NEW PARADIGM | REPORT
Mapping the State of a Shifting Paradigm
by Thomas Fricke, Xhulia Likaj, Maren Buchholtz, Sonja Hennen, Tom Krebs, David Kläffling
PUBLISHED12. JANUARY 2023
For more than three decades, economic and societal policies have very much been led by market-liberal principles. Since the financial crisis in 2008, this leitmotif has lost a lot of its attraction leaving a dangerous paradigmatic vacuum behind that populists try to fill.
The failure of former guidelines has also led to a lot of seemingly ad hoc government interventions to solve current crises. Is this comeback of the state sort of a societal fashion with no systematic economic foundation? Or does it reflect the emergence of a new paradigm crucial to find more elaborated answers to the new major challenges left behind by the market-liberal era, from climate change and serious inequalities to the crisis of globalization and the instability of financial markets?
The present report tries to evaluate if recent developments in research and policy reflect the beginnings of such a new paradigm. It also evaluates which stage this renewal has reached compared to former paradigmatic changes in history. Our research indicates that there is more than ad hoc research on new challenges.
During the past one-and-a-half decades, a comprehensive body of academic work has evolved in a wide range of areas. The report identifies at least a dozen major new streams of thought each reflected by prominent international thinkers ranging from Dani Rodrik regarding the redefinition of globalization and Thomas Piketty on how to reduce inequalities to Mariana Mazzucato’s work on an innovative state. For Germany, such new streams of thought are represented by innovative researchers like Moritz Schularick, Jens Südekum, or Isabella Weber. This largely uncoordinated work has the potential to be seen as the intellectual core of a new paradigm in hindsight as the work of monetarists and supply-siders has been for the market-liberal paradigm in the past.
The report also identifies a growing number of organisations or individuals actively supporting the search for a new paradigm with Germany catching up in comparison to work undertaken in the US and the UK. These actors include platforms and think tanks like the Forum New Economy and The New Institute as well as Dezernat Zukunft or the ZOE Institute For Future-Fit Economies.
Our systematic comparison over time confirms that there also is a clear paradigmatic shift in positions held by leading international institutions since the high times of market liberalism. The OECD having advocated flexible labor markets during the 1990s today defends minimum wages and better jobs. The IMF has abandoned its formerly unconditional support for free capital movements. Also, institutions like the IMF and the EU Commission today defend more flexible fiscal policies instead of harsh austerity. The same holds for individual governments like the German coalition formed in 2021 that has since raised the national minimum wage, adopted major credit-financed public climate investment packages or introduced new concepts of prosperity and supplementary indicators to GDP in the government’s annual economic report.
Comparing the current changes with former historical examples unravels a shift that is clearly in the making. However, it also becomes clear that there are still elements missing for a full-blown paradigm change. There are still answers to major challenges to be developed, e.g. on how to reverse socially critical wealth inequalities that seem to reinforce themselves via inheritance. Changes perceptible in major institutions most of the time remain incremental with few examples of major new approaches implemented like the new wellbeing budget in New Zealand, for instance. A broader societal paradigm shift also requires an equally broad consensus across party lines on the need for a renewal with social-democratic as well as liberal and conservative interpretations of such a new common understanding.
Stating that the emerging paradigm shift is far from being completed does not necessarily mean that it will not happen. As the market-liberal precedent has shown, such shifts are complex processes evolving over a longer period of time with crisis moments often acting as a catalyst. Due to its apparent insufficiencies and the development of alternative ideas, it seems highly improbable that a strongly market-liberal paradigm will re-appear in the coming years.