Thesis gone too far begets anti-thesis - explaining the retreat of orthodoxy

The dominant trends for the last three decades like globalisation, liberalisation, trade integration, privatisation and so on are currently under attack. Mainstream commentary dismisses these critiques as regressive and detrimental to progress. It's assumed that these dominant trends are good for human development and economic growth and any deviation is undesirable and damaging. This narrative deserves to be questioned. 

I had blogged earlier here on the reversal of trends globally on important macroeconomic, trade, and policy issues. I argued that the orthodoxy on these issues is being overturned due to the challenges facing developed countries. 

There's another explanation for this reversal - a recalibration to correct for excesses. 

Take the example of the role of government. The FT is doing a series on the return of big government. I’m inclined to frame the return of big government as a reversion to the norm in the role of government. For nearly four decades, on the back of the neo-liberal ideology governments have been on the retreat. The dominant narrative has framed government actions as being detrimental to growth. 

Economic growth and development were best realized if governments stayed out of the way! The government’s role should be confined to the provision of certain public goods and the correction of a few market failures. This ideology sees no positive role for government in economic growth. The government has been retreating even from the provision of important public goods and social security (note the framing of the universal basic income idea).

Its manifestations include globalization, trade liberalization, outsourcing, financial integration, financialization, deregulation, technocracy, privatization, and technical solutions to development like cash transfers. It also meant that politicians and bureaucrats had marginal roles and important issues of economic concern were best managed by experts and technocrats.

These trends have now become momentum-driven and are not based on any evidence or logic. They have become ideological and are integral parts of the dominant narrative. They are also fuelled by the skill-biased technological advances of the times – digitization, telecommunication technologies, automation, artificial intelligence, etc. 

The four decades have coincided with stagnant and even declining incomes among the poor, slow growth of middle-class incomes, persistence of poverty and deprivation, explosive growth in executive compensations, emergence of regressive individual and corporate taxation structures, hollowing out of manufacturing cores and loss of those jobs, loss of emergence of bad quality jobs, whittling down of labor market protections and loss of labor’s bargaining power, etc. 

Amidst all these, for most people, the three biggest sources of household expenditure – housing, health care, and education – grew much faster than incomes could keep pace. This compounded the problems caused by income stagnation and widening inequality. 

Inequality widened to completely irrational and unhealthy extents. The ovarian lottery became ever more pronounced in determining life outcomes. Inter-generational social mobility stagnated, even reversed. Business concentration and political capture became characteristic features of the economic and political landscapes. The process of rule-making itself came to be captured by entrenched business interests. The social contract became corroded. 

Given the excesses that had accumulated across dimensions, the reversal was only to be expected. Each of the trends mentioned above had clearly gone too far and now had to be reined in. The only thing to discuss was how this recalibration would happen. 

The political establishment was captured by entrenched interests. The left-wing parties and groups have become too weak, the centrists are too compromised to lead the recalibration. In the circumstances, a populist backlash is on, and populist ideologies are stepping into the political vacuum to assume leadership of the reversal process. 

Given this backdrop, the pushback and reversals were only to be expected and are even desirable. It's therefore wrong to tar everything with the same brush and oppose the entire reversal. As mentioned, the reversal is much needed. Perpetuating the existing system is tantamount to the protection of entrenched vested interests that have captured the economic and political system. 

The challenge is to calibrate the reversal and ensure that the anti-thesis does not swing to the other extreme. The problem is with the extremes. This is a big challenge, given that the dynamic of populism tends to move the pendulum to the other extreme.  

Even the latest global crisis playing out in Gaza can be viewed from this prism. Notwithstanding the barbarity of the Hamas attacks, we should not have been surprised by it. For seventy years, a population had been denied its rights, and in the last decade, the issue had even dropped off the global radar, allowing Israel to undertake one of the biggest and longest collective punishments in history with blockades, air strikes, and creeping encroachment through settlements. The Israeli government of recent years which was surviving on the support of two extreme right-wing parties had thrown aside any pretension of Palestinian rights. Any hope of a life without brutalisation, discrimination, and humiliation was receding rapidly. The pendulum had swung to its extreme. Even the most oppressed and powerless will strike back when they can't take it any longer. 

As an aside, there's also something about the nature of such events. There's something universally repugnant about the concentrated massacre of 1300 people that are played out in social and mainstream media, as against a much more brutal occupation and dehumanising violation of the basic rights of over 5 million people in West Bank and Gaza that's long-drawn and played out silently off-camera, one that has led to the murder of several times more men, women, and children. 

The reversals on all important trends like globalization and trade liberalisation too should be viewed along the same lines. For three decades, globalization and trade liberalisation pressed ahead remorselessly. In the process, it engendered several distortions that conflicted with the interests of domestic political and economic systems. The discontent that had been brewing has now become powerful enough to turn the tide and recalibrate. This dynamic, popularly described as deglobalization and protectionism, should perhaps more appropriately be called balanced-globalization.

There’s a natural dialectic associated with ideas. They trigger interest and get gradually adopted, with their degree of adoption increasing over time. This, in turn, creates distortions that cause a backlash against the idea. The backlash strengthens over time and results in a reversal of the excesses that had seeped into the idea. As Hegel wrote, thesis begets anti-thesis, both of which undergo a struggle to generate a synthesis. Another framework to view this is that of the cycles of history, one which people like John Bagot Glubb, Neil Howe, William Strauss, and Peter Turchin have popularised. It's useful to view the ongoing trends in the global economy and politics from this perspective.