In whose interest? The need for a new economics.

The global financial crisis shook the global economy in 2007/2008 and its fallout can still be felt in the form of high unemployment, permanent austerity and wage stagnation. In the immediate aftermath, many started to question the neo-liberal assumptions about the benefits of the ‘free market’. Had it not been the deregulation of financial markets and here in particular the financial markets in the US, which had caused the crisis in the first place? And yet, almost ten years later, neo-liberal economics continues to reign supreme. In this blog post, I will assess the strange non-death of neo-liberal economics and its implications for the politics of the British Labour Party under Jeremy Corbyn and John McDonnell.

The failure of neo-liberal economics?

Neo-liberal economics has clearly failed as the example of Greece demonstrates. Despite the imposition of one austerity programme after another including the privatisation of national assets, deregulation of the labour market and public sector cuts, the country remains in dire economic difficulties. Unemployment has reached 23.5 per cent with youth unemployment above 50 per cent and 37 per cent of the Greek people are estimated in risk of poverty and social exclusion, being unable to make ends meet (The Observer, 8 April 2017).

Countries outside the Eurozone crisis have not fared much better. In the UK, despite austerity policies since 2010, the national debt has increased from £1 trillion in 2011 to £1.7 trillion in March 2017 and is estimated to reach 1.83 trillion in March 2018 (UK Public Spending). The Conservative government, constantly reminding austerity weary citizens that bringing down the national debt is the most important objective, could not fail more clearly. At the same time child poverty is at the highest level since 2010 (The Guardian, 16 March 2017) and the usage of food banks stands at record levels (The Independent, 26 April 2017). Again, how is this continuing focus on neo-liberal economics possible considering its so obvious failure?

Photo by Walt Jabsco

Nevertheless, what if it is not a failure after all? Of course, in terms of inequality in society, rising social deprivation and mounting national debt, in other words in terms of the general national economy and a distribution of wealth along principles of social justice, it is a failure. But perhaps neo-liberal economics has never been about a successful and fair national economy? I argue that we need to understand the class interests underpinning neo-liberal economics, if we want to understand its non-death.

Against the background of the global economic crisis, there are enormous amounts of private capital sloshing around in the system in a desperate search for profitable investment opportunities. Some estimate that this private finance amounted to $1.73 trillion in 2015 alone. Understood from the perspective of capital, austerity in countries such as Greece and the UK has not been a failure. On the contrary, it has allowed capital to open up the public sector for private investment. Be it airports or the port of Piraeus in Greece, be it parts of the National Health Service in the UK, capital has used the economic crisis in order to force countries to privatise national assets. Neo-liberalism has not been a failure for capital, securing super profits in times of economic crisis. It should be no surprise that in these circumstances capital and its bourgeois parties in power are reluctant, if not unwilling, to move beyond neo-liberal economics. But what about the centre-left, what about Social Democracy?

Social democracy in the 21st century: redistribution in good times. 

In the 2000s, Social Democratic, Labour Parties were in power in a number of countries around the world. The examples of the Brazilian experience under Presidents Lula and Rousseff as well as the UK under New Labour will provide some indication about Social Democracy’s success, but also limits. Against the background of a boom in export commodities, Brazil under the workers’ party made enormous efforts at limiting increasing inequality and moving people out of poverty. The Presidencies of Lula and Rousseff are marked by an increase in minimum wages and pensions, the introduction of the so-called Bolsa Família programme for 12 million families as well as significant levels of state investment in infrastructure projects. As a result about 20 million Brazilians have escaped poverty (The Economist, 30 September 2010).  

Gordon Brown and Lula da Silva, Photo by Downing Street

In the UK too, the New Labour governments of Tony Blair and Gordon Brown between 1997 and 2010 made a positive impact on poverty. They introduced the minimum wage, set up Sure Start programmes to help young children from disadvantaged backgrounds and significantly increased investment in health and education. In short, both Brazil and the UK are two examples of a major redistribution of income. Nevertheless, this income redistribution occurred in times of economic booms. More money was distributed to the less well off, but capital and its dominance over the economy was not challenged. As Peter Mandelson, one of New Labour’s key architects stated early on, ‘I am intensely relaxed about people becoming filthy rich, as long as they pay their taxes’ (Peter Mandelson, 1998).

Unsurprisingly, when economic recession hit, these social democratic gains were quickly denounced by capital and subsequently cut back. In the UK, New Labour was replaced by a coalition government of Conservatives and Liberals in 2010 ushering into a period of severe austerity policies. In Brazil, the centre-right removed Rousseff from power in 2016 in circumstances resembling a coup (BBC, 22 March 2016). Clearly, the redistribution of income without attacking capital’s role in the economy had not paid off.

Challenging Capitalism: working towards a new economics.

The lessons from these social democratic experiences are clear. There is a need of direct confrontation with the interests of capital. It is not enough to focus on redistribution without challenging the position of capital in society and the economy. It is in this respect, that the current Labour Party leadership in the UK around Jeremy Corbyn and John McDonnell are promising a change in direction. This is most clearly expressed to date in the Labour Party Manifesto of June 2017. Note the following statements:

‘We will take on the social scourge of tax avoidance through our Tax Transparency and Enforcement Programme’ (P.9). Here, the Labour Party makes clear that it will counter capital’s focus on super profits through tax avoidance.

‘Labour will … bring key utilities back into public ownership’ (P.19). Capital’s interest in profitable investment opportunities through the privatisation of public assets will be curtailed.  

‘Labour will reintroduce maintenance grants for university students, and we will abolish university tuition fees’ (P.43). Labour will, thus, put a stop to the marketization of Higher Education and make it again a public good, not an individual, private investment opportunity.

Moreover, Labour will directly attack capital’s power in the workplace by banning zero hour contracts and empower trade unions through the repeal of the Trade Union Act and a roll out sectoral collective bargaining. Additionally, it will raise the minimum wage to £10 an hour by 2020 (P.47).

‘The next Labour government will reverse privatisation of our NHS and return our health service into expert public control’ (P.69). Again, capital’s interest in profitable investment opportunities will be confronted head-on.    

The direct confrontation with capital was also confirmed by Jeremy Corbyn when he told  'Morgan Stanley it is right to regard him as a threat, after the investment bank warned its clients that a Labour government could pose as much of a risk to British business as Brexit' (The Guardian, 30 November 2017). The Labour Party is willing to take on the interests of capital in order to enable a more socially just society. 

The struggles to come

Capital will not simply accept these policies, if and when the Labour Party returns to power. Capital will not give up its profit interests without a fight. They will attempt to engage in investment strikes, move finance abroad, artificially create an economic recession. The experiences of the socialist government by Salvador Allende in Chile in the early 1970s can provide some guidance in this respect.

Hence, in order to ensure that the Labour government will actually be able to implement these ambitious policies, we cannot simply rely on a majority in parliament. We will have to continue with struggles at all levels, against job losses and pension cuts, against the privatisation of the NHS and for the implementation of the real Living Wage in order to support a future Labour government and change society much more fundamentally than a representative democratic government will ever be able to do on its own.


This blog post is based on a presentation I gave to the Mapperley branch of the Labour Party in Nottingham/UK on 15 November 2017. 

Andreas Bieler

Professor of Political Economy

University of Nottingham/UK

Andreas.Bieler@nottingham.ac.uk

Personal website: http://andreasbieler.net

9 December 2017