The Free Market Is Making All Our Problems Worse, Not Better

The world is on fire all around us. The free market can’t put that fire out — only massive state intervention in the economy can.

President Ronald Reagan meets with Prime Minister Margaret Thatcher of the United Kingdom in the Oval Office of the White House in Washington, DC, on November 16, 1988. (National Archives and Records Administration / Wikimedia Commons)

Mainstream politicians these days are constantly looking for excuses to justify their divergence from market dogma. From the pandemic to the energy crisis, the war in Ukraine and growing inflation, ever-new crises are forcing policymakers to use heavy state intervention, which neoliberals saw as their sworn enemy, to prop up markets.

These interventions are justified as emergency measures necessary to guarantee continued economic operations before a coveted return to market normality — which is, however, always postponed. Just witness the European Central Bank saying in April it would stop purchasing bonds, only to announce a new bond-buying to address ballooning borrowing costs in countries like Italy.

No Going Back to the Old Normal

To date, the state interventionism we have seen coming from both center left and center right over the last decade and more clearly since the explosion of the COVID pandemic has closely followed this logic of facilitating a return to “normal market conditions.” By now, however, it has become apparent that there is no way to go back to the old normal; economic conditions have drastically changed and the premises and expectations that accompanied the era of neoliberal globalization do not offer any credible guidance anymore. Faced with this farcical attempt by the political mainstream to use state interventionism to restore market society and protect wealth, the Left should use this opportunity to reclaim the socialist tradition of progressive state interventionism, as a means to transform society and shift power relations.

In fact, the proactive use of the state as a means to construct a new society was common to different strands of the Left. It was not just an idea harbored by Leninists who aimed to construct a command economy with state ownership covering virtually every sector but also held in different ways by social democrats, who led the transformation of the old liberal states into welfare states, nationalized strategic firms, and applied indicative planning to reorganize the economy and guide it toward socially desirable ends. The state was understood as a “battlefield of class struggle,” as Nicos Poulantzas famously put it, and the point of the Left was conquering new trenches in the sprawling state apparatus while radically democratizing it.

The Myth of the Weak State

This view of left state interventionism lost part of its allure in the aftermath of the working-class defeat of the 1970s and 1980s, and because of the collapse of the Soviet bloc and the evidence of its economic inefficiency. The neoliberal revolution managed to convince citizens in a globalizing world that state intervention was doomed. Neoliberal politicians like Bill Clinton presented globalization as “the economic equivalent of a force of nature, like wind or water” that it would be stupid to try to reverse, while Barack Obama in 2016 framed it in similar terms as “a fact of nature.” Politics was presented as the management of the necessity of globalization, with economic decisions limited to those acceptable to international investors, with some sections of the moderate and soft left broadly accepting these ideological premises.

Yet we now find ourselves at a juncture when this vision of globalization as inevitable and permanent and of the state as a weakling creature have been patently demonstrated to be empirically dubious and historically anachronistic. During the pandemic, politicians of both the center left and center right were forced to create new emergency social welfare provisions in order to help unemployed workers, and now they are forced — much against their beliefs — to apply forms of price control and to set aside funds to fight against the cost-of-living crisis. Emergency state interventionism has become the new normal, and the return to normal market society is continuously postponed.

Part of the change we are witnessing is not so much practical as epistemic — namely, it has to do with how we perceive and know the world. In fact, contrary to the neoliberal gospel, the state and state interventionism never really went away. As many political economists have shown, the neoliberal project and the very existence of globalization were always premised on state patronage, for example by establishing the necessary regulatory frameworks and repressing protest. But at the rhetorical level this narrative of the “weak state” had important ideological implications: it served to restrict the range of acceptable policies to those that were in the interest of international capital. This fiction was aided by the peculiar conditions of the “Great Moderation,” the era between the mid-1980s and 2000s marked by limited macroeconomic volatility, low inflation, and low interest rates.

Under the illusion of stability of the “long ’90s,” economic policy appeared as if on automatic pilot, amounting to limited interventions: small “nudges” to the market, which could be presented as limited exercises in “course correction” — technical rather than political decisions. However, the crisis of capitalism is now so profound that it is not anymore possible to maintain this pretense. Economic decisions appear immediately as political decisions, hence ones where different interests are at stake, and where all too often the interests of business continue to be put before the interests of workers. This was evident with Bidenomics, where the infrastructure package that was in the interest of companies was passed, while the social measures part of the so-called Build Back Better package were stopped in Congress — because of the opposition of Democratic centrists who expressed major worries at state aid to the poor, while at the same time applauding state aid for entrepreneurs.

Reclaiming the State

The strategic challenge now is to match this economic reality in which heavy state interventionism has become the new normal, with a vision in which this intervention is not seen just as a piecemeal and last-ditch measure to revive the market. Socialists need to reclaim a constructive view of the state, what economist Mariana Mazzucato has called a “mission-oriented state,” which was part of the tradition of social democracy. From Franklin D. Roosevelt’s New Deal to social democrats in Europe, the Left in the twentieth century resorted to the creation of state agencies and major public employment plans to foster economic development, guarantee social equality, and rebalance the relations of power between labor and capital.

There are all too many issues that call for immediate state intervention: from the cost-of-living crisis calling for a return of price controls and wages that are indexed to inflation to climate change that demands an acceleration in investments and actions geared at reduction of emissions and climate adaptation. But besides specific measures, what is called for is also a new vision of how state interventionism can be used not only as a stopgap against immediate emergencies but also as part of a long-term plan to achieve that economic and environmental security that the market is not able to provide — and to redistribute power away from the economic oligarchies that have condemned our society to permanent chaos and toward workers and ordinary citizens.