Friday, 19 June 2020

The Long March of State Neoliberalism

Whenever neoliberalism is defined it is invariably equated with the osmosis of the ‘untrammelled free market’ into ever more areas of life.

One of neoliberalism’s intellectual originators – Friedrich Hayek – made the hugely influential claim that people (and by extension their political representatives) could never know enough to plan or intervene in the economy. A person’s knowledge was limited to “their own small circle” and the things which were important to them, which only they knew. Because knowledge was never available to people “in its totality”, attempting to direct the economy in certain ways or favour some economic entities over others was dangerous and inimical to the limited sphere of freedom people truly possessed.

The consequence of these assumptions was that only the free market could guarantee liberty. The only genuine choices people could make were to do with buying and selling because they concerned matters and desires that only they knew about. If markets were left alone and the price mechanism remained unregulated, the economy would achieve ‘equilibrium’ and people would receive what they wanted and were due.

These ideas have played a massive role in constructing the world in which we now live, in areas as diverse as electricity provision, financial services, corporate mergers and takeovers and the housing rental market (to name a few). The job of government was restricted to setting markets up and getting them running. Beyond that the state should get out of the way. It cannot, according to Hayek, know more than markets do. And while individuals within markets can make mistakes, markets as a whole – because they are an agglomeration of individually optimal choices – cannot be wrong.

Thus democracy – which is, in essence, about the ability of people to understand the world and act on their desires – should be heavily constricted. Indeed, we can be sure that had representative government and a universal franchise not already existed, neoliberals would not have invented them and would have opposed any attempts to create them – as their 19th century forebears in fact did.

This ‘market fundamentalism, as many have noticed, requires a stronger state than the ‘night-watchman’ state of neoliberal yore. The state must not only enforce private property rights but also banish outside interference with markets. In practice, in the US, Britain and elsewhere, this meant destroying the power of the trade unions. Although voluntary, not statutory, organisations, trade unions distorted markets by intruding on their natural operations – by, for instance, insisting people were paid more than they were worth in ‘market terms’. The Conservative party in Britain, which under Thatcher became a truly Hayekian organisation, dutifully destroyed the power of trade unions.

However, the state as an entity never went away, and as the Covid-19 crisis has shown it has proved more important to neoliberalism than few can have imagined.

How low can you go?

The 2008 financial crisis was a major turning point. Not only did governments use their power to bail out banks and corporations – which under the law of the free market should have vanished – they instituted a regime of ultra-low interest rates. At these historically unprecedented levels – never going above 1% – they have two important effects. Firstly, they preserve insolvent, hugely indebted companies by reducing the amount of interest they have to pay on their debts. This is the polar opposite of the approach of the Hayekian Thatcher to manufacturing industry in the Britain in the early 1980s. She hiked interest rates – up to 15-17% – as a way of driving trade union-heavy manufacturing industry to the wall.

Secondly, they make any recovery of the private sector extremely difficult. Just as they make debts more affordable, ultra-low interest rates discourage investment by ensuring the financial return on advanced money is negligible (the tiny official bank rate was reflected in nominal interest rates in the economy as a whole and Quantitative Easing programmes made sure they stayed low). But in these circumstances, private companies naturally eager to make profits had somewhere to turn – the government.

The two phases of privatisation

In this they took advantage of the historic process of privatisation, which aside from the onslaught on trade unions and deregulating the economy, was the main way neoliberalism was implemented. In Britain, the “great divestiture” of privatisation had two distinct phases. In its early years privatisation was about simply transferring ownership of industries from the state to the private sector. In this way, companies like Jaguar, BP, Cable & Wireless, Rolls Royce, British Steel and even Thomas Cook were denationalised and had to sink or swim in the private sector. While some survived, others were taken over, heavily denuded (British Steel) or went bust – as was the fate of Thomas Cook last year.

But privatisation soon became much more ambitious. From the mid-1980s until now, it has been primarily about contracting out monopoly services from the state to the private sector. The (very long) list includes utilities (water, electricity etc.), railways, academy schools, NHS contracts, air traffic control, the Royal Mail, local authority outsourcing and care homes. Very often these services were funded – and continued to be funded – by the government and, most importantly, could not be allowed to cease to exist.

This very conditional privatisation was actually very welcome to the large companies that won the contracts to provide these services. They were anything but free markets zealots and were very glad for a guaranteed profit stream in the context of private sector torpor. As noted by health campaigner Allyson Pollock some years ago in terms of NHS privatisation, “the private health care industry is not interested in a purely private market. Its interests lie in becoming for-profit providers in a basic health system funded out of taxation.” An insight that could be applied across the board of modern privatisation.

Hence, Britain has seen the grown of private companies – such as Serco or Capita – that specialise in delivering public services. Potentially everything in the public sector – GP services, benefit assessments, prisons, school inspections, speed cameras, nuclear laboratories, early warning systems and even the operation of spy planes – was open to being run by the private sector on a contract basis.

The hollowing out of the state in the name of putative private sector efficiency and ‘sound management’ (ho, ho) has occurred across the world. A 2004 profile of Lockheed Martin in the New York Times noted:

Lockheed Martin doesn’t run the United States. But it does help run a breathtakingly big part of it. Over the last decade, Lockheed, the nation's largest military contractor, has built a formidable information-technology empire that now stretches from the Pentagon to the post office. It sorts your mail and totals your taxes. It cuts Social Security checks and counts the United States census. It runs space flights and monitors air traffic.

In one sense, this was from the point of view of neoliberals – a welcome development that flowed naturally from the thinking of pioneers like Hayek: the state was creating and protecting markets. But in other ways, it had unforeseen consequences. Large oligopolies hoovered up contracts – far from competition letting a thousand flowers bloom, three or four companies – at most – reigned supreme. Competition, in the idealised vision of Hayek, meant “decentralised planning by separate persons”, but in no sense can the actually existing privatised state be described as decentralised or involving people, as opposed to large corporate entities. Only big companies had the resources to bid for government contracts and public sector monopolies – the object of neoliberals’ enduring enmity – became private sector oligopolies.

Secondly, democracy or government – the very thing neoliberals wanted to restrict and limit in its ambitions – was essential to the whole process of privatisation. Closeness to government was essential to winning contracts and a revolving door between the private sector and elected institutions and the civil service span permanently. This was an open door for corruption and a distortion of democracy but it was of no interest to neoliberals who were unconcerned about the distortion of something they didn’t like in the first place.

They were however concerned about the private sector and this became, thanks for the ultra-low interest rate regime, equally distorted. It is not a widely known fact the Austrian school of free market economics (of which Hayek and fellow neoliberal, Ludwig Mises, were the most prestigious members) was intensely distrustful of low interests rates because it holds them responsible for causing economic slumps (see the musings of former Tory and UKIP MP Douglas Carswell for a 21st century version).

But although low interest rates potentially increase the amount of money circulating in the economy and make life easier for insolvent companies by reducing the interest of their debt, they make it difficult to make a profit on investments because the returns on offer are so low. The alternative is either to go for riskier private sector investments or to seek the security of government contracts which often offer double digit returns.

Since the financial crisis interest rates in Britain have never gone above a half of one per cent and, since the coronavirus lockdown, have been cut further – to 0.1%. This situation – in conjunction with the Hayekian ideology of successive Conservative governments – goes a long way to explaining the incompetence of the public response to the virus.

Useless and lethal

What was demanded was a smooth and joined up public health response, involving local councils, that prioritised above all else the needs of health workers and patients. What actually happened was a labyrinthine mess of competitive tendering and outsourcing which awarded contracts to large companies, like Deloitte and Serco that had no expertise in what they were supposed to do. The result, apart from “cementing the position of the private sector in the NHS supply chain”, has been a test and trace system that won’t be “fully operational” until September and a “useless” system of delivering PPE to NHS staff. The deaths of hundreds of NHS and care workers from the virus, many of them avoidable with proper PPE, as well as the highest excess death rate in Europe – in part the consequence of inadequate or non-existent PPE allowing the virus to spread in hospitals – cannot be divorced from this farrago.

But this is likely to merely be a trial run for what is in store. Against the backdrop of a huge fall in GDP of over 20%, the worst projected economic downturn of all major economies and mounting unemployment, the government will almost certainly proclaim a jettisoning of ‘ideological presumptions’ and commit to an interventionist, state-driven economic policy. A ‘green industrial revolution’ will be announced, aiming to create jobs and reskill millions of people.

Such a policy might even appear ‘socialist’ – a green industrial revolution was obviously the centrepiece of Labour’s offer at the last election – but the Conservative version will be careful to offer private companies profit-making opportunities at every stage of the process. It will be a like a souped-up version of the Work Programme. This can already be seen in the free school meal voucher scheme – the one extended over the summer holidays after the campaign by Marcus Rashford. A corporation – Edenred – is in charge of the scheme, not local councils. Astonishingly, the same company has been accused of “woeful” preparation and failing to send out vouchers to hundreds of thousands of parents who need them.

Facile comparison

This is why equating the current actions of the Conservatives in Britain with the policies of Corbyn’s Labour at the 2019 election is facile. The superficial resemblances – increased public spending, train nationalisation, a green industrial revolution – betray fundamentally antagonistic philosophies.

This is not a question of one being enthusiastically statist and other reluctantly so. It is matter of the Conservatives being committed to constructing a statist shell underneath which a privatised bevy of oligopolistic corporations running contracted out services are permitted to make a level of profits which the fêted free market can no longer provide. Some ‘Corbynite’ policies, such as a ‘national care service’ and ensuring 100% high speed broadband, would, it is true, have supplied a statist stimulus to the private sector. But others such as renationalising the NHS and utilities like water and electricity would have repealed the decades-long neoliberal hollowing out of the state.

But this, as we know, will not happen. Instead state neoliberalism, its intellectual roots now long forgotten, will continue its long march.


Tuesday, 12 May 2020

The Undrowned World

It is predicted that, because of the coronavirus pandemic, 2020 will be the first year since the Second World War that global GDP falls. Output in so-called ‘emerging markets’ is forecast to drop by 1.5%, the first decline since records began in 1951. Two billion people – a quarter of the world’s population – are living under lockdown of some kind. According to the former chief economist of the IMF, global trade and commodity prices are experiencing a 1930s-style collapse.

In ‘developed’ economies the picture is no different. There are 33 million unemployed people in the US, over a fifth of the workforce. The European Union is undergoing a more severe economic contraction that the US, “the deepest economic recession in its history” according to the European Commissioner for the economy. While Britain faces the worst economic recession for over three centuries.

And yet despite an economic downturn of unparalleled dimensions, the world is only just about on course to deliver the carbon emission reductions necessary to keep within 1.5 degrees of warming, the level identified by the IPPC as the ceiling above which massive crop failures, inundation of cities, huge refugee flows etc. become inevitable.

Carbon emissions, forecasts the International Energy Agency, are set to drop by just under 8% in 2020 (they were flat in 2019).This will be the largest ever fall in CO2 emissions. By a fortuitous coincidence, according to the UK website, Carbon Brief:

Global emissions would need to fall by some 7.6% every year this decade – nearly 2,800MtCO2 in 2020 – in order to limit warming to less than 1.5C above pre-industrial temperatures

But this benevolent trajectory won’t last. Even if Boris Johnson’s reckless breaching of the lockdown is not imitated by other countries the lockdown will end, this year or next. Most people will eventually return to work even if many others won’t have jobs to go to and depression conditions – long-term low growth – ensue.

Lockdown cannot go on forever. It is true that economic recession need not – in fact often doesn’t – lead to higher mortality and suffering (recession followed by austerity does, however). Indeed, evidence suggests that people in Britain are welcoming the changes, such as cleaner air, that lockdown has produced. But the palpable benefits it produces – through the suspension of economic activity – indicates that this is not a normal economic crisis.

Invariably, in economic downturns, economic activity continues at a reduced level or the government steps into the breach, as it did in Great Depression America, and creates paid work. But in the coronavirus slump, whole economic sectors have been stopped in their tracks.  As Marxist economist, Michael Roberts, notes, this is not something that can continue in perpetuity, with governments – ideally – supplying the cash transfers to make sure no-one is destitute. In the absence of productive economic activity, governments cannot continue indefinitely inventing money based on debt – jobs will disappear and hyper-inflation will take hold.

In other words, the sustainable path the world has – quite by accident – found itself on, is not sustainable.

This is not an argument for scaling back the lockdown before it is safe to do so as is happening in the UK. Evidence from New York indicates that maybe a fifth of people have had the virus but herd immunity – the point at which the virus stops being transmitted – requires 60-70% of the population to have been exposed. Sending people back to work before that has occurred, or a vaccine developed, clearly risks many more people dying.

But it is an argument for acknowledging something. The fixation on economic growth that has, quite justifiably, been criticised as a form of insanity, masks something equally disturbing, and intractable – the dependence of the vast majority of people on that economic growth. Without it, under this economic system, jobs and livelihoods vanish.

This is quite apparent by looking at the UK, where over 16 million people have less than £100 in savings, but it is even more glaringly obvious by examining a country like India. In the country which was formerly the world’s fastest growing major economy, 90% of the workforce are thought to making a living in the ‘informal’ sector. Working as rickshaw pullers, baggage collectors and street vendors, amongst other occupations, these people are “daily wage earners” – if they don’t work, very soon they – and their families – don’t eat.

In the current circumstances, the need for direct cash transfers so people can survive – in India and the UK – is obvious. Indeed, basic income is not something exclusively for the developed world. Finland may have recently concluded that basic income improves mental and financial well-being, but the same was already true for India. A basic income pilot in the state of Madhya Pradesh between 2010 and 2013 reduced debt bondage and increased the confidence of the recipients.

But the world economy now confronts a quandary. In order to head off the most catastrophic effects of climate change, curtailment of economic activity – in addition to re-sourcing and clean technology – is necessary. The inadvertent coronavirus slump shows how radical it needs to be. But an indefinite lockdown – not even considering the restrictions on personal liberty – will have equally catastrophic economic effects, even if (a very big ‘if’ admittedly) people are supported through it by government spending.

Put simply, it is not possible to build a sustainable and equal society on top of an inactive capitalist economy. Something has to give. And building a just society on top of capitalism, albeit active capitalism, has been the default position of many supporters of basic income and modern monetary theorists.

Ultimately this is an argument for imagining what a ‘rational’ economy would look like. What would the contours of a post-capitalist economy be? How would it ensure that the dependence people have on economic growth taking place, and capitalism functioning well, is relieved so that the economy becomes genuinely sustainable? In dismantling the machine of capitalism, how would the social calamities of hyper-inflation and destitution be averted and how would public services be funded?

Sunday, 3 May 2020

Is there a Parliamentary road to social democracy?

In an alternative universe, the British Left would now be readying itself to fight the massed ranks of the establishment. Following Labour’s victory in the 2019 general election, the civil service, the military, the City of London, the CBI, the media, the judiciary, the Conservative party, a significant section of the Parliamentary Labour Party, even foreign governments would all see themselves as engaged in a life or death struggle to undermine the implementation of Prime Minister Jeremy Corbyn’s red-blooded socialist programme. Parliamentary coups, bureaucratic stalling, capital flight, manufactured economic crises, even military disobedience will all be on the agenda.

Parliamentary socialism would be put to the test just as it was under Harold Wilson’s governments of the ’60s and ’70s – just to seal the sense of historical continuity, Corbyn had a cat called Harold Wilson.

As we know now, none of this will happen. It isn’t necessary. Jeremy Corbyn was successfully undermined before he got to Downing Street. The irony that what has actually happened in the first months of 2020 is a level of public spending and economic intervention that Corbyn never dreamed of should be tempered by the realisation that none of it undermines the wealth or power of society’s elite – in fact it is likely to solidify it.

We are looking at two general elections where Corbyn’s chances were, possibly fatally, torpedoed by his own side. In 2019, Corbyn’s alleged personal responsibility for allowing antisemitism to run riot in the Labour party became, after Brexit, the issue of the campaign. It undoubtedly had an effect, likely cementing the popular sentiment that he should never be allowed to become Prime Minister. But it was an inversion of the truth.

However, the most revelatory and sobering aspect of the whole sordid affair is that all this effort was expended to stop a political programme that wasn’t even socialist.

It might seem semantic to point out the differences between democratic socialism and social democracy but they do exist. Whilst the former seeks changes in ownership and the disappearance of a small class of capitalist owners, albeit gradually, the latter is content with a mixed economy, some public ownership, regulation and a strong welfare state. Social democracy is a modus vivendi with capitalism.

Whilst it is true that Labour under Corbyn mulled over different forms of ownership, its political programme, expressed in the two manifestos of 2017 and 2019, never went beyond the boundaries of social democracy. This was expressed in renationalising utilities, ending NHS privatisation, raising corporation tax (to below what it was in 2010), ending the Work Capability Assessment, creating a Ministry of Labour, setting up a National Investment Bank and using the state to orchestrate an economy-wide shift to renewable energy. In terms of ownership, Labour went no further than promising that one-third of company boards be reserved for “worker-directors”, territory briefly occupied, but hurriedly vacated, by Conservative PM Theresa May.

In the context of four decades of neoliberalism in Britain, this platform was undoubtedly radical, certainly admirable, but it wasn’t socialism. In the words of conservative journalist Peter Oborne, Corbyn was “asking for nothing more drastic than a restoration of the social democratic settlement that prevailed in Britain between the end of World War II up to the rise of Margaret Thatcher in the 1980s.”

The two ‘Corbynite’ manifestos didn’t mention the word ‘socialism’ once – in contrast, for example, to Harold Wilson’s 1974 manifesto which proudly proclaimed its “socialist aims”. Even Evan Durbin, the intellectual leader of Labour’s right-wing in the 1940s, thought it axiomatic that Labour was a democratic socialism party that, once in power, would nationalise industries employing “one third of the wage-earning population”. Corbyn proposed no such thing.

That is why the idea, propounded by current shadow foreign secretary Lisa Nandy during the Labour leadership election, that Corbyn wanted to “nationalise everything” was such a lazy caricature.

One may wonder why Corbyn’s mellow social democracy provoked such a furious reaction, not only among Conservatives, but from his own side. My guess is that Britain’s political settlement, created by Margaret Thatcher and congealed by Blair, Brown and Cameron, has enticed so many powerful people onto the PFI-privatisation-outsourcing gravy train that even mild, post-war consensus leftism, was perceived as an existential threat.

But the elite rejection of the social democratic option will have consequences far beyond squashing the reluctant ambition of Jeremy Bernard Corbyn. The raison d’être of the Parliamentary Left since its beginnings in the late 19th century, has been that capitalism, by dividing society into those who own (lots of) property and those who don’t – a class society in other words – inevitably created discontents which have to ameliorated by government. If they aren’t, other lethal solutions – imperialism or Fascism for example – will step into the breach.

In the 1990s and early 2000s, it appeared as if this dilemma had been deftly sidetracked. Rising wealth and ever wider home ownership (the “patrimonial” capitalism of Thomas Piketty) could plausibly be seen as nullifying capitalism’s discontents. This inherent satisfaction might manifest itself in unattractive ways – turnout fell to 59% in the 2001 general election for example – but apathy, more politely ‘electoral fatigue’, was infinitely preferable to destructive social conflict.

Such apolitical complacency has been blown apart in the last decade. Merely because the beneficiaries have been, in general, the populist right rather than the Left, doesn’t mean that the sources of discontent – lower wages, worse employment conditions, vanishing opportunities for home ownership – are not real. It might be argued that, paradoxically, the driving forces behind right-wing populism come from asset-rich older generations, while younger cohorts often without property – the under-40s for example – are less prone to its allure.

However, this was always a simplification and ignores how Corbyn did better – nearly achieved power in fact – when he was an anti-establishment figure than when he tried to make peace with the neoliberal wing in his own party. More to the point, when the dust from covid-19 settles, the coming economic conditions will likely be more extreme than those of the 1930s’ Great Depression (which led to Nazism and world war). Mass unemployment, bankruptcies, evictions, depleted incomes, even greater concentration of economic power all call for a social democratic alternative just at the point when its British iteration at least has been banished to the shadows. Alternative Parliamentary ‘safety valves’ – the Liberal Democrats and also the Greens – are either discredited or hampered by a shallow marketing approach to politics, attempting to hoover up voters nobody else wants.

We may well come to see what John F. Kennedy meant when he berated those who make a peaceful revolution impossible.