Policy Ideas in Times of Crisis

Politicians and pundits seek solutions to crises in new policy ideas, but history tells us the process is more recycling than invention.

When the financial crisis hit Canada and the rest of the world in September 2008, the first reaction of Prime Minister Stephen Harper was to deny the gravity of the situation. Fighting for his reelection in the middle of a federal campaign, he repeatedly declared that the fundamentals of the Canadian economy were strong. His statements recalled the rhetoric used a few weeks earlier by Republican Presidential candidate John McCain, who denied the very possibility of a major economic crisis just before it became reality. Predictably, both Harper and McCain were soon forced to alter their rhetoric during the last stretch of their respective political campaigns. Rapidly, a consensus emerged that we faced a recession that could last longer than initially expected. Today, few people would deny the importance of the financial and economic crisis that became so obvious last September.

The sense of crisis that has dominated policy discussions since September has triggered a debate about the future of global capitalism, and the validity of the anti-regulatory approach to economic prosperity that triumphed in the United States during and after the Reagan era. The nature of the debate generated by the current crisis is hardly surprising in light of the existing social science research about the role of policy ideas in times of crisis. In his book Great Transformations, for example, political economist Mark Blyth wrote extensively about how the major economic downturns of the twentieth century increased the legitimacy of new policy ideas and the actors who carry them. For instance, in the 1970s, neoliberal opponents to the statist model of economic regulation associated with the work of John Maynard Keynes gained more ground because the aftermath of the 1973 oil crisis made this model vulnerable to attacks. Increasingly, as Blyth’s analysis suggests, economists and policy experts from countries as different as Sweden and the United States came to look for new policy ideas to address problems like inflation that Keynesianism seemed increasingly unable to tackle.

But the neoliberal, free market ideas that these actors turned to were not entirely new. In fact, to a large extent, neoliberalism is an attempt to rejuvenate market liberalism, an economic ideology that crystallized during the nineteenth century. This is no accident if the title of Blyth’s book explicitly refers to a key analysis of nineteenth-century market liberalism: Karl Polanyi’s Great Transformations. Published during World War II, this book put forward the idea that the Great Depression and the war had fatally wounded the old liberal creed. During the war, one of the most passionate proponents of this then old-fashioned creed, economist Friedrich Hayek, launched a campaign against the new statist orthodoxy. At the time, most observers did not take Hayek seriously, and commentators even wrote about the “end of ideology” while describing the post-war consensus centered on statist regulation and what became known as the modern welfare state.

Yet, during the post-war years, instead of conceding defeat, Hayek and his politically marginal allies published dozens of books and articles to frame their free market alternative to Keynesianism. In the 1970s, when the economic crisis weakened statism and the Keynesian model, these conservative actors gathered business support to subsidize their think tanks and publications and promote their increasingly popular ideas. Politically, such ideas triumphed in 1979 and 1980, with the election of Margaret Thatcher and Ronald Reagan, respectively.

Looking back at these well-known events, we can reflect on the state of uncertainty and perceived crisis we live in. For years, opponents of neoliberalism have sharpened their attacks and developed alternative approaches to economic development that borrow from past economic perspectives, including Keynesianism. Clearly, seemingly new ideas draw from rich and widely available intellectual traditions that fall out of fashion during one crisis to reemerge as a serious policy alternative when the dominant theory of the day crumbles in the face of a new crisis. Although history never fully repeats itself, the above tale suggests that people dissatisfied with the status quo should always be ready to make a strong case for their approach while recognizing that it is necessarily grounded in past debates and theories.

As Keynes himself famously suggested, policy is typically based on the ideas of long-dead economic thinkers. Ironically, by rediscovering his work today, policymakers once again validate his statement about the enduring influence of these thinkers. Because ideas from the past take a new meaning in our world, they can remain surprisingly timely. Without meaningful policy ideas, including older ones that we reframe and enrich, we can hardly make sense of the challenges facing us. Although hardly new, this claim does take a fresh meaning in our time of crisis.