling these challenges. The Soviet Union was able to benefit from decades of investment in its oil industry to provide Eastern European allies with subsidized fuel deliveries, all while earning hard currency through oil sales on the global market. Meanwhile the Communist bloc appeared quite attractive to Western bankers: authoritarian governments looked better positioned to impose economic discipline than their democratic opponents. What democratic government, the argument went, would willingly impose economic pain on its own constituents? "Our situation - Soviet prime minister Alexei Kosygin smugly told his East German counterpart in 1976 -is a thousand times better". Initially unwilling to impose austerity on either labor or capital, Western governments watched as stagflation tore at the foundation of their societies and capital flowed into Eastern European coffers financing real existing socialism on credit. In the long run, however, democratic regimes were better suited to imposing the economic discipline capital markets required. While the postwar West had made many of the same promises as in the Soviet bloc, fulfilling these promises was not the basis of the legitimacy of noncommunist governments. On the contrary, Western politician, beginning with Margaret Thatcher, were able to employ a supercharged version of preexisting liberal ideology, to market austerity as a renewal of freedom, and thus maintain the legitimacy of their system. In the long run, however, democratic regimes were better suited to imposing the economic discipline capital markets required. While Thatcher opened the door to a return of economic orthodoxy, US Federal Reserve chairman Paul Volcker kicked it open. By raising interest rates to astronomical levels, he settled the battle between labor and capital over who would bear the brunt of the economic transition. Consequently, capital fully regained the upper hand over labor, wages permanently fell behind productivity growth, and inequality dramatically returned. Economic growth returned to Western Europe and the United States, but at the expense of the middle and working classes. And, as it turned out, at the expense of the Soviet bloc. As high interest rates and President Ronald Reagan's massive, defense driven, budget deficits drew stunning amounts of capital toward the United States, it left little money available for other borrowers. Unable to impose austerity without undermining the ideological foundations of the Communist project, increasingly denied access to Western capital markets, and facing declining Soviet oil deliveries, the Eastern bloc confronted the prospect of default and a precipitous decline in their citizens already meager (when compared to the West) standards of living. Some turned to Western European governments for help, others to the US-dominated International Monetary Fund, each step increasing the leverage of the capitalist side of the Cold War. The Eastern bloc eventually unraveled under the pressure. The wealthier, but hardly better positioned USSR soon followed.

It was, decidedly, workers and organised labor that carried the weight of the changes, fuelling the explosive inequality of the early twenty-first century. In order to construct a fairer world, this process needs to be reversed, and it cannot be overstated how important restoring organised labor is for doing so. Moreover, in an era where high inflation has returned, and Bank of America executives are caught in print?wishing for a decline in labor’s bargaining power, anti-inflation policies emanating from Washington should be treated with, if nothing else, deep skepticism. Another large narrative is the environmental and social history of the last three hundred years. This involves the problems raised by industrial humanity reaching the limits of what it can wrench from the planet in order to ensure the continuation of Western, capitalist patterns of consumption — a problem made more acute by decolonization and its welcome destruction of the logics of imperial rule. These had unjustly denied the Global South the right or ability to reach capitalist modernity, but their removal has not opened any true path for a globalised?man consummator. It is instead increasingly clear that the planet simply cannot provide enough for everyone to use resources at this level, fairly distributed or otherwise. The oil crisis in the 1970s was just the first warning that humanity’s accounts were starting to be overdrawn, battles for other essential, yet diminishing, nonrenewable commodities will follow. This broader context tells us that, even with greater fairness and equality, a better future requires a fundamental shift in how the good life has been conceptualised in modernity.

Those invested in building a better, more equitable future can draw their own political conclusions. Mines are very clear.