The Tories will never undo the impact of austerity

One of the impacts of 2010 austerity we saw again last week. Widespread flooding ruining hundreds of homes, and costing a life. Can we say those floods were caused by climate change? Not with certainty, but climate change has made this kind of flooding more likely. Can we say the lack of spending on flood defences under a Tory government made the recent floods worse? Not with certainty, but lack of spending has increased the damage flooding does more generally.

In 2007 the Labour government commissioned from Michael Pitt (no longer available on a government website, but available here) which stated:

“The scale of the problem is, as we know, likely to get worse. We are not sure whether last summer’s events were a direct result of climate change, but we do know that events of this kind are expected to become more frequent. The scientific analysis we have commissioned as part of this Review (published alongside this Report) shows that climate change has the potential to cause even more extreme scenarios than were previously considered possible. The country must adapt to increasing flood risk.”

The Labour government responded to this review by substantially increasing central government spending on flood prevention. It reached a peak in 2010/11, the last year of the relevant spending review. Subsequently the coalition government, as part of its austerity policy, cut back on spending, going directly against the spirit of the Pitt review. (More details can be found in my book, The Lies We Were Told.)

Flooding is a very visible example of what happens when a government cuts back on spending communities desperately need. There are hundreds more. Cutting Sure Start centres leading to growing pressure on the NHS. Squeezing local authorities so they cut provision for young people, together with less police officers, helping the spread of knife crime. Squeezing the NHS and local authority health provision leading to premature deaths. And so on.

Sajid Javid and Boris Johnson want people to believe they have begun to reverse the disaster of Osborne’s cuts. They have plans to return the number of police officers to 2010 levels, which leads to good headlines because the media always neglects to account for population growth, with the odd laudable exception from where the chart below comes.  

The number of GPs per head of population have also been falling in most of the UK, when they should be rising to cope with people living longer. Here is a chart from the Nuffield Trust.

Again the Conservatives have announced plans for more GPs, but they have done that before and they have failed to materialise. The basic problem is that they are failing to train enough doctors, too many doctors go overseas because of poor pay and working conditions in the UK (remember the doctors strike), and their hostile environment policy and Brexit discourages doctors coming from abroad. I could go on and on.

But it is worse. We have to have severe doubts that the Tory spending plans, inadequate though they are, will be fulfilled. There are two basic reasons. The first is Brexit, which I talked about in a recent post. The second is taxes. Tories hate putting up taxes in any way people will notice, and really like cutting taxes. During the austerity period they cut income taxes and corporation taxes. This is simply no longer possible.

The reason why is health spending. The trend in health spending per person, or as a share of GDP, is relentlessly upwards. The trend in the graph above illustrates this. It reflects many things which cannot be reversed: not just increasing life spans but also technical progress in what can be treated, and the fact that the better off we are the more in proportion we want to spend on our health. For a time this upward trend was offset by the peace dividend reducing military spending, but that has come to an end. It has nothing to do with a free at the point of use system being inefficient - in fact the opposite is true.

Both factors, Brexit and taxes, reflect the influence of extreme neoliberalism in today’s Tory party. There are some Brexiter MPs who really just want to return to the days of Empire, or who just don’t get the idea of shared sovereignty, or want to keep foreigners out. But the key reason for the dominance of Brexit in today’s Tory party is a belief that a society free as far as possible of taxes and regulations and state ‘interference’ in the economy is a good society, and the EU is a barrier to that. The same ideology wants to reduce the size of the state way beyond what most of the public wish, and still calls for slashing red tape despite Grenfell and while greatly increasing red tape for trading firms because of Brexit.

Their neoliberalism has become extreme because they have, with Brexit, started working against the interest of UK business. The party of business has become the party that ignores business. The Tory neoliberalism has become so extreme that they think they know what is good for business even though they are told by business that it is disastrous. A former Tory business minister writes “I was aghast that a Conservative government, of which I was a member, had brought the world of business so low.”

Should we be grateful that the Tories have finally agreed to end years of growing cuts and in some areas start to reverse austerity? They really had little choice. I think we should credit the new Chancellor with stopping Johnson announcing tax cuts (at least for now), and for increasing public investment. But for the reasons I have outlined the Tories will never be able to substantially reverse the damage they did with austerity, because they remain wedded to an extreme neoliberal ideology.

The Tory party lost its way from 2010, not 2016

“I have had it up to here with the Conservative party.” So writes a one time editor of the Spectator, Matthew d'Ancona. It is a good read: for example

“A chilling populism is now creeping into the language of mainstream Toryism: the language of treachery, snarling tribalism and impatience with anything that smacks of prudence, compromise or caution.”

He is talking about Brexit of course, and he is entirely right. What he misses, in my view, was that this problem did not begin with the EU referendum, but six years earlier, with the Tory ‘modernisers’, Cameron and Osborne.

I think d’Ancona gets to the heart of the problem when he writes

“By tradition, the strongest claim the Tories have had to office is a belief that ideology should be subordinated to reality. Even Margaret Thatcher – the most explicitly ideological of Conservative prime ministers – was ousted to stop the poll tax and to salvage Britain’s relations with Europe.”

Thatcher began neoliberal hegemony in the UK and a lot of the policies she introduced were popular, at least at the time. Her revolution was introduced with some caution, and when her caution ran out she was deposed. That caution, at the level of senior ministers or the party, had gone by 2010. The clearest indication of that is austerity.

Sound public finances, which d’Ancona says he supports, should never apply in the middle of a recession. We have known that since Keynes. As a result, in every post WWII economic downturn the government has focused on recovery and not the rising deficit. The single exception before 2010 was under Margaret Thatcher in her infamous budget of 1981. But that austerity was very different from 2010 for three reasons, in ascending order of importance.

1. The deficit was not targeted for its own sake, but in a failing attempt to hit a money supply target.
   
   
2. The deficit was mainly reduced by raising taxes rather than by cutting spending, which is more demand friendly. 2010 austerity preferred spending cuts to tax rises.
   
   
3. The austerity experiment was short lived and quickly reversed.

I do not want to minimise the damage done by the 1980/2 recession. My point is just that Thatcher and her ministers saw that monetarism was not working and they ditched it. Not soon enough but it was reversed. To use d’Ancona’s words, ideology was subordinated to reality.

The contrast with the austerity that began in 2010 is clear. As I never tire of saying, almost every first year economic undergraduate around the world is taught that in a recession you stimulate demand. Nowhere do the textbooks talk about worrying about the resulting deficit at the same time, because that implies austerity rather than stimulus. Unlike Thatcher, in 2010 there was no runaway inflation. The debt funding crisis that Coalition politicians were so fond of telling us about was a figment of a few City economists’ imaginations.

By 2012 it was obvious that austerity was a huge mistake. The recovery was nowhere in sight, and a key reason for this were large cuts public sector investment. It is no good complaining about the Eurozone crisis when you are cutting spending while interest rates have fallen by as much as the MPC dare. That is a schoolboy error. An imminent funding crisis implies rising interest rates on UK government debt, but by 2012 those rates were falling. The majority of academic economists who predicted that austerity would damage the recovery had been proved right. But did Cameron and Osborne change their policy, as Thatcher had done, and switch to fiscal stimulus? Of course we know they did not. Reality did not get a look in.

In economic terms austerity was the most damaging aspect of reality denial by the 2010 Tory based government. I calculated that austerity cost the average household £10,000, but the true figure may be much more if we allow for the damage austerity did to the supply side of the economy. It is certain that cuts to social care and the NHS cost lives: it is just a question of how many thousands of lives we are talking about. Austerity represented political deceit at its worst. Voters accepted nonsense pushed by the government about its credit card, and this allowed Tories to achieve an ideological goal of a smaller state which was otherwise unpopular.

If that was not bad enough, austerity also helped sow the seeds of Brexit. When people in communities that had been left behind voted for Brexit they said things couldn’t get any worse, and they said that in part because of austerity. But this was not the only grand deceit of this Tory led administration. They established a target for immigration that they had no intention of meeting because they knew the damage meeting that target would do. But their rhetoric that immigrants were responsible for the ills caused by austerity was a major reason that Cameron lost his referendum. A Prime Minister who had falsely told the nation why it was essential to reduce immigration had no answer to those who pointed out it could not be completely controlled because of Freedom of Movement.

Cameron did not just make a mistake in allowing a referendum in the first place. Through his ruinous policy of austerity and his demonisation of immigrants he ensured that referendum would be lost. d’Ancona is right that Europe brings out the worst in the Tory party. It shows how Tories can elevate ideology and party above the interests of the country. But that did not start in 2016, but with the destruction it has sown since 2010.

Why Brexit is a neoliberal project

Neoliberalism is generally associated with extolling the market, encouraging globalisation and generally being on the side of business. As Brexit will reduce the size of markets available to UK firms and therefore reverse globalisation in the UK, and is definitely not what most of UK business wants, how can it be neoliberal?

A good place to start is to go back to a discussion of what free trade means. Most people, and certainly most economists, would think that free trade means free to trade. Following that definition, harmonising regulations across countries which enables firms to trade much more easily in many countries is increasing free trade. The ideal is one single market, which is what the EU has achieved for goods and many services.

Many neoliberals would think that way. But others would see free trade as meaning free from any kind of state interference. The Single Market, with a court to judge whether its rules and regulations have been broken or not, does not sound free in that sense. Their ideal becomes trade that is as free as possible from any kind of state regulation. They do not want harmonised regulations, but the minimum amount of regulations.

If seeing free trade as meaning free from regulations on trade seems strange, it shouldn’t. If you look at how many neoliberals use the term free market that is exactly the what they often mean. If someone says that executive pay is determined by the free market, they do not mean a market free from what economists would call imperfections but just free from government interference. Unlike ordoliberals, neoliberals of this type would call a market with a monopoly producer free but a market where competition policy broke up monopolies as suffering from state meddling.

I had original thought that the Global Britain idea that Brexiters go on about was pure deflection from the awkward fact that Brexit would restrict trade. I think I was being unfair. Being true neoliberals Brexiters do not want to destroy trade, but trade has to be as regulation free as possible. Far better, therefore, for the UK to trade with the US or emerging markets that had weaker regulations than with the Single Market. The problem with the Single Market, from the Brexiters viewpoint, is that it locks in strong regulations of various kinds.

This helps explain why so many Brexiters also appear to be strong neoliberals. Brexit is like striving for a kind of neoliberal utopia, in contrast to other neoliberals like Osborne and Cameron who were prepared to compromise over regulations for the benefit of access to a bigger market. And just as neoliberals have no worries about tricking the public to vote for their utopia by pretending it was something very different, they also have little time for firms that cannot understand that what the Brexiters are doing will ultimately be for their own good. Politics as marketing, better described as deceiving of the public, is a common neoliberal trait.

The Brexiters are just one more group inspired by their own vision of neoliberal Nirvana. While Osborne and Cameron were prepared to settle for a small state, the Brexiters want that along with as few regulations as possible. Both obtain their vision deceitfully, and are prepared to inflict untold damage on the economy to get what they want. Like all good Leninists they believe that in the end (for Rees-Mogg 50 years) it will all be worth it. Which means if they get their way we will endure half a century of economic damage only to demonstrate their vision was just one more neoliberal fantasy, 

The fatal inconsistency within neoliberalism

The collapse of Carillion had some important implications for public sector outsourcing, as I discussed here, but I tend to agree with Will Hutton that the real lessons lie elsewhere. He writes

“While some public sector delivery is outstanding, notably in parts of the NHS, the general pattern is more patchy. It is for this reason that governments for decades have been contracting the private sector to deliver goods and services. Trying to extend that principle is not unreasonable if high-quality private sector partners step up to the mark: the problem is they are in such short supply.”

In other words the problem is not so much with outsourcing, if sensibly done by a government that does not automatically think private is best and a civil services able to write good contracts and effectively monitor quality. The problem is with the poor quality of so much British capitalism. Carillion is not just one bad apple, of course: this is a lesson that should have been learned from the financial crisis, and RBS in particular,

But how can that be, when the market ensures that only the most efficient firms survive? That idea, that the market ensures that only the most efficient prosper, is a central message of neoliberal ideology, and it has held UK and US governments under its sway since the time of Thatcher and Reagan. But that ideology contains a large and deep internal contradiction, which applies particularly to large firms like Carillion. To see what that contraction is, we need to talk about ordoliberalism and Ronald Coase.

Ordoliberalism is widely known as the German version of neoliberalism. It too celebrates the benefits of the market. It, like neoliberalism, ignores many of the failures of markets that Colin Crouch eloquently outlines and which economists spend a lot of time studying. But ordoliberalism does recognise one potential problem with their market ideal which neoliberalism ignores, and that is monopoly. Crouch makes a similar distinction in talking about market-neoliberals and corporate-neoliberals.

This distinction is important for reasons that go way beyond the textbook problem with monopoly: that prices are too high and output is too low. To see why it goes beyond that we need to turn to Ronald Coase. He was a British economist who subsequently worked at Chicago. His first major article was "The Nature of the Firm" written in 1937 which introduced the concept of transaction costs to explain the nature and limits of firms. The key point that Coase made relevant for our discussion is that, in theory, much of what firms do could instead be done by markets. For a non-economist this probably sounds strange, so I will briefly try and explain the idea.

In principle the activities of any firm could be duplicated by all its employees, including managers, becoming self employed. The worker who worked for a firm would become a self employed person who signed a contract with the self-employed manager. Furthermore, the self employed manager would not have to work with a fixed set of self employed workers, but for each task they could create a market for the task which any self employed person could bid to fulfil.

Coase asked why we have firms rather than this more market based setup. His answer is transactions costs. A typical worker employed in a firm has to do whatever (within reason) a manager asks them to do. This can vary, often at very short notice, depending on the needs of the firm. Replacing this with a large number of specific short term contracts would be very inefficient, because it takes time to write and read contracts (transactions costs). You could add search costs and many other costs that make the self employed contracting model normally inefficient.

You can see exactly these tensions, between the advantage of the market versus internalising activities within a firm, played out when a firm decides to outsource any of its activities. But these tensions have a darker side. To what extent have firms internalised the market so that they can exploit customers (traditional monopoly), exploit workers (if one large firm is the only potential employer for many workers i.e. monopsony), or as a vehicle for managers to exploit shareholders.

There are two paths you can travel once you recognise all this. The first, and more ordoliberal, is to distrust monopoly of any kind, and be highly skeptical of large firms and their creation through mergers. The second is to assume that firms are always right, and that large firms exist simply because they are more efficient at doing what they do than the same firm broken up. Given the darker side mentioned above, there is no logical reason to take the second path. Skepticism about large firms is the right path to take. The second path, where you presume that there are always good reasons why large firms exist, makes no logical sense, unless your goal is for whatever reason to defend these large firms. It is the path that neoliberalism took.

Will Davies has a fascinating paper of how ideas about the virtues of competition, and the need to break up monopolies, changed within the University of Chicago from the 1930s until the 1980s under the influence, among others, of the work of Ronald Coase. It shows how many of the leading actors during that period chose the second path. Economics is rich enough that, if they so wish, an economist can always invent reasons why monopolies might be efficient, and so earn lucrative fees for so doing.

Thus neoliberalism that might have started as extolling the virtues of the market ends up as “a consultancy racket, in which corporations purchase complex models to justify their chosen strategy”, to quote Will Davies more recently. This is what I meant when I wrote back in 2016.

“It is important that those who use the term neoliberalism today recognise this contradiction. It does not mean that using the term neoliberalism to describe the dominant ideology is wrong, but it is a mistake to assume the ideology has not be moulded/adapted/distorted by those in whose interest it works. These changes have made it intellectually weak at the same time as making it politically strong.”

There are important mistakes that those opposing neoliberalism can make if they do not see this point. They involve opposing anything your opponent appears to favour. Thus, for example, because neoliberals preach the virtues of the market but in practice are normally simply pro-business, this does not mean that you should always oppose markets: you can be pro-market and anti-neoliberal. More generally, just because neoliberals can use ideas from economics to argue their case does not mean there is something wrong with economics (as opposed to some economists). Louis Zingales, from Chicago, exemplifies both points, and is not afraid to make the distinction between pro-market and pro-business in public.

This is all related to the distinction between ideas and interests. While it is right to recognise that interests are to some extent based on ideas, it is also important to see that ideas can change in time to reflect interests. How an ideology based on seeing markets through rose colored spectacles turned into an ideology justifying crony capitalism is at least part of the story of neoliberalism. These compromises with power allowed the ideology to become dominant, but at the same time it also made it rather easy for it to be subverted by different kinds of plutocracies, such as those represented by Brexit and Trump.

If we treat plutocracy as democracy, democracy dies

The snake-oil salesmen

There are many similarities between Brexit and Trump. They are both authoritarian movements, where authority either lies with a single individual or a single vote: the vote that bindsthem all. This authority expresses the movement’s identity. They are irrational movements, by which I mean that they cast aside expertise where that conflicts with the movements wishes. As a result, you will find their base of supporters among the less well educated, and that universities are seen as an enemy.  Both groups are intensely nationalistic: both want to make America or England great again.

It is easy to relate each group to familiar concepts: class, race or whatever. But I think this classification misses something important. It misses what sustains these groups in their beliefs, allows them to maintain their world view which is so often contradicted by reality. Both groups get their information about the world from a section of the media that has turned news into propaganda. In the US this is Fox, and in the UK the right wing tabloids and the Telegraph.

A profound mistake is to see this media as a symptom rather than a cause. As the study I spoke about here clearly demonstrates, the output of Fox news is not designed to maximise its readership, but to maximise the impact of its propaganda on its readership. I think you could say exactly the same about the Sun and the Mail in the UK. Fox and the Sun are owned by the same man.

Even those who manage to cast off the idea that this unregulated media just reflects the attitude of its readers, generally think of this media as supportive of political parties. There is the Conservative and Labour supporting press in the UK, and similarly for the US. In my view that idea is ten or twenty years out of date, and even then it underestimates the independence of the media organisations. (The Sun famously supported Blair in 1997). More and more it is the media that calls the shots, and the political parties follow.

Brexit would not have happened if it had remained the wish of a minority of Conservative MPs. It happened because of the right wing UK press. Brexit happened because this right wing press recognised a large section of their readership were disaffected from conventional politics, and began grooming them with stories of EU immigrants taking jobs, lowering wages and taking benefits (and sometimes much worse). These stories were not (always) false, but like all good propaganda they elevated a half-truth into a firm belief. Of course this grooming played on age old insecurities, but it magnified them into a political movement. Nationalism does the same. It did not just reflect readers existing views, but rather played on their doubts and fears and hopes and turned this into votes.

This is not to discount some of the very real grievances that led to the Brexit vote, or the racism that led to the election of Trump. This analysis of today's populism is important, as long as it does not get sidetracked into debates over identity versus economics. Stressing economic causes of populism does not devalue identity issues (like race or immigration), but it is the economics that causes the swings that help put populists in power. It was crucial, for example, to the trick that the media played to convince many to vote for Brexit: that EU immigrants and payments were reducing access to public services, whereas in reality the opposite is true.

Yet while economic issues may have created a winning majority for both Brexit and Trump, the identity issues sustained by the media make support for both hard to diminish. Brexit and Trump are expressions of identity, and often of what has been lost, which are very difficult to break down when sustained by the group’s media. In addition both Trump and Brexit maintain, because their proponents want it to be maintained, the idea that it represents the normally ignored, striking back against the government machine in the capital city with all its experts.

But to focus on what some call the ‘demand’ for populism is in danger of missing at least half the story. Whatever legitimate grievances Brexit and Trump supporters may have had, they were used and will be betrayed. There is nothing in leaving the EU that will help the forgotten towns of England and Wales. Although he may try, Trump will not bring many manufacturing jobs back to the rust belt, and his antics with NAFTA may make things worse. Identifying the left behind is only half the story, because it does not tell you why they fell for the remedies of snake-oil salesmen.

As I wrote immediately after the vote in my most widely read post, Brexit was first and foremost a triumph for the UK right wing press. That press first fostered a party, UKIP, that embodied the views the press pushed. The threat of that party and defections to it then forced the Prime Minister to offer the referendum the press wanted. It was a right wing press that sold a huge lie about the UK economy, a lie the broadcast media bought, to ensure the Conservatives won the next election. When the referendum came, it was this right wing press that ensured enough votes were won and thereby overturned the government.

Equally Donald Trump was first and foremost the candidate of Fox News. As Bruce Bartlett has so eloquently written, Fox may have started off as a network that just supported Republicans, but its power steadily grew. Being partisan at Fox became misinforming its viewers, such that Fox viewers are clearly less well informed than viewers of other news providers. One analysis suggested over half of the facts stated on Fox are untrue: UK readers may well remember them reporting that Birmingham was a no-go area for non-Muslims.

Fox became a machine for keeping the base angry and fired up, believing that nothing could be worse than voting for a Democrat. It was Fox News that stopped Republican voters seeing that they were voting for a demagogue, concealed that he lied openly all the time, that incites hatred against other religions and ethnic groups, and makes its viewers believe that Clinton deserves to be locked up. It is not reflecting the views of its viewers, but moulding them. As economists have shown, the output of Fox does not optimise their readership, but optimises the propaganda power of its output. Despite occasional tiffs, Trump was the candidate of Fox in the primaries.

We have a right wing media organisation that has overthrown the Republican political establishment, and a right wing press that has overthrown a right wing government. How some political scientists can continue to analyse this as if the media were simply passive, supportive or even invisible when it brings down governments or subverts political parties I do not know.

The plutocracy

Trump and Brexit are the creations of a kind of plutocracy. Politics in the US has had strong plutocratic elements for some time, because of the way that money can sway elections. That gave finance a powerful influence in the Democratic party, and made the Republicans obsessive about cutting higher tax rates. In the UK plutocracy has been almost non-existent by comparison, and operated mainly through party funding and seats in the House of Lords, although we are still finding out where the money behind the Brexit campaign came from.

By focusing on what some call the demand side of populism rather than the supply side, we fail to see both Trump and Brexit as primarily expressions of plutocratic power. Trump’s administration is plutocracy personified, and as Paul Pierson argues, its substantive agenda constitutes a full-throated endorsement of the GOP economic elite’s long-standing agenda. The Brexiteers want to turn the UK into Singapore, a kind of neoliberalism that stresses markets should be free from government interference, rather than free to work for everyone, and that trade should be free from regulations, rather than regulations being harmonised so that business is free to trade.

It is also a mistake to see this plutocracy as designed to support capital. This should again be obvious from Brexit and Trump. It is in capital’s interest to have borders open to goods and people rather than creating barriers and erecting walls. What a plutocracy will do is ensure that high inequality, in terms of the 1% or 0.1% etc, is maintained or even increased. Indeed many plutocrats amassed their wealth by extracting large sums from the firms for which they worked, wealth that might otherwise have gone to investors in the form of dividends. In this sense they are parasitic to capital. And this plutocracy will also ensure that social mobility is kept low so the membership of the plutocracy is sustained: social mobility goes with equality, as Pickett and Wilkinson show.

It is also a mistake to see what is happening as somehow the result of some kind of invisible committee of the 1% (or 0.1% and so on). The interests of the Koch brothers are not necessarily the interests of Trump (it is no accident the former want to help buy Time magazine). The interests of Arron Banks are not those of Lloyd Blankfein. Instead we are finding individual media moguls forming partnerships with particular politicians to press not only their business interests, but their individual political views as well. And in this partnership it is often clear who is dependent on whom. After all, media competition is slim while there are plenty of politicians.

What has this got to do with neoliberalism? which is supposed to be the dominant culture of the political right. As I argued here, it is a mistake to see neoliberalism as some kind of unified ideology. It may have a common core in terms of the primacy of the market, but how that is interpreted is not uniform. Are neoliberals in favour of free trade, or against? It appears that they can be both. Instead neoliberalism is a set of ideas based around a common belief in the market that different groups have used and interpreted to their advantage, while at the same time also being influenced by the ideology. Both interests and ideas matter. While some neoliberals see competition as the most valuable feature of capitalism, others will seek to stifle competition to preserve monopoly power. Brexiters and their press backers are neoliberals, just as the Cameron government they brought down were neoliberals.

I think there is some truth in the argument, made by Philip Mirowski among others, that a belief in neoliberalism can easily involve an anti-enlightenment belief that people need to be persuaded to subject themselves fully to the market. Certainly those on the neoliberal right are more easily persuaded to invest time and effort in the dark arts of spin than those on the left. But it would be going too far to suggest that all neoliberals are anti-democratic: as I have said, neoliberalism is diverse and divided. What I argued in my neoliberal overreach post was that neoliberalism as formulated in the UK and US had made it possible for the plutocracy we now see to become dominant.

By the nature of an unorganised plutocracy, what types of neoliberalism hold sway may be largely random, and depend a lot on who owns media organisations. It leads to a form of politics which is in many ways unpredictable and irrational, with an ever present tendency to autocracy. This is what we are witnessing, right now, in the UK and US. It is not the normal politics that either of these countries are used to, although it may be more familiar to those in quasi-dictatorships. We all know about how the Republican’s tax cutting bill just happens to favour real estate moguls who inherit their money as Trump did. This is simple corruption, enacted in a corrupt way. That the President of the United States retweeted a British far right group that inspired an individual to murder a British MP is not normal. When Brexit supporting MPs respond to the Irish border problem by saying ‘we are not going to put one up’ this should not pass as an acceptable response: it should be laughed at as the nonsense it is.

When politics becomes the whims and mad schemes of a small minority that only listen to themselves, unmodified by the normal checks and balances of a functioning democracy, it should be treated by the non-partisan media for what it is, not normalised as just more of the same. If we treat a plutocracy as a democracy, democracy dies. We should not be fooled that this plutocracy looks like normal politics just because the plutocrats have taken over the main party of the right.

A dividing point

We are very close to a point where neoliberalism becomes something much worse. The POTUS is following a fascist strategy of demonising a religious minority. If Mueller’s investigations proceed as expected, but he is sacked and/or the Republicans block any attempt at impeachment, we may have passed that critical point. If the Brexiters succeed in breaking away from the EU’s customs union and single market, the UK may have nowhere else to go but the arms of a permanently Republican US.

If there is a way of escaping this fate, and rescuing democracy in both the UK and US, it has to involve a democratic defeat of the right wing parties that allowed this plutocracy to emerge, and indeed encouraged it and then made bargains with it when it believed it was still in control. The defeat has to be overwhelming and total. Those who brought us Brexit and backed or tolerated Trump have to be disgraced as the harbingers of disaster. Their control of the Republican and Conservative parties must end.

Only that will allow the left, and I think it has to be the left, to end a system by which elements of the plutocracy can control so much of the means of information. In the UK that means extending rules that apply to broadcasters, suitably adapted, to the press. In the US it means not just bringing back the Fairness doctrine repealed under Reagan, but also bringing controls on election spending similar to those in the UK (and the UK controls need to be strengthened). In short, we need to take money out of politics to ensure democracy survives. Give journalists the freedom to write about or broadcast the news as they see it, rather than as their employer want it to be seen.

Why the left rather than the centre? The centre will agonise over what this means for freedom of expression or freedom of the press and therefore nothing much will happen (see Leveson), as nothing happened under Clinton or Blair. That may be a little unfair to both leaders, because the danger of plutocracy may have been less obvious back then, and the media was more restrained. But with Brexit and Trump no further evidence is needed. The left should see more clearly how in practice this freedom is in reality just a freedom to sustain a plutocracy. Only it will have the courage to radically reverse the power and wealth of the 1%. I fear the centre will not have the will to do it. Although Anthony Barnett’s focus differs from mine, he puts this point very well here: if all you want to do is stop Brexit and Trump and go back to what you regard as normal, you miss that what was normal led to Brexit and Trump.

That will have many wise and sensible people shaking their head, but the alternative does not work. Defeating or impeaching Trump and letting the Republican party survive in its current form achieves little, because they will go on gerrymandering and Fox news will go on poisoning minds. The energy of Democrats will be spent on trying to clear up the damage Trump has caused, and the next autocrat from Republican ranks who wins power because they will ‘clear the swamp’ will be smarter than Trump. In the UK, if the Conservatives survive in their current form, their ageing membership is in danger of selecting more Brexit nutters who will overwhelm the dwindling number of reasonable Conservative MPs. We will find the BBC, if it survives at all, will become more and more like the mouthpiece of a press dominated by plutocrats. [1] In either case a critical point will have passed.

I know from many conversations I have had that there is a deep fear among many of leadership from the left. Here the UK is ahead of the US. The story in the UK used to be that the left could never win, and it was a plausible story, but recent events have cast great doubt on it. That remains the story in the US, but there are good reasons for doubting it there too. There is no reason why all of the disenchanted who fell for the lies of the snake-oil salesmen could not support radical remedies from the left: identity and the media are strong but it is economics that dictates the swings.

In the UK now the story seems much more elemental: that somehow the left threatens the existence of capitalism and democracy. In truth there is no way Corbyn could persuade the Labour party to abandon democratic capitalism, just as there is no way Sanders or Warren could do the same in the US. All we are talking about is rolling back many of the results of neoliberalism. But it is difficult to logically convince someone the ghosts they see do not exist. In contrast to these ghosts on the left, the dynamic of plutocracy that I have described here is very real, and it requires radical change to bring an end to this dynamic.

[1] This is why arguments that say the UK press is becoming less powerful because of its falling readership fail. If this press dominate the news agenda of the broadcasters, they do not need many readers. 

How Neoliberals weaponise the concept of an ideal market

This new book by Colin Crouch will perplex many on the left who simply believe neoliberalism has to be overthrown. Indeed the author starts his book by talking about the Grenfell Tower disaster, which he along with many others believe epitomises the failings of neoliberalism. Yet he writes that the book

“is not a contribution to the demonology of neoliberalism, but an attempt at a nuanced account. Only in that way can we assess its capacity for reform.”

Such an account can of course also be justified on the basis of intellectual curiosity, but in addition the author sees some positive aspects of the ideology: He summarises these as

“the discipline of price and calculation [recognising efficiency and opportunity cost}; helping us appreciate the limitations of democratic government; facilitating trade and reducing barriers to it; and facilitating links among people [reducing national divisions].”

So what exactly is neoliberalism? He defines it as

“a political strategy that seeks to make as much of our lives as possible conform to the economist’s ideal of a free market”

The problems and deficiencies of this strategy come when the conditions required for the free market to be ideal do not hold, and the author’s long discussion of these problems would be useful for any economics undergraduate.

One of these conditions for an ideal market is competition: a free market is an ideal from a social point of view if (alongside many other conditions) each good is produced by a very large number of producers. The author recognises, for obvious reasons, that most neoliberals (as opposed, perhaps, to ordoliberals) tend not to go around wanting to break up monopolies and reduce monopoly power. As a result, he distinguishes between market-neoliberals who might, and corporate-neoliberals who would not. He talks about past competition (that may have resulted in monopoly) and current competition. As Luigi Zingales describes it rather well here, business tends to be in favour of a competitive market before it enters it, but once it has a dominant position in that market it is happy to put up barriers to further competition.

The author goes on to discuss conflicts between corporate and market neoliberalism, and much else besides. I think it is a great book, free from unnecessary jargon that you often find elsewhere. It got me thinking about the concept of neoliberalism again as you can see below. Whether that is a good thing or not, I would encourage you to read the book. The author also of course discusses whether he thinks neoliberalism can save itself. For his answer to that question you will have to read the book.

Now, for what it is worth, are some of the thoughts the book inspired. They go back to the distinction between market-neoliberals and corporate-neoliberals. It seems a little odd to define an ideology as the evangelisation of the free market, and then go on to say most neoliberals happen to exclude a crucial component of that free market (competition) when it suits them. I am quite prepared to believe that some of the people who first wrote about neoliberalism many years ago (and perhaps one or two today) could be described as what the author calls market-neoliberals, but as I have suggested in the past I think neoliberalism has evolved (or if you like been distorted) by ‘big money’ or capital to become a tool for self justification.

As a result, I would tend to suggest a slightly different definition that seems to work quite well today. The definition would be: 

neoliberalism is a political strategy promoting the interests of big money that utilises the economist’s ideal of a free market to promote and extend market activity and remove all ‘interference’ in the market that conflicts with these interests.

This replaces a definition based on following an idea (the author’s market neoliberalism), by one of interests promoting an idea so long as it suits those interests.

This alternative definition seems to fit two cases I have used in the past to question more conventional ideas. Large banks benefit hugely from an implicit subsidy provided by the state (being bailed out when things go wrong), but neoliberals do not worry too much about this form of state interference in the market (whereas economists do). Regulations on the other hand they do complain about. It is a very selective focus on market interference.

The second is executive pay. This is always justified by neoliberals as being something determined by the free market, when obviously it is not. Yet if you pretend that there is a market in executives and salaries etc are set by that market and not the remuneration committees of firms, then you are being a good neoliberal by defending these salaries. This example is interesting because it involves defending one part of ‘big money’ (CEOs or some workers in finance) at the expense of another (shareholders). It is why I do not talk about the interests of capital in my definition. 

Is this alternative definition simply negating the power of ideas and going back to good old interests? Only in part. Interests utilise an idea because the idea is a powerful persuasive tool. There is an obvious lesson for the left here. Because neoliberals promote the concept of an ideal market only when it suits them, so opposing neoliberalism does not necessarily mean opposing the concept of an ideal market. The left should utiliise the same concept to oppose monopoly power, for example. The idea of a free market is too powerful an idea to cede to the other side.