The Next Washington Consensus: The Security State and Its Rivals

REVIEW ESSAY
The Economic Government of the World: 1933–2023
by Martin Daunton
Farrar, Straus and Giroux, 2023, 1,024 pages

April 2023 marked the emergence of a “New Washington Consensus,” according to President Biden’s national security advisor, Jake Sullivan, who coined the term in a much discussed speech at the Brook­ings Institution.¹ His argument in brief: events have forced proponents of the original “Washington Consensus”—which he defined as the U.S.-led order that served as the global economy’s foundation since the Second World War—to reexamine its underlying policy assumptions.² Recent years, Sullivan suggested, “revealed cracks in those foundations,” particularly the global financial crisis, the Covid-19 pandemic, climate disasters, and the Russian invasion of Ukraine.³

The nascent “new consensus” being championed by the Biden administration, Sullivan continued, represents a rethinking of the failure of four premises of the old order: deindustrialization and supply-chain fragility, which arose due to excessive faith in “oversimplified market efficiency”; the reemergence of great power competition, particularly with China, which has undermined expectations that free trade would lead to political liberalization; the global climate crisis, which was wors­ened by the notion that green energy required trade-offs with economic growth; and historically high rates of income inequality, which have been exacerbated by overcommitment to trickle-down economic poli­cies.⁴

This fracturing geoeconomic environment, Sullivan concluded, requires a “modern American industrial strategy” as the core of a “foreign policy for the middle class.”⁵ These concepts found practical form in the administration’s legislative agenda, the flagship being the Inflation Reduction Act (IRA), which aims to channel over $500 billion in financing and incentives toward domestic renewable energy projects, especially initiatives related to electric vehicles, leveraging the comparative demand‑side strength of the dollar to reorient green supply chains toward the U.S. market.

Critics in the Democratic Party’s progressive wing immediately rec­ognized that the IRA had more (or at least as much) to do with geo­political supremacy than climate policy. Those committed to multilateral carbon reduction efforts voiced concerns that the IRA represented the latest turn of a one-way ratchet toward armed confrontation between the United States and China.⁶ This sentiment was not confined to the tweedy pages of the New Left Review. Even the Atlantic ran a piece comparing Sullivan’s message to Donald Trump’s, calling his pro­gram “something like the antithesis of that old paradigm. [Sullivan] said that ever-greater global interdependence is no longer desirable.”⁷

Attempting to clearly differentiate between the Biden and Trump approaches, Sullivan took pains to underscore that the New Washington Consensus was not “somehow America alone, or America and the West to the exclusion of others. . . . This strategy will build a fairer, more durable global economic order, for the benefit of ourselves and for people everywhere.”⁸ But if the specific mechanics of how Sullivan’s new global order would function were less than clear, then that was in some sense the point. Pressed after the address for more detail on how Bidenomics would strengthen global ties, Sullivan responded that it will be built “a lot more like Frank Gehry” than with the “kind of Parthenon style clear pillars” of its postwar predecessor.⁹ The “plan,” so to speak, would be a “mini-lateral” muddling through.

Had it gone to press just a year later, Martin Daunton’s The Eco­nomic Government of the World: 1933–2023 almost certainly would have included the above episode as its epilogue—and not only as a matter of historical record. Sullivan’s New Consensus embodies not only Daunton’s diagnostic view of the global economy’s last century—but also his normative view of where it should go next.

Post-Structural Global Liberalism

Over the course of a thousand pages, Daunton argues that the structure of what became known as the original Washington Consensus was never as rationally conceived as it seems in popular historical imagination. In other words, the “Parthenon style clear pillars” to which Sullivan re­ferred—Bretton Woods, the World Bank, IMF, GATT, and the WTO, among others—always more resembled Gehry’s style: improvised, non-geometric, ad-hoc, a kind of “messy multilateralism.”¹⁰ By the end, one is encouraged to read an implied question mark into the title—The Economic Government of the World? As Daunton suggested during his book tour, Sullivan’s clear recognition of this version of history is commendable, as is the transformation of a diagnosis into a prescription: a pragmatic, post-structural global liberalism.¹¹

Assessed as a painstakingly assembled accounting of the last centu­ry’s economic events, both large and small, Daunton’s effort is extremely impressive. It will justly deserve its status as a shortlisted research guide for future economic historians. But given its relatively narrow analytic framing, one can speculate as to whether it will be similarly celebrated as a fixture of course syllabi. Readers left dissatisfied by the book’s focus on “implementation, contestation, and adaptation” as the prime motor of events might be forgiven for wishing for more of a take­away than that political actors must act and react within their political constraints.¹² Given the fungibility of that formula, it hardly seems the most useful lens through which to understand the twentieth century, and almost certainly does not adequately justify a new economic order for the twenty-first. This, in turn, casts some doubt on the durability of any New Washington Consensus today.

Daunton’s methodological commitment to individuals as the key actors of his narrative—chiefly “government ministers, central bankers, and economists”—lies at the root of the book’s analytic weaknesses.¹³ He explicitly does not consider directly “the role of the press, public opinion, and interest groups” which, according to Daunton, would have required “another book with a different methodology.”¹⁴ Implicit in this framing is the notion that political actors can be understood not only as analytically distinct from, but also as uninfluenced by, “interest groups.” In that sense, this is a history of, by, and for elite technocrats—which, at its most extreme points of detachment, can read like a version of The West Wing adapted for global diplomats. Here, skilled, altruistic, and politically empowered debaters navigate the off-stage, abstracted (and meddlesome) constraints of “public opinion” and “biased” constituencies. The passive voice often does a considerable amount of work in integrating these constraints into the action (“at last, a new sense of realism was emerging in Washington . . . ”).¹⁵

Further decoupling the action from its power sources, Daunton insists on devoting significant attention to actors representing the developing world. While it may be desirable to include these narratives, it is not made clear why they merit historical treatment over, say, the “interest groups” Daunton suggests would require a different book altogether. Within this stubbornly individual-centric analysis, Daunton can provide distilled, personal portraits of particular events and exchanges, but at the expense of repeatedly falling back on his somewhat shallow analytic theme: the role that contingency and tradeoffs play in shaping events.

These analytic commitments inform the book’s normative recommendations, which amount to the now fairly standardized center-left call to address a “polycrisis,” emphasizing the interrelatedness of climate change, income inequality, democratic political recession, and slowing global development.¹⁶ Consistent with Daunton’s historical analysis and Sullivan’s proposed Gehry-esque policy approach, the term is, by design, difficult to pin down: given the interconnectedness, complexity, and contingency of global challenges, a clerisy of technocrats is required to continually interpret it and implement solutions. Although they may intermittently simplify their rationale for public consumption as needed, the technocrats themselves are always imagined to matter most—weigh­ing, debating, deciding; implementing, contesting, adapting.

Indeed, Adam Tooze, the historian most responsible for popularizing the polycrisis concept, glowingly reviewed The Economic Government of the World for the Financial Times, praising it for being “post-heroic and disillusioned . . . a history for our times.”¹⁷ Daunton actively em­braced Tooze’s distillation, not only decorating the book’s dust jacket with the quote, but publicly affiliating himself with Tooze’s views while on tour. While it’s hard to imagine two adjectives less tailored to earn the support of the American public for a new global economic consensus, their cachet with a fundamentally elite readership underscores how formidably the Western center-left political class is united behind a climate-driven “polycrisis” as the rationalizing heuristic for their agenda.

Indeed, despite analytic frames that are markedly different from Daunton’s, two other recent major histories examining the decline of the old Washington Consensus come to the same normative conclusions about the West’s future direction. Charles Maier, in his recent treat­ment of the twentieth century, The Project-State and Its Rivals, argues that entrepreneurial “project states” have historically pursued a wide range of objectives, from material gain to national glory, but concludes by suggesting that the only worthy contemporary goal is a collaborative effort to address carbon emissions. Gary Gerstle’s The Rise and Fall of the Neoliberal Order posits a different framing—accenting the role played by the Cold War security state in providing the unifying ration­ale for the New Deal consensus, and how the Soviet Union’s fall dis­solved it—but comes to an identical conclusion about the West’s next act: an endorsement of the Biden agenda, with hope for greater energy from a reinvigorated Left.

Pointing out that all reputable roads lead to a similar conclusion is, emphatically, not so much an indictment as a tribute, not least of which to Daunton. The fact that such distinct historical methodologies tend to converge prescriptively speaks to this framework’s conceptual strength in holding the Democratic Party together. The Republican Party, on the other hand, remains intellectually and politically balkanized. But it is worth exploring whether these center-left diagnostic frameworks, par­ticularly Gerstle’s, might lead to alternative—and perhaps even more compelling—prescriptive conclusions on the right.

The Security State and Its Rivals

Even as Gerstle settles for some indeterminate version of Bidenomics as neoliberalism’s successor, his focus on the role of national-security-based interest groups in understanding the transition between the New Deal and neoliberal versions of the Washington Consensus provides a helpful point of departure for understanding options available to twen­ty‑first-century American political economy. Readers dissatisfied with Gerstle’s con­clusions might profitably turn to other histories that invert Daunton’s methodology: ones which foreground “interest groups” over their individual exponents. Herman Mark Schwartz, an economic his­torian at the University of Virginia, offers such a history in his textbook States versus Markets: Understanding the Global Economy, now in its fourth edition.¹⁸ Recounting the same events as both Daunton and Gerstle, Schwartz usefully explores the interests of capital as his primary explanatory tool for shifts in U.S. political economy.

For Schwartz, the essentially internationalist orientation of the Washington-led Bretton Woods consensus was the result of jockeying among three of the key twentieth-century interest groups that are soft-pedaled in Daunton’s account, which Schwartz terms Nationalists, Internationalists, and Security Internationalists.

In Schwartz’s narrative, the Nationalist faction, represented by the McKinley-Hoover Republican Party, was primarily composed of early industrialists and commodities producers who favored high tariffs and a relatively limited role for America in the broader world, with some influence over the Treasury Department. Internationalists, increasingly sympathetic to the Rooseveltian Democratic Party and with clear influ­ence over the State Department, especially under Cordell Hull, increas­ingly represented sectors that had mastered continuous-flow production processes and therefore had significant interests in expanding access to global markets, particularly the automobile industry.

These two groups had fought their way to a standstill, until World War II gave rise to a third faction, the Security Internationalists repre­senting the “Sun Belt” and “Gun Belt.” This group rose to prominence via the most successful segment of the New Deal regime: industrialization for military mobilization. After the war, the Security Internationalists, who had a material interest in sustained support for foreign U.S. military commitments to “contain” communism, tipped the political balance of power by synthesizing the disagreements between Nationalists and Internationalists. In exchange for the U.S. security state retain­ing the foreign market access desired by the Internationalists, and in which “Nationalist” supply chains were increasingly integrated, the Inter­nationalists accepted the slightly more limited forward military posture favored by the Nationalists—especially a smaller, mostly volun­teer military instead of permanent conscription.

Doubtless, Schwartz’s narrative oversimplifies many of the complexities that Daunton traces, but it also usefully, though perhaps unintentionally, highlights a structural fact about the American system of government that applies beyond the twentieth century. Historically, the constitutional separation of powers at the heart of the American system stifles, by design, the organic emergence of what Maier calls a “project state.” Certainly, entrepreneurial regimes have occasionally emerged within the American political system (often under the watchword of “the war on . . . ”). But the sorts of “project states” that have endured share one crucial, and distinct, characteristic: in the American context, every “project state” is chiefly, and almost exclusively, a “security state.” It has been nearly impossible to assemble an effective, durable political-corporate coalition in the United States unless a critical corporate mass of the reigning political-economic mix is threatened by some external actor.

Even in the colonial period, until the British crown’s Proclamation of Rebellion in August 1775, which directly threatened the leading colo­nists’ property rights, the majority of the Second Continental Congress refused to consider declaring formal independence, properly funding the Continental Army, or seriously courting international support on the colonies’ behalf.

The Articles of Confederation, similarly, were scuttled primarily in response to Shays’s Rebellion, which exposed the federal government’s lack of a monopoly on force; the new Constitution would permit America’s major stakeholders to both adequately pay for the Revolutionary War and, if necessary, fund the next one. (Those who might suggest that the reforms were chiefly about interstate commerce must explain why a litany of informal agreements along the lines of the Mount Vernon Compact and Annapolis Convention would not have sufficed; amending the Articles was clearly motivated by “national security” concerns.)

The American System, of which Henry Clay is the best-remembered exponent, found its political viability in response to the collective commercial threats exposed by the War of 1812; the administrative Coast Guard initially assembled by Alexander Hamilton would not have grown into the Great White Fleet without the burning of the White House. Abraham Lincoln, the former riverboat man, railroad lawyer, and consummate Clay acolyte, would never have accomplished the Whig Party’s domestic infrastructure ambitions—or, for that matter, have been elected president—without the looming inevitability of Civil War. President McKinley hesitated to occupy the Philippines until he’d been convinced that Kaiser Wilhelm’s navy would have otherwise filled the vacuum. Schwartz’s narrative effectively picks up from that point.

Thus, through this lens, although it is too early to tell whether the so-called New Washington Consensus will endure, it is not too soon to acknowledge that it would be an anomaly within American history. While it is certainly true that climate change implicates the security of American business interests, it does not do so as directly—or imminently—as state, or quasi-state, actors in previous chapters of our history. “Project states” have been directed at various sociopolitical missions in the past (the new War on Carbon is best seen as a successor to the War on Drugs and the War on Poverty), but these efforts have either sput­tered or been subsumed by “project-security states” focused on address­ing more immediate, recognizable threats to American corporations.

If history is any guide, then, the next Washington Consensus will likely be built around the response to new, emergent security threats to neoliberal political economy.

The Next Washington Consensus

It is possible to understand the “climate crisis” as a relatively inexpensive and capital-light form of accommodation between American cor­porations and the dominant center-left political class. For now, corporate power speaks the language of “energy transition” (though this may be waning, even rhetorically¹⁹). But when it comes to “walking the walk” via active lobbying efforts, American multinationals are much more interested in moving the needle on highly discrete, technical policy issues rather than a generationally significant climate agenda.

What has been described as “quiet politics”—the dominance of under‑the-radar, soft corporate campaigns favoring a stable regulatory environment—has remained essentially unchanged from the Clinton-Bush neoliberal era.²⁰ From this (determinative) corporate perspective, any evidence for the claim that the American political system is experi­encing a major “realignment”—something occasionally claimed by reformers on both right and left—seems purely epiphenomenal.

This is primarily because the neoliberal period—through which we are still living—initiated a break with the historical norm of partisan sectoral alignments, inaugurating an era of corporate nonalignment. With the breakdown of profitable returns to capital expenditure in industrial production, corporate America pivoted to increasing asset valuations via a “fissured economy” model, which counseled isolating intellectual property rents, “commoditizing” low-margin, capital-inten­sive processes offshored to foreign partners, and maximizing shareholder returns via share buybacks. With this shift, the corporate sector’s historic use for government as a mechanism for solving regulatory collective action problems, especially during the New Deal era, eroded. Neoliberalism’s cognate “neoconservative” security state retained its value in holding international markets and trade routes open, but due to the post-1989 “peace dividend” and concern about rising debt-to-GDP ratios in the 2010s, corporate America declined to push for greater investment in defense capabilities. Even the rise of China as a peer economy, along with its rapid military buildup, has so far not proven sufficient motive for corporate America to revivify and redirect the American security state in a mean­ingful way. Rather than preemptively provoke what it perceives as a disastrous confrontation in Asia, corporate America has defaulted to a posture in which it remains largely silent on Chinese geopolitics, reserv­ing most of its political capital for generating advantages within the pages of the Federal Register.

The American center-left, which for now remains at least rhetorically, but probably also practically, open to Chinese collaboration on its chosen agenda—the climate change project-state—probably will not deviate from its current trajectory for the foreseeable future. In all likelihood, this faction will only adapt the post–Cold War security state to renewed great power competition within the framework of green technology, along with the enforcement of a so-called “small yard, high fence” policy, which largely keeps inter-Pacific trade open with the exception, theoretically, of sensitive national security technologies like advanced semiconductors. Yet even these efforts will likely be hampered by the lack of a true national consensus, which leaves room for the Republican Party to play spoiler.

The much more unsettled GOP commands even less of a mandate (or even an internal consensus) on how to employ the post–Cold War security state. That the security state must somehow be em­ployed, however, stands as perhaps the sole point of policy consensus for the Republicans. What seems even clearer, at least for the present, is that the party will not neatly realign under the green auspices of the IRA or Bidenomics, even as individual legislators will continue to accept green investment in their districts. But what, then, is to ground, as Daunton would put it, the right-of-center’s version of “contestation”?

The Economist, following the European Council on Foreign Rela­tions, suggests three plausible, alternative paths forward, based upon the three extant foreign policy factions within the Republican Party—which are, in a sense, neoliberal mirrors of Schwartz’s post–World War II groupings.²¹ The Primacists, in some sense heirs to the old Internationalists, are also the contemporary reprise of the 1990s and 2000s neoconservatives. They are, in a word, committed to perpetual American he­gemony, largely in the service of American tech multinationals and the finance industry. While some may occasionally gripe about the center-left’s commitment to carbon reduction (largely on fiscal grounds), they remain committed to defending, and indeed expanding, the post–Cold War American defense perimeter. The status of their prime contemporary commitment, however—the war in Ukraine—brings into question not so much the validity of their moral arguments as their material realism. Unless these global hawks depart significantly from their commitment to fiscal conservatism, and engage in a massive expansion of the defense industrial base, it seems difficult to see a clear path forward.

On the other extreme are the Restrainers, whom the Economist equates with historical isolationists. This faction does not have a definitive political economy position and, consequently, represents no discernable corporate coalition. To the extent they articulate a path for­ward, it usually amounts to “hard decoupling” from the global economy and retreating behind high tariff walls in an attempt to reindustrialize. Even if they enjoy occasional electoral success on thin margins, however, they will find it extremely difficult to govern. Notably, this group is largely in favor of a rollback of the current American security state, leaving it currently—though not indefinitely—the furthest away from commanding a new American political economy consensus. This scenario remains well outside the Overton window, and is completely unpalatable to corporate America.

Straddling these two groups are the Prioritizers, the closest analogue to the old Security Internationalists, who wish to shift the American mili­tary force posture from Europe and the Middle East to Asia, which represents over 50 percent (and growing) of global GDP. Thus, under conditions of scarce security resources, this group counsels prioritizing this region as the focus and future of American political economy. For now, ensuring that China’s military cannot achieve regional hegemony by force is this faction’s main priority, but it has yet to reach a definitive consensus on what sort of corporate coalition its desired form of security state might serve. Like the old Security Internationalists, this may provide useful flexibility in negotiation. One could imagine, for example, this faction brokering a deal between Primacists and Restrainers, facilitating a more robust American industrial renaissance based on a limited forward defense posture—spearheaded by weapons exports, chiefly to Japan, the Philippines, South Korea, and Australia, to harden the first island chain’s conventional defense perimeter and revi­talize the U.S. defense industrial base—as the core of the Next Washington Consensus. In practical terms, this might find form in legislation modeled on the IRA or the “Farm Bill,” but for weapons exports.

For now, however, it seems clear that corporate America does not find the cost-benefit calculation worthwhile to activate the historical role of the security state in defense of its Asian interests, lest it risk the Sino-U.S. “security spiral” that some analysts caution against.²² If the Prioritizers’ position is not underwritten by a corporate coalition—with a clear political economy logic—to rectify the Indo-Pacific military balance, they are at risk of being squeezed out politically between the Restrainers and Primacists.

Until corporate interest groups come to the conclusion that their interests require American hard power in Asia, however—either on their own, or motivated by events—the status quo will remain. There are some signs that this may occur. Tesla, for instance, risks being eclipsed by Chinese state-backed BYD as the world’s largest EV manufacturer.²³ Forced to slash prices to keep pace, Elon Musk stated in January 2024 that China would “demolish” competitors without government-im­posed trade barriers to protect domestic manufacturers.²⁴

Apple, similarly, is bleeding market share in China, falling behind state-backed Huawei and Vivo in smartphone sales to start 2024—in part because of CCP-imposed mandates to “delete America” from its domestic technology systems, known as Document 79.²⁵ Further, Nvidia’s fabless model relies on uninterrupted production by TSMC, which operates under the shadow of a Taiwan contingency, and the global network effects buttressing American Big Tech valuations would be immediately threatened by Chinese hegemony over Asia. But these risks are for now too disparate to motivate collective corporate action. Should that stance endure, Daunton’s preferred framing of history, and its normative implications, will prevail. If in the end it was always—and will always be—just muddling, it’s all just Gehry from here.

But this approach is probably time-limited. Even with China’s recent struggles in its property sector, it retains a firm grasp on its status as “the world’s factory.” It is clearly making progress in cultivating Chairman Xi’s “new productive forces” to ascend the global value chain from the “old three” exports (textiles, furniture, and consumer electronics) to the “new three” (batteries, EVs, and solar panels) as well as semiconductors, robotics, and quantum computing. Should corporate America too long delay, whether by lassitude or neglect, its historic, intermittent rejuvenation of the American security state, the “Next Washington Consensus” will ironically—despite pretenses to home rule—run through Beijing’s Forbidden City.

This article originally appeared in American Affairs Volume VIII, Number 2 (Summer 2024): 55–67.

Notes