Contrary to some interpretations, the trend in developed countries is still towards social and economic liberalism. But there is a strong reaction against the social exclusion that has accompanied liberalization. The economic models that guide public policy are not up to the task of dealing with exclusion.

All pessimism has an air of authority said JK Galbraith, when, with the rise of Reagan and Thatcher, many liberals were talking about a retreat to a pre-Enlightenment era.

In interpreting not only the Brexit and Trump votes, but also Turkeys march towards fascism, the success of authoritarian anti-liberal governments in Hungary, the Philippines and Poland, and the rise of anti-secular Islam movements in Indonesia and Malaysia, many political scientists are saying that liberalism is under existential threat.

Australians and Americans now in their middle age, having lived through so many social and economic reforms, may see liberalism as a one-way process, without realizing that it has had many setbacks from which it has re-emerged. Their parents would remember the anti-communist witch hunts of McCarthyism in America, and the push for an amendment to the Australian constitution to ban the Communist Party. Their grandparents would have remembered the rise of Nazism and fascism which in the pre-war years had strong support in the US and the UK, and they would remember US isolationism in the 1930s. D H Lawrences 1923 novel Kangaroo gives an account of nascent extremist far-right politics in Australia, which in the 1930s was to flourish (briefly) as the New Guard movement.

Federation was fought largely around the issue of White Australia, which brought together a coalition of those who wanted to prevent Australia becoming dependent on cheap foreign labour and a larger group of outright racists. George Megalogenis in his book Australias Second Chance points out that in the period from the gold rush up to 1890 Australia was a much more liberal, open and confident society than it was to become in the 1890 to 1945 period.

It hasnt been a one-way street.

Liberalism is still in good health

Once more, anti-liberal movements are almost certainly on the rise in many countries, but that doesnt necessarily mean they are dominant, because there is also evidence of continuing and growing support for liberal causes. Polling by Americas Pew Research Center on attitudes to the death penalty, same-sex marriage, immigration and drug legalisation shows no abatement in a trend towards more liberal attitudes.

Only on race, a particularly sensitive topic in the US, are the results ambiguous, but what at first sight appears to be racial intolerance is often intolerance of cultural practices identified with a racial group, rather than dislike of a persons skin colour or facial characteristics. As pollsters point out, many people who voted for Obama in 2012 voted for Trump in 2016. One would be hard-pressed to identify Obama with what Americans see as black culture. Also in the din of the Trump victory its been easy to overlook the liberal swings in the Canadian and Austrian elections. And in many countries what may look like a racial issue actually turns out to be about language groups.

In Australia the 2016 Australian Election Study continued its time-series research on attitudes to censorship, abortion, legalisation of marijuana, toughness on crime, race and gender discrimination, asylum-seekers, immigration and climate change. On all but one of these issues the survey has found a continuing trend towards more liberal attitudes. (Gender discrimination is the only issue showing some ambiguity.)

As in any contested realm, just because one side is growing in strength doesnt mean the other side is weakening.

A tentative conclusion is that perhaps the issues in the liberal/conservative or the liberal/reactionary divide are becoming more salient. There is indeed a right-wing reaction against liberalism, but that doesnt mean its dominant; indeed it may be because of the success of liberalism that the reaction has become so strident.

Also it would be over-simplifying to refer to one clear-cut division, because there are many threads of dissent. For example in both the US and Australia there is a libertarian movement, which in our country finds some common ground between the Sex Party on the left and the Liberal Democratic Party on the right.

Exclusion, deprivation and division

The main issue driving the reaction seems to be exclusion, and while figures on income and wealth inequality provide statistical evidence of widening economic disparities and exclusion, it would be a mistake to see exclusion only in monetary terms.

By combining a number of indicators including income, employment, education, skills, health, crime, housing, access to services, and living environment the UK Government has developed an indicator of deprivation. Alasdair Rae of the University of Sheffield, using small region data, studied the relationship between deprivation and the strength of the Brexit vote. He found that while the relationship was not strong it was far better than income as a sole indicator, for which he found no correlation. As with the American studies on the vote for Trump he found that the strongest relationship was with education, specifically higher education or more specifically a lack of it, as mentioned in Part 2.

Higher education may be a proxy indicator for difficult-to-measure properties not picked up in the deprivation index. Official statistics, for good reason, tend to shy away from subjective indicators. Higher education can provide a path to social connections, to self-confidence and to the ability to navigate ones way through change all benefits not necessarily closely linked to formal university curriculae. Its almost certainly a path to employment with social prestige, particularly in countries such as the UK where there is a more stratified class system than in Australia.

It may also be that school education alone doesnt adequately equip people with the skills to assess arguments to detect lies, sophistry, untestable assertions, bullshit and casuistry. Again, drawing on my own experience as a university teacher, I have been surprised to find how few students, who have obviously completed high school, are familiar with the basic disciplines of syllogistic reasoning, for example.

These are essential skills, not only for democratic participation, but also for living in a world where one has to make day-to-day decisions in markets. Its understandable that there would be commercial interests opposed to people developing such skills, because scepticism and the capacity to make ones judgement dulls the effectiveness of advertising, but in a democracy they should be regarded as no less essential than literacy and numeracy.

The reaction against liberalism stems from a complicated set of causes. That may sound a little glib, but its questionable whether policymakers in London, Washington or Canberra understand just how complicated it is, let alone whether they can make some sense of that complexity.

In his 1998 work Seeing Like a State James Scott of Yale University points that the policymaker the public servant, the minister, the political strategist has a reductionist model of the world, a model seen through a set of simplified indicators.

One aspect of that model is summarized in the already-mentioned aphorism a rising tide lifts all boats (or at least doesnt result in any of them sinking). As Miriam Lyons and I describe in our work Governomics, the idea that inequality doesnt matter (just so long as no one goes backward), known in economics as the Pareto model, has been dominant in our universities and bureaucracies for many years, along with the idea that people vote using the same economic criteria as they approach private markets (public choice theory). Both beliefs have their roots in the Austrian School of economics, referred to in Part 3.

But inequality and exclusion do count. To have ones material living standards frozen at a certain level while most other people go ahead hurts. And even if ones material standards are looked after, social exclusion hurts. Thats an area where commonsense and social psychology align. Surely politicians and public servants who advise them know this in their family, social and workplace relationships, but in the official realm they so often resort to their reductionist model of a one dimensional man, to use Herbert Marcuses term in his 1964 book of that name. That dimension is the market dimension, where people trade goods and their own labour a dimension that ignores all other human values and relationships. But as the Austro-Hungarian philosopher Karl Polanyi pointed out in 1944, we live in a society, not in a market.

In Britain some policymakers seemed to be surprised that in the de-industrialized regions, where governments had spent so much on adjustment assistance, and where Britains social security safety net had provided a reasonable backstop by that countrys standards, people were so ungrateful as to vote for Brexit.

But thats to misunderstand, or at least to underestimate, the value of work the opportunity to develop ones capacities and to use them to socially productive ends. Thats what gives meaning to peoples lives, and is what earns respect the knowledge that one is contributing and that ones contribution is valued.

Even in a situation where social security payments could substitute for the income from employment, those who become unemployed would still be suffering significant loss. That loss would include the indignity of becoming dependent on welfare with its connotation of an inability to provide for oneself and ones family.

That situation is not hypothetical. As income disparities were widening during Australias mining boom the Howard Government introduced a number of means-tested family assistance provisions. Its unlikely that they thought about how proud people who enjoyed the sense of self-reliance associated with independence from the social security system felt when they had to enrol in Centrelink for welfare benefits.

To draw once again on behavioural economics, its fallacious for a policy analyst to bring losses and gains to a common monetary metric, and to conclude that so long as the monetary values of gains exceeds the monetary value of losses, all is well. Thats not how people perceive gains and losses. People almost always put far more weight on losses than on gains. As a thought experiment, consider the way you would feel if on the same day you had $100 stolen from your purse and received an unexpected extra $100 in a tax refund.

An Economist editorial summed up the weakness in the idea that a few social security payments could compensate for neoliberalisms disruptions to peoples lives. It said [economic] liberalization should generate gains large enough to make everyone better off, so all we need to do is liberalize and then redistribute some of the gains to the losers. Thats clearly missed some important dynamics.

Those dynamics have to do with the value of work, of respect, of peoples knowing they are doing something useful. And theyre about the value people attach to living in a productive, thriving community. We can imagine the feeling of the former factory worker who, every morning on her way to her new unskilled job, drives past the rusting plant where she used to be part of a team making something. One doesnt have to have a fine aesthetic sense to know the depression of being surrounded by physical and social decay, where, to use Henry Lawsons term, the atmosphere is past caring.

If our government is serious about developing a dynamic economy an agile one capable of anticipating and responding to opportunities in a competitive world, it has to work with the community to make sure that everyone understands that such dynamism will involve disruption for many people, and to make sure it has a way of helping people navigate their way through that disruption.

Otherwise, if people are left to bear the costs of that disruption they will react negatively. Some will do what they can to resist change as we have seen that resistance finds an outlet at the ballot box. Some will give up, and resign themselves to unemployment or underemployment, even though they may have many productive years ahead of them.

As Andrew Scott points out in his work Northern Lights, a study of how we may learn from the Nordic democracies, the Danish Government, guided not only by a sense of decency but also by hard-nosed economists who dont want to see human capabilities wasted, has placed a strong emphasis on supporting displaced workers through income support and re-training, as a way of reconciling employment and income security with economic dynamism.

The social wage distribution with dignity

This is not to deny the need for mechanisms of redistribution, but social security payments are not the only mechanism. There are ways of achieving redistribution while maintaining peoples dignity. One is through progressive taxation: its easy to forget that during the 1950s and 1960s in Australia the top rates of personal income tax were between 67 and 75 percent.

The other way is through attention to the social wage a set of universal benefits in health care, education, housing and public goods, with or without subtly-applied means-testing. The material benefit is that a strong social wage acts as a buffer to cover some of lifes essential expenses. The broader benefit is in social inclusion, particularly when there is no encouragement for those with means to opt out of sharing.

The economic philosopher Thomas Schelling won his Nobel Prize for his rigorous work on ways people interact and share with one another. He drew attention to public policies that could encourage or discourage social mixing. As his former Harvard academic colleague Robert Reich points out, however, it is becoming easier and easier for Americans to live in such a way that they rarely have to interact with people who arent like themselves. Americans living in the liberal cities of the east and west coasts use the contemptuous term flyover states to describe inland America, the America that delivered the White House to Trump. From 10 km up you dont get much idea of whats going on below.

Its ironic that urban liberals are often classified as cosmopolitan, but in reality many live in a small, contained world. Just because ones friends and acquaintances are scattered over the planet doesnt make one cosmopolitan if theyre all much the same in their values and life-experiences.

While Australia isnt as starkly geographically segregated as the US, the same trends are in place here. There are strong country-city divides, and within cities the outer suburbs of our sprawling capital cities are quite different communities from the inner suburbs. A thirty year run of rising urban house prices, fuelled by tax breaks, has worsened geographic segregation. And as the more educated, articulate, politically-connected people have congregated in certain areas they have managed to secure what may be a disproportionate share of public goods, such as cultural facilities and metropolitan public transport.

There are now a number of residential gated communities in Australia, and many more that may as well have security gates because of their housing prices and lack of public facilities. Then there are metaphorical gated communities private schools and private health insurance as a means to bypass the hoi polloi queuing for public hospital treatment. Although the Hawke Government initially supported the social wage strongly, by the end of Labors 1983-1986 term in office support was waning, particularly as health Minister Richardson started to wind back support for Medicare.

Its 44 years since we have had compulsory military service as a mechanism of social mixing and shared experience. Church attendance, once an opportunity for social mixing, has declined. More people are sending their children to private schools we have an extraordinary education policy that actually promotes social stratification. And with increasing prosperity the cross-country drive to other capitals or to tourist destinations has been replaced by flying. (Robert Reich who is now on the faculty of the University of California at Berkeley, maintains his Boston and Washington contacts, but every year or two he drives across the land. Perhaps thats one reason he was better placed in 2016 than most liberals to see how American political sentiment was developing.)

Crikey editor Bernard Keane suggests that those on the right accept that some form of binding social and cultural glue is still needed beyond material wealth perhaps needed more than ever . But rather than relying on re-establishing the social wage, and supporting mechanisms of social inclusion, those on the right are fostering division a tribalist demonisation of the Other. (Crikey, 23 December 2016.) There has been a general de-valuing of the collective our common wealth.

While we seem to be splitting into groups who have limited interaction with one another, there is also evidence that the relationship between people and the governments they elect has become more distant.