The return of economic exceptionalism

Jacqueline Best - Professor of Political Studies, University of Ottawa & SPERI International Advisory Board member

Exceptionalism is a term that is more commonly used to talk about how liberal democracies handle major security threats. In moments of grave crisis, like war, when a state faces an existential threat, government leaders will sometimes declare a state of exception—temporarily invoking emergency powers and suspending normal liberal democratic rights. Of course, such powers are always controversial—and can be abused, as they were when the US reintroduced torture after 9/11.

Yet governments don’t just invoke exceptions to confront security crises—they also do it to deal with economic crises. Liberalism, democracy and capitalism are both mutually supportive and in tension with one another. Free market economies produce both growth and major crises. These crises are painful and pose serious challenges for political stability. Because of the dislocation caused by economic crises, voters often act to try to constrain free markets. When these tensions get severe enough, political leaders often use exceptionalism to respond.

This exceptionalism takes two main forms.

The first, emergency form, is used to respond to a temporary crisis. For example, in the 1930s, US President Franklin Roosevelt responded to the Great Depression by using the “Trading with the Enemy” Act to put through some of the key measures of the New Deal. In the 1970s, British Prime Minister Edward Heath invoked a state of emergency to impose a three-day work week to respond to a miners’ strike.

In recent years we’ve also seen the rise of a second, subtler form of exceptionalism. This is a kind of technocratic exceptionalism that seeks to limit democratic oversight on a longer-term basis over specific areas of economic life. Central banks, for example, are able to set interest rates, which have a huge effect on peoples’ lives, with very little democratic oversight.

Why does this matter today?

Both forms of exceptionalism played a major role in the 2008 global financial crisis and its aftermath. In their response to the crisis, political leaders acted in ways that broke with liberal democratic norms. Normally, they argued, they wouldn’t rush legislation through, bail out big companies, adopt negative interest rates, or pursue austerity measures — but these were exceptional times.

As the crisis wore on, emergency forms of exceptionalism gave way to more technocratic forms: it was central bankers who used their power to pursue a whole range of exceptional measures like very low or even negative interest rates—all with the hope of getting the economy back to normal again.

Yet, a decade on, normal still seems a very long way away, and exceptionalist policies are becoming increasingly common. This is worrying for both economic and political reasons.

Economically, as exceptional measures like very low interest rates have become essentially permanent, they have had all sorts of perverse effects. In Canada, consumer debt is at extraordinarily high levels, making the economy highly vulnerable to even a slight downturn. In the US, student debt could well be a ticking time bomb, adding up to over $1.5 Trillion US dollars today, fueled by a toxic combination of state budget cuts, spiralling tuition fees, and low interest rates. Around the world, governments massively expanded their debt levels in order to bail out the private sector and stimulate the economy in the last crisis, leaving them with far fewer resources to tackle the next one.

The next crisis is very likely to hit sooner rather than later, given that we are now over ten years from the last major economic crisis. But how do you respond to an economic emergency when you’re already using exceptional powers?

Politically, it should be pretty clear by now that exceptionalist measures are increasingly common, as political leaders become comfortable with justifying their suspensions of normal liberal democratic norms as necessary for avoiding crisis. Yet, what makes this more recent spate of exceptionalist measures different from what we saw after the 2008 financial crisis is how rarely politicians frame their actions in those terms. Instead of explicit claims about the need to suspend politics as usual, we are increasingly seeing political leaders treat the exceptional as a new kind of normal.

I intentionally did not include Donald Trump in the list of exceptionalist-minded political leaders at the beginning of this short article. While there are countless examples of ways that he has trampled on the rules of liberal democratic process in the name of some barely coherent threat or crisis, it is important to realize that he is not the only leader who has recently found it useful to treat the exception as the norm in recent years.

While exceptionalist policies are indeed sometimes justifiable in a liberal democracy, the current trend towards normalizing them is very worrying indeed.