The 21st Century Doesn’t Need a New Deal — It Needs a New Economic Model

In today’s global economy, neoliberalism reigns supreme, organized labor is in deep retreat and public debt has shot through the roof. In the face of these crises, is a global 21st century remaking of the 1930s-era New Deal what people on the left should be fighting for?

Contemporary progressive parties, such as Syriza in Greece and Podemos in Spain, have rallied around the idea of a “new New Deal,” while the European Citizen’s Initiative for a “New Deal 4 Europe” appears to have the backing of both Labor and Green party leaders in several European countries. In the US, Bernie Sanders has also been a strong advocate of this idea as the way out of our troubles.

However, a closer look at the history of the 1930s-era New Deal reveals that a new New Deal would do little to solve the underlying problems of capitalism and could even delay efforts to combat climate change through its emphasis on boosting growth via a new era of state capitalism.

Although New Deal-style programs have the potential to alleviate poverty in the short term, they are deeply limited by the core constraint that the raison d’être of active state intervention in a capitalist regime is none other than to save capitalism. Moreover, any program in the mold of President Franklin D. Roosevelt’s New Deal would also be limited by its failure to give workers a greater say in decision-making.

Historical Realities of FDR’s New Deal

Back in the 1930s, when the US economy had plunged into the worst economic crisis in its history, major financial and corporate interests initially opposed FDR’s New Deal programs, partly out of horror that they represented a step towards “socialism,” and partly out of fear that they would pose an obstacle to their profit-maximizing pursuits by narrowing the scope of labor exploitation. In reality, however, these programs kept capitalism alive and staved off social unrest and rebellion. The New Deal planners achieved this by abandoning the myth of pro-market solutions to economic crises and relying instead on a set of massive government interventions.

Among other things, the New Deal programs centralized planning (National Industrial Recovery Act) and funded under this plan the construction of large-scale public works (Public Works Administration) as a means of providing employment for millions of jobless workers; reformed the banking system with the Glass-Steagall Act; provided integrated solutions to the needs of the economies of several depressed Southern states (Tennessee Valley Authority) and set up a federally-guaranteed pension system (Social Security Act).

The New Deal programs provide a glowing example of how powerful the role of government can be in rescuing an economy from complete collapse, delivering relief to millions of lives tossed aside by a socioeconomic system with an inherent tendency to treat people as if they were things, and reducing the gap between rich and poor.

The New Deal wasn’t a revolution, but it did save many people’s lives. It did not end the depression, but it might have (although this is still highly debatable) if FDR hadn’t decided in 1937 to cut back stimulus because of his concerns about inflation and the federal deficit. The New Deal also laid the basis for what could have been very positive changes in the years that followed, had it not been beaten back by the bitter class war fought by what Noam Chomsky calls “the highly class-conscious American business sector,” assisted by the powerful weapon of anti-communist hysteria.

The New Deal is widely seen as one of the greatest experiments of active state intervention under capitalism, so it’s little wonder why the political thinking behind the New Deal-era projects is also regarded by many as an ideal model to inform policy intervention in today’s world as the advanced capitalist economies are once again in the throes of a serious economic and social crisis marked by stagnant or anemic growth, rising unemployment and social exclusion, extreme levels of inequality, and rapidly declining standards of living.

While far from being thoroughly Keynesian, some of the New Deal projects fall firmly into counter-cyclical demand management schemes, especially some of the second New Deal programs, such as the Works Progress Administration (1935-1943). And it is primarily these aspects of the New Deal experimental programs (including the Civil Conservation Corps) that serve as a guide to the call of many progressive and non-orthodox economists, such as Heikki Patomaki and Thomas Piketty, for the adoption of a New Deal for the 21st Century.

Limitations of the New Deal Model

Contemporary progressives who are interested in creating a new New Deal would do well to consider some core limitations of the model before throwing their energy into this particular project.

First and foremost, active state intervention in a capitalist regime is inevitably structured toward the end goal of saving capitalism itself. The recent bailouts of the financial system both in the United States and in Europe constitute the most blatant form of active state intervention for the purpose of saving capitalism from collapse. Indeed, when the collapse of the capitalist system seems imminent, suddenly “socialism” is a great idea. In this case, active state intervention in the form of bank bailouts and quantitative easing is socialism for the rich. The same goes for the outrageous taxpayer subsidies to business, which has led to the creation of an enormous corporate welfare state.

Second, New Deal-inspired projects are limited by the fact that most of those seeking to reform capitalism through programs such as these are opposed to more radical schemes advocating the creation of a socioeconomic system whereby collective ownership — either at the national or community level — and participatory democracy constitute the principal elements of the new social order.

While this is not to suggest by any stretch of the imagination that reform is undesirable or useless (the New Deal experience should have dispelled such narrow-minded views long ago), reforms by those committed to an alternative social order must necessarily be assessed on grounds for laying the basis for the transcendence of capitalism and eventually the emergence of a new socioeconomic order.

Capitalism is an inherently crisis-prone socioeconomic system and thus, much more needs to be done than temporarily taming the appetites of the beast for waste, exploitation, inequality, ecological degradation, dispossession and violence. Even under the New Deal programs, millions of people were still without jobs and the Great Depression ended only with the outbreak of World War II and the full incorporation of the US economy into the war effort. Moreover, the New Deal programs did not seek to end exploitation or give workers a greater say in decision-making.

Any economic doctrine advocating “abstract growth” and/or relying on policies that aim to attain continuous economic growth under the current system (as the old-fashioned Keynesians are still striving for in a constant attempt to save capitalism from its own contradictions) needs to be completely rejected. As Herman E. Daly and John B. Cobb, Jr. have argued in their book For the Common Good, at this point in the evolution of society, a successful economy without the drive for continuous economic growth via capital accumulation should be both very much possible and desirable.

The Ultimate Effects of the Great Depression

Just like the financial crisis of 2007-08 that was initiated with the collapse of Lehman Brothers, the collapse of the US stock market in October 1929, which led to the Great Depression of the 1930s, took capitalists by surprise, although there were clear signs that the US economy was in trouble several years before the crash, as the late economic historian Charles Kindleberger has shown in his now classic work, The World in Depression, 1929-1939.

Like the contemporary era prior to the outbreak of the 2007-08 financial crisis, income inequality in the US was growing at a tremendous pace throughout the 1920s. Between 1920 and ’29, the top 5 percent of the population increased its share of the national income from 24 to 34 percent, as documented in Richard B. Duboff’s book, Accumulation and Power. The collapse of thousands of banks before the crash pointed to a severe malfunction in the US banking and financial system.

Following the collapse of the stock market, the US economy took a rapid and catastrophic nose-dive. As the depression set in, nearly forcing capitalists to close shop for good, industrial production fell by over 50 percent in 1932, salaries decreased by 40 percent, manufacturing wages shrank by 60 percent, more than 200 banks closed and one-fourth of the labor force was unemployed, according to American Epoch: A History of the United States Since 1900.

Meanwhile, the labor movement had experienced an abrupt decline in union membership and activities throughout the 1920s, partly as a result of the red scare of the late 1910s and early 1920s. In their book, American Workers, American Unions, Robert H. Zieger and Gall J. Gilbert depict how the red scare not only made joining a union seem “un-American,” but “helped to wreck the momentum of labor’s wartime gains,” partly as a result of anti-union ruling by US courts in the 1920s, and partly as a result of the booming economy of the 1920s which reduced substantially the number of strikes throughout the nation as it made workers feel secure about their job and their income. All that remained, therefore, was some type of Keynesian state capitalism or some variation of fascism inspired by the ideologies of Mussolini and Hitler.

Herbert Hoover, who had been in office only a few months before the Wall Street crash of 1929, and FDR, who beat him in the presidential election of 1932, in reality shared many economic views. They both espoused conventional views on fiscal policy and were staunch supporters of capitalism and firm believers in the individual capitalist ethos. As Nancy E. Rose shows in her book, Put to Work: The WPA and Public Employment in the Great Depression, it is also beyond doubt that both Hoover and FDR began to advance public works programs because they feared working class rebellions, which would have made any effort to restore capitalism a vain undertaking.

Lessons for the 21st Century

What the world needs today is not a return to the traditional economics of rescuing capitalism but a new global economic model based on new economic values, balanced growth, and the introduction of cooperative economics. A reversal of today’s globalization trends may also be necessary for the realistic transition into a new economic model, one that breaks free from a political economy paradigm which, as I have argued previously, “revolves around finance capital, is based on a savage form of free market fundamentalism and thrives on a wave of globalizing processes and global financial networks that have produced global economic oligarchies with the capacity to influence the shaping of policymaking across nations.”

The economic environment of contemporary capitalism is shaped by three interrelated forces: financialization, neoliberalism and globalization. It is the combined effects of these three forces that have given rise to a new form of predatory capitalism in the late 20th and early 21st centuries. As such, any project driven by New Deal aspirations needs to implement political processes that will undermine and bring to a halt all three of the above forces.

Having said that, it would be naive to think that the proponents of a new New Deal — who tend to be mostly of a social democratic ilk and remain firmly committed to a capitalist socioeconomic order — would have the political will to engage in such an undertaking. Indeed, their arguments for a New Deal for Europe and the US rest on convincing the current economic elite that such a project would be best for the future of capitalism itself.In fact, most contemporary New Dealers do not call for the re-organization of the economy, nor do they advocate anything resembling economic democracy.

The answers to the problems confronting today’s advanced capitalist economies and societies cannot come from within the logic of the very system that is responsible for causing massive unemployment and constantly widening the gap between the haves and have-nots. The capitalist system is threatening human civilization through its incessant fueling of global warming, which has resulted from the dynamics of a specific system of economic and social organization that thrives on capital accumulation.

The answers to the problems of unemployment, inequality, poverty, violence and environmental degradation can come only through the end of capitalism and its replacement by democratically run forms of economic and social organization, which probably mandate a return to economic localization.

In this context, putting an end to global free trade regimes, reversing the globalization trends of the last 40 years, resisting corporate takeovers and the privatization of national economies, and creating new networks of political activism based on class-politics and centered around a vision of democratic socialism is the only way to put an end to capitalist barbarism.

Whether today’s Left is up to the task, however, is another story.