The term “neoliberalism” refers to the political consensus which emerged out of the crisis of the 1970s. Although usually attributed to Thatcher in the UK and Reagan in the USA, its origins date further back, to the UK’s 1970 to 1974 Heath government. Its broad form is a return to the “laissez faire” economic policies of the early industrial revolution, but coupled to a new brand of social liberalism which began with the equalities legislation of the early 1970s… social policy which had little economic cost to the ruling classes.
Heath was scuppered as much by entrenched factions in his own Tory Party as by the trade unions and the opposition Labour Party. Indeed, if the February 1974 general election had been proportional, Heath would have won. But because of Britain’s electoral geography, Heath’s votes piled up in constituencies where they weren’t needed, while Labour pooled just enough votes to emerge with more seats – although not a majority. But after a brief and failed attempt to revive the corpse of the post-war social democratic consensus, Labour’s Jim Callaghan and Denis Healy began implementing the neoliberal foundations which would pave the way for Thatcher’s neoliberal revolution.
Although it is doubtful that any of those politicians had a detailed map with a clear end point, the essence of what they were doing was simple. Faced with a falling rate of productivity gains following the exponential growth between 1953 and 1973, the aim was to lower the single biggest cost centre in business and government… that is, workers’ wages! It is equally likely that they had no idea that it was really the rising energy cost of energy – the amount of the available energy we have to devote to securing useful energy for economic work – which had caused the slowdown. All they knew was that the rate of profit had fallen and that if they could lower the cost of labour, this would revive corporate fortunes.
In the early stages, social liberalism helped by creating a reserve pool of labour – increasing competition for jobs and thereby lowering the pressure on wages. After all, it made no difference to the growing corporations whether the workers they were exploiting were male or female, black, brown, or white. Indeed, once Thatcher had seen off the old reactionary Tories, they were even prepared to exploit gay, lesbian, and bisexual workers on equal terms too. And much later on, these divisions could be exploited to divide the workforce and distract from the fundamental flaws within the system.
Where productivity gains could still be made – especially in sectors of the economy which could benefit from computers and digital communications – businesses could continue to operate – and provide relatively high wages – at home. But whole swathes of manufacturing were offshored to regions of the world where wages were lower and environmental and employment regulation almost entirely absent. The result was a flood of cheap imports to replace the otherwise more expensive domestic manufactured goods.
This though, created a risk of under-consumption, as domestic incomes fell below that required to purchase those imported goods. The solution came in the form of debt. Not just personal debt, but national debt alongside the proceeds of a City of London Ponzi racket, itself founded on the dwindling revenues from North Sea oil and gas.
By the time Tony Blair arrived to cement the neoliberal consensus into place, the entire UK population was caught up in a mass delusion based on the quasi-religious belief that the value of property would increase forever… thereby ensuring that the old days of boom-and-bust cycles had been brought to an end.
But it was always really about energy. Energy – of which human labour is but a very very weak version – is the real source of profit… productivity being no more than applying technology to maximise work while minimising waste heat and pollution. What happened to Britain – and, indeed, the western states in general – was a massive hike in the cost of its primary energy – oil – following the peak of US production in 1970, and then the October 1973 OPEC oil embargo. It was this – not bolshy unions and Keynesian economic policies – which created the stagflation of the 1970s. And it was another oil shock – the Iranian revolution and the Iran-Iraq war – not Paul Volcker, which brought the inflation – but not the stagnation – to an end in the early 1980s.
But the energy problem never went away. Higher prices allowed previously too expensive oil deposits in the North Sea, the North Alaskan slope and offshore in the Gulf of Mexico to provide the western economies with one final energy pulse. These though, could never replicate the cheap and abundant oil which had powered the post-war boom. The energy cost of energy continued to rise, leaving ever less energy to power the wider economy, making growth and productivity ever harder to achieve.
This was – and is – the fundamental flaw in neoliberalism, and we are about to witness it bringing the house down. Until very recently, the cost of energy had born almost no relationship to the economic value it provides. A barrel of oil, for example, costing perhaps $40 but providing the equivalent power to four-and-a-half years of human labour. Indeed, even the big price increases seen since the lockdowns ended are barely a fraction of the value we derive from energy.
This brings us to one of those great human flaws – our inability to process time. Our tendency is, for example, to blame the incumbent government for everything that goes wrong while they are in office. But in human systems, crises can take decades to be realised (although this shouldn’t excuse short-term idiocy of the kind which has become all too common these days). Because falling real wages were mitigated to some extent by government and private debt and by what we might regard as a North Sea bonus, it is only really since 2005 – when we became a net importer of oil and gas – and 2008 – when the City of London Ponzi racket was put on life-support – that the consequences of becoming an import-dependent, low-wage economy have begun to come home to roost.
The entire neoliberal project was based on the wrong assumption that economic growth – which neither economists nor politicians understood – could continue forever. When businesses borrowed to invest in productivity improvements (or, in the case of privatised monopolies, to pay huge and unearned dividends) the assumption was that they would grow to have sufficient income to repay the debt with interest. The same was true of ordinary households when they took out mortgages on increasingly expensive housing. But most damagingly, it was true of governments – local and national – when they borrowed against the anticipated higher tax base of the future.
The downside though, was evident from the very beginning. We didn’t call them “the precariat” in the early 1980s, but they were there just the same. The millions of people across ex-industrial and rundown seaside Britain whose reasonably well-paying jobs had been destroyed or offshored by the Thatcher government, and whose only alternative – particularly in the northern and western regions of the UK – was low-paid, part-time, and insecure work punctuated by periods of falling back on an ever more punitive social security system. Even during Blair’s all to brief debt-based boom, this precariarity grew, spreading into formerly prosperous small-town Britain too. Indeed, in the wake of the 2008 crash, the remaining prosperity had retreated to the still affluent suburbs of the top-tier university towns.
We see it in the data, in the growing disparity between profits and wages, and in the increasingly unequal distribution of incomes across the population:
This is often summarised in the anecdote about how in the 1960s, a semi-skilled worker could afford to buy a house, feed a family, run a car, and take an annual holiday. Today a semi-skilled worker can barely afford the rent on a small bedsit, cannot hope to raise a family, depends upon state benefits to put food on the table, and cannot even dream of a holiday.
In the last decade or so, the continuing crushing of wages has undermined the two means by which neoliberal governments have sought to hide unemployment. The first – and most pernicious – was the expansion of higher education under the false promise that a degree was a passport to a higher income (as opposed to the reality of grade inflation). While this is still true of a handful of profession-related degrees and certain science and technology sectors, for the most part, the expansion of higher education was a means of getting young people off the unemployment lines while getting them to pay for their own social security via student loans. The second – real – employment revolution was the massive expansion of the low-paid retail and hospitality sectors. In those parts of the UK which continued to prosper, the high street became the main source of employment either in services like insurance, banking, and law or in retail outlets selling the imported goods from offshored manufacturers… again, all of it floating on a mountain of debt which, in turn, was floating on the sea of oil and gas arriving from the North Sea.
Less obviously though, the state itself had also become dependent upon this structure to provide the tax base to enable its borrowing. This is something that most people – including politicians and economists (perhaps wilfully) – get wrong when they assume that governments have to raise taxes before they can spend. The opposite is true. Sovereign governments can – but mostly choose not to – print their own currency at will. Most often though, they simply borrow it into existence by issuing bonds (known as “gilts” in the UK). And this has to be done when an importing government – like the UK – needs to raise dollars to fund its international trade deficit. The projected tax income over the course of the loan determines how much the state can borrow and at what rate of interest. That is, tax comes at the end of the process rather than the beginning.
But here’s the central flaw, in a system designed to increasingly impoverish the working population, the projected future tax take is going to be wrong simply because we will reach a point where taxes are unaffordable no matter how many new schemes local and central government invent in order to fleece people. As we saw in my last post, the antiquated local business rates, coupled to various unofficial taxes – like those on congestion and vehicle emissions – have even crushed the once prosperous retail centre of London, which is now well on the way along the same process of decline seen in ex-industrial and rundown seaside Britain. And with the global recession and Britain’s particular housing crisis just beginning, the scope for raising further taxes – and thus the credit worthiness of the state itself will be declining just at the point where demand for state support is growing.
This too, is where we commonly mis-imagine the process of civilisational collapse. All too often we reach for those two violent examples – the French and Russian revolutions – assuming that some form of popular revolt will signal the end of the system. But these are rarities. More commonly, the people upon which the system ultimately rests simply walk away. In depression-scarred western economies like the UK, this will most likely involve people acquiescing in their precariarity and no longer being able to afford anything more than the most basic essentials – and certainly lacking the income to afford local and national taxes. At the same time – as we are already seeing in retail and hospitality – business owners will simply walk away, with those investors who can, leaving the country entirely. And as this collapse accelerates, the bond market will collapse too as international investors – mainly institutions – realise that there is no possibility of their loans being repaid. No doubt what remains of the state will print its own currency, but in an import-dependent economy like the UK, this can only fuel inflation, and likely leave us falling back on the small fraction of food, energy, and goods which we can produce domestically… and nowhere near enough to sustain 70 million of us.
To be clear, this is not – or at least not primarily – about which government happens to be in office. In the UK, a new Labour government – the most likely outcome of next year’s election – will make little difference to how the crisis unfolds. Indeed, it is likely that the scale of the crisis will cause them to tear-up their manifesto commitments within months. A non-neoliberal government – which the current system makes impossible – might make some difference around the edges – for example, subsidising critical industry like steel, beginning to re-shore some key manufacturing, and encouraging more domestic food production – but these require time, and we are too far into the crisis to avoid widespread hardship.
This raises the more profound question of whether we should fight against or embrace the unfolding collapse? Clearly our increasingly bankrupt ruling classes will fight tooth and claw to hang onto their wealth and power, and will continue to encourage division and conflict among the rest of us in service of this aim. But since the origin of the crisis lies in the rising energy cost of energy, the outcome will be the same – albeit that we might otherwise arrive there with a little less bloodshed and premature death.
There are those – deluded to some extent by the ruling elite’s sole focus on global warming – who believe that to prevent unborn people facing the potential horrors of runaway warming in the next century, we should engineer the premature deaths of some seven eighths of the current population in the vain hope that those remaining – which inevitably includes the global billionaire class – will somehow not continue to undermine the environment (good luck with that). A more humane approach is what I have referred to as a “brown new deal” in which we use the remaining fossil fuels in two ways. First – and for most of us – we use them to scale back our economic activity along with our impact on the planet, while maintaining as much as we can of our local life-support systems – food, clean water, sewage recycling, essential manufacturing, basic healthcare and education – accepting that barring an energy miracle, these will likely have to revert to levels seen in the less energetic economies of the past – ideally the 1950s or perhaps the 1930s.
The second process – involving the tiny fraction of humanity which is capable of disruptive thinking in the science and engineering of energy – is to invest in the outside possibility that an energy miracle might still be possible. This is difficult to see, since such a miracle would require the development of an energy source which has three key properties… it must be:
- More energy-dense than fossil fuels
- Sufficiently abundant to grow the post-crisis economy
- Cheap enough to liberate most of the population from energy and food production.
This rules out the non-renewable renewable energy harvesting technologies (NRREHTs) which in any case cannot be manufactured, transported, deployed, or maintained without the use of fossil fuels at every stage. Nuclear power as we currently understand it, might qualify on energy-density grounds – it is orders of magnitude more powerful than oil or coal – but it currently fails on abundance – there is not enough uranium to go around – and cost grounds. In theory, thorium could solve these problems as it is widely available and – under the right conditions – will decay into fissionable uranium… except that nobody knows how to do it at scale and within budget… which is why we need to deploy our best minds at precisely this kind of problem.
This is where, perhaps, there is a slight glimmer of hope, as suggested by energy expert Vaclav Smil:
“Substantial investment is needed to develop the extensive infrastructure needed to extract (or to harness) new energy sources, to transport (or transmit) fuels and electricity, to process fuels, and to mass-manufacture new prime movers. In turn, the introduction of these new sources and prime movers elicits clusters of gradual improvements and fundamental technical innovations. Schumpeter’s (1939) classic account of business cycles in industrializing Western countries showed the unmistakable correlation between new energy sources and prime movers, on the one hand, and accelerated investment on the other:
It is just – although only just – possible that the reason our energy predicament looks so intractable at this point is that we can only view it from within the neoliberal framework of a collapsing system. And we cannot solve a crisis with the mindset which created it. It is also likely that we can only escape the current techno-psychotic denialism of our ruling death cult when the full extent of the real crisis becomes obvious to all. And insofar as we are bound to spend some of our remaining sources on something, allocating a relatively small proportion to developing realistic ways of avoiding or at least mitigating a potentially catastrophic collapse is surely worth doing, even as the majority of us are forced to engage in salvaging what is possible of our current life support systems.
As you made it to the end…
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