Federal Case

The neoliberal approach to governing ignores a crucial fact: Government is best when it is big. A response to Eric Liu and Nick Hanauer.

Eric Liu and Nick Hanauer performed a great service for American progressivism when they sought to rehabilitate American patriotism for the liberal left in their book The True Patriot. Their contribution to Democracy’s “First Principles” symposium, “The ‘More What, Less How’ Government,” [Issue #19] is also provocative and insightful, but they repeat too much of the discredited conventional wisdom of the neoliberal movement of the 1980s and ’90s.

Liu and Hanauer are right to note that, while Tea Party conservatives offer “little more than a reprise of unworkable ideas and worn rhetoric about ‘limited government,’ ” in reality “there is not a single example to be found of a nation that practices ‘limited government’ and is wealthy, secure, and stable.” They are right as well when they complain that progressives are “in a defensive crouch” and there is a need “to articulate, during this time of flux, an affirmative progressive theory of government.”

Their proposed alternative theory of government is the opposite of what they call the “mushy amalgam” of the mid-twentieth century. In their account, the “mushy amalgam” combines the conservative belief that the federal government should concentrate on providing a few basic public goods with the liberal belief that many, if not most, of those goods could be provided most cheaply and efficiently by direct, national government action.

In place of “the New Deal/Great Society template,” they propose a government that does more things—but does them indirectly. The “more” category includes an expansion of the federal government’s role beyond providing basic goods, to projects like peacetime national service. They endorse Cass Sunstein’s proposal that “choice architects” in the government should “nudge” people toward doing the right thing in matters like diet or energy use, rather than relying on direct prohibitions or commands. While their ideal government would pursue a greater variety of social goals than midcentury New Deal government did, it would do so less directly on the national level, by privatizing and contracting out more government services, and by “radical” relocalization of other public functions.

Liu and Hanauer’s argument is thoughtful, but this Rooseveltian liberal is unpersuaded by this talk of allegedly superior alternatives in the tradition of the Clinton-Blair “Third Way.” To begin with, I question their version of history. The New Deal consensus, shared by Republicans like Eisenhower and Nixon with the Democrats Roosevelt, Truman, Kennedy, and Johnson, has not continued to this day, as they claim. In fact, it ended in the 1970s. The present neoliberal era began in the 1970s with Jimmy Carter, who endorsed the dismantling of the New Deal system of transportation and utility regulation, with some good results (telephones, trucking) and some catastrophes (the death of passenger rail, Enron-style manipulation of deregulated electricity, and the warping of the post-regulation airline industry by predatory monopoly and oligopoly). After the Republican interregnum, the neoliberal era continued with Bill Clinton, who promoted the disastrous dismantling of the remnants of New Deal financial regulation and collaborated with the Republicans in destroying the federal entitlement to welfare. These changes had few effects during the bubble years, but have led to devastating repercussions now that many states are in a fiscal crisis. And it continues with Barack Obama, who rejected New Deal approaches to universal health-care coverage for a plan that forces many uninsured Americans to buy private, for-profit insurance—a plan similar to those touted by the conservative Heritage Foundation and Governor Mitt Romney in Massachusetts. Forty years after Wall Street-funded New Democrats took the Democratic Party away from New Deal farmer-labor liberals, and after a generation in which Carter, Clinton, and Obama have destroyed or rejected key elements of New Deal government, it seems odd to suggest, as Liu and Hanauer do, that “we still live in a nation where the New Deal/Great Society template is dominant.”

The authors write, “At every level, we think the progressive imperative should be to shift responsibility for executing what are now government services to private competitive organizations.” This might have seemed plausible two decades ago, when Al Gore and Bill Clinton launched the “reinventing government” campaign. But 20 years of experience have taught us that the privatization of government services—from the use of military contractors to for-profit prisons—usually fails to lower costs, and sometimes increases them, even while it encourages the corruption of elected officials by contractors who donate money in order to secure contracts.

To their credit, Liu and Hanauer recognize that the record of the practice that they seek to expand is unimpressive. “[T]oo much government contracting today merely replicates the non-adaptive, non-competitive dynamics of government agencies,” they concede. They try to salvage the reputation of the policy by blaming government, writing that contracting only succeeds when “the government, like an effective philanthropist or investor, challenges the firms in its operating ecosystem to learn from each other, to improve and exchange practices, to pool resources and leverage learning.” The assertion that American government can learn to succeed by emulating America’s maladroit and venal financiers must have struck many readers as a grim joke. And how likely is it that elected officials will “challenge” contractors who donate to their campaigns?

The worst cost overruns and scandals are found in the areas where public functions are performed by private for-profit or non-profit entities that enjoy tax subsidies, like health care and private higher education. In contrast, cost inflation is not found to the same degree where public providers like the Veterans Administration hospitals and public K-12 schools perform the public service directly.

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