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Income Inequality and the Future of Global Governance

Janine Brodie

For S. Gill, ed. Reimagining the Future: Critical Perspectives on Global Governance. Forthcoming Polity

I Introduction

In the summer of 2012, the future of global governance could not be more uncertain. More than four

years after the American financial crisis set in motion the longest and deepest recession since the Great

Depression of the 1930s, there is little optimism that the global economy is posed for recovery. To the

contrary, many worry that it risks falling into a deeper crisis. Asian markets are slowing, unemployment

remains stubbornly high, reaching depression-like levels in some countries, regions and inner-cities, and

many governments, whether by necessity or dogma, have shifted from stimulus spending to austerity

measures, which promise only a bleaker future for those already reeling from the effects of the 2008

Great Recession. Most troubling, an ill-contained European financial and sovereign debt crisis continues

to teeter on the precipice of what the head of the IMF obliquely referred to as a “1930s moment”

(quoted in Campbell 2012, 39). The election of a pro-austerity/pro-Euro coalition in Greece in June 2012

appears to have bought some time for European political leaders to deal with the financial crisis but it

has not calmed fears that Spain and Italy also might be perched on the brink of bankruptcy. Similar to

our predecessors who endured the mass unemployment and political upheavals of the 1930s, we simply

do not know when, how, or what kind of recovery will eventually gain traction.

The Great Recession began as a crisis in an inflated American housing market, which had been pumped

up by financial deregulation, greed, and outright fraud. The recession’s depth, duration and spread have

progressively exposed the fatal flaws inherent in neoliberal thinking and governing outcomes. As this

chapter describes, gaping income inequalities between the rich and the rest in advanced economies are

prominent among these flaws. As the Great Recession drags on, a growing number of economists

believe that it has taken on many of the markers of a depression. John Maynard Keynes once described

a depression as a “chronic condition of subnormal activity for a considerable period without any marked

tendency either towards recovery or complete collapse” (quoted in Krugman 2012, 2). In the 1930s,

governments were slow to respond to the economic crisis, not the least because they did not know how

to respond (Krugman 2012, 92). They held on to old governing assumptions and practices, the economic

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orthodoxy of the day, hoping without hope that these familiar interventions would underwrite

economic renewal. They did not question whether their governing assumptions may have precipitated

and sustained the economic crisis. But, as the Great Depression of the 1930s persisted, social

movements and academic critics alike began to mobilize around different ways of thinking about both

the causes of the economic crisis and new models of economic governance. It took almost two decades

of grinding despair, violent clashes in the streets, fascist genocide, and a world war before advanced

economies built a consensus around a new governing formula. Variously called embedded liberalism,

the postwar settlement, Keynesianism and social liberalism, this new consensus brought thirty years of

unprecedented economic growth and significant advances in income growth, social equality and social

wellbeing.

As this chapter explains, a similar dynamic appears to be unfolding in these uncertain economic times

but the outcome remains open to political mobilization and struggles over the continuing viability of

and alternatives to the prevailing neoliberal economic orthodoxy. When the global economy began to

implode in August 2007, some critics pronounced that neoliberalism was dead, or, if not quite dead,

then destined to live a zombie-like existence, living-yet-dead, until a new global financial architecture

was set in place (Peck et al., 2009; Krugman 2012). Financial deregulation had exposed families, entire

countries and the international economy to capricious speculation of deregulated financial capital and

questionable investment instruments and practices that ultimately collapsed like a house of cards. A

housing bubble in the United States had been inflated through lax lending practices and devious

financial products, which only seemed to line the pockets of Wall Street traders and hedge-fund

managers. As the financial crisis spread rapidly around the world, foreign banks, investors, and pension

funds discovered that these financial products, which often bore triple A ratings, were toxic, if not

worthless. Moreover, Wall Street had so effectively bundled these toxic assets in complex investment

products that it took investors some months to unravel the extent their exposure. Banks stopped

lending for fear that they would be further exposed to unknown liabilities. Homeowners, who had been

lured into the housing market with the expectation of low interest rates and ever-appreciating property

values lost their homes to foreclosure and the housing market collapsed. It is estimated that $8 trillion

US in paper wealth disappeared after the stock market and housing prices plummeted (Chomsky 2012

61). The Federal Reserve, tracking the 2007-2010 period, reported that American wealth dropped by

40% in three short years, a precipitous drop attributed largely to declining real estate values and

deflated retirement plans (USFR 2012).

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Almost immediately, there grew a loud public clamour demanding both that the perpetrators be held

accountable for fleecing the American public and that governments regulate the financial sector to

prevent future global crises. In the international community too, politicians and international policy

networks asserted the need for a new global financial regime. Many international players were shocked

by the extent to which the American crisis had jeopardized global finances. The international economy

proved to be vulnerable to largely hidden and unpredictable interdependencies and volatility. Global

financial deregulation, a key plank in neoliberalism’s governing repertoire, was widely regarded as an

abject failure that cried for a tough and coordinated global regulatory regime. This regime, however,

never materialized. Similar to the early years of the Great Depression, governments ignored the

systemic flaws in the prevailing economic orthodoxy, preferring instead to interpret the deep global

shock as a temporary setback. Apologists for the prevailing system argued that the system itself was not

at fault, only so-called “rouge elements” within it (Clarke 2012, 45). With a few adjustments here and

there the economy could be set back on course. G20 leaders agreed to coordinate and implement a

series of restoration strategies, which relied on unprecedented levels of public borrowing to stabilize the

banks, breathe life back into broken economies, and get on with business as usual (Clarke 2012, 44; Peck

et al. 2009).

But even after massive public bailouts of global financial institutions, hefty public borrowing to stimulate

economic activity, more tax-cuts for the rich and corporations, and historically low interest rates,

business has been far from usual. While restoration strategies undoubtedly prevented a full blown

depression at the beginning of the crisis, advanced economies continue to be locked in what Keynes

called a “chronic condition of subnormal activity,” one distinguished by profound income inequalities.

This chapter describes the ways in which income inequality is connected to neoliberal governing

assumptions and the extent of the vast and growing divide between the rich and the rest. Next, the

chapter describes how social movements and policy networks have come to identify income inequality

as the defining failure of neoliberalism and its amelioration as a necessary condition for economic

recovery. Finally, the chapter discusses the open-ended nature of the current crisis and the political

obstacles that continue to confront those challenging the neoliberal mindset and the powerful few who

continue to benefit disproportionately from this failed experiment in governance.

II Neoliberal Beginnings

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For the past three decades, the international political economy and the policies of many developed

countries, especially Anglo-American democracies have been reconfigured by a radical experiment in

market fundamentalism. This experiment promised to end what it condemned as the social engineering

of the postwar social state, to free entrepreneurs from the undue political constraints of regulation and

taxation, and subordinate democratic politics to the alleged efficiencies of unfettered markets. During

its relatively short thirty year lifespan, this experiment in market utopianism has been called many

names, among them, restructuring, the Washington Consensus, globalization, globalism, neo-

conservatism (primarily in the United States), and, most recently, neoliberalism. This latter term is used

so often that one would assume that it has always been part of our vocabulary. But, the term has only

gained widespread usage in the past decade (Peck et al. 2009, 96). Not everyone, however, is

completely satisfied with the utility or meaning of this term. One school of dissenters argues that

neoliberalism is misnamed because it bears only a faint resemblance to the rich tradition of classical

liberalism, which assigns to the state responsibility for advancing the political, civil and economic

freedoms of individuals (Brown 2005, 39). Neoliberalism, they argue, is focused exclusively on economic

freedoms and the “God-given right” of the “free [and] possessive individual” to “make profits and amass

personal wealth” (Hall 2012, 9). While classical liberalism envisioned separate but interdependent roles

for the state and the market, neoliberalism envisioned a society where the state was dominated and

disciplined by free markets (Gill 1995).

Another school of dissenters takes issue with neoliberalism because it is unclear and unstable term,

either encompassing too much or changing too often during its short and troubled reign (Hall 2012, 8).

Brenner et al, for example, argue that neoliberalism is a chameleon that is “promiscuously pervasive,

inconsistently defined [and] empirically imprecise” (2010, 184). Neoliberalism, it is argued, is a crisis-

ridden governing formula that has been progressively reformulated as it lurches from one crisis to

another of its own creation (Peck et al, 2009). According to this view, it is an experimental and evolving

governing project rather than a coherent philosophy of governance. This experiment, nonetheless,

embodies an overarching committed to liberating markets and capital from social and political

interference and exploiting new forms of capitalist accumulation (Clarke 2012, 45).

These commitments also have a long intellectual lineage, reaching back to the 1920s. Then, the Austrian

School of Economics, led by Ludwig von Mises and his student, Friedrich von Hayek, celebrated private

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property as a mark of civilization and railed against all forms of state intervention. They argued that

human freedom and progress depended on strict adherence to the alleged virtues of a self-regulating

market. Such celebrations of the free market, however, were drowned out by the Great Depression of

the 1930s, which revealed in bold relief the economic and social costs of unregulated markets. The self-

regulating market also was rejected by the framers of the postwar compromise. Guided by the principles

of Keynesian economics and the new field of macroeconomics, the postwar governing formula

prescribed active state intervention to stabilize the inevitable fluctuations of capitalist economies and to

cushion citizens against the shared risks of unemployment, poverty, illness, and old age.

The postwar formula underwrote three decades of unprecedented economic growth but it also had its

detractors, not the least a small group of American academic economists bent on reviving market

fundamentalism. In particular, Milton Friedman, an economist at the University of Chicago, condemned

Keynesian economics because it disrupted what he described as the “natural” rate of unemployment.

Government intervention impaired and distorted the market’s inherent capacity to regulate itself. As a

result, he argued, Keynesian would ultimately generate rampant inflation and economic stagnation.

Echoing the Austrian School, Friedman’s 1962 book Capitalism and Freedom celebrated capitalism as a

necessary precondition of political freedom and recommended numerous policy changes such as

deregulation, vouchers, and a flat tax to unleash the efficiencies of the free market. In the early 1960s,

however, such odes to market fundamentalism found only small and largely academic audiences. As the

late Susan Strange reflected, the ideas that were to form the foundations of contemporary

neoliberalism such as unregulated markets, a minimalist state, and corporate freedom were “utterly

foreign to the spirit of the time” (Quoted in Giroux, xxii).

The Keynesian consensus, however, began to unravel in the 1970s. This decade was marked by a large

American trade deficit, two sudden increases in the price of oil, mounting inflation, escalating wage

settlements, and stagflation. The combination of inflation and unemployment, stagflation confounded

mainstream economists and the finance ministries of the day. According to textbook Keynesian

economics, national governments could manipulate monetary and fiscal policy either to contain

inflation, understood as a product of an overheated economy, or to stimulate growth and employment

during economic slowdowns. Keynesian theory did not anticipate a scenario where high levels of

inflation and unemployment could coexist but this was precisely the policy challenge of the mid-1970s.

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Stagflation proved largely unresponsive to traditional Keynesian policy levers and, thus, governments

began to look for other solutions. Canada, for example, imposed temporary wage and price controls in

1975. The 1973 oil embargo imposed by OAPEC (Organization of Arab Petroleum Exporting Countries)

and the 1979 oil shortage prompted by the Iranian Revolution had demonstrated a flaw in Keynesian

logic. It was vulnerable to external shocks that could both ignite inflation and depress the economy and

employment at the same time.

Others, however, saw stagflation as a verification of their critiques of government intervention,

Keynesianism and the social state writ large. The work of Milton Friedman and other monetarist

economists such as Arthur Laffer was soon embraced by conservative parties in the United Kingdom and

the United States. In 1979, Margaret Thatcher was elected as Prime Minister of the UK on the promise

that she would free enterprise from what she depicted as the suffocating grasp of the nanny state.

Thatcherism reoriented government through deregulation, especially of the financial sector, reforms to

labour law legislation designed to create a more flexible labour market and reduce the power of trade

unions, and the widespread privatization of state-owned companies and public housing. In 1980, Ronald

Reagan was elected as President of the United States. Like Thatcher, Reagan was fond of blaming

government for almost everything that was wrong with the American economy and society. He

launched a program comprised of deregulation, tax reduction for corporations and top income earners,

and cuts to social programs. Many other countries, including Canada and Australia, soon elected

governments that campaigned around these themes. By the mid-1980s, the neoliberal revolution had

successfully displaced Keynesianism in the economics departments of prestigious universities, in key

international policy networks and institutions, and in the halls of government. No longer a distant

academic project, neoliberalism was fast becoming the new economic orthodoxy (Brenner et al 2009,

182).

As Wendy Larner suggests, neoliberalism can be understood in three distinct ways: as a specific package

of policies; as a political ideology and political project; and as a distinct set of discourses that reshaped

the relationship between citizens and governments (2000, 8-15). While the distinctions between these

three perspectives are often blurred in practice, the policy template approach typically focuses on the

policies and institutions that have advanced free trade, privatization, financial and other forms of

deregulation, the erosion of the public sector, and progressive sheltering of the economy from

democratic oversight through binding international agreements (Gill 1995). Beginning in the 1980s, this

bundle of policies, initially referred to as the Washington Consensus, was imposed on debtor countries

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in the developing world by international financial institutions such as the IMF (International Monetary

Fund) and the World Bank (WB). The second perspective views neoliberalism primarily through the lens

of social class, as a political project designed to advance the material interests of the capitalist class and

of the global North at the expense of socially subordinate classes and the global South. During the

Keynesian period, the wealthy saw their share of the total national income drop precipitously while the

stagflation of the 1970s further devalued wealth further. A disgruntled capitalist class provided a

powerful social base for neoliberal ideas about individual freedom, liberty, personal responsibility,

privatisation and the free market. This ideology, however, masked a political project that sought to

restore and consolidate class power (Harvey 2005; 2009, 1). The third perspective, drawing on Michel

Foucault’s work, focuses on the ways in which neoliberal discourses reframed expert and popular

thinking about key relationships between the public and private and between government and citizens.

This governmentality approach argues that neoliberal discourses successfully shifted the focus of

government away from the primary concerns of Keynesianism, such as economic stabilization and social

protection, to markets and market relations. In so doing transformed, these discourses transformed the

practice of government, political identities, and the material practices of everyday life (Miller and Rose

2008, 62-78).

III Writing income inequality out of the equation

Income inequalities do not figure prominently in any of the above perspectives on neoliberalism,

although, indirectly, they underlie both critiques and celebrations of neoliberalism. Early on, critics

argued that neoliberalism would eventually force governments to abandon social policies, which

effectively function to redistribute income. It was argued that the deregulation of finance, in particular,

allowed capital to move around the world, thereby forcing national governments to adhere to neoliberal

fundamentals, to deregulate, to open new markets, and to cut taxes (Gill 1995: 402-405; Hirst,

Thompson and Bromley 1999: 4-5). These policies, in turn, placed pronounced downward pressures on

governments to reduce or eliminate some public goods and services and to devolve others to the

market or to individuals and families (Larner 2000: 8-9). However, there was another part of neoliberal

orthodoxy that actually expected and celebrated income inequality. Market fundamentalists believed

that, in a free society, inequality stimulated entrepreneurship and economic growth. Markets rightly

paid an entrepreneurial risk premium to those who took risks: the greater the risk, the higher the

premium. However, so the theory went, disproportionate rewards for innovation, creativity and risk-

taking ultimately benefited everyone. Neoliberals, committed to the miracles of the self-regulating

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market, maintained that as the rich got richer, the benefits would trickle down to everyone else. The

rising tide of economic activity, additionally fueled by public policies such as deregulation and tax-cuts

for the wealthy, would raise all the boats in the harbour. It was and continues to be an article of

neoliberal faith that the unrestricted pursuit of profit and individual gain as well as disparities in wealth

and income were necessary to generate jobs, innovation and growth. As the Great Recession drags on

the celebration of the risk-taking entrepreneurial has shifted subtly but discernibly to a celebration of

the job creator. Both terms, however, privilege the supposed singular contributions of the capitalist class

to the generation and maintenance of a healthy economy.

Neoliberalism pronounced a new formula for economic growth which privileged the market, market

actors and market logics in the distribution of income and social goods. But, as Wendy Brown argues,

neoliberalism was “not only or even primarily focused on the economy” (2005, 39-40). It is a moral tale

about good and bad that reshaped popular perceptions about government and citizenship . In its

simplest form, this discourse pronounced that the free market is are good because it unleashes the

entrepreneurial spirit and guarantees individual freedom while government is inherently bad because it

obstructs freedom and the natural order of things (Campbell 2011, 20). Neoliberalism also provided a

new moral tale about citizens. The postwar consensus advanced the idea of all citizens were vulnerable

to market volatility and personal hardships but that these shared fates could be alleviated through the

collective provision of social insurance and social welfare. Neoliberalism, however, only saw the

possessive individual and celebrated the risk-taker and job creator. As Margaret Thatcher once famously

pronounced, “there is no such thing as society,” only individuals and families. Wealth was both evidence

of and a reward for hard work and entrepreneurialism. In this moral tale, success was always deserved

but lack of success was also deserved. It was evidence of defects in the individual moral character,

among them, indolence, lack of initiative, and dependence on others, the state and social programs

(Somers 2008, 3). This representation of inequality left little room for explanations of inequality and

poverty that focused on structural factors such as the economy, class relations, or unequal access to

education and other social goods. The postwar model of governance was built around the assumptions

that people could fall on hard times through no fault of their own and that some policies should provide

a measure of opportunity for all citizens. In neoliberal times, individuals were individualized.

Neoliberal individualization is a governing strategy, which demands that people be self-sufficient market

actors, who, as such, bear full responsibility for themselves, their families, and their futures. The

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incessant rhetoric and policies of individualization place steeply rising demands on everyone to find

personal causes and personal responses, what Beck terms as “biographic solutions,” to what are, in

effect, the shared social challenges of our era. The list of social challenges is long: income disparities,

racial inequalities, intergenerational inequalities, increasingly inaccessible education, inadequate child,

elderly and health care, economic volatility and environmental catastrophes (Beck and Beck-Gernsheim

2002, 22-26; Brodie 2008b, 2010). Hacker calls this “The Great Risk Shift,” whereby neoliberal

governments have downloaded more and more economic risk onto the fragile balance sheets of

individuals (2008, xv). Individuals are expected use their personal resources to find personal solutions to

societal problems and to bear the sole responsibility for the success or defeat of their choices (Bauman

2012, 101). The problem with this formulation is not that individuals and families do not try to find

solutions, or fail to comply with the individualized solutions forced upon them (Bauman 2001, 105-106).

All of us struggle with these expectations on a daily basis. Finding employment, arranging child or elderly

care, or acquiring new skills to adapt to changing labour markets are obvious examples. Rather, the

problem, as Bauman explains, is that the very formulation of a “biographic solution to systemic

contradictions is an oxymoron; it may be sought but it cannot be found” (Bauman 2002, 68). The

knowledge and resources that we bring to our life-choices are “not themselves matters of choice”

(Bauman 2002, 69). The inescapable paradox of individualization is that it is a collective condition –

almost everyone in the same boat, expected to chart our on course on treacherous waters, with rapidly

shifting storm clouds, without a compass and without a life-jacket.

Neoliberal rhetoric that celebrated the entrepreneur and individualized of social problems was largely

successful in masking the progressive growth of income inequalities until the onset of the Great

Recession when the economic crisis pointed to uncomfortable parallels with Great Depression of the

1930s. Statistical data demonstrate income inequality reached pre-Depression levels on the eve of the

Great Recession. In the United States, for example, the top earners’ share of total national income

peaked in 1928 and 2007, years that immediately preceded the biggest economic downturns of the last

century (Reich 2012b, 17). Before the Great Depression, the top 1% of income earners took

approximately 18% of total national income in the United States but this percentage was more than cut

in half in the 1950s and 1960s – years of unprecedented growth. Beginning in the 1980s, the growth of

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income inequalities was rapid and deep, surpassing levels reached in the pre-depression years. In 1987,

the top % of US earners took home 12.3% of all pre-tax income but by 2007 their share had almost

doubled to 23.5% (CBC 2011) . At the onset of the Great Recession, the richest one-half of 1% owned

28% of the nation’s total wealth (Reich 2012a, loc 1308/1571) while top 10% of US income earners

accounted for almost one-half of total national income (CBC 2011). More starkly, the 400 richest

Americans now have more wealth than the bottom half of income earners – some 150 million people

(Reich 2012a, loc 84/1571) Recent data show that the top 5% of income earners account for 37% of all

consumer purchases in the United States (Reich 2012b, 17). During these same years, however, the US

median wage stagnated and actually dropped after 2001. Adjusted for inflation, the average American

worker makes about $300 more than she did thirty years ago (Reich 2012a, loc 84/1571). Studies show

that the middle class in the United States (and elsewhere) largely maintained its standard of living

during these years first by becoming dual earner households, as millions of women entered the

workforce, and, then, by borrowing (Reich 2012; Stewart 2012). Millions more Americans have fallen

into poverty. According to the US Census Bureau, forty-six million Americans live in poverty in the

United States, the highest number recorded since it began collecting poverty data over fifty years ago

(Grant 2011). One in seven Americans depends on food stamps, a benefit of, on average, $133 US a

month to put food on the table (Economist 2011b, 29).

Although the United States was one of the hardest hit by the Great Recession (at least in its first wave),

the story of rising income inequalities during the past three decades has been variously played out on

different scales and in diverse political settings. Globally, it is estimated that the richest 1% of adults

control 43% of the world’s assets, and the wealthiest 10% control 83%, while the bottom 50% control

only 2% (The Economist 2011c, 6). Gini coefficients, which calculate the extent to which the income

distributions deviate from a perfectly equal distribution, have grown significantly and rapidly in the past

three decades almost everywhere. While these coefficients show that global inequality fell from .66 (a

score of 1 means that one person would get everything) in the mid-1980s to .61 in the mid-2000s, this

apparent decrease in income inequality largely reflects the successes of emerging economies, especially

China. Income inequality within China, however, has jumped from .28 in the mid-1980s to .4 in the mid-

2000s. Countries at the bottom of the economic ladder have not experienced any improvement in

income: in fact, for many, disparities have deepened. Among advanced economies, pre-crisis OECD data

show that, from the mid-1980s and the mid-2000s, real income growth among the top income earners

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was twice as large as that of the bottom quintiles in such diverse countries as Finland, Sweden, the UK,

Germany, and Italy (CBC 2011).

The growth of income inequalities has been especially rapid in Canada. As in the United States, the

richest have dramatically increased their share of total national income while the middle and poorest

income groups have lost ground. A 2010 study by Armine Yalnizyan reports that between 1997 and 2007

the top 1% of Canadian income earners ( 246,000 people with incomes exceeding $405 CDN) took home

almost one third (32%) of all income growth compared to 8% in the 1950s and 1960s. Since the late

1970s, the richest 1% of Canadians saw their share of total income double while the shares of the richest

.01% tripled (Yalnizyan 2010, 3-4). More recent data shows that between 1980 and 2009, the market

incomes of the top 20% of earners increased by 38%, remained stagnant for the middle 20%, and

dropped by 11% for the bottom 20% (CCPA 2012)1. Similar to the United States, the stagnation of

middle class incomes has been accompanied by a dramatic increase in household debt. In late 2011, the

ratio debt to personal disposable income stood at $152.98 CDN (Grant 2011). For too many Canadians,

inequality is compounded by insecurity. A 2011 survey conducted by the Canadian Payroll Association,

for example, found that 60% of Canadians believe that they would face personal difficulties if their pay-

cheque was delayed by only one week (Dobbin 2011, 10). This says nothing about those who, at the

stroke of a government or corporate pen, find themselves without a paycheck.

IV Writing Income Inequality Back In

Although an integral part of the logic and practice of neoliberalism from its conception, the large income

gap between the rich and the rest has only recently hit the political radar. Almost five years into the

economic crisis, income inequality has become a rallying cry for popular political movements around the

globe and a focus for international policy networks, which are increasingly engaged in debates about

recalibrating post-crisis economic policy. Similar to the experience of the 1930s, the lingering aftermath

of the 2008 financial meltdown has mobilized what Karl Polanyi once described as the “spontaneous

eruption” of all manner of counter-movements, offering fundamental critiques of the prevailing

economic orthodoxy (Polanyi xxx). While history does not repeat itself measure for measure, Polanyi’s

telling analysis of the Great Depression is a reminder that a governing paradigm’s protracted failure to

1 Market incomes are from all sources before government transfers or taxes are taken into account. (CCPA 2012)

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provide employment and to meet social needs unleashes myriad alternative prognoses and social

imaginaries.

The Indignants in Spain, the Occupy Wall Street movement, the Quebec student strike, the retail riots in

the UK, the American Tea Party, and xenophobic nationalism as expressed by the National Front in

France, or the Golden Dawn in Greece, are examples of contemporary counter-movements. Each of

these counter-movements has been criticized by the mainstream media and political leaders for failing

to provide a clear analysis of the crisis or a coherent program for change. But, each has asserted a new

collective identity that challenges the fundamental tenets of neo-liberal individualization. The Occupy

movement, which erupted in Zuccotti Park in New York in the fall of 2011 and then spread to over 900

cities around the world, for example, envisions an unequal and unfair world comprised of the very rich

and the 99% which is struggling to cope with unemployment, stagnating incomes, and economic

insecurity. Others describe the neoliberal social order as a world starkly divided between a plutonomy, a

select few who enjoy the benefits of globalization, and a precariat, all the rest who are increasingly

forced into a precarious and insecure existence (Comsky 2012, 33-35; Reich 2012a).

Although these counter-movements differently frame who the “we” are, how society should be

protected and, just as important, from whom, their shared message is clear enough for those willing to

listen: notably that the system is broken; political elites cannot or will not fix the problem; and ordinary

people,” variously defined, need protection from mounting social insecurities (Hulchaski 2011). ). Put

simply, the self-regulating market and the self-sufficient individual have lost their lustre in the face of

protracted economic crisis. As Robert Reich further explains, people increasingly feel that no matter

how hard they or their children try, they can longer get ahead and that the system is rigged against

them (2012, loc. 524/1571). This message resonates more and more widely in the general public. A June

2012 international poll of thirteen countries, including eight advanced economies, indicates that two

thirds of the respondents think that voters do not have enough influence over economic decisions while

international banks and financial institutions have too much influence. A large majority (70%) believe

that current laws do not protect job security and 58% think that their incomes are falling behind

inflation (ITUC 2012). People no longer believe that the system and their governments are working for

them.

As already noted, neoliberalism asserts that income inequality is a necessary ingredient for economic

growth and innovation. Thus, neoliberal policy networks largely ignored the political potency of this

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issue until it appeared to threaten the legitimacy of the system itself. The World Economic Forum’s

(WEF) annual Global Risks Report provides a rough sketch of when and how economic inequality

appeared on the radar of international economic institutions and neoliberal policy networks. First

published in 2006, the annual WEF Global Risks Report outlines the major challenges to international

capital on the immediate and medium-term horizons. It is presented to the CEO’s of the world’s largest

corporations, international political leaders, and other invited notables at the annual meeting of the

WEF, convened early every year in Davos Switzerland. The 2006 and 2007 reports identify terrorism,

pandemics, and climate change as the major challenges of the 21st century, although the 2007 report

does flag trouble brewing in asset prices. The 2008 report, not surprisingly, expresses concern about the

fragility of the global system, the negative implications of systemic financial risks and the spreading

liquidity crisis. In 2009 and 2010, the reports explore the lessons to be learned from the 2008 financial

meltdown, among them, the risks associated with global interconnectedness, the need for a new

financial architecture, and the potential for a sovereign debt crisis. The social and political implications

of income inequality did not appear as a major global risk in any of these reports.

In 2010/2011, there is a marked shift in thinking about economic inequality, not only at the WEF but

among the most influential international policy networks, which earlier were unequivocal proponents of

neoliberal policy solutions. The WEF 2011 Global Risks Report identified economic disparity and global

governance failures as the two most important factors threatening global economic recovery in the

wake of the 2008 financial crisis. “Globalization,” the Report argued, “has generated sustained economic

growth for a generation,” but “a minority is seen to have harvested a disproportionate amount of the

fruits.” The WEF was primarily concerned, not with the deteriorating wellbeing of the global precariat,

but instead with the possibility that income inequality might fuel a political backlash against

neoliberalism. “Unemployment and unequal wealth distribution within both advanced and emerging

countries,” the Report explained, “disenfranchises large parts of societies from the benefits of

globalization. This may result in socio-political unrest and general socio-economic backlash against

globalization. There are early signs of this risk in the rise of extremist parties in Europe (at both extremes

of the political spectrum) and in the US (tea party) coupling arguments of economic nationalism with

anti-immigration rhetoric. Similar sentiments are being heard in some emerging economies, such as in

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North Africa” (WEF 2011, xxx). A year later, the WEF Global Risks report painted a disturbing portrait of

the challenges facing world business leaders and neoliberal policy elites. It warned of a “dystopian future

for much of humanity.” The Report envisioned a future marked by chronic and large levels of

unemployment, especially among youth. It predicted that indebted governments will be unable to

honour social contracts with citizens and warns about the growth of nationalism and populism. Most

significantly, the report introduced a new term into the political lexicon of the Great Recession -- “critical

fragile states” (WEF 2012, 16-19). Critical fragile states are formerly wealthy countries that “descend

into lawlessness and unrest” because they cannot meet their social and fiscal obligations and fail to

create opportunities for the young, reduce intergenerational inequalities and/or tackle severe income

disparities (WEF 2012, 16).

As a bastion of neoliberal thinking and social forces, the WEF’s reports do not tackle the fallibility of

neoliberal governing assumptions, although the 2011 report does note the “growing divergence of

opinion on how to promote sustainable inclusive growth” (2011, 9) and the 2012 explains with

uncharacteristic humility that “dystopia describes what happens when attempts to build a better world

go wrong” (2012, 10). Other mainstream economists and institutions, however, were less circumspect

about the reliability and outcomes of three decades of neoliberal governance. In his 2010 book Fault

Lines, University of Chicago professor and former IMF economist, Raghuram Rajan argued that

economic inequality in the United States cultivated the ground for the 2008 global recession. In the

same year, two IMF economists built a model demonstrating how economic inequality is systemic

precursor to economic crisis (Kumhof and Ranciere 2010). There are a growing number of statistical

studies demonstrating direct and indirect links between pervasive income inequality and economic

crises (The Economist 2012). In late 2011, however, the Organization for Economic Cooperation and

Development (OECD) published a scathing assessment of the dystopias of neoliberal governance. In

Divided We Stand (2011), the OECD argued that the winner-take-all culture cultivated by neoliberalism

has created “deeply rooted social imbalances” and pervasive fears of decline in the middle class.

Inequality, the report explained, is now a “live” political issue that threatens both economic recovery

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and social cohesion. The OECD pronounced, in capital letters, that “the benefits of economic growth DO

NOT trickle down automatically, and that “greater inequality DOES NOT foster social mobility.” “Our

policies,” the OECD concluded, “have created a system that makes [inequalities] grow and it’s time to

change these policies.” The report recommended “better policies for better lives,” focused specifically

on the employment of unrepresented groups, tax reform, and reinvestment in education, health and

family care. The report reminded member countries that income redistribution is “at the core of

responsible governance.” “Addressing the question of fairness”, the report contended, “is the sine qua

non for the necessary restoring of confidence today” (OECD 2011, emphasis in the original).

Arguably, then, neoliberalism, on both national and global scales, has arrived at a pivotal reflexive

moment in which economic inequality at once threatens its ongoing legitimacy and potentially exceeds

its toolbox of governing instruments. The unraveling of elite consensus on the dominant governing

paradigm provides another touchstone to the 1930s, and offers us perhaps the most persuasive

evidence that we are approaching a tipping point in governing philosophies. Yet, the contours of change

are far from certain. In 2012, the dominant debate about how best to respond to the lingering economic

crisis is contained within a simple dichotomy – austerity or stimulus. Not surprisingly, neoliberals have

regrouped around the austerity pole, arguing that governments have to cut back on already eroded

social programs, reduce the size of public bureaucracies, and eliminate deficits in order to re-establish

investor confidence. Those who have benefited most from the inequalities generated by three decades

of free markets want people to believe that governments and government spending caused the Great

Recession rather than the obvious and mounting dystopias of market governance (Krugman 2012, 66).

However, as Krugman rightly argues, the doctrines of investor confidence and sound finance, which

finds its roots in the dying days of laissez-faire, simply functions to reshape the power of capital into

post-crisis governing scenarios. While the neoliberal doctrine of the 1980s pronounced that “there is no

alternative” to market governance and globalization, contemporary rhetoric about the state of business

confidence “gives capitalists a powerful indirect control over government policy: everything which may

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shake the state of confidence must be carefully avoided because it would cause an economic crisis”

(2012, 94).

On the other side of the dichotomy, noted economists as well as international financial institutions

argue that more government and the stimulus spending offer the only sure way out of the Great

Recession. In his recent book, End This Depression Now, Nobel Laureate Paul Krugman, argues that

advanced economies are now mired in a depression, perhaps not a full replay of the Great Depression of

the 1930s, but qualitatively similar to that last lost decade (2012). Krugman appeals to contemporary

governments to be mindful of the lessons learned in the 1930s, specifically that government austerity

programs only promise to further depress an already depressed economy and to prologue the crisis.

Instead of squeezing budgets, he argues, governments should focus on creating jobs and building public

infrastructures. Governments should tackle debt reduction after the worst of the storm has passed. Last

month, the IMF (World Economic Outlook), once a bastion of neoliberal orthodoxy, also urged

governments to go easy on austerity programs, arguing that “austerity alone cannot treat the economic

malaise in the major advanced economies” (quoted in The Guardian 2012). Echoing Keynes, Krugman

and others argue that the contemporary crisis is less a problem of government deficits, although these

invariably balloon during economic downturns, than a crisis in consumption and revenues. Because of

stagnating middle-class incomes, bulging numbers of low-income and poor families, and unemployment

and underemployment, fewer people simply have the money to buy the goods and services that both

keep the economy running and provide revenues for governments. Governments also have

progressively reduced their capacity to raise revenues through generous tax-cuts to the already rich and

the corporate sector. In the United States, for example, the tax-cuts introduced in 2001 and 2003 by

then President George W. Bush and extended for two years in 2011 by President Barak Obama saved

the richest 1% of American tax payers more money than the rest of American (approx. 150 million

Americans received in total income (Reich 2012a, loc.102/ 1571). The two year extension of the Bush tax

regime will add $1.2 trillion to the American deficit (Reich 2012a, loc. 475/1571). In 2012, Prime

Minister Stephen Harper’s Conservative government began an austerity program which will close key

government services, including the collection of data on poverty, aboriginal Canadians or and

environment, reduce the federal public service by some 20,000 jobs, and erode such key such social

programs as employment insurance and old age security. Between 2006 and 2013, however, Harper has

reduced federal tax revenue by $218 billion CDN, a figure that dwarfs the Canadian federal deficit

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(Campbell 2012). After years of tax-cuts to the wealthy and corporations, governments starved on

revenue have starved social programs, ignored crumbling public infrastructures, neglected research and

development and abandoned public education – the very factors that build jobs and global

competitiveness.

V Conclusion

Debates about how to reverse course after the 2008 Great Recession, a half-decade of anemic and

uncertain recovery, and the threat of a European meltdown, which threatens the very survival of the

European Union, are currently being played out in the party systems of advanced democracies, at the

increasingly frequent and frenzied summits of the G20, and increasingly on the streets. It is also clear

that if political leaders chose the path of austerity to respond to the ongoing debt crisis that

confrontations between protesters and the police will continue to grow. Angry people, who have lost

faith in the system and are struggling to make ends meet, present a volatile mixture for advanced

democracies. As the experience of the 1930s demonstrates all too well, pervasive insecurity,

uncertainty, and incredulity opens the field for all kinds of different political solutions, some progressive,

some regressive, and some pathological.

It may be, as Peck et al have argued, that the present moment is just another point on neoliberalism’s

crisis-ridden historical trajectory (2009). Neoliberalism was born out of the stagflation crisis of the 1970s

and, over its thirty year history, it has adapted its governing mechanisms to cope with debt defaults in

Latin America, the Asian financial collapse (95) all the while growing the gap between the rich and the

rest. It is possible that political leaders can scramble together some mixture of austerity measures,

public bailouts, stimulus spending, and marginal tax increases that would stabilize fragile economies

until the next crisis presents itself as it surely will. But, many believe that this 2008 crisis is different. Th

overwhelm the adaptive capacity as a flexibly mutuating regime of market rule

However it also may mean that the ditching failed economic shibboleths – that inequality leads to faster

growth, that allowing the rich to keep more of their own money boosts tax and revenue, that a larger

pay gap reduces unemployment.. new social contract that returns a balance in economic and political

power fairer societies and economic success go hand in hand (Lansley 2012, part 3)

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The World Economic Forum (WEF) and the OECD (Organization for Economic Cooperation and

Development), two influential organizations, which have served as hubs for the propagation of market

governance for a generation also appear to have changed their minds

Titanic mentality

Britain’s recent slide into a double-dip recession and the growing recessionary wave across an austerity-

focused EU underscore the point the IMF is making.

Over the course of a generation, our politics and our social imaginations have been “cleansed so that the

public interest, public ownership, common goods, equality, the redistribution of wealth, the stubborn

facts about poverty and inequality, etc, all became unspeakable” (Hall and Massey 2012, 59).

Hall and Massey 2012 60 ideology of erasure – thatcher – no such thing as society- all you need is

indivudal self-interest-hidden had of the market will make that work and trickle down to the rest of

society – no need to create alternatives

Kuhn

It has been fifty years since Thomas Kuhn wrote The Structure of Scientific Revolutions (1962). In it, he

described how scientific paradigms eventually collapse under the weight of their own failures and their

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incapacity to grapple with new problems. Old ways of intervening in the world become discredited, but

they live on for some time as zombie-like entities, living yet dead (Peck 2009). Their adherents, afraid to

let go of the familiar, resist messengers with contrary evidence: the living yet dead refuse to ask new

questions or adopt different priorities. Kuhn says it often takes a new generation to make the break with

stale mind-sets and vested organizational hierarchies. In politics, paradigmatic challenges are resisted by

those in power. The ruling class refuses to concede failure because to do so would be an admission that

they have lost control (Hedges 2011, 165). And, of course, as Upton Sinclair put it, “it is difficult to get a

man [sic] to understand something when his salary depends on not understanding it” (quoted in Judt

2010, 168).

. One strand of argument, articulated most prominently by Richard Wilkinson and Kate Pickett in their

2009 book The Spirit Level: Why Equality is Better for Everyone, provides abundant epidemiological

evidence that countries with greater disparities in income fare worse on all manner of social indicators,

from higher murder rates, to teenage pregnancies to lower life expectancy and numerous other health

outcomes. Their argument, popular among social democrats but still neoliberal in its framing, is that

income inequality ultimately makes everyone worse off, not just the poor. Policies that promote income

redistribution make economic sense, independent of any ethical justifications, they argue, because it is

cost effective, lowering public expenditures on criminal justice, health care, and social services.

Campbell 20 18.5 between 2006 and 13 cons given cumulative 218b in tax cuts