Beyond Neoliberalism and Neo-illiberalism E-Book

• Herausgeber: transcript Verlag
• Kategorie: Geisteswissenschaft
• Serie: THE NEW
• Sprache: Englisch

Seitenzahl: 272

Veröffentlichungsjahr: 2024

Beschreibung

In many countries, the political backlash against neoliberalism has mainly been a retreat from democracy, with a decline in independence of the judiciary and the monetary authorities, increased control of the media, and manipulation of elections for purposes of authoritarian control. The economic dynamics and the impact of neoliberalism, i.e. deregulation and liberalized markets, is just one cause of this authoritarian shift. The contributors to this volume examine the impact of neoliberal economic policies in relation to cultural and political factors and how these have promoted the recent authoritarian turn, as well as probing the economic policies and performance of the illiberal regimes.

Leseprobe

Beyond Neoliberalism and Neo-illiberalism

Economic Policies and Performance for Sustainable Democracy

Edited by:Markus Gabriel, Anna Katsman, Thomas Liess, and William Milberg

THE NEW publishes collaborative research in the humanities and social sciences. Its publications offer future-oriented responses to the nested crises of the present along the dimensions of what it means to be human, how to improve democratic self-governance, and how to achieve socio-economic transformation. Our goal is to make humanistic research relevant and accessible to wider audiences.

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First published in 2024 by transcript Verlag, Bielefeld

© Markus Gabriel, Anna Katsman, Thomas Liess, William Milberg (eds.) and the authors

Design & Typesetting: Maciej Kodzis, CDLX GmbH and THE NEW INSTITUTE

Copy-editing: Diana Perry Schnelle

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Print-ISBN 978-3-8376-7487-3

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https://doi.org/10.14361/9783839474877

ISSN of series: 2510-9286

eISSN of series: 2510-9294

Editorial

Markus Gabriel and Anna Katsman,THE NEW INSTITUTE

Introductions

William Milberg,The New School

Laura Carvalho,Open Society Foundations

Brian Kettenring,Hewlett Foundation

IThe Connection Between Economy and Democracy

After Neoliberalism,Dani Rodrik

Illiberal Political Economics after Neoliberalism,Jessica Pisano

Pursuing a Human Rights Economy,Darrick Hamilton

Markets and Democracy,Joseph Stiglitz

IIDrivers of Neo-illiberalism

Why and How Precarious Workers Support Neo-illiberalism,Rosana Pinheiro-Machado

Austerity: Why, What, and How – Lessons from the UK’s Failed Experiment,Thiemo Fetzer

The Enduring Social and Economic Consequences of the China Trade Shock,David Autor

IIIPolicy and Performance in the Illiberal Turn: Money and Growth

Populist Leadership and Economic Decline,Moritz Schularick, Christoph Trebesch, and Manuel Funke

The Politics and Limits of Monetary Policy Under Growing Authoritarianism: The Case of Turkey,Ayca Zayim

Illiberalism on Europe’s Periphery: A Critical Macrofinance Tale,Daniela Gabor

IVPolicy and Performance in the Illiberal Turn: Labor Market and Social Protection

The Labor and Social Policies of Neoauthoritarian Populist Governments: A Comparative Analysis of Hungary, Poland, and Türkiye,Janine Berg and Ludovica Tursini

Corporate Majoritarianism in India,Sheba Tejani

Conclusion

Towards a Democratic Economics,William Milberg,The New School

List of Contributors

 

Editorial

 

THE NEW publishes collaborative research in the humanities and social sciences. Its publications offer future-oriented responses to the nested crises of the present along the dimensions of what it means to be human, how to improve democratic self-governance, and how to achieve socio-economic transformation.

This publication arose out of a workshop on Rethinking Capitalism: Creating Value for Social Well-Being, which took place at THE NEW INSTITUTE in Hamburg from September 5–7, 2023. Within the framework of the fundamental themes that the Institute addresses – the human condition in the 21st century, the future of democracy, and socio-economic transformation – we discussed what future of democracy is worth wanting, what future is available, and how can we account for the rapid rise of authoritarian regimes. The discussion turned again and again to how the neoliberal economic policies of the past decades have been essential drivers of the crisis of democracy and how this crisis has led to the rise of a novel socio-economic constellation, which the authors contributing to this publication discuss as “neo-illiberalism”. Some of the authors were present at our workshop. Given the overlap between the concerns of THE NEW INSTITUTE and the essays assembled by Will Milberg and Thomas Liess here, we are delighted to publish recent work being done on the economic, political, and cultural consequences of neoliberalism and the rise of neo-illiberalism.

The papers in this publication explore concrete cases from around the world in order to identify the hallmarks of the neo-illiberal constellation of democracy and capitalist market societies. As Milberg sums it up, the papers collectively “point to the need for a more sustained effort to counter both the economic insecurity and volatility of neoliberalism and the labor suppression, ethno-nationalism and clientelism of the neo-illiberal economies. Such an effort will require creative and interdisciplinary work on both theory and policy” (this volume, p. 223). As we saw during our Rethinking Capitalism workshop, this effort to effectively counter neo-illiberalism will depend on opening up a space for a novel reconfiguration of the liberal self-conception of the human.

At THE NEW INSTITUTE, we believe the humanities and social sciences provide realistic yet value-laden conceptions of the human that avoid fallacies, simplifications, and other ideological traps. Only on this basis will it be possible to shape the future of capitalism by democratic means without falling prey to the reductionist conception of the human being and its economic rationality promoted under neoliberalism. The discipline of economics must be recoupled with the humanities to support value judgments of a broader and ultimately ethical kind. The evidence clearly suggests that ethno-nationalist, neo-illiberal economic policies undermine social well-being at least as much as the unleashing of a one-sided, neoliberal, dualistic opposition of market and state, human being and nature, social self-consciousness and our animality. Thus, while neoliberalism has failed by not embedding markets within a cultural and institutional context geared towards social well-being, neo-illiberalism will certainly do no better. At most, neo-illiberalism achieves short-term investment in stereotypes around which fictions of national, ethnic, religious, and other identities cluster so that they can be politically exploited in the pursuit of consolidating more political power in the hands of actors who fear the sovereignty of the people.

We thank Will Milberg and Thomas Liess for offering us this exciting collection of essays, for which they serve as editors. We also thank the Open Society Foundations and the Hewlett Foundation for their support of the projects that led to this publication.

The papers assembled here present research by leading economists, sociologists, and political scientists who interrogate the intersections between the future of democracy and capitalism that are driving the troubling socio-economic transformations we are witnessing. These papers serve as models for international and transdisciplinary cooperation based on informed research that provides normative orientation in complex times – without which we will not be able to shape the future or contribute to positive social change. Complex situations require complex solutions. We hope that these essays will inspire our readers by providing them with a novel take on our present moment, which points beyond neoliberalism and neo-illiberalism alike.

MARKUSANNA

THE NEW INSTITUTE

GABRIELKATSMAN

THE NEW INSTITUTE

Introductions

 

This publication ofTHE NEW–Beyond Neoliberalism and Neo-illiberalism: Economic Policies and Performance for Sustaining Democracy, presents papers from a convening held on March 27th and 28th, 2023 at The New School for Social Research. It features an informative and wide-ranging discussion of a number of basic questions on the relation between democracy and economy. The political backlash against neoliberalism has mainly been a retreat from democracy. Its main features are the decline in independence of the judiciary and the monetary authorities, suppression, or control of the media, and, of course, direct manipulation of election rules for purposes of authoritarian control.

The causes of this authoritarian shift are many, of which the economic dynamics and the impact of deregulation and liberalized markets – neoliberalism – are just one. Although there are many studies of the causes of democratic “backsliding” and “neo-illiberalism”, there has been inadequate attention to the economic consequences of the neo-illiberal turn. With its grants to The New School for Social Research, the Open Society Foundations and the Hewlett Foundation have supported the advancement of thinking on the economics of neo-illiberalism that has been seen across a variety of countries. The project has been enormously generative in raising questions about the role of neoliberal economic policies in relation to other cultural and political factors in promoting the recent authoritarian turn, as well as about the commonalities in the economic policies and economic performance of the illiberal regimes.

The convening featured research on Turkey, India, Hungary, Poland, the Philippines, Bolsonaro’s Brazil, Trump’s America, and Brexit in the UK. Three themes stood out in our deliberations: (1) the role of neoliberal economic policies in relation to other cultural and political factors in promoting the recent authoritarian turn in many democracies; (2) the challenges, inequities, and disappointments of the economic policies and economic performance of the neo-illiberal regimes; and (3) the need to develop positive alternatives to the unsatisfactory performance of both neoliberal economic policy and the neo-illiberal policy frameworks we observed. The first two questions were addressed on the first day of the conference and the third was the focus of an intensive discussion the second day. I return to (3) in the conclusion of this report.

To open the issue, Dani Rodrik argues that “hyperglobalization” was one of the causes of the anti-democratic backlash. He proposes that the world trading system return to something more like the General Agreement on Tariffs and Trade (GATT), focusing narrowly on tariffs and creating policy space for countries to control other features affected by globalization, including capital flows, competition policy, and taxes. Joseph Stiglitz goes further, arguing that free markets had created outcomes – unsustainable debt, financial crises, wage stagnation, precarious employment, and income inequality – that directly induced an anti-democratic turn. He makes the case for strengthening “collective action” to underpin a more democratic approach to growth and development. Darrick Hamilton makes the case for economics to be included as a human right, thus connecting the economic and the political dimensions explicitly. Hamilton calls for “inclusive economic rights…where economic rights become the cornerstone investment in our future and a necessary and inseparable component of human rights.” Power asymmetries, associated with race or ethnicity or nationality must be addressed, he argues, if these human rights are to be honored. Jessica Pisano connects economic clientelism to the anti-democratic tendencies observed especially in Eastern Europe. Illiberalism, she claims, often has less ideological content than many imagine, noting that “while illiberalism produces something that looks like ethnonationalism, it often starts from an economic compact, a transactional politics.” She argues that there is a distinct political economy of illiberalism that will have to be addressed if political change is to be accomplished, and this political economy results from the unique relation between central political power and local clientelist dynamics.

Subsequent papers go into specific national examples. Anthropologist Rosana Pinheiro-Machado explores the case of free-market beliefs on the part of low-income platform workers (e.g., Uber drivers) in Brazil, who oppose government anti-poverty measures. Such workers support the free-market, pro-entrepreneur platform of President Bolsonaro because they resent that they often cannot access government support for the poor. They self-identify as entrepreneurs and social media tends to bolster both this sense of entrepreneurial identity, and the unfairness of the welfare system for these “entrepreneurs.” David Autor provides detailed evidence that Chinese import penetration into the US resulted in deep, regionally specific impacts to unemployment and manufacturing, associated with increased electoral support for President Trump. Thiemo Fetzer shows that fiscal austerity was associated with the vote on Brexit, but that the role of austerity is relevant to understanding other crises as well, including the Covid-19 pandemic and recent difficulties around energy supply associated with the Russian invasion of Ukraine. Fetzer describes austerity as “a signature zero-sum policy” and identifies the solution in part as one of engaging local communities in research on the natural and social challenges.

The last two papers look at the policies and performance of the new illiberal democracies. Moritz Schularick, Christoph Trebesch and Manuel Funke present a broad econometric study of “populism” since 1900, which shows consistent underperformance in economic growth by (left-wing and right-wing) populist governments compared to how they would have performed in the absence of a populist turn. This is a sobering introduction to papers on macro and monetary policy and on labor market and social protection policy. The challenges of a politically dependent central bank function are discussed in the cases of Turkey and Hungary. Ayca Zayim shows how Turkey’s efforts to keep interest rates low as they increased internationally led to debilitating currency depreciation and drastic declines in real income. Daniela Gabor details a similar experience in Hungary and thus the challenge of bucking international financial pressures for clientelist, local capitalist, gains. The lessons are also useful for other countries in the future. Part of the Trump platform for a second term is to limit the independence of the Federal Reserve, according to recent reports.

On the labor market side, Sheba Tejani argues that Modi’s support for anti-Muslim movements has been part of a broader “corporate majoritarianism” featuring the elimination of some basic labor rights and economic empowerment of a few political cronies. Janine Berg and Ludovica Tursini find that while labor rights were under attack in Hungary, Poland, and the Philippines, real wage growth in these countries was surprisingly strong.

A goal of this project has been to push the discussion beyond the critique of neoliberalism to also assess the economics of anti-democratic tendencies. The first question was to consider just what the economic policy levers of the new anti-democratic regimes are. Are these economic policies similar across countries to the point where we can identify a coherent “neo-illiberal” economics (the way many have done for neoliberalism)? Are the policies significantly different from those of the neoliberal era? The papers in this special issue indicate that it certainly seems so, with nationalism and xenophobia driving illiberal restrictions on international trade and immigration. The papers have added important detail by focusing on monetary policy, labor market policy, and social protectionism.

The second goal was to assess the effectiveness of the economic policies in these anti-democratic countries. Have the policies been able to generate just and equitable economic outcomes, while sustaining the democratic principles that many of us hold? The evidence presented in the research that went into these papers gives a negative answer to this question. Growth rates are lower than they would otherwise be, clientelism leads to preferential treatment of a political base to the great detriment of minority ethnic groups and immigrants, and the challenges of anti-democratic control can wreak havoc on the macroeconomy.

The overall findings of this important research lead to a next set of questions: If neoliberalism has largely failed and the reaction against it has not been an enormous economic success, then what next? What is an economic model for the future, or even a set of economic policies, we can contemplate for the future of capitalism? These daunting questions will be the subject of the next phase of the project, currently ongoing.

The idea for this project came out of conversations with the Open Society Foundations (OSF) and Hewlett Foundation. It is well known that OSF has been supporting causes that advance democracy for decades, and the Hewlett Foundation has now become a leader in the search for a new economic paradigm, that is, new economic theories that might underpin a democratic and just economic policy regime. I want to thank these foundations for their support for this project. Laura Carvalho (from OSF) and Brian Kettenring (from Hewlett Foundation) each said a word of welcome at the convening and they have kindly agreed to include their introductory comments here. Laura and Brian provided support in terms of funding, but they have been full intellectual partners in this project as well.

WILLIAMMILBERG

The New School

 

I think Will Milberg has framed well what the moment requires of us, and the importance of the topic that we will be discussing in this convening. The idea here is, of course, to revisit some of the evidence, and there is a lot of evidence, on the role different economic policies had on the rise of authoritarianism.

In the Global North, there is vast evidence of the importance of globalization and trade, in particular, for what we are seeing in terms of backlash, both from the ethno-nationalist perspective and the far-right and authoritarian platforms in Europe and in the US. But when you look at the Global South, the situation is not necessarily the same. Of course, globalization plays a role there as well and de-industrialization is happening in many parts of the Global South. But we can see a bit of nuance when we think about the role globalization played in countries like Brazil, which benefited from Chinese growth and commodity prices in the 2000s. Nonetheless, we still saw democratic backlash.

This starts to raise some questions around what exactly are the economic policies that haven't delivered and have created fertile ground for these authoritarians in different parts of the world. Maybe there are different roles that have been played by different policies.

By bringing researchers from different parts of the world to this conference, this is one of the first questions that we will try to answer. Of course, there is also evidence of the role of fiscal austerity and labor deregulation. In those cases, we may be able to see more common ground in different countries.

The second aspect that I would like to call attention to is the issue of neo-illiberalism, especially in economic policy. It is true that in this recent wave of authoritarian regimes, we have not had a comprehensive assessment of the economic policies such regimes have been using. Going back to Brazil, Bolsonaro’s regime was a combination of authoritarianism and moral conservatism with market fundamentalism. So many would argue that economically it was a very neo-illiberal government. Yet the policies implemented by Bolsonaro’s government were actually even more radical neoliberal policies than what the country had seen in the past 20 years.

Brazil’s combination of authoritarian politics and neoliberal economics is not necessarily what we have seen in other contexts where there has been a combination of illiberalism and an anti-systemic type of economic policies. And so, the question again emerges: as we try to move to another economic paradigm that can simultaneously deliver benefits to citizens and create the conditions for democracies to thrive, how do we assess the capacity of these governments to deliver?

As The Open Society Foundations' Global Director of Equity, I have been part of this conversation since the beginning, and we are proud to co-host and fund this event together with the Hewlett Foundation. I studied at The New School and graduated with a PhD in economics in 2012, so it is a very special occasion for me and it is great to have so many OSF colleagues and some of my former New School professors in the room.

LAURACARVALHO

Open Society Foundations

 

As the Director of the Economy and Society Initiative at the William and Flora Hewlett Foundation, I lead a five-year $100 million grantmaking effort that aims to foster a “new common sense” about how the economy works, the aims it should serve, and how it should be structured to meet the biggest challenges our society faces. In other words, this initiative seeks to foster a new economic paradigm in terms of what comes after neoliberalism. Initially, this work was conceptualized as part of our democracy work at the foundation, as part of an analysis of how to respond to Trumpism. It came out of a thought process that was domestically oriented, seeking to understand what was happening in the United States.

I think of neoliberalism as a set of ideas and practices buttressed by power. Although such ideas seem to be increasingly in retreat, they remain persistent and embedded, and forces underneath them allow them to stay alive.

In recent years, increasingly, the threat for those of us working in political economy is ethnonationalism. For us, then, this conference marks a bit of a turn to take up the question of ethnonationalism and political economy. In doing so, we have to be as laser focused as ever, as one cannot defeat something with nothing. Hence the need to craft democratic alternatives. To do so, however, we need a more rigorous analysis of what is happening in the relationship between political economy and authoritarianism.

For Hewlett, this convening marks the strategic opening of a conversation. Like you, we have our own questions, which I bring to this conversation. These include:

1.the relationship between inequality, extremism, and alienation;

2.taking up the fallacy that neoliberal opening would lead to democratization;

3.the class inversion within the parties in the United States and parts of the West that is not happening everywhere around the world. What does this mean for political institutions and processes?;

4.Gary Gerstle's 2022 book The Rise and Fall of the Neoliberal Order: America and the World in the Free Market Era really underscores the relationship between geopolitics and domestic political economy. He argued, for example, that the Soviet dynamic in the US, the threat of communism, reinforced an inclusive compact between workers and capital in the United States. Given the return of geopolitics, how does that play out?

I would like to thank Laura Carvalho, Mark Malloch Brown, and the team at The Open Society Foundations for their partnership in this project, as well as William Milberg and his team at The New School. We are really eager to be on this journey with you.

BRIANKETTENRING

Hewlett Foundation

 

I

The Connection Between Economy and Democracy

After Neoliberalism 1

DANIRODRIK

Kennedy School,Harvard University

This section focuses on what policies would be desirable in a potential economic regime following neoliberalism, and alternative to neo-illiberalism, and it aims to present some of the key features of this new order. Two scenarios are possible, an optimistic one and another more pessimistic. This section will mainly focus on the positive scenario, while raising some concerns about how the system could shift toward a negative one.

There is not a very tight connection between neoliberalism and the political regime type, at least in the short run, rather there might be one over longer or historical stretches. However, one relationship I want to draw attention to concerns the nature of the transformation that labor markets have been going through recently. Indeed, what is happening nowadays in low- and middle-income countries, ranging widely from Eastern Europe to other countries, is very different from the historical processes that created advanced social democracies in today’s developed world, and it also results in very different kinds of politics.

Figure 1: Employment Growth by Occupation and Annual Pay, 1980 to 2019

Source: Autor (2021)

When we think about the historical process of economic and political development, industrialization is, to some extent, shaping the development of the working class. The working class in turn becomes, after long periods of struggle, an organized labor movement that ultimately may underpin a kind of labor-based political movement and a party. If this happens, the labor party could drive all kinds of reforms and classical liberalism could either be transformed into explicitly social democracy or illiberal democracy, with a very strong redistributive bent. But at the root of this historical transformation, it is still labor getting organized through a process of industrialization, typically with workers gathered into factories in urban areas. When this process of industrialization is lacking, or when an economy has industrialized but is then subject to premature deindustrialization, the result is a disorganized petty informal sector of micro enterprises, self-employment, and the lack of development of a similar workers class. This is, in my opinion, likely to result in a kind of politics that is very different from what we have gotten in the advanced industrial countries of today. It is much more of a personalized and clientelistic type, which successful authoritarian populists, such as Orbán, Erdoğan, Modi, or Bolsonaro, are actually quite good at delivering in the form of very particular services to “the people”, i.e. their electorate. While this is certainly not a deterministic process, I believe that one version of politics resulting from changes in the underlying economy is this authoritarian populism. Hence, these labor market trends, which have been driven by globalization, technological trends, and so forth, are making it much more difficult, or nearly impossible, to generate political regimes that we associate with the classical transformation in advanced countries. I want to explore in more detail how this is the case and what could be a democratic alternative to neo-illiberalism after the decline of the neoliberal regime.

Figure 2: Share of Pretax Income Going to the Middle Class in Select Countries, 1980–2021

Note: Figure shows pretax income share going to the middle 30th-70th percentiles for each country.Source: World Inequality Database (2021)

A good scenario for a post-neoliberal order would essentially consist of a step back from what is commonly called hyper-globalization, to allow greater domestic space and freedom for the reconstruction of national social contracts, where each country would remain freer than it has been in the recent past. Freer not just from extortive external regulations, but also at the intellectual and cognitive levels; freer to pursue their own national development models that might be appropriate in the specific context. The issue of industrial policies targeting good jobs has particular relevance for developing and developed countries alike. Indeed, in many ways, the disappearance of good jobs is at the heart of the rise of illiberalism and authoritarian populism, topics that are the concern of this project. In this regard, the well-known phenomenon of labor market polarization in most of the advanced countries is problematic, as it is hollowing out labor markets, with middle-skill-level jobs disappearing.

Furthermore, it is also true that in the most recent recovery workers at the very low end of the pay distribution have actually done quite well in the last couple of years compared to those in middle-class occupations. This squeeze of the middle class is reflected in a long-term trend, particularly acute in the United States. This squeeze has many implications, not only economic, with rising inequalities, but also social, even affecting health, to name one.

Figure 3: Manufacturing Trends in Various Countries

Source: De Vries et al., The Economic Transformation Database (ETD; 2021)

A different version of this dynamic is also playing out in developing countries. Specifically, the traditional pattern of structural change that governs countries’ development is no longer working. The traditional pattern entailed a move from agriculture and informal activities to formal organized manufacturing, and, ultimately, to services, after higher levels of incomes were reached. Instead, what is observed today is very different. Even though people are still leaving the countryside and the agricultural sector, they are not being absorbed by the industrial and manufacturing sector, rather they are funneled into informal services in urban areas. What is observed is a phenomenon of premature deindustrialization in the low- and middle-income countries. Indeed, although these countries are still poor and hence earlier theories of development would have recommended industrialization in order to develop, formal organized manufacturing is actually shedding labor. Furthermore, even in some low-income countries where industrialization has gone ahead at a reasonable pace, an increasing dominance of informality within manufacturing is observed.

This country-wide polarity plays out increasingly within manufacturing itself. Hence, the challenge that the system confronts – and this again is common between low- and high-income countries – is that re-industrialization, i.e. trying to reignite domestic industrialization, is not going to solve this problem.

This can even be seen in those countries, such as Taiwan, South Korea, and to some extent Japan, which have been rather successful in maintaining high levels of manufacturing activity in terms of output and value-added at constant prices, as employment in manufacturing continued to shrink. South Korea is a particularly striking example of this. In South Korea, manufacturing output as a share of GDP at constant prices has actually continued to increase quite significantly since the 2000s. This is maybe the most illustrative case among countries that are trying to reindustrialize through, for instance, the CHIPS Act or re-shoring in the United States2. Just achieving half of this would look like a miracle in the United States in terms of re-industrialization. However, despite this re-industrialization, it is worth noting that manufacturing employment has nonetheless shrunk as a share of total employment. Hence, it seems unlikely that even re-industrialization would be able to reverse the trend of polarized employment. For this reason, the urgency emerges for a new set of policies and the need for the post-neoliberal era to adapt, deal with this feature, and find a way forward to reverse these trends, through the creation of an increasing number of good jobs fitting the middle-skilled class.

To reach this goal, it is not enough to merely talk about re-industrialization. Rather, this discourse would need to be complemented by other interventions, such as investing in training and education, establishing standards, increasing the bargaining power of workers, setting higher minimum wages, and so forth. All of those are obviously important, but their implementation is not without complexities. Indeed, there is a tension between trying to enhance or mandate higher pay for workers at the lower-middle end of the skill distribution and the consequences for employment. This has been observed, for example, in a country like France, which has done rather well at keeping up the bottom of the labor market in terms of pay and standards. The cost has been very high youth unemployment, as people have trouble getting into the labor market at a young age. Thus, the only way this tension could be resolved is by complementing these policies of collective bargaining and standards and better labor market regulations with increasing the productivity of workers at the low and middle end of the skill distribution. This is, after all, really the domain of industrial policy. Indeed, it focuses on fostering innovation and appropriate structural change towards more productive activities.

Today, however, when talking about industrial policies and the variation of innovation policies, the tendency is to focus on manufacturing, supply chains, the green transition and global competitiveness. It is generally thought that jobs are going to be the by-product of these things, as in the case of the Inflation Reduction Act (IRA)3 or the CHIPS Act in the US. But in fact there is no guarantee. Indeed, as mentioned earlier, even if the effort to revive manufacturing is to be successful, the benefit in terms of jobs creation will be rather meager, as nowadays jobs creation is principally shaped by the service industry. It follows that there emerges a new need to target industrial policies much more explicitly on good jobs. That also means that industrial policies will need to put as much emphasis on the demand side of labor markets – namely enhancing productivity in small and medium-sized enterprises that will be creating the bulk of jobs – in addition to enhancing the supply side of labor markets, through investment in skills and training that will have to focus much more on services rather than just manufacturing.

Let me now turn to briefly present some salient aspects of what this system might look like on three different levels. First, at the very local level, a set of local “industrial” policies would be needed, combining workforce development with business development to provide firms, especially smaller and medium-sized enterprises, with a portfolio of business services, an extension to services of the sort we normally think of as “agricultural extension” or “manufacturing extension”. In this sense, there is a need to reorient the capabilities of these local cross-sectoral efforts to develop these business services, whether it's in terms of management training, access to platforms or technologies, access to land, or access to help with regulations, to name a few.

At the national level, it is necessary to invest much more directly in labor-friendly technologies. The tendency so far has been to take the direction of technological change as given. But of course, technological change is not given, rather it responds to incentives. One could imagine, for example, setting up an “ARPA-W,” that is an ARPA (an Advanced Research Projects Agency) for workers that would allow investment in frontier technologies. This could provide frontline workers, say in long-term care or education or retail, with digital tools or other AI tools that actually enhance their performance and allow them to provide much more customized services to their customers, whether it is retail customers or long-term care patients. That would actually make this relationship much more productive while giving workers much more agency and autonomy in the way that they produce. In this sense, this ARPA