The Second Movement: Rethinking the Knowledge Economy

• In Event: Political Economy, Knowledge and Inequalities

Abstract

A series of reforms starting in the 1990s – financialization, introduction of strong competition policies, the lifting of capital controls and restrictions on FDI, macroeconomic stability through central bank independence, and massive investment in higher education – created the institutional foundation for the new knowledge economy. But there is now a political reckoning with the consequences of these reforms, and there are multiple initiatives to once again reinvent capitalism. Karl Polanyi described a similar reaction to Laissez-faire capitalism of the interwar period, and it is this “second movement” of the current period that is the focus of this paper (building on the theoretical framework set out in Iversen and Soskice, Democracy and Prosperity, PUP 2019). The topic is very congruent with the theme of this year’s APSA conference.

The “second movement” is a political reality, but the politics and outcomes are far from clear. A starting point for my analysis is the idea that political institutions that facilitate inclusiveness – notably PR electoral systems but also committee-based legislatures, well-organized unions, and “bargained bureaucracies” – enable more egalitarian labor markets with greater mobility, which in turn cultivate solidarity and system support. In this context, the electorate for populist parties is limited, and populists may see their best option to be participation in the conventional democratic process, seeking policy concessions rather than systemic change. Arguably this kind of mainstreaming is the pattern we observe in several northern European countries today: a move to the left of rightwing populism on economic and social issues (but not cultural ones). This has facilitated economic integration.

By contrast, institutions that exclude large minorities from the new economy, and undermine mobility, foster discord and opposition to mainstream politics. The danger is that populist movements in countries like the US, UK and Italy will act as spoilers that seek to undermine the institutional supports of the modern economy -- either by insisting on “inefficient redistribution” (such as protectionism) or by turning against investment in higher education and other institutional pillars of the knowledge economy. The policy impact of populism will clearly be limited by the need for governments to attract support from those who benefit from the new economy, but exclusion from the fruits of the new economy could lead to perpetual polarization and disaffection with democracy.

At the national level the division of democracies into economically and politically “exclusionary” and “inclusionary” forms is broadly reflected in what economists call the Great Gatsby Curve. As wages and regions pull apart mobility will decline, undermining an important source of cross-class solidarity and reducing the number of “aspirational” voters (people who may be excluded from the new economy but have an expectation that their children will be included). A major theme it therefore how institutions and policies determine where countries end up on the Great Gatsby Curve (as well as the shape of the curve itself).

I intend to explore “second movement” politics in four cases: the US, UK, Germany, and Denmark, which represent a broad range of institutions and policies, with Denmark and the US on the extremes of the inclusion-exclusion continuum. This case-centered analysis will be complemented by a quantitative cross-country, cross-time analysis of redistribution and higher education investment. Where feasible, I will take advantage of opportunities for causal identification (e.g., the effect of access to new commuter options on political attitudes in the city exurbs).

Author

• Torben Iversen, Harvard University