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Toxic medicine

Introducing the reforms that were to come to be known as “neoliberalism,” British Prime Minister Margaret Thatcher famously explained:

“Yes, the medicine is harsh, but the patient requires it in order to live. Should we withhold the medicine? No. We are not wrong. We did not seek election and win in order to manage the decline of a great nation.”

The sickness that she sought to cure was iatrogenic – it was the outcome of the previous treatment… the so-called “post-war consensus.”  In the Aftermath of the Second World War – itself a product of the financial crash in 1929 and the decade of depression that followed it – political leaders across the western world sought an explanation for the rise of fascism and communism that had led the world to disaster.  The diagnosis that they arrived at was that unemployment – and the poverty and inequality that flowed from it – had created the political space for the populist strongmen to gain a foothold.  As a consequence, the political and economic structures that they began to put in place even before the war was over shared the common overarching aim of creating and maintaining full-employment.

This cure came, however, with severe side effects of its own.  But these only became apparent at the end of a twenty-year explosion in global production and trade.  Within national economies with restricted financial markets and considerable state intervention, in which everyone knows who the Chancellor/Treasury Secretary is but nobody has heard of the head of the central bank, profits can only flow from productivity gains.  Underpinned by a generous system of social security and public services, workers – particularly those organised in trade unions – are able to command a greater share of the productivity gains than ever before (and since).

The problem was that productivity was not a given.  Productivity means either getting more out for the same inputs or getting the same out for fewer inputs.  There are – broadly – two means by which this is achieved.  First, via technology and/or organisational change, a process can be made more energy-efficient.  Second, an increase in the energy available allows the amount of work to increase.  In practice, the two tend to combine.  However, economists and business leaders tend to overstate the former while ignoring the latter when; in fact, it is the latter that tends to produce most productivity gains.

Between 1953 and 1973, the total global energy production grew exponentially as the western economies switched from coal to oil.  And while the 1973 oil shock was partially political, the rate of growth in oil production (and thus energy as a whole) would have fallen anyway by the end of the decade.  Less obviously, the easiest land-based deposits had been depleted; forcing the energy companies to look further afield for increasingly expensive deposits to exploit.  As the energy required to obtain energy began to increase, so the growth of energy available to power the economy (and boost productivity) began to slow.

Although the oil shock tends to be viewed in terms of fuel prices, the real damage was to the rate of productivity growth.  Where previously, capital and labour could maintain an uneasy truce because each gained from rising productivity; by the mid-1970s, a win for one side was an automatic loss to the other.  For capital, winning meant increasing prices to counteract the rising cost of wages.  For workers, winning meant using the power of organised labour to increase wages to offset the rising cost of living.

The political consequence for parties that had been organised around the goal of full-employment was deadlock; as each sought some means of escaping the gathering crisis.  Parties on the left tended toward greater state intervention while those on the right looked to deregulation to restore profitability.

Although the government of Edward Heath in the UK (1970-74) had attempted to introduce neoliberal reforms, they had been unable or unwilling to accept the mass unemployment that the reforms entailed.  Instead, and in the face of growing industrial unrest, the government U-turned; restarting the government printing presses in the hope of kick-starting the stalling economy.  In 1974, faced with another miners’ strike that threatened to bring the UK to a standstill; Heath called an election under the slogan; “Who governs Britain?”  The answer, apparently, was “anyone but you…”  In fact – a harbinger of things to come – Heath won the popular vote; but the Labour Party won more seats.

Neither Labour under Wilson and Callaghan nor the US Democrat Party under Carter had a workable solution to the crisis that broke over them in the mid-1970s.  Attempts at wage control produced a handful of winners in the big, supposedly strategic, sectors of the economy; together with a lot of losers in small and medium businesses and public services.  Meanwhile, a baby boomer generation that had no memory of war or depression saw no good reason for maintaining the societal goal of full-employment.  In 1979, Thatcher was swept to power in a landslide.  A year later, Reagan repeated the feat on the other side of the Atlantic.

The reset under Thatcher and Reagan replaced full-employment with price stability as the overarching goal of society.  Capital controls were abolished; effectively globalising the banking and finance sector.  Markets were deregulated and opened up to competition.  Laws were amended to help to break the power of trade unions.  Taxes were cut to stimulate business and to attract investment.

Like the post-war medicine, however, the Thatcher/Reagan neoliberal cure turned out to be a superbug that mutated and spread through the body of society in ways that were entirely unexpected by the economists who diagnosed the disease.  If the deflationary impact of neoliberalism had been limited to workers’ wages, Thatcher and Reagan would have been vindicated.  But neoliberalism is like a flesh-eating bacterium that eventually eats its host.  As political economist Mark Blyth explains:

“The first thing neoliberalism did, in a sense, was to globalise labour markets and thereby render labour’s ability to command its share of national income obsolete. Then you have that product-market effect, and it [eats through product] markets. In a sense what happened was all of the little cartel structures, corporatism in Germany—let’s think product-market coalitions, all that sort of stuff, that kept the national economy insulated, all the little rules about who could buy your stocks on the stock market etc—all of that was stripped away.

“Once all that was stripped away and everything really did go global, then you’ve got a question as to what happens to the political-party structures. Because what made all those little labour-market cartels and cushy arrangements possible, what made all those product markets safe for domestic companies and all the rest of it, were the political classes that mediated that post-war compromise—that were based everywhere on either a two-party system, Labour and Conservative, or a majoritarian coalition system of the type that you have in Germany.

“Now you’ve destroyed the labour-market cartels. You’ve destroyed the product-market cartels. You’ve globalised everything. What’s the point of the existing parties? They don’t really have one. They were there to stabilise structures that no longer exist. Which is why they’re strangely clueless about what’s going on.”

In the years prior to the 2008 crash, the parties became increasingly technocratic.  Policy, we were told, was too important to be left to democratically elected politicians who would be tempted to make extravagant promises just to get elected.  Instead, arms-length agencies led by technocrats from Ivy League/Russell Group universities would take over the running of the economy.  Today hardly anyone knows who the Chancellor is; but we all know who the head of the central bank is.

Those within the technocratic class poured scorn on Tory MP Michael Gove when, during the Brexit referendum campaign, he claimed that:

“I think the people of this country have had enough of experts…”

Most critics remember this half of Gove’s statement, but wilfully ignore the other half:

“…from organisations with acronyms saying that they know what is best and getting it consistently wrong.”

From 1979 on, neoliberalism had condemned a growing number of people to perpetual poverty.  Various technocratic initiatives to boost local economies always seemed to end up benefiting the technocrats who devised them; but nothing much ever happened for ordinary folk.  The same was true for the technocratic class’ favoured means of escaping poverty; education.  The massive expansion of the higher education sector and its reorientation from academic to vocational study undoubtedly helped some graduates break into the salaried class.  But for the most part, it has been graduates of the same courses at the same top-tier universities that have monopolised the dwindling stock of high-paying graduate employment.  For the rest, “qualification inflation” has resulted in jobs that do not require university degrees asking for them anyway just to keep the number of applicants manageable.  Britain today has some of the highest qualified hotel maids, burger flippers and baristas on the planet.  And, of course, all of them are loaded up with student debt which carries a far higher interest rate than the central bank base rate.

The one job the political parties had left under neoliberalism was to ensure that the losers never became a majority of the electorate.  They failed after 2008.  Indeed, the British Tory-LibDem coalition that ruled between 2010 and 2015 gleefully embarked on an austerity programme designed to make eighty percent of the electorate worse off.  Not content with that, they were foolish enough to turn to those same voters and ask them to endorse remaining in the European Union (which I am sure they would have done, if only Cameron and Osborne had wanted to leave).

The Obama/Clinton Democrat Party was more subtle in undermining the ex-industrial and inner-city regions of the USA while continuing to provide public funds to their favoured groups within the salaried class.  As a result, most pundits were stunned when Clinton lost the 2016 election.  They should not have been.  As American essayist John Michael Greer observed prior to the election:

“I suspect that a great many financially comfortable people in today’s America have no idea just how bad things have gotten here in the flyover states. The recovery of the last eight years has only benefited the upper 20% or so by income of the population; the rest have been left to get by on declining real wages, while simultaneously having to face skyrocketing rents driven by federal policies that prop up the real estate market, and stunning increases in medical costs driven by Obama’s embarrassingly misnamed ‘Affordable Care Act.’ It’s no accident that death rates from suicide, drug overdose, and alcohol poisoning are soaring just now among working class white people. These are my neighbors, the people I talk with in laundromats and lodge meetings, and they’re being driven to the wall…”

Greer highlights the same neoliberal practices that resulted in Brexit on this side of the Atlantic as causing the rise in popularity of Donald Trump: 

“The talking heads insisted that handing over tax dollars to various corporate welfare queens would bring jobs back to American communities; the corporations in question pocketed the tax dollars and walked away. The talking heads insisted that if working class people went to college at their own expense and got retrained in new skills, that would bring jobs back to American communities; the academic industry profited mightily but the jobs never showed up, leaving tens of millions of people buried so deeply under student loan debt that most of them will never recover financially. The talking heads insisted that this or that or the other political candidate would bring jobs back to American communities by pursuing exactly the same policies that got rid of the jobs in the first place—essentially the same claim that the Clinton campaign is making now—and we know how that turned out.”

The difficulty that many people within the salaried class have with Brexit, Trump and the wave of populist movements that have sprung up around the planet is that people voted for them in spite of their likely disruptive impact on the economy (and in the case of Trump; despite the president’s personal boorishness).  Fighting a rear-guard defence of the technocracy on these grounds is doomed to failure (as we are currently seeing in the Democrat candidates debates; the broad collapse of the European centre parties; and as we will see in the UK if anyone is foolish enough to fight a second referendum without first addressing the needs of Brexit voters).

As Blyth argues, the system – and the antiquated two-party system – is dead.  The choice before us is not between populism and the elitism of the pre-2008 neoliberal technocracy; but between left and right versions of populism:

“This was the 2016 [US] election. Senator Clinton had hundreds of policies. They were all ranked. You could see the R[andomised C[ontrol] T[rials] that they were scored against to prove that they worked. And we could just add them together and that was a platform. Except it’s not—because what people are crying out for is a vision, a reason to believe in something.

 “What they actually want is someone to explain to them why, if global warming is so important, they have to pay through their wallets, through a diesel tax, when people that own yachts seem to get off scot-free. What they need is somebody to explain to them why it is that inequality has got so out of whack and our politics is run by the very people who are sitting at the top of the pile pulling the strings of the politicians. They’re not stupid. We think they’re reading ‘fake news’. They’re not. They’re just looking for an alternative account, because they don’t believe a word that comes out of our mouths anymore.

“So until we actually get over the fact that the post-war party system is dead—[that] populism is the new normal—and we somehow reconfigure political action to basically create new parties and new structures or renovate old parties, and move forward with a much more progressive agenda … Then we can talk about policies. Just simply going ‘What are we going to do in terms of policies?’—we tried that in 2016. It was a disaster.”

There is good and bad news in this.  For the social liberal movements, the news is almost entirely bad.  The various “isms” peaked with single sex marriage and is currently falling apart in the conflict between feminism and transgender rights.  It is not that anyone is about to reverse the various equalities legislation and practice that already exists.  Rather, there is a growing body of evidence showing that today’s 18-35 year olds are more socially conservative than older age groups; the first time since World War Two that a generation has been more socially conservative than its parents.  As the population becomes more socially conservative, the scope for further social liberal reforms disappears.

The good news can be found on the economic front, where younger voters are far more supportive of some form of “mixed economy” than their parents.  The days of more economic liberalism via market deregulation and unfettered competition are also coming to an end; as a majority of the electorate looks for improved public services, public ownership of key utilities and greater state intervention in the economy.

This, at least in part, explains the current collapse of existing centrist parties since most are aligned to be liberal or conservative on both social and economic questions.  As a result, where they win on one set of issues, they lose on the other.  Only when the existing parties form new (either internal or external) coalitions can they hope to return to stable government.  As Blyth argues:

“I think you’ve got to start from scratch. When I had to give a speech at the SPD [Stiftung] in 2016 I said: ‘You are two electoral cycles from extinction.’ And I think I was exactly right. You might get three. But they’re dead. So there’s no point in trying to renovate something that’s dead.

“What you can do is you can do what Corbyn did, although he’s not doing much with it, which is to take the dead husk of the Labour Party, in a kind of free-leveraged buy-out—take it over, build a whole new membership and then run it from the inside out. Until you assemble [in Germany] some kind of red-red-green coalition, you’re not going to stand in the way of the nationalists [in Alternative für Deutschland].”

The mistake made by the political left in the 1980s was to believe that there was a route back to the good old days of the post-war boom.  As a result, they fought on ground that no longer existed in the face of a baby boomer generation that shared the political right’s belief in economic liberalism.  Rather than setting the agenda, they were manoeuvred by Thatcher and Reagan into responding to the agenda of the neoliberal right.  Under the leadership of Michael Foot (1983) and Walter Mondale (1984) we witnessed the culmination of that effort – massive victories for Thatcher and Reagan that reset the economic and social system for a generation.  The parties of the left only returned to power when they had severed their ties with organised labour and adopted a platform that accepted and built upon the right’s neoliberalism.

In 2008 we saw the economic death of that duality – during which it made little difference which party you voted for – and in the depression that followed we finally saw the malcontents become a majority of the electorate.  In 2016, it was the right wing populists that succeeded at the polls; but they haven’t secured a new consensus yet.  They will, however, if the political left continues to operate along pre-2008 lines.

The task before us is to come up with a new medicine to cure the side effects of Thatcher’s neoliberal superbug now that it is threatening to destroy its host.  Whatever the new medicine is, it will have to fight two new crises – energy and resource depletion, and environmental collapse – in addition to the growing deflationary economic collapse.  Ironically, a new nationalism might prove more effective at taking action than the current globalised response in which everyone talks a good fight but nobody actually does anything.

One thing I am certain of is that the economy of the future is going to be far less material and far less consumptive than the economy of today.  Look around you at people living in ex-industrial and inner-city regions and getting by on the minimum wage or less and you are looking at the economy of the future.  Exactly what the politics of that future is going to be is currently a moot point… we have to get past all of the Green New Deal and Modern Monetary Theory nonsense first.  But the one thing I am sure of is that unless we can develop a more egalitarian politics to fairly share the burden of falling net energy and a decaying environment, we are likely to find ourselves ruled over by right-wing strongmen who will make Trump and Johnson look like benign saints.

As you made it to the end…

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