Winner of the New Statesman SPERI Prize in Political Economy 2016

Tuesday 17 May 2022

When did things go wrong, 2010 or 1979?


A recent post was entitled “How Austerity created Brexit, and the economic and political decline of the UK”, and it tried to argue that the UK economy and politics had started going seriously awry in 2010 rather than in 2016. Some people responded that the real date from which things started going wrong was 1979 i.e, the advent of neoliberalism.

In a sense they are right, and I have made this argument myself when I have talked about neoliberal overreach. By ‘overreach’ I meant that the continuing pursuit of neoliberal goals would transform neoliberalism into a form of plutocratic authoritarian populism that we saw under Trump and we see in the UK under Johnson. (For why that represents a major change, see below.) In 2017, just after Jeremy Corbyn’s ‘glorious defeat’, I asked whether neoliberal overreach was inevitable, and in 2021 I tried to say more clearly why I thought it was.

However to say that the UK’s political and economic decline started in 1979 is both too simplistic and unconvincing. It is unconvincing because that decline was not evident to most for at least three decades after the onset of neoliberalism. In terms of GDP per capita, the UK at least matched growth in Germany and France in those 3+ decades. [1] It is only since the GFC, and I would argue in particular austerity and Brexit, that real wages have not grown at all over a 15 year period. It is simplistic because it treats neoliberalism in practice as a single entity, whereas in reality it comprises a number of separable aims.

The initial manifestation of neoliberalism under Thatcher and Reagan was not obviously doomed to failure in either economic or political terms. In the UK standards of living for most did not stagnate or decline, and political institutions continued largely unscathed. The power of trade unions declined, but so did inflation. UK poverty increased initially, but this was either arrested or partially reversed in the Blair/Brown years. North Sea Oil and the post-cold war peace dividend enabled Thatcher to cut taxes without drastically shrinking the state, and Blair/Brown raised taxes to increase the size of the state. Whatever you thought of the politics, neoliberalism didn’t at that stage appear doomed to end in authoritarian plutocracy.

While Thatcher and Reagan transformed what had begun before, in subsequent years it looked as if neoliberalism had become sustainable by being selective about what aspects were adopted and what aspects were not. In the UK unions remained less powerful and Thatcher’s privatisations were retained, but other neoliberal goals like a reduced state enabling lower taxation were ignored. Unemployment gradually declined compared to its high point under Thatcher.

There is a line of argument which says the economic success of the Blair/Brown years was an illusion built on deregulated banks that shattered in the Global Financial Crisis (GFC). I think the evidence for that is rather thin. Strong UK growth in earlier years was more broadly based than just financial services, and the UK banking sector survived the GFC with the help of the state. The reason the GFC seems to be such a breakpoint today is in large part because of austerity. Of course the GFC did illustrate the folly of the neoliberal goal of maximum deregulation, but the response of most governments was simply to increase those regulations (e.g. raising capital requirements).

Hypotheticals can be useful as another way of testing ideas. If I am right, then had Brown won a general election after the GFC, and if he had resisted pressure from the Treasury to embark on damaging austerity (which he probably would), then it seems clear to me that we would have seen a continuation of neoliberalism of the Blair/Brown type. That form of neoliberalism could have been sustained as long as the political right, that wanted to push neoliberalism further, did not gain power. But sustainability as long as the same party stays in power is not sustainability in anything but the short term.

I would also argue that the two main powers in Europe, France and Germany, are similar to Blair/Brown in adopting some aspects of neoliberalism but not others, and so have so far avoided neoliberal overreach. They both adopted austerity, of course, and this has increased the power of the far right in France, but they have retained a sufficiently robust welfare state to avoid the far right coming to power. (As I argue here, their voting system also helps. In addition, austerity didn’t have the same impact in Germany as in other European countries.)

So why do I think neoliberalism in the UK and US contained the seeds of its own demise? The first reason is that, for the believers on the right in both countries, the neoliberalism of Blair/Brown and Clinton represented an unfinished project. It was in their minds half-baked, and required more in terms of lower taxation and more deregulation.

The second reason, which reinforced the first, was inequality at the top. If you create a society where a small but significant minority gain incomes and wealth far beyond the majority, they will seek political power either to protect that wealth, or simply because money enables them to do so. The richer of the 1% could do this by funding political parties of the right directly (and thereby gaining influence on those parties), or by funding ‘think tanks’ that were really pressure groups, or by owning media companies not just for profit but to influence their editorial line and content.

Of course the authoritarian populist regimes of Trump and Johnson often pushed neoliberal ideas. The reason why they are a break from, rather than a continuation of, neoliberalism can be seen by thinking about the interests of capital. Arguably you could define neoliberalism in practice as simply being whatever is in the interests of corporations as a whole (see this post). What Trump did and Johnson is doing is not that. Trade barriers are not in the interest of traded capital, and capital also rather likes the ability to freely employ those from abroad. What you had with Trump and have with Johnson is government in the interest of friends and donors, which is why it comes closer to a plutocracy.

So to return to the question in the title, a neoliberalism that is pursued relentlessly in all its aspects does contain the seeds of its own destruction, and the evidence so far suggests what follows after neoliberalism is far more dangerous and can easily transform into undemocratic authoritarianism. In that sense 1979 is correct. However that transformation may take some time to emerge, and will only occur if welfare states are either limited to start with or are cut right back, which suggests for the UK 2010 is the correct date.

More generally it may also be quite possible for governments to adopt some elements of neoliberalism and not others, and avoid the same fate. If my analysis is right, what is critical is to keep the political power of extreme wealth in check (through taxation, media regulation, limits on election funding etc), for the political right to retain a sceptical view of the ideology and to cushion the impact of economic change on those who lose out from it. One big advantage that other countries now have is that there are two major economies where the consequences of not doing these things has become all too evident.

No comments:

Post a Comment

Unfortunately because of spam with embedded links (which then flag up warnings about the whole site on some browsers), I have to personally moderate all comments. As a result, your comment may not appear for some time. In addition, I cannot publish comments with links to websites because it takes too much time to check whether these sites are legitimate.