Assignment 2: Connections Assignment Weight: 15% of your final course grade Suggested Due Date: At the end of Unit 4 Length: 1–2-page Concept Map (i.e., chart, graphic organizer, table, flowchart, Ve

Unit 3 Overview

Overview

This unit describes the theoretical and historical factors that explain shifts in the business–state relationship in the settler Canadian state. We will see how different theoretical approaches conceive the interaction between the economic and political spheres of society, particularly the role of the state in the activities of the market. This review includes an overview of surveillance capitalism and platform capitalism, which have disrupted traditional business–state relationships in the 21st century. Next, the unit will describe how certain theoretical conceptualizations guided policy makers during the twentieth century, and how the application of theory to practice has unfolded in the twenty-first century. Specifically, we will explore the historical circumstances that facilitated the emergence of Keynesianism and neoliberalism by examining the main differences between them, as well as the current implications of their implementation.

Learning Objectives

When you have completed Unit 3, you should be able to achieve the following learning objectives.

1. Delineate the various elements that constitute the relationship between business and the settler state in Canada.

2. Describe some of the different and contending theories about the nature and role of the state in capitalist society.

3. Outline the main characteristics of the Keynesian welfare state.

4. Explain the demise of the Keynesian welfare state and the rise of neoliberalism.

5. Outline the main elements of neoliberal policies.

6. Describe the impact the digital economy is having on capitalism.

Required Readings

Harvey, D. (2007). Neoliberalism as creative destruction . The Annals of the American Academy of Political and Social Science, 610(1), 21–44.

Hay, C. (1999). Marxism and the state . In A. Gamble, D. Marsh, & T. Tant (Eds.), Marxism and social science (pp. 152–174). University of Illinois Press. https://doi.org/10.1007/978-1-349-27456-7_8

Ianoni, M. (2013). Autonomy of the state and development in the democratic capitalism . Brazilian Journal of Political Economy, 33(4), 577–598. https://centrodeeconomiapolitica.org.br/repojs/index.php/journal/article/view/329

Unit 3: Commentary

Commentary

The distinction between the spheres of the political and the economic is fundamental to understanding the relationship between the state and business in capitalist societies. The connection between the political and the economic is at the heart of other relationships that are relevant to this unit—for example, the links between the state and the market or between public and private interest. What distinguishes different theoretical approaches to the capitalist state is their conceptualization of the nature and boundary between what constitutes the political and what constitutes the economic. Keep this in mind when reflecting on the theoretical approaches presented in this unit. The purpose of the unit is to expose you to the various ways theorists conceive of the relationships between various actors in society, and in particular, the role of the state and how theory has been operationalized into policy in the last decades.

Theoretical Approaches

In order to understand the relationship between business and the settler state, scholars explain the level of autonomy / dependence of the nation-state in relation to the market. For the purposes of this unit, we have classified these theories as:

1. Liberal theory approaches

1. Critical theory approaches

2. Weberian approaches (particularly, the state autonomy theory)

1. Liberal Theory Approaches

Liberal approaches to the state tend to conceptualize the political and the economic, or the state and the market, as two distinct entities separated by an identifiable boundary and governed by entirely different logics. This does not mean, however, that for liberals the political and the economic exist separately from one another; indeed, they structure each other, but it is a relationship of exteriority. For example, liberals argue that the state intervenes in the market through mechanisms such as taxes, subsidies, bailouts, or regulations in a way that structures how the market operates. However, this state intervention comes from outside the market and is motivated by a logic and by interests that are different from those of the market. In keeping with this, liberals argue that the market can have an important impact on state behaviour in terms of presenting economic challenges, such as recessions, that must be addressed by the state. As well, they would agree that market actors, such as business associations, can have significant influence over state policy. However, this influence is due to resources garnered by business associations outside of the state, which allow them to dominate others on the playing field of the political or the state (Held, 2006, pp. 190–191). Importantly, this influence is not due to inherent biases within the state. As Roy (2007) explains, the state or public sector is a mechanism that aggregates the interests of competing groups in society and attempts to harmonize them (p. 1).

Thus, in this view, the state is seen as a political marketplace. Legislation is a response to the demands of various groups and individuals, with no obvious dominant elements (Esping-Andersen et al., 1976, p. 187). This liberal conception of the nature of politics maintains that the purpose of democratic government is to shape a societal consensus out of multiple competing interests through a process of “give and take.” If political institutions are neutral, the political system can act as a mediator in the struggle over political issues, and harmony and equilibrium can prevail. Consensus is achieved through compromise, thus liberal democracy awards all contending interests some benefit—politics is conceived as a “positive sum” game (Taylor, 1977, pp. 1–5). Therefore, for pluralists, the political and the economic are separate and self-constituted entities that shape each other through interactions of exteriority.

2. Critical Theory Approaches

Critical theory approaches to the state, which are Marxist-inspired, tend to problematize the distinction between the political and the economic, and between the state and the market. Specifically, for critical approaches, the state and market are not self-constituted or exterior to one another, but rather form a dialectical unity (Poulantzas, 2014, pp. 115–120). This unity does not mean that the state and market are reducible to one another; rather, it means that the state is inherently present within the market as it is constituted, and vice versa. For example, the exchange between citizens who are ready to sell their labour (employees) and citizens who are willing buy it (employers) is regulated and shaped by the state. The point is that the exchange itself is shaped and constituted, in part, by the state and its policies. The state does not intervene after the exchange to shape the relationship. On the contrary, it is present in the original exchange by helping to constitute the categories of employer and employee through legal obligations and other such factors. Therefore, for critical approaches, the relationship between state and market is one that might appear to be between two distinct entities that are separated by an identifiable boundary, but in fact these entities are present in one another in a relationship of interiority.

What does this mean for the relationship between the state and business? In contrast to liberal views, critical approaches do not see the state or the market as even playing fields shaped by actors with unequal resources, but as uneven playing fields biased toward certain actors by virtue of the dialectical unity of the state and the market. Therefore, in capitalism, the state tends to favour capitalist actors over others through unequal access to, or influence on, particular state institutions (Jessop, 2008, pp. 31–37). The way in which this unequal access occurs is viewed differently by various critical approaches, some of which we will examine in this unit.

Colin Hay (1999) describes the way different strands of Marxism conceptualize the state–market relationship. Depending how they conceived the market–state relations, scholars offer two core approaches: instrumentalist and structuralist.

2.1 INSTRUMENTALIST MARXISM APPROACH

Instrumental Marxism conceives the state as an instrument of the ruling class to protect capital accumulation and privilege of the ruling class. Leninist interpretations of Marx’s work tend to emphasize the “state as an instrument of capitalist classes” approach to the state. This position can be traced to The Communist Manifesto, in which Karl Marx and Frederick Engels asserted that “the executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie” (Marx & Engels, 1998 [1848], p. 37). Neo-Marxist scholars such as Miliband argue that the state is an instrument that is used and manipulated by the ruling classes to defend their privileges. According to Miliband, this is due primarily, although not exclusively, to the social ties and common-class origins of decision-makers within the state, and business actors within the market. These common social ties contribute to an elite worldview of what is good for the nation as a whole (Miliband, 1977, pp. 68–70). Despite this worldview, decision-makers within the state may choose to act against the interests of capitalists if they believe it to be in the interest of capitalism in the long term. Thus, Miliband’s explanation for the relative autonomy of the state is that it is a result of the subjectivity or worldview of civil servants. For Finegold and Skocpol (1995), this perspective focuses on individual actors and not the structure, and therefore, “state action originates in the conscious and purposive efforts of capitalists as a class” (p. 176).

2.2 STRUCTURALIST MARXISM APPROACH

Structuralist Marxism conceives the state as “a system of political domination whose effectiveness is to be found in its institutional structure as much as in the social categories, fractions, or classes that control it” (Jessop, 1982, p.  27). With this approach—led by Nicos Poulantzas, whose work is often labeled “structuralist”—the state remains a class state as a result of class struggle being present within the state itself. Different social classes, whether capitalist or not, are present within the “strategic field” of the state and encounter each other through contradictory and “intersecting power networks” (Poulantzas, 2014, p. 136). Particular ministries or agencies may represent the interests of particular classes (even subordinate ones), but a unity is imposed in favour of a dominant, or hegemonic, class through a “whole chain whereby certain apparatuses are subordinated to others, and through the domination of a particular state apparatus or branch (the military, a political party, a ministry, or whatever) which crystallizes the interests of the hegemonic fraction” (Poulantzas, 2014, p. 137). Therefore, for Poulantzas, the relative autonomy of the state is expressed through shifting power relations that may allow for certain policies against the interests of capitalists, although the institutional structure of the state will tend to favour capitalists. The structuralist position, in contrast to the instrumentalist one, focuses on the dominant structures and not on individual agents, and therefore, “the capitalist state is viewed as a structural system with form and function determined largely independently of the aspirations, motivations and intentions of political actors or members of the dominant class” (Hay, 1999, p. 167).

3. Weberian Approaches: State Autonomy Theory

While neo-Marxists propose varied conceptualizations of the state–business relationship that go beyond viewing the state as a mere instrument of business, they still retain the premise that the state favours business interests. Out of a critique of neo-Marxist literature, and from a Weberian perspective rather than a liberal one, came a new approach that reasserted the state’s autonomy vis-à-vis the market and business interests. Theda Skocpol is a leading proponent of this state-centred approach, which emphasizes the state’s active dominance of civil society and the territory over which it rules through its specific administrative, legal, extractive, and coercive organizations. Rather than focusing on determinants beyond the state, be they economic or political, Skocpol emphasizes the autonomy of the state through the formation of a national state elite that is motivated by a sense of “nationalist interest,” rather than simply mediating between different interests or favouring dominant social classes. As well, this view of the state highlights the role of international politics on national state policies and institutions. For example, international crises such as wars, argues Skocpol, may spur a state elite to pursue policies that might be opposed by powerful interests. Nevertheless, Skocpol does not argue that the state is autonomous in all instances, but she acknowledges that the state as an independent entity. Writing in the pre-globalization era, Skocpol posited that state policymakers tend to be more autonomous in relation to foreign policy than in relation to questions pertaining to domestic matters (Skocpol, 1985). Thus, Skocpol’s contribution to the debate about the nature of the capitalist state has been to emphasize, in a non-liberal way, the autonomy that the state and the market have vis-à-vis one another by positing that the state can act as an autonomous agent out of a sense of “national interest.”

Surveillance Capitalism

The 21st century saw a seismic shift in the state–business relationship that could either greatly enhance or greatly diminish state power. The rise of technology companies to become extraordinarily powerful has been dramatic; depending on the indices, tech companies now appear to dominate the list of the world’s most valuable companies. The company that tops the list, Apple Inc. (a technology company), surpassed the US $3 trillion market capitalization mark in January 2022. As such, Apple exceeds the gross domestic products of all countries in the world, with the exception of the USA, China, Japan, and Germany. The thirst for the technology seems limitless; technological advances are exceeding the capacity of states to understand them, never mind regulate them. At the same time, technology companies provide tools for the state to exert increasing control over its citizens, which could possibly relegate democratic governance to the dustbin of history. Shoshana Zuboff describes this new and powerful form of political, economic, and social control as “surveillance capitalism” (Zuboff, 2015).

While previous versions of capitalism exploited nature to fuel the economic engines of industry, this new form of capitalism exploits the “exhaust” of user data created when individuals interact with their electronic devices (cell phones, tablets, computers) and the internet. This exhaust is seemingly worthless to the consumer. As such, its capture by technology companies seems like a fair exchange for the convenience of applications such as Google Maps and the community provided by social media platforms such as Facebook. While this exchange between tech companies and those who use their products might seem benign, Zuboff (2015) argues (along with tech insiders who have “gone rogue”) that the surveillance by these companies and their control of human interactions will have devastating consequences for individual and societal well-being. Moreover, these same tools can be use by authoritarian governments to control their citizens, as envisioned over seventy years ago by George Orwell in his novel Nineteen Eighty-Four (Orwell, 1949). One needs only look at China’s social credit system (wherein citizens are given points for good behaviour that impact such things as leasing an apartment or getting a job), as well as China’s oppression of Muslim Uyghurs, to realize that the future is now (Domazet et al., 2021).

While states are using surveillance tools created by technology companies for a variety of purposes (for example, policing, social service provision, and meddling in other states’ affairs to name a few), most states lack the capacity to develop their own tools. What is concerning is that tools developed by technology companies, and in particular algorithms (models that predict human behaviour), are proprietary, which means that companies are not required to be transparent with respect to how exactly the model works. This opaque “black box” of decision making is prone to replicating existing biases and assumptions, which can exacerbate existing inequalities among citizens. For example, if you live in a poor neighbourhood with a high crime rate, you will pay more for car and house insurance than if you live in a wealthier neighbourhood because an algorithm has determined you are more vulnerable to car theft and home invasions. The end result is that those least able to pay for insurance, pay more, making it harder to break the poverty cycle. In addition, states often do not have the capacity or the political will to effectively regulate the use of these tools. This leaves states vulnerable to those who use social networking platforms to spread misinformation that destabilizes governments and businesses, and leaves individuals vulnerable to harassment.

Platform Capitalism

Platform capitalism is a form of surveillance capitalism that refers to another emerging economic system produced by the activities of technology companies. In this business model, technology companies provide the hardware and software for business to be conducted by other actors. For example, as part of the emerging “sharing economy,” Uber and Airbnb are based on a model wherein producers of services connect directly to consumers using digital platforms; application developers connect with consumers via the Apple App Store; information seekers find content producers (as well as products and services) through search engines like Google. As platforms position themselves between users and mediate their interactions, these platforms are in a unique position to gather data used in surveillance capitalism, as well as to grow exponentially to become a monopoly or part of an oligopoly (Srnicek, 2017).

The pervasive use of the managerial discourse of “disruption” refers to the digital economy’s use of technology to reorganize production in time and place. Critics, however, argue that these new forms of production lead to the exploitation of the poor and vulnerable, whose labour is sold individually, thus breaking down the employer–employee relationship that is the backbone of labour relations. More generally, the rise of platform and surveillance capitalism challenges the assumptions of democratic liberalism, which is based on a competitive market and protection of individual rights. While the jury is still out on what the impact of such dramatic changes ushered in by these new forms of capitalism will be on political, economic, and social systems (including the relationship between the state and business interests), it is clear the change will be profound and swift.

Students interested in learning more about the digital economy, surveillance capitalism, and platform capitalism might consider taking Athabasca University’s GOVN 377 : Issues in Access to Information and Privacy Protection.

The Intersection of Theory, Ideology, and Policy: Keynesianism and Neoliberalism

Moving from theory to practice, this section moves from theoretical understandings of how capitalism operates to provide an overview of two ideologies based on macro-economic theories that prescribe very different state policies.

The theories of John Maynard Keynes became known as Keynesianism, a theory that emerged as a response to the economic crisis of the 1930s, the challenges of the Second World War economy, and the problems of post-war reconstruction. Keynesian policies sought to empower the state to engage in a more direct way in the management and regulation of the economy and society. For example, by priming the economy in bad economic times, and attempting to slow the rate of growth during economic booms to attenuate the “boom and bust” nature of capitalism, the state engaged in significant efforts to manage the macro-economy. Thus, Western capitalist society came to be more organized and regulated through the public policy process: “The welfare state is part of the institutional complex whereby anarchical capitalism was transformed into organized capitalism” (Dryzek, 2003, pp. 227–228). In the Keynesian period, the nation-state became the chief instrument of governance.

The post-war Keynesian period also distinguished itself from earlier phases of capitalism by its more inclusive character. Most notably, the economic foundations of this era were centred around Fordism (see Lipietz, 2006, pp. 239–240). Fordism can be defined as the dominance of a system of mass industries constructed around assembly-line production, with a detailed division of labour and economies of scale (MacDonald, 1991, p. 182). The creation of mass standardized goods necessitated the labouring population’s becoming “empowered” as consumers. The Fordist system of mass production required a political economy of mass consumption—both on the part of individuals and the state (Shields, 1996, p. 54). In fact, it might be argued that at this stage of capitalism’s development, citizens were transformed into “citizen consumers” (Cohen, 2003), as many people came to see there was a “need” for high levels of consumption for the proper functioning of their society.

The joining of mass production with mass consumption was carried on through a broad social compact. The post-war social contract entailed “a mixed economy incorporating Keynesian demand management economic policies; a Welfare State, with universal social services; and a political consensus” (Farnham & Horton, 1996, p. 9). In essence, the Keynesian economic order was focussed on ever-expanding nationally driven consumption patterns, promoting social inclusion and integration into the system, and strong policy intervention to correct “market failures.”

The state, guided by a Keynesian policy paradigm, adopted “a very special role within the overall system of social regulation” (Harvey, 1989, p. 135). The rise of neoliberalism in the 1980s challenged the politics and public policy of “organized capitalism” that characterized the Keynesian post-war era in the West. Neoliberalism, at least as far as it constitutes a retreat from state management of the economy in favour of relying on raw global market forces, has been conceptualized as “disorganized capitalism” (Lash and Urry, 1987; Offe, 1985). Offe (1985) maintained that the welfare state, as a form of organized capitalism, was developed specifically as a means to “defuse the contradictions of capitalism” in its earlier disorganized form. However, the welfare state contained the seeds of its own contradictions, making it crisis prone (Dryzek, 2003, p. 227).

The last few decades have witnessed rising levels of poverty, income polarization, and employment insecurity. The transition from Keynesianism to neoliberalism augured in a rhetorical shift from security to competitiveness in terms of state policy. The rise of neoliberalism as the dominant political ideology posed a fundamental challenge to the post-war economic and social order:

the crisis of the Keynesian welfare state was a function of a shift in the nature of the economy and relations of production as a whole. The fit between that particular state form and the economic base upon which it was built grew increasingly poor. (Shields & Evans, 1998, p. 54)

From this perspective, the key was to construct a new state form that would be compatible with the new globalized political economy.

Neoliberalism is “neo” in that it marks a return to 19th century free-market liberalism, which lauds the supremacy of the market and freedom from government intervention. Harvey (2007) defines neoliberalism as follows:

Neoliberalism is a theory of political economic practices proposing that human well-being can best be advanced by the maximization of entrepreneurial freedoms within an institutional framework characterized by private property rights, individual liberty, unencumbered markets, and free trade. The role of the state is to create and preserve an institutional framework appropriate to such practices. The state has to be concerned, for example, with the quality and integrity of money. It must also set up military, defense, police, and juridical functions required to secure private property rights and to support freely functioning markets. Furthermore, if markets do not exist (in areas such as education, health care, social security, or environmental pollution), then they must be created, by state action if necessary. But beyond these tasks the state should not venture. (pp. 22–23)

It is important to note that neoliberalism assumes that both the market and the institutional framework that supports the free market is unbiased and neutral. The central focus of the state is to protect the rights and freedoms of the individual. Accordingly, its primary role is enforcing basic rules, as opposed to advancing the interests of one group of societal interests over another because it is assumed that all individuals have equal opportunities to advance their own interests in the marketplace.

In terms of employment norms and social security, the transition from Fordism to post-Fordism represented the movement from the Keynesian welfare state to a neoliberal state. This new lean state form, in stark contrast to the Keynesian emphasis on full employment and social entitlements, stresses enhancing competitiveness and flexibility through entrepreneurialism and rigorous innovation in production and organization. Social policy was restructured to enhance labour market flexibility to respond to the pressures of global competition (Jessop, 1994, p. 263). Social policy has been reoriented “away from redistributive concerns based on expanding welfare rights in a nation-state towards more productivist and cost-saving concerns in an open economy” (Jessop, 1993, pp. 17–18). In this process, the policy capacities that belonged to the nation-state have become dictated by the “free market”: regional and global institutions (such as the World Bank and the WTO) that can better respond to “internationalized, flexible . . . production systems” (Jessop, 1994, p. 264). As a result of this shift, residual structures of the welfare state remain but have generally been reorganized in the service of neoliberalism.

In neoliberal labour market policy, wages are no longer viewed as a source of demand for mass consumption, but as a cost of production (Jessop, 1993, p. 20). This has led governments to promote policies that result in “‘hire-and-fire,’ flexi-time and flexi-wage labour markets; the growth of tax expenditures steered by private initiatives based on fiscal subsidies for favoured economic activities; and the reorientation of state activities to the needs of the private sector” (Jessop, 1994, p. 267). In sum, in labour market policy there is more emphasis on competitiveness than on security.

The major policy directives that drove neoliberal reforms in some states can be summarized as:

1. maximize exports,

1. reduce social spending,

2. curtail state economic regulation, and

3. enable market forces to restructure national economies as parts of transnational or regional trading blocs.

(Friedman, 1991, as cited in Brodie, 1996, p. 4)

The move away from Keynesian management of the economy by the state, with its accompanying weakening of the welfare system, has often been called de-regulation. However, it should be noted that this label can be somewhat misleading on a number of fronts. First, even though the politics of the contemporary period have been focussed on eliminating “red tape” and so-called barriers to business (the phrase “the nation is open for business” captures the flavour of the times), governments continue to oversee an elaborate network of state-centred regulation. Nevertheless, a policy trend that does distinguish the neoliberal period from the Keynesian one is the shift towards a public-policy environment that is less reliant on state regulation. A central feature of our times is the move towards economic liberalism—that is, a shift away from government regulation in order to allow market forces to manage the economy. This is illustrated by the so-called de-regulation of the airline, telecommunication, and energy sectors. The policy bias in favour of “the market knows best” mentality has resulted in a considerable push to privatize government-owned corporations. Thus, the state is less directly involved in managing and regulating the economy.

Another perspective on globalization is that the shift towards neoliberal governance has been, at least on one level, less about de-regulation than re-regulation. The direction of policy change is certainly toward reducing state regulation of corporations and economic activity, but this does not mean there is no longer any regulation. Rather, it means that institutions other than the state are regulating by other means. The marketplace, for example, operates according to various rules and practices. In addition, companies in a particular sector are responsible for self-regulating their industry. Hence, the shift towards liberating markets represents the shift from one mode of regulation to another.

It is also worth considering another policy trend. While the movement in public policy has been toward economic liberalization, with regard to social policy and industrial relations policy, change has been more complex. For example, on one level there has been a drive to make poor people, the healthcare system, education, the environment, and labour-management relations more governed by the dictates of market forces. However, on another level, there has been the re-regulation or further regulation of other spheres of social and economic activity in order to allow state power to intervene more forcefully (Doern et al., 1999; McBride, 2005; Prince, 1999). For instance, the implementation in 2012 of the Copyright Act, which further regulates what Canadians can download, can be seen to be part of such a phenomenon. The Canadian legalization of cannabis in 2018 provided the opportunity for the government to set up a new regulatory regime of an industry that had previously operated without any government oversight as part of the “black-market” economy. As noted previously, surveillance and platform capitalism have pushed the boundaries of the ability of the state to regulate some economic activities, and the state may find itself more controlled by, rather than a controller of, the market.

While Keynesianism is not the dominant approach to governance it once was, it is far from dead. The most recent manifestation of Keynesianism was the response to the declaration of a global pandemic in 2020; for example, in Canada (as elsewhere), the federal and provincial governments provided direct payments to abruptly unemployed citizens to provide economic stimuli to a faltering economy. As Klein (2020) states:

I think something Keynes contributes to this discussion [about the economic impact of coronavirus] is that if your economy is not producing at its capacity—if you have people, if you have machines, factories, buildings that could be utilized and are not being utilized—the government has a real role where it can step in, particularly amidst massive amounts of uncertainty.

Moreover, critics point out (Cammack, 2001; Harvey, 2007) that inequality has grown to epic proportions during the neoliberal era. It is not just the inequality between the Global North and Global South, but the ever-widening gaps within countries in both hemispheres. Also, the exploitation of land and resources (including the reliance on the dispossession of Indigenous Peoples from land and the destruction of their political and economic systems) as a source of economic intervention have also proven to be rampant generators of inequality and discrimination, as well as ineffectively creating well-being for states in general. Economic crises, such as the 2007–2008 financial crisis and the economic pressures resulting from COVID-19 beginning in 2020, have exposed increasing inequality, as well as the need for state intervention mechanisms that aim to acknowledge and decrease them.

It should be noted that both Keynesian and neoliberal governance in Canada arose within the context of a colonial settler state. Britain, like other capitalist states in the 17th century, used state power to create such entities as the Hudson’s Bay Company, a legal monopoly created for the purpose of trade and, later, for land speculation for settlement. As such, the notion of varying degrees of autonomy / dependence of the nation-state in relation to the market is a lens used by 20th and 21st century theorists to understand the nature of capitalism and governance. These perspectives are decidedly Western and Global North in orientation in that the relationship of the state and business (settlers) with respect to the original inhabitants who occupied the land (Indigenous Peoples) was not considered.

Comparisons of Keynesian and Neoliberal Governance Forms—Key Features Within the Canadian Context

Conclusion

In this unit we explored the theoretical and historical factors that explain the shifts in the business–state relationship in the settler Canadian state. The three principal theoretical approaches to the state explored above—liberal, critical, and Weberian—in no way exhaust the varied theoretical approaches to the state. They should, however, provide you with a general sense of the different ways in which the relationship between business and the state can be understood. Liberals emphasize the separation between business and the state, and view the state as a neutral arbiter between the claims of competing actors. Meanwhile, neo-Marxists emphasize the dialectical unity of the state and the market, which means that the state is biased towards business interests, in terms of access to business and its policies. Skocpol’s Weberian approach to the state contrasts with those of liberals and neo-Marxists by emphasizing the state’s control over its population and territory. Specifically, the state is not a neutral arbiter between competing interests, nor does it always behave out of class interest; rather, the state may sometimes act autonomously out of a sense of “national interest.” Finally, the emergence of surveillance and platform capitalism now challenge the notion of the role of the state as the author of economic policy.

This unit also described how certain conceptualizations became policy during the twentieth century and how they have unfolded in the twenty-first century. We explored the historical circumstances that facilitated the emergence of Keynesianism and neoliberalism and considered the main differences between them. Neoliberalism, as an ideology, is highly critical of the development of the welfare state that occurred after the Second World War. The Keynesian welfare state was an example of a mixed economy that was driven by the private sector but saw substantial intervention by governments—during times when the economy is sluggish or in a depression, the state should pump money into the economy through job-creation programs and other economic stimuli. Keynesian economics was the predominant model used in the Great Depression, World War II, and during the post-war economic expansion. By the 1970s, it was apparent that Keynesian economics was not solving entrenched problems such as poverty, and that government intervention did not contract when the economy was healthy. Later, neoliberals asserted that the welfare state, guided by a Keynesian public policy agenda, had become too large and too interventionist in the economy and society. Neoliberals blamed what they called “government failure” for the “stagflation” (economic stagnation and inflation) crisis of the 1970s, resulting in increased public-sector debt loads. Because Keynesian policies failed to offer solutions to these problems, and it seemed as though neoliberalism did, neoliberalism accrued support among elites in both the northern and southern hemispheres and became prevalent (Saad-Filho & Johnston, 2005), which have deepened the inequality gaps and worsened the exploitation of Global South resources and workers.

Students interested in learning more about financial management should consider taking GOVN 450 : Public Budgeting and Financial Management in a Globalized World. Those students who are interested in theoretic understandings of the making of public policy should consider taking GOVN 403  / POLI 403 : Public Policy in a Global Era.

Unit 3: Key Concepts

Key Concepts

Note: Many of these key concepts are defined in the course glossary  .

autonomy of the state

deregulation

Fordism

full employment

government failure

Keynesianism

laissez-faire

market failure

neoliberalism

neo-Marxism

platform capitalism

responsible citizenship

social citizenship

surveillance capitalism

Weberian approach to the state

welfare state

Unit 3: Study Questions

Study Questions

Once you have completed Unit 3, test the depth of your familiarity with it by answering the following study questions.

1. Discuss the differences among the major theoretical approaches to the state—liberal, critical, Weberian—and their conception of the business–state relationship.

1. Describe the main characteristics and goals of Keynesianism.

2. Describe the main characteristics and goals of neoliberalism.

3. What factors explain the demise of the Keynesian state? Why did neoliberalism emerge?

4. How has the emergence of platform and surveillance capitalism acted as a factor in shaping the business–state relationship?

Unit 4: Overview

Overview

This unit focuses on the areas of economic, social, and constitutional policy, and the politics of neoliberal governance in Canada. We will examine the contrast between the Canadian experience of neoliberal change and the past practice of Keynesian policy discourse. Specifically highlighted here will be the differences between the neoliberal and Keynesian eras in terms of nation-building and the politics of consensus versus polarization. Finally, we will explore the meaning that each of these policy regimes holds for Indigenous governance in Canada.

Learning Objectives

When you have completed Unit 4, you should be able to achieve the following learning objectives.

1. Explore the impact of Keynesianism in Canada.

2. Explain the demise of the Keynesian welfare state and the rise of neoliberalism in Canada.

3. Assess the impact of neoliberalism in Canada, with particular reference to economic crises.

4. Discuss the impact of neoliberalism on the state’s relationship with Indigenous Peoples and on the changing patterns of governance in Canada in the last decades.

Required Readings

Altamirano-Jiménez, I. (2018). Privatisation and dispossession in the name of Indigenous women’s rights . In D. Howard-Wagner, M. Bargh, & I. Altamirano-Jiménez (Eds.), The neoliberal state, recognition and Indigenous rights: New paternalism to new imaginings (Vol. 40, pp. 43–58). ANU Press. http://www.jstor.org/stable/j.ctv5cgbkm.9

Kheraj, S. (2020, July 29). Environmental racism and Canadian history  (Episode 69) [Audio podcast episode]. In Nature’s Past: Canadian Environmental History Podcast. NiCHE: Network in Canadian History and Environment. https://niche-canada.org/2020/07/29/natures-past-episode-69-environmental-racism-and-canadian-history

Osberg, L. (2021, March 2). From Keynesian consensus to Neo-Liberalism to the Green New Deal: 75 years of income inequality in Canada . Canadian Centre for Policy Alternatives. https://policyalternatives.ca/publications/reports/75-years-of-income-inequality-canada

Unit 4: Commentary

Commentary

To understand Canada’s governance patterns, it is essential to explore how existing Indigenous governance in economic, social, political, and legal aspects changed with the arrival of settlers to the territory, and how those governance patterns created and perpetuated a legacy of denial, inequality, and violence against Indigenous Peoples. Unit 1 offered a summary of how Western legal and political instruments were used to deceive, dispossess Indigenous communities from their lands, and violate their individual and collective rights. This unit situates us in the second half of the twentieth century to present, when global economic shifts have been happening in parallel with important shifts in making visible the egregious injustices that have happened—and continue to happen—against Indigenous Peoples. In this unit, we will explore the demise of the Keynesian welfare state and the rise of neoliberalism in Canada, as well as its legacy for Indigenous people.

Crisis and Alternatives: Canadian Keynesianism and Indigenous Exceptionalism

As we explained in Unit 3, Keynesianism is a policy paradigm adopted in multiple parts of the world as a response to the economic crisis that began in the US after the stock market crash in 1929 and which lasted until the late 1930s. The crisis spread to other countries, including Canada, and is referred to as the Great Depression. Keynesianism produced policies that aimed to correct the deficiencies of the market by promoting a leading role for the state in the design and implementation of those policies. Of course, the Keynesian model had unique characteristics depending on the country in which they were implemented. For Canada, the welfare state conceptualized by Keynesian ideas established employment and social support measures. The Canadian Constitution divides legislative powers between the federal and provincial governments; social services are primarily the responsibility of the provincial governments. Initially, Indigenous Peoples in Canada were deemed ineligible for these provincial social supports; they began receiving them in the 1950s after the federal government delegated the delivery of particular services for Indigenous Peoples to the provinces.

At the time of the Great Depression in 1930, Indigenous Peoples in Canada were in a constant state of dispossession and normalized structural injustice. The Indian Act of 1876—legislation that applies uniquely to First Nations peoples, not Métis and Inuit peoples—not only imposed assimilationist policies with the goal of cultural genocide, but also spread and normalized discriminatory narratives against “Indians”(that is, First Nations people). Government accounts described them as “savages,” “ignorant,” and “undeserving of full citizen status.” As late as the 1960s, schools in Alberta and Newfoundland used a social studies textbook that proclaimed: “Because of being uncivilized, our Indians could not make use of Canada’s good farmland, nor of the other rich resources that nature had given her. To use these gifts, Canada needed civilized people, and they were already at her door” (Dickie, 1950, p. 20). Dickie goes on to explain that “the first civilized men who came to America were white” (1950, p. 21). To tackle the problem of “civilizing” “Indians,” Christian churches set up residential schools beginning in the 1830s. Five decades later, the federal government residential school system was in place. During this time, the state implemented harsh measures on individuals with “Indian status” (as defined by the Indian Act), which denied them basic personal freedoms and segregated them from non-Indigenous communities. Indigenous activism played an essential role in making visible injustices and showing the need for redress, to which the Canadian government responded with measures that did not challenge these overarching narratives. For Coates (2013), “by the 1970s, it was quite clear that Aboriginal aspirations were well in advance of government priorities and intentions and increasingly ahead of the general public as well” (p. 29).

However, mobilization achieved major shifts in the recognition of Aboriginal rights, which materialized in constitutional recognition through Section 35 of the Constitution Act, 1982; major reports such as the Royal Commission on Aboriginal Peoples (RCAP) in 1996, the Truth and Reconciliation Commission (TRC) in 2015, as well as the Final Report of the National Inquiry into Missing and Murdered Indigenous Women and Girls (2019); and several Supreme Court decisions. As Coates (2013) explains, shifts such as the constitutional protection of treaty and Aboriginal rights and the right to self-government, and the right to being consulted on resource management have certainly challenged the status quo of governance in Canada. However, barriers to restoring Indigenous self-determination remained largely unresolved with the advent of neoliberalism.

Neoliberalism in Canada

The neoliberal reforms carried out in Canada, and that continue to be carried out, were also implemented in other political jurisdictions (Harvey, 2005). As explained in earlier units, neoliberal reforms were first introduced in Chile by the regime of Augusto Pinochet in 1970s, under advisement from the “Chicago Boys,” a group of young Chilean economists who trained under Milton Friedman, one of the fathers of neoliberal ideology. However, neoliberalism really came to the fore in the 1980s, with reforms implemented by Prime Minister Margaret Thatcher in Great Britain and President Ronald Reagan in the United States. In Canada, Prime Minister Brian Mulroney led the shift to neoliberalism. With the United States and the United Kingdom as its champions, neoliberalism quickly became the guiding ideology of international organizations such as the International Monetary Fund (IMF) and the World Bank, and it influenced the General Agreement on Tariffs and Trade (GATT) negotiations, which culminated in the World Trade Organization (WTO). Neoliberalism emerged as a form of governance during this period, and its influence spread quickly throughout the Global North industrialized states (including Canada) as well as the Global South.

Moves by governments in the 1980s, 1990s, and 2000s to deregulate and reform the social welfare state were praised by neoliberals as movement toward greater freedom. However, critics of neoliberalism argue that the view of free markets governments adopt—that is, that the “market knows best” and hence should be left on its own—is rather naive. Early proponents of neoliberalism dismissed as inconsequential the fact that markets often fail and consequently must be modified through government regulation. The financial crisis of 2007–2008, however, revived the market-failure critique. Moreover, critics of neoliberalism argue “that markets are embedded within a framework of unequal power relationships between the owners of capital and the sellers of labour” (Shields & Evans, 1998, p. 66).

Critics of neoliberalism argue that markets are not free or open to broad competition under modern capitalism. Rather, the marketplace for goods and services tends toward monopolization or oligopolization—domination by one or a few large corporations. As noted in the previous unit, this tendency is particularly acute in the technology sector. The globalization of capitalism has simply extended this process into an international arena through mergers and takeovers by multinational corporations (Teeple, 2000, p. 86). Thus, in this view, globalization “is merely the international face of neoliberalism” (Saad-Filho & Johnston, 2005, p. 2). Overall, critics charge that rigorous separation between the market and the state, or between the economic and the political, can pose challenges for democracy and for political and social stability (Bakker & Gill, 2003). The criticism of globalization, neoliberalism, and contemporary forms of capitalism does not remain confined to academic theorists; it underpins the Occupy movement that began in 2011. The popular Occupy slogan “We are the 99%” highlights the concentration of wealth in the top one percent of income earners. The world’s 600+ “unicorn” companies (those with a valuation of over $1 billion) and the half dozen companies worth over a trillion dollars demonstrates that wealth is also concentrated in the corporate sector.

“The Third Way”

In view of the social, economic, and political instability wrought by neoliberal reforms in the 1980s and 1990s, international organizations that once extolled the virtues of more rigorous forms of neoliberalism have now moved on to what some call the Post-Washington Consensus in Global South countries and the “third way” in Global North countries. This shift consisted of reemphasizing the importance of the role of the state and governance to complement the market. Importantly, this does not imply a return to Keynesianism per se, in terms of intervening in the market. Rather, this shift acknowledges the need for effective governance mitigating the more egregious consequences of market liberalization. In contrast to post-war welfare state policy initiatives, neoliberal discourse emphasized programs such as targeted poverty reduction (rather than income redistribution) and the importance of accessible health and education services (Ryner, 2010, pp. 555–557).

As with neoliberalism itself, the extent to which these policies have been implemented varies from country to country. The rise of the third way in the mid-1990s in several countries engendered hope that a new political formation had emerged that reconciled the economic imperatives of neoliberal policies with social cohesion. In particular, the election in 1997 of the New Labour government in Britain under the leadership of Prime Minister Tony Blair and guided by the notion of the third way, the Gerhard Schröder German Social Democratic administration directed by the slogan “the new middle,” and the American “new Democratic project” led by President Bill Clinton (Arestis & Sawyer, 2005, p. 177; Powell, 2003, p. 100) were believed to have augured in a new kind of politics for the new millennium. Numerous attempts to label this development were made, including “new social democracy” and “progressive governance” (Powell, 2003, p. 100), but the most commonly accepted designation is the third way (Giddens, 1998, 2000, 2001). While there were clear variations in the public policies that each of these governments followed, the contention was that what they held in common was the pursuit of a political path between neoliberalism on the right and old-style social democracy and socialism on the left. Its proponents argued that the third way represented “the new middle” or “radical centre” (Alcock, 2002, pp. 256–257; Giddens, 1998). Third-way advocates asserted that new times required a new politics based on a new pragmatism. A changed world meant that the old welfare state structures, also, had to be modernized (Powell, 2003, p. 102).

The third way was distinguished by a number of features. For one, it accepted the neoliberal idea of the problem of government failure, and with it the need to be more reliant on market mechanisms to increase society’s wealth and provide services. However, it also recognized that market failure is also an issue, and that there is consequently a greater need than allowed by hard-line neoliberals for the state and civil society to correct the resulting deficiencies. The third way seeks to harness the market to increase efficiency, but it also seeks to use the state and civil society to provide the measure of equity necessary to support a socially cohesive society (Powell, 2003, p. 103). It is important to recognize, too, that the notion of a third way—a middle path between socialism and capitalism—has largely been discredited because of its association with neoliberal or monetarist economic policies following the 2007–2008 economic crisis.

Despite its close economic integration with the United States, Canada was spared the worst consequences of the financial crisis in comparison with other Global North countries. This can largely be explained by Canada’s more cautious attitude towards banking deregulation during the 1990s and 2000s. Notably, Paul Martin’s decision in 1998 to prevent the merger of Canada’s major banks is credited with ensuring a measure of stability in the banking sector. Harris (2010) argues, however, that during the financial crisis the Canadian economy was afflicted with several episodes that threatened its stability, pointing to the necessity for a more robust regulation of that sector (p. 69). Thus, although Harper’s Conservative Government was initially reticent to acknowledge that the financial crisis was significantly affecting the Canadian economy, it was eventually prompted to take action.

Although less publicized than the bailout in the United States, Canadian banks received over $114 billion from Canada’s federal government. The biggest portion of the total bailout amount included a $69 billion Canada Mortgage and Housing Corporation (CMHC) program that bought out mortgages held by Canadian banks (Canadian Press, 2012). As well, Canada lowered its interest rate to approximately 1.5% in 2009 and proceeded with a bailout that same year valued at around $30 billion. It is important to note the conservative and modest nature of the bailout, given that 35% of the total bailout went towards corporate tax cuts and that the program was temporary, allowing a return to balanced budgets as soon as possible (McBride & Whiteside, 2011, p. 12).

The 2007–2008 financial crisis compounded several political problems related to neoliberal reforms that have impacted the Canadian polity. Among these is a decline in the level of trust in Canada’s political institutions. The financial crisis also highlighted the issue of social cohesion with respect to the neoliberal policies. A decade later, the COVID-19 pandemic would require massive state intervention to mitigate the damage of a once-in-a-century health crisis. While proponents of neoliberalism might agree that governments needed to act to prevent the spread of a deadly contagion, they argue that the degree of intervention was excessive, resulting in serious economic problems, in addition to eroding trust in government and eroding social cohesion.

“Neoliberal Aboriginal Governance”: The Settler State and Indigenous Peoples

Certainly, contemporary neoliberalism does not mean the same for all people around the world. Although theoretically it is possible to classify phenomena in homogeneous categories, reality is more complex. As noted earlier, in order to have certain control over the market, states create regulatory policies. While Global South countries adopted what are known as Post-Washington Consensus measures, Global North countries adopted third-way measures. This raises questions around the impact of these Global North policies on Indigenous communities, who are at the receiving end of these measures’ effects. MacDonald (2011) explains these effects through the notion of neoliberal Aboriginal governance, defined as follows:

This term refers to specific state-crafted responses to Indigenous demands that are part of a broader governmental strategy of neoliberalism. This strategy is not simply about meeting the demands of Indigenous peoples but also about meeting the requirements of the contemporary governmental shift towards “privatization” within liberal democratic states. Touted by the state as enhancing Indigenous autonomy, these policies appear to respond to Indigenous demands but serve a neoliberal welfare state agenda and, as a result, their effects often run in opposition to meaningful autonomy for Indigenous peoples. (p. 257)

Thus, neoliberal Aboriginal governance as a concept is ambiguous, as it may work to make the impression of autonomy and respect for Aboriginal rights while bolstering corporate capital accumulation. One example can be Profit Sharing Agreements such as the Forest Consultation and Revenue Sharing Agreements (FCRSAs) in British Columbia: the BC government claims these agreements “provide First Nations communities with economic benefits returning directly to their community based on harvest activities in their asserted traditional territories” (British Columbia Ministry of Indigenous Relations and Reconciliation, n.d.). Critics of these agreements argue that their foundational goal is to bolster corporate natural resource exploitation. The Ashcroft First Nation decided against renewing the agreements three years after signing in 2014. In January 2022, First Nations from BC requested a revision of forestry policies and denounced the existing policies as failing to be implemented and chronically ignored (Stueck, 2022). This dissonance makes sense given that neoliberalism is closely linked with colonialism. As Altamirano-Jiménez (2018) points out, “neoliberal policies emerge from and are rooted in specific colonial, social, political, cultural and economic contexts, shaping their locally contingent form” (p. 44).

Conclusion

For Canada, the welfare state conceptualized by Keynesian ideas established employment and social assistance measures; however, they stand in sharp contrast to unresolved structural inequalities faced by Indigenous people. Despite the settler state’s negligence, Indigenous mobilization achieved major shifts in the recognition of their rights, but many issues remain in terms of social and economic justice for Indigenous Peoples in Canada.

Rooted in Latin America, neoliberal ideas spread globally in the 1980s as a response to the crisis of Keynesianism. As a result, privatization measures and substantial reforms to the welfare state system have taken place in Canada. Although some of its advocates argue that neoliberalism may have created opportunities for Indigenous people, its real effects have been damaging to their autonomy and self-government capacities. However, neoliberal policies have been under scrutiny, especially in the twenty-first century. Economic crises such as the 2007–2008 financial crisis raised doubts regarding the convenience of market freedom, which in Canada has triggered the adoption of measures known as the third way, a middle ground between welfare-state policies and capitalism.

Indeed, the promising pragmatism of the third way did not survive the 2007–2008 financial crisis. It might seem that social democratic parties throughout Western Europe would be well-positioned to capitalize on the “market failure” of the financial crisis. However, the social democratic and labour parties of Western Europe suffered a string of electoral defeats in the wake the financial crisis. Ryner (2010) argues this was because those parties were so deeply embedded within the neoliberal financial system, which contributed to the financial crisis, that their political landscape was bereft of any significant alternative. In fact, in countries such as the United Kingdom and the United States, third-way political parties played an important role in the financial deregulation that contributed to the financial crisis (Ryner, 2010, pp. 554–555). Social democracy’s failure to articulate a feasible policy alternative in the wake of the financial crisis explains, in part, why, beyond an initial round of stimulus packages, austerity-based reforms have been seen as the solution to the economic stagnation that has afflicted most of the Global North since the events of 2007–2008.

Unit 4: Key Concepts

Unit 4: Changing Patterns of Governance in Canada

Key Concepts

Note: Many of these key concepts are defined in the course glossary  .

changing governance patterns in Canada

government failure

link between neoliberalism and colonialism

market failure

neoliberal Aboriginal governance

third way

Unit 4: Study Questions

Study Questions

Once you have completed Unit 4, test the depth of your familiarity with it by answering the following study questions.

1. What were the economic dynamics said to have contributed to the demise of the welfare state in Canada?

1. What is the third way? What are its main characteristics?

2. Describe the changing patterns of governance in Canada.

3. According to Altamirano-Jiménez (2018), what have been the effects of neoliberalism on Indigenous women in Canada?

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